NORTHERN LIFE INSURANCE COMPANY
INDIVIDUAL DEFERRED VARIABLE/FIXED ANNUITY CONTRACTS
ISSUED BY
SEPARATE ACCOUNT ONE
SUPPLEMENT DATED JANUARY 1, 1999 TO
PROSPECTUS DATED MAY 1, 1998
ADDITIONAL SUB-ACCOUNT INVESTMENT OPTIONS
Separate Account One has added two new Sub-Accounts. Each of these
Sub-Accounts invests in an additional Fund. Purchase Payments and Contract
Value may now be allocated into either or both of these two new Funds, subject
to certain limitations set out in the Prospectus and this Supplement. The two
newly available Fund investment options are:
INVESTMENT FUNDS INVESTMENT OBJECTIVE
- ---------------- ---------------------
FIDELITY VARIABLE INSURANCE PRODUCTS
FUND III (VIP III):
VIP III Growth Opportunities Portfolio Capital Growth
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST:
Socially Responsive Portfolio Long-term Capital
Appreciation
The following information should be added at page 8 of the Prospectus to
the Section of the Prospectus entitled "Summary of Contract Expenses" under the
heading "Annual Investment Fund Expenses after Reimbursements":
<TABLE>
<CAPTION>
MANAGEMENT TOTAL FUND
(ADVISORY) OTHER ANNUAL
FEES EXPENSES EXPENSE
------------ ---------- -----------
<S> <C> <C> <C>
Fidelity VIP III Growth Opportunities
Portfolio (d)(k) ............................. 0.60% 0.14% 0.74%
Neuberger Berman Advisers Management Trust
Socially Responsive Portfolio (d)(l) ......... 0.85% 0.65% 1.50%
Northstar Galaxy Trust Emerging Growth
Portfolio (m) ................................ 0.85% 0.05% 0.90%
Northstar Galaxy Trust International Value
Portfolio (m) ................................ 0.95% 0.05% 1.00%
</TABLE>
The expense information for the Northstar Galaxy Trust Emerging Growth
Portfolio and International Value Portfolio has been restated to reflect current
fees effective November 9, 1998.
- ------------------
(d) 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,
recordkeeping, and in some cases, distribution, and other services provided
by the Company and its affiliates to Funds and/or the Fund's 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.
(k) These figures are before the effect of expense reimbursements. A portion of
the brokerage commissions that the fund pays was used to reduce fund
expenses. In addition, the fund has entered into arrangements with its
custodian whereby credits realized as a result of uninvested cash balances
were used to reduce custodian expenses. Including these reductions, the
total operating expenses would have been .73% for VIP III Growth
Opportunities Portfolio.
(l) Neuberger Berman Advisers Management Trust is comprised of separate
Portfolios, the following of which are available as funding options under
the contract: Limited Maturity Bond Portfolio, Partners Portfolio and
Socially Responsive Portfolio ("Portfolio series"). Unlike the other
funding options available under the contract, each of these Portfolio
series invests all of its net investable assets in the AMT Limited Maturity
Bond Investments, AMT Partners Investments, and AMT Socially Responsive
Investments, respectively, of Advisers Managers Trust ("Investment
series").
<PAGE>
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.
Estimated expenses reflect expense reimbursement. Neuberger Berman
Management Inc. ("NBMI") has undertaken to reimburse the Socially
Responsive Portfolio for certain operating expenses, including the
compensation of NBMI 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 has not commenced operations
as of November 30, 1998, and therefore these expense figures are estimated.
Estimated expenses are expected to be 2.50% for the fiscal period ending
December 31, 1998, 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. See "Expense Limitation"
in the Socially Responsive Portfolio prospectus for further information.
(m) The investment adviser to the Northstar Galaxy Trust has agreed to
reimburse the Emerging Growth Portfolio for any expenses in excess of 0.90%
of its average daily net assets. The investment adviser to the Northstar
Galaxy Trust has also agreed to reimburse the International Value Portfolio
for any expenses in excess of 1.00% of its average daily net assets. On an
annualized basis, absent expense reimbursements, actual expenses are
estimated to be 1.11% for the Emerging Growth Portfolio and 2.61% for the
International Value Portfolio. Expense reimbursements are voluntary. There
is no assurance of ongoing reimbursement.
The following information should be added at page 9 of the Prospectus to
the section of the Prospectus entitled "Summary of Contract Expenses" under the
heading "Examples," in the chart listing certain expenses following a full
withdrawal of the Contract Value:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------- --------------------- --------------------- --------------------
TRANSFER FLEX TRANSFER FLEX TRANSFER FLEX TRANSFER FLEX
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
---------- -------- ---------- -------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity VIP III Growth
Opportunities Portfolio 80 98 124 143 149 180 272 272
Neuberger Berman Advisers
Management Trust Socially
Responsive Portfolio 87 105 146 165 188 217 350 350
Northstar Galaxy Trust
Emerging Growth Portfolio 81 100 129 148 157 188 288 288
Northstar Galaxy Trust
International Value Portfolio 83 101 133 152 165 195 304 304
</TABLE>
2
<PAGE>
The following information should be added at page 10 of the Prospectus to
the section of the Prospectus entitled "Summary of Contract Expenses" under the
heading "Examples," in the chart listing certain expenses following
annuitization of the Contract:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------- --------------------- --------------------- --------------------
TRANSFER FLEX TRANSFER FLEX TRANSFER FLEX TRANSFER FLEX
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
---------- -------- ---------- -------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity VIP III Growth
Opportunities Portfolio 24 24 75 75 129 129 272 272
Neuberger Berman Advisers
Management Trust Socially
Responsive Portfolio 32 32 99 99 168 168 350 350
Northstar Galaxy Trust
Emerging Growth Portfolio 26 26 80 80 137 137 288 288
Northstar Galaxy Trust
International Value Portfolio 27 27 85 85 145 145 304 304
</TABLE>
The following information should be added at page 14 of the Prospectus to
the "Condensed Financial Information" section:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1995 1996 1997
------------- ------------- ------------
<S> <C> <C> <C>
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III (VIP III):
VIP III Growth Opportunities Portfolio (From January 1,
1999)
Beginning of period ................................... N/A N/A N/A
End of period ......................................... N/A N/A N/A
Units of outstanding at end of period ................. N/A N/A N/A
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST:
Socially Responsive Portfolio (From January 1, 1999)
Beginning of period ................................... N/A N/A N/A
End of period ......................................... N/A N/A N/A
Units of outstanding at end of period ................. N/A N/A N/A
</TABLE>
The Fidelity Variable Insurance Products Fund III Growth Opportunities
Portfolio and Neuberger Berman Advisers Management Trust Socially
Responsive Portfolio were not available under the Contracts prior to
January 1, 1999.
The following information replaces the similar information found on page
18 of the Prospectus starting in the second paragraph of the section
"Investments of the Variable Account":
With the addition of the two new Sub-Accounts, there are currently
twenty-nine Sub-Accounts, each of which invests in shares of one of the
Funds. The Company reserves the right, subject to compliance with
applicable law, to offer additional Sub-Accounts, each of which could
invest in a new fund with a specified investment objective. A Contract
Owner is limited to participating in a maximum of sixteen Sub-Accounts over
the lifetime of the Contract. The Contract Owner would not be required to
select the Sub-Accounts in advance, but upon reaching participation in
sixteen Sub-Accounts since issue of the Contract, the Contract Owner would
only be able to transfer within the sixteen Sub-Accounts already selected
and which are still available under the Variable Account.
For example, assume a Contract Owner selects six Sub-Accounts. Later,
the Contract Owner transfers out of all of the six initial selections and
chooses ten different Sub-Accounts, none of which are the same as the
original six selections. The Contract Owner has now used the maximum
selection of sixteen Sub-Accounts. The Contract Owner may still allocate
Purchase Payments or transfer Contract Values among any of the sixteen
Sub-Accounts that were previously selected. However, the Contract Owner may
not allocate funds to the remaining Sub-Accounts at any time.
3
<PAGE>
NEW FIXED ACCOUNT OPTION
The Separate Account has added a new Fixed Account option, Fixed Account
C. The minimum payment to Fixed Account C is $5,000. The principal purpose of
Fixed Account C is to allow the Contract Owner to utilize "Dollar Cost
Averaging," a long term investment method which provides for regular
investments over time in a level or variable amount. Amounts in Fixed Account C
will earn various rates of interest, with the minimum being the guaranteed
rate. Interest payable on Fixed Account C is expected to be higher than the
interest payable by Fixed Account A or B.
A Contract Owner with Contract Value allocated to Fixed Account C may
direct the Company to automatically transfer a fixed dollar amount or a
specified percentage of Fixed Account C Value to any one or more other
Sub-Accounts. Reallocations from Fixed Account C to the Variable Account must
begin immediately and must be in substantially equal payments over a period of
twelve (12) months or less. If additional Purchase Payment(s) are received for
allocation to Fixed Account C, the balance of Fixed Account C will be adjusted
to reflect the subsequent payment(s) and reallocations will be recalculated
based on the remaining 12 month period.
Fixed Account C Contract Value may only be transferred to one or more
Sub-Accounts, and such transfers may only be made by Dollar Cost Averaging
Reallocations. Reallocations from Fixed Account C to Fixed Account A or Fixed
Account B or from Fixed Account A, Fixed Account B, or the Variable Account to
Fixed Account C are not permitted. You may change the Variable Sub-Account(s)
receiving Fixed Account C Reallocations with written notice prior to the
Reallocation Date. Only one reallocation of Fixed Account C shall take place at
any one time.
Contract Values in Fixed Account C are not eligible for automatic
reallocations. See the "Automatic Reallocation" heading in the "The Contracts"
section of the Prospectus at page 30.
Reallocations from Fixed Account C will be transferred on the 28th day of
each month. If the mode of your Reallocation is less frequent than monthly, the
Reallocation Date will be the 28th day of the last month in the modal period.
The Contract Owner may discontinue dollar cost averaging at any time by
notifying the Company in writing. If reallocations from Fixed Account C are
discontinued prior to the end of the twelve (12) month term, the remaining
balance of Fixed Account C will be reallocated to Fixed Account A.
The Fixed Account C Contract Value is equal the sum of Purchase Payments
allocated to Fixed Account C, and interest credited to Fixed Account C, less
reallocations out of Fixed Account C, withdrawals from Fixed Account C
(including amounts applied to purchase annuity payouts, withdrawal charges and
applicable premium taxes) and deductions for the Annual Contract Charge. The
Contract Value for a Contract shall equal the sum of the Variable Account
Contract Value, plus the sum of the Fixed Account A, Fixed Account B and Fixed
Account C Contract Values. Reallocations of this type may be made on a monthly,
quarterly, semi-annual or annual basis.
The Company makes no guarantees that Dollar Cost Averaging will result in
a profit or protect against loss.
The Company reserves the right to discontinue, modify or suspend Dollar
Cost Averaging. Although the Company currently charges no fees for
reallocations made under the Dollar Cost Averaging program, the Company
reserves the right to charge a processing fee not to exceed $25 for each Dollar
Cost Averaging reallocation from Fixed Account C.
Contract Owners interested in Dollar Cost Averaging may obtain a separate
application form and full information concerning this service and its
restrictions from their registered representatives.
Contributions and reallocations to Fixed Account C under the Contracts
become part of the general account of the Company (the "General Account"),
which supports insurance and annuity obligations. Because of exemptive and
exclusionary provisions, interests in the Fixed Account have not been
registered under the Securities Act of 1933 ("1933 Act") nor is the Fixed
Account registered as an investment company under the Investment Company Act of
1940 ("1940 Act"). Accordingly, neither the Fixed Account nor any interests
therein are generally subject to the provisions of the 1933 or 1940 Acts and
the Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in the Prospectus which relate to
the fixed portion of the Contracts. Disclosures regarding the fixed portion of
the Contracts and the Fixed Accounts, however, may be subject to certain
4
<PAGE>
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
THE TWO NEW FUND INVESTMENT OPTIONS DESCRIBED IN THIS SUPPLEMENT AND THE
NEW FIXED ACCOUNT C ARE NOT AVAILABLE IN ALL STATES.
CHANGES TO NORTHSTAR PORTFOLIOS
The Northstar Variable Trust and the individual Northstar Portfolios have
changed their names, as follows:
<TABLE>
<CAPTION>
FORMER NAME NEW NAME
- ---------------------------------------------- -------------------------------------------
<S> <C>
Northstar Variable Trust Northstar Galaxy Trust
Northstar Variable Trust Growth Northstar Galaxy Trust Growth + Value
Portfolio Portfolio
Northstar Variable Trust International Northstar Galaxy Trust International Value
Value Portfolio Portfolio
Northstar Variable Trust Income and Northstar Galaxy Trust Emerging Growth
Growth Portfolio Portfolio
Northstar Variable Trust Multi-Sector Northstar Galaxy Trust Multi-Sector Bond
Bond Portfolio Portfolio
Northstar Variable Trust High Yield Northstar Galaxy Trust High Yield Bond
Bond Portfolio Portfolio
</TABLE>
In addition, the Northstar Galaxy Trust Emerging Growth Portfolio
(formerly the Northstar Variable Trust Income and Growth Portfolio) has changed
its investment objective from seeking income balanced with capital appreciation
to seeking long-term capital appreciation.
In addition, certain of the Northstar Portfolios have reduced their
voluntary expense reimbursements, as follows:
<TABLE>
<CAPTION>
PORTFOLIO FORMER EXPENSE LIMITATION CURRENT EXPENSE LIMITATION
- --------------------------------------------- --------------------------- ---------------------------
<S> <C> <C>
Northstar Galaxy Trust
Emerging Growth Portfolio ............. 0.80% 0.90%
Northstar Galaxy Trust
International Value Portfolio ......... 0.80% 1.00%
</TABLE>
These expense limitations are voluntary and can be changed.
SUB-ACCOUNT CLOSINGS
Effective April 30, 1999, Sub-Accounts investing in the following Funds
(the "Closed Funds") are being closed to new monies, and will no longer accept
additional premiums or transfers:
-- Fidelity VIP Overseas Portfolio
-- Fidelity VIP II Asset Manager Portfolio
If new premiums are received on or after April 30 for investment in one
or more of the Closed Funds, these premiums will automatically be
re-allocated to the money market fund option, unless we receive
instructions from you to the contrary. If we receive additional premiums
but you have already reached the 16 Fund limitation (as outlined in the
Prospectus), and the money market fund was not one of these Funds, then the
additional premiums will be re-allocated pro rata to the other Funds to
which you have allocated monies, and which are not being closed.
If you have elected the dollar cost averaging service, and one or more
of the transferee funds you have selected is a Closed Fund, then the
service will be terminated and you will be required to complete a new
dollar cost averaging form specifying new transferee fund(s).
If you have elected the portfolio rebalancing service, and one or more
of the Funds you have elected is a Closed Fund, then the service will be
terminated. If you wish to resume this service, you will be required to
complete a new portfolio rebalancing form, and re-allocate all monies
currently allocated to Closed Funds to Funds that have not been closed.
5
<PAGE>
OTHER MATTERS
The following sentence replaces the first sentence of the first paragraph
found on page 22 of the Prospectus in the section entitled "Partial Waiver of
Withdrawal Charge":
During any 12-month period after the first Contract Year, the Contract
Owner may withdraw a portion of the Contract Value without a Withdrawal
Charge.
The following paragraph should be added on page 39 of the Prospectus to
the section entitled "Reports to Contract Owners" starting after the first
paragraph:
Effective January 1, 1999, to reduce 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 Contract. Call
(800) 426-7050 (ext. 2505) if you need additional copies of financial
reports, prospectuses, annual and semi-annual reports, or historical account
information.
THIS SUPPLEMENT MUST BE ACCOMPANIED OR PRECEDED BY THE PROSPECTUS FOR THE
CONTRACTS DATED MAY 1, 1998 AND ALL ACCOMPANYING FUND PROSPECTUSES, INCLUDING
THE PROSPECTUSES FOR THE FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO AND
THE NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST SOCIALLY RESPONSIVE PORTFOLIO.
Additional information about the Contracts, the Company and the Variable
Account is contained in a Statement of Additional Information dated January 1,
1999, which has been filed with the Securities and Exchange Commission ("SEC")
and is available upon request without charge by writing to Northern Life
Insurance Company, P.O. Box 12530, Seattle, Washington 98111, by calling (800)
426-7050 (ext. 2505), or by accessing the SEC's internet web site
(http://www.sec.gov). The Statement of Additional Information is incorporated
by reference in this Supplement. The Table of Contents for the Statement of
Additional Information may be found on page 41 of the Prospectus.
6
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR NORTHERN
------------------
INDIVIDUAL DEFERRED VARIABLE/FIXED ANNUITY CONTRACTS
ISSUED BY
SEPARATE ACCOUNT ONE
AND
NORTHERN LIFE INSURANCE COMPANY
This Statement of Additional Information is not a Prospectus, but should
be read in conjunction with the Prospectus dated May 1, 1998 as supplemented by
the Prospectus Supplement dated January 1, 1999 (the "Prospectus") relating to
the Individual Deferred Variable/Fixed Annuity Contracts issued by Separate
Account One (the "Variable Account") and Northern Life Insurance Company (the
"Company"). Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus. A copy of the
Prospectus may be obtained from Washington Square Securities, Inc., 20
Washington Avenue South, Minneapolis, Minnesota 55401.
Capitalized terms used in this Statement of Additional Information that
are not otherwise defined herein shall have the meanings given to them in the
Prospectus.
------------------
TABLE OF CONTENTS
PAGE
-----
Introduction ..................................... 2
Custody of Assets ................................ 2
Independent Auditors ............................. 2
Distribution of the Contracts .................... 2
Calculation of Yields and Total Returns .......... 3
Company Holidays ................................. 11
Financial Statements ............................. 11
------------------
The date of this Statement of Additional Information is January 1, 1999.
1
<PAGE>
INTRODUCTION
The Individual Deferred Variable/Fixed Annuity Contracts described in the
Prospectus are flexible Purchase Payment Contracts. The Contracts are sold to
or in connection with retirement plans which may or may not qualify for special
federal tax treatment under the Internal Revenue Code. (See "Federal Tax
Status" on page 34 of the Prospectus.) Annuity Payouts under the Contracts are
deferred until a later date selected by the Contract Owner.
Purchase Payments may be allocated to one or more of the available
Sub-Accounts of the Variable Account, a separate account of the Company, and/or
to Fixed Account A, Fixed Account B and/or Fixed Account C (which are part of
the general account of the Company).
Purchase payments allocated to one or more of the available Sub-Accounts
of the Variable Account, as selected by the Contract Owner, will be invested in
shares at net asset value of one or more of a group of investment funds
("Funds"). The Funds currently are: the Alger American Growth Portfolio, Alger
American Leveraged AllCap Portfolio, Alger American MidCap Growth Portfolio and
Alger American Small Capitalization Portfolio of The Alger American Fund which
are managed by Fred Alger Management, Inc.; the VIP Equity-Income Portfolio,
VIP Growth Portfolio, VIP Money Market Portfolio and VIP Overseas Portfolio of
the Variable Insurance Products Fund, VIP II Asset Manager: Growth Portfolio,
VIP II Asset Manager Portfolio, VIP II Contrafund Portfolio, VIP II Index 500
Portfolio of the Variable Insurance Products Fund II, and VIP III Growth
Opportunities Portfolio of the Variable Insurance Products Fund III, all of
which are managed by Fidelity Management & Research Company; the Aggressive
Growth Portfolio, Growth Portfolio, International Growth Portfolio and
Worldwide Growth Portfolio of the Janus Aspen Series which are managed by Janus
Capital Corporation; the Limited Maturity Bond Portfolio, Partners Portfolio
and Socially Responsive Portfolio of the Neuberger Berman Advisers Management
Trust, which are managed by Neuberger Berman Management Inc. with assistance of
Neuberger Berman, LLC as sub-adviser; the Growth + Value Portfolio, High Yield
Bond Portfolio, Emerging Growth Portfolio, International Value Portfolio and
Multi-Sector Bond Portfolio of the Northstar Galaxy Trust which are managed by
Northstar Investment Management Corporation; and the Equity Portfolio, Global
Equity Portfolio, Managed Portfolio and Small Cap Portfolio of the OCC
Accumulation Trust which are managed by OpCap Advisors, a subsidiary of
Oppenheimer Capital.
Purchase Payments allocated to Fixed Account A, Fixed Account B or Fixed
Account C, which are part of the general account of the Company, will be
credited with interest at a rate not less than 3% per year. Interest credited
in excess of 3%, if any, will be determined at the sole discretion of the
Company. That part of the Contract relating to Fixed Account A, Fixed Account B
and Fixed Account C is not registered under the Securities Act of 1933 and the
Fixed Accounts are not subject to the restrictions of the Investment Company
Act of 1940. (See Appendix A to the Prospectus and page 4 of the Prospectus
Supplement dated January 1, 1999.)
CUSTODY OF ASSETS
The Company, whose address appears on the cover of the Prospectus,
maintains custody of the assets of the Variable Account.
INDEPENDENT AUDITORS
The financial statements of Separate Account One and Northern Life
Insurance Company, which are incorporated by reference in this Statement of
Additional Information, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports which are incorporated by reference
herein, and have been so incorporated in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be sold by licensed insurance agents in those states
where the Contracts may be lawfully sold. Such agents will be registered
representatives of broker-dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
The Contracts will be distributed by Washington Square Securities, Inc.
("WSSI"), the principal underwriter which is an affiliate of the Company.
For the years ended December 31, 1995, 1996 and 1997, WSSI was paid fees
by the Company in connection with distribution of the Contracts aggregating
$750, $1,123,993 and $5,551,624, respectively.
2
<PAGE>
The offering of the Contracts is continuous.
There are no special purchase plans or exchange privileges not described
in the Prospectus. (See "Reduction of Charges" at page 24 of the Prospectus.)
No deduction for a sales charge is made from the Purchase Payments for the
Contracts. However, if part or all of a Contract's value is withdrawn,
Withdrawal Charges (which may be deemed to be Contingent Deferred Sales
Charges) may be made by the Company. The method used to determine the amount of
such charges is described in the Prospectus under the heading "Charges Made By
The Company -- Withdrawal Charge (Contingent Deferred Sales Charge)" on page
21. There is no difference in the amount of this charge or any of the other
charges described in the Prospectus as between Contracts purchased by members
of the public as individuals or groups, and Contracts purchased by any class of
individuals, such as officers, directors or employees of the Company or of the
Principal Underwriter.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, the Company may disclose yields, total returns, and
other performance data pertaining to the Contracts for a Sub-Account. Such
performance data will be computed, or accompanied by performance data computed,
in accordance with the standards defined by the Securities and Exchange
Commission.
Because of the charges and deductions imposed under a Contract, the yield
for the Sub-Accounts will be lower than the yield for their respective
portfolios. The calculations of yields, total returns, and other performance
data do not reflect the effect of any premium tax that may be applicable to a
particular Contract. Premium taxes currently range from 0% to 3.5% of premium
based on the state in which the Contract is sold.
VIP MONEY MARKET PORTFOLIO SUB-ACCOUNT YIELD. From time to time,
advertisements and sales literature may quote the current annualized yield of
the Money Market Sub-Account for a seven-day period in a manner which does not
take into consideration any realized or unrealized gains or losses on shares of
the VIP Money Market Portfolio or on its portfolio securities.
The current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) at the end of the seven-day period in
the value of a hypothetical account under a Contract having a balance of one
Accumulation Unit of the Money Market Sub-Account at the beginning of the
period dividing such net change in account value of the hypothetical account to
determine the base period return, and annualizing this quotient on a 365-day
basis. The net change in account value reflects: 1) net income from the
Portfolio attributable to the hypothetical account; and 2) charges and
deductions imposed under the Contract which are attributable to the
hypothetical account. The charges and deductions include the per unit charges
for the hypothetical account for: 1) the Annual Contract Charge; 2)
Administration Charge; and 3) the Mortality and Expense Risk Charges. For
purposes of calculating current yields for a Contract, an average per unit
administration fee is used based on the $30 Annual Contract Charge deducted at
the end of each Contract Year. Current Yield will be calculated according to
the following formula:
Current Yield = ((NCS - ES)/UV) x (365/7)
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains or losses on the sale of securities and unrealized appreciation
and depreciation) for the seven-day period attributable to a
hypothetical account having a balance of 1 Sub-Account Accumulation
Unit.
ES = per unit expenses attributable to the hypothetical account for the
seven-day period.
UV = The Accumulation Unit value on the first day of the seven-day period.
The current yield of the sub-account for the seven day period ended
December 31, 1997 was 3.90%.
EFFECTIVE YIELD. The effective yield of the Money Market Sub-Account
determined on a compounded basis for the same seven-day period may also be
quoted.
3
<PAGE>
The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
Effective Yield = (1 + ((NCS - ES)/UV)) 365/7 - 1
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation) for the seven-day period attributable
to a hypothetical account having a balance of 1 Sub-Account unit.
ES = per Accumulation Unit expenses attributable to the hypothetical
account for the seven-day period.
UV = the Accumulation Unit value for the first day of the seven-day
period.
The effective yield of the sub-account for the seven day period ended
December 31, 1997 was 3.97%.
Because of the charges and deductions imposed under the Contracts, the
yield for the Money Market Sub-Account will be lower than the yield for the VIP
Money Market Portfolio.
The current and effective yields on amounts held in the Money Market
Sub-Account normally will fluctuate on a daily basis. THEREFORE, THE DISCLOSED
YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF
FUTURE YIELDS OR RATES OF RETURN. The Money Market Sub-Account's actual yield
is affected by changes in interest rates on money market securities, average
portfolio maturity of the VIP Money Market Portfolio, the types and quality of
portfolio securities held by VIP Money Market Portfolio and the VIP Money
Market Portfolio's operating expenses. Yields on amounts held in the Money
Market Sub-Account may also be presented for periods other than a seven-day
period.
OTHER SUB-ACCOUNT YIELDS. From time to time, sales literature or
advertisements may quote the current annualized yield of one or more of the
Sub-Accounts (except the Money Market Sub-Account) for a Contract for 30-day or
one-month periods. The annualized yield of a Sub-Account refers to income
generated by the Sub-Account over a specific 30-day or one-month period.
Because the yield is annualized, the yield generated by a Sub-Account during a
30-day or one-month period is assumed to be generated each period over a
12-month period.
The yield is computed by: 1) dividing the net investment income of the
Fund attributable to the Sub-Account Accumulation Units less Sub-Account
expenses for the period; by 2) the maximum offering price per Accumulation Unit
on the last day of the period times the daily average number of units
outstanding for the period; by 3) compounding that yield for a six-month
period; and by 4) multiplying that result by 2. Expenses attributable to the
Sub-Account include the Administration Charge and the Mortality and Expense
Risk Charges. The yield calculation assumes an Annual Contract Charge of $30
per year per Contract deducted at the end of each Contract Year. For purposes
of calculating the 30-day or one-month yield, an average Annual Contract Charge
per dollar of Contract Value in the Variable Account is used to determine the
amount of the charge attributable to the Sub-Account for the 30-day or
one-month period. The 30-day or one-month yield is calculated according to the
following formula:
Yield = 2 x [(((NI - ES)/(U \x UV)) + 1) 6 - 1]
Where:
NI = net income of the Portfolio for the 30-day or one-month period
attributable to the Sub-Account's Accumulation Units.
ES = expenses of the Sub-Account for the 30-day or one-month period.
U = the average number of Accumulation Units outstanding.
UV = the Accumulation Unit value of the close (highest) of the last day in
the 30-day or one-month period.
The annualized yield for the Northstar Galaxy Trust Multi-Sector Bond
Portfolio Sub-Account for the month ended December 31, 1997 was 5.51%. The
annualized yield for the Northstar Galaxy Trust High Yield Bond Portfolio
Sub-Account for the month ended December 31, 1997 was 7.77%. The
4
<PAGE>
annualized yield for the Neuberger Berman Advisers Management Trust Limited
Maturity Bond Portfolio Sub-Account for the month ended December 31, 1997 was
2.81%.
Because of the charges and deductions imposed under the Contract, the
yield for the Sub-Account will be lower than the yield for the corresponding
Fund.
The yield on the amounts held in the Sub-Accounts normally will fluctuate
over time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN
INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. The
Sub-Account's actual yield is affected by the types and quality of portfolio
securities held by the Fund and its operating expenses.
Yield calculations do not take into account the Withdrawal Charges under
the Contracts. The Withdrawal Charge for Transfer Series Contracts is equal to
2% to 6% of Purchase Payments paid during the six years prior to the withdrawal
(including the year in which the withdrawal is made) on amounts withdrawn or
withdrawn under the Contract. The Withdrawal Charge for Flex Series Contracts
is equal to 1% to 8% of amounts withdrawn under the Contracts during the first
10 Contract Years.
AVERAGE ANNUAL TOTAL RETURNS. From time to time, sales literature or
advertisements may also quote average annual total returns for one or more of
the Sub-Accounts for various periods of time, excluding the money market
Sub-Account.
Average annual total returns represent the average annual compounded rates
of return that would equate an initial investment of $1,000 under a Contract to
the redemption value of that investment as of the last day of each of the
periods. The ending date for each period for which total return quotations are
provided will be for the most recent month-end practicable, considering the
type and media of the communication and will be stated in the communication.
Average annual total returns will be calculated using Sub-Account
Accumulation Unit values which the Company calculates on each Valuation Date
based on the performance of the Sub-Account's underlying Fund, the deductions
for the Mortality and Expense Risk Charges, the Administration Charge, and the
Annual Contract Charge. The calculation assumes that the Annual Contract Charge
is $30 per year per Contract deducted at the end of each Contract Year. For
purposes of calculating average annual total return, an average per dollar
Annual Contract Charge attributable to the hypothetical account for the period
is used. The calculation also assumes full withdrawal of the Contract at the
end of the period for the return quotation. Total returns will therefore
reflect a deduction of the Withdrawal Charge in the case of the Transfer Series
Contracts, for any period less than six years and in the case of the Flex
Series Contracts, for any period less than 11 years. The total return will then
be calculated according to the following formula:
TR = ((ERV/P) 1/N) - 1
Where:
TR = The average annual total return net of Sub-Account recurring
charges.
ERV = the ending redeemable value (net of any applicable surrender charge)
of the hypothetical account at the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
5
<PAGE>
Following are the Average Annual Total Returns for Sub-Accounts as of
December 31, 1997.
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM DATE OF FROM DATE OF
FOR THE 1-YEAR FOR THE 1-YEAR INCEPTION OF INCEPTION OF
PERIOD ENDED PERIOD ENDED SUB-ACCOUNT TO SUB-ACCOUNT TO
SUB-ACCOUNT 12/31/97 12/31/97 12/31/97 12/31/97
- ------------------------------------------------------------ ---------------- ---------------- ---------------- ---------------
++T.S. F.S. T.S. F.S.
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 18.26% 14.76% 13.38% 11.28%
(Sub-Account Inception: 10/20/95)
Alger American Leveraged AllCap Portfolio 12.29% 9.22% 11.14% 9.16%
(Sub-Account Inception: 10/20/95)
Alger American MidCap Growth Portfolio 7.70% 4.96% 25.82% 23.11%
(Sub-Account Inception: 10/20/95)
Alger American Small Capitalization Portfolio 4.14% 1.65% 1.44% ( 0.02)%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Equity-Income Portfolio 20.58% 16.91% 18.47% 16.12%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Growth Portfolio 16.03% 12.69% 11.95% 9.93%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Overseas Portfolio 4.31% 1.81% 8.80% 6.93%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Asset Manager: Growth Portfolio 17.59% 14.14% 18.06% 15.73%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Asset Manager Portfolio 13.25% 10.10% 14.21% 12.06%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Contrafund Portfolio 16.68% 13.29% 17.77% 15.45%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Index 500 Portfolio 25.22% 21.21% 24.10% 21.47%
(Sub-Account Inception: 10/20/95)
Fidelity VIP III Growth Opportunities Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 1/1/99)
Janus Aggressive Growth Portfolio N/A N/A 8.86% 2.52%
(Sub-Account Inception: 8/8/97)
Janus Growth Portfolio N/A N/A (10.34)% (14.71)%
(Sub-Account Inception: 8/8/97)
Janus International Growth Portfolio N/A N/A (22.92)% (26.07)%
(Sub-Account Inception: 8/8/97)
Janus Worldwide Growth Portfolio N/A N/A (18.33)% (21.92)%
(Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust Limited N/A N/A ( 8.99)% (13.50)%
Maturity Bond Portfolio (Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust Partners N/A N/A ( 7.06)% (11.76)%
Portfolio (Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust Socially N/A N/A N/A N/A
Responsive Portfolio (Sub-Account Inception: 1/1/99)
Northstar Galaxy Trust Growth + Value Portfolio 7.36% 4.64% 14.60% 12.44%
(Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust High Yield Bond Portfolio N/A N/A (15.00) (18.91)
(Sub-Account Inception: 8/8/97)
Northstar Galaxy Trust Emerging Growth Portfolio (a) 8.49% 5.69% 11.64% 9.62%
(Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust International Value Portfolio N/A N/A (11.58) (15.83)
(Sub-Account Inception: 8/8/97)
Northstar Galaxy Trust Multi-Sector Bond Portfolio (1.01)% (3.13)% 6.42% 4.68%
(Sub-Account Inception: 10/20/95)
OCC Equity Portfolio (b) N/A N/A 2.00% ( 3.62)%
(Sub-Account Inception: 8/8/97)
OCC Global Equity Portfolio N/A N/A (25.27)% (28.20)%
(Sub-Account Inception: 8/8/97)
OCC Managed Portfolio (b) N/A N/A (11.66)% (15.90)%
(Sub-Account Inception: 8/8/97)
OCC Small Cap Portfolio (b) N/A N/A ( 8.93)% (13.44)%
(Sub-Account Inception: 8/8/97)
- -----------------
</TABLE>
++ Key: T.S. = Transfer Series Contract; F.S. = Flex Series Contract. (See
"Withdrawal Charge (Contingent Deferred Sale Charge)" on page 21 of the
Prospectus.)
From time to time, sales literature or advertisements may quote average
annual total returns for periods prior to the date the Sub-Accounts commenced
operations. Such performance information for the Sub-Accounts will be
calculated based on the performance of the Funds and the assumption that the
Sub-Accounts were in existence for the same periods as those indicated for the
Funds, with the level of Contract charges currently in effect.
6
<PAGE>
Such average annual total return information for the Sub-Accounts is as follows:
<TABLE>
<CAPTION>
FOR THE 1-YEAR FOR THE 5-YEAR
PERIOD ENDED PERIOD ENDED
SUB-ACCOUNT 12/31/97 12/31/97
- ------------------------------------------------------ ----------------------- -----------------------
++T.S. F.S. T.S. F.S.
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 18.26% 14.76% 16.92% 16.01%
(Portfolio Inception: 1/9/89)
Alger American Leveraged AllCap Portfolio 12.29% 9.22% N/A N/A
(Portfolio Inception: 1/25/95)
Alger American MidCap Growth Portfolio 7.70% 4.96% N/A N/A
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization Portfolio 4.14% 1.65% 10.30% 9.56%
(Portfolio Inception: 9/21/88)
Fidelity VIP Equity-Income Portfolio 20.58% 16.91% 17.79% 16.86%
(Portfolio Inception: 10/9/86)
Fidelity VIP Growth Portfolio 16.03% 12.69% 15.65% 14.76%
(Portfolio Inception: 10/9/86)
Fidelity VIP Overseas Portfolio 4.31% 1.81% 11.77% 10.98%
(Portfolio Inception: 1/28/87)
Fidelity VIP II Asset Manager: Growth Portfolio 17.59% 14.14% N/A N/A
(Portfolio Inception: 1/3/95)
Fidelity VIP II Asset Manager Portfolio 13.25% 10.10% 10.63% 9.88%
(Portfolio Inception: 9/6/89)
Fidelity VIP II Contrafund Portfolio 16.68% 13.29% N/A N/A
(Portfolio Inception: 1/3/95)
Fidelity VIP II Index 500 Portfolio 25.22% 21.21% 17.55% 16.62%
(Portfolio Inception: 8/27/92)
Fidelity VIP III Growth Opportunities Portfolio 22.39% 18.59% N/A N/A
(Portfolio Inception: 1/3/95)
Janus Aggressive Growth Portfolio 5.39% 2.81% N/A N/A
(Portfolio Inception: 9/13/93)
Janus Growth Portfolio 15.31% 12.02% N/A N/A
(Portfolio Inception: 9/13/93)
Janus International Growth Portfolio 11.14% 8.15% N/A N/A
(Portfolio Inception: 5/2/94)
Janus Worldwide Growth Portfolio 14.72% 11.47% N/A N/A
(Portfolio Inception: 9/13/93)
Neuberger Berman Advisers Management Trust (0.43)% (2.59)% 3.25% 2.73%
Limited Maturity Bond Portfolio
(Portfolio Inception: 9/10/84)
Neuberger Berman Advisers Management Trust 23.67% 19.78% N/A N/A
Partners Portfolio (Portfolio Inception: 3/22/94)
Neuberger Berman Advisers Management Trust N/A N/A N/A N/A
Socially Responsive Portfolio
(Portfolio Inception: 8/19/98)
Northstar Galaxy Trust Growth + Value Portfolio 7.36% 4.64% N/A N/A
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust High Yield Bond Portfolio 1.79% (0.53)% N/A N/A
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust Emerging Growth Portfolio (a) 8.49% 5.69% N/A N/A
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust International Value Portfolio N/A N/A N/A N/A
(Portfolio Inception: 8/8/97)
Northstar Galaxy Trust Multi-Sector Bond Portfolio (1.01)% (3.13)% N/A N/A
(Portfolio Inception: 5/6/94)
OCC Equity Portfolio (b) 19.13% 15.56% 17.05% 16.14%
(Portfolio Inception: 8/1/88)
OCC Global Equity Portfolio 6.73% 4.05% N/A N/A
(Portfolio Inception: 3/1/95)
OCC Managed Portfolio (b) 14.86% 11.60% 17.51% 16.58%
(Portfolio Inception: 8/1/88)
OCC Small Cap Portfolio (b) 14.81% 11.56% 12.27% 11.47%
(Portfolio Inception: 8/1/88)
</TABLE>
- -----------------
++ Key: T.S. = Transfer Series Contract; F.S. = Flex Series Contract. (See
"Withdrawal Charge (Contingent Deferred Sale Charge)" on page 21
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE 10-YEAR DATE OF INCEPTION OF
PERIOD ENDED PORTFOLIO TO
SUB-ACCOUNT 12/31/97 12/31/97
- ------------------------------------------------------ ----------------------- ---------------------------
T.S. F.S. T.S. F.S.
<S> <C> <C> <C> <C>
Alger American Growth Portfolio N/A N/A 17.44% 17.20%
(Portfolio Inception: 1/9/89)
Alger American Leveraged AllCap Portfolio N/A N/A 30.42% 30.42%
(Portfolio Inception: 1/25/95)
Alger American MidCap Growth Portfolio N/A N/A 19.67% 18.65%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization Portfolio N/A N/A 17.25% 17.13%
(Portfolio Inception: 9/21/88)
Fidelity VIP Equity-Income Portfolio 14.79% 14.68% 12.76% 12.76%
(Portfolio Inception: 10/9/86)
Fidelity VIP Growth Portfolio 15.24% 15.14% 13.64% 13.64%
(Portfolio Inception: 10/9/86)
Fidelity VIP Overseas Portfolio 7.80% 7.70% 6.42% 6.42%
(Portfolio Inception: 1/28/87)
Fidelity VIP II Asset Manager: Growth Portfolio N/A N/A 19.66% 17.73%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Asset Manager Portfolio N/A N/A 10.86% 10.62%
(Portfolio Inception: 9/6/89)
Fidelity VIP II Contrafund Portfolio N/A N/A 25.09% 22.94%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Index 500 Portfolio N/A N/A 17.71% 16.87%
(Portfolio Inception: 8/27/92)
Fidelity VIP III Growth Opportunities Portfolio N/A N/A 23.74% 21.64%
(Portfolio Inception: 1/3/95)
Janus Aggressive Growth Portfolio N/A N/A 16.95% 15.93%
(Portfolio Inception: 9/13/93)
Janus Growth Portfolio N/A N/A 15.39% 14.41%
(Portfolio Inception: 9/13/93)
Janus International Growth Portfolio N/A N/A 16.50% 15.25%
(Portfolio Inception: 5/2/94)
Janus Worldwide Growth Portfolio N/A N/A 20.68% 19.56%
(Portfolio Inception: 9/13/93)
Neuberger Berman Advisers Management Trust 5.29% 5.20% 6.37% 6.37%
Limited Maturity Bond Portfolio
(Portfolio Inception: 9/10/84)
Neuberger Berman Advisers Management Trust N/A N/A 21.43% 20.03%
Partners Portfolio (Portfolio Inception: 3/22/94)
Neuberger Berman Advisers Management Trust N/A N/A N/A N/A
Socially Responsive Portfolio
(Portfolio Inception: 8/19/98)
Northstar Galaxy Trust Growth + Value Portfolio N/A N/A 15.00% 13.80%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust High Yield Bond Portfolio N/A N/A 8.52% 7.57%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust Emerging Growth Portfolio (a) N/A N/A 11.44% 10.37%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust International Value Portfolio N/A N/A (11.58)% (15.83)%
(Portfolio Inception: 8/8/97)
Northstar Galaxy Trust Multi-Sector Bond Portfolio N/A N/A 6.64% 5.76%
(Portfolio Inception: 5/6/94)
OCC Equity Portfolio (b) N/A N/A 15.61% 15.50%
(Portfolio Inception: 8/1/88)
OCC Global Equity Portfolio N/A N/A 13.75% 12.00%
(Portfolio Inception: 3/1/95)
OCC Managed Portfolio (b) N/A N/A 18.33% 18.22%
(Portfolio Inception: 8/1/88)
OCC Small Cap Portfolio (b) N/A N/A 13.54% 13.43%
(Portfolio Inception: 8/1/88)
</TABLE>
- -----------------
++ Key: T.S. = Transfer Series Contract; F.S. = Flex Series Contract. (See
"Withdrawal Charge (Contingent Deferred Sale Charge)" on page 21 of the
Prospectus.)
The Company may also disclose average annual total returns for the Funds
since their inception, including such disclosure for periods prior to the date
the Variable Account commenced operations.
7
<PAGE>
Such average annual total return information for the Funds is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM DATE OF
FOR THE 1-YEAR FOR THE 5-YEAR FOR THE 10-YEAR INCEPTION OF
PERIOD ENDED PERIOD ENDED PERIOD ENDED PORTFOLIO TO
PORTFOLIO 12/31/97 12/31/97 12/31/97 12/31/97
- --------------------------------------------------------- ---------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 25.75% 19.28% N/A 19.42%
(Portfolio Inception: 1/9/89)
Alger American Leveraged AllCap Portfolio 19.68% N/A N/A 33.55%
(Portfolio Inception: 1/25/95)
Alger American MidCap Growth Portfolio 15.01% N/A N/A 22.09%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization Portfolio 11.39% 12.65% N/A 19.22%
(Portfolio Inception: 9/21/88)
Fidelity VIP Equity-Income Portfolio 28.11% 20.16% 16.72% 14.66%
(Portfolio Inception: 10/9/86)
Fidelity VIP Growth Portfolio 23.48% 18.00% 17.19% 15.56%
(Portfolio Inception: 10/9/86)
Fidelity VIP Overseas Portfolio 11.56% 14.12% 9.62% 8.22%
(Portfolio Inception: 1/28/87)
Fidelity VIP II Asset Manager: Growth Portfolio 25.07% N/A N/A 22.74%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Asset Manager Portfolio 20.65% 12.98% N/A 12.73%
(Portfolio Inception: 9/6/89)
Fidelity VIP II Contrafund Portfolio 24.14% N/A N/A 28.17%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Index 500 Portfolio 32.82% 19.91% N/A 19.87%
(Portfolio Inception: 8/27/92)
Fidelity VIP III Growth Opportunities Portfolio 29.95% N/A N/A 26.81%
(Portfolio Inception: 1/3/95)
Janus Aggressive Growth Portfolio 12.66% N/A N/A 19.44%
(Portfolio Inception: 9/13/93)
Janus Growth Portfolio 22.75% N/A N/A 17.87%
(Portfolio Inception: 9/13/93)
Janus International Growth Portfolio 18.51% N/A N/A 19.29%
(Portfolio Inception: 5/2/94)
Janus Worldwide Growth Portfolio 22.15% N/A N/A 23.18%
(Portfolio Inception: 9/13/93)
Neuberger Berman Advisers Management Trust 6.74% 5.63% 7.07% 8.17%
Limited Maturity Bond Portfolio
(Portfolio Inception: 9/10/84)
Neuberger Berman Advisers Management Trust 31.25% N/A N/A 24.18%
Partners Portfolio (Portfolio Inception: 3/22/94)
Neuberger Berman Advisers Management Trust Socially N/A N/A N/A N/A
Responsive Portfolio (Portfolio Inception: 8/19/98)
Northstar Galaxy Trust Growth + Value Portfolio 14.66% N/A N/A 17.79%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust High Yield Bond Portfolio 9.00% N/A N/A 11.34%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust Emerging Growth Portfolio (a) 15.81% N/A N/A 14.24%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust International Value Portfolio N/A N/A N/A 3.27%
(Since Inception 8/8/97)
Northstar Galaxy Trust Multi-Sector Bond Portfolio 6.15% N/A N/A 9.47%
(Portfolio Inception: 5/6/94)
OCC Equity Portfolio (b) 26.63% 19.42% N/A 17.56%
(Portfolio Inception: 8/1/88)
OCC Global Equity Portfolio 14.02% N/A N/A 16.93%
(Portfolio Inception: 3/1/95)
OCC Managed Portfolio (b) 22.29% 19.88% N/A 20.33%
(Portfolio Inception: 8/1/88)
OCC Small Cap Portfolio (b) 22.24% 14.62% N/A 15.46%
(Portfolio Inception: 8/1/88)
</TABLE>
- -----------------
++ Key: T.S. = Transfer Series Contract; F.S. = Flex Series Contract. (See
"Withdrawal Charge (Contingent Deferred Sale Charge)" on page 21 of the
Prospectus.)
OTHER TOTAL RETURNS. From time to time, sales literature or advertisements
may quote average annual total returns that do not reflect the Withdrawal
Charge. These returns are calculated in exactly the same way as average
8
<PAGE>
annual total returns described above, except that the ending redeemable value
of the hypothetical account for the period is replaced with an ending value for
the period that does not take into account any charges on amounts withdrawn.
Because the Withdrawal Charge will not be reflected in those quotations, there
is no differentiation between the Transfer Series Contracts and the Flex Series
Contracts. Listed in the chart below are the Average Annual Total Returns for
the Sub-Accounts for the indicated periods.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM DATE OF
FOR THE 1-YEAR INCEPTION OF
PERIOD ENDED SUB-ACCOUNT TO
SUB-ACCOUNT 12/31/97 12/31/97
- ----------------------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
Alger American Growth Portfolio 23.66% 15.13%
(Sub-Account Inception: 10/20/95)
Alger American Leveraged AllCap Portfolio 17.69% 12.93%
(Sub-Account Inception: 10/20/95)
Alger American MidCap Growth Portfolio 13.10% 27.36%
(Sub-Account Inception: 10/20/95)
Alger American Small Capitalization Portfolio 9.54% 3.43%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Equity-Income Portfolio 25.98% 20.13%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Growth Portfolio 21.43% 13.72%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Overseas Portfolio 9.71% 10.63%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Asset Manager Growth Portfolio 22.99% 19.72%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Asset Manager Portfolio 18.65% 15.94%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Contrafund Portfolio 22.08% 19.44%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Index 500 Portfolio 30.62% 25.66%
(Sub-Account Inception: 10/20/95)
Fidelity VIP III Growth Opportunities Portfolio N/A N/A
(Sub-Account Inception: 1/1/99)
Janus Aggressive Growth Portfolio N/A 23.74%
(Sub-Account Inception: 8/8/97)
Janus Growth Portfolio N/A 2.94%
(Sub-Account Inception: 8/8/97)
Janus International Growth Portfolio N/A (10.77)%
(Sub-Account Inception: 8/8/97)
Janus Worldwide Growth Portfolio N/A ( 5.76)%
(Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust N/A 4.40%
Limited Maturity Bond Portfolio
(Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust N/A 6.50%
Partners Portfolio (Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust N/A N/A
Socially Responsive Portfolio (Sub-Account Inception: 1/1/99)
Northstar Galaxy Trust Growth + Value Portfolio 12.76% 16.32%
(Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust High Yield Bond Portfolio N/A ( 2.13)
(Sub-Account Inception: 8/8/97)
Northstar Galaxy Trust Emerging Growth Portfolio (a) 13.89% 13.41%
(Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust International Value Portfolio N/A 1.59
(Sub-Account Inception: 8/8/97)
Northstar Galaxy Trust Multi-Sector Bond Portfolio 4.39% 8.29%
(Sub-Account Inception: 10/20/95)
OCC Equity Portfolio (b) N/A 16.33%
(Sub-Account Inception: 8/8/97)
OCC Global Equity Portfolio N/A (13.34)%
(Sub-Account Inception: 8/8/97)
OCC Managed Portfolio (b) N/A 1.51%
(Sub-Account Inception: 8/8/97)
OCC Small Cap Portfolio (b) N/A 4.47%
(Sub-Account Inception: 8/8/97)
</TABLE>
9
<PAGE>
The Average Annual Total Returns listed below do not reflect deduction of
the withdrawal charge and are calculated based on the assumption that the
Sub-Accounts were in existence for the same periods as those indicated for the
funds:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM DATE OF
FOR THE 1-YEAR FOR THE 5-YEAR FOR THE 10-YEAR INCEPTION OF
PERIOD ENDED PERIOD ENDED PERIOD ENDED PORTFOLIO TO
SUB-ACCOUNT 12/31/97 12/31/97 12/31/97 12/31/97
- --------------------------------------------------------- ---------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 23.66% 17.30% N/A 17.44%
(Portfolio Inception: 1/9/89)
Alger American Leveraged AllCap Portfolio 17.69% N/A N/A 31.34%
(Portfolio Inception: 1/25/95)
Alger American MidCap Growth Portfolio 13.10% N/A N/A 20.07%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization Portfolio 9.54% 10.78% N/A 17.25%
(Portfolio Inception: 9/21/88)
Fidelity VIP Equity-Income Portfolio 25.98% 18.17% 14.79% 12.76%
(Portfolio Inception: 10/9/86)
Fidelity VIP Growth Portfolio 21.43% 16.05% 15.24% 13.64%
(Portfolio Inception: 10/9/86)
Fidelity VIP Overseas Portfolio 9.71% 12.22% 7.80% 6.42%
(Portfolio Inception: 1/28/87)
Fidelity VIP II Asset Manager: Growth Portfolio 22.99% N/A N/A 20.70%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Asset Manager Portfolio 18.65% 11.11% N/A 10.86%
(Portfolio Inception: 9/6/89)
Fidelity VIP II Contrafund Portfolio 22.08% N/A N/A 26.04%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Index 500 Portfolio 30.62% 17.92 N/A 17.88%
(Portfolio Inception: 8/27/92)
Fidelity VIP III Growth Opportunities Portfolio 27.79% N/A N/A 24.71%
(Portfolio Inception: 1/3/95)
Janus Aggressive Growth Portfolio 10.79% N/A N/A 17.46%
(Portfolio Inception: 9/13/93)
Janus Growth Portfolio 20.71% N/A N/A 15.92%
(Portfolio Inception: 9/13/93)
Janus International Growth Portfolio 16.54% N/A N/A 17.31%
(Portfolio Inception: 5/2/94)
Janus Worldwide Growth Portfolio 20.12% N/A N/A 21.13%
(Portfolio Inception: 9/13/93)
Neuberger Berman Advisers Management Trust 4.97% 3.87% 5.29% 6.37%
Limited Maturity Bond Portfolio
(Portfolio Inception: 9/10/84)
Neuberger Berman Advisers Management Trust 29.07% N/A N/A 22.11%
Partners Portfolio (Portfolio Inception: 3/22/94)
Neuberger Berman Advisers Management Trust Socially N/A N/A N/A N/A
Responsive Portfolio (Portfolio Inception: 8/19/98)
Northstar Galaxy Trust Growth + Value Portfolio 12.76% N/A N/A 15.84%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust High Yield Bond Portfolio 7.19% N/A N/A 9.50%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust Emerging Growth Portfolio (a) 13.89% N/A N/A 12.35%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust International Value Portfolio N/A N/A N/A 1.59%
(Portfolio Inception: 8/8/97)
Northstar Galaxy Trust Multi-Sector Bond Portfolio 4.39% N/A N/A 7.66%
(Portfolio Inception: 5/6/94)
OCC Equity Portfolio (b) 24.53% 17.44% N/A 15.61%
(Portfolio Inception: 8/1/88)
OCC Global Equity Portfolio 12.13% N/A N/A 14.99%
(Portfolio Inception: 3/1/95)
OCC Managed Portfolio (b) 20.26% 17.89% N/A 18.33%
(Portfolio Inception: 8/1/88)
OCC Small Cap Portfolio (b) 20.21% 12.72% N/A 13.54%
(Portfolio Inception: 8/1/88)
</TABLE>
- -----------------
++ Key: T.S. = Transfer Series Contract; F.S. = Flex Series Contract. (See
"Withdrawal Charge (Contingent Deferred Sale Charge)" on page 21 of the
Prospectus.)
10
<PAGE>
(a) 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.
(b) On September 16, 1994, an investment company then called Quest for Value
Accumulation Trust (the "Old Trust") was effectively divided into two
investment funds, the Old Trust and the present OCC Accumulation Trust
(the "Trust") at which time the Trust commenced operations. The total net
assets for the Equity, Managed, and Small Cap Portfolios immediately after
the transaction were $86,789,755, $682,601,380, and $139,812,573,
respectively, with respect to the Old Trust and for the Equity, Managed,
and Small Cap Portfolios, $3,764,598, $51,345,102, and $8,129,274,
respectively with respect to the Trust. For the period prior to September
14, 1994, the performance figures for the Equity, Managed, and Small Cap
Portfolios of the Trust reflect the performance of the Equity, Managed,
and Small Cap Portfolios of the Old Trust.
The Company may disclose Cumulative Total Returns in conjunction with the
standard formats described above. The Cumulative Total Returns will be
calculated using the following formula:
CTR = ERV/P - 1
Where:
CTR = the Cumulative Total Return net of Sub-Account recurring charges for
the period.
ERV = the ending redeemable value of the hypothetical investment at the
end of the period.
P = a hypothetical single payment of $1,000.
EFFECT OF THE ANNUAL CONTRACT CHARGE ON PERFORMANCE DATA. The Contract
provides for a $30 Annual Contract Charge to be deducted annually at the end of
each Contract Year, from the Sub-Accounts and the Fixed Accounts based on the
proportion that the value of each such account bears to the total Contract
Value. For purposes of reflecting the Annual Contract Charge in yield and total
return quotations, the annual charge is converted into a per-dollar of per-day
charge based on the Annual Contract Charges collected from the average total
assets of the Variable Account and the Fixed Accounts during the calendar year.
COMPANY HOLIDAYS
The Company is closed on the following holidays: New Year's Day, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Holidays
that fall on a Saturday will be recognized on the previous Friday. Holidays
that fall on a Sunday will be recognized on the following Monday.
FINANCIAL STATEMENTS
The Statement of Additional Information incorporates by reference the
Financial Statements for the Separate Account One as of December 31, 1997,
December 31, 1996 and for the period of October 20, 1995 (the date on which the
Separate Account One commenced operations) to December 31, 1995. Deloitte &
Touche LLP serves as independent auditors for the Separate Account One.
Although the financial statements are audited, the period they cover is not
necessarily indicative of the longer term performance of the assets held in the
Separate Account One.
The financial statements for the Company for the years ended December 31,
1997 and 1996 have been prepared on the basis of statutory accounting
principles ("STAT") rather than generally accepted accounting principles
("GAAP"). The financial statements of the Company, which are incorporated by
reference in this Statement of Additional Information, should be considered
only as bearing on the ability of the Company to meet its obligations under the
Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Separate Account One.
11
<PAGE>
NORTHERN LIFE SEPARATE ACCOUNT ONE
Independent Auditors' Report(1)
Combined Statement of Assets and Liabilities as of December 31, 1997(1)
Combined Statements of Operations and Changes in Contract Owners' Equity for
the years ended December 31, 1997 and 1996(1)
Notes to Financial Statements(1)
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
Independent Auditors' Report(1)
Statutory Basis Statements of Admitted Assets, Liabilities, Surplus and Other
Funds as of December 31, 1997 and 1996(1)
Statutory Basis Statements of Operations for the years ended December 31, 1997
and 1996(1)
Statutory Basis Statements of Changes in Capital and Surplus for the years
ended December 31, 1997 and 1996(1)
Statutory Basis Statements of Cash Flows for the years ended December 31, 1997
and 1996(1)
Notes to Statutory Basis Financial Statements(1)
Independent Auditors' Report on Supplemental Schedule of Assets and
Liabilities(1)
Supplemental Schedule of Assets and Liabilities for the year ended December 31,
1997(1)
- ------------------
(1) Incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Form N-4 Registration Statement File No. 33-90474, filed April
20, 1998.
12
