As Filed with the Securities and Exchange Commission on March 25, 1996
Registration No. 33-______________
811-______________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
VALLEY FORGE LIFE INSURANCE COMPANY VARIABLE
LIFE SEPARATE ACCOUNT
(Exact name of trust)
VALLEY FORGE LIFE INSURANCE COMPANY
(Name of depositor)
CNA Plaza, 43 South
Chicago, Illinois 60685
(Complete address of depositor's principal executive offices)
Corporate Secretary
Continental Assurance Company
CNA Plaza, 43 South
Chicago, Illinois 60685
(Name and complete address of agent for service)
Copy to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004-2404
Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration Statement
Securities Being Offered: Individual Flexible Premium Variable Life Insurance
Policies.
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the
Registrant has elected to register an indefinite amount of the securities being
offered. The $500 registration fee pursuant to Rule 24f-2 is paid with this
filing.
The Registrant hereby amends this Registration Statement on such 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 the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY VARIABLE
LIFE SEPARATE ACCOUNT
VALLEY FORGE LIFE INSURANCE COMPANY
Cross Reference to Items Required by Form N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
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1 Cover Page
2 Cover Page
3 Not Applicable
4 Sale of the Policies
5 The Variable Account
6 The Variable Account
7 Not Applicable
8 Not Applicable
9 Legal Matters
10 Summary and Diagram of the Policy; The Policy;
Withdrawal Privilege; Surrender Privilege; Transfers
of Policy Values; Premium Payments; Net Premium
Allocations; Voting Privileges; Modification of the
Policy
11 The Funds
12 The Funds
13 Charges and Deductions
14 Purchasing a Policy
15 Premium Payments; Net Premium Allocations
16 Net Premium Allocations; Variable Policy Value;
The Funds
17 Withdrawal Privilege; Surrender Privilege
18 The Variable Account
19 Reports to Owners
20 Other Policy Benefits and Provisions
21 Policy Loans
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 The Company; Other Information About the Policies and
the Company
26 Charges and Deductions
27 The Company; Other Information About the Policies and
the Company
28 The Company Directors and Executive Officers
29 The Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 The Variable Account
<PAGE>
36 Not Applicable
37 Not Applicable
38 Sale of the Policies
39 Sale of the Policies
40 Sale of the Policies
41 Sale of the Policies
42 Not Applicable
43 Not Applicable
44 Variable Policy Value
45 Not Applicable
46 Variable Policy Value
47 The Variable Account; The Funds
48 The Company
49 Not Applicable
50 Not Applicable
51 The Policy; Other Policy Benefits and Provisions
52 The Variable Account
53 Tax Considerations
54 Not Applicable
55 Illustrations of Policy Values, Surrender Values,
Death Benefits and Accumulated
Premium Payments
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
<PAGE>
PROSPECTUS
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE AND FIXED LIFE INSURANCE POLICY
Issued by
VALLEY FORGE LIFE INSURANCE COMPANY AND
VALLEY FORGE LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
This prospectus describes an individual flexible premium variable and fixed life
insurance policy (the "Policy") offered by Valley Forge Life Insurance Company
(the "Company"). The Policy is designed to provide insurance protection on the
life of the Insured named in the Policy, and at the same time provide the Owner
with the flexibility to vary the amount and timing of premium payments and,
within certain limits, to change the amount of Death Benefits payable under the
Policy. This flexibility permits the Owner to provide for changing insurance
needs with a single insurance policy.
The Owner may, within limits, allocate Net Premium Payments and Policy Value to
one or more Subaccounts of the Valley Forge Life Insurance Company Variable Life
Separate Account (the "Variable Account") and the Company's general account (the
"Fixed Account"). Discussions of values under the Policy in this prospectus
generally relate only to the values allocated to the Variable Account. The
assets of each Subaccount of the Variable Account are invested in a
corresponding investment portfolio (each, a "Fund") of The Alger American Fund,
Federated Insurance Management Series, MFS Variable Insurance Trust, Sogen
Variable Funds, Inc., Van Eck Worldwide Insurance Trust and Fidelity Variable
Insurance Products Funds I and II.
The prospectuses for the Funds describe the investment objectives and risks of
investing in the Subaccount corresponding to each. The Owner bears the entire
investment risk for Policy Value allocated to a Subaccount. Consequently, except
as to Policy Value allocated to the Fixed Account, the Policy has no guaranteed
minimum Policy Value.
It may not be advantageous to replace existing insurance with this Policy.
Within certain limits, you may return the Policy, or convert it to a Policy that
provides benefits that do not vary with the investment results of the Variable
Account by exercising the Special Transfer Right.
Please read this prospectus and the prospectus for the Funds carefully and
retain both for future reference. This prospectus must be accompanied or
preceded by the current prospectuses for the Funds.
AN INVESTMENT IN THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR IS THE POLICY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
POLICY INVOLVES CERTAIN RISKS, INCLUDING THE LOSS RISK OF PREMIUM 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.
June __, 1995
<PAGE>
TABLE OF CONTENTS
Page
----
DEFINITIONS................................................................. 4
SUMMARY AND DIAGRAM OF THE POLICY........................................... 7
GENERAL INFORMATION ABOUT THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS... 11
The Company............................................................ 11
The Variable Account................................................... 11
The Funds.............................................................. 12
THE POLICY.................................................................. 15
Purchasing a Policy.................................................... 15
Cancellation Privilege................................................. 15
Premium Payments....................................................... 16
Net Premium Allocations................................................ 17
Policy Lapse and Reinstatement......................................... 17
Variable Policy Value.................................................. 18
Fixed Policy Value..................................................... 19
Transfers of Policy Values............................................. 20
Surrender Privilege.................................................... 21
Withdrawal Privilege................................................... 21
Policy Loans........................................................... 22
Maturity Benefits...................................................... 23
Death Benefit Proceeds................................................. 23
Settlement Options..................................................... 26
Telephone Transaction Privileges....................................... 27
THE FIXED ACCOUNT........................................................... 28
The Fixed Account...................................................... 28
Interest Credited on Fixed Policy Value................................ 28
CHARGES AND DEDUCTIONS...................................................... 28
Sales Charges.......................................................... 28
Premium Tax Charge..................................................... 29
Federal Tax Charge..................................................... 29
Surrender Charge....................................................... 29
Other Taxes............................................................ 31
Monthly Deduction...................................................... 31
Daily Mortality and Expense Risk Charge................................ 32
Transfer Processing Fee................................................ 33
Fund Expenses.......................................................... 33
OTHER POLICY BENEFITS AND PROVISIONS........................................ 33
Ownership.............................................................. 33
The Company's Right to Contest the Policy.............................. 34
Suicide Exclusion...................................................... 34
- 2 -
<PAGE>
Misstatement of Age or Sex............................................. 34
Modification of the Policy............................................. 35
Suspension or Delay in Payments........................................ 35
Reports to Owners...................................................... 35
Supplemental Benefits and/or Riders.................................... 36
TAX CONSIDERATIONS.......................................................... 36
Tax Status of the Policies............................................. 36
Tax Treatment of Policy Benefits....................................... 38
OTHER INFORMATION ABOUT THE POLICIES AND THE COMPANY........................ 40
Sale of the Policies................................................... 40
Voting Privileges...................................................... 40
The Company Directors and Executive Officers........................... 41
Company Holidays....................................................... 42
State Regulation....................................................... 43
Additional Information................................................. 43
Experts................................................................ 43
Legal Matters.......................................................... 43
Financial Statements................................................... 43
ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES, DEATH BENEFITS AND
ACCUMULATED PREMIUM PAYMENTS................................................ 44
Appendix.................................................................... 46
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS OF THE FUNDS, OR THE STATEMENT OF ADDITIONAL
INFORMATION OF THE FUNDS.
- 3 -
<PAGE>
DEFINITIONS
ATTAINED AGE - The Insured's age as of the nearest birthday on the Policy
Effective Date, plus the number of complete Policy Years since the Policy
Effective Date.
BENEFICIARY - The person(s) to whom the Death Benefit Proceeds are paid upon the
death of the Insured. The Owner may designate primary, contingent, and
irrevocable Beneficiaries.
CANCELLATION PERIOD - The period shown in the Policy during which the Owner may
cancel the Policy for a refund by returning it to the Company.
CASH VALUE - Policy Value minus any applicable Surrender Charge.
CODE - The Internal Revenue Code of 1986, as amended.
CONTINGENT BENEFICIARY - The person(s) to whom the Death Benefit Proceeds are
paid upon the death of the Insured if the primary Beneficiary (or Beneficiaries)
is not living.
DEATH BENEFIT - The amount payable to the Beneficiary under a Death Benefit
Option before adjustments if the Insured dies while the Policy is in force
before the Maturity Date.
DEATH BENEFIT OPTION - One of two options that an Owner may select for the
computation of the Death Benefit Proceeds.
DEATH BENEFIT PROCEEDS - The total amount payable to the Beneficiary if the
Insured dies while the Policy is in force before the Maturity Date.
DUE PROOF OF DEATH - Proof of death satisfactory to the Company. Due Proof of
Death may consist of the following: (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.
FIXED ACCOUNT - Part of the Company's General Account to which Policy Value may
be transferred or Net Premium Payments may be allocated under a Policy.
FIXED POLICY VALUE - The Policy Value in the Fixed Account.
<PAGE>
FUND - Any open-end management investment company or investment portfolio
thereof, or unit investment trust or series thereof, in which a Subaccount
invests.
GENERAL ACCOUNT - The assets of the Company other than those allocated to the
Variable Account or any other separate account of the Company.
GRACE PERIOD - A 61-day period during which an Owner may make premium payments
to cover the overdue (and other specified) monthly deductions and thereby
prevent the Policy from Lapsing.
GUIDELINE ANNUAL PREMIUM - The "guideline annual premium" as defined in
applicable regulations under the Investment Company Act of 1940, as amended.
INITIAL SPECIFIED AMOUNT - The Specified Amount on the Policy Effective Date.
INSURED - The person whose life is insured by the Policy.
ISSUE AGE - The Insured's age as of the nearest birthday on the Policy Effective
Date.
LAPSE - Termination of the Policy at the expiration of the Grace Period while
the Insured is still living before the Maturity Date.
LOAN ACCOUNT - A portion of the Company's General Account to which Variable
Policy Value or Fixed Policy Value is transferred to provide collateral for any
loan taken under the Policy.
LOAN ACCOUNT VALUE - The Policy Value in the Loan Account.
LOAN AMOUNT - At any time other than a Policy Anniversary, the Loan Account
Value plus any interest charges accrued on the Loan Account Value up to that
time. On a Policy Anniversary, the Loan Amount equals the Loan Account Value.
MATURITY DATE - The date shown in the Policy on which the Owner is paid the
Surrender Value, if any, provided the Insured is still living while the Policy
is in force. It is the Policy Anniversary nearest the Insured's 95th birthday.
- 4 -
<PAGE>
MINIMUM INITIAL PREMIUM PAYMENT - The amount shown in the Policy that the Owner
must pay before coverage becomes effective under the Policy.
MINIMUM MONTHLY PREMIUM PAYMENT - The minimum amount of monthly premium payments
(or the equivalent) that an Owner must make in order for the Lapse Prevention
Guarantee to remain in effect.
MONTHLY ANNIVERSARY DAY - The same day as the Policy Effective Date for each
succeeding month.
NET AMOUNT AT RISK - As of any Monthly Anniversary Day, the Death Benefit under
the Policy (discounted for the upcoming month) less the Policy Value (before the
deduction of the monthly policy fee, monthly first-year issue fee and the cost
of additional benefits provided by rider).
NET ASSET VALUE PER SHARE - The value per share of any Fund on any Valuation
Day. The method of computing the Net Asset Value is described in the
prospectuses for the Funds.
NET PREMIUM PAYMENT - Any premium payment less any premium tax charge, deferred
acquisition cost tax charge, and sales charge deducted from the premium payment.
OWNER - The person or persons who owns (or own) the Policy and who is (are)
entitled to exercise all rights and privileges provided in the Policy. The
maximum number of joint Owners is two. References in this prospectus to an
action by the "Owner" mean, in the case of joint Owners, both Owners acting
jointly.
PLANNED PERIODIC PREMIUM PAYMENT - The premium payment selected by the Owner as
a level amount that he or she (or they) plans to pay on a monthly, quarterly,
semi-annual or annual basis over the life of the Policy.
POLICY ANNIVERSARY - The same date in each Policy Year as the Policy Effective
Date.
POLICY EFFECTIVE DATE - The date shown in the Policy from which Policy Years and
various other periods described in this prospectus are measured. The Policy
Effective Date is never the 29th, 30th or 31st of a month.
<PAGE>
POLICY VALUE - The sum of the Variable Policy Value, the Fixed Policy Value, and
the Loan Account Value.
POLICY YEAR - A twelve-month period beginning on the Policy Effective Date or on
a Policy Anniversary.
SEC - The U.S. Securities and Exchange Commission.
SERVICE CENTER - The offices of the Company's administrative agent, Financial
Administration Services, Inc., at 95 Bridge Street, Haddam, Connecticut 06438.
SETTLEMENT OPTION - The manner in which an Owner or Beneficiary (or Contingent
Beneficiary) elects to receive the amount of any surrender or withdrawal or the
Death Benefit Proceeds.
SETTLEMENT PAYMENT - Payments made by the Company under a Settlement Option.
SPECIFIED AMOUNT - A dollar amount selected by the Owner and shown in the Policy
that is used to determine the Death Benefit.
SUBACCOUNT - A subdivision of the Variable Account, the assets of which are
invested in a corresponding Fund.
SUBACCOUNT VALUE - The Policy Value in a Subaccount.
SURRENDER VALUE - The Cash Value minus any Loan Amount.
TARGET PREMIUM PAYMENT - An amount of premium payments, computed separately for
each increment of Specified Amount under a Policy, used to compute sales charges
and sales surrender charges.
THE COMPANY - Valley Forge Life Insurance Company.
UNIT - A unit of measurement used to calculate Variable Policy Value.
VALUATION DAY - For each Subaccount, each day on which the New York Stock
Exchange is open for business except for certain holidays listed in this
prospectus and days that a Subaccount's corresponding Fund does not value its
shares.
- 5 -
<PAGE>
VALUATION PERIOD - The period that starts at the close of regular trading on the
New York Stock Exchange on any valuation day and ends at the close of regular
trading on the next succeeding Valuation Day.
VARIABLE ACCOUNT - Valley Forge Life Insurance Company Variable Life Separate
Account.
VARIABLE POLICY VALUE - The sum of all Subaccount Values.
WRITTEN NOTICE - A written notice or request in a form satisfactory to the
Company that is signed by the Owner and received at the Service Center.
- 6 -
<PAGE>
SUMMARY AND DIAGRAM OF THE POLICY
The following summary of prospectus information and diagram of the Policy should
be read in conjunction with the detailed information appearing elsewhere in this
prospectus. Unless otherwise indicated, the description of the Policy in this
Prospectus assumes that the Insured is alive, the Policy is in force and there
is no outstanding Loan Amount.
The Policy is similar in many ways to a fixed-benefit life insurance policy. As
with a fixed-benefit life insurance policy, the Owner of a Policy makes premium
payments in return for insurance coverage on the person insured. Also, like many
fixed-benefit life insurance policies, the Policy provides for accumulation of
Net Premiums and a Surrender Value which is payable if the Policy is surrendered
during the Insured's lifetime. As with many fixed-benefit life insurance
policies, the Surrender Value during the early Policy Years is likely to be
substantially lower than the aggregate premium payments made.
However, the Policy differs from a fixed-benefit life insurance policy in
several important respects. Unlike a fixed-benefit life insurance policy, under
the Policy, the Death Benefit may and the Policy Value will increase or decrease
to reflect the investment performance of any Subaccounts to which Policy Value
is allocated. Also, unless the entire Policy Value is allocated to the Fixed
Account, there is no guaranteed minimum Surrender Value. If Policy Value is
insufficient to pay charges due, then, after a grace period, the Policy will
Lapse without value. (See "Policy Lapse and Reinstatement.") However, the
Company guarantees that the Policy will remain in force during the first five
Policy Years as long as certain requirements related to the Minimum Monthly
Premium Payment have been met. (See "Policy Lapse and Reinstatement.") If a
Policy Lapses while loans are outstanding, certain amounts may become subject to
income tax and a 10% penalty tax. (See "Tax Considerations.")
The most important features of the Policy, such as charges and deductions,
Policy Value benefits, Death Benefits, and calculation of Policy values, are
summarized in the diagram on the following pages.
PURPOSE OF THE POLICY. The Policy is designed to provide lifetime insurance
benefits and long-term investment of Policy Value. A prospective Owner should
evaluate the Policy in conjunction with other insurance coverage that he or she
may have, as well as their need for insurance and the Policy's long-term
investment potential. It may not be advantageous to replace existing insurance
coverage with the Policy. In particular, replacement should be carefully
considered if the decision to replace existing coverage is based solely on a
comparison of Policy illustrations (see below).
POLICY BENEFITS. Two Death Benefit options are available under the Policy: a
level Death Benefit ("Option 1") and a Death Benefit that may increase or
decrease ("Option 2"). The Company guarantees that the Death Benefit Proceeds
will never be less than the Specified Amount (less any outstanding Loan Amount
and past due charges) as long as sufficient premiums payments are made to keep
the Policy in force. The Policy provides for a Surrender Value that an Owner may
obtain by surrendering the Policy. The Policy also permits loans and
withdrawals, within limits.
ILLUSTRATIONS. Illustrations in this prospectus or used in connection with the
purchase of a Policy are based on HYPOTHETICAL rates of return. THESE RATES ARE
NOT GUARANTEED. They are illustrative only and should not be considered a
representation of past or future performance. Actual rates of return may be
higher or lower than those reflected in Policy illustrations, and therefore,
actual Policy values will be different from those illustrated.
<PAGE>
TAX CONSIDERATIONS. The Company intends for the Policy to satisfy the definition
of a life insurance contract under Section 7702 of the Code. A Policy may be a
"modified endowment contract" under federal tax law depending upon the amount of
premium payments made in relation to the Death Benefit provided under the
Policy. The Company will monitor Policies and will attempt to notify you on a
timely basis if your Policy is in jeopardy of becoming a modified endowment
contract. For further discussion of the tax status of a Policy and the tax
consequences of being treated as a life insurance contract or a modified
endowment contract, see "Tax Considerations."
- 7 -
<PAGE>
CANCELLATION PRIVILEGE AND SPECIAL TRANSFER RIGHT. For a limited time after the
Policy is issued, the Owner may cancel the Policy and receive a refund. (See
"Cancellation Privilege.") In certain states, until the end of this
"Cancellation Period," the Company will allocate Net Premium Payments to the
Subaccount investing in the Prime Money Market Fund (the "Money Market
Subaccount"). (See "Net Premium Allocations.") At any time within 24 Policy
Months after the date that coverage begins under the Policy, the Owner may
transfer the entire Variable Policy Value to the Fixed Account without payment
of any transfer fee and without the transfer counting as one the 4 transfers per
Policy Year that may be made without incurring a transfer fee. (See "Special
Transfer Privilege.")
OWNER INQUIRIES. If you have any questions, you may write or call the Company's
Service Center at 95 Bridge Street, Haddam, Connecticut 06438, 1-800- - .
- 8 -
<PAGE>
DIAGRAM OF POLICY
|---------------------------------------------------------------------|
| PREMIUM PAYMENTS |
| o The Owner may select a payment plan but is not required to pay |
| premium payments according to the plan. The Owner can vary the |
| amount and frequency and can skip Planned Periodic Premium |
| Payments. See "Premium Payments" for rules and limits. |
| |
| o The Policy's Minimum Initial Premium Payment and Minimum |
| Monthly Premium Payment depend on the Insured's age, sex and |
| risk class, Specified Amount selected, and any supplemental |
| benefits and/or riders. See "Premium Payments." |
| |
| o Unscheduled premium payments may be made, within limits. See |
| "Premium Payments." |
|---------------------------------------------------------------------|
|
V
|-----------------------------------------------------------------------|
| DEDUCTIONS FROM PREMIUM PAYMENTS |
| o For sales charge (4% of premium payments up to the Target Premium |
| Payment in Policy Years 1 through 10; 2% of premium payments up to|
| the Target Premium Payment in Policy Year 11 and thereafter). See|
| "Charges and Deductions." |
| |
| o For federal taxes (1.25% of premium payments). See "Charges and |
| Deductions." |
| |
| o For state and local premium taxes (2.25% of premium payments). |
| See "Charges and Deductions." |
|-----------------------------------------------------------------------|
|
V
|------------------------------------------------------------------------------|
| NET PREMIUM PAYMENTS |
| o The Owner may direct the allocation of Net Premium Payments among 18|
| Subaccounts and the Fixed Account. See "The Policy" for rules and limits |
| on Net Premium Payment allocations. |
| |
| o The Subaccounts invest in corresponding Funds. See "General Information |
| About the Company." Funds available are: |
| |
| Federated High Income Bond Fund II Fidelity Asset Manager Portfolio |
| Federated Prime Money Fund II Fidelity Contrafund Portfolio |
| Federated Utility Fund II Fidelity Equity-Income Portfolio |
| Fidelity Index 500 Portfolio |
| MFS Emerging Growth Series |
| MFS Growth With Income Series MFS Research Series |
| MFS Limited Maturity Series MFS Total Return Series |
| |
| Alger American Growth Portfolio |
| Alger American MidCap Growth Portfolio |
| Alger American Small Capitalization Portfolio |
| Van Eck Emerging Markets Fund |
| Van Eck Gold and Natural Resources Fund |
| SoGen Overseas Portfolio |
| |
|o Interest is credited on amounts allocated to the Fixed Account at a |
| minimum guaranteed rate of 4%. See "The Fixed Account" for more |
| information about the Fixed Account. |
|------------------------------------------------------------------------------|
|
V
<PAGE>
|------------------------------------------------------------------------------|
| DEDUCTIONS FROM POLICY VALUE |
| o Monthly Deduction for cost of insurance charge, policy fees, first-year |
| issue fee, Specified Amount Increase fee, and charges for any supplemental|
| and/or rider benefits. The policy fee is currently $6.00 per month, the |
| first-year issue fee is currently $20.00 per month for the first 12 Policy|
| months, and the Specified Amount increase fee is currently $10.00 per |
| month for the first 12 months following an increase. |
| |
| DEDUCTIONS FROM ASSETS |
| o Daily charge at an annual rate of 0.90% from the Subaccounts for mortality|
| and expense risks during the first 10 Policy Years, and 0.45% in the|
| eleventh Policy Year and thereafter. See "Charges and Deductions." This|
| charge is not deducted from Fixed Policy Value. |
| |
| o Investment advisory fees and fund operating expenses are also deducted |
| from the assets of each Fund. See page "Charges and Deductions." |
|------------------------------------------------------------------------------|
|
V
- 9 -
<PAGE>
|------------------------------------------------------------------------------|
| Policy Value |
| o Is equal to Net Premiums, as adjusted each Valuation Day to reflect |
| Subaccount investment experience, interest credited on Fixed Policy |
| Value, charges deducted and other Policy transactions (such as transfers |
| and withdrawals). See "Calculation of Policy Values." |
| |
| o May vary from day to day. There is no minimum guaranteed Policy Value. |
| The Policy may Lapse if the Policy Value is insufficient to cover a Monthly|
| Deduction due. See "The Policy." |
| |
| o Can be transferred between and among the Subaccounts and the Fixed Account.|
| A transfer fee of $25.00 per transfer may apply if more than 4 transfers|
| are made in a Policy Year. See "Policy Benefits" for rules and limits.|
| Policy loans reduce the amount available for allocations and transfers. |
| |
| o Is the starting point for calculating certain values under a Policy, such |
| as the Cash Value, Surrender Value, and the Death Benefit used to |
| determine Death Benefit Proceeds. |
|------------------------------------------------------------------------------|
| |
V V
<TABLE>
<CAPTION>
<S> <C>
|---------------------------------------------------------| |------------------------------------------------|
| POLICY BENEFITS | | DEATH BENEFITS |
| o Loans may be taken for amounts up to 90% of | | o Available as lump sum or under a variety of |
| Surrender Value, at an effective annual interest | | Settlement Options. |
| rate of 8%. See "Policy Loans" for rules and limits.| | |
| | | o The minimum Specified Amount is $100,000. |
| o Withdrawals generally can be made provided there is | | |
| sufficient remaining Surrender Value. See | | o Two Death Benefit Options available: Option |
| "Withdrawal Privilege" for rules and limits. | | 1, equal to the Specified Amount, and Option|
| | | 2, equal to the Specified Amount plus Policy|
| o The Policy may be surrendered in full at any time | | Value. See "Death Benefit Proceeds." |
| for its Surrender Value. A declining deferred | | |
| Surrender Charge is assessed in connection with the | | o Flexibility to change the Death Benefit |
| initial Specified Amount on surrenders or | | Option and Specified Amount. See "Death |
| withdrawals during the first 14 Policy Years. It | | Benefit Proceeds" for rules and limits. |
| consists of (1) a Sales Surrender Charge of up to | | |
| 34% of premium payments in the first Policy Year up | | o Supplemental benefits and/or riders are |
| to the Target Premium Payment and 33% of premium | | available. See "Other Policy Benefits and |
| payments up to the Target Premium Payment in each of | | Provisions." |
| Policy Years 2 through 6 until the total Sales | | |
| Surrender Charge equals 100% of a single Target | | |
| Premium Payment, and (2) an Administration Surrender | | |
| Charge of up to $5.00 per $1,000 of Specified | | |
| Amount. See "Charges and Deductions." | | |
| | | |
| o A declining deferred Sales Surrender Charge is | | |
| assessed in connection with an increase in Specified | | |
| Amount on surrenders or withdrawals within 14 Policy | | |
| Years of such increase. The Charge is 34% of | | |
| premium payments attributable to the increase up to | | |
| the Target Premium Payment for the increase in the | | |
| year following the increase, and 33% of premium | | |
| payments attributable to the increase up to the | | |
| Target Premium Payment for the increase in each of | | |
| next 5 years following the increase until the Sales | | |
| Surrender Charge for the increase equals 100% of the | | |
| Target Premium Payment for the increase. See | | |
| "Charges and Deductions." | | |
|---------------------------------------------------------| |------------------------------------------------|
</TABLE>
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE COMPANY, THE VARIABLE ACCOUNT AND THE FUNDS
- --------------------------------------------------------------------------------
THE COMPANY
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 ("CAC"), a life
insurance company which, as of December 31, 1994, had assets of approximately
$11.1 billion. Subject to a coinsurance pooling agreement (a type of reinsurance
arrangement) with CAC, the Company assumes all insurance risks under the
Policies, and the Company's assets, which as of December 31, 1994 exceeded
$507.7 million, support the benefits under the Policies. See "Other Information
About The Policies And The Company," for more detail regarding the Company.
THE VARIABLE ACCOUNT
The Variable Account is a separate investment account of the Company established
under Pennsylvania law on October 18, 1995. The Company owns the assets of the
Variable Account. These assets are held separate from the Company's general
account and its other accounts. That portion of the Variable Account's assets
that is equal to the reserves and other Policy liabilities of the Variable
Account is not chargeable with liabilities arising out of any other business the
Company may conduct. If the assets exceed the required reserves and other Policy
liabilities, the Company may transfer the excess to the Company's general
account. The Variable Account's assets will at all times equal or exceed the sum
of the Subaccount Values of all policies funded by the Variable Account.
The Variable Account is registered with the SEC under the Investment Company Act
of 1940 (the "1940 Act") as a unit investment trust and meets the definition of
a "separate account" under the federal securities laws. Such registration does
not involve any supervision by the SEC of the management of the Variable Account
or the Company. The Variable Account also is governed by the laws of
Pennsylvania, the Company's state of domicile, and may also be governed by laws
of other states in which the Company does business.
The Variable Account has 18 Subaccounts, each of which invests in shares of a
corresponding Fund. Income, gains and losses, realized or unrealized, from
assets allocated to a Subaccount are credited to or charged against that
Subaccount without regard to other income, gains or losses of the Company.
Where permitted by applicable law, the Company may make the following changes to
the Variable Account:
1. Any changes required by the 1940 Act or other applicable law or
regulation;
2. Combine separate accounts, including the Variable Account;
3. Add new subaccounts to or remove existing subaccounts from the
Variable Account or combine Subaccounts;
4. Make Subaccounts (including new subaccounts) available to such
classes of Policies as the Company may determine;
5. Add new Funds or remove existing Funds;
6. Substitute new Funds for any existing Fund if shares of the Fund
are no longer available for investment or if the Company
determines that investment in a Fund is no longer appropriate in
light of the purposes of the Variable Account;
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7. Deregister the Variable Account under the 1940 Act if such
registration is no longer required; and
8. Operate the Variable Account as a management investment company
under the 1940 Act or as any other form permitted by law.
No such changes will be made without any necessary approval of the SEC and
applicable state insurance departments. Owners will be notified of any changes.
THE FUNDS
Each Subaccount invests in a corresponding Fund. Each of the Funds is either an
open-end diversified management investment company or a separate investment
portfolio of such a company and is managed by a registered investment adviser.
The Funds as well as a brief description of their investment objectives are
provided below.
Insurance Management Series
---------------------------
The High Income Bond II, Prime Money II and Utility II Subaccounts each
invest in shares of corresponding Funds (i.e., investment portfolios) of
Insurance Management Series ("IMS"). IMS issues five "series" or classes of
shares, each of which represents an interest in a Fund of IMS. Three of these
series of shares are available as investment options under the Contracts. The
investment objectives of these Funds are set forth below.
High Income Bond Fund II. This Fund invests primarily in lower-rated
fixed-income securities that seek to achieve high current income.
Prime Money Fund II. This Fund invests in money market instruments maturing
in thirteen months or less to achieve current income consistent with
stability of principal and liquidity.
Utility Fund II. This Fund invests in equity and debt securities of utility
companies to achieve high current income and moderate capital appreciation.
IMS is advised by Federated Advisers.
Variable Insurance Products Fund and Variable Insurance Products Fund II
------------------------------------------------------------------------
The Equity-Income Subaccount invests in shares of a corresponding Fund
(i.e., investment portfolios) of Variable Insurance Products Fund ("VIP Fund").
VIP Fund issues five "series" or classes of shares, each of which represents an
interest in a Fund of VIP Fund. One of these series of shares is available as an
investment option under the Contracts. Asset Manager, Contrafund, and Index 500
Subaccounts each invest in shares of corresponding Funds (i.e., investment
portfolios) of Variable Insurance Products Fund II ("VIP Fund II"). VIP Fund II
issues five "series" or classes of shares, each of which represents an interest
in a Fund of VIP Fund II. Three of these series of shares are available as
investment options under the Policies. The investment objectives of these Funds
are set forth below.
Asset Manager Portfolio. This Fund seeks high total return with reduced
risk over the long-term by allocating its assets among domestic and foreign
stocks, bonds and short-term fixed-income instruments.
Contrafund Portfolio. This Fund seeks capital appreciation over the
long-term by investing in companies that are undervalued or out-of-favor.
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Equity-Income Portfolio. This Fund seeks current income by investing
primarily in income producing equity securities. In choosing these
securities, the Fund also considers the potential for capital appreciation.
Index 500 Portfolio. This Fund seeks investment results that correspond to
the total return of common stocks publicly traded in the United States, as
represented by the Standard & Poor's 500 Composite Index of 500 Common
Stocks.
VIP Fund and VIP Fund II are each advised by Fidelity Management &
Research Company.
The Alger American Fund
-----------------------
Alger American Growth, Alger American MidCap Growth and Alger American
Small Capitalization Subaccounts each invest in shares of corresponding Funds
(i.e., investment portfolios) of The Alger American Fund ("AAF"). AAF issues ___
"series" or classes of shares, each of which represents an interest in a Fund of
AAF. Three of these series of shares are available as investment options under
the Policies. The investment objectives of these Funds are set forth below.
Alger American Growth Portfolio. This Fund seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of
equity securities, primarily of companies with total market capitalization
of $ 1 billion or greater.
Alger American MidCap Growth Portfolio. This Fund seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of
equity securities, primarily of companies with total market capitalization
between $750 million and $3.5 billion.
Alger American Small Capitalization Portfolio. This Fund seeks long-term
capital appreciation by investing in a diversified, actively managed
portfolio of equity securities, primarily of companies with total market
capitalization of less than $1 billion.
AAF is advised by Fred Alger Management, Inc.
MFS Variable Insurance Trust
----------------------------
The MFS Emerging Growth, MFS Growth with Income, MFS Limited Maturity,
MFS Research and MFS Total Return Subaccounts each invest in shares of
corresponding Funds (i.e., investment portfolios) of MFS Variable Insurance
Trust ("MFSVIT"). MFSVIT issues 12 "series" or classes of shares, each of which
represents an interest in a Fund of MFSVIT. Five of these series of shares are
available as investment options under the Policies. The investment objectives of
these Funds are set forth below.
MFS Emerging Growth Series. This Fund seeks to obtain long-term growth of
capital by investing primarily in common stocks of small and medium-sized
companies that are early in their life cycle but which have the potential
to become major enterprises.
MFS Growth With Income Series. This Fund seeks to provide reasonable
current income and long-term growth of capital and income.
MFS Limited Maturity Series. This Fund seeks to provide as high a level of
current income as is believed to be consistent with prudent investment
risk, with capital protection as a secondary objective.
MFS Research Series. This Fund seeks to provide long-term growth of
capital and future income.
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<PAGE>
MFS Total Return Series. This Fund seeks primarily to provide above-average
income consistent with prudent employment of capital and secondarily to
provide a reasonable opportunity for growth of capital and income.
MFSVIT is advised by Massachusetts Financial Services Company.
SoGen Variable Funds, Inc.
--------------------------
The SoGen Overseas Subaccount invests in shares of a corresponding Fund
(i.e., investment portfolio) of SoGen Variable Funds, Inc. ("SGVF"). SGVF issues
___ "series" or classes of shares, each of which represents an interest in a
Fund of SGVF. One of these series of shares is available as an investment option
under the Policies. The investment objective of this Fund is set forth below.
SoGen Overseas Portfolio. This Fund seeks long-term growth of capital by
investing primarily in securities of small and medium size non-U.S.
companies.
SGVF is advised by Societe Generale Asset Management Corp.
Van Eck Worldwide Insurance Trust
---------------------------------
The Emerging Market and Gold and Natural Resources Subaccounts each
invest in shares of corresponding Funds (i.e., investment portfolios) of Van Eck
Worldwide Insurance Trust ("VEWIT"). VEWIT issues ___ "series" or classes of
shares, each of which represents an interest in a Fund of VEWIT. Two of these
series of shares are available as investment options under the Policies. The
investment objectives of these Funds are set forth below.
Emerging Markets Fund. This Fund seeks capital appreciation by investing
primarily in equity securities in emerging markets around the world.
Gold and Natural Resources Fund. This Fund seeks long-term capital
appreciation by investing in equity and debt securities of companies
engaged in the exploration, development, production and distribution of
gold and other natural resources such as strategic and other metals,
minerals, forest products, oil, natural gas and coal.
VEWIT is advised by Van Eck Associates Corporation.
NO ONE CAN ASSURE THAT ANY FUND WILL ACHIEVE ITS STATED OBJECTIVES AND POLICIES.
More detailed information concerning the investment objectives, policies and
restrictions of the Funds, the expenses of the Funds, the risks attendant to
investing in the Funds and other aspects of their operations can be found in the
current prospectus for each Fund that accompanies this prospectus and the
current Statement of Additional Information for the Funds. The Funds' prospectus
should be read carefully before any decision is made concerning the allocation
of premium payments or transfers among the Subaccounts.
Not all of the Funds described in the prospectuses for the Funds are available
with the Contract. Moreover, the Company cannot guarantee that each Fund will
always be available for its variable annuity contracts, but in the unlikely
event that a Fund is not available, the Company will take reasonable steps to
secure the availability of a comparable fund. Shares of each Fund are purchased
and redeemed at net asset value, without a sales charge.
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<PAGE>
The Company has entered into agreements with the investment advisers of several
of the Funds pursuant to which each such investment adviser will pay the Company
a servicing fee based upon an annual percentage of the average aggregate net
assets invested by the Company on behalf of the Variable Account. These
agreements reflect administrative services provided to the Funds by the Company.
Payments of such amounts by an adviser will not increase the fees paid by the
Funds or their shareholders.
Shares of the Funds are sold to separate accounts of insurance companies that
are not affiliated with the Company or each other, a practice known as "shared
funding." They are also sold to separate accounts to serve as the underlying
investment for both variable annuity contracts and variable life insurance
contracts, a practice known as "mixed funding." As a result, there is a
possibility that a material conflict may arise between the interests of Owners,
whose Policy Values are allocated to the Variable Account, and of owners of
other policies whose policy values are allocated to one or more other separate
accounts investing in any one of the Funds. Shares of some of the Funds may also
be sold to certain pension and retirement plans qualifying under Section 401 of
the Code. As a result, there is a possibility that a material conflict may arise
between the interests of Owners or owners of other policies (including policies
issued by other companies), and such retirement plans or participants in such
retirement plans. In the event of any such material conflicts, the Company will
consider what action may be appropriate, including removing the Fund from the
Variable Account or replacing the Fund with another Fund. There are certain
risks associated with mixed and shared funding and with the sale of shares to
qualified pension and retirement plans, as disclosed in each Fund's prospectus.
THE POLICY
PURCHASING A POLICY
To purchase a Policy, a prospective Owner must submit a completed application
and the Minimum Initial Premium Payment through a licensed agent of the Company
who is also a registered representative of broker-dealer having a selling
agreement with CNA Investor Services, Inc. ("CNA/ISI"), the principal
underwriter of the Policies. The Company requires satisfactory evidence of the
Insured's insurability, which may include a medical examination of the Insured.
Generally, the Company issues Policies covering Insureds up to age 75 if
evidence of insurability satisfies the Company's underwriting criteria.
Acceptance of an application is subject to the Company's underwriting criteria,
and the Company reserves the right to reject an application for any reason.
Insurance coverage under a Policy begins on the later of the Policy Effective
Date or the date that the Company receives the Minimum Initial Premium Payment.
Generally the Company establishes the Policy Effective Date (shown on the
Policy) after it completes the underwriting process and accepts the application.
Where the Minimum Initial Premium Payment is received by the Company after the
Policy Effective Date, coverage under the Policy is conditioned upon the
Insured's state of health being the same as that described in the application.
With the Company's prior approval, in order to obtain a lower Issue Age, an
Owner may "backdate" a Policy by electing a Policy Effective Date up to six
months prior to the date of the original application. A lower Issue Age for the
Insured generally results in slightly more favorable cost of insurance rates.
Charges for the monthly deduction for the backdated period are deducted as of
the Policy Effective Date.
Insurance coverage under the Policy terminates upon the first to occur of the
following events: (1) the Insured dies, (2) the Owner surrenders the Policy, (3)
the Policy reaches the Maturity Date, or (4) the Policy Lapses.
CANCELLATION PRIVILEGE
An Owner may cancel a Policy for a refund during the Cancellation Period by
returning it to the Service Center or to the sales representative who sold it
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<PAGE>
along with a Written Notice requesting cancellation. The Cancellation Period is
determined by the law of the state in which the Owner resides or in which the
application is signed and is shown on the Policy. In most states it expires at
the latest of (1) ten days after the Owner first receives the Policy, (2) 45
days after the Owner signs the application, or (3) 10 days after the Company
mails or delivers a notice of the Owners withdrawal rights. Return of the Policy
by mail is effective upon receipt at the Service Center. When cancelled, the
Policy is treated as if it had never been issued. Within seven calendar days
after receiving the returned Policy, the Company will refund an amount equal to
the sum of (1) the difference between premium payments made (including any fees
and charges deducted) and the amounts allocated to the Fixed Account and to the
Subaccounts, (2) Fixed Policy Value determined as of the date the returned
Policy is received, and (3) Variable Policy Value determined as of the date the
returned Policy is received. This amount may be more or less than the aggregate
premium payments made under the Policy. In states where required, the Company
will instead refund premium payments.
PREMIUM PAYMENTS
MINIMUM INITIAL PREMIUM PAYMENT. The Minimum Initial Premium Payment required
depends on a number of factors, including the sex, Issue Age, and risk class of
the proposed Insured, the initial Specified Amount requested by the applicant,
any supplemental benefits and/or riders requested by the applicant, and the
Planned Periodic Premium Payments that the applicant selects. Owners should
consult their sales representative for information about the Minimum Initial
Premium Payment required for the coverage that they seek.
PLANNED PERIODIC PREMIUMS PAYMENTS. Owners may establish a schedule of monthly
(bank draft or pre-authorized payment only), quarterly, semi-annual or annual
Planned Periodic Premium Payments. Subject to the Company's approval, Owners may
change the amount or frequency of Planned Periodic Premium Payments by Written
Notice. The Company will send Owners reminder notices for Planned Periodic
Premium Payments. The Company also may arrange with Owners to have Planned
Periodic Premium Payments made under a pre-authorized payment arrangement.
Owners are not required to pay Planned Periodic Premium Payments.
UNPLANNED PREMIUM PAYMENTS. Subject to the limitations described below, Owners
generally may make additional premium payments at any time before the Maturity
Date while the Insured is alive and the Policy is in force. Unless the Owner
specifies otherwise in the application or by subsequent Written Notice, the
Company considers all unplanned premium payments first as repayments of any
outstanding Loan Amounts under the Policy.
PREMIUM PAYMENT LIMITATIONS. Unless otherwise approved by the Company, all
premium payments must be made payable to "Valley Forge Life Insurance Company"
at the Service Center. No premium payments are accepted after a Policy's
Maturity Date.
Premium payments must be at least $50 (unless paid pursuant to a pre-authorized
payment arrangement) and must be remitted to the Service Center. The Company
reserves the right to reject any premium payment in the event that it determines
that acceptance of such payment would cause a Policy to fail to qualify as a
life insurance contract under the Code or applicable regulations or rulings
thereunder. The Company will promptly return any premium payment that it rejects
for this reason. The Company will monitor Policies and will attempt to notify
the Owner on a timely basis if his or her Policy is in jeopardy of becoming a
modified endowment contract under the Code. (See "Tax Considerations.")
PREMIUM PAYMENTS UPON INCREASE IN SPECIFIED AMOUNT. Depending on the Policy
Value at the time of an increase in the Specified Amount and the amount of the
increase requested, an additional premium payment may be necessary or a change
in the amount of Planned Periodic Premium Payments may be advisable. (See "Death
Benefit Proceeds.")
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<PAGE>
NET PREMIUM ALLOCATIONS
Net Premium Payments are allocated among and between the Subaccounts and the
Fixed Account as of the date that they are received at the Service Center
according to the Owner's allocation instructions in the application or in a
subsequent Written Notice. Allocation instructions must be in whole percentages
and the minimum amount that the Company can allocate to any Subaccount or the
Fixed Account is 1% of any Net Premium Payment. The Company reserves the right
to establish additional limitations on premium payment allocations.
For Policies issued in states where, upon cancellation during the Cancellation
Period, the Company refunds premium payments, the Company allocates Net Premium
Payments it receives during the Cancellation Period (including that related to
the Minimum Initial Premium Payment) that are to be allocated to any Subaccount,
to the Money Market Subaccount for a period equal to the number of days in the
Cancellation Period. At the end of this period, the Money Market Subaccount
Value will be reallocated to each other Subaccount selected by the Owner based
on the proportion that the Owner's allocation percentage bears to the Variable
Policy Value.
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike a conventional life insurance policy, failure to make Planned
Periodic Premium Payments does not necessarily cause a Policy to Lapse.
Conversely, making all Planned Periodic Premium Payments does not necessarily
prevent a Policy from Lapsing. Rather, except when the Lapse Prevention
Guarantee is in effect, whether a Policy Lapses depends on whether its Surrender
Value is sufficient to cover the monthly deduction on each Monthly Anniversary
Day. Surrender Value could become insufficient to cover the monthly deduction if
investment experience has been sufficiently unfavorable that it has resulted in
a decrease in Policy Value or the Policy Value has decreased because the Owner
did not make sufficient Net Premium Payments to offset prior monthly deductions.
If the Surrender Value on a Monthly Anniversary Day is insufficient to cover the
monthly deduction due on that Day, the Company will mail to the Owner and to any
assignee of record at their last known address(es), a notice stating that the
Policy will only remain in force for 61 days from the date that the notice was
mailed. This 61 day period is called the Grace Period. If the Owner does not
make sufficient premium payments to cover the monthly deduction(s) through the
end of the Grace Period by the end of the Grace Period, then the Policy will
terminate without value and all coverage under the Policy will terminate. The
notice mailed to the Owner and to any assignee of record will indicate how much
in additional premium payments the Owner must make before the end of the Grace
Period to keep the Policy in force. Coverage under the Policy continues during
the Grace Period and the Company will deduct unpaid monthly deductions when
computing Death Benefit Proceeds if the Insured dies during the Grace Period.
REINSTATEMENT. If the Policy Lapses, the Owner may reinstate it at any time
within five years of Lapse but before the Maturity Date. A Policy that has been
surrendered cannot be reinstated. To reinstate a Policy, the Owner must submit
to the Service Center:
1. evidence of insurability satisfactory to the Company;
2. premium payments in an amount sufficient to result (along with
any loan repayments) in a positive Surrender Value; and
3. premium payments in an amount sufficient that the resulting Net
Premium Payments equal or exceed the amount of the next two
monthly deductions.
Upon reinstatement of the Policy, the Company will reinstate any remaining Loan
Amount. The Policy Value of a reinstated Policy is the amount provided by the
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<PAGE>
Net Premium Payments submitted with the application for reinstatement. The
effective date of a reinstated Policy is the Monthly Anniversary Date that falls
on or next follows the later of the date that the application for reinstatement
is approved or the above-listed items are received at the Service Center.
LAPSE PREVENTION GUARANTEE. The Company guarantees that a Policy will not Lapse
during the first five Policy Years, regardless of the Surrender Value, if,
throughout that period, (a) exceeds (b) where:
(a) is the aggregate premium payments made less the amount of any
withdrawals (including applicable surrender charges) less any
Loan Amount, and
(b) is the Minimum Monthly Premium Payment multiplied by the
number of complete months since the Policy Effective Date,
including the current month.
If the Policy's Specified Amount is increased while the Lapse Prevention
Guarantee is in effect, the Company will recalculate the Minimum Monthly Premium
Payment, which will generally increase following an increase in Specified
Amount. The Company will notify Owners of any increase in the Minimum Monthly
Premium Payment and will amend the Policy to reflect the change.
VARIABLE POLICY VALUE
The Variable Policy Value is the sum of all Subaccount Values and therefore
reflects the investment experience of the Subaccounts to which it is allocated.
THERE IS NO GUARANTEED MINIMUM VARIABLE POLICY VALUE.
SUBACCOUNT VALUE. The Subaccount Value of any Subaccount as of the Policy
Effective Date is equal to the amount of the initial Net Purchase Payment
allocated to that Subaccount. On subsequent Valuation Days prior to the Maturity
Date, the Subaccount Value is equal to that part of any Net Purchase Payment
allocated to the Subaccount and any Policy Value transferred to that Subaccount,
adjusted by interest income, dividends, net capital gains or losses, realized or
unrealized, and decreased by withdrawals (including any applicable surrender
charges) and any Policy Value transferred out of that Subaccount.
UNITS. For each Subaccount, Net Premium Payment(s) allocated to a Subaccount or
amounts of Policy Value transferred to a Subaccount are converted into Units.
The number of Units credited to a Policy is determined by dividing the dollar
amount directed to each Subaccount by the value of the Unit for that Subaccount
for the Valuation Day as of which the Net Premium Payment(s) or transferred
amount is invested in the Subaccount. Therefore, Net Premium Payments allocated
to or amounts transferred to a Subaccount under a Policy increase the number of
Units of that Subaccount credited to the Policy.
Certain events reduce the number of Units of a Subaccount credited to a Policy.
Withdrawals or transfers of Subaccount Value from a Subaccount result in the
cancellation of the appropriate number of Units of that Subaccount as do:
surrender of the Policy; payment of the Death Benefit Proceeds; and the
deduction of the monthly deduction. Units are cancelled as of the end of the
Valuation Period in which the Company receives Written Notice regarding the
event.
UNIT VALUE. For each Subaccount there exist two types of Units: A Units and B
Units. A Units represent Subaccount Value during the first ten Policy Years
under any Policy, while B Units represent Subaccount Value during Policy Years
11 and later. On the tenth Policy Anniversary, all A Units of any Subaccount
under a Policy are automatically exchanged for B Units on an equivalent dollar
value basis.
A Units and B Units both represent a fractional undivided interest in a
Subaccount. They differ only in their value as a result of the fact that the
mortality and expense risk charge deducted from each Subaccount is larger for
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Policies in the first ten Policy Years than the charge deducted for Policies in
Policy Years 11 and later. This difference in charges is reflected in a
different Net Investment Factor (described below) for A Units and B Units for
each Valuation Period.
The A Unit and B Unit values for each Subaccount were arbitrarily set initially
at $10 when that Subaccount began operations. Thereafter, the Unit Value at the
end of every Valuation Day is the Unit Value at the end of the previous
Valuation Day multiplied by the Net Investment Factor for that type of Unit
(either A or B), as described below. The Subaccount Value for a Policy is
determined on any Valuation Day by multiplying the number of Units of the
appropriate type (either A or B) attributable to the Policy in that Subaccount
by the value for that type of Unit for that Subaccount on that day.
NET INVESTMENT FACTOR. The Net Investment Factor is an index applied to measure
the investment performance of either A Units or B Units of a Subaccount from one
Valuation Period to the next. The Net Investment Factor for any Subaccount for
any Valuation Period is determined by dividing 1 by 2 and subtracting 3 from the
result, where:
1. is the result of:
a. the Net Asset Value Per Share of the Fund held in the Subaccount,
determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions
made by the Fund held in the Subaccount, if the "ex-dividend" date
occurs during the current Valuation Period; plus or minus
c. a per share charge or credit for any taxes reserved for, which is
determined by the Company to have resulted from the operations of
the Subaccount.
2. is the Net Asset Value Per Share of the Fund held in the Subaccount,
determined at the end of the last prior Valuation Period.
3. is a daily factor representing the mortality and expense risk charge for
the type of Unit deducted from the Subaccount adjusted for the number of
days in the Valuation Period.
FIXED POLICY VALUE
The Fixed Policy Value on any Valuation Day is equal to:
1. aggregate Net Premium Payments allocated to the Fixed Account;
plus
2. Policy Value transferred to the Fixed Account; plus
3. interest credited to the Fixed Account; less
4. any withdrawals (including any applicable surrender charges
deducted) or transfers (including any applicable transfer charge
deducted) from the Fixed Account; less
5. any surrender charges deducted in the event of a decrease in
Specified Amount; less
6. the portion of monthly deductions made from Fixed Policy Value.
See "The Fixed Account," for a discussion of how interest is credited to the
Fixed Account.
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TRANSFERS OF POLICY VALUES
GENERAL. Before the Maturity Date while the Insured is still living and the
Policy is in force, the Owner may, by Written Notice, transfer all or part any
Subaccount Value to another Subaccount(s) (subject to its availability) or to
the Fixed Account, or transfer all or part of Fixed Policy Value to any
Subaccount(s), (subject to its availability) subject to the following
restrictions and the additional restrictions for transfers from the Fixed
Account shown below:
1. the minimum transfer amount is $500 (or, the entire Subaccount
Value or Fixed Policy Value, if less); and
2. a transfer request that would reduce any Subaccount Value or
the Fixed Policy Value below $500 is treated as a transfer request
for the entire Subaccount Value or Fixed Policy Value.
The first 12 transfers during each Contract Year are free. The Company assesses
a transfer processing fee of $25 for each transfer in excess of 12 during a
Contract Year. (See "Charges and Deductions.")
RESTRICTIONS ON TRANSFERS OF FIXED POLICY VALUE. An Owner may transfer all or
part of the Fixed Policy Value to a Subaccount. Only one transfer may be made
each Policy Year from the Fixed Account to one or more Subaccounts and this
transfer must be at least 12 calendar months after the most recent transfer from
the Fixed Account. An unused transfer option does not carry over to the next
year. The maximum transfer amount is 25% of the Fixed Policy on the date of the
transfer, unless the balance after the transfer is less than $500.
SPECIAL TRANSFER PRIVILEGE. During the first 24 Policy Months following the date
that coverage begins under the Policy, Owners may make one transfer of the
entire Variable Policy Value to the Fixed Account without imposition of the
transfer processing fee or the transfer counting as one of the 12 free transfers
for a Policy Year. Likewise, during the first 24 Policy Months following the
effective date of any Specified Amount increase, Owners may make one transfer of
that portion of the Variable Policy Value attributable to the increase to the
Fixed Account without imposition of the transfer processing fee or the transfer
counting as one of the 12 free transfers for a Policy Year.
DOLLAR-COST AVERAGING FACILITY. If elected in the application or at any time
thereafter prior to the Maturity Date while the Insured is still living and the
Policy is in force by Written Notice, an Owner may systematically transfer (on a
monthly, quarterly, semi-annual or annual basis) specified dollar amounts from
the Money Market Subaccount to other Subaccounts. This is known as the
"dollar-cost averaging" method of investment. The fixed-dollar amount purchases
more Units of a Subaccount when their value is lower and fewer Units when their
value is higher. Over time, the cost per Unit averages out to be less than if
all purchases of Units had been made at the highest value and greater than if
all purchases had been made at the lowest value. The dollar-cost averaging
method of investment reduces the risk of making purchases only when the price of
Units is high. It does not assure a profit or protect against a loss in
declining markets.
Owners may only elect use the dollar-cost averaging facility if their Money
Market Subaccount Value is at least $1,000 at the time of the election. The
minimum transfer amount under the facility is $100 per month (or the
equivalent). If dollar-cost averaging transfers are to be made to more than one
Subaccount, then the Owner must indicate the dollar amount of the transfer to be
made to each. At least $50.00 must be designated to each Subaccount.
Transfers under the dollar-cost averaging facility are made as of the same
calendar day each month. If this calendar day is not a Valuation Day, transfers
are made as of the next Valuation Day. Once elected, transfers under the
dollar-cost averaging facility continue until the Money Market Subaccount Value
is depleted, the Maturity Date occurs or until the Owner cancels the election by
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Written Notice at least seven days in advance of the next transfer date.
Alternatively, Owners may specify in advance a date for transfers under the
facility to cease. There is no additional charge for using the dollar-cost
averaging facility. Transfers under the facility do not count towards the 4
transfers permitted without a transfer processing fee in any Policy Year. The
Company reserves the right to discontinue offering the dollar-cost averaging
facility at any time and for any reason or to change its features.
AUTOMATIC SUBACCOUNT VALUE REBALANCING. If elected in the application or
requested at any time thereafter prior to the Maturity Date while the Insured is
still living and the Policy is in force by Written Notice, an Owner may instruct
the Company to automatically transfer (on a quarterly, semi-annual or annual
basis) Variable Policy Value between and among specified Subaccounts in order to
achieve a particular percentage allocation of Variable Policy Value among such
Subaccounts ("automatic Subaccount Value rebalancing"). Such percentage
allocations must be in whole numbers. Once elected, automatic Subaccount Value
rebalancing begins on the first Valuation Day of the next calendar quarter or
other period (or, if later, the next calendar quarter or other period after the
expiration of the Cancellation Period).
Owners may stop automatic Subaccount Value rebalancing at any time at least
seven calendar days before the first Valuation Day in a new period. Owners may
specify allocations between and among as many Subaccounts as are available at
the time automatic Subaccount Value rebalancing is elected. Once automatic
Subaccount Value rebalancing has been elected, any subsequent allocation
instructions that differ from the then-current rebalancing allocation
instructions are treated as a request to change the automatic Subaccount Value
rebalancing allocation. Owners may change automatic Subaccount Value rebalancing
allocations at any time. Allocation changes will take effect as of the Valuation
Day that instructions are received at the Service Center. Once automatic
Subaccount Value rebalancing is in effect, an Owner may only transfer Subaccount
Value among or between Subaccounts by changing the automatic Subaccount Value
rebalancing allocation instructions. Changes to or termination of automatic
Subaccount Value rebalancing must be made by Written Notice.
There is no additional charge for automatic Subaccount Value rebalancing and
rebalancing transfers do not count as one of the 4 transfers available without a
transfer processing fee during any Policy Year. If automatic Subaccount Value
rebalancing is elected at the same time as the dollar-cost averaging facility or
when the dollar-cost averaging facility is being utilized, automatic Subaccount
rebalancing will be postponed until the first Valuation Day in the calendar
quarter or other period following the termination of dollar-cost averaging
facility. The Company reserves the right to discontinue offering the automatic
Subaccount Value rebalancing facility at any time and for any reason or to
change its features.
SURRENDER PRIVILEGE
At any time while the Insured is still living and the Policy is in force prior
to the Maturity Date, the Owner may, by Written Notice, surrender it for its
Surrender Value. A surrender is effective as of the date on which a Written
Notice requesting surrender is received at the Service Center. If the Owner
surrenders the Policy during the first 14 Policy Years, or the first 14 Policy
Years following an increase in Specified Amount, the Company will deduct a
surrender charge. (See "Surrender Charge.") Once the Policy is surrendered, all
coverage and other benefits under it cease and it cannot be reinstated.
<PAGE>
WITHDRAWAL PRIVILEGE
After the first Policy Year, while the Insured is still living and the Policy is
in force prior to the Maturity Date, an Owner may, by Written Request, withdraw
any part of the Surrender Value of the Policy, subject to certain conditions. A
withdrawal is effective as of the date on which a Written Notice requesting
withdrawal is received at the Service Center. As of that date, Policy Value is
reduced by the amount of the withdrawal plus any applicable surrender charge.
The minimum amount that may be withdrawn is $500. If the Owner has selected
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<PAGE>
Death Benefit Option 1, the Company will reduce the Specified Amount by the
amount of the withdrawal plus any applicable surrender charge deduction. (See
"Death Benefit Proceeds.")
Unless otherwise indicated in the Written Request for Withdrawal, amounts
withdrawn and surrender charges deducted in connection with the withdrawals are
taken from Subaccount Values and Fixed Policy Value based on the proportion that
each Subaccount Value and the Fixed Policy Value bear to Policy Value. If the
Owner requests a decrease in Specified Amount or requests a change in the Death
Benefit Option as of the same date as a withdrawal request, then the withdrawal
is effected after the decrease in Specified Amount or change in Death Benefit
Option.
Notwithstanding the foregoing, the Company reserves the right to reject a
withdrawal request if the request would cause the Specified Amount to be reduced
below the minimum Specified Amount shown in the Policy. Likewise, the Company
reserves the right to deny a withdrawal request if the request would cause the
Policy to fail to qualify as a life insurance contract under the Code or
regulations or rulings thereunder, as interpreted by the Company.
POLICY LOANS
GENERAL. At any time prior to the Maturity Date while the Insured is still
living and the Policy is in force, the Owner may, by Written Notice, borrow
money from the Company using the Policy as the sole security for the loan
provided that (a) a written loan agreement is signed by the Owner, and (b) the
Owner makes a satisfactory assignment of the Policy to the Company. In taking a
loan, an Owner must borrow at least $500. The maximum amount that an Owner may
borrow is 90% of the Surrender Value of the Policy as of the date of the loan.
INTEREST. The Company charges interest on amounts borrowed by Owners. The
interest rate charged is 8% and is an effective annual rate compounded annually
on the Policy Anniversary. Interest is charged in arrears from the date of the
loan and is due from Owners on each Policy Anniversary for the prior Policy
Year. If the Owner does not pay such interest when due, the amount of the
interest is added to the outstanding Loan Amount. Thus, unpaid interest is
charged interest during the ensuing Policy Year. For Policies in the 11th Policy
Year or later, the Company charges a preferred 6% effective annual interest rate
on amounts borrowed up to an amount equal to Policy Value less aggregate premium
payments made to date.
The Company credits Loan Account Value with interest at an effective annual rate
of 6%. On each Policy Anniversary, interest earned on Loan Account Value since
the preceding Anniversary is transferred to the Subaccounts and the Fixed
Account. Unless the Owner specifies otherwise, such transfers are allocated in
the same manner as transfers of collateral to the Loan Account.
LOAN COLLATERAL. When the Company makes a loan to Owners, it transfers an amount
of Cash Value sufficient to secure the loan out of the Subaccounts and the Fixed
Account and into the Loan Account. Owners may specify how this transferred Cash
Value is allocated from among the Subaccount Values and the Fixed Policy Value.
If an Owner does not specify the allocation, the Company makes the allocation
based on the proportion that each Subaccount Value and the Fixed Policy Value
bear to the Cash Value as of the date that the transfer is made. If unpaid
interest is due from an Owner on a Policy Anniversary it is added to the Loan
Amount. Cash Value in the amount of the interest also is transferred to the Loan
Account as of that Anniversary. The Cash Value transferred in connection with
unpaid interest is allocated on the same basis as other Cash Value transferred
by the Company to the Loan Account.
Loan Account Value is recalculated when interest is added to the Loan Amount, a
loan repayment is made, or a new loan is made under Policy.
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<PAGE>
NON-PAYMENT OF POLICY LOANS. If Loan Account Value exceeds Cash Value, then the
Owner must make either a loan repayment or a premium payment sufficient to raise
the Cash Value or lower the Loan Account Value so that Cash Value exceeds the
Loan Account Value. The Company will send the Owner and any assignee of record a
notice indicating the amount that must be paid. If payment is not received at
the Service Center within 30 days of the notice being mailed, the Grace Period
will begin. (See "Policy Lapse and Reinstatement.") If the Grace Period expires
without the payment being made, then the Policy Lapses.
LOAN REPAYMENT. The Owner may repay a loan or repay any part of a loan at any
time while the Insured is still living and the Policy is in force prior to the
Maturity Date. Upon repayment of any part of a loan, Loan Account Value in an
amount equal to the payment is transferred to the Subaccounts and the Fixed
Account as of the date that the payment is received at the Service Center.
Unless the Owner specifies otherwise, the amount transferred is allocated among
or between the Subaccounts and the Fixed Account in accordance with the Owner's
allocation instructions for Net Premium Payments in effect at that time.
EFFECT OF POLICY LOAN. A loan, whether or not repaid, has a permanent effect on
the Death Benefit and Policy values because the investment results of the
Subaccounts and current interest rates credited on Fixed Policy Value do not
apply to Policy Value in the Loan Account. The larger the loan and the longer
the loan is outstanding, the greater will be the effect of Policy Value being
held as collateral in the Loan Account. Depending on the investment results of
the Subaccounts or credited interest rates for the Fixed Account while the loan
is outstanding, the effect could be favorable or unfavorable. Policy loans also
may increase the potential for lapse if investment results of the Subaccounts to
which Surrender Value is allocated is unfavorable. If a Policy lapses with loans
outstanding, certain amounts may be subject to income tax and a 10% penalty tax.
See "Tax Considerations," for a discussion of the tax treatment of Policy loans.
In addition, if a Policy is a "modified endowment contract," loans may be
currently taxable and subject to a 10% penalty tax.
MATURITY BENEFITS
The Company will pay the Surrender Value, if any, to the Owner on the Maturity
Date. The Maturity Date is the Policy Anniversary nearest the Insured's 95th
birthday.
DEATH BENEFIT PROCEEDS
Upon receipt of Due Proof of Death of the Insured at the Service Center while
the Policy is in force before the Maturity Date, the Company will pay the Death
Benefit Proceeds to the Beneficiary (or Beneficiaries) or the Contingent
Beneficiary (or Contingent Beneficiaries). The Company pays the Death Benefit
Proceeds in a lump sum unless the Beneficiary (or Contingent Beneficiary) elects
to receive the Proceeds under a Settlement Option. (See "Settlement Options.")
Under certain circumstances, payment of the Death Benefit Proceeds may be
delayed. (See "Suspension or Delay in Payments.")
CALCULATION OF DEATH BENEFIT PROCEEDS. The Death Benefit Proceeds are determined
as of the date of the Insured's death and are equal to:
1. the Death Benefit under the Death Benefit Option selected by the
Owner; plus
2. any death benefit under any rider to the Policy; less
3. any Loan Amount; and less
4. any unpaid monthly deductions if the Insured dies during the
Grace Period.
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<PAGE>
Under certain circumstances, the amount of the Death Benefit Proceeds may be
further adjusted. (See "The Company's Right to Contest the Policy" and
"Misstatement of Age or Sex.")
If part or all of the Death Benefit is paid in one sum, the Company will pay
interest on this sum as required by applicable state law from the date of
receipt of due proof of the Insured's death to the date of payment.
DEATH BENEFIT OPTIONS. The Owner may select one of two Death Benefit Options.
1. Death Benefit Option 1 is the greater of:
(a) the Specified Amount on the date of the Insured's death; or
(b) a percentage of the Policy Value on the date of the Insured's
death as indicated in the Table of Policy Value Percentages in
the Appendix.
2. Death Benefit Option 2 is the greater of:
(a) the Specified Amount plus the Policy Value on the date of the
Insured's death; or
(b) a percentage of the Policy Value on the date of the Insured's
death as indicated in the Table of Policy Value Percentages in
the Appendix.
The specified percentage is 250% if the Insured dies at Attained Age 40 or less,
and decreases with each year of Attained Age thereafter so that the percentage
is 100% if the Insured dies at an Attained Age of 95. A table showing these
percentages for Attained Ages 0 to 94 and examples of Death Benefit calculations
for both Death Benefit Options are found in the Appendix.
Under Death Benefit Option 1, the Death Benefit remains level at the Specified
Amount unless the Policy Value multiplied by the specified percentage exceeds
that Specified Amount, in which event the Death Benefit will vary as the Policy
Value varies. Owners who are satisfied with the amount of their insurance
coverage under the Policy and who prefer to have favorable investment
performance and additional Net Premium Payments reflected in higher Policy
Value, rather than increased Death Benefits, generally should select Option 1.
Under Death Benefit Option 2, the Death Benefit always varies as the Policy
Value varies (although it is never less than the Specified Amount). Owners who
prefer to have favorable investment performance and additional Net Premium
Payments reflected in increased Death Benefits generally should select Option 2.
CHANGING THE DEATH BENEFIT OPTION. After the first Policy Anniversary while the
Insured is still living and the Policy is in force prior to the Maturity Date,
the Owner may request a change in the Death Benefit Option. A Death Benefit
Option change becomes effective on the Monthly Anniversary Day on or next
following the date that the Company accepts a request for the change. The
Company may require satisfactory evidence of insurability before permitting a
change in the Death Benefit Option. After a change in Death Benefit Option, the
Company will send the Owner a supplemental policy specifications page showing
the new Death Benefit and Specified Amount. Changing the Death Benefit Option
could have federal tax consequences.
(See "TAX CONSIDERATIONS.")
<PAGE>
INCREASE OF SPECIFIED AMOUNT. After the first Policy Anniversary, while the
Insured is living and the Policy is in force prior to the Maturity Date, the
Owner may submit a supplemental application for an increase in Specified Amount.
The Company requires evidence of insurability before agreeing to an increase in
Specified Amount and may, depending upon the circumstances, also require
additional premium payments or the repayment of part or all of any Loan Amount
under the Policy. The Insured's Attained Age at the time of the increase may not
exceed 75. The amount of any requested increase in Specified Amount must be at
least $25,000 and not more than the amount that would increase the total
Specified Amount above the maximum specified amount for which the Company would
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<PAGE>
issue a new Policy.
An increase in Specified Amount causes an increase in the Minimum Monthly
Premium Payment. Each increase in Specified Amount has a Target Premium Payment
and a Guideline Annual Premium Payment associated with it.
Any increase in Specified Amount is effective as of the date that the Company
approves it. Each increase in Specified Amount creates an increment of Specified
Amount to which a portion of Policy Value is thereafter attributed for the
purpose of computing sales surrender charges, the Net Amount at Risk and the
monthly cost of insurance charge and for the purpose of exercising the Special
Transfer Privilege. An additional monthly cost of insurance charge is deducted
for each additional increment in Specified Amount. This additional cost of
insurance charge is deducted from Policy Value attributable to the increase in
Specified Amount. Each increase in Specified Amount also results in additional
surrender charges. After an increase in Specified Amount, the Company will send
the Owner a supplemental policy specifications page showing the effective date
of the increase, the monthly cost of insurance charge for the increase,
additional sales surrender charges arising as a result of the increase and any
changes to premium payment information from the previous or original policy
specifications page.
The cancellation privilege applies to any increase in Specified Amount except
that when no additional premium payments are required for an increase, only the
monthly deduction(s) for the increase made before the cancellation is refunded
if the increase is cancelled. (See "Cancellation Privilege.")
DECREASE OF SPECIFIED AMOUNT. After the first Policy Anniversary while the
Insured is still living and the Policy is in force prior to the Maturity Date,
the Owner may by Written Notice request a decrease of Specified Amount. The
amount of any requested decrease in Specified Amount must be at least $25,000
and not be more than the amount that would decrease the total Specified Amount
below $100,000. Specified Amount may not be decreased when, to do so, would
cause Surrender Value to fall below zero. Any decrease becomes effective on the
Monthly Anniversary Day on or next following the date that the Company accepts
the request for the decrease. The decrease is first applied to reduce prior
increases in Specified Amount in the reverse order in which they occurred. After
all prior increases in Specified Amount have been eliminated, a decrease is
applied to reduce the initial Specified Amount.
A decrease of Specified Amount may result in the imposition of a surrender
charge. In this event, the charge is deducted from Policy Value as of the
effective date of the decrease. (See "Charges and Deductions.") A decrease in
Specified Amount causes a decrease in the Minimum Monthly Premium Payment and in
the Target Premium Payment and Guideline Annual Premium Payment associated with
the increment of Specified Amount being decreased. After a decrease in Specified
Amount, the Company will send the Owner a supplemental policy specifications
page showing the effective date of the decrease, the monthly cost of insurance
charge after the decrease, surrender charges deducted as a result of the
decrease, and any changes to premium payment information from the previous or
original specifications page.
The Company reserves the right to deny a request for a decrease in Specified
Amount for 12 months following the most recent increase in Specified Amount and
to limit decreases in Specified Amount to one per Policy Year.
If a decrease in the Specified Amount would result in total premiums paid
exceeding the premium limitations prescribed under current tax law to qualify
the Policy as a life insurance contract, the Company will contact the Owner and
inquire whether he or she wants to receive the excess above the premium
limitations or to forgo the decrease. The Company reserves the right to decline
a requested decrease in the Specified Amount if compliance with the guideline
premium limitations under current tax law would require payment of excess
premium to the Owner in an amount that would exceed the Surrender Value under
the Policy.
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<PAGE>
SETTLEMENT OPTIONS
SELECTING A SETTLEMENT OPTION. The Company pays Owners or Beneficiaries (or
Contingent Beneficiaries), as appropriate, the amount of any surrender,
withdrawal, or Death Benefit Proceeds in a lump sum unless the Owner has, by
Written Notice, selected one of the Settlement Options described below. If the
amount being paid by the Company is less than $5,000, however, payment is only
made in a lump sum. In addition, if the Owner or Beneficiary (or Contingent
Beneficiary) receiving payment is an executor, administrator, trustee, or not a
natural person, payment is made in a lump sum unless the Company specifically
consents to payment under one of the Settlement Options.
Owners may select a Settlement Option for payment of the Death Benefit Proceeds
in lieu of a lump sum, at any time while the Insured is still living and the
Policy is in force prior to the Maturity Date. If no election is made by the
Owner before the Insured's death, then, upon the Insured's death, the
Beneficiary (or Contingent Beneficiary) may elect a Settlement Option before the
Death Benefit Proceeds are paid. The Owner also may elect to receive the
Surrender Value of a Policy or the amount of a withdrawal in the form of a
Settlement Option at any time before the payment of the Surrender Value or
withdrawal. For purposes of describing the Settlement Options, the term "Payee"
means Owner or Beneficiary (or Contingent Beneficiary), as appropriate.
FREQUENCY OF PAYMENTS. If Settlement Option 1,2, or 3 is selected, payments will
be made every 1 year, 6 months, 3 months, or every month. The Payee must specify
the payment frequency when selecting a settlement option. If settlement option
4, 5, or 6 is selected, payments will be made monthly. If payment under any
option would be less than $50, the Company will adjust the frequency of
payments so that each payment is at least $50.
FIRST PAYMENT. Depending on the payment frequency selected, the first payment
under Settlement Option 1 is made as of 1 year, 6 months, 3 months, 1 month from
the date of the Insured's death. Depending on the payment frequency selected and
subject to the Company's right to suspend or delay payments (see "Suspension or
Delay in Payments"), the first payment under Settlement Option 1 is made as of 1
year, 6 months, 3 months, 1 month from the effective date of any surrender or
withdrawal. The first payment under any other Settlement Option is made, subject
to the Company's right to suspend or delay payments, as of the date of the
Insured's death or the effective date of any surrender or withdrawal.
BETTERMENT OF RATES. If, under Settlement Options 4, 5, or 6, the Company's
regular annuity purchase rates on the date of the Insured's death or the
effective date of any surrender or withdrawal are more favorable than those upon
which Options 4, 5, or 6 are based, the Company shall compute payments using the
regular annuity rates. The Company will furnish information about the regular
annuity rates upon request.
DEATH OF PAYEE. Unless instructed otherwise at the time that the Settlement
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 Settlement Option 1, the amount left on deposit with the
Company to accumulate interest.
2. Under Settlement 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 at the rate that would
have been used to compute the first of the remaining Payments under
that option.
<PAGE>
OPTION 1, INTEREST PAYMENTS. The Company holds the Death Benefit Proceeds (or
the Surrender Value or the amount of a withdrawal) 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 as stated above.
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<PAGE>
OPTION 2, PAYMENTS OF A SPECIFIED AMOUNT. The Company pays the Death Benefit
Proceeds (or the Surrender Value or the amount of a withdrawal) 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 as stated above.
OPTION 3, INSTALLMENTS FOR A SPECIFIED PERIOD. The Company pays the Death
Benefit Proceeds (or the Surrender Value or the amount of a withdrawal) 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 payment for each $1,000 applied under
this option is shown in Policy. 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, the Company pays the value of the remaining
payments as stated above.
OPTION 4, LIFE ANNUITY. The Company makes monthly payments to the Payee for as
long as he or she lives. The amount of each payment for each $1,000 applied
under this option is shown in the Policy.
OPTION 5, LIFE ANNUITY WITH PERIOD CERTAIN. The Company makes monthly payments
to the Payee for as long as the Payee lives. At the time this option is
selected, a period certain of 5, 10, 15, or 20 years must also be selected. If
the Payee dies before the specified period certain ends, the payments to the
Payee's estate 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 payment for each period certain available is shown in the Policy.
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.
OPTION 6, JOINT LIFE AND SURVIVORSHIP ANNUITY. The Company makes monthly
payments to two Payees while both are living. After the death of either Payee,
payments continue to the other Payee for as long as the other Payee lives. The
amount of each payment for each $1,000 applied under this option is shown in the
Policy.
TELEPHONE TRANSACTION PRIVILEGES
If an Owner has elected this privilege in a form provided by the Company, an
Owner may make transfers or change allocation instructions 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 and
allocation instructions 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.
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<PAGE>
THE FIXED ACCOUNT
Because of exemptive and exclusionary provisions, interests in the Fixed Account
have not been registered under the Securities Act of 1933 nor has the Fixed
Account been registered as an investment company under the Investment Company
Act of 1940. Accordingly, neither the Fixed Account nor any interests therein
are subject to the provisions of these Acts and, as a result, the staff of the
Securities and Exchange Commission has not reviewed the disclosure in this
Prospectus relating to the Fixed Account. The disclosure regarding the Fixed
Account may, however, be subject to certain generally applicable provisions of
the Federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
THE FIXED ACCOUNT
The Fixed Account consists of assets owned by the Company with respect to the
Policies, other than those in the Variable Account. It is part of the Company's
General Account assets. The Company's general account assets are used to support
its insurance and annuity obligations other than those supported by separate
accounts, and are subject to the claims of the Company's general creditors.
Subject to applicable law, the Company has sole discretion over the investment
of the assets of the Fixed Account. The Loan Account is part of the Fixed
Account. Guarantees of Net Premiums allocated to the Fixed Account, and interest
credited thereto, are supported by the Company. The Fixed Policy Value is
calculated daily. (See "Fixed Policy Value.")
INTEREST CREDITED ON FIXED POLICY VALUE
The Company guarantees that it will credit interest on Fixed Policy Value at an
effective annual rate of not less than 4.0%. In its discretion, the Company will
credit interest at rates higher than 4%.
"FULL-YEAR" RATES. Before the beginning of each calendar year, the Company
publishes an effective annual rate at which it will credit Fixed Policy Value
under the Policies for that year. Fixed Policy Values at the beginning of the
calendar year under all Policies are credited with that rate of interest for the
entire calendar year.
"NEW-MONEY" RATES. The Company credits Net Premium Payments allocated to and
Policy Value transferred to the Fixed Account during a calendar year with
interest at an effective annual rate in effect on the date that the Net Premium
Payment is received at the Service Center or the date that as of which the
transfer is made. These amounts are credited with interest at this rate until
the end of the calendar year. The Company publishes this "new money" rate from
time to time during a calendar year and may change the "new money" rate at its
discretion throughout any calendar year.
For purposes of crediting interest, Policy Value deducted, transferred, or
withdrawn from the Fixed Account, is accounted for on a "first-in, first-out"
basis.
CHARGES AND DEDUCTIONS
SALES CHARGES
The Company deducts a sales charge from certain premium payments. In Policy
Years 1 through 10, the sales charge deducted is 4% of premium payments received
up to a Target Premium Payment for the initial Specified Amount. In Policy Year
11 and each Policy Year thereafter, the sales charge deducted is 2% of premium
payments received up to a Target Premium Payment for the initial Specified
Amount. Absent an increase in Specified Amount, no sales charge is deducted in
any Policy Year from premium payments in excess of a Target Premium Payment for
the initial Specified Amount.
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<PAGE>
If the Owner increases the Specified Amount, a Target Premium Payment is
established for the increase. Therefore, there is a Target Premium Payment for
each increment of Specified Amount. The Company deducts the sales charge from
premium payments attributable to the increase. For purposes of computing and
deducting sales charges, all Premium Payments made after an increase in
Specified Amount are apportioned to each increment of Specified Amount on the
basis of the relative Guideline Annual Premium Payments for each such increment.
For the first ten 12-month periods following an increase in Specified Amount,
the charge is 4% of premium payments made in each such 12-month period
attributable to the increase up to a Target Premium Payment for the increase.
For subsequent 12-month periods, the sales charge is 2% of premium payments made
during the 12-month period attributable to the increase in Specified Amount up
to a Target Premium Payment for the increase.
PREMIUM TAX CHARGE
A 2.25% charge for state and local premium taxes is also deducted from each
premium payment. The state and local premium tax charge reimburses the Company
for premium taxes associated with the Policies. The Company expects to pay an
average state and local premium tax rate of approximately 2.25% of premium
payments for all states.
FEDERAL TAX CHARGE
The Company also deducts a charge for federal taxes from each premium payment.
This charge is 1.25% of all premium payments and compensates the Company for its
federal income tax liability resulting from Section 848 of the Code. The amount
of this charge, which may be increased or decreased, is reasonable in relation
to the Company's increased federal tax burden under Section 848 resulting from
the receipt of premium payments under the Policies.
SURRENDER CHARGE
GENERAL. If the Owner surrenders the Policy, makes a withdrawal, decreases the
Specified Amount or if the Policy lapses, the Company may deduct a surrender
charge. The surrender charge consists of two parts, a sales surrender charge
(i.e., a contingent deferred sales charge) and an administration surrender
charge. The total surrender charge declines over time as follows:
100% of the total Surrender Charge in Policy Years 1 through 6
80% of the total Surrender Charge in Policy Year 7
70% of the total Surrender Charge in Policy Year 8
60% of the total Surrender Charge in Policy Year 9
50% of the total Surrender Charge in Policy Year 10
40% of the total Surrender Charge in Policy Year 11
30% of the total Surrender Charge in Policy Year 12
20% of the total Surrender Charge in Policy Year 13
10% of the total Surrender Charge in Policy Year 14
No Charge in Policy Years 15 and later
The purpose of the surrender charge is to reimburse the Company for some of the
expenses incurred in the distribution of the Policies. The surrender charge,
together with the sales charge imposed on premium payments, may be insufficient
to recover the expenses of selling the Policies. Unrecovered expenses are borne
by the Company's General Account which may include profits, if any, from the
mortality and expense risk charge and mortality gains from cost of insurance
charges. (See "Daily Mortality and Expense Risk Charge," and "Cost of Insurance
Charge.")
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<PAGE>
DEDUCTION OF THE SURRENDER CHARGE. If assessed upon the surrender of the Policy,
the surrender charge reduces the amount otherwise paid to the Owner. If assessed
upon Lapse of the Policy, the amount of the charge is not restored to Policy
Value in the event that the Policy is reinstated. If assessed upon a decrease in
Specified Amount, the charge is deducted from the remaining Policy Value and
reduces the amount of any remaining applicable surrender charge. If assessed on
a withdrawal, the surrender charge is deducted from the remaining Policy Value
and reduces the amount of any remaining applicable surrender charge. Unless
otherwise indicated in the request for a decrease or a withdrawal, surrender
charges deducted in connection with decreases in Specified Amount or withdrawals
are taken from Subaccount Values and Fixed Policy Value based on the proportion
that each Subaccount Value and the Fixed Policy Value bear to the Policy Value
before the deduction.
If taken upon a decrease in Specified Amount, the surrender charge is the
pro-rata portion of the total surrender charge based on the ratio that the
Specified Amount decrease bears to the total Specified Amount before the
decrease. If assessed upon a withdrawal, the surrender charge is the pro-rata
portion of the total surrender charge based on the ratio that the withdrawn
amount bears to the total Surrender Value before the withdrawal.
SALES SURRENDER CHARGE IN CONNECTION WITH THE INITIAL SPECIFIED AMOUNT. In the
first Policy Year, the sales surrender charge in connection with the initial
Specified Amount is 34% of premium payments received up to a Target Premium
Payment for the initial Specified Amount, and, in each of Policy Years 2 through
6, the charge is 33% of premium payments received up to the Target Premium
Payment for the initial Specified Amount in each year until the total sales
surrender charge equals 100% of a single Target Premium Payment for the initial
Specified Amount. Notwithstanding the foregoing, the sales surrender charge in
connection with the initial Specified Amount during the first two Policy Years
is never more than the sum of: (1) 26% of the first Guideline Annual Premium
Payment for the initial Specified Amount, (2) 6% of the second Guideline Annual
Premium Payment for the initial Specified Amount, and (3) 5% of all additional
Premium Payments attributable to the initial Specified Amount.
ADMINISTRATION SURRENDER CHARGE. The Administration Surrender Charge is $2.00
per $1,000 of initial Specified Amount for Policies on Insureds age 25 or less
on the Policy Effective Date, and $5.00 per $1,000 of initial Specified Amount
for Policies on Insureds age 35 or older on the Policy Effective Date. For
Insureds of other ages, the Administration Surrender Charge is the following per
$1,000 of Specified Amount: age 26 - $2.30, age 27 - $2.60, age 28 - $2.90, age
29 - $3.20, age 30 - $3.50, age 31 - $3.80, age 32 - $4.10, age 33 - $4.40, age
34 $4.70.
SALES SURRENDER CHARGE IN CONNECTION WITH INCREASES IN SPECIFIED AMOUNT. The
surrender charge is computed and assessed separately for the initial Specified
Amount and for each increase in Specified Amount. Only the sales charge
component of the surrender charge, however, is assessed for an increase in
Specified Amount. For purposes of computing and assessing the sales surrender
charge attributable to an increase in Specified Amount, all premium payments
made after an increase in Specified Amount are apportioned to each increment of
Specified Amount on the basis of the relative Guideline Annual Premium Payments
for each such increment. Likewise, Policy Value is apportioned to each increment
of Specified Amount on the basis of the relative Guideline Annual Premium
Payments for each such increment. The sales surrender charge for an increase in
Specified Amount is as follows: In the first 12 months following the increase,
the sales surrender charge is 34% of premium payments received up to a Target
Premium Payment for the increase in Specified Amount, and, in each of the five
subsequent 12-month periods following the increase, the charge is 33% of premium
payments received up to a Target Premium Payment for the increase in Specified
<PAGE>
Amount in each such 12-month period until the total sales surrender charge for
the increase equals 100% of a single Target Premium Payment for the increase in
Specified Amount. Notwithstanding the foregoing, during the first 24 months
following an increase in Specified Amount, the sales surrender charge for the
increase is never more than the sum of: (1) 26% of the first Guideline Annual
Premium Payment for the increase in Specified Amount, (2) 6% of the second
Guideline Annual Premium Payment for the increase in Specified Amount, and (3)
5% of all additional Premium Payments attributable to the increase in Specified
Amount. In addition, the sales surrender charge for an increase in Specified
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Amount declines over the 7th through the 15th 12-month period following the
increase in the same manner as the surrender charge in connection with the
initial Specified Amount.
OTHER TAXES
Currently a charge for federal income taxes is not deducted from the Variable
Account of the Policy Value. The Company reserves the right in the future to
make a charge to the Variable Account or the Policy Value for any federal, state
or local income taxes that the Company incurs that it determines to be properly
attributable to the Variable Account of the Policies. The Company will notify
Owners promptly of any such charge.
MONTHLY DEDUCTION
The monthly deduction is a charge made by the Company as of the Policy Effective
Date and every Monthly Anniversary Day thereafter by reducing Subaccount Values
(i.e., liquidating Units) and Fixed Policy Value in the proportion that each
Subaccount Value and Fixed Policy Value bears to Policy Value. The monthly
deduction consists of (1) the monthly cost of insurance charge, (2) the monthly
policy fee, (3) the monthly first-year issue fee (when applicable), (4) the
monthly Specified Amount increase fee (when applicable), and (5) the cost of any
riders (when applicable).
MONTHLY COST OF INSURANCE CHARGE. The monthly cost of insurance charge is
computed at the beginning of each Policy month by subtracting 2 from 1 and
multiplying the result by 3, where:
1. is the Death Benefit on the first day of the Policy month divided
by 1 plus the monthly equivalent of 4.0%;
2. is the Policy Value before deduction of the monthly policy fee,
the monthly first-year issue fee (when applicable), the monthly
Specified Amount increase fee (when applicable), and the cost of
any riders (when applicable); and
3. is the cost of insurance rate as described below.
The monthly cost of insurance charge is computed separately for the initial
Specified Amount and for each increment of Specified Amount resulting from
increases in Specified Amount. For the purpose of computing the Net Amount at
Risk (the result of subtracting 2 from 1 above), Policy Value is apportioned to
each increment of Specified Amount on the basis of the relative Guideline Annual
Premium Payments for each such increment. Where the Death Benefit is a percent
of Policy Value the monthly cost of insurance charge is computed separately, and
Policy Value is apportioned to, an increment of Death Benefit corresponding to
each increment of Specified Amount.
The monthly cost of insurance rate for a Policy is based on the sex, Attained
Age, Issue Age, risk class, and number of years that the Policy or increment of
Specified Amount has been in force. The Issue Age of the Insured will usually be
different for each increase in Specified Amount. The Company reviews monthly
cost of insurance rates on an ongoing basis (at least once every 5 years) based
on its expectations as to future mortality experience, investment earnings,
persistency, taxes and other expenses. Any changes in cost of insurance rates
are made on a uniform basis for Insureds of the same class as defined by sex,
Attained Age, Issue Age, risk class, and Policy duration. The Company guarantees
that the cost of insurance rates used to calculate the monthly cost of insurance
charge will not exceed the maximum cost of insurance rates set forth in the
Policies.
The Company places each Insured in a risk class when a Policy is first
underwritten. This risk class applies to the initial Specified Amount. When an
Owner requests an increase in Specified Amount, the Company conducts additional
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underwriting before approving the increase to determine whether a different risk
class should apply to the increase. If the risk class for the increase would
have a lower cost of insurance rate than the class for the initial Specified
Amount (or a previous increase), the risk class for the increase is applied to
the initial Specified Amount (or any previous increases in Specified Amount). If
the risk class for the increase would have a higher cost of insurance rate than
the class for the initial Specified Amount (or a previous increase), then the
risk class for the increase only applies to the increase in Specified Amount.
In connection with the cost of insurance rates guaranteed in the Policy, the
Company places Insureds into standard smoker and standard nonsmoker risk
classes. The guaranteed rates for standard classes are based on the 1980
Commissioners' Standard Ordinary Mortality Tables, Male or Female, Smoker or
Nonsmoker Mortality Rates ("1980 CSO Tables"). The guaranteed rates for
substandard classes are based on multiples of or additions to the 1980 CSO
Tables. In connection with current cost of insurance rates, the Company places
Insureds into the following risk classes: standard smoker, standard nonsmoker,
preferred smoker, preferred nonsmoker and preferred plus nonsmoker.
Cost of insurance rates (whether guaranteed or current) for an Insured in a
nonsmoker class are less than or equal to rates for an Insured of the same age
and sex in the same smoker class. Cost of insurance rates (whether guaranteed or
current) for an Insured in a nonsmoker or smoker standard class are generally
lower than guaranteed rates for an Insured of the same age and sex and smoking
status in a substandard class.
[Legal Considerations Relating to Sex-Distinct Premium Payments and Benefits.
Mortality tables for the Policies generally distinguish between males and
females. Thus, Premium Payments and benefits under Policies covering males and
females of the same age will generally differ.
The Company does, however, also offer Policies based on unisex mortality tables
if required by state law. Employers and employee organizations considering
purchase of a Policy should consult with their legal advisors to determine
whether purchase of a Policy based on sex-distinct actuarial tables is
consistent with Title VII of the Civil Rights Act of 1964 or other applicable
law. Upon request, the Company may offer Policies with unisex mortality tables
to such prospective purchasers.]
MONTHLY POLICY FEE, MONTHLY FIRST-YEAR ISSUE FEE, AND MONTHLY SPECIFIED AMOUNT
INCREASE FEE. These charges compensate the Company for administration expenses
associated with the Policies and the Variable Account. These expenses relate to
premium payment billing and collection, recordkeeping, processing death benefit
claims, Policy loans, Policy changes, reporting and overhead costs, processing
applications and establishing Policy records. The monthly policy fee is $6.00
per month. The monthly first-year issue fee is $20.00 per month during the first
Policy Year, and the monthly Specified Amount increase fee is $10.00 per month
for the first 12 months after an increase in Specified Amount. The Company does
not anticipate making any profit on these charges.
SUPPLEMENTAL BENEFIT AND/OR RIDER CHARGES. See "Supplemental Benefits and/or
Riders."
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DAILY MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a daily charge from the assets of the Variable Account to
compensate it for mortality and expense risks that it assumes under the Policy.
The daily charge is at the rate of 0.002477% (approximately equivalent to an
effective annual rate of 0.90%) of the net assets of the Variable Account during
the first 10 Policy Years and .001236% (approximately equivalent to an effective
annual rate of 0.45%) of the net assets of the Variable Account during Policy
Years 11 and thereafter. During the first 10 Policy Years, approximately .__% of
this annual charge is for the assumption of mortality risk and .__% is for the
assumption of expense risk. During Policy Years 11 and thereafter, approximately
.__% of this annual charge is for the assumption of mortality risk and .__% is
for the assumption of expense risk. If the mortality and expense risk charge is
insufficient to cover the actual cost of the mortality and expense risks
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undertaken by the Company, the Company will bear the shortfall. Conversely, if
the charge proves more than sufficient, the excess will be profit to the Company
and will be available for any proper purpose including, among other things,
payment of expenses incurred in selling the Policies.
The mortality risk that the Company assumes is the risk that Insureds, as a
group, will live for a shorter period of time than the Company estimated when it
established the guaranteed costs of insurance rates in the Policy. Because of
these guarantees, each Owner is assured that the morbidity of a particular
Insured will not have an adverse effect on the Death Benefit Proceeds that a
Beneficiary would receive. The expense risk that the Company assumes is the risk
that the monthly Policy fee, monthly first-year issue fee, and monthly Specified
Amount increase fee (and the transfer processing fee, imposed) may be
insufficient to cover the actual expenses of administering the Policies.
TRANSFER PROCESSING FEE
The first 12 transfers during each Policy Year are free. The Company assesses a
Transfer Processing Fee of $25 for each transfer in excess of 12 during a
Policy Year. For the purposes of assessing the Transfer Processing Fee, each
Written Notice of transfer is considered to be one transfer, regardless of the
number of Subaccounts affected by the transfer. The Transfer Processing Fee is
deducted from the amount being transferred.
FUND EXPENSES
The value of the net assets of each Subaccount reflects the investment advisory
fees and other expenses incurred by the corresponding Fund in which the
Subaccount invests. See the prospectus for the Funds.
OTHER POLICY BENEFITS AND PROVISIONS
OWNERSHIP
GENERAL. The Policy belongs to the Owner. An Owner may exercise all of the
rights and options described in the Policy. The Insured is the Owner unless the
application specifies a different person as Owner.
CHANGING THE OWNER. The Owner may change the Owner by Written Notice at any time
while the Insured is alive and the Policy is in force prior to the Maturity
Date. A change of Ownership is effective as of the date that the Written Notice
is signed; however, the Company is not liable for payments it makes before it
receives a Written Notice of a change in Ownership. A change in Owner may have
significant tax consequences. (See "Tax Considerations.")
CONTINGENT OWNER. If the Owner is not the Insured, he or she may name a
Contingent Owner in the application or by subsequent Written Notice. The
Contingent Owner becomes the Owner in the event that the Owner dies before the
Insured. If no Contingent Owner survives the Owner, then upon the death of the
last surviving Owner, that Owner's estate becomes the Owner.
ASSIGNMENT. By Written Notice the Owner may assign his or her rights under this
Policy. The Company is not bound by the assignment unless it receives a
duplicate of the original assignment at the Service Center. The Company is not
responsible for the validity or sufficiency of any assignment and is not liable
for any payment it makes before receipt of the duplicate original assignment. An
assignment does not change or revoke the Beneficiary designation in effect at
the time that the assignment is made. If an assignment is absolute, the Owner's
rights and privileges under the Policy, including any right to change the
Beneficiary, pass to the assignee. If an assignment is collateral, the
collateral assignee has priority over the interest of any revocable Beneficiary
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or revocable payee under any optional method of settlement selected by the
Owner. Any claim under any assignment is subject to proof of interest and the
extent of the assignment. An assignment is subject to any Loan Amount.
SELECTING THE BENEFICIARY. The Owner designates the Beneficiary in the
application. Any Beneficiary designation is revocable unless otherwise stated in
the designation. Owners may designate Contingent Beneficiaries. Where more than
one Beneficiary or more than one Contingent Beneficiary is designated, each
Beneficiary or Contingent Beneficiary, as appropriate, shares in any Death
Benefit Proceeds equally unless the Beneficiary designation states otherwise.
CHANGING THE BENEFICIARY. The Owner may change the Beneficiary by Written Notice
at any time while the Insured is alive and the Policy is in force before the
Maturity Date. If, however, the Owner 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 signed by the Owner but the Company is not
liable for any payments it makes under the Policy prior to the time it receives
Written Notice of any Beneficiary change.
THE COMPANY'S RIGHT TO CONTEST THE POLICY
The Company has the right to contest the validity of the Policy or to resist a
claim under it on the basis of any material misrepresentation of a fact stated
in the application or any supplemental application. The Company also has the
right to contest the validity of any increase of Specified Amount or other
change to the Policy on the basis of any material misrepresentation of a fact
stated in the application (or supplemental application) for such increase in
coverage or change. In issuing this Policy, the Company relies on all statements
made by or for the Insured in the application or in a supplemental application.
In the absence of fraud, the Company considers statements made in the
application(s) to be representations and not warranties.
In the absence of fraud, the Company cannot bring any legal action to contest
the validity of the Policy after it has been in force during the lifetime of the
Insured for two years from the Policy Effective Date, or if reinstated, for two
years from the date of reinstatement. Likewise, the Company cannot contest any
increase in coverage effective after the Policy Effective Date, or any
reinstatement thereof, after such increase or reinstatement has been in force
during the lifetime of the Insured for two years from its effective date.
SUICIDE EXCLUSION
If the Insured commits suicide, while sane or insane, within two years of the
Policy Effective Date, the Company's liability is limited to an amount equal to
the Policy Value less any Loan Amount. The Company will pay this amount to the
Beneficiary in one sum.
If the Insured commits suicide, while sane or insane, within two years from the
effective date of any increase in Specified Amount, the Company's liability with
respect to that increase is limited to an amount equal to the cost of insurance
attributable to the increase from the effective date of the increase to the date
of death.
MISSTATEMENT OF AGE OR SEX
If the Age or sex of the Insured has been stated incorrectly in the application
or any supplemental application, the Company will adjust the Death Benefit and
any benefits provided by rider or endorsement it pays under this Policy to the
amount that would have been payable at the correct age and sex based on the most
recent deduction for cost of insurance and the cost of any benefits provided by
rider or endorsement. If the age of the Insured has been overstated or
understated, the Company will recalculate the Policy Value using the cost of
insurance (and the cost of benefits provided by rider or endorsement) based on
the Insured's correct age and sex.
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<PAGE>
MODIFICATION OF THE POLICY
Only an officer of the Company may modify this Policy or waive any of the
Company's rights or requirements under this Policy. Any modification or waiver
must be in writing. No agent may bind the Company by making any promise not
contained in this Policy.
Upon notice to the Owner, the Company may modify the Policy to:
1. conform the Policy or the operations of the Company or of the Variable
Account to the requirements of any law (or regulation issued by a
government agent) to which the Policy, the Company or the Variable Account
is subject);
2. assure continued qualification of the Policy as a life insurance contract
under the Code; or
3. reflect a change (permitted by the Policy) in the operation of the Variable
Account.
In the event of any such modification, the Company will make appropriate
endorsements to the Policy. If any provision of the Policy conflicts with the
laws of a jurisdiction that govern the Policy, the Policy provides that such
provision be deemed to be amended to conform with such laws.
SUSPENSION OR DELAY IN PAYMENTS
The Company usually pays the amounts of any surrender, withdrawals, Death
Benefit Proceeds, or settlement options within seven business days after receipt
of all applicable Written Notices and/or Due Proofs of Death. However, the
Company can postpone such payments if:
1. the New York Stock Exchange is closed, other than customary
weekend and holiday closing, or trading on the exchange is
restricted as determined by the SEC; or
2. the SEC permits, by an order, the postponement for the protection
of Owners; or
3. the SEC determines that an emergency exists that would make the
disposal of securities held in the Variable Account or the
determination of their value not reasonably practicable.
If a recent check or draft has been submitted, the Company has the right to
defer payment of surrenders, withdrawals, Death Benefit Proceeds, or payments
under a settlement option until such check or draft has been honored.
The Company has the right to defer payment of any surrender, withdrawal, or
transfer of Fixed Policy Value for up to six months from the date of receipt of
Your Written Notice.
REPORTS TO OWNERS
At least annually, or more often as required by law, the Company will mail to
Owners at their last known address a report showing the following items as of
the end of the report period:
1. the period covered by the report;
2. the current Policy Value, Cash Value and Surrender Value;
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3. the current Variable Policy Value (including each Subaccount
Value), Fixed Policy Value and Loan Account Value;
4. the current Loan Amount;
5. any premium payments, withdrawals, or surrenders made, Death
Benefit Proceeds paid and charges deducted since the last report;
6. current Net Premium Payment allocations; and
7. any other information required by law.
Owners may request additional copies of reports from the Company, but the
Company reserves the right to charge a fee for such additional copies. In
addition, the Company will send written confirmations of premium payments and
other financial transactions requested by Owners. Owners will also be sent
copies of the annual and semi-annual report to shareholders for each Fund in
which they are indirectly invested.
SUPPLEMENTAL BENEFITS AND/OR RIDERS
The following supplemental benefits and/or riders are available and may be added
to a Policy. Monthly charges for these benefits and/or riders are deducted from
Policy Value as part of the monthly deduction. The supplemental benefits and/or
riders available with the Policies provide fixed benefits that do not vary with
the investment experience of the Variable Account.
CHILDREN'S TERM LIFE INSURANCE RIDER. This rider provides a death benefit
payable upon the death of a covered child. This rider has no cash value.
SPOUSE'S TERM LIFE INSURANCE RIDER. This rider provides a death benefit payable
upon the death of an Owner's spouse. This rider has no cash value.
DISABILITY BENEFIT RIDER. This rider provides for the waiver of the monthly
deduction under the Policy during the total disability of the Owner.
Additional rules and limits apply to these supplemental benefits and/or riders.
TAX CONSIDERATIONS
The following summary provides a general description of the federal income tax
considerations associated with a Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present federal income tax laws or of the
current interpretations by the Service.
TAX STATUS OF THE POLICIES
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal income tax purposes. Although the Secretary of the Treasury (the
"Treasury") is authorized to prescribe regulations implementing Section 7702,
while proposed regulations and other interim guidance has been issued, final
regulations have not been adopted. In short, guidance as to how Section 7702 is
to be applied is limited. If a Policy were determined not to be a life insurance
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contract for purposes of Section 7702, the Policy would not provide the tax
advantages normally provided by a life insurance contract.
With respect to a Policy issued on a standard basis, the Company believes that
such a Policy should meet the Section 7702 definition of a life insurance
contract. With respect to a Policy that is issued on a substandard basis (i.e.,
a premium class with extra rating involving higher than standard mortality
risk), there is less guidance, in particular as to how the mortality and other
expense requirements of Section 7702 are to be applied in determining whether
such a Policy meets the section 7702 definition of a life insurance contract.
Thus, it is not clear whether or not a Policy issued on a substandard basis
would satisfy section 7702, particularly if the Owner pays the full amount of
premium payments permitted under the Policy.
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
Section 817(h) of the Code requires that the investments of each of the
Subaccounts must be "adequately diversified" in accordance with Treasury
regulations in order for the Policy to qualify as a life insurance contract
under Section 7702 of the Code (discussed above). The Subaccounts, through the
Funds, intend to comply with the diversification requirements prescribed in
Treas. Reg. ss. 1.817-5, which affect how each Fund's assets are to be invested.
The Company believes that the Subaccounts will, thus, meet the diversification
requirements, and the Company will monitor continued compliance with this
requirement.
In certain circumstances, owners of variable life insurance policies may be
considered the owners, for federal income tax purposes, of the assets of the
subaccounts used to support their policies. In those circumstances, income and
gains from the subaccount assets would be includible in the variable policy
owner's gross income. The IRS has stated in published rulings that a variable
policy owner will be considered the owner of subaccount assets if the policy
owner possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. The Treasury has also announced, in
connection with the issuance of regulations concerning diversification, that
those regulations "do not provide guidance concerning the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (i.e., the Policy Owner), rather than the insurance company, to be
treated as the owner of the assets in the account." This announcement also
stated that guidance would be issued by way of regulations or rulings on the
"extent to which Policyholders may direct their investments to particular
subaccounts without being treated as owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policy owners were not owners of subaccount assets. For example, an Owner
has additional flexibility in allocating Net Premium payments and transferring
Policy Value. These differences could result in an Owner being treated as the
owner of a pro-rata portion of the assets of the Subaccounts. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury has stated it expects to issue. The
Company therefore reserves the right to modify the Policy as necessary to
attempt to prevent an Owner from being considered the Owner of a pro-rata share
of the assets of the Subaccounts.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
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TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. The Company believes that the Death Benefit Proceeds and Policy
Value increases of a Policy should be treated in a manner consistent with a
fixed-benefit life insurance policy for federal income tax purposes. Thus, the
Death Benefit Proceeds under the Policy should be excludible from the gross
income of the Beneficiary under Section 101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit Option, a Policy loan, a withdrawal, a surrender, a
change in Ownership, or an assignment of the Policy may have federal income tax
consequences. In addition, federal, state and local transfer, and other tax
consequences of Ownership or receipt of distributions from a Policy depends on
the circumstances of each Owner or Beneficiary.
Generally, the Owner will not be deemed to be in constructive receipt of the
Policy Value, including increments thereof, until there is a distribution. The
tax consequences of distributions from, and loans taken from or secured by, a
Policy depend on whether the Policy is classified as a "Modified Endowment
Contract" (discussed below). Whether a Policy is or is not a Modified Endowment
Contract, upon a surrender or Lapse of a Policy or when benefits are paid at a
Policy's Maturity Date, if the amount received plus the Loan Amount exceeds the
total investment in the Policy, the excess will generally be treated as ordinary
income subject to tax.
The Policy may also be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, Owners contemplating
the use of a Policy in any arrangement the value of which depends in part on its
tax consequences, should be sure to consult a qualified tax adviser regarding
the tax attributes of the particular arrangement.
MODIFIED ENDOWMENT CONTRACTS. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts." The rules
relating to whether a Policy will be treated as a Modified Endowment Contract
are extremely complex and cannot be completely described in this summary. In
general, a Policy will be a Modified Endowment Contract if the accumulated
premium payments made at any time during the first seven Policy Years exceed the
sum of the net level premium payments which would have been paid on or before
such time if the Contract provided for paid-up future benefits after the payment
of seven level annual premiums. A Policy may also become a Modified Endowment
Contract after a material change. The determination of whether a Policy will be
a Modified Endowment Contract after a material change generally depends upon the
relationship of the Death Benefit and Policy Value at the time of such change
and the additional premium payments made in the seven years following the
material change.
Due to the Policy's flexibility, classification as a Modified Endowment Contract
will depend on the individual circumstances of each Policy. In view of the
foregoing, a current or prospective Owner should consult with a tax adviser to
determine whether a Policy transaction will cause the Policy to be treated as a
Modified Endowment Contract. However, at the time that a premium payment is
credited which, in the Company's view, would cause the Policy to become a
Modified Endowment Contract, the Company will notify the Owner that unless a
refund of the excess premium (with any appropriate interest) is requested by the
Owner, the Policy will become a Modified Endowment Contract. The Owner will have
30 days after receiving such notification to request the refund.
<PAGE>
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. Policies
classified as Modified Endowment Contracts will be subject to the following tax
rules: First, all distributions, including distributions upon surrender and
partial surrender from such a Policy are treated as ordinary income subject to
tax up to the amount equal to the excess (if any) of the Policy Value
immediately before the distribution over the investment in the Policy (described
below) at such time. Second, loans taken from or secured by such a Policy, are
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treated as distributions from the Policy and taxed accordingly. Past due loan
interest that is added to the loan amount will be treated as a loan. Third, a 10
% additional income tax is imposed on the portion of any distribution from, or
loan taken from or secured by, such a Policy that is included in income except
where the distribution or loan is made on or after the Owner attains age 59 1/2,
is attributable to the Owner's becoming disabled, or is part of a series of
substantially equal periodic payments for the life (or life expectancy) of the
Owner or the joint lives (or joint life expectancies) of the Owner and the
Owner's beneficiary.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
Distributions from a Policy that is not a Modified Endowment Contract are
generally treated as first, recovering the investment in the Policy (described
below) and then, only after the return of all such investment in the Policy, as
distributing taxable income. An exception to this general rule occurs in the
case of a decrease in the Policy's Death Benefit or any other change that
reduces benefits under the Policy in the first 15 years after the Policy is
issued and that results in a cash distribution to the Owner in order for the
Policy to continue complying with the Section 7702 definitional limits. Such a
cash distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a Modified Endowment Contract
are not treated as distributions. Instead, such loans are treated as Loan
Amounts. It is, however, possible that loans in effect after the eleventh Policy
Year could be treated as distributions rather than loans.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a Modified Endowment Contract
are subject to the 10 percent additional income tax rule. If a Policy which is
not a Modified Endowment Contract becomes a Modified Endowment Contract, then
any distributions made from the Policy within two years prior to the change in
such status will become taxable in accordance with the Modified Endowment
Contract rules discussed above.
POLICY LOAN INTEREST. Generally, consumer interest paid on any loan under a
Policy which is owned by an individual is not deductible. The deduction of
interest on other types of Policy loans may also be subject to other
restrictions under the Code. A qualified tax adviser should be consulted before
deducting any Policy loan interest.
INVESTMENT IN THE POLICY. Investment in the Policy means: (i) the aggregate
amount of any premium payments or other consideration paid for a Policy, minus
(ii) the aggregate amount received under the Policy which is excluded from gross
income of the Owner (except that the amount of any loan from, or secured by, a
Policy that is a Modified Endowment Contract, to the extent such amount is
excluded from gross income, will be disregarded), plus (iii) the amount of any
loan from, or secured by, a Policy that is a Modified Endowment Contract to the
extent that such amount is included in the gross income of the Owner.
MULTIPLE POLICIES. All Modified Endowment Contracts that are issued by the
Company (or its affiliates) to the same Owner during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includible in an Owner's gross income under Section 72(e) of the Code.
- 39 -
<PAGE>
OTHER INFORMATION ABOUT THE POLICIES AND THE COMPANY
SALE OF THE POLICIES
CNA/ISI, which is located at CNA Plaza, Chicago, Illinois 60685, is principal
underwriter and distributor of the Policies as well as of other policies issued
through other separate accounts of the Company or affiliates of the Company.
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 Policies are offered on a
continuous basis and the Company does not anticipate discontinuing the offer.
Applications for Policies are solicited by agents who are licensed by applicable
state insurance authorities to sell the Company's insurance contracts and who
are registered representatives of a broker-dealer having a selling agreement
with CNA/ISI. Such broker-dealers generally receive commissions based on a
percent of premium payments made (up to a maximum of %__), a percent of Policy
Value (up to a maximum of 0.__%), or a combination of these two. The writing
agent receives a percentage of these commissions from the respective
broker-dealer, depending on the practice of that broker-dealer. Owners do not
pay these commissions.
VOTING PRIVILEGES
In accordance with current interpretations of applicable law, the Company votes
Fund shares held in the Variable Account at regular and special shareholder
meetings of the Funds in accordance with instructions received from persons
having voting interests in the corresponding Subaccounts. If, however, the 1940
Act or any regulation thereunder should be amended, or if the present
interpretation thereof should change, or the Company otherwise determines that
it is allowed to vote the shares in its own right, it may elect to do so.
The number of votes that an Owner has the right to instruct is calculated
separately for each Subaccount, and may include fractional votes. While the
Insured is still living and the Policy is in force prior to the Maturity Date,
an Owner holds a voting interest in each Subaccount to which Variable Policy
Value is allocated. For each Owner, the number of votes attributable to a
Subaccount is determined by dividing the Owner's Subaccount Value by the Net
Asset Value Per Share of the Fund in which that Subaccount invests.
After the Maturity Date, the Payee under a Settlement Option has a voting
interest in each Subaccount from which variable Settlement Payments are made.
For each such Payee, the number of votes attributable to a Subaccount is
determined by dividing the liability for future variable Settlement Payments to
be paid from that Subaccount by the Net Asset Value Per Share of the Fund in
which that Subaccount invests. This liability for future payments is calculated
on the basis of the mortality assumptions, the selected Benchmark Rate of Return
and the Settlement Unit value of that Subaccount on the date that the number of
votes is determined. As Variable Settlement Payments are made to the Payee, the
liability for future payments decreases as does the number of votes.
The number of votes available to an Owner or Payee is determined as of the date
coinciding with the date established by the Fund for determining shareholders
eligible to vote at the relevant meeting of the Fund's shareholders. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established for the Fund. Each Owner or Payee having
a voting interest in a Subaccount will receive proxy materials and reports
relating to any meeting of shareholders of the Fund in which that Subaccount
invests.
Fund shares as to which no timely instructions are received and shares held by
the Company in a Subaccount as to which no Owner or Payee has a beneficial
interest are voted in proportion to the voting instructions that are received
with respect to all Policies participating in that Subaccount. Voting
- 40 -
<PAGE>
instructions to abstain on any item to be voted upon will be applied to reduce
the total number of votes eligible to be cast on a matter. Under the 1940 Act,
certain actions affecting the Variable Account may require Owner approval. In
that case, an Owner will be entitled to vote in proportion to his or her
Variable Policy Value.
The Company may, if required by state insurance regulators, disregard Owner and
Payee voting instructions if such instructions would require Fund shares to be
voted so as to cause a change in sub-classification or investment objectives of
a Fund, or to approve or disapprove an investment management agreement or an
investment advisory agreement. In addition, the Company may under certain
circumstances disregard voting instructions that would require changes in an
investment management agreement, investment manager, an investment advisory
agreement or an investment adviser of a Fund, provided that the Company
reasonably disapproves of such changes in accordance with applicable regulations
under the 1940 Act. If the Company ever disregards voting instructions, Owners
and Payees will be advised of that action and of the reasons for such action in
the next semiannual report for the appropriate Fund.
THE COMPANY DIRECTORS AND EXECUTIVE OFFICERS
The following tables sets forth the name, position with the Company and
principal occupations during the past five years of each of the Company's
directors and executive officers. All such individuals are located at
Continental Assurance Company, CNA Plaza, Chicago, Illinois 60685.
Name (Age) Position(s) with the Company and Business Experience
- ---------- ----------------------------------------------------
Dennis H. Chookaszian ( ) Director, Chairman of the Board
--
Philip L. Engel ( ) Director, President
--
Peter E. Jokiel ( ) Director, Senior Vice President,
-- Chief Financial Officer
Donald M. Lowry ( ) Director, Senior Vice President,
-- General Counsel and Secretary
Donald C. Rycroft ( ) Director, Group Vice President,
-- Treasurer
William H. Sharkey, Jr. ( ) Director, Senior Vice President
--
William J. Adamson, Jr. ( ) Senior Vice President
--
Bruce B. Brodie ( ) Senior Vice President
--
James P. Flood ( ) Senior Vice President
--
Michael C. Garner ( ) Senior Vice President
--
Bernard L. Hengesbaugh ( ) Senior Vice President
--
<PAGE>
Jack Kettler ( ) Senior Vice President
--
Carolyn L. Murphy ( ) Senior Vice President
--
- 41 -
<PAGE>
Wayne R. Smith, III ( ) Senior Vice President
--
Adrian M. Tocklin ( ) Senior Vice President
--
Jae L. Wittlich ( ) Senior Vice President
--
COMPANY HOLIDAYS
The Company is closed on the following days in 1996: New Year's Day, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, the day after Thanksgiving
Day, and Christmas Day.
- 42 -
<PAGE>
STATE REGULATION
The Company is subject to regulation by the Department of Insurance of the State
of Pennsylvania, which periodically examines the financial condition and
operations of the Company. The Company is also subject to the insurance laws and
regulations of all jurisdictions where it does business. The Policy described in
this prospectus has been filed with and, where required, approved by, insurance
officials in those jurisdictions where it is sold.
The Company is required to submit annual statements of operations, including
financial statements, to the insurance departments of the various jurisdictions
where it does business to determine solvency and compliance with applicable
insurance laws and regulations.
ADDITIONAL INFORMATION
A registration statement under the Securities Act of 1933 has been filed with
the SEC relating to the offering described in this prospectus. This prospectus
does not include all the information set forth in the registration statement.
The omitted information may be obtained at the SEC's principal office in
Washington, D.C. by paying the SEC's prescribed fees.
EXPERTS
The financial statements of the Company included in this prospectus have been
audited by [name accountants], independent accountants, whose report thereon is
set forth elsewhere herein. Actuarial matters included in this prospectus have
been examined by Deloitte & Touche, L.L.P. whose opinion is filed as an exhibit
to the registration statement.
LEGAL MATTERS
Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on certain
matters relating to the federal securities laws.
FINANCIAL STATEMENTS
No financial statements of the Variable Account are included herein because, as
of the date of this Prospectus, the Variable Account had not yet commenced
operations, had no assets, and had incurred no liabilities. The financial
statements of the Company appear on the following pages. The financial
statements of the Company should be distinguished from financial statements of
the Variable Account and should be considered only as bearing upon the Company's
ability to meet its obligations under the Policies.
[FINANCIAL STATEMENTS TO BE FILED BY AMENDMENT]
- 43 -
<PAGE>
ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES, DEATH BENEFITS AND
ACCUMULATED PREMIUM PAYMENTS
The following tables have been prepared to illustrate hypothetically how certain
values under a Policy change with investment performance over an extended period
of time. The tables illustrate how Policy Values, Surrender Values and Death
Benefits under a Policy covering an Insured of a given age on the Policy
Effective Date, would vary over time if Planned Periodic Premium Payments were
paid annually and the return on the assets in each of the Funds were an assumed
uniform gross annual rate of 0%, 6% and 12%. The values would be different from
those shown if the returns averaged 0%, 6% or 12% but fluctuated over and under
those averages throughout the years shown. The tables also show Planned Periodic
Premium Payments accumulated at 5% interest compounded annually. THE
HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. Actual
rates of return for a particular Policy may be more or less than the
hypothetical investment rates of return and will depend on a number of factors
including the investment allocations made by an Owner and prevailing rates.
These illustrations assume that Net Premiums are allocated equally among the 18
Subaccounts available under the Policy, and that no amounts are allocated to the
Fixed Account.
The illustrations reflect the fact that the net investment return on the assets
held in the Subaccounts is lower than the gross after tax return of the selected
Funds. The tables assume an average annual expense ratio of 0.___% of the
average daily net assets of the Funds available under the Policies. This average
annual expense ratio is based on the expense ratios of each of the Funds for the
last fiscal year, adjusted, as appropriate, for any material changes in expenses
effective for the current fiscal year of a Fund. For information on Fund
expenses, see the prospectus for the Funds accompanying this prospectus.
In addition, the illustrations reflect the daily charge to the Variable Account
for assuming mortality and expense risks, which is equivalent to an effective
annual charge of 0.90% during Policy Years 1-10 and 0.45% during Policy Years 11
and later. After deduction of Fund expenses and the mortality and expense risk
charge, the illustrated gross annual investment rates of return of 0%, 6% and
12% would correspond to approximate net annual rates of ____%, ____% and ____%,
respectively during Policy Years 1-10 and ___%, ___% and ___%, respectively
during Policy Years 11 and later.
The illustrations also reflect the deduction of the Sales Charges, Premium Tax
Charge, Federal Tax Charge and the Monthly Deduction for the hypothetical
Insured. The Surrender Charge is reflected in the column "Surrender Value." The
Company's current cost of insurance charges, and the guaranteed maximum cost of
insurance charges that the Company has the contractual right to charge, are
reflected in separate illustrations on each of the following pages. All the
illustrations reflect the fact that no charges for federal or state income taxes
are currently made against the Variable Account and assume no Loan Amount or
charges for supplemental and/or rider benefits.
The illustrations are based on the Company's [indicate risk class used in
illustration]. Upon request, Owner(s) will be furnished with a comparable
illustration based upon the proposed Insured's individual circumstances. Such
illustrations may assume different hypothetical rates of return in addition to
those illustrated in the following tables.
- 44 -
<PAGE>
[Insert Illustrations Based on Current and Guaranteed COI Rates - Need Assumed
Insureds' Profiles from the Company]
- 45 -
<PAGE>
APPENDIX
EXAMPLES OF DEATH BENEFIT COMPUTATIONS UNDER OPTIONS 1 AND 2
EXAMPLES OF OPTION 1. For purposes of this example, assume that the Insured's
Attained Age is between 0 and 40 and that there is no outstanding Loan Amount.
Under Option 1, a Policy with a $100,000 Specified Amount will generally pay
$100,000 in Death Benefits. However, because the Death Benefit must be equal to
or be greater than 250% of the Policy Value, any time that the Policy Value
exceeds $40,000, the Death Benefit will exceed the $100,000 Specified Amount.
Each additional dollar of Policy Value above $40,000 will increase the Death
Benefit by $2.50. A Policy with a $100,000 Specified Amount and a Policy Value
of $60,000 will provide Death Benefit of $150,000 ($60,000 x 250%); a Policy
Value of $80,000 will provide a Death Benefit of $200,000 ($80,000 x 250%); a
Policy Value of $100,000 will provide a Death Benefit of $250,000 ($100,000 x
250%).
Similarly, as long as Policy Value exceeds $40,000, each dollar taken out of
Policy Value will reduce the Death Benefit by $2.50. If, for example, the Policy
Value is reduced from $50,000 to $40,000 because of partial surrenders, charges,
or negative investment performance, the Death Benefit will be reduced from
$125,000 to $100,000. If at any time, however, the Policy Value multiplied by
the applicable percentage is less than the Specified Amount, the Death Benefit
will equal the current Specified Amount of the Policy.
The applicable Policy Value percentage becomes lower as the Insured's Attained
Age increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than between 0 and 40), the Policy Value percentage would be
185%. The Death Benefit would not exceed the $100,000 Specified Amount unless
the Policy Value exceeded approximately $54,054 (rather than $40,000), and each
dollar then added to or taken from the Policy Value would change the Death
Benefit by $1.85 (rather than $2.50).
EXAMPLES OF OPTION 2. For purposes of this example, assume that the Insured's
Attained Age is between 0 and 40 and that there is no outstanding Loan Amount.
Under Option 2, a Policy with a Specified Amount of $100,000 will generally
provide a Death Benefit of $100,000 plus Policy Value. Thus, for example, a
Policy with a Policy Value of $10,000 will have a Death Benefit of $110,000
($100,000 + $10,000); a Policy Value of $20,000 will provide a Death Benefit of
$120,000 ($110,000 + $20,000). The Death Benefit, however, must be at least 250%
of the Policy Value. As a result, if the Policy Value exceeds $66,667, the Death
Benefit will be greater than the Specified Amount plus Policy Value. Each
additional dollar of Policy Value above $66,667 will increase the Death Benefit
by $2.50. A Policy with a Specified Amount of $100,000 and a Policy Value of
$80,000 will provide a Death Benefit of $200,000 ($80,000 x 250%); a Policy
Value of $120,000 will provide a Death Benefit of $300,000 ($120,000 X 250%).
Similarly, any time Policy Value exceeds $66,667, each dollar taken out of
Policy Value will reduce the Death Benefit by $2.50. If, for example, the Policy
Value is reduced from $80,000 to $70,000 because of partial surrenders, charges,
or negative investment performance, the Death Benefit will be reduced from
$200,000 to $175,000. If at any time, however, Policy Value multiplied by the
applicable percentage is less than the Specified Amount plus the Policy Value,
then the Death Benefit will be the current Specified Amount plus the Policy
Value.
The applicable Policy Value percentage becomes lower as the Insured's Attained
Age increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than under 40), the Policy Value percentage would be 185%.
The amount of the Death Benefit would be the sum of the Policy Value plus
$100,000 unless the Policy Value exceeded $117,647 (rather than $66,667), and
each dollar then added to or taken from the Policy Value would change the Death
Benefit by $1.85 (rather than $2.50).
- 46 -
<PAGE>
<TABLE>
<CAPTION>
TABLE OF POLICY VALUE PERCENTAGES
<S> <C> <C> <C> <C> <C> <C> <C>
|======================|=====================|=====================|======================|
| | | | |
| Attained |Attained | Attained | Attained |
| Age Percentage | Age Percentage | Age Percentage | Age Percentage |
|----------------------|---------------------|---------------------|----------------------|
| | | | |
| 0-40 250% | 50 185% | 60 130% | 70 115% |
| | | | |
| 41 243% | 51 178% | 61 128% | 71 113% |
| | | | |
| 42 236% | 52 171% | 62 126% | 72 111% |
| | | | |
| 43 229% | 53 164% | 63 124% | 73 109% |
| | | | |
| 44 222% | 54 157% | 64 122% | 74 107% |
| | | | |
| 45 215% | 55 150% | 65 120% | 75-90 105% |
| | | | |
| 46 209% | 56 146% | 66 119% | 91 104% |
| | | | |
| 47 203% | 57 142% | 67 118% | 92 103% |
| | | | |
| 48 197% | 58 138% | 68 117% | 93 102% |
| | | | |
| 49 191% | 59 134% | 69 116% | 94 101% |
| | | | |
|======================|=====================|=====================|======================|
</TABLE>
- 47 -
<PAGE>
Part II
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to
file with the Securities and Exchange Commission (the "Commission") such
supplementary and periodic information, documents and reports as may be
prescribed by any rule or regulation of the Commission heretofore or hereafter
duly adopted pursuant to authority conferred in that section.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the
Securities Act of 1933 (the "Act") 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.
The registrant has no officers, directors or employees. The
depositor and the registrant do not indemnify the officers, directors of
employees of the depositor. CNA-Financial Corporation, ("CNAFC") a parent of the
depositor, indemnifies the depositor's officers, directors and employees in
their capacity as such. Most of the depositor'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,
<PAGE>
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 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.
REPRESENTATIONS PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rule 6e-3(T) under the
Investment Company Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(A)
under the Investment Company Act of 1940 with respect to the policies described
in the Prospectus.
Registrant makes the following representations:
(1) Rule 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risk charge is
within the range of industry practice for comparable
flexible or scheduled contracts.
(3) Registrant has concluded that there is a reasonable
likelihood that the distribution financing
arrangement of the Variable Account will benefit the
Variable Account and Owners and will keep and make
<PAGE>
available to the Commission on request a memorandum
setting forth the basis for this representation.
(4) The Variable Account will invest only in management
investment companies which have undertaken to have a
board of directors, a majority of whom are not
interested persons of the company, formulate and
approve any plan under Rule 12b-1 to finance
distribution expenses.
The methodology used to support the representation made in
paragraph (2) above is based on an analysis of the mortality and expense risk
charge contained in other variable life insurance contracts. Registrant
undertakes to keep and make available to the Commission on request the documents
used to support the representation in paragraph (2) above.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 47 pages.
Undertaking to file reports.
Rule 484 undertaking.
Representations pursuant to Rule 6e-3(T).
The signatures.
Written consents. **
The following exhibits, corresponding to those required by paragraph A
of the instructions as to exhibits in Form N-8B-2:
1.
A.
(1) Resolution of the Board of Directors of Valley Forge
Life Insurance Company (the "Company") establishing
Valley Forge Life Insurance Company Variable Life
Separate Account (the "Variable Account")**
(2) Not Applicable
(3) (a) Form of underwriting/distribution agreement
between the Company and CNA Investor
Services, Inc. *
(b) Form of underwriting/distribution agreement
between the Company and CNA Investor
Services, Inc. *
(c) Schedule of Sales Commissions *
(4) Not applicable
(5) (a) Specimen Individual Flexible Premium
Variable and Fixed Life Insurance Policy
(the "Policy")
(b) Form of Waiver of Monthly Deduction Rider
(c) Form of Term Insurance on Spouse Rider
(d) Form of Term Insurance on Children Rider
<PAGE>
(6) (a) Amended and restated Articles of
Incorporation of the Company **
(b) By-laws of the Company **
(7) Not applicable
(8) (a) Form of participation agreement between The
Alger American Fund and the Company *
(b) Form of participation agreement between
Variable Insurance Products Fund and the
Company *
(c) Form of participation agreement between
Variable Insurance Products Fund II and the
Company *
(d) Form of participation agreement between MFS
Variable Insurance Trust and the Company *
(e) Form of participation agreement between
SoGen Variable Funds, Inc. and the Company *
(f) Form of participation agreement between Van
Eck Worldwide Insurance Trust and the
Company *
(g) Form of participation agreement between
Insurance Management Series and the
Company *
(9) Not applicable
(10) Policy Application
(11) Description of issuance, transfer and redemption
procedures *
B. Not applicable
C. Not applicable
2. Opinion and Consent of Lynne Gugenheim, Esquire *
3. Not applicable
4. Not applicable
5. Not applicable
6. Opinion and consent of Edward Turner as to actuarial matters
pertaining to the securities being registered *
7. (a) Consent of Deloitte & Touche LLP *
(b) Consent of Sutherland, Asbill & Brennan *
________________________________
* To be filed by amendment
** Incorporated by reference to the Registration Statement on Form N-4
for Valley Forge Life Insurance Company Variable Annuity Separate
Account (File No. 33-________) filed with the Securities and Exchange
Commission on February 20, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the registrant, Valley Forge Life Insurance Company
Variable Life Separate Account, has duly caused this registration statement to
be signed on its behalf by the undersigned thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in the City of Chicago, State of
Illinois, on this 25th day of March, 1996.
VALLEY FORGE LIFE INSURANCE COMPANY VARIABLE
LIFE SEPARATE ACCOUNT
(Registrant)
VALLEY FORGE LIFE INSURANCE COMPANY
(Depositor)
S/MARY A. RIBIKAWSKIS By: S/PETER E. JOKIEL
Attest: _____________________ ____________________________
Mary A. Ribikawskis Peter E. Jokiel
Assistant Secretary Senior Vice President,
Chief Financial Officer,
Director
Pursuant to the requirements of the Securities Act of 1933, Valley Forge
Life Insurance Company has duly caused this registration statement to be signed
on its behalf by the undersigned persons in their capacities with Valley Forge
Insurance Company therunto authorized, and its seal to be herunto affixed and
attested, all in the City of Chicago, State of Illinois, this 22nd day of March,
1996.
S/MARY A. RIBIKAWSKIS By: S/PETER E. JOKIEL
Attest: _______________________ ___________________________
Mary A. Ribikawskis Peter E. Jokiel
Assistant Secretary Senior Vice President,
Chief Financial Officer,
Director
Pursuant to the requirements of the Securities Act of 1933, Valley Forge
Life Insurance Company has duly caused this registration statement to be signed
on its behalf by the undersigned persons in their capacities with Valley Forge
Life Insurance Company thereunto authorized, and its seal to be hereunto affixed
and attested, all in the City of Chicago, State of Illinois, this 22nd day of
March, 1996.
<TABLE>
<CAPTION>
PRINCIPAL OFFICERS
<S> <C> <C>
Signature Title Date
_____________________________ ________________________________ __________________
S/DENNIS H. CHOOKASZIAN
_____________________________ Chairman of the Board, March 25, 1996
Dennis H. Chookaszian Chief Executive Officer
Director
<PAGE>
S/PHILIP L. ENGEL
_____________________________ President, Director March 25, 1996
Philip L. Engel
S/PETER E. JOKIEL
_____________________________ Senior Vice President,
Peter E. Jokiel Chief Financial Officer, Director March 25, 1996
S/DONALD M. LOWRY
____________________________ Senior Vice President, March 25, 1996
Donald M. Lowry General Counsel, Secretary,
Director
S/DONALD C. RYCROFT
____________________________ Group Vice President, Director March 25, 1996
Donald C. Rycroft
S/WILLIAM H. SHARKEY, JR.
____________________________ Senior Vice President, March 25, 1996
William H. Sharkey, Jr. Director
S/WILLIAM J. ADAMSON, JR.
_____________________________ Senior Vice President March 25, 1996
William J. Adamson, Jr.
S/BRUCE B. BRODIE
_____________________________ Senior Vice President March 25, 1996
Bruce B. Brodie
S/JAMES P. FLOOD
_____________________________ Senior Vice President March 25, 1996
James P. Flood
S/MICHAEL C. GARNER
_____________________________ Senior Vice President March 25, 1996
Michael C. Garner
S/BERNARD L. HENGESBAUGH
_____________________________ Senior Vice President March 25, 1996
Bernard L. Hengesbaugh
S/JACK KETTLER
_____________________________ Senior Vice President March 25, 1996
Jack Kettler
S/CAROLYN L. MURPHY
_____________________________ Senior Vice President March 25, 1996
Carolyn L. Murphy
S/WAYNE R. SMITH, III
_____________________________ Senior Vice President, March 25, 1996
Wayne R. Smith, III
S/ADRIAN M. TOCKLIN
_____________________________ Senior Vice President, March 25, 1996
Adrian M. Tocklin
S/JAE L. WITTLICH
_____________________________ Senior Vice President, March 25, 1996
Jae L. Wittlich
</TABLE>
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 Policy, Valley Forge Life Insurance Company is referred to as "Us,"
"Our," or the "Company." "You" and "Your" refers to the Owner of the Policy.
The Company agrees to pay to the Beneficiary the Death Benefit Proceeds
described in section 5 of this Policy upon receipt of Due Proof of the Insured's
death while this Policy is in force prior to the Maturity Date.
PLEASE READ THIS POLICY CAREFULLY
It is a legal contract between You and Us.
NOTICE OF CANCELLATION PERIOD
If for any reason You are not satisfied with this Policy, 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.
You may cancel this Policy by returning it with a Written Request for
cancellation no later than: (1) [10] days after You first receive it, or (2) 45
days after You signed the application. Return of this Policy is effective upon
receipt by Us and will be void as of its inception. The Company will promptly
return Your Premium Payments.
Signed for the Valley Forge Life Insurance Company at its Executive Office, CNA
Plaza, Chicago, Illinois 60685.
Chairman of the Board Secretary
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE INSURANCE COVERAGE, OR
BOTH, MAY INCREASE OR DECREASE UNDER THE CONDITIONS DESCRIBED IN SECTIONS 4,5
AND 6.
THE DEATH BENEFIT AND OTHER VALUES PROVIDED BY THIS POLICY, WHEN BASED ON THE
INVESTMENT PERFORMANCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE DAILY
AS A FUNCTION OF THE INVESTMENT PERFORMANCE OF SUBACCOUNTS SELECTED BY THE OWNER
AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT. NO MINIMUM VALUE IS GUARANTEED FOR
PORTIONS OF THE POLICY VALUE IN THE SUBACCOUNTS.
This Policy does not pay dividends or otherwise participate in Our profits or
surplus
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<PAGE>
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 Policy, Valley Forge Life Insurance Company is referred to as "Us,"
"Our," or the "Company." "You" and "Your" refers to the Owner of the Policy.
The Company agrees to pay to the Beneficiary the Death Benefit Proceeds
described in section 5 of this Policy upon receipt of Due Proof of the Insured's
death while this Policy is in force prior to the Maturity Date.
PLEASE READ THIS POLICY CAREFULLY
It is a legal contract between You and Us.
NOTICE OF CANCELLATION PERIOD
If for any reason You are not satisfied with this Policy, 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.
You may cancel this Policy by returning it with a Written Request for
cancellation no later than: (1) [10] days after You first receive it, or (2) 45
days after You signed the application. Return of this Policy is effective upon
receipt by Us and will be void as of its inception. The Company will promptly
refund an amount equal to the sum of: (1) the difference between Premium
Payments made (including any fees or charges deducted) and the amounts allocated
to the Fixed Account and to the Subaccounts, (2) amounts allocated to the Fixed
Account, including any interest credited on such amounts accumulated to the date
that the returned Policy is received by Us, (3) the value of amounts allocated
to the Subaccounts, adjusted to reflect the net investment experience of such
Subaccounts to the date that the returned Policy is received by Us. This amount
may be more or less than the aggregate Premium Payments made under the Policy.
Signed for the Valley Forge Life Insurance Company at its Executive Office, CNA
Plaza, Chicago, Illinois 60685.
Chairman of the Board Secretary
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE INSURANCE COVERAGE, OR
BOTH, MAY INCREASE OR DECREASE UNDER THE CONDITIONS DESCRIBED IN SECTIONS 4,5
AND 6.
THE DEATH BENEFIT AND OTHER VALUES PROVIDED BY THIS POLICY, WHEN BASED ON THE
INVESTMENT PERFORMANCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE DAILY
AS A FUNCTION OF THE INVESTMENT PERFORMANCE OF SUBACCOUNTS SELECTED BY THE OWNER
AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT. NO MINIMUM VALUE IS GUARANTEED FOR
PORTIONS OF THE POLICY VALUE IN THE SUBACCOUNTS.
This Policy does not pay dividends or otherwise participate in Our profits or
surplus
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<PAGE>
TABLE OF CONTENTS
POLICY SPECIFICATIONS.........................................................
SECTION 1: DEFINITIONS...............................................Section 1
SECTION 2: GENERAL PROVISIONS........................................Section 2
SECTION 3: OWNERSHIP.................................................Section 3
SECTION 4: PREMIUM PAYMENTS, LAPSE AND REINSTATEMENT.................Section 4
SECTION 5: DEATH BENEFIT AND DEATH BENEFIT PROCEEDS..................Section 5
SECTION 6: THE VARIABLE ACCOUNT......................................Section 6
SECTION 7: THE FIXED ACCOUNT.........................................Section 7
SECTION 8: FEES AND CHARGES..........................................Section 8
SECTION 9: ALLOCATIONS AND TRANSFERS.................................Section 9
SECTION 10: SURRENDER AND WITHDRAWALS...............................Section 10
SECTION 11: LOANS...................................................Section 11
SECTION 12: POLICY CHANGES..........................................Section 12
SECTION 13: PAYMENTS................................................Section 13
SECTION 14: SETTLEMENT OPTIONS......................................Section 14
- 2 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
POLICY SPECIFICATIONS
OWNER: INSURED: INSURED'S AGE:
BENEFICIARY: ISSUE DATE: INSURED'S SEX:
POLICY NUMBER: MATURITY DATE: POLICY EFFECTIVE DATE:
RISK CLASS: DEATH BENEFIT OPTION: MONTHLY ANNIVERSARY DAY:
Specified Amount: $100,000 Minimum Guaranteed Interest Rate: 4%
(for Fixed Account Allocations)
Minimum Specified Amount: $100,000 Policy Loan Interest Rate: 8%
Minimum Specified Amount Increase: $ 25,000 Preferred Policy Loan Interest Rate: 6%
Minimum Specified Amount Decrease: $ 25,000 Policy Loan Credited Rate: 6%
Planned Periodic Premium Payments: $ _____ Minimum Monthly Premium Payment: $
Minimum Initial Premium Payment: $ _____ Target Premium Payment: $
Minimum Additional Premium Payment: $ 50 Guideline Annual Premium Payment: $
Minimum Transfer Amount: $ 500 Minimum Withdrawal Amount: $ 500
Minimum Loan Amount: $ 500
Minimum percent of Net Premium Payment that may be allocated to a Subaccount or to the Fixed
Account is 1%
</TABLE>
Current Subaccounts
-------------------
Federated High Income Bond II Subaccount Fidelity Asset Manager Subaccount
Federated Prime Money II Subaccount Fidelity Contrafund Subaccount
Federated Utility II Subaccount Fidelity Equity-Income Subaccount
Fidelity Index 500 Subaccount
Alger Growth Subaccount MFS Emerging Growth Subaccount
Alger Midcap Growth Subaccount MFS Growth With Income Subaccount
Alger Small Capitalization Subaccount MFS Limited Maturity Subaccount
MFS Research Subaccount
MFS Total Return Subaccount
SoGen Overseas Subaccount Van Eck Emerging Markets Subaccount
Van Eck Gold and Natural Resources
Subaccount
- 3 -
<PAGE>
CHARGES AND FEES
----------------
Sales Charges:
Policy Years 1-10: 4% of Premium Payments up to the Target Premium Payment
Policy Years 11 +: 2% of Premium Payments up to the Target Premium Payment
All Years: 0% of Premium Payments in excess of the Target Premium
Payment
Deferred Acquisition Cost Tax Charge: 1.25% of each Premium Payment
Premium Tax Charge: 2.25% of each Premium Payment
Mortality and Expense Risk Charge
Policy Years 1-10: .002477% (daily factor); 0.90% (approximate annual rate)
Policy Years 11+: .001236% (daily factor); 0.45% (approximate annual rate)
Monthly Policy Fee: $ 6.00 Monthly First Year Issue Fee: $ 20.00
Monthly Specified Amount Increase Fee(for first 12 months after increase):$10.00
Transfer Processing Fee: $ 25.00 each after first 12 in a Policy Year
Surrender Charge (Sales Surrender Charge and Administration Surrender Charge):
Sales Surrender Charge: 34% of Premium Payments in the first Policy
Year up to the Target Premium Payment, plus
33% of Premium Payments in each of Policy
Years 2 through 6 up to the Target Premium
Payment until the total Sales Surrender
Charge equals 100% of a single Target
Premium Payment
The Sales Surrender Charge during the first two Policy Years is never
more than the sum of: (1) 26% of the first Guideline Annual Premium
Payment, (2) 6% of the second Guideline Annual Premium Payment, and (3)
5% of all additional premium payments.
Administration Surrender Charge:
$2.00 per $1,000 of Specified Amount for Policies on
Insureds age 25 or less on the Policy Effective Date; $5.00
per $1,000 of Specified Amount for Policies on Insureds age
35 or older on the Policy Effective Date. For Insureds of
other ages, the following per $1,000 of Specified Amount:
age 26 - $2.30, age 27 - $2.60, age 28 - $2.90, age 29 -
$3.20, age 30 - $3.50, age 31 - $3.80, age 32 - $4.10, age
33 - $4.40, age 34 $4.70.
The total Surrender Charge grades off as follows:
80% of the total Surrender Charge in Policy Year 7
70% of the total Surrender Charge in Policy Year 8
60% of the total Surrender Charge in Policy Year 9
50% of the total Surrender Charge in Policy Year 10
40% of the total Surrender Charge in Policy Year 11
30% of the total Surrender Charge in Policy Year 12
20% of the total Surrender Charge in Policy Year 13
10% of the total Surrender Charge in Policy Year 14
No Charge in Policy Years 15 and later
- 4 -
<PAGE>
TABLE OF MAXIMUM MONTHLY COST OF INSURANCE RATES
PER $1,000 OF NET AMOUNT AT RISK
ATTAINED ATTAINED
AGE COST AGE COST
--- ---- --- ----
35 0.1409 71 3.2530
36 0.1475 72 3.5593
37 0.1567 73 3.9690
38 0.1667 74 4.4295
39 0.1784 75 4.9241
40 0.1909 76 5.4512
41 0.2059 77 6.0059
42 0.2209 78 6.5822
43 0.2384 79 7.1947
44 0.2559 80 7.8672
45 0.2767 81 8.6170
46 0.2993 82 9.4654
47 0.3234 83 10.4234
48 0.3493 84 11.4726
49 0.3785 85 12.5899
50 0.4093 86 13.7533
51 0.4460 87 14.9528
52 0.4886 88 16.1646
53 0.5361 89 17.4053
54 0.5912 90 18.6922
55 0.6521 91 20.0473
56 0.7197 92 21.5157
57 0.7915 93 23.1601
58 0.8691 94 25.2598
59 0.9567
60 1.0544
61 1.1630
62 1.2867
63 1.4279
64 1.5875
65 1.7639
66 1.9538
67 2.1597
68 2.3807
69 2.6219
70 2.8942
THE MAXIMUM COST OF INSURANCE RATES DO NOT EXCEED THE COST OF INSURANCE RATES
BASED ON THE APPLICABLE (MALE OR FEMALE, SMOKER OR NONSMOKER) 1980 COMMISSIONER
STANDARD ORDINARY MORTALITY TABLE, AGE NEAREST BIRTHDAY.
- 5 -
<PAGE>
SECTION 1: DEFINITIONS
ATTAINED AGE: The Insured's age as of the nearest birthday on the Policy
Effective Date, plus the number of complete Policy Years since the Policy
Effective Date.
BENEFICIARY: The person(s) to whom the Death Benefit Proceeds are paid upon the
death of the Insured. The Owner may designate primary, contingent and
irrevocable Beneficiaries.
CANCELLATION PERIOD: The period described on the cover page of this Policy
during which the Owner may cancel the Policy for a refund by returning it to
the Company.
CASH VALUE: Policy Value minus any applicable Surrender Charge.
THE CODE: The Internal Revenue Code of 1986, as amended.
Contingent Beneficiary: The person(s) to whom the Death Benefit Proceeds are
paid upon the death of the Insured if the primary Beneficiary (or beneficiaries)
is not living.
DEATH BENEFIT: The amount payable to the Beneficiary under a Death Benefit
Option as described in section 5.2 if the Insured dies while the Policy is in
force before the Maturity Date.
DEATH BENEFIT OPTION: One of two options that an Owner may select for the
computation of the Death Benefit Proceeds as explained in section 5.2.
Death Benefit Proceeds: The amount payable to the Beneficiary as described in
section 5.1 if the Insured dies while the Policy is in force before the Maturity
Date.
DUE PROOF OF DEATH: Proof of death satisfactory to the Company. Due Proof of
Death may consist of the following:
(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.
FIXED ACCOUNT: Part of the Company's General Account to which Policy Value may
be transferred or Net Premium Payments may be allocated under a Policy.
FIXED POLICY VALUE: The Policy Value in the Fixed Account as defined in
section 7.1.
FUND: Any open-end management investment company or investment portfolio
thereof, or unit investment trust or series thereof, in which a Subaccount
invests.
GENERAL ACCOUNT: The assets of the Company other than those allocated to the
Variable Account or any other separate account of the Company.
GUIDELINE ANNUAL PREMIUM PAYMENT: The "guideline annual premium" as defined in
applicable regulations under the Investment Company Act of 1940, as amended.
HOME OFFICE: The Company's office at 401 Penn Street, Reading, PA 19601.
INITIAL SPECIFIED AMOUNT: The Specified Amount on the Policy Effective Date.
INSURED: The person whose life is insured by the Policy.
- 6 -
<PAGE>
ISSUE AGE: The Insured's age as of the nearest birthday on the Policy Effective
Date.
LAPSE: Termination of the Policy at the expiration of the Grace Period while the
Insured is still living before the Maturity Date as explained in section 4.5.
LOAN ACCOUNT: A portion of the Company's General Account to which Variable
Policy Value or Fixed Policy Value is transferred to provide collateral for any
loan taken under the Policy.
LOAN ACCOUNT VALUE: The Policy Value in the Loan Account.
LOAN AMOUNT: At any time other than a Policy Anniversary, the Loan Account Value
plus any interest charges accrued on the Loan Account Value up to that time. On
a Policy Anniversary, the Loan Amount equals the Loan Account Value.
MATURITY DATE: The date shown on the Policy Specifications page on which the
Owner is paid the Surrender Value, if any, provided the Insured is still living
while the Policy is in force. It is the Policy Anniversary nearest the Insured's
95th birthday.
MINIMUM INITIAL PREMIUM PAYMENT: The amount shown on the Policy Specifications
page that the Owner must pay before coverage becomes effective under this
Policy.
MINIMUM MONTHLY PREMIUM PAYMENT: The minimum amount of monthly premium payments
(or the equivalent) that an Owner must make in order for the Lapse Prevention
Guarantee to remain in effect.
MONTHLY ANNIVERSARY DAY: The same day as the Policy Effective Date for each
succeeding month.
NET AMOUNT AT RISK: As of any Monthly Anniversary Day, the Death Benefit under
the Policy (discounted for the upcoming month) less the Policy Value (before the
deduction of the monthly Policy fee, monthly first-year issue fee and the cost
of additional benefits provided by rider) as defined in section 8.2.
NET ASSET VALUE PER SHARE: The value per share of any Fund on any Valuation Day.
The method of computing the Net Asset Value Per Share is described in the
prospectus for the Funds.
NET PREMIUM PAYMENT: Your premium payment less any Premium Tax Charge, Deferred
Acquisition Cost Tax Charge, and Sales Charge deducted from the premium payment.
OWNER, YOU: The person or persons who owns (or own) the Policy and who is (are)
entitled to exercise all rights and privileges provided in the Policy. Also
referred to herein as "You" or "Your." 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.
PLANNED PERIODIC PREMIUM PAYMENT: The Premium Payment selected by the Owner as a
level amount that he or she (or they) plans to pay on a monthly (pre-authorized
payment), quarterly, semi-annual or annual basis over the life of the Policy.
POLICY ANNIVERSARY: The same date in each Policy Year as the Policy Effective
Date.
POLICY EFFECTIVE DATE: The date shown on the Policy Specifications page from
which Policy Years and various other periods described elsewhere herein are
measured. The Policy Effective Date is never the 29th, 30th or 31st of a month.
POLICY VALUE: The sum of the Variable Policy Value, the Fixed Policy Value and
the Loan Account Value.
<PAGE>
POLICY YEAR: A twelve-month period beginning on the Policy Effective Date or on
a Policy Anniversary.
- 7 -
<PAGE>
SEC: The U.S. Securities and Exchange Commission.
SERVICE CENTER: The Company's Service Center at 95 Bridge Street, Haddam,
Connecticut 06438.
SPECIFIED AMOUNT: A dollar amount selected by the Owner and shown on the Policy
Specifications page that is used to determine the Death Benefit.
SUBACCOUNT: A subdivision of the Variable Account, the assets of which are
invested in a corresponding Fund.
SUBACCOUNT VALUE: The Policy Value in a Subaccount as defined in section 6.6.
SURRENDER VALUE: The Cash Value minus any Loan Amount.
TARGET PREMIUM PAYMENT: An amount of premium payments, computed separately for
each increment of Specified Amount under a Policy, used to compute sales charges
and sales surrender charges.
THE COMPANY, WE, US OR OUR: Valley Forge Life Insurance Company.
UNIT: A unit of measure used to calculate Subaccount Value.
VALUATION DAY: For each Subaccount, each day on which the New York Stock
Exchange is open for business except for certain holidays listed in the
prospectus and days that a Subaccount's corresponding Fund does not value its
shares.
VALUATION PERIOD: The period that starts at the close of regular trading on the
New York Stock Exchange on any Valuation Day and ends at the close of regular
trading on the next succeeding Valuation Day.
VARIABLE ACCOUNT: Valley Forge Life Insurance Company Variable Life Separate
Account.
VARIABLE POLICY VALUE: The sum of all Subaccount Values.
WRITTEN NOTICE: A written notice or request in a form satisfactory to the
Company that is signed by the Owner and received at the Service Center.
- 8 -
<PAGE>
SECTION 2: GENERAL PROVISIONS
2.1 THE POLICY - We have issued this Policy in consideration of Your
application and Your payment of the Minimum Initial Premium Payment
shown on the Policy Specifications page. The entire Policy is made up
of this Policy, any attached endorsements or riders, and the attached
copy of the application and all subsequent applications. Any
application for reinstatement of this Policy also becomes part of the
Policy if the reinstatement is accepted by the Company.
2.2 REPRESENTATIONS AND CONTESTABILITY - In issuing this Policy, the
Company relies on all statements made by or for the Insured in the
application or in a supplemental application. In the absence of fraud,
We consider statements made in the application(s) to be representations
and not warranties. The Company has the right to contest the validity
of this Policy or to resist a claim under it on the basis of any
material misrepresentation of a fact stated in the attached application
or any supplemental application. The Company also has the right to
contest the validity of any increase of Specified Amount or other
change to the Policy on the basis of any material misrepresentation of
a fact stated in the application (or supplemental application) for such
increase in coverage or change.
In the absence of fraud, the Company cannot bring any legal action to
contest the validity of this Policy after the Policy has been in force
during the lifetime of the Insured for two years from the Policy
Effective Date, or if reinstated, for two years from the date of
reinstatement. Likewise, the Company cannot contest any increase in
coverage effective after the Policy Effective Date, or any
reinstatement thereof, after such increase or reinstatement has been in
force during the lifetime of the Insured for two years from its
effective date.
2.3 MISSTATEMENT OF AGE OR SEX - If the Age or sex of the Insured has been
stated incorrectly in the application or any supplemental application,
the Company will adjust the Death Benefit and any benefits provided by
rider or endorsement it pays under this Policy to the amount that would
have been payable at the correct age and sex based on the most recent
deduction for cost of insurance and the cost of any benefits provided
by rider or endorsement. If the age of the Insured has been overstated
or understated, the Company will recalculate the Policy Value using the
cost of insurance (and the cost of benefits provided by rider or
endorsement) based on the Insured's correct age and sex.
2.4 SUICIDE EXCLUSION - If the Insured commits suicide, while sane or
insane, within two years of the Policy Effective Date, the Company's
liability is limited to an amount equal to the Policy Value less any
loan amount. The Company will pay this amount to the Beneficiary in one
sum.
If the Insured commits suicide, while sane or insane, within two years
from the effective date of any increase in Specified Amount, the
Company's liability with respect to that increase is limited to an
amount equal to the cost of insurance attributable to the increase from
the effective date of the increase to the date of death.
2.5 MODIFICATION - Only an officer of the Company may modify this Policy or
waive any of the Company's rights or requirements under this Policy.
Any modification or waiver must be in writing. No agent may bind the
Company by making any promise not contained in this Policy.
<PAGE>
Upon notice to the Owner, the Company may modify the Policy to:
1. conform the Policy or the operations of the Company or of the
Variable Account to the requirements of any law (or regulation
issued by a government agency) to which the Policy, the
Company or the Variable Account is subject;
2. assure continued qualification of the Policy as a life
insurance contract under the Code; or
3. reflect a change (as permitted in this Policy) in the
operation of the Variable Account.
- 9 -
<PAGE>
In the event of any such modification, the Company will make
appropriate endorsements to the Policy. If any provision of this Policy
conflicts with the laws of a jurisdiction that govern the Policy, the
provision is deemed to be amended to conform with such laws.
2.6 PERIODIC REPORTS - At least annually, or more often as required by law,
the Company will mail to Owners at their last known address a report
showing the following items as of the end of the report period:
1. the period covered by the report;
2. the current Policy Value, Cash Value and Surrender Value;
3. the current Variable Policy Value (including each Subaccount
Value), Fixed Policy Value and Loan Account Value;
4. the current Loan Amount;
5. any premium payments, withdrawals, or surrenders made, Death
Benefit Proceeds paid and charges deducted since the last
report;
6. current Net Premium Payment allocations; and
7. any other information required by law.
Owners may request additional copies of reports from the Company, but
the Company reserves the right to charge a fee for such additional
copies.
2.7 NON-PARTICIPATING - This Policy does not participate in the surplus or
profits of the Company and the Company does not pay dividends on it.
2.8 WHEN COVERAGE BEGINS - Coverage under this Policy applied for in the
initial application begins on the later of the Policy Effective Date or
the date that the Company receives the Minimum Initial Premium Payment.
Specified Amount increases or other additions to coverage become
effective on the Monthly Anniversary Day that falls on, or next
follows, the date that: (a) the Company approves the supplemental
application for such coverage, and (b) the Company receives any premium
payment required for the increase or addition. That date will be shown
on a supplemental Policy Specifications page that confirms the change.
Coverage that becomes reinstated by the Company under this Policy
becomes effective on the Monthly Anniversary Day that falls on, or next
follows, the date that: (a) the Company approves the application for
reinstatement, and (b) the Company receives any premium payment
required for the reinstatement.
2.9 WHEN COVERAGE ENDS - Coverage under this Policy will terminate upon
the earliest to occur of the following events:
1. the Insured dies;
2. the Owner surrenders the Policy;
3. the Policy reaches its Maturity Date; or
4. the Policy Lapses.
- 10 -
<PAGE>
SECTION 3: OWNERSHIP
3.1 OWNERSHIP - This Policy belongs to the Owner. The Owner, as shown on
the Policy Specifications page, or as subsequently changed, may
exercise all rights under this Policy. Subject to more specific
provisions elsewhere herein, these rights include the right to: (a)
change the Owner, (b) select or change a Contingent Owner, (c) select
or change any Beneficiary or Contingent Beneficiary, (d) allocate Net
Premium Payments among and between the Subaccounts and the Fixed
Account, (e) transfer Policy Value among and between the Subaccounts
and the Fixed Account, and (f) assign the Policy.
The Insured is the Owner unless the application specifies a different
person as Owner.
3.2 CHANGING THE OWNER - The Owner may change the Owner by Written Notice
at any time while the Insured is alive and the Policy is in force prior
to the Maturity Date. A change of Ownership is effective as of the date
that the Written Notice is signed, however; the Company is not liable
for payments it makes before it receives a Written Notice of a change
in Ownership.
3.3 CONTINGENT OWNER - If the Owner is not the Insured, he or she may name
a Contingent Owner in the application or by subsequent Written Notice.
The Contingent Owner becomes the Owner in the event that the Owner dies
before the Insured. If no Contingent Owner survives the Owner, then
upon the death of the last surviving Owner, that Owner's estate becomes
the Owner.
3.4 ASSIGNMENT - By Written Notice the Owner may assign his or her rights
under this Policy. The Company is not bound by the assignment unless it
receives a duplicate of the original assignment at the Service Center.
The Company is not responsible for the validity or sufficiency of any
assignment and is not liable for any payment it makes before receipt of
the duplicate original assignment. An assignment does not change or
revoke the Beneficiary designation in effect at the time that the
assignment is made. If an assignment is absolute, the Owner's rights
and privileges under the Policy, including any right to change the
Beneficiary, pass to the assignee. If an assignment is collateral, the
collateral assignee has priority over the interest of any revocable
Beneficiary or revocable payee under any optional method of settlement
selected pursuant to section 14. Any claim under any assignment is
subject to proof of interest and the extent of the assignment. An
assignment is subject to any Loan Amount.
3.5 SELECTING THE BENEFICIARY - The Owner designates the Beneficiary in the
application. Any Beneficiary designation is revocable unless otherwise
stated in the designation. Owners may designate Contingent
Beneficiaries. Where more than one Beneficiary or more than one
Contingent Beneficiary is designated, each Beneficiary or Contingent
Beneficiary, as appropriate, shares in any Death Benefit Proceeds
equally unless the Beneficiary designation states otherwise.
3.6 CHANGING THE BENEFICIARY - The Owner may change the Beneficiary by
Written Notice at any time while the Insured is alive and the Policy is
in force before the Maturity Date. If, however, the Owner 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
signed by the Owner but the Company is not liable for any payments it
makes under the Policy prior to the time it receives Written Notice of
any Beneficiary change.
- 11 -
<PAGE>
SECTION 4: PREMIUM PAYMENTS, LAPSE AND REINSTATEMENT
4.1 PREMIUM PAYMENTS - Unless otherwise approved by the Company, all
Premium Payments must be made by check payable to "Valley Forge Life
Insurance Company" at the Service Center.
4.2 PLANNED PERIODIC PREMIUM PAYMENTS - Owners may establish a schedule of
quarterly, semi-annual or annual Planned Periodic Premium Payments that
is shown on the Policy Specifications Page. Subject to the Company's
approval, Owners may change the amount or frequency of Planned Periodic
Premium Payments by Written Notice. The Company will send Owners
reminder notices for Planned Periodic Premium Payments. The Company
also may arrange with Owners to have Planned Periodic Premium Payments
made under a pre-authorized payment arrangement. Under a pre-authorized
payment arrangement, Owners may establish a schedule of monthly Planned
Periodic Premium Payments. Owners are not required to pay Planned
Periodic Premium Payments.
4.3 UNPLANNED PREMIUM PAYMENTS - Owners generally may make additional
premium payments of at least the minimum amount shown on the Policy
Specifications page at any time before the Maturity Date while the
Insured is alive and the Policy is in force. Unless the Owner specifies
otherwise in the application or by subsequent Written Notice, the
Company considers all unplanned premium payments first as repayments of
any outstanding Loan Amounts under the Policy.
4.4 REJECTION OF PREMIUM PAYMENTS FOR TAX PURPOSES - The Company reserves
the right to reject any Premium Payment in the event that it determines
that acceptance of such Payment would cause a Policy to fail to qualify
as a life insurance contract under the Code or applicable regulations
or rulings thereunder. The Company will promptly return any Premium
Payment that it rejects for this reason.
4.5 POLICY LAPSE - Unless the Policy cannot lapse during the first five
Policy Years as provided in section 4.7 below, if the Surrender Value
on a Monthly Anniversary Day is insufficient to cover the monthly
deduction due on that Day, the Company will mail to the Owner and to
any assignee of record at their last known address(es), a notice
stating that the Policy will only remain in force for 61 days from the
date that the notice was mailed. This 61 day period is called the Grace
Period. If the Owner does not make sufficient Premium Payments to cover
the monthly deduction(s) through the end of the Grace Period by the end
of the Grace Period, then this Policy will terminate without value and
all coverage under the Policy will terminate. The notice mailed to the
Owner and to any assignee of record will indicate how much in
additional Premium Payments the Owner must make before the end of the
Grace Period to keep the Policy in force. Coverage under the Policy
continues during the Grace Period and the Company will deduct unpaid
monthly deductions when computing any Death Benefit Proceeds if the
Insured dies during the Grace Period.
4.6 REINSTATEMENT - If the Policy Lapses as provided in section 4.5, the
Owner may reinstate it at any time within five years of Lapse but
before the Maturity Date. A Policy that has been surrendered cannot be
reinstated. To reinstate a Policy, the Owner must submit to the Service
Center:
1. evidence of insurability satisfactory to the Company;
2. premium payments in an amount sufficient to result (along with
any loan repayments) in a positive Surrender Value; and
3. premium payments in an amount sufficient that the resulting
Net Premium Payments equal or exceed the amount of the next
two monthly deductions.
<PAGE>
Upon reinstatement of the Policy, the Company will reinstate any
remaining Loan Amount.
The Policy Value of a reinstated Policy is the Value provided by the
Net Premium Payments submitted with the application for reinstatement.
The effective date of a reinstated Policy is the Monthly Anniversary
- 12 -
<PAGE>
Date that falls on or next follows the later of the date that the
application for reinstatement is approved or the above-listed items are
received at the Service Center.
4.7 LAPSE PREVENTION GUARANTEE - The Company Guarantees that the Policy
will not Lapse during the first five Policy Years if, throughout that
period, (a) exceeds (b) where:
(a) is the aggregate Premium Payments made less the
amount of any withdrawals (including applicable
surrender charges) less any Loan Amount, and
(b) is the Minimum Monthly Premium Payment multiplied by
the number of complete months since the Policy
Effective Date, including the current month.
SECTION 5: DEATH BENEFIT AND DEATH BENEFIT PROCEEDS
5.1 DEATH BENEFIT PROCEEDS - Upon receipt of Due Proof of Death of the
Insured while the Policy is in force before the Maturity Date, the
Company shall pay the Death Benefit Proceeds to the Beneficiary (or
Beneficiaries) or the Contingent Beneficiary (or Contingent
Beneficiaries) as provided in section 3.5. The Death Benefit Proceeds
are determined as of the date of the Insured's death and are equal to:
1. the Death Benefit under the Death Benefit Option selected by
the Owner; plus
2. any death benefit under any rider to the Policy; less
3. any Loan Amount; less
4. any unpaid monthly deductions if the Insured dies during the
Grace Period.
The Company pays the Death Benefit Proceeds in a lump sum unless the
Beneficiary (or Contingent Beneficiary) elects to receive the Proceeds
under an alternative settlement option as provided in section 14.
Payment of the Death Benefit Proceeds may be delayed as provided in
section 13.
5.2 THE DEATH BENEFIT - The Owner may select one of two Death Benefit Options.
1. Death Benefit Option 1 is the greater of:
(a) the Specified Amount on the date of the Insured's
death; or
(b) a percentage of the Policy Value on the date of the
Insured's death as indicated in the Table of
Percentages below.
2. Death Benefit Option 2 is the greater of:
(a) the Specified Amount plus the Policy Value on the
date of the Insured's death; or
(b) a percentage of the Policy Value on the date of the
Insured's death as indicated in the Table of
Percentages below.
- 13 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
TABLE OF PERCENTAGES
|-------------|----------|-----------|---------|----------|----------|-------------|----------|
| | | | | | | | |
| Attained | Policy | Attained | Policy | Attained | Policy | Attained | Policy |
| Age | Value | Age | Value | Age | Value | Age | Value |
| | % | | % | | % | | % |
|-------------|----------|-----------|---------|----------|----------|-------------|----------|
| 40 and | 250 | 50 | 185 | 60 | 130 | 70 | 115 |
| younger | | | | | | | |
| 41 | 243 | 51 | 178 | 61 | 128 | 71 | 113 |
| 42 | 236 | 52 | 171 | 62 | 126 | 72 | 111 |
| 43 | 229 | 53 | 164 | 63 | 124 | 73 | 109 |
| 44 | 222 | 54 | 157 | 64 | 122 | 74 | 107 |
| 45 | 215 | 55 | 150 | 65 | 120 | 75 thru 90 | 105 |
| 46 | 209 | 56 | 146 | 66 | 119 | 91 | 104 |
| 47 | 203 | 57 | 142 | 67 | 118 | 92 | 103 |
| 48 | 197 | 58 | 138 | 68 | 117 | 93 | 102 |
| 49 | 191 | 59 | 134 | 69 | 116 | 94 | 101 |
|-------------|----------|-----------|---------|----------|----------|-------------|----------|
</TABLE>
SECTION 6: THE VARIABLE ACCOUNT
6.1 VARIABLE ACCOUNT - The Variable Account is registered with the SEC as a
unit investment trust under the Investment Company Act of 1940, as
amended (the "Act"). The Variable Account is also subject to the laws
of the Commonwealth of Pennsylvania (Our state of domicile).
Although the Company owns the assets in the Variable Account, these
assets are held separately from the Company's other assets and are not
part of the General Account. The assets in the Variable Account are
used to support the operation of and provide the variable values and
benefits for this Policy and similar policies. The portion of the
assets of the Variable Account equal to the reserves and other policy
liabilities of the Variable Account are not chargeable with liabilities
that arise from any other business that the Company may conduct. The
Company has the right to transfer to its General Account any assets of
the Variable Account that are in excess of such reserves and other
liabilities.
6.2 SUBACCOUNTS - The Variable Account consists of Subaccounts. The income,
gains and losses, realized and unrealized, from the assets allocated to
a Subaccount are credited to or charged against such Subaccount,
without regard to other income, gains or losses of the Company.
Those Subaccounts currently available under this Policy are listed on
the Policy Specifications page. Each Subaccount invests exclusively in
shares of a corresponding Fund. Shares of a Fund are purchased and
redeemed for a Subaccount at their net asset value. Any amounts of
income, dividends and gains distributed from the shares of a Fund are
reinvested in additional shares of that Fund at net asset value.
The dollar amounts of values and benefits of this Policy provided by
the Variable Account depend on the investment performance of the
Subaccounts selected by the Owner. The Company does not guarantee the
investment performance of the Subaccounts. Owners bear the full
investment risk for Subaccount Value in the selected Subaccounts.
- 14 -
<PAGE>
6.3 CHANGES TO THE VARIABLE ACCOUNT - Where permitted by applicable law, the
Company may:
1. create new separate accounts;
2. combine separate accounts, including the Variable Account;
3. add new subaccounts to or remove existing Subaccounts
from the Variable Account or combine Subaccounts;
4. make Subaccounts (including new subaccounts) available
to such classes of Policies as the Company may determine;
5. add new Funds or remove existing Funds;
6. substitute new Funds for any existing Fund if shares of the
Fund are no longer available for investment or if the
Company determines that investment in a Fund is no longer
appropriate in light of the purposes of the Variable Account;
7. deregister the Variable Account under the Act if such
registration is no longer required; and
8. operate the Variable Account as a management investment
company under the Act or in any other form permitted by law.
The investment policy of the Variable Account will only be changed with
the approval of the Pennsylvania Insurance Commissioner. The process
for such approval is on file with the insurance supervisory official of
the state in which this Policy has been delivered.
6.4 VARIABLE POLICY VALUE - Variable Policy Value reflects the investment
experience of the Subaccounts to which it is allocated, any Net Premium
Payments allocated to the Subaccounts, transfers of Policy Value in or
out of the Subaccounts, or any withdrawals of Variable Policy Value.
There is no guaranteed minimum Variable Policy Value.
6.5 UNITS - For each Subaccount, Net Premium Payment(s) allocated to a
Subaccount or amounts of Policy Value transferred to a Subaccount are
converted into Units. The number of Units credited to a Policy is
determined by dividing the dollar amount directed to each Subaccount by
the value of the Unit for that Subaccount for the Valuation Day as of
which the Net Premium Payment(s) or transferred amount is invested in
the Subaccount. Therefore, Net Premium Payments allocated to or amounts
transferred to a Subaccount under a Policy increase the number of Units
of that Subaccount credited to the Policy.
Certain events will reduce the number of Units of a Subaccount credited
to a Policy. Withdrawals or transfers of Subaccount Value from a
Subaccount will result in the cancellation of the appropriate number of
Units of that Subaccount as will: surrender of the Policy; payment of
the Death Benefit Proceeds; and the deduction of the monthly deduction.
Units are cancelled as of the end of the Valuation Period in which the
Company receives Written Notice regarding the event.
<PAGE>
6.6 UNIT VALUE - For each Subaccount there exists two types of Units: A
Units and B Units. A Units represent Subaccount Value during the first
10 Policy Years under any Policy, while B Units represent Subaccount
Value during Policy Years 11 and later. On the tenth Policy
Anniversary, all A Units of any Subaccount under a Policy are
automatically exchanged for B Units on an equivalent dollar value
basis. A Units and B Units both represent a fractional undivided
interest in a Subaccount. They differ only in their value as a result
of the fact that the mortality and expense risk charge deducted from
each Subaccount is larger for Policies in the first 10 Policy Years
than the charge deducted for Policies in Policy Years 11 and later.
This difference in charges is reflected in a different Net Investment
Factor (described below) for A Units and B Units for each Valuation
Period.
- 15 -
<PAGE>
The A Unit and B Unit values for each Subaccount were arbitrarily set
initially at $10 when that Subaccount began operations. Thereafter, the
Unit value at the end of every Valuation Day is the Unit value at the
end of the previous Valuation Day times the Net Investment Factor for
that type of Unit (either A or B), as described below. The Subaccount
Value for a Policy is determined on any day by multiplying the number
of Units of the appropriate type (either A or B) attributable to the
Policy in that Subaccount by the value for that type of Unit for that
Subaccount on that day.
6.7 NET INVESTMENT FACTOR - The Net Investment Factor is an index applied
to measure the investment performance of either A Units or B Units of a
Subaccount from one Valuation Period to the next. The Net Investment
Factor for any Subaccount for any Valuation Period is determined by
dividing 1 by 2 and subtracting 3 from the result, where:
1. is the result of:
a. the Net Asset Value Per Share of the Fund held in
the Subaccount, determined at the end of the
current Valuation Period; plus
b. the per share amount of any dividend or capital
gain distributions made by the Fund held in the
Subaccount, if the "ex-dividend" date occurs
during the current Valuation Period; plus or minus
c. a per share charge or credit for any taxes reserved
for, which is determined by Us to have resulted from
the operations of the Subaccount.
2. is the Net Asset Value Per Share of the Fund held in the
Subaccount, determined at the end of the last prior
Valuation Period.
3. is a daily factor representing the mortality and expense
risk charge for the type of Unit deducted from the Subaccount
adjusted for the number of days in the Valuation Period.
SECTION 7: THE FIXED ACCOUNT
7.1 FIXED POLICY VALUE - The Fixed Policy Value on any day is equal to:
1. aggregate Net Premium Payments allocated to the Fixed
Account; plus
2. Policy Value transferred to the Fixed Account; plus
3. interest credited to the Fixed Account; less
4. any withdrawals (including any applicable surrender charges
deducted) or transfers (including any applicable transfer
charge deducted) from the Fixed Account; less
5. any surrender charges deducted in the event of a decrease in
Specified Amount; less
6. the portion of monthly deductions made from Fixed Policy Value.
7.2 INTEREST CREDITED - The Company guarantees that it will credit interest
on Fixed Policy Value at an effective annual rate of not less than the
Minimum Guaranteed Interest Rate shown on the Policy Specifications
page. In its discretion, the Company may credit interest at rates
higher than the minimum guaranteed rate.
- 16 -
<PAGE>
"Full-Year" Rates. Before the beginning of each calendar year,
the Company publishes an effective annual rate at which it
will credit Fixed Policy Value under the Policies for that
year. Fixed Policy Values at the beginning of the calendar
year under all Policies are credited with that rate of
interest for the entire calendar year.
"New-Money" Rates. The Company credits Net Premium Payments
allocated to and Policy Value transferred to the Fixed Account
during a calendar year with interest at an effective annual
rate in effect on the date that the Net Premium Payment is
received at the Service Center or the date that as of which
the transfer is made. These amounts are credited with interest
at this rate until the end of the calendar year. The Company
publishes this "new money" rate from time to time during a
calendar year and may change the "new money" rate at its
discretion throughout any calendar year.
For purposes of crediting interest, Policy Value deducted, transferred
or withdrawn from the Fixed Account, is accounted for on a "first-in,
first-out" basis.
SECTION 8: FEES AND CHARGES
8.1 MONTHLY DEDUCTION - The monthly deduction is a charge made by the
Company as of the Policy Effective Date and every Monthly Anniversary
Day thereafter by reducing Subaccount Values (i.e., liquidating Units)
and Fixed Policy Value in the proportion that each Subaccount Value and
Fixed Policy Value bears to Policy Value. The monthly deduction
consists of the monthly cost of insurance charge, the monthly policy
fee, the monthly first-year issue fee (when applicable), the monthly
Specified Amount increase fee (when applicable), and the cost of any
riders (when applicable). The amounts of these fees are shown on the
Policy Specifications page.
8.2 MONTHLY COST OF INSURANCE CHARGE - The monthly cost of insurance charge
is computed at the beginning of each Policy month by subtracting 2 from
1 and multiplying the result by 3, where:
1. is the Death Benefit on the first day of the Policy
Month divided by 1 plus the monthly equivalent of the
minimum guaranteed interest rate shown on the Policy
Specifications page;
2. is the Policy Value before deduction of the monthly policy
fee, the monthly first-year issue fee (when applicable),
the monthly Specified Amount increase fee (when applicable)
and the cost of any riders (when applicable); and
3. is the cost of insurance rate as described below.
The monthly cost of insurance charge is computed separately for the
initial Specified Amount and for each increment of Specified Amount
resulting from increases in Specified Amount. For the purpose of
computing the Net Amount at Risk, Policy Value is apportioned to each
increment of Specified Amount on the basis of the relative Guideline
Annual Premium Payments for each such increment.
<PAGE>
8.3 COST OF INSURANCE RATES - The monthly cost of insurance rate is based
on Policy duration, the sex, Attained Age, issue age and risk class of
the Insured. The issue age of the Insured will usually be different for
each increase in Specified Amount. The Company reviews monthly cost of
insurance rates on an ongoing basis (at least once every 5 years) based
on its expectations as to future mortality experience, investment
earnings, persistency, taxes and other expenses. Any change in cost of
insurance rates is determined in accordance with procedures and
standards on file with the insurance department of the jurisdiction in
which this Policy is delivered. In addition, changes in cost of
insurance rates are made on a uniform basis for Insureds of the same
class as defined by sex, Attained Age, issue age, risk class and Policy
duration. The cost of insurance rates are never greater than those
rates shown in the Table of Guaranteed Maximum Cost of Insurance Rates
in Policy Specifications page.
- 17 -
<PAGE>
8.4 SALES CHARGES - The Company deducts a sales charge from the first
Target Premium Payment received in each Policy Year as shown on the
Policy Specifications page. If the Owner increases the Specified
Amount, a Target Premium Payment is established for the increase.
Therefore, there is a Target Premium Payment for each increment of
Specified Amount. The Company deducts the sales charge shown on the
Policy Specifications page from premium payments attributable to the
increase. For purposes of computing and deducting sales charges, all
premium payments made after an increase in Specified Amount are
apportioned to each increment of Specified Amount on the basis of the
relative Guideline Annual Premium Payments for each such increment.
8.5 SURRENDER CHARGE - If the Owner surrenders the Policy, makes a
withdrawal, decreases the Specified Amount or if the Policy Lapses, the
Company may deduct a surrender charge as shown on the Policy
Specifications page. If taken upon the surrender of the Policy, the
surrender charge reduces the amount otherwise paid to the Owner. If
taken upon Lapse of the Policy, the amount of the charge is not
restored to Policy Value in the event that the Policy is reinstated. If
taken upon a decrease in Specified Amount, the charge is deducted from
the remaining Policy Value and reduces the amount of any remaining
applicable surrender charge. If taken on a withdrawal, the surrender
charge is deducted from the remaining Policy Value and reduces the
amount of any remaining applicable surrender charge. Unless otherwise
indicated in the request for a decrease or a withdrawal, surrender
charges deducted in connection with decreases in Specified Amount or
withdrawals are taken from Subaccount Values and Fixed Policy Value
based on the proportion that each Subaccount Value and the Fixed Policy
Value bear to the Policy Value before the deduction.
If taken upon a decrease in Specified Amount, the surrender charge is
the pro rata portion of the total surrender charge based on the ratio
that the Specified Amount decrease bears to the total Specified Amount
before the decrease. If taken upon a withdrawal, the surrender charge
is the pro rata portion of the total surrender charge based on the
ratio that the withdrawn amount bears to the total Surrender Value
before the withdrawal.
The surrender charge shown on the Policy Specifications page is
computed and assessed separately for the initial Specified Amount and
for each increase in Specified Amount. Only the sales charge component
of the surrender charge, however, is assessed on an increase in
Specified Amount. For purposes of computing and assessing the sales
surrender charge attributable to an increase in Specified Amount, all
premium payments made after an increase in Specified Amount are
apportioned to each increment of Specified Amount on the basis of the
relative Guideline Annual Premium Payments for each such increment.
Likewise, Policy Value is apportioned to each increment of Specified
Amount on the basis of the relative Guideline Annual Premium Payments
for each such increment. The sales surrender charge shown on the Policy
Specifications page applies to increases in Specified Amount with the
following adjustments: (1) Target Premium Payment refers to the Target
Premium Payment for the increase, (2) a number of Policy Years refers
to the number of 12-month periods following the effective date of the
increase, and (3) Guideline Annual Premium Payment refers to the
Guideline Annual Premium Payment for the increase.
<PAGE>
8.6 TRANSFER PROCESSING FEE - A number of transfers during each Policy Year
are free as shown on the Policy Specifications page. The Company
reserves the right to assess a transfer processing fee for each
transfer in excess of that number during a Policy Year. The amount of
this fee is shown on the Policy Specifications page. For the purposes
of assessing the transfer processing fee, each Written Notice of
transfer is considered to be one transfer, regardless of the number of
Subaccounts affected by the transfer. The transfer processing fee is
deducted from the amount being transferred.
- 18 -
<PAGE>
SECTION 9: ALLOCATIONS AND TRANSFERS
9.1 ALLOCATION OF NET PREMIUM PAYMENTS - Net Premium Payments are allocated
among and between the Subaccounts and the Fixed Account as of the date
that they are received at the Service Center according to the Owner's
allocation instructions in the application or in a subsequent Written
Notice. Allocation instructions must be in whole percentages and the
minimum amount that the Company can allocate to any Subaccount or the
Fixed Account is shown on the Policy Specifications page as a percent
of any Net Premium Payment. The Company reserves the right to establish
additional limitations on premium payment allocations.
The Company allocates Net Premium Payments it receives during the
Cancellation Period (including that related to the Minimum Initial
Premium Payment) which are to be allocated to any Subaccount, to the
Money Market Subaccount for a period equal to the number of days in the
Cancellation Period. At the end of this period, Money Market Subaccount
Value is reallocated to each other Subaccount selected by the Owner
based on the proportion that the Owner's allocation percentage bears to
the Variable Policy Value.
9.2 TRANSFER PRIVILEGE - Before the Maturity Date while the Insured is
still living and the Policy is in force, the Owner may, by Written
Notice, transfer all or part of any Subaccount Value to another
Subaccount(s) (subject to its availability) or to the Fixed Account, or
transfer all or part of Fixed Policy Value to any Subaccount(s),
(subject to its availability) subject to the following restrictions and
the additional restrictions in section 9.3 below:
1. the minimum transfer amount is shown in the Policy
Specification page (or, the entire Subaccount Value or
Fixed Policy Value, if less); and
2. a transfer request that would reduce any Subaccount Value or
the Fixed Policy Value below an amount equal to the minimum
transfer amount is treated as a transfer request for the
entire Subaccount Value or Fixed Policy Value.
9.3 RESTRICTIONS ON TRANSFERS FROM THE FIXED ACCOUNT - The Owner may
transfer all or part of the Fixed Policy Value to a Subaccount, subject
to the following restrictions:
1. Only one transfer may be made each Policy Year from the Fixed
Account to one or more Subaccounts and this transfer must be
at least 12 calendar months after the most recent transfer
from the Fixed Account. An unused transfer option does not
carry over to the next year; and
2. the maximum transfer amount is 25% of the Fixed Policy Value
on the date of the transfer, unless the balance after the
transfer is less than the minimum transfer amount shown on the
Policy Specifications page.
9.4 SPECIAL TRANSFER PRIVILEGE - During the first 24 Policy Months
following the date that coverage begins under the Policy, Owners may
make one transfer of the entire Variable Policy Value to the Fixed
Account without imposition of the transfer processing fee or the
transfer counting as one of the 12 free transfers for a Policy Year.
Likewise, during the first 24 Policy Months following the effective
date of any Specified Amount increase, Owners may make one transfer of
that portion of the Variable Policy Value attributable to the increase
to the Fixed Account without imposition of the transfer processing fee
or the transfer counting as one of the 12 free transfers for a Policy
Year.
- 19 -
<PAGE>
SECTION 10: SURRENDER AND WITHDRAWALS
10.1 SURRENDERS - At any time while the Insured is still living and the
Policy is in force prior to the Maturity Date, the Owner may, by
Written Notice, surrender it for its Surrender Value. A surrender is
effective as of the date on which a Written Notice requesting surrender
is received at the Service Center. If the Owner surrenders the Policy
during the first 14 Policy Years, or the first 14 Policy Years
following an increase in Specified Amount, the Company will deduct a
surrender charge as shown on the Policy Specifications page and
described in section 8.4 above. Once the Policy is surrendered, all
coverage and other benefits under it cease and it cannot be reinstated.
10.2 WITHDRAWALS - After the first Policy Year, while the Insured is still
living and the Policy is in force prior to the Maturity Date, an Owner
may, by Written Request, withdraw any part of the Surrender Value of
the Policy, subject to certain conditions. A withdrawal is effective as
of the date on which a Written Notice requesting withdrawal is received
at the Service Center. As of that date, Policy Value is reduced by the
amount of the withdrawal plus any applicable surrender charge. The
minimum withdrawal amount is shown on the Policy Specifications page.
If the Owner has selected Death Benefit Option 1 (as described in
section 5.2), the Company will reduce the Specified Amount by the
amount of the withdrawal plus any surrender charge deduction. In this
event, Specified Amount reductions are effected as provided in section
12.4.
Unless otherwise indicated in the request for withdrawal, amounts
withdrawn and surrender charges deducted in connection with withdrawals
are taken from Subaccount Values and Fixed Policy Value based on the
proportion that each Subaccount Value and the Fixed Policy Value bear
to Policy Value. If the Owner requests a decrease in Specified Amount
or requests a change in the Death Benefit Option as of the same date as
a withdrawal request, then the withdrawal is effected after the
decrease in Specified Amount or change in Death Benefit Option.
Notwithstanding the foregoing, the Company reserves the right to reject
a withdrawal request if the request would cause the Specified Amount to
be reduced below the minimum Specified Amount shown on the Policy
Specifications page. Likewise, the Company reserves the right to reject
a withdrawal request if the request would cause the Policy to fail to
qualify as a life insurance contract under the Code or regulations or
rulings thereunder, as interpreted by the Company.
SECTION 11: LOANS
11.1 BORROWING PRIVILEGE - At any time prior to the Maturity Date while the
Insured is still living and the Policy is in force, the Owner may, by
Written Notice, borrow money from the Company using the Policy as the
sole security for the loan provided that (a) a written loan agreement
is signed by the Owner, and (b) the Owner makes a satisfactory
assignment of the Policy to the Company. In taking a loan, an Owner
must borrow at least the minimum loan amount shown on the Policy
Specifications page. The maximum amount that an Owner may borrow is 90%
of the Surrender Value of the Policy as of the date of the loan.
11.2 INTEREST CHARGED ON BORROWED AMOUNTS - The Company charges interest on
amounts borrowed by Owners. The interest rate charged is the Policy
loan interest rate shown on the Policy Specifications page and is an
effective annual rate compounded annually on the Policy Anniversary.
Interest is charged in arrears from the date of the loan and is due
from Owners on each Policy Anniversary for the prior Policy Year. If
the Owner does not pay such interest when due, the amount of the
interest is added to the outstanding Loan Amount. Thus, unpaid interest
is charged interest during the ensuing Policy Year.
<PAGE>
For Policies in the 11th Policy Year or later, the Company charges a
lower preferred effective annual interest rate on amounts borrowed [up
to an amount equal to Policy Value less aggregate premium payments made
to date]. The interest rate charged is the preferred Policy loan
interest rate shown on the Policy Specifications page and is an
effective annual rate compounded annually on the Policy Anniversary.
- 20 -
<PAGE>
11.3 COLLATERAL FOR LOANS - When the Company makes a loan to Owners, it
transfers an amount of Cash Value sufficient to secure the loan out of
the Subaccounts and the Fixed Account and into the Loan Account. Owners
may specify how this transferred Cash Value is allocated from among the
Subaccount Values and the Fixed Policy Value. If an Owner does not
specify the allocation, the Company makes the allocation based on the
proportion that each Subaccount Value and the Fixed Policy Value bear
to the Cash Value as of the date that the transfer is made. If unpaid
interest is due from an Owner on a Policy Anniversary and is added to
the Loan Amount, Cash Value in the amount of the interest also is
transferred to the Loan Account as of that Anniversary. The Cash Value
transferred in connection with unpaid interest is allocated on the same
basis as other Cash Value transferred by the Company to the Loan
Account.
Loan Account Value is recalculated when:
1. interest is added to the Loan Amount;
2. a loan repayment is made; and
3. a new loan is made under Policy.
11.4 INTEREST CREDITED TO THE LOAN ACCOUNT - The Company credits Loan
Account Value with interest at an effective annual rate shown on the
Policy Specifications page. On each Policy Anniversary, interest earned
on Loan Account Value since the preceding Anniversary is transferred to
the Subaccounts and the Fixed Account. Unless the Owner specifies
otherwise, such transfers are allocated in the same manner as transfers
of collateral to the Loan Account.
11.5 LAPSE DUE TO OUTSTANDING LOANS - If Loan Account Value exceeds Cash
Value, then the Owner must make either a loan repayment or a premium
payment sufficient to raise the Cash Value or lower the Loan Account
Value so that Cash Value exceeds the Loan Account Value. The Company
will send the Owner and any assignee of record a notice indicating the
amount that must be paid. If payment is not received at the Service
Center within 30 days of the notice being mailed, the Grace Period will
begin as provided in section 4.5. If the Grace Period expires without
the payment being made, then the Policy Lapses.
11.6 REPAYMENT OF LOANS - The Owner may repay a loan or repay any part of a
loan at any time while the Insured is still living and the Policy is in
force prior to the Maturity Date. Upon repayment of any part of a loan,
Loan Account Value in an amount equal to the payment is transferred to
the Subaccounts and the Fixed Account as of the date that the payment
is received at the Service Center. Unless the Owner specifies
otherwise, the amount transferred is allocated among or between the
Subaccounts and the Fixed Account according to the Owner's allocation
instructions for Net Premium Payments in effect at that time.
SECTION 12: POLICY CHANGES
12.1 GENERAL - By Written Notice and subject to the conditions and
restrictions explained below, the Owner may make any of the changes to
the Policy described in this section.
<PAGE>
12.2 INCREASE OF SPECIFIED AMOUNT - After the first Policy Anniversary,
while the Insured is living and the Policy is in force prior to the
Maturity Date, the Owner may submit a supplemental application for an
increase in Specified Amount. The Company requires evidence of
insurability before agreeing to an increase in Specified Amount and
may, depending upon the circumstances, also require additional premium
payments or the repayment of part or all of any Loan Amount under the
Policy. The Insured's Attained Age at the time of the increase may not
exceed the maximum age at which the Company would issue a new Policy.
The amount of any requested increase in Specified Amount must be at
least the minimum specified amount increase shown on the Policy
Specifications page and not more than the amount that would increase
the total Specified Amount above the maximum specified amount for which
the Company would issue a new Policy.
- 21 -
<PAGE>
An increase in Specified Amount causes an increase in the Minimum
Monthly Premium Payment. Each increase in Specified Amount has a Target
Premium Payment and a Guideline Annual Premium Payment associated with
it.
Any increase in Specified Amount is effective as of the date that the
Company approves it. Each increase in Specified Amount creates an
increment of Specified Amount to which a portion of Policy Value is
thereafter attributed for the purpose of computing sales surrender
charges, the Net Amount at Risk and the monthly cost of insurance
charge. An additional monthly cost of insurance charge is deducted for
each additional increment in Specified Amount. This additional cost of
insurance charge is deducted from Policy Value attributable to the
increase in Specified Amount. Each increase in Specified Amount also
results in additional surrender charges. After an increase in Specified
Amount, the Company will send the Owner a supplemental Policy
Specifications page showing the effective date of the increase, the
monthly cost of insurance charge for the increase, additional sales
surrender charges arising as a result of the increase and any changes
to premium payment information from the previous or original Policy
Specifications page.
12.3 CANCELLATION PERIOD IN CONNECTION WITH AN INCREASE IN SPECIFIED AMOUNT
-The cancellation provision on the cover of this Policy applies to any
increase in Specified Amount except that when no additional premium
payments are required for an increase, only the monthly deduction(s)
for the increase made before the cancellation is refunded if the
increase is cancelled.
12.4 DECREASE OF SPECIFIED AMOUNT - After the first Policy Anniversary,
while the Insured is still living and the Policy is in force prior to
the Maturity Date, the Owner may by Written Request, decrease the
Specified Amount. The amount of any requested decrease in Specified
Amount must be at least the minimum specified amount decrease shown on
the Policy Specifications page and not be more than the amount that
would decrease the total Specified Amount below the Minimum Specified
Amount shown on the Policy Specification page. Specified Amount may not
be decreased where, to do so, would cause Surrender Value to fall below
zero. Any decrease becomes effective on the Monthly Anniversary Day on
or next following the date that the Company accepts the request for the
decrease. The decrease is first applied to reduce prior increases in
Specified Amount in the reverse order in which they occurred. After all
prior increases in Specified Amount have been eliminated, a decrease is
applied to reduce the initial Specified Amount.
A decrease of Specified Amount may result in the imposition of a
surrender charge. In this event, the charge is deducted from Policy
Value as of the effective date of the decrease. A decrease in Specified
Amount causes a decrease in the Minimum Monthly Premium Payment and in
the Target Premium Payment and Guideline Annual Premium Payment
associated with the increment of Specified Amount being decreased.
After a decrease in Specified Amount, the Company will send the Owner a
supplemental Policy Specifications page showing the effective date of
the decrease, the monthly cost of insurance charge after the decrease,
surrender charges deducted as a result of the decrease and any changes
to premium payment information from the previous or original
Specifications page.
The Company reserves the right to deny a request for a decrease in
Specified Amount for 12 months following an increase in Specified
Amount and to limit decreases in Specified Amount to one per Policy
Year.
<PAGE>
12.5 CHANGE OF DEATH BENEFIT OPTION - After the first Policy Anniversary,
while the Insured is still living and the Policy is in force prior to
the Maturity Date, the Owner may request a change in the Death Benefit
Option. A Death Benefit Option change becomes effective on the Monthly
Anniversary Day on or next following the date that the Company accepts
a request for the change. The Company reserves the right to require
satisfactory proof of insurability before permitting a change in Death
Benefit Options. After a change in Death Benefit Option, the Company
will send the Owner a supplemental Policy Specifications page showing
the new Death Benefit and Specified Amount.
- 22 -
<PAGE>
SECTION 13: PAYMENTS
13.1 PAYMENT OF BENEFITS - The Company usually pays the amounts of any
surrender, withdrawals, Death Benefit Proceeds, or settlement options
within seven business days after receipt of all applicable Written
Notices and/or Due Proofs of Death. However, the Company can postpone
such payments if:
1. the New York Stock Exchange is closed, other than customary
weekend and holiday closing, or trading on the exchange is
restricted as determined by the SEC; or
2. the SEC permits, by an order, the postponement for the
protection of Owners; or
3. the SEC determines that an emergency exists that would make
the disposal of securities held in the Variable Account or
the determination of their value not reasonably practicable.
If a recent check or draft has been submitted, the Company has the
right to defer payment of surrenders, withdrawals, Death Benefit
Proceeds, or payments under a settlement option until such check or
draft has been honored.
The Company has the right to defer payment of any surrender,
withdrawal, or transfer of Fixed Policy Value for up to six months from
the date of receipt of Your Written Notice.
13.2 INTEREST ON DELAYED PAYMENTS - The Company pays interest on the
amount of any payment that is delayed pursuant to section 13.1 of
this Policy:
1. within 30 days after the payment becomes payable; or
2. within the time required by the applicable jurisdiction, if
less than 30 days.
Such interest accrues 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 14: SETTLEMENT OPTIONS
14.1 PAYMENT OF BENEFITS OR VALUES - The Company pays Owners or
Beneficiaries (or Contingent Beneficiaries), as appropriate, the amount
of any surrender, withdrawal or Death Benefit Proceeds in a lump sum
unless the Owner has, by Written Notice, selected one of the settlement
options described below. If the amount being paid by the Company is
less than $5,000, however, payment is only made in a lump sum. In
addition, if the Owner or Beneficiary (or Contingent Beneficiary)
receiving payment is an executor, administrator, trustee, or not a
natural person, payment is made in a lump sum unless the Company
specifically consents to payment under one of the settlement options.
Owners may elect a settlement option for payment of the Death Benefit
Proceeds in lieu of a lump sum, at any time while the Insured is still
living and before the Maturity Date while the Policy is in force. If no
election is made by the Owner before the Insured's death, then, upon
the Insured's death, the Beneficiary (or Contingent Beneficiary) may
elect a settlement option before the Death Benefit Proceeds are paid.
The Owner may elect to receive the Surrender Value of a Policy or the
amount of a withdrawal in the form of a settlement option at any time
before the payment of the Surrender Value or withdrawal. For the
purposes of this section 14, "Payee" means Owner(s) or Beneficiary(ies)
(or Contingent Beneficiary), as appropriate.
<PAGE>
14.2 FREQUENCY OF PAYMENTS - If settlement option 1,2 or 3 is selected,
payments will be made every 1 year, 6 months, 3 months, or every month.
The Payee must specify the payment frequency when selecting a
settlement option. If settlement option 4, 5, or 6 is selected,
payments will be made monthly. If payment under any option would be
less than $50.00, the Company will adjust the frequency of payments so
that each payment is at least $50.00.
- 23 -
<PAGE>
14.3 FIRST PAYMENT - Depending on the payment frequency selected, the first
payment under settlement option 1 is made as of 1 year, 6 months, 3
months, 1 month from the date of the Insured's death. Depending on the
payment frequency selected and subject to section 13 of this Policy,
the first payment under settlement option 1 is made as of 1 year, 6
months, 3 months, 1 month from the effective date of any surrender or
withdrawal. The first payment under any other settlement option is
made, subject to section 13 of this Policy, as of the date of the
Insured's death or the effective date of any surrender or withdrawal.
14.4 BETTERMENT OF RATES - If, under settlement options 4, 5, or 6, the
Company's regular annuity purchase rates on the date of the Insured's
death or the effective date of any surrender or withdrawal are more
favorable than those upon which options 4, 5, or 6 are based, the
Company shall compute payments using the regular annuity rates. The
Company will furnish information about the regular annuity rates upon
request.
14.5 PAYMENT OPTION RATE TABLES - The amount of the monthly payments
per $1,000 applied is shown in these tables.
14.6 DEATH OF PAYEE - Unless instructed otherwise at the time that the
settlement 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 settlement payment option 1, the amount left on
deposit with the Company to accumulate interest.
2. Under settlement 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
at the rate that would have been used to compute the first of
the remaining payments under that option.
14.7 OPTION 1, INTEREST PAYMENTS - The Company holds the Death Benefit
Proceeds (or the Surrender Value or the amount of a withdrawal) 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 as stated in section 14.6.
14.8 OPTION 2, PAYMENTS OF A SPECIFIED AMOUNT - The Company pays the Death
Benefit Proceeds (or the Surrender Value or the amount of a withdrawal)
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 as stated in section 14.6.
14.9 ADDITIONAL INTEREST EARNINGS - The Company may pay interest at rates in
excess of the rates guaranteed in settlement payment options 1 and 2.
<PAGE>
14.10 OPTION 3, PAYMENTS FOR A SPECIFIED PERIOD - The Company pays the Death
Benefit Proceeds (or the Surrender Value or the amount of a withdrawal)
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
settlement 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, the Company pays the value
of the remaining payments as stated in section 14.6.
- 24 -
<PAGE>
14.11 OPTION 4, LIFE ANNUITY - The Company makes monthly payments to the
Payee for as long as he or she lives. The amount of each settlement
payment for each $1,000 applied under this option is shown in table 3
below.
14.12 OPTION 5, LIFE ANNUITY WITH PERIOD CERTAIN - The Company makes monthly
payments to the Payee for as long as the Payee lives. At the time this
option is selected, a period certain of 5, 10, 15, or 20 years must
also be selected. If the Payee dies before the specified period certain
ends, the payments to the Payee's estate will continue until the end of
the specified period as provided in section 14.6. The amount of the
monthly payments therefore depends on the period certain selected. The
amount of each settlement 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.
14.16 OPTION 6, JOINT LIFE AND SURVIVORSHIP ANNUITY - The Company makes
monthly payments to two Payees while both are living. After the death
of either Payee, payments continue to the other Payee for as long as
the other Payee lives. The amount of each settlement payment for each
$1,000 applied under this option is shown in tables 6 and 7 below.
- 25 -
<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>
|======================|===========|======================|============|====================|===========|
| Age | Option 4 | Age | Option 4 | Age | Option 4 |
| of Payee* | Monthly | of Payee* | Monthly | of Payee* | Monthly |
| | Life | | Life | | Life |
| | Annuity | | Annuity | | Annuity |
|-----------|----------| |-----------| ---------| |---------| ---------| |
| Male | Female | | Male | Female | | Male | Female | |
|-----------|----------|-----------|-----------| ---------|------------|---------| ---------|-----------|
| 16 and | 21 and | | 39 | 44 | $3.78 | 63 | 68 | $6.39|
| under | under | $3.02 | 40 | 45 | 3.83 | 64 | 69 | 6.61|
| 17 | 22 | 3.04 | 41 | 46 | 3.89 | 65 | 70 | 6.84|
| 18 | 23 | 3.06 | 42 | 47 | 3.95 | 66 | 71 | 7.08|
| 19 | 24 | 3.08 | 43 | 48 | 4.02 | 67 | 72 | 7.35|
| 20 | 25 | 3.10 | 44 | 49 | 4.09 | 68 | 73 | 7.63|
| 21 | 26 | 3.12 | 45 | 50 | 4.16 | 69 | 74 | 7.94|
| 22 | 27 | 3.15 | 46 | 51 | 4.24 | 70 | 75 | 8.27|
| 23 | 28 | 3.17 | 47 | 52 | 4.32 | 71 | 76 | 8.59|
| 24 | 29 | 3.19 | 48 | 53 | 4.40 | 72 | 77 | 8.91|
| 25 | 30 | 3.22 | 49 | 54 | 4.94 | 73 | 78 | 9.23|
| 26 | 31 | 3.25 | 50 | 55 | 4.58 | 74 | 79 | 9.55|
| 27 | 32 | 3.28 | 51 | 56 | 4.68 | 75 | 80 | 9.89|
| 28 | 33 | 3.32 | 52 | 57 | 4.78 | 76 | 81 | 10.36|
| 29 | 34 | 3.35 | 53 | 58 | 4.88 | 77 | 82 | 10.83|
| 30 | 35 | 3.38 | 54 | 59 | 5.00 | 78 | 83 | 11.30|
| 31 | 36 | 3.42 | 55 | 60 | 5.11 | 79 | 84 | 11.77|
| 32 | 37 | 3.46 | 56 | 61 | 5.24 | 80 | 85 | 12.25|
| 33 | 38 | 3.50 | 57 | 62 | 5.38 | 81 | and | 12.92|
| 34 | 39 | 3.54 | 58 | 63 | 5.52 | 82 | over | 13.59|
| 35 | 40 | 3.58 | 59 | 64 | 5.67 | 83 | | 14.26|
| 36 | 41 | 3.63 | 60 | 65 | 5.83 | 84 | | 14.93|
| 37 | 42 | 3.67 | 61 | 66 | 6.01 | 85 | | 15.62|
| 38 | 43 | 3.72 | 62 | 67 | 6.19 | and | | |
| | | | | | | over | | |
|===========|==========|===========|===========| =========|============|=========| =========|===========|
</TABLE>
________________________________
* Use the payee's age nearest the date of the Insured's death or the date of
any surrender for cash value, whichever applies.
<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 Payee* | Specified | of Payee* | Specified | of Payee* |Specified |
|=========|---------|-------| ---------| --------| --------|--------|------|--------|---------|-------|-------|
| Male | Female | 5 | 10 | Male | Female| 5 |10 | Male |Female | 5 | 10 |
|=========|---------|-------| ---------| --------| --------|--------|------|--------|---------|-------|-------|
| 16 and | 21 and | | | 39 | 44 | $3.78 |$3.77 | 63 | 68 | $6.30 | $6.03 |
| | | | | | | | | | | | |
| under | under | $3.02 | $3.02 | 40 | 45 | 3.83 | 3.82 | 64 | 69 | 6.50 | 6.19 |
| 17 | 22 | 3.04 | 3.04 | 41 | 46 | 3.89 | 3.87 | 65 | 70 | 6.71 | 6.36 |
| 18 | 23 | 3.06 | 3.06 | 42 | 47 | 3.95 | 3.93 | 66 | 71 | 6.94 | 6.53 |
| 19 | 24 | 3.08 | 3.08 | 43 | 48 | 4.01 | 3.99 | 67 | 72 | 7.18 | 6.70 |
| 20 | 25 | 3.10 | 3.10 | 44 | 49 | 4.08 | 4.06 | 68 | 73 | 7.43 | 6.88 |
| 21 | 26 | 3.12 | 3.12 | 45 | 50 | 4.15 | 4.13 | 69 | 74 | 7.71 | 7.07 |
| 22 | 27 | 3.15 | 3.15 | 46 | 51 | 4.23 | 4.20 | 70 | 75 | 8.00 | 7.26 |
| 23 | 28 | 3.17 | 3.17 | 47 | 52 | 4.31 | 4.27 | 71 | 76 | 8.29 | 7.45 |
| 24 | 29 | 3.20 | 3.20 | 48 | 53 | 4.39 | 4.35 | 72 | 77 | 8.58 | 7.64 |
| 25 | 30 | 3.23 | 3.23 | 49 | 54 | 4.47 | 4.43 | 73 | 78 | 8.86 | 7.83 |
| 26 | 31 | 3.26 | 3.25 | 50 | 55 | 4.56 | 4.51 | 74 | 79 | 9.15 | 8.01 |
| 27 | 32 | 3.29 | 3.28 | 51 | 56 | 4.66 | 4.60 | 75 | 80 | 9.44 | 8.20 |
| 28 | 33 | 3.32 | 3.31 | 52 | 57 | 4.76 | 4.69 | 76 | 81 | 9.79 | 8.37 |
| 29 | 34 | 3.35 | 3.35 | 53 | 58 | 4.86 | 4.79 | 77 | 82 | 10.14 | 8.54 |
| 30 | 35 | 3.38 | 3.38 | 54 | 59 | 4.97 | 4.89 | 78 | 83 | 10.49 | 8.70 |
| 31 | 36 | 3.42 | 3.42 | 55 | 60 | 5.09 | 4.99 | 79 | 84 | 10.84 | 8.84 |
| 32 | 37 | 3.46 | 3.45 | 56 | 61 | 5.21 | 5.10 | 80 | 85 | 11.19 | 8.98 |
| 33 | 38 | 3.50 | 3.49 | 57 | 62 | 5.34 | 5.22 | 81 | and | 11.60 | 9.10 |
| 34 | 39 | 3.54 | 3.53 | 58 | 63 | 5.47 | 5.34 | 82 | over | 12.01 | 9.20 |
| 35 | 40 | 3.58 | 3.57 | 59 | 64 | 5.62 | 5.46 | 83 | | 12.42 | 9.29 |
| 36 | 41 | 3.62 | 3.62 | 60 | 65 | 5.77 | 5.60 | 84 | | 12.83 | 9.37 |
| 37 | 42 | 3.67 | 3.67 | 61 | 66 | 5.94 | 5.73 | 85 | | 13.22 | 9.42 |
| 38 | 43 | 3.72 | 3.71 | 62 | 67 | 6.11 | 5.88 | and | | | |
| | | | | | | | | over | | | |
|=========|=========|=======| =========| ========| ========|========|======|========|=========|=======|=======|
</TABLE>
____________________________
* Use the Payee's age nearest the date of the Insured's death or the date of any
surrender or withdrawal.
<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 Payee* | Specified | of Payee* | Specified | of Payee* | Specified |
|---------|---------|-------|------|-------|---------|------|-------|--------|---------|-------|=======|
| Male |Female | 15 |20 |Male |Female | 15 |20 | Male |Female | 15 | 20 |
|---------|---------|-------|------|-------|---------|------|-------|--------|---------|-------|=======|
| 16 and |21 and | | | 39 | 44 |$3.74 | $3.71 | 63 | 68 | $5.62 | $5.12 |
| | | | | | | | | | | | |
| under |under | $3.01 |$3.01 | 40 | 45 | 3.79 | 3.75 | 64 | 69 | 5.72 | 5.17 |
| 17 | 22 | 3.03 | 3.03 | 41 | 46 | 3.84 | 3.80 | 65 | 70 | 5.83 | 5.22 |
| 18 | 23 | 3.05 | 3.05 | 42 | 47 | 3.90 | 3.85 | 66 | 71 | 5.93 | 5.27 |
| 19 | 24 | 3.07 | 3.07 | 43 | 48 | 3.96 | 3.90 | 67 | 72 | 6.03 | 5.31 |
| 20 | 25 | 3.10 | 3.09 | 44 | 49 | 4.02 | 3.95 | 68 | 73 | 6.13 | 5.35 |
| 21 | 26 | 3.12 | 3.11 | 45 | 50 | 4.08 | 4.01 | 69 | 74 | 6.22 | 5.38 |
| 22 | 27 | 3.14 | 3.14 | 46 | 51 | 4.14 | 4.06 | 70 | 75 | 6.31 | 5.41 |
| 23 | 28 | 3.17 | 3.16 | 47 | 52 | 4.21 | 4.12 | 71 | 76 | 6.39 | 5.43 |
| 24 | 29 | 3.19 | 3.19 | 48 | 53 | 4.28 | 4.18 | 72 | 77 | 6.47 | 5.45 |
| 25 | 30 | 3.22 | 3.21 | 49 | 54 | 4.35 | 4.24 | 73 | 78 | 6.54 | 5.47 |
| 26 | 31 | 3.25 | 3.24 | 50 | 55 | 4.42 | 4.30 | 74 | 79 | 6.60 | 5.48 |
| 27 | 32 | 3.28 | 3.27 | 51 | 56 | 4.50 | 4.36 | 75 | 80 | 6.65 | 5.49 |
| 28 | 33 | 3.31 | 3.30 | 52 | 57 | 4.58 | 4.42 | 76 | 81 | 6.70 | 5.50 |
| 29 | 34 | 3.34 | 3.33 | 53 | 58 | 4.66 | 4.49 | 77 | 82 | 6.74 | 5.51 |
| 30 | 35 | 3.37 | 3.36 | 54 | 59 | 4.75 | 4.55 | 78 | 83 | 6.77 | 5.51 |
| 31 | 36 | 3.40 | 3.39 | 55 | 60 | 4.83 | 4.62 | 79 | 84 | 6.80 | 5.51 |
| 32 | 37 | 3.44 | 3.43 | 56 | 61 | 4.92 | 4.68 | 80 | 85 | 6.82 | 5.51 |
| 33 | 38 | 3.48 | 3.46 | 57 | 62 | 5.02 | 4.75 | 81 | and | 6.83 | 5.51 |
| 34 | 39 | 3.52 | 3.50 | 58 | 63 | 5.11 | 4.81 | 82 | over | 6.85 | 5.51 |
| 35 | 40 | 3.56 | 3.54 | 59 | 64 | 5.21 | 4.88 | 83 | | 6.85 | 5.51 |
| 36 | 41 | 3.60 | 3.58 | 60 | 65 | 5.31 | 4.94 | 84 | | 6.86 | 5.51 |
| 37 | 42 | 3.65 | 3.62 | 61 | 66 | 5.41 | 5.00 | 85 | | 6.86 | 5.51 |
| 38 | 43 | 3.69 | 3.66 | 62 | 67 | 5.51 | 5.06 | and | | | |
| | | | | | | | | over | | | |
|=========|=========|=======|======|=======|=========|======|=======|========|=========|=======|=======|
</TABLE>
____________________________
* Use the Payee's age nearest the date of the Insured's death or the date of any
surrender or withdrawal.
<PAGE>
Table 6
|=======|========|=========|========|=======|=======|========|=======|======|
|Age | | | | | | | | |
|of | Male |55 |56 |57 |58 |59 |60 |61 |
|Payees | | | | | | | | |
|=======| =======|=========|========|=======|=======|========|=======|======|
|Male | Female |65 |61 |62 |63 |64 |65 |66 |
|=======| =======|=========|========|=======|=======|========|=======|======|
|-------| -------|---------|--------|-------|-------|--------|-------|------|
|51 | 56 |$4.14 |$4.17 |$4.20 |$4.23 |$4.26 |$4.29 |$4.32 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|52 | 57 | 4.19 | 4.22 | 4.25 | 4.29 | 4.32 | 4.35 | 4.38 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|53 | 58 | 4.23 | 4.26 | 4.30 | 4.34 | 4.37 | 4.41 | 4.44 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|54 | 59 | 4.27 | 4.31 | 4.35 | 4.39 | 4.43 | 4.46 | 4.50 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|55 | 60 | 4.32 | 4.36 | 4.40 | 4.44 | 4.48 | 4.52 | 4.56 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
| | | | | | | | | |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|56 | 61 | 4.36 | 4.41 | 4.45 | 4.50 | 4.54 | 4.58 | 4.62 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|57 | 62 | 4.40 | 4.45 | 4.50 | 4.55 | 4.59 | 4.64 | 4.69 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|58 | 63 | 4.44 | 4.50 | 4.55 | 4.60 | 4.65 | 4.70 | 4.75 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|59 | 64 | 4.48 | 4.54 | 4.59 | 4.65 | 4.70 | 4.76 | 4.81 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|60 | 65 | 4.52 | 4.58 | 4.64 | 4.70 | 4.76 | 4.82 | 4.88 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
| | | | | | | | | |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|61 | 66 | 4.56 | 4.62 | 4.69 | 4.75 | 4.81 | 4.88 | 4.94 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|62 | 67 | 4.60 | 4.66 | 4.73 | 4.80 | 4.87 | 4.93 | 5.00 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|63 | 68 | 4.63 | 4.70 | 4.77 | 4.85 | 4.92 | 4.99 | 5.06 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|64 | 69 | 4.67 | 4.74 | 4.82 | 4.89 | 4.97 | 5.04 | 5.12 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|65 | 70 | 4.70 | 4.78 | 4.86 | 4.94 | 5.01 | 5.10 | 5.18 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
| | | | | | | | | |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|66 | 71 | 4.73 | 4.81 | 4.90 | 4.98 | 5.06 | 5.15 | 5.24 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|67 | 72 | 4.76 | 4.85 | 4.93 | 5.02 | 5.11 | 5.20 | 5.29 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|68 | 73 | 4.79 | 4.88 | 4.97 | 5.06 | 5.15 | 5.25 | 5.35 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|69 | 74 | 4.82 | 4.91 | 5.00 | 5.10 | 5.20 | 5.30 | 5.40 |
|-------|--------|---------|--------|-------|-------|--------|-------|------|
|70 | 75 | 4.85 | 4.94 | 5.03 | 5.13 | 5.23 | 5.34 | 5.45 |
|=======|========|=========|========|=======|=======|========|=======|======|
<PAGE>
Table 7
|=========|======|======|======|======|======|======|======|=====|======|======|
|Age | | | | | | | | | | |
|of Payees|Male | 62 | 63 | 64 | 65| 66| 67| 68| 69 | 70 |
|=========|======|======|======|======|======|======|======|=====|======|======|
|Male |Female| 67 | 68 | 69 | 70| 71| 72| 73| 74 | 75 |
|=========|======|======|======|======|======|======|======|=====|======|======|
|---------|------|------|------|------|------|------|------|-----|------|------|
|51 | 56 |$4.34 |$4.37 |$4.37 | $4.41| $4.43| $4.45|$4.47|$4.49 |$4.51 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|52 | 57 | 4.41 | 4.43 | 4.46 | 4.48| 4.51| 4.53| 4.55| 4.57 | 4.59 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|53 | 58 | 4.47 | 4.50 | 4.53 | 4.55| 4.58| 4.61| 4.63| 4.65 | 4.67 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|54 | 59 | 4.53 | 4.57 | 4.60 | 4.63| 4.66| 4.68| 4.71| 4.73 | 4.76 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|55 | 60 | 4.60 | 4.63 | 4.67 | 4.70| 4.73| 4.76| 4.79| 4.82 | 4.85 |
|---------|------|------|------|------|------|------|------|-----|------|------|
| | | | | | | | | | | |
|---------|------|------|------|------|------|------|------|-----|------|------|
|56 | 61 | 4.66 | 4.70 | 4.74 | 4.78| 4.81| 4.85| 4.88| 4.91 | 4.94 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|57 | 62 | 4.73 | 4.77 | 4.82 | 4.86| 4.90| 4.93| 4.97| 5.00 | 5.03 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|58 | 63 | 4.80 | 4.85 | 4.89 | 4.94| 4.98| 5.02| 5.06| 5.10 | 5.13 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|59 | 64 | 4.87 | 4.92 | 4.97 | 5.02| 5.06| 5.11| 5.15| 5.20 | 5.23 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|60 | 65 | 4.93 | 4.99 | 5.04 | 5.10| 5.15| 5.20| 5.25| 5.30 | 5.34 |
|---------|------|------|------|------|------|------|------|-----|------|------|
| | | | | | | | | | | |
|---------|------|------|------|------|------|------|------|-----|------|------|
|61 | 66 | 5.00 | 5.06 | 5.12 | 5.18| 5.24| 5.29| 5.35| 5.40 | 5.45 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|62 | 67 | 5.07 | 5.13 | 5.20 | 5.26| 5.33| 5.39| 5.45| 5.50 | 5.56 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|63 | 68 | 5.13 | 5.20 | 5.28 | 5.35| 5.41| 5.48| 5.55| 5.61 | 5.67 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|64 | 69 | 5.20 | 5.28 | 5.35 | 5.43| 5.50| 5.58| 5.65| 5.72 | 5.79 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|65 | 70 | 5.26 | 5.35 | 5.43 | 5.51| 5.59| 5.67| 5.75| 5.83 | 5.90 |
|---------|------|------|------|------|------|------|------|-----|------|------|
| | | | | | | | | | | |
|---------|------|------|------|------|------|------|------|-----|------|------|
|66 | 71 | 5.33 | 5.41 | 5.50 | 5.59| 5.68| 5.77| 5.85| 5.94 | 6.02 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|67 | 72 | 5.39 | 5.48 | 5.58 | 5.67| 5.77| 5.86| 5.96| 6.05 | 6.14 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|68 | 73 | 5.45 | 5.55 | 5.65 | 5.75| 5.85| 5.96| 6.06| 6.16 | 6.26 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|69 | 74 | 5.50 | 5.61 | 5.72 | 5.83| 5.94| 6.05| 6.16| 6.27 | 6.38 |
|---------|------|------|------|------|------|------|------|-----|------|------|
|70 | 75 | 5.56 | 5.67 | 5.79 | 5.90| 6.02| 6.14| 6.26| 6.38 | 6.50 |
|=========|======|======|======|======|======|======|======|=====|======|======|
VALLEY FORGE LIFE INSURANCE COMPANY
Waiver of Monthly Deduction Rider
This rider is a part of the Policy. The rider is subject to all the terms and
conditions of the policy unless We state otherwise.
DEFINITIONS:
"TOTAL DISABILITY" means complete inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental Injury or
Sickness requiring regular care by a licensed physician. Regular care by a
licensed physician is not required if a licensed physician has determined that
recovery is not expected.
During the first 24 months that monthly deductions are waived, "substantial
gainful activity" means: (1) the material activities associated with a person's
regular occupation (or, after retirement, any normal activities of a retired
person of the Insured's age); or (2) employment in any occupation reasonably
consistent with the person's education, training, and experience. After the
first 24 months that monthly deductions or premium payments are waived,
"substantial gainful activity" means the material activities associated with any
occupation reasonably consistent with the person's education, training, and
experience.
If, after a Total Disability has ceased, a Total Disability due to the same or a
related cause recurs, it will be deemed a continuation of the prior period of
Total Disability, except that: if the Owner has engaged in the interim, for at
least six consecutive months, in any gainful occupation for which he or she is
qualified, such recurrence will be deemed a new period of Total Disability.
The total and irrecoverable loss of any of the following are presumed to
constitute a Total Disability: (1) the sight of both eyes; (2) the use of both
hands; (3) the use of both feet; or (4) the use of one hand and one foot.
"EXPIRY DATE" is the date on which the coverage under this rider ends. If this
rider is elected, the Expiry Date is shown in the Policy Specifications.
"INJURY" means any accidental bodily injury that occurs while this rider is in
force and results directly and independently of all other causes in loss covered
by this rider.
"LICENSED PHYSICIAN" means a medical practitioner holding a currently effective
license issued by the appropriate medical doctor licensing and accreditation
board of the state where the Owner is treated, and practicing within the scope
of his or her license. A licensed physician must be someone other than the
Owner, the Insured, or a person who is related to either the Owner or the
Insured by blood or marriage.
"POLICY SPECIFICATIONS" means the Policy Specifications page issued with the
Policy on the Policy Effective Date. It also means amendments to the Policy
Specifications page for changes after the Policy Effective Date.
"SICKNESS" means sickness or disease, including normal pregnancy, that is
diagnosed and treated while this rider is in force. Sickness includes medical
conditions admitted on the application for the rider.
<PAGE>
WAIVER OF MONTHLY DEDUCTION BENEFIT - If any Total Disability of the Owner
starts while this rider is in force and the Total Disability lasts for six
consecutive months, We will waive monthly deductions for Policy Months after the
six-month period.
If such Total Disability begins:
1. before the Policy Anniversary nearest the Owner's 60th birthday, We
will waive monthly deductions as long as the Total Disability exists;
2. on or after the Policy Anniversary nearest the Owner's 60th birthday
and before the Policy Anniversary nearest the Owner's 65th birthday, We
will waive monthly deductions during such Total Disability until the
later of:
(a) the Policy Anniversary nearest the Owner's 65th birthday; or
(b) two years after the date such Total Disability began.
We will take monthly deductions during the initial six-month period. However,
deductions will be returned to the Policy Value at the end of the six-month
period if the Owner remains subject to a Total Disability. We will credit to the
Policy Value monthly deductions adjusted for Subaccount investment results or
adjusted for the interest that would have accrued if We had not made the six
monthly deductions.
Unless Written Notice of Total Disability is given as soon as reasonably
possible, We will not waive any monthly deduction that occurs more than one year
before We receive Written Notice of Total Disability at the Service Center.
This Waiver of Monthly Deduction benefit applies only to the Total Disability of
the person named as the Owner in the Policy Specifications.
REDUCTION OF DISABILITY PREMIUM BENEFIT AMOUNT - If there is a change in the
Specified Amount or the Death Benefit Option that reduces the guideline annual
premium, as defined in Section 7702 of the Internal Revenue Code, as amended, We
reserve the right to reduce the Disability Premium Benefit Amount to one-twelfth
of the guideline annual premium if it exceeds such amount. Such reduction will
only be made if the Owner is not then subject to a Total Disability. The cost of
this rider will also be reduced at such time.
EFFECTIVE DATE - If this rider is issued with the Policy, its effective date is
the Policy Effective Date shown in the Policy Specifications. If this rider is
issued after the Policy Effective Date, its effective date is shown in an
amendment to the Policy Specifications.
CONSIDERATION - This rider is issued in consideration of the application for
this rider and the first premium payment. The cost of this rider will be added
to the monthly deduction as described in the Policy. The rates for the cost of
this rider are shown in the Policy Specifications.
AUTOMATIC CHANGE IN INSURANCE COVERAGE - If, on the date We begin to waive
monthly deductions, Death Benefit Option 1 is in effect, We will change Your
coverage to Death Benefit Option 2. Death Benefit Option 2 will become effective
as of that date.
<PAGE>
EXCLUSIONS - We will not waive any monthly deduction if Total Disability results
directly from:
1. intentional, self-inflicted injury while sane or insane;
2. any bodily injury, sickness or disease first manifesting itself before
this rider took effect, unless such injury, sickness or disease is
shown in the application for this rider;
3. service in the armed forces of any country engaged in war or any act
incidental to war; or
4. any act of war, declared or undeclared.
WRITTEN NOTICE OF TOTAL DISABILITY - We must receive Written Notice informing Us
that the Owner is experiencing a Total Disability. We must receive the Written
Notice:
1. while the Insured is alive;
2. while the Owner is alive and is experiencing a Total Disability; and
3. within one year of the start of the Total Disability.
If We do not receive such Written Notice, We will not waive monthly deductions
that are taken more than one year before We receive the Written Notice.
PROOF OF TOTAL DISABILITY - We must receive proof of Total Disability at the
Service Center within six months after Written Notice of Total Disability is
furnished. If it is not reasonably possible to provide the proof within six
months, Your claim is not affected if the proof is sent as soon as possible.
However, unless You are legally incapacitated, We must receive proof within one
year of the time it is otherwise required.
PROOF OF CONTINUANCE OF TOTAL DISABILITY - During the first two years after We
receive proof of Total Disability, We may at reasonable intervals require proof
that the Owner remains subject to a Total Disability. Thereafter, once a year We
may require proof that the Owner remains subject to a Total Disability. As part
of any proof, We may require the Owner to be examined at Our expense by a
licensed physician chosen by Us.
If proof that the Owner is still subject to a Total Disability is not provided,
or if the Owner is no longer subject to a Total Disability, monthly deductions
will no longer be waived. The monthly deductions will be taken as stated in the
Policy.
TOTAL DISABILITY STARTING DURING GRACE PERIOD - If a Total Disability starts
during the Grace Period of the Policy, the following must be paid to Us before
We will waive any monthly deductions:
1. the unpaid monthly deductions; and
2. premium payments sufficient to result in a positive Surrender Value.
<PAGE>
INCONTESTABILITY - The Representations and Contestability provision of the
Policy does not apply to this rider. After this rider has been in force during
the lifetime of the Owner and the Insured for a period of two years from its
effective date, or the date of any reinstatement, excluding any period during
which the Owner suffers from a Total Disability, We will not contest it.
REINSTATEMENT - This rider may be reinstated if:
1. the rider is terminated due to the termination of the Policy; and
2. the Policy is being reinstated.
TERMINATION - This rider will terminate on the earliest of:
1. its Expiry Date;
2. the date the Policy terminates; and
3. the Monthly Anniversary Day following receipt by Us of Your Written
Notice cancelling this rider.
Termination of this rider will not affect any claim for Total Disability that
begins before this rider terminates.
SIGNED FOR THE VALLEY FORGE LIFE INSURANCE COMPANY AT OUR EXECUTIVE OFFICE, CNA
PLAZA, CHICAGO, ILLINOIS 60685.
Chairman of the Board
<PAGE>
VALLEY FORGE LIFE INSURANCE COMPANY
TERM INSURANCE ON SPOUSE RIDER
This rider is a part of the Policy. The rider is subject to all the terms and
conditions of the Policy unless We state otherwise. THE INSURANCE PROVIDED UNDER
THIS RIDER HAS NO CASH VALUE
BENEFIT - If the Insured Spouse dies while this rider is in force, We agree to
pay the death benefit of this rider upon receipt of Due Proof of Death. We must
receive Due Proof of Death at the Service Center. Payment of the death benefit
is subject to the terms of the Policy and this rider. The death benefit of this
rider is shown in the Policy Specifications.
EFFECTIVE DATE - If this rider is issued with the Policy, its effective date is
the Policy Effective Date shown in the Policy Specifications. If this rider is
issued after the Policy Effective Date, or if coverage under this rider is
decreased, or reinstated, its effective date is shown in an amendment to the
Policy Specifications.
CONSIDERATION - This rider is issued in consideration of the application for the
rider and payment of the first premium payment. The cost of this rider will be
added to the monthly deduction described in the Policy. If this rider is
elected, its cost is shown in the Policy Specifications.
DEFINITIONS --
"CONVERSION DATE" is the date We issue the New Policy.
"EXPIRY DATE" is the date on which the coverage under this rider ends. The
Expiry Date is shown in the Policy Specifications.
"INSURED SPOUSE" means the Insured's spouse named in the application for this
rider.
"NEW POLICY" means a Policy issued under the Conversion Privilege of this rider.
"POLICY SPECIFICATIONS" means the Policy Specifications page issued with the
Policy on the Policy Effective Date. It also means amendments to the Policy
Specifications page for changes after the Policy Effective Date.
BENEFICIARY - On the effective date of this rider, the Beneficiary of this rider
is as stated in the application. If no designation has been made, the
Beneficiary is the Owner; if the Owner is no longer living, the Beneficiaries
are, equally, the surviving children, step-children and legally adopted children
of the Owner. Otherwise, the estate of the Insured Spouse is the Beneficiary.
The Owner may change a revocable Beneficiary by Written Notice at any time while
the Insured and the Insured Spouse are alive and the Policy is in force before
the Maturity Date. A change takes effect as of the date the Written Notice was
signed by the Owner. However, We are not liable for any payment made by Us
before We receive the Written Notice.
<PAGE>
CONVERSION PRIVILEGE - During the Insured's lifetime and before the Insured
Spouse reaches age 65, any insurance coverage in force under this rider may be
converted to a New Policy. Also, within 31 days after the Insured's death or
termination of the Policy, any insurance coverage in force under this rider may
be converted to a New Policy. Insurance coverage under this rider will be in
force during the 31 days allowed for conversion until the New Policy takes
effect.
Evidence of insurability satisfactory to Us will not be required, provided We
receive the application for the New Policy and the first premium payment within
the period allowed for conversion.
TERMS OF THE NEW POLICY - The terms of the New Policy will be as follows:
1. The death benefit in the first Policy Year will be equal to the amount
of insurance in force under this rider immediately prior to its
conversion;
2. The New Policy will be on a non-participating permanent or endowment
form of insurance;
3. The premium for the New Policy will be at least as great as the premium
for a level premium, non-participating whole life policy with the same
death benefit in the first Policy Year;
4. The New Policy will be issued on the form and at the premium rate in
use by Us on the Policy Effective Date of the New Policy;
5. The New Policy will be issued at the same risk class and the same
Attained Age of the Insured Spouse on the Conversion Date; and
6. The Incontestability and Suicide provisions of the New Policy will run
from the effective date of this rider.
REINSTATEMENT - This rider may be reinstated if:
1. the rider terminated due to the termination of the Policy; and
2. the Policy is being reinstated.
The Company will require evidence of insurability satisfactory to Us of the
Insured Spouse.
INCONTESTABILITY - The Representations and Contestability provision of the
Policy does not apply to this rider. After this rider has been in force during
the lifetime of the Insured Spouse for a period of two years from its effective
date, or the date of any reinstatement, We will not contest it.
MISSTATEMENT OF AGE OR SEX - If the age or sex of the Insured Spouse has been
misstated, the benefit payable under this rider by reason of the death of the
Insured Spouse shall be the benefit that the cost deducted for this rider in the
Policy Month during which the death occurred would have purchased using the cost
of insurance rate for the correct age and sex.
SUICIDE - If the Insured Spouse commits suicide, while sane or insane, within
two years of this rider's effective date, Our liability will be limited to an
amount equal to the cost of insurance deducted for this rider.
<PAGE>
TERMINATION - This rider will terminate upon the earliest of:
1. the Expiry Date;
2. the date the Policy terminates other than by death of the Insured;
3. the 32nd day after the death of the Insured or the date the Policy
otherwise terminates;
4. the date coverage under this Rider is converted to a New Policy; and
5. the Monthly Anniversary Day following receipt by Us of Your Written
Notice cancelling this rider.
SIGNED FOR THE VALLEY FORCE LIFE INSURANCE COMPANY AT OUR EXECUTIVE OFFICE, CNA
PLAZA, CHICAGO, ILLINOIS 60685.
Chairman of the Board
VALLEY FORGE LIFE INSURANCE COMPANY
TERM INSURANCE ON CHILDREN RIDER
This rider is a part of the Policy. The rider is subject to all the terms and
conditions of the Policy unless We state otherwise.
BENEFIT - We agree, subject to the conditions of this rider, to pay the
Beneficiary the following amount for each unit of coverage if a Covered Child's
death occurs while this rider is in force:
1. $250 if the Covered Child's death occurs after his or her 14th day of
age and before his or her age of 6 months; or
2. $1,000 if the Covered Child's death occurs on or after his or her age
of 6 months and before the earlier of:
a. the Policy Anniversary nearest the Covered Child's 22nd
birthday; and
b. the Expiry Date.
The number of units of coverage under this rider is shown in the Policy
Specifications. Payment will be made when We receive Due Proof of death of the
Covered Child.
BENEFITS AFTER THE INSURED'S DEATH - If the death of the Insured, except by
suicide while sane or insane within two years from the Policy Effective Date,
occurs while this rider is in force, the insurance on the Covered Child will
become paid-up and remain in force without further payment of premium or cost of
insurance deductions until the earlier of:
1. the Policy Anniversary nearest the Covered Child's 22nd birthday; and
2. the Expiry Date.
Any time after the Insured's death and while the paid-up insurance under this
rider is in force, this rider may be surrendered for an amount equal to the net
single premium for all further insurance benefits under this rider. The net
single premium for the paid-up insurance benefits will be computed on the basis
of the 1980 Commissioner's Standard Ordinary Mortality Table with interest at
5.75% per year compounded annually. Benefits are paid in accordance with the
Policy provisions.
EFFECTIVE DATE - If this rider is issued with the Policy, its effective date is
the Policy Effective Date shown in the Policy Specifications. If this rider is
issued after the Policy Effective Date, or if coverage under this rider is
decreased, or reinstated, its effective date is shown in an amendment to the
Policy Specifications.
CONSIDERATION - This rider is issued in consideration of the application for
this rider and the first premium payment. The cost of the rider will be added to
the monthly deduction described in the Policy. Its cost is shown in the Policy
Specifications.
<PAGE>
DEFINITIONS:
"COVERED CHILD" means a child, step-child or legally adopted child of the
Insured who is more than 14 days old but less than 22 years old and who is
either:
1. named in the application for this rider and is under eighteen years of
age on or before the date of the application; or
2. acquired by the Insured after the date of the application but before
such child's 18th birthday and before the Expiry Date of this rider.
"CONVERSION DATE" is the date We issue the New Policy.
"EXPIRY DATE" is the date on which the coverage under this rider ends. If
coverage under this rider is elected, the Expiry Date is shown in the Policy
Specifications.
"POLICY SPECIFICATIONS" means the Policy Specifications page issued with the
Policy on the Policy Effective Date. It also means amendments to the Policy
Specifications page for changes after the Policy Effective Date.
"NEW POLICY" means a Policy issued under the Conversion Privilege of this rider.
BENEFICIARY OF COVERED CHILD'S INSURANCE - On the effective date of this rider,
the Beneficiary is as stated in the application. If no designation has been
made, the Beneficiary of the Covered Child's insurance is the Owner. If the
Owner is no longer living, the Owner's spouse will be the Beneficiary. If the
Owner and the Owner's spouse are no longer living, the Beneficiary will be,
equally, the children, step-children, and legally adopted children of the Owner.
Otherwise the estate of the Covered Child is the Beneficiary.
You may change a revocable Beneficiary by Written Notice at any time while the
Insured and the Covered Child are alive and the Policy is in force before the
Maturity Date. A change takes effect as of the date the Written Notice was
signed by the Owner. However, We are not liable for any payment made by Us
before We receive the Written Notice.
CONVERSION PRIVILEGE - Any Covered Child may convert his or her insurance to a
New Policy within 31 days after the earlier of:
1. The Expiry Date of this rider; and
2. the Policy Anniversary nearest the Covered Child's 22nd birthday.
Evidence of insurability will not be required to convert this coverage.
TERMS OF THE NEW POLICY - The New Policy will be issued subject to the following
terms:
1. The New Policy will be issued on the life of a Covered Child when We
receive the application for the New Policy and the first premium
payment;
2. The death benefit in the first Policy Year will be no less than the
amount of insurance then in force under this rider and no more than
five times that amount;
<PAGE>
3. The premium for the New Policy in the first Policy Year will be at
least as great as the premium for a level premium, level death benefit
permanent life insurance policy with the same death benefit;
4. The New Policy will be issued on the form and at the premium rate for
the Attained Age of the Covered Child, in use by Us on the Policy
Effective Date of the New Policy;
5. The New Policy will be in a standard premium class;
6. The Covered Child may elect to have a rider attached to the New Policy
providing for future purchases of insurance on his or her life;
7. Our consent is required to add other benefits to the New Policy; and
8. The incontestability and suicide provisions of the New Policy will run
from the effective date of this rider.
Insurance coverage will continue to be in force on the life of the Covered Child
during the 31 days allowed for conversion.
REINSTATEMENT - This rider may be reinstated if:
1. the rider terminated due to termination of the Policy; and
2. the Policy is being reinstated.
We will require evidence of insurability satisfactory to Us for each Covered
Child whose coverage is to be reinstated.
INCONTESTABILITY - The Representation and Contestability provision of the Policy
does not apply to this rider. After this rider has been in force during the
lifetime of each Covered Child for a period of two years from its effective
date, or the date of any reinstatement, We will not contest it.
SUICIDE - If a Covered Child commits suicide, while sane or insane, within two
years of the Covered Child's effective date of coverage, Our liability will be
limited to an amount equal to the cost of insurance deducted for this rider.
MISSTATEMENT OF AGE OR SEX - If the age of a Covered Child has been misstated,
the benefit payable under this rider by reason of the death of the Covered Child
shall be the benefit that the cost deducted for this rider during the Policy
Month during which the death occurred would have purchased using the cost of
insurance rate for the correct age and sex.
TERMINATION - This rider will terminate upon the earliest of:
1. the Expiry Date;
2. the termination of the Policy, except for the benefits provided under
this rider upon the death of the Insured; and
<PAGE>
3. the Monthly Anniversary Day following receipt by Us of Your Written
Notice cancelling this rider.
SIGNED FOR THE VALLEY FORCE LIFE INSURANCE COMPANY AT OUR EXECUTIVE OFFICE, CNA
PLAZA, CHICAGO, ILLINOIS 60685.
Chairman of the Board
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===========================================================================================================================
Application to: |_|Continental Assurance Company, CNA Plaza, Chicago, IL 60685
(Check One) |_|Valley Forge Life Insurance Company, 401 Penn Street, Reading, PA 19601
Executive Office, CNA Plaza, Chicago, IL 60685
(PLEASE TYPE OR PRINT ALL INFORMATION)
=================================================================================|===============|=====|============
1. PROPOSED INSURED 1 (First, Middle, Last) |_| Male |_| Female | Birth Date | |Birth Place
________________________________________ | Mo. Day Yr. | Age |State &
Home Phone:________________________| | |Country
Driver's License # and State____________ Bus. Phone:________________________| | |
_________________________________________________________________________________|_____|____|____|_____|____________
2. PROPOSED INSURED 2 (First, Middle, Last) |_| Male |_| Female |(Specified) | | |
_______________________________________________________________ |Amount | | |
Height__________Weight now____________Weight 1 yr. ago__________| $________ | | |
Cause of any lost weight_______________________________________ | or | | |
Driver's License # and State:__________________________________ | Units_____ | | |
| | | |
____________________________________________________________________|____________|______|____|___|_____|____________
3. CHILDREN PROPOSED FOR INSURANCE Height Weight |Child Units | | |
| | | |
______________________________________________|_________|___________|____________|______|____|___|_____|____________
| | | |
______________________________________________|_________|___________|____________|______|____|___|_____|____________
| | | |
4. If Proposed Insured is under age 15, name of Proposed Payor |Relationship| | |
| | | |
____________________________________________________________________|____________|______|____|___|_____|____________
5. Residence Address of Proposed Insured(s) City County State Zip Code
____________________________________________________________________________________________________________________
6. Plan of Insurance | Face/Specified Amount |Premium Mode| Amount remitted with this
| | | application $
____________________________________|_______________________________|____________|__________________________________
|
| Death Benefit |_| Option 1 |_| Option 2
_________________________________________________|__________________________________________________________________
First Premium (may not be less than |Planned Periodic Premium | Target Premium|Maturity Date (if less
Planned Periodic Premium Target Premium |$ | $ |than policy expiry):
| | |
_________________________________________________|_________________________|_______________|________________________
Rider/Amount | Rider/Amount | Rider/Amount
| |
____________________________________|_________________________________________________|_____________________________
7a. Occupation of Proposed Insured(s) or Payor if Proposed Insured is under age 15. List duties.
____________________________________________________________________________________________________________________
7b. Employer's name and address of Proposed Insured(s) (Applies to Payor if Proposed Insured is under age 15.)
____________________________________________________________________________________________________________________
8. List all life insurance amounts in force on all person(s) proposed for insurance (if none, so state).
Name of Person and Year Amount of Amount of Amount of Accidental
Insurance Company Issued Personal Insurance Business Insurance Death Benefit
___________________________ _________ $__________________ $__________________ $___________________
___________________________ _________ $__________________ $__________________ $___________________
____________________________________________________________________________________________________________________
<PAGE>
9. Will the policy applied for replace or change any insurance or annuity currently in force with this or any other
company on your life or the life of any person proposed for insurance? |_| No |_| Yes Have you or any person
proposed for insurance replaced a life insurance policy in the past three years? |_|No |_| Yes Replaced two or
more times in the last five years? |_| No |_| Yes If Yes,give name and reason.
Is any application for life or health insurance pending in this or any company? |_| No |_| Yes If Yes, give
name, company and details.
Name Company Policy number Issue Year Face Amount Acc. Death Benefit Amt.
$ $
________________________________________|________________|_____________|________________|_________________________
10. Send premium notice to Proposed Insured |_| Residence |_| Business Address |_| Other (Name, Address, Zip Code)
_______________________________________________________________________________________________________________
11. Name of owner, if other than Proposed Insured 1, or Applicant. | Owner's Social Sec. No.
(Include contingent owner, if any.) | or Tax No.
|
________________________________________________________________________________|_____________________________
12. Beneficiary Designation (The beneficiary under any spouse and children's insurance will be as stated in
those riders, unless otherwise designated. Print full name(s) and relationship to Proposed Insured 1).
__________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________
Contingent Beneficiary
__________________________________________________________________________________________________________________
==================================================================================================================
LV206-363-A
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<PAGE>
========================================================================================|==========================
13. Has any person proposed for insurance: | Details of YES answers
| (Include item # proposed
| insured, dates, duration,
Yes No | attending physicians, and
A. |_| |_| In the last 3 years flown or plans to fly, as a pilot, student pilot | questionnaire for A & E)
or crew? |
B. |_| |_| Traveled or resided or plans to travel or reside outside the USA? |
C. |_| |_| Ever been convicted of a felony? |
D. |_| |_| Had 2 or more moving violations in the past 3 years, been convicted |
of driving while intoxicated, or ever had license suspended or revoked?|
E. |_| |_| In the last 3 years, engaged in, or intends to engage in, sky or scuba |
diving, hang-gliding, rock climbing, or any form of motorized racing? |
F. |_| |_| Received advice or treatment from a member of the medical profession |
for the use of alcohol or drugs, or been convicted of using, selling,|
or possessing any narcotics, stimulant, sedative or |
hallucinogenic drug in the past 10 years? |
G. |_| |_| Ever been advised by a physician to quit using tobacco for health |
reasons? |
H. |_| |_| Ever been declined for insurance, had a policy rated, modified in any |
way or denied reissue, reinstatement or renewal of a policy? |
________________________________________________________________________________________|____________________________
14. Special Features requested, such as policy date, risk classification, issue instructions_________________________
_____________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________
15. PROPOSED INSURED 1 Tobacco Use? |_| Never |_| Present |_| Former Check type: |_| smokeless |_| cigar
|_|cigarette |_| pipe
Mo./Year quit #Years as a smoker #Packs per day
_____________________________________________________________________________________________________________________
16. PROPOSED INSURED 2 Tobacco Use? |_| Never |_| Present |_| Former Check type: |_| smokeless |_| cigar
|_|cigarette |_| pipe
Mo./Year quit #Years as a smoker #Packs per day
_____________________________________________________________________________________________________________________
17. PROPOSED a) Height Weight: Current 1 yr. ago Cause of any weight loss | b)Annual Income $
INSURED 1 _______ ______ _________ _________________________ | Estimated Net Worth $
Mo./yr. of last exam Results | Ever filed bankruptcy?
Sigmoidoscopy _____________________ _________________________________________ | |_|Yes |_|No
Prostate Exam _____________________ _________________________________________ | Date discharged
Mammogram _____________________ _________________________________________ | Explain:
Breast Exam _____________________ _________________________________________ |
_______________________________________________________________________________________|_____________________________
c) EXERCISE Activities-aerobics/muscle strengthening/toning Mo./yr. started Times/Week Duration
___________________________________________________________________________________________________________________
d) REGULAR PHYSICIAN (First, Middle, Last) Date of last visit: Physician Phone #:
___________________________________________________________________________________Reason for/result of last visit:
Address City State Zip Code
_______________________________________________________________________________________________________________________
<PAGE>
18. In the past 10 years, has any person proposed for insurance been treated for or had: |Details of YES answers
Yes No (If Yes, circle each applicable item.) |(Include item #, proposed
|insured, dates, duration,
|medication, name and
A. |_| |_| Any disease or disorder of eyes, ears, nose or throat? |address of physicians)
B. |_| |_| Dizziness, fainting, convulsions, head injury, headaches, speech defect, |
paralysis or stoke, tremor, muscle weakness, depression, other mental or |
nervous disorder? |
C. |_| |_| Shortness or breath, persistent hoarseness or cough, blood spitting, |
bronchitis, pleurisy, asthma, emphysema, tuberculosis or chronic |
respiratory disorder? |
D. |_| |_| Chest pain, palpitations, high blood pressure, rheumatic fever, heart |
murmur, varicose veins, phlebitis, or other heart or blood vessel disorder?|
E. |_| |_| Hepatitis, ulcer, hernia, colitis, diverticulitis, recurrent indigestion, |
or other disorder of the stomach, intestines, liver, gall bladder, |
pancreas, or spleen? |
F. |_| |_| Sugar, albumin, blood or pus in urine, sexually transmitted or venereal |
disease, stone or other kidney, bladder, prostate or reproductive organ |
disorder? |
G. |_| |_| Allergies, anemia, bleeding tendency or other disorders of the blood? |
H. |_| |_| Neuralgia, neuritis, sciatica, rheumatism, arthritis, gout, or disorder |
of the muscles or bones including the spine, back and joints. |
I. |_| |_| Disorder of the skin or lymph glands cyst, tumor or cancer? |
J. |_| |_| Persistent fever, night sweats, chills, and/or diarrhea? |
K. |_| |_| Diabetes, thyroid or other endocrine disorder? |
L. |_| |_| Diagnosis or treatment for AIDS by a member of the medical profession? |
M. |_| |_| Any mental or physical disorder not listed; had or been advised to have |
any checkup, consultation, illness, injury, hospitalization, |
treatment or surgery including an EKG, x-ray or other |
diagnostic test not already listed. |
____________________________________________________________________________________________|________________________
N. |_| |_| Is any person proposed for insurance receiving treatment or taking any |
medication? |
____________________________________________________________________________________________|________________________
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<PAGE>
____________________________________________________________________________________________________________________
19. FAMILY Age if living or At death Cancer History? Heart Diseases or Circulatory Disorder?
HISTORY Mother ___________ ______ |_|No |_|Yes, since Age ________ |_|No |_|Yes, since Age_________
Father ___________ ______ |_|No |_|Yes, since Age ________ |_|No |_|Yes, since Age_________
Siblings ___________ ______ |_|No |_|Yes, since Age ________ |_|No |_|Yes, since Age_________
Siblings ___________ ______ |_|No |_|Yes, since Age ________ |_|No |_|Yes, since Age_________
____________________________________________________________________________________________________________________
20. FUND SELECTION
ALLOCATIONS: On issued contracts, your initial Net Purchase Payment will be
allocated as indicated below. Selections must total 100%. Minimum initial
allocation to any single subaccount is 1%. No fractional percentages. These
percentages will apply in future years but may be changed at any time by
the owner. (If no allocation is indicated, Prime Money Fund will be
automatically selected.)
Federated Advisors MFS Asset Management, Inc.
______% High Income Bond Fund ______% Emerging Growth Series
______% Prime Money Fund ______% Growth with Income Series
______% Utility Fund ______% Limited Maturity Series
Fidelity Management and Research Company ______% Research Series
______% Asset Manager Portfolio ______% Total Return Series
______% Contrafund Portfolio SoGen
______% Equity-Income Portfolio ______% Overseas Portfolio
______% Index 500 Portfolio Van Eck Associates Corporation
Fred Alger Management, Inc. ______% Emerging Markets Fund
______% Growth Portfolio ______% Gold and Natural Resources Fund
______% MidCap Growth Portfolio Guaranteed Interest Option
______% Small Capitalization Portfolio ______% 1 Year
_____________________________________________________________________________________________________________________
21. SUITABILITY
A. Do you understand that the death benefit and surrender value may increase or decrease depending on the
investment experience of the variable subaccounts? |_| Yes |_| No
B. Your primary investment objective is? |_| Guaranteed Interest |_| Growth
|_| Preservation of Capital |_| Aggressive Growth
|_| Income
C. Do you believe that this policy will meet your insurance needs and financial objectives? |_| Yes |_| No
D. Have you received a copy of the current prospectus? |_| Yes |_| No
______________________________________________________________________________________________________________________
22. CONDITIONAL RECEIPT Questions related to conditional receipt for all persons proposed for insurance.
|_|Yes |_| No In the past 90 days, has any person proposed for
insurance been admitted to a hospital or other medical
facility, been advised to be admitted, contemplated surgery,
or had surgery performed or recommended?
|_|Yes |_| No In the past two years, has any person proposed for
insurance been treated by a member of the medial profession
for heart disease, stroke, cancer or AIDS, or had such
treatment recommended?
IF EITHER QUESTION IN THIS SECTION IS ANSWERED "YES" OR LEFT BLANK, A PREMIUM PAYMENT CANNOT BE
ACCEPTED WITH THIS APPLICATION AND ANY CONDITIONAL RECEIPT IS VOID.
________________________________________________________________________________________________________________________
- 3 -
<PAGE>
________________________________________________________________________________________________________________________
The Proposed Insured(s) and the Applicant, if other than the Proposed Insured(s), agrees that: (1) all
statements and answers in this application are complete, true and correctly recorded to the best of my (our)
knowledge and belief; (2) if this application is accepted by the Company, the policy applied for and this
application will constitute the entire insurance contract; (3) if no premium has been given to the agent with this
application, insurance will not take effect until the application is approved and accepted by the Company at CNA
Plaza, Chicago, Illinois, 60685 and the policy is delivered while the health of each person proposed for insurance
and other conditions remain as described in this application and at least the Minimum Premium for the Quarterly
Mode has been paid in full. The acceptance of the policy by the Proposed Insured(s) will ratify any corrections
and notations, including amendments of amount, risk classification, age at issue, plan of insurance or benefits.
However, in those states where written consent is required, any such amendment will be made only with the written
consent of the Proposed Insured(s) and the Applicant, if other than the Proposed Insured(s). The Proposed
Insured(s) acknowledges having received and read the Notice to the Proposed Insured(s) and the Medical
Information Bureau Notice. If a premium has been given to the agent with this application, the Proposed Insured(s)
acknowledges having read and understood the conditions of the Conditional
Premium Receipt. Under the penalties of perjury, I/We certify that the social security number(s) provided below
is/are true, correct and complete.
Signed at (City)_____________________________(State)___________________this______day of ____________________19______.
Social Security Number
X_____________________________________________X___________________________________________|__________________________
Applicant (If other than Proposed Insured) Signature of Proposed Insured 1
Social Security Number
X____________________________________________ X___________________________________________|__________________________
Official capacity (if signed on behalf Signature of Proposed Insured 2
of a corporation, trust, etc.)
I certify to the best of my knowledge the answers to the questions in all parts of this application are true and
correct. I further certify that to the best of my knowledge this policy |_| will |_| will not replace or change
any existing life insurance or annuity policy now in force.
LSO/LSA or
AGENT/REGISTERED REP (witness)____________________________________AGENT #_______________MGA Name____________________
Agent/Registered Rep Name ________________________________________Agent Code ________________ Percent_______________
Broker/Dealer Name________________________________________________Address___________________________________________
Agent/Registered Rep Name_________________________________________Agent Code _________________Percent_______________
Broker/Dealer Name______________________________________________________Address_____________________________________
====================================================================================================================
LV206-363-A
Mail to: CNA Insurance Companies, P.O. Box 305153, Nashville, TN 37230-5153
</TABLE>
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<PAGE>
NOTICE REGARDING MEDICAL INFORMATION BUREAU
PLEASE READ CAREFULLY
Information regarding your insurability will be treated as confidential.
Continental Assurance Company or Valley Forge Life Insurance Company or their
reinsurer(s) may, however, make a brief report to the Medical Information
Bureau, a nonprofit membership organization of life insurance companies, which
operates an information exchange on behalf of its members. If you apply to
another Bureau member company for life or health insurance coverage, or a claim
for benefits is submitted to such a company, the Bureau, upon request, will
supply such company with the information in its file. Continental Assurance
Company or Valley Forge Life Insurance Company or their reinsurer(s) may also
release information in its file to other life insurance companies to whom you
apply for life or health insurance, or to whom a claim for benefits may be
submitted.
UPON RECEIPT OF A REQUEST FROM YOU, THE BUREAU WILL ARRANGE DISCLOSURE OF ANY
INFORMATION IT MAY HAVE IN YOUR FILE. IF YOU QUESTION THE ACCURACY OF
INFORMATION IN THE BUREAU'S FILE, YOU MAY CONTACT THE BUREAU AND SEEK A
CORRECTION IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE FEDERAL FAIR
CREDIT REPORTING ACT. THE ADDRESS OF THE BUREAU'S INFORMATION OFFICE IS POST
OFFICE BOX 105, ESSEX STATION, BOSTON, MASSACHUSETTS 02112, TELEPHONE NUMBER
(617) 426-3660. LV203-902-A
- -------------------------------------------------------------------------------
AUTHORIZATION TO OBTAIN INFORMATION
I HEREBY AUTHORIZE any physician, medical practitioner, hospital, clinic,
other medical or medically related facility, insurance or reinsuring company,
the Medical Information Bureau, Inc., consumer reporting agency, employer or the
Veterans Administration, having information available as to diagnosis, and
prognosis with respect to any physical or mental condition and/or treatment,
including psychiatric conditions, drug or alcohol abuse, and any other medical
or non-medical information about me or my health to give to Continental
Assurance Company or Valley Forge Life Insurance Company, its legal
representative, any and all such information.
To facilitate rapid submission of such information, I authorize all said
sources, except MIB, to give such records or knowledge to any agency employed by
the Company to collect and transmit such information.
I UNDERSTAND the information obtained by use of this Authorization will be
used by Continental Assurance Company or Valley Forge Life Insurance Company to
determine eligibility for insurance. Any information obtained will not be
released by Continental Assurance Company or Valley Forge Life Insurance to any
person or organization EXCEPT to reinsuring companies, the Medical Information
Bureau, Inc., or other persons or organizations performing business or legal
services in connection with my application, or as may be otherwise lawfully
required or as I may further authorize.
I UNDERSTAND that I may request to receive a copy of this Authorization. I
AGREE that a photographic copy of this Authorization shall be as valid as
the original. I ACKNOWLEDGE having received and read the Notice to the
Proposed Insured and the Medical Information Bureau Notice. I AGREE that
this Authorization shall remain valid for two years from its date.
________________________________________________________________________________
Proposed Insured 1 (If signing on behalf | Witness(Agent/
of Proposed Insured, specify | Registered Rep)
relationship/authority ) |
X |
______________________________________________________|_________________________
Proposed Insured 2/Payor | Date (month, day, year)
|
X |
______________________________________________________|_________________________
LV206-903-B
- 5 -
<PAGE>
NOTICE TO PROPOSED INSURED(S)
DETACH--LEAVE WITH APPLICANT
As a part of normal procedure for processing your application, an investigative
consumer report may be obtained whereby information is secured through personal
interviews with your friends, neighbors or others with whom you are acquainted.
This report, if obtained, typically contains information as to your character,
general reputation and personal characteristics. You have the right to make a
written request within a reasonable period of time for a complete and accurate
disclosure of additional information concerning the nature and scope of this
report. You have the right, upon request, to be informed of the name and address
of the consumer reporting agency to whom a request for preparation of an
investigative consumer report was made if such a report was, in fact, requested.
You may then contact that agency to request inspection of that report or a copy
of it. Please address your requests to our Individual Life Underwriting
Division, CNA Plaza, Chicago, Illinois 60685. We feel these reports are made in
your best interests. We try to be sure that our Insureds meet certain standards
so that we continue to offer coverage at the lowest possible cost to all who
qualify.
(Please see reverse side for notice regarding Medical Information Bureau.)
LV203-900-A Thank you for your application for insurance.
- --------------------------------------------------------------------------------
CONDITIONAL PREMIUM RECEIPT (REFER TO IMPORTANT INSTRUCTIONS WHEN THE TOTAL
AMOUNT OF COVERAGE APPLIED FOR EXCEEDS $500,000.) THIS CONDITIONAL RECEIPT MUST
NOT BE DETACHED UNLESS PAYMENT IS MADE AT THE TIME OF APPLICATION -- MAXIMUM
LIABILITY:$500,000. Received from______________________________________________
(Proposed Owner) on__________________, 19_______ $_______________which is paid
subject to the conditions of this Receipt as payment on the first premium of the
life insurance policy applied for in the written application to the Continental
Assurance Company or Valley Forge Life Insurance Company, with the same number
as this Receipt. IMPORTANT: This receipt does NOT automatically create interim
insurance coverage. NO INSURANCE IS EVER IN FORCE under this receipt until after
ALL of its conditions are met.
NO AGENT OF THE COMPANY AND NO BROKER IS AUTHORIZED TO ALTER OR WAIVE ANY
CONDITIONS OF THIS RECEIPT.
I. CONDITIONS REQUIRED FOR INSURANCE COVERAGE TO GO INTO EFFECT
It is understood and agreed that ALL of the following conditions must be
COMPLETELY satisfied for insurance coverage to take effect: A. The amount
paid in exchange for this Receipt must equal at least the Minimum Premium
for the Quarterly Mode for the policy applied
for in the application.
B. The application and all medical underwriting requirements specified by
the company rules and standards must be completed.
C. On the Underwriting Date, as defined in Section II below, both Proposed
Insureds 1 and 2 must be a standard risk according to the Company's
underwriting rules and standards for the plan and the amount of insurance
applied for in the application.
II. EFFECTIVE DATE OF CONDITIONAL COVERAGE
If all the Conditions in Section I are COMPLETELY satisfied, then insurance
coverage will begin on the LATER of the following dates:
A. The Underwriting Date, or
B. The Policy Date, if any, requested in item 14 of the application
UNDERWRITING DATE is the LATER of the following dates:
A. The date of the application, or
B. The date on which all medical underwriting requirements specified by the
Company rules and standards are completed.
<PAGE>
III. LIMIT OF LIABILITY
The liability of the Company under this Receipt and application for life
insurance and accidental death benefits will not exceed $500,000 reduced by
(1) any insurance issued by the Company on the life of either Proposed
Insured 1 or 2 within 90 days preceding the date of this receipt and (2) by
any death benefit payable under all other Receipts and applications
currently pending with the Company.
IV. LIABILITY NOT ASSUMED
If the Company determines that on the Underwriting Date, as defined in
Section II, that either Proposed Insured 1 or 2 is not a standard risk
according to the Company's underwriting rules and standards for the plan and
amount of insurance applied for in the application and if either Proposed
Insured 1 or 2 dies before the Underwriting Date, then the Company assumes
NO liability under this receipt and application for life insurance.
V. TERMINATION OF COVERAGE
Any coverage which takes effect through this Receipt will terminate on the
EARLIEST of the following dates:
A. Ninety (90) days after the date of this Receipt.
B. The expiration of the period for which Minimum Premium has been paid,
C. The date the policy goes into effect,
D. The date that the Company determines that either Proposed Insured 1 or 2
are not entitled under the Company's underwriting rules and standards for
insurance on the plan and amount of insurance applied for. In that case
no insurance becomes effective and the amount paid will be returned to
the Owner. ANY DELAY IN RETURNING THE AMOUNT PAID WILL NOT BE CONSTRUED
AS APPROVAL OF THE APPLICATION.
If coverage under this Receipt terminates as provided in Section V above,
any policy issued by the Company will not take effect until, during the
lifetime of Proposed Insured 1 and 2, both the policy is delivered to the
Owner and the first premium is paid, and then only if there has been no
change in the health of either the Proposed Insured 1 and 2 since the date
of this receipt.
LV203-901-D
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Please attach voided copy of | REQUEST AND AUTHORITY TO HONOR PREAUTHORIZED PAYMENTS
check to adjacent form | Drawn by
I am paying other premiums | and payable to |_| CONTINENTAL ASSURANCE COMPANY OF CHICAGO, IL
to you on policy number(s): | (Check One) |_| VALLEY FORGE LIFE INSURANCE COMPANY OF READING, PA
________________________________|____________________________________________________________________________________
and desire to have one draw each|Name of Depositor as it appears on bank records
month for all premiums on the | ___________________________________________________________________________________
1st, 9th, 16th, or 23rd day | To: Name of Bank Branch (if any)
ofeach month (circle one). | ___________________________________________________________________________________
| Address of Bank or Branch Checking Account No. or Symbol (if any)
| ___________________________________________________________________________________
| As a convenience to me, I request and authorize you to pay and charge to my
| account electronic debits, checks or drafts drawn by and payable to the above
| indicated Company provided there are sufficient collected funds in said account
| to pay the same upon presentation. I agree that your rights for such draw will
| be the same as if it were a draw personally signed by me. This authority will
| remain in force until revoked by me in writing, and until you actually receive
| such notice. I agree that you will be fully protected in honoring any such draw.
| I AGREE THAT IF ANY SUCH DRAW IS HONORED, WHETHER WITH OR WITHOUT CAUSE AND
| WHETHERINTENTIONALLY OR INADVERTENTLY, YOU WILL BE UNDER NO LIABILITY EVEN
| THOUGH SUCH DISHONOR RESULTS IN THE FORFEITURE OF INSURANCE.
| ______________________________________________________________________________
| Date Signature (Must be the same as on file at bank)
| ______________________________________________________________________________
| [GRAPHIC OMITTED] Joint Account Signature
|______________________________________________________________________________
</TABLE>
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<PAGE>
Date Submitted: REQUIREMENTS ORDERED
Blood HOS MED INSP APS EKG QUEST Other
Proposed Insured 1: |_| |_| |_| |_| |_| |_| |_| |_|
Proposed Insured 2: |_| |_| |_| |_| |_| |_| |_| |_|
Was the Proposed Insured(s) advised that someone would be calling to verify
information |_| Yes |_|No. If "Yes", best time to call? Home |_| am |_| pm /
Office |_| am |_| pm - central time.
________________________________________________________________________________
IMPORTANT INSTRUCTIONS
WHEN THE TOTAL AMOUNT OF COVERAGE DESIRED EXCEEDS $500,000
If money is to be taken with the application and if coverage for an amount
greater than $500,000 is desired, the amount applied for should be shown as
$500,000 (the maximum liability specified in the Conditional Premium Receipt),
and the corresponding premium for $500,000 is all that is to be collected. In
the Special Features question #14 indicate "If approved, instead of this policy,
issue an alternate policy for $XXX, same plan, based on the representation of
this application." The $XXX is the total amount desired. Our underwriting
guidelines and rules will be based on this amount. If, in fact, alternate
policies are desired, specify plans and face amounts of policies. Under no
--------
circumstances collect, submit, or retain premium to purchase insurance in excess
- -------------------------------------------------------------------------------
of $500,000 on a proposed insured's life.
- ----------------------------------------
AGENT'S REPORT THIS REPORT SHOULD ALWAYS BE COMPLETED AND REMAIN ATTACHED TO THE
APPLICATION.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Purpose of Insurance |_|Personal: |_|Estate Creation |_|Family Protection |_|Charitable |_|Other
____________________________________________________________________________________________
|_|Business: |_|Key Person |_|Buy-Sell |_|Creditor |_|Sole Proprietor
|_|Corporation |_|Other
If business, are other business associates being insured?
|_|Yes |_|No If "No" give explanation below.
History of How long have you known the proposed insured(s)?
Proposed Insured(s) |_|Friend |_|Acquaintance |_|Existing Client |_|Relative |_|Stranger
Prior Residence and Business Name and Address if current is less than 5 years:
_____________________________________________________________________________________________________________________
Premiums: Annual $______________________ Mode premium $_____________________Rate class quoted__________
Cash with Check one: |_|No payment was accepted with application.
Application |_|Payment was received with the application and a conditional receipt
was issued.
Amount of payment $_______________________ Date received _____________________
Does the child appear in good health? |_|Yes |_|No |_|Did not see the child
If Proposed Primary Are all brothers and sisters insured for equal amounts?
|_|Yes |_|No Insured is a Juvenile Are parents insured for at least as much as
that applied for and in force on the child?
|_|Yes |_|No Explain any "No" answers below
Explanations and
Special request
Agents credit
Writing Agent___________________________________________code___________________Split %___________
District Agent__________________________________________code___________________Split %___________
General Agent___________________________________________code___________________Split %___________
Managing General Agent/Sales Office_____________________code___________________Split %___________
Life Sales Rep__________________________________________code___________________Split %___________
<PAGE>
I represent that (1)I |_| did |_| did not personally see the proposed insured(s) when the application was taken;
(2) I truly and accurately recorded in this application the information as supplied by the owner and
the proposed insured(s); (3) to the best knowledge and belief there is nothing adversely affecting the
insurability of the proposed insured(s) other than as indicated in this application; and (4) the written disclosure
statement as given on or before the date the application was signed.
Writing Agent X__________________________________________ Date ______________________________________________
Other Agent X ____________________________________________ Date ______________________________________________
Other Agent X ____________________________________________ Date ______________________________________________
_____________________________________________________________________________________________________________________
So that you may comply with your depositor's request, |I AGREE TO THE FOLLOWING CONDITIONS:
|_| CONTINENTAL ASSURANCE COMPANY |
|_| VALLEY FORGE LIFE INSURANCE COMPANY agrees: |1.The payment of the premiums
1. To indemnify you and hold you harmless from any loss you may suffer as a | in this manner may be discontinued
consequence of your actions resulting from or in connection with the | at any time by the Company upon
execution and issuance of any electronic debit, check or draft whether | thirty (30) days written notice or
or not genuine, purporting to be executed and received by you in the | without if any draw is not paid
regular course of business for the purpose of payment to this Company | upon presentation.
including any costs or expenses reasonably incurred in connection |2.This authorization is revocable
therein. | by the undersigned upon receipt
2. In the event that any such electronic debit, check or draft is | by the Company of written
dishonored whether with or without cause, and whether intentionally or | revocation.
inadvertently, to indemnify you for any loss through dishonor which|3.If any such draw is dishonored,
Signature (Must be same as on file at bank) results in a forfeiture of the| the premium for which the draw
insurance. | is made shall be considered
3. To defend at our own cost and expense any action which might be brought | in default.
by any depositor or any other person because of your actions taken Joint|
Account Signature pursuant to this request, or in any manner arising due to|
your participation in this plan of premium collection. |
|
S/ DONALD LOWRY |
Secretay |
|
TO: |
|
________________________________________________________________________________|____________________________________
LV206-363A
</TABLE>
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