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MAY 1, 2000
NORTHERN LIFE
ADVANTAGE RIA(SM) ANNUITY
INDIVIDUAL DEFERRED VARIABLE/FIXED ANNUITY CONTRACTS
ISSUED BY
SEPARATE ACCOUNT ONE
NORTHERN LIFE INSURANCE COMPANY
PROFILE OF OUR INDIVIDUAL FIXED AND VARIABLE ANNUITY CONTRACTS
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT FEATURES OF THE
CONTRACTS THAT YOU SHOULD KNOW AND CONSIDER BEFORE PURCHASING A CONTRACT. THE
CONTRACTS ARE MORE FULLY DESCRIBED IN THE PROSPECTUS WHICH ACCOMPANIES THIS
PROFILE. PLEASE READ THE PROSPECTUS CAREFULLY.
1. THE ANNUITY CONTRACT: The fixed and variable annuity contracts we are
offering are contracts between you, the owner, and us, Northern Life Insurance
Company (the "Company").
We offer five series of Contracts. Transfer Series Contracts include an
individual deferred tax sheltered annuity contract, an individual deferred
retirement annuity contract and an individual deferred annuity contract
("Transfer Series"). The Flex Series Contracts include a flexible premium
individual deferred tax sheltered annuity contract, a flexible premium
individual retirement annuity contract, and a flexible premium individual
deferred annuity contract for deferred compensation plans established under
Section 457 of the Code ("Flex Series"). The Retail Series Contracts include a
flexible premium individual deferred tax sheltered annuity contract, a flexible
premium individual retirement annuity contract, and a flexible premium
individual deferred annuity contract for deferred compensation plans established
under Section 457 of the Code ("Retail Series"). The Plus Series Contracts
include a flexible premium individual deferred tax sheltered annuity contract, a
flexible premium individual retirement annuity contract, and a flexible premium
individual deferred annuity contract for deferred compensation plans established
under Section 457 of the Code ("Plus Series"). The RIA Series Contracts include
a flexible premium individual deferred tax sheltered annuity contract, a
flexible premium individual retirement annuity contract, and a flexible premium
individual deferred annuity contract for deferred compensation plans established
under Section 457 of the Code ("RIA Series"). Only the RIA Series Contracts are
offered through this Profile and the accompanying Prospectus.
The RIA Series Contracts are designed for sale to persons whose assets are
managed by a registered investment adviser. The Contracts are not currently
available to persons who are not represented by a registered investment adviser
or an advisory affiliate.
The Company does not pay any sales commission on the sale of a Contract.
Rather, it is expected that your sales representative will be a registered
investment adviser or affiliated with a registered investment adviser that
manages your assets, and that this person will charge a fee for providing advice
about your Contract. The Company does not set the amount of this fee, or
recommend any specific level of fee. This fee is not deducted from your
Contract, but rather is a personal contractual matter between you and your
financial adviser. The Company does not receive any portion of the advisory fee
that you pay to your adviser. The Company does not recommend or take
responsibility for the services of any personal investment adviser.
For Contracts which are Qualified Plans, the Company will accept single
sum, rollover and transfer Purchase Payments as permitted by the Code which are
not less than the specific contract minimum Purchase Payment. For the
non-qualified RIA Series Contracts, the Company will accept periodic and single
sum Purchase Payments, as well as amounts transferred under Section 1035 of the
Code, which are not less than the specified Contract minimum Purchase Payment.
The Contracts provide a means for selecting one or more investment funds
("Investment Funds" or "Funds") on a tax-deferred basis. The Contracts are
intended for retirement savings or other long-term investment purposes and
provide for a death benefit and guaranteed income options.
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Through the Variable Account, the Contracts offer up to 32 investment
options from which you can choose up to 16 over the lifetime of the Contract.
The returns on these investment options are not guaranteed and you can possibly
lose money. Currently, there is a $25 charge for each transfer in excess of 24
transfers per Contract Year.
The RIA Series Contracts offer two Fixed Accounts. These Fixed Accounts
have an interest rate that is set periodically by the Company. The minimum rate
is the guaranteed rate. While your money is in a fixed account, the interest you
earn and your principal are guaranteed by the Company.
The Contracts have two phases: the accumulation phase and the income or
payout phase. During the accumulation phase, earnings accumulate on a
tax-deferred basis and are not taxed as income until you make a withdrawal. The
amounts accumulated during the accumulation phase will determine the amount of
annuity payments. The income phase occurs when you begin receiving regular
annuity payments from your contract on the annuity commencement date.
2. ANNUITY PAYMENTS (THE INCOME PHASE): If you want to receive regular income
from your annuity, you can choose one of three options: (1) monthly payments for
your life (assuming you are the annuitant); (2) monthly payments for your life,
but with payments continuing to the beneficiary for 10 years if you die before
the end of the selected period; and (3) monthly payments for your life and for
the life of another person (usually your spouse) selected by you. Once you begin
receiving regular annuity payments, you cannot change your payment plan.
During the income phase, you have the same investment options you had
during the accumulation phase. For RIA Series Contracts, you can choose to have
annuity payments come from Fixed Account A, the Variable Account or both. If you
choose to have any part of your annuity payments come from the Variable Account,
the dollar amount of your annuity payments may go up or down.
3. PURCHASE: The minimum amount the Company will accept as an initial purchase
payment is $25,000 for RIA Series Contracts. The Company may choose not to
accept any subsequent purchase payment for RIA Series Contracts if it is less
than $5,000. The Company may choose not to accept any subsequent purchase
payments if the additional payments, when added to the Contract Value at the
next Valuation Date, would exceed $1,000,000.
4. INVESTMENT OPTIONS: You can put your money in up to 16 of these 32 investment
options which are described in the prospectuses for the Funds. You do not have
to choose your investment options in advance, but upon participation in the
sixteenth Fund you would only be able to transfer within the 16 already utilized
and which are still available.
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<TABLE>
<CAPTION>
AIM VARIABLE INSURANCE THE ALGER FIDELITY VARIABLE INSURANCE FIDELITY VARIABLE INSURANCE
FUNDS AMERICAN FUND PRODUCTS FUND PRODUCTS FUND II
------------------------------ ----------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
AIM V.I. Dent Demographic Alger American Growth VIP Equity-Income VIP II Asset Manager:
Trends Fund Portfolio Portfolio Growth Portfolio
Alger American VIP Growth Portfolio VIP II Contrafund(R)
Leveraged AllCap VIP Money Market Portfolio
Portfolio Portfolio VIP II Index 500
Alger American MidCap Portfolio
Growth Portfolio VIP II Investment Grade
Alger American Bond Portfolio
Small Capitalization
Portfolio
<CAPTION>
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND III
---------------------------
<S> <C>
VIP III Growth
Opportunities
Portfolio
</TABLE>
<TABLE>
NEUBERGER BERMAN
ADVISERS PILGRIM VARIABLE
JANUS ASPEN SERIES MANAGEMENT TRUST OCC ACCUMULATION TRUST PRODUCTS TRUST
------------------------------ ------------------- -------------------- --------------------------
<S> <C> <C> <C> <C>
Aggressive Growth Portfolio Limited Maturity Equity Portfolio Pilgrim VP Growth
Growth Portfolio Bond Portfolio Global Equity Opportunities Portfolio
International Growth Portfolio Partners Portfolio Portfolio Pilgrim VP Growth + Value
Worldwide Growth Portfolio Socially Responsive Managed Portfolio Portfolio
Portfolio Small Cap Portfolio Pilgrim VP High Yield
Bond Portfolio
Pilgrim VP International
Value Portfolio
Pilgrim VP MagnaCap
Portfolio
Pilgrim VP Midcap
Opportunities Portfolio
Pilgrim VP Research
Enhanced Index Portfolio
Pilgrim VP SmallCap
Opportunities Portfolio
<S> <C>
</TABLE>
Depending upon market conditions, you can make or lose money in any of these
Funds.
5. EXPENSES: The Contract has insurance features and investment features, and
there are costs related to each.
There are investment fund annual expenses which range from 0.27% to 1.53%
of the average daily value of the investment fund depending upon the investment
option which you select.
No deduction for a sales charge is made from Purchase Payments on the date
they are received by the Company. There is no withdrawal charge.
We may also assess a state premium tax charge which ranges from 0% to 3.5%
depending upon the state.
The following chart is designed to help you understand the expenses in the
Contract.
The column "Total Annual Expenses" shows the insurance charges and the
investment expenses for each investment portfolio. The Total Annual Expenses are
assessed for year 1 and year 10. There is no withdrawal charge.
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<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL
TOTAL TOTAL EXPENSES AT
ANNUAL ANNUAL TOTAL END OF:
INSURANCE PORTFOLIO ANNUAL -----------------
INVESTMENT FUNDS CHARGES EXPENSES EXPENSES 1 YEAR 10 YEAR
---------------- --------- --------- -------- ------ -------
<S> <C> <C> <C> <C> <C>
AIM Variable Insurance Funds
AIM V.I. Dent Demographic Trends Fund..................... 0.60% 1.40% 2.00% $20 $232
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio........................... 0.60% 0.79% 1.39% $14 $166
Alger American Leveraged AllCap Portfolio................. 0.60% 0.93% 1.53% $16 $182
Alger American MidCap Growth Portfolio.................... 0.60% 0.85% 1.45% $15 $173
Alger American Small Capitalization Portfolio............. 0.60% 0.90% 1.50% $15 $178
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:
VIP Equity-Income Portfolio............................... 0.60% 0.56% 1.16% $12 $140
VIP Growth Portfolio...................................... 0.60% 0.65% 1.25% $13 $151
VIP Money Market Portfolio................................ 0.60% 0.27% 0.87% $ 9 $107
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:
VIP II Asset Manager: Growth Portfolio.................... 0.60% 0.70% 1.30% $13 $156
VIP II Contrafund(R) Portfolio............................ 0.60% 0.65% 1.25% $13 $151
VIP II Index 500 Portfolio................................ 0.60% 0.28% 0.88% $ 9 $108
VIP II Investment Grade Bond Portfolio.................... 0.60% 0.54% 1.14% $12 $138
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III:
VIP III Growth Opportunities Portfolio.................... 0.60% 0.68% 1.28% $13 $154
JANUS ASPEN SERIES:
Aggressive Growth Portfolio............................... 0.60% 0.67% 1.27% $13 $153
Growth Portfolio.......................................... 0.60% 0.67% 1.27% $13 $153
International Growth Portfolio............................ 0.60% 0.76% 1.36% $14 $163
Worldwide Growth Portfolio................................ 0.60% 0.70% 1.30% $13 $156
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST:
Limited Maturity Bond Portfolio........................... 0.60% 0.76% 1.36% $14 $163
Partners Portfolio........................................ 0.60% 0.87% 1.47% $15 $175
Socially Responsive Portfolio............................. 0.60% 1.53% 2.13% $22 $245
OCC ACCUMULATION TRUST:
Equity Portfolio.......................................... 0.60% 0.91% 1.51% $15 $179
Global Equity Portfolio................................... 0.60% 1.10% 1.70% $17 $200
Managed Portfolio......................................... 0.60% 0.83% 1.43% $15 $171
Small Cap Portfolio....................................... 0.60% 0.89% 1.49% $15 $177
PILGRIM VARIABLE PRODUCTS TRUST
Pilgrim VP Growth Opportunities Portfolio................. 0.60% 0.90% 1.50% $15 $178
Pilgrim VP Growth + Value Portfolio....................... 0.60% 0.80% 1.40% $14 $167
Pilgrim VP High Yield Bond Portfolio...................... 0.60% 0.80% 1.40% $14 $167
Pilgrim VP International Value Portfolio.................. 0.60% 1.00% 1.60% $16 $189
Pilgrim VP MagnaCap Portfolio............................. 0.60% 0.90% 1.50% $15 $178
Pilgrim VP MidCap Opportunities Portfolio................. 0.60% 0.90% 1.50% $15 $178
Pilgrim VP Research Enhanced Index Portfolio.............. 0.60% 0.89% 1.49% $15 $178
Pilgrim VP SmallCap Opportunities Portfolio............... 0.60% 0.90% 1.50% $15 $178
</TABLE>
Certain of the portfolios are subject to fee waiver or reimbursement
arrangements. The charges listed above reflect any expense reimbursement or fee
waiver. For more detailed information, see Summary of Contract Expenses in the
Prospectus for the Contract.
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6. TAXES: Your earnings are not taxed until you take them out. If you withdraw
money, earnings may come out first and will be taxed as income. If you are
younger than 59 1/2 when you take money out, you may be charged a 10% federal
tax penalty on the amount treated as taxable income. Annuity payments during the
income phase may be considered partly a return of your original investment, in
which case that part of each payment is not taxable as income.
7. ACCESS TO YOUR MONEY: You can take money out at any time during the
accumulation phase. For RIA Series Contracts, there are no withdrawal charges.
You may have to pay income tax and a tax penalty on any money you take out.
Withdrawals from Contracts that are tax sheltered annuity contracts established
pursuant to Section 403(b) of the Code are subject to special restrictions on
withdrawals, as discussed in the Prospectus.
8. PERFORMANCE: The value of the Contract will vary up or down depending upon
the investment performance of the investment funds you choose. The following
chart shows total returns through December 31, 1999, for each investment fund
for the time periods shown. This chart reports performance returns only from the
date an investment fund was offered through the Variable Account by one or more
Contracts and for periods where our Contracts offered the investment fund for a
complete year. These numbers reflect the insurance charges, the contract
maintenance charge, the investment expenses and all other expenses of the
investment fund. These numbers do not reflect any withdrawal charges since there
is no withdrawal charge for RIA Series Contracts and there would be no reduction
in performance returns for these Contracts. Past performance is not a guarantee
of future results. Investment in the money market fund option is neither insured
nor guaranteed by the U.S. government and there can be no assurance that it will
be able to maintain a stable net asset value of $1 per share.
Performances of certain of the portfolios reflect a voluntary expense
limitation, as described in the prospectus. In the absence of this voluntary
limitation the total return would have been lower.
<TABLE>
<CAPTION>
CALENDAR YEAR
-------------
1999
-------------
<S> <C>
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Dent Demographic Trends Fund..................... N/A
THE ALGER AMERICAN FUND
Alger American Growth Portfolio........................... 32.94%
Alger American Leveraged AllCap Portfolio................. 77.00%
Alger American MidCap Growth Portfolio.................... 31.06%
Alger American Small Capitalization Portfolio............. 42.56%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Equity-Income Portfolio............................... 5.69%
VIP Growth Portfolio...................................... 36.61%
VIP Money Market Portfolio................................ 4.55%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II Asset Manager: Growth Portfolio.................... 14.57%
VIP II Contrafund(R) Portfolio............................ 28.51%
VIP II Index 500 Portfolio................................ 19.79%
VIP II Investment Grade Bond Portfolio.................... (1.64)%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
VIP III Growth Opportunities Portfolio.................... 3.65%
JANUS ASPEN SERIES
Aggressive Growth Portfolio............................... 124.06%
Growth Portfolio.......................................... 43.12%
International Growth Portfolio............................ 81.19%
Worldwide Growth Portfolio................................ 63.47%
</TABLE>
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<TABLE>
<CAPTION>
CALENDAR YEAR
-------------
1999
-------------
<S> <C>
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio........................... 0.87%
Partners Portfolio........................................ 6.73%
Socially Responsive Portfolio............................. N/A
OCC ACCUMULATION TRUST
Equity Portfolio.......................................... 1.93%
Global Equity Portfolio................................... 25.77%
Managed Portfolio......................................... 4.37%
Small Cap Portfolio....................................... (2.42)%
PILGRIM VARIABLE PRODUCTS TRUST
Pilgrim VP Growth Opportunities Portfolio................. N/A
Pilgrim VP Growth + Value Portfolio....................... 93.82%
Pilgrim VP High Yield Bond Portfolio...................... (3.80)%
Pilgrim VP International Value Portfolio.................. 49.28%
Pilgrim VP MagnaCap Portfolio............................. N/A
Pilgrim VP MidCap Opportunities Portfolio................. N/A
Pilgrim VP Research Enhanced Index Portfolio.............. 5.19%
Pilgrim VP SmallCap Opportunities Portfolio............... 139.60%
</TABLE>
9. DEATH BENEFIT: If you die prior to the income phase, the person you have
chosen as your beneficiary will receive a death benefit. For RIA Series
Contracts, this death benefit will be the greater of: 1) the money you've put in
reduced by any money you've taken out, any Outstanding Loan Balance and
previously deducted Annual Contract Charges; or 2) the current value of your
Contract less the Outstanding Loan Balance.
10. OTHER INFORMATION
FREE LOOK. If you cancel the Contract within 10 days after receiving it (or
whatever period is required in your state), we will return the Contract Value
without assessing a withdrawal charge. The Contract Value may be more or less
than your original payment, unless otherwise required by applicable law.
If you reside in a state requiring the return of purchase payments made for
any cancellation during a free look period, the amount of your initial payments
will be allocated to the money market option during the free look period in your
state plus five calendar days. If you cancel your Contract we will return your
payments made or the Contract Value, whichever is larger. If you keep your
Contract, we will then allocate your initial payments plus Contract Earnings to
the appropriate Fund(s) you have chosen.
NO PROBATE. In most cases, when you die, the person you choose as your
beneficiary will receive the death benefit without going through probate.
WHO SHOULD PURCHASE THE CONTRACT? This Contract is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes. The tax-deferred feature is most attractive to people in
high federal and state tax brackets. You should not buy this Contract if you are
looking for a short-term investment or if you cannot take the risk of getting
back less money than you put in. ADDITIONAL FEATURES. This Contract has
additional Features you might be interested in. These include:
- If the Contract you purchase is issued for use with a Qualified Plan
pursuant to Section 403(b) of the Code, loans from the Contract may be
available. These loans are subject to certain restrictions.
- You can arrange to have money automatically sent to you each month while
your Contract is still in the accumulation phase. Of course, you'll have
to pay taxes on money you receive. We call this feature Systematic
Withdrawal.
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- You can arrange to have a regular amount of money automatically
transferred to investment portfolios each month to provide for regular
level investments over time. We call this feature Dollar Cost Averaging.
- The Company will automatically readjust the money in your Contract
between investment portfolios periodically to keep the blend you select.
We call this feature Automatic Reallocation.
These features are not available in all states and may not be suitable for your
particular situation.
11. INQUIRIES
If you need more information, please contact us at:
Northern Life Insurance Company
P.O. Box 5050
Minot, North Dakota 58702-5050
1-877-884-5050
or the distributor of the Contracts, our affiliated Company,
Washington Square Securities, Inc.
20 Washington Avenue South
Minneapolis, Minnesota 55401
1-800-621-3750
or your registered representative.
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NORTHERN LIFE
ADVANTAGE RIA(SM) ANNUITY
INDIVIDUAL DEFERRED VARIABLE/FIXED ANNUITY CONTRACTS
ISSUED BY
SEPARATE ACCOUNT ONE
NORTHERN LIFE INSURANCE COMPANY
1501 FOURTH AVENUE, SUITE 1000, SEATTLE, WASHINGTON 98101-3620
TELEPHONE: (206) 292-1111
Northern Life Insurance Company (the "Company") offers five series of
flexible premium Individual Deferred Variable/Fixed Annuity Contracts
("Contracts"). The five Series of Contracts offered by the Company (the "Flex
Series", the "Transfer Series", the "Retail Series", the "Plus Series" and the
"RIA Series") differ in the amount of Purchase Payments required, when Purchase
Payments can be made and certain charges imposed under the Contracts. The
Contracts are for use in connection with retirement plans qualifying for special
tax treatment under the Internal Revenue Code. (See "Federal Tax Status.") In
addition, the Transfer Series Contracts, the Retail Series Contracts, the Plus
Series Contracts and the RIA Series Contracts are offered on a non-qualified
basis.
This Prospectus describes and offers only the RIA Series Contracts, also
known as the Northern Life Advantage RIA(SM) Annuity. The RIA Annuity is
designed for sale to persons whose assets are managed by a registered investment
adviser. No sales charge is assessed upon sale or surrender of a contract;
however, an advisory fee may be assessed by the contract holder's adviser.
The RIA Series Contracts provide for accumulation of Contract Value and
payment of annuity benefits on a variable or fixed basis, or a combination
variable and fixed basis. Annuity Payouts under the Contracts are deferred until
a selected later date.
Subject to certain restrictions, you can allocate premiums to:
- Two separate Fixed Accounts (Fixed Account A and Fixed Account C), which
are accounts that provide a minimum specified rate of interest; and
- Sub-Accounts of Separate Account One (the "Variable Account"), a variable
account allowing you to invest in certain portfolios of the following
Funds (the "Investment Funds"):
AIM Variable Insurance Funds
The Alger American Fund
Fidelity Variable Insurance Products Fund (VIP)
Fidelity Variable Insurance Products Fund II (VIP II)
Fidelity Variable Insurance Products Fund III (VIP III)
Janus Aspen Series
Neuberger Berman Advisers Management Trust
OCC Accumulation Trust
Pilgrim Variable Products Trust
The Variable Account, your account value and the amount of any variable
annuity payments that you receive will vary, primarily based on the investment
performance of the Investment Funds you select. (For more information about
investing in the Investment Funds, see "Investments of the Variable Account".)
The Fixed Accounts are part of the general account of the Company. Information
about the Fixed Accounts is contained in Appendix A.
Additional information about the Contracts, the Company, and the Variable
Account is contained in a Statement of Additional Information dated May 1, 2000,
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 5050, Minot, North Dakota 58702-5050, by calling (877)
884-5050, or by accessing the SEC's Internet web site (http://www.sec.gov). The
Statement of Additional Information is incorporated by reference in this
Prospectus. The Table of Contents for the Statement of Additional Information
may be found on page 34 of this Prospectus.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE CONTRACTS THAT A
PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING AND SHOULD BE RETAINED FOR
FUTURE REFERENCE.
These insurance and investment products:
- ARE NOT BANK DEPOSITS OR GUARANTEED BY A BANK
- ARE NOT INSURED OR GUARANTEED BY THE FDIC, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY
- ARE AFFECTED BY MARKET FLUCTUATIONS AND INVOLVE INVESTMENT RISK,
INCLUDING POSSIBLE LOSS OF PRINCIPAL
- HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This prospectus is accompanied by the current prospectuses for the investment
funds offered by AIM Variable Insurance Funds, The Alger American Fund, Fidelity
Variable Insurance Products Fund, Fidelity Variable Insurance Products Fund II,
Fidelity Variable Insurance Products Fund III, Janus Aspen Series, Neuberger
Berman Advisers Management Trust, OCC Accumulation Trust, and Pilgrim Variable
Products Trust.
THE DATE OF THIS PROSPECTUS IS MAY 1, 2000
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<S> <C>
Definitions................................................. 4
Summary of Contract Expenses................................ 6
The Company................................................. 10
The Variable Account........................................ 11
Investments of the Variable Account......................... 11
Reinvestment.............................................. 14
Addition, Deletion or Substitution of Fund Shares......... 14
Charges Made by the Company................................. 15
Withdrawal Charge (Contingent Deferred Sales Charge)...... 15
Annual Contract Charge.................................... 15
Mortality Risk Charge..................................... 15
Expense Risk Charge....................................... 15
Administrative Charge..................................... 16
Product Asset Credit...................................... 16
Sufficiency of Charges.................................... 16
Premium and Other Taxes................................... 16
Reduction of Charges...................................... 16
Expenses of the Funds..................................... 17
Administration.............................................. 17
The Contracts............................................... 17
Contract Application and Purchase Payments................ 17
Revocation................................................ 17
Allocation of Purchase Payments........................... 18
Accumulation Unit Value................................... 18
Net Investment Factor..................................... 18
Death Benefit Before the Start Date....................... 19
Payment of Death Benefit Before the Start Date............ 19
Death Benefit After Start Date............................ 19
Withdrawal (Redemption)................................... 19
Systematic Withdrawals.................................... 20
Loans Available From Certain Qualified Contracts.......... 21
Reallocations............................................. 21
Written Reallocations.................................. 22
Telephone Reallocations................................ 22
Automatic Reallocations................................ 22
Dollar Cost Averaging Reallocations.................... 23
Reallocations From the Fixed Accounts.................. 23
Assignments............................................... 24
Contract Owner and Beneficiaries.......................... 24
Contract Inquiries........................................ 24
</TABLE>
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<TABLE>
<S> <C>
Annuity Provisions.......................................... 24
Start Date................................................ 24
Annuity Payout Selection.................................. 25
Forms of Annuity Payouts.................................. 25
Frequency and Amount of Annuity Payouts................... 26
Annuity Payouts........................................... 26
Sub-Account Annuity Unit Value............................ 26
Assumed Investment Rate................................... 26
Partial Annuitization..................................... 27
Federal Tax Status.......................................... 27
Introduction.............................................. 27
Tax Status of the Contract................................ 27
Taxation of Annuities..................................... 28
Penalty Tax on Certain Distributions...................... 29
Transfers, Assignments or Exchanges of a Contract......... 30
Withholding............................................... 30
Multiple Contracts........................................ 30
Taxation of Qualified Plans............................... 30
Corporate Pension and Profit-Sharing Plans and H.R. 10
Plans.................................................. 31
Individual Retirement Annuities........................... 31
Tax Sheltered Annuities................................... 31
Section 457 Plans......................................... 31
Possible Charge for the Company's Taxes................... 32
Other Tax Consequences.................................... 32
Possible Changes in Taxation.............................. 32
Voting of Fund Shares....................................... 32
Distribution of the Contracts............................... 33
Reports to Contract Owners.................................. 33
Legal Proceedings........................................... 33
Experts..................................................... 33
Further Information......................................... 33
Separate Account One Statement of Additional Information
Table of Contents......................................... 34
Appendix A: The Fixed Accounts.............................. A-1
Appendix B: Performance Information and Condensed Financial
Information............................................... B-1
</TABLE>
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DEFINITIONS
ACCUMULATION UNIT. A unit of measure used to determine the Variable Account
Contract Value.
ANNUITANT. The person whose life determines the annuity payouts payable at the
Start Date under a Contract.
ANNUITY PAYOUT DATE. Unless otherwise agreed to by the Company, the first
business day of any calendar month in which a Fixed or Variable Annuity
Payout is made under a Contract.
ANNUITY UNIT. A unit of measure used to determine the amount of a Variable
Annuity Payout after the first Variable Annuity Payout.
BENEFICIARY. The person(s) named by the Contract Owner to receive the Death
Benefit upon the death of the Contract Owner or Annuitant, if applicable,
before the Start Date and to receive the balance of annuity payouts, if
any, under the annuity payout(s) in effect at the Annuitant's death.
CODE. The Internal Revenue Code of 1986, as amended.
COMPANY. Northern Life Insurance Company, a stock life insurance company
incorporated under the laws of the State of Washington.
CONTINGENT BENEFICIARY. The person(s) named to become the Beneficiary if the
Beneficiary dies, if applicable.
CONTRACT ANNIVERSARY. The same day and month as the Issue Date each year.
CONTRACT EARNINGS. The Contract Value on any Valuation Date, plus the aggregate
Purchase Payments withdrawn up to that date, minus the aggregate Purchase
Payments made up to that date.
CONTRACT OWNER. The person who controls all the rights and privileges under a
Contract.
CONTRACT VALUE. 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.
CONTRACT YEAR. Each twelve-month period starting with the Issue Date and each
Contract Anniversary thereafter.
DEATH BENEFIT. The amount payable, if any, upon the death before the Start Date
of the Contract Owner of a qualified Contract or the Annuitant or Contract
Owner in the case of a non-qualified Contract.
DEATH BENEFIT VALUATION DATE. The Valuation Date next following the date the
Company receives proof of death and an appropriate written request for
payment of the Death Benefit from the Beneficiary.
FIXED ACCOUNT A. Part of the general account of the Company, which consists of
all assets of the Company, other than those assets allocated to separate
accounts of the Company.
FIXED ACCOUNT A CONTRACT VALUE. An amount equal to the sum of Purchase Payments
allocated to Fixed Account A, increased by reallocations made to Fixed
Account A (including amounts reallocated to the Loan Account) and interest
credited to Fixed Account A, less reallocations out of Fixed Account A,
withdrawals from Fixed Account A (including amounts applied to purchase
annuity payouts, withdrawal charges and applicable premium taxes) and
deductions for the Annual Contract Charge.
FIXED ACCOUNT C. Part of the general account of the Company, which consists of
all assets of the Company, other than those assets allocated to separate
accounts of the Company.
FIXED ACCOUNT C CONTRACT VALUE. An amount equal to the sum of Purchase Payments
allocated to Fixed Account C, increased by interest credited to Fixed
Account C, less reallocations from Fixed Account C (including withdrawal
charges and applicable premium taxes), and deductions for the Annual
Contract Charge.
FIXED ANNUITY PAYOUT. A series of periodic payments to the Payee which do not
vary in amount, are guaranteed as to principal and interest, and are paid
from the general account of the Company.
FUND. Any open-end management investment company (or portfolio thereof) or unit
investment trust (or series thereof) in which a Sub-Account invests as
described herein.
INITIAL PURCHASE PAYMENT TRANSFER DATE. The Initial Purchase Payment Transfer
Date is the date that is five calendar days after the applicable state free
look period, and is generally 16 days after the Contract Date. This may
vary by state.
4
<PAGE> 12
ISSUE DATE. The date on which the Contract is issued as shown on the Contract
data page.
LOAN ACCOUNT. The portion, if any, of Contract Value segregated within Fixed
Account A which is designated as security for a loan under the Contract.
OUTSTANDING LOAN BALANCE. The aggregate value, if any, of all existing loans,
plus any accumulated loan interest, less any loan repayments.
PAYEE. The person to whom the Company will make Annuity Payouts.
PRODUCT ASSET CREDIT. The Product Asset Credit is applicable to RIA Series
Contracts only. It is equal to an annual rate of .80% of the average daily
Variable Account Contract Value. This credit is applied monthly and is
added to the Sub-Accounts of the Variable Account.
PURCHASE PAYMENT. A payment made to the Company under a Contract which, if
permitted under a Contract includes periodic, single lump sum, rollover and
transfer payments.
QUALIFIED PLAN. A retirement plan under Sections 401(a), 403(b), 408, 408A or
457 of the Code.
SEC. The Securities and Exchange Commission.
SPECIFIED CONTRACT ANNIVERSARY. Each sixth Contract Anniversary.
START DATE. The date on which all of the Contract Value is used to purchase a
Fixed and/or Variable Annuity Payout.
SUB-ACCOUNT. A subdivision of the Variable Account Available under a Contract
which invests in shares of a specific Fund.
SUB-ACCOUNT CONTRACT VALUE. For any Sub-Account, an amount equal to the number
of Accumulation Units of that Sub-Account under a Contract when the
Sub-Account Contract Value is computed, multiplied by the accumulation unit
value for that Sub-Account.
WITHDRAWAL VALUE. The Contract Value less any applicable Withdrawal Charge, any
Outstanding Loan Balance and in the case of a full withdrawal, less the
Annual Contract Charge.
VALUATION DATE. Each day on which the New York Stock Exchange is open for
business except for a day that a Sub-Account's corresponding Fund does not
value its shares. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day; Rev. Dr. Martin
Luther King, Jr. Day; President's Day; Good Friday; Memorial Day; July
Fourth; Labor Day; Thanksgiving Day; and Christmas Day.
VALUATION PERIOD. The period of time between a Valuation Date and the next
Valuation Date.
VARIABLE ACCOUNT. Separate Account One, which is a separate investment account
of the Company.
VARIABLE ACCOUNT CONTRACT VALUE. The sum of all Sub-Account Contract Values
under a Contract.
VARIABLE ANNUITY PAYOUT. A series of periodic payments to the Payee which will
vary in amount based on the investment performance of the Sub-Accounts
selected under a Contract.
5
<PAGE> 13
SUMMARY OF CONTRACT EXPENSES
<TABLE>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases........................... None
Maximum Withdrawal Charge (a)............................... None
Reallocation Charge (b)..................................... None
ANNUAL CONTRACT CHARGE (C).................................. None
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Total Variable Account Annual Expenses (mortality, expense
and administrative charges) (d)........................... 0.60%
</TABLE>
In addition to the costs and expenses shown in this table, state premium
taxes may also be applicable. For more information on state premium taxes, see
"Premium and Other Taxes."
ANNUAL INVESTMENT FUND EXPENSES AFTER REIMBURSEMENTS (G)(H)(I)(J)(K)*
(as a percentage of Fund average net assets)
<TABLE>
<CAPTION>
TOTAL
INVESTMENT
MANAGEMENT FUND
(ADVISORY) ANNUAL
FEES OTHER EXPENSES EXPENSE
---------- -------------- ----------
<S> <C> <C> <C>
AIM V.I. Dent Demographic Trends Fund (e)................ 0.85% 0.55% 1.40%
Alger American Growth Portfolio (e)...................... 0.75% 0.04% 0.79%
Alger American Leveraged AllCap Portfolio (e)............ 0.85% 0.08% 0.93%
Alger American MidCap Growth Portfolio (e)............... 0.80% 0.05% 0.85%
Alger American Small Capitalization Portfolio (e)........ 0.85% 0.05% 0.90%
Fidelity VIP Equity-Income Portfolio (e)(g).............. 0.48% 0.08% 0.56%
Fidelity VIP Growth Portfolio (e)(g)..................... 0.58% 0.07% 0.65%
Fidelity VIP Money Market Portfolio (e).................. 0.18% 0.09% 0.27%
Fidelity VIP II Asset Manager: Growth Portfolio (e)(g)... 0.58% 0.12% 0.70%
Fidelity VIP II Contrafund(R) Portfolio (e)(g)........... 0.58% 0.07% 0.65%
Fidelity VIP II Index 500 Portfolio (e)(g)............... 0.24% 0.04% 0.28%
Fidelity VIP II Investment Grade Bond Portfolio (e)...... 0.43% 0.11% 0.54%
Fidelity VIP III Growth Opportunities Portfolio (e)(g)... 0.58% 0.10% 0.68%
Janus Aspen Aggressive Growth Portfolio (e)(h)........... 0.65% 0.02% 0.67%
Janus Aspen Growth Portfolio (e)(h)...................... 0.65% 0.02% 0.67%
Janus Aspen International Growth Portfolio (e)(h)........ 0.65% 0.11% 0.76%
Janus Aspen Worldwide Growth Portfolio (e)(h)............ 0.65% 0.05% 0.70%
Neuberger Berman Advisers Management Trust Limited
Maturity Bond Portfolio (e)............................ 0.65% 0.11% 0.76%
Neuberger Berman Advisers Management Trust Partners
Portfolio (e).......................................... 0.80% 0.07% 0.87%
Neuberger Berman Advisers Management Trust Socially
Responsive Portfolio (e)(i)............................ 0.85% 0.68% 1.53%
OCC Accumulation Trust Equity Portfolio (e)(j)........... 0.80% 0.11% 0.91%
OCC Accumulation Trust Global Equity Portfolio (e)(j).... 0.80% 0.30% 1.10%
OCC Accumulation Trust Managed Portfolio (e)(j).......... 0.77% 0.06% 0.83%
OCC Accumulation Trust Small Cap Portfolio (e)(j)........ 0.80% 0.09% 0.89%
Pilgrim VP Growth Opportunities Portfolio (f)(k)......... 0.75% 0.15% 0.90%
Pilgrim VP Growth + Value Portfolio (k).................. 0.75% 0.05% 0.80%
Pilgrim VP High Yield Bond Portfolio (k)................. 0.75% 0.05% 0.80%
Pilgrim VP International Value Portfolio (k)............. 1.00% 0.00% 1.00%
Pilgrim VP MagnaCap Portfolio (f)(k)..................... 0.75% 0.15% 0.90%
</TABLE>
6
<PAGE> 14
<TABLE>
<CAPTION>
TOTAL
INVESTMENT
MANAGEMENT FUND
(ADVISORY) ANNUAL
FEES OTHER EXPENSES EXPENSE
---------- -------------- ----------
<S> <C> <C> <C>
Pilgrim VP MidCap Opportunities Portfolio (f)(k)......... 0.75% 0.15% 0.90%
Pilgrim VP Research Enhanced Index Portfolio (k)......... 0.75% 0.14% 0.89%
Pilgrim VP SmallCap Opportunities Portfolio (k).......... 0.75% 0.15% 0.90%
</TABLE>
- -------------------------
* The fees and expense information regarding the Funds was provided by the
Funds. Except for the Pilgrim Variable Products Trust, neither the Funds nor
their advisers are affiliated with the Company.
7
<PAGE> 15
EXAMPLES
If a full withdrawal of the Contract Value is made at the end of the
applicable time period, the following expenses on a $1,000 investment, assuming
a 5% annual return on assets, would be paid.
<TABLE>
<CAPTION>
VARIABLE ACCOUNT
ANNUAL EXPENSES
----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM V.I. Dent Demographic Trends Fund....................... $20 $63 $107 $232
Alger American Growth Portfolio............................. 14 44 76 166
Alger American Leveraged AllCap Portfolio................... 16 48 83 182
Alger American MidCap Growth Portfolio...................... 15 46 79 173
Alger American Small Capitalization Portfolio............... 15 47 82 178
Fidelity VIP Equity-Income Portfolio........................ 12 37 64 140
Fidelity VIP Growth Portfolio............................... 13 40 69 151
Fidelity VIP Money Market Portfolio......................... 9 28 48 107
Fidelity VIP II Asset Manager: Growth Portfolio............. 13 41 71 156
Fidelity VIP II Contrafund(K) Portfolio..................... 13 40 69 151
Fidelity VIP II Index 500 Portfolio......................... 9 28 49 108
Fidelity VIP II Investment Grade Bond Portfolio............. 12 36 63 138
Fidelity VIP III Growth Opportunities Portfolio............. 13 41 70 154
Janus Aspen Aggressive Growth Portfolio..................... 13 40 70 153
Janus Aspen Growth Portfolio................................ 13 40 70 153
Janus Aspen International Growth Portfolio.................. 14 43 74 163
Janus Aspen Worldwide Growth Portfolio...................... 13 41 71 156
Neuberger Berman Advisers Management Trust Limited Maturity
Bond Portfolio............................................ 14 43 74 163
Neuberger Berman Advisers Management Trust Partners
Portfolio................................................. 15 46 80 175
Neuberger Berman Advisers Management Trust Socially
Responsive Portfolio...................................... 22 67 114 245
OCC Accumulation Trust Equity Portfolio..................... 15 48 82 179
OCC Accumulation Trust Global Equity Portfolio.............. 17 53 92 200
OCC Accumulation Trust Managed Portfolio.................... 15 45 78 171
OCC Accumulation Trust Small Cap Portfolio.................. 15 47 81 177
Pilgrim VP Growth Opportunities Portfolio................... 15 47 82 178
Pilgrim VP Growth + Value Portfolio......................... 14 44 76 167
Pilgrim VP High Yield Bond Portfolio........................ 14 44 76 167
Pilgrim VP International Value Portfolio.................... 16 50 87 189
Pilgrim VP MagnaCap Portfolio............................... 15 47 82 178
Pilgrim VP MidCap Opportunities Portfolio................... 15 47 82 178
Pilgrim VP Research Enhanced Index Portfolio................ 15 47 82 178
Pilgrim VP SmallCap Opportunities Portfolio................. 15 47 82 178
</TABLE>
8
<PAGE> 16
If the Contract is annuitized at the end of the applicable time period or
if it is not surrendered, the following cumulative expenses on an initial $1,000
investment assuming a 5% annual return would be paid.
<TABLE>
<CAPTION>
VARIABLE ACCOUNT
ANNUAL EXPENSES
----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM V.I. Dent Demographic Trends Fund....................... $20 $63 $107 $232
Alger American Growth Portfolio............................. 14 44 76 166
Alger American Leveraged AllCap Portfolio................... 16 48 83 182
Alger American MidCap Growth Portfolio...................... 15 46 79 173
Alger American Small Capitalization Portfolio............... 15 47 82 178
Fidelity VIP Equity-Income Portfolio........................ 12 37 64 140
Fidelity VIP Growth Portfolio............................... 13 40 69 151
Fidelity VIP Money Market Portfolio......................... 9 28 48 107
Fidelity VIP II Asset Manager:
Growth Portfolio.......................................... 13 41 71 156
Fidelity VIP II Contrafund(R) Portfolio..................... 13 40 69 151
Fidelity VIP II Index 500 Portfolio......................... 9 28 49 108
Fidelity VIP II Investment Grade Bond Portfolio............. 12 36 63 138
Fidelity VIP III Growth Opportunities Portfolio............. 13 41 70 154
Janus Aspen Aggressive Growth Portfolio..................... 13 40 70 153
Janus Aspen Growth Portfolio................................ 13 40 70 153
Janus Aspen International Growth Portfolio.................. 14 43 74 163
Janus Aspen Worldwide Growth Portfolio...................... 13 41 71 156
Neuberger Berman Advisers Management Trust Limited Maturity
Bond Portfolio............................................ 14 43 74 163
Neuberger Berman Advisers Management Trust Partners
Portfolio................................................. 15 46 80 175
Neuberger Berman Advisers Management Trust Socially
Responsive Portfolio...................................... 22 67 114 245
OCC Accumulation Trust Equity Portfolio..................... 15 48 82 179
OCC Accumulation Trust Global Equity Portfolio.............. 17 53 92 200
OCC Accumulation Trust Managed Portfolio.................... 15 45 78 171
OCC Accumulation Trust Small Cap Portfolio.................. 15 47 81 177
Pilgrim VP Growth Opportunities Portfolio................... 15 47 82 178
Pilgrim VP Growth + Value Portfolio......................... 14 44 76 167
Pilgrim VP High Yield Bond Portfolio........................ 14 44 76 167
Pilgrim VP International Value Portfolio.................... 16 50 87 189
Pilgrim VP MagnaCap Portfolio............................... 15 47 82 178
Pilgrim VP MidCap Opportunities Portfolio................... 15 47 82 178
Pilgrim VP Research Enhanced Index Portfolio................ 15 47 82 178
Pilgrim VP SmallCap Opportunities Portfolio................. 15 47 82 178
</TABLE>
- -------------------------
(a) There is no Withdrawal Charge. The Company reserves the right to charge a
partial withdrawal processing fee not to exceed the lesser of 2% of the
partial withdrawal amount or $25. For more information on the processing
fee, see "Withdrawal Charge (Contingent Deferred Sales Charge)."
(b) The Company assesses a $25 charge on reallocations between Sub-Accounts or
to or from the Fixed Accounts after 24 reallocations per Contract Year. The
Company reserves the right to assess a $25 charge on any transfer or to
limit the number of transfers.
(c) There is no Annual Contract Charge.
(d) Total Variable Account Contract Expenses are an Expense Charge of 0.40%, a
Mortality Charge of 0.85%, and an Administrative Charge of 0.15%, for a
total of 1.40%.
There is a Product Asset Credit, credited to Contract Value every month. The
Product Asset Credit is equal to an annual rate of .80% of the average daily
Variable Account Contract Value. This credit is applied monthly and is added
to the Sub-Accounts of the Variable Account. The net effect of the Product
Asset Credit as applied monthly is that total actual Variable Account
Expenses are .60% rather than 1.40%.
(e) 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
9
<PAGE> 17
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 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.
(f) This portfolio had not commenced operations as of December 31, 1999, and
therefore these expenses are estimated.
(g) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds',
or FMR on behalf of certain funds', custodian, credits realized as a result
of uninvested cash balances were used to reduce a portion of each applicable
fund's expenses. Without these reductions, the total operating expenses
presented in the table would have been .57% for Equity-Income Portfolio,
.66% for Growth Portfolio, .67% for Contrafund Portfolio, .71% for Asset
Manager: Growth Portfolio, and .69% for Growth Opportunities Portfolio.
FMR agreed to reimburse a portion of Index 500 Portfolio's expenses during
the period. Without this reimbursement, the Portfolios' management fee,
other expenses and total expenses would have been .24%, .10%, and .34%,
respectively.
(h) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Aggressive
Growth, Growth, International Growth, and Worldwide Growth Portfolios. All
expenses are shown without the effect of expense offset arrangements.
(i) 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 transactions costs, that exceed in the aggregate,
1.50% of the average daily net asset value of the Socially Responsive
Portfolio through May 1, 2001. There can be no assurance that this policy
will be continued. See "Expense Limitation" in the Socially Responsive
Portfolio prospectus for further information.
(j) The Management Fees reflect effective management fees after taking into
effect any waiver. Other Expenses are shown net of expense offsets afforded
the Portfolios. Total Investment Fund Annual Expenses for the Equity, Small
Cap and Managed Portfolios are contractually limited by OpCap Advisors so
that their respective annualized operating expenses (net of any expense
offsets) do not exceed 1.00% of average daily net assets. Total Investment
Fund Annual Expenses for the Global Equity Portfolio are limited to 1.25% of
average daily net assets (net of expense offsets).
(k) The investment adviser to the Pilgrim Variable Products Trust has agreed to
reimburse the 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
also has agreed to reimburse the Growth Opportunities Portfolio, MagnaCap
Portfolio, MidCap Portfolio, Research Enhanced Index Portfolio, and SmallCap
Opportunities Portfolio for expenses in excess of 0.90%, and the
International Value Portfolio for expenses in excess of 1.00%. In the
absence of these expense reimbursements, the Total Investment Fund Annual
Expenses that would have been paid by each Portfolio during its fiscal year
ended December 31, 1999 would have been: Growth Opportunities Portfolio:
1.09%; Growth + Value Portfolio: 0.97%; High Yield Bond Portfolio: 1.11%;
International Value Portfolio: 1.52%; MagnaCap Portfolio: 1.09%; MidCap
Opportunities Portfolio: 1.09%; Research Enhanced Index Portfolio: 1.26%;
and SmallCap Opportunities Portfolio: 1.09%. Expense reimbursements are
voluntary. There is no assurance of ongoing reimbursement.
THE EXAMPLES SHOWN IN THE TABLE ABOVE SHOULD NOT BE CONSIDERED
REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS
THAN THOSE SHOWN. THE 5% ANNUAL RETURN ASSUMED IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE
GREATER OR LESS THAN THE ASSUMED RATE.
The purpose of this table is to assist a Contract Owner in understanding
the various costs and expenses that a Contract Owner will bear either directly
or indirectly. The table reflects the anticipated expenses of the Variable
Account as well as the actual expenses of the Funds.
THE COMPANY
The Company, organized in 1906, is a stock life insurance company
incorporated under the laws of the State of Washington. The Company is an
indirect, wholly-owned subsidiary of ReliaStar Financial Corp., a
publicly-traded holding company incorporated under the laws of the State of
Delaware, whose subsidiaries specialize in the life insurance and related
financial services businesses. The Company offers individual and group annuity
contracts. The Company is admitted to do business in the District of Columbia
and all states except New York. Its Home Office is at 1501 Fourth Avenue, Suite
1000, Seattle, Washington 98101-3620. Its Administrative Office is at P.O. Box
5050, Minot, North Dakota 58702-5050.
10
<PAGE> 18
The Company is a charter member of the Insurance Marketplace Standards
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 VARIABLE ACCOUNT
The Variable Account is a separate account of the Company established under
the insurance laws of the State of Washington on March 22, 1994. The Company has
complete ownership and control of the assets in the Variable Account, but these
assets are held separately from the Company's other assets and are not part of
the Company's general account.
The portion of the assets of the Variable Account equal to its reserves and
other Contract liabilities will not be chargeable with liabilities arising out
of any other business of the Company. The income, gains and losses, realized or
unrealized, from assets allocated to the Variable Account will be credited to or
charged against the Variable Account, without regard to the other income, gains,
or losses of the Company.
The Variable Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940, as amended ("1940 Act"). Such
registration does not involve supervision by the SEC of the management or
investment policies or practices of the Variable Account, the Company or the
Funds.
Purchase Payments allocated to the Variable Account are allocated to one or
more Sub-Accounts selected by the Contract Owner. Each Sub-Account invests in
shares of a specific Fund at net asset value. The future Variable Account
Contract Value will depend, primarily, on the investment performance of the
Funds whose shares are held in the Sub-Accounts.
INVESTMENTS OF THE VARIABLE ACCOUNT
When a Contract is applied for, the Contract Owner may elect to have
Purchase Payments allocated to one or more of the available Sub-Accounts.
Purchase Payments allocated to one or more Sub-Accounts will be invested in
shares of one or more of the Funds at net asset value. The Variable Account
Contract Value and the amount of Variable Annuity Payouts will vary, primarily
based on the investment performance of the Funds whose shares are held in the
Sub-Accounts selected. The Contract Owner may also, subject to the limits
discussed below, change a Purchase Payment allocation for future Purchase
Payments and may reallocate all or part of any Sub-Account Contract Value to
another Sub-Account that invests in shares of another Fund.
There are currently 32 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 16
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 16 Sub-Accounts since issue of the Contract, the Contract Owner would only be
able to transfer within the 16 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 16 Sub-Accounts. The Contract Owner may still allocate
Purchase Payments or transfer Contract Values among any of the 16 Sub-Accounts
that were previously selected. However, the Contract Owner may not allocate
funds to the remaining Sub-Accounts at any time. A Contract Owner may transfer
partial or complete Contract Values from the Variable Account to Fixed Account
A, at any time.
11
<PAGE> 19
The Funds currently offered are described below.
INVESTMENT FUNDS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
GROWTH
ADVISER/ MONEY FIXED &
FUND GROUP FUND SUBADVISER MARKET INCOME INCOME INTERNATIONAL
<C> <C> <C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
AIM Variable AIM V.I. Dent A I M Advisors,
Insurance Demographic Trends Inc./H.S. Dent
Funds Fund Advisors, Inc.
Houston, TX
- ----------------------------------------------------------------------------------------------------------------------
The Alger Alger American Growth Fred Alger
American Fund Portfolio Management, Inc.
---------------------------------------------------------------------------------------------------
Alger American Fred Alger
New York, N.Y. Leveraged AllCap Management, Inc.
Portfolio
---------------------------------------------------------------------------------------------------
Alger American MidCap Fred Alger
Growth Portfolio Management, Inc.
---------------------------------------------------------------------------------------------------
Alger American Small Fred Alger
Capitalization Management, Inc.
Portfolio
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Fidelity Management
Investments(R) Portfolio & Research Company
Boston, Mass. X
---------------------------------------------------------------------------------------------------
VIP Growth Portfolio Fidelity Management
& Research Company
---------------------------------------------------------------------------------------------------
X
VIP Money Market Fidelity Management
Portfolio & Research Company
---------------------------------------------------------------------------------------------------
VIP II Asset Manager: Fidelity Management
Growth Portfolio & Research Company
---------------------------------------------------------------------------------------------------
VIP II Contrafund(R) Fidelity Management
Portfolio & Research Company
---------------------------------------------------------------------------------------------------
X
VIP II Index 500 Fidelity Management
Portfolio & Research Company
---------------------------------------------------------------------------------------------------
X
VIP II Investment Fidelity Management
Grade Bond Portfolio & Research Company
---------------------------------------------------------------------------------------------------
Fidelity VIP III Growth Fidelity Management
Investments(R) Opportunities & Research Company
is a Portfolio
registered
trademark of
FMR Corp.
- ----------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Janus Capital
Aggressive Growth Corporation
Denver, Colo. Portfolio
---------------------------------------------------------------------------------------------------
Aspen Series Growth Janus Capital
Portfolio Corporation
---------------------------------------------------------------------------------------------------
X
Aspen Series Janus Capital
International Growth Corporation
Portfolio
---------------------------------------------------------------------------------------------------
X
Aspen Series Worldwide Janus Capital
Growth Portfolio Corporation
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------- -----------------------------------------------------------------------------------
AGGRESSIVE PRIMARY
FUND GROUP BALANCED GROWTH GROWTH OBJECTIVES INVESTMENTS
<C> <C> <C> <C> <C> <C> <C>
- -------------- -----------------------------------------------------------------------------------
AIM Variable Long-term growth Securities of
Insurance of capital companies that are
Funds likely to benefit
from changing
Houston, TX X demographic,
economic and
lifestyle trends
- -------------- -----------------------------------------------------------------------------------
The Alger Long-term capital Equity securities
American Fund X appreciation of large companies
-----------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Long-term capital Equity securities
New York, N.Y. X appreciation of companies of any
size
-----------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
X
Long-term capital Equity securities
appreciation within the range of
S&P(R) MidCap 400
Index
-----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
X
Long-term capital Equity securities
appreciation within the range of
Russell(R) 2000
Growth or S&P(R)
SmallCap 600
Indexes
- -------------- -----------------------------------------------------------------------------------
Fidelity Reasonable Income-producing
Investments(R) income; also equity securities
considers and debt
Boston, Mass. potential for obligations
capital
appreciation
-----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
X
Capital Common stocks
appreciation
-----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
High level of U.S. dollar-
current income denominated money
consistent with market securities
preservation of
capital and
liquidity
-----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
X
Maximum total Stocks, bonds, and
return over the short-term and
long term money market
instruments
-----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
X
Capital Securities of
appreciation companies whose
value the adviser
believes is not
fully recognized by
the public
-----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Total return that Common stocks of
corresponds to S&P 500
that of S&P 500
Index
-----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
High current Investment-grade
income consistent intermediate fixed
with preservation securities
of capital
-----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Fidelity Capital growth Common stocks
Investments(R)
is a
registered
trademark of
FMR Corp. X
- -------------- -----------------------------------------------------------------------------------
Janus Long-term growth Nondiversified
of capital portfolio of common
Denver, Colo. X stocks
-----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
X
Long-term capital Diversified common
growth stocks
-----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Long-term capital Foreign issuers of
growth common stocks
-----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Long-term capital Foreign and
growth domestic common
stocks
- -------------- -----------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 20
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH
ADVISER/ MONEY FIXED &
FUND GROUP FUND SUBADVISER MARKET INCOME INCOME INTERNATIONAL
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Neuberger Advisers Management Neuberger Berman X
Berman Trust Limited Maturity Management Inc./
Bond Portfolio Neuberger Berman,
New York, N.Y. LLC
---------------------------------------------------------------------------------------------------
Advisers Management Neuberger Berman
Trust Partners Management Inc./
Portfolio Neuberger Berman,
LLC
---------------------------------------------------------------------------------------------------
Advisers Management Neuberger Berman
Trust Socially Management Inc./
Responsive Portfolio Neuberger Berman,
LLC
- ------------------------------------------------------------------------------------------------------------------
OCC OCC Accumulation Trust OpCap Advisors
Equity Portfolio
New York, N.Y.
---------------------------------------------------------------------------------------------------
OCC Accumulation Trust OpCap Advisors X
Global Equity
Portfolio
---------------------------------------------------------------------------------------------------
OCC Accumulation Trust OpCap Advisors
Managed Portfolio
---------------------------------------------------------------------------------------------------
OCC Accumulation Trust OpCap Advisors
Small Cap Portfolio
- ------------------------------------------------------------------------------------------------------------------
Pilgrim Growth Opportunities Pilgrim
Portfolio Investments, Inc.
Phoenix, AZ
---------------------------------------------------------------------------------------------------
Growth + Value Pilgrim
Portfolio Investments,
Inc./Navellier Fund
Management, Inc.
---------------------------------------------------------------------------------------------------
High Yield Bond Pilgrim X
Portfolio Investments, Inc.
---------------------------------------------------------------------------------------------------
International Value Pilgrim X
Portfolio Investments,
Inc./Brandes
Investment Partners
---------------------------------------------------------------------------------------------------
MagnaCap Portfolio Pilgrim X
Investments, Inc.
---------------------------------------------------------------------------------------------------
MidCap Opportunities Pilgrim
Portfolio Investments, Inc.
---------------------------------------------------------------------------------------------------
Research Enhanced Pilgrim
Index Portfolio Investments,
Inc./J.P. Morgan
Investment
Management Inc.
---------------------------------------------------------------------------------------------------
SmallCap Opportunities Pilgrim
Portfolio Investments, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------- -------------------------------------------------------------------------------------
AGGRESSIVE PRIMARY
FUND GROUP BALANCED GROWTH GROWTH OBJECTIVES INVESTMENTS
<S> <C> <C> <C> <C> <C> <C>
- -------------- -------------------------------------------------------------------------------------
Neuberger Highest available Short-to-
Berman current income intermediate term
consistent with investment-grade
New York, N.Y. liquidity and low debt securities
risk to principal;
total return is a
secondary goal
--------------------------------------------------------------------------------------------------- ------------
- -------------------------------------------------------------------------
X Growth of capital Common stocks of
medium-to-large
capitalization
companies
--------------------------------------------------------------------------------------------------- ------------
- -------------------------------------------------------------------------
X Long-term growth of Common stocks of
capital by medium-to-large
investing primarily capitalization
in companies that companies
meet financial and
social criteria
- --------------
OCC X Long-term capital Securities of
appreciation undervalued
New York, N.Y. companies
--------------------------------------------------------------------------------------------------- ------------
- -------------------------------------------------------------------------
Long-term capital Global investments
appreciation in equity
securities
--------------------------------------------------------------------------------------------------- ------------
- -------------------------------------------------------------------------
X Growth of capital Common stocks,
bonds and cash
equivalents
--------------------------------------------------------------------------------------------------- ------------
- -------------------------------------------------------------------------
X Capital Equity securities
appreciation of companies under
$1 billion
- --------------
Pilgrim X Long-term capital Common stock of
growth large cap, mid cap,
Phoenix, AZ or small cap
companies
--------------------------------------------------------------------------------------------------- ------------
- -------------------------------------------------------------------------
X Capital Equity securities
appreciation from
investing in a
diversified
portfolio of equity
securities
--------------------------------------------------------------------------------------------------- ------------
- -------------------------------------------------------------------------
High current yield High-yield bonds
and capital
appreciation
--------------------------------------------------------------------------------------------------- ------------
- -------------------------------------------------------------------------
Long-term capital International
appreciation equities
--------------------------------------------------------------------------------------------------- ------------
- -------------------------------------------------------------------------
Capital growth Common stocks
--------------------------------------------------------------------------------------------------- ------------
- -------------------------------------------------------------------------
X Long-term capital Common stocks of
appreciation mid-sized U.S.
companies
--------------------------------------------------------------------------------------------------- ------------
- -------------------------------------------------------------------------
X Long-term capital Common stocks
appreciation
--------------------------------------------------------------------------------------------------- ------------
- -------------------------------------------------------------------------
X Long-term capital Common stocks
appreciation
- -------------- -------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 21
You should read the prospectuses of the Funds for more detailed information
and particularly, a more thorough explanation of investment objectives of the
Funds. THE FUND PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS OR REALLOCATIONS AMONG THE
SUB-ACCOUNTS. There is no assurance that any Fund will achieve its investment
objective(s). There is a possibility that one Fund might become liable for any
misstatement, inaccuracy or incomplete disclosure in another Fund's prospectus.
The Funds are available to registered separate accounts of insurance
companies, other than the Company, offering variable annuity Contracts and
variable life insurance policies. The Company currently does not foresee any
disadvantages to Contract Owners resulting from the Funds selling shares to fund
products other than the Contracts. However, there is a possibility that a
material conflict may arise between Contract Owners whose Contract Values are
allocated to the Variable Account and the Contract Owners of variable life
insurance policies and variable annuity Contracts issued by the Company or by
such other companies whose assets are allocated to one or more other separate
accounts investing in any one of the Funds. In the event of a material conflict
the Company will take any necessary steps, including removing the Variable
Account's investment in the Fund, to resolve the matter. The Board of Directors
or Trustees of each Fund will monitor events in order to identify any material
conflicts that possibly may arise and determine what action, if any, should be
taken in response to those events or conflicts. See each individual Fund
prospectus for more information.
REINVESTMENT
The Funds described above have as a policy the distribution of income,
dividends and capital gains. However, under the Contracts described in this
Prospectus there is an automatic reinvestment of such distributions.
ADDITION, DELETION OR SUBSTITUTION OF FUND SHARES
The Company, in its sole discretion, reserves the following rights:
- The Company may add to, delete from or substitute shares that may be
purchased for or held in the Variable Account. The Company may establish
additional Sub-Accounts, each of which would invest in shares of a new
portfolio of a Fund or in shares of another investment company having a
specified investment objective. Any new Sub-Accounts may be made
available to existing Contract Owners on a basis to be determined by the
Company.
- The Company may, in its sole discretion, eliminate one or more
Sub-Accounts, or close Sub-Accounts to new premium or transfers, if
marketing, tax considerations or investment conditions warrant.
- If the shares of a Fund are no longer available for investment or if in
the Company's judgment further investment in a Fund should become
inappropriate in view of the purposes of the Variable Account, the
Company may redeem the shares, if any, of that portfolio and substitute
shares of another registered open-end management investment company.
- The Company may, if it deems it to be in the best interests of Contract
Owners and Annuitants:
-- manage the Variable Account as a management investment company under
the 1940 Act;
-- deregister the Variable Account under the 1940 Act if registration is
no longer required;
-- combine the Variable Account with other separate account(s) of the
Company; or
-- reallocate assets of the Variable Account to another Separate Account.
- Restrict or eliminate any voting privileges of Contract Owners or other
persons who have voting privileges as to the Variable Account.
- Make any changes required by the 1940 Act.
14
<PAGE> 22
- In the event any of the foregoing changes or substitutions are made, the
Company may endorse the Contracts to reflect the change or substitution.
The Company's reservation of rights is expressly subject to the following
when required:
- Applicable Federal and state laws and regulations.
- Notice to Contract Owners.
- Approval of the SEC and/or state insurance authorities.
CHARGES MADE BY THE COMPANY
WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE)
No deduction for a sales charge is made from Purchase Payments. There is no
Withdrawal Charge for withdrawals from the Contracts.
Withdrawals requested because of the death of the Annuitant will be paid to
the Beneficiary(ies) designated in the Contract, or if none, to the Annuitant's
estate. All other withdrawals requested hereunder will be paid to the Annuitant.
Total or partial withdrawals may be subject to income taxes and a 10% tax
penalty. You should consult your tax advisor before making a withdrawal.
The Company reserves the right to charge a partial withdrawal processing
fee not to exceed the lesser of 2% of the amount withdrawn or $25.
Withdrawals may be subject to a 10% federal penalty tax if made by the
Contract Owner before age 59 1/2. (See "Taxation of Annuities.")
Contracts purchased as "tax sheltered annuities," and Contracts purchased
under state optional retirement programs are subject to certain withdrawal
restrictions. (See "Withdrawal (Redemption).")
ANNUAL CONTRACT CHARGE
There is no Annual Contract Charge for the Contracts.
MORTALITY RISK CHARGE
The Variable Annuity Payouts made to Annuitants will vary in accordance
with the investment performance of the Sub-Accounts selected by the Contract
Owner. However, they will not be affected by the mortality experience (death
rate) of persons receiving Variable Annuity Payouts. The Company assumes this
"mortality risk" and has guaranteed the annuity rates incorporated in the
Contract, which cannot be changed.
To compensate the Company for assuming this mortality risk and the
mortality risk that Beneficiaries of Owners dying before the Start Date may
receive amounts in excess of the then current Contract Value, the Company
deducts a Mortality Risk Charge from the Variable Account Contract Value. (See
"Death Benefit Before Start Date.") This deduction is made daily in an amount
that is equal to an annual rate of .85% of the daily Contract Values under the
Variable Account. The Company may not increase the rate charged for the
Mortality Risk Charge under any Contract.
EXPENSE RISK CHARGE
The Company will not increase charges for administrative expenses
regardless of its actual expenses. To compensate the Company for assuming this
expense risk, the Company deducts an Expense Risk Charge from the Variable
Account Contract Value. This deduction is made daily in an amount that is equal
to an annual rate of .40% of the daily Variable Account Contract Values. The
Company may not increase the rate of the Expense Risk Charge under any Contract.
15
<PAGE> 23
ADMINISTRATIVE CHARGE
The Company deducts a daily Administrative Charge from the Variable Account
Contract Value in an amount equal to an annual rate of .15% of the daily
Variable Account Contract Values. This charge is deducted to reimburse the
Company for the cost of providing administrative services under the Contracts
and the Variable Account. The Company may not increase the rate of the
Administrative Charge under any Contract. There is not necessarily a
relationship between the amount of the Administrative Charge imposed on a given
Contract and the amount of expenses that may be attributable to that Contract.
PRODUCT ASSET CREDIT
The Company applies a Product Asset Credit. The Product Asset Credit is
equal to an annual rate of .80% of the average daily Variable Account Contract
Value. This credit is applied monthly and is added to the Sub-Accounts of the
Variable Account. The net effect of the Product Asset Credit as applied monthly
is that the total actual Variable Account expenses are .60%, rather than 1.40%.
SUFFICIENCY OF CHARGES
Any loss resulting from distribution expenses incurred in connection with
the offering of the Contracts will be borne by the Company. Any excess
distribution expenses borne by the Company will be paid out of its general
account which may include, among other things, proceeds derived from the
Mortality Risk Charge and the Expense Risk Charge deducted from the Variable
Account.
If the amount derived from the Mortality Risk Charge and the Expense Risk
Charge is not sufficient to cover the actual cost of the mortality and expense
risks assumed by the Company, the Company will bear the shortfall. Conversely,
if the charges prove more than sufficient, the excess will be profit to the
Company and will be available for any proper corporate purpose including, among
other things, payment of distribution expenses.
PREMIUM AND OTHER TAXES
Various states and other governmental entities levy a premium tax,
currently ranging up to 3.50%, on annuity Contracts issued by insurance
companies. If a Contract Owner lives in a jurisdiction that levies such a tax,
the Company will pay the taxes when due and reserves the right to deduct the
amount of the tax either from Purchase Payments as they are received or from the
Contract Value immediately before the Contract Value is applied to an Annuity
Payout as permitted or required by applicable law.
The current range of premium tax rates is a guide only and should not be
relied on to determine actual premium taxes on any Purchase Payment or Contract
because the taxes are subject to change from time to time by legislative and
other governmental action. The timing of tax levies also varies from one taxing
authority to another. Consequently, in many cases the Contract Owner will not be
able to accurately determine the premium tax applicable to the Contract by
reference to the range of tax rates described above. The Company reserves the
right to deduct charges for any other tax or economic burden resulting from the
application of the tax laws that it determines to be applicable to the Contract.
REDUCTION OF CHARGES
The Contract Charges described above (except the Mortality Risk Charge) may
be reduced or eliminated for Contracts issued in circumstances where the Company
estimates that it will incur lower distribution or administrative expenses or
perform fewer sales or administrative services than those originally
contemplated in establishing the level of those charges. Lower distribution and
administrative expenses may be the result of economics associated with
- the use of mass enrollment procedures,
- the performance of administrative or enrollment functions by an employer,
- the use by an employer of automated techniques in submitting Purchase
Payments or information related to Purchase Payments on behalf of its
employees, or
16
<PAGE> 24
- any other circumstances which reduce distribution or administrative
expenses. The exact amount of Withdrawal and Contract Charges applicable
to a particular Contract will be stated in that Contract.
EXPENSES OF THE FUNDS
There are investment advisory fees, direct operating expenses and
investment related expenses of the Funds that are reflected in each Fund's daily
share price. These fees and expenses are described in the accompanying
prospectuses for the Funds.
ADMINISTRATION
The Company has primary responsibility for all administration of the
Contracts and the Variable Account. The Company's Administrative Service Center
is located in Minot, North Dakota, and its telephone number is 1-877-884-5050.
The administrative services provided include, but are not limited to:
issuance of the Contracts; maintenance of Contract Owner records; Contract Owner
services; calculation of Accumulation Unit Values; and preparation of Contract
Owner reports.
THE CONTRACTS
CONTRACT APPLICATION AND PURCHASE PAYMENTS
Individuals who want to purchase a Contract must complete an application
and provide an initial Purchase Payment which will be sent to the Company's
Administrative Service Center. The initial Purchase Payment will be credited
within two business days after receipt at the Company's Administrative Service
Center if accompanied by a complete application. The Company may retain Purchase
Payments for up to five business days while attempting to complete an incomplete
application. If an incomplete application cannot be completed within five days
of its receipt, the applicant will be notified of the reasons for the delay and
any Purchase Payments received will be returned immediately unless the applicant
specifically consents to have the Company retain them pending completion of the
application.
For Contracts which are Qualified Plans, the Company will accept periodic,
single sum, rollover and transfer Purchase Payments as permitted by the Code.
For non-qualified Contracts, the Company will accept periodic and single sum
Purchase Payments, as well as amounts transferred under Section 1035 of the
Code. The minimum initial Purchase Payment the Company will accept under the
Contracts is $25,000 and subsequent payments may not be less than $5,000.
The Company may choose not to accept any subsequent Purchase Payment under
the RIA Series Contracts if the Purchase Payment, together with the Contract
Value at the next Valuation Date, exceeds $1,000,000. Any Purchase Payment not
accepted by the Company will be refunded. The Company reserves the right to
accept smaller or larger initial and subsequent Purchase Payments in connection
with special circumstances, including, but not limited to sales through group or
sponsored arrangements.
If you are purchasing the Contract through a Tax Qualified Plan, including
IRAs and Roth IRAs, you should carefully consider the costs and benefits of the
Contract (including annuity income benefits) before purchasing the Contract,
since the tax favored arrangement itself provides for tax sheltered growth.
REVOCATION
The Contract Owner may revoke a Contract by sending the Contract and
written notice of revocation to the Company's Administrative Office in Minot,
North Dakota, or to the agent from whom a Contract was purchased, no later than
the 10th day after the Contract Owner's receipt of the Contract. As soon as the
Company receives the Contract, it will be deemed void, and the Company will
refund the Contract Value unless you reside in a state requiring return of
Purchase Payment.
For Contracts issued in states that require that we refund all Purchase
Payments upon the revocation of a Contract during the free look period, we will
credit the initial Purchase Payment and any Purchase Payments received prior to
the Initial Purchase Payment Transfer Date to the Fidelity VIP Money Market Sub-
17
<PAGE> 25
Account. If you cancel your Contract during the free look period, the Company
will return your Purchase Payments or the Contract Value, whichever is larger.
The liability of the Variable Account under this provision is limited to
the Contract Value in each Sub-Account on the date of revocation. Any additional
amounts refunded to the Contract Owner will be paid by the Company.
ALLOCATION OF PURCHASE PAYMENTS
The Contract Owner may allocate Purchase Payments among Sub-Accounts, Fixed
Account A, and/or Fixed Account C. (See Appendix A.)
For Contracts issued in states that require that we refund all purchase
payments upon the revocation of the Contract during the free look period, on the
Initial Purchase Payment Transfer Date, we will transfer the Contract Value in
the Fidelity Money Market Sub-Account to the Fixed Account and the Sub-Accounts
of the Variable Account as the Contract Owner designated on the Contract
application. After the Initial Purchase Payment Transfer Date, we credit
payments to the Fixed Account and Sub-Accounts of the Variable Account as
designated by the Contract Owner on the Contract application.
Upon allocation to Sub-Accounts of the Variable Account, a Purchase Payment
is converted into Accumulation Units of the Sub-Account by dividing the amount
of the Purchase Payment allocated to the Sub-Account by the value of an
Accumulation Unit for the Sub-Account.
ACCUMULATION UNIT VALUE
Each Accumulation Unit of a Sub-Account was initially valued at $10 when
the first Fund shares were purchased. Thereafter the value of each Accumulation
Unit will vary up or down according to a Net Investment Factor, described below.
Dividend and capital gain distributions from a Fund will be automatically
reinvested in additional shares of such Fund and allocated to the appropriate
Sub-Account. The number of Accumulation Units does not increase because of the
additional shares, but the Accumulation Unit value may increase.
NET INVESTMENT FACTOR
The Net Investment Factor is an index number which reflects charges under
the Contract and the investment performance during a Valuation Period of the
Fund whose shares are held in the particular Sub-Account. If the Net Investment
Factor is greater than one, the Accumulation Unit or Annuity Unit value has
increased. If the Net Investment Factor is less than one, the Accumulation Unit
or Annuity Unit value has decreased. The Net Investment Factor for a Sub-Account
is determined by dividing (1) by (2) then subtracting (3) from the result,
where:
(1) Is the net result of:
(a) The net asset value per share of the Fund shares held in the
Sub-Account, determined at the end of the current Valuation Period;
(b) Plus the per share amount of any dividend or capital gain distributions
made on the Fund shares held in the Sub-Account during the current Valuation
Period;
(c) Plus a per share credit or minus a per share charge for any taxes
reserved for which the Company determines to have resulted from the operations
of the Sub-Account and to be applicable to a Contract.
(2) Is the net result of:
(a) 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;
(b) Plus a per share credit or minus a per share charge for any taxes
reserved for the last prior Valuation Period which the Company determines to
have resulted from the investment operations of the Sub-Account and to be
applicable to the Contract.
18
<PAGE> 26
(3) Is a daily factor representing the Mortality Risk Charge, the Expense Risk
Charge and the Administrative Charge adjusted for the number of days in the
period, which is equal to, on an annual basis, 1.40% of the daily net asset
value of the Sub-Account.
DEATH BENEFIT BEFORE THE START DATE
Before the Start Date, the Beneficiary will be entitled to receive the
Death Benefit described below. The Death Benefit will be determined as follows:
As of the Death Benefit Valuation Date, the Death Benefit will be the
greater of:
(a) The Contract Value less any Outstanding Loan Balance; and
(b) The sum of the Purchase Payments received by the Company under the
Contract, less any proportional amount of any withdrawals, proportional amounts
used to purchase annuity payouts, and any Outstanding Loan Balance.
PAYMENT OF DEATH BENEFIT BEFORE THE START DATE
The Beneficiary may elect to have any portion of the Death Benefit:
(1) Paid in a single sum;
(2) Applied to any of the annuity payouts (in no event may annuity payouts to a
Beneficiary extend beyond the Beneficiary's life expectancy or any period
certain greater than the Beneficiary's life expectancy); or
(3) Paid by another distribution method acceptable to the Company.
The timing and manner of payment must satisfy certain requirements under
the Code. In general, the Death Benefit must either be applied to an annuity
payout within one year of the Contract Owner's or Annuitant's death, or the
entire Contract Value must be distributed within five years of the Contract
Owner's or Annuitant's date of death. An exception to this provision applies if
the Beneficiary is the surviving spouse, in which case the Beneficiary may
continue the Contract as the Contract Owner and generally may exercise all
rights to the Contract. (See "Federal Tax Status.")
If the Beneficiary requests payment of the Death Benefit in a single sum,
it will be paid to the Beneficiary within seven days after the Death Benefit
Valuation Date. An annuity payout selection or request for another form of
distribution method must be in writing and received by the Company within a time
period permitted under the Code, or the Death Benefit as of the Death Benefit
Valuation Date will be paid in a single sum to the Beneficiary and the Contract
will be canceled.
DEATH BENEFIT AFTER START DATE
If the Annuitant dies after the Start Date, remaining annuity payouts, if
any, will be as stated in the form of annuity payout in effect.
WITHDRAWAL (REDEMPTION)
If permitted by law or any applicable Qualified Plan, the Contract Owner
may withdraw all or part of the Withdrawal Value of the Contract by sending a
properly completed withdrawal request to the Company. (See "Federal Tax
Status.")
No Withdrawal Charge will be made on full or partial withdrawals.
Partial withdrawals must be at least $1,000 and no partial withdrawal may
cause the Contract Value to fall below the greater of:
- $25,000; and
- the Outstanding Loan Balance divided by 85%.
No withdrawals are permitted from Fixed Account C.
19
<PAGE> 27
The Company will not honor requests that do not meet these requirements.
A withdrawal will be processed on the next Valuation Date after a properly
completed withdrawal request is received by the Company and payment will be made
within seven days after such Valuation Date. Unless otherwise agreed to by the
Company, a partial withdrawal will be taken proportionately from the Fixed
Accounts and Sub-Accounts on a basis that reflects their proportionate
percentage of the Withdrawal Value.
No interest will accrue on amounts represented by uncashed distribution or
redemption checks.
The Company reserves the right to assess a processing fee not to exceed the
lesser of 2% of the partial withdrawal amount or $25. No processing fee will be
charged in connection with full withdrawals.
The Company may cancel the Contract when:
- the entire Withdrawal Value is withdrawn on or before the Start Date, or
- the Outstanding Loan Balance is equal to or greater than the Contract
Value less applicable Withdrawal Charges.
If a Contract is purchased as a "tax-sheltered annuity" under Code Section
403(b), it is subject to certain restrictions on withdrawals imposed by Section
403(b)(11) of the Code. (See "Tax-Sheltered Annuities.") Section 403(b)(11) of
the Code restricts the distribution under Section 403(b) annuity contracts of:
(i) contributions made pursuant to a salary reduction agreement in years
beginning after December 31, 1988; (ii) earnings on those contributions; and
(iii) earnings in such years on amounts held as of the first year beginning
before January 1, 1989. Distributions of the foregoing amounts may only occur
upon the death of the employee, attainment of age 59 1/2, separation from
service, disability or hardship. In addition, income attributable to salary
reduction contributions may not be distributed in the case of hardship. Similar
restrictions may apply on distributions from Contracts used in connection with
state optional retirement programs.
Withdrawal payments may be taxable. For tax purposes such payments shall be
deemed to be from earnings until cumulative withdrawal payments equal all
accumulated earnings and thereafter from Purchase Payments received by the
Company. Consideration should be given to the tax implications of a withdrawal
prior to making a withdrawal request, including a withdrawal in connection with
a Qualified Plan.
SYSTEMATIC WITHDRAWALS
A Systematic Withdrawal is an automatic form of partial withdrawal. (See
"Withdrawal (Redemption).") The Contract Owner may elect to take Systematic
Withdrawals by withdrawing a specified dollar amount or percentage of the
Contract Value on a monthly, quarterly, semi-annual or annual basis. Withdrawal
Charges, if applicable, are not waived on Systematic Withdrawals. (See
"Withdrawal Charge (Contingent Deferred Sales Charge).") Systematic Withdrawals
may be discontinued by the Contract Owner at any time by notifying the Company
in writing. The amount of each Systematic Withdrawal must be at least $300.
The Company reserves the right to modify or discontinue offering Systematic
Withdrawals. However, any such modification or discontinuation will not affect
any Systematic Withdrawal programs already commenced. While the Company does not
currently charge a processing fee for partial withdrawals under this program, it
reserves the right to charge a processing fee not to exceed the lesser of 2% of
each Systematic Withdrawal payment or $25.
Systematic Withdrawals may be included in the Contract Owner's gross income
in the year in which the Systematic Withdrawal occurs. Systematic Withdrawals
occurring before the Contract Owner reaches age 59 1/2 may also be subject to a
10% Federal tax penalty. The Contract Owner should consult with his or her tax
advisor before requesting any Systematic Withdrawal. (See "Taxation of
Annuities.")
Contract Owners interested in participating in the Systematic Withdrawal
program may obtain a separate application form and full information concerning
the program and its restrictions from their registered representative.
20
<PAGE> 28
LOANS AVAILABLE FROM CERTAIN QUALIFIED CONTRACTS
Loans may be available from Contracts issued for use with Qualified Plans
qualified under Section 403(b) of the Code. A loan generally will not be treated
as a taxable distribution provided that the term is no longer than five years
(except for certain home loans) and the loan amount does not exceed certain
limits discussed below. Loans are subject to the limitations, interest rates,
and repayment procedures set forth in the loan document and Contract. The loan
must be repaid, in substantially equal payments, by the earlier of five years
from the date of approval of the loan or the Start Date, or if used to purchase
a primary residence of the Contract Owner, the earlier of 20 years or the Start
Date.
Under the Code, the maximum amount that may be borrowed, including loans
from other Qualified Plans of the employer, generally may not exceed the lesser
of $50,000 or 50% of the current value of an employee's interest in the Plans.
For Plans other than Plans subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), up to $10,000 may be borrowed even if it is
more than 50% of the value of the employee's accrued benefit under the Qualified
Plans. The $50,000 dollar limit is reduced by the highest loan balances owed
during the prior one-year period. The Company allows loan amounts (minimum
$1,000) that do not exceed the Withdrawal Value less an amount representing
annual loan interest, provided such amount does not exceed the maximum loan
amount set by law.
Upon the Company's receipt of a properly completed loan document, an amount
equal to the loan will be reallocated from the Contract Value, on a pro rata
basis, to the Loan Account, which is part of Fixed Account A. The Contract Value
reallocated to the Loan Account will be used to secure the loan. Amounts
reallocated from the Sub-Accounts to the Loan Account will be valued on the next
Valuation Date following the Company's receipt of the loan document. Amounts
transferred from the Sub-Accounts to the Loan Account will result in a reduction
of Variable Account Contract Value and will not participate in the investment
experience of any Sub-Account. No loans are permitted from Fixed Account C. A
loan document can be obtained by writing to the Company's Administrative Office
in Minot, North Dakota.
The amounts reallocated to the Loan Account may earn an interest rate less
than that credited to other amounts allocated to Fixed Account A, but it will
never earn less than the guaranteed rate of 3%. The annual interest rate
assessed by the Company on the loan will not exceed 8% in arrears and will never
be less than 5.5% in arrears.
If any loan repayment due under a loan is not paid within 90 days of the
scheduled payment date, the Company will declare the Outstanding Loan Balance
immediately due and payable without notice to the Contract Owner. Unless
prohibited by law, the Outstanding Loan Balance, along with any applicable
Withdrawal Charges will be withdrawn from the Loan Account. Such forfeiture of
Contract Value is a taxable event, and may be subject to a 10% penalty tax for
early withdrawal or adversely affect the treatment of the Contract under Section
403(b) of the Code. (See "Tax Sheltered Annuities.")
The Company reserves the right to charge a loan service fee not to exceed
$25 for each loan and to limit loans in the first Contract Year and after the
Contract Owner reaches age 70 1/2.
The foregoing discussion of Contract loans is general and does not address
the tax consequences resulting from all situations in which a person may receive
a Contract loan. A competent tax advisor should be consulted before obtaining a
Contract loan.
REALLOCATIONS
Prior to the Start Date, the Contract Owner may transfer Variable Account
Contract Value among the Sub-Accounts and may transfer Fixed Account Contract
Value to Various Sub-Accounts. Likewise, Variable Contract Value may be
transferred from a Sub-Account to Fixed Account A. Transfers of Variable
Contract Values from one Sub-Account to another involve the exchange of
accumulation units of one Sub-Account for another on a dollar-equivalent basis.
Subject to certain limitations, Fixed Account Contract Value may be transferred
from Fixed Account A to a Sub-Account.
21
<PAGE> 29
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 from
Fixed Account A or the Variable Account to Fixed Account C are not permitted.
For purposes of this restriction, reallocations pursuant to Telephone
Reallocations, Automatic Reallocations and Dollar Cost Averaging Reallocations
do not constitute reallocations, and multiple reallocations on a single day
currently constitute a single reallocation. For these types of reallocations,
the Company reserves the right to charge a fee not to exceed $25 per
reallocation and to limit the number of reallocations.
Currently, there are four methods by which a Contract Owner may make the
reallocations described above: in writing, by telephone, through Automatic
Reallocations and by Dollar Cost Averaging. Currently, there is a $25 charge for
each reallocation in excess of 24 per Contract Year. Currently, reallocations
pursuant to Telephone Reallocations, Automatic Reallocations and Dollar Cost
Averaging Reallocations do not constitute reallocations, and multiple
reallocations on a single day currently constitute a single reallocation. The
Company reserves the right to charge a fee not to exceed $25 per reallocation
for any reallocation and to limit the number of reallocations.
WRITTEN REALLOCATIONS. The Contract Owner may request a reallocation in
writing. All or part of a Sub-Account's value may be reallocated to other
Sub-Accounts or to any available Fixed Account other than Fixed Account C. The
reallocations will be made by the Company on the first Valuation Date after the
request for such a reallocation is received by the Company.
After the Start Date, an Annuitant who has selected Variable Annuity
Payouts may request reallocation of Annuity Unit values in the same manner and
subject to the same requirements as for a reallocation of Accumulation Unit
values. However, no reallocations of Annuity Unit values may be made to or from
the Fixed Accounts after the Start Date.
The conditions applicable to Written Reallocations also apply to Telephone
Reallocations, Automatic Reallocations and Dollar Cost Averaging Reallocations.
TELEPHONE REALLOCATIONS. Telephone reallocations are available when the
Contract Owner completes a telephone reallocation form and a personal
identification number has been assigned. If the Contract Owner elects to
complete the telephone reallocation form, the Contract Owner thereby agrees that
the Company will not be liable for any loss, liability, cost or expense when the
Company acts in accordance with the telephone reallocation instructions which
are received and recorded on voice recording equipment. If a telephone
reallocation, processed after the Contract Owner has completed the telephone
reallocation form, is later determined not to have been made by the Contract
Owner or was made without the Contract Owner's authorization, and a loss results
from such unauthorized reallocation, the Contract Owner bears the risk of this
loss. The Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. In the event the Company does not employ
such procedures, the Company may be liable for any losses due to unauthorized or
fraudulent instructions. Such procedures may include, among others, requiring
forms of personal identification prior to acting upon telephone instructions,
providing written confirmation of such instructions and/or tape recording
telephone instructions.
AUTOMATIC REALLOCATIONS. The Contract Owner may elect to have the Company
automatically reallocate Contract Value on each quarterly anniversary of the
Issue Date or other date as permitted by Company practice to maintain a certain
percentage of Contract Value in particular Sub-Accounts. The Contract Value
allocated to each Sub-Account, as selected by the Contract Owner, will grow or
decline in value at different rates during the quarter. Automatic Reallocation
is intended to reallocate Contract Value from those Sub-Accounts that have
increased in value to those Sub-Accounts that have declined in value or
increased at a slower rate. This investment method does not guarantee profits
nor does it assure that a Contract Owner will avoid losses.
To elect Automatic Reallocations, the Contract Value must be at least
$10,000 and an Automatic Reallocation application in proper form must be
received at the Company's Administrative Office. An Automatic Reallocation
application can be obtained by writing to the Company's Administrative Office in
Minot, North Dakota. The Contract Owner must indicate on the application the
applicable Sub-Accounts and
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the percentage of Contract Value to be maintained on a quarterly basis in each
Sub-Account. All Contract Value in a selected Sub-Account will be available for
the automatic reallocations.
Automatic Reallocation of Contract Value will occur on each quarterly
anniversary of the Issue Date or other date as permitted by Company practice,
which the Company received the Automatic Reallocation application in proper
form. The amounts reallocated will be credited at the Accumulation Unit value as
of the end of the Valuation Dates on which the reallocations are made.
A Contract Owner may instruct the Company at any time to terminate
Automatic Reallocations by written request to the Company's Administrative
Office in Minot, North Dakota. Any Contract Value in a Sub-Account that has not
been reallocated will remain in that Sub-Account regardless of the percentage
allocation unless the Contract Owner instructs otherwise. If a Contract Owner
wants to continue Automatic Reallocations after they have been terminated, a new
Automatic Reallocation application must be completed and sent to the Company's
Home Office and the Contract Value at the time the request is made must be at
least $10,000.
The Company reserves the right to discontinue, modify or suspend Automatic
Reallocations and it reserves the right to charge a fee not to exceed $25 per
each reallocation between Sub-Accounts or from the unencumbered portion of Fixed
Account A Contract Value. Contract Value in Fixed Account C is not eligible for
Automatic Reallocations.
DOLLAR COST AVERAGING REALLOCATIONS. The Contract Owner may direct the
Company to automatically transfer a fixed dollar amount or a specified
percentage of Sub-Account Contract Value or Fixed Account A or Fixed Account C
Contract Value to any one or more other Sub-Accounts or to any available Fixed
Account other than Fixed Account C. No reallocations to Fixed Account C are
permitted under this service. Reallocations of this type from Fixed Account A
may be made on a monthly, quarterly, semi-annual or annual basis. Reallocations
from Fixed Account C may be made only on a monthly basis. This service is
intended 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. The Company makes no guarantees that Dollar Cost
Averaging will result in a profit or protect against loss. The Contract Owner
may discontinue Dollar Cost Averaging at any time by notifying the Company in
writing.
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.
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 between Sub-Accounts or from Fixed Account A or Fixed Account C.
REALLOCATIONS FROM THE FIXED ACCOUNTS. Subject to the conditions applicable
to reallocations among Sub-Accounts, reallocations of amounts from Fixed Account
A not designated to the Loan Account may be made to the Sub-Accounts or to any
other available Fixed Account any time before the Start Date. After the Start
Date, amounts supporting Fixed Annuity Payouts cannot be reallocated.
Reallocations of Fixed Account C Contract Values are subject to the
following conditions:
- Reallocations from Fixed Account C must begin within 30 days of deposit,
and must be substantially equal payments over a 12 month period.
Reallocation from Fixed Account C will be transferred any time before the
29th day of each month. You may direct us on which day you want the
reallocation.
- 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.
- 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.
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- If reallocations from Fixed Account C are discontinued prior to the end
of the 12 month term, the remaining balance of Fixed Account C will be
reallocated to Fixed Account A.
After the Start Date, reserves supporting Fixed Annuity Payouts cannot be
reallocated.
The Company reserves the right to permit reallocations from Fixed Account A
in excess of the limits described above on a non-discriminatory basis.
ASSIGNMENTS
Except for Section 457 plans, if the Contract is issued pursuant to or in
connection with a Qualified Plan, it may not be sold, transferred, pledged or
assigned to any person or entity other than the Company. With respect to Section
457 plans, for such plans maintained by tax exempt organizations, all rights and
benefits remain the exclusive property of the organization and are subject to
its general creditors. For such plans maintained by state or local governments,
however, all plan assets are maintained for the exclusive benefit of plan
participants in accordance with Section 457(g). In other circumstances, an
assignment of the Contract is permitted, but only before the Start Date, by
giving the Company the original or a certified copy of the assignment. The
Company shall not be bound by any assignment until it is actually received by
the Company and shall not be responsible for the validity of any assignment. Any
payments made or actions taken by the Company before the Company actually
receives any assignment shall not be affected by the assignment.
CONTRACT OWNER AND BENEFICIARIES
Unless someone else is named as the Contract Owner in the application for
the Contract, the applicant is the Contract Owner of the Contract and before the
Start Date may exercise all of the Contract Owner's rights under the Contract.
The Contract Owner may name a Beneficiary and a Contingent Beneficiary. In
the event a Contract Owner dies before the Start Date, the Beneficiary shall
receive a Death Benefit as provided in the Contract. In the event the Payee dies
on or after the date Annuity Payouts commence, the Beneficiary, if the Annuity
Payout in effect at the Annuitant's death so provides, may continue receiving
payouts or be paid a lump sum. If the Beneficiary or Contingent Beneficiary is
not living on the date payment is due or if no Beneficiary or Contingent
Beneficiary has been named, the Payee's estate will receive the applicable
proceeds.
A person named as an Annuitant, a Payee, a Beneficiary or a Contingent
Beneficiary shall not be entitled to exercise any rights relating to the
Contract or to receive any payments or settlements under the Contract or any
Annuity Payout, unless such person is living on the day due proof of death of
the Contract Owner, the Annuitant or the Beneficiary, whichever is applicable,
is received by the Company.
Unless different arrangements have been made with the Company by the
Contract Owner, if more than one Beneficiary is entitled to payments from the
Company the payments shall be in equal shares.
Before the Start Date, the Contract Owner may change the Beneficiary or the
Contingent Beneficiary by giving the Company written notice of the change, but
the change shall not be effective until actually received by the Company. Upon
receipt by the Company of a notice of change, it will be effective as of the
date it was signed but shall not affect any payments made or actions taken by
the Company before the Company received the notice, and the Company shall not be
responsible for the validity of any change.
CONTRACT INQUIRIES
Inquiries regarding a Contract may be made by writing to the Company's
Administrative Office in Minot, North Dakota.
ANNUITY PROVISIONS
START DATE
Unless otherwise agreed to by the Company, the Start Date must be the first
business day of any calendar month. The earliest Start Date is the first
business day of the first month after issue. If the Start Date selected
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by the Contract Owner does not occur on a Valuation Date at least 60 days after
the date on which the Contract was issued, the Company reserves the right to
adjust the Start Date to the first Valuation Date after the Start Date selected
by the Contract Owner which is at least 60 days after the Contract issue date.
If the Contract Owner does not select a Start Date, the Start Date will be the
Contract Owner's 85th birthday. The latest Start Date is the Contract Owner's
99th birthday.
The Contract Owner may change the Start Date by giving written notice
received by the Company at least 30 days before the Start Date currently in
effect and the new Start Date. The new Start Date must satisfy the requirements
for a Start Date.
For Contracts issued in connection with Qualified Plans, the Start Date and
form of payout must satisfy certain requirements under the Code. (See "Federal
Tax Status.")
ANNUITY PAYOUT SELECTION
The Contract Owner may select a Variable Annuity Payout, a Fixed Annuity
Payout, or both, with payments starting at the Start Date selected by the
Contract Owner. The Contract Owner may change the form of Annuity Payout(s) by
giving written notice received by the Company before the Start Date. If the
Contract Owner has not selected the form of Annuity Payout(s) before the Start
Date, the Company will apply the Fixed Account Contract Value to provide Fixed
Annuity Payouts and the Variable Account Contract Value to provide Variable
Annuity Payouts, both in the form of a Life Annuity with Payments Guaranteed for
10 years (120 months) which will be automatically effective.
FORMS OF ANNUITY PAYOUTS
Variable Annuity Payouts and Fixed Annuity Payouts are available in any of
the following Annuity Forms:
LIFE ANNUITY. Unless otherwise agreed to by the Company, an annuity payable
on the first business day of each calendar month during the Annuitant's life,
starting with the first payment due according to the Contract. Payments cease
with the payment made on the first business day of the calendar month in which
the Annuitant's death occurs. It would be possible under this Annuity Payout for
the Annuitant to receive only one payment if he or she died before the second
annuity payment, only two payments if he or she died before the third annuity
payment, etc.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS (120 MONTHS). Unless
otherwise agreed to by the Company, an annuity payable on the first business day
of each calendar month during the Annuitant's life, starting with the first
payment due according to the Contract. If the Annuitant receives all of the
guaranteed payments, payments will continue thereafter but cease with the
payment made on the first business day of the calendar month in which the
Annuitant's death occurs. If all of the guaranteed payments have not been made
before the Annuitant's death, the unpaid installments of the guaranteed payments
will be continued to the Beneficiary.
JOINT AND FULL SURVIVOR ANNUITY. Unless otherwise agreed to by the Company,
an annuity payable on the first business day of each month during the
Annuitant's life and the life of a named person (the "Joint Annuitant"),
starting with the first payment due according to the Contract. Payments will
continue while either the Annuitant or the Joint Annuitant is living and cease
with the payment made on the first business day of the calendar month in which
the death of the Annuitant or the Joint Annuitant, whichever lives longer,
occurs. There is not a minimum number of payments guaranteed under this Annuity
Payout. Payments cease upon the death of the last survivor of the Annuitant and
the Joint Annuitant regardless of the number of payments received.
The Company will pay Fixed and Variable Annuity Payouts under other Annuity
Forms that may be offered by the Company. Your registered representative can
provide you with the details.
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FREQUENCY AND AMOUNT OF ANNUITY PAYOUTS
Annuity Payouts will be paid as monthly installments, unless the Annuitant
and the Company agree to a different payout schedule. However, if the Contract
Value less any Outstanding Loan Balance at the Start Date is less than $5,000,
the Company may pay the difference in a single sum and the Contract will be
canceled. Also, if a monthly payout would be or become less than $100, the
Company may change the frequency of payouts to intervals that will result in
payouts of at least $100 each.
ANNUITY PAYOUTS
The amount of the first Fixed Annuity Payout is determined by applying the
Contract Value to be used for a fixed annuity at the Start Date to the annuity
table in the Contract for the Fixed Annuity Payout selected. The table shows the
minimum guaranteed amount of the initial annuity payment for each $1,000
applied. All subsequent payments shall be equal to the initial annuity payment.
The amount of the first Variable Annuity Payout is determined by applying
the Contract Value to be used for a variable annuity at the Start Date to the
annuity table in the Contract for the Annuity Payout selected. Subsequent
Variable Annuity Payouts vary in amount in accordance with the investment
performance of the applicable Sub-Account. Assuming annuity payouts are based on
the Annuity Unit values of a single Sub-Account, the dollar amount of the first
annuity payout, determined as set forth above, is divided by the Sub-Account
Annuity Unit value as of the Start Date to establish the number of Annuity Units
representing each annuity payout. This number of Annuity Units remains fixed
during the annuity payout period. The dollar amount of the second and subsequent
payouts is not predetermined and may change from month to month. The dollar
amount of the second and each subsequent annuity payout is determined by
multiplying the fixed number of Annuity Units by the Sub-Account Annuity Unit
Value for the Valuation Period with respect to which the annuity payout is due.
If the monthly payout is based upon the Annuity Unit values of more than one
Sub-Account, the foregoing procedure is repeated for each applicable Sub-Account
and the sum of the payments based on each Sub-Account is the amount of the
monthly annuity payout.
The annuity tables in the Contracts are based upon the 1983 Mortality Table
a and a 3% interest rate. Unisex rates will apply for Contracts issued under
Qualified Plans and will be derived by calculating the weighted average of 15%
male mortality and 85% female mortality. Sex-distinct rates will apply for non-
qualified Contracts.
The Company guarantees that the dollar amount of each Variable Annuity
Payout after the first payout will not be affected by variations in expenses
(including those related to the Variable Account) or in mortality experience
from the mortality assumptions used to determine the first payout.
SUB-ACCOUNT ANNUITY UNIT VALUE
Each Sub-Account's Annuity Units were initially valued at $10 each at the
time Accumulation Units with respect to the Sub-Account were first converted
into Annuity Units. The Sub-Account Annuity Unit value for any subsequent
Valuation Period is determined by multiplying the Sub-Account Annuity Unit value
for the immediately preceding Valuation Period by the Net Investment Factor for
the Sub-Account for the Valuation Period for which the Sub-Account Annuity Unit
Value is being calculated, and multiplying the result by an interest factor to
neutralize the assumed investment rate of 3% per annum built into the annuity
tables contained in the Contracts. (See "Net Investment Factor.")
ASSUMED INVESTMENT RATE
A 3% assumed investment rate is built into the annuity tables contained in
the Contracts. If the actual net investment rate on the assets of the Variable
Account is equal to the assumed investment rate, Variable Annuity Payouts will
remain level. If the actual net investment rate exceeds the assumed investment
rate, Variable Annuity Payouts will increase. Conversely, if it is less, then
the payouts will decrease.
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PARTIAL ANNUITIZATION
Any time before the Start Date, a Contract Owner may apply a portion of the
Contract Value to the purchase of Fixed or Variable Annuity Payouts or to a
combination of Fixed and Variable Annuity Payouts. This is called a partial
annuitization and occurs in the same manner as described above for application
of the entire Contract Value to annuity payouts at the Start Date, except that
values as of the Valuation Date immediately following receipt by the Company of
a written request for a partial annuitization are used in place of values as of
the Start Date.
Upon the occurrence of a partial annuitization, the Contract Value applied
to purchase annuity payouts is considered a withdrawal from the Contract. (See
"Withdrawals (Redemptions)" and "Taxation of Annuities.") The Company reserves
the right to deduct the amount of any premium taxes not already paid under a
Contract.
After a partial annuitization, annuity payouts based on the Contract Value
applied and the annuity options selected are made in the same manner as if the
Start Date had occurred and no Contract Value remained under the Contract. Any
remaining Contract Value not applied to purchase annuity payouts, the Contract
continues as if no partial annuitization had occurred.
FEDERAL TAX STATUS
INTRODUCTION
THIS DISCUSSION IS GENERAL AND NOT INTENDED AS TAX ADVICE. This discussion
is not intended to address the tax consequences resulting from all of the
situations in which a person may be entitled to or may receive a distribution
under a Contract.
A Contract may be purchased on a non-qualified basis ("Non-Qualified
Contract") or purchased and used in connection with plans qualifying for
favorable tax treatment ("Qualified Contract"). Generally, a Qualified Contract
is designed for use where Purchase Payments are comprised solely of proceeds
from and/or contributions under retirement plans which are intended to qualify
as plans entitled to special income tax treatment under Sections 401(a), 403(b),
408, 408A or 457 of the Code.
The ultimate effect of federal income taxes on the amounts held under a
Contract, or annuity payouts, and on the economic benefit to the Contract Owner,
the Annuitant, the Payee or the Beneficiary, depends on the age and tax and
employment status of the individual concerned, the type of retirement plan, and
on the Company's tax status. In addition, certain requirements must be satisfied
in purchasing a Qualified Contract with proceeds from a Qualified Plan and
receiving distributions from a Qualified Contract in order to continue receiving
favorable tax treatment. Therefore, purchasers of Contracts should seek
competent legal and tax advice regarding the suitability of a Contract for their
situation, the applicable requirements, and the tax treatment of the rights and
benefits of a Contract.
The following discussion assumes that Qualified Contracts are purchased and
proceeds from and/or contributions under retirement plans that qualify for the
intended special federal income tax treatment.
The discussion is based on the Company's understanding of Federal income
tax laws as currently interpreted. No representation is made regarding the
likelihood of the continuation of the present Federal income tax laws or the
current interpretation by the Internal Revenue Service ("IRS").
No attempt is made to consider any applicable state or other tax laws.
TAX STATUS OF THE CONTRACT
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code provides that separate account investments
underlying a Contract must be "adequately diversified" in accordance with
Treasury regulations in order for the Contract to qualify as an annuity Contract
under Section 72 of the Code. The Variable Account, through each of the Funds,
intends to comply with the diversification requirements prescribed in
regulations under Section 817(h) of the Code,
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which affect how the assets in the various Sub-Accounts may be invested. The
Company expects that each Fund in which the Variable Account owns shares will
meet the diversification requirements and that the Contract will be treated as
an annuity Contract under the Code.
The Treasury has also announced that the diversification regulations do not
provide guidance concerning the extent to which Contract Owners may direct their
investments to particular Sub-Accounts of the Variable Account or how
concentrated the investments of the Funds underlying a variable account may be.
The number of underlying investment options available under a variable contract
may also be relevant in determining whether the product qualifies for the
desired tax treatment. It is possible that if additional rules, regulations or
guidance in this regard are issued, the Contract may need to be modified to
comply with such additional rules or guidance. For these reasons, the Company
reserves the right to modify the Contracts as necessary to attempt to prevent
the Contract Owner from being considered the owner of the assets of the Funds or
otherwise to qualify the Contract for favorable tax treatment.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity Contract for federal income tax
purposes, Section 72(s) of the Code also requires any Non-Qualified Contract to
provide that: (a) if any Contract Owner dies on or after the Start Date but
prior to the time the entire interest in the Contract has been distributed, the
remaining portion of such interest will be distributed at least as rapidly as
under the method of distribution being used as of the date of that Contract
Owner's death; and (b) if any Contract Owner dies prior to the Start Date, the
entire interest in the Contract will be distributed within five years after the
date of the Contract Owner's death. These requirements will be considered
satisfied as to any portion of the Contract Owner's interest which is payable to
or for the benefit of a "designated Beneficiary" and which is distributed over
the life of such Beneficiary or over a period not extending beyond the life
expectancy of that Beneficiary, provided that such distributions begin within
one year of that Contract Owner's death. The Contract Owner's "designated
Beneficiary" is the person designated by such Contract Owner as a Beneficiary
and to whom ownership of the Contract passes by reason of death and must be a
natural person. However, if the Contract Owner's "designated Beneficiary" is the
surviving spouse of the Contract Owner, the Contract may be continued with the
surviving spouse as the new Contract Owner. If the Contract Owner is not an
individual, any change in the primary Annuitant is treated as a change of
Contract Owner for tax purposes.
The Non-Qualified Contracts contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code Section 72(s) when clarified by regulation or
otherwise. Other rules may apply to Qualified Contracts.
TAXATION OF ANNUITIES
IN GENERAL
Section 72 of the Code governs taxation of annuities in general. The
Company believes that a Contract Owner who is a natural person generally is not
taxed on increases in the value of a Contract until distribution occurs by
withdrawing all or part of the Contract Value (e.g., partial withdrawals and
complete withdrawals) or as annuity payouts under the form of annuity payout
selected. For this purpose, the assignment, pledge, or agreement to assign or
pledge any portion of the Contract Value (and in the case of a Qualified
Contract, any portion of an interest in the qualified plan) generally will be
treated as a distribution. The taxable portion of a distribution (in the form of
a single sum payment or annuity) is taxable as ordinary income.
Except as provided in the Code, a Contract Owner who is not a natural
person generally must include in income any increase in the excess of the net
withdrawal value over the "investment in the Contract" during the taxable year.
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WITHDRAWALS
In the case of a withdrawal from a Qualified Contract, under Section 72(e)
of the Code a ratable portion of the amount received is taxable, generally based
on the ratio of the "investment in the Contract" to the participant's total
accrued benefit or balance under the retirement plan. The "investment in the
Contract" generally equals the portion, if any, of any Purchase Payments paid by
or on behalf of any individual under a Contract which was not under-excluded
from the individual's gross income. For Contracts issued in connection with
Qualified Plans, the "investment in the Contract" can be zero. Special tax rules
may be available for certain distributions from Qualified Contracts.
In the case of a withdrawal (including Systematic Withdrawals) from a
Non-Qualified Contract before the Start Date, under Code Section 72(e) amounts
received are generally first treated as taxable income to the extent that the
Contract Value immediately before withdrawal exceeds the "investment in the
Contract" at that time. Any additional amount withdrawn is not taxable.
In the case of a full withdrawal under a Qualified or Non-Qualified
Contract, the amount received generally will be taxable only to the extent it
exceeds the "investment in the Contract."
A Federal penalty tax may apply to certain withdrawals from Qualified and
Non-Qualified Contracts. (See "Penalty Tax on Certain Distributions" below.)
ANNUITY PAYOUTS
Although tax consequences may vary depending on the annuity form selected
under the Contract, in general, only the portion of the annuity payout that
represents the amount by which the Contract Value exceeds the investment in the
Contract will be taxed; after the investment in the Contract is recovered, the
full amount of any additional annuity payouts is taxable. For Variable Annuity
Payouts, the taxable portion is generally determined by an equation that
establishes a specific dollar amount of each payment that is not taxed. The
dollar amount is determined by dividing the investment in the Contract by the
total number of expected periodic annuity payouts. However, the entire
distribution will be taxable once the recipient has recovered the dollar amount
of his or her investment in the Contract. For Fixed Annuity Payouts, in general
there is no tax on the portion of each payout which represents the same ratio
that the investment in the Contract bears to the total expected value of the
annuity payouts for the term of the payouts; however, the remainder of each
annuity payout is taxable until the recovery of the investment in the Contract,
and thereafter the full amount of each annuity payout is taxable.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from Transfer Series, Flex Series or Plus Series
Contracts because of the death of a Contract Owner or an Annuitant. For Retail
Series Contracts, amounts may be distributed from a Contract because of the
death of a Contract Owner. Generally, such amounts are includible in the income
of the recipient as follows: (i) if distributed in a lump sum, they are taxed in
the same manner as a full withdrawal from the Contract; or (ii) if distributed
under a payout option, they are taxed in the same way as annuity payouts.
PENALTY TAX ON CERTAIN DISTRIBUTIONS
In the case of a distribution pursuant to a Non-Qualified Contract, a
Federal penalty equal to 10% of the amount treated as taxable income may be
imposed. In general, however, there is no penalty on distributions:
- Made on or after the taxpayer reaches age 59 1/2;
- Made on or after the death of the holder (a holder is considered a
Contract Owner) (or if the holder is not an individual, the death of the
primary annuitant);
- Attributable to the taxpayer becoming disabled;
- A part of a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the taxpayer
and his or her designated beneficiary;
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- Made under an annuity Contract that is purchased with a single premium
when the annuity starting date is no later than a year from purchase of
the annuity and substantially equal periodic payments are made, not less
frequently than annually, during the annuity period; and
- Made under certain annuities issued in connection with structured
settlement agreements.
Other tax penalties may apply to certain distributions under a Qualified
Contract, as well as to certain contributions to, loans from, and other
circumstances, applicable to the Qualified Plan of which the Qualified Contract
is part.
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer of ownership or assignment of a Contract, the designation of an
Annuitant, Payee or other Beneficiary who is not also the Contract Owner, or the
exchange of a Contract may result in certain tax consequences to the Contract
Owner that are not discussed herein. A Contract Owner contemplating any such
transfer, assignment, or exchange of a Contract should contact a competent tax
adviser with respect to the potential tax effects of such a transaction.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for
the recipient's Federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Some recipients may elect
not to have tax withheld from distributions. Distributions from certain
qualified plans are generally subject to mandatory withholding. Withholding for
Contracts issued to retirement plans established under Section 401 of the Code
is the responsibility of the plan trustee.
MULTIPLE CONTRACTS
Section 72(e)(11) of the Code treats all non-qualified deferred annuity
Contracts entered into after October 21, 1988 that are issued by the Company (or
its affiliates) to the same Contract Owner during any calendar year as one
annuity Contract for purposes of determining the amount includible in gross
income under Code Section 72(e). The effects of this rule are not clear;
however, it could affect the time when income is taxable and the amount that
might be subject to the 10% penalty tax described above. In addition, the
Treasury Department has specific authority to issue regulations that prevent the
avoidance of Section 72(e) through the serial purchase of annuity Contracts or
otherwise. There may also be other situations in which the Treasury may conclude
that it would be appropriate to aggregate two or more annuity Contracts
purchased by the same Contract Owner. Accordingly, a Contract Owner should
consult a competent tax adviser before purchasing more than one annuity
Contract.
TAXATION OF QUALIFIED PLANS
The Contracts are designed for use with several types of Qualified Plans.
The tax rules applicable to participants in these Qualified Plans vary according
to the type of Plan and the terms and conditions of the Plan itself. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; aggregate distributions in excess of a specified
annual amount; and in other specified circumstances. Therefore, no attempt is
made to provide more than general information about the use of the Contracts
with the various types of Qualified Plans. Contract Owners, Annuitants, Payees
and Beneficiaries are cautioned that the rights of any person to any benefits
under these Qualified Plans will be subject to the terms and conditions of the
Plans themselves, regardless of the terms and conditions of the Contracts issued
in connection with the Plans. The Company shall not be bound by the terms and
conditions of such Qualified Plans to the extent such terms contradict the
Contract, unless the Company consents. Some retirement plans are subject to
distribution and other requirements that are not incorporated into the Company's
Contract administration procedures. Contract Owners, participants and
Beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the
30
<PAGE> 38
Contracts comply with applicable law. Brief descriptions follow of the various
types of Qualified Plans in connection with a Contract.
CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS
Code Section 401(a) permits employers to establish various types of
retirement plans for employees, and permits self-employed individuals to
establish retirement plans for themselves and their employees. These retirement
plans may permit the purchase of the Contracts to accumulate retirement savings
under the plans. Adverse tax consequences to the plan, to the participant or to
both may result if this Contract is assigned or transferred to any individual as
a means to provide benefit payments.
INDIVIDUAL RETIREMENT ANNUITIES
Sections 408 and 408A of the Code permit eligible individuals to contribute
to an individual retirement program known as an "Individual Retirement Annuity"
or "IRA." All IRAs are subject to limits on the amount that may be contributed,
the persons who may be eligible, and on the time when distributions may
commence.
TRADITIONAL IRAS. Section 408 governs "traditional" IRAs. Subject to
certain income limits, contributions to a traditional IRA may be tax deductible.
Distributions from a traditional IRA, if attributable to deductible
contributions, are generally subject to income tax. Distributions must begin in
the year the contract owner reaches age 70 1/2. Distributions from certain other
types of qualified retirement plans may be "rolled over" on a tax-deferred basis
into a traditional IRA.
ROTH IRAS. Section 408A of the Code permits individuals to contribute to a
special type of IRA called a Roth IRA. The IRA must be designated as a "Roth
IRA" at the time it is established, in accordance with IRS rules. Contributions
to a Roth IRA are not deductible. If certain conditions are met, qualified
distributions from a Roth IRA are tax free. Subject to special limitations, a
distribution from a traditional IRA or another Roth IRA may be rolled over to a
Roth IRA.
Sales of a Contract for use with traditional or Roth IRAs may be subject to
special requirements of the IRS. The IRS has not reviewed the Contract for
qualification as an IRA, and has not addressed in a ruling of general
applicability whether a death benefit provision such as the provision in the
Contract comports with IRS qualification requirements.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code allows employees of certain Section 501(c)(3)
organizations and public schools to exclude from their gross income the Purchase
Payments paid, within certain limits, on a Contract that will provide an annuity
for the employee's retirement. Code Section 403(b)(11) restricts the
distribution under Code Section 403(b) annuity Contracts of: (i) elective
contributions made in years beginning after December 31, 1988; (ii) earnings on
those contributions; and (iii) earnings in such years on amounts held as of the
last year beginning before January 1, 1989. Distribution of those amounts may
only occur upon death of the employee, attainment of age 59 1/2, separation from
service, disability, or financial hardship. In addition, income attributable to
elective contributions may not be distributed in the case of hardship.
SECTION 457 PLANS
Code Section 457 allows tax exempt organizations and state and local
governments to establish deferred compensation plans that allow individuals who
perform services for them as employees or independent contractors to
participate. Plans maintained by tax exempt organizations require that all
rights and benefits provided thereunder remain the property of the employer,
subject to its general creditors. Plans maintained by state and local
governments, however, must be maintained for the exclusive benefit of plan
participants. Section 457 plans are subject to rules and limits on the timing of
deferrals and amount that may be contributed. The Code also regulates when
distributions may (or must) commence. Sale of a Contract for use with Section
457 plans may be subject to special IRS requirements. The IRS has not reviewed
the Contract for qualification purposes.
31
<PAGE> 39
POSSIBLE CHARGE FOR THE COMPANY'S TAXES
At the present time, the Company makes no charge to the Sub-Accounts for
any Federal, state, or local taxes that the Company incurs which may be
attributable to such Sub-Accounts or to the Contracts. The Company, however,
reserves the right in the future to make a charge for any such tax that it
determines to be properly attributable to the Sub-Accounts of the Contracts.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the Federal tax consequences
under these Contracts are not exhaustive, and special rules are provided with
respect to other tax situations not discussed in this Prospectus. Further, the
Federal income tax consequences discussed herein reflect the Company's
understanding of current law and the law may change. Federal estate and state
and local estate, inheritance, and other tax consequences of ownership or
receipt of distributions under a Contract depend on the individual circumstances
of each Contract Owner or recipient of the distribution. A competent tax adviser
should be consulted for further information.
POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely
modified the Federal taxation of certain annuities. There is always the
possibility that tax treatment of annuities could change by legislation or other
means (such as IRS regulations, revenue rulings, judicial decisions, etc.).
Moreover, it is also possible that any change could be retroactive (that is,
effective prior to the date of the change).
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Contract could change by
legislation or other means (such as IRS regulations, revenue rulings, judicial
decisions, etc.). 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 Contract.
VOTING OF FUND SHARES
As long as the Variable Account is registered as a unit investment trust
under the Investment Company Act of 1940 and the assets of the Variable Account
are allocated to Sub-Accounts that are invested in Fund shares, the Fund shares
held in the Sub-Accounts will be voted by the Company in accordance with the
instructions received from the person having voting interests under the
Contracts as described below. If the Company determines pursuant to applicable
law or regulation that Fund shares held in the Sub-Accounts and attributable to
the Contracts need not be voted pursuant to instructions received from persons
otherwise having the voting interests, then the Company may vote such Fund
shares held in the Sub-Accounts in its own right.
Before Variable Annuity Payouts begin, the Contract Owner will have the
voting interest with respect to the Fund shares attributable to a Contract.
After Variable Annuity Payouts begin, the Annuitant will have the voting
interest with respect to the Fund shares attributable to the Annuity Units under
a Contract. Such voting interest will generally decrease during the Variable
Annuity Payout period.
Any Fund shares held in the Variable Account for which the Company does not
receive timely voting instructions, or which are not attributable to Contract
Owners, will be voted by the Company in proportion to the instructions received
from all Contract Owners having a voting interest in the Fund. Any Fund shares
held by the Company or any of its 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.
All Fund proxy material will be sent to persons having voting interests
together with appropriate forms which may be used to give voting instructions.
Persons entitled to voting interests and the number of votes which they may cast
shall be determined as of a record date, to be selected by the Fund.
32
<PAGE> 40
Persons having voting interests under the Contracts as described above will
not, as a result thereof, have voting interests with respect to meetings of the
stockholders of the Company.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be distributed by the Principal Underwriter, Washington
Square Securities, Inc., 20 Washington Avenue South, Minneapolis, Minnesota
55401, which is an affiliate of the Company. Commissions and other distribution
compensation will be paid by the Company. 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 Company pays no commissions for the sale of the
Contracts.
REPORTS TO CONTRACT OWNERS
The Company will mail to the Contract Owner, at the last known address of
record at the Company's Administrative Office in Minot, North Dakota, a
statement showing the Contract Value. The Company will also provide to Contract
Owners immediate written confirmation of every financial transaction made under
their Contracts; however, Contract Owners who make Purchase Payments through
salary reduction arrangements with their employers will receive quarterly
confirmations of Purchase Payments made to their Contracts.
To reduce expenses, only one copy of most financial reports and
prospectuses, including reports and prospectuses for the Investment Funds, will
be mailed to your household, even if you or other persons in your household have
more than one Contract issued by the Company or an affiliate. Call (877)
884-5050 if you need additional copies of financial reports, prospectuses, or
annual and semi-annual reports, or if you would like to receive one copy for
each Contract in all future mailings.
LEGAL PROCEEDINGS
The Variable Account is not a party to any pending legal proceedings. The
Company is a defendant in various lawsuits in connection with the normal conduct
of its insurance operations. Some of the claims seek to be granted class action
status and many of the claims seek both compensatory and punitive damages. In
the opinion of management, the ultimate resolution of such litigation will not
have a material adverse impact to the financial position of the Company.
EXPERTS
The annual financial statements of Separate Account One as of December 31,
1999 and for each of the two years then ended and the annual statutory basis
financial statements of Northern Life Insurance Company as of and for the years
ended December 31, 1999 and 1998, which are contained in the Statement of
Additional Information, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are included therein, and have been
so included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 has been filed
with the SEC, with respect to the Contracts described herein. The Prospectus
does not contain all of the information set forth in the Registration Statement
and exhibits thereto, to which reference is hereby made for further information
concerning the Variable Account, the Company and the Contracts. The information
so omitted may be obtained from the SEC's principal office in Washington, D.C.,
upon payment of the fee prescribed by the SEC, or examined there without charge.
Statements contained in this Prospectus as to the provisions of the Contracts
and other legal documents are summaries, and reference is made to the documents
as filed with the SEC for a complete statement of the provisions thereof.
33
<PAGE> 41
SEPARATE ACCOUNT ONE
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction................................................ SAI- 2
Custody of Assets........................................... SAI- 3
Experts..................................................... SAI- 3
Distribution of the Contracts............................... SAI- 3
Calculation of Yields and Total Returns..................... SAI- 3
Company Holidays............................................ SAI-13
Financial Statements........................................ SAI-14
</TABLE>
If you would like to receive a copy of the Separate Account One Advantage
RIA(SM) Annuity Statement of Additional Information, please call 1-877-884-5050
or return this request to:
RELIASTAR SERVICE CENTER
P.O. BOX 5050
MINOT, NORTH DAKOTA 58702-5050
Your name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City
- --------------------------------------------- State
- ------------------------------ Zip
- ------------------
Please send me a copy of the Separate Account One Advantage RIA(SM) Annuity
Statement of Additional Information.
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR ACCOMPANYING
FUND PROSPECTUSES AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL.
34
<PAGE> 42
APPENDIX A
THE FIXED ACCOUNTS
Contributions and reallocations to Fixed Account A and Fixed Account C
(collectively, the "Fixed Accounts") 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 Accounts have not been registered under the Securities
Act of 1933 ("1933 Act") nor are the Fixed Accounts registered as investment
companies under the Investment Company Act of 1940 ("1940 Act"). Accordingly,
neither the Fixed Accounts 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 this 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 generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
The Fixed Accounts are part of the General Account, which is made up of all
of the general assets of the Company other than those allocated to any separate
account. We offer the option of having all or a portion of Purchase Payments
allocated to the Fixed Accounts as selected by the Contract Owner at the time of
purchase or as subsequently changed. The Company will invest the assets
allocated to the Fixed Accounts in those assets chosen by the Company and
allowed by applicable law. Investment income from such Fixed Accounts' assets
will be allocated between the Company and the Contracts participating in the
Fixed Accounts, in accordance with the terms of such Contracts.
Fixed Annuity Payouts made to Annuitants under the Contracts will not be
affected by the mortality experience (death rate) of persons receiving such
payments or of the general population. The Company assumes this "mortality risk"
by virtue of annuity rates incorporated in the Contracts which cannot be
changed. In addition, the Company guarantees that it will not increase charges
for maintenance of the Contracts regardless of its actual expenses.
Investment income from the Fixed Accounts allocated to the Company includes
compensation for mortality and expense risks borne by the Company in connection
with Fixed Account Contracts. The Company expects to derive a profit from this
compensation.
The Company may credit interest in excess of the guaranteed rate of 3%. Any
interest rate in effect when an amount is allocated or reallocated to the Fixed
Accounts is guaranteed for that amount for at least 12 months, and subsequent
interest rates for that amount will not be changed more often than once every 12
months.
There is no specific formula for the determination of excess interest
credits. Such credits, if any, will be determined by the Company based on many
factors, including, but not limited to: investment yield rates, taxes, Contract
persistency, and other experience factors. ANY INTEREST CREDITED TO AMOUNTS
ALLOCATED TO THE FIXED ACCOUNTS IN EXCESS OF 3% PER YEAR WILL BE DETERMINED IN
THE SOLE DISCRETION OF THE COMPANY. THE CONTRACT OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM
GUARANTEE OF 3% FOR ANY GIVEN YEAR.
The Company is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in the Company's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
Contractholders and Contract Owners and to its stockholder.
Excess interest, if any, will be credited on the Fixed Account Contract
Value. The Company guarantees that, at any time, the Fixed Account Contract
Value will not be less than the amount of Purchase Payments and transfers
allocated to the Fixed Accounts, plus interest at the rate of 3% per year,
compounded annually,
A-1
<PAGE> 43
plus any additional interest which the Company may, in its discretion, credit to
the Fixed Accounts, less the sum of all annual administrative charges or
Withdrawal Charges levied, any applicable premium taxes, and less any amounts
withdrawn or reallocated from the Fixed Accounts. If the Contract Owner makes a
full withdrawal, the amount available from the Fixed Accounts will be reduced by
any applicable Withdrawal Charge and Annual Contract Charge. (See "Charges Made
by the Company.")
A-2
<PAGE> 44
APPENDIX B
PERFORMANCE INFORMATION AND CONDENSED FINANCIAL INFORMATION
PERFORMANCE INFORMATION
From time to time, the Company may advertise or include in sales literature
yields, effective yields, and total returns for the available Sub-Accounts.
THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND DO NOT INDICATE OR PROJECT
FUTURE PERFORMANCE. Each Sub-Account may, from time to time, advertise or
include in sales literature performance relative to certain performance rankings
and indices compiled by independent organizations. More detailed information as
to the calculation of performance information, and comparisons with unmanaged
market indices appears in the Statement of Additional Information.
Yields, effective yields and total returns for the Sub-Accounts are based
on the investment performance of the corresponding portfolios of the Funds. The
performance, in part, reflects the Funds' expenses. See the Prospectuses for the
Funds.
The yield of the Sub-Account investing in the VIP Money Market Portfolio
refers to the annualized income generated by an investment in the Sub-Account
over a specified seven-day period. The yield is calculated by assuming that the
income generated for that seven-day period is generated each seven-day period
over a 52-week period and is shown as a percentage of the investment. The
effective yield is calculated similarly but, when annualized, the income earned
by an investment in the Sub-Account is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of the compounding effect
of this assumed reinvestment.
The yield of a Sub-Account (except the Money Market Sub-Account investing
in the VIP Money Market Portfolio) refers to the annualized income generated by
an investment in the Sub-Account over a specified 30 day or one-month period.
The yield is calculated by assuming that the income generated by the investment
during that 30-day or one-month period is generated each period over a 12-month
period and is shown as a percentage of the investment.
The total return of a Sub-Account refers to return quotations assuming an
investment under a Contract has been held in the Sub-Account for various periods
of time including, but not limited to, a period measured from the date the
Sub-Account commenced operations. Average annual total return refers to total
return quotations that are annualized based on an average return over various
periods of time.
Total returns generally will be presented in "standardized" format. This
means, among other things, that performance will be shown from the date of
inception of the Variable Account, or, if later, the inception date of the
applicable Investment Fund. In some instances, "non-standardized" returns may be
shown from prior to the inception date of the Variable Account. Non-standardized
information will be accompanied by standardized information.
The average annual total return quotations 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 the investment as of the last day of
each of the periods for which total return quotations are provided. Average
annual total return information shows the average percentage change in the value
of an investment in the Sub-Account from the beginning date of the measuring
period to the end of that period. This version of average annual total return
reflects all historical investment results, less all charges and deductions
applied against the Sub-Account (including any Withdrawal Charge that would
apply if a Contract Owner terminated the Contract at the end of each period
indicated, but excluding any deductions for premium taxes).
When a Sub-Account has been in operation for one, five, and ten years,
respectively, the average annual total return for these periods will be
provided. For periods prior to the date the Sub-Account commenced operations,
performance information for Contracts funded by the Sub-Accounts will be
calculated based on the performance of the Funds' Portfolios and the assumption
that the Sub-Accounts were in existence for the
B-1
<PAGE> 45
same periods as those indicated for the Funds' Portfolios, with the level of
Contract Charges that were in effect at the inception of the Sub-Accounts for
the Contracts.
Average total return information may be presented, computed on the same
basis as described above, except deductions will not include the Withdrawal
Charge. In addition, the Company may from time to time disclose average annual
total return in non-standard formats and cumulative total return for Contracts
funded by the Sub-Accounts.
The Company may, from time to time, also disclose yields and total returns
for the Portfolios of the Funds, including such disclosure for periods prior to
the dates the Sub-Accounts commenced operations.
For additional information regarding the calculation of other performance
data, please refer to the Statement of Additional Information.
In advertising and sales literature, the performance of each Sub-Account
may be compared to the performance of other variable annuity issuers in general
or to the performance of particular types of variable annuities investing in
mutual funds, or investment series of mutual funds with investment objectives
similar to each of the Sub-Accounts. Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar") and the Variable Annuity Research
Data Service ("VARDS") are independent services which monitor and rank the
performance of variable annuity issuers in each of the major categories of
investment objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance issuers
as well as variable annuity issuers. VARDS rankings compare only variable
annuity issuers. The performance analyses prepared by Lipper, Morningstar and
VARDS each rank such issuers on the basis of total return, assuming reinvestment
of distributions, but do not take sales charges, redemption fees, or certain
expense deductions at the separate account level into consideration. In
addition, VARDS prepares risk adjusted rankings, which consider the effects of
market risk on total return performance. This type of ranking provides data as
to which funds provide the highest total return within various categories of
funds defined by the degree of risk inherent in their investment objectives.
Advertising and sales literature may also compare the performance of each
Sub-Account to the Standard & Poor's Composite Index of 500 Common Stocks, a
widely used measure of stock performance. This unmanaged index assumes the
reinvestment of dividends but does not reflect any "deduction" for the expense
of operating or managing an investment portfolio. Other independent ranking
services and indices may also be used as a source of performance comparison.
The Company may also report other information including the effect of
tax-deferred compounding on a Sub-Account's investment returns, or returns in
general, which may be illustrated by tables, graphs, or charts. The Company may
also illustrate the accumulation of Contract Value and payment of annuity
benefits on a variable or fixed basis, or a combination variable and fixed
basis, based on hypothetical rates of return, and compare those illustrations to
mutual fund hypothetical illustrations, using charts, tables, and graphs,
including software programs utilizing such charts, tables, and graphs. All
income and capital gains derived from Sub-Account investments are reinvested and
can lead to substantial long-term accumulation of assets, provided that the
underlying portfolio's investment experience is positive.
B-2
<PAGE> 46
The following table shows, for each Sub-Account of the Variable Account,
the value of a Sub-Account Accumulation Unit as it is invested in portfolios at
the dates shown, and the total number of Sub-Account Accumulation Units
outstanding at the end of each period:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
----------- ----------- ----------- ----------- -----------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Dent Demographic Trends Fund
(From May 1, 2000)
Beginning of period................ N/A N/A N/A N/A N/A
End of period...................... N/A N/A N/A N/A N/A
Units outstanding at end of
period.......................... N/A N/A N/A N/A N/A
THE ALGER AMERICAN FUND:
(All Sub-Accounts from October 20,
1995)
Alger American Growth Portfolio
Beginning of period................ $10.0000 $10.0072 $11.1842 $13.8684 $20.2501
End of period...................... $10.0072 $11.1842 $13.8684 $20.2501 $26.7070
Units outstanding at end of
period.......................... 7,531 162,852 402,925 958,685 2,319,442
Alger American Leveraged AllCap
Portfolio
Beginning of period................ $10.0000 $10.2636 $11.3381 $13.3809 $20.8260
End of period...................... $10.2636 $11.3381 $13.3809 $20.8260 $36.5684
Units outstanding at end of
period.......................... 3,864 130,393 260,380 491,436 1,165,393
Alger American MidCap Growth
Portfolio
Beginning of period................ $10.0000 $ 9.8937 $10.9156 $12.3791 $15.9059
End of period...................... $ 9.8937 $10.9156 $12.3791 $15.9059 $20.6802
Units outstanding at end of
period.......................... 2,208 227,029 405,580 590,794 696,730
Alger American Small Capitalization
Portfolio
Beginning of period................ $10.0000 $ 9.8255 $10.0929 $11.0864 $12.6301
End of period...................... $ 9.8255 $10.0929 $11.0864 $12.6301 $17.8621
Units outstanding at end of
period.......................... 9,498 261,902 527,947 751,967 885,257
FIDELITY VARIABLE INSURANCE PRODUCTS
FUND (VIP):
(All Sub-Accounts from October 20,
1995)
VIP Equity-Income Portfolio
Beginning of period................ $10.0000 $10.7172 $12.0764 $15.2559 $16.7931
End of period...................... $10.7172 $12.0764 $15.2559 $16.7931 $17.6078
Units outstanding at end of
period.......................... 3,922 370,036 1,040,329 1,850,470 2,145,169
VIP Growth Portfolio
Beginning of period................ $10.0000 $ 9.0237 $11.1104 $13.5286 $18.6009
End of period...................... $ 9.8237 $11.1104 $13.5286 $18.6009 $25.2203
Units outstanding at end of
period.......................... 5,112 210,258 624,734 1,117,355 2,139,958
VIP Money Market Portfolio
Beginning of period................ $10.0000 $10.0743 $10.4712 $10.8926 $11.3294
End of period...................... $10.0743 $10.4712 $10.8926 $11.3294 $11.7504
Units outstanding at end of
period.......................... N/A 104,844 446,458 605,376 1,144,601
</TABLE>
B-3
<PAGE> 47
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
----------- ----------- ----------- ----------- -----------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FIDELITY VARIABLE INSURANCE PRODUCTS
FUND II (VIP II):
VIP II Asset Manager: Growth
Portfolio
(From October 20, 1995)
Beginning of period................ $10.0000 $10.3997 $12.2902 $15.1675 $17.5847
End of period...................... $10.3997 $12.2982 $15.1675 $17.5847 $19.9860
Units outstanding at end of
period.......................... 6,432 58,201 293,160 652,013 914,250
VIP II Contrafund(R) Portfolio
(From October 20, 1995)
Beginning of period................ $10.0000 $10.2935 $12.3119 $15.0718 $19.3181
End of period...................... $10.2935 $12.3119 $15.0718 $19.3181 $23.6700
Units outstanding at end of
period.......................... 7,417 314,103 1,124,760 2,090,469 3,267,496
VIP II Index 500 Portfolio
(From October 20, 1995)
Beginning of period................ $10.0000 $10.5862 $12.8201 $16.7757 $21.2285
End of period...................... $10.5862 $12.8201 $16.7757 $21.2285 $25.2271
Units outstanding at end of
period.......................... 702 231,904 1,310,992 3,336,587 4,831,869
VIP II Investment Grade Bond
Portfolio
(From April 30, 1999)
Beginning of period................ N/A N/A N/A N/A N/A
End of period...................... N/A N/A N/A N/A $ 9.7937
Units outstanding at end of
period.......................... N/A N/A N/A N/A 222,858
FIDELITY VARIABLE INSURANCE PRODUCTS
FUND III (VIP III):
(From January 1, 1999)
VIP III Growth Opportunities
Portfolio
Beginning of period................ N/A N/A N/A N/A N/A
End of period...................... N/A N/A N/A N/A $10.0435
Units outstanding at end of
period.......................... N/A N/A N/A N/A 337,766
JANUS ASPEN SERIES:
(All Sub-Accounts From August 8,
1997)
Aggressive Growth Portfolio
Beginning of period................ N/A N/A $10.0000 $10.8993 $14.4299
End of period...................... N/A N/A $10.8993 $14.4299 $32.0747
Units outstanding at end of
period.......................... N/A N/A 17,506 143,611 868,257
Growth Portfolio
Beginning of period................ N/A N/A $10.0000 $10.1307 $13.5522
End of period...................... N/A N/A $10.1307 $13.5522 $19.2421
Units outstanding at end of
period.......................... N/A N/A 82,286 662,697 1,788,564
International Growth Portfolio
Beginning of period................ N/A N/A $10.0000 $ 9.5720 $11.0658
End of period...................... N/A N/A $ 9.5720 $11.0658 $19.8902
Units outstanding at end of
period.......................... N/A N/A 81,884 275,637 473,654
Worldwide Growth Portfolio
Beginning of period................ N/A N/A $10.0000 $ 9.7818 $12.4357
End of period...................... N/A N/A $ 9.7818 $12.4357 $20.1668
Units outstanding at end of
period.......................... N/A N/A 295,875 2,066,481 4,030,342
</TABLE>
B-4
<PAGE> 48
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
----------- ----------- ----------- ----------- -----------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NEUBERGER BERMAN ADVISORS MANAGEMENT
TRUST:
Limited Maturity Bond Portfolio
(From August 8, 1997)
Beginning of period................ N/A N/A $10.0000 $10.1973 $10.4971
End of period...................... N/A N/A $10.1973 $10.4971 $10.5041
Units outstanding at end of
period.......................... N/A N/A 22,029 210,709 407,142
Partners Portfolio
(From August 8, 1997)
Beginning of period................ N/A N/A $10.0000 $10.2686 $10.5521
End of period...................... N/A N/A $10.2686 $10.5521 $11.1723
Units outstanding at end of
period.......................... N/A N/A 255,773 1,582,048 1,479,974
Socially Responsive Portfolio
(From January 1, 1999)
Beginning of period................ N/A N/A N/A N/A N/A
End of period...................... N/A N/A N/A N/A $11.3827
Units outstanding at end of
period.......................... N/A N/A N/A N/A 32,883
OCC ACCUMULATION TRUST:
(All Sub-Accounts From August 8,
1997)
Equity Portfolio
Beginning of period................ N/A N/A $10.0000 $10.6410 $11.7375
End of period...................... N/A N/A $10.6410 $11.7375 $11.8684
Units outstanding at end of
period.......................... N/A N/A 45,654 227,143 281,367
Global Equity Portfolio
Beginning of period................ N/A N/A $10.0000 $ 9.4593 $10.5673
End of period...................... N/A N/A $ 9.4593 $10.5673 $13.1847
Units outstanding at end of
period.......................... N/A N/A 18,968 70,138 86,458
Managed Portfolio
Beginning of period................ N/A N/A $10.0000 $10.0801 $10.6480
End of period...................... N/A N/A $10.0801 $10.6480 $11.0246
Units outstanding at end of
period.......................... N/A N/A 274,773 1,659,488 1,595,696
Small Cap Portfolio
Beginning of period................ N/A N/A $10.0000 $10.1959 $ 9.1466
End of period...................... N/A N/A $10.1959 $ 9.1466 $ 8.8541
Units outstanding at end of
period.......................... N/A N/A 48,630 252,954 309,634
PILGRIM VARIABLE PRODUCTS TRUST:
Pilgrim VP Growth Opportunities
Portfolio
(From May 1, 2000)
Beginning of period................ N/A N/A N/A N/A N/A
End of period...................... N/A N/A N/A N/A N/A
Units outstanding at end of
period.......................... N/A N/A N/A N/A N/A
Pilgrim VP Growth + Value Portfolio
(From October 20, 1995)
Beginning of period................ $10.0000 $10.1010 $12.2601 $13.8613 $16.3103
End of period...................... $10.1010 $12.2601 $13.8613 $16.3103 $31.3606
Units outstanding at end of
period.......................... 1,068 318,138 1,118,716 1,333,885 1,501,434
</TABLE>
B-5
<PAGE> 49
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
----------- ----------- ----------- ----------- -----------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Pilgrim VP High Yield Bond Portfolio
(From August 8, 1997)
Beginning of period................ N/A N/A $10.0000 $10.1766 $10.0942
End of period...................... N/A N/A $10.1766 $10.0942 $ 9.6332
Units outstanding at end of
period.......................... N/A N/A 105,615 885,662 834,113
Pilgrim VP International Value
Portfolio
(From August 8, 1997)
Beginning of period................ N/A N/A $10.0000 $10.0734 $11.6150
End of period...................... N/A N/A $10.0734 $11.6150 $17.2007
Units outstanding at end of
period.......................... N/A N/A 57,507 330,553 488,502
Pilgrim VP MagnaCap Portfolio
(From May 1, 2000)
Beginning of period................ N/A N/A N/A N/A N/A
End of period...................... N/A N/A N/A N/A N/A
Units outstanding at end of
period.......................... N/A N/A N/A N/A N/A
Pilgrim VP MidCap Opportunities
Portfolio
(From May 1, 2000)
Beginning of period................ N/A N/A N/A N/A N/A
End of period...................... N/A N/A N/A N/A N/A
Units outstanding at end of
period.......................... N/A N/A N/A N/A N/A
Pilgrim VP Research Enhanced Index
Portfolio
(From October 20, 1995)
Beginning of period................ $10.0000 $10.2402 $11.4374 $12.0694 $12.0629
End of period...................... $10.2402 $11.4374 $12.0694 $12.0629 $12.5874
Units outstanding at end of
period.......................... 1,937 52,791 238,691 403,214 1,646,856
Pilgrim VP SmallCap Opportunities
Portfolio
(From October 20, 1995)
Beginning of period................ $10.0000 $10.3844 $11.6519 $13.2845 $15.3663
End of period...................... $10.3844 $11.6519 $13.2845 $15.3663 $36.5246
Units outstanding at end of
period.......................... 2,292 62,237 270,968 338,593 574,895
</TABLE>
- The Sub-Accounts investing in The Alger American Fund, Fidelity Variable
Insurance Products Fund, Fidelity Variable Insurance Products Fund II and
Pilgrim Variable Products Trust Growth + Value Portfolio, Research
Enhanced Index Portfolio, and Small Cap Opportunities Portfolio were not
available through the Variable Account prior to 1995.
- The Sub-Accounts investing in the Janus Aspen Series, Neuberger Berman
AMT Limited Maturity Bond Portfolio and Partners Portfolio, the Pilgrim
Variable Products Trust High Yield Bond Portfolio, the Pilgrim Variable
Products Trust International Value Portfolio and OCC Accumulation Trust
were not available through the Variable Account prior to August 8, 1997.
- The Sub-Accounts investing in the Fidelity Variable Insurance Products
Fund III and Neuberger Berman AMT Socially Responsive Portfolio were not
available through the Variable Account prior to January 1, 1999.
- The Sub-Accounts investing in the Fidelity VIP II Investment Grade Bond
Portfolio were not available through the Variable Account prior to April
30, 1999.
B-6
<PAGE> 50
- The Sub-Accounts investing in the AIM V.I. Dent Demographic Trends Fund
and the Pilgrim Variable Products Trust Growth Opportunities Portfolio,
MagnaCap Portfolio, and MidCap Opportunities Portfolio were not available
through the Variable Account prior to May 1, 2000.
- The Pilgrim Variable Products Trust Small Cap Opportunities Portfolio
(formerly the Northstar Galaxy Trust Emerging 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
Pilgrim Variable Products 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.
B-7
<PAGE> 51
STATEMENT OF ADDITIONAL INFORMATION
FOR NORTHERN LIFE
ADVANTAGE RIA(SM) ANNUITY
------------------------
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 Prospectuses dated May 1, 2000 (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 the Company's Service Center at P.O. Box
5050, Minot, North Dakota 58702-5050, by calling 1-877-884-5050, or 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
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Introduction................................................ SAI- 2
Custody of Assets........................................... SAI- 3
Experts..................................................... SAI- 3
Distribution of the Contracts............................... SAI- 3
Calculation of Yields and Total Returns..................... SAI- 3
Company Holidays............................................ SAI-13
Financial Statements........................................ SAI-14
</TABLE>
------------------------
The date of this Statement of Additional Information is May 1, 2000.
SAI-1
<PAGE> 52
INTRODUCTION
The Individual Deferred Variable/Fixed Annuity Contracts described in the
Prospectus (the "RIA Series Contracts") 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" in 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 any available Fixed Account which for RIA Series Contracts includes Fixed
Account A 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 AIM V.I. Dent Demographic Trends Fund of the AIM Variable Insurance
Funds, Inc., which is managed by A I M Advisors, Inc. with the assistance
of H.S. Dent Advisors, Inc. as sub-adviser;
- 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, and VIP Money
Market Portfolio of the Variable Insurance Products Fund, VIP II Asset
Manager: Growth Portfolio, VIP II Contrafund(R) Portfolio, VIP II Index
500 Portfolio and VIP II Investment Grade Bond 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 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.
- the Growth Opportunities Portfolio, Growth + Value Portfolio, High Yield
Bond Portfolio, International Value Portfolio, MagnaCap Portfolio, MidCap
Opportunities Portfolio, Research Enhanced Index Portfolio, and SmallCap
Opportunities Portfolio for the Pilgrim Variable Products Trust which are
managed by Pilgrim Investments, Inc.; the Growth + Value Portfolio is
sub-advised by Navellier Fund Management, Inc., the International Value
Portfolio is sub-advised by Brandes Investment Partners, and the Research
Enhanced Index Portfolio is sub-advised by J.P. Morgan Investment
Management Inc.
Purchase Payments allocated to any available Fixed Account, which may
include Fixed Account A 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 any
available Fixed Accounts, which may include Fixed Account A 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.)
SAI-2
<PAGE> 53
CUSTODY OF ASSETS
The Company, whose address appears on the cover of the Prospectus,
maintains custody of the assets of the Variable Account. As Custodian, the
Company holds cash balances for the Variable Account pending investment in the
Investment Funds or distribution. The Investment Fund shares owned by the
Sub-accounts are reflected only on the records of the Funds and are not issued
in certificated form.
EXPERTS
The financial statements as of December 31, 1999 and for each of the two
years then ended of Separate Account One and the statutory basis financial
statements of Northern Life Insurance Company as of and for the two years ended
December 31, 1999 and 1998, which are included in this Statement of Additional
Information, have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their reports which are included herein, and have been so included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
DISTRIBUTION OF THE CONTRACTS
The RIA Contracts will be distributed by Washington Square Securities, Inc.
("WSSI"), the principal underwriter which is an affiliate of the Company. 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.
No fees have been paid to WSSI by the Company in connection with the RIA
Series Contracts, as they were not available prior to May 1, 2000.
The offering of the RIA Series Contracts is continuous.
There are no special purchase plans or exchange privileges not described in
the Prospectus. (See "Reduction of Charges" in the Prospectus.)
No deduction for a sales charge is made from the Purchase Payments for the
RIA Series Contracts. The method used to determine the amount of such charges
assessed by the Company is described in the Prospectus under the heading
"Charges Made By The Company." There is no difference in the amount of any of
the charges described in the Prospectus as between RIA Series Contracts
purchased by members of the public as individuals or groups, and RIA Series
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
SAI-3
<PAGE> 54
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) Administration
Charge; and 2) the Mortality and Expense Risk Charges offset by the Product
Asset Credit. Current Yield will be calculated according to the following
formula:
Current Yield = ((NCS -- ES)/UV) X (365/7)
Where:
<TABLE>
<S> <C> <C>
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.
</TABLE>
The current yield of the sub-account for the seven day period ended
December 31, 1999 was 5.67%.
The RIA Series Contracts were not available through the Sub-Account as of
December 31, 1999. Therefore, these yields are based on yields experienced by
other contracts issued through the Sub-Account.
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.
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:
<TABLE>
<S> <C> <C>
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.
</TABLE>
The effective yield of the sub-account for the seven day period ended
December 31, 1999 was 5.83%.
The RIA Series Contracts were not available through the Sub-Account as of
December 31, 1999. Therefore, these yields are based on yields experienced by
other contracts issued through the Sub-Account.
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)
SAI-4
<PAGE> 55
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 Mortality and Expense Risk Charges, offset by the
Product Asset Credit. 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 Pilgrim Variable Products Trust High Yield
Bond Portfolio Sub-Account for the month ended December 31, 1999 was 9.26%.
The annualized yield for the Neuberger Berman Advisers Management Trust
Limited Maturity Bond Portfolio Sub-Account for the month ended December 31,
1999 was 5.35% for the RIA Series Contracts.
The annualized yield for the VIP II Investment Grade Bond Portfolio
Sub-Account for the month ended December 31, 1999 was 5.19%.
The RIA Series Contracts were not available through the Sub-Account as of
December 31, 1999. Therefore, these yields are based on yields experienced by
other contracts issued through the Sub-Account.
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 any withdrawal charges. There
is no withdrawal charge for RIA Series Contracts.
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.
SAI-5
<PAGE> 56
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 1.25% Mortality and Expense Risk Charges and the .15% Administration
Charge as offset by the Product Asset Credit of .80%. 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. There is no Withdrawal Charge for RIA Series
Contracts. 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.
Following are the Average Annual Total Returns for Sub-Accounts as of
December 31, 1999.
<TABLE>
<CAPTION>
FOR THE 1-YEAR FOR THE PERIOD FROM
PERIOD ENDED DATE OF INCEPTION OF
12/31/99 SUB-ACCOUNT TO 12/31/99
-------------- -----------------------
RIA.S. RIA.S.
-------------- -----------------------
<S> <C> <C>
AIM V.I. Dent Demographic Trends Fund..................... N/A N/A
(Sub-Account Inception: 5/1/00)
Alger American Growth Portfolio........................... 32.94% 27.48%
(Sub-Account Inception: 10/20/95)
Alger American Leveraged AllCap Portfolio................. 77.00% 37.42%
(Sub-Account Inception: 10/20/95)
Alger American MidCap Growth Portfolio.................... 31.06% 19.92%
(Sub-Account Inception: 10/20/95)
Alger American Small Capitalization Portfolio............. 42.56% 15.80%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Equity-Income Portfolio...................... 5.69% 15.40%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Growth Portfolio............................. 36.61% 25.75%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Asset Manager: Growth Portfolio........... 14.57% 18.95%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Contrafund(R) Portfolio................... 23.51% 23.85%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Index 500 Portfolio....................... 19.79% 25.75%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Investment Grade Bond Portfolio........... N/A N/A
(Sub-Account Inception: 4/30/99)
Fidelity VIP III Growth Opportunities Portfolio........... N/A N/A
(Sub-Account Inception: 1/1/99)
Janus Aspen Aggressive Growth Portfolio................... 124.06% 63.92%
(Sub-Account Inception: 8/8/97)
Janus Aspen Growth Portfolio.............................. 43.12% 32.46%
(Sub-Account Inception: 8/8/97)
Janus Aspen International Growth Portfolio................ 81.19% 34.30%
(Sub-Account Inception: 8/8/97)
</TABLE>
SAI-6
<PAGE> 57
<TABLE>
<CAPTION>
FOR THE 1-YEAR FOR THE PERIOD FROM
PERIOD ENDED DATE OF INCEPTION OF
12/31/99 SUB-ACCOUNT TO 12/31/99
-------------- -----------------------
RIA.S. RIA.S.
-------------- -----------------------
<S> <C> <C>
Janus Aspen Worldwide Growth Portfolio.................... 63.47% 35.08%
(Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust Limited
Maturity Bond Portfolio................................. 0.87% 2.90%
(Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust Partners
Portfolio............................................... 6.73% 5.58%
(Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust Socially
Responsive Portfolio(d)................................. N/A N/A
(Sub-Account Inception: 1/1/99)
OCC Accumulation Trust Equity Portfolio(c)................ 1.93% 8.28%
(Sub-Account Inception: 8/8/97)
OCC Accumulation Trust Global Equity Portfolio............ 25.77% 13.13%
(Sub-Account Inception: 8/8/97)
OCC Accumulation Trust Managed Portfolio(c)............... 4.37% 4.99%
(Sub-Account Inception: 8/8/97)
OCC Accumulation Trust Small Cap Portfolio(c)............. (2.42)% (4.18)%
(Sub-Account Inception: 8/8/97)
Pilgrim VP Growth Opportunities Portfolio................. N/A N/A
(Sub-Account Inception: 5/1/00)
Pilgrim VP Growth + Value Portfolio....................... 93.82% 32.47%
(Sub-Account Inception: 10/20/95)
Pilgrim VP High Yield Bond Portfolio...................... (1.91)% (0.75)%
(Sub-Account Inception: 8/8/97)
Pilgrim VP International Value Portfolio.................. 49.28% 26.40%
(Sub-Account Inception: 8/8/97)
Pilgrim VP MagnaCap Portfolio............................. N/A N/A
(Sub-Account Inception: 5/1/00)
Pilgrim VP MidCap Portfolio............................... N/A N/A
(Sub-Account Inception: 5/1/00)
Pilgrim VP Research Enhanced Index Portfolio(b)........... 5.19% 6.51%
(Sub-Account Inception: 10/20/95)
Pilgrim VP SmallCap Opportunities
Portfolio(a)............................................ 139.60% 37.38%
(Sub-Account Inception: 10/20/95)
</TABLE>
RIA.S. = RIA Series Contract.
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. RIA Series Contracts have no
withdrawal charges.
SAI-7
<PAGE> 58
Such average annual total return information for the Sub-Accounts is as
follows:
<TABLE>
<CAPTION>
FOR THE 1-YEAR FOR THE 5-YEAR FOR THE 10-YEAR FOR THE PERIOD FROM
PERIOD ENDED PERIOD ENDED PERIOD ENDED DATE OF INCEPTION OF
12/31/99 12/31/99 12/31/99 PORTFOLIO TO 12/31/99
-------------- -------------- --------------- ---------------------
SUB-ACCOUNT RIA.S. RIA.S. RIA.S. RIA.S.
----------- -------------- -------------- --------------- ---------------------
<S> <C> <C> <C> <C>
AIM V.I. Dent Demographic Trends Fund.... N/A N/A N/A N/A
(Portfolio Inception: 12/29/99)
Alger American Growth Portfolio.......... 32.94% 30.16% 22.16% 22.31%
(Portfolio Inception: 1/9/89)
Alger American Leveraged AllCap
Portfolio.............................. 77.00% N/A N/A 45.58%
(Portfolio Inception: 1/25/95)
Alger American MidCap Growth Portfolio... 31.06% 25.38% N/A 23.97%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization
Portfolio.............................. 42.56% 21.91% 17.51% 20.14%
(Portfolio Inception: 9/21/88)
Fidelity VIP Equity-Income Portfolio..... 5.69% 17.90% 13.80% 13.10%
(Portfolio Inception: 10/9/86)
Fidelity VIP Growth Portfolio............ 36.61% 28.96% 19.22% 18.05%
(Portfolio Inception: 10/9/86)
Fidelity VIP II Asset Manager: Growth
Portfolio.............................. 14.57% N/A N/A 19.45%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Contrafund(R)
Portfolio.............................. 23.51% N/A N/A 26.97%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Index 500 Portfolio...... 19.79% 27.40% N/A 20.36%
(Portfolio Inception: 8/27/92)
Fidelity VIP II Investment Grade Bond
Portfolio.............................. (1.64)% 6.65% 6.54% 6.82%
(Portfolio Inception: 12/5/88)
Fidelity VIP III Growth Opportunities
Portfolio.............................. 3.65% N/A N/A 20.79%
(Portfolio Inception: 1/3/95)
Janus Aspen Aggressive Growth
Portfolio.............................. 124.06% 35.41% N/A 33.60%
(Portfolio Inception: 9/13/93)
Janus Aspen Growth Portfolio............. 43.12% 29.11% N/A 23.53%
(Portfolio Inception: 9/13/93)
Janus Aspen International Growth
Portfolio.............................. 81.19% 32.46% N/A 27.40%
(Portfolio Inception: 5/2/94)
Janus Aspen Worldwide Growth Portfolio... 63.47% 32.80% N/A 28.93%
(Portfolio Inception: 9/13/93)
Neuberger Berman Advisers Management
Trust.................................. 0.87% 4.89% 5.22% 6.83%
Limited Maturity Bond Portfolio
(Portfolio Inception: 9/10/84)
Neuberger Berman Advisers Management
Trust.................................. 6.73% 20.30% N/A 16.78%
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: 2/18/99)
OCC Accumulation Trust Equity
Portfolio(c)........................... 1.93% 19.28% 14.78% 14.97%
(Portfolio Inception: 8/1/88)
OCC Accumulation Trust Global Equity
Portfolio.............................. 25.77% N/A N/A 17.37%
(Portfolio Inception: 3/1/95)
</TABLE>
SAI-8
<PAGE> 59
<TABLE>
<CAPTION>
FOR THE 1-YEAR FOR THE 5-YEAR FOR THE 10-YEAR FOR THE PERIOD FROM
PERIOD ENDED PERIOD ENDED PERIOD ENDED DATE OF INCEPTION OF
12/31/99 12/31/99 12/31/99 PORTFOLIO TO 12/31/99
-------------- -------------- --------------- ---------------------
SUB-ACCOUNT RIA.S. RIA.S. RIA.S. RIA.S.
----------- -------------- -------------- --------------- ---------------------
<S> <C> <C> <C> <C>
OCC Accumulation Trust Managed
Portfolio(c)........................... 4.37% 18.99% 15.91% 16.99%
(Portfolio Inception: 8/1/88)
OCC Accumulation Trust Small Cap
Portfolio(c)........................... (2.42)% 7.70% 10.45% 10.81%
(Portfolio Inception: 8/1/88)
Pilgrim VP Growth Opportunities
Portfolio.............................. N/A N/A N/A N/A
(Portfolio Inception: 4/30/00)
Pilgrim VP Growth + Value Portfolio...... 93.82% 31.77% N/A 28.30%
(Portfolio Inception: 5/6/94)
Pilgrim VP High Yield Bond Portfolio..... (3.80)% 7.62% N/A 6.51%
(Portfolio Inception: 5/6/94)
Pilgrim VP International Value
Portfolio.............................. 49.28% N/A N/A 26.40%
(Portfolio Inception: 8/8/97)
Pilgrim VP MagnaCap Portfolio............ N/A N/A N/A N/A
(Portfolio Inception: 4/30/00)
Pilgrim VP MidCap Opportunities
Portfolio.............................. N/A N/A N/A N/A
(Portfolio Inception: 4/30/00)
Pilgrim VP Research Enhanced............. 5.19% 7.79% N/A 7.10%
Index Portfolio(b)
(Portfolio Inception: 5/6/94)
Pilgrim VP SmallCap Opportunities........ 139.60% 34.35% N/A 30.19%
Portfolio(a)(Portfolio Inception:
5/6/94)
</TABLE>
- ------------------------
++ Key: RIA.S. = RIA Series Contract.
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.
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 12/31/99 12/31/99 12/31/99 12/31/99
--------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
AIM V.I. Dent Demographic Trends Fund....... N/A N/A N/A N/A
(Portfolio Inception: 12/29/99)
Alger American Growth Portfolio............. 33.74% 30.94% 22.89% 23.05%
(Portfolio Inception: 1/9/89)
Alger American Leveraged AllCap Portfolio... 78.06% N/A N/A 46.44%
(Portfolio Inception: 1/25/95)
Alger American MidCap Growth Portfolio...... 31.85% 26.14% N/A 24.72%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization
Portfolio................................. 43.42% 22.64% 18.22% 20.85%
(Portfolio Inception: 9/21/88)
Fidelity VIP Equity-Income Portfolio........ 6.33% 18.61% 14.49% 13.78%
(Portfolio Inception: 10/9/86)
Fidelity VIP Growth Portfolio............... 37.44% 29.74% 19.94% 18.76%
(Portfolio Inception: 10/9/86)
Fidelity VIP II Asset Manager: Growth
Portfolio................................. 15.26% N/A N/A 20.16%
(Portfolio Inception: 1/3/95)
</TABLE>
SAI-9
<PAGE> 60
<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 12/31/99 12/31/99 12/31/99 12/31/99
--------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Fidelity VIP II Contrafund(R) Portfolio..... 24.25% N/A N/A 27.73%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Index 500 Portfolio......... 20.51% 28.16% N/A 21.07%
(Portfolio Inception: 8/27/92)
Fidelity VIP II Investment Grade Bond
Portfolio................................. (1.05)% 7.30% 7.19% 7.46%
(Portfolio Inception: 12/5/88)
Fidelity VIP III Growth Opportunities
Portfolio................................. 4.27% N/A N/A 21.51%
(Portfolio Inception: 1/3/95)
Janus Aspen Aggressive Growth Portfolio..... 125.40% 36.23% N/A 34.40%
(Portfolio Inception: 9/13/93)
Janus Aspen Growth Portfolio................ 43.98% 29.89% N/A 24.27%
(Portfolio Inception: 9/13/93)
Janus Aspen International Growth
Portfolio................................. 82.27% 33.25% N/A 28.17%
(Portfolio Inception: 5/2/94)
Janus Aspen Worldwide Growth Portfolio...... 64.45% 33.60% N/A 29.69%
(Portfolio Inception: 9/13/93)
Neuberger Berman Advisers Management Trust
Limited Maturity Bond Portfolio........... 1.48% 5.52% 5.86% 7.47%
(Portfolio Inception: 9/10/84)
Neuberger Berman Advisers Management Trust
Partners Portfolio........................ 7.37% 21.03% N/A 17.47%
(Portfolio Inception: 3/22/94)
Neuberger Berman Advisers Management Trust
Socially Responsive Portfolio............. N/A N/A N/A N/A
(Portfolio Inception: 2/18/99)
OCC Accumulation Trust Equity
Portfolio(c).............................. 2.54% 19.94% 15.46% 15.66%
(Portfolio Inception: 8/1/88)
OCC Accumulation Trust Global Equity
Portfolio................................. 26.53% N/A N/A 18.06%
(Portfolio Inception: 3/1/95)
OCC Accumulation Trust Managed
Portfolio(c).............................. 5.00% 19.69% 16.60% 17.70%
(Portfolio Inception: 8/1/88)
OCC Accumulation Trust Small Cap
Portfolio(c).............................. (1.83)% 8.35% 11.12% 11.48%
(Portfolio Inception: 8/1/88)
Pilgrim VP Growth Opportunities Portfolio... N/A N/A N/A N/A
(Portfolio Inception: 4/30/00)
Pilgrim VP Growth + Value Portfolio......... 94.98% 32.56% N/A 29.07%
(Portfolio Inception: 5/6/94)
Pilgrim VP High Yield Bond Portfolio........ (3.22)% 8.63% N/A 7.47%
(Portfolio Inception: 5/6/94)
Pilgrim VP International Value Portfolio.... 50.18% N/A N/A 27.15%
(Since Inception 8/8/97)
Pilgrim VP MagnaCap Portfolio............... N/A N/A N/A N/A
(Portfolio Inception: 4/30/00)
Pilgrim VP MidCap Opportunities Portfolio... N/A N/A N/A N/A
(Portfolio Inception: 4/30/00)
</TABLE>
SAI-10
<PAGE> 61
<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 12/31/99 12/31/99 12/31/99 12/31/99
--------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Pilgrim VP Research Enhanced Index
Portfolio(b).............................. 5.82% 8.84% N/A 8.09
(Portfolio Inception: 5/6/94)
Pilgrim VP SmallCap Opportunities
Portfolio(a).............................. 141.03% 35.16% N/A 30.97%
(Portfolio Inception: 5/6/94)
</TABLE>
The Average Annual Total Returns listed below 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 1-YEAR FOR THE 5-YEAR FOR THE 10-YEAR FOR THE PERIOD FROM
PERIOD ENDED PERIOD ENDED PERIOD ENDED DATE OF INCEPTION OF
12/31/99 12/31/99 12/31/99 PORTFOLIO TO 12/31/99
-------------- -------------- --------------- ---------------------
SUB-ACCOUNT RIA.S. RIA.S. RIA.S. RIA.S.
----------- -------------- -------------- --------------- ---------------------
<S> <C> <C> <C> <C>
AIM V.I. Dent Demographic Trends
Fund............................... N/A N/A N/A N/A
(Portfolio Inception: 12/29/99)
Alger American Growth Portfolio...... 32.94% 30.16% 22.16% 22.31%
(Portfolio Inception: 1/9/89)
Alger American Leveraged AllCap
Portfolio.......................... 77.00% N/A N/A 45.58%
(Portfolio Inception: 1/25/95)
Alger American MidCap Growth
Portfolio.......................... 31.06% 25.38% N/A 23.97%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization
Portfolio.......................... 42.56% 21.91% 17.51% 20.14%
(Portfolio Inception: 9/21/88)
Fidelity VIP Equity-Income
Portfolio.......................... 5.69% 17.90% 13.80% 13.10%
(Portfolio Inception: 10/9/86)
Fidelity VIP Growth Portfolio........ 36.61% 28.96% 19.22% 18.05%
(Portfolio Inception: 10/9/86)
Fidelity VIP II Asset Manager: Growth
Portfolio.......................... 14.57% N/A N/A 19.45%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Contrafund(R)
Portfolio.......................... 23.51% N/A N/A 26.97%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Index 500
Portfolio.......................... 19.79% 27.40% N/A 20.36%
(Portfolio Inception: 8/27/92)
Fidelity VIP II Investment Grade Bond
Portfolio.......................... (1.64)% 6.65% 6.54% 6.82%
(Portfolio Inception: 12/5/88)
Fidelity VIP III Growth Opportunities
Portfolio.......................... 3.65% N/A N/A 20.79%
(Portfolio Inception: 1/3/95)
Janus Aspen Aggressive Growth
Portfolio.......................... 124.06% 35.41% N/A 33.60%
(Portfolio Inception: 9/13/93)
Janus Aspen Growth Portfolio......... 43.12% 29.11% N/A 23.53%
(Portfolio Inception: 9/13/93)
</TABLE>
SAI-11
<PAGE> 62
<TABLE>
<CAPTION>
FOR THE 1-YEAR FOR THE 5-YEAR FOR THE 10-YEAR FOR THE PERIOD FROM
PERIOD ENDED PERIOD ENDED PERIOD ENDED DATE OF INCEPTION OF
12/31/99 12/31/99 12/31/99 PORTFOLIO TO 12/31/99
-------------- -------------- --------------- ---------------------
SUB-ACCOUNT RIA.S. RIA.S. RIA.S. RIA.S.
----------- -------------- -------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Janus Aspen International Growth
Portfolio.......................... 81.19% 32.46% N/A 27.40%
(Portfolio Inception: 5/2/94)
Janus Aspen Worldwide Growth
Portfolio.......................... 63.47% 32.80% N/A 28.93%
(Portfolio Inception: 9/13/93)
Neuberger Berman Advisers Management
Trust Limited Maturity Bond
Portfolio.......................... 0.87% 4.89% 5.22% 6.83%
(Portfolio Inception: 9/10/84)
Neuberger Berman Advisers Management
Trust Partners Portfolio........... 6.73% 20.30% N/A 16.78%
(Portfolio Inception: 3/22/94)
Neuberger Berman Advisers Management
Trust Socially Responsive
Portfolio.......................... N/A N/A N/A N/A
(Portfolio Inception: 2/18/99)
OCC Accumulation Trust Equity
Portfolio (c)...................... 1.93% 19.28% 14.78% 14.97%
(Portfolio Inception: 8/1/88)
OCC Accumulation Trust Global Equity
Portfolio.......................... 25.77% N/A N/A 17.37%
(Portfolio Inception: 3/1/95)
OCC Accumulation Trust Managed
Portfolio (c)...................... 4.37% 18.99% 15.91% 16.99%
(Portfolio Inception: 8/1/88)
OCC Accumulation Trust Small Cap
Portfolio (c)...................... (2.42)% 7.70% 10.45% 10.81%
(Portfolio Inception: 8/1/88)
Pilgrim VP Growth Opportunities
Portfolio.......................... N/A N/A N/A N/A
(Portfolio Inception: 4/30/00)
Pilgrim VP Growth + Value
Portfolio.......................... 93.82% 31.77% N/A 28.30%
(Portfolio Inception: 5/6/94)
Pilgrim VP High Yield Bond
Portfolio.......................... (3.80)% 7.62% N/A 6.51%
(Portfolio Inception: 5/6/94)
Pilgrim VP International Value
Portfolio.......................... 49.28% N/A N/A 26.40%
(Portfolio Inception: 8/8/97)
Pilgrim VP MagnaCap Portfolio........ N/A N/A N/A N/A
(Portfolio Inception: 4/30/00)
Pilgrim VP MidCap Opportunities
Portfolio.......................... N/A N/A N/A N/A
(Portfolio Inception: 4/30/00)
</TABLE>
SAI-12
<PAGE> 63
<TABLE>
<CAPTION>
FOR THE 1-YEAR FOR THE 5-YEAR FOR THE 10-YEAR FOR THE PERIOD FROM
PERIOD ENDED PERIOD ENDED PERIOD ENDED DATE OF INCEPTION OF
12/31/99 12/31/99 12/31/99 PORTFOLIO TO 12/31/99
-------------- -------------- --------------- ---------------------
SUB-ACCOUNT RIA.S. RIA.S. RIA.S. RIA.S.
----------- -------------- -------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Pilgrim VP Research Enhanced Index
Portfolio (b)...................... 5.19% 7.79% N/A 7.10%
(Portfolio Inception: 5/6/94)
Pilgrim VP SmallCap Opportunities
Portfolio (a)...................... 139.60% 34.35% N/A 30.19%
(Portfolio Inception: 5/6/94)
</TABLE>
- ------------------------
(a) The Pilgrim VP SmallCap Opportunities Portfolio (formerly the Northstar
Galaxy Trust Emerging 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) The Pilgrim VP 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.
(c) 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:
<TABLE>
<S> <C>
CTR = ERV/P - 1
Where:
= the Cumulative Total Return net of Sub-Account recurring
CTR charges for the period.
= the ending redeemable value of the hypothetical investment
ERV at the end of the period.
P = a hypothetical single payment of $1,000.
</TABLE>
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,
Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
(and the day following Thanksgiving Day), Christmas Day, and New Year's Eve.
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.
SAI-13
<PAGE> 64
FINANCIAL STATEMENTS
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 as of and for the years ended
December 31, 1999 and 1998 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 included
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.
SAI-14
<PAGE> 65
NORTHERN LIFE SEPARATE ACCOUNT ONE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Independent Auditors' Report................................ F-2
Statement of Assets and Liabilities as of December 31,
1999...................................................... F-3
Statements of Operations and Changes in Contract Owners'
Equity for the years ended December 31, 1999 and 1998..... F-4
Notes to Financial Statements............................... F-12
</TABLE>
F-1
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
Board of Directors
Northern Life Insurance Company:
We have audited the accompanying statement of assets and liabilities of Northern
Life Separate Account One as of December 31, 1999 and the related statements of
operations and changes in contract owners' equity (including the individual
sub-accounts which comprise the Account) for the years ended December 31, 1999
and 1998. These financial statements are the responsibility of the management of
Northern 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, 1999, 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
sub-accounts constituting the Northern Life Separate Account One as of December
31, 1999 and the results of its operations and changes in its contract owners'
equity for the years ended December 31, 1999 and 1998, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Minneapolis, Minnesota
February 18, 2000
F-2
<PAGE> 67
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARES)
ASSETS:
Investments in mutual funds at market value:
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
---------- ------- ------------
<S> <C> <C> <C>
Fidelity's Variable Insurance Products Fund (VIP):
VIP Equity-Income Portfolio -- IC Shares.............. 1,470,888 $35,924 $ 37,817
VIP Growth Portfolio -- IC Shares..................... 983,762 40,338 54,038
VIP Money Market Portfolio -- IC Shares............... 13,464,709 13,465 13,465
VIP Overseas Portfolio -- IC Shares................... 106,276 2,088 2,916
Fidelity's Variable Insurance Products Fund II (VIP II):
VIP II Asset Manager Portfolio -- IC Shares........... 395,093 6,744 7,376
VIP II Asset Manager Growth Portfolio -- IC Shares.... 995,360 16,057 18,295
VIP II Contrafund Portfolio -- IC Shares.............. 2,656,558 57,927 77,439
VIP II Index 500 Portfolio -- IC Shares............... 729,014 97,524 122,044
VIP II Investment Grade Bond Portfolio -- IC Shares... 179,693 2,173 2,185
Fidelity's Variable Insurance Products Fund III (VIP III):
VIP III Growth Opportunities Portfolio -- IC Shares... 146,713 3,335 3,397
The Alger American Fund:
Alger American Small Capitalization Portfolio......... 287,089 11,957 15,833
Alger American Growth Portfolio....................... 963,387 50,701 62,023
Alger American MidCap Growth Portfolio................ 447,626 11,398 14,427
Alger American Leveraged AllCap Portfolio............. 736,108 31,228 42,672
Janus Aspen Series:
Aggressive Growth Portfolio........................... 467,170 18,032 27,885
Growth Portfolio...................................... 1,024,017 25,405 34,458
International Growth Portfolio........................ 243,951 5,986 9,434
Worldwide Growth Portfolio............................ 1,704,419 51,331 81,386
Neuberger Berman Advisers Management Trust:
AMT Limited Maturity Bond Portfolio................... 323,389 4,321 4,282
AMT Partners Portfolio................................ 842,913 15,867 16,555
AMT Socially Responsive Portfolio..................... 32,472 361 375
Northstar Galaxy Trust:
Northstar Emerging Growth Portfolio................... 719,057 17,125 21,025
Northstar Growth + Value Portfolio.................... 1,569,515 35,307 47,148
Northstar International Value Portfolio............... 569,627 6,867 8,413
Northstar Research Enhanced Index Portfolio........... 4,159,384 19,357 20,755
Northstar High Yield Bond Portfolio................... 1,867,994 8,888 8,032
OCC Accumulation Trust:
Equity Portfolio...................................... 89,010 3,340 3,343
Global Equity Portfolio............................... 68,919 1,216 1,141
Managed Portfolio..................................... 403,498 17,285 17,613
Small Cap Portfolio................................... 121,881 2,805 2,745
--------
Total Assets........................................ $778,517
========
LIABILITIES AND CONTRACT OWNERS' EQUITY:
Due to Northern Life Insurance Company for contract
charges............................................... $ 966
Contract Owners' Equity.................................. 777,551
--------
Total Liabilities and Contract Owners' Equity....... $778,517
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 68
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIDELITY'S VIP FIDELITY'S VIP
EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO
TOTAL ALL FUNDS IC SHARES IC SHARES
------------------------------- ----------------------------- -----------------------------
1999 1998 1999 1998 1999 1998
-------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss):
Reinvested dividend income... $ 4,615 $ 2,612 $ 477 $ 238 $ 39 $ 46
Reinvested capital gains..... 26,485 9,242 1,055 846 2,462 1,195
Administrative expenses...... (8,070) (3,584) (546) (371) (525) (217)
-------------- -------------- ------------- ------------- ------------- -------------
Net investment income
(loss) and capital
gains:................. 23,030 8,270 986 713 1,976 1,024
-------------- -------------- ------------- ------------- ------------- -------------
Realized and unrealized gains
(losses):
Net realized gains (losses)
on redemptions of fund
shares..................... 21,434 4,490 1,022 649 137 449
Increase (decrease) in
unrealized appreciation of
investments................ 119,658 34,101 (616) 711 9,571 3,182
-------------- -------------- ------------- ------------- ------------- -------------
Net realized and unrealized
gains (losses)........... 141,092 38,591 406 1,360 9,708 3,631
-------------- -------------- ------------- ------------- ------------- -------------
Additions (reductions) from
operations............... 164,122 46,861 1,392 2,073 11,684 4,655
-------------- -------------- ------------- ------------- ------------- -------------
Contract Owners' transactions:
Net premium payments......... 251,841 186,757 10,158 14,758 19,320 7,114
Surrenders................... (18,113) (5,900) (1,052) (526) (922) (299)
Policy loans................. (4,201) (1,837) (296) (163) (324) (139)
Transfers between
sub-accounts and/or fixed
account.................... 15,278 10,128 (3,428) (795) 3,506 1,025
Death benefits............... (1,359) (500) (87) (147) (94) (19)
Loan collateral interest..... 96 31 10 4 7 3
-------------- -------------- ------------- ------------- ------------- -------------
Additions (reductions)
for Contract Owners'
transactions........... 243,542 188,679 5,305 13,131 21,493 7,685
-------------- -------------- ------------- ------------- ------------- -------------
Net additions
(reductions) for the
year................... 407,664 235,540 6,697 15,204 33,177 12,340
Contract Owners' Equity,
beginning of the year........ 369,887 134,347 31,075 15,871 20,793 8,453
-------------- -------------- ------------- ------------- ------------- -------------
Contract Owners' Equity, end
of the year.................. $ 777,551 $ 369,887 $ 37,772 $ 31,075 $ 53,970 $ 20,793
============== ============== ============= ============= ============= =============
Units Outstanding, beginning
of the year.................. 23,758,775.232 9,878,013.401 1,850,470.195 1,040,329.208 1,117,354.994 624,733.968
Units Outstanding, end of the
year......................... 37,039,197.267 23,758,775.232 2,145,169.205 1,850,470.195 2,139,958.138 1,117,354.994
Net Asset Value per Unit:..... -- -- $ 17.607847 $ 16.793113 $ 25.220278 $ 18.608901
<CAPTION>
FIDELITY'S VIP
MONEY MARKET PORTFOLIO
IC SHARES
---------------------------
1999 1998
------------- -----------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income... $ 467 $ 269
Reinvested capital gains..... -- --
Administrative expenses...... (137) (73)
------------- -----------
Net investment income
(loss) and capital
gains:................. 330 196
------------- -----------
Realized and unrealized gains
(losses):
Net realized gains (losses)
on redemptions of fund
shares..................... -- --
Increase (decrease) in
unrealized appreciation of
investments................ -- --
------------- -----------
Net realized and unrealized
gains (losses)........... -- --
------------- -----------
Additions (reductions) from
operations............... 330 196
------------- -----------
Contract Owners' transactions:
Net premium payments......... 8,579 4,697
Surrenders................... (1,067) (256)
Policy loans................. (116) (25)
Transfers between
sub-accounts and/or fixed
account.................... (1,140) (2,617)
Death benefits............... -- --
Loan collateral interest..... 5 1
------------- -----------
Additions (reductions)
for Contract Owners'
transactions........... 6,261 1,800
------------- -----------
Net additions
(reductions) for the
year................... 6,591 1,996
Contract Owners' Equity,
beginning of the year........ 6,859 4,863
------------- -----------
Contract Owners' Equity, end
of the year.................. $ 13,450 $ 6,859
============= ===========
Units Outstanding, beginning
of the year.................. 605,376.014 446,457.715
Units Outstanding, end of the
year......................... 1,144,601.494 605,376.014
Net Asset Value per Unit:..... $ 11.750389 $ 11.329355
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 69
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIDELITY'S VIP II FIDELITY'S VIP II
FIDELITY'S VIP ASSET MANAGER ASSET MANAGER
OVERSEAS PORTFOLIO PORTFOLIO GROWTH PORTFOLIO
IC SHARES IC SHARES IC SHARES
------------------------- ------------------------- -------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss):
Reinvested dividend income............. $ 76 $ 76 $ 284 $ 102 $ 294 $ 101
Reinvested capital gains............... 122 223 360 306 487 472
Administrative expenses................ (54) (73) (118) (73) (230) (115)
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) and
capital gains:................... 144 226 526 335 551 458
----------- ----------- ----------- ----------- ----------- -----------
Realized and unrealized gains (losses):
Net realized gains (losses) on
redemptions of fund shares........... 266 36 145 11 119 296
Increase (decrease) in unrealized
appreciation of investments.......... 626 167 41 367 1,327 460
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses)......................... 892 203 186 378 1,446 756
----------- ----------- ----------- ----------- ----------- -----------
Additions (reductions) from
operations....................... 1,036 429 712 713 1,997 1,214
----------- ----------- ----------- ----------- ----------- -----------
Contract Owners' transactions:
Net premium payments................... 346 1,561 1,347 4,346 5,922 6,444
Surrenders............................. (162) (162) (239) (108) (457) (183)
Policy loans........................... (61) (28) (25) (26) (121) (56)
Transfers between sub-accounts and/or
fixed account........................ (3,103) (642) (2,700) 495 (453) (401)
Death benefits......................... (72) -- (36) (42) (84) --
Loan collateral interest............... -- 1 -- 1 3 1
----------- ----------- ----------- ----------- ----------- -----------
Additions (reductions) for Contract
Owners' transactions............. (3,052) 730 (1,653) 4,666 4,810 5,805
----------- ----------- ----------- ----------- ----------- -----------
Net additions (reductions) for the
year............................. (2,016) 1,159 (941) 5,379 6,807 7,019
Contract Owners' Equity, beginning of
the year............................... 4,929 3,770 8,308 2,929 11,465 4,446
----------- ----------- ----------- ----------- ----------- -----------
Contract Owners' Equity, end of the
year................................... $ 2,913 $ 4,929 $ 7,367 $ 8,308 $ 18,272 $ 11,465
=========== =========== =========== =========== =========== ===========
Units Outstanding, beginning of the
year................................... 349,988.575 297,559.671 520,820.052 208,314.653 652,013.324 293,160.469
Units Outstanding, end of the year...... 147,049.893 349,988.575 421,587.004 520,820.052 914,249.993 652,013.324
Net Asset Value per Unit:............... $ 19.805532 $ 14.081780 $ 17.475061 $ 15.952014 $ 19.985948 $ 17.584679
<CAPTION>
FIDELITY'S VIP II
CONTRAFUND PORTFOLIO
IC SHARES
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income............. $ 207 $ 126
Reinvested capital gains............... 1,518 926
Administrative expenses................ (868) (415)
------------- -------------
Net investment income (loss) and
capital gains:................... 857 637
------------- -------------
Realized and unrealized gains (losses):
Net realized gains (losses) on
redemptions of fund shares........... 710 255
Increase (decrease) in unrealized
appreciation of investments.......... 11,022 6,432
------------- -------------
Net realized and unrealized gains
(losses)......................... 11,732 6,687
------------- -------------
Additions (reductions) from
operations....................... 12,589 7,324
------------- -------------
Contract Owners' transactions:
Net premium payments................... 26,445 16,445
Surrenders............................. (1,937) (739)
Policy loans........................... (431) (263)
Transfers between sub-accounts and/or
fixed account........................ 348 674
Death benefits......................... (68) (13)
Loan collateral interest............... 12 4
------------- -------------
Additions (reductions) for Contract
Owners' transactions............. 24,369 16,108
------------- -------------
Net additions (reductions) for the
year............................. 36,958 23,432
Contract Owners' Equity, beginning of
the year............................... 40,384 16,952
------------- -------------
Contract Owners' Equity, end of the
year................................... $ 77,342 $ 40,384
============= =============
Units Outstanding, beginning of the
year................................... 2,090,469.402 1,124,760.300
Units Outstanding, end of the year...... 3,267,495.545 2,090,469.402
Net Asset Value per Unit:............... $ 23.670021 $ 19.318070
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 70
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIDELITY'S VIP III
FIDELITY'S VIP II GROWTH
FIDELITY'S VIP II INVESTMENT GRADE OPPORTUNITIES ALGER AMERICAN
INDEX 500 PORTFOLIO BOND PORTFOLIO PORTFOLIO SMALL CAPITALIZATION
IC SHARES IC SHARES IC SHARES PORTFOLIO
----------------------------- ------------------ ------------------ --------------------------
1999 1998 1999 1998 1999 1998 1999 1998
------------- ------------- ----------- ---- ----------- ---- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income
(loss):
Reinvested dividend
income.................. $ 732 $ 286 $ -- $-- $ -- $-- $ -- $ --
Reinvested capital
gains................... 497 662 -- -- 0 -- 1,268 941
Administrative expenses... (1,490) (658) (13) -- (28) -- (172) (118)
------------- ------------- ----------- -- ----------- -- ------------ -----------
Net investment income
(loss) and capital
gains: ............... (261) 290 (13) -- (28) -- 1,096 823
------------- ------------- ----------- -- ----------- -- ------------ -----------
Realized and unrealized
gains (losses):
Net realized gains
(losses) on redemptions
of fund shares.......... 4,252 450 (7) -- 25 -- 112 27
Increase (decrease) in
unrealized appreciation
of investments.......... 12,940 9,831 12 -- 62 -- 3,233 259
------------- ------------- ----------- -- ----------- -- ------------ -----------
Net realized and
unrealized gains
(losses).............. 17,192 10,281 5 -- 87 -- 3,345 286
------------- ------------- ----------- -- ----------- -- ------------ -----------
Additions (reductions)
from operations....... 16,931 10,571 (8) -- 59 -- 4,441 1,109
------------- ------------- ----------- -- ----------- -- ------------ -----------
Contract Owners'
transactions:
Net premium payments...... 46,516 36,377 760 -- 2,212 -- 3,489 3,266
Surrenders................ (2,934) (951) (24) -- (61) -- (451) (108)
Policy loans.............. (912) (417) (1) -- (28) -- (110) (51)
Transfers between
sub-accounts and/or
fixed account........... (8,341) 3,296 1,456 -- 1,210 -- (1,052) (572)
Death benefits............ (219) (45) -- -- -- -- (5) --
Loan collateral
interest................ 21 6 -- -- -- -- 3 1
------------- ------------- ----------- -- ----------- -- ------------ -----------
Additions (reductions)
for Contract Owners'
transactions.......... 34,131 38,266 2,191 -- 3,333 -- 1,874 2,536
------------- ------------- ----------- -- ----------- -- ------------ -----------
Net additions
(reductions) for the
year.................. 51,062 48,837 2,183 -- 3,392 -- 6,315 3,645
Contract Owners' Equity,
beginning of the year..... 70,831 21,994 -- -- -- -- 9,497 5,852
------------- ------------- ----------- -- ----------- -- ------------ -----------
Contract Owners' Equity,
end of the year........... $ 121,893 $ 70,831 $ 2,183 $-- $ 3,392 $-- $ 15,812 $ 9,497
============= ============= =========== == =========== == ============ ===========
Units Outstanding,
beginning of the year..... 3,336,587.033 1,310,991.579 -- -- -- -- 751,967.322 527,947.156
Units Outstanding, end of
the year.................. 4,831,868.560 3,336,587.033 222,858.340 -- 337,765.646 -- 885,257.497 751,967.322
Net Asset Value per
Unit: .................... $ 25.227080 $ 21.228526 $ 9.793689 $-- $ 10.043547 $-- $ 17.862102 $ 12.630064
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 71
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALGER AMERICAN ALGER AMERICAN
ALGER AMERICAN MIDCAP GROWTH LEVERAGED ALLCAP
GROWTH PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------- ------------------------- ---------------------------
1999 1998 1999 1998 1999 1998
------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss):
Reinvested dividend income...... $ 44 $ 22 $ -- $ -- $ -- $ --
Reinvested capital gains........ 3,016 1,332 1,560 542 912 215
Administrative expenses......... (582) (158) (165) (103) (297) (85)
------------- ----------- ----------- ----------- ------------- -----------
Net investment income (loss)
and capital gains:.......... 2,478 1,196 1,395 439 615 130
------------- ----------- ----------- ----------- ------------- -----------
Realized and unrealized gains
(losses):
Net realized gains (losses) on
redemptions of fund shares.... 1,360 592 538 124 3,895 882
Increase (decrease) in
unrealized appreciation of
investments................... 7,924 2,678 1,247 1,294 9,047 1,999
------------- ----------- ----------- ----------- ------------- -----------
Net realized and unrealized
gains (losses).............. 9,284 3,270 1,785 1,418 12,942 2,881
------------- ----------- ----------- ----------- ------------- -----------
Additions (reductions) from
operations.................. 11,762 4,466 3,180 1,857 13,557 3,011
------------- ----------- ----------- ----------- ------------- -----------
Contract Owners' transactions:
Net premium payments............ 26,399 7,649 2,744 2,530 13,573 2,583
Surrenders...................... (1,223) (259) (346) (182) (768) (307)
Policy loans.................... (217) (89) (62) (40) (179) (62)
Transfers between sub-accounts
and/or fixed account.......... 5,842 2,085 (506) 225 6,214 1,560
Death benefits.................. (37) (27) -- (14) (19) (35)
Loan collateral interest........ 5 1 2 1 5 1
------------- ----------- ----------- ----------- ------------- -----------
Additions (reductions) for
Contract Owners'
transactions................ 30,769 9,360 1,832 2,520 18,826 3,740
------------- ----------- ----------- ----------- ------------- -----------
Net additions (reductions) for
the year.................... 42,531 13,826 5,012 4,377 32,383 6,751
Contract Owners' Equity,
beginning of the year........... 19,414 5,588 9,397 5,020 10,235 3,484
------------- ----------- ----------- ----------- ------------- -----------
Contract Owners' Equity, end of
the year........................ $ 61,945 $ 19,414 $ 14,409 $ 9,397 $ 42,618 $ 10,235
============= =========== =========== =========== ============= ===========
Units Outstanding, beginning of
the year........................ 958,685.252 402,924.566 590,793.803 405,579.543 491,436.239 260,379.569
Units Outstanding, end of the
year............................ 2,319,441.894 958,685.252 696,730.346 590,793.803 1,165,393.104 491,436.239
Net Asset Value per Unit:........ $ 26.707017 $ 20.250135 $ 20.680155 $ 15.905871 $ 36.568441 $ 20.826047
<CAPTION>
JANUS ASPEN SERIES
AGGRESSIVE GROWTH
PORTFOLIO
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income...... $ 87 $ --
Reinvested capital gains........ 151 --
Administrative expenses......... (128) (13)
----------- -----------
Net investment income (loss)
and capital gains:.......... 110 (13)
----------- -----------
Realized and unrealized gains
(losses):
Net realized gains (losses) on
redemptions of fund shares.... 583 7
Increase (decrease) in
unrealized appreciation of
investments................... 9,439 407
----------- -----------
Net realized and unrealized
gains (losses).............. 10,022 414
----------- -----------
Additions (reductions) from
operations.................. 10,132 401
----------- -----------
Contract Owners' transactions:
Net premium payments............ 8,077 1,359
Surrenders...................... (215) (5)
Policy loans.................... (118) (7)
Transfers between sub-accounts
and/or fixed account.......... 7,908 133
Death benefits.................. (11) --
Loan collateral interest........ 2 --
----------- -----------
Additions (reductions) for
Contract Owners'
transactions................ 15,643 1,480
----------- -----------
Net additions (reductions) for
the year.................... 25,775 1,881
Contract Owners' Equity,
beginning of the year........... 2,072 191
----------- -----------
Contract Owners' Equity, end of
the year........................ $ 27,847 $ 2,072
=========== ===========
Units Outstanding, beginning of
the year........................ 143,610.929 17,505.521
Units Outstanding, end of the
year............................ 868,256.942 143,610.929
Net Asset Value per Unit:........ $ 32.074748 $ 14.429920
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 72
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES JANUS ASPEN SERIES
JANUS ASPEN SERIES INTERNATIONAL GROWTH WORLDWIDE GROWTH
GROWTH PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------- ------------------------- -----------------------------
1999 1998 1999 1998 1999 1998
------------- ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss):
Reinvested dividend income...... $ 50 $ 132 $ 11 $ 32 $ 85 $ 305
Reinvested capital gains........ 94 105 -- 5 -- 115
Administrative expenses......... (278) (59) (72) (30) (708) (182)
------------- ----------- ----------- ----------- ------------- -------------
Net investment income (loss)
and capital gains:........ (134) 178 (61) 7 (623) 238
------------- ----------- ----------- ----------- ------------- -------------
Realized and unrealized gains
(losses):
Net realized gains (losses) on
redemptions of fund shares.... 138 18 469 7 692 636
Increase (decrease) in
unrealized appreciation of
investments................... 7,677 1,375 3,297 155 28,177 1,880
------------- ----------- ----------- ----------- ------------- -------------
Net realized and unrealized
gains (losses)............ 7,815 1,393 3,766 162 28,869 2,516
------------- ----------- ----------- ----------- ------------- -------------
Additions (reductions) from
operations................ 7,681 1,571 3,705 169 28,246 2,754
------------- ----------- ----------- ----------- ------------- -------------
Contract Owners' transactions:
Net premium payments............ 13,038 5,914 1,914 1,702 26,479 16,293
Surrenders...................... (451) (84) (123) (57) (1,422) (238)
Policy loans.................... (147) (49) (47) (17) (398) (116)
Transfers between sub-accounts
and/or fixed account.......... 5,320 796 921 469 2,743 4,112
Death benefits.................. (9) -- -- -- (72) (2)
Loan collateral interest........ 2 -- 1 -- 5 1
------------- ----------- ----------- ----------- ------------- -------------
Additions (reductions) for
Contract Owners'
transactions.............. 17,753 6,577 2,666 2,097 27,335 20,050
------------- ----------- ----------- ----------- ------------- -------------
Net additions (reductions)
for the year.............. 25,434 8,148 6,371 2,266 55,581 22,804
Contract Owners' Equity,
beginning of the year........... 8,981 833 3,050 784 25,698 2,894
------------- ----------- ----------- ----------- ------------- -------------
Contract Owners' Equity, end of
the year........................ $ 34,415 $ 8,981 $ 9,421 $ 3,050 $ 81,279 $ 25,698
============= =========== =========== =========== ============= =============
Units Outstanding, beginning of
the year........................ 662,697.182 82,286.238 275,637.403 81,884.298 2,066,481.457 295,875.300
Units Outstanding, end of the
year............................ 1,788,563.915 662,697.182 473,654.385 275,637.403 4,030,342.090 2,066,481.457
Net Asset Value per Unit:........ $ 19.242112 $ 13.552209 $ 19.890241 $ 11.065792 $ 20.166752 $ 12.435746
<CAPTION>
NEUBERGER BERMAN
ADVISERS MANAGEMENT
TRUST
LIMITED MATURITY
BOND PORTFOLIO
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income...... $ 145 $ 25
Reinvested capital gains........ -- --
Administrative expenses......... (50) (16)
----------- -----------
Net investment income (loss)
and capital gains:........ 95 9
----------- -----------
Realized and unrealized gains
(losses):
Net realized gains (losses) on
redemptions of fund shares.... (24) (12)
Increase (decrease) in
unrealized appreciation of
investments................... (66) 26
----------- -----------
Net realized and unrealized
gains (losses)............ (90) 14
----------- -----------
Additions (reductions) from
operations................ 5 23
----------- -----------
Contract Owners' transactions:
Net premium payments............ 2,420 1,686
Surrenders...................... (134) (26)
Policy loans.................... (4) (5)
Transfers between sub-accounts
and/or fixed account.......... (202) 309
Death benefits.................. (20) --
Loan collateral interest........ -- --
----------- -----------
Additions (reductions) for
Contract Owners'
transactions.............. 2,060 1,964
----------- -----------
Net additions (reductions)
for the year.............. 2,065 1,987
Contract Owners' Equity,
beginning of the year........... 2,212 225
----------- -----------
Contract Owners' Equity, end of
the year........................ $ 4,277 $ 2,212
=========== ===========
Units Outstanding, beginning of
the year........................ 210,708.844 22,028.741
Units Outstanding, end of the
year............................ 407,141.658 210,708.844
Net Asset Value per Unit:........ $ 10.504095 $ 10.497074
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE> 73
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NEUBERGER
BERMAN
ADVISERS
MANAGEMENT
NEUBERGER BERMAN TRUST
ADVISERS MANAGEMENT SOCIALLY
TRUST RESPONSIVE
PARTNERS PORTFOLIO PORTFOLIO
----------------------------- -----------------
1999 1998 1999 1998
------------- ------------- ---------- ----
<S> <C> <C> <C> <C>
Net investment income (loss):
Reinvested dividend income... $ 202 $ 18 $ -- $--
Reinvested capital gains..... 351 579 -- --
Administrative expenses...... (263) (155) (3) --
------------- ------------- ---------- ---
Net investment (loss)
income and capital
gains:................. 290 442 (3) --
------------- ------------- ---------- ---
Realized and unrealized gains
(losses):
Net realized gains (losses)
on redemptions of fund
shares..................... (181) (235) 4 --
Increase (decrease) in
unrealized appreciation of
investments................ 855 (197) 14 --
------------- ------------- ---------- ---
Net realized and
unrealized gains
(losses)............... 674 (432) 18 --
------------- ------------- ---------- ---
Additions (reductions)
from operations........ 964 10 15 --
------------- ------------- ---------- ---
Contract Owners' transactions:
Net premium payments......... 4,481 13,234 245 --
Surrenders................... (503) (225) -- --
Policy loans................. (124) (73) -- --
Transfers between
sub-accounts and/or fixed
account.................... (4,929) 1,123 115 --
Death benefits............... (51) (2) -- --
Loan collateral interest..... 3 1 -- --
------------- ------------- ---------- ---
Additions (reductions)
for Contract Owners'
transactions........... (1,123) 14,058 360 --
------------- ------------- ---------- ---
Net additions
(reductions) for the
year................... (159) 14,068 375 --
Contract Owners' Equity,
beginning of the year........ 16,694 2,626 -- --
------------- ------------- ---------- ---
Contract Owners' Equity, end
of the year.................. $ 16,535 $ 16,694 $ 375 $--
============= ============= ========== ===
Units Outstanding, beginning
of the year.................. 1,582,047.842 255,773.135 -- --
Units Outstanding, end of the
year......................... 1,479,974.075 1,582,047.842 32,882.649 --
Net Asset Value per Unit:..... $ 11.172272 $ 10.552069 $11.382656 $--
<CAPTION>
NORTHSTAR GALAXY
TRUST
EMERGING GROWTH NORTHSTAR GALAXY TRUST
PORTFOLIO GROWTH + VALUE PORTFOLIO
------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Net investment income (loss):
Reinvested dividend income... $ -- $ 121 $ -- $ 5
Reinvested capital gains..... 2,781 223 8,169 162
Administrative expenses...... (135) (63) (432) (285)
----------- ----------- ------------- -------------
Net investment (loss)
income and capital
gains:................. 2,646 281 7,737 (118)
----------- ----------- ------------- -------------
Realized and unrealized gains
(losses):
Net realized gains (losses)
on redemptions of fund
shares..................... 3,047 83 4,823 252
Increase (decrease) in
unrealized appreciation of
investments................ 3,507 317 7,789 2,933
----------- ----------- ------------- -------------
Net realized and
unrealized gains
(losses)............... 6,554 400 12,612 3,185
----------- ----------- ------------- -------------
Additions (reductions)
from operations........ 9,200 681 20,349 3,067
----------- ----------- ------------- -------------
Contract Owners' transactions:
Net premium payments......... 2,687 1,511 6,075 5,973
Surrenders................... (404) (103) (1,273) (532)
Policy loans................. (50) (16) (214) (105)
Transfers between
sub-accounts and/or fixed
account.................... 4,420 (405) 536 (2,100)
Death benefits............... (60) (65) (148) (57)
Loan collateral interest..... 1 1 6 3
----------- ----------- ------------- -------------
Additions (reductions)
for Contract Owners'
transactions........... 6,594 923 4,982 3,182
----------- ----------- ------------- -------------
Net additions
(reductions) for the
year................... 15,794 1,604 25,331 6,249
Contract Owners' Equity,
beginning of the year........ 5,203 3,599 21,756 15,507
----------- ----------- ------------- -------------
Contract Owners' Equity, end
of the year.................. $ 20,997 $ 5,203 $ 47,087 $ 21,756
=========== =========== ============= =============
Units Outstanding, beginning
of the year.................. 338,592.875 270,967.530 1,333,885.420 1,118,715.737
Units Outstanding, end of the
year......................... 574,894.532 338,592.875 1,501,434.187 1,333,885.420
Net Asset Value per Unit:..... $ 36.524615 $ 15.366323 $ 31.360614 $ 16.310327
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE> 74
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NORTHSTAR GALAXY NORTHSTAR GALAXY NORTHSTAR GALAXY
TRUST TRUST TRUST
INTERNATIONAL VALUE RESEARCH ENHANCED HIGH YIELD BOND
PORTFOLIO INDEX PORTFOLIO PORTFOLIO
------------------------- --------------------------- -------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income
(loss):
Reinvested dividend
income................... $ 101 $ 38 $ 170 $ 266 $ 810 $ 346
Reinvested capital gains... 778 163 -- 1 -- 11
Administrative expenses.... (80) (29) (172) (49) (128) (57)
----------- ----------- ------------- ----------- ----------- -----------
Net investment income
(loss) and capital
gains:................. 799 172 (2) 218 682 300
----------- ----------- ------------- ----------- ----------- -----------
Realized and unrealized
gains (losses):
Net realized gains (losses)
on redemptions of fund
shares................... 137 22 (371) (24) (430) (98)
Increase (decrease) in
unrealized appreciation
of investments........... 1,480 68 1,660 (205) (646) (197)
----------- ----------- ------------- ----------- ----------- -----------
Net realized and
unrealized gains
(losses)............... 1,617 90 1,289 (229) (1,076) (295)
----------- ----------- ------------- ----------- ----------- -----------
Additions (reductions)
from operations........ 2,416 262 1,287 (11) (394) 5
----------- ----------- ------------- ----------- ----------- -----------
Contract Owners'
transactions:
Net premium payments....... 2,234 2,838 5,806 2,631 2,511 7,246
Surrenders................. (197) (47) (612) (97) (353) (91)
Policy loans............... (18) (2) (8) (1) (12) (4)
Transfers between
sub-accounts and/or fixed
account.................. 129 208 9,393 (507) (2,419) 709
Death benefits............. -- -- -- (31) (237) --
Loan collateral interest... -- -- -- -- -- --
----------- ----------- ------------- ----------- ----------- -----------
Additions (reductions)
for Contract Owners'
transactions......... 2,148 2,997 14,579 1,995 (510) 7,860
----------- ----------- ------------- ----------- ----------- -----------
Net additions
(reductions) for the
year................. 4,564 3,259 15,866 1,984 (904) 7,865
Contract Owners' Equity,
beginning of the year...... 3,839 580 4,864 2,880 8,940 1,075
----------- ----------- ------------- ----------- ----------- -----------
Contract Owners' Equity, end
of the year................ $ 8,403 $ 3,839 $ 20,730 $ 4,864 $ 8,036 $ 8,940
=========== =========== ============= =========== =========== ===========
Units Outstanding, beginning
of the year................ 330,553.044 57,506.716 403,214.084 238,690.820 885,661.645 105,615.457
Units Outstanding, end of
the year................... 488,502.094 330,553.044 1,646,855.701 403,214.084 834,113.419 885,661.645
Net Asset Value per Unit:... $ 17,200711 $ 11,614952 $ 12,587412 $ 12,062872 $ 9,633236 $ 10,094227
<CAPTION>
OCC ACCUMULATION
TRUST
EQUITY PORTFOLIO
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net investment income
(loss):
Reinvested dividend
income................... $ 28 $ 8
Reinvested capital gains... 128 32
Administrative expenses.... (51) (23)
----------- -----------
Net investment income
(loss) and capital
gains:................. 105 17
----------- -----------
Realized and unrealized
gains (losses):
Net realized gains (losses)
on redemptions of fund
shares................... 33 6
Increase (decrease) in
unrealized appreciation
of investments........... (107) 97
----------- -----------
Net realized and
unrealized gains
(losses)............... (74) 103
----------- -----------
Additions (reductions)
from operations........ 31 120
----------- -----------
Contract Owners'
transactions:
Net premium payments....... 1,260 1,927
Surrenders................. (129) (22)
Policy loans............... (45) (14)
Transfers between
sub-accounts and/or fixed
account.................. (438) 169
Death benefits............. (7) --
Loan collateral interest... 1 --
----------- -----------
Additions (reductions)
for Contract Owners'
transactions......... 642 2,060
----------- -----------
Net additions
(reductions) for the
year................. 673 2,180
Contract Owners' Equity,
beginning of the year...... 2,666 486
----------- -----------
Contract Owners' Equity, end
of the year................ $ 3,339 $ 2,666
=========== ===========
Units Outstanding, beginning
of the year................ 227,142.692 45,654.119
Units Outstanding, end of
the year................... 281,366.932 227,142.692
Net Asset Value per Unit:... $ 11,868401 $ 11,737470
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE> 75
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCC ACCUMULATION
TRUST OCC ACCUMULATION
GLOBAL EQUITY OCC ACCUMULATION TRUST TRUST
PORTFOLIO MANAGED PORTFOLIO SMALL CAP PORTFOLIO
----------------------- ----------------------------- -------------------------
1999 1998 1999 1998 1999 1998
---------- ---------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss):
Reinvested dividend income................. $ 15 $ 8 $ 276 $ 39 $ 15 $ 3
Reinvested capital gains................... 157 28 619 129 -- 29
Administrative expenses.................... (15) (5) (291) (138) (39) (21)
---------- ---------- ------------- ------------- ----------- -----------
Net investment income (loss) and capital
gains:................................. 157 31 604 30 (24) 11
---------- ---------- ------------- ------------- ----------- -----------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions
of fund shares........................... 100 21 (38) 58 (122) (22)
Increase (decrease) in unrealized
appreciation of investments.............. (33) (30) 108 221 71 (129)
---------- ---------- ------------- ------------- ----------- -----------
Net realized and unrealized gains
(losses)............................... 67 (9) 70 279 (51) (151)
---------- ---------- ------------- ------------- ----------- -----------
Additions (reductions) from operations... 224 22 674 309 (75) (140)
---------- ---------- ------------- ------------- ----------- -----------
Contract Owners' transactions:
Net premium payments....................... 293 546 5,379 14,219 1,132 1,908
Surrenders................................. (19) (3) (570) (263) (65) (27)
Policy loans............................... (7) (5) (104) (56) (22) (8)
Transfers between sub-accounts and/or fixed
account.................................. (93) 2 (5,439) 692 (540) 85
Death benefits............................. -- -- (20) (1) (3) --
Loan collateral interest................... -- -- 2 -- -- --
---------- ---------- ------------- ------------- ----------- -----------
Additions (reductions) for Contract
Owners' transactions................... 174 540 (752) 14,591 502 1,958
---------- ---------- ------------- ------------- ----------- -----------
Net additions (reductions) for the
year................................... 398 562 (78) 14,900 427 1,818
Contract Owners' Equity, beginning of the
year....................................... 741 179 17,670 2,770 2,314 496
---------- ---------- ------------- ------------- ----------- -----------
Contract Owners' Equity, end of the year.... $ 1,139 $ 741 $ 17,592 $ 17,670 $ 2,741 $ 2,314
========== ========== ============= ============= =========== ===========
Units Outstanding, beginning of the year.... 70,138.035 18,968.362 1,659,487.954 274,772.663 252,953.621 48,630.367
Units Outstanding, end of the year.......... 86,458.145 70,138.035 1,595,695.537 1,659,487.954 309,634.347 252,953.621
Net Asset Value per Unit: .................. $13.184735 $10.567329 $ 11.024589 $ 10.647991 $ 8.854102 $ 9.146562
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE> 76
NORTHERN LIFE
SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Northern Life Separate Account One (the "Account") is a separate account of
Northern Life Insurance Company ("Northern Life"), an indirect,
wholly-owned subsidiary of ReliaStar Financial Corp. The Account commenced
operations on October 20, 1995 and is registered as a unit investment trust
under the Investment Company Act of 1940.
Payments received under the contracts are allocated to sub-accounts of the
Account, each of which is invested in one of the funds listed below during
the year:
<TABLE>
<CAPTION>
Neuberger Berman Advisers
The Alger American Fund Management Trust Northstar Galaxy Trust
----------------------- ------------------------- ----------------------
<S> <C> <C>
Small Capitalization AMT Limited Maturity Bond Emerging Growth Portfolio
Portfolio Portfolio Growth + Value Portfolio
Growth Portfolio AMT Partners Portfolio International Value Portfolio
MidCap Growth Portfolio AMT Socially Responsive Research Enhanced Index
Leveraged AllCap Portfolio Portfolio Portfolio
High Yield Bond Portfolio
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Series OCC Accumulation Trust Fidelity VIP
------------------ ---------------------- ------------
<S> <C> <C>
Aggressive Growth Portfolio Equity Portfolio VIP Equity-Income Portfolio --
Growth Portfolio Global Equity Portfolio IC Shares
International Growth Managed Portfolio VIP Growth Portfolio -- IC Shares
Portfolio Small Cap Portfolio VIP Money Market Portfolio --
Worldwide Growth Portfolio IC Shares
VIP Overseas Portfolio -- IC Shares
</TABLE>
<TABLE>
<CAPTION>
Fidelity VIP II Fidelity VIP III
--------------- ----------------
<S> <C>
VIP II Asset Manager Portfolio -- IC Shares VIP III Growth Opportunities
VIP II Asset Manager Growth Portfolio -- IC Shares Portfolio -- IC Shares
VIP II Contrafund Portfolio -- IC Shares
VIP II Index 500 Portfolio -- IC Shares
VIP II Investment Grade Bond Portfolio -- IC Shares
</TABLE>
Fred Alger Management, Inc. is the investment adviser for the four
portfolios of The Alger American Fund and is paid fees for its services by
The Alger American Fund Portfolios. Fidelity Management & Research Company
is the investment adviser for Fidelity Variable Insurance Products Fund
(VIP), Variable Insurance Products Fund II (VIP II) and Variable Insurance
Products Fund III (VIP III) and is paid for its services by the VIP, VIP II
and VIP III Portfolios. Pilgrim Advisors, Inc., an affiliate of Northern
Life, is the investment adviser for the five portfolios offered through the
Northstar Galaxy Trust and is paid for its services by the Northstar Funds.
Janus Capital Corporation is the investment adviser for the four portfolios
of Janus Aspen Series and is paid fees for its services by the Janus Aspen
Series Portfolios. Neuberger Berman Management is the investment manager
for the three portfolios of the Advisers Management Trust and is paid fees
for its services by the Neuberger Berman Advisers Management Trust Funds.
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.
Fidelity VIP II Contrafund Portfolio is a registered trademark of FMMR
Corporation.
On July 29, 1998, Northstar Variable Trust Portfolio changed its name to
Northstar Galaxy Trust Portfolios (GT). Also on July 29, 1998, the
Northstar Variable Trust Growth Portfolio changed its name to Northstar
Galaxy Trust Growth + Value Portfolio.
F-12
<PAGE> 77
NORTHERN LIFE
SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. ORGANIZATION, CONTINUED:
On November 9, 1998, Northstar Galaxy Trust Income and Growth Portfolio
changed its name to Northstar Galaxy Trust Emerging Growth Portfolio.
On January 4, 1999, sub-accounts investing in Neuberger Berman Advisers
Management Trust Socially Responsive Portfolio and Fidelity VIP III Growth
Opportunities Portfolio were made available to the Account.
On April 30, 1999, sub-accounts investing in Fidelity VIP II Investment
Grade Bond Portfolio were made available to the Account. Also on April 30,
1999, Northstar Galaxy Trust Multi-Sector Bond Portfolio changed its name
to Northstar Galaxy Trust Research Enhanced Index Portfolio and Fidelity
VIP Overseas Portfolio and Fidelity VIP II Asset Manager Portfolio were
closed to new premium and transfers.
On November 1, 1999, Northstar Investment Management Corporation changed
its name to Pilgrim Advisors, Inc. Substantially the same personnel are
performing the investment advisory services on behalf of Pilgrim Advisors,
Inc.
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.
VARIABLE ANNUITY RESERVES:
The amount of the reserves for contracts in the distribution year is
determined by actuarial assumptions which meet statutory requirements.
Gains or losses resulting from actual mortality experience, the full
responsibility for which is assumed by Northern Life, are offset by
transfers to or from Northern Life.
3. FEDERAL INCOME TAXES:
Northern Life is taxed as a life insurance company under the Internal
Revenue Code of 1986, as amended (the "Code"). Since the Separate Account
is not a separate entity from Northern Life, and its operations form a part
of Northern Life, it is not taxed separately as a "regulated investment
company" under Sub-chapter M of the Code. Under existing Federal income tax
law, investment income of the Separate Account, to the extent that it is
applied to increase reserves under a contract, is not taxed and may be
compounded through reinvestment without additional tax to Northern Life.
4. CONTRACT CHARGES:
No deduction is made for a sales charge from the purchase payments made for
the contracts. However, on certain surrenders Northern Life will deduct
from the contract value a surrender charge as set forth in the contract.
Certain charges are made by Northern Life to Contract Owners' Variable
Account Contract Value in accordance with the terms of the contracts. These
charges may include: an annual contract charge of $30 from each contract on
the anniversary date or at the time of surrender, if surrender is at a time
other than the anniversary date; a daily administrative charge; and a daily
charge for mortality and expense risk assumed by Northern Life.
F-13
<PAGE> 78
NORTHERN LIFE
SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. CONTRACT CHARGES, CONTINUED:
Various states and other governmental units levy a premium tax on annuity
contracts issued by insurance companies. If the owner of a contract lives
in a state which levies such a tax, Northern Life may deduct the amount of
the tax from the purchase payments received or the value of the contract at
annuitization.
5. INVESTMENTS:
For the year ended December 31, 1999, investment activity in the funds was
as follows (in thousands):
<TABLE>
<CAPTION>
COST OF PROCEEDS
INVESTING FUND PURCHASES FROM SALES
-------------- --------- ----------
<S> <C> <C>
Fidelity's VIP:
VIP Equity-Income Portfolio -- IC Shares.................. $ 10,978 $ 4,678
VIP Growth Portfolio -- IC Shares......................... 24,022 509
VIP Money Market Portfolio -- IC Shares................... 14,950 8,351
VIP Overseas Portfolio -- IC Shares....................... 528 3,438
Fidelity's VIP II:
VIP II Asset Manager Portfolio -- IC Shares............... 1,979 3,106
VIP II Asset Manager Growth Portfolio -- IC Shares........ 7,718 2,348
VIP II Contrafund Portfolio -- IC Shares.................. 26,910 1,636
VIP II Index 500 Portfolio -- IC Shares................... 47,016 13,077
VIP II Investment Grade Bond Portfolio -- IC Shares....... 2,542 362
Fidelity's VIP III:
VIP III Growth Opportunities Portfolio -- IC Shares....... 3,655 345
The Alger American Fund:
Alger American Small Capitalization Portfolio............. 4,155 1,176
Alger American Growth Portfolio........................... 38,063 4,760
Alger American MidCap Growth Portfolio.................... 5,793 2,559
Alger American Leveraged AllCap Portfolio................. 33,798 14,315
Janus Aspen Series:
Aggressive Growth Portfolio............................... 17,283 1,495
Growth Portfolio.......................................... 18,115 464
International Growth Portfolio............................ 4,954 2,340
Worldwide Growth Portfolio................................ 29,152 2,363
Neuberger Berman Advisers Management Trust:
AMT Limited Maturity Bond Portfolio....................... 3,092 934
AMT Partners Portfolio.................................... 3,201 4,033
AMT Socially Responsive Portfolio......................... 402 45
Northstar Galaxy Trust:
Northstar Emerging Growth Portfolio....................... 21,133 11,871
Northstar Growth + Value Portfolio........................ 25,959 13,206
Northstar International Value Portfolio................... 3,741 788
Northstar Research Enhanced Index Portfolio............... 17,897 3,300
Northstar High Yield Bond Portfolio....................... 6,081 5,923
OCC Accumulation Trust:
Equity Portfolio.......................................... 1,315 567
Global Equity Portfolio................................... 1,892 1,560
Managed Portfolio......................................... 8,017 8,164
Small Cap Portfolio....................................... 1,122 642
-------- --------
Total.................................................. $385,463 $118,355
======== ========
</TABLE>
F-14
<PAGE> 79
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
STATUTORY BASIS FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
AND
INDEPENDENT AUDITORS' REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-16
STATUTORY BASIS FINANCIAL STATEMENTS:
Statutory Basis Statements of Admitted Assets,
Liabilities, Surplus and Other Funds................... F-17
Statutory Basis Statements of Operations.................. F-18
Statutory Basis Statements of Changes in Capital and
Surplus................................................ F-19
Statutory Basis Statements of Cash Flows.................. F-20
Notes to Statutory Basis Financial Statements............. F-21
</TABLE>
F-15
<PAGE> 80
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholder
Northern Life Insurance Company
(A Wholly Owned Subsidiary of ReliaStar Life Insurance Company)
Seattle, Washington
We have audited the accompanying statutory basis statements of admitted
assets, liabilities, surplus and other funds of Northern Life Insurance Company
(the Company) as of December 31, 1999 and 1998, and the related statutory basis
statements of operations, changes in capital and surplus, and cash flows for the
years then ended. These statutory basis financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these statutory basis 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 statutory basis financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statutory basis financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statutory basis financial statement presentation. We believe our audits provide
a reasonable basis for our opinion.
As described more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Insurance Department of the State of Washington, which
practices differ from generally accepted accounting principles. The effects of
such financial statements of the differences between the statutory basis of
accounting and generally accepted accounting principles are described in Note
10.
In our opinion, because of the effects of the matters discussed in the
preceding paragraph, the financial statements do not present fairly, in
accordance with generally accepted accounting principles, the financial position
of the Company as of December 31, 1999 and 1998, or the results of its
operations or its cash flows for the years then ended.
In our opinion, such statutory basis financial statements present fairly,
in all material respects, the admitted assets, liabilities, and surplus and
other funds of the Company as of December 31, 1999 and 1998, and the results of
its operations and its cash flows for the years then ended, on the basis of
accounting described in Note 1.
Minneapolis, Minnesota
March 22, 2000
F-16
<PAGE> 81
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
STATUTORY BASIS STATEMENTS OF ADMITTED ASSETS, LIABILITIES,
SURPLUS AND OTHER FUNDS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Bonds, at NAIC Value (Market: 1999, $4,580.0; 1998,
$4,675.9)................................................. $4,702.3 $4,503.2
Stocks, at NAIC Value (Cost: 1999, $16.8; 1998, $18.5)...... 16.3 18.5
Mortgage Loans on Real Estate............................... 1,042.3 978.5
Real Estate................................................. .4 --
Policy Loans................................................ 386.9 354.0
Cash on Hand and on Deposit................................. 21.8 8.8
Short-Term Investments...................................... 23.9 19.0
Other Invested Assets....................................... 36.7 45.9
-------- --------
TOTAL CASH AND INVESTED ASSETS.............................. 6,230.6 5,927.9
Reinsurance Recoverable..................................... 1.9 .9
Life Insurance Premiums and Annuity Considerations Deferred
and Uncollected........................................... 7.7 5.9
Investment Income Due and Accrued........................... 73.4 73.9
Other Assets................................................ 3.0 2.0
From Separate Account Statement............................. 778.5 377.6
-------- --------
TOTAL ADMITTED ASSETS....................................... $7,095.1 $6,388.2
======== ========
LIABILITIES, SURPLUS AND OTHER FUNDS
Aggregate Reserves for Policies and Contracts............... $5,808.3 $5,564.0
Policy and Contract Claims.................................. 2.5 4.9
Policyholders' Dividends.................................... 10.9 10.7
Liability for Premiums and Other Deposit Funds.............. 1.8 1.0
Other Policy and Contract Liabilities....................... 12.4 11.9
Commissions Payable......................................... 3.8 1.8
General Expenses Due or Accrued............................. 6.3 8.3
Taxes, Licenses, and Fees Due or Accrued, Excluding Federal
Income Taxes.............................................. (.2) .4
Federal Income Taxes Due or Accrued......................... 7.4 (4.5)
Unearned Investment Income.................................. 1.6 1.6
Asset Valuation Reserve..................................... 58.9 62.1
Other Liabilities........................................... 37.3 22.6
From Separate Account Statement............................. 778.5 377.6
-------- --------
TOTAL LIABILITIES........................................... 6,729.5 6,062.4
-------- --------
SURPLUS AND OTHER FUNDS
Common Capital Stock........................................ 2.5 1.5
Gross Paid In and Contributed Surplus....................... 125.5 126.5
Unassigned Surplus.......................................... 237.6 197.8
-------- --------
TOTAL SURPLUS AND OTHER FUNDS............................... 365.6 325.8
-------- --------
TOTAL LIABILITIES, SURPLUS AND OTHER FUNDS.................. $7,095.1 $6,388.2
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory basis financial
statements.
F-17
<PAGE> 82
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
STATUTORY BASIS STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1999 1998
--------- ---------
(IN MILLIONS)
<S> <C> <C>
REVENUES
Premiums and Annuity Considerations......................... $ 84.7 $ 86.9
Deposit-Type Funds.......................................... 766.7 716.6
Considerations for Supplementary Contracts and Dividend
Accumulations............................................. 12.8 12.5
Net Investment Income....................................... 449.2 428.8
Other Income................................................ 27.0 9.1
-------- --------
TOTAL REVENUES.............................................. 1,340.4 1,253.9
-------- --------
BENEFITS AND EXPENSES
Death Benefits.............................................. 13.4 16.1
Matured Endowments.......................................... .1 .2
Annuity Benefits............................................ 73.2 48.5
Disability and Accident and Health Benefits................. -- .1
Surrender Benefits and Other Fund Withdrawals............... 566.0 503.1
Interest on Policy or Contract Funds........................ .2 .1
Payments on Supplementary Contracts and of Dividend
Accumulations............................................. 13.3 11.5
Change in Reserve for Policies and Contracts................ 244.2 331.4
Change in Reserve for Supplementary Contracts Without Life
Contingencies and for Dividend and Coupon Accumulations... .3 1.8
-------- --------
Total Benefits.............................................. 910.7 912.8
Commissions................................................. 63.2 56.8
General Insurance Expenses.................................. 65.9 57.6
Insurance Taxes, Licenses and Fees, Excluding Federal Income
Taxes..................................................... 3.0 4.2
Other Disbursements......................................... 1.3 2.6
Net Transfers to Separate Accounts.......................... 242.8 188.3
-------- --------
TOTAL BENEFITS AND EXPENSES................................. 1,286.9 1,222.3
-------- --------
Net Gain from Operations before Dividends to Policyholders
and Federal Income Taxes.................................. 53.5 31.6
Dividends to Policyholders.................................. .7 .5
-------- --------
Net Gain from Operations before Federal Income Taxes........ 52.8 31.1
Federal Income Taxes (Excluding Taxes on Capital Losses).... 7.7 8.8
-------- --------
Net Gain from Operations before Realized Capital Losses..... 45.1 22.3
Net Realized Capital Losses, Net of Tax..................... (8.9) (3.0)
-------- --------
NET INCOME.................................................. $ 36.2 $ 19.3
======== ========
</TABLE>
The accompanying notes are an integral part of the statutory basis financial
statements.
F-18
<PAGE> 83
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
STATUTORY BASIS STATEMENTS OF CHANGES IN
CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
CAPITAL AND SURPLUS, BEGINNING OF YEAR...................... $325.8 $308.4
Net Income.................................................. 36.2 19.3
Change in Net Unrealized Capital Gains and Losses........... (4.6) (.5)
Change in Non-Admitted Assets and Related Items............. 5.0 2.9
Change in Asset Valuation Reserve........................... 3.2 (4.3)
------ ------
CAPITAL AND SURPLUS, END OF YEAR............................ $365.6 $325.8
====== ======
</TABLE>
The accompanying notes are an integral part of the statutory basis financial
statements.
F-19
<PAGE> 84
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
STATUTORY BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1999 1998
--------- ---------
(IN MILLIONS)
<S> <C> <C>
CASH FROM OPERATIONS
Premiums and Annuity Considerations......................... $ 83.0 $ 87.0
Deposit-Type Funds.......................................... 766.7 716.6
Other Premiums, Considerations and Deposits................. 12.8 12.4
Allowances and Reserve Adjustments Received on Reinsurance
Ceded..................................................... .1 .1
Investment Income Received.................................. 446.7 428.6
Fees from Separate Accounts................................. 6.8 2.9
Other Income Received....................................... 16.5 1.3
Life and Accident and Health Claims Paid.................... (16.8) (14.9)
Surrender Benefits and Other Fund Withdrawals Paid.......... (565.9) (503.0)
Other Benefits to Policyholders Paid........................ (86.8) (60.4)
Commissions, Other Expenses and Taxes Paid.................. (133.8) (118.2)
Net Transfers to Separate Accounts.......................... (242.8) (188.3)
Dividends to Policyholders Paid............................. (.7) (.5)
Federal Income Taxes Received (Paid)........................ 2.6 (8.3)
--------- ---------
Net Cash From Operations.................................... 288.4 355.3
--------- ---------
CASH FROM INVESTMENTS
Proceeds from Investments Sold, Matured or Repaid
Bonds..................................................... 923.7 613.8
Stocks.................................................... 1.9 12.2
Mortgage Loans............................................ 130.6 291.5
Real Estate............................................... -- .6
Other Invested Assets..................................... 9.5 31.6
Miscellaneous Proceeds.................................... 3.0 1.3
Taxes on Capital Gains and Losses........................... (2.6) (11.5)
--------- ---------
Total Investment Proceeds......................... 1,066.1 939.5
--------- ---------
Cost of Investments Acquired
Bonds..................................................... (1,122.7) (963.2)
Stocks.................................................... -- (25.2)
Mortgage Loans............................................ (192.9) (273.6)
Real Estate............................................... (.4) --
Other Invested Assets..................................... (5.1) (15.7)
Miscellaneous Applications................................ (1.9) (4.3)
--------- ---------
Total Investments Acquired........................ (1,323.0) (1,282.0)
--------- ---------
Net Change in Policy Loans and Premium Notes................ (32.9) (30.3)
--------- ---------
Net Cash From Investments................................... (289.8) (372.8)
--------- ---------
CASH FROM FINANCING AND MISCELLANEOUS SOURCES
Other Sources (Applications), Net........................... 19.3 (.6)
--------- ---------
Net Cash from Financing and Miscellaneous Sources........... 19.3 (.6)
--------- ---------
Net Change in Cash and Short-Term Investments............... 17.9 (18.1)
Cash and Short-Term Investments at Beginning of Year........ 27.8 45.9
--------- ---------
Cash and Short-Term Investments at End of Year.............. $ 45.7 $ 27.8
========= =========
</TABLE>
The accompanying notes are an integral part of the statutory basis financial
statements.
F-20
<PAGE> 85
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS
Northern Life Insurance Company (the Company) is principally engaged in the
business of providing individual life insurance and annuities. The Company
operates primarily in the United States and is authorized to conduct business in
all states except New York.
BASIS OF PRESENTATION
The accompanying statutory basis financial statements of the Company have
been prepared in conformity with accounting practices prescribed or permitted by
the National Association of Insurance Commissioners (NAIC) and the State of
Washington. Such statutory insurance accounting practices differ from generally
accepted accounting principles and are intended to reflect a more conservative
perspective by, for example, requiring the immediate recognition of acquisition
costs, providing only for income taxes currently payable, recording assets
considered non-admitted as a direct adjustment of surplus and requiring an asset
valuation reserve. The amounts in these financial statements pertain to the
entire business of the Company including, as appropriate, its Separate Account
business.
All outstanding shares of the Company are owned by ReliaStar Life Insurance
Company (ReliaStar Life), a Minnesota domiciled insurance company. ReliaStar
Life is, in turn, a wholly owned subsidiary of ReliaStar Financial Corp.
(ReliaStar), a holding and management company domiciled in Delaware.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
practices prescribed or permitted by the NAIC and the State of Washington
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
During 1998, ReliaStar 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 affects approximately 250 positions at the Company's Seattle service
center operation. Estimated costs recorded by the Company related to this plan
totaled $3.8 million (pre-tax) and were primarily for employee-related
termination and non-cancelable lease contract costs associated with vacated
facilities. The 1999 transition of annuity operations to the new center was
completed as originally scheduled.
INVESTMENTS
Security investments are valued in accordance with the requirements of the
NAIC, as follows:
Bonds not backed by other loans at amortized cost using the interest
method; loan-backed bonds and structured securities at amortized cost using the
interest method including anticipated prepayments at the date of purchase.
Significant changes in estimated cash flows from the original purchase
assumptions are accounted for using the interest method. Prepayment assumptions
for loan-backed bonds and structured securities were obtained from vendor
provided prepayment models, broker-dealer survey values or internal estimates.
These assumptions are consistent with the current interest rate and economic
environment. The retrospective adjustment method is used to value all
loan-backed bonds and structured securities.
Preferred stocks in good standing are valued at cost, which approximates
market value.
F-21
<PAGE> 86
Common stocks are carried at estimated market value.
Mortgage loans on real estate are carried at amortized cost.
Real estate acquired in satisfaction of debt is stated at the lower of the
appraised value of the asset foreclosed, or book value of the mortgage at the
date of foreclosure.
Policy loans are valued at the aggregate unpaid balance.
Short-term investments are carried at amortized cost, which approximates
market value.
Other invested assets, primarily limited partnerships and call options, are
carried on the cost or equity basis.
Derivative instruments, such as interest rate swaps, are valued in
accordance with the NAIC Accounting Practices and Procedures manual and the
Purposes and Procedures manual of the Securities Valuation Office. All
derivative instruments are valued consistently with the hedged items. The
Company recognizes investment income on interest rate swap agreements whereby
the difference between the amounts paid and amounts received or accrued on
interest rate swap agreements are reflected in net investment income.
All other security investments are presented at values prescribed by or
deemed acceptable to the NAIC, generally market value.
The Company uses straight-line depreciation for all of its depreciable
assets, with useful lives varying depending on the asset.
Realized investment gains and losses on sales of securities are included in
the determination of net income and are determined on the specific
identification method. Unrealized investment gains and losses are accounted for
as direct increases or decreases in surplus. Income tax effects of unrealized
gains and losses are not recognized.
Due and accrued income is excluded from investment income on mortgage
loans, bonds and short-term investments where interest is past due more than 90
days. The total amount excluded at December 31, 1999 and 1998, was $.9 million
and $1.7 million, respectively.
SEPARATE ACCOUNTS
The Company operates separate accounts. The assets and liabilities of the
separate accounts are primarily related to variable annuity contracts and
represent policyholder-directed funds that are separately administered. The
assets (primarily 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 market value.
NONADMITTED ASSETS
Assets of the Company designated as "nonadmitted," primarily furniture and
equipment, are excluded from admitted assets. The change in such assets, net of
depreciation, is reflected as a direct increase or decrease in surplus.
AGGREGATE RESERVES FOR POLICIES AND CONTRACTS
Reserves for future policy and contract benefits for life insurance are
computed by the net level premium and preliminary term and other modified
reserve methods on the basis of interest rates and mortality assumptions
prescribed by state regulatory authorities. Annuity reserves are computed using
interest rates and mortality assumptions where needed as prescribed by state
regulatory authorities. Waiver of premium reserves were primarily based on the
1952 Disability Study (Period 2) combined with 1958 CSO using 3% interest.
The Company waives deduction of deferred fractional premiums upon the death
of the insured and returns any portion of the final premium beyond the date of
death. Surrender values are not promised in excess of the legally computed
reserves.
F-22
<PAGE> 87
Extra premiums in addition to the basic gross premium are charged for
substandard lives. Mean reserves are determined by computing the regular mean
reserves and holding in addition the unearned portion of the extra premium
charge for the year.
All substandard policies except Adjustable Life and Universal Life are
valued as standard plus an amount determined by valuation representing the
excess amount of the multiple table reserves over the standard reserves. All
Adjustable Life and Universal Life policies are valued directly on a multiple
table basis.
As of December 31, 1999, the Company had insurance in force of $63.6
million for which the gross premiums are less than the net premiums according to
the standard valuation set by the State of Washington. Reserves to cover this
insurance totaled $.9 million at December 31, 1999.
Of the total net annuity actuarial reserves and deposit fund liabilities at
December 31, 1999, approximately 48% were subject to discretionary
withdrawal -- with adjustment; approximately 49% were subject to discretionary
withdrawal -- without adjustment; and approximately 3% were not subject to
discretionary withdrawal provisions.
INCOME TAXES DUE AND ACCRUED
The provision for income taxes is based upon income that is estimated to be
currently taxable.
PREMIUM REVENUE AND BENEFITS TO POLICYHOLDERS
Premiums on life insurance contracts are generally recognized as revenue
over the premium paying period of the contract. Contract benefits are recognized
over the life of the contract by providing reserves for future policy and
contract benefits.
POLICY ACQUISITION COSTS
Costs of acquiring new business are charged to operating expenses when
incurred.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
year presentation.
F-23
<PAGE> 88
NOTE 2. INVESTMENTS
BONDS
The statement value and estimated market values of investments in bonds by
type of investment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------
GROSS UNREALIZED ESTIMATED
STATEMENT ----------------- MARKET
VALUE(1) GAINS (LOSSES) VALUE
--------- ----- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
United States Government and Government Agencies and
Authorities........................................ $ 3.1 -- -- $ 3.1
States, Municipalities and Political Subdivisions.... 13.2 $ .5 $ (.2) 13.5
Foreign Governments.................................. 19.2 .1 -- 19.3
Public Utilities..................................... 160.1 1.6 (3.1) 158.6
Corporate Securities................................. 2,885.6 20.3 (90.1) 2,815.8
Mortgage-Backed/Structured Finance................... 1,621.1 4.7 (56.1) 1,569.7
-------- ----- ------- --------
TOTAL...................................... $4,702.3 $27.2 $(149.5) $4,580.0
======== ===== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
GROSS UNREALIZED ESTIMATED
STATEMENT ------------------ MARKET
VALUE(1) GAINS (LOSSES) VALUE
--------- ------ -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
United States Government and Government Agencies and
Authorities....................................... $ 3.6 $ .1 -- $ 3.7
States, Municipalities and Political Subdivisions... 21.8 1.3 -- 23.1
Foreign Governments................................. 33.5 3.9 -- 37.4
Public Utilities.................................... 169.5 10.1 $ (.2) 179.4
Corporate Securities................................ 2,973.8 145.2 (18.2) 3,100.8
Mortgage-Backed/Structured Finance.................. 1,301.0 33.9 (3.4) 1,331.5
-------- ------ ------ --------
TOTAL..................................... $4,503.2 $194.5 $(21.8) $4,675.9
======== ====== ====== ========
</TABLE>
- ------------------------
(1) Statement value at December 31, 1999 and 1998, includes unrealized losses
related to NAIC 6 rated bonds of $6.7 million and $2.4 million,
respectively.
F-24
<PAGE> 89
The statement value and estimated market value of bonds, 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, 1999
----------------------
ESTIMATED
STATEMENT MARKET
VALUE VALUE
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Maturing in:
One Year or Less....................................... $ 89.0 $ 89.2
One to Five Years...................................... 1,321.9 1,307.9
Five to Ten Years...................................... 1,205.8 1,164.1
Ten Years or Later..................................... 464.5 449.1
Mortgage-Backed/Structured Finance..................... 1,621.1 1,569.7
-------- --------
TOTAL............................................. $4,702.3 $4,580.0
======== ========
</TABLE>
The estimated market values for the actively traded marketable bonds are
determined based upon quoted market prices. The estimated market values for
marketable bonds without an active market are obtained through several
commercial pricing services, which provide the estimated market values.
Estimated market values of privately placed bonds are determined utilizing a
matrix-based pricing model. The model considers the current level of risk-free
interest rates, current corporate spreads, the credit quality of the issuer and
cash flow characteristics of the security. Using this data, the model generates
market values which the Company considers reflective of the estimated market
value of each privately placed bond.
At December 31, 1999, the largest industry concentration of the private
placement portfolio was consumer noncyclical where 15.7% of the portfolio was
invested, and the largest industry concentration of the marketable bond
portfolio was mortgage-backed/structured finance, where 43.9% of the portfolio
was invested.
STOCKS
The cost and statement value of stocks were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1999 1998
----- -----
(IN MILLIONS)
<S> <C> <C>
Cost........................................................ $16.8 $18.5
Gross Unrealized Gains...................................... .3 .2
Gross Unrealized Losses..................................... (.8) (.2)
----- -----
STATEMENT VALUE............................................. $16.3 $18.5
===== =====
</TABLE>
MORTGAGE LOANS ON REAL ESTATE
The maximum and minimum lending rates for all mortgage loans issued during
1999 were 8.75% and 5.50%.
During 1999 and 1998, the Company did not reduce interest rates of
outstanding mortgage loans.
F-25
<PAGE> 90
The maximum percentage of any one loan to the value of security at the time
of the loan was 80%. Fire insurance is required on all properties covered by
mortgage loans at least equal to the excess of the loan over the maximum loan
which would be permitted by law on the land without buildings. As of December
31, 1999, the Company held mortgages with a statement value of $.3 million which
had $33,127 of interest more than one year overdue.
At December 31, 1999, the largest geographic concentration of commercial
mortgage loans was in the Midwest region of the United States, where
approximately 35.4% of the commercial mortgage loan portfolio was invested.
INVESTMENT INCOME
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Bonds....................................................... $348.8 $329.5
Preferred Stocks............................................ 1.3 .8
Mortgage Loans on Real Estate............................... 77.3 75.6
Real Estate................................................. -- .1
Policy Loans................................................ 20.8 18.8
Short-Term Investments...................................... 2.5 3.2
Derivative Instruments...................................... 3.4 3.0
Other....................................................... 2.5 5.8
------ ------
Gross Investment Income..................................... 456.6 436.8
Investment Expenses......................................... 7.4 8.0
------ ------
NET INVESTMENT INCOME....................................... $449.2 $428.8
====== ======
</TABLE>
F-26
<PAGE> 91
REALIZED INVESTMENT GAINS AND LOSSES
Net realized capital gains (losses) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------
1999 1998
----- -----
(IN MILLIONS)
<S> <C> <C>
Bonds
Gross Gains............................................... $ 9.7 $12.0
Gross Losses.............................................. (8.5) (2.9)
Preferred Stocks............................................ -- (1.0)
Common Stocks............................................... -- .1
Mortgage Loans on Real Estate............................... 1.6 1.2
Real Estate................................................. -- (.1)
Other....................................................... (4.0) .3
----- -----
Net Pretax Realized Capital Gains (Losses).................. (1.2) 9.6
Income Tax Expense.......................................... (4.3) (6.9)
Net Pretax Realized Capital Gains Transferred to
Interest Maintenance Reserve (IMR)........................ (5.2) (8.8)
Income Tax Expense Transferred to IMR....................... 1.8 3.1
----- -----
NET REALIZED CAPITAL LOSSES, NET OF TAX..................... $(8.9) $(3.0)
===== =====
</TABLE>
DERIVATIVE INSTRUMENTS
The Company has an established program prescribing the use of derivatives
in its asset/liability management activity. The investment policy of the Company
expressly precludes the use of such instruments for speculative purposes. The
policy details permissible uses and instruments and contains accounting and
management controls designed to assure compliance with these policies. The
Company is not a party to leveraged derivatives.
The insurance liabilities of the Company are sensitive to changes in market
interest rates. The Company has established procedures for evaluating these
liabilities and structures investment asset portfolios with compatible
characteristics. Investment assets are selected which provide yield, cash flow
and interest rate sensitivities appropriate to support the insurance products.
The Company uses interest rate swaps and call options as part of this
asset/liability management program. The Company has acquired a significant
amount of certain shorter duration investments, such as floating rate or
adjustable rate investments. Acquisition of these assets shortens the duration
of an asset portfolio. The Company uses interest rate swaps to extend the
duration of these portfolios as an alternative to purchasing longer duration
investments. The call options are based on the S&P 500 Index and are used to
hedge the Company's equity indexed annuity product. On the termination date the
counterparty will make one payment to the Company based on the level of the
index and strike price.
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to derivative instruments, but it does not
expect any counterparties to fail to meet their obligations given their high
credit ratings. In addition, the Company has established an issuer holder
limitation program whereby the maximum credit exposure to a single issuer is
established based upon the credit rating of the issuer and the structure of the
investment. The positive market value of swap positions are included in the
computation of the maximum issuer limitation.
F-27
<PAGE> 92
NOTE 3. INCOME TAXES
The Company's 1999 federal income tax return will be consolidated with the
following entities: ReliaStar Financial Corp., ReliaStar Life Insurance Company,
Norlic, Inc., NWNL Benefits Corporation, NWNL Health Management Corp., ReliaStar
Investment Research, Inc., Washington Square Securities, Inc., Pilgrim Holdings,
Inc., Pilgrim Advisors, Inc., Northstar Distributors, Inc., Northstar
Administrators Corporation, Pilgrim Funding, Inc., International Risks, Inc.,
Northeastern Corporation, Successful Money Management Seminars, Inc., PrimeVest
Financial Services, Inc., PrimeVest Mortgage, Inc., PrimeVest Insurance Agency
of Alabama, Inc., PrimeVest Insurance Agency of New Mexico, Inc., PrimeVest
Insurance Agency of Oklahoma, Inc., PrimeVest Insurance Agency of Texas, Inc.,
PrimeVest Insurance Agency of Ohio, Inc., Branson Insurance Agency, Inc.,
Granite Investment Services, Inc., Washington Square Insurance Agency, Inc.,
(Massachusetts), Washington Square Insurance Agency, Inc., (Texas), Washington
Square Insurance Agency, Inc., (Ohio), Washington Square Insurance Agency, Inc.,
(New Mexico), ReliaStar Bancshares, Inc., ReliaStar Bank, ReliaStar Investment
Services, Inc., ReliaStar Managing Underwriters, Inc., ReliaStar Payroll Agent,
Inc., Financial Northeastern Securities, Inc., Financial Northeastern
Corporation, FNC Insurance Services, Inc., Pilgrim Investment, Inc., Express
America T.C. Corp, EAMC Liquidation Corp., and Pilgrim Financial, Inc.
The method by which the total consolidated federal income tax for each
entity is allocated to each of these companies is subject to a written agreement
approved by the Company's Board of Directors. Allocation is based on separate
return calculations 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.
Federal income tax regulations allowed certain special deductions for 1983
and prior years which are accumulated in a memorandum tax account designated as
"policyholders' surplus." Generally, this policyholders' surplus account will
become subject to tax at the then current rates only if the accumulated balance
exceeds certain maximum limitations or if certain cash distributions are deemed
to be paid out of the account. At December 31, 1999, the Company had accumulated
approximately $5.5 million in its separate policyholders' surplus account.
The difference between the U.S. federal income tax rate and the Company's
effective tax rate is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------
1999 1998
---- -----
<S> <C> <C>
Statutory Tax Rate.......................................... 35.0% 35.0%
Accrual of Market Discount on Bonds......................... (6.9) (12.1)
Prior Year Provision True-Up................................ (9.8) 1.1
IMR Amortization............................................ (2.0) (2.6)
Other....................................................... (1.8) 6.9
---- -----
EFFECTIVE TAX RATE.......................................... 14.5% 28.3%
==== =====
</TABLE>
Cash paid to ReliaStar for federal income taxes was $19.9 million during
1998. No cash was paid for federal income taxes during 1999.
NOTE 4. EMPLOYEE BENEFIT PLANS
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 ReliaStar
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
F-28
<PAGE> 93
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.
In addition, the Success Sharing Plan has a 401(k) feature whereby
participants may elect to contribute a percentage of their eligible earnings to
the plan. Beginning in 1999, the Company matched participants' 401(k)
contributions up to 6% of eligible earnings.
Costs charged to expense for the Success Sharing Plan were $1.3 million and
$1.2 million for the years ended December 31, 1999 and 1998, respectively.
PENSION AND OTHER POSTRETIREMENT BENEFITS
Pension Plans -- The Company participates in funded and unfunded
noncontributory defined benefit retirement plans sponsored by an affiliate which
provide benefits to employees upon retirement (Pension Plans). Effective
December 31, 1998, the qualified defined benefit retirement plan was amended to
suspend the accrual of additional benefits for future services. Eligible
employees 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.
At January 1, 1999, the date of the most recent actuarial valuation, the
plan accumulated benefit obligation/present value of accrued benefits and the
amount of vested benefits for the Pension Plans was $188.0 million and $183.5
million, respectively, based on an assumed 8.5% interest rate. The fair value of
plan assets was $251.7 million as of January 1, 1999 and included in plan assets
are 1.2 million shares of ReliaStar common stock with a fair value of $56.9
million as of January 1, 1999.
A pension credit totaling $.2 million and $.6 million for the years ended
December 31, 1999 and 1998, respectively, was allocated to the Company for its
portion of the cost of the Pension Plans.
Postretirement Benefits -- Through a plan sponsored by an affiliate, the
Company provides certain health care and life insurance benefits to retired
employees and their eligible dependents (Postretirement Plan). 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.
The amount of accumulated benefits obligation for retirees and vested
employees covered under the Postretirement Plan as of December 31, 1999 was
$11.1 million and the amount of accumulated benefits obligation for non-vested
employees as of December 31, 1999 was $2.5 million. The discount rate used in
determining the postretirement benefit obligation as of December 31, 1999 was
7.5% and health care cost trend rate used was 5.0%. A one-percentage point
increase in the assumed health care cost trend rate would not have a significant
impact on the postretirement benefit obligation or the service and interest cost
components of annual expense.
A credit totaling $.1 million was allocated to the Company for its portion
of the cost of the Postretirement Plan for the year ended December 31, 1999.
Expense totaling $.1 million was allocated to the Company for its portion of the
cost of the Postretirement Plan for the year ended December 31, 1998.
STOCK INCENTIVE PLAN
Officers and key employees of the Company participate in the stock
incentive plan of ReliaStar. ReliaStar applies Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its plans.
Accordingly, no compensation expense for stock-based compensation plans has been
allocated to the Company.
NOTE 5. CAPITAL AND SURPLUS
The ability of the Company to pay cash dividends to its parent is
restricted by law or subject to approval of the insurance regulatory authorities
of Washington. These authorities recognize only statutory accounting practices
for determining the ability of an insurer to pay dividends to its shareholders.
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<PAGE> 94
Under the laws of the State of Washington, the Company can pay dividends to
shareholders only from earned statutory surplus, and the distribution in any
year is limited, by law, to the greater of the prior year's net income or 10% of
prior year-end statutory surplus.
Total unassigned surplus at December 31, 1999 was $237.6 million and has no
restrictions, except as described above.
NOTE 6. REINSURANCE
The Company is a member of reinsurance associations established for the
purpose of ceding the excess of life insurance over retention limits.
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, 1999 and 1998. The Company evaluates
the financial condition of its reinsurers and monitors concentrations of credit
risk to minimize its exposure to significant losses from reinsurer insolvencies.
The Company's retention limit is $400,000 per insurable life for individual
coverage.
As of December 31, 1999, $.4 billion of life insurance in force was ceded
to other companies of which 57% (based on inforce) has been ceded to three
unaffiliated reinsurers and an additional 8% (based on inforce) has been ceded
to ReliaStar Life. In addition, the Company had assumed $.7 billion of life
insurance in force as of December 31, 1999, from ReliaStar Life.
The effect of reinsurance on premiums and recoveries is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------
1999 1998
----- -----
(IN MILLIONS)
<S> <C> <C>
Direct Premiums............................................. $84.0 $86.8
Reinsurance Assumed......................................... 3.6 2.9
Reinsurance Ceded........................................... (2.9) (2.8)
----- -----
NET PREMIUMS................................................ $84.7 $86.9
===== =====
REINSURANCE RECOVERIES...................................... $ 2.3 $ 1.6
===== =====
</TABLE>
NOTE 7. RELATED PARTY TRANSACTIONS
The Company maintains intercompany loan agreements with its parent company.
There were no loans taken from or made to the parent company during 1999 and
1998. In addition, there were no intercompany loans outstanding at December 31,
1999 or 1998.
The Company and its affiliates have entered into agreements whereby they
provide certain management, administrative, legal and other services to each
other. The net amounts billed to the Company were of $20.5 million and $18.0
million in 1999 and 1998, 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 the Company's affiliates.
NOTE 8. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is a defendant in a number of lawsuits arising out of the
normal course of its business. Some of the claims seek to be granted class
action status and many of the claims seek both compensatory and punitive
damages. In the opinion of management, the ultimate resolution of such
litigation will not have a
F-30
<PAGE> 95
material adverse impact to the financial position of the Company. It should be
noted, however, that a number of financial services companies have been
subjected to significant awards in connection with punitive damages claims and
the Company can make no assurances that it will not be subjected to such an
award.
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 and equity prices. These financial instruments
include commitments to extend credit, interest rate swaps and equity indexed
call options. Those instruments involve, to varying degrees, elements of credit,
interest rate, equity price or liquidity risk in excess of the amount recognized
in the Statutory Basis Statements of Admitted Assets, Liabilities, Surplus and
Other Funds.
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 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 swaps and equity indexed call
options, the contract or notional amounts do not represent exposure to credit
loss. The Company's exposure to credit loss is limited to those financial
instruments where the Company has an unrealized gain.
Unless otherwise noted, the Company does not require collateral or other
security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
CONTRACT OR NOTIONAL AMOUNT
Financial Instruments Whose Contract Amounts Represent
Credit Risk:
Commitments to Extend Credit.............................. $ 16.0 $ 28.3
Financial Instruments Whose Notional or Contract Amounts
Exceed the Amount of Credit Risk:
Interest Rate Swap Agreements.......................... 401.0 431.0
Equity Indexed Call Options............................ 23.1 7.3
</TABLE>
Commitments to Extend Credit -- Commitments to extend credit are legally
binding agreements to lend to a customer. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
They generally may be terminated by the Company in the event of deterioration in
the financial condition of the borrower. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future liquidity requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis.
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. At December 31, 1999, there was no
unrealized gain on the agreements.
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 22
call options with an aggregate notional amount of $23.1 million and an estimated
fair value of $2.7 million as of December 31, 1999.
F-31
<PAGE> 96
LEASES
The Company has operating leases for office space and certain computer
processing and other equipment. Rental expense for these items was $2.9 million
and $2.7 million for 1999 and 1998, respectively.
Future minimum aggregate rental commitments at December 31, 1999 for
operating leases were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
---------------------------
<S> <C>
2000 -- $2.7................................................ 2003 -- $ 2.8
2001 -- $2.8................................................ 2004 -- $ 2.8
2002 -- $2.8................................................ 2005 and
thereafter -- $11.3
</TABLE>
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures are made in accordance with the requirements of
Statement of Financial Accounting Standards (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, 1999 and 1998. 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:
Bonds -- The estimated market value disclosures for bonds satisfy the fair
value disclosure requirements of SFAS No. 107 (see Note 2).
Stocks -- Fair value equals carrying value for common stocks as these
securities are carried at NAIC value, which approximates quoted market value.
Fair value for preferred stocks equals NAIC market value, which approximates
quoted market value.
Mortgage Loans on Real Estate -- The fair values for mortgage loans on real
estate are estimated using discounted cash flow analyses, using interest rates
currently being offered in the marketplace for similar loans to borrowers with
similar credit ratings. Loans with similar characteristics are aggregated for
purposes of the calculations.
Cash, Short-Term Investments and Policy Loans -- The carrying amounts for
these assets approximate the assets' fair values.
Other Financial Instruments Reported as Assets -- The carrying amounts for
these financial instruments (primarily premiums and other accounts receivable
and accrued investment income) approximate those assets' fair values.
Investment Contract Liabilities -- The fair value for deferred annuities
was estimated to be the amount payable on demand at the reporting date as those
investment contracts have no defined maturity and are
F-32
<PAGE> 97
similar to a deposit liability. The amount payable at the reporting date was
calculated as the account balance less applicable surrender charges.
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, approximate
those liabilities' fair value.
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.
Interest Rate Swaps -- The fair value for interest rate swaps was estimated
using discounted cash flow analyses. The discount rate was based upon rates
currently being offered for similar interest rate swaps available from similar
counterparties.
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------
1999 1998
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
FINANCIAL INSTRUMENTS RECORDED AS ASSETS:
Bonds....................................... $ 4,702.3 $ 4,580.0 $ 4,503.2 $ 4,675.9
Stocks...................................... 16.3 15.0 18.5 17.7
Mortgage Loans on Real Estate:
Commercial............................... 833.1 824.5 766.5 1,315.1
Residential and Other.................... 209.2 208.1 212.0 352.1
Policy Loans................................ 386.9 386.9 354.0 354.0
Cash and Short-Term Investments............. 45.7 45.7 27.8 27.8
Other Financial Instruments Recorded as
Assets................................... 62.5 62.5 84.9 84.9
FINANCIAL INSTRUMENTS RECORDED AS LIABILITIES:
Investment Contracts
Deferred Annuities....................... (5,542.3) (5,218.5) (5,024.6) (4,987.6)
Supplementary Contracts and Immediate
Annuities.............................. (160.6) (157.5) (121.8) (121.8)
Other Investment Contracts............... (1.6) (1.6) (.9) (.9)
Other Financial Instruments Recorded as
Liabilities.............................. (34.0) (34.0) (15.9) (15.9)
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
INTEREST RATE SWAPS........................... -- (1.9) -- 14.3
</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.
F-33
<PAGE> 98
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates.
NOTE 10: RECONCILIATION OF STATUTORY NET INCOME AND EQUITY TO GAAP NET INCOME
AND EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
Statutory Net Income as Reported............................ $ 36.2 $ 19.3
Adjustments Concerning:
Deferred Acquisition Costs................................ 35.0 30.4
Deferred Federal Income Taxes............................. (22.4) (21.4)
Reserves for Future Benefits.............................. 20.4 18.7
Interest Maintenance Reserve.............................. (3.0) (2.3)
Other..................................................... (2.4) 11.3
------- -------
NET INCOME IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES................................................ $ 63.8 $ 56.0
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1999 1998
------- -------
(IN MILLIONS)
<S> <C> <C>
Statutory Capital and Surplus as Reported................... $ 365.6 $ 325.8
Adjustments Concerning:
Deferred Acquisition Costs................................ 627.4 513.1
Deferred Federal Income Taxes............................. (48.2) (107.9)
Reserves for Future Benefits.............................. (286.2) (306.6)
Unrealized Investment Gains (Losses)...................... (124.6) 190.1
Nonadmitted Assets........................................ 11.7 13.3
Asset Valuation Reserve................................... 58.9 62.1
Interest Maintenance Reserve.............................. 12.4 11.9
Other..................................................... (8.1) (4.4)
------- -------
SHAREHOLDER'S EQUITY IN CONFORMITY WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES..................................... $ 608.9 $ 697.4
======= =======
</TABLE>
F-34
