<PAGE>
As filed with the Securities and Exchange Commission on March 28, 1997
Registration No. 333-18517
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 1 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)
-----------------------------------------
Richard R. Crowl
Senior Vice President, General 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
Approximate date of proposed public offering:
As soon as practicable after the effective date of the Registration Statement.
Flexible Premium Variable Life Insurance Policies -- Registration of an
indefinite amount of securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940.
-----------------------------------------
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
-----------------------------------------
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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
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Item Number of
Form N-8B-2 Heading in the Prospectus
- ----------- -------------------------
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
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
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Item Number of
Form N-8B-2 Heading in the Prospectus
- ------------ -------------------------
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
57 Not Applicable
58 Not Applicable
59 Not Applicable
<PAGE>
SURVIVORSHIP LIFE
APRIL 30, 1997 PROSPECTUS
SURVIVORSHIP FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
RELIASTAR (LOGO)
ReliaStar Life
<PAGE>
20 Washington Avenue South
Minneapolis, Minnesota 55401
-------------------------------
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICIES
ISSUED BY
SELECT*LIFE VARIABLE ACCOUNT
OF
RELIASTAR LIFE INSURANCE COMPANY
This Prospectus describes a survivorship 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, 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 Surviving Joint
Insured's death. As long as the Policy remains in force, the Death Benefit up to
age 100 of the younger Joint Insured will never be less than the current Face
Amount less any Policy loans and unpaid charges. After age 100 of the younger
Joint Insured the Death Benefit is equal to the Accumulation Value. The Minimum
Face Amount of the Policy is currently $250,000. 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
until the Average Age of the Joint Insureds reaches age 65 (or five Policy
Years, if longer), without regard to the Cash Surrender Value, if on each
Monthly Anniversary the total premiums paid on the Policy, less any partial
withdrawals and Policy loans, equals or exceeds the total required Minimum
Monthly Premium payments specified in your Policy (which is a feature of the
Policy called the "Death Benefit Guarantee").
Net premiums paid under the Policy are allocated, according to your
instructions, either to the Select*Life Variable Account (the "Variable
Account"), which is one of our separate accounts or to our General Account (the
"Fixed Account"). Any amounts allocated to the Variable Account will be
allocated to one or more Sub-Accounts of the Variable Account. The assets of
each Sub-Account will be invested solely in the shares of one of the five
portfolios of the Variable Insurance Products Fund ("VIP"), in one of the four
portfolios of the Variable Insurance Products Fund II ("VIP II"), in one of the
two funds available through the Northstar Variable Trust or in one of the six
funds available through Putnam Variable Trust (the "Funds"). The accompanying
prospectus for each of the Funds describes the investment objectives and
attendant risks of each of the Funds and portfolios.
(Continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE 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 APRIL XX, 1997.
46203
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If net premiums are allocated to the Variable Account, the amount of the
Policy's Death Benefit may, and the Policy's Accumulation Value (that is, the
total amount that a Policy provides for investment at any time) will, reflect
the investment performance of the Sub-Accounts of the Variable Account that you
select. You bear the entire investment risk for any amounts allocated to the
Variable Account; no minimum Accumulation Value in the Variable Account is
guaranteed. Regardless of how net premiums are allocated, the Policy's Death
Benefit may, and the Policy's Accumulation Value will, also depend upon the
frequency and amount of premiums paid, any partial withdrawals, 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 SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OR SOLICITATION IN ANY
JURISDICTION IN WHICH SUCH OFFERING OR SOLICITATION MAY NOT LAWFULLY BE MADE. NO
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING FUND PROSPECTUSES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS ENTIRE PROSPECTUS SHOULD BE READ TO COMPLETELY UNDERSTAND THE POLICY
BEING OFFERED.
THE PRIMARY PURPOSE OF THE POLICY IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY
SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
2
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<TABLE>
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DEFINITIONS...............................................................6
PART 1. SUMMARY
How does the Policy compare to traditional life insurance?................9
What is the Death Benefit?................................................9
What flexibility do you have to adjust the amount of the Death Benefit?...9
What is the Death Benefit Guarantee?......................................9
If the Death Benefit Guarantee is not in effect, what will cause the Policy
to lapse?...............................................................10
What is the Fixed Account?...............................................10
What is the Variable Account?............................................10
What are the minimum and maximum premium payments allowed?...............10
How are premiums allocated to the investment options?....................10
Who are the investment advisers of the Funds?............................10
What are the charges against the Variable Account?.......................10
What are the investment advisory fees and other fund expenses?...........11
What charges do we make against each premium payment?....................11
What charges do we make against the Accumulation Value?..................12
What charges do we make upon lapse or total surrender of the Policy?.....12
What is the value of the Policy if you surrender it?.....................12
Can you make partial withdrawals?........................................12
What are the free look and conversion rights?............................12
Can you transfer between the Sub-Accounts and/or the Fixed Account?......13
Can you borrow against the value of the Policy?..........................13
Are Death Benefit proceeds taxable income to the beneficiary?............13
Are Accumulation Value increases included in your taxable income?........13
Will exercising certain Policy rights have tax consequences?.............13
Who sells the Policies?..................................................13
PART 2. DETAILED INFORMATION
ReliaStar Life Insurance Company.........................................13
The Variable Account.....................................................13
Performance Information..................................................14
The Policies.............................................................15
Death Benefit............................................................15
Death Benefit Options..................................................15
Which Death Benefit Option to Choose...................................18
Requested Changes in Face Amount.......................................18
Insurance Protection...................................................19
Change in Death Benefit Option.........................................20
Payment and Allocation of Premiums.......................................20
Issuing the Policy.....................................................20
Allocation of Premiums.................................................21
Amount and Timing of Premiums..........................................22
Planned Periodic Premiums..............................................22
Unscheduled Additional Premiums........................................23
Paying Premiums by Mail................................................23
Death Benefit Guarantee..................................................23
Accumulation Value.......................................................24
Deductions and Charges...................................................24
Premium Expense Charge.................................................24
Monthly Deduction......................................................25
Surrender Charge.......................................................26
Partial Withdrawal and Transfer Charges................................27
Reduction of Charges...................................................27
Policy Lapse and Reinstatement...........................................27
Surrender Benefits.......................................................27
Total Surrender........................................................27
Partial Withdrawal.....................................................28
Transfers................................................................28
</TABLE>
3
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<TABLE>
<S> <C>
Policy Loans.............................................................30
Free Look and Conversion Rights..........................................32
Free Look Rights.......................................................32
Conversion Rights......................................................33
Investments of the Variable Account......................................33
Fidelity's Variable Insurance Products Fund (VIP):.....................34
Fidelity's Variable Insurance Products Fund II (VIP II):...............34
Northstar Variable Trust (Northstar):..................................34
Putnam Variable Trust..................................................35
Addition, Deletion, or Substitution of Investments.....................35
Voting Rights............................................................36
General Provisions.......................................................36
Benefits After Age 100.................................................36
Ownership..............................................................36
Proceeds...............................................................37
Beneficiary............................................................37
Postponement of Payments...............................................37
Settlement Options.....................................................37
Incontestability.......................................................38
Misstatement of Age and Sex............................................38
Suicide................................................................38
Termination............................................................39
Amendment..............................................................39
Reports................................................................39
Dividends..............................................................39
Collateral Assignment..................................................39
Optional Insurance Benefits............................................39
Federal Tax Matters......................................................40
Policy Proceeds........................................................40
Taxation of Distributions..............................................41
Taxation of Policies Held by Pension and Certain Deferred Compensation
Plans.................................................................42
Taxation of ReliaStar Life Insurance Company...........................42
Other Considerations...................................................42
Distribution of the Policies...........................................43
Management...............................................................43
Directors..............................................................43
Executive Officers.....................................................45
State Regulation.........................................................45
Montana Residents........................................................45
Legal Proceedings........................................................45
Bonding Arrangements.....................................................45
Legal Matters............................................................45
Experts..................................................................45
Registration Statement Contains Further Information......................46
Financial Statements.....................................................46
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 Surrender Charges Per $1,000 of
Face Amount.................................................D-1
Fund Prospectuses
Fidelity's Variable Insurance Products Fund (VIP):..................VIP-1
Money Market Portfolio............................................VIP-1
High Income Portfolio.............................................VIP-1
Equity-Income Portfolio...........................................VIP-1
Growth Portfolio..................................................VIP-1
Overseas Portfolio................................................VIP-1
</TABLE>
4
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<TABLE>
<S> <C>
Fidelity's Variable Insurance Products Fund II (VIP II):..........VIPII-1
Investment Grade Bond Portfolio.................................VIPII-1
Asset Manager Portfolio.........................................VIPII-1
Index 500 Portfolio.............................................VIPII-1
Contrafund Portfolio............................................VIPII-1
Northstar Variable Trust (Northstar):
Northstar Income and Growth Fund............................Northstar-1
Northstar Multi-Sector Bond Fund............................Northstar-1
Putnam Variable Trust:........................................Putnam VT-1
Putnam VT Asia Pacific Growth Fund..........................Putnam VT-1
Putnam VT Diversified Income Fund...........................Putnam VT-1
Putnam VT Growth and Income Fund............................Putnam VT-1
Putnam VT New Opportunities Fund............................Putnam VT-1
Putnam VT Utilities Growth and Income Fund..................Putnam VT-1
Putnam VT Voyager Fund......................................Putnam VT-1
</TABLE>
5
<PAGE>
DEFINITIONS
ACCUMULATION VALUE. The total value attributable to a specific Policy, which
equals the sum of the Variable Accumulation Value (the total of the values in
each Sub-Account of the Variable Account) and the Fixed Accumulation Value
(the value in the Fixed Account). See "Accumulation Value" at page 24 and
Appendix B.
AVERAGE AGE. The sum of the ages of the Joint Insureds divided by two rounded to
the higher age.
CASH SURRENDER VALUE. The Accumulation Value less any Surrender Charge, Loan
Amount and unpaid Monthly Deductions.
CASH VALUE. The Accumulation Value less any Surrender Charge.
CODE. Internal Revenue Code of 1986, as amended.
DEATH BENEFIT. The amount determined under the applicable Death Benefit Option
(the Level Amount Option or the Variable Amount Option). The proceeds payable to
the beneficiary of the Policy upon the death of the Surviving Joint Insured
under either Death Benefit Option will be reduced by any Loan Amount and any
unpaid Monthly Deductions. See "Death Benefit" at page 15.
DEATH BENEFIT GUARANTEE. A feature of the Policy guaranteeing that the Policy
will not lapse before the Average Age of the Joint Insureds reaches age 65 (or
five Policy Years, if longer) if, on each Monthly Anniversary, the total
premiums paid on the Policy, less any partial withdrawals and any Loan
Amount, equals or exceeds the total required Minimum Monthly Premium payments
specified in your Policy, including the Minimum Monthly Premium for the
current Monthly Anniversary. See "Death Benefit Guarantee" at page 23.
DEATH BENEFIT OPTION. Either of two death benefit options available under the
Policy (the Level Amount Option and the Variable Amount Option). See "Death
Benefit -- Death Benefit Options" at page 15.
FACE AMOUNT. The minimum Death Benefit under the Policy to age 100 of the
younger Joint Insured as long as the Policy remains in force. See "Death
Benefit" at page 15.
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 24 and Appendix B.
FUNDS. Any open-end management investment company (or portfolio thereof) or unit
investment trust (or series thereof) in which a Sub-Account invests as described
herein. See "Investments of the Variable Account" at page 33.
ISSUE DATE. The date insurance coverage under a Policy begins.
JOINT INSUREDS. The persons upon whose lives this Policy is issued.
LEVEL AMOUNT OPTION. One of two Death Benefit Options available under the
Policy. Under this option, the Death Benefit is the greater of the current Face
Amount or the Accumulation Value multiplied by the corridor percentage
according to the younger Joint Insured's attained age. After age 100 the
Death Benefit is equal to the Accumulation Value. See "Death Benefit -- Death
Benefit Options" at page 15.
LOAN AMOUNT. The sum of all unpaid Policy loans including unpaid interest due
thereon. See "Policy Loans" at page 30.
MINIMUM FACE AMOUNT. The minimum Face Amount shown in the Policy (currently
$250,000).
MINIMUM MONTHLY PREMIUM. A monthly premium amount specified in the Policy and
determined by us at issuance of the Policy. The initial Minimum Monthly Premium
will depend upon each Joint Insured's sex, age at issue, Rate Class, optional
insurance benefits added by rider, and the initial Face Amount. A requested
increase or decrease in the Face Amount, a change in the Death
6
<PAGE>
Benefit Option, or the addition or termination of a Policy rider may change
the Minimum Monthly Premium. The Minimum Monthly Premium determines the
payments required to maintain the Death Benefit Guarantee. See "Death Benefit
Guarantee" at page 23.
MONTHLY ANNIVERSARY. The same date in each succeeding month as the Policy Date.
Whenever the Monthly Anniversary falls on a date other than a Valuation Date,
the Monthly Anniversary will be considered to be the next Valuation Date. The
Monthly Anniversary begins with 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, the Monthly Guarantee
Death Benefit Charge, and any charges for optional insurance benefits. See
"Deductions and Charges -- Monthly Deduction" at page 25.
MONTHLY ADMINISTRATIVE CHARGE. A monthly charge to reimburse us for expenses
incurred in administering the Policy. This charge is part of the Monthly
Deduction. The amount of this charge is currently $8.25 per month and is
guaranteed not to exceed $12.00 per month. See "Deductions and Charges --
Monthly Deduction" at page 25.
MONTHLY GUARANTEE DEATH BENEFIT CHARGE. A monthly charge to compensate us for
the risk we assume in providing the Death Benefit Guarantee. This charge is
deducted for each Policy Month the Death Benefit Guarantee is in effect and
is part of the Monthly Deduction. The amount of this charge is $.03 per
$1,000 of Face Amount. See "Death Benefit Guarantee" at page 23 and
"Deductions and Charges -- Monthly Deduction" at page 25.
MONTHLY MORTALITY AND EXPENSE RISK CHARGE. A monthly charge to compensate us for
certain mortality and expense risks we assume under the Policy. The Mortality
and Expense Risk Charge will be an annual rate of .90 of 1% (.90%) of the
Variable Accumulation Value of the Policy during the first 10 Policy Years.
During each Policy Year thereafter, it is anticipated that the charge will be
an annual rate of .25 of 1% (.25%) guaranteed not to exceed .90 of 1% (.90%)
for the duration of the Policy. See "Deductions and Charges -- Monthly
Mortality and Expense Risk Charge" at page 25.
NET PREMIUM. The gross premium less a Premium Expense Charge deducted from each
premium.
NORTHSTAR. Northstar Variable Trust
Northstar Income and Growth Fund
Northstar Multi-Sector Bond Fund
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 22.
POLICY, POLICIES. The survivorship flexible premium variable life insurance
Policy offered by us and described in this Prospectus.
POLICY ANNIVERSARY. The same date in each succeeding year as the Policy Date.
Whenever the Policy Anniversary falls on a date other than a Valuation Date, the
Policy Anniversary will be considered to be the next Valuation Date.
POLICY DATE. The Policy Date is used in determining Policy Years, Policy Months,
Monthly Anniversaries, and Policy Anniversaries. The Policy Date will be shown
in the Policy.
POLICY MONTH. A month beginning on the Monthly Anniversary.
POLICY YEAR. A year beginning on the Policy Anniversary.
PREMIUM EXPENSE CHARGE. An amount deducted from each premium payment. The
Premium Expense Charge is guaranteed not to exceed 6.25% of each premium
payment. The Premium Expense
7
<PAGE>
Charge is currently 6.25% of each premium payment in Policy Years 1-10 and
3.75% of each premium after the tenth Policy Year. See "Deductions and
Charges -- Premium Expense Charge" at page 24.
RATE CLASS. A group of Insureds we determine based on our expectation that they
will have similar mortality experience.
SEC. Securities and Exchange Commission.
SIGNATURE GUARANTEE. A guarantee of your signature by a member firm of the New
York, American, Boston, Midwest, Philadelphia, or Pacific Stock Exchange, or by
a commercial bank (not a savings bank) which is a member of the Federal
Deposit Insurance Corporation, or, in certain cases, by a member firm of the
National Association of Securities Dealers, Inc. that has entered into an
appropriate agreement with us.
SUB-ACCOUNT. A sub-division of the Variable Account. Each Sub-Account invests
exclusively in the shares of a specified Fund.
SURRENDER CHARGE. A charge imposed upon total surrender or lapse of the Policy
during the first 15 Policy Years and the first 15 years following any requested
increase in Face Amount. See "Deductions and Charges -- Surrender Charge" at
page 26.
SURVIVING JOINT INSURED. The Joint Insured who remains alive after the other
Joint Insured has died.
UNIT VALUE. The unit measure by which the value of the Policy's interest in each
Sub-Account is determined. See Appendix B.
VALUATION DATE. Each day on which the New York Stock Exchange is open for
business except for a day that a Sub-Account's corresponding Fund does not value
its shares. The New York Stock Exchange is currently 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.
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 13.
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 24 and Appendix B.
VARIABLE AMOUNT OPTION. One of two Death Benefit Options available under the
Policy. Under this option, the Death Benefit is the greater of the Face Amount
plus the Accumulation Value of the Policy, or the Accumulation Value
multiplied by the corridor percentage on the Valuation Date on or next
following the date of the younger Joint Insured's death. After age 100 the
Death Benefit is equal to the Accumulation Value. See "Death Benefit -- Death
Benefit Options" at page 15.
VIP. Variable Insurance Products Fund
Money Market Portfolio
High Income Portfolio
Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
VIP II. Variable Insurance Products Fund II
Investment Grade Bond Portfolio
Asset Manager Portfolio
Index 500 Portfolio
Contrafund Portfolio
WE, US, OUR. ReliaStar Life Insurance Company.
YOU, YOUR. The Policy owner(s) as designated in the application for the Policy
or as subsequently changed. If a Policy has been absolutely assigned, the
assignee is the Policy owner. A collateral assignee is not the Policy owner.
8
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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 until the Average Age of the Joint Insureds
reaches age 65 (or five Policy Years, if longer).
- You can surrender the Policy while the Surviving Joint 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 Accumulation Value multiplied by the
corridor percentage according to the younger Joint Insured's attained age. The
Death Benefit under the Variable Amount Option is equal to the greater of the
Face Amount plus the Accumulation Value, or the Accumulation Value multiplied by
the corridor percentage according to the younger Joint Insured's attained age.
See "Death Benefit".
The proceeds payable upon the death of the Surviving Joint Insured under
either Death Benefit Option will be reduced by any Loan Amount and any unpaid
Monthly Deductions.
The Death Benefit up to age 100 of the younger Joint Insured will never be
less than the Face Amount as long as the Policy is in force and there is no Loan
Amount or unpaid Monthly Deductions. After age 100 the Death Benefit is the
Accumulation Value.
WHAT FLEXIBILITY DO YOU HAVE TO ADJUST THE AMOUNT OF THE DEATH BENEFIT?
After the second Policy Year, you have flexibility to adjust the Death
Benefit by increasing or decreasing the Face Amount. You cannot decrease the
Face Amount below the Minimum Face Amount shown in the Policy. Any increase in
the Face Amount must be at least $5,000 and may require additional evidence of
insurability satisfactory to us and will result in additional charges. See
"Death Benefit -- Requested Changes in Face Amount".
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?
Until the Average Age of the Joint Insureds reaches age 65 (or five Policy
Years, if longer), 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".
9
<PAGE>
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 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
corresponding to that Sub-Account. The Variable Accumulation Value of the Policy
will vary with, among other things, the investment performance of the Funds to
which Policy premiums are allocated and the charges deducted from the Variable
Accumulation Value. See "Accumulation Value".
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. If you do not choose a premium allocation on the application, the
premiums are allocated to the Money Market Portfolio until you change it. 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?
Fidelity Management & Research Company is the investment adviser of VIP's
five portfolios and of VIP II's four portfolios.
Northstar Investment Management Corporation, an affiliate of ours, is the
investment adviser of Northstar's two funds.
Putnam Investment Management, Inc. ("Putnam Management") is the investment
adviser of Putnam Variable Trust's six funds.
For the expenses of each Fund see "Deductions and Charges -- Charges against
the Variable Account".
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.
10
<PAGE>
WHAT ARE THE INVESTMENT ADVISORY FEES AND OTHER FUND EXPENSES?
Because the Variable Account purchases shares of the Funds, the net asset
value of the investments of the Variable Account will reflect the investment
advisory fees and other expenses incurred by the Funds. 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 that accompany this
Prospectus.
<TABLE>
<CAPTION>
TOTAL INVESTMENT
MANAGEMENT OTHER FUND ANNUAL
FEES EXPENSES EXPENSES
---------- -------- ----------------
<S> <C> <C> <C>
VIP Money Market Portfolio.... 0.21% 0.09% 0.30%
VIP High Income Portfolio
(a).......................... 0.59% 0.12% 0.71%
VIP Equity-Income Portfolio
(a).......................... 0.51% 0.07% 0.58%
VIP Growth Portfolio (a)...... 0.61% 0.08% 0.69%
VIP Overseas Portfolio (a).... 0.76% 0.17% 0.93%
VIP II Asset Manager Portfolio
(a).......................... 0.64% 0.10% 0.74%
VIP II Investment Grade Bond
Portfolio.................... 0.45% 0.13% 0.58%
VIP II Index 500 Portfolio
(b).......................... 0.13% 0.15% 0.28%
VIP II Contrafund Portfolio
(a).......................... 0.61% 0.13% 0.74%
Northstar Income and Growth
Fund (c)..................... 0.75% 0.05% 0.80%
Northstar Multi-Sector Bond
Fund (c)..................... 0.75% 0.05% 0.80%
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 (d).............. 0.69% 0.09% 0.78%
Putnam VT Voyager Fund........ 0.57% 0.06% 0.63%
</TABLE>
(a) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
on uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses presented
in the table would have been .56% for Equity Income Portfolio, .67% for
Growth Portfolio, .92% for Overseas Portfolio, .73% for Asset Manager
Portfolio, and .71% for Contrafund Portfolio.
(b) FMR agreed to reimburse a portion of Index 500 Portfolio's expenses during
the period. Without this reimbursement, the funds' management fee, other
expenses and total expenses would have been .28%, .15%, and .43%
respectively.
(c) The investment adviser to the Northstar Variable Trust has agreed to
reimburse the two 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 1.40% for Income and Growth Fund and 1.68% for Multi-Sector Bond Fund.
(d) On July 11, 1996, shareholders approved an increase in the fees payable to
Putnam Investment Management, Inc. ("Putnam Management") under the
Management Contract for Putnam VT Utilities Growth and Income Fund. The
management fees and total expenses shown in the table have been restated to
reflect the increase. Actual management fees and total expenses were 0.64%
and 0.73%, respectively.
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 6.25% of each premium payment. The Premium
Expense Charge is currently 6.25% of each premium payment in Policy Years 1-10
and 3.75% of each premium after the tenth Policy Year. See "Deductions and
Charges -- Premium Expense Charge".
11
<PAGE>
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, the Monthly Guarantee Death Benefit 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, it is currently
anticipated that this monthly charge will be one-twelfth of .25 of 1% (.25%) but
in no event will it exceed .90 of 1% (.90) 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 -- Partial Withdrawal and Transfer
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). See
"Deductions and Charges -- Surrender Charge" and Appendix D.
The Surrender Charge on the initial Face Amount will depend upon the initial
Face Amount and each Joint Insured's age on the Policy Date. The Surrender
Charge on any requested increase in Face Amount will depend upon the Face Amount
of the increase and each Joint Insured's age on the effective date of the
increase. This maximum charge then remains level during the first five years in
the relevant 15 year period, and then reduces in equal monthly increments until
it becomes zero at the end of 15 years.
The 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. See "Surrender Benefits -- Total Surrender".
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
midnight of the 10th day after you receive it.
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 during the first two Policy
Years by transferring all or part of the Accumulation Value of the Policy from
the Variable Account to the Fixed Account.
Similar free look and conversion rights will be available for requested
increases in the Face Amount.
12
<PAGE>
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 among the investment options of the Policy. We currently
allow up to twelve transfers per year. Transfers from the Fixed Account are
subject to certain additional restrictions. We reserve the right to limit you to
four transfers per year and to make a charge for each transfer. We currently
make no charge for each transfer. This charge is guaranteed not to exceed $25.00
per transfer. To the extent, however, that you request a transfer from the
Variable Account to the Fixed Account in connection with exercising your
conversion rights under the Policy (see "Free Look and Conversion Rights --
Conversion Rights"), the limit on the number of transfers and the charge will
not apply. See "Transfers".
CAN YOU BORROW AGAINST THE VALUE OF THE POLICY?
At any time after the first Policy Year, you can borrow up to 75% of the
Cash Value of the Policy less any existing Loan Amount. (In Texas, the
percentage is 100% and in Alabama, Maryland and Virginia, the percentage is 90%.
In Indiana you can borrow up to 75% of the Cash Value of the Policy during the
first Policy Year.) Each loan must be at least $500, except in Connecticut it
must be at least $200. Interest is payable in advance for each Policy Year and
accrues daily at an effective annual rate that will not exceed 8.00% (which is
7.40% when payable in advance). After the tenth Policy Year, we will charge
interest at an annual rate of 5.50% (which is 5.21% when payable in advance) on
the portion of your Loan Amount that is not in excess of (a) the Accumulation
Value, less (b) the total of all premiums paid net of all partial withdrawals.
See "Policy Loans".
ARE DEATH BENEFIT PROCEEDS TAXABLE INCOME TO THE BENEFICIARY?
Under current Federal tax law, as long as the Policy qualifies as life
insurance, the Death Benefit under the Policy will be subject to the same
Federal income tax treatment as proceeds of traditional life insurance.
Therefore, the Death Benefit should not be taxable income to the beneficiary.
See "Federal Tax Matters -- Policy Proceeds".
ARE ACCUMULATION VALUE INCREASES INCLUDED IN YOUR TAXABLE INCOME?
Under current Federal tax law, as long as the Policy qualifies as life
insurance, Accumulation Value increases will also be subject to the same Federal
income tax treatment as traditional life insurance cash values. Therefore, any
increases should accumulate on a tax deferred basis. See "Federal Tax Matters --
Policy Proceeds".
WILL EXERCISING CERTAIN POLICY RIGHTS HAVE TAX CONSEQUENCES?
A change of owners, a partial withdrawal, a total surrender, or a Policy
loan may have tax consequences depending on the particular circumstances. See
"Federal Tax Matters -- Policy Proceeds".
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. We are a direct, wholly-owned
subsidiary of ReliaStar Financial Corp., a Minneapolis based holding Company
whose subsidiaries specialize in life insurance and related financial services
businesses. We offer individual life insurance and annuities, employee benefits
and retirement contracts. The Policies described in this Prospectus are
nonparticipating. On a consolidated basis, ReliaStar Financial Corp. has $190
billion of life insurance in force and assets of $16.7 billion. Our Home Office
is at 20 Washington Avenue South, Minneapolis, Minnesota 55401 (telephone
612-372-5507).
THE VARIABLE ACCOUNT
The Variable Account is a Separate Account of ours, established by the Board
of Directors on October 11, 1984 pursuant to the laws of the State of Minnesota.
The Variable Account will receive and invest the Net Premiums paid and allocated
to it under this Policy. In addition, the Variable Account currently receives
and invests net premiums for other classes of flexible premium variable life
insurance policies and may do so for additional classes in the future. The
Variable Account meets the
13
<PAGE>
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.
We may receive compensation from an affiliate or affiliates of certain of
the Funds held in the Sub-Accounts based upon an annual percentage of the
average net assets held in that Sub-Account by us. These amounts are intended to
compensate us for administrative and other services provided by us to the Funds
and/or the affiliate(s). Payment of such amounts by an affiliate or affiliates
of the Funds do not increase the fees paid by the Funds or their shareholders.
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.
14
<PAGE>
We may also compare the performance of each Sub-Account in advertising and
sales literature to the Standard & Poor's Index of 500 common stocks and the Dow
Jones Industrials, which are widely used measures of stock market performance.
We may also compare the performance of each Sub-Account to other widely
recognized indices. Unmanaged indices may assume the reinvestment of dividends,
but typically do not reflect any "deduction" for the expense of operating or
managing an investment portfolio.
THE POLICIES
The Policies are survivorship flexible premium variable life insurance
contracts with death benefits, cash values, and other features of traditional
life insurance contracts. They are "flexible premium" because premiums do not
have to be paid according to a fixed schedule. They are "variable" because, to
the extent Accumulation Value is attributable to the Variable Account,
Accumulation Values and, under certain circumstances, the Death Benefit will
increase and decrease based on the investment performance of the Funds in which
the Sub-Accounts to which you allocate your premium payments invest.
DEATH BENEFIT
Like traditional life insurance, we pay a death benefit if the Surviving
Joint Insured dies while the Policy is in force. The proceeds payable upon the
death of the Surviving Joint Insured will be the Death Benefit (see "Death
Benefit Options" below) reduced by any Loan Amount and unpaid Monthly
Deductions. All or part of the proceeds may be paid in cash to your
beneficiaries or under one or more of the settlement options we offer (see
"General Provisions -- Settlement Options").
The Policy provides two Death Benefit Options: the Level Amount Option and
the Variable Amount Option. You choose the Death Benefit Option on the
application for the Policy. Subject to certain limitations, you can change the
Death Benefit Option after issuance of the Policy. See "Death Benefit -- Change
in Death Benefit Option".
The Death Benefit may vary with the Policy's Accumulation Value. Under the
Level Amount Option, the Death Benefit will only vary with the Accumulation
Value whenever the Accumulation Value multiplied by the corridor percentage (see
"Death Benefit Options -- Level Amount Option") exceeds the Face Amount of the
Policy. The Death Benefit under the Variable Amount Option will always vary with
the Accumulation Value because the Death Benefit equals the Face Amount plus the
Accumulation Value, or the corridor percentage of the Accumulation Value. Under
either Death Benefit Option, however, the Death Benefit to age 100 of the
younger Joint Insured will never be less than the current Face Amount of the
Policy and will be payable only as long as the Policy remains in force. After
age 100 the Death Benefit is the Accumulation Value.
In addition to affecting the amount of the Death Benefit as described above,
the Accumulation Value generally determines how long the Policy remains in
force. See "Policy Lapse and Reinstatement". This means that, to the extent
Accumulation Value is attributable to the Variable Account, the investment
performance of the Variable Account (and the underlying Funds) may affect the
duration of the Policy by affecting the amount of Accumulation Value. You bear
the investment risk with respect to any amounts allocated to the Variable
Account. If, however, the Death Benefit Guarantee is in effect (see "Death
Benefit Guarantee"), the Policy will stay in force until the Average Age of the
Joint Insureds reaches age 65 (or five Policy Years, if longer) 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 Accumulation Value multiplied by the corridor
percentage according to the younger Joint Insured's attained age. The corridor
percentage is 250% for the younger Joint Insured age 40 or below, and the
percentage declines with increasing ages as shown in the Corridor Percentage
Table on page 16. 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.
15
<PAGE>
ILLUSTRATION OF LEVEL AMOUNT OPTION. For purposes of this illustration,
assume that the younger Joint Insured is under age 40, and that there is no Loan
Amount. Under the Level Amount Option, a Policy with a $100,000 Face Amount will
generally have a $100,000 Death Benefit. However, because the Death Benefit must
be equal to or be greater than 250% of the Accumulation Value, any time the
Accumulation Value of the Policy exceeds $40,000, the Death Benefit will exceed
the $100,000 Face Amount. Each additional dollar added to the Accumulation Value
above $40,000 will increase the Death Benefit by $2.50. Thus, if the
Accumulation Value exceeds $40,000 and increases by $100 because of investment
performance or premium payments, the Death Benefit will increase by $250. A
Policy owner with an Accumulation Value of $50,000 will be entitled to a Death
Benefit of $125,000 ($50,000 X 250%); an Accumulation Value of $75,000 will
yield a Death Benefit of $187,500 ($75,000 X 250%); and an Accumulation Value of
$100,000 will yield a Death Benefit of $250,000 ($100,000 X 250%).
Similarly, as long as the Accumulation Value exceeds $40,000, each dollar
taken out of the Accumulation Value will reduce the Death Benefit by $2.50. If,
for example, the Accumulation Value is reduced from $75,000 to $70,000 because
of partial withdrawals, charges, or negative investment performance, the Death
Benefit will be reduced from $187,500 to $175,000. If at any time before the
younger Joint Insured's age 100, however, the Accumulation Value multiplied by
the corridor percentage is less than the Face Amount, the Death Benefit will
equal the current Face Amount of the Policy.
The corridor percentage becomes lower as the younger Joint Insured's age
increases. If the current age of the younger Joint Insured in the illustration
above were, for example, 50 (rather than under age 40), the corridor percentage
would be 185%. The Death Benefit would not exceed the $100,000 Face Amount
unless the Accumulation Value exceeded approximately $54,055 (rather than
$40,000), and each $1 then added to or taken from the Accumulation Value would
change the Death Benefit by $1.85 (rather than $2.50).
16
<PAGE>
CORRIDOR PERCENTAGE TABLE
<TABLE>
<CAPTION>
Younger Joint
Insured's Age on
Previous Policy Corridor Percentage
Anniversary of Accumulation Value
- ------------------------ -------------------------
<S> <C>
40 or younger 250%
41 243
42 236
43 229
44 222
45 215
46 209
47 203
48 197
49 191
50 185
51 178
52 171
53 164
54 157
55 150
56 146
57 142
58 138
59 134
60 130
61 128
62 126
63 124
64 122
65 120
66 119
67 118
68 117
69 116
70 115
71 113
72 111
73 109
74 107
75-90 105
91 104
92 103
93 102
94 101
95-100 100
</TABLE>
VARIABLE AMOUNT OPTION. The Death Benefit is equal to the greater of the
current Face Amount plus the Accumulation Value of the Policy, or the
Accumulation Value multiplied by the corridor percentage according to the
younger Joint Insured's attained age. The corridor percentage is 250% for the
younger Joint Insured age 40 or below, and the percentage declines with
increasing age as shown in the Corridor Percentage Table above. Accordingly,
under the Variable Amount Option the amount of the Death Benefit will always
vary as the Accumulation Value varies.
ILLUSTRATION OF VARIABLE AMOUNT OPTION. For purposes of this illustration,
assume that the younger Joint Insured is under age 40 and that there is no Loan
Amount. Under the Variable Amount Option, a Policy with a Face Amount of
$100,000 will generally pay a Death Benefit of $100,000 plus the Accumulation
Value. Thus, for example, a Policy with an Accumulation Value of $20,000 will
have a
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Death Benefit of $120,000 ($100,000 + $20,000); an Accumulation Value of $40,000
will yield a Death Benefit of $140,000 ($100,000 + $40,000). The Death Benefit,
however, must be at least 250% of the Accumulation Value. As a result, if the
Accumulation Value of the Policy exceeds approximately $66,667, the Death
Benefit will be greater than the Face Amount plus the Accumulation Value. Each
additional dollar of the Accumulation Value above $66,667 will increase the
Death Benefit by $2.50. Thus, if the Accumulation Value exceeds $66,667 and
increases by $100 because of investment performance or premium payments, the
Death Benefit will increase by $250. A Policy owner with an Accumulation Value
of $75,000 will be entitled to a Death Benefit of $187,500 ($75,000 X 250%); an
Accumulation Value of $100,000 will yield a Death Benefit of $250,000 ($100,000
X 250%); and an Accumulation Value of $125,000 will yield a Death Benefit of
$312,500 ($125,000 X 250%).
Similarly, any time the Accumulation Value exceeds $66,667, each dollar
taken out of the Accumulation Value will reduce the Death Benefit by $2.50. If,
for example, the Accumulation Value is reduced from $75,000 to $70,000 because
of partial withdrawals, charges, or negative investment performance, the Death
Benefit will be reduced from $187,500 to $175,000. If at any time before the
younger Joint Insured's age 100, however, the Accumulation Value multiplied by
the corridor percentage is less than the Face Amount plus the Accumulation
Value, then the Death Benefit will be the current Face Amount plus the
Accumulation Value of the Policy. The Death Benefit after age 100 is the
Accumulation Value.
The corridor percentage becomes lower as the younger Joint Insured's age
increases. If the current age of the younger Joint Insured in the illustration
above were, for example, 50 (rather than under 40), the corridor percentage
would be 185%. The amount of the Death Benefit would be the sum of the
Accumulation Value plus $100,000 unless the Accumulation Value exceeded
approximately $117,647 (rather than $66,667), and each $1 then added to or taken
from the Accumulation Value would change the Death Benefit by $1.85 (rather than
$2.50).
WHICH DEATH BENEFIT OPTION TO CHOOSE
If you prefer to have premium payments and favorable investment performance
reflected partly in the form of an increasing Death Benefit, you should choose
the Variable Amount Option. If you are satisfied with the amount of your
existing insurance coverage and prefer to have premium payments and favorable
investment performance reflected to the maximum extent in the Accumulation
Value, you should choose the Level Amount Option.
REQUESTED CHANGES IN FACE AMOUNT
Subject to certain limitations, you may request an increase or decrease in
the Face Amount. No increase or decrease in the Face Amount will be permitted
during the first two Policy Years.
INCREASES. For an increase in the Face Amount, a written request must be
submitted to us. We may also require additional evidence of insurability
satisfactory to us. The effective date of the increase will be the Monthly
Anniversary on or next following our approval of the increase. The increase may
not be less than $5,000 and no increase will be permitted after any Joint
Insured reaches age 85. You cannot request an increase in the Face Amount more
frequently than once every two years. We will deduct any charges associated with
the increase (the increases in the cost of insurance and the Surrender Charge
upon lapse or total surrender -- see "Effect of Requested Changes in Face
Amount") from the Accumulation Value, whether or not you pay an additional
premium in connection with the increase. You will be entitled to limited free
look and conversion rights and refund rights with respect to requested increases
in Face Amount. See "Free Look and Conversion Rights".
DECREASES. For a decrease in the Face Amount, a written request must also be
submitted to us. Any decrease in the Face Amount will be effective on the
Monthly Anniversary on or next following our receipt of a written request. You
cannot request a decrease in the Face Amount more frequently than once every six
months. The Face Amount remaining in force after any requested decrease may not
be less than the Minimum Face Amount shown in the Policy. Under our current
policies, the Minimum Face Amount is $250,000, but we reserve the right to
establish a different Minimum Face Amount in the future. If, following a
decrease in Face Amount, the Policy would no longer qualify as life insurance
under Federal tax law (see "Federal Tax Matters -- Policy Proceeds"), the
decrease will be limited to the extent necessary to meet these requirements.
For purposes of determining the cost of insurance, decreases in the Face
Amount will be applied to reduce the current Face Amount in the following order:
(a) The Face Amount provided by the most recent increase;
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(b) The next most recent increases successively; and
(c) The Face Amount when the Policy was issued.
By reducing the current Face Amount in this manner, the Rate Class
applicable to the most recent increase in Face Amount will be eliminated first,
then the Rate Class applicable to the next most recent increase, and so on, for
the purposes of calculating the cost of insurance. This assumption will affect
the cost of insurance under the Policy only if different Rate Classes have been
applied to the current Face Amount. A Rate Class is a group of Insureds we
determine based upon our expectation that they will have similar mortality
experience. We currently place Insureds into standard Rate Classes or into
substandard Rate Classes that involve a higher mortality risk (for example, a
200% Rate Class or a 300% Rate Class). In an otherwise identical Policy, an
Insured in the standard Rate Class will have a lower cost of insurance than an
Insured in a substandard Rate Class with higher mortality risks. See "Deductions
and Charges -- Monthly Deduction".
For example, assume that the initial Face Amount was $50,000 with a standard
Rate Class, and that successive increases of $25,000 (at a Rate Class of 200%)
and $50,000 (at a Rate Class of 300%) were added. If a decrease of $50,000 or
less is requested, the amount of insurance at a 300% Rate Class will be reduced
first. If a decrease of more than $50,000 is requested, the amount at a 300%
Rate Class will be eliminated, and the excess over $50,000 will next reduce the
amount of insurance at a 200% Rate Class.
EFFECT OF REQUESTED CHANGES IN FACE AMOUNT. An increase or decrease in Face
Amount will affect the Monthly Deduction because the cost of insurance 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. See "Policy
Lapse and Reinstatement -- Lapse" and "Death Benefit Guarantee".
INSURANCE PROTECTION
You may increase or decrease the pure insurance protection provided by the
Policy (that is, the difference between the Death Benefit and the Accumulation
Value) in one of several ways as your insurance needs change. These ways include
increasing or decreasing the Face Amount of insurance, changing the level of
premium payments, and, to a lesser extent, making a partial withdrawal under the
Policy. Although the consequences of each of these methods will depend upon the
individual circumstances, they may be generally summarized as follows:
(a) A decrease in the Face Amount will, subject to the corridor percentage
limitations (see "Death Benefit -- Death Benefit Options"), decrease the
pure insurance protection without reducing the Accumulation Value. If the
Face Amount is decreased, the Policy charges generally will decrease as
well. (Note that the Surrender Charge will not be reduced. See "Deductions
and Charges -- Surrender Charge".)
(b) An increase in the Face Amount (which is generally subject to underwriting
approval -- see "Death Benefit -- Requested Changes in Face Amount") will
likely increase the amount of pure insurance protection, depending on the
amount of Accumulation Value and the resultant corridor percentage
limitation. If the insurance protection is increased, the Policy charges
generally will increase as well.
(c) A partial withdrawal will reduce the Death Benefit. See "Surrender Benefits
-- Partial Withdrawal". However, it has a limited effect on the amount of
pure insurance protection and charges under the Policy, because the decrease
in the Death Benefit is usually equal to the amount of
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Accumulation Value withdrawn. The primary use of a partial withdrawal is to
withdraw Accumulation Value. Furthermore, it results in a reduced amount of
Accumulation Value and increases the possibility that the Policy will lapse.
(d) Under the Level Amount Option, until the corridor percentage of Accumulation
Value exceeds the Face Amount, (i) an increased level of premium payments
will reduce the amount of pure insurance protection, and (ii) a reduced
level of premium payments will increase the amount of pure insurance
protection.
(e) Under the Variable Amount Option, until the corridor percentage of
Accumulation Value exceeds the Face Amount plus the Accumulation Value, the
level of premium payments will not affect the amount of pure insurance
protection. (However, both the Accumulation Value and the Death Benefit will
be increased if premium payments are increased, and reduced if premium
payments are reduced.)
(f) Under either Death Benefit Option, if the Death Benefit is the corridor
percentage of Accumulation Value, then (i) an increased level of premium
payments will increase the amount of pure insurance protection (subject to
underwriting approval -- see "Payment and Allocation of Premiums -- Amount
and Timing of Premiums"), and (ii) a reduced level of premium payments will
reduce the pure insurance protection.
THE TECHNIQUES DESCRIBED IN THIS SECTION FOR CHANGING THE AMOUNT OF PURE
INSURANCE PROTECTION UNDER THE POLICY (FOR EXAMPLE, CHANGING THE FACE
AMOUNT, MAKING A PARTIAL WITHDRAWAL, AND CHANGING THE AMOUNT OF PREMIUM
PAYMENTS) MUST BE CONSIDERED TOGETHER WITH THE OTHER RESTRICTIONS AND
CONSIDERATIONS DESCRIBED ELSEWHERE IN THIS PROSPECTUS.
CHANGE IN DEATH BENEFIT OPTION
After the first two Policy Years and at least two years after any increase
in Face Amount, you may change the Death Benefit Option once each Policy Year.
You must submit a written request to change the Death Benefit Option. The change
is effective on the Monthly Anniversary on or next following the date we receive
your request. A change in the Death Benefit Option will also change the Face
Amount. If the Death Benefit Option is changed from the Level Amount Option to
the Variable Amount Option, the Face Amount will be decreased by an amount equal
to the Accumulation Value on the effective date of the change. You cannot change
from the Level Amount Option to the Variable Amount Option if the resulting Face
Amount would fall below the Minimum Face Amount.
If the Death Benefit Option is changed from the Variable Amount Option to
the Level Amount Option, the Face Amount will be increased by an amount equal to
the Policy's Accumulation Value on the effective date of the change.
An increase or decrease in Face Amount resulting from a change in the Death
Benefit Option will affect the future Monthly Deductions because the cost of
insurance depends upon the Face Amount. The charge for certain optional
insurance benefits may also be affected. See "Deductions and Charges -- Monthly
Deduction". 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 may require additional evidence of
insurability.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUING THE POLICY
To apply for a Policy, both individuals must complete the application and
personally deliver it to our licensed agent. We will generally only issue a
Policy to an applicant where both Joint Insureds' ages are 85 or less and both
supply evidence of insurability satisfactory to us. Acceptance is subject to our
underwriting rules and we reserve the right to reject an application for any
reason permitted by law.
COVERAGE. Coverage under a Policy begins on the later of the Issue Date or
the date we receive at least the minimum initial premium (see immediately
following section). In general, if the applicant pays at least the minimum
initial premium with the application, the Issue Date will be the later of the
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date of the application or the date of any medical examination required by our
underwriting procedures. However, if underwriting approval has not occurred
within 45 days after we receive the application or if you authorize premiums to
be paid by bank account monthly deduction, the Issue Date will be the date of
underwriting approval.
If you authorize premiums to be paid by government allotment, the Issue Date
generally will be, subject to our underwriting approval, the first day of the
month in which we receive the first Minimum Monthly Premium through government
allotment, whether or not a Minimum Monthly Premium is collected with the
application. If a Minimum Monthly Premium is collected with the application, it
will be allocated to the Sub-Accounts of the Variable Account and the Fixed
Account on the Valuation Date next following the Issue Date.
MINIMUM INITIAL PREMIUM. The minimum initial premium is three Minimum
Monthly Premiums. See "Death Benefit Guarantee". If, however, you authorize
premiums to be paid by bank account monthly deduction or government allotment,
we will accept one Minimum Monthly Premium together with the required
authorization forms. The Minimum Monthly Premium is specified in the Policy and
determines the payments required to maintain the Death Benefit Guarantee.
TEMPORARY INSURANCE. At the time the application is taken, the applicant can
receive temporary insurance coverage by paying a premium equal to 10% of
annualized Minimum Monthly Premium. The temporary insurance will be for the face
amount specified in the premium receipt and will be effective until the earliest
of the following:
- The date the coverage under the Policy is effective.
- The date the applicant receives an offer for an alternative policy, a
notice of termination of temporary insurance coverage, or notice that we
have rejected the application.
- The date of death of the proposed Surviving Joint Insured or any proposed
additional Joint Insured.
- The 180th day after the date of the receipt for the temporary insurance.
CREDITING NET PREMIUMS. We will credit Net Premiums to the Sub-Accounts of
the Variable Account and to the Fixed Account on the basis of the applicant's
allocation on the latest of the following dates:
- 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(s) that the insurance is declined.
- The applicant(s) refuses an offer for an alternative policy.
- The applicant(s) does not supply required medical exams or tests within 30
days of the date of the application.
- The applicant(s) returns the Policy under the limited free look right. See
"Free Look and Conversion Rights -- Free Look Rights".
ALLOCATION OF PREMIUMS
You choose the initial allocation of your Net Premiums (your gross premiums
less the Premium Expense Charge) to the Fixed Account and the Sub-Accounts of
the Variable Account on the application for the Policy. If you do not indicate
the initial allocation of your Net Premium on the application
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for the Policy, your Net Premium will be allocated to the Money Market
Portfolio. You may change the allocation at any time by notifying us in writing.
Changes will not be effective until the date we receive your request and will
only affect premiums we receive on or after that date. The premium allocation
may be 100% to the Fixed Account or the Sub-Accounts or divided among the Fixed
Account and the Sub-Accounts in whole percentage points totaling 100%. We
reserve the right to adjust any allocation to eliminate fractional percentages.
Changing the current Net Premium allocation will not affect the allocation of
existing Accumulation Value.
AMOUNT AND TIMING OF PREMIUMS
The amount and frequency of premium payments will affect the Accumulation
Value, the Cash Surrender Value, and how long the Policy will remain in force
(including affecting whether the Death Benefit Guarantee is in effect ). See
"Death Benefit Guarantee". After the initial premium, you may determine the
amount and timing of subsequent premium payments within the following
restrictions:
- 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 lives of the Joint Insureds for the
Policy, whether such payments are received on a Policy or on any other
insurance policy issued by us or our affiliates. Also, we will not accept
any premium payment in excess of $50,000 on any Policy after the first
Policy Year. At our discretion, however, we may waive any of these premium
limitations.
- 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".
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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
DEATH BENEFIT GUARANTEE
If you meet the requirements described below, we guarantee that we will not
lapse the Policy even if the Cash Surrender Value is not sufficient to cover the
Monthly Deduction that is due. This feature of the Policy is called the "Death
Benefit Guarantee". The Death Benefit Guarantee expires when the Average Age of
the Joint Insureds is 65 (or five Policy Years, if longer).
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 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. In this regard,
you should consider that if you request an increase in Face Amount, an
additional Surrender Charge would apply for the fifteen years following the
increase, which could create a similar possibility of lapse as exists during the
early Policy Years. Second, to the extent the Cash Surrender Value declines due
to poor investment performance, or due to an additional Surrender Charge after a
requested increase, the Cash Surrender Value may not be sufficient even in later
Policy Years to cover the Monthly Deduction, so that the Death Benefit Guarantee
may also be necessary in later Policy Years to avoid lapse of the Policy. THUS,
EVEN THOUGH THE POLICY PERMITS PREMIUM PAYMENTS THAT ARE LESS THAN THE MINIMUM
MONTHLY PREMIUMS, YOU MAY LOSE THE SIGNIFICANT PROTECTION PROVIDED BY THE DEATH
BENEFIT GUARANTEE BY PAYING LESS THAN THE MINIMUM MONTHLY PREMIUMS.
REQUIREMENTS
The Death Benefit Guarantee will be in effect 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
$1000 per month. No Policy loans or partial withdrawals are taken and no Face
Amount changes have occurred.
Case 1. You pay $1000 each month. The Death Benefit Guarantee is maintained.
Case 2. You pay $10,000 on January 1, 1997. The $10,000 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 $1000 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 each Joint Insured's sex, age at issue, Rate
Class, optional insurance benefits added by rider, and the initial Face Amount.
The following Policy changes may change the Minimum Monthly Premium:
- 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").
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- The addition or termination of a Policy rider (see "General Provisions --
Optional Insurance Benefits").
We will notify you in writing of any changes in the Minimum Monthly Premium.
If, as of any Monthly Anniversary, you have not made sufficient premium
payments to maintain the Death Benefit Guarantee, we will send you notice of the
premium payment required to maintain it. If we do not receive the required
premium payment within 61 days from the date of our notice, the Death Benefit
Guarantee will terminate. THE DEATH BENEFIT GUARANTEE CANNOT BE REINSTATED.
Even if the Death Benefit Guarantee terminates, the Policy will not
necessarily lapse. For a discussion of the circumstances under which the Policy
may lapse. See "Policy Lapse and Reinstatement".
ACCUMULATION VALUE
The Accumulation Value of the Policy (that is, the total value attributable
to a specific Policy in the Variable Account and the Fixed Account) is equal to
the sum of the Variable Accumulation Value (the amount attributable to the
Variable Account) plus the Fixed Accumulation Value (the amount attributable to
the Fixed Account). The Accumulation Value should be distinguished from the Cash
Surrender Value that would actually be paid to you upon total surrender of the
Policy, which is the Accumulation Value less any Surrender Charge, Loan Amount
and unpaid Monthly Deductions. See "Surrender Benefits -- Total Surrender". The
Accumulation Value should also be distinguished from the Cash Value, which
determines the amount available for Policy loans, and is the Accumulation Value
less any Surrender Charge. See "Policy Loans."
The Variable Accumulation Value will increase or decrease to reflect the
investment performance of the Funds in which Sub-Accounts of the Variable
Account have been invested. The Variable Accumulation Value will also be
increased by (a) any Net Premiums credited to the Variable Account and (b) any
transfers from the Fixed Account. The Variable Accumulation Value will also be
reduced by (a) the Monthly Deduction attributable to the Variable Account, (b)
partial withdrawals from the Variable Account, (c) any transfer and partial
withdrawal charges attributable to the Variable Account, and (d) any amounts
transferred from the Variable Account to the Fixed Account (including amounts
transferred from the Variable Account to the Fixed Account as security for
Policy loans ). See "Policy Loans". The Variable Accumulation Value will
generally vary daily.
The Fixed Accumulation Value will be increased by (a) any Net Premiums
credited to it in the Fixed Account, (b) any interest credited to it in the
Fixed Account (determined at our discretion, but guaranteed not to be less than
4%), and (c) any amounts transferred from the Variable Account to it in the
Fixed Account (including amounts transferred to the Fixed Account as security
for Policy loans ). See "Policy Loans". The Fixed Accumulation Value will be
reduced by (a) the Monthly Deduction attributable to it in the Fixed Account,
(b) partial withdrawals from it in the Fixed Account, (c) any transfer and
partial withdrawal charges attributable to it in the Fixed Account, and (d) any
amounts transferred from the Fixed Account to the Variable Account.
For a detailed discussion of the calculation of Accumulation Value, see
Appendix B. An illustration of various Accumulation Values, Surrender Charges,
Cash Surrender Values, and Death Benefits, assuming different levels of premium
payments and various investment returns for selected ages and Face Amounts, is
shown in Appendix C.
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 the Premium Expense Charge from each premium. The Premium Expense
Charge is guaranteed not to exceed 6.25% of each premium payment. The Premium
Expense Charge is currently
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6.25% of each premium payment in Policy Years 1-10 and 3.75% of each premium
after the tenth Policy Year. The amount remaining after we have deducted the
Premium Expense Charge is called the Net Premium. The Net Premium is then
credited to the Fixed Account and the Sub-Accounts of the Variable Account
according to your allocation.
MONTHLY DEDUCTION
We deduct the charges described below from the Accumulation Value of the
Policy on a monthly basis. The total of these charges is called the Monthly
Deduction.
The Monthly Deduction will be deducted on each Monthly Anniversary from the
Fixed Account and the Sub-Accounts of the Variable Account on a proportionate
basis depending on their relative Accumulation Values at that time. For purposes
of determining these proportions, the Fixed Accumulation Value is reduced by the
Loan Amount. Because the cost of insurance portion of the Monthly Deduction can
vary from month to month, the Monthly Deduction itself will vary in amount from
month to month.
If the Cash Surrender Value is not sufficient to cover the Monthly Deduction
on a Monthly Anniversary and the Death Benefit Guarantee is not in effect, the
Policy may lapse. See "Death Benefit Guarantee" and "Policy Lapse and
Reinstatement".
COST OF INSURANCE. We will determine the monthly cost of insurance by
multiplying the applicable cost of insurance rate or rates by the net amount at
risk under the Policy. The net amount at risk under the Policy for a Policy
Month is (a) the Death Benefit at the beginning of the Policy Month divided by
1.00327374 (which reduces the net amount at risk, solely for purposes of
computing the cost of insurance, by taking into account assumed monthly earnings
at an annual rate of 4%), less (b) the Accumulation Value at the beginning of
the Policy Month (reduced by any charges for rider benefits). As a result, the
net amount at risk may be affected by changes in the Accumulation Value or in
the Death Benefit.
The Rate Class of any Joint Insured may affect the cost of insurance. A Rate
Class is a group of Insureds we determine based upon our expectation that they
will have similar mortality experience. We currently place Insureds into
standard Rate Classes or into substandard Rate Classes that involve a higher
mortality risk. In an otherwise identical Policy, any Insured in the standard
Rate Class will have a lower cost of insurance than any Insured in a Rate Class
with higher mortality risks.
If there is an increase in the Face Amount and the Rate Class applicable to
the increase is different from that for the initial Face Amount or any prior
requested increases in Face Amount, the net amount at risk will be calculated
separately for each Rate Class. For purposes of determining the net amount at
risk for each Rate Class, the Accumulation Value will first be assumed to be
part of the initial Face Amount. If the Accumulation Value is greater than the
initial Face Amount, it will then be assumed to be part of each increase in
order, starting with the first increase.
Cost of insurance rates will be based on the sex, Issue age, Policy Year and
Rate Class(es) of each Joint Insured. The actual monthly cost of insurance rates
will reflect our expectations as to future experience. They will not, however,
be greater than the guaranteed cost of insurance rates shown in the Policy,
which are based on the Commissioner's 1980 Standard Ordinary Mortality Tables
for Smokers or Nonsmokers, respectively.
MONTHLY ADMINISTRATIVE CHARGE. Each month we deduct an administrative charge
of $8.25 which is guaranteed not to exceed $12.00 each month.
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, it is
currently anticipated that we will deduct this charge at an annual rate of .25
of 1% (.25%) of the Variable Accumulation Value but in no event will it exceed
.90 of 1% (.90%) for the duration of the Policy.
The mortality risk assumed is that Joint 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.
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MONTHLY GUARANTEE DEATH BENEFIT CHARGE. A monthly charge for providing the
Death Benefit Guarantee. This charge is part of the Monthly Deduction and is
deducted for each Policy Month the Death Benefit Guarantee is in effect. The
amount of this charge is $.03 per $1,000 of Face Amount. See "Death Benefit
Guarantee".
OPTIONAL INSURANCE BENEFIT CHARGES. Each month we deduct charges for any
optional insurance benefits added to the Policy by rider. See "General
Provisions -- Optional Insurance Benefits".
SURRENDER CHARGE
GENERAL. During the first 15 Policy Years and during the first 15 years
following any requested increase in Face Amount, we make a Surrender Charge if
you surrender the Policy or the Policy lapses. The Surrender Charge will not be
affected by any decrease in Face Amount or by any change in Face Amount
resulting from a change in the Death Benefit Option.
The Surrender Charge imposed upon early surrender or lapse will be
significant. For example, if you make premium payments no greater than the
Minimum Monthly payments specified in your Policy, you can expect that during at
least the early Policy Years, all or substantially all of your premium payments
will be required to pay the Surrender Charge and other charges associated with
the Policy. As a result, you should purchase a Policy only if you have the
financial capability to keep it in force for a substantial period of time.
SURRENDER CHARGE. The maximum Surrender Charge for the initial Face Amount
or any requested increase in Face Amount will be determined on the Policy Date
or on the effective date of any requested increase respectively. The Surrender
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. The Surrender Charge will vary depending upon each Joint
Insured's age (on the Policy Date or on the effective date of an increase in
Face Amount).
SURRENDER CHARGE CALCULATION. The Surrender 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
below, and then dividing this amount by 1000.
SURRENDER CHARGE PERCENTAGE TABLE
<TABLE>
<CAPTION>
The following percentage
of the
Surrender Charge will be
If surrender or lapse occurs payable for:
in Initial
the last month of Policy Face Face Amount
Year:* Amount** Increases
- ---------------------------- ---------- ------------
<S> <C> <C>
1 100% 33%
2 100% 67%
3 100% 100%
4 100% 100%
5 100% 100%
6 90% 90%
7 80% 80%
8 70% 70%
9 60% 60%
10 50% 50%
11 40% 40%
12 30% 30%
13 20% 20%
14 10% 10%
15 and later 0% 0%
</TABLE>
*For requested increases, years are measured from the date of the increase.
**The percentages reduce equally for each Policy Month during the years shown.
For example, during the eleventh Policy Year, the percentage reduces equally
each month from 50% at the end of the tenth Policy Year to 40% at the end of
the eleventh Policy Year.
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PARTIAL WITHDRAWAL AND TRANSFER CHARGES
We currently make no charge for transfers and a $10.00 charge for each
partial withdrawal. These charges are guaranteed not to exceed $25.00 per
transfer or partial withdrawal for the duration of the Policy. The transfer
charge will not be imposed on transfers that occur as a result of Policy loans
or the exercise of conversion rights.
REDUCTION OF CHARGES
Any of the charges under the Policy, as well as the Minimum Face Amount set
forth in this Prospectus, may be reduced because of special circumstances that
result in lower sales, administrative, or mortality expenses. For example,
special circumstances may exist in connection with group sales to our
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.
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 is less than the Monthly
Deduction due, and a grace period of 61 days expires without a sufficient
payment.
During the early Policy Years, the Cash Surrender Value will generally not
be sufficient to cover the Monthly Deduction, so that premium payments
sufficient to maintain the Death Benefit Guarantee will be required to avoid
lapse. See "Death Benefit Guarantee".
The Policy does not lapse, and the insurance coverage continues, until the
expiration of a 61-day grace period which begins on the date we send you written
notice indicating that the Cash Surrender Value is less than the Monthly
Deduction due. Our written notice to you will indicate the amount of the payment
required to avoid lapse. Failure to make a sufficient payment within the grace
period will result in lapse of the Policy without value.
If the Surviving Joint Insured dies during the grace period, the proceeds
payable will equal the amount of the Death Benefit on the Valuation Date on or
next following the date of the Surviving Joint Insured's death, reduced by any
Loan Amount and any unpaid Monthly Deductions.
If the Death Benefit Guarantee is in effect, we will not lapse the Policy.
See "Death Benefit Guarantee".
REINSTATEMENT. Reinstatement means putting a lapsed Policy back in force.
You may reinstate a lapsed Policy by written request any time within five years
after it has lapsed if it has not been surrendered for its Cash Surrender Value.
To reinstate the Policy and any riders, you must submit evidence of
insurability satisfactory to us that each Joint Insured is still insurable, or
if the policy lapsed after the first death of the Joint Insured, then evidence
of insurability for the Surviving Joint Insured. You must pay a premium large
enough 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 surrender or partial
withdrawal will be determined at the end of the Valuation Period during which
your written request is received. Any amounts payable from the Variable Account
upon total surrender or partial withdrawal will generally be paid within seven
days of receipt of your written request. Postponement of payments may, however,
occur in certain circumstances. See "General Provisions -- Postponement of
Payments".
TOTAL SURRENDER
By making a written request, you may surrender the Policy at any time for
its Cash Surrender Value. The Cash Surrender Value is the Accumulation Value of
the Policy reduced by any Surrender
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<PAGE>
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".
TRANSFERS
You may transfer all or part of the Variable Accumulation Value between the
Sub-Accounts or to the Fixed Account subject to any conditions the Funds whose
shares are involved may impose. Transfer requests must be in writing unless you
have completed a telephone transfer authorization form. You may also direct us
to automatically make periodic transfers under the Dollar Cost Averaging or
Portfolio Rebalancing services as described below.
To transfer all or part of the Variable Accumulation Value from a
Sub-Account, Accumulation Units are redeemed and their values are reinvested in
other Sub-Accounts, or the Fixed Account, as
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<PAGE>
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) the Fixed Accumulation
Value after the transfer must be at least equal to the Loan Amount, (iii) no
more than 50% of the Fixed Accumulation Value, less any Loan Amount, may be
transferred unless the balance, after the transfer, would be less than $1,000,
in which event the full Fixed Accumulation Value, less any Loan Amount, may be
transferred, and (iv) you must transfer at least the lesser of $500 or the total
Fixed Accumulation Value, less any Loan Amount. See Appendix A. Some of these
restrictions may be waived for transfers due to the Portfolio Rebalancing
service.
TELEPHONE/FAX TRANSFER REQUESTS. You may request a transfer by telephone/fax
on any Valuation Date after you complete a telephone/fax transfer authorization
form. If you elect to complete the authorization form, you agree that we will
not be liable for any loss, liability, cost or expense when we act in accordance
with the telephone/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 you or was made
without your authorization, and loss results from such unauthorized transfer,
you bear 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. We will employ reasonable procedures to confirm that
instructions communicated by telephone/fax 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/fax
instructions, providing written confirmation of such instructions, and/or tape
recording telephone instructions.
DOLLAR COST AVERAGING SERVICE. You may request this service if your
Accumulation Value, less any Loan Amount, is at least $5,000. If you request
this service, you direct us to automatically make specific periodic transfers of
a fixed dollar amount from any of the Sub-Accounts to one or more of the Sub-
Accounts or to the Fixed Account. No transfers from the Fixed Account are
permitted under this service. Transfers of this type may be made on a monthly,
quarterly, semi-annual, or annual basis. This service is intended to allow you
to use "Dollar Cost Averaging", a long term investment method which provides for
regular investments over time. We make no guarantees that Dollar Cost Averaging
will result in a profit or protect against loss. You may discontinue this
service at any time by notifying us in writing.
If you are interested in the Dollar Cost Averaging service you may obtain a
separate application form and full information concerning this service and its
restrictions from us or our registered representative.
If you are using the Dollar Cost Averaging service, this service will be
discontinued immediately (i) on receipt of any request to begin a Portfolio
Rebalancing service, (ii) if the Policy is in the grace period on any date when
Dollar Cost Averaging transfers are scheduled, or (iii) if the specified
transfer amount from any Sub-Account is more than the Accumulation Value in that
Sub-Account.
We reserve the right to discontinue, modify, or suspend this service. Any
such modification or discontinuation would not affect any Dollar Cost Averaging
service requests already commenced.
PORTFOLIO REBALANCING SERVICE. You may request this service if your
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
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<PAGE>
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 our 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-Account of the Variable Account, (ii)
on receipt of any request to begin a Dollar Cost Averaging service, (iii) upon
receipt of any request to transfer Accumulation Value among the Fixed Account or
Sub-Accounts, or (iv) if the policy is in the grace period or the Accumulation
Value, less any Loan Amount, is less than $7,500 on any Valuation Date when
Portfolio Rebalancing transfers are scheduled.
We reserve the right to discontinue, modify, or suspend this service. Any
such modification or discontinuation could affect Portfolio Rebalancing services
currently in effect, but only after 30 days notice to affected Policy owners.
TRANSFER LIMITS. We currently allow twelve transfers in a Policy Year,
although we reserve the right to limit you to no more than four transfers per
Policy 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 at any time after the first Policy Year using the Policy as security for the
loan (except that in Indiana loans may be made during the first Policy Year).
You may not borrow at any time more than the Loan Value of the Policy, which is
equal to 75% of the Cash Value less the existing Loan Amount, except that in
Texas the percentage is 100% and in Alabama, Maryland and Virginia, the
percentage is 90%. Each Policy loan must be at least $500, except in Connecticut
it must be at least $200. After age 65, we currently allow 100% of the Cash
Surrender Value to be borrowed.
Loan requests may be made in writing or by telephoning us on any Valuation
Date. Any loan request in excess of $25,000 will require a Signature Guarantee
and telephone loan requests cannot exceed $10,000. No election form is currently
required to make telephone loan requests. We will employ reasonable procedures
to confirm that loan requests made by telephone are genuine. In the event we do
not employ such procedures, we may be liable for any losses due to unauthorized
or fraudulent instructions. Such procedures may include, among others, requiring
forms of personal identification prior to acting upon telephone instructions,
providing written confirmations of such instructions and/or tape recording
telephone instructions.
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 while any Joint
Insured is alive.
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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 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
no 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, 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
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will also affect the Death Benefit under the Policy. This effect could be
favorable or unfavorable depending on whether the investment performance of the
assets allocated to the Sub-Account(s) is less than or greater than the interest
being credited on the assets transferred to the Fixed Account while the loan is
outstanding. Compared to a Policy under which no loan is made, values under the
Policy will be lower when such interest credited is less than the investment
performance of assets held in the Sub-Account(s).
EFFECT ON POLICY COVERAGE. If, on any Monthly Anniversary, the Loan Amount
is greater than the Accumulation Value, less the then applicable Surrender
Charge, we will notify you. If we do not receive sufficient payment within 61
days from the date we send notice to you, the Policy will lapse and terminate
without value. Our written notice to you will indicate the amount of the payment
required to avoid lapse. The Policy may, however, later be reinstated. See
"Policy Lapse and Reinstatement".
A Policy loan may also cause termination of the Death Benefit Guarantee,
because the Loan Amount is deducted from the total premiums paid in calculating
whether sufficient premiums have been paid in order to maintain the Death
Benefit Guarantee. See "Death Benefit Guarantee".
Proceeds payable upon the death of the Surviving Joint Insured will be
reduced by any Loan Amount.
INTEREST. The interest rate charged on Policy loans will be an annual rate
of 7.40%, payable in advance. After the tenth Policy Year, we will charge
interest at an annual rate of 5.21%, payable in advance, on that portion of your
Loan Amount that is not in excess of (a) the Accumulation Value, less (b) the
total of all premiums paid and all partial withdrawals. This portion of your
loan amount is called a preferred loan. Any excess of this amount will be
charged interest at the annual rate of 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 any
Joint Insured is living. If not repaid, the Loan Amount will be deducted by us
from any amount payable under the Policy. As described above, unless you provide
us with notice to the contrary, any payments on the Policy will generally be
treated as premium payments, which are subject to the Premium Expense Charge,
rather than repayments on the Loan Amount. Any repayments on the Loan Amount
will result in amounts being reallocated from the Fixed Account and to the
Sub-Accounts of the Variable Account according to your current premium
allocation.
TAX CONSIDERATIONS. A Policy loan may have tax consequences depending on the
circumstances of the loan. See "Federal Tax Matters -- Policy Proceeds".
FREE LOOK AND CONVERSION RIGHTS
FREE LOOK RIGHTS
The Policy provides for two types of return or "free look" periods, one
after application for and issuance of the Policy and the other after any
requested increase in Face Amount.
AT INITIAL ISSUE. The Policy provides for an initial free look period during
which you have a right to return the Policy for cancellation and receive a
refund of all premiums paid. You must return the Policy to us or your agent and
ask us to cancel the Policy by midnight of the 10th day after receiving it.
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 midnight of the 10th day after receiving a
new Policy Data Page.
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
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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. This option is made available by permitting you to transfer all or a
part of your Variable Accumulation Value to the Fixed Account.
GENERAL OPTION. You may exercise your conversion right by transferring all
or any part of your Variable Accumulation Value to the Fixed Account. If, at any
time during the first two Policy Years or the first two years following a
requested increase in Face Amount, you request transfer from the Variable
Account to the Fixed Account and indicate that you are making the transfer in
exercise of your conversion right, the transfer will not be subject to the
transfer charge and will not count against the limit on the number of transfers.
At the time of such transfer, there is no effect on the Policy's Death Benefit,
Face Amount, net amount at risk, Rate Class(es) or issue age -- only the method
of funding the Accumulation Value under the Policy will be affected. See "Death
Benefit", "Accumulation Value" and Appendix A, "The Fixed Account".
If you transfer all of the Variable Accumulation Value from the Variable
Account to the Fixed Account and indicate that you are making this transfer in
exercise of your Conversion Right, we will automatically credit all future
premium payments on the policy to the Fixed Account unless you request a
different allocation.
INVESTMENTS OF THE VARIABLE ACCOUNT
There are currently seventeen investment alternatives available under the
Variable Account. Fidelity Management & Research Company is the investment
adviser for the five portfolios of VIP and the four portfolios of VIP II.
Northstar Investment Management Corporation is the investment adviser of the two
Northstar Funds. Putnam Management is the investment adviser for the six funds
of 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 would then consist of more than the current
seventeen investment options. You would only be permitted, however, to
participate in a total of seventeen investment options over the lifetime of your
Policy. You would 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 Funds currently offered are described below. A brief summary of
investment objectives is contained in the description of each Fund. In addition,
you should read the prospectuses of the Funds, which are combined with this
prospectus, for more detailed information and particularly, a more thorough
explanation of investment objectives, because several of the Funds and
portfolios may have objectives that are quite similar. There is 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 section entitled "FMR and Its Affiliates" in the VIP and VIP II Prospectuses
and the section entitled "Sales and Redemptions" in the Putnam VT Prospectus.
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The Funds described below distribute dividends and capital gains. However,
distributions are automatically reinvested in additional Fund shares, at net
asset value. The Sub-Account receives the distributions which are then reflected
in the Unit Value of that Sub-Account. See "Accumulation Value".
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (VIP)
VIP is a mutual fund trust currently including five investment portfolios,
each with a different investment objective.
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. The portfolio
will invest only in high-quality U.S. dollar denominated money market
instruments of domestic and foreign issuers. An investment in the portfolio is
not insured or guaranteed by the U.S. Government, and there can be no assurance
that the Portfolio will maintain a stable net asset value per share of $1.00.
HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated fixed-income securities
(sometimes referred to as "junk bonds"), while also considering growth of
capital. Lower-rated fixed-income securities are considered speculative and
involve greater risk of default than higher-rated fixed-income securities and
are more sensitive to the issuer's capacity to pay. Consult the VIP Prospectus
for further information on the risks associated with the portfolio's investment
in lower-rated fixed-income securities.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities the portfolio
will also consider the potential for capital appreciation. The portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of 500 Stocks.
GROWTH PORTFOLIO seeks to achieve capital appreciation. The portfolio
normally purchases common stocks, although its investments are not restricted to
any one type of security. Capital appreciation may also be found in other types
of securities, including bonds and preferred stocks.
OVERSEAS PORTFOLIO seeks long term growth of capital primarily through
investments in foreign securities. The Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
VIP II is a mutual fund trust currently including five investment
portfolios, each with a different investment objective. Presently, the following
four portfolios are available within this Policy.
ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed-income instruments.
INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income as
is consistent with the preservation of capital by investing in a broad range of
investment-grade fixed-income securities.
INDEX 500 PORTFOLIO seeks to provide investment results that correspond to
the total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States. In seeking this objective, the
portfolio attempts to duplicate the composition and total return of the Standard
& Poor's Composite Index of 500 Stocks while keeping transaction costs and other
expenses low. The portfolio is designed as a long-term investment option.
CONTRAFUND PORTFOLIO seeks capital appreciation by investing in companies
believed to be undervalued due to an overly pessimistic appraisal by the public.
The portfolio invests primarily in common stock and securities convertible into
common stock, but it has the flexibility to invest in any type of security that
may produce capital appreciation.
NORTHSTAR VARIABLE TRUST (NORTHSTAR)
Northstar is a diversified management investment company currently offering
four investment funds, each with a different investment objective. The following
two Northstar Funds are available under this Policy.
NORTHSTAR INCOME AND GROWTH FUND is a diversified portfolio with an
investment objective of seeking current income balanced with the objective of
achieving capital appreciation. This Fund will seek to achieve its objective
through investments in common and preferred stocks, convertible securities,
investment grade corporate debt securities and government securities, selected
for their prospects
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of producing income and capital appreciation. Wilson/Bennet Capital Management,
Inc. is the sub-advisor 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 MULTI-SECTOR BOND FUND is a diversified portfolio with an
investment objective of maximizing current income. This Fund will seek to
achieve its objective by investment in the following sectors of the fixed income
securities markets: (a) securities issued or guaranteed as to principal and
interest by the U.S. Government, its agencies, authorities or instrumentalities;
(b) investment grade corporate debt securities; (c) investment grade or
comparable quality debt securities issued by foreign corporate issuers, and
securities issued by foreign governments and their political subdivisions,
limited to 35% of assets determined at the time of investment; and (d) high
yield -- high risk fixed income securities of U.S. and foreign issuers, limited
to 50% of assets determined at the time of investment.
PUTNAM VARIABLE TRUST
Putnam Variable Trust is a mutual fund currently offering sixteen investment
funds, each with a different investment objective. Presently, only the following
six funds are available under this Policy.
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 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 investments 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 primarily from a portfolio
of 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,
or investment conditions warrant.
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In the event of any such substitution or change, we may make such changes in
this and other policies as may be necessary or appropriate to reflect such
substitution or change. If all or a portion of your investments are allocated to
any of the current funds that are being substituted for on the date such
substitution is announced, you may surrender the portion of the Accumulation
Value funded by such Fund(s) without payment of the associated Surrender Charge.
You may transfer the portion of the Accumulation Value affected without payment
of a Transfer Charge. If deemed by us to be in the best interests of persons
having voting rights under the Policies, the Variable Account may be operated as
a management company under the Investment Company Act of 1940, it may be
deregistered under that Act in the event such registration is no longer
required, or it may be combined with our other separate accounts.
VOTING RIGHTS
You have the right to instruct us how to vote the Fund shares attributable
to the Policy at regular meetings and special meetings of the Funds. We will
vote the Fund shares held in Sub-Accounts according to the instructions
received, as long as:
- The Variable Account is registered as a unit investment trust under the
Investment Company Act of 1940; and
- The assets of the Variable Account are invested in Fund shares.
If we determine that, because of applicable law or regulation, we do not
have to vote according to the voting instructions received, we will vote the
Fund shares at our discretion.
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 AFTER AGE 100
If either of the Joint Insureds is living after age 100 of the younger Joint
Insured and the Policy is in force, the Death Benefit will be the Accumulation
Value.
OWNERSHIP
While the Surviving Joint Insured is alive, subject to the Policy's
provisions you may:
- Change the amount and frequency of premium payments.
- Change the allocation of premiums.
- Make transfers between accounts.
- Surrender the Policy for cash.
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- 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.
While both Joint Insureds are alive, subject to this policy's provisions,
you may:
- Change the Death Benefit Option.
- Change the Face Amount.
PROCEEDS
At the Surviving Joint 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 Surviving
Joint 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 Surviving Joint Insured dies, the Death
Benefit will be paid to you, if surviving, or otherwise to your estate.
POSTPONEMENT OF PAYMENTS
Payments from the Variable Account for Death Benefits, cash surrender,
partial withdrawal, or loans will generally be made within seven days after we
receive all the documents required for the payments.
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% from the date of the
request to the date of payment 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 Surviving Joint 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
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more Options are requested. A combination of options may be used. At least
$2,500 must be applied to any option for each payee under that option. Under an
installment Option, each payment must be at least $25.00. We may adjust the
interval between payments to make each payment at least $25.00.
Proceeds applied to any Option no longer earn interest at the rate applied
to the Fixed Account or participate in the investment performance of the Funds.
Option 1 - Proceeds are left with us to earn interest. Withdrawals and any
changes are subject to our approval.
Option 2 - Proceeds and interest are paid in equal installments of a
specified amount until the proceeds and interest are all paid.
Option 3 - Proceeds and interest are paid in equal installments for a
specified period until the proceeds and interest are all paid.
Option 4 - The proceeds provide an annuity payment with a specified number
of months "certain". The payments are continued for the life of the primary
payee. If the primary payee dies before the certain period is over, the
remaining payments are paid to a contingent payee.
Option 5 - The proceeds provide a life income for two payees. When one payee
dies, the surviving payee receives two-thirds of the amount of the joint
monthly payment for life.
Option 6 -- The proceeds are used to provide an annuity based on the rates
in effect when the proceeds are applied. We do not apply this Option if a
similar option would be more favorable to the payee at that time.
INTEREST ON SETTLEMENT OPTIONS. We base the interest rate for proceeds
applied under Options 1 and 2 on the interest rate we declare on funds that we
consider to be in the same classification based on the Option, restrictions on
withdrawal, and other factors. The interest rate will never be less than an
effective annual rate of 3.50%.
In determining amounts to be paid under Options 3 and 4, we assume interest
at an effective annual rate of 3.50%. Also, for Option 3 and "certain" periods
under Option 4, we credit any excess interest we may declare on funds that we
consider to be in the same classification based on the Option, restrictions on
withdrawal, and other factors.
INCONTESTABILITY
After the Policy has been in force during both Joint Insured's lifetime for
two years from the Policy's Issue Date, we cannot claim the Policy is void or
refuse to pay any proceeds unless the Policy has lapsed.
If you make a Face Amount increase or a premium payment which requires proof
of insurability, the corresponding Death Benefit increase has its own two-year
contestable period measured from the date of the increase.
If the Policy is reinstated, the contestable period is measured from the
date of reinstatement with respect to statements made on the application for
reinstatement.
MISSTATEMENT OF AGE AND SEX
If any Joint Insured's age or sex or both are misstated, the Death Benefit
will be the amount that the most recent cost of insurance would purchase using
the current cost of insurance rate for the correct age and sex.
SUICIDE
If any Joint Insured commits suicide, 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 any Joint
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.
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TERMINATION
The Policy terminates when any of the following occurs:
- The Policy lapses. See "Policy Lapse and Reinstatement".
- The Surviving Joint Insured dies.
- The Policy is surrendered for its Cash Surrender Value.
- The Policy is amended according to the amendment provision described below
and you do not accept the amendment.
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, the Accumulation Value of your Policy at the end
of the prior Policy Year and any other assumptions specified by you or us
(subject to any SEC limitations). We may make a charge not to exceed $50.00 for
each Projection Report you request.
DIVIDENDS
The Policy does not entitle you to participate in our surplus. We do not pay
you dividends under the Policy.
The Sub-Account receives any dividends paid by the related Fund. Any such
dividend is credited to you through the calculation of the Sub-Account's daily
Unit Value.
COLLATERAL ASSIGNMENT
You may assign the benefits of the Policy as collateral for a debt. This
limits your rights to the Cash Surrender Value and the beneficiary's rights to
the proceeds. An assignment is not binding on us until we receive written
notice.
OPTIONAL INSURANCE BENEFITS
The Policy can include additional benefits, in the form of riders to the
Policy, if our requirements for issuing such benefits are met. We currently
offer the following benefit riders although some riders may not be available in
some states.
POLICY SPLIT OPTION RIDER (PSO) -- Allows the policyowner to split the
Policy into two individual permanent life insurance policies in the event of a
divorce of the Joint Insureds, dissolution of a business partnership of the
Joint Insureds, or if there is a change in the federal estate tax laws that
would eliminate the unlimited marital deduction or reduce by at least 50% the
estate taxes payable at death. Evidence of insurability on each Joint Insured
may be required to exercise this option.
FOUR YEAR TERM RIDER (FTR) -- Provides a four year, level term benefit if
the Surviving Joint Insured dies during the first four Policy Years.
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FIRST TO DIE RIDER (FDR) -- Provides level term insurance coverage on the
first death of the Joint Insureds if death occurs before the end of the term
period.
EXTENDED DEATH BENEFIT GUARANTEE RIDER (EDB) -- Extends the Death Benefit
Guarantee Period to age 85 of the younger Joint Insured, or age 100 of the
younger Joint Insured, or both, if a higher monthly premium is paid.
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
DEFINITION OF LIFE INSURANCE. In order to qualify as a life insurance
contract for federal tax purposes, the Policy must meet the definition of a life
insurance contract which is set forth in Section 7702 of the Internal Revenue
Code of 1986, as amended (the "Code"). The manner in which Section 7702 should
be applied to certain features of the Policy offered in this Prospectus is not
directly addressed by Section 7702. We nevertheless believe it is reasonable to
conclude that the Policy will meet the Section 7702 definition of a life
insurance contract, so that:
- The Death Benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
- The Policy owner should not be considered in constructive receipt of the
Cash Value, including increases, until actual cancellation of the Policy.
In the absence of final regulations or other pertinent interpretations of
Section 7702, however, there is necessarily some uncertainty as to whether a
Policy will meet the statutory life insurance contract definition, particularly
if it insures substandard risks. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, such Policy would not provide
most of the tax advantages normally provided by a life insurance contract.
We reserve the right to make changes to the Policy if such changes are
deemed necessary to attempt to assure its qualification as a life insurance
contract.
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.
AGGREGATION OF MODIFIED ENDOWMENT CONTRACTS. In the case of a pre-death
distribution (including a loan, partial withdrawal, collateral assignment or
complete surrender) from a Policy that is treated as a modified endowment
contract, a special aggregation requirement may apply for purposes of
determining the amount of the income on the contract. Specifically, if we or any
of our affiliates issue to the same Policy owner more than one modified
endowment contract within a calendar year, then for purposes of measuring the
income on the Policy with respect to a distribution from any of those Policies,
the income on the Policy for all those Policies will be aggregated and
attributed to that distribution.
TAX TREATMENT OF POLICY SPLIT. The Policy Split Option Rider permits a
Policy to be split into two individual Policies upon the occurrence of a divorce
of Joint Insureds or certain changes in federal estate tax law. A policy split
could have adverse tax consequences; for example, it is not clear whether a
policy split will be treated as a nontaxable exchange under Sections 1031
through 1043 of the Code. If a policy split option is not treated as a
nontaxable exchange, a split could result in the recognition of
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taxable income in an amount up to any gain in the Policy at the time of the
split. In addition, it is not clear whether the individual Policies that result
from a policy split would in all circumstances be treated as life insurance
contracts for federal income tax purposes and, if so treated, whether the
individual contracts would be classified as modified endowment contracts. Before
the Policy owner exercises rights provided by the Policy Split Option Rider, it
is important that he or she consults with a competent tax advisor regarding the
possible consequences of a policy split.
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 insurnace 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 Treasury Department. If the
Variable Account is determined to be not adequately diversified, Policy owners
in the Variable Account will be treated as the owners of the underlying assets
and thus currently taxable on earnings and gains. The investment adviser of the
respective mutual fund investment options has responsibility for maintaining the
investment diversification required under the Code.
In connection with the issuance of temporary diversification regulations,
the Treasury Department 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 Treasury has stated it expects to be
issued. 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. The treatment of a
preferred loan is unclear; such a loan may be considered a withdrawal instead of
an indebtedness of the Policy owner. See "Policy Loans -- Interest". 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. The treatment of a
preferred loan is unclear, such a loan may be considered a withdrawal instead of
an indebtedness of the Policy owner. 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.
41
<PAGE>
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 Joint
Insured dies. Any person concerned about the estate implications of the Policy
should consult a competent tax adviser.
TAXATION OF POLICIES HELD BY PENSION AND CERTAIN DEFERRED COMPENSATION PLANS
PENSION AND PROFIT-SHARING PLANS. If a Policy is purchased by a trust which
forms part of a pension or profit-sharing plan qualified under Section 401(a) of
the Code for the benefit of participants covered under the plan, the Federal
income tax treatment of such Policies will be somewhat different from that
described above. A competent tax adviser should be consulted on these matters.
DEFERRED COMPENSATION PLANS FOR PUBLIC EMPLOYEES AND EMPLOYEES OF TAX EXEMPT
ORGANIZATIONS. Section 457 of the Code permits state and local government
employers and tax exempt employers to establish deferred compensation plans for
eligible employees and independent contractors. Eligible plans limit the amount
of compensation which may be deferred. Distribution from eligible plans may
occur only upon the death of the employee, attainment of age 70 1/2, separation
from service or in the event of an unforseeable emergency. Amounts deferred may
be transferred directly to another eligible deferred compensation plan. The
employer will be the Owner and Beneficiary of all policies issued to an eligible
plan. Policies are subject to the claims of the employer's general creditors.
Death Benefit proceeds payable to the employer, some or all of which are
subsequently paid by the employer to the employee's beneficiary under the plan
will not be excludable from gross income under Section 101(a) or Section 101(b)
of the Code and will be taxable as ordinary income. An employee has no present
legal right or vested interest in such policies; an employee is entitled to
distributions only in accordance with eligible plan provisions.
TAXATION OF 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.
42
<PAGE>
DISTRIBUTION OF THE POLICIES
We intend to sell the Policies in all jurisdictions where we are licensed.
The Policies will be sold by licensed insurance agents who are also registered
representatives of broker-dealers registered with the SEC under the Securities
Exchange Act of 1934 who are members of the National Association of Securities
Dealers, Inc.
The Policies will be distributed by the general distributor, Washington
Square Securities, Inc., (WSSI), a Minnesota corporation, which is an affiliate
of ours. WSSI is a securities broker-dealer registered with the SEC and is a
member of the National Association of Securities Dealers, Inc. It is primarily a
mutual funds dealer and has dealer agreements under which it markets shares of
more than 50 mutual funds. It also markets limited partnerships and other
tax-sheltered or tax-deferred investments, and acts as general distributor
(principal underwriter) for variable annuity products issued by us. The Policies
may also be sold through other broker-dealers authorized by WSSI and applicable
law to do so. Registered representatives of such broker-dealers may be paid on a
different basis than described below.
Registered representatives who sell the Policies will receive commissions
based on a commission schedule. In the first Policy Year, commissions generally
will be no more than 40% of the premiums paid up to the annualized Minimum
Monthly Premium, plus 2% of additional premiums. In subsequent Policy Years 2
through 10, commissions generally will be 2% 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
<TABLE>
<CAPTION>
TERM PRINCIPAL OCCUPATION
DIRECTORS 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; 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 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 Financial Corp. since 1996; President and
Chief Operating Officer of ReliaStar Financial Corp.
and ReliaStar Life Insurance Company since 1993; 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 from 1991 to
1992; Executive Vice President and Chief Financial
Officer from 1989 to 1991; Director of Community First
BankShares, Inc. and subsidiaries of ReliaStar
Financial Corp.
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C>
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 of subsidiaries of ReliaStar Financial
Corp.
Kenneth U. Kuk 1997 Senior Vice President of ReliaStar Life Insurance
Company since 1996; Senior 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 and Chief Executive Officer of
Washington Square Advisers, Inc. since 1995; Chairman
of ReliaStar Mortgage Corporation 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, Technology of ReliaStar
Financial Corp. and ReliaStar Life Insurance Company
since 1996; Senior Vice President, Individual Division
of ReliaStar Life Insurance Company since 1996; Senior
Vice President, Strategic Marketing and Technology of
ReliaStar Financial Corp. and ReliaStar Life Insurance
Company from 1994 to 1996; Senior Vice President and
Chief Financial Officer from 1992 to 1994; Executive
Vice President of Ameritrust Corporation from 1988 to
1992; Director of subsidiaries of ReliaStar Financial
Corp.
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 Office from 1991 to
1993; President and Chief Operating Officer 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.
44
<PAGE>
EXECUTIVE OFFICERS
<TABLE>
<S> <C>
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
</TABLE>
All of the foregoing executive officers have been officers or employees of
ours for the past five years, except Mr. Salipante. Mr. Salipante became
employed with the Company on July 6, 1992. Prior to joining the Company, Mr.
Salipante was Executive Vice President of the Banking Services Group of
Ameritrust Corp.
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.
MONTANA RESIDENTS
All Policy provisions described in the prospectus that are based on the sex
of the Joint Insured should be disregarded. This Policy will be issued on a
unisex basis.
References made to the rates and 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., (WSSI), subject to a $500,000 deductible.
LEGAL MATTERS
Legal matters in connection with the Variable Account and the Policy
described in this Prospectus have been passed upon by 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
45
<PAGE>
Company included in this Prospectus have been audited by Deloitte & Touche, LLP,
independent auditors, as stated in their reports which are included herein, and
have been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
Actuarial matters included in this Prospectus have been examined by Craig A.
Krogstad, F.S.A., M.A.A.A., as stated in the opinion filed as an exhibit to the
Registration Statement.
REGISTRATION STATEMENT CONTAINS FURTHER INFORMATION
A Registration Statement has been filed with the SEC under the Securities
Act of 1933 with respect to the Policies. This Prospectus does not contain all
information included in the Registration Statement, its amendments and exhibits.
For further information concerning the Variable Account, the Funds, the Policies
and us, please refer to the Registration Statement.
Statements in this Prospectus concerning provisions of the Policy and other
legal documents are summaries. Please refer to the documents as filed with the
SEC for a complete statement of the provisions of those documents.
Information may be obtained from the SEC's principal office in Washington,
D.C., for a fee it prescribes, or examined there without charge.
FINANCIAL STATEMENTS
The financial statements for the Variable Account reflect the operations of
the Variable Account and its Sub-Accounts as of December 31, 1996 and for each
of the three years in the period then ended. Although the financial statements
are audited, the periods they cover are not necessarily indicative of the longer
term performance of the assets held in the Variable Account.
The financial statements of 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.
46
<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
47
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
(In Thousands, Except Share and Unit Data)
<TABLE>
<CAPTION>
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) $76,996
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
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S VIPF
FIDELITY'S FIDELITY'S VIPF II FIDELITY'S VIPF FIDELITY'S VIPF
VIPF II INVESTMENT II II
OVERSEAS ASSET MANAGER GRADE BOND INDEX 500 CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <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) $22,958
Asset Manager Portfolio
1,698,514 shares (cost
$24,709) $28,756
Investment Grade Bond
Portfolio
263,226 shares (cost
$3,060) $3,222
Index 500 Portfolio
85,097 shares (cost
$6,398) $7,585
Contrafund Portfolio
614,293 shares (cost
$8,989) $10,173
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 $22,958 $28,756 $3,222 $7,585 $10,173
-------------- ---------------- ---------------- ---------------- ----------------
-------------- ---------------- ---------------- ---------------- ----------------
LIABILITIES AND POLICYOWNERS'
EQUITY:
- ------------------------------
Due to (from) ReliaStar Life
Insurance Company for
accrued mortality and
expense risk: $10 $13 $1 $2 $-
Policyowners' Equity: 22,948 28,743 3,221 7,583 10,173
-------------- ---------------- ---------------- ---------------- ----------------
Total Liabilities and
Policyowners' Equity $22,958 $28,756 $3,222 $7,585 $10,173
-------------- ---------------- ---------------- ---------------- ----------------
-------------- ---------------- ---------------- ---------------- ----------------
Units Outstanding: 1,536,316.506 1,892,481.312 247,189.999 441,948.368 686,514.792
Net Asset Value per Unit:
Select*Life I $18.132967 $17.774921 $14.638773 $17.724683 $-
Select*Life Series 2000 $12.518269 $12.498123 $11.631128 $16.991905 $14.817873
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES, Continued
December 31, 1996
(In Thousands, Except Share and Unit Data)
<TABLE>
<CAPTION>
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
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED
<TABLE>
<CAPTION>
PUTNAM'S VT PUTNAM'S VT NORTHSTAR'S
ASIA PACIFIC NEW INCOME NORTHSTAR'S
GROWTH OPPORTUNITIES AND GROWTH MULTI-SECTOR BOND
FUND FUND FUND FUND TOTAL
-------------- -------------- ----------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Investments in mutual funds at
market value:
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) 22,958
Asset Manager Portfolio
1,698,514 shares (cost
$24,709) 28,756
Investment Grade Bond
Portfolio
263,226 shares (cost
$3,060) 3,222
Index 500 Portfolio
85,097 shares (cost
$6,398) 7,585
Contrafund Portfolio
614,293 shares (cost
$8,989) 10,173
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) $1,608 1,608
New Opportunities Fund
587,344 shares (cost
$10,080) $10,114 10,114
NORTHSTAR'S:
Income and Growth Fund
50,357 shares (cost $591) $590 590
Multi-Sector Bond Fund
56,204 shares (cost $292) $295 295
-------------- -------------- ----------- ----------------- --------------
Total Assets $1,608 $10,114 $590 $295 $286,399
-------------- -------------- ----------- ----------------- --------------
-------------- -------------- ----------- ----------------- --------------
LIABILITIES AND POLICYOWNERS'
EQUITY:
- ------------------------------
Due to (from) ReliaStar Life
Insurance Company for
accrued mortality and
expense risks: $- $1 $- $- $126
Policyowners' Equity: 1,608 10,113 590 295 $286,273
-------------- -------------- ----------- ----------------- --------------
Total Liabilities and
Policyowners' Equity $1,608 $10,114 $590 $295 $286,399
-------------- -------------- ----------- ----------------- --------------
-------------- -------------- ----------- ----------------- --------------
Units Outstanding: 144,086.091 681,263.859 42,551.251 22,576.638 15,861,312.069
Net Asset Value per Unit:
Select*Life I $- $- $- $-
Select*Life Series 2000 $11.161174 $14.844820 $13.870191 $13.078392
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES
IN POLICYOWNERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
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
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<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:
<TABLE>
<CAPTION>
FIDELITY'S VIPF AND VIPF II: PUTNAM VT: NORTHSTAR FUNDS:
- ------------------------------------------ ------------------------------------------ ------------------------------------------
<S> <C> <C>
Money Market Portfolio Diversified Income Fund Income and Growth Fund
High Income Portfolio Growth and Income Fund Multi-Sector Bond Fund
Equity-Income Portfolio Utilities Growth and Income Fund
Growth Portfolio Voyager Fund
Overseas Portfolio Asia Pacific Growth Fund
Asset Manager Portfolio New Opportunities Fund
Investment Grade Bond Portfolio
Index 500 Portfolio
Contrafund Portfolio
</TABLE>
Northstar Investment Management Corporation, an affiliate of 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.
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.
53
<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>
54
<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> <C>
Proceeds from redemptions.......... $- $4,660 $820 $7,266 $2,499 $1,572
Cost............................... - 4,677 741 7,266 2,499 1,572
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $- $(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> <C>
Proceeds from redemptions.......... $2,114 $967 $1,007 $1,483 $1,486 $729
Cost............................... 1,134 538 717 1,129 1,219 606
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $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> <C>
Proceeds from redemptions.......... $261 $208 $53 $235 $92 $-
Cost............................... 181 168 53 210 79 -
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $80 $40 $- $25 $13 $-
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
55
<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>
56
<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> <C>
Proceeds from redemptions.......... $354 $184 $49 $517 $154 $13
Cost............................... 283 164 48 348 126 13
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $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> <C>
Proceeds from redemptions.......... $30 $3 $- $30 $44 $-
Cost............................... 28 3 - 29 44 -
------------- ------------- ------------- ------------- ------------- -------------
Net realized gains (losses) on
redemptions of fund shares....... $2 $- $- $1 $- $-
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
57
<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>
58
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S VIPF FIDELITY'S VIPF
MONEY MARKET HIGH INCOME
PORTFOLIO PORTFOLIO
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1994 1996 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of
year............................. 454,516.667 240,089.964 156,045.604 577,083.123 397,251.963 254,797.519
Units purchased.................... 680,738.566 409,244.895 165,487.964 307,417.472 262,813.321 211,773.478
Units redeemed..................... (88,518.792) (51,202.041) (28,807.773) (91,762.343) (82,813.141) (56,358.865)
Units transferred between
Sub-Accounts and/or
Fixed Account.................... (392,311.067) (143,616.151) (52,635.831) (18,795.895) (169.020) (12,960.169)
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding, end of year..... 654,425.374 454,516.667 240,089.964 773,942.356 577,083.123 397,251.963
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
FIDELITY'S VIPF
EQUITY-INCOME
PORTFOLIO
-------------------------------------------
Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Units outstanding, beginning of
year............................. 2,023,713.030 1,463,010.155 1,055,644.747
Units purchased.................... 931,595.789 749,089.473 601,244.662
Units redeemed..................... (293,135.228) (256,323.181) (192,736.128)
Units transferred between
Sub-Accounts and/or
Fixed Account.................... (40,143.201) 67,936.583 (1,143.126)
------------- ------------- -------------
Units outstanding, end of year..... 2,622,030.390 2,023,713.030 1,463,010.155
------------- ------------- -------------
------------- ------------- -------------
</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>
Units outstanding, beginning of
year............................. 1,704,151.254 1,132,373.018 397,491.821 214,771.624 153,890.893 73,061.118
Units purchased.................... 516,081.976 711,584.303 860,156.216 83,199.869 89,695.793 93,970.791
Units redeemed..................... (233,834.183) (245,931.324) (135,570.699) (26,334.967) (25,144.781) (15,634.489)
Units transferred between
Sub-Accounts and/or
Fixed Account.................... (93,917.735) 106,125.257 10,295.680 (24,446.527) (3,670.281) 2,493.473
--------------- --------------- ------------- ------------- ------------- ------------
Units outstanding,
end of year...................... 1,892,481.312 1,704,151.254 1,132,373.018 247,189.999 214,771.624 153,890.893
--------------- --------------- ------------- ------------- ------------- ------------
--------------- --------------- ------------- ------------- ------------- ------------
<CAPTION>
FIDELITY'S VIPF II
INDEX 500
PORTFOLIO
-----------------------------------------
Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31,
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Units outstanding, beginning of
year............................. 181,509.017 70,686.713 23,356.992
Units purchased.................... 235,038.604 108,548.505 53,563.087
Units redeemed..................... (42,862.946) (20,962.032) (8,321.224)
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 68,263.694 23,235.831 2,087.858
------------- ------------ ------------
Units outstanding,
end of year...................... 441,948.368 181,509.017 70,686.713
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
59
<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>
60
<PAGE>
SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
PUTNAM'S VT PUTNAM'S VT
GROWTH AND INCOME UTILITIES GROWTH AND
FUND INCOME FUND
------------------------------------------- -------------------------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1994 1996 1995 1994
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of year................ 282,045.753 64,421.965 - 81,748.531 46,807.467 -
Units purchased.................... 406,240.138 209,131.345 61,265.475 52,797.542 47,951.821 30,500.830
Units reedeemed.................... (74,223.988) (32,341.113) (6,093.938) (16,817.701) (10,123.479) (3,408.255)
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 77,911.972 40,833.556 9,250.428 (9,758.265) (2,887.278) 19,714.892
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding,
end of year...................... 691,973.875 282,045.753 64,421.965 107,970.108 81,748.531 46,807.467
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
PUTNAM'S VT
VOYAGER
FUND
-------------------------------------------
Year ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Units outstanding,
beginning of year................ 781,013.273 199,880.663 -
Units purchased.................... 1,040,657.483 611,602.541 191,562.886
Units reedeemed.................... (220,017.675) (101,392.794) (18,498.061)
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 149,057.148 70,922.863 26,815.838
------------- ------------- -------------
Units outstanding,
end of year...................... 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> <C>
Units outstanding,
beginning of year................ 8,746.326 - - 9,904.096 - -
Units purchased.................... 33,180.420 6,057.272 - 10,103.684 3,255.666 -
Units redeemed..................... (3,841.706) (537.367) - (1,468.579) (424.093) -
Units transferred between
Sub-Accounts and/or
Fixed Account.................... 4,466.211 3,226.421 - 4,037.437 7,072.523 -
------------- ------------- ------------- ------------- ------------- -------------
Units outstanding,
end of year...................... 42,551.251 8,746.326 - 22,576.638 9,904.096 -
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
61
<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>
62
<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> <C>
Net investment income:
Reinvested dividend
income.................... $139 $33 $- $63 $117
Reinvested capital gains.... - 84 22 - 204
Mortality and expense risk
charge.................... (24) (40) (48) (10) (60)
----------- ---------- ----------- ---------- ------------
Net investment income
(loss)
and capital gains..... 115 77 (26) 53 261
----------- ---------- ----------- ---------- ------------
Realized and unrealized gains
(losses):
Net realized gains on
redemptions
of fund shares............ 12 80 25 10 125
Increase (decrease) in
unrealized
appreciation on
investments............... (51) 793 1,155 25 1,043
----------- ---------- ----------- ---------- ------------
Net realized and
unrealized gains
(losses).............. (39) 873 1,180 35 1,168
----------- ---------- ----------- ---------- ------------
Net additions
from operations..... 76 950 1,154 88 1,429
----------- ---------- ----------- ---------- ------------
Policyowner transactions:
Net premium payments........ 986 3,577 7,406 696 6,047
Transfers from (to) Fixed
Account................... (300) 1,125 730 (65) 1,274
Policy loans................ (19) (9) (21) (4) (38)
Loan collateral interest
crediting................. 1 1 - - 1
Surrenders.................. (47) (76) (60) (17) (109)
Death benefits.............. (5) (4) - (1) (5)
Cost of insurance charges... (211) (447) (837) (92) (784)
Death benefit guarantee
charges................... (6) (5) - (1) (2)
Monthly expense charges..... (27) (86) (155) (15) (130)
----------- ---------- ----------- ---------- ------------
Net additions for
policyowner
transactions.......... 372 4,076 7,063 501 6,254
----------- ---------- ----------- ---------- ------------
Net additions
for the year........ 448 5,026 8,217 589 7,683
Policyowners' Equity,
beginning of the year....... 2,773 2,557 1,956 806 3,864
----------- ---------- ----------- ---------- ------------
Policyowners' Equity,
end of the year............. $3,221 $7,583 $10,173 $1,395 $11,547
----------- ---------- ----------- ---------- ------------
----------- ---------- ----------- ---------- ------------
</TABLE>
63
<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
PUTNAM'S VT PUTNAM'S
VT PUTNAM'S ASIA VT NORTHSTAR'S NORTHSTAR'S
UTILITIES GROWTH VT 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................ $ 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>
64
<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
65
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
ASSETS 1996 1995
--------- ---------
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
66
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1996 1995
---------- ----------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
67
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1996 1995
---------- ----------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
68
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
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
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
69
<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
70
<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)
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
INVESTMENTS
Fixed maturity securities (bonds and redeemable preferred stocks) 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.
71
<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)
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. 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.
72
<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)
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.
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
Based on current conditions and assumptions as to future events on acquired
policies in force, the Company expects that the net amortization of the 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.
73
<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)
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.
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.
74
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTE 4. INVESTMENTS
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
Net pretax realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
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.
75
<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)
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
---------- --------- ----------- ----------
---------- --------- ----------- ----------
<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
76
<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)
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.
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:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
Allowances for losses on investments are reflected on the Consolidated
Balance Sheets as a reduction of the related assets and were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
</TABLE>
77
<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, 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:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
</TABLE>
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.
Noncash investing activities consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Real Estate Assets Acquired Through Foreclosure...................................... $ 14.8 $ 28.0
Mortgage Loans Acquired in Sales of Real Estate Assets............................... 11.2 15.3
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
78
<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
The income tax liability as reflected on the Consolidated Balance Sheets
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Current Income Taxes.............................................................. $ 7.8 $ 6.4
Deferred Income Taxes............................................................. 127.5 162.8
--------- ---------
Total........................................................................... $ 135.3 $ 169.2
--------- ---------
--------- ---------
</TABLE>
The provision for income taxes reflected on the Consolidated Statements of
Income consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Currently Payable.................................................................. $ 83.6 $ 82.9
Deferred........................................................................... 22.3 11.5
--------- ---------
Total............................................................................ $ 105.9 $ 94.4
--------- ---------
--------- ---------
</TABLE>
The Internal Revenue Service has completed its review of the Company's tax
return for all years through 1991.
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:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
79
<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)
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Statutory Tax Rate................................................................. 35.0% 35.0%
Other.............................................................................. (.3) .2
--- ---
Effective Tax Rate............................................................... 34.7% 35.2%
--- ---
--- ---
</TABLE>
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.
NOTE 6. NOTES AND MORTGAGES PAYABLE
A summary of notes and mortgages payable is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
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.
80
<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 (CONTINUED)
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:
<TABLE>
<CAPTION>
(IN MILLIONS)
- -------------------------------------------------------
<S> <C>
1997 - $162.5 2000 - $5.8
1998 - $ .1 2001 - $1.9
1999 - $ .2 2002 and thereafter - $ .3
</TABLE>
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.
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.
81
<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)
Net periodic pension expense for ReliaStar and its subsidiaries included the
following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
The following table sets forth for ReliaStar and its subsidiaries the funded
status of the plans as of December 31:
<TABLE>
<CAPTION>
FUNDED PLANS UNFUNDED PLANS
-------------------- --------------------
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 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
82
<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)
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:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
Net periodic postretirement benefit costs consisted of the following
components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
--------- ---
--------- ---
</TABLE>
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 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
83
<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)
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 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.
84
<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 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:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
85
<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:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN MILLIONS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
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
86
<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)
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.
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.
87
<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)
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.
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:
<TABLE>
<CAPTION>
(IN MILLIONS)
- -------------------------------------------------------
<S> <C>
1997 - $7.6 2000 - $4.6
1998 - $6.8 2001 - $3.9
1999 - $5.7 2002 and thereafter - $4.7
</TABLE>
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures are made in accordance with the requirements of
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." SFAS No.
107 requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available,
88
<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)
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.
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 INVESTMENTS AND POLICY LOANS -- The carrying amounts for
these assets approximate the assets' fair values.
OTHER FINANCIAL INSTRUMENTS REPORTED AS ASSETS -- The carrying amounts for
these financial instruments (primarily premiums and other accounts receivable
and accrued investment income) approximate those assets' fair values.
INVESTMENT CONTRACT LIABILITIES -- The fair value for deferred annuities was
estimated to be the amount payable on demand at the reporting date, as those
investment contracts have no defined maturity and are similar to a deposit
liability. The amount payable at the reporting date was calculated as the
account balance less applicable surrender charges.
The fair value for GICs was estimated using discounted cash flow analyses.
The discount rate used was based upon current industry offering rates on GICs of
similar durations.
The fair values for supplementary contracts without life contingencies and
immediate annuities were estimated using discounted cash flow analyses. The
discount rate was based upon treasury rates plus a pricing margin.
The carrying amounts reported for other investment contracts, which includes
participating pension contracts and retirement plan deposits, approximate those
liabilities' fair value.
CLAIM AND OTHER DEPOSIT FUNDS -- The carrying amounts for claim and other
deposit funds approximate the liabilities' fair value.
89
<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)
NOTES AND MORTGAGES PAYABLE -- The fair value for the note payable to
ReliaStar was based upon the quoted market price of the related ReliaStar
publicly traded debt. For other debt obligations, discounted cash flow analyses
were used. The discount rate was based upon the Company's estimated current
incremental borrowing rates.
OTHER FINANCIAL INSTRUMENTS REPORTED AS LIABILITIES -- The carrying amounts
for other financial instruments (primarily normal payables of a short-term
nature) approximate those liabilities' fair values.
FINANCIAL GUARANTEES -- The fair values for financial guarantees were
estimated using discounted cash flow analyses based upon the expected future net
amounts to be expended. The estimated net amounts to be expended were determined
based on projected cash flows and a valuation of the underlying collateral.
INTEREST RATE SWAPS -- The fair value for interest rate swaps was estimated
using discounted cash flow analyses. The discount rate was based upon rates
currently being offered for similar interest rate swaps available from similar
counterparties.
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
90
<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)
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 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.
91
<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 it in the Fixed Account. It is increased by transfers and Loan
Amounts from the Variable Account, and interest credits. It is decreased by
Monthly Deductions and partial withdrawals taken from it in the Fixed Account
and transfers to the Variable Account. The Fixed Accumulation Value will be
calculated at least monthly on the monthly anniversary date.
You may transfer all or part of your Fixed Accumulation Value to the
Sub-Accounts of the Variable Account, subject to the following transfer
limitations:
- The request to transfer must be postmarked no more than 30 days before the
Policy Anniversary and no later than 30 days after the Policy Anniversary.
Only one transfer is allowed during this period.
- The Fixed Accumulation Value after the transfer must be at least equal to
the Loan Amount.
- No more than 50% of the Fixed Accumulation Value (minus any Loan Amount)
may be transferred unless the balance, after the transfer, would be less
than $1,000. If the balance would be less than $1,000, the full Fixed
Accumulation Value (minus any Loan Amount) may be transferred.
- You must transfer at least:
-- $500, or
-- the total Fixed Accumulation Value (minus any Loan Amount) if less
than $500.
We make the Monthly Deduction from your Fixed Accumulation Value in
proportion to the total Accumulation Value of the Policy.
The Surrender Charge described in the Prospectus applies to the total
Accumulation Value, which includes the Fixed Accumulation Value. If the Owner
surrenders the Policy for its Cash Surrender Value, the Fixed Accumulation Value
will be reduced by any applicable Surrender Charge, any Loan Amount and unpaid
Monthly Deductions applicable to the Fixed Account.
A-1
<PAGE>
APPENDIX B
CALCULATION OF ACCUMULATION VALUE
The Accumulation Value of the Policy is equal to the sum of the Variable
Accumulation Value plus the Fixed Accumulation Value.
VARIABLE ACCUMULATION VALUE
The Variable Accumulation Value is the total of your values in each
Sub-Account. The value for each Sub-Account is equal to:
1 multiplied by 2, where:
1
Is your current number of Accumulation Units (described below).
2
Is the current Unit Value (described below).
The Variable Accumulation Value will vary from Valuation Date to Valuation
Date (described below) reflecting changes in 1 and 2 above.
ACCUMULATION UNITS. When transactions are made which affect the Variable
Accumulation Value, dollar amounts are converted to Accumulation Units. The
number of Accumulation Units for a transaction is found by dividing the dollar
amount of the transaction by the current Unit Value.
The number of Accumulation Units for a Sub-Account increases when:
- Net Premiums are credited to that Sub-Account; or
- Transfers from the Fixed Account or other Sub-Accounts are credited to
that Sub-Account.
The number of Accumulation Units for a Sub-Account decreases when:
- You take out a Policy loan from that Sub-Account;
- You take a partial withdrawal from that Sub-Account;
- We take a portion of the Monthly Deduction from that Sub-Account; or
- Transfers are made from that Sub-Account to the Fixed Account or other
Sub-Accounts.
UNIT VALUE. The Unit Value for a Sub-Account on any Valuation Date is equal
to the previous Unit Value times the Net Investment Factor for that Sub-Account
(described below) for the Valuation Period (described below) ending on that
Valuation Date. The Unit Value was initially set at $10 when the Sub-Account
first purchased Fund shares.
NET INVESTMENT FACTOR. The Net Investment Factor is a number that reflects
charges to the Policy and the investment performance during a Valuation Period
of the Fund in which a Sub-Account is invested. If the Net Investment Factor is
greater than one, the Unit Value is increased. If the Net Investment Factor is
less than one, the Unit Value is decreased. The Net Investment Factor for a Sub-
Account is determined by dividing 1 by 2.
(1 DIVIDED BY 2), where:
1
Is the result of:
- The net asset value per share of the Fund shares in which the Sub-Account
invests, determined at the end of the current Valuation Period;
- Plus the per share amount of any dividend or capital gain distributions
made on the Fund shares in which the Sub-Account invests during the
current Valuation Period;
- Plus or minus a per share charge or credit for any taxes reserved which we
determine has resulted from the investment operations of the Sub-Account
and to be applicable to the Policy.
B-1
<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 business except for a day that a Sub-Account's
corresponding Fund does not value its shares. A Valuation Period is the period
between two successive Valuation Dates, commencing at the close of business of a
Valuation Date and ending at the close of business on the next Valuation Date.
FIXED ACCUMULATION VALUE
The Fixed Accumulation Value on the Policy Date is your Net Premium credited
to the Fixed Account on that date minus the Monthly Deduction applicable to the
Fixed Accumulation Value for the first Policy Month.
After the Policy Date, the Fixed Accumulation Value is calculated as:
1 + 2 + 3 + 4 - 5 - 6, where:
1
Is the Fixed Accumulation Value on the preceding Monthly Anniversary, plus
interest from the Monthly Anniversary to the date of the calculation.
2
Is the total of your Net Premiums credited to the Fixed Account since the
preceding Monthly Anniversary, plus interest from the date premiums are credited
to the date of the calculation.
3
Is the total of your transfers from the Variable Account to the Fixed Account
since the preceding Monthly Anniversary, plus interest from the date of transfer
to the date of the calculation.
4
Is the total of your Loan Amount transferred from the Variable Account since the
preceding Monthly Anniversary.
5
Is the total of your transfers to the Variable Account from the Fixed Account
since the preceding Monthly Anniversary, plus interest from the date of transfer
to the date of the calculation.
6
Is the total of your partial withdrawals from the Fixed Account since the
preceding Monthly Anniversary, plus interest from the date of withdrawal to the
date of the calculation.
If the date of the calculation is a Monthly Anniversary, we also reduce the
Fixed Accumulation Value by the applicable Monthly Deduction for the Policy
Month following the Monthly Anniversary.
The minimum interest rate applied in the calculation of the Fixed
Accumulation Value is an effective annual rate of 4%. Interest in excess of the
minimum rate may be applied in the calculation of your Fixed Accumulation Value
in a manner which our Board of Directors determines.
B-2
<PAGE>
APPENDIX C
ILLUSTRATION OF ACCUMULATION VALUES, SURRENDER CHARGES,
CASH SURRENDER VALUES, AND DEATH BENEFITS
The following tables illustrate how the Accumulation Values, Cash Surrender
Values, and Death Benefits of a Policy may change with the investment experience
of the Variable Account. The tables show how the Accumulation Values, Cash
Surrender Values, and Death Benefits of a Policy issued to two hypothetical
Joint Insureds (who pay the given Planned Periodic Premiums annually) would vary
over time if the investment return of the assets held in the Funds were a
uniform, gross, after-tax, annual rate of 0 percent, 6 percent or 12 percent.
The tables on pages C-2 through C-7 illustrate a Policy issued to a male
Joint Insured Age 55 and a female Joint Insured Age 55, in a standard Rate Class
and qualifying for non-tobacco rates. The Accumulation Values, Cash Surrender
Values, and Death Benefits would be lower if either Joint Insured were in a
substandard Rate Class or did not qualify for the non-tobacco rates because the
cost of insurance would be increased. The Accumulation Values, Cash Surrender
Values and Death Benefits would be different from those shown if the gross
annual investment returns averaged 0 percent, 6 percent, and 12 percent over a
period of years, but fluctuated above and below those averages for individual
Policy Years.
Within the tables, the second and fifth columns illustrate the Accumulation
Value of the Policy over the designated period. The Accumulation Value is the
total amount that a Policy provides for investment at any time. The third and
sixth columns illustrate the Cash Surrender Value of a Policy over the
designated period. The Cash Surrender Value is equal to the Accumulation Value
less any Surrender Charges, Loan Amount (assumed to be zero in these
illustrations) and unpaid Monthly Deductions (also assumed to be zero). The
fourth and seventh columns illustrate the Death Benefit of a Policy over the
designated period. The second, third, and fourth columns assume that throughout
the life of the Policy, the monthly charge for the cost of insurance, the
Monthly Mortality and Expense Charge and the Monthly Administrative Charge are
based upon the maximums (i.e., guaranteed) permitted in the policy. The maximum
allowable cost of insurance rates are based on the frasierized 1980
Commissioners Standard Ordinary Mortality Tables for Nonsmokers and Smokers. The
fifth, sixth, and seventh columns assume that the monthly charge for cost of
insurance, the Monthly Mortality and Expense Charge, and the Monthly
Administrative Charge are based on the current amounts expected to be charged.
The Death Benefits also vary between tables depending upon whether the Level
Amount Death Benefit Option (Tables at pages C-2 through C-4) or the Variable
Amount Death Benefit Option (Tables at pages C-5 through C-7) is illustrated.
The amounts shown for the Accumulation Values, Cash Surrender Values, and
Death Benefits reflect the fact that the net investment return of the
Sub-Accounts of the Variable Account is lower than the gross, after-tax return
on the assets held in the Funds as a result of the Funds' operating expenses.
The values shown take into account the daily total operating expenses paid by
the available portfolios of the VIP, VIP II, Northstar and PCM which together
are assumed to be at an average annual rate of 0.70% 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 return of -0.70%, 5.30%, and
11.30%, respectively. Without such expense reimbursements, total expenses would
be 0.79%. Hypothetical Accumulation Values, Cash Surrender Values and the Death
Benefits may be lower without the expense reimbursement. Expense reimbursements
are voluntary. While it is currently anticipated that expense reimbursements
will continue past the current year, there is no assurance of ongoing
reimbursements.
The hypothetical values shown in the tables do not reflect any charges for
Federal income taxes attributable to the Variable Account because we do not
currently make any such charges. However, such charges may be made in the future
and, in that event, the gross annual investment return would have to exceed 0
percent, 6 percent, or 12 percent by an amount sufficient to cover the tax
charges in order to produce the Accumulation Values, Cash Surrender Values, and
Death Benefits illustrated. (See section entitled "Federal Tax Matters" in the
prospectus).
The tables illustrate the Policy values that would result based upon the
hypothetical rates of return if premiums are paid as indicated, if all Net
Premiums are allocated to the Variable Account, and if no Policy loans have been
made. The tables are also based on the assumptions that the Policy owner has not
requested an increase or decrease in the Face Amount, that no partial
withdrawals have been made, that no transfers have been made, and total
operating expenses of the Funds continue as anticipated. Actual results will
depend on the expenses and performance of the investment choice made by the
owner.
Upon request, we will provide a comparable illustration based upon each
proposed Joint Insureds' Age, sex, underwriting classification, the Face Amount
and Planned Periodic Premium schedule requested, and any available riders
requested.
C-1
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
1 FEMALE AND 1 MALE JOINT INSURED
BOTH NON-TOBACCO PREMIUM CLASS
BOTH ISSUE AGE: 55
$8,500.00 ANNUAL PREMIUM
$1,000,000 FACE AMOUNT
LEVEL DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 0%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
-------------------------------------------------------- --------------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
POLICY ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 7,300 0 1,000,000 7,350 0 1,000,000
2 14,380 0 1,000,000 14,510 0 1,000,000
3 21,220 3,220 1,000,000 21,470 3,470 1,000,000
4 27,800 9,800 1,000,000 28,230 10,230 1,000,000
5 34,090 16,090 1,000,000 34,790 16,790 1,000,000
6 40,070 22,070 1,000,000 41,130 23,130 1,000,000
7 45,700 27,700 1,000,000 47,250 29,250 1,000,000
8 50,940 32,940 1,000,000 53,120 35,120 1,000,000
9 55,710 37,710 1,000,000 58,710 40,710 1,000,000
10 59,940 41,940 1,000,000 64,000 46,000 1,000,000
11 64,530 50,130 1,000,000 69,820 55,420 1,000,000
12 68,390 57,590 1,000,000 75,220 64,420 1,000,000
13 71,400 64,200 1,000,000 80,140 72,940 1,000,000
14 73,430 69,830 1,000,000 84,540 80,940 1,000,000
15 74,320 74,320 1,000,000 88,340 88,340 1,000,000
20 53,210 53,210 1,000,000 96,380 96,380 1,000,000
</TABLE>
- --------------------------------------------------------------------------------
(1) ASSUMES A $8,500.00 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 85.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE 0%
OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-2
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
1 FEMALE AND 1 MALE JOINT INSURED
BOTH NON-TOBACCO PREMIUM CLASS
BOTH ISSUE AGE: 55
$8,500.00 ANNUAL PREMIUM
$1,000,000 FACE AMOUNT
LEVEL DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 6%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
-------------------------------------------------------- --------------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
POLICY ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 7,750 0 1,000,000 7,810 0 1,000,000
2 15,740 0 1,000,000 15,880 0 1,000,000
3 23,950 5,950 1,000,000 24,220 6,220 1,000,000
4 32,350 14,350 1,000,000 32,830 14,830 1,000,000
5 40,940 22,940 1,000,000 41,710 23,710 1,000,000
6 49,690 31,690 1,000,000 50,880 32,880 1,000,000
7 58,560 40,560 1,000,000 60,310 42,310 1,000,000
8 67,500 49,500 1,000,000 70,101 52,010 1,000,000
9 76,460 58,460 1,000,000 79,950 61,950 1,000,000
10 85,350 67,350 1,000,000 90,100 72,100 1,000,000
11 95,290 80,890 1,000,000 101,550 87,150 1,000,000
12 105,060 94,260 1,000,000 113,210 102,410 1,000,000
13 114,540 107,340 1,000,000 125,070 117,870 1,000,000
14 123,590 119,990 1,000,000 137,070 133,470 1,000,000
15 132,060 132,060 1,000,000 149,160 149,160 1,000,000
20 156,630 156,630 1,000,000 209,590 209,590 1,000,000
</TABLE>
- --------------------------------------------------------------------------------
(1) ASSUMES A $8,500.00 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 90.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE 6%
OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-3
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
1 FEMALE AND 1 MALE JOINT INSURED
BOTH NON-TOBACCO PREMIUM CLASS
BOTH ISSUE AGE: 55
$8,500.00 ANNUAL PREMIUM
$1,000,000 FACE AMOUNT
LEVEL DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 12%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
----------------------------------------------------- -----------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
POLICY ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 8,210 0 1,000,000 8,270 0 1,000,000
2 17,160 0 1,000,000 17,300 0 1,000,000
3 26,890 8,890 1,000,000 27,180 9,180 1,000,000
4 37,470 19,470 1,000,000 37,990 19,990 1,000,000
5 48,950 30,950 1,000,000 49,800 31,800 1,000,000
6 61,390 43,390 1,000,000 62,730 44,730 1,000,000
7 74,860 56,860 1,000,000 76,860 58,860 1,000,000
8 89,400 71,400 1,000,000 92,290 74,290 1,000,000
9 105,080 87,080 1,000,000 109,130 91,130 1,000,000
10 121,930 103,930 1,000,000 127,510 109,510 1,000,000
11 141,530 127,130 1,000,000 148,990 134,590 1,000,000
12 162,690 151,890 1,000,000 172,510 161,710 1,000,000
13 185,490 178,290 1,000,000 198,270 191,070 1,000,000
14 210,020 206,420 1,000,000 226,500 222,900 1,000,000
15 236,400 236,400 1,000,000 257,440 257,440 1,000,000
20 400,740 400,740 1,000,000 464,970 464,970 1,000,000
AGE
90 2,012,610 2,012,610 2,113,240 2,363,670 2,363,670 2,481,853
95 3,392,050 3,392,050 3,392,050 3,974,410 3,974,410 3,974,410
100 5,787,000 5,787,000 5,787,000 6,772,810 6,772,810 6,772,810
</TABLE>
- --------------------------------------------------------------------------------
(1) ASSUMES A $8,500.00 PREMIUM (WHICH EXCEEDS THE ANNUALIZED MINIMUM MONTHLY
PREMIUM) IS PAID AT THE BEGINNING OF EACH POLICY YEAR. VALUES WILL BE
DIFFERENT IF PREMIUMS ARE PAID WITH A DIFFERENT FREQUENCY OR IN DIFFERENT
AMOUNTS.
(2) ASSUMES THAT NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
EXCESSIVE LOANS OR WITHDRAWALS MAY CAUSE THE POLICY TO LAPSE BECAUSE OF
INSUFFICIENT CASH SURRENDER VALUE.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-4
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
1 FEMALE AND 1 MALE JOINT INSURED
BOTH NON-TOBACCO PREMIUM CLASS
BOTH ISSUE AGE: 55
$8,500.00 ANNUAL PREMIUM
$1,000,000 FACE AMOUNT
VARIABLE DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 0%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
-------------------------------------------------------- --------------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 7,300 0 1,007,300 7,350 0 1,073,300
2 14,370 0 1,014,370 14,510 0 1,014,510
3 21,210 3,210 1,021,210 21,460 3,460 1,021,460
4 27,780 9,780 1,027,780 28,220 10,220 1,028,220
5 34,050 16,050 1,034,050 34,760 16,760 1,034,760
6 40,000 22,000 1,040,000 41,080 23,080 1,041,080
7 45,590 27,570 1,045,570 47,170 29,170 1,047,170
8 50,730 32,730 1,050,730 53,000 35,000 1,053,000
9 55,400 37,400 1,055,400 58,530 40,530 1,058,530
10 59,490 41,490 1,059,490 63,740 45,740 1,063,740
11 63,890 49,490 1,063,890 69,450 55,050 1,069,450
12 67,490 56,690 1,067,490 74,680 63,880 1,074,680
13 70,160 62,960 1,070,160 79,400 72,200 1,079,400
14 71,760 68,530 1,071,760 83,530 79,930 1,083,530
15 72,130 72,130 1,072,130 87,010 87,010 1,087,010
20 46,790 46,790 1,046,790 92,130 92,130 1,092,130
**
</TABLE>
- --------------------------------------------------------------------------------
(1) ASSUMES A $8,500.00 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 85.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE 0%
OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-5
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
1 FEMALE AND 1 MALE JOINT INSURED
BOTH NON-TOBACCO PREMIUM CLASS
BOTH ISSUE AGE: 55
$8,500.00 ANNUAL PREMIUM
$1,000,000 FACE AMOUNT
VARIABLE DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 6%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
-------------------------------------------------------- -------------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
POLICY ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 7,750 0 1,007,750 7,810 0 1,007,810
2 15,740 0 1,015,740 15,880 0 1,015,880
3 23,940 5,940 1,023,940 24,210 6,210 1,024,200
4 32,330 14,330 1,032,330 32,810 14,810 1,032,810
5 40,890 22,890 1,040,890 41,680 23,680 1,041,580
6 49,590 34,590 1,049,590 50,810 32,810 1,050,810
7 58,390 40,390 1,058,390 60,210 42,210 1,060,210
8 67,230 49,230 1,067,230 69,840 51,840 1,069,840
9 76,030 58,030 1,076,030 79,690 61,690 1,079,690
10 84,690 66,690 1,084,690 89,720 71,720 1,089,720
11 94,300 79,900 1,094,300 100,980 86,580 1,100,980
12 103,620 92,820 1,103,020 112,370 101,570 1,112,370
13 112,480 105,280 1,112,480 123,850 116,650 1,123,850
14 120,700 117,100 1,120,700 135,350 131,750 1,135,350
15 128,090 128,090 1,128,090 146,800 146,800 1,146,800
20 140,900 140,900 1,140,900 200,180 200,180 1,200,180
**
</TABLE>
- --------------------------------------------------------------------------------
(1) ASSUMES A $8,500.00 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 90.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE 6%
OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-6
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
1 FEMALE AND 1 MALE JOINT INSURED
BOTH NON-TOBACCO PREMIUM CLASS
BOTH ISSUE AGE: 55
$8,500.00 ANNUAL PREMIUM
$1,000,000 FACE AMOUNT
VARIABLE DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 12%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
-------------------------------------------------------- -----------------------------------------------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
POLICY ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 8,210 0 1,008,740 8,270 0 1,008,270
2 17,150 0 1,017,150 17,300 0 1,017,380
3 26,880 8,880 1,026,880 27,180 9,180 1,027,880
4 37,440 19,440 1,037,440 37,970 19,970 1,037,970
5 48,890 30,890 1,048,890 49,760 31,760 1,049,760
6 61,270 43,270 1,061,270 62,650 44,650 1,062,650
7 74,640 56,640 1,074,640 76,720 58,720 1,076,720
8 89,030 71,030 1,089,030 92,060 74,060 1,092,660
9 109,460 86,460 1,109,460 108,770 90,770 1,108,770
10 120,950 102,950 1,120,950 126,950 108,950 1,126,950
11 140,020 125,620 1,140,030 148,110 133,710 1,148,110
12 160,390 149,590 1,160,390 171,170 160,370 1,171,170
13 182,060 174,860 1,182,060 196,270 189,070 1,196,270
14 204,990 201,390 1,204,990 223,560 219,960 1,223,560
15 229,160 229,160 1,229,160 253,200 253,020 1,253,200
20 363,060 363,060 1,363,060 443,700 443,700 1,443,780
AGE
90 825,600 825,600 1,000,000 1,214,980 1,214,980 2,214,980
95 561,830 561,830 0 1,220,330 1,220,330 2,220,330
100 0 0 0 768,150 768,150 1,768,150
</TABLE>
- --------------------------------------------------------------------------------
(1) ASSUMES A $8,500.00 PREMIUM (WHICH EXCEEDS THE ANNUALIZED MINIMUM MONTHLY
PREMIUM) IS PAID AT THE BEGINNING OF EACH POLICY YEAR. VALUES WILL BE
DIFFERENT IF PREMIUMS ARE PAID WITH A DIFFERENT FREQUENCY OR IN DIFFERENT
AMOUNTS.
(2) ASSUMES THAT NO POLICY LOANS OR PARTIAL WITHDRAWALS HAVE BEEN MADE.
EXCESSIVE LOANS OR WITHDRAWALS MAY CAUSE THE POLICY TO LAPSE BECAUSE OF
INSUFFICIENT CASH SURRENDER VALUE.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-7
<PAGE>
APPENDIX D
MAXIMUM SURRENDER CHARGES
PER $1,000 OF FACE AMOUNT
<TABLE>
<CAPTION>
Joint Insured's
Age at Policy
Date or Effective
Date Charge Per $1,000 of Face Amount
of Increase, as (Initial Face Amount or Amount of
Appropriate Requested Increase)
- ----------------- ---------------------------------
<S> <C>
0 $ 8.00
1 8.00
2 8.00
3 8.00
4 8.00
5 8.00
6 8.00
7 8.00
8 8.00
9 8.00
10 8.00
11 8.00
12 8.00
13 8.00
14 8.00
15 8.00
16 8.00
17 8.00
18 8.00
19 8.00
20 8.00
21 8.00
22 8.00
23 8.00
24 8.00
25 8.00
26 8.20
27 8.40
28 8.60
29 8.80
30 9.00
31 9.20
32 9.40
33 9.60
34 9.80
35 10.00
36 10.20
37 10.40
38 10.60
39 10.80
40 11.00
41 11.20
42 11.40
<CAPTION>
Joint Insured's
Age at Policy
Date or Effective
Date Charge Per $1,000 of Face Amount
of Increase, as (Initial Face Amount or Amount of
Appropriate Requested Increase)
- ----------------- ---------------------------------
<S> <C>
43 $ 11.60
44 11.80
45 12.00
46 12.60
47 13.20
48 13.80
49 14.40
50 15.00
51 15.60
52 16.20
53 16.80
54 17.40
55 18.00
56 18.60
57 19.20
58 19.80
59 20.40
60 21.00
61 21.60
62 22.20
63 22.80
64 23.40
65 24.00
66 24.00
67 24.00
68 24.00
69 24.00
70 24.00
71 24.00
72 24.00
73 24.00
74 24.00
75 24.00
76 23.60
77 23.20
78 22.80
79 22.40
80 22.00
81 21.60
82 21.20
83 20.80
84 20.40
85 20.00
</TABLE>
The maximum Surrender Charge per $1,000 of Face Amount is determined by
calculating the average of the Charge Per $1,000 from the above table for each
of the Joint Insured's. The Surrender Charge for the Initial Face Amount is
based on each Joint Insured's Issue Age on the Policy Date. The Surrender Charge
for any requested increase in Face Amount is based on each Joint Insured's Age
on the Effective Date of the Increase.
D-1
<PAGE>
RELIASTAR (logo)
RELIASTAR LIFE INSURANCE COMPANY
20 Washington Avenue South
Minneapolis, Minnesota 55401
SURVIVORSHIP LIFE PROSPECTUS 46203 (APRIL 30, 1997)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Registrant has duly caused this Pre-Effective Amendment
No.1 to Registration Statement S-6 to be signed on its behalf, in the City
of Minneapolis, and State of Minnesota, on the 28th day of March, 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 and the Investment Company Act of
1940, Depositor has caused this Pre-Effective Amendment No. 1 to Registration
Statement to be signed on its behalf, in the City of Minneapolis and State of
Minnesota, on this 28th day of March, 1997.
RELIASTAR LIFE INSURANCE COMPANY
(Depositor)
By: /s/ John G. Turner
-----------------------------------------------
John G. Turner, Chairman
and Chief Executive Officer
As requested by the Securities Act of 1933, this Pre-Effective Amendment No.
1 to the Registration Statement S-6 has been signed on this 28th day of
March, 1997 by the following directors and officers of Depositor in the
capacities indicated:
/s/ John G. Turner Chairman and Chief Executive Officer
- ----------------------
John G. Turner
/s/ Wayne R. Huneke Senior Vice President and Chief Financial Officer
- ---------------------- (Principal Accounting Officer)
Wayne R. Huneke
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 Pre-Effective Amendment No.1 to the Registration Statement comprises the
following papers and documents:
The Facing Sheet.
The general form of Prospectus, consisting of 104 pages.
Undertakings to file reports.* (Filed in S-6EL24 on December 23, 1996, File
No. 333-18517, and incorporated herein by reference.)
Rule 484 Undertakings.* (Filed in S-6EL24 on December 23, 1996, File No.
333-18157 and incorporated herein by reference.)
Representation pursuant to Section 26(e)(2)(A).* (Filed in S-6EL24 on
December 23, 1996, File No. 333-18517, 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. Craig A. Krogstad, FSA, MAAA - Filed as part of EX-99.C6.
3. Deloitte & Touche LLP - Filed as part of EX-99.C1.
The following exhibits:
1. The following exhibits correspond to those required by Paragraph A of the
instructions as to exhibits in Form N-8B-2;
A. (1) Resolutions of Board of Directors of Northwestern National Life
Insurance Company ("NWNL") establishing the Select*Life Variable Account.*
(Filed 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.
<PAGE>
(5) Form of Policy available (together with available Policy riders).*
(Filed in S-6EL24 on December 23, 1996, File No. 333-18517, and
incorporated herein by reference.)
(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.)
(8) (c) 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.)
(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
EX-99.D1. Memorandum describing ReliaStar Life's issuance, transfer and
redemption procedures for the Policies and ReliaStar Life's
procedure for
<PAGE>
conversion to a fixed benefit policy.* (Filed in S-6EL24 on December
23, 1996, File No. 333-18517, and incorporated herein by reference.)
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
* Previously Filed
<PAGE>
[LETTERHEAD]
March 24, 1997
ReliaStar Life Insurance Company
20 Washington Avenue S.
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.
333-18517 (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/ RBS
- -----------------
Robert B. Saginaw
Counsel
<PAGE>
EX 99.C1
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Contract Holders
Select*Life Variable Account
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement on Form S-6 (File No. 333-18517) 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.
Deloitte & Touche LLP
Minneapolis, MN
March 26, 1997
<PAGE>
[LETTERHEAD]
March 24, 1997
ReliaStar Life Insurance Company
20 Washington Avenue S.
Minneapolis, MN 55440
Madam/Sir:
This opinion is furnished in connection with the registration by ReliaStar
Life Insurance Company of a flexible premium survivorship variable life
insurance policy (the "Contract") under the Securities Act of 1933, as
amended. The Contract, including variations thereof used in various states,
is described in the Prospectus constituting a part of the Registration
Statement on Form S-6, as amended, File No. 333-18517.
The form of Contract was reviewed by me, and I am familiar with the
Registration Statement and Exhibits thereto.
In my opinion:
The illustrations of Accumulation Values, Surrender Charges, Cash Surrender
Values, and Death Benefits, included in the section entitled, "Illustration
of Accumulation Values, Surrender Charges, Cash Surrender Values, and Death
Benefits" in Appendix C of the Prospectus constituting part of the
Registration Statement, based on the assumptions stated in the
illustrations, are consistent with the provisions of the Contract
(including, as appropriate, any state variation thereof). The rate
structure of the Contract has not been designed so as to make the
relationship between premiums and benefits, as shown in the illustrations,
appear more favorable to a prospective purchaser of a Contract for a male
Joint Insured Age 55 and a female Joint Insured Age 55, both nonsmokers in
a standard Rate Class, than to prospective purchasers of the Contract for
other ages, sexes, or Rate Classes. In any state where charges cannot be
based upon the insured's sex, the rate structure of the Contract has not
been designed so as to make the relationship between premium and benefits,
as shown in the illustrations, appear more favorable to a prospective
purchaser of the Contract for Joint Insureds who are both Age 55 than to
prospective purchasers of the Contract for other ages.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
Prospectus constituting a part of the Registration Statement.
Sincerely,
/s/ Craig A. Krogstad
- ----------------------------
Craig A. Krogstad, FSA, MAAA
Actuary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM RELIASTAR SELECT LIFE
VARIABLE ACCOUNT ANNUAL REPORT FOR THE YEAR ENDED 12-31-96 ANNUAL REPORT (FORM
N-SAR) FILING PURSUANT TO SECTION 15(d) OF THE 1934 ACT AND SECTION 30(b) OF THE
1940 ACT, FORM 24f-2 ANNUAL NOTICE OF SECURITIES SOLD PURSUANT TO RULE 24f-2,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 236,440
<INVESTMENTS-AT-VALUE> 286,399
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 286,399
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 126
<TOTAL-LIABILITIES> 126
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 236,440
<SHARES-COMMON-STOCK> 15,861,312
<SHARES-COMMON-PRIOR> 10,541,629
<ACCUMULATED-NII-CURRENT> 9,165
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,327
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49,959
<NET-ASSETS> 286,399
<DIVIDEND-INCOME> 2,990
<INTEREST-INCOME> 0
<OTHER-INCOME> 8,110
<EXPENSES-NET> 1,935
<NET-INVESTMENT-INCOME> 9,165
<REALIZED-GAINS-CURRENT> 3,085
<APPREC-INCREASE-CURRENT> 15,731
<NET-CHANGE-FROM-OPS> 27,981
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,349,212
<NUMBER-OF-SHARES-REDEEMED> 2,029,529
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 106,245
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
