DECEMBER 29, 1999
NORTHERN LIFE
ADVANTAGE(SM) ANNUITY
ADVANTAGE CENTURY(SM) ANNUITY
ADVANTAGE CENTURY PLUS(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 four 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").
For Transfer Series Contracts, Flex Series Contracts, Retail Series
Contracts and Plus Series 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
Transfer Series, Flex Series and Retail Series Contracts which are Qualified
Plans, the Company will accept periodic Purchase Payments as permitted by the
Code which are not less than the specific contract minimum Purchase Payment. For
the non-qualified Transfer Series Contracts, Retail Series Contracts and Plus
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 Transfer Series, Flex Series, Retail Series and Plus Series differ in
terms of the amount of Purchase Payments required, when Purchase Payments can be
made and certain charges.
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.
Through the Variable Account, the Contracts offer up to 28 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 no charge for transfers.
The Transfer Series, Flex Series, and Retail Series Contracts offer three
Fixed Accounts. The Plus 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.
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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. You can choose to have annuity payments come from
Fixed Account A or B, the Variable Account or any combination of these for Flex
Series, Transfer Series and Retail Series Contracts. For Plus 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 $15,000 for Transfer Series Contracts, $50 for Flex Series Contracts,
$5,000 per lump sum payment for Retail Series Contracts (or if periodic payments
are being made, the minimum is $50 per periodic payment), and $25,000 for Plus
Series Contracts. The Company may choose not to accept any subsequent purchase
payment for Transfer Series Contracts if it is less than $5,000, for Flex Series
Contracts if it is less than $50, for Retail Series Contracts if it is less than
$5,000 (or if periodic payments are being made, the payment is less than $50),
and for Plus 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 28 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.
<TABLE>
<CAPTION>
FIDELITY VARIABLE INSURANCE FIDELITY VARIABLE INSURANCE FIDELITY VARIABLE INSURANCE
THE ALGER AMERICAN FUND PRODUCTS FUND PRODUCTS FUND II PRODUCTS FUND III
- ------------------------- ----------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C>
Alger American VIP Equity-Income VIP II Asset Manager: VIP III Growth
Growth Portfolio Portfolio Growth Portfolio Opportunities
Alger American VIP Growth Portfolio VIP II Contrafund Portfolio
Leveraged AllCap VIP Money Market Portfolio
Portfolio Portfolio VIP II Index 500
Alger American Portfolio
MidCap Growth VIP II Investment
Portfolio Grade Bond
Alger American Portfolio
Small Capitalization
Portfolio
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER BERMAN ADVISERS
JANUS ASPEN SERIES MANAGEMENT TRUST NORTHSTAR GALAXY TRUST OCC ACCUMULATION TRUST
- ---------------------- -------------------------- ------------------------ ------------------------
<S> <C> <C> <C>
Aggressive Growth Limited Maturity Bond Emerging Growth Equity Portfolio
Portfolio Portfolio Portfolio Global Equity Portfolio
Growth Portfolio Partners Portfolio Growth + Value Managed Portfolio
International Growth Socially Responsive Portfolio Small Cap Portfolio
Portfolio Portfolio International Value
Worldwide Growth Portfolio
Portfolio Research Enhanced
Index Portfolio
High Yield Bond
Portfolio
</TABLE>
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<PAGE>
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.
Each year the Company deducts a $30 contract maintenance charge from your
Contract. For Flex Series, Transfer Series and Retail Series Contracts, the
Company reserves the right to waive this Annual Contract Charge where the
Contract Value exceeds $25,000. For Plus Series Contracts, the Company reserves
the right to waive this Annual Contract Charge where specified conditions are
met, for example if the Contract Value exceeds $50,000. For Retail Series
Contracts, we will also waive this charge where specified conditions are met.
For example, we may waive this charge if the Contract Value exceeds $25,000 or
if the annual purchase payments, less any cumulative partial surrenders equal or
exceed $5,000. We also deduct for insurance and administrative charges which
annually total 1.40% of the average daily value of your Contract allocated to
the investment portfolios. For Plus Series Contracts, we also deduct a charge of
.15% of the average daily value of your Contract allocated to the investment
portfolios.
There are also investment fund annual expenses which range from 0.28% to
1.50% 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. However, if you take all or a part of your
money out, we may assess a withdrawal charge. For Transfer Series Contracts the
charge for each Purchase Payment is equal to a maximum of 6% in years 1 and 2
and reduces to 0 after year 6. For Flex Series Contracts this charge from the
issue date of the Contract is equal to 8% in years 1 through 3 and reduces to 0
after year 10. For Retail Series Contracts issued as a Non-Qualified or IRA
Contract this charge for each purchase payment is equal to a maximum of 7% in
years 1 and 2 and reduces to 0 after year 6. For a Retail Series Contract issued
as a TSA or 457 Contract, this charge for each purchase payment is equal to a
maximum of 7% in years 1 and 2 and reduces to 0 after year 6; however, 12 years
after the original Issue Date, this charge will automatically be 0. There is no
withdrawal charge for Plus Series Contracts. For Plus Series Contracts, we do
however, deduct a charge of .15% of the average daily value of your Contract
allocated to the investment portfolios. This charge is made in lieu of a
withdrawal charge.
We may also assess a state premium tax charge which ranges from 0% to 3.5%
depending upon the state.
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The following charts are designed to help you understand the expenses in
the Contract. In the following Transfer Series, Flex Series and Retail Series
chart, the column "Total Annual Expenses" shows the total of the $30 contract
maintenance charge (which is represented as .25% below), the 1.40% insurance
charges, and the investment expenses for each investment portfolio. The next two
columns show you two examples of the expenses, in dollars, you would pay under a
Contract. The examples assume that you invested $1,000 in a Contract which earns
5% annually and that you withdraw your money: (1) at the end of year 1, and (2)
at the end of year 10.
In the following chart for year 1, the Total Annual Expenses are assessed
as well as the withdrawal charges for Transfer Series, Flex Series and Retail
Series Contracts. For year 10, the example shows the aggregate of all the annual
expenses assessed for the 10 years, but there is no withdrawal charge.
The premium tax is assumed to be 0% in both examples.
<TABLE>
<CAPTION>
TOTAL TOTAL
ANNUAL ANNUAL
INSURANCE PORTFOLIO TOTAL ANNUAL
INVESTMENT FUNDS CHARGES EXPENSES EXPENSES
- -------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio ........... 1.65% 0.79% 2.44%
Alger American Leveraged AllCap
Portfolio ................................ 1.65% 0.96% 2.61%
Alger American MidCap Growth
Portfolio ................................ 1.65% 0.84% 2.49%
Alger American Small Capitalization
Portfolio ................................ 1.65% 0.89% 2.54%
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND:
VIP Equity-Income Portfolio ............... 1.65% 0.57% 2.22%
VIP Growth Portfolio ...................... 1.65% 0.66% 2.31%
VIP Money Market Portfolio ................ 1.65% 0.30% 1.95%
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND II:
VIP II Asset Manager: Growth
Portfolio ................................ 1.65% 0.72% 2.37%
VIP II Contrafund Portfolio ............... 1.65% 0.66% 2.31%
VIP II Index 500 Portfolio ................ 1.65% 0.28% 1.93%
VIP II Investment Grade Bond
Portfolio ................................ 1.65% 0.57% 2.22%
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND III:
VIP III Growth Opportunities
Portfolio ................................ 1.65% 0.70% 2.35%
JANUS ASPEN SERIES:
Aggressive Growth Portfolio ............... 1.65% 0.75% 2.40%
Growth Portfolio .......................... 1.65% 0.68% 2.33%
International Growth Portfolio ............ 1.65% 0.86% 2.51%
Worldwide Growth Portfolio ................ 1.65% 0.72% 2.37%
NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST:
Limited Maturity Bond Portfolio ........... 1.65% 0.76% 2.41%
Partners Portfolio ........................ 1.65% 0.84% 2.49%
Socially Responsive Portfolio ............. 1.65% 1.50% 3.15%
NORTHSTAR GALAXY TRUST:
Emerging Growth Portfolio ................. 1.65% 0.90% 2.55%
Growth + Value Portfolio .................. 1.65% 0.80% 2.45%
International Value Portfolio ............. 1.65% 1.00% 2.65%
Research Enhanced Index Portfolio ......... 1.65% 0.90% 2.55%
High Yield Bond Portfolio ................. 1.65% 0.80% 2.45%
OCC ACCUMULATION TRUST:
Equity Portfolio .......................... 1.65% 0.94% 2.59%
Global Equity Portfolio ................... 1.65% 1.13% 2.78%
Managed Portfolio ......................... 1.65% 0.82% 2.47%
Small Cap Portfolio ....................... 1.65% 0.88% 2.53%
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL
EXPENSES AT END OF:
----------------------------------------------------------
(1) (2) (3) (1) (2) (3)
1 YEAR 1 YEAR 1 YEAR 10 YEAR 10 YEAR 10 YEAR
TRANSFER FLEX RETAIL TRANSFER FLEX RETAIL
INVESTMENT FUNDS SERIES SERIES SERIES SERIES SERIES SERIES
- -------------------------------------------- ---------- -------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio ........... $79 $ 99 $88 $278 $278 $276
Alger American Leveraged AllCap
Portfolio ................................ $80 $100 $89 $295 $295 $293
Alger American MidCap Growth
Portfolio ................................ $79 $ 99 $88 $283 $283 $281
Alger American Small Capitalization
Portfolio ................................ $80 $100 $89 $288 $288 $286
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND:
VIP Equity-Income Portfolio ............... $77 $ 97 $86 $257 $257 $254
VIP Growth Portfolio ...................... $78 $ 98 $86 $267 $267 $263
VIP Money Market Portfolio ................ $74 $ 94 $83 $228 $228 $227
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND II:
VIP II Asset Manager: Growth
Portfolio ................................ $78 $ 98 $87 $272 $272 $269
VIP II Contrafund Portfolio ............... $78 $ 98 $86 $269 $269 $263
VIP II Index 500 Portfolio ................ $74 $ 94 $83 $233 $233 $224
VIP II Investment Grade Bond
Portfolio ................................ $77 $ 97 $86 $256 $256 $254
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND III:
VIP III Growth Opportunities
Portfolio ................................ $78 $ 98 $87 $270 $270 $267
JANUS ASPEN SERIES:
Aggressive Growth Portfolio ............... $78 $ 98 $87 $274 $274 $272
Growth Portfolio .......................... $78 $ 98 $87 $267 $267 $265
International Growth Portfolio ............ $79 $ 99 $88 $285 $285 $283
Worldwide Growth Portfolio ................ $78 $ 98 $87 $271 $271 $269
NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST:
Limited Maturity Bond Portfolio ........... $78 $ 98 $87 $275 $275 $273
Partners Portfolio ........................ $79 $ 99 $88 $283 $283 $281
Socially Responsive Portfolio ............. $86 $105 $95 $346 $346 $343
NORTHSTAR GALAXY TRUST:
Emerging Growth Portfolio ................. $80 $100 $89 $289 $289 $287
Growth + Value Portfolio .................. $79 $ 99 $88 $279 $279 $277
International Value Portfolio ............. $81 $101 $90 $299 $299 $296
Research Enhanced Index Portfolio ......... $80 $100 $89 $289 $289 $287
High Yield Bond Portfolio ................. $79 $ 99 $88 $279 $279 $277
OCC ACCUMULATION TRUST:
Equity Portfolio .......................... $80 $100 $89 $293 $293 $291
Global Equity Portfolio ................... $82 $102 $91 $311 $311 $309
Managed Portfolio ......................... $79 $ 99 $88 $281 $281 $279
Small Cap Portfolio ....................... $80 $ 99 $89 $287 $287 $285
</TABLE>
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<PAGE>
In the following Plus Series Chart, the column "Total Annual Expenses"
shows the total of the $30 contract maintenance charge (which is represented as
.25% below), the 1.55% insurance charges and the investment expenses for each
investment portfolio. The Total Annual Expenses are assessed for year 1 and 10.
There is no withdrawal charge.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL
EXPENSES AT END OF:
-------------------
TOTAL TOTAL
ANNUAL ANNUAL 1 YEAR 10 YEAR
INSURANCE PORTFOLIO TOTAL ANNUAL PLUS PLUS
INVESTMENT FUNDS CHARGES EXPENSES EXPENSES SERIES SERIES
- -------------------------------------------------------- ----------- ----------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio ....................... 1.80% 0.79% 2.59% $26 $291
Alger American Leveraged AllCap Portfolio ............. 1.80% 0.96% 2.76% $28 $307
Alger American MidCap Growth Portfolio ................ 1.80% 0.84% 2.64% $27 $296
Alger American Small Capitalization Portfolio ......... 1.80% 0.89% 2.69% $27 $300
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:
VIP Equity-Income Portfolio ........................... 1.80% 0.57% 2.37% $24 $269
VIP Growth Portfolio .................................. 1.80% 0.66% 2.46% $25 $278
VIP Money Market Portfolio ............................ 1.80% 0.30% 2.10% $21 $242
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:
VIP II Asset Manager: Growth Portfolio ................ 1.80% 0.72% 2.52% $26 $284
VIP II Contrafund Portfolio ........................... 1.80% 0.66% 2.46% $25 $278
VIP II Index 500 Portfolio ............................ 1.80% 0.28% 2.08% $21 $240
VIP II Investment Grade Bond Portfolio ................ 1.80% 0.57% 2.37% $24 $269
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III:
VIP III Growth Opportunities Portfolio ................ 1.80% 0.70% 2.50% $25 $282
JANUS ASPEN SERIES:
Aggressive Growth Portfolio ........................... 1.80% 0.75% 2.55% $26 $287
Growth Portfolio ...................................... 1.80% 0.68% 2.48% $25 $280
International Growth Portfolio ........................ 1.80% 0.86% 2.66% $27 $297
Worldwide Growth Portfolio ............................ 1.80% 0.72% 2.52% $26 $284
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST:
Limited Maturity Bond Portfolio ....................... 1.80% 0.76% 2.56% $26 $288
Partners Portfolio .................................... 1.80% 0.84% 2.64% $27 $296
Socially Responsive Portfolio ......................... 1.80% 1.50% 3.30% $33 $357
NORTHSTAR GALAXY TRUST:
Emerging Growth Portfolio ............................. 1.80% 0.90% 2.70% $27 $301
Growth + Value Portfolio .............................. 1.80% 0.80% 2.60% $26 $292
International Value Portfolio ......................... 1.80% 1.00% 2.80% $28 $311
Research Enhanced Index Portfolio ..................... 1.80% 0.90% 2.70% $27 $301
High Yield Bond Portfolio ............................. 1.80% 0.80% 2.60% $26 $292
OCC ACCUMULATION TRUST:
Equity Portfolio ...................................... 1.80% 0.94% 2.74% $28 $305
Global Equity Portfolio ............................... 1.80% 1.13% 2.93% $30 $323
Managed Portfolio ..................................... 1.80% 0.82% 2.62% $27 $294
Small Cap Portfolio ................................... 1.80% 0.88% 2.68% $27 $299
</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.
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 Transfer Series Contracts and Flex Series Contracts,
during any 12 month period, you can take up to 10% of the Contract Value less
any Outstanding Loan Balance each year without charge from us. For Retail Series
Contracts, during any Contract Year, you can take the greater of: all Contract
earnings; or 10% (as of the last Contract Anniversary) of purchase payments
still subject to a surrender fee.Withdrawals in excess of these amounts will be
charged the applicable withdrawal charge. After we have a payment
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for 6 years (Transfer Series), 6 years (Retail Series) or 10 years (Flex
Series), there is no charge for withdrawals for those payments. For Plus Series
Contracts, there is no withdrawal charge. You may also 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, 1998, 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 product charge (for Plus Series Contracts), the
investment expenses and all other expenses of the investment fund. These numbers
do not reflect any withdrawal charges and if applied these charges would reduce
such performance (except that there is no withdrawal charge for Plus Series
Contracts and there would be no reduction in performance returns for Plus Series
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.
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<PAGE>
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
1998 1997 1996 1995
------------- ----------- ----------- -----
<S> <C> <C> <C> <C>
THE ALGER AMERICAN FUND
Alger American Growth Portfolio ....................... 45.76% 23.75% 11.51% n/a
Alger American Leveraged AllCap Portfolio ............. 55.39% 17.76% 10.22% n/a
Alger American MidCap Growth Portfolio ................ 28.24% 13.15% 10.08% n/a
Alger American Small Capitalization Portfolio ......... 13.67% 9.59% 2.47% n/a
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Equity-Income Portfolio ........................... 9.82% 26.08% 12.43% n/a
VIP Growth Portfolio .................................. 37.30% 21.51% 12.85% n/a
VIP Money Market Portfolio ............................ 3.76% 3.77% 3.69% n/a
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II Asset Manager: Growth Portfolio ................ 15.68% 23.08% 18.00% n/a
VIP II Contrafund Portfolio ........................... 27.92% 22.16% 19.36% n/a
VIP II Index 500 Portfolio ............................ 26.29% 30.60% 20.85% n/a
VIP II Investment Grade Bond Portfolio ................ n/a n/a n/a n/a
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
VIP III Growth Opportunities Portfolio ................ n/a n/a n/a n/a
JANUS ASPEN SERIES
Aggressive Growth Portfolio ........................... 32.14% n/a n/a n/a
Growth Portfolio ...................................... 33.52% n/a n/a n/a
International Growth Portfolio ........................ 15.35% n/a n/a n/a
Worldwide Growth Portfolio ............................ 26.88% n/a n/a n/a
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio ....................... 2.69% n/a n/a n/a
Partners Portfolio .................................... 2.51% n/a n/a n/a
Socially Responsive Portfolio ......................... n/a n/a n/a n/a
NORTHSTAR GALAXY TRUST
Emerging Growth Portfolio ............................. 15.42% 13.76% 11.95% n/a
Growth + Value Portfolio .............................. 17.42% 12.81% 21.12% n/a
International Value Portfolio ......................... 15.05% n/a n/a n/a
Research Enhanced Index Portfolio ..................... (0.31)% 5.27% 11.44% n/a
High Yield Bond Portfolio ............................. (1.06)% n/a n/a n/a
OCC ACCUMULATION TRUST
Equity Portfolio ...................................... 10.05% n/a n/a n/a
Global Equity Portfolio ............................... 11.46% n/a n/a n/a
Managed Portfolio ..................................... 5.38% n/a n/a n/a
Small Cap Portfolio ................................... (10.54)% n/a n/a n/a
</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 Flex Series and
Transfer Series Contracts, this death benefit will be the greater of three
amounts: 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, or 3) the
value of your Contract at the most recent Specified Contract Anniversary (which
is defined in the Prospectus as each sixth Contract Anniversary) plus any money
you've added since that anniversary reduced by any money you've taken out since
that anniversary or any Outstanding Loan Balance and previously deducted Annual
Contract Charges. For Retail Series and Plus Series Contracts the death benefit
is the greater of (1), (2) or (3). For an additional premium of .15% you can
purchase a rider that will provide a death benefit that is the greater of (1),
(2) or (3) and the Specified Contract Anniversary is each Contract Anniversary.
If you die after age 80, your beneficiary will receive the Contract Value less
the Outstanding Loan Balance.
vii
<PAGE>
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. However, if required by applicable law, we will
return your payments.
For Retail Series and Plus Series Contracts, 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:
o 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.
o 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.
o 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.
o 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.
viii
<PAGE>
NORTHERN LIFE
ADVANTAGE(SM) ANNUITY
ADVANTAGE CENTURY(SM) ANNUITY
ADVANTAGE CENTURY PLUS(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 four series of
flexible premium Individual Deferred Variable/Fixed Annuity Contracts
("Contracts") for use in connection with retirement plans qualifying for special
tax treatment under the Internal Revenue Code. (See "Federal Tax Status.") The
four Series of Contracts offered by this Prospectus (the "Flex Series", the
"Transfer Series", the "Retail Series", and the "Plus Series") differ in the
amount of Purchase Payments required, when Purchase Payments can be made and
certain charges imposed under the Contracts. The Transfer Series is not
available in Massachusetts. In addition, the Transfer Series Contracts, the
Retail Series Contracts and the Plus Series Contracts are offered on a
non-qualified basis.
The 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:
o for the Flex Series, Transfer Series and Retail Series Contracts, three
separate Fixed Accounts (Fixed Account A, Fixed Account B, and Fixed
Account C), and for the Plus Series Contracts, two separate Fixed
Accounts (Fixed Account A and Fixed Account C), which are accounts that
provide a minimum specified rate of interest; and
o 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"):
<TABLE>
<S> <C>
The Alger American Fund Janus Aspen Series
Fidelity Variable Insurance Products Fund (VIP) Neuberger Berman Advisers Management Trust
Fidelity Variable Insurance Products Fund II (VIP II) Northstar Galaxy Trust
Fidelity Variable Insurance Products Fund III (VIP III) OCC Accumulation Trust
</TABLE>
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 December 29,
1999, which has been filed with the Securities and Exchange Commission ("SEC")
and is available upon request without charge by writing to Northern Life
Insurance Company, P.O. Box 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 41 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:
o ARE NOT BANK DEPOSITS OR GUARANTEED BY A BANK
o ARE NOT INSURED OR GUARANTEED BY THE FDIC, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY
o ARE AFFECTED BY MARKET FLUCTUATIONS AND INVOLVE INVESTMENT RISK,
INCLUDING POSSIBLE LOSS OF PRINCIPAL
o 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 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, NORTHSTAR GALAXY TRUST, AND OCC ACCUMULATION TRUST.
THE DATE OF THIS PROSPECTUS IS DECEMBER 29, 1999
<PAGE>
TABLE OF CONTENTS
Definitions.............................................................. 4
Summary of Contract Expenses............................................. 6
The Company.............................................................. 13
The Variable Account..................................................... 13
Investments of the Variable Account...................................... 14
Reinvestment............................................................ 17
Addition, Deletion or Substitution of Fund Shares....................... 17
Charges Made by the Company.............................................. 18
Withdrawal Charge (Contingent Deferred Sales Charge).................... 18
Waiver of Withdrawal Charge for Certain Contracts....................... 19
Partial Waiver of Withdrawal Charge..................................... 20
Reduction of Withdrawal Charge.......................................... 21
Annual Contract Charge.................................................. 21
Mortality Risk Charge................................................... 21
Expense Risk Charge..................................................... 22
Administrative Charge................................................... 22
Product Charge (For Plus Series Contracts Only)......................... 22
Sufficiency of Charges.................................................. 22
Premium and Other Taxes................................................. 22
Reduction of Charges.................................................... 23
Expenses of the Funds................................................... 23
Administration........................................................... 23
The Contracts............................................................ 23
Contract Application and Purchase Payments.............................. 23
Revocation.............................................................. 24
Allocation of Purchase Payments......................................... 24
Accumulation Unit Value................................................. 24
Net Investment Factor................................................... 24
Death Benefit Before the Start Date..................................... 25
Payment of Death Benefit Before the Start Date.......................... 26
Death Benefit After Start Date.......................................... 26
Withdrawal (Redemption)................................................. 26
Systematic Withdrawals.................................................. 27
Loans Available from Certain Qualified Contracts........................ 28
Reallocations........................................................... 29
Written Reallocations.................................................. 29
Telephone Reallocations................................................ 29
Automatic Reallocations................................................ 30
Dollar Cost Averaging Reallocations.................................... 30
Reallocations from the Fixed Accounts.................................. 31
Assignments............................................................. 31
Contract Owner and Beneficiaries........................................ 31
Contract Inquiries...................................................... 32
Annuity Provisions....................................................... 32
Start Date.............................................................. 32
Annuity Payout Selection................................................ 32
Forms of Annuity Payouts................................................ 32
Frequency and Amount of Annuity Payouts................................. 33
Annuity Payouts......................................................... 33
Sub-Account Annuity Unit Value.......................................... 34
Assumed Investment Rate................................................. 34
Partial Annuitization................................................... 34
Federal Tax Status....................................................... 34
Introduction............................................................ 34
2
<PAGE>
Tax Status of the Contract.............................................. 35
Taxation of Annuities................................................... 35
Transfers, Assignments or Exchanges of a Contract....................... 37
Withholding............................................................. 37
Multiple Contracts...................................................... 37
Taxation of Qualified Plans............................................. 37
Corporate Pension and Profit.Sharing Plans and H.R. 10 Plans............ 37
Individual Retirement Annuities......................................... 38
Tax Sheltered Annuities................................................. 38
Section 457 Plans....................................................... 38
Possible Charge for the Company's Taxes................................. 38
Other Tax Consequences.................................................. 38
Possible Changes in Taxation............................................ 39
Voting of Fund Shares.................................................... 39
Distribution of the Contracts............................................ 39
Reports to Contract Owners............................................... 39
Legal Proceedings........................................................ 40
Preparing for the Year 2000.............................................. 40
Financial Statements and Experts......................................... 40
Further Information...................................................... 40
Separate Account One Statement of Additional Information Table
of Contents............................................................. 41
Appendices.............................................................. A-1
3
<PAGE>
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 B. 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 B CONTRACT VALUE. An amount equal to the sum of Purchase Payments
allocated to Fixed Account B, increased by reallocations made to Fixed
Account B and interest credited to Fixed Account B, less reallocations out
of Fixed Account B, withdrawals from Fixed Account B (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.
4
<PAGE>
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.
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.
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>
SUMMARY OF CONTRACT EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases ..................................... None
Maximum Withdrawal Charge Transfer Series (a) ......................... 6%
Maximum Withdrawal Charge Flex Series (a) ............................. 8%
Maximum Withdrawal Charge Retail Series (a) ........................... 7%
Maximum Withdrawal Charge Plus Series (a) ............................. None
Reallocation Charge (b) ............................................... None
ANNUAL CONTRACT CHARGE (c) ............................................ $30
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
TRANSFER SERIES, FLEX SERIES AND RETAIL SERIES CONTRACTS
Mortality and Expense Risk Charges .................................... 1.25%
Other Account Fees and Expenses (See "Administrative Charge") ......... .15%
Total Variable Account Annual Expenses ................................ 1.40%
PLUS SERIES CONTRACTS
Mortality and Expense Risk Charges .................................... 1.25%
Other Account Fees and Expenses (See "Administrative Charge") ......... .15%
Product Charge (k) .................................................... .15%
Total Variable Account Annual Expenses ................................ 1.55%
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."
6
<PAGE>
ANNUAL INVESTMENT FUND EXPENSES AFTER REIMBURSEMENTS (d)*
(as a percentage of Fund average net assets)
<TABLE>
<CAPTION>
TOTAL
INVESTMENT
MANAGEMENT FUND
(ADVISORY) ANNUAL
FEES(d) OTHER EXPENSES EXPENSE
------------ ---------------- -----------
<S> <C> <C> <C>
Alger American Growth Portfolio (d) .................... 0.75% 0.04% 0.79%
Alger American Leveraged AllCap Portfolio (d) .......... 0.85% 0.11% 0.96%
Alger American MidCap Growth Portfolio (d) ............. 0.80% 0.04% 0.84%
Alger American Small Capitalization Portfolio (d) ...... 0.85% 0.04% 0.89%
Fidelity VIP Equity-Income Portfolio (d)(e) ............ 0.49% 0.09% 0.58%
Fidelity VIP Growth Portfolio (d)(e) ................... 0.59% 0.09% 0.68%
Fidelity VIP Money Market Portfolio (d) ................ 0.20% 0.10% 0.30%
Fidelity VIP II Asset Manager: Growth
Portfolio (d)(e) ...................................... 0.59% 0.14% 0.73%
Fidelity VIP II Contrafund Portfolio (d)(e) ............ 0.59% 0.11% 0.70%
Fidelity VIP II Index 500 Portfolio (d)(e) ............. 0.24% 0.11% 0.35%
Fidelity VIP II Investment Grade Bond
Portfolio (d) ......................................... 0.43% 0.14% 0.57%
Fidelity VIP III Growth Opportunities
Portfolio (d)(e) ...................................... 0.59% 0.12% 0.71%
Janus Aggressive Growth Portfolio (d)(f) ............... 0.72% 0.03% 0.75%
Janus Growth Portfolio (d)(f) .......................... 0.65% 0.03% 0.68%
Janus International Growth Portfolio (d)(f) ............ 0.66% 0.20% 0.86%
Janus Worldwide Growth Portfolio (d)(f) ................ 0.65% 0.07% 0.72%
Neuberger Berman Advisers Management Trust
Limited Maturity Bond Portfolio (d)(g) ................ 0.65% 0.11% 0.76%
Neuberger Berman Advisers Management Trust
Partners Portfolio (d)(g) ............................. 0.78% 0.06% 0.84%
Neuberger Berman Advisers Management Trust
Socially Responsive Portfolio (d)(g)(h) ............... 0.85% 0.65% 1.50%
Northstar Galaxy Trust Emerging Growth
Portfolio (i) ......................................... 0.75% 0.15% 0.90%
Northstar Galaxy Trust Growth + Value Portfolio (i)..... 0.75% 0.05% 0.80%
Northstar Galaxy Trust International Value
Portfolio (i) ......................................... 1.00% 0.00% 1.00%
Northstar Galaxy Trust Research Enhanced Index
Portfolio (i) ......................................... 0.75% 0.15% 0.90%
Northstar Galaxy Trust High Yield Bond
Portfolio (i) ......................................... 0.75% 0.05% 0.80%
OCC Equity Portfolio (d)(j) ............................ 0.80% 0.14% 0.94%
OCC Global Equity Portfolio (d)(j) ..................... 0.80% 0.33% 1.13%
OCC Managed Portfolio (d)(j) ........................... 0.78% 0.04% 0.82%
OCC Small Cap Portfolio (d)(j) ......................... 0.80% 0.08% 0.88%
</TABLE>
- ------------------
* The fees and expense information regarding the Funds was provided by the
Funds. Except for the Northstar Galaxy Trust, neither the Funds nor their
advisers are affiliated with the Company.
7
<PAGE>
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>
1 YEAR 3 YEARS
------------------------------------- ------------------------------------
TRANSFER FLEX RETAIL PLUS TRANSFER FLEX RETAIL PLUS
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
---------- -------- -------- -------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alger American Growth Portfolio .......... $79 $99 $88 $26 $121 $144 $121 $ 80
Alger American Leveraged AllCap
Portfolio ............................... 80 100 89 28 126 149 126 85
Alger American MidCap Growth
Portfolio ............................... 79 99 88 27 123 145 122 82
Alger American Small Capitalization
Portfolio ............................... 80 100 89 27 124 147 124 83
Fidelity VIP Equity-Income Portfolio ..... 77 97 86 24 115 138 114 74
Fidelity VIP Growth Portfolio ............ 78 98 86 25 118 141 117 77
Fidelity VIP Money Market Portfolio ...... 74 94 83 21 106 130 106 66
Fidelity VIP II Asset Manager:
Growth Portfolio ........................ 78 98 87 26 119 142 119 78
Fidelity VIP II Contrafund Portfolio ..... 78 98 86 25 118 142 117 77
Fidelity VIP II Index 500 Portfolio ...... 74 94 83 21 108 132 106 65
Fidelity VIP II Investment Grade Bond
Portfolio ............................... 77 97 86 24 114 138 114 74
Fidelity VIP III Growth Opportunities
Portfolio ............................... 78 98 87 25 119 142 118 78
Janus Aggressive Growth Portfolio ........ 78 98 87 26 120 143 120 79
Janus Growth Portfolio ................... 78 98 87 25 118 141 118 77
Janus International Growth Portfolio ..... 79 99 88 27 123 146 123 83
Janus Worldwide Growth Portfolio ......... 78 98 87 26 119 142 119 78
Neuberger Berman Advisers
Management Trust Limited Maturity
Bond Portfolio .......................... 78 98 87 26 120 143 120 80
Neuberger Berman Advisers
Management Trust Partners Portfolio ..... 79 99 88 27 123 145 122 82
Neuberger Berman Advisers
Management Trust Socially Responsive
Portfolio ............................... 86 105 95 33 142 164 142 101
Northstar Galaxy Trust Emerging
Growth Portfolio ........................ 80 100 89 27 124 147 124 84
Northstar Galaxy Trust Growth + Value
Portfolio ............................... 79 99 88 26 121 144 121 81
Northstar Galaxy Trust International
Value Portfolio ......................... 81 101 90 28 127 150 127 87
Northstar Galaxy Trust Research
Enhanced Index Portfolio ................ 80 100 89 27 124 147 124 84
Northstar Galaxy Trust High Yield
Bond Portfolio .......................... 79 99 88 26 121 144 121 81
OCC Equity Portfolio ..................... 80 100 89 28 126 148 125 85
OCC Global Equity Portfolio .............. 82 102 91 30 131 154 131 91
OCC Managed Portfolio .................... 79 99 88 27 122 145 122 81
OCC Small Cap Portfolio .................. 80 99 89 27 124 147 124 83
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
5 YEARS 10 YEARS
- ------------------------------------------- ------------------------------------------
TRANSFER FLEX RETAIL PLUS TRANSFER FLEX RETAIL PLUS
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
- ---------- -------- -------- -------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$148 $181 $148 $137 $278 $278 $276 $291
157 189 156 146 295 295 293 307
151 184 150 140 283 283 281 296
153 186 153 142 288 288 286 300
138 171 137 126 257 257 254 269
143 176 141 131 267 267 263 278
123 158 123 113 228 228 227 242
145 178 144 134 272 272 269 284
144 177 141 131 269 269 263 278
126 160 122 112 233 233 224 240
137 171 137 126 256 256 254 269
144 177 143 133 270 270 267 282
146 179 146 135 274 274 272 287
143 176 142 132 267 267 265 280
152 185 151 141 285 285 283 297
145 178 144 134 271 271 269 284
147 180 146 136 275 275 273 288
151 184 150 140 283 283 281 296
183 214 182 172 346 346 343 357
154 186 153 143 289 289 287 301
149 182 148 138 279 279 277 292
159 191 158 147 299 299 296 311
154 186 153 143 289 289 287 301
149 182 148 138 279 279 277 292
156 188 155 145 293 293 291 305
165 197 165 154 311 311 309 323
150 183 149 139 281 281 279 294
153 185 152 142 287 287 285 299
</TABLE>
9
<PAGE>
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>
1 YEAR 3 YEARS
------------------------------------- ------------------------------------
TRANSFER FLEX RETAIL PLUS TRANSFER FLEX RETAIL PLUS
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
---------- -------- -------- -------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alger American Growth Portfolio .......... $25 $25 $25 $26 $76 $76 $76 $ 80
Alger American Leveraged AllCap
Portfolio ............................... 26 26 26 28 81 81 81 85
Alger American MidCap Growth
Portfolio ............................... 25 25 25 27 78 78 77 82
Alger American Small Capitalization
Portfolio ............................... 26 26 26 27 79 79 79 83
Fidelity VIP Equity-Income Portfolio ..... 23 23 23 24 70 70 69 74
Fidelity VIP Growth Portfolio ............ 24 24 23 25 73 73 72 77
Fidelity VIP Money Market Portfolio ...... 20 20 20 21 61 61 61 66
Fidelity VIP II Asset Manager:
Growth Portfolio ........................ 24 24 24 26 74 74 74 78
Fidelity VIP II Contrafund Portfolio ..... 24 24 23 25 73 73 72 77
Fidelity VIP II Index 500 Portfolio ...... 20 20 20 21 63 63 61 65
Fidelity VIP II Investment Grade Bond
Portfolio ............................... 23 23 23 24 69 69 69 74
Fidelity VIP III Growth Opportunities
Portfolio ............................... 24 24 24 25 74 74 73 78
Janus Aggressive Growth Portfolio ........ 24 24 24 26 75 75 75 79
Janus Growth Portfolio ................... 24 24 24 25 73 73 73 77
Janus International Growth Portfolio ..... 25 25 25 27 78 78 78 83
Janus Worldwide Growth Portfolio ......... 24 24 24 26 74 74 74 78
Neuberger Berman Advisers
Management Trust Limited Maturity
Bond Portfolio .......................... 24 24 24 26 75 75 75 80
Neuberger Berman Advisers
Management Trust Partners Portfolio ..... 25 25 25 27 78 78 77 82
Neuberger Berman Advisers
Management Trust Socially Responsive
Portfolio ............................... 32 32 32 33 97 97 97 101
Northstar Galaxy Trust Emerging
Growth Portfolio ........................ 26 26 26 27 79 79 79 84
Northstar Galaxy Trust Growth + Value
Portfolio ............................... 25 25 25 26 76 76 76 81
Northstar Galaxy Trust International
Value Portfolio ......................... 27 27 27 28 82 82 82 87
Northstar Galaxy Trust Research
Enhanced Index Portfolio ................ 26 26 26 27 79 79 79 84
Northstar Galaxy Trust High Yield
Bond Portfolio .......................... 25 25 25 26 76 76 76 81
OCC Equity Portfolio ..................... 26 26 26 28 81 81 80 85
OCC Global Equity Portfolio .............. 28 28 28 30 86 86 86 91
OCC Managed Portfolio .................... 25 25 25 27 77 77 77 81
OCC Small Cap Portfolio .................. 26 26 26 27 79 79 79 83
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
5 YEARS 10 YEARS
- ------------------------------------------- ------------------------------------------
TRANSFER FLEX RETAIL PLUS TRANSFER FLEX RETAIL PLUS
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
- ---------- -------- -------- -------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$130 $130 $130 $137 $278 $278 $276 $291
139 139 138 146 295 295 293 307
133 133 132 140 283 283 281 296
135 135 135 142 288 288 286 300
120 120 119 126 257 257 254 269
125 125 123 131 267 267 263 278
105 105 105 113 228 228 227 242
127 127 126 134 272 272 269 284
126 126 123 131 269 269 263 278
108 108 104 112 233 233 224 240
119 119 119 126 256 256 254 269
126 126 125 133 270 270 267 282
128 128 128 135 274 274 272 287
125 125 124 132 267 267 265 280
134 134 133 141 285 285 283 297
127 127 126 134 271 271 269 284
129 129 128 136 275 275 273 288
133 133 132 140 283 283 281 296
165 165 164 172 346 346 343 357
136 136 135 143 289 289 287 301
131 131 130 138 279 279 277 292
141 141 140 147 299 299 296 311
136 136 135 143 289 289 287 301
131 131 130 138 279 279 277 292
138 138 137 145 293 293 291 305
147 147 147 154 311 311 309 323
132 132 131 139 281 281 279 294
135 135 134 142 287 287 285 299
</TABLE>
11
<PAGE>
- ------------------
(a) The Withdrawal Charge for Transfer Series Contracts applies to each Purchase
Payment. The Withdrawal Charge is 6% in the Contract Year a Purchase Payment
is received by the Company and the Contract Year immediately following. It
decreases to 0% beginning the sixth year after a Purchase Payment was
received by the Company. For Flex Series Contracts, the Withdrawal Charge is
based on Contract Years. It decreases from 8% in the first three Contract
Years to 0% after the tenth Contract Year. The Withdrawal Charge for Retail
Series Contracts applies to each Purchase Payment. The Withdrawal Charge is
7% in the Contract Year a Purchase Payment is received by the Company and
the Contract Year immediately following. It decreases to 0% beginning the
sixth year after a Purchase Payment was received by the Company. There is no
Withdrawal Charge for Plus Series Contracts. For Transfer Series, Flex
Series and Retail Series Contracts, there are certain situations when
amounts may be withdrawn free of any Withdrawal Charge or the Withdrawal
Charge may be reduced or waived. For more information on the Withdrawal
Charge, see "Withdrawal Charge (Contingent Deferred Sales 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 currently does not assess a charge on reallocations between
Sub-Accounts or to or from the Fixed Accounts, although the Company reserves
the right to assess a charge not to exceed $25 per each reallocation.
(c) The Company currently deducts an Annual Contract Charge of $30 from the
Contract Value, but reserves the right to waive the charge when the Contract
Value meets specified conditions, for example, if the Contract Value exceeds
$25,000 for Transfer Series Contracts, Flex Series Contracts or Retail
Series Contracts, or for Plus Series Contracts, when the Contract Value
exceeds $50,000. For Retail Series Contracts, we also reserve the right to
waive this charge where the annual purchase payments, less any cumulative
partial surrenders equal or exceed $5,000.
(d) The Company or its affiliates may receive compensation from an affiliate or
affiliates of certain of the Funds based upon an annual percentage of the
average net assets held in that Fund by the Company and by certain of the
Company's insurance company affiliates. These amounts are intended to
compensate the Company or the Company's affiliates for administrative,
recordkeeping, and in some cases, distribution, and other services provided
by the Company and its affiliates to Funds and/or the 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.
(e) A portion of the brokerage commissions that certain Portfolios pay was used
to reduce Portfolio expenses. In addition, certain Portfolios have entered
into arrangements with their custodian whereby credits realized as a result
of uninvested cash balances were used to reduce custodian expenses.
Including these reductions, the total operating expenses presented in the
table would have been 0.57% for VIP Equity-Income Portfolio, 0.66% for VIP
Growth Portfolio, 0.72% for VIP II Asset Manager: Growth Portfolio, 0.66%
for VIP II Contrafund Portfolio, 0.28% for VIP II Index 500 Portfolio, and
0.70% for VIP III Growth Opportunities Portfolio.
(f) The fees and expenses in the table above are based on net expenses after
expense offset arrangements for the fiscal year ended December 31, 1998. The
information is net of fee reductions from Janus Capital. Fee reductions for
the Aggressive Growth, Growth, International Growth, and Worldwide Growth
Portfolios reduce the management fee to the level of the corresponding Janus
retail fund. Other waivers, if applicable, are first applied against the
Management Fee and then against Other Expenses. Without such reductions, the
Management Fee, Other Expenses and Total Investment Fund Annual Expenses for
the Shares would have been 0.72%, 0.03%, and 0.75% for Aggressive Growth
Portfolio; 0.72%, 0.03%, and 0.75% for Growth Portfolio; 0.75%, 0.20%, and
0.95% for International Growth Portfolio; and 0.67%, 0.07% and 0.74% for
Worldwide Growth Portfolio. Janus Capital has agreed to continue these fee
reductions until at least the next annual renewal of the advisory agreement.
(g) Neuberger Berman Advisers Management Trust is comprised of separate
Portfolios, the following of which are available as funding options under
the contract: Limited Maturity Bond Portfolio, Partners Portfolio and
Socially Responsive Portfolio ("Portfolio series"). Unlike the other funding
options available under the contract, each of the Portfolio series invests
all of its net investable assets in AMT Limited Maturity Bond Investments,
AMT Partners Investments and AMT Socially Responsive Investments,
respectively, of Advisers Managers Trust ("Investment series"). The
Investment series in turn, invest directly in securities. For a more
complete discussion of this structure, please see the prospectus for
Neuberger Berman Advisers Management Trust Limited Maturity Bond Portfolio,
Partners Portfolio and Socially Responsive Portfolio. Please note that the
figures reported under "Management Fees" and "Other Expenses" include the
aggregate of (i) the management fees paid by the Investment series, (ii) the
administration fees paid by the Portfolio series, and (iii) all other
expenses in the aggregate for the Investment series and Portfolio series,
respectively.
(h) 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. The Socially Responsive Portfolio had not commenced operations as
of December 31, 1998, and therefore these expense figures are estimated.
Estimated expenses are expected to be 2.50% for the fiscal period ending
December 31, 1999, prior to the reimbursement. The expense reimbursement
policy is subject to termination upon 60 days' written notice after April
30, 2000.
12
<PAGE>
There can be no assurance that this policy will be continued. See "Expense
Limitation" in the Socially Responsive Portfolio prospectus for further
information.
(i)The fee and expense information for the Northstar Galaxy Trust Emerging
Growth Portfolio and International Value Portfolio has been restated to
reflect current fees and expenses effective November 9, 1998. The fee and
expense information for the Northstar Galaxy Trust Research Enhanced Index
Portfolio has been restated to reflect current fees and expenses effective
April 30, 1999.
The investment adviser to the Northstar Galaxy Trust has agreed to reimburse
the 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 Emerging Growth Portfolio, International Value
Portfolio and Research Enhanced Index Portfolio for expenses in excess of
.90%, 1.00% and 0.90%, respectively. 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, 1998
would have been: Emerging Growth Portfolio: 1.14%; Growth + Value
Portfolio: 1.02%; International Value Portfolio: 1.68%; Research Enhanced
Index Portfolio: 1.29%; and High Yield Bond Portfolio: 1.23%. Expense
reimbursements are voluntary. There is no assurance of ongoing
reimbursement.
The Northstar Galaxy Trust Emerging Growth Portfolio (formerly the Northstar
Galaxy Trust Income and Growth Portfolio) operated under an investment
objective of seeking income balanced with capital appreciation from inception
through November 8, 1998, when the investment objective was modified to
seeking long-term capital appreciation. The Northstar Galaxy Trust Research
Enhanced Index Portfolio (formerly the Northstar Galaxy Trust Multi-Sector
Bond Portfolio) operated under an investment objective of seeking current
income while preserving capital through April 29, 1999, when the investment
objective was modified to seeking long-term capital appreciation.
(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 Product Charge for Plus Series Contracts is equal to an annual rate of
.15% of the average daily Variable Account Contract Value. This charge is
made monthly and is deducted from Sub-Accounts of the Variable Account or,
if there is no Variable Account Contract Value as of the date of the
deduction, from the Fixed Account Contract Value. If there is no Variable
Account Contract Value for an entire month prior to the date of the
deduction, the Product Charge is waived for that month.
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 $30 Annual Contract
Charge is reflected as an annual percentage charge in this table based on the
anticipated average net assets in the Variable Account and Fixed Account, which
translates into a charge equal to an annual rate of 0.252% of the Variable
Account and Fixed Account values.
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.
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
13
<PAGE>
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 twenty-eight Sub-Accounts, each of which invests in
shares of one of the Funds. The Company reserves the right, subject to
compliance with applicable law, to offer additional Sub-Accounts, each of which
could invest in a new fund with a specified investment objective.
A Contract Owner is limited to participating in a maximum of sixteen
Sub-Accounts over the lifetime of the Contract. The Contract Owner would not be
required to select the Sub-Accounts in advance, but upon reaching participation
in sixteen Sub-Accounts since issue of the Contract, the Contract Owner would
only be able to transfer within the sixteen Sub-Accounts already selected and
which are still available under the Variable Account. For example, assume a
Contract Owner selects six Sub-Accounts. Later, the Contract Owner transfers out
of all of the six initial selections and chooses ten different Sub-Accounts,
none of which are the same as the original six selections. The Contract Owner
has now used the maximum selection of sixteen Sub-Accounts. The Contract Owner
may still allocate Purchase Payments or transfer Contract Values among any of
the sixteen Sub-Accounts that were previously selected. However, the Contract
Owner may not allocate funds to the remaining Sub-Accounts at any time. A
Contract Owner may transfer partial or complete Contract Values from the
Variable Account to Fixed Accounts A and B for Flex Series, Transfer Series and
Retail Series Contracts, and to Fixed Account A for Plus Series Contracts, at
any time.
14
<PAGE>
The Funds currently offered are described below.
INVESTMENT FUNDS
<TABLE>
<CAPTION>
ADVISER/
FUND GROUP FUND SUBADVISER MONEY MARKET FIXED INCOME GROWTH & INCOME
=============================================================================================================
<S> <C> <C> <C> <C> <C>
The Alger American Fred Alger
Alger Growth Portfolio Management, Inc.
American
Fund
-----------------------------------------------------------------------------------------
Alger American Fred Alger
New York, N.Y. Leveraged AllCap Management, Inc.
Portfolio
-----------------------------------------------------------------------------------------
Alger American Fred Alger
MidCap Growth Management, Inc.
Portfolio
-----------------------------------------------------------------------------------------
Alger American Fred Alger
Small Capitalization Management, Inc.
Portfolio
=============================================================================================================
Fidelity VIP Fidelity
Investments(R) Equity-Income Management X
Portfolio & Research
Boston, Mass. Company
-----------------------------------------------------------------------------------------
VIP Growth Fidelity
Portfolio Management
& Research
Company
-----------------------------------------------------------------------------------------
VIP Fidelity
Money Market Management X
Portfolio & Research
Company
-----------------------------------------------------------------------------------------
VIP II Asset Fidelity
Manager: Growth Management
Portfolio & Research
Company
-----------------------------------------------------------------------------------------
VIP II Fidelity
Contrafund Management
Portfolio & Research
Company
-----------------------------------------------------------------------------------------
VIP II Fidelity
Index 500 Management X
Portfolio & Research
Company
-----------------------------------------------------------------------------------------
VIP II Fidelity
Investment Grade Management X
Bond Portfolio & Research
Company
-----------------------------------------------------------------------------------------
Fidelity VIP III Fidelity
Investments(R) Growth Management
is a registered Opportunities & Research
trademark of Portfolio Company
FMR Corp.
=============================================================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
PRIMARY
FUND GROUP INTERNATIONAL BALANCED GROWTH AGGRESSIVE GROWTH OBJECTIVES INVESTMENTS
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
The X Long-term capital Equity securities of
Alger appreciation large companies
American
Fund -------------------------------------------------------------------------------------------------------
X Long-term capital Equity securities of
New York, N.Y. appreciation companies of any size
-------------------------------------------------------------------------------------------------------
Long-term capital Equity securities within
X appreciation the range of S&P
MidCap 400 Index
-------------------------------------------------------------------------------------------------------
X Long-term capital Equity securities within
appreciation the range of Russell 2000
Growth or S&P SmallCap
600 Indexes
===========================================================================================================================
Fidelity Reasonable Income-producing
Investments(R) income; equity securities and
also considers debt obligations
Boston, Mass. potential for
capital
appreciation
-------------------------------------------------------------------------------------------------------
X Capital Common stocks
appreciation
-------------------------------------------------------------------------------------------------------
High level of U.S. dollar-denominated
current income money market securities
consistent with
preservation of
capital and
liquidity
-------------------------------------------------------------------------------------------------------
X Maximum total Stocks, bonds, and
return over the short-term and money
long term 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 that S&P 500
of S&P 500 Index
-------------------------------------------------------------------------------------------------------
High current Investment-grade
income consistent intermediate fixed
with preservation securities
of capital
-------------------------------------------------------------------------------------------------------
Fidelity X Capital growth Common stocks
Investments(R)
is a registered
trademark of
FMR Corp.
===========================================================================================================================
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
ADVISER/
FUND GROUP FUND SUBADVISER MONEY MARKET FIXED INCOME GROWTH & INCOME
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Janus Aspen Series Janus
Aggressive Capital
Denver, Colo. Growth Portfolio Corporation
-------------------------------------------------------------------------------------
Aspen Series Janus
Growth Portfolio Capital
Corporation
-------------------------------------------------------------------------------------
Aspen Series Janus
International Capital
Growth Portfolio Corporation
-------------------------------------------------------------------------------------
Aspen Series Janus
Worldwide Capital
Growth Portfolio Corporation
========================================================================================================
Neuberger Advisers Neuberger
Berman Management Trust Berman
Limited Management Inc./ X
Maturity Bond Neuberger
Portfolio Berman,
LLC
-------------------------------------------------------------------------------------
New York, N.Y. Advisers Neuberger
Management Trust Berman
Partners Management Inc./
Portfolio Neuberger
Berman,
LLC
-------------------------------------------------------------------------------------
Advisers Neuberger
Management Trust Berman
Socially Management Inc./
Responsive Neuberger
Portfolio Berman,
LLC
========================================================================================================
Northstar Emerging Northstar
Growth Portfolio Investment
Stamford, Conn. Management
Corporation
-------------------------------------------------------------------------------------
Growth + Value Northstar
Portfolio Investment
Management
Corporation/
Navellier Fund
Management, Inc.
-------------------------------------------------------------------------------------
International Northstar
Value Portfolio Investment
Management
Corporation/
Brandes
Investment
Partners, L.P.
-------------------------------------------------------------------------------------
Research Northstar
Enhanced Investment
Index Portfolio Management
Corporation/
J.P. Morgan
Investment
Management Inc.
-------------------------------------------------------------------------------------
High Yield Northstar
Portfolio Investment X
Management
Corporation
========================================================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
PRIMARY
FUND GROUP INTERNATIONAL BALANCED GROWTH AGGRESSIVE GROWTH OBJECTIVES INVESTMENTS
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Janus X Long-term growth Nondiversified portfolio
of of common stocks
Denver, Colo. capital
-----------------------------------------------------------------------------------------------------
X Long-term capital Diversified common
growth stocks
-----------------------------------------------------------------------------------------------------
X Long-term capital Foreign issuers of
growth common stocks
-----------------------------------------------------------------------------------------------------
X Long-term capital Foreign and domestic
growth common stocks
========================================================================================================================
Neuberger Highest available Short-to-intermediate
Berman current income term investment-grade
consistent with debt securities
liquidity and low
risk to principal;
total return is a
secondary goal
-----------------------------------------------------------------------------------------------------
New York, N.Y. X Growth of capital Common stocks of
medium-to-large
capitalization
companies
-----------------------------------------------------------------------------------------------------
X Long-term Common stocks of
growth of capital medium-to-large
by investing capitalization
primarily in companies
companies that
meet financial and
social criteria
========================================================================================================================
Northstar X Long-term capital Common stocks
appreciation
-----------------------------------------------------------------------------------------------------
Stamford, Conn.
X Capital Equity securities
appreciation
by investing in
a diversified
portfolio of
equity securities
-----------------------------------------------------------------------------------------------------
X Long-term capital International equities
appreciation
-----------------------------------------------------------------------------------------------------
X Capital Common stocks
appreciation
-----------------------------------------------------------------------------------------------------
High current yield High-yield bonds
and capital
appreciation
========================================================================================================================
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
ADVISER/
FUND GROUP FUND SUBADVISER MONEY MARKET FIXED INCOME GROWTH & INCOME
=================================================================================================
<S> <C> <C> <C> <C> <C>
OCC OCC Accumulation OpCap
Trust Equity Advisors
New York, N.Y. Portfolio
-------------------------------------------------------------------------------
OCC Accumulation OpCap
Trust Global Advisors
Portfolio
-------------------------------------------------------------------------------
OCC Accumulation OpCap
Trust Managed Advisors
Portfolio
-------------------------------------------------------------------------------
OCC Accumulation OpCap
Trust Small Advisors
Cap Portfolio
=================================================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
PRIMARY
FUND GROUP INTERNATIONAL BALANCED GROWTH AGGRESSIVE GROWTH OBJECTIVES INVESTMENTS
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
OCC X Long-term capital Securities of
appreciation undervalued
New York, N.Y. companies
-------------------------------------------------------------------------------------------------
X Long-term capital Global investments in
appreciation equity securities
-------------------------------------------------------------------------------------------------
X Growth of capital Common stocks,
bonds and cash
equivalents
-------------------------------------------------------------------------------------------------
X Capital Equity securities of
appreciation companies under
$1 billion
===================================================================================================================
</TABLE>
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:
o 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.
o 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.
o 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.
17
<PAGE>
o 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.
o Restrict or eliminate any voting privileges of Contract Owners or
other persons who have voting privileges as to the Variable Account.
o Make any changes required by the 1940 Act.
o 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:
o Applicable Federal and state laws and regulations.
o Notice to Contract Owners.
o 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. However, if
part or all of the Purchase Payments made under Transfer Series Contracts or
Retail Series Contracts, or part or all of Contract Value under Flex Series
Contracts, are withdrawn, a Withdrawal Charge (Contingent Deferred Sales Charge)
may be made by the Company. There is no Withdrawal Charge for withdrawals from
Plus Series Contracts.
Withdrawal Charges are deducted from the amount being withdrawn and are
considered a part of the withdrawal.
The Withdrawal Charge is intended to reimburse the Company for expenses
relating to the sale of the Contracts, including commissions to sales personnel,
costs of sales material and other promotional activities and sales
administration costs.
TRANSFER SERIES CONTRACTS. For purposes of determining Withdrawal Charges,
withdrawals will be taken first from Purchase Payments on a first-in, first-out
basis, then from Contract Earnings as of the Valuation Date next following the
date of the Company's receipt of the withdrawal request.
The Withdrawal Charge for full or partial withdrawal is determined by
multiplying the amount of each Purchase Payment withdrawn that is not eligible
for a free withdrawal, by the applicable Withdrawal Charge percentage as set
forth in the following table:
TRANSFER SERIES CONTRACTS
WITHDRAWAL CHARGE PERCENTAGE TABLE
-----------------------------------------------------
CONTRACT YEAR OF
WITHDRAWAL MINUS WITHDRAWAL CHARGE AS A
CONTRACT YEAR OF PURCHASE PERCENTAGE OF EACH
PAYMENT PURCHASE PAYMENT
--------------------------- -----------------------
0 6%
1 6
2 5
3 5
4 4
5 2
6 and later 0
18
<PAGE>
RETAIL SERIES CONTRACTS. For purposes of determining Withdrawal Charges,
withdrawals will be taken first from Contract Earnings as of the Valuation Date
next following the date of the Company's receipt of the withdrawal request, then
from Purchase Payments on a first-in, first-out basis.
The Withdrawal Charge for full or partial withdrawal is determined by
multiplying the amount of each Purchase Payment withdrawn that is not eligible
for a free withdrawal, by the applicable Withdrawal Charge percentage as set
forth in the following table:
RETAIL SERIES CONTRACTS
WITHDRAWAL CHARGE PERCENTAGE TABLE
-----------------------------------------------------
CONTRACT YEAR OF
WITHDRAWAL MINUS WITHDRAWAL CHARGE AS A
CONTRACT YEAR OF PURCHASE PERCENTAGE OF EACH
PAYMENT PURCHASE PAYMENT
--------------------------- -----------------------
0 7%
1 7
2 6
3 5
4 4
5 2
6 and later 0
For Qualified Retail Series Contracts, the Withdrawal Charge will be zero
after the twelfth Contract Year.
FLEX SERIES CONTRACTS. If a Flex Series Contract is withdrawn in full or in
part before the eleventh Contract Year, the Company may deduct a Withdrawal
Charge from the Contract Value. The Withdrawal Charge is determined by
multiplying the Contract Value subject to the charge by the applicable
Withdrawal Charge percentage as set forth in the following table:
CONTRACT YEAR WITHDRAWAL CHARGE
--------------- ------------------
1 8%
2 8
3 8
4 7
5 6
6 5
7 4
8 3
9 2
10 1
11 0
WAIVER OF WITHDRAWAL CHARGE FOR CERTAIN CONTRACTS
For Contracts which are Qualified Plans under Section 457 of the Code, we
will waive the Withdrawal Charge on full and partial withdrawals you request
anytime while this Contract is in force if:
o The Annuitant separates from service with the Contract Owner;
o The Annuitant dies;
o The Annuitant becomes permanently and totally disabled as defined in
Section 22(e)(3) of the Code;
o The Annuitant demonstrates a financial hardship, as defined in Section
457(d)(1)(iii) of the Code and Treasury Regulations thereunder; or
o Minimum distributions from the Contract must be made as required by
Section 457(d)(2) of the Code.
Withdrawals requested because of the death of the Annuitant (or the Owner
for a Retail Series Contract) will be paid to the Beneficiary(ies) designated in
the Contract, or if none, to the Annuitant's
19
<PAGE>
(or the Owner's for a Retail Series Contract) estate. All other withdrawals
requested hereunder will be paid to the Annuitant.
We reserve the right to receive written proof from the Contract Owner that
the requirements for waiver of the Withdrawal Charge are met before we waive
such charge. 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.
PARTIAL WAIVER OF WITHDRAWAL CHARGE
TRANSFER SERIES AND FLEX SERIES. During any 12-month period, the Contract
Owner may withdraw a portion of the Contract Value without a Withdrawal Charge.
The 12-month period begins with the Contract Owner's first withdrawal. For the
first withdrawal, the amount available without a Withdrawal Charge will be
determined on the date of the requested withdrawal and will be the greater of:
o 10% of the Contract Value less any Outstanding Loan Balance; or
o For Transfer Series Contracts, the Purchase Payments remaining which
are no longer subject to a Withdrawal Charge, and for Flex Series
Contracts, the Contract Value no longer subject to a Withdrawal
Charge.
We call this amount the "Free Surrender Amount."
If the first withdrawal equals the Free Surrender Amount, other withdrawals
during the 12-month period are subject to the Withdrawal Charge. If the first
withdrawal exceeds the Free Surrender Amount, the excess is subject to the
Withdrawal Charge, as are all other Withdrawals requested during the 12-month
period.
If the first withdrawal is less than the Free Surrender Amount, the Company
will keep track of the unused portion of the Free Surrender Amount for the
12-month period. The unused portion of the Free Surrender Amount may be applied
against no more than three (3) additional withdrawals during the 12-month
period.
The unused portion of the Free Surrender Amount available for withdrawal
will be computed by the Company on the date of any withdrawal request made after
the first withdrawal in the 12-month period and will be based upon:
10% x [(Greater of A or B) - C] D
Where:
A= Contract Value on the date of the first withdrawal in the 12-month
period;
B= Contract Value on the date of the withdrawal request;
C= Outstanding Loan Balance on the date of the withdrawal request; and
D= Any prior withdrawals made during the same 12-month period.
RETAIL SERIES. For Retail Series Contracts, during any Contract Year, the
Contract Owner may withdraw a portion of the Contract Value without a Withdrawal
Charge. For each Contract Year, the amount available without a Withdrawal Charge
will be determined on the date of the requested withdrawal and will be the
greater of:
o Earnings; or
o 10% of Purchase Payments, as of the last Contract Anniversary, subject
to the Withdrawal Charge.
This amount can be taken in up to four withdrawals per Contract Year. We call
this the "Free Surrender Amount." If the first withdrawal exceeds this amount,
the excess is subject to the Withdrawal Charge. If the first withdrawal equals
the Free Surrender Amount, other withdrawals during the Contract Year may be
subject to the Withdrawal Charge, although Contract Earnings are always
available without being subject to the Withdrawal Charge.
If the first withdrawal is less than the Free Surrender Amount, the Company
will keep track of the unused portion of the Free Surrender Amount for the
Contract Year. The unused portion of the Free
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Surrender Amount may be applied against no more than three (3) additional
withdrawals during the Contract Year, and Contract Earnings are always available
without being subject to the Withdrawal Charge.
The unused portion of the Free Surrender Amount available for withdrawal
will be computed by the Company on the date of any withdrawal request made
during the Contract Year and will be based upon:
[Greater of A or B] - C
Where:
A= Earnings;
B= 10% of Purchase Payments subject to Withdrawal Charges as of the
beginning of the Contract Year; and
C= Any prior withdrawals made during the same Contract Year period.
GENERAL INFORMATION. The Withdrawal Charges described above will be waived
in the event of the death of the Contract Owner or in the case of a
non-qualified Contract, the death of the Annuitant. In addition, for Contracts
qualified under Section 403(b) of the Code only, Withdrawal Charges may be
waived under certain circumstances.
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 591/2. (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).")
REDUCTION OF WITHDRAWAL CHARGE
The Company may, at its option, provide a reduction in the Withdrawal
Charge for specific classes of Contract purchasers. Currently, the Company
provides a reduced Withdrawal Charge for purchasers of Tax Sheltered Annuities
issued pursuant to Section 403(b) of the Code to employees of certain school
districts which, in the judgment of the Company, have provided cost reduction
benefits to the Company in the distribution of its contracts. For such
purchasers, the Withdrawal Charge on Flex Series Contracts is reduced to 5% in
each of the first five Contract Years. The Withdrawal Charge on Transfer Series
Contracts is reduced to 5% in each of the first two Contract Years following
receipt of a Purchase Payment.
ANNUAL CONTRACT CHARGE
On each Contract Anniversary prior to the Start Date, the Company deducts
an Annual Contract Charge of $30 from the Contract Value to reimburse it for
administrative expenses relating to the Contract, the Variable Account and the
Sub-Accounts. The Company will not increase the Annual Contract Charge. The
Company reserves the right to waive the Annual Contract Charge where the
Contract Value meets specified conditions, for example if the Contract Value
exceeds $25,000 for Flex Series, Transfer Series or Retail Series Contracts. The
Company reserves the right to waive the Annual Contract Charge for Plus Series
Contracts when the Contract Value meets specified conditions, for example if the
Contract Value exceeds $50,000. For Retail Series Contracts, the Company also
waives this charge where the Annual Purchase Payments, less any withdrawals,
equal or exceed $5,000. However, the Company reserves the right to reinstate the
Charge on Contracts qualifying for the waiver. For all Contract Values, in any
Contract Year when a full withdrawal of Contract Value is made on other than the
Contract Anniversary, the Annual Contract Charge will be deducted at the time of
such withdrawal.
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.
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To compensate the Company for assuming this mortality risk and the
mortality risk that Beneficiaries of Annuitants 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.
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 CHARGE (FOR PLUS SERIES CONTRACTS ONLY)
The Company assesses no withdrawal or surrender charges for Plus Series
Contracts. Instead, a Product Charge is made for Plus Series Contracts. This
charge is equal to an annual rate of .15% of the average daily Variable Account
Contract Value. The Product Charge is intended to reimburse the Company for
expenses relating to sale of Plus Series Contracts, including distribution
expenses. The Company anticipates that the absence of a withdrawal or surrender
charge will lead to greater liquidity, and therefore higher administrative
expenses, which will be offset by the Product Charge.
The charge is deducted monthly from the Variable Account Sub-Accounts or,
if there is no Variable Account Contract Value as of the date of the deduction,
from the Fixed Account Contract Value. If there is no Variable Account Contract
Value for the entire month before the date of the deduction, no Product Charge
is made for that month. The Company may not increase the rate of the Product
Charge for any Plus Series Contract.
SUFFICIENCY OF CHARGES
If the amount of the Withdrawal Charge assessed in connection with Flex
Series, Transfer Series and Retail Series Contracts and the Product Charge
assessed in connection with Plus Series Contracts is not enough to cover all
distribution expenses incurred in connection therewith, the loss 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.
The Company does not currently believe that the Withdrawal Charges and
Product Charges imposed will cover the expected costs of distributing the
Contracts, depending on the number of years the Contracts are held.
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.
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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 Withdrawal and 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
o the use of mass enrollment procedures,
o the performance of administrative or enrollment functions by an
employer,
o the use by an employer of automated techniques in submitting Purchase
Payments or information related to Purchase Payments on behalf of its
employees, or
o 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 Home
Office. The initial Purchase Payment will be credited within two business days
after receipt at the Company's Home Office 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 Transfer Series Contracts, Flex Series Contracts, Retail Series
Contracts and Plus Series Contracts which are Qualified Plans, the Company will
accept periodic, single sum, rollover and transfer Purchase Payments as
permitted by the Code. For the non-qualified Transfer Series Contracts, Retail
Series Contracts and Plus Series 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
Transfer Series Contracts is $15,000 and subsequent payments may not be less
than $5,000. The minimum amount of the initial and subsequent Purchase Payments
the Company will accept under Flex Series Contracts is $50. The minimum amount
of the initial and subsequent Purchase Payments the Company will accept under
Retail Series Contracts is $5,000 or $50 for periodic premiums. The minimum
initial Purchase Payment the Company will accept under Plus
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Series Contracts is $25,000 and subsequent payments may not be less than $5,000.
The minimum payment to Fixed Account C for Flex Series, Transfer Series and
Retail Series Contracts is $5,000.
The Company may choose not to accept any subsequent Purchase Payment under
the Transfer Series, Flex Series, Retail Series and Plus 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.
REVOCATION
The Contract Owner may revoke a Contract by sending the Contract and
written notice of revocation to the Company's Home Office in Seattle,
Washington, 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. For Flex Series and
Transfer Series Contracts, the Company will refund the Contract Value unless you
reside in a state requiring return of Purchase Payment, in which case the
Company will refund Purchase Payments paid.
For Retail Series and Plus Series 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-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
For Flex Series, Transfer Series and Retail Series Contracts, the Contract
Owner may allocate Purchase Payments among Sub-Accounts, Fixed Account A, Fixed
Account B, and/or Fixed Account C. For Plus Series Contracts, the Contract Owner
may allocate Purchase Payments among Sub-Accounts, Fixed Account A, and/or Fixed
Account C. (See Appendix A.)
For Retail Series and Plus Series 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
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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.
(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:
For Flex Series and Transfer Series Contracts,
(1) If the Contract Owner dies before the first day of the month following the
Contract Owner's 80th birthday, or in the case of a non-qualified Contract,
the Annuitant dies on or before the first day of the month following the
Annuitant's 80th birthday, then as of the Death Benefit Valuation Date, the
Death Benefit will be the greatest of:
(a) The Contract Value less any Outstanding Loan Balance;
(b) The sum of the Purchase Payments received by the Company under the
Contract, less any withdrawals, amounts used to purchase annuity
payouts, any Outstanding Loan Balance, and the amount of previously
deducted Annual Contract Charges; or
(c) The Contract Value on the Specified Contract Anniversary immediately
preceding the Contract Owner's or the Annuitant's death, whichever is
applicable, plus any Purchase Payments since that Anniversary, less any
withdrawals or amounts used to purchase annuity payouts since that
Anniversary, less the amount of any previously deducted Annual Contract
Charges since that Anniversary and less the Outstanding Loan Balance.
(2) If the Contract Owner, or in the case of a non-qualified Contract, the
Annuitant, dies after the first day of the month following the Contract
Owner's or Annuitant's 80th birthday, the Death Benefit will be Contract
Value less the Outstanding Loan Balance as of the Death Benefit Valuation
Date.
(3) If the Contract Owner of a non-qualified Contract dies, the Death Benefit
will be Withdrawal Value as of the Death Benefit Valuation Date.
For Retail Series and Plus Series Contracts,
(1) If the Contract Owner dies before the first day of the month following the
Contract Owner's 80th birthday, then as of the Death Benefit Valuation Date,
the Death Benefit will be the greatest of:
(a) The Contract Value less any Outstanding Loan Balance;
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(b) The sum of the Purchase Payments received by the Company under the
Contract, less the proportional amount of any withdrawals, proportional
amounts used to purchase annuity payouts, any Outstanding Loan Balance,
and the amount of previously deducted Annual Contract Charges; or
(c) The Contract Value on the Specified Contract Anniversary immediately
preceding the Contract Owner's death, plus any Purchase Payments since
that Anniversary, less the proportional amount of any withdrawals or
amounts used to purchase annuity payouts since that Anniversary, less
the amount of any previously deducted Annual Contract Charges since that
Anniversary and less the Outstanding Loan Balance.
(2) If the Contract Owner dies after the first day of the month following the
Contract Owner's 80th birthday, the Death Benefit will be the greater of (a)
or (b) above.
(3) If the Annuitant of a non-qualified Contract dies, the Death Benefit will be
Withdrawal Value as of the Death Benefit Valuation Date.
For Retail Series Contracts and Plus Series Contracts, the Contract Owner
may purchase a rider to the Contract that entitles the Contract Owner to change
the Specified Contract Anniversary to the Contract Value on the first Contract
Anniversary immediately preceding the Contract Owner's death. The fee for this
rider is equal to an annual rate of .15% of the average daily Variable Account
Contract Value. This fee is charged monthly.
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.") For Flex Series, Transfer Series and Retail Series Contracts, the
Contract Owner may request withdrawal of either:
o a gross amount, in which case the applicable Withdrawal Charge and
taxes will be deducted from the gross amount requested, or
o a specific amount after deduction of the applicable Withdrawal Charge
and taxes.
For Plus Series Contracts, no Withdrawal Charge will be made on full or
partial withdrawals.
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If a full withdrawal occurs on a date other than the Contract Anniversary,
a deduction will be made for the Annual Contract Charge in addition to the
deduction made on the previous Contract Anniversary. (See "Withdrawal Charge
(Contingent Deferred Sales Charge)" and "Annual Contract Charge.")
For Flex Series, Transfer Series, and qualified Retail Series Contracts,
partial withdrawals may be made in amounts not less than $1,000 and no partial
withdrawal may cause the Contract Value to fall below the greater of:
o $1,000, or
o the Outstanding Loan Balance divided by 85%.
For non-qualified Retail Series and Plus Series Contracts, partial
withdrawals must be at least $1,000 and no partial withdrawal may cause the
Contract Value to fall below $1,000.
For qualified Plus Series Contracts, partial withdrawals must be at least
$1,000 and no partial withdrawal may cause the Contract Value to fall below the
greater of:
o $25,000; and
o the Outstanding Loan Balance divided by 85%.
No withdrawals are permitted from Fixed Account C.
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 for Flex Series and
Transfer Series Contracts, and $25 for Retail Series and Plus Series Contracts.
No processing fee will be charged in connection with full withdrawals.
The Company may cancel the Contract when:
o the entire Withdrawal Value is withdrawn on or before the Start Date,
or
o 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 591/2, 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
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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 for Flex Series, Transfer Series and
Retail Series Contracts, and $25 for Plus Series Contracts.
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 591/2 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.
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 Home Office in
Seattle, Washington.
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.")
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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
For Flex Series, Transfer Series, or Retail Series Contracts,
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 either Fixed Account A or Fixed Account B.
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 either Fixed Account A or Fixed Account B to the
other Fixed Account or to a Sub-Account. (See "Reallocations from the Fixed
Accounts.")
Fixed Account C Contract Value may only be transferred to one or more
Sub-Accounts, and such transfers may only be made by Dollar Cost Averaging
Reallocations. Reallocations from Fixed Account C to Fixed Account A or Fixed
Account B or from Fixed Account A, Fixed Account B, or the Variable Account to
Fixed Account C are not permitted.
For Plus Series Contracts,
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.
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.
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.
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. Currently, there is
no charge for such a reallocation. The Company reserves the right, however, to
charge a reallocation fee not to exceed $25 per reallocation and to limit the
amount and number of reallocations made by the Contract Owner. 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
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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 Home Office of the Company. An Automatic Reallocation
application can be obtained by writing to the Company's Home Office in Seattle,
Washington. The Contract Owner must indicate on the application the applicable
Sub-Accounts and 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 Home Office. 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 B (not available in
Plus Series Contracts) and 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 from Fixed Account B, if
available, or 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.
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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.
For Flex Series, Transfer Series and Retail Series Contracts,
reallocations of Fixed Account B Contract Value to the Sub-Accounts or to Fixed
Account A are subject to the following conditions:
o Reallocations may only be made during the period starting 30 days before
and ending 30 days after the Contract Anniversary, and only one
reallocation may be made during such period;
o The Company must receive the reallocation request no more than 30 days
before the start of the reallocation period and not later than 10 days
before the end of the reallocation;
o Reallocations not in excess of the greater of 25% of Fixed Account B
Contract Value or $1,000 may be made (unless the balance after such
reallocation would be less than $1,000, in which case the full Fixed
Account B Contract Value may be reallocated); and
o Such reallocation must involve at least $250 of the total Fixed Account B
Contract Value (or the total Fixed Account B Contract Value, if less).
Reallocations of Fixed Account C Contract Values are subject to the
following conditions:
o 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.
o 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.
o 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.
o 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 Accounts
A and B (if available) 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 (or the Annuitant in the case of non-qualified Flex
Series, Transfer Series or Plus Series
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Contracts) 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 Home
Office in Seattle, Washington.
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 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
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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.
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.
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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.
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").
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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, 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.
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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.
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:
o Made on or after the taxpayer reaches age 59 1/2;
o 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);
o Attributable to the taxpayer becoming disabled;
o 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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o 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
o 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 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
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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.
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
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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.
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. Generally such payments will not exceed 7.00% of the
Purchase Payments. In some cases a trail commission based on the Contract Value
may also be paid.
REPORTS TO CONTRACT OWNERS
The Company will mail to the Contract Owner, at the last known address of
record at the Home Office of the Company, a statement showing the Contract
Value. The Company will also provide to Contract Owners immediate written
confirmation of every financial transaction made under their
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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 will be mailed to your household, even if you or other persons in
your household have more than one Contract. Call (877) 884-5050 if you need
additional copies of financial reports, prospectuses, or annual and semi-annual
reports.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party.
The Company and its affiliates, like other life insurance companies, are
periodically involved in lawsuits, including class action lawsuits. In some
class action and other lawsuits involving insurers, substantial damages have
been sought and/or material settlement payments have been made. Although the
outcome of any litigation cannot be predicted with certainty, the Company
believes that at the present time there are not pending or threatened lawsuits
that are reasonably likely to have a material adverse impact on the Variable
Account or the Company.
PREPARING FOR THE YEAR 2000
The Company's business units utilize data processing systems in the
administration of the insurance and financial services products which they
market. Most of the Company's data processing systems have required
modifications to enable them to process dates including the year 2000 and
beyond.
In 1995, the Company initiated an enterprise wide program of identifying
and modifying systems affected by the year 2000. The Company developed a plan
whereby all systems would be identified, modified and tested for Year 2000
compliance. The Company initiated a structured review and reporting system
whereby senior management is regularly advised of the status of the project. As
of June 30, 1999, ReliaStar had converted, tested for Year 2000 compliance and
put into production all of its core business applications.
The Company conducts business with a multitude of business entities whose
ability to comply with Year 2000 systems issues may affect the business
operations of the Company. The Company has made an attempt to determine whether
such entities have adequate plans for Year 2000 compliance, and the Company is
not aware of any instances where a key supplier or vendor will not be compliant.
The Company does not have the ability to assure with any certainty the
compliance capacity of third parties.
The Company's business would be adversely affected if it does not meet its
goals relative to Year 2000 preparedness, and the Company's plans and actions
reflect the importance of this project. Although the Company has contingency
plans in place, it is not reasonably possible to develop contingency plans which
would comprehensively address widespread systems failures.
FINANCIAL STATEMENTS AND EXPERTS
The annual financial statements of Separate Account One as of December 31,
1998 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, 1998 and 1997, which are included in the Statement of
Additional Information, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated 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.
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SEPARATE ACCOUNT ONE
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Introduction .................................... SAI- 2
Custody of Assets ............................... SAI- 2
Independent Auditors ............................ SAI- 3
Distribution of the Contracts ................... SAI- 3
Calculation of Yields and Total Returns ......... SAI- 3
Company Holidays ................................ SAI-14
Financial Statements ............................ SAI-14
If you would like to receive a copy of the Separate Account One Statement of
Additional Information, please call 1-800-621-3750 or return this request to:
WASHINGTON SQUARE SECURITIES, INC.
20 WASHINGTON AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55401
Your name ______________________________________________________________________
Address ________________________________________________________________________
City _________________________________ State ______________ Zip ____________
Please send me a copy of the Separate Account One 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.
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APPENDIX A
THE FIXED ACCOUNTS
CONTRIBUTIONS AND REALLOCATIONS TO FIXED ACCOUNT A, FIXED ACCOUNT B (IF
AVAILABLE), 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%. For
Flex Series and Transfer Series Contracts any interest rate in effect when an
amount is allocated or reallocated to the Fixed Accounts is guaranteed for that
amount until the end of the calendar year in which it is received. After the end
of that calendar year, the Company may change the amount of interest credited at
its discretion. All amounts in the Fixed Accounts after the end of the calendar
years referenced above are credited with excess interest at the rates then in
effect for the then current calendar year. Such rates are established at the
beginning of each calendar year and are guaranteed for the entire calendar year.
For Retail Series and Plus Series Contracts, 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.
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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, 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.")
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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 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
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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>
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
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
------------- ------------- ------------- ------------
1995 1996 1997 1998
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
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
End of period .............................. $ 10.0072 $ 11.1842 $ 13.8684 $ 20.2501
Units outstanding at end of period ......... 7,531 162,852 402,925 958,685
Alger American Leveraged AllCap Portfolio
Beginning of period ........................ $ 10.0000 $ 10.2636 $ 11.3381 $ 13.3809
End of period .............................. $ 10.2636 $ 11.3381 $ 13.3809 $ 20.8260
Units outstanding at end of period ......... 3,864 130,393 260,380 491,436
Alger American MidCap Growth Portfolio
Beginning of period ........................ $ 10.0000 $ 9.8937 $ 10.9156 $ 12.3791
End of period .............................. $ 9.8937 $ 10.9156 $ 12.3791 $ 15.9059
Units outstanding at end of period ......... 2,208 227,029 405,580 590,794
Alger American Small Capitalization
Portfolio
Beginning of period ........................ $ 10.0000 $ 9.8255 $ 10.0929 $ 11.0864
End of period .............................. $ 9.8255 $ 10.0929 $ 11.0864 $ 12.6301
Units outstanding at end of period ......... 9,498 261,902 527,947 751,967
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
End of period .............................. $ 10.7172 $ 12.0764 $ 15.2559 $ 16.7931
Units outstanding at end of period ......... 3,922 370,036 1,040,329 1,850,470
VIP Growth Portfolio
Beginning of period ........................ $ 10.0000 $ 9.8237 $ 11.1104 $ 13.5286
End of period .............................. $ 9.8237 $ 11.1104 $ 13.5286 $ 18.6089
Units outstanding at end of period ......... 5,112 210,258 624,734 1,117,355
VIP Money Market Portfolio
Beginning of period ........................ $ 10.0000 $ 10.0743 $ 10.4712 $ 10.8926
End of period .............................. $ 10.0743 $ 10.4712 $ 10.8926 $ 11.3294
Units outstanding at end of period ......... -- 104,844 446,458 605,376
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 $ 12.2982 $ 15.1675
End of period .............................. $ 10.3997 $ 12.2982 $ 15.1675 $ 17.5847
Units outstanding at end of period ......... 6,432 58,201 293,160 652,013
VIP II Contrafund Portfolio
(From October 20, 1995)
Beginning of period ........................ $ 10.0000 $ 10.2935 $ 12.3119 $ 15.0718
End of period .............................. $ 10.2935 $ 12.3119 $ 15.0718 $ 19.3181
Units outstanding at end of period ......... 7,417 314,103 1,124,760 2,090,469
VIP II Index 500 Portfolio
(From October 20, 1995)
Beginning of period ........................ $ 10.0000 $ 10.5862 $ 12.8201 $ 16.7757
End of period .............................. $ 10.5862 $ 12.8201 $ 16.7757 $ 21.2285
Units outstanding at end of period ......... 702 231,904 1,310,992 3,336,587
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
------------- ------------- ----------------- ----------------
1995 1996 1997 1998
------------- ------------- ----------------- ----------------
<S> <C> <C> <C> <C>
VIP II Investment Grade Bond Portfolio
(From April 30, 1999)
Beginning of period ........................ N/A N/A N/A N/A
End of period .............................. N/A N/A N/A N/A
Units outstanding at end of period ......... N/A N/A N/A N/A
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
End of period .............................. N/A N/A N/A N/A
Units outstanding at end of period ......... N/A N/A N/A N/A
JANUS ASPEN SERIES:
(All Sub-Accounts From August 8, 1997)
Aggressive Growth Portfolio
Beginning of period ........................ N/A N/A $ 10.0000 $ 10.8993
End of period .............................. N/A N/A $ 10.8993 $ 14.4299
Units outstanding at end of period ......... N/A N/A 17,506 143,611
Growth Portfolio
Beginning of period ........................ N/A N/A $ 10.0000 $ 10.1307
End of period .............................. N/A N/A $ 10.1307 $ 13.5522
Units outstanding at end of period ......... N/A N/A 82,286 662,697
International Growth Portfolio
Beginning of period ........................ N/A N/A $ 10.0000 $ 9.5720
End of period .............................. N/A N/A $ 9.5720 $ 11.0658
Units outstanding at end of period ......... N/A N/A 81,884 275,637
Worldwide Growth Portfolio
Beginning of period ........................ N/A N/A $ 10.0000 $ 9.7818
End of period .............................. N/A N/A $ 9.7818 $ 12.4357
Units outstanding at end of period ......... N/A N/A 295,875 2,066,481
NEUBERGER BERMAN AMT:
Limited Maturity Bond Portfolio
(From August 8, 1997)
Beginning of period ........................ N/A N/A $ 10.0000 $ 10.1973
End of period .............................. N/A N/A $ 10.1973 $ 10.4971
Units outstanding at end of period ......... N/A N/A 22,029 210,709
Partners Portfolio
(From August 8, 1997)
Beginning of period ........................ N/A N/A $ 10.0000 $ 10.2686
End of period .............................. N/A N/A $ 10.2686 $ 10.5521
Units outstanding at end of period ......... N/A N/A 255,773 1,582,048
Socially Responsive Portfolio
(From January 1, 1999)
Beginning of period ........................ N/A N/A N/A N/A
End of period .............................. N/A N/A N/A N/A
Units outstanding at end of period ......... N/A N/A N/A N/A
NORTHSTAR GALAXY TRUST:
Emerging Growth Portfolio
(From October 20, 1995)
Beginning of period ........................ $ 10.0000 $ 10.3844 $ 11.6519 $ 13.2845
End of period .............................. $ 10.3844 $ 11.6519 $ 13.2845 $ 15.3663
Units outstanding at end of period ......... 2,292 62,237 270,968 338,593
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
------------- ------------- ------------- ------------
1995 1996 1997 1998
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Growth + Value Portfolio
(From October 20, 1995)
Beginning of period ........................ $ 10.0000 $ 10.1010 $ 12.2601 $ 13.8613
End of period .............................. $ 10.1010 $ 12.2601 $ 13.8613 $ 16.3103
Units outstanding at end of period ......... 1,068 318,138 1,118,716 1,333,885
International Value Portfolio
(From August 8, 1997)
Beginning of period ........................ N/A N/A $ 10.0000 $ 10.0734
End of period .............................. N/A N/A $ 10.0734 $ 11.6150
Units outstanding at end of period ......... N/A N/A 57,507 330,553
Research Enhanced Index Portfolio
(From October 20, 1995)
Beginning of period ........................ $ 10.0000 $ 10.2402 $ 11.4374 $ 12.0694
End of period .............................. $ 10.2402 $ 11.4374 $ 12.0694 $ 12.0629
Units outstanding at end of period ......... 1,937 52,791 238,691 403,214
High Yield Bond Portfolio
(From August 8, 1997)
Beginning of period ........................ N/A N/A $ 10.0000 $ 10.1766
End of period .............................. N/A N/A $ 10.1766 $ 10.0942
Units outstanding at end of period ......... N/A N/A 105,615 885,662
OCC ACCUMULATION TRUST
(All Sub-Accounts From August 8, 1997)
Equity Portfolio
Beginning of period ........................ N/A N/A $ 10.0000 $ 10.6410
End of period .............................. N/A N/A $ 10.6410 $ 11.7375
Units outstanding at end of period ......... N/A N/A 45,654 227,143
Global Equity Portfolio
Beginning of period ........................ N/A N/A $ 10.0000 $ 9.4593
End of period .............................. N/A N/A $ 9.4593 $ 10.5673
Units outstanding at end of period ......... N/A N/A 18,968 70,138
Managed Portfolio
Beginning of period ........................ N/A N/A $ 10.0000 $ 10.0801
End of period .............................. N/A N/A $ 10.0801 $ 10.6480
Units outstanding at end of period ......... N/A N/A 274,773 1,659,488
Small Cap Portfolio
Beginning of period ........................ N/A N/A $ 10.0000 $ 10.1959
End of period .............................. N/A N/A $ 10.1959 $ 9.1466
Units outstanding at end of period ......... N/A N/A 48,630 252,954
</TABLE>
o The Sub-Accounts investing in The Alger American Fund, Fidelity Variable
Insurance Products Fund, Fidelity Variable Insurance Products Fund II and
Northstar Galaxy Trust were not available through the Variable Account
prior to 1995.
o The Sub-Accounts investing in the Janus Aspen Series, Neuberger Berman AMT
Limited Maturity Bond Portfolio and Partners Portfolio, the Northstar
Galaxy Trust High Yield Bond Fund, the Northstar Galaxy Trust
International Value Fund and OCC Accumulation Trust were not available
through the Variable Account prior to August 8, 1997.
o 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.
o The Sub-Account investing in the Fidelity VIP II Investment Grade Bond
Portfolio was not available through the Variable Account prior to April
30, 1999.
B-5
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR NORTHERN LIFE
ADVANTAGE(SM) ANNUITY
ADVANTAGE CENTURY(SM) ANNUITY
ADVANTAGE CENTURY PLUS(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 December 29, 1999 (the
"Prospectus") relating to the Individual Deferred Variable/Fixed Annuity
Contracts issued by Separate Account One (the "Variable Account") and Northern
Life Insurance Company (the "Company"). Much of the information contained in
this Statement of Additional Information expands upon subjects discussed in the
Prospectus. A copy of the Prospectus may be obtained from 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
PAGE
-------
Introduction ..................................... SAI-2
Custody of Assets ................................ SAI-2
Independent Auditors ............................. SAI-3
Distribution of the Contracts .................... SAI-3
Calculation of Yields and Total Returns .......... SAI-3
Company Holidays ................................. SAI-14
Financial Statements ............................. SAI-14
------------------
The date of this Statement of Additional Information is December 29, 1999.
SAI-1
<PAGE>
INTRODUCTION
The Individual Deferred Variable/Fixed Annuity Contracts described in the
Prospectus are flexible Purchase Payment Contracts. The Contracts are sold to or
in connection with retirement plans which may or may not qualify for special
federal tax treatment under the Internal Revenue Code. (See "Federal Tax Status"
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 Flex Series, Transfer Series and Retail
Series Contracts includes Fixed Account A, Fixed Account B and/or Fixed Account
C and which for Plus 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:
o 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.;
o 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 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;
o 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;
o 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;
o the Emerging Growth Portfolio, Growth + Value Portfolio, International
Value Portfolio, Research Enhanced Index Portfolio, and High Yield Bond
Portfolio of the Northstar Galaxy Trust which are managed by Northstar
Investment Management Corporation; the Growth + Value Portfolio is
sub-advised by Navellier Fund Management, Inc., the International Value
Portfolio is sub-advised by Brandes Investment Partners, L.P., and the
Research Enhanced Index Portfolio is sub-advised by J.P. Morgan Investment
Management, Inc.;
o the Equity Portfolio, Global Equity Portfolio, Managed Portfolio and Small
Cap Portfolio of the OCC Accumulation Trust which are managed by OpCap
Advisors, a subsidiary of Oppenheimer Capital.
Purchase Payments allocated to any available Fixed Account, which may
include Fixed Account A, Fixed Account B or Fixed Account C, which are part of
the general account of the Company, will be credited with interest at a rate not
less than 3% per year. Interest credited in excess of 3%, if any, will be
determined at the sole discretion of the Company. That part of the Contract
relating to any available Fixed Accounts, which may include Fixed Account A,
Fixed Account B and Fixed Account C, is not registered under the Securities Act
of 1933 and the Fixed Accounts are not subject to the restrictions of the
Investment Company Act of 1940. (See Appendix A to the Prospectus.)
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.
SAI-2
<PAGE>
INDEPENDENT AUDITORS
The financial statements as of December 31, 1998 and 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,
1998 and 1997, 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 incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be 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.
For the years ended December 31, 1996, 1997 and 1998, WSSI was paid fees by
the Company in connection with distribution of the Transfer Series and Flex
Series Contracts aggregating $1,123,993, $5,551,624, and $10,569,750,
respectively. No fees have been paid to WSSI by the Company in connection with
the distribution of the Retail Series or Plus Series Contracts as they were not
available prior to November 3, 1999 for Retail Series Contracts or prior to
December 29, 1999 for Plus Series Contracts.
The offering of the Contracts is continuous.
There are no special purchase plans or exchange privileges not described
in the Prospectus. (See "Reduction of Charges" in the Prospectus.)
No deduction for a sales charge is made from the Purchase Payments for the
Contracts. However, if part or all of a Flex Series, Transfer Series or Retail
Series Contract's value is withdrawn, Withdrawal Charges (which may be deemed to
be Contingent Deferred Sales Charges) may be made by the Company. The method
used to determine the amount of such charges is described in the Prospectus
under the heading "Charges Made By The Company -- Withdrawal Charge (Contingent
Deferred Sales Charge)." There is no difference in the amount of this charge or
any of the other charges described in the Prospectus as between Contracts
purchased by members of the public as individuals or groups, and Contracts
purchased by any class of individuals, such as officers, directors or employees
of the Company or of the Principal Underwriter, except that no Withdrawal
Charges apply to Plus Series Contracts.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, the Company may disclose yields, total returns, and
other performance data pertaining to the Contracts for a Sub-Account. Such
performance data will be computed, or accompanied by performance data computed,
in accordance with the standards defined by the Securities and Exchange
Commission.
Because of the charges and deductions imposed under a Contract, the yield
for the Sub-Accounts will be lower than the yield for their respective
portfolios. The calculations of yields, total returns, and other performance
data do not reflect the effect of any premium tax that may be applicable to a
particular Contract. Premium taxes currently range from 0% to 3.5% of premium
based on the state in which the Contract is sold.
VIP MONEY MARKET PORTFOLIO SUB-ACCOUNT YIELD. From time to time,
advertisements and sales literature may quote the current annualized yield of
the Money Market Sub-Account for a seven-day period in a manner which does not
take into consideration any realized or unrealized gains or losses on shares of
the VIP Money Market Portfolio or on its portfolio securities.
The current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) at the end of the seven-day period in
the value of a hypothetical account under a Contract having a balance of one
Accumulation Unit of the Money Market Sub-Account at the beginning of the
period dividing such net change in account value of the hypothetical account to
determine the base period return, and annualizing this quotient on a 365-day
basis. The net change in account value reflects: 1) net income from the
Portfolio attributable to the hypothetical account; and 2) charges and
deductions imposed under the Contract which are attributable to the
hypothetical account. The charges and deductions include the per unit charges
for the hypothetical account for: 1) the Annual Contract Charge; 2)
Administration Charge;
SAI-3
<PAGE>
3) the Mortality and Expense Risk Charges and 4) for Plus Series Contracts, the
Product Charge. For purposes of calculating current yields for a Contract, an
average per unit administration fee is used based on the $30 Annual Contract
Charge deducted at the end of each Contract Year. Current Yield will be
calculated according to the following formula:
Current Yield = ((NCS - ES)/UV) x (365/7)
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains or losses on the sale of securities and unrealized appreciation
and depreciation) for the seven-day period attributable to a
hypothetical account having a balance of 1 Sub-Account Accumulation
Unit.
ES = per unit expenses attributable to the hypothetical account for the
seven-day period.
UV = The Accumulation Unit value on the first day of the seven-day period.
The current yield of the sub-account for the seven day period ended
December 31, 1998 was 3.43%.
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:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation) for the seven-day period attributable to a
hypothetical account having a balance of 1 Sub-Account unit.
ES = per Accumulation Unit expenses attributable to the hypothetical account
for the seven-day period.
UV = the Accumulation Unit value for the first day of the seven-day period.
The effective yield of the sub-account for the seven day period ended
December 31, 1998 was 3.49%.
Because of the charges and deductions imposed under the Contracts, the
yield for the Money Market Sub-Account will be lower than the yield for the VIP
Money Market Portfolio.
The current and effective yields on amounts held in the Money Market
Sub-Account normally will fluctuate on a daily basis. THEREFORE, THE DISCLOSED
YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE
YIELDS OR RATES OF RETURN. The Money Market Sub-Account's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the VIP Money Market Portfolio, the types and quality of
portfolio securities held by VIP Money Market Portfolio and the VIP Money Market
Portfolio's operating expenses. Yields on amounts held in the Money Market
Sub-Account may also be presented for periods other than a seven-day period.
OTHER SUB-ACCOUNT YIELDS. From time to time, sales literature or
advertisements may quote the current annualized yield of one or more of the
Sub-Accounts (except the Money Market Sub-Account) for a Contract for 30-day or
one-month periods. The annualized yield of a Sub-Account refers to income
generated by the Sub-Account over a specific 30-day or one-month period. Because
the yield is annualized, the yield generated by a Sub-Account during a 30-day or
one-month period is assumed to be generated each period over a 12-month period.
The yield is computed by: 1) dividing the net investment income of the
Fund attributable to the Sub-Account Accumulation Units less Sub-Account
expenses for the period; by 2) the maximum offering price per Accumulation Unit
on the last day of the period times the daily average number of units
outstanding for the period; by 3) compounding that yield for a six-month
period; and by 4) multiplying that result by 2. Expenses attributable to the
Sub-Account include the Administration Charge, Mortality and Expense Risk
Charges and, for Plus Series Contracts, the Product Charge. The yield
calculation assumes an Annual Contract Charge of $30 per year per Contract
deducted at the end
SAI-4
<PAGE>
of each Contract Year. For purposes of calculating the 30-day or one-month
yield, an average Annual Contract Charge per dollar of Contract Value in the
Variable Account is used to determine the amount of the charge attributable to
the Sub-Account for the 30-day or one-month period. The 30-day or one-month
yield is calculated according to the following formula:
Yield = 2 x [(((NI - ES)/(U x UV)) + 1) 6 - 1]
Where:
NI = net income of the Portfolio for the 30-day or one-month period
attributable to the Sub-Account's Accumulation Units.
ES = expenses of the Sub-Account for the 30-day or one-month period.
U = the average number of Accumulation Units outstanding.
UV = the Accumulation Unit value of the close (highest) of the last day in
the 30-day or one-month period.
The annualized yield for the Northstar Galaxy Trust High Yield Bond
Portfolio Sub-Account for the month ended December 31, 1998 was 8.23%. The
annualized yield for the Neuberger Berman Advisers Management Trust Limited
Maturity Bond Portfolio Sub-Account for the month ended December 31, 1998 was
5.05%. The VIP II Investment Grade Bond Portfolio Sub-Account was not available
through the Variable Account prior to April 30, 1999. Therefore, the annualized
yield for the VIP II Investment Grade Bond Portfolio Sub-Account for the month
ended December 31, 1998 is not available.
Because of the charges and deductions imposed under the Contract, the yield
for the Sub-Account will be lower than the yield for the corresponding Fund.
The yield on the amounts held in the Sub-Accounts normally will fluctuate
over time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN
INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. The
Sub-Account's actual yield is affected by the types and quality of portfolio
securities held by the Fund and its operating expenses.
Yield calculations do not take into account the Withdrawal Charges under
the Contracts. The Withdrawal Charge for Transfer Series Contracts is equal to
2% to 6% of Purchase Payments paid during the six years prior to the withdrawal
(including the year in which the withdrawal is made) on amounts withdrawn under
the Contract. The Withdrawal Charge for Flex Series Contracts is equal to 1% to
8% of amounts withdrawn under the Contracts during the first 10 Contract Years.
The Withdrawal Charge for Retail Series Contracts is equal to 2% to 7% of
Purchase Payments paid during the six years prior to the withdrawal (including
the year in which the withdrawal is made) on amounts withdrawn under the
Contract. There is no Withdrawal Charge for Plus 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.
Average annual total returns will be calculated using Sub-Account
Accumulation Unit values which the Company calculates on each Valuation Date
based on the performance of the Sub-Account's underlying Fund, the deductions
for the Mortality and Expense Risk Charges, the Administration Charge, the
Annual Contract Charge and, for Plus Series Contracts, the Product Charge. The
calculation assumes that the Annual Contract Charge is $30 per year per Contract
deducted at the end of each Contract Year. For purposes of calculating average
annual total return, an average per dollar Annual Contract Charge attributable
to the hypothetical account for the period is used. The calculation also assumes
full withdrawal of the Contract at the end of the period for the return
quotation. Total returns will therefore reflect a deduction of the Withdrawal
Charge for any period less than six years for Transfer Series and Retail Series
Contracts, and for any period less than 11 years for Flex Series
SAI-5
<PAGE>
Contracts. There is no Withdrawal Charge for Plus 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.
SAI-6
<PAGE>
Following are the Average Annual Total Returns for Sub-Accounts as of
December 31, 1998.
<TABLE>
<CAPTION>
FOR THE 1-YEAR PERIOD ENDED
SUB-ACCOUNT 12/31/98
- ------------------------------------------------------ -------------------------------------------------------
++T.S. F.S. R.S. P.S.
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 40.36% 35.27% 39.46% 45.55%
(Sub-Account Inception: 10/20/95)
Alger American Leveraged AllCap Portfolio 49.99% 44.20% 49.09% 55.16%
(Sub-Account Inception: 10/20/95)
Alger American MidCap Growth Portfolio 22.84% 19.00% 21.94% 28.05%
(Sub-Account Inception: 10/20/95)
Alger American Small Capitalization Portfolio 8.27% 5.49% 7.37% 13.50%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Equity-Income Portfolio 4.42% 1.92% 3.52% 9.66%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Growth Portfolio 31.90% 27.41% 31.00% 37.10%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Asset Manager: Growth Portfolio 10.28% 7.36% 9.38% 15.51%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Contrafund Portfolio 22.52% 18.71% 21.62% 27.73%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Index 500 Portfolio 20.89% 17.20% 19.99% 26.10%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Investment Grade Bond Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 4/30/99)
Fidelity VIP III Growth Opportunities Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 1/1/99)
Janus Aggressive Growth Portfolio 26.74% 22.63% 25.84% 31.95%
(Sub-Account Inception: 8/8/97)
Janus Growth Portfolio 28.12% 23.91% 27.22% 33.33%
(Sub-Account Inception: 8/8/97)
Janus International Growth Portfolio 9.95% 7.05% 9.05% 15.18%
(Sub-Account Inception: 8/8/97)
Janus Worldwide Growth Portfolio 21.48% 17.74% 20.58% 26.69%
(Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust (2.71)% (4.71)% (3.61)% 2.53%
Limited Maturity Bond Portfolio
(Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust (2.89)% (4.87)% (3.79)% 2.35%
Partners Portfolio (Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust N/A N/A N/A N/A
Socially Responsive Portfolio (d)
(Sub-Account Inception: 1/1/99)
Northstar Galaxy Trust Emerging Growth 10.02% 7.11% 9.12% 15.25%
Portfolio (a) (Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust Growth + Value Portfolio 12.02% 8.96% 11.12% 17.24%
(Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust International Value Portfolio 9.65% 6.77% 8.75% 14.88
(Sub-Account Inception: 8/8/97)
Northstar Galaxy Trust Research Enhanced Index (5.71)% (7.48)% (6.61)% (0.46)%
Portfolio(b) (Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust High Yield Bond Portfolio (6.46)% (8.18)% (7.36)% (1.21)%
(Sub-Account Inception: 8/8/97)
OCC Equity Portfolio (c) 4.65% 2.13% 3.75% 9.89%
(Sub-Account Inception: 8/8/97)
OCC Global Equity Portfolio 6.06% 3.44% 5.16% 11.30%
(Sub-Account Inception: 8/8/97)
OCC Managed Portfolio (c) (0.02)% (2.21)% (0.92)% 5.22%
(Sub-Account Inception: 8/8/97)
OCC Small Cap Portfolio (c) (15.94)% (16.98)% (16.84)% (10.68)%
</TABLE>
- -----------------
(Sub-Account Inception: 8/8/97)
++ Key: T.S. = Transfer Series Contract; F.S. = Flex Series Contract; R.S. =
Retail Series Contract; P.S. = Plus Series Contract. (See "Withdrawal Charge
(Contingent Deferred Sales Charge)" in the Prospectus.)
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
FOR THE PERIOD FROM DATE OF
INCEPTION OF SUB-ACCOUNT TO
SUB-ACCOUNT 12/31/98
- ------------------------------------------------------ -----------------------------------------------------
T.S. F.S. R.S. P.S.
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 23.64% 22.00% 23.64% 24.33%
(Sub-Account Inception: 10/20/95)
Alger American Leveraged AllCap Portfolio 24.75% 23.08% 24.75% 25.43%
(Sub-Account Inception: 10/20/95)
Alger American MidCap Growth Portfolio 14.35% 13.06% 14.35% 15.22%
(Sub-Account Inception: 10/20/95)
Alger American Small Capitalization Portfolio 6.07% 5.13% 6.07% 7.13%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Equity-Income Portfolio 16.40% 15.03% 16.40% 17.23%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Growth Portfolio 20.31% 18.80% 20.31% 21.07%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Asset Manager: Growth Portfolio 18.15% 16.71% 18.15% 18.94%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Contrafund Portfolio 21.78% 20.22% 21.78% 22.51%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Index 500 Portfolio 25.55% 23.85% 25.55% 26.22%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Investment Grade Bond Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 4/30/99)
Fidelity VIP III Growth Opportunities Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 1/1/99)
Janus Aggressive Growth Portfolio 26.15% 22.91% 26.15% 29.47%
(Sub-Account Inception: 8/8/97)
Janus Growth Portfolio 20.38% 17.49% 20.38% 23.76%
(Sub-Account Inception: 8/8/97)
Janus International Growth Portfolio 3.39% 1.59% 3.39% 7.01%
(Sub-Account Inception: 8/8/97)
Janus Worldwide Growth Portfolio 12.88% 10.47% 12.88% 16.37%
(Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust (0.67)% (2.20)% (0.67)% 3.02%
Limited Maturity Bond Portfolio
(Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust (0.28)% (1.83)% (0.28)% 3.40%
Partners Portfolio (Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust N/A N/A N/A N/A
Socially Responsive Portfolio (d)
(Sub-Account Inception: 1/1/99)
Northstar Galaxy Trust Emerging Growth 13.08% 11.84% 13.08% 13.98%
Portfolio (a) (Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust Growth + Value Portfolio 15.30% 13.97% 15.30% 16.15%
(Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust International Value Portfolio 7.22% 5.18% 7.22% 10.79%
(Sub-Account Inception: 8/8/97)
Northstar Galaxy Trust Research Enhanced Index 4.51% 3.64% 4.51% 5.62%
Portfolio(b) (Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust High Yield Bond Portfolio (3.57)% (4.90)% (3.57)% 0.17%
(Sub-Account Inception: 8/8/97)
OCC Equity Portfolio (c) 8.08% 5.98% 8.08% 11.63%
(Sub-Account Inception: 8/8/97)
OCC Global Equity Portfolio (0.17)% (1.73)% (0.17)% 3.51%
(Sub-Account Inception: 8/8/97)
OCC Managed Portfolio (c) 0.41% (1.19)% 0.41% 4.08%
(Sub-Account Inception: 8/8/97)
OCC Small Cap Portfolio (c) (10.56)% (11.42)% (10.56)% (6.70)%
</TABLE>
- -----------------
(Sub-Account Inception: 8/8/97)
++ Key: T.S. = Transfer Series Contract; F.S. = Flex Series Contract; R.S. =
Retail Series Contract; P.S. = Plus Series Contract. (See "Withdrawal Charge
(Contingent Deferred Sale Charge)" in the Prospectus.)
From time to time, sales literature or advertisements may quote average
annual total returns for periods prior to the date the Sub-Accounts commenced
operations. Such performance information for the Sub-Accounts will be calculated
based on the performance of the Funds and the assumption that the Sub-Accounts
were in existence for the same periods as those indicated for the Funds, with
the level of Contract charges currently in effect.
SAI-7
<PAGE>
Such average annual total return information for the Sub-Accounts is as follows:
<TABLE>
<CAPTION>
FOR THE 1-YEAR
PERIOD ENDED
SUB-ACCOUNT 12/31/98
- ------------------------------------------------------ -------------------------------------------------------
++T.S. F.S. R.S. P.S.
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 40.36% 35.27% 39.46% 45.55%
(Portfolio Inception: 1/9/89)
Alger American Leveraged AllCap Portfolio 49.99% 44.20% 49.09% 55.16%
(Portfolio Inception: 1/25/95)
Alger American MidCap Growth Portfolio 22.84% 19.00% 21.94% 28.05%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization Portfolio 8.27% 5.49% 7.37% 13.50%
(Portfolio Inception: 9/21/88)
Fidelity VIP Equity-Income Portfolio 4.42% 1.92% 3.52% 9.66%
(Portfolio Inception: 10/9/86)
Fidelity VIP Growth Portfolio 31.90% 27.41% 31.00% 37.10%
(Portfolio Inception: 10/9/86)
Fidelity VIP II Asset Manager: Growth Portfolio 10.28% 7.36% 9.38% 15.51%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Contrafund Portfolio 22.52% 18.71% 21.62% 27.73%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Index 500 Portfolio 20.89% 17.20% 19.99% 26.10%
(Portfolio Inception: 8/27/92)
Fidelity VIP II Investment Grade Bond Portfolio 1.68% (0.63)% 0.78% 6.92%
(Portfolio Inception: 12/5/88)
Fidelity VIP III Growth Opportunities Portfolio 17.23% 13.80% 16.33% 22.45%
(Portfolio Inception: 1/3/95)
Janus Aggressive Growth Portfolio 26.74% 22.63% 25.84% 31.95%
(Portfolio Inception: 9/13/93)
Janus Growth Portfolio 28.12% 23.91% 27.22% 33.33%
(Portfolio Inception: 9/13/93)
Janus International Growth Portfolio 9.95% 7.05% 9.05% 15.18%
(Portfolio Inception: 5/2/94)
Janus Worldwide Growth Portfolio 21.48% 17.74% 20.58% 26.69%
(Portfolio Inception: 9/13/93)
Neuberger Berman Advisers Management Trust (2.71)% (4.71)% (3.61)% 2.53%
Limited Maturity Bond Portfolio
(Portfolio Inception: 9/10/84)
Neuberger Berman Advisers Management Trust (2.89)% (4.87)% (3.79)% 2.35%
Partners Portfolio
(Portfolio Inception: 3/22/94)
Neuberger Berman Advisers Management Trust N/A N/A N/A N/A
Socially Responsive Portfolio (d)
(Portfolio Inception: 2/18/99)
Northstar Galaxy Trust Emerging Growth Portfolio (a) 10.02% 7.11% 9.12% 15.25%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust Growth + Value Portfolio 12.02% 8.96% 11.12% 17.24%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust International Value Portfolio 9.65% 6.77% 8.75% 14.88%
(Portfolio Inception: 8/8/97)
Northstar Galaxy Trust Research Enhanced (5.71)% (7.48)% (6.61)% (0.46)%
Index Portfolio (b)
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust High Yield Bond Portfolio (6.46)% (8.18)% (7.36)% (1.21)%
(Portfolio Inception: 5/6/94)
OCC Equity Portfolio (c) 4.65% 2.13% 3.75% 9.89%
(Portfolio Inception: 8/1/88)
OCC Global Equity Portfolio 6.06% 3.44% 5.16% 11.30%
(Portfolio Inception: 3/1/95)
OCC Managed Portfolio (c) (0.02)% (2.21)% (0.92)% 5.22%
(Portfolio Inception: 8/1/88)
OCC Small Cap Portfolio (c) (15.94)% (16.98)% (16.84)% (10.68)%
(Portfolio Inception: 8/1/88)
</TABLE>
<TABLE>
<CAPTION>
FOR THE 5-YEAR
PERIOD ENDED
SUB-ACCOUNT 12/31/98
- ------------------------------------------------------ -----------------------------------------------
T.S. F.S. R.S. P.S.
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 21.64% 20.85% 21.81% 21.79%
(Portfolio Inception: 1/9/89)
Alger American Leveraged AllCap Portfolio N/A N/A N/A N/A
(Portfolio Inception: 1/25/95)
Alger American MidCap Growth Portfolio 16.74% 16.05% 16.93% 16.95%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization Portfolio 10.83% 10.29% 11.07% 11.14%
(Portfolio Inception: 9/21/88)
Fidelity VIP Equity-Income Portfolio 16.54% 15.86% 16.74% 16.76%
(Portfolio Inception: 10/9/86)
Fidelity VIP Growth Portfolio 19.49% 18.74% 19.67% 19.66%
(Portfolio Inception: 10/9/86)
Fidelity VIP II Asset Manager: Growth Portfolio N/A N/A N/A N/A
(Portfolio Inception: 1/3/95)
Fidelity VIP II Contrafund Portfolio N/A N/A N/A N/A
(Portfolio Inception: 1/3/95)
Fidelity VIP II Index 500 Portfolio 21.48% 20.69% 21.64% 21.63%
(Portfolio Inception: 8/27/92)
Fidelity VIP II Investment Grade Bond Portfolio 4.38% 4.02% 4.68% 4.82%
(Portfolio Inception: 12/5/88)
Fidelity VIP III Growth Opportunities Portfolio N/A N/A N/A N/A
(Portfolio Inception: 1/3/95)
Janus Aggressive Growth Portfolio 17.12% 16.42% 17.31% 17.32%
(Portfolio Inception: 9/13/93)
Janus Growth Portfolio 19.17% 18.43% 19.35% 19.35%
(Portfolio Inception: 9/13/93)
Janus International Growth Portfolio N/A N/A N/A N/A
(Portfolio Inception: 5/2/94)
Janus Worldwide Growth Portfolio 19.07% 18.33% 19.25% 19.25%
(Portfolio Inception: 9/13/93)
Neuberger Berman Advisers Management Trust 2.84% 2.53% 3.16% 3.32%
Limited Maturity Bond Portfolio
(Portfolio Inception: 9/10/84)
Neuberger Berman Advisers Management Trust N/A N/A N/A N/A
Partners Portfolio
(Portfolio Inception: 3/22/94)
Neuberger Berman Advisers Management Trust N/A N/A N/A N/A
Socially Responsive Portfolio (d)
(Portfolio Inception: 2/18/99)
Northstar Galaxy Trust Emerging Growth Portfolio (a) N/A N/A N/A N/A
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust Growth + Value Portfolio N/A N/A N/A N/A
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust International Value Portfolio N/A N/A N/A N/A
(Portfolio Inception: 8/8/97)
Northstar Galaxy Trust Research Enhanced N/A N/A N/A N/A
Index Portfolio (b)
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust High Yield Bond Portfolio N/A N/A N/A N/A
(Portfolio Inception: 5/6/94)
OCC Equity Portfolio (c) 18.06% 17.34% 18.25% 18.25%
(Portfolio Inception: 8/1/88)
OCC Global Equity Portfolio N/A N/A N/A N/A
(Portfolio Inception: 3/1/95)
OCC Managed Portfolio (c) 16.93% 16.24% 17.12% 17.14%
(Portfolio Inception: 8/1/88)
OCC Small Cap Portfolio (c) 6.25% 5.83% 6.53% 6.64%
(Portfolio Inception: 8/1/88)
</TABLE>
SAI-8
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE 10-YEAR DATE OF INCEPTION OF
PERIOD ENDED PORTFOLIO TO
12/31/98 12/31/98
- ----------------------------------------------------- -----------------------------------------------------
T.S. F.S. R.S. P.S. T.S. F.S. R.S. P.S.
<S> <C> <C> <C> <C> <C> <C> <C>
N/A N/A N/A N/A 20.19% 20.08% 20.19% 20.01%
N/A N/A N/A N/A 36.79% 35.00% 36.79% 37.05%
N/A N/A N/A N/A 21.36% 20.63% 21.49% 21.44%
18.08% 18.08% 18.08% 17.90% 17.09% 17.09% 17.09% 16.92%
13.85% 13.85% 13.85% 13.68% 12.65% 12.65% 12.65% 12.48%
17.60% 17.60% 17.60% 17.43% 15.57% 15.57% 15.57% 15.40%
N/A N/A N/A N/A 18.88% 17.61% 18.88% 19.37%
N/A N/A N/A N/A 26.10% 24.61% 26.10% 26.47%
N/A N/A N/A N/A 19.28% 18.59% 19.28% 19.10%
6.66% 6.66% 6.66% 6.50% 6.64% 6.64% 6.64% 6.48%
N/A N/A N/A N/A 23.73% 22.31% 23.73% 24.14%
N/A N/A N/A N/A 19.71% 18.98% 19.87% 19.84%
N/A N/A N/A N/A 18.64% 17.94% 18.81% 18.79%
N/A N/A N/A N/A 16.57% 15.62% 16.57% 16.83%
N/A N/A N/A N/A 21.81% 21.05% 21.96% 21.92%
5.11% 5.11% 5.11% 4.95% 6.24% 6.24% 6.24% 6.08%
N/A N/A N/A N/A 17.44% 16.49% 17.44% 17.67%
N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A 12.58% 11.74% 12.58% 12.91%
N/A N/A N/A N/A 15.83% 14.90% 15.83% 16.11%
N/A N/A N/A N/A 7.22% 5.18% 6.59% 10.79%
N/A N/A N/A N/A 5.80% 5.16% 5.80% 6.26%
N/A N/A N/A N/A 7.18% 6.49% 7.18% 7.61%
15.77% 15.77% 15.77% 15.60% 15.25% 15.25% 15.25% 15.08%
N/A N/A N/A N/A 13.34% 12.23% 13.34% 13.98%
17.56% 17.56% 17.56% 17.39% 17.24% 17.24% 17.24% 17.06%
11.49% 11.49% 11.49% 11.32% 11.16% 11.16% 11.16% 10.99%
</TABLE>
- -----------------
++ Key: T.S. = Transfer Series Contract; F.S. = Flex Series Contract; R.S. =
Retail Series Contract; P.S. = Plus Series Contract. (See "Withdrawal Charge
(Contingent Deferred Sale Charge)" in the Prospectus.)
SAI-9
<PAGE>
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 12/31/98 12/31/98 12/31/98 12/31/98
- ----------------------------------------------------- ---------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 48.07% 23.90% N/A 22.02%
(Portfolio Inception: 1/9/89)
Alger American Leveraged AllCap Portfolio 57.83% N/A N/A 39.34%
(Portfolio Inception: 1/25/95)
Alger American MidCap Growth Portfolio 30.30% 18.98% N/A 23.50%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization Portfolio 15.53% 13.09% 19.85% 18.86%
(Portfolio Inception: 9/21/88)
Fidelity VIP Equity-Income Portfolio 11.63% 18.77% 15.62% 14.41%
(Portfolio Inception: 10/9/86)
Fidelity VIP Growth Portfolio 39.49% 21.74% 19.41% 17.35%
(Portfolio Inception: 10/9/86)
Fidelity VIP II Asset Manager: Growth Portfolio 17.57% N/A N/A 21.42%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Contrafund Portfolio 29.98% N/A N/A 28.62%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Index 500 Portfolio 28.33% 23.72% N/A 21.16%
(Portfolio Inception: 8/27/92)
Fidelity VIP II Investment Grade Bond Portfolio 8.85% 6.70% 8.35% 8.34%
(Portfolio Inception: 12/5/88)
Fidelity VIP III Growth Opportunities Portfolio 24.61% N/A N/A 26.26%
(Portfolio Inception: 1/3/95)
Janus Aggressive Growth Portfolio 34.26% 19.35% N/A 21.91%
(Portfolio Inception: 9/13/93)
Janus Growth Portfolio 35.66% 21.41% N/A 20.86%
(Portfolio Inception: 9/13/93)
Janus International Growth Portfolio 17.23% N/A N/A 18.86%
(Portfolio Inception: 5/2/94)
Janus Worldwide Growth Portfolio 28.92% 21.32% N/A 24.01%
(Portfolio Inception: 9/13/93)
Neuberger Berman Advisers Management Trust 4.39% 5.18% 6.79% 7.90%
Limited Maturity Bond Portfolio
(Portfolio Inception: 9/10/84)
Neuberger Berman Advisers Management Trust 4.21% N/A N/A 19.71%
Partners Portfolio (Portfolio Inception: 3/22/94)
Neuberger Berman Advisers Management Trust N/A N/A N/A N/A
Socially Responsive Portfolio (d) (Portfolio
Inception: 2/18/99)
Northstar Galaxy Trust Emerging Growth 17.30% N/A N/A 14.90%
Portfolio (a)
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust Growth + Value Portfolio 19.33% N/A N/A 18.13%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust International Value 16.93% N/A N/A 12.88%
Portfolio
(Since Inception 8/8/97)
Northstar Galaxy Trust Research Enhanced 1.35% N/A N/A 8.59%
Index Portfolio (b)
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust High Yield Bond 0.59% N/A N/A 9.92%
Portfolio
(Portfolio Inception: 5/6/94)
OCC Equity Portfolio (c) 11.86% 20.41% 17.62% 17.06%
(Portfolio Inception: 8/1/88)
OCC Global Equity Portfolio 13.29% N/A N/A 16.08%
(Portfolio Inception: 3/1/95)
OCC Managed Portfolio (c) 7.12% 19.25% 19.40% 19.04%
(Portfolio Inception: 8/1/88)
OCC Small Cap Portfolio (c) (9.03)% 8.53% 13.21% 12.85%
(Portfolio Inception: 8/1/88)
</TABLE>
SAI-10
<PAGE>
OTHER TOTAL RETURNS. From time to time, sales literature or advertisements
may quote average annual total returns that do not reflect the Withdrawal
Charge. These returns are calculated in exactly the same way as average annual
total returns described above, except that the ending redeemable value of the
hypothetical account for the period is replaced with an ending value for the
period that does not take into account any charges on amounts withdrawn. Because
the Withdrawal Charge will not be reflected in those quotations, there is no
differentiation between the Transfer Series Contracts, Flex Series Contracts,
Retail Series Contracts and Plus Series Contracts. Listed in the chart below are
the Average Annual Total Returns for the Sub-Accounts for the indicated periods.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM DATE OF FOR THE PERIOD
FOR THE 1-YEAR INCEPTION OF FROM DATE OF
PERIOD ENDED FOR THE 1-YEAR SUB-ACCOUNT TO INCEPTION OF
12/31/98 PERIOD ENDED 12/31/98 SUB-ACCOUNT TO
(T.S., F.S. 12/31/98 (T.S., F.S. 12/31/98
SUB-ACCOUNT AND R.S.) (P.S.) AND R.S.) (P.S.)
- ------------------------------------------------------ ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 45.76% 45.55% 24.52% 24.33%
(Sub-Account Inception: 10/20/95)
Alger American Leveraged AllCap Portfolio 55.39% 55.16% 25.62% 25.43%
(Sub-Account Inception: 10/20/95)
Alger American MidCap Growth Portfolio 28.24% 28.05% 15.40% 15.22%
(Sub-Account Inception: 10/20/95)
Alger American Small Capitalization Portfolio 13.67% 13.50% 7.29% 7.13%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Equity-Income Portfolio 9.82% 9.66% 17.41% 17.23%
(Sub-Account Inception: 10/20/95)
Fidelity VIP Growth Portfolio 37.30% 37.10% 21.25% 21.07%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Asset Manager: Growth Portfolio 15.68% 15.51% 19.12% 18.94%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Contrafund Portfolio 27.92% 27.73% 22.70% 22.51%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Index 500 Portfolio 26.29% 26.10% 26.40% 26.22%
(Sub-Account Inception: 10/20/95)
Fidelity VIP II Investment Grade Bond Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 4/30/99)
Fidelity VIP III Growth Opportunities Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 1/1/99)
Janus Aggressive Growth Portfolio 32.14% 31.95% 29.66% 29.47%
(Sub-Account Inception: 8/8/97)
Janus Growth Portfolio 33.52% 33.33% 23.95% 23.76%
(Sub-Account Inception: 8/8/97)
Janus International Growth Portfolio 15.35% 15.18% 7.17% 7.01%
(Sub-Account Inception: 8/8/97)
Janus Worldwide Growth Portfolio 26.88% 26.69% 16.54% 16.37%
(Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust 2.69% 2.53% 3.18% 3.02%
Limited Maturity Bond Portfolio
(Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust 2.51% 2.35% 3.56% 3.40%
Partners Portfolio (Sub-Account Inception: 8/8/97)
Neuberger Berman Advisers Management Trust N/A N/A N/A N/A
Socially Responsive Portfolio (d) (Sub-Account
Inception: 1/1/99)
Northstar Galaxy Trust Emerging Growth Portfolio (a) 15.42% 15.25% 14.15% 13.98%
(Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust Growth + Value Portfolio 17.42% 17.24% 16.32% 16.15%
(Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust International Value Portfolio 15.05% 14.88% 10.95% 10.79%
(Sub-Account Inception: 8/8/97)
Northstar Galaxy Trust Research Enhanced Index (0.31)% (0.46)% 5.78% 5.62%
Portfolio (b)
(Sub-Account Inception: 10/20/95)
Northstar Galaxy Trust High Yield Bond Portfolio (1.06)% (1.21)% 0.32% 0.17%
(Sub-Account Inception: 8/8/97)
OCC Equity Portfolio (c) 10.05% 9.89% 11.80% 11.63%
(Sub-Account Inception: 8/8/97)
OCC Global Equity Portfolio 11.46% 11.30% 3.67% 3.51%
(Sub-Account Inception: 8/8/97)
OCC Managed Portfolio (c) 5.38% 5.22% 4.24% 4.08%
(Sub-Account Inception: 8/8/97)
OCC Small Cap Portfolio (c) (10.54)% (10.68)% (6.55)% (6.70)%
(Sub-Account Inception: 8/8/97)
</TABLE>
SAI-11
<PAGE>
The Average Annual Total Returns listed below do not reflect deduction of
the Withdrawal Charge and are calculated based on the assumption that the
Sub-Accounts were in existence for the same periods as those indicated for the
funds:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM DATE OF
FOR THE 1-YEAR FOR THE 5-YEAR FOR THE 10-YEAR INCEPTION OF
PERIOD ENDED PERIOD ENDED PERIOD ENDED PORTFOLIO TO
12/31/98 12/31/98 12/31/98 12/31/98
(T.S., F.S., (T.S., F.S., (T.S., F.S., (T.S., F.S.,
SUB-ACCOUNT AND R.S.) AND R.S.) AND R.S.) AND R.S.)
- --------------------------------------------------------- ---------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 45.76% 21.97% N/A 20.19%
(Portfolio Inception: 1/9/89)
Alger American Leveraged AllCap Portfolio 55.39% N/A N/A 37.25%
(Portfolio Inception: 1/25/95)
Alger American MidCap Growth Portfolio 28.24% 17.13% N/A 21.62%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization Portfolio 13.67% 11.31% 18.08% 17.09%
(Portfolio Inception: 9/21/88)
Fidelity VIP Equity-Income Portfolio 9.82% 16.93% 13.85% 12.65%
(Portfolio Inception: 10/9/86)
Fidelity VIP Growth Portfolio 37.30% 19.84% 17.60% 15.57%
(Portfolio Inception: 10/9/86)
Fidelity VIP II Asset Manager: Growth Portfolio 15.68% N/A N/A 19.54%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Contrafund Portfolio 27.92% N/A N/A 26.65%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Index 500 Portfolio 26.29% 21.81% N/A 19.28%
(Portfolio Inception: 8/27/92)
Fidelity VIP II Investment Grade Bond Portfolio 7.08% 4.98% 6.66% 6.64%
(Portfolio Inception: 12/5/88)
Fidelity VIP III Growth Opportunities Portfolio 22.63% N/A N/A 24.32%
(Portfolio Inception: 1/3/95)
Janus Aggressive Growth Portfolio 32.14% 17.50% N/A 20.02%
(Portfolio Inception: 9/13/93)
Janus Growth Portfolio 33.52% 19.52% N/A 18.97%
(Portfolio Inception: 9/13/93)
Janus International Growth Portfolio 15.35% N/A N/A 17.01%
(Portfolio Inception: 5/2/94)
Janus Worldwide Growth Portfolio 26.88% 19.43% N/A 22.10%
(Portfolio Inception: 9/13/93)
Neuberger Berman Advisers Management Trust 2.69% 3.48% 5.11% 6.24%
Limited Maturity Bond Portfolio
(Portfolio Inception: 9/10/84)
Neuberger Berman Advisers Management Trust 2.51% N/A N/A 17.85%
Partners Portfolio (Portfolio Inception: 3/22/94)
Neuberger Berman Advisers Management Trust Socially N/A N/A N/A N/A
Responsive Portfolio (d) (Portfolio Inception: 2/18/99)
Northstar Galaxy Trust Emerging Growth Portfolio (a) 15.42% N/A N/A 13.08%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust Growth + Value Portfolio 17.42% N/A N/A 16.28%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust International Value Portfolio 15.05% N/A N/A 10.95%
(Portfolio Inception: 8/8/97)
Northstar Galaxy Trust Research Enhanced Index (0.31)% N/A N/A 6.42%
Portfolio (b)
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust High Yield Bond Portfolio (1.06)% N/A N/A 7.77%
(Portfolio Inception: 5/6/94)
OCC Equity Portfolio (c) 10.05% 18.43% 15.77% 15.25%
(Portfolio Inception: 8/1/88)
OCC Global Equity Portfolio 11.46% N/A N/A 14.15%
(Portfolio Inception: 3/1/95)
OCC Managed Portfolio (c) 5.38% 17.31% 17.56% 17.24%
(Portfolio Inception: 8/1/88)
OCC Small Cap Portfolio (c) (10.54)% 6.80% 11.49% 11.16%
(Portfolio Inception: 8/1/88)
</TABLE>
SAI-12
<PAGE>
<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
12/31/98 12/31/98 12/31/98 12/31/98
SUB-ACCOUNT (P.S.) (P.S.) (P.S.) (P.S.)
- --------------------------------------------------------- ---------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 45.55% 21.79% N/A 20.01%
(Portfolio Inception: 1/9/89)
Alger American Leveraged AllCap Portfolio 55.16% N/A N/A 37.05%
(Portfolio Inception: 1/25/95)
Alger American MidCap Growth Portfolio 28.05% 16.95% N/A 21.44%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization Portfolio 13.50% 11.14% 17.90% 16.92%
(Portfolio Inception: 9/21/88)
Fidelity VIP Equity-Income Portfolio 9.66% 16.76% 13.68% 12.48%
(Portfolio Inception: 10/9/86)
Fidelity VIP Growth Portfolio 37.10% 19.66% 17.43% 15.40%
(Portfolio Inception: 10/9/86)
Fidelity VIP II Asset Manager: Growth Portfolio 15.51% N/A N/A 19.37%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Contrafund Portfolio 27.73% N/A N/A 26.47%
(Portfolio Inception: 1/3/95)
Fidelity VIP II Index 500 Portfolio 26.10% 21.63% N/A 19.10%
(Portfolio Inception: 8/27/92)
Fidelity VIP II Investment Grade Bond Portfolio 6.92% 4.82% 6.50% 6.48%
(Portfolio Inception: 12/5/88)
Fidelity VIP III Growth Opportunities Portfolio 22.45% N/A N/A 24.14%
(Portfolio Inception: 1/3/95)
Janus Aggressive Growth Portfolio 31.95% 17.32% N/A 19.84%
(Portfolio Inception: 9/13/93)
Janus Growth Portfolio 33.33% 19.35% N/A 18.79%
(Portfolio Inception: 9/13/93)
Janus International Growth Portfolio 15.18% N/A N/A 16.83%
(Portfolio Inception: 5/2/94)
Janus Worldwide Growth Portfolio 26.69% 19.25% N/A 21.92%
(Portfolio Inception: 9/13/93)
Neuberger Berman Advisers Management Trust 2.53% 3.32% 4.95% 6.08%
Limited Maturity Bond Portfolio
(Portfolio Inception: 9/10/84)
Neuberger Berman Advisers Management Trust 2.35% N/A N/A 17.67%
Partners Portfolio (Portfolio Inception: 3/22/94)
Neuberger Berman Advisers Management Trust Socially N/A N/A N/A N/A
Responsive Portfolio (d) (Portfolio Inception: 2/18/99)
Northstar Galaxy Trust Emerging Growth Portfolio (a) 15.25% N/A N/A 12.91%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust Growth + Value Portfolio 17.24% N/A N/A 16.11%
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust International Value Portfolio 14.88% N/A N/A 10.79%
(Portfolio Inception: 8/8/97)
Northstar Galaxy Trust Research Enhanced Index (0.46)% N/A N/A 6.26%
Portfolio (b)
(Portfolio Inception: 5/6/94)
Northstar Galaxy Trust High Yield Bond Portfolio (1.21)% N/A N/A 7.61%
(Portfolio Inception: 5/6/94)
OCC Equity Portfolio (c) 9.89% 18.25% 15.60% 15.08%
(Portfolio Inception: 8/1/88)
OCC Global Equity Portfolio 11.30% N/A N/A 13.98%
(Portfolio Inception: 3/1/95)
OCC Managed Portfolio (c) 5.22% 17.14% 17.39% 17.06%
(Portfolio Inception: 8/1/88)
OCC Small Cap Portfolio (c) (10.68)% 6.64% 11.32% 10.99%
(Portfolio Inception: 8/1/88)
</TABLE>
SAI-13
<PAGE>
(a) The Northstar Galaxy Trust Emerging Growth Portfolio (formerly the Northstar
Galaxy Trust Income and Growth Portfolio) operated under an investment
objective of seeking income balanced with capital appreciation from
inception through November 8, 1998, when the investment objective was
modified to seeking long-term capital appreciation.
(b) The Northstar Galaxy Trust Research Enhanced Index Portfolio (formerly the
Northstar Galaxy Trust Multi-Sector Bond Portfolio) operated under an
investment objective of seeking current income while preserving capital
through April 29, 1999, when the investment objective was modified to
seeking long-term capital appreciation.
(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.
(d) The Neuberger Berman Advisers Management Trust Socially Responsive Portfolio
had not commenced operations as of December 31, 1998.
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:
ERV/P - 1 CTR =
Where:
CTR = the Cumulative Total Return net of Sub-Account recurring charges for
the period.
ERV = the ending redeemable value of the hypothetical investment at the
end of the period.
P = a hypothetical single payment of $1,000.
EFFECT OF THE ANNUAL CONTRACT CHARGE ON PERFORMANCE DATA. The Contract
provides for a $30 Annual Contract Charge to be deducted annually at the end of
each Contract Year, from the Sub-Accounts and the Fixed Accounts based on the
proportion that the value of each such account bears to the total Contract
Value. For purposes of reflecting the Annual Contract Charge in yield and total
return quotations, the annual charge is converted into a per-dollar of per-day
charge based on the Annual Contract Charges collected from the average total
assets of the Variable Account and the Fixed Accounts during the calendar year.
COMPANY HOLIDAYS
The Company is closed on the following holidays: New Year's Day,
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.
FINANCIAL STATEMENTS
The Statement of Additional Information incorporates by reference the
Financial Statements for the Separate Account One as of December 31, 1998 and
for the two years ended December 31, 1998 and 1997. Deloitte & Touche LLP serves
as independent auditors for the Separate Account One. Although the financial
statements are audited, the period they cover is not necessarily indicative of
the longer term performance of the assets held in the Separate Account One.
The financial statements for the Company as of and for the years ended
December 31, 1998 and 1997 have been prepared on the basis of statutory
accounting principles ("STAT") rather than generally accepted accounting
principles ("GAAP"). The financial statements of the Company, which are
incorporated by reference in this Statement of Additional Information, should be
considered only as bearing on the ability of the Company to meet its obligations
under the Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Separate Account One.
SAI-14
<PAGE>
NORTHERN LIFE SEPARATE ACCOUNT ONE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
--------
<S> <C>
Independent Auditors' Report ....................................................... SAI-16
Statement of Assets and Liabilities as of December 31, 1998 ........................ SAI-17
Statements of Operations and Changes in Contract Owners' Equity for the years ended
December 31, 1998 and 1997 ......................................................... SAI-18
Notes to Financial Statements ...................................................... SAI-30
</TABLE>
SAI-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Northern Life Insurance
Company and Contract Owners of
Northern Life Separate Account One:
We have audited the accompanying statement of assets and liabilities of
Northern Life Separate Account One as of December 31, 1998 and the related
statements of operations and changes in contract owners' equity for the years
ended December 31, 1998 and 1997 (consisting of the portfolios listed within the
statements of operations and changes in contract owners' equity). 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, 1998, by correspondence
with the account custodians. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
portfolios constituting the Northern Life Separate Account One as of December
31, 1998 and the results of its operations and changes in its contract owners'
equity for the years ended December 31, 1998 and 1997, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 19, 1999
SAI-16
<PAGE>
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
(In Thousands, Except Shares)
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS:
- ---------------------------------------------------------
Investments in mutual funds at market value:
Fidelity's Variable Insurance Products Fund (VIP) and
Variable Insurance Products Fund II (VIP II):
Money Market Portfolio ................................. 6,866,372 $ 6,866 $ 6,866
Asset Manager Portfolio ................................ 457,994 7,726 8,317
Asset Manager: Growth Portfolio ........................ 674,026 10,568 11,479
Equity-Income Portfolio ................................ 1,223,890 28,602 31,111
Growth Portfolio ....................................... 463,937 16,688 20,817
Overseas Portfolio ..................................... 246,095 4,732 4,934
Index 500 Portfolio .................................... 502,041 59,333 70,913
Contrafund Portfolio ................................... 1,654,356 31,943 40,433
The Alger American Fund:
Alger American Small Capitalization .................... 216,252 8,866 9,509
Alger American Growth Portfolio ........................ 365,206 16,038 19,436
Alger American MidCap Growth Portfolio ................. 325,880 7,626 9,408
Alger American Leverage AllCap Portfolio ............... 293,613 7,850 10,247
Janus Aspen Series:
Aggressive Growth Portfolio ............................ 75,196 1,661 2,075
Growth Portfolio ....................................... 381,976 7,616 8,992
International Growth Portfolio ......................... 143,565 2,903 3,054
Worldwide Growth Portfolio ............................. 884,435 23,850 25,728
Neuberger Berman Advisers Management Trust:
Limited Maturity Bond Portfolio ........................ 160,230 2,187 2,214
Partners Portfolio ..................................... 882,883 16,880 16,713
Northstar Galaxy Trust:
Northstar Growth + Value Portfolio ..................... 1,161,146 17,731 21,783
Northstar High-Yield Bond Portfolio .................... 1,837,691 9,160 8,950
Northstar Emerging Growth Portfolio .................... 368,928 4,816 5,209
Northstar International Value Portfolio ................ 346,845 3,777 3,843
Northstar Multi-Sector Bond Portfolio .................. 1,008,138 5,131 4,869
OCC Accumulation Trust:
Equity Portfolio ....................................... 68,966 2,559 2,669
Global Equity Portfolio ................................ 48,083 784 742
Managed Portfolio ...................................... 404,428 17,470 17,690
Small Cap Portfolio .................................... 100,265 2,447 2,316
-------- --------
Total Investments ...................................... $325,810
Total Assets .......................................... $370,317
========
LIABILITIES AND CONTRACT OWNERS' EQUITY:
- ----------------------------------------------------------
Due to Northern Life Insurance Company for
contract charges ...................................... $ 430
Contract Owners' Equity ................................ 369,887
--------
Total Liabilities and Contract Owners' Equity ......... $370,317
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-17
<PAGE>
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY
For the years ended December 31, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
FIDELITY'S VIP
TOTAL ALL FUNDS MONEY MARKET PORTFOLIO
----------------------------------- ---------------------------------------
1998 1997 1998 1997
----------------- ----------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Net investment income (loss):
Reinvested dividend income ....................... $ 2,612 $ 763 $ 269 $ 150
Reinvested capital gains ......................... 9,242 1,327 -- --
Administrative expenses .......................... (3,584) (1,154) (73) (41)
--------------- -------------- --------------- ---------------
Net investment income (loss)
and capital gains: .............................. 8,270 936 196 109
--------------- -------------- --------------- ---------------
Realized and unrealized gains (losses):
Net realized gains (losses) on
redemptions of fund shares ...................... 4,490 1,570 -- --
Increase (decrease) in unrealized
appreciation of investments ..................... 34,101 9,174 -- --
--------------- -------------- --------------- ---------------
Net realized and unrealized
gains (losses) ................................ 38,591 10,744 -- --
--------------- -------------- --------------- ---------------
Additions (reductions) from operations ......... 46,861 11,680 196 109
--------------- -------------- --------------- ---------------
Contract Owners' transactions:
Net premium payments ............................. 186,757 85,886 4,697 5,425
Surrenders ....................................... (5,900) (2,114) (256) (249)
Policy loans ..................................... (1,837) (746) (25) (26)
Transfers between sub-accounts
and/or fixed account ............................ 10,128 8,613 (2,617) (1,494)
Death benefits ................................... (500) (75) -- --
Loan collateral interest ......................... 31 5 1 --
--------------- -------------- --------------- ---------------
Additions (reductions) for Contract
Owners' transactions .......................... 188,679 91,569 1,800 3,656
--------------- -------------- --------------- ---------------
Net additions (reductions) for the year ........ 235,540 103,249 1,996 3,765
Contract Owners' Equity, beginning of the year..... 134,347 31,098 4,863 1,098
--------------- -------------- --------------- ---------------
Contract Owners' Equity, end of the year .......... $ 369,887 $ 134,347 $ 6,859 $ 4,863
=============== ============== =============== ===============
Units Outstanding, beginning of the year .......... 9,878,013.401 2,675,715.216 446,457.715 104,844.463
Units Outstanding, end of the year ................ 23,758,775.232 9,878,013.401 605,376.014 446,457.715
Net Asset Value per Unit: ......................... -- -- $ 11.329355 $ 10.892569
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-18
<PAGE>
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S VIP II FIDELITY'S VIP II FIDELITY'S VIP
ASSET MANAGER PORTFOLIO ASSET MANAGER: GROWTH PORTFOLIO EQUITY-INCOME PORTFOLIO
- --------------------------------------- --------------------------------------- -------------------------------------------
1998 1997 1998 1997 1998 1997
- ------------------- ------------------- ------------------- ------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
$ 102 $ 32 $ 101 $ 1 $ 238 $ 89
306 82 472 -- 846 449
(73) (26) (115) (36) (371) (145)
--------------- --------------- --------------- --------------- ----------------- -----------------
335 88 458 (35) 713 393
--------------- --------------- --------------- --------------- ----------------- -----------------
11 24 296 50 649 143
367 178 460 431 711 1,551
--------------- --------------- --------------- --------------- ----------------- -----------------
378 202 756 481 1,360 1,694
--------------- --------------- --------------- --------------- ----------------- -----------------
713 290 1,214 446 2,073 2,087
--------------- --------------- --------------- --------------- ----------------- -----------------
4,346 1,800 6,444 2,802 14,758 8,372
(108) (21) (183) (55) (526) (156)
(26) (23) (56) (29) (163) (100)
495 125 (401) 582 (795) 1,198
(42) -- -- (16) (147) --
1 -- 1 -- 4 1
--------------- --------------- --------------- --------------- ----------------- -----------------
4,666 1,881 5,805 3,284 13,131 9,315
--------------- --------------- --------------- --------------- ----------------- -----------------
5,379 2,171 7,019 3,730 15,204 11,402
2,929 758 4,446 716 15,871 4,469
--------------- --------------- --------------- --------------- ----------------- -----------------
$ 8,308 $ 2,929 $ 11,465 $ 4,446 $ 31,075 $ 15,871
=============== =============== =============== =============== ================= =================
208,314.653 64,182.784 293,160.469 58,201.338 1,040,329.208 370,036.342
520,820.052 208,314.653 652,013.324 293,160.469 1,850,470.195 1,040,329.208
$ 15.952014 $ 14.060575 $ 17.584679 $ 15.167515 $ 16.793113 $ 15.255943
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-19
<PAGE>
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
For the years ended December 31, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
FIDELITY'S VIP
GROWTH PORTFOLIO
-----------------------------------------
1998 1997
--------------------- -------------------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income ............................ $ 46 $ 19
Reinvested capital gains .............................. 1,195 83
Administrative expenses ............................... (217) (84)
----------------- ---------------
Net investment income (loss)
and capital gains: ................................... 1,024 18
----------------- ---------------
Realized and unrealized gains (losses):
Net realized gains (losses) on
redemptions of fund shares ........................... 449 40
Increase (decrease) in unrealized
appreciation of investments .......................... 3,182 864
----------------- ---------------
Net realized and unrealized
gains (losses) ..................................... 3,631 904
----------------- ---------------
Additions (reductions) from operations .............. 4,655 922
----------------- ---------------
Contract Owners' transactions:
Net premium payments .................................. 7,114 4,762
Surrenders ............................................ (299) (103)
Policy loans .......................................... (139) (49)
Transfers between sub-accounts
and/or fixed account ................................. 1,025 594
Death benefits ........................................ (19) (10)
Loan collateral interest .............................. 3 1
----------------- ---------------
Additions (reductions) for Contract Owners'
transactions ....................................... 7,685 5,195
----------------- ---------------
Net additions (reductions) for
the year ........................................... 12,340 6,117
Contract Owners' Equity, beginning of the year ......... 8,453 2,336
----------------- ---------------
Contract Owners' Equity, end of the year ............... $ 20,793 $ 8,453
================= ===============
Units Outstanding, beginning of the year ............... 624,733.968 210,258.492
Units Outstanding, end of the year ..................... 1,117,354.994 624,733.968
Net Asset Value per Unit: .............................. $ 18.608901 $ 13.528573
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
FIDELITY'S VIP
OVERSEAS PORTFOLIO
-----------------------------------------
1998 1997
------------------- ---------------------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income ............................ $ 76 $ 25
Reinvested capital gains .............................. 223 99
Administrative expenses ............................... (73) (42)
--------------- --------------
Net investment income (loss)
and capital gains: ................................... 226 82
--------------- --------------
Realized and unrealized gains (losses):
Net realized gains (losses) on
redemptions of fund shares ........................... 36 64
Increase (decrease) in unrealized
appreciation of investments .......................... 167 (27)
--------------- --------------
Net realized and unrealized
gains (losses) ..................................... 203 37
--------------- --------------
Additions (reductions) from operations .............. 429 119
--------------- --------------
Contract Owners' transactions:
Net premium payments .................................. 1,561 2,624
Surrenders ............................................ (162) (143)
Policy loans .......................................... (28) (33)
Transfers between sub-accounts
and/or fixed account ................................. (642) (25)
Death benefits ........................................ -- (3)
Loan collateral interest .............................. 1 --
--------------- --------------
Additions (reductions) for Contract Owners'
transactions ....................................... 730 2,420
--------------- --------------
Net additions (reductions) for
the year ........................................... 1,159 2,539
Contract Owners' Equity, beginning of the year ......... 3,770 1,231
--------------- --------------
Contract Owners' Equity, end of the year ............... $ 4,929 $ 3,770
=============== ==============
Units Outstanding, beginning of the year ............... 297,559.671 106,840.466
Units Outstanding, end of the year ..................... 349,988.575 297,559.671
Net Asset Value per Unit: .............................. $ 14.081780 $ 12.665346
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-20
<PAGE>
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
FIDELITY'S VIP II FIDELITY'S VIP II ALGER AMERICAN
INDEX 500 PORTFOLIO CONTRAFUND PORTFOLIO SMALL CAPITALIZATION PORTFOLIO
- ------------------------------------------- --------------------------------------------- ---------------------------------------
1998 1997 1998 1997 1998 1997
- --------------------- --------------------- --------------------- ----------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 286 $ 42 $ 126 $ 39 $ -- $ --
662 86 926 103 941 138
(658) (163) (415) (151) (118) (67)
----------------- ----------------- ----------------- ---------------- --------------- ---------------
290 (35) 637 (9) 823 71
----------------- ----------------- ----------------- ---------------- --------------- ---------------
450 842 255 134 27 (39)
9,831 1,533 6,432 1,759 259 387
----------------- ----------------- ----------------- ---------------- --------------- ---------------
10,281 2,375 6,687 1,893 286 348
----------------- ----------------- ----------------- ---------------- --------------- ---------------
10,571 2,340 7,324 1,884 1,109 419
----------------- ----------------- ----------------- ---------------- --------------- ---------------
36,377 14,610 16,445 10,713 3,266 2,917
(951) (244) (739) (169) (108) (90)
(417) (146) (263) (102) (51) (16)
3,296 2,460 674 768 (572) (21)
(45) -- (13) (11) -- --
6 1 4 1 1 --
----------------- ----------------- ----------------- ---------------- --------------- ---------------
38,266 16,681 16,108 11,200 2,536 2,790
----------------- ----------------- ----------------- ---------------- --------------- ---------------
48,837 19,021 23,432 13,084 3,645 3,209
21,994 2,973 16,952 3,868 5,852 2,643
----------------- ----------------- ----------------- ---------------- --------------- ---------------
$ 70,831 $ 21,994 $ 40,384 $ 16,952 $ 9,497 $ 5,852
================= ================= ================= ================ =============== ===============
1,310,991.579 231,904.126 1,124,760.300 314,102.807 527,947.156 261,902.389
3,336,587.033 1,310,991.579 2,090,469.402 1,124,760.300 751,967.322 527,947.156
$ 21.228526 $ 16.775721 $ 19.318070 $ 15.071819 $ 12.630064 $ 11.086367
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-21
<PAGE>
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
For the years ended December 31, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
ALGER AMERICAN
GROWTH PORTFOLIO
-----------------------------------------
1998 1997
------------------- ---------------------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income ............................ $ 22 $ 10
Reinvested capital gains .............................. 1,332 19
Administrative expenses ............................... (158) (56)
--------------- --------------
Net investment income (loss) and
capital gains: ....................................... 1,196 (27)
--------------- --------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of
fund shares .......................................... 592 40
Increase (decrease) in unrealized appreciation
of investments ....................................... 2,678 629
--------------- --------------
Net realized and unrealized
gains (losses) ..................................... 3,270 669
--------------- --------------
Additions (reductions) from operations .............. 4,466 642
--------------- --------------
Contract Owners' transactions:
Net premium payments .................................. 7,649 2,855
Surrenders ............................................ (259) (64)
Policy loans .......................................... (89) (21)
Transfers between sub-accounts and/or fixed
account .............................................. 2,085 362
Death benefits ........................................ (27) (7)
Loan collateral interest .............................. 1 --
--------------- --------------
Additions (reductions) for Contract
Owners' transactions ............................... 9,360 3,125
--------------- --------------
Net additions (reductions) for the year ............. 13,826 3,767
Contract Owners' Equity, beginning of the year ......... 5,588 1,821
--------------- --------------
Contract Owners' Equity, end of the year ............... $ 19,414 $ 5,588
=============== ==============
Units Outstanding, beginning of the year ............... 402,924.566 162,852.097
Units Outstanding, end of the year ..................... 958,685.252 402,924.566
Net Asset Value per Unit: .............................. $ 20.250135 $ 13.868396
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
ALGER AMERICAN
MIDCAP GROWTH PORTFOLIO
---------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income ............................ $ -- $ 2
Reinvested capital gains .............................. 542 49
Administrative expenses ............................... (103) (61)
--------------- ---------------
Net investment income (loss) and
capital gains: ....................................... 439 (10)
--------------- ---------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of
fund shares .......................................... 124 27
Increase (decrease) in unrealized appreciation
of investments ....................................... 1,294 416
--------------- ---------------
Net realized and unrealized
gains (losses) ..................................... 1,418 443
--------------- ---------------
Additions (reductions) from operations .............. 1,857 433
--------------- ---------------
Contract Owners' transactions:
Net premium payments .................................. 2,530 1,777
Surrenders ............................................ (182) (65)
Policy loans .......................................... (40) (24)
Transfers between sub-accounts and/or fixed
account .............................................. 225 421
Death benefits ........................................ (14) --
Loan collateral interest .............................. 1 --
--------------- ---------------
Additions (reductions) for Contract
Owners' transactions ............................... 2,520 2,109
--------------- ---------------
Net additions (reductions) for the year ............. 4,377 2,542
Contract Owners' Equity, beginning of the year ......... 5,020 2,478
--------------- ---------------
Contract Owners' Equity, end of the year ............... $ 9,397 $ 5,020
=============== ===============
Units Outstanding, beginning of the year ............... 405,579.543 227,029.231
Units Outstanding, end of the year ..................... 590,793.803 405,579,543
Net Asset Value per Unit: .............................. $ 15.905871 $ 12.379085
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-22
<PAGE>
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
ALGER AMERICAN JANUS ASPEN SERIES JANUS ASPEN SERIES
LEVERAGE ALLCAP PORTFOLIO AGGRESSIVE GROWTH PORTFOLIO GROWTH PORTFOLIO
- ----------------------------------------- ---------------------------------------- ----------------------------------------
1998 1997 1998 1997 1998 1997
- ------------------- --------------------- --------------------- ------------------ ------------------- --------------------
<S> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ 132 $ 2
215 -- -- -- 105 --
(85) (43) (13) -- (59) (2)
--------------- -------------- -------------- -------------- --------------- -------------
130 (43) (13) -- 178 --
--------------- -------------- -------------- -------------- --------------- -------------
882 69 7 -- 18 2
1,999 360 407 7 1,375 1
--------------- -------------- -------------- -------------- --------------- -------------
2,881 429 414 7 1,393 3
--------------- -------------- -------------- -------------- --------------- -------------
3,011 386 401 7 1,571 3
--------------- -------------- -------------- -------------- --------------- -------------
2,583 2,042 1,359 178 5,914 737
(307) (207) (5) -- (84) --
(62) (27) (7) -- (49) (9)
1,560 (184) 133 6 796 102
(35) (4) -- -- -- --
1 -- -- -- -- --
--------------- -------------- -------------- -------------- --------------- -------------
3,740 1,620 1,480 184 6,577 830
--------------- -------------- -------------- -------------- --------------- -------------
6,751 2,006 1,881 191 8,148 833
3,484 1,478 191 -- 833 --
--------------- -------------- -------------- -------------- --------------- -------------
$ 10,235 $ 3,484 $ 2,072 $ 191 $ 8,981 $ 833
=============== ============== ============== ============== =============== ==============
260,379.569 130,393.355 17,505.521 -- 82,286.238 --
491,436.239 260,379.569 143,610.929 17,505.521 662,697.182 82,286.238
$ 20.826047 $ 13.380857 $ 14.429920 $ 10.899289 $ 13.552209 $ 10.130654
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-23
<PAGE>
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
For the years ended December 31, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES
INTERNATIONAL GROWTH PORTFOLIO
----------------------------------------
1998 1997
------------------- --------------------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income ............................ $ 32 $ 1
Reinvested capital gains .............................. 5 --
Administrative expenses ............................... (30) (2)
--------------- -------------
Net investment income (loss)
and capital gains: ................................... 7 (1)
--------------- -------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of
fund shares .......................................... 7 --
Increase (decrease) in unrealized appreciation of
investments .......................................... 155 (4)
--------------- -------------
Net realized and unrealized
gains (losses) ..................................... 162 (4)
--------------- -------------
Additions (reductions) from operations .............. 169 (5)
--------------- -------------
Contract Owners' transactions:
Net premium payments .................................. 1,702 608
Surrenders ............................................ (57) --
Policy loans .......................................... (17) (11)
Transfers between sub-accounts
and/or fixed account ................................. 469 192
Death benefits ........................................ -- --
Loan collateral interest .............................. -- --
--------------- -------------
Additions (reductions) for Contract
Owners' transactions ............................... 2,097 789
--------------- -------------
Net additions (reductions) for the year ............. 2,266 784
Contract Owners' Equity, beginning of the year ......... 784 --
--------------- -------------
Contract Owners' Equity, end of the year ............... $ 3,050 $ 784
=============== =============
Units Outstanding, beginning of the year ............... 81,884.298 --
Units Outstanding, end of the year ..................... 275,637.403 81,884.298
Net Asset Value per Unit: .............................. $ 11.065792 $ 9.571986
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
JANUS ASPEN SERIES
WORLDWIDE GROWTH PORTFOLIO
---------------------------------------------
1998 1997
----------------------- ---------------------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income ............................ $ 305 $ 6
Reinvested capital gains .............................. 115 --
Administrative expenses ............................... (182) (6)
---------------- --------------
Net investment income (loss)
and capital gains: ................................... 238 --
---------------- --------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of
fund shares .......................................... 636 --
Increase (decrease) in unrealized appreciation of
investments .......................................... 1,880 (2)
---------------- --------------
Net realized and unrealized
gains (losses) ..................................... 2,516 (2)
---------------- --------------
Additions (reductions) from operations .............. 2,754 (2)
---------------- --------------
Contract Owners' transactions:
Net premium payments .................................. 16,293 2,492
Surrenders ............................................ (238) (2)
Policy loans .......................................... (116) (13)
Transfers between sub-accounts
and/or fixed account ................................. 4,112 419
Death benefits ........................................ (2) --
Loan collateral interest .............................. 1 --
---------------- --------------
Additions (reductions) for Contract
Owners' transactions ............................... 20,050 2,896
---------------- --------------
Net additions (reductions) for the year ............. 22,804 2,894
Contract Owners' Equity, beginning of the year ......... 2,894 --
---------------- --------------
Contract Owners' Equity, end of the year ............... $ 25,698 $ 2,894
================== ==============
Units Outstanding, beginning of the year ............... 295,875.300 --
Units Outstanding, end of the year ..................... 2,066,481.457 295,875.300
Net Asset Value per Unit: .............................. $ 12.435746 $ 9.781783
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-24
<PAGE>
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
NEUBERGER BERMAN NEUBERGER BERMAN
ADVISERS MANAGEMENT TRUST ADVISERS MANAGEMENT TRUST
LIMITED MATURITY BOND PORTFOLIO PARTNERS PORTFOLIO
- ------------------------------------------ ---------------------------------------------
1998 1997 1998 1997
- --------------------- -------------------- ----------------------- ---------------------
<S> <C> <C> <C>
$ 25 $ -- $ 18 $ --
-- -- 579 --
(16) -- (155) (5)
-------------- ------------- ---------------- --------------
9 -- 442 (5)
-------------- ------------- ---------------- --------------
(12) -- (235) 4
26 1 (197) 30
-------------- ------------- ---------------- --------------
14 1 (432) 34
-------------- ------------- ---------------- --------------
23 1 10 29
-------------- ------------- ---------------- --------------
1,686 196 13,234 1,813
(26) (1) (225) (3)
(5) -- (73) --
309 29 1,123 787
-- -- (2) --
-- -- 1 --
-------------- ------------- ---------------- --------------
1,964 224 14,058 2,597
-------------- ------------- ---------------- --------------
1,987 225 14,068 2,626
225 -- 2,626 --
-------------- ------------- ---------------- --------------
$ 2,212 $ 225 $ 16,694 $ 2,626
================ =============== ================== ==============
22,028.741 -- $ 255,773.135 --
210,708.844 2,028.741 1,582,047.842 255,773.135
$ 10.497074 $ 10.197317 $ 10.552069 $ 10.268611
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
NORTHSTAR GALAXY TRUST
GROWTH + VALUE PORTFOLIO
- ---------------------------------------------
1998 1997
- --------------------- -----------------------
<S> <C>
$ 5 $ 76
162 166
(285) (156)
----------------- ----------------
(118) 86
----------------- ----------------
252 43
2,933 1,049
----------------- ----------------
3,185 1,092
----------------- ----------------
3,067 1,178
----------------- ----------------
5,973 10,705
(532) (304)
(105) (89)
(2,100) 122
(57) (7)
3 1
----------------- ----------------
3,182 10,428
----------------- ----------------
6,249 11,606
15,507 3,901
----------------- ----------------
$ 21,756 $ 15,507
================= ================
1,118,715.737 318,137.812
1,333,885.420 1,118,715.737
$ 16.310327 $ 13.861318
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-25
<PAGE>
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
For the years ended December 31, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
NORTHSTAR GALAXY TRUST
HIGH-YIELD BOND PORTFOLIO
--------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income ...................... $ 346 $ 28
Reinvested capital gains ........................ 11 8
Administrative expenses ......................... (57) (5)
-------------- --------------
Net investment income (loss)
and capital gains: ........................... 300 31
-------------- --------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of
fund shares .................................... (98) 49
Increase (decrease) in unrealized appreciation of
investments .................................... (197) (13)
-------------- --------------
Net realized and unrealized gains (losses) .... (295) 36
-------------- --------------
Additions (reductions) from operations ........ 5 67
-------------- --------------
Contract Owners' transactions:
Net premium payments ............................ 7,246 853
Surrenders ...................................... (91) (3)
Policy loans .................................... (4) --
Transfers between sub-accounts and/or
fixed account .................................. 709 158
Death benefits .................................. -- --
Loan collateral interest ........................ -- --
-------------- --------------
Additions (reductions) for Contract Owners'
transactions ................................. 7,860 1,008
-------------- --------------
Net additions (reductions) for the year ....... 7,865 1,075
Contract Owners' Equity, beginning of the year ... 1,075 --
-------------- --------------
Contract Owners' Equity, end of the year ......... $ 8,940 $ 1,075
============== ==============
Units Outstanding, beginning of the year ......... 105,615.457 --
Units Outstanding, end of the year ............... 885,661.645 105,615.457
Net Asset Value per Unit: ........................ $ 10.094227 $ 10.176584
</TABLE>
<TABLE>
<CAPTION>
NORTHSTAR GALAXY TRUST
EMERGING GROWTH PORTFOLIO
---------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income ...................... $ 121 $ 80
Reinvested capital gains ........................ 223 22
Administrative expenses ......................... (63) (27)
-------------- --------------
Net investment income (loss)
and capital gains: ........................... 281 75
-------------- --------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of
fund shares .................................... 83 54
Increase (decrease) in unrealized appreciation of
investments .................................... 317 83
-------------- --------------
Net realized and unrealized gains (losses) .... 400 137
-------------- --------------
Additions (reductions) from operations ........ 681 212
-------------- --------------
Contract Owners' transactions:
Net premium payments ............................ 1,511 1,983
Surrenders ...................................... (103) (34)
Policy loans .................................... (16) (15)
Transfers between sub-accounts and/or
fixed account .................................. (405) 745
Death benefits .................................. (65) (17)
Loan collateral interest ........................ 1 --
-------------- --------------
Additions (reductions) for Contract Owners'
transactions ................................. 923 2,662
-------------- --------------
Net additions (reductions) for the year ....... 1,604 2,874
Contract Owners' Equity, beginning of the year ... 3,599 725
-------------- --------------
Contract Owners' Equity, end of the year ......... $ 5,203 $ 3,599
============== ==============
Units Outstanding, beginning of the year ......... 270,967.530 62,237.333
Units Outstanding, end of the year ............... 338,592.875 270,967.530
Net Asset Value per Unit: ........................ $ 15.366323 $ 13.284489
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-26
<PAGE>
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
NORTHSTAR GALAXY TRUST NORTHSTAR GALAXY TRUST OCC ACCUMULATION TRUST
INTERNATIONAL VALUE PORTFOLIO MULTI-SECTOR BOND PORTFOLIO EQUITY PORTFOLIO
- ------------------------------- ------------------------------- -------------------------------
1998 1997 1998 1997 1998 1997
- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 38 $ 1 $ 266 $ 159 $ 8 $ --
163 -- 1 15 32 --
(29) (1) (49) (28) (23) (1)
- -------------- -------------- -------------- -------------- -------------- --------------
172 -- 218 146 17 (1)
- -------------- -------------- -------------- -------------- -------------- --------------
22 4 (24) 16 6 1
68 (2) (205) (55) 97 13
- -------------- -------------- -------------- -------------- -------------- --------------
90 2 (229) (39) 103 14
- -------------- -------------- -------------- -------------- -------------- --------------
262 2 (11) 107 120 13
- -------------- -------------- -------------- -------------- -------------- --------------
2,838 453 2,631 2,493 1,927 425
(47) (1) (97) (176) (22) (20)
(2) -- (1) (4) (14) (2)
208 126 (507) (143) 169 70
-- -- (31) -- -- --
-- -- -- -- -- --
- -------------- -------------- -------------- -------------- -------------- --------------
2,997 578 1,995 2,170 2,060 473
- -------------- -------------- -------------- -------------- -------------- --------------
3,259 580 1,984 2,277 2,180 486
580 -- 2,880 603 486 --
- -------------- -------------- -------------- -------------- -------------- --------------
$ 3,839 $ 580 $ 4,864 $ 2,880 $ 2,666 $ 486
============== ============== ============== ============== ============== ==============
57,506.716 -- 238,690.820 52,792.181 45,654.119 --
330,553.044 57,506.716 403,214.084 238,690.820 227,142.692 45,654.119
$ 11.614952 $ 10.073394 $ 12.062872 $ 12.069396 $ 11.737470 $ 10.640989
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-27
<PAGE>
NORTHERN LIFE SEPARATE ACCOUNT ONE
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
For the years ended December 31, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
-----------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net investment income (loss):
Reinvested dividend income .................................. $ 8 $ 1
Reinvested capital gains .................................... 28 8
Administrative expenses ..................................... (5) --
-------------- --------------
Net investment (loss) income and capital gains: ........... 31 9
-------------- --------------
Realized and unrealized gains (losses):
Net realized gains (losses) on redemptions of fund shares ... 21 --
Increase (decrease) in unrealized appreciation of investments (30) (12)
-------------- --------------
Net realized and unrealized gains (losses) ................ (9) (12)
-------------- --------------
Additions (reductions) from operations .................... 22 (3)
-------------- --------------
Contract Owners' transactions:
Net premium payments ........................................ 546 169
Surrenders .................................................. (3) --
Policy loans ................................................ (5) --
Transfers between sub-accounts and/or fixed account ......... 2 13
Death benefits .............................................. -- --
Loan collateral interest .................................... -- --
-------------- --------------
Additions (reductions) for Contract Owners' transactions .. 540 182
-------------- --------------
Net additions for the year ................................ 562 179
Contract Owners' Equity, beginning of the year ............... 179 --
-------------- --------------
Contract Owners' Equity, end of the year ..................... $ 741 $ 179
============== ==============
Units Outstanding, beginning of the year ..................... 18,968.362 --
Units Outstanding, end of the year ........................... 70,138.035 18,968.362
Net Asset Value per Unit: .................................... $ 10.567329 $ 9.459272
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-28
<PAGE>
STATEMENTS OF OPERATIONS AND
CHANGES IN CONTRACT OWNERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST OCC ACCUMULATION TRUST
MANAGED PORTFOLIO SMALL CAP PORTFOLIO
- -------------------------------------- --------------------------------------
1998 1997 1998 1997
- -------------- -------------- -------------- --------------
<S> <C> <C> <C>
$ 39 $ -- $ 3 $ --
129 -- 29 --
(138) (5) (21) (1)
- -------------- -------------- -------------- --------------
30 (5) 11 (1)
- -------------- -------------- -------------- --------------
58 1 (22) 2
221 (1) (129) (2)
- -------------- -------------- -------------- --------------
279 -- (151) --
- -------------- -------------- -------------- --------------
309 (5) (140) (1)
- -------------- -------------- -------------- --------------
14,219 1,734 1,908 348
(263) (2) (27) (2)
(56) (4) (8) (3)
692 1,047 85 154
(1) -- -- --
-- -- -- --
- -------------- -------------- -------------- --------------
14,591 2,775 1,958 497
- -------------- -------------- -------------- --------------
14,900 2,770 1,818 496
2,770 -- 496 --
- -------------- -------------- -------------- --------------
$ 17,670 $ 2,770 $ 2,314 $ 496
============== ============== ============== ==============
274,772.663 -- 48,630.367 --
1,659,487.954 274,772.663 252,953.621 48,630.367
$ 10.647991 $ 10.080149 $ 9.146562 $ 10.195889
</TABLE>
The accompanying notes are an integral part of the financial statements.
SAI-29
<PAGE>
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>
THE ALGER AMERICAN FUND FIDELITY VIP NORTHSTAR GALAXY TRUST
- ----------------------------------- ------------------------- ------------------------------
<S> <C> <C>
Small Capitalization Portfolio Equity-Income Portfolio Growth + Value Portfolio
Growth Portfolio Growth Portfolio High-Yield Bond Portfolio
MidCap Growth Portfolio Money Market Portfolio Emerging Growth Portfolio
Leverage AllCap Portfolio Overseas Portfolio International Value Portfolio
Multi-Sector Bond Portfolio
<CAPTION>
JANUS ASPEN SERIES FIDELITY VIP II OCC ACCUMULATION TRUST
- ----------------------------------- --------------------------------- -------------------------------
<S> <C> <C>
Aggressive Growth Portfolio Asset Manager Portfolio Equity Portfolio
Growth Portfolio Asset Manager: Growth Portfolio Global Equity Portfolio
International Growth Portfolio Index 500 Portfolio Managed Portfolio
Worldwide Growth Portfolio Contrafund Portfolio Small Capitalization Portfolio
<CAPTION>
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- -------------------------------------------
<S>
Limited Maturity Bond Portfolio
Partners Portfolio
</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 Funds Portfolios. Fidelity Management & Research Company is the
investment adviser for Fidelity Variable Insurance Products Fund (VIP) and
Variable Insurance Products Fund II (VIP II) and is paid for its services by
the VIP and VIP II Portfolios. Northstar Investment Management Corporation,
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 adviser for the two portfolios of the Advisers
Management Trust and is paid fees for its services by the Neuberger Berman
Advisers Management Trust Funds. 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.
On August 8, 1997, sub-accounts investing in Northstar Galaxy Trust Growth +
Value Portfolio, Northstar Galaxy High-Yield Bond Portfolio, Northstar Galaxy
Trust International Value Portfolio, Alger American, Janus Aspen Series, OCC
Accumulation Trust and Neuberger Berman Advisers Management Trust were made
available to the Account.
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.
On November 9, 1998, Northstar Galaxy Trust Income and Growth Portfolio
changed its name to Northstar Galaxy Trust Emerging Growth Portfolio.
SAI-30
<PAGE>
NORTHERN LIFE
SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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.
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 Contract Value immediately
before it is applied to an annuity payout.
SAI-31
<PAGE>
NORTHERN LIFE
SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
5. INVESTMENTS:
For the year ended December 31, 1998, investment activity in the funds was
as follows (in thousands):
<TABLE>
<CAPTION>
COST OF PROCEEDS
INVESTING FUND PURCHASES FROM SALES
--------------------------------------------------------- ----------- -----------
Fidelity's VIP and VIP II:
<S> <C> <C>
Money Market Portfolio ........................... $ 8,291 $ 6,292
Asset Manager Portfolio .......................... 5,542 536
Asset Manager: Growth Portfolio .................. 10,140 3,871
Equity-Income Portfolio .......................... 17,211 3,352
Growth Portfolio ................................. 11,092 2,368
Overseas Portfolio ............................... 1,550 592
Index 500 Portfolio .............................. 40,184 1,579
Contrafund Portfolio ............................. 17,665 893
The Alger American Fund:
Alger American Small Capitalization .............. 5,473 2,110
Alger American Growth Portfolio .................. 12,518 1,947
Alger American MidCap Growth Portfolio ........... 3,522 559
Alger American Leverage AllCap Portfolio ......... 6,611 2,733
Janus Aspen Series:
Aggressive Growth Portfolio ...................... 1,538 68
Growth Portfolio ................................. 7,006 241
International Growth Portfolio ................... 2,296 189
Worldwide Growth Portfolio ....................... 23,920 3,605
Neuberger Berman Advisers Management Trust:
Limited Maturity Bond Portfolio .................. 2,419 444
Partners Portfolio ............................... 17,260 2,747
Northstar Galaxy Trust:
Northstar Growth + Value Portfolio ............... 4,785 1,713
Northstar High-Yield Bond Portfolio .............. 10,025 1,819
Northstar Emerging Growth Portfolio .............. 2,169 971
Northstar International Value Portfolio .......... 3,414 241
Northstar Multi-Sector Bond Portfolio ............ 3,225 999
OCC Accumulation Trust:
Equity Portfolio ................................. 2,194 114
Global Equity Portfolio .......................... 1,284 713
Managed Portfolio ................................ 15,788 1,162
Small Cap Portfolio .............................. 2,252 282
-------- -------
Total ............................................ $239,374 $42,140
======== =======
</TABLE>
SAI-32
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
STATUTORY BASIS FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
INDEPENDENT AUDITORS' REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
INDEPENDENT AUDITORS' REPORT ................................................ SAI-34
STATUTORY BASIS FINANCIAL STATEMENTS:
Statutory Basis Statements of Admitted Assets, Liabilities, Surplus and
Other Funds ............................................................. SAI-35
Statutory Basis Statements of Operations ................................. SAI-36
Statutory Basis Statements of Changes in Capital and Surplus ............. SAI-37
Statutory Basis Statements of Cash Flows ................................. SAI-38
Notes to Statutory Basis Financial Statements ............................ SAI-39
</TABLE>
SAI-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Northern Life Insurance Company
Seattle, Washington
We have audited the accompanying statutory-basis statements of admitted assets,
liabilities, and surplus and other funds of Northern Life Insurance Company (a
wholly owned subsidiary of ReliaStar Life Insurance Company) (the Company) as of
December 31, 1998 and 1997, and the related statutory-basis statements of
operations, changes in capital and surplus, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
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 on
such financial statements of the differences between the statutory basis of
accounting and generally accepted accounting principles are described in Note
11.
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, 1998 and 1997, 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, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended, on the basis of
accounting described in Note 1.
DELOITTE & TOUCHE LLP
Seattle, Washington
February 5, 1999
SAI-34
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
STATUTORY BASIS STATEMENTS OF ADMITTED ASSETS,
LIABILITIES, SURPLUS AND OTHER FUNDS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Bonds, at NAIC Value (Market: 1998, $4,675.9; 1997, $4,302.7) ......... $ 4,503.2 $ 4,144.4
Stocks, at NAIC Value (Cost: 1998, $17.7; 1997, $6.5) ................. 18.5 6.0
Mortgage Loans on Real Estate ......................................... 978.5 997.8
Real Estate ........................................................... -- .7
Policy Loans .......................................................... 354.0 323.7
Cash on Hand and on Deposit ........................................... 8.8 12.3
Short-Term Investments ................................................ 19.0 33.6
Other Invested Assets ................................................. 42.7 54.1
Receivable for Securities ............................................. 2.8 --
Aggregate Write-in for Invested Assets ................................ .4 4.5
---------- ----------
Total Cash and Investments ........................................... 5,927.9 5,577.1
---------- ----------
Reinsurance Recoverable ............................................... .9 .5
Life Insurance Premiums and Annuity Considerations Deferred
and Uncollected ...................................................... 5.9 6.1
Investment Income Due and Accrued ..................................... 73.9 73.6
Other Assets .......................................................... 2.0 5.6
From Separate Account Statement ....................................... 377.6 141.9
---------- ----------
Total Assets ......................................................... $ 6,388.2 $ 5,804.8
========== ==========
LIABILITIES, SURPLUS AND OTHER FUNDS
Aggregate Reserves for Policies and Contracts ......................... $ 5,564.0 $ 5,230.8
Policy and Contract Claims ............................................ 4.9 3.4
Policyholders' Dividends .............................................. 10.7 10.8
Liability for Premiums and Other Deposit Funds ........................ 1.0 1.0
Other Policy and Contract Liabilities ................................. 11.9 8.6
Commissions Payable ................................................... 1.8 2.5
General Expenses Due or Accrued ....................................... 8.3 6.9
Taxes, Licenses, and Fees Due or Accrued, Excluding
Federal Income Taxes ................................................. .4 .7
Federal Income Taxes Due or Accrued ................................... (4.5) (.4)
Unearned Investment Income ............................................ 1.6 1.6
Asset Valuation Reserve ............................................... 62.1 57.7
Other Liabilities ..................................................... 22.6 30.9
From Separate Account Statement ....................................... 377.6 141.9
---------- ----------
Total Liabilities .................................................... 6,062.4 5,496.4
---------- ----------
SURPLUS AND OTHER FUNDS
Common Capital Stock .................................................. 1.5 1.5
Gross Paid In and Contributed Surplus ................................. 126.5 126.5
Unassigned Surplus .................................................... 197.8 180.4
---------- ----------
Total Surplus and Other Funds ......................................... 325.8 308.4
---------- ----------
Total Liabilities, Surplus and Other Funds ........................... $ 6,388.2 $ 5,804.8
========== ==========
</TABLE>
The accompanying notes are an integral part of the
statutory basis financial statements.
SAI-35
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
STATUTORY BASIS STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES
Premiums and Annuity Considerations ...................................... $ 86.9 $ 86.4
Deposit-Type Funds ....................................................... 716.6 693.7
Considerations for Supplementary Contracts and Dividend
Accumulations ........................................................... 12.5 9.9
Net Investment Income .................................................... 428.8 407.9
Amortization of Interest Maintenance Reserve ............................. 2.4 1.9
Other Income ............................................................. 3.5 1.2
--------- ---------
Total Revenues .......................................................... $ 1,250.7 $ 1,201.0
--------- ---------
BENEFITS AND EXPENSES
Death Benefits ........................................................... $ 16.1 $ 12.5
Matured Endowments ....................................................... .2 .3
Annuity Benefits ......................................................... 48.5 39.8
Disability and Accident and Health Benefits .............................. .1 .2
Surrender Benefits and Other Fund Withdrawals ............................ 503.1 456.9
Interest on Policy or Contract Funds ..................................... .1 .2
Payments on Supplementary Contracts and Dividend Accumulations ........... 11.5 9.2
Changes in Reserve for Policies and Contracts ............................ 331.4 422.1
Changes in Reserve for Supplementary Contracts Without Life
Contingencies and Dividend and Coupon Accumulations ..................... 1.8 1.5
--------- ---------
Total Benefits .......................................................... 912.8 942.7
Commissions .............................................................. 56.8 56.0
General Insurance Expenses ............................................... 57.6 48.4
Insurance Taxes, Licenses and Fees, Excluding Federal Income Taxes ....... 4.2 4.1
Other Disbursements ...................................................... 2.6 1.5
Net Transfers to Separate Accounts ....................................... 185.1 90.4
--------- ---------
Total Benefits and Expenses ............................................. 1,219.1 1,143.1
--------- ---------
Net Gain from Operations before Dividends to Policyholders and
Federal Income Taxes .................................................... 31.6 57.9
Dividends to Policyholders ............................................... .5 .5
--------- ---------
Net Gain from Operations before Federal Income Taxes ..................... 31.1 57.4
Federal Income Taxes (Excluding Taxes on Capital Gains and Losses) ....... 8.8 17.5
--------- ---------
Net Gain from Operations before Realized Capital Gains and Losses ........ 22.3 39.9
Net Realized Capital Gains and Losses (Net of Tax Expense: 1998, $8.8;
1997, $5.3) (Net of IMR Transfers: 1998, $5.7; 1997, $3.5) .............. (3.0) 1.0
--------- ---------
Net Income .............................................................. $ 19.3 $ 40.9
========= =========
</TABLE>
The accompanying notes are an integral part of the
statutory basis financial statements.
SAI-36
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
STATUTORY BASIS STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
CAPITAL AND SURPLUS, BEGINNING OF YEAR .................. $ 308.4 $ 275.9
Net Income .............................................. 19.3 40.9
Change in Net Unrealized Capital Gains (Losses) ......... (.5) (1.4)
Change in Non-Admitted Assets and Related Items ......... 2.9 (7.4)
Change in Asset Valuation Reserve ....................... (4.3) .4
-------- --------
CAPITAL AND SURPLUS, END OF YEAR ........................ $ 325.8 $ 308.4
======== ========
</TABLE>
The accompanying notes are an integral part of the
statutory basis financial statements.
SAI-37
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
STATUTORY BASIS STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1998 1997
------------- ------------
<S> <C> <C>
CASH FROM OPERATIONS
Premiums and Annuity Considerations ...................................... $ 87.0 $ 86.7
Deposit-Type Funds ....................................................... 716.6 693.7
Other Premiums, Considerations and Deposits .............................. 12.4 9.9
Allowances and Reserve Adjustments Received on Reinsurance Ceded ......... .1 .1
Investment Income Received ............................................... 428.6 403.2
Other Income Received .................................................... 1.3 1.0
Life and Accident and Health Claims Paid ................................. (14.9) (12.4)
Surrender Benefits and Other Fund Withdrawals Paid ....................... (503.0) (457.0)
Other Benefits to Policyholders Paid ..................................... (60.4) (49.1)
Commissions, Other Expenses and Taxes Paid ............................... (118.2) (108.3)
Net Transfers to Separate Accounts ....................................... (185.4) (90.5)
Dividends to Policyholders Paid .......................................... (.5) (.6)
Federal Income Taxes Paid ................................................ (8.3) (19.3)
Other Operating Expenses Paid ............................................ -- (.1)
--------- ---------
Net Cash from Operations ................................................ $ 355.3 $ 457.3
--------- ---------
CASH FROM INVESTMENTS
Proceeds from Investments Sold, Matured or Repaid
Bonds ................................................................... $ 613.8 $ 567.3
Stocks .................................................................. 12.2 7.9
Mortgage Loans .......................................................... 291.5 155.5
Real Estate ............................................................. .6 1.3
Other Invested Assets ................................................... 31.6 6.6
Miscellaneous Proceeds .................................................. 1.3 --
Taxes on Capital Gains ................................................... (11.5) (4.3)
--------- ---------
Total Investment Proceeds .............................................. 939.5 734.3
--------- ---------
Cost of Investments Acquired
Bonds ................................................................... 963.2 728.9
Stocks .................................................................. 25.2 .5
Mortgage Loans .......................................................... 273.6 393.0
Real Estate ............................................................. -- .1
Other Invested Assets ................................................... 15.7 19.6
Miscellaneous Applications .............................................. 4.3 --
--------- ---------
Total Investments Acquired ............................................. 1,282.0 1,142.1
--------- ---------
Net Change in Policy Loans and Premium Notes ............................. (30.3) (33.9)
--------- ---------
Net Cash from Investments ............................................... $ (372.8) $ (441.7)
--------- ---------
CASH FROM FINANCING AND MISCELLANEOUS SOURCES
Other Sources (Applications), Net ........................................ $ (.6) $ (12.8)
--------- ---------
Net Cash from Financing and Miscellaneous Sources ....................... (.6) (12.8)
--------- ---------
Net Change in Cash and Short-Term Investments ............................ (18.1) 2.8
Cash and Short-Term Investments at Beginning of Year ..................... 45.9 43.1
--------- ---------
Cash and Short-Term Investments at End of Year ........................... $ 27.8 $ 45.9
========= =========
</TABLE>
The accompanying notes are an integral part of the
statutory basis financial statements.
SAI-38
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying statutory basis financial statements of Northern Life
Insurance Company (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
reduction of surplus and recording an asset valuation reserve. The amounts in
these financial statements pertain to the entire Company's business including,
as appropriate, its Separate Account business.
All outstanding shares of the Company are owned by ReliaStar Life Insurance
Company, a Minnesota domiciled insurance company. ReliaStar Life Insurance
Company is in turn a wholly owned subsidiary of ReliaStar Financial Corp.
(ReliaStar) a holding and management company domiciled in Delaware.
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
NATURE OF OPERATIONS
The Company is principally engaged in the business of providing annuities
and life insurance. The Company operates primarily in the United States and is
authorized to do business in all states except New York.
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 December 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 anticipates the termination of approximately 250 positions
at the Company's current service center operation. The transitioning of
operations to the new center is scheduled to begin during 1999. Estimated costs
recorded by the Company related to this plan of approximately $3.8 million
(pre-tax) are primarily related to employee-related termination costs and
non-cancellable lease contracts costs associated with vacated facilities.
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 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 securities.
Preferred stocks in good standing are valued at cost, which approximates
market.
Common Stocks are valued at estimated market value.
SAI-39
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(CONTINUED)
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. The Company
utilizes the settlement method of accounting for its interest rate swap
agreements whereby the difference between amounts paid and amounts received or
accrued on interest rate swap agreements is reflected in net investment income.
All derivative instruments are valued consistently with the hedged items.
All other security investments are presented at values prescribed by or
deemed acceptable to the NAIC, generally market value.
Mortgage loans are valued at amortized cost. Real estate acquired in
satisfaction of debt is stated at the lower of 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.
Other investments, principally limited partnerships, are carried on the
cost basis.
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 was 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, 1998 and 1997 was $1.7 million
and $1.2 million, respectively. The Company recognizes investment income on
derivative instruments in accordance with the NAIC Accounting Practices and
Procedures manual whereby the difference between amounts paid and amounts
received are accrued on interest rate swap agreements is reflected in net
investment income.
NONADMITTED ASSETS
Assets of the Company designated as "nonadmitted" are excluded from the
balance sheets. The change in such assets, net of amortization, is reflected as
a direct increase or decrease in surplus.
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 (principally investments) and liabilities (principally to
contractholders) of each account are clearly identifiable and distinguishable
from other assets and liabilities of the Company. Assets are valued at fair
value.
PREMIUM REVENUE AND BENEFITS TO POLICYHOLDERS
Premiums on life insurance contracts are generally recognized as revenue
over the life of the contract on the anniversary date. Contract benefits are
associated with premium revenue over the life of the contract by providing for
liabilities for future policy and contract benefits.
POLICY ACQUISITION COSTS
Costs of acquiring new business are charged to operating expenses in the
year incurred.
SAI-40
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(CONTINUED)
AGGREGATE RESERVES FOR POLICIES AND CONTRACTS
Liabilities 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 liabilities are computed
using interest rates and mortality assumptions where needed as prescribed by
state regulatory authorities. Liabilities for 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.
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, 1998, the Company had insurance in force of $65.0
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 $1.0 million at December 31, 1998.
Of the total net annuity actuarial reserves and deposit fund liabilities at
December 31, 1998, approximately 54% are subject to discretionary withdrawal at
book value less current surrender charge of 5% or more; approximately 31% are
subject to discretionary withdrawal at book value with minimal adjustment of
less than 5% but greater than zero; approximately 12% are subject to
discretionary withdrawal at book value without adjustment; and approximately 3%
are not subject to discretionary withdrawal.
INCOME TAXES DUE AND ACCRUED
The provision for income taxes is based upon income that is estimated to be
currently taxable.
SAI-41
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. INVESTMENTS
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1998 1997
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Bonds .................................................. $ 329.5 $ 312.3
Preferred Stocks ....................................... .8 .4
Common Stocks .......................................... -- .1
Mortgage Loans on Real Estate .......................... 75.6 70.9
Real Estate ............................................ .1 .2
Policy Loans ........................................... 18.8 17.5
Short-term Investments ................................. 3.2 2.4
Derivative Instruments ................................. 3.0 8.2
Other .................................................. 5.8 3.8
-------- --------
Gross Investment Income ............................... 436.8 415.8
Investment Expenses .................................... 8.0 7.9
-------- --------
Net Investment Income ................................. $ 428.8 $ 407.9
======== ========
</TABLE>
Net realized capital gains (losses) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1998 1997
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Bonds .................................................. $ 9.1 $ 4.2
Preferred Stocks ....................................... (1.0) (.1)
Common Stocks .......................................... .1 1.4
Mortgage Loans on Real Estate .......................... 1.2 1.1
Real Estate ............................................ (.1) (.2)
Other .................................................. .3 3.4
------ ------
Net Pretax Realized Capital Gains ..................... 9.6 9.8
Income Tax Expense ..................................... (6.9) (5.3)
Net Pretax Realized Capital Gains Transferred to
Interest Maintenance Reserve (IMR) .................... (8.8) (5.3)
Income Tax Expense Transferred to IMR .................. 3.1 1.8
------ ------
Net Realized Capital Gains (Losses) Net of Tax ........ $ (3.0) $ 1.0
====== ======
</TABLE>
Gross realized capital gains of $12.0 million and $7.1 million and gross
realized capital losses of $2.9 million and $2.8 million were recognized on
sales of bonds during the years ended December 31, 1998 and 1997, respectively.
The statement value and estimated market values of investments in bonds by
type of investment were as follows:
SAI-42
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------
GROSS UNREALIZED ESTIMATED
STATEMENT ---------------------- MARKET
VALUE GAINS (LOSSES) VALUE
----------- --------- ---------- ------------
<S> <C> <C> <C> <C>
United States Government and
Governmental 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
Securities .................................... 1,301.0 33.9 (3.4) 1,331.5
--------- ------- ----- ---------
Total .......................................... $ 4,503.2 $ 194.5 $ (21.8) $ 4,675.9
========= ======= ======= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------
GROSS UNREALIZED ESTIMATED
STATEMENT ---------------------- MARKET
VALUE GAINS (LOSSES) VALUE
----------- --------- ---------- ------------
<S> <C> <C> <C> <C>
United States Government and
Governmental Agencies and Authorities ......... $ 3.9 $ .2 -- $ 4.1
States, Municipalities and Political
Subdivisions .................................. 33.3 2.3 $ (.2) 35.4
Foreign Governments ............................ 33.8 3.0 -- 36.8
Public Utilities ............................... 246.9 10.5 (.6) 256.8
Corporate Securities ........................... 2,698.1 117.8 (4.0) 2,811.9
Mortgage-Backed/Structured Finance
Securities .................................... 1,128.4 30.7 (1.4) 1,157.7
--------- ------- ------ ---------
Total .......................................... $ 4,144.4 $ 164.5 $ (6.2) $ 4,302.7
========= ======= ====== =========
</TABLE>
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, 1998
--------------------------
ESTIMATED
STATEMENT MARKET
VALUE VALUE
----------- ------------
(IN MILLIONS)
<S> <C> <C>
Due in One Year or Less ............................... $ 105.2 $ 105.4
Due After One Year Through Five Years ................. 1,281.9 1,331.9
Due After Five Years Through Ten Years ................ 1,302.1 1,354.5
Due After Ten Years ................................... 508.0 547.7
Mortgage-Backed/Structured Finance Securities ......... 1,306.0 1,336.4
--------- ---------
Total ................................................. $ 4,503.2 $ 4,675.9
========= =========
</TABLE>
The estimated market values for the marketable bonds are determined based
upon the quoted market prices for bonds actively traded. The estimated market
values for marketable bonds without an active market are obtained through
several commercial pricing services which provide the estimated
SAI-43
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. INVESTMENTS (CONTINUED)
market values. Estimated market values of privately placed bonds are determined
utilizing a matrix-based 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. Utilizing this data, the
model generates estimated market values which the Company considers reflective
of the market value of each privately placed bond.
At December 31, 1998, the largest industry concentration of the private
placement portfolio was consumer products/services, where 18.2% of the portfolio
was invested, and the largest industry concentration of the marketable bond
portfolio was mortgage-backed/structured securities, where 39.9% of the
portfolio was invested. At December 31, 1998, the largest geographic
concentration of commercial mortgage loans was in the pacific region of the
United States, where approximately 33.0% of the commercial and residential
mortgage loan portfolio was invested.
At December 31, 1998 and 1997, gross unrealized appreciation of
unaffiliated stocks was $.5 million and $.1 million, respectively, and gross
unrealized depreciation was $1.3 million and $.6 million, respectively.
The maximum and minimum lending rates for all mortgage loans issued during
1998 were 8.625% and 5.500%.
During 1998 the Company did not reduce interest rates of outstanding
mortgage loans.
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 year-end,
the Company held mortgages with $74,817 in interest more than one year overdue.
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 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 Company is exposed to credit-related losses in the event of
nonperformance by counterparties to financial 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 is included in the
computation of the maximum issuer limitation.
NOTE 4. INCOME TAXES
The Company's federal income tax return is consolidated with the following
entities: ReliaStar Financial Corp., ReliaStar Life Insurance Company, Norlic,
Inc., Nova, Inc., NWNL Benefits Corporation,
SAI-44
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INCOME TAXES (CONTINUED)
NWNL Health Management Corp., Washington Square Advisers, Inc., ReliaStar
Investment Research, Inc., ReliaStar Mortgage Corporation, James Mortgage
Company, Washington Square Securities, Inc., Northstar Holding, Inc., Northstar
Investment Management Corporation, Northstar Distributors, Inc., Northstar
Administrators Corporation, Bankers Centennial Management Corp., IB Holdings,
Inc., International Risks, Inc., Northeastern Corporation, IB Resolution, Inc.,
ReliaStar Financial Marketing Corporation, Successful Money Management Seminars,
Inc., Successful Money Management Software, 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. (New Mexico), and ReliaStar Payroll Agent, 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, 1998, 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
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Statutory Tax Rate .......................... 35.0% 35.0%
Accrual of Market Discount on Bonds ......... (12.1) (4.9)
Prior Year Provision True-up ................ 1.1 (.5)
Deferred Acquisition Cost Tax ............... 1.1 .7
Reserve Adjustments ......................... -- (2.8)
Other ....................................... 3.2 3.0
----- ----
Effective Tax Rate ......................... 28.3% 30.5%
===== ====
</TABLE>
Cash paid to ReliaStar for federal income taxes was $19.9 million and $23.6
million for 1998 and 1997, respectively.
NOTE 5. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company's parent, ReliaStar Life Insurance Company, sponsors a
noncontributory defined benefit pension plan covering substantially all
employees. Effective December 31, 1998, the defined benefit retirement plan was
amended to suspend the accrual of additional benefits for future services.
Employees will retain all of their accrued benefits as of December 31, 1998,
which will be paid monthly at retirement according to the provisions of the
plan. Employees meeting certain age and service requirements will receive
certain transition benefits until retirement.
SAI-45
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. EMPLOYEE BENEFIT PLANS (CONTINUED)
The benefits under the plan are based on years of service and the
employee's average compensation during the last five years of employment. The
parent company's policy is to fund the minimum required contribution necessary
to meet the present and future obligations of the plan. Contributions are
intended to provide not only for benefits attributed to service to date but also
for those expected to be earned in the future. Contributions are made to a
tax-exempt trust established by the parent company. Plan assets consist
principally of investments in stock and bond mutual funds, common stock and
corporate bonds.
Annual pension expense benefit recorded by the Company was $(.6) and $.5
million in 1998 and 1997, respectively. Annual pension expense is equal to the
funding for the plan year which is determined under the projected unit credit
actuarial cost method, including amortization of prior service costs and
considering ERISA minimum and maximum funding requirements. Each subsidiary is
charged its allowable share of such expense based on a percentage of payroll. At
January 1, 1998 (the date of the most recent actuarial valuation), the plan
accumulated benefit obligation/present value of accrued benefits and the amount
of vested benefits was $176.6 million and $172.6 million, respectively, based on
an assumed 8.5% interest rate. The fair value of plan assets was $229.1 million
at January 1, 1998. Included in plan assets are 1,232,982 shares of ReliaStar
common stock with a fair value of $50.8 million at January 1, 1998.
The Company and ReliaStar also have unfunded noncontributory defined
benefit plans providing for benefits to employees in excess of limits for
qualified retirement plans and for benefits to non-employee members of the
ReliaStar Board of Directors.
POSTRETIREMENT BENEFIT PLAN
The Company provides certain health care and life insurance benefits to
retired employees (and their eligible dependents). Substantially all of the
Company's employees will become eligible for those benefits if they meet
specified age and service requirements and reach retirement age while working
for the Company, unless the plans are terminated or amended. The postretirement
health care plan is contributory, with retiree contribution levels adjusted
annually; the life insurance plan provides a flat amount of noncontributory life
benefits and optional contributory coverage.
The unamortized transition obligation for retirees and fully eligible or
vested employees was $195,000 and $209,000 at December 31, 1998 and 1997,
respectively. The unamortized transition obligation is being amortized over 20
years. The accumulated postretirement obligation was $520,000 and $453,000 at
December 31, 1998 and 1997, respectively. Net postretirement benefit costs for
the years ended December 31, 1998 and 1997 were $92,000 and $83,000,
respectively, and include the expected cost of such benefits for newly eligible
or vested employees, interest cost and amortization of the transition
obligation.
The unfunded postretirement benefit obligation for retirees and other fully
eligible or vested plan participants was $569,000 and $497,000 at December 31,
1998 and 1997, respectively. The estimated benefit obligation for active
non-vested employees was $174,000 at December 31, 1998.
The assumed discount rate used in determining the accumulated
postretirement benefit obligation at December 31, 1998 was 7.0% and the health
care cost trend rate was 5.0% in 2000. The assumed discount rate used in
determining the accumulated postretirement benefit obligation at December 31,
1997 was 7.25% and the health care cost trend rate was 6.0% in the year 1999.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rate by one percentage point in each year would increase the postretirement
benefit obligation as of December 31, 1998 by $34,000 and the estimated
eligibility cost and interest cost components of net periodic postretirement
benefit cost for 1998 by $9,000.
SAI-46
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. EMPLOYEE BENEFIT PLANS (CONTINUED)
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 performance
objectives are met. Essentially all employees of the Company are eligible to
participate in the Success Sharing Plan. The Success Sharing Plan has both
qualified and nonqualified components. The nonqualified component is equal to
25% of the annual award and is paid in cash to employees. The qualified
component is equal to 75% of the annual award, which is contributed to the ESOP
portion of the Success Sharing Plan. Costs charged to operations for the Success
Sharing Plan were $1.2 million and $1.2 million in 1998 and 1997, respectively.
STOCK-BASED COMPENSATION
Employees of the Company participate in stock-based compensation plans of
ReliaStar. The Company has recorded no compensation expense for these
stock-based compensation plans other than for restricted stock and
performance-based awards.
NOTE 6. 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 1998 and
1997. In addition, there were no intercompany loans outstanding at December 31,
1998 or 1997.
The Company and its affiliates have entered into agreements whereby certain
management, administrative, legal and other services are provided to each other.
The net expense amounts resulted in the Company making payments of $18.0 million
and $15.2 million to its parent and other affiliated companies in 1998 and 1997,
respectively. The 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 7. 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 the ability of an insurer to pay dividends to its shareholders.
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, 1998 was $197.8 million and has no
restrictions, except as described above.
NOTE 8. REINSURANCE
The Company is a member of reinsurance associations established for the
purpose of ceding the excess of life, waiver of premium, and accidental death
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. 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 $135,000 per life for individual coverage for
most plans of insurance. As of December 31, 1998, $476.3 million of life
insurance in force was ceded to other companies of which $39.2 million was ceded
to ReliaStar Life Insurance Company. The Company has assumed $1.4 billion of
life insurance in force as of December 31, 1998 (including $714.9 million of
reinsurance assumed pertaining to Prudential Life Insurance Company and $692.4
million from ReliaStar Life Insurance Company).
SAI-47
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. REINSURANCE (CONTINUED)
The effect of reinsurance on premiums and benefits is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1998 1997
---------- ----------
(IN MILLIONS)
<S> <C> <C>
Direct Premiums ................ $ 86.8 $ 86.9
Reinsurance Assumed ............ 2.9 2.4
Reinsurance Ceded .............. (2.8) (2.9)
Net Premiums ................... $ 86.9 $ 86.4
------- -------
Reinsurance Recoveries ......... $ 1.6 $ 3.3
======= =======
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is a defendant in a number of lawsuits arising out of the
normal course of the business of the Company, some of which include claims for
punitive damages. In the opinion of management, the ultimate resolution of such
litigation will not result in any material adverse impact to the financial
position of the Company.
FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet its financing needs and to reduce its
exposure to fluctuations in interest rates. These financial instruments include
commitments to extend credit and interest rate swaps. Those instruments involve,
to varying degrees, elements of credit, interest rate or liquidity risk in
excess of the amounts 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 interest rate swap transactions, the
contract or notional amounts do not represent exposure to credit loss. For
swaps, the Company's exposure to credit loss is limited to those swaps where the
Company has an unrealized gain.
Unless otherwise noted, the Company does not require collateral or other
security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1998 1997
---------- ----------
(IN MILLIONS)
<S> <C> <C>
Contract or Notional Amount
Financial Instruments Whose Contract Amounts
Represent Credit Risk:
Commitments to Extend Credit ........................... $ 28.3 $ 84.8
Financial Instruments Whose Notional or Contract Amounts
Exceed the Amount of Credit Risk:
Interest Rate Swap Agreements .......................... 431.0 571.0
</TABLE>
COMMITMENTS TO EXTEND CREDIT -- Commitments to extend credit are legally
binding agreements to lend to a customer. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
They generally may be terminated by the Company in the event of deterioration in
the financial condition of the borrower. Since some of the commitments are
expected to
SAI-48
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 also enters into interest rate
swap agreements to manage interest rate exposure. The primary reason for the
interest rate swap agreements is to extend the duration of adjustable rate
investments. Interest rate swap transactions generally involve the exchange of
fixed and floating rate interest payment obligations without the exchange of the
underlying principal amounts. Changes in market interest rates impact income
from adjustable rate investments and have an opposite (and approximately
offsetting) effect on the reported income from the swap portfolio. The risks
under interest rate swap agreements are generally similar to those of futures
contracts. Notional principal amounts are often used to express the volume of
these transactions but do not represent the much smaller amounts potentially
subject to credit risk.
LEASES
The Company occupies its home office facility under a lease agreement that
commits it to pay rentals of $2,630,000 in 1999. Lease payments in 1998 under
this lease were $2,749,000. This lease is accounted for as an operating lease.
In 1997, the Company entered into a ten-year lease agreement beginning
December 1, 1998 and ending November 30, 2008. Future minimum rental payments
required under this lease are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
- ---------------------------------------------
<S> <C>
1999 -- $2.5 2002 -- $2.6
2000 -- $2.5 2003 -- $2.6
2001 -- $2.6 2004 and thereafter $13.4
</TABLE>
NOTE 10. 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, 1998 and 1997. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date; therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
BONDS -- The estimated market value disclosures for bonds satisfy the fair
value disclosure requirements of SFAS No. 107 (see Note 3).
STOCKS -- Fair value equals carrying value for common stocks as these
securities are carried at NAIC value which approximates quoted market value.
Preferred stocks are carried primarily at cost.
SAI-49
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 approximates the assets' fair values.
OTHER FINANCIAL INSTRUMENTS REPORTED AS ASSETS -- The carrying amounts for
these financial instruments (primarily premiums and other accounts receivable
and accrued investment income) approximate those assets' fair values.
INVESTMENT CONTRACT LIABILITIES -- The fair value for deferred annuities
was estimated to be the amount payable on demand at the reporting date as those
investment contracts have no defined maturity and are similar to a deposit
liability. The amount payable at the reporting date was calculated as the
account balance less applicable surrender charges.
The fair 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.
SAI-50
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Financial Instruments Recorded as Assets:
Bonds ....................................... $ 4,503.2 $ 4,675.9 $ 4,144.4 $ 4,302.7
Stocks ...................................... 18.5 17.7 6.0 6.1
Mortgage Loans on Real Estate:
Commercial ................................. 766.5 1,315.1 653.5 692.7
Residential and Other ...................... 212.0 352.1 344.3 348.9
Policy Loans ................................ 354.0 354.0 323.7 323.7
Cash and Short-Term Investments ............. 27.8 27.8 45.9 45.9
Other Financial Instruments Recorded as
Assets ..................................... 84.9 84.9 89.1 89.1
Financial Instruments Recorded as Liabilities:
Investment Contracts:
Deferred Annuities ......................... (5,024.6) (4,987.6) (4,710.9) (4,677.8)
Supplementary Contracts and Immediate
Annuities ................................ (121.8) (126.5) (99.0) (100.9)
Other Investment Contracts ................. (.9) (.9) (1.0) (1.0)
Other Financial Instruments Recorded as
Liabilities ................................. (15.9) (15.9) (23.1) (23.1)
Off-Balance Sheet Financial Instruments:
Interest Rate Swaps ......................... -- 14.3 -- 7.5
</TABLE>
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates.
SAI-51
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR LIFE INSURANCE COMPANY)
NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. RECONCILIATION OF STATUTORY NET INCOME AND EQUITY TO GAAP NET INCOME
AND EQUITY (IN MILLIONS) (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Statutory Net Income as Reported .......................... $ 19.3 $ 40.9
Adjustments Concerning:
Deferred Acquisition Costs ............................... 30.4 56.2
Deferred Federal Income Taxes ............................ (21.4) (22.6)
Reserves for Future Benefits ............................. 18.7 (8.0)
Net Adjustments to Investments ........................... 7.2 10.1
Capitalization of Software Costs ......................... (.2) 1.0
Nonadmitted Assets ....................................... (2.0) (.5)
Interest Maintenance Reserve ............................. (2.3) (1.9)
Other .................................................... 6.3 (.9)
Net Income in Conformity with Generally Accepted Accounting
Principles ............................................... $ 56.0 $ 74.3
======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Statutory Capital and Surplus as Reported .................. $ 325.8 $ 308.4
Adjustments Concerning: Deferred Acquisition Costs ......... 513.1 486.9
Deferred Federal Income Taxes ............................. (107.9) (85.6)
Reserves for Future Benefits .............................. (306.6) (325.3)
Net Adjustments to Investments ............................ 183.1 154.0
Capitalization of Software Costs .......................... 5.1 5.3
Pension Plan Agreements ................................... 1.3 1.3
Nonadmitted Assets ........................................ 13.3 18.2
Asset Valuation Reserve ................................... 62.1 57.7
Interest Maintenance Reserve .............................. 11.9 8.6
Other ..................................................... (3.8) (7.1)
Shareholder's Equity in conformity with Generally Accepted
Accounting Principles ..................................... $ 697.4 $ 622.4
======== ========
</TABLE>
SAI-52
