SELECT*LIFE III
MAY 1, 1998 PROSPECTUS
Flexible Premium Variable
Life Insurance Policy
Select*Life 2000 Series
[LOGO] RELIASTAR
RELIASTAR LIFE INSURANCE COMPANY
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20 Washington Avenue South
Minneapolis, Minnesota 55401
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FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
ISSUED BY
SELECT*LIFE VARIABLE ACCOUNT
OF
RELIASTAR LIFE INSURANCE COMPANY
This Prospectus describes a flexible premium variable life insurance
policy (the "Policy") offered by ReliaStar Life Insurance Company ("we", "us",
"our" or the "Company"). This Policy is designed to provide lifetime insurance
protection up to Age 95. It also is designed to provide maximum flexibility in
connection with premium payments and death benefits by giving the Policy owner
("you", "your") the opportunity to allocate net premiums among investment
alternatives with different investment objectives. A Policy owner may, subject
to certain restrictions, including limitations on premium payments, vary the
frequency and amount of premium payments and increase or decrease the level of
death benefits payable under the Policy. This flexibility allows a Policy owner
to provide for changing insurance needs under a single insurance contract.
The Policy provides for a death benefit payable at the Insured's death. As
long as the Policy remains in force, the death benefit will never be less than
the current Face Amount less any Policy loans and unpaid charges. The minimum
Face Amount of the Policy is currently $150,000 for issue ages 0 through 44 and
$100,000 for issue ages 45 through 80. The Face Amount may be increased,
subject to certain limitations, provided that the increase is not less than
$5,000. Generally, the Policy will remain in force as long as the Policy's Cash
Surrender Value (that is, the amount that would be paid to you upon surrender
of the Policy) is sufficient to pay certain monthly charges imposed in
connection with the Policy (including the cost of insurance and certain
administrative charges). In addition, the Policy will remain in force for five
Policy Years for issue ages 0 through 59, and four years for issue ages 60
through 80, without regard to the Cash Surrender Value, if on each Monthly
Anniversary the total premiums paid on the Policy, less any partial withdrawals
and Policy loans, equals or exceeds the total required Minimum Monthly Premium
payments specified in your Policy (which is a feature of the Policy called the
"Death Benefit Guarantee").
(Continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-SENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
SHARES OF THE FUNDS, INTERESTS IN THE FIXED ACCOUNT AND INTERESTS IN THE
POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY A
BANK, AND THE SHARES AND INTERESTS ARE NOT FEDERALLY INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE POLICY INVOLVES
CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF PRINCIPAL.
THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE. A
CURRENT PROSPECTUS FOR EACH OF THE FUNDS MUST ACCOMPANY THIS PROSPECTUS AND
SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
N700.181e
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Net premiums paid under the Policy are allocated, according to your
instructions, either to the Select*Life Variable Account (the "Variable
Account"), which is one of our separate accounts, or to our General Account
(the "Fixed Account"). Any amounts allocated to the Variable Account will be
allocated to one or more Sub-Accounts of the Variable Account. The assets of
each Sub-Account will be invested solely in one of the three portfolios
available through The Alger American Fund, in the shares of one of the five
portfolios of the Fidelity Variable Insurance Products Fund ("VIP"), in one of
the four portfolios of the Fidelity Variable Insurance Products Fund II ("VIP
II"), in one of the four portfolios of Janus Aspen Series, in one of the two
portfolios available through Neuberger&Berman Advisers Management Trust, in one
of the five funds available through the Northstar Variable Trust, in one of
four portfolios available through the OCC Accumulation Trust, or in one of six
funds available through Putnam Variable Trust (the "Funds"). The prospectus for
each of the Funds describes the investment objectives and attendant risks of
each of the Funds and portfolios. These prospectuses are contained in the
accompanying book entitled "Select*Product Investment Options".
If net premiums are allocated to the Variable Account, the amount of the
Policy's death benefit may, and the Policy's Accumulation Value (that is, the
total amount that a Policy provides for investment at any time) will, reflect
the investment performance of the Sub-Accounts of the Variable Account that you
select. You bear the entire investment risk for any amounts allocated to the
Variable Account; no minimum Accumulation Value in the Variable Account is
guaranteed. Regardless of how net premiums are allocated, the Policy's death
benefit may, and the Policy's Accumulation Value will, also depend upon the
frequency and amount of premiums paid, any partial withdrawals, loans and the
charges and deductions assessed in connection with the Policy.
REPLACING EXISTING INSURANCE WITH A POLICY DESCRIBED IN THIS PROSPECTUS
MAY NOT BE TO YOUR ADVANTAGE. IN ADDITION, IT MAY NOT BE TO YOUR ADVANTAGE TO
PURCHASE THIS POLICY TO OBTAIN ADDITIONAL INSURANCE PROTECTION IF YOU ALREADY
OWN ANOTHER 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.
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DEFINITIONS................................................................ 6
PART 1. SUMMARY
Premium Payments........................................................... 9
Deductions from each premium payment....................................... 9
The Fixed Account.......................................................... 9
The Variable Account....................................................... 9
The Investment Advisers of the Funds....................................... 9
The Funds................................................................. 10
Transfer between the Sub-Accounts and/or the Fixed Account................ 10
Charges against the Accumulation Value.................................... 10
Charges made upon lapse or total surrender of the Policy.................. 10
The value of the Policy if you surrender it............................... 11
Partial withdrawals....................................................... 11
The free look rights...................................................... 11
Borrowing against the value of the Policy................................. 11
The Death Benefit......................................................... 11
You may adjust the amount of the Death Benefit............................ 12
Unless the Death Benefit Guarantee is in effect, we may cause the Policy
to lapse................................................................. 12
The Death Benefit Guarantee............................................... 12
Death Benefit proceeds generally not taxable income to the beneficiary.... 12
Accumulation Value increases generally not taxable income
while accumulating....................................................... 12
Exercising certain Policy rights and tax consequences..................... 12
Modified Endowment Contracts.............................................. 12
PART 2. DETAILED INFORMATION
ReliaStar Life Insurance Company.......................................... 12
The Variable Account...................................................... 13
Performance Information................................................... 13
The Policies.............................................................. 14
Death Benefit............................................................. 14
Death Benefit Options.................................................... 14
Which Death Benefit Option to Choose..................................... 16
Requested Changes in Face Amount......................................... 16
Insurance Protection..................................................... 17
Change in Death Benefit Option........................................... 18
Accelerated Benefit Rider................................................ 18
Payment and Allocation of Premiums........................................ 19
Issuing the Policy....................................................... 19
Allocation of Premiums................................................... 20
Amount and Timing of Premiums............................................ 20
Planned Periodic Premiums................................................ 21
Unscheduled Additional Premiums.......................................... 21
Paying Premiums by Mail.................................................. 21
Death Benefit Guarantee................................................... 21
Requirements............................................................. 21
Accumulation Value........................................................ 22
Specialized Uses of the Policy........................................... 23
Deductions and Charges.................................................... 23
Premium Expense Charge................................................... 23
Monthly Deduction........................................................ 24
Surrender Charge......................................................... 25
Partial Withdrawal and Transfer Charges.................................. 27
Investment advisory fees and fund expenses after reimbursement........... 27
Reduction of Charges..................................................... 29
Sales Charge Refund....................................................... 29
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Policy Lapse and Reinstatement............................................ 31
Surrender Benefits........................................................ 31
Total Surrender.......................................................... 31
Partial Withdrawal....................................................... 32
Transfers................................................................. 32
Telephone/Fax Instructions............................................... 33
Dollar Cost Averaging Service............................................ 33
Portfolio Rebalancing Service............................................ 34
Policy Loans.............................................................. 34
Free Look and Conversion Rights........................................... 36
Free Look Rights......................................................... 36
Conversion Rights........................................................ 37
Investments of the Variable Account....................................... 38
Fund Decsriptions......................................................... 39
Addition, Deletion, or Substitution of Investments....................... 40
Voting Rights............................................................. 40
General Provisions........................................................ 41
Benefits at Age 95....................................................... 41
Ownership................................................................ 41
Proceeds................................................................. 42
Beneficiary.............................................................. 42
Postponement of Payments................................................. 42
Settlement Options....................................................... 42
Incontestability......................................................... 43
Misstatement of Age and Sex.............................................. 43
Suicide.................................................................. 43
Termination.............................................................. 43
Amendment................................................................ 44
Reports.................................................................. 44
Dividends................................................................ 44
Collateral Assignment.................................................... 44
Optional Insurance Benefits.............................................. 44
Federal Tax Matters....................................................... 45
Introduction............................................................. 45
Tax Status of the Policy................................................. 45
Tax Treatment of Policy Benefits......................................... 45
Taxation of ReliaStar Life Insurance Company............................. 46
Possible Changes in Taxation............................................. 46
Legal Developments Regarding Employment -- Related Benefit Plans.......... 47
Preparing for Year 2000................................................... 47
Distribution of the Policies.............................................. 47
Management................................................................ 48
Directors................................................................ 48
Executive Officers....................................................... 50
State Regulation.......................................................... 50
Massachusetts and Montana Residents....................................... 50
Legal Proceedings......................................................... 51
Bonding Arrangements...................................................... 51
Legal Matters............................................................. 51
Experts................................................................... 51
Registration Statement Contains Further Information....................... 51
Financial Statements...................................................... 51
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Appendix A -- The Fixed Account.......................................... A-1
Appendix B -- Calculation of Accumulation Value.......................... B-1
Appendix C -- Illustration of Accumulation Values, Surrender Charges,
Cash Surrender Values and Death Benefits.................. C-1
Appendix D -- Maximum Contingent Deferred Sales Charges Per $1,000 of
Face Amount............................................... D-1
Appendix E -- Surrender Charge Guideline Per $1,000 of Face Amount....... E-1
FUND PROSPECTUSES ("SELECT*PRODUCT INVESTMENT OPTIONS")
The Alger American Fund
Fidelity Variable Insurance Products Fund (VIP)
Fidelity Variable Insurance Products Fund II (VIP II)
Janus Aspen Series
Neuberger&Berman Advisers Management Trust ("AMT")
Northstar Variable Trust (Northstar)
OCC Accumulation Trust
Putnam Variable Trust
THE POLICY MAY NOT BE AVAILABLE IN ALL JURISDICTIONS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING OR SOLICITATION IN ANY JURISDICTION IN WHICH SUCH
OFFERING OR SOLICITATION MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING FUND
PROSPECTUSES AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THE PRIMARY PURPOSE OF THE POLICY IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY NAMED IN THE POLICY. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY
SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
<PAGE>
DEFINITIONS
ACCUMULATION VALUE. The total value attributable to a specific Policy, which
equals the sum of the Variable Accumulation Value (the total of the values
in each Sub-Account of the Variable Account) and the Fixed Accumulation
Value (the value in the Fixed Account). See "Accumulation Value" at page 22
and Appendix B.
AGE. The Insured's age at the last birthday determined as of the beginning of
each Policy Year.
CASH SURRENDER VALUE. The Accumulation Value less any Surrender Charge, Loan
Amount and unpaid Monthly Deductions.
CASH VALUE. The Accumulation Value less any Surrender Charge.
CODE. Internal Revenue Code of 1986, as amended.
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE. A contingent deferred charge to
reimburse us for expenses incurred in issuing the Policy. See "Deductions
and Charges -- Surrender Charge" at page 25.
CONTINGENT DEFERRED SALES CHARGE. A contingent deferred charge to reimburse us
for expenses relating to the distribution of the Policy. See "Deductions
and Charges -- Surrender Charge" at page 25.
DEATH BENEFIT. The amount determined under the applicable Death Benefit Option
(the Level Amount Option or the Variable Amount Option). The proceeds
payable to the beneficiary of the Policy upon the death of the Insured
under either Death Benefit Option will be reduced by any Loan Amount and
any unpaid Monthly Deductions. See "Death Benefit" at page 14.
DEATH BENEFIT GUARANTEE. A feature of the Policy guaranteeing that the Policy
will not lapse during the Death Benefit Guarantee Period if, on each
Monthly Anniversary, the total premiums paid on the Policy, less any
partial withdrawals and any Loan Amount, equals or exceeds the total
required Minimum Monthly Premium payments specified in your Policy. See
"Death Benefit Guarantee" at page 21.
DEATH BENEFIT GUARANTEE PERIOD. The Death Benefit Guarantee Period is the first
five Policy Years for issue ages 0-59 and the first four Policy Years for
issue age 60-80.
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 14.
FACE AMOUNT. The minimum Death Benefit under the Policy as long as the Policy
remains in force. See "Death Benefit" at page 14.
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 22 and Appendix B.
FUNDS. Any open-end management investment company (or portfolio thereof) or
unit investment trust (or series thereof) in which a Sub-Account invests
as described herein. See "Investments of the Variable Account" at page
38.
INSURED. The person upon whose life the Policy is issued.
ISSUE DATE. The date insurance coverage under a Policy begins.
LEVEL AMOUNT OPTION. One of two Death Benefit Options available under the
Policy. Under this option, the Death Benefit is the greater of the current
Face Amount or the corridor percentage of Accumulation Value on the
Valuation Date on or next following the date of the Insured's death. See
"Death Benefit -- Death Benefit Options" at page 14.
LOAN AMOUNT. The sum of all unpaid Policy loans including unpaid interest due
thereon. See "Policy Loans" at page 34.
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MINIMUM FACE AMOUNT. The minimum Face Amount shown in the Policy (currently
$150,000 for issue ages 0-44 and $100,000 for issue ages 45-80). The
minimum Face Amount after issue is currently $125,000 for issue ages 0-44
and $75,000 for issue ages 45-80.
MINIMUM MONTHLY PREMIUM. A monthly premium amount specified in the Policy and
determined by us at issuance of the Policy. See "Death Benefit Guarantee"
at page 21.
MONTHLY ANNIVERSARY. The same date in each succeeding month as the Policy Date.
Whenever the Monthly Anniversary falls on a date other than a Valuation
Date, the Monthly Anniversary will be considered to be the next Valuation
Date. The first Monthly Anniversary is on the Policy Date.
MONTHLY DEDUCTION. A monthly charge deducted from the Accumulation Value of the
Policy. See "Deductions and Charges -- Monthly Deduction" at page 24.
MONTHLY ADMINISTRATIVE CHARGE. A monthly charge to reimburse us for expenses
incurred in administering the Policy. See "Deductions and Charges --
Monthly Deduction" at page 24.
MONTHLY MORTALITY AND EXPENSE RISK CHARGE. A monthly charge to compensate us
for certain mortality and expense risks we assume under the Policy. See
"Deductions and Charges -- Monthly Mortality and Expense Risk Charge" at
page 24.
NET PREMIUM. The gross premium less a Premium Expense Charge deducted from each
premium.
PLANNED PERIODIC PREMIUM. The scheduled premium selected by you of a level
amount at a fixed interval. The initial Planned Periodic Premium you select
will be shown in the Policy. See "Payment and Allocation of Premiums --
Planned Periodic Premiums" at page 21.
POLICY, POLICIES. The flexible premium variable life insurance Policy offered
by us and described in this Prospectus.
POLICY ANNIVERSARY. The same date in each succeeding year as the Policy Date.
Whenever the Policy Anniversary falls on a date other than a Valuation
Date, the Policy Anniversary will be considered to be the next Valuation
Date.
POLICY DATE. The Policy Date is used in determining Policy Years, Policy
Months, Monthly Anniversaries, and Policy Anniversaries. The Policy Date
will be shown in the Policy.
POLICY MONTH. A month beginning on the Monthly Anniversary.
POLICY YEAR. A year beginning on the Policy Anniversary.
PREMIUM EXPENSE CHARGE. An amount deducted from each premium payment. See
"Deductions and Charges -- Premium Expense Charge" at page 23.
RATE CLASS. A group of Insureds we determine based on our expectation that they
will have similar mortality experience.
SALES CHARGE REFUND. An amount designated as Sales Charge Refund may exist
during the first two Policy Years or during any 24-month period following a
requested increase in Face Amount. See "Sales Charge Refund" at page 29.
SEC. Securities and Exchange Commission.
SIGNATURE GUARANTEE. A guarantee of your signature by a member firm of the New
York, American, Boston, Midwest, Philadelphia, or Pacific Stock Exchange,
or by a commercial bank (not a savings bank) which is a member of the
Federal Deposit Insurance Corporation, or, in certain cases, by a member
firm of the National Association of Securities Dealers, Inc. that has
entered into an appropriate agreement with us.
SUB-ACCOUNT. A sub-division of the Variable Account. Each Sub-Account invests
exclusively in the shares of a specified Fund.
SURRENDER CHARGE. A charge imposed upon total surrender or lapse of the Policy
during the first 15 Policy Years and the first 15 years following any
requested increase in Face Amount. See "Deductions and Charges -- Surrender
Charge" at page 25.
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SURRENDER CHARGE GUIDELINE. An amount used in calculating Sales Charge Refunds
(see "Sales Charge Refund" at page 29) and in calculating the sales charge
on requested increases in Face Amount (see "Deductions and Charges --
Surrender Charge -- Contingent Deferred Sales Charge Calculation" at page
26).
UNIT VALUE. The unit measure by which the value of the Policy's interest in
each Sub-Account is determined. See Appendix B.
VALUATION DATE. Each day the New York Stock Exchange is open for business
except for that a Sub-Account's corresponding Fund does not value its
shares. The New York Stock Exchange is currently closed on week-ends and on
the following holidays: New Year's Day; Martin Luther King Day; Presidents'
Day; Good Friday; Memorial Day; July Fourth; Labor Day; Thanksgiving Day;
and Christmas Day. See Appendix B.
VALUATION PERIOD. The period between two successive Valuation Dates, commencing
at the close of business of a Valuation Date and ending at the close of
business of the next Valuation Date. See Appendix B.
VARIABLE ACCOUNT. Select*Life Variable Account, a separate investment account
established by us to receive and invest Net Premiums paid under the Policy.
See "The Variable Account" at page 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 22 and Appendix B.
VARIABLE AMOUNT OPTION. One of two Death Benefit Options available under the
Policy. Under this option, the Death Benefit is the greater of the Face
Amount plus the Accumulation Value of the Policy, or the corridor
percentage of Accumulation Value on the Valuation Date on or next following
the date of the Insured's death. See "Death Benefit -- Death Benefit
Options" at page 14.
WE, US, OUR. ReliaStar Life Insurance Company.
YOU, YOUR. The Policy owner as designated in the application for the Policy or
as subsequently changed. If a Policy has been absolutely assigned, the
assignee is the Policy owner. A collateral assignee is not the Policy
owner.
<PAGE>
PART 1. SUMMARY
This is a brief summary of the Policy's features. More detailed
information is provided in this Prospectus and the Policy.
PREMIUM PAYMENTS
With certain restrictions, you can choose when you pay premiums and how
much each payment will be. In most cases, however, payment of cumulative
premiums sufficient to maintain the Death Benefit Guarantee will be required to
keep the Policy in force during at least the first several Policy Years (see
"Death Benefit Guarantee" and "Payment and Allocation of Premiums -- Amount and
Timing of Premiums".)
DEDUCTIONS FROM EACH PREMIUM PAYMENT
We deduct an amount (the Premium Expense Charge) from each premium and
credit the remaining premium (the Net Premium) to the Fixed Account or to the
Variable Account in accordance with your instructions. The Premium Expense
Charge is guaranteed not to exceed 5.00% of each premium payment for the
duration of the Policy. The Premium Expense Charge is currently 5.00% of each
premium payment in Policy Years 1-10 and 3.00% of each premium payment after
the tenth Policy Year. The Premium Expense Charge consists of a sales charge of
2.50% and a premium tax charge of 2.50%. Although we do not currently do so, we
may choose to make an additional charge of up to $2.00 per premium payment as
part of the Premium Expense Charge to reimburse us for premium processing
expenses. See "Deductions and Charges -- Premium Expense Charge".
THE FIXED ACCOUNT
The Fixed Account consists of all of our assets other than those in our
separate accounts (including the Variable Account). We credit interest of at
least 4% per year on any amounts you have in the Fixed Account. From time to
time we may guarantee interest in excess of 4%. See Appendix A, "The Fixed
Account".
THE VARIABLE ACCOUNT
The Select*Life Variable Account is one of our separate accounts. Only
premiums from our variable life insurance policies are invested in the Variable
Account. See "The Variable Account". The Variable Account is divided into
Sub-Accounts. Premiums allocated to each Sub-Account are invested in shares, at
net asset value, of the Fund related to that Sub-Account. The Variable
Accumulation Value of the Policy will vary with, among other things, the
investment performance of the Funds to which Policy premiums are allocated and
the charges deducted from the Variable Accumulation Value. See "Accumulation
Value".
THE INVESTMENT ADVISERS OF THE FUNDS
* Fred Alger Management, Inc. ("Alger Management") is the investment
manager for the three Alger American Portfolios.
* Fidelity Management & Research Company ("FMR") is the investment adviser
of the VIP Funds' five portfolios and of VIP II Funds' four portfolios.
* Janus Capital Corporation ("Janus Capital") is the investment adviser of
the four portfolios of Janus Aspen Series.
* Neuberger&Berman Management, with the assistance of Neuberger&Berman, LLC
as sub-adviser, selects investments for AMT Limited Maturity Bond
Investments and AMT Partners Investments.
* Northstar Investment Management Corporation, an affiliate of ours, is the
investment adviser for the five portfolios of the Northstar Variable
Trust. Certain of the Northstar portfolios are Sub-advised by third party
investment advisers: The Northstar Variable Trust Growth Porfolio is
sub-advised by Navellier Fund Management, Inc., and the Northstar
Variable Trust International Value Portfolio is sub-advised by Brandes
Investment Partners, L.P.
* OpCap Advisors is the investment manager for each of the four OCC
Accumulation Trust Portfolios and is a subsidiary of Oppenheimer Capital,
a registered investment adviser.
* Putnam Investment Management, Inc. ("Putnam Management") is the
investment adviser of Putnam Variable Trust's six funds.
<PAGE>
For the expenses of each Fund see "Investment Advisory fees and other fund
expenses after reimbursements."
THE FUNDS
You can put your money in up to seventeen (17) of these thirty-three (33)
investment portfolios which are described in the prospectuses for the
portfolios. You do not have to choose your investment options in advance, but
upon participation in the seventeenth Fund you would only be able to transfer
within the seventeen Funds already utilized and which are available. See
"Investments of the Variable Account."
<TABLE>
<CAPTION>
FIDELITY VARIABLE NEUBERGER&BERMAN
THE ALGER INSURANCE PRODUCTS ADVISERSMANAGEMENT OCC ACCUMULATION
AMERICAN FUND: FUND II (VIP II): TRUST ("AMT"): TRUST:
- ------------------------------- ------------------------------- ------------------------------- ---------------------------
<S> <C> <C> <C>
Growth Portfolio VIP II Asset Manager Limited Maturity Bond Equity Portfolio
MidCap Growth Portfolio Portfolio Portfolio Global Equity Portfolio
Small Capitalization Portfolio VIP II Contrafund Portfolio Partners Portfolio Managed Portfolio
VIP II Index 500 Portfolio Small Cap Portfolio
VIP II Investment Grade
Bond Portfolio
</TABLE>
<TABLE>
<CAPTION>
FIDELITY VARIABLE
INSURANCE PRODUCTS NORTHSTAR VARIABLE TRUST
FUND (VIP): JANUS ASPEN SERIES: ("NORTHSTAR"): PUTNAM VARIABLE TRUST:
- --------------------------------- --------------------------------- --------------------------------- --------------------------
<S> <C> <C> <C>
VIP Equity-Income Portfolio Aggressive Growth Portfolio Growth Portfolio Putnam VT Asia Pacific
VIP Growth Portfolio Growth Portfolio High Yield Bond Portfolio Growth Fund
VIP High Income Portfolio International Growth Portfolio Income and Growth Portfolio Putnam VT Diversified
VIP Money Market Portfolio Worldwide Growth Portfolio International Value Portfolio Income Fund
VIP Overseas Portfolio Multi-Sector Bond Portfolio Putnam VT Growth and
Income Fund
Putnam VT New
Opportunities Fund
Putnam VT Utilities Growth
and Income Fund
Putnam VT Voyager Fund
</TABLE>
TRANSFER BETWEEN THE SUB-ACCOUNTS AND/OR THE FIXED ACCOUNT
Subject to certain restrictions, you can transfer all or part of your
Accumulation Value between the investment options of the Policy. We currently
allow up to twelve transfers per year. Transfers from the Fixed Account are
subject to certain additional restrictions.
CHARGES AGAINST THE ACCUMULATION VALUE
The Accumulation Value of the Policy is subject to the Monthly Deduction
charges.
The Monthly Deduction will be deducted monthly from both the Fixed
Accumulation Value and the Variable Accumulation Value on a proportionate basis
depending on their relative Accumulation Values at that time and includes the
cost of insurance, the Monthly Administrative Charge, the Monthly Mortality and
Expense Risk Charge, and charges for optional insurance benefits. The cost of
insurance will be determined by multiplying the applicable cost of insurance
rate(s) by the net amount at risk. The Monthly Administrative Charge is
currently $8.25 per month and is guaranteed not to exceed $12.00 per month. The
Monthly Mortality and Expense Risk Charge will be equal to one-twelfth of .90%
of the Variable Accumulation Value (that is, the total value attributable to a
specific Policy in the Sub-Accounts of the Variable Account) of the Policy
during the first 10 Policy Years. Beginning on Policy Year 11 and each year
thereafter this monthly charge will be one-twelfth of .30% guaranteed not to
exceed .60% for the duration of the Policy. The charges for optional insurance
benefits will vary depending upon the benefit(s) selected. See "Deductions and
Charges -- Monthly Deduction".
CHARGES MADE UPON LAPSE OR TOTAL SURRENDER OF THE POLICY
During the first 15 years the Policy is in force and the first 15 years
following a requested increase in the Face Amount, there is a charge if the
Policy lapses or you surrender the Policy (the Surrender Charge). The Surrender
Charge consists of the Contingent Deferred Sales Charge to recover our sales
expenses, and the Contingent Deferred Administrative Charge to recover our
policy issue expenses. See "Deductions and Charges -- Surrender Charge".
<PAGE>
The maximum Contingent Deferred Sales Charge and the maximum Contingent
Deferred Administrative Charge on the initial Face Amount and on any requested
increases in Face Amount will be determined on the Policy Date and on the
effective date of any such requested increase, as the case may be. These
maximum charges then remain level during the first five years in the relevant
15-year period, and then reduce in equal monthly increments until they become
zero at the end of 15 years. Thus, if the Policy remains in force during the
entire relevant 15-year period, you do not pay this charge.
The Contingent Deferred Administrative Charge on the initial Face Amount
will depend upon the initial Face Amount. The Contingent Deferred
Administrative Charge on any requested increase in Face Amount will depend upon
the Face Amount of the increase. During the first five years in the relevant
15-year period, this charge is $5.00 per $1,000 of Face Amount.
The Contingent Deferred Sales Charge on the initial Face Amount will
depend upon the initial Face Amount, the Insured's Age on the Policy Date, and
the Insured's sex.
THE VALUE OF THE POLICY IF YOU SURRENDER IT
In general, the Cash Surrender Value is the amount you would receive if
you surrender the Policy. To determine the Cash Surrender Value, your
Accumulation Value is reduced by the Surrender Charge, if any, and any Loan
Amount and unpaid Monthly Deductions. During the first two Policy Years and the
first two Policy Years following an increase in the Face Amount, you may also
be entitled to a refund of a portion of any charges made for sales expenses.
See "Surrender Benefits -- Total Surrender" and "Sales Charge Refund".
PARTIAL WITHDRAWALS
You can withdraw part of your Cash Surrender Value. You will not incur a
Surrender Charge, but partial withdrawals are subject to a processing charge.
Only one partial withdrawal is allowed in any Policy Year. See "Surrender
Benefits -- Partial Withdrawal".
THE FREE LOOK RIGHTS
You have a limited free look period during which you have a right to
return the Policy and receive a refund of all premiums paid. See "Free Look and
Conversion Rights -- Free Look Rights". The Policy must be returned to us by
the latest of:
* Midnight of the 20th day after you receive it;
* Midnight of the 20th day after a written Notice of Right of Withdrawal is
mailed or delivered to you; or
* Midnight of the 45th day after the date your application for the Policy
is signed.
BORROWING AGAINST THE VALUE OF THE POLICY
Although we reserve the right to limit borrowing during the first Policy
Year, generally you can borrow, depending upon the state you reside, up to 75%
of the Cash Value of the Policy less any existing Loan Amount. 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".
THE DEATH BENEFIT
You choose one of two Death Benefit Options -- the Level Amount Option or
the Variable Amount Option. The Death Benefit under the Level Amount Option is
the greater of the Face Amount or the corridor percentage of Accumulation
Value. The Death Benefit under the Variable Amount Option is equal to the
greater of the Face Amount plus the Accumulation Value, or the corridor
percentage of Accumulation Value. See "Death Benefit".
The proceeds payable upon the death of the Insured under either Death
Benefit Option will be reduced by any Loan Amount and any unpaid Monthly
Deductions.
The Death Benefit will never be less than the Face Amount as long as the
Policy is in force and there is no Loan Amount or unpaid Monthly Deductions.
<PAGE>
Under certain circumstances a part of the Death Benefit may be paid to you
when the Insured has been diagnosed as having a terminal illness. See
"Accelerated Benefit Rider".
YOU MAY ADJUST THE AMOUNT OF THE DEATH BENEFIT
Although we reserve the right to limit increases and decreases during the
first two Policy Years, you have flexibility to adjust the Death Benefit by
increasing or decreasing the Face Amount. You cannot decrease the Face Amount
below the Minimum Face Amount shown in the Policy. Any increase in the Face
Amount may require additional evidence of insurability satisfactory to us and
will result in additional charges. See "Death Benefit -- Requested Changes in
Face Amount".
Generally, you may also change the Death Benefit Option at any time after
the second Policy Year. See "Death Benefit -- Change in Death Benefit Option".
For a discussion of available techniques to adjust the amount of insurance
protection to satisfy changing insurance needs, see "Death Benefit -- Insurance
Protection".
UNLESS THE DEATH BENEFIT GUARANTEE IS IN EFFECT, WE MAY CAUSE THE POLICY TO
LAPSE
The Policy will only lapse if the Cash Surrender Value plus any Sales
Charge Refund is less than the Monthly Deduction due and if a grace period of
61 days expires without a sufficient payment. The Policy thus differs in two
important respects from traditional life insurance. First, the failure to pay a
Planned Periodic Premium will not automatically cause the Policy to lapse.
Second, even if Planned Periodic Premiums have been paid, the Policy may lapse.
See "Policy Lapse and Reinstatement -- Lapse".
THE DEATH BENEFIT GUARANTEE
During the Death Benefit Guarantee Period, if you meet the requirements
for the Death Benefit Guarantee we will not lapse your Policy, even if the Cash
Surrender Value is not sufficient to cover the Monthly Deduction that is due.
See "Death Benefit Guarantee".
DEATH BENEFIT PROCEEDS GENERALLY NOT TAXABLE INCOME TO THE BENEFICIARY
Under current Federal tax law, as long as the Policy qualifies as life
insurance the Death Benefit under the Policy will be subject to the same
Federal income tax treatment as proceeds of traditional life insurance.
Therefore, the Death Benefit should not be taxable income to the beneficiary.
See "Federal Tax Matters -- Policy Proceeds".
ACCUMULATION VALUE INCREASES GENERALLY NOT TAXABLE INCOME WHILE ACCUMULATING
Under current Federal tax law, as long as the Policy qualifies as life
insurance Accumulation Value increases will also be subject to the same Federal
income tax treatment as traditional life insurance cash values. Therefore, any
increases should accumulate on a tax deferred basis. See "Federal Tax Matters
- -- Policy Proceeds".
EXERCISING CERTAIN POLICY RIGHTS AND TAX CONSEQUENCES
A change of owners, a partial withdrawal, a total surrender, or a Policy
loan may have tax consequences depending on the particular circumstances. See
"Federal Tax Matters -- Policy Proceeds".
MODIFIED ENDOWMENT CONTRACTS
The Company intends for the Policy to satisfy the definition of a life
insurance contract under section 7702 of the Internal Revenue Code of 1986, as
amended (the "Code"). Under certain circumstances, a Policy could be treated as
a "modified endowment contract." The Company will monitor Policies and will
attempt to notify an owner on a timely basis if his or her Policy is in
jeopardy of becoming a modified endowment contract. For further discussion of
the tax status of a Policy and the tax consequences of being treated as a life
insurance contract or a modified endowment contract, see "Federal Tax Matters."
PART 2. DETAILED INFORMATION
RELIASTAR LIFE INSURANCE COMPANY
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. We offer individual life insurance and
annuities, employee benefits and retirement contracts. The Policies described
in this Prospectus are nonparticipating. On a consolidated basis, we have $267
billion of life
<PAGE>
insurance in force and our assets are $21 billion as of December 31, 1997. Our
Home Office is at 20 Washington Avenue South, Minneapolis, Minnesota 55401
(telephone 612-372-5507).
We may from time to time publish in advertisements, sales literature, and
reports, the ratings and other information such as A.M. Best Company, Standard
& Poor's, Moody's, and Duff & Phelps. The purpose of the ratings is to reflect
our financial strength and/or claims-paying ability and shoud not be considered
as bearing on the investment performance of assets held in the Variable
Acocunt. Each year the A.M. Best Company reviews the financial status of many
insurers, culminating in the assignment of Best's Ratings. These ratings
reflect their current opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance industry. We have been assigned a rating of A+ by A.M.
Best, which is a rating assigned to companies demonstrating superior overall
performance and a very strong ability to meet obligations to policyholders over
a long period. Such ratings do not reflect the investment in the Variable
Account.
THE VARIABLE ACCOUNT
The Variable Account is a Separate Account of ours, established by the
Board of Directors on October 11, 1984 pursuant to the laws of the State of
Minnesota. The Variable Account will receive and invest the Net Premiums paid
and allocated to it under this Policy. In addition, the Variable Account
currently receives and invests net premiums for another class of flexible
premium variable life insurance policy and may do so for additional classes in
the future. The Variable Account meets the definition of a "separate account"
under the federal securities laws and has been registered with the SEC as a
unit investment trust under the Investment Company Act of 1940. The
registration does not involve supervision by the SEC of the management or
investment policies or practices of the Variable Account, us, or the Funds.
We own the assets of the Variable Account. However, the Minnesota laws
under which the Variable Account was established provide that the Variable
Account cannot be charged with liabilities arising out of any other business we
may conduct. We are required to maintain assets which are at least equal to the
reserves and other liabilities of the Variable Account. We may transfer assets
which exceed these reserves and liabilities to our general account (the Fixed
Account).
For a description of the Fixed Account, see Appendix A to this Prospectus.
PERFORMANCE INFORMATION
Performance information for the Sub-Accounts of the Variable Account and
the Funds available for investment by the Variable Account may appear in
advertisements, sales literature, or reports to Policy owners or prospective
purchasers. Performance information for the Sub-Accounts will reflect
deductions of Fund Expenses and be adjusted to reflect the Mortality and
Expense Risk Charge, but will not reflect deductions for the cost of insurance
or the Surrender Charge. Quotations of performance information for the Funds
will be accompanied by performance information for the Sub-Accounts.
Performance information for the Funds will take into account all fees and
charges at the Fund level, but will not reflect any deductions from the
Variable Account. Performance information reflects only the performance of a
hypothetical investment during a particular time period in which the
calculations are based. Performance information showing total returns and
average annual total returns may be provided for periods prior to the date a
Sub-Account commenced operation. Such performance information will be
calculated based on the assumption that the Sub-Accounts were in existence for
the same periods as those indicated for the Funds, with the level of charges at
the Variable Account level that were in effect at the inception of the
Sub-Accounts. Performance information should be considered in light of the
investment objectives and policies, characteristics and quality of the
portfolio of the Fund in which the Sub-Account invests, and the market
conditions during the given period of time, and should not be considered as a
representation of what may be achieved in the future.
We may also provide individualized hypothetical illustrations of Policy
Accumulation Value, Cash Surrender Value and Death Benefit based on historical
investment returns of the Funds. These illustrations will reflect deductions
for Fund expenses and Policy and Variable Account charges, 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
<PAGE>
performance of particular types of variable life insurance policies investing
in mutual funds, or investment series of mutual funds with investment
objectives similar to each of the Sub-Accounts, whose performance is reported
by Lipper Analytical Services, Inc. ("Lipper") and Morningstar. Inc.
("Morningstar") or reported by other series, companies, individuals or other
industry or financial publications of general interest, such as Forbes, Money,
The Wall Street Journal, Business Week, Barron's, Kiplinger's Personal Finance,
and Fortune. Lipper and Morningstar are independent services which monitor and
rank the performances of variable life insurance issuers in each of the major
categories of investment objectives on an industry-wide basis.
We may also compare the performance of each Sub-Account in advertising and
sales literature to the Standard & Poor's Index of 500 common stocks and the
Dow Jones Industrials, which are widely used measures of stock market
performance. We may also compare the performance of each Sub-Account to other
widely recognized indices. Unmanaged indices may assume the reinvestment of
dividends, but typically do not reflect any "deduction" for the expense of
operating or managing an investment portfolio.
THE POLICIES
The Policies are flexible premium variable life insurance contracts with
death benefits, cash values, and other features of traditional life insurance
contracts. They are "flexible premium" because premiums do not have to be paid
according to a fixed schedule. They are "variable" because, to the extent
Accumulation Value is attributable to the Variable Account, Accumulation Values
and, under certain circumstances, the Death Benefit will increase and decrease
based on the investment performance of the Funds in which the Sub-Accounts to
which you allocate your premium payments invest.
DEATH BENEFIT
The proceeds payable upon the death of the Insured, while the Policy is in
force, will be the Death Benefit (see "Death Benefit Options" below) reduced by
any Loan Amount and unpaid Monthly Deductions. All or part of the proceeds may
be paid in cash to your beneficiaries or under one or more of the settlement
options we offer (see "General Provisions -- Settlement Options").
The Policy provides two Death Benefit Options: the Level Amount Option and
the Variable Amount Option. You choose the Death Benefit Option on the
application for the Policy. Subject to certain limitations, you can change the
Death Benefit Option after issuance of the Policy. See "Death Benefit -- Change
in Death Benefit Option".
The Death Benefit may vary with the Policy's Accumulation Value. Under the
Level Amount Option, the Death Benefit will only vary with the Accumulation
Value whenever the Accumulation Value multiplied by the corridor percentage
(see "Death Benefit Options -- Level Amount Option") exceeds the Face Amount of
the Policy. The Death Benefit under the Variable Amount Option will always vary
with the Accumulation Value because the Death Benefit equals the Face Amount
plus the Accumulation Value, or the corridor percentage of the Accumulation
Value. Under either Death Benefit Option, however, the Death Benefit will never
be less than the current Face Amount of the Policy and will be payable only as
long as the Policy remains in force.
In addition to affecting the amount of the Death Benefit as described
above, the Accumulation Value generally determines how long the Policy remains
in force. See "Policy Lapse and Reinstatement". This means that, to the extent
Accumulation Value is attributable to the Variable Account, the investment
performance of the Variable Account (and the underlying Funds) may affect the
duration of the Policy by affecting the amount of Accumulation Value. You bear
the investment risk with respect to any amounts allocated to the Variable
Account. If, however, the Death Benefit Guarantee is in effect (see "Death
Benefit Guarantee"), the Policy will stay in force during the Death Benefit
Guarantee Period, without regard to the investment performance under the
Policy.
Appendix C illustrates Accumulation Values, Surrender Charges, Cash
Surrender Values, and Death Benefits assuming different levels of premium
payments and investment returns for selected Ages and Face Amounts.
DEATH BENEFIT OPTIONS
The Level Amount Option and the Variable Amount Option are described
below.
<PAGE>
LEVEL AMOUNT OPTION. The Death Benefit is the greater of the current Face
Amount of the Policy or the corridor percentage of Accumulation Value on the
Valuation Date on or next following the date of the Insured's death. The
corridor percentage is 250% for an Insured Age 40 or below, and the percentage
declines with increasing Ages as shown in the Corridor Percentage Table below.
Accordingly, under the Level Amount Option the Death Benefit will remain level
unless the corridor percentage of Accumulation Value exceeds the current Face
Amount, in which case the amount of the Death Benefit will vary as the
Accumulation Value varies.
ILLUSTRATION OF LEVEL AMOUNT OPTION. For purposes of this illustration,
assume that the Insured is under Age 40, and that there is no Loan Amount.
Under the Level Amount Option, a Policy with a $200,000 Face Amount will
generally have a $200,000 Death Benefit. However, because the Death Benefit
must be equal to or be greater than 250% of the Accumulation Value, any time
the Accumulation Value of the Policy exceeds $80,000, the Death Benefit will
exceed the $200,000 Face Amount. Each additional dollar added to the
Accumulation Value above $80,000 will increase the Death Benefit by $2.50.
Thus, if the Accumulation Value exceeds $80,000 and increases by $100 because
of investment performance or premium payments, the Death Benefit will increase
by $250. A Policy owner with an Accumulation Value of $100,000 will be entitled
to a Death Benefit of $250,000 ($100,000 X 250%); an Accumulation Value of
$150,000 will yield a Death Benefit of $375,000 ($150,000 X 250%); and an
Accumulation Value of $200,000 will yield a Death Benefit of $500,000 ($200,000
X 250%).
The corridor percentage becomes lower as the Insured's Age increases. If
the current Age of the Insured in the illustration above were, for example, 50
(rather than under Age 40), the corridor percentage would be 185%. The Death
Benefit would not exceed the $200,000 Face Amount unless the Accumulation Value
exceeded approximately $108,110 (rather than $80,000), and each $1 then added
to or taken from the Accumulation Value would change the Death Benefit by $1.85
(rather than $2.50).
CORRIDOR PERCENTAGE TABLE
<TABLE>
<CAPTION>
CORRIDOR CORRIDOR
INSURED'S AGE ON PERCENTAGE OF INSURED'S AGE ON PERCENTAGE OF INSURED'S AGE ON PERCENTAGE OF
PREVIOUS POLICY ACCUMULATION PREVIOUS POLICY ACCUMULATION PREVIOUS POLICY ACCUMULATION
ANNIVERSARY VALUE ANNIVERSARY VALUE ANNIVERSARY VALUE
- ------------------ -------------- ------------------ -------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
40 or younger 250% 54 157% 68 117%
41 243 55 150 69 116
42 236 56 146 70 115
43 229 57 142 71 113
44 222 58 138 72 111
45 215 59 134 73 109
46 209 60 130 74 107
47 203 61 128 75-90 105
48 197 62 126 91 104
49 191 63 124 92 103
50 185 64 122 93 102
51 178 65 120 94 101
52 171 66 119 95 or older 100
53 164 67 118
</TABLE>
VARIABLE AMOUNT OPTION. The Death Benefit is equal to the greater of the
current Face Amount plus the Accumulation Value of the Policy, or the corridor
percentage of the Accumulation Value on the Valuation Date on or next following
the date of the Insured's death. The corridor percentage is 250% for an Insured
Age 40 or below, and the percentage declines with increasing Age as shown in
the Corridor Percentage Table above. Accordingly, under the Variable Amount
Option the amount of the Death Benefit will always vary as the Accumulation
Value varies.
ILLUSTRATION OF VARIABLE AMOUNT OPTION. For purposes of this illustration,
assume that the Insured is under Age 40 and that there is no Loan Amount. Under
the Variable Amount Option, a Policy with a Face Amount of $200,000 will
generally pay a Death Benefit of $200,000 plus the Accumulation Value. Thus,
for example, a Policy with an Accumulation Value of $40,000 will have a Death
Benefit of $240,000 ($200,000 + $40,000); an Accumulation Value of $80,000 will
yield a Death Benefit of $280,000 ($200,000 + $80,000). The Death Benefit,
however, must be at least 250% of the Accumulation Value. As a result, if the
Accumulation Value of the Policy exceeds approximately $133,333, the Death
Benefit will be greater than the Face Amount plus the Accumulation Value. Each
additional dollar of the Accumulation Value above $133,333 will increase the
Death Benefit by $2.50. Thus, if the Accumulation Value exceeds $133,333 and
increases by $100 because of investment performance or premium payments, the
Death Benefit will increase by $250. A Policy owner with an Accumulation Value
of $150,000 will be
<PAGE>
entitled to a Death Benefit of $375,000 ($150,000 X 250%); an Accumulation
Value of $200,000 will yield a Death Benefit of $500,000 ($200,000 X 250%), and
an Accumulation Value of $250,000 will yield a Death Benefit of $625,000
($250,000 X 250%).
The corridor percentage becomes lower as the Insured's Age increases. If
the current Age of the Insured in the illustration above were, for example, 50
(rather than under 40), the corridor percentage would be 185%. The amount of
the Death Benefit would be the sum of the Accumulation Value plus $200,000
unless the Accumulation Value exceeded approximately $235,294 (rather than
$133,333), and each $1 then added to or taken from the Accumulation Value would
change the Death Benefit by $1.85 (rather than $2.50).
WHICH DEATH BENEFIT OPTION TO CHOOSE
If you prefer to have premium payments and favorable investment
performance reflected partly in the form of an increasing Death Benefit, you
should choose the Variable Amount Option. If you are satisfied with the amount
of your existing insurance coverage and prefer to have premium payments and
favorable investment performance reflected to the maximum extent in the
Accumulation Value and lower cost of insurance charges, you should choose the
Level Amount Option.
REQUESTED CHANGES IN FACE AMOUNT
Subject to certain limitations, you may request an increase or decrease in
the Face Amount. We reserve the right to limit increases and decreases in the
Face Amount during the first two Policy Years.
INCREASES. For an increase in the Face Amount, a written request must be
submitted to us. We may also require additional evidence of insurability
satisfactory to us. The effective date of the increase will be the Monthly
Anniversary on or next following our approval of the increase. The increase may
not be less than $5,000. We will permit increases up to the Insured's Age 80,
if our requirements are met. We will deduct any charges associated with the
increase (the increases in the cost of insurance and the Surrender Charge upon
lapse or total surrender -- see "Effect of Requested Changes in Face Amount"
below) from the Accumulation Value, whether or not you pay an additional
premium in connection with the increase. You will be entitled to limited free
look, conversion, and refund rights with respect to requested increases in Face
Amount. See "Sales Charge Refund" and "Free Look and Conversion Rights".
DECREASES. For a decrease in the Face Amount, a written request must also
be submitted to us. Any decrease in the Face Amount will be effective on the
Monthly Anniversary on or next following our receipt of a written request. You
cannot request a decrease in the Face Amount more frequently than once every
six months. The Face Amount remaining in force after any requested decrease may
not be less than the Minimum Face Amount shown in the Policy. We reserve the
right to establish a different Minimum Face Amount in the future. If, following
a decrease in Face Amount, the Policy would no longer qualify as life insurance
under Federal tax law (see "Federal Tax Matters -- Policy Proceeds"), the
decrease will be limited to the extent necessary to meet these requirements.
For purposes of determining the cost of insurance, decreases in the Face
Amount will be applied to reduce the current Face Amount in the following
order:
(a) The Face Amount provided by the most recent increase;
(b) The next most recent increases successively; and
(c) The Face Amount when the Policy was issued.
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".
<PAGE>
For example, assume that the initial Face Amount was $200,000 with a
standard Rate Class, and that successive increases of $50,000 (at a Rate Class
of 200%) and $100,000 (at a Rate Class of 300%) were added. If a decrease of
$100,000 or less is requested, the amount of insurance at a 300% Rate Class
will be reduced first. If a decrease of more than $100,000 is requested, the
amount at a 300% Rate Class will be eliminated, and the excess over $100,000
will next reduce the amount of insurance at a 200% Rate Class.
EFFECT OF REQUESTED CHANGES IN FACE AMOUNT. An increase or decrease in
Face Amount will affect the Monthly Deduction because the cost of insurance
depends upon the Face Amount. The charge for certain optional insurance
benefits may also be affected. See "Deductions and Charges -- Monthly
Deduction". An increase in the Face Amount will increase the Surrender Charge,
but a decrease in the Face Amount will not reduce the Surrender Charge. The
Surrender Charge is, however, imposed only upon lapse or total surrender of the
Policy and not upon a requested decrease in Face Amount. See "Deductions and
Charges -- Surrender Charge".
An increase in the Face Amount will increase the Minimum Monthly Premium
as of the effective date of the increase. Therefore, additional premium
payments may be required to maintain the Death Benefit Guarantee. A decrease in
the Face Amount will reduce the Minimum Monthly Premium as of the effective
date of the decrease. See "Death Benefit Guarantee".
The additional Surrender Charge on a requested increase in the Face Amount
will reduce the Cash Surrender Value (which is the Accumulation Value less any
Surrender Charge, Loan Amount and unpaid Monthly Deductions). If the resulting
Cash Surrender Value is not sufficient to cover the Monthly Deduction, the
Policy may lapse unless the Death Benefit Guarantee is in effect. However, the
maximum Surrender Charge on a requested increase in Face Amount is phased in
over equal monthly increments during the first three years after the requested
increase, which minimizes the risk of Policy Lapse. See "'Policy Lapse and
Reinstatement -- Lapse", "Death Benefit Guarantee" and "Surrender Charge".
INSURANCE PROTECTION
You may increase or decrease the pure insurance protection provided by the
Policy (that is, the difference between the Death Benefit and the Accumulation
Value) in one of several ways as insurance needs change. These ways include
increasing or decreasing the Face Amount of insurance, changing the level of
premium payments, and, to a lesser extent, making a partial withdrawal under
the Policy. Although the consequences of each of these methods will depend upon
the individual circumstances, they may be generally summarized as follows:
(a) A decrease in the Face Amount will, subject to the corridor
percentage limitations (see "Death Benefit -- Death Benefit
Options"), decrease the pure insurance protection without
reducing the Accumulation Value. If the Face Amount is
decreased, the Policy charges generally will decrease as well.
(Note that the Surrender Charge will NOT be reduced. See
"Deductions and Charges -- Surrender Charge".)
(b) An increase in the Face Amount (which is generally subject to
underwriting approval -- see "Death Benefit -- Requested Changes
in Face Amount") will likely increase the amount of pure
insurance protection, depending on the amount of Accumulation
Value and the resultant corridor percentage limitation. If the
insurance protection is increased, the Policy charges generally
will increase as well.
(c) A partial withdrawal will reduce the Death Benefit. See
"Surrender Benefits -- Partial Withdrawal". However, it has a
limited effect on the amount of pure insurance protection and
charges under the Policy, because the decrease in the Death
Benefit is usually equal to the amount of 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.
<PAGE>
(e) Under the Variable Amount Option, until the corridor percentage
of Accumulation Value exceeds the Face Amount plus the
Accumulation Value, the level of premium payments will not
affect the amount of pure insurance protection. (However, both
the Accumulation Value and the Death Benefit will be increased
if premium payments are increased, and reduced if premium
payments are reduced.)
(f) Under either Death Benefit Option, if the Death Benefit is the
corridor percentage of Accumulation Value, then (i) an increased
level of premium payments will increase the amount of pure
insurance protection (subject to underwriting approval -- see
"Payment and Allocation of Premiums -- Amount and Timing of
Premiums"), and (ii) a reduced level of premium payments will
reduce the pure insurance protection.
THE TECHNIQUES DESCRIBED IN THIS SECTION FOR CHANGING THE AMOUNT OF PURE
INSURANCE PROTECTION UNDER THE POLICY (FOR EXAMPLE, CHANGING THE FACE
AMOUNT, MAKING A PARTIAL WITHDRAWAL, AND CHANGING THE AMOUNT OF PREMIUM
PAYMENTS) MUST BE CONSIDERED TOGETHER WITH THE OTHER RESTRICTIONS AND
CONSIDERATIONS DESCRIBED ELSEWHERE IN THIS PROSPECTUS.
CHANGE IN DEATH BENEFIT OPTION
After the first two Policy Years, you may change the Death Benefit Option.
You must submit a written request to change the Death Benefit Option. A change
in the Death Benefit Option will also change the Face Amount. If the Death
Benefit Option is changed from the Level Amount Option to the Variable Amount
Option, the Face Amount will be decreased by an amount equal to the
Accumulation Value on the effective date of the change. You cannot change from
the Level Amount Option to the Variable Amount Option if the resulting Face
Amount would fall below the Minimum Face Amount.
If the Death Benefit Option is changed from the Variable Amount Option to
the Level Amount Option, the Face Amount will be increased by an amount equal
to the Policy's Accumulation Value on the effective date of the change.
An increase or decrease in Face Amount resulting from a change in the
Death Benefit Option will affect the future Monthly Deductions because the cost
of insurance depends upon the Face Amount. The charge for certain optional
insurance benefits may also be affected. See "Deductions and Charges -- Monthly
Deduction". The Surrender Charge, however, will not be affected by an increase
or decrease in Face Amount resulting from a change in Death Benefit Option.
Changes in the Death Benefit Option do not require additional evidence of
insurability.
ACCELERATED BENEFIT RIDER
Under certain circumstances, the Accelerated Benefit Rider allows a Policy
owner to accelerate benefits from the Policy that would be otherwise payable
upon the death of the Insured. The benefit may vary state-by-state and your
registered representative should be consulted as to whether and to what extent
the Rider is available in a particular state and on any particular Policy.
Generally, we will provide an Accelerated Benefit if the Insured has a
terminal illness that will result in the death of the Insured within 12 months,
as certified by a physician.
The Accelerated Benefit will not be more than 50% of the amount that would
be payable at the death of the Insured. The Accelerated Benefit will first be
used to pay off any outstanding Policy loans and interest due. The remainder of
the Accelerated Benefit will be in a lump sum to the Policy owner. Limitations,
as described in the Accelerated Benefit Rider, may apply.
A lien will be established against the Policy for the amount of the
Accelerated Benefit plus the administrative charge, plus interest on the lien.
Any proceeds from the Policy will first be used to repay this lien. The Policy
owner's access to the cash value will be reduced by the amount of the lien. The
proceeds payable to the beneficiary will be reduced by the amount of the lien.
The administrative charge will not exceed $300 and will be assessed at the time
the benefit is accelerated. The premium payable on the Policy will not be
affected by the Accelerated Benefit. Receipt of a benefit under the Accelerated
Benefit Rider may give rise to Federal or State income tax. A competent tax
adviser should be consulted for further information.
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The above information is not intended to be a complete summary of the
Rider. All of the terms and provisions of the Accelerated Benefit Rider are set
forth in the Rider and should be referred to in order to fully ascertain its
benefits and limitations.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUING THE POLICY
To apply for a Policy, an individual must complete an application and
personally deliver it to our licensed agent. We will not issue a Policy below
the minimum Face Amount. We reserve the right to specify a different minimum
Face Amount in the future for issuing a new Policy. We will generally only
issue a Policy to an applicant Age 80 or less who supplies evidence of
insurability satisfactory to us. Acceptance is subject to our underwriting
rules and we reserve the right to reject an application for any reason
permitted by law.
SPONSORED MARKET PLANS. Policies may be purchased under sponsored
arrangements where permitted by state law. A "sponsored arrangement" includes
an arrangement where an employer permits group solicitation of its employees or
an association permits group solicitations of its members for the purchase of
Policies on an individual basis.
All participants in sponsored arrangements are individually underwritten.
Persons purchasing under a sponsored arrangement may apply for simplified
underwriting. If simplified underwriting is granted, the cost of insurance may
increase as a result of higher than anticipated mortality experience. However,
any such increase will not cause the cost of insurance charge to exceed the
guaranteed rates set forth in the Policy.
COVERAGE. Coverage under a Policy begins on the later of the Issue Date or
the date we receive at least the minimum initial premium (see immediately
following section). In general, if the applicant pays at least the minimum
initial premium with the application, the Issue Date will be the later of the
date of the application or the date of any medical examination required by our
underwriting procedures. However, if underwriting approval has not occurred
within 45 days after we receive the application or if you authorize premiums to
be paid by bank account monthly deduction, the Issue Date will be the date of
underwriting approval.
If you authorize premiums to be paid by government allotment, the Issue
Date generally will be, subject to our underwriting approval, the first day of
the month in which we receive the first Minimum Monthly Premium through
government allotment, whether or not a Minimum Monthly Premium is collected
with the application. If a Minimum Monthly Premium is collected with the
application, it will be allocated to the Sub-Accounts of the Variable Account
and the Fixed Account on the Valuation Date next following the Issue Date.
MINIMUM INITIAL PREMIUM. The minimum initial premium is three Minimum
Monthly Premiums. See "Death Benefit Guarantee". If, however, you authorize
premiums to be paid by bank account monthly deduction or government allotment,
we will accept one Minimum Monthly Premium together with the required
authorization forms. The Minimum Monthly Premium is specified in the Policy and
determines the payments required to maintain the Death Benefit Guarantee.
TEMPORARY INSURANCE. At the time the application is taken, the applicant
can receive temporary insurance coverage by paying a premium equal to 10% of
annualized Minimum Monthly Premium. The temporary insurance will be for the
face amount specified in the premium receipt and will be effective until the
earliest of the following:
* The date the coverage under the Policy is effective.
* The date the applicant receives an offer for an alternative policy, a
notice of termination of temporary insurance coverage, or notice that we
have rejected the application.
* The date of death of the proposed Insured, any proposed additional
Insured's, or any proposed Insured child.
* The 75th day after the date of the receipt for the temporary insurance.
CREDITING NET PREMIUMS. We will credit Net Premiums to the Sub-Accounts of
the Variable Account and to the Fixed Account on the basis of the applicant's
allocation on the latest of the following dates:
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* The Valuation Date following the date of underwriting approval.
* The Valuation Date on or next following the Policy Date.
* The Valuation Date on or next following the date we have received at
least the required minimum initial premium payment.
* In the case of Policies issued under government allotment programs, the
Valuation Date next following the Issue Date.
Until the date on which Net Premiums are credited as described above,
premium payments will be held in our General Account. No interest will be
earned on these premium payments during this period of time.
REFUNDING PREMIUM. We will return all premiums paid without interest if
any of the following occur:
* We send notice to the applicant that the insurance is declined.
* The applicant refuses an offer for an alternative policy.
* The applicant does not supply required medical exams or tests within 30
days of the date of the application.
* The applicant returns the Policy under the limited free look right. See
"Free Look and Conversion Rights -- Free Look Rights".
ALLOCATION OF PREMIUMS
You choose the initial allocation of your Net Premiums (your gross
premiums less the Premium Expense Charge) to the Fixed Account and the
Sub-Accounts of the Variable Account on the application for the Policy. You may
change the allocation at any time by notifying us in writing. Changes will not
be effective until the date we receive your request and will only affect
premiums we receive on or after that date. The new premium allocation may be
100% to any Account or divided in whole percentage points totaling 100%. We
reserve the right to adjust any allocation to eliminate fractional percentages.
Changing the current premium allocation will not affect the allocation of
existing Accumulation Value.
AMOUNT AND TIMING OF PREMIUMS
The amount and frequency of premium payments will affect the Accumulation
Value, the Cash Surrender Value, and how long the Policy will remain in force
(including affecting whether the Death Benefit Guarantee is in effect -- see
"Death Benefit Guarantee"). After the initial premium, you may determine the
amount and timing of subsequent premium payments within the following
restrictions:
* IN MOST CASES, PAYMENT OF CUMULATIVE PREMIUMS SUFFICIENT TO MAINTAIN THE
DEATH BENEFIT GUARANTEE WILL BE REQUIRED TO KEEP THE POLICY IN FORCE
DURING AT LEAST THE FIRST SEVERAL POLICY YEARS. SEE "DEATH BENEFIT
GUARANTEE".
* We may choose not to accept any premium less than $25.00.
* We reserve the right to limit the amount of any premium payment. In
general, during the first Policy Year we will not accept total premium
payments in excess of $250,000 on the life of any Insured, whether such
payments are received on a Policy or on any other insurance policy issued
by us or our affiliates. Also, we will not accept any premium payment in
excess of $50,000 on any Policy after the first Policy Year. At our
discretion, however, we may waive any of these premium limitations.
* We may require additional evidence of insurability satisfactory to us if
any premium would increase the difference between the Death Benefit and
the Accumulation Value (that is, the net amount at risk). A premium
payment would increase the net amount at risk if at the time of payment
the Death Benefit would be based upon the applicable percentage of
Accumulation Value. See "Death Benefit -- Death Benefit Options".
* 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
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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. Failure to make any
Planned Periodic Premium payment will not, however, necessarily result in lapse
of the Policy. On the other hand, making Planned Periodic Premium payments will
not guarantee that the Policy remains in force. See "Death Benefit Guarantee"
and "Policy Lapse and Reinstatement".
UNSCHEDULED ADDITIONAL PREMIUMS
Premiums, other than Planned Periodic Premiums, may be paid at any time
while the Policy is in force. We may limit the number and amount of these
additional payments.
PAYING PREMIUMS BY MAIL
Planned Periodic Premiums and Unscheduled Additional Premiums may be paid
to the Company by mailing them to:
ReliaStar Life Insurance Company
P.O. Box 802511
Chicago, Illinois 60680-2511
DEATH BENEFIT GUARANTEE
If you meet the requirements described below, we guarantee that we will
not lapse the Policy during the Death Benefit Guarantee Period even if the Cash
Surrender Value is not sufficient to cover the Monthly Deduction that is due.
This feature of the Policy is called the "Death Benefit Guarantee". The Death
Benefit Guarantee Period is the first five Policy Years for issue ages 0-59 and
the first four Policy Years for issue ages 60-80.
In general, the two most significant benefits from the Death Benefit
Guarantee are as follows. First, during the early Policy Years, the Cash
Surrender Value (even when supplemented by the Sales Charge Refund) will
generally not be sufficient to cover the Monthly Deduction, so that the Death
Benefit Guarantee will be necessary to avoid lapse of the Policy. See "Policy
Lapse and Reinstatement". This occurs because the Surrender Charge usually
exceeds the Accumulation Value in these years. Second, to the extent the Cash
Surrender Value declines during the Death Benefit Guarantee Period due to poor
investment performance, or due to an additional Surrender Charge after a
requested increase, the Cash Surrender Value may not be sufficient to cover the
Monthly Deduction, so that the Death Benefit Guarantee may also be necessary to
avoid lapse of the Policy. THUS, EVEN THOUGH THE POLICY PERMITS PREMIUM
PAYMENTS THAT ARE LESS THAN THE MINIMUM MONTHLY PREMIUMS, YOU MAY LOSE THE
SIGNIFICANT PROTECTION PROVIDED BY THE DEATH BENEFIT GUARANTEE BY PAYING LESS
THAN THE MINIMUM MONTHLY PREMIUMS.
REQUIREMENTS
The Death Benefit Guarantee will be in effect if the sum of all premiums
paid minus any partial withdrawals and any loans are equal to or greater than
the sum of the Minimum Monthly Premiums since the Policy Date including the
Minimum Monthly Premium for the current Monthly Anniversary.
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The requirements for the Death Benefit Guarantee must be satisfied as of
each Monthly Anniversary, even though you do not have to pay premiums monthly.
EXAMPLE: The Policy Date is January 1, 1998. The Minimum Monthly Premium
is $100 per month. No Policy loans or partial withdrawals are taken and no Face
Amount changes have occurred.
Case 1. You pay $100 each month. The Death Benefit Guarantee is maintained.
Case 2. You pay $1,000 on January 1, 1998. The $1,000 maintains the Death
Benefit Guarantee without your paying any additional premiums for the
next 10 months (through October 31, 1998). However, you must pay at
least $100 by November 1, 1998 to maintain the Death Benefit
Guarantee through November 30, 1998.
The amount of the initial Minimum Monthly Premium will be determined by us
at issuance of the Policy and will be shown in the Policy. The initial Minimum
Monthly Premium will depend upon the Insured's sex, Age at issue, Rate Class,
optional insurance benefits added by rider, and the initial Face Amount.
The following Policy changes may change the Minimum Monthly Premium:
* A requested increase or decrease in the Face Amount (see "Death Benefit
-- Requested Changes in Face Amount").
* A change in the Death Benefit Option (see "Death Benefit -- Change in
Death Benefit Option").
* The addition or termination of a Policy rider (see "General Provisions --
Optional Insurance Benefits").
We will notify you in writing of any changes in the Minimum Monthly
Premium.
If, as of any Monthly Anniversary, you have not made sufficient premium
payments to maintain the Death Benefit Guarantee, we will send you notice of
the premium payment required to maintain it. If we do not receive the required
premium payment within 61 days from the date of our notice, the Death Benefit
Guarantee will terminate. THE DEATH BENEFIT GUARANTEE CANNOT BE REINSTATED.
Even if the Death Benefit Guarantee terminates, the Policy will not
necessarily lapse. For a discussion of the circumstances under which the Policy
may lapse, see "Policy Lapse and Reinstatement".
ACCUMULATION VALUE
The Accumulation Value of the Policy (that is, the total value
attributable to a specific Policy in the Variable Account and the Fixed
Account) is equal to the sum of the Variable Accumulation Value (the amount
attributable to the Variable Account) plus the Fixed Accumulation Value (the
amount attributable to the Fixed Account). The Accumulation Value should be
distinguished from the Cash Surrender Value that would actually be paid to you
upon total surrender of the Policy, which is the Accumulation Value less any
Surrender Charge, Loan Amount and unpaid Monthly Deductions. See "Surrender
Benefits -- Total Surrender". The Accumulation Value should also be
distinguished from the Cash Value, which determines the amount available for
Policy loans, and is the Accumulation Value less any Surrender Charge. See
"Policy Loans." (During the first two Policy Years and the first two years
following a requested increase in Face Amount, you may also be entitled to a
Sales Charge Refund. See "Sales Charge Refund".)
The Variable Accumulation Value will increase or decrease to reflect the
investment performance of the Funds in which Sub-Accounts of the Variable
Account have been invested. The Variable Accumulation Value will also be
increased by (a) any Net Premiums credited to the Variable Account and (b) any
transfers from the Fixed Account. The Variable Accumulation Value will also be
reduced by (a) the Monthly Deduction attributable to the Variable Account, (b)
partial withdrawals from the Variable Account, (c) any transfer and partial
withdrawal charges attributable to the Variable Account, and (d) any amounts
transferred from the Variable Account to the Fixed Account (including amounts
transferred from the Variable Account to the Fixed Account as security for
Policy loans -- see "Policy Loans"). The Variable Accumulation Value will
generally vary daily.
The Fixed Accumulation Value will be increased by (a) any Net Premiums
credited to the Fixed Account, (b) any interest credited to the Fixed Account
(determined at our discretion, but guaranteed
<PAGE>
not to be less than 4%), and (c) any amounts transferred from the Variable
Account to the Fixed Account (including amounts transferred to the Fixed
Account as security for Policy loans -- see "Policy Loans"). The Fixed
Accumulation Value will be reduced by (a) the Monthly Deduction attributable to
the Fixed Account, (b) partial withdrawals from the Fixed Account, (c) any
transfer and partial withdrawal charges attributable to the Fixed Account, and
(d) any amounts transferred from the Fixed Account to the Variable Account.
For a detailed discussion of the calculation of Accumulation Value, see
Appendix B. An illustration of various Accumulation Values, Surrender Charges,
Cash Surrender Values, and Death Benefits, assuming different levels of premium
payments and various investment returns for selected Ages and Face Amounts, is
shown in Appendix C.
SPECIALIZED USES OF THE POLICY
Because the Policy provides for an accumulation of Cash Surrender Value as
well as a Death Benefit, the Policy can be used for various individual and
business financial planning purposes. Purchasing the Policy in part for such
purposes entails certain risks. For example, if the investment performance of
the Sub-Accounts to which Accumulation Value is allocated is poorer than
expected or if sufficient premiums are not paid, the Policy may lapse or may
not accumulate sufficient Accumulation Value or Cash Surrender Value to fund
the purpose for which the Policy was purchased. Withdrawals and Policy loans
may significantly affect current and future Accumulation Value, Cash Surrender
Value, or Death Benefit proceeds. Depending upon Sub-Account investment
performance and the amount of a Policy loan, the loan may cause a Policy to
lapse. Because the Policy is designed to provide benefits on a long-term basis,
before purchasing a Policy for a specialized purpose a purchaser should
consider whether the long-term nature of the Policy is consistent with the
purpose for which it is being considered. Using a Policy for a specialized
purpose may have tax consequences. See "Federal Tax Matters".
DEDUCTIONS AND CHARGES
Charges will be deducted in connection with the Policy to compensate us
for (a) providing the insurance benefits of the Policy (including any riders),
(b) administering the Policy, (c) assuming certain risks in connection with the
Policy, and (d) incurring expenses in distributing the Policy.
Some of these charges are deducted from each premium payment. Certain
other charges are deducted monthly from both the Fixed Account and the Variable
Account, or from the Variable Account only. A charge is also made for each
partial withdrawal and a charge may be made for each transfer.
PREMIUM EXPENSE CHARGE
We deduct a sales charge and a charge for premium taxes from each premium
payment. We may in the future deduct a premium processing charge from each
premium payment although we currently do not make this charge. The total of
these charges is called the Premium Expense Charge. The amount remaining after
we have deducted the Premium Expense Charge is called the Net Premium. The Net
Premium is then credited to the Fixed Account and the Sub-Accounts of the
Variable Account according to your allocation.
We may realize a profit on one or more of these charges, such as the
mortality and expense risk charge. We may use any such profits for any proper
corporate purpose, including, among other things, payments of sales expenses.
SALES CHARGE. A sales charge (guaranteed not to exceed 2.50% of each
premium payment for the duration of the Policy) will be deducted to compensate
us for expenses relating to the distribution of the Policy, including agents'
commissions, advertising, and the printing of the prospectuses and sales
literature for new and prospective buyers of this policy. Currently, a sales
charge of 2.50% of each premium payment is deducted during the first ten Policy
Years and a sales charge of .50% is currently deducted after the tenth Policy
Year. In addition, we may charge a contingent deferred sales charge if you
surrender the Policy or the Policy lapses. See "Deductions and Charges --
Surrender Charge".
PREMIUM TAX CHARGE. Various states and subdivisions impose a tax on
premiums received by insurance companies. Premium taxes vary from state to
state. A charge of 2.50% of each premium payment will be deducted by us. The
deduction represents an amount we consider necessary to pay all taxes imposed
by the states and any subdivisions.
<PAGE>
PREMIUM PROCESSING CHARGE. We may make a charge of up to $2.00 per premium
payment to reimburse us for the cost of collecting and processing premiums,
although we currently make no such charge. If a premium processing charge is
made, it will be deducted from premium payments before the percentage
deductions for sales charge and premium taxes.
MONTHLY DEDUCTION
We deduct the charges described below from the Accumulation Value of the
Policy on a monthly basis. The total of these charges is called the Monthly
Deduction.
The Monthly Deduction will be deducted on each Monthly Anniversary from
the Fixed Account and the Sub-Accounts of the Variable Account on a
proportionate basis depending on their relative Accumulation Values at that
time. For purposes of determining these proportions, the Fixed Accumulation
Value is reduced by the Loan Amount. Because the cost of insurance portion of
the Monthly Deduction can vary from month to month, the Monthly Deduction
itself will vary in amount from month to month.
If the Cash Surrender Value plus any Sales Charge Refund is not sufficient
to cover the Monthly Deduction on a Monthly Anniversary and the Death Benefit
Guarantee is not in effect, the Policy may lapse. See "Death Benefit Guarantee"
and "Policy Lapse and Reinstatement".
COST OF INSURANCE. We will determine the monthly cost of insurance by
multiplying the applicable cost of insurance rate or rates by the net amount at
risk under the Policy. The net amount at risk under the Policy for a Policy
Month is (a) the Death Benefit at the beginning of the Policy Month divided by
1.004074 (which reduces the net amount at risk, solely for purposes of
computing the cost of insurance, by taking into account assumed monthly
earnings at an annual rate of 5%), less (b) the Accumulation Value at the
beginning of the Policy Month (reduced by any charges for rider benefits). As a
result, the net amount at risk may be affected by changes in the Accumulation
Value or in the Death Benefit.
The Rate Class of an Insured may affect the cost of insurance. A Rate
Class is a group of Insureds we determine based upon our expectation that they
will have similar mortality experience. We currently place Insureds into
standard Rate Classes or into substandard Rate Classes that involve a higher
mortality risk. In an otherwise identical Policy, an Insured in the standard
Rate Class will have a lower cost of insurance than an Insured in a Rate Class
with higher mortality risks.
If there is an increase in the Face Amount and the Rate Class applicable
to the increase is different from that for the initial Face Amount or any prior
requested increases in Face Amount, the net amount at risk will be calculated
separately for each Rate Class. For purposes of determining the net amount at
risk for each Rate Class, the Accumulation Value will first be assumed to be
part of the initial Face Amount. If the Accumulation Value is greater than the
initial Face Amount, it will then be assumed to be part of each increase in
order, starting with the first increase.
Cost of insurance rates will be based on the sex, Issue Age, Policy Year
and Rate Class(es) of the Insured. The actual monthly cost of insurance rates
will reflect our expectations as to future experience. They will not, however,
be greater than the guaranteed cost of insurance rates shown in the Policy,
which are based on the Commissioner's 1980 Standard Ordinary Mortality Tables
for smokers or nonsmokers, respectively.
MONTHLY ADMINISTRATIVE CHARGE. Each month we deduct an administrative
charge of $8.25 which is guaranteed not to exceed $12.00 each month. This
charge reimburses us for expenses incurred in administering the Policy, such as
processing claims, maintaining records, making Policy changes, printing and
mailing prospectuses and annual and semi-annual reports to Policy owners and
communicating with you and other owners of Policies. Because this charge is
intended to cover the average anticipated administrative expenses for all
Policies, however, there is not necessarily a relationship between the amount
of this charge for a given Policy and the amount of expenses that may be
attributable to that Policy.
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 the Variable
Accumulation Value of the Policy. Each month thereafter we will deduct a charge
at an annual rate of .30 of 1% (.30%) of the Variable Accumulation Value
guaranteed not to exceed .60% for the duration of the Policy.
The mortality risk assumed is that Insureds may live for a shorter period
of time than we estimated and that, as a result, we would have to pay a greater
amount in Death Benefits than we collect in
<PAGE>
premium payments. The expense risk assumed is that expenses incurred in issuing
and administering the Policy will be greater than we estimated.
OPTIONAL INSURANCE BENEFIT CHARGES. Each month we deduct charges for any
optional insurance benefits added to the Policy by rider. See "General
Provisions -- Optional Insurance Benefits".
SURRENDER CHARGE
GENERAL. During the first 15 Policy Years and during the first 15 years
following any requested increase in Face Amount, we make a Surrender Charge if
you surrender the Policy or the Policy lapses. The Surrender Charge has two
parts -- The Contingent Deferred Administrative Charge and the Contingent
Deferred Sales Charge which are determined separately. The Surrender Charge
will not be affected by any decrease in Face Amount or by any change in Face
Amount resulting from a change in the Death Benefit Option.
The Surrender Charge imposed upon early surrender or lapse will be
significant. As a result you should purchase a Policy only if you have the
financial capability to keep it in force for a substantial period of time.
The Contingent Deferred Administrative Charge reimburses us for expenses
incurred in issuing the Policy, such as processing the application (primarily
underwriting) and setting up computer records. Because this charge is intended
to cover the average anticipated issue expenses for all Policies, however,
there is not necessarily a relationship between the amount of this charge for a
given Policy and the amount of expenses that may be attributable to that
Policy.
The Contingent Deferred Sales Charge compensates us for expenses relating
to the distribution of the Policy, including agents' commissions, advertising,
and the printing of the prospectus and sales literature for new sales of the
Policy.
CONTINGENT DEFERRED ADMINISTRATIVE CHARGE. The maximum Contingent Deferred
Administrative Charge for the initial Face Amount or any requested increase in
Face Amount is determined on the Policy Date or on the effective date of any
requested increase in Face Amount respectively. The maximum charge for the
initial Face Amount during the first five Policy Years is $5.00 per $1,000 of
Face Amount, which decreases thereafter in equal monthly increments until it
becomes zero at the end of the 15 year period. For any requested increase in
Face Amount, an additional Contingent Deferred Administrative Charge begins at
zero, increases in equal monthly increments until it reaches the maximum after
three years, and then remains level for the next two years. Beginning five
years after the effective date of the increase, the additional Contingent
Deferred Administrative Charge reduces in equal monthly increments until it
becomes zero at the end of 15 years.
The Contingent Deferred Administrative Charge for the initial Face Amount
or a requested increase in Face Amount can be determined by multiplying (a)
$5.00 by (b) the initial Face Amount or the Face Amount of the increase, as the
case may be, and by (c) the applicable percentage from the Surrender Charge
Percentage Table shown on page 27, and then dividing this amount by 1000.
For example, assume that an Insured buys a Policy with an initial Face
Amount of $200,000. If the Policy is surrendered at any time in the first five
Policy Years, the Contingent Deferred Administrative Charge is calculated by
multiplying (a) $5.00 by (b) $200,000 (the initial Face Amount), and by (c)
100% (the applicable percentage from the Surrender Charge Percentage Table),
and then dividing by 1000. This results in a total of $1,000 ($5.00 X 200,000 X
100% / 1000).
The calculation of the additional Contingent Deferred Administrative
Charge for a requested increase in Face Amount is the same as for the initial
Face Amount, except that (a) the charges are based on the amount of the
increase, (b) the years and months are measured from the effective date of the
increase, and (c) different surrender percentage factors apply.
CONTINGENT DEFERRED SALES CHARGE. The maximum Contingent Deferred Sales
Charge for the initial Face Amount or any requested increase in Face Amount
will be determined on the Policy Date or on the effective date of any requested
increase respectively. For the initial Face Amount, the Contingent Deferred
Sales Charge will remain level for the first five years in the relevant 15 year
period, and then reduces in equal monthly increments until it becomes zero at
the end of 15 years. For any requested increase in Face Amount, an additional
Contingent Deferred Sales Charge begins at zero, increases in equal monthly
increments until it reaches the maximum after three years, and then remains
level for the
<PAGE>
next two years. Beginning five years after the effective date of the increase,
the additional Contingent Deferred Sales Charge reduces in equal monthly
increments until it becomes zero at the end of 15 years. The Contingent
Deferred Sales Charge will vary depending upon the Insured's Age (on the Policy
Date or on the effective date of an increase in Face Amount) and the Insured's
sex.
If you surrender the Policy during the first two Policy Years or during
the first 24 months following a requested increase in Face Amount, you may be
entitled to a refund of a portion of the Contingent Deferred Sales Charge. See
"Sales Charge Refund".
The Contingent Deferred Sales Charge will be equal to the lesser of:
(a) 47.50% of the premiums attributable to the initial Face Amount
of the Policy and any premiums attributable to an increase in
Face Amount; or
(b) The result of the Contingent Deferred Sales Charge calculation
described below.
CONTINGENT DEFERRED SALES CHARGE CALCULATION. For purposes of (b) above,
the Contingent Deferred Sales Charge for the initial Face Amount or any
requested increase in Face Amount is determined by multiplying (i) the
applicable Charge per $1,000 of Face Amount from Appendix D by (ii) the Initial
Face Amount or the Face Amount of the increase, as applicable, and by (iii) the
applicable percentage from the Surrender Charge Percentage Table on the next
page, and then dividing this amount by 1000.
EXAMPLE. The following example illustrates how the Contingent Deferred
Sales Charge is determined. Assume that a male, Age 35 buys a policy with an
initial Face Amount of $200,000 and he surrenders the Policy during the third
Policy Year at which time he has paid cumulative premiums of $4,000. Based on
these assumptions the Contingent Deferred Sales Charge will be the lesser of:
(a) 47.50% times the cumulative premiums paid on the Policy, which
is $1,900 (47.50 X $4,000); or
(b) The result of the Contingent Deferred Sales Charge calculation,
which is determined by multiplying (i) $14.00 (from Appendix D
for a male age 35) by (ii) $200,000 (the Initial Face Amount)
and by (iii) 100% (the applicable percentage from the Surrender
Charge Percentage Table), and then dividing by 1000, which
results in a total of $2,800 ($14.00 X 200,000 X 100% / 1000).
The additional Contingent Deferred Sales Charge for requested increases in
Face Amount will be calculated in the same manner as illustrated in the example
above. However, for purposes of determining the amount in (a) in the above
example, the cumulative premium paid is replaced by the premiums attributable
to the increase in Face Amount. The premiums attributable to the requested
increase will consist of a defined proportion of the existing Accumulation
Value on the date of the increase, plus an equal proportion of all premium
payments made after the effective date of the increase. The defined proportion
is determined by dividing (a) the Surrender Charge Guideline for the requested
increase, by (b) the sum of the Surrender Charge Guidelines for the Initial
Face Amount and each requested increase in Face Amount.
The Surrender Charge Guideline for the initial Face Amount or any
requested increase in Face Amount is determined by multiplying (i) the
applicable Guideline per $1,000 from Appendix E by (ii) the Initial Face Amount
or the Face Amount of the increase, as applicable, and then dividing this
amount by 1000.
Referring to the immediately preceding example, assume a male age 35 has
an Initial Face Amount of $200,000 and makes a requested increase of $100,000
at age 45. The Surrender Charge Guideline for the requested increase is
determined by multiplying (i) $45.09 (from Appendix E for a male Age 45) by
(ii) $100,000 (the requested increase amount) and then dividing by 1000. This
results in $4,509 ($45.09 x 100,000/1000). The Surrender Charge Guideline for
the initial Face Amount is determined by multiplying (i) $27.96 (from Appendix
E for a male age 35) by (ii) $200,000 (the initial Face Amount) and then
dividing by 1000. This results in $5,592 ($27.96 x 200,000/1000). The defined
proportion of the existing Accumulation Value and subsequent premium payments
attributable to the requested increase is determined by dividing (a) $4,509
(the Surrender Charge Guideline for the requested increase), by (b) ($5,592 and
$4,509) (the Surrender Charge Guideline for the Initial Face Amount and all
requested increases), or 44.64%.
MASSACHUSETTS, MONTANA AND PENNSYLVANIA RESIDENTS. Appendices C, D, E and
the preceding illustrations of the Contingent Deferred Sales Charge do not
apply to policies issued in Massachusetts,
<PAGE>
Montana and Pennsylvania. The Contingent Deferred Sales Charge applied to
Policies issued in Massachusetts and Montana is not affected by the Insured's
sex. Therefore, the Contingent Deferred Sales Charge made on Policies issued in
these two states will differ from the charge made in other states. In
Pennsylvania, the Insured's sex will be a factor in determining the amount of
Contingent Deferred Sales Charge applied to a Policy, but the charge will
differ from the charge described in the above illustration.
SURRENDER CHARGE PERCENTAGE TABLE
THE FOLLOWING PERCENTAGES OF
THE
SURRENDER CHARGE WILL BE
PAYABLE
FOR:**
-----------------------------
IF SURRENDER OR LAPSE OCCURS IN INITIAL FACE FACE AMOUNT
THE LAST MONTH OF POLICY YEAR:* AMOUNT INCREASES
- -------------------------------- -------------- ------------
1 100% 33%
2 100% 67%
3 100% 100%
4 100% 100%
5 100% 100%
6 90% 90%
7 80% 80%
8 70% 70%
9 60% 60%
10 50% 50%
11 40% 40%
12 30% 30%
13 20% 20%
14 10% 10%
15 and later 0% 0%
*For requested increases, years are measured from the date of the increase.
**The percentages reduce equally for each Policy Month during the years shown.
For example, during the seventh Policy Year, the percentage reduces equally
each month from 90% at the end of the sixth Policy Year to 80% at the end of
the seventh Policy Year.
PARTIAL WITHDRAWAL AND TRANSFER CHARGES
We currently make no charge for transfers and a $10.00 charge for each
partial withdrawal. These charges are guaranteed not to exceed $25.00 per
transfer or partial withdrawal for the duration of the Policy. We do not
anticipate that we will make a profit on these charges. The transfer charge
will not be imposed on transfers that occur as a result of Policy loans or the
exercise of conversion rights.
THE INVESTMENT ADVISORY FEES AND OTHER FUND EXPENSES AFTER REIMBURSEMENT
Because the Variable Account purchases shares of the Funds, the net asset
value of the investments of the Variable Account will reflect the investment
advisory fees and other expenses incurred by the Funds. Set forth below is
information provided by each Fund on its total 1997 annual expenses as a
percentage of the Fund's average net assets (no insurance charges or expenses
are reflected). For more information concerning these expenses, see the
prospectuses for the Funds that are contained in the accompanying book entitled
"Select*Product Investment Options".
<PAGE>
<TABLE>
<CAPTION>
TOTAL INVESTMENT
MANAGEMENT OTHER FUND ANNUAL
FUND FEES EXPENSES EXPENSES
- -------------------------------------------------------------------- ------------ ---------- -----------------
<S> <C> <C> <C>
Alger American Growth Portfolio (a) ................................ 0.75% 0.04% 0.79%
Alger American MidCap Growth Portfolio (a) ......................... 0.80% 0.04% 0.84%
Alger American Small Capitalization Portfolio (a) .................. 0.85% 0.04% 0.89%
Fidelity VIP Equity-Income Portfolio (a) (b) ....................... 0.50% 0.08% 0.58%
Fidelity VIP Growth Portfolio (a) (b) .............................. 0.60% 0.09% 0.69%
Fidelity VIP High Income Portfolio (a) ............................. 0.59% 0.12% 0.71%
Fidelity VIP Money Market Portfolio ................................ 0.21% 0.10% 0.31%
Fidelity VIP Overseas Portfolio (a) (b) ............................ 0.75% 0.17% 0.92%
Fidelity VIP II Asset Manager Portfolio (a) (b) .................... 0.55% 0.10% 0.65%
Fidelity VIP II Contrafund Portfolio (a) (b) ....................... 0.60% 0.11% 0.71%
Fidelity VIP II Index 500 Portfolio (a) (c) ........................ 0.24% 0.04% 0.28%
Fidelity VIP II Investment Grade Bond Portfolio (a) ................ 0.44% 0.14% 0.58%
Janus Aggressive Growth Portfolio (a) (d) .......................... 0.73% 0.03% 0.76%
Janus Growth Portfolio (a) (d) ..................................... 0.65% 0.05% 0.70%
Janus International Growth Portfolio (a) (d) ....................... 0.67% 0.29% 0.96%
Janus Worldwide Growth Portfolio (a) (d) ........................... 0.66% 0.08% 0.74%
Neuberger&Berman AMT Limited Maturity Bond Portfolio (a) ........... 0.65% 0.12% 0.77%
Neuberger&Berman AMT Partners Portfolio (a) ........................ 0.80% 0.06% 0.86%
Northstar Variable Trust Growth Portfolio(e) ....................... 0.75% 0.05% 0.80%
Northstar Variable Trust High Yield Bond Portfolio (e) ............. 0.75% 0.05% 0.80%
Northstar Variable Trust Income and Growth Portfolio (e) ........... 0.75% 0.05% 0.80%
Northstar Variable Trust International Value Portfolio (e) ......... 0.75% 0.05% 0.80%
Northstar Variable Trust Multi-Sector Bond Portfolio (e) ........... 0.75% 0.05% 0.80%
OCC Equity Portfolio (a) (f) ....................................... 0.80% 0.19% 0.99%
OCC Global Equity Portfolio (a) (f) ................................ 0.79% 0.40% 1.19%
OCC Managed Portfolio (a) (f) ...................................... 0.80% 0.07% 0.87%
OCC Small Cap Portfolio (a) (f) .................................... 0.80% 0.17% 0.97%
Putnam VT Asia Pacific Growth Fund ................................. 0.80% 0.27% 1.07%
Putnam VT Diversified Income Fund .................................. 0.69% 0.11% 0.80%
Putnam VT Growth and Income Fund ................................... 0.47% 0.04% 0.51%
Putnam VT New Opportunities Fund ................................... 0.58% 0.05% 0.63%
Putnam VT Utilities Growth and Income Fund ......................... 0.67% 0.07% 0.74%
Putnam VT Voyager Fund ............................................. 0.54% 0.05% 0.59%
</TABLE>
(a) The Company or its affiliates may receive compensation from an
affiliate or affiliates of certain of the Funds based upon an annual
percentage of the average net assets held in that Fund by the
Company and by certain of the Company's insurance company
affiliates. These amounts are intended to compensate the Company or
the Company's affiliates for administrative, record keeping, and in
some cases distribution, and other services provided by the Company
and its affiliates to Funds and/or the Funds' affiliates. Payments
of such amounts by an affiliate or affiliates of the Funds do not
increase the fees paid by the Funds or their shareholders. The
percentage paid may vary from one fund company to another.
(b) A portion of the brokerage commissions that certain funds pay was
used to reduce funds expenses. In addition, certain funds have
entered into arrangements with their custodian whereby credits
realized, as a result of uninvested cash balances, were used to
reduce custodian expenses. Including these reductions, the Total
Investment Fund Annual Expenses presented in the table would have
been: 0.57% for Fidelity VIP Equity-Income Portfolio; 0.67% for
Fidelity VIP Growth Portfolio; 0.90% for Fidelity VIP Overseas
Portfolio; 0.64% for Fidelity VIP II Asset Manager Portfolio; and
0.68% for Fidelity VIP II Contrafund Portfolio.
(c) FMR agreed to reimburse a portion of Fidelity VIP II Index 500
Portfolio's expenses during the
<PAGE>
period. Without this reimbursement, the fund's Management Fee, Other
Expenses and Total Investment Fund Annual Expenses would have been 0.27%,
0.13%, and 0.40% respectively. Expense reimbursements are voluntary. There
is no assurance of ongoing reimbursement.
(d) The fees and expenses in the table above are based on gross expenses
before expense offset arrangements for the fiscal year ended
December 31, 1997. The information for each Portfolio is net of fee
reductions from Janus Capital. Fee reductions for the Aggressive
Growth, Growth, International Growth, and Worldwide Growth
Portfolios reduce the management fee to the level of the
corresponding Janus retail fund. Without such reductions, the
Management Fee, Other Expenses and Total Investment Fund Annual
Expenses would have been: 0.74%, 0.04%, and 0.78% for Janus
Aggressive Growth Portfolio; 0.74%, 0.04%, and 0.78% for Janus
Growth Portfolio; 0.79%, 0.29%, and 1.08% for Janus International
Growth Portfolio; and 0.72%, 0.09%, and 0.81% for Janus Worldwide
Growth Portfolio. Janus Capital may modify or terminate the
reductions at any time upon at least 90 days' notice to the Trustees
of Janus Aspen Series.
(e) The investment adviser to the Northstar Variable Trust has agreed to
reimburse the five Northstar Portfolios for any expenses in excess
of 0.80% of each Portfolio's average daily net assets. In the
absence of the investment adviser's expense reimbursements, the
Total Investment Fund Annual Expenses that would have been paid by
each Portfolio during its fiscal year ended December 31, 1997 would
have been: 1.09% for the Northstar Variable Trust Growth Portfolio;
1.35% for the Northstar Variable Trust High Yield Bond Portfolio;
1.11% for the Northstar Variable Trust Income and Growth Portfolio;
1.36% for the Northstar Variable Trust Multi-Sector Bond Portfolio;
and 2.61% for the Northstar Variable Trust International Value
Portfolio. Expense reimbursements are voluntary. There is no
assurance of ongoing reimbursement.
(f) Management Fees reflect effective management fees after taking into
effect any waiver. Other Expenses are shown gross of expense offsets
afforded the Portfolios which effectively lowered overall custody
expenses. Total Investment Fund Annual Expenses for the Equity,
Small Cap and Managed Portfolios are limited by OpCap Advisors so
that their respective annualized operating expenses (net of any
expense offsets) do not exceed 1.00% of average daily net assets.
Total Investment Fund Annual Expenses for the Global Equity
Portfolio are limited to 1.25% of average daily net assets. Without
such limitation and without giving effect to any expense offsets,
the Management Fees, Other Expenses and Total Investment Fund Annual
Expenses incurred for the fiscal year ended December 31, 1997 would
have been: 0.80%, 0.19% and 0.99%, respectively, for the Equity
Portfolio; 0.79%, 0.40% and 1.19%, respectively, for the Global
Equity Portfolio; 0.80%, 0.07% and 0.87%, respectively, for the
Managed Portfolio; and 0.80%, 0.17% and 0.97%, respectively, for the
Small Cap Portfolio.
REDUCTION OF CHARGES
Any of the charges under the Policy, as well as the minimum Face Amount
set forth in this Prospectus, may be reduced because of special circumstances
that result in lower sales, administrative, or mortality expenses. For example,
special circumstances may exist in connection with group or sponsored
arrangements, sales to our policyholders or those of affiliated insurance
companies, or sales to employees or clients of members of our affiliated group
of insurance companies. The amount of any reductions will reflect the reduced
sales effort and administrative costs resulting from, or the different
mortality experience expected as a result of, the special circumstances.
Reductions will not be unfairly discriminatory against any person, including
the affected Policy owners and owners of all other policies funded by the
Variable Account.
SALES CHARGE REFUND
During the first two Policy Years and during the first 24 Policy Months
following the effective date of any requested increase in Face Amount, we may
be required to refund a portion of the Contingent Deferred Sales Charge if you
surrender the Policy. This refund is called the Sales Charge Refund.
Any amount used in the calculation described below will be determined on
the effective date of surrender.
INITIAL FACE AMOUNT. If the Policy is surrendered during the first two
Policy Years, a Sales Charge Refund will be made to the extent that the total
sales charge deducted (the sales charge deducted from each premium payment and
the Contingent Deferred Sales Charge) exceeds (i) 30% of actual premium
<PAGE>
payments made during the first Policy Year up to the amount of the Surrender
Charge Guideline (see below) for the initial Face Amount, plus (ii) 9% of any
actual premium payments made that exceed (i). In addition, the amount of the
refund will never decrease as the result of the payment of a premium. After the
second Policy Year, there is no Sales Charge Refund with respect to the initial
Face Amount.
As described above, the Sales Charge Refund is calculated based on
percentages of premium payments. While the total sales charge deducted under
the Policy is not based solely on premium payments, it is possible to translate
the total sales charge into a percentage of premium payments. In general, the
total sales charge deducted (before calculating the Sales Charge Refund) will
be 50% of each premium payment until premium payments reach a certain level.
The level ranges from approximately 35% of a Surrender Charge Guideline for a
male age 0, up to approximately 111% of a Surrender Charge Guideline for a male
age 40, and down to approximately 44% of a Surrender Charge Guideline for a
male age 75. After premium payments reach this level, the total sales charge
will equal 2.50% of each additional premium payment. During the two Policy
Years when the Sales Charge Refund applies, however, the total sales charge
will be limited to 30% of actual first year premium payments up to the amount
of a Surrender Charge Guideline, 9% of actual premium payments until payments
reach the level where the total sales charge drops to 2.50%, and 2.50% of any
additional premium payments beyond that level. If you have any questions
regarding the amount of your Sales Charge Refund, please call us.
Due to the Sales Charge Refund, the total sales charge for the initial
Face Amount will be significantly less if a Policy is surrendered during the
first two Policy Years rather than shortly thereafter.
The Surrender Charge Guideline will equal the amount obtained by dividing
the Face Amount or the amount of the increase, as the case may be, by $1,000,
and multiplying the result by the applicable factor from Appendix E.
REQUESTED INCREASES IN FACE AMOUNT. If you cancel a requested increase in
Face Amount during the first 24 Policy Months following the increase (but after
the free look period -- see "Free Look and Conversion Rights -- Free Look
Rights"), and the Policy is surrendered at any time thereafter, a Sales Charge
Refund will be made to the extent that the total sales charge for the increase
(the sales charge deducted from the portion of premiums attributable to the
increase and the Contingent Deferred Sales Charge for the increase) exceeds (i)
30% of the premiums attributable to the increase in the 12 Policy Months
following the increase up to the amount of the Surrender Charge Guideline for
the increase (see immediately preceding paragraph), plus (ii) 9% of any
premiums attributable to the increase that exceed (i). In addition, the amount
of the refund will never decrease as the result of the payment of a premium.
This refund is only available if the increase is cancelled within the 24 Policy
Months following its effective date, and the Policy is subsequently
surrendered. No refund is available if the increase is cancelled after the
24-month period.
Calculating total sales charge deducted for an increase as a percentage of
premiums attributable to the increase is, in general, the same as described
above for the initial Face Amount. Thus, due to the Sales Charge Refund, the
total sales charge for a requested increase in Face Amount may be significantly
less if the increase is cancelled during the 24-month period following the
increase rather than shortly thereafter. If you have any questions regarding
the amount of your Sales Charge Refund, please call us.
For the purposes of the preceding paragraph, the premiums attributable to
the increase will be determined as described in the section entitled
"Deductions and Charges -- Surrender Charge -- Calculation of Contingent
Deferred Sales Charge", which means that, in effect, a proportionate amount of
the existing Accumulation Value on the effective date of the increase will be
deemed to be a premium payment for the increase, and subsequent premium
payments will be prorated.
EFFECT OF SALES CHARGE REFUND. The Sales Charge Refund will be applied to
maintain the Policy in force when the Cash Surrender Value is insufficient to
cover the Monthly Deduction. If the remaining Sales Charge Refund (not already
applied to keep the Policy in force) is insufficient to cover the Monthly
Deduction, this remaining Sales Charge Refund may be applied for the grace
period under the Policy. See "Policy Lapse and Reinstatement". Any Sales Charge
Refund not so applied will be refunded to you upon the total surrender of the
Policy.
<PAGE>
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike traditional life insurance policies, the failure to make a
Planned Periodic Payment will not by itself cause the Policy to lapse. If the
Death Benefit Guarantee is not in effect, the Policy will lapse only if, as of
any Monthly Anniversary, the Cash Surrender Value plus any Sales Charge Refund
is less than the Monthly Deduction due, and a grace period of 61 days expires
without a sufficient payment. If (during the first two Policy Years or the
first 24 Policy Months after a requested increase in Face Amount) there exists
any Sales Charge Refund (see "Sales Charge Refund") sufficient to supplement
the Cash Surrender Value so as to cover the Monthly Deduction, then the Sales
Charge Refund will be applied by us to keep the Policy in force. The amount of
Sales Charge Refund available for such application is reduced on each Monthly
Anniversary as so applied. Any payment made by you after we have kept the
Policy in force in this manner will first be used to reimburse us for the
amount of Sales Charge Refund so applied.
During the early Policy Years, the Cash Surrender Value (even when
supplemented by the Sales Charge Refund) will generally not be sufficient to
cover the Monthly Deduction, so that premium payments sufficient to maintain
the Death Benefit Guarantee will be required to avoid lapse. See "Death Benefit
Guarantee".
The Policy does not lapse, and the insurance coverage continues, until the
expiration of a 61-day grace period which begins on the date we send you
written notice indicating that the Cash Surrender Value plus any Sales Charge
Refund is less than the Monthly Deduction due. Our written notice to you will
indicate the amount of the payment required to avoid lapse. Failure to make a
sufficient payment within the grace period will result in lapse of the Policy
without value.
As discussed above, any Sales Charge Refund will be applied to keep the
Policy in force when the Cash Surrender Value is less than the Monthly
Deduction. When a total surrender of the Policy is requested after the start of
a grace period, any remaining Sales Charge Refund (not already applied to keep
the Policy in force) will be so applied for the grace period, and consequently
not refunded, unless the surrender request is received by us within 30 days
after we mail the grace period notice to you. If such a request is timely
received, you will be refunded an amount equal to any unapplied Sales Charge
Refund that existed as of the Monthly Anniversary on which the Cash Surrender
Value deficiency causing the grace period notice occurred, plus any unearned
prepaid loan interest as of such Monthly Anniversary.
If the Insured dies during the grace period, the proceeds payable will
equal the amount of the Death Benefit on the Valuation Date on or next
following the date of the Insured's death, reduced by any Loan Amount and any
unpaid Monthly Deductions.
If the Death Benefit Guarantee is in effect, we will not lapse the Policy.
See "Death Benefit Guarantee".
REINSTATEMENT. Reinstatement means putting a lapsed Policy back in force.
You may reinstate a lapsed Policy by written request any time within five years
after it has lapsed if it has not been surrendered for its Cash Surrender
Value.
To reinstate the Policy and any riders you must submit evidence of
insurability satisfactory to us and you must pay a premium large enough to keep
the Policy in force for at least two months.
The Death Benefit Guarantee cannot be reinstated. See "Death Benefit
Guarantee".
SURRENDER BENEFITS
Subject to certain limitations, you may make a total surrender of the
Policy or a partial withdrawal of the Policy's Cash Surrender Value by sending
us a written request. The amount available for a total surrender or partial
withdrawal will be determined at the end of the Valuation Period during which
your written request is received. Any amounts payable from the Variable Account
upon total surrender or partial withdrawal will generally be paid within seven
days of receipt of your written request. Postponement of payments may, however,
occur in certain circumstances. See "General Provisions -- Postponement of
Payments".
TOTAL SURRENDER
By making a written request, you may surrender the Policy at any time for
its Cash Surrender Value plus any Sales Charge Refund. The Cash Surrender Value
is the Accumulation Value of the Policy
<PAGE>
reduced by any Surrender Charge, Loan Amount and unpaid Monthly Deductions. If
the Cash Surrender Value at the time of a surrender exceeds $25,000, the
written request must include a Signature Guarantee. An illustration of
Accumulation Values, Surrender Charges, Cash Surrender Values, and Death
Benefits assuming different levels of premium payments and investment returns
for selected Ages and Face Amounts, is shown in Appendix C.
PARTIAL WITHDRAWAL
After the first Policy Year, you may also withdraw part of the Policy's
Cash Surrender Value by sending us a written request. If the amount being
withdrawn exceeds $25,000, the written request must include a Signature
Guarantee. Only one partial withdrawal is allowed in any Policy Year. We
currently make a $10.00 charge for each partial withdrawal. This charge is
guaranteed not to exceed $25.00 for each partial withdrawal. See "Deductions
and Charges -- Partial Withdrawal and Transfer Charges". The amount of any
partial withdrawal must be at least $500 and, during the first 15 Policy Years,
may not be more than 20% of the Cash Surrender Value on the date we receive
your written request.
Unless you specify a different allocation, we make partial withdrawals
from the Fixed Account and the Sub-Accounts of the Variable Account on a
proportionate basis based upon the Accumulation Value. These proportions will
be determined at the end of the Valuation Period during which your written
request is received. For purposes of determining these proportions, any
outstanding Loan Amount is first subtracted from the Fixed Accumulation Value.
EFFECT OF PARTIAL WITHDRAWALS. The Accumulation Value will be reduced by
the amount of any partial withdrawal. The Death Benefit will also be reduced by
the amount of the withdrawal, or, if the Death Benefit is based on the corridor
percentage of Accumulation Value (see "Death Benefit -- Death Benefit
Options"), by an amount equal to the corridor percentage times the amount of
the partial withdrawal.
If the Level Amount Option is in effect, the Face Amount will be reduced
by the amount of the partial withdrawal. When increases in the Face Amount have
occurred previously, we reduce the current Face Amount by the amount of the
partial withdrawal in the following order:
(a) The Face Amount provided by the most recent increase;
(b) The next most recent increases successively; and
(c) The Face Amount when the policy was issued.
(This assumption also applies to requested decreases in Face Amount -- see
"Death Benefit -- Requested Changes in Face Amount".) Thus, partial withdrawals
may affect the way in which the cost of insurance is calculated and the amount
of pure insurance protection under the Policy. See "Death Benefit -- Requested
Changes in Face Amount", "Deductions and Charges -- Monthly Deduction" and
"Death Benefit -- Insurance Protection".
We do not allow a partial withdrawal if the Face Amount after a partial
withdrawal would be less than the Minimum Face Amount.
If the Variable Amount Option is in effect, a partial withdrawal does not
affect the Face Amount.
A partial withdrawal may also cause the termination of the Death Benefit
Guarantee because the amount of the partial withdrawal is deducted from the
total premiums paid in calculating whether sufficient premiums have been paid
in order to maintain the Death Benefit Guarantee.
Like partial withdrawals, Policy loans are a means of withdrawing funds
from the Policy. See "Policy Loans". A partial withdrawal or a Policy loan may
have tax consequences depending on the circumstances of such withdrawal or
loan. See "Federal Tax Matters -- Policy Proceeds".
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 and subject to our restrictions (see
"Investments of the Variable Account"). Telephone/fax transfers are available
when you complete a telephone/fax form. See "Telephone/Fax Instructions."
Transfer requests must be in writing. You may also direct us to automatically
make periodic transfers under the Dollar Cost Averaging or Portfolio
Rebalancing services as described below.
<PAGE>
To transfer all or part of the Variable Accumulation Value from a
Sub-Account, Accumulation Units are redeemed and their values are reinvested in
other Sub-Accounts, or the Fixed Account, as directed in your request. We will
effect transfers, and determine all values in connection with transfers, at the
end of the Valuation Period during which we receive your request, except as
otherwise specified for the Dollar Cost Averaging or Portfolio Rebalancing
services. With respect to future Net Premium payments, however, your current
premium allocation will remain in effect unless (i) you have requested the
Portfolio Rebalancing service, or (ii) you are transferring all of the Variable
Accumulation Value from the Variable Account to the Fixed Account in exercise
of conversion rights. See "Free Look and Conversion Rights -- Conversion
Rights".
Transfers from the Fixed Account to the Variable Account are subject to
the following additional restrictions: (i) your transfer request must be
postmarked no more than 30 days before or after the Policy Anniversary in any
year, and only one transfer is permitted during this period, (ii) no more than
50% of the Fixed Accumulation Value, less any Loan Amount, may be transferred
unless the balance, after the transfer, would be less than $1,000, in which
event the full Fixed Accumulation Value, less any Loan Amount, may be
transferred, and (iii) you must transfer at least the lesser of $500 or the
total Fixed Accumulation Value, less any Loan Amount. See Appendix A. Some of
these restrictions may be waived for transfers due to the Portfolio Rebalancing
service.
TELEPHONE/FAX INSTRUCTIONS. You are allowed to enter certain types of
instructions either by telephone or by fax if you complete a telephone/fax
instruction authorization form. If you complete the form, you can enter the
following types of instructions by telephone or fax: transfers between
Sub-Accounts and changes of allocations among fund options. If the Owner
completes the telephone/fax form, the Owner agrees that we will not be liable
for any loss, liability, cost or expense when we act in accordance with the
telephone/fax transfer instructions that are received and, if by telephone, are
recorded on voice recording equipment. If a telephone/fax transfer request is
later determined not to have been made by the Owner or was made without the
Owner's authorization, and loss results from such unauthorized transfer, the
Owner bears the risk of this loss. Any requests via fax are considered
telephone requests and are bound by the conditions in the telephone/fax
transfer authorization form you sign. Any fax request should include your name,
daytime telephone number, Policy number and, in the case of transfers, the
names of the Sub-Accounts from which and to which money will be transferred and
the allocation percentage. The Company will employ reasonable procedures to
confirm that instructions communicated by telephone/fax are genuine. In the
event the Company does not employ such procedures, the Company may be liable
for any losses due to unauthorized or fraudulent instructions. Such procedures
may include, among others, requiring forms of personal identification prior to
acting upon telephone/fax instructions, providing written confirmation of such
instructions, and/or tape recording telephone instructions.
DOLLAR COST AVERAGING SERVICE. You may request this service if your Face
Amount is at least $100,000 and your Accumulation Value, less any Loan Amount,
is at least $5,000. If you request this service, you direct us to automatically
make specific periodic transfers of a fixed dollar amount from any of the
Sub-Accounts to one or more of the Sub-Accounts or to the Fixed Account. No
transfers from the Fixed Account are permitted under this service. Transfers of
this type may be made on a monthly, quarterly, semi-annual, or annual basis.
This service is intended to allow you to use "Dollar Cost Averaging", a long
term investment method which provides for regular investments over time. We
make no guarantees that Dollar Cost Averaging will result in a profit or
protect against loss. You may discontinue this service at any time by notifying
us in writing.
If you are interested in the Dollar Cost Averaging service you may obtain
a separate application form and full information concerning this service and
its restrictions from us or our registered representative.
If you are using the Dollar Cost Averaging service, this service will be
discontinued immediately (i) on receipt of any request to begin a Portfolio
Rebalancing service, (ii) if the Policy is in the grace 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.
<PAGE>
PORTFOLIO REBALANCING SERVICE. You may request this service if your Face
Amount is at least $200,000 and your Accumulation Value, less any Loan Amount,
is at least $10,000. If you request this service, you direct us to
automatically make periodic transfers to maintain your specified percentage
allocation of Accumulation Value, less any Loan Amount, among the Sub-Accounts
of the Variable Account and the Fixed Account; your allocation of future Net
Premium Payments will also be changed to be equal to this specified percentage
allocation. Transfers made under this service may be made on a quarterly,
semi-annual, or annual basis. This service is intended to maintain the
allocation you have selected consistent with your personal objectives.
The Accumulation Value in each Sub-Account of the Variable Account and the
Fixed Account will grow or decline at different rates over time. Portfolio
Rebalancing will periodically transfer Accumulation Values from those accounts
that have increased in value to those accounts that have increased at a slower
rate or declined in value. If all accounts decline in value, it will transfer
Accumulation Values from those that have decreased less in value to those that
have decreased more in value. We make no guarantees that Portfolio Rebalancing
will result in a profit or protect against loss. You may discontinue this
service at any time by notifying us in writing.
If you are interested in the Portfolio Rebalancing service you may obtain
a separate application form and full information concerning this service and
its restrictions from us or your registered representative.
If you are using the Portfolio Rebalancing service, this service will be
discontinued immediately (i) on receipt of any request to change the allocation
of premiums to the Fixed Account and Sub-Accounts of the Variable Account, (ii)
on receipt of any request to begin a Dollar Cost Averaging service, (iii) upon
receipt of any request to transfer Accumulation Value among the accounts, or
(iv) if the Policy is in the grace period or the Accumulation Value, less any
Loan Amount, is less than $7,500 on any Valuation Date when Portfolio
Rebalancing transfers are scheduled.
We reserve the right to discontinue, modify, or suspend this service. Any
such modification or discontinuation could affect Portfolio Rebalancing
services currently in effect, but only after 30 days notice to affected Policy
owners.
TRANSFER LIMITS. We currently allow twelve transfers in a Policy Year,
although we reserve the right to limit you to no more than four transfers per
year. All transfers that are effective on the same Valuation Date will be
treated as one transfer transaction. Transfers made due to the Dollar Cost
Averaging or Portfolio Rebalancing services do not currently count toward the
limit on number of transfers.
TRANSFER CHARGES. While there is currently no charge imposed on a
transfer, including transfers to implement Dollar Cost Averaging and Portfolio
Rebalancing, we reserve the right to make a charge not to exceed $25.00 per
transfer for the duration of the Policy. See "Deductions and Charges -- Partial
Withdrawal and Transfer Charges". In no event, however, will any charge be
imposed in connection with the exercise of a conversion right or transfers
occurring as the result of Policy Loans. All transfers are also subject to any
charges and conditions imposed by the Fund whose shares are involved. All
transfers that are effective on the same Valuation Date will be treated as one
transfer transaction.
POLICY LOANS
GENERAL. As long as the Policy remains in effect, you may borrow money
from us using the Policy as security for the loan (we do reserve the right to
limit loans during the first Policy Year (except that in Indiana loans may be
made during the first Policy Year)). You may not borrow at any time more than
the Loan Value of the Policy, which is equal to 75% of the Cash Value less the
existing Loan Amount, except that in Texas the percentage is 100% and in
Alabama, Maryland and Virginia, the percentage is 90%. If the Policy is in
force as paid-up life insurance, the Loan Value is equal to the Cash Value on
the next Policy Anniversary less any existing Loan Amount and loan interest to
that date. Each Policy loan 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
<PAGE>
not employ such procedures, we may be liable for any losses due to unauthorized
or fraudulent instructions. Such procedures may include, among others,
requiring forms of personal identification prior to acting upon telephone
instructions, providing written confirmations of such instructions and/or tape
recording telephone instructions.
Policy loans have priority over the claims of any assignee or other
person. A Policy loan may be repaid in whole or in part at any time on or
before the Insured reaches Age 95, while the Insured is living.
The loan proceeds will normally be paid to you within seven days after we
receive your request. Payment of loan proceeds to you may be postponed under
certain circumstances. See "General Provisions -- Postponement of Payments".
Payments made by you generally will be treated as premium payments, rather
than Policy loan repayments, unless you indicate that the payment should be
treated otherwise or unless we decide, at our discretion, to apply the payment
as a Policy loan repayment. As a result, unless you indicate that a payment is
a loan repayment, all payments you make to the Policy will generally be subject
to the Premium Expense Charge. See "Deductions and Charges -- Premium Expense
Charge".
The total of your outstanding Policy loans including unpaid interest due
thereon is called the "Loan Amount".
IMMEDIATE EFFECT OF POLICY LOANS. When we make a Policy loan, an amount
equal to the Policy loan (which includes interest payable in advance) will be
segregated within the Accumulation Value of your Policy and held in the Fixed
Account as security for the loan. As described below, you will pay interest to
us on the Policy loan, but we will also credit interest to you on the amount
held in the Fixed Account as security for the loan. The amount segregated in
the Fixed Account as security for the Policy loan will be included as part of
the Fixed Accumulation Value under the Policy, but will (as described below) be
credited with interest on a basis different from other amounts in the Fixed
Account.
Unless you specify differently, amounts held as security for the Policy
loan will come proportionately from the Fixed Accumulation Value and the
Variable Accumulation Value (with the proportions being determined as described
below). Assets equal to the portion of the Policy loan coming from the Variable
Accumulation Value will be transferred from the Sub-Accounts of the Variable
Account to the Fixed Account, THEREBY REDUCING THE ACCUMULATION VALUE HELD IN
THE SUB-ACCOUNTS. These transfers are not treated as transfers for the purposes
of the transfer charge or the limit on the number of transfers.
ILLUSTRATION OF DETERMINATION OF PROPORTIONS. The segregated amount that
will be security for a Policy loan will come from the Fixed Accumulation Value
and the Variable Accumulation Value in the same proportion that the sum of (a)
the Policy's Fixed Accumulation Value, less any existing Loan Amount, and (b)
the Policy's Variable Accumulation Value, bear to the Policy's total
Accumulation Value less any existing Loan Amount (determined, in each case, at
the end of the Valuation Period during which your request is received).
This can be illustrated as follows. Assume that the Fixed Accumulation
Value is $5,000 and the Variable Accumulation Value is $6,000, with Sub-Account
XXX = $2,000, and Sub-Account YYY = $4,000. Assume that the existing Loan
Amount is $1,000, and the new Policy loan request is $5,000. For purposes of
determining the proportions, we first subtract the existing Loan Amount from
the Fixed Accumulation Value, and then we add the Variable Accumulation Value,
which in our example would be ($5,000 - $1,000) + $6,000 = $10,000. The
proportionate percentages of the Policy loan coming from the Fixed Accumulation
Value and the Variable Accumulation Value are then determined as a percentage
of this total, which would be $4,000/$10,000 = 40% from the Fixed Accumulation
Value, and $6,000/$10,000 = 60% from the Variable Accumulation Value. The
percentage deducted from the Variable Accumulation Value would be distributed
as follows: $2,000/$10,000 = 20% from Sub-Account 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
<PAGE>
amounts held in the Fixed Account as security for Policy loans (that is, the
Loan Amount) will only be credited with interest at an effective annual rate
currently equal to 5.50% (guaranteed to be not less than 4.00%). NO ADDITIONAL
INTEREST WILL BE CREDITED TO THESE AMOUNTS. On the Policy Anniversary, any
interest credited on these amounts will be credited to the Fixed Account and
the Variable Account according to the premium allocation then in effect. See
"Payment and Allocation of Premiums -- Allocation of Premiums".
Although Policy loans may be repaid in whole or in part at any time before
the Insured's Age 95, Policy loans will permanently affect the Policy's
potential Accumulation Value. As a result, to the extent that the Death Benefit
depends upon the Accumulation Value (see "Death Benefit -- Death Benefit
Options"), Policy loans will also affect the Death Benefit under the Policy.
This effect could be favorable or unfavorable depending on whether the
investment performance of the assets allocated to the Sub-Account(s) is less
than or greater than the interest being credited on the assets transferred to
the Fixed Account while the loan is outstanding. Compared to a Policy under
which no loan is made, values under the Policy will be lower when such interest
credited is less than the investment performance of assets held in the
Sub-Account(s).
EFFECT ON POLICY COVERAGE. If, on any Monthly Anniversary, the Loan Amount
is greater than the Accumulation Value, plus any Sales Charge Refund, less the
then applicable Surrender Charge, we will notify you. If we do not receive
sufficient payment within 61 days from the date we send notice to you, the
Policy will lapse and terminate without value. Our written notice to you will
indicate the amount of the payment required to avoid lapse. The Policy may,
however, later be reinstated. See "Policy Lapse and Reinstatement".
A Policy loan may also cause termination of the Death Benefit Guarantee,
because the Loan Amount is deducted from the total premiums paid in calculating
whether sufficient premiums have been paid in order to maintain the Death
Benefit Guarantee. See "Death Benefit Guarantee".
Proceeds payable upon the death of the Insured will be reduced by any Loan
Amount.
INTEREST. The interest rate charged on Policy loans will be an annual rate
of 7.40%, payable in advance. After the tenth Policy Year, we will charge
interest at an annual rate of 5.21%, payable in advance, on that portion of
your Loan Amount that is not in excess of (a) the Accumulation Value, less (b)
the total of all premiums paid less all partial withdrawals. Any excess of this
amount will be charged interest at the annual rate of 7.40%.
Interest is payable in advance (for the rest of the Policy Year) at the
time any Policy loan is made and at the beginning of each Policy Year
thereafter (for that entire Policy Year). If interest is not paid when due, it
will be deducted from the Cash Surrender Value as an additional Policy loan
(see "Immediate Effect of Policy Loans" above) and will be added to the
existing Loan Amount.
Because we charge interest in advance, any interest that we have not
earned will be refunded to you upon lapse or surrender of the Policy or
repayment of the Policy Loan.
REPAYMENT OF LOAN AMOUNT. The Loan Amount may be repaid any time while the
Insured is living before the Insured reaches Age 95 (see "General Provisions --
Benefits at Age 95"). If not repaid, the Loan Amount will be deducted by us
from any amount payable under the Policy. As described above, unless you
provide us with notice to the contrary, any payments on the Policy will
generally be treated as premium payments, which are subject to the Premium
Expense Charge, rather than repayments on the Loan Amount. Any repayments on
the Loan Amount will result in amounts being reallocated from the Fixed Account
and to the Sub-Accounts of the Variable Account according to your current
premium allocation.
TAX CONSIDERATIONS. A Policy loan may have tax consequences depending on
the circumstances of the loan. See "Federal Tax Matters -- Policy Proceeds".
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.
<PAGE>
AT INITIAL ISSUE. The Policy provides for an initial free look period
during which you have a right to return the Policy for cancellation and receive
a refund of all premiums paid. You must return the Policy to us or your agent
and ask us to cancel the Policy by the latest of:
* Midnight of the 20th day after receiving it;
* Midnight of the 20th day after a written Notice of Right of Withdrawal is
mailed or delivered to you; or
* Midnight of the 45th day after the date your application for the Policy
is signed.
FOLLOWING A REQUESTED INCREASE IN FACE AMOUNT. Any requested increase in
Face Amount is also subject to a free look period during which you have a right
to cancel the increase and receive a refund. You must notify us or your agent
and ask us to cancel the increase by the latest of:
* Midnight of the 20th day after receiving a new Policy Data Page;
* Midnight of the 20th day after a written Notice of Right of Withdrawal is
mailed or delivered to you; or
* Midnight of the 45th day after the date your request for the increase is
signed.
Upon requesting cancellation of the increase, you will receive a refund,
if you so request, or otherwise a restoration to the Policy's Accumulation
Value (allocated among the Fixed Account and the Sub-Accounts of the Variable
Account as if it were a Net Premium payment), in an amount equal to all Monthly
Deductions attributable to the increase in Face Amount, including rider costs
arising from the increase.
CONVERSION RIGHTS
During the first two Policy Years and the first two years following a
requested increase in Face Amount, we provide you with an option to convert the
Policy or any requested increase in Face Amount to a life insurance policy
under which the benefits do not vary with the investment experience of the
Variable Account. For Policies issued in all states, except Connecticut, this
option is made available by permitting you to transfer all or a part of your
Variable Accumulation Value to the Fixed Account. For Policies issued in
Connecticut, you may exchange this Policy for a different permanent fixed
benefit life insurance Policy that is offered by us in that state. The two
conversion right options are discussed below.
GENERAL OPTION. In all states except Connecticut, you may exercise your
conversion right by transferring all or any part of your Variable Accumulation
Value to the Fixed Account. If, at any time during the first two Policy Years
or the first two years following a requested increase in Face Amount, you
request a transfer from the Variable Account to the Fixed Account and indicate
that you are making the transfer in exercise of your conversion right, the
transfer will not be subject to the transfer charge and will not count against
the limit on the number of transfers. At the time of such transfer, there is no
effect on the Policy's Death Benefit, Face Amount, net amount at risk, Rate
Class(es) or issue Age -- only the method of funding the Accumulation Value
under the Policy will be affected. See "Death Benefit", "Accumulation Value"
and Appendix A, "The Fixed Account".
If you transfer all of the Variable Accumulation Value from the Variable
Account to the Fixed Account and indicate that you are making this transfer in
exercise of your Conversion Right, we will automatically credit all future
premium payments on the Policy to the Fixed Account unless you request a
different allocation.
CONNECTICUT. During the first two Policy Years and during the first 24
months following a requested increase in Face Amount, you may convert the
Policy or the Face Amount increase to any permanent fixed benefit whole life
insurance policy offered by us. No evidence of insurability will be required
for the conversion. In order to convert to a new Policy, we must receive a
written conversion request; if the entire Policy is being converted, the Policy
must be surrendered to us; the conversion must be made while the Policy is in
force; and any outstanding Loan Amount must be repaid.
The new Policy will have the same Issue Age and premium class as the
Policy. If the entire Policy is being converted, the effective date of the
conversion will be the date on which we receive both your written conversion
request and the Policy. If you are converting a Face Amount increase, the
effective date of the conversion will be the date on which we receive your
written conversion request.
<PAGE>
On the effective date of the conversion, the new Policy will have, at your
option, either:
(a) A death benefit which is equal to the Death Benefit of the Policy on
the effective date of the conversion, or in the case of a Face Amount
increase, a death benefit equal to the increase in Face Amount; or
(b) A net amount at risk which equals the Death Benefit of the Policy on
the effective date of the conversion, less the Accumulation Value on
that date, or in the case of a Face Amount increase, a net amount at
risk which equals the Face Amount increase on the effective date of
conversion less the Accumulation Value on that date which is considered
to be part of the Face Amount increase.
The conversion will be subject to an equitable adjustment in payments and
Policy values to reflect variances, if any, in the payments and Policy values
under the Policy and the new Policy. An additional premium payment may be
required. The new Policy's provisions and charges will be the same as those
that would have been in effect had the new Policy been issued on the Policy
Date.
INVESTMENTS OF THE VARIABLE ACCOUNT
There are currently 33 investment alternatives available under the
Variable Account. Alger Management is the investment manager for the three
Alger American Funds and is responsible for the overall administration of the
Fund, subject to the supervision of the Board of Trustees. Fidelity Management
& Research Company is the investment adviser for the five portfolios of VIP and
the four portfolios of VIP II. Each of the four portfolios of Janus Aspen
Series has an investment advisory agreement with Janus Capital.
Neuberger&Berman Management, with the assistance of Neuberger&Berman, LLC as
sub-adviser, selects investments for AMT Limited Maturity Bond Investments and
AMT Partners Investments. Northstar Investment Management Corporation, an
affiliate of the Company, is the investment adviser of the five Northstar
Portfolios of the Northstar Variable Trust. The Northstar Variable Trust Growth
Portfolio is sub-advised by Navellier Fund Management, Inc., and the Northstar
Variable Trust International Value Portfolio is sub-advised by Brandes
Investment Partners, L.P. OpCap Advisors is the investment manager for each of
the four OCC Accumulation Trust Portfolios and is a subsidiary of Oppenheimer
Capital, a registered investment adviser. Putnam Investment Management, Inc. is
the investment adviser for the six funds of Putnam Variable Trust.
We reserve the right to establish additional Sub-Accounts of the Variable
Account, each of which could invest in a new Fund with a specified investment
objective. The Variable Account currently consists of 33 investment options.
You are permitted, however, to participate only in a maximum of seventeen
investment options over the lifetime of your Policy. You do not have to choose
your investment options in advance, but upon participation in the seventeenth
Fund since the issue of the Policy, you would only be able to transfer within
the seventeen Funds already utilized and which are still available. The
limitation includes transfers.
The Company has entered into service agreements with the managers or
distributors of certain of the Funds pursuant to which the Company or its
affiliates may receive from affiliates of the Funds compensation for providing
administrative, recordkeeping, distribution in some cases, and other services
to the Funds or their affiliates. Such compensation is paid based upon assets
invested in the particular Funds, or based upon aggregated net asset goals.
Payments of such amounts by an affiliate or affiliates of the Funds do not
increase the fees paid by the Funds or their shareholders. The percentage paid
may vary from one fund to another. Currently, the Company has service
arrangements with Alger, Fidelity, Janus, Neuberger&Berman Management, and OCC.
The Funds currently offered are described below. A brief summary of
investment objectives is contained in the description of each Fund. In
addition, you should read the prospectuses of the Funds, which are contained in
the accompanying "Select*Product Investment Options" book, for more detailed
information and particularly, a more thorough explanation of investment
objectives of the Funds. There is no assurance that any Fund will achieve its
investment objectives. There is a possibility that one Fund might become liable
for any misstatement, inaccuracy or incomplete disclosure in another Fund's
prospectus.
The Fund shares may be available to fund benefits under both variable
annuity and variable life contracts and policies. This could, in the future,
result in an irreconcilable conflict between the interests of the holders of
the different types of variable contracts. The Funds have advised us that they
will
<PAGE>
monitor for such conflicts and will promptly provide us with information
regarding any such conflicts should they arise or become imminent and we will
promptly advise the Funds if we become aware of any such conflicts. If any such
material irreconcilable conflict arises we will arrange to eliminate and remedy
such conflict up to and including establishing a new management investment
company and segregating the assets underlying the variable policies and
contracts at no cost to the holders of the policies and contracts. For a brief
explanation of the conflicts that may be involved in such situations, refer to
the Fund Prospectuses.
The Funds described below distribute dividends and capital gains. However,
distributions are automatically reinvested in additional Fund shares, at net
asset value. The Sub-Account receives the distributions which are then
reflected in the Unit Value of that Sub-Account. See "Accumulation Value".
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".
FUND DESCRIPTIONS
<TABLE>
INVESTMENT FUNDS INVESTMENT OBJECTIVE
- -------------------------------------------------------- ------------------------------------------
<S> <C>
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio long-term capital appreciation
Alger American MidCap Growth Portfolio long-term capital appreciation
Alger American Small Capitalization Portfolio long-term capital appreciation
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP):
VIP Equity-Income Portfolio reasonable income; capital appreciation
VIP Growth Portfolio capital appreciation
VIP High Income Portfolio high current income
VIP Money Market Portfolio income while maintaining stable $1.00
share price
VIP Overseas Portfolio long-term capital growth
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
(VIP II):
VIP II Asset Manager Portfolio high total return with reduced risk over
the long-term
VIP II Contrafund Portfolio capital appreciation
VIP II Index 500 Portfolio total return that corresponds to that of
the Standard & Poor's 500 Index
VIP II Investment Grade Bond Portfolio high current income
JANUS ASPEN SERIES:
Aggressive Growth Portfolio long-term capital growth
Growth Portfolio long-term capital growth
International Growth Portfolio long-term capital growth
Worldwide Growth Portfolio long-term capital growth
NEUBERGER&BERMAN ADVISERS MANAGEMENT TRUST
("AMT"):
Limited Maturity Bond Portfolio highest current income consistent with
low risk to principal and liquidity, and
secondarily, total return
Partners Portfolio capital growth
NORTHSTAR VARIABLE TRUST (NORTHSTAR):
Northstar Variable Trust Growth Portfolio long-term capital growth
Northstar Variable Trust High Yield Bond Portfolio high current yield and capital
appreciation
Northstar Variable Trust Income and Growth consistent level of income;
Portfolio capital appreciation
Northstar Variable Trust International Value long-term capital appreciation
Portfolio
Northstar Variable Trust Multi-Sector Bond current income; capital preservation
Portfolio
</TABLE>
<PAGE>
<TABLE>
INVESTMENT FUNDS INVESTMENT OBJECTIVE
- -------------------------------------------------- ----------------------------------
<S> <C>
OCC ACCUMULATION TRUST:
Equity Portfolio long-term capital appreciation
Global Equity Portfolio long-term capital appreciation
Managed Portfolio capital growth
Small Cap Portfolio capital appreciation
PUTNAM VARIABLE TRUST:
Putnam VT Asia Pacific Growth Fund capital appreciation
Putnam VT Diversified Income Fund capital growth; current income
Putnam VT Growth and Income Fund capital growth; current income
Putnam VT New Opportunities Fund capital appreciation
Putnam VT Utilities Growth and Income Fund capital growth; current income
Putnam VT Voyager Fund capital appreciation
</TABLE>
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF
THE INVESTMENT FUNDS WILL BE ACHIEVED
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares that are held by
the Variable Account or that the Variable Account may purchase. We reserve the
right to eliminate the shares of any of the Funds and to substitute shares of
another Fund or of another open-end, registered investment company, if the
shares of a Fund are no longer available for investment, or if in our judgment
further investment in any Fund should become inappropriate in view of the
purposes of the Variable Account. We will not substitute any shares
attributable to your interest in a Sub-Account of the Variable Account without
notice and prior approval of the SEC, to the extent required by the Investment
Company Act of 1940 or other applicable law. Nothing contained herein shall
prevent the Variable Account from purchasing other securities of other Funds or
classes of policies, or from permitting a conversion between Funds or classes
of policies on the basis of requests made by Policy owners.
We also reserve the right to establish additional Sub-Accounts of the
Variable Account, each of which would invest in a new Fund, or in shares of
another investment company, with a specified investment objective. New
Sub-Accounts may be established when, in our sole discretion, marketing needs
or investment conditions warrant, and any new Sub-Accounts will be made
available to existing Policy owners on a basis to be determined by us. We may
also eliminate one or more Sub-Accounts if, in our sole discretion, marketing,
tax, regulatory requirements or investment conditions warrant.
In the event of any such substitution or change, we may make such changes
in this and other policies as may be necessary or appropriate to reflect such
substitution or change. If all or a portion of your investments are allocated
to any of the current funds that are being substituted for on the date such
substitution is announced, you may surrender the portion of the Accumulation
Value funded by such Fund(s) without payment of the associated Surrender
Charge. You may transfer the portion of the Accumulation Value affected without
payment of a Transfer Charge. If deemed by us to be in the best interests of
persons having voting rights under the Policies, the Variable Account may be
operated as a management company under the Investment Company Act of 1940, it
may be deregistered under that Act in the event such registration is no longer
required, or it may be combined with our other separate accounts.
The Company currently plans to discontinue offering certain of the Funds
as investment options. It is anticipated that this will occur in the first half
of 1999, subject to and contingent upon receipt of various approvals. It is
expected that any policyholder monies that are invested in Sub-Accounts
investing in the discontinued Funds will be transferred to alternate Funds with
similar investment objectives. Policyholders who have investments in any of
discontinued Funds will be permitted for a period of 30 days to transfer their
investment into a non-discontinued Fund without payment of any transfer charge.
VOTING RIGHTS
You have the right to instruct us how to vote the Fund shares attributable
to the Policy at regular meetings and special meetings of the Funds. We will
vote the Fund shares held in Sub-Accounts according to the instructions
received, as long as:
<PAGE>
* The Variable Account is registered as a unit investment trust under the
Investment Company Act of 1940; and
* The assets of the Variable Account are invested in Fund shares.
If we determine that, because of applicable law or regulation, we do not
have to vote according to the voting instructions received, we will vote the
Fund shares at our discretion.
All persons entitled to voting rights and the number of votes they may
cast are determined as of a record date, selected by us, not more than 90 days
before the meeting of the Fund. All Fund proxy materials and appropriate forms
used to give voting instructions will be sent to persons having voting
interests.
Any Fund shares held in the Variable Account for which we do not receive
timely voting instructions, or which are not attributable to Policy owners,
will be voted by us in proportion to the instructions received from all Policy
owners having a voting interest in the Fund. Any Fund shares held by us or any
of our affiliates in general accounts will, for voting purposes, be allocated
to all separate accounts having voting interests in the Fund in proportion to
each account's voting interest in the respective Fund, and will be voted in the
same manner as are the respective account's votes.
Owning the Policy does not give you the right to vote at meetings of our
stockholders.
DISREGARD OF VOTING INSTRUCTIONS. We may, when required by state insurance
regulatory authorities, disregard voting instructions if the instructions
require that the shares be voted so as to cause a change in the
subclassification or investment objective of any Fund or to approve or
disapprove an investment advisory contract for any Fund. In addition, we may
disregard voting instructions in favor of changes initiated by a Policy owner
in the investment policy or the investment adviser of any Fund if we reasonably
disapprove of such changes. A change would be disapproved only if the proposed
change is contrary to state law or prohibited by state regulatory authorities
or we determine that the change would have an adverse effect on the Variable
Account in that the proposed investment policy for a Fund may result in
speculative or unsound investments. In the event we do disregard voting
instructions, a summary of that action and the reasons for such action will be
included in the next annual report to owners.
GENERAL PROVISIONS
BENEFITS AT AGE 95
If the Insured is living at Age 95 and the Policy is in force, the Cash
Surrender Value of the Policy will automatically be applied to purchase single
premium paid-up life insurance, unless the Insured notifies us in writing on or
before attaining Age 95 that the Cash Surrender Value should be paid in cash.
The amount by which this insurance exceeds its Cash Value cannot be greater
than the amount by which this policy's Death Benefit exceeds this policy's
Accumulation Value. Any Cash Surrender Value not used to purchase paid-up life
insurance will be paid to you in cash. Any cash paid out of policy loans
forgiven may be considered a taxable event.
OWNERSHIP
While the Insured is alive, subject to the Policy's provisions you may:
* Change the amount and frequency of premium payments.
* Change the allocation of premiums.
* Change the Death Benefit Option.
* Change the Face Amount.
* Make transfers between accounts.
* Surrender the Policy for cash.
* Make a partial withdrawal for cash.
* Receive a cash loan.
* Assign the Policy as collateral.
<PAGE>
* Change the beneficiary.
* Transfer ownership of the Policy.
* Enjoy any other rights the Policy allows.
PROCEEDS
At the Insured's death, the proceeds payable include the Death Benefit
then in force:
* Plus any additional amounts provided by rider on the life of the Insured;
* Plus any Policy loan interest that we have collected but not earned;
* Minus any Loan Amount; and
* Minus any unpaid Monthly Deductions.
BENEFICIARY
You may name one or more beneficiaries on the application when you apply
for the Policy. You may later change beneficiaries by written request. If no
beneficiary is surviving when the Insured dies, the Death Benefit will be paid
to you, if surviving, or otherwise to your estate.
POSTPONEMENT OF PAYMENTS
Payments from the Variable Account for Death Benefits, cash surrender,
partial withdrawal, or loans will generally be made within seven days after we
receive all the documents required for the payments.
We may, however, delay making a payment when we are not able to determine
the Variable Accumulation Value because (i) the New York Stock Exchange is
closed, other than customary weekend or holiday closings, or trading on the New
York Stock Exchange is restricted by the SEC, (ii) the SEC by order permits
postponement for the protection of Policyholders, or (iii) an emergency exists,
as determined by the SEC, as a result of which disposal of securities is not
reasonably practicable or it is not reasonably practicable to determine the
value of the Variable Account's net assets. Transfers and allocation to and
against any Sub-Account of the Variable Account may also be postponed under
these circumstances.
Any of the payments described above which are made from the Fixed Account
may be delayed up to six months from the date we receive the documents
required. We will pay interest at an effective annual rate of 3.50% if we delay
payment more than 30 days. No additional interest will be credited to any
delayed payments. The time a payment from the Fixed Account may be delayed and
the rate of interest paid on such amounts may vary among states.
SETTLEMENT OPTIONS
Settlement Options are ways you can choose to have the Policy's proceeds
paid. These options apply to proceeds paid:
* At the Insured's death.
* On total surrender of the Policy.
The proceeds are paid to one or more payees. The proceeds may be paid in a
lump sum or may be applied to one of the following Settlement Options. Proceeds
will be paid in one sum unless one or more Options are requested and we agree
to it. A combination of options may be used. At least $2,500 must be applied to
any option for each payee under that option. Under an installment Option, each
payment must be at least $25.00. We may adjust the interval between payments to
make each payment at least $25.00.
Proceeds applied to any Option no longer earn interest at the rate applied
to the Fixed Account or participate in the investment performance of the Funds.
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.
<PAGE>
Option 3 -- Proceeds and interest are paid in equal installments for a
specified period until the proceeds and interest are all paid.
Option 4 -- The proceeds provide an annuity payment with a specified number
of months "certain". The payments are continued for the life of the primary
payee. If the primary payee dies before the certain period is over, the
remaining payments are paid to a contingent payee.
Option 5 -- The proceeds provide a life income for two payees. When one
payee dies, the surviving payee receives two-thirds of the amount of the
joint monthly payment for life.
Option 6 -- The proceeds are used to provide an annuity based on the rates
in effect when the proceeds are applied. We do not apply this Option if a
similar option would be more favorable to the payee at that time.
INTEREST ON SETTLEMENT OPTIONS. We base the interest rate for proceeds
applied under Options 1 and 2 on the interest rate we declare on funds that we
consider to be in the same classification based on the Option, restrictions on
withdrawal, and other factors. The interest rate will never be less than an
effective annual rate of 3.50%.
In determining amounts to be paid under Options 3 and 4, we assume
interest at an effective annual rate of 3.50%. Also, for Option 3 and "certain"
periods under Option 4, we credit any excess interest we may declare on funds
that we consider to be in the same classification based on the Option,
restrictions on withdrawal, and other factors.
INCONTESTABILITY
After the Policy has been in force during the Insured's lifetime for two
years from the Policy's Issue Date, we cannot claim the Policy is void or
refuse to pay any proceeds unless the Policy has lapsed.
If you make a Face Amount increase or a premium payment which requires
proof of insurability, the corresponding Death Benefit increase has its own
two-year contestable period measured from the date of the increase.
If the Policy is reinstated, the contestable period is measured from the
date of reinstatement with respect to statements made on the application for
reinstatement.
MISSTATEMENT OF AGE AND SEX
If the Insured's Age or sex or both are misstated (except where unisex
rates apply), the Death Benefit will be the amount that the most recent cost of
insurance would purchase using the current cost of insurance rate for the
correct Age and sex.
SUICIDE
If the Insured commits suicide, whether sane or insane, within two years
of the Policy's Issue Date, we do not pay the Death Benefit. Instead, we refund
all premiums paid for the Policy and any attached riders, minus any Loan
Amounts and partial withdrawals.
If you make a Face Amount increase or a premium payment which requires
proof of insurability, the corresponding Death Benefit increase has its own
two-year suicide limitation for the proceeds associated with that increase. If
the Insured commits suicide, whether sane or insane, within two years of the
effective date of the increase, we pay the Death Benefit prior to the increase
and refund the cost of insurance for that increase.
In Colorado and North Dakota, the suicide period is shortened to one year.
TERMINATION
The Policy terminates when any of the following occurs:
* The Policy lapses. See "Policy Lapse and reinstatement".
* The Insured dies.
* 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.
<PAGE>
* The Policy matures. See "General Provisions -- Benefits of Age 95".
AMENDMENT
We reserve the right to amend the Policy in order to include any future
changes relating to the following:
* Any SEC rulings and regulations.
* The Policy's qualification for treatment as a life insurance policy under
the following:
-- The Internal Revenue Code of 1986, as amended.
-- Internal Revenue Service rulings and regulations.
-- Any requirements imposed by the Internal Revenue Service.
REPORTS
ANNUAL STATEMENT. We will send you an Annual Statement once each year free
of charge, showing the Face Amount, Death Benefit, Accumulation Value, Cash
Surrender Value, Loan Amount, premiums paid, Planned Periodic Premiums,
interest credits, partial withdrawals, transfers, and charges since the last
statement.
Additional statements are available upon request. We may make a charge not
to exceed $50.00 for each additional Annual Statement you request.
PROJECTION REPORT. Upon request, we will provide you a report projecting
future results based on the Death Benefit Option you specify, the Planned
Periodic Premiums you specify, and the Accumulation Value of your Policy at the
end of the prior Policy Year. We may make a charge not to exceed $50.00 for
each Projection Report you request.
DIVIDENDS
The Policy does not entitle you to participate in our surplus. We do not
pay you dividends under the Policy.
The Sub-Account receives any dividends paid by the related Fund. Any such
dividend is credited to you through the calculation of the Sub-Account's daily
Unit Value.
COLLATERAL ASSIGNMENT
You may assign the benefits of the Policy as collateral for a debt. This
limits your rights to the Cash Surrender Value and the beneficiary's rights to
the proceeds. An assignment is not binding on us until we receive written
notice.
OPTIONAL INSURANCE BENEFITS
The Policy can include additional benefits, in the form of riders to the
Policy, if our requirements for issuing such benefits are met. We currently
offer the following benefit riders:
ACCIDENTAL DEATH BENEFIT RIDER. Provides an additional benefit if the
Insured dies from an accidental injury.
ACCELERATED BENEFIT RIDER. Under certain circumstances a part of the Death
Benefit may be paid to you when the Insured has been diagnosed as having a
terminal illness. This Rider may not be available in all states. Ask your
registered representative about the availability of this Rider in your state.
See "Accelerated Benefit Rider".
ADDITIONAL INSURED RIDER. Provides a 10 year, guaranteed level premium and
level term coverage for the Insured, the Insured's spouse, or a child of the
Insured.
WAIVER OF MONTHLY DEDUCTION RIDER. The Monthly Deduction for the Policy is
waived while the Insured is totally disabled under the terms of the rider.
CHILDREN'S INSURANCE RIDER. Provides up to $10,000 of term life insurance
on the life of each of the Insured's children.
WAIVER OF SPECIFIED PREMIUM RIDER. Contributes a specified amount of
premium to the Policy each month while the Insured is totally disabled under
the terms of the rider. This rider may not be available in all states. Ask your
registered representative about the availability of this rider in your state.
<PAGE>
FEDERAL TAX MATTERS
INTRODUCTION
The following summary provides a general description of the Federal income
tax considerations associated with the Policy and does not purport to be
complete or to cover all tax situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisors should be consulted for more
complete information. This discussion is based upon the Company's understanding
of the present Federal income tax laws. No representation is made as to the
likelihood of continuation of the present Federal income tax laws or as to how
they may be interpreted by the Internal Revenue Service (the "IRS").
Any qualified plan contemplating the purchase of a life policy should
consult a tax advisor.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, the Company believes
that a Policy issued on the basis of a standard risk class should satisfy the
applicable requirements. There is less guidance with respect to Policies issued
on a substandard basis (i.e., a premium class involving higher than standard
mortality risk), and it is not clear whether such a Policy would satisfy the
applicable requirements, particularly if the owner pays the full amount of
premiums permitted under the Policy. If it is subsequently determined that a
Policy does not satisfy the applicable requirements, the Company may take
appropriate steps to bring the Policy into compliance with such requirements
and reserves the right to restrict Policy transactions in order to do so.
In certain circumstances, owners of variable life insurance contracts have
been considered for Federal income tax purposes to be the owners of the assets
of the variable account supporting their policies due to their ability to
exercise investment control over these assets. Where this is the case, the
policy owners have been currently taxed on income and gains attributable to the
variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of an owner to allocate
premium payments and Policy Accumulation Values, have not been explicitly
addressed in published rulings. While the Company believes that the Policies do
not give owners investment control over Variable Account assets, the Company
reserves the right to modify the Policies as necessary to prevent an owner from
being treated as the owner of the Variable Account assets supporting the
Policy.
In addition, the Code requires that the investments of the Variable
Account be "adequately diversified" in order for the Policies to be treated as
life insurance contracts for Federal income tax purposes. It is intended that
the Variable Account, through the Funds, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. The Company believes that the Death Benefit under a Policy
should be excludible from the gross income of the Beneficiary. Federal, state
and local transfer, and other tax consequences of ownership or receipt of
Policy proceeds depend on the circumstances of each owner or beneficiary. A tax
advisor should be consulted on these consequences.
Generally, the owner will not be deemed to be in constructive receipt of
the Policy Accumulation Value until there is a distribution. When distributions
from a Policy occur, including payments arising from any maturity benefits, or
when loans are taken out from or secured by (e.g., by assignment), a Policy,
the tax consequences depend on whether the Policy is classified as a "Modified
Endowment Contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain
life insurance contracts are classified as "Modified Endowment Contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
circumstances of each Policy will determine whether it is classified as a
Modified Endowment Contract.
<PAGE>
The rules are too complex to be summarized here, but generally depend on the
amount of premiums paid during the first seven Policy Years. Certain changes in
a Policy after it is issued could also cause it to be classified as a Modified
Endowment Contract. A current or prospective owner should consult with a
competent advisor to determine whether a Policy transaction will cause the
Policy to be classified as a Modified Endowment Contract. The Company will
monitor the Policies, however, and will attempt to notify an owner on a timely
basis if it believes that such owner's Policy is in jeopardy of becoming a
Modified Endowment Contract.
DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as
Modified Endowment Contracts are subject to the following tax rules:
(1) All distributions, including distributions upon surrender and
withdrawals, will be treated as ordinary income subject to tax up to
an amount equal to the excess (if any) of the unloaned Policy
Accumulation Value (Cash Surrender Value for surrenders) immediately
before the distribution plus prior distributions over the owner's
total investment in the Policy at that time. "Total investment in the
Policy" means the aggregate amount of any premiums or other
considerations paid for a Policy, plus any previously taxed
distributions, minus any credited dividends.
(2) Loans taken from or secured by (e.g., by assignment), such a Policy
are treated as distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount included
in income except where distribution or loan is made when the owner has
attained age 591|M/2 or is disabled, or where the distribution is part
of a series of substantially equal periodic payments for the life (or
life expectancy) of the owner or the joint lives (or joint life
expectancies) of the owner and the owner's beneficiary or designated
beneficiary.
DISTRIBUTIONS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT
CONTRACTS. Distributions from a Policy that is not a Modified Endowment
Contract are generally treated first as a recovery of an owner's investment in
the Policy and only after the recovery of all investment in the Policy as
taxable income. However, certain distributions which must be made in order to
enable the Policy to continue to qualify as a life insurance contract for
Federal income tax purposes if Policy benefits are reduced during the first 15
Policy Years may be treated in whole or in part as ordinary income subject to
tax.
Loans from or secured by a Policy that is not a Modified Endowment
Contract are not treated as distributions.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a Modified Endowment Contract are subject to the 10 percent
additional tax.
POLICY LOANS. In general, interest on a loan from a Policy will not be
deductible. Before taking out a Policy loan, an owner should consult a tax
advisor as to the tax consequences.
MULTIPLE POLICIES. All Modified Endowment Contracts that are issued by the
Company (or its affiliates) to the same owner during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includible in the owner's income when a taxable distribution occurs.
TAXATION OF RELIASTAR LIFE INSURANCE COMPANY
We do not initially expect to incur any income tax burden upon the
earnings or the realized capital gains attributable to the Variable Account.
Based on this expectation, no charge is being made currently to the Variable
Account for Federal income taxes which may be attributable to the Account. If,
however, we determine that we may incur such tax burden, we may assess a charge
for such burden from the Variable Account.
We may also incur state and local taxes, in addition to premium taxes, in
several states. At present these taxes are not significant. If there is a
material change in state or local tax laws, charges for such taxes, if any,
attributable to the Variable Account, may be made.
POSSIBLE CHANGES IN TAXATION
The President's 1999 Budget Proposal has recommended legislation in 1998
that, if enacted, would adversely modify the federal taxation of certain
insurance and annuity contracts. For example, one proposal would tax transfers
among investment options and tax exchanges involving variable contracts.
<PAGE>
A second proposal would reduce the "investment in the contract" under cash
value life insurance and certain annuity contracts, thereby increasing the
amount of income for purposes of computing gain. Although the likelihood of
legislative changes is uncertain, there is always the possibility that the tax
treatment of the Policy could change by legislation or other means. Moreover,
it is also possible that any change could be retroactive (that is, effective
prior to the date of the change). You should consult a tax adviser with respect
to legislative developments and their effect on the Policy.
LEGAL DEVELOPMENTS REGARDING EMPLOYMENT -- RELATED BENEFIT PLANS
The Policy is based on actuarial tables which distinguish between men and
women and therefore provide different benefits to men and women of the same
Age. Employers and employee organizations should consider, in consultation with
legal counsel, the impact of the Supreme Court decision of July 6, 1983 in
ARIZONA GOVERNING COMMITTEE V. NORRIS. That decision stated that optional
annuity benefits provided under an employee's deferred compensation plan could
not, under Title VII of the Civil Rights Act of 1964, vary between men and
women on the basis of sex. Employers and employee organizations should also
consider, in consultation with legal counsel, the impact of Title VII
generally, and comparable state laws that may be applicable, on any
employment-related insurance or benefit plan for which a Policy may be
purchased.
Because of the NORRIS decision, the charges under the Policy that vary
depending on sex may in some cases not vary on the basis of the Insured's sex.
Unisex rates to be provided by us will apply, if requested on the application,
for tax-qualified plans and those plans where an employer believes that the
Norris decision applies. In this case, references made to the mortality tables
applicable to this Policy are to be disregarded and substituted with an 80%
male 20% female blend of the 1980 Commissioner's Standard Ordinary Smoker and
Non-Smoker Mortality Tables, Age Last Birthday.
PREPARING FOR YEAR 2000
Like all financial services providers, the Company utilizes systems that
may be affected by Year 2000 transition issues and it relies on service
providers, including the Funds, that also may be affected. The Company has
developed, and is in the process of implementing, a Year 2000 transition plan,
and is confirming that its service providers are also so engaged. The resources
that are being devoted to this effort are substantial. It is difficult to
predict with precision whether the amount of resources ultimately devoted, or
the outcome of these efforts, will have any negative impact on the Company.
However, as of the date of this prospectus, it is not anticipated that Policy
owners will experience negative effects on their investment, or on the services
provided in connection therewith, as a result of Year 2000 transition
implementation. The Company currently anticipates that its systems will be Year
2000 compliant on or about January 1, 1999, but there can be no assurance that
the Company will be successful, or that interaction with other service
providers will not impair the Company's services at that time.
DISTRIBUTION OF THE POLICIES
We intend to sell the Policies in all jurisdictions where we are licensed.
The Policies will be sold by licensed insurance agents who are also registered
representatives of broker-dealers registered with the SEC under the Securities
Exchange Act of 1934 who are members of the National Association of Securities
Dealers, Inc.
The Policies will be distributed by the general distributor, Washington
Square Securities, Inc., ("WSSI"), a Minnesota corporation, which is an
affiliate of ours. WSSI is a securities broker-dealer registered with the SEC
and is a member of the National Association of Securities Dealers, Inc. It is
primarily a mutual funds dealer and has dealer agreements under which it
markets shares of many mutual funds. It also markets limited partnerships and
other tax-sheltered or tax-deferred investments, and acts as general
distributor (principal underwriter) for variable annuity products issued by us.
The Policies may also be sold through other broker-dealers authorized by WSSI
and applicable law to do so. Registered representatives of such broker-dealers
may be paid on a different basis than described below.
Registered representatives who sell the Policies will receive commissions
based on a commission schedule. In the first Policy Year, commissions generally
will be no more than 35% of the premiums paid up to the annualized Minimum
Monthly Premium, plus 2.50% of additional premiums. In any subsequent Policy
Year, commissions generally will be 2.50% of premiums paid in that year.
Corresponding commissions will be paid upon a requested increase in Face
Amount. In addition, a commission of .10% of the average monthly Accumulation
Value during each Policy Year may be paid. Further, registered
<PAGE>
representatives may be eligible to receive certain overrides and other benefits
which may be based on the amount of earned commissions.
MANAGEMENT
The following list the current directors and executive officers of the
Company, their principal occupation and business experience.
<TABLE>
<CAPTION>
TERM PRINCIPAL OCCUPATION
DIRECTORS EXPIRES AND BUSINESS EXPERIENCE
- ------------------- --------- --------------------------------------------------------------------------
<S> <C> <C>
R. Michael Conley 1999 Senior Vice President of ReliaStar Financial Corp. since 1991; Senior
Vice President, ReliaStar Employee Benefits of ReliaStar Life Insurance
Company since 1986; President of NWNL Benefits Corporation since
1988; Executive Vice President of ReliaStar Life Insurance Company of
New York since 1996; Director of various subsidiaries of ReliaStar
Financial Corp.
Richard R. Crowl 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, Northern Life Insurance Company,
ReliaStar Life Insurance Company of New York and ReliaStar United
Services Life Insurance Company since 1996; Senior Vice President and
General Counsel of; Senior Vice President and General Counsel of
Washington Square Advisers, Inc. since 1986; Vice President and Associate
General Counsel of ReliaStar Financial Corp. from 1989 to 1996; Vice
President and Associate General Counsel of ReliaStar Life Insurance
Company from 1985 to 1996; Director and Senior Vice President of
various subsidiaries of ReliaStar Financial Corp.
Michael J. Dubes 1999 President and Chief Executive Officer of Northern Life Insurance
Company since 1994; Senior Vice President, Individual Insurance of
ReliaStar Life Insurance Company from 1987 to 1994; Chairman of
Washington Square Securities, Inc. from 1987 to 1994; Director and
Officer of various subsidiaries of ReliaStar Financial Corp.
John H. Flittie 1999 Vice Chairman, President and Chief Operating Officer of ReliaStar
Life Insurance Company since 1996; President, Chief Operating Officer,
and Director of ReliaStar Financial Corp. and ReliaStar Life Insurance
Company since 1993; Vice Chairman of ReliaStar Life Insurance Company of
New York since 1995; Chief Executive Officer and President of ReliaStar
Life Insurance Company of New York from 1996 to 1998; Chairman and
Director of Washington Square Securities, Inc. since 1996; Chairman and
Director of PrimeVest Financial Services since 1996; Vice Chairman and
President of ReliaStar United Services Life Insurance Company and
ReliaStar Life Insurance Company of New York since 1995; Senior Executive
Vice President and Chief Operating Officer of ReliaStar Financial Corp.
and ReliaStar Life Insurance Company from 1992 to 1993; Senior Executive
Vice President and Chief Operating Officer of ReliaStar Financial Corp.
from 1991 to 1992; Executive Vice President and Chief Financial Officer of
ReliaStar Financial Corp. and ReliaStar Life Insurance Company from 1989
to 1991; Senior Vice President and Chief Financial Officer of ReliaStar
Financial Corp. since 1985; Director of Community First BankShares, Inc.
and Director and Officer of various subsidiaries of ReliaStar Financial
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TERM PRINCIPAL OCCUPATION
DIRECTORS EXPIRES AND BUSINESS EXPERIENCE
- --------------------- --------- ---------------------------------------------------------------------------
<S> <C> <C>
Wayne R. Huneke 1999 Senior Vice President of ReliaStar Financial Corp. and ReliaStar Life
Insurance Company since 1994; Chief Financial Officer and Treasurer
of ReliaStar Financial Corp. and ReliaStar Life Insurance Company
from 1994 to 1998; Vice President, Treasurer and Chief Accounting
Officer from 1990 to 1994; Director and Officer of various subsidiaries
of ReliaStar Financial Corp.
Ronald D. Jarvis 1999 Senior Vice President of ReliaStar Financial Corp. since 1997; Director
of ReliaStar Life Insurance Company of New York since 1997; Chairman,
President and Chief Executive Officer of Security-Connecticut
Corporation from 1993 to 1997; Chief Executive Officer of Security-
Connecticut Life Insurance Company since 1984; President of Security-
Connecticut Life Insurance Company since 1976; Director, President
and Chief Executive Officer of Lincoln Security Life Insurance Company
from 1984 to 1997; Director and Officer of various subsidiaries of
ReliaStar Financial Corp.
Mark S. Jordahl 1999 Senior Vice President and Chief Investment Officer of ReliaStar Life
Insurance Company and ReliaStar Financial Corp. since 1998; Vice
President of ReliaStar Life Insurance Company and ReliaStar Financial
Corp. from 1987 to 1998; Director and Officer of various subsidiaries of
ReliaStar Financial Corp.
Kenneth U. Kuk 1999 Senior Vice President of ReliaStar Financial Corp. and ReliaStar Life
Insurance Company since 1996; Vice President, Strategic Marketing of
ReliaStar Financial Corp. and ReliaStar Life Insurance Company since
1996; Vice President of Investments of ReliaStar Financial Corp. from
1991 to 1996; President of Washington Square Advisers, Inc. since 1995;
Chairman of ReliaStar Mortgage Corporation since 1988; Director and
Officer of various subsidiaries of ReliaStar Financial Corp.
William R. Merriam 1999 Senior Vice President, Life & Health Reinsurance of ReliaStar Life
Insurance Company since 1991; Vice President from 1984 to 1991.
James R. Miller 1999 Senior Vice President, Chief Financial Officer and Treasurer of ReliaStar
Financial Corp. since 1997; Vice President, Corporate Development of
ReliaStar Financial Corp. from 1985 to 1992; Executive Vice President
and Chief Operating Officer of Northern Life Insurance Company
from 1992 to 1997.
Robert C. Salipante 1999 Senior Vice President, Personal Financial Services, of ReliaStar Financial
Corp. and ReliaStar Life Insurance Company since 1996; President and Chief
Executive Officer of ReliaStar Life Insurance Company of New York since 1998;
Executive Vice President of ReliaStar Life Insurance Company of New York
from 1996 to 1998; Senior Vice President, of Individual Division and
Technology of ReliaStar Life Insurance Company in 1996; Senior Vice
President of Strategic Marketing and Technology of ReliaStar Financial
Corp. and ReliaStar Life Insurance Company from 1994 to 1996; Senior Vice
President and Chief Financial Officer of ReliaStar Financial Corp. and
ReliaStar Life Insurance Company from 1992 to 1994; Executive Vice
President of Ameritrust Corporation from 1988 to 1992.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TERM PRINCIPAL OCCUPATION
DIRECTORS EXPIRES AND BUSINESS EXPERIENCE
- ---------------- --------- ----------------------------------------------------------------------
<S> <C> <C>
John G. Turner 1999 Chairman and Chief Executive Officer of ReliaStar Financial Corp. and
ReliaStar Life Insurance Company since 1993; Chairman of ReliaStar
United Services Life Insurance Company and ReliaStar Life Insurance
Company of New York since 1995; Chairman of Northern Life Insurance
Company since 1992; Chairman, President and Chief Executive Officer
of ReliaStar Financial Corp. and ReliaStar Life Insurance Company in
1993; President and Chief Executive Officer of ReliaStar Financial
Corp. and ReliaStar Life Insurance Company from 1991 to 1993;
President and Chief Operating Officer of ReliaStar Financial Corp.
from 1989 to 1991; President and Chief Operating Officer of ReliaStar
Life Insurance Company from 1986 to 1991; Director and Officer of
various subsidiaries of ReliaStar Financial Corp.
</TABLE>
The Executive Committee and Finance Committee of our Board of Directors
consists of Directors Flittie, Huneke, Salipante, Crowl and Turner.
EXECUTIVE OFFICERS
- ------------------
John G. Turner Chairman and Chief Executive Officer
John H. Flittie Vice Chairman, President and Chief Operating Officer
R. Michael Conley Senior Vice President
Richard R. Crowl Senior Vice President and General Counsel
Wayne R. Huneke Senior Vice President
Mark S. Jordahl Senior Vice President and Chief Investment Officer
Kenneth U. Kuk Senior Vice President
William R. Merriam Senior Vice President
James R. Miller Senior Vice President, Chief Financial Officer and
Treasurer
Robert C. Salipante Senior Vice President
All of the foregoing executive officers have been officers or employees of
ours for the past five years, except for James R. Miller, who has been an
employee of ours since 1997. However, Mr. Miller has been employed by an
affiliate of ours since 1991.
STATE REGULATION
We are subject to the laws of the State of Minnesota governing insurance
companies and to regulation and supervision by the Insurance Division of the
State of Minnesota. An annual statement in a prescribed form is filed with the
Insurance Division each year, and in each state we do business, covering our
operations for the preceding year and our financial condition as of the end of
that year. Our books and accounts are subject to review by the Insurance
Division and a full examination of our operations is conducted periodically
(usually every three years) by the National Association of Insurance
Commissioners. This regulation does not, however, involve supervision or
management of our investment practices or policies.
In addition, we are subject to regulation under the insurance laws of
other jurisdictions in which we operate.
We are also subject to supervision and verification by the State of
Minnesota regarding participating business allocated to the Participation Fund
Account, which was established in connection with the reorganization and
demutualization of the Company in 1989. The Participation Fund Account was
established for the purpose of maintaining the dividend practices relative to
certain policies previously issued by the Company's former Mutual Department.
The Participation Fund Account is not a separate account as described under
Minnesota Statutes Chapter 61A. An annual examination of the Participation Fund
Account is made by independent consulting actuaries representing the Insurance
Division of the State of Minnesota.
MASSACHUSETTS AND MONTANA RESIDENTS
All Policy provisions described in the prospectus that are based on the
sex of the Insured should be disregarded. This Policy will be issued on a
unisex basis.
<PAGE>
References made to the mortality tables applicable to this Policy are to
be disregarded and substituted with an 80% male 20% female blend of the 1980
Commissioner's Standard Ordinary Smoker and Non-Smoker Mortality Tables, Age
Last Birthday.
LEGAL PROCEEDINGS
The Company and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, the Company believes that at the
present time there are not pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Variable Account or the
Company.
BONDING ARRANGEMENTS
An insurance company blanket bond is maintained providing $25,000,000
coverage for our officers and employees and those of Washington Square
Securities, Inc., 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, 1997 and for each of the three years then ended, and the annual
consolidated financial statements of ReliaStar Life Insurance Company and
Subsidiaries 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, 1997 and for
each of the three years in the period then ended. The December 31, 1997
financial statements are audited.
The financial statements of ReliaStar Life Insurance Company and
Subsidiaries which are included in this Prospectus should be distinguished from
the financial statements of the Variable Account and should be considered only
as bearing upon the ability of ReliaStar Life Insurance Company to meet its
obligations under the Policies. They should not be considered as bearing on the
investment performance of the assets held in the Variable Account.
These financial statements are as of December 31, 1997 and for each of the
two years in the period ended December 31, 1997. The December 31, 1997
financial statements are audited. The periods covered are not necessarily
indicative of the longer term performance of the Company.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
ReliaStar Life Insurance
Company and Policy Owners of
Select*Life Variable Account:
We have audited the accompanying combined statement of assets and
liabilities of ReliaStar Select*Life Variable Account as of December 31, 1997
and the related combined statements of operations and changes in policy owners'
equity for each of the years ended December 31, 1997, 1996 and 1995. 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,
1997, by correspondence with the account custodians. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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, 1997 and the results of its combined operations and
changes in its policy owners' equity for the years ended December 31, 1997,
1996 and 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 20, 1998
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
(In Thousands, Except Shares)
<TABLE>
<CAPTION>
ASSETS: SHARES COST MARKET VALUE
- ----------------------------------------------------------------- ------------ ----------- -------------
<S> <C> <C> <C>
Investments in mutual funds at market value:
The Alger American Fund:
Alger American Growth Portfolio ................................ 7,972 $ 340 $ 341
Alger American MidCap Growth Portfolio ......................... 15,349 387 371
Alger American Small Capitalization ............................ 14,656 664 641
Fidelity's Variable Insurance Products Fund (VIP) and
Variable Insurance Products Fund II (VIP II):
VIP Equity-Income Portfolio .................................... 3,415,866 58,785 82,937
VIP Growth Portfolio ........................................... 2,811,788 71,276 104,317
VIP High Income Portfolio ...................................... 1,427,461 16,630 19,385
VIP Money Market Portfolio ..................................... 11,497,246 11,497 11,497
VIP Overseas Portfolio ......................................... 1,465,393 24,808 28,136
VIP II Asset Manager Portfolio ................................. 2,031,835 30,324 36,593
VIP II Contrafund Portfolio . .................................. 1,224,811 20,126 24,423
VIP II Index 500 Portfolio ..................................... 194,635 18,181 22,264
VIP II Investment Grade Bond Portfolio ......................... 308,377 3,617 3,873
Janus Aspen Series:
Aggressive Growth Portfolio .................................... 12,665 254 260
Growth Portfolio ............................................... 15,402 283 285
International Growth Portfolio ................................. 45,587 854 843
Worldwide Growth Portfolio ..................................... 103,147 2,429 2,413
Neuberger&Berman Advisers Management Trust:
Limited Maturity Bond Portfolio ................................ 78,101 1,096 1,103
Partners Portfolio ............................................. 85,494 1,741 1,761
Northstar Variable Trust:
Northstar Variable Trust Growth Portfolio ...................... 42,105 680 667
Northstar Variable Trust High Yield Bond Portfolio ............. 10,708 58 57
Northstar Variable Trust Income & Growth Portfolio ............. 110,903 1,360 1,442
Northstar Variable Trust International Value Portfolio ......... 38,817 392 392
Northstar Variable Trust Multi-Sector Bond Portfolio ........... 112,673 588 579
OCC Accumulation Trust:
Equity Portfolio ............................................... 5,683 200 208
Global Equity Portfolio ........................................ 21,120 332 303
Managed Portfolio .............................................. 27,124 1,143 1,150
Small Cap Portfolio ............................................ 24,963 662 658
Putnam Variable Trust:
Putnam VT Asia Pacific Growth Fund ............................. 245,347 2,605 2,257
Putnam VT Diversified Income Fund .............................. 176,668 1,905 1,998
Putnam VT Growth and Income Fund ............................... 854,462 20,151 24,198
Putnam VT New Opportunities Fund ............................... 1,032,518 18,525 21,920
Putnam VT Utilities Growth and Income Fund ..................... 161,576 2,194 2,769
Putnam VT Voyager Fund ......................................... 1,363,056 42,390 53,268
-------- --------
Total Investments .............................................. $356,477
Total Assets ................................................. $453,309
========
LIABILITIES AND POLICY OWNERS' EQUITY:
- ------------------------------------------------------------------
Due to ReliaStar Life Insurance Company
for contract charges ........................................... $ 97
Policy Owners' Equity ........................................... 453,212
--------
Total Liabilities and Policy Owners' Equity .................... $453,309
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
RELIASTAR SELECT-VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
TOTAL ALL FUNDS
COMBINED
-----------------------------------------------------------
1997 1996 1995
------------------ ------------------ -----------------
<S> <C> <C> <C>
Net investment income (loss):
Reinvested dividend income ............................... $ 5,580 $ 2,990 $ 2,259
Reinvested capital gains ................................. 14,480 8,110 1,456
Administrative expenses .................................. (2,742) (1,935) (1,186)
--------------- --------------- ---------------
Net investment income (loss) and capital gains ......... 17,318 9,165 2,529
--------------- --------------- ---------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions
of fund shares .......................................... 6,393 3,085 1,345
Increase (decrease) in unrealized appreciation
of investments .......................................... 46,873 15,731 27,857
--------------- --------------- ---------------
Net realized and unrealized gains (losses) ............. 53,266 18,816 29,202
--------------- --------------- ---------------
Additions (reductions) from operations ................. 70,584 27,981 31,731
--------------- --------------- ---------------
Policy Owners' transactions:
Net premium payments ..................................... 141,159 108,108 66,506
Transfers from (to) fixed account ........................ 74 95 (401)
Policy loans ............................................. (4,385) (2,266) (1,582)
Loan collateral interest crediting ....................... 292 174 101
Surrenders ............................................... (8,917) (5,080) (3,576)
Death benefits ........................................... (588) (203) (220)
Cost of insurance charges ................................ (26,634) (19,202) (12,860)
Death benefit guarantee charges .......................... (439) (459) (488)
Monthly expense charges .................................. (4,207) (2,932) (1,831)
--------------- --------------- ---------------
Additions (reductions) for Contract Owners'
transactions .......................................... 96,355 78,235 45,649
--------------- --------------- ---------------
Net additions (reductions) for the year ................ 166,939 106,216 77,380
Policy Owners' Equity, beginning of the year .............. 286,273 180,057 102,677
--------------- --------------- ---------------
Policy Owners' Equity, end of the year .................... $ 453,212 $ 286,273 $ 180,057
=============== =============== ===============
Units Outstanding, beginning of the year .................. 15,861,312.070 10,541,629.343 6,899,131.998
Units Outstanding, end of the year ........................ 21,952,826.717 15,861,312.070 10,541,629.343
Net Asset Value per Unit:
Select*Life I ............................................
Select*Life Series 2000 ..................................
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
ALGER AMERICAN ALGER AMERICAN ALGER AMERICAN
GROWTH PORTFOLIO MIDCAP GROWTH PORTFOLIO SMALL CAPITALIZATION PORTFOLIO
- ------------------------------------ ------------------------------------ ---------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- -------------------- ------ ------ -------------------- ------ ------ -------------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- -- -- -- --
-- -- -- (1) -- -- (1) -- --
-------------- ---- ---- ---------------- ---- ---- ---------------- ---- ----
-- -- -- (1) -- -- (1) -- --
-------------- ---- ---- ---------------- ---- ---- ---------------- ---- ----
-- -- -- -- -- -- (5) -- --
1 -- -- (16) -- -- (23) -- --
-------------- ---- ---- --------------- ---- ---- --------------- ---- ----
1 -- -- (16) -- -- (28) -- --
-------------- ---- ---- --------------- ---- ---- --------------- ---- ----
1 -- -- (17) -- -- (29) -- --
-------------- ---- ---- --------------- ---- ---- --------------- ---- ----
175 -- -- 132 -- -- 235 -- --
175 -- -- 263 -- -- 452 -- --
(1) -- -- (2) -- -- -- -- --
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- (2) -- --
-- -- -- -- -- -- -- -- --
(6) -- -- (5) -- -- (14) -- --
-- -- -- -- -- -- -- -- --
(1) -- -- (1) -- -- (2) -- --
---------------- ---- ---- ---------------- ---- ---- ---------------- ---- ----
342 -- -- 387 -- -- 669 -- --
--------------- ---- ---- --------------- ---- ---- --------------- ---- ----
343 -- -- 370 -- -- 640 -- --
-- -- -- -- -- -- -- -- --
--------------- ---- ---- --------------- ---- ---- --------------- ---- ----
$ 343 $ -- -- $ 370 $ -- $ -- $ 640 $ -- $ --
=============== ==== ==== =============== ==== ==== =============== ==== ====
-- -- -- -- -- -- -- -- --
34,697.106 -- -- 37,772.926 -- -- 63,628.672 -- --
$ 9.823427 $ -- $ -- $ 9.793978 $ -- $ -- $ 10.039295 $ -- $ --
$ 9.854808 $ -- $ -- $ 9.825275 $ -- $ -- $ 10.071361 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
FIDELITY'S VIP
EQUITY-INCOME PORTFOLIO
---------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- -----------------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ........................................ $ 1,013 $ 67 $ 798
Reinvested capital gains . ........................................ 5,096 1,929 1,292
Administrative expenses ........................................... (551) (458) (276)
----------------- ----------------- ---------------
Net investment income (loss) and capital gains .................. 5,558 1,538 1,814
----------------- ----------------- ---------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares . ....... 1,778 812 290
Increase (decrease) in unrealized appreciation of investments . ... 9,445 3,943 7,526
----------------- ----------------- ---------------
Net realized and unrealized gains (losses). . ................... 11,223 4,755 7,816
----------------- ----------------- ---------------
Additions (reductions) from operations .......................... 16,781 6,293 9,630
----------------- ----------------- ---------------
Policy Owners' transactions:
Net premium payments. . ........................................... 17,102 15,950 11,299
Transfers (to) from fixed account ................................. (1,313) (782) 1,140
Policy loans ...................................................... (1,209) (576) (592)
Loan collateral interest crediting ................................ 76 49 26
Surrenders ........................................................ (1,627) (977) (893)
Death benefits .................................................... (160) (72) (60)
Cost of insurance charges ......................................... (4,240) (3,423) (2,545)
Death benefit guarantee charges ................................... (111) (115) (120)
Monthly expense charges ........................................... (596) (475) (336)
----------------- ----------------- ---------------
Additions for policy owners' transactions . ..................... 7,922 9,579 7,919
----------------- ----------------- ---------------
Net additions for the year . .................................... 24,703 15,872 17,549
Policy Owners' Equity, beginning of the year ....................... 58,207 42,335 24,786
----------------- ----------------- ---------------
Policy Owners' Equity, end of the year ............................. $ 82,910 $ 58,207 $ 42,335
================= ================= ===============
Units Outstanding, beginning of the year ........................... 2,622,030.390 2,023,713.030 1,463,010.155
Units Outstanding, end of the year ................................. 3,053,047.193 2,622,030.390 2,023,713.030
Net Asset Value per Unit:
Select*Life I ..................................................... $ 35.058961 $ 27.587247 $ --
Select*Life Series 2000 ........................................... $ 21.080180 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S VIP FIDELITY'S VIP
GROWTH PORTFOLIO HIGH INCOME PORTFOLIO
----------------------------------------------------------------- -----------------------------------------------------------
1997 1996 1995 1997 1996 1995
--------------------- --------------------- --------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 526 $ 156 $ 172 $ 1,063 $ 832 $ 514
2,357 3,939 -- 131 163 --
(722) (557) (367) (132) (103) (74)
----------------- ----------------- ----------------- --------------- --------------- ---------------
2,161 3,538 (195) 1,062 892 440
----------------- ----------------- ----------------- --------------- --------------- ---------------
2,098 980 429 301 162 202
14,061 3,837 11,788 1,318 473 906
----------------- ----------------- ----------------- --------------- --------------- ---------------
16,159 4,817 12,217 1,619 635 1,108
----------------- ----------------- ----------------- --------------- --------------- ---------------
18,320 8,355 12,022 2,681 1,527 1,548
----------------- ----------------- ----------------- --------------- --------------- ---------------
21,483 21,247 15,747 5,072 4,359 3,599
(1,822) 329 3,598 (1,001) (267) 63
(1,280) (758) (541) (282) (67) (105)
92 57 34 15 9 6
(2,498) (1,807) (1,219) (397) (286) (217)
(160) (53) (34) (39) (10) (30)
(5,741) (4,894) (3,745) (1,198) (995) (819)
(163) (173) (179) (29) (32) (36)
(876) (739) (536) (140) (121) (99)
----------------- ----------------- ----------------- --------------- --------------- ---------------
9,035 13,209 13,125 2,001 2,590 2,362
----------------- ----------------- ----------------- --------------- --------------- ---------------
27,355 21,564 25,147 4,682 4,117 3,910
76,918 55,354 30,207 14,695 10,578 6,668
----------------- ----------------- ----------------- --------------- --------------- ---------------
$ 104,273 $ 76,918 $ 55,354 $ 19,377 $ 14,695 $ 10,578
================= ================= ================= =============== =============== ===============
3,452,718.980 2,622,289.757 1,761,649.810 773,942.356 577,083.123 397,251.963
3,971,201.581 3,452,718.980 2,622,289.757 916,625.159 773,942.356 577,083.123
$ 36.130923 $ 29.496120 $ 25.923659 $ 29.952917 $ 25.660930 $ 22.685998
$ 19.160956 $ -- $ -- $ 15.800365 $ -- $ --
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
FIDELITY'S VIP
MONEY MARKET PORTFOLIO
---------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- -------------------
<S> <C> <C>
$ 556 $ 417 $ 254
-- -- --
(67) (68) (41)
--------------- --------------- ---------------
489 349 213
--------------- --------------- ---------------
-- -- --
-- -- --
--------------- --------------- ---------------
-- -- --
--------------- --------------- ---------------
489 349 213
--------------- --------------- ---------------
10,226 7,798 4,498
(5,733) (4,502) (1,606)
(147) (97) (28)
13 7 5
(802) (164) (99)
(43) (1) --
(755) (698) (423)
(8) (8) (10)
(73) (62) (37)
---------------- ---------------- ---------------
2,678 2,273 2,300
---------------- ---------------- ---------------
3,167 2,622 2,513
8,326 5,704 3,191
---------------- ---------------- ---------------
$ 11,493 $ 8,326 $ 5,704
================ ================ ===============
654,425.374 454,516.667 240,089.964
875,038.346 654,425.374 454,516.667
$ 16.628903 $ 15.890521 $ 15.196421
$ 12.269546 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
FIDELITY'S VIP
OVERSEAS PORTFOLIO
--------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income .................................. $ 411 $ 202 $ 48
Reinvested capital gains .................................... 1,630 223 49
Administrative expenses ..................................... (220) (119) (123)
-------------- -------------- --------------
Net investment income (loss) and capital gains ............ 1,821 306 (26)
-------------- -------------- --------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ... 724 354 267
Increase (decrease) in unrealized appreciation of investments 5 1,706 1,073
-------------- -------------- --------------
Net realized and unrealized gains (losses) ................ 729 2,060 1,340
-------------- -------------- --------------
Additions (reductions) from operations .................... 2,550 2,366 1,314
-------------- -------------- --------------
Policy Owners' transactions:
Net premium payments ........................................ 7,156 6,819 7,140
Transfers (to) from fixed account ........................... (1,515) (582) (1,410)
Policy loans ................................................ (379) (235) (132)
Loan collateral interest crediting .......................... 28 16 10
Surrenders .................................................. (690) (493) (357)
Death benefits .............................................. (18) (17) (27)
Cost of insurance charges ................................... (1,667) (1,500) (1,417)
Death benefit guarantee charges ............................. (43) (47) (55)
Monthly expense charges ..................................... (253) (227) (205)
-------------- -------------- --------------
Additions for policy owners' transactions ................. 2,619 3,734 3,547
-------------- -------------- --------------
Net additions for the year ................................ 5,169 6,100 4,861
Policy Owners' Equity, beginning of the year ................. 22,948 16,848 11,987
-------------- -------------- --------------
Policy Owners' Equity, end of the year ....................... $ 28,117 $ 22,948 $ 16,848
============== ============== ==============
Units Outstanding, beginning of the year ..................... 1,536,316.506 1,229,928.330 900,424.038
Units Outstanding, end of the year ........................... 1,733,459.426 1,536,316.506 1,229,928.330
Net Asset Value per Unit:
Select*Life I ............................................... $ 20.066499 $ 18.132967 $ 16.146219
Select*Life Series 2000 ..................................... $ 13.964753 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S VIP II FIDELITY'S VIP II
ASSET MANAGER PORTFOLIO CONTRAFUND PORTFOLIO
----------------------------------------------------- ------------------------------------------------------
1997 1996 1995 1997 1996 1995
- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1,010 $ 840 $ 289 $ 94 $ -- $ 8
2,533 692 -- 247 22 16
(270) (210) (159) (104) (48) (5)
- -------------- -------------- -------------- -------------- -------------- --------------
3,273 1,322 130 237 (26) 19
- -------------- -------------- -------------- -------------- -------------- --------------
346 169 168 61 25 13
2,222 1,834 2,652 3,113 1,155 29
- -------------- -------------- -------------- -------------- -------------- --------------
2,568 2,003 2,820 3,174 1,180 42
- -------------- -------------- -------------- -------------- -------------- --------------
5,841 3,325 2,950 3,411 1,154 61
- -------------- -------------- -------------- -------------- -------------- --------------
6,096 6,607 7,749 12,617 7,406 1,567
(651) (1,215) 1,972 767 730 466
(371) (209) (126) (66) (21) (2)
38 26 13 1 -- --
(694) (545) (535) (307) (60) (1)
(68) (25) (37) (10) -- --
(2,034) (1,948) (1,841) (1,815) (837) (114)
(56) (61) (65) -- -- --
(264) (262) (242) (344) (155) (21)
- -------------- -------------- -------------- -------------- -------------- --------------
1,996 2,368 6,888 10,843 7,063 1,895
- -------------- -------------- -------------- -------------- -------------- --------------
7,837 5,693 9,838 14,254 8,217 1,956
28,743 23,050 13,212 10,173 1,956 --
- -------------- -------------- -------------- -------------- -------------- --------------
$ 36,580 $ 28,743 $ 23,050 $ 24,427 $ 10,173 $ 1,956
============== ============== ============== ============== ============== ==============
1,892,481.312 1,704,151.254 1,132,373.018 686,514.792 160,147.180 --
2,034,040.832 1,892,481.312 1,704,151.254 1,334,244.465 686,514.792 160,147.180
$ 21.274161 $ 17.774921 $ 15.635834 $ 10.304064 $ -- $ --
$ 15.079031 $ -- $ -- $ 18.395120 $ -- $ --
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
FIDELITY'S VIP II
INDEX 500 PORTFOLIO
-----------------------------------------------------
1997 1996 1995
- -------------- -------------- --------------
<S> <C> <C>
$ 95 $ 33 $ 13
193 84 2
(91) (40) (13)
- -------------- -------------- --------------
197 77 2
- -------------- -------------- --------------
427 80 40
2,896 793 390
- -------------- -------------- --------------
3,323 873 430
- -------------- -------------- --------------
3,520 950 432
- -------------- -------------- --------------
9,635 3,577 1,343
3,272 1,125 295
(104) (9) (3)
4 1 --
(188) (76) (24)
(3) (4) (12)
(1,225) (447) (178)
(7) (5) (3)
(226) (86) (30)
- -------------- -------------- --------------
11,158 4,076 1,388
- -------------- -------------- --------------
14,678 5,026 1,820
7,583 2,557 737
- -------------- -------------- --------------
$ 22,261 $ 7,583 $ 2,557
============== ============== ==============
441,948.368 181,509.017 70,686.713
981,434.839 441,948.368 181,509.017
$ 23.332252 $ 17.724683 $ 14.548311
$ 22.547720 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
FIDELITY'S VIP II
INVESTMENT GRADE BOND PORTFOLIO
------------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income .................................. $ 194 $ 139 $ 65
Reinvested capital gains .................................... -- -- --
Administrative expenses ..................................... (27) (24) (18)
-------------- -------------- --------------
Net investment income (loss) and capital gains ............ 167 115 47
-------------- -------------- --------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ... 16 12 2
Increase (decrease) in unrealized appreciation of investments 94 (51) 273
-------------- -------------- --------------
Net realized and unrealized gains (losses) ................ 110 (39) 275
-------------- -------------- --------------
Additions (reductions) from operations .................... 277 76 322
-------------- -------------- --------------
Policy Owners' transactions:
Net premium payments ........................................ 907 986 983
Transfers (to) from fixed account ........................... (169) (300) (36)
Policy loans ................................................ (37) (19) 23
Loan collateral interest crediting .......................... 2 1 --
Surrenders .................................................. (69) (47) (53)
Death benefits .............................................. (2) (5) (15)
Cost of insurance charges ................................... (225) (211) (187)
Death benefit guarantee charges ............................. (5) (6) (7)
Monthly expense charges ..................................... (28) (27) (22)
-------------- -------------- --------------
Additions for policy owners' transactions ................. 374 372 686
-------------- -------------- --------------
Net additions for the year ................................ 651 448 1,008
Policy Owners' Equity, beginning of the year ................. 3,221 2,773 1,765
-------------- -------------- --------------
Policy Owners' Equity, end of the year ....................... $ 3,872 $ 3,221 $ 2,773
============== ============== ==============
Units Outstanding, beginning of the year ..................... 247,189.999 214,771.624 153,890.893
Units Outstanding, end of the year ........................... 276,930.635 247,189.999 214,771.624
Net Asset Value per Unit:
Select*Life I ............................................... $ 15.837535 $ 14.638773 $ 14.301995
Select*Life Series 2000 ..................................... $ 12.685026 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
JANUS ASPEN SERIES JANUS ASPEN SERIES JANUS ASPEN SERIES
AGGRESSIVE GROWTH PORTFOLIO GROWTH PORTFOLIO INTERNATIONAL GROWTH PORTFOLIO
- ------------------------------------ ------------------------------------ -------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- -------------------- ------ ------ -------------------- ------ ------ -------------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 1 $ -- $ -- $ 1 $ -- $ --
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- (1) -- --
-------------- ---- ---- -------------- ---- ---- ---------------- ---- ----
-- -- -- 1 -- -- -- -- --
-------------- ---- ---- -------------- ---- ---- --------------- ---- ----
(1) -- -- -- -- -- (1) -- --
6 -- -- 2 -- -- (11) -- --
--------------- ---- ---- -------------- ---- ---- --------------- ---- ----
5 -- -- 2 -- -- (12) -- --
--------------- ---- ---- -------------- ---- ---- --------------- ---- ----
5 -- -- 3 -- -- (12) -- --
--------------- ---- ---- -------------- ---- ---- --------------- ---- ----
109 -- -- 157 -- -- 250 -- --
156 -- -- 136 -- -- 623 -- --
1 -- -- (3) -- -- (2) -- --
-- -- -- 1 -- -- -- -- --
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- --
(6) -- -- (7) -- -- (13) -- --
-- -- -- -- -- -- -- -- --
(1) -- -- (1) -- -- (2) -- --
---------------- ---- ---- ---------------- ---- ---- ---------------- ---- ----
259 -- -- 283 -- -- 856 -- --
--------------- ---- ---- --------------- ---- ---- --------------- ---- ----
264 -- -- 286 -- -- 844 -- --
-- -- -- -- -- -- -- -- --
--------------- ---- ---- --------------- ---- ---- --------------- ---- ----
$ 264 $ -- $ -- $ 286 $ -- $ -- $ 844 $ -- $ --
=============== ==== ==== =============== ==== ==== =============== ==== ====
-- -- -- -- -- -- -- -- --
24,053.408 -- -- 28,040.816 -- -- 87,549.532 -- --
$ 10.925142 $ -- $ -- $ 10.154694 $ -- $ -- $ 9.594712 $ -- $ --
$ 10.960002 $ -- $ -- $ 10.187114 $ -- $ -- $ 9.625377 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
RELIASTAR SELECT-VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES
WORLDWIDE GROWTH PORTFOLIO
----------------------------------------
1997 1996 1995
--------------------- ------ -------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ............................................ $ 5 $ -- $ --
Reinvested capital gains .............................................. -- -- --
Administrative expenses ............................................... (3) -- --
----------------- ---- ----
Net investment income (loss) and capital gains ...................... 2 -- --
---------------- ---- ----
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ............. -- -- --
(Decrease) increase in unrealized appreciation of investments ......... (16) -- --
---------------- ---- ----
Net realized and unrealized (losses) gains .......................... (16) -- --
---------------- ---- ----
Additions (reductions) from operations .............................. (14) -- --
---------------- ---- ----
Policy Owners' transactions:
Net premium payments .................................................. 906 -- --
Transfers from (to) fixed account ..................................... 1,582 -- --
Policy loans .......................................................... (4) -- --
Loan collateral interest crediting .................................... -- -- --
Surrenders ............................................................ (1) -- --
Death benefits ........................................................ -- -- --
Cost of insurance charges ............................................. (49) -- --
Death benefit guarantee charges ....................................... -- -- --
Monthly expense charges ............................................... (7) -- --
----------------- ---- ----
Additions for policy owners' transactions ........................... 2,427 -- --
---------------- ---- ----
Net additions for the year .......................................... 2,413 -- --
Policy Owners' Equity, beginning of the year ........................... -- -- --
---------------- ---- ----
Policy Owners' Equity, end of the year ................................. $ 2,413 $ -- $ --
================ ==== ====
Units Outstanding, beginning of the year ............................... -- -- --
Units Outstanding, end of the year ..................................... 245,314.904 -- --
Net Asset Value per Unit:
Select*Life I ......................................................... $ 9.804994 $ -- $ --
Select*Life Series 2000 ............................................... $ 9.836310 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
NEUBERGER&BERMAN NEUBERGER&BERMAN
ADVISERS MANAGEMENT TRUST ADVISERS MANAGEMENT TRUST NORTHSTAR VARIABLE TRUST
LIMITED MATURITY BOND PORTFOLIO PARTNERS PORTFOLIO GROWTH PORTFOLIO
- ------------------------------------- ------------------------------------- -------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- --------------------- ------ ------ --------------------- ------ ------ -------------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ -- $ -- $ 1 $ -- $ --
-- -- -- -- -- -- 7 -- --
-- -- -- (2) -- -- (1) -- --
--------------- ---- ---- ----------------- ---- ---- ---------------- ---- ----
-- -- -- (2) -- -- 7 -- --
--------------- ---- ---- ----------------- ---- ---- --------------- ---- ----
-- -- -- 3 -- -- 1 -- --
7 -- -- 20 -- -- (13) -- --
--------------- ---- ---- ---------------- ---- ---- --------------- ---- ----
7 -- -- 23 -- -- (12) -- --
--------------- ---- ---- ---------------- ---- ---- --------------- ---- ----
7 -- -- 21 -- -- (5) -- --
--------------- ---- ---- ---------------- ---- ---- ---------------- ---- ----
209 -- -- 484 -- -- 187 -- --
896 -- -- 1,288 -- -- 497 -- --
(2) -- -- (2) -- -- (2) -- --
-- -- -- 1 -- -- -- -- --
-- -- -- (2) -- -- (1) -- --
-- -- -- -- -- -- -- -- --
(6) -- -- (26) -- -- (10) -- --
-- -- -- -- -- -- -- -- --
(1) -- -- (3) -- -- (1) -- --
----------------- ---- ---- ----------------- ---- ---- ---------------- ---- ----
1,096 -- -- 1,740 -- -- 670 -- --
---------------- ---- ---- ---------------- ---- ---- --------------- ---- ----
1,103 -- -- 1,761 -- -- 665 -- --
-- -- -- -- -- -- -- -- --
---------------- ---- ---- ---------------- ---- ---- --------------- ---- ----
$ 1,103 $ -- $ -- $ 1,761 $ -- $ -- $ 665 $ -- $ --
================ ==== ==== ================ ==== ==== =============== ==== ====
-- -- -- -- -- -- -- -- --
107,550.694 -- -- 170,599.212 -- -- 65,399.595 -- --
$ 10.221530 $ -- $ -- $ 10.292965 $ -- $ -- $ 10.156905 $ -- $ --
$ 10.254171 $ -- $ -- $ 10.325813 $ -- $ -- $ 10.189337 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
NORTHSTAR VARIABLE TRUST
HIGH YIELD BOND PORTFOLIO
--------------------------------------
1997 1996 1995
------------------- ------ -------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ............................................ $ 1 $ -- $ --
Reinvested capital gains .............................................. -- -- --
Administrative expenses ............................................... -- -- --
------------- ---- ----
Net investment income (loss) and capital gains ....................... 1 -- --
------------- ---- ----
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ............. -- -- --
(Decrease) increase in unrealized appreciation of investments ......... (1) -- --
--------------- ---- ----
Net realized and unrealized (losses) gains .......................... (1) -- --
--------------- ---- ----
Additions (reductions) from operations .............................. -- -- --
-------------- ---- ----
Policy Owners' transactions:
Net premium payments .................................................. 52 -- --
Transfers from (to) fixed account ..................................... 9 -- --
Policy loans .......................................................... (2) -- --
Loan collateral interest crediting .................................... -- -- --
Surrenders ............................................................ -- -- --
Death benefits ........................................................ -- -- --
Cost of insurance charges ............................................. (2) -- --
Death benefit guarantee charges ....................................... -- -- --
Monthly expense charges ............................................... -- -- --
-------------- ---- ----
Additions for policy owners' transactions ............................ 57 -- --
-------------- ---- ----
Net additions for the year ........................................... 57 -- --
Policy Owners' Equity, beginning of the year ........................... -- -- --
-------------- ---- ----
Policy Owners' Equity, end of the year ................................. $ 57 $ -- $ --
============== ==== ====
Units Outstanding, beginning of the year ............................... -- -- --
Units Outstanding, end of the year ..................................... 5,488.146 -- --
Net Asset Value per Unit:
Select*Life I ......................................................... $ 10.373728 $ -- $ --
Select*Life Series 2000 ............................................... $ 10.406855 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
NORTHSTAR VARIABLE TRUST NORTHSTAR VARIABLE TRUST NORTHSTAR VARIABLE TRUST
INCOME & GROWTH PORTFOLIO INTERNATIONAL VALUE PORTFOLIO MULTI-SECTOR BOND PORTFOLIO
------------------------------------- ------------------------------------ --------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 36 $ 13 $ 2 $ 1 $ -- $ -- $ 34 $ 14 $ 6
9 38 2 -- -- -- 3 5 --
(5) (3) -- -- -- -- (3) (1) (1)
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
40 48 4 1 -- -- 34 18 5
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
3 2 -- -- -- -- 2 1 --
83 (2) 1 -- -- -- (12) 3 --
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
86 -- 1 -- -- -- (10) 4 --
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
126 48 5 1 -- -- 24 22 5
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
826 413 71 144 -- -- 296 124 36
47 68 37 258 -- -- 42 52 77
(11) -- -- -- -- -- (8) -- --
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(21) -- -- (2) -- -- (13) -- --
(1) -- -- -- -- -- (1) -- --
(96) (39) (5) (8) -- -- (41) (15) (4)
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(19) (7) (1) (1) -- -- (5) (2) --
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
725 435 102 391 -- -- 270 159 109
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
851 483 107 392 -- -- 294 181 114
590 107 -- -- -- -- 295 114 --
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 1,441 $ 590 $ 107 $ 392 $ -- $ -- $ 589 $ 295 $ 114
========== ========== ========== ========== ========== ========== ========== ========== ==========
42,551.251 8,746.326 -- -- -- -- 22,576.638 9,904.096 --
90,105.753 42,551.251 8,746.326 38,707.007 -- -- 41,273.079 22,576.638 9,904.096
$10.383806 $ -- $ -- $10.097293 $ -- $ -- $10.240441 $ -- $ --
$16.036372 $ -- $ -- $10.129526 $ -- $ -- $14.264010 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
---------------------------------------
1997 1996 1995
-------------------- ------ -------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ............................................ $ -- $ -- $ --
Reinvested capital gains .............................................. -- -- --
Administrative expenses ............................................... -- -- --
-------------- ---- ----
Net investment income (loss) and capital gains ...................... -- -- --
-------------- ---- ----
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ............. 1 -- --
Increase (decrease) in unrealized appreciation of investments ......... 8 -- --
-------------- ---- ----
Net realized and unrealized gains (losses) .......................... 9 -- --
-------------- ---- ----
Additions (reductions) from operations .............................. 9 -- --
-------------- ---- ----
Policy Owners' transactions:
Net premium payments .................................................. 52 -- --
Transfers from (to) fixed account ..................................... 151 -- --
Policy loans .......................................................... (2) -- --
Loan collateral interest crediting .................................... -- -- --
Surrenders ............................................................ -- -- --
Death benefits ........................................................ -- -- --
Cost of insurance charges ............................................. (2) -- --
Death benefit guarantee charges ....................................... -- -- --
Monthly expense charges ............................................... -- -- --
--------------- ---- ----
Additions for policy owners' transactions ........................... 199 -- --
--------------- ---- ----
Net additions for the year .......................................... 208 -- --
Policy Owners' Equity, beginning of the year ........................... -- -- --
--------------- ---- ----
Policy Owners' Equity, end of the year ................................. $ 208 $ -- $ --
=============== ==== ====
Units Outstanding, beginning of the year ............................... -- -- --
Units Outstanding, end of the year ..................................... 19,312.138 -- --
Net Asset Value per Unit:
Select*Life I ......................................................... $ 10.719660 $ -- $ --
Select*Life Series 2000 ............................................... $ 10.753858 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
OCC ACCUMULTION TRUST OCC ACCUMULATION TRUST OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO MANAGED PORTFOLIO SMALL CAP PORTFOLIO
- ------------------------------------ ------------------------------------- -------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- -------------------- ------ ------ --------------------- ------ ------ -------------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
14 -- -- -- -- -- -- -- --
(1) -- -- (1) -- -- (1) -- --
---------------- ---- ---- ----------------- ---- ---- ---------------- ---- ----
14 -- -- (1) -- -- (1) -- --
--------------- ---- ---- ----------------- ---- ---- ---------------- ---- ----
(1) -- -- -- -- -- -- -- --
(29) -- -- 7 -- -- (4) -- --
--------------- ---- ---- ---------------- ---- ---- ---------------- ---- ----
(30) -- -- 7 -- -- (4) -- --
--------------- ---- ---- ---------------- ---- ---- ---------------- ---- ----
(16) -- -- 6 -- -- (5) -- --
--------------- ---- ---- ---------------- ---- ---- ---------------- ---- ----
51 -- -- 357 -- -- 254 -- --
272 -- -- 804 -- -- 420 -- --
1 -- -- (1) -- -- -- -- --
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- --
(5) -- -- (16) -- -- (10) -- --
-- -- -- -- -- -- -- -- --
(1) -- -- (1) -- -- (1) -- --
---------------- ---- ---- ----------------- ---- ---- ---------------- ---- ----
318 -- -- 1,143 -- -- 663 -- --
--------------- ---- ---- ---------------- ---- ---- --------------- ---- ----
302 -- -- 1,149 -- -- 658 -- --
-- -- -- -- -- -- -- -- --
--------------- ---- ---- ---------------- ---- ---- --------------- ---- ----
$ 302 $ -- $ -- $ 1,149 $ -- $ -- $ 658 $ -- $ --
=============== ==== ==== ================ ==== ==== =============== ==== ====
-- -- -- -- -- -- -- -- --
31,784.854 -- -- 112,854.997 -- -- 64,284.089 -- --
$ 9.487891 $ -- $ -- $ 10.143089 $ -- $ -- $ 10.220080 $ -- $ --
$ 9.518205 $ -- $ -- $ 10.175476 $ -- $ -- $ 10.252721 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
PUTNAM VT
ASIA PACIFIC GROWTH FUND
------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income .................................. $ 39 $ 8 $ --
Reinvested capital gains .................................... -- -- --
Administrative expenses ..................................... (15) (8) (1)
---------- ---------- ----------
Net investment income (loss) and capital gains ............ 24 -- (1)
---------- ---------- ----------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ... 4 14 --
(Decrease) increase in unrealized appreciation of investments (410) 54 8
---------- ---------- ----------
Net realized and unrealized (losses) gains ................ (406) 68 8
---------- ---------- ----------
(Reductions) additions from operations .................... (382) 68 7
---------- ---------- ----------
Policy Owners' transactions:
Net premium payments ........................................ 1,417 1,193 251
Transfers (to) from Fixed Account ........................... (122) 204 68
Policy loans ................................................ (9) (2) --
Loan collateral interest crediting .......................... -- -- --
Surrenders .................................................. (24) (5) --
Death benefits .............................................. (2) -- --
Cost of insurance charges ................................... (194) (130) (22)
Death benefit guarantee charges ............................. -- -- --
Monthly expense charges ..................................... (34) (21) (3)
---------- ---------- ----------
Additions for policy owners' transactions ................. 1,032 1,239 294
---------- ---------- ----------
Net additions for the year ................................ 650 1,307 301
Policy Owners' Equity, beginning of the year ................. 1,608 301 --
---------- ---------- ----------
Policy Owners' Equity, end of the year ....................... $ 2,258 $ 1,608 $ 301
========== ========== ==========
Units Outstanding, beginning of the year ..................... 144,086.091 29,436.771 --
Units Outstanding, end of the year ........................... 236,947.013 144,086.091 29,436.771
Net Asset Value per Unit:
Select*Life I ............................................... $ -- $ -- $ --
Select*Life Series 2000 ..................................... $ 9.525464 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
PUTNAM VT
DIVERSIFIED INCOME FUND
----------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- --------------------
<S> <C> <C>
$ 86 $ 63 $ 16
14 -- --
(13) (10) (4)
--------------- --------------- ----------------
87 53 12
--------------- --------------- ---------------
16 10 2
6 25 63
--------------- --------------- ---------------
22 35 65
--------------- --------------- ---------------
109 88 77
--------------- --------------- ---------------
785 696 391
(100) (65) 172
(10) (4) (4)
-- -- --
(27) (17) (4)
(3) (1) (2)
(130) (92) (55)
-- (1) --
(21) (15) (9)
---------------- ---------------- ---------------
494 501 489
---------------- ---------------- ---------------
603 589 566
1,395 806 240
---------------- ---------------- ---------------
$ 1,998 $ 1,395 $ 806
================ ================ ===============
112,611.941 70,401.445 25,076.593
150,285.794 112,611.941 70,401.445
$ 13.418177 $ 12.597066 $ 11.671211
$ 13.290543 $ -- $ --
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
PUTNAM VT PUTNAM VT
GROWTH AND INCOME FUND NEW OPPORTUNITIES FUND
- ------------------------------------------------ ------------------------------------------------
1997 1996 1995 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 283 $ 117 $ 32 $ -- $ -- $ --
690 204 18 -- -- --
(120) (60) (19) (92) (44) (4)
------------ ------------ ------------ ------------ ------------ ------------
853 261 31 (92) (44) (4)
------------ ------------ ------------ ------------ ------------ ------------
123 125 17 239 99 22
2,475 1,043 529 3,361 (86) 120
------------ ------------ ------------ ------------ ------------ ------------
2,598 1,168 546 3,600 13 142
------------ ------------ ------------ ------------ ------------ ------------
3,451 1,429 577 3,508 (31) 138
------------ ------------ ------------ ------------ ------------ ------------
10,331 6,047 2,526 11,656 8,025 1,072
1,033 1,274 490 (862) 1,664 375
(71) (38) (10) (100) (8) (4)
3 1 -- 1 -- --
(288) (109) (13) (271) (64) (1)
(27) (5) (2) (8) -- --
(1,524) (784) (296) (1,770) (804) (80)
(4) (2) (1) -- -- --
(252) (130) (53) (343) (154) (15)
------------ ------------ ------------ ------------ ------------ ------------
9,201 6,254 2,641 8,303 8,659 1,347
------------ ------------ ------------ ------------ ------------ ------------
12,652 7,683 3,218 11,811 8,628 1,485
11,547 3,864 646 10,113 1,485 --
------------ ------------ ------------ ------------ ------------ ------------
$ 24,199 $ 11,547 $ 3,864 $ 21,924 $ 10,113 $ 1,485
============ ============ ============ ============ ============ ============
691,973.875 282,045.753 64,421.965 681,263.859 110,223.166 --
1,169,049.817 691,973.875 282,045.753 1,197,940.702 681,263.859 110,223.166
$ 20.529605 $ 16.669506 $ 13.783753 $ -- $ -- $ --
$ 20.717931 $ -- $ -- $ 18.301715 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
RELIASTAR SELECT-VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1997, 1996 and 1995
(In Thousands)
<TABLE>
<CAPTION>
PUTNAM VT
UTILITIES GROWTH AND INCOME FUND
------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income .................................. $ 61 $ 41 $ 32
Reinvested capital gains .................................... 84 -- --
Administrative expenses ..................................... (14) (11) (7)
---------- ---------- ----------
Net investment income (loss) and capital gains ............ 131 30 25
---------- ---------- ----------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ... 40 71 20
Increase (decrease) in unrealized appreciation of investments 338 83 161
---------- ---------- ----------
Net realized and unrealized gains (losses) ................ 378 154 181
---------- ---------- ----------
Additions (reductions) from operations .................... 509 184 206
---------- ---------- ----------
Policy Owners' transactions:
Net premium payments ........................................ 903 663 505
Transfers from (to) fixed account ........................... 50 (104) (40)
Policy loans ................................................ (17) (36) (1)
Loan collateral interest crediting .......................... 1 1 --
Surrenders .................................................. (24) (35) (9)
Death benefits .............................................. (3) (4) --
Cost of insurance charges ................................... (168) (117) (80)
Death benefit guarantee charges ............................. (1) (1) (1)
Monthly expense charges ..................................... (26) (19) (13)
---------- ---------- ----------
Additions for policy owners' transactions ................. 715 348 361
---------- ---------- ----------
Net additions for the year ................................ 1,224 532 567
Policy Owners' Equity, beginning of the year ................. 1,547 1,015 448
---------- ---------- ----------
Policy Owners' Equity, end of the year ....................... $ 2,771 $ 1,547 $ 1,015
========== ========== ==========
Units Outstanding, beginning of the year ..................... 107,970.108 81,748.531 46,807.467
Units Outstanding, end of the year ........................... 152,514.030 107,970.108 81,748.531
Net Asset Value per Unit:
Select*Life I ............................................... $18.375382 $14.583970 $12.696559
Select*Life Series 2000 ..................................... $18.153329 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
PUTNAM VT
VOYAGER FUND
-------------------------------------------------------------------
1997 1996 1995
--------------------- ----------------------- ---------------------
<S> <C> <C>
$ 68 $ 48 $ 10
1,472 811 77
(284) (171) (56)
----------------- ----------------- ---------------
1,256 688 31
----------------- ----------------- ---------------
218 169 28
7,940 921 1,951
----------------- ----------------- ---------------
8,158 1,090 1,979
----------------- ----------------- ---------------
9,414 1,778 2,010
----------------- ----------------- ---------------
20,897 16,198 7,418
169 2,466 947
(263) (187) (31)
16 6 --
(969) (395) (81)
(40) (6) --
(3,626) (2,268) (902)
(12) (8) (3)
(683) (430) (189)
----------------- ------------------ ----------------
15,489 15,376 7,159
----------------- ------------------ ----------------
24,903 17,154 9,169
28,364 11,210 2,041
----------------- ------------------ ----------------
$ 53,267 $ 28,364 $ 11,210
================= ================== ================
1,750,710.230 781,013.273 199,880.663
2,601,649.957 1,750,710.230 781,013.273
$ 20.608071 $ 16.420248 $ 14.653218
$ 20.460670 $ -- $ --
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
SELECT CAPITAL SELECT MANAGED
GROWTH FUND, INC. FUND, INC.
------------------------------- -------------------------------
1997 1996 1995 1997 1996 1995
------ ------ ----------------- ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- --
-- -- (6) -- -- (12)
---- ---- --------------- ---- ---- ------------
-- -- (6) -- -- (12)
---- ---- --------------- ---- ---- ------------
-- -- (138) -- -- (17)
-- -- 217 -- -- 170
---- ---- -------------- ---- ---- ------------
-- -- 79 -- -- 153
---- ---- -------------- ---- ---- ------------
-- -- 73 -- -- 141
---- ---- -------------- ---- ---- ------------
-- -- 123 -- -- 188
-- -- (2,420) -- -- (4,589)
-- -- (5) -- -- (21)
-- -- 2 -- -- 5
-- -- (45) -- -- (25)
-- -- (1) -- -- --
-- -- (53) -- -- (94)
-- -- (3) -- -- (5)
-- -- (7) -- -- (13)
---- ---- --------------- ---- ---- --------------
-- -- (2,409) -- -- (4,554)
---- ---- -------------- ---- ---- --------------
-- -- (2,336) -- -- (4,413)
-- -- 2,336 -- -- 4,413
---- ---- -------------- ---- ---- --------------
$ -- $ -- $ -- $ -- $ -- $ --
==== ==== ============== ==== ==== ==============
-- -- 157,399.779 -- -- 286,168.977
-- -- -- -- -- --
$ -- $ -- $ -- $ -- $ -- $ --
$ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
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 polices are allocated to sub-accounts of the
Account, each of which is invested in one of the following funds during the
year:
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE FIDELITY'S VARIABLE
THE ALGER AMERICAN FUND INSURANCE PRODUCTS FUND INSURANCE PRODUCTS FUND II
- ----------------------------------- ------------------------- -------------------------------
<S> <C> <C>
Growth Portfolio VIP Equity-Income VIP II Asset Manager Portfolio
MidCap Growth Portfolio Portfolio VIP II Contrafund Portfolio
Small Capitalization Portfolio VIP Growth Portfolio VIP II Index 500 Portfolio
VIP High Income VIP II Investment Grade Bond
Portfolio Portfolio
VIP Money Market
Portfolio
VIP Overseas Portfolio
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER&BERMAN
ADVISERS MANAGEMENT
JANUS ASPEN SERIES TRUST
- ----------------------------------- --------------------
<S> <C>
Aggressive Growth Portfolio Limited Maturity
Bond Portfolio
Growth Portfolio Partners Portfolio
International Growth Portfolio
Worldwide Growth Portfolio
</TABLE>
<TABLE>
<CAPTION>
NORTHSTAR VARIABLE TRUST OCC ACCUMULATION TRUST PUTNAM VARIABLE TRUST
- ----------------------------------- ------------------------- ----------------------------------
<S> <C> <C>
Northstar Variable Trust Equity Portfolio Putnam VT Asia Pacific Growth
Growth Portfolio Global Equity Portfolio Fund
Northstar Variable Trust Managed Portfolio Putnam VT Diversified Income Fund
High Yield Bond Portfolio Small Capitalization Fund
Northstar Variable Trust Portfolio Putnam VT Growth and Income
Income & Growth Portfolio Funds
Northstar Variable Trust Putnam VT New Opportunities Fund
International Value Portfolio Putnam VT Utilities Growth and
Northstar Variable Trust Income Fund
Multi-Sector Bond Portfolio Putnam VT Voyager Fund
</TABLE>
Fred Alger Management, Inc. is the investment adviser for the three
portfolios of The Alger American Fund and is paid fees for its services by
The Alger American Funds Portfolios. Fidelity Management & Research Company
is the investment adviser for Fidelity Variable Insurance Products Fund
(VIP) and Variable Insurance Products Fund II (VIP II) and is paid for its
services by the VIP and VIP II Portfolios. Janus Capital Corporation is the
investment adviser for the four portfolios of Janus Aspen Series and is
paid fees for its services by the Janus Aspen Series Portfolios.
Neuberger&Berman Management is the investment manager for the two
portfolios of the Advisers Management Trust and is paid fees for its
services by the funds. Northstar Investment Management Corporation, an
affiliate of ReliaStar Life, is the investment adviser for the five
Northstar Variable Trust Portfolios and is paid fees for its services by
the Portfolios. OpCap Advisors is the investment adviser for the four
Portfolios of the OCC Accumulation Trust and is paid fees for its services
by the OCC Accumulation Trust Funds. Putnam Investment Management, Inc. is
the investment adviser for Putnam Variable Trust and is paid fees for its
services by Putnam Variable Trust. See the related
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
funds' prospectuses for further information. On May 3, 1993, ReliaStar Life
added the sub-accounts investing in shares of VIP II Index 500 Portfolio.
On January 1, 1994, sub-accounts investing in Putnam VT Diversified Income
Fund, Putnam VT Growth and Income Fund, Putnam VT Utilities Growth and
Income Fund and Putnam VT Voyager Fund were made available through the
Select*Life Series 2000 policies and on May 2, 1994, sub-accounts investing
in Putnam Variable Trust were made available to Select*Life I policies. On
December 30, 1994, sub-accounts investing in the Northstar Variable Trust
Portfolios were made available to Select*Life Series 2000 policies. On
April 30, 1995, sub-accounts investing in the VIP II Contrafund Portfolio,
Putnam VT Asia Pacific Growth Fund and Putnam VT New Opportunities Fund
were made available to Select*Life Series 2000 policies. On August 8, 1997,
sub-accounts investing in Northstar Variable Trust Growth Portfolio,
Northstar Variable Trust High Yield Bond Portfolio, Northstar Variable
Trust International Value Portfolio, Alger American, Janus Aspen Series,
OCC Accumulation Trust, and Neuberger&Berman Advisers Management Trust were
made available to Select*Life policies.
2. SIGNIFICANT ACCOUNTING POLICIES:
SECURITIES VALUATION TRANSACTIONS AND RELATED INVESTMENT INCOME:
The market value of investments in the sub-accounts is based on the closing
net asset values of the fund shares held at the end of the year. Investment
transactions are accounted for on the trade date (date the order to
purchase or redeem is executed) and dividend income and capital gain
distributions are recorded on the 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 share costs.
3. FEDERAL INCOME TAXES:
Under current tax law, the income, gains, and losses from the separate
account investments are not taxable to either the Account or ReliaStar
Life.
4. POLICY CHARGES:
Certain charges are made by ReliaStar Life to Policy Owners' 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.
5. 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 VIP Growth Portfolio and VIP II Asset Manager
Portfolio, respectively.
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS:
For the year ended December 31, 1997, investment activity in the funds was
as follows
(in thousands):
<TABLE>
<CAPTION>
COST OF PROCEEDS
INVESTING FUND PURCHASES FROM SALES
- ----------------------------------------------------------------- ----------- -----------
<S> <C> <C>
The Alger American Fund:
Alger American Growth Portfolio .......................... $ 357 $ 17
Alger American MidCap Growth Portfolio ................... 449 62
Alger American Small Capitalization ...................... 797 128
Fidelity's Variable Insurance Products Fund (VIP) and
Variable Insurance Products Fund II (VIP II):
VIP Equity-Income Portfolio .............................. 17,209 3,724
VIP Growth Portfolio ..................................... 14,861 3,669
VIP High Income Portfolio ................................ 4,899 1,841
VIP Money Market Portfolio ............................... 13,314 10,148
VIP Overseas Portfolio ................................... 7,101 2,652
VIP II Asset Manager Portfolio ........................... 7,510 2,241
VIP II Contrafund Portfolio .............................. 11,409 333
VIP II Index 500 Portfolio ............................... 12,251 895
VIP II Investment Grade Bond Portfolio ................... 910 369
Janus Aspen Series:
Aggressive Growth Portfolio .............................. 346 91
Growth Portfolio ......................................... 357 74
International Growth Portfolio ........................... 905 50
Worldwide Growth Portfolio ............................... 2,520 91
Neuberger&Berman Advisers Management Trust:
Limited Maturity Bond Portfolio .......................... 1,151 55
Partners Portfolio ....................................... 1,970 232
Northstar Variable Trust:
Northstar Variable Trust Growth Portfolio ................ 698 19
Northstar Variable Trust High Yield Bond Portfolio ....... 60 2
Northstar Variable Trust Income & Growth Portfolio ....... 810 44
Northstar Variable Trust International Value Portfolio 397 5
Northstar Variable Trust Multi-Sector Bond Portfolio ..... 377 83
OCC Accumulation Trust:
Equity Portfolio ......................................... 217 18
Global Equity Portfolio .................................. 364 31
Managed Portfolio ........................................ 1,178 35
Small Cap Portfolio ...................................... 700 38
Putnam Variable Trust:
Putnam VT Asia Pacific Growth Fund ....................... 1,312 257
Putnam VT Diversified Income Fund ........................ 784 204
Putnam VT Growth and Income Fund ......................... 10,425 372
Putnam VT New Opportunities Fund ......................... 9,070 864
Putnam VT Utilities Growth and Income Fund ............... 1,010 170
Putnam VT Voyager Fund ................................... 17,414 674
-------- -------
Total .................................................... $143,132 $29,488
======== =======
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholder
ReliaStar Life Insurance Company
(A Wholly Owned Subsidiary of ReliaStar Financial Corp.)
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of ReliaStar
Life Insurance Company and subsidiaries (the Company) as of December 31, 1997
and 1996, and the related statements of income, shareholder's equity, and cash
flows for each of the two years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 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, 1997 and 1996 and
the results of their operations and their cash flows for each of the two years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 3, 1998
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Fixed Maturity Securities (Amortized Cost: 1997, $10,655.9;
1996, $8,993.5) ........................................... $ 11,146.7 $ 9,298.2
Equity Securities (Cost: 1997, $21.2; 1996, $32.0) ......... 23.0 36.9
Mortgage Loans on Real Estate .............................. 2,270.7 1,855.4
Real Estate and Leases ..................................... 74.5 77.5
Policy Loans ............................................... 663.3 549.0
Other Invested Assets ...................................... 81.3 60.2
Short-Term Investments ..................................... 130.3 99.3
----------- -----------
Total Investments ......................................... 14,389.8 11,976.5
----------- -----------
Cash ....................................................... 23.5 15.9
Accounts and Notes Receivable .............................. 176.7 136.9
Reinsurance Receivable ..................................... 324.4 199.0
Deferred Policy Acquisition Costs .......................... 1,091.9 1,006.0
Present Value of Future Profits ............................ 480.0 220.2
Property and Equipment, Net ................................ 106.3 118.2
Accrued Investment Income .................................. 200.6 164.7
Other Assets ............................................... 552.3 319.5
Participation Fund Account Assets .......................... 316.6 316.2
Assets Held in Separate Accounts ........................... 3,149.3 2,096.0
----------- -----------
Total Assets .............................................. $ 20,811.4 $ 16,569.1
=========== ===========
LIABILITIES
Future Policy and Contract Benefits ........................ $ 13,329.4 $ 11,332.2
Pending Policy Claims ...................................... 338.2 287.6
Other Policyholder Funds ................................... 286.5 190.6
Notes and Mortgages Payable -- Unaffiliated ................ 252.7 170.8
Note Payable -- Parent ..................................... 100.0 100.0
Income Taxes ............................................... 205.2 135.3
Other Liabilities .......................................... 463.0 338.4
Participation Fund Account Liabilities ..................... 316.6 316.2
Liabilities Related to Separate Accounts ................... 3,143.8 2,090.5
----------- -----------
Total Liabilities ......................................... 18,435.4 14,961.6
----------- -----------
SHAREHOLDER'S EQUITY
Common Stock (Shares Issued: 2.0) .......................... 2.5 2.5
Additional Paid-In Capital ................................. 1,057.4 538.9
Net Unrealized Investment Gains ............................ 226.1 140.8
Retained Earnings .......................................... 1,090.0 925.3
----------- -----------
Total Shareholder's Equity ................................ 2,376.0 1,607.5
----------- -----------
Total Liabilities and Shareholder's Equity ................ $ 20,811.4 $ 16,569.1
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
REVENUES
Premiums .................................................. $ 884.3 $ 836.9
Net Investment Income ..................................... 1,022.4 937.2
Realized Investment Gains, Net ............................ 11.7 11.2
Policy and Contract Charges ............................... 332.9 245.9
Other Income .............................................. 89.1 81.8
-------- --------
Total .................................................... 2,340.4 2,113.0
-------- --------
BENEFITS AND EXPENSES
Benefits to Policyholders ................................. 1,370.5 1,288.3
Sales and Operating Expenses .............................. 429.0 370.3
Amortization of Deferred Policy Acquisition Costs and
Present Value of Future Profits .......................... 146.1 113.0
Interest Expense .......................................... 19.7 16.2
Dividends and Experience Refunds to Policyholders ......... 24.8 19.7
-------- --------
Total .................................................... 1,990.1 1,807.5
-------- --------
Income before Income Taxes ................................ 350.3 305.5
Income Tax Expense ........................................ 123.8 105.9
-------- --------
Net Income ............................................... $ 226.5 $ 199.6
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1997 1996
----------- ------------
<S> <C> <C>
COMMON STOCK
Beginning and End of Year ................ $ 2.5 $ 2.5
--------- ---------
ADDITIONAL PAID-IN CAPITAL
Beginning of Year ........................ 538.9 538.9
Capital Contribution from Parent ......... 518.5 --
--------- ---------
End of Year ............................. 1,057.4 538.9
--------- ---------
NET UNREALIZED INVESTMENT GAINS (LOSSES)
Beginning of Year ........................ 140.8 246.8
Change for the Year ...................... 85.3 (106.0)
--------- ---------
End of Year ............................. 226.1 140.8
--------- ---------
RETAINED EARNINGS
Beginning of Year ........................ 925.3 786.8
Net Income ............................... 226.5 199.6
Dividends to Shareholder ................. (61.8) (61.1)
--------- ---------
End of Year ............................. 1,090.0 925.3
--------- ---------
Total Shareholder's Equity .............. $ 2,376.0 $ 1,607.5
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ....................................................... $ 226.5 $ 199.6
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Interest Credited to Insurance Contracts ....................... 548.9 500.1
Future Policy Benefits ......................................... (396.9) (238.9)
Capitalization of Policy Acquisition Costs ..................... (212.7) (196.2)
Amortization of Deferred Policy Acquisition Costs and
Present Value of Future Profits ............................... 146.1 113.0
Deferred Income Taxes .......................................... 8.1 22.3
Net Change in Receivables and Payables ......................... 30.1 47.2
Other Assets ................................................... (94.8) (48.4)
Realized Investment Gains, Net ................................. (11.7) (11.2)
Other .......................................................... 1.8 1.6
-------- --------
Net Cash Provided by Operating Activities ........................ 245.4 389.1
-------- --------
INVESTING ACTIVITIES
Proceeds from Sales of Fixed Maturity Securities ................. 474.0 204.1
Proceeds from Maturities or Repayment of Fixed Maturity Securities 910.7 882.3
Cost of Fixed Maturity Securities Acquired ....................... (1,431.6) (1,594.7)
Sales of Equity Securities, Net .................................. 15.9 5.6
Proceeds of Mortgage Loans Sold, Matured or Repaid ............... 350.4 483.8
Cost of Mortgage Loans Acquired .................................. (649.4) (407.3)
Sales of Real Estate and Leases, Net ............................. 14.1 35.7
Policy Loans Issued, Net ......................................... (41.5) (49.2)
Purchases of Other Invested Assets, Net .......................... (10.1) (.4)
Sales (Purchases) of Short-Term Investments, Net ................. (31.0) 11.4
Cash Acquired from Contribution of Security-Connecticut .......... 10.8 --
-------- --------
Net Cash Used by Investing Activities ............................ (387.7) (428.7)
-------- --------
FINANCING ACTIVITIES
Deposits to Insurance Contracts .................................. 1,429.3 1,173.3
Maturities and Withdrawals from Insurance Contracts .............. (1,299.5) (1,133.0)
Increase in Notes and Mortgages Payable .......................... 82.1 26.8
Repayment of Notes and Mortgages Payable ......................... (.2) (.6)
Dividends to Shareholder ......................................... (61.8) (54.0)
-------- --------
Net Cash Provided by Financing Activities ........................ 149.9 12.5
-------- --------
Increase (Decrease) in Cash ...................................... 7.6 (27.1)
Cash at Beginning of Year ........................................ 15.9 43.0
-------- --------
Cash at End of Year .............................................. $ 23.5 $ 15.9
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. CHANGES IN ACCOUNTING PRINCIPLES
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
Effective for transactions occurring on or after January 1, 1997,
ReliaStar Life Insurance Company (ReliaStar Life) and its subsidiaries (the
Company) adopted those provisions of Statement of Financial Accounting
Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," which have not been deferred by
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS No. 125 requires a company to recognize the financial
and servicing assets it controls and the liabilities it has incurred and to
derecognize financial assets when control has been surrendered in accordance
with the criteria provided in SFAS No. 125. The adoption of this standard did
not have a significant effect on the financial results of the Company.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS No. 121 establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. This Statement requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset. Long-lived assets and certain identifiable
intangibles to be disposed of must be reported at the lower of carrying amount
or fair value less cost to sell. The adoption of this standard did not have a
significant effect on the financial results of the Company.
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is principally engaged in the business of providing life
insurance and related financial services products. The Company provides and
distributes individual life insurance and annuities; employee benefit products
and services; life and health reinsurance; retirement plans and residential
mortgages. The Company operates primarily in the United States and 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 and exclude the effects of all material intercompany
transactions. 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 Life Insurance Company of New
York (RLNY), Security-Connecticut Life Insurance Company
(Security-Connecticut), Lincoln Security Life Insurance Company (Lincoln
Security), ReliaStar Reinsurance Group (UK), Ltd. and ReliaStar Mortgage
Corporation. Effective January 1, 1998, Lincoln Security merged with and into
RLNY.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
Fixed maturity securities (bonds and redeemable preferred stocks) are
classified as available-for-sale and are valued at fair value.
Equity securities (common stocks and nonredeemable preferred stocks) are
valued at fair value.
Mortgage loans on real estate are carried at amortized cost less an
impairment allowance for estimated uncollectible amounts.
Investment real estate owned directly by the Company is carried at cost
less accumulated depreciation and allowances for estimated losses. Investments
in real estate joint ventures are accounted for using the equity method. Real
estate acquired through foreclosure is carried at the lower of fair value less
estimated costs to sell or cost.
Short-term investments are carried at amortized cost, which approximates
fair value.
Unrealized investment gains and losses of equity and fixed maturity
securities classified as available-for-sale, net of related deferred policy
acquisition costs (DAC), present value of future profits (PVFP), and tax
effects, are accounted for as a direct increase or decrease in shareholder's
equity.
Realized investment gains and losses enter into the determination of net
income. Realized investment gains and losses on sales of securities are
determined on the specific identification method. Write-offs of investments
that decline in value below cost on other than a temporary basis and the
changes in the allowances for mortgage loans and wholly owned real estate are
included with realized investment gains and losses in the 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 $97.5 million and $90.7 million at December 31, 1997 and 1996,
respectively. The Company provides for depreciation of property and equipment
using straight-line and accelerated methods over the estimated useful lives of
the assets. Buildings are generally depreciated over 35 to 50 years.
Depreciation expense for 1997 and 1996 amounted to $5.6 million and $5.9
million, respectively.
PARTICIPATION FUND ACCOUNT
On January 3, 1989, the Commissioner of Commerce of the State of Minnesota
approved a Plan of Conversion and Reorganization (the Plan) which provided,
among other things, for the conversion of ReliaStar Life from a combined stock
and mutual life 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 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
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and liabilities of the
separate accounts are primarily related to variable annuity, variable life and
401(k) contracts and represents policyholder directed funds that are separately
administered. The assets (principally investments) and liabilities (principally
to contractholders) of each account are clearly identifiable and
distinguishable from other assets and liabilities of the Company. Assets are
valued at fair value. Revenues from these separate account contracts consist
primarily of charges for mortality risk and expenses, cost of insurance,
contract administration and surrender charges. Revenue for these products is
recognized when due.
PREMIUM REVENUE AND BENEFITS TO POLICYHOLDERS
RECOGNITION OF TRADITIONAL LIFE, GROUP AND ANNUITY PREMIUM REVENUE AND
BENEFITS TO POLICYHOLDERS -- Traditional life insurance products include those
products with fixed and guaranteed premiums and benefits, and consist
principally of term and whole 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 deposits for such contracts are not reported as premium revenues.
Revenues for universal life-type policies consist of charges assessed
against policy account values for deferred policy loading and the cost of
insurance and policy administration. Policy benefits and claims that are
charged to expense include interest credited to contracts and benefit claims
incurred in the period in excess of related policy account balances.
RECOGNITION OF INVESTMENT CONTRACT REVENUE AND BENEFITS TO POLICYHOLDERS
- -- Contracts that do not subject the Company to risks arising from policyholder
mortality or morbidity are referred to as investment contracts. Guaranteed
Investment Contracts (GICs) and certain deferred annuities are considered
investment contracts. Amounts received as deposits for such contracts are not
reported as premium revenues.
Revenues for investment contracts consist of investment income and policy
administration charges. Contract benefits that are charged to expense include
benefit claims incurred in the period in excess of related contract balances,
and interest credited to contract balances.
POLICY ACQUISITION COSTS
Those costs of acquiring new business, which vary with and are primarily
related to the production of new business, have been deferred to the extent
that such costs are deemed recoverable. Such costs include commissions, certain
costs of policy issuance and underwriting and certain variable agency expenses.
Costs deferred related to traditional life insurance products are
amortized over the premium paying period of the related policies, in proportion
to the ratio of annual premium revenues to total anticipated
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
premium revenues. Such anticipated premium revenues are estimated using the
same assumptions used for computing liabilities for future policy benefits.
Costs deferred related to universal life-type policies and investment
contracts are amortized over the lives of the policies, in relation to the
present value of estimated gross profits from mortality, investment, surrender
and expense margins.
PRESENT VALUE OF FUTURE PROFITS
The present value of future profits reflects the unamortized value of
acquired insurance business in force and represents the portion of the cost to
acquire that was allocated to the estimated value to receive future cash flows
from insurance contracts existing at the date of acquisition.
An analysis of the PVFP asset account is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1997 1996
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Balance, Beginning of Year ................................... $ 220.2 $ 192.0
Acquisition .................................................. 323.6 --
Imputed Interest ............................................. 25.5 16.4
Amortization ................................................. ( 66.0) ( 37.5)
Impact of Net Unrealized Investment Gains and Losses ......... ( 23.3) 49.3
-------- --------
Balance, End of Year ......................................... $ 480.0 $ 220.2
======== ========
</TABLE>
Based on current conditions and assumptions as to future events on
acquired policies in force, the Company expects that the net amortization of
the December 31, 1997 PVFP balance will be between 6% and 8% in each of the
years 1998 through 2002. The interest rates used to determine the amount of
imputed interest on the unamortized PVFP balance ranged from 5% to 8%.
GOODWILL
Goodwill is the excess of the amount paid to acquire a company over the
fair value of the net assets acquired and is amortized on a straight-line basis
over 40 years. The carrying value of goodwill is monitored for indicators of
impairment of value. No events or circumstances were identified which warrant
consideration of impairment or a revised estimate of useful lives.
FUTURE POLICY AND CONTRACT BENEFITS
Liabilities for future policy benefits for traditional life insurance
contracts are calculated using the net level premium method and assumptions as
to investment yields, mortality, withdrawals and dividends. The assumptions are
based on projections of past experience and include provisions for possible
unfavorable deviation. These assumptions are made at the time the contract is
issued or, for purchased contracts, at the date of acquisition.
Liabilities for future policy and contract benefits on universal life-type
and investment contracts are based on the policy account balance.
The liabilities for future policy and contract benefits for group disabled
life reserves and long-term disability reserves are based upon interest rate
assumptions and morbidity and termination rates from published tables, modified
for Company experience.
INCOME TAXES
The provision for income taxes includes amounts currently payable and
deferred income taxes resulting from the cumulative differences in the assets
and liabilities determined on a tax return and financial statement basis.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company files a consolidated tax return with certain of its
affiliates. The method by which the total consolidated federal income tax for
each entity is allocated to each of the companies is subject to a written
agreement approved by the Company's Board of Directors. Allocation is based
upon a separate return calculation such that each company in the consolidated
return pays the same tax or receives the same refunds it would have paid or
received had it consistently filed separate federal income tax returns.
Intercompany tax balances are settled within a reasonable time after filing of
the consolidated federal income tax returns with the Internal Revenue Service.
INTEREST RATE SWAP AGREEMENTS
Interest rate swap agreements are used as hedges for asset/liability
management of adjustable rate and short-term invested assets. The Company does
not enter into any interest rate swap agreements for trading purposes. The
interest rate swap transactions involve the exchange of fixed and floating rate
interest payments without the exchange of underlying principal amounts and do
not contain other optional provisions. The Company utilizes the settlement
method of accounting for its interest rate swap agreements whereby the
difference between amounts paid and amounts received or accrued on interest
rate swap agreements is reflected in net investment income.
The characteristics (notional amount, maturity and payment dates) of the
interest rate swap agreements are similar to the characteristics of the
designated hedged assets. In the event of interest rate swap agreement would
cease to be an effective hedge, the affected interest rate swap agreement would
be recorded as an asset or liability at fair value with changes in fair value
recorded as income or expense. There were no terminations of interest rate swap
agreements during 1997 and 1996. The fair value and changes in fair value of
interest rate swap agreements are not recognized in the consolidated financial
statements.
NOTE 3. ACQUISITION
On July 1, 1997, ReliaStar completed the acquisition of
Security-Connecticut Corporation, which was a holding company with two primary
subsidiaries: Security-Connecticut of Avon, Connecticut and Lincoln Security of
Brewster, New York. Concurrent with the acquisition, ReliaStar contributed all
of the capital stock of Security-Connecticut and Lincoln Security to ReliaStar
Life.
The acquisition was accounted for using the purchase method of accounting.
Therefore, the consolidated financial statements include the accounts of
Security-Connecticut and Lincoln Security since the date of acquisition.
Goodwill of approximately $140 million was recorded.
The following pro forma consolidated financial information was prepared,
assuming the acquisition had taken place at the beginning of each period
presented:
YEAR ENDED DECEMBER 31
-----------------------------
1997 1996
------------- -------------
(IN MILLIONS)
Revenues ........... $ 2,496.9 $ 2,435.6
Net Income ......... 243.7 233.0
The pro forma consolidated financial information is not necessarily
indicative of either the results of operations that would have occurred if this
acquisition had been completed at the beginning of each year presented or of
future operations of the combined companies.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INVESTMENTS
Investment income summarized by type of investment was as follows:
YEAR ENDED DECEMBER 31
-------------------------
1997 1996
----------- -----------
(IN MILLIONS)
Fixed Maturity Securities ............. $ 787.9 $ 709.4
Equity Securities ..................... 2.2 4.1
Mortgage Loans on Real Estate ......... 197.6 187.6
Real Estate and Leases ................ 16.1 18.0
Policy Loans .......................... 34.3 32.2
Other Invested Assets ................. 3.6 7.3
Short-Term Investments ................ 6.7 5.7
--------- --------
Gross Investment Income .............. 1,048.4 964.3
Investment Expenses ................... 26.0 27.1
--------- --------
Net Investment Income ................ $ 1,022.4 $ 937.2
========= ========
Net pretax realized investment gains (losses) were as follows:
YEAR ENDED DECEMBER 31
----------------------
1997 1996
---------- ---------
(IN MILLIONS)
Net Gains (Losses) on Sales
Fixed Maturity Securities
Gross Gains ........................... $ 10.3 $ 8.7
Gross Losses .......................... ( 6.4) ( 5.5)
Equity Securities ...................... 5.1 1.3
Mortgage Loans ......................... -- .1
Foreclosed Real Estate ................. .1 1.8
Real Estate ............................ .6 2.7
Other .................................. 9.8 13.2
------- -------
19.5 22.3
------- -------
Provisions for Losses
Fixed Maturity Securities .............. ( 3.0) ( 2.6)
Equity Securities ...................... ( .1) --
Mortgage Loans ......................... ( 2.4) ( 3.5)
Foreclosed Real Estate ................. ( 1.6) ( 3.5)
Real Estate ............................ ( .7) ( 1.1)
Other .................................. -- ( .4)
------- -------
( 7.8) (11.1)
------- -------
Realized Investment Gains, Net ......... $ 11.7 $ 11.2
======= =======
All fixed maturity securities sales were from the available-for-sale
portfolio.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1997
------------------------------------------------------
GROSS UNREALIZED
AMORTIZED ----------------------
COST GAINS (LOSSES) FAIR VALUE
------------- --------- ---------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
United States Government and Government Agencies
and Authorities .......................................... $ 128.8 $ 9.3 $ (.3) $ 137.8
States, Municipalities and Political Subdivisions ......... 66.8 4.5 ( .3) 71.0
Foreign Governments ....................................... 94.8 7.3 ( .1) 102.0
Public Utilities .......................................... 895.0 61.4 ( .9) 955.5
Corporate Securities ...................................... 6,911.0 327.2 (14.9) 7,223.3
Mortgage-Backed/Structured Finance ........................ 2,554.3 99.8 ( 2.6) 2,651.5
Redeemable Preferred Stock ................................ 5.2 .4 -- 5.6
---------- ------- ------- ----------
Total .................................................... $ 10,655.9 $ 509.9 $ (19.1) $ 11,146.7
========== ======= ======= ==========
</TABLE>
<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 ........................ 2,166.0 66.0 ( 8.3) 2,223.7
Redeemable Preferred Stock ................................ 2.1 -- ( .1) 2.0
--------- ------- ------- ---------
Total .................................................... $ 8,993.5 $ 345.6 $ (40.9) $ 9,298.2
========= ======= ======= =========
</TABLE>
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, 1997 DECEMBER 31, 1996
----------------------------- -------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------- ------------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Maturing in:
One Year or Less .......................... $ 199.9 $ 200.9 $ 155.8 $ 157.4
One to Five Years ......................... 3,651.3 3,789.2 2,967.6 3,057.0
Five to Ten Years ......................... 3,006.4 3,180.7 2,622.4 2,723.6
Ten Years or Later ........................ 1,244.0 1,324.4 1,055.3 1,108.7
Mortgage-Backed/Structured Finance ......... 2,554.3 2,651.5 2,192.4 2,251.5
---------- ---------- --------- ---------
Total ..................................... $ 10,655.9 $ 11,146.7 $ 8,993.5 $ 9,298.2
========== ========== ========= =========
</TABLE>
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INVESTMENTS (CONTINUED)
The fair values for the marketable bonds are determined based upon the
quoted market prices for bonds actively traded. The fair values for marketable
bonds without an active market are obtained through several commercial pricing
services which provide the estimated fair values. Fair values of privately
placed bonds which are not considered problems are determined utilizing a
matrix-based pricing model. The model considers the current level of risk-free
interest rates, current corporate spreads, the credit quality of the issuer and
cash flow characteristics of the security. 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 their relevant market.
At December 31, 1997, the largest industry concentration in the private
placement portfolio was financial services, where 20.5% of the portfolio was
invested, and the largest industry concentration in the marketable bond
portfolio was mortgage-backed/structured finance where 31.4% of the portfolio
was invested. At December 31, 1997, the largest geographic concentration of
commercial mortgage loans was in the Midwest region of the United States, where
approximately 32.7% of the commercial mortgage loan portfolio was invested.
At December 31, 1997 and 1996, gross unrealized appreciation of equity
securities was $2.3 million and $5.2 million, respectively, and gross
unrealized depreciation was $.5 million and $.3 million, respectively.
Invested assets which were nonincome producing (no income received for the
12 months preceding the balance sheet date) were as follows:
DECEMBER 31
--------------------
1997 1996
--------- --------
(IN MILLIONS)
Fixed Maturity Securities ............. $ 1.5 $ .6
Mortgage Loans on Real Estate ......... 1.1 1.2
Real Estate and Leases ................ 21.5 16.0
------ ------
Total ................................ $ 24.1 $ 17.8
====== ======
Allowances for losses on investments are reflected on the Consolidated
Balance Sheets as a reduction of the related assets and were as follows:
DECEMBER 31
-----------------------
1997 1996
---------- ----------
(IN MILLIONS)
Mortgage Loans ................. $ 10.5 $ 11.7
Foreclosed Real Estate ......... 9.1 11.2
Investment Real Estate ......... 2.8 2.1
Other Invested Assets .......... 1.7 2.6
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INVESTMENTS (CONTINUED)
The total investment in impaired mortgage loans (before allowances for
credit losses), the related allowance for credit losses and the average
investment related to impaired mortgage loans at December 31, 1997 and 1996,
and the interest income recognized on impaired mortgage loans during 1997 and
1996 were as follows:
1997 1996
---------- ----------
(IN MILLIONS)
Impaired Mortgage Loans
Total Investment .................... $ 14.4 $ 22.3
Allowance for Credit Losses ......... 10.5 11.7
Average Investment .................. 1.6 1.9
Interest Income Recognized .......... 1.3 1.4
Increases to the allowance for credit losses account were $2.4 million and
$2.9 million, and the amount of decreases to the allowance account were $3.6
million and $3.6 million for the years ended December 31, 1997 and 1996,
respectively. The Company does not accrue interest income on impaired mortgage
loans when the likelihood of collection is doubtful. Cash receipts for interest
payments are recognized as income in the period received.
Noncash investing activities consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1997 1996
---------- ----------
(IN MILLIONS)
<S> <C> <C>
Real Estate Assets Acquired Through Foreclosure ................ $ 11.3 $ 14.8
Mortgage Loans Acquired in Sales of Real Estate Assets ......... -- 11.2
</TABLE>
The components of net unrealized investment gains reported in
shareholder's equity are shown below:
DECEMBER 31
-------------------------
1997 1996
----------- -----------
(IN MILLIONS)
Unrealized Investment Gains .............. $ 489.0 $ 310.5
DAC/PVFP Adjustment ...................... (138.8) ( 93.8)
Deferred Income Taxes .................... (124.1) ( 75.9)
-------- --------
Net Unrealized Investment Gains ......... $ 226.1 $ 140.8
======== ========
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INCOME TAXES
The income tax liability as reflected on the Consolidated Balance Sheets
consisted of the following:
DECEMBER 31
-----------------------
1997 1996
---------- ----------
(IN MILLIONS)
Current Income Taxes .......... $ 25.3 $ 7.8
Deferred Income Taxes ......... 179.9 127.5
------- -------
Total ........................ $ 205.2 $ 135.3
======= =======
The provision for income taxes reflected on the Consolidated Statements of
Income consisted of the following:
YEAR ENDED DECEMBER 31
------------------------
1997 1996
----------- ----------
(IN MILLIONS)
Currently Payable ......... $ 115.7 $ 83.6
Deferred .................. 8.1 22.3
-------- -------
Total .................... $ 123.8 $ 105.9
======== =======
The Internal Revenue Service has completed its review of the Company's tax
return for all years through 1993.
Deferred income taxes reflect the impact for financial statement reporting
purposes of "temporary differences" between the financial statement carrying
amounts and tax bases of assets and liabilities. The "temporary differences"
that give rise to the net deferred tax liability relate to the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1997 1996
------------ ------------
(IN MILLIONS)
<S> <C> <C>
Future Policy and Contract Benefits .............. $ (363.6) $ (265.1)
Investment Write-Offs and Allowances ............. ( 41.4) ( 39.0)
Pension and Postretirement Benefit Plans ......... ( 6.2) ( 9.0)
Employee Benefits ................................ ( 12.8) ( 11.1)
Other ............................................ ( 59.5) ( 52.3)
-------- --------
Gross Deferred Tax Asset ......................... (483.5) (376.5)
-------- --------
Deferred Policy Acquisition Costs ................ 322.9 296.0
Present Value of Future Profits .................. 142.8 92.4
Net Unrealized Investment Gains .................. 95.6 32.1
Property and Equipment ........................... 22.9 28.5
Real Estate Joint Ventures ....................... 16.5 12.0
Accrual of Market Discount ....................... 9.1 7.9
Policyholder Dividends ........................... 7.9 5.2
Other ............................................ 45.7 29.9
-------- --------
Gross Deferred Tax Liability ..................... 663.4 504.0
-------- --------
Net Deferred Tax Liability ...................... $ 179.9 $ 127.5
======== ========
</TABLE>
Federal income tax regulations allowed certain special deductions for 1983
and prior years which are accumulated in a memorandum tax account designated as
"policyholders' surplus." Generally, this policyholders' surplus account will
become subject to tax at the then current rates only if the
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INCOME TAXES (CONTINUED)
accumulated balance exceeds certain maximum limitations or if certain cash
distributions are deemed to be paid out of the account. At December 31, 1997,
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:
YEAR ENDED DECEMBER 31
-----------------------
1997 1996
---------- ----------
Statutory Tax Rate .......... 35.0% 35.0%
Other ....................... .3 ( .3)
---- ----
Effective Tax Rate ......... 35.3% 34.7%
==== ====
Cash paid for federal income taxes was $89.0 million and $74.5 million for
the years ended December 31, 1997 and 1996, respectively.
NOTE 6. NOTES AND MORTGAGES PAYABLE
A summary of notes and mortgages payable is as follows:
DECEMBER 31
-------------------------
1997 1996
----------- -----------
(IN MILLIONS)
Unaffiliated:
Commercial Paper ............................... $ 218.5 $ 146.5
Bank Borrowings ................................ 26.0 15.9
Other Indebtedness -- Current Portion .......... .1 .1
-------- --------
Short-Term Debt ............................... 244.6 162.5
-------- --------
Other Indebtedness -- Noncurrent Portion ....... 8.1 8.3
-------- --------
Total Unaffiliated .............................. $ 252.7 $ 170.8
======== ========
Note Payable to Parent .......................... $ 100.0 $ 100.0
======== ========
At December 31, 1997 and 1996, other indebtedness is primarily mortgage
notes assumed in connection with certain real estate investments with interest
rates ranging from 6.2% to 9.6% at December 31, 1997.
The weighted average interest rate on the commercial paper outstanding at
December 31, 1997 and 1996 was 6.18% and 5.56%, respectively, with maturities
ranging from 2 to 14 days at December 31, 1997. The Company has unsecured
revolving credit facilities with banks totaling $350.0 million for commercial
paper back-up and general corporate purposes. At December 31, 1997, $26.0
million was borrowed under these facilities at an interest rate of 5.8%. At
December 31, 1997, $105.5 million remains available under the revolving credit
facilities. The facilities require an annual commitment fee of 7/100%.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. NOTES AND MORTGAGES PAYABLE (CONTINUED)
Principal payments required in each of the next five years and thereafter
are as follows:
(IN MILLIONS)
- ---------------------------------------------------
1998 -- $244.6 2001 -- $1.9
1999 -- $ .1 2002 -- $ .1
2000 -- $ 5.8 2003 and thereafter -- $ .2
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
65|M/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 $13.1 million and $9.3 million for the years
ended December 31, 1997 and 1996 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 Company's Board of Directors, provide
benefits to employees upon retirement.
The benefits under the plans are based on years of service and the
employee's compensation during the last five years of employment. The Company's
policy is to fund the minimum required contribution necessary to meet the
present and future obligations of the plans. Contributions are intended to
provide not only for benefits attributed to service to date but also for those
expected to be earned in the future. Contributions are made to a tax-exempt
trust. Plan assets consist principally of investments in stock mutual funds,
common stock and corporate bonds. As of December 31, 1997, plan assets included
1,232,982 shares of ReliaStar common stock with a fair value of $50.8 million.
The Company and ReliaStar also have unfunded noncontributory defined
benefit plans providing for benefits to employees in excess of limits for
qualified retirement plans and for benefits to nonemployee members of the
ReliaStar Board of Directors.
Net periodic pension expense for ReliaStar and its subsidiaries included
the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Service Cost -- Benefits Earned During the Year ......... $ 4.9 $ 3.8
Interest Cost on Projected Benefit Obligation ........... 15.2 13.6
Actual Return on Plan Assets ............................ (45.2) (23.0)
Net Amortization and Deferral ........................... 30.8 8.4
------- -------
Net Periodic Pension Expense ........................... $ 5.7 $ 2.8
======= =======
</TABLE>
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The above amounts are for ReliaStar and its subsidiaries as the Company's
portion is not determinable.
The following table sets forth, for ReliaStar and its subsidiaries, the
funded status of the plans as of December 31:
<TABLE>
<CAPTION>
FUNDED PLANS UNFUNDED PLANS
--------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Accumulated Benefit Obligation
Vested ................................................... $ (197.2) $ (164.7) $ (15.0) $ (11.8)
Nonvested ................................................ ( 4.7) ( 4.0) ( .7) ( .5)
Effect of Projected Future Compensation Increases ......... ( 18.0) ( 12.7) ( 1.5) ( 2.1)
-------- -------- ------- -------
Projected Benefit Obligation .............................. (219.9) (181.4) (17.2) (14.4)
Plan Assets at Fair Value ................................. 229.1 184.9 -- --
-------- -------- ------- -------
Plan Assets Greater (Less) Than Projected Benefit
Obligation ............................................... 9.2 3.5 (17.2) (14.4)
Unrecognized Net Loss and Prior Service Cost .............. 13.4 19.0 5.4 5.3
Unrecognized Transition Asset ............................. ( .1) ( .4) -- --
Additional Minimum Liability .............................. -- -- ( 3.9) ( 3.5)
-------- -------- ------- -------
Net Pension Asset (Liability) ............................ $ 22.5 $ 22.1 $ (15.7) $ (12.6)
======== ======== ======= =======
</TABLE>
The above amounts are for ReliaStar and its subsidiaries as the Company's
portion is not determinable.
The projected benefit obligation was determined using an assumed discount
rate of 7.25% and 7.50% at January 1, 1998 and 1997, respectively. The
weighted-average assumed long-term rate of compensation increase was 4.5%. The
assumed long-term rate of return on plan assets was 10%.
Net periodic pension expense allocated to the Company for all defined
benefit plans for the years ended December 31, 1997 and 1996 was $4.0 million
and $1.8 million, respectively.
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 contribution levels adjusted
annually; the life insurance plan provides a flat amount of noncontributory
life benefits and optional contributory coverage.
During 1996, the Company amended its plans to reduce the level of benefits
provided to current and future retirees. The amendment resulted in a reduction
of the accumulated postretirement benefit obligation for ReliaStar and its
subsidiaries of approximately $9.9 million. The plan amendment also reduces net
periodic postretirement benefit costs as the unrecognized prior service cost is
amortized.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company's postretirement health care plans currently are not funded.
The accumulated postretirement benefit obligation (APBO) and the accrued
postretirement benefit liability were as follows:
DECEMBER 31
---------------------
1997 1996
--------- ---------
(IN MILLIONS)
Retirees .......................................... $ 7.2 $ 7.3
Fully Eligible Active Plan Participants ........... 1.2 .9
Other Active Plan Participants .................... 2.5 1.6
------ ------
Unfunded APBO .................................... 10.9 9.8
Unrecognized Prior Service Cost ................... 7.2 8.9
Unrecognized Gain ................................. 1.7 1.5
------ ------
Accrued Postretirement Benefit Liability ......... $ 19.8 $ 20.2
====== ======
The above amounts are for ReliaStar and its subsidiaries as the Company's
portion is not determinable.
Net periodic postretirement benefit costs consisted of the following
components:
YEAR ENDED DECEMBER 31
----------------------
1997 1996
---------- --------
(IN MILLIONS)
Service Cost -- Benefits Earned ................... $ .4 $ .6
Interest Cost on APBO ............................. .7 1.0
Amortization of Prior Service Cost ................ (1.7) (1.2)
------ ------
Net Periodic Postretirement Expense (Credit) ..... $ (.6) $ .4
====== ======
The above amounts are for ReliaStar and its subsidiaries as the Company's
portion is not determinable.
The assumed health care cost trend rate used in measuring the APBO as of
January 1, 1998 was 6.0%, decreasing gradually to 5.0% in the year 1999 and
thereafter. The assumed health care cost trend rate used in measuring the APBO
as of January 1, 1997 was 7.0%, decreasing gradually to 5.0% in the year 1999
and thereafter. The assumed discount rate used in determining the APBO was
7.25% and 7.50% at January 1, 1998 and 1997, respectively. The assumed health
care cost trend rate has an effect on the amounts reported. For example, a
one-percentage-point increase in the assumed health care cost trend rate for
each year would increase the APBO as of December 31, 1997 by approximately $.4
million and 1997 net postretirement health care costs by approximately $.1
million.
The net benefit recorded by the Company for postretirement costs was $1.0
million and $.8 million for the years ended December 31, 1997 and 1996,
respectively.
SUCCESS SHARING PLAN AND ESOP
The Success Sharing Plan and ESOP (Success Sharing Plan) was designed to
increase employee ownership and reward employees when certain Company
performance objectives are met. Essentially all employees are eligible to
participate in the Success Sharing Plan, except for employees of Security-
Connecticut and Lincoln Security who will become eligible to participate in the
Success Sharing Plan in 1998. The Success Sharing Plan has both qualified and
nonqualified components. The nonqualified component is equal to 25% of the
annual award and is paid in cash to employees. The qualified component is equal
to 75% of the annual award, with 25% of the annual award contributed to a
deferred investment account and the remaining 50% of the annual award
contributed to the ESOP
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
portion of the Success Sharing Plan. Costs charged to expense for the Success
Sharing Plan were $6.5 million and $9.4 million in 1997 and 1996, respectively.
STOCK-BASED COMPENSATION
Officers and key employees of the Company participate in stock-based
compensation plans of ReliaStar. ReliaStar applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock-based compensation plans.
Accordingly, the Company has recorded no compensation expense for these
stock-based compensation plans other than for restricted stock and
performance-based awards. Had compensation cost for ReliaStar's stock option
plans been determined based upon the fair value at the grant date for awards
under these plans consistent with the optional accounting methodology
prescribed under SFAS No. 123, ReliaStar's net income would have been reduced
by approximately $4.9 million and $2.3 million in 1997 and 1996, respectively.
The pro forma effect on net income for 1996 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 during 1997 and 1996 is estimated as
$9.17 and $4.72, respectively, on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: dividend yield 1.675% to
2.0%, volatility ranging from .1868 to .2065, risk-free interest rates of 6.157
for 1997 and 5.1% to 5.3% for 1996 and an expected life of 2.65 to 5.83 years.
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 for each other. The net amounts billed resulted in the Company making
payments of $26.3 million and $28.3 million to ReliaStar in 1997 and 1996,
respectively. The net costs allocated to the Company under these agreements may
not be indicative of costs the Company might incur if these services were not
provided by ReliaStar. During 1997 and 1996, the Company paid cash and non-cash
dividends of $61.8 million and $61.1 million, respectively to ReliaStar.
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 the State 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 1998, the amount of dividends which can be paid by ReliaStar Life without
Commissioner approval is $186.4 million.
STATUTORY SURPLUS AND NET INCOME
Net income of ReliaStar Life and its subsidiaries, as determined in
accordance with statutory accounting practices, was $185.4 million and $150.4
million for 1997 and 1996, respectively. ReliaStar
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. SHAREHOLDER'S EQUITY (CONTINUED)
Life's statutory capital and surplus, as determined in accordance with
statutory accounting practices, was $1,031.8 million and $783.4 million at
December 31, 1997 and 1996, 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.
Premium amounts received for prospective reinsurance that meet conditions for
reinsurance accounting are recorded as unearned premium revenue and are
amortized into earned premium revenue ratably over the remaining reinsurance
contract period. Reinsurance contracts do not relieve the Company from its
obligations to policyholders. Failure of reinsurers to honor their obligations
could result in losses to the Company; consequently, allowances are established
for amounts deemed uncollectible. The amount of the allowance for uncollectible
reinsurance receivables was immaterial at December 31, 1997 and 1996. The
Company evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk to minimize its exposure to significant losses
from reinsurer insolvencies. 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 RLNY, the limit is $400,000 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,
1997, $34.3 billion of life insurance in force was ceded to other companies.
The Company has assumed $43.0 billion of life insurance in force as of December
31, 1997 (including $35.8 billion of reinsurance assumed pertaining to Federal
Employees' Group Life Insurance and Servicemans' Group Life Insurance). Also
included in these amounts are $817.2 million of reinsurance ceded and $7.2
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:
YEAR ENDED DECEMBER 31
-------------------------
1997 1996
----------- -----------
(IN MILLIONS)
Direct Premiums ................. $ 675.6 $ 609.9
Reinsurance Assumed ............. 382.6 334.3
Reinsurance Ceded ............... (173.9) (107.3)
-------- --------
Net Premiums ................... $ 884.3 $ 836.9
======== ========
Reinsurance Recoveries ......... $ 114.4 $ 96.3
======== ========
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
1997 1996
----------- -----------
(IN MILLIONS)
Balance at January 1 .................. $ 383.3 $ 369.4
Less Reinsurance Recoverables ......... 102.6 81.6
-------- --------
Net Balance at January 1 .............. 280.7 287.8
Incurred Related to:
Current Year ......................... 178.6 223.5
Prior Year ........................... (3.0) (5.7)
-------- --------
Total Incurred ........................ 175.6 217.8
Paid Related to:
Current Year ......................... 107.4 127.8
Prior Year ........................... 82.1 97.1
-------- --------
Total Paid ............................ 189.5 224.9
Net Balance at December 31 ............ 266.8 280.7
Plus Reinsurance Recoverables ......... 120.2 102.6
-------- --------
Balance at December 31 ............... $ 387.0 $ 383.3
======== ========
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 financial
position 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 $236.4 million at December
31, 1997) 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 ($604.5 million) in the event the joint obligor is unable
to meet its obligations.
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, interest rate swaps and
interest rate caps. 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.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 interest rate swap and interest rate cap transactions, the
contract or notional amounts do not represent exposure to credit loss. The
Company's exposure to credit loss is limited to those swaps and caps where the
Company has an unrealized gain. The Company has no remaining futures contracts
as of December 31, 1997.
Unless otherwise noted, the Company does not require collateral or other
security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1997 1996
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Contract or Notional Amount Financial Instruments Whose Contract
Amounts Represent Credit Risk
Commitments to Extend Credit .................................. $ 156.3 $ 181.6
Financial Guarantees .......................................... 40.0 40.9
Financial Instruments Whose Notional or Contract Amounts Exceed
the Amount of Credit Risk
Futures Contracts ........................................... -- 76.6
Interest Rate Swap Agreements ............................... 1,162.5 1,109.5
Interest Rate Cap Agreements ................................ 510.0 --
</TABLE>
COMMITMENTS TO EXTEND CREDIT -- Commitments to extend credit are legally
binding agreements to lend to a customer. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
They generally may be terminated by the Company in the event of deterioration
in the financial condition of the borrower. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future liquidity requirements. The Company evaluates
each customer's creditworthiness on a case-by-case basis.
FINANCIAL GUARANTEES -- Financial guarantees are conditional commitments
issued by the Company guaranteeing the performance of the borrower to a third
party. Those guarantees are primarily issued to support public and private
commercial mortgage borrowing arrangements. The credit risk involved is
essentially the same as that involved in issuing commercial mortgage loans.
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,
1997, ReliaStar Life had guaranteed repayment of $40.0 million ($40.9 million
at December 31, 1996) of such loans including the portion allocable to the PFA.
If any payment 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 1997 and 1996 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.
INTEREST RATE SWAP AGREEMENTS -- The Company 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
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
amounts. Changes in market interest rates impact income from adjustable rate
investments and have an opposite (and approximately offsetting) effect on the
reported income from the swap portfolio. The risks under interest rate swap
agreements are generally similar to those of futures contracts. Notional
principal amounts are often used to express the volume of these transactions
but do not represent the much smaller amounts potentially subject to credit
risk. The amount subject to credit risk is approximately equal to the
unrealized gain on the agreements which was $13.3 million at December 31, 1997.
INTEREST RATE CAP AGREEMENTS -- The Company has entered into interest rate
cap agreements as a hedge against the effects of rising interest rates on the
invested assets supporting a portfolio of single premium deferred annuity
contracts. Notional principal amounts are often used to express the volume of
these transactions but do not represent the much smaller amounts potentially
subject to credit risk. The amount subject to credit risk is approximately
equal to the unrealized gain on the agreements which was $.2 million at
December 31, 1997.
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.
During 1997, the Company closed out of all of its futures contracts and
immediately entered into zero coupon interest rate swaps with similar
maturities. The deferred gain on the closed futures contracts was approximately
$22 million, which is being amortized into income over the life of the
liabilities whose cash flows they supported.
LEASES
The Company has operating leases for office space and certain computer
processing and other equipment. Rental expense for these items was $16.7
million and $13.9 million for 1997 and 1996, respectively.
Future minimum aggregate rental commitments at December 31, 1997 for
operating leases were as follows:
(IN MILLIONS)
- ---------------------------------------------------
1998 -- $11.5 2001 -- $ 7.3
1999 -- $ 9.5 2002 -- $ 4.5
2000 -- $ 8.0 2003 and thereafter -- $13.7
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures are made in accordance with the requirements of
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." SFAS No.
107 requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates, in many cases, could not be realized
in immediate settlement of the instrument.
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1997 and 1996. Although
management is not aware of any factors that would
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
NOTES AND MORTGAGES PAYABLE -- The fair value for publicly traded debt was
based upon quoted market prices. 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.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ------------ ----------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Financial Instruments Recorded as Assets
Fixed Maturity Securities ......................... $ 11,146.7 $ 11,146.7 $ 9,298.2 $ 9,298.2
Equity Securities ................................. 23.0 23.0 36.9 36.9
Mortgage Loans on Real Estate
Commercial ....................................... 1,594.9 1,679.1 1,359.6 1,391.9
Residential and Other ............................ 675.8 687.3 495.8 507.4
Policy Loans ...................................... 663.3 663.3 549.0 549.0
Cash and Short-Term Investments ................... 153.8 153.8 115.2 115.2
Other Financial Instruments Recorded as Assets .... 704.3 704.3 534.7 534.7
Financial Instruments Recorded as Liabilities
Investment Contracts
Deferred Annuities .............................. (7,753.1) (7,321.6) (6,970.9) (6,547.9)
GICs ............................................ (62.5) (90.0) (74.7) (102.0)
Supplementary Contracts and
Immediate Annuities ............................ (337.1) (330.5) (134.5) (131.4)
Other Investment Contracts ...................... (454.9) (454.9) (488.3) (488.3)
Claim and Other Deposit Funds ..................... (148.1) (148.1) (123.6) (123.6)
Notes and Mortgages Payable ....................... (251.9) (252.4) (169.8) (170.4)
Other Financial Instruments Recorded as Liabilities (285.4) (285.4) (229.0) (229.0)
Off-Balance Sheet Financial Instruments
Financial Guarantees .............................. -- (3.5) -- (4.5)
Interest Rate Swaps ............................... -- 13.3 -- 10.8
</TABLE>
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates.
<PAGE>
APPENDIX A
THE FIXED ACCOUNT
The Fixed Account consists of all of our assets other than those in our
separate accounts. We have complete ownership and control of all of the assets
of the Fixed Account.
Because of exemptions and exclusions contained in the Securities Act of
1933 and the Investment Company Act of 1940, the Fixed Account has not been
registered under these acts. Neither the Fixed Account nor any interest in it
is subject to the provisions of these acts and as a result the SEC has not
reviewed the disclosures in this Prospectus relating to the Fixed Account.
However, disclosures relating to the Fixed Account are subject to generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
We guarantee both principal and interest on amounts credited to the Fixed
Account. We credit interest at an effective annual rate of at least 4%,
independent of the investment experience of the Fixed Account. From time to
time, we may guarantee interest at a rate higher than 4%.
ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS
OF 4% PER YEAR WILL BE DETERMINED AT OUR SOLE DISCRETION. YOU ASSUME THE RISK
THAT INTEREST CREDITED TO THE FIXED ACCOUNT MAY NOT EXCEED THE MINIMUM
GUARANTEE OF 4% FOR A GIVEN YEAR.
We do not use a specific formula for determining excess interest credits.
However, we consider the following:
* General economic trends,
* Rates of return currently available on our investments,
* Rates of return anticipated in our investments, regulatory and tax
factors, and
* Competitive factors.
We are not aware of any statutory limitations to the maximum amount of
interest we may credit and our Board of Directors has not set any limitations.
The Fixed Accumulation Value of the Policy is the sum of the Net Premiums
credited to the Fixed Account. It is increased by transfers and Loan Amounts
from the Variable Account, and interest credits. It is decreased by Monthly
Deductions and partial withdrawals taken from the Fixed Account and transfers
to the Variable Account. The Fixed Accumulation Value will be calculated at
least monthly on the monthly anniversary date.
You may transfer all or part of your Fixed Accumulation Value to the
Sub-Accounts of the Variable Account, subject to the following transfer
limitations:
* The request to transfer must be postmarked no more than 30 days before
the Policy Anniversary and no later than 30 days after the Policy
Anniversary. Only one transfer is allowed during this period.
* The Fixed Accumulation Value after the transfer must be at least equal
to the Loan Amount.
* No more than 50% of the Fixed Accumulation Value (minus any Loan Amount)
may be transferred unless the balance, after the transfer, would be less
than $1,000. If the balance would be less than $1,000, the full Fixed
Accumulation Value (minus any Loan Amount) may be transferred.
* You must transfer at least:
-- $500, or
-- the total Fixed Accumulation Value (minus any Loan Amount) if less
than $500.
We make the Monthly Deduction from your Fixed Accumulation Value in
proportion to the total Accumulation Value of the Policy.
The Surrender Charge described in the Prospectus applies to the total
Accumulation Value, which includes the Fixed Accumulation Value. If the Owner
surrenders the Policy for its Cash Surrender Value, the Fixed Accumulation
Value will be reduced by any applicable Surrender Charge, any Loan Amount and
unpaid Monthly Deductions applicable to the Fixed Account.
<PAGE>
APPENDIX B
CALCULATION OF ACCUMULATION VALUE
The Accumulation Value of the Policy is equal to the sum of the Variable
Accumulation Value plus the Fixed Accumulation Value.
VARIABLE ACCUMULATION VALUE
The Variable Accumulation Value is the total of your values in each
Sub-Account. The value for each Sub-Account is equal to:
1 multiplied by 2, where:
1
Is your current number of Accumulation Units (described below).
2
Is the current Unit Value (described below).
The Variable Accumulation Value will vary from Valuation Date to Valuation
Date (described below) reflecting changes in 1 and 2 above.
ACCUMULATION UNITS. When transactions are made which affect the Variable
Accumulation Value, dollar amounts are converted to Accumulation Units. The
number of Accumulation Units for a transaction is found by dividing the dollar
amount of the transaction by the current Unit Value.
The number of Accumulation Units for a Sub-Account increases when:
* Net Premiums are credited to that Sub-Account; or
* Transfers from the Fixed Account or other Sub-Accounts are credited to
that Sub-Account.
The number of Accumulation Units for a Sub-Account decreases when:
* You take out a Policy loan from that Sub-Account;
* You take a partial withdrawal from that Sub-Account;
* We take a portion of the Monthly Deduction from that Sub-Account; or
* Transfers are made from that Sub-Account to the Fixed Account or other
Sub-Accounts.
UNIT VALUE. The Unit Value for a Sub-Account on any Valuation Date is
equal to the previous Unit Value times the Net Investment Factor for that
Sub-Account (described below) for the Valuation Period (described below) ending
on that Valuation Date. The Unit Value was initially set at $10 when the
Sub-Account first purchased Fund shares.
NET INVESTMENT FACTOR. The Net Investment Factor is a number that
reflects charges to the Policy and the investment performance during a
Valuation Period of the Fund in which a Sub-Account is invested. If the Net
Investment Factor is greater than one, the Unit Value is increased. If the Net
Investment Factor is less than one, the Unit Value is decreased. The Net
Investment Factor for a Sub-Account is determined by dividing 1 by 2.
(1 / 2), where:
1
Is the result of:
* The net asset value per share of the Fund shares in which the Sub-Account
invests, determined at the end of the current Valuation Period;
* Plus the per share amount of any dividend or capital gain distributions
made on the Fund shares in which the Sub-Account invests during the
current Valuation Period;
* Plus or minus a per share charge or credit for any taxes reserved which
we determine has resulted from the investment operations of the
Sub-Account and to be applicable to the Policy.
<PAGE>
2
Is the result of:
* The net asset value per share of the Fund shares held in the Sub-Account,
determined at the end of the last prior Valuation Period;
* Plus or minus a per share charge or credit for any taxes reserved for
during the last prior Valuation Period which we determine resulted from
the investment operations of the Sub-Account and was applicable to the
Policy.
VALUATION DATE; VALUATION PERIOD. A Valuation Date is each day the New
York Stock Exchange is open for trading. A Valuation Period is the period
between two successive Valuation Dates, commencing at the close of business of
a Valuation Date and ending at the close of business on the next Valuation
Date.
FIXED ACCUMULATION VALUE
The Fixed Accumulation Value on the Policy Date is your Net Premium
credited to the Fixed Account on that date minus the Monthly Deduction
applicable to the Fixed Accumulation Value for the first Policy Month.
After the Policy Date, the Fixed Accumulation Value is calculated as:
1 + 2 + 3 + 4 - 5 - 6, where:
1
Is the Fixed Accumulation Value on the preceding Monthly Anniversary, plus
interest from the Monthly Anniversary to the date of the calculation.
2
Is the total of your Net Premiums credited to the Fixed Account since the
preceding Monthly Anniversary, plus interest from the date premiums are
credited to the date of the calculation.
3
Is the total of your transfers from the Variable Account to the Fixed Account
since the preceding Monthly Anniversary, plus interest from the date of
transfer to the date of the calculation.
4
Is the total of your Loan Amounts transferred from the Variable Account since
the preceding Monthly Anniversary.
5
Is the total of your transfers to the Variable Account from the Fixed Account
since the preceding Monthly Anniversary, plus interest from the date of
transfer to the date of the calculation.
6
Is the total of your partial withdrawals from the Fixed Account since the
preceding Monthly Anniversary, plus interest from the date of withdrawal to the
date of the calculation.
If the date of the calculation is a Monthly Anniversary, we also reduce
the Fixed Accumulation Value by the applicable Monthly Deduction for the Policy
Month following the Monthly Anniversary.
The minimum interest rate applied in the calculation of the Fixed
Accumulation Value is an effective annual rate of 4%. Interest in excess of the
minimum rate may be applied in the calculation of your Fixed Accumulation Value
in a manner which our Board of Directors determines.
<PAGE>
APPENDIX C
ILLUSTRATION OF ACCUMULATION VALUES, SURRENDER CHARGES,
CASH SURRENDER VALUES, AND DEATH BENEFITS
The following tables illustrate how the Accumulation Values, Cash
Surrender Values, and Death Benefits of a Policy may change with the investment
experience of the Variable Account. The tables show how the Accumulation
Values, Cash Surrender Values, and Death Benefits of a Policy issued to a
hypothetical Insured (who pays the given Planned Periodic Premiums annually)
would vary over time if the investment return of the assets held in the Funds
were a uniform, gross, after-tax, annual rate of 0 percent, 6 percent or 12
percent.
The tables on pages C-3 through C-8 illustrate a Policy issued to a male
Age 40, in a standard Rate Class and qualifying for nonsmoker rates. The
Accumulation Values, Cash Surrender Values, and Death Benefits would be lower
if the Insured was in a substandard Rate Class or did not qualify for the
nonsmoker rates because the cost of insurance would be increased. The
Accumulation Values, Cash Surrender Values and Death Benefits would be
different from those shown if the gross annual investment returns averaged 0
percent, 6 percent, and 12 percent over a period of years, but fluctuated above
and below those averages for individual Policy Years.
Within the tables, the second and fifth columns illustrate the
Accumulation Value of the Policy over the designated period. The Accumulation
Value is the total amount that a Policy provides for investment at any time.
The third and sixth columns illustrate the Cash Surrender Value of a Policy
over the designated period. The Cash Surrender Value is equal to the
Accumulation Value less any Surrender Charges, Loan Amount (assumed to be zero
in these illustrations) and unpaid Monthly Deductions (also assumed to be
zero). The fourth and seventh columns illustrate the Death Benefit of a Policy
over the designated period. The second, third, and fourth columns assume that
throughout the life of the Policy, the monthly charge for the cost of
insurance, the Monthly Mortality and Expense Charge and the Monthly
Administrative Charge are based upon the maximums (i.e., guaranteed) permitted
in the policy. The maximum allowable cost of insurance rates are based on the
1980 Commissioners Standard Ordinary Mortality Tables for Nonsmokers and
Smokers. The fifth, sixth, and seventh columns assume that the monthly charge
for cost of insurance, the Monthly Mortality and Expense Charge, and the
Monthly Administrative Charge are based on the current amounts expected to be
charged. The Death Benefits also vary between tables depending upon whether the
Level Amount Death Benefit Option (Tables at pages C-3 through C-5) or the
Variable Amount Death Benefit Option (Tables at pages C-5 through C-8) is
illustrated.
The amounts shown for the Accumulation Values, Cash Surrender Values, and
Death Benefits reflect the fact that the net investment return of the
Sub-Accounts of the Variable Account is lower than the gross, after-tax return
on the assets held in the Funds as a result of the Funds' operating expenses.
The values shown take into account the daily total operating expenses paid by
the three funds available through The Alger American Fund, the five portfolios
of the Fidelity VIP, the four portfolios of the Fidelity VIP II, the four funds
of the Janus Aspen Series, the two funds of the Neuberger&Berman Advisors
Management Trust, the five funds available through Northstar Variable Trust, the
four funds of the OCC Accumulation Trust, and the six funds of Putnam Variable
Trust, which together are assumed to be at a simple average annual rate of 0.76%
for all years. This figure is derived based on an average of the Funds' 1997
operating expenses net of any limitations on such expenses paid by the Funds.
Thus, the illustrated gross annual investment rates of return of 0 percent, 6
percent, and 12 percent correspond to approximate net annual rates of return of
- -0.76%, 5.24%, and 11.24%, respectively. Without such expense reimbursements,
total expenses would be 0.88%. Hypothetical Accumulation Values, Cash Surrender
Values and the Death Benefits may be lower without the expense reimbursement.
Expense reimbursements are voluntary. While it is currently anticipated that
expense reimbursements will continue past the current year, there is no
assurance of ongoing reimbursements.
The hypothetical values shown in the tables do not reflect any charges for
Federal income taxes attributable to the Variable Account because we do not
currently make any such charges. However, such charges may be made in the
future and, in that event, the gross annual investment return would have to
exceed 0 percent, 6 percent, or 12 percent by an amount sufficient to cover the
tax charges in order to produce the Accumulation Values, Cash Surrender Values,
and Death Benefits illustrated. (See section entitled "Federal Tax Matters" in
the prospectus).
<PAGE>
The tables illustrate the Policy values that would result based upon the
hypothetical rates of return if premiums are paid as indicated, if all Net
Premiums are allocated to the Variable Account, and if no Policy loans have
been made. The tables are also based on the assumptions that the Policy owner
has not requested an increase or decrease in the Face Amount, that no partial
withdrawals have been made, that no transfers have been made, and total
operating expenses of the Funds continue as anticipated. Actual results will
depend on the expenses and performance of the investment choice made by the
owner.
Upon request, we will provide a comparable illustration based upon the
proposed Insured's Age, sex, underwriting classification, the Face Amount and
Planned Periodic Premium schedule requested, and any available riders
requested.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE TO AGE 95
MALE ISSUE AGE: 40
NON-SMOKER
$1,800.00 ANNUAL PREMIUM
$150,000 FACE AMOUNT
LEVEL DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 0%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
---------------------------------------------- ---------------------------------------------
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- --------- -------------- ---------------- ---------- -------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 1,188 0 150,000* 1,321 0 150,000*
2 2,332 0 150,000* 2,604 144 150,000
3 3,434 119 150,000 3,848 533 150,000
4 4,489 889 150,000 5,052 1,452 150,000
5 5,498 1,898 150,000 6,212 2,612 150,000
6 6,456 3,216 150,000 7,328 4,088 150,000
7 7,362 4,482 150,000 8,401 5,521 150,000
8 8,215 5,695 150,000 9,427 6,907 150,000
9 9,010 6,850 150,000 10,404 8,244 150,000
10 9,746 7,946 150,000 11,331 9,531 150,000
11 10,450 9,010 150,000 12,314 10,874 150,000
12 11,082 10,002 150,000 13,245 12,165 150,000
13 11,635 10,915 150,000 14,115 13,395 150,000
14 12,100 11,740 150,000 14,917 14,557 150,000
15 12,466 12,466 150,000 15,645 15,645 150,000
20 12,510 12,510 150,000 17,950 17,950 150,000
AGE
70 0 0 0 10,797 10,797 150,000
**
</TABLE>
- --------------------------------------------------------------------------------
(1) Assumes a $1,800.00 premium (which exceeds the Annualized Minimum Monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect during
the years shown. Therefore, the Policy remains in force even though the Cash
Surrender Value is zero.
** Policy terminates prior to Age 75.
*** Cash Surrender Value does not include the sales charge refund. Based on
current charges, the sales charge refund would be $76 at the end of Policy
Year 1 and $1,098 at the end of Policy Year 2. Based on guaranteed charges,
the sales charge refund would be $0 at the end of Policy Year 1 and $970 at
the end of Policy Year 2. A sales charge refund may also apply for 24 months
following any increase in face amount.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE TO AGE 95
MALE ISSUE AGE: 40
NON-SMOKER
$1,800.00 ANNUAL PREMIUM
$150,000 FACE AMOUNT
LEVEL DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 6%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
---------------------------------------------- ---------------------------------------------
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- --------- -------------- ---------------- ---------- -------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 1,274 0 150,000* 1,411 0 150,000*
2 2,578 118 150,000 2,867 407 150,000
3 3,914 598 150,000 4,367 1,052 150,000
4 5,279 1,679 150,000 5,911 2,311 150,000
5 6,674 3,074 150,000 7,499 3,899 150,000
6 8,095 4,855 150,000 9,130 5,890 150,000
7 9,543 6,663 150,000 10,808 7,928 150,000
8 11,016 8,496 150,000 12,530 10,010 150,000
9 12,512 10,352 150,000 14,297 12,137 150,000
10 14,029 12,229 150,000 16,108 14,308 150,000
11 15,610 14,170 150,000 18,109 16,669 150,000
12 17,208 16,128 150,000 20,172 19,092 150,000
13 18,816 18,096 150,000 22,293 21,573 150,000
14 20,427 20,067 150,000 24,467 24,107 150,000
15 22,032 22,032 150,000 26,694 26,694 150,000
20 29,699 29,699 150,000 38,566 38,566 150,000
AGE
70 36,130 36,130 150,000 64,690 64,690 150,000
75 23,835 23,835 150,000 76,418 76,418 150,000
80 0 0 0 84,315 84,315 150,000
85 0 0 0 82,683 82,683 150,000
90 0 0 0 52,115 52,115 150,000
**
</TABLE>
- --------------------------------------------------------------------------------
(1) Assumes a $1,800.00 premium (which exceeds the Annualized Minimum Monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect during
the years shown. Therefore, the Policy remains in force even though the Cash
Surrender Value is zero.
** Policy terminates prior to age 95.
*** Cash Surrender Value does not include the sales charge refund. Based on
current charges, the sales charge refund would be $166 at the end of Policy
Year 1 and $1,098 at the end of Policy Year 2. Based on guaranteed charges,
the sales charge refund would be $29 at the end of Policy Year 1 and $1,098
at the end of Policy Year 2. A sales charge refund may also apply for 24
months following any increase in face amount.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE TO AGE 95
MALE ISSUE AGE: 40
NON-SMOKER
$1,800.00 ANNUAL PREMIUM
$150,000 FACE AMOUNT
LEVEL DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 12%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
------------------------------------------------- -------------------------------------------------
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- -------- -------------- ---------------- ------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 1,360 0 150,000* 1,502 0 150,000*
2 2,834 374 150,000 3,140 680 150,000
3 4,434 1,119 150,000 4,929 1,614 150,000
4 6,172 2,572 150,000 6,880 3,280 150,000
5 8,058 4,458 150,000 9,010 5,410 150,000
6 10,107 6,867 150,000 11,334 8,094 150,000
7 12,331 9,451 150,000 13,874 10,994 150,000
8 14,750 12,230 150,000 16,650 14,130 150,000
9 17,381 15,221 150,000 19,685 17,525 150,000
10 20,245 18,445 150,000 23,004 21,204 150,000
11 23,433 21,993 150,000 26,838 25,398 150,000
12 26,915 25,835 150,000 31,064 29,984 150,000
13 30,718 29,998 150,000 35,720 35,000 150,000
14 34,872 34,512 150,000 40,852 40,492 150,000
15 39,414 39,414 150,000 46,516 46,516 150,000
20 69,707 69,707 150,000 85,299 85,299 150,000
AGE
70 204,125 204,125 236,785 260,755 260,755 300,476
75 340,106 340,106 363,913 441,024 441,024 471,896
80 562,770 562,770 590,909 741,362 741,362 778,430
85 914,038 914,038 959,741 1,228,453 1,228,453 1,289,876
90 1,452,180 1,452,180 1,524,789 2,005,340 2,005,340 2,105,608
95 2,322,728 2,322,728 2,345,955 3,292,007 3,292,007 3,324,927
</TABLE>
- --------------------------------------------------------------------------------
(1) Assumes a $1,800.00 premium (which exceeds the Annualized Minimum Monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect during
the years shown. Therefore, the Policy remains in force even though the Cash
Surrender Value is zero.
** Cash Surrender Value does not include the sales charge refund. Based on
current charges, the sales charge refund would be $257 at the end of Policy
Year 1 and $1,098 at the end of Policy Year 2. Based on guaranteed charges,
the sales charge refund would be $115 at the end of Policy Year 1 and $1,098
at the end of Policy Year 2. A sales charge refund may also apply for 24
months following any increase in face amount.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE TO AGE 95
MALE ISSUE AGE: 40
NON-SMOKER
$1,800.00 ANNUAL PREMIUM
$150,000 FACE AMOUNT
VARIABLE DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 0%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
---------------------------------------------- ---------------------------------------------
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- --------- -------------- ---------------- ---------- -------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 1,184 0 151,184* 1,319 0 151,319*
2 2,322 0 152,322* 2,596 136 152,596
3 3,413 98 153,413 3,832 517 153,832
4 4,455 855 154,455 5,024 1,424 155,024
5 5,446 1,846 155,446 6,170 2,570 156,170
6 6,382 3,142 156,382 7,267 4,027 157,267
7 7,260 4,380 157,260 8,316 5,436 158,316
8 8,080 5,560 158,080 9,314 6,794 159,314
9 8,837 6,677 158,837 10,259 8,099 160,259
10 9,528 7,728 159,528 11,146 9,346 161,146
11 10,178 8,738 160,178 12,083 10,643 162,083
12 10,749 9,669 160,749 12,959 11,879 162,959
13 11,232 10,512 161,232 13,766 13,046 163,766
14 11,616 11,256 161,616 14,493 14,133 164,493
15 11,892 11,892 161,892 15,136 15,136 165,136
20 11,307 11,307 161,307 16,803 16,803 166,803
AGE
70 0 0 0 7,160 7,160 157,160
**
</TABLE>
- --------------------------------------------------------------------------------
(1) Assumes a $1,800.00 premium (which exceeds the Annualized Minimum Monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect during
the years shown. Therefore, the Policy remains in force even though the Cash
Surrender Value is zero.
** Policy terminates prior to age 75.
*** Cash Surrender Value does not include the sales charge refund. Based on
current charges, the sales charge refund would be $74 at the end of Policy
Year 1 and $1,098 at the end of Policy Year 2. Based on guaranteed
charges, the sales charge refund would be $0 at the end of Policy Year 1
and $960 at the end of Policy Year 2. A sales charge refund may also apply
for 24 months following any increase in face amount.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE TO AGE 95
MALE ISSUE AGE: 40
NON-SMOKER
$1,800.00 ANNUAL PREMIUM
$150,000 FACE AMOUNT
VARIABLE DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 6%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
---------------------------------------------- ---------------------------------------------
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- --------- -------------- ---------------- ---------- -------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 1,270 0 151,270* 1,409 0 151,409*
2 2,567 107 152,567 2,858 398 152,858
3 3,890 575 153,890 4,348 1,033 154,348
4 5,238 1,638 155,238 5,878 2,278 155,878
5 6,609 3,009 156,609 7,446 3,846 157,446
6 7,999 4,759 157,999 9,051 5,811 159,051
7 9,405 6,525 159,405 10,694 7,814 160,694
8 10,826 8,306 160,826 12,373 9,853 162,373
9 12,258 10,098 162,258 14,085 11,925 164,085
10 13,696 11,896 163,696 15,829 14,029 165,829
11 15,179 13,739 165,179 17,745 16,305 167,745
12 16,658 15,578 166,658 19,705 18,625 169,705
13 18,123 17,403 168,123 21,697 20,977 171,697
14 19,559 19,199 169,559 23,716 23,356 173,716
15 20,956 20,956 170,956 25,755 25,755 175,755
20 26,841 26,841 176,841 35,946 35,946 185,946
AGE
70 21,964 21,964 171,964 49,601 49,601 199,601
75 0 0 0 43,008 43,008 193,008
80 0 0 0 14,673 14,673 164,673
**
</TABLE>
- --------------------------------------------------------------------------------
(1) Assumes a $1,800.00 premium (which exceeds the Annualized Minimum Monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect during
the years shown. Therefore, the Policy remains in force even though the Cash
Surrender Value is zero.
** Policy terminates prior to age 85.
*** Cash Surrender Value does not include the sales charge refund. Based on
current charges, the sales charge refund would be $164 at the end of Policy
Year 1 and $1,098 at the end of Policy Year 2. Based on guaranteed charges,
the sales charge refund would be $25 at the end of Policy Year 1 and $1,098
at the end of Policy Year 2. A sales charge refund may also apply for 24
months following any increase in face amount.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE TO AGE 95
MALE ISSUE AGE: 40
NON-SMOKER
$1,800.00 ANNUAL PREMIUM
$150,000 FACE AMOUNT
VARIABLE DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 12%
<TABLE>
<CAPTION>
GUARANTEED COSTS CURRENT COSTS
---------------------------------------------- -------------------------------------------------
ACCUMULATION CASH SURRENDER DEATH ACCUMULATION CASH SURRENDER DEATH
POLICY VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- --------- -------------- ---------------- ---------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 1,356 0 151,356* 1,499 0 151,499*
2 2,822 362 152,822 3,131 671 153,131
3 4,408 1,093 154,408 4,908 1,593 154,908
4 6,123 2,523 156,123 6,841 3,241 156,841
5 7,978 4,378 157,978 8,945 5,345 158,945
6 9,982 6,742 159,982 11,232 7,992 161,232
7 12,147 9,267 162,147 13,722 10,842 163,722
8 14,486 11,966 164,486 16,432 13,912 166,432
9 17,013 14,853 167,013 19,379 17,219 169,379
10 19,742 17,942 169,742 22,584 20,784 172,584
11 22,754 21,314 172,754 26,268 24,828 176,268
12 26,011 24,931 176,011 30,299 29,219 180,299
13 29,526 28,806 179,526 34,706 33,986 184,706
14 33,315 32,955 183,315 39,519 39,159 189,519
15 37,395 37,395 187,395 44,775 44,775 194,775
20 62,895 62,895 212,895 79,224 79,224 229,224
AGE
70 147,678 147,678 297,678 214,279 214,279 364,279
75 210,507 210,507 360,507 337,146 337,146 487,146
80 284,059 284,059 434,059 520,798 520,798 670,798
85 359,589 359,589 509,589 795,084 795,084 945,084
90 411,165 411,165 561,165 1,209,389 1,209,389 1,359,389
95 395,132 395,132 545,132 1,849,046 1,849,046 1,999,046
</TABLE>
- --------------------------------------------------------------------------------
(1) Assumes a $1,800.00 premium (which exceeds the Annualized Minimum Monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient cash Surrender Value.
* Based on (1) and (2) above, the Death Benefit Guarantee is in effect during
the years shown. Therefore, the Policy remains in force even though the Cash
Surrender Value is zero.
** Cash Surrender Value does not include the sales charge refund. Based on
current charges, the sales charge refund would be $254 at the end of Policy
Year 1 and $1,098 at the end of Policy Year 2. Based on guaranteed charges,
the sales charge refund would be $111 at the end of Policy Year 1 and $1,098
at the end of Policy Year 2. A sales charge refund may also apply for 24
months following any increase in face amount.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
APPENDIX D
MAXIMUM CONTINGENT DEFERRED SALES CHARGES
PER $1,000 OF FACE AMOUNT
<TABLE>
<CAPTION>
CHARGE PER $1,000 OF CHARGE PER $1,000 OF FACE
FACE AMOUNT (INITIAL FACE
AMOUNT (INITIAL FACE AMOUNT
AMOUNT OR OR
AMOUNT OF REQUESTED AMOUNT OF REQUESTED
INSURED'S AGE AT POLICY INCREASE) INSURED'S AGE AT POLICY INCREASE)
DATE OR EFFECTIVE DATE OF ----------------------- DATE OR EFFECTIVE DATE OF ----------------------------
INCREASE, AS APPROPRIATE MALE FEMALE INCREASE, AS APPROPRIATE MALE FEMALE
- --------------------------- ---------- ---------- -------------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
0 $ 1.00 $ 1.00 41 $ 19.60 $ 16.10
1 1.10 1.00 42 20.40 17.20
2 1.20 1.00 43 21.30 18.00
3 1.30 1.00 44 22.10 18.90
4 1.40 1.00 45 23.00 19.50
5 1.50 1.00 46 23.90 20.60
6 1.60 1.00 47 24.90 21.70
7 1.80 1.00 48 25.90 22.50
8 2.00 1.00 49 27.00 23.30
9 2.20 1.20 50 28.20 24.20
10 2.50 1.40 51 29.40 25.20
11 2.80 1.60 52 30.70 26.20
12 3.00 1.80 53 32.10 27.20
13 3.20 2.00 54 33.50 28.00
14 3.50 2.20 55 35.00 29.50
15 3.80 2.40 56 36.70 30.70
16 4.00 2.60 57 38.40 32.00
17 4.20 2.80 58 40.20 33.40
18 4.50 3.00 59 42.20 34.80
19 4.80 3.20 60 44.30 36.40
20 5.00 3.50 61 45.60 38.10
21 5.30 3.90 62 45.40 40.00
22 5.90 4.20 63 45.30 41.90
23 6.30 4.50 64 44.90 43.90
24 6.90 5.00 65 44.60 45.50
25 7.50 5.50 66 44.30 45.00
26 7.80 6.10 67 43.90 44.60
27 8.40 6.70 68 43.60 44.10
28 8.80 7.30 69 43.30 43.70
29 9.40 7.70 70 43.10 43.30
30 10.00 8.00 71 42.80 42.90
31 10.80 8.60 72 42.60 42.50
32 11.50 9.20 73 42.40 42.10
33 12.30 9.80 74 42.20 41.70
34 13.10 10.40 75 41.90 41.20
35 14.00 11.00 76 41.60 40.80
36 14.90 11.60 77 41.30 40.40
37 15.70 12.20 78 41.00 39.90
38 16.80 12.80 79 40.70 39.50
39 17.90 13.90 80 40.50 39.10
40 19.00 15.00
</TABLE>
<PAGE>
APPENDIX E
SURRENDER CHARGE GUIDELINE PER $1,000 OF FACE AMOUNT
The following table provides the Surrender Charge Guideline factors that
are used in determining the Sales Charge Refund during the first two Policy
Years or the first two years following a requested increase in Face Amount (see
section entitled "Sales Charge Refund" in Prospectus). The Surrender Charge
Guideline factors are based upon the provisions of Rule 6e-3(T) adopted by the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
CHARGE PER $1,000 OF CHARGE PER $1,000 OF FACE
FACE AMOUNT (INITIAL FACE
AMOUNT (INITIAL FACE AMOUNT
AMOUNT OR OR
AMOUNT OF REQUESTED AMOUNT OF REQUESTED
INSURED'S AGE AT POLICY INCREASE) INSURED'S AGE AT POLICY INCREASE)
DATE OR EFFECTIVE DATE OF ----------------------- DATE OR EFFECTIVE DATE OF ----------------------------
INCREASE, AS APPROPRIATE MALE FEMALE INCREASE, AS APPROPRIATE MALE FEMALE
- --------------------------- ---------- ---------- -------------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
0 $ 5.97 $ 4.46 41 $ 37.23 $ 27.91
1 6.14 4.58 42 39.06 29.27
2 6.39 4.77 43 40.97 30.69
3 6.67 4.97 44 42.98 32.19
4 6.95 5.18 45 45.09 33.76
5 7.26 5.40 46 47.30 35.40
6 7.58 5.64 47 49.62 37.14
7 7.92 5.89 48 52.07 38.96
8 8.28 6.15 49 54.64 40.89
9 8.66 6.42 50 57.34 42.91
10 9.06 6.71 51 60.18 45.04
11 9.48 7.02 52 63.16 47.28
12 9.92 7.34 53 66.29 49.64
13 10.38 7.67 54 69.58 52.13
14 10.85 8.03 55 73.03 54.76
15 11.34 8.39 56 76.66 57.53
16 11.85 8.77 57 80.47 60.47
17 12.37 9.17 58 84.48 63.57
18 12.91 9.59 59 88.70 66.87
19 13.47 10.03 60 93.15 70.38
20 14.07 10.49 61 97.82 74.10
21 14.69 10.98 62 102.75 78.05
22 15.34 11.48 63 107.93 82.23
23 16.03 12.02 64 113.38 86.67
24 16.76 12.58 65 119.11 91.37
25 17.53 13.17 66 125.14 96.36
26 18.35 13.79 67 131.50 101.66
27 19.21 14.44 68 138.21 107.32
28 20.11 15.12 69 145.30 113.37
29 21.07 15.84 70 152.79 119.85
30 22.08 16.60 71 160.71 126.78
31 23.14 17.39 72 169.07 134.21
32 24.26 18.22 73 177.88 142.15
33 25.43 19.10 74 187.17 150.62
34 26.66 20.03 75 196.97 159.67
35 27.96 21.00 76 201.77 167.86
36 29.32 22.02 77 212.73 178.12
37 30.76 23.09 78 224.41 189.17
38 32.26 24.21 79 236.91 201.12
39 33.84 25.39 80 250.35 214.09
40 35.49 26.62
</TABLE>
<PAGE>
[LOGO] RELIASTAR BULK RATE
U.S. POSTAGE PAID
RELIASTAR LIFE INSURANCE COMPANY MINNEAPOLIS MN
20 Washington Avenue South PERMIT #26388
Minneapolis, Minnesota 55401
SELECT*LIFE III PROSPECTUS N700.181F (MAY 1, 1998)
