[LOGO] RELIASTAR
20 Washington Avenue South
Minneapolis, Minnesota 55401
---------------------------
SELECT*LIFE III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
ISSUED BY
SELECT*LIFE VARIABLE ACCOUNT
OF
RELIASTAR LIFE INSURANCE COMPANY
ReliaStar Life Insurance Company is offering the flexible premium variable
life insurance policy (Select*Life III) described in this prospectus. ReliaStar
designed the Policy to provide (1) insurance protection to age 95; and (2)
maximum flexibility regarding premium payments and death benefits. Subject to
certain restrictions, Policy owners may:
o vary the frequency and amount of premium payments;
o increase or decrease the level of death benefits payable under the
Policy; and
o allocate premiums to:
-- the Fixed Account, an account that provides a minimum specified
rate of interest; and
-- Sub-Accounts of Select*Life Variable Account, a variable account
allowing you to invest in certain portfolios of the following
Funds:
<TABLE>
<S> <C>
The Alger American Fund Neuberger Berman Advisers Management Trust
Fidelity Variable Insurance Products Fund Northstar Galaxy Trust
Fidelity Variable Insurance Products Fund II OCC Accumulation Trust
Janus Aspen Series Putnam Variable Trust
</TABLE>
If you allocate net premiums to Sub-Accounts of Select*Life Variable
Account, the amount of the Policy's death benefit may, and the total value
attributed to a Policy will, vary to reflect the investment performance of the
Sub-Accounts you select.
The Policy's primary purpose is to provide insurance protection for the
beneficiary. ReliaStar does not claim that investing in the Policy is in any way
similar or comparable to a systematic investment plan of a mutual fund.
Generally, the Policy will remain in force as long as the cash surrender
value (that is, the amount that ReliaStar would pay if you surrender the Policy)
is sufficient to pay certain monthly charges. However, under certain
circumstances the Policy provides a death benefit guarantee that allows the
Policy to remain in force without regard to the cash surrender value (See "Death
Benefit Guarantee").
INTERESTS IN THE POLICIES AND SHARES OF THE FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF OR GUARANTEED BY A BANK, AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES OR
DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Please read this prospectus carefully and keep it for future reference.
Call 1-800-456-6965 to obtain a current prospectus for any of the Funds. A
current prospectus for each of the Funds must accompany this prospectus and
should be read in conjunction with this prospectus.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1999
1
<PAGE>
TABLE OF CONTENTS
DEFINITIONS................................................................ 5
PART 1. SUMMARY
The Policy................................................................. 7
Free Look Rights........................................................... 8
Premium Payments........................................................... 8
The Variable Account....................................................... 8
The Fixed Account.......................................................... 8
The Funds.................................................................. 8
Charges Against the Accumulation Value.................................... 11
Charge Upon Lapse or Total Surrender of the Policy........................ 11
Surrenders................................................................ 11
Partial Withdrawals....................................................... 11
Loans..................................................................... 11
Transfers................................................................. 12
Death Benefit Overview.................................................... 12
Adjusting the Death Benefit............................................... 12
Death Benefit Guarantee................................................... 12
Lapse..................................................................... 12
Taxation of Death Benefit Proceeds........................................ 12
Taxation of the Policy.................................................... 12
PART 2. DETAILED INFORMATION
ReliaStar Life Insurance Company.......................................... 13
The Policies.............................................................. 13
Deductions and Charges.................................................... 13
Premium Expense Charge.................................................... 13
Sales Charge............................................................. 13
Premium Tax Charge....................................................... 14
Premium Processing Charge................................................ 14
Monthly Deduction......................................................... 14
Cost of Insurance........................................................ 14
Monthly Administrative Charge............................................ 14
Monthly Mortality and Expense Risk Charge................................ 14
Optional Insurance Benefit Charges....................................... 14
Surrender Charge.......................................................... 15
General.................................................................. 15
Contingent Deferred Administrative Charge................................ 15
Contingent Deferred Sales Charge......................................... 15
Sales Charge Refund....................................................... 17
Initial Face Amount...................................................... 17
Requested Increases in Face Amount....................................... 17
Effect of Sales Charge Refund............................................ 18
Partial Withdrawal and Transfer Charges................................... 18
Modification of Charges................................................... 18
Investment Advisory Fees and Other Fund Expenses.......................... 18
Fund Expenses............................................................. 19
The Variable Account...................................................... 21
Investments of the Variable Account....................................... 21
Performance Information................................................... 21
Death Benefit............................................................. 22
Death Benefit Options..................................................... 22
Level Amount Option...................................................... 23
Variable Amount Option................................................... 23
Which Death Benefit Option to Choose...................................... 23
2
<PAGE>
Requested Changes in Face Amount.......................................... 23
Increases................................................................ 23
Decreases................................................................ 23
Effect of Requested Changes in Face Amount............................... 24
Insurance Protection...................................................... 24
Changing the Death Benefit Option......................................... 25
Accelerated Benefit Rider................................................. 25
Payment and Allocation of Premiums........................................ 26
Issuing the Policy........................................................ 26
Coverage................................................................. 26
Minimum Initial Premium.................................................. 26
Temporary Insurance...................................................... 26
Allocating Premiums....................................................... 26
Crediting Net Premiums................................................... 26
Refunding Premiums....................................................... 27
Amount and Timing of Premiums............................................. 27
Planned Periodic Premiums................................................. 28
Paying Premiums by Mail................................................... 28
Death Benefit Guarantee................................................... 28
Requirements for the Death Benefit Guarantee.............................. 28
Accumulation Value........................................................ 29
Specialized Uses of the Policy............................................ 30
Policy Lapse and Reinstatement............................................ 30
Lapse.................................................................... 30
Reinstatement............................................................ 31
Surrender Benefits........................................................ 31
Total Surrender........................................................... 31
Partial Withdrawal........................................................ 31
Effect of Partial Withdrawals............................................ 31
Transfers................................................................. 32
Telephone/Fax Instructions............................................... 32
Dollar Cost Averaging Service............................................ 33
Portfolio Rebalancing Service............................................ 33
Transfer Limits.......................................................... 34
Transfer Charges......................................................... 34
Policy Loans.............................................................. 34
General.................................................................. 34
Immediate Effect of Policy Loans......................................... 34
Effect on Investment Performance......................................... 35
Effect on Policy Coverage................................................ 35
Interest................................................................. 35
Repayment of Loan Amount................................................. 35
Tax Considerations....................................................... 36
Free Look and Conversion Rights........................................... 36
Free Look Rights......................................................... 36
Conversion Rights........................................................ 36
General Option......................................................... 36
Connecticut............................................................ 37
Additional Information on the Investments of the Variable Account......... 37
Investment Limits......................................................... 37
Addition, Deletion, or Substitution of Investments........................ 38
Voting Rights............................................................. 38
Disregarding Voting Instructions......................................... 39
Paid-up Life Insurance Option............................................. 39
General Provisions........................................................ 39
Ownership................................................................. 39
Proceeds.................................................................. 39
Beneficiary............................................................... 39
3
<PAGE>
Postponement of Payments.................................................. 40
Settlement Options........................................................ 40
Interest on Settlement Options........................................... 40
Incontestability.......................................................... 41
Misstatement of Age and Sex............................................... 41
Suicide................................................................... 41
Termination............................................................... 41
Amendment................................................................. 41
Reports................................................................... 41
Annual Statement......................................................... 41
Projection Report........................................................ 41
Other Reports............................................................ 41
Dividends................................................................. 42
Collateral Assignment..................................................... 42
Optional Insurance Benefits............................................... 42
Accelerated Benefit Rider................................................ 42
Accidental Death Benefit Rider........................................... 42
Additional Insured Rider................................................. 42
Waiver of Monthly Deduction Rider........................................ 42
Children's Insurance Rider............................................... 42
Waiver of Specified Premium Rider........................................ 42
Federal Tax Matters....................................................... 42
Introduction.............................................................. 42
Tax Status of the Policy.................................................. 42
Tax Treatment of Policy Benefits.......................................... 43
In General............................................................... 43
Modified Endowment Contracts............................................. 43
Distributions from Modified Endowment Contracts.......................... 43
Distributions from Policies That Are Not Modified Endowment Contracts.... 44
Policy Loans............................................................. 44
Multiple Policies........................................................ 44
Taxation of ReliaStar Life Insurance Company.............................. 44
Possible Changes in Taxation.............................................. 44
Other Considerations...................................................... 44
Legal Developments Regarding Employment-Related Benefit Plans............. 44
Preparing for Year 2000................................................... 45
Distribution of the Policies.............................................. 45
Management................................................................ 46
Executive Officers........................................................ 48
State Regulation.......................................................... 49
Massachusetts and Montana Residents....................................... 49
Legal Proceedings......................................................... 49
Bonding Arrangements...................................................... 49
Legal Matters............................................................. 49
Experts................................................................... 49
Registration Statement Contains Further Information....................... 50
Financial Statements...................................................... 50
Appendices............................................................... A-1
THE POLICY MAY NOT BE AVAILABLE IN ALL JURISDICTIONS. THIS PROSPECTUS
CONSTITUTES AN OFFERING OR SOLICITATION ONLY IN THOSE JURISDICTIONS WHERE SUCH
OFFERING OR SOLICITATION MAY LAWFULLY BE MADE.
RELIASTAR HAS NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS REGARDING THE POLICY OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR THE ACCOMPANYING FUND PROSPECTUSES. DO NOT RELY ON ANY SUCH
INFORMATION OR REPRESENTATIONS.
4
<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 29, 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.
DEATH BENEFIT. The amount determined under the applicable Death Benefit Option.
We will reduce the proceeds payable to the beneficiary upon the Insured's
death by any Loan Amount and any unpaid Monthly Deductions. See "Death
Benefit" at page 22.
DEATH BENEFIT GUARANTEE. A feature guaranteeing that the Policy will not lapse
during the Death Benefit Guarantee Period specified in your Policy if, on
each Monthly Anniversary, the total premiums paid on the Policy, less any
partial withdrawals and any Loan Amount, equals or exceeds the total required
Minimum Monthly Premium payments specified in your Policy. See "Death Benefit
Guarantee" at page 28.
DEATH BENEFIT OPTION. One 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 22.
FACE AMOUNT. The minimum Death Benefit under the Policy as long as the Policy
remains in force. See "Death Benefit" at page 22.
FIXED ACCOUNT. ReliaStar Life Insurance Company's assets 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 based on
amounts in the Fixed Account. Unlike the Variable Accumulation Value, the
Fixed Accumulation Value will not reflect the investment performance of the
Funds. See "Accumulation Value" at page 29 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. See
"Summary" at page 7 and "Fund Expenses" at page 19.
INSURED. The person upon whose life we issue the Policy.
ISSUE DATE. The date insurance coverage under a Policy begins.
LOAN AMOUNT. The sum of all unpaid Policy loans including unpaid interest due
thereon. See "Policy Loans" at page 34.
MINIMUM FACE AMOUNT. The minimum Face Amount shown in the Policy (currently
$150,000 for issue ages 0-44 and $100,000 for issue ages 45-80). 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 that we determine when we
issue the Policy. Your Policy will specify this amount. See "Death Benefit
Guarantee" at page 28.
MONTHLY ANNIVERSARY. The same date in each succeeding month as the Policy Date.
If the Monthly Anniversary falls on a date other than a Valuation Date, then
the Monthly Anniversary will be the next Valuation Date. The first Monthly
Anniversary is on the Policy Date.
MONTHLY DEDUCTION. A monthly charge we deduct from the Accumulation Value of
the Policy. See "Deductions and Charges -- Monthly Deduction" at page 14.
NET PREMIUM. The premium you pay less a Premium Expense Charge.
5
<PAGE>
PLANNED PERIODIC PREMIUM. The scheduled premium you select of a level amount at
a fixed interval. The Policy will show the initial Planned Periodic Premium
you select. See "Payment and Allocation of Premiums -- Planned Periodic
Premiums" at page 28.
POLICY. Select*Life III, the flexible premium variable life insurance policy
described in this prospectus.
POLICY ANNIVERSARY. The same date in each succeeding year as the Policy Date. If
the Policy Anniversary falls on a date other than a Valuation Date, the
Policy Anniversary will be the next Valuation Date.
POLICY DATE. The date shown on your Policy that ReliaStar uses to determine
Policy Years, Policy Months, Monthly Anniversaries, and Policy Anniversaries.
POLICY MONTH. A one-month period beginning on a Monthly Anniversary.
POLICY YEAR. A 12-month period beginning on a Policy Anniversary.
PREMIUM EXPENSE CHARGE. An amount (5% in Policy Years 1 to 10 and currently 3%
thereafter) ReliaStar deducts from each premium payment resulting in the Net
Premium. See "Deductions and Charges -- Premium Expense Charge" at page 13.
RATE CLASS. A group of Insureds we determine based on our expectation that they
will have similar mortality experience.
SEC. Securities and Exchange Commission.
SIGNATURE GUARANTEE. A guarantee of your signature by a member firm of the New
York, American, Boston, Midwest, Philadelphia, or Pacific Stock Exchange, or
by a commercial bank 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 that 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 "Deduction and Charges -- Surrender
Charge" at page 15.
UNIT VALUE. The unit measure by which we determine the value of the Policy's
interest in each Sub-Account. See Appendix B.
VALUATION DATE. Each day the New York Stock Exchange is open for business except
for days that a Sub-Account's corresponding Fund does not value its shares.
The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day; Rev. Dr. Martin Luther King, Jr. Day;
Presidents' Day; Good Friday; Memorial Day; July Fourth; Labor Day;
Thanksgiving Day; and Christmas Day. See Appendix B.
VALUATION PERIOD. The period beginning at the close of business on a Valuation
Date and ending at the close of business on the next Valuation Date. See
Appendix B.
VARIABLE ACCOUNT. Select*Life Variable Account, a separate investment account we
established to receive and invest Net Premiums paid under the Policy and
other variable life insurance policies we issue. See "The Variable Account"
at page 8.
VARIABLE ACCUMULATION VALUE. The value attributable to a specific Policy based
on amounts in the Variable Account. See "Accumulation Value" at page 29 and
Appendix B.
WE, US, OUR, THE COMPANY, OR RELIASTAR. 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.
6
<PAGE>
PART 1. SUMMARY
This is a brief summary of the Policy's features. Please read the entire
Prospectus and the Policy for more detailed information.
THE POLICY
Select*Life III is a flexible premium variable life insurance contract with
death benefits, cash values, and other features of traditional life insurance
contracts. The Policies are:
o "FLEXIBLE PREMIUM" because you do not have to pay premiums according
to a fixed schedule; and
o "VARIABLE" because Accumulation Values and, under certain
circumstances, the Death Benefit will increase and decrease based on
the investment performance of the Funds corresponding to the
Sub-Accounts to which you allocate your premium payments.
Under current Federal tax law, as long as the Policy qualifies as life
insurance, Accumulation Value increases will 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 until you request a
distribution. See "Federal Tax Matters -- Tax Status of the Policy." The
following chart outlines the various features, charges, and expenses of the
Policies. Additional, detailed information pertaining to charges and expenses is
contained in this Summary and in "Deductions and Charges."
HOW SELECT*LIFE III WORKS
[FLOW CHART]
PREMIUM PAYMENTS
MINUS
PREMIUM EXPENSE CHARGES
Invested in Variable Sub-Account
or Fixed Account
Fund Managers Fixed Account
Alger Fidelity Janus
Northstar Putnam OpCap Neuberger Berman
DEATH BENEFIT
PLUS
INVESTMENT RETURN
(Net of Fund Expenses)
MINUS
MONTHLY DEDUCTIONS
Monthly Administrative Charge Mortality and Expense Risk Change
Cost of Insurance Optional Benefit Charges
MINUS
PARTIAL WITHDRAWALS
EQUALS
ACCUMULATION VALUE
MINUS
SURRENDER CHARGES AND POLICY LOANS
EQUALS
CASH SURRENDER VALUE
(Plus any Sales Charge Refund)
7
<PAGE>
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:
o Midnight of the 20th day after you receive it;
o Midnight of the 20th day after a written Notice of
Right of Withdrawal is mailed or delivered to you;
or
o Midnight of the 45th day after the date your
application for the Policy is signed.
PREMIUM PAYMENTS o You choose when to pay and how much to pay.
o We may refuse to accept any premium less than $25.
o You cannot pay additional premiums after Age 95
except as needed to keep your Policy in force for
the remainder of the current Policy Year.
o We may refuse any premium that would disqualify
your Policy as life insurance under Section 7702
of the Code.
o You may pay enough premiums to maintain the Death
Benefit Guarantee in order 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."
o We deduct a Premium Expense Charge (5.00% of each
premium payment in Policy years 1-10 and currently
3.00% of each premium payment after the 10th
Policy Year) and credit the remaining premium (the
Net Premium) to the Variable Account or the Fixed
Account according to your instructions. See
"Deductions and Charges -- Premium Expense
Charge."
THE VARIABLE ACCOUNT o Select*Life Variable Account is one of our
(Select*Life Variable separate accounts and consists of several
Account) Sub-Accounts. We only invest premiums from our
variable life insurance policies in the Variable
Account.
o We invest any Net Premiums you allocate to each
Sub-Account in shares of the Fund related to that
Sub-Account.
o Variable Accumulation Value will vary with the
investment performance of the Funds and the
charges deducted from the Variable Accumulation
Value. See "Accumulation Value."
THE FIXED ACCOUNT o Consists of all of our assets other than those in
our separate accounts (including the Variable
Account).
o We credit interest of at least 4% per year on any
amounts you allocate to the Fixed Account.
o We may, in our sole discretion, credit interest in
excess of 4%. See Appendix A, "The Fixed Account."
THE FUNDS o You can instruct ReliaStar to place your Net
Premium, in or transfer to, up to 17 of 29
investment portfolios over the lifetime of your
Policy.
8
<PAGE>
The following chart lists the currently available Funds and outlines
certain of their important characteristics.
INVESTMENT FUNDS
<TABLE>
<CAPTION>
ADVISER/
FUND GROUP FUND SUBADVISER MONEY MARKET FIXED INCOME GROWTH & INCOME
======================================================================================================
<S> <C> <C> <C> <C> <C>
Alger Alger American Fred Alger
American Growth Management, Inc.
New York, N.Y. Portfolio
----------------------------------------------------------------------------------
Alger American Fred Alger
MidCap Management, Inc.
Growth
Portfolio
----------------------------------------------------------------------------------
Alger American Fred Alger
Small Management, Inc.
Capitalization
Portfolio
======================================================================================================
Fidelity VIP Fidelity Management X
Investments(R) Equity-Income & Research Company
Boston, Mass. Portfolio
----------------------------------------------------------------------------------
VIP Growth Fidelity Management
Portfolio & Research Company
----------------------------------------------------------------------------------
VIP Fidelity Management X
High Income & Research Company
Portfolio
----------------------------------------------------------------------------------
VIP Fidelity Management X
Money Market & Research Company
Portfolio
----------------------------------------------------------------------------------
VIP II Fidelity Management
Contrafund & Research Company
Portfolio
----------------------------------------------------------------------------------
VIP II Fidelity Management X
Index 500 & Research Company
Portfolio
----------------------------------------------------------------------------------
Fidelity VIP II Fidelity Management X
Investments(R) Investment & Research Company
is a registered Grade Bond
trademark of Portfolio
FMR Corp.
======================================================================================================
Janus Aspen Series Janus
Aggressive Capital
Denver, Co. Growth Corporation
Portfolio
----------------------------------------------------------------------------------
Aspen Series Janus
Growth Capital
Portfolio Corporation
----------------------------------------------------------------------------------
Aspen Series Janus
International Capital
Growth Corporation
Portfolio
----------------------------------------------------------------------------------
Aspen Series Janus
Worldwide Capital
Growth Corporation
Portfolio
======================================================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
PRIMARY
FUND GROUP INTERNATIONAL BALANCED GROWTH AGGRESSIVE GROWTH OBJECTIVE(S) INVESTMENTS
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Alger X Long-term capital Equity securities of
American appreciation large companies
New York, N.Y.
----------------------------------------------------------------------------------------------------------
X Long-term capital Equity securities
appreciation within the range of
S&P MidCap 400
Index
----------------------------------------------------------------------------------------------------------
X Long-term capital Equity securities
appreciation within the range of
Russell 2000 Growth
or S&P SmallCap 600
Indexes
==============================================================================================================================
Fidelity Reasonable income; Income-producing
Investments(R) also considers potential equity securities and
Boston, Mass. for capital appreciation debt obligations
----------------------------------------------------------------------------------------------------------
X Capital appreciation Common stocks
----------------------------------------------------------------------------------------------------------
High current income Income producing
debt securities,
preferred stocks and
convertible securities,
with an emphasis
on lower quality
debt securities
----------------------------------------------------------------------------------------------------------
High current U.S. dollar
income consistent denominated money
with preservation of market securities
capital and liquidity
----------------------------------------------------------------------------------------------------------
X Capital appreciation Securities of
companies whose
value the adviser
believes is not
fully recognized
by the public
----------------------------------------------------------------------------------------------------------
Total return that Common stocks of
corresponds to that of S&P 500
S&P 500 Index
----------------------------------------------------------------------------------------------------------
Fidelity High current income Investment-grade
Investments(R) consistent with intermediate fixed
is a registered preservation of capital income securities
trademark of
FMR Corp.
==============================================================================================================================
Janus X Long-term growth of Nondiversified portfolio
capital of common stocks
----------------------------------------------------------------------------------------------------------
Denver, Co. X Long-term capital Diversified common
growth stocks
----------------------------------------------------------------------------------------------------------
X Long-term capital Foreign issuers of
growth common stocks
----------------------------------------------------------------------------------------------------------
X Long-term capital Foreign and domestic
growth common stocks
==============================================================================================================================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
ADVISER/
FUND GROUP FUND SUBADVISER MONEY MARKET FIXED INCOME GROWTH & INCOME
============================================================================================================
<S> <C> <C> <C> <C> <C>
Neuberger Advisers Neuberger Berman X
Berman Management Management/
Trust Limited Neuberger Berman,
Maturity Bond LLC
Portfolio
----------------------------------------------------------------------------------------
New York, N.Y. Advisers Neuberger Berman
Management Management/
Trust Partners Neuberger Berman,
Portfolio LLC
----------------------------------------------------------------------------------------
Advisers Neuberger Berman
Management Management/
Trust Socially Neuberger Berman,
Responsive LLC
Portfolio
============================================================================================================
Northstar Emerging Northstar Investment
Growth Management
Stamford, Conn. Portfolio Corporation
----------------------------------------------------------------------------------------
Growth + Value Northstar Investment
Portfolio Management
Corporation/
Navellier Fund
Management, Inc.
----------------------------------------------------------------------------------------
High Yield Northstar Investment X
Portfolio Management
Corporation
----------------------------------------------------------------------------------------
International Northstar Investment
Value Portfolio Management
Corporation/Brandes
Investment Partners,
L.P.
----------------------------------------------------------------------------------------
Research Northstar Investment
Enhanced Management
Index Portfolio Corporation/
J.P. Morgan
Investment
Management Inc.
============================================================================================================
OCC OCC Accumulation OpCap
Trust Equity Advisors
New York, N.Y. Portfolio
----------------------------------------------------------------------------------------
OCC Accumulation OpCap
Trust Global Advisors
Equity Portfolio
----------------------------------------------------------------------------------------
OCC Accumulation OpCap
Trust Managed Advisors
Portfolio
----------------------------------------------------------------------------------------
OCC Accumulation OpCap
Trust Small Advisors
Cap Portfolio
============================================================================================================
Putnam Putnam Putnam Investment X
Investments, Inc. VT Growth and Management, Inc.
Income Fund
----------------------------------------------------------------------------------------
Boston, Mass. Putnam Putnam Investment
VT New Management, Inc.
Opportunities
Fund
----------------------------------------------------------------------------------------
Putnam Putnam Investment
VT Voyager Fund Management, Inc.
============================================================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
PRIMARY
FUND GROUP INTERNATIONAL BALANCED GROWTH AGGRESSIVE GROWTH OBJECTIVE(S) INVESTMENTS
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Neuberger High current income Short to
Berman consistent with low intermediate term
risk to principal and investment-grade debt
liquidity and securities
secondarily total
return
-------------------------------------------------------------------------------------------------------
New York, N.Y. X Capital growth Common stocks of
medium- and large-
capitalization
companies
-------------------------------------------------------------------------------------------------------
X Long-term Common stocks of
capital growth companies that meet
both financial and
social criteria
===========================================================================================================================
Northstar X Long-term capital Common stocks
appreciation
-------------------------------------------------------------------------------------------------------
Stamford, Conn. X Capital appreciation Equity securities
from investing in a
diversified portfolio
of equity securities
-------------------------------------------------------------------------------------------------------
High current yield and High-yield bonds
capital appreciation
-------------------------------------------------------------------------------------------------------
X Long-term capital International equities
appreciation
-------------------------------------------------------------------------------------------------------
X Long-term capital Common stocks
appreciation
===========================================================================================================================
OCC X Long-term capital Securities of
appreciation undervalued
New York, N.Y. companies
-------------------------------------------------------------------------------------------------------
X Long-term capital Global investments in
appreciation equity securities
-------------------------------------------------------------------------------------------------------
X Growth of capital Common stocks,
bonds and cash
equivalents
-------------------------------------------------------------------------------------------------------
X Capital appreciation Equity securities of
companies under
$1 billion
===========================================================================================================================
Putnam Capital growth & Common stocks
Investments, Inc. current income
-------------------------------------------------------------------------------------------------------
Boston, Mass. X Long-term capital Common stocks
appreciation
-------------------------------------------------------------------------------------------------------
X Capital appreciation Common stocks
===========================================================================================================================
</TABLE>
For each Fund's expenses, see "Investment Advisory Fees and Other Fund
Expenses". For additional information on the Funds, please refer to the printed
booklet entitled "Variable Product Investment Options" which contains
prospectuses of the Funds.
10
<PAGE>
CHARGES AGAINST THE ACCUMULATION VALUE
The Accumulation Value of the Policy is subject to the Monthly Deduction
charges. We will deduct the Monthly Deduction each month from both the Fixed
Accumulation Value and the Variable Accumulation Value on a proportionate basis
depending on their relative Accumulation Values at that time. See "Deductions
and Charges -- Monthly Deduction".
The Monthly Deduction includes:
o A charge for the cost of insurance -- varies based on the Insured's
sex, Age, Policy Year, Rate Class and Face Amount.
o Monthly Administrative Charge -- currently $8.25 per month and
guaranteed not to exceed $12.00 per month.
o Monthly Mortality and Expense Risk Charge -- currently equal to 1/12
of .90% of the Variable Accumulation Value during the first 10 policy
years. Each month thereafter the deduction equals 1/12 of .30% and
guaranteed not to exceed 1/12 of .60% of the Variable Accumulation
Value.
o Any charges for optional insurance benefits -- vary depending upon the
benefit(s) selected.
CHARGE UPON LAPSE OR TOTAL SURRENDER OF THE POLICY
o We assess a Surrender Charge if your Policy lapses or if you surrender
the Policy during the first 15 Policy Years (or during the first 15
years following a Face Amount increase).
o We will determine the maximum Surrender Charge for the initial Face
Amount and any requested increases in Face Amount on the Policy Date
and on the effective date of any such requested increase.
o The Surrender Charge for the initial Face Amount will depend on the
initial Face Amount, the Insured's Age on the Policy Date, and the
Insured's sex.
o You do not pay this charge if the Policy remains in force during the
entire relevant 15-year period. The Surrender Charge has two parts --
the Contingent Deferred Administrative Charge and the Contingent
Deferred Sales Charge, which are determined separately. Surrender
during the first two Policy Years and 24 months after increases in the
Face Amount may be eligible for a refund of part of the Contingent
Deferred Sales Charge. See "Deductions and Charges -- Surrender
Charge".
SURRENDERS o In general, you will receive the Cash Surrender
Value if you surrender the Policy.
o To determine the Cash Surrender Value, we reduce
your Accumulation Value by the Surrender Charge,
if any, and any Loan Amount and unpaid Monthly
Deductions. See "Surrender Benefits -- Total
Surrender".
PARTIAL WITHDRAWALS o Once each Policy Year, after the first Policy
Year, you can withdraw part of your Cash Surrender
Value.
o You will not incur a Surrender Charge, but partial
withdrawals are subject to a processing charge
(currently $10, guaranteed not to exceed $25). See
"Surrender Benefits -- Partial Withdrawal".
LOANS o Depending on your state of residence, you can
borrow up to 75% of your Policy's Cash Value less
any existing Loan Amount.
o Interest is payable in advance for each Policy
Year and accrues daily at an effective annual rate
that will not exceed 7.40%.
o After the 10th Policy Year, we currently charge
interest at an annual rate of 5.21% on the portion
of your Loan Amount that is not in excess of (1)
the Accumulation Value, less (2) the total of all
premiums paid net of all partial withdrawals.
o We reserve the right to limit borrowing during the
first Policy Year. See "Policy Loans".
11
<PAGE>
TRANSFERS o Currently, you can transfer all or part of your
Accumulation Value among the investment options.
o We currently allow up to 24 transfers per year.
o There are certain restrictions on transfers from
the Fixed Account.
o We currently assess no charge for transfers.
However, we reserve the right to assess a maximum
charge of $25 for each transfer. See "Transfers".
DEATH BENEFIT OVERVIEW
You can choose one of two Death Benefit Options:
o Level Amount Option -- whereby the Death Benefit is the greater of the
Face Amount or the corridor percentage of Accumulation Value; or
o Variable Amount Option -- whereby the Death Benefit is equal to the
greater of the Face Amount plus the Accumulation Value, or the
corridor percentage of Accumulation Value. See "Death Benefit".
The Death Benefit until Age 95 under the Level Amount Option and the
Variable Amount Option 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.
We will reduce the proceeds payable upon the death of the Insured under any
Death Benefit Option by any Loan Amount and any unpaid Monthly Deductions.
Under certain circumstances, you may receive a part of the Death Benefit
when the Insured has been diagnosed as having a terminal illness. See "Death
Benefit -- Accelerated Benefit Rider".
ADJUSTING THE DEATH BENEFIT
Although we reserve the right to limit Face Amount 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 -- Changing the Death Benefit
Option".
See "Death Benefit -- Insurance Protection" for a discussion of available
techniques to adjust the amount of insurance protection to satisfy changing
insurance needs.
DEATH BENEFIT GUARANTEE
If you meet the requirements for the Death Benefit Guarantee, we will not
lapse your Policy during the Death Benefit Guarantee Period even if the Cash
Surrender Value is not sufficient to cover the Monthly Deduction that is due.
See "Death Benefit Guarantee".
LAPSE
If the Death Benefit Guarantee is not in effect, the Policy will lapse if
the Cash Surrender Value is less than the Monthly Deduction due and if you do
not make a sufficient payment during the grace period of 61 days. See "Policy
Lapse and Reinstatement".
TAXATION OF DEATH BENEFIT PROCEEDS
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 -- Tax Status of the Policy".
TAXATION OF THE POLICY
The Company intends for the Policy to satisfy the definition of a life
insurance contract under Section 7702 of 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. See
"Federal Tax Matters" 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.
12
<PAGE>
A Policy lapse, surrender, partial withdrawal or loan may have adverse tax
consequences in certain circumstances. See "Federal Tax Matters."
PART 2. DETAILED INFORMATION
RELIASTAR LIFE INSURANCE COMPANY
ReliaStar Life Insurance Company is 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. Our Home Office is at 20 Washington Avenue South, Minneapolis,
Minnesota 55401 (telephone 612-372-5507).
From time to time, we may publish in advertisements, sales literature, and
reports, the ratings and other information assigned to us by one or more
independent rating organizations such as A.M. Best Company, Standard & Poor's,
Moody's, and Duff & Phelps. The purpose of the ratings is to reflect our
financial strength and/or claims-paying ability and should not be considered as
bearing on the investment performance of assets held in the Variable Account.
Each year the A.M. Best Company reviews the financial status of many insurers,
culminating in the assignment of Best's Ratings. These ratings reflect their
current opinion of the relative financial strength and operating performance of
an insurance company in comparison to the norms of the life/health insurance
industry. We have been assigned a rating of A+ by A.M. Best, which is a rating
assigned to companies demonstrating superior overall performance and a very
strong ability to meet obligations to policyholders over a long period. Such
ratings do not reflect the investment in the Variable Account.
ReliaStar is a charter member of the Insurance Marketplace Standard
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE POLICIES
The Policies are flexible premium variable life insurance contracts with
death benefits, cash values, and other features of traditional life insurance
contracts.
DEDUCTIONS AND CHARGES
We deduct certain charges in connection with the Policy to compensate us
for (1) providing the insurance benefits of the Policy (including any riders),
(2) administering the Policy, (3) assuming certain risks in connection with the
Policy, and (4) incurring expenses in distributing the Policy.
We deduct some charges from each premium payment. We deduct certain other
charges monthly from both the Fixed Account and the Variable Account. We also
assess a charge for each partial withdrawal and we may assess a charge for each
transfer.
We may realize a profit on one or more of these charges, such as the
mortality and expense risk charge. We may use any such profits for any proper
corporate purpose, including, among other things, payments of sales expenses.
The Surrender Charge usually exceeds the Accumulation Value in the early
Policy Years. This occurs because the Surrender Charge is usually more than the
accumulated Minimum Monthly Premiums less Policy charges in the early Policy
Years.
PREMIUM EXPENSE CHARGE
We deduct the Premium Expense Charge from each premium payment. The Premium
Expense Charge equals 5.00% of each premium payment in Policy Years 1 to 10 and
3% (guaranteed not to exceed 5.00%) in Policy Years after that. It consists of a
sales charge and a premium tax charge. The amount remaining after we deduct the
Premium Expense Charge is called the Net Premium.
SALES CHARGE. A sales charge of 2.50% of each premium payment is deducted
during the first ten Policy Years and a sales charge of .50% (guaranteed not to
exceed 2.5%) 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".
13
<PAGE>
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 state and any subdivisions.
PREMIUM PROCESSING CHARGE. We may make a charge of up to $2.00 per premium
payment to reimburse us for the cost of collecting and processing premiums,
although we currently make no such charge. If a premium processing charge is
made, it will be deducted from premium payments before the percentage deductions
for sales charge and premium taxes.
MONTHLY DEDUCTION
We deduct the charges described below from the Accumulation Value of the
Policy on a monthly basis. The total of these charges is called the Monthly
Deduction.
We will deduct the Monthly Deduction 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, we reduce the Fixed Accumulation Value by the
Loan Amount. Because the cost of insurance portion of the Monthly Deduction can
vary from month to month, the Monthly Deduction itself will vary in amount from
month to month.
If the Cash Surrender Value is not sufficient to cover the Monthly
Deduction on a Monthly Anniversary, 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 (1) 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 (2) 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, we will first assume the Accumulation Value 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.
We base cost of insurance rates 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.
MONTHLY MORTALITY AND EXPENSE RISK CHARGE. Each month during the first 10
Policy Years we will deduct a charge equal to 1/12 of .90% of the Variable
Accumulation Value. Each month thereafter we will deduct a charge equal to 1/12
of .30% of the Variable Accumulation Value, guaranteed not to exceed 1/12 of .60
for the duration of the Policy. The mortality and expense risk we assume is that
our Cost of Insurance charges and other expense charges are not sufficient to
cover our costs of death benefits, and any other expenses incurred in issuing
and administering the Policies.
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".
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<PAGE>
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 16, and then dividing this amount by 1000.
The calculation of the additional Contingent Deferred Administrative Charge
for a requested increase in Face Amount is the same as for the initial Face
Amount, except that (a) the charges are based on the amount of the increase, (b)
the years and months are measured from the effective date of the increase, and
(c) different surrender percentage factors apply.
CONTINGENT DEFERRED SALES CHARGE. The maximum Contingent Deferred Sales
Charge for the initial Face Amount or any requested increase in Face Amount will
be determined on the Policy Date or on the effective date of any requested
increase respectively. For the initial Face Amount, the Contingent Deferred
Sales Charge will remain level for the first five years in the relevant 15 year
period, and then reduces in equal monthly increments until it becomes zero at
the end of 15 years. For any requested increase in Face Amount, an additional
Contingent Deferred Sales Charge begins at zero, increases in equal monthly
increments until it reaches the maximum after three years, and then remains
level for the next two years. Beginning five years after the effective date of
the increase, the additional Contingent Deferred Sales Charge reduces in equal
monthly increments until it becomes zero at the end of 15 years. The Contingent
Deferred Sales Charge will vary depending upon the Insured's Age (on the Policy
Date or on the effective date of an increase in Face Amount) and the Insured's
sex.
If you surrender the Policy during the first two Policy Years or during
the first 24 months following a requested increase in Face Amount, you may be
entitled to a refund of a portion of the Contingent Deferred Sales Charge. See
"Sales Charge Refund".
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<PAGE>
The Contingent Deferred Sales Charge will be equal to the lesser of:
(a) 47.50% of the premiums attributable to the initial Face Amount of the
Policy and any premiums attributable to an increase in Face Amount; or
(b) The result of the Contingent Deferred Sales Charge calculation
described below.
CONTINGENT DEFERRED SALES CHARGE CALCULATION. For purposes of (b) above,
the Contingent Deferred Sales Charge for the initial Face Amount or any
requested increase in Face Amount is determined by multiplying (i) the
applicable Charge per $1,000 of Face Amount from Appendix D by (ii) the Initial
Face Amount or the Face Amount of the increase, as applicable, and by (iii) the
applicable percentage from the Surrender Charge Percentage Table on the next
page, and then dividing this amount by 1000.
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 dividing by 1000.
MASSACHUSETTS, MONTANA AND PENNSYLVANIA RESIDENTS. Appendices C, D and E
and the preceding descriptions of the Contingent Deferred Sales Charge do not
apply to policies issued in Massachusetts, Montana and Pennsylvania. The
Contingent Deferred Sales Charge applied to Policies issued in Massachusetts and
Montana is not affected by the Insured's sex. Therefore, the Contingent Deferred
Sales Charge made on Policies issued in these two states will differ from the
charge made in other states. In Pennsylvania, the Insured's sex will be a factor
in determining the amount of Contingent Deferred Sales Charge applied to a
Policy, but the charge will differ from the charge described above.
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.
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<PAGE>
SALES CHARGE REFUND
During the first two Policy Years and during the first 24 Policy Months
following the effective date of any requested increase in Face Amount, we may be
required to refund a portion of the Contingent Deferred Sales Charge if you
surrender the Policy. This refund is called the Sales Charge Refund.
Any amount used in the calculation described below will be determined on
the effective date of surrender.
INITIAL FACE AMOUNT. If the Policy is surrendered during the first two
Policy Years, a Sales Charge Refund will be made to the extent that the total
sales charge deducted (the sales charge deducted from each premium payment and
the Contingent Deferred Sales Charge) exceeds (i) 30% of actual premium payments
made during the first Policy Year up to the amount of the Surrender Charge
Guideline (see below) for the initial Face Amount, plus (ii) 9% of any actual
premium payments made that exceed (i). In addition, the amount of the refund
will never decrease as the result of the payment of a premium. After the second
Policy Year, there is no Sales Charge Refund with respect to the initial Face
Amount.
As described above, the Sales Charge Refund is calculated based on
percentages of premium payments. While the total sales charge deducted under the
Policy is not based solely on premium payments, it is possible to translate the
total sales charge into a percentage of premium payments. In general, the total
sales charge deducted (before calculating the Sales Charge Refund) will be 50%
of each premium payment until premium payments reach a certain level. The level
ranges from approximately 35% of a Surrender Charge Guideline for a male age 0,
up to approximately 111% of a Surrender Charge Guideline for a male age 40, and
down to approximately 44% of a Surrender Charge Guideline for a male age 75.
After premium payments reach this level, the total sales charge will equal 2.50%
of each additional premium payment. During the two Policy Years when the Sales
Charge Refund applies, however, the total sales charge will be limited to 30% of
actual first year premium payments up to the amount of a Surrender Charge
Guideline, 9% of actual premium payments until payments reach the level where
the total sales charge drops to 2.50%, and 2.50% of any additional premium
payments beyond that level. If you have any questions regarding the amount of
your Sales Charge Refund, please call us.
Due to the Sales Charge Refund, the total sales charge for the initial Face
Amount will be significantly less if a Policy is surrendered during the first
two Policy Years rather than shortly thereafter.
The Surrender Charge Guideline will equal the amount obtained by dividing
the Face Amount or the amount of the increase, as the case may be, by $1,000,
and multiplying the result by the applicable factor from Appendix E.
REQUESTED INCREASES IN FACE AMOUNT. If you cancel a requested increase in
Face Amount during the first 24 Policy Months following the increase (but after
the free look period -- see "Free Look and Conversion Rights -- Free Look
Rights"), and the Policy is surrendered at any time thereafter, a Sales Charge
Refund will be made to the extent that the total sales charge for the increase
(the sales charge deducted from the portion of premiums attributable to the
increase and the Contingent Deferred Sales Charge for the increase) exceeds (i)
30% of the premiums attributable to the increase in the 12 Policy Months
following the increase up to the amount of the Surrender Charge Guideline for
the increase (see immediately preceding paragraph), plus (ii) 9% of any premiums
attributable to the increase that exceed (i). In addition, the amount of the
refund will never decrease as the result of the payment of a premium. This
refund is only available if the increase is cancelled within the 24 Policy
Months following its effective date, and the Policy is subsequently surrendered.
No refund is available if the increase is cancelled after the 24-month period.
Calculating total sales charge deducted for an increase as a percentage of
premiums attributable to the increase is, in general, the same as described
above for the initial Face Amount. Thus, due to the Sales Charge Refund, the
total sales charge for a requested increase in Face Amount may be significantly
less if the increase is cancelled during the 24-month period following the
increase rather than shortly thereafter. If you have any questions regarding the
amount of your Sales Charge Refund, please call us.
For the purposes of the preceding paragraph, the premiums attributable to
the increase will be determined as described in the section entitled "Deductions
and Charges -- Surrender Charge -- Calculation of Contingent Deferred Sales
Charge", which means that, in effect, a proportionate amount
17
<PAGE>
of the existing Accumulation Value on the effective date of the increase will be
deemed to be a premium payment for the increase, and subsequent premium payments
will be prorated.
EFFECT OF SALES CHARGE REFUND. The Sales Charge Refund will be applied to
maintain the Policy in force when the Cash Surrender Value is insufficient to
cover the Monthly Deduction. If the remaining Sales Charge Refund (not already
applied to keep the Policy in force) is insufficient to cover the Monthly
Deduction, this remaining Sales Charge Refund may be applied for the grace
period under the Policy. See "Policy Lapse and Reinstatement". Any Sales Charge
Refund not so applied will be refunded to you upon the total surrender of the
Policy.
PARTIAL WITHDRAWAL AND TRANSFER CHARGES
We currently make no charge for transfers and assess a $10.00 charge for
each partial withdrawal. These charges are guaranteed not to exceed $25.00 per
transfer or partial withdrawal for the duration of the Policy. The transfer
charge will not be imposed on transfers that occur as a result of Policy loans
or the exercise of conversion rights.
MODIFICATION OF CHARGES
ReliaStar may modify any of the charges under the Policy, as well as the
minimum Face Amount set forth in this Prospectus, 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. Modifications will not be unfairly discriminatory against any
person, including the affected Policy owners and owners of all other policies
funded by the Variable Account.
Persons purchasing under a sponsored arrangement may apply for simplified
underwriting. If we approve such simplified underwriting, 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.
INVESTMENT ADVISORY FEES AND OTHER FUND EXPENSES
Because the Variable Account purchases shares of the Funds, the net asset
value of the Variable Account's investments 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 1998 annual expenses as a percentage of the
Fund's average net assets. See the prospectuses for the Funds for more
information concerning these expenses.
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<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>
TOTAL INVESTMENT
MANAGEMENT OTHER FUND AMOUNT
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) ..................... 0.49% 0.09% 0.58%
Fidelity VIP Growth Portfolio (a) (b) ............................ 0.59% 0.09% 0.68%
Fidelity VIP High Income Portfolio (a) ........................... 0.58% 0.12% 0.70%
Fidelity VIP Money Market Portfolio .............................. 0.20% 0.10% 0.30%
Fidelity VIP II Contrafund Portfolio (a) (b) ..................... 0.59% 0.11% 0.70%
Fidelity VIP II Index 500 Portfolio (a) (b) ...................... 0.24% 0.11% 0.35%
Fidelity VIP II Investment Grade Bond Portfolio (a) .............. 0.43% 0.14% 0.57%
Janus Aggressive Growth Portfolio (a) (c) ........................ 0.72% 0.03% 0.75%
Janus Growth Portfolio (a) (c) ................................... 0.65% 0.03% 0.68%
Janus International Growth Portfolio (a) (c) ..................... 0.66% 0.20% 0.86%
Janus Worldwide Growth Portfolio (a) (c) ......................... 0.65% 0.07% 0.72%
Neuberger Berman Advisers Management Trust Limited
Maturity Bond Portfolio (a) (d) ................................. 0.65% 0.11% 0.76%
Neuberger Berman Advisers Management Trust Partners
Portfolio (a) (d) ............................................... 0.78% 0.06% 0.84%
Neuberger Berman Advisers Management Trust Socially
Responsive Portfolio (a) (d) (e) ................................ 0.85% 0.65% 1.50%
Northstar Galaxy Trust Emerging Growth Portfolio (f) ............. 0.75% 0.15% 0.90%
Northstar Galaxy Trust Growth + Value Portfolio (f) .............. 0.75% 0.05% 0.80%
Northstar Galaxy Trust High Yield Bond Portfolio (f) ............. 0.75% 0.05% 0.80%
Northstar Galaxy Trust International Value Portfolio (f) ......... 1.00% 0.00% 1.00%
Northstar Galaxy Trust Research Enhanced Index Portfolio (f) ..... 0.75% 0.15% 0.90%
OCC Equity Portfolio (a) (g) ..................................... 0.80% 0.14% 0.94%
OCC Global Equity Portfolio (a) (g) .............................. 0.80% 0.33% 1.13%
OCC Managed Portfolio (a) (g) .................................... 0.78% 0.04% 0.82%
OCC Small Cap Portfolio (a) (g) .................................. 0.80% 0.08% 0.88%
Putnam VT Growth and Income Fund ................................. 0.46% 0.04% 0.50%
Putnam VT New Opportunities Fund ................................. 0.56% 0.05% 0.61%
Putnam VT Voyager Fund ........................................... 0.54% 0.04% 0.58%
</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 portfolios pay was
used to reduce Portfolio expenses. In addition, certain Portfolios
have entered into arrangements with their custodian whereby credits
realized as a result of uninvested cash balances are used to reduce
custodian expenses. Including these reductions, the total operating
expenses presented in the table would have been: 0.57% for Fidelity
VIP Equity-Income Portfolio; 0.66% for Fidelity VIP Growth Portfolio;
0.28% for Fidelity VIP II Index 500 Portfolio; and 0.66% for Fidelity
VIP II Contrafund Portfolio.
(c) The fees and expenses in the table above are based on net expenses
after expense offset arrangements for the fiscal year ended December
31, 1998. The information 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
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corresponding Janus retail fund, other waivers, if applicable, are
first applied against the Management Fee and then against Other
Expenses. Without such reductions, the Management Fee, Other Expenses
and Total Investment Fund Annual Expenses would have been: 0.72%,
0.03%, and 0.75% for Janus Aggressive Growth Portfolio; 0.72%, 0.03%,
and 0.75% for Janus Growth Portfolio; 0.75%, 0.20%, and 0.95% for
Janus International Growth Portfolio; and 0.67%, 0.07%, and 0.74% for
Janus Worldwide Growth Portfolio. Janus Capital has agreed to continue
the waiver and fee reductions until at least the next annual renewal
of the advisory agreement.
(d) Neuberger Berman Advisers Management Trust is comprised of separate
Portfolios, the following of which are available as funding options
under the Policy: Limited Maturity Bond Portfolio, Partners Portfolio
and Socially Responsive Portfolio ("Portfolio series"). Unlike the
other funding options available under the contract, each of the
Portfolio series invests all of its net investable assets in AMT
Limited Maturity Bond Investments, AMT Partners Investments and AMT
Socially Responsive Investments, respectively, of Advisers Managers
Trust ("Investments series"). The Investment series in turn, invest
directly in securities. For a more complete discussion of this
structure, please see the prospectus for Neuberger Berman Advisers
Management Trust Limited Maturity Bond Portfolio, Partners Portfolio
and Socially Responsive Portfolio. Please note that the figures
reported under "Management Fees" and "Other Expenses" include the
aggregate of (i) the management fees paid by the Investment series,
(ii) the administration fees paid by the Portfolio series, and (iii)
all other expenses in the aggregate for the Investment series and
Portfolio series, respectively.
(e) Neuberger Berman Management Inc. ("NBMI") has undertaken to reimburse
the Socially Responsive Portfolio for certain operating expenses,
including the compensation of Neuberger Berman Advisers Management
Trust and excluding taxes, interest, extraordinary expenses, brokerage
commissions and transaction costs, that exceed in the aggregate, 1.50%
of the average daily net asset value of the Socially Responsive
Portfolio. The Socially Responsive Portfolio had not commenced
operations as of December 31, 1998, and therefore these expense
figures are estimated. Estimated expenses are expected to be 2.50% for
the fiscal period ending December 31, 1999, prior to the
reimbursement. The expense reimbursement policy is subject to
termination upon 60 days' written notice. There can be no assurance
that this policy will be continued after April 30, 2000. See "Expense
Limitation" in the Socially Responsive Portfolio prospectus for
further information.
(f) The fee and expense information for the Northstar Galaxy Trust
Emerging Growth Portfolio and International Value Portfolio has been
restated to reflect current fees and expenses effective November 9,
1998. The fee and expense information for the Northstar Galaxy Trust
Research Enhanced Index Portfolio has been restated to reflect current
fees and expenses effective April 30, 1999. The investment adviser to
the Northstar Galaxy Trust has agreed to reimburse the Northstar
Growth + Value Portfolio and High Yield Bond Portfolio for any
expenses in excess of 0.80% of each Portfolio's average daily net
assets. It has also agreed to reimburse the Emerging Growth, Research
Enhanced Index, and International Value Portfolios for amounts in
excess of 0.90%, 0.90% and 1.00%, respectively. 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, 1998 would have been: Northstar Galaxy
Trust Growth + Value Portfolio: 1.02%; Northstar Galaxy Trust High
Yield Bond Portfolio: 1.23%; Northstar Galaxy Trust Research Enhanced
Index Portfolio: 1.29%; Northstar Galaxy Trust Emerging Growth
Portfolio: 1.14%. For the Northstar Galaxy Trust International Value
Portfolio, on an annualized basis, absent expense reimbursement, the
actual expenses for this Portfolio are 1.68%. Expense reimbursements
are voluntary. There is no assurance of ongoing reimbursement. The
Northstar Galaxy Trust Emerging Growth Portfolio (formerly the
Northstar Galaxy Trust Income and Growth Portfolio) operated under an
investment objective of seeking income balanced with capital
appreciation from inception through November 8, 1998, when the
investment objective was modified to seeking long-term capital
appreciation. The Northstar Galaxy Trust Research Enhanced Index
Portfolio (formerly the Northstar Galaxy Trust Multi-Sector Bond
Portfolio) operated under an investment objective of seeking current
income while preserving capital through April 29, 1999, when the
investment objective was modified to seeking long-term capital
appreciation.
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<PAGE>
(g) Management Fees reflect effective management fees after taking into
effect any waiver. Other Expenses are shown net of expense offsets
afforded the Portfolios. Total Portfolio 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
Portfolio Expenses for the Global Equity Portfolio are limited to
1.25% of average daily net assets (net of expense offsets).
THE VARIABLE ACCOUNT
On October 11, 1984, we established the Select*Life Variable Account as one
of our separate accounts pursuant to the laws of the State of Minnesota.
The Variable Account:
o will receive and invest the Net Premiums paid and allocated to it
under this Policy;
o currently receives and invests net premiums for other classes of
flexible premium variable life insurance policies we issue and may do
so for additional classes in the future;
o meets the definition of a "separate account" under the federal
securities laws; and
o is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"). Such 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 Variable Account's assets. However, Minnesota law provides that
we cannot charge the Variable Account 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).
INVESTMENTS OF THE VARIABLE ACCOUNT
There are currently 29 investment options (Funds) available under the
Variable Account. However, we only permit you to participate in a maximum of 17
investment options over the lifetime of your Policy. The Summary and the
"Additional Information on the Investments of the Variable Account" describe the
Funds currently offered. You also should read the Funds' prospectuses for more
detailed information, particularly because several of the Funds and portfolios
may have objectives that are quite similar. Please call the telephone number
listed on the first page of this Prospectus to request a Fund's prospectus.
THERE IS NO ASSURANCE THAT ANY FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE(S).
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. Such 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. We will accompany quotations of performance information for
the Funds 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.
We may provide performance information showing total returns and average annual
total returns for periods prior to the date a Sub-Account commenced operation.
We will calculate such performance information 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.
We provide individualized hypothetical illustrations of 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. We will base these hypothetical
illustrations on the actual historical experience of the Funds as if the
Sub-Accounts had been in existence and a Policy issued for the same periods as
those indicated for the Funds.
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<PAGE>
We may compare performance of the Sub-Accounts and/or the Funds in
advertisements and sales literature:
o to other variable life insurance issuers in general
o to the performance of particular types of variable life insurance
policies investing in mutual funds
o to investment series of mutual funds with investment objectives
similar to each of the Sub-Accounts, whose performance is reported by
Lipper Analytical Services, Inc. and Morningstar, Inc. (independent
services that monitor and rank the performances of variable life
insurance issuers in each of the major categories of investment
objectives on an industry-wide basis), 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, and FORTUNE
o 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.
DEATH BENEFIT
If the Insured dies while the Policy is in force, we will pay the Death
Benefit reduced by any Loan Amount and unpaid Monthly Deductions. This amount is
called the proceeds. We may pay all or part of the proceeds in cash to your
beneficiaries or under one or more of the settlement options we offer (see
"General Provisions -- Settlement Options").
GUIDELINE PREMIUM TEST. The Death Benefit will be determined with reference
to the requirements for the Guideline Premium Test for qualifying a Policy as a
life insurance contract under Code Section 7702(a) (2). Under these
requirements, the sum of the premiums paid under a Policy may not exceed the
"guideline premium limitations," as defined in Code Section 7702(a). The Death
Benefit at any time is never less than the Accumulation Value multiplied by the
Corridor Percentages, which vary according to the Age of the Insured, (as
defined in Code Section 7702(d)).
CORRIDOR PERCENTAGE TABLE
<TABLE>
<CAPTION>
CORRIDOR 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 71 114
44 222 58 138 72 113
45 215 59 134 73 111
46 209 60 130 74 109
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>
DEATH BENEFIT OPTIONS
The Policy provides two Death Benefit Options as shown below. 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 prior to Age 95 depends on the Death Benefit Option
chosen as described below regardless of the Death Benefit Option chosen.
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<PAGE>
OPTION A. (Level Amount Option.) Prior to Age 95, 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. Under Option A, 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.
OPTION B. (Variable Amount Option.) Prior to Age 95, 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. Under
Option B, the amount of the Death Benefit will always vary as the Accumulation
Value varies.
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, you must submit a written
request 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 currently 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 rights with respect to requested increases in Face Amount.
See "Free Look Rights".
DECREASES. For a decrease in the Face Amount, you must submit a written
request 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. If, following a
decrease in Face Amount, the Policy would no longer qualify as life insurance
under Federal tax law (see "Federal Tax Matters -- Tax Status of the Policy"),
we will limit the decrease to the extent necessary to meet these requirements.
For purposes of determining the cost of insurance, we will apply decreases
in the Face Amount to reduce the current Face Amount in the following order:
(1) The Face Amount provided by the most recent increase;
(2) The next most recent increases successively; and
(3) The Face Amount when the Policy was issued.
By reducing the current Face Amount in this manner, the Rate Class
applicable to the most recent increase in Face Amount will be eliminated first,
then the Rate Class applicable to the next most recent increase, and so on, for
the purposes of calculating the cost of insurance. This assumption will affect
the cost of insurance under the Policy only if different Rate Classes have been
applied to the current Face Amount. A Rate Class is a group of Insureds we
determine based upon our expectation that they will have similar mortality
experience. We currently place Insureds into standard Rate Classes or into
substandard Rate Classes that involve a higher mortality risk (for example, a
200% Rate Class or a 300% Rate Class). In an otherwise identical Policy, an
Insured in the standard Rate Class will have a lower cost of insurance than an
Insured in a substandard Rate Class with higher mortality risks. See "Deductions
and Charges -- Monthly Deduction".
For example, assume that the initial Face Amount was $200,000 with a
standard Rate Class, and that successive increases of $50,000 (at a Rate Class
of 200%) and $100,000 (at a Rate Class of 300%) were
23
<PAGE>
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 and Monthly Amount Charge,
but a decrease in the Face Amount will not reduce the Surrender Charge or the
Monthly Amount 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. A Face Amount decrease may also shorten the Death Benefit Guarantee
Period if a term insurance rider is attached. See "Death Benefit Guarantee".
The additional Surrender Charge on a requested increase in the Face Amount
will reduce the Cash Surrender Value (which is the Accumulation Value less any
Surrender Charge, Loan Amount and unpaid Monthly Deductions). If the resulting
Cash Surrender Value is not sufficient to cover the Monthly Deduction, the
Policy may lapse unless the Death Benefit Guarantee is in effect. See "Policy
Lapse and Reinstatement -- Lapse" and "Death Benefit Guarantee".
INSURANCE PROTECTION
As your insurance needs change, 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. These ways
include
o increasing or decreasing the Face Amount of insurance, changing the
level of premium payments, and,
o 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:
o 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.
o 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 Cost of Insurance charges
generally will decrease as well. (Note that the Surrender Charge will
not be reduced. See "Deductions and Charges -- Surrender Charge".)
o A CHANGE IN THE LEVEL OF PREMIUM can have a variety of effects, as
follows.
Under the Level Amount Option, until the corridor percentage of
Accumulation Value exceeds the Face Amount, (a) an increased
level of premium payments will reduce the amount of pure
insurance protection, and (b) a reduced level of premium payments
will increase the amount of pure insurance protection.
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.)
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<PAGE>
Under any Death Benefit Option, if the Death Benefit is the
corridor percentage of Accumulation Value, then (a) 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 (b) a reduced level of premium payments will
reduce the pure insurance protection.
o 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.
YOU SHOULD CONSIDER 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) TOGETHER WITH THE OTHER RESTRICTIONS AND CONSIDERATIONS DESCRIBED
ELSEWHERE IN THIS PROSPECTUS.
CHANGING THE DEATH BENEFIT OPTION
After the second Policy Year, 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 (currently $25,000).
If you change the Death Benefit Option from the Variable Amount Option to
the Level Amount Option, we will increase the Face Amount 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. A change in the Face Amount resulting
from a change in the Death Benefit Option may also affect the charge for certain
optional insurance benefits. See "Deductions and Charges -- Monthly Deduction".
However, a Face Amount change resulting from a Death Benefit Option change will
not affect the Surrender Charge.
Changes in the Death Benefit Option do not currently 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 we otherwise would pay upon
the Insured's death. The benefit may vary state-by-state and you should consult
your registered representative 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 paid in a lump sum to the Policy owner.
Limitations, as described in the Accelerated Benefit Rider, may apply.
We will establish a lien against the Policy for the amount of the
Accelerated Benefit plus an administrative charge, plus interest on the lien. We
will first use any proceeds from the Policy to repay this lien. We will reduce
the your access to the Cash Value by the amount of the lien. We also will reduce
the proceeds payable to the beneficiary by the amount of the lien. We will
assess an administrative charge of up to $300 at the time the we pay the
Accelerated Benefit. The Accelerated Benefit will not affect the premium payable
on the Policy. Receipt of a benefit under the Accelerated Benefit Rider may give
rise to Federal or state income tax. Consult a competent tax advisor for further
information.
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<PAGE>
The above information is not a complete summary of the Rider. All of the
terms and provisions of the Accelerated Benefit Rider are set forth in the Rider
and you should refer to the Rider in order to fully ascertain its benefits and
limitations.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUING THE POLICY
An individual applying for a Policy must complete an application and
personally deliver it to our licensed agent. We will only issue a Policy to an
applicant Age 80 or less who supplies evidence of insurability satisfactory to
us. The minimum Face Amount is currently $150,000 for issue ages 0 through 44
and $100,000 for issue ages 45 through 80, but we reserve the right to specify a
different minimum Face Amount for issuing a new Policy. Acceptance is subject to
our underwriting rules and we reserve the right to reject an application for any
reason permitted by law.
COVERAGE. Coverage under a Policy begins on the later of the Issue Date or
the date we receive at least the minimum initial premium (see immediately
following section). In general, if the applicant pays at least the minimum
initial premium with the application, the Issue Date will be the later of the
date of the application or the date of any medical examination required by our
underwriting procedures. However, if underwriting approval has not occurred
within 45 days after we receive the application or if you authorize premiums to
be paid by bank account monthly deduction, the Issue Date will be the date of
underwriting approval.
If you authorize premiums to be paid by government allotment, the Issue
Date generally will be, subject to our underwriting approval, the first day of
the month in which we receive the first Minimum Monthly Premium through
government allotment, whether or not a Minimum Monthly Premium is collected with
the application. If a Minimum Monthly Premium is collected with the application,
it will be allocated to the Sub-Accounts of the Variable Account and the Fixed
Account on the Valuation Date next following the Issue Date.
MINIMUM INITIAL PREMIUM. The minimum initial premium is three Minimum
Monthly Premiums (see "Death Benefit Guarantee"). If, however, you authorize
premiums to be paid by bank account monthly deduction or government allotment,
we will accept one Minimum Monthly Premium together with the required
authorization forms. The Minimum Monthly Premium is specified in the Policy and
determines the payments required to maintain the Death Benefit Guarantee.
TEMPORARY INSURANCE. At the time the application is taken, the applicant
can receive temporary insurance coverage by paying a premium equal to 10% of
annualized Minimum Monthly Premium. The temporary insurance will be for the Face
Amount specified in the premium receipt and will be effective until the earliest
of the following:
o The date the coverage under the Policy is effective.
o The date the applicant receives an offer for an alternative policy, a
notice of termination of temporary insurance coverage, or notice that
we have rejected the application.
o The date of death of the proposed Insured, any proposed additional
Insured's, or any proposed Insured child.
o The 180th day after the date of the receipt for the temporary
insurance.
ALLOCATING PREMIUMS
You may choose the initial allocation of your Net Premiums (your Gross
Premiums less the Premium Expense Charge) to the Fixed Account and/or to the
Sub-Accounts of the Variable Account on the application for the Policy.
You may change the premium 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.
CREDITING NET PREMIUMS. We will credit Net Premiums on the latest of the
following dates:
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<PAGE>
o The Valuation Date following the date of underwriting approval.
o The Valuation Date on or next following the Policy Date.
o The Valuation Date on or next following the date we receive at least
the required minimum initial premium payment.
o In the case of Policies issued under government allotment programs,
the Valuation Date next following the Issue Date.
REFUNDING PREMIUMS. We will return all premiums paid without interest if
any of the following occur:
o We send notice to the applicant that the insurance is declined.
o The applicant refuses an offer for an alternative policy.
o The applicant does not supply required medical exams or tests within
30 days of the date of the application.
o The applicant returns the Policy under the limited free look right.
See "Free Look and Conversion Rights -- Free Look Rights".
AMOUNT AND TIMING OF PREMIUMS
The amount and frequency of premium payments will affect the Accumulation
Value, the Cash Surrender Value, and how long the Policy will remain in force
(including affecting whether the Death Benefit Guarantee is in effect -- see
"Death Benefit Guarantee"). After the initial premium, you may determine the
amount and timing of subsequent premium payments within the following
restrictions:
o In most cases, we will require that you pay cumulative premiums
sufficient to maintain the Death Benefit Guarantee to keep the Policy
in force during at least the first several Policy Years. See "Death
Benefit Guarantee."
o We may choose not to accept any premium less than $25.
o We reserve the right to limit the amount of any premium payment. In
general, during the first Policy Year we will not accept total premium
payments in excess of $250,000 on the 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. We may waive any of these premium limitations.
o We may require additional evidence of insurability satisfactory to us
if any premium would increase the difference between the Death Benefit
and the Accumulation Value (that is, the net amount at risk). A
premium payment would increase the net amount at risk if at the time
of payment the Death Benefit would be based upon the applicable
corridor percentage of Accumulation Value. See "Death Benefit -- Death
Benefit Options".
o In no event may the total of all premiums paid, both scheduled and
unscheduled, exceed the current maximum premium payments allowed for
life insurance under Section 7702 of the Code. If at any time you pay
a premium that 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. We will
return any part of the premium in excess of that amount, and we will
not accept further premiums until allowed by the current maximum
premium limitations.
o You may pay additional premiums (other than Planned Periodic Premiums)
at any time while the Policy is in force before Age 95. We may limit
the number and amount of these additional payments. However you may
always pay premiums if needed to keep your Policy in force for the
remainder of the current Policy Year.
o If you want to make 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 you can pay into the Policy. See "Federal Tax
Matters -- Tax Status of the Policy".
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PLANNED PERIODIC PREMIUMS
You may choose a Planned Periodic Premium schedule which indicates a
preference as to future amounts and frequency of payment. You may pay Planned
Periodic Premiums annually, semi-annually, quarterly or, if you choose, you can
pay the Planned Periodic Premiums by bank account monthly deduction or
government allotment.
Your Policy will show the amount and frequency of your initial Planned
Periodic Premium. 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".
PAYING PREMIUMS BY MAIL
You may pay Planned Periodic Premiums and Unscheduled Additional Premiums
to the Company by mailing the payments to:
ReliaStar Life Insurance Company
P.O. Box 1880
Minneapolis, Minnesota 55480-1880
DEATH BENEFIT GUARANTEE
If you meet the requirements described below, we guarantee that we will not
lapse the Policy even if the Cash Surrender Value is not sufficient to cover the
Monthly Deduction that is due. This feature of the Policy is called the "Death
Benefit Guarantee". Each Policy will specify the Death Benefit Guarantee Period.
For a standard rated Policy without any term insurance riders 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:
o First, during the early Policy Years, the Cash Surrender Value will
generally not be sufficient to cover the Monthly Deduction, so that
the Death Benefit Guarantee will be necessary to avoid lapse of the
Policy. See "Policy Lapse and Reinstatement". This occurs because the
Surrender Charge usually exceeds the Accumulation Value in these
years. In this regard, you should consider that if you request an
increase in Face Amount, an additional Surrender Charge would apply
for the 15 years following the increase, which could create a similar
possibility of lapse as exists during the early Policy Years.
o Second, to the extent the Cash Surrender Value declines due to poor
investment performance, or due to an additional Surrender Charge after
a requested increase, the Cash Surrender Value may not be sufficient
even in later Policy Years to cover the Monthly Deduction, so that the
Death Benefit Guarantee may also be necessary in later Policy Years to
avoid lapse of the Policy.
Thus, even though the Policy permits premium payments that are less than the
Minimum Monthly Premiums, you may lose the significant protection provided by
the Death Benefit Guarantee by paying less than the Minimum Monthly Premiums.
REQUIREMENTS FOR THE DEATH BENEFIT GUARANTEE
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. You must satisfy
the requirements for the Death Benefit Guarantee as of each Monthly Anniversary,
even though you do not have to pay premiums monthly.
EXAMPLE: The Policy Date is January 1, 2000. 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, 2000. The $1,000 maintains the Death
Benefit Guarantee without your paying any additional premiums for
the next 10 months (through October 31, 2000). However, you must
pay at least $100 by November 1, 2000 to maintain the Death
Benefit Guarantee through November 30, 2000.
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We will determine (and the Policy will indicate) the amount of the initial
Minimum Monthly Premium at issuance of the Policy. The initial Minimum Monthly
Premium will depend upon the Insured's sex, Age at issue, Rate Class, optional
insurance benefits added by rider, and the initial Face Amount.
The following Policy changes may change the Minimum Monthly Premium:
o A requested increase or decrease in the Face Amount (see "Death
Benefit -- Requested Changes in Face Amount").
o A change in the Death Benefit Option (see "Death Benefit -- Changing
the Death Benefit Option").
o The addition or termination of a Policy rider (see "General Provisions
-- Optional Insurance Benefits").
We will notify you in writing of any changes in the Minimum Monthly Premium.
If you have not made sufficient premium payments to maintain the Death
Benefit Guarantee as of any Monthly Anniversary, we will send you notice of the
premium payment required to maintain the Death Benefit Guarantee. 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 value attributable to the
Variable Account) plus the Fixed Accumulation Value (the value attributable to
the Fixed Account). You should distinguish the Accumulation Value 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". You
should also distinguish the Accumulation Value from the Cash Value, which
determines the amount available for Policy loans, and is the Accumulation Value
less any Surrender Charge. See "Policy Loans."
The Variable Accumulation Value will generally vary daily and will increase
or decrease to reflect the investment performance of the Funds in which
Sub-Accounts of the Variable Account have been invested.
We will increase the Variable Accumulation Value by:
o any Net Premiums credited to the Variable Account, and
o any transfers from the Fixed Account.
We will reduce the Variable Accumulation Value by:
o the Monthly Deduction attributable to the Variable Account,
o partial withdrawals from the Variable Account,
o any transfer and partial withdrawal charges attributable to the
Variable Account, and
o 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").
We will increase the Fixed Accumulation Value by:
o any Net Premiums credited to the Fixed Account,
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o any interest credited to the Fixed Account (determined at our
discretion, but guaranteed not to be less than 4%), and
o 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").
We will reduce the Fixed Accumulation Value by:
o the Monthly Deduction attributable to the Fixed Account,
o partial withdrawals from the Fixed Account,
o any transfer and partial withdrawal charges attributable to the Fixed
Account, and
o any amounts transferred from the Fixed Account to the Variable
Account.
See Appendix B for a detailed discussion of the calculation of Accumulation
Value. Appendix C includes an illustration of various Accumulation Values, Cash
Surrender Values, and Death Benefits, assuming different levels of premium
payments and various investment returns for selected Ages and Face Amounts.
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".
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
(terminate). 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 will indicate the amount
of the payment required to avoid lapse. If you do not make a sufficient payment
within the grace period, then the Policy will lapse 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
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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.
A lapsed Death Benefit Guarantee cannot be reinstated after the fifth
Policy Year.
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. We will determine the amount available for a total
surrender or partial withdrawal at the end of the Valuation Period when we
receive your written request. Generally, we will pay any amounts from the
Variable Account upon total surrender or partial withdrawal within seven days
after we receive your written request. We may postpone payments, however, in
certain circumstances. See "General Provisions -- Postponement of Payments".
TOTAL SURRENDER
You may surrender the Policy at any time for its Cash Surrender Value by
making a written request. The Cash Surrender Value is the Accumulation Value of
the Policy reduced by any Surrender Charge, Loan Amount and unpaid Monthly
Deductions. If the Cash Surrender Value at the time of a surrender exceeds
$25,000, the written request must include a Signature Guarantee. Appendix C
shows an illustration of Accumulation Values, Cash Surrender Values, and Death
Benefits assuming different levels of premium payments and investment returns
for selected Ages and Face Amounts.
PARTIAL WITHDRAWAL
After the first Policy Year, you may withdraw part of the Cash Surrender
Value by sending us a written request. If the amount being withdrawn exceeds
$25,000, then the written request must include a Signature Guarantee. We
currently allow only one partial withdrawal in any Policy Year. We currently
make a $10 charge for each partial withdrawal. We guarantee that this charge
will not exceed $25 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. We will determine these
proportions at the end of the Valuation Period during which we receive your
written request. For purposes of determining these proportions, we first
subtract any outstanding Loan Amount from the Fixed Accumulation Value.
EFFECT OF PARTIAL WITHDRAWALS. We will reduce the Accumulation Value by the
amount of any partial withdrawal. We will also reduce the Death Benefit 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.
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If the Level Amount Option is in effect, we will reduce the Face Amount 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:
(1) The Face Amount provided by the most recent increase;
(2) The next most recent increases successively; and
(3) 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 we deduct the amount of the partial withdrawal from the total
premiums paid in calculating whether you have paid sufficient premiums in order
to maintain the Death Benefit Guarantee.
Like partial withdrawals, Policy loans are a means of withdrawing money
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 -- Tax Status of the Policy".
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. You must make your transfer request in writing
unless you have completed a telephone transfer authorization form. You may also
direct us to automatically make periodic transfers under the Dollar Cost
Averaging or Portfolio Rebalancing services as described below.
To transfer all or part of the Variable Accumulation Value from a
Sub-Account, we redeem Accumulation Units and reinvest their values in other
Sub-Accounts, or the Fixed Account, as you direct 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 (1) you have requested the
Portfolio Rebalancing service, or (2) 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:
o 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,
o you may only transfer up to 50% of the Fixed Accumulation Value, less
any Loan Amount, unless the balance, after the transfer, would be less
than $1,000, in which event you may transfer the full Fixed
Accumulation Value, less any Loan Amount, and
o you must transfer at least the lesser of $500 or the total Fixed
Accumulation Value, less any Loan Amount.
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:
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o transfers between Sub-Accounts
o changes of allocations among fund options
By completing the telephone/fax form, you agree that we will not be liable for
any loss, liability, cost or expense when we act in accordance with the
telephone/fax transfer instructions that we receive or are recorded on voice
recording equipment. If we later determine that you did not make a telephone/fax
transfer request or the request was made without your authorization, and loss
results from such unauthorized transfer, you bear the risk of this loss. We
consider any requests made via fax as telephone requests and such requests 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. ReliaStar
will employ reasonable procedures to confirm that instructions communicated by
telephone/fax are genuine. If we do not employ such procedures, we may be liable
for any losses due to unauthorized or fraudulent instructions. Such procedures
may include, among others, requiring forms of personal identification prior to
acting upon telephone/fax instructions, providing written confirmation of such
instructions, and/or tape recording telephone instructions.
DOLLAR COST AVERAGING SERVICE. You may request this service if your 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. We do
not permit transfers from the Fixed Account under this service. You may request
that we make transfers of this type 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.
We will discontinue the Dollar Cost Averaging service immediately (1) on
receipt of any request to begin a Portfolio Rebalancing service, (2) if the
Policy is in the grace period on any date when Dollar Cost Averaging transfers
are scheduled, or (3) if the specified transfer amount from any Sub-Account is
more than the Accumulation Value in that Sub-Account.
We reserve the right to discontinue, modify, or suspend this service. Any
such modification or discontinuation would not affect any Dollar Cost Averaging
service requests already commenced.
PORTFOLIO REBALANCING SERVICE. You may request this service if your Face
Amount is at least $200,000 and your Accumulation Value, less any Loan Amount,
is at least $10,000. If you request this service, you direct us to automatically
make periodic transfers to maintain your specified percentage allocation of
Accumulation Value, less any Loan Amount, among the Sub-Accounts of the Variable
Account and the Fixed Account. We will also change your allocation of future Net
Premium payments to be equal to this specified percentage allocation. You may
request that we make transfers under this service on a quarterly, semi-annual,
or annual basis. This service is intended to maintain the allocation you have
selected consistent with your personal objectives.
The Accumulation Value in each Sub-Account of the Variable Account and the
Fixed Account will grow or decline at different rates over time. Portfolio
Rebalancing will periodically transfer Accumulation Values from those accounts
that have increased in value to those accounts that have increased at a slower
rate or declined in value. If all accounts decline in value, it will transfer
Accumulation Values from those that have decreased less in value to those that
have decreased more in value. We make no guarantees that Portfolio Rebalancing
will result in a profit or protect against loss. You may discontinue this
service at any time by notifying us in writing.
If you are interested in the Portfolio Rebalancing service you may obtain a
separate application form and full information concerning this service and its
restrictions from us or our registered representative.
If you are using the Portfolio Rebalancing service, we will discontinue
this service immediately (1) on receipt of any request to change the allocation
of premiums to the Fixed Account and Sub-Account
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of the Variable Account, (2) on receipt of any request to begin a Dollar Cost
Averaging service, (3) upon receipt of any request to transfer Accumulation
Value among the accounts, or (4) 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 twenty-four 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 transfers,
we reserve the right to make a charge not to exceed $25 per transfer for the
duration of the Policy. Further, no charge currently is made for transfers to
implement Dollar Cost Averaging and Portfolio Rebalancing. See "Deductions and
Charges -- Partial Withdrawal and Transfer Charges". In no event, however, will
we impose any charge 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. We will treat all transfers that are effective on the same Valuation
Date as one transfer transaction for the purpose of assessing any transfer
charge.
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 reserve the right to limit
loans during the first Policy year (except that persons in Indiana may take
loans during the first Policy year). The maximum amount you may borrow at any
time is equal to the loan value of the Policy, which is equal to 75% of the Cash
Value (100% in Texas and in Alabama, Maryland and Virginia the percentage is
90%) less the existing Loan Amount. 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 ($200 in Connecticut). After Age 65, we
currently allow you to borrow 100% of the Cash Surrender Value.
You can make loan requests in writing or by telephoning us on any Valuation
Date. Any loan request in excess of $25,000 will require a Signature Guarantee.
Telephone loan requests cannot exceed $10,000. We currently do not require any
election form to make telephone loan requests. We will employ reasonable
procedures to confirm that loan requests made by telephone are genuine. In the
event we do not employ such procedures, we may be liable for any losses due to
unauthorized or fraudulent instructions. Such procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmations of such instructions
and/or tape recording telephone instructions.
Policy loans have priority over the claims of any assignee or other person.
You may repay a Policy loan in whole or in part at any time, on or before the
Insured reaches Age 95 and while the Insured is living.
We will normally pay the loan proceeds to you within seven days after we
receive your request. We may postpone payment of loan proceeds to you under
certain circumstances. See "General Provisions -- Postponement of Payments".
Payments you make generally will be treated as premium payments, rather
than Policy loan repayments, unless you indicate that we should treat the
payment 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".
IMMEDIATE EFFECT OF POLICY LOANS. When we make a Policy loan, we will
segregate an amount equal to the Policy loan (which includes interest payable in
advance) within the Accumulation Value of your Policy and hold it in the Fixed
Account as security for the loan. As described below, you will pay interest
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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. We will include the amount
segregated in the Fixed Account as security for the Policy loan as part of the
Fixed Accumulation Value under the Policy, but we will credit that amount 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). We will transfer assets equal to the portion of the Policy loan coming
from the Variable Accumulation Value from the Sub-Accounts of the Variable
Account to the Fixed Account, THEREBY REDUCING THE POLICY VALUE HELD IN THE
SUB-ACCOUNTS. We do not treat these transfers as transfers for the purposes of
assessing the transfer charge or calculating the limit on the number of
transfers.
EFFECT ON INVESTMENT PERFORMANCE. Amounts coming from the Variable Account
as security for Policy loans will no longer participate in the investment
performance of the Variable Account. We will credit all amounts held in the
Fixed Account as security for Policy loans (that is, the Loan Amount) with
interest at an effective annual rate equal to 5.50% (guaranteed to be not less
than 4.00%). WE WILL NOT CREDIT ADDITIONAL INTEREST TO THESE AMOUNTS. On the
Policy Anniversary, we will allocate any interest credited on these amounts to
the Fixed Account and the Variable Account according to the premium allocation
then in effect (see "Payment and Allocation of Premiums -- Allocating
Premiums").
Although you may repay Policy loans 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. We will notify you 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. 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 we deduct the Loan Amount from the total premiums paid in calculating
whether you have paid sufficient premiums in order to maintain the Death Benefit
Guarantee. See "Death Benefit Guarantee".
We will reduce proceeds payable upon the death of the Insured 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 10th Policy Year, we currently 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 (1) the Accumulation Value, less (2) the
total of all premiums paid less all partial withdrawals. We will charge interest
on any excess of this amount at the annual rate of 7.40%, payable in advance.
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 you do not pay interest when due, we will
deduct it from the Cash Surrender Value as an additional Policy loan (see
"Immediate Effect of Policy Loans" above) and we will add it to the existing
Loan Amount.
Because we charge interest in advance, we will refund any interest that we
have not earned to you upon lapse or surrender of the Policy or repayment of the
Policy Loan.
REPAYMENT OF LOAN AMOUNT. You may repay the Loan Amount any time while the
Insured is living and before Age 95. If not repaid, we will deduct the Loan
Amount from any amount payable under the Policy. As described above, unless you
provide us with notice to the contrary, we generally will treat any
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payments on the Policy 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 -- Tax Status of the
Policy".
FREE LOOK AND CONVERSION RIGHTS
FREE LOOK RIGHTS
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:
o Midnight of the 20th day after receiving it;
o Midnight of the 20th day after a written Notice of Right of Withdrawal
is mailed or delivered to you; or
o 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:
o Midnight of the 20th day after receiving a new Policy Data Page;
o Midnight of the 20th day after a written Notice of Right of Withdrawal
is mailed or delivered to you; or
o 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 cost
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, we make this
option 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 we offer 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
transfer from the Variable Account to the Fixed Account and indicate that you
are making the transfer in exercise of your conversion right, we will not assess
any transfer charge on the transfer, and the transfer 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.
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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 fixed benefit whole life insurance policy we
offer. We will not require any evidence of insurability 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, you must surrender the Policy 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 rate class as the Policy.
If you are converting the entire Policy, the effective date of the conversion
will be the date on which we receive both your written
conversion request and the Policy. If you are converting a Face Amount increase,
the effective date of the conversion will be the date on which we receive your
written conversion request.
On the effective date of the conversion, the new policy will have, at your
option, either:
(1) 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
(2) 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. We may require an additional premium
payment. The old Policy's Surrender Charge will not be applied. 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.
ADDITIONAL INFORMATION ON THE INVESTMENTS OF THE VARIABLE ACCOUNT
INVESTMENT LIMITS
Although the Variable Account currently consists of 29 investment options,
we currently only permit you to participate in a maximum of 17 investment
options over the lifetime of your Policy. You do not have to choose your
investment options in advance, but once you participate in the 17th Fund since
your Policy was issued, you would only be able to transfer within those 17 Funds
already used and which are still available.
The Fund shares may be available to fund benefits under both variable
annuity and variable life contracts and policies. This could result in an
irreconcilable conflict between the interests of the holders of the different
types of variable contracts. The Funds have advised us that they will monitor
for such conflicts and will promptly provide us with information regarding any
such conflicts should they arise or become imminent, and we will promptly advise
the Funds if we become aware of any such conflicts. If any such material
irreconcilable conflict arises, we will arrange to eliminate and remedy such
conflict up to and including establishing a new management investment company
and segregating the assets underlying the variable policies and contracts at no
cost to the holders of the policies and contracts.
There also is a possibility that one Fund might become liable for any
misstatement, inaccuracy or incomplete disclosure in another Fund's prospectus.
The Funds distribute dividends and capital gains. However, we automatically
reinvest distributions 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".
ReliaStar has entered into service arrangements with the managers or
distributors of certain of the Funds. Under these arrangements, ReliaStar or its
affiliates may receive compensation from affiliates of the Funds. This
compensation is for providing administrative, recordkeeping, distribution and
other services to the Funds or their affiliates. Such compensation is paid based
upon assets invested in the particular Funds, or based on the 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.
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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.
o We 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. We may establish new Sub-Accounts when, in our sole
discretion, marketing needs or investment conditions warrant, and we
will make any new Sub-Accounts available to existing Policy owners on
a basis we determine.
o We may eliminate one or more Sub-Accounts, or prohibit additional new
premium or transfers into a Sub-Account, if, in our sole discretion,
marketing, tax, regulatory requirements or investment conditions
warrant.
o We reserve the right to eliminate the shares of any of the Funds and
to substitute shares of another Fund or of another open-end,
registered investment company. We will not substitute any shares
attributable to your interest 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:
o Purchasing other securities of other Funds or classes of policies,
o Permitting a conversion between Funds or classes of policies on the
basis of requests made by Policy owners, or
o Substituting the shares of one fund for shares of another fund in the
event of a merger of funds or similar transaction.
In the event of any such substitution, deletion or change, we may make
appropriate changes in this and other policies to reflect such substitution,
deletion or change. If you allocated all or a portion of your investments to any
of the current funds that are being substituted for or deleted, you may transfer
the portion of the Accumulation Value affected without paying a transfer charge.
If we deem it to be in the best interests of persons having voting rights
under the Policies, we may:
o operate the Variable Account as a management company under the 1940
Act,
o deregister the Variable Account under the 1940 Act in the event such
registration is no longer required, or
o combine the Variable Account with our other separate accounts.
VOTING RIGHTS
You have the right to instruct us how to vote the Fund shares attributable
to the Policy at regular meetings and special meetings of the Funds. We will
vote the Fund shares held in Sub-Accounts according to the instructions
received, as long as:
o The Variable Account is registered as a unit investment trust under
the Investment Company Act of 1940; and
o The Variable Account's assets 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.
We will vote 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, 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
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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.
DISREGARDING 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. We would disapprove a change 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, we will include a summary of that action and the reasons for such
action in the next annual report to owners.
PAID-UP LIFE INSURANCE OPTION
Before Age 95, if the Insured is living and the Policy is in force, you may
make a written request to direct us to apply the Cash Surrender Value of the
Policy to purchase paid-up life insurance. 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 paid-up life insurance unless the Insured
notifies us in writing before Age 95 that the Cash Surrender Value should be
paid in cash. The amount by which any paid-up insurance will exceed its cash
value cannot be greater than the amount by which the Policy's Death Benefit
exceeds the Policy's Accumulation Value. We will pay you in cash any Cash
Surrender Value not used to purchase paid-up life insurance. Any cash paid out
or Policy loans forgiven may be considered a taxable event.
GENERAL PROVISIONS
OWNERSHIP
While the Insured is alive, subject to the Policy's provisions you may:
o Change the amount and frequency of premium payments.
o Change the allocation of premiums.
o Change the Death Benefit Option.
o Change the Face Amount.
o Make transfers between accounts.
o Surrender the Policy for cash.
o Make a partial withdrawal for cash.
o Receive a cash loan.
o Assign the Policy as collateral.
o Change the beneficiary.
o Transfer ownership of the Policy.
o Enjoy any other rights the Policy allows.
PROCEEDS
At the Insured's death, the proceeds payable include the Death Benefit then
in force:
o Plus any additional amounts provided by rider on the life of the
Insured;
o Plus any Policy loan interest that we have collected but not earned;
o Minus any Loan Amount; and
o Minus any unpaid Monthly Deductions.
BENEFICIARY
You may name one or more beneficiaries on the application when you apply
for the Policy. You may later change beneficiaries by written request. You may
also name a beneficiary whom you cannot change without his or her consent
(irrevocable beneficiary). If no beneficiary is surviving when the Insured dies,
we will pay the Death Benefit to you, if surviving, or otherwise to your estate.
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POSTPONEMENT OF PAYMENTS
We generally make payments from the Variable Account for Death Benefits,
cash surrender, partial withdrawal, or loans 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 (1) the New York Stock Exchange is
closed, other than customary weekend or holiday closings, or the SEC restricts
trading on the New York Stock Exchange, (2) the SEC by order permits
postponement for the protection of Policyholders, or (3) the SEC determines that
an emergency exists which makes disposing of securities not reasonably
practicable, or which makes it not reasonably practicable to determine the value
of the Variable Account's net assets. We may also postpone transfers and
allocations to and from any Sub-Account of the Variable Account under these
circumstances.
We may delay any of the payments that we make from the Fixed Account for 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. We will not credit any additional interest 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 Settlement Options apply to proceeds paid:
o At the Insured's death.
o On total surrender of the Policy.
We pay the proceeds to one or more payees. We may pay the proceeds in a
lump sum or we may apply the proceeds to one of the following Settlement
Options. You may request that we use a combination of Options. You must apply at
least $2,500 to any Option for each payee under that Option. Under an
installment Option, each payment must be at least $25.00. We may adjust the
interval to make each payment at least $25.00.
Proceeds applied to any Option no longer earn interest at the rate applied
to the Fixed Account or participate in the investment performance of the Funds.
Option 1 -- Proceeds are left with us to earn interest. Withdrawals and any
changes are subject to our approval.
Option 2 -- Proceeds and interest are paid in equal installments of a
specified amount until the proceeds and interest are all paid.
Option 3 -- Proceeds and interest are paid in equal installments for a
specified period until the proceeds and interest are all paid.
Option 4 -- The proceeds provide an annuity payment with a specified number
of months "certain". The payments are continued for the life of
the primary payee. If the primary payee dies before the certain
period is over, the remaining payments are paid to a contingent
payee.
Option 5 -- The proceeds provide a life income for two payees. When one
payee dies, the surviving payee receives two-thirds of the
amount of the joint monthly payment for life.
Option 6 -- The proceeds are used to provide an annuity based on the rates
in effect when the proceeds are applied. We do not apply this
Option if a similar option would be more favorable to the payee
at that time.
INTEREST ON SETTLEMENT OPTIONS. We base the interest rate for proceeds
applied under Options 1 and 2 on the interest rate we declare on funds that we
consider to be in the same classification based on the Option, restrictions on
withdrawal, and other factors. The interest rate will never be less than an
effective annual rate of 3.50%.
In determining amounts we pay under Options 3, 4,and 5, we assume interest
at an effective annual rate of 3.50%. Also, for Option 3 and "certain" periods
under Option 4, we credit any excess interest we may declare on funds that we
consider to be in the same classification based on the Option, restrictions on
withdrawal, and other factors.
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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 effective date of the increase.
If the Policy is reinstated, we measure the contestable period 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 (one year in Colorado and North Dakota), 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.
TERMINATION
The Policy terminates when any of the following occurs:
o The Policy lapses. See "Policy Lapse and Reinstatement".
o The Insured dies.
o You surrender the Policy for its Cash Surrender Value.
o We amend the Policy according to the amendment provision described
below and you do not accept the amendment.
AMENDMENT
We reserve the right to amend the Policy in order to include any future
changes relating to the following:
o Any SEC rulings and regulations.
o The Policy's qualification for treatment as a life insurance policy
under the following:
-- The Code as amended.
-- Internal Revenue Service rulings and regulations.
-- Any requirements imposed by the Internal Revenue Service.
REPORTS
ANNUAL STATEMENT. We will send you an Annual Statement once each year,
showing the Face Amount, Death Benefit, Accumulation Value, Cash Surrender
Value, Loan Amount, premiums paid, Planned Periodic Premiums, interest credits,
partial withdrawals, transfers, and charges since the last statement.
Additional statements are available upon request. We may make a charge not
to exceed $50 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 for each
Projection Report you request after the first report and after the first report
in a Policy Year.
OTHER REPORTS. The Company will mail to you at your last known address of
record at least annually a report containing such information as may be required
by any applicable law. To reduce
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expenses, only one copy of most financial reports and prospectuses will be
mailed to your household even if you or other persons in your household have
more than one Policy. Call 1-800-456-6965 if you need copies of financial
reports, prospectuses, or historical account information.
DIVIDENDS
The Policy does not entitle you to participate in our surplus. We do not
pay you dividends under the Policy.
The Sub-Account receives any dividends paid by the related Fund. Any such
dividend is credited to you through the calculation of the Sub-Account's daily
Unit Value.
COLLATERAL ASSIGNMENT
You may assign the benefits of the Policy as collateral for a debt. This
limits your rights to the Cash Surrender Value and the beneficiary's rights to
the proceeds. An assignment is not binding on us until we receive written
notice.
OPTIONAL INSURANCE BENEFITS
The Policy can include additional benefits, in the form of riders to the
Policy, if our requirements for issuing such benefits are met. We currently
offer the following benefit riders, although some riders may not be available in
some states.
ACCELERATED BENEFIT RIDER. Under certain circumstances we pay a part of
the Death Benefit to you when the Insured has been diagnosed as having a
terminal illness. See "Accelerated Benefit Rider".
ACCIDENTAL DEATH BENEFIT RIDER. Provides an additional benefit if the
Insured dies from an accidental injury.
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, up to age 25.
WAIVER OF SPECIFIED PREMIUM RIDER. Contributes a specified amount of
premium to the Policy each month while the Insured is totally disabled under the
terms of the rider. This rider may not be available in all states. Ask your
registered representative about the availability of this rider in your state.
FEDERAL TAX MATTERS
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
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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. 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 591/2 or is disabled, or
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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, except that upon lapse of a Policy any
outstanding Policy loan will be deemed to be distributed.
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, you should consult a tax advisor
as to the tax consequences.
MULTIPLE POLICIES. All Modified Endowment Contracts that we (or our
affiliates) issue 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, we currently make no charge 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, we may make charges for such taxes,
if any, attributable to the Variable Account.
POSSIBLE CHANGES IN TAXATION
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.
OTHER CONSIDERATIONS
The foregoing discussion is general and is not intended as tax advice. Any
person concerned about these tax implications should consult a competent tax
advisor. This discussion is based on our understanding of the present Federal
income tax laws as they are currently interpreted by the Internal Revenue
Service. We make no representations as to the likelihood of continuation of
these current laws and interpretations. In addition, the foregoing discussion is
not exhaustive and special rules not described in this Prospectus may be
applicable in certain situations. Moreover, we have made no attempt to consider
any applicable state or other tax laws.
LEGAL DEVELOPMENTS REGARDING EMPLOYMENT-RELATED BENEFIT PLANS
The Policy is based on actuarial tables which distinguish between men and
women and therefore provide different benefits to men and women of the same Age.
Employers and employee organizations should consider, in consultation with legal
counsel, the impact of the Supreme Court decision of July 6, 1983 in ARIZONA
GOVERNING COMMITTEE V. NORRIS. That decision stated that optional annuity
benefits provided under an employee's deferred compensation plan could not,
under Title VII of the Civil Rights Act of 1964, vary between men and women on
the basis of sex. Employers and employee organizations should also consider, in
consultation with legal counsel, the impact of Title VII generally, and
comparable state laws that may be applicable, on any employment-related
insurance or benefit plan for which a Policy may be purchased.
44
<PAGE>
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 by the end of the second quarter
of 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 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 and variable life insurance products issued by
us. The Policies will be sold by licensed insurance agents who are also
registered representatives of WSSI or of other 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 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.
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. 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 excluding any Loan Amount during each Policy Year may be
paid. Further, registered representatives may be eligible to receive certain
overrides and other benefits based on the amount of earned commissions.
For all Policies issued by the Select*Life Variable Account, the aggregate
amount paid to WSSI under our Distribution Agreement was $45,011,491 in 1998,
$34,572,698 in 1997, and $30,988,102 in 1996.
45
<PAGE>
MANAGEMENT
The following is a list of 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>
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 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.
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.
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.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
TERM PRINCIPAL OCCUPATION
DIRECTORS EXPIRES AND BUSINESS EXPERIENCE
- --------- ------- ------------------------------------------------------------
<S> <C> <C>
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.
Susan W. A. Mead 1999 Vice President, Strategic Marketing and Planning of
ReliaStar Financial Corp. since 1998; Vice President,
Corporate Communications and Community Relations of
ReliaStar Financial Corp. from 1996 to 1998; President,
ReliaStar Printing & Fulfillment Services of ReliaStar
Financial Corp. since 1996; Second Vice President, Corporate
Communications and Community Relations of ReliaStar
Financial Corp. from 1992 to 1996; 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. and ReliaStar Life Insurance
Company 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.
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>
47
<PAGE>
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
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.
The following is a list of the current directors and executive officers of
the of the principal underwriter and their business addresses.
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES
- ---------------- ---------------------
John H. Flittie* Director; Chairman
Anne W. Dowdle* Director
Michael J. Dubes Director
1501 Fourth Avenue
Seattle, Washington 98111
James R. Gelder Director
20 Security Drive
Avon, Connecticut 06001
Wayne R. Huneke* Director
Robert C. Salipante* Director
Jeffrey A. Montgomery* President and Chief Executive Officer
Kenneth S. Cameranesi* Executive Vice President and
Chief Operations Officer
Gene Grayson* Vice President, National Sales and Marketing
David Braun* Assistant Vice President
Karin Callanan* Assistant Vice President
Susan M. Bergen* Secretary
Margaret B. Wall Treasurer and Chief Financial Officer
Loralee A. Renelt* Assistant Secretary
Allen Kidd Assistant Secretary
222 North Arch Road
Richmond, Virginia 23236
- -------------------
* 20 Washington Avenue South
Minneapolis, Minnesota 55401
48
<PAGE>
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. We file an annual statement in a prescribed form 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
If you are a resident of Massachusetts or Montana, you should disregard all
Policy provisions described in the prospectus that are based on the sex of the
Insured. We will issue this Policy in Massachusetts and Montana on a unisex
basis. You also should disregard references made to the mortality tables
applicable to this Policy and substitute these references 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
The Company maintains a blanket bond is maintained providing $25,000,000
coverage for our officers and employees and those of Washington Square
Securities, Inc., (WSSI), subject to a $500,000 deductible.
LEGAL MATTERS
Legal matters in connection with the Variable Account and the Policy
described in this Prospectus have been passed upon by Robert B. Saginaw,
Esquire, Attorney for the Company.
EXPERTS
The financial statements of ReliaStar's Select*Life Variable Account as of
December 31, 1998 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,
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.
49
<PAGE>
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, 1998 and for each
of the three years in the period then ended. The financial statements are
audited. The periods covered are not necessarily indicative of the longer term
performance of the assets held in the Variable Account.
The financial statements of ReliaStar Life Insurance Company 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, 1998 and for each of the two years
in the period ended December 31, 1998. The financial statements are audited. The
periods covered are not necessarily indicative of the longer term performance of
the Company.
50
<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, 1998
and the related combined statements of operations and changes in policy owners'
equity for each of the years ended December 31, 1998, 1997 and 1996 (consisting
of the portfolios listed within the combined statements of operations and
changes in policy owners' equity). 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, 1998, 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 each of the respective
portfolios constituting the Select*Life Variable Account as of December 31, 1998
and the results of its operations and changes in its policy owners' equity for
the years ended December 31, 1998, 1997 and 1996, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 16, 1999
51
<PAGE>
(This page has been left blank intentionally.)
52
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
(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 ..................... 110,036 $ 5,066 $ 5,856
Alger American MidCap Growth Portfolio .............. 76,499 2,007 2,209
Alger American Small Capitalization ................. 60,803 2,564 2,674
Fidelity's Variable Insurance Products Fund (VIP) and
Variable Insurance
Products II Fund (VIP II):
Equity-Income Portfolio ............................. 3,869,245 72,118 98,356
Growth Portfolio .................................... 3,375,268 95,675 151,448
High Income Portfolio ............................... 1,779,927 21,204 20,523
Money Market Portfolio .............................. 13,966,601 13,967 13,967
Overseas Portfolio .................................. 1,572,860 28,021 31,536
Asset Manager Portfolio ............................. 2,349,652 35,741 42,670
Contrafund Portfolio . .............................. 1,908,504 34,980 46,644
Index 500 Portfolio ................................. 334,662 36,603 47,271
Investment Grade Bond Portfolio ..................... 383,976 4,673 4,976
Janus Aspen Series:
Aggressive Growth Portfolio ......................... 58,502 1,291 1,614
Growth Portfolio .................................... 185,299 3,819 4,362
International Growth Portfolio ...................... 156,879 3,158 3,337
Worldwide Growth Portfolio .......................... 513,585 13,481 14,940
Neuberger Berman Advisers Management Trust:
Limited Maturity Bond Portfolio ..................... 143,481 1,975 1,983
Partners Portfolio .................................. 519,302 9,974 9,830
Northstar Galaxy Trust:
Northstar Growth + Value Portfolio .................. 98,487 1,584 1,848
Northstar High Yield Bond Portfolio ................. 108,511 518 528
Northstar Emerging Growth Portfolio ................. 178,831 2,262 2,525
Northstar International Value Portfolio ............. 146,098 1,586 1,619
Northstar Multi-Sector Bond Portfolio ............... 288,488 1,458 1,393
OCC Accumulation Trust:
Equity Portfolio .................................... 33,873 1,257 1,311
Global Equity Portfolio ............................. 47,440 739 732
Managed Portfolio ................................... 126,269 5,442 5,523
Small Cap Portfolio ................................. 95,470 2,360 2,205
Putnam Variable Trust:
Putnam VT Asia Pacific Growth Fund .................. 342,989 3,350 2,857
Putnam VT Diversified Income Fund ................... 239,510 2,601 2,512
Putnam VT Growth and Income Fund .................... 1,170,068 29,373 33,663
Putnam VT New Opportunities Fund .................... 1,321,655 25,541 34,442
Putnam VT Utilities Growth and Income Fund .......... 218,123 3,293 3,968
Putnam VT Voyager Fund .............................. 1,759,215 59,584 80,660
-------- --------
Total Investments ................................... $527,265
Total Assets ...................................... $679,982
========
LIABILITIES AND POLICY OWNERS' EQUITY:
- -------------------------------------------------------
Due from ReliaStar Life Insurance Company
for contract charges ................................ $ (6)
Policy Owners' Equity ................................ 679,988
--------
Total Liabilities and Policy Owners' Equity ........ $679,982
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
RELIASTAR SELECT-VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY
For the years ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
TOTAL ALL FUNDS
COMBINED
------------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ............................... $ 7,644 $ 5,580 $ 2,990
Reinvested capital gains ................................. 34,463 14,480 8,110
Administrative expenses .................................. (4,152) (2,742) (1,935)
--------------- --------------- ---------------
Net investment income (loss) and capital gains ......... 37,955 17,318 9,165
--------------- --------------- ---------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions
of fund shares .......................................... 12,939 6,393 3,085
Increase (decrease) in unrealized appreciation
of investments .......................................... 55,885 46,873 15,731
--------------- --------------- ---------------
Net realized and unrealized gains (losses) ............. 68,824 53,266 18,816
--------------- --------------- ---------------
Additions (reductions) from operations ................. 106,779 70,584 27,981
--------------- --------------- ---------------
Policy Owners' transactions:
Net premium payments ..................................... 184,473 141,159 108,108
Transfers between funds and/or fixed account ............. (251) 74 95
Policy loans ............................................. (5,343) (4,385) (2,266)
Loan collateral interest crediting ....................... 462 292 174
Surrenders ............................................... (16,659) (8,917) (5,080)
Death benefits ........................................... (1,646) (588) (203)
Cost of insurance charges ................................ (34,996) (26,634) (19,202)
Death benefit guarantee charges .......................... (630) (439) (459)
Monthly expense charges .................................. (5,413) (4,207) (2,932)
--------------- --------------- ---------------
Additions (reductions) for policy owners'
transactions .......................................... 119,997 96,355 78,235
--------------- --------------- ---------------
Net additions (reductions) for the year ................ 226,776 166,939 106,216
Policy Owners' Equity, beginning of the year .............. 453,212 286,273 180,057
--------------- --------------- ---------------
Policy Owners' Equity, end of the year .................... $ 679,988 $ 453,212 $ 286,273
=============== =============== ===============
Units Outstanding, beginning of the year .................. 21,952,826.717 15,861,312.070 10,541,629.343
Units Outstanding, end of the year ........................ 29,584,452.030 21,952,826.717 15,861,312.070
Net Asset Value per Unit:
Select*Life I ............................................ -- -- --
Select*Life Series 2000 .................................. -- -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
54
<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
- ----------------------------------------- --------------------------------------------- ------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- --------------- ---------------- ------ ----------------- ------------------ ------ ---------------- ---------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
182 -- -- 61 -- -- 155 -- --
(16) -- -- (8) (1) -- (8) (1) --
- --------------- ---------------- ------ ----------------- ------------------ ------ ---------------- ---------------- ------
169 -- -- 53 (1) -- 147 (1) --
- --------------- ---------------- ------ ----------------- ------------------ ------ ---------------- ---------------- ------
37 -- -- (30) -- -- 6 (5) --
789 1 -- 218 (16) -- 133 (23) --
- --------------- ---------------- ------ ----------------- ------------------ ------ ---------------- ---------------- ------
826 1 -- 188 (16) -- 139 (28) --
- --------------- ---------------- ------ ----------------- ------------------ ------ ---------------- ---------------- ------
995 1 -- 241 (17) -- 286 (29) --
- --------------- ---------------- ------ ----------------- ------------------ ------ ---------------- ---------------- ------
2,300 175 -- 1,205 132 -- 1,373 235 --
2,512 175 -- 512 263 -- 555 452 --
(40) (1) -- -- (2) -- (19) -- --
-- -- -- -- -- -- -- -- --
(19) -- -- (9) -- -- (8) (2) --
-- -- -- (11) -- -- -- -- --
(194) (6) -- (82) (5) -- (124) (14) --
(4) -- -- (4) -- -- (6) -- --
(28) (1) -- (12) (1) -- (18) (2) --
- --------------- ---------------- ------ ----------------- ------------------ ------ ---------------- ---------------- ------
4,527 342 -- 1,599 387 -- 1,753 669 --
- --------------- ---------------- ------ ----------------- ------------------ ------ ---------------- ---------------- ------
5,522 343 -- 1,840 370 -- 2,039 640 --
343 -- -- 370 -- -- 640 -- --
- --------------- ---------------- ------ ----------------- ------------------ ------ ---------------- ---------------- ------
$ 5,865 $ 343 $ -- $ 2,210 $ 370 $ -- $ 2,679 $ 640 $ --
=============== ================ ===== ================= ================= ===== ================ ================ ======
34,697.106 -- -- 37,772.926 -- -- 63,628.672 -- --
402,669.328 34,697.106 -- 172,814.592 37,772.926 -- 230,199.995 63,628.672 --
$ 14.429571 $ 9.823427 $ -- $ 12.659555 $ 9.793978 $ -- $ 11.505655 $ 10.039295 $ --
$ 14.592177 $ 9.854808 $ -- $ 12.802277 $ 9.825275 $ -- $ 11.635433 $ 10.071361 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED For the years ended
December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
FIDELITY'S VIP
EQUITY-INCOME PORTFOLIO
-----------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ...................................... $ 1,175 $ 1,013 $ 67
Reinvested capital gains ........................................ 4,180 5,096 1,929
Administrative expenses ......................................... (705) (551) (458)
----------------- ----------------- -----------------
Net investment income (loss) and capital gains ................ 4,650 5,558 1,538
----------------- ----------------- -----------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ....... 2,533 1,778 812
Increase (decrease) in unrealized appreciation of investments ... 2,086 9,445 3,943
----------------- ----------------- -----------------
Net realized and unrealized gains (losses) .................... 4,619 11,223 4,755
----------------- ----------------- -----------------
Additions (reductions) from operations ........................ 9,269 16,781 6,293
----------------- ----------------- -----------------
Policy Owners' transactions:
Net premium payments ............................................ 18,161 17,102 15,950
Transfers between funds and/or fixed account .................... (2,096) (1,313) (782)
Policy loans .................................................... (1,121) (1,209) (576)
Loan collateral interest crediting .............................. 113 76 49
Surrenders ...................................................... (3,152) (1,627) (977)
Death benefits .................................................. (264) (160) (72)
Cost of insurance charges ....................................... (4,711) (4,240) (3,423)
Death benefit guarantee charges ................................. (114) (111) (115)
Monthly expense charges ......................................... (659) (596) (475)
----------------- ----------------- -----------------
Additions (reductions) for policy owners' transactions ........ 6,157 7,922 9,579
----------------- ----------------- -----------------
Net additions (reductions) for the year ....................... 15,426 24,703 15,872
Policy Owners' Equity, beginning of the year ..................... 82,910 58,207 42,335
----------------- ----------------- -----------------
Policy Owners' Equity, end of the year ........................... $ 98,336 $ 82,910 $ 58,207
================= ================= =================
Units Outstanding, beginning of the year ......................... 3,053,047.193 2,622,030.390 2,023,713.030
Units Outstanding, end of the year ............................... 3,348,679.958 3,053,047.193 2,622,030.390
Net Asset Value per Unit:
Select*Life I ................................................... $ 38.822462 $ 35.058961 $ 27.587247
Select*Life Series 2000 ......................................... $ 23.531218 $ 21.080180 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S VIP FIDELITY'S VIP
GROWTH PORTFOLIO HIGH INCOME PORTFOLIO
- ----------------------------------------------------------------- -------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------- --------------------- --------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 537 $ 526 $ 156 $ 1,415 $ 1,063 $ 832
14,057 2,357 3,939 899 131 163
(971) (722) (557) (160) (132) (103)
----------------- ----------------- ----------------- ----------------- --------------- ---------------
13,623 2,161 3,538 2,154 1,062 892
----------------- ----------------- ----------------- ----------------- --------------- ---------------
4,873 2,098 980 210 301 162
22,732 14,061 3,837 (3,436) 1,318 473
----------------- ----------------- ----------------- ----------------- --------------- ---------------
27,605 16,159 4,817 (3,226) 1,619 635
----------------- ----------------- ----------------- ----------------- --------------- ---------------
41,228 18,320 8,355 (1,072) 2,681 1,527
----------------- ----------------- ----------------- ----------------- --------------- ---------------
21,080 21,483 21,247 5,161 5,072 4,359
(1,512) (1,822) 329 (469) (1,001) (267)
(1,618) (1,280) (758) (268) (282) (67)
138 92 57 21 15 9
(4,327) (2,498) (1,807) (740) (397) (286)
(370) (160) (53) (88) (39) (10)
(6,378) (5,741) (4,894) (1,230) (1,198) (995)
(168) (163) (173) (31) (29) (32)
(956) (876) (739) (144) (140) (121)
----------------- ----------------- ----------------- ----------------- --------------- ---------------
5,889 9,035 13,209 2,212 2,001 2,590
----------------- ----------------- ----------------- ----------------- --------------- ---------------
47,117 27,355 21,564 1,140 4,682 4,117
104,273 76,918 55,354 19,377 14,695 10,578
----------------- ----------------- ----------------- ----------------- --------------- ---------------
$ 151,390 $ 104,273 $ 76,918 $ 20,517 $ 19,377 $ 14,695
================= ================= ================= ================= =============== ===============
3,971,201.581 3,452,718.980 2,622,289.757 916,625.159 773,942.356 577,083.123
4,282,470.411 3,971,201.581 3,452,718.980 1,053,934.152 916,625.159 773,942.356
$ 49.996221 $ 36.130923 $ 29.496120 $ 28.427207 $ 29.952917 $ 25.660930
$ 26.727479 $ 19.160956 $ -- $ 15.116470 $ 15.800365 $ --
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
FIDELITY'S VIP
MONEY MARKET PORTFOLIO
- ----------------------------------------------------------------
1998 1997 1996
- ----------------------- --------------------- ------------------
<S> <C> <C>
$ 669 $ 556 $ 417
-- -- --
(92) (67) (68)
----------------- --------------- ---------------
577 489 349
----------------- --------------- ---------------
-- -- --
-- -- --
----------------- --------------- ---------------
-- -- --
----------------- --------------- ---------------
577 489 349
----------------- --------------- ---------------
10,376 10,226 7,798
(7,227) (5,733) (4,502)
(31) (147) (97)
18 13 7
(285) (802) (164)
(7) (43) (1)
(817) (755) (698)
(55) (8) (8)
(74) (73) (62)
------------------ ---------------- ----------------
1,898 2,678 2,273
------------------ ---------------- ----------------
2,475 3,167 2,622
11,493 8,326 5,704
------------------ ---------------- ----------------
$ 13,968 $ 11,493 $ 8,326
================== ================ ================
875,038.346 654,425.374 454,516.667
1,021,422.904 875,038.346 654,425.374
$ 17.399235 $ 16.628903 $ 15.890521
$ 12.941412 $ 12.269546 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
FIDELITY'S VIP
OVERSEAS PORTFOLIO
-----------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- --------------------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ..................................... $ 551 $ 411 $ 202
Reinvested capital gains . ..................................... 1,626 1,630 223
Administrative expenses ........................................ (247) (220) (119)
----------------- ----------------- -----------------
Net investment income (loss) and capital gains ............... 1,930 1,821 306
----------------- ----------------- -----------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ...... 1,235 724 354
Increase (decrease) in unrealized appreciation of investments .. 187 5 1,706
----------------- ----------------- -----------------
Net realized and unrealized gains (losses) ................... 1,422 729 2,060
----------------- ----------------- -----------------
Additions (reductions) from operations ....................... 3,352 2,550 2,366
----------------- ----------------- -----------------
Policy Owners' transactions:
Net premium payments ........................................... 5,928 7,156 6,819
Transfers between funds and/or fixed account ................... (2,715) (1,515) (582)
Policy loans ................................................... (396) (379) (235)
Loan collateral interest crediting ............................. 44 28 16
Surrenders ..................................................... (889) (690) (493)
Death benefits ................................................. (60) (18) (17)
Cost of insurance charges ...................................... (1,589) (1,667) (1,500)
Death benefit guarantee charges ................................ (37) (43) (47)
Monthly expense charges ........................................ (241) (253) (227)
----------------- ----------------- -----------------
Additions (reductions) for policy owners' transactions ....... 45 2,619 3,734
----------------- ----------------- -----------------
Net additions (reductions) for the year ...................... 3,397 5,169 6,100
Policy Owners' Equity, beginning of the year .................... 28,117 22,948 16,848
----------------- ----------------- -----------------
Policy Owners' Equity, end of the year .......................... $ 31,514 $ 28,117 $ 22,948
================= ================= =================
Units Outstanding, beginning of the year ........................ 1,733,459.426 1,536,316.506 1,229,928.330
Units Outstanding, end of the year .............................. 1,752,679.671 1,733,459.426 1,536,316.506
Net Asset Value per Unit:
Select*Life I .................................................. $ 22.444163 $ 20.066499 $ 18.132967
Select*Life Series 2000 ........................................ $ 15.745282 $ 13.964753 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
58
<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
- ----------------------------------------------------------------- -----------------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------- --------------------- --------------------- --------------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 1,161 $ 1,010 $ 840 $ 180 $ 94 $ --
3,484 2,533 692 1,324 247 22
(323) (270) (210) (229) (104) (48)
----------------- ----------------- ----------------- ----------------- ----------------- -------------
4,322 3,273 1,322 1,275 237 (26)
----------------- ----------------- ----------------- ----------------- ----------------- -------------
274 346 169 651 61 25
660 2,222 1,834 7,367 3,113 1,155
----------------- ----------------- ----------------- ----------------- ----------------- -------------
934 2,568 2,003 8,018 3,174 1,180
----------------- ----------------- ----------------- ----------------- ----------------- -------------
5,256 5,841 3,325 9,293 3,411 1,154
----------------- ----------------- ----------------- ----------------- ----------------- -------------
5,834 6,096 6,607 16,875 12,617 7,406
(717) (651) (1,215) 605 767 730
(482) (371) (209) (197) (66) (21)
51 38 26 6 1 --
(1,458) (694) (545) (882) (307) (60)
(60) (68) (25) (130) (10) --
(2,041) (2,034) (1,948) (2,823) (1,815) (837)
(52) (56) (61) (15) -- --
(255) (264) (262) (512) (344) (155)
----------------- ----------------- ----------------- ----------------- ----------------- -------------
820 1,996 2,368 12,927 10,843 7,063
----------------- ----------------- ----------------- ----------------- ----------------- -------------
6,076 7,837 5,693 22,220 14,254 8,217
36,580 28,743 23,050 24,427 10,173 1,956
----------------- ----------------- ----------------- ----------------- ----------------- -------------
$ 42,656 $ 36,580 $ 28,743 $ 46,647 $ 24,427 $ 10,173
================= ================= ================= ================= ================= =============
2,034,040.832 1,892,481.312 1,704,151.254 1,334,244.465 686,514.792 160,147.180
2,091,427.861 2,034,040.832 1,892,481.312 1,974,535.451 1,334,244.465 686,514.792
$ 24.280390 $ 21.274161 $ 17.774921 $ 13.286083 $ 10.304064 $ --
$ 17.348504 $ 15.079031 $ -- $ 23.909755 $ 18.395120 $ --
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
FIDELITY'S VIP II
INDEX 500 PORTFOLIO
- -----------------------------------------------------------------
1998 1997 1996
- --------------------- --------------------- ---------------------
<S> <C> <C>
$ 278 $ 95 $ 33
644 193 84
(229) (91) (40)
----------------- --------------- ---------------
693 197 77
----------------- --------------- ---------------
1,033 427 80
6,585 2,896 793
----------------- --------------- ---------------
7,618 3,323 873
----------------- --------------- ---------------
8,311 3,520 950
----------------- --------------- ---------------
16,991 9,635 3,577
3,742 3,272 1,125
(264) (104) (9)
14 4 1
(670) (188) (76)
(59) (3) (4)
(2,579) (1,225) (447)
(30) (7) (5)
(434) (226) (86)
----------------- ---------------- ----------------
16,711 11,158 4,076
----------------- ---------------- ----------------
25,022 14,678 5,026
22,261 7,583 2,557
----------------- ---------------- ----------------
$ 47,283 $ 22,261 $ 7,583
================= ================ ================
981,434.839 441,948.368 181,509.017
1,628,829.448 981,434.839 441,948.368
$ 29.701980 $ 23.332252 $ 17.724683
$ 28.934443 $ 22.547720 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
FIDELITY'S VIP II
INVESTMENT GRADE BOND PORTFOLIO
----------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- --------------------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ...................................... $ 206 $ 194 $ 139
Reinvested capital gains ........................................ 25 -- --
Administrative expenses ......................................... (36) (27) (24)
--------------- --------------- ---------------
Net investment income (loss) and capital gains ................ 195 167 115
--------------- --------------- ---------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ....... 128 16 12
Increase (decrease) in unrealized appreciation of investments 47 94 (51)
--------------- --------------- ---------------
Net realized and unrealized gains (losses) .................... 175 110 (39)
--------------- --------------- ---------------
Additions (reductions) from operations ........................ 370 277 76
--------------- --------------- ---------------
Policy Owners' transactions:
Net premium payments ............................................ 2,363 907 986
Transfers between funds and/or fixed account .................... (1,154) (169) (300)
Policy loans .................................................... (50) (37) (19)
Loan collateral interest crediting .............................. 4 2 1
Surrenders ...................................................... (106) (69) (47)
Death benefits .................................................. (7) (2) (5)
Cost of insurance charges ....................................... (280) (225) (211)
Death benefit guarantee charges ................................. (7) (5) (6)
Monthly expense charges ......................................... (30) (28) (27)
---------------- ---------------- ----------------
Additions (reductions) for policy owners' transactions ........ 733 374 372
---------------- ---------------- ----------------
Net additions (reductions) for the year ....................... 1,103 651 448
Policy Owners' Equity, beginning of the year ..................... 3,872 3,221 2,773
---------------- ---------------- ----------------
Policy Owners' Equity, end of the year ........................... $ 4,975 $ 3,872 $ 3,221
================ ================ ================
Units Outstanding, beginning of the year ......................... 276,930.635 247,189.999 214,771.624
Units Outstanding, end of the year ............................... 333,810.100 276,930.635 247,189.999
Net Asset Value per Unit:
Select*Life I ................................................... $ 17.100659 $ 15.837535 $ 14.638773
Select*Life Series 2000 ......................................... $ 13.807112 $ 12.685026 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
JANUS ASPEN SERIES JANUS ASPEN SERIES
AGGRESSIVE GROWTH PORTFOLIO GROWTH PORTFOLIO
- ------------------------------------------------- -------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------- -------------------- ------ --------------------- -------------------- ------
<S> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ 41 $ 1 $ --
-- -- -- 32 -- --
(7) -- -- (10) -- --
----------------- -------------- ---- --------------- -------------- ----
(7) -- -- 63 1 --
----------------- -------------- ---- --------------- -------------- ----
95 (1) -- (16) -- --
317 6 -- 541 2 --
---------------- --------------- ---- --------------- -------------- ----
412 5 -- 525 2 --
---------------- --------------- ---- --------------- -------------- ----
405 5 -- 588 3 --
---------------- --------------- ---- --------------- -------------- ----
884 109 -- 1,477 157 --
194 156 -- 2,294 136 --
(4) 1 -- 2 (3) --
2 -- -- -- 1 --
(15) -- -- (74) -- --
-- -- -- (8) -- --
(88) (6) -- (132) (7) --
(4) -- -- (2) -- --
(13) (1) -- (22) (1) --
---------------- ---------------- ---- ---------------- ---------------- ----
956 259 -- 3,535 283 --
---------------- --------------- ---- ---------------- --------------- ----
1,361 264 -- 4,123 286 --
264 -- -- 286 -- --
---------------- --------------- ---- ---------------- --------------- ----
$ 1,625 $ 264 $ -- $ 4,409 $ 286 $ --
================ =============== ==== ================ =============== ====
24,053.408 -- -- 28,040.816 -- --
110,510.717 24,053.408 -- 319,301.091 28,040.816 --
$ 14.550679 $ 10.925142 $ -- $ 13.665622 $ 10.154694 $ --
$ 14.714669 $ 10.960002 $ -- $ 13.819668 $ 10.187114 $ --
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
JANUS ASPEN SERIES
INTERNATIONAL GROWTH PORTFOLIO
- --------------------------------------------------
1998 1997 1996
- --------------------- -------------------- -------
<S> <C> <C>
$ 35 $ 1 $ --
5 -- --
(16) (1) --
--------------- ---------------- ----
24 -- --
--------------- --------------- ----
52 (1) --
190 (11) --
--------------- --------------- ----
242 (12) --
--------------- --------------- ----
266 (12) --
--------------- --------------- ----
1,711 250 --
745 623 --
(11) (2) --
1 -- --
(18) -- --
-- -- --
(167) (13) --
(5) -- --
(26) (2) --
--------------- -------------- ----
2,230 856 --
--------------- -------------- ----
2,496 844 --
844 -- --
--------------- -------------- ----
$ 3,340 $ 844 $ --
=============== ============== ====
87,549.532 -- --
296,248.488 87,549.532 --
$ 11.158415 $ 9.594712 $ --
$ 11.284244 $ 9.625377 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
RELIASTAR SELECT-VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES
WORLDWIDE GROWTH PORTFOLIO
---------------------------------------------------
1998 1997 1996
--------------------- --------------------- -------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ............................................ $ 210 $ 5 $ --
Reinvested capital gains .............................................. 81 -- --
Administrative expenses ............................................... (57) (3) --
----------------- ----------------- ----
Net investment income (loss) and capital gains ...................... 234 2 --
----------------- ---------------- ----
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ............. 99 -- --
Increase (decrease) in unrealized appreciation of investments ......... 1,475 (16) --
----------------- ---------------- ----
Net realized and unrealized gains (losses) .......................... 1,574 (16) --
----------------- ---------------- ----
Additions (reductions) from operations .............................. 1,808 (14) --
----------------- ---------------- ----
Policy Owners' transactions:
Net premium payments .................................................. 7,344 906 --
Transfers between funds and/or fixed account .......................... 4,415 1,582 --
Policy loans .......................................................... (13) (4) --
Loan collateral interest crediting .................................... 1 -- --
Surrenders ............................................................ (90) (1) --
Death benefits ........................................................ (53) -- --
Cost of insurance charges ............................................. (755) (49) --
Death benefit guarantee charges ....................................... (12) -- --
Monthly expense charges ............................................... (106) (7) --
----------------- ----------------- ----
Additions (reductions) for policy owners' transactions .............. 10,731 2,427 --
----------------- ---------------- ----
Net additions (reductions) for the year ............................. 12,539 2,413 --
Policy Owners' Equity, beginning of the year ........................... 2,413 -- --
----------------- ---------------- ----
Policy Owners' Equity, end of the year ................................. $ 14,952 $ 2,413 $ --
================= ================ ====
Units Outstanding, beginning of the year ............................... 245,314.904 -- --
Units Outstanding, end of the year ..................................... 1,180,179.061 245,314.904 --
Net Asset Value per Unit:
Select*Life I ......................................................... $ 12.539787 $ 9.804994 $ --
Select*Life Series 2000 ............................................... $ 12.681124 $ 9.836310 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
NEUBERGER BERMAN NEUBERGER BERMAN
ADVISERS MANAGEMENT TRUST ADVISERS MANAGEMENT TRUST
LIMITED MATURITY BOND PORTFOLIO PARTNERS PORTFOLIO
- -------------------------------------------------- ------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------- --------------------- ------ ------------------- --------------------- ------
<S> <C> <C> <C> <C> <C>
$ 79 $ -- $ -- $ 11 $ -- $ --
-- -- -- 342 -- --
(9) -- -- (45) (2) --
----------------- --------------- ---- --------------- ----------------- ----
70 -- -- 308 (2) --
---------------- --------------- ---- --------------- ----------------- ----
(21) -- -- (137) 3 --
1 7 -- (164) 20 --
---------------- --------------- ---- --------------- ---------------- ----
(20) 7 -- (301) 23 --
---------------- --------------- ---- --------------- ---------------- ----
50 7 -- 7 21 --
---------------- --------------- ---- --------------- ---------------- ----
1,242 209 -- 5,576 484 --
(296) 896 -- 3,196 1,288 --
(2) (2) -- (55) (2) --
-- -- -- 2 1 --
(2) -- -- (58) (2) --
(5) -- -- -- -- --
(94) (6) -- (518) (26) --
(2) -- -- (11) -- --
(11) (1) -- (64) (3) --
---------------- ----------------- ---- --------------- ----------------- ----
830 1,096 -- 8,068 1,740 --
---------------- ---------------- ---- --------------- ---------------- ----
880 1,103 -- 8,075 1,761 --
1,103 -- -- 1,761 -- --
---------------- ---------------- ---- --------------- ---------------- ----
$ 1,983 $ 1,103 $ -- $ 9,836 $ 1,761 $ --
================ ================ ==== =============== ================ ====
107,550.694 -- -- 170,599.212 -- --
185,303.929 107,550.694 -- 914,725.581 170,599.212 --
$ 10.584999 $ 10.221530 $ -- $ 10.640408 $ 10.292965 $ --
$ 10.704404 $ 10.254171 $ -- $ 10.760407 $ 10.325813 $ --
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
NORTHSTAR GALAXY TRUST
GROWTH + VALUE PORTFOLIO
- --------------------------------------------------
1998 1997 1996
- --------------------- -------------------- -------
<S> <C> <C>
$ -- $ 1 $ --
14 7 --
(8) (1) --
----------------- ---------------- ----
6 7 --
---------------- --------------- ----
-- 1 --
277 (13) --
---------------- --------------- ----
277 (12) --
---------------- --------------- ----
283 (5) --
---------------- ---------------- ----
1,061 187 --
59 497 --
4 (2) --
-- -- --
(4) (1) --
(94) -- --
(115) (10) --
(3) -- --
(11) (1) --
---------------- ---------------- ----
897 670 --
---------------- --------------- ----
1,180 665 --
665 -- --
---------------- --------------- ----
$ 1,845 $ 665 $ --
================ =============== ====
65,399.595 -- --
151,938.013 65,399.595 --
$ 12.022926 $ 10.156905 $ --
$ 12.158465 $ 10.189337 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
63
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
NORTHSTAR GALAXY TRUST
HIGH YIELD BOND PORTFOLIO
----------------------------------------------------
1998 1997 1996
-------------------- ------------------- -------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ............................................ $ 24 $ 1 $ --
Reinvested capital gains .............................................. 1 -- --
Administrative expenses ............................................... (2) -- --
---------------- ------------- ----
Net investment income (loss) and capital gains ....................... 23 1 --
--------------- ------------- ----
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ............. (43) -- --
Increase (decrease) in unrealized appreciation of investments ......... 11 (1) --
--------------- ------------- ----
Net realized and unrealized gains (losses) .......................... (32) (1) --
--------------- ------------- ----
Additions (reductions) from operations .............................. (9) -- --
---------------- -------------- ----
Policy Owners' transactions:
Net premium payments .................................................. 482 52 --
Transfers between funds and/or fixed account .......................... 35 9 --
Policy loans .......................................................... 2 (2) --
Loan collateral interest crediting .................................... -- -- --
Surrenders ............................................................ (1) -- --
Death benefits ........................................................ (5) -- --
Cost of insurance charges ............................................. (28) (2) --
Death benefit guarantee charges ....................................... (1) -- --
Monthly expense charges ............................................... (3) -- --
---------------- -------------- ----
Additions (reductions) for policy owners' transactions ............... 481 57 --
--------------- -------------- ----
Net additions (reductions) for the year .............................. 472 57 --
Policy Owners' Equity, beginning of the year ........................... 57 -- --
--------------- -------------- ----
Policy Owners' Equity, end of the year ................................. $ 529 $ 57 $ --
=============== ============== ====
Units Outstanding, beginning of the year ............................... 5,488.146 -- --
Units Outstanding, end of the year ..................................... 50,566.068 5,488.146 --
Net Asset Value per Unit:
Select*Life I ......................................................... $ 10.351379 $ 10.373728 $ --
Select*Life Series 2000 ............................................... $ 10.468149 $ 10.406855 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
64
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
NORTHSTAR GALAXY TRUST NORTHSTAR GALAXY TRUST
EMERGING GROWTH PORTFOLIO INTERNATIONAL VALUE PORTFOLIO
- ---------------------------------------------------------- -------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------- -------------------- --------------- --------------------- -------------------- ------
<S> <C> <C> <C> <C> <C>
$ 58 $ 36 $ 13 $ 21 $ 1 $ --
107 9 38 68 -- --
(11) (5) (3) (7) -- --
--------------- ---------------- -------------- ----------------- -------------- ----
154 40 48 82 1 --
--------------- --------------- ------------- ---------------- -------------- ----
10 3 2 47 -- --
181 83 (2) 33 -- --
--------------- --------------- -------------- ---------------- -------------- ----
191 86 -- 80 -- --
--------------- --------------- ------------- ---------------- -------------- ----
345 126 48 162 1 --
--------------- --------------- ------------- ---------------- -------------- ----
990 826 413 975 144 --
(2) 47 68 218 258 --
(13) (11) -- (4) -- --
-- -- -- 2 -- --
(27) (21) -- (9) (2) --
-- (1) -- -- -- --
(179) (96) (39) (96) (8) --
(1) -- -- (3) -- --
(30) (19) (7) (11) (1) --
---------------- --------------- -------------- ---------------- ---------------- ----
738 725 435 1,072 391 --
---------------- --------------- ------------- ---------------- --------------- ----
1,083 851 483 1,234 392 --
1,441 590 107 392 -- --
---------------- --------------- ------------- ---------------- --------------- ----
$ 2,524 $ 1,441 $ 590 $ 1,626 $ 392 $ --
================ =============== ============= ================ =============== ====
90,105.753 42,551.251 8,746.326 38,707.007 -- --
134,480.431 90,105.753 42,551.251 137,264.427 38,707.007 --
$ 12.082938 $ 10.383806 $ -- $ 11.712172 $ 10.097293 $ --
$ 18.810805 $ 16.036372 $ -- $ 11.844211 $ 10.129526 $ --
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
NORTHSTAR GALAXY TRUST
MULTI-SECTOR BOND PORTFOLIO
- ---------------------------------------------------------
1998 1997 1996
- -------------------- -------------------- ---------------
<S> <C> <C>
$ 77 $ 34 $ 14
-- 3 5
(7) (3) (1)
--------------- --------------- -------------
70 34 18
--------------- --------------- -------------
(16) 2 1
(56) (12) 3
--------------- --------------- -------------
(72) (10) 4
--------------- --------------- -------------
(2) 24 22
---------------- --------------- -------------
866 296 124
58 42 52
(5) (8) --
-- -- --
(13) (13) --
-- (1) --
(86) (41) (15)
(3) -- --
(12) (5) (2)
--------------- ---------------- --------------
805 270 159
--------------- --------------- -------------
803 294 181
589 295 114
--------------- --------------- -------------
$ 1,392 $ 589 $ 295
=============== =============== =============
41,273.079 22,576.638 9,904.096
96,571.672 41,273.079 22,576.638
$ 10.296187 $ 10.240441 $ --
$ 14.457253 $ 14.264010 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
65
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
--------------------------------------------------
1998 1997 1996
--------------------- -------------------- -------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ............................................ $ 3 $ -- $ --
Reinvested capital gains .............................................. 12 -- --
Administrative expenses ............................................... (5) -- --
----------------- -------------- ----
Net investment income (loss) and capital gains ...................... 10 -- --
---------------- -------------- ----
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ............. 6 1 --
Increase (decrease) in unrealized appreciation of investments ......... 46 8 --
---------------- -------------- ----
Net realized and unrealized gains (losses) .......................... 52 9 --
---------------- -------------- ----
Additions (reductions) from operations .............................. 62 9 --
---------------- -------------- ----
Policy Owners' transactions:
Net premium payments .................................................. 822 52 --
Transfers between funds and/or fixed account .......................... 297 151 --
Policy loans .......................................................... 1 (2) --
Loan collateral interest crediting .................................... -- -- --
Surrenders ............................................................ (10) -- --
Death benefits ........................................................ -- -- --
Cost of insurance charges ............................................. (59) (2) --
Death benefit guarantee charges ....................................... (1) -- --
Monthly expense charges ............................................... (9) -- --
----------------- --------------- ----
Additions (reductions) for policy owners' transactions .............. 1,041 199 --
---------------- --------------- ----
Net additions (reductions) for the year ............................. 1,103 208 --
Policy Owners' Equity, beginning of the year ........................... 208 -- --
---------------- --------------- ----
Policy Owners' Equity, end of the year ................................. $ 1,311 $ 208 $ --
================ =============== ====
Units Outstanding, beginning of the year ............................... 19,312.138 -- --
Units Outstanding, end of the year ..................................... 109,118.612 19,312.138 --
Net Asset Value per Unit:
Select*Life I ......................................................... $ 11.895001 $ 10.719660 $ --
Select*Life Series 2000 ............................................... $ 12.029100 $ 10.753858 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO MANAGED PORTFOLIO
- ------------------------------------------------ --------------------------------------------------
1998 1997 1996 1998 1997 1996
- -------------------- -------------------- ------ --------------------- --------------------- ------
<S> <C> <C> <C> <C> <C>
$ 8 $ 1 $ -- $ 17 $ -- $ --
28 14 -- 56 -- --
(4) (1) -- (24) (1) --
---------------- ---------------- ---- --------------- ----------------- ----
32 14 -- 49 (1) --
--------------- --------------- ---- --------------- ----------------- ----
(5) (1) -- 2 -- --
22 (29) -- 74 7 --
--------------- --------------- ---- --------------- ---------------- ----
17 (30) -- 76 7 --
--------------- --------------- ---- --------------- ---------------- ----
49 (16) -- 125 6 --
--------------- --------------- ---- --------------- ---------------- ----
348 51 -- 3,191 357 --
86 272 -- 1,487 804 --
(2) 1 -- (1) (1) --
-- -- -- -- -- --
(7) -- -- (17) -- --
-- -- -- (76) -- --
(39) (5) -- (294) (16) --
(1) -- -- (4) -- --
(5) (1) -- (32) (1) --
---------------- ---------------- ---- ---------------- ---------------- ----
380 318 -- 4,254 1,143 --
--------------- --------------- ---- ---------------- ---------------- ----
429 302 -- 4,379 1,149 --
302 -- -- 1,149 -- --
--------------- --------------- ---- ---------------- ---------------- ----
$ 731 $ 302 $ -- $ 5,528 $ 1,149 $ --
=============== =============== ==== ================ ================ ====
31,784.854 -- -- 112,854.997 -- --
67,997.586 31,784.854 -- 507,204.969 112,854.997 --
$ 10.662721 $ 9.487891 $ -- $ 10.778607 $ 10.143089 $ --
$ 10.782965 $ 9.518205 $ -- $ 10.900163 $ 10.175476 $ --
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE[
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
- --------------------------------------------------
1998 1997 1996
- --------------------- -------------------- -------
<S> <C> <C>
$ 3 $ -- $ --
33 -- --
(10) (1) --
--------------- ---------------- ----
26 (1) --
--------------- ---------------- ----
(13) -- --
(151) (4) --
--------------- ---------------- ----
(164) (4) --
--------------- ---------------- ----
(138) (5) --
--------------- ---------------- ----
1,525 254 --
340 420 --
(4) -- --
-- -- --
(6) -- --
-- -- --
(140) (10) --
(3) -- --
(18) (1) --
---------------- ---------------- ----
1,694 663 --
---------------- --------------- ----
1,556 658 --
658 -- --
---------------- --------------- ----
$ 2,214 $ 658 $ --
================ =============== ====
64,284.089 -- --
237,553.351 64,284.089 --
$ 9.223192 $ 10.220080 $ --
$ 9.327299 $ 10.252721 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
PUTNAM VT
ASIA PACIFIC GROWTH FUND
------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ----------------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ......................................... $ 105 $ 39 $ 8
Reinvested capital gains ........................................... -- -- --
Administrative expenses ............................................ (18) (15) (8)
-------------- -------------- ---------------
Net investment income (loss) and capital gains ................... 87 24 --
-------------- -------------- --------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares .......... (4) 4 14
(Increase) decrease in unrealized appreciation of investments ...... (145) (410) 54
---------------- -------------- --------------
Net realized and unrealized (losses) gains ....................... (149) (406) 68
---------------- -------------- --------------
Additions (reductions) from operations ........................... (62) (382) 68
---------------- -------------- --------------
Policy Owners' transactions:
Net premium payments ............................................... 1,150 1,417 1,193
Transfers between funds and/or fixed account ....................... (206) (122) 204
Policy loans ....................................................... (14) (9) (2)
Loan collateral interest crediting ................................. 1 -- --
Surrenders ......................................................... (51) (24) (5)
Death benefits ..................................................... (1) (2) --
Cost of insurance charges .......................................... (183) (194) (130)
Death benefit guarantee charges .................................... (1) -- --
Monthly expense charges ............................................ (32) (34) (21)
---------------- ---------------- --------------
Additions (reductions) for policy owners' transactions ........... 663 1,032 1,239
---------------- ---------------- --------------
Net additions (reductions) for the year .......................... 601 650 1,307
Policy Owners' Equity, beginning of the year ........................ 2,258 1,608 301
---------------- ---------------- --------------
Policy Owners' Equity, end of the year .............................. $ 2,859 $ 2,258 $ 1,608
================ ================ ==============
Units Outstanding, beginning of the year ............................ 236,947.013 144,086.091 29,436.771
Units Outstanding, end of the year .................................. 317,373.587 236,947.013 144,086.091
Net Asset Value per Unit:
Select*Life I ...................................................... $ -- $ -- $ --
Select*Life Series 2000 ............................................ $ 9.003039 $ 9.525464 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
68
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
PUTNAM VT PUTNAM VT
DIVERSIFIED INCOME FUND GROWTH AND INCOME FUND
- --------------------------------------------------------------- ----------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------- --------------------- ------------------- -------------------- ----------------------- -------------------
<S> <C> <C> <S> <C> <C>
$ 88 $ 86 $ 63 $ 458 $ 283 $ 117
37 14 -- 2,991 690 204
(18) (13) (10) (201) (120) (60)
--------------- --------------- --------------- ----------------- ----------------- ---------------
107 87 53 3,248 853 261
--------------- --------------- --------------- ----------------- ----------------- ---------------
18 16 10 435 123 125
(182) 6 25 243 2,475 1,043
--------------- --------------- --------------- ----------------- ----------------- ---------------
(164) 22 35 678 2,598 1,168
--------------- --------------- --------------- ----------------- ----------------- ---------------
(57) 109 88 3,926 3,451 1,429
--------------- --------------- --------------- ----------------- ----------------- ---------------
895 785 696 10,650 10,331 6,047
(71) (100) (65) (1.739) 1,033 1,274
(10) (10) (4) (145) (71) (38)
1 -- -- 10 3 1
(53) (27) (17) (753) (288) (109)
(1) (3) (1) (129) (27) (5)
(166) (130) (92) (2,010) (1,524) (784)
(1) -- (1) (14) (4) (2)
(24) (21) (15) (333) (252) (130)
----------------- ---------------- ---------------- ----------------- ------------------ ----------------
570 494 501 5,537 9,201 6,254
----------------- ---------------- ---------------- ----------------- ------------------ ----------------
513 603 589 9,463 12,652 7,683
1,998 1,395 806 24,199 11,547 3,864
----------------- ---------------- ---------------- ----------------- ------------------ ----------------
$ 2,511 $ 1,998 $ 1,395 $ 33,662 $ 24,199 $ 11,547
================= ================ ================ ================= ================== ================
150,285.794 112,611.941 70,401.445 1,169,049.817 691,973.875 282,045.753
191,652.487 150,285.794 112,611.941 1,409,556.585 1,169,049.817 691,973.875
$ 13.128436 $ 13.418177 $ 12.597066 $ 23.505531 $ 20.529605 $ 16.669506
13.108403 $ 13.290543 $ -- $ 23.912286 $ 20.717931 $ --
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
PUTNAM VT
NEW OPPORTUNITIES FUND
- ----------------------------------------------------------------
1998 1997 1996
- ---------------------- ----------------------- -----------------
<S> <C> <C>
$ -- $ -- $ --
353 -- --
(175) (92) (44)
---------------- ------------------ ------------
178 (92) (44)
---------------- ------------------ ------------
416 239 99
5,506 3,361 (86)
---------------- ------------------ ------------
5,922 3,600 13
---------------- ------------------ ------------
6,100 3,508 (31)
---------------- ------------------ ------------
11,786 11,656 8,025
(1,903) (862) 1,664
(121) (100) (8)
4 1 --
(683) (271) (64)
(44) (8) --
(2,195) (1,770) (804)
(5) -- --
(412) (343) (154)
------------------ ------------------ --------------
6,427 8,303 8,659
------------------ ------------------ --------------
12,527 11,811 8,628
21,924 10,113 1,485
------------------ ------------------ --------------
$ 34,451 $ 21,924 $ 10,113
================== ================== ==============
1,197,940.702 681,263.859 110,223.166
1,513,397.971 1,197,940.702 681,263.859
$ -- $ -- $ --
$ 22.763799 $ 18.301715 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
69
<PAGE>
RELIASTAR SELECT-VARIABLE ACCOUNT
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
For the years ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
PUTNAM VT
UTILITIES GROWTH AND INCOME FUND
----------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- --------------------
<S> <C> <C> <C>
Net investment income:
Reinvested dividend income ...................................... $ 87 $ 61 $ 41
Reinvested capital gains ........................................ 149 84 --
Administrative expenses ......................................... (24) (14) (11)
--------------- --------------- ---------------
Net investment income (loss) and capital gains ................ 212 131 30
--------------- --------------- ---------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ....... 149 40 71
Increase (decrease) in unrealized appreciation of investments ... 100 338 83
--------------- --------------- ---------------
Net realized and unrealized gains (losses) .................... 249 378 154
--------------- --------------- ---------------
Additions (reductions) from operations ........................ 461 509 184
--------------- --------------- ---------------
Policy Owners' transactions:
Net premium payments ............................................ 1,035 903 663
Transfers from (to) fixed account ............................... 108 50 (104)
Policy loans .................................................... (34) (17) (36)
Loan collateral interest crediting .............................. 2 1 1
Surrenders ...................................................... (96) (24) (35)
Death benefits .................................................. (4) (3) (4)
Cost of insurance charges ....................................... (237) (168) (117)
Death benefit guarantee charges ................................. (3) (1) (1)
Monthly expense charges ......................................... (37) (26) (19)
---------------- ---------------- ----------------
Additions (reductions) for policy owners' transactions ........ 734 715 348
---------------- ---------------- ----------------
Net additions (reductions) for the year ....................... 1,195 1,224 532
Policy Owners' Equity, beginning of the year ..................... 2,771 1,547 1,015
---------------- ---------------- ----------------
Policy Owners' Equity, end of the year ........................... $ 3,966 $ 2,771 $ 1,547
================ ================ ================
Units Outstanding, beginning of the year ......................... 152,514.030 107,970.108 81,748.531
Units Outstanding, end of the year ............................... 190,123.952 152,514.030 107,970.108
Net Asset Value per Unit:
Select*Life I ................................................... $ 20.947449 $ 18.375382 $ 14.583970
Select*Life Series 2000 ......................................... $ 20.861089 $ 18.153329 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
70
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND
CHANGES IN POLICYOWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
PUTNAM VT
VOYAGER FUND
- ---------------------------------------------------------------------
1998 1997 1996
- --------------------- --------------------- -----------------------
<S> <C> <C>
$ 144 $ 68 $ 48
3,517 1,472 811
(470) (284) (171)
----------------- ----------------- -----------------
3,191 1,256 688
----------------- ----------------- -----------------
915 218 169
10,198 7,940 921
----------------- ----------------- -----------------
11,113 8,158 1,090
----------------- ----------------- -----------------
14,304 9,414 1,778
----------------- ----------------- -----------------
22,816 20,897 16,198
(1,602) 169 2,466
(428) (263) (187)
27 16 6
(2,127) (969) (395)
(170) (40) (6)
(4,567) (3,626) (2,268)
(27) (12) (8)
(839) (683) (430)
----------------- ----------------- ------------------
13,083 15,489 15,376
----------------- ----------------- ------------------
27,387 24,903 17,154
53,267 28,364 11,210
----------------- ----------------- ------------------
$ 80,654 $ 53,267 $ 28,364
================= ================= ==================
2,601,649.957 1,750,710.230 781,013.273
3,169,909.581 2,601,649.957 1,750,710.230
$ 25.423734 $ 20.608071 $ 16.420248
$ 25.445248 $ 20.460670 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
71
<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. 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>
THE ALGER AMERICAN FUND FIDELITY VIP FIDELITY VIP II
- ----------------------------------- ------------------------- --------------------------------
<S> <C> <C>
Growth Portfolio Equity-Income Portfolio Asset Manager Portfolio
MidCap Growth Portfolio Growth Portfolio Contrafund Portfolio
Small Capitalization Portfolio High Income Portfolio Index 500 Portfolio
Money Market Portfolio Investment Grade Bond Portfolio
Overseas Portfolio
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN SERIES NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- ----------------------------------- -------------------------------------------
<S> <C>
Aggressive Growth Portfolio Limited Maturity Bond Portfolio
Growth Portfolio Partners Portfolio
International Growth Portfolio
Worldwide Growth Portfolio
</TABLE>
<TABLE>
<CAPTION>
NORTHSTAR GALAXY TRUST OCC ACCUMULATION TRUST PUTNAM VARIABLE TRUST
- ---------------------------------- ------------------------- -----------------------------------
<S> <C> <C>
Growth + Value Fund Portfolio Equity Portfolio Putnam VT Asia Pacific Growth Fund
High Yield Bond Portfolio Global Equity Portfolio Putnam VT Diversified Income Fund
Emerging Growth Portfolio Managed Portfolio Putnam VT Growth and Income Fund
International Value Portfolio Small Capitalization Putnam VT New
Multi-Sector Bond Portfolio Portfolio Putnam VT Utilities Growth and
Income Fund
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 adviser for the two portfolios of the Advisers
Management Trust and is paid fees for its services by the Neuberger Berman
Advisers Management Trust Funds. Northstar Investment Management Corporation,
an affiliate of ReliaStar Life, is the investment adviser for the five
Northstar Galaxy 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 funds' prospectuses for
further information. On May 3, 1993, ReliaStar Life added the sub-accounts
investing in shares of 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 Galaxy 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.
72
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION, CONTINUED:
On August 8, 1997, sub-accounts investing in Northstar Galaxy Trust Growth +
Value Portfolio, Northstar Galaxy Trust High Yield Bond Portfolio, Northstar
Galaxy Trust International Value Portfolio, Alger American, Janus Aspen
Series, OCC Accumulation Trust, and Neuberger Berman Management Trust were
made available to Select*Life policies.
On July 29, 1998, Northstar Variable Trust Portfolio changed its name to
Northstar Galaxy Trust Portfolio (GT). Also on July 29, 1998, the Northstar
Variable Trust Growth Portfolio changed its name to Northstar Galaxy Trust
Growth + Value Portfolio.
On November 9, 1998, Northstar Galaxy Trust Income and Growth Portfolio
changed its name to Northstar Galaxy Trust Emerging Growth Portfolio.
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.
73
<PAGE>
RELIASTAR SELECT*LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS:
For the year ended December 31, 1998, 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 .................... $ 7,063 $ 2,374
Alger American MidCap Growth Portfolio ............. 7,361 5,711
Alger American Small Capitalization ................ 7,351 5,457
Fidelity's VIP and VIP II:
Equity-Income Portfolio ............................ 16,847 6,047
Growth Portfolio ................................... 28,954 9,428
High Income Portfolio .............................. 11,682 7,318
Money Market Portfolio ............................. 51,397 48,927
Overseas Portfolio ................................. 10,913 8,935
Asset Manager Portfolio ............................ 7,340 2,197
Contrafund Portfolio ............................... 16,538 2,335
Index 500 Portfolio ................................ 24,771 7,382
Investment Grade Bond Portfolio .................... 3,908 2,980
Janus Aspen Series:
Aggressive Growth Portfolio ........................ 3,903 2,961
Growth Portfolio ................................... 4,263 711
International Growth Portfolio ..................... 7,833 5,581
Worldwide Growth Portfolio ......................... 14,821 3,868
Neuberger Berman Advisers Management Trust:
Limited Maturity Bond Portfolio .................... 1,801 901
Partners Portfolio ................................. 9,517 1,147
Northstar Galaxy Trust:
Northstar Growth + Value Portfolio ................. 1,172 268
Northstar High Yield Bond Portfolio ................ 1,208 705
Northstar Emerging Growth Portfolio ................ 1,003 111
Northstar International Value Portfolio ............ 6,442 5,295
Northstar Multi-Sector Bond Portfolio .............. 1,501 615
OCC Accumulation Trust:
Equity Portfolio ................................... 1,141 90
Global Equity Portfolio ............................ 965 553
Managed Portfolio .................................. 4,947 650
Small Cap Portfolio ................................ 1,825 114
Putnam Variable Trust:
Putnam VT Asia Pacific Growth Fund ................. 4,858 4,109
Putnam VT Diversified Income Fund .................. 955 277
Putnam VT Growth and Income Fund ................... 10,546 1,759
Putnam VT New Opportunities Fund ................... 10,410 3,810
Putnam VT Utilities Growth and Income Fund ......... 2,136 1,186
Putnam VT Voyager Fund ............................. 20,487 4,208
-------- --------
Total .............................................. $305,859 $148,010
======== ========
</TABLE>
74
<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, 1998
and 1997, and the related statements of income, shareholder's equity, and cash
flows for each of the two years in the period ended December 31, 1998. 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, 1998 and 1997 and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 4, 1999
75
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Fixed Maturity Securities (Amortized Cost: 1998, $11,106.5;
1997, $10,655.9) .......................................... $ 11,609.9 $ 11,146.7
Equity Securities (Cost: 1998, $48.1; 1997, $21.2) ......... 49.1 23.0
Mortgage Loans on Real Estate .............................. 2,154.8 2,270.7
Real Estate and Leases ..................................... 53.3 74.5
Policy Loans ............................................... 702.3 663.3
Other Invested Assets ...................................... 113.5 81.3
Short-Term Investments ..................................... 116.0 130.3
----------- -----------
Total Investments ......................................... 14,798.9 14,389.8
Cash ....................................................... -- 23.5
Accounts and Notes Receivable .............................. 245.1 176.7
Reinsurance Receivable ..................................... 417.7 324.4
Deferred Policy Acquisition Costs .......................... 1,215.5 1,091.9
Present Value of Future Profits ............................ 422.5 480.0
Property and Equipment, Net ................................ 110.0 106.3
Accrued Investment Income .................................. 195.8 200.6
Other Assets ............................................... 272.0 552.3
Participation Fund Account Assets .......................... 311.6 316.6
Assets Held in Separate Accounts ........................... 4,310.6 3,149.3
----------- -----------
Total Assets .............................................. $ 22,299.7 $ 20,811.4
=========== ===========
LIABILITIES
Future Policy and Contract Benefits ........................ $ 13,519.8 $ 13,329.4
Pending Policy Claims ...................................... 431.8 338.2
Other Policyholder Funds ................................... 304.6 286.5
Notes and Mortgages Payable -- Unaffiliated ................ 8.2 252.7
Note Payable -- Parent ..................................... 100.0 100.0
Income Taxes ............................................... 225.4 205.2
Other Liabilities .......................................... 529.8 463.0
Participation Fund Account Liabilities ..................... 311.6 316.6
Liabilities Related to Separate Accounts ................... 4,305.1 3,143.8
----------- -----------
Total Liabilities ......................................... 19,736.3 18,435.4
----------- -----------
SHAREHOLDER'S EQUITY
Common Stock (Shares Issued: 2.0) .......................... 2.5 2.5
Additional Paid-In Capital ................................. 1,057.4 1,057.4
Accumulated Other Comprehensive Income ..................... 260.8 226.1
Retained Earnings .......................................... 1,242.7 1,090.0
----------- -----------
Total Shareholder's Equity ................................ 2,563.4 2,376.0
----------- -----------
Total Liabilities and Shareholder's Equity ............... $ 22,299.7 $ 20,811.4
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
76
<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
----------------------------
1998 1997
------------- ------------
<S> <C> <C>
REVENUES
Premiums ....................................................... $ 1,007.9 $ 884.3
Net Investment Income .......................................... 1,109.8 1,003.7
Realized Investment Gains, Net ................................. 17.3 11.7
Policy and Contract Charges .................................... 427.6 332.9
Other Income ................................................... 73.7 75.1
---------- ---------
Total ......................................................... 2,636.3 2,307.7
---------- ---------
BENEFITS AND EXPENSES
Benefits to Policyholders ...................................... 1,549.4 1,375.8
Sales and Operating Expenses ................................... 473.9 408.6
Amortization of Deferred Policy Acquisition Costs and
Present Value of Future Profits ............................... 192.4 146.1
Interest Expense ............................................... 6.9 7.1
Dividends and Experience Refunds to Policyholders .............. 29.4 24.8
---------- ---------
Total ......................................................... 2,252.0 1,962.4
---------- ---------
Income from Continuing Operations Before Income Taxes .......... 384.3 345.3
Income Tax Expense ............................................. 136.4 122.0
---------- ---------
Income from Continuing Operations .............................. 247.9 223.3
Income (Loss) from Discontinued Operations, Net of Tax ......... ( 7.2) 3.2
---------- ---------
Net Income .................................................... $ 240.7 226.5
========== =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
77
<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
------------------------------------------------------------
1998 1997
----------------------------- ----------------------------
TOTAL COMPREHENSIVE TOTAL COMPREHENSIVE
EQUITY INCOME EQUITY INCOME
----------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
COMMON STOCK
Beginning and End of Year ................ $ 2.5 $ 2.5
--------- ------- --------- -------
ADDITIONAL PAID-IN CAPITAL
Beginning of Year ........................ 1,057.4 538.9
Capital Contribution from Parent ......... -- 518.5
--------- ------- --------- -------
End of Year ............................. 1,057.4 1,057.4
--------- ------- --------- -------
ACCUMULATED OTHER COMPREHENSIVE
INCOME
Beginning of Year ........................ 226.1 140.8
Change for the Year ...................... 34.7 $ 34.7 85.3 $ 85.3
--------- ------- --------- -------
End of Year ............................. 260.8 226.1
--------- ------- --------- -------
RETAINED EARNINGS
Beginning of Year ........................ 1,090.0 925.3
Net Income ............................... 240.7 240.7 226.5 226.5
Dividends to Shareholder ................. (88.0) (61.8)
--------- ------- --------- -------
End of Year ............................. 1,242.7 1,090.0
--------- ------- --------- -------
Comprehensive Income ..................... $ 275.4 $ 311.8
======= =======
Total Shareholder's Equity ............... $ 2,563.4 $ 2,376.0
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
78
<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
----------------------------
1998 1997
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ............................................................... $ 240.7 $ 226.5
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Interest Credited to Insurance Contracts ................................ 586.8 548.9
Future Policy Benefits .................................................. (685.6) (396.9)
Capitalization of Policy Acquisition Costs .............................. (258.7) (212.7)
Amortization of Deferred Policy Acquisition Costs and
Present Value of Future Profits ........................................ 192.4 146.1
Deferred Income Taxes ................................................... 15.5 8.1
Net Change in Receivables and Payables .................................. 14.0 30.1
Other Assets ............................................................ 295.4 (94.8)
Realized Investment Gains, Net .......................................... (17.3) (11.7)
Other ................................................................... (20.9) 1.8
---------- ----------
Net Cash Provided by Operating Activities .............................. 362.3 245.4
---------- ----------
INVESTING ACTIVITIES
Proceeds from Sales of Fixed Maturity Securities ......................... 535.8 474.0
Proceeds from Maturities or Repayment of Fixed Maturity Securities ....... 1,096.6 910.7
Cost of Fixed Maturity Securities Acquired ............................... (2,062.9) (1,431.6)
Sales (Purchases) of Equity Securities, Net .............................. (27.4) 15.9
Proceeds of Mortgage Loans Sold, Matured or Repaid ....................... 654.4 350.4
Cost of Mortgage Loans Acquired .......................................... (539.9) (649.4)
Sales of Real Estate and Leases, Net ..................................... 23.7 14.1
Policy Loans Issued, Net ................................................. (39.0) (41.5)
Sales (Purchases) of Other Invested Assets, Net .......................... 7.1 (10.1)
Sales (Purchases) of Short-Term Investments, Net ......................... 14.3 (31.0)
Cash Acquired from Contribution of Security -- Connecticut ............... -- 10.8
---------- ----------
Net Cash Used by Investing Activities ................................... (337.3) (387.7)
---------- ----------
FINANCING ACTIVITIES
Deposits to Insurance Contracts .......................................... 1,634.9 1,429.3
Maturities and Withdrawals from Insurance Contracts ...................... (1,350.9) (1,299.5)
Increase in Notes and Mortgages Payable .................................. 24.0 82.1
Repayment of Notes and Mortgages Payable ................................. (268.5) (.2)
Dividends to Shareholder ................................................. (88.0) (61.8)
---------- ----------
Net Cash Provided (Used) by Financing Activities ........................ (48.5) 149.9
---------- ----------
Increase (Decrease) in Cash .............................................. (23.5) 7.6
Cash at Beginning of Year ................................................ 23.5 15.9
---------- ----------
Cash at End of Year ...................................................... $ -- $ 23.5
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
79
<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, 1998, ReliaStar
Life Insurance Company (ReliaStar Life or 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 were deferred by SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." Effective for transactions occurring on
or after January 1, 1997, the Company adopted those provisions of SFAS No. 125
which were not deferred by SFAS No. 127. 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 had no effect on the financial results of the Company.
REPORTING COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a company's full set of
financial statements. Comprehensive income encompasses all changes in
shareholder's equity from transactions and other events and circumstances from
nonowner sources. Adoption of this standard had no effect on the financial
results of the Company.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Effective December 31, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132
requires new disclosures relating to a company's pension and other
postretirement benefit plans. Adoption of this standard had no effect on the
financial results of the Company.
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE
Effective January 1, 1998, the Company adopted Statement of Position (SOP)
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP No. 98-1 provides guidance on accounting for costs
associated with computer software developed or obtained for internal use.
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 and retirement plans. The Company
operates primarily in the United States and, through its subsidiaries, is
authorized to conduct 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), Security-Connecticut Life Insurance Company
(Security-Connecticut), ReliaStar Life Insurance Company of New York (RLNY) and
ReliaStar Reinsurance Group (UK), Ltd. Effective December 31, 1998, ReliaStar
United Services Life Insurance Company, an affiliate, merged with and into
ReliaStar Life.
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
80
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INVESTMENTS
Fixed maturity securities (bonds and redeemable preferred stocks) are
classified as available-for-sale and are carried at fair value.
Equity securities (common stocks and nonredeemable preferred stocks) are
carried 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 securities and fixed
maturity securities, 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 to the accumulated other comprehensive income
component of shareholder's equity.
Realized investment gains and losses enter into the determination of net
income. Realized investment gains and losses on sales of securities are
determined on the specific identification method. Write-offs of investments that
decline in value below cost on other than a temporary basis and the change in
the allowance for mortgage loans and wholly owned real estate are included with
realized investment gains and losses in the Consolidated Statements of Income.
The Company records write-offs or allowances for its investments based upon
an evaluation of specific problem investments. The Company periodically reviews
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 $100.5 million and $97.5 million at December 31, 1998 and 1997, 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 the years ending December 31, 1998 and 1997 totaled $6.0 million and
$5.3 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
81
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 carried 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 CONTRACT 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 to 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 products consist of investment income and charges
assessed against contract account values for policy administration. 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.
82
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY ACQUISITION COSTS
Those costs of acquiring new business, which vary with and are primarily
related to the production of new business, have been deferred to the extent that
such costs are deemed recoverable. Such costs include commissions, certain costs
of policy issuance and underwriting and certain variable agency expenses.
Costs deferred related to traditional life insurance products are amortized
over the premium paying period of the related policies, in proportion to the
ratio of annual premium revenues to total anticipated premium revenues. Such
anticipated premium revenues are estimated using the same assumptions used for
computing liabilities for future policy benefits.
Costs deferred related to universal life-type policies and investment
contracts are amortized over the lives of the policies, in relation to the
present value of estimated gross profits from mortality, investment, surrender
and expense margins.
PRESENT VALUE OF FUTURE PROFITS
The present value of future profits reflects the estimated fair value of
acquired insurance business in force and represents the portion of the
acquisition cost that was allocated to the value of future cash flows from
insurance contracts existing at the date of acquisition. Such value is the
present value of the actuarially determined projected net cash flows from the
acquired insurance contracts. An analysis of the PVFP asset account is presented
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1998 1997
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Balance, Beginning of Year ................................... $ 480.0 $ 220.2
Acquisition .................................................. ( 7.3) 323.6
Imputed Interest ............................................. 31.0 25.5
Amortization ................................................. ( 90.1) ( 66.0)
Impact of Net Unrealized Investment Gains and Losses ......... 8.9 ( 23.3)
-------- --------
Balance, End of Year ......................................... $ 422.5 $ 480.0
======== ========
</TABLE>
Based on current conditions and assumptions as to future events on acquired
policies in force, the Company expects that the net amortization of the December
31, 1998 PVFP balance will be between 6% and 9% in each of the years 1999
through 2003. 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.
83
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 temporary differences in the
assets and liabilities determined on a tax return and financial statement basis.
The Company files a consolidated tax return with certain of its 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. Interest rate swaps are carried at fair value, and
changes in fair value are recorded as a direct increase or decrease in the
accumulated other comprehensive income component of shareholder's equity. In the
event an interest rate swap agreement would cease to qualify for hedge
accounting, changes in fair value of the affected swap would be recorded as
income or expense. There were no terminations of interest rate swap agreements
during 1998 or 1997.
EQUITY INDEX CALL OPTIONS
Equity index call options are tied to the performance of the S&P 500 Index
and are used as hedges for asset/liability management related to equity-indexed
annuity products. The Company does not purchase options for trading purposes.
The notional amounts and other characteristics of the options correspond to the
characteristics of the policyholder obligations related to deposits received for
equity-indexed annuities. The change in the fair value of the call options
approximates the change in the corresponding equity-indexed annuity account
value. The call options are carried at fair value, and changes in fair value are
recorded as income or expense, consistent with the hedged item.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
year presentation.
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
Life Insurance Company (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.
84
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. ACQUISITION (CONTINUED)
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 $150 million was recorded.
NOTE 4. INVESTMENTS
Investment income summarized by type of investment was as follows:
YEAR ENDED
DECEMBER 31
-------------------------
1998 1997
----------- -----------
(IN MILLIONS)
Fixed Maturity Securities ............. $ 866.7 $ 787.9
Equity Securities ..................... 2.1 2.2
Mortgage Loans on Real Estate ......... 181.6 178.9
Real Estate and Leases ................ 21.6 16.1
Policy Loans .......................... 41.8 34.3
Other Invested Assets ................. 12.8 3.6
Short-Term Investments ................ 10.9 6.7
--------- ---------
Gross Investment Income .............. 1,137.5 1,029.7
Investment Expenses ................... 27.7 26.0
--------- ---------
Net Investment Income ................ $ 1,109.8 $ 1,003.7
========= =========
Net pretax realized investment gains (losses) were as follows:
YEAR ENDED
DECEMBER 31
-----------------------
1998 1997
---------- ----------
(IN MILLIONS)
Net Gains (Losses) on Sales
Fixed Maturity Securities
Gross Gains ............................. $ 26.3 $ 10.3
Gross Losses ............................ (13.2) ( 6.4)
Equity Securities ........................ ( .6) 5.1
Mortgage Loans ........................... ( .2) --
Foreclosed Real Estate ................... 2.8 .1
Real Estate .............................. 2.1 .6
Other .................................... 15.3 9.8
------- -------
32.5 19.5
------- -------
Provisions for Losses
Fixed Maturity Securities ................ ( 8.4) ( 3.0)
Equity Securities ........................ -- ( .1)
Mortgage Loans ........................... -- ( 2.4)
Foreclosed Real Estate ................... ( 2.2) ( 1.6)
Real Estate .............................. ( .2) ( .7)
Other .................................... ( 4.4) --
------- -------
(15.2) ( 7.8)
------- -------
Pretax Realized Investment Gains ......... $ 17.3 $ 11.7
======= =======
85
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1998
-----------------------------------------------------
GROSS UNREALIZED
AMORTIZED -----------------------
COST GAINS (LOSSES) FAIR VALUE
------------- ---------- ---------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
United States Government and Government Agencies
and Authorities .................................... $ 103.6 $ 11.5 -- $ 115.1
States, Municipalities and Political Subdivisions ... 49.9 4.1 -- 54.0
Foreign Governments ................................. 88.5 8.9 -- 97.4
Public Utilities .................................... 643.0 56.6 $ (.2) 699.4
Corporate Securities ................................ 7,416.0 378.3 (47.6) 7,746.7
Mortgage-Backed/Structured Finance .................. 2,793.0 99.9 ( 7.7) 2,885.2
Redeemable Preferred Stock .......................... 12.5 .3 ( .7) 12.1
---------- ------- ------- ----------
Total .............................................. $ 11,106.5 $ 559.6 $ (56.2) $ 11,609.9
========== ======= ======= ==========
</TABLE>
<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>
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, 1998 DECEMBER 31, 1997
----------------------------- -----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------- ------------- ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Maturing in:
One Year or Less .......................... $ 459.5 $ 462.9 $ 199.9 $ 200.9
One to Five Years ......................... 3,554.5 3,709.1 3,651.3 3,789.2
Five to Ten Years ......................... 3,014.9 3,183.2 3,006.4 3,180.7
Ten Years or Later ........................ 1,284.6 1,369.5 1,244.0 1,324.4
Mortgage-Backed/Structured Finance ......... 2,793.0 2,885.2 2,554.3 2,651.5
---------- ---------- ---------- ----------
Total ..................................... $ 11,106.5 $ 11,609.9 $ 10,655.9 $ 11,146.7
========== ========== ========== ==========
</TABLE>
86
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INVESTMENTS (CONTINUED)
The fair values for actively traded marketable bonds are determined based
upon the quoted market prices. 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 using 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 through 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, 1998, the largest industry concentration in the private
placement portfolio was consumer products and services, where 18.7% of the
portfolio was invested, and the largest industry concentration in the marketable
bond portfolio was mortgage-backed/structured finance where 30.8% of the
portfolio was invested. At December 31, 1998, the largest geographic
concentration of commercial mortgage loans was in the Midwest region of the
United States, where approximately 37.4% of the commercial mortgage loan
portfolio was invested.
At December 31, 1998 and 1997, gross unrealized appreciation of equity
securities was $2.2 million and $2.3 million, respectively, and gross unrealized
depreciation was $1.2 million and $.5 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
---------------------
1998 1997
--------- ---------
(IN MILLIONS)
Fixed Maturity Securities ............. $ 3.9 $ 1.5
Mortgage Loans on Real Estate ......... 1.5 1.1
Real Estate and Leases ................ 18.9 21.5
------ ------
Total ................................ $ 24.3 $ 24.1
====== ======
Allowances for losses on investments are reflected on the Consolidated
Balance Sheets as a reduction of the related assets and were as follows:
DECEMBER 31
---------------------
1998 1997
--------- ---------
(IN MILLIONS)
Mortgage Loans ........................ $ 10.5 $ 10.5
Foreclosed Real Estate ................ 6.8 9.1
Investment Real Estate ................ 2.2 2.8
Other Invested Assets ................. 6.0 1.7
87
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INVESTMENTS (CONTINUED)
At December 31, 1998 and 1997, 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 were as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN MILLIONS)
<S> <C> <C>
Impaired Mortgage Loans
Total Investment ...................................................... $ 13.0 $ 14.4
Allowance for Credit Losses ........................................... 10.5 10.5
Average Investment .................................................... 1.6 1.6
</TABLE>
There were no increases or decreases in the allowance for credit losses
during 1998. An increase of $2.4 million and a decrease of $3.6 million were
recorded in 1997. Interest income recognized on impaired mortgage loans during
1998 and 1997 was $.9 million and $1.3 million, respectively. The Company does
not accrue interest income on impaired mortgage loans when the likelihood of
collection is doubtful. Cash receipts for interest payments are recognized as
income in the period received.
Noncash investing activities consisted of $11.3 million of real estate
assets acquired through foreclosure during the year ended December 31, 1997.
The components of net unrealized investment gains included in the
accumulated other comprehensive income component of shareholder's equity are
shown below:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1998 1997
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Unrealized Investment Gains .......................................... $ 529.8 $ 489.0
DAC/PVFP Adjustment .................................................. (128.6) (138.8)
Deferred Income Taxes ................................................ (140.4) (124.1)
-------- --------
Total ............................................................... $ 260.8 $ 226.1
======== ========
</TABLE>
The change in accumulated other comprehensive income consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1998 1997
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Unrealized Investment Gains (Losses) Arising During The Period(1) ..... $ 36.7 $ 119.8
Reclassification Adjustments(2) ....................................... ( 8.7) ( 5.8)
Change in DAC/PVFP Adjustment(3) ...................................... 6.7 ( 28.7)
------- --------
Total ................................................................ $ 34.7 $ 85.3
======= ========
</TABLE>
- ------------------
(1) Net of income tax expense (benefit) totaling $17.0 million and $67.9 million
for 1998 and 1997, respectively.
(2) Net of income tax expense (benefit) totaling $(4.1) million and $(3.3)
million for 1998 and 1997, respectively.
(3) Net of income tax expense (benefit) totaling $3.5 million and $(16.3)
million for 1998 and 1997, respectively.
88
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INCOME TAXES
The income tax liability as reflected on the Consolidated Balance Sheets
consisted of the following:
DECEMBER 31
-----------------------
1998 1997
---------- ----------
(IN MILLIONS)
Current Income Taxes .......... $ 18.4 $ 25.3
Deferred Income Taxes ......... 207.0 179.9
------- -------
Total ........................ $ 225.4 $ 205.2
======= =======
The provision for income taxes reflected on the Consolidated Statements of
Income consisted of the following:
YEAR ENDED
DECEMBER 31
-------------------------
1998 1997
----------- -----------
(IN MILLIONS)
Currently Payable ............. $ 120.9 $ 113.8
Deferred ...................... 15.5 8.2
-------- --------
Total ........................ $ 136.4 $ 122.0
======== ========
The Internal Revenue Service has completed its review of the Company's tax
return for all years through 1995.
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:
DECEMBER 31
---------------------------
1998 1997
------------ ------------
(IN MILLIONS)
Future Policy and Contract Benefits ....... $ (303.5) $ (363.6)
Investment Write-Offs and Allowances ...... ( 34.4) ( 41.4)
Pension and Postretirement Benefit Plans .. ( 7.8) ( 6.2)
Employee Benefits ......................... ( 12.9) ( 12.8)
Other ..................................... (118.5) ( 59.5)
-------- --------
Gross Deferred Tax Asset .................. (477.1) (483.5)
-------- --------
Deferred Policy Acquisition Costs ......... 326.6 322.9
Present Value of Future Profits ........... 157.3 142.8
Net Unrealized Investment Gains ........... 119.3 95.6
Property and Equipment .................... 24.4 22.9
Real Estate Joint Ventures ................ 15.5 16.5
Other ..................................... 41.0 62.7
-------- --------
Gross Deferred Tax Liability .............. 684.1 663.4
-------- --------
Net Deferred Tax Liability ............... $ 207.0 $ 179.9
======== ========
Federal income tax regulations allowed certain special deductions for 1983
and prior years which are accumulated in a memorandum tax account designated as
"policyholders' surplus." Generally, this policyholders' surplus account will
become subject to tax at the then current rates only if the accumulated balance
exceeds certain maximum limitations or if certain cash distributions are deemed
to
89
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INCOME TAXES (CONTINUED)
be paid out of the account. At December 31, 1998, ReliaStar Life and its life
insurance subsidiaries have accumulated approximately $51.0 million in their
separate policyholders' surplus accounts. Deferred taxes have not been provided
on this temporary difference.
There have been no deferred taxes recorded for the unremitted equity in
subsidiaries as the earnings are considered to be permanently invested or will
be remitted only when tax effective to do so.
The difference between the U.S. federal income tax rate and the
consolidated tax provision rate is summarized as follows:
YEAR ENDED
DECEMBER 31
-----------------------
1998 1997
---------- ----------
Statutory Tax Rate ............................. 35.0% 35.0%
Other .......................................... .5 .3
---- ----
Effective Tax Rate ............................ 35.5% 35.3%
==== ====
Cash paid for federal income taxes was $123.3 million and $89.0 million for
the years ended December 31, 1998 and 1997, respectively.
NOTE 6. NOTES AND MORTGAGES PAYABLE
A summary of notes and mortgages payable is as follows:
DECEMBER 31
------------------------
1998 1997
---------- -----------
(IN MILLIONS)
Unaffiliated:
Commercial Paper ............................. -- $ 218.5
Bank Borrowings .............................. -- 26.0
Other Indebtedness -- Current Portion ........ $ .2 .1
------- --------
Short-Term Debt ............................. .2 244.6
Other Indebtedness -- Noncurrent Portion ..... 8.0 8.1
------- --------
Total Unaffiliated .......................... $ 8.2 $ 252.7
======= ========
Note Payable to Parent ...................... $ 100.0 $ 100.0
======= ========
At December 31, 1998 and 1997, other indebtedness is primarily mortgage
notes assumed in connection with certain real estate investments with interest
rates ranging from 6.2% to 9.6%.
The weighted average interest rate on the commercial paper outstanding at
December 31, 1997 was 6.18%
Principal payments required in each of the next five years and thereafter
are as follows:
(IN MILLIONS)
-------------
1999 -- $ .2 2002 -- $.1
2000 -- $5.8 2003 -- $.1
2001 -- $2.0 2004 and thereafter -- $.0
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.
90
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. NOTES AND MORTGAGES PAYABLE (CONTINUED)
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 65/8% 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 unaffiliated debt was $.4 million and $13.1 million for
the years ended December 31, 1998 and 1997 respectively.
NOTE 7. EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company has funded and unfunded noncontributory defined benefit
retirement plans covering substantially all employees which provide benefits to
employees upon retirement (Pension Plans). Effective December 31, 1998, the
Company's qualified defined benefit retirement plan was amended to suspend the
accrual of additional benefits for future services. Employees will retain all of
their accrued benefits as of December 31, 1998, which will be paid monthly at
retirement according to the provisions of the plan. Employees meeting certain
age and service requirements will receive certain transition benefits until
retirement. A curtailment gain was recorded in 1998 to reflect the impact of
this plan amendment and employee reductions resulting from the transfer of
certain accident and health administrative operations to a third party.
The Company provides certain health care and life insurance benefits to
retired employees and their eligible dependents (Other Plans). The
postretirement health care plan is contributory, with retiree contribution
levels adjusted annually; the life insurance plan provides a flat amount of
noncontributory coverage and optional contributory coverage.
Net periodic expense or benefit for ReliaStar and its subsidiaries for the
pension and other plans included the following components:
YEAR ENDED DECEMBER 31
-----------------------
1998 1997
----------- ---------
(IN MILLIONS)
PENSION PLANS
Service Cost ............................... $ 3.2 $ 4.9
Interest Cost .............................. 16.7 15.2
Expected Return on Plan Assets ............. (20.9) (17.0)
Amortization of Prior Service Cost ......... .8 1.1
Amortization of Transition Asset ........... ( .1) ( .3)
Curtailment Gain ........................... ( 3.7) --
Actuarial Loss ............................. 1.6 1.8
------- -------
Net Expense (Benefit) ..................... $ (2.4) $ 5.7
======= =======
91
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1998 1997
---------- ----------
(IN MILLIONS)
<S> <C> <C>
OTHER PLANS
Service Cost ............................... $ .5 $ .4
Interest Cost .............................. .7 .7
Amortization of Prior Service Cost ......... (1.5) (1.6)
Curtailment Gain ........................... (1.7) --
Actuarial Gain ............................. ( .1) ( .1)
------ ------
Net Expense (Benefit) ..................... $ (2.1) $ (.6)
====== ======
</TABLE>
The funded status of the plans and net amounts recognized in ReliaStar's
Consolidated Balance Sheets were as follows:
<TABLE>
<CAPTION>
PENSION PLANS OTHER PLANS
------------------------- ------------------------
DECEMBER 31 DECEMBER 31
1998 1997 1998 1997
----------- ----------- ---------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Benefit Obligation at Beginning of Year .......... $ 237.1 $ 195.8 $ 10.9 $ 9.8
Service Cost ..................................... 3.2 4.9 .5 .4
Interest Cost .................................... 16.7 15.2 .7 .7
Actuarial (Gain) Loss ............................ 14.9 25.6 (.2) .3
SCC Acquisition .................................. -- 8.6 -- .6
Benefits Paid .................................... (15.4) (13.0) (.4) (.9)
Plan Amendments .................................. 2.0 -- -- --
Termination Cost ................................. 1.0 -- -- --
Curtailment ...................................... (20.8) -- (.7) --
-------- -------- ------- -------
Benefit Obligation at End of Year ................ 238.7 237.1 10.8 10.9
-------- -------- ------- -------
Fair Value of Plan Assets at Beginning of Year ... 229.1 184.9 -- --
Actual Return on Plan Assets ..................... 36.6 45.2 -- --
SCC Acquisition .................................. -- 9.2 -- --
Employer Contributions ........................... 1.4 2.8 .4 .4
Participant Contributions ........................ -- -- .5 .5
Benefits Paid .................................... (15.4) (13.0) (.9) (.9)
-------- -------- ------- -------
Fair Value of Plan Assets at End of Year ......... 251.7 229.1 -- --
-------- -------- ------- -------
Funded Status .................................... 13.0 (8.0) (10.8) (10.9)
Unrecognized Net (Gain) Loss ..................... (2.2) 10.3 (1.8) (1.7)
Unrecognized Prior Service Cost .................. 3.6 8.5 (4.7) (7.2)
Unrecognized Transition Asset .................... -- (.1) -- --
-------- -------- ------- -------
Net Asset (Liability) Recognized ................. $ 14.4 $ 10.7 $ (17.3) $ (19.8)
======== ======== ======= =======
</TABLE>
92
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
Amounts recognized in ReliaStar's Consolidated Balance Sheets were as
follows:
<TABLE>
<CAPTION>
PENSION PLANS OTHER PLANS
----------------------- -------------------------
DECEMBER 31 DECEMBER 31
1998 1997 1998 1997
---------- ---------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Prepaid Benefit Cost ..................... $ 28.2 $ 22.5 -- --
Accrued Benefit Liability ................ (19.1) (15.7) $ (17.3) $ (19.8)
Intangible Asset ......................... 5.3 3.9 -- --
------- ------- ------- -------
Net Asset (Liability) Recognized ......... $ 14.4 $ 10.7 $ (17.3) $ (19.8)
======= ======= ======= =======
</TABLE>
The aggregate projected benefit obligation and aggregate accumulated
benefit obligation for the unfunded pension plans were $19.4 million and $19.1
million, respectively, as of December 31, 1998; and $17.2 million and $15.7
million, respectively, as of December 31, 1997. As of December 31, 1998 and
1997, pension plan assets included 1,232,982 shares of ReliaStar common stock
with a fair value of $56.9 million and $50.8 million, respectively. The benefit
obligations for the pension and other postretirement plans were determined using
assumed discount rates of 7.0% and 7.25% as of January 1, 1999 and 1998,
respectively. A weighted-average long-term rate of compensation increase of 4.5%
was used for the pension benefit obligation. The assumed long-term rate of
return on pension plan assets was 10.5% in 1998 and 10.0% in 1997. The assumed
health care cost trend rate for 1999 and thereafter used in measuring the
postretirement health care benefit obligation was 5.0%. The assumed health care
cost trend rate has an effect on the amounts reported. For example, a
one-percentage-point increase in the rate would increase the 1998 total service
and interest cost by $.1 million and the postretirement health care benefit
obligation by $.4 million. A one-percentage-point decrease in the rate would
decrease the 1998 total service and interest cost by $.1 million and the
postretirement health care benefit obligation by $.4 million.
The above amounts are for ReliaStar and its subsidiaries as the Company's
portion is not determinable.
SUCCESS SHARING PLAN AND ESOP
The Success Sharing Plan and ESOP (Success Sharing Plan) was designed to
increase employee ownership and reward employees when certain Company
performance objectives are met. Essentially all employees are eligible to
participate in the Success Sharing Plan. The Success Sharing Plan has both
qualified and nonqualified components. The nonqualified component is equal to
25% of the annual award and is paid in cash to employees. The qualified
component is equal to 75% of the annual award which is contributed to the ESOP
portion of the Success Sharing Plan. Costs charged to expense for the Success
Sharing Plan were $6.6 million and $6.5 million in 1998 and 1997, 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 $8.1 million and $4.9 million in 1998 and 1997, respectively. The
weighted average fair value of the options granted during 1998 and 1997 is
estimated as $11.74 and $9.17, respectively, on the date of grant using the
Black-Scholes option-pricing
93
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
model with the following assumptions: dividend yield 1.6% to 2.0%, volatility
factors ranging from .1868 to .2470, risk-free interest rates of 5.3% for 1998
and 6.2% for 1997 and an expected life of 2.7 to 5.8 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 $30.7 million and $26.3 million to ReliaStar in 1998 and 1997,
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 1998 and 1997, the Company paid cash dividends of
$88.0 million and $61.8 million, respectively to ReliaStar.
NOTE 9. SHAREHOLDER'S EQUITY
DIVIDEND RESTRICTIONS
ReliaStar Life's ability 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 1999, the amount of dividends which can be paid by ReliaStar Life without
Commissioner approval is $156.4 million.
STATUTORY SURPLUS AND NET INCOME
Net income of ReliaStar Life and its insurance subsidiaries, as determined
in accordance with statutory accounting practices, was $153.3 million and $185.4
million for 1998 and 1997, respectively. ReliaStar Life's statutory capital and
surplus was $1,063.4 million and $1,031.8 million at December 31, 1998 and 1997,
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, 1998 and 1997. The
Company evaluates the financial condition of its reinsurers and monitors
concentrations of
94
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. REINSURANCE (CONTINUED)
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, 1998, $44.0 billion
of life insurance in force was ceded to other companies. The Company has assumed
$48.2 billion of life insurance in force as of December 31, 1998 (including
$42.6 billion of reinsurance assumed pertaining to Federal Employees' Group Life
Insurance and Servicemans' Group Life Insurance). Also included in these amounts
are $683.2 million of reinsurance ceded and $5.6 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
-------------------------
1998 1997
----------- -----------
(IN MILLIONS)
Direct Premiums ........................ $ 780.0 $ 675.6
Reinsurance Assumed .................... 498.8 382.6
Reinsurance Ceded ...................... ( 270.9) (173.9)
--------- --------
Net Premiums .......................... $ 1,007.9 $ 884.3
========= ========
Reinsurance Recoveries ................ $ 218.7 $ 114.4
========= ========
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:
1998 1997
----------- -----------
(IN MILLIONS)
Balance at January 1 .................. $ 387.0 $ 383.3
Less Reinsurance Recoverables ......... 120.2 102.6
-------- --------
Net Balance at January 1 .............. 266.8 280.7
Incurred Related to:
Current Year ......................... 204.4 178.6
Prior Year ........................... 8.2 (3.0)
-------- --------
Total Incurred ........................ 212.6 175.6
Paid Related to:
Current Year ......................... 84.2 107.4
Prior Year ........................... 95.8 82.1
-------- --------
Total Paid ............................ 180.0 189.5
Net Balance at December 31 ............ 299.4 266.8
Plus Reinsurance Recoverables ......... 180.9 120.2
-------- --------
Balance at December 31 ............... $ 480.3 $ 387.0
======== ========
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.
95
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $192.0 million at December
31, 1998) 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 ($626.9 million) in the event the joint obligor is unable
to meet its obligations.
FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with on and
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, interest rate caps and equity-indexed call options. Those
instruments involve, to varying degrees, elements of credit, interest rate or
liquidity risk in excess of the amount recognized in the Consolidated Balance
Sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
financial guarantees written is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. For
interest rate swap and interest rate cap transactions, the contract or notional
amounts do not represent exposure to credit loss. For swaps and caps, 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, 1998.
Unless otherwise noted, the Company does not require collateral or other
security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1998 1997
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Contract or Notional Amount
Financial Instruments Whose Contract Amounts Represent Credit Risk
Commitments to Extend Credit .................................... $ 101.0 $ 156.3
Financial Guarantees ............................................ 28.8 40.0
Financial Instruments Whose Notional or Contract Amounts Exceed the
Amount of Credit Risk
Interest Rate Swap Agreements ................................... 897.5 1,162.5
Interest Rate Cap Agreements .................................... 510.0 510.0
Equity-Indexed Call Options ..................................... 28.7 2.0
</TABLE>
96
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 six real estate joint ventures where it has
guaranteed the repayment of loans of the partnership. As of December 31, 1998,
ReliaStar Life had guaranteed repayment of $28.8 million ($40.0 million at
December 31, 1997) 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 1998 and 1997 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 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 $27.3 million at December 31,
1998.
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 less than $.1 million at
December 31, 1998.
EQUITY-INDEXED CALL OPTIONS -- The Company holds certain call options
indexed to the performance of the S&P 500 Index as part of its asset/liability
management strategy for its equity-indexed annuity products. The Company held 25
call options with a notional amount of $28.7 million and an estimated fair value
of $9.8 million as of December 31, 1998.
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.
97
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 remaining deferred gain on the closed futures contracts of
approximately $20 million 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 $15.3 million
and $16.0 million for 1998 and 1997, respectively.
Future minimum aggregate rental commitments at December 31, 1998 for
operating leases were as follows:
(IN MILLIONS)
-------------
1999 -- $8.0 2002 -- $ 4.0
2000 -- $7.0 2003 -- $ 2.8
2001 -- $5.5 2004 and thereafter -- $10.7
NOTE 13. DISCONTINUED OPERATIONS AND OTHER
In December 1998, the Company completed the sale of its mortgage banking
subsidiary, ReliaStar Mortgage Corporation (RMC), for approximately $19 million
in cash. The results of RMC are presented as discontinued operations in the
Consolidated Statements of Income.
Revenues and income from operations prior to the date RMC was first
presented as discontinued operations, and the loss on disposal were as follows:
YEAR ENDED DECEMBER 31
-----------------------
1998 1997
---------- ----------
(IN MILLIONS)
Revenues ........................ $ 18.9 $ 32.7
Income from Operations(1) ....... .1 3.2
Loss on Disposal(2) ............. (7.3) --
- ------------------
(1) Net of tax expense of $1.8 million 1997.
(2) Includes a $2.8 million pretax loss from operations during the phase-out
period and is net of a tax benefit of $4.3 million.
During December 1998, the Company approved a plan to consolidate its five
individual life insurance and annuity service center operations into one new
center. This consolidation is expected to be substantially complete by the end
of the year 2000 and anticipates the termination of approximately 700 positions
at the Company's current service center operations. The transitioning of
operations to the new center is scheduled to begin during 1999. Estimated costs
related to this plan of approximately $24.8 million (pre-tax) were recorded and
are primarily related to employee-related termination costs and non-cancelable
lease contracts costs associated with vacated facilities.
During 1997, the Company approved a plan to eliminate redundancies and
create operational efficiencies through consolidation of certain financial,
underwriting and claims functions. The plan was substantially completed by
December 31, 1998. The remaining costs accrued as of December 31, 1998 ($3.6
million) are primarily related to remaining unpaid severance benefits and
non-cancelable lease contracts costs associated with vacated facilities and are
considered adequate for all remaining obligations. Certain initial accrual
estimates related to non-cancelable lease contracts were in excess of actual
costs. The reversal of the excess accrued costs during 1998 increased net income
by approximately $1 million.
98
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. 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, 1998 and 1997. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date; therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
FIXED MATURITY SECURITIES -- The estimated fair value disclosures for debt
securities satisfy the fair value disclosure requirements of SFAS No. 107 (see
Note 4).
EQUITY SECURITIES -- Fair value equals carrying value as these securities
are carried at quoted market value.
MORTGAGE LOANS ON REAL ESTATE -- The fair values for mortgage loans on real
estate are estimated using discounted cash flow analyses and 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.
99
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.) (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
NOTES AND MORTGAGES PAYABLE -- For 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.
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------- -------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------- -------------- -------------- --------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Financial Instruments Recorded as Assets
Fixed Maturity Securities .............................. $ 11,609.9 $ 11,609.9 $ 11,146.7 $ 11,146.7
Equity Securities ...................................... 49.1 49.1 23.0 23.0
Mortgage Loans on Real Estate
Commercial ............................................ 1,726.8 1,841.8 1,594.9 1,679.1
Residential and Other ................................. 428.0 436.7 675.8 687.3
Policy Loans ........................................... 702.3 702.3 663.3 663.3
Cash and Short-Term Investments ........................ 113.5 113.5 153.8 153.8
Other Financial Instruments Recorded as Assets ......... 460.4 460.4 704.3 704.3
Financial Instruments Recorded as Liabilities
Investment Contracts
Deferred Annuities ................................... (7,784.5) (7,366.3) (7,753.1) (7,321.6)
GICs ................................................. (70.3) (98.2) (62.5) (90.0)
Supplementary Contracts and Immediate
Annuities ........................................... (414.8) (416.5) (337.1) (330.5)
Other Investment Contracts ........................... (396.4) (396.4) (454.9) (454.9)
Claim and Other Deposit Funds .......................... (154.4) (154.4) (148.1) (148.1)
Notes and Mortgages Payable ............................ (7.6) (8.1) (251.9) (252.4)
Other Financial Instruments Recorded as Liabilities (411.8) (411.8) (285.4) (285.4)
Off-Balance Sheet Financial Instruments
Financial Guarantees ................................... -- (2.1) -- (3.5)
</TABLE>
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates.
100
<PAGE>
APPENDIX A
THE FIXED ACCOUNT
The Fixed Account consists of all of our assets other than those in our
separate accounts. We have complete ownership and control of all of the assets
of the Fixed Account.
Because of exemptions and exclusions contained in the Securities Act of
1933 and the Investment Company Act of 1940, the Fixed Account has not been
registered under these acts. Neither the Fixed Account nor any interest in it is
subject to the provisions of these acts and as a result the SEC has not reviewed
the disclosures in this Prospectus relating to the Fixed Account. However,
disclosures relating to the Fixed Account are subject to generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
We guarantee both principal and interest on amounts credited to the Fixed
Account. We credit interest at an effective annual rate of at least 4%,
independent of the investment experience of the Fixed Account. From time to
time, we may guarantee interest at a rate higher than 4%.
ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS
OF 4% PER YEAR WILL BE DETERMINED AT OUR SOLE DISCRETION. YOU ASSUME THE RISK
THAT INTEREST CREDITED TO THE FIXED ACCOUNT MAY NOT EXCEED THE MINIMUM GUARANTEE
OF 4% FOR A GIVEN YEAR.
We do not use a specific formula for determining excess interest credits.
However, we consider the following:
o General economic trends,
o Rates of return currently available on our investments,
o Rates of return anticipated in our investments, regulatory and tax
factors, and
o Competitive factors.
We are not aware of any statutory limitations to the maximum amount of
interest we may credit and our Board of Directors has not set any limitations.
The Fixed Accumulation Value of the Policy is the sum of the Net Premiums
credited to 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:
o The request to transfer must be postmarked no more than 30 days before
the Policy Anniversary and no later than 30 days after the Policy
Anniversary. Only one transfer is allowed during this period.
o The Fixed Accumulation Value after the transfer must be at least equal
to the Loan Amount.
o No more than 50% of the Fixed Accumulation Value (minus any Loan
Amount) may be transferred unless the balance, after the transfer,
would be less than $1,000. If the balance would be less than $1,000,
the full Fixed Accumulation Value (minus any Loan Amount) may be
transferred.
o You must transfer at least:
-- $500, or
-- the total Fixed Accumulation Value (minus any Loan Amount) if
less than $500.
We make the Monthly Deduction from your Fixed Accumulation Value in
proportion to the total Accumulation Value of the Policy.
The Surrender Charge described in the Prospectus applies to the total
Accumulation Value, which includes the Fixed Accumulation Value. If the Owner
surrenders the Policy for its Cash Surrender Value, the Fixed Accumulation Value
will be reduced by any applicable Surrender Charge, any Loan Amount and unpaid
Monthly Deductions applicable to the Fixed Account.
A-1
<PAGE>
APPENDIX B
CALCULATION OF ACCUMULATION VALUE
The Accumulation Value of the Policy is equal to the sum of the Variable
Accumulation Value plus the Fixed Accumulation Value.
VARIABLE ACCUMULATION VALUE
The Variable Accumulation Value is the total of your values in each
Sub-Account. The value for each Sub-Account is equal to:
1 multiplied by 2, where:
1
Is your current number of Accumulation Units (described below).
2
Is the current Unit Value (described below).
The Variable Accumulation Value will vary from Valuation Date to Valuation
Date (described below) reflecting changes in 1 and 2 above.
ACCUMULATION UNITS. When transactions are made which affect the Variable
Accumulation Value, dollar amounts are converted to Accumulation Units. The
number of Accumulation Units for a transaction is found by dividing the dollar
amount of the transaction by the current Unit Value.
The number of Accumulation Units for a Sub-Account increases when:
o Net Premiums are credited to that Sub-Account; or
o Transfers from the Fixed Account or other Sub-Accounts are credited to
that Sub-Account.
The number of Accumulation Units for a Sub-Account decreases when:
o You take out a Policy loan from that Sub-Account;
o You take a partial withdrawal from that Sub-Account;
o We take a portion of the Monthly Deduction from that Sub-Account; or
o Transfers are made from that Sub-Account to the Fixed Account or other
Sub-Accounts.
UNIT VALUE. The Unit Value for a Sub-Account on any Valuation Date is equal
to the previous Unit Value times the Net Investment Factor for that Sub-Account
(described below) for the Valuation Period (described below) ending on that
Valuation Date. The Unit Value was initially set at $10 when the Sub-Account
first purchased Fund shares.
NET INVESTMENT FACTOR. The Net Investment Factor is a number that reflects
charges to the Policy and the investment performance during a Valuation Period
of the Fund in which a Sub-Account is invested. If the Net Investment Factor is
greater than one, the Unit Value is increased. If the Net Investment Factor is
less than one, the Unit Value is decreased. The Net Investment Factor for a
Sub-Account is determined by dividing 1 by 2.
(1 \ 2), where:
1
Is the result of:
o The net asset value per share of the Fund shares in which the
Sub-Account invests, determined at the end of the current Valuation
Period;
o Plus the per share amount of any dividend or capital gain
distributions made on the Fund shares in which the Sub-Account invests
during the current Valuation Period;
o Plus or minus a per share charge or credit for any taxes reserved
which we determine has resulted from the investment operations of the
Sub-Account and to be applicable to the Policy.
B-1
<PAGE>
2
Is the result of:
o The net asset value per share of the Fund shares held in the
Sub-Account, determined at the end of the last prior Valuation Period;
o Plus or minus a per share charge or credit for any taxes reserved for
during the last prior Valuation Period which we determine resulted
from the investment operations of the Sub-Account and was applicable
to the Policy.
VALUATION DATE; VALUATION PERIOD. A Valuation Date is each day the New York
Stock Exchange is open for 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.
B-2
<PAGE>
APPENDIX C
ILLUSTRATION OF ACCUMULATION VALUES, SURRENDER CHARGES,
CASH SURRENDER VALUES, AND DEATH BENEFITS
The following tables illustrate how the Accumulation Values, Cash Surrender
Values, and Death Benefits of a Policy may change with the investment experience
of the Variable Account. The tables show how the Accumulation Values, Cash
Surrender Values, and Death Benefits of a Policy issued to 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-6 through C-8) is illustrated.
The amounts shown for the Accumulation Values, Cash Surrender Values, and
Death Benefits reflect the fact that the net investment return of the
Sub-Accounts of the Variable Account is lower than the gross, after-tax return
on the assets held in the Funds as a result of the Funds' operating expenses.
The values shown take into account the daily total operating expenses paid by
the three funds available through the three portfolios or The Alger American
Trust, the four portfolios of the Fidelity VIP, the three portfolios of the
Fidelity VIP II, the four funds of the Janus Aspen Series, the three 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
three funds of Putnam Variable Trust, which together are assumed to be at an
average annual rate of 0.77% for all years. This figure is derived based on an
average of the Funds' 1998 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 -0.77%, 5.23%, and 11.23%, respectively. Without such
expense reimbursements, total expenses would be 0.88%. Hypothetical Accumulation
Values, Cash Surrender Values and the Death Benefits may be lower without the
expense reimbursement. Expense reimbursements are voluntary. While it is
currently anticipated that expense reimbursements will continue past the current
year, there is no assurance of ongoing reimbursements.
The hypothetical values shown in the tables do not reflect any charges for
Federal income taxes attributable to the Variable Account because we do not
currently make any such charges. However, such charges may be made in the future
and, in that event, the gross annual investment return would have to exceed 0
percent, 6 percent, or 12 percent by an amount sufficient to cover the tax
charges in order to produce the Accumulation Values, Cash Surrender Values, and
Death Benefits illustrated. (See section entitled "Federal Tax Matters" in the
prospectus).
C-1
<PAGE>
The tables illustrate the Policy values that would result based upon the
hypothetical rates of return if premiums are paid as indicated, if all Net
Premiums are allocated to the Variable Account, and if no Policy loans have been
made. The tables are also based on the assumptions that the Policy owner has not
requested an increase or decrease in the Face Amount, that no partial
withdrawals have been made, that no transfers have been made, and total
operating expenses of the Funds continue as anticipated. Actual results will
depend on the expenses and performance of the investment choice made by the
owner.
Upon request, we will provide a comparable illustration based upon the
proposed Insured's Age, sex, underwriting classification, the Face Amount and
Planned Periodic Premium schedule requested, and any available riders requested.
C-2
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM 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 3,433 118 150,000 3,848 533 150,000
4 4,488 888 150,000 5,050 1,450 150,000
5 5,496 1,896 150,000 6,210 2,610 150,000
6 6,454 3,214 150,000 7,326 4,086 150,000
7 7,359 4,479 150,000 8,397 5,517 150,000
8 8,211 5,691 150,000 9,422 6,902 150,000
9 9,005 6,845 150,000 10,399 8,239 150,000
10 9,740 7,941 150,000 11,324 9,524 150,000
11 10,443 9,003 150,000 12,306 10,866 150,000
12 11,074 9,994 150,000 13,236 12,156 150,000
13 11,626 10,906 150,000 14,104 13,384 150,000
14 12,089 11,279 150,000 14,905 14,545 150,000
15 12,455 12,455 150,000 15,632 15,632 150,000
20 12,492 12,492 150,000 17,928 17,928 150,000
AGE
70 0 0 0 10,756 10,756 150,000
</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.
C-3
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM 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 1,273 0 150,000* 1,411 0 150,000*
2 2,577 117 150,000 2,866 406 150,000
3 3,912 597 150,000 4,366 1,051 150,000
4 5,278 1,678 150,000 5,909 2,309 150,000
5 6,672 3,072 150,000 7,496 3,896 150,000
6 8,092 4,852 150,000 9,127 5,887 150,000
7 9,539 6,659 150,000 10,803 7,923 150,000
8 11,011 8,491 150,000 12,524 10,004 150,000
9 12,505 10,345 150,000 14,289 12,129 150,000
10 14,020 12,220 150,000 16,098 14,298 150,000
11 15,599 14,159 150,000 18,098 16,658 150,000
12 17,195 16,115 150,000 20,158 19,078 150,000
13 18,801 18,801 150,000 22,275 21,555 150,000
14 20,409 20,049 150,000 24,446 24,086 150,000
15 22,010 22.010 150,000 26,670 26,670 150,000
20 29,656 29,656 150,000 38,515 38,515 150,000
AGE
70 35,998 35,998 150,000 64,524 64,524 150,000
75 23,606 23,606 150,000 76,124 76,124 150,000
80 0 0 0 83,761 83,761 150,000
85 0 0 0 81,505 81,505 150,000
90 0 0 0 48,985 48,985 150,000
**
</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 $28 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.
C-4
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM 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 1,359 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 4,928 1,613 150,000
4 6,170 2,570 150,000 6,879 3,279 150,000
5 8,056 4,456 150,000 9,007 5,407 150,000
6 10,103 6,863 150,000 11,330 8,090 150,000
7 12,326 9,446 150,000 13,868 10,988 150,000
8 14,743 12,223 150,000 16,642 14,122 150,000
9 17,372 15,212 150,000 19,674 17,514 150,000
10 20,233 18,433 150,000 22,990 21,190 150,000
11 23,418 21,978 150,000 26,820 25,380 150,000
12 26,895 25,815 150,000 31,041 29,961 150,000
13 30,693 29,973 150,000 35,691 34,971 150,000
14 34,841 34,481 150,000 40,817 40,457 150,000
15 39,376 39,376 150,000 46,472 46,472 150,000
20 69,608 69,608 150,000 85,185 85,185 150,000
AGE
70 203,654 203,654 236,239 260,203 260,203 301,836
75 339,193 339,193 362,938 439,917 439,917 470,712
80 561,038 561,038 589,090 739,196 739,196 776,157
85 910,846 910,846 956,389 1,224,346 1,224,346 1,285,564
90 1,446,493 1,446,493 1,518,818 1,997,772 1,997,772 2,097,661
95 2,312,618 2,312,618 2,335,755 3,278,145 3,278,145 3,310,927
</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 $114 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.
C-5
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM 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 0 151,185* 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 4,454 854 154,455 5,023 1,423 155,023
5 5,444 1,844 155,445 6,168 2,568 156,168
6 6,379 3,139 156,380 7,264 4,024 157,265
7 7,257 4,377 157,258 8,313 5,433 158,313
8 8,076 5,556 158,076 9,310 6,790 159,310
9 8,832 6,672 158,832 10,254 8,094 160,254
10 9,522 7,722 159,522 11,140 9,340 161,140
11 10,171 8,731 160,172 12,075 10,635 162,076
12 10,741 9,661 160,742 12,950 11,870 162,951
13 11,224 10,504 161,224 13,755 13,035 163,756
14 11,606 11,246 161,607 14,482 14,122 164,482
15 11,881 11,881 161,882 15,123 15,123 165,124
20 11,291 11,291 161,291 16,782 16,782 166,783
AGE
70 0 0 0 7,127 7,127 157,128
**
</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.
C-6
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM 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* 1,408 0 151,409*
2 2,566 106 152,567 2,857 397 152,858
3 3,889 574 153,890 4,347 1,032 154,348
4 5,237 1,637 155,237 5,876 2,276 155,877
5 6,607 3,007 156,607 7,444 3,844 157,444
6 7,996 4,756 157,996 9,047 5,807 159,048
7 9,401 6,521 159,402 10,689 7,809 160,690
8 10,821 8,301 160,822 12,367 9,847 162,367
9 12,251 10,091 162,252 14,078 11,918 164,078
10 13,687 11,887 163,688 15,819 14,019 165,820
11 15,169 13,729 165,169 17,734 16,294 167,734
12 16,646 15,566 166,646 19,691 18,611 169,691
13 18,108 17,388 168,108 21,681 20,961 171,681
14 19,542 19,182 169,542 23,696 23,336 173,697
15 20,935 20,935 170,936 25,731 25,731 175,732
20 26,802 26,802 176,802 35,900 35,900 185,900
AGE
70 21,869 21,869 171,870 49,471 49,471 199,471
75 0 0 0 42,816 42,816 192,816
80 0 0 0 14,412 14,412 164,412
**
</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.7
** 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 $163 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.
C-7
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM 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 1,355 0 151,356* 1,499 0 151,499*
2 2,821 361 152,822 3,130 670 153,131
3 4,407 1,052 154,408 4,907 1,307 154,907
4 6,122 2,522 156,122 6,839 3,239 156,840
5 7,976 4,376 157,977 8,942 5,342 158,942
6 9,979 6,739 159,979 11,228 7,988 161,229
7 12,142 9,262 162,143 13,717 10,837 163,717
8 14,479 11,959 164,480 16,424 13,904 166,424
9 17,004 14,844 167,004 19,368 17,208 169,369
10 19,730 17,930 169,730 22,570 20,770 172,571
11 22,739 21,299 172,739 26,250 24,810 176,251
12 25,992 24,912 175,992 30,277 29,197 180,278
13 29,502 28,782 179,503 34,678 33,958 184,679
14 33,286 32,926 182,286 39,485 39,125 189,485
15 37,359 37,359 187,360 44,733 44,733 194,734
20 62,807 62,807 212,807 79,118 79,118 229,119
AGE
70 147,288 147,288 297,288 213,778 213,778 363,778
75 209,758 209,758 359,759 336,147 336,147 486,147
80 282,677 282,677 432,677 518,874 518,874 668,874
85 357,111 357,111 507,112 791,473 791,473 941,474
90 406,827 406,827 556,827 1,202,741 1,202,741 1,352,741
95 387,616 387,616 537,676 1,836,972 1,836,972 1,986,972
</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.
C-8
<PAGE>
APPENDIX D
MAXIMUM CONTINGENT DEFERRED SALES CHARGES
PER $1,000 OF FACE AMOUNT
<TABLE>
<CAPTION>
CHARGE PER $1,000 OF FACE CHARGE PER $1,000 OF FACE
AMOUNT (INITIAL FACE AMOUNT OR AMOUNT (INITIAL FACE AMOUNT OR
INSURED'S AGE AT POLICY AMOUNT OF REQUESTEDINCREASE) INSURED'S AGE AT POLICY AMOUNT OF REQUESTED 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>
D-1
<PAGE>
APPENDIX E
SURRENDER CHARGE GUIDELINE PER $1,000 OF FACE AMOUNT
The following table provides the Surrender Charge Guideline factors that
are used in determining the Sales Charge Refund during the first two Policy
Years or the first two years following a requested increase in Face Amount (see
section entitled "Sales Charge Refund" in Prospectus). The Surrender Charge
Guideline factors are based upon the provisions of Rule 6e-3(T) adopted by the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
CHARGE PER $1,000 OF FACE CHARGE PER $1,000 OF FACE
AMOUNT (INITIAL FACE AMOUNT OR AMOUNT (INITIAL FACE AMOUNT OR
INSURED'S AGE AT POLICY AMOUNT OF REQUESTEDINCREASE) INSURED'S AGE AT POLICY AMOUNT OF REQUESTED 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>
E-1
