As filed with the Securities and Exchange Commission on October 16, 1996
File No. 333-2093
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
Pre-Effective Amendment No. 1 to the
Registration Statement Under
the Securities Act of 1933
VALLEY FORGE LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Pennsylvania 6312 23-6200031
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(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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CNA Plaza, 43 South
Chicago, Illinois 60685
(312) 822-4921
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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<S> <C>
Corporate Secretary Copy to:
Continental Assurance Company Stephen E. Roth, Esq.
CNA Plaza, 43 South Sutherland, Asbill & Brennan LLP
Chicago, Illinois 60685 1275 Pennsylvania Avenue, N.W.
(312) 822-5158 Washington, DC 20004-2404
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of the registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x]
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<CAPTION>
Title of Each Amount Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Offering Price Aggregate Registration
to be Registered Registered Per Unit Offering Price Fee
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Modified Guaranteed Annuity * * $50,000,000.00 $15,151.52
Contracts
</TABLE>
<PAGE>
* The proposed maximum aggregate offering price is estimated solely for
determining the registration fee. The amount to be registered and the proposed
maximum offering price per unit are not applicable since these securities are
not issued in predetermined amounts or units.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a),
shall determine.
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
----------------
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
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<CAPTION>
FORM S-1 ITEM NO. AND CAPTION LOCATION
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus . . . . . Outside Front Cover
2. Inside Front and Outside Back Cover of
Prospectus . . . . . . . . . . . . . . . . . . . Summary; Table of Contents
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges . . . . . . . . . . Outside Front Cover; Summary; Definitions;
Description of the Contract
4. Use of Proceeds . . . . . . . . . . . . . . . . . Additional Information About Valley Forge Life
Insurance Company -- Investments
5. Determination of Offering Price . . . . . . . . . Not Applicable
6. Dilution . . . . . . . . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders . . . . . . . . . . . . Not Applicable
8. Plan of Distribution . . . . . . . . . . . . . . Other Information -- Distribution of the Contracts
9. Description of Securities to be Registered . . . Summary; Description of the Contract; Contract
Charges and Fees; Selecting an Annuity Payment
Option; Other Information
10. Interest of Named Experts and Counsel . . . . . Other Information -- Legal Matters; Other
Information -- Experts
11. Information with Respect to the Registrant . . . The Company and the Accounts; Federal Tax
Considerations; Additional Information About Valley
Forge Life Insurance Company; Other Information --
Legal Proceedings
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . Part II, Item 14
</TABLE>
<PAGE>
PROSPECTUS
SINGLE PREMIUM DEFERRED MODIFIED GUARANTEED ANNUITY CONTRACT
issued by
VALLEY FORGE LIFE INSURANCE COMPANY
This prospectus describes individual and group single premium deferred modified
guaranteed annuity contracts and individual certificates issued thereunder
(referred to as the "Contract") issued by Valley Forge Life Insurance Company
(the "Company"). The Contract may be sold to or used in connection with
retirement plans, including plans that qualify for special federal income tax
treatment under the Internal Revenue Code.
The Owner of a Contract may allocate the Net Single Premium and Accumulation
Value to one or more Accounts available under the Contract. Accounts include
Interest Accounts, which provide Account Values based on the crediting of
specified Guaranteed Interest Rates; and may include Indexed Accounts, which
provide Account Values based on the crediting of interest rates that in part
reflect certain changes in a market index ("Index") specified in the Contract
(currently, The Standard and Poor's 500 Composite Stock Price Index (the "S&P
500"(R))).
Accumulation Value will vary as a function of interest credited to the
Accounts. The Company guarantees minimum Account Values for amounts maintained
in the Accounts until the expiration of the applicable Guarantee Period.
Account Values surrendered, withdrawn, transferred, or applied to an Annuity
Payment Option prior to that time are subject to a Market Value Adjustment, the
operation of which may result in upward or downward adjustments in values.
This prospectus sets forth the information regarding the Contract and the
Accounts that a prospective investor should know before purchasing a Contract.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE.
AN INVESTMENT IN A CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR IS THE CONTRACT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
CONTRACT INVOLVES CERTAIN RISKS, INCLUDING THE RISK OF LOSS OF PURCHASE
PAYMENTS (PRINCIPAL).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
November __, 1996
<PAGE>
TABLE OF CONTENTS
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General Description . . . . . . . . . . . . . . . . . . . . . . . .
Purchasing a Contract . . . . . . . . . . . . . . . . . . . . . . .
Cancelling the Contract . . . . . . . . . . . . . . . . . . . . . .
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diagram of the Contract . . . . . . . . . . . . . . . . . . . . . .
THE COMPANY AND THE ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . .
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Accounts, Indexed Accounts, and Guarantee Periods Under the
Contract Market Value Adjustment . . . . . . . . . . . . . . . . . .
DESCRIPTION OF THE CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . .
Purchasing a Contract . . . . . . . . . . . . . . . . . . . . . . .
Cancelling the Contract . . . . . . . . . . . . . . . . . . . . . .
Crediting and Allocating Net Single Premium . . . . . . . . . . . .
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reference Value . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments by the Company . . . . . . . . . . . . . . . . . . . . . .
Telephone Transfer Privileges . . . . . . . . . . . . . . . . . . .
CONTRACT CHARGES AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender Charge (Contingent Deferred Sales Charge) . . . . . . . .
Premium Tax Charge . . . . . . . . . . . . . . . . . . . . . . . . .
Rider Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SELECTING AN ANNUITY PAYMENT OPTION . . . . . . . . . . . . . . . . . . . . .
Annuity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annuity Payment Dates . . . . . . . . . . . . . . . . . . . . . . .
Election and Changes of Annuity Payment Options . . . . . . . . . .
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . .
Annuity Payment Options . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL CONTRACT INFORMATION . . . . . . . . . . . . . . . . . . . . . . .
Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changing the Owner or Beneficiary . . . . . . . . . . . . . . . . .
Misstatement of Age or Sex . . . . . . . . . . . . . . . . . . . . .
Change of Contract Terms . . . . . . . . . . . . . . . . . . . . . .
Reports to Owners . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . .
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . .
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Status of the Contract . . . . . . . . . . . . . . . . . . . . .
Taxation of Annuities . . . . . . . . . . . . . . . . . . . . . . .
Transfers, Assignments or Exchanges of a Contract . . . . . . . . .
Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multiple Contracts . . . . . . . . . . . . . . . . . . . . . . . . .
Taxation of Qualified Plans . . . . . . . . . . . . . . . . . . . .
Other Tax Consequences . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of the Contracts . . . . . . . . . . . . . . . . . . .
Administrative Services . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL INFORMATION ABOUT VALLEY FORGE
LIFE INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS OF VALLEY FORGE LIFE INSURANCE COMPANY . . . . . . . . .
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
<PAGE>
DEFINITIONS
ACCOUNT: An Interest Account or an Indexed Account available under the
Contract.
ACCOUNT VALUE: An amount on which the Company credits a specified and
guaranteed rate of interest (Interest Account Value), or for which the Company
credits interest based on a formula that takes into account certain changes in
a market index specified in the Contract (Indexed Account Value).
ACCUMULATION VALUE: Accumulation Value is the total amount invested under the
Contract (the sum of Interest Account Values and Indexed Account Values).
ADJUSTED ACCUMULATION VALUE: The Accumulation Value, plus or minus any
applicable Market Value Adjustment, less any Premium Tax Charges due and not
previously deducted.
AGE: The age of any person on the birthday nearest the date for which Age is
determined.
ANNUITANT: The person (or persons) whose life (or lives) determines the
Annuity Payments payable under the Contract and whose death determines the
death benefit. With regard to joint and survivorship Annuity Payment Options,
the maximum number of joint Annuitants is two, and provisions referring to the
death of an Annuitant mean the death of the last surviving Annuitant.
Provisions relating to an action by the Annuitant mean, in the case of joint
Annuitants, both Annuitants acting jointly.
ANNUITY DATE: The date on which the Annuity Value will be applied to purchase
an Annuity.
ANNUITY PAYMENT: One of several periodic payments made by the Company to the
Payee under an Annuity Payment Option.
ANNUITY PAYMENT DATE: The date each month, quarter, semi-annual period, or
year as of which the Company makes Annuity Payments.
ANNUITY PAYMENT OPTION: The form of Annuity Payments selected by the Owner
under the Contract.
ANNUITY VALUE: At any time on or before the fifth Contract Anniversary, the
Annuity Value equals the Surrender Value. At any time after the fifth Contract
Anniversary up to and including the Annuity Date, the Annuity Value equals the
greater of the Adjusted Accumulation Value and the Adjusted Reference Value.
AVERAGING PERIOD: A period of time at the end of each Contract Year over
which values of the Index are averaged before calculation of any Index increase.
BENEFICIARY: The person(s) to whom the death benefit will be paid on the death
of the Owner or Annuitant.
BUSINESS DAY: A day on which the New York Stock Exchange is open for trading
and the Company is open for business.
<PAGE>
CANCELLATION PERIOD: The ten day period (or longer, if required by state law),
during which the Owner may return the Contract for a refund of the Adjusted
Accumulation Value (or in certain states, the Single Premium).
THE CODE: The Internal Revenue Code of 1986, as amended.
THE COMPANY: Valley Forge Life Insurance Company.
CAP: The maximum percentage per year by which Account Value in an Indexed
Account may be increased. The Company will declare the Cap for an Indexed
Account at each Reset Date. The Cap will not change during a Guarantee Period.
CONTINGENT ANNUITANT: The person who becomes the Annuitant in the event that
the Annuitant dies before the Annuity Date while the Owner is still alive.
CONTINGENT BENEFICIARY: The person(s) to whom a death benefit will be paid if
the Beneficiary (or Beneficiaries) is not living.
CONTRACT: The individual contract, or group contract and individual certificate
issued thereunder, together with any riders or endorsements and the
application.
CONTRACT ANNIVERSARY: The same date in each Contract Year as the Investment
Start Date.
CONTRACT YEAR: A twelve-month period beginning on the Investment Start Date or
on a Contract Anniversary.
EXCHANGE: The New York Stock Exchange.
FLOOR: The minimum percentage per year by which Account Value in an Indexed
Account may be increased. The Floor will never be less than 0%. The Company
will declare the Floor for an Indexed Account at each Reset Date. The Floor
will not change during a Guarantee Period.
GUARANTEE PERIOD: A specific number of years for which the Company agrees to
credit a specified Guaranteed Interest Rate to an Interest Account, or to apply
a specified Index Participation Rate, Cap, Floor and specified Averaging Period
to an Indexed Account.
GUARANTEED INTEREST RATE: An effective annual rate of interest that the
Company credits to an Interest Account. The applicable Guaranteed Interest
Rate will not change during a Guarantee Period.
HOME OFFICE: The Company's office at 401 Penn Street, Reading, PA 19601.
<PAGE>
INDEX: Currently, The Standard and Poor's 500 Composite Stock Price Index (R).
In the future, Indexed Accounts that credit interest based on other Indexes may
be made available in the Company's sole discretion.
INDEXED ACCOUNT: An account for which the Company credits interest based on a
formula that takes into account certain changes in an Index.
INDEXED ACCOUNT VALUE: Account Value allocated to Indexed Accounts.
INDEX PARTICIPATION RATE: The percentage used to calculate the Index Increase
for an Indexed Account. The Index Participation Rate will not change during a
Guarantee Period.
INTEREST ACCOUNT: An account to which the Company credits a specified and
guaranteed rate of interest.
INTEREST ACCOUNT VALUE: Account Value allocated to Interest Accounts.
INVESTMENT START DATE: The Investment Start Date is shown in the Contract. It
is used to determine Contract Years and Contract Anniversaries.
ISSUE DATE: The date on which the Company issues the Contract.
MARKET VALUE ADJUSTMENT: A positive or negative adjustment made to any portion
of Account Value upon the surrender, withdrawal, transfer, or application to an
Annuity Payment Option of such portion of the Account Value.
NET ALLOCATION: The amount allocated to an Account at its most recent Reset
Date, less withdrawals and transfers from the Account since then (including any
surrender charges or Market Value Adjustments).
NET SINGLE PREMIUM. The Single Premium less any Premium Tax Charge deducted
from it.
NON-QUALIFIED CONTRACT: A Contract that is not a "qualified contract."
OWNER: The person who owns or persons who own the Contract and who is or are
entitled to exercise all rights and privileges provided in the Contract. The
maximum number of joint Owners is two. Provisions relating to action by the
Owner mean, in the case of joint Owners, both Owners acting jointly. In the
context of a Contract issued on a group basis, an Owner refers to the
participant under a group Contract.
PAYEE: The person entitled to receive Annuity Payments under the Contract.
PREMIUM TAX CHARGE: A charge for state premium taxes deducted either from the
Single Premium or from the Accumulation Value prior to surrender,
annuitization, or death of the Owner or Annuitant.
<PAGE>
QUALIFIED CONTRACT: A Contract that is issued in connection with a retirement
plan that qualifies for special federal income tax treatment under Sections
401, 408, or 457 of the Code.
REFERENCE VALUE: A minimum guaranteed value used to calculate benefits under
the Contract.
RESET DATES: The date that an amount is first allocated to an Account is the
first Reset Date for that Account. The next Reset Date for that Account is the
first day of the next Guarantee Period applicable to that Account.
SEC: The United States Securities and Exchange Commission.
SEPARATE ACCOUNTS: The Valley Forge Life Insurance Company Indexed Separate
Account and the Valley Forge Life Insurance Company MVA Guaranteed Interest
Separate Account.
SERVICE CENTER: The offices of the Company's administrative agent at 95 Bridge
Street (or P.O. Box 310), Haddam, Connecticut 06438.
SINGLE PREMIUM: The payment made by an Owner to purchase the Contract.
SURRENDER VALUE: The greater of: (i) the Adjusted Accumulation Value less any
applicable surrender charges; or (ii) the Adjusted Reference Value.
WINDOW PERIOD: The last thirty calendar days of a Guarantee Period.
WRITTEN NOTICE: A notice or request submitted in writing in a form
satisfactory to the Company that is signed by the Owner and received at the
Service Center.
<PAGE>
SUMMARY
This prospectus has been designed to provide prospective Owners with the
information necessary to decide whether or not to purchase a Contract. This
summary provides a concise description of the more significant aspects of the
Contract. Further detail is provided in this prospectus and in the Contract.
For additional information, contact the Service Center.
In some jurisdictions, the Contract is issued directly to individuals. In
other jurisdictions, the Contract is only available as a group contract. Group
contracts are issued to or on behalf of groups, such as employers for their
employees. Individuals who are part of groups for which a Contract is issued
receive a certificate that recites substantially all of the provisions of the
group contract. Throughout this prospectus, the term "Contract" refers both to
individual contracts, and to group contracts and individual certificates issued
thereunder.
GENERAL DESCRIPTION
The Contract is a single premium deferred annuity, providing annuitization,
surrender, and death benefits. The amount of these benefits is determined
largely by the Accumulation Value under the Contract. Account Values may be
based either on accumulation at a stated, guaranteed rate of interest (Interest
Accounts) or on a stated, guaranteed percentage of increases (if any) in the
Index, subject to certain limits (Indexed Accounts). Multiple Guarantee
Periods are available, and the Owner can allocate the Net Single Premium among
the Account types and Guarantee Periods offered by the Company at the time of
allocation.
If an Account is maintained for the duration of the applicable Guarantee
Period, the Owner's principal allocated to that Account is guaranteed in full
by the Company. However, withdrawals and surrenders from an Account before the
end of its Guarantee Period are subject to a Market Value Adjustment, which may
be positive or negative, and to a surrender charge. BECAUSE THE CONTRACT
PROVIDES ONLY LIMITED LIQUIDITY DURING A GUARANTEE PERIOD THROUGH THE FREE
WITHDRAWAL PROVISION, IT IS NOT SUITABLE FOR SHORT-TERM INVESTMENT.
From the Issue Date to the Investment Start Date, the Company will hold the Net
Single Premium and credit it with daily interest equivalent to an annual rate
of at least 3%. On the Investment Start Date, the Company will allocate the
Net Single Premium (together with interest) to the Accounts selected by the
Owner based on the Owner's allocation percentages. An Owner may allocate all
or a portion of the Net Single Premium or transfer Account Values, within
limits, among several Accounts.
The Contract offers Interest Accounts, under which an Owner may allocate all or
a portion of Net Single Premium and transfer Account Values among Guarantee
Periods selected by the Owner. In general, if amounts allocated to an Interest
Account remain in a Guarantee Period until its expiration date, its value will
be equal to the amount originally allocated, multiplied on an annually
compounded basis by the applicable Guaranteed Interest Rate.
<PAGE>
Subject to state availability, the Contract may also offer Indexed Accounts,
under which an Owner may allocate all or a portion of the Net Single Premium
and transfer Account Values among Guarantee Periods selected by the Owner. In
general, if amounts allocated to an Indexed Account remain in a Guarantee
Period until its expiration date, its value will be equal to the amount
originally allocated plus interest that reflects in part certain positive
changes, if any, in the S&P 500(R)(1) (Index Increases). The S&P 500(R) can, of
course, increase or decrease daily; however, Indexed Account Value will remain
constant during a Contract Year. Index Increases (if any) are determined and
credited to Indexed Account Value at the end of each Contract Year during a
Guarantee Period.
The investment risk and return characteristics for an Interest Account are
similar to those of a zero coupon bond or certificate of deposit; an Interest
Account, if maintained until its "maturity," or expiration, provides a fixed
rate of return over a stated period. Principal and credited interest are
guaranteed by the Company and are available without surrender charge or Market
Value Adjustment during the 30-day Window Period at the end of each Guarantee
Period. If Interest Account Value is withdrawn prematurely, or before the
Window Period at the end of the applicable Guarantee Period, then the effect of
the surrender charge and Market Value Adjustment may result in a loss of
principal.
The investment risk and return characteristics for an Indexed Account are
expected to fall in between those typical of fixed annuities and those typical
of equity mutual funds or variable annuities. A fixed annuity guarantees
principal, and provides for no participation in equity or other markets. A
variable annuity does not guarantee principal, and provides for 100%
participation in equity or other markets. Long-term returns under the Contract
may be higher than those offered by a typical fixed annuity, but year-to-year
growth under the Contract will be more volatile than under a fixed annuity as
the Index fluctuates. The principal guarantee under the Contract may make an
Indexed Account more suitable than direct equity investment for risk-averse
Owners. However, expected long-term returns of Indexed Accounts will be lower
than those for equity mutual funds or variable annuities.
Any surrender, withdrawal, transfer, or annuitization made prior to the
expiration date of the Guarantee Period will be subject to a Market Value
Adjustment that may increase or decrease the Account Value (or portion thereof)
being surrendered, withdrawn, transferred, or annuitized. Depending on the
size of the Market Value Adjustment, such an adjustment may reduce the Account
Value (or portion thereof) to less than the Net Single Premium allocated to or
Account Value transferred to a Guarantee Period. (See "THE COMPANY AND THE
ACCOUNTS - Market Value Adjustment.")
<PAGE>
- ----------------------
(1) The Product is not sponsored, endorsed, sold or promoted by Standard &
Poor's, a division of the McGraw-Hill Companies, Inc. (S&P). S&P makes no
representation or warrant, express or implied, to the owners of the Product or
any member of the public regarding the advisability of investing in securities
generally or in the Product particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to the Licensee
is the licensing of certain trademarks and trade names of the S&P and of the S&P
500 Index which is determined, composed and calculated by S&P without regard to
the Licensee or the Product. S&P has no obligation to take the needs of the
Licensee or the owners of the Product into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination of the prices and amount of the Product or
the timing of the issuance or sale of the product or in the determination or
calculation of the equation by which the Product is to be converted into cash.
S&P has no obligation or liability in connection with the administration,
marketing or trading of the Product.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P INDEX OR
ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
<PAGE>
The Surrender Value may increase or decrease. OWNERS BEAR THE INVESTMENT RISK
FOR AMOUNTS SURRENDERED, WITHDRAWN, TRANSFERRED, OR APPLIED TO AN ANNUITY
PAYMENT OPTION OUTSIDE OF AN APPLICABLE WINDOW PERIOD. Surrender Value,
Annuity Value, and Death Benefits are subject to certain minimums based on the
Reference Value or Adjusted Reference Value of the Contract. (See "THE COMPANY
AND THE ACCOUNTS - Reference Value.")
The Contract also offers a choice of Annuity Payment Options to which Owners
may apply the Annuity Value as of the Annuity Date. The Annuity Date, once
established by the Owner, may not be changed. Beneficiaries may also apply the
Death Benefit to certain Annuity Payment Options.
PURCHASING A CONTRACT
The Contract permits the payment of a Single Premium. The minimum Single
Premium for a Contract is $5,000. The Company reserves the right to reject any
Contract application. On the Investment Start Date, the Net Single Premium is
allocated to one or more Accounts specified on the application. The Investment
Start Date will be the first or 15th calendar day of the month (whichever comes
first) that next follows the Company's receipt of the Single Premium (or, if
the that day is not a Business Day, the next Business Day thereafter). (The
Company reserves the right to specify different Investment Start Dates under
Contracts issued in the future.)
CANCELLING THE CONTRACT
At any time during the Cancellation Period, an Owner may cancel the Contract
and receive a refund of the Adjusted Accumulation Value (or, for some states,
the Single Premium). The Cancellation Period is a ten day period of time
beginning when the Contract is received by an Owner. Some states may require
that the Company provide a longer Cancellation Period. (See "DESCRIPTION OF THE
CONTRACT -- Cancelling the Contract.")
TRANSFERS
On any Contract Anniversary, an Owner may transfer all or part of Interest
Account Value or Indexed Account Value to other Accounts then available.
Transfers are subject to certain restrictions, and transfers from an Indexed
Account are subject to additional limitations. A Market Value Adjustment will
apply unless Account Value is transferred during the applicable Window Period.
(SEE "DESCRIPTION OF THE CONTRACT -- Transfers.")
WITHDRAWALS
Upon Written Notice prior to the Annuity Date, an Owner may, subject to certain
restrictions, withdraw part of the Surrender Value. (See "THE COMPANY AND THE
ACCOUNTS -- Market Value Adjustment.") Withdrawals of Surrender Value may
reflect a positive or negative Market Value Adjustment. In addition, a
surrender charge and any Premium Tax Charge may apply. (See "DESCRIPTION OF
THE CONTRACT -- Withdrawals" and
<PAGE>
"CONTRACT FEES AND CHARGES - Surrender Charge.") Currently, there is no limit on
the number of withdrawals that may be taken during a Contract Year. After the
first Contract Year, an Owner may withdraw an amount up to the Free Withdrawal
Amount as of the preceding Contract Anniversary (10% of the amounts allocated to
each of the Accounts as of their most recent Reset Dates) without imposition of
a surrender charge, although the Free Withdrawal Amount will be subject to a
Market Value Adjustment. The amount of any withdrawal (in excess of the Free
Withdrawal Amount) during a Contract Year is subject to a surrender charge,
unless taken during a Window Period. Withdrawals are subject to tax and may also
be subject to a 10% penalty tax. (See "FEDERAL TAX CONSIDERATIONS.")
SURRENDERS
Upon Written Notice prior to the Annuity Date, an Owner may surrender the
Contract and receive its Surrender Value. An Owner may elect to have the
Surrender Value paid in a single sum or under an Annuity Payment Option. (See
"DESCRIPTION OF THE CONTRACT -- Surrenders" and "CONTRACT FEES AND CHARGES -
Surrender Charge.") Surrenders are subject to tax and may also be subject to a
10% penalty tax. (See "FEDERAL TAX CONSIDERATIONS.")
CHARGES
The following charges are assessed under the Contract:
Surrender Charge. No sales charge is deducted from the Single Premium at the
time that it is paid. However, a surrender charge is deducted upon any
withdrawal or surrender from an Account prior to the Annuity Date that is
outside of a Window Period. The surrender charge is generally equal to a
percentage of the Net Allocation for an Account. The surrender charge
percentage varies depending upon the type of Account and the duration of the
Guarantee Period applicable to the Account, but will not exceed a maximum of 8%
during each Contract Year. During each of the ten Contract Years preceding the
Annuity Date, the surrender charge percentage declines in ten equal increments
on each Contract Anniversary to zero on the Annuity Date. No surrender charge
applies to Account Value in excess of the Net Allocation. In addition, after
the first Contract Year, the surrender charge does not apply to the Free
Withdrawal Amount as of the preceding Contract Anniversary.
The Surrender Charge, along with the Market Value Adjustment, could result in
an Owner receiving less than the Net Single Premium amount upon surrender. The
Owner will not, however, receive less than the Contract's Adjusted Reference
Value upon surrender. Adjusted Reference Value is equal to 90% of the Single
Premium, adjusted for certain interest credits and previous withdrawals and
surrenders. (See "THE COMPANY AND THE ACCOUNTS - Reference Value" and
"DESCRIPTION OF THE CONTRACT - Surrenders.")
Rider Cost. The Contract's Reference Value will reflect charges for any riders
or endorsements, including (if allocations have been made to Indexed Accounts)
an annual charge of 0.85% of the value of the Indexed Account(s) with a five
year Guarantee Period and 1.50% of the value if the Indexed Account(s) with a
seven year Guarantee Period. (See "THE COMPANY AND THE ACCOUNTS - Reference
Value.")
<PAGE>
Premium Tax Charge. Certain states and municipalities impose a tax on the
Company in connection with the receipt of annuity considerations. This tax can
range generally from 0% to 3.5% of such considerations and generally varies
based on the Annuitant's state of residence. The charge is deducted either from
the Single Premium or from Accumulation Value upon surrender, annuitization, or
death of the Owner or Annuitant.
(See "CONTRACT CHARGES AND FEES.")
DIAGRAM OF THE CONTRACT
Set forth below is a diagram showing the relationship between the Single
Premium, Accumulation Value, Surrender Value, Annuity Value and Death Benefits.
|------|
| Net |
| Single |
| Premium |
|--------------|
|
V
|-------------------------|--------------------------|
| Interest | Indexed |
| Accounts | Accounts |
| -------- | -------- |
| - Values Based | - Values Based |
| on Specified | on Indexed |
| Guaranteed | Rates |
| Rates | |
|---------------------------------|----------------------------------|
| | |
| Interest Account Value | Indexed Account Value |
|------------------------------------|-------------------------------------|
| Accumulation Value |
|------------------------------------------------------------------------------|
|
V
|------------------| |---------------------------| |-------------------------|
| Surrender | | Annuity | | Death |
| Value | | Value | | Benefit |
| --------- | | ------- | | ------- |
| | | | | |
|At Least Equal to | | - During The First Five | | - On Death of Owner, |
|Adjusted | | Contract Years, Equal to| | Equal to Surrender |
|Accumulation Value| | Surrender Value | | Value |
|Less Surrender | | | | |
|Charges | | - After the First Five | | - On Death of Annuitant,|
| | | Contract Years At Least | | At Least Equal to |
| | | Equal to Adjusted | | Accumulation Value |
| | | Accumulation Value | | |
|------------------| |---------------------------| | ------------------------|
<PAGE>
THE COMPANY AND THE ACCOUNTS
THE COMPANY AND THE SEPARATE ACCOUNTS
The Company is a life insurance company organized under the laws of the State of
Pennsylvania in 1956 and is authorized to transact business in the District of
Columbia, Puerto Rico, Guam, and all states except New York. The Company's home
office is located at 401 Penn St., Reading, Pennsylvania 19601, and its
executive office is located at CNA Plaza, Chicago, Illinois 60685. The Company
is a wholly-owned subsidiary of Continental Assurance Company ("Assurance"), a
life insurance company which, as of December 31, 1995, had assets of
approximately $12.9 billion. See "ADDITIONAL INFORMATION ABOUT VALLEY FORGE LIFE
INSURANCE COMPANY" for more detail regarding the Company.
The Company has established two separate accounts in connection with the
Contracts (the Separate Accounts) -- the Valley Forge Life Insurance MVA
Guaranteed Interest Separate Account and the Valley Forge Life Insurance
Company Indexed Separate Account. The Separate Accounts are subject to the
laws of Pennsylvania.
The VFL Indexed Separate Account was established by the Company with respect
to, and is used to support the values and benefits attributable to, the Indexed
Accounts. The VFL MVA Guaranteed Interest Separate Account was established by
the Company with respect to, and is used by the Company to support the values
and benefits attributable to, the Interest Accounts. Although the Company owns
the assets of the Separate Accounts, the assets of each Separate Account are
held separately from the Company's other assets and are not part of the
Company's general account. Pennsylvania insurance law provides that the
portion of the assets of each Separate Account equal to its reserves and other
liabilities are not chargeable with liabilities that arise from any other
business that the Company conducts. The Company has the right to transfer to
its general account any assets of a Separate Account that are in excess of its
reserves and other liabilities.
As part of its overall investment strategy, the Company intends to maintain
assets in VFL MVA Guaranteed Interest Separate Account, and in the VFL Indexed
Separate Account, that reflect its obligations to Owners that have made
allocations to Interest Accounts and Indexed Accounts, respectively.
Accordingly, it is anticipated that assets of the VFL MVA Guaranteed Interest
Separate Account will likely consist of fixed income investments, and that
assets of the VFL Indexed Separate Account will likely consist of fixed income
investments, as well as call options or other hedging instruments that relate
to movements in the Index.
The Contracts have been registered under the Securities Act of 1933, but
neither of the Separate Accounts nor the Company's general account has been
registered as an investment company under the Investment Company Act of 1940,
as amended (the "1940 Act"). Accordingly, neither of the Separate Accounts nor
the general account, nor any interests therein, are generally subject to
regulation under the 1940 Act.
<PAGE>
INTEREST ACCOUNTS, INDEXED ACCOUNTS, AND GUARANTEE PERIODS UNDER THE CONTRACT
The Net Single Premium may be allocated to, and transfers of Account Value may
be made to, the Accounts.
From the Issue Date to the Investment Start Date, the Company will hold the Net
Single Premium and credit it with daily interest equivalent to an annual rate
of at least 3%. On the Investment Start Date, the Company will allocate the
Net Single Premium (together with interest) to the Accounts selected by the
Owner based on the Owner's allocation percentages.
The assets in the VFL MVA Guaranteed Interest Separate Account and the VFL
Indexed Separate Account are used to support the values and benefits under the
Interest Accounts and the Indexed Accounts, respectively, of the Contract.
Under Pennsylvania insurance law, the Company is required to maintain assets in
each Separate Account at least equal to its reserves and other contract
liabilities. In the unlikely event of liquidation of the Company, if the
Company cannot satisfy all of its insurance obligations, (i) Owners with
Interest Account Value will have a priority claim against assets of the VFL MVA
Guaranteed Interest Separate Account equal to its liabilities, and a claim
against the Company's general account for any remaining Company liabilities;
and (ii) Owners with Indexed Account Value will have a priority claim against
assets of the VFL Indexed Separate Account equal to its liabilities, and a
claim against the Company's general account for any remaining Company
liabilities. Thus, the Separate Accounts represent pools of assets that
provide an additional measure of assurance that Owners will receive full
payment of benefits under the Contracts.
INTEREST ACCOUNTS. Through the Interest Accounts, the Company offers specified
effective annual rates of interest (Guaranteed Interest Rates) that are
determined as of the Issue Date or Reset Date, as applicable, credited daily as
of the Investment Start Date or Reset Date, as applicable, and are available
for specified periods of time selected by the Owner (Guarantee Periods). The
Company may make available Guarantee Periods of from one year to ten years in
duration. As of the date of this Prospectus, Guarantee Periods of one, three,
five, seven and ten years are available for Interest Accounts.
Although the Guaranteed Interest Rate may differ among Guarantee Periods, it
will never be less than 3%.
Interest Accounts provide values and benefits based upon the Net Single Premium
and Account Values allocated thereto, the Guaranteed Interest Rate credited on
such amounts, and any charges or Market Value Adjustments imposed on such
amounts in accordance with the terms of the Contract. Owners allocating the
Net Single Premium and/or Account Value to Interest Accounts do not participate
in the investment performance of assets of the VFL Guaranteed Income Separate
Account, and this performance does not determine the Interest Account Value or
benefits relating thereto.
<PAGE>
INDEXED ACCOUNTS. If approved in the Owner's state, one or more Indexed
Accounts may be available under the Contract. The Net Single Premium may be
allocated to, and transfers of Account Value may be made to, Indexed Accounts.
Through the Indexed Accounts, the Company offers interest in accordance with a
formula that reflects in part changes in the S&P 500 (R). The formula is based
on a set of factors (the Index Participation Rate, Cap, and Floor) that are
available for the Guarantee Period(s) selected by the Owner. As of the date of
this Prospectus, the Company offers five year and seven year Guarantee Periods
for Indexed Accounts. The rate at which the value of an Indexed Account grows
depends on certain changes in the Index on which it is based, as well as its
Cap, Floor, and Index Participation Rates. The Index Participation Rate, Cap,
and Floor may vary among Guarantee Periods, and the Company reserves the right
to establish new Index Participation Rates, Caps, and Floors on any Reset Date.
Index Accounts provide values and benefits based upon the Net Single Premium
and Account Values allocated thereto, the Index Increases (if any) credited on
such amounts, and any charges or Market Value Adjustments imposed on such
amounts in accordance with the terms of the Contract. Indexed Account Value
will reflect an annual Index Increase, calculated as described below, if the
Index increases during a Contract Year. Indexed Account Value is not
---
determined by, and does not reflect, the investment performance of the VFL
Indexed Separate Account, and does not correspond directly to increases or
decreases in the Index. ---
Index Increases. The Company will calculate the Index Increase, if any, for an
Indexed Account at each Contract Anniversary. The Index Increase equals the
Indexed Account Value multiplied by the Index Increase Percentage Factor. If
the Index Increase is greater than zero, the Company will increase the Indexed
Account Value by the Index Increase on the Contract Anniversary. In between
Contract Anniversaries, Indexed Account Value will remain constant (unless a
Death Benefit becomes payable); amounts surrendered, withdrawn, transferred, or
applied to an Annuity Payment Option may, however, be subject to a Surrender
Charge and/or a Market Value Adjustment. (See "DESCRIPTION OF THE CONTRACT -
Death Benefit" and "CONTRACT CHARGES AND FEES - Surrender Charge" and "THE
COMPANY AND THE ACCOUNTS - Market Value Adjustment.")
The Index Increase Percentage Factor will not be less than the Floor or more
than the Cap declared at the previous Reset Date. Within those bounds, the
Index Increase Percentage Factor equals (a) multiplied by (b) where:
(a) is the Average Index Increase Percentage for the Indexed
Account at the Contract Anniversary, and
(b) is the Index Participation Rate declared at the previous Reset
Date for the Indexed Account.
<PAGE>
Average Index Increase Percentage. The Average Index Increase Percentage for
an Indexed Account on any Contract Anniversary within a Guarantee Period
equals:
(b) - (a)
---------
(a)
where
(a) is the value of the Index on the previous Contract
Anniversary; and
(b) is the arithmetic average of the values of the Index on each
day that the Exchange is open for business during the specified
Averaging Period ending on the Contract Anniversary.
Currently, an Owner may choose from between two specified Averaging Periods: 90
days or 365 days. The specified Averaging Period is selected by the Owner for
each Indexed Account (i) in the Application, at the time a Contract is
purchased; and (ii) thirty days prior to the Reset Date for an Account, on a
form provided by the Company, if on the Reset Date Account Value will be
allocated to an Indexed Account. Once a specified Averaging Period is selected
for an Indexed Account, it cannot be changed until the next Reset Date.
GUARANTEE PERIODS. An Initial Guarantee Period begins on the date as of
which the Net Single Premium is allocated to, or an amount of Account Value is
transferred to, an Account. It ends when the number of years in the Guarantee
Period elected has elapsed. The last day of the Guarantee Period is the
expiration date for that Guarantee Period. A subsequent Guarantee Period begins
on the first day following the expiration date of a previous Guarantee Period
(the Reset Date).
Allocations of the Net Single Premium and transfers of Account Value to the
Accounts will have different applicable Guaranteed Interest Rates (for Interest
Accounts), or Index Participation Rates, Caps, Floors, and specified Averaging
Period (for Indexed Accounts), depending on the timing of such allocations or
transfers and the specified Averaging Period selected by the Owner. However,
once the allocation or transfer is made, the applicable Guaranteed Interest Rate
or Index Participation Rate, Cap, and Floor do not change during the selected
Guarantee Period.
If the allocated or transferred amount remains in the Account until the end of
the applicable Guarantee Period, at that time its value will be equal to the
amount originally allocated or transferred to the Account, either (i)
multiplied on an annually compounded basis by its Guaranteed Interest Rate
(Interest Accounts), or (ii) plus Index Increases, if any (Indexed Accounts).
If Account Value is surrendered, withdrawn, transferred, or applied to an
Annuity Payment Option prior to the expiration date of the applicable Guarantee
Period, the Account Value is subject to a Market Value Adjustment, which may
result in the payment of an amount less than the amount originally allocated or
transferred to that Account. (See "THE COMPANY AND THE ACCOUNTS - Market Value
Adjustment.") Surrenders and withdrawals are also subject to a surrender
charge. (See "CONTRACT FEES AND CHARGES - Surrender Charge.")
By Written Notice prior to the expiration date of a Guarantee Period applicable
to an Account, the Owner may:
- - choose a different Guarantee Period, with an expiration date no later
than the Annuity Date, from among those the Company offers at that
time;
- - transfer all or a portion of the expiring Account Value to a new
Account; or
<PAGE>
- - transfer all or a portion of the expiring Account Value to an existing
Account for which the next Reset Date falls on the day immediately
following the expiration date for the expiring Account.
Transfers are subject to restrictions, and a Market Value Adjustment will
usually apply to the amount transferred. However, if the transfer occurs
during a Window Period for an Account (for example, upon the expiration of the
Guarantee Period), no Market Value Adjustment (or Surrender Charge) will apply
to the amount transferred. (See "DESCRIPTION OF THE CONTRACT - Transfers.")
Unless the Company receives Written Notice prior to the expiration date for an
Account, a new Guarantee Period will commence automatically on the first day
following the expiration date. The new Guarantee Period will be of the same
duration as the expiring Guarantee Period if the Company is still offering that
Guarantee Period and if the expiration date of the new Guarantee Period is no
later than the Annuity Date. Otherwise, the new Guarantee Period will be one
year. If the expiring Account is an Interest Account, it will continue to be an
Interest Account; if the expiring Account is an Indexed Account, it will
continue to be an Indexed Account, if the new Guarantee Period is one for which
we offer Indexed Accounts otherwise, it will become an Interest Account.
The Company will notify an Owner in writing at least thirty days prior to the
expiration date of any Guarantee Period. The Company's notice to the Owner of
the expiration of a Guarantee Period will contain information about the
then-available Guarantee Periods, and the Guaranteed Interest Rates (for
Interest Accounts), and Index Participation Rates, Caps, Floors, and available
specified Averaging Periods (for Indexed Accounts) applicable to such Guarantee
Periods.
The Guarantee Periods being made available by the Company for Interest Accounts
and for Indexed Accounts will change from time to time. Contact the Service
Center for information regarding the Guarantee Periods being made available by
the Company for each type of Account at any time, and regarding the current
Guaranteed Interest Rates for available Interest Accounts, and current Index
Participation Rates, Caps, Floors and available specified Averaging Periods for
available Indexed Accounts.
TO THE EXTENT PERMITTED BY LAW, THE COMPANY RESERVES THE RIGHT AT ANY TIME TO
OFFER GUARANTEE PERIODS THAT DIFFER IN DURATION FROM THOSE AVAILABLE WHEN A
CONTRACT IS ISSUED. THE COMPANY ALSO RESERVES THE RIGHT, AT ANY TIME, TO STOP
ACCEPTING NET SINGLE PREMIUM ALLOCATIONS OR TRANSFERS OF ACCOUNT VALUE TO A
PARTICULAR GUARANTEE PERIOD.
MARKET VALUE ADJUSTMENTS
Any surrender, withdrawal, transfer, or application to an Annuity Payment
Option of Interest Account Value or Indexed Account Value is subject to a
Market Value Adjustment that may be positive or negative, unless the effective
date of the surrender, withdrawal, transfer, or application is within the
Window Period. The Market Value Adjustment will be applied before the
deduction of any applicable surrender charge or Premium Tax Charge.
<PAGE>
The Market Value Adjustment reflects the relationship between the Guaranteed
Interest Rate for an Interest Account with the same Reset Date and Guarantee
Period as the Account from which Account Value is being taken (the "Credited
Rate"), and the Guaranteed Interest Rate that is currently being offered for an
Interest Account with a Guarantee Period of the same duration as the time
remaining until the expiration date of the Guarantee Period for the Interest
Account or Indexed Account from which Account Value is being taken (the
"Current Rate"). (If a Current Rate is not available because the Company is no
longer offering Guarantee Periods of the relevant duration, then the Company
will use a rate equal to the most recent Moody's Corporate Bond Yield Average -
Monthly Average Corporates as published by Moody's Investors Services, Inc.)
Generally, if the Credited Rate is lower than the Current Rate, then the
application of the Market Value Adjustment will result in the payment, upon
surrender, withdrawal, transfer or application of amounts to an Annuity Payment
Option, of an amount less than the Account Value (or portion thereof) being
surrendered, withdrawn, transferred or applied (and may even result in the
payment of an amount less than the Net Single Premium allocated to or the
portion of Account Value transferred to the Guarantee Period). Similarly, if
the Credited Rate is higher than the Current Rate, then application of the
Market Value Adjustment will result in the payment, upon surrender, withdrawal,
transfer or application of amounts to an Annuity Payment Option, of an amount
greater than the Account Value (or portion thereof) being surrendered,
withdrawn, transferred or applied.
The Market Value Adjustment is computed by multiplying the amount being
surrendered, withdrawn, transferred, or applied to a Death Benefit or an
Annuity Payment Option by the Market Value Adjustment Factor. The Market Value
Adjustment Factor is calculated as:
[[(1+a)/(1+b)^(n/12)]-1]
where:
"a" is the Credited Rate;
"b" is the Current Rate. Where the time remaining to the expiration of
the Guarantee Period is not comparable to a Guarantee Period duration
then offered by the Company, "b" is the rate found by linear
interpolation between the rate for the Guarantee Periods having the
duration closest to the time remaining or, if the time remaining is
less than 1 year, "b" is the rate for a 1 year period; and
"n" is the number of complete months remaining before the expiration of
the Guarantee Period for the Account from which the surrender,
withdrawal, transfer, or application to a Death Benefit or an Annuity
Payment Option is being made.
Examples of computing the Market Value Adjustment are set forth in Appendix A.
<PAGE>
DESCRIPTION OF THE CONTRACT
PURCHASING A CONTRACT
A prospective Owner may purchase a Contract by submitting an application
through a licensed agent of the Company who is also a representative of a
broker-dealer having a selling agreement with CNA Investor Services, Inc.
("CNA/ISI"), the principal underwriter for the Contracts. The maximum Age for
Owners on the Issue Date is 75. A Single Premium must be delivered to the
Service Center along with the Owner's application. The minimum Single Premium
is $5,000. Additional premium payments under a Contract are not permitted;
however, an Owner may purchase more than one Contract. Unless the Company
gives its prior approval, it will not accept a Single Premium in excess of
$500,000 and reserves the right not to accept any Single Premium or application
for a Contract for any reason. The Company will send Owners a confirmation
notice upon receipt and acceptance of the Owner's Single Premium.
CANCELLING THE CONTRACT
Owners may cancel the Contract during the Cancellation Period, which is the ten
day period after an Owner receives the Contract. Some states may require a
longer Cancellation Period. To cancel the Contract, the Owner must mail or
deliver the Contract to the Service Center or to the agent who sold it. The
Company will refund the Adjusted Accumulation Value (or, for some states, the
Single Premium).
CREDITING AND ALLOCATING NET SINGLE PREMIUM
If the application for a Contract is properly completed and is accompanied by
all the information necessary to process it, including payment of the Single
Premium, the Net Single Premium will be allocated, as designated by the Owner,
to one or more of the Accounts on the Investment Start Date.
From the Issue Date until the Investment Start Date, the Company will credit
interest to the Net Single Premium of at least 3%. The Investment Start Date
will be the first or 15th calendar day of the month (whichever comes first)
that next follows the Company's receipt of the Single Premium (or, if that day
is not a Business Day, the next Business Day thereafter). The Company reserves
the right to establish different Investment Start Dates under Contracts issued
in the future. On the Investment Start Date, the Company will allocate the
resulting sum to each Account based on the Owner's allocation percentages.
An Owner may allocate the Net Single Premium among any or all Accounts
available on the Issue Date. At least $500 of a Net Single Premium must be
allocated to that Account. All percentage allocations must be in whole
numbers.
<PAGE>
TRANSFERS
General. On any Contract Anniversary, by Written Notice, an Owner may transfer
all or part of the balance of an Account to a new Account(s). An Owner may
also transfer some or all of the balance to an existing Account for which the
Reset Date falls on the Contract Anniversary. Transfers may only occur on
Contract Anniversaries. ----
The amount transferred cannot be less than $500. If the Owner does not
transfer the entire balance of an Account, the amount remaining in the Account
after the transfer must be at least equal to $500.
If the transfer from an Account occurs at a Reset Date for that Account, then
the Owner may select any new Guarantee Period for the transferred amount that
the Company then offers that does not expire prior to the Annuity Date. If the
transfer does not occur at such a Reset Date, then, in addition to the
foregoing, the Guarantee Period selected from those the Company then offers
must be no shorter than the number of years remaining in the Guarantee Period
of the Account from which the amount is being transferred (rounded up to the
next whole number of years for a Guarantee Period the Company is then
offering).
A Market Value Adjustment will usually apply to the amount transferred. (See
"THE COMPANY AND THE ACCOUNTS - Market Value Adjustment.") However, if the
transfer occurs during the Window Period for the Account from which some or all
of the balance is being transferred, no Market Value Adjustment will apply to
the amount transferred from that Account.
Additional Restrictions. Transfers of some or all of the balance of an Account
(the "Source Account") to another Account (the "Destination Account") are also
subject to the following conditions:
- The Destination Account must be of an Account Type and
Guarantee Period duration that the Company is offering at the
time of the transfer;
- The date of transfer must be a Reset Date for the Destination
Account, unless it is a new Account;
- The Guarantee Period for a Destination Account may not be
longer than the number of years remaining until the Annuity
Date;
- If the date of transfer is not a Reset Date for the Source
Account, then the Guarantee Period for the Destination Account
must be no shorter than the number of years remaining in the
Guarantee Period for the Source Account, rounded up to the
next whole number of years;
- If the transfer occurs at a Reset Date for the Source Account,
then the Destination Account may be any type of Account;
- If the Source Account is an Interest Account, then the
Destination Account may be any type of Account;
<PAGE>
- If the Source Account is an Indexed Account, then the
Destination Account may be a different type of Account only if
----
the transfer occurs at a Reset Date for the Source Account.
WITHDRAWALS
General. At any time prior to the Annuity Date, an Owner may withdraw part of
the Surrender Value, subject to certain limitations. Each withdrawal must be
requested by Written Notice. A Written Notice of withdrawal must specify the
amount to be withdrawn from each Account. If the Written Notice does not
specify this information, or if the value of the specified Account(s) is
inadequate to comply with the request, the Company will make the withdrawal
from Interest Accounts and Indexed Accounts based on the proportion that the
value of each Account bears to the Accumulation Value as of the day of the
withdrawal.
The amount withdrawn cannot be less than the Minimum Withdrawal Amount, which
is $500. The maximum withdrawal is the amount that would leave a Minimum
Account Value per Account of $500. A withdrawal request that would reduce any
Account Value below the Minimum Account Value will be treated as a request for
a withdrawal of all of that Account Value.
The Company withdraws the amount requested from the Account Value as of the day
that the Owner's Written Notice is received at the Service Center, and sends
the Owner that amount plus or minus any applicable Market Value Adjustment.
The Company will then deduct any applicable surrender charge and any applicable
Premium Tax Charge from the remaining Account Value.
Tax Consequences of Withdrawals. Consult your tax adviser regarding the tax
consequences associated with making withdrawals. A withdrawal made before the
taxpayer reaches Age 59 1/2 may have federal income tax consequences, including
the possible imposition of a penalty tax of 10% of the taxable portion
withdrawn. See "FEDERAL TAX CONSIDERATIONS" for more details.
SURRENDERS
An Owner may surrender the Contract at any time prior to the Annuity Date. An
Owner may elect to have the Surrender Value paid in a single sum or under an
Annuity Payment Option. If no election is made, the Surrender Value will be paid
in a single sum. The Surrender Value will be determined as of the date the
Company receives both the Written Notice for surrender and the Contract at the
Service Center. If an Owner elects to receive payment in a lunp sum, then
Surrender Value will be paid. If an Annuity Payment Option is selected on
surrender, the Annuity Value will be applied to the Annuity Payment Option. The
Contract ends when the Company pays the Surrender Value or applies such sum to
an Annuity Payment Option.
The Surrender Value generally reflects the imposition of the surrender charge.
(See "CONTRACT FEES AND CHARGES - Surrender Charge.") However, no surrender
charge will be imposed on surrenders from an Account during the Account's Window
Period. In addition, if the Contract is surrendered during a Contract Year after
the first Contract Year, no surrender charge will apply to the Free Withdrawal
Amount for that Contract Year, or to amounts in excess of the Net Allocation for
each Account, determined on an Account-by-Account basis.
<PAGE>
Consult your tax adviser regarding the tax consequences of a surrender. A
surrender made before Age 59 1/2 may have federal income tax consequences,
including the possible imposition of a penalty tax of 10% of the taxable
portion of the Surrender Value. See "FEDERAL TAX CONSIDERATIONS" for more
details.
DEATH BENEFITS
The Death Benefit. The Death Benefit the Company pays on the death of an Owner
who is not the Annuitant is the Surrender Value. Thus, the Death Benefit in
this circumstance may reflect a surrender charge and a Market Value Adjustment.
The Death Benefit the Company pays on the death of the Annuitant is the greater
of the Account Value and the Reference Value. In calculating the Death
Benefit, the Account Value will include any Index Increase payable, treating
the date of death as the Reset Date for each Indexed Account.
Death Benefits on or After the Annuity Date. If an Owner dies on or after the
Annuity Date, any surviving joint Owner becomes the sole Owner. If there is no
surviving Owner, any successor Owner becomes the new Owner. If there is no
surviving or successor Owner, the Payee becomes the new Owner. If an Annuitant
or an Owner dies on or after the Annuity Date, the remaining undistributed
portion, if any, of the Account Value will be distributed at least as rapidly
as under the method of distribution being used as of the date of such death.
Under some Annuity Payment Options, there will be no death benefit.
Death Benefits When an Owner Dies Before the Annuity Date. If any Owner dies
prior to the Annuity Date, any surviving joint Owner becomes the new sole
Owner. If there is no surviving joint Owner, any successor Owner becomes the
new Owner and if there is no successor Owner, the Annuitant becomes the new
Owner unless the deceased Owner was also the Annuitant. If the sole deceased
Owner was also the Annuitant, then the provisions relating to the death of the
Annuitant (described below) will govern unless the deceased Owner was one of
two joint Annuitants, in which event the surviving Annuitant becomes the new
Owner.
The following options are available to new Owners:
1. to receive the Death Benefit in a single lump sum within five
years of the deceased Owner's death; or
2. elect to receive the Death Benefit paid out under an Annuity
Payment Option provided that: (a) Annuity Payments begin
within one year of the deceased Owner's death, and (b) Annuity
Payments are made in substantially equal installments over the
life of the new Owner or over a period not greater than the
life expectancy of the new Owner; or
<PAGE>
3. if the new Owner is the spouse of the deceased Owner, he or
she may by Written Notice within one year of the Owner's
death, elect to continue the Contract as the new Owner. If
the spouse so elects, all of his or her rights as a
Beneficiary cease and if the deceased Owner was also the sole
Annuitant and appointed no Contingent Annuitant, he or she
will become the Annuitant. The spouse will be deemed to have
made the election to continue the Contract if he or she makes
no election before the expiration of the one year period.
With regard to new Owners who are not the spouse of the deceased Owner: (a)
options 1 and 2 apply even if the Annuitant or Contingent Annuitant is alive at
the time of the deceased Owner's death, (b) if the new Owner is not a natural
person, only option 1 is available, (c) if no election is made within one year
of the deceased Owner's death, option 1 is deemed to have been elected.
Death Benefit is computed as of the date that the Company receives Due Proof of
Death of the Owner. Payment of the death benefit is in full settlement of all
of the Company's liability under the Contract.
Death Benefits When the Annuitant Dies Before the Annuity Date. If the
Annuitant dies before the Annuity Date while the Owner is still living, any
Contingent Annuitant will become the Annuitant. If the Annuitant dies before
the Annuity Date and no Contingent Annuitant has been named, the Company will
pay the Death Benefit described below to the Beneficiary. If there is no
surviving Beneficiary, the Company will pay the Death Benefit to any Contingent
Beneficiary. If there is no surviving Contingent Beneficiary, the Company will
immediately pay the Death Benefit to the Owner (or the Owner's estate, if the
Owner is then deceased) in a lump sum.
If the Annuitant who is also an Owner dies or if the Annuitant dies and the
Owner is not a natural person, a Beneficiary (or a Contingent Beneficiary):
1. will receive the Death Benefit in a single lump sum within
five years of the deceased Annuitant's death; or
2. may elect to receive the Death Benefit paid out under an
Annuity Payment Option provided that: (a) Annuity Payments
begin within one year of the deceased Annuitant's death, and
(b) Annuity Payments are made in substantially equal
installments over the life of the Beneficiary or over a period
not greater than the life expectancy of the Beneficiary; or
3. if the Beneficiary is the spouse of the deceased Annuitant, he
or she may by Written Notice within one year of the
Annuitant's death, elect to continue the Contract as the new
Owner. If the spouse so elects, all his or her rights as a
Beneficiary cease and if the deceased Annuitant was also the
sole Annuitant
<PAGE>
and appointed no Contingent Annuitant, he or she will become
the Annuitant. The spouse will be deemed to have made the
election to continue the Contract if he or she makes no
election before the expiration of the one year period.
REFERENCE VALUE
The Surrender Value, Annuity Value, and death benefits provided under the
Contract are subject to certain minimums based on a Contract's Reference Value.
The Reference Value at any time is equal to
(a) 90% of the Single Premium; plus
(b) any Excess Interest Credits; less
(c) any charges for riders or additional benefits under the
Contract, including the of 0.85% if allocation(s)
have been made to Indexed Accounts; less
(d) the total amount of previous surrenders and withdrawals from
the Contract (including Market Value Adjustments); plus
(e) interest on (a) through (d) above, credited annually at a rate
at least equal to 3% (as shown in the Contract).
Excess Interest Credits will be calculated on each Reset Date after any Index
Increases are credited. The amount of Excess Interest Credits will be the
amount, if any, by which (i) all interest credited to Interest Accounts,
together with all Index Increases to Indexed Accounts, exceeds (ii) the sum of
all Reference Value interest, including previous Excess Interest Credits, as
described in (b) and (e) above.
The Adjusted Reference Value is equal to the Reference Value, multiplied by the
ratio of the Adjusted Account Value to the Account Value. Thus, like the
Adjusted Account Value, the Adjusted Reference Value reflects the impact of
changes in prevailing interest rates.
PAYMENTS BY THE COMPANY
The Company generally makes payments of withdrawals, surrenders, Death
Benefits, or any Annuity Payments within seven business days of receipt of all
applicable Written Notices and/or Due Proof of Death. Due Proof of Death is
proof of death satisfactory to the Company. Due Proof of Death may consist of
the following if acceptable to the Company: (a) a certified copy of the death
record; (b) a certified copy of a court decree reciting a finding of death; or
(c) any other proof satisfactory to the Company.
The Company may defer payment of any withdrawal, surrender, or transfer for up
to six months after it receives an Owner's Written Notice. The Company pays
interest on the
<PAGE>
amount of any payment that is delayed for more than thirty days after the
payment becomes payable, or after the time required by the applicable
jurisdiction if less than thirty days. This interest will accrue from the date
that the payment becomes payable to the date of payment, but not for more than
one year, at an annual rate of 3%, or the rate and time required by law, if
greater.
TELEPHONE TRANSFER PRIVILEGES
If an Owner has elected this privilege in a form provided by the Company, an
Owner may make transfers by telephoning the Service Center. A telephone
authorization form received by the Company at the Service Center is valid until
it is rescinded or revoked by Written Notice or until a subsequently dated form
signed by the Owner is received at the Service Center. The Company will send
Owners a written confirmation of all transfers made pursuant to telephone
instructions.
The Service Center requires a form of personal identification prior to acting
on instructions received by telephone and also may tape record instructions
received by phone. If the Company follows these procedures, it is not liable
for any losses due to unauthorized or fraudulent transactions. The Company
reserves the right to suspend telephone transaction privileges at any time for
any reason.
CONTRACT CHARGES AND FEES
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
General. No sales charge is deducted from the Single Premium at the time the
payment is made. However, a surrender charge may be deducted upon a withdrawal
or surrender prior to the Annuity Date.
Charge for Surrender or Withdrawals. Surrender charges are calculated for each
Account individually, and are the product of:
(a) the amount allocated to the Account at its most recent Reset
Date, less any transfers and withdrawals from the Account
(including any previously imposed Market Value Adjustment or
surrender charge) since then (the Net Allocation), and
(b) the surrender charge percentage for the Account (see below).
Surrender charges are waived during the last thirty days of each Guarantee
Period (the Window Period). No surrender charge applies to surrenders or
withdrawals in excess of the Net Allocation.
<PAGE>
In the first Contract Year, the Company calculates the surrender charge under
the assumption that amounts surrendered and withdrawn come first from the Net
Allocation, and then from any interest credited to the Account Value. In
Contract Years after the first, a Free Withdrawal Amount is calculated, equal
to 10% of the Net Allocation. Surrenders and withdrawals are assumed to come
first from the Free Withdrawal Amount, then from the remaining 90% of the Net
Allocation, and then from any interest credited to the Account Value since the
last Reset Date.
At any time on or before the fifth Contract Anniversary, the Annuity Value
equals the Surrender Value, and therefore reflects the surrender charge. The
surrender charge percentage on the Annuity Date equals 0%.
Withdrawals. With regard to all withdrawals, the Company withdraws the amount
requested from the Account(s) specified by the Owner as of the day that the
Company receives the Written Notice regarding the withdrawal, and sends the
Owner that amount plus or minus any applicable Market Value Adjustment. The
Company then deducts any surrender charge and any applicable Premium Tax Charge
from the remaining Account Values of the Account(s) from which the withdrawal
was taken. The surrender charge is deducted from each Account from which a
withdrawal is taken based on the ratio of the amount surrendered or withdrawn
to the Net Allocation of each affected Account.
Surrender Charge Percentages. Surrender charge percentages differ among
Interest Accounts and Indexed Accounts, and are higher for Accounts with longer
Guarantee Periods. In addition, surrender charge percentages for all Accounts
vary by the time remaining until the Annuity Date. For a given Guarantee
Period and type of Account, the surrender charge percentage is constant until
the Contract Anniversary ten years before the Annuity Date, and then declines
in ten equal increments on each Contract Anniversary to zero on the Annuity
Date.
Because surrender charge percentages are higher for longer Guarantee Periods,
transferring from an Account with a shorter Guarantee Period to one with a
longer Guarantee Period may lead to a larger surrender charge. However, the
amount of the surrender charge may in some cases be limited, because the
Adjusted Reference Value may be greater than the Adjusted Accumulation Value
less surrender charges.
The surrender charge percentage applicable to Accounts selected by an Owner for
allocations are set forth in the Contract, and will never exceed 8%. The
surrender charge percentages applicable to Accounts available as of the date of
this prospectus are set forth below:
<PAGE>
Interest Accounts
-----------------
GUARANTEE PERIOD SURRENDER
CHARGE %
-----------------------------------------
1 year 3%
3 years 5%
5 years 6%
7 years 7%
10 years 8%
Indexed Accounts
----------------
GUARANTEE PERIOD SURRENDER
CHARGE %
-----------------------------------------
5 years 7%
7 years 8%
Amounts Not Subject to a Surrender Charge. On each Contract Anniversary, the
Company calculates a Free Withdrawal Amount equal to 10% of the sum of the
amounts allocated to each of the Accounts at their most recent Reset Dates, less
all amounts withdrawn and transferred from those Accounts (including Market
Value Adjustments and surrender charges) since their most recent Reset Dates.
The Owner may withdraw an amount up to the Free Withdrawal Amount as of the
Contract Anniversary on or next preceding the effective date of the withdrawal
pro-rata from the Accounts after the first Contract Year without incurring a
surrender charge. Free Withdrawal Amounts remain subject to a Market Value
Adjustment unless the withdrawal is made during a Window Period.
If a Nursing Home Confinement/Terminal Medical Condition Rider is attached to
the Contract, then the Free Withdrawal Amount may be increased under certain
conditions:
- If the Annuitant is confined to a nursing home for a
period of at least 90 days or has a "terminal medical
condition," then the Free Withdrawal Amount is 50% of
the Account Value.
- If the Annuitant's spouse is confined to a nursing
home for a period of at least 90 days or has a
"terminal medical condition," then the Free
Withdrawal Amount is 25% of the Account Value.
<PAGE>
"Terminal Medical Condition" means a determinable medical condition, diagnosed
by a physician practicing within the scope of his or her license, with the life
expectancy of 12 months or less from the date of the physician's diagnosis.
This rider is not available if the Annuitant or Annuitant's spouse is confined
to a nursing home on the Issue Date, and terminates upon termination of the
Contract (or may be terminated by the Owner upon thirty days Written Notice).
PREMIUM TAX CHARGE
Certain states and municipalities impose a tax on the Company in connection with
the receipt of annuity considerations. This tax can range generally from 0% to
3.5% of such considerations and generally varies based on the Annuitant's state
of residence. The tax may be incurred by the Company as of the Annuity Date
based on the Accumulation Value on that date, or at the time such considerations
are made. The Company reserves the right to deduct any state and local taxes on
annuity considerations from the Account Value at the time such tax is due.
RIDER COST
The Contract's Reference Value will reflect charges for any riders or
endorsements to the Contract, including (if allocations have been made to
Indexed Accounts) an annual charge of 0.85% of the value of the Indexed
Account(s) for the five year Guarantee Period and 1.50% for the seven year
Guarantee Period. The daily compounded equivalent of this change is deducted
daily from Reference Value.
SELECTING AN ANNUITY PAYMENT OPTION
ANNUITY DATE
The Initial Annuity Payment Date may be any day of the month other than the
29th, 30th, or 31st day of a month. For all Contracts, the Annuity Date will be
the Contract Anniversary following the Annuitant's Age 85. In addition, for
Qualified Contracts, Owners have responsibility for ensuring that Account Value
is distributed, or distribution commences, on a distribution start date that is
no later than April 1 of the calendar year following the calendar year in which
the Owner attains Age 70-1/2.
ANNUITY PAYMENT DATES
The Company computes the first Annuity Payment as of the Annuity Date and makes
the first Annuity Payment as of the initial Annuity Payment Date selected by
the Owner. The Owner selects the Initial Annuity Payment Date in the
application. All subsequent Annuity Payments are computed and payable as of
Annuity Payment Dates. These dates will be the same day of the month as the
initial Annuity Payment Date. Monthly Annuity Payments will be computed and
payable as of the same day each month as the initial Annuity Payment Date.
Quarterly Annuity Payments will be computed and payable as of the same day in
the third, sixth, ninth, and twelfth month following the initial Annuity
Payment Date and on the same days of such
<PAGE>
months in each successive Contract Year. Semi-annual Annuity Payment Dates
will be computed and payable as of the same day in the sixth and twelfth month
following the initial Annuity Payment Date and on the same days of such months
in each successive Contract Year. Annual Annuity Payments will be computed and
payable as of the same day in each Contract Year as the initial Annuity Payment
Date. The frequency of Annuity Payments selected is shown in the Contract.
ELECTION AND CHANGES OF ANNUITY PAYMENT OPTIONS
On the Annuity Date, the Surrender Value or Adjusted Contract Value is applied
under an Annuity Payment Option, unless the Owner elects to receive the
Surrender Value in a lump sum. If the Annuity Date falls during the first five
Contract Years, Surrender Value is applied under an Annuity Payment Option. If
the Annuity Date falls after the fifth Contract Anniversary, Adjusted Contract
Value is applied under an Annuity Payment Option. The Annuity Payment Option
specifies the type of annuity to be paid and determines how long the annuity
will be paid, the frequency, and the amount of each payment. The Owner may elect
or change the Annuity Payment Option by Written Notice up to 3 days prior to the
Annuity Date. If no Annuity Payment Option has been selected by the Annuity
Date, Surrender Value or Adjusted Contract Value will be paid in a lump sum.
ANNUITY PAYMENTS
Fixed Annuity Payments are periodic payments from the Company to the designated
Payee, the amount of which is fixed and guaranteed by the Company. The dollar
amount of each payment depends on the form and duration of the Annuity Payment
Option chosen, the Age of the Annuitant, the sex of the Annuitant (if
applicable), the Annuity Value applied to purchase the Annuity Payments, and
the applicable annuity purchase rates. The annuity purchase rates in the
Contract are based on an interest rate of not less than 3.0%.
The dollar amount of the Annuity Payment is determined by dividing the dollar
amount of Annuity Value being applied to purchase Annuity Payments by $1,000
and multiplying the result by the annuity purchase rate in the settlement
option tables set forth in the Contract for the selected Annuity Payment
Option. These settlement option tables are based on the 1983A Mortality Table
with a ten-year improvement by scale G, with a five-year setback for females.
AFTER THE ANNUITY DATE, VALUES (INCLUDING THE AMOUNT OF ANNUITY PAYMENTS) DO
NOT REFLECT GUARANTEED INTEREST RATES OR INDEX INCREASES.
- ---
<PAGE>
ANNUITY PAYMENT OPTIONS
OPTION 1. INTEREST PAYMENTS. The Company holds the Annuity Value as principal
and pays interest to the Payee. The interest rate is 3% per year compounded
annually. The Company pays interest every 1 year, 6 months, 3 months or 1
month, as specified at the time this option is selected. At the death of the
Payee, the value of the remaining payments are paid in a lump sum to the
Payee's estate.
OPTION 2. PAYMENTS OF A SPECIFIED AMOUNT. The Company pays the Annuity Value
in equal payments every 1 year, 6 months, 3 months or 1 month. The amount and
frequency of the payments is specified at the time this option is selected.
After each payment, interest is added to the remaining amount applied under
this option that has not yet been paid. The interest rate is 3% per year
compounded annually. Payments are made to the Payee until the amount applied
under this option, including interest, is exhausted. The total of the payments
made each year must be at least 5% of the amount applied under this option. If
the Payee dies before the amount applied is exhausted, the Company pays the
value of the remaining payments in a lump sum to the Payee's estate.
OPTION 3. PAYMENTS FOR A SPECIFIED PERIOD. The Company pays the lump sum in
equal payments for the number of years specified when the option is selected.
Payments are made every 1 year, 6 months, 3 months or 1 month, as specified
when the option is selected. The amount of each Annuity Payment for each
$1,000 applied under this option is calculated at an interest rate of 3% per
year compounded annually. If the Payee dies before the expiration of the
specified number of years, the Company pays the commuted value of the remaining
payments in a lump sum to the Payee's estate.
OPTION 4. LIFE ANNUITY. The Company makes monthly payments to the Payee for
as long as the Annuitant lives. UNDER THIS OPTION, A PAYEE COULD RECEIVE ONLY
ONE PAYMENT IF THE ANNUITANT DIES AFTER THE FIRST PAYMENT, TWO PAYMENTS IF THE
ANNUITANT DIES AFTER THE SECOND PAYMENT, ETC.
OPTION 5. LIFE ANNUITY WITH PERIOD CERTAIN. The Company makes monthly
payments to the Payee for as long as the Annuitant lives. At the time this
option is selected, a period certain of 5, 10, 15, or 20 years must also be
selected. If the Annuitant dies before the specified period certain ends, the
payments to the Payee will continue until the end of the specified period. The
amount of the monthly payments therefore depends on the period certain
selected. If at any age the amount of the payments is the same for two or more
periods certain, payment will be made as if the largest period certain was
selected.
OPTION 6. JOINT LIFE AND SURVIVORSHIP ANNUITY. The Company makes monthly
payments to the Payee while both Annuitants are living. After the death of
either Annuitant, payments continue to the Payee for as long as the other
Annuitant lives. UNDER THIS OPTION, THE PAYEE COULD RECEIVE ONLY ONE PAYMENT
IF BOTH ANNUITANTS DIE AFTER THE FIRST PAYMENT, TWO PAYMENTS IF BOTH ANNUITANTS
DIE AFTER THE SECOND PAYMENT, ETC.
<PAGE>
Unless instructed otherwise at the time that the Annuity Payment Option is
selected, at the death of the Payee the Company pays the amounts below in a
lump sum to the Payee's estate:
1. Under Annuity Payment Option 1, the amount left on deposit
with the Company to accumulate interest.
2. Under Annuity Payment Option 2, 3, or 5, the commuted value of
the amount payable at the Payee's death as provided under the
Option selected. The commuted value is based on the interest
rate used to calculate the amount of the payments under that
Option.
ADDITIONAL CONTRACT INFORMATION
OWNERSHIP
The Contract belongs to the Owner. An Owner may exercise all of the rights and
options described in the Contract.
Subject to more specific provisions elsewhere herein, an Owner's rights include
the right to: (1) select or change a successor Owner, (2) select or change any
Beneficiary or Contingent Beneficiary, (3) select or change the Payee prior to
the Annuity Date, (4) select or change the Annuity Payment Option, (5) allocate
the Net Single Premium among and between the Accounts, and (6) transfer Account
Values among and between the Accounts.
If a successor Owner is named in the application or by subsequent Written
Notice and the Owner is not the Annuitant, the successor Owner shall become the
new Owner should the Owner die before the Annuitant.
The rights of Owners of Qualified Contracts may be restricted by the terms of a
related employee benefit plan. For example, such plans may require an Owner of
a Qualified Contract to obtain the consent of his or her spouse before
exercising certain ownership rights or may restrict withdrawals. See "FEDERAL
TAX CONSIDERATIONS" for more details.
Selection of an Annuitant or Payee who is not the Owner may have tax
consequences. See "FEDERAL TAX CONSIDERATIONS" for more details.
CHANGING THE OWNER OR BENEFICIARY
At any time prior to the Annuity Date while the Annuitant is still living, an
Owner may assign ownership of the Contract by Written Notice. The Company is
not responsible for the validity or sufficiency of any assignment. The Company
is not bound by the assignment until it receives a duplicate of the original of
the assignment at the Service Center.
<PAGE>
At any time before a death benefit is paid, the Owner may name a new
Beneficiary by Written Notice unless an irrevocable Beneficiary has previously
been named. When an irrevocable Beneficiary has been designated, the Owner
must provide the irrevocable Beneficiary's written consent to the Company
before a new Beneficiary is designated.
Any change of Beneficiary takes effect as of the day the Written Notice is
received at the Service Center and the Company is not liable for any payments
made under the Contract prior to the effectiveness of any Beneficiary change.
For possible tax consequences associated with changing the Owner or
Beneficiary, see "FEDERAL TAX CONSIDERATIONS."
MISSTATEMENT OF AGE OR SEX
If an Age or sex of the Annuitant given in the application is misstated, the
Company will adjust the benefits it pays under the Contract to the amount that
would have been payable at the correct Age or sex. If the Company made any
underpayments because of any such misstatement, it shall pay the amount of such
underpayment plus interest at an annual effective rate of 3%, immediately to
the Payee or Beneficiary in one sum. If the Company makes any overpayments
because of a misstatement of Age or sex, it shall deduct from current or future
payments due under the Contract, the amount of such overpayment plus interest
at an annual effective rate of 3%.
CHANGE OF CONTRACT TERMS
Upon notice to the Owner, the Company may modify the Contract to:
1. conform the Contract or the operations of the Company or of
the Separate Accounts to the requirements of any law (or
regulation issued by a government agency) to which the
Contract, the Company or the Separate Accounts are subject;
2. assure continued qualification of the Contract as an annuity
contract under the Code; or
3. reflect a change (as permitted in the Contract) in the
operation of the Separate Accounts.
In the event of any such modification, the Company will make appropriate
endorsements to the Contract.
Only one of the Company's officers may modify the Contract or waive any of the
Company's rights or requirements under the Contract. Any modification or
waiver must be in writing. No agent may bind the Company by making any promise
not contained in the Contract.
<PAGE>
REPORTS TO OWNERS
The Company will send each Owner a report at least annually, or more often as
required by law, indicating the following items as of a date shown on the
report: the Accumulation Value and Adjusted Accumulation Value; the Reference
Value, Adjusted Reference Value, and Surrender Value; any withdrawals or
surrenders made and Death Benefits paid since the last report; the current
interest rate applicable to each Interest Account; and any other information
required by law.
The reports, which will be mailed to Owners at their last known address, will
include any information that may be required by the SEC or the insurance
supervisory official of the jurisdiction in which the Contract is delivered.
The Company will also send any other reports, notices or documents required by
law to be furnished to Owners.
MISCELLANEOUS
Non-Participating. The Contract does not participate in the surplus or profits
of the Company and the Company does not pay dividends on the Contract.
Protection of Proceeds. To the extent permitted by law, no benefits payable
under the Contract to a Beneficiary or Payee are subject to the claims of an
Owner's or a Beneficiary's creditors.
Discharge of Liability. Any payments made by the Company under any Annuity
Payment Option or in connection with the payment of any withdrawal, surrender
or death benefit, shall discharge the Company's liability to the extent of each
such payment.
Proof of Age and Survival. The Company reserves the right to require proof of
the Annuitant's Age prior to the Annuity Date. In addition, for life
contingent Annuity Options, the Company reserves the right to require proof of
the Annuitant's survival before any Annuity Payment Date.
Contract Application. The Company issues the Contract in consideration of the
Owner's application and payment of the initial single premium. The entire
Contract is made up of the group contract, the certificate, any attached
endorsements or riders, and the application. In the absence of fraud, the
Company considers statements made in the application to be representations and
not warranties. The Company will not use any statement in defense of a claim
or to void the Contract unless it is contained in the application. The Company
will not contest the Contract.
<PAGE>
FEDERAL TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION OF CERTAIN FEDERAL TAX CONSIDERATIONS THAT RELATE TO
THE CONTRACT IS GENERAL IN NATURE, AND IS NOT INTENDED AS TAX ADVICE TO OWNERS.
OWNERS, ANNUITANTS, AND PAYEES SHOULD CONSULT THEIR QUALIFIED TAX ADVISER FOR
ADDITIONAL INFORMATION AND FOR ADVICE REGARDING OWNERSHIP OF A CONTRACT, AND
THE POTENTIAL FEDERAL TAX IMPLICATIONS OF TRANSACTIONS THEREUNDER.
INTRODUCTION
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 the Contract issued by the Company. Any person concerned
about these tax implications should consult a competent tax adviser before
initiating any transaction. This discussion is based upon the Company's
understanding of the present federal income tax laws. No representation is
made as to the likelihood of the continuation of the present federal income tax
laws. Moreover, no attempt has been made to consider any applicable state or
other tax laws.
The Contract may be purchased on a non-qualified basis or purchased and used in
connection with plans qualifying for favorable tax treatment. The Qualified
Contract is designed for use by individuals whose purchase payments are
comprised solely of proceeds from and/or contributions under retirement plans
that are intended to qualify as plans entitled to special income tax treatment
under sections 401(a), 408, or 457 of the Code. The ultimate effect of federal
income taxes on the amounts held under a Contract, or Annuity Payments, and on
the economic benefit to the Owner, the Annuitant, or the Beneficiary depends on
the type of retirement plan, on the tax and employment status of the individual
concerned, and on the Company's tax status. In addition, certain requirements
must be satisfied in purchasing a Qualified Contract with proceeds from a
tax-qualified plan and receiving distributions from a Qualified Contract in
order to continue receiving favorable tax treatment. Therefore, purchasers of
Qualified 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 with proceeds from
and/or contributions under retirement plans that qualify for the intended
special federal income tax treatment.
TAX STATUS OF THE CONTRACT
The Company believes that the Contract will be treated as an annuity contract
and that the Company will be treated as owning the assets supporting the
Contract for federal income tax purposes. The Company, however, reserves the
right to modify the Contract as necessary to prevent the Owner from being
considered the owner of the assets supporting the Contract for federal tax
purposes.
<PAGE>
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, section 72(s) of the Code requires any
Non-Qualified Contract to provide that: (a) if any Owner dies on or after the
Annuity 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 Owner's death; and (b) if any Owner dies prior to the Annuity Date, the
entire interest in the Contract will be distributed within five years after the
date of the Owner's death. These requirements will be considered satisfied as
to any portion of the Owner's interest that is payable to or for the benefit of
a "designated beneficiary," and that 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
Owner's death. The Owner's "designated beneficiary" is the person designated
by such 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 Owner's
"designated beneficiary" is the surviving spouse of the Owner, the Contract may
be continued with the surviving spouse as the new Owner.
Non-Qualified Contracts contain provisions that 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.
The following discussion assumes that the Contracts will qualify as annuity
contracts for federal income tax purposes.
TAXATION OF ANNUITIES
In General. Section 72 of the Code governs taxation of annuities in general.
The Company believes that an Owner who is a natural person is not taxed on
increases in Contract Value until distribution occurs by withdrawing all or
part of the Accumulation Value (e.g., withdrawals and surrenders) or as Annuity
Payments under the Annuity Payment Option elected. For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the
Accumulation 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
payment option) is taxable as ordinary income.
The owner of any annuity contract who is not a natural person generally must
include in income any increase in the excess of the contract value over the
"investment in the contract" during the taxable year. There are some
exceptions to this rule, and a prospective Owner that is not a natural person
may wish to discuss these with a qualified tax adviser.
<PAGE>
The following discussion generally applies to Contracts owned by natural
persons.
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 the individual under a Contract that
was not 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 from a Non-Qualified Contract, under section 72(e),
any amounts received are generally first treated as taxable income to the
extent that the Accumulation Value immediately before the withdrawal exceeds
the "investment in the contract" at that time. Any additional amount withdrawn
is not taxable. The Accumulation Value immediately before a partial withdrawal
may have to be increased by any positive Market Value Adjustment which results
from a partial withdrawal. There is, however, no definitive guidance on the
proper tax treatment of Market Value Adjustments and an Owner should contact a
qualified tax adviser with respect to the potential tax consequences of such an
adjustment.
In the case of a surrender 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."
Exchanges. Section 1035 of the Code generally provides that no gain or loss
shall be recognized on the exchange of one annuity contract for another. If
the surrendered contract was issued prior to August 14, 1982, the tax rules
formerly provided that the surrender was taxable only to the extent the amount
received exceeds the owner's investment in the contract will continue to apply
to amounts allocable to investments in that contract prior to August 14, 1982.
In contrast, contracts issued after January 19, 1985 in a Code section 1035
exchange are treated as new contracts for purposes of the penalty and
distribution-at-death rules. Special rules and procedures apply to section
1035 transactions. Prospective Owners wishing to take advantage of section
1035 should consult their tax adviser.
Annuity Payments. Although tax consequences may vary depending on the payment
option elected under an annuity contract, under Code section 72(b), generally
(prior to recovery of the investment in the contract) gross income does not
include that part of any amount received as an annuity under an annuity
contract that bears the same ratio to such amount as the investment in the
contract bears to the expected return at the annuity starting date. In
general, there is no tax on the portion of each payment that represents the
same ratio that the "investment in the contract" bears to the total expected
value of the annuity payments for the term of the payments; however, the
remainder of each annuity payment is taxable until the recovery of the
investment in the contract, and thereafter the full amount or each annuity
payment is taxable. If death occurs before full recovery of the investment in
the contract, the unrecovered amount may be deducted on the annuitant's final
tax return.
<PAGE>
Taxation of Death Benefit Proceeds. Amounts may be distributed from a Contract
because of the death of an Owner or the Annuitant. 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 surrender of the Contract
or (ii) if distributed under an Annuity Payment Option, they are taxed in the
same way as Annuity Payments. For these purposes, the investment in the
contract is not affected by the owner's or annuitant's death. That is, the
investment in the contract remains the amount of any purchase payment paid that
was not excluded from gross income.
Penalty Tax on Certain Withdrawals. In the case of a distribution pursuant to
a Non-Qualified Contract, there may be imposed a federal penalty tax equal to
10% of the amount treated as taxable income. In general, however, there is no
penalty on distributions:
1. made on or after the taxpayer reaches age 59 1/2;
2. made on or after the death of the holder (or if the holder is
not an individual, the death of the primary annuitant);
3. attributable to the taxpayer's becoming disabled;
4. 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;
5. made under certain annuities issued in connection with
structured settlement agreements; and
6. made under an annuity contract that is purchased with a single
purchase payment when the annuity 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 payment period.
Other tax penalties may apply to certain distributions under a Qualified
Contract.
Possible Changes in Taxation. In past years, legislation has been proposed
that would have adversely modified the federal taxation of certain annuities.
For example, one such proposal would have changed the tax treatment of
non-qualified annuities that did not have "substantial life contingencies" by
taxing income as it is credited to the annuity. Although as of the date of
this prospectus Congress is not considering any legislation regarding taxation
of annuities, there is always the possibility that the 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).
<PAGE>
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer of ownership of a Contract, the designation of an Annuitant, Payee
or other Beneficiary who is not also the Owner, the selection of certain
Annuity Dates or the exchange of a Contract may result in certain tax
consequences to the Owner that are not discussed herein. An 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. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Effective January 1, 1993, distributions from certain qualified
plans are generally subject to mandatory withholding. Certain states also
require withholding of state income tax whenever federal income tax is
withheld.
MULTIPLE CONTRACTS
All non-qualified deferred annuity contracts that are issued by the Company (or
its affiliates) to the same owner during any calendar year are treated as one
annuity contract for purposes of determining the amount includible in gross
income under section 72(e) of the Code. The effects of this rule are not yet
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) of the Code through the serial purchase of
annuity contracts or otherwise. There may also be other situations in which
the Treasury Department may conclude that it would be appropriate to aggregate
two or more annuity contracts purchased by the same owner. Accordingly, an
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 retirement plans. Owners,
Annuitants, and Beneficiaries are cautioned that the rights of any person to
any benefits under these qualified retirement plans may be subject to the terms
and conditions of
<PAGE>
the plans themselves, regardless of the terms and conditions of the Contract,
but the Company shall not be bound by the terms and conditions of such plans to
the extent such terms contradict the Contract, unless the Company consents to
be bound. Owners are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts satisfy
applicable law. Purchasers of Contracts for use with any retirement plan
should consult their legal and tax adviser regarding the suitability of the
Contract. Brief descriptions follow of the various types of qualified
retirement plans in connection with a Contract. The Company will amend the
Contract as necessary to conform it to the requirements of such plan.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Section 401(a)
of the Code permits corporate employers to establish various types of
retirement plans for employees, and permits self-employed individuals to
establish these plans for themselves and their employees. Such retirement
plans may permit the purchase of the Contract to provide benefits 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. Employers intending to use the Contract with such
plans should seek competent advice.
Individual Retirement Annuities. Sections 219 and 408 of the Code permit
eligible individuals to contribute to an individual retirement program known as
an "Individual Retirement Annuity" or "IRA." These 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. Also, distributions from certain
other types of qualified retirement plans may be "rolled over" on a
tax-deferred basis into an IRA. Sales of the Contract for use with IRAs may be
subject to special requirements of the IRS. Employers may establish Simplified
Employee Pension (SEP) Plans to provide IRA contributions on behalf of their
employees.
Deferred Compensation Plans. Section 457 of the Code provides for certain
deferred compensation plans. These plans may be offered with respect to
service for state governments, local governments, political subdivisions,
agencies, instrumentalities, certain affiliates of such entities, and tax
exempt organizations. The plans may permit participants to specify the form of
investment for their deferred compensation account. All investments are owned
by the sponsoring employer and are subject to the claims of the general
creditors of the employer. Depending on the terms of the particular plan, the
employer may be entitled to draw on deferred amounts for purposes unrelated to
its Section 457 plan obligations. In general, all amounts distributed from a
Section 457 plan to the owner or annuitant are taxable at the time of
distribution.
Restrictions Under Qualified Contracts. Other restrictions with respect to the
election, commencement, or distribution of benefits may apply under Qualified
Contracts or under the terms of the plans in respect of which Qualified
Contracts are issued.
Unisex Legal Considerations for Employers. In 1983, the Supreme Court held in
Arizona Governing Committee v. Norris that optional annuity benefits provided
under an employee's deferred compensation plan could not, under Title VII of
the Civil Rights Act of 1964, vary
<PAGE>
between men and women. In addition, legislative, regulatory and decisional
authority of some states may prohibit use of sex-distinct mortality tables
under certain circumstances.
Generally, the annuity payment rates under the Annuity Payment Options are
based on tables that distinguish between men and women. As a result, different
benefits may be paid to men and women of the same age. Employers and employee
organizations should check with their legal advisers before purchasing these
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 the prospectus. Further, the federal
income tax consequences discussed herein reflect the Company's understanding of
current law and the law may change. Federal estate and state and local estate,
inheritance and other tax consequences of ownership or receipt of distributions
under a Contract depend on the individual circumstances of each Owner or
recipient of the distribution. A competent tax adviser should be consulted for
further information.
OTHER INFORMATION
DISTRIBUTION OF THE CONTRACTS
CNA/ISI, which is located at CNA Plaza, Chicago, Illinois 60685, is principal
underwriter and distributor of the Contracts. CNA/ISI is an affiliate of the
Company, is registered with the SEC as a broker-dealer, and is a member of the
National Association of Securities Dealers, Inc. ("NASD"). The Company pays
CNA/ISI for acting as principal underwriter under a distribution agreement.
The Contract are offered on a continuous basis and the Company does not
anticipate discontinuing the offer.
Applications for Contracts are solicited by agents who are licensed by
applicable state insurance authorities to sell the Company's insurance
contracts and who are also registered representatives of a broker-dealer having
a selling agreement with CNA/ISI. Such broker-dealers will generally receive
commissions based on a percentage of the Single Premium made (up to a maximum
of 6.5%). The writing agent will receive a percentage of these commissions from
the respective broker-dealer, depending on the practice of that broker-dealer.
Owners do not pay these commissions. In general, commissions paid will vary
with the type of Account and Guarantee Period durations selected by the Owner,
with longer duration Guarantee Periods generating relatively higher
commissions.
ADMINISTRATIVE SERVICES
Financial Administration Services, Inc. administers the Contract on behalf of
the Company at the Service Center. In this capacity, Financial Administration
Services, Inc. is responsible for
<PAGE>
the following: processing Single Premiums, Annuity Payments, death benefits,
surrenders, withdrawals, and transfers; preparing confirmation notices and
periodic reports; calculating Account Values; distributing tax reports; and
generally assisting Owners.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Accounts are a party to or
which the assets of the Separate Accounts are subject. The Company, as an
insurance company, is ordinarily involved in litigation. The Company does not
believe that any current litigation is material to its ability to meet its
obligations under the Contract or to the Separate Accounts nor does the Company
expect to incur significant losses from such actions.
LEGAL MATTERS
All matters relating to Pennsylvania law pertaining to the Contracts, including
the validity of the Contracts and the Company's authority to issue the
Contracts, have been passed upon by Lynne Gugenheim, Esquire, Vice President and
Associate General Counsel of the Company. Sutherland, Asbill & Brennan LLP of
Washington, D.C. has provided advice on certain matters relating to the federal
securities laws.
EXPERTS
The balance sheets of the Company as of December 31, 1995 and 1994, and the
related statements of income, stockholder's equity, and cash flows for the
years ended December 31, 1995, 1994, and 1993, which are included in the
prospectus, have been audited by Deloitte & Touche LLP, independent auditors,
as set forth in their report therein, and are included therein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION ABOUT VALLEY FORGE
LIFE INSURANCE COMPANY
HISTORY AND BUSINESS
Valley Forge Life Insurance Company was incorporated under the laws of the state
of Pennsylvania on August 9, 1956 and began its operations on December 1, 1956.
The Company markets a full range of life and accident and health insurance
products either directly or through its pooling agreement with Assurance,
including group medical and life, universal life, traditional life, and
annuities.
Formation of the Company was sponsored American Casualty Company of Reading,
Pennsylvania, which owned 50% of the 44,000 outstanding shares of the Company.
The remaining 50% interest was held by the Valley Forge Insurance Company, a
wholly owned subsidiary of American Casualty Company.
<PAGE>
In late 1963, control of the parent companies was acquired by Continental
Casualty Company of Chicago, Illinois. In 1967, all outstanding shares of
Continental Casualty Company were exchanged for stock of CNA Financial
Corporation, the parent company of the CNA Insurance Companies. On December 30,
1983, all outstanding shares of the Company were acquired by Continental
Assurance Company, a life insurance company subsidiary of CNA Financial
Corporation. Controlling interest of CNA Financial Corporation is held by Loews
Corporation, a publicly held company whose shares are traded on the New York
Stock Exchange.
Effective December 31, 1985, pursuant to a Reinsurance Pooling Agreement the
Company began ceding all of its business to its parent, Assurance. This business
is then pooled with the business of Assurance, excluding Assurance's
participating contracts and separate accounts, and 10% of the combined net pool
was retroceded to the Company. This agreement was amended effective July 1,
1996, for the purpose of also excluding the separate accounts of the Company.
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the financial statements and notes thereto included in this
prospectus.
<TABLE>
<CAPTION>
(000)
Selected Financial Data
For the Periods Ended December 31,
------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 31,494 $ 22,759 $ 16,144 $ 19,627 $ 25,815
Net Operating Income
(Excluding Realized Gains/Losses) $ 13,551 $ 10,408 $ 4,655 $ 6,425 $ 4,291
Net Income $ 22,510 $ 7,482 $ 7,107 $ 7,119 $ 10,142
Total Assets $624,820 $552,836 $475,892 $443,577 $402,535
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management discussion and analysis should be read in conjunction
with the financial statements and related notes.
Valley Forge Life Insurance Company (VFL) is a wholly-owned subsidiary of
Continental Assurance Company (Assurance). Assurance is a wholly-owned
subsidiary of Continental Casualty Company (Casualty) which is wholly-owned by
CNA Financial Corporation (CNA). Loews Corporation owns approximately 84% of the
outstanding common stock of CNA.
VFL and Assurance, have an intercompany pooling agreement to share their
combined underwriting results inclusive of Assurance's participating policies
and Separate Account business. Under this pooling agreement, VFL cedes 100% of
its net business before pooling to Assurance and in turn receives 10% of the
combined results. Assurance retains 90% of the combined results. See Note 8 of
the Financial Statements for the effects of reinsurance on VFL's premium
revenues.
VFL markets a variety of individual and group insurance products, either
directly or through its pooling agreement with Assurance. The individual
insurance products currently being marketed consist primarily of term, universal
life, and individual annuity products. Group insurance products include life,
accident and health consisting primarily of major medical and hospitalization,
and pension products.
All aspects of the insurance business are highly competitive. The combined
operations of VFL and Assurance compete with a large number of stock and mutual
life insurance companies for both producers and customers and Assurance and VFL
and must continuously allocate resources to refine and improve insurance
products and services. There are approximately 1,800 companies selling life
insurance (including health insurance and pension products) in the United
States. The combined companies of VFL and Assurance rank as the twenty-second
largest life insurance organization based on 1995 consolidated statutory premium
volume.
The operations and assets and liabilities of VFL and its parent, Assurance, are
managed to a large extent on a combined basis. The discussion in the following
five paragraphs is based on the combined results, excluding participating
policies and separate account business which relate solely to Assurance.
In 1994, CNA formed the Life Operations Department to increase substantially its
presence and profitability in the individual life marketplace. The department is
continuing to experience strong growth in the individual life business, which
markets term, universal and annuities products. The department has introduced
new term and permanent life products, as well as annuities. All new products
have been very well received in the marketplace, as 1995 applications for new
policies increased to more than 169,000 from 67,000 in 1994, a 152% increase.
Sales volume as measured by first year paid premium and deposits increased to
$276 million in 1995 from $69 million in 1994, a 300% increase. In 1994, the
department began distributing its products through managing general agencies in
addition to its traditional distribution channel of property/casualty
independent agents. Managing general agents produced almost half of the first
year premium in 1995.
Another notable accomplishment in 1995 was the conversion of all processing from
main frame computer system to a more efficient PC-based processing systems,
thus substantially reducing operating expenses.
CNA is a prominent player in group life and health insurance. It offers a range
of products, including medical and hospitalization coverages, group life and
pension products sold to businesses, groups and associations.
In the medical and hospitalization market, Assurance's $2 billion Federal
Employees Health Benefits Program (FEHBP) continues to compete effectively.
Assurance has undertaken a number of initiatives to enhance service, manage
health care utilization demand and quality, and strengthen Assurance's networks
of physicians, hospitals and other providers.
In the market for private employer medical benefits, Assurance launched a niche
strategy of developing risk- and profit-sharing partnerships with health care
providers for point-of-service managed care products in selected geographic
markets. Looking ahead, Assurance will also promote full-service medical savings
account products. These strategies are expected to enhance future operating
results.
Results of Operations:
The following chart summarizes key components of the Valley Forge Life Insurance
Company (VFL) operating results for each of the last three years and the first
half of 1996 and 1995.
<TABLE>
<CAPTION>
VALLEY FORGE LIFE INSURANCE COMPANY OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
June 30 June 30 December 31 December 31 December 31
For the Period Ended 1996 1995 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands of dollars)
Operating Summary
(excluding realized investment gains/losses):
Revenues:
Individual
Accident and health $ 75 $ 1,540 $ 3,197 $ 3,191 $ 2,995
Life and annuity 26,737 19,270 45,171 34,500 28,760
----------- ------- ---------- ---------- -----------
Total Individual 26,812 20,810 48,368 37,691 31,755
Group
Accident and health 124,290 107,751 218,969 211,120 198,300
Life and annuity 9,119 14,334 29,316 14,169 10,790
----------- -------- ---------- ---------- -----------
Total Group 133,409 122,085 248,285 225,289 209,090
- -------------------------------------------------------------------------------------------------------------------
Total Premiums 160,221 142,895 296,653 262,980 240,845
Net investment income 13,369 15,434 31,494 22,759 16,144
Other 2,499 1,913 4,818 4,789 3,435
- -------------------------------------------------------------------------------------------------------------------
Total revenues 176,089 160,242 332,965 290,528 260,424
Benefits and expenses 167,376 149,201 312,038 274,439 253,355
- -------------------------------------------------------------------------------------------------------------------
Income before income tax 8,713 11,041 20,927 16,089 7,069
Income tax expense (3,055) (3,889) (7,376) (5,681) (2,414)
===================================================================================================================
Net operating income
(excluding realized investment gains/losses) $ 5,658 $ 7,152 $ 13,551 $ 10,408 $ 4,655
===================================================================================================================
Supplemental Financial Data:
Net operating income:
Individual $ 2,742 $ 3,030 $ 5,597 $ 3,119 $ 885
Group 2,916 4,122 7,954 7,289 3,770
- -------------------------------------------------------------------------------------------------------------------
Net operating income 5,658 7,152 13,551 10,408 4,655
Net realized investment gains (losses): 2,434 8,169 8,959 (2,926) 2,452
===================================================================================================================
Net income $ 8,092 $ 15,321 $ 22,510 $ 7,482 $ 7,107
===================================================================================================================
</TABLE>
<PAGE>
VFL's revenues for the year ended December 31, 1995, excluding net realized
investment gains, were $333.0 million or up 14.6% from year end 1994 and up
27.9% from 1993. Total life individual premium income for 1995 was $48.4
million, up 28.3% from the $37.7 million earned in 1994 and up 52.3% from 1993.
The increase in 1995 is due primarily to increased sales of new term and
permanent life products as previously discussed. Premium revenue as defined by
generally accepted accounting principles, and disclosed in the above exhibit,
does not include deposits on annuity contracts or premiums on universal life
policies.
VFL's total group premium income was $248.3 million, up 10.2% from the $225.3
million earned in 1994 and up 18.7% from 1993's $209.1 million. Group accident
and health premium income included in total group premium income, is primarily
from the contract with FEHBP. Group accident and health premium income was
$219.0 million for 1995 a 3.7% increase from 1994's premium of $211.1 million,
and a 10.6% increase from 1993's premium of $198.3 million . Group life and
annuity premium income, included in total group premium income above, exhibited
strong growth rising 31.3% to $14.2 million in 1994 from $10.8 million in 1993
and up 106.9% from $14.2 million in 1994 to $29.3 million in 1995. This growth
is attributable to strong positive cash flow from the growth in new business.
VFL's investment income increased substantially from $16.1 million in 1993 to
$22.8 million in 1994 and $31.5 million in 1995 due to strong positive cash flow
from the growth in new business and higher yielding investments resulting from a
shift of VFL's investment portfolio during 1994 to longer term securities.
VFL's net operating income excluding net realized investment gains/losses was
$13.6 million for 1995, compared to $10.4 million and $4.7 million for 1994 and
1993, respectively. The individual business segment reported net operating
income of $5.6 million for 1995, compared to $3.1 million and $0.9 million for
1994 and 1993, respectively. The group business segment reported net operating
income of $8.0 million for 1995, compared to $7.3 million for 1994 and $3.8
million for 1993. Profits for the individual business segment increased due to
increased investment income, improved mortality experience and increased
interest rate spreads on interest sensitive products.
Net realized investment gains, net of tax, amounted to $9.0 million in 1995,
compared to net realized investment losses of $2.9 million in 1994 and net
realized investment gains of $2.5 million in 1993. Net realized investment gains
for 1995 were primarily realized on sales of fixed maturities such sales being
in the ordinary course of portfolio management.
Six Months Results of Operations
VFL revenues, excluding realized investment gains, for the six months ended
June 30, 1996 were $176.1 million, up 9.9% when compared to $160.2 million for
the similar period of 1995. Total life individual premium income for the first
half of 1996 was $26.8 million, up 28.8% from the $20.8 million earned in the
first half of 1995. This growth is due to continued sales and market acceptance
of new life and annuity products first offered in late 1994. Offsetting this
increase somewhat is the discontinuation of the company's individual disability
insurance business, through assumption of reinsurance with an unaffiliated
insurance company. Total group premium was $133.4 million, up 9.3% from the
$122.1 million earned in the comparable 1995 period. This increase is primarily
attributable to FEHBP.
Investment income decreased 13.4% to $13.4 million in the first half of 1996,
as compared to $15.4 million for the same period a year ago. The decline was due
to a increase in lower yielding short-term securities as proceeds from sales of
fixed maturities were invested in short term securities.
Pretax operating income for VFL, excluding net realized investment gains/losses,
was $8.7 million for the first six months of 1996, down 21.1% compared to the
$11.0 million recognized for the same period in 1995.
VFL's net income excluding net realized investment gains/losses was $5.7 million
for the first six months of 1996, compared to $7.2 million for the same period
in 1995. The individual segment reported net operating income of $2.7 million
for the first half of 1996 a decrease of 9.5%, compared to $3.0 million in the
comparable period a year ago. This decrease is a result of very favorable
mortality experienced in the individual life business in the first half of 1995,
as well as reduced investment income results in 1996. The group segment reported
net operating income for the first six months of 1996 of $2.9 million, a decline
of 29.3% compared to the $4.1 million earned in the first half of 1995. The
decline was due to the decreased investment income as well as unfavorable
mortality experience in group life cases and lower administrative fees in group
pension cases.
Net realized investment gains for the first six months of 1996 were $2.4
million, compared to net realized investment gains of $8.2 million for the
comparable period in 1995, both reflective of the interest rate environments
during the respective periods.
Financial Condition:
<TABLE>
<CAPTION>
FINANCIAL CONDITION
- ---------------------------------------------------------------------------------------------------
Stockholder's
Statutory Assets Equity
Surplus
(In thousands of dollars, except per share data)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
June 1996 $ 126,508 $ 687,795 $ 187,938
December 1995 129,912 624,820 195,472
December 1994 122,267 552,836 156,196
December 1993 117,650 475,892 153,249
December 1992 115,660 443,577 144,873
December 1991 111,382 402,535 137,857
- ---------------------------------------------------------------------------------------------------
</TABLE>
Assets totaled $625 million at the end of 1995, an increase of 13.0% over 1994
and 31.3% over 1993. VFL's cash and invested assets of $504 million increased by
$64 million, or 14.6%, over the 1994 level of $440 million, and increased $29
million over the 1993 level of $475 million.
VFL's stockholder's equity was $195 million at December 31, 1995, compared to
$156 million and $153 million at December 31, 1994 and 1993, respectively. The
increase in stockholder's equity in 1995 is due to a $16.8 million increase in
net unrealized investment gains and net income of $22.5 million. The increase in
stockholder's equity in 1994 was primarily due to net income of $7.5 million
which was partially offset by $4.5 million of net unrealized investment losses.
The decrease in stockholder's equity of $7.5 million at June 30, 1996 compared
to December 31, 1995 is due to a decrease in net unrealized gains of $15.6
million, offset by net income of $8.1 million. The change in net unrealized net
unrealized gains/losses is attributable, in large part, to increases in interest
rates which have an adverse effect on bond prices.
Statutory surplus of VFL has grown steadily from $111 million at December 31,
1991 to $127 million at June 30, 1996. The decrease in surplus for the six
months ended June 30, 1996 is due to a net statutory loss which is primarily
attributable to the substantial acquisition costs related to the new sales of of
individual life and annuity products. Such costs are immediately charged to
income for statutory reporting purposes; under generally accepted accounting
principles, such costs are capitalized and amortized to income over the duration
of these policies.
<PAGE>
The National Association of Insurance Commissioners (NAIC) has developed
industry minimum Risk-Based Capital (RBC) requirements. The RBC formulas are
designed to identify an insurer's minimum capital requirements based upon the
inherent risks (e.g., asset default, credit and underwriting) of its operations.
In addition to the minimum capital requirements, the RBC formula and related
regulations identify various levels of capital adequacy and corresponding
actions that the state insurance departments should initiate. The level of
capital adequacy below which insurance departments would take action is defined
as the Company Action Level. As of December 31, 1995, VFL has capital in excess
of the Company Action Level.
The NAIC also maintains the Insurance Regulatory Information System ("IRIS),
which assists the state insurance departments in overseeing the financial
condition of both life and property/casualty insurers through application of a
number of financial ratios. These ratios have a range of results characterized
as "usual" by the NAIC. The NAIC IRIS user guide regarding these ratios states
that "Falling outside the usual range is not considered a failing
result"...and... "in some years it may not be unusual for financially sound
companies to have several ratios with results outside the usual range."
Management believes that IRIS ratio test results should be reviewed carefully in
conjunction with all other financial information. VFL had one IRIS ratio for
1995 with an unusual value, surplus relief. The unusual value relates to the
substantial commissions on new individual business ceded to Assurance under the
pooling agreement.
Investments:
The following table summarizes VFL's investments with fixed maturities and short
term investments shown at amortized cost and all other investments shown at cost
for each of the last three years and for the first half of 1996. Fixed
maturities and equity securities are considered available for sale and are shown
at market value in the financial statements, the effect of which is shown in
"Investments at Market Value" in the table below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF INVESTMENTS -
June 30 December 31
----------------- -----------------------------------------------------------
For the period ended 1996 % 1995 % 1994 % 1993 %
- --------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments:
Fixed maturities
(at amortized cost):
U.S. Treasuries and
Agencies $ 114,889 21.7 $ 186,083 42.1 $ 69,148 15.6 $ 23,631 6.4
Asset Backed 68,119 12.9 84,785 19.2 219,470 49.6 6,378 1.7
Other Debt Securities 94,177 17.8 76,533 17.4 67,381 15.2 64,167 17.2
-------- ---- ---------- ---- --------- ---- -------- ----
Total Fixed maturities 277,185 52.4 347,401 78.7 355,999 80.4 94,176 25.3
Equity securities:
Common stocks 1,074 0.2 1,074 0.2 1,074 0.2 981 0.3
Policy loans 59,979 11.3 56,008 12.7 47,001 10.6 40,942 11.0
Short-term investments 191,482 36.1 37,184 8.4 39,067 8.8 235,948 63.4
- -----------------------------------------------------------------------------------------------------------
Investments $ 529,720 100.0% $ 441,667 100.0% $ 443,141 100.0% $ 372,047 100.0%
============================================================================================================
Investments at Market Value $ 526,663 $ 462,650 $438,330 $ 374,214
============================================================================================================
</TABLE>
As mentioned previously, the operations and assets and liabilities of VFL and
Assurance are, to a large extent, managed on a combined basis. The investment
portfolio is managed to maximize after-tax investment return while minimizing
credit risks with investments concentrated in high quality securities to support
its insurance underwriting operations. The investment portfolios segregated for
the purpose of supporting policy liabilities for universal life, annuities and
other interest sensitive products are held by Assurance.
VFL has the capacity to hold its fixed maturity portfolio to maturity. However,
securities may be sold as part of VFL's asset/liability strategies or to take
advantage of investment opportunities generated by changing interest rates,
prepayments, tax and credit considerations, or other similar factors.
Accordingly, the fixed maturity securities are classified as available-for-sale.
Footnote 3 to the financial statements is incorporated herein by reference and
provides market value information for fixed maturity and equity securities.
The investment portfolio consists primarily of high quality marketable fixed
maturities at December 31, 1995, 98% of which are rated as investment grade.
At December 31, 1995, 76% of the fixed maturity portfolio was invested in U.S.
government and government agencies securities, 6% in other AAA rated securities,
and 11% in AA and A rated securities.
Included in VFL's fixed maturity securities at December 31, 1995 are $85 million
of asset-backed securities, consisting of approximately 23% in U.S. government
agency issued pass-through certificates, 70% in collateralized mortgage
obligations (CMO's), and 7% in corporate asset-backed obligations. The majority
of CMO's held are U.S. government agency issues, which are actively traded in
liquid markets and are priced by broker-dealers.
VFL limits the risks associated with interest rate fluctuations and prepayments
by concentrating its CMO investments in planned amortization classes with
relatively short principal repayment windows. VFL avoids investments in complex
mortgage derivatives without readily ascertainable market prices. At December
31, 1995, the fair value of asset-backed securities was in excess of the
amortized cost by approximately $3 million compared with unrealized losses of $8
million at December 31, 1994. VFL has not invested in derivative financial
instruments during the last three years. Nor does it have any investments in
mortgage loans or real estate.
VFL's investments in fixed maturities are carried at a fair value of $368
million, compared with $351 million at December 31, 1995 and 1994, respectively.
At December 31, 1995, net unrealized gains on fixed maturity securities amounted
to approximately $20 million. This compares with net unrealized losses of $5
million at December 31, 1994. The gross unrealized gains and losses for the
fixed maturity securities portfolio at December 31, 1995, were $20.4 million and
$25 thousand, respectively, compared to $5.6 million and $10.7 million,
respectively, at December 31, 1994 and $3.0 million and $1.2 million,
respectively, at December 31, 1993. Such fluctuations from year-to-year are
primarily due to change in interest rates.
<PAGE>
The following table summarizes the unrealized net gains and losses from fixed
maturity and equity securities for the last three years and for the first
half of 1996.
NET UNREALIZED APPRECIATION (DEPRECIATION)
FIXED MATURITY AND EQUITY SECURITIES
- -------------------------------------------------------------------------------
June 30, December 31,
---------------- ------------------------------
For the period ended 1996 1995 1994 1993
- -------------------------------------------------------------------------------
(In thousands of dollars)
Fixed Maturities $ (3,808) $ 20,361 $ (5,044) $ 1,847
Equity securities 751 622 233 319
- -------------------------------------------------------------------------------
Liquidity and Capital Resources:
The liquidity requirements of VFL have been met primarily by funds generated
from operations. VFL's principal operating cash flow sources are premiums and
investment income. The primary operating cash flow uses are payments for claims,
policy benefits and operating expenses.
For the year ended December 31, 1995, VFL's operating activities generated net
positive cash flows of approximately $21 million, compared with $75 million in
1994 and $23 million in 1993. VFL believes that future liquidity needs will be
met primarily by cash generated from operations. Net cash flows from operations
are invested in marketable securities.
VFL's insurance ratings are pooled ratings with Assurance. VFL/Assurance has
received the following ratings as of June 30, 1996: A.M. Best, A; Standard and
Poor's, AA; and Duff and Phelps, AA such ratings are subject to regular review
and change.
Standards adopted during 1995
Disclosures of Certain Significant Risks and Uncertainties
In December 1994, the AICPA issued SOP 94-6, "Disclosure of Certain Significant
Risks and Uncertainties." This SOP requires reporting entities to include in
their financial statements disclosures about the nature of their operations and
the use of estimates in the preparation of financial statements. Additional
disclosures are required for certain significant estimates utilized in the
financial statements and current vulnerability due to certain concentrations if
specific criteria are met. This Statement is effective for financial statements
issued for fiscal years ending after December 15, 1995. The adoption of this
Statement had no impact on the results of operations of VFL.
Accounting by Creditors for Impairment of a Loan
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) 114, "Accounting by Creditors for
Impairment of a Loan." This Statement addresses the accounting by creditors for
impairment of certain loans. It also requires that applicable loans be treated
as impaired when it is probable that a creditor will be unable to collect all
amounts (both principal and interest) contractually due. This Statement applies
to financial statements for fiscal years beginning after December 15, 1994. In
October 1994, the FASB issued SFAS 118, "Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosures" which amends SFAS 114 to allow
a creditor to use existing methods for recognizing interest income on an
impaired loan. It also amends the disclosure requirements to require information
about the recorded investment in certain impaired loans and about how a creditor
recognizes interest income related to those impaired loans. The adoption of
these Statements did not have a significant impact on VFL.
Standards Adopted in 1996
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of In March 1995, the FASB issued SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
This Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used for long-lived assets and certain identifiable intangibles
to be disposed of. This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by the entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. This Statement is effective
for 1996 financial statements, although earlier adoption is permissible. This
Statement had no significant impact on the results of operations for VFL.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation". This Statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. The requirements of this
Statementis effective for 1996 financial statements. This Statement had no
impact on the financial statements of VFL as the Company has no compensation
which qualifies.
<PAGE>
EMPLOYEES
As of December 31, 1995, the Company had no employees as it has contracted with
CCC for services performed by CCC employees.
PROPERTIES
The Company reimburses CCC for its proportionate share of office facilities. The
Company neither owns nor directly leases any office space.
CERTAIN AGREEMENTS
The Company is party to The Intercompany Pooling Agreement with Continental
Assurance Company (Assurance) which is discussed above and in Notes to the
Company's Financial Statements included in this Prospectus. Such disclosure in
Note 1, Significant Accounting Policies; Note 8, Reinsurance; and Note 9,
Related Parties is specifically incorporated herein by reference. In addition,
the Company is party to the CNA Intercompany Expense Agreement whereby expenses
incurred by CNA Financial Corporation and each of its subsidiaries are allocated
to the appropriate company. All acquisition and underwriting expenses allocated
to the Company are further subject to the Intercompany Pooling Agreement, so
that acquisition and underwriting expenses recognized by the Company
approximates ten percent of the combined acquisition and underwriting expenses
of the Company and Assurance. Pursuant to the foregoing agreements, the Company
recorded amortization of deferred acquisition costs and other operating expenses
totaling $41 million, $37 million, and $32 million for 1995, 1994 and 1993,
respectively. Disclosure regarding expenses pursuant to the CNA Intercompany
Expense Agreement in Note 9 in Notes to the Company's Financial Statements is
also specifically incorporated herein by reference.
STATE REGULATION
The Company is subject to the laws of the Commonwealth of Pennsylvania governing
insurance companies and to the regulations of the Pennsylvania Department of
Insurance (the "Insurance Department"). A detailed financial statement in the
prescribed form (the "Statement") is filed with the Insurance Department each
year covering the Company's operations for the preceding year and its financial
condition as of the end of that year. Regulation by the Insurance Department
includes periodic examination to determine contract liabilities and reserves so
that the Insurance Department may certify that these items are correct. The
Company's books and accounts are subject to review by the Insurance Department
at all times. A full examination of the Company's operations is conducted
periodically by the Insurance Department and under the auspices of the NAIC.
<PAGE>
In addition, the Company is subject to regulation under the insurance laws of
all jurisdictions in which it operates. The laws of the various jurisdictions
establish supervisory agencies with broad administrative powers with respect to
various matters, including licensing to transact business, overseeing trade
practices, licensing agents, approving contract forms, establishing reserve
requirements, fixing maximum interest rates on life insurance contract loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. The Company is required to file the Statement with
supervisory agencies in each of the jurisdictions in which it does business, and
its operations and accounts are subject to examination by these agencies at
regular intervals.
The NAIC has adopted several regulatory initiatives designed to improve the
surveillance and financial analysis regarding the solvency of insurance
companies in general. These initiatives include the development and
implementation of a risk-based capital formula for determining adequate levels
of capital and surplus. Insurance companies are required to calculate their
risk-based capital in accordance with this formula and to include the results in
their Statement. It is anticipated that these standards will have no significant
effect upon the Company.
Further, many states regulate affiliated groups of insurers, such as the Company
and its affiliates, under insurance holding company legislation. Under such
laws, inter-company transfers of assets and dividend payments from insurance
subsidiaries may be subject to prior notice or approval, depending on the size
of the transfers and payments in relation to the financial positions of the
companies involved.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed (up to prescribed limits) for contract owner losses
incurred by other insurance companies that have become insolvent. Most of these
laws provide that an assessment may be excused or deferred if it would threaten
an insurer's own financial strength.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Certain insurance products of the Company are subject to
various federal securities laws and regulations. In addition, current and
proposed federal measures that may significantly affect the insurance business
include regulation of insurance company solvency, employee benefit regulation,
removal of barriers preventing banks from engaging in the insurance business,
tax law changes affecting the taxation of insurance companies and the tax
treatment of insurance products and its impact on the relative desirability of
various personal investment vehicles.
DIRECTORS AND EXECUTIVE OFFICERS
The name, age, positions and offices, term as director, and business experience
during the past five years for the Company's directors and executive officers
are listed in the following table.
Each director is elected to serve until the annual meeting of stockholders or
until his or her successor is elected and shall have qualified. Some directors
have held various executive positions with insurance company affiliates of the
Company.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
|-------------------------------------------------------------------------------------------------------------------|
| Officers of the Company |
|-----------------------|---|------------------|--------------------------------------------------------------------|
|-----------------------|---|------------------|--------------------------------------------------------------------|
| Name and |Age| Position(s) Held | Principal Occupation(s) |
| Address | | with the Company | During Past Five Years |
| | | | |
|-----------------------|---|------------------|--------------------------------------------------------------------|
|-----------------------|---|------------------|--------------------------------------------------------------------|
|Dennis H. Chookaszian |53 |Director, Chairman|Chairman of the Board and Chief Executive Officer of the CNA |
|CNA Plaza | |of the Board and |Insurance Companies since September 1992. From November 1990 to |
|Chicago, IL 60685 | |Chief Executive |September 1992, Mr. Chookaszian was President and Chief Operating |
| | |Officer |Officer of the CNA Insurance Companies. Prior thereto, he was Vice |
| | | |President and Controller Mr. Chookaszian has served as a Director |
| | | |since 1990.
|-----------------------|---|------------------|--------------------------------------------------------------------|
|-----------------------|---|------------------|--------------------------------------------------------------------|
|Phillip L. Engel |56 |Director, |President of the CNA Insurance Companies since September 1992. From |
|CNA Plaza | |President |November 1990 until September 1992 he was Executive Vice President |
|Chicago, IL 60685 | | |of the CNA Insurance Companies. Prior thereto, Mr. Engel had been a |
| | | |Vice President of the CNA Insurance Companies since 1977. |
|-----------------------|---|------------------|--------------------------------------------------------------------|
|-----------------------|---|------------------|--------------------------------------------------------------------|
|William J. Adamson, Jr.|43 |Senior Vice |Senior Vice President of the CNA Insurance Companies since November |
|200 S. Wacker Drive | |President |1995; Group Vice President of the CNA Insurance Companies from |
|Chicago, IL | | |April 1993 through October 1995; Vice President of the CNA |
| | | |Insurance Companies from May 1987 through April 1993. |
|-----------------------|---|------------------|--------------------------------------------------------------------|
|-----------------------|---|------------------|--------------------------------------------------------------------|
|James P. Flood |45 |Senior Vice |Senior Vice President of the CNA Insurance Companies since April |
|CNA Plaza | |President |1995; Senior Vice President of the Continental Insurance Company |
|Chicago, IL 60685 | | |from October 1992 through May 1995; Vice President of the |
|August 1991 | | |Continental Insurance Company from August 1991 through May 1995. |
|through May 1995. | | | |
|-----------------------|---|------------------|--------------------------------------------------------------------|
|-----------------------|---|------------------|--------------------------------------------------------------------|
|Michael C. Garner |44 |Senior Vice |Senior Vice President of the CNA Insurance Companies since September|
|CNA Plaza | |President |1993. Partner of Coopers and Lybrand from October 1989 through |
|Chicago, IL 60685 | | |September 1993. |
|-----------------------|---|------------------|--------------------------------------------------------------------|
|-----------------------|---|------------------|--------------------------------------------------------------------|
|Bernard L. Hengesbaugh |49 |Senior Vice |Senior Vice President of the CNA Insurance Companies since November |
|CNA Plaza | |President |1990. |
|Chicago, IL 60685 | | | |
|-----------------------|---|------------------|--------------------------------------------------------------------|
|-----------------------|---|------------------|--------------------------------------------------------------------|
|Peter E. Jokiel |49 |Director, Senior |Senior Vice President and Chief Financial Officer of the CNA |
|CNA Plaza | |Vice President |Insurance Companies since November 1990. |
|Chicago, IL 60685 | |and Chief | |
| | |Financial Officer | |
|-----------------------|---|------------------|--------------------------------------------------------------------|
|-----------------------|---|------------------|--------------------------------------------------------------------|
|Jack Kettler |52 |Senior Vice |Senior Vice President of the CNA Insurance Companies since May 1994;|
|CNA Plaza | |President |Senior Vice President of Midland Mutual Life Insurance Company from |
|Chicago, IL 60685 | | |January 1989 through May 1994. |
|-----------------------|---|------------------|--------------------------------------------------------------------|
|-----------------------|---|------------------|--------------------------------------------------------------------|
|Donald M. Lowry |66 |Director, Senior |Senior Vice President, Secretary and General Counsel of the CNA |
|CNA Plaza | |Vice President, |Insurance Companies since August 1992; Senior Vice President and |
|Chicago, IL 60685 | |Secretary and |General Counsel of the CNA Insurance Companies from November 1990 |
| | |General Counsel |to August 1992. |
|-----------------------|---|------------------|--------------------------------------------------------------------|
<PAGE>
|--------------------------------------------------------------------------------------------------------------------|
| Officers of the Company |
|-----------------------|---|------------------|---------------------------------------------------------------------|
|-----------------------|---|------------------|---------------------------------------------------------------------|
| Name and |Age| Position(s) Held | Principal Occupation(s) |
| Address | | with the Company | During Past Five Years |
| | | | |
|-----------------------|---|------------------|---------------------------------------------------------------------|
|-----------------------|---|------------------|---------------------------------------------------------------------|
|Carolyn L. Murphy |51 |Senior Vice |Senior Vice President of the CNA Insurance Companies since November |
|CNA Plaza | |President |1990. |
|Chicago, IL 60685 | | | |
|-----------------------|---|------------------|---------------------------------------------------------------------|
|-----------------------|---|------------------|---------------------------------------------------------------------|
|William H. Sharkey, Jr.|48 |Director, Senior |Senior Vice President of the CNA Insurance Companies since January |
|CNA Plaza | |Vice President |1994; Senior Vice President of Cigna Healthcare from October 1970 |
|Chicago, IL 60685 | | |through February 1994. |
|-----------------------|---|------------------|---------------------------------------------------------------------|
|-----------------------|---|------------------|---------------------------------------------------------------------|
|Wayne R. Smith III |50 |Senior Vice |Senior Vice President of the CNA Insurance Companies since May |
|CNA Plaza | |President |1994; Group Vice President of the CNA Insurance Companies from August|
|Chicago, IL 60685 | | |1993 through May 1994; Senior Vice President of the Computer Power |
| | | |Group from August 1991 through August 1993. |
|-----------------------|---|------------------|---------------------------------------------------------------------|
|-----------------------|---|------------------|---------------------------------------------------------------------|
|Adrian M. Tocklin |45 |Senior Vice |Senior Vice President of the CNA Insurance Companies since May 1995; |
|CNA Plaza | |President |President of the Continental Insurance Company from June 1994 |
|Chicago, IL 60685 | | |through May 1995; Executive Vice President of the Continental |
| | | |Insurance Company from August 1991 through August 1994. |
|-----------------------|---|------------------|---------------------------------------------------------------------|
|-----------------------|---|------------------|---------------------------------------------------------------------|
|Jae L. Wittlich |54 |Senior Vice |Senior Vice President of the CNA Insurance Companies since November |
|CNA Plaza | |President |1990. |
|Chicago, IL 60685 | | | |
|-----------------------|---|------------------|---------------------------------------------------------------------|
|-----------------------|---|------------------|---------------------------------------------------------------------|
|David W. Wroe |49 |Senior Vice |Senior Vice President of the CNA Insurance Companies since June |
|CNA Plaza | |President |1996; President of Agency Management Systems from August 1991 |
|Chicago, IL 60685 | | |through June 1996. |
|-----------------------|---|------------------|---------------------------------------------------------------------|
</TABLE>
<PAGE>
EXECUTIVE COMPENSATION
<TABLE>
The following table includes compensation paid by the CNA Financial
Corporation and its subsidiaries for services rendered in all capacities for the
years indicated for the Chief Executive Officer and the next four most highly
compensated Executive Officers as of December 31, 1995. These officers also
serve as executive officers of Valley Forge Life Insurance Company (VFL);
therefore, an applicable portion of their compensation (4.45%) is charged to
VFL.
Summary Compensation Table
Annual Compensation
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name and Principal Position Year Salary Bonus All Other
Compensation (f)
- -------------------------------------------------------------------------------------------------------------
Dennis H. Chookaszian 1995 1,593,027 -- 66,587
Chairman of the Board 1994 1,242,091 -- 51,939
Chief Executive Officer 1993 1,132,716 350,000 (d)(e) 51,984
CNA Insurance Companies
Philip L. Engel 1995 962,587 -- 40,429
President 1994 825,539 -- 34,661
CNA Insurance Companies 1993 760,171 90,000 (d) 36,397
Carolyn L. Murphy 1995 562,307 206,000(a) 23,100
Senior Vice President 1994 558,333 173,000(b) 23,380
CNA Insurance Companies 1993 528,333 180,000(d) 22,190
Jack Kettler 1995 486,752 317,000(a)(c) 287,850(g)
Senior Vice President 1994 266,309 100,000(c) 118,452(g)
CNA Insurance Companies 1993 n/a n/a n/a
Bernard L. Hengesbaugh 1995 500.082 142,000(a) 19,950
Senior Vice President 1994 460,578 -- 18,900
CNA Insurance Companies 1993 415,000 248,281(d) 17,430
<FN>
(a) Represents amounts earned for the year 1995 (paid in March of 1996),
under the Annual Incentive Plan for Officers as hereinafter described.
(b) Represents amounts earned for the year 1994 (paid in March of 1995),
under the Annual Incentive Plan for Officers as hereinafter described.
(c) Represents employee signing bonus of $100,000 paid in 1995 and 1994.
(d) Represents amounts awarded under the Long Term Award Plan. The Long Term
Award Program was instituted in 1990 to provide cash awards to key
executives in recognition of individual performance and contribution to
long term results. Awards were made on a discretionary basis and were
approved by the Chairman and Chief Executive Officer of the CNA Insurance
Companies. The amounts shown include both the 1992 and 1993 awards granted
in April 1993 and December 1993, respectively. The awards granted to
Messrs. Chookaszian and Engel of $100,000 and $90,000, respectively,
recognized services rendered prior to October 1, 1992. These and all
previously awarded but unpaid amounts were paid in 1993 when the Plan was
terminated.
(e) Includes a $250,000 bonus paid to Mr. Chookaszian in 1993.
(f) Represents amounts contributed or accrued for fiscal 1995, 1994 and 1993
for the named officers under the Company's savings plan and related
supplemental savings plan.
<PAGE>
(g) Includes $267,900 and $106,604 of relocation expenses paid in 1995 and
1994, respectively.
</FN>
</TABLE>
Employment Contracts
Valley Forge Life Insurance Company (the Company) is a wholly-owned subsidiary
of Assurance. Assurance is a wholly-owned subsidiary of Continental Casualty
Company (Casualty) which is wholly-owned by CNA Financial Corporation (CNA).
Loews Corporation owns approximately 84% of the outstanding common stock of CNA.
All employees of the CNA Insurance Companies are employed by Casualty, with the
exception of Dennis H. Chookaszian and Philip L. Engel who are employees of CNA.
CNA is party to employment agreements (the "Agreements") with each of
Dennis H. Chookaszian and Philip L. Engel. The Agreements are for a three-year
term at an annual Base Salary of $950,000 for Mr. Chookaszian and $800,000 for
Mr. Engel. The Agreements provide for the adoption by the Board of an Incentive
Compensation Plan which will provide Mr. Chookaszian and Mr. Engel with an
opportunity to earn a bonus based on performance and attainment of specified
corporate goals. In all other respect, the agreements contain substantially the
same terms as the prior agreements as approved by the Board in February of 1992.
A brief summary of the Plan as adopted by the CNA Board is set forth herein.
Each of the Agreements requires CNA to provide long-term disability
coverage and permits the employee to participate in other benefit programs
offered by the Company to its employees. In the event of death or disability,
the employee is entitled to be paid the Base Salary to the end of the month in
which such death or disability occurs and a prorated amount based on assumed
attainment of the incentive compensation in effect at the time. Any incentive
compensation paid is included in the computation of pensionable earnings under
the Company's retirement plans. The employee may participate in the Qualified
and Supplemental Savings Plan established by CNA wherein CNA pays a matching
percentage of 70% of the first 6% of the employee's contributions. This matching
amount is also included in the computation of pensionable earnings.
CNA may terminate each Agreement without cause at any time, in which
event CNA is required to continue to make payments to the employee for a period
of three years from the date of termination at a fixed rate based on Base Salary
and the incentive compensation in effect at the time of such termination. Each
Agreement contemplates negotiation of a renewal for an additional three year
period at the expiration of its term on December 31, 1998 and provides that if
the parties have not reached an agreement before March 31, 1999 at a Base Salary
and opportunity for incentive compensation of not less than the amount of Base
Salary and incentive compensation provided for the year 1998 at substantially
the same terms as the expiring agreement, then the employment shall be
considered terminated by CNA and the employee shall be entitled to termination
pay for a period of three years based on the combined Base Salary and the
assumed incentive compensation for 1998. If a renewal is not negotiated before
December 31, 1998, the Executives shall become employees-at-will for a three
month period at an actual salary representing the combined Base Salary and
assumed Incentive Compensation for the year 1998.
The Incentive Compensation Committee of CNA has granted Mr. Chookaszian
and Mr. Engel, subject to shareholder approval of the Incentive Compensation
Plan, allocations under the Incentive Compensation Plan entitling each of them
to awards thereunder of a maximum of $1,450,000 for Mr. Chookaszian and $400,000
for Mr. Engel for the year 1996. A maximum of $1,650,000 for 1997 and $1,850,000
for 1998 has been granted to Mr. Chookaszian and maximums of $500,000 and
$600,000 for the years 1997 and 1998 respectively have been granted to Mr.
Engel. The actual awards to Messrs. Chookaszian and Engel would be subject to
the attainment of specific performance goals in relation to after-tax income
CNA, excluding realized investment gains and losses.
Retirement Plans
Casualty provides funded, tax qualified, non-contributory retirement
plans for all salaried employees, including executive officers (the "Retirement
Plans") and an unfunded, non-qualified, non-contributory benefits equalization
plan (the "Supplemental Retirement Plan") which provides for the accrual and
payment of benefits which are not available under tax qualified plans such as
the Retirement Plans. The following description of the Retirement Plans gives
effect to benefits provided under the Supplemental Retirement Plan.
The Retirement Plans provide for retirement benefits based upon
average final compensation (i.e., based upon the highest average sixty
consecutive months compensation and years of credited service with Casualty).
Compensation under the Retirement Plans consists of salary paid by Casualty and
its subsidiaries included under "Salary" and "Bonus" in the Summary Compensation
Table above. The following table shows estimated annual benefits payable upon
retirement under the Retirement Plans for various compensation levels and years
of credited service, based upon normal retirement in 1995 and a straight life
annuity form of benefit. In addition to a straight life annuity, the Plans also
allow the participant to elect payment to be made in a Joint and Contingent (or
Survivor) Annuitant form where the Contingent (or Survivor) Annuitant would
receive payment at 50%, 66 2/3% or 100% of the participant's benefit amount.
<TABLE>
<CAPTION>
Pension Plan Table
Normal Retirement in 1995
Estimated Annual Pension For
Representative Years of Credited Service
Average Annual 15 20 25 30 35
Compensation
<S> <C> <C> <C> <C> <C>
$400,000 $116,855 $155,807 $194,758 $207,044 $219,330
$500,000 $146,855 $195,807 $244,758 $260,378 $275,997
$600,000 $176,855 $235,807 $294,758 $313,711 $332,664
$700,000 $206,855 $275,807 $344,758 $367,045 $389,331
$800,000 $236,855 $315,807 $394,758 $420,378 $445,998
$900,000 $266,855 $355,807 $444,758 $473,712 $502,665
$1,000,000 $296,855 $395,807 $494,758 $527,045 $559,332
$1,100,000 $326,855 $435,807 $544,758 $580,379 $615,999
$1,200,000 $356,855 $475,807 $594,758 $633,712 $672,666
$1,300,000 $386,855 $515,807 $644,758 $687,046 $729,333
</TABLE>
The amounts in the table reflect deductions for estimated Social
Security payments.
Mr. Chookaszian, Mr. Engel, Ms. Murphy, Mr. Hengesbaugh, and Mr.
Kettler have 20, 30, 18, 16 and 2 years of credited service, respectively.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Valley Forge Life Insurance Company
We have audited the accompanying balance sheets of Valley Forge Life Insurance
Company (a wholly-owned subsidiary of Continental Assurance Company, which is a
wholly-owned subsidiary of Continental Casualty Company, an affiliate of CNA
Financial Corporation, an affiliate of Loews Corporation) as of December 31,
1995 and 1994 and the related statements of operations, stockholder's equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Valley Forge Life Insurance Company as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for certain investments in debt and equity securities in
1993.
Deloitte & Touche LLP
Chicago, Illinois
June 21, 1996
<PAGE>
FINANCIAL STATEMENTS OF VALLEY FORGE LIFE INSURANCE COMPANY
The following financial statements are those of Valley Forge Life Insurance
Company and not those of the Separate Account. They are included in this
Statement of Additional Information for the purpose of informing investors as to
the financial position and operations of the Company.
<TABLE>
<CAPTION>
VALLEY FORGE LIFE INSURANCE COMPANY
BALANCE SHEET
- -----------------------------------------------------------------------------------------------------------------------
March 31 December 31
--------------------------
1996 1995 1994
(In thousands of dollars) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments-Note 3:
Fixed maturities available-for-sale (cost: $277,185, $347,401 and $ 273,377 $ 367,762 $ 350,955
$355,999).............................................................
Equity securities available-for-sale (cost: $1,074, $1,074 and $1,074).. 1,825 1,696 1,307
Policy loans............................................................ 59,979 56,008 47,001
Short-term investments.................................................. 191,482 37,184 39,067
-------- -------- --------
Total investments................................................. 526,663 462,650 438,330
Cash...................................................................... 4,260 42,103 1,926
Insurance receivables:
Reinsurance receivables................................................. 9,316 5,688 4,280
Premium and other insurance receivables................................. 61,311 53,741 55,373
Less allowance for doubtful accounts.................................... (301) (175) -
Deferred acquisition costs................................................ 62,051 50,600 41,333
Accrued investment income................................................. 4,036 4,687 4,756
Receivables for securities sold........................................... 12,008 - -
Federal income taxes recoverable-Note 7................................... 3,702 575 547
Deferred income taxes-Note 7.............................................. 3,573 - 6,290
Other assets.............................................................. 1,176 4,951 1
=====================================================================================================================
Total assets $ 687,795 $ 624,820 $ 552,836
=====================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALLEY FORGE LIFE INSURANCE COMPANY
BALANCE SHEET
- -----------------------------------------------------------------------------------------------------------------------
March 31 December 31
--------------------------
1996 1995 1994
(In thousands of dollars) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities and Stockholder's Equity
Liabilities:
Insurance reserves-Note 8:
Future policy benefits.................................................. $ 290,740 $ 266,600 $ 229,702
Claims.................................................................. 57,987 59,423 55,636
Policyholders' funds.................................................... 36,299 34,574 30,596
Deferred income taxes..................................................... - 3,191 -
Remittances and items not allocated....................................... 30,896 51,219 22,100
Payable to affiliates-Note 9.............................................. 62,166 - 50,371
Other liabilities......................................................... 21,769 14,341 8,235
------- ------- -------
Total liabilities................................................. 499,857 429,348 396,640
------- ------- -------
Stockholder's equity-Note 4:
Common stock ($50 par value; Authorized-200,000 shares; Issued-50,000 2,500 2,500 2,500
shares).....................................................................
Additional paid-in capital................................................ 39,150 39,150 39,150
Retained earnings......................................................... 148,273 140,181 117,671
Net unrealized investment gains (losses), net of taxes-Note 3............. (1,985) 13,641 (3,125)
------- -------- --------
Total stockholder's equity........................................ 187,938 195,472 156,196
=====================================================================================================================
Total liabilities and stockholder's equity $ 687,795 $ 624,820 $ 552,836
=====================================================================================================================
<FN>
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALLEY FORGE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993
(In thousands of dollars)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums-Note 8........................................... $296,653 $262,980 $240,845
Net investment income-Note 3.............................. 31,494 22,759 16,144
Realized investment gains (losses)-Note 3................. 13,783 (4,502) 3,773
Other..................................................... 4,818 4,789 3,435
-------- ------- -------
346,748 286,026 264,197
------- ------- -------
Benefits and expenses:
Insurance claims and policyholders' benefits-Note 8....... 270,936 237,334 221,092
Amortization of deferred acquisition costs................ 6,066 4,874 2,794
Other operating expenses-Note 9........................... 35,036 32,231 29,469
------- -------- -------
312,038 274,439 253,355
------- ------- -------
Income before income tax.......................... 34,710 11,587 10,842
Income tax expense-Note 7................................... 12,200 4,105 3,735
=====================================================================================================
Net income $ 22,510 $ 7,482 $ 7,107
=====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VALLEY FORGE LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
(Unaudited)
- ---------------------------------------------------------------------------------------------------------
Six Months Ended March 31 1996 1995
(In thousands of dollars)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Premiums-Note 8............................................................ $160,221 $142,895
Net investment income-Note 3............................................... 13,369 15,434
Realized investment gains (losses)-Note 3.................................. 3,745 12,568
Other...................................................................... 2,499 1,913
------- -------
179,834 172,810
Benefits and expenses:
Insurance claims and policyholders' benefits-Note 8........................ 147,263 130,355
Amortization of deferred acquisition costs................................. 330 1,600
Other operating expenses-Note 9............................................ 19,783 17,246
------- -------
167,376 149,201
------- -------
Income before income tax........................................... 12,458 23,609
Income tax expense-Note 7.................................................... 4,366 8,288
=========================================================================================================
Net income $ 8,092 $ 15,321
=========================================================================================================
<FN>
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALLEY FORGE LIFE INSURANCE COMPANY
STATEMENT OF STOCKHOLDER'S EQUITY
----------------------------------------- ----------- ------------- -------------- ---------------- ------------
Net
Additional Unrealized
Common Paid-in Retained Investment
(In thousands of dollars) Stock Capital Earnings Gains (Losses) Total
----------------------------------------- ----------- ------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992.............. $2,500 $39,150 $103,082 $ 141 $144,873
Net income............................ - - 7,107 - 7,107
Net unrealized investment gains, net of - - - 68 68
taxes-Note 3......................
Adjustment resulting from change in
accounting for debt securities-Note 2. - - - 1,201 1,201
------------ ------------- -------------- --------------- -----------
Balance, December 31, 1993 2,500 39,150 110,189 1,410 153,249
Net income............................ - - 7,482 - 7,482
Net unrealized investment losses, net of
taxes-Note 3........................ - - - (4,535) (4,535)
------------ ------------- --------------- -------------- ------------
Balance, December 31, 1994 2,500 39,150 117,671 (3,125) 156,196
Net income............................ - - 22,510 - 22,510
Net unrealized investment gains, net of
taxes-Note 3...................... - - - 16,766 16,766
------------ ------------- ---------------- ------------- -----------
Balance, December 31, 1995 $2,500 $39,150 $140,181 $ 13,641 $ 195,472
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VALLEY FORGE LIFE INSURANCE COMPANY
STATEMENT OF STOCKHOLDER'S EQUITY
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Six Months Ended March 31, 1996 and 1995 Net
Additional Unrealized
Common Paid-in Retained Investment
(In thousands of dollars) Stock Capital Earnings Gains (Losses) Total
- ----------------------------------------- ----------- ------------ --------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $2,500 $39,150 $117,671 $ (3,125) $156,196
Net income............................ - - 15,321 - 15,321
Net unrealized investment gains, net
of taxes-Note 3................... - - - 8,244 8,244
- ----------------------------------------- ----------- ------------ --------------- ------------- ---------------
Balance, June 30, 1995 $2,500 $39,150 $132,992 $5,119 $179,761
========================================= =========== ============ =============== ============== ==============
Balance, December 31, 1995 $2,500 $39,150 $140,181 $ 13,641 $195,472
Net income............................ - - 8,092 - 8,092
Net unrealized investment gains, net
of taxes-Note 3................... - - - (15,626) (15,626)
- ----------------------------------------- ----------- ------------ -------------- -------------- --------------
Balance, June 30, 1996 $2,500 $39,150 $148,273 $ (1,985) $187,938
================================================================================================================
<FN>
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALLEY FORGE LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993
(In thousands of dollars)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $ 22,510 $ 7,482 $ 7,107
-------- ------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Pre-tax realized investment (gains) losses..................... (13,783) 4,502 (3,773)
Amortization of bond (discount) premium........................ (3,921) (886) 51
Changes in:
Insurance receivables...................................... 399 (6,951) (1,693)
Deferred acquisition costs................................. (9,267) (1,112) (3,250)
Accrued investment income.................................. 69 (1,606) 992
Federal income taxes recoverable........................... (28) (1,356) (5)
Deferred income taxes...................................... 453 (172) (804)
Insurance reserves......................................... 44,663 30,734 21,430
Other, net................................................. (20,095) 44,080 2,550
-------- ------- -------
Total adjustments................................. (1,510) 67,233 15,498
-------- ------- -------
Net cash provided by operating activities......... 21,000 74,715 22,605
-------- ------- -------
Cash flows from investing activities:
Purchases of fixed maturities....................................... (361,579) (863,023) (95,982)
Proceeds from fixed maturities:
Sales............................................................ 336,731 408,505 88,622
Maturities, calls and redemptions................................ 51,046 189,355 12,828
Purchases of equity securities...................................... - (93) -
Proceeds from sale of equity securities............................. - - 336
Change in short-term investments.................................... 1,986 196,605 (21,344)
Change in policy loans.............................................. (9,007) (6,058) (5,541)
--------- -------- ---------
Net cash provided by (used in) investing activities 19,177 (74,709) (21,081)
--------- -------- ---------
Net increase in cash.............................. 40,177 6 1,524
Cash at beginning of year.............................................. 1,926 1,920 396
================================================================================================================
Cash at end of year $ 42,103 $ 1,926 $ 1,920
================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid:
Federal income taxes.............................................. $ 6,531 $ 5,426 $ 3,847
================================================================================================================
<FN>
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALLEY FORGE LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
Six Months Ended March 31 1996 1995
(In thousands of dollars)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $ 8,092 $ 15,321
------- -------
Adjustments to reconcile net income to net cash provided by operating
activities:
Pre-tax realized investment gains............................. (3,745) (12,568)
Amortization of bond discount.................................. (2,017) (2,154)
Changes in:
Insurance receivables...................................... (11,073) (2,798)
Deferred acquisition costs................................. (11,451) (4,116)
Accrued investment income.................................. 650 116
Federal income taxes....................................... (3,127) 4,197
Deferred income taxes...................................... 1,650 200
Insurance reserves......................................... 24,427 21,005
Other, net................................................. 53,048 (2,460)
------ ------
Total adjustments................................. 48,362 1,472
----- ------
Net cash provided by operating activities......... 56,454 16,793
------ ------
Cash flows from investing activities:
Purchases of fixed maturities....................................... (301,008) (236,040)
Proceeds from fixed maturities:
Sales............................................................ 358,199 243,117
Maturities, calls and redemptions................................ 6,127 22,754
Change in short-term investments.................................... (153,644) (41,705)
Change in securities sold under repurchase agreements............... - -
Change in policy loans.............................................. (3,971) (3,587)
------- --------
Net cash used in investing activities............. (94,297) (15,461)
------- --------
Net increase (decrease) in cash................... (37,843) 1,332
Cash at beginning of period............................................ 42,103 1,926
==========================================================================================================
Cash at end of period $ 4,260 $ 3,258
==========================================================================================================
Supplemental disclosures of cash flow information:
Cash paid:
Federal income taxes.............................................. $ 7,216 $ 3,852
=========================================================================================================
<FN>
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Valley Forge Life Insurance Company (VFL) is a wholly-owned subsidiary of
Continental Assurance Company (Assurance). Assurance is a wholly-owned
subsidiary of Continental Casualty Company (Casualty) which is wholly-owned by
CNA Financial Corporation (CNA). Loews Corporation owns approximately 84% of the
outstanding common stock of CNA.
VFL and Assurance have an intercompany pooling agreement to share their
combined underwriting results, exclusive of Assurance's participating policies
and Separate Account business. Under this pooling agreement, VFL cedes 100% of
its net business before pooling to Assurance and in turn receives 10% of the
combined results. Assurance retains 90% of the combined results.
VFL markets a variety of individual and group insurance products, either
directly or through its pooling agreement with Assurance. The individual
insurance products currently being marketed consist primarily of term, universal
life and individual annuity products. Group insurance products include life,
accident and health consisting primarily of medical and hospitalization, and
pension products.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and 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. In the opinion of VFL's management, these statements include all
adjustments, consisting of normal recurring accruals, which are necessary for
the fair presentation of the financial position, results of operations and cash
flows in the accompanying financial statements.
Insurance
Premium revenue-Revenues on universal life-type contracts are comprised of
contract charges and fees which are recognized over the coverage period.
Accident and health insurance premiums are earned ratably over the terms of the
policies after provision for estimated adjustments on retrospectively rated
policies and deductions for ceded insurance. Other life insurance premiums are
recognized as revenue when due, after deductions for ceded insurance.
Claim reserves-Claim reserves include provisions for reported claims in the
course of settlement and estimates of unreported losses based upon past
experience.
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 1. - (Continued):
Future policy benefit reserves-Reserves for traditional life insurance
products are computed based upon net level premium methods using actuarial
assumptions as to interest rates, mortality, morbidity, withdrawals and
expenses. Actuarial assumptions include a margin for adverse deviation, and
generally vary by plan, age at issue and policy duration. Interest rates range
from 3.0% to 10.5%, and mortality, morbidity and withdrawal assumptions reflect
VFL and industry experience prevailing at the time of issue. Expense estimates
include the estimated effects of inflation and expenses beyond the premium
paying period. Reserves for universal life-type contracts are established using
the retrospective deposit method. Under this method, liabilities are equal to
the account balances that accrue to the benefit of the policyholders. Interest
crediting rates ranged from 5.9% to 7.3% for the three years ended December 31,
1995 and from 5.7% to 5.9% for the six-month period ended June 30, 1996.
Reinsurance-In addition to the pooling agreement with Assurance, VFL also
assumes and cedes insurance with other insurers and reinsurers and members of
various reinsurance pools and associations. VFL utilizes reinsurance
arrangements to limit its maximum loss, provide greater diversification of risk
and minimize exposures on larger risks. The reinsurance coverages are tailored
to the specific risk characteristics of each product line with VFL's retained
amount varying by type of coverage. Amounts recoverable from reinsurers are
estimated in a manner consistent with the claim liability.
Deferred acquisition costs-Costs of acquiring insurance business which vary
with and are primarily related to the production of such business are deferred.
Such costs include commissions and certain underwriting and policy issuance
costs. Acquisition costs are capitalized and amortized based on assumptions
consistent with those used for computing policy benefit reserves. Acquisition
costs on ordinary life business are amortized over their assumed premium paying
periods. Universal life and annuity acquisition costs are amortized in
proportion to the present value of the estimated gross profits over the
products' assumed durations, which are regularly evaluated and adjusted as
appropriate. To the extent that unrealized gains or losses on available-for-sale
securities would result in an adjustment of deferred policy acquisition costs
had those gains or losses actually been realized, the related unamortized
deferred policy acquisition costs are recorded as an adjustment of the
unrealized gains or losses included in stockholder's equity.
Valuation of investments-VFL believes it has the ability to hold all fixed
maturity securities until they mature. However, securities may be sold to take
advantage of investment opportunities generated by changing interest rates,
prepayments, tax and credit considerations, as part of VFL's asset/liability
strategy, or other similar factors. As a result, VFL considers its fixed
maturity securities (bonds and redeemable preferred stocks) as
available-for-sale and VFL also classifies its equity securities as
available-for-sale, and as such, are carried at fair value. Unrealized holding
gains and losses are reflected as a separate component of stockholder's equity,
net of deferred income taxes. The amortized cost of fixed maturity securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and accretion are included in investment income.
Policy loans are carried at unpaid balances. Short-term investments, which
have an original maturity of one year or less, are carried at amortized cost
which approximates market value. The Company has no real estate, mortgage loans
or investments in derivative securities.
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 1. - (Continued):
Investment gains and losses - All securities transactions are recorded on
the trade date. Realized investment gains and losses are determined on the basis
of the cost of the specific securities sold. Unrealized investment gains and
losses on fixed maturity and equity securities are reflected as part of
stockholder's equity, net of applicable deferred income taxes and deferred
acquisition costs. Investments are written down to estimated fair values and
losses are charged to income when a decline in value is considered to be other
than temporary.
Securities sold under agreements to repurchase - VFL has a securities
lending program where securities are loaned to third parties, primarily major
brokerage firms. Borrowers of these securities must maintain a deposit of 100%
of the fair value of the securities if the collateral is cash, or 102% if the
collateral is securities. Cash deposits from these transactions have been
invested in short-term investments (primarily commercial paper). VFL continues
to receive the interest on the loaned debt securities, as beneficial owner and,
accordingly, the loaned debt securities are included in fixed maturity
securities. VFL had no securities on loan at December 31, 1995 or 1994, or
at June 30, 1996.
Income Taxes
The provision for income taxes includes deferred taxes, resulting from
temporary differences between the financial statement and tax return bases of
assets and liabilities which are accounted for under the liability method. Such
temporary differences primarily relate to life insurance reserves, net
unrealized investment gains/losses and deferred acquisition costs.
Interim Financial Data (Unaudited)
The accompanying Financial Statements for the six-month period ended June
30, 1996 and 1995 have been prepared in conformity with generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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.
In the opinion of VFL's management, these statements include all adjustments,
consisting of normal recurring accruals, which are necessary for the fair
presentation of the financial position, results of operations and cash flows in
the accompanying financial statements.
NOTE 2. CHANGES IN ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES:
Effective December 31, 1993, VFL adopted Statement of Financial Accounting
Standards 115, "Accounting for Certain Investments in Debt and Equity
Securities." This Statement requires that investments in debt and equity
securities classified as available-for-sale be carried at fair value.
(Previously, fixed maturity securities classified as available-for-sale were
carried at the lower of aggregate amortized cost or market value). The effect at
December 31, 1993 of adopting this Statement was to increase stockholder's
equity by $1.2 million (net of $.6 million in deferred taxes). The adoption of
this Statement did not impact net income.
<PAGE>
<TABLE>
<CAPTION>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 3. INVESTMENTS:
- ------------------------------------------------------------------------------------------------------------------
Net Investment Income Six Months Ended
Year Ended December 31 June 30
----------------------------------------- ---------------------------
(In thousands of dollars)
1995 1994 1993 1996 1995
- -------------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Fixed maturities........................... $21,599 $16,591 $ 6,520 $10,805 $ 9,852
Equity securities.......................... 64 64 64 32 32
Policy loans............................... 3,925 2,979 2,498 1,355 1,620
Short-term investments..................... 6,037 3,658 7,240 1,294 3,943
Security repurchase transactions-income.... 135 63 - - 136
Other...................................... 2 (381) 2 - 1
-------- ------------ ---------- ----------- ------------
31,762 22,974 16,324 13,486 15,584
Investment expense......................... 268 215 180 117 150
===================================================================================================================
Net investment income $31,494 $22,759 $16,144 $13,369 $15,434
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Analysis of Investment Gains (Losses) Six Months Ended
Year Ended December 31 June 30
----------------------------------- ----------------------
(In thousands of dollars) 1995 1994 1993 1996 1995
- ------------------------------------------------------- --------- ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Realized investment gains (losses):: (Unaudited)
Fixed maturities.................................. $13,674 $(4,306) $3,313 $3,745 $ 12,521
Equity securities................................. - - 332 - -
Other............................................. 109 (196) 128 - 47
--------- --------- -------- ------- ---------
13,783 (4,502) 3,773 3,745 12,568
Income tax (expense) benefit...................... (4,824) 1,576 (1,321) (1,311) (4,399)
--------- --------- --------- ------- --------
Net realized investment gains (losses)........ 8,959 (2,926) 2,452 2,434 8,169
--------- --------- ---------- ------- --------
Change in net unrealized investment gains (losses):
Fixed maturities.................................. 25,405 (6,892) - (24,169) 12,551
Equity securities................................. 389 (85) 106 129 132
-------- --------- ---------- -------- ---------
25,794 (6,977) 106 (24,040) 12,683
Income tax (expense) benefit...................... (9,028) 2,442 (38) 8,414 (4,439)
-------- --------- ---------- --------- ---------
Change in net unrealized investment gains
(losses)..................................... 16,766 (4,535) 68 (15,626) 8,244
Change in accounting for adoption of SFAS 115-
Note 2...................................... - - 1,201 - -
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized investment
gains (losses) $25,725 $(7,461) $3,721 $(13,192) $16,413
===================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Summary of Gross Realized Investment Gains (Losses)
for Fixed Maturities and Equity Securities
December 31 1995 1994 1993
--------------------------- ---------------------- ------------------------
Fixed Equity Fixed Equity Fixed Equity
(In thousands of dollars) Maturities Securities Maturities Securities Maturities Securities
- ----------------------------- ----------- --------------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from sales $ 336,731 $ - $ 408,505 $ - $ 88,622 $ 336
===========================================================================================================
Gross realized gains......... 18,185 - 1,559 - 3,355 332
Gross realized losses........ (4,511) - (5,865) - (42) -
- -----------------------------------------------------------------------------------------------------------
Net realized gains (losses) $ 13,674 $ - $ (4,306) $ - $ 3,313 $ 332
===========================================================================================================
</TABLE>
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 3. - (Continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Summary of Gross Realized Investment Gains (Losses)
for Fixed Maturities and Equity Securities
June 30 1996 1995
(Unaudited) (Unaudited)
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
Fixed Equity Fixed Equity
(In thousands of dollars) Maturities Securities Maturities Securities
- -------------------------------- ------------- ------------- -------------------- ------------
Proceeds from sales $ 358,199 $ - $ 243,117 $ -
================================ =========== =============== ================ ================
Gross realized gains............ 6,626 - 16,805 -
Gross realized losses........... (2,881) - (4,284) -
- -------------------------------- ------------ -------------- ----------------- ---------------
Net realized gains $ 3,745 $ - $ 12,521 $ -
================================ =========== =============== ================= ===============
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Analysis of Net Unrealized Investment Gains (Losses)
Included in Stockholder's Equity
December 31 1995 1994
-------------------------------- ---------------------------------
(In thousands of dollars) Gains Losses Net Gains Losses Net
- ------------------------------------------- -------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities.......................... $20,386 $(25) $ 20,361 $5,624 $(10,668) $ (5,044)
Equity securities......................... 622 - 622 233 - 233
---------- --------- ----------- --------- ----------- -----------
$21,008 $(25) 20,983 $5,857 $(10,668) (4,811)
======= ===== ====== =========
Deferred income tax benefit (expense)..... (7,342) 1,686
=================================================================================================================
Net unrealized investment gains (losses) $ 13,641 $ (3,125)
=================================================================================================================
</TABLE>
<PAGE>
- ------------------------------------------------------------------------------
Analysis of Net Unrealized Investment Gains (Losses)
Included in Stockholder's Equity
June 30 1996
(Unaudited)
---------------------------------------
(In thousands of dollars) Gains Losses Net
- -------------------------------------- ----------- ------------ --------------
Fixed maturities...................... $3,296 $(7,104) $ (3,808)
Equity securities..................... 751 - 751
---------- ----------- --------------
$4,047 $(7,104) (3,057)
====== ========
Deferred income tax benefit........... 1,072
==============================================================================
Net unrealized investment losses $ (1,985)
==============================================================================
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 3. - (Continued):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Summary of Investments in Fixed Maturities
and Equity Securities Available-for-Sale Amortized Unrealized Unrealized Market
(In thousands of dollars) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995
United States Treasury securities and obligations of
government agencies.................................. $186,083 $12,526 $ 1 $198,608
Asset-backed securities................................. 84,785 2,545 8 87,322
States, municipalities and tax exempt political 279 14 - 293
subdivisions............................................
Corporate securities.................................... 50,523 2,508 6 53,025
Other debt securities................................... 25,731 2,793 10 28,514
-------- ------- --- --------
Total fixed maturities............................... 347,401 20,386 25 367,762
Equity securities....................................... 1,074 622 - 1,696
===============================================================================================================
Total $348,475 $21,008 $ 25 $369,458
===============================================================================================================
December 31, 1994
United States Treasury securities and obligations of
government agencies.................................. $ 69,148 $ 3,770 $ 1,182 $ 71,736
Asset-backed securities................................. 219,470 136 7,898 211,708
States, municipalities and tax exempt political 277 20 2 295
subdivisions............................................
Corporate securities.................................... 38,223 227 1,016 37,434
Other debt securities................................... 28,881 1,471 570 29,782
-------- ------ -------- ---------
Total fixed maturities............................... 355,999 5,624 10,668 350,955
Equity securities....................................... 1,074 233 - 1,307
===============================================================================================================
Total $357,073 $ 5,857 $ 10,668 $352,262
===============================================================================================================
June 30, 1996 (Unaudited)
United States Treasury securities and obligations of
government agencies.................................. $114,889 $37 $ 4,791 $110,135
Asset-backed securities................................. 68,119 457 1,348 67,228
States, municipalities and tax exempt political
subdivisions............................................ 30 - - 30
Corporate securities.................................... 71,672 1,747 783 72,636
Other debt securities................................... 22,475 1,055 182 23,348
-------- ------- ------ --------
Total fixed maturities............................... 277,185 3,296 7,104 273,377
Equity securities....................................... 1,074 751 - 1,825
==============================================================================================================
Total $275,259 $4,047 $ 7,104 $275,202
==============================================================================================================
</TABLE>
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 3. - (Continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Summary of Investments in Fixed Maturities December 31 June 30
by Contractual Maturity ------------------------------------------- -------------------------
1995 1994 1996
-------------------- --------------------- -------------------------
Amortized Market Amortized Market Amortized Market
(In thousands of dollars) Cost Value Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Unaudited)
Due in one year or less.................... $ 7,470 $ 7,666 $ 22,725 $ 22,391 $ 9,789 $ 9,861
Due after one year through five years...... 135,160 136,297 33,291 32,382 120,918 118,066
Due after five years through ten years..... 35,869 37,538 14,054 12,803 29,576 29,483
Due after ten years........................ 84,117 98,939 66,459 71,671 48,783 48,739
Asset-backed securities not due at a single
maturity date.............................. 84,785 87,322 219,470 211,708 68,119 67,228
==================================================================================================================
Total $347,401 $ 367,762 $ 355,999 $ 350,955 $ 277,185 $ 273,377
==================================================================================================================
</TABLE>
Actual maturities may differ from contractual maturities because securities
may be called or prepaid with or without call or prepayment penalties.
There are no investments that have not produced income for the year ended
December 31, 1995 or for the six months ended June 30, 1996. There are no
investments in a single issuer, other than the U.S. government, that when
aggregated exceed 10% of stockholder's equity.
NOTE 4. STATUTORY CAPITAL AND SURPLUS:
Statutory capital and surplus and net income for VFL are determined in
accordance with accounting practices prescribed by the Pennsylvania Insurance
Department. Prescribed statutory accounting practices are set forth in a variety
of publications of the National Association of Insurance Commissioners as well
as state laws, regulations, and general administrative rules. The Company has no
material permitted accounting practices. Statutory net income was $8.9 million,
$5.2 million and $2.5 million for the years ended December 31, 1995, 1994 and
1993, respectively, and $2.0 million and $3.5 million for the unaudited
six-month periods ended June 30, 1996 and 1995, respectively. Statutory capital
and surplus for VFL was $129.9 million and $122.3 million at December 31, 1995
and 1994, respectively, and $126.5 million (unaudited) at June 30, 1996.
The payment of dividends by VFL to Assurance without prior approval of the
Pennsylvania Insurance Department is limited to formula amounts. As of December
31, 1995 and June 30, 1996, approximately $13.0 million was not subject to prior
Insurance Department approval.
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Fair values are disclosed for all 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 may be
based on estimates using present value or other valuation techniques. These
techniques are significantly affected by the assumptions used, including the
discount rates and estimates of future cash flows. Potential taxes and other
transaction costs have not been considered in estimating fair value. The
estimates presented herein are subjective in nature and are not necessarily
indicative of the amounts VFL could realize in the current market exchange. Any
difference would not be expected to be material.
All nonfinancial instruments such as deferred acquisition costs, deferred
income taxes and insurance reserves, are excluded from fair value disclosure.
Thus, the total fair value amounts cannot be aggregated to determine the
underlying economic value of VFL.
The carrying amounts and estimated fair values of certain of VFL's financial
instrument assets and liabilities are listed below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
December 31 1995 1994
------------------------------------------------------
Carrying Estimated Carrying Estimated
(In thousands of dollars) Amount Fair Value Amount Fair Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Investments:
Fixed maturities available-for-sale........ $367,762 $367,762 $350,955 $350,955
Equity securities available-for-sale....... 1,696 1,696 1,307 1,307
Policy loans............................... 56,008 52,648 47,001 41,361
Financial Liabilities
Premium deposits and annuity contracts....... 68,578 64,565 42,982 42,122
- -----------------------------------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used by VFL in estimating its
fair value disclosures for financial instruments:
The carrying amounts reported in the balance sheet approximate
fair value for cash, short-term investments, premium and other
insurance receivables, accrued investment income, and certain other
assets and other liabilities because of their short-term nature. As
such, these financial instruments are not shown in the above table.
Fixed maturity securities and equity securities are based on
quoted market prices, where available. For securities not actively
traded, fair values are estimated using values obtained from
independent pricing services or quoted market prices of comparable
instruments.
The fair values for policy loans are estimated using discounted
cash flow analyses at interest rates currently offered for similar
loans to borrowers with comparable credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Premium deposits and annuity contracts are valued based on cash
surrender values and the outstanding fund balances.
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 6. BENEFIT PLANS:
Pension Plan
CNA has several noncontributory pension plans covering all full-time
employees age 21 or over who have completed at least one year of service. VFL is
included in the CNA Employees' Retirement Plan. Plan benefits are based on years
of credited service and the employee's highest sixty consecutive months of
compensation.
CNA's funding policy is to make contributions in accordance with applicable
governmental regulatory requirements. The assets of the plan are invested
primarily in U.S. government securities with the balance in short-term
investments, common stocks and other fixed income securities.
Effective January 1, 1996, the retirement plans redefined compensation to
include base pay, overtime and bonuses. This amendment generated an unrecognized
prior service cost of $20.2 million for CNA.
In 1994, the plan adopted the rule of 65. This change allows Plan
participants to receive early retirement benefits if their combined years and
months of age and service with CNA equals a minimum of 65. This amendment
generated an unrecognized prior service cost of $1.6 million for CNA.
Net periodic pension cost allocated to VFL was $1.7 million, $1.1 million
and $.7 million for the years ended December 31, 1995, 1994 and 1993,
respectively, and $1.4 million (unaudited) and $.9 million (unaudited) for the
six-month periods ended June 30, 1996 and 1995, respectively.
The following table sets forth the Plans' funded status and amounts
recognized in CNA's consolidated financial statements at December 31, 1995, 1994
and 1993.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1995* 1994 1993
December 31 Overfunded Underfunded Overfunded Overfunded
(In thousands of dollars) Plans Plans Plans Plans
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested........................................................ $ 508,506 $ 628,564 $ 376,377 $ 401,481
Nonvested..................................................... 31,180 11,292 39,152 41,585
--------- ---------- ---------- -----------
Accumulated benefit obligation............................. $ 539,686 $ 639,856 $ 415,529 $ 443,066
========= ========== ========== ===========
Projected benefit obligation................................... $ 808,289 $ 771,018 $ 651,418 $ 617,764
Plan assets at fair value...................................... 629,673 496,264 495,492 465,279
------- ------- ------- -------
Plan assets less than projected benefit obligation.......... (178,616) (274,754) (155,926) (152,485)
Unrecognized net asset at January 1, 1986 being recognized over (12,176) - (17,253) (22,330)
12 years..
Unrecognized prior service costs............................... 38,584 86,903 20,773 21,553
Unrecognized net loss.......................................... 172,269 5,825 174,039 160,825
------- --------- ------- -------
Net pension asset (liability)............................... $ 20,061 $ (182,026) $ 21,633 $ 7,563
======== ========= ======= =======
Net periodic pension cost:
Service cost - benefits attributed to employee service during $ 33,020 $ 10,694 $ 32,354 $ 27,527
the year.......................................................
Interest cost on projected benefit obligation................ 52,783 31,033 44,666 40,640
Actual return on plan assets................................. (115,363) (43,432) 11,579 (25,609)
Net amortization and deferral................................ 73,312 18,650 (43,265) (13,967)
====================================================================================================================
Net periodic pension cost $ 43,752 $ 16,945 $ 45,334 $ 28,591
====================================================================================================================
<FN>
*The 1995 data includes The Continental Corporation Retirement Plans which are
underfunded. CNA acquired The Continental Corporation on May 10, 1995.
</FN>
</TABLE>
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 6. - (Continued):
Actuarial assumptions are set forth in the following table.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Assumptions
December 31 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate.............................................. 7.25% 8.50% 7.25% 8.25%
Rate of increase in compensation levels *.................. 2.75 4.00 4.50 5.25
Expected long-term rate of return on plan assets........... 7.50 8.75 7.50 9.00
- --------------------------------------------------------------------------------------------------
<FN>
* Excludes age/service related merit and productivity increases.
</FN>
</TABLE>
The funded status is determined using assumptions at the end of the year.
Pension cost is determined using assumptions at the beginning of the year.
Postretirement Health Care and Life Insurance Benefits
CNA provides certain health and dental care benefits for eligible retirees,
through age 64, and provides life insurance and reimbursement of Medicare Part B
premiums for all eligible retired persons. CNA funds benefit costs principally
on the basis of current benefit payments.
As described previously, in 1994, the Plan adopted the Rule of 65. For the
postretirement plan, this amendment generated an unrecognized prior service cost
of $11.2 million for CNA.
Net periodic postretirement benefit cost allocated to VFL was $.7 million,
$.6 million and $.4 million for the years ended December 31, 1995, 1994 and
1993, respectively, and $.5 million (unaudited) and $.3 million (unaudited) for
the six-month periods ended June 30, 1996 and 1995, respectively.
<PAGE>
The following table sets forth the amounts recognized in CNA's consolidated
financial statements at December 31, 1995, 1994 and 1993.
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
December 31
(In thousands of dollars) 1995* 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees..................................................... $ 185,507 $ 27,088 $ 26,245
Fully eligible, active plan participants..................... 59,173 53,684 24,097
Other active plan participants.............................. 62,540 41,106 70,804
------ ------ ------
Total accumulated postretirement benefit obligation......... 307,220 121,878 121,146
Unrecognized prior service cost.............................. - (11,177) -
Unrecognized net gain (loss).................................. 7,380 19,702 (5,291)
-------- -------- ---------
Accrued postretirement benefit cost......................... $ 314,600 $ 130,403 $ 115,855
======== ========== =========
Net periodic postretirement benefit cost:
Service cost/benefits attributed to employee service during
the year.................................................... $ 5,969 $ 8,603 $ 5,625
Interest cost on accumulated post retirement benefit
obligation.................................................. 17,506 10,342 7,742
Amortization.................................................. (941) 655 (104)
===================================================================================================================
Net periodic postretirement benefit cost $ 22,534 $ 19,600 $ 13,263
===================================================================================================================
<FN>
*The 1995 data includes postretirement benefit obligations for The Continental
Corporation retirees.
</FN>
</TABLE>
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 6. - (Continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Assumptions
December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assumptions used in determining net periodic benefit cost:
Discount rate................................................................. 8.50% 7.25% 8.25%
Rate of increase in compensation levels *..................................... 4.00 4.50 5.25
Assumptions used in determining the projected benefit obligation (liability):
Discount rate................................................................. 7.25% 8.50% 7.25%
Rate of increase in compensation levels *..................................... 2.75 4.00 4.50
- ------------------------------------------------------------------------------------------------------------------
<FN>
* Excludes age/service related merit and productivity increases.
</FN>
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 13% in 1995, declining 1% per year to an
ultimate rate of 5% in 2002. The health care cost trend rate assumption has a
significant effect on the amount of the benefit obligation and periodic cost
reported. An increase in the assumed health care cost trend rate of 1% in each
year would increase the accumulated postretirement benefit obligation as of
December 31, 1995 by $17.5 million and the aggregate net periodic postretirement
benefit cost for 1995 by $1.9 million.
Savings Plan
VFL is included in the CNA Employees' Savings Plan which is a contributory
plan which allows employees to make a regular contribution of up to 6% of their
salaries. VFL contributes an additional amount equal to 70% of the employee's
regular contribution. Employees may also make an additional contribution of up
to 10% of their salaries for which there is no additional contribution by CNA.
VFL contributions to the plan were $.7 million, $.5 million and $.5 million for
the years ended December 31, 1995, 1994 and 1993, respectively, and $.5 million
(unaudited) and $.4 million (unaudited)for the six months ended June 30, 1996
and 1995, respectively.
NOTE 7. INCOME TAXES:
VFL is taxed under the provisions of the Internal Revenue Code, as
applicable to life insurance companies, and is included in the consolidated
Federal income tax return with CNA and its eligible subsidiaries (CNA Tax
Group), which in turn is consolidated in the Loews Federal income tax return.
The Federal income tax provision of VFL is computed as if VFL were filing its
own separate return.
VFL maintains a special tax memorandum account designated as the
"Shareholder's Surplus Account." Dividends from this account may be distributed
to the shareholder without resulting in any additional tax. At December 31,
1995, the amount in the Shareholder's Surplus Account was $95 million. Another
tax memorandum account, defined as the "Policyholders' Surplus Account," totaled
$5 million at December 31, 1995. No further additions to this account are
allowed. Amounts accumulated in the Policyholders' Surplus Account are subject
to income tax if distributed to the shareholder. VFL has not provided for such a
tax as VFL has no plans for such a distribution.
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 7. - (Continued):
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
VFL's deferred tax assets and liabilities as of December 31, 1995 and 1994 and
March 31, 1996 are shown in the table below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Components of Deferred Tax Assets and Liabilities
December 31, June 30,
--------------------------
(In thousands of dollars) 1995 1994 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Unaudited)
Life insurance reserve differences................. $ 15,900 $ 13,372 $ 17,013
Deferred acquisition costs......................... (14,382) (11,978) (18,040)
Investment valuation............................... 2,518 2,450 3,051
Unrealized investment (gains) losses............... (7,342) 1,686 1,072
Receivables........................................ 661 (524) (1,382)
Other, net......................................... (546) 1,284 1,859
==================================================================================================
Net deferred tax assets (liabilities) $ (3,191) $ 6,290 $ 3,573
==================================================================================================
</TABLE>
At December 31, 1995, gross deferred tax assets and liabilities amounted to
$20.1 million and $23.3 million, respectively. Gross deferred tax assets and
liabilities, at December 31, 1994, amounted to $19.2 million and $12.9 million,
respectively. At June 30, 1996, gross deferred tax assets and liabilities
amounted to $24.4 million (unaudited) and $20.8 million (unaudited),
respectively.
VFL has not established a valuation reserve at December 31, 1995 as it
believes that all deferred tax assets are fully realizable. VFL has a past
history of profitability and anticipates future taxable income sufficient to
support its deferred tax balances at December 31, 1995, including but not
limited to the reversal of existing temporary differences and the implementation
of tax planning strategies, if needed.
<PAGE>
<TABLE>
<CAPTION>
Significant components of VFL's income tax provision are as follows:
- --------------------------------------------------------------------------------------------------------------
Provision for Income Tax (Expense) Benefit Six Months Ended
Year Ended December 31 June 30
---------------------------------- --------------------------
(In thousands of dollars) 1995 1994 1993 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Current tax (expense) benefit on:
Ordinary income............................ $ (7,417) $ (5,603) $(3,213) $ (1,396) $ (3,681)
Realized investment gains/losses........... (4,330) 1,326 (1,326) (1,320) (4,407)
---------- -------- ---------- ---------- -----------
Total current tax expense............ (11,747) (4,277) (4,539) (2,716) (8,088)
--------- --------- ---------- ---------- -----------
Deferred tax (expense) benefit on:
Ordinary income (loss)..................... 41 (78) 799 (1,660) (208)
Realized investment gains/losses........... (494) 250 5 10 8
---------- --------- ----------- ---------- -----------
Total deferred tax (expense) benefit. (453) 172 804 (1,650) (200)
==============================================================================================================
Total income tax expense $ (12,200) $ (4,105) $ (3,735) $(4,366) $(8,288)
==============================================================================================================
</TABLE>
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 7. - (Continued):
A reconciliation of the expected income tax resulting from the use of
statutory tax rates to the effective income tax follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Reconciliation of Expected and Effective Taxes Six Months Ended
Year Ended December 31 June 30
------------------------------ ---------------------
(In thousands of dollars) 1995 1994 1993 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Expected tax expense on ordinary income at statutory rates. $ (7,325) $(5,623) $(2,474) $(3,049) $(3,864)
State income tax deduction................................. 27 23 22 9 14
State income taxes......................................... (78) (66) (63) (25) (39)
Effect of 1% change in tax rate on January 1, 1993
deferred tax - - 102 - -
balance.................................................
Other items, net........................................... - (15) (1) 9 -
--------- --------- --------- --------- ---------
Income tax expense on ordinary income................... (7,376) (5,681) (2,414) (3,056) (3,889)
Income tax (expense) benefit on realized investment
gains/losses at statutory rates............................ (4,824) 1,576 (1,321) (1,310) (4,399)
====================================================================================================================
Income tax expense $(12,200) $(4,105) $(3,735) $(4,366) $(8,288)
====================================================================================================================
</TABLE>
<PAGE>
NOTE 8. REINSURANCE:
The effects of reinsurance on premium revenues are shown in the following
schedule:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Premiums Assumed/Net
-------------------------------------------------
(In millions of dollars) Direct Assumed Ceded Net %
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31
1995
Life................................. $ 316,011 $ 75,053 $ 316,577 $ 74,487 101%
Accident and Health.................. 422 222,166 422 222,166 100
--------- ---------- -------- ---------
Total............................ $ 316,433 $ 297,219 $ 316,999 $ 296,653 100
========= ========== ======== =========
1994
Life................................. $ 187,834 $ 49,998 $ 189,163 $ 48,669 103
Accident and Health.................. 468 214,311 468 214,311 100
--------- --------- --------- ----------
Total............................ $ 188,302 $ 264,309 $ 189,631 $ 262,980 101
======= ========= ========= ==========
1993
Life................................. $ 171,624 $ 41,083 $ 173,157 $ 39,550 104
Accident and Health.................. 525 201,295 525 201,295 100
--------- ----------- ---------- -----------
Total........................... $ 172,149 $ 242,378 $ 173,682 $ 240,845 101
========= =========== =========== ===========
Six Months Ended June 30 (Unaudited)
1996
Life................................. $ 246,899 $ 36,649 $ 247,692 $ 35,856 102
Accident and Health.................. 399 124,365 399 124,365 100
--------- ---------- ---------- ----------
Total........................... $ 247,298 $161,014 $ 248,091 $ 160,221 100
======= ========== ========== ===========
1995
Life................................. $ 137,843 $ 34,976 $ 139,215 $ 33,604 104
Accident and Health.................. 225 109,291 225 109,291 100
---------- ---------- ---------- -----------
Total........................... $ 138,068 $ 144,267 $ 139,440 $ 142,895 101
========== ========== ========== ===========
=============================================================================================================
</TABLE>
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 8. - (Continued):
In the table above, the majority of Life premium revenue is from long
duration type contracts, while the Accident and Health premium revenue is
generally short duration.
Transactions with Assurance, as part of the pooling agreement, are
reflected in the above table. Premium revenues ceded to non-affiliated companies
were $9.9 million, $7.5 million and $6.5 million for the years ended December
31, 1995, 1994 and 1993, respectively, and $10.5 million (unaudited) and $4.9
million (unaudited) for the six-month periods ended June 30, 1996 and 1995,
respectively. Additionally, insurance claims and policyholders' benefits
recoveries from non-affiliated companies were $6.1 million, $3.0 million and
$4.2 million for the years ended December 31, 1995, 1994 and 1993, respectively,
and $4.7 million (unaudited) and $.9 million (unaudited) for the six-month
periods ended June 30, 1996 and 1995, respectively.
The insurance reserves included in the accompanying balance sheet are
stated at the net amount of VFL's participation pursuant to the intercompany
pooling. Insurance reserves related only to VFL's direct and assumed
(non-affiliate) business were $1,067.8 million and $916.0 million at December
31, 1995 and 1994, respectively, and $1,180.6 million (unaudited) at June 30,
1996.
The impact of reinsurance, including transactions with Assurance, on life
insurance in force is shown in the following schedule:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Life Insurance in Force Assumed/Net
-------------------------------------------------------------
(In millions of dollars) Direct Assumed Ceded Net %
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31
1995............................. $57,138 $16,996 $58,442 $15,692 108.3%
1994............................. 22,933 13,215 24,112 12,036 109.8
1993............................. 18,043 11,835 19,338 10,540 112.3
Six Months Ended June 30 (Unaudited)
1996............................. 82,466 19,792 83,770 18,488 107.1
1995............................. 35,521 14,799 36,704 13,616 108.7
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The ceding of insurance does not discharge primary liability of the original
insurer. VFL places reinsurance with other carriers only after careful review of
the nature of the contract and a thorough assessment of the reinsurers' credit
quality and claim settlement performance.
<PAGE>
NOTE 9. RELATED PARTIES:
As discussed in Note 1, VFL is party to a pooling agreement with its
parent, Assurance. In addition, the Company is party to the CNA Intercompany
Expense Agreement whereby expenses incurred by CNA and each of its subsidiaries
are allocated to the appropriate company. All acquisition and underwriting
expenses allocated to the Company are further subject to the Intercompany
Pooling Agreement, so that acquisition and underwriting expenses recognized by
the Company approximates ten percent of the combined acquisition and
underwriting expenses of the Company and Assurance. Expenses of VFL exclude
$5.5, $4.1 and $3.8 million of general and administrative expenses incurred by
VFL and allocated to CNA for the years ended December 31, 1995, 1994 and 1993,
respectively, and $6.0 and $2.7 million for the unaudited six-month periods
ended June 30, 1996 and 1995. VFL had a $4.9 million affiliated receivable
included in other assets at December 31, 1995, a $50.4 million affiliated
payable at December 31, 1994 and a $62.2 million (unaudited) affiliated payable
at June 30, 1996 for net cash settlements related to pooling and general expense
reimbursements to Casualty in the normal course of operations.
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 10. LEGAL:
VFL is party to litigation arising in the ordinary course of business. The
outcome of this litigation will not, in the opinion of management, materially
affect the results of operations or equity of VFL.
NOTE 11. BUSINESS SEGMENTS:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Six Month Period
Year Ended December 31 Ended June 30
-------------------------------------------- -----------------------------
(In thousands of dollars) 1995 1994 1993 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Revenues
Individual........................... $ 69,577 $ 52,812 $ 42,721 $ 33,431 $ 30,628
Group................................ 263,388 237,716 217,703 142,658 129,614
Realized gains (losses).............. 13,783 (4,502) 3,773 3,745 12,568
---------- ---------- --------- ---------- ---------
Total........................ $ 346,748 $ 286,026 $ 264,197 $ 179,834 $ 172,810
========= ========= ========= ========= ========
Income Before Income Tax
Individual........................... $ 8,611 $ 4,794 $ 1,318 $ 4,199 $ 4,660
Group................................ 12,316 11,295 5,751 4,514 6,381
Realized gains (losses).............. 13,783 (4,502) 3,773 3,745 12,568
---------- --------- ---------- ---------- ----------
Total........................ $ 34,710 $ 11,587 $ 10,842 $ 12,458 $ 23,609
========== ======== ========= ========== =========
Net Income
Individual........................... $ 5,597 $ 3,119 $ 885 $ 2,742 $ 3,030
Group................................ 7,954 7,289 3,770 2,916 4,122
Realized gains (losses).............. 8,959 (2,926) 2,452 2,434 8,169
---------- ---------- ---------- ---------- ----------
Total........................ $ 22,510 $ 7,482 $ 7,107 $ 8,092 $ 15,321
========= ========== ========= ========== =========
Assets
Individual........................... $ 307,582 $ 307,884 $ 272,948 $ 313,218 $ 310,840
Group................................ 317,238 244,952 202,944 374,577 291,432
---------- ----------- ------------ ---------- ---------
Total........................ $ 624,820 $ 552,836 $ 475,892 $ 687,795 $ 602,272
========== =========== ============ ========== =========
</TABLE>
Assets and investment income are allocated to business segments based on
cash flows after attribution of separately identifiable assets. Income taxes
have been allocated on the basis of taxable operating income of the respective
segments.
Group revenues include $187.0 million, $179.4 million and $165.9 million
for the years ended December 31, 1995, 1994 and 1993, respectively, and $52.2
million and $46.5 million for the unaudited six-month periods ended June 30,
1996 and 1995, respectively, under contracts covering U.S. government employees
and their dependents.
<PAGE>
ISSUED BY:
Valley Forge Life Insurance Company
CNA Plaza
Attn: Secretary 43S
Chicago, Illinois 60685
DISTRIBUTED BY:
CNA Investor Services, Inc.
CNA Plaza 34S
Chicago, Illinois 60685
SERVICE CENTER:
Financial Administration Services, Inc.
95 Bridge Street
Haddam, Connecticut 06438
<PAGE>
APPENDIX A
The Market Value Adjustment is computed by multiplying the amount being
surrendered, withdrawn, transferred, or applied to an Annuity Payment Option by
the Market Value Adjustment Factor. The Market Value Adjustment factor is
calculated as:
[(1+a)/(1+b)^(n/12)]-1
where:
"a" is the Credited Rate;
"b" is the Current Rate. Where the time remaining to the expiration of
the Guarantee Period is not comparable to a Guarantee Period duration
then offered by the Company, "b" is the rate found by linear
interpolation between the rate for the Guarantee Periods having the
duration closest to the time remaining or, if the time remaining is
less than 1 year, "b" is the rate for a 1 year period; and
"n" is the number of complete months remaining before the expiration of
the Guarantee Period for the Account from which the surrender,
withdrawal, transfer, or application to an Annuity Payment Option is
being made.
As an example of calculating "b" by linear interpolation, if the time remaining
to the expiration of the Guarantee Period is 4.5 years, the interpolated
Guaranteed Interest Rate is equal to the sum of one-fourth of the three-year
Guaranteed Interest Rate and three-fourths of the five-year Guaranteed Interest
Rate. If the three-year Guaranteed Interest Rate is 4.5% and the five-year
Guaranteed Interest Rate is 5%, the interpolated Guaranteed Interest Rate
equals 4.875% -- that is, 4.5% multiplied by 0.25 plus 5% multiplied by 0.75.
The following examples illustrate the effect of the Market Value Adjustment and
surrender charge on a surrender of Interest Account Value (Example 1A), Index
Account Value (Example 1B), and a Contract with both Account types (Example 1C)
prior to the end of the applicable Guarantee Period in an interest rate
environment in which rates are rising and falling, but are ultimately higher at
the time of surrender; thus the Market Value Adjustment will operate to reduce
the amount paid upon surrender. ------
<PAGE>
EXAMPLE 1A: Surrender of Interest Account Value 3 Years After Issue
- ----------
Interest Account Assumptions --
----------------------------
Guaranteed Interest Rate 5.00%
Guarantee Period 7 years
Net Single Premium Allocated $10,000
Applicable Surrender Charge
Percentage 7%
<TABLE>
<CAPTION>
|---------|------------|------------|--------------|------------------|---------------|------------|
|Contract | Interest | Interest | Years | Current Rate | Market Value | Surrender |
| Years | Account | Credit | Remaining - | For Remaining | Adjustment | Charge |
| | Value | (Year-End) | Guarantee | Guarantee Period | Factor | |
| | | | Period | | | |
|---------|------------|------------|--------------|------------------|---------------|------------|
<S> <C> <C> <C> <C> <C> <C>
| 0 | $ 10,000 | $ 500 | 7 | 5.00% | 0.00000 | $ 700 |
|---------|------------|------------|--------------|------------------|---------------|------------|
| 1 | 10,500 | 525 | 6 | 4.50% | 0.02905 | 700 |
|---------|------------|------------|--------------|------------------|---------------|------------|
| 2 | 11,025 | 551.25 | 5 | 5.00% | 0.00000 | 700 |
|---------|------------|------------|--------------|------------------|---------------|------------|
| 3 | 11,576.25 | | 4 | 6.00% | -0.03721 | 700 |
|---------|------------|------------|--------------|------------------|---------------|------------|
</TABLE>
If the Owner surrenders the Interest Account Value three years after issue
($11,576.25), then the amount paid on surrender will equal
Interest Market Surrender
Account - Value - Charge,
Value Adjustment
or $11,576.25, minus $430.70, minus $700, or $10,445.55.
EXAMPLE 1B: Surrender of Indexed Account Value 3 Years After Issue
- ----------
Indexed Account Assumptions --
---------------------------
Index Participation Rate 70%
Floor 0%
Cap 12%
Guarantee Period 5 years
Guaranteed Interest Rate for
5 Year Guaranteed Interest Account 4.75%
Net Single Premium Allocated $15,000
Applicable Surrender Charge
Percentage 7%
<PAGE>
<TABLE>
<CAPTION>
|--------|--------|--------|---------|-----------|---------|----------|----------|------------|----------|
|Contract| Indexed| Year | Final | Index | Index |Remaining | Current | Market |Surrender |
| Years | Account| Start | Average| Increase |Increase |Guarantee | Rate for | Value | Charge |
| | Value | Index | Index | %age | (Year- | Period | Remaining| Adjustment | |
| | | | | Factor | end) | | Guarantee| Factor | |
| | | | | | | | Period | | |
|--------|--------|--------|---------|-----------|---------|----------|----------|------------|----------|
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
| 0 |$ 15,000| 600 | 610 | 1.17% | $ 175 | 5 | 4.75% | 0.00000 | $1,050 |
|--------|--------|--------|---------|-----------|---------|----------|----------|------------|----------|
| 1 | 15,175| 600 | 780 | 12.00% | 1,821 | 4 | 4.25% | 0.01932 | 1,050 |
|--------|--------|--------|---------|-----------|---------|----------|----------|------------|----------|
| 2 | 16,996| 800 | 700 | 0.00% | 0 | 3 | 4.75% | 0.00000 | 1,050 |
|--------|--------|--------|---------|-----------|---------|----------|----------|------------|----------|
| 3 | 16,996| 700 | | | | 2 | 5.50% | -0.01417 | 1,050 |
|--------|--------|--------|---------|-----------|---------|----------|----------|------------|----------|
</TABLE>
If the Owner surrenders the Indexed Account Value three years after issue
($16,996), then the amount paid on surrender will equal
Indexed Market Surrender
Account - Value - Charge,
Value Adjustment
or $16,996, minus $240.79, minus $1,050, or $15,705.21.
EXAMPLE 1C: Surrender of Interest Account Value and
---------- Indexed Account Value 3 Years After Issue
Interest Account Assumptions--
----------------------------
Guaranteed Interest Rate 5.00%
Guarantee Period 7 years
Net Single Premium Allocated $10,000
Applicable Surrender Charge
Percentage 7%
Indexed Account Assumptions --
---------------------------
Index Participation Rate 70%
Floor 0%
Cap 12%
Guarantee Period 5 years
Guaranteed Interest Rate for
5 Year Guaranteed Interest Account 4.75%
Net Single Premium Allocated $15,000
Applicable Surrender Charge
Percentage 7%
<PAGE>
Thus, the assumed Net Single Premium is $25,000. $10,000 has been allocated to
an Interest Account, as described in Example 1A; and $15,000 has been allocated
to an Indexed Account, as described in Example 1B. Based on these assumptions,
values under the contract would be as follows:
<TABLE>
<CAPTION>
|---------|-----------|----------|------------|------------|------------|------------|
|Contract | Interest | Indexed | Account | Adjusted | Reference | Adjusted |
| Year | Account | Account | Value | Account | Value | Reference |
| | Value | Value | | Value | | Value |
|---------|-----------|----------|------------|------------|------------|------------|
<S> <C> <C> <C> <C> <C> <C>
| 0 | $10,000 | $15,000 | $ 25,000 | $ 25,000 | $22,500.00 | $22,500.00 |
|---------|-----------|----------|------------|------------|------------|------------|
| 1 | 10,500 | 15,175 | 25,675 | 25,980 | 23,046.14 | 23,319.96 |
|---------|-----------|----------|------------|------------|------------|------------|
| 2 | 11,025 | 16,996 | 28,021 | 28,021 | 23,607.15 | 23,607.15 |
|---------|-----------|----------|------------|------------|------------|------------|
| 3 | 11,576.25 | 16,996 | 28,572.25 | 27,901 | 24,169.35 | 23,601.34 |
|---------|-----------|----------|------------|------------|------------|------------|
</TABLE>
If the Owner surrenders the Contract three years after issue, then the amount
paid on surrender will equal the greater of (i) the Surrender Value (the sum of
the Surrender Value of the Interest Account, and of the Indexed Account, or
$26,150.76) or (ii) the Adjusted Reference Value ($23,601.34). Accordingly,
the amount paid on surrender would equal the Surrender Value of $26,150.76.
<PAGE>
APPENDIX B
THE EXAMPLES BELOW ARE INTENDED ONLY TO DEMONSTRATE THE CALCULATION OF THE
AVERAGE INDEX INCREASE PERCENTAGE AND ARE NOT INTENDED TO REFLECT PAST
PERFORMANCE OR PREDICT FUTURE PERFORMANCE OF THE INDEX. THE S&P 500 (R) WILL
INCREASE AND DECREASE OVER TIME, AND DURING ANY GIVEN PERIOD OF TIME, MAY REMAIN
RELATIVELY CONSTANT, OR MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS. THE AVERAGE
INDEX INCREASE PERCENTAGE IS CALCULATED IN ACCORDANCE WITH THE TERMS OF THE
CONTRACT, AND WILL NOT CORRESPOND DIRECTLY TO INCREASES (OR DECREASES) IN THE
INDEX. THE AMOUNT OF AN AVERAGE INDEX INCREASE PERCENTAGE, IF ANY, FOR A
CONTRACT YEAR WILL DEPEND IN PART ON THE TIMING, FREQUENCY, AND AMOUNT OF ANY
INCREASES (OR DECREASES) IN THE INDEX DURING THAT CONTRACT YEAR, AND THE
SELECTED AVERAGING PERIOD. DEPENDING ON HOW THE INDEX MOVES DURING A CONTRACT
YEAR, A PARTICULAR SELECTED AVERAGING PERIOD MAY RESULT IN A HIGHER OR LOWER
INDEX INCREASE THAN WOULD A DIFFERENT SELECTED AVERAGING PERIOD.
The following examples refer to the Hypothetical S&P 500 (R) Index Values
displayed in the accompanying chart. The Average Index Increase Percentage for
an Indexed Account on any Contract Anniversary within a Guaranteed Period
equals:
(b) - (a)
------------
(a)
where
(a) is the value of the Index on the previous Contract Anniversary; and
(b) is the arithmetic average of the values of the Index on each day that the
Exchange is open for business during the Averaging Period ending on the Contract
Anniversary.
Example 1: Example 1 assumes that (i) the entire Net Single Premium has been
allocated at the indicated time to an Indexed Account with the indicated Index
Participation Rate, Cap and Averaging Period. The Floor is assumed to be 0, and
the Guaranteed Period is assumed to be 7 years. Actual Index Participation
Rates, Caps, Floors and Averaging Periods currently available under the Contract
may be different.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Time Period (from Chart 1) Period A1 Period A2 Period A3 Period A4
Participation Rate 75% 95% 75% 95% 75% 95% 75% 95%
Cap 12% none 12% none 12% none 12% none
Averaging Period in days 90 365 90 365 90 365 90 365
Hypothetical S&P 500(R)Index Value at allocation 680.00 680.00 680.00 680.00 680.00 680.00 680.00 680.00
Hypothetical S&P 500(R)Index Value 12 months later 680.00 680.00 680.00 680.00 680.00 680.00 680.00 680.00
Arithmetic Average ((b) in above formula) 705.00 705.00 713.33 697.08 725.00 764.58 746.67 709.17
Average Index Increase Percentage 3.68% 3.68% 4.90% 2.51% 6.62% 12.44% 9.80% 4.29%
Index Increase 2.76% 3.49% 3.68% 2.39% 4.96% 11.82% 7.35% 4.08%
</TABLE>
The Registration Statement contains a graph which is intended to illustrate the
hypothetiacal value of the S & P 500 Index of common stocks during four separate
twelve month periods. The values used in the graph are depicted in tabular
format below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Graph 1 Graph 2 Graph 3 Graph 4 0 680
730
month S&P month S&P month S&P month S&P 2 680
0 680 12 680 24 680 36 680 730
1 730 13 650 25 725 37 705 4 680
2 680 14 655 26 760 38 660 730
3 730 15 680 27 730 39 720 6 680
4 680 16 730 28 790 40 705 730
5 730 17 705 29 825 41 730 8 680
6 680 18 710 30 805 42 680 730
7 730 19 690 31 820 43 655 10 680
8 680 20 700 32 830 44 705 730
9 730 21 730 33 750 45 740 12 680
10 680 22 715 34 725 46 770 650
11 730 23 720 35 735 47 760 2 655
12 680 24 680 36 680 48 680 680
4 730
90 day avg 90 day avg 90 day avg 90 day avg 705
705 713.33 725.00 746.67 6 710
690
365 day avg 365 day avg 365 day avg 365 day avg 8 700
705 697.08 764.58 709.17 730
10 715
720
12 680
725
2 760
730
4 790
825
6 805
820
8 830
750
10 725
735
12 680
705
2 660
720
4 705
730
6 680
655
8 705
740
10 770
760
12 680
48 500
</TABLE>
THAT PORTION OF REFERENCE VALUE BASED ON INDEX ACCOUNT VALUES IS SUBJECT TO AN
INDEX RIDER CHARGE, AND CONTRACT VALUES MAY BE SUBJECT TO A MARKET VALUE
ADJUSTMENT, SURRENDER CHARGES, AND PREMIUM TAX CHARGES. SEE "DESCRIPTION OF THE
CONTRACT" AND "CONTRACT CHARGES AND FEES" IN THE PROSPECTUS.
<PAGE>
Example 2: Example 2 assumes that (i) the entire Net Single Premium has been
allocated at the indicated time to an Indexed Account with the indicated Index
Participation Rate, Cap, and Averaging Period. The Floor is assumed to be 0, and
the Guaranteed Period is assumed to be 7 years. Actual Index Participation
Rates, Caps, Floors and Averaging Periods currently available under the Contract
may be different.
Participation Rate 75% 95%
Cap 12% none
Averaging Period in days 90 365
Hypothetical S&P 500(R)Index Value at allocation 680.00 680.00
Hypothetical S&P 500(R)Index Value 12 months later 691.80 691.80
Arithmetic Average ((b) in above formula) 661.76 668.91
Average Index Increase Percentage -2.68% -1.63%
Index Increase 0.00% 0.00%
The Registration Statement contains a graph which is intended to illustrate the
hypothetiacal value of the S & P 500 Index of common stocks during a twelve
month period. The values used in the graph are depicted in tabular format below:
example 2
month S&P
0 680.00
1 675.48
2 689.28
3 682.56
4 668.88
5 691.44
6 671.52
7 642.36
8 650.04
9 660.12
10 644.04
11 665.28
12 691.80
THAT PORTION OF REFERENCE VALUE BASED ON INDEX ACCOUNT VALUES IS SUBJECT TO AN
INDEX RIDER CHARGE, AND CONTRACT VALUES MAY BE SUBJECT TO A MARKET VALUE
ADJUSTMENT, SURRENDER CHARGES, AND PREMIUM TAX CHARGES. SEE "DESCRIPTION OF THE
CONTRACT" AND "CONTRACT CHARGES AND FEES" IN THE PROSPECTUS.
<PAGE>
Example 3: Example 3 assumes that (i) the entire Net Single Premium has been
allocated at the indicated time to an Indexed Account with the indicated Index
Participation Rate, Cap, and Averaging Period. The Floor is assumed to be 0, and
the Guaranteed Period is assumed to be 7 years. Actual Index Participation
Rates, Caps, Floors and Averaging Periods currently available under the Contract
may be different.
Participation Rate 75% 95%
Cap 12% none
Averaging Period in days 90 365
Hypothetical S&P 500(R)Index Value at allocation 680.00 680.00
Hypothetical S&P 500(R)Index Value 12 months later 798.00 798.00
Arithmetic Average ((b) in above formula) 781.67 717.75
Average Index Increase Percentage 14.95% 5.55%
Index Increase 11.21% 5.27%
The Registration Statement contains a graph which is intended to illustrate the
hypothetiacal value of the S & P 500 Index of common stocks during a twelve
month period. The values used in the graph are depicted in tabular format below:
example 3
Month S&P
0 680.00
1 683.00
2 690.00
3 683.00
4 687.00
5 699.00
6 682.00
7 693.00
8 725.00
9 772.00
10 785.00
11 775.00
12 798.00
THAT PORTION OF REFERENCE VALUE BASED ON INDEX ACCOUNT VALUES IS SUBJECT TO AN
INDEX RIDER CHARGE, AND CONTRACT VALUES MAY BE SUBJECT TO A MARKET VALUE
ADJUSTMENT, SURRENDER CHARGES, AND PREMIUM TAX CHARGES. SEE "DESCRIPTION OF THE
CONTRACT" AND "CONTRACT CHARGES AND FEES" IN THE PROSPECTUS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission Registration Fees $ 20,000
Printing and engraving $ 50,000
Accounting fees and expenses $ 15,000
Legal fees and expenses $ 75,000
Miscellaneous $ 10,000
---------
Total Expenses $ 170,000
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant has no officers, directors or employees. The
registrant does not indemnify its officers, directors of employees.
CNA-Financial Corporation ("CNAFC"), parent of the registrant,
indemnifies the registrant's officers, directors and employees in
their capacity as such. Most of the registrant's officers, directors
and employees are also officers, directors and/or employees of CNAFC.
CNAFC indemnifies any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of CNAFC) by
reason of the fact that he is or was a director, officer, employee or
agent of CNAFC, or was serving at the request of CNAFC as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests
of CNAFC, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
CNAFC indemnifies any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit
by or in the right of CNAFC to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or
agent of CNAFC, or was serving at the request of CNAFC as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorney's fees) actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of CNAFC. No indemnification is made,
however, in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to CNAFC unless and only to
the extent that a court determines that, despite the
<PAGE>
adjudication of liability but in view of all of the circumstances of
the case, such person is fairly and reasonably entitled to indemnity
for such expenses which the court deems proper.
To the extent that any person referred to above is successful on the
merits or otherwise in defense of any action, suit or proceeding
referred to above, or in defense of any claim, issue or matter
therein, CNAFC will indemnify such person against expenses (including
attorney's fees) actually and reasonably incurred by him in connection
therewith. CNAFC may advance to such a person, expenses incurred in
defending a civil or criminal action, suit or proceeding as authorized
by CNAFC's board of directors upon receipt of an undertaking by (or on
behalf of) such person to repay the amount advanced unless it is
ultimately determined that he is entitled to be indemnified.
Indemnification and advancement of expenses described above (unless
pursuant to a court order) is only made as authorized in the specific
case upon a determination that such indemnification or advancement of
expenses is proper in the circumstances because he has met the
applicable standard of conduct. Such determination must be made by a
majority vote of a quorum of CNAFC's board of directors who are not
parties to the action, suit or proceeding or by independent legal
counsel in a written opinion or by CNAFC's stockholders.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS
1. Form of Underwriting Agreement between Valley Forge
Life Insurance Company (the "Company") and CNA
Investor Services, Inc. *
3(i). Articles of Incorporation of Valley Forge Life
Insurance Company.**
(ii). By-Laws of Valley Forge Life Insurance Company.**
4. (a) Form of Single Premium Deferred Modified
Guaranteed Annuity Certificate.***
(b) Form of Index Rider.***
(c) Form of Qualified Plan Rider.***
(d) Form of Individual Retirement Annuity
Rider.***
<PAGE>
(e) Form of Nursing Home Confinement/Terminal
Medical Condition Rider.***
(f) Form of Group Contract
(g) Form of Individual Certificate
5. Opinion regarding legality.
10. Policy Application****
23. (a) Consent of Sutherland, Asbill & Brennan LLP.
(b) Consent of Deloitte & Touche LLP.
27. Financial Data Schedule.
* Incorporated herein by reference to exhibit number 3 to the Form N-4EL/A
Registration Statement filed with the Securities and Exchange
Commission on August 30, 1996 (File 333-1087).
** Incorporated herein by reference to exhibit number 6 to the Form N-4EL
Registration Statement filed with the Securities and Exchange
Commission on February 20, 1996 (File 333-1087).
*** Incorporated herein by reference to exhibit number 4 to the Form S-1
Registration Statement filed with the Securities and Exchange
Commission on March 29, 1996 (File 333-2093).
**** Incorporated herein by reference to exhibit number 10 to the Form S-1
Registration Statement filed with the Securities and Exchange
Commission on March 29, 1996 (File 333-2093).
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on this 29th day of March, 1996.
VALLEY FORGE LIFE INSURANCE COMPANY
(Registrant)
Attest: S/ MARY A. RIBIKAWSKIS By: /S/ PETER E. JOKIEL
---------------------- -----------------------------
Mary A. Ribikawskis Peter E. Jokiel
Assistant Secretay Senior Vice President,
Chief Financial Officer, and
Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
_____________________________ _________________________________ _________________
S/DENNIS H. CHOOKAZIAN
_____________________________ Chairman of the Board, October 17, 1996
Dennis H. Chookaszian Chief Executive Officer, Director
S/PHILIP L. ENGEL
_____________________________ President, Director October 17, 1996
Philip L. Engel
S/WILLIAM J. ADAMSON JR.
_____________________________ Senior Vice President October 17, 1996
William J. Adamson Jr.
S/JAMES P. FLOOD
_____________________________ Senior Vice President October 17, 1996
James P. Flood
S/MICHAEL C. GARNER
_____________________________ Senior Vice President October 17, 1996
Michael C. Garner
S/BERNARD L. HENGESBAUGH
_____________________________ Senior Vice President October 17, 1996
Bernard L. Hengesbaugh
S/PETER E. JOKIEL
_____________________________ Senior Vice President,
Peter E. Jokiel Chief Financial Officer, Director October 17, 1996
S/JACK KETTLER
_____________________________ Senior Vice President October 17, 1996
Jack Kettler
<PAGE>
SIGNATURES CONTINUED
S/DONALD M. LOWRY
_____________________________ Senior Vice President, October 17, 1996
Donald M. Lowry General Counsel & Secretary
Director
S/CAROLYN L. MURPHY
_____________________________ Senior Vice President October 17, 1996
Carolyn L. Murphy
S/WILLIAM H. SHARKEY, JR.
_____________________________ Senior Vice President, October 17, 1996
William H. Sharkey, Jr. Director
S/WAYNE R. SMITH, III
_____________________________ Senior Vice President October 17, 1996
Wayne R. Smith, III
S/ADRIAN M. TOCKLIN
_____________________________ Senior Vice President October 17, 1996
Adrian M. Tocklin
S/JAE L. WITTLICH
_____________________________ Senior Vice President October 17, 1996
Jae L. Wittlich
S/DAVID W. WROE
_____________________________ Senior Vice President October 17, 1996
David W. Wroe
</TABLE>
================================================================================
[GRAPHIC OMITTED]
Valley Forge Life Insurance Company
----------------------------------------------
Executive Office: A Stock Company Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
================================================================================
In this Contract, Valley Forge Life Insurance Company is referred to as "We,"
"Us," "Our," or the "Company."
This cover sheet provides only a brief outline of some of the important features
of the Contract. This cover sheet is not the insurance contract and only the
actual policy provisions will control. The Contract itself sets forth, in
detail, the rights and obligations of both the Group Contract Holder and the
Valley Forge Life Insurance Company.
We agree to pay the benefits as described in this Contract in accordance with
its provisions. If there is a conflict between this Group Contract and any
Certificate issued under it the Group Contract will control.
PLEASE READ THIS CONTRACT CAREFULLY
It is a legal contract.
NOTICE OF 10-DAY CANCELLATION PERIOD
If for any reason the Participant is not satisfied with a Certificate issued
under this Contract, the Participant may return the Certificate to Us for
cancellation by delivering or mailing it to:
1. Valley Forge Life Insurance Company Service Center, 95 Bridge Street,
Haddam, Connecticut 06438, or
2. the agent through whom it was purchased.
To cancel the Certificate, the Participant must return it to Us no later than 10
days after the Participant first receives it. Upon delivery or mailing, the
Certificate will be void as of the date We receive it and the request for
cancellation and We will promptly return the Single Premium to the Participant,
or, in those jurisdictions where required by law, pay the Participant the
Adjusted Accumulation Value instead.
Signed for the Valley Forge Life Insurance Company at its Executive Office, CNA
Plaza, Chicago, Illinois 60685.
S/D.H. CHOOKASZIAN S/D.W. LOWRY
Chairman of the Board Secretary
ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT ARE SUBJECT TO A
MARKET VALUE ADJUSTMENT, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD
ADJUSTMENTS IN AMOUNTS PAID (INCLUDING WITHDRAWALS, SURRENDERS, TRANSFERS, DEATH
BENEFITS AND AMOUNTS APPLIED TO PURCHASE ANNUITY PAYMENTS) TO A PARTICIPANT OR
OTHER PAYEE. PAYMENTS WITHIN AN APPLICABLE WINDOW PERIOD ARE NOT SUBJECT TO THE
MARKET VALUE ADJUSTMENT.
GROUP SINGLE PREMIUM DEFERRED MODIFIED
GUARANTEED ANNUITY CONTRACT
NON-PARTICIPATING
P4-119941-A
<PAGE>
TABLE OF CONTENTS
SECTION
SECTION 1. DEFINITIONS..................................................1
SECTION 2. GENERAL PROVISIONS...........................................2
SECTION 3. THE PARTICIPANT..............................................3
SECTION 4. THE SEPARATE ACCOUNTS........................................4
SECTION 5. THE ACCOUNTS.................................................5
SECTION 6. ALLOCATIONS AND TRANSFERS....................................6
SECTION 7. CALCULATION OF VALUES........................................7
SECTION 8. FEES AND CHARGES.............................................8
SECTION 9. PAYMENT OF BENEFITS..........................................9
SECTION 10. DEATH BENEFITS.............................................10
SECTION11. ANNUITY PROVISIONS AND PAYMENT OPTIONS......................11
P4-119941-A
<PAGE>
SECTION 1: DEFINITIONS
Account: An account for a Certificate under this Contract to which We credit a
specified and guaranteed rate of interest.
Account Value: The amount on which We credit a specified and guaranteed rate of
interest, as described in Section 5.1 of the
Contract.
Accumulation Value: The total amount invested in a Certificate under this
Contract. It is the sum of the Account Values for that Certificate.
Adjusted Accumulation Value: The Accumulation Value, plus or minus any
applicable Market Value Adjustment, less Premium Tax Charges not previously
deducted.
Adjusted Reference Value: The Reference Value multiplied by the ratio of the
Adjusted Accumulation Value to the Accumulation Value.
Age: The Age of any person on the birthday nearest the date for which Age is
determined.
Annuitant: The person or persons whose life (or lives) determines the Annuity
Payments payable for a Certificate under this Contract and whose death
determines the death benefit. With regard to joint and survivorship Annuity
Payment Options, the maximum number of joint Annuitants is two and provisions
referring to the death of an Annuitant mean the death of the last surviving
Annuitant. Provisions relating to an action by the Annuitant mean, in the case
of joint Annuitants, both Annuitants acting jointly.
Annuity Date: The date on which the Annuity Value for a Certificate will be
applied to purchase an Annuity.
Annuity Payment: One of several periodic payments made by the Company to the
Payee under an Annuity Payment Option.
Annuity Payment Date: The date each month, quarter, semiannual period or year as
of which We make Annuity Payments for a Certificate. The Annuity Payment Date is
shown on the Certificate Specifications page of the Certificate.
Annuity Payment Option: The form of Annuity Payments selected by the Participant
under a Certificate. The Annuity Payment Option is shown on the Certificate
Specifications page of the Certificate.
Annuity Value: The amount that will be applied on the Annuity Date to purchase
an Annuity, as described in Section 11.2 of the Contract.
Beneficiary: The person(s) to whom the death benefit for a Certificate will be
paid on the death of the Participant or Annuitant for that Certificate.
Business Day: A day on which the New York Stock Exchange is open for trading and
the Company is open for business.
Cancellation Period: The period described on the cover page of this Contract
during which the Participant may return their Certificate for a refund of the
Single Premium, or, in those jurisdictions where required by law, the Adjusted
Accumulation Value.
The Code: The Internal Revenue Code of 1986, as amended.
Certificate Anniversary: The same date in each Certificate Year as the
Investment Start Date.
Certificate Year: A twelve-month period beginning on the Investment Start Date
or on a Certificate Anniversary.
<PAGE>
Contingent Annuitant: The person designated by the Participant in their
application for a Certificate who becomes the Annuitant in the event that the
Annuitant dies before the Annuity Date while the Participant is still alive.
Contingent Beneficiary: The person(s) to whom the death benefit will be paid if
the beneficiary (or beneficiaries) is not living.
Due Proof of Death: Proof of death satisfactory to the Company. Due Proof of
Death may consist of the following if acceptable to the Company: (a) a certified
copy of the death record; (b) a certified copy of a court decree reciting a
finding of death; or (c) any other proof satisfactory to the Company.
Exchange: The New York Stock Exchange.
General Account: The assets of the Company other than those allocated to the
Separate Accounts or any other separate account of the Company.
Group Contract: the Group Contract is this Contract, the deferred annuity
contract issued to the Group Contract Holder named on the Contract
Specifications page.
Guarantee Period: A specific number of years for which the Company agrees to
credit a specified effective annual rate of interest to an Account.
Guaranteed Interest Rate: An effective annual rate of interest that the Company
will pay on an Account. The Guaranteed Interest Rate will not be less than the
Minimum Interest Rate shown on the Contract Specifications page.
T4-119957-A
<PAGE>
Home Office: The Company's office at 401 Penn Street, Reading, PA 19601.
Investment Start Date: The Investment Start Date for a Certificate is set forth
on the Certificate Specifications page for that Certificate and is used to
determine Certificate Years and Certificate Anniversaries.
Issue Date: The date on which We receive the Single Premium for a Certificate.
Market Value Adjustment: A positive or negative adjustment made to any portion
of an Account Value upon the surrender, withdrawal, transfer, or application to
an Annuity Payment Option of that portion of the Account Value. No Market Value
Adjustment applies during the Window Period.
Net Allocation: The amount allocated to an Account at its most recent Reset
Date, less withdrawals and transfers from the Account since then (including any
surrender charges and any Market Value Adjustments decreasing the Account
Value).
Net Single Premium: The Single Premium less any Premium Tax Charge deducted from
it.
Non-Qualified Certificate: A Certificate that is not a "qualified certificate".
Participant: The person or persons to whom a Certificate belongs and who is
(are) entitled to exercise all rights and privileges provided in that
Certificate. The maximum number of joint Participants is two. Provisions
relating to action by the Participant mean, in the case of joint Participants,
both Participants acting jointly.
Payee: The person(s) entitled to receive Annuity Payments under a Certificate.
Premium Tax Charge: A charge shown on the Certificate Specifications page for a
Certificate that is deducted either from the Single Premium or from the
Accumulation Value prior to surrender, annuitization or death of the Participant
or Annuitant.
Qualified Certificate: A Certificate that is issued in connection with a
retirement plan that qualifies for special federal income tax treatment under
Sections 401, 408 or 457 of the Code.
Reference Value: a minimum guaranteed value for a Certificate used to calculate
benefits under the Certificate.
Reset Dates: The date that an amount is first allocated to an Account is the
first Reset Date for that Account. The start of the next Guarantee Period is the
next Reset Date for that Account.
SEC: The U.S. Securities and Exchange Commission.
Separate Accounts: The Valley Forge Life Insurance Company Indexed Separate
Account and the Valley Forge Life Insurance Company MVA Guaranteed Interest
Separate Account.
Service Center: The Company's service center at 95 Bridge Street, Haddam,
Connecticut 06438.
Short Term Interest Rate: The rate of interest credited to the Net Single
Premium from the Issue Date to the Investment Start Date for a Certificate, as
shown on the Certificate Specifications page for that Certificate.
<PAGE>
Surrender Value: The Surrender Value for a Certificate is the greater of:
1. the Adjusted Accumulation Value for the Certificate less any applicable
surrender charges, and
2. the Adjusted Reference Value for the Certificate.
The Company, We, Us or Our: Valley Forge Life Insurance Company.
Window Period - The last 30 calendar days of each Guarantee Period.
Written Notice: A notice or request submitted in writing in a form satisfactory
to the Company that is signed by the Participant and received at the Service
Center.
T4-119957-A
<PAGE>
SECTION 2: GENERAL PROVISIONS
2.1 THE CONTRACT - We have issued this Group Contract in consideration
of the Group Application. This Contract, the Group Application, and any
attached riders or endorsements make up the entire contract between the
Group Contract Holder and Us. In the absence of fraud, We consider
statements made in the Group Application or any applications made by
Participants to be representations and not warranties. We will not use
any statement in defense of a claim or to void this Contract or any
Certificate under it unless it is contained in an application. Only one
of Our officers may modify this Contract or waive any of Our rights or
requirements under this Contract. Any modification or waiver must be in
writing. No agent may bind the Company by making any promise not
contained in this Contract.
2.2 INCONTESTABILITY - We will not contest this Contract.
2.3 MISSTATEMENT OF AGE OR SEX - If the Age or sex of the Annuitant
under a Certificate has been misstated, the Company will adjust the
benefits it pays under the Certificate to the amount that would have
been payable at the correct Age and sex. If the Company made any
underpayments because of any such misstatement, it shall pay the amount
of such underpayment plus interest at an annual effective rate of 3%,
immediately to the Payee or Beneficiary in one sum. If the Company
makes any overpayments because of a misstatement of Age or sex, it
shall deduct from current or future payments due under the Certificate,
the amount of such overpayment plus interest at an annual effective
rate of 3%.
2.4 PERIODIC REPORTS - At least annually, or more often as required by
law, the Company will mail to Participants at their last known address
a report showing the following items as of a date shown on the report:
the value of the Accounts; the Accumulation Value, Adjusted
Accumulation Value, Reference Value, Adjusted Reference Value, and
Surrender Value; any withdrawals or surrenders made and death benefits
paid since the last report; the current interest rate applicable to
each Account; and any other information required by law.
2.5 MODIFICATION - Upon notice to the Group Contract Holder and any
Participants, the Company may modify this Contract and any Certificates
under it to: conform the Contract, the Certificates, or the operations
of the Company or of the Separate Accounts to the requirements of any
law (or regulation issued by a government agency) to which this
Contract, any Certificates under it, the Company or the Separate
Accounts are subject; assure continued qualification of any
Certificates under it as annuity certificates under the Code; or
reflect a change (as permitted in this Contract) in the operation of
the Separate Accounts. In the event of any such modification, the
Company will make appropriate endorsements to the Contract and any
Certificates under it.
2.6 NON-PARTICIPATING - This Contract does not participate in the
surplus or profits of the Company and the Company does not pay
dividends on it.
2.7 PROTECTION OF PROCEEDS - To the extent permitted by law, no
benefits payable under any Certificate under this Contract to a
Beneficiary or Payee are subject to the claims of the Participant's or
Beneficiary's creditors.
2.8 DISCHARGE OF LIABILITY - Any payments made by Us under any Annuity
Payment Option or in connection with the payment of any withdrawal,
surrender or death benefit, shall discharge Our liability to the extent
of each such payment.
<PAGE>
2.9 SINGLE PREMIUM - The Single Premium for a Certificate is shown on
the Certificate Specifications page for that Certificate. The Company
will not issue a Certificate until it receives the Single Premium for
it.
2.10 PROOF OF AGE AND SURVIVAL - The Company reserves the right to
require proof of the Age or Ages of the Annuitant or Annuitants prior
to the Annuity Date. In addition, for life contingent Annuity Options,
the Company reserves the right to require proof of the Annuitant's
survival before any Annuity Payment Date.
2.11 TERMINATION - The Contract will terminate and Our liability
will end on the later of:
The date that no amount remains in any Account for any
Certificate under this Contract; or
The date of the last payment to any Participant, Contingent
Annuitant or Beneficiary entitled to benefits under any settlement
option in effect under this Contract.
T4-119958-A
<PAGE>
SECTION 3: THE PARTICIPANT
3.1 PARTICIPANT - Any Certificate issued under this Contract belongs to
the Participant as shown on the Certificate Specifications page for the
Certificate, or as subsequently changed. The Participant may exercise
all rights under their Certificate. Subject to more specific provisions
elsewhere herein, these rights include the right to: (1) select or
change a successor Participant for their Certificate, (2) select or
change any Beneficiary or Contingent Beneficiary for their Certificate,
(3) select or change the Payee for their Certificate prior to the
Annuity Date, (4) select or change the Annuity Payment Option for their
Certificate, (5) allocate the Net Single Premium among and between the
Accounts for their Certificate, and (6) transfer Accumulation Value
among and between the Accounts for their Certificate.
3.2 ASSIGNMENT - At any time before the Annuity Date while the
Annuitant is still living, the Participant may assign their Certificate
by Written Notice. We are not responsible for the validity or
sufficiency of any assignment. The rights of the Participant and any
Beneficiary will be affected by an assignment. The Company is not bound
by the assignment until it receives a duplicate of the original of the
assignment at the Service Center.
3.3 SUCCESSOR PARTICIPANT - If a successor Participant is named in the
application or by subsequent Written Notice and the Participant is not
the Annuitant, the successor Participant shall become the new
Participant should the Participant die before the Annuitant.
3.4 CHANGING THE BENEFICIARY - The Participant may change the
Beneficiary for their Certificate by Written Notice at any time before
a death benefit is paid. If, however, the Participant previously
irrevocably named a Beneficiary, that Beneficiary's written consent
must be provided to the Company before a new Beneficiary is designated.
Any change of Beneficiary is effective as of the date Written Notice is
received at the Service Center and the Company is not liable for any
payments made under the Certificate prior to the effectiveness of any
Beneficiary change.
3.5 PAYEE - The Annuitant is the Payee unless the Participant
designates a different person as Payee.
SECTION 4 THE SEPARATE ACCOUNTS
4.1 SEPARATE ACCOUNTS - We have established the Separate Accounts in
connection with this Contract and Certificates issued under it. The
Separate Accounts are subject to the laws of Our state of domicile.
We established the Valley Forge Life Insurance Company MVA Guaranteed
Interest Separate Account with respect to the Accounts. Although We own
the assets in the Valley Forge Life Insurance Company MVA Guaranteed
Interest Separate Account, these assets are held separately from Our
other assets and are not part of Our General Account. The values and
benefits attributable to the Accounts are supported by the assets in
the Valley Forge Life Insurance Company MVA Guaranteed Interest
Separate Account and Our General Account. The portion of the assets of
the Valley Forge Life Insurance Company MVA Guaranteed Interest
Separate Account equal to the reserves and other liabilities of the
Valley Forge Life Insurance Company MVA Guaranteed Interest Separate
Account are not chargeable with liabilities that arise from any other
business that We conduct. We have the right to transfer to Our general
account any assets of the Valley Forge Life Insurance Company MVA
Guaranteed Interest Separate Account that are in excess of such
reserves and other liabilities.
<PAGE>
The Company's obligations under (and the values and benefits under) the
Certificates do not vary as a function of the investment performance of
the Separate Accounts. Participants, Beneficiaries and Payees with
rights under a Certificate do not participate in the investment gains
or losses of the assets of the Separate Accounts. Such gains or losses
accrue solely to the Company. The Company retains the risk that the
value of the assets in the Separate Accounts may fall below the
reserves and other liabilities that it must maintain in connection with
its obligations under the Certificates. In such an event, the Company
will transfer assets from its General Account to the Separate Accounts
to make up the difference. The Separate Accounts are not registered as
investment companies under the Investment Company Act of 1940.
T4-119959-A
<PAGE>
SECTION 5: THE ACCOUNTS
5.1 ACCOUNTS - Accounts are supported by the Valley Forge Life
Insurance Company MVA Guaranteed Interest Separate Account and Our
General Account. The Net Single Premium for a Certificate may be
allocated to, and transfers of Accumulation Value may be made to, the
Accounts available under the Certificate. Account Value is not
determined by and does not reflect the investment performance of the
Separate Account.
Through the Accounts, the Company offers specified effective annual
rates of interest (Guaranteed Interest Rates) that are available for
specified periods of time(Guarantee Periods) selected by the
Participant from those We offer. Although the Guaranteed Interest Rate
may differ among Guarantee Periods, it will never be less than the
Minimum Interest Rate shown on the Contract Specifications page.
Initial Guarantee Periods begin on the date as of which the Net Single
Premium is allocated or an amount of Accumulation Value is transferred
to an Account and end when the number of years in the Guarantee Period
elected has elapsed. The last day of the Guarantee Period is the
expiration date for that Guarantee Period. Subsequent Guarantee Periods
begin on the first day following the expiration date of a previous
Guarantee Period.
Allocations of the Net Single Premium and transfers of Accumulation
Value to the Accounts may have different applicable Guaranteed Interest
Rates depending on the timing of such allocations or transfers.
However, the applicable Guaranteed Interest Rate does not change during
a Guarantee Period. The Company will notify Participants in writing at
least 30 days prior to the expiration date of any Guarantee Period.
If the allocated or transferred amount remains in the Account until the
end of the applicable Guarantee Period, the Account Value at that time
will be equal to the amount originally allocated or transferred,
multiplied, on an annually compounded basis, by the Guaranteed Interest
Rate. If an Account Value is surrendered, withdrawn, transferred, or
applied to an Annuity Payment Option prior to the expiration of the
Guarantee Period, the Account Value is subject to a Market Value
Adjustment and a surrender charge, as described below.
5.2 ACCOUNT SELECTION - By Written Notice prior to the expiration
date for an Account the Participant may:
choose a different Guarantee Period, with expiration date no
later than the Annuity Date, from among those We offer at that
time;
transfer all or a portion of the expiring Account Value to a new
Account; or
transfer all or a portion of the expiring Account Value to an
existing Account for which the next Reset Date falls on the day
after the expiration date for the expiring Account.
Unless We receive Written Notice prior to the expiration date for an
Account, a new Guarantee Period will commence automatically on the
first day following the expiration date. The new Guarantee Period will
be the same as the expiring Guarantee Period if we are still offering
that Guarantee Period and if the expiration date of the new Guarantee
Period is no later than the Annuity Date. Otherwise the new Guarantee
Period will be one year.
<PAGE>
Our notice to the Participant of the expiration of a Guarantee Period
will contain information about the then currently available Guarantee
Periods and the Guaranteed Interest Rates applicable to such Guarantee
Periods.
To the extent permitted by law, We reserve the right at any time to
offer Guarantee Periods that differ from those available when this
Contract was issued. We also reserve the right, at any time, to stop
accepting Net Single Premium allocations or transfers of Accumulation
Value to a particular Guarantee Period. Since the specific Guarantee
Periods available may change periodically, please contact the Service
Center to determine the Guarantee Periods and Guaranteed Interest Rates
currently being offered.
5.3 MARKET VALUE ADJUSTMENT - Any surrender, withdrawal, transfer or
application to an Annuity Payment Option of an Account Value is subject
to a Market Value Adjustment that may be positive or negative, unless
the effective date of the surrender, withdrawal, transfer or
application is within the Window Period. A Market Value Adjustment
reflects the change in prevailing current interest rates since the date
of allocation or transfer to that Account.
Generally, if interest rates have increased since the beginning of the
Guarantee Period, then the application of the Market Value Adjustment
will result in the payment, upon surrender, withdrawal, transfer or
application of amounts to an Annuity Payment Option, of an amount less
than the Account Value (or portion thereof) being surrendered,
withdrawn, transferred or applied to an Annuity Payment Option.
Conversely, if interest rates have decreased since the beginning of the
Guarantee Period, then the application of the Market Value Adjustment
will result in the payment, upon surrender, withdrawal, transfer or
application of amounts to an Annuity Payment Option, of an amount
greater than the Account Value (or portion thereof) being surrendered,
withdrawn, transferred or applied to an Annuity Payment Option.
The Market Value Adjustment will be applied before the deduction of any
applicable surrender charge or Premium Tax Charge.
T4-119960-A
<PAGE>
5.4 MARKET VALUE ADJUSTMENT FACTOR - The Market Value Adjustment is
computed by multiplying the amount being surrendered, withdrawn,
transferred, or applied to an Annuity Payment Option, by the Market
Value Adjustment Factor.
The Market Value Adjustment Factor is calculated as:
[(1+a)/(1+b)](n/12) - 1
where:
"a" is the Guaranteed Interest Rate currently being credited to the
Account from which the amount is taken;
"b" is the Guaranteed Interest Rate currently being offered for a
Guarantee Period equal to the time remaining to the expiration of the
Guarantee Period for the Account from which the amount is taken. Where
the time remaining to the expiration of the Guarantee Period is not 1,
3, 5, 7 or 10 years, "b" is the rate found by linear interpolation
between the rates for Accounts with Guarantee Periods closest to the
time remaining or, if the time remaining is less than 1 year, the rate
for a 1 year period. If these are not available, We will use a rate
equal to the most recent Moody's Corporate Bond Yield Average - Monthly
Average Corporates as published by Moody's Investors Service, Inc.; and
"n" is the number of complete months remaining before the expiration of
the Guarantee Period for the Account from which the amount is taken.
T4-119960-A
<PAGE>
SECTION 6: ALLOCATIONS AND TRANSFERS
6.1 NET SINGLE PREMIUM ALLOCATION - In the application, the Participant
must select how the Net Single Premium is to be allocated among the
Accounts. The portion of the Net Single Premium that may be applied to
an Account must be a whole percentage. The minimum percentage that may
be allocated to an Account (the Minimum Allocation Percentage) is shown
on the Certificate Specifications page. The amount allocated must also
be at least equal to the Minimum Allocation Amount shown on the
Certificate Specifications page.
We will hold the Net Single Premium at interest at the Short Term
Interest Rate from the Issue Date to the Investment Start Date. On the
Investment Start Date, We will allocate the Net Single Premium with
interest to the Accounts selected by the Participant based on the
Participant's allocation percentages (shown in the application).
6.2 TRANSFERS - On any Certificate Anniversary, the Participant may
transfer some or all of the balance of an Account to a new Account. The
Participant may also transfer some or all of the balance to an existing
Account for which the Reset Date falls on the Certificate Anniversary.
Transfers may not occur other than at Certificate Anniversaries.
The amount transferred cannot be less than the Minimum Transfer Amount
shown on the Certificate Specifications page. If the Participant does
not transfer the entire balance of an Account, the amount remaining in
the Account after the transfer must be at least equal to the Minimum
Account Value shown on the Certificate Specifications page.
If the transfer occurs at a Reset Date for the Account from which some
or all of the balance is being transferred, then the Participant may
select any Guarantee Period We then offer that is not longer than the
number of years remaining until the Annuity Date. If the transfer does
not occur at such a Reset Date, then in addition the Guarantee Period
the Participant selects from those We then offer must be no shorter
than the number of years remaining in the Guarantee Period of the
Account from which some or all of the balance is being transferred,
rounded up to the next whole number of years.
A Market Value Adjustment will usually apply to the amount transferred.
However, if the transfer occurs during the Window Period for the
Account from which some or all of the balance is being transferred, no
Market Value Adjustment or surrender charge will apply to the amount
transferred.
T4-120363-A
<PAGE>
SECTION 7: CALCULATION OF VALUES
7.1 SURRENDER - The Participant may surrender their Certificate for its
Surrender Value at any time before the Annuity Date. The Participant
may elect to have the Surrender Value paid in a single sum or under an
Annuity Payment Option. The Certificate ends when We pay the Surrender
Value or apply such sum to an Annuity Payment Option. The Surrender
Value will be determined as of the date We receive the Participant's
Written Notice for surrender and their Certificate at Our Service
Center.
7.2 WITHDRAWALS - The Participant may withdraw part of the Surrender
Value at any time before the Annuity Date, subject to these limits: the
Minimum Withdrawal Amount is shown on the Certificate Specifications
page; the maximum withdrawal is the amount that would leave a Minimum
Account Value of the amount shown on the Certificate Specifications
page; and a withdrawal request that would reduce any Account Value
below the Minimum Account Value shown on the Certificate Specifications
page will be treated as a request for a withdrawal of all of that
Account Value.
We will withdraw the amount the Participant requests from the
Accumulation Value as of the day that We receive the Participant's
Written Notice and send to them that amount plus or minus any
applicable Market Value Adjustment. We will then deduct any applicable
surrender charge and any applicable Premium Tax Charge shown on the
Certificate Specifications page from the remaining Accumulation Value.
The Participant's Written Notice must specify the amount to be
withdrawn from each Account. If the Written Notice does not specify
this information, or any Account Value is inadequate to comply with the
Participant's request, We will make the withdrawal based on the
proportion that each Account Value bears to the Accumulation Value as
of the day of the withdrawal.
7.3 REFERENCE VALUE - The Reference Value for a Certificate at
any time is equal to:
(a) 90% of the Single Premium for the Certificate; plus
(b) any Excess Interest Credits; less
(c) any charges for riders or additional benefits; less
(d) the total amount of any previous surrenders and withdrawals
from the Certificate; plus
(e) interest on the above items (a) through (d) credited annually at
the Minimum Interest Rate shown on the Certificate Specifications
page.
7.4 EXCESS INTEREST CREDITS - On each Reset Date, we will calculate an
Excess Interest Credit. The amount of the Excess Interest Credit will
be the amount, if any, by which (a) exceeds (b), where:
(a) is all interest ever credited to the Accounts for the
Certificate; and
(b) is the sum of all interest ever credited to the Reference Value,
including previous Excess Interest Credits.
<PAGE>
7.5 BASIS OF VALUES - Any paid-up annuity, surrender or death benefits
that may be available are at least equal to the minimum required by
law in the jurisdiction in which this Contract is delivered. A
detailed statement of the method used to compute the minimum values
has been filed, where required, with the insurance officials of the
jurisdiction in which this Contract is delivered.
T4-120364-A
<PAGE>
SECTION 8: FEES AND CHARGES
8.1 SURRENDER CHARGE - We will deduct a surrender charge upon any
surrender or withdrawal from a Certificate. The charge is equal to the
Surrender Charge Percentage as shown on the Certificate Specifications
page times the Net Allocation. No surrender charge applies to
surrenders or withdrawals in excess of the Net Allocation. Surrender
charges for an Account are waived during its Window Period.
In the first Certificate Year, We calculate the surrender charge under
the assumption that amounts surrendered and withdrawn come first from
the Net Allocation, and then from any interest credited to the Account
Value. The full surrender charge applies upon surrender. In calculating
the surrender charge applicable to withdrawals, the surrender charge is
prorated based on the ratio of the amount surrendered or withdrawn to
the Net Allocation.
In Certificate Years after the first, a Free Partial Withdrawal amount
is calculated, equal to the Net Allocation at the Certificate
Anniversary times the Free Withdrawal Percentage from the Certificate
Specifications page. The Participant may withdraw an amount up to the
Free Partial Withdrawal amount from the Accounts once in each
Certificate Year after the first without incurring a surrender charge.
Any further surrenders and withdrawals are assumed to be taken from the
remainder of the Net Allocation, and then from any interest credited to
the Account Value.
With regard to withdrawals, We will withdraw the amount the Participant
requests from the Accounts as of the day that We receive the
Participant's Written Notice and send to them that amount plus or minus
any applicable Market Value Adjustment. We will then deduct any
surrender charge and any applicable Premium Tax Charge shown on the
Certificate Specifications page from the Account from which the
withdrawal was taken.
If an Annuity Payment Option is selected on surrender then we will
apply the Annuity Value to the Annuity Payment Option. If on the
Annuity Date, however, the Payee elects (or the Participant previously
elected) to receive a lump sum, this sum will equal the Surrender Value
on such date.
8.2 PREMIUM TAX CHARGE - The charge shown on the Certificate
Specifications page is deducted either from the Single Premium or from
the Accumulation Value prior to surrender, annuitization or death of
the Participant or Annuitant.
8.3 OTHER TAX CHARGES - The Company reserves the right to deduct a
charge from the Single Premium or from the Accumulation Value for any
federal, state or municipal taxes (or other economic burden resulting
from the application of the tax laws) that it incurs that may be
attributable to the Contract or any Certificates under it.
T4-120365-A
<PAGE>
SECTION 9: PAYMENT OF BENEFITS
9.1 PAYMENT OF BENEFITS - We will usually pay the proceeds of any
surrender, withdrawals, death benefit, or any Annuity Payments within
seven business days after receipt of all applicable Written Notices
and/or Due Proofs of Death. However, We have the right to defer payment
of any surrender, withdrawal, or transfer for up to six months from the
date We receive the Participant's Written Notice. We will pay interest
on the amount of any payment that is delayed for more than 30 days
after the payment becomes payable; or after the time required by the
applicable jurisdiction, if less than 30 days. This interest will
accrue from the date that the payment becomes payable to the date of
payment, but not for more than one year at an annual rate of 3%, or the
rate and time required by law, if greater.
2. SECTION 10: DEATH BENEFITS
10.1 DEATH BENEFITS ON OR AFTER THE ANNUITY DATE - If a Participant
dies on or after the Annuity Date, any surviving joint Participant
becomes the sole Participant. If there is no surviving Participant, any
successor Participant becomes the new Participant. If there is no
surviving or successor Participant, the Payee becomes the new
Participant. If an Annuitant or a Participant dies on or after the
Annuity Date, the remaining undistributed portion, if any, of the
Annuity Value will be distributed at least as rapidly as under the
method of distribution being used as of the date of such death. Under
some Annuity Payment Options, there will be no death benefit.
10.2 DEATH BENEFIT BEFORE THE ANNUITY DATE
The Death Benefit for a Certificate is computed as of the date that the
Company receives Due Proof of Death. Payments under this provision are
full settlement of all of the Company's liability under this Contract
with respect to that Certificate.
Death of a Participant
The Death Benefit We will pay on the death of a Participant is the
Surrender Value of their Certificate.
If any Participant dies prior to the Annuity Date, any surviving
Participant becomes the new sole Participant for the Certificate. If
there is no surviving Participant, any successor Participant becomes
the new Participant and if there is no successor Participant the
Annuitant becomes the new Participant unless the deceased Participant
was also the Annuitant. If the sole deceased Participant was also the
Annuitant, then the provisions relating to the death of the Annuitant
(described below) will govern unless the deceased Participant was one
of two joint Annuitants, in which event the surviving Annuitant becomes
the new Participant. The following options are available to new
Participants for a Certificate:
1. to receive the Death Benefit in a single lump sum within 5 years
of the deceased Participant's death; or
2. elect to receive the Death Benefit paid out under an Annuity
Payment Option provided that: (a) Annuity Payments begin within 1
year of the deceased Participant's death, and (b) Annuity Payments
are made in substantially equal installments over the life of the
new Participant or over a period not greater than the life
expectancy of the new Participant; or
<PAGE>
3. if the new Participant is the spouse of the deceased Participant,
he or she may by Written Notice within one year of the
Participant's death, elect to continue the Certificate as the new
Participant. If the spouse so elects, all of his or her rights as
a Beneficiary cease and if the deceased Participant was also the
sole Annuitant and appointed no Contingent Annuitant, the spouse
will become the Annuitant. The spouse will be deemed to have made
the election to continue the Certificate if he or she makes no
election before the expiration of the one year period described in
2. above.
With regard to new Participant
s for a Certificate who are not the spouse of the deceased Participant:
(a) 1 and 2 apply even if the Annuitant or Contingent Annuitant is
alive at the time of the deceased Participant's death, (b) if the new
Participant is not a natural person, only option 1 is available, (c) if
no election is made within one year of the deceased Participant's
death, option 1 is deemed to have been elected.
Death of the Annuitant
The Death Benefit We will pay on the death of an Annuitant is the
greater of the Accumulation Value and the Reference Value of the
Certificate for which they are the Annuitant.
If the Annuitant dies before the Annuity Date while a Participant is
still living, any Contingent Annuitant will become the Annuitant. If
the Annuitant dies before the Annuity Date and no Contingent Annuitant
has been named, the Company will pay the Death Benefit to the
Beneficiary. If there is no surviving Beneficiary, the Company will pay
the Death Benefit to any Contingent Beneficiary. If there is no
surviving Contingent Beneficiary, the Company will immediately pay the
Death Benefit to the Participant (or the Participant's estate, if the
Participant is deceased) in a lump sum.
If the Annuitant who is also a Participant dies or if the Annuitant
dies and the Participant is not a natural person, a Beneficiary (or a
Contingent Beneficiary):
1. will receive the Death Benefit in a single lump sum within 5
years of the deceased Annuitant's death; or
2. may elect to receive the Death Benefit paid out under an Annuity
Payment Option provided that: (a) Annuity Payments begin within 1
year of the deceased Annuitant's death, and (b) Annuity Payments
are made in substantially equal installments over the life of the
Beneficiary or over a period not greater than the life expectancy
of the Beneficiary; or
If the Beneficiary is the spouse of the deceased Annuitant, he or
she may by Written Notice within one year of the Annuitant's
death, elect to continue the Certificate as the new Participant.
If the spouse so elects, all his or her rights as a Beneficiary
cease and if the deceased Annuitant was also the sole Annuitant
and appointed no Contingent Annuitant, the spouse will become the
Annuitant. The spouse will be deemed to have made the election to
continue the Certificate if he or she makes no election before the
expiration of the one year period.
T4-120366-A
<PAGE>
SECTION 11: ANNUITY PROVISIONS AND PAYMENT OPTIONS
11.1 ANNUITY BENEFITS - If a Certificate is in force and the Annuitant
is alive on the Annuity Date, payments to the Annuitant for that
Certificate will begin under the Annuity Payment Option chosen. The
Participant may choose or change a payment option by sending Us Written
Notice at least 30 days prior to the Annuity Date.
11.2 ANNUITY VALUE - At any time on or before the fifth Certificate
Anniversary, the Annuity Value equals the Surrender Value. At any time
after the fifth Certificate Anniversary up to and including the Annuity
Date, the Annuity Value equals the greater of the Adjusted Accumulation
Value and the Adjusted Reference Value.
11.3 ANNUITY PAYMENTS - Annuity Payments are periodic payments from Us
to the designated Payee, the amount of which is fixed and guaranteed by
Us. The amount of these payments depends only on the form and duration
of the Annuity Payment Option selected, the Age of the Annuitant, the
sex of the Annuitant (if applicable), the Annuity Value applied to the
Annuity Payments and the applicable annuity purchase rates. The annuity
purchase rates in the Contract and any Certificates under it are based
on an interest rate of 3.0%.
The dollar amount of the Annuity Payment is determined by dividing the
dollar amount of Annuity Value being applied to purchase Annuity
Payments by $1,000 and multiplying the result by the annuity purchase
rate for the selected Annuity Payment Option.
11.4 INITIAL ANNUITY PAYMENT DATE - The initial Annuity Payment Date
the Participant selected is shown on the Certificate Specifications
page. The initial Annuity Payment Date may not be the 29th, 30th, or
31st day of a month. The first Annuity Payment will be computed as of
the Annuity Date and paid as of the initial Annuity Payment Date.
11.5 ANNUITY PAYMENT DATES - All subsequent Annuity Payments will be
computed and payable as of Annuity Payment Dates. These dates will be
the same day of the month as the initial Annuity Payment Date. Monthly
Annuity Payments will be computed and payable as of the same day each
month as the initial Annuity Payment Date. Quarterly Annuity Payments
will be computed and payable as of the same day in the third, sixth,
ninth, and twelfth month following the initial Annuity Payment Date and
on the same days of such months in each successive Certificate Year.
Semi-annual Annuity Payment Dates will be computed and payable as of
the same day in the sixth and twelfth month following the initial
Annuity Payment Date and on the same days of such months in each
successive Certificate Year. Annual Annuity Payments will be computed
and payable as of the same day in each Certificate Year as the initial
Annuity Payment Date. The frequency of Annuity Payments the Participant
has selected also is shown on the Certificate Specifications page.
11.6 PAYMENT OPTION RATE TABLES - The amount of the monthly payments
per $1,000 applied is shown for an Annuity in these tables. Amounts for
ages not shown will be determined on a basis consistent with those
shown in these tables. The settlement option rate tables are based on
the 1983A Mortality Table, 3% interest and a five-year setback for
females.
<PAGE>
11.7 DEATH OF PAYEE - Unless instructed otherwise at the time that the
Annuity Payment Option is selected, at the death of the Payee We pay
the amounts below in a lump sum to the Payee's estate:
1. Under Annuity Payment Option 1, the amount left on deposit with
Us to accumulate interest.
2. Under Annuity Payment Option 2, 3, or 5, the commuted value of the
amount payable at the Payee's death as provided under the Option
selected. The commuted value is based on the interest rate used to
calculate the amount of the payments under that Option.
11.8 OPTION 1, INTEREST PAYMENTS - We hold the Annuity Value as
principal and pay interest to the Payee. The interest rate is 3% per
year compounded annually. We pay interest every 1 year, 6 months, 3
months or 1 month, as specified at the time this option is selected. At
the death of the Payee, the value of the remaining payments is paid as
stated in Section 11.7.
11.9 OPTION 2, PAYMENTS OF A SPECIFIED AMOUNT - We pay the Annuity
Value in equal payments every 1 year, 6 months, 3 months or 1 month.
The amount and frequency of the payments is specified at the time this
option is selected. After each payment, interest is added to the
remaining amount applied under this option that has not yet been paid.
The interest rate is 3% per year compounded annually. Payments are made
to the Payee until the amount applied under this option, including
interest, is exhausted. The total of the payments made each year must
be at least 5% of the amount applied under this option. If the Payee
dies before the amount applied is exhausted, We pay the value of the
remaining payments as stated in Section 11.7.
11.10 OPTION 3, PAYMENTS FOR A SPECIFIED PERIOD - We pay the lump sum
in equal payments for the number of years specified when the option is
selected. Payments are made every 1 year, 6 months, 3 months or 1
month, as specified when the option is selected. The amount of each
Annuity Payment for each $1,000 applied under this option is shown in
the tables 1 and 2. These amounts are calculated at an interest rate of
3% per year compounded annually. If the Payee dies before the
expiration of the specified number of years, We pay the value of the
remaining payments as stated in Section 11.7.
T4-120367-A
<PAGE>
11.11 OPTION 4, LIFE ANNUITY - We make monthly payments to the Payee
for as long as the Annuitant lives. The amount of each Annuity Payment
for each $1,000 applied under this option is shown in table 3 below.
11.12 OPTION 5, LIFE ANNUITY WITH PERIOD CERTAIN - We make monthly
payments to the Payee for as long as the Annuitant lives. At the time
this option is selected, a period certain of 5, 10, 15, or 20 years
must also be selected. If the Annuitant dies before the specified
period certain ends, the payments to the Payee will continue until the
end of the specified period. The amount of the monthly payments
therefore depends on the period certain selected. The amount of each
Annuity Payment for each period certain available is shown in tables 4
and 5 below. The amounts shown are for each $1,000 applied under this
option. If at any age the amount of the payments is the same for two or
more periods certain, payment will be made as if the longest period
certain was selected.
11.13 OPTION 6, JOINT LIFE AND SURVIVORSHIP ANNUITY - We make monthly
payments to the Payee while both Annuitants are living. After the death
of either Annuitant, payments continue to the Payee for as long as the
other Annuitant lives. The amount of each Annuity Payment for each
$1,000 applied under this option is shown in tables 6 and 7 below.
T4-120367-A
<PAGE>
<TABLE>
<CAPTION>
Table 1
<S> <C> <C> <C> <C> <C> <C> <C> <C>
||===========|========================|=========|=========================|==========|====================||
|| Number |Amount of Installments | Number | Amount of | Number | Amount of ||
|| of Years | | of Years| Installments | of Years| Installments ||
|| Specified | |Specified| | Specified| ||
|| |-------------|----------| |-------------|-----------| |----------|---------||
|| | Annual | S.A. | | Annual | S.A. | |Annual | S.A. ||
||-----------|-------------|----------|---------|-------------|-----------|----------|----------|---------||
|| 1 | $1,000.00| $503.70 | 9 | $124.69 | $62.81 | 17 | $73.74 | $37.14 ||
|| 2 | 507.39| 255.57 | 10 | 113.82 | 57.33 | 18 | 70.59 | 35.56 ||
|| 3 | 343.23| 172.89 | 11 | 104.93 | 52.85 | 19 | 67.78 | 34.14 ||
|| 4 | 261.19| 131.56 | 12 | 97.54 | 49.13 | 20 | 65.26 | 32.87 ||
|| 5 | 211.99| 106.78 | 13 | 91.29 | 45.98 | 25 | 55.76 | 28.08 ||
|| 6 | 179.22| 90.27 | 14 | 85.95 | 43.29 | 30 | 49.53 | 24.95 ||
|| 7 | 155.83| 78.49 | 15 | 81.33 | 40.96 | | | ||
|| 8 | 138.31| 69.67 | 16 | 77.29 | 38.93 | | | ||
||===========|=============|==========|=========|=============|===========|==========|==========|=========||
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 2
<S> <C> <C> <C> <C> <C> <C> <C> <C>
||=========|===========================|=========|========================|===========|======================||
|| Number | Amount of Installments | Number | Amount of | Number | Amount of ||
||of Years | | of Years| Installments |of Years | Installments ||
||Specified| |Specified| |Specified | ||
|| |--------------|------------| |------------|-----------| |-----------|==========||
|| | Quarterly | Monthly | |Quarterly | Monthly | | Quarterly | Monthly ||
||---------|--------------|------------|---------|------------|-----------|-----------|-----------|==========||
|| 1 | $252.78 | $84.47 | 9 | $31.52 | $10.53 | 17 | $18.64 | $6.23 ||
|| 2 | 128.26 | 42.86 | 10 | 28.77 | 9.61 | 18 | 17.84 | 5.96 ||
|| 3 | 86.76 | 28.99 | 11 | 26.52 | 8.86 | 19 | 17.13 | 5.73 ||
|| 4 | 66.02 | 22.06 | 12 | 24.66 | 8.24 | 20 | 16.50 | 5.51 ||
|| 5 | 53.59 | 17.91 | 13 | 23.08 | 7.71 | 25 | 14.09 | 4.71 ||
|| 6 | 45.30 | 15.14 | 14 | 21.73 | 7.26 | 30 | 12.52 | 4.18 ||
|| 7 | 39.39 | 13.16 | 15 | 20.56 | 6.87 | | | ||
|| 8 | 34.96 | 11.68 | 16 | 19.54 | 6.53 | | | ||
||=========|==============|============|=========|============|===========|===========|===========|==========||
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 3
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
|-------------------|----------|-------------------|--------|----------------|---------|
| Age | Option 4 | Age |Option 4| Age | Option 4|
| of Annuitant* | Monthly | of Annuitant* | Monthly| of Annuitant* | Monthly |
| | Life | | Life | | Life |
| | Annuity | | Annuity| | Annuity |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| Male | Female | | Male | Female | | Male | Female| |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 16 and | 21 and | | 39 | 44 | $3.61 | 63 | 68 | $5.75 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| under | under | $2.96 | 40 | 45 | 3.66 | 64 | 69 | 5.92 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 17 | 22 | 2.98 | 41 | 46 | 3.71 | 65 | 70 | 6.11 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 18 | 23 | 3.00 | 42 | 47 | 3.76 | 66 | 71 | 6.31 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 19 | 24 | 3.02 | 43 | 48 | 3.81 | 67 | 72 | 6.52 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 20 | 25 | 3.04 | 44 | 49 | 3.87 | 68 | 78 | 6.75 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 21 | 26 | 3.06 | 45 | 50 | 3.93 | 69 | 74 | 6.99 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 22 | 27 | 3.08 | 46 | 51 | 3.99 | 70 | 75 | 7.25 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 23 | 28 | 3.10 | 47 | 52 | 4.06 | 71 | 76 | 7.53 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 24 | 29 | 3.12 | 48 | 53 | 4.12 | 72 | 77 | 7.83 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 25 | 30 | 3.14 | 49 | 54 | 4.20 | 73 | 78 | 8.15 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 26 | 31 | 3.17 | 50 | 55 | 4.27 | 74 | 79 | 8.49 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 27 | 32 | 3.19 | 51 | 56 | 4.35 | 75 | 80 | 8.86 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 28 | 33 | 3.22 | 52 | 57 | 4.43 | 76 | 81 | 9.25 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 29 | 34 | 3.25 | 53 | 58 | 4.52 | 77 | 82 | 9.67 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 30 | 35 | 3.28 | 54 | 59 | 4.61 | 78 | 83 | 10.13 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 31 | 36 | 3.31 | 55 | 60 | 4.71 | 79 | 84 | 10.62 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 32 | 37 | 3.34 | 56 | 61 | 4.81 | 80 | 85 | 11.14 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 33 | 38 | 3.37 | 57 | 62 | 4.92 | 81 | and | 11.69 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 34 | 39 | 3.41 | 58 | 63 | 5.03 | 82 | over | 12.29 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 35 | 40 | 3.45 | 59 | 64 | 5.16 | 83 | | 12.92 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 36 | 41 | 3.48 | 60 | 65 | 5.29 | 84 | | 13.59 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 37 | 42 | 3.53 | 61 | 66 | 5.43 | 85 | | 14.30 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 38 | 43 | 3.57 | 62 | 67 | 5.59 | and | | |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| | | | | | | over | | |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
- ----------------------------------------------------
* Use the Annuitant's age nearest the Annuity Date.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 4
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
|--------------------|-------------------|----------------|---------------|---------------|-----------------|
| | Number of | | Number Of | | Number of |
| Age | Years | Age | Years | Age | Years |
| of Annuitant* | Specified | of Annuitant* | Specified | of Annuitant*| Specified |
|--------------------|-------------------|----------------|---------------|---------------|-----------------|
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| Male | Female| 5 | 10 | Male | Female| 5 | 10 | Male | Female| 5 | 10 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 16 and | 21 and| | | 39 | 44 | $3.61 | $3.60| 63 | 68 | $5.70 | $5.53 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| under | under | $2.96 | $2.96 | 40 | 45 | 3.66 | 3.65| 64 | 69 | 5.86 | 5.67 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 17 | 22 | 2.98 | 2.98 | 41 | 46 | 3.71 | 3.69| 65 | 70 | 6.04 | 5.82 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 18 | 23 | 3.00 | 3.00 | 42 | 47 | 3.76 | 3.74| 66 | 71 | 6.23 | 5.97 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 19 | 24 | 3.02 | 3.01 | 43 | 48 | 3.81 | 3.80| 67 | 72 | 6.42 | 6.13 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 20 | 25 | 3.04 | 3.03 | 44 | 49 | 3.87 | 3.85| 68 | 73 | 6.63 | 6.29 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 21 | 26 | 3.06 | 3.05 | 45 | 50 | 3.92 | 3.91| 69 | 74 | 6.86 | 6.46 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 22 | 27 | 3.08 | 3.07 | 46 | 51 | 3.99 | 3.96| 70 | 75 | 7.09 | 6.63 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 23 | 28 | 3.10 | 3.10 | 47 | 52 | 4.05 | 4.03| 71 | 76 | 7.34 | 6.80 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 24 | 29 | 3.12 | 3.12 | 48 | 53 | 4.12 | 4.09| 72 | 77 | 7.60 | 6.98 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 25 | 30 | 3.14 | 3.14 | 49 | 54 | 4.19 | 4.16| 73 | 78 | 7.88 | 7.16 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 26 | 31 | 3.17 | 3.17 | 50 | 55 | 4.26 | 4.23| 74 | 79 | 8.17 | 7.34 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 27 | 32 | 3.19 | 3.19 | 51 | 56 | 4.34 | 4.30| 75 | 80 | 8.48 | 7.52 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 28 | 33 | 3.22 | 3.22 | 52 | 57 | 4.42 | 4.38| 76 | 81 | 8.80 | 7.69 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 29 | 34 | 3.25 | 3.24 | 53 | 58 | 4.50 | 4.46| 77 | 82 | 9.14 | 7.87 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 30 | 35 | 3.28 | 3.27 | 54 | 59 | 4.59 | 4.54| 78 | 83 | 9.49 | 8.04 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 31 | 36 | 3.31 | 3.30 | 55 | 60 | 4.69 | 4.63| 79 | 84 | 9.85 | 8.20 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 32 | 37 | 3.34 | 3.34 | 56 | 61 | 4.79 | 4.72| 80 | 85 | 10.23 | 8.35 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 33 | 38 | 3.37 | 3.37 | 57 | 62 | 4.89 | 4.82| 81 | and | 10.61 | 8.50 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 34 | 39 | 3.41 | 3.40 | 58 | 63 | 5.01 | 4.93| 82 | over | 11.00 | 8.64 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 35 | 40 | 3.44 | 3.44 | 59 | 64 | 5.13 | 5.04| 83 | | 11.40 | 8.77 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 36 | 41 | 3.48 | 3.48 | 60 | 65 | 5.26 | 5.15| 84 | | 11.80 | 8.88 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 37 | 42 | 3.52 | 3.52 | 61 | 66 | 5.39 | 5.27| 85 | | 12.20 | 8.99 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 38 | 43 | 3.57 | 3.56 | 62 | 67 | 5.54 | 5.40| and | | | |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| over | | | | | | | | | | | |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
- ----------------------------------------------------
* Use the Annuitant's age nearest the Annuity Date.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 5
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
|---------------------|-------------------|-----------------|---------------|---------------|-----------------|
| | Number of | | Number Of | | Number of |
| Age | Years | Age | Years | Age | Years |
| of Annuitant* | Specified | of Annuitant* | Specified | of Annuitant*| Specified |
|---------------------|-------------------|-----------------|---------------|---------------|-----------------|
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| Male | Female | 15 | 20 | Male | Female | 15 | 20 | Male | Female| 15 | 20 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 16 and | 21 and | | | 39 | 44 | $3.59 | $3.56| 63 | 68 | $5.26 | $4.91 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| under | under | $2.96 | $2.96 | 40 | 45 | 3.63 | 3.60| 64 | 69 | 5.37 | 4.97 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 17 | 22 | 2.98 | 2.97 | 41 | 46 | 3.67 | 3.64| 65 | 70 | 5.47 | 5.03 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 18 | 23 | 2.99 | 2.99 | 42 | 47 | 3.72 | 3.68| 66 | 71 | 5.57 | 5.09 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 19 | 24 | 3.01 | 3.01 | 43 | 48 | 3.77 | 3.73| 67 | 72 | 5.67 | 5.14 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 20 | 25 | 3.03 | 3.03 | 44 | 49 | 3.82 | 3.78| 68 | 73 | 5.77 | 5.19 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 21 | 26 | 3.05 | 3.05 | 45 | 50 | 3.87 | 3.82| 69 | 74 | 5.87 | 5.23 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 22 | 27 | 3.07 | 3.07 | 46 | 51 | 3.93 | 3.87| 70 | 75 | 5.97 | 5.27 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 23 | 28 | 3.09 | 3.09 | 47 | 52 | 3.98 | 3.92| 71 | 76 | 6.06 | 5.31 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 24 | 29 | 3.11 | 3.11 | 48 | 53 | 4.04 | 3.98| 72 | 77 | 6.15 | 5.35 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 25 | 30 | 3.14 | 3.13 | 49 | 54 | 4.10 | 4.03| 73 | 78 | 6.24 | 5.37 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 26 | 31 | 3.16 | 3.16 | 50 | 55 | 4.17 | 4.09| 74 | 79 | 6.32 | 5.40 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 27 | 32 | 3.19 | 3.18 | 51 | 56 | 4.24 | 4.15| 75 | 80 | 6.39 | 5.42 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 28 | 33 | 3.21 | 3.20 | 52 | 57 | 4.31 | 4.20| 76 | 81 | 6.46 | 5.44 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 29 | 34 | 3.24 | 3.23 | 53 | 58 | 4.38 | 4.26| 77 | 82 | 6.52 | 5.46 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 30 | 35 | 3.27 | 3.26 | 54 | 59 | 4.45 | 4.33| 78 | 83 | 6.58 | 5.47 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 31 | 36 | 3.30 | 3.29 | 55 | 60 | 4.53 | 4.39| 79 | 84 | 6.63 | 5.48 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 32 | 37 | 3.33 | 3.32 | 56 | 61 | 4.61 | 4.45| 80 | 85 | 6.67 | 5.49 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 33 | 38 | 3.36 | 3.35 | 57 | 62 | 4.70 | 4.52| 81 | and | 6.71 | 5.50 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 34 | 39 | 3.39 | 3.38 | 58 | 63 | 4.79 | 4.58| 82 | over | 6.74 | 5.50 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 35 | 40 | 3.43 | 3.41 | 59 | 64 | 4.88 | 4.65| 83 | | 6.77 | 5.50 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 36 | 41 | 3.47 | 3.45 | 60 | 65 | 4.97 | 4.72| 84 | | 6.79 | 5.51 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 37 | 42 | 3.50 | 3.48 | 61 | 66 | 5.07 | 4.78| 85 | | 6.81 | 5.51 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 38 | 43 | 3.54 | 3.52 | 62 | 67 | 5.16 | 4.85| and | | | |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| over | | | | | | | | | | | |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
----------------------------------------------------
* Use the Annuitant's age nearest the Annuity Date.
</TABLE>
<PAGE>
Table 6
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| Age of | | | | | | | | |
| Annuitants | Male | 55 | 56 | 57 | 58 | 59 | 60 | 61 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| Male | Female| 60 | 61 | 62 | 63 | 64 | 65 | 66 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 51 | 56 | $3.89 |$3.92 | $3.94 | $3.97 | $3.99 | $4.01| $4.04|
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 52 | 57 | 3.93 | 3.96 | 3.98 | 4.01 | 4.04 | 4.06 | 4.08 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 53 | 58 | 3.96 | 3.99 | 4.02 | 4.05 | 4.08 | 4.11 | 4.13 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 54 | 59 | 4.00 | 4.03 | 4.06 | 4.09 | 4.12 | 4.15 | 4.18 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 55 | 60 | 4.03 | 4.07 | 4.10 | 4.14 | 4.17 | 4.20 | 4.23 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 56 | 61 | 4.07 | 4.11 | 4.14 | 4.18 | 4.21 | 4.25 | 4.28 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 57 | 62 | 4.10 | 4.14 | 4.18 | 4.22 | 4.26 | 4.30 | 4.33 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 58 | 63 | 4.14 | 4.18 | 4.22 | 4.26 | 4.30 | 4.34 | 4.38 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 59 | 64 | 4.17 | 4.21 | 4.26 | 4.30 | 4.35 | 4.39 | 4.44 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 60 | 65 | 4.20 | 4.25 | 4.30 | 4.34 | 4.39 | 4.44 | 4.49 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 61 | 66 | 4.23 | 4.28 | 4.33 | 4.38 | 4.44 | 4.49 | 4.54 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 62 | 67 | 4.26 | 4.32 | 4.37 | 4.42 | 4.48 | 4.53 | 4.59 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 63 | 68 | 4.29 | 4.35 | 4.41 | 4.46 | 4.52 | 4.58 | 4.63 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 64 | 69 | 4.32 | 4.38 | 4.44 | 4.50 | 4.56 | 4.62 | 4.68 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 65 | 70 | 4.35 | 4.41 | 4.47 | 4.54 | 4.60 | 4.66 | 4.73 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 66 | 71 | 4.37 | 4.44 | 4.50 | 4.57 | 4.64 | 4.71 | 4.78 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 67 | 72 | 4.40 | 4.47 | 4.53 | 4.60 | 4.67 | 4.75 | 4.82 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 68 | 73 | 4.42 | 4.49 | 4.56 | 4.64 | 4.71 | 4.79 | 4.86 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 69 | 74 | 4.45 | 4.52 | 4.59 | 4.67 | 4.74 | 4.82 | 4.90 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 70 | 75 | 4.47 | 4.54 | 4.62 | 4.70 | 4.78 | 4.86 | 4.94 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
<PAGE>
Table 7
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| Age of | | | | | | | | | | |
| Annuitants| Male | 62 | 63 | 64 | 65 | 66 | 67 | 68 | 69 | 70 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| Male |Female| 67 | 68 | 69 | 70 | 71 | 72 | 73 | 74 | 75 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 51 | 56 | 4.06 | 4.08 | 4.10| 4.12 |4.13 | 4.15|4.17 |4.18|4.19 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 52 | 57 | 4.11 | 4.13 | 4.15| 4.17 |4.19 | 4.21|4.23 |4.24|4.26 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 53 | 58 | 4.16 | 4.18 | 4.21| 4.23 |4.25 | 4.27|4.29 |4.31|4.33 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 54 | 59 | 4.21 | 4.24 | 4.26| 4.29 |4.31 | 4.33|4.36 |4.38|4.40 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 55 | 60 | 4.26 | 4.29 | 4.32| 4.35 |4.37 | 4.40|4.42 |4.45|4.47 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 56 | 61 | 4.32 | 4.35 | 4.38| 4.41 |4.44 | 4.47|4.49 |4.52|4.54 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 57 | 62 | 4.37 | 4.41 | 4.44| 4.47 |4.50 | 4.53|4.56 |4.59|4.62 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 58 | 63 | 4.42 | 4.46 | 4.50| 4.54 |4.57 | 4.60|4.64 |4.67|4.70 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 59 | 64 | 4.48 | 4.52 | 4.56| 4.60 |4.64 | 4.67|4.71 |4.74|4.78 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 60 | 65 | 4.53 | 4.58 | 4.62| 4.66 |4.71 | 4.75|4.79 |4.82|4.86 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 61 | 66 | 4.59 | 4.63 | 4.68| 4.73 |4.78 | 4.82|4.86 |4.90|4.94 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 62 | 67 | 4.64 | 4.69 | 4.74| 4.80 |4.85 | 4.89|4.94 |4.99|5.03 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 63 | 68 | 4.69 | 4.75 | 4.81| 4.86 |4.92 | 4.97|5.02 |5.07|5.12 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 64 | 69 | 4.74 | 4.81 | 4.87| 4.93 |4.99 | 5.05|5.10 |5.16|5.21 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 65 | 70 | 4.80 | 4.86 | 4.93| 4.99 |5.06 | 5.12|5.18 |5.24|5.30 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 66 | 71 | 4.85 | 4.92 | 4.99| 5.06 |5.13 | 5.19|5.26 |5.33|5.39 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 67 | 72 | 4.89 | 4.97 | 5.05| 5.12 |5.19 | 5.27|5.34 |5.41|5.48 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 68 | 73 | 4.94 | 5.02 | 5.10| 5.18 |5.26 | 5.34|5.42 |5.50|5.58 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 69 | 74 | 4.99 | 5.07 | 5.16| 5.24 |5.33 | 5.41|5.50 |5.58|5.67 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 70 | 75 | 5.03 | 5.12 | 5.21| 5.30 |5.39 | 5.48|5.58 |5.67|5.76 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
<PAGE>
================================================================================
[GRAPHIC OMITTED]
Valley Forge Life Insurance Company
----------------------------------------------
Executive Office: A Stock Company Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
================================================================================
INDEX RIDER DEFINITIONS
Account: An Indexed Account or Interest Account.
Account Type: The Account Type for an Account is either "Indexed" or "Interest",
depending on whether the Account is an Indexed Account or an Interest Account,
respectively.
Account Value: An amount on which We credit a specified and guaranteed rate of
interest, or for which we calculate values depending on increases in an Index,
as described below under "Indexed Accounts".
Averaging Period: A period of time at the end of each Certificate Year over
which values of the Index are averaged before the calculation of any Index
Increase. The Averaging Period is shown on the Index Rider Specifications Page.
Cap: The maximum percentage per year by which an Indexed Account will be
increased. We will declare the Cap for an Indexed Account at each Reset Date on
a basis which does not discriminate unfairly within any class of Contracts.
Destination Account: An Account to which a transfer is made.
Floor: The minimum percentage per year by which an Indexed Account will be
increased. The Floor will never be less than 0%. We will declare the Floor for
an Indexed Account at each Reset Date on a basis which does not discriminate
unfairly within any class of Contracts.
Guarantee Period: A specific number of years for which the Company agrees to
credit a particular effective annual rate of interest to an Interest Account, or
to apply a particular Index Participation Rate, Cap, and Floor to an Indexed
Account.
Index: The Index shown on the Index Rider Specifications Page. If the
publication of the Index is discontinued, or the calculation of the Index is
changed substantially, we will substitute a suitable index and notify the Group
Contract Holder and any Participants.
Index Participation Rate: The percentage used to calculate the Index Increase
for an Indexed Account.
Indexed Account: An account for which We calculate values depending on increases
in an Index.
Interest Account: An account to which we credit a specified and guaranteed rate
of interest.
Source Account: An Account from which a transfer is made.
R4-120368-A
<PAGE>
INDEX RIDER PROVISIONS
RIDER BENEFIT - This rider allows the Participant to select that for one or more
of their Accounts, the value of the Account will be based on increases in an
Index. Any Account that the Participant so selects is called an Indexed Account.
This selection can only become effective on a Reset Date for the Account.
RIDER CHARGE - The annual charge for this rider is a percentage of the value of
the Indexed Accounts. The daily compounded equivalent of this charge is deducted
daily.
THE SEPARATE ACCOUNTS - We have established the Valley Forge Life Insurance
Company Indexed Separate Account in connection with the Indexed Accounts.
Although We own the assets in the Valley Forge Life Insurance Company Indexed
Separate Account, these assets are held separately from Our other assets and are
not part of Our General Account. The values and benefits attributable to the
Indexed Accounts are supported by the assets in the Valley Forge Life Insurance
Company Indexed Separate Account and Our General Account. The portion of the
assets of the Valley Forge Life Insurance Company Indexed Separate Account equal
to the reserves and other liabilities of the Valley Forge Life Insurance Company
Indexed Account are not chargeable with liabilities that arise from any other
business that We conduct. We have the right to transfer to Our general account
any assets of the Valley Forge Life Insurance Company Indexed Separate Account
that are in excess of such reserves and other liabilities.
INDEXED ACCOUNTS - The Indexed Accounts are available under Certificates under
this Contract and are supported by the Valley Forge Life Insurance Company
Indexed Separate Account, part of Our general assets. The Net Single Premium may
be allocated to, and transfers of Accumulation Value may be made to, the Indexed
Accounts. Indexed Account Value is not determined by and does not reflect the
investment performance of the Separate Accounts.
Through the Indexed Accounts, the Company offers increases based on a specified
Index. The increases are determined based on a formula with specified parameters
(the Index Participation Rate, Cap, and Floor) that are available for specified
periods of time (Guarantee Periods) the Participant selects from those We offer.
The rate at which the value of an Indexed Account grows depends on changes in
the Index on which it is based, as well as its Cap, Floor, and Index
Participation Rates. The Index Participation Rate, Cap, and Floor may differ
among Guarantee Periods.
Initial Guarantee Periods begin on the date as of which the Net Single Premium
is allocated or an amount of Accumulation Value is transferred to an Indexed
Account and end when the number of years in the Guarantee Period elected has
elapsed. The last day of the Guarantee Period is the expiration date for that
Guarantee Period. Subsequent Guarantee Periods begin on the first day following
the expiration date of a previous Guarantee Period.
Allocations of the Net Single Premium and transfers of Accumulation Value to the
Indexed Accounts may have different applicable Index Participation Rates, Caps,
and Floors depending on the timing of such allocations or transfers. However,
the applicable Index Participation Rate, Cap, and Floor do not change during a
Guarantee Period. The Company will notify Participants in writing at least 30
days prior to the expiration date of any Guarantee Period.
If the allocated or transferred amount remains in the Indexed Account until the
end of the applicable Guarantee Period, the Account Value at that time will be
equal to the amount originally allocated or transferred plus any Index
Increases. If an Indexed Account Value is surrendered, withdrawn, transferred,
or applied to an Annuity Payment Option prior to the expiration of the Guarantee
Period, the Indexed Account Value is subject to a Market Value Adjustment and a
surrender charge, as described below.
<PAGE>
ACCOUNT SELECTION - By Written Notice prior to the expiration date for an
Interest or Indexed Account the Participant may:
choose a different Guarantee Period, with expiration date no later than
the Annuity Date, from among those We offer at that time;
transfer all or a portion of the expiring Account Value to a new Account; or
transfer all or a portion of the expiring Account Value to an existing
Account for which the next Reset Date falls on the day after the expiration
date for the expiring Account.
Transfers are subject to restrictions as described below under "Transfer
Restrictions". A Market Value Adjustment will usually apply to the amount
transferred. However, if the transfer occurs during the Window Period for the
Account from which some or all of the balance is being transferred, no Market
Value Adjustment or surrender charge will apply to the amount transferred.
Unless We receive Written Notice prior to the expiration date for an Account, a
new Guarantee Period will commence automatically on the first day following the
expiration date. The new Guarantee Period will be the same as the expiring
Guarantee Period if we are still offering that Guarantee Period and if the
expiration date of the new Guarantee Period is no later than the Annuity Date.
Otherwise the new Guarantee Period will be one year. If the expiring Account is
an Interest Account, it will continue to be an Interest Account. If the expiring
Account is an Indexed Account, then it will continue to be an Indexed Account,
if the new Guarantee Period is one for which We offer Indexed Accounts;
otherwise, it will become an Interest Account.
Our notice to the Participant of the expiration of a Guarantee Period will
contain information about the then currently available Guarantee Periods and the
Guaranteed Interest Rates, Index Participation Rates, Caps, and Floors
applicable to such Guarantee Periods.
To the extent permitted by law, We reserve the right at any time to offer
Guarantee Periods that differ from those available when this Contract was
issued. We also reserve the right, at any time, to stop accepting Net Single
Premium allocations or transfers of Accumulation Value to a particular Guarantee
Period. Since the specific Guarantee Periods available may change periodically,
please contact the Service Center to determine the Guarantee Periods and the
Guaranteed Interest Rates, Index Participation Rates, Caps, and Floors currently
being offered.
R4-120368-A
<PAGE>
INDEX INCREASES - We will calculate the Index Increase for an Indexed Account at
each Certificate Anniversary. The Index Increase equals the Indexed Account
Value times the Index Increase Percentage Factor. If the Index Increase is
greater than zero we will increase the Indexed Account Value by the Index
Increase at the Certificate Anniversary.
The Index Increase Percentage Factor will not be less than the Floor or more
than the Cap declared at the previous Reset Date. Within those bounds, the Index
Increase Percentage Factor equals (a) multiplied by (b) where:
(a) is the Average Index Increase Percentage for the Indexed Account at the
Certificate Anniversary, and
(b) is the Index Participation Rate declared at the previous Reset Date for
the Account.
AVERAGE INDEX INCREASE PERCENTAGE - The Average Index Increase Percentage for an
Indexed Account at each Certificate Anniversary within a Guarantee Period
equals:
(b) - (a)
(a),
where
(a) is the value of the Index on the previous Certificate Anniversary, and
(b) is the arithmetic average of the values of the Index on each day that the
Exchange is open for business during the Averaging Period ending on the
Certificate Anniversary.
EXCESS INTEREST CREDITS - On each Reset Date, after making any Index Increase,
we will calculate an Excess Interest Credit. The amount of the Excess Interest
Credit will be the amount, if any, by which (a) plus (b) exceeds (c), where:
(a) is the sum of all Index Increases ever made to the Indexed Account
Values for the Certificate;
(b) is all interest ever credited to the Interest Accounts for the
Certificate; and
(c) is the sum of all interest ever credited to the Reference Value for the
Certificate, including previous Excess Interest Credits.
DEATH BENEFIT - In calculating the Death Benefit, We will treat the Date of
Death as the Reset Date for each Indexed Account. The Accumulation Value will
then include any Index Increases payable for the Certificate.
<PAGE>
TRANSFER RESTRICTIONS - The Participant may transfer some or all of the balance
of an Account (the "Source Account") to another Account (the "Destination
Account") subject to the following conditions:
Transfers may only occur at Certificate Anniversaries;
The Destination Account must be of an Account Type and Guarantee Duration
We then offer;
The date of transfer must be a Reset Date for the Destination Account,
unless it is a new Account;
<PAGE>
The Guarantee Period for a Destination Account may not be longer than the
number of years remaining until the Annuity Date;
If the date of transfer is not a Reset Date for the Source Account, then
the Guarantee Period for the Destination Account must be no shorter than
the number of years remaining in the Guarantee Period for the Source
Account, rounded up to the next whole number of years;
If the transfer occurs at a Reset Date for the Source Account then the
Destination Account may be any Account Type;
If the Source Account is an Interest Account then the Destination Account
may be any Account Type;
If the Source Account is an Indexed Account, then the Destination Account
may be a different Account Type only if the transfer occurs at a Reset Date
for the Source Account.
R4-120368-A
<PAGE>
MARKET VALUE ADJUSTMENT - Any surrender, withdrawal, transfer or application to
an Annuity Payment Option of an Indexed Account Value is subject to a Market
Value Adjustment that may be positive or negative, unless the effective date of
the surrender, withdrawal, transfer or application is within the Window Period.
A Market Value Adjustment reflects the change in prevailing current interest
rates since the date of allocation or transfer to that Guarantee Period.
Generally, if interest rates have increased since the beginning of the Guarantee
Period, then the application of the Market Value Adjustment will result in the
payment, upon surrender, withdrawal, transfer or application of amounts to an
Annuity Payment Option, of an amount less than the Indexed Account Value (or
portion thereof) being surrendered, withdrawn, transferred or applied to an
Annuity Payment Option.
Similarly, if interest rates have decreased since the beginning of the Guarantee
Period, then the application of the Market Value Adjustment will result in the
payment, upon surrender, withdrawal, transfer or application of amounts to an
Annuity Payment Option, of an amount greater than the Indexed Account Value (or
portion thereof) being surrendered, withdrawn, transferred or applied to an
Annuity Payment Option.
The Market Value Adjustment will be applied before the deduction of any
applicable surrender charge or Premium Tax Charge.
MARKET VALUE ADJUSTMENT FACTOR - The Market Value Adjustment for an Indexed
Account is computed by multiplying the amount being surrendered, withdrawn,
transferred, or applied to an Annuity Payment Option, by the applicable Market
Value Adjustment Factor.
The Market Value Adjustment Factor is calculated as:
[(1+a)/(1+b)](n/12) - 1
where:
"a" is the Guaranteed Interest Rate for an Interest Account with the same Reset
Date and Guarantee Period as the Indexed Account from which the amount is taken;
"b" is the Guaranteed Interest Rate is currently being offered for a Guarantee
Period equal to the time remaining to the expiration of the Guarantee Period for
the Indexed Account from which the amount is taken. Where the time remaining to
the expiration of the Guarantee Period is not 1, 3, 5, 7 or 10 years, "b" is the
rate found by linear interpolation between the rates for Interest Accounts with
Guarantee Periods closest to the time remaining or, if the time remaining is
less than 1 year, the rate for a 1 year period. If these are not available, We
will use a rate equal to the most recent Moody's Corporate Bond Yield Average -
Monthly Average Corporates as published by Moody's Investors Service, Inc.; and
"n" is the number of complete months remaining before the expiration of the
Guarantee Period for the Indexed Account from which the amount is taken.
TERMINATION - This rider terminates when the Contract to which it is attached
terminates.
Signed for the Valley Forge Life Insurance Company at Chicago, Illinois
S/ D.H. CHOOKASZIAN
Chairman of the Board
R4-120368-A
<PAGE>
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[GRAPHIC OMITTED]
Valley Forge Life Insurance Company
----------------------------------------------
Executive Office: A Stock Company Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
================================================================================
QUALIFIED PLAN RIDER
This Rider is part of the Contract to which it is attached. This Contract is
issued to or purchased by the trustee of a pension or profit-sharing plan
intended to qualify under Section 401(a) of the Code. The following provisions
apply and replace any contrary Contract provisions:
1 Except as allowed by the qualified pension or profit sharing plan of which
this Contract is a part, this Contract and Certificates under it may not be
transferred, sold, assigned, discounted or pledged, either as collateral
for a loan or as security for the performance of an obligation or for any
other purpose, to any person other than Us.
2 This Contract and Certificates under it shall be subject to the provisions,
terms, and conditions of the qualified pension or profit-sharing plan of
which this Contract is a part. Any payment, distribution, or transfer under
any Certificate under this Contract shall comply with the provisions, terms
and conditions of such plan as determined by the plan administrator,
trustee or other designated plan fiduciary. We shall be under no obligation
either (a) to determine whether any such payment, distribution, or transfer
complies with the provisions, terms and conditions of such plan or with any
applicable law, or (b) to administer such plan, including, without
limitation, any provisions required by the Retirement Equity Act of 1984.
3 Notwithstanding any provision to the contrary in this Contract or the
qualified pension or profit-sharing plan of which this Contract is a part,
We reserve the right to amend or modify this Contract, any Certificate
under this Contract, or this Rider to the extent necessary to comply with
any law, regulation, ruling or other requirement We deem to be necessary to
establish or maintain the qualified status of such pension or
profit-sharing plan.
Except as otherwise set forth above, this Rider is subject to the exclusions,
definitions, and provisions of this Contract.
Signed for the Valley Forge Life Insurance Company at Chicago, Illinois
S/ D.H. CHOOKASZIAN
Chairman of the Board
R4-120369-A
<PAGE>
================================================================================
[GRAPHIC OMITTED]
Valley Forge Life Insurance Company
----------------------------------------------
Executive Office: A Stock Company Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
================================================================================
INDIVIDUAL RETIREMENT ANNUITY RIDER
This Rider is part of the Contract to which it is attached. Certificates under
this Contract as amended are intended to qualify as individual retirement
annuities under Section 408(b) of the Code. The following provisions apply and
replace any contrary provisions of the Contract:
1. Any provision of the Contract that would allow for joint participants, or
that would allow more than one person to share distributions, is deleted.
2. Any Certificate under this Contract is not transferable or assignable
(other than pursuant to a divorce decree in accordance with applicable law)
and is established for the exclusive benefit of the Participant and the
Participant's beneficiaries. It may not be sold, assigned, alienated, or
pledged as collateral for a loan or as security.
3. The Participant's entire interest in their Certificate shall be
nonforfeitable.
4. The Single Premium for a Certificate shall be in cash. The Single Premium
may be any of the following:
a) A rollover contribution as described in Sections 402(c),
403(a)(4), 403(b)(8) or 408(d)(3) of the Code;
b) An amount transferred from another individual retirement account
or annuity;
c) A contribution pursuant to a Simplified Employee Pension as
provided in Section 408(k) of the Code.
The Participant shall have the sole responsibility for determining whether
the Single Premium meets applicable income tax requirements.
5. The Distribution Start Date is the date the Participant's entire
Accumulation Value will be distributed or commence to be distributed to the
Participant. The Participant's Distribution Start Date shall be no later
than April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2. The Participant shall have the sole
responsibility for requesting a distribution that complies with this Rider
and applicable law.
6. With respect to any amount which becomes payable under a Certificate during
the Participant's lifetime, such payment shall commence on or before the
Distribution Start Date and shall be payable in substantially equal
amounts, no less frequently than annually. Payments shall be made in the
manner as follows:
<PAGE>
a) in a lump sum, or
b) over the Participant's life, or
c) over the lives of the Participant and the Participant's designated
Beneficiary, or
d) over a period certain not exceeding the Participant's life
expectancy, or
e) over a period certain not exceeding the joint and last survivor
expectancy of the Participant and the Participant's designated
Beneficiary.
7. If the Participant's entire interest is to be distributed in other than a
lump sum, then the minimum amount to be distributed each year (commencing
with the calendar year following the calendar year in which the Participant
attains age 70 1/2 and each year thereafter) shall be determined in
accordance with Code Section 408(b)(3) and the regulations thereunder,
including the incidental death benefit requirements of Section 401(a)(9)(G)
of the Code, the regulations thereunder, and the minimum distribution
incidental benefit requirement of Proposed Income Tax Regulation Section
1.401(a)(9)-2. Payments must be either nonincreasing or may increase only
as provided in Proposed Income Tax Regulation 1.401(a)(9)-1, Q&A F-3.
R4-120370-A
<PAGE>
If the Participant dies after distribution of the Participant's interest
has commenced, the remaining portion of such interest will continue to be
distributed at least as rapidly as under the method of distribution being
used prior to the Participant's death.
If the Participant dies before distribution has begun, the entire interest
must be distributed no later than December 31 of the calendar year in which
the fifth anniversary of the Participant's death occurs. However, proceeds
which are payable to a named Beneficiary who is a natural person may be
distributed in substantially equal installments over the lifetime of the
Beneficiary or a period certain not exceeding the life expectancy of the
Beneficiary provided such distribution begins not later than December 31 of
the calendar year in which the Participant's death occurred. If the
Beneficiary is the Participant's surviving spouse, the Beneficiary may
elect not later than December 31 of the calendar in which the fifth
anniversary of the Participant's death occurs to receive equal or
substantially equal payments over the life or life expectancy of the
surviving spouse commencing at any date prior to the date on which the
Participant would have attained age 70 1/2. Minimum payments will be
calculated in accordance with Code Section 408(b)(3) and the regulations
thereunder.
For the purposes of this requirement, any amount paid to any of the
Participant's children will be treated as if it had been paid to the
Participant's surviving spouse if the remainder of the interest becomes
payable to the surviving spouse when the child reaches the age of majority.
8. If the Participant's spouse is not the named Beneficiary, the method of
distribution selected will assure that at least 50% of the present value of
the amount available for distribution is paid within the Participant's life
expectancy and that such method of distribution complies with the
requirements of Code Section 408(b)(3) and the regulations thereunder.
9. For purposes of the foregoing provisions, life expectancy and joint and
last survivor expectancy shall be determined by use of the expected return
multiples in Tables V and VI of Treasury Regulationss.1.72-9 in accordance
with Code Section 408(b)(3) and the regulations thereunder. In the case of
distributions under paragraph (6) of this Rider, the life expectancy of the
Participant and the Participant's Beneficiary will be initially determined
on the basis of their attained ages in the year the Participant reaches 70
1/2. In the case of a distribution under paragraph (7) of this Rider, life
expectancy will be initially determined on the basis of the Beneficiary's
attained age in the year distributions are required to commence. Unless the
Participant (or the Participant's spouse) elect otherwise prior to the time
distributions are required to commence, the Participant's life expectancy
and, if applicable, the Participant's spouse's life expectancy will be
recalculated annually based on their attained ages in the year for which
the required distribution is being determined. The life expectancy of a
nonspouse Beneficiary will not be recalculated.
The annual distribution required to be made by the Participant's
Distribution Start Date is for the calendar year in which the Participant
reached age 70 1/2. Annual payments for subsequent years, including the
year in which the Participant's Distribution Start Date occurs, must be
made by December 31 of that year. The amount distributed for each year
shall equal or exceed the Accumulation Value as of the close of business on
December 31 of the preceding year, divided by the applicable life
expectancy or joint and last survivor expectancy.
<PAGE>
The Participant may satisfy the minimum distribution requirements under
Section 408(b)(3) of the Code by receiving a distribution from one IRA that
is equal to the amount required to satisfy the minimum distribution
requirement for two or more IRA's. For this purpose, if the Participant
owns two or more IRAs, the Participant may use the alternative method
described in Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum
distribution requirements.
10. We reserve the right to amend this Contract, any Certificate under this
Contract, or this Rider to the extent necessary to qualify as an individual
retirement annuity for federal income tax purposes.
11. This Rider is effective as of the Group Contract Issue Date.
This Rider is subject to all the exclusions, definitions and provisions of the
Contract which are not inconsistent herewith.
Signed for the Valley Forge Life Insurance Company at Chicago, Illinois
S/ D.H. CHOOKASZIAN
Chairman of the Board
R4-120370-A
<PAGE>
================================================================================
[GRAPHIC OMITTED]
Valley Forge Life Insurance Company
----------------------------------------------
Executive Office: A Stock Company Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
================================================================================
NURSING HOME CONFINEMENT / TERMINAL MEDICAL
CONDITION RIDER
GENERAL PROVISION - This rider is a part of the Contract. It is subject to all
the terms of the Contract unless We state otherwise.
REQUIREMENTS - This rider provides the benefit set out below for the Annuitant
under a Certificate and the Annuitant's spouse, subject to the following
requirements:
1. if the Annuitant is confined to a nursing home or has a Terminal Medical
Condition on the Issue Date, then the Annuitant will not be covered under
this rider; and
2. if the Annuitant's spouse is confined to a nursing home or has a Terminal
Medical Condition on the Issue Date, then the Annuitant's spouse will not
be covered under this rider.
CONSIDERATION - This rider is issued in consideration of the Group Application.
There is no cost associated with this rider.
BENEFIT - If the Annuitant is confined to a nursing home for a period of at
least 90 days or has a Terminal Medical Condition, the Free Withdrawal
Percentage for the Certificate as referenced in Section 8.1 is changed to 50%.
If the Annuitant's spouse is confined to a nursing home for a period of at least
90 days or has a Terminal Medical Condition, the Free Withdrawal Percentage for
the Certificate as referenced in Section 8.1 is changed to 25%.
Terminal Medical Condition means a determinable medical condition, diagnosed by
a physician practicing within the scope of his or her license, with the life
expectancy of 12 months or less from the date of the physician's diagnosis.
TERMINATION - This rider will terminate upon the termination of the Contract.
Signed for the Valley Forge Life Insurance Company at Chicago, Illinois
S/ D.H. CHOOKASZIAN
Chairman of the Board
R4-120371-A
<PAGE>
[GRAPHIC OMITTED]
VALLEY FORGE LIFE INSURANCE
APPLICATION
for a Group Annuity Contract for eligible Annuitants of:
(Contractholder)
Address:________________________________________________________________________
Dated at_____________________________this_______________day of____________19____
Witness_________________________________By______________________________________
Z4-119798-A
<PAGE>
GROUP SINGLE PREMIUM DEFERRED MODIFIED GUARANTEED ANNUITY CONTRACT
NON-PARTICIPATING
P4-119941-A
================================================================================
[GRAPHIC OMITTED]
Valley Forge Life Insurance Company
----------------------------------------------
Executive Office: A Stock Company Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
================================================================================
In this Certificate, Valley Forge Life Insurance Company is referred to as "We,"
"Us," "Our," or the "Company." "You" and "Your" refer to the Participant.
This is a Certificate issued in conformance with the Group Single Premium
Deferred Annuity Contract. If there is a conflict between the Group Contract and
the Certificate, the Group Contract will control.
This cover sheet provides only a brief outline of some of the important features
of the Certificate. This cover sheet is not the insurance contract and only the
actual policy provisions will control. The Certificate itself sets forth, in
detail, the rights and obligations of both the Participant and the Valley Forge
Life Insurance Company. We agree to pay the benefits as described in this
Certificate in accordance with its provisions.
PLEASE READ THIS CERTIFICATE CAREFULLY
It is a legal contract between You and Us.
NOTICE OF 10-DAY CANCELLATION PERIOD
Please read this Certificate carefully. If for any reason You are not satisfied
with this Certificate, You may return it to Us for cancellation by delivering or
mailing it to:
1. Valley Forge Life Insurance Company Service Center, 95 Bridge Street,
Haddam, Connecticut 06438, or
2. the agent through whom it was purchased.
To cancel this Certificate, You must return it to Us no later than 10 days after
You first receive it. Upon delivery or mailing, this Certificate will be void as
of the date We receive it and Your request for cancellation and We will promptly
return Your Single Premium, or, in those jurisdictions where required by law,
pay You the Adjusted Accumulation Value instead.
Signed for the Valley Forge Life Insurance Company at its Executive Office, CNA
Plaza, Chicago, Illinois 60685.
S/ D.H. CHOOKASZIAN S/ D.W. LOWRY
Chairman of the Board Secretary
ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THIS CERTIFICATE ARE SUBJECT TO A
MARKET VALUE ADJUSTMENT, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD
ADJUSTMENTS IN AMOUNTS PAID (INCLUDING WITHDRAWALS, SURRENDERS, TRANSFERS, DEATH
BENEFITS AND AMOUNTS APPLIED TO PURCHASE ANNUITY PAYMENTS) TO A PARTICIPANT OR
OTHER PAYEE. PAYMENTS WITHIN AN APPLICABLE WINDOW PERIOD ARE NOT SUBJECT TO THE
MARKET VALUE ADJUSTMENT.
SINGLE PREMIUM DEFERRED MODIFIED GUARANTEED ANNUITY CERTIFICATE
NON-PARTICIPATING
Q4-119942-A
<PAGE>
CERTIFICATE SPECIFICATIONS
GROUP CONTRACT HOLDER: Valley Forge Indexed Annuity Trust
GROUP CONTRACT NUMBER: 00001
CERTIFICATE NUMBER: 0000001
PARTICIPANT: JOHN DOE
PARTICIPANT'S AGE: 45
ANNUITANT: JOHN DOE
ANNUITANT'S AGE: 45
BENEFICIARY: JANE DOE, WIFE OF JOHN DOE
ISSUE DATE: MAY 1, 1996
INVESTMENT START DATE: MAY 15, 1996
ANNUITY DATE: MAY 1, 2016
ANNUITY PAYMENT DATE: MAY 1, 2016
ANNUITY PAYMENT OPTION: LIFE WITH TEN YEARS CERTAIN
ANNUITY PAYMENT FREQUENCY: MONTHLY
SINGLE PREMIUM: $500,000
FREE WITHDRAWAL PERCENTAGE: 10%
MINIMUM WITHDRAWAL AMOUNT: $500
MINIMUM ALLOCATION AMOUNT: $500
MINIMUM ALLOCATION PERCENTAGE: 1%
MINIMUM TRANSFER AMOUNT: $500
MINIMUM ACCOUNT VALUE: $500
PAYEE: JOHN DOE
MINIMUM INTEREST RATE: 3%
SHORT TERM INTEREST RATE: 3%
PREMIUM TAX CHARGE: 0%
<PAGE>
ACCOUNT SPECIFICATIONS
GUARANTEE PERIOD: [5 Certificate Years] [7 Certificate Years]
GUARANTEED INTEREST RATE: 4.75% for the first Guarantee Period; as declared by
Us for each Guarantee Period thereafter
SURRENDER CHARGE PERCENTAGE: [7%] [8%]
The surrender charge is zero during the Window Period: at all other times, it is
equal to the Net Allocation times the Surrender Charge Percentage. The Surrender
Charge Percentage is constant until the Certificate anniversary ten years before
the Annuity Date, and then declines in ten equal steps to zero on the Annuity
Date.
NET SINGEL PREMIUM ALLOCATION: 50%
<PAGE>
INDEX RIDER SPECIFICATIONS
GUARANTEE PERIOD: [5 Certificate Years] [ 7 Certificate Years]
RIDER CHARGE: [0.85% per Certificate Year] [1.50% per Certificate Year]
INDEX: The Standard & Poor's 500 composite Stock Price Index
FLOOR: 0% for the first Guarantee Period; as declared by Us for each Guarantee
Period thereafter, but not less than 0%
CAP: 12% for the first Guarnatee Period; as declared by Us for each Guarantee
Perid thereafter
INDEX PARTICIPATION RATE: 70% for the first Guarantee Perid; as declared by Us
for each Guarantee Period thereafter
AVERAGING PERIOD: [90 days] [365 days]
SURRENDER CHARGE PERCENTAGE: [7%] [8%]
The surrender charge is zero during the Window Period: at all other times, it is
equal to the Net Allocation times the Surrender Charge Percentage. The Surrender
Charge Percentage is constant until the Certificat Anniversary ten years before
the Annuity Date, and then declines in ten equal steps to zero on the Annuity
Date.
NET SINGLE PREMIUM ALLOCATION: 50%
"S&P 500" and "Standard & Poor's 500" are trademarks of McGraw-Hill, Inc. and
have been licensed for use by Valley Forge Life Insurance Company. This annuity
is not sponsored, endorsed, sorld, or promoted by Standard & Poor's makes noo
representation regarding the advisability of purchasing the annuity.
<PAGE>
TABLE OF CONTENTS
Section
SECTION 1. DEFINITIONS...........................................1
SECTION 2. GENERAL PROVISIONS....................................2
SECTION 3. THE PARTICIPANT.......................................3
SECTION 4. THE SEPARATE ACCOUNTS.................................4
SECTION 5. THE ACCOUNTS..........................................5
SECTION 6. ALLOCATIONS AND TRANSFERS.............................6
SECTION 7. CALCULATION OF VALUES.................................7
SECTION 8. FEES AND CHARGES......................................8
SECTION 9. PAYMENT OF BENEFITS...................................9
SECTION 10. DEATH BENEFITS......................................10
SECTION 11. ANNUITY PROVISIONS AND PAYMENT OPTIONS..............11
Q4-119942-A
<PAGE>
SECTION 1: DEFINITIONS
Account: An account to which We credit a specified and guaranteed rate of
interest.
Account Value: An amount on which We credit a specified and guaranteed rate of
interest, as described in Section 5.1 of the Certificate.
Accumulation Value: The total amount invested under the Certificate. It is the
sum of the Account Values.
Adjusted Accumulation Value: The Accumulation Value, plus or minus any
applicable Market Value Adjustment, less Premium Tax Charges not previously
deducted.
Adjusted Reference Value: The Reference Value multiplied by the ratio of the
Adjusted Accumulation Value to the Accumulation Value.
Age: The Age of any person on the birthday nearest the date for which Age is
determined.
Annuitant: The person or persons whose life (or lives) determines the Annuity
Payments payable under the Certificate and whose death determines the death
benefit. With regard to joint and survivorship Annuity Payment Options, the
maximum number of joint Annuitants is two and provisions referring to the death
of an Annuitant mean the death of the last surviving Annuitant. Provisions
relating to an action by the Annuitant mean, in the case of joint Annuitants,
both Annuitants acting jointly.
Annuity Date: The date on which the Annuity Value will be applied to purchase an
Annuity.
Annuity Payment: One of several periodic payments made by the Company to the
Payee under an Annuity Payment Option.
Annuity Payment Date: The date each month, quarter, semiannual period or year as
of which We make Annuity Payments.
Annuity Payment Option: The form of Annuity Payments selected by the Participant
under the Certificate.
Annuity Value: The amount that will be applied on the Annuity Date to purchase
an Annuity, as described in Section 11.2 of the Certificate.
Beneficiary: The person(s) to whom the death benefit will be paid on the death
of the Participant or Annuitant.
Business Day: A day on which the New York Stock Exchange is open for trading and
the Company is open for business.
Cancellation Period: The period described on the cover page of this Certificate
during which the Participant may return the Certificate for a refund of the
Single Premium, or, in those jurisdictions where required by law, the Adjusted
Accumulation Value.
The Code: The Internal Revenue Code of 1986, as amended.
Certificate Anniversary: The same date in each Certificate Year as the
Investment Start Date.
Certificate Year: A twelve-month period beginning on the Investment Start Date
or on a Certificate Anniversary.
<PAGE>
Contingent Annuitant: The person designated by the Participant in the
application who becomes the Annuitant in the event that the Annuitant dies
before the Annuity Date while the Participant is still alive.
Contingent Beneficiary: The person(s) to whom the death benefit will be paid if
the beneficiary (or beneficiaries) is not living.
Due Proof of Death: Proof of death satisfactory to the Company. Due Proof of
Death may consist of the following if acceptable to the Company: (a) a certified
copy of the death record; (b) a certified copy of a court decree reciting a
finding of death; or (c) any other proof satisfactory to the Company.
Exchange: The New York Stock Exchange.
General Account: The assets of the Company other than those allocated to the
Separate Accounts or any other separate account of the Company.
Group Contract: the Group Contract is the deferred annuity contract issued to
the Group Contract Holder.
Guarantee Period: A specific number of years for which the Company agrees to
credit a specified effective annual rate of interest to an Account.
Guaranteed Interest Rate: An effective annual rate of interest that the Company
will pay on an Account. The Guaranteed Interest Rate will not be less than the
Minimum Interest Rate.
T4-119957-A
<PAGE>
Home Office: The Company's office at 401 Penn Street, Reading, PA 19601.
Investment Start Date: The Investment Start Date is set forth on the Certificate
Specifications page and is used to determine Certificate Years and Certificate
Anniversaries.
Issue Date: The date on which We receive the Single Premium.
Market Value Adjustment: A positive or negative adjustment made to any portion
of an Account Value upon the surrender, withdrawal, transfer, or application to
an Annuity Payment Option of that portion of the Account Value. No Market Value
Adjustment applies during the Window Period.
Net Allocation: The amount allocated to an Account at its most recent Reset
Date, less withdrawals and transfers from the Account since then (including any
surrender charges and any Market Value Adjustments decreasing the Account
Value).
Net Single Premium: The Single Premium less any Premium Tax Charge deducted from
it.
Non-Qualified Certificate: A Certificate that is not a "qualified certificate".
Participant: The person or persons to whom the Certificate belongs and who is
(are) entitled to exercise all rights and privileges provided in the
Certificate. Also referred to herein as "You" or "Your". The maximum number of
joint Participants is two. Provisions relating to action by the Participant
mean, in the case of joint Participants, both Participants acting jointly.
Payee: The person(s) entitled to receive Annuity Payments under the Certificate.
Premium Tax Charge: A charge shown on the Certificate Specifications page that
is deducted either from the Single Premium or from the Accumulation Value prior
to surrender, annuitization or death of the Participant or Annuitant.
Qualified Certificate: A Certificate that is issued in connection with a
retirement plan that qualifies for special federal income tax treatment under
Sections 401, 408 or 457 of the Code.
Reference Value: a minimum guaranteed value used to calculate benefits under the
Certificate.
Reset Dates: The date that an amount is first allocated to an Account is the
first Reset Date for that Account. The start of the next Guarantee Period is the
next Reset Date for that Account.
SEC: The U.S. Securities and Exchange Commission.
Separate Accounts: The Valley Forge Life Insurance Company Indexed Separate
Account and the Valley Forge Life Insurance Company MVA Guaranteed Interest
Separate Account.
Service Center: The Company's service center at 95 Bridge Street, Haddam,
Connecticut 06438.
Short Term Interest Rate: The rate of interest credited to the Net Single
Premium from the Issue Date to the Investment Start Date, as shown on the
Certificate Specifications page.
<PAGE>
Surrender Value: The greater of:
1. the Adjusted Accumulation Value less any applicable surrender charges, and
2. the Adjusted Reference Value.
The Company, We, Us or Our: Valley Forge Life Insurance Company.
Window Period - The last 30 calendar days of each Guarantee Period.
Written Notice: A notice or request submitted in writing in a form satisfactory
to the Company that is signed by the Participant and received at the Service
Center.
T4-119957-A
<PAGE>
SECTION 2: GENERAL PROVISIONS
2.1 THE CERTIFICATE - We have issued this Certificate in
consideration of Your application and Your payment of the Single
Premium. The entire contract is made up of the Group Contract,
this Certificate, any attached riders or endorsements, and the
attached copy of the application. In the absence of fraud, We
consider statements made in the application to be representations
and not warranties. We will not use any statement in defense of a
claim or to void this Certificate unless it is contained in the
attached application. Only one of Our officers may modify this
Certificate or waive any of Our rights or requirements under this
Certificate. Any modification or waiver must be in writing. No
agent may bind the Company by making any promise not contained in
this Certificate.
2.2 INCONTESTABILITY - We will not contest this Certificate.
2.3 MISSTATEMENT OF AGE OR SEX - If the Age or sex of the Annuitant has
been misstated, the Company will adjust the benefits it pays under this
Certificate to the amount that would have been payable at the correct
Age and sex. If the Company made any underpayments because of any such
misstatement, it shall pay the amount of such underpayment plus
interest at an annual effective rate of 3%, immediately to the Payee or
Beneficiary in one sum. If the Company makes any overpayments because
of a misstatement of Age or sex, it shall deduct from current or future
payments due under this Certificate, the amount of such overpayment
plus interest at an annual effective rate of 3%.
2.4 PERIODIC REPORTS - At least annually, or more often as required by
law, the Company will mail to Participants at their last known address
a report showing the following items as of a date shown on the report:
the value of the Accounts; the Accumulation Value, Adjusted
Accumulation Value, Reference Value, Adjusted Reference Value, and
Surrender Value; any withdrawals or surrenders made and death benefits
paid since the last report; the current interest rate applicable to
each Account; and any other information required by law.
2.5 MODIFICATION - Upon notice to the Participant, the Company may
modify the Certificate to: conform the Certificate or the operations of
the Company or of the Separate Accounts to the requirements of any law
(or regulation issued by a government agency) to which the Group
Contract, the Certificate, the Company or the Separate Accounts are
subject; assure continued qualification of the Certificate as an
annuity certificate under the Code; or reflect a change (as permitted
in this Certificate) in the operation of the Separate Accounts. In the
event of any such modification, the Company will make appropriate
endorsements to the Certificate.
2.6 NON-PARTICIPATING - This Certificate does not participate in
the surplus or profits of the Company and the Company does not pay
dividends on it.
2.7 PROTECTION OF PROCEEDS - To the extent permitted by law, no
benefits payable under this Certificate to a Beneficiary or Payee are
subject to the claims of a Participant's or a Beneficiary's creditors.
2.8 DISCHARGE OF LIABILITY - Any payments made by Us under any Annuity
Payment Option or in connection with the payment of any withdrawal,
surrender or death benefit, shall discharge Our liability to the extent
of each such payment.
<PAGE>
2.9 SINGLE PREMIUM - The Single Premium is shown on the Certificate
Specifications page. The Company will not issue the Certificate until
it receives the Single Premium.
2.10 PROOF OF AGE AND SURVIVAL - The Company reserves the right to
require proof of the Age or Ages of the Annuitant or Annuitants prior
to the Annuity Date. In addition, for life contingent Annuity Options,
the Company reserves the right to require proof of the Annuitant's
survival before any Annuity Payment Date.
T4-119958-A
<PAGE>
SECTION 3: THE PARTICIPANT
3.1 PARTICIPANT - This Certificate belongs to the Participant. The
Participant, as shown on the Certificate Specifications page, or as
subsequently changed, may exercise all rights under this Certificate.
Subject to more specific provisions elsewhere herein, these rights
include the right to: (1) select or change a successor Participant, (2)
select or change any Beneficiary or Contingent Beneficiary, (3) select
or change the Payee prior to the Annuity Date, (4) select or change the
Annuity Payment Option, (5) allocate the Net Single Premium among and
between the Accounts, and (6) transfer Accumulation Value among and
between the Accounts.
3.2 ASSIGNMENT - At any time before the Annuity Date while the
Annuitant is still living, the Participant may assign this certificate
by Written Notice. We are not responsible for the validity or
sufficiency of any assignment. Your rights and the rights of any
Beneficiary will be affected by an assignment. The Company is not bound
by the assignment until it receives a duplicate of the original of the
assignment at the Service Center.
3.3 SUCCESSOR PARTICIPANT - If a successor Participant is named in the
application or by subsequent Written Notice and the Participant is not
the Annuitant, the successor Participant shall become the new
Participant should the Participant die before the Annuitant.
3.4 CHANGING THE BENEFICIARY - The Participant may change the
Beneficiary by Written Notice at any time before a death benefit is
paid. If, however, the Participant previously irrevocably named a
Beneficiary, that Beneficiary's written consent must be provided to the
Company before a new Beneficiary is designated. Any change of
Beneficiary is effective as of the date Written Notice is received at
the Service Center and the Company is not liable for any payments made
under the Certificate prior to the effectiveness of any Beneficiary
change.
3.5 PAYEE - The Annuitant is the Payee unless the Participant
designates a different person as Payee.
SECTION 4: THE SEPARATE ACCOUNTS
4.1 SEPARATE ACCOUNTS - We have established the Separate Accounts in
connection with the Group Contract and Certificates issued under it.
The Separate Accounts are subject to the laws of Our state of domicile.
We established the Valley Forge Life Insurance Company MVA Guaranteed
Interest Separate Account with respect to the Accounts. Although We own
the assets in the Valley Forge Life Insurance Company MVA Guaranteed
Interest Separate Account, these assets are held separately from Our
other assets and are not part of Our General Account. The values and
benefits attributable to the Accounts are supported by the assets in
the Valley Forge Life Insurance Company MVA Guaranteed Interest
Separate Account and Our General Account. The portion of the assets of
the Valley Forge Life Insurance Company MVA Guaranteed Interest
Separate Account equal to the reserves and other liabilities of the
Valley Forge Life Insurance Company MVA Guaranteed Interest Separate
Account are not chargeable with liabilities that arise from any other
business that We conduct. We have the right to transfer to Our general
account any assets of the Valley Forge Life Insurance Company MVA
Guaranteed Interest Separate Account that are in excess of such
reserves and other liabilities.
<PAGE>
The Company's obligations under (and the values and benefits under) the
Certificates do not vary as a function of the investment performance of
the Separate Accounts. Participants, Beneficiaries and Payees with
rights under a Certificate do not participate in the investment gains
or losses of the assets of the Separate Accounts. Such gains or losses
accrue solely to the Company. The Company retains the risk that the
value of the assets in the Separate Accounts may fall below the
reserves and other liabilities that it must maintain in connection with
its obligations under the Certificates. In such an event, the Company
will transfer assets from its General Account to the Separate Accounts
to make up the difference. The Separate Accounts are not registered as
investment companies under the Investment Company Act of 1940.
T4-119959-A
<PAGE>
SECTION 5: THE ACCOUNTS
5.1 ACCOUNTS - Accounts are supported by the Valley Forge Life
Insurance Company MVA Guaranteed Interest Separate Account and Our
General Account. The Net Single Premium may be allocated to, and
transfers of Accumulation Value may be made to, the Accounts. Account
Value is not determined by and does not reflect the investment
performance of the Separate Account.
Through the Accounts, the Company offers specified effective annual
rates of interest (Guaranteed Interest Rates) that are available for
specified periods of time You select (Guarantee Periods) from those We
offer. Although the Guaranteed Interest Rate may differ among Guarantee
Periods, it will never be less than the Minimum Interest Rate shown on
the Certificate Specifications page.
Initial Guarantee Periods begin on the date as of which the Net Single
Premium is allocated or an amount of Accumulation Value is transferred
to an Account and end when the number of years in the Guarantee Period
elected has elapsed. The last day of the Guarantee Period is the
expiration date for that Guarantee Period. Subsequent Guarantee Periods
begin on the first day following the expiration date of a previous
Guarantee Period.
Allocations of the Net Single Premium and transfers of Accumulation
Value to the Accounts may have different applicable Guaranteed Interest
Rates depending on the timing of such allocations or transfers.
However, the applicable Guaranteed Interest Rate does not change during
a Guarantee Period. The Company will notify Participants in writing at
least 30 days prior to the expiration date of any Guarantee Period.
If the allocated or transferred amount remains in the Account until the
end of the applicable Guarantee Period, the Account Value at that time
will be equal to the amount originally allocated or transferred,
multiplied, on an annually compounded basis, by the Guaranteed Interest
Rate. If an Account Value is surrendered, withdrawn, transferred, or
applied to an Annuity Payment Option prior to the expiration of the
Guarantee Period, the Account Value is subject to a Market Value
Adjustment and a surrender charge, as described below.
5.2 ACCOUNT SELECTION - By Written Notice prior to the expiration
date for an Account You may:
choose a different Guarantee Period, with expiration date no
later than the Annuity Date, from among those We offer at that
time;
transfer all or a portion of the expiring Account Value to a new
Account; or
transfer all or a portion of the expiring Account Value to an
existing Account for which the next Reset Date falls on the day
after the expiration date for the expiring Account.
Unless We receive Written Notice prior to the expiration date for an
Account, a new Guarantee Period will commence automatically on the
first day following the expiration date. The new Guarantee Period will
be the same as the expiring Guarantee Period if we are still offering
that Guarantee Period and if the expiration date of the new Guarantee
Period is no later than the Annuity Date. Otherwise the new Guarantee
Period will be one year.
Our notice to the Participant of the expiration of a Guarantee Period
will contain information about the then currently available Guarantee
Periods and the Guaranteed Interest Rates applicable to such Guarantee
Periods.
<PAGE>
To the extent permitted by law, We reserve the right at any time to
offer Guarantee Periods that differ from those available when Your
Certificate was issued. We also reserve the right, at any time, to stop
accepting Net Single Premium allocations or transfers of Accumulation
Value to a particular Guarantee Period. Since the specific Guarantee
Periods available may change periodically, please contact the Service
Center to determine the Guarantee Periods and Guaranteed Interest Rates
currently being offered.
5.3 MARKET VALUE ADJUSTMENT - Any surrender, withdrawal, transfer or
application to an Annuity Payment Option of an Account Value is subject
to a Market Value Adjustment that may be positive or negative, unless
the effective date of the surrender, withdrawal, transfer or
application is within the Window Period. A Market Value Adjustment
reflects the change in prevailing current interest rates since the date
of allocation or transfer to that Account.
Generally, if interest rates have increased since the beginning of the
Guarantee Period, then the application of the Market Value Adjustment
will result in the payment, upon surrender, withdrawal, transfer or
application of amounts to an Annuity Payment Option, of an amount less
than the Account Value (or portion thereof) being surrendered,
withdrawn, transferred or applied to an Annuity Payment Option.
Conversely, if interest rates have decreased since the beginning of the
Guarantee Period, then the application of the Market Value Adjustment
will result in the payment, upon surrender, withdrawal, transfer or
application of amounts to an Annuity Payment Option, of an amount
greater than the Account Value (or portion thereof) being surrendered,
withdrawn, transferred or applied to an Annuity Payment Option.
T4-119960-A
<PAGE>
The Market Value Adjustment will be applied before the deduction of any
applicable surrender charge or Premium Tax Charge.
5.4 MARKET VALUE ADJUSTMENT FACTOR - The Market Value Adjustment is
computed by multiplying the amount being surrendered, withdrawn,
transferred, or applied to an Annuity Payment Option, by the Market
Value Adjustment Factor.
The Market Value Adjustment Factor is calculated as:
[(1+a)/(1+b)](n/12) - 1
where:
"a" is the Guaranteed Interest Rate currently being credited to the
Account from which the amount is taken;
"b" is the Guaranteed Interest Rate currently being offered for a
Guarantee Period equal to the time remaining to the expiration of the
Guarantee Period for the Account from which the amount is taken. Where
the time remaining to the expiration of the Guarantee Period is not 1,
3, 5, 7 or 10 years, "b" is the rate found by linear interpolation
between the rates for Accounts with Guarantee Periods closest to the
time remaining or, if the time remaining is less than 1 year, the rate
for a 1 year period. If these are not available, We will use a rate
equal to the most recent Moody's Corporate Bond Yield Average - Monthly
Average Corporates as published by Moody's Investors Service, Inc.; and
"n" is the number of complete months remaining before the expiration of
the Guarantee Period for the Account from which the amount is taken.
T4-119960-A
<PAGE>
SECTION 6: ALLOCATIONS AND TRANSFERS
6.1 NET SINGLE PREMIUM ALLOCATION - In the application, You must select
how the Net Single Premium is to be allocated among the Accounts. The
portion of the Net Single Premium that may be applied to an Account
must be a whole percentage. The minimum percentage that may be
allocated to an Account (the Minimum Allocation Percentage) is shown on
the Certificate Specifications page. The amount allocated must also be
at least equal to the Minimum Allocation Amount shown on the
Certificate Specifications page.
We will hold the Net Single Premium at interest at the Short Term
Interest Rate from the Issue Date to the Investment Start Date. On the
Investment Start Date, We will allocate the Net Single Premium with
interest to the Accounts selected by the Participant based on the
Participant's allocation percentages (shown in the application).
6.2 TRANSFERS - On any Certificate Anniversary, You may transfer some
or all of the balance of an Account to a new Account. You may also
transfer some or all of the balance to an existing Account for which
the Reset Date falls on the Certificate Anniversary. Transfers may not
occur other than at Certificate Anniversaries.
The amount transferred cannot be less than the Minimum Transfer Amount
shown on the Certificate Specifications page. If you do not transfer
the entire balance of an Account, the amount remaining in the Account
after the transfer must be at least equal to the Minimum Account Value
shown on the Certificate Specifications page.
If the transfer occurs at a Reset Date for the Account from which some
or all of the balance is being transferred, then You may select any
Guarantee Period We then offer that is not longer than the number of
years remaining until the Annuity Date. If the transfer does not occur
at such a Reset Date, then in addition the Guarantee Period You select
from those We then offer must be no shorter than the number of years
remaining in the Guarantee Period of the Account from which some or all
of the balance is being transferred, rounded up to the next whole
number of years.
A Market Value Adjustment will usually apply to the amount transferred.
However, if the transfer occurs during the Window Period for the
Account from which some or all of the balance is being transferred, no
Market Value Adjustment or surrender charge will apply to the amount
transferred.
T4-120363-A
<PAGE>
SECTION 7: CALCULATION OF VALUES
7.1 SURRENDER - You may surrender this Certificate for its Surrender
Value at any time before the Annuity Date. You may elect to have the
Surrender Value paid in a single sum or under an Annuity Payment
Option. The Certificate ends when We pay the Surrender Value or apply
such sum to an Annuity Payment Option. The Surrender Value will be
determined as of the date We receive Your Written Notice for surrender
and this Certificate at Our Service Center.
7.2 WITHDRAWALS - You may withdraw part of the Surrender Value at any
time before the Annuity Date, subject to these limits: the Minimum
Withdrawal Amount is shown on the Certificate Specifications page; the
maximum withdrawal is the amount that would leave a Minimum Account
Value of the amount shown on the Certificate Specifications page; and a
withdrawal request that would reduce any Account Value below the
Minimum Account Value shown on the Certificate Specifications page will
be treated as a request for a withdrawal of all of that Account Value.
We will withdraw the amount You request from the Accumulation Value as
of the day that We receive Your Written Notice and send to You that
amount plus or minus any applicable Market Value Adjustment. We will
then deduct any applicable surrender charge and any applicable Premium
Tax Charge shown on the Certificate Specifications page from the
remaining Accumulation Value.
Your Written Notice must specify the amount to be withdrawn from each
Account. If the Written Notice does not specify this information, or
any Account Value is inadequate to comply with Your request, We will
make the withdrawal based on the proportion that each Account Value
bears to the Accumulation Value as of the day of the withdrawal.
7.3 REFERENCE VALUE - The Reference Value at any time is equal to:
(a) 90% of the Single Premium; plus
(b) any Excess Interest Credits; less
(c) any charges for riders or additional benefits; less
(d) the total amount of any previous surrenders and withdrawals from
the Certificate; plus
(e) interest on the above items (a) through (d) credited annually at
the Minimum Interest Rate shown on the Certificate Specifications
page.
7.4 EXCESS INTEREST CREDITS - On each Reset Date, we will calculate an
Excess Interest Credit. The amount of the Excess Interest Credit will
be the amount, if any, by which (a) exceeds (b), where:
(a) is all interest ever credited to the Accounts; and
(b) is the sum of all interest ever credited to the Reference Value,
including previous Excess Interest Credits.
7.5 BASIS OF VALUES - Any paid-up annuity, surrender or death benefits that may
be available are at least equal to the minimum required by law in the
jurisdiction in which this Certificate is delivered. A detailed statement of the
method used to compute the minimum values has been filed, where required, with
the insurance officials of the jurisdiction in which this Certificate is
delivered.
T4-119949-A
<PAGE>
SECTION 8: FEES AND CHARGES
8.1 SURRENDER CHARGE - We will deduct a surrender charge upon any
surrender or withdrawal. The charge is equal to the Surrender Charge
Percentage as shown on the Certificate Specifications page times the
Net Allocation. No surrender charge applies to surrenders or
withdrawals in excess of the Net Allocation. Surrender charges for an
Account are waived during its Window Period.
In the first Certificate Year, We calculate the surrender charge under
the assumption that amounts surrendered and withdrawn come first from
the Net Allocation, and then from any interest credited to the Account
Value. The full surrender charge applies upon surrender. In calculating
the surrender charge applicable to withdrawals, the surrender charge is
prorated based on the ratio of the amount surrendered or withdrawn to
the Net Allocation.
In Certificate Years after the first, a Free Partial Withdrawal amount
is calculated, equal to the Net Allocation at the Certificate
Anniversary times the Free Withdrawal Percentage from the Certificate
Specifications page. You may withdraw an amount up to the Free Partial
Withdrawal amount from the Accounts once in each Certificate Year after
the first without incurring a surrender charge. Any further surrenders
and withdrawals are assumed to be taken from the remainder of the Net
Allocation, and then from any interest credited to the Account Value.
With regard to withdrawals, We will withdraw the amount You request
from the Accounts as of the day that We receive Your Written Notice and
send to You that amount plus or minus any applicable Market Value
Adjustment. We will then deduct any surrender charge and any applicable
Premium Tax Charge shown on the Certificate Specifications page from
the Account from which the withdrawal was taken.
If an Annuity Payment Option is selected on surrender then we will
apply the Annuity Value to the Annuity Payment Option. If on the
Annuity Date, however, the Payee elects (or the Participant previously
elected) to receive a lump sum, this sum will equal the Surrender Value
on such date.
8.2 PREMIUM TAX CHARGE - The charge shown on the Certificate
Specifications page is deducted either from the Single Premium or from
the Accumulation Value prior to surrender, annuitization or death of
the Participant or Annuitant.
8.3 OTHER TAX CHARGES - The Company reserves the right to deduct a
charge from the Single Premium or from the Accumulation Value for any
federal, state or municipal taxes (or other economic burden resulting
from the application of the tax laws) that it incurs that may be
attributable to the Certificate.
T4-120365-A
<PAGE>
SECTION 9: PAYMENT OF BENEFITS
9.1 PAYMENT OF BENEFITS - We will usually pay the proceeds of any
surrender, withdrawals, death benefit, or any Annuity Payments within
seven business days after receipt of all applicable Written Notices
and/or Due Proofs of Death. However, We have the right to defer payment
of any surrender, withdrawal, or transfer for up to six months from the
date We receive Your Written Notice. We will pay interest on the amount
of any payment that is delayed for more than 30 days after the payment
becomes payable; or after the time required by the applicable
jurisdiction, if less than 30 days. This interest will accrue from the
date that the payment becomes payable to the date of payment, but not
for more than one year at an annual rate of 3%, or the rate and time
required by law, if greater.
SECTION 10: DEATH BENEFITS
10.1 DEATH BENEFITS ON OR AFTER THE ANNUITY DATE - If a Participant
dies on or after the Annuity Date, any surviving joint Participant
becomes the sole Participant. If there is no surviving Participant, any
successor Participant becomes the new Participant. If there is no
surviving or successor Participant, the Payee becomes the new
Participant. If an Annuitant or a Participant dies on or after the
Annuity Date, the remaining undistributed portion, if any, of the
Annuity Value will be distributed at least as rapidly as under the
method of distribution being used as of the date of such death. Under
some Annuity Payment Options, there will be no death benefit.
10.2 DEATH BENEFIT BEFORE THE ANNUITY DATE
Death Benefit is computed as of the date that the Company receives Due
Proof of Death. Payments under this provision are full settlement of
all of the Company's liability under this Certificate.
Death of a Participant
The Death Benefit We will pay on the death of a Participant is the
Surrender Value.
If any Participant dies prior to the Annuity Date, any surviving
Participant becomes the new sole Participant. If there is no surviving
Participant, any successor Participant becomes the new Participant and
if there is no successor Participant the Annuitant becomes the new
Participant unless the deceased Participant was also the Annuitant. If
the sole deceased Participant was also the Annuitant, then the
provisions relating to the death of the Annuitant (described below)
will govern unless the deceased Participant was one of two joint
Annuitants, in which event the surviving Annuitant becomes the new
Participant. The following options are available to new Participants:
1. to receive the Death Benefit in a single lump sum within 5 years
of the deceased Participant's death; or
2. elect to receive the Death Benefit paid out under an Annuity
Payment Option provided that: (a) Annuity Payments begin within 1
year of the deceased Participant's death, and (b) Annuity Payments
are made in substantially equal installments over the life of the
new Participant or over a period not greater than the life
expectancy of the new Participant; or
<PAGE>
3. if the new Participant is the spouse of the deceased Participant,
he or she may by Written Notice within one year of the
Participant's death, elect to continue the Certificate as the new
Participant. If the spouse so elects, all of his or her rights as
a Beneficiary cease and if the deceased Participant was also the
sole Annuitant and appointed no Contingent Annuitant, the spouse
will become the Annuitant. The spouse will be deemed to have made
the election to continue the Certificate if he or she makes no
election before the expiration of the one year period described in
2. above.
With regard to new Participants who are not the spouse of the deceased
Participant: (a) 1 and 2 apply even if the Annuitant or Contingent
Annuitant is alive at the time of the deceased Participant's death, (b)
if the new Participant is not a natural person, only option 1 is
available, (c) if no election is made within one year of the deceased
Participant's death, option 1 is deemed to have been elected.
Death of the Annuitant
The Death Benefit We will pay on the death of an Annuitant is the
greater of the Accumulation Value and the Reference Value.
If the Annuitant dies before the Annuity Date while a Participant is
still living, any Contingent Annuitant will become the Annuitant. If
the Annuitant dies before the Annuity Date and no Contingent Annuitant
has been named, the Company will pay the Death Benefit to the
Beneficiary. If there is no surviving Beneficiary, the Company will pay
the Death Benefit to any Contingent Beneficiary. If there is no
surviving Contingent Beneficiary, the Company will immediately pay the
Death Benefit to the Participant (or the Participant's estate, if the
Participant is deceased) in a lump sum.
If the Annuitant who is also a Participant dies or if the Annuitant
dies and the Participant is not a natural person, a Beneficiary (or a
Contingent Beneficiary):
1. will receive the Death Benefit in a single lump sum within 5
years of the deceased Annuitant's death; or
2. may elect to receive the Death Benefit paid out under an Annuity
Payment Option provided that: (a) Annuity Payments begin within 1
year of the deceased Annuitant's death, and (b) Annuity Payments
are made in substantially equal installments over the life of the
Beneficiary or over a period not greater than the life expectancy
of the Beneficiary; or
If the Beneficiary is the spouse of the deceased Annuitant, he or
she may by Written Notice within one year of the Annuitant's
death, elect to continue the Certificate as the new Participant.
If the spouse so elects, all his or her rights as a Beneficiary
cease and if the deceased Annuitant was also the sole Annuitant
and appointed no Contingent Annuitant, the spouse will become the
Annuitant. The spouse will be deemed to have made the election to
continue the Certificate if he or she makes no election before the
expiration of the one year period.
T4-120366-A
<PAGE>
SECTION 11: ANNUITY PROVISIONS AND PAYMENT OPTIONS
11.1 ANNUITY BENEFITS - If this Certificate is in force and the
Annuitant is alive on the Annuity Date, payments to the Annuitant will
begin under the Annuity Payment Option chosen. You may choose or change
a payment option by sending Us Written Notice at least 30 days prior to
the Annuity Date.
11.2 ANNUITY VALUE - At any time on or before the fifth Certificate
Anniversary, the Annuity Value equals the Surrender Value. At any time
after the fifth Certificate Anniversary up to and including the Annuity
Date, the Annuity Value equals the greater of the Adjusted Accumulation
Value and the Adjusted Reference Value.
11.3 ANNUITY PAYMENTS - Annuity Payments are periodic payments from Us
to the designated Payee, the amount of which is fixed and guaranteed by
Us. The amount of these payments depends only on the form and duration
of the Annuity Payment Option selected, the Age of the Annuitant, the
sex of the Annuitant (if applicable), the Annuity Value applied to the
Annuity Payments and the applicable annuity purchase rates. The annuity
purchase rates in the Certificate are based on an interest rate of
3.0%.
The dollar amount of the Annuity Payment is determined by dividing the
dollar amount of Annuity Value being applied to purchase Annuity
Payments by $1,000 and multiplying the result by the annuity purchase
rate for the selected Annuity Payment Option.
11.4 INITIAL ANNUITY PAYMENT DATE - The initial Annuity Payment Date
You selected is shown on the Certificate Specifications page. The
initial Annuity Payment Date may not be the 29th, 30th, or 31st day of
a month. The first Annuity Payment will be computed as of the Annuity
Date and paid as of the initial Annuity Payment Date.
11.5 ANNUITY PAYMENT DATES - All subsequent Annuity Payments will be
computed and payable as of Annuity Payment Dates. These dates will be
the same day of the month as the initial Annuity Payment Date. Monthly
Annuity Payments will be computed and payable as of the same day each
month as the initial Annuity Payment Date. Quarterly Annuity Payments
will be computed and payable as of the same day in the third, sixth,
ninth, and twelfth month following the initial Annuity Payment Date and
on the same days of such months in each successive Certificate Year.
Semi-annual Annuity Payment Dates will be computed and payable as of
the same day in the sixth and twelfth month following the initial
Annuity Payment Date and on the same days of such months in each
successive Certificate Year. Annual Annuity Payments will be computed
and payable as of the same day in each Certificate Year as the initial
Annuity Payment Date. The frequency of Annuity Payments You have
selected also is shown on the Certificate Specifications page.
11.6 PAYMENT OPTION RATE TABLES - The amount of the monthly payments
per $1,000 applied is shown for an Annuity in these tables. Amounts for
ages not shown will be determined on a basis consistent with those
shown in these tables. The settlement option rate tables are based on
the 1983A Mortality Table, 3% interest and a five-year setback for
females.
<PAGE>
11.7 DEATH OF PAYEE - Unless instructed otherwise at the time that the
Annuity Payment Option is selected, at the death of the Payee We pay
the amounts below in a lump sum to the Payee's estate:
1. Under Annuity Payment Option 1, the amount left on deposit with
Us to accumulate interest.
2. Under Annuity Payment Option 2, 3, or 5, the commuted value of the
amount payable at the Payee's death as provided under the Option
selected. The commuted value is based on interest rate used to
calculate the amount of the payments under that Option.
11.8 OPTION 1, INTEREST PAYMENTS - We hold the Annuity Value as
principal and pay interest to the Payee. The interest rate is 3% per
year compounded annually. We pay interest every 1 year, 6 months, 3
months or 1 month, as specified at the time this option is selected. At
the death of the Payee, the value of the remaining payments is paid as
stated in Section 11.7.
11.9 OPTION 2, PAYMENTS OF A SPECIFIED AMOUNT - We pay the Annuity
Value in equal payments every 1 year, 6 months, 3 months or 1 month.
The amount and frequency of the payments is specified at the time this
option is selected. After each payment, interest is added to the
remaining amount applied under this option that has not yet been paid.
The interest rate is 3% per year compounded annually. Payments are made
to the Payee until the amount applied under this option, including
interest, is exhausted. The total of the payments made each year must
be at least 5% of the amount applied under this option. If the Payee
dies before the amount applied is exhausted, We pay the value of the
remaining payments as stated in Section 11.7.
11.10 OPTION 3, PAYMENTS FOR A SPECIFIED PERIOD - We pay the lump sum
in equal payments for the number of years specified when the option is
selected. Payments are made every 1 year, 6 months, 3 months or 1
month, as specified when the option is selected. The amount of each
Annuity Payment for each $1,000 applied under this option is shown in
T4-120367-A
<PAGE>
the tables 1 and 2. These amounts are calculated at an interest rate of
3% per year compounded annually. If the Payee dies before the
expiration of the specified number of years, We pay the value of the
remaining payments as stated in Section 11.7.
11.11 OPTION 4, LIFE ANNUITY - We make monthly payments to the Payee
for as long as the Annuitant lives. The amount of each Annuity Payment
for each $1,000 applied under this option is shown in table 3 below.
11.12 OPTION 5, LIFE ANNUITY WITH PERIOD CERTAIN - We make monthly
payments to the Payee for as long as the Annuitant lives. At the time
this option is selected, a period certain of 5, 10, 15, or 20 years
must also be selected. If the Annuitant dies before the specified
period certain ends, the payments to the Payee will continue until the
end of the specified period. The amount of the monthly payments
therefore depends on the period certain selected. The amount of each
Annuity Payment for each period certain available is shown in tables 4
and 5 below. The amounts shown are for each $1,000 applied under this
option. If at any age the amount of the payments is the same for two or
more periods certain, payment will be made as if the longest period
certain was selected.
11.13 OPTION 6, JOINT LIFE AND SURVIVORSHIP ANNUITY - We make
monthly payments to the Payee while both Annuitants are living.
After the death of either Annuitant, payments continue to the
Payee for as long as the other Annuitant lives. The amount of
each Annuity Payment for each $1,000 applied under this option is
shown in tables 6 and 7 below.
T4-120367-A
<PAGE>
<TABLE>
<CAPTION>
Table 1
<S> <C> <C> <C> <C> <C> <C> <C> <C>
||===========|========================|=========|=========================|==========|====================||
|| Number |Amount of Installments | Number | Amount of | Number | Amount of ||
|| of Years | | of Years| Installments | of Years| Installments ||
|| Specified | |Specified| | Specified| ||
|| |-------------|----------| |-------------|-----------| |----------|---------||
|| | Annual | S.A. | | Annual | S.A. | |Annual | S.A. ||
||-----------|-------------|----------|---------|-------------|-----------|----------|----------|---------||
|| 1 | $1,000.00| $503.70 | 9 | $124.69 | $62.81 | 17 | $73.74 | $37.14 ||
|| 2 | 507.39| 255.57 | 10 | 113.82 | 57.33 | 18 | 70.59 | 35.56 ||
|| 3 | 343.23| 172.89 | 11 | 104.93 | 52.85 | 19 | 67.78 | 34.14 ||
|| 4 | 261.19| 131.56 | 12 | 97.54 | 49.13 | 20 | 65.26 | 32.87 ||
|| 5 | 211.99| 106.78 | 13 | 91.29 | 45.98 | 25 | 55.76 | 28.08 ||
|| 6 | 179.22| 90.27 | 14 | 85.95 | 43.29 | 30 | 49.53 | 24.95 ||
|| 7 | 155.83| 78.49 | 15 | 81.33 | 40.96 | | | ||
|| 8 | 138.31| 69.67 | 16 | 77.29 | 38.93 | | | ||
||===========|=============|==========|=========|=============|===========|==========|==========|=========||
</TABLE>
T4-120367-A
<PAGE>
<TABLE>
<CAPTION>
Table 2
<S> <C> <C> <C> <C> <C> <C> <C> <C>
||=========|===========================|=========|========================|===========|======================||
|| Number | Amount of Installments | Number | Amount of | Number | Amount of ||
||of Years | | of Years| Installments |of Years | Installments ||
||Specified| |Specified| |Specified | ||
|| |--------------|------------| |------------|-----------| |-----------|==========||
|| | Quarterly | Monthly | |Quarterly | Monthly | | Quarterly | Monthly ||
||---------|--------------|------------|---------|------------|-----------|-----------|-----------|==========||
|| 1 | $252.78 | $84.47 | 9 | $31.52 | $10.53 | 17 | $18.64 | $6.23 ||
|| 2 | 128.26 | 42.86 | 10 | 28.77 | 9.61 | 18 | 17.84 | 5.96 ||
|| 3 | 86.76 | 28.99 | 11 | 26.52 | 8.86 | 19 | 17.13 | 5.73 ||
|| 4 | 66.02 | 22.06 | 12 | 24.66 | 8.24 | 20 | 16.50 | 5.51 ||
|| 5 | 53.59 | 17.91 | 13 | 23.08 | 7.71 | 25 | 14.09 | 4.71 ||
|| 6 | 45.30 | 15.14 | 14 | 21.73 | 7.26 | 30 | 12.52 | 4.18 ||
|| 7 | 39.39 | 13.16 | 15 | 20.56 | 6.87 | | | ||
|| 8 | 34.96 | 11.68 | 16 | 19.54 | 6.53 | | | ||
||=========|==============|============|=========|============|===========|===========|===========|==========||
</TABLE>
T4-120367-A
<PAGE>
<TABLE>
<CAPTION>
Table 3
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
|-------------------|----------|-------------------|--------|----------------|---------|
| Age | Option 4 | Age |Option 4| Age | Option 4|
| of Annuitant* | Monthly | of Annuitant* | Monthly| of Annuitant* | Monthly |
| | Life | | Life | | Life |
| | Annuity | | Annuity| | Annuity |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| Male | Female | | Male | Female | | Male | Female| |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 16 and | 21 and | | 39 | 44 | $3.61 | 63 | 68 | $5.75 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| under | under | $2.96 | 40 | 45 | 3.66 | 64 | 69 | 5.92 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 17 | 22 | 2.98 | 41 | 46 | 3.71 | 65 | 70 | 6.11 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 18 | 23 | 3.00 | 42 | 47 | 3.76 | 66 | 71 | 6.31 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 19 | 24 | 3.02 | 43 | 48 | 3.81 | 67 | 72 | 6.52 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 20 | 25 | 3.04 | 44 | 49 | 3.87 | 68 | 78 | 6.75 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 21 | 26 | 3.06 | 45 | 50 | 3.93 | 69 | 74 | 6.99 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 22 | 27 | 3.08 | 46 | 51 | 3.99 | 70 | 75 | 7.25 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 23 | 28 | 3.10 | 47 | 52 | 4.06 | 71 | 76 | 7.53 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 24 | 29 | 3.12 | 48 | 53 | 4.12 | 72 | 77 | 7.83 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 25 | 30 | 3.14 | 49 | 54 | 4.20 | 73 | 78 | 8.15 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 26 | 31 | 3.17 | 50 | 55 | 4.27 | 74 | 79 | 8.49 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 27 | 32 | 3.19 | 51 | 56 | 4.35 | 75 | 80 | 8.86 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 28 | 33 | 3.22 | 52 | 57 | 4.43 | 76 | 81 | 9.25 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 29 | 34 | 3.25 | 53 | 58 | 4.52 | 77 | 82 | 9.67 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 30 | 35 | 3.28 | 54 | 59 | 4.61 | 78 | 83 | 10.13 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 31 | 36 | 3.31 | 55 | 60 | 4.71 | 79 | 84 | 10.62 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 32 | 37 | 3.34 | 56 | 61 | 4.81 | 80 | 85 | 11.14 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 33 | 38 | 3.37 | 57 | 62 | 4.92 | 81 | and | 11.69 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 34 | 39 | 3.41 | 58 | 63 | 5.03 | 82 | over | 12.29 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 35 | 40 | 3.45 | 59 | 64 | 5.16 | 83 | | 12.92 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 36 | 41 | 3.48 | 60 | 65 | 5.29 | 84 | | 13.59 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 37 | 42 | 3.53 | 61 | 66 | 5.43 | 85 | | 14.30 |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| 38 | 43 | 3.57 | 62 | 67 | 5.59 | and | | |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
| | | | | | | over | | |
|---------|---------|----------|---------|---------|--------|------|---------|---------|
- ----------------------------------------------------
* Use the Annuitant's age nearest the Annuity Date.
</TABLE>
T4-120367-A
<PAGE>
<TABLE>
<CAPTION>
Table 4
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
|--------------------|-------------------|----------------|---------------|---------------|-----------------|
| | Number of | | Number Of | | Number of |
| Age | Years | Age | Years | Age | Years |
| of Annuitant* | Specified | of Annuitant* | Specified | of Annuitant*| Specified |
|--------------------|-------------------|----------------|---------------|---------------|-----------------|
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| Male | Female| 5 | 10 | Male | Female| 5 | 10 | Male | Female| 5 | 10 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 16 and | 21 and| | | 39 | 44 | $3.61 | $3.60| 63 | 68 | $5.70 | $5.53 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| under | under | $2.96 | $2.96 | 40 | 45 | 3.66 | 3.65| 64 | 69 | 5.86 | 5.67 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 17 | 22 | 2.98 | 2.98 | 41 | 46 | 3.71 | 3.69| 65 | 70 | 6.04 | 5.82 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 18 | 23 | 3.00 | 3.00 | 42 | 47 | 3.76 | 3.74| 66 | 71 | 6.23 | 5.97 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 19 | 24 | 3.02 | 3.01 | 43 | 48 | 3.81 | 3.80| 67 | 72 | 6.42 | 6.13 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 20 | 25 | 3.04 | 3.03 | 44 | 49 | 3.87 | 3.85| 68 | 73 | 6.63 | 6.29 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 21 | 26 | 3.06 | 3.05 | 45 | 50 | 3.92 | 3.91| 69 | 74 | 6.86 | 6.46 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 22 | 27 | 3.08 | 3.07 | 46 | 51 | 3.99 | 3.96| 70 | 75 | 7.09 | 6.63 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 23 | 28 | 3.10 | 3.10 | 47 | 52 | 4.05 | 4.03| 71 | 76 | 7.34 | 6.80 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 24 | 29 | 3.12 | 3.12 | 48 | 53 | 4.12 | 4.09| 72 | 77 | 7.60 | 6.98 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 25 | 30 | 3.14 | 3.14 | 49 | 54 | 4.19 | 4.16| 73 | 78 | 7.88 | 7.16 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 26 | 31 | 3.17 | 3.17 | 50 | 55 | 4.26 | 4.23| 74 | 79 | 8.17 | 7.34 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 27 | 32 | 3.19 | 3.19 | 51 | 56 | 4.34 | 4.30| 75 | 80 | 8.48 | 7.52 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 28 | 33 | 3.22 | 3.22 | 52 | 57 | 4.42 | 4.38| 76 | 81 | 8.80 | 7.69 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 29 | 34 | 3.25 | 3.24 | 53 | 58 | 4.50 | 4.46| 77 | 82 | 9.14 | 7.87 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 30 | 35 | 3.28 | 3.27 | 54 | 59 | 4.59 | 4.54| 78 | 83 | 9.49 | 8.04 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 31 | 36 | 3.31 | 3.30 | 55 | 60 | 4.69 | 4.63| 79 | 84 | 9.85 | 8.20 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 32 | 37 | 3.34 | 3.34 | 56 | 61 | 4.79 | 4.72| 80 | 85 | 10.23 | 8.35 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 33 | 38 | 3.37 | 3.37 | 57 | 62 | 4.89 | 4.82| 81 | and | 10.61 | 8.50 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 34 | 39 | 3.41 | 3.40 | 58 | 63 | 5.01 | 4.93| 82 | over | 11.00 | 8.64 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 35 | 40 | 3.44 | 3.44 | 59 | 64 | 5.13 | 5.04| 83 | | 11.40 | 8.77 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 36 | 41 | 3.48 | 3.48 | 60 | 65 | 5.26 | 5.15| 84 | | 11.80 | 8.88 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 37 | 42 | 3.52 | 3.52 | 61 | 66 | 5.39 | 5.27| 85 | | 12.20 | 8.99 |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| 38 | 43 | 3.57 | 3.56 | 62 | 67 | 5.54 | 5.40| and | | | |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
| over | | | | | | | | | | | |
|-----------|--------|---------|---------|-------|--------|--------|------|-------|-------|---------|-------|
- ----------------------------------------------------
* Use the Annuitant's age nearest the Annuity Date.
</TABLE>
T4-120367-A
<PAGE>
<TABLE>
<CAPTION>
Table 5
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
|---------------------|-------------------|-----------------|---------------|---------------|-----------------|
| | Number of | | Number Of | | Number of |
| Age | Years | Age | Years | Age | Years |
| of Annuitant* | Specified | of Annuitant* | Specified | of Annuitant*| Specified |
|---------------------|-------------------|-----------------|---------------|---------------|-----------------|
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| Male | Female | 15 | 20 | Male | Female | 15 | 20 | Male | Female| 15 | 20 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 16 and | 21 and | | | 39 | 44 | $3.59 | $3.56| 63 | 68 | $5.26 | $4.91 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| under | under | $2.96 | $2.96 | 40 | 45 | 3.63 | 3.60| 64 | 69 | 5.37 | 4.97 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 17 | 22 | 2.98 | 2.97 | 41 | 46 | 3.67 | 3.64| 65 | 70 | 5.47 | 5.03 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 18 | 23 | 2.99 | 2.99 | 42 | 47 | 3.72 | 3.68| 66 | 71 | 5.57 | 5.09 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 19 | 24 | 3.01 | 3.01 | 43 | 48 | 3.77 | 3.73| 67 | 72 | 5.67 | 5.14 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 20 | 25 | 3.03 | 3.03 | 44 | 49 | 3.82 | 3.78| 68 | 73 | 5.77 | 5.19 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 21 | 26 | 3.05 | 3.05 | 45 | 50 | 3.87 | 3.82| 69 | 74 | 5.87 | 5.23 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 22 | 27 | 3.07 | 3.07 | 46 | 51 | 3.93 | 3.87| 70 | 75 | 5.97 | 5.27 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 23 | 28 | 3.09 | 3.09 | 47 | 52 | 3.98 | 3.92| 71 | 76 | 6.06 | 5.31 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 24 | 29 | 3.11 | 3.11 | 48 | 53 | 4.04 | 3.98| 72 | 77 | 6.15 | 5.35 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 25 | 30 | 3.14 | 3.13 | 49 | 54 | 4.10 | 4.03| 73 | 78 | 6.24 | 5.37 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 26 | 31 | 3.16 | 3.16 | 50 | 55 | 4.17 | 4.09| 74 | 79 | 6.32 | 5.40 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 27 | 32 | 3.19 | 3.18 | 51 | 56 | 4.24 | 4.15| 75 | 80 | 6.39 | 5.42 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 28 | 33 | 3.21 | 3.20 | 52 | 57 | 4.31 | 4.20| 76 | 81 | 6.46 | 5.44 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 29 | 34 | 3.24 | 3.23 | 53 | 58 | 4.38 | 4.26| 77 | 82 | 6.52 | 5.46 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 30 | 35 | 3.27 | 3.26 | 54 | 59 | 4.45 | 4.33| 78 | 83 | 6.58 | 5.47 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 31 | 36 | 3.30 | 3.29 | 55 | 60 | 4.53 | 4.39| 79 | 84 | 6.63 | 5.48 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 32 | 37 | 3.33 | 3.32 | 56 | 61 | 4.61 | 4.45| 80 | 85 | 6.67 | 5.49 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 33 | 38 | 3.36 | 3.35 | 57 | 62 | 4.70 | 4.52| 81 | and | 6.71 | 5.50 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 34 | 39 | 3.39 | 3.38 | 58 | 63 | 4.79 | 4.58| 82 | over | 6.74 | 5.50 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 35 | 40 | 3.43 | 3.41 | 59 | 64 | 4.88 | 4.65| 83 | | 6.77 | 5.50 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 36 | 41 | 3.47 | 3.45 | 60 | 65 | 4.97 | 4.72| 84 | | 6.79 | 5.51 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 37 | 42 | 3.50 | 3.48 | 61 | 66 | 5.07 | 4.78| 85 | | 6.81 | 5.51 |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| 38 | 43 | 3.54 | 3.52 | 62 | 67 | 5.16 | 4.85| and | | | |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
| over | | | | | | | | | | | |
|-----------|---------|---------|---------|-------|---------|--------|------|-------|-------|---------|-------|
----------------------------------------------------
* Use the Annuitant's age nearest the Annuity Date.
</TABLE>
T4-120367-A
<PAGE>
Table 6
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| Age of | | | | | | | | |
| Annuitants | Male | 55 | 56 | 57 | 58 | 59 | 60 | 61 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| Male | Female| 60 | 61 | 62 | 63 | 64 | 65 | 66 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 51 | 56 | $3.89 |$3.92 | $3.94 | $3.97 | $3.99 | $4.01| $4.04|
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 52 | 57 | 3.93 | 3.96 | 3.98 | 4.01 | 4.04 | 4.06 | 4.08 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 53 | 58 | 3.96 | 3.99 | 4.02 | 4.05 | 4.08 | 4.11 | 4.13 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 54 | 59 | 4.00 | 4.03 | 4.06 | 4.09 | 4.12 | 4.15 | 4.18 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 55 | 60 | 4.03 | 4.07 | 4.10 | 4.14 | 4.17 | 4.20 | 4.23 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 56 | 61 | 4.07 | 4.11 | 4.14 | 4.18 | 4.21 | 4.25 | 4.28 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 57 | 62 | 4.10 | 4.14 | 4.18 | 4.22 | 4.26 | 4.30 | 4.33 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 58 | 63 | 4.14 | 4.18 | 4.22 | 4.26 | 4.30 | 4.34 | 4.38 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 59 | 64 | 4.17 | 4.21 | 4.26 | 4.30 | 4.35 | 4.39 | 4.44 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 60 | 65 | 4.20 | 4.25 | 4.30 | 4.34 | 4.39 | 4.44 | 4.49 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 61 | 66 | 4.23 | 4.28 | 4.33 | 4.38 | 4.44 | 4.49 | 4.54 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 62 | 67 | 4.26 | 4.32 | 4.37 | 4.42 | 4.48 | 4.53 | 4.59 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 63 | 68 | 4.29 | 4.35 | 4.41 | 4.46 | 4.52 | 4.58 | 4.63 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 64 | 69 | 4.32 | 4.38 | 4.44 | 4.50 | 4.56 | 4.62 | 4.68 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 65 | 70 | 4.35 | 4.41 | 4.47 | 4.54 | 4.60 | 4.66 | 4.73 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 66 | 71 | 4.37 | 4.44 | 4.50 | 4.57 | 4.64 | 4.71 | 4.78 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 67 | 72 | 4.40 | 4.47 | 4.53 | 4.60 | 4.67 | 4.75 | 4.82 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 68 | 73 | 4.42 | 4.49 | 4.56 | 4.64 | 4.71 | 4.79 | 4.86 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 69 | 74 | 4.45 | 4.52 | 4.59 | 4.67 | 4.74 | 4.82 | 4.90 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
| 70 | 75 | 4.47 | 4.54 | 4.62 | 4.70 | 4.78 | 4.86 | 4.94 |
|-------------|-------|---------|-------|-------|-------|-------|-------|------|
T4-120367-A
<PAGE>
Table 7
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| Age of | | | | | | | | | | |
| Annuitants| Male | 62 | 63 | 64 | 65 | 66 | 67 | 68 | 69 | 70 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| Male |Female| 67 | 68 | 69 | 70 | 71 | 72 | 73 | 74 | 75 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 51 | 56 | 4.06 | 4.08 | 4.10| 4.12 |4.13 | 4.15|4.17 |4.18|4.19 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 52 | 57 | 4.11 | 4.13 | 4.15| 4.17 |4.19 | 4.21|4.23 |4.24|4.26 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 53 | 58 | 4.16 | 4.18 | 4.21| 4.23 |4.25 | 4.27|4.29 |4.31|4.33 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 54 | 59 | 4.21 | 4.24 | 4.26| 4.29 |4.31 | 4.33|4.36 |4.38|4.40 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 55 | 60 | 4.26 | 4.29 | 4.32| 4.35 |4.37 | 4.40|4.42 |4.45|4.47 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 56 | 61 | 4.32 | 4.35 | 4.38| 4.41 |4.44 | 4.47|4.49 |4.52|4.54 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 57 | 62 | 4.37 | 4.41 | 4.44| 4.47 |4.50 | 4.53|4.56 |4.59|4.62 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 58 | 63 | 4.42 | 4.46 | 4.50| 4.54 |4.57 | 4.60|4.64 |4.67|4.70 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 59 | 64 | 4.48 | 4.52 | 4.56| 4.60 |4.64 | 4.67|4.71 |4.74|4.78 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 60 | 65 | 4.53 | 4.58 | 4.62| 4.66 |4.71 | 4.75|4.79 |4.82|4.86 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 61 | 66 | 4.59 | 4.63 | 4.68| 4.73 |4.78 | 4.82|4.86 |4.90|4.94 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 62 | 67 | 4.64 | 4.69 | 4.74| 4.80 |4.85 | 4.89|4.94 |4.99|5.03 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 63 | 68 | 4.69 | 4.75 | 4.81| 4.86 |4.92 | 4.97|5.02 |5.07|5.12 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 64 | 69 | 4.74 | 4.81 | 4.87| 4.93 |4.99 | 5.05|5.10 |5.16|5.21 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 65 | 70 | 4.80 | 4.86 | 4.93| 4.99 |5.06 | 5.12|5.18 |5.24|5.30 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 66 | 71 | 4.85 | 4.92 | 4.99| 5.06 |5.13 | 5.19|5.26 |5.33|5.39 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 67 | 72 | 4.89 | 4.97 | 5.05| 5.12 |5.19 | 5.27|5.34 |5.41|5.48 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 68 | 73 | 4.94 | 5.02 | 5.10| 5.18 |5.26 | 5.34|5.42 |5.50|5.58 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 69 | 74 | 4.99 | 5.07 | 5.16| 5.24 |5.33 | 5.41|5.50 |5.58|5.67 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
| 70 | 75 | 5.03 | 5.12 | 5.21| 5.30 |5.39 | 5.48|5.58 |5.67|5.76 |
|------------|------|------|------|-----|------|-----|-----|-----|----|-------|
T4-120367-A
<PAGE>
================================================================================
[GRAPHIC OMITTED]
Valley Forge Life Insurance Company
----------------------------------------------
Executive Office: A Stock Company Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
================================================================================
INDEX RIDER
GENERAL PROVISION - This rider is part of the Certificate to which it is
attached. The provisions of this rider supplement, and where inconsistent
override, corresponding provisions of the Certificate. Except where the rider
provides otherwise, it is subject to all provisions of the Certificate.
INDEX RIDER DEFINITIONS
Account: An Indexed Account or Interest Account.
Account Type: The Account Type for an Account is either "Indexed" or "Interest",
depending on whether the Account is an Indexed Account or an Interest Account,
respectively.
Account Value: An amount on which We credit a specified and guaranteed rate of
interest, or for which we calculate values depending on increases in an Index,
as described below under "Indexed Accounts".
Averaging Period: A period of time at the end of each Certificate Year over
which values of the Index are averaged before the calculation of any Index
Increase. The Averaging Period is shown on the Index Rider Specifications Page.
Cap: The maximum percentage per year by which an Indexed Account will be
increased. We will declare the Cap for an Indexed Account at each Reset Date on
a basis which does not discriminate unfairly within any class of Certificates.
Destination Account: An Account to which a transfer is made.
Floor: The minimum percentage per year by which an Indexed Account will be
increased. The Floor will never be less than 0%. We will declare the Floor for
an Indexed Account at each Reset Date on a basis which does not discriminate
unfairly within any class of Certificates.
Guarantee Period: A specific number of years for which the Company agrees to
credit a particular effective annual rate of interest to an Interest Account, or
to apply a particular Index Participation Rate, Cap, and Floor to an Indexed
Account.
Index: The Index shown on the Index Rider Specifications Page. If the
publication of the Index is discontinued, or the calculation of the Index is
changed substantially, we will substitute a suitable index and notify you.
Index Participation Rate: The percentage used to calculate the Index Increase
for an Indexed Account.
Indexed Account: An account for which We calculate values depending on increases
in an Index.
Interest Account: An account to which we credit a specified and guaranteed rate
of interest.
Source Account: An Account from which a transfer is made.
INDEX RIDER PROVISIONS
RIDER BENEFIT - This rider allows you to select that for one or more of your
Accounts, the value of the Account will be based on increases in an Index. Any
Account that you so select is called an Indexed Account. This selection can only
become effective on a Reset Date for the Account.
RIDER CHARGE - The annual charge for this rider is a percentage of the value of
the Indexed Accounts, as shown on the Index Rider Specifications page. The daily
compounded equivalent of this charge is deducted daily.
THE SEPARATE ACCOUNTS - We have established the Valley Forge Life Insurance
Company Indexed Separate Account in connection with the Indexed Accounts.
Although We own the assets in the Valley Forge Life Insurance Company Indexed
R4-120368-A
<PAGE>
Separate Account, these assets are held separately from Our other assets and are
not part of Our General Account. The values and benefits attributable to the
Indexed Accounts are supported by the assets in the Valley Forge Life Insurance
Company Indexed Separate Account and Our General Account. The portion of the
assets of the Valley Forge Life Insurance Company Indexed Separate Account equal
to the reserves and other liabilities of the Valley Forge Life Insurance Company
Indexed Account are not chargeable with liabilities that arise from any other
business that We conduct. We have the right to transfer to Our general account
any assets of the Valley Forge Life Insurance Company Indexed Separate Account
that are in excess of such reserves and other liabilities.
INDEXED ACCOUNTS - The Indexed Accounts are available under the Certificate and
are supported by the Valley Forge Life Insurance Company Indexed Separate
Account, part of Our general assets. The Net Single Premium may be allocated to,
and transfers of Accumulation Value may be made to, the Indexed Accounts.
Indexed Account Value is not determined by and does not reflect the investment
performance of the Separate Accounts.
Through the Indexed Accounts, the Company offers increases based on a specified
Index. The increases are determined based on a formula with specified parameters
(the Index Participation Rate, Cap, and Floor) that are available for specified
periods of time You select (Guarantee Periods) from those We offer. The rate at
which the value of an Indexed Account grows depends on changes in the Index on
which it is based, as well as its Cap, Floor, and Index Participation Rates. The
Index Participation Rate, Cap, and Floor may differ among Guarantee Periods.
Initial Guarantee Periods begin on the date as of which the Net Single Premium
is allocated or an amount of Accumulation Value is transferred to an Indexed
Account and end when the number of years in the Guarantee Period elected has
elapsed. The last day of the Guarantee Period is the expiration date for that
Guarantee Period. Subsequent Guarantee Periods begin on the first day following
the expiration date of a previous Guarantee Period.
Allocations of the Net Single Premium and transfers of Accumulation Value to the
Indexed Accounts may have different applicable Index Participation Rates, Caps,
and Floors depending on the timing of such allocations or transfers. However,
the applicable Index Participation Rate, Cap, and Floor do not change during a
Guarantee Period. The Company will notify Participants in writing at least 30
days prior to the expiration date of any Guarantee Period.
If the allocated or transferred amount remains in the Indexed Account until the
end of the applicable Guarantee Period, the Account Value at that time will be
equal to the amount originally allocated or transferred plus any Index
Increases. If an Indexed Account Value is surrendered, withdrawn, transferred,
or applied to an Annuity Payment Option prior to the expiration of the Guarantee
Period, the Indexed Account Value is subject to a Market Value Adjustment and a
surrender charge, as described below.
ACCOUNT SELECTION - By Written Notice prior to the expiration date for an
Interest or Indexed Account You may:
choose a different Guarantee Period, with expiration date no later than
the Annuity Date, from among those We offer at that time;
transfer all or a portion of the expiring Account Value to a new Account;
or
transfer all or a portion of the expiring Account Value to an existing
Account for which the next Reset Date falls on the day after the expiration
date for the expiring Account.
<PAGE>
Transfers are subject to restrictions as described below under "Transfer
Restrictions". A Market Value Adjustment will usually apply to the amount
transferred. However, if the transfer occurs during the Window Period for the
Account from which some or all of the balance is being transferred, no Market
Value Adjustment or surrender charge will apply to the amount transferred.
Unless We receive Written Notice prior to the expiration date for an Account, a
new Guarantee Period will commence automatically on the first day following the
expiration date. The new Guarantee Period will be the same as the expiring
Guarantee Period if we are still offering that Guarantee Period and if the
expiration date of the new Guarantee Period is no later than the Annuity Date.
Otherwise the new Guarantee Period will be one year. If the expiring Account is
an Interest Account, it will continue to be an Interest Account. If the expiring
Account is an Indexed Account, then it will continue to be an Indexed Account,
if the new Guarantee Period is one for which We offer Indexed Accounts;
otherwise, it will become an Interest Account.
Our notice to the Participant of the expiration of a Guarantee Period will
contain information about the then currently available Guarantee Periods and the
Guaranteed Interest Rates, Index Participation Rates, Caps, and Floors
applicable to such Guarantee Periods.
To the extent permitted by law, We reserve the right at any time to offer
Guarantee Periods that differ from those available when Your Certificate was
issued. We also reserve the right, at any time, to stop accepting Net Single
Premium allocations or transfers of Accumulation Value to a particular Guarantee
Period. Since the specific Guarantee Periods available may change periodically,
please contact the Service Center to determine the Guarantee Periods and the
Guaranteed Interest Rates, Index Participation Rates, Caps, and Floors currently
being offered.
INDEX INCREASES - We will calculate the Index Increase for an Indexed Account at
each Certificate Anniversary. The Index Increase equals the Indexed Account
Value times the Index Increase Percentage Factor. If the Index Increase is
greater than zero we will increase the Indexed Account Value by the Index
Increase at the Certificate Anniversary.
R4-120368-A
<PAGE>
The Index Increase Percentage Factor will not be less than the Floor or more
than the Cap declared at the previous Reset Date. Within those bounds, the Index
Increase Percentage Factor equals (a) multiplied by (b) where:
(a) is the Average Index Increase Percentage for the Indexed Account at the
Certificate Anniversary, and
(b) is the Index Participation Rate declared at the previous Reset Date for
the Account.
AVERAGE INDEX INCREASE PERCENTAGE - The Average Index Increase Percentage for an
Indexed Account at each Certificate Anniversary within a Guarantee Period
equals:
(b) - (a)
- ---------
(a),
where
(a) is the value of the Index on the previous Certificate Anniversary, and
(b) is the arithmetic average of the values of the Index on each day that the
Exchange is open for business during the Averaging Period ending on the
Certificate Anniversary.
EXCESS INTEREST CREDITS - On each Reset Date, after making any Index Increase,
we will calculate an Excess Interest Credit. The amount of the Excess Interest
Credit will be the amount, if any, by which (a) plus (b) exceeds (c), where:
(a) is the sum of all Index Increases ever made to the Indexed Account
Values;
(b) is all interest ever credited to the Interest Accounts; and
(c) is the sum of all interest ever credited to the Reference Value,
including previous Excess Interest Credits.
DEATH BENEFIT - In calculating the Death Benefit, We will treat the Date of
Death as the Reset Date for each Indexed Account. The Accumulation Value will
then include any Index Increases payable.
TRANSFER RESTRICTIONS - You may transfer some or all of the balance of an
Account (the "Source Account") to another Account (the "Destination Account")
subject to the following conditions:
Transfers may only occur at Certificate Anniversaries;
The Destination Account must be of an Account Type and Guarantee Duration
We then offer;
The date of transfer must be a Reset Date for the Destination Account,
unless it is a new Account;
The Guarantee Period for a Destination Account may not be longer than the
number of years remaining until the Annuity Date;
If the date of transfer is not a Reset Date for the Source Account, then
the Guarantee Period for the Destination Account must be no shorter than
the number of years remaining in the Guarantee Period for the Source
Account, rounded up to the next whole number of years;
<PAGE>
If the transfer occurs at a Reset Date for the Source Account then the
Destination Account may be any Account Type;
If the Source Account is an Interest Account then the Destination Account
may be any Account Type;
If the Source Account is an Indexed Account, then the Destination Account
may be a different Account Type only if the transfer occurs at a Reset Date
for the Source Account.
R4-120368-A
<PAGE>
MARKET VALUE ADJUSTMENT - Any surrender, withdrawal, transfer or application to
an Annuity Payment Option of an Indexed Account Value is subject to a Market
Value Adjustment that may be positive or negative, unless the effective date of
the surrender, withdrawal, transfer or application is within the Window Period.
A Market Value Adjustment reflects the change in prevailing current interest
rates since the date of allocation or transfer to that Guarantee Period.
Generally, if interest rates have increased since the beginning of the Guarantee
Period, then the application of the Market Value Adjustment will result in the
payment, upon surrender, withdrawal, transfer or application of amounts to an
Annuity Payment Option, of an amount less than the Indexed Account Value (or
portion thereof) being surrendered, withdrawn, transferred or applied to an
Annuity Payment Option.
Similarly, if interest rates have decreased since the beginning of the Guarantee
Period, then the application of the Market Value Adjustment will result in the
payment, upon surrender, withdrawal, transfer or application of amounts to an
Annuity Payment Option, of an amount greater than the Indexed Account Value (or
portion thereof) being surrendered, withdrawn, transferred or applied to an
Annuity Payment Option.
The Market Value Adjustment will be applied before the deduction of any
applicable surrender charge or Premium Tax Charge.
MARKET VALUE ADJUSTMENT FACTOR - The Market Value Adjustment for an Indexed
Account is computed by multiplying the amount being surrendered, withdrawn,
transferred, or applied to an Annuity Payment Option, by the applicable Market
Value Adjustment Factor.
The Market Value Adjustment Factor is calculated as:
[(1+a)/(1+b)](n/12) - 1
where:
"a" is the Guaranteed Interest Rate for an Interest Account with the same Reset
Date and Guarantee Period as the Indexed Account from which the amount is taken;
"b" is the Guaranteed Interest Rate is currently being offered for a Guarantee
Period equal to the time remaining to the expiration of the Guarantee Period for
the Indexed Account from which the amount is taken. Where the time remaining to
the expiration of the Guarantee Period is not 1, 3, 5, 7 or 10 years, "b" is the
rate found by linear interpolation between the rates for Interest Accounts with
Guarantee Periods closest to the time remaining or, if the time remaining is
less than 1 year, the rate for a 1 year period. If these are not available, We
will use a rate equal to the most recent Moody's Corporate Bond Yield Average -
Monthly Average Corporates as published by Moody's Investors Service, Inc.; and
"n" is the number of complete months remaining before the expiration of the
Guarantee Period for the Indexed Account from which the amount is taken.
TERMINATION - This rider terminates when the Certificate to which it is attached
is surrendered, or at the Annuity Date if the Certificate is still in force. You
may terminate this rider at any Reset Date by sending us written notice.
Signed for the Valley Forge Life Insurance Company at Chicago, Illinois
S/D.H. CHOOKASZIAN
Chairman of the Board
R4-120368-A
<PAGE>
================================================================================
[GRAPHIC OMITTED]
Valley Forge Life Insurance Company
----------------------------------------------
Executive Office: A Stock Company Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
================================================================================
QUALIFIED PLAN RIDER
This Rider is part of the Certificate to which it is attached. This Certificate
is issued to or purchased by the trustee of a pension or profit-sharing plan
intended to qualify under Section 401(a) of the Code. The following provisions
apply and replace any contrary Certificate provisions:
1 Except as allowed by the qualified pension or profit sharing plan of which
this Certificate is a part, the Certificate may not be transferred, sold,
assigned, discounted or pledged, either as collateral for a loan or as
security for the performance of an obligation or for any other purpose, to
any person other than Us.
2 This Certificate shall be subject to the provisions, terms, and conditions
of the qualified pension or profit-sharing plan of which the Certificate is
a part. Any payment, distribution, or transfer under this Certificate shall
comply with the provisions, terms and conditions of such plan as determined
by the plan administrator, trustee or other designated plan fiduciary. We
shall be under no obligation either (a) to determine whether any such
payment, distribution, or transfer complies with the provisions, terms and
conditions of such plan or with any applicable law, or (b) to administer
such plan, including, without limitation, any provisions required by the
Retirement Equity Act of 1984.
3 Notwithstanding any provision to the contrary in this Certificate or the
qualified pension or profit-sharing plan of which this Certificate is a
part, We reserve the right to amend or modify the Group Contract, this
Certificate, or this Rider to the extent necessary to comply with any law,
regulation, ruling or other requirement We deem to be necessary to
establish or maintain the qualified status of such pension or
profit-sharing plan.
Except as otherwise set forth above, this Rider is subject to the exclusions,
definitions, and provisions of the Certificate and the Group Contract.
Signed for the Valley Forge Life Insurance Company at Chicago, Illinois
S/D.H. CHOOKASZIAN
Chairman of the Board
R4-120369-A
<PAGE>
================================================================================
[GRAPHIC OMITTED]
Valley Forge Life Insurance Company
----------------------------------------------
Executive Office: A Stock Company Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
================================================================================
INDIVIDUAL RETIREMENT ANNUITY RIDER
This Rider is part of the Certificate to which it is attached. The Certificate
as amended is intended to qualify as an individual retirement annuity under
Section 408(b) of the Code. The following provisions apply and replace any
contrary provisions of the Certificate:
1. You shall be the Participant. Any provision of the Certificate that would
allow for joint participants, or that would allow more than one person to
share distributions, is deleted.
2. The Certificate is not transferable or assignable (other than pursuant to a
divorce decree in accordance with applicable law) and is established for
the exclusive benefit of You and Your beneficiaries. It may not be sold,
assigned, alienated, or pledged as collateral for a loan or as security.
3. Your entire interest in the Certificate shall be nonforfeitable.
4. The Single Premium shall be in cash. The Single Premium may be any of the
following:
a) A rollover contribution as described in Sections 402(c),
403(a)(4), 403(b)(8) or 408(d)(3) of the Code;
b) An amount transferred from another individual retirement account
or annuity;
c) A contribution pursuant to a Simplified Employee Pension as
provided in Section 408(k) of the Code.
You shall have the sole responsibility for determining whether the Single
Premium meets applicable income tax requirements.
5. The Distribution Start Date is the date Your entire Accumulation Value will
be distributed or commence to be distributed to You. Your Distribution
Start Date shall be no later than April 1 of the calendar year following
the calendar year in which You attain age 70 1/2. You shall have the sole
responsibility for requesting a distribution that complies with this Rider
and applicable law.
6. With respect to any amount which becomes payable under the Certificate
during Your lifetime, such payment shall commence on or before the
Distribution Start Date and shall be payable in substantially equal
amounts, no less frequently than annually.
Payments shall be made in the manner as follows:
<PAGE>
a) in a lump sum, or
b) over Your life, or
c) over the lives of You and Your designated Beneficiary, or
d) over a period certain not exceeding Your life expectancy, or
e) over a period certain not exceeding the joint and last survivor
expectancy of You and Your designated Beneficiary.
If Your entire interest is to be distributed in other than a lump sum, then
the minimum amount to be distributed each year (commencing with the
calendar year following the calendar year in which You attain age 70 1/2
and each year thereafter) shall be determined in accordance with Code
Section 408(b)(3) and the regulations thereunder, including the incidental
death benefit requirements of Section 401(a)(9)(G) of the Code, the
regulations thereunder, and the minimum distribution incidental benefit
requirement of Proposed Income Tax Regulation Section 1.401(a)(9)-2.
Payments must be either nonincreasing or may increase only as provided in
Proposed Income Tax Regulation 1.401(a)(9)-1, Q&A F-3.
7. If You die after distribution of Your interest has commenced, the remaining
portion of such interest will continue to be distributed at least as
rapidly as under the method of distribution being used prior to Your death.
If You die before distribution has begun, the entire interest must be
distributed no later than December 31 of the calendar year in which the
fifth anniversary of Your death occurs. However, proceeds which are payable
to a named Beneficiary who is a natural person may be distributed in
R4-120370-A
<PAGE>
substantially equal installments over the lifetime of the Beneficiary or a
period certain not exceeding the life expectancy of the Beneficiary
provided such distribution begins not later than December 31 of the
calendar year in which Your death occurred. If the Beneficiary is Your
surviving spouse, the Beneficiary may elect not later than December 31 of
the calendar in which the fifth anniversary of Your death occurs to receive
equal or substantially equal payments over the life or life expectancy of
the surviving spouse commencing at any date prior to the date on which You
would have attained age 70 1/2. Minimum payments will be calculated in
accordance with Code Section 408(b)(3) and the regulations thereunder.
For the purposes of this requirement, any amount paid to any of Your
children will be treated as if it had been paid to Your surviving spouse if
the remainder of the interest becomes payable to the surviving spouse when
the child reaches the age of majority.
8. If Your spouse is not the named Beneficiary, the method of distribution
selected will assure that at least 50% of the present value of the amount
available for distribution is paid within Your life expectancy and that
such method of distribution complies with the requirements of Code Section
408(b)(3) and the regulations thereunder.
9. For purposes of the foregoing provisions, life expectancy and joint and
last survivor expectancy shall be determined by use of the expected return
multiples in Tables V and VI of Treasury Regulationss.1.72-9 in accordance
with Code Section 408(b)(3) and the regulations thereunder. In the case of
distributions under paragraph (6) of this Rider, the life expectancy of You
and Your Beneficiary will be initially determined on the basis of Your
attained ages in the year You reach 70 1/2. In the case of a distribution
under paragraph (7) of this Rider, life expectancy will be initially
determined on the basis of Your Beneficiary's attained age in the year
distributions are required to commence. Unless You (or Your spouse) elect
otherwise prior to the time distributions are required to commence, Your
life expectancy and, if applicable, Your spouse's life expectancy will be
recalculated annually based on your attained ages in the year for which the
required distribution is being determined. The life expectancy of a
nonspouse Beneficiary will not be recalculated.
The annual distribution required to be made by Your Distribution Start Date
is for the calendar year in which You reached age 70 1/2. Annual payments
for subsequent years, including the year in which Your Distribution Start
Date occurs, must be made by December 31 of that year. The amount
distributed for each year shall equal or exceed the Accumulation Value as
of the close of business on December 31 of the preceding year, divided by
the applicable life expectancy or joint and last survivor expectancy.
You may satisfy the minimum distribution requirements under Section
408(b)(3) of the Code by receiving a distribution from one IRA that is
equal to the amount required to satisfy the minimum distribution
requirement for two or more IRA's. For this purpose, if You own two or more
IRAs, You may use the alternative method described in Notice 88-38, 1988-1
C.B. 524, to satisfy the minimum distribution requirements.
10. We reserve the right to amend the Group Contract, this Certificate, or this
Rider to the extent necessary to qualify as an individual retirement
annuity for federal income tax purposes.
<PAGE>
11. This Rider is effective as of the Issue Date.
This Rider is subject to all the exclusions, definitions and provisions of the
Group Contract and the Certificate which are not inconsistent herewith.
Signed for the Valley Forge Life Insurance Company at Chicago, Illinois
S/D.H. CHOOKASZIAN
Chairman of the Board
R4-120370-A
<PAGE>
================================================================================
[GRAPHIC OMITTED]
Valley Forge Life Insurance Company
----------------------------------------------
Executive Office: A Stock Company Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
================================================================================
NURSING HOME CONFINEMENT / TERMINAL MEDICAL
CONDITION RIDER
GENERAL PROVISION - This rider is a part of the Certificate. It is subject to
all the terms of the policy unless We state otherwise.
EFFECTIVE DATE - This rider becomes effective on the Issue Date shown on the
Certificate Specifications Page, subject to the following requirements:
1. if the Annuitant is confined to a nursing home or has a Terminal Medical
Condition on the Issue Date, then the Annuitant will not be covered under
this rider; and
2. if the Annuitant's spouse is confined to a nursing home or has a Termina
Medical Condition on the Issue Date, then the Annuitant's spouse will not
be covered under this rider.
CONSIDERATION - This rider is issued in consideration of the application. There
is no cost associated with this rider.
BENEFIT - If the Annuitant is confined to a nursing home for a period of at
least 90 days or has a Terminal Medical Condition, the Free Withdrawal
Percentage as referenced in Section 8.1 is changed to 50%.
If the Annuitant's spouse is confined to a nursing home for a period of at least
90 days or has a Terminal Medical Condition, the Free Withdrawal Percentage as
referenced in Section 8.1 is changed to 25%.
Terminal Medical Condition means a determinable medical condition, diagnosed by
a physician practicing within the scope of his or her license, with the life
expectancy of 12 months or less from the date of the physician's diagnosis.
<PAGE>
TERMINATION - This rider will terminate upon the earlier of:
1. The termination of the Certificate;
The date You specify provided We receive Written Notice 30 days prior to the
date termination is to take effect.
Signed for the Valley Forge Life Insurance Company at Chicago, Illinois
S/D.H. CHOOKASZIAN
Chairman of the Board
R4-120371-A
<PAGE>
[GRAPHIC OMITTED]
APPLICATION
FOR A DEFERRED MODIFIED GUARANTEED ANNUITY CERTIFICATE
<TABLE>
<CAPTION>
<S> <C>
In this application Valley Forge Life Insurance Company is referred to as "we",
"our" or "us".
1. Desired Contract:__________________________________________________________
2. Proposed Annuitant:
Name:_______________________________________________Social Security #:_________________________________________
(Last) (First) (Initial)
Address:__________________________________________________________________________________________________________
(Street) (City) (State) (Zip)
Sex: |_| Male |_| Female Date of Birth:________________________________________________________________
(Month) (Day) (Year)
3. Proposed Owner (if other than proposed annuitant):
Name:__________________________________________________________________________________________________________
__________________Tax I.D. or Social Security #:_______________________________________________________________
Address:__________________________________________________________________________________________________________
(Street) (City) (State) (Zip)
4. Proposed Contingent Owner
Name:________________________________________________Tax I.D. or Social Security #:____________________________
Address:__________________________________________________________________________________________________________
(Street) (City) (State) (Zip)
5. Beneficiary (include name and relationship to proposed annuitant):
_____________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________
6. Desired Annuity Date:________________________________________________
(Month) (Day) (Year)
<PAGE>
7. Desired Annuity Option. (If no box is checked, the contract will be issued with the Life Annuity
with 10 Year Certain Period as the annuity option.)
|_| Life Annuity
|_| Life Annuity with 10 year Certain Period
|_| Life Annuity with 20 year Certain Period
|_| Joint Life and Survivorship Annuity
|_| Joint Life Annuity with Payments Reduced One-Half at Payee's Death |_|
Other If a joint life annuity is elected, complete the following for the
joint payee:
Name:_____________________________________Social Security #:__________________________________________
Sex: |_| Male |_| Female Date of Birth:
(Month) (Day) (Year)
8. The annuity will be used in the type of plan checked below:
|_| Corporate Qualified Pension Plan |_| Spousal Individual Retirement Annuity
|_| HR-10 |_| Rollover Individual Retirement Annuity
|_| Simplified Employee Pension Plan |_| Contract will not be used in tax-qualified plan
|_| Regular Individual Retirement Annuity |_| Other:
(also complete other side)
V206-365-A
<PAGE>
9. Allocations
Your initial Net Purchase Payment will be allocated as indicated below.
Selections must total 100%. Minimum initial allocation to any single option
is $500 or 1%. No fractional percentages.
___________% Indexed Option Guaranteed Interest Option
____ % 1 Year ____ % 7 Year
____ % 3 Year ____ % 10 Year
____ % 5 Year ____ % __ Year
10. Have you received a copy of the current prospectus? |_|Yes |_| No
11. Contribution Submitted with Application: $
12. Will the contract applied for replace or change any life insurance or
annuity coverage in force on the life of the proposed annuitant? |_| Yes |_| No
If yes, give details____________________________________________________________
13. Corrections, notations, and changes made by us.________________________
________________________________________________________________________________
________________________________________________________________________________
The proposed annuitant will be the owner of the contract unless a different
owner is named in item 3 above. The proposed annuitant declares that all
statements and answers above are made a part of this application and that they
are complete and true, to the best of his or her knowledge and belief, and
correctly recorded. If we accept this application, the entire contract will
consist of this application, the contract to which it is attached and riders
attached to the contract. If the owner accepts the contract it means he or she
agrees to corrections, notations and changes made in item 13 above, except in
those states where written consent is required.
Dated at_________________________________ Signed________________________________
Proposed Annuitant
This______Day of__________________, 19___ Signed________________________________
Applicant (if other than proposed annuitant)
Witness__________________________________ By________________________________
Agent/Registered Rep Signed and title of person signing for
corporation, partnership or trust as applicant
V206-365-A
Agent's Replacement Question
Do you have knowledge or reason to believe that the annuity applied for by this
application will replace or change any insurance or annuity coverage currently
in force on the life of the proposed annuitant? |_| Yes |_| No
If yes, give details____________________________________________________________
Dated__________________________________Signed___________________________________
Agent/Registered Rep
Agent Transmittal
NOTE: The writing agent's name must be printed. The name entered must be identical to the SA name on the agent's state license.
Agent/Registered Rep Name______________________________________Agent Code________________________Percent______________________
Broker/Dealer Name_____________________________________________Address________________________________________________________
Agent/Registered Rep Name______________________________________Agent Code________________________Percent______________________
Broker/Dealer Name_____________________________________________Address________________________________________________________
</TABLE>
<PAGE>
SINGLE PREMIUM DEFERRED MODIFIED GUARANTEED ANNUITY CERTIFICATE
NON-PARTICIPATING
Q4-119942-A
CNA INSURANCE COMPANIES
CNA PLAZA
CHICAGO, ILLINOIS 60685
October 17, 1996
Board of Directors
Valley Forge Life Insurance Company
CNA Plaza, 43S
Chicago, IL 60685
Gentlemen:
I have acted as counsel to Valley Forge Life Insurance Company (the "Company"),
a Pennsylvania insurance company, Valley Forge Life Insurance Company MVA
Guaranteed Interest Separate Account (the "MVA Account") and the Valley Forge
Life Insurance Company Indexed Separate Account (the Index Account") in
connection with the registration under the Securities Act of 1933 (File No.
333-2093) of an Individual Modified Guaranteed Annuity Contract, and a Group
Modified Guaranteed Annuity Contract and Individual Certificates thereunder (the
"Contracts").
In rendering this opinion, I have assumed the genuineness of all signatures of
all documents I have examined, the authority of such signatories to execute the
same, the truthfulness and accuracy of representations made to me, the
authenticity of all original documents of which copies were furnished to me, and
the conformity to original documents of all documents submitted to me as
certified, conformed or photostatic copies. I have made such examinations of law
and documents as are in my judgment are necessary or appropriate.
Based upon the foregoing, I am of the opinion that:
1. The Company was organized in accordance with the laws of the State of
Pennsylvania and is a duly authorized stock life insurance company under the
laws of Pennsylvania and the laws of those states in which the Company is
admitted to do business;
2. The MVA Account and the Index Account have been duly created and are validly
existing as separate accounts pursuant to Section 40-37-109 of the Pennsylvania
Unconsolidated Statutes;
3. The Company is authorized to issue the Contracts in those states in which it
is admitted and upon compliance with applicable local law;
4. The Contracts, when issued in accordance with the prospectus contained in the
aforesaid registration statement and upon compliance with applicable local law,
will be legal and binding obligations of the Company in accordance with their
terms
I hereby consent to the filing of this opinion as an exhibit to the
Pre-Effective Amendment No. 1, the aforesaid registration statement and to the
reference to me under the caption "Legal Matters" in the prospectus contained in
said registration statement and amendment thereto.
Sincerely,
S/LYNNE GUGENHEIM
Lynne Gugenheim
Vice President and
Associate General Counsel
[Sutherland, Asbill & Brennan, L.L.P]
October 4, 1996
Board of Directors
Valley Forge Life Insurance Company
CNA Plaza
Chicago, IL 60685
Directors:
We hereby consent to the reference to our name under the
caption "Legal Matters" in the prospectus filed as part of Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-1 filed by Valley Forge
Life Insurance Company (Reg. File No. 333-02093) with the Securities and
Exchange Commission. In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P
By: /s/ Kimberly J. Smith
Kimberly J. Smith
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-02093 on Form S-1 of our report dated June 21, 1996
accompanying the financial statements of Valley Forge Life Insurance Company as
of December 31, 1995 and 1994 and for the three years ended December 31, 1995,
appearing in the Prospectus, which is part of such Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
Deloitte & Touche LLP
Chicago, Illinois
October 17, 1996
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<NAME> VALLEY FORGE LIFE INSURANCE CO.
<MULTIPLIER> 1,000
<S> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
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<SECURITIES> 462,650 526,663
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0 0
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