As filed with the Securities and Exchange Commission on July 25, 1997
REGISTRATION NO. 33-65870
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 7 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
SELECT*LIFE VARIABLE ACCOUNT
(Exact Name of Registrant)
RELIASTAR LIFE INSURANCE COMPANY
20 Washington Avenue South
Minneapolis, MN 55440
(Name and Address of principal executive office of depositor)
-------------------------
Stewart D. Gregg
Counsel
ReliaStar Life Insurance Company
20 Washington Avenue South
Minneapolis, MN 55440
Copy to:
Robert B. Saginaw
Counsel
ReliaStar Life Insurance Company
20 Washington Avenue South
Minneapolis, MN 55440
It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on August 8, 1997 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 20, 1997.
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
CROSS REFERENCE SHEET
(RECONCILIATION AND TIE SHEET)
ITEM NUMBER OF
FORM N-8B-2 HEADING IN THE PROSPECTUS
----------- -------------------------
1 Cover Page
2 Cover Page
3 Not Applicable
4 Distribution of the Policies
5 ReliaStar 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; Policy Lapse and
Reinstatement; Surrender Benefits;
Investments of the Variable Account;
Transfers; Policy Loans; Free Look
and Conversion Rights; Voting
Rights; General Provisions; Appendix
A; Appendix B
11 Deductions and Charges; Investments
of the Variable Account
12 Investments of the Variable Account
13 Deductions and Charges
14 The Policies; Definitions;
Distribution of the Policies
15 Payment and Allocation of Premiums;
Investments of the Variable Account
16 Payment and Allocation of Premiums;
Surrender Benefits; Investments of
the Variable Account
17 Surrender Benefits; Policy Loans;
Free Look and Conversion Rights;
General Provisions
18 The Variable Account; Investments of
the Variable Account; Payment and
Allocation of Premiums
19 Voting Rights; General Provisions
20 Not Applicable
21 Policy Loans
22 Not Applicable
23 Bonding Arrangements
24 Definitions; General Provisions
25 ReliaStar Life Insurance Company
<PAGE>
ITEM NUMBER OF
FORM N-8B-2 HEADING IN THE PROSPECTUS
----------- -------------------------
26 Not Applicable
27 ReliaStar Life Insurance Company;
Other Contracts Issued by Us
28 Management
29 ReliaStar Life Insurance Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Not Applicable
36 Not Applicable
37 Not Applicable
38 Distribution of the Policies
39 Distribution of the Policies
40 Distribution of the Policies
41 Distribution of the Policies
42 Not Applicable
43 Not Applicable
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 ReliaStar 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
<PAGE>
ITEM NUMBER OF
FORM N-8B-2 HEADING IN THE PROSPECTUS
----------- -------------------------
57 Not Applicable
58 Not Applicable
59 Not Applicable
<PAGE>
SELECT*LIFE III
AUGUST 8, 1997 PROSPECTUS
FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
SELECT*LIFE 2000 SERIES
[LOGO] RELIASTAR
RELIASTAR LIFE
<PAGE>
20 Washington Avenue South
Minneapolis, Minnesota 55401
----------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
ISSUED BY
SELECT*LIFE VARIABLE ACCOUNT
OF
RELIASTAR LIFE INSURANCE COMPANY
This Prospectus describes a flexible premium variable life insurance policy (the
"Policy") offered by ReliaStar Life Insurance Company ("we", "us", "our" or the
"Company"). 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").
(Continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
SHARES OF THE INVESTMENT FUNDS, INTERESTS IN THE FIXED ACCOUNT AND INTERESTS
IN THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY A BANK, AND THE SHARES AND INTERESTS ARE NOT FEDERALLY INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE POLICY INVOLVES
CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF PRINCIPAL.
THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE. A
CURRENT PROSPECTUS FOR EACH OF THE FUNDS MUST ACCOMPANY THIS PROSPECTUS AND
SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS AUGUST 8, 1997.
N700.181e
<PAGE>
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 one of the three portfolios
available through The Alger American Fund, in the shares of one of the five
portfolios of the Fidelity's Variable Insurance Products Fund ("VIP"), in one of
the four portfolios of the Fidelity's Variable Insurance Products Fund II ("VIP
II"), in one of the four portfolios of Janus Aspen Series, in one of the two
portfolios available through Neuberger&Berman Advisers Management Trust, in one
of the five funds available through the Northstar Variable Trust, in one of four
portfolios available through the OCC Accumulation Trust, or in one of six funds
available through Putnam Variable Trust (the "Funds"). The prospectus for each
of the Funds describes the investment objectives and attendant risks of each of
the Funds and portfolios. These prospectuses are contained in the accompanying
book entitled "Select*Product Mutual Funds."
If net premiums are allocated to the Variable Account, the amount of the
Policy's death benefit may, and the Policy's Accumulation Value (that is, the
total amount that a Policy provides for investment at any time) will, reflect
the investment performance of the Sub-Accounts of the Variable Account that you
select. You bear the entire investment risk for any amounts allocated to the
Variable Account; no minimum Accumulation Value in the Variable Account is
guaranteed. Regardless of how net premiums are allocated, the Policy's death
benefit may, and the Policy's Accumulation Value will, also depend upon the
frequency and amount of premiums paid, any partial withdrawals, loans and the
charges and deductions assessed in connection with the Policy.
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.
<PAGE>
DEFINITIONS 7
PART 1. SUMMARY
How does the Policy compare to traditional life insurance?.................. 11
What is the Death Benefit?.................................................. 11
What flexibility do you have to adjust the amount of the Death Benefit?..... 11
What is the Death Benefit Guarantee?........................................ 11
If the Death Benefit Guarantee is not in effect, what will cause the Policy
to lapse?................................................................. 12
What is the Fixed Account?.................................................. 12
What is the Variable Account?............................................... 12
What are the minimum and maximum premium payments allowed?.................. 12
How are premiums allocated to the investment options?....................... 12
Who are the investment advisers of the Funds?............................... 12
What are the charges against the variable account?.......................... 13
What are the investment advisory fees and other fund expenses after
reimbursement?............................................................ 13
What charges do we make against each premium payment?....................... 15
What charges do we make against the Accumulation Value?..................... 15
What charges do we make upon lapse or total surrender of the Policy?........ 15
What is the value of the Policy if you surrender it?........................ 16
Can you make partial withdrawals?........................................... 16
What are the free look and conversion rights?............................... 16
Can you transfer between the Sub-Accounts and/or the Fixed Account?......... 16
Can you borrow against the value of the Policy?............................. 16
Are Death Benefit proceeds taxable income to the beneficiary?............... 17
Are Accumulation Value increases included in your taxable income?........... 17
Will exercising certain Policy rights have tax consequences?................ 17
Who sells the Policies?..................................................... 17
PART 2. DETAILED INFORMATION
ReliaStar Life Insurance Company............................................ 17
The Variable Account....................................................... 17
Performance Information.................................................... 18
The Policies............................................................... 18
Death Benefit.............................................................. 18
Death Benefit Options.................................................... 19
Which Death Benefit Option to Choose..................................... 21
Requested Changes in Face Amount......................................... 21
Insurance Protection..................................................... 22
Change in Death Benefit Option........................................... 23
Accelerated Benefit Rider................................................ 23
Payment and Allocation of Premiums......................................... 24
Issuing the Policy....................................................... 24
Allocation of Premiums................................................... 25
Amount and Timing of Premiums............................................ 25
Planned Periodic Premiums................................................ 26
Unscheduled Additional Premiums.......................................... 26
Paying Premiums by Mail.................................................. 26
Death Benefit Guarantee.................................................... 27
Requirements............................................................. 27
Accumulation Value......................................................... 28
Deductions and Charges..................................................... 28
Premium Expense Charge................................................... 28
Monthly Deduction........................................................ 29
Surrender Charge......................................................... 30
Partial Withdrawal and Transfer Charges.................................. 32
Reduction of Charges..................................................... 32
Sales Charge Refund........................................................ 33
<PAGE>
Policy Lapse and Reinstatement............................................. 34
Surrender Benefits......................................................... 34
Total Surrender.......................................................... 35
Partial Withdrawal....................................................... 35
Transfers.................................................................. 36
Telephone/Fax Instructions............................................... 36
Dollar Cost Averaging Service............................................ 36
Portfolio Rebalancing Service............................................ 37
Policy Loans............................................................... 37
Free Look and Conversion Rights............................................ 40
Free Look Rights......................................................... 40
Conversion Rights........................................................ 40
Investments of the Variable Account........................................ 41
The Alger American Fund:
Alger American Growth Portfolio....................................... 42
Alger American MidCap Growth Portfolio................................ 42
Alger American Small Capitalization Portfolio......................... 42
Fidelity's Variable Insurance Products Fund (VIP):
Equity-Income Portfolio............................................... 42
Growth Portfolio...................................................... 43
High Income Portfolio................................................. 43
Money Market Portfolio................................................ 43
Overseas Portfolio.................................................... 43
Fidelity's Variable Insurance Products Fund II (VIP II):
Asset Manager Portfolio............................................... 43
Contrafund Portfolio.................................................. 43
Index 500 Portfolio................................................... 43
Investment Grade Bond Portfolio....................................... 43
Janus Aspen Series:
Aggressive Growth Portfolio........................................... 43
Growth Portfolio...................................................... 43
International Growth Portfolio........................................ 43
Worldwide Growth Portfolio............................................ 43
Neuberger&Berman Advisers Management Trust ("AMT"):
Limited Maturity Bond Portfolio....................................... 43
Partners Portfolio.................................................... 44
Northstar Variable Trust (Northstar):
Northstar Growth Fund................................................. 44
Northstar High Yield Bond Fund........................................ 44
Northstar Income and Growth Fund...................................... 44
Northstar International Value Fund.................................... 44
Northstar Multi-Sector Bond Fund...................................... 44
OCC Accumulation Trust:
Equity Portfolio...................................................... 45
Global Equity Portfolio............................................... 45
Managed Portfolio..................................................... 45
Small Cap Portfolio................................................... 45
Putnam Variable Trust:
Putnam VT Asia Pacific Growth Fund.................................... 45
Putnam VT Diversified Income Fund..................................... 46
Putnam VT Growth and Income Fund...................................... 46
Putnam VT New Opportunities Fund...................................... 46
Putnam VT Utilities Growth and Income Fund............................ 46
Putnam VT Voyager Fund................................................ 46
Addition, Deletion, or Substitution of Investments......................... 46
Voting Rights.............................................................. 47
<PAGE>
General Provisions......................................................... 47
Benefits at Age 95....................................................... 47
Ownership................................................................ 47
Proceeds................................................................. 48
Beneficiary.............................................................. 48
Postponement of Payments................................................. 48
Settlement Options....................................................... 48
Incontestability......................................................... 49
Misstatement of Age and Sex.............................................. 49
Suicide.................................................................. 49
Termination.............................................................. 49
Amendment................................................................ 50
Reports.................................................................. 50
Dividends................................................................ 50
Collateral Assignment.................................................... 50
Optional Insurance Benefits.............................................. 50
Federal Tax Matters........................................................ 51
Policy Proceeds.......................................................... 51
Taxation of Distributions................................................ 52
Taxation of Policies Held by Pension and Certain Deferred
Compensation Plans..................................................... 52
Taxation of ReliaStar Life Insurance Company............................. 53
Other Considerations..................................................... 53
Legal Developments Regarding Employment -- Related Benefit Plans........... 53
Distribution of the Policies............................................... 53
Management................................................................. 54
Directors................................................................ 54
Executive Officers....................................................... 56
State Regulation........................................................... 56
Massachusetts and Montana Residents........................................ 56
Legal Proceedings.......................................................... 56
Bonding Arrangements....................................................... 56
Legal Matters.............................................................. 56
Experts.................................................................... 56
Registration Statement Contains Further Information........................ 57
Financial Statements....................................................... 57
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
PART 3. FUND PROSPECTUSES ("SELECT*PRODUCT MUTUAL FUNDS")
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio....................................... Alger-1
Alger American MidCap Growth Portfolio................................ Alger-1
Alger American Small Capitalization Portfolio......................... Alger-1
Fidelity's Variable Insurance Products Fund (VIP):
Equity-Income Portfolio.................................................. VIP
Growth Portfolio......................................................... VIP
High Income Portfolio.................................................... VIP
Money Market Portfolio................................................... VIP
Overseas Portfolio....................................................... VIP
Fidelity's Variable Insurance Products Fund II (VIP II):................... VIP
Asset Manager Portfolio.................................................. VIP
Contrafund Portfolio..................................................... VIP
Index 500 Portfolio...................................................... VIP
<PAGE>
Investment Grade Bond Portfolio.......................................... VIP
Janus Aspen Series:
Aggressive Growth Portfolio........................................... Janus-1
Growth Portfolio...................................................... Janus-1
International Growth Portfolio........................................ Janus-1
Worldwide Growth Portfolio............................................ Janus-1
Neuberger&Berman Advisers Management Trust ("AMT"):
Limited Maturity Bond Portfolio......................................... N&B-1
Partners Portfolio...................................................... N&B-1
Northstar Variable Trust (Northstar):
Northstar Growth Fund............................................. Northstar-1
Northstar High-Yield Bond Fund.................................... Northstar-1
Northstar Income and Growth Fund.................................. Northstar-1
Northstar International Value Fund................................ Northstar-1
Northstar Multi-Sector Bond Fund.................................. Northstar-1
OCC Accumulation Trust:
Equity Portfolio........................................................ OCC-1
Global Equity Portfolio................................................. OCC-1
Managed Portfolio....................................................... OCC-1
Small Cap Portfolio..................................................... OCC-1
Putnam Variable Trust:
Putnam VT Asia Pacific Growth Fund Putnam......................... Putnam VT-1
Putnam VT Diversified Income Fund Putnam.......................... Putnam VT-1
Putnam VT Growth and Income Fund Putnam........................... Putnam VT-1
Putnam VT New Opportunities Fund Putnam........................... Putnam VT-1
Putnam VT Utilities Growth and Income Fund Putnam................. Putnam VT-1
Putnam VT Voyager Fund Putnam..................................... Putnam VT-1
<PAGE>
DEFINITIONS
ACCUMULATION VALUE. The total value attributable to a specific Policy, which
equals the sum of the Variable Accumulation Value (the total of the values
in each Sub-Account of the Variable Account) and the Fixed Accumulation
Value (the value in the Fixed Account). See "Accumulation Value" at page 28
and Appendix B.
AGE. The Insured's age at the last birthday determined as of the beginning of
each Policy Year.
THE ALGER AMERICAN FUND.
Alger American Growth Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
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 30.
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 30.
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 18.
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 27.
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 19.
FACE AMOUNT. The minimum Death Benefit under the Policy as long as the Policy
remains in force. See "Death Benefit" at page 18.
FIXED ACCOUNT. The assets of ReliaStar 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 28 and Appendix B.
<PAGE>
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 41.
INSURED. The person upon whose life the Policy is issued.
ISSUE DATE. The date insurance coverage under a Policy begins.
JANUS ASPEN SERIES.
Aggressive Growth Portfolio
Growth Portfolio
International Growth Portfolio
Worldwide Growth Portfolio
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 19.
LOAN AMOUNT. The sum of all unpaid Policy loans and unpaid interest due thereon.
See "Policy Loans" at page 37.
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 27.
MONTHLY ANNIVERSARY. The same date in each succeeding month as the Policy Date.
Whenever the Monthly Anniversary falls on a date other than a Valuation
Date, the Monthly Anniversary will be considered to be the next Valuation
Date. The first Monthly Anniversary is on the Policy 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 29.
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 29.
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, it is anticipated that
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 30.
NET PREMIUM. The gross premium less a Premium Expense Charge deducted from each
premium.
NEUBERGER&BERMAN ADVISERS MANAGEMENT TRUST ("AMT").
Limited Maturity Bond Portfolio
Partners Portfolio
<PAGE>
NORTHSTAR VARIABLE TRUST.
Northstar Growth Fund
Northstar High-Yield Bond Fund
Northstar Income and Growth Fund
Northstar International Value Fund
Northstar Multi-Sector Bond Fund
OCC ACCUMULATION TRUST.
Equity Portfolio
Global Equity Portfolio
Managed Portfolio
Small Cap Portfolio
PUTNAM VARIABLE TRUST.
Putnam VT Asia Pacific Growth Fund
Putnam VT Diversified Income Fund
Putnam VT Growth and Income Fund
Putnam VT New Opportunities Fund
Putnam VT Utilities Growth and Income Fund
Putnam VT Voyager 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 26.
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.
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
28.
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 33.
SEC. Securities and Exchange Commission.
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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 30.
SURRENDER CHARGE GUIDELINE. An amount used in calculating Sales Charge Refunds
(see "Sales Charge Refund" at page 33) 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
31). 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 business except
for a day that a sub-account's corresponding Fund does not value its
shares. The New York Stock Exchange is currently closed on weekends and on
the following holidays: New Year's Day; Presidents' Day; Good Friday;
Memorial Day; July Fourth; Labor Day; Thanksgiving Day; and Christmas Day.
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 17.
VARIABLE ACCUMULATION VALUE. The value attributable to a specific Policy to the
extent such amount is attributable to the Variable Account. See
"Accumulation Value" at page 28 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 19.
VIP. Fidelity's Variable Insurance Products Fund
Equity-Income Portfolio
Growth Portfolio
High Income Portfolio
Money Market Portfolio
Overseas Portfolio
VIP II. Fidelity's Variable Insurance Products Fund II
Asset Manager Portfolio
Contrafund Portfolio
Index 500 Portfolio
Investment Grade Bond Portfolio
WE, US, OUR. ReliaStar 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.
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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?
Although we reserve the right to limit increases and decreases during the first
two Policy Years, 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 -- Requested Changes in Face Amount".
Generally, you may also change the Death Benefit Option at any time after the
second Policy Year. See "Death Benefit -- Change in Death Benefit Option".
For a discussion of available techniques to adjust the amount of insurance
protection to satisfy changing insurance needs, see "Death Benefit -- Insurance
Protection".
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".
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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 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".
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".
WHO ARE THE INVESTMENT ADVISERS OF THE FUNDS?
Fred Alger Management, Inc. ("Alger Management") is the investment manager for
the three Alger American Funds and is responsible for the overall administration
of the Fund, subject to the supervision of the Board of Trustees.
Fidelity Management & Research Company ("FMR") is the investment adviser of the
VIP's five portfolios and of VIP II's four portfolios.
Each of the four portfolios of Janus Aspen Series has an investment advisory
agreement with Janus Capital Corporation ("Janus Capital"). Janus Capital is the
investment adviser of the four portfolios of Janus Aspen Series.
Neuberger&Berman Management, with the assistance of Neuberger&Berman, LLC as
sub-adviser, selects investments for AMT Partners Investments and AMT Limited
Maturity Bond Investments.
Northstar Investment Management Corporation, an affiliate of the Company, is the
investment adviser for the five funds of the Northstar Variable Trust. Certain
of the Northstar Funds are sub-advised by third-party investment advisers.
OpCap Advisors is the investment manager for each of the four OCC Accumulation
Trust Portfolios and is a subsidiary of Oppenheimer Capital, a registered
investment adviser.
<PAGE>
Putnam Investment Management, Inc. ("Putnam Management") is the investment
adviser of the Putnam Variable Trust's six funds.
WHAT ARE THE CHARGES AGAINST THE VARIABLE ACCOUNT?
Certain charges will be deducted as a percentage of the value of the net assets
of the Variable Account. 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.
WHAT ARE THE INVESTMENT ADVISORY FEES AND OTHER FUND EXPENSES AFTER
REIMBURSEMENT?
Because the Variable Account purchases shares of the Funds, the net asset value
of the investments of the Variable Account will reflect the investment advisory
fees and other expenses incurred by the Funds. Set forth below is information
provided by each Fund on its total 1996 annual expenses as a percentage of the
Fund's average net assets. For more information concerning these expenses, see
the prospectuses for the Funds located in the accompanying book entitled
"Select*Product Mutual Funds".
<TABLE>
<CAPTION>
TOTAL
INVESTMENT
MANAGEMENT OTHER FUND ANNUAL
FUND FEES EXPENSES EXPENSES
- ---- ---- -------- --------
<S> <C> <C> <C>
Alger American Growth Portfolio (a) 0.75% 0.04% 0.79%
Alger American MidCap Growth Portfolio (a) 0.80% 0.04% 0.84%
Alger American Small Capitalization Portfolio (a) 0.85% 0.03% 0.88%
Fidelity's VIP Equity-Income Portfolio (a) (e) 0.51% 0.07% 0.58%
Fidelity's VIP Growth Portfolio (a) (e) 0.61% 0.08% 0.69%
Fidelity's VIP High Income Portfolio (a) 0.59% 0.12% 0.71%
Fidelity's VIP Money Market Portfolio 0.21% 0.09% 0.30%
Fidelity's VIP Overseas Portfolio (a) (e) 0.76% 0.17% 0.93%
Fidelity's VIP II Asset Manager (a) (e) 0.64% 0.10% 0.74%
Fidelity's VIP II Contrafund Portfolio (a) (e) 0.61% 0.13% 0.74%
Fidelity's VIP II Index 500 Portfolio (a) (f) 0.13% 0.15% 0.28%
Fidelity's VIP II Investment Grade Bond Portfolio (a) 0.45% 0.13% 0.58%
Janus Aggressive Growth Portfolio (a) (b) 0.72% 0.04% 0.76%
Janus Growth Portfolio (a) (b) 0.65% 0.04% 0.69%
Janus International Growth Portfolio (a) (b) 0.05% 1.21% 1.26%
Janus Worldwide Growth Portfolio (a) (b) 0.66% 0.14% 0.80%
Neuberger&Berman AMT Limited Maturity Bond Portfolio (a) 0.65% 0.13% 0.78%
Neuberger&Berman AMT Partners Portfolio (a) 0.84% 0.11% 0.95%
Northstar Growth Fund (c) 0.75% 0.05% 0.80%
Northstar High-Yield Bond Fund (c) 0.75% 0.05% 0.80%
Northstar Income and Growth Fund (c) 0.75% 0.05% 0.80%
Northstar International Value Fund (c) 0.75% 0.05% 0.80%
Northstar Multi-Sector Bond Fund (c) 0.75% 0.05% 0.80%
OCC Equity Portfolio (a) (d) 0.80% 0.22% 1.02%
OCC Global Equity Portfolio (a) (d) 0.80% 0.63% 1.43%
OCC Managed Portfolio (a) (d) 0.80% 0.10% 0.90%
OCC Small Cap Portfolio (a) (d) 0.80% 0.22% 1.02%
Putnam VT Asia Pacific Growth Fund 0.80% 0.43% 1.23%
Putnam VT Diversified Income Fund 0.70% 0.13% 0.83%
Putnam VT Growth and Income Fund 0.49% 0.05% 0.54%
Putnam VT New Opportunities Fund 0.63% 0.09% 0.72%
Putnam VT Utilities Growth and Income Fund (g) 0.69% 0.09% 0.78%
Putnam VT Voyager Fund 0.57% 0.06% 0.63%
<PAGE>
(a) The Company or its affiliates may receive compensation from an affiliate or
affiliates of certain of the Funds based upon an annual percentage of the
average net assets held in that Fund by the Company and by certain of the
Company's insurance company affiliates. These amounts are intended to
compensate the Company or the Company's affiliates for administrative,
record keeping, and in some cases distribution, and other services provided
by the Company and its affiliates to Funds and/or the Funds' affiliates.
Payments of such amounts by an affiliate or affiliates of the Funds do not
increase the fees paid by the Funds or their shareholders.
(b) The fees and expenses in the table above are based on gross expenses before
expense offset arrangements for the fiscal year ended December 31, 1996.
The information for each Portfolio is net of fee waivers or reductions from
Janus Capital. Fee reductions for the Aggressive Growth, Growth,
International Growth, and Worldwide Growth Portfolios reduce the management
fee to the level of the corresponding Janus retail fund. Other waivers, if
applicable, are first applied against the management fee and then against
other expenses. Without such waivers or reductions, the Management Fee,
Other Expenses and Total Operating Expenses would have been: 0.79%, 0.04%,
and 0.83% for Janus Aggressive Growth Portfolio; 0.79%, 0.04%, and 0.83%
for Janus Growth Portfolio; 1.00%, 1.21%, and 2.21% for Janus International
Growth Portfolio; and 0.77%, 0.14%, and 0.91% for Janus Worldwide Growth
Portfolio. Janus Capital may modify or terminate the waivers or reductions
at any time upon at least 90 days' notice to the Trustees of Janus Aspen
Series.
(c) The investment adviser to the Northstar Variable Trust has agreed to
reimburse the five Northstar Funds for any expenses in excess of 0.80% of
each Fund's average daily net assets. In the absence of the investment
adviser's expense reimbursements, the actual expenses that would have been
paid by each Fund during its fiscal year ended December 31, 1996 would have
been: 1.70% for the Northstar Growth Fund; 1.73% for the Northstar High
Yield Bond Fund; 1.40% for Northstar Income and Growth Fund; and 1.68% for
the Northstar Multi-Sector Bond Fund. The Northstar International Value
Fund commenced operations on August 8, 1997. Absent expense reimbursement,
the actual expenses for this Fund are estimated to be 1.90%. Expense
reimbursements are voluntary. There is no assurance of ongoing
reimbursement.
(d) The annual expenses of OCC Accumulation Trust Portfolio (the "Portfolios")
as of December 31, 1996 have been restated to reflect new management fee
and expense limitation arrangements in effect as of May 1, 1996.
Additionally, Other Expenses are shown gross of certain expense offsets
afforded the Portfolios which effectively lowered overall custody expenses.
Effective May 1, 1996, the expenses of the Portfolios were contractually
limited by OpCap Advisors so that their respective annualized operating
expenses (net of any expense offsets) do not exceed 1.25% of their
respective average daily net assets. Furthermore, through December 31,
1997, the annualized operating expenses of the Equity, Managed, and Small
Cap Portfolios will be voluntarily limited by OpCap Advisors so that
annualized operating expenses (net of any expense offsets) of these
Portfolios do not exceed 1.00% of their respective average daily net
assets. Without such contractual and voluntary expense limitations and
without giving effect to any expense offsets, the Management Fees, Other
Expenses and Total Investment Fund Expenses incurred for the fiscal year
ended December 31, 1996 would have been: .80%, .31% and 1.11% respectively,
for the Equity Portfolio; .80%, 1.04%, and 1.84% respectively, for the
Global Equity Portfolio; .80%, .10% and .90% respectively, for the Managed
Portfolio; and .80%, .26% and 1.06% respectively, for the Small Cap
Portfolio. Expense reimbursements are voluntary. There is no assurance of
ongoing reimbursements.
(e) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on invested cash balances was used to reduce custodian and transfer
agent expenses. Including these reductions, the total operating expenses
presented in the table would have been: .56% for Fidelity's VIP Equity
Income Portfolio; .67% for Fidelity's VIP Growth Portfolio; .92% for
Fidelity's VIP Overseas Portfolio; .73% for Fidelity's VIP II's Asset
Manager Portfolio; and .71% for Fidelity's VIP II Contrafund Portfolio.
(f) FMR agreed to reimburse a portion of Fidelity's VIP II Index 500
Portfolio's expenses during the period. Without this reimbursement, the
fund's management fee, other expenses and total expenses would have been
.28%, .15%, and .43% respectively. Expense reimbursements are voluntary.
There is no assurance of ongoing reimbursement.
<PAGE>
(g) On July 11, 1996, shareholders approved an increase in the fees payable to
Putnam Investment Management, Inc. ("Putnam Management") under the
Management Contract for Putnam VT Utilities and Growth and Income Fund. The
management fees and total expenses shown in the table have been restated to
reflect the increase. Actual management fees and total expenses were 0.64%
and 0.73%, respectively.
</TABLE>
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 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
<PAGE>
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".
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?
Although we reserve the right to limit borrowing during 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%
<PAGE>
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".
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
RELIASTAR 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 $190 billion of life insurance in force and our
assets are $16.7 billion as of December 31, 1996. 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.
<PAGE>
PERFORMANCE INFORMATION
Performance information for the Sub-Accounts of the Variable Account and the
Funds available for investment by the Variable Account may appear in
advertisements, sales literature, or reports to Policy owners or prospective
purchasers. Performance information for the Sub-Accounts will reflect deductions
of Fund Expenses and be adjusted to reflect the Mortality and Expense Risk
Charge, but will not reflect deductions for the cost of insurance or the
Surrender Charge. Quotations of performance information for the Funds will be
accompanied by performance information for the Sub-Accounts. Performance
information for the Funds will take into account all fees and charges at the
Fund level, but will not reflect any deductions from the Variable Account.
Performance information reflects only the performance of a hypothetical
investment during a particular time period in which the calculations are based.
Performance information showing total returns and average annual total returns
may be provided for periods prior to the date a Sub-Account commenced operation.
Such performance information will be calculated based on the assumption that the
Sub-Accounts were in existence for the same periods as those indicated for the
Funds, with the level of charges at the Variable Account level that were in
effect at the inception of the Sub-Accounts. Performance information should be
considered in light of the investment objectives and policies, characteristics
and quality of the portfolio of the Fund in which the Sub-Account invests, and
the market conditions during the given period of time, and should not be
considered as a representation of what may be achieved in the future.
We may also provide individualized hypothetical illustrations of Policy
Accumulation Value, Cash Surrender Value and Death Benefit based on historical
investment returns of the Funds. These illustrations will reflect deductions for
Fund expenses and Policy and Variable Account charges, including the Monthly
Deduction, Premium Expense Charge and the Surrender Charge. These hypothetical
illustrations will be based on the actual historical experience of the Funds as
if the Sub-Accounts had been in existence and a Policy issued for the same
periods as those indicated for the Funds.
Performance of the Sub-Accounts and/or the Funds as reported from time to time
in advertisements and sales literature may be compared to other variable life
insurance issuers in general or to the performance of particular types of
variable life insurance policies investing in mutual funds, or investment series
of mutual funds with investment objectives similar to each of the Sub-Accounts,
whose performance is reported by Lipper Analytical Services, Inc. ("Lipper") and
Morningstar. Inc. ("Morningstar") or reported by other series, companies,
individuals or other industry or financial publications of general interest,
such as Forbes, Money, The Wall Street Journal, Business Week, Barron's,
Kiplinger's Personal Finance, and Fortune. Lipper and Morningstar are
independent services which monitor and rank the performances of variable life
insurance issuers in each of the major categories of investment objectives on an
industry-wide basis.
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 in which the Sub-Accounts to
which you allocate your premium payments invest.
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
<PAGE>
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 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.
<PAGE>
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).
CORRIDOR PERCENTAGE TABLE
INSURED'S AGE ON CORRIDOR PERCENTAGE
PREVIOUS POLICY ANNIVERSARY OF ACCUMULATION VALUE
--------------------------- ---------------------
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
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.
<PAGE>
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 $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. We reserve the right to limit increases and decreases in the Face
Amount 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.
<PAGE>
For purposes of determining the cost of insurance, decreases in the Face Amount
will be applied to reduce the current Face Amount in the following order:
(a) The Face Amount provided by the most recent increase;
(b) The next most recent increases successively; and
(c) The Face Amount when the Policy was issued.
By reducing the current Face Amount in this manner, the Rate Class applicable to
the most recent increase in Face Amount will be eliminated first, then the Rate
Class applicable to the next most recent increase, and so on, for the purposes
of calculating the cost of insurance. This assumption will affect the cost of
insurance under the Policy only if different Rate Classes have been applied to
the current Face Amount. A Rate Class is a group of Insureds we determine based
upon our expectation that they will have similar mortality experience. We
currently place Insureds into standard Rate Classes or into substandard Rate
Classes that involve a higher mortality risk (for example, a 200% Rate Class or
a 300% Rate Class). In an otherwise identical Policy, an Insured in the standard
Rate Class will have a lower cost of insurance than an Insured in a substandard
Rate Class with higher mortality risks. See "Deductions and Charges -- Monthly
Deduction".
For example, assume that the initial Face Amount was $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".)
<PAGE>
(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 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.
<PAGE>
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.
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
<PAGE>
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.
* 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
<PAGE>
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".
* 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:
ReliaStar Life Insurance Company
P.O. Box 802511
Chicago, Illinois 60680-2511
<PAGE>
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.
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 including the Minimum
Monthly Premium for the current Monthly Anniversary.
The requirements for the Death Benefit Guarantee must be satisfied as of each
Monthly Anniversary, even though you do not have to pay premiums monthly.
EXAMPLE: The Policy Date is January 1, 1997. 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, 1997. The $1,000 maintains the Death
Benefit Guarantee without your paying any additional premiums for the
next 10 months (through October 31, 1997). However, you must pay at
least $100 by November 1, 1997 to maintain the Death Benefit
Guarantee through November 30, 1997.
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".
<PAGE>
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, 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.
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
<PAGE>
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. 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.
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 and the Death Benefit
Guarantee is not in effect, the Policy may lapse. See "Death Benefit Guarantee"
and "Policy Lapse and Reinstatement".
COST OF INSURANCE. We will determine the monthly cost of insurance by
multiplying the applicable cost of insurance rate or rates by the net amount at
risk under the Policy. The net amount at risk under the Policy for a Policy
Month is (a) the Death Benefit at the beginning of the Policy Month divided by
1.004074 (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. 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.
<PAGE>
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.
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. 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. 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 until 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 32, 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), Fnd 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.
<PAGE>
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".
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
<PAGE>
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.
SURRENDER CHARGE PERCENTAGE TABLE
THE FOLLOWING PERCENTAGES OF THE
SURRENDER CHARGE WILL BE PAYABLE FOR:**
---------------------------------------
IF SURRENDER OR LAPSE OCCURS IN INITIAL FACE FACE AMOUNT
THE LAST MONTH OF POLICY YEAR:* AMOUNT INCREASES
------------------------------- ------ ---------
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%
* 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.
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.
<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 -- Calculation of Contingent Deferred Sales Charge",
which means that, in effect, a proportionate amount
<PAGE>
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
<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".
<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. Telephone/fax transfers are available when you
complete a telephone/fax form. See "Telephone/Fax Instructions." Transfer
requests must be in writing. 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/FAX INSTRUCTIONS. You are allowed to enter certain types of
instructions either by telephone or by fax if you complete a telephone/fax
instruction authorization form. If you complete the form, you can enter the
following types of instructions by telephone or fax: transfers between
Sub-Accounts or changes of allocations among fund options and change of
Sub-Account for variable annuitization payouts. If the Owner completes the
telephone/fax form, the Owner agrees that we will not be liable for any loss,
liability, cost or expense when we act in accordance with the telephone/fax
transfer instructions that are received and, if by telephone, are recorded on
voice recording equipment. If a telephone/fax transfer request is later
determined not to have been made by the Owner or was made without the Owner's
authorization, and loss results from such unauthorized transfer, the Owner bears
the risk of this loss. Any requests via fax are considered telephone requests
and are bound by the conditions in the telephone/fax transfer authorization form
you sign. Any fax request should include your name, daytime telephone number,
Policy number and, in the case of transfers, the names of the Sub-Accounts from
which and to which money will be transferred and the allocation percentage. The
Company will employ reasonable procedures to confirm that instructions
communicated by telephone/fax are genuine. In the event the Company does not
employ such procedures, the Company may be liable for any losses due to
unauthorized or fraudulent instructions. Such procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone/fax instructions, providing written confirmation of such instructions,
and/or tape recording telephone instructions.
DOLLAR COST AVERAGING SERVICE. You may request this service if your 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
<PAGE>
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 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. 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
using the Policy as security for the loan (we do reserve the right to limit
loans during the first Policy Year (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
<PAGE>
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.
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 including unpaid interest due thereon
is called the "Loan Amount".
IMMEDIATE EFFECT OF POLICY LOANS. When we make a Policy loan, an amount equal to
the Policy loan (which includes interest payable in advance) will be segregated
within the Accumulation Value of your Policy and held in the Fixed Account as
security for the loan. As described below, you will pay interest to us on the
Policy loan, but we will also credit interest to you on the amount held in the
Fixed Account as security for the loan. The amount segregated in the Fixed
Account as security for the Policy loan will be included as part of the Fixed
Accumulation Value under the Policy, but will (as described below) be credited
with interest on a basis different from other amounts in the Fixed Account.
Unless you specify differently, amounts held as security for the Policy loan
will come proportionately from the Fixed Accumulation Value and the Variable
Accumulation Value (with the proportions being determined as described below).
Assets equal to the portion of the Policy loan coming from the Variable
Accumulation Value will be transferred from the Sub-Accounts of the Variable
Account to the Fixed Account, THEREBY REDUCING THE ACCUMULATION VALUE HELD IN
THE SUB-ACCOUNTS. These transfers are not treated as transfers for the purposes
of the transfer charge or the limit on the number of transfers.
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
<PAGE>
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".
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 less 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".
<PAGE>
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.
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 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.
<PAGE>
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
(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 33 investment alternatives available under the Variable
Account. Alger Management is the investment manager for the three Alger American
Funds and is responsible for the overall administration of the Fund, subject to
the supervision of the Board of Trustees. Fidelity Management & Research Company
is the investment adviser for the five portfolios of VIP and the four portfolios
of VIP II. Each of the four portfolios of Janus Aspen Series has an investment
advisory agreement with Janus Capital. Neuberger&Berman Management, with the
assistance of Neuberger&Berman, LLC as sub-adviser, selects investments for AMT
Limited Maturity Bond Investments and AMT Partners Investments. Northstar
Investment Management Corporation, an affiliate of the Company, is the
investment adviser of the five Northstar Funds. Certain of the Northstar Funds
are sub-advised by third-party investment advisers. OpCap Advisors is the
investment manager for each of the four OCC Accumulation Trust Portfolios and is
a subsidiary of Oppenheimer Capital, a registered investment adviser. Putnam
Management is the investment adviser for the six funds of Putnam Variable Trust.
We reserve the right to establish additional Sub-Accounts of the Variable
Account, each of which could invest in a new Fund with a specified investment
objective. The Variable Account currently consists of 33 investment options. You
are permitted, however, to participate only in a maximum of seventeen investment
options over the lifetime of your Policy. You do not have to choose your
investment options in advance, but upon participation in the seventeenth Fund
since the issue of the Policy, you would only be able to transfer within the
seventeen Funds already utilized and which are still available.
The Company has entered into service agreements with the managers or
distributors of certain of the Funds pursuant to which the Company or its
affiliates may receive from affiliates of the Funds compensation for providing
administrative, recordkeeping, distribution in some cases, and other services to
the Funds or their affiliates. Such compensation is paid based upon assets
invested in the particular Funds, or based upon aggregated net asset goals.
Currently, the Company has service arrangements with Alger, Fidelity, Janus,
Neuberger&Berman, and OCC.
The Funds currently offered are described below. A brief summary of
investment objectives is contained in the description of each Fund. In
addition, you should read the prospectuses of the Funds,
<PAGE>
which are contained in the accompanying "Select*Product Mutual Funds" book, for
more detailed information and particularly, a more thorough explanation of
investment objectives of the Funds. There is no assurance that any Fund will
achieve its investment objectives. There is a possibility that one Fund might
become liable for any misstatement, inaccuracy or incomplete disclosure in
another Fund's prospectus.
The Fund shares may be available to fund benefits under both variable annuity
and variable life contracts and policies. This could, in the future, result in
an irreconcilable conflict between the interests of the holders of the different
types of variable contracts. The Funds have advised us that they will monitor
for such conflicts and will promptly provide us with information regarding any
such conflicts should they arise or become imminent and we will promptly advise
the Funds if we become aware of any such conflicts. If any such material
irreconcilable conflict arises we will arrange to eliminate and remedy such
conflict up to and including establishing a new management investment company
and segregating the assets underlying the variable policies and contracts at no
cost to the holders of the policies and contracts. For a brief explanation of
the conflicts that may be involved in such situations, refer to the following
sections in the Fund Prospectuses: "Participating Insurance Companies and Plans"
in The Alger American Fund Prospectus, "FMR and Its Affiliates" in Fidelity's
VIP and VIP II Prospectuses, "Conflicts of Interest" in Janus Aspen Series
Prospectus, "Distribution and Redemption of Trust Shares" in the
Neuberger&Berman Advisers Management Trust Prospectus, "Management of the Fund"
in the OCC Accumulation Trust Prospectus, and "Sales and Redemptions" in the
Putnam Variable Trust 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".
THE ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO has the investment objective of long term
capital appreciation. Except during temporary defensive periods, the Portfolio
invests at least 65% of its total assets in equity securities of companies that,
at the time of purchase of the securities, have total market capitalization of
$1 billion or greater. The Portfolio may invest up to 35% of its total assets in
equity securities of companies that, at the time of purchase, have total market
capitalization of less than $1 billion.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO has the investment objective of long term
capital appreciation. Except during temporary defensive periods, the Portfolio
invests at least 65% of its total assets in equity securities of companies that,
at the time of purchase of the securities, have total market capitalization
within the range of companies included in the S&P MidCap 400 Index, updated
quarterly. The S&P MidCap 400 Index is designed to track the performance of
medium capitalization companies. The Portfolio may invest up to 35% of its total
assets in equity securities of companies that, at the time of purchase, have
total market capitalization outside the range of companies included in the S&P
Mid-Cap 400 Index and in excess of that amount (up to 100% of its assets) during
temporary defensive periods.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO has the investment objective of
long term capital appreciation. Except during temporary defensive periods, the
Portfolio invests at least 65% of its total assets in equity securities of
companies that, at the time of purchase, have "total market capitalization" --
present market value per share multiplied by the total number of shares
outstanding -- within the range of companies included in the Russell 2000 Growth
Index ("Russell Index") or the S&P Small Cap 600 Index ("S&P Index"). Both
indexes are broad indexes of small capitalization stocks. The Portfolio may
invest up to 35% of its total assets in equity securities of companies that, at
the time of purchase, have total market capitalization outside of the combined
range of these indices, and in excess of that amount (up to 100% of its assets)
during temporary defensive periods.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (VIP)
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities the portfolio
will also consider the potential for capital appreciation. The portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of 500 Stocks.
<PAGE>
GROWTH PORTFOLIO seeks to achieve capital appreciation. The portfolio normally
purchases common stocks, although its investments are not restricted to any one
type of security. Capital appreciation may also be found in other types of
securities, including bonds and preferred stocks.
HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in 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 VIP Prospectus
for further information on the risks associated with the portfolio's investment
in lower-rated, fixed-income securities.
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The portfolio will
invest only in high-quality U.S. dollar denominated money market instruments of
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.
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 (VIP II)
ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed-income instruments.
CONTRAFUND PORTFOLIO seeks capital appreciation by investing in companies
believed to be undervalued due to an overly pessimistic appraisal by the public.
The portfolio 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.
INDEX 500 PORTFOLIO seeks to provide investment results that correspond to the
total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States. In seeking this objective, the
Portfolio attempts to duplicate the composition and total return of the Standard
& Poor's Composite Index of 500 Stocks while keeping transaction costs and other
expenses low. The portfolio is designed as a long term investment option.
INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income as is
consistent with the preservation of capital by investing in a broad range of
investment-grade fixed-income securities.
JANUS ASPEN SERIES
AGGRESSIVE GROWTH PORTFOLIO is a nondiversified fund that seeks long-term growth
of capital by investing primarily in common stocks. The Portfolio intends to
normally invest at least 50% of its equity assets in securities issued by
medium-sized companies.
GROWTH PORTFOLIO is a diversified fund that seeks long-term growth of capital in
a manner consistent with the preservation of capital by investing in common
stocks of issuers of any size. Generally, this Portfolio emphasizes issuers with
larger market capitalizations.
INTERNATIONAL GROWTH PORTFOLIO is a diversified fund that seeks long-term growth
of capital by investing primarily in common stocks of foreign issuers of any
size. The Portfolio normally invests at least 65% of its total assets in issuers
from at least five different countries excluding the United States.
WORLDWIDE GROWTH PORTFOLIO is a diversified fund that seeks long-term growth of
capital in a manner consistent with the preservation of capital by investing
primarily in common stocks of foreign and domestic issuers of any size.
Worldwide Growth Portfolio normally invests in issuers from at least five
different countries including the United States.
NEUBERGER&BERMAN ADVISERS MANAGEMENT TRUST ("AMT")
LIMITED MATURITY BOND PORTFOLIO seeks to provide the highest current income
consistent with low risk to principal and liquidity; and secondarily, total
return. It invests in a diversified portfolio primarily consisting of U.S.
Government and Agency securities and investment grade debt securities issued by
financial institutions, corporations, and others. "Investment grade" debt
securities are those receiving one
<PAGE>
of the four highest ratings from Moody's Investor Service, Inc. ("Moody's"),
Standard & Poor's Rating Group ("S&P"), or another nationally recognized
statistical rating organization ("NRSRO"). Securities in which the portfolio may
invest include mortgage-backed and asset backed securities, repurchase
agreements with respect to U.S. Government and Agency securities, and foreign
investments. The portfolio may also invest in fixed, variable or
inflation-indexed debt securities.
PARTNERS PORTFOLIO seeks capital growth through an investment approach that is
designed to increase capital with reasonable risk. It invests in a portfolio,
which in turn, invests principally in common stocks of medium to large
capitalization established companies, using a value-oriented approach.
Neuberger&Berman Management looks for securities believed to be under valued
based on strong fundamentals, including a low price-to-earnings ratio,
consistent cash flow, and the company's track record through all parts of the
market cycle. Up to 15% of the portfolio's net assets measured at the time of
investment, may be invested in corporate debt securities that are below
investment grade or in comparable unrated securities. Securities rated below
investment grade as well as comparable unrated securities, are often considered
to be speculative and usually entail greater risk.
NORTHSTAR VARIABLE TRUST (NORTHSTAR)
NORTHSTAR GROWTH FUND is a diversified portfolio with an investment objective of
long-term growth of capital through investments in equity securities of
companies that are believed to provide above average potential for capital
appreciation. Navellier Fund Management, Inc. serves as sub-adviser to the Fund
and is responsible for the day-to-day investment management of the Fund, subject
to the supervision of the investment adviser and the Trustees of the Fund. All
fees and expenses of the sub-advisory agreement are borne by the investment
adviser.
NORTHSTAR HIGH YIELD BOND FUND is a diversified portfolio with an investment
objective of seeking high income consistent with the preservation of capital.
Under normal market conditions, this Investment Fund invests predominantly in
high-yield, high-risk, lower-rated U.S. dollar denominated debt securities.
These securities are commonly known as "junk bonds." Most of the securities in
which the Investment Fund invests are rated, at the time of investment, at least
Caa by Moody's Investors Service, Inc. ("Moody's") or CCC by Standard & Poor's
Corporation ("S&P") or, if not rated, are of comparable quality in the opinion
of the investment adviser. The Investment Fund may, however, invest in
securities in the lowest rating categories of Moody's and S&P, which are "C" in
the case of Moody's and "D" in the case of S&P.
NORTHSTAR INCOME AND GROWTH FUND is a diversified portfolio with an investment
objective of seeking current income balanced with the objective of achieving
capital appreciation. This Fund will seek to achieve its objective through
investments in common and preferred stocks, convertible securities, investment
grade corporate debt securities and government securities, selected for their
prospects of producing income and capital appreciation. Wilson/Bennett Capital
Management, Inc. is the sub-adviser to this Fund and is responsible for the
day-to-day investment management of the Fund, subject to the supervision of the
investment adviser and the Trustees of the Fund.
NORTHSTAR INTERNATIONAL VALUE FUND is a diversified portfolio with the objective
of long-term capital appreciation. The Fund invests primarily in foreign
companies with a market capitalization of greater than $1 billion, but may hold
up to 25% of its assets in companies with smaller market capitalization. This
Fund will seek to achieve its objective through investments in common stocks,
preferred stocks, American, European and Global depository receipts, as well as
convertible securities. It may also invest in other higher-risk securities of
companies located in at least three countries other than the U.S. including
Western Europe, North and South America, Australia, Asian and other nations. Up
to 25% of its assets may be invested in securities of issuers located in
countries with emerging markets. Brandes Investment Partners, L.P. ("Brandes")
is the sub-adviser to this Fund and is responsible for the day-to-day investment
management of the Fund, subject to the supervision of the investment adviser and
the Trustees of the Fund. All fees and expenses of the sub-advisory agreement
are borne by the investment adviser.
NORTHSTAR MULTI-SECTOR BOND FUND is a diversified portfolio with an investment
objective of maximizing current income. This Fund will seek to achieve its
objective by investment in the following sectors of the fixed income securities
markets: (a) securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, authorities or instrumentalities; (b) investment
grade
<PAGE>
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.
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO seeks long term capital appreciation through investment in
securities (primarily equity securities) of companies that are believed by the
Manager to be undervalued in the marketplace in relation to factors such as the
companies' assets or earnings. It is the manager's intention to invest in
securities of companies which in the Manager's opinion possess one or more of
the following characteristics: undervalued assets, valuable consumer or
commercial franchises, securities valuation below peer companies, substantial
and growing cash flow and/or a favorable price to book value relationship. The
Portfolio will invest primarily in stocks listed on the New York Stock Exchange.
In addition, it may also purchase securities listed on other domestic securities
exchanges, securities traded in the domestic over-the-counter market and foreign
securities provided that they are listed on a domestic or foreign securities
exchange or represented by American depository receipts listed on a domestic
securities exchange or traded in domestic or foreign over-the-counter markets.
GLOBAL EQUITY PORTFOLIO seeks long term capital appreciation through pursuit of
a global investment strategy primarily involving equity securities. The
Portfolio may invest anywhere in the world with no requirement that any specific
percentage of its assets be committed to any given country. Under normal
circumstances, at least 65 percent of the Portfolio's total assets will be
invested in equity securities in at least three different countries, one of
which may be the United States. Opportunities for capital appreciation may also
be presented by debt securities. The Portfolio may invest up to 35 percent of
its total assets in debt obligations with remaining maturities of one year or
more of U.S. or foreign corporate, governmental or bank issuers. It is the
present intention of the Portfolio, although not a fundamental policy, not to
invest more than 5 percent of its total assets in debt securities rated below
investment grade. Although there is no minimum rating for this category of debt
instruments of the Portfolio, the Portfolio does not intend to invest in bonds
which are in default.
MANAGED PORTFOLIO seeks to achieve growth of capital over time through
investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary based on the Manager's
assessments of the relative outlook for such investments. In seeking to achieve
its investment objective, the types of equity securities in which the Portfolio
may invest are likely to be the same as those in which the Equity Portfolio
invests, although securities of the type in which the Small Cap Portfolio
invests may, to a lesser extent, be included. Debt securities are expected to be
predominately investment grade intermediate to long term U.S. Government and
corporate debt, although the Portfolio will also invest in high quality short
term money market and cash equivalent securities and may invest almost all of
its assets in such securities when the Manager deems it advisable in order to
preserve capital. In addition, the Portfolio may also purchase foreign
securities provided that they are listed on a domestic or foreign securities
exchange or are represented by American depository receipt listed on a domestic
securities exchange or traded in domestic or foreign over-the counter markets.
SMALL CAP PORTFOLIO seeks capital appreciation through investments in a
diversified portfolio consisting primarily of equity securities of companies
with market capitalizations of under $1 billion. The Portfolio may purchase
securities in initial public offerings, or shortly after such offerings have
been completed, when the Manager believes that such securities have
greater-than-average market appreciation potential. Under normal circumstances
at least 65% of the Portfolio's assets will be invested in equity securities.
The majority of securities purchased by the Portfolio will be traded on the New
York Stock Exchange, the American Stock Exchange or in the over-the-counter
market, and will also include options, warrants, bonds, notes and debentures
which are convertible into or exchangeable for, or which grant a right to
purchase or sell securities. In addition, the Portfolio may also purchase
foreign securities provided that they are listed on a domestic or foreign
securities exchange or traded in domestic or foreign over-the-counter markets.
PUTNAM VARIABLE TRUST
PUTNAM VT 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
<PAGE>
common stocks, preferred stocks, securities convertible into common stocks or
preferred stocks, and warrants to purchase common stocks or preferred stocks.
PUTNAM VT DIVERSIFIED INCOME FUND seeks high current income consistent with
capital preservation by investing in the following three sectors of the fixed
income securities markets; a U.S. Government Sector, a High-Yield Sector (which
invests primarily in securities that are commonly known as "junk bonds") and an
International Sector. Consult the Putnam Variable Trust Prospectus for further
information on the risks associated with this Fund's investment in high-yield,
higher-risk fixed income securities.
PUTNAM VT GROWTH AND INCOME FUND seeks capital growth and current income by
investing primarily in common stocks that offer potential for capital growth,
current income, or both.
PUTNAM VT 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.
PUTNAM VT UTILITIES GROWTH AND INCOME FUND seeks capital growth and current
income by concentrating its investments in debt and equity securities issued by
companies in the public utilities industries.
PUTNAM VT VOYAGER FUND seeks capital appreciation by investing primarily in
common stocks that Putnam Management believes have potential for capital
appreciation that is significantly greater than that of market averages.
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, regulatory
requirements 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.
The Company currently plans to discontinue offering certain of the Funds as
investment options. It is anticipated that this will occur in the first half of
1998, subject to and contingent upon receipt of various approvals. It is
expected that any policyholder monies that are invested in Sub-Accounts
investing in the discontinued Funds will be transferred to alternate Funds with
similar investment objectives. The proposed discontinued and transferee Funds
are as follows: Fidelity VIP Asset Manager
<PAGE>
Portfolio to OCC Managed Portfolio; Fidelity VIP Overseas Portfolio to Northstar
International Value Fund; Putnam VT Asia Pacific Portfolio to Janus Worldwide
Growth Portfolio; Putnam VT New Opportunities Fund to Putnam VT Voyager Fund;
Putnam VT Utilities Growth and Income Fund to Putnam Growth and Income Fund.
Policyholders who have investments in any of discontinued Funds will be
permitted for a period of 30 days to transfer their investment into a
non-discontinued Fund without payment of any transfer charge.
VOTING RIGHTS
You have the right to instruct us how to vote the Fund shares attributable to
the Policy at regular meetings and special meetings of the Funds. We will vote
the Fund shares held in Sub-Accounts according to the instructions received, as
long as:
* 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.
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.
<PAGE>
* 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.
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. Proceeds will
be paid in one sum unless one or more Options are requested and we agree to it.
A combination of options may be used. At least $2,500 must be applied to any
option for each payee under that option. Under an installment Option, each
payment must be at least $25.00. We may adjust the interval between payments to
make each payment at least $25.00.
Proceeds applied to any Option no longer earn interest at the rate applied to
the Fixed Account or participate in the investment performance of the Funds.
<PAGE>
Option 1 -- Proceeds are left with us to earn interest. Withdrawals and any
changes are subject to our approval.
Option 2 -- Proceeds and interest are paid in equal installments of a
specified amount until the proceeds and interest are all paid.
Option 3 -- Proceeds and interest are paid in equal installments for a
specified period until the proceeds and interest are all paid.
Option 4 -- The proceeds provide an annuity payment with a specified number
of months "certain". The payments are continued for the life of the primary
payee. If the primary payee dies before the certain period is over, the
remaining payments are paid to a contingent payee.
Option 5 -- The proceeds provide a life income for two payees. When one
payee dies, the surviving payee receives two-thirds of the amount of the
joint monthly payment for life.
Option 6 -- The proceeds are used to provide an annuity based on the rates
in effect when the proceeds are applied. We do not apply this Option if a
similar option would be more favorable to the payee at that time.
INTEREST ON SETTLEMENT OPTIONS. We base the interest rate for proceeds applied
under Options 1 and 2 on the interest rate we declare on funds that we consider
to be in the same classification based on the Option, restrictions on
withdrawal, and other factors. The interest rate will never be less than an
effective annual rate of 3.50%.
In determining amounts to be paid under Options 3 and 4, we assume interest at
an effective annual rate of 3.50%. Also, for Option 3 and "certain" periods
under Option 4, we credit any excess interest we may declare on funds that we
consider to be in the same classification based on the Option, restrictions on
withdrawal, and other factors.
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.
<PAGE>
* 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 free of
charge, showing the Face Amount, Death Benefit, Accumulation Value, Cash
Surrender Value, Loan Amount, premiums paid, Planned Periodic Premiums, interest
credits, partial withdrawals, transfers, and charges since the last statement.
Additional statements are available upon request. We may make a charge not to
exceed $50.00 for each additional Annual Statement you request.
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.
<PAGE>
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 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 if they meet
the definition of a life insurance contract under the Code and as long as the
separate accounts funding them are "adequately diversified" under section 817(h)
of the Code and regulations issued by the Internal Revenue Service. 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.
In connection with the issuance of temporary diversification regulations, the
Internal Revenue Service stated that it anticipates the issuance of regulations
or rulings prescribing the circumstances in which an owner's control of the
investments of a separate account may cause the owner, rather than the insurance
company, to be treated as the owner of the assets in the account. If the Policy
owner is considered the owner of the assets of the separate account, income and
gains from the account would be included in the owner's gross income.
The ownership rights under the Policy offered in the Prospectus are similar to,
but different in certain respects from, those described by the Internal Revenue
Service, in rulings in which it determined that the owners were not owners of
separate account assets. For example, the owner of the Policy has additional
flexibility in allocating payments and cash values. These differences could
result in the owner being treated as the owner of the assets of the separate
account. In addition, we do not know what standards will be set forth in the
regulations or rulings which the Internal Revenue Service has stated it expects
to be issued. The number of underlying investment options available under a
variable product
<PAGE>
may also be relevant in determining whether the product qualifies for the
desired tax treatment. We reserve the right to modify the Policy as necessary to
attempt to prevent the Policy owner from being considered as owner of the assets
of the separate account.
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 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
<PAGE>
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 RELIASTAR 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 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 many
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
<PAGE>
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
The following list the current directors and executive officers of the Company,
their principal occupation and business experience.
<TABLE>
<CAPTION>
DIRECTORS
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 ReliaStar Life Insurance Company
since 1986; President of NWNL Benefits Corporation since 1988; Executive Vice
President of ReliaStar Bankers Security Life Insurance Company since 1996;
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 ReliaStar Life
Insurance Company, ReliaStar Bankers Security Life Insurance Company, Northern
Life Insurance Company, and ReliaStar United Services 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 ReliaStar Life Insurance Company from 1985 to 1996; Director
and Vice President of subsidiaries of ReliaStar Financial Corp.
John H. Flittie 1999 Vice Chairman, President and Chief Operating Officer of ReliaStar Life Insurance
Company since 1996; President and Chief Operating Officer of ReliaStar Financial
Corp. and ReliaStar Life Insurance Company since 1993; Vice Chairman, Chief
Executive Officer and President of ReliaStar Bankers Security Life Insurance
Company since 1996; Vice Chairman of ReliaStar United Services Life Insurance
Company and ReliaStar Bankers Security Life Insurance Company since 1995;
Senior Executive Vice President and Chief Operating Officer of ReliaStar
Financial Corp. and ReliaStar Life Insurance Company from 1992 to 1993; Senior
Executive Vice President and Chief Operating Officer of ReliaStar Financial
Corp. from 1991 to 1992; Executive Vice President and Chief Financial Officer
of ReliaStar Financial Corp. and ReliaStar Life Insurance Company from 1989
to 1991; Director of Community First BankShares, Inc. and Director and Officer
of various subsidiaries of ReliaStar Financial Corp.
Wayne R. Huneke 1998 Senior Vice President, Chief Financial Officer and Treasurer of ReliaStar
Financial Corp. and ReliaStar Life Insurance Company since 1994; Vice President,
Treasurer and Chief Accounting Officer from 1990 to 1994; Director and Officer
of subsidiaries of ReliaStar Financial Corp.
<PAGE>
TERM PRINCIPAL OCCUPATION
EXPIRES AND BUSINESS EXPERIENCE
------- -----------------------
Kenneth U. Kuk 1997 Senior Vice President of ReliaStar Financial Corp. and ReliaStar Life Insurance
Company since 1996; Vice President, Strategic Marketing of ReliaStar Financial
Corp. and ReliaStar Life Insurance Company since 1996; Vice President,
Investments of ReliaStar Financial Corp. from 1991 to 1996; President of
Washington Square Advisers, Inc. since 1995; Chairman of ReliaStar Mortgage
Corp. since 1988; Director of National Commercial Finance Association and
subsidiaries of ReliaStar Financial Corp.
William R. Merriam 1999 Senior Vice President, Life & Health Reinsurance of ReliaStar Life Insurance
Company since 1991; Vice President from 1984 to 1991.
Robert C. Salipante 1997 Senior Vice President of Personal Financial Services of ReliaStar Financial
Corp. and ReliaStar Life Insurance Company since 1996; Executive Vice President
of ReliaStar Bankers Security Life Insurance Company since 1996; Senior Vice
President of Individual Division and Technology of ReliaStar Life Insurance
Company since 1996; Senior Vice President of Strategic Marketing and Technology
of ReliaStar Financial Corp. and ReliaStar Life Insurance Company from 1994
to 1996; Senior Vice President and Chief Financial Officer of ReliaStar Financial
Corp. and ReliaStar Life Insurance Company from 1992 to 1994; Executive Vice
President of Ameritrust Corporation from 1988 to 1992; Director and Officer
of various subsidiaries of ReliaStar Financial Corp.
Donald L. Swanson 1997 Senior Vice President, ReliaStar Retirement Plans of ReliaStar 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 ReliaStar
Life Insurance Company since 1993; Chairman of ReliaStar United Services Life
Insurance Company and ReliaStar Bankers Security Life Insurance Company since
1995; Chairman of Northern Life Insurance Company since 1992; Chairman, President
and Chief Executive Officer of ReliaStar Financial Corp. and ReliaStar Life
Insurance Company in 1993; President and Chief Executive Officer of ReliaStar
Financial Corp. and ReliaStar Life Insurance Company from 1991 to 1993; President
and Chief Operating Officer of ReliaStar Financial Corp. from 1989 to 1991;
President and Chief Operating Officer of ReliaStar Life Insurance Company
from 1986 to 1991; Director of subsidiaries of ReliaStar Financial Corp.
Steven W. Wishart 1999 Senior Vice President and Chief Investment Officer of ReliaStar Financial
Corp. since 1989; Senior Vice President of ReliaStar 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, Salipante, Crowl and Turner.
<PAGE>
EXECUTIVE OFFICERS
John G. Turner Chairman and Chief Executive Officer
John H. Flittie Vice Chairman, President and Chief Operating Officer
R. Michael Conley Senior Vice President
Richard R. Crowl Senior Vice President and General Counsel
Wayne R. Huneke Senior Vice President, Chief Financial Officer and
Treasurer
Kenneth U. Kuk Senior Vice President
Robert C. Salipante Senior Vice President
Donald L. Swanson Senior Vice President
Steven W. Wishart Senior Vice President and Chief Investment Officer
All of the foregoing executive officers have been officers or employees of ours
for the past five years.
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 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 Robert B. Saginaw, Esquire, Attorney
for the Company.
EXPERTS
The financial statements of ReliaStar's Select*Life Variable Account as of
December 31, 1996 and for each of the three years then ended, and the annual
financial statements of ReliaStar Life Insurance Company, included in this
Prospectus have been audited by Deloitte & Touche LLP independent
<PAGE>
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 and for the three months ended March
31, 1997; and as of December 31, 1996 and for each of the three years in the
period then ended. The December 31, 1996 financial statements are audited. The
March 31, 1997 financial statements are unaudited. The periods covered are not
necessarily indicative of the longer term performance of the assets held in the
Variable Account.
The financial statements of ReliaStar Life Insurance Company which are included
in this Prospectus should be distinguished from the financial statements of the
Variable Account and should be considered only as bearing upon the ability of
ReliaStar Life Insurance Company to meet its obligations under the Policies.
They should not be considered as bearing on the investment performance of the
assets held in the Variable Account.
These financial statements are as of and for the three months ended March 31,
1997; and as of December 31, 1996 and for each of the two years in the period
ended December 31, 1996. The December 31, 1996 financial statements are audited.
The March 31, 1997 financial statements are unaudited. The periods covered are
not necessarily indicative of the longer term performance of the Company.
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
ReliaStar 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, 1996 and the related combined
statements of operations and changes in Policyowners' equity for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the management of ReliaStar 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, 1996, 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, 1996, and the results of its operations and changes in
Policyowners' equity for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 7, 1997
<PAGE>
<TABLE>
<CAPTION>
SELECT*LIFE VARIABLE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
(In Thousands, Except Share and Unit Data)
FIDELITY'S FIDELITY'S FIDELITY'S FIDELITY'S
VIPF VIPF VIPF VIPF
MONEY MARKET HIGH INCOME EQUITY-INCOME GROWTH
ASSETS: PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Investments in mutual funds at market value:
FIDELITY'S VIPF AND VIPF II:
Money Market Portfolio
8,331,158 shares (cost $8,331) $ 8,331
High Income Portfolio
1,174,765 shares (cost $13,271) $ 14,708
Equity-Income Portfolio
2,768,870 shares (cost $43,522) $ 58,229
Growth Portfolio
2,471,620 shares (cost $57,986) $ 76,966
Overseas Portfolio
1,218,598 shares (cost $19,635)
Asset Manager Portfolio
1,698,514 shares (cost $24,709)
Investment Grade Bond Portfolio
263,226 shares (cost $3,060)
Index 500 Portfolio
85,097 shares (cost $6,398)
Contrafund Portfolio
614,293 shares (cost $8,989)
PUTNAM'S VT:
Diversified Income Fund
123,850 shares (cost $1,309)
Growth and Income Fund
470,133 shares (cost $9,975)
Utilities Growth and Income Fund
104,825 shares (cost $1,314)
Voyager Fund
872,112 shares (cost $25,432)
Asia Pacific Growth Fund
146,046 shares (cost $1,546)
New Opportunities Fund
587,344 shares (cost $10,080)
NORTHSTAR'S:
Income and Growth Fund
50,357 shares (cost $591)
Multi-Sector Bond Fund
56,204 shares (cost $292)
------------ ------------ -------------- --------------
Total Assets $ 8,331 $ 14,708 $ 58,229 $ 76,966
============ ============ ============== ==============
LIABILITIES AND POLICYOWNERS' EQUITY:
Due to (from) ReliaStar Life Insurance Company for
accrued mortality and expense risk: $ 5 $ 13 $ 22 $ 48
Policyowners' Equity: 8,326 14,695 58,207 76,918
------------ ------------ -------------- --------------
Total Liabilities and Policyowners' Equity $ 8,331 $ 14,708 $ 58,229 $ 76,966
============ ============ ============== ==============
Units Outstanding: 654,425.374 773,942.356 2,622,030.390 3,452,718.980
Net Asset Value per Unit:
Select*Life I $ 15.890521 $ 25.660930 $ 27.587247 $ 29.496120
Select*Life Series 2000 $ 11.630991 $ 13.428116 $ 16.455088 $ 15.517378
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
FIDELITY'S VIPF
FIDELITY'S VIPF II FIDELITY'S VIPF FIDELITY'S VIPF
FIDELITY'S VIPF II INVESTMENT II II
OVERSEAS ASSET MANAGER GRADE BOND INDEX 500 CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
$ 22,958
$ 28,756
$ 3,222
$ 7,585
$ 10,173
-------------- -------------- ------------ ------------ ------------
$ 22,958 $ 28,756 $ 3,222 $ 7,585 $ 10,173
============== ============== ============ ============ ============
$ 10 $ 13 $ 1 $ 2 $ --
22,948 28,743 3,221 7,583 10,173
-------------- -------------- ------------ ------------ ------------
$ 22,958 $ 28,756 $ 3,222 $ 7,585 $ 10,173
============== ============== ============ ============ ============
1,536,316.506 1,892,481.312 247,189.999 441,948.368 686,514.792
$ 18.132967 $ 17.774921 $ 14.638773 $ 17.724683 $ --
$ 12.518269 $ 12.498123 $ 11.631128 $ 16.991905 $ 14.817873
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECT*LIFE VARIABLE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
December 31, 1996
(In Thousands, Except Share and Unit Data)
PUTNAM'S VT
PUTNAM'S VT PUTNAM'S VT UTILITIES
DIVERSIFIED GROWTH AND GROWTH PUTNAM'S VT
INCOME INCOME AND INCOME VOYAGER
ASSETS: FUND FUND FUND FUND
----------- ---------- ------ -----------
<S> <C> <C> <C> <C>
Investments in mutual funds at market value:
FIDELITY'S VIPF AND VIPF II:
Money Market Portfolio
8,331,158 shares (cost $8,331)
High Income Portfolio
1,174,765 shares (cost $13,271)
Equity-Income Portfolio
2,768,870 shares (cost $43,522)
Growth Portfolio
2,471,620 shares (cost $57,986)
Overseas Portfolio
1,218,598 shares (cost $19,635)
Asset Manager Portfolio
1,698,514 shares (cost $24,709)
Investment Grade Bond Portfolio
263,226 shares (cost $3,060)
Index 500 Portfolio
85,097 shares (cost $6,398)
Contrafund Portfolio
614,293 shares (cost $8,989)
PUTNAM'S VT:
Diversified Income Fund
123,850 shares (cost $1,309) $ 1,396
Growth and Income Fund
470,133 shares (cost $9,975) $ 11,547
Utilities Growth and Income Fund
104,825 shares (cost $1,314) $ 1,551
Voyager Fund
872,112 shares (cost $25,432) $ 28,370
Asia Pacific Growth Fund
146,046 shares (cost $1,546)
New Opportunities Fund
587,344 shares (cost $10,080)
NORTHSTAR'S:
Income and Growth Fund
50,357 shares (cost $591)
Multi-Sector Bond Fund
56,204 shares (cost $292)
------------ ------------ ------------ --------------
Total Assets $ 1,396 $ 11,547 $ 1,551 $ 28,370
============ ============ ============ ==============
LIABILITIES AND POLICYOWNERS' EQUITY:
Due to (from) ReliaStar Life Insurance Company for
accrued mortality and expense risks: $ 1 $ -- $ 4 $ 6
Policyowners' Equity: 1,395 11,547 1,547 28,364
------------ ------------ ------------ --------------
Total Liabilities and Policyowners' Equity $ 1,396 $ 11,547 $ 1,551 $ 28,370
============ ============ ============ ==============
Units Outstanding: 112,611.941 691,973.875 107,970.108 1,750,710.230
Net Asset Value per Unit:
Select*Life I $ 12.597066 $ 16.669506 $ 14.583970 $ 16.420248
Select*Life Series 2000 $ 12.377481 $ 16.688048 $ 14.292632 $ 16.172504
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
PUTNAM'S VT PUTNAM'S VT NORTHSTAR'S NORTHSTAR'S
ASIA PACIFIC NEW INCOME MULTI-SECTOR
GROWTH OPPORTUNITIES AND GROWTH BOND
FUND FUND FUND FUND TOTAL
----------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C>
$ 8,331
14,708
58,229
76,966
22,958
28,756
3,222
7,585
10,173
1,396
11,547
1,551
28,370
$ 1,608 1,608
$ 10,114 10,114
$ 590 590
$ 295 295
------------- ----------- ----------- ----------- ---------------
$ 1,608 $ 10,114 $ 590 $ 295 $ 286,399
============= =========== =========== =========== ===============
$ -- $ 1 $ -- $ -- $ 126
1,608 10,113 590 295 286,273
------------- ----------- ----------- ----------- ---------------
$ 1,608 $ 10,114 $ 590 $ 295 $ 286,399
============= =========== =========== =========== ===============
144,086.091 68,263.859 42,551.251 22,576.638 15,861,312.069
$ -- $ -- $ -- $ --
$ 11.161174 $ 14.844820 $ 13.870191 $ 13.078392
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECT*LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES
IN POLICYOWNERS' EQUITY
(In Thousands)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income $ 2,990 $ 2,259 $ 1,454
Reinvested capital gains 8,110 1,456 2,880
Mortality and expense risk charge (1,935) (1,186) (692)
-------- -------- --------
Net investment income and capital gains 9,165 2,529 3,642
-------- -------- --------
Realized and unrealized gains (losses):
Net realized gains on redemptions of fund shares 3,085 1,345 896
Increase (decrease) in unrealized appreciation
of investments 15,731 27,857 (4,458)
-------- -------- --------
Net realized and unrealized gains (losses) 18,816 29,202 (3,562)
-------- -------- --------
Net additions from operations 27,981 31,731 80
-------- -------- --------
Policyowner transactions:
Net premium payments 108,108 66,506 49,268
Transfers from (to) Fixed Accounts 95 (401) (35)
Policy loans (2,266) (1,582) (781)
Loan collateral interest crediting 174 101 69
Surrenders (5,080) (3,576) (2,080)
Death benefits (203) (220) (87)
Cost of insurance charges (19,202) (12,860) (8,762)
Death benefit guarantee charges (459) (488) (531)
Monthly expense charges (2,932) (1,831) (1,057)
-------- -------- --------
Additions for policyowner transactions 78,235 45,649 36,004
-------- -------- --------
Net additions for the year 106,216 77,380 36,084
Policyowners' Equity, beginning of the year 180,057 102,677 66,593
-------- -------- --------
Policyowners' Equity, end of the year $286,273 $180,057 $102,677
======== ======== ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND CONTRACTS:
ReliaStar Select*Life Variable Account (the "Account") is a separate account of
ReliaStar Life Insurance Company ("ReliaStar Life"), 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:
FIDELITY'S VIPF AND VIPF II: PUTNAM VT: NORTHSTAR FUNDS:
- ---------------------------- ---------- ----------------
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
Growth Portfolio Income Fund
Overseas Portfolio Voyager Fund
Asset Manager Portfolio Asia Pacific Growth Fund
Investment Grade Bond New Opportunities Fund
Portfolio
Index 500 Portfolio
Contrafund Portfolio
Northstar Investment Management Corporation, an affiliate of ReliaStar Life, 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 Putnam VT Funds and is paid fees for its services by
the Putnam VT Funds. On May 3, 1993, ReliaStar Life added the Sub-Account
investing in the VIPF II Index 500 Portfolio. On January 1, 1994, Sub-Accounts
investing in Putnam VT'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 Putnam VT 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 Putnam VT Asia Pacific Growth
Fund and the Putnam VT 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 are 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 ReliaStar Life.
<PAGE>
3. POLICY CHARGES:
Certain charges are made by ReliaStar Life 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.
4. RELIASTAR LIFE'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.
<PAGE>
(This page has been left blank intentionally.)
<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, 1996, 1995 and 1994 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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions $19,497 $18,128 $ 7,424 $ -- $ 2,470 $ 347
Cost 16,412 16,783 6,528 -- 2,608 385
------- ------- ------- ------- ------- -------
Net realized gains (losses) on
redemptions of fund shares $ 3,085 $ 1,345 $ 896 $ -- $ (138) $ (38)
======= ======= ======= ======= ======= =======
</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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions $1,328 $1,149 $ 551 $2,160 $1,111 $1,079
Cost 1,166 947 407 1,348 821 877
------ ------ ------ ------ ------ ------
Net realized gains (losses) on
redemptions of fund shares $ 162 $ 202 $ 144 $ 812 $ 290 $ 202
====== ====== ====== ====== ====== ======
</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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions $1,703 $2,494 $ 941 $ 483 $ 329 $ 247
Cost 1,534 2,326 839 471 327 254
------ ------ ------ ------ ------ ------
Net realized gains (losses) on
redemptions of fund shares $ 169 $ 168 $ 102 $ 12 $ 2 $ (7)
====== ====== ====== ====== ====== ======
</TABLE>
<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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ -- $4,660 $ 820 $7,266 $2,499 $1,572
-- 4,677 741 7,266 2,499 1,572
------ ------ ------ ------ ------ ------
$ -- $ (17) $ 79 $ -- $ -- $ --
====== ====== ====== ====== ====== ======
</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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$2,114 $ 967 $1,007 $1,483 $1,486 $ 729
1,134 538 717 1,129 1,219 606
------ ------ ------ ------ ------ ------
$ 980 $ 429 $ 290 $ 354 $ 267 $ 123
====== ====== ====== ====== ====== ======
</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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 261 $ 208 $ 53 $ 235 $ 92 $ --
181 168 53 210 79 --
------ ------ ------ ------ ------ ------
$ 80 $ 40 $ -- $ 25 $ 13 $ --
====== ====== ====== ====== ====== ======
</TABLE>
<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, 1996, 1995 and 1994 were as follows, (in thousands):
<TABLE>
<CAPTION>
PUTNAM'S VT PUTNAM'S VT
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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions $ 293 $ 40 $ 9 $ 464 $ 102 $ 7
Cost 283 38 9 339 85 7
------ ------ ------ ------ ------ ------
Net realized gains (losses) on
redemptions of fund shares $ 10 $ 2 $ -- $ 125 $ 17 $ --
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PUTNAM'S VT PUTNAM'S VT
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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from redemptions $ 259 $ 23 $ -- $ 517 $ 113 $ --
Cost 245 23 -- 418 91 --
------ ------ ------ ------ ------ ------
Net realized gains (losses) on
redemptions of fund shares $ 14 $ -- $ -- $ 99 $ 22 $ --
====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
PUTNAM'S VT PUTNAM'S VT
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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 354 $ 184 $ 49 $ 517 $ 154 $ 13
283 164 48 348 126 13
------ ------ ------ ------ ------ ------
$ 71 $ 20 $ 1 $ 169 $ 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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 30 $ 3 $ -- $ 30 $ 44 $ --
28 3 -- 29 44 --
------ ------ ------ ------ ------ ------
$ 2 $ -- $ -- $ 1 $ -- $ --
====== ====== ====== ====== ====== ======
</TABLE>
<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, 1996,
1995 and 1994 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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning
of year -- 157,399.779 162,138.780 -- 286,168.977 311,725.041
Units purchased -- 9,126.623 27,211.524 -- 12,895.412 43,556.351
Units redeemed -- (7,913.917) (21,989.106) -- (10,403.233) (46,804.601)
Units transferred between
Sub-Accounts and/or
Fixed Account -- (158,612.485) (9,961.419) -- (288,661.156) (22,307.814)
----------- ----------- ----------- ----------- ----------- -----------
Units outstanding,
end of year -- -- 157,399.779 -- -- 286,168.977
=========== =========== =========== =========== =========== ===========
</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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning
of year 2,622,289.757 1,761,649.810 1,096,817.909 1,229,928.330 900,424.038 379,052.212
Units purchased 1,248,929.016 1,030,790.587 953,158.878 536,747.626 617,148.362 556,399.917
Units redeemed (429,120.324) (342,106.549) (244,337.361) (188,865.914) (177,939.623) (111,750.664)
Units transferred between
Sub-Accounts and/or
Fixed Account 10,620.532 171,955.909 (43,989.616) (41,493.536) (109,704.447) 76,722.573
------------- ------------- ------------- ------------- ----------- -----------
Units outstanding,
end of year 3,452,718.980 2,622,289.757 1,761,649.810 1,536,316.506 1,229,928.330 900,424.038
============= ============= ============= ============= ============= ===========
</TABLE>
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S VIPF FIDELITY'S VIPF FIDELITY'S VIPF
MONEY MARKET HIGH INCOME EQUITY-INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- -------------------------------------- -----------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1996 1995 1994 1996 1995 1994
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
454,516.667 240,089.964 156,045.604 577,083.123 397,251.963 254,797.519 2,023,713.030 1,463,010.155 1,055,644.747
680,738.566 409,244.895 165,487.964 307,417.472 262,813.321 211,773.478 931,595.789 749,089.473 601,244.662
(88,518.792) (51,202.041) (28,807.773) (91,762.343) (82,813.141) (56,358.865) (293,135.228) (256,323.181) (192,736.128)
(392,311.067) (143,616.151) (52,635.831) (18,795.895) (169.020) (12,960.169) (40,143.201) 67,936.583 (1,143.126)
----------- ----------- ----------- ----------- ----------- ----------- ------------- ------------- -------------
654,425.374 454,516.667 240,089.964 773,942.356 577,083.123 397,251.963 2,622,030.390 2,023,713.030 1,463,010.155
=========== =========== =========== =========== =========== =========== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S VIPF II FIDELITY'S VIPF II FIDELITY'S VIPF II
ASSET MANAGER INVESTMENT GRADE INDEX 500
PORTFOLIO BOND PORTFOLIO PORTFOLIO
----------------------------------------- -------------------------------------- --------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1,704,151.254 1,132,373.018 397,491.821 214,771.624 153,890.893 73,061.118 181,509.017 70,686.713 23,356.992
516,081.976 711,584.303 860,156.216 83,199.869 89,695.793 93,970.791 235,038.604 108,548.505 53,563.087
(233,834.183) (245,931.324) (135,570.699) (26,334.967) (25,144.781) (15,634.489) (42,862.946) (20,962.032) (8,321.224)
(93,917.735) 106,125.257 10,295.680 (24,446.527) (3,670.281) 2,493.473 68,263.694 23,235.831 2,087.858
- ------------- ------------- ------------- ----------- ----------- ----------- ----------- ----------- ----------
1,892,481.312 1,704,151.254 1,132,373.018 247,189.999 214,771.624 153,890.893 441,948.368 181,509.017 70,686.713
============= ============= ============= =========== =========== =========== =========== =========== ==========
</TABLE>
<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, 1996,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
FIDELITY'S VIPF II PUTNAM'S VT
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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year 160,147.180 -- -- 70,401.445 25,076.593 --
Units purchased 558,061.891 131,616.362 -- 60,427.261 37,489.819 18,122.626
Units reedeemed (83,680.846) (12,028.370) -- (11,808.045) (7,437.939) (1,598.271)
Units transferred between
Sub-Accounts and/or
Fixed Account 51,986.567 40,559.188 -- (6,408.720) 15,272.972 8,552.238
----------- ----------- ----------- ----------- ---------- ----------
Units outstanding,
end of year 686,514.792 160,147.180 -- 112,611.941 70,401.445 25,076.593
=========== =========== =========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PUTNAM'S VT PUTNAM'S VT
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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year. 29,436.771 -- -- 110,223.166 -- --
Units purchased 111,743.026 25,202.823 -- 536,749.300 86,605.419 --
Units redeemed (15,459.659) (2,640.223) -- (71,815.080) (8,233.093) --
Units transferred between
Sub-Accounts and/or
Fixed Account 18,365.954 6,874.171 -- 106,106.472 31,850.840 --
----------- ---------- ---------- ----------- ----------- ----------
Units outstanding,
end of year 144,086.091 29,436.771 -- 681,263.859 110,223.166 --
=========== ========== ========== =========== =========== ==========
</TABLE>
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
PUTNAM'S VT PUTNAM'S VT PUTNAM'S VT
GROWTH AND INCOME UTILITIES GROWTH AND VOYAGER
FUND INCOME FUND FUND
- -------------------------------------- -------------------------------------- ----------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1996 1995 1994 1996 1995 1994
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
282,045.753 64,421.965 -- 81,748.531 46,807.467 -- 781,013.273 199,880.663 --
406,240.138 209,131.345 61,265.475 52,797.542 47,951.821 30,500.830 1,040,657.483 611,602.541 191,562.886
(74,223.988) (32,341.113) (6,093.938) (16,817.701) (10,123.479) (3,408.255) (220,017.675) (101,392.794) (18,498.061)
77,911.972 40,833.556 9,250.428 (9,758.265) (2,887.278) 19,714.892 149,057.148 70,922.863 26,815.838
- ----------- ----------- ---------- ----------- ---------- ---------- ------------- ----------- -----------
691,973.875 282,045.753 64,421.965 107,970.108 81,748.531 46,807.467 1,750,710.230 781,013.273 199,880.663
=========== =========== ========== =========== ========== ========== ============= =========== ===========
</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,
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
8,746.326 -- -- 9,904.096 -- --
33,180.420 6,057.272 -- 10,103.684 3,255.666 --
(3,841.706) (537.367) -- (1,468.579) (424.093) --
4,466.211 3,226.421 -- 4,037.437 7,072.523 --
---------- --------- --------- ---------- --------- ---------
42,551.251 8,746.326 -- 22,576.638 9,904.096 --
========== ========= ========= ========== ========= =========
</TABLE>
<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,
1996 were as follows, (in thousands):
<TABLE>
<CAPTION>
FIDELITY'S FIDELITY'S FIDELITY'S FIDELITY'S
VIPF VIPF VIPF FIDELITY'S FIDELITY'S VIPF II
MONEY HIGH EQUITY- VIPF VIPF ASSET
MARKET INCOME INCOME GROWTH OVERSEAS MANAGER
TOTAL PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income:
Reinvested dividend income ........... $ 2,990 $ 417 $ 832 $ 67 $ 156 $ 202 $ 840
Reinvested capital gains ............. 8,110 -- 163 1,929 3,939 223 692
Mortality and expense risk charge .... (1,935) (68) (103) (458) (557) (119) (210)
--------- --------- --------- --------- --------- --------- ---------
Net investment income (loss)
and capital gains .................. 9,165 349 892 1,538 3,538 306 1,322
--------- --------- --------- --------- --------- --------- ---------
Realized and unrealized gains (losses):
Net realized gains on redemptions
of fund shares ...................... 3,085 -- 162 812 980 354 169
Increase (decrease) in unrealized
appreciation on investments .......... 15,731 -- 473 3,943 3,837 1,706 1,834
--------- --------- --------- --------- --------- --------- ---------
Net realized and
unrealized gains (losses) .......... 18,816 -- 635 4,755 4,817 2,060 2,003
--------- --------- --------- --------- --------- --------- ---------
Net additions
from operations .................. 27,981 349 1,527 6,293 8,355 2,366 3,325
--------- --------- --------- --------- --------- --------- ---------
Policyowner transactions:
Net premium payments ................. 108,108 7,798 4,359 15,950 21,247 6,819 6,607
Transfers from (to) Fixed Account .... 95 (4,502) (267) (782) 329 (582) (1,215)
Policy loans ......................... (2,266) (97) (67) (576) (758) (235) (209)
Loan collateral interest crediting ... 174 7 9 49 57 16 26
Surrenders ........................... (5,080) (164) (286) (977) (1,807) (493) (545)
Death benefits ....................... (203) (1) (10) (72) (53) (17) (25)
Cost of insurance charges ............ (19,202) (698) (995) (3,423) (4,894) (1,500) (1,948)
Death benefit guarantee charges ...... (459) (8) (32) (115) (173) (47) (61)
Monthly expense charges .............. (2,932) (62) (121) (475) (739) (227) (262)
--------- --------- --------- --------- --------- --------- ---------
Net additions for
policyowner transactions .......... 78,235 2,273 2,590 9,579 13,209 3,734 2,368
--------- --------- --------- --------- --------- --------- ---------
Net additions
for the year ..................... 106,216 2,622 4,117 15,872 21,564 6,100 5,693
Policyowners' Equity,
beginning of the year ................ 180,057 5,704 10,578 42,335 55,354 16,848 23,050
--------- --------- --------- --------- --------- --------- ---------
Policyowners' Equity,
end of the year ...................... $ 286,273 $ 8,326 $ 14,695 $ 58,207 $ 76,918 $ 22,948 $ 28,743
========= ========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S
VIPF II PUTNAM'S PUTNAM'S
INVESTMENT FIDELITY'S FIDELITY'S VT VT
GRADE VIPF II VIPF II DIVERSIFIED GROWTH AND
BOND INDEX 500 CONTRAFUND INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 139 $ 33 $ -- $ 63 $ 117
-- 84 22 -- 204
(24) (40) (48) (10) (60)
-------- -------- -------- -------- --------
115 77 (26) 53 261
-------- -------- -------- -------- --------
12 80 25 10 125
(51) 793 1,155 25 1,043
-------- -------- -------- -------- --------
(39) 873 1,180 35 1,168
-------- -------- -------- -------- --------
76 950 1,154 88 1,429
-------- -------- -------- -------- --------
986 3,577 7,406 696 6,047
(300) 1,125 730 (65) 1,274
(19) (9) (21) (4) (38)
1 1 -- -- 1
(47) (76) (60) (17) (109)
(5) (4) -- (1) (5)
(211) (447) (837) (92) (784)
(6) (5) -- (1) (2)
(27) (86) (155) (15) (130)
-------- -------- -------- -------- --------
372 4,076 7,063 501 6,254
-------- -------- -------- -------- --------
448 5,026 8,217 589 7,683
2,773 2,557 1,956 806 3,864
-------- -------- -------- -------- --------
$ 3,221 $ 7,583 $ 10,173 $ 1,395 $ 11,547
======== ======== ======== ======== ========
</TABLE>
<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,
1996 were as follows, (in thousands):
<TABLE>
<CAPTION>
PUTNAM'S
VT PUTNAM'S
UTILITIES PUTNAM'S PUTNAM'S VT NORTHSTAR'S NORTHSTAR'S
GROWTH VT VT NEW INCOME AND MULTI-SECTOR
AND INCOME VOYAGER ASIA PACIFIC OPPORTUNITIES GROWTH BOND
FUND FUND FUND FUND FUND FUND
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Reinvested dividend income $ 41 $ 48 $ 8 $ -- $ 13 $ 14
Reinvested capital gains -- 811 -- -- 38 5
Mortality and expense risk charge (11) (171) (8) (44) (3) (1)
-------- -------- -------- -------- -------- --------
Net investment income
(loss) and capital gains 30 688 -- (44) 48 18
-------- -------- -------- -------- -------- --------
Realized and unrealized gains (losses):
Net realized gains on
redemptions of fund shares 71 169 14 99 2 1
Increase (decrease) in unrealized
appreciation on investments 83 921 54 (86) (2) 3
-------- -------- -------- -------- -------- --------
Net realized and
unrealized gains 154 1,090 68 13 -- 4
-------- -------- -------- -------- -------- --------
Net additions (reductions)
from operations 184 1,778 68 (31) 48 22
-------- -------- -------- -------- -------- --------
Policyowner transactions:
Net premium payments 663 16,198 1,193 8,025 413 124
Transfers (to) from Fixed Account (104) 2,466 204 1,664 68 52
Policy loans (36) (187) (2) (8) -- --
Loan collateral interest crediting 1 6 -- -- -- --
Surrenders (35) (395) (5) (64) -- --
Death benefits (4) (6) -- -- -- --
Cost of insurance charges (117) (2,268) (130) (804) (39) (15)
Death benefit guarantee charges (1) (8) -- -- -- --
Monthly expense charges (19) (430) (21) (154) (7) (2)
-------- -------- -------- -------- -------- --------
Net additions for
policyowner transactions 348 15,376 1,239 8,659 435 159
-------- -------- -------- -------- -------- --------
Net additions
for the year 532 17,154 1,307 8,628 483 181
Policyowners' Equity,
beginning of the year 1,015 11,210 301 1,485 107 114
-------- -------- -------- -------- -------- --------
Policyowners' Equity,
end of the year $ 1,547 $ 28,364 $ 1,608 $ 10,113 $ 590 $ 295
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
<TABLE>
<CAPTION>
SELECT*LIFE VARIABLE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
(In Thousands, Except Share and Unit Data)
(unaudited)
FIDELITY'S FIDELITY'S FIDELITY'S FIDELITY'S
VIPF VIPF VIPF VIPF
MONEY MARKET HIGH INCOME EQUITY-INCOME GROWTH
ASSETS: PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Investments in mutual funds at market value:
FIDELITY'S VIPF AND VIPF II:
Money Market Portfolio
9,829,463 shares (cost $9,829) $ 9,829
High Income Portfolio
1,339,895 shares (cost $15,275) $ 15,462
Equity-Income Portfolio
3,177,087 shares (cost $52,060) $ 60,905
Growth Portfolio
2,645,079 shares (cost $63,781) $ 77,527
Overseas Portfolio
1,394,773 shares (cost $22,813)
Asset Manager Portfolio
1,945,981 shares (cost $28,606)
Investment Grade Bond Portfolio
285,764 shares (cost $3,327)
Index 500 Portfolio
107,226 shares (cost $8,478)
Contrafund Portfolio
779,612 shares (cost $11,741)
PUTNAM'S VT:
Diversified Income Fund
147,380 shares (cost $1,568)
Growth and Income Fund
587,358 shares (cost $12,936)
Utilities Growth and Income Fund
122,693 shares (cost $1,574)
Voyager Fund
1,045,407 shares (cost $31,017)
Asia Pacific Growth Fund
179,455 shares (cost $1,908)
New Opportunities Fund
729,132 shares (cost $12,571)
NORTHSTAR'S:
Income and Growth Fund
57,980 shares (cost $685)
Multi-Sector Bond Fund
68,765 shares (cost $359)
------------ ------------ -------------- --------------
Total Assets $ 9,829 $ 15,462 $ 60,905 $ 77,527
============ ============ ============== ==============
LIABILITIES AND POLICYOWNERS' EQUITY:
Due to (from) ReliaStar Life Insurance
Company for accrued mortality and
expense risk: $ 2 $ 7 $ 17 $ 31
Policyowners' Equity: 9,827 15,455 60,888 77,496
------------ ------------ -------------- --------------
Total Liabilities and Policyowners' Equity $ 9,829 $ 15,462 $ 60,905 $ 77,527
============ ============ ============== ==============
Units Outstanding: 767,828.651 831,081.056 2,749,165.493 3,617,059.138
Net Asset Value per Unit:
Select*Life I $ 16.064185 $ 25.607692 $ 27.848139 $ 28.717365
Select*Life Series 2000 $ 11.781403 $ 13.426826 $ 16.643623 $ 15.137671
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
(unaudited)
<TABLE>
<CAPTION>
FIDELITY'S VIPF
FIDELITY'S VIPF II FIDELITY'S VIPF FIDELITY'S VIPF
FIDELITY'S VIPF II INVESTMENT II II
OVERSEAS ASSET MANAGER GRADE BOND INDEX 500 CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
$ 24,785
$ 29,034
$ 3,269
$ 9,470
$ 12,318
-------------- -------------- ------------ ------------ ------------
$ 24,785 $ 29,034 $ 3,269 $ 9,470 $ 12,318
============== ============== ============ ============ ============
$ 15 $ 13 $ 1 $ 2 $ 0
24,770 29,021 3,268 9,468 12,318
-------------- -------------- ------------ ------------ ------------
$ 24,785 $ 29,034 $ 3,269 $ 9,470 $ 12,318
============== ============== ============ ============ ============
1,617,088.517 1,921,216.847 253,100.172 539,195.817 845,068.431
$ 18.684625 $ 17.730941 $ 14.512768 $ 18.123847 $ --
$ 12.924675 $ 12.491905 $ 11.553866 $ 17.408995 $ 14.575875
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECT*LIFE VARIABLE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
March 31, 1997
(In Thousands, Except Share and Unit Data)
(unaudited)
PUTNAM'S VT
PUTNAM'S VT PUTNAM'S VT UTILITIES
DIVERSIFIED GROWTH AND GROWTH PUTNAM'S VT
INCOME INCOME AND INCOME VOYAGER
ASSETS: FUND FUND FUND FUND
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Investments in mutual funds at market value:
FIDELITY'S VIPF AND VIPF II:
Money Market Portfolio
9,829,463 shares (cost $9,829)
High Income Portfolio
1,339,895 shares (cost $15,275)
Equity-Income Portfolio
3,177,087 shares (cost $52,060)
Growth Portfolio
2,645,079 shares (cost $63,781)
Overseas Portfolio
1,394,773 shares (cost $22,813)
Asset Manager Portfolio
1,945,981 shares (cost $28,606)
Investment Grade Bond Portfolio
285,764 shares (cost $3,327)
Index 500 Portfolio
107,226 shares (cost $8,478)
Contrafund Portfolio
779,612 shares (cost $11,741)
PUTNAM'S VT:
Diversified Income Fund
147,380 shares (cost $1,568) $ 1,531
Growth and Income Fund
587,358 shares (cost $12,936) $ 13,762
Utilities Growth and Income Fund
122,693 shares (cost $1,574) $ 1,637
Voyager Fund
1,045,407 shares (cost $31,017) $ 30,631
Asia Pacific Growth Fund
179,455 shares (cost $1,908)
New Opportunities Fund
729,132 shares (cost $12,571)
NORTHSTAR'S:
Income and Growth Fund
57,980 shares (cost $685)
Multi-Sector Bond Fund
68,765 shares (cost $359)
------------ ------------ ------------ --------------
Total Assets $ 1,531 $ 13,762 $ 1,637 $ 30,631
============ ============ ============ ==============
LIABILITIES AND POLICYOWNERS' EQUITY:
Due to (from) ReliaStar Life Insurance Company
for accrued mortality and expense risks: $ -- $ 3 $ -- $ 2
Policyowners' Equity: $ 1,531 $ 13,759 $ 1,637 $ 30,629
------------ ------------ ------------ --------------
Total Liabilities and Policyowners' Equity $ 1,531 $ 13,762 $ 1,637 $ 30,631
============ ============ ============ ==============
Units Outstanding: 125,306.638 803,012.543 115,451.482 1,993,699.324
Net Asset Value per Unit:
Select*Life I $ 12.401465 $ 17.087692 $ 14.388135 $ 15.544384
Select*Life Series 2000 $ 12.209445 $ 17.140580 $ 14.128668 $ 15.340266
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
(unaudited)
<TABLE>
<CAPTION>
PUTNAM'S VT PUTNAM'S VT NORTHSTAR'S NORTHSTAR'S
ASIA PACIFIC NEW INCOME MULTI-SECTOR
GROWTH OPPORTUNITIES AND GROWTH BOND
FUND FUND FUND FUND TOTAL
------------ ------------ ----------- ----------- --------
<S> <C> <C> <C> <C>
$ 9,829
15,462
60,905
77,527
24,785
29,034
3,269
9,470
12,318
1,531
13,762
1,637
30,631
$ 1,857 1,857
$ 11,571 11,571
$ 676 676
$ 353 353
------------ ------------ ----------- ----------- --------
$ 1,857 $ 11,571 $ 676 $ 353 $304,617
============ ============ =========== =========== ========
$ -- $ -- $ -- $ -- $ 93
1,857 11,571 676 353 304,524
------------ ------------ ----------- ----------- --------
$ 1,857 $ 11,571 $ 676 $ 353 $304,617
============ ============ =========== =========== ========
173,295.658 845,849.966 48,599.544 27,052.664
$ -- $ -- $ -- $ --
$ 10.716148 $ 13.681026 $ 13.896791 $ 13.048663
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES
IN POLICYOWNERS' EQUITY
(In Thousands)
(Three Month Period Ended March 31, 1997)
(unaudited)
PERIOD ENDED
MARCH 31,
1997
--------
Net investment income:
Reinvested dividend income $ 5,070
Reinvested capital gains 14,448
Mortality and expense risk charge (595)
--------
Net investment income and capital gains 18,923
--------
Realized and unrealized gains (losses):
Net realized gains on redemptions of fund
shares 950
Increase (decrease) in unrealized appreciation
of investments (23,870)
--------
Net realized and unrealized gains (losses) (22,920)
--------
Net Additions (Reductions) from operations (3,997)
--------
Policyowner transactions:
Net premium payments 32,155
Transfers (to) from Fixed Accounts (27)
Policy loans (920)
Loan collateral interest crediting 54
Surrenders (1,849)
Death benefits (189)
Cost of insurance charges (5,930)
Death benefit guarantee charges (112)
Monthly expense charges (934)
--------
Net Additions for policyowner transactions 22,248
--------
Net additions for the period 18,251
Policyowners' Equity, beginning of the year 286,273
--------
Policyowners' Equity, end of the period $304,524
========
The accompanying notes are an integral part of the financial statements.
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND CONTRACTS:
ReliaStar Select*Life Variable Account (the "Account") is a separate account of
ReliaStar Life Insurance Company ("ReliaStar Life"), 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:
FIDELITY'S VIPF AND VIPF II: PUTNAM VT: NORTHSTAR FUNDS:
- ---------------------------- ---------- ----------------
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
Growth Portfolio Income Fund
Overseas Portfolio Voyager Fund
Asset Manager Portfolio Asia Pacific Growth Fund
Investment Grade Bond New Opportunities Fund
Portfolio
Index 500 Portfolio
Contrafund Portfolio
Northstar Investment Management Corporation, an affiliate of ReliaStar Life, 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 Putnam VT Funds and is paid fees for its services by
the Putnam VT Funds. On May 3, 1993, ReliaStar Life added the Sub-Account
investing in the VIPF II Index 500 Portfolio. On January 1, 1994, Sub-Accounts
investing in Putnam VT'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 Putnam VT 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 Putnam VT Asia Pacific Growth
Fund and the Putnam VT 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 are 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 ReliaStar Life.
<PAGE>
3. POLICY CHARGES:
Certain charges are made by ReliaStar Life 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.
4. RELIASTAR LIFE'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.
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(unaudited)
5. INVESTMENTS:
The net realized gains (losses) on redemptions of fund shares during the
period ended March 31, 1997, were as follows, (in thousands):
<TABLE>
<CAPTION>
FIDELITY'S
SELECT SELECT VIPF
CAPITAL GROWTH MANAGED MONEY MARKET
TOTAL FUND, INC. FUND, INC. PORTFOLIO
------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1997 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Proceeds from redemptions $5,047 $ -- $ -- $2,055
Cost 4,097 -- -- 2,055
------ ------ ------ ------
Net realized gains (losses) on redemptions of
fund shares $ 950 $ -- $ -- $ --
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S FIDELITY'S FIDELITY'S FIDELITY'S
VIPF VIPF VIPF VIPF
HIGH INCOME EQUITY INCOME GROWTH OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1997 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Proceeds from redemptions $ 323 $ 781 $ 531 $ 281
Cost 286 424 227 204
------ ------ ------ ------
Net realized gains (losses) on redemptions of
fund shares $ 37 $ 357 $ 304 $ 77
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S VIPF FIDELITY'S VIPF FIDELITY'S VIPF FIDELITY'S VIPF
II II II II
ASSET MANAGER INVESTMENT GRADE INDEX 500 CONTRAFUND
PORTFOLIO BOND PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1997 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Proceeds from redemptions $ 506 $ 90 $ 65 $ 7
Cost 452 86 40 6
------ ------ ------ ------
Net realized gains (losses) on redemptions of
fund shares $ 54 $ 4 $ 25 $ 1
====== ====== ====== ======
</TABLE>
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(unaudited)
5. INVESTMENTS (CONTINUED):
The net realized gains (losses) on redemptions of fund shares during the
period ended March 31, 1997, were as follows, (in thousands):
<TABLE>
<CAPTION>
PUTNAM'S VT
PUTNAM'S VT PUTNAM'S VT UTILITIES
DIVERSIFIED GROWTH AND GROWTH PUTNAM'S VT
INCOME INCOME AND INCOME VOYAGER
FUND FUND FUND FUND
------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1997 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Proceeds from redemptions $ 39 $ 100 $ 40 $ 130
Cost 36 69 30 92
------ ------ ------ ------
Net realized gains (losses) on redemptions of
fund shares $ 3 $ 31 $ 10 $ 38
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PUTNAM'S VT NORTHSTAR'S NORTHSTAR'S
PUTNAM'S VT NEW INCOME AND MULTI-SECTOR
ASIA PACIFIC OPPORTUNITIES GROWTH BOND
GROWTH FUND FUND FUND FUND
------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1997 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Proceeds from redemptions $ 26 $ 17 $ 33 $ 23
Cost 23 14 31 22
------ ------- ------ ------
Net realized gains (losses) on redemptions of
fund shares $ 3 $ 3 $ 2 $ 1
====== ======= ====== ======
</TABLE>
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(unaudited)
6. POLICYOWNERS' TRANSACTIONS:
Unit transactions in each Sub-Account for the period ended March 31, 1997,
were as follows:
<TABLE>
<CAPTION>
FIDELITY'S FIDELITY'S FIDELITY'S
SELECT CAPITAL SELECT VIPF VIPF VIPF
GROWTH MANAGED MONEY MARKET HIGH INCOME EQUITY-INCOME
FUND, INC. FUND, INC. PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1997 1997 1997 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year -- -- 654,425.374 773,942.356 2,622,030.390
Units purchased -- -- 331,645.983 117,501.370 283,347.073
Units redeemed -- -- (66,957.143) (44,947.890) (110,096.484)
Units transferred between
Sub-Accounts and/or
Fixed Account -- -- (151,285.563) (15,414.780) (46,115.486)
----------- ----------- ----------- ----------- -------------
Units outstanding,
end of period -- -- 767,828.651 831,081.056 2,749,165.493
=========== =========== =========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S FIDELITY'S FIDELITY'S VIPF FIDELITY'S VIPF FIDELITY'S VIPF
VIPF VIPF II II II
GROWTH OVERSEAS ASSET MANAGER INVESTMENT GRADE INDEX 500
PORTFOLIO PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------- ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1997 1997 1997 1997
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year 3,452,718.980 1,536,316.506 1,892,481.312 247,189.999 441,948.368
Units purchased 390,647.384 180,857.892 148,311.804 22,187.727 123,097.120
Units redeemed (161,340.776) (68,027.701) (76,486.579) (9,697.806) (23,511.998)
Units transferred between
Sub-Accounts and/or
Fixed Account (64,966.450) (32,058.180) (43,089.690) (6,579.748) (2,337.673)
------------- ------------- ------------- ----------- -----------
Units outstanding,
end of period 3,617,059.138 1,617,088.517 1,921,216.847 253,100.172 539,195.817
============= ============= ============= =========== ===========
</TABLE>
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(unaudited)
6. POLICYOWNERS' TRANSACTIONS (CONTINUED):
Unit transactions in each Sub-Account for the period ended March 31, 1997,
were as follows:
<TABLE>
<CAPTION>
FIDELITY'S VIPF PUTNAM'S VT PUTNAM'S VT PUTNAM'S VT
II DIVERSIFIED GROWTH AND UTILITIES GROWTH PUTNAM'S VT
CONTRAFUND INCOME INCOME AND VOYAGER
PORTFOLIO FUND FUND INCOME FUND FUND
------------ ------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1997 1997 1997 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year 686,514.792 112,611.941 691,973.875 107,970.108 1,750,710.230
Units purchased 239,665.917 21,867.122 163,897.836 14,860.840 418,904.657
Units reedeemed (46,306.786) (5,000.875) (35,146.990) (5,489.576) (103,636.348)
Units transferred between
Sub-Accounts and/or
Fixed Account (34,805.492) (4,171.550) (17,712.178) (1,889.890) (72,279.215)
----------- ----------- ----------- ----------- -------------
Units outstanding,
end of period 845,068.431 125,306.638 803,012.543 115,451.482 1,993,699.324
=========== =========== =========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
PUTNAM'S VT PUTNAM'S VT NORTHSTAR'S NORTHSTAR'S
ASIA PACIFIC NEW INCOME AND MULTI-SECTOR
GROWTH OPPORTUNITIES GROWTH BOND
FUND FUND FUND FUND
------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1997 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Units outstanding,
beginning of year. 144,086.091 681,263.859 42,551.251 22,567.638
Units purchased 40,032.144 281,104.190 14,616.945 6,408.451
Units redeemed (7,637.884) (50,588.453) (3,038.795) (1,572.634)
Units transferred between
Sub-Accounts and/or
Fixed Account (3,184.693) (65,929.630) (5,529.857) (350.791)
----------- ----------- ---------- ----------
Units outstanding,
end of period 173,295.658 845,849.966 48,599.544 27,052.664
=========== =========== ========== ==========
</TABLE>
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(unaudited)
7. COMBINING STATEMENT OF OPERATIONS AND CHANGES IN POLICYOWNERS' EQUITY:
Operations and changes in Policyowners' equity for the period ended March 31,
1997 were as follows, (in thousands):
<TABLE>
<CAPTION>
FIDELITY'S FIDELITY'S FIDELITY'S FIDELITY'S
VIPF VIPF VIPF FIDELITY'S FIDELITY'S VIPF II
MONEY HIGH EQUITY- VIPF VIPF ASSET
MARKET INCOME INCOME GROWTH OVERSEAS MANAGER
TOTAL PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income:
Reinvested dividend income $ 5,070 $ 115 $ 1,063 $ 1,013 $ 527 $ 411 $ 1,010
Reinvested capital gains 14,448 -- 132 5,096 2,357 1,630 2,533
Mortality and expense risk charge (595) (16) (30) (122) (161) (49) (62)
-------- ------- ------- ------- ------- ------- -------
Net investment income (loss)
and capital gains 18,923 99 1,165 5,987 2,723 1,992 3,481
-------- ------- ------- ------- ------- ------- -------
Realized and unrealized gains (losses):
Net realized gains (losses) on
redemptions of fund shares 950 -- 37 357 304 77 54
Increase (decrease) in unrealized
appreciation on investments (23,870) -- (1,250) (5,862) (5,234) (1,351) (3,619)
-------- ------- ------- ------- ------- ------- -------
Net realized and
unrealized gains (losses) (22,920) -- (1,213) (5,505) (4,930) (1,274) (3,565)
-------- ------- ------- ------- ------- ------- -------
Net additions (reductions)
from operations (3,997) 99 (48) 482 (2,207) 718 (84)
-------- ------- ------- ------- ------- ------- -------
Policyowner transactions:
Net premium payments 32,155 3,027 1,245 3,998 5,320 1,861 1,577
Transfers (to) from Fixed Account (27) (1,137) 164 (166) (89) (54) (380)
Policy loans (920) (91) (120) (182) (285) (71) (72)
Loan collateral interest crediting 54 2 4 16 14 4 10
Surrenders (1,849) (191) (149) (259) (493) (169) (160)
Death benefits (189) (12) (14) (53) (61) (4) (28)
Cost of insurance charges (5,930) (177) (280) (988) (1,370) (392) (505)
Death benefit guarantee charges (112) (2) (8) (28) (41) (11) (14)
Monthly expense charges (934) (17) (34) (139) (210) (60) (66)
-------- ------- ------- ------- ------- ------- -------
Net additions for
policyowner transactions 22,248 1,402 808 2,199 2,785 1,104 362
-------- ------- ------- ------- ------- ------- -------
Net additions
for the period 18,251 1,501 760 2,681 578 1,822 278
Policyowners' Equity,
beginning of the period 286,273 8,326 14,695 58,207 76,918 22,948 28,743
-------- ------- ------- ------- ------- ------- -------
Policyowners' Equity,
end of the period $304,524 $ 9,827 $15,455 $60,888 $77,496 $24,770 $29,021
======== ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(unaudited)
<TABLE>
<CAPTION>
FIDELITY'S
VIPF II PUTNAM'S PUTNAM'S
INVESTMENT FIDELITY'S FIDELITY'S VT VT
GRADE VIPF II VIPF II DIVERSIFIED GROWTH AND
BOND INDEX 500 CONTRAFUND INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND
--------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C>
$193 $ 95 $ 94 $ 86 $ 283
-- 193 247 14 690
(6) (15) (21) (3) (24)
------ ------ ------- ------ -------
187 273 320 97 949
------ ------ ------- ------ -------
4 25 1 3 31
(220) (195) (607) (124) (746)
------ ------ ------- ------ -------
(216) (170) (606) (121) (715)
------ ------ ------- ------ -------
(29) 103 (286) (24) 234
------ ------ ------- ------ -------
216 1,412 2,643 213 1,982
(51) 648 263 (9) 415
(2) (4) (9) -- (12)
-- 1 -- -- 0
(22) (33) (45) (9) (44)
-- (1) -- (1) (8)
(56) (201) (355) (29) (304)
(2) (2) -- -- (1)
(7) (38) (66) (5) (50)
------ ------ ------- ------ -------
76 1,782 2,431 160 1,978
------ ------ ------- ------ -------
47 1,885 2,145 136 2,212
3,221 7,583 10,173 1,395 11,547
------ ------ ------- ------ -------
$3,268 $9,468 $12,318 $1,531 $13,759
====== ====== ======= ====== =======
</TABLE>
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(unaudited)
7. COMBINING STATEMENT OF OPERATIONS AND CHANGES IN POLICYOWNERS' EQUITY
(CONTINUED):
Operations and changes in Policyowners' equity for the period ended March 31,
1997 were as follows, (in thousands):
<TABLE>
<CAPTION>
PUTNAM'S
VT PUTNAM'S PUTNAM'S
UTILITIES PUTNAM'S VT VT NORTHSTAR'S NORTHSTAR'S
GROWTH VT ASIA 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 $ 61 $ 68 $ 39 $ -- $ 5 $ 7
Reinvested capital gains 84 1,472 -- -- -- --
Mortality and expense risk charge (3) (58) (4) (19) (1) (1)
-------- -------- -------- -------- -------- --------
Net investment income
(loss) and capital gains 142 1,482 35 (19) 4 6
-------- -------- -------- -------- -------- --------
Realized and unrealized gains (losses):
Net realized gains (losses) on
redemptions of fund shares 10 38 3 3 2 1
Increase (decrease) in unrealized
appreciation on investments (174) (3,324) (113) (1,034) (8) (9)
-------- -------- -------- -------- -------- --------
Net realized and
unrealized gains (losses) (164) (3,286) (110) (1,031) (6) (8)
-------- -------- -------- -------- -------- --------
Net additions (reductions)
from operations (22) (1,804) (75) (1,050) (2) (2)
-------- -------- -------- -------- -------- --------
Policyowner transactions:
Net premium payments 152 4,929 348 3,052 118 62
Transfers (to) from Fixed Account 16 335 33 (34) 4 15
Policy loans (5) (44) (1) (4) (10) (8)
Loan collateral interest crediting 0 2 -- 1 -- --
Surrenders (9) (211) (3) (48) (4) --
Death benefits 0 (4) -- (3) -- --
Cost of insurance charges (36) (786) (45) (381) (17) (8)
Death benefit guarantee charges 0 (3) -- -- --
Monthly expense charges (6) (149) (8) (75) (3) (1)
-------- -------- -------- -------- -------- --------
Net additions for
policyowner transactions 112 4,069 324 2,508 88 60
-------- -------- -------- -------- -------- --------
Net additions
for the period 90 2,265 249 1,458 86 58
Policyowners' Equity,
beginning of the period 1,547 28,364 1,608 10,113 590 295
-------- -------- -------- -------- -------- --------
Policyowners' Equity,
end of the period $ 1,637 $ 30,629 $ 1,857 $ 11,571 $ 676 $ 353
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholder
ReliaStar Life Insurance Company
(A Wholly Owned Subsidiary of ReliaStar Financial Corp.)
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of ReliaStar Life
Insurance Company, formerly known as Northwestern National Life Insurance
Company, and Subsidiaries as of December 31, 1996 and 1995, and the related
statements of income, shareholder's equity, and cash flows for each of the two
years in the period ended December 31, 1996. 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 ReliaStar Life
Insurance Company and Subsidiaries as of December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
January 31, 1997, except for Note 14,
as to which the date is February 23, 1997
<PAGE>
<TABLE>
<CAPTION>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
DECEMBER 31
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Investments
Fixed Maturity Securities (Amortized Cost: 1996,
$8,993.5; 1995, $8,485.4) $ 9,298.2 $ 9,053.7
Equity Securities (Cost: 1996, $32.0; 1995, $34.8) 36.9 35.9
Mortgage Loans on Real Estate 1,855.4 1,948.4
Real Estate and Leases 77.5 97.9
Policy Loans 549.0 499.8
Other Invested Assets 60.2 47.0
Short-Term Investments 99.3 122.4
--------- ---------
Total Investments 11,976.5 11,805.1
Cash 15.9 43.0
Accounts and Notes Receivable 136.9 150.9
Reinsurance Receivable 199.0 162.9
Deferred Policy Acquisition Costs 1,006.0 860.7
Present Value of Future Profits 220.2 192.0
Property and Equipment, Net 118.2 122.6
Accrued Investment Income 164.7 164.7
Other Assets 319.5 275.0
Participation Fund Account Assets. 316.2 319.6
Assets Held in Separate Accounts 2,096.0 1,369.0
--------- ---------
Total Assets $16,569.1 $15,465.5
========= =========
LIABILITIES
Future Policy and Contract Benefits $11,332.2 $11,033.2
Pending Policy Claims 287.6 257.7
Other Policyholder Funds 190.6 174.4
Notes and Mortgages Payable -- Unaffiliated 170.8 144.6
Note Payable -- Parent 100.0 100.0
Income Taxes 135.3 169.2
Other Liabilities 338.4 328.9
Participation Fund Account Liabilities 316.2 319.6
Liabilities Related to Separate Accounts 2,090.5 1,362.9
--------- ---------
Total Liabilities 14,961.6 13,890.5
--------- ---------
SHAREHOLDER'S EQUITY
Common Stock (2.0 Million Shares Issued in 1996 and 1995) 2.5 2.5
Additional Paid-In Capital 538.9 538.9
Net Unrealized Investment Gains 140.8 246.8
Retained Earnings 925.3 786.8
--------- ---------
Total Shareholder's Equity 1,607.5 1,575.0
--------- ---------
Total Liabilities and Shareholder's Equity $16,569.1 $15,465.5
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
YEAR ENDED DECEMBER 31
----------------------
1996 1995
--------- ---------
REVENUES
Premiums $ 836.9 $ 851.5
Net Investment Income 937.2 890.3
Realized Investment Gains 11.2 7.4
Policy and Contract Charges 245.9 218.5
Other Income 81.8 94.4
-------- --------
Total 2,113.0 2,062.1
-------- --------
BENEFITS AND EXPENSES
Benefits to Policyholders 1,288.3 1,321.9
Sales and Operating Expenses 370.3 344.4
Amortization of Deferred Policy Acquisition Costs and
Present Value of Future Profits 113.0 90.5
Interest Expense 16.2 13.5
Dividends and Experience Refunds to Policyholders 19.7 23.4
-------- --------
Total 1,807.5 1,793.7
-------- --------
Income from Continuing Operations before Income Taxes 305.5 268.4
Income Tax Expense 105.9 94.4
-------- --------
Income from Continuing Operations 199.6 174.0
-------- --------
Loss from Discontinued Operations, Net of Tax -- (5.4)
-------- --------
Net Income $ 199.6 $ 168.6
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN MILLIONS)
YEAR ENDED DECEMBER 31
----------------------
1996 1995
--------- ---------
COMMON STOCK
Beginning and End of Year $ 2.5 $ 2.5
-------- --------
ADDITIONAL PAID-IN CAPITAL
Beginning of Year 538.9 216.4
Capital Contributions from Parent -- 322.5
-------- --------
End of Year 538.9 538.9
-------- --------
NET UNREALIZED INVESTMENT GAINS
(LOSSES)
Beginning of Year 246.8 (79.4)
Change for the Year (106.0) 326.2
-------- --------
End of Year 140.8 246.8
-------- --------
RETAINED EARNINGS
Beginning of Year 786.8 670.2
Net Income 199.6 168.6
Dividends to Shareholder (61.1) (52.0)
-------- --------
End of Year 925.3 786.8
-------- --------
Total Shareholder's Equity $1,607.5 $1,575.0
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
YEAR ENDED DECEMBER 31
----------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 199.6 $ 168.6
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Interest Credited to Insurance Contracts 500.1 500.1
Future Policy Benefits (238.9) (117.5)
Capitalization of Policy Acquisition Costs (196.2) (176.6)
Amortization of Deferred Policy Acquisition Costs and
Present Value of Future Profits 113.0 90.5
Deferred Income Taxes 22.3 11.5
Net Change in Receivables and Payables 47.2 8.5
Other Assets (48.4) (83.4)
Realized Investment Gains, Net (11.2) (7.4)
Other 1.6 (3.1)
--------- ---------
Net Cash Provided by Operating Activities 389.1 391.2
--------- ---------
INVESTING ACTIVITIES
Proceeds from Sales of Fixed Maturity Securities 204.1 190.5
Proceeds from Maturities or Repayment of Fixed Maturity
Securities Available-for-Sale 882.3 329.9
Held-to-Maturity -- 415.6
Cost of Fixed Maturity Securities Acquired
Available-for-Sale (1,594.7) (971.4)
Held-to-Maturity -- (519.8)
Sales of Equity Securities, Net 5.6 31.0
Proceeds of Mortgage Loans Sold, Matured or Repaid 483.8 314.2
Cost of Mortgage Loans Acquired. (407.3) (385.2)
Sales of Real Estate and Leases, Net 35.7 28.8
Policy Loans Issued, Net (49.2) (63.0)
Sales (Purchases) of Other Invested Assets, Net (.4) 39.0
Sales (Purchases) of Short-Term Investments, Net 11.4 (56.4)
--------- ---------
Net Cash Used by Investing Activities (428.7) (646.8)
--------- ---------
FINANCING ACTIVITIES
Deposits to Insurance Contracts 1,173.3 1,265.6
Maturities and Withdrawals from Insurance Contracts (1,133.0) (1,015.3)
Increase in Notes and Mortgages Payable 26.8 72.1
Repayment of Notes and Mortgages Payable (.6) (2.3)
Dividends to Shareholder (54.0) (41.3)
--------- ---------
Net Cash Provided by Financing Activities 12.5 278.8
--------- ---------
Increase (Decrease) in Cash (27.1) 23.2
Cash at Beginning of Year 43.0 19.8
--------- ---------
Cash at End of Year $ 15.9 $ 43.0
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 1. CHANGES IN ACCOUNTING PRINCIPLES
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF
Effective January 1, 1996, ReliaStar Life Insurance Company (ReliaStar Life) and
its subsidiaries (the Company) adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. This Statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of the asset. Long-lived
assets and certain identifiable intangibles to be disposed of must be reported
at the lower of carrying amount or fair value less cost to sell. The adoption of
this standard did not have a significant effect on the financial results of the
Company.
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN
Effective January 1, 1995, the Company adopted 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 Disclosures." 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.
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 services products. Through its subsidiaries, the Company
issues and distributes individual life insurance and annuities; group life and
health insurance; and life and health reinsurance. 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 ReliaStar Life and
its subsidiaries. ReliaStar Life is a wholly owned subsidiary of ReliaStar
Financial Corp. (ReliaStar). ReliaStar Life's principal subsidiaries are
Northern Life Insurance Company (Northern), ReliaStar United Services Life
Insurance Company (United Services), ReliaStar Bankers Security Life Insurance
Company (Bankers Security) and ReliaStar Mortgage Corporation. United Services
and Bankers Security were formerly known as United Services Life Insurance
Company and Bankers Security Life Insurance Society, respectively. During 1995,
The North Atlantic Life Insurance Company of America was merged into Bankers
Security. These consolidated financial statements exclude the effects of all
material intercompany transactions.
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
Fixed maturity securities (bonds and redeemable preferred stocks) are classified
as available-for-sale and are valued at fair value.
Equity securities (common stocks and nonredeemable preferred stocks) are valued
at fair value.
Mortgage loans on real estate are carried at amortized cost less an impairment
allowance for estimated uncollectible amounts.
Investment real estate owned directly by the Company is carried at cost less
accumulated depreciation and allowances for estimated losses. 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 (DAC), present value and future profits (PVFP) and tax effects, are
accounted for as a direct increase or decrease in shareholder's equity.
Realized investment gains and losses enter into the determination of net income.
Realized investment gains and losses on sales of securities are determined on
the specific identification method. Write-offs of investments that decline in
value below cost on other than a temporary basis and the 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
$90.7 million and $79.8 million at December 31, 1996 and 1995, respectively. The
Company provides for depreciation of 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 1996 and
1995 amounted to $5.9 million and $9.1 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 ReliaStar Life 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 ReliaStar Life 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 ReliaStar Life 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In the event that the assets of the PFA are insufficient to provide the
contractual benefits guaranteed by the affected policies, ReliaStar Life 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 carried 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 DAC and PVFP.
RECOGNITION OF UNIVERSAL LIFE-TYPE CONTRACTS REVENUE AND BENEFITS TO
POLICYHOLDERS -- Universal life-type policies are insurance contracts with terms
that are not fixed and guaranteed. The terms that may be changed could include
one or more of the amounts assessed the policyholder, premiums paid by the
policyholder or interest accrued to policyholder balances. Amounts received as
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.
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, surrender and expense
margins.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRESENT VALUE OF FUTURE PROFITS
The present value of future profits reflects the estimated fair value of the
acquired insurance business in force and represents the portion of the
acquisition cost that was 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 PVFP asset account is presented below:
YEAR ENDED
DECEMBER 31
-----------------
1996 1995
------ ------
(IN MILLIONS)
Balance, Beginning of Year $192.0 $ --
Additions Arising from Acquisitions of Life Insurance
Companies -- 300.0
Imputed Interest 16.4 17.6
Amortization (37.5) (32.6)
Impact of Net Unrealized Investment Gains and Losses. 49.3 (93.0)
------ ------
Balance, End of Year $220.2 $192.0
====== ======
Based on current conditions and assumptions as to future events on acquired
policies in force, the Company expects that the net amortization of the initial
PVFP balance will be between 5% and 6% in each of the years 1997 through 2001.
The interest rates used to determine the amount of imputed interest on the
unamortized PVFP balance ranged from 5% to 8%.
GOODWILL
Goodwill is the excess of the amount paid to acquire a company over the fair
value of the net assets acquired and is amortized on 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 such 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 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Corporation (USLICO). USLICO was
a holding company with two primary subsidiaries: United Services and Bankers
Security. ReliaStar contributed all of the capital stock of United Services and
Bankers Security to the Company. The acquisition was accounted for using the
purchase method of accounting and, therefore, the consolidated financial
statements include the accounts of United Services and Bankers Security since
the date of acquisition. At the acquisition date, goodwill totaling $44.3
million was recorded, representing the excess of the amount paid and allocated
to United Services and Bankers Security over the fair value of the net assets
acquired.
NOTE 4. INVESTMENTS
Investment income summarized by type of investment was as follows:
YEAR ENDED
DECEMBER 31
-----------------
1996 1995
------ ------
(IN MILLIONS)
Fixed Maturity Securities $709.4 $673.4
Equity Securities 4.1 3.1
Mortgage Loans on Real Estate 187.6 184.3
Real Estate and Leases 18.0 16.8
Policy Loans 32.2 28.9
Other Invested Assets 7.3 7.8
Short-Term Investments 5.7 7.6
------ ------
Gross Investment Income 964.3 921.9
Investment Expenses 27.1 31.6
------ ------
Net Investment Income $937.2 $890.3
====== ======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 4. INVESTMENTS (CONTINUED)
Net pretax realized investment gains (losses) were as follows:
YEAR ENDED
DECEMBER 31
-----------------
1996 1995
------ ------
(IN MILLIONS)
Net Gains (Losses) on Sales
Fixed Maturity Securities $ 3.2 $ 3.3
Equity Securities 1.3 15.1
Mortgage Loans .1 (.1)
Foreclosed Real Estate 1.8 .6
Real Estate 2.7 1.7
Other 13.2 2.2
------ ------
22.3 22.8
------ ------
Provisions for Losses
Fixed Maturity Securities (2.6) (3.0)
Equity Securities -- (.1)
Mortgage Loans (3.5) (6.3)
Foreclosed Real Estate (3.5) (5.2)
Real Estate (1.1) (.8)
Other (.4) --
------ ------
(11.1) (15.4)
------ ------
Pretax Realized Investment Gains $ 11.2 $ 7.4
====== ======
Gross realized investment gains of $8.7 million and $8.3 million and gross
realized investment losses of $5.5 million and $5.0 million were recognized on
sales of fixed maturity securities during the years ended December 31, 1996 and
1995, respectively. All 1996 and 1995 fixed maturity security sales were from
the available-for-sale portfolio.
The amortized cost and fair value of investments in fixed maturity securities by
type of investment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------
GROSS UNREALIZED
AMORTIZED -----------------
COST GAINS (LOSSES) FAIR VALUE
-------- ------ ------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
United States Government and Government Agencies
and Authorities $ 130.8 $ 6.5 $ (.1) $ 137.2
States, Municipalities and Political Subdivisions 56.7 2.8 (.2) 59.3
Foreign Governments 82.9 4.2 (.1) 87.0
Public Utilities 754.6 42.2 (3.0) 793.8
Corporate Securities 5,800.4 223.9 (29.1) 5,995.2
Mortgage-Backed/Structured Finance Securities 2,166.0 66.0 (8.3) 2,223.7
Redeemable Preferred Stock 2.1 -- (.1) 2.0
-------- ------ ------ --------
Total $8,993.5 $345.6 $(40.9) $9,298.2
======== ====== ====== ========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 4. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------
GROSS UNREALIZED
AMORTIZED -----------------
COST GAINS (LOSSES) FAIR VALUE
-------- ------ ------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
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
======== ====== ====== ========
</TABLE>
The amortized cost and fair value of fixed maturity securities by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Due in One Year or Less $ 155.8 $ 157.4 $ 123.1 $ 122.8
Due After One Year Through Five Years 2,967.6 3,057.0 2,497.4 2,634.3
Due After Five Years Through Ten Years 2,622.4 2,723.6 2,750.4 2,965.4
Due After Ten Years 1,055.3 1,108.7 1,056.5 1,172.9
Mortgage-Backed/Structured Finance Securities 2,192.4 2,251.5 2,058.0 2,158.3
-------- -------- -------- --------
Total $8,993.5 $9,298.2 $8,485.4 $9,053.7
======== ======== ======== ========
</TABLE>
The fair values for the marketable bonds are determined based upon the quoted
market prices for bonds actively traded. The fair values for marketable bonds
without an active market are obtained through several commercial pricing
services which provide the estimated fair values. Fair values of privately
placed bonds which are not considered problems are determined utilizing a
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. Using this data, the model
generates estimated market values which the Company considers reflective of the
fair value of each privately placed bond. Fair values for privately placed bonds
which are considered problems are determined 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, 1996, the largest industry concentration of the private
placement portfolio was financial services, where 18.6% of the portfolio was
invested, and the largest industry concentration of the marketable bond
portfolio was mortgage-backed/structured finance securities, where 32.2% of the
portfolio was invested. At December 31, 1996, the largest geographic
concentration of commercial mortgage loans was in the midwest region of the
United States, where approximately 31.6% of the commercial mortgage loan
portfolio was invested.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 4. INVESTMENTS (CONTINUED)
At December 31, 1996 and 1995, gross unrealized appreciation of equity
securities was $5.2 million and $3.0 million, respectively, and gross unrealized
depreciation was $.3 million and $1.9 million, respectively.
Invested assets which were nonincome producing (no income received for the 12
months preceding the balance sheet date) were as follows:
DECEMBER 31
--------------
1996 1995
----- -----
(IN MILLIONS)
Fixed Maturity Securities $ .6 $ .7
Mortgage Loans on Real Estate 1.2 2.8
Real Estate and Leases 16.0 17.6
----- -----
Total $17.8 $21.1
===== =====
Allowances for losses on investments are reflected on the Consolidated Balance
Sheets as a reduction of the related assets and were as follows:
DECEMBER 31
---------------
1996 1995
----- -----
(IN MILLIONS)
Mortgage Loans $11.7 $12.4
Foreclosed Real Estate 11.2 10.6
Investment Real Estate 2.1 1.0
Other Invested Assets 2.6 2.3
At December 31, 1996 and 1995, the total investment in impaired mortgage loans
(before allowances for credit losses), the related allowance for credit losses
and the average investment related to impaired mortgage loans and the interest
income recognized on impaired mortgage loans during 1996 and 1995 were as
follows:
DECEMBER 31
---------------
1996 1995
----- -----
(IN MILLIONS)
Impaired Mortgage Loans
Total Investment $22.3 $25.4
Allowance for Credit Losses 11.7 12.4
Average Investment 1.9 2.0
Interest Income Recognized 1.4 1.7
Increases to the allowance for credit losses account were $2.9 million and $6.3
million, and the amount of decreases to the allowance account were $3.6 million
and $9.5 million for the years ended December 31, 1996 and 1995, 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 4. INVESTMENTS (CONTINUED)
Noncash investing activities consisted of the following:
DECEMBER 31
-----------
1996 1995
----- -----
(IN MILLIONS)
Real Estate Assets Acquired Through Foreclosure $14.8 $28.0
Mortgage Loans Acquired in Sales of Real Estate
Assets. 11.2 15.3
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.
The components of net unrealized investment gains reported in shareholder's
equity are shown below:
DECEMBER 31
------------------
1996 1995
------ -------
(IN MILLIONS)
Unrealized Investment Gains $310.5 $ 569.9
DAC/PVFP Adjustment (93.8) (189.4)
Deferred Income Taxes. (75.9) (133.7)
------ -------
Net Unrealized Investment Gains $140.8 $ 246.8
====== =======
NOTE 5. INCOME TAXES
The income tax liability as reflected on the Consolidated Balance Sheets
consisted of the following:
DECEMBER 31
----------------
1996 1995
------ ------
(IN MILLIONS)
Current Income Taxes $ 7.8 $ 6.4
Deferred Income Taxes. 127.5 162.8
------ ------
Total $135.3 $169.2
====== ======
The provision for income taxes reflected on the Consolidated Statements of
Income consisted of the following:
DECEMBER 31
----------------
1996 1995
------ -----
(IN MILLIONS)
Currently Payable $ 83.6 $82.9
Deferred 22.3 11.5
------ -----
Total. $105.9 $94.4
====== =====
The Internal Revenue Service has completed its review of the Company's tax
return for all years through 1991.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(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 liabilities relate
to the following:
DECEMBER 31
--------------------
1996 1995
------- -------
(IN MILLIONS)
Future Policy and Contract Benefits $(265.1) $(269.7)
Investment Write-Offs and Allowances (39.0) (35.0)
Pension and Postretirement Benefit Plans (9.0) (8.3)
Employee Benefits (11.1) (9.3)
Deferred Futures Gains (1.8) (1.8)
Other (50.5) (42.0)
------- -------
Gross Deferred Tax Asset (376.5) (366.1)
------- -------
Deferred Policy Acquisition Costs 296.0 267.9
Present Value of Future Profits 92.4 99.0
Net Unrealized Investment Gains 32.1 90.2
Property and Equipment 28.5 27.1
Real Estate Joint Ventures 12.0 12.2
Accrual of Market Discount 7.9 8.4
Policyholder Dividends 5.2 4.4
Other 29.9 19.7
------- -------
Gross Deferred Tax Liability 504.0 528.9
------- -------
Net Deferred Tax Liability $ 127.5 $ 162.8
======= =======
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, 1996, ReliaStar Life and its life
insurance subsidiaries have accumulated approximately $51 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:
DECEMBER 31
--------------
1996 1995
---- ----
(IN MILLIONS)
Statutory Tax Rate 35.0% 35.0%
Other (.3) .2
---- ----
Effective Tax Rate 34.7% 35.2%
==== ====
Cash paid to ReliaStar for federal income taxes was $74.5 million and $90.3
million for the years ended December 31, 1996 and 1995, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 6. NOTES AND MORTGAGES PAYABLE
A summary of notes and mortgages payable is as follows:
DECEMBER 31
-----------------
1996 1995
------ ------
(IN MILLIONS)
Unaffiliated: Commercial Paper $146.5 $135.6
Bank Borrowings 15.9 --
Other Indebtedness -- Current Portion .1 .1
------ ------
Short-Term Debt 162.5 135.7
------ ------
Other Indebtedness -- Noncurrent Portion 8.3 8.9
------ ------
Total Unaffiliated $170.8 $144.6
====== ======
Note Payable to Parent $100.0 $100.0
====== ======
At December 31, 1996 and 1995, other indebtedness is primarily mortgage notes
assumed in connection with certain real estate investments with interest rates
ranging from 6.2% to 9.6%.
The weighted average interest rate on the commercial paper outstanding at
December 31, 1996 and 1995 was 5.56% and 6.06%, respectively, with maturities
ranging from 2 to 55 days at December 31, 1996.
The Company has unsecured revolving credit facilities with banks totaling $200.0
million for commercial paper back-up and general corporate purposes. At December
31, 1996, $15.9 million was borrowed under these facilities at an interest rate
of 5.8%. One of the facilities requires an annual commitment fee of 1/10%.
Principal payments required on notes and mortgages payable to unaffiliated
companies in each of the next five years and thereafter are as follows:
(IN MILLIONS)
-------------
1997 -- $162.5 2000 -- $5.8
1998 -- $ .1 2001 -- $1.9
1999 -- $ .2 2002 and thereafter -- $ .3
ReliaStar has loaned $100.0 million to ReliaStar Life under a surplus note. The
original note, dated April 1, 1989, was issued in connection with ReliaStar
Life'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 ReliaStar Life is in default in the payment of any
required interest or principal, ReliaStar Life 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 $9.3 million and $14.2 million for 1996 and 1995,
respectively.
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
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 $35.6 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:
DECEMBER 31
-----------------
1996 1995
------ ------
(IN MILLIONS)
Service Cost -- Benefits Earned During the
Year $ 3.8 $ 3.4
Interest Cost on Projected Benefit Obligation 13.6 11.9
Actual Return on Plan Assets (23.0) (33.7)
Net Amortization and Deferral 8.4 19.1
------ ------
Net Periodic Pension Expense $ 2.8 $ .7
====== ======
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
-------------------- ------------------
1996 1995 1996 1995
------- ------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Accumulated Benefit Obligation
Vested $(164.7) $(157.1) $(11.8) $(10.7)
Nonvested $ (4.0) (5.1) (.5) (1.2)
Effect of Projected Future Compensation Increases (12.7) (10.6) (2.1) (2.1)
------- ------- ------ ------
Projected Benefit Obligation (181.4) (172.8) (14.4) (14.0)
Plan Assets at Fair Value 184.9 169.9 -- --
------- ------- ------ ------
Plan Assets Greater (Less) Than Projected Benefit
Obligation 3.5 (2.9) (14.4) (14.0)
Unrecognized Net Loss and Prior Service Cost 19.0 24.2 5.3 6.2
Unrecognized Transition Obligation (Asset) (.4) (.8) -- .1
Additional Minimum Liability -- -- (3.5) (4.2)
------- ------- ------ ------
Net Pension Asset (Liability) $ 22.1 $ 20.5 $(12.6) $(11.9)
======= ======= ====== ======
</TABLE>
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 7.50% and 7.25% at January 1, 1997 and 1996, respectively, and a
weighted-average assumed long-term rate of compensation increase of 4.5%. The
assumed long-term rate of return on plan assets was 10%.
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
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
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 provides a flat amount
of noncontributory life benefits and optional contributory coverage.
During 1996, the Company amended its plans to reduce the level of benefits
provided to current and future retirees. The amendment resulted in a reduction
of the accumulated postretirement benefit obligation for ReliaStar and its
subsidiaries of approximately $9.9 million. The plan amendment will also reduce
current and future net periodic postretirement benefit costs as the unrecognized
prior service cost is amortized.
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:
DECEMBER 31
---------------
1996 1995
----- -----
(IN MILLIONS)
Retirees $ 7.3 $10.3
Fully Eligible Active Plan Participants .9 4.5
Other Active Plan Participants 1.6 4.9
----- -----
Unfunded APBO 9.8 19.7
Unrecognized Prior Service Cost 8.9 .1
Unrecognized Gain (Loss) 1.5 (.3)
----- -----
Accrued Postretirement Benefit Liability $20.2 $19.5
===== =====
Net periodic postretirement benefit costs consisted of the following components:
DECEMBER 31
--------------
1996 1995
----- ----
(IN MILLIONS)
Service Cost -- Benefits Earned $ .6 $1.2
Interest Cost on APBO 1.0 1.3
Amortization of Prior Service Cost (1.2) (.1)
----- ----
Net Periodic Postretirement Benefit Costs $ .4 $2.4
===== ====
The above amounts for 1996 are for ReliaStar and its subsidiaries as the
Company's portion is not determinable. Prior period amounts reflect the
Company's accrued postretirement benefit liability and net periodic
postretirement benefit costs.
The assumed health care cost trend rate used in measuring the APBO as of January
1, 1997 was 7.0%, decreasing gradually to 5.0% in the year 1999 and thereafter.
The assumed 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 discount rate used in determining the APBO was 7.50% and 7.25% at
January 1, 1997 and 1996, 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, 1996 by approximately $.3
million and 1996 net postretirement health care costs by approximately $.1
million.
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
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
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 $9.4 million and $8.6 million in 1996 and 1995,
respectively.
STOCK-BASED COMPENSATION
Officers and key employees of the Company participate in stock-based
compensation plans of ReliaStar. ReliaStar applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock-based compensation plans.
Accordingly, the Company has recorded no compensation expense for these
stock-based compensation plans other than for restricted stock and
performance-based awards. Had compensation cost for ReliaStar's stock option
plans been determined based upon fair value at the grant date for awards under
these plans consistent with the optional accounting methodology prescribed under
SFAS No. 123, "Accounting for Stock-Based Compensation," ReliaStar's net income
would have been reduced by approximately $2.3 million and $.9 million for the
years ended December 31, 1996 and 1995, respectively. The pro forma effect on
net income for 1996 and 1995 is not representative of the pro forma effect on
net income in future years because it does not take into consideration pro forma
compensation expense related to grants prior to 1995. The fair value of the
options granted by ReliaStar during 1996 and 1995 is estimated as $9.45 and
$8.64, respectively, on the date of grant using a Black-Scholes option-pricing
model with the following assumptions regarding ReliaStar stock: dividend yield
2.0%, volatility ranging from .19% to .21%, risk-free interest rates of 5.1% to
5.3% for 1996 and 7.4% for 1995, and an expected life of 3.65 to 5.65 years. The
Company's portion of ReliaStar's pro forma impact on net income is not
determinable.
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
$28.3 million and $25.1 million to ReliaStar in 1996 and 1995, respectively.
During 1996 and 1995, the Company paid dividends of $61.1 million and $52.0
million, respectively to ReliaStar consisting of cash dividends totaling $54.0
million and $41.3 million and noncash dividends of $7.1 million and $10.7
million, respectively.
NOTE 9. SHAREHOLDER'S EQUITY
DIVIDEND RESTRICTIONS
The ability of ReliaStar Life 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 ReliaStar
Life, any such payment must be an amount deemed prudent by ReliaStar Life'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 ReliaStar Life. 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 unrealized capital gains. Further, without approval of the
Commissioner, ReliaStar Life 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 ReliaStar Life's statutory surplus at the
prior year-end or (ii) 100% of ReliaStar Life's
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 9. SHAREHOLDER'S EQUITY (CONTINUED)
statutory net gain from operations (not including realized capital gains) for
the prior calendar year. For 1997, the amount of dividends which can be paid by
ReliaStar Life without Commissioner approval is $144.0 million.
STATUTORY SURPLUS AND NET INCOME
Net income of ReliaStar Life and its subsidiaries, as determined in accordance
with statutory accounting practices was $150.4 million and $97.8 million for
1996 and 1995, respectively. ReliaStar Life's statutory capital and surplus was
$783.4 million and $728.3 million at December 31, 1996 and 1995, 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, the
Life and Health Reinsurance Division of ReliaStar Life 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 reinsurance
receivables was immaterial at December 31, 1996 and 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 $500,000 per life for individual coverage and,
to the extent that ReliaStar Life reinsures life policies written by Northern
and Bankers Security, the limit is increased 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, 1996,
$12.5 billion of life insurance in force was ceded to other companies. The
Company has assumed $38.5 billion of life insurance in force as of December 31,
1996 (including $33.3 billion of reinsurance assumed pertaining to Federal
Employees' Group Life Insurance and Servicemans' Group Life Insurance). Also
included in these amounts are $722.5 million of reinsurance ceded and $5.2
billion of reinsurance assumed by the Life and Health Reinsurance Division of
ReliaStar Life.
The effect of reinsurance on premiums and recoveries is as follows:
DECEMBER 31
------------------
1996 1995
------- ------
(IN MILLIONS)
Direct Premiums $ 609.9 $643.8
Reinsurance Assumed 334.3 297.6
Reinsurance Ceded (107.3) (89.9)
------- ------
Net Premiums $ 836.9 $851.5
======= ======
Reinsurance Recoveries $ 96.3 $ 80.4
======= ======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
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:
DECEMBER 31
-----------------
1996 1995
------ ------
(IN MILLIONS)
Balance at January 1 $369.4 $322.9
Less Reinsurance Recoverables 81.6 59.5
------ ------
Net Balance at January 1 287.8 263.4
Incurred Related to:
Current Year 223.5 273.1
Prior Year (5.7) (2.7)
------ ------
Total Incurred 217.8 270.4
Paid Related to:
Current Year 127.8 157.0
Prior Year 97.1 89.0
------ ------
Total Paid 224.9 246.0
Net Balance at December 31 280.7 287.8
Plus Reinsurance Recoverables 102.6 81.6
------ ------
Balance at December 31 $383.3 $369.4
====== ======
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, some of which include claims for punitive
damages. In the opinion of management, the ultimate resolution of such
litigation will not result in any material adverse impact to the operations or
financial condition of the Company.
JOINT GROUP LIFE AND ANNUITY CONTRACTS
ReliaStar Life has issued certain participating group annuity and group life
insurance contracts jointly with another insurance company. ReliaStar Life has
entered into an arrangement with this insurer whereby ReliaStar Life will
gradually transfer these liabilities (approximately $281.9 million at December
31, 1996) 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 AGREEMENT
In connection with the March 1992 sale of Chartwell Re Corporation (Chartwell),
the Company and the acquiring company entered into a separate reciprocal reserve
indemnification agreement with respect to the adequacy of the loss and loss
adjustment expense reserves of Chartwell. On June 28, 1996, a final settlement
of the reserve indemnification agreement was reached. The Company's previous
accruals for this liability were adequate.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Amounts previously charged against income for the reserve 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 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
--------------------
1996 1995
-------- --------
(IN MILLIONS)
<S> <C> <C>
Financial Instruments Whose Contract Amounts Represent Credit Risk
Commitments to Extend Credit $ 181.6 $ 82.6
Financial Guarantees 40.9 41.8
Financial Instruments Whose Notional or Contract Amounts Exceed the
Amount of Credit Risk
Futures Contracts 76.6 80.4
Interest Rate Swap Agreements 1,109.5 1,222.5
</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.
ReliaStar Life is a partner in eight real estate joint ventures where it has
guaranteed the repayment of loans of the partnership. As of December 31, 1996,
ReliaStar Life had guaranteed repayment of $40.9 million ($41.8 million at
December 31, 1995) of such loans including the portion allocable to the PFA. If
any payments were made under these guarantees, ReliaStar Life 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
For certain of these partnerships, ReliaStar Life 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 1996 and 1995 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 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 $13.9 million
and $13.6 million for 1996 and 1995, respectively.
Future minimum aggregate rental commitments at December 31, 1996 for operating
leases were as follows:
(IN MILLIONS)
-------------
1997 -- $7.6 2000 -- $4.6
1998 -- $6.8 2001 -- $3.9
1999 -- $5.7 2002 and thereafter -- $4.7
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, 1996 and 1995. 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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).
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 INVESTMENT AND POLICY LOANS -- The carrying amounts for these
assets approximate the assets' fair values.
OTHER FINANCIAL INVESTMENTS AND POLICY LOANS -- The carrying amounts for these
financial instruments (primarily premiums and other accounts receivable and
accrued investment income) approximate those 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
INTEREST RATE SWAPS -- The fair value for interest rate swaps was estimated
using discounted cash flow analyses. The discount rate was based upon rates
currently being offered for similar interest rate swaps available from similar
counterparties.
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Financial Instruments Recorded as Assets
Fixed Maturity Securities $ 9,298.2 $ 9,298.2 $ 9,053.7 $ 9,053.7
Equity Securities 36.9 36.9 35.9 35.9
Mortgage Loans on Real Estate
Commercial 1,359.6 1,391.9 1,465.0 1,525.8
Residential and Other 495.8 507.4 483.4 496.1
Policy Loans 549.0 549.0 499.8 499.8
Cash and Short-Term Investments 115.2 115.2 165.4 165.4
Other Financial Instruments Recorded as Assets 534.7 534.7 503.3 503.3
Financial Instruments Recorded as Liabilities
Investment Contracts
Deferred Annuities (6,970.9) (6,547.9) (6,704.9) (6,285.6)
GICs (74.7) (102.0) (115.0) (148.6)
Supplementary Contracts and Immediate Annuities (134.5) (131.4) (99.8) (99.7)
Other Investment Contracts (488.3) (488.3) (529.2) (529.2)
Claim and Other Deposit Funds (123.6) (123.6) (114.9) (114.9)
Notes and Mortgages Payable (169.8) (170.4) (243.6) (244.4)
Other Financial Instruments Recorded as
Liabilities (229.0) (229.0) (224.8) (224.8)
Off-Balance Sheet Financial Instruments
Financial Guarantees -- (4.5) -- (4.6)
Interest Rate Swaps -- 10.8 -- 42.7
</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.
NOTE 14. SUBSEQUENT EVENT
On February 23, 1997, ReliaStar signed a definitive agreement to acquire and
merge Security-Connecticut Corporation (SRC) into ReliaStar. SRC is a holding
company with two primary subsidiaries: Security-Connecticut Life Insurance
Company of Avon, Connecticut, and Lincoln Security Life Insurance Company of
Brewster, New York. As of December 31, 1996, SRC had assets of $2.3 billion and
total shareholders' equity of $355 million. Completion of the merger is expected
in the second or third quarter
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 14. SUBSEQUENT EVENT (CONTINUED)
of 1997, and is subject to normal closing conditions, including approval by SRC
shareholders and various regulatory approvals. The acquisition will be accounted
for as a purchase and SRC's two life insurance company subsidiaries will be
contributed to the Company by ReliaStar.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
(UNAUDITED)
MARCH 31,
1997
---------
ASSETS
Fixed Maturity Securities,
Available-for-Sale $ 9,212.4
Equity Securities 25.1
Mortgage Loans on Real Estate 1,859.1
Real Estate and Leases 76.9
Policy Loans 555.1
Other Invested Assets 68.5
Short-Term Investments 106.2
---------
Total Investments 11,903.3
Cash 7.9
Accounts and Notes Receivable 155.7
Reinsurance Receivable 209.8
Deferred Policy Acquisition Costs 1,064.7
Present Value of Future Profits 234.3
Property and Equipment, Net 116.5
Accrued Investment Income 175.3
Other Assets 352.9
Participation Fund Account Assets 315.9
Assets Held in Separate Accounts 2,254.6
---------
TOTAL ASSETS $16,790.9
=========
LIABILITIES
Future Policy and Contract Benefits $11,400.5
Pending Policy Claims 292.7
Other Policyholder Funds 209.0
Notes and Mortgages Payable -- Unaffiliated 204.3
Notes Payable -- Parent 100.0
Income Taxes 117.7
Other Liabilities 337.4
Participation Fund Account Liabilities 315.9
Liabilities Related to Separate Accounts 2,249.1
---------
TOTAL LIABILITIES 15,226.6
---------
SHAREHOLDER'S EQUITY
Common Stock 2.5
Additional Paid-In Capital 538.9
Net Unrealized Investment Gains 60.1
Retained Earnings 962.8
---------
TOTAL SHAREHOLDER'S EQUITY 1,564.3
---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $16,790.9
=========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31
--------------
1997
--------------
REVENUES
Premiums $204.7
Net Investment Income 234.2
Realized Investment Gains 2.2
Policy and Contract Charges 64.9
Other Income 21.6
------
Total 527.6
------
BENEFITS AND EXPENSES
Benefits to Policyholders 317.6
Sales and Operating Expenses 91.0
Amortization of Deferred Policy Acquisition Costs
and Present Value of Future Profits 28.4
Interest Expense 4.4
Dividends and Experience Refunds to Policyholders 7.1
------
Total 448.5
------
Income Before Income Taxes 79.1
Income Tax Expense 27.6
------
Net Income $ 51.5
======
See accompanying notes to condensed consolidated financial statements.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31
--------------
1997
-------
OPERATING ACTIVITIES
Net Income $ 51.5
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities
Interest Credited to Insurance Contracts 122.9
Future Policy Benefits (58.5)
Capitalization of Deferred Policy Acquisition Costs (50.5)
Amortization of Deferred Policy Acquisition Costs
and Present Value of Future Profits 28.4
Deferred Income Taxes 3.9
Net Change in Receivables and Payables 16.3
Other Assets (44.0)
Realized Investment Gains, Net (2.2)
Other 1.6
-------
Net Cash Provided by Operating Activities 69.4
-------
INVESTING ACTIVITIES
Proceeds from Sales of Available-for-Sale Fixed Maturity
Securities 83.8
Proceeds from Maturities or Repayment of Fixed Maturity
Securities 173.5
Cost of Fixed Maturity Securities Acquired (353.1)
Sales of Equity Securities, Net 13.6
Proceeds of Mortgage Loans Sold, Matured or Repaid 124.5
Cost of Mortgage Loans Acquired (132.5)
Sales of Real Estate and Leases, Net 2.7
Policy Loans Issued, Net (6.1)
Sales (Purchases) of Other Invested Assets, Net (3.1)
Sales (Purchases) of Short-Term Investments, Net (6.9)
-------
Net Cash Used by Investing Activities (103.6)
-------
FINANCING ACTIVITIES
Deposits to Insurance Contracts 311.2
Maturities and Withdrawals from Insurance Contracts (304.5)
Increase in Notes and Mortgages Payable 33.6
Repayment of Notes and Mortgages Payable (0.1)
Dividends to Shareholder (14.0)
-------
Net Cash Provided (Used) by Financing Activities 26.2
-------
Decrease in Cash (8.0)
Cash at Beginning of Period 15.9
-------
Cash at End of Period $ 7.9
=======
See accompanying notes to condensed consolidated financial statements.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements of ReliaStar Life Insurance
Company (the Company) have been prepared in conformity with generally accepted
accounting principles and such principles were applied on a basis consistent
with that reflected in the Consolidated Financial Statements For the Years Ended
December 31, 1996 and 1995. The financial information included herein, has been
prepared by management without audit by independent certified public
accountants.
The interim information furnished includes all adjustments and accruals
consisting only of normal, recurring actual adjustments which are, in the
opinion of management, necessary for a fair statement of results for the interim
period. The results of operations for any interim period are not necessarily
indicative of results for the full year. The unaudited interim condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Consolidated Financial
Statements For the Years Ended December 31, 1996 and 1995.
NOTE 2. ACQUISITION
On July 1, 1997, ReliaStar Financial Corp., the Company's parent (ReliaStar),
completed the acquisition of Security-Connecticut Corporation (SRC). SRC is a
holding company with two primary subsidiaries: Security-Connecticut Life
Insurance Company of Avon, Connecticut, and Lincoln Security Life Insurance
Company of Brewster, New York. As of December 31, 1996, SRC had assets of $2.3
billion and total shareholders' equity of $355 million. The acquisition will be
accounted for as a purchase and SRC's two life insurance company subsidiaries
will be contributed to the Company by ReliaStar.
<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.
<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 / 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.
<PAGE>
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;
* 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. 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.
<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 three funds
available through The Alger American Trust, the portfolios of Fidelity VIP and
Fidelity VIP II, the four funds of Janus Aspen Series, the two funds of
Neuberger&Berman Advisers Management Trust, the five funds available through
Northstar Variable Trust, the four funds of the OCC Accumulation Trust, and the
six funds of Putnam Variable Trust, which together are assumed to be at an
average annual rate of 0.79% for all years. This figure is derived based on an
average of the Funds' 1996 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 -0.79%, 5.21%, and 11.21%, respectively. Without such expense
reimbursements, total expenses would be 0.99%. Hypothetical Cash Values, Cash
Surrender Values and the Death Benefit may be lower without the expense
reimbursement. Expense reimbursements are voluntary. While it is currently
anticipated that expense reimbursements will continue past the current year,
there is no assurance of ongoing reimbursements.
The hypothetical values shown in the tables do not reflect any charges for
Federal income taxes attributable to the Variable Account because we do not
currently make any such charges. However, such charges may be made in the future
and, in that event, the gross annual investment return would have to exceed 0
percent, 6 percent, or 12 percent by an amount sufficient to cover the tax
charges in order to produce the Accumulation Values, Cash Surrender Values, and
Death Benefits illustrated. See section entitled "Federal Tax Matters" in the
prospectus.
<PAGE>
The tables illustrate the Policy values that would result based upon the
hypothetical rates of return if premiums are paid as indicated, if all Net
Premiums are allocated to the Variable Account, and if no Policy loans have been
made. The tables are also based on the assumptions that the Policy owner has not
requested an increase or decrease in the Face Amount, that no partial
withdrawals have been made, that no transfers have been made, and total
operating expenses of the Funds continue as anticipated. Actual results will
depend on the expenses and performance of the investment choice made by the
owner.
Upon request, we will provide a comparable illustration based upon the proposed
Insured's Age, sex, underwriting classification, the Face Amount and Planned
Periodic Premium schedule requested, and any available riders requested.
<PAGE>
<TABLE>
<CAPTION>
RELIASTAR 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%
GUARANTEED COSTS CURRENT COSTS
------------------------------------------ -------------------------------------------
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1 1,187 0*** 150,000* 1,321 76*** 150,000
2 2,331 969*** 150,000 2,603 1,241*** 150,000
3 3,431 116 150,000 3,846 531 150,000
4 4,486 886 150,000 5,048 1,448 150,000
5 5,492 1,892 150,000 6,206 2,606 150,000
6 6,449 3,209 150,000 7,320 4,080 150,000
7 7,353 4,473 150,000 8,390 5,510 150,000
8 8,203 5,683 150,000 9,413 6,893 150,000
9 8,996 6,836 150,000 10,388 8,228 150,000
10 9,729 7,929 150,000 11,311 9,511 150,000
11 10,429 8,989 150,000 12,291 10,851 150,000
12 11,058 9,978 150,000 13,218 12,138 150,000
13 11,608 10,888 150,000 14,083 13,363 150,000
14 12,069 11,709 150,000 14,881 14,521 150,000
15 12,432 12,432 150,000 15,605 15,605 150,000
20 12,456 12,456 150,000 17,883 17,883 150,000
AGE
70 0 0 0 10,673 10,673 150,000
**
- ---------------------------
(1) Assumes a $1,800.00 premium (which exceeds the Annualized Minimum Monthly
Premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient Cash Surrender Value.
* 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.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE 0%
OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
<TABLE>
<CAPTION>
RELIASTAR 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%
GUARANTEED COSTS CURRENT COSTS
------------------------------------------ -------------------------------------------
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1 1,273 28* 150,000 1,411 166* 150,000
2 2,577 1,215* 150,000 2,865 1,503* 150,000
3 3,911 596 150,000 4,364 1,049 150,000
4 5,275 1,675 150,000 5,906 2,306 150,000
5 6,667 3,067 150,000 7,492 3,892 150,000
6 8,086 4,846 150,000 9,120 5,880 150,000
7 9,531 6,651 150,000 10,794 7,914 150,000
8 11,000 8,480 150,000 12,512 9,992 150,000
9 12,491 10,331 150,000 14,274 12,114 150,000
10 14,003 12,203 150,000 16,079 14,279 150,000
11 15,578 14,138 150,000 18,074 16,634 150,000
12 17,170 16,090 150,000 20,129 19,094 150,000
13 18,771 18,051 150,000 22,241 21,521 150,000
14 20,372 20,012 150,000 24,405 24,045 150,000
15 21,968 21,968 150,000 26,621 26,621 150,000
20 29,572 29,572 150,000 38,415 38,415 150,000
AGE
70 35,737 35,737 150,000 64,196 64,196 150,000
75 23,154 23,154 150,000 75,543 75,543 150,000
80 0 0 0 82,667 82,667 150,000
85 0 0 0 79,156 79,156 150,000
90 0 0 0 42,743 42,743 150,000
**
- -----------------------------
(1) Assumes a $1,800.00 premium (which exceeds the Annualized Minimum Monthly
Premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient Cash Surrender Value.
* Cash Surrender Value includes the Sales Charge Refund.
** Policy terminates prior to Age 95.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE 6%
OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
<TABLE>
<CAPTION>
RELIASTAR 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%
GUARANTEED COSTS CURRENT COSTS
------------------------------------------- --------------------------------------------
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1 1,359 114* 150,000 1,501 256* 150,000
2 2,833 1,471* 150,000 3,139 1,777* 150,000
3 4,432 1,117 150,000 4,926 1,611 150,000
4 6,167 2,567 150,000 6,875 3,275 150,000
5 8,051 4,451 150,000 9,002 5,402 150,000
6 10,095 6,855 150,000 11,322 8,082 150,000
7 12,316 9,436 150,000 13,857 10,977 150,000
8 14,729 12,209 150,000 16,626 14,106 150,000
9 17,353 15,193 150,000 19,653 17,493 150,000
10 20,208 18,408 150,000 22,963 21,163 150,000
11 23,386 21,946 150,000 26,785 25,345 150,000
12 26,855 25,775 150,000 30,996 29,916 150,000
13 30,642 29,922 150,000 35,635 34,915 150,000
14 34,778 34,418 150,000 40,747 40,387 150,000
15 39,299 39,299 150,000 46,385 46,385 150,000
20 69,412 69,412 150,000 84,597 84,597 150,000
AGE
70 202,720 202,720 235,156 259,110 259,110 300,569
75 337,387 337,387 361,005 437,728 437,728 468,369
80 557,609 557,609 585,490 734,917 734,917 771,664
85 904,535 904,535 949,762 1,216,234 1,216,234 1,277,047
90 1,435,256 1,435,256 1,507,019 1,982,883 1,982,883 2,081,975
95 2,292,688 2,292,688 2,315,615 3,250,978 3,250,978 3,283,306
- ------------------------------
(1) Assumes a $1,800.00 premium (which exceeds the Annualized Minimum Monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient Cash Surrender Value.
* Cash Surrender Value includes the Sales Charge Refund.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
<TABLE>
<CAPTION>
RELIASTAR 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%
GUARANTEED COSTS CURRENT COSTS
------------------------------------------ -------------------------------------------
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1 1,184 0*** 151,184* 1,318 73*** 151,318
2 2,322 959*** 152,322 2,595 1,233*** 152,595
3 3,412 96 153,412 3,830 515 153,830
4 4,452 852 154,452 5,020 1,420 155,020
5 5,441 1,841 155,441 6,164 2,564 156,164
6 6,375 3,134 156,375 7,259 4,019 157,259
7 7,251 4,371 157,251 8,306 5,426 158,306
8 8,068 5,548 158,068 9,301 6,781 159,301
9 8,823 6,662 158,823 10,243 8,083 160,243
10 9,511 7,710 159,511 11,127 9,327 161,127
11 10,158 8,718 160,158 12,060 10,620 162,060
12 10,727 9,646 160,727 12,933 11,853 162,933
13 11,206 10,486 161,206 13,735 13,015 163,735
14 11,587 11,227 161,587 14,459 14,099 164,459
15 11,860 11,860 161,860 15,097 15,097 165,097
20 11,258 11,258 161,258 16,741 16,741 166,741
AGE
70 0 0 0 7,062 7,062 157,062
**
- -----------------------------
(1) Assumes a $1,800.00 premium (which exceeds the Annualized Minimum Monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient Cash Surrender Value.
* 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.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE 0%
OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
<TABLE>
<CAPTION>
RELIASTAR 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%
GUARANTEED COSTS CURRENT COSTS
------------------------------------------ -------------------------------------------
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1 1,270 24* 151,270 1,408 163* 151,408
2 2,566 1,203* 152,566 2,857 1,495* 152,857
3 3,888 573 153,888 4,345 1,030 154,345
4 5,235 1,634 155,235 5,873 2,273 155,873
5 6,603 3,003 156,603 7,439 3,839 157,439
6 7,990 4,750 157,990 9,041 5,801 159,041
7 9,394 6,513 159,394 10,681 7,801 160,681
8 10,811 8,291 160,811 12,355 9,835 162,355
9 12,238 10,078 162,238 14,063 11,903 164,063
10 13,671 11,871 163,671 15,801 14,001 165,801
11 15,149 13,708 165,149 17,711 16,271 167,711
12 16,622 15,542 166,622 19,663 18,583 169,663
13 18,079 17,359 168,079 21,647 20,927 171,647
14 19,508 19,148 169,508 23,656 23,296 173,656
15 20,896 20,896 170,896 25,685 25,685 175,685
20 26,726 26,726 176,726 35,807 35,807 185,807
AGE
70 21,682 21,682 171,682 49,212 49,212 199,212
75 0 0 0 42,435 42,435 192,435
80 0 0 0 13,894 13,894 163,894
**
- ------------------------------
(1) Assumes a $1,800.00 premium (which exceeds the Annualized Minimum Monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient Cash Surrender Value.
* Cash Surrender Value includes the Sales Charge Refund.
** Policy terminates prior to Age 85.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER,
AND THE DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE,
CASH SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY
AVERAGE 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT
AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR
BY THE FUNDS THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE
YEAR, OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE>
<TABLE>
<CAPTION>
RELIASTAR 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%
GUARANTEED COSTS CURRENT COSTS
------------------------------------------ --------------------------------------------
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1 1,356 110* 151,356 1,498 253* 151,498
2 2,821 1,458* 152,821 3,129 1,767* 153,129
3 4,406 1,090 154,406 4,905 1,590 154,905
4 6,119 2,519 156,119 6,836 3,236 156,836
5 7,972 4,371 157,972 8,937 5,337 158,937
6 9,972 6,731 159,972 11,220 7,980 161,220
7 12,132 9,252 162,132 13,705 10,825 163,705
8 14,466 11,945 164,466 16,408 13,888 166,408
9 16,986 14,825 166,986 19,348 17,188 169,348
10 19,706 17,905 169,706 22,544 20,744 172,544
11 22,709 21,268 172,709 26,215 24,775 176,215
12 25,953 24,873 175,953 30,233 29,153 180,233
13 29,455 28,734 179,455 34,623 33,903 184,623
14 33,227 32,866 183,227 39,417 39,057 189,417
15 37,287 37,287 187,287 44,649 44,649 194,649
20 62,630 62,630 212,630 78,907 78,907 228,907
AGE
70 146,512 146,512 296,512 212,786 212,786 362,786
75 208,271 208,271 358,271 334,170 334,170 484,170
80 279,935 279,935 429,935 515,071 515,071 665,071
85 352,203 352,203 502,203 784,341 784,341 934,341
90 398,244 398,244 548,244 1,189,618 1,189,618 1,339,618
95 372,942 372,942 522,942 1,813,159 1,813,159 1,963,159
- ------------------------------
(1) Assumes a $1,800.00 premium (which exceeds the Annualized Minimum Monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient Cash Surrender Value.
* Cash Surrender Value includes the Sales Charge Refund.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
APPENDIX D
MAXIMUM CONTINGENT DEFERRED SALES CHARGES
PER $1,000 OF FACE AMOUNT
<TABLE>
<CAPTION>
CHARGE PER $1,000
OF FACE CHARGE PER $1,000
AMOUNT (INITIAL OF FACE
FACE AMOUNT OR AMOUNT (INITIAL
AMOUNT OF FACE AMOUNT OR
REQUESTED AMOUNT OF REQUESTED
INSURED'S AGE AT POLICY INCREASE) INSURED'S AGE AT POLICY 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>
<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>
CHARGE PER $1,000
OF FACE CHARGE PER $1,000
AMOUNT (INITIAL OF FACE
FACE AMOUNT OR AMOUNT (INITIAL
AMOUNT OF FACE AMOUNT OR
REQUESTED AMOUNT OF REQUESTED
INSURED'S AGE AT POLICY INCREASE) INSURED'S AGE AT POLICY 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 $ 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>
<PAGE>
[LOGO] RELIASTAR
RELIASTAR LIFE INSURANCE COMPANY
20 Washington Avenue South
Minneapolis, Minnesota 55401
SELECT*LIFE III PROSPECTUS N700.181E (AUGUST 8, 1997)
<PAGE>
"REASONABLENESS" REPRESENTATION PURSUANT TO 26(e)(2)(A)
OF THE INVESTMENT COMPANY ACT OF 1940
Depositor represents that the fees and charges deducted under the flexible
premium variable life insurance policy, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by ReliaStar Life Insurance Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant has duly
caused this Post-Effective Amendment No. 7 to Registration Statement S-6 to be
signed on its behalf, in the City of Minneapolis, and State of Minnesota, on the
25th day of July, 1997.
SELECT*LIFE VARIABLE ACCOUNT
(Registrant)
By: RELIASTAR 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, Depositor has caused this
Post-Effective Amendment No. 7 to Registration Statement to be signed on its
behalf, in the City of Minneapolis and State of Minnesota, on this 25th day of
July, 1997.
RELIASTAR 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 Post-Effective Amendment No. 7
to the Registration Statement S-6 has been signed on this 25th day of July, 1997
by the following directors and officers of Depositor in the capacities
indicated:
SIGNATURE TITLE
--------- -----
/S/ JOHN G. TURNER Chairman and Chief Executive Officer
John G. Turner
/S/ WAYNE R. HUNEKE Senior Vice President and Chief Financial Officer
Wayne R. Huneke
/S/ CHRIS D. SCHREIER Second Vice President and Controller
Chris D. Schreier (Principal Accounting Officer)
R. Michael Conley Kenneth U. Kuk Donald L. Swanson
Richard R. Crowl William R. Merriam John G. Turner
John H. Flittie Robert C. Salipante Steven W. Wishart
Wayne R. Huneke
*A majority of the Board of Directors
*Robert B. Saginaw, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named directors of ReliaStar Life
Insurance Company pursuant to powers of attorney duly executed by such
persons.
/S/ ROBERT B. SAGINAW
Robert B. Saginaw, Attorney-In-Fact
<PAGE>
PART II
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 7 to the Registration Statement comprises the
following papers and documents:
The Facing Sheet.
The general form of Prospectus, consisting of 139 pages.
Undertakings to file reports.* (Filed in S-6EL24 on December 23, 1996, File
No. 33-65870, and incorporated herein by reference.)
Rule 484 Undertakings.*
Representation pursuant to Section 26(e)(2)(A). (Filed in S-6EL24 on
December 23, 1996, File No. 33-65870, and incorporated herein by reference.)
The signatures.
Written consents of the following persons;
1. Robert B. Saginaw -- Filed as part of EX-99.2.
2. Actuary's Consent -- Filed as EX-99.C6.
3. Independent Auditor's Consent of Deloitte & Touche, LLP. -- Filed as
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 as an Exhibit in S-6EL24 on December
23, 1996, File No. 333-18517, and incorporated herein by
reference.)
(2) Not applicable.
(3)(a) General Distributor Agreement between Washington Square
Securities Inc. and ReliaStar.* (Filed in S-6EL24 on December
23, 1996, File No. 333-18517, and incorporated herein by
reference.)
(b) Specimens of Selling Agreements.* (Filed in S-6EL24 on December
23, 1996, File No. 333-18517, and incorporated herein by
reference.)
(4) Not applicable.
(5) Form of Policy available (together with available Policy
riders). (Filed as Exhibit 1.A.5.
(6)(a) Amended Articles of Incorporation of ReliaStar Life Insurance
Company.* (Filed in S-6EL24 on December 23, 1996, File No.
333-18517, and incorporated herein by reference.)
(6)(b) Amended By-laws of ReliaStar Life Insurance Company.* (Filed in
S-6EL24 on December 23, 1996, File No. 333-18517, and
incorporated herein by reference.)
(7) Not applicable.
(8)(a) Participation Agreement with Fidelity's Variable Insurance
Products Fund and Fidelity Distributors Corporation and
Amendments Nos. 1-8.* (Filed in S-6EL24 on December 23, 1996,
File No. 333-18517, and incorporated herein by reference.)
(8)(b) Participation Agreement with Fidelity's Variable Insurance
Products Fund II and Fidelity Distributors Corporation and
Amendments Nos. 1-7.* (Filed in S-6EL24 on December 23, 1996,
File No. 333-18517, and incorporated herein by reference.)
<PAGE>
(8)(c) Form of Service Agreement and Contract between ReliaStar Life
Insurance Company, WSSI, and Fidelity Investments Institutional
Operations Company and Distributors Corporation dated January 1,
1997.* (Filed in S-6EL24/A on March 31, 1997, File No.
333-18517, and incorporated herein by reference.)
(8)(d) Participation Agreement with Putnam Capital Manager Trust and
Putnam Mutual Funds Corp. and Amendments Nos. 1-2.* (Filed in
S-6EL24 on December 23, 1996, File No. 333-18517, and
incorporated herein by reference.)
(8)(e) Form of Service Agreement by and between ReliaStar Life
Insurance Company and Janus Capital Corporation. (To be filed by
Post-Effective Amendment.)
(8)(f) Form of Service Agreement by and between ReliaStar Life
Insurance Company and Fred Alger Management, Inc. (To be filed
by Post-Effective Amendment.)
(8)(g) Form of Service Agreement by and between ReliaStar Life
Insurance Company and OpCap Advisors. (To be filed by
Post-Effective Amendment.)
(8)(h) Form of Service Agreement by and between ReliaStar Life
Insurance Company and Neuberger&Berman Management Incorporated
("NBMI"). (To be filed by Post-Effective Amendment.)
(8)(i) Form of Participation Agreement by and among ReliaStar Life
Insurance Company, Neuberger&Berman Advisers Management Trust,
Advisers Managers Trust and NBMI. (To be filed by Post-Effective
Amendment.)
(8)(j) Form of Participation Agreement by and between ReliaStar Life
Insurance Company and Janus Aspen Series. (To be filed by
Post-Effective Amendment.)
(8)(k) Form of Participation Agreement by and between ReliaStar Life
Insurance Company and Fred Alger Management, Inc., (To be filed
by Post-Effective Amendment.)
(8)(l) Form of Participation Agreement by and between ReliaStar Life
Insurance Company and OpCap Advisors. (To be filed by
Post-Effective Amendment.)
(9) Not applicable.
(10) Policy application.* (Filed in S-6EL24 on December 23, 1996,
File No. 333-18517, and incorporated herein by reference.)
2. Opinion and consent of Robert B. Saginaw, Esquire, as to the legality of
the Securities being registered. See EX-99.2.
3. Not applicable.
4. Not applicable.
EX-99.C1. Auditors' Consent.
EX-99.C2. Not applicable.
EX-99.C3. Not applicable.
EX-99.C4. See EX-99.2.
EX-99.C5. Not applicable.
EX-99.C6. Actuarial Opinion and Consent.
<PAGE>
EX-99.D1. Memorandum describing ReliaStar Life's issuance, transfer
and redemption procedures for the Policies and ReliaStar
Life's procedure for conversion to a fixed benefit policy.
(Filed in Post-Effective Amendment No. 4.)
EX-24. Powers of Attorney.* (Filed in S-6EL24 on December 23, 1996,
File No. 333-18517, and incorporated herein by reference.)
R. Michael Conley
Richard R. Crowl
John H. Flittie
Wayne R. Huneke
Kenneth U. Kuk
William R. Merriam
Robert C. Salipante
Donald L. Swanson
John G. Turner
Steven W. Wishart
EX-27. Financial Data Schedule as of December 31, 1996. (Filed as an
Exhibit in Select*Life Variable Account 485BPOS on April 14,
1997, Accession Number 0000912057-97-012813, CIK 0000897899
and incorporated herein by reference.) (Financial Data
Schedule as of March 31, 1997 to be filed in Post-Effective
Amendment.)
- ----------------------------
* Previously Filed
<PAGE>
INDEX TO EXHIBITS
1. EX-99.2 Opinion and Consent of Robert B. Saginaw as to the legality of
the securities being registered.
2. EX-99.C1 Deloitte & Touche LLP, Independent Auditors Consent.
3. EX-99.C6 Opinion of Craig A. Krogstad, Actuarial Opinion and Consent.
ROBERT B. SAGINAW
Counsel
Phone (612) 342-7346
Fax (612) 342-7531
EX-99.2
ATTORNEY OPINION AND CONSENT
July 25th, 1997
ReliaStar Life Insurance Company
20 Washington Avenue South
Minneapolis, MN 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 ReliaStar 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/ Robert B. Saginaw
Robert B. Saginaw
Counsel
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. 7 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 7, 1997 on the
audit of the financial statements of Select*Life Variable Account as of December
31, 1996 and for each of the three years in the period then ended, and our
report dated January 31, 1997, except for Note 14, as to which the date is
February 23, 1997 on the audit of the consolidated financial statements of
ReliaStar Life Insurance Company and subsidiaries as of and for the years ended
December 31, 1996 and 1995 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
July 23, 1997
EX-99.C6
July 25, 1997
ReliaStar Life Insurance Company
20 Washington Avenue South
Minneapolis, MN 55401
Madam/Sir:
This opinion is furnished in connection with the registration by ReliaStar Life
Insurance Company of a flexible premium variable life insurance policy (the
"Contract") under the Securities Act of 1933, as amended. The contract 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. 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
