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Registration No. 33-65870
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 5
TO
FORM S-6
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SELECT*LIFE VARIABLE ACCOUNT
(Exact Name of Unit Investment Trust)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(Name of Depositor)
Robert B. Saginaw, Esquire
Northwestern National Life Insurance Company
20 Washington Avenue South
Minneapolis, Minnesota 55401
(Complete Address of Depositor's Principal Executive Offices)
____________________________
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on April 30, 1996 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on (date) pursuant to paragraph (a) of Rule 485
Registrant has chosen to register an indefinite amount of securities in
accordance with Rule 24f-2. The Rule 24f-2 Notice of Registrant's most recent
fiscal year was filed on or about February 23, 1996.
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SELECT*LIFE VARIABLE ACCOUNT
CROSS REFERENCE SHEET
(Reconciliation and Tie Sheet)
Item Number of
Form N-8B-2 Heading in the Prospectus
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1 Cover Page
2 Cover Page
3 Not Applicable
4 Distribution of the Policies
5 Northwestern National Life Insurance
Company 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; Sales
Charge Refund; 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; General Provisions;
Distributions of the Policies
15 Payment and Allocation of Premiums;
Investments of the Variable Account
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Item Number of
Form N-8B-2 Heading in the Prospectus
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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 Northwestern National Life Insurance
Company
26 Not Applicable
27 Northwestern National Life Insurance
Company; Other Contracts Issued by Us
28 Management
29 Northwestern National Life Insurance
Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Not Applicable
36 Not Applicable
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Item Number of
Form N-8B-2 Heading in the Prospectus
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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
44 Investments of the Variable Account;
Payment and 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 Northwestern National Life Insurance
Company; 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
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Item Number of
Form N-8B-2 Heading in the Prospectus
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58 Not Applicable
59 Financial Statements
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20 Washington Avenue South
Minneapolis, Minnesota 55401
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FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
ISSUED BY
SELECT*LIFE VARIABLE ACCOUNT
OF
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
This Prospectus describes a flexible premium variable life insurance policy
(the "Policy") offered by Northwestern National Life Insurance Company ("we",
"us", "our"). This Policy is designed to provide lifetime insurance protection
up to Age 95, provided 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 under the Policy (including the cost of
insurance and certain administrative charges). It also is designed to provide
maximum flexibility in connection with premium payments and death benefits by
giving the Policy owner ("you", "your") the opportunity to 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.
The Policy provides for a death benefit payable at the Insured's death. As
long as the Policy remains in force, the death benefit will never be less than
the current Face Amount less any Policy loans and unpaid charges. The minimum
Face Amount of the Policy is currently $150,000 for issue ages 0 through 44 and
$100,000 for issue ages 45 through 75. The Face Amount may be increased, subject
to certain limitations, provided that the increase is not less than $5,000.
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 for five Policy Years for
issue ages 0 through 59, and four years for issue ages 60 through 75, 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").
Net premiums paid under the Policy are allocated, according to your
instructions, either to the Select*Life Variable Account (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 the shares of one of the five
portfolios of the Variable Insurance Products Fund, in one of the four
portfolios of the Variable Insurance Products Fund II, or in one of the two
funds available through the Northstar/NWNL Trust or in one of six funds
available through Putnam Capital Manager Trust (the "Funds"). The accompanying
prospectus for each of the Funds describes the investment objectives and
attendant risks of each of the Funds and portfolios.
(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.
THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE. IT IS VALID ONLY WHEN
ACCOMPANIED OR PRECEDED BY THE CURRENT PROSPECTUSES OF THE FUNDS.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1996.
N700.181c
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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, and the charges
and deductions assessed in connection with the Policy.
The Policy provides for two types of "free look" periods, one after the
issuance of the Policy and the other after any requested increase in the Face
Amount. See "Free Look and Conversion Rights -- Free Look Rights".
THE CHARGES IMPOSED UPON EARLY SURRENDER OR LAPSE WILL BE SIGNIFICANT. FOR
EXAMPLE, IF YOU MAKE PREMIUM PAYMENTS NO GREATER THAN THE MINIMUM MONTHLY
PREMIUM 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. ALSO, CHARGES IMPOSED
UPON SURRENDER OR THE LAPSE OF THE POLICY WILL USUALLY EXCEED THE ACCUMULATION
VALUE OF THE POLICY DURING THE EARLY POLICY YEARS, WHICH MEANS THAT PAYMENTS
SUFFICIENT TO MAINTAIN THE DEATH BENEFIT GUARANTEE WILL BE REQUIRED TO AVOID
LAPSE DURING THIS PERIOD OF TIME. THESE SAME CONSIDERATIONS APPLY AFTER A
REQUESTED INCREASE IN FACE AMOUNT, WHICH CREATES THE POSSIBILITY OF ADDITIONAL
CHARGES UPON SURRENDER OR LAPSE OF THE POLICY. SEE "PAYMENT AND ALLOCATION OF
PREMIUMS -- AMOUNT AND TIMING OF PREMIUMS", "DEATH BENEFIT GUARANTEE", AND
"DEDUCTIONS AND CHARGES -- SURRENDER CHARGE".
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 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY.
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.
THIS ENTIRE PROSPECTUS SHOULD BE READ TO COMPLETELY UNDERSTAND THE POLICY
BEING OFFERED.
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 OF A MUTUAL FUND.
2
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DEFINITIONS...............................................................6
PART 1. SUMMARY
How does the Policy compare to traditional life insurance?...............10
What is the Death Benefit?...............................................10
What flexibility do you have to adjust the amount of the Death
Benefit?................................................................10
What is the Death Benefit Guarantee?.....................................10
If the Death Benefit Guarantee is not in effect, what will cause the Policy
to lapse?...............................................................10
What is the Fixed Account?...............................................11
What is the Variable Account?............................................11
Who are the investment advisers of the Funds?............................11
What are the minimum and maximum premium payments allowed?...............11
How are premiums allocated to the investment options?....................11
What charges do we make against each premium payment?....................11
What charges do we make against the Accumulation Value?..................11
What charges do we make upon lapse or total surrender of the Policy?.....12
What is the value of the Policy if you surrender it?.....................12
Can you make partial withdrawals?........................................13
What are the free look and conversion rights?............................13
Can you transfer between the Sub-Accounts and/or the Fixed Account?......13
Can you borrow against the value of the Policy?..........................13
Are Death Benefit proceeds taxable income to the beneficiary?............13
Are Accumulation Value increases included in your taxable income?........13
Will exercising certain Policy rights have tax consequences?.............13
Who sells the Policies?..................................................14
PART 2. DETAILED INFORMATION
Northwestern National Life Insurance Company.............................14
The Variable Account.....................................................14
Performance Information..................................................14
The Policies.............................................................15
Death Benefit............................................................15
Death Benefit Options..................................................16
Which Death Benefit Option to Choose...................................18
Requested Changes in Face Amount.......................................18
Insurance Protection...................................................19
Change in Death Benefit Option.........................................20
Accelerated Benefit Rider..............................................20
Payment and Allocation of Premiums.......................................21
Issuing the Policy.....................................................21
Allocation of Premiums.................................................22
Amount and Timing of Premiums..........................................22
Planned Periodic Premiums..............................................23
Unscheduled Additional Premiums........................................23
Paying Premiums by Mail................................................23
Death Benefit Guarantee..................................................23
Accumulation Value.......................................................24
Deductions and Charges...................................................25
Premium Expense Charge.................................................25
Monthly Deduction......................................................25
Surrender Charge.......................................................26
Charges Against the Variable Account...................................29
Partial Withdrawal and Transfer Charges................................29
Reduction of Charges...................................................29
Sales Charge Refund......................................................30
Policy Lapse and Reinstatement...........................................31
Surrender Benefits.......................................................31
Total Surrender........................................................32
Partial Withdrawal.....................................................32
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Transfers................................................................33
Policy Loans.............................................................34
Free Look and Conversion Rights..........................................36
Free Look Rights.......................................................36
Conversion Rights......................................................37
Investments of the Variable Account......................................38
Fidelity's Variable Insurance Products Fund (VIPF):
Money Market Portfolio...............................................38
High Income Portfolio................................................38
Equity-Income Portfolio..............................................39
Growth Portfolio.....................................................39
Overseas Portfolio...................................................39
Fidelity's Variable Insurance Products Fund II (VIPF II):
Investment Grade Bond Portfolio......................................39
Contrafund Portfolio.................................................39
Asset Manager Portfolio..............................................39
Index 500 Portfolio..................................................39
Northstar/NWNL Trust (Northstar):
Northstar Income and Growth Fund.....................................39
Northstar Multi-Sector Bond Fund.....................................39
Putnam Capital Manager Trust (PCM):
PCM Diversified Income Fund..........................................39
PCM Growth and Income Fund...........................................40
PCM Utilities Growth and Income Fund.................................40
PCM Voyager Fund.....................................................40
PCM Asia Pacific Growth Fund.........................................40
PCM New Opportunities Fund...........................................40
Addition, Deletion, or Substitution of Investments.....................40
Voting Rights............................................................40
General Provisions.......................................................41
Benefits at Age 95.....................................................41
Ownership..............................................................41
Proceeds...............................................................41
Beneficiary............................................................42
Postponement of Payments...............................................42
Settlement Options.....................................................42
Incontestability.......................................................43
Misstatement of Age and Sex............................................43
Suicide................................................................43
Termination............................................................43
Amendment..............................................................43
Reports................................................................43
Dividends..............................................................44
Collateral Assignment..................................................44
Optional Insurance Benefits............................................44
Federal Tax Matters......................................................44
Policy Proceeds........................................................44
Taxation of Distributions..............................................45
Taxation of Policies Held by Pension and Certain Deferred Compensation
Plans.................................................................46
Taxation of Northwestern National Life Insurance Company...............46
Other Considerations...................................................46
Legal Developments Regarding Employment -- Related Benefit Plans.........46
Distribution of the Policies.............................................47
Management...............................................................47
Directors..............................................................47
Executive Officers.....................................................49
State Regulation.........................................................49
Massachusetts and Montana Residents......................................50
Legal Proceedings........................................................50
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Bonding Arrangements.....................................................50
Legal Matters............................................................50
Experts..................................................................50
Registration Statement Contains Further Information......................50
Financial Statements.....................................................50
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 - Maximum Contingent Deferred Sales Charges
Per $1,000 of Face Amount...................................D-1
Appendix E - Surrender Charge Guideline Per
$1,000 of Face Amount.......................................E-1
Fund Prospectuses
Fidelity's Variable Insurance Products Fund (VIPF):
Money Market Portfolio............................................VIP-1
High Income Portfolio.............................................VIP-1
Equity-Income Portfolio...........................................VIP-1
Growth Portfolio..................................................VIP-1
Overseas Portfolio................................................VIP-1
Fidelity's Variable Insurance Products Fund II (VIPF II):
Investment Grade Bond Portfolio.................................VIPII-1
Asset Manager Portfolio.........................................VIPII-1
Index 500 Portfolio.............................................VIPII-1
Contrafund Portfolio............................................VIPII-1
Northstar/NWNL Trust (Northstar):
Northstar Income and Growth Fund............................Northstar-1
Northstar Multi-Sector Bond Fund............................Northstar-1
Putnam Capital Manager Trust (PCM):
PCM Diversified Income Fund.......................................PCM-1
PCM Growth and Income Fund........................................PCM-1
PCM Utilities Growth and Income Fund..............................PCM-1
PCM Voyager Fund..................................................PCM-1
PCM Asia Pacific Growth Fund......................................PCM-1
PCM New Opportunities Fund........................................PCM-1
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5
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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 24 and
Appendix B.
AGE. The Insured's age at the last birthday determined as of the beginning of
each Policy Year.
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.
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE. A contingent deferred charge to
reimburse us for expenses incurred in issuing the Policy. The Contingent
Deferred Administrative Charge will only be imposed upon total surrender or
lapse of the Policy during the first 15 Policy Years and during the first 15
years following any requested increase in Face Amount. The sum of this charge
and the Contingent Deferred Sales Charge is the Surrender Charge. See
"Deductions and Charges -- Surrender Charge" at page 26.
CONTINGENT DEFERRED SALES CHARGE. A contingent deferred charge to reimburse us
for expenses relating to the distribution of the Policy. The Contingent Deferred
Sales Charge will only be imposed upon total surrender or lapse of the Policy
during the first 15 Policy Years and during the first 15 years following any
requested increase in Face Amount. The sum of this charge and the Contingent
Deferred Administrative Charge is the Surrender Charge. See "Deductions and
Charges -- Surrender Charge" at page 26.
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 Insured under either
Death Benefit Option will be reduced by any Loan Amount and any unpaid
Monthly Deductions. See "Death Benefit" at page 15.
DEATH BENEFIT GUARANTEE. A feature of the Policy guaranteeing that the Policy
will not lapse during the Death Benefit Guarantee Period 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. See "Death Benefit
Guarantee" at page 23.
DEATH BENEFIT GUARANTEE PERIOD. The Death Benefit Guarantee Period is the first
five Policy Years for issue ages 0-59 and the first four Policy Years for issue
ages 60-75.
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 16.
FACE AMOUNT. The minimum Death Benefit under the Policy as long as the Policy
remains in force. See "Death Benefit" at page 15.
FIXED ACCOUNT. The assets of Northwestern National Life Insurance Company 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 24 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 38.
INSURED. The person upon whose life the Policy is issued.
ISSUE DATE. The date insurance coverage under a Policy begins.
6
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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 corridor percentage of Accumulation Value on the Valuation Date
on or next following the date of the Insured's death. See "Death Benefit --
Death Benefit Options" at page 16.
LOAN AMOUNT. The sum of all unpaid Policy loans and unpaid interest due thereon.
See "Policy Loans" at page 34.
MINIMUM FACE AMOUNT. The minimum Face Amount shown in the Policy (currently
$150,000 for issue ages 0-44 and $100,000 for issue ages 45-75). The minimum
Face Amount after issue is currently $125,000 for issue ages 0-44 and $75,000
for issue ages 45-75.
MINIMUM MONTHLY PREMIUM. A monthly premium amount specified in the Policy and
determined by us at issuance of the Policy. The initial Minimum Monthly Premium
will depend upon the Insured's sex, Age at issue, Rate Class, optional
insurance benefits added by rider, and the initial Face Amount. A requested
increase or decrease in the Face Amount, a change in the Death Benefit
Option, or the addition or termination of a Policy rider may change the
Minimum Monthly Premium. The Minimum Monthly Premium determines the payments
required to maintain the Death Benefit Guarantee. See "Death Benefit
Guarantee" at page 23.
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.
MONTHLY DEDUCTION. A monthly charge deducted from the Accumulation Value of the
Policy. This charge includes the cost of insurance, the Monthly Administrative
Charge, the Monthly Mortality and Expense Risk Charge, and any charges for
optional insurance benefits. See "Deductions and Charges -- Monthly
Deduction" at page 25.
MONTHLY ADMINISTRATIVE CHARGE. A monthly charge to reimburse us for expenses
incurred in administering the Policy. This charge is part of the Monthly
Deduction. The amount of this charge is currently $8.25 per month and is
guaranteed not to exceed $12.00 per month. See "Deductions and Charges --
Monthly Deduction" at page 25.
MONTHLY MORTALITY AND EXPENSE RISK CHARGE. A monthly charge to compensate us for
certain mortality and expense risks we assume under the Policy. The Mortality
and Expense Risk Charge will be an annual rate of .90 of 1% (.90%) of the
Variable Accumulation Value of the Policy during the first 10 Policy Years.
During each Policy Year thereafter the charge will be an annual rate of .30
of 1% (.30%) guaranteed not to exceed .60 of 1% (.60%) for the duration of
the Policy. See "Deductions and Charges -- Monthly Mortality and Expense Risk
Charge" at page 26.
NET PREMIUM. The gross premium less a Premium Expense Charge deducted from each
premium.
NORTHSTAR. Northstar/NWNL Trust
Northstar Income and Growth Fund
NorthStar Multi-Sector Bond Fund
PCM. Putnam Capital Manager Trust
PCM Diversified Income Fund
PCM Growth and Income Fund
PCM Utilities Growth and Income Fund
PCM Voyager Fund
PCM Asia Pacific Growth Fund
PCM New Opportunities Fund
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 23.
POLICY, POLICIES. The 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.
7
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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, which is
guaranteed not to exceed 5.00% of each premium payment for the duration of the
Policy plus $2.00 per premium payment. The Premium Expense Charge is
currently 5.00% of each premium payment in Policy Years 1-10 and 3.00% of
each premium payment after the tenth Policy Year. The Premium Expense Charge
consists of a sales charge of 2.50% and a premium tax charge of 2.50%. We may
in the future also make a charge of up to $2.00 per premium payment to
reimburse us for the cost of collecting, and processing premiums. See
"Deductions and Charges -- Premium Expense Charge" at page 25.
RATE CLASS. A group of Insureds we determine based on our expectation that they
will have similar mortality experience.
SALES CHARGE REFUND. An amount designated as Sales Charge Refund may exist
during the first two Policy Years or during any 24-month period following a
requested increase in Face Amount. Any such Sales Charge Refund will be
applied to supplement the Cash Surrender Value so as to continue the Policy
in force for some months during either of these 24-month periods if there is
insufficient Cash Surrender Value to cover Monthly Deductions. The Sales
Charge Refund, if any, to the extent not so applied, will be refunded upon
total surrender of the Policy during either of these 24-month periods. See
"Sales Charge Refund" at page 30.
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. The Surrender Charge, consists of the Contingent
Deferred Administrative Charge and the Contingent Deferred Sales Charge. See
"Deductions and Charges -- Surrender Charge" at page 26.
SURRENDER CHARGE GUIDELINE. An amount used in calculating Sales Charge Refunds
(see "Sales Charge Refund" at page 30 and in calculating the sales charge on
requested increases in Face Amount (see "Deductions and Charges -- Surrender
Charge -- Contingent Deferred Sales Charge Calculation" at page 28). The
Surrender Charge Guideline will equal the amount obtained by dividing the
Face Amount or the amount of a requested increase, as the case may be, by
$1,000, and multiplying the result by the applicable factor from Appendix E.
The Surrender Charge Guideline factors included in Appendix E are based on
certain provisions of Rule 6e-3(T), adopted by the SEC.
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 the New York Stock Exchange is open for trading or any
other day on which there is sufficient trading in a Fund's portfolio securities
to materially affect the Unit Value in the corresponding Sub-Account. See
Appendix B.
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. Select*Life Variable Account, a separate investment account
established by us to receive and invest Net Premiums paid under the Policy. See
"The Variable Account" at page 14.
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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 corridor percentage of
Accumulation Value on the Valuation Date on or next following the date of the
Insured's death. See "Death Benefit -- Death Benefit Options" at page 16.
VIPF. Variable Insurance Products Fund
Money Market Portfolio
High Income Portfolio
Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
VIPF II. Variable Insurance Products Fund II
Investment Grade Bond Portfolio
Asset Manager Portfolio
Index 500 Portfolio
Contrafund Portfolio
WE, US, OUR. Northwestern National Life Insurance Company.
YOU, YOUR. The Policy owner 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.
9
<PAGE>
PART 1. SUMMARY
This is a brief summary of the Policy's features. More detailed information
follows later in this Prospectus.
HOW DOES THE POLICY COMPARE TO TRADITIONAL LIFE INSURANCE?
Like traditional life insurance:
- The Policy provides a guaranteed minimum amount of life insurance
coverage.
- As long as you meet the requirements for the Death Benefit Guarantee, your
Policy will remain in force during the Death Benefit Guarantee Period.
- You can surrender the Policy while the Insured is living and receive its
Cash Surrender Value.
- The Policy has a loan value.
- The Fixed Accumulation Value is guaranteed.
Unlike traditional life insurance:
- You choose where the Net Premiums for the Policy are invested.
- You may transfer existing values among the investment options.
- The Variable Accumulation Value may increase or decrease based on the
investment performance of the Funds you select.
- You choose between two Death Benefit Options.
- You choose the amount and frequency of your premium payments.
- After the second Policy Year, you can increase or decrease the Face
Amount.
WHAT IS 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 corridor percentage of Accumulation Value
on the Valuation Date on or next following the date of the Insured's death. The
Death Benefit under the Variable Amount Option is equal to the greater of the
Face Amount plus the Accumulation Value, or the corridor percentage of
Accumulation Value on the Valuation Date on or next following the date of the
Insured's death. See "Death Benefit".
The proceeds payable upon the death of the Insured under either Death
Benefit Option will be reduced by any Loan Amount and any unpaid Monthly
Deductions.
The Death Benefit 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.
Under certain circumstances a part of the Death Benefit may be paid to you
when the Insured has been diagnosed as having a terminal illness. See
"Accelerated Benefit Rider".
WHAT FLEXIBILITY DO YOU HAVE TO ADJUST THE AMOUNT OF THE DEATH BENEFIT?
After the second 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 may require additional evidence of insurability satisfactory to
us and will result in additional charges. See "Death Benefit -- Change in Face
Amount".
Generally, you may also change the Death Benefit Option at any time after
the second Policy Year. See "Death Benefit Option -- 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".
WHAT IS THE DEATH BENEFIT GUARANTEE?
During the Death Benefit Guarantee Period, 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".
IF THE DEATH BENEFIT GUARANTEE IS NOT IN EFFECT, WHAT WILL CAUSE THE POLICY TO
LAPSE?
The Policy will only lapse if the Cash Surrender Value plus any Sales Charge
Refund is less than the Monthly Deduction due and if a grace period of 61 days
expires without a sufficient payment. The
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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".
WHAT IS 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%. Interests in the Fixed Account
have not been registered under the Securities Act of 1933 nor is the Fixed
Account subject to the restrictions of the Investment Company Act of 1940. See
Appendix A, "The Fixed Account".
WHAT IS THE VARIABLE ACCOUNT?
The Select*Life Variable Account 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 related
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".
WHO ARE THE INVESTMENT ADVISERS OF THE FUNDS?
Fidelity Management & Research Company is the investment adviser of VIPF's
five portfolios and of VIPF II's four portfolios.
Northstar Investment Management Corporation, an affiliate of ours, is the
investment adviser of Northstar's two funds.
Putnam Investment Management, Inc. ("Putnam Management") is the investment
adviser of PCM's six funds.
WHAT ARE THE MINIMUM AND MAXIMUM PREMIUM PAYMENTS ALLOWED?
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"). We may choose not to accept a payment of less than $25.00.
We do, however, reserve the right to limit the amount of any payment and certain
maximum limits apply. We will return to you any premium paid to the extent that
total premiums paid, both scheduled and unscheduled, would exceed the current
maximum premium payments allowed for life insurance under Federal tax law. See
"Payment and Allocation of Premiums -- Amount and Timing of Premiums".
HOW ARE PREMIUMS ALLOCATED TO THE INVESTMENT OPTIONS?
You choose the premium allocation on the application. You can allocate
premiums to the Fixed Account and/or one or more Sub-Accounts of the Variable
Account. The initial allocation remains in effect for any future premium
payments until you change it. See "Payment and Allocation of Premiums --
Allocation of Premiums".
WHAT CHARGES DO WE MAKE AGAINST 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 guaranteed not to exceed 5.00% of each premium payment for the
duration of the Policy. The Premium Expense Charge is currently 5.00% of each
premium payment in Policy Years 1-10 and 3.00% of each premium payment after the
tenth Policy Year. The Premium Expense Charge consists of a sales charge of
2.50% and a premium tax charge of 2.50%. Although we do not currently do so, we
may choose to make an additional charge of up to $2.00 per premium payment as
part of the Premium Expense Charge to reimburse us for premium processing
expenses. See "Deductions and Charges -- Premium Expense Charge".
WHAT CHARGES DO WE MAKE AGAINST THE ACCUMULATION VALUE?
The Accumulation Value of the Policy is subject to several charges -- the
Monthly Deduction and transfer and partial withdrawal 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
11
<PAGE>
Charge, the Monthly Mortality and Expense Risk 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 $8.25 per month and is guaranteed not to
exceed $12.00 per month. The Monthly Mortality and Expense Risk Charge will be
equal to one-twelfth of .90 of 1% (.90%) of the Variable Accumulation Value
(that is, the total value attributable to a specific Policy in the Sub-Accounts
of the Variable Account) of the Policy during the first 10 Policy Years.
Beginning on Policy Year 11 and each year thereafter this monthly charge will be
one-twelfth of .30 of 1% (.30%) guaranteed not to exceed .60 of 1% (.60%) for
the duration of the Policy. The charges for optional insurance benefits will
vary depending upon the benefit(s) selected. See "Deductions and Charges --
Monthly Deduction".
There is currently no charge imposed for each transfer but we presently
charge $10.00 for each partial withdrawal. The charge for transfers and partial
withdrawals is guaranteed not to exceed $25.00 per transfer or partial
withdrawal. See "Deductions and Charges -- Transfer and Partial Withdrawal
Charges".
WHAT CHARGES DO WE MAKE 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). The Surrender
Charge consists of the Contingent Deferred Sales Charge to recover our sales
expenses, and the Contingent Deferred Administrative Charge to recover our
policy issue expenses. See "Deductions and Charges -- Surrender Charge".
The maximum Contingent Deferred Sales Charge and the maximum Contingent
Deferred Administrative Charge on the initial Face Amount and on any requested
increases in Face Amount will be determined on the Policy Date and on the
effective date of any such requested increase, as the case may be. These maximum
charges then remain level during the first five years in the relevant 15-year
period, and then reduce in equal monthly increments until they become zero at
the end of 15 years. Thus, if the Policy remains in force during the entire
relevant 15-year period, you do not pay this charge.
The Contingent Deferred Administrative Charge on the initial Face Amount
will depend upon the initial Face Amount. The Contingent Deferred Administrative
Charge on any requested increase in Face Amount will depend upon the Face Amount
of the increase. During the first five years in the relevant 15-year period,
this charge is $5.00 per $ 1,000 of Face Amount.
The Contingent Deferred Sales Charge on the initial Face Amount will depend
upon the initial Face Amount, the Insured's Age on the Policy Date, and the
Insured's sex. The Contingent Deferred Sales Charge on any requested increase in
Face Amount will depend upon the Face Amount of the increase, the Insured's Age
on the effective date of the increase, and the Insured's sex (see Appendix D).
The Contingent Deferred Sales Charge applicable to Policies issued in
Massachusetts and Montana will not be affected by the Insured's sex. Therefore,
the Contingent Deferred Sales Charge applied to Policies issued in these two
states will differ from the charge made on Policies issued in other states.
Also, the Contingent Deferred Sales Charge applied to Policies issued in
Pennsylvania may be higher or lower than in other states depending on the
Insured's Age and sex.
The Surrender Charge imposed upon early surrender or lapse will be
significant. 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.
WHAT IS 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. During the first two Policy Years and the first two Policy
Years following an increase in the Face Amount, you may also be entitled to a
refund of a portion of any charges made for sales expenses. See "Surrender
Benefits -- Total Surrender" and "Sales Charge Refund".
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<PAGE>
CAN YOU MAKE PARTIAL WITHDRAWALS?
Yes, 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.
We currently make a $10.00 charge for each partial withdrawal. The charge is
guaranteed not to exceed $25.00 per partial withdrawal. Only one partial
withdrawal is allowed in any Policy Year. See "Surrender Benefits -- Partial
Withdrawal".
WHAT ARE THE FREE LOOK AND CONVERSION 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 the
latest of:
- Midnight of the 20th day after you receive it;
- Midnight of the 20th day after a written Notice of Right of Withdrawal is
mailed or delivered to you; or
- Midnight of the 45th day after the date your application for the Policy is
signed.
Also, the Policy may in effect be converted in whole or in part to a "fixed
benefit" policy (providing benefits that do not vary with the investment
performance of the Variable Account) at any time by transferring all or part of
the Accumulation Value of the Policy from the Variable Account to the Fixed
Account. For Policies issued in Connecticut, the Conversion Right is exercised
by exchanging the Policy for a different permanent fixed benefit life insurance
policy offered by us in this state. See "Free Look and Conversion Rights --
Conversion Rights".
Similar free look and conversion rights will be available for requested
increases in the Face Amount. See "Free Look and Conversion Rights".
CAN YOU TRANSFER BETWEEN THE SUB-ACCOUNTS AND/OR THE FIXED ACCOUNT?
Subject to certain restrictions, you can transfer all or part of your
Accumulation Value between the investment options of the Policy. We currently
allow up to twelve transfers per year. Transfers from the Fixed Account are
subject to certain additional restrictions. We reserve the right to limit you to
four transfers per year and to make a charge for each transfer. We currently
make no charge for each transfer. This charge is guaranteed not to exceed $25.00
per transfer. To the extent, however, that you request a transfer from the
Variable Account to the Fixed Account in connection with exercising your
conversion rights under the Policy (see "Free Look and Conversion Rights --
Conversion Rights"), the limit on the number of transfers and the charge will
not apply. See "Transfers".
CAN YOU BORROW AGAINST THE VALUE OF THE POLICY?
At any time after the first Policy Year, you can borrow up to 75% of the
Cash Value of the Policy less any existing Loan Amount. (In Texas, the
percentage is 100% and in Alabama, Maryland and Virginia, the percentage is 90%.
In Indiana you can borrow up to 75% of the Cash Value of the Policy during the
first Policy Year.) Each loan must be at least $500, except in Connecticut it
must be at least $200. Interest is payable in advance for each Policy Year and
accrues daily at an effective annual rate that will not exceed 8.00% (which is
7.40% when payable in advance). After the tenth Policy Year, we will charge
interest at an annual rate of 5.50% (which is 5.21% 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".
ARE DEATH BENEFIT PROCEEDS 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 not be taxable income to the beneficiary. See "Federal Tax
Matters -- Policy Proceeds".
ARE ACCUMULATION VALUE INCREASES INCLUDED IN YOUR TAXABLE INCOME?
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 should accumulate on a tax deferred basis. See "Federal Tax Matters --
Policy Proceeds".
WILL EXERCISING CERTAIN POLICY RIGHTS HAVE 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".
13
<PAGE>
WHO SELLS THE POLICIES?
The Policies are sold by licensed insurance agents who are also registered
representatives of broker-dealers registered under the Securities Exchange Act
of 1934 and who are members of the National Association of Securities Dealers,
Inc. Washington Square Securities, Inc., an affiliate of ours, is the Principal
Underwriter of the Policies. See "Distribution of the Policies".
PART 2. DETAILED INFORMATION
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
We are a stock life insurance company organized in 1885 and incorporated
under the laws of the State of Minnesota. Effective January 3, 1989, we
converted from a stock and mutual life insurance company to a stock life
insurance company, and through a merger, we became a direct, wholly-owned
subsidiary of ReliaStar Financial Corp. (formerly known as The NWNL Companies,
Inc.). We offer individual life insurance and annuities, employee benefits and
retirement contracts. The Policies described in this Prospectus are
nonparticipating. On a consolidated basis, we have $178 billion of life
insurance in force and our assets are $15.5 billion. Our Home Office is at 20
Washington Avenue South, Minneapolis, Minnesota 55401 (telephone 612-372-5507).
THE VARIABLE ACCOUNT
The Variable Account is a Separate Account of ours, established by the Board
of Directors on October 11, 1984 pursuant to the laws of the State of Minnesota.
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 flexible 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 Minnesota 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,
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<PAGE>
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.
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,
CHANGING TIMES, 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.
Lipper's and Morningstar's rankings include variable annuity issuers as well
as variable life insurance issuers. The performance analysis prepared by Lipper
and Morningstar ranks such issuers on the basis of total return, assuming
reinvestment of distributions, but does not take sales charges, redemption fees
or certain expense deductions at the separate account level into consideration.
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 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 to which you allocate your
premium payments.
DEATH BENEFIT
Like traditional life insurance, we pay a death benefit if the Insured dies
while the Policy is in force. The proceeds payable upon the death of the Insured
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 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.
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
15
<PAGE>
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 during the Death Benefit Guarantee Period, 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.
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 corridor percentage of Accumulation Value on the
Valuation Date on or next following the date of the Insured's death. The
corridor percentage is 250% for an Insured Age 40 or below, and the percentage
declines with increasing Ages as shown in the Corridor Percentage Table on page
17. 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 Insured is under Age 40, and that there is no Loan Amount. Under
the Level Amount Option, a Policy with a $200,000 Face Amount will generally
have a $200,000 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 $80,000, the Death Benefit will exceed the $200,000
Face Amount. Each additional dollar added to the Accumulation Value above
$80,000 will increase the Death Benefit by $2.50. Thus, if the Accumulation
Value exceeds $80,000 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 $100,000 will be entitled to a Death Benefit of
$250,000 ($100,000 X 250%); an Accumulation Value of $150,000 will yield a Death
Benefit of $375,000 ($150,000 X 250%); and an Accumulation Value of $200,000
will yield a Death Benefit of $500,000 ($200,000 X 250%).
Similarly, as long as the Accumulation Value exceeds $80,000, 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 $150,000 to $140,000 because
of partial withdrawals, charges, or negative investment performance, the Death
Benefit will be reduced from $375,000 to $350,000. If at any time, 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 Insured's Age increases. If the
current Age of the 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 $200,000 Face Amount unless the Accumulation Value
exceeded approximately $108,110 (rather than $80,000), and each $1 then added to
or taken from the Accumulation Value would change the Death Benefit by $1.85
(rather than $2.50).
16
<PAGE>
CORRIDOR PERCENTAGE TABLE
<TABLE>
<CAPTION>
Insured's Age on
Previous Policy Corridor Percentage
Anniversary of Accumulation Value
- ------------------------ -------------------------
<S> <C>
40 or younger 250%
41 243
42 236
43 229
44 222
45 215
46 209
47 203
48 197
49 191
50 185
51 178
52 171
53 164
54 157
55 150
56 146
57 142
58 138
59 134
60 130
61 128
62 126
63 124
64 122
65 120
66 119
67 118
68 117
69 116
70 115
71 113
72 111
73 109
74 107
75-90 105
91 104
92 103
93 102
94 101
95 100
</TABLE>
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 corridor
percentage of the Accumulation Value on the Valuation Date on or next following
the date of the Insured's death. The corridor percentage is 250% for an 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 Insured is under Age 40 and that there is no Loan Amount. Under
the Variable Amount Option, a Policy with a Face Amount of $200,000 will
generally pay a Death Benefit of $200,000 plus the Accumulation Value. Thus, for
example, a Policy with an Accumulation Value of $40,000 will have a Death
Benefit of $240,000 ($200,000 + $40,000); an Accumulation Value of $80,000 will
yield a Death Benefit of
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<PAGE>
$280,000 ($200,000 + $80,000). 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 $133,333, the Death Benefit will be greater than the Face
Amount plus the Accumulation Value. Each additional dollar of the Accumulation
Value above $133,333 will increase the Death Benefit by $2.50. Thus, if the
Accumulation Value exceeds $133,333 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 $150,000 will be entitled to a Death
Benefit of $375,000 ($150,000 X 250%); an Accumulation Value of $200,000 will
yield a Death Benefit of $500,000 ($200,000 X 250%), and an Accumulation Value
of $250,000 will yield a Death Benefit of $625,000 ($250,000 X 250%).
Similarly, any time the Accumulation Value exceeds $133,333, 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 $150,000 to $140,000 because
of partial withdrawals, charges, or negative investment performance, the Death
Benefit will be reduced from $375,000 to $350,000. If at any time, 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 corridor percentage becomes lower as the Insured's Age increases. If the
current Age of the 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 $200,000 unless
the Accumulation Value exceeded approximately $235,294 (rather than $133,333),
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, 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 the Insured
reaches Age 75. 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" below) 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, conversion, and
refund rights with respect to requested increases in Face Amount. See "Sales
Charge Refund" and "Free Look and Conversion Rights".
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. 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.
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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 $200,000 with a
standard Rate Class, and that successive increases of $50,000 (at a Rate Class
of 200%) and $100,000 (at a Rate Class of 300%) were added. If a decrease of
$100,000 or less is requested, the amount of insurance at a 300% Rate Class will
be reduced first. If a decrease of more than $100,000 is requested, the amount
at a 300% Rate Class will be eliminated, and the excess over $100,000 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 depends
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. 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. However, the
maximum Surrender Charge on a requested increase in Face Amount is phased in
over equal monthly increments during the first three years after the requested
increase, which minimizes the risk of Policy Lapse. See "'Policy Lapse and
Reinstatement -- Lapse", "Death Benefit Guarantee" and "Surrender Charge".
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 insurance needs change. 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 resultant 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
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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 first two Policy Years, you may change the Death Benefit Option.
You must submit a written request to change the Death Benefit Option. 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". The Surrender Charge, however, will not be affected by an increase
or decrease in Face Amount resulting from a change in Death Benefit Option.
Changes in the Death Benefit Option do not require additional evidence of
insurability.
ACCELERATED BENEFIT RIDER
Under certain circumstances, the Accelerated Benefit Rider allows a Policy
owner to accelerate benefits from the Policy that would be otherwise payable
upon the death of the Insured. The benefit may vary state-by-state and your
registered representative should be consulted as to whether and to what extent
the Rider is available in a particular state and on any particular Policy.
Generally, we will provide an Accelerated Benefit if the Insured has a
terminal illness that will result in the death of the Insured within 12 months,
as certified by a physician.
The Accelerated Benefit will not be more than 50% of the amount that would
be payable at the death of the Insured. The Accelerated Benefit will first be
used to pay off any outstanding Policy loans and interest due. The remainder of
the Accelerated Benefit will be in a lump sum to the Policy owner. Limitations,
as described in the Accelerated Benefit Rider, may apply.
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A lien will be established against the Policy for the amount of the
Accelerated Benefit plus the administrative charge, plus interest on the lien.
Any proceeds from the Policy will first be used to repay this lien. The Policy
owner's access to the cash value will be reduced by the amount of the lien. The
proceeds payable to the beneficiary will be reduced by the amount of the lien.
The administrative charge will not exceed $300 and will be assessed at the
time the benefit is accelerated.
The premium payable on the Policy will not be affected by the Accelerated
Benefit.
Receipt of a benefit under the Accelerated Benefit Rider may give rise to
Federal or State income tax. A competent tax adviser should be consulted for
further information.
The above information is not intended to be a complete summary of the Rider.
All of the terms and provisions of the Accelerated Benefit Rider are set forth
in the Rider and should be referred to in order to fully ascertain its benefits
and limitations.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUING THE POLICY
To apply for a Policy, an individual must complete an application and
personally deliver it to our licensed agent. We will not issue a Policy below
the minimum Face Amount. We reserve the right to specify a different minimum
Face Amount in the future for issuing a new Policy. We will generally only issue
a Policy to an applicant Age 75 or less who supplies 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.
SPONSORED MARKET PLANS. Policies may be purchased under sponsored
arrangements where permitted by state law. A "sponsored arrangement" includes an
arrangement where an employer permits group solicitation of its employees or an
association permits group solicitations of its members for the purchase of
Policies on an individual basis.
All participants in sponsored arrangements are individually underwritten.
Persons purchasing under a sponsored arrangement may apply for simplified
underwriting. If simplified underwriting is granted, the cost of insurance may
increase as a result of higher than anticipated mortality experience. However,
any such increase will not cause the cost of insurance charge to exceed the
guaranteed rates set forth in the Policy.
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:
- The date the coverage under the Policy is effective.
- 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.
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- The date of death of the proposed Insured, any proposed additional
Insured, or any proposed Insured child.
- The 75th 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:
- The Valuation Date following the date of underwriting approval.
- The Valuation Date on or next following the Policy Date.
- The Valuation Date on or next following the date we have received at least
the required minimum initial premium payment.
- 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.
REFUNDING PREMIUM. We will return all premiums paid without interest if any
of the following occur:
- We send notice to the applicant that the insurance is declined.
- The applicant refuses an offer for an alternative policy.
- The applicant does not supply required medical exams or tests within 30
days of the date of the application.
- The applicant 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 new premium allocation may be 100% to any Account or
divided in whole percentage points totaling 100%. We reserve the right to adjust
any allocation to eliminate fractional percentages. Changing the current 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:
- IN MOST CASES, 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".
- We may choose not to accept any premium less than $25.00.
- 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 life of any Insured, 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.
- 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".
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- 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 Federal Internal Revenue 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.
- 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".
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.
As mentioned above, the amount and frequency of premium payments will affect
Accumulation Value, Cash Surrender Value, and how long the Policy will remain in
force. 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:
Northwestern National Life Insurance Company
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 during the Death Benefit Guarantee Period 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 Death
Benefit Guarantee Period is the first five Policy Years for issue ages 0-59 and
the first four Policy Years for issue ages 60-75.
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 (even when supplemented by the Sales Charge Refund) will
generally 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 because the Surrender Charge usually
exceeds the Accumulation Value in these years. Second, to the extent the Cash
Surrender Value declines during the Death Benefit Guarantee Period due to poor
investment performance, or due to an additional Surrender Charge after a
requested increase, the Cash Surrender Value may not be sufficient to cover the
Monthly Deduction, so that the Death Benefit Guarantee may also be necessary 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.
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REQUIREMENTS
The Death Benefit Guarantee will be in effect 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.
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, 1996. The Minimum Monthly Premium is
$100 per month. No Policy loans or partial withdrawals are taken and no Face
Amount changes have occurred.
Case 1. You pay $100 each month. The Death Benefit Guarantee is maintained.
Case 2. You pay $1,000 on January 1, 1996. The $1,000 maintains the Death
Benefit Guarantee without your paying any additional premiums for
the next 10 months (through October 31, 1996). However, you must pay
at least $100 by November 1, 1996 to maintain the Death Benefit
Guarantee through November 30, 1996.
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 the 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:
- A requested increase or decrease in the Face Amount (see "Death Benefit --
Requested Changes in Face Amount").
- A change in the Death Benefit Option (see "Death Benefit -- Change in
Death Benefit Option").
- 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.
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 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." (During the first two Policy
Years and the first two years following a requested increase in Face Amount, you
may also be entitled to a Sales Charge Refund. See "Sales Charge Refund".)
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,
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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 the Fixed Account, (b) any interest credited to 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 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 the Fixed Account, (b) partial withdrawals
from the Fixed Account, (c) any transfer and partial withdrawal charges
attributable to 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.
DEDUCTIONS AND CHARGES
Charges will be deducted in connection with the Policy to compensate us 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 currently expect that the total sales charge (which consists, of the
sales charge deducted from each premium payment and the Contingent Deferred
Sales Charge) may not be sufficient to cover the expenses incurred in selling
and distributing the Policies. To the extent that these charges are not
sufficient these expenses will be paid from our general assets. These assets may
include proceeds from the Mortality and Expense Risk Charge described below.
PREMIUM EXPENSE CHARGE
We deduct a sales charge and a charge for premium taxes from each premium
payment. We may in the future deduct a premium processing charge from each
premium payment although we currently do not make this charge. The total of
these charges is called the Premium Expense Charge. 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.
SALES CHARGE. A sales charge (guaranteed not to exceed 2.50% of each premium
payment for the duration of the Policy) will be deducted to compensate us for
expenses relating to the distribution of the Policy, including agents'
commissions, advertising, and the printing of the prospectuses and sales
literature for new and prospective buyers of this policy. Currently, a sales
charge of 2.50% of each premium payment is deducted during the first ten Policy
Years and a sales charge of .50% is currently deducted after the tenth Policy
Year. In addition, we may charge a contingent deferred sales charge if you
surrender the Policy or the Policy lapses. See "Deductions and Charges --
Surrender Charge".
PREMIUM TAX CHARGE. Various states and subdivisions impose a tax on premiums
received by insurance companies. Premium taxes vary from state to state. A
charge of 2.50% of each premium payment will be deducted by us. The deduction
represents an amount we consider necessary to pay all taxes imposed by the
states and any subdivisions.
PREMIUM PROCESSING CHARGE. We may make a charge of up to $2.00 per premium
payment to reimburse us for the cost of collecting and processing premiums,
although we currently make no such charge. We do not anticipate that we will
make any profit on this charge. If a premium processing charge is made, it will
be deducted from premium payments before the percentage deductions for sales
charge and premium taxes.
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.
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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 plus any Sales Charge Refund is not sufficient
to cover the Monthly Deduction on a Monthly Anniversary, 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
1.004074 (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 5%), 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 an 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, an Insured in the standard Rate Class
will have a lower cost of insurance than an 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 the 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 $8.25 which is guaranteed not to exceed $12.00 each month. This charge
reimburses us for expenses incurred in administering the Policy, such as
processing claims, maintaining records, making Policy changes, printing and
mailing prospectuses and annual and semi-annual reports to Policy owners and
communicating with you and other owners of Policies. We do not anticipate that
we will make any profit on this charge. Because this charge is intended to cover
the average anticipated administrative expenses for all Policies, however, there
is not necessarily a relationship between the amount of this charge for a given
Policy and the amount of expenses that may be attributable to that Policy.
MONTHLY MORTALITY AND EXPENSE RISK CHARGE. Each month during the first 10
Policy Years we will deduct a charge at an annual rate of .90 of 1% (.90%) of
the Variable Accumulation Value of the Policy. Each month thereafter we will
deduct a charge at an annual rate of .30 of 1% (.30%) of the Variable
Accumulation Value guaranteed not to exceed .60 of 1% (.60%) for the duration of
the Policy. We may realize a profit from this charge.
The mortality risk assumed is that Insureds may live for a shorter period of
time than we estimated and that, as a result, we would have to pay a greater
amount in Death Benefits than we collect in premium payments. The expense risk
assumed is that expenses incurred in issuing and administering the Policy will
be greater than we estimated.
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.
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<PAGE>
The Surrender Charge has two parts -- The Contingent Deferred Administrative
Charge and the Contingent Deferred Sales Charge which are determined separately.
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. 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.
The Contingent Deferred Administrative Charge reimburses us for expenses
incurred in issuing the Policy, such as processing the application (primarily
underwriting) and setting up computer records. We do not anticipate making a
profit on this charge. Because this charge is intended to cover the average
anticipated issue expenses for all Policies, however, there is not necessarily a
relationship between the amount of this charge for a given Policy and the amount
of expenses that may be attributable to that Policy.
The Contingent Deferred Sales Charge compensates us for expenses relating to
the distribution of the Policy, including agents' commissions, advertising, and
the printing of the prospectus and sales literature for new sales of the Policy.
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE. The maximum Contingent Deferred
Administrative Charge for the initial Face Amount or any requested increase in
Face Amount is determined on the Policy Date or on the effective date of any
requested increase in Face Amount respectively. The maximum charge for the
initial Face Amount during the first five Policy Years is $5.00 per $1,000 of
Face Amount, which decreases thereafter in equal monthly increments until it
becomes zero at the end of the 15 year period. For any requested increase in
Face Amount, an additional Contingent Deferred Administrative Charge begins at
zero, increases in equal monthly increments until it reaches the maximum after
three years, and then remains level for the next two years. Beginning five years
after the effective date of the increase, the additional Contingent Deferred
Administrative Charge reduces in equal monthly increments unitl it becomes zero
at the end of 15 years.
The Contingent Deferred Administrative Charge for the initial Face Amount or
a requested increase in Face Amount can be determined by multiplying (a) $5.00
by (b) the initial Face Amount or the Face Amount of the increase, as the case
may be, and by (c) the applicable percentage from the Surrender Charge
Percentage Table shown on page 29, and then dividing this amount by 1000.
For example, assume that an Insured buys a Policy with an initial Face
Amount of $200,000. If the Policy is surrendered at any time in the first five
Policy Years, the Contingent Deferred Administrative Charge is calculated by
multiplying (a) $5.00 by (b) $200,000 (the initial Face Amount), and by (c) 100%
(the applicable percentage from the Surrender Charge Percentage Table), and then
dividing by 1000. This results in a total of $1,000 ($5.00 X 200,000 X 100% /
1000).
The calculation of the additional Contingent Deferred Administrative Charge
for a requested increase in Face Amount is the same as for the initial Face
Amount, except that (a) the charges are based on the amount of the increase, (b)
the years and months are measured from the effective date of the increase, and
(c) different surrender percentage factors apply.
CONTINGENT DEFERRED SALES CHARGE. The maximum Contingent Deferred Sales
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. For the initial Face Amount, the Contingent Deferred
Sales Charge will remain level for 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. For any requested increase in Face Amount, an additional
Contingent Deferred Sales Charge begins at zero, increases in equal monthly
increments until it reaches the maximum after three years, and then remains
level for the next two years. Beginning five years after the effective date of
the increase, the additional Contingent Deferred Sales Charge reduces in equal
monthly increments until it becomes zero at the end of 15 years. The Contingent
Deferred Sales Charge will vary depending upon the Insured's Age (on the Policy
Date or on the effective date of an increase in Face Amount) and the Insured's
sex.
If you surrender the Policy during the first two Policy Years or during the
first 24 months following a requested increase in Face Amount, you may be
entitled to a refund of a portion of the Contingent Deferred Sales Charge. See
"Sales Charge Refund".
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<PAGE>
The Contingent Deferred Sales Charge will be equal to the lesser of:
(a) 47.50% of the premiums attributable to the initial Face Amount of
the Policy and any premiums attributable to an increase in Face
Amount; or
(b) The result of the Contingent Deferred Sales Charge calculation
described below.
CONTINGENT DEFERRED SALES CHARGE CALCULATION. For purposes of (b). above,
the Contingent Deferred Sales Charge for the initial Face Amount or any
requested increase in Face Amount is determined by multiplying (i) the
applicable Charge per $1,000 of Face Amount from Appendix D 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 on the next
page, and then dividing this amount by 1000.
EXAMPLE. The following example illustrates how the Contingent Deferred
Sales Charge is determined. Assume that a male, Age 35 buys a policy with an
initial Face Amount of $200,000 and he surrenders the Policy during the third
Policy Year at which time he has paid cumulative premiums of $4,000. Based on
these assumptions the Contingent Deferred Sales Charge will be the lesser of:
(a) 47.50% times the cumulative premiums paid on the Policy, which is
$1,900 (47.50 X $4,000); or
(b) The result of the Contingent Deferred Sales Charge calculation,
which is determined by multiplying (i) $14.00 (from Appendix D for a
male age 35) by (ii) $200,000 (the Initial Face Amount) and by (iii)
100% (the applicable percentage from the Surrender Charge Percentage
Table), and then dividing by 1000, which results in a total of
$2,800 ($14.00 X 200,000 X 100% / 1000).
The additional Contingent Deferred Sales Charge for requested increases in
Face Amount will be calculated in the same manner as illustrated in the example
above. However, for purposes of determining the amount in (a) in the above
example, the cumulative premium paid is replaced by the premiums attributable to
the increase in Face Amount. The premiums attributable to the requested increase
will consist of a defined proportion of the existing Accumulation Value on the
date of the increase, plus an equal proportion of all premium payments made
after the effective date of the increase. The defined proportion is determined
by dividing (a) the Surrender Charge Guideline for the requested increase, by
(b) the sum of the Surrender Charge Guidelines for the Initial Face Amount and
each requested increase in Face Amount.
The Surrender Charge Guideline for the initial Face Amount or any requested
increase in Face Amount is determined by multiplying (i) the applicable
Guideline per $1,000 from Appendix E by (ii) the Initial Face Amount or the Face
Amount of the increase, as applicable, and then dividing this amount by 1000.
Referring to the immediately preceding example, assume a male age 35 has an
Initial Face Amount of $200,000 and makes a requested increase of $100,000 at
age 45. The Surrender Charge Guideline for the requested increase is determined
by multiplying (i) $45.09 (from Appendix E for a male Age 45) by (ii) $100,000
(the requested increase amount) and then dividing by 1000. This results in
$4,509 ($45.09 x 100,000/1000). The Surrender Charge Guideline for the initial
Face Amount is determined by multiplying (i) $27.96 (from Appendix E for a male
age 35) by (ii) $200,000 (the initial Face Amount) and then dividing by 1000.
This results in $5,592 ($27.96 x 200,000/1000). The defined proportion of the
existing Accumulation Value and subsequent premium payments attributable to the
requested increase is determined by dividing (a) $4,509 (the Surrender Charge
Guideline for the requested increase), by (b) ($5,592 and $4,509) (the Surrender
Charge Guideline for the Initial Face Amount and all requested increases), or
44.64%.
MASSACHUSETTS, MONTANA AND PENNSYLVANIA RESIDENTS. Appendices C, D, E and
the preceding illustrations of the Contingent Deferred Sales Charge do not apply
to policies issued in Massachusetts, Montana and Pennsylvania. The Contingent
Deferred Sales Charge applied to Policies issued in Massachusetts and Montana is
not affected by the Insured's sex. Therefore, the Contingent Deferred Sales
Charge made on Policies issued in these two states will differ from the charge
made in other states. In Pennsylvania, the Insured's sex will be a factor in
determining the amount of Contingent Deferred Sales Charge applied to a Policy,
but the charge will differ from the charge described in the above illustration.
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<PAGE>
SURRENDER CHARGE PERCENTAGE TABLE
<TABLE>
<CAPTION>
The following
percentages of the
Surrender Charge will be
If surrender or lapse occurs payable for:
in Initial
the last month of Policy Face Face Amount
Year:* Amount Increases
- ---------------------------- ---------- ------------
<S> <C> <C>
1 100% 33%
2 100% 67%
3 100% 100%
4 100% 100%
5 100% 100%
6 90% 90%
7 80% 80%
8 70% 70%
9 60% 60%
10 50% 50%
11 40% 40%
12 30% 30%
13 20% 20%
14 10% 10%
15 and later 0% 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 seventh Policy Year, the percentage reduces equally
each month from 90% at the end of the sixth Policy Year to 80% at the end of
the seventh Policy Year.
CHARGES AGAINST THE VARIABLE ACCOUNT
Certain charges will be deducted as a percentage of the value of the net
assets of the Variable Account to compensate us for certain risks assumed in
connection with the Policy. These charges will not be deducted from assets in
the Fixed Account.
TAXES. Currently no charge is made to the Variable Account for Federal
income taxes that may be attributable to the Variable Account. We may, however,
make such a charge in the future. Charges for other taxes, if any, attributable
to the Variable Account may also be made.
INVESTMENT ADVISORY FEE AND OTHER FUND EXPENSES. 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. For more information concerning these expenses,
see the prospectuses for the Funds that accompany this Prospectus.
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. We do not
anticipate that we will make a profit on these charges. The transfer charge will
not be imposed on transfers that occur as a result of Policy loans or the
exercise of conversion rights.
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 or sponsored
arrangements, sales to our policyholders 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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<PAGE>
SALES CHARGE REFUND
During the first two Policy Years and during the first 24 Policy Months
following the effective date of any requested increase in Face Amount, we may be
required to refund a portion of the Contingent Deferred Sales Charge if you
surrender the Policy. This refund is called the Sales Charge Refund.
Any amount used in the calculation described below will be determined on the
effective date of surrender.
INITIAL FACE AMOUNT. If the Policy is surrendered during the first two
Policy Years, a Sales Charge Refund will be made to the extent that the total
sales charge deducted (the sales charge deducted from each premium payment and
the Contingent Deferred Sales Charge) exceeds (i) 30% of actual premium payments
made during the first Policy Year up to the amount of the Surrender Charge
Guideline (see below) for the initial face amount, plus (ii) 9% of any actual
premium payments made that exceed (i). In addition, the amount of the refund
will never decrease as the result of the payment of a premium. After the second
Policy Year, there is no Sales Charge Refund with respect to the initial Face
Amount.
As described above, the Sales Charge Refund is calculated based on
percentages of premium payments. While the total sales charge deducted under the
Policy is not based solely on premium payments, it is possible to translate the
total sales charge into a percentage of premium payments. In general, the total
sales charge deducted (before calculating the Sales Charge Refund) will be 50%
of each premium payment until premium payments reach a certain level. The level
ranges from approximately 35% of a Surrender Charge Guideline for a male age 0,
up to approximately 111% of a Surrender Charge Guideline for a male age 40, and
down to approximately 44% of a Surrender Charge Guideline for a male age 75.
After premium payments reach this level, the total sales charge will equal 2.50%
of each additional premium payment. During the two Policy Years when the Sales
Charge Refund applies, however, the total sales charge will be limited to 30% of
actual first year premium payments up to the amount of a Surrender Charge
Guideline, 9% of actual premium payments until payments reach the level where
the total sales charge drops to 2.50%, and 2.50% of any additional premium
payments beyond that level. If you have any questions regarding the amount of
your Sales Charge Refund, please call us.
Due to the Sales Charge Refund, the total sales charge for the initial Face
Amount will be significantly less if a Policy is surrendered during the first
two Policy Years rather than shortly thereafter.
The Surrender Charge Guideline will equal the amount obtained by dividing
the Face Amount or the amount of the increase, as the case may be, by $1,000,
and multiplying the result by the applicable factor from Appendix E.
REQUESTED INCREASES IN FACE AMOUNT. If you cancel a requested increase in
Face Amount during the first 24 Policy Months following the increase (but after
the free look period -- see "Free Look and Conversion Rights -- Free Look
Rights"), and the Policy is surrendered at any time thereafter, a Sales Charge
Refund will be made to the extent that the total sales charge for the increase
(the sales charge deducted from the portion of premiums attributable to the
increase and the Contingent Deferred Sales Charge for the increase) exceeds (i)
30% of the premiums attributable to the increase in the 12 Policy Months
following the increase up to the amount of the Surrender Charge Guideline for
the increase (see immediately preceding paragraph), plus (ii) 9% of any premiums
attributable to the increase that exceed (i). In addition, the amount of the
refund will never decrease as the result of the payment of a premium. This
refund is only available if the increase is cancelled within the 24 Policy
Months following its effective date, and the Policy is subsequently surrendered.
No refund is available if the increase is cancelled after the 24-month period.
Calculating total sales charge deducted for an increase as a percentage of
premiums attributable to the increase is, in general, the same as described
above for the initial Face Amount. Thus, due to the Sales Charge Refund, the
total sales charge for a requested increase in Face Amount may be significantly
less if the increase is cancelled during the 24-month period following the
increase rather than shortly thereafter. If you have any questions regarding the
amount of your Sales Charge Refund, please call us.
For the purposes of the preceding paragraph, the premiums attributable to
the increase will be determined as described in the section entitled "Deductions
and Charges -- Surrender Charge --
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<PAGE>
Calculation of Contingent Deferred Sales Charge", which means that, in effect, a
proportionate
amount of the existing Accumulation Value on the effective date of the increase
will be deemed to be a premium payment for the increase, and subsequent premium
payments will be prorated.
EFFECT OF SALES CHARGE REFUND. The Sales Charge Refund will be applied to
maintain the Policy in force when the Cash Surrender Value is insufficient to
cover the Monthly Deduction. If the remaining Sales Charge Refund (not already
applied to keep the Policy in force) is insufficient to cover the Monthly
Deduction, this remaining Sales Charge Refund may be applied for the grace
period under the Policy. See "Policy Lapse and Reinstatement". Any Sales Charge
Refund not so applied will be refunded to you upon the total surrender of the
Policy.
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 only if, as of
any Monthly Anniversary, the Cash Surrender Value plus any Sales Charge Refund
is less than the Monthly Deduction due, and a grace period of 61 days expires
without a sufficient payment. If (during the first two Policy Years or the first
24 Policy Months after a requested increase in Face Amount) there exists any
Sales Charge Refund (see "Sales Charge Refund") sufficient to supplement the
Cash Surrender Value so as to cover the Monthly Deduction, then the Sales Charge
Refund will be applied by us to keep the Policy in force. The amount of Sales
Charge Refund available for such application is reduced on each Monthly
Anniversary as so applied. Any payment made by you after we have kept the Policy
in force in this manner will first be used to reimburse us for the amount of
Sales Charge Refund so applied.
During the early Policy Years, the Cash Surrender Value (even when
supplemented by the Sales Charge Refund) 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 plus any Sales Charge Refund 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.
As discussed above, any Sales Charge Refund will be applied to keep the
Policy in force when the Cash Surrender Value is less than the Monthly
Deduction. When a total surrender of the Policy is requested after the start of
a grace period, any remaining Sales Charge Refund (not already applied to keep
the Policy in force) will be so applied for the grace period, and consequently
not refunded, unless the surrender request is received by us within 30 days
after we mail the grace period notice to you. If such a request is timely
received, you will be refunded an amount equal to any unapplied Sales Charge
Refund that existed as of the Monthly Anniversary on which the Cash Surrender
Value deficiency causing the grace period notice occurred, plus any unearned
prepaid loan interest as of such Monthly Anniversary.
If the 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 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 and you must pay a premium large enough to keep
the Policy in force for at least two months.
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
31
<PAGE>
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 plus any Sales Charge Refund. 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 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.
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.
(This assumption also applies to requested decreases in Face Amount -- see
"Death Benefit -- Requested Changes in Face Amount".) 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".
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<PAGE>
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 unless you
have completed a telephone transfer authorization form. 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".
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) 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 (iii)
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 TRANSFER REQUESTS. You may request a transfer by telephone on any
Valuation Date after you complete a telephone transfer authorization form. If
you elect to complete the authorization form, you agree that we will not be
liable for any loss, liability, cost or expense when we act in accordance with
the telephone transfer instructions that are received and recorded on voice
recording equipment. If a telephone transfer request is later determined not to
have been made by you or was made without your authorization, and loss results
from such unauthorized transfer, you bear the risk of this loss. We will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. In the event that 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 confirmation of such
instructions, and/or tape recording telephone instructions.
DOLLAR COST AVERAGING SERVICE. You may request this service if your Face
Amount is at least $100,000 and 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 or our registered representative.
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 Face
Amount is at least $200,000 and your Accumulation Value, less any Loan Amount,
is at least $10,000. If you request this
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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 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 or your registered representative.
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-Accounts 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 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,
although we reserve the right to limit you to no more than four transfers per
year. 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 a transfer
we reserve the right to make a charge not to exceed $25.00 per transfer for the
duration of the Policy. We do not anticipate that we will make a profit on this
charge. 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 (except that in Indiana loans may be made during the first Policy Year).
You may not borrow at any time more than the Loan Value of the Policy, which is
equal to 75% of the Cash Value less the existing Loan Amount, except that in
Texas the percentage is 100% and in Alabama, Maryland and Virginia, the
percentage is 90%. If the Policy is in force as paid-up life insurance, the Loan
Value is equal to the Cash Value on the next Policy Anniversary less any
existing Loan Amount and loan interest to that date. Each Policy loan must be at
least $500, except in Connecticut it must be at least $200. After Age 65, we
currently allow 100% of the Cash Surrender Value to be borrowed.
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.
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Policy loans have priority over the claims of any assignee or other person.
A Policy loan may be repaid in whole or in part at any time on or before the
Insured reaches Age 95, while the Insured is living.
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".
The total of your outstanding Policy loans 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 POLICY 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.
ILLUSTRATION OF DETERMINATION OF PROPORTIONS. The segregated amount that
will be security for a Policy loan will come from the Fixed Accumulation Value
and the Variable Accumulation Value in the same proportion that the sum of (a)
the Policy's Fixed Accumulation Value, less any existing Loan Amount, and (b)
the Policy's Variable Accumulation Value, bear to the Policy's total
Accumulation Value less any existing Loan Amount (determined, in each case, at
the end of the Valuation Period during which your request is received).
This can be illustrated as follows. Assume that the Fixed Accumulation Value
is $5,000 and the Variable Accumulation Value is $6,000, with Sub-Account XXX =
$2,000, and Sub-Account YYY = $4,000. Assume that the existing Loan Amount is
$1,000, and the new Policy loan request is $5,000. For purposes of determining
the proportions, we first subtract the existing Loan Amount from the Fixed
Accumulation Value, and then we add the Variable Accumulation Value, which in
our example would be ($5,000 - $1,000) + $6,000 = $10,000. The proportionate
percentages of the Policy loan coming from the Fixed Accumulation Value and the
Variable Accumulation Value are then determined as a percentage of this total,
which would be $4,000/$10,000 = 40% from the Fixed Accumulation Value, and
$6,000/$10,000 = 60% from the Variable Accumulation Value. The percentage
deducted from the Variable Accumulation Value would be distributed as follows:
$2,000/$10,000 = 20% from Sub-Account XXX; and $4,000/$10,000 = 40% from
Sub-Account YYY. The actual amounts coming from the various Accounts in
connection with the new $5,000 Policy loan would be 40% X $5,000 = $2,000 from
the Fixed Account; 20% X $5,000 = $1,000 from Sub-Account XXX; and 40% X $5,000
= $2,000 from Sub-Account YYY.
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 currently equal to 5.50% (guaranteed to be
not less than 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".
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Although Policy loans may be repaid in whole or in part at any time before
the Insured's Age 95, 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, plus any Sales Charge Refund, 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 Insured will be reduced by any Loan
Amount.
INTEREST. The interest rate charged on Policy loans will be an annual rate
of 7.40%, payable in advance. After the tenth Policy Year, we will charge
interest at an annual rate of 5.21%, 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. Any excess of this
amount will be charged interest at the annual rate of 7.40%.
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.
REPAYMENT OF LOAN AMOUNT. The Loan Amount may be repaid any time while the
Insured is living before the Insured reaches Age 95 (see "General Provisions --
Benefits at Age 95"). 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 may have tax consequences depending on the
circumstances of the loan. See "Federal Tax Matters -- Policy Proceeds".
FREE LOOK AND CONVERSION RIGHTS
FREE LOOK RIGHTS
The Policy provides for two types of return or "free look" periods, one
after application for and issuance of the Policy and the other after any
requested increase in Face Amount.
AT INITIAL ISSUE. 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 the latest of:
- Midnight of the 20th day after receiving it;
- Midnight of the 20th day after a written Notice of Right of Withdrawal is
mailed or delivered to you; or
- Midnight of the 45th day after the date your application for the Policy is
signed.
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FOLLOWING A REQUESTED INCREASE IN FACE AMOUNT. Any requested increase in
Face Amount is also subject to a free look period during which you have a right
to cancel the increase and receive a refund. You must notify us or your agent
and ask us to cancel the increase by the latest of:
- Midnight of the 20th day after receiving a new Policy Data Page;
- Midnight of the 20th day after a written Notice of Right of Withdrawal is
mailed or delivered to you; or
- Midnight of the 45th day after the date your request for the increase is
signed.
Upon requesting cancellation of the increase, you will receive a refund, if
you so request, or otherwise a restoration to the Policy's Accumulation Value
(allocated among the Fixed Account and the Sub-Accounts of the Variable Account
as if it were a Net Premium payment), in an amount equal to all Monthly
Deductions attributable to the increase in Face Amount, including rider costs
arising from the increase. This refund or credit will be made within seven days
after we receive the request for cancellation on the appropriate form. In
addition, the Surrender Charge will be adjusted so that it will be as though no
such increase in Face Amount had occurred. Premiums paid after an increase in
Face Amount will not be refunded following cancellation of the increase. If you
request an increase in Face Amount you should take this into account in deciding
whether to make any premium payments during the free look period for the
increase.
CONVERSION RIGHTS. During the first two Policy Years and the first two years
following a requested increase in Face Amount, we are required to 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. For Policies issued in all states, except
Connecticut, this option is made available by permitting you to transfer all or
a part of your Variable Accumulation Value to the Fixed Account. For Policies
issued in Connecticut, you may exchange this Policy for a different permanent
fixed benefit life insurance Policy that is offered by us in that state. The two
conversion right options are discussed below.
GENERAL OPTION. In all states except Connecticut, 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 a
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.
CONNECTICUT. During the first two Policy Years and during the first 24
months following a requested increase in Face Amount, you may convert the Policy
or the Face Amount increase to any permanent fixed benefit whole life insurance
policy offered by us. No evidence of insurability will be required for the
conversion. In order to convert to a new Policy, we must receive a written
conversion request; if the entire Policy is being converted, the Policy must be
surrendered to us; the conversion must be made while the Policy is in force; and
any outstanding Loan Amount must be repaid.
The new Policy will have the same Issue Age and premium class as the Policy.
If the entire Policy is being converted, the effective date of the conversion
will be the date on which we receive both your written conversion request and
the Policy. If you are converting a Face Amount increase, the effective date of
the conversion will be the date on which we receive your written conversion
request.
On the effective date of the conversion, the new Policy will have, at your
option, either:
(a) A death benefit which is equal to the Death Benefit of the Policy on the
effective date of the conversion, or in the case of a Face Amount
increase, a death benefit equal to the increase in Face Amount; or
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(b) A net amount at risk which equals the Death Benefit of the Policy on the
effective date of the conversion, less the Accumulation Value on that
date, or in the case of a Face Amount increase, a net amount at risk
which equals the Face Amount increase on the effective date of conversion
less the Accumulation Value on that date which is considered to be part
of the Face Amount increase.
The conversion will be subject to an equitable adjustment in payments and
Policy values to reflect variances, if any, in the payments and Policy values
under the Policy and the new Policy. An additional premium payment may be
required. The new Policy's provisions and charges will be the same as those that
would have been in effect had the new Policy been issued on the Policy Date.
INVESTMENTS OF THE VARIABLE ACCOUNT
There are currently seventeen Funds available under the Variable Account.
Fidelity Management & Research Company is the investment adviser for the five
portfolios of VIPF and the four portfolios of VIPF II. Northstar Investment
Management Corporation is the investment adviser of the two Northstar Funds.
Putnam Management is the investment adviser for the six funds of PCM. 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 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 combined with this
prospectus, for more detailed information and particularly, a more thorough
explanation of investment objectives, because several of the Funds and
portfolios may have objectives that are quite similar. 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 section entitled "FMR and Its Affiliates" in the VIPF and VIPF II
Prospectuses and the section entitled "Sales And Redemptions" in the PCM
Prospectus.
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".
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (VIPF)
VIPF is a mutual fund currently offering five investment portfolios, each
with a different investment objective.
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. The portfolio
will invest only in high-quality U.S. dollar denominated money market
instruments of domestic and foreign issuers. An investment in the portfolio is
not insured or guaranteed by the U.S. Government and there can be no assurance
that the portfolio will maintain a stable net asset value per share of $1.00.
HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated fixed-income securities
(sometimes referred to as "junk bonds"), while also considering growth of
capital. Lower-rated fixed-income securities are considered speculative and
involve greater risk of default than higher-rated fixed-income securities and
are more sensitive to the issuer's capacity to pay. Consult the VIPF Prospectus
for further information on the risks associated with the portfolio's investment
in lower-rated, fixed-income securities.
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EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities the portfolio
will also consider the potential for capital appreciation. The portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of 500 Stocks.
GROWTH PORTFOLIO seeks to achieve capital appreciation. The portfolio
normally purchases common stocks, although its investments are not restricted to
any one type of security. Capital appreciation may also be found in other types
of securities, including bonds and preferred stocks.
OVERSEAS PORTFOLIO seeks long term growth of capital primarily through
investments in foreign securities. The Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (VIPF II)
VIPF II is a mutual fund currently offering five investment portfolios, each
with a different investment objective. Presently the following four funds are
available under this Policy.
ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed-income instruments.
INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income as
is consistent with the preservation of capital by investing in a broad range of
investment-grade fixed-income securities.
INDEX 500 PORTFOLIO seeks to provide investment results that correspond to
the total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States. In seeking this objective, the
Portfolio attempts to duplicate the composition and total return of the Standard
& Poor's Composite Index of 500 Stocks while keeping transaction costs and other
expenses low. The portfolio is designed as a long term investment option.
CONTRAFUND PORTFOLIO seeks capital appreciation by investing in companies
believed to be undervalued due to an overly pessimistic appraisal by the public.
The portfolio usually invests primarily in common stock and securities
convertible into common stock, but it has the flexibility to invest in any type
of security that may produce capital appreciation.
NORTHSTAR/NWNL TRUST (NORTHSTAR)
Northstar is a diversified management investment company currently offering
four investment funds, each with a different investment objective. The following
two Northstar Funds are available under this Policy.
NORTHSTAR INCOME AND GROWTH FUND is a diversified portfolio with an
investment objective of seeking current income balanced with the objective of
achieving capital appreciation. This Fund will seek to achieve its objective
through investments in common and preferred stocks, convertible securities,
investment grade corporate debt securities and government securities, selected
for their prospects of producing income and capital appreciation.
NORTHSTAR MULTI-SECTOR BOND FUND is a diversified portfolio with an
investment objective of maximizing current income. This Fund will seek to
achieve its objective by investment in the following sectors of the fixed income
securities markets: (a) securities issued or guaranteed as to principal and
interest by the U.S. Government, its agencies, authorities or instrumentalities;
(b) investment grade corporate debt securities; (c) investment grade or
comparable quality debt securities issued by foreign corporate issuers, and
securities issued by foreign governments and their political subdivisions,
limited to 35% of assets determined at the time of investment; and (d) high
yield-high risk fixed income securities of U.S. and foreign issuers, limited to
50% of assets determined at the time of investment.
PUTNAM CAPITAL MANAGER TRUST (PCM)
PCM is a mutual fund currently offering eleven investment funds each with a
different investment objective. Presently, the following six funds are available
under this Policy.
PCM DIVERSIFIED INCOME FUND seeks high current income consistent with
capital preservation through U.S. government securities, high-yield higher risk
fixed income securities (commonly known as "junk bonds") and international fixed
income securities. Consult the PCM Prospectus for further information on the
risks associated with this Fund's investment in high-yield, higher-risk fixed
income securities.
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PCM GROWTH AND INCOME FUND seeks capital growth and current income by
investing primarily in common stocks that offer potential for capital growth,
current income, or both.
PCM UTILITIES GROWTH AND INCOME FUND seeks capital growth and current income
by concentrating its investments in debt and equity securities issued by
companies in the public utilities industries.
PCM VOYAGER FUND seeks capital appreciation primarily from a portfolio of
common stocks which are believed to have potential for capital appreciation
which is significantly greater than that of market averages.
PCM ASIA PACIFIC GROWTH FUND seeks capital appreciation by investing
primarily in securities of companies located in Asia and in the Pacific Basin.
The Fund's investments will normally include common stocks, preferred stocks,
securities convertible into common stocks or preferred stocks, and warrants to
purchase common stocks or preferred stocks.
PCM NEW OPPORTUNITIES FUND seeks long-term capital appreciation by investing
principally in common stocks of companies in sectors of the economy which Putnam
Management believes possess above-average long-term growth potential.
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, if the
shares of a Fund are no longer available for investment, or if in our judgment
further investment in any Fund should become inappropriate in view of the
purposes of the Variable Account. We will not substitute any shares attributable
to your interest 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,
or investment conditions warrant.
In the event of any such substitution or change, we may make such changes in
this and other policies as may be necessary or appropriate to reflect such
substitution or change. If all or a portion of your investments are allocated to
any of the current funds that are being substituted for on the date such
substitution is announced, you may surrender the portion of the Accumulation
Value funded by such Fund(s) without payment of the associated Surrender Charge.
You may transfer the portion of the Accumulation Value affected without payment
of a Transfer Charge. 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.
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:
- The Variable Account is registered as a unit investment trust under the
Investment Company Act of 1940; and
- The assets of the Variable Account are 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.
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<PAGE>
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 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 AT AGE 95
If the Insured is living at Age 95 and the Policy is in force, the Cash
Surrender Value of the Policy will automatically be applied to purchase single
premium paid-up life insurance, unless the Insured notifies us in writing on or
before attaining Age 95 that the Cash Surrender Value should be paid in cash.
OWNERSHIP
While the Insured is alive, subject to the Policy's provisions you may:
- Change the amount and frequency of premium payments.
- Change the allocation of premiums.
- Change the Death Benefit Option.
- Change the Face Amount.
- Make transfers between accounts.
- Surrender the Policy for cash.
- Make a partial withdrawal for cash.
- Receive a cash loan.
- Assign the Policy as collateral.
- Change the beneficiary.
- Transfer ownership of the Policy.
- Enjoy any other rights the Policy allows.
PROCEEDS
At the Insured's death, the proceeds payable include the Death Benefit then
in force:
- Plus any additional amounts provided by rider on the life of the Insured;
- Plus any Policy loan interest that we have collected but not earned;
- Minus any Loan Amount; and
- Minus any unpaid Monthly Deductions.
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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 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.
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 3.50% if we delay payment
more than 30 days. No additional interest will be credited to any delayed
payments. The time a payment from the Fixed Account may be delayed and the rate
of interest paid on such amounts may vary among states.
SETTLEMENT OPTIONS
Settlement Options are ways you can choose to have the Policy's proceeds
paid. These options apply to proceeds paid:
- At the Insured's death.
- 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. 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 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%.
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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.
INCONTESTABILITY
After the Policy has been in force during the 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 the Insured's Age or sex or both are misstated (except where unisex rates
apply), 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 the Insured commits suicide, whether sane or insane, 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 the
Insured commits suicide, whether sane or insane, 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.
In Colorado and North Dakota, the suicide period is shortened to one year.
TERMINATION
The Policy terminates when any of the following occurs:
- The Policy lapses. See "Policy Lapse and reinstatement".
- The Insured dies.
- The Policy is surrendered for its Cash Surrender Value.
- The Policy is amended according to the amendment provision described below
and you do not accept the amendment.
- The Policy matures. See "General Provisions -- Benefits of Age 95".
AMENDMENT
We reserve the right to amend the Policy in order to include any future
changes relating to the following:
- Any SEC rulings and regulations.
- The Policy's qualification for treatment as a life insurance policy under
the following:
- The Internal Revenue Code of 1986, as amended.
- Internal Revenue Service rulings and regulations.
- Any requirements imposed by the Internal Revenue Service.
REPORTS
ANNUAL STATEMENT. We will send you an Annual Statement once each year,
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.
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Additional statements are available upon request. We may make a charge not
to exceed $50.00 for each additional Annual Statement you request.
PROJECTION REPORT. Upon request, we will provide you a report projecting
future results based on the Death Benefit Option you specify, the Planned
Periodic Premiums you specify, and the Accumulation Value of your Policy at the
end of the prior Policy Year. 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:
ACCIDENTAL DEATH BENEFIT RIDER. Provides an additional benefit if the
Insured dies from an accidental injury.
ACCELERATED BENEFIT RIDER. Under certain circumstances a part of the Death
Benefit may be paid to you when the Insured has been diagnosed as having a
terminal illness. This Rider may not be available in all states. Ask your
registered representative about the availability of this Rider in your state.
See "Accelerated Benefit Rider".
ADDITIONAL INSURED RIDER. Provides a 10 year, guaranteed level premium and
level term coverage for the Insured, the Insured's spouse, or a child of the
Insured.
WAIVER OF MONTHLY DEDUCTION RIDER. The Monthly Deduction for the Policy is
waived while the Insured is totally disabled under the terms of the rider.
CHILDREN'S INSURANCE RIDER. Provides up to $10,000 of term life insurance on
the life of each of the Insured's children.
WAIVER OF SPECIFIED PREMIUM RIDER. Contributes a specified amount of premium
to the Policy each month while the Insured is totally disabled under the terms
of the rider. This rider may not be available in all states. Ask your registered
representative about the availability of this rider in your state.
FEDERAL TAX MATTERS
The following discussion is not intended to be a complete description of the
tax status of the Policies. Rather, it provides information about how we believe
the tax laws apply in the most commonly occurring circumstances. The tax
treatment of certain aspects of the Policies, such as surrenders and partial
withdrawals, is uncertain or may be changed by regulations adopted in the
future. For these reasons, Policy owners are advised to consult with their own
tax advisers with regard to the tax implications of the Policies.
POLICY PROCEEDS
GENERAL. The Policy should qualify as a life insurance contract as long as
it satisfies certain definitional tests under Section 7702 and 817(d) of the
Internal Revenue Code (the "Code") and as long as the underlying investments for
the Contract satisfy diversification requirements under section 817(h) of the
Code (see "Diversification Requirements"). Section 7702 of the Code provides
that the Policy will so qualify if it satisfies a cash value accumulation test
or a guideline premium requirement and falls within a cash value corridor. The
qualification of the Policy under Section 7702 depends in part upon the Death
Benefit payable under the Policy at any time. To the extent a change in the
Policy, such as a decrease in Face Amount or a change in Death Benefit Option,
would cause the Policy not to qualify, we will not make the change. Also, if at
any time a premium is paid which would result in total
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premiums exceeding the current maximum premiums allowed, we will only accept
that portion of the premium which would make total premiums equal the maximum.
See "Payment and Allocation of Premiums -- Amount and Timing of Premiums".
MODIFIED ENDOWMENT CONTRACTS. In 1988 Congress created a new classification
of life insurance policies known as "Modified Endowment Contracts". Policy
loans, partial surrenders and partial withdrawals of cash from a policy which is
classified as a Modified Endowment Contract are taxable as ordinary income to
the Policy owner. Additionally, taxable distributions, if made before the Policy
owner is 59 1/2, are subject to a Federal income tax penalty of 10%.
Modified Endowment Contract classification may be avoided by limiting the
amount of premiums paid under the Policy. 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.
DIVERSIFICATION REQUIREMENTS. Flexible premium variable life insurance
policies such as these Policies will be treated as life insurance contracts
under the Code as long as the separate accounts funding them are "adequately
diversified" under section 817(h) of the Code and regulations issued by the
Treasury Department. If the Variable Account is determined to be not adequately
diversified, Policy owners in the Variable Account will be treated as the owners
of the underlying assets and thus currently taxable on earnings and gains. The
investment adviser of the respective mutual fund investment options has
responsibility for maintaining the investment diversification required under the
Code.
DEATH BENEFITS. The Death Benefit proceeds payable under either the Level
Amount Option or the Variable Amount Option will be excludable from the gross
income of the beneficiary under Section 101(a) of the Code.
TAXATION OF DISTRIBUTIONS
SURRENDERS AND PARTIAL WITHDRAWALS. A surrender or lapse of the Policy may
have tax consequences. Upon surrender, the owner will not be taxed on the Cash
Surrender Value except for the amount, if any, that exceeds the gross premiums
paid less the untaxed portion of any prior withdrawals. The amount of any Policy
loan will, upon surrender or lapse, be added to the Cash Surrender Value and
treated, for this purpose, as if it had been received. A loss incurred upon
surrender is generally not deductible. The tax consequences of a surrender may
differ if the proceeds are received under any income payment settlement option.
A complete surrender of the Policy will, and a partial withdrawal may, under
Section 72(e)(5) of the Code, be included in your gross income to the extent
that the distribution exceeds your investment in the Policy. Withdrawals or
partial surrenders generally are not taxable unless the total of such
withdrawals exceeds total premiums paid to the date of withdrawal less the
untaxed portion of any prior withdrawals. During the first 15 policy years,
however, an additional amount may be taxable if the partial surrender results in
or is necessitated by a reduction in benefits. A qualified tax adviser should be
consulted regarding the tax consequences of any surrender or partial withdrawal
during the first 15 Policy Years.
The increase in Accumulation Value of the Policy will not be included in
gross income unless and until there is a total surrender or partial withdrawal
under the Policy. A complete surrender of the Policy will, and a partial
withdrawal may, under Section 72(e)(5) of the Code, be included in your gross
income to the extent the distribution exceeds your investment in the Policy.
The Unemployment Compensation Amendments of 1992 require us to withhold
Federal income tax at the rate of 20% on most distributions from qualified
plans, unless the distribution is an "eligible rollover distribution" as defined
by the Unemployment Compensation Act of 1992 and the Policy owner files a
written request with us for a direct rollover to an individual retirement
account as described in 408(b) of the Code, or as applicable, to another
qualified plan or a Section 403(b) arrangement that accepts rollovers.
POLICY LOANS. Under Section 72(e)(5) of the Code, loans received under the
Policy will be generally recognized as loans for tax purposes and will not be
considered to be distributions subject to tax. Pursuant to Section 163 of the
Code, interest paid to us with respect to the loan may or may not be deductible,
depending upon a number of factors. If the Policy is a Modified Endowment
Contract, a Policy loan or assignment of any portion of the Accumulation Value
will be taxable in an amount equal
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to the lesser of the amount of the loan/assignment or the excess of Accumulation
Value over the Owner's investment in the Policy. Due to the complexity of these
factors, a Policy owner should consult a competent tax adviser as to the
deductibility of interest paid on any Policy loans.
OTHER TAXES. Federal estate taxes and state and local estate, inheritance
and other taxes may become due depending on applicable law and your
circumstances or the circumstances of the Policy beneficiary if you or the
Insured dies. Any person concerned about the estate implications of the Policy
should consult a competent tax adviser.
TAXATION OF POLICIES HELD BY PENSION AND CERTAIN DEFERRED COMPENSATION PLANS
PENSION AND PROFIT-SHARING PLANS. If a Policy is purchased by a trust which
forms part of a pension or profit-sharing plan qualified under Section 401(a) of
the Code for the benefit of participants covered under the plan, the Federal
income tax treatment of such Policies will be somewhat different from that
described above. A competent tax adviser should be consulted on these matters.
DEFERRED COMPENSATION PLANS FOR PUBLIC EMPLOYEES AND EMPLOYEES OF TAX EXEMPT
ORGANIZATIONS. Section 457 of the Code permits state and local government
employers and tax exempt employers to establish deferred compensation plans for
eligible employees and independent contractors. Eligible plans limit the amount
of compensation which may be deferred. Distribution from eligible plans may
occur only upon the death of the employee, attainment of age 70 1/2, separation
from service or in the event of an unforseeable emergency. Amounts deferred may
be transferred directly to another eligible deferred compensation plan. The
employer will be the Owner and Beneficiary of all policies issued to an eligible
plan. Policies are subject to the claims of the employer's general creditors.
Death Benefit proceeds payable to the employer, some or all of which are
subsequently paid by the employer to the employee's beneficiary under the plan
will not be excludable from gross income under Section 101(a) or Section 101(b)
of the Code and will be taxable as ordinary income. An employee has no present
legal right or vested interest in such policies; an employee is entitled to
distributions only in accordance with eligible plan provisions.
TAXATION OF NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
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.
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.
LEGAL DEVELOPMENTS REGARDING EMPLOYMENT -- RELATED BENEFIT PLANS
The Policy is based on actuarial tables which distinguish between men and
women and therefore provide different benefits to men and women of the same Age.
Employers and employee organizations should consider, in consultation with legal
counsel, the impact of the Supreme Court decision of July 6, 1983 in ARIZONA
GOVERNING COMMITTEE V. NORRIS. That decision stated that optional annuity
benefits provided under an employee's deferred compensation plan could not,
under Title VII of the Civil Rights Act of 1964, vary between men and women on
the basis of sex. Employers and employee organizations should also consider, in
consultation with legal counsel, the impact of Title VII generally, and
comparable state laws that may be applicable, on any employment-related
insurance or benefit plan for which a Policy may be purchased.
Because of the NORRIS decision, the charges under the Policy that vary
depending on sex may in some cases not vary on the basis of the Insured's sex.
Unisex rates to be provided by us will apply, if
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requested on the application, for tax-qualified plans and those plans where an
employer believes that the NORRIS decision applies. In this case, references
made to the mortality tables applicable to this Policy are to be disregarded and
substituted with an 80% male 20% female blend of the 1980 Commissioner's
Standard Ordinary Smoker and Non-Smoker Mortality Tables, Age Last Birthday.
DISTRIBUTION OF THE POLICIES
We intend to sell the Policies in all jurisdictions where we are licensed.
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 35% of the premiums paid up to the annualized Minimum
Monthly Premium, plus 2.50% of additional premiums. In any subsequent Policy
Year, commissions generally will be 2.50% 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 based on the amount of
earned commissions.
MANAGEMENT
DIRECTORS
<TABLE>
<CAPTION>
TERM PRINCIPAL OCCUPATION
EXPIRES AND BUSINESS EXPERIENCE
----------- ------------------------------------------------------
<S> <C> <C>
R. Michael Conley 1997 Senior Vice President of ReliaStar Financial Corp.
since 1991; Senior Vice President, ReliaStar Employee
Benefits of Northwestern National Life Insurance
Company since 1986; President of NWNL Benefits
Corporation since 1988; Director of subsidiaries of
ReliaStar Financial Corp.
Richard R. Crowl 1999 Senior Vice President, General Counsel and Secretary
of ReliaStar Financial Corp. since 1996; Senior Vice
President and General Counsel of Northwestern National
Life Insurance Company since 1996; Executive 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 Northwestern National Life
Insurance Company from 1985 to 1996; Director and Vice
President of subsidiaries of ReliaStar Financial Corp.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
John H. Flittie 1996 President and Chief Operating Officer of ReliaStar
Financial Corp. and Northwestern National Life
Insurance Company since 1993; Vice Chairman of United
Services Life Insurance Company and Bankers Security
Life Insurance Society since 1995; Senior Executive
Vice President and Chief Operating Officer of
ReliaStar Financial Corp. and Northwestern National
Life Insurance Company from 1992 to 1993; Senior
Executive Vice President from 1991 to 1992; Executive
Vice President and Chief Financial Officer from 1989
to 1991; Director of Community First BankShares, Inc.
and subsidiaries of ReliaStar Financial Corp.
Wayne R. Huneke 1998 Senior Vice President, Chief Financial Officer and
Treasurer of ReliaStar Financial Corp. and
Northwestern National Life Insurance Company since
1994; Vice President, Treasurer and Chief Accounting
Officer from 1990 to 1994; Director of subsidiaries of
ReliaStar Financial Corp.
Kenneth U. Kuk 1997 Vice President, Strategic Marketing of ReliaStar
Financial Corp. and Northwestern National Life
Insurance Company since 1996; Vice President,
Investments of ReliaStar Financial Corp. from 1991 to
1996; President and Chief Executive Officer of
Washington Square Advisers, Inc. since 1996; Executive
Vice President of Washington Square Advisers, Inc.
from 1985 to 1995; Director of National Commercial
Finance Association and subsidiaries of ReliaStar
Financial Corp.
William R. Merriam 1996 Senior Vice President, Life & Health Reinsurance of
Northwestern National Life Insurance Company since
1991; Vice President from 1984 to 1991
Craig R. Rodby 1998 Senior Vice President, Financial Management of
ReliaStar Financial Corp. since 1994; President and
Chief Executive Officer of Northern Life Insurance
Company from 1991 to 1994; President and Chief
Operating Officer of Northern Life Insurance Company
from 1990 to 1991; Director of subsidiaries of
ReliaStar Financial Corp.
David H. Roe 1998 Senior Vice President of ReliaStar Financial Corp.
since 1995; Vice Chairman & Chief Executive Officer of
Bankers Security Life Insurance Society since 1995;
President and Chief Executive Officer of United
Services Life Insurance Company since 1995; Chairman &
Chief Executive Officer of United Services Life
Insurance Company and Bankers Security Life Insurance
Society from 1992 to 1995; President and Chief
Operating Officer of USLICO Corp. from 1992 to 1995;
President of United Services Life Insurance Company
from 1991 to 1992; Executive Vice President and Chief
Financial Officer, USAA from 1990 to 1991; Director
and President of subsidiaries of ReliaStar Financial
Corp.
Robert C. Salipante 1997 Senior Vice President, Technology of ReliaStar
Financial Corp. and Northwestern National Life
Insurance Company since 1996; Senior Vice President,
Individual Division of Northwestern National Life
Insurance Company since 1996; Senior Vice President,
Strategic Marketing and Technology of ReliaStar
Financial Corp. and Northwestern National Life
Insurance Company from 1994 to 1996; Senior Vice
President and Chief Financial Officer from 1992 to
1994; Executive Vice President of Ameritrust
Corporation from 1988 to 1992; Director of
subsidiaries of ReliaStar Financial Corp.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Donald L. Swanson 1997 Senior Vice President, ReliaStar Retirement Plans of
Northwestern National Life Insurance Company since
1993; Vice President from 1990 to 1993
John G. Turner 1998 Chairman and Chief Executive Officer of ReliaStar
Financial Corp. and Northwestern National Life
Insurance Company since 1993; Chairman of United
Services Life Insurance Company and Bankers Security
Life Insurance Society since 1995; Chairman of
Northern Life Insurance Company since 1992; Chairman,
President and Chief Executive Officer of ReliaStar
Financial Corp. and Northwestern National Life
Insurance Company in 1993; President and Chief
Executive Officer from 1991 to 1993; President and
Chief Operating Officer from 1989 to 1991; President
and Chief Operating Officer of Northwestern National
Life Insurance Company from 1986 to 1991; Director of
subsidiaries of ReliaStar Financial Corp.
Steven W. Wishart 1996 Senior Vice President and Chief Investment Officer of
ReliaStar Financial Corp. since 1989; Senior Vice
President of Northwestern National Life Insurance
Company since 1981; President and Chief Executive
Officer of ReliaStar Investment Research Inc. since
1996; President of Washington Square Capital, Inc.
from 1981 to 1996; President of WSCR, Inc. from 1986
to 1996; Director of National Benefit Resources Group
Services Inc. and subsidiaries of ReliaStar Financial
Corp.
</TABLE>
The Executive Committee and Finance Committee of our Board of Directors consists
of Directors Flittie, Huneke, Rodby, Roe, Salipante, Crowl and Turner.
EXECUTIVE OFFICERS
<TABLE>
<S> <C>
John G. Turner Chairman and Chief Executive Officer
John H. Flittie President and Chief Operating Officer
R. Michael Conley Senior Vice President -- Employee Benefits
Richard R. Crowl Senior Vice President and General Counsel
Wayne R. Huneke Senior Vice President, Chief Financial Officer and
Treasurer
Kenneth U. Kuk Vice President -- Strategic Marketing
Craig R. Rodby Senior Vice President -- Financial Management
Robert C. Salipante Senior Vice President -- Individual Insurance and
Technology
Steven W. Wishart Senior Vice President -- Investments and Pensions
</TABLE>
All of the foregoing executive officers have been officers or employees of
ours for the past five years, except Mr. Salipante and Mr. Rodby. Mr. Salipante
became employed with the Company on July 6, 1992. Prior to joining the Company,
Mr. Salipante was Executive Vice President of the Banking Services Group of
Ameritrust Corp. Mr. Rodby became employed with the Company in August, 1994.
Prior to joining the Company, Mr. Rodby was President/Chief Executive Officer,
Northern Life Insurance Company, a subsidiary of the Company.
STATE REGULATION
We are subject to the laws of the State of Minnesota governing insurance
companies and to regulation and supervision by the Insurance Division of the
State of Minnesota. 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.
In addition, we are subject to regulation under the insurance laws of other
jurisdictions in which we operate.
We are also subject to supervision and verification by the State of
Minnesota regarding participating business allocated to the Participation Fund
Account, which was established in connection with the
49
<PAGE>
reorganization and demutualization of the Company in 1989. The Participation
Fund Account was established for the purpose of maintaining the dividend
practices relative to certain policies previously issued by the Company's former
Mutual Department. The Participation Fund Account is not a separate account as
described under Minnesota Statutes Chapter 61A. An annual examination of the
Participation Fund Account is made by independent consulting actuaries
representing the Insurance Division of the State of Minnesota.
MASSACHUSETTS AND MONTANA RESIDENTS
All Policy provisions described in the prospectus that are based on the sex
of the Insured should be disregarded. This Policy will be issued on a unisex
basis.
References made to the mortality tables applicable to this Policy are to be
disregarded and substituted with an 80% male 20% female blend of the 1980
Commissioner's Standard Ordinary Smoker and Non-Smoker Mortality Tables, Age
Last Birthday.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party. We
are engaged in litigation of various kinds; however, our management does not
believe that any of this litigation is of material importance in relation to our
total assets.
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., 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 James E. Nelson, Esquire,
Attorney for the Company.
EXPERTS
The financial statements of NWNL's Select*Life Variable Account as of
December 31, 1995 and for each of the three years then ended, and the annual
financial statements of Northwestern National Life Insurance Company, 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 Craig A.
Krogstad, 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.
FINANCIAL STATEMENTS
The financial statements for the Variable Account reflect the operations of
the Variable Account and its Sub-Accounts as of December 31, 1995 and for each
of the three years in the period then ended. Although the financial statements
are audited, the periods they cover are not necessarily indicative of the longer
term performance of the assets held in the Variable Account.
The financial statements of Northwestern National Life Insurance Company
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 Northwestern National Life Insurance Company 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.
50
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Northwestern National Life Insurance
Company and Policyowners of
Select*Life Variable Account:
We have audited the accompanying statement of assets and liabilities of
Select*Life Variable Account as of December 31, 1995 and the related combined
statements of operations and changes in Policyowners' equity for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the management of Northwestern National Life Insurance
Company. Our responsibility is to express an opinion on these financial
statements based on our audits.
We have 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
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, 1995, 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
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 Select*Life Variable Account as
of December 31, 1995, and the results of its operations and changes in
Policyowners' equity for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 2, 1996
51
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
(In Thousands, Except Share and Unit Data)
<TABLE>
<CAPTION>
FIDELITY'S FIDELITY'S
SELECT SELECT VIPF VIPF
CAPITAL GROWTH MANAGED MONEY MARKET HIGH INCOME
ASSETS: FUND, INC. FUND, INC. PORTFOLIO PORTFOLIO
- ------------------------------ --------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Investments in mutual funds at
market value:
NORTHWESTERN'S:
Select Capital Growth Fund,
Inc.
0 shares (cost $-) $-
Select Managed Fund, Inc.
0 shares (cost $-) $-
FIDELITY'S VIPF AND VIPF II:
Money Market Portfolio
5,706,539 shares (cost
$5,707) $5,707
High Income Portfolio
878,558 shares (cost
$9,623) $10,587
Equity-Income Portfolio
2,198,284 shares (cost
$31,597)
Growth Portfolio
1,896,779 shares (cost
$40,243)
Overseas Portfolio
988,644 shares (cost
$15,239)
Asset Manager Portfolio
1,460,592 shares (cost
$20,850)
Investment Grade Bond
Portfolio
222,308 shares (cost
$2,561)
Index 500 Portfolio
33,823 shares (cost $2,167)
Contrafund Portfolio
141,923 shares (cost
$1,927)
PUTNAM'S PCM:
Diversified Income Fund
73,078 shares (cost $744)
Growth and Income Fund
179,987 shares (cost
$3,335)
Utilities Growth and Income
Fund
76,470 shares (cost $861)
Voyager Fund
367,618 shares (cost
$9,195)
Asia Pacific Growth Fund
29,431 shares (cost $293)
New Opportunities Fund
94,932 shares (cost $1,364)
NORTHSTAR'S:
Income and Growth Fund
9,357 shares (cost $106)
Multi-Sector Bond Fund
22,244 shares (cost $114)
--------------- ------------ -------------- --------------
Total Assets $- $- $5,707 $10,587
--------------- ------------ -------------- --------------
--------------- ------------ -------------- --------------
LIABILITIES AND POLICYOWNERS'
EQUITY:
- ------------------------------
Due to (from) Northwestern
National Life Insurance
Company for accrued
mortality and expense risk: $- $- $3 $9
Policyowners' Equity: - - 5,704 10,578
--------------- ------------ -------------- --------------
Total Liabilities and
Policyowners' Equity $- $- $5,707 $10,587
--------------- ------------ -------------- --------------
--------------- ------------ -------------- --------------
Units Outstanding: - - 454,516.667 577,083.123
Net Asset Value per Unit:
Select*Life I $- $- $15.196421 $22.685998
Select*Life Series 2000 $- $- $11.033285 $11.775682
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S VIPF
FIDELITY'S FIDELITY'S FIDELITY'S FIDELITY'S VIPF II
VIPF VIPF VIPF II INVESTMENT
EQUITY-INCOME GROWTH OVERSEAS ASSET MANAGER GRADE BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Investments in mutual funds at
market value:
NORTHWESTERN'S:
Select Capital Growth Fund,
Inc.
0 shares (cost $-)
Select Managed Fund, Inc.
0 shares (cost $-)
FIDELITY'S VIPF AND VIPF II:
Money Market Portfolio
5,706,539 shares (cost
$5,707)
High Income Portfolio
878,558 shares (cost
$9,623)
Equity-Income Portfolio
2,198,284 shares (cost
$31,597) $42,361
Growth Portfolio
1,896,779 shares (cost
$40,243) $55,386
Overseas Portfolio
988,644 shares (cost
$15,239) $16,856
Asset Manager Portfolio
1,460,592 shares (cost
$20,850) $23,063
Investment Grade Bond
Portfolio
222,308 shares (cost
$2,561) $2,774
Index 500 Portfolio
33,823 shares (cost $2,167)
Contrafund Portfolio
141,923 shares (cost
$1,927)
PUTNAM'S PCM:
Diversified Income Fund
73,078 shares (cost $744)
Growth and Income Fund
179,987 shares (cost
$3,335)
Utilities Growth and Income
Fund
76,470 shares (cost $861)
Voyager Fund
367,618 shares (cost
$9,195)
Asia Pacific Growth Fund
29,431 shares (cost $293)
New Opportunities Fund
94,932 shares (cost $1,364)
NORTHSTAR'S:
Income and Growth Fund
9,357 shares (cost $106)
Multi-Sector Bond Fund
22,244 shares (cost $114)
-------------- -------------- -------------- ----------------- -----------------
Total Assets $42,361 $55,386 $16,856 $23,063 $2,774
-------------- -------------- -------------- ----------------- -----------------
-------------- -------------- -------------- ----------------- -----------------
LIABILITIES AND POLICYOWNERS'
EQUITY:
- ------------------------------
Due to (from) Northwestern
National Life Insurance
Company for accrued
mortality and expense risk: $26 $32 $8 $13 $1
Policyowners' Equity: 42,335 55,354 16,848 23,050 2,773
-------------- -------------- -------------- ----------------- -----------------
Total Liabilities and
Policyowners' Equity $42,361 $55,386 $16,856 $23,063 $2,774
-------------- -------------- -------------- ----------------- -----------------
-------------- -------------- -------------- ----------------- -----------------
Units Outstanding: 2,023,713.030 2,622,289.757 1,229,928.330 1,704,151.254 214,771.624
Net Asset Value per Unit:
Select*Life I $24.335487 $25.923659 $16.146219 $15.635834 $14.301995
Select*Life Series 2000 $14.398497 $13.528025 $11.056847 $10.905448 $11.271917
<CAPTION>
FIDELITY'S VIPF FIDELITY'S VIPF
II II
INDEX 500 CONTRAFUND
PORTFOLIO PORTFOLIO
----------------- -----------------
<S> <C> <C>
Investments in mutual funds at
market value:
NORTHWESTERN'S:
Select Capital Growth Fund,
Inc.
0 shares (cost $-)
Select Managed Fund, Inc.
0 shares (cost $-)
FIDELITY'S VIPF AND VIPF II:
Money Market Portfolio
5,706,539 shares (cost
$5,707)
High Income Portfolio
878,558 shares (cost
$9,623)
Equity-Income Portfolio
2,198,284 shares (cost
$31,597)
Growth Portfolio
1,896,779 shares (cost
$40,243)
Overseas Portfolio
988,644 shares (cost
$15,239)
Asset Manager Portfolio
1,460,592 shares (cost
$20,850)
Investment Grade Bond
Portfolio
222,308 shares (cost
$2,561)
Index 500 Portfolio
33,823 shares (cost $2,167) $2,561
Contrafund Portfolio
141,923 shares (cost
$1,927) $1,956
PUTNAM'S PCM:
Diversified Income Fund
73,078 shares (cost $744)
Growth and Income Fund
179,987 shares (cost
$3,335)
Utilities Growth and Income
Fund
76,470 shares (cost $861)
Voyager Fund
367,618 shares (cost
$9,195)
Asia Pacific Growth Fund
29,431 shares (cost $293)
New Opportunities Fund
94,932 shares (cost $1,364)
NORTHSTAR'S:
Income and Growth Fund
9,357 shares (cost $106)
Multi-Sector Bond Fund
22,244 shares (cost $114)
----------------- -----------------
Total Assets $2,561 $1,956
----------------- -----------------
----------------- -----------------
LIABILITIES AND POLICYOWNERS'
EQUITY:
- ------------------------------
Due to (from) Northwestern
National Life Insurance
Company for accrued
mortality and expense risk: $4 $-
Policyowners' Equity: 2,557 1,956
----------------- -----------------
Total Liabilities and
Policyowners' Equity $2,561 $1,956
----------------- -----------------
----------------- -----------------
Units Outstanding: 181,509.017 160,147.180
Net Asset Value per Unit:
Select*Life I $14.548311 $-
Select*Life Series 2000 $13.834477 $12.215088
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES, Continued
December 31, 1995
(In Thousands, Except Share and Unit Data)
<TABLE>
<CAPTION>
PUTNAM'S PCM
PUTNAM'S PCM PUTNAM'S PCM UTILITIES
DIVERSIFIED GROWTH AND GROWTH PUTNAM'S PCM
INCOME INCOME AND INCOME VOYAGER
ASSETS: FUND FUND FUND FUND
- ------------------------------ --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Investments in mutual funds at
market value:
NORTHWESTERN'S:
Select Capital Growth Fund,
Inc.
0 shares (cost $-)
Select Managed Fund, Inc.
0 shares (cost $-)
FIDELITY'S VIPF AND VIPF II:
Money Market Portfolio
5,706,539 shares (cost
$5,707)
High Income Portfolio
878,558 shares (cost
$9,623)
Equity-Income Portfolio
2,198,284 shares (cost
$31,597)
Growth Portfolio
1,896,779 shares (cost
$40,243)
Overseas Portfolio
988,644 shares (cost
$15,239)
Asset Manager Portfolio
1,460,592 shares (cost
$20,850)
Investment Grade Bond
Portfolio
222,308 shares (cost
$2,561)
Index 500 Portfolio
33,823 shares (cost $2,167)
Contrafund Portfolio
141,923 shares (cost
$1,927)
PUTNAM'S PCM:
Diversified Income Fund
73,078 shares (cost $744) $806
Growth and Income Fund
179,987 shares (cost
$3,335) $3,864
Utilities Growth and Income
Fund
76,470 shares (cost $861) $1,015
Voyager Fund
367,618 shares (cost
$9,195) $11,212
Asia Pacific Growth Fund
29,431 shares (cost $293)
New Opportunities Fund
94,932 shares (cost $1,364)
NORTHSTAR'S:
Income and Growth Fund
9,357 shares (cost $106)
Multi-Sector Bond Fund
22,244 shares (cost $114)
--------------- --------------- --------------- ---------------
Total Assets $806 $3,864 $1,015 $11,212
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
LIABILITIES AND POLICYOWNERS'
EQUITY:
- ------------------------------
Due to (from) Northwestern
National Life Insurance
Company for accrued
mortality and expense risks: $- $- $- $2
Policyowners' Equity: 806 3,864 1,015 11,210
--------------- --------------- --------------- ---------------
Total Liabilities and
Policyowners' Equity $806 $3,864 $1,015 $11,212
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Units Outstanding: 70,401.445 282,045.753 81,748.531 781,013.273
Net Asset Value per Unit:
Select*Life I $11.671211 $13.783753 $12.696559 $14.653218
Select*Life Series 2000 $11.375328 $13.687901 $12.342637 $14.315742
</TABLE>
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
<TABLE>
<CAPTION>
PUTNAM'S PCM PUTNAM'S PCM NORTHSTAR'S
ASIA PACIFIC NEW INCOME NORTHSTAR'S
GROWTH OPPORTUNITIES AND GROWTH MULTI-SECTOR BOND
FUND FUND FUND FUND TOTAL
--------------- --------------- ------------ ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Investments in mutual funds at
market value:
NORTHWESTERN'S:
Select Capital Growth Fund,
Inc.
0 shares (cost $-) $-
Select Managed Fund, Inc.
0 shares (cost $-) -
FIDELITY'S VIPF AND VIPF II:
Money Market Portfolio
5,706,539 shares (cost
$5,707) 5,707
High Income Portfolio
878,558 shares (cost
$9,623) 10,587
Equity-Income Portfolio
2,198,284 shares (cost
$31,597) 42,361
Growth Portfolio
1,896,779 shares (cost
$40,243) 55,386
Overseas Portfolio
988,644 shares (cost
$15,239) 16,856
Asset Manager Portfolio
1,460,592 shares (cost
$20,850) 23,063
Investment Grade Bond
Portfolio
222,308 shares (cost
$2,561) 2,774
Index 500 Portfolio
33,823 shares (cost $2,167) 2,561
Contrafund Portfolio
141,923 shares (cost
$1,927) 1,956
PUTNAM'S PCM:
Diversified Income Fund
73,078 shares (cost $744) 806
Growth and Income Fund
179,987 shares (cost
$3,335) 3,864
Utilities Growth and Income
Fund
76,470 shares (cost $861) 1,015
Voyager Fund
367,618 shares (cost
$9,195) 11,212
Asia Pacific Growth Fund
29,431 shares (cost $293) $301 301
New Opportunities Fund
94,932 shares (cost $1,364) $1,484 1,484
NORTHSTAR'S:
Income and Growth Fund
9,357 shares (cost $106) $107 107
Multi-Sector Bond Fund
22,244 shares (cost $114) $114 114
--------------- --------------- ------------ ------------------ ---------------
Total Assets $301 $1,484 $107 $114 $180,154
--------------- --------------- ------------ ------------------ ---------------
--------------- --------------- ------------ ------------------ ---------------
LIABILITIES AND POLICYOWNERS'
EQUITY:
- ------------------------------
Due to (from) Northwestern
National Life Insurance
Company for accrued
mortality and expense risks: $- $(1) $- $- $97
Policyowners' Equity: 301 1,485 107 114 180,057
--------------- --------------- ------------ ------------------ ---------------
Total Liabilities and
Policyowners' Equity $301 $1,484 $107 $114 $180,154
--------------- --------------- ------------ ------------------ ---------------
--------------- --------------- ------------ ------------------ ---------------
Units Outstanding: 29,436.771 110,223.166 8,746.326 9,904.096 10,541,629.343
Net Asset Value per Unit:
Select*Life I $- $- $- $-
Select*Life Series 2000 $10.230000 $13.474132 $12.188280 $11.545303
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES
IN POLICYOWNERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income..................................................... $2,259 $1,454 $1,145
Reinvested capital gains....................................................... 1,456 2,880 417
Mortality and expense risk charge.............................................. (1,186) (692) (421)
------------- ------------- -------------
Net investment income and capital gains...................................... 2,529 3,642 1,141
------------- ------------- -------------
Realized and unrealized gains:
Net realized gains on redemptions of fund shares............................... 1,345 896 372
Increase (decrease) in unrealized appreciation of investments.................. 27,857 (4,458) 6,621
------------- ------------- -------------
Net realized and unrealized gains (losses)................................... 29,202 (3,562) 6,993
------------- ------------- -------------
Additions from operations.................................................. 31,731 80 8,134
------------- ------------- -------------
Policyowner transactions:
Net premium payments........................................................... 66,506 49,268 27,248
Transfers (to) from Fixed Accounts............................................. (401) (35) 48
Policy loans................................................................... (1,582) (781) (596)
Loan collateral interest crediting............................................. 101 69 45
Surrenders..................................................................... (3,576) (2,080) (1,351)
Death benefits................................................................. (220) (87) (42)
Cost of insurance charges...................................................... (12,860) (8,762) (5,120)
Death benefit guarantee charges................................................ (488) (531) (402)
Monthly expense charges........................................................ (1,831) (1,057) (583)
------------- ------------- -------------
Additions for policyowner transactions....................................... 45,649 36,004 19,247
------------- ------------- -------------
Net additions for the year................................................. 77,380 36,084 27,381
Policyowners' Equity, beginning of the year...................................... 102,677 66,593 39,212
------------- ------------- -------------
Policyowners' Equity, end of the year............................................ $180,057 $102,677 $66,593
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND CONTRACTS:
NWNL Select*Life Variable Account (the "Account") is a separate account of
Northwestern National Life Insurance Company ("NWNL" or "Northwestern"), a
wholly owned subsidiary of ReliaStar Financial Corp (formerly The NWNL
Companies, Inc.). The Account is registered as a unit investment trust under
the Investment Company Act of 1940.
Payments received under the contracts are allocated to Sub-Accounts of the
Account, each of which invested in one of the Funds listed below during the
year (see note 4):
<TABLE>
<CAPTION>
FIDELITY'S VIPF AND VIPF II: PUTNAM'S PCM: NORTHSTAR FUNDS:
- ----------------------------------- ----------------------------------- -------------------------
<S> <C> <C>
Money Market Portfolio Diversified Income Fund Income and Growth Fund
High Income Portfolio Growth and Income Fund Multi-Sector Bond Fund
Equity-Income Portfolio Utilities Growth and Income Fund
Growth Portfolio Voyager Fund
Overseas Portfolio Asia Pacific Growth Fund
Asset Manager Portfolio New Opportunities Fund
Investment Grade Bond Portfolio
Index 500 Portfolio
Contrafund Portfolio
</TABLE>
Northstar Investment Management Corporation, an affiliate of NWNL, is the
investment adviser for the two Northstar Funds and is paid fees for its
services by the Northstar Funds. Fidelity Management & Research Company is the
investment adviser for Fidelity's VIPF and VIPF II and is paid for its
services by the VIPF and VIPF II Portfolios. Putnam Investment Management,
Inc. is the investment adviser for the PCM Funds and is paid fees for its
services by the PCM Funds. On May 3, 1993, NWNL added the Sub-Account
investing in the VIPF II Index 500 Portfolio. On January 1, 1994, Sub-Accounts
investing in PCM's Diversified Income Fund, Growth and Income Fund, Utilities
Growth and Income Fund and Voyager Fund were made available through the
Select*Life Series 2000 policies and on May 2, 1994, Sub-Accounts investing in
these PCM Funds were made available to Select*Life I policies. On December 30,
1994, Sub-Accounts investing in the Northstar Funds were made available to
Select*Life Series 2000 policies. On April 30, 1995 Sub-Accounts investing in
the VIPF II Contrafund Portfolio, the PCM Asia Pacific Growth Fund and the PCM
New Opportunities Fund were made available to Select*Life Series 2000
policies.
SECURITIES VALUATION AND TRANSACTIONS:
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 period. Investment
transactions are accounted for on the trade date (date the order to purchase
or redeem is executed) and dividend income and capital distributions is
recorded on the ex-dividend date. Net realized gains and losses on redemptions
of shares of the Funds are determined on the basis of specific identification
of Fund's share costs. Net investment income and realized and unrealized gain
(loss) on investments of each Sub-Account are allocated to the Policies on
each valuation date based on each policy's pro-rata share of the net assets of
each Sub-Account as of the beginning of the valuation period.
2. 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 NWNL.
3. POLICY CHARGES:
Certain charges are made by NWNL to Policyowners' Variable Accumulation Values
in the Account in accordance with the terms of the Policies. These charges may
include: Cost of Insurance, computed as set forth in the Policies; a Monthly
Expense Charge as set forth in the Policies: 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.
NWNL assumes mortality and expense risks and, to cover these risks, deducts
charges in accordance with the terms of the policies from the assets of the
Account to compensate for these expenses and risks.
4. NORTHWESTERN'S SELECT FUNDS:
On May 1, 1995, Select Capital Growth Fund, Inc. ("SCG") and Select Managed
Fund, Inc. ("SMF") were liquidated, and Policy Owners' values in the
Sub-Accounts investing in SCG and SMF were transferred to the Sub-Accounts
investing in shares of the VIPF Growth Portfolio and VIPF II Asset Manager
Portfolio, respectively.
57
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. INVESTMENTS:
The net realized gains (losses) on redemptions of fund shares during the
years ended December 31, 1995, 1994 and 1993 were as follows, (in thousands):
<TABLE>
<CAPTION>
SELECT
CAPITAL GROWTH
TOTAL FUND, INC.
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions.......... $18,128 $7,424 $3,665 $2,470 $347 $389
Cost............................... 16,783 6,528 3,293 2,608 385 413
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $1,345 $896 $372 $(138) $(38) $(24)
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S VIPF FIDELITY'S VIPF
HIGH INCOME EQUITY-INCOME
PORTFOLIO PORTFOLIO
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions.......... $1,149 $551 $453 $1,111 $1,079 $247
Cost............................... 947 407 343 821 877 194
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $202 $144 $110 $290 $202 $53
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S VIPF II FIDELITY'S VIPF II
ASSET MANAGER INVESTMENT GRADE
PORTFOLIO BOND PORTFOLIO
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions.......... $2,494 $941 $107 $329 $247 $104
Cost............................... 2,326 839 91 327 254 95
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $168 $102 $16 $2 $(7) $9
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
58
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
SELECT FIDELITY'S VIPF
MANAGED MONEY MARKET
FUND, INC. PORTFOLIO
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions.......... $4,660 $820 $951 $2,499 $1,572 $850
Cost............................... 4,677 741 857 2,499 1572 850
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $(17) $79 $94 $- $- $-
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S VIPF FIDELITY'S VIPF
GROWTH OVERSEAS
PORTFOLIO PORTFOLIO
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions.......... $967 $1,007 $329 $1,486 $729 $193
Cost............................... 538 717 214 1,219 606 195
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $429 $290 $115 $267 $123 $(2)
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S VIPF II FIDELITY'S VIPF II
INDEX 500 CONTRAFUND
PORTFOLIO PORTFOLIO
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions.......... $208 $53 $42 $92 $- $-
Cost............................... 168 53 41 79 - -
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $40 $- $1 $13 $- $-
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
59
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. INVESTMENTS (CONTINUED):
The net realized gains (losses) on redemptions of fund shares during the
years ended December 31, 1995, 1994 and 1993 were as follows, (in thousands):
<TABLE>
<CAPTION>
PUTNAM'S PCM PUTNAM'S PCM
DIVERSIFIED INCOME GROWTH AND INCOME
FUND FUND
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions.......... $40 $9 $- $102 $7 $-
Cost............................... 38 9 - 85 7 -
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $2 $- $- $17 $- $-
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
PUTNAM'S PCM PUTNAM'S PCM
ASIA PACIFIC NEW OPPORTUNITIES
GROWTH FUND FUND
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions.......... $23 $- $- $113 $- $-
Cost............................... 23 - - 91 - -
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $- $- $- $22 $- $-
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
60
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
PUTNAM'S PCM PUTNAM'S PCM
UTILITIES GROWTH AND INCOME VOYAGER
FUND FUND
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions.......... $184 $49 $- $154 $13 $-
Cost............................... 164 48 - 126 13 -
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $20 $1 $- $28 $- $-
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
NORTHSTAR'S NORTHSTAR'S
INCOME AND GROWTH MULTI-SECTOR BOND
FUND FUND
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions.......... $3 $- $- $44 $- $-
Cost............................... 3 - - 44 - -
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $- $- $- $- $- $-
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
61
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. POLICYOWNERS' TRANSACTIONS:
Unit transactions in each Sub-Account for the years ended December 31, 1995,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
SELECT
CAPITAL SELECT
GROWTH MANAGED
FUND, INC. FUND, INC.
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year................ 157,399.779 162,138.780 167,471.597 286,168.977 311,725.041 330,827.372
Units purchased.................... 9,126.623 27,211.524 35,065.805 12,895.412 43,556.351 66,936.131
Units redeemed..................... (7,913.917) (21,989.106) (24,409.857) (10,403.233) (46,804.601) (43,441.272)
Units transferred between
Sub-Accounts and/or
Fixed Account.................... (158,612.485) (9,961.419) (15,988.765) (288,661.156) (22,307.814) (42,597.190)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding,
end of year...................... - 157,399.779 162,138.780 - 286,168.977 311,725.041
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S VIPF FIDELITY'S VIPF
GROWTH OVERSEAS
PORTFOLIO PORTFOLIO
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year................ 1,761,649.810 1,096,817.909 753,498.577 900,424.038 379,052.212 211,691.220
Units purchased.................... 1,030,790.587 953,158.878 496,602.667 617,148.362 556,399.917 175,560.984
Units redeemed..................... (342,106.549) (244,337.361) (162,473.724) (177,939.623) (111,750.664) (44,967.546)
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 171,955.909 (43,989.616) 9,190.389 (109,704.447) 76,722.573 36,767.554
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding,
end of year...................... 2,622,289.757 1,761,649.810 1,096,817.909 1,229,928.330 900,424.038 379,052.212
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
62
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S VIPF FIDELITY'S VIPF
MONEY MARKET HIGH INCOME
PORTFOLIO PORTFOLIO
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year................ 240,089.964 156,045.604 152,805.620 397,251.963 254,797.519 161,227.749
Units purchased.................... 409,244.895 165,487.964 69,682.856 262,813.321 211,773.478 130,562.696
Units redeemed..................... (51,202.041) (28,807.773) (20,926.325) (82,813.141) (56,358.865) (33,540.569)
Units transferred between
Sub-Accounts and/or
Fixed Account.................... (143,616.151) (52,635.831) (45,516.547) (169.020) (12,960.169) (3,452.357)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding,
end of year...................... 454,516.667 240,089.964 156,045.604 577,083.123 397,251.963 254,797.519
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
FIDELITY'S VIPF
EQUITY-INCOME
PORTFOLIO
-------------------------------------------
Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Units outstanding,
beginning of year................ 1,463,010.155 1,055,644.747 771,398.437
Units purchased.................... 749,089.473 601,244.662 401,078.064
Units redeemed..................... (256,323.181) (192,736.128) (135,688.853)
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 67,936.583 (1,143.126) 18,857.099
------------- ------------- -------------
Units outstanding,
end of year...................... 2,023,713.030 1,463,010.155 1,055,644.747
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S VIPF II FIDELITY'S VIPF II
ASSET MANAGER INVESTMENT GRADE
PORTFOLIO BOND PORTFOLIO
----------------------------------------------- ------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
--------------- --------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year................ 1,132,373.018 397,491.821 97,757.370 153,890.893 73,061.118 24,463.839
Units purchased.................... 711,584.303 860,156.216 298,692.189 89,695.793 93,970.791 52,917.549
Units redeemed..................... (245,931.324) (135,570.699) (44,480.151) (25,144.781) (15,634.489) (7,850.519)
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 106,125.257 10,295.680 45,522.413 (3,670.281) 2,493.473 3,530.249
--------------- --------------- ------------- ------------- ------------- ------------
Units outstanding,
end of year...................... 1,704,151.254 1,132,373.018 397,491.821 214,771.624 153,890.893 73,061.118
--------------- --------------- ------------- ------------- ------------- ------------
--------------- --------------- ------------- ------------- ------------- ------------
<CAPTION>
FIDELITY'S VIPF II
INDEX 500
PORTFOLIO
-----------------------------------------
Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Units outstanding,
beginning of year................ 70,686.713 23,356.992 -
Units purchased.................... 108,548.505 53,563.087 22,259.709
Units redeemed..................... (20,962.032) (8,321.224) (1,097.320)
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 23,235.831 2,087.858 2,194.603
------------- ------------ ------------
Units outstanding,
end of year...................... 181,509.017 70,686.713 23,356.992
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
63
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. POLICYOWNERS' TRANSACTIONS (CONTINUED):
Unit transactions in each Sub-Account for the years ended December 31, 1995,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
FIDELITY'S VIPF II PUTNAM'S PCM
CONTRAFUND DIVERSIFIED INCOME
PORTFOLIO FUND
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year................ - - - 25,076.593 - -
Units purchased.................... 131,616.362 - - 37,489.819 18,122.626 -
Units reedeemed.................... (12,028.370) - - (7,437.939) (1,598.271) -
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 40,559.188 - - 15,272.972 8,552.238 -
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding,
end of year...................... 160,147.180 - - 70,401.445 25,076.593 -
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
PUTNAM'S PCM PUTNAM'S PCM
ASIA PACIFIC GROWTH NEW OPPORTUNITIES
FUND FUND
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year................ - - - - - -
Units purchased.................... 25,202.823 - - 86,605.419 - -
Units redeemed..................... (2,640.223) - - (8,233.093) - -
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 6,874.171 - - 31,850.840 - -
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding,
end of year...................... 29,436.771 - - 110,223.166 - -
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
64
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
PUTNAM'S PCM PUTNAM'S PCM
GROWTH AND INCOME UTILITIES GROWTH AND
FUND INCOME FUND
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year................ 64,421.965 - - 46,807.467 - -
Units purchased.................... 209,131.345 61,265.475 - 47,951.821 30,500.830 -
Units reedeemed.................... (32,341.113) (6,093.938) - (10,123.479) (3,408.255) -
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 40,833.556 9,250.428 - (2,887.278) 19,714.892 -
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding,
end of year...................... 282,045.753 64,421.965 - 81,748.531 46,807.467 -
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
PUTNAM'S PCM
VOYAGER
FUND
-------------------------------------------
Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Units outstanding,
beginning of year................ 199,880.663 - -
Units purchased.................... 611,602.541 191,562.886 -
Units reedeemed.................... (101,392.794) (18,498.061) -
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 70,922.863 26,815.838 -
------------- ------------- -------------
Units outstanding,
end of year...................... 781,013.273 199,880.663 -
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
NORTHSTAR'S NORTHSTAR'S
INCOME AND GROWTH MULTI-SECTOR BOND
FUND FUND
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year................ - - - - - -
Units purchased.................... 6,057.272 - - 3,255.666 - -
Units redeemed..................... (537.367) - - (424.093) - -
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 3,226.421 - - 7,072.523 - -
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding,
end of year...................... 8,746.326 - - 9,904.096 - -
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
65
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, Continued
7. COMBINING STATEMENT OF OPERATIONS AND CHANGES IN POLICYOWNERS' EQUITY:
Operations and changes in Policyowners' equity for the year ended December
31, 1995 were as follows, (in thousands):
<TABLE>
<CAPTION>
FIDELITY'S FIDELITY'S FIDELITY'S
SELECT VIPF VIPF VIPF FIDELITY'S
CAPITAL SELECT MONEY HIGH EQUITY- VIPF
GROWTH MANAGED MARKET INCOME INCOME GROWTH
TOTAL FUND, INC. FUND, INC. PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income:
Reinvested dividend
income..................... $2,259 $- $- $254 $514 $798 $172
Reinvested capital gains.... 1,456 - - - - 1,292 -
Mortality and expense risk
charge..................... (1,186) (6) (12) (41) (74) (276) (367)
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment income
(loss)
and capital gains...... 2,529 (6) (12) 213 440 1,814 (195)
--------- ---------- ---------- ---------- ---------- ---------- ----------
Realized and unrealized gains
(losses):
Net realized gains (losses)
on redemptions of fund
shares..................... 1,345 (138) (17) - 202 290 429
Increase in unrealized
appreciation on
investments................ 27,857 217 170 - 906 7,526 11,788
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized and
unrealized gains....... 29,202 79 153 - 1,108 7,816 12,217
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net additions
from operations...... 31,731 73 141 213 1,548 9,630 12,022
--------- ---------- ---------- ---------- ---------- ---------- ----------
Policyowner transactions:
Net premium payments........ 66,506 123 188 4,498 3,599 11,299 15,747
Transfers (to) from Fixed
Account.................... (401) (2,420) (4,589) (1,606) 63 1,140 3,598
Policy loans................ (1,582) (5) (21) (28) (105) (592) (541)
Loan collateral interest
crediting.................. 101 2 5 5 6 26 34
Surrenders.................. (3,576) (45) (25) (99) (217) (893) (1,219)
Death benefits.............. (220) (1) - - (30) (60) (34)
Cost of insurance charges... (12,860) (53) (94) (423) (819) (2,545) (3,745)
Death benefit guarantee
charges.................... (488) (3) (5) (10) (36) (120) (179)
Monthly expense charges..... (1,831) (7) (13) (37) (99) (336) (536)
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net additions
(reductions) for
policyowner
transactions........... 45,649 (2,409) (4,554) 2,300 2,362 7,919 13,125
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net additions
(reductions)
for the year......... 77,380 (2,336) (4,413) 2,513 3,910 17,549 25,147
Policyowners' Equity,
beginning of the year....... 102,677 2,336 4,413 3,191 6,668 24,786 30,207
--------- ---------- ---------- ---------- ---------- ---------- ----------
Policyowners' Equity,
end of the year............. $180,057 $- $- $5,704 $10,578 $42,335 $55,354
--------- ---------- ---------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
66
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S
FIDELITY'S VIPF II PUTNAM'S PUTNAM'S
FIDELITY'S VIPF II INVESTMENT FIDELITY'S FIDELITY'S PCM PCM
VIPF ASSET GRADE VIPF II VIPF II DIVERSIFIED GROWTH AND
OVERSEAS MANAGER BOND INDEX 500 CONTRAFUND INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income:
Reinvested dividend
income..................... $48 $289 $65 $13 $8 $16 $32
Reinvested capital gains.... 49 - - 2 16 - 18
Mortality and expense risk
charge..................... (123) (159) (18) (13) (5) (4) (19)
---------- ---------- ----------- ---------- ----------- ---------- ------------
Net investment income
(loss)
and capital gains...... (26) 130 47 2 19 12 31
---------- ---------- ----------- ---------- ----------- ---------- ------------
Realized and unrealized gains
(losses):
Net realized gains (losses)
on redemptions of fund
shares..................... 267 168 2 40 13 2 17
Increase in unrealized
appreciation on
investments................ 1,073 2,652 273 390 29 63 529
---------- ---------- ----------- ---------- ----------- ---------- ------------
Net realized and
unrealized gains....... 1,340 2,820 275 430 42 65 546
---------- ---------- ----------- ---------- ----------- ---------- ------------
Net additions
from operations...... 1,314 2,950 322 432 61 77 577
---------- ---------- ----------- ---------- ----------- ---------- ------------
Policyowner transactions:
Net premium payments........ 7,140 7,749 983 1,343 1,567 391 2,526
Transfers (to) from Fixed
Account.................... (1,410) 1,972 (36) 295 466 172 490
Policy loans................ (132) (126) 23 (3) (2) (4) (10)
Loan collateral interest
crediting.................. 10 13 - - - - -
Surrenders.................. (357) (535) (53) (24) (1) (4) (13)
Death benefits.............. (27) (37) (15) (12) - (2) (2)
Cost of insurance charges... (1,417) (1,841) (187) (178) (114) (55) (296)
Death benefit guarantee
charges.................... (55) (65) (7) (3) - - (1)
Monthly expense charges..... (205) (242) (22) (30) (21) (9) (53)
---------- ---------- ----------- ---------- ----------- ---------- ------------
Net additions
(reductions) for
policyowner
transactions........... 3,547 6,888 686 1,388 1,895 489 2,641
---------- ---------- ----------- ---------- ----------- ---------- ------------
Net additions
(reductions)
for the year......... 4,861 9,838 1,008 1,820 1,956 566 3,218
Policyowners' Equity,
beginning of the year....... 11,987 13,212 1,765 737 - 240 646
---------- ---------- ----------- ---------- ----------- ---------- ------------
Policyowners' Equity,
end of the year............. $16,848 $23,050 $2,773 $2,557 $1,956 $806 $3,864
---------- ---------- ----------- ---------- ----------- ---------- ------------
---------- ---------- ----------- ---------- ----------- ---------- ------------
</TABLE>
67
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. COMBINING STATEMENT OF OPERATIONS AND CHANGES IN POLICYOWNERS' EQUITY
(CONTINUED):
Operations and changes in Policyowners' equity for the year ended December
31, 1995 were as follows, (in thousands):
<TABLE>
<CAPTION>
PUTNAM'S
PUTNAM'S PCM PUTNAM'S
PCM PUTNAM'S ASIA PCM NORTHSTAR'S NORTHSTAR'S
UTILITIES GROWTH PCM PACIFIC NEW INCOME AND MULTI-SECTOR
AND INCOME VOYAGER GROWTH OPPORTUNITIES GROWTH BOND
FUND FUND FUND FUND FUND FUND
---------------- ----------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Reinvested dividend income................ $ 32 $ 10 $ - $ - $ 2 $ 6
Reinvested capital gains.................. - 77 - - 2 -
Mortality and expense risk charge......... (7) (56) (1) (4) - (1)
-------- ----------- ----------- ------------- ----------- ------------
Net investment income
(loss) and capital gains............. 25 31 (1) (4) 4 5
-------- ----------- ----------- ------------- ----------- ------------
Realized and unrealized gains:
Net realized gains on
redemptions of fund shares............... 20 28 - 22 - -
Increase in unrealized
appreciation on investments.............. 161 1,951 8 120 1 -
-------- ----------- ----------- ------------- ----------- ------------
Net realized and
unrealized gains..................... 181 1,979 8 142 1 -
-------- ----------- ----------- ------------- ----------- ------------
Net additions
from operations.................... 206 2,010 7 138 5 5
-------- ----------- ----------- ------------- ----------- ------------
Policyowner transactions:
Net premium payments...................... 505 7,418 251 1,072 71 36
Transfers (to) from Fixed Account......... (40) 947 68 375 37 77
Policy loans.............................. (1) (31) - (4) - -
Loan collateral interest crediting........ - - - - - -
Surrenders................................ (9) (81) - (1) - -
Death benefits............................ - - - - - -
Cost of insurance charges................. (80) (902) (22) (80) (5) (4)
Death benefit guarantee charges........... (1) (3) - - - -
Monthly expense charges................... (13) (189) (3) (15) (1) -
-------- ----------- ----------- ------------- ----------- ------------
Net additions for
policyowner transactions............. 361 7,159 294 1,347 102 109
-------- ----------- ----------- ------------- ----------- ------------
Net additions
for the year....................... 567 9,169 301 1,485 107 114
Policyowners' Equity,
beginning of the year...................... 448 2,041 - - - -
-------- ----------- ----------- ------------- ----------- ------------
Policyowners' Equity,
end of the year............................ $ 1,015 $ 11,210 $ 301 $ 1,485 $ 107 $ 114
-------- ----------- ----------- ------------- ----------- ------------
-------- ----------- ----------- ------------- ----------- ------------
</TABLE>
68
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholder
Northwestern National Life Insurance Company
(A Wholly Owned Subsidiary of ReliaStar Financial Corp.)
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of Northwestern
National Life Insurance Company and Subsidiaries as of December 31, 1995 and
1994, and the related statements of income, shareholder's equity, and cash flows
for each of the two years in the period ended December 31, 1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Northwestern
National Life Insurance Company and Subsidiaries as of December 31, 1995 and
1994 and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 1, 1996
69
<PAGE>
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Investments
Fixed Maturity Securities
Available-for-Sale (Amortized Cost: 1995, $8,485.4; 1994, $3,638.6)................ $ 9,053.7 $ 3,470.6
Held-to-Maturity (Fair Value: $2,253.0)............................................ -- 2,310.4
Equity Securities (Cost: 1995, $34.8; 1994, $45.9)................................... 35.9 43.7
Mortgage Loans on Real Estate........................................................ 1,948.4 1,570.3
Real Estate and Leases............................................................... 97.9 111.0
Policy Loans......................................................................... 499.8 306.8
Other Invested Assets................................................................ 47.0 42.3
Short-Term Investments............................................................... 122.4 59.9
----------- -----------
Total Investments.................................................................. 11,805.1 7,915.0
Cash................................................................................... 43.0 19.8
Accounts and Notes Receivable.......................................................... 150.9 118.2
Reinsurance Receivable................................................................. 162.9 93.9
Deferred Policy Acquisition Costs...................................................... 860.7 885.2
Present Value of Future Profits........................................................ 192.0 --
Property and Equipment, Net............................................................ 122.6 121.1
Accrued Investment Income.............................................................. 164.7 112.2
Other Assets........................................................................... 275.0 128.4
Participation Fund Account Assets...................................................... 319.6 323.4
Assets Held in Separate Accounts....................................................... 1,369.0 623.6
----------- -----------
Total Assets....................................................................... $ 15,465.5 $ 10,340.8
----------- -----------
----------- -----------
LIABILITIES
Future Policy and Contract Benefits.................................................... $ 11,033.2 $ 7,823.6
Pending Policy Claims.................................................................. 257.7 193.5
Other Policyholder Funds............................................................... 174.4 157.2
Notes and Mortgages Payable - Unaffiliated............................................. 144.6 74.8
Note Payable - Parent.................................................................. 100.0 100.0
Income Taxes........................................................................... 169.2 --
Other Liabilities...................................................................... 328.9 235.0
Participation Fund Account Liabilities................................................. 319.6 323.4
Liabilities Related to Separate Accounts............................................... 1,362.9 623.6
----------- -----------
Total Liabilities.................................................................. 13,890.5 9,531.1
----------- -----------
SHAREHOLDER'S EQUITY
Common Stock (2.0 Million Shares Issued in 1995 and 1994).............................. 2.5 2.5
Additional Paid-In Capital............................................................. 538.9 216.4
Net Unrealized Investment Gains (Losses) .............................................. 246.8 (79.4)
Retained Earnings...................................................................... 786.8 670.2
----------- -----------
Total Shareholder's Equity......................................................... 1,575.0 809.7
----------- -----------
Total Liabilities and Shareholder's Equity....................................... $ 15,465.5 $ 10,340.8
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
70
<PAGE>
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1995 1994
---------- ----------
<S> <C> <C>
REVENUES
Premiums............................................................................... $ 851.5 $ 726.9
Net Investment Income.................................................................. 890.3 618.1
Realized Investment Gains (Losses)..................................................... 7.4 (27.4)
Policy and Contract Charges............................................................ 218.5 136.2
Other Income........................................................................... 94.4 111.1
---------- ----------
Total................................................................................ 2,062.1 1,564.9
---------- ----------
BENEFITS AND EXPENSES
Benefits to Policyholders.............................................................. 1,321.9 1,025.8
Sales and Operating Expenses........................................................... 344.4 281.8
Amortization of Deferred Policy Acquisition Costs and Present Value of Future
Profits............................................................................... 90.5 56.7
Interest Expense....................................................................... 13.5 15.2
Dividends and Experience Refunds to Policyholders...................................... 23.4 19.0
---------- ----------
Total................................................................................ 1,793.7 1,398.5
---------- ----------
Income from Continuing Operations before Income Taxes.................................... 268.4 166.4
Income Tax Expense..................................................................... 94.4 57.9
---------- ----------
Income from Continuing Operations.................................................... 174.0 108.5
---------- ----------
Loss from Discontinued Operations...................................................... (5.4) (2.6)
---------- ----------
Net Income........................................................................... $ 168.6 $ 105.9
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
71
<PAGE>
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
---------------------
1995 1994
---------- ---------
<S> <C> <C>
SHAREHOLDER'S EQUITY
Common Stock
Beginning and End of Year.............................................................. $ 2.5 $ 2.5
---------- ---------
Additional Paid-In Capital
Beginning of Year...................................................................... 216.4 216.4
Capital Contributions from Parent...................................................... 322.5 --
---------- ---------
End of Year.......................................................................... 538.9 216.4
---------- ---------
Net Unrealized Investment Gains (Losses)
Beginning of Year...................................................................... (79.4) 1.8
Cumulative Effect of Accounting Change -- Securities................................... -- 85.3
Change for the Year.................................................................... 326.2 (166.5)
---------- ---------
End of Year.......................................................................... 246.8 (79.4)
---------- ---------
Retained Earnings
Beginning of Year...................................................................... 670.2 588.3
Net Income............................................................................. 168.6 105.9
Dividends to Shareholder............................................................... (52.0) (24.0)
---------- ---------
End of Year.......................................................................... 786.8 670.2
---------- ---------
Total Shareholder's Equity............................................................... $ 1,575.0 $ 809.7
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
72
<PAGE>
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1995 1994
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income............................................................................... $ 168.6 $ 105.9
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Interest Credited to Insurance Contracts............................................... 500.1 364.7
Future Policy Benefits................................................................. (117.5) (60.1)
Capitalization of Policy Acquisition Costs............................................. (176.6) (119.0)
Amortization of Deferred Policy Acquisition Costs
and Present Value of Future Profits................................................... 90.5 56.7
Deferred Income Taxes.................................................................. 11.5 9.2
Net Change in Receivables and Payables................................................. 8.5 45.2
Other Assets........................................................................... (83.4) 4.0
Realized Investment (Gains) Losses, Net................................................ (7.4) 27.4
Other.................................................................................. (3.5) 15.7
----------- ---------
Net Cash Provided by Operating Activities............................................ 390.8 449.7
----------- ---------
INVESTING ACTIVITIES
Proceeds from Sales of Fixed Maturity Securities......................................... 190.5 158.5
Proceeds from Maturities or Repayment of Fixed Maturity Securities
Available-for-Sale..................................................................... 329.9 177.2
Held-to-Maturity....................................................................... 415.6 390.2
Cost of Fixed Maturity Securities Acquired
Available-for-Sale..................................................................... (971.4) (720.7)
Held-to-Maturity....................................................................... (519.8) (617.5)
Sales (Purchases) of Equity Securities, Net.............................................. 31.0 (9.0)
Proceeds of Mortgage Loans Sold, Matured or Repaid....................................... 314.2 358.2
Cost of Mortgage Loans Acquired.......................................................... (385.2) (149.4)
Sales of Real Estate and Leases, Net..................................................... 28.8 14.5
Policy Loans Issued, Net................................................................. (63.0) (49.4)
Sales of Other Invested Assets, Net...................................................... 39.0 19.6
Sales (Purchases) of Short-Term Investments, Net......................................... (56.4) 13.8
Cash Acquired with Acquisition of USLICO................................................. .4 --
----------- ---------
Net Cash Used by Investing Activities................................................ (646.4) (414.0)
----------- ---------
FINANCING ACTIVITIES
Deposits to Insurance Contracts.......................................................... 1,265.6 862.6
Maturities and Withdrawals from Insurance Contracts...................................... (1,015.3) (849.7)
Increase in Notes and Mortgages Payable.................................................. 72.1 --
Repayment of Notes and Mortgages Payable................................................. (2.3) (35.8)
Dividends to Shareholder................................................................. (41.3) (24.0)
----------- ---------
Net Cash Provided (Used) by Financing Activities..................................... 278.8 (46.9)
----------- ---------
Increase (Decrease) in Cash.............................................................. 23.2 (11.2)
Cash at Beginning of Year................................................................ 19.8 31.0
----------- ---------
Cash at End of Year...................................................................... $ 43.0 $ 19.8
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
73
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 1. CHANGES IN ACCOUNTING PRINCIPLES
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN
Effective January 1, 1995, Northwestern National Life Insurance Company
(Northwestern) and its subsidiaries (the Company) adopted Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of
a Loan" and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan --
Income Recognition and Disclosure." SFAS No. 114 and SFAS No. 118 require a
company to measure impairment based upon the present value of expected future
cash flows discounted at the loan's effective interest rate, the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. If foreclosure is probable, the measurement of impairment
must be based upon the fair value of the collateral. The adoption of these
standards did not have a significant effect on the financial results of the
Company.
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 requires a
company to classify its securities into categories based upon the company's
intent relative to the eventual disposition of the securities.
SFAS No. 115 establishes three categories of securities. The first category,
held-to-maturity securities, is composed of debt securities which a company has
the positive intent and ability to hold to maturity. These securities are
carried at amortized cost. The second category, available-for-sale securities,
may be sold to address the liquidity and other needs of a company. Debt and
equity securities classified as available-for-sale are carried at fair value on
the balance sheet with unrealized gains and losses excluded from income and
reported as a separate component of shareholder's equity. The third category,
trading securities, is for debt and equity securities acquired for the purpose
of selling them in the near term. The Company has not classified any of its
securities as trading securities.
The December 31, 1995 balance of shareholder's equity was increased by
$246.8 million (comprised of an increase in the carrying value of the securities
of $569.9 million, reduced by $189.4 million of related adjustments to deferred
policy acquisition costs and $133.7 million in deferred income taxes), while the
December 31, 1994 balance of shareholder's equity was reduced by $79.4 million
(comprised of a decrease in the carrying value of the securities of $170.2
million, reduced by $48.1 million of related adjustments to deferred policy
acquisition costs and $42.7 million in deferred income taxes) to reflect the net
unrealized gain/loss on fixed maturity securities classified as available-for-
sale.
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 operates primarily
in the United States and, through its subsidiaries is authorized to do business
in all 50 states.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Northwestern
and its subsidiaries. Northwestern is a wholly owned subsidiary of ReliaStar
Financial Corp. (ReliaStar). Northwestern's principal subsidiaries are Northern
Life Insurance Company (Northern), United Services Life Insurance Company (USL),
Bankers Security Life Insurance Society (BSL), ReliaStar Mortgage Corporation
and Washington Square Advisors, Inc. During 1995, The North Atlantic Life
Insurance Company of America was merged into BSL. These consolidated financial
statements exclude the effects of all material intercompany transactions.
74
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
INVESTMENTS
Fixed maturity securities (bonds and redeemable preferred stocks) which may
be sold to meet liquidity and other needs of the Company are categorized as
available-for-sale and are valued at fair value. Fixed maturity securities which
the Company has the positive intent and ability to hold to maturity are
categorized as held-to-maturity and are valued at amortized cost less write-offs
for other than temporary declines in 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. Investments in
real estate joint ventures are accounted for using the equity method. Real
estate acquired through foreclosure is carried at the lower of fair value minus
estimated costs to sell or cost.
Short-term investments are carried at amortized cost.
Unrealized investment gains and losses of equity securities and fixed
maturity securities classified as available-for-sale, net of related deferred
acquisition costs 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 change in
the allowance for mortgage loans and wholly owned real estate are included with
realized investment gains and losses in the Consolidated 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 $79.8 million and $67.5 million at December 31, 1995 and 1994, respectively.
The Company provides for depreciation of
75
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
property and equipment using straight-line and accelerated methods over the
estimated useful lives of the assets. Buildings are generally depreciated over
35 to 50 years. Depreciation expense for 1995 and 1994 amounted to $9.1 million
and $8.4 million, respectively.
PARTICIPATION FUND ACCOUNT
On January 3, 1989, the Commissioner of Commerce of the State of Minnesota
approved a Plan of Conversion and Reorganization (the Plan) which provided,
among other things, for the conversion of Northwestern from a combined stock and
mutual insurance company to a stock life insurance company.
The Plan provided for the establishment of a Participation Fund Account
(PFA) for the benefit of certain participating individual life insurance
policies and annuities issued by Northwestern prior to the effective date of the
Plan. Under the terms of the PFA, the insurance liabilities and assets with
respect to such policies are segregated in the accounting records of
Northwestern to assure the continuation of current policyholder dividend
practices. Assets and liabilities of the PFA are presented in accordance with
statutory accounting practices. Earnings derived from the operation of the PFA
will inure solely to the benefit of the policies covered by the PFA, and no
benefit will inure to the Company. Accordingly, results of operations for the
PFA are excluded from the Company's Consolidated Statements of Income. In the
event that the assets of the PFA are insufficient to provide the contractual
benefits guaranteed by the affected policies, Northwestern must provide such
contractual benefits from its general assets.
SEPARATE ACCOUNTS
The Company operates separate accounts. 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.
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 whole life 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 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 deferred policy acquisition costs.
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
payments 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.
76
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Guaranteed
Investment Contracts (GICs) and certain deferred annuities are considered
investment contracts. Amounts received as payments 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 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 and expense
margins.
PRESENT VALUE OF FUTURE PROFITS
The present value of future profits (PVFP) reflects the estimated fair value
of the acquired insurance business in force and represents the portion of the
cost to acquire USLICO Corporation (USLICO) that is allocated to the value of
future cash flows from insurance contracts existing at the date of acquisition.
Such value is the present value of the actuarially determined projected net cash
flows from the acquired insurance contracts. The weighted average discount rate
used to determine such value was approximately 15%.
An analysis of the present value of the future profits asset account is
presented below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
(IN MILLIONS)
<S> <C>
Balance at Acquisition.................................................................... $ 300.0
Imputed Interest.......................................................................... 17.6
Amortization.............................................................................. (32.6)
Adjustment for Unrealized Gains on Available-for-Sale Securities.......................... (93.0)
-------------
Balance, December 31, 1995................................................................ $ 192.0
-------------
-------------
</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
beginning balance of the PVFP will be between 5% and 6% in each of the years
1996 through 2000. The interest rates used to determine the amount of imputed
interest on the unamortized PVFP balance ranged from 5% to 8%.
77
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill is the excess of the amount paid to acquire a Company over the fair
value of the net assets acquired. Goodwill is amortized on a straight-line basis
over 40 years. The carrying value of goodwill is monitored for impairment of
value based on the Company's estimate of future earnings. The carrying value of
goodwill is reduced and a charge to income is recorded when an impairment in
value is identified. No goodwill impairment charges have been recorded.
FUTURE POLICY AND CONTRACT BENEFITS
Liabilities for future policy benefits for traditional life 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-type 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.
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 difference between amounts paid and
amounts received on interest rate swaps is reflected in net investment income.
INTEREST RATE FUTURES CONTRACTS
Futures contracts are used as hedges for asset/liability management of fixed
maturity securities and liabilities arising from GICs. Realized and unrealized
gains and losses on futures contracts are deferred and amortized over the life
of the hedged asset or liability.
NOTE 3. ACQUISITION
On January 17, 1995, ReliaStar acquired USLICO. USLICO was a holding company
with two primary subsidiaries: USL of Arlington, Virginia and BSL of Uniondale,
New York. Concurrent with the acquisition, ReliaStar contributed all of the
capital stock of USL and BSL to the Company. The acquisition was accounted for
using the purchase method of accounting and, therefore, the consolidated
financial statements include the accounts of USL and BSL since the date of
acquisition. Goodwill totaling $44.3 million representing the excess of the
purchase price allocated to USL and BSL over the fair value of the net assets
acquired has been recorded.
78
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 3. ACQUISITION (CONTINUED)
The following pro forma consolidated financial information has been prepared
assuming the acquisition had taken place at the beginning of 1994:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
(IN
MILLIONS)
<S> <C>
Revenues.................................................................................. $ 1,961.1
Net Income................................................................................ 139.0
</TABLE>
The pro forma financial information is not necessarily indicative of the
results of operations that would have occurred had the acquisition taken place
at the beginning of 1994 or of future operations of the combined companies.
NOTE 4. INVESTMENTS
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Fixed Maturity Securities.......................................................... $ 673.4 $ 449.6
Equity Securities.................................................................. 3.1 1.6
Mortgage Loans on Real Estate...................................................... 184.3 160.0
Real Estate and Leases............................................................. 16.8 15.7
Policy Loans....................................................................... 28.9 17.6
Other Invested Assets.............................................................. 7.8 3.6
Short-Term Investments............................................................. 7.6 4.2
--------- ---------
Gross Investment Income.......................................................... 921.9 652.3
Investment Expenses................................................................ 31.6 34.2
--------- ---------
Net Investment Income............................................................ $ 890.3 $ 618.1
--------- ---------
--------- ---------
</TABLE>
79
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 4. INVESTMENTS (CONTINUED)
Net pretax realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Net Gains (Losses) on Sales of Investments
Fixed Maturity Securities......................................................... $ 3.3 $ 2.1
Equity Securities................................................................. 15.1 .6
Mortgage Loans.................................................................... (.1) --
Foreclosed Real Estate............................................................ .6 .7
Real Estate....................................................................... 1.7 (.2)
Other............................................................................. 2.2 3.2
--------- ---------
22.8 6.4
--------- ---------
Provisions for Losses on Investments
Fixed Maturity Securities......................................................... (3.0) (13.9)
Equity Securities................................................................. (.1) (1.0)
Mortgage Loans.................................................................... (6.3) (4.9)
Foreclosed Real Estate............................................................ (5.2) (11.8)
Real Estate....................................................................... (.8) --
Other Assets...................................................................... -- (2.2)
--------- ---------
(15.4) (33.8)
--------- ---------
Net Pretax Realized Investment Gains (Losses)..................................... $ 7.4 $ (27.4)
--------- ---------
--------- ---------
</TABLE>
Gross realized investment gains of $8.3 million and $5.0 million and gross
realized investment losses of $5.0 million and $2.9 million were recognized on
sales of fixed maturity securities during the years ended December 31, 1995 and
1994, respectively. All 1995 and 1994 fixed maturity security sales were from
the available-for-sale portfolio.
80
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 4. INVESTMENTS (CONTINUED)
The amortized cost and fair value of investments in fixed maturity
securities by type of investment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------
GROSS UNREALIZED
AMORTIZED --------------------
COST GAINS (LOSSES) FAIR VALUE
---------- --------- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
United States Government and Government Agencies and
Authorities..................................................... $ 172.8 $ 13.2 -- $ 186.0
States, Municipalities and Political Subdivisions................ 64.4 4.2 $ (.1) 68.5
Foreign Governments.............................................. 82.1 6.8 (.2) 88.7
Public Utilities................................................. 775.3 74.5 (.9) 848.9
Corporate Securities............................................. 5,330.7 392.2 (21.6) 5,701.3
Mortgage-Backed/Structured Finance Securities.................... 2,058.0 102.7 (2.4) 2,158.3
Redeemable Preferred Stock....................................... 2.1 -- (.1) 2.0
---------- --------- --------- ----------
Total.......................................................... $ 8,485.4 $ 593.6 $ (25.3) $ 9,053.7
---------- --------- --------- ----------
---------- --------- --------- ----------
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------
GROSS UNREALIZED
AMORTIZED --------------------
COST GAINS (LOSSES) FAIR VALUE
---------- --------- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
United States Government and Government Agencies and
Authorities..................................................... $ 5.8 -- $ (.3) $ 5.5
States, Municipalities and Political Subdivisions................ 5.7 -- -- 5.7
Foreign Governments.............................................. 56.4 -- (3.4) 53.0
Public Utilities................................................. 309.4 $ 1.3 (17.5) 293.2
Corporate Securities............................................. 2,649.8 13.3 (136.4) 2,526.7
Mortgage-Backed/Structured Finance Securities.................... 608.5 2.5 (27.1) 583.9
Redeemable Preferred Stock....................................... 3.0 -- (.4) 2.6
---------- --------- --------- ----------
Total Available-for-Sale....................................... 3,638.6 17.1 (185.1) 3,470.6
---------- --------- --------- ----------
HELD-TO-MATURITY
States, Municipalities and Political Subdivisions................ .7 -- (.1) .6
Public Utilities................................................. 42.5 .8 (1.8) 41.5
Corporate Securities............................................. 1,202.1 15.0 (37.7) 1,179.4
Mortgage-Backed/Structured Finance Securities.................... 1,065.1 .6 (34.2) 1,031.5
---------- --------- --------- ----------
Total Held-to-Maturity......................................... 2,310.4 16.4 (73.8) 2,253.0
---------- --------- --------- ----------
Total.......................................................... $ 5,949.0 $ 33.5 $ (258.9) $ 5,723.6
---------- --------- --------- ----------
---------- --------- --------- ----------
</TABLE>
81
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 4. INVESTMENTS (CONTINUED)
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>
DECEMBER 31, 1995
----------------------
AVAILABLE-FOR-SALE
----------------------
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due in One Year or Less.................................................................. $ 123.1 $ 122.8
Due After One Year Through Five Years.................................................... 2,497.4 2,634.3
Due After Five Years Through Ten Years................................................... 2,750.4 2,965.4
Due After Ten Years...................................................................... 1,056.5 1,172.9
Mortgage-Backed/Structured Finance Securities............................................ 2,058.0 2,158.3
---------- ----------
Total.................................................................................. $ 8,485.4 $ 9,053.7
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------------------------
AVAILABLE-FOR-SALE HELD-TO-MATURITY TOTAL
---------------------- ---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
---------- ---------- ---------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Due in One Year or Less...................... $ 63.4 $ 63.0 $ 47.7 $ 47.8 $ 111.1 $ 110.8
Due After One Year Through Five Years........ 928.2 898.3 425.9 422.1 1,354.1 1,320.4
Due After Five Years Through Ten Years....... 1,697.3 1,600.7 445.0 437.2 2,142.3 2,037.9
Due After Ten Years.......................... 341.2 324.7 326.7 314.4 667.9 639.1
Mortgage-Backed/Structured Finance
Securities.................................. 608.5 583.9 1,065.1 1,031.5 1,673.6 1,615.4
---------- ---------- ---------- ---------- ---------- ----------
Total...................................... $ 3,638.6 $ 3,470.6 $ 2,310.4 $ 2,253.0 $ 5,949.0 $ 5,723.6
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</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
commercially available 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 these 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 though consideration
of factors such as the net worth of 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 the relevant market.
At December 31, 1995, the largest industry concentration of the private
placement portfolio was consumer products/services, where 18.9% of the portfolio
was invested, and the largest industry concentration of the marketable bond
portfolio was structured finance/mortgage-backed securities, where 31.9% of the
portfolio was invested. At December 31, 1995, the largest geographic
concentration of commercial mortgage loans was in the midwest region of the
United States, where approximately 32.5% of the commercial mortgage loan
portfolio was invested.
82
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 4. INVESTMENTS (CONTINUED)
At December 31, 1995 and 1994, gross unrealized appreciation of equity
securities was $3.0 million and $7.5 million, respectively, and gross unrealized
depreciation was $1.9 million and $9.7 million, respectively.
Invested assets which were nonincome producing (no income received for the
12 months preceding the balance sheet date) were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Fixed Maturity Securities............................................................ $ .7 $ 7.8
Mortgage Loans on Real Estate........................................................ 2.8 2.5
Real Estate and Leases............................................................... 17.6 29.9
--------- ---------
Total.............................................................................. $ 21.1 $ 40.2
--------- ---------
--------- ---------
</TABLE>
Allowances for losses on investments are reflected on the Consolidated
Balance Sheets as a reduction of the related assets and were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Mortgage Loans....................................................................... $ 12.4 $ 4.1
Foreclosed Real Estate............................................................... 10.6 11.9
Investment Real Estate............................................................... 1.0 .2
Other Invested Assets................................................................ 2.3 2.5
</TABLE>
At December 31, 1995, the total investment in impaired mortgage loans
(before allowances for credit losses) and the related allowance for credit
losses on these impaired mortgage loans was $25.4 million and $12.4 million,
respectively. Increases to the allowance for credit losses account charged to
income and the amount of decreases to the allowance account were $6.3 million
and $9.5 million, respectively, during the year ended December 31, 1995. The
average investment in impaired mortgage loans (before allowances for credit
losses) and the amount of the related interest income recognized on impaired
mortgage loans during 1995, were approximately $2.0 million and $1.7 million,
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>
YEAR ENDED DECEMBER
31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Real Estate Assets Acquired Through Foreclosure...................................... $ 28.0 $ 24.9
Mortgage Loans Acquired in Sales of Real Estate Assets............................... 15.3 27.9
</TABLE>
During 1994, the Company transferred four fixed maturity securities with an
amortized cost of $31.0 million and a fair value of $27.1 million from the
held-to-maturity portfolio to the available-for-sale portfolio. Each of the
securities transferred were private placement securities which experienced a
significant deterioration in the issuers' creditworthiness during the period.
None of the securities transferred were sold during the year.
83
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 4. INVESTMENTS (CONTINUED)
Effective December 31, 1995, the Company adopted the implementation guidance
contained in the Financial Accounting Series Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." Concurrent with the adoption of this implementation
guidance, the Company reclassified all of its held-to-maturity securities to
available-for-sale based upon a reassessment of the appropriateness of the
classifications of all securities held at that time. The amortized cost and net
unrealized appreciation of the securities reclassified were $2.42 billion and
$108.1 million, respectively, at December 31, 1995. In accordance with the
special report, financial statements prior to December 31, 1995 have not been
restated to reflect the effects of initially adopting the implementation
guidance.
NOTE 5. INCOME TAXES
The income tax liability (asset) as reflected on the Consolidated Balance
Sheets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Current Income Taxes............................................................... $ 6.4 $ 5.4
Deferred Income Taxes.............................................................. 162.8 (5.6)
--------- ---------
Total............................................................................ $ 169.2 $ (.2)
--------- ---------
--------- ---------
</TABLE>
The provision for income taxes reflected on the Consolidated Statements of
Income consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Currently Payable.................................................................... $ 82.9 $ 47.3
Deferred............................................................................. 11.5 10.6
--------- ---------
Total.............................................................................. $ 94.4 $ 57.9
--------- ---------
--------- ---------
</TABLE>
The Internal Revenue Service has completed its review of the Company's tax
return for all years through 1991.
84
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 5. INCOME TAXES (CONTINUED)
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 a significant portion of the deferred tax liability (asset)
relate to the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Future Policy and Contract Benefits............................................. $ (269.7) $ (221.2)
Investment Write-Offs and Allowances............................................ (35.0) (17.7)
Pension and Postretirement Benefit Plans........................................ (8.3) (6.3)
Employee Benefits............................................................... (9.3) (5.2)
Deferred Futures Gains.......................................................... (1.8) (5.1)
Net Unrealized Investment Losses................................................ -- (42.7)
Other .......................................................................... (42.0) (35.8)
--------- ---------
Gross Deferred Tax Asset........................................................ (366.1) (334.0)
--------- ---------
Deferred Policy Acquisition Costs............................................... 267.9 260.4
Present Value of Future Profits................................................. 99.0 --
Net Unrealized Investment Gains................................................. 90.2 --
Property and Equipment.......................................................... 27.1 26.3
Real Estate Joint Ventures...................................................... 12.2 14.3
Accrual of Market Discount...................................................... 8.4 3.2
Policyholder Dividends.......................................................... 4.4 3.0
Other........................................................................... 19.7 21.2
--------- ---------
Gross Deferred Tax Liability.................................................... 528.9 328.4
--------- ---------
Net Deferred Tax Liability (Asset)............................................ $ 162.8 $ (5.6)
--------- ---------
--------- ---------
</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, 1995, Northwestern and its life
insurance subsidiaries have accumulated approximately $51.0 million in their
separate policyholders' surplus accounts. Deferred taxes have not been provided
on this temporary difference.
There have been no deferred taxes recorded for the unremitted equity in
subsidiaries as the earnings are considered to be permanently invested or will
be remitted only when tax effective to do so.
The difference between the U.S. federal income tax rate and the consolidated
tax provision rate is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Statutory Tax Rate................................................................. 35.0% 35.0%
Other.............................................................................. .2 (.2)
--- ---
Provision for Income Taxes....................................................... 35.2% 34.8%
--- ---
--- ---
</TABLE>
85
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 5. INCOME TAXES (CONTINUED)
Cash paid to ReliaStar for federal income taxes was $90.3 million and $29.8
million for the years ended December 31, 1995 and 1994, respectively.
NOTE 6. NOTES AND MORTGAGES PAYABLE
A summary of notes and mortgages payable is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Unaffiliated:
Commercial Paper................................................................ $ 135.6 $ 65.6
Other Indebtedness -- Current Portion........................................... .1 .1
--------- ---------
Short-Term Debt............................................................... 135.7 65.7
--------- ---------
Other Indebtedness -- Noncurrent Portion........................................ 8.9 9.1
--------- ---------
Total Unaffiliated............................................................ $ 144.6 $ 74.8
--------- ---------
--------- ---------
Note Payable to Parent........................................................ $ 100.0 $ 100.0
--------- ---------
--------- ---------
</TABLE>
At December 31, 1995 and 1994, other indebtedness is primarily mortgage
notes assumed in connection with certain real estate investments with interest
rates ranging from 6.2% to 11.5%.
The weighted average interest rate on the commercial paper outstanding at
December 31, 1995 and 1994 was 6.06% and 6.10%, respectively, with maturities
ranging from 5 to 44 days at December 31, 1995.
Principal payments required on notes and mortgages payable to unaffiliated
companies in each of the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
- -------------------------------------------------------
<S> <C>
1996 - $135.7 1999 - $ .2
1997 - $ .1 2000 - $ .2
1998 - $ .2 2001 and thereafter - $8.2
</TABLE>
ReliaStar has loaned $100.0 million to Northwestern under a surplus note.
The original note, dated April 1, 1989, was issued in connection with
Northwestern's demutualization and was used to offset the surplus reduction
related to the cash distribution to the mutual policyholders in the
demutualization. This original note was replaced by a successor surplus note
(the 1994 Note) dated November 1, 1994. The 1994 Note provides, subject to the
regulatory constraints discussed below, that (i) it is a surplus note which will
mature on September 15, 2003 with principal due at maturity, but payable without
penalty, in whole or in part before maturity; (ii) interest is at 6 5/8% payable
semi-annually; and (iii) in the event that Northwestern is in default in the
payment of any required interest or principal, Northwestern cannot pay cash
dividends on its capital stock (all of which is owned directly by ReliaStar).
The 1994 Note further provides that there may be no payment of interest or
principal without the express approval of the Minnesota Department of Commerce.
Interest paid on debt was $14.2 million and $16.0 million for 1995 and 1994,
respectively.
86
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 7. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has noncontributory defined benefit retirement plans covering
substantially all employees. The plans, which may be terminated as to accrual of
additional benefits at any time by the 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 and bond mutual
funds, common stock and corporate bonds. Included in plan assets are 616,491
shares of ReliaStar common stock with a fair value of $27.4 million.
The Company 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>
YEAR ENDED DECEMBER
31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Service Cost -- Benefits Earned During the Year..................................... $ 3.4 $ 3.1
Interest Cost on Projected Benefit Obligation....................................... 11.9 5.2
Actual Return on Plan Assets........................................................ (33.7) 2.4
Net Amortization and Deferral....................................................... 19.1 (7.5)
--------- ---------
Net Periodic Pension Expense...................................................... $ .7 $ 3.2
--------- ---------
--------- ---------
</TABLE>
The following table sets forth for ReliaStar and its subsidiaries the funded
status of the plans as of December 31:
<TABLE>
<CAPTION>
FUNDED PLANS UNFUNDED PLANS
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Accumulated Benefit Obligation
Vested.................................................................. $ (157.1) $ (48.5) $ (10.7) $ (3.5)
Nonvested............................................................... (5.1) (3.2) (1.2) (.2)
Effect of Projected Future Compensation Increases......................... (10.6) (8.1) (2.1) (2.3)
--------- --------- --------- ---------
Projected Benefit Obligation.............................................. (172.8) (59.8) (14.0) (6.0)
Plan Assets at Fair Value................................................. 169.9 53.3 -- --
--------- --------- --------- ---------
Plan Assets Less Than Projected Benefit Obligation........................ (2.9) (6.5) (14.0) (6.0)
Unrecognized Net Loss..................................................... 24.2 8.4 6.2 1.8
Unrecognized Transition Obligation (Asset)................................ (.8) (1.1) .1 .1
Additional Minimum Liability.............................................. -- -- (4.2) (.1)
--------- --------- --------- ---------
Net Pension Asset (Liability)........................................... $ 20.5 $ .8 $ (11.9) $ (4.2)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
87
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The above amounts are for ReliaStar and its subsidiaries as the Company's
portion is not determinable. The net periodic pension expense relating to and
billed to ReliaStar was insignificant.
The projected benefit obligation was determined using an assumed discount
rate of 7.25% and 8.5%, and a weighted-average assumed long-term rate of
compensation increase of 4.5% and 5.0% at January 1, 1996 and 1995,
respectively. The assumed long-term rate of return on plan assets was 9.5%.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits to
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 contributions adjusted annually;
the life insurance plan is noncontributory and benefits are primarily based on
the employee's final compensation levels.
The Company's 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>
DECEMBER 31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Retirees.............................................................................. $ 10.3 $ 8.4
Fully Eligible Active Plan Participants............................................... 4.5 2.4
Other Active Plan Participants........................................................ 4.9 2.6
--------- ---------
Unfunded APBO....................................................................... 19.7 13.4
Unrecognized Prior Service Cost....................................................... .1 .3
Unrecognized Gain (Loss).............................................................. (.3) 1.6
--------- ---------
Accrued Postretirement Benefit Liability............................................ $ 19.5 $ 15.3
--------- ---------
--------- ---------
</TABLE>
Net periodic postretirement benefit costs consisted of the following
components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Service Cost -- Benefits Earned.......................................................... $ 1.2 $ 1.1
Interest Cost on APBO.................................................................... 1.3 1.0
Amortization of Prior Service Cost....................................................... (.1) (.1)
--- ---
Net Periodic Postretirement Benefit Costs.............................................. $ 2.4 $ 2.0
--- ---
--- ---
</TABLE>
The assumed health care cost trend rate used in measuring the APBO as of
January 1, 1996 was 10.0%, decreasing gradually to 5.0% in the year 2010 and
thereafter. The assumed health care cost trend rate used in measuring the APBO
as of January 1, 1995 was 10.0%, decreasing gradually to 6.0% in the year 2009
and thereafter. The assumed discount rate used in determining the APBO was 7.25%
and 8.5% at January 1, 1996 and 1995, respectively. The assumed health care cost
trend rate has a significant 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 as of December 31, 1995 approximately $2.4
million and 1995 net postretirement health care cost by approximately $.4
million.
88
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
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. The qualified
component is equal to 75% of the annual award, with 25% contributed to a
deferred investment account and the remaining 50% contributed to the ESOP
portion of the Success Sharing Plan. Costs charged to expense for the Success
Sharing Plan were $8.6 million and $8.4 million in 1995 and 1994, respectively.
NOTE 8. RELATED PARTY TRANSACTIONS
The Company and ReliaStar have entered into agreements whereby ReliaStar and
the Company provide certain management, administrative, legal, and other
services to each other. The net amounts billed resulted in the Company making
payments of $25.1 million and $13.6 million to ReliaStar in 1995 and 1994,
respectively. During 1995 the Company paid dividends of $52.0 million to
ReliaStar consisting of $41.3 million paid in cash and 10.7 million in noncash
dividends.
NOTE 9. SHAREHOLDER'S EQUITY
DIVIDEND RESTRICTIONS
The ability of Northwestern to pay cash dividends to ReliaStar is restricted
by law or subject to approval of the insurance regulatory authorities of
Minnesota. These authorities recognize only statutory accounting practices for
the ability of an insurer to pay dividends to its shareholders.
Under Minnesota insurance law regulating the payment of dividends by
Northwestern, any such payment must be an amount deemed prudent by
Northwestern's Board of Directors and, unless otherwise approved by the
Commissioner of the Minnesota Department of Commerce (the Commissioner), must be
paid solely from the adjusted earned surplus of Northwestern. Adjusted earned
surplus means the earned surplus as determined in accordance with statutory
accounting practices (unassigned funds), less 25% of the amount of such earned
surplus which is attributable to net unrealized capital gains. Further, without
approval of the Commissioner, Northwestern may not pay in any calendar year any
dividend which, when combined with other dividends paid within the preceding 12
months, exceeds the greater of (i) 10% of Northwestern's statutory surplus at
the prior year-end or (ii) 100% of Northwestern's statutory net gain from
operations (not including realized capital gains) for the prior calendar year.
For 1996, the amount of dividends which can be paid by Northwestern without
commissioner approval is $117.7 million.
STATUTORY SURPLUS AND NET INCOME
Net income of Northwestern and its subsidiaries, as determined in accordance
with statutory accounting practices was $97.8 million and $57.6 million for 1995
and 1994, respectively. Northwestern's statutory surplus was $728.3 million and
$565.2 million at December 31, 1995 and 1994, respectively.
NOTE 10. REINSURANCE
The Company is a member of reinsurance associations established for the
purpose of ceding the excess of life insurance over retention limits. In
addition, Northwestern's Life and Health Reinsurance Division assumes and cedes
reinsurance on certain life and health risks as its primary business.
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
89
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 10. REINSURANCE (CONTINUED)
reinsurance receivables was immaterial at December 31, 1995. 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. The Company's retention limit is $400,000 per life for individual
coverage and, to the extent that Northwestern reinsures life policies written by
Northern and North Atlantic, the limit is increased up to $600,000 per life. For
group coverage and reinsurance assumed, the retention is $500,000 per life with
per occurrence limitations, subject to certain maximums. As of December 31,
1995, $12.0 billion of life insurance in force was ceded to other companies. The
Company has assumed $36.7 billion of life insurance in force as of December 31,
1995 (including $32.0 billion of reinsurance assumed pertaining to Federal
Employees' Group Life Insurance and Servicemans' Group Life Insurance). Also
included in these amounts are $513.1 million of reinsurance ceded and $4.7
billion of reinsurance assumed by Northwestern's Life and Health Reinsurance
Division.
The effect of reinsurance on premiums and recoveries is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Direct Premiums.................................................................... $ 643.8 $ 533.2
Reinsurance Assumed................................................................ 297.6 261.8
Reinsurance Ceded.................................................................. (89.9) (68.1)
--------- ---------
Net Premiums ...................................................................... $ 851.5 $ 726.9
--------- ---------
--------- ---------
Reinsurance Recoveries............................................................. $ 80.4 $ 59.0
--------- ---------
--------- ---------
</TABLE>
NOTE 11. 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>
1995 1994
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Balance at January 1............................................................... $ 322.9 $ 244.6
Less Reinsurance Recoverables...................................................... 59.5 32.8
--------- ---------
Net Balance at January 1....................................................... 263.4 211.8
Incurred Related to:
Current Year..................................................................... 273.1 266.2
Prior Year....................................................................... (2.7) (16.6)
--------- ---------
Total Incurred................................................................. 270.4 249.6
Paid Related to:
Current Year..................................................................... 157.0 140.3
Prior Year....................................................................... 89.0 66.7
--------- ---------
Total Paid..................................................................... 246.0 207.0
Net Balance at December 31......................................................... 287.8 254.4
Plus Reinsurance Recoverables...................................................... 81.6 50.5
--------- ---------
Balance at December 31........................................................... $ 369.4 $ 304.9
--------- ---------
--------- ---------
</TABLE>
90
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 11. LIABILITY FOR UNPAID ACCIDENT AND HEALTH CLAIMS AND CLAIM ADJUSTMENT
EXPENSE (CONTINUED)
The liability for unpaid accident and health claims and claim adjustment
expenses is included in Future Policy and Contract Benefits on the Consolidated
Balance Sheets.
NOTE 12. 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. In the opinion of Management, the
ultimate resolution of such litigation will not result in any material adverse
impact to operations or financial condition of the Company.
JOINT GROUP LIFE AND ANNUITY CONTRACTS
Northwestern has issued certain participating group annuity and group life
insurance contracts jointly with another insurance company. Northwestern has
entered into an arrangement with this insurer whereby Northwestern will
gradually transfer these liabilities (approximately $328.4 million at December
31, 1995) to the other insurer over a ten year period which commenced in 1993.
The terms of the arrangement specify the interest rate on the liabilities and
provide for a transfer of assets and liabilities scheduled in a manner
consistent with the expected cash flows of the assets allocated to support the
liabilities. A contingent liability exists with respect to the joint obligor's
portion of the contractual liabilities attributable to contributions received
prior to July 1, 1993 in the event the joint obligor is unable to meet its
obligations.
RESERVE INDEMNIFICATION
In March 1992, the Company sold Chartwell Re Corporation (Chartwell), its
property and casualty reinsurance subsidiary. The Company and the acquiring
company entered into a separate agreement which provides for reciprocal
indemnity (but with different ultimate exposure amounts) between the parties to
the agreement with respect to the adequacy of the loss and loss adjustment
expense reserves of Chartwell for all accident years which ended on or before
December 31, 1991. The indemnity is measured for the period ending on December
31, 1996. Under the terms of the agreement, the maximum amount payable by the
Company would be $23.0 million and the maximum amount payable by the acquirer to
the Company would be $5.0 million.
Based upon analyses completed during the fourth quarter of 1995, the Company
has accrued a cumulative total of $8.0 million of the maximum potential payment
under the indemnification agreement. The ultimate amount to be paid will be
affected by subsequent favorable or adverse claims development.
The amounts accrued under the indemnification agreement are presented as
discontinued operations in the Consolidated Statements of Income.
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, financial guarantees, futures contracts 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 Consolidated 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 and
financial guarantees written 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
91
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
futures contracts and interest rate swap transactions, the contract or notional
amounts do not represent exposure to credit loss. For swaps, the Company's
exposure to credit loss is limited to those swaps where the Company has an
unrealized gain. For futures contracts, the Company has no exposure to credit
risk, as the contracts are marked to market daily.
Unless otherwise noted, the Company does not require collateral or other
security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
CONTRACT OR NOTIONAL
AMOUNT
DECEMBER 31
----------------------
1995 1994
---------- ----------
(IN MILLIONS)
<S> <C> <C>
Financial Instruments Whose Contract Amounts Represent Credit Risk
Commitments to Extend Credit.......................................................... $ 82.6 $ 36.4
Financial Guarantees.................................................................. 41.8 47.5
Financial Instruments Whose Notional or Contract Amounts Exceed the Amount of Credit
Risk
Futures Contracts..................................................................... 80.4 84.4
Interest Rate Swap Agreements......................................................... 1,222.5 1,320.0
</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.
FINANCIAL GUARANTEES -- Financial guarantees are conditional commitments
issued by the Company guaranteeing the performance of the borrower to a third
party. Those guarantees are primarily issued to support public and private
commercial mortgage borrowing arrangements. The credit risk involved is
essentially the same as that involved in issuing commercial mortgage loans.
Northwestern is a partner in eight real estate joint ventures where it has
guaranteed the repayment of loans of the partnership. As of December 31, 1995,
Northwestern had guaranteed repayment of $41.8 million ($47.5 million at
December 31, 1994) of such loans including the portion allocable to the PFA. If
any payments were made under these guarantees, Northwestern would be allowed to
make a claim for repayment from the joint venture, foreclose on the assets of
the joint venture including its real estate investment and, in certain
instances, make a claim against the joint venture's general partner.
For certain of these partnerships, Northwestern has made capital
contributions from time to time to provide the partnerships with sufficient cash
to meet its obligations, including operating expenses, tenant improvements and
debt service. Capital contributions during 1995 and 1994 were insignificant.
Further capital contributions are likely to be required in future periods for
certain of the joint ventures with the guarantees. The Company cannot predict
the amount of such future contributions.
FUTURES CONTRACTS -- Futures contracts are contracts for delayed delivery of
securities or money market instruments in which the seller agrees to make
delivery at a specified future date of a specified
92
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
instrument, at a specified price or yield. These contracts are entered into to
manage interest rate risk as part of the Company's asset and liability
management. Risks arise from the movements in securities values and interest
rates.
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.
LEASES
The Company has operating leases for office space and certain computer
processing and other equipment. Rental expense for these items was $13.6 million
and $11.0 million for 1995 and 1994, respectively.
Future minimum aggregate rental commitments at December 31, 1995 for
operating leases were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
- -------------------------------------------------------
<S> <C>
1996 - $7.6 1999 - $4.6
1997 - $6.8 2000 - $5.4
1998 - $5.7 2001 and thereafter - $4.4
</TABLE>
NOTE 13. 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, 1995 and 1994. Although Management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued 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 4).
93
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 value for GICs was estimated using discounted cash flow analyses.
The discount rate used was based upon current industry offering rates on GICs of
similar durations.
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
participating pension contracts and retirement plan deposits, approximate those
liabilities' fair value.
CLAIM AND OTHER DEPOSIT FUNDS -- The carrying amounts for claim and other
deposit funds approximate the liabilities' fair value.
NOTES AND MORTGAGES PAYABLE -- The fair value for the note payable to
ReliaStar was based upon the quoted market price of the related ReliaStar
publicly traded debt. For other debt obligations, discounted cash flow analyses
were used. The discount rate was based upon the Company's estimated current
incremental borrowing rates.
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.
FINANCIAL GUARANTEES -- The fair values for financial guarantees were
estimated using discounted cash flow analyses based upon the expected future net
amounts to be expended. The estimated net amounts to be expended were determined
based on projected cash flows and a valuation of the underlying collateral.
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.
94
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------
1995 1994
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Financial Instruments Recorded as Assets
Fixed Maturity Securities
Available-for-Sale......................................... $ 9,053.7 $ 9,053.7 $ 3,470.6 $ 3,470.6
Held-to-Maturity........................................... -- -- 2,310.4 2,253.0
Equity Securities............................................ 35.9 35.9 43.7 43.7
Mortgage Loans on Real Estate
Commercial................................................. 1,465.0 1,525.8 1,120.1 1,068.8
Residential and Other...................................... 483.4 496.1 450.2 443.1
Policy Loans................................................. 499.8 499.8 306.8 306.8
Cash and Short-Term Investments.............................. 165.4 165.4 79.7 79.7
Other Financial Instruments Recorded as Assets............... 503.3 503.3 349.7 349.7
Financial Instruments Recorded as Liabilities
Investment Contracts
Deferred Annuities......................................... (6,704.9) (6,285.6) (4,690.0) (4,369.3)
GICs....................................................... (115.0) (148.6) (239.9) (261.5)
Supplementary Contracts and Immediate Annuities............ (99.8) (99.7) (99.1) (93.9)
Other Investment Contracts................................. (529.2) (529.2) (539.4) (539.4)
Claim and Other Deposit Funds................................ (114.9) (114.9) (101.2) (101.2)
Notes and Mortgages Payable.................................. (243.6) (244.4) (173.7) (159.4)
Other Financial Instruments Recorded as Liabilities.......... (224.8) (224.8) (167.8) (167.8)
Off-Balance Sheet Financial Instruments
Financial Guarantees......................................... -- (4.6) -- (5.2)
Interest Rate Swaps.......................................... -- 42.7 -- (46.5)
</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.
95
<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:
- General economic trends,
- Rates of return currently available on our investments,
- Rates of return anticipated in our investments, regulatory and tax
factors, and
- 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 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 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:
- 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.
- The Fixed Accumulation Value after the transfer must be at least equal to
the Loan Amount.
- 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.
- 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:
- Net Premiums are credited to that Sub-Account; or
- 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:
- You take out a Policy loan from that Sub-Account;
- You take a partial withdrawal from that Sub-Account;
- We take a portion of the Monthly Deduction from that Sub-Account; or
- 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 DIVIDED BY 2), where:
1
Is the result of:
- 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;
- 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;
- 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.
2
Is the result of:
- 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;
B-1
<PAGE>
- 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 trading or any other day on which there is sufficient
trading in a Fund's portfolio securities to materially affect the Unit Value in
the corresponding Sub-Account of the Variable Account. 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 Amounts 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 an Insured of a given
Age (who pays the given Planned Periodic Premiums annually) would vary over time
if the investment return on 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-2 through C-7 illustrate a Policy issued to a male Age
40 in a standard Rate Class, and qualifying for non-smoker rates. The
Accumulation Values, Cash Surrender Values, and Death Benefits would be lower if
the Insured were in a substandard Rate Class or did not qualify for the
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 1980 Commissioners Standard
Ordinary Mortality Tables for Nonsmokers 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-2 through C-4) or the Variable Amount Death Benefit Option
(Tables at pages C-5 through C-7) 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 available portfolios of VIPF, VIPF II, Northstar and PCM which together are
assumed to be at an average annual rate of 0.74% for all years. This figure is
derived based on an average of the Funds' current 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 -0.74%, 5.26%, and 11.26%,
respectively.
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.
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 the
proposed Insured's Age, sex, underwriting classification, the Face Amount and
Planned Periodic Premium schedule requested, and any available riders requested.
C-1
<PAGE>
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE TO AGE 95
MALE ISSUE AGE: 40
NON-SMOKER
$1,800.00 ANNUAL PREMIUM
$150,000 FACE AMOUNT
LEVEL DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 0%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
-------------------------------------------------------- --------------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
POLICY ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 1,188 0*** 150,000* 1,322 77*** 150,000
2 2,333 593*** 150,000 2,605 865*** 150,000
3 3,435 120 150,000 3,850 535 150,000
4 4,492 892 150,000 5,054 1,454 150,000
5 5,501 1,901 150,000 6,216 2,616 150,000
6 6,461 3,221 150,000 7,334 4,094 150,000
7 7,369 4,489 150,000 8,408 5,528 150,000
8 8,223 5,703 150,000 9,436 6,916 150,000
9 9,020 6,860 150,000 10,415 8,255 150,000
10 9,758 7,958 150,000 11,344 9,544 150,000
11 10,463 9,023 150,000 12,330 10,890 150,000
12 11,098 10,018 150,000 13,263 12,183 150,000
13 11,654 10,934 150,000 14,136 13,416 150,000
14 12,121 11,761 150,000 14,941 14,581 150,000
15 12,490 12,490 150,000 15,672 15,672 150,000
20 12,547 12,547 150,000 17,994 17,994 150,000
AGE
70 0 0 0 10,881 10,881 150,000
**
</TABLE>
- --------------------------------------------------------------------------------
(1) ASSUMES A $1,800.00 PREMIUM (WHICH EXCEEDS THE ANUALIZED 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.
* BASED ON (1) AND (2) ABOVE, THE DEATH BENEFIT GUARANTEE IS IN EFFECT DURING
THE YEARS SHOWN. THEREFORE, THE POLICY REMAINS IN FORCE EVEN THOUGH THE CASH
SURRENDER VALUE IS ZERO.
** POLICY TERMINATES PRIOR TO AGE 75.
*** CASH SURRENDER VALUE INCLUDES THE SALES CHARGE REFUND.
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 ACHEIVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-2
<PAGE>
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE TO AGE 95
MALE ISSUE AGE: 40
NON-SMOKER
$1,800.00 ANNUAL PREMIUM
$150,000 FACE AMOUNT
LEVEL DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 6%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
-------------------------------------------------------- --------------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
POLICY ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 1,274 29* 150,000 1,412 167* 150,000
2 2,579 839* 150,000 2,868 1,128* 150,000
3 3,915 600 150,000 4,369 1,054 150,000
4 5,282 1,682 150,000 5,914 2,314 150,000
5 6,678 3,078 150,000 7,503 3,903 150,000
6 8,101 4,861 150,000 9,137 5,897 150,000
7 9,551 6,671 150,000 10,817 7,937 150,000
8 11,027 8,507 150,000 12,542 10,022 150,000
9 12,525 10,365 150,000 14,312 12,152 150,000
10 14,046 12,246 150,000 16,127 14,327 150,000
11 15,631 14,191 150,000 18,133 16,693 150,000
12 17,233 16,153 150,000 20,201 19,121 150,000
13 18,847 18,127 150,000 22,327 21,607 150,000
14 20,463 20,103 150,000 24,508 24,148 150,000
15 22,074 22,074 150,000 26,743 26,743 150,000
20 29,784 29,784 150,000 38,666 38,666 150,000
AGE
70 36,394 36,394 150,000 65,020 65,020 150,000
75 24,292 24,292 150,000 77,003 77,003 150,000
80 0 0 0 85,420 85,420 150,000
85 0 0 0 85,074 85,074 150,000
90 0 0 0 58,486 58,486 150,000
**
</TABLE>
- --------------------------------------------------------------------------------
(1) ASSUMES A $1,800.00 PREMIUM (WHICH EXCEEDS THE ANUALIZED 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.
* CASH SURRENDER VALUE INCLUDES THE SALES CHARGE REFUND.
** 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 ACHEIVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-3
<PAGE>
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE TO AGE 95
MALE ISSUE AGE: 40
NON-SMOKER
$1,800.00 ANNUAL PREMIUM
$150,000 FACE AMOUNT
LEVEL DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 12%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
----------------------------------------------------- -----------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
POLICY ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 1,360 115* 150,000 1,502 257* 150,000
2 2,835 1,095* 150,000 3,141 1,401* 150,000
3 4,436 1,121 150,000 4,931 1,616 150,000
4 6,175 2,575 150,000 6,884 3,284 150,000
5 8,063 4,463 150,000 9,015 5,415 150,000
6 10,114 6,874 150,000 11,342 8,102 150,000
7 12,342 9,462 150,000 13,886 11,006 150,000
8 14,765 12,245 150,000 16,666 14,146 150,000
9 17,401 15,241 150,000 19,706 17,546 150,000
10 20,270 18,470 150,000 23,032 21,232 150,000
11 23,465 22,025 150,000 26,874 25,434 150,000
12 26,956 25,876 150,000 31,109 30,029 150,000
13 30,769 30,049 150,000 35,777 35,057 150,000
14 34,935 34,575 150,000 40,923 40,563 150,000
15 39,492 39,492 150,000 46,604 46,604 150,000
20 69,905 69,905 150,000 85,528 85,528 150,000
AGE
70 205,066 205,066 237,877 261,857 261,857 303,755
75 341,928 341,928 365,864 443,235 443,235 474,262
80 566,235 566,235 594,547 745,688 745,688 782,973
85 920,423 920,423 966,445 1,236,663 1,236,663 1,298,496
90 1,463,561 1,463,561 1,536,740 2,020,478 2,020,478 2,121,502
95 2,342,949 2,342,949 2,366,379 3,319,748 3,319,748 3,352,946
</TABLE>
- --------------------------------------------------------------------------------
(1) ASSUMES A $1,800.00 PREMIUM (WHICH EXCEEDS THE ANUALIZED 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.
* CASH SURRENDER VALUE INCLUDES THE SALES CHARGE REFUND.
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 ACHEIVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-4
<PAGE>
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE TO AGE 95
MALE ISSUE AGE: 40
NON-SMOKER
$1,800.00 ANNUAL PREMIUM
$150,000 FACE AMOUNT
VARIABLE DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 0%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
-------------------------------------------------------- --------------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
POLICY ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 1,185 0*** 151,185* 1,319 74*** 151,319
2 2,323 583*** 152,324 2,597 857*** 152,598
3 3,415 100 153,416 3,834 519 153,834
4 4,458 858 154,458 5,027 1,427 155,027
5 5,449 1,849 155,450 6,174 2,574 156,174
6 6,386 3,146 156,387 7,272 4,032 157,273
7 7,267 4,387 157,267 8,323 5,443 158,324
8 8,088 5,568 158,088 9,323 6,803 159,324
9 8,846 6,686 158,847 10,270 8,110 160,270
10 9,539 7,739 159,540 11,159 9,359 161,160
11 10,191 8,751 160,192 12,098 10,658 162,099
12 10,765 9,685 160,765 12,977 11,897 162,978
13 11,250 10,530 161,251 13,786 13,066 163,786
14 11,636 11,276 161,637 14,516 14,156 164,517
15 11,914 11,914 161,915 15,162 15,162 165,163
20 11,340 11,340 161,341 16,844 16,844 166,845
AGE
70 0 0 0 7,225 7,225 157,226
**
</TABLE>
- --------------------------------------------------------------------------------
(1) ASSUMES A $1,800.00 PREMIUM (WHICH EXCEEDS THE ANUALIZED 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.
* BASED ON (1) AND (2) ABOVE, THE DEATH BENEFIT GUARANTEE IS IN EFFECT DURING
THE YEARS SHOWN. THEREFORE, THE POLICY REMAINS IN FORCE EVEN THOUGH THE CASH
SURRENDER VALUE IS ZERO.
** POLICY TERMINATES PRIOR TO AGE 75.
*** CASH SURRENDER VALUE INCLUDES THE SALES CHARGE REFUND.
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 ACHEIVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-5
<PAGE>
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE TO AGE 95
MALE ISSUE AGE: 40
NON-SMOKER
$1,800.00 ANNUAL PREMIUM
$150,000 FACE AMOUNT
VARIABLE DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 6%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
-------------------------------------------------------- --------------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
POLICY ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 1,270 25* 151,271 1,409 164* 151,409
2 2,567 827* 152,568 2,859 1,119* 152,859
3 3,892 577 153,892 4,350 1,035 154,350
4 5,241 1,641 155,242 5,881 2,281 155,881
5 6,613 3,013 156,614 7,450 3,850 157,451
6 8,005 4,765 158,005 9,057 5,817 159,058
7 9,414 6,534 159,414 10,703 7,823 160,703
8 10,837 8,317 160,838 12,384 9,864 162,385
9 12,271 10,111 162,272 14,100 11,940 164,101
10 13,712 11,912 163,713 15,847 14,047 165,848
11 15,199 13,759 165,200 17,768 16,328 167,769
12 16,683 15,603 166,683 19,732 18,652 169,733
13 18,152 17,432 168,153 21,731 21,011 171,731
14 19,594 19,234 169,594 23,756 23,396 173,756
15 20,996 20,996 170,996 25,801 25,801 175,802
20 26,917 26,917 176,918 36,039 36,039 186,040
AGE
70 22,152 22,152 172,153 49,861 49,861 199,861
75 0 0 0 43,390 43,390 193,391
80 0 0 0 15,196 15,196 165,197
**
</TABLE>
- --------------------------------------------------------------------------------
(1) ASSUMES A $1,800.00 PREMIUM (WHICH EXCEEDS THE ANUALIZED 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.
* CASH SURRENDER VALUE INCLUDES THE SALES CHARGE REFUND.
** 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 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 ACHEIVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-6
<PAGE>
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE TO AGE 95
MALE ISSUE AGE: 40
NON-SMOKER
$1,800.00 ANNUAL PREMIUM
$150,000 FACE AMOUNT
VARIABLE DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 12%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
-------------------------------------------------------- -----------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
POLICY ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 1,356 111* 151,356 1,499 254* 151,500
2 2,823 1,083* 152,823 3,131 1,391* 153,132
3 4,410 1,095 154,410 4,909 1,594 154,910
4 6,127 2,527 156,127 6,845 3,245 156,845
5 7,983 4,383 157,984 8,950 5,350 158,951
6 9,990 6,750 159,990 11,240 8,000 161,241
7 12,157 9,277 162,158 13,734 10,854 163,734
8 14,500 11,980 164,501 16,447 13,927 166,447
9 17,032 14,872 167,032 19,399 17,239 169,400
10 19,766 17,966 169,766 22,611 20,811 172,611
11 22,785 21,345 172,786 26,302 24,862 176,302
12 26,050 24,970 176,050 30,343 29,263 180,343
13 29,575 28,855 179,575 34,761 34,041 184,761
14 33,375 33,015 183,375 39,587 39,227 189,587
15 37,468 37,468 187,469 44,859 44,859 194,859
20 63,073 63,073 213,074 79,435 79,435 229,436
AGE
70 148,459 148,459 298,459 215,274 215,274 365,275
75 212,005 212,005 362,005 339,132 339,132 489,133
80 286,826 286,826 436,827 524,628 524,628 674,628
85 364,552 364,552 514,553 802,279 802,279 952,280
90 419,862 419,862 569,863 1,222,653 1,222,653 1,372,654
95 410,095 410,095 560,095 1,873,159 1,873,159 2,023,159
</TABLE>
- --------------------------------------------------------------------------------
(1) ASSUMES A $1,800.00 PREMIUM (WHICH EXCEEDS THE ANUALIZED 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.
* CASH SURRENDER VALUE INCLUDES THE SALES CHARGE REFUND.
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 ACHEIVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-7
<PAGE>
APPENDIX D
MAXIMUM CONTINGENT DEFERRED SALES CHARGES
PER $1,000 OF FACE AMOUNT
<TABLE>
<CAPTION>
Charge Per $1,000 of Charge Per $1,000 of
Face Face
Amount (Initial Face Amount (Initial Face
Amount or Amount or
Amount of Requested Insured's Age at Policy Amount of Requested
Insured's Age at Policy Increase) Date Increase)
Date or Effective Date of --------------------- or Effective Date of ----------------------
Increase, as Appropriate Male Female Increase, as Appropriate Male Female
- ------------------------- --------- ---------- --------------------------- --------- -----------
<S> <C> <C> <C> <C> <C>
0 $1.00 $1.00 38 $ 16.80 $ 12.80
1 1.10 1.00 39 17.90 13.90
2 1.20 1.00 40 19.00 15.00
3 1.30 1.00 41 19.60 16.10
4 1.40 1.00 42 20.40 17.20
5 1.50 1.00 43 21.30 18.00
6 1.60 1.00 44 22.10 18.90
7 1.80 1.00 45 23.00 19.50
8 2.00 1.00 46 23.90 20.60
9 2.20 1.20 47 24.90 21.70
10 2.50 1.40 48 25.90 22.50
11 2.80 1.60 49 27.00 23.30
12 3.00 1.80 50 28.20 24.20
13 3.20 2.00 51 29.40 25.20
14 3.50 2.20 52 30.70 26.20
15 3.80 2.40 53 32.10 27.20
16 4.00 2.60 54 33.50 28.00
17 4.20 2.80 55 35.00 29.50
18 4.50 3.00 56 36.70 30.70
19 4.80 3.20 57 38.40 32.00
20 5.00 3.50 58 40.20 33.40
21 5.30 3.90 59 42.20 34.80
22 5.90 4.20 60 44.30 36.40
23 6.30 4.50 61 45.60 38.10
24 6.90 5.00 62 45.40 40.00
25 7.50 5.50 63 45.30 41.90
26 7.80 6.10 64 44.90 43.90
27 8.40 6.70 65 44.60 45.50
28 8.80 7.30 66 44.30 45.00
29 9.40 7.70 67 43.90 44.60
30 10.00 8.00 68 43.60 44.10
31 10.80 8.60 69 43.30 43.70
32 11.50 9.20 70 43.10 43.30
33 12.30 9.80 71 42.80 42.90
34 13.10 10.40 72 42.60 42.50
35 14.00 11.00 73 42.40 42.10
36 14.90 11.60 74 42.20 41.70
37 15.70 12.20 75 41.90 41.20
</TABLE>
D-1
<PAGE>
APPENDIX E
SURRENDER CHARGE GUIDELINE PER $1,000 OF FACE AMOUNT
The following table provides the Surrender Charge Guideline factors that are
used in determining the Sales Charge Refund during the first two Policy Years or
the first two years following a requested increase in Face Amount (see section
entitled "Sales Charge Refund" in Prospectus). The Surrender Charge Guideline
factors are based upon the provisions of Rule 6e-3(T) adopted by the Securities
and Exchange Commission.
<TABLE>
<CAPTION>
Surrender Charge
Surrender Charge Guideline
Guideline Per $1,000 of Face
Insured's Age at Policy Per $1,000 of Face Amount Insured's Age at Policy Amount
Date (Initial Face Amount or Date (Initial Face Amount or
or Effective Date of Amount or Effective Date of Amount
Increase, as Appropriate of Requested Increase) Increase, as Appropriate of Requested Increase)
- -------------------------------------------------------------------------------------------------------------
Male Female Male Female
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
0 $5.97 $4.46 38 $32.26 $24.21
1 6.14 4.58 39 33.84 25.39
2 6.39 4.77 40 35.49 26.62
3 6.67 4.97 41 37.23 27.91
4 6.95 5.18 42 39.06 29.27
5 7.26 5.40 43 40.97 30.69
6 7.58 5.64 44 42.98 32.19
7 7.92 5.89 45 45.09 33.76
8 8.28 6.15 46 47.30 35.40
9 8.66 6.42 47 49.62 37.14
10 9.06 6.71 48 52.07 38.96
11 9.48 7.02 49 54.64 40.89
12 9.92 7.34 50 57.34 42.91
13 10.38 7.67 51 60.18 45.04
14 10.85 8.03 52 63.16 47.28
15 11.34 8.39 53 66.29 49.64
16 11.85 8.77 54 69.58 52.13
17 12.37 9.17 55 73.03 54.76
18 12.91 9.59 56 76.66 57.53
19 13.47 10.03 57 80.47 60.47
20 14.07 10.49 58 84.48 63.57
21 14.69 10.98 59 88.70 66.87
22 15.34 11.48 60 93.15 70.38
23 16.03 12.02 61 97.82 74.10
24 16.76 12.58 62 102.75 78.05
25 17.53 13.17 63 107.93 82.23
26 18.35 13.79 64 113.38 86.67
27 19.21 14.44 65 119.11 91.37
28 20.11 15.12 66 125.14 96.36
29 21.07 15.84 67 131.50 101.66
30 22.08 16.60 68 138.21 107.32
31 23.14 17.39 69 145.30 113.37
32 24.26 18.22 70 152.79 119.85
33 25.43 19.10 71 160.71 126.78
34 26.66 20.03 72 169.07 134.21
35 27.96 21.00 73 177.88 142.15
36 29.32 22.02 74 187.17 150.62
37 30.76 23.09 75 196.97 159.67
</TABLE>
E-1
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, Registrant certifies that it meets all of the requirements of
effectiveness of this Amendment to the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has caused this Amendment to
the Registration Statement to be signed on its behalf, in the City of
Minneapolis and State of Minnesota, on this 8th day of April, 1996.
SELECT*LIFE VARIABLE ACCOUNT
(Registrant)
By NORTHWESTERN NATIONAL LIFE
INSURANCE COMPANY
(Depositor)
By /s/ John G. Turner
----------------------------------------
John G. Turner, Chairman
and Chief Executive Officer
As required by the Securities Act of 1933 and the Investment Company Act of
1940, Depositor has caused this Amendment to the Registration Statement to be
signed on its behalf, in the City of Minneapolis and State of Minnesota, on
this 8th day of April, 1996.
NORTHWESTERN NATIONAL LIFE
INSURANCE COMPANY
(Depositor)
By /s/ John G. Turner
----------------------------------------
John G. Turner, Chairman
and Chief Executive Officer
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed on this 8th day of April, 1996 by the following
directors and officers of Depositor in the capacities indicated:
/s/ John G. Turner Chairman and Chief Executive Officer
- -----------------------------------
John G. Turner
/s/ Wayne R. Huneke
- ----------------------------------- Senior Vice President and Chief Financial
Wayne R. Huneke Officer (Principal Accounting Officer)
R. MICHAEL CONLEY WAYNE R. HUNEKE ROBERT C. SALIPANTE
RICHARD R. CROWL WILLIAM R. MERRIAM DONALD L. SWANSON
KENNETH U. KUK CRAIG R. RODBY JOHN G. TURNER
JOHN H. FLITTIE DAVID H. ROE STEVEN W. WISHART
*Robert B. Saginaw, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named directors of Northwestern
National Life Insurance Company pursuant to powers of attorney duly executed
by such persons.
/s/ Robert B. Saginaw
----------------------------------------
Robert B. Saginaw, Attorney-In-Fact
csigs13c
<PAGE>
PART II
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 5 to the Registration Statement comprises
the following papers and documents:
The facing sheet.
The general form of Prospectus, consisting of 107 pages.
Undertakings to file reports.* (Filed in Pre-Effective Amendment No. 1)
Representation pursuant to Paragraph (b)(13)(iii)(F) under Rule 6e-3(T).*
(Filed in Pre-Effective Amendment No. 1)
The signatures.
Written consents of the following persons:
1. James E. Nelson, Esquire - Filed as part of EX-99.2.
2. Actuary - Filed as part of EX-99.C6.
3. Auditors' Consent - Filed as part of Ex-99.C1.
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:
A. (1) Resolutions of Board of Directors of Northwestern National
Life Insurance Company ("NWNL") establishing the Select*Life
Variable Account.* (Filed in Original S-6 Registration
Statement)
(2) Not applicable.
(3) (a) General Distributor Agreement between Washington Square
Securities, Inc. and NWNL. * (Filed in Original S-6
Registration Statement)
(3) (b) Specimens of Selling Agreements.* (Filed in
Post-Effective Amendment No. 2)
(4) Not applicable.
(5) (a) Form of Policy available (together with available Policy
riders).* (Filed in Pre-Effective Amendment No. 1)
(5) (b) Waiver of Specified Premium Rider.* (Filed in
Post-Effective Amendment No. 2)
(5) (c) Accelerated Benefit Rider (Filed in Post-Effective
Amendment No. 4)
(5) (d) Connecticut Modification Rider (Filed in Post-Effective
Amendment No. 4)
(6) (a) Amended Articles of Incorporation of NWNL.* (Filed in
Original S-6 Registration Statement)
(6) (b) Amended By-Laws of NWNL.* (Filed in Original S-6
Registration Statement)
(7) Not applicable.
(8) (a) Participation Agreement with Fidelity's Variable Insurance
Products Fund and Fidelity Distributors Corporation and
Amendments Nos. 1-6. (Filed in Post-Effective Amendment
No. 3)
(8) (b) Participation Agreement with Fidelity's Variable Insurance
Products Fund II and Fidelity Distributors Corporation and
<PAGE>
Amendments Nos. 1-6. (Filed in Post-Effective
Amendment No. 3)
(8) (c) Participation Agreement with Putnam Capital Manager Trust
and Putnam Mutual Funds Corp. and Amendment No. 1. (Filed
in Post-Effective Amendment No. 3)
(9) Not applicable.
(10) Policy Application Form.* (Filed in Pre-Effective Amendment
No. 1)
2. Opinion and consent of James E. Nelson, Esquire, as to the
legality of the Securities being registered. See Ex-99.2.
3. Not applicable.
4. Not applicable.
EX-99.C1. Auditor's 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 Northwestern National's issuance,
transfer and redemption procedures for the Policies and
Northwestern National's procedure for conversion to a fixed
benefit policy. (Filed in Post-Effective Amendment No. 4)
EX-24. Powers of Attorney.
R. Michael Conley (Filed in Post-Effective Amendment No. 4)
Richard R. Crowl. See Ex-24.
John H. Flittie (Filed in Post-Effective Amendment No. 4)
Wayne R. Huneke (Filed in Post-Effective Amendment No. 4)
Kenneth U. Kuk. See Ex-24.
William R. Merriam (Filed in Post-Effective Amendment No. 4)
Craig R. Rodby (Filed in Post-Effective Amendment No. 4)
David H. Roe (Filed in Post-Effective Amendment No. 4)
Robert C. Salipante (Filed in Post-Effective Amendment No. 4)
Donald L. Swanson (Filed in Post-Effective Amendment No. 4)
John G. Turner (Filed in Post-Effective Amendment No. 4)
Steven W. Wishart (Filed in Post-Effective Amendment No. 4)
EX-27. Financial Data Schedule
* Previously filed.
<PAGE>
[NWNL LETTERHEAD]
EX-99.2
ATTORNEY OPINION AND CONSENT
April 8, 1996
Northwestern National Life
Insurance Company
20 Washington Avenue South
Minneapolis, Minnesota 55440
Madam/Sir:
In connection with the proposed registration under the Securities Act of
1933, as amended, of flexible premium variable life insurance policies (the
"Policies") and interests in Select*Life Variable Account (the "Variable
Account"), I have examined documents relating to the establishment of the
Variable Account by the Board of Directors of Northwestern National Life
Insurance Company (the "Company") as a separate account for assets
applicable to variable contracts, pursuant to Minnesota Statutes Sections
61A.13 to 61A.21, as amended, and the Registration Statement, on Form S-6,
File No. 33-65870 (the "Registration Statement") and I have examined such
other documents and have reviewed such matters as I deemed necessary for this
opinion, and I advise you that in my opinion:
1. The Variable Account is a separate account of the Company duly
created and validly existing pursuant to the laws of the State of
Minnesota.
2. The Policies, 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 Variable Account equal to
reserves and other contract liabilities with respect to the Variable
Accounts 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
references to me wherever appearing therein.
Very truly yours,
/s/ James E. Nelson
James E. Nelson
Counsel
RBS:js\ex3s13c
<PAGE>
EX-99.C1
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Contract Holders
Select*Life Variable Account
We consent to the use in this Post-Effective Amendment No. 5 to Registration
Statement on Form S-6 (File No. 33-65870) of Select*Life Variable Account
filed under the Securities Act of 1933 of our report dated February 2, 1996
on the audit of the financial statements of Select*Life Variable Account as
of December 31, 1995 and for each of the three years in the period then ended
and our report dated February 1, 1996 on the audit of the consolidated
financial statements of Northwestern National Life Insurance Company and
subsidiaries as of and for the years ended December 31, 1995 and 1994
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.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
April 5, 1996
<PAGE>
EX-99.C6
[NWNL LETTERHEAD]
April 8, 1996
Northwestern National Life
Insurance Company
20 Washington Avenue South
Minneapolis, Minnesota 55401
Madam/Sir:
This opinion is furnished in connection with the registration by Northwestern
National Life Insurance Company of a flexible premium 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, File No. 33-65870.
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 age 40 than to prospective
purchasers of the Contract for other ages or for females. 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 an
insured age 40 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,
/s/ CRAIG A. KROGSTAD
Craig A. Krogstad, FSA, MAAA
Actuary
<PAGE>
EX-24
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of NORTHWESTERN NATIONAL LIFE
INSURANCE COMPANY, a Minnesota corporation, does hereby make, constitute and
appoint ROYCE N. SANNER, RICHARD R. CROWL, MICHAEL S. FISCHER, JAMES E.
NELSON, ROBERT B. SAGINAW, and JEFFREY A. PROULX, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with full power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration
Statements, under the Securities Act of 1933 (1933 Act) and the Investment
Company Act of 1940 (1940 Act) and any other forms applicable to such
registrations, and all amendments, including post-effective amendments,
thereto, to be filed by said Company with the Securities and Exchange
Commission, Washington, DC, in connection with the registration under the 1933
and 1940 Acts, as amended, of variable annuity contracts and accumulation
units in the MFS/NWNL Variable Account, the NWNL Select Variable Account,
the Northstar/NWNL Variable Account, and of variable life insurance policies
and accumulation units in the Select*Life Variable Account, and to file the
same, with all exhibits thereto and other supporting documents, with said
Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or
incidental to the performance and execution of the powers herein expressly
granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 14th day of March, 1996.
/s/ Richard R. Crowl
---------------------------------
Richard R. Crowl
MFS/NWNL
NWNL Select
Northstar/NWNL
Select*Life
Rev. 12/95
<PAGE>
EX-24
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
POWER OF ATTORNEY
OF DIRECTOR AND OFFICER
The undersigned director and/or officer of NORTHWESTERN NATIONAL LIFE
INSURANCE COMPANY, a Minnesota corporation, does hereby make, constitute and
appoint ROYCE N. SANNER, RICHARD R. CROWL, MICHAEL S. FISCHER, JAMES E.
NELSON, ROBERT B. SAGINAW, and JEFFREY A. PROULX, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with full power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or
officer of said Company to a Registration Statement or Registration
Statements, under the Securities Act of 1933 (1933 Act) and the Investment
Company Act of 1940 (1940 Act) and any other forms applicable to such
registrations, and all amendments, including post-effective amendments,
thereto, to be filed by said Company with the Securities and Exchange
Commission, Washington, DC, in connection with the registration under the 1933
and 1940 Acts, as amended, of variable annuity contracts and accumulation
units in the MFS/NWNL Variable Account, the NWNL Select Variable Account,
the Northstar/NWNL Variable Account, and of variable life insurance policies
and accumulation units in the Select*Life Variable Account, and to file the
same, with all exhibits thereto and other supporting documents, with said
Commission, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and perform any and all acts necessary or
incidental to the performance and execution of the powers herein expressly
granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 14th day of March, 1996.
/s/ Kenneth U. Kuk
---------------------------------
Kenneth U. Kuk
MFS/NWNL
NWNL Select
Northstar/NWNL
Select*Life
Rev. 12/95
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMTION EXTRACTED FROM NWNL'S
SELECT*LIFE VARIABLE ACCOUNT ANNUAL REPORT FOR THE YEAR ENDED 12-31-95, ANNUAL
REPORT (FROM NSAR) FILING PURSUANT TO SECTION 15(d) OF THE 1934 ACT AND SECTION
30(h) OF THE 1940 ACT, 24F-2NT
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 145,926
<INVESTMENTS-AT-VALUE> 180,154
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 180,154
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 97
<TOTAL-LIABILITIES> 97
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 145,926
<SHARES-COMMON-STOCK> 10,541,629
<SHARES-COMMON-PRIOR> 6,899,131
<ACCUMULATED-NII-CURRENT> 2,529
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,242
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,228
<NET-ASSETS> 180,154
<DIVIDEND-INCOME> 2,259
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,456
<EXPENSES-NET> (1,186)
<NET-INVESTMENT-INCOME> 2,529
<REALIZED-GAINS-CURRENT> 1,345
<APPREC-INCREASE-CURRENT> 27,857
<NET-CHANGE-FROM-OPS> 31,731
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,159,850
<NUMBER-OF-SHARES-REDEEMED> 1,517,352
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 77,412
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
