<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION--SUBJECT TO CHANGE.
SECURITIES ACT OF 1933 REGISTRATION NO. 2-25483
INVESTMENT COMPANY ACT OF 1940 REGISTRATION NO. 811-1402
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form N-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 47 [X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 27 [X]
(Check appropriate box or boxes.)
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CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (B)
(Exact name of Registrant)
CONTINENTAL ASSURANCE COMPANY
(Name of Insurance Company)
CNA PLAZA, CHICAGO, ILLINOIS 60685
(Address of Insurance Company's Principal Executive Offices) (Zip
Code)
Insurance Company's Telephone Number, including Area Code:
(800) 351-3001
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Lynne Gugenheim, Esq.
Continental Assurance Company
CNA Plaza
Chicago, Illinois 60685
(Name and Address of Agent for Service)
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Please send copies of all correspondence to:
Mitchell L. Hollins, Esq.
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
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It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Group Variable Annuity Contracts
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<PAGE> 2
CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (B)
CROSS REFERENCE SHEET
DATA IN POST-EFFECTIVE AMENDMENT NO. 47 REGISTRATION STATEMENT TO
FORM N-3 (FILE NO. 2-25483)
<TABLE>
<CAPTION>
ITEMS REQUIRED IN PART A OF FORM N-3 LOCATION IN PROSPECTUS
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<S> <C>
1. Cover Page................................. Cover Page
2. Definitions................................ Glossary
3. Synopsis or Highlights..................... Summary
4. Condensed Financial Information............ Condensed Financial Information
5. General Description of Registrant and
Insurance Company....................... Description of CAC and Separate Account (B);
Description of Group Variable Annuity
Contracts
6. Management................................. Management; Summary
7. Deductions and Expenses.................... Deductions and Expenses
8. General Description of Variable Annuity
Contracts............................... Description of Group Variable Annuity
Contracts
9. Annuity Period............................. Annuities; Annuity Payments; Benefits on
Death or Withdrawal
10. Death Benefit.............................. Benefits on Death or Withdrawal
11. Purchases and Contract Value............... Description of Group Variable Annuity
Contracts; Deductions and Expenses
12. Redemptions................................ Benefits on Death or Withdrawal
13. Taxes...................................... Federal Taxes
14. Legal Proceedings.......................... Legal Matters
15. Table of Contents of the Statement of
Additional Information.................. Table of Contents of the Statement of
Additional Information
</TABLE>
<TABLE>
<CAPTION>
ITEMS REQUIRED IN PART B OF FORM N-3 LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------ -----------------------------------------------
<S> <C>
16. Cover Page................................. Cover Page
17. Table of Contents.......................... Table of Contents
18. General Information and History............ Description of CAC and Separate Account (B)*;
Investment Advisory Services; Securities
Custodian Description of CAC and Separate
Account (B)-
19. Investment Objectives and Policies......... Investment Policies and Restrictions*
20. Management................................. Management of Separate Account (B)
Management--Investment Advisory
21. Investment Advisory and Other Services..... Agreement*; Investment Advisory Services
22. Brokerage Allocation....................... Brokerage Allocations
23. Purchase and Pricing of Securities Being
Offered................................. Underwriting; Deductions and Expenses*
24. Underwriters............................... Underwriting
25. Calculation of Performance Data............ Calculation of Performance Data
26. Annuity Payments........................... Annuity Payments*
27. Financial Statements....................... Financial Statements; Financial Statements of
CAC
</TABLE>
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* Indicates a location in the Prospectus rather than in the Statement of
Additional Information.
<PAGE> 3
PROSPECTUS
GROUP
VARIABLE
ANNUITY
CONTRACTS B LOGO
The group variable annuity contracts described in this prospectus provide:
- tax deferred annuities for employees of public schools and certain
tax-exempt organizations; and
- retirement plans for self-employed individuals and their eligible
employees.
You may participate in these contracts by investing in Continental
Assurance Company Separate Account (B), a separate account created by
Continental Assurance Company. We will place all purchase payments that you make
under a contract, after the deduction of initial charges, in Separate
Account (B).
Separate Account (B) invests its assets primarily in common stocks and
securities convertible into common stocks. The primary investment objective of
the separate account is the growth of capital in relation to the growth of the
economy and the changing value of the dollar. Current investment income is only
a secondary objective. Continental Assurance Company acts as investment adviser
to, and as principal underwriter for, Separate Account (B).
Group variable annuity contracts involve risks, including possible loss of
principal, and are not a deposit or obligation of, or guaranteed or endorsed by,
any bank or depository institution. The contracts are not federally insured by
the Federal Deposit Insurance Corporation, The Federal Reserve Board, or any
other agency.
Please read this prospectus carefully before investing and keep it for
future reference. It contains important information about the separate account
and the group variable annuity contracts that you need before purchasing a
contract.
To learn more about Separate Account (B) and the contracts offered by this
prospectus, you can obtain a copy of the Statement of Additional Information
dated April 30, 1999. The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this prospectus. The table of contents of the Statement of Additional
Information appears on page 42 of this prospectus. For a free copy of the
Statement of Additional Information, please call or write us at:
Continental Assurance Company
Attn: Individual Pension Accounts-35S
P.O. Box 803572
Chicago, Illinois 60680-3572
Telephone: (800) 351-3001
In addition, the SEC maintains a web site (http://www.sec.gov) that
contains the Statement of Additional Information and other information about
Separate Account (B).
The SEC has not approved or disapproved these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
DATED: APRIL 30, 1999
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS AND IN
THE STATEMENT OF ADDITIONAL INFORMATION. NEITHER CONTINENTAL ASSURANCE COMPANY
NOR SEPARATE ACCOUNT (B) HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT THAN THAT WHICH IS SET FORTH IN THIS PROSPECTUS AND IN THE
STATEMENT OF ADDITIONAL INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 4
Group Variable Annuity Contracts.......................... 4
Fee and Expense Tables with Examples...................... 4
403(b) Plan Contract for Joint Retirement Board Fees
and Expenses.......................................... 4
Level Deduction Contract for 403(b) Plans Fees and
Expenses.............................................. 5
Graded Deduction Contract for 403(b) Plans Fees and
Expenses.............................................. 6
Contract for HR-10 Plans Fees and Expenses............. 7
The Investment Adviser and Investment Advisory Fee........ 8
403(b) Plan Sales and Administrative Charges.............. 8
HR-10 Plan Sales and Administrative Charges............... 9
Purchase Limits........................................... 10
Investment Objectives..................................... 10
Transfers................................................. 10
Annuity Selection......................................... 10
Withdrawals............................................... 10
Penalty Taxes............................................. 11
Condensed Financial Information............................. 12
Description of CAC and Separate Account (B)................. 14
General................................................... 14
Investment Policies and Restrictions...................... 15
Management.................................................. 19
The Committee............................................. 19
Investment Advisory Agreement............................. 19
Deductions and Expenses..................................... 19
Sales and Administrative Charges--General................. 19
Sales and Administrative Charges--403(b) Plans............ 20
Sales and Administrative Charges--HR-10 Plans............. 21
Investment Advisory Charges............................... 22
</TABLE>
2
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Group Variable Annuity Contracts............. 22
General................................................... 22
Sales of Contracts........................................ 23
Voting Rights............................................. 23
Assignment................................................ 23
Modification or Termination of the Contract............... 24
Contractholder Inquiries.................................. 24
Purchase Payments and Accumulations....................... 24
Allocations of Purchase Payments--HR-10 Plans............. 24
Accumulation Period....................................... 25
Value of an Accumulation Unit............................. 25
Withdrawals............................................... 26
Annuities................................................... 27
Electing the Retirement Date and Form of Annuity--403(b)
Plans.................................................. 27
Annuity Options--403(b) Plans............................. 27
Retirement of Participant--HR-10 Plans.................... 28
Annuity Options--HR-10 Plans.............................. 28
Annuity Payments............................................ 30
Determination of Amount of the First Monthly Variable
Annuity Payment........................................ 30
Determination of the Value of an Annuity Unit and Amount
of Second and Subsequent Monthly Variable Annuity
Payments............................................... 30
Examples.................................................. 31
Assumed Investment Rate................................... 32
Benefits on Death or Withdrawal............................. 32
403(b) Plans.............................................. 32
HR-10 Plans............................................... 33
Federal Taxes............................................... 35
Federal Tax Treatment of Participants..................... 35
Federal Tax Status of Separate Account (B)................ 38
Employee Retirement Income Security Act................... 38
Legal Matters............................................... 39
Reports to Participants..................................... 39
Financial Statements........................................ 40
Independent Auditors' Report................................ 41
Table of Contents of the Statement of Additional
Information............................................... 42
Glossary.................................................... 43
</TABLE>
3
<PAGE> 6
SUMMARY
Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus before
deciding to invest in a Contract. Some of the technical terms used in this
prospectus are defined in the Glossary beginning on page 43.
GROUP VARIABLE ANNUITY CONTRACTS
The Contracts offered by this prospectus are designed to provide annuity
payments under two types of plans: 403(b) Plans and HR-10 Plans.
- Contracts for 403(b) Plans are issued to annuity purchase plans adopted
by public school systems and certain tax-exempt organizations under
Section 403(b) of the Internal Revenue Code.
- Contracts for HR-10 Plans are issued to self-employed individuals for
themselves and their employees, or to a trustee for the benefit of such
persons and to associations of self-employed persons for the benefit of
participating members.
We currently offer three types of Contracts for 403(b) Plans: (a) the
403(b) Plan Contract for the Joint Retirement Board. This contract is available
only to employees or retired employees of The Joint Retirement Board of the
Rabbinical Assembly of America, The United Synagogue of America, and The Jewish
Theological Seminary of America (the "Joint Retirement Board"); (b) the level
deduction Contract; and (c) the graded deduction Contract. We currently offer
one type of Contract for HR-10 Plans. Each Contract may be modified or amended.
FEE AND EXPENSE TABLES WITH EXAMPLES
403(B) PLAN CONTRACT FOR JOINT RETIREMENT BOARD FEES AND EXPENSES
<TABLE>
<S> <C>
Your Transaction Expenses
Sales Load Imposed on Purchases (as a percentage of
Purchase Payments).................................... 0.00%
Administrative Expenses (as a percentage of Purchase
Payments)............................................. 0.00%
Deferred Sales Load (as a percentage of Purchase
Payments or amount surrendered)....................... None
Surrender Fee (as a percentage of amount
surrendered).......................................... None
Exchange Fee........................................... 0.00%
Fixed Rate Annuity Purchase Fee........................ $ 250
Your Annual Contract Fee.................................... None
Your Annual Expenses
(as a percentage of average net assets)
Management Fee......................................... 0.50%
Mortality and Expense Risk Fees........................ None
Other Expenses
Service Fee.................................... 0.33%
Administration Fee (paid to the Joint Retirement Board
of the
Rabbinical Assembly of America, et al)..........0.35%
------
Total Other Expenses................................. 0.68%
Total Annual Expenses.................................. 1.18%
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you surrender your Contract at the end of the applicable
time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $12 $39 $67 $147
If you annuitize at the end of the applicable time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $262 $289 $317 $397
If you do not surrender your Contract:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $12 $39 $67 $147
</TABLE>
We designed this table to help you understand the various costs and
expenses that you will bear directly or indirectly. Contractholders
currently pay an annual fee of .83% of average net assets. Under the
administrative service agreement with the Joint Retirement Board, we deduct
an additional fee of .35% from each Contractholder's net asset value as of
August 1 of each year and pay this fee to the Joint Retirement Board. In
addition to the expenses described above, premium taxes may be applicable.
The information presented in the example listed above should not be
considered a representation of past or future expenses. Actual expenses may
be greater or lesser than those shown in the example. The participant has
several different annuity options from which to choose. There is a $250
annuity purchase fee only if the participant chooses a fixed rate annuity.
LEVEL DEDUCTION CONTRACT FOR 403(B) PLANS FEES AND EXPENSES
<TABLE>
<S> <C> <C>
Your Transaction Expenses
Sales Load Imposed on Purchases (as a percentage of Purchase
Payments)...................................................... 5.00%
Administrative Expenses (as a percentage of Purchase
Payments)...................................................... 1.00%
Deferred Sales Load (as a percentage of Purchase Payments or
amount surrendered)............................................ None
Surrender Fee (as a percentage of amount surrendered)........... None
Exchange Fee.................................................... 1.00%
Fixed Rate Annuity Purchase Fee................................. $250
Your Annual Contract Fee............................................. None
Your Annual Expenses
(as a percentage of average net assets)
Management Fee.................................................. 0.50%
Mortality and Expense Risk Fees................................. None
Other Expenses
Service Fee.......................................... 0.33%
-----
Total Other Expenses.......................................... 0.33%
Total Annual Expenses........................................... 0.83%
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you surrender your Contract at the end of the applicable
time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $68 $86 $104 $159
If you annuitize at the end of the applicable time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $318 $336 $354 $409
If you do not surrender your Contract:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $68 $86 $104 $159
</TABLE>
We designed this table to help you understand the various costs and
expenses that you will bear directly or indirectly. Contractholders
currently pay an annual fee of .83% of average net assets. In addition to
the expenses described above, premium taxes may be applicable. The
information presented in the example listed above should not be considered
a representation of past or future expenses. Actual expenses may be greater
or lesser than those shown in the example. The participant has several
different annuity options from which to choose. We charge a $250 annuity
purchase fee only if the participant chooses a fixed rate annuity. We
charge a $10 exchange fee for the second and succeeding transfers in most
of the 403(b) Contracts.
GRADED DEDUCTION CONTRACT FOR 403(B) PLANS FEES AND EXPENSES
<TABLE>
<S> <C> <C>
Your Transaction Expenses
Sales Load Imposed on Purchases (as a percentage of Purchase
Payments)...................................................... 5.00%
Deferred Sales Load (as a percentage of Purchase Payments or
amount surrendered)............................................ None
Surrender Fee (as a percentage of amount surrendered)........... None
Exchange Fee.................................................... 1.00%
Fixed Rate Annuity Purchase Fee................................. $250
Your Annual Contract Fee............................................. $30
Your Annual Expenses
(as a percentage of average net assets)
Management Fee.................................................. 0.50%
Mortality and Expense Risk Fees................................. None
Other Expenses
Service Fee.......................................... 0.33%
-----
Total Other Expenses.......................................... 0.33%
Total Annual Expenses........................................... 0.83%
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
If you surrender your Contract at the end of the applicable
time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $88 $165 $292 $437
If you annuitize at the end of the applicable time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $338 $415 $492 $686
If you do not surrender your Contract:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $88 $165 $242 $437
</TABLE>
We designed this table to help you understand the various costs and
expenses that you will bear directly or indirectly. Contractholders
currently pay an annual fee of .83% of average net assets. In addition to
the expenses described above, premium taxes may be applicable. The
information presented in the example listed above should not be considered
a representation of past or future expenses. Actual expenses may be greater
or lesser than those shown in the example. We deduct a 5% sales load for
the first $10,000 of Purchase Payments for each participant; 4% for the
next $10,000 of Purchase Payments for each participant; and 2.5% on all
Purchase Payments in excess of $20,000. CAC also deducts an administrative
charge based upon the previous year's cost of administration. There is no
maximum dollar limit on this charge. In 1999, CAC will assess this charge
at an annual rate of $30 per participant. The participant has several
different annuity options from which to choose. We charge a $250 annuity
purchase fee only if the participant chooses a fixed rate annuity. We
charge a $10 exchange fee for the second and succeeding transfers in most
of the 403(b) Plan Contracts.
CONTRACT FOR HR-10 PLANS FEES AND EXPENSES
<TABLE>
<S> <C>
Your Transaction Expenses
Sales Load Imposed on Purchases (as a percentage of
Purchase Payments).................................... 7.00%
Administrative Expenses (as a percentage of Purchase
Payments)............................................. 1.50%
Deferred Sales Load (as a percentage of Purchase
Payments or amount surrendered)....................... None
Surrender Fee (as a percentage of Purchase Payments
received prior to withdrawal)......................... 2.00%
Exchange Fee........................................... 1.00%
Fixed Rate Annuity Purchase Fee........................ $250
Individual Accounting Fee.............................. $20
Accounting Withdrawal Fee.............................. $10
Your Annual Contract Fee.................................... None
Your Annual Expenses
(as a percentage of average net assets)
Management Fee......................................... 0.50%
Mortality and Expense Risk Fees........................ None
Other Expenses
Service Fee.....................................0.33%
------
Total Other Expenses................................. 0.33%
Total Annual Expenses.................................. 0.83%
</TABLE>
7
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
If you surrender your Contract at the end of the
applicable time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $143 $185 $223 $322
If you annuitize at the end of the applicable time period:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $393 $435 $473 $572
If you do not surrender your Contract:
You would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets: $123 $215 $253 $362
</TABLE>
We designed this table to help you understand the various costs and
expenses that you will bear directly or indirectly. Contractholders
currently pay an annual fee of .83% of average net assets. In addition to
the expenses described above, premium taxes may be applicable. The
information presented in the example listed above should not be considered
a representation of past or future expenses. Actual expenses may be greater
or lesser than those shown in the example. We deduct a sales load under
these Contracts that vary from 0% to 7% depending on the Contract. The
administrative expense under these Contracts varies from 0% to 1.5%
depending on the contract. The participant has several different annuity
options from which to choose. We charge a $250 annuity purchase fee only if
the participant chooses a fixed rate annuity. CAC may deduct an additional
charge for the maintenance of individual accounting records, not to exceed
$20 for each new entrant and $10 per year per participant thereafter and
$10 at each withdrawal. CAC did not deduct this charge in 1996, 1997 or
1998. We deduct a $10 exchange fee for the second and succeeding transfer
in most of the HR-10 Plan Contracts. We deduct a surrender fee (termination
charge) of 2% of the Purchase Payments received prior to withdrawal when
your Account is terminated and the entire interest in the Contract is
withdrawn. We deduct a termination charge of 2% of the pro rata amount of
Purchase Payments received when you withdraw part of your interest in the
Contract.
CAC believes the fees and charges deducted under the Contracts, in the
aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred and the risks assumed by CAC.
THE INVESTMENT ADVISER AND
INVESTMENT ADVISORY
FEE...................... CAC acts as the investment adviser to Separate
Account (B). CAC is a stock life insurance company
that was organized under the Illinois Insurance
Code in 1911. CAC maintains its principal office at
CNA Plaza, Chicago, Illinois 60685. Separate
Account (B) is registered as an open-end
diversified management investment company under the
1940 Act.
CAC receives an investment advisory fee at the
annual rate of 0.5% of the average daily net asset
value of Separate Account (B) and a service fee at
the annual rate of 0.33% of the average daily net
asset value of Separate Account (B) for investment
management and other services.
8
<PAGE> 11
403(B) PLAN SALES AND
ADMINISTRATIVE CHARGES... Joint Retirement Board Contract. Under the current
403(b) Plan Contract with the Joint Retirement
Board, CAC does not deduct any charge for sales and
administrative expenses from Purchase Payments.
Under the administrative service agreement with the
Joint Retirement Board effective January 1, 1997,
each Participant under the Joint Retirement Board
Plan is charged a fee of .35% of the Participant's
net asset value as of each August 1. That fee is
remitted to the Joint Retirement Board for
administrative services performed by it on behalf
of Joint Retirement Board Plan Participants.
Level Deduction Contract. Under the level
deduction Contract, we deduct 6% (6.38% of the net
amount invested) from each Purchase Payment for
sales and administrative expenses. Of such 6%
deduction, 5% is for sales expenses and 1% is for
administrative expenses. CAC reserves the right to
increase the rate of deductions for administrative
expenses in the future. Although CAC no longer
offers new level deduction Contracts to employers,
it continues to honor and to service existing level
deduction Contracts with current Contractholders
and to accept Purchase Payments under such
Contracts.
Graded Deduction Contract. Under the graded
deduction Contract, we deduct up to 5% (5.26% of
the net amount invested) from each Purchase Payment
for sales expenses. We reduce the deduction on a
graduated scale based upon the aggregate Purchase
Payments made under both fixed and variable
annuities. The minimum deduction before allowance
for experience rating credits is 2.5% (2.57% of the
net amount invested). CAC also deducts an
administrative charge based upon the previous
year's cost of administration. There is no maximum
dollar limit on this charge. In 1999, CAC will
assess this charge at an annual rate of $30 per
participant.
HR-10 PLAN SALES AND
ADMINISTRATIVE CHARGES... We deduct a charge of 0 to 8.5% of Purchase
Payments (0 to 9.29% of the net amount invested)
from each Purchase Payment. This charge is the sum
of the following expenses:
- sales expenses amounting to a deduction of 0 to
7.0% of Purchase Payments (0 to 7.65% of the net
amount invested); and
- administrative expenses amounting to a deduction
of 0 to 1.5% of Purchase Payments (0 to 1.64% of
the net amount invested).
We credit the balance of the Purchase Payment,
after we deduct sales and administrative charges,
to the participant's account in the form of
Accumulation Units. The exact level of such charges
will vary from Contract to Contract, depending on
volume of Purchase Payments expected, services to
be performed by CAC and the applicable commission
expenses. Accordingly, we will not reduce sales
charges on
9
<PAGE> 12
individual Contracts upon attainment of any given
level of Purchase Payments. Certain Contracts may
also provide for additional annual fixed dollar
charges imposed on a per participant basis for the
maintenance of individual accounting records. CAC
reserves the right to increase the rate of
deductions for administrative expenses in the
future.
PURCHASE LIMITS............ The minimum Purchase Payment on Contracts for
403(b) Plans which can be made at any time on
behalf of any participant is $10. There is no
minimum Purchase Payment on Contracts for HR-10
Plans.
INVESTMENT OBJECTIVES...... Separate Account (B) invests its assets primarily
in common stocks and securities convertible into
common stocks. The primary investment objective of
Separate Account (B) is the growth of capital in
relation to the growth of the economy and the
changing value of the dollar. Current investment
income is only a secondary objective. Separate
Account (B)'s investment policies require CAC, in
making investments for Separate Account (B), to
maintain Separate Account (B)'s status as a
diversified investment company. The dollar amount
of investment accumulation before retirement and
the dollar amount of subsequent retirement benefits
will vary to reflect the dividends, interest and
fluctuations in the market value of the securities
held in Separate Account (B) and will be subject to
the same risks to which any owner of common stocks
is subject.
TRANSFERS.................. Prior to beginning annuity payments, a participant
may transfer funds between fixed and variable
annuity contracts. Some of the 403(b) Plan
Contracts and HR-10 Plan Contracts that we offer
provide that any such transfer will be made without
charge. Others provide that CAC may charge a $10
exchange fee for the second and each succeeding
transfer in any calendar year. A participant may
change the percentage allocation of future Purchase
Payments between fixed and variable annuity
contracts at any time without charge.
ANNUITY SELECTION.......... The participant has several different annuity
options from which to choose. We charge a $250
annuity purchase fee if the participant chooses a
fixed rate annuity. For the other annuity options,
there is no fee. CAC reserves the right to change
these charges at any time.
WITHDRAWALS................ 403(b) Plans. A participant may withdraw, without
charge, all or a portion of his individual account
(except for certain amounts attributable to a
salary reduction agreement) before beginning
annuity payments by providing CAC with written
notice. However, effective January 1, 1997, under
the Joint Retirement Board Contract, a participant
must receive written consent from the Joint
Retirement Board prior to providing written notice
to CAC. A withdrawal may be subject to penalty
taxes, in addition to applicable federal income
taxes.
10
<PAGE> 13
HR-10 Plans. Subject to limitations, you may
withdraw part or all of your interest in the
Contract in one lump sum on any Valuation Date,
except for funds held for terminated or retired
participants. If you elect to make such a
withdrawal, CAC will deduct a termination charge of
2% of the pro rata amount of the Purchase Payments
received under the Contract relating to the
withdrawal.
PENALTY TAXES.............. Distributions made prior to age 59 1/2 generally
are subject to a penalty tax of 10%, in addition to
otherwise applicable federal income taxes. We will
not assess this penalty tax under the following
circumstances:
- if the distribution is made in connection with
death or disability;
- if the distribution is made after separation
from service where the separation occurred after
the participant attains age 55;
- if the distribution is part of a series of
annual or more frequent annuity payments made
after separation from service and at least over
the life of the participant;
- if the distribution is made for certain medical
expenses within the deductible limitation under
the Internal Revenue Code; or
- if the distribution is made to an alternate
payee pursuant to a qualified domestic relations
order ("QDRO").
11
<PAGE> 14
CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (B)
------------------
CONDENSED FINANCIAL INFORMATION
INCOME AND CAPITAL CHANGES PER ACCUMULATION UNIT
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income(a)............ $ .196 $ .238 $ .194 $ .187 $ .189 $ .155 $ .164 $ .185 $ .243 $ .299
Expenses(b)..................... .160 .134 .107 .085 .073 .068 .060 .052 .044 .042
------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net investment income........... .036 .104 .087 .102 .116 .087 .104 .133 .199 .257
Capital changes
Net realized and unrealized
gain (loss) on
investments................. 3.826 3.450 2.314 2.788 (.181) 1.124 .307 1.707 (.055) .491
------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Net increase (decrease) in net
asset value................. 3.862 3.554 2.401 2.890 (.065) 1.211 .411 1.840 .144 .748
Accumulation unit value at the
beginning of the period....... 17.692 14.138 11.737 8.847 8.912 7.701 7.290 5.450 5.306 4.558
------- ------- ------- ------- ------ ------ ------ ------ ------ ------
Accumulation unit value at end
of period..................... $21.554 $17.692 $14.138 $11.737 $8.847 $8.912 $7.701 $7.290 $5.450 $5.306
======= ======= ======= ======= ====== ====== ====== ====== ====== ======
Ratio of fees and expenses to
average net assets(b)(c)...... .83% .83% .83% .83% .83% .83% .83% .83% .83% .83%
Ratio of net investment income
to average net assets(c)...... .19% .64% .67% 1.00% 1.31% 1.05% 1.44% 2.11% 3.74% 5.08%
Portfolio turnover rate......... 41% 45% 53% 46% 52% 69% 71% 13% 55% 47%
Number of accumulation units
outstanding at end of period
(000 omitted)................. 8,321 8,613 8,502 8,763 9,299 9,385 9,935 10,486 11,086 11,983
</TABLE>
- ---------------
(a) No declaration of dividends or distribution of gains is made, and such
amounts are applied to increase Accumulation Unit values.
(b) Pursuant to the terms of the Investment Advisory Agreement, CAC makes
quarterly withdrawals for investment advisory services to Separate Account (B)
at an annual rate of .5% of the average net asset value and quarterly
withdrawals of a service fee at an annual rate of .33% of the average net asset
value.
(c) Participants' equity appearing in the financial statements incorporated
by reference herein is the equivalent of net assets.
Separate Account (B) may from time to time measure performance in terms of
total return, which is calculated for any specified period of time by assuming
the purchase of units at Separate Account (B)'s unit value at the beginning of
the period. Such units are then valued at Separate Account (B)'s unit value at
the end of the period. The percentage increase is determined by subtracting the
initial value of the investment from its value at the end of the period and
dividing that amount by the initial value. The total return on this hypothetical
investment in Separate Account (B) shows its overall dollar or percentage change
in value, exclusive of fees based on the initial amount of the contribution and
recurring annual fees. If these fees were included, the amount or return that a
Participant would realize for an investment during the specified period would be
lower.
12
<PAGE> 15
A cumulative total return reflects Separate Account (B)'s performance over
a stated period of time. An average annual total return reflects the
hypothetical annually compounded return that would have produced the same
cumulative return if Separate Account (B)'s performance had been constant over
the entire period. Because average annual returns for more than one year tend to
smooth out variation's in Separate Account (B)'s annual returns, participants
should recognize that such figures are not the same as actual year-by-year
results. Separate Account (B) performance figures are based on historical
results and are not intended to indicate future performance. The investment
return and unit value of Separate Account (B) will vary and may be worth more or
less at redemption than their original cost.
From time to time, Separate Account (B) may produce advertising or sales
materials which disclose its performance over various periods of time. Separate
Account (B) may also compare its performance to that of selected other funds,
fund averages or recognized stock market indices. Such performance ratings or
comparisons may be made with funds that may have different investment
restrictions, objectives, policies or techniques than Separate Account (B) and
the portfolios of such other funds or market indices may be comprised of
securities that differ significantly from Separate Account (B)'s investments.
13
<PAGE> 16
DESCRIPTION OF CAC AND SEPARATE ACCOUNT (B)
GENERAL
CAC is a stock life insurance company which was organized under the
Illinois Insurance Code in 1911, and has been an investment adviser registered
under the Investment Advisers Act of 1940 since 1966. Its life insurance
business involves the writing of group and individual life insurance, accident
and health insurance, and annuity policies. CAC's principal office is located at
CNA Plaza, Chicago, Illinois 60685.
All of the voting securities of CAC are owned by Casualty, a stock casualty
insurance company organized under the Illinois Insurance Code, located at CNA
Plaza, Chicago, Illinois 60685. All of the voting securities of Casualty are
owned by CNA Financial, a Delaware corporation, located at CNA Plaza, Chicago,
Illinois 60685. Loews Corporation, a Delaware corporation, located at 667
Madison Avenue, New York, New York 10021-8087, with interests in insurance,
hotels, watches and other timing devices, drilling rigs and tobacco, owned
approximately 85% of the outstanding voting securities of CNA Financial as of
December 31, 1998. Laurence A. Tisch, the Chairman of the Board, Co-Chief
Executive Officer and a director of Loews Corporation and Chief Executive
Officer and a director of CNA Financial, and his brother, Preston R. Tisch,
President, Co-Chief Executive Officer and a director of CNA Financial and Loews
Corporation, owned, in the aggregate, approximately 31% of the outstanding
common stock of Loews Corporation as of December 31, 1998. Therefore, they may
be deemed to be parents of Loews Corporation, and thus of CNA Financial and CAC,
within the meaning of the federal securities laws.
Separate Account (B) was established by CAC on June 1, 1966, under the
provisions of the Illinois Insurance Code, in order to fund variable annuity
contracts. In addition to serving as investment adviser to Separate Account (B),
CAC also serves as investment adviser to CNA Income Shares, Inc., a closed-end
diversified management investment company.
Variable annuity contracts are securities within the meaning of the
Securities Act of 1933, and are not exempt from registration under the
provisions of that Act. The issuer of such contracts is subject to regulation
under the 1940 Act. Separate Account (B) has been registered as an open-end
diversified management investment company under the 1940 Act, but such
registration does not involve supervision of the management or the investment
practices or policies of Separate Account (B) or CAC by the SEC. Separate
Account (B) has no sub-accounts. Net Purchase Payments made in accordance with
the provisions of the Contracts described herein are added to Separate Account
(B) and invested as described herein. Net Purchase Payments made prior to April
29, 1977 under HR-10 Plan Contracts were added to Continental Assurance Company
Separate Account (A) and invested therein.
CAC owns Separate Account (B)'s assets and, under existing law, is not
considered to be a Trustee with respect to those assets. Nevertheless, the
assets of Separate Account (B) are held for the benefit of the participants and
persons entitled to payments under the Contracts described in this prospectus.
Moreover, investment income and gains and losses from assets allocated to
Separate Account (B) (whether realized or not) are credited to or charged
against Separate Account (B) without regard to other income, gains or losses of
CAC (in accordance with the Contracts' provisions). Thus, the dollar amount of
payments or values which vary reflect the investment results of just Separate
Account (B). Additionally, the Illinois Insurance Code and the Contracts
themselves prohibit CAC from charging any liabilities arising out of other
business of CAC against Separate Account (B)'s assets (equal to the reserves and
other contract liabilities of Separate Account (B)).
14
<PAGE> 17
INVESTMENT POLICIES AND RESTRICTIONS
The objectives and policies in making investments for Separate Account (B)
are set forth below.
1. The primary objective of CAC in making investments for Separate Account
(B) will be the growth of capital in relation to the growth of the
economy and the changing value of the dollar. Current investment income
is only a secondary objective. Accordingly, the assets of Separate
Account (B) will be invested primarily in common stocks and in other
securities convertible into common stocks.
2. When CAC believes that economic and market conditions indicate a
likelihood that investing a majority of the assets of Separate Account
(B) in common stocks or securities convertible into common stocks might
result in a material decrease in the unit value of Separate Account (B),
less than a majority of the assets of Separate Account (B) may be
invested in common stocks or securities convertible into common stocks.
In these situations, any assets not invested in common stocks or
securities convertible into common stocks will be invested primarily in
investment grade debt instruments with a maturity of one year or less,
such as U.S. Treasury bills, bank certificates of deposit, bank
repurchase agreements or commercial paper.
3. When CAC deems that economic and market conditions so indicate, a
portion of the assets of Separate Account (B) may be invested in
preferred stocks and publicly distributed debt instruments such as
corporate bonds, debentures, equipment trust certificates, U.S.
Government securities or U.S. Government Agency securities.
4. Temporary investments for Separate Account (B) may be made in short-term
instruments such as U.S. Treasury Bills, bank certificates of deposit,
bank repurchase agreements or commercial paper.
5. To the extent of 75% of the assets of Separate Account (B), CAC may not
purchase for Separate Account (B) the securities of any issuer if such
purchase would cause more than 5% of the market value of Separate
Account (B)'s assets to be invested in the securities of such issuer
(other than obligations of the United States and its instrumentalities)
or would cause more than 10% of any class of securities of such issuer
to be held in Separate Account (B)'s portfolio. The balance of 25% of
the assets of Separate Account (B) may be invested without regard to
such 5% or 10% limitations.
6. CAC, in acting for Separate Account (B), will not underwrite securities
of others or invest in restricted securities.
7. CAC, in acting for Separate Account (B), will not concentrate more than
25% of Separate Account (B)'s investments in any one industry.
8. The assets of Separate Account (B) will not be invested in commodity
contracts.
9. The assets of Separate Account (B) will not be invested in securities
contracts of investment companies.
10. CAC, in acting for Separate Account (B), will not make loans to other
persons except through the acquisition of securities issued or
guaranteed by banks, bonds, debentures, other debt securities which are
publicly distributed and the lending of portfolio securities
("Portfolio Loans"). Portfolio Loans will be continually secured by
cash, letters of credit, U.S. Government
15
<PAGE> 18
securities or U.S. Government Agency securities having a market value of
not less than the market value of the portfolio securities loaned. The
aggregate value of Portfolio Loans will not exceed 25% of Separate
Account (B)'s net assets at any time.
11. CAC, in acting for Separate Account (B), will not engage in the
purchase and sale of interests in real estate, except that CAC may
engage in the purchase and sale of marketable securities of real estate
companies and real estate trusts which may represent indirect interests
in real estate.
12. CAC, in acting for Separate Account (B), will not purchase securities
for the purpose of control or management of the issuer thereof.
13. CAC will not make short sales for Separate Account (B).
14. CAC will not borrow money for Separate Account (B).
15. CAC will keep Separate Account (B)'s assets substantially fully
invested in assets described in paragraphs 1, 2, 3 and 4 above, as
described therein, and will limit Separate Account (B)'s cash position,
to the extent feasible, to such amounts as may be required to permit
CAC to make normal contract payments from Separate Account (B).
16. CAC, in acting for Separate Account (B), will not issue any senior
securities (as defined in the 1940 Act) except for the lending of
portfolio securities permitted by paragraph 10 above.
The investment policies enumerated above may not be changed without
approval of a majority (as defined in the 1940 Act) in interest of the
participants.
There is no investment policy limitation as to the timing of sales and
purchase of securities. Although it will not be the general policy of CAC, in
acting for Separate Account (B), to engage in short term trading, securities may
be sold without regard to the length of time held whenever investment judgment
makes such action advisable. Since Separate Account (B) is not subject to
federal income taxes on capital gains, it is in a relatively advantageous
position in realizing capital gains even though an increased portfolio turnover
results in correspondingly greater brokerage expenses. The following table sets
forth Separate Account (B)'s rate of total portfolio turnover for the periods
indicated:
<TABLE>
<CAPTION>
RATE OF TOTAL PORTFOLIO TURNOVER PERCENT
- -------------------------------- -------
<S> <C>
1998........................................................ 41%
1997........................................................ 45%
1996........................................................ 53%
</TABLE>
Changes in the rate of portfolio turnover from year to year are
attributable to changes in CAC's assessment of prevailing market conditions. All
investment income and realized capital gains will be reinvested. CAC, in acting
for Separate Account (B), will limit portfolio transactions to those which CAC,
in the exercise of prudent business judgment, deems advisable in order for
Separate Account (B) to carry out its investment policies and to make payments
to participants. The dollar amount of investment accumulation before retirement
and the dollar amount of subsequent retirement benefits will vary to reflect the
dividend, interest and fluctuations in the market value of the securities held
in Separate Account (B) and will be subject to the same risks as are inherent in
the ownership of common stocks.
CAC, in acting for Separate Account (B), will not participate in any
trading account in securities on a joint or joint and several basis; provided,
however, that the bunching of orders for the sale or purchase of
16
<PAGE> 19
marketable portfolio securities with those of other accounts under the
management of CAC or its affiliates and the averaging of prices among Separate
Account (B) and such other accounts will not be deemed to result in a trading
accounting securities. CAC, in acting for Separate Account (B), will not
mortgage or pledge the investments of Separate Account (B), purchase securities
on margin or, except as described below, invest in puts or calls. Unlike the
investment policies and restrictions stated in the preceding paragraphs, the
policies and restrictions described in this paragraph are subject to change
without vote of the participants.
CAC, in acting for Separate Account (B), may write covered call options.
The "writing" of call options by Separate Account (B) means that Separate
Account (B) will be selling the right, but not the obligation, to acquire a
specified number of securities held in Separate Account (B)'s portfolio at a
price set in the option contract (the "exercise price"). The optionholder
generally may exercise this right to purchase the underlying securities at any
time prior to the expiration of the option by notifying Separate Account (B) of
its intention to exercise and delivering to Separate Account (B) funds equal to
the aggregate exercise price of the securities covered by the contract (the
"exercise payment"). Generally, a holder of a call option will exercise its
rights under the call option only if the market price of the underlying stock
exceeds the exercise price of the option. If the market price of the underlying
securities is greater than the option exercise price on the date of exercise,
the holder is, by virtue of the option contract, entitled to purchase the
underlying securities at the below-market exercise price. If the option is
exercised and the market value of the underlying securities exceeds the sum of
the exercise payment and the payment received by Separate Account (B) on the
sale of the option (the "premium"), Separate Account (B) would be left in a less
favorable position than if such call option had not been written (because of the
lost opportunity to realize the economic value represented by such excess).
To close out a position when writing covered call options, Separate Account
(B) may make a "closing purchase transaction," which involves purchasing a call
option on the same security with the same or similar exercise price and
expiration date as the option which it has previously written. Separate Account
(B) will realize a profit or loss from a closing purchase transaction depending
upon the difference between the amount paid to purchase an option and the amount
received from the sale thereof.
CAC, in acting for Separate Account (B), may also purchase covered put
options for hedging purposes. A put option gives the purchaser of the option the
right to sell, and obligates the writer to buy, the underlying securities at the
exercise price at any time during the term of the option. Generally, a holder of
a put option will exercise its rights under the put option, only if the market
price of the underlying securities is less than the exercise price of the
option. If the put option is not exercised or the amount by which the exercise
price exceeds the market price of the underlying securities is less than the
premium paid, Separate Account (B) would be left in a less favorable position
than if such put option had not been purchased. If market conditions are
appropriate for Separate Account (B) to exercise the purchased put option,
Separate Account (B) also may sell a put option to close out a purchased put
option rather than exercising the purchased put option.
Separate Account (B) will write call options and purchase put options only
if the related stock is held in its portfolio. The put and call options
described above will generally have a contract term of nine months or less. The
market value of the securities subject to such option obligations at the time
such options are written or purchased will not, in the aggregate, exceed 20% of
Separate Account (B)'s total assets.
The use of options exposes Separate Account (B) to certain additional
investment risks and transaction costs. The risks that may be associated with
the use of option contracts include, but are not
17
<PAGE> 20
limited to, the risk that securities prices will not move in the direction
anticipated by Separate Account (B) and the risk that the skills needed to
successfully use option strategies may be different from those needed to select
portfolio securities. In addition, assets segregated or set aside to cover the
writing of a call option generally may not be disposed of during the term of
such option. Segregating assets could diminish Separate Account (B)'s return due
to the opportunity losses of foregoing other potential investments with the
segregated assets.
CAC is permitted to enter into repurchase agreements and reverse repurchase
agreements on behalf of Separate Account (B). A repurchase agreement is an
instrument under which the purchaser (i.e., Separate Account (B)) acquires
ownership of the obligation (debt security) and the seller agrees, at the time
of the transfer, to repurchase the obligation at a mutually agreed upon time and
price, thereby determining the yield during the purchaser's holding period. This
results in a fixed rate of return insulated from market fluctuations during such
period. Repurchase agreements usually are for short periods, normally ranging
from one day to one month. Repurchase agreements will be entered into only with
respect to obligations in which Separate Account (B) may otherwise invest.
A reverse repurchase agreement is an agreement under which the lender
(i.e., Separate Account (B)) loans a security, usually a U.S. Government
security, to a borrower, usually a bank or a stockbroker, against cash
collateral. The transaction is normally characterized as a loan by the lender of
the security and a simultaneous agreement by the lender to repurchase such
security at an agreed price at a specified later date. The transaction is
normally structured to permit the lender to receive a yield in excess of the
yield of the underlying security. Reverse repurchase agreements are usually made
for short periods, normally ranging from one week to one month. A reverse
repurchase agreement will be a Portfolio Loan permitted by paragraph 10 above.
Sufficient funds will be maintained in the form of cash and short-term
investments, and segregated on an accounting basis, to satisfy such repurchase
commitments.
The Federal Bankruptcy Code provides that a repurchase participant may
enforce a clause requiring the liquidation of a repurchase agreement because of
the insolvency or financial condition of the other party to the repurchase
agreement or because of the commencement of the bankruptcy case by the other
party to the repurchase agreement. The Federal Bankruptcy Code also provides
that the automatic stay does not apply to the set-off by a repurchase
participant of a mutual debt or claim in connection with repurchase agreements
where the set-off is for a margin payment or a settlement payment. Repurchase
agreements are narrowly defined by Section 101(47) of the Bankruptcy Code to
mean only agreements involving the transfer of certificates of deposit, eligible
banker's agreements or securities that are direct obligations of or fully
guaranteed by the United States government. Repurchase agreements not falling
within this definition may not be covered by the protection of Sections 559 and
362(b)(7) of the Bankruptcy Code. It is possible that repurchase agreements not
covered by those sections may be considered by a bankruptcy court to be loans by
the purchaser to the seller. In such event, the purchaser might not be able to
sell the obligation in the event of bankruptcy of seller without leave of the
appropriate court. The purchaser would then be at risk due to a decline of the
value of the obligation, and in the event of bankruptcy would face delays in the
sale of the obligation and would incur legal, disposition and other expenses.
CAC will limit investments by Separate Account (B) which may not be sold
and settlement received therefor within three business days (or such shorter
settlement period as the Commission designates for investment companies as
defined under the 1940 Act) to 10 percent of the net assets of Separate Account
(B).
18
<PAGE> 21
MANAGEMENT
THE COMMITTEE
The supervision of Separate Account (B) is vested by CAC in a Committee.
The Committee has the following specific duties:
1. To review periodically the portfolio of Separate Account (B) to
ascertain that such portfolio is managed in the long-term interest
of the participants and to take such corrective action as may be
necessary.
2. To approve, annually, agreements providing for sales, investment
and administrative services.
3. To recommend from time to time any changes deemed appropriate in
the fundamental investment policies of Separate Account (B), to be
submitted to the participants at their next meeting.
4. To select independent auditors, whose engagement shall be approved
annually by the participants.
The Committee is also authorized to amend the Regulations for Government of
Separate Account (B), except as otherwise provided by law.
INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement, CAC acts as the investment adviser
to Separate Account (B). In rendering its services as investment adviser, CAC is
responsible to the Committee. CAC, as Separate Account (B)'s investment adviser,
provides Separate Account (B) with an investment program complying with the
investment objectives, policies and restrictions of Separate Account (B) (see
"Description of CAC and Separate Account (B)--Investment Policies and
Restrictions"). In carrying out Separate Account (B)'s investment program, CAC
makes the investment decisions and is responsible for the investment and
reinvestment of the Separate Account's assets by the purchase and sale of
securities on behalf of the Separate Account. CAC performs research, statistical
analysis, and continuous supervision of Separate Account (B)'s investment
portfolio, and also furnishes office space for Separate Account (B) and pays the
salaries and fees of Separate Account (B)'s officers and Committee Members. The
Investment Advisory Agreement does not require employees of CAC to devote their
exclusive efforts to Separate Account (B)'s business, and it is expected that
they will provide investment advisory services for CAC's other customers and for
CNA Financial and its affiliates.
DEDUCTIONS AND EXPENSES
SALES AND ADMINISTRATIVE CHARGES--GENERAL
CAC may be deemed to be the principal underwriter for Separate Account (B)
and performs all sales and administrative functions relative to the Contracts
and Separate Account (B). CAC does not act as principal underwriter for any
other investment company.
19
<PAGE> 22
CAC received the following sales and administrative fees in connection with
the operations of Separate Account (B):
<TABLE>
<CAPTION>
SALES AND ADMINISTRATIVE FEES AMOUNT
- ----------------------------- -------
<S> <C>
1998........................................................ $10,428
1997........................................................ 11,417
1996........................................................ 12,704
</TABLE>
CAC, in its sole discretion, may grant an experience rating credit to
participants covered by a 403(b) Plan Contract based upon its profitability.
Experience rating credits of 1% to 5% of Purchase Payments have been granted in
certain cases where substantial individual solicitation has not been necessary.
SALES AND ADMINISTRATIVE CHARGES--403(B) PLANS
The following is an overview of the sales and administrative charges
applicable to the different types of 403(b) Plans offered by Separate Account
(B):
JOINT RETIREMENT BOARD CONTRACT. Under the administrative service
agreement with the Joint Retirement Board, effective January 1, 1997, each
Participant under the Joint Retirement Board Plan is charged a fee of .35% of
the Participant's net asset value as of each August 1. That fee is remitted to
the Joint Retirement Board for administrative services performed by it on behalf
of its 403(b) Plan Participants.
LEVEL DEDUCTION CONTRACTS. Pursuant to the Administrative Service
Agreement, and as provided in the Contracts, CAC currently deducts 6% (6.38% of
the net amount invested) from each Purchase Payment as received for sales
expenses and administrative expenses. Of such 6% deduction, 5% is for sales
expenses and 1% is for administrative expenses. These charges do not cover the
expenses covered by the service fee charged under the Investment Advisory
Agreement. CAC guarantees that during the first five years of a participant's
participation under the Contract no further deductions will be made to cover
such expenses, but any part of the 6% aggregate charge not needed to cover such
expenses accrues as a profit to CAC. Following the end of the fifth year of
participation under the Contract, the 1% deduction by CAC from Purchase Payments
to cover administrative expenses may be increased by CAC upon prior written
notice to the participant.
GRADED DEDUCTION CONTRACTS. Pursuant to the Administrative Service
Agreement, and as provided in the Contracts, to cover sales expenses CAC makes
deductions from Purchase Payments as follows:
- 5% (5.26% of the net amount invested) on the first $10,000 of
Purchase Payments for each participant;
- 4% (4.17% of the net amount invested) on the next $10,000 of
Purchase Payments for each participant; and
- 2.5% (2.57% of the net amount invested) on all Purchase Payments
for each participant in excess of $20,000.
Total Purchase Payments for each participant under both fixed and variable
annuity contracts are included in determining the charge. Any part of such
charge which is not needed to cover such expenses accrues as a profit to CAC.
20
<PAGE> 23
Pursuant to the Administrative Service Agreement, and as provided in the
Contracts, CAC makes an administrative charge based upon its cost of
administration. There is no maximum dollar limit on this charge, except that
this charge (for any given year) will not exceed the previous year's cost of
administration. This charge is made on December 31st of each year against the
account of each participant who is not receiving an annuity. In 1999, CAC will
assess this charge at an annual rate of $30 per participant.
Neither the sales charge nor the administrative charge covers the expenses
covered by the service fee charged under the Investment Advisory Agreement.
In the event Purchase Payments are made on behalf of a participant who is
in the accumulation period for a partial year, the administrative charge is
prorated on a monthly basis. For example, if the annual charge for a calendar
year is $30 and the participant is covered under the Contract prior to the
beginning of annuity payments for only eight months of that year, his
administrative charge would be $20.
If no Purchase Payments are received on behalf of a participant during a
calendar year, the deduction from the participant's account for that year will
be 50% of the administrative charge which would otherwise be made. For example,
if the annual charge for a calendar year is $30 and the participant is in the
accumulation period during the entire calendar year but no Purchase Payments are
received on behalf of the participant during the year, his administrative charge
would be 50% of $30 or $15.
SALES AND ADMINISTRATIVE CHARGES--HR-10 PLANS
Pursuant to the Administrative Service Agreement, and as provided in the
Contracts, each Purchase Payment received by CAC under an HR-10 Plan Contract
is, after deduction of a percentage charge, credited to Separate Account (B).
The charge ranges from 0 to 8.5% of Purchase Payments (0 to 9.29% of the net
amount invested) comprised of 0 to 7% of Purchase Payments (0 to 7.65% of the
net amount invested) to cover sales expenses and 0 to 1.5% of Purchase Payments
(0 to 1.64% of the net amount invested) to cover certain administrative
expenses. This charge does not cover the expenses covered by the service fee
charged under the Investment Advisory Agreement. CAC guarantees that, except for
this charge and the charges described below, no further deductions will be made
for sales and administrative expenses. While CAC intends that this charge merely
cover such expenses, if any part of this charge is not needed to cover such
expenses, such part accrues as a profit to CAC. Conversely, if such expenses
exceed this charge, a loss to CAC results. The exact level of this charge will
vary from Contract to Contract, depending on the volume of Purchase Payments
expected, the extent of administrative services to be performed by CAC and the
applicable commission expenses. The Contractholder, before entering into a
Contract, and each self-employed or other person subject to the Contract, before
agreeing to make Purchase Payments thereunder, will be given a separate written
statement showing the percentage amount of such charge.
If the Contract so provides, CAC may make additional fixed dollar charges
per participant for the maintenance of individual accounting records. These
charges will not exceed $20 for each entry into the plan relating to such
Contract, $10 per year per participant thereafter, and $10 at each withdrawal.
The initial charge levels anticipated by CAC will be furnished at the time that
application for the Contract is under consideration, and the charges provided
for will be based upon CAC's good faith estimate of the cost to it for the
maintenance of individual accounting records. At the present time, there are no
Contracts in force under which fixed dollar charges per participant are made.
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No increase in the percentage charge for sales and administrative expense,
or in any charge per participant, may be made during the first five Contract
years. After the first five Contract years, the portion of such charges intended
to cover administrative expenses may be changed on the basis of CAC's expenses.
INVESTMENT ADVISORY CHARGES
CAC makes quarterly withdrawals from Separate Account (B) as follows:
- at an annual rate of 0.5% of the average daily net asset value of
Separate Account (B) for providing investment advisory services, and
- at an additional annual rate of 0.33% of the average daily net
asset value of Separate Account (B) as a service fee for bearing
certain expenses of Separate Account (B). Such expenses are
different from those covered by the Administrative Service
Agreement.
DESCRIPTION OF GROUP VARIABLE ANNUITY CONTRACTS
GENERAL
The Contracts provide one method of investing retirement funds in equity
and other securities. The primary purpose of the Contracts is to provide
lifetime payments which will tend to reflect changes in the cost of living
during both the years prior to retirement and the years following retirement.
CAC seeks to accomplish this objective by providing a medium for investment,
generally in equity securities, accompanied by an assumption of the mortality
risk. However, there can be no assurance that this objective will be attained.
The Contracts involve investment risk, including possible loss of
principal. The value of the investments fluctuates continuously and is subject
to the risks of changing economic conditions as well as the risks inherent in
the ability of CAC to anticipate changes in such investments necessary to meet
changes in economic conditions. There can be no assurance that the value of a
participant's individual account during the years prior to retirement, or the
aggregate amount of the variable annuity payments received during the years
following retirement, will equal or exceed the Purchase Payments made on his
behalf. The Contracts are not a deposit or obligation of, or guaranteed or
endorsed by, any bank or depository institution, and the Contracts are not
federally insured by the Federal Deposit Insurance Corporation, The Federal
Reserve Board, or any other governmental agency.
The variable annuity payments are determined on the basis of (1) the
mortality table specified in the Contract, and (2) the investment performance of
Separate Account (B). The dollar amount of the variable annuity payments will
not be affected by adverse mortality experience or by an increase in CAC's
expenses in excess of the expense deductions provided for in the Contract. The
dollar amounts of the payments will, however, reflect the investment losses or
gains and investment income, and thus will vary.
The significant difference between a regular or fixed annuity and a
variable annuity is that under a fixed annuity, the insurance company assumes
the risk of investment gain or loss and guarantees a specified interest rate and
a specified monthly annuity payment. Under a variable annuity, the participant
assumes the risk of investment gain or loss in that the value of his individual
account varies with the investment income and gains or losses of a specified
portfolio of securities. In both cases, the insurance company assumes the
mortality and expense risk under the Contract.
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In assuming the mortality risk, CAC is taking the chance that the actuarial
estimate of mortality rates among annuitants may prove erroneous; in assuming
the expense risk, CAC is taking the chance that the expense margins deducted by
CAC may not prove sufficient to cover the actual sales and administrative costs
and contingency requirements. In either case, if an error in estimation is
against CAC, CAC's earnings will be reduced; if an error in estimation favors
CAC, CAC's earnings will be increased.
SALES OF CONTRACTS
The Contracts are offered by employees and licensed agents and brokers of
CAC.
VOTING RIGHTS
Participants have the right to vote at any annual meeting of participants
upon the following matters:
1. To elect Members of the Committee for Separate Account (B)
(see "Management--The Committee").
2. To approve or disapprove any new or amended agreement providing for
investment services.
3. To approve or disapprove any changes in the fundamental
investment policies of Separate Account (B).
4. To ratify or reject the Committee's selection of independent
auditors for Separate Account (B).
The Committee currently intends to hold annual meetings of participants for
these purposes. However, there is no requirement under applicable law that
Separate Account (B) hold regular annual meetings of participants and the
Committee, in its discretion, may continue holding regular annual meetings of
participants in the future. Meetings of participants are required by the 1940
Act in certain circumstances, including to approve any change in fundamental
investment policies.
The number of votes which a participant who is not retired may cast is
equal to the number of Accumulation Units held by such participant under the
particular Contract concerned, which represent interests in Separate Account
(B). The number of votes which a retired participant may cast is equal to the
monetary value of the actuarial reserve maintained by CAC in Separate Account
(B) for the annuity of that participant divided by the monetary value of an
Accumulation Unit. As payments are made to a retired participant, the monetary
value of that actuarial reserve is reduced; accordingly, the number of votes
which that retired participant may cast will decrease.
The determination of the number of votes to be cast will be made as of a
date within 60 days prior to the annual meeting of the participants. The
participants will receive at least 20 days' prior written notice of such meeting
and of the number of votes to which they are entitled. A participant will be
entitled to vote only if he is a participant on the foregoing record date and on
the date of the meeting.
ASSIGNMENT
The interest of any participant or beneficiary in or under a Contract is
not subject to assignment or transfer. Transfer or surrender of such interest
may be made only to CAC.
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MODIFICATION OR TERMINATION OF THE CONTRACT
Each Contract provides that it may be modified or amended in any respect by
agreement between CAC and the Contractholder, without the consent of any
participant. However, no such modification or amendment may affect retired
participants in any manner, nor may any guarantees previously extended to active
participants be impaired. CAC may also modify or amend any Contract, without
your consent or the consent of any participant, in order to conform to
applicable law or to changes in the operation of Separate Account (B) which have
been approved by vote of the participants or by the Committee.
A Contractholder may elect to terminate a Contract at any time by due
notice to CAC. An HR-10 Plan Contractholder has an option to transfer funds to a
new funding medium (for example to a fixed annuity contract). If an HR-10 Plan
Contract is terminated without transfer of funds to a new funding medium or if a
403(b) Plan Contract is terminated, the rights of the participants are the same
as on termination of employment or other withdrawal. When a participant begins
to receive annuity payments, his rights are fixed and are not affected by any
Contract termination.
CONTRACTHOLDER INQUIRIES
All inquiries by Contractholders, Employers or participants should be made
in writing or by telephone to:
Continental Assurance Company
Attn: Individual Pension Accounts-35S
P.O. Box 803572
Chicago, Illinois 60680-3572
Telephone: (800) 351-3001
PURCHASE PAYMENTS AND ACCUMULATIONS
The minimum Purchase Payment on Contracts for 403(b) Plans is $10, which
may be made at any time on behalf of any participant.
There is no minimum Purchase Payment on Contracts for HR-10 Plans. The
HR-10 Plan Contracts permit a variety of payment schedules. A retirement plan
for the self-employed may provide for a fixed percentage of compensation to be
paid by all Employers who are participating, and additional payments to be made
by them on behalf of any of their employees who may also be eligible. If the
plan incorporates a provision for employee payments, these would normally be
deducted regularly from their compensation during the year, and remitted
directly to CAC as collected.
ALLOCATION OF PURCHASE PAYMENTS--HR-10 PLANS
HR-10 Plans adopted by an Employer may provide for other investments in
addition to the Contracts. For example, these plans may also provide for
purchase of life insurance or fixed annuities. The terms of the plan adopted
will set forth the method of allocation of Purchase Payments between the
Contracts and other applications. There may be different allocations among the
participants under a plan. Reallocation of prior Purchase Payments between the
Contracts and insurance or fixed annuity contracts will be permitted prior to
retirement only with the consent of CAC. If the plan so provides, a participant
may upon retirement change the proportion of annuity to be paid on a fixed or
variable basis.
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ACCUMULATION PERIOD
During the period before of annuity payments begin, when a Purchase Payment
is received on behalf of a participant, a sales and administrative charge is
deducted. The balance of the Purchase Payment is credited to the participant's
account in the form of Accumulation Units. The number of Accumulation Units
credited for a participant is determined by dividing the amount credited to his
account by the value of an Accumulation Unit next computed after receipt of the
Purchase Payment at the principal office of CAC, CNA Plaza, Chicago, Illinois
60685. The credit to the participant's account occurs concurrently with such
determination.
VALUE OF AN ACCUMULATION UNIT
During the accumulation period, the value of a participant's account varies
with the performance of the investments of Separate Account (B), and there is no
assurance that such value will equal or exceed Purchase Payments made on behalf
of the participant.
Accumulation Units are valued as of 3:00 P.M., Central Time, on each day on
which the New York Stock Exchange is open and on each other day in which there
is a sufficient degree of trading in the portfolio securities of Separate
Account (B) that the current net asset value of Accumulation Units might be
materially affected by changes in the value of such portfolio securities, with
each day of valuation being referred to as a Valuation Date.
The value of an Accumulation Unit on a Valuation Date is determined by
dividing the net asset value of Separate Account (B) at the close of business on
that day by the number of Accumulation Units outstanding. Receipt of investment
income or realization of capital gains by Separate Account (B) will not change
the number of Accumulation Units outstanding. This number ordinarily may be
increased only through receipt of additional Purchase Payments, and decreased
only through withdrawals. The value of an Accumulation Unit on any day not a
Valuation Date will be the same as the value on the next Valuation Date.
The net asset value of Separate Account (B) is the market value of all
securities and other assets, less liabilities of Separate Account (B), including
accrued investment advisory fees and other service fees. We determine the net
asset value of Separate Account (B) by valuing:
- portfolio securities which are traded on a national securities
exchange at the last sale price, or, in the absence of a sale, at
the closing bid price on the exchange where the security is
primarily traded;
- other securities the prices of which are quoted in the Nasdaq
National Market at the last sale price or, in the absence of a
sale, at the closing bid price;
- other over-the-counter market securities not quoted in the Nasdaq
National Market on the basis of the bid price of over-the-counter
market quotations, if available; and
- all other securities and other assets at a fair value determined in
good faith by the Committee.
Under current federal laws, no federal income tax is payable on income or
capital gains of Separate Account (B). In the event any income taxes are
imposed, they will be deducted in determining the net asset value of Separate
Account (B). Deductions are also made by CAC for investment advisory services
and other services at such prorated percentages as are equivalent to an
aggregate of 0.83% per annum of
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the average daily net asset value of Separate Account (B), under CAC's
Investment Advisory Agreement with Separate Account (B).
The value of an Accumulation Unit was established as $1.00000 ($1) on June
30, 1966, and the initial deposits were applied at that initial unit value on
February 28, 1967. The value as of any later date is found as described above.
The value of a participant's account at any date can be determined by
multiplying the total number of Accumulation Units credited to his account by
the value of an Accumulation Unit on that date.
WITHDRAWALS
Subject to the limitations described in "Benefits on Death or
Withdrawal--HR-10 Plans", an HR-10 Plan Contractholder may withdraw from CAC, in
one lump sum on any Valuation Date, part or all of his or her interest in the
Contract, except for funds held for terminated or retired participants. If you
elect to make such a withdrawal, CAC will deduct a termination charge of 2% of
the pro rata amount of the Purchase Payments received under the Contract before
your withdrawal. In general, any withdrawal made prior to age 59 1/2 (other than
on account of death, disability, separation from service during or after the
employee attains age 55, or a withdrawal which is part of a series of annual or
more frequent annuity payments made after separation from service and at least
over the participant's life, or if the withdrawal is made for certain medical
expenses within the deductible limits under the Internal Revenue Code or if it
is made to an alternate payee pursuant to a QDRO) is subject to an additional
10% tax, under the Internal Revenue Code.
A participant may elect, by written notice to CAC, to withdraw all or a
portion of his individual account other than certain amounts attributable to a
salary reduction agreement prior to beginning annuity payments. However,
effective January 1, 1997, under the Joint Retirement Board Contract, a
participant must receive written consent from the Joint Retirement Board prior
to providing written direction to CAC. CAC will redeem Accumulation Units from
participants, without any charge, at the net asset value per Accumulation Unit
next to be determined after receipt of a signed written request to the office of
CAC. However, withdrawals prior to age 59 1/2 (except for the exceptions stated
in the above paragraph) are generally subject to an additional 10% tax.
Distributions from a 403(b) Plan of amounts contributed on or after January 1,
1989 pursuant to a salary reduction agreement and of earnings on those
contributions (and amounts earned on or after January 1, 1989 on contributions
made before January 1, 1989) may be made only upon the attainment of age 59 1/2,
separation from service, death, disability or hardship. Hardship distributions
are limited to amounts contributed pursuant to a salary reduction agreement,
excluding earnings on those amounts. Payment for Accumulation Units redeemed
will be made by CAC within seven days after receipt of a written redemption
request by CAC at the address set forth above under "Description of Group
Variable Annuity Contracts--Contractholder Inquiries". Payments upon redemption
may be more or less than the original costs of the Accumulation Units. For a
discussion of federal income tax consequences of the receipt of such lump sum
payments, see "Federal Taxes--Federal Tax Treatment of Participants".
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ANNUITIES
ELECTING THE RETIREMENT DATE AND FORM OF ANNUITY--403(B) PLANS
A participant selects, in accordance with the Contract, a retirement date
and annuity option. CAC currently charges a $250 fee for the purchase of a fixed
rate annuity. CAC reserves the right to change this charge at any time. Prior to
beginning annuity payments, a participant may transfer funds between fixed and
variable annuity contracts. Some of the 403(b) Plan Contracts offered hereby
provide that any such transfer will be made without charge. Others provide that
CAC may make a charge of $10 for the second and each succeeding transfer in any
calendar year. A participant may change the percentage allocation of future
Purchase Payments between fixed and variable annuity contracts at anytime
without charge. Subsequent changes in either the retirement date or annuity
option can be made up to 30 days prior to the date annuity payments are to
begin. Distributions must generally begin by April 1 of the year following the
year of attainment of age 70 1/2 or, if later and the participant was not a sole
proprietor or Five Percent Owner with respect to the year in which he or she
reached age 70 1/2 and such participant so elects, by April 1 of the year
following the year in which the participant retires (a different rule may apply
with respect to distributions made in plan years beginning before January 1,
1997--consult your tax advisor). The 403(b) Plan Contracts provide for the
various annuity forms described below. Level deduction Contract participants
have three annuity forms; graded deduction Contract participants have four.
There is an additional annuity form, which is not one of the four options
described below, which is applicable only to plans providing for a qualified
joint and survivor annuity as defined in ERISA. That annuity form is described
following the descriptions of the four options. The annuity payments may be
either fixed or variable at the option of the participant.
ANNUITY OPTIONS--403(B) PLANS
The following annuity options are available under 403(b) Plans offered by
Separate Account (B):
- OPTION 1--LIFE WITHOUT REFUND. Monthly payments for the life of the
participant only.
- OPTION 2--LIFE TEN YEARS CERTAIN. Monthly payments for life, with the
provision that if, at the death of the annuitant, payments have been
made for less than 120 months, annuity payments may, at the option of
the beneficiary designated by the participant, be discounted and paid in
a single sum, or be continued during the remainder of said period to the
beneficiary. If the beneficiary dies while receiving annuity payments,
the value on the date of death of the remaining number of annuity
payments will be paid in a lump sum to the estate of the beneficiary.
This option is considered by CAC to be the "normal form". Unless the
Plan adopted by the Contractholder and communicated to CAC provides for
a qualified joint and survivor annuity as defined in ERISA, this option
will be applied automatically if no other option is elected.
- OPTION 3--JOINT AND SURVIVOR. Monthly payments to the participant for
his life, continuing on the basis of the same number of Annuity Units
after the participant's death to his spouse, for the balance of his
spouse's life.
- OPTION 4--LIFE FIVE YEARS CERTAIN. Monthly payments for life, with a
provision similar to that under the Life Ten Years Certain form, but
extending only five years from retirement. This option may only be
selected by participants under the graded deduction Contract.
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Ordinarily, no option may be elected if the first payment under such option
would be less than $25. If the amount of such first payment would be less than
$25, it will be paid in a lump sum.
No option may be elected which has a period certain longer than the life
expectancy of the participant or the joint and last survivor life expectancies
of the participant and the participant's contingent annuitant, calculated, based
on such persons' attained ages in the year in which payments are required to
begin, using the mortality table provided for such purpose by the Secretary of
the Treasury. Further, with respect to benefits accrued after December 31, 1986,
the distribution cannot exceed a maximum period of years determined under tables
provided by the Secretary of the Treasury, and additional rules apply in
determining the minimum amount which must be distributed each year.
If a plan adopted by the Contractholder and communicated to CAC provides
for a qualified joint and survivor annuity as defined in ERISA as the automatic
form of payment, then unless the participant waives such form and his spouse
consents, the automatic annuity form under the Contract for each participant to
whom such provision is applicable will be an annuity for the life of the
participant which provides a survivor annuity for the life of the participant's
surviving spouse which is not less than one-half, nor greater than the full
amount, of the annuity payable during the life of the participant, and which is
the actuarial equivalent of a single life annuity with ten years certain for the
life of the participant. Any participant who affirmatively waives the automatic
annuity form with the consent of his spouse may select any of the options
described above if he is covered by a graded deduction Contract or any of
Options 1, 2 or 3 if he is covered by a level deduction Contract.
If Option 1 is elected, subsequent to the death of the participant no
payments are made to any person, and if Option 3 is elected, subsequent to the
death of the last to die of the participant and the participant's spouse no
payments are made to any person.
Other options are available with the consent of CAC. Information on such
options will be furnished upon written request to CAC.
RETIREMENT OF PARTICIPANT--HR-10 PLANS
Distributions must generally begin by April 1 of the year following the
year of attainment of age 70 1/2, or, if later and the participant so elects, by
April 1 of the year following the year in which the participant retires (a
different rule may apply with respect to 5% Owners and distributions made in
plan years beginning before January 1, 1997. Consult your tax advisor).
The HR-10 Plan Contract is flexible in allowing retirement on the first day
of any month as elected by the participant and specified in the plan. The only
requirements are that the initial monthly annuity payment must be at least equal
to a minimum amount established by CAC from time to time, and that the
participant must submit certain information to establish proof of his date of
birth. If the annuity would be less than the minimum, it may be paid as a
fixed-value income, or in a lump sum.
ANNUITY OPTIONS--HR-10 PLANS
The form of annuity payable to retired participants of a particular
organization depends on the terms and provisions of the plan adopted by that
organization. Annuity options normally available under the Contract, if the plan
so provides, will include the following listed below, provided that the option
selected must produce an initial monthly annuity payment in the amount of at
least $25. CAC currently charges $250 for the purchase of a fixed rate annuity.
CAC reserves the right to change this charge. Prior to
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beginning annuity payments, a participant may transfer funds between fixed and
variable annuity contracts. Some of the HR-10 Plan Contracts offered hereby
provide that any such transfer will be made without charge. Others provide that
CAC may make a charge of $10 for the second and each succeeding transfer in any
calendar year. A participant may change the percentage allocation of future
Purchase Payments between fixed and variable annuity contracts at any time
without charge.
The following annuity options are available under HR-10 Plans offered by
Separate Account (B):
- OPTION 1--LIFE TEN YEARS CERTAIN. Monthly payments for life, with
the provision that if, at the death of the annuitant, payments have
been made for less than 120 months, annuity payments will be
discounted at the reserve interest rate, and paid to the
beneficiary in a single sum. This option is considered by CAC to be
the "normal form." Unless the plan adopted by the Contractholder
and communicated to CAC provides for a qualified joint and survivor
annuity as defined in ERISA, this option will be applied
automatically if no other option is elected.
- OPTION 2--LIFE FIVE YEARS CERTAIN. Monthly payments for life, with
a provision similar to that under the Life Ten Years Certain form,
but only extending for five years from retirement.
- OPTION 3--LIFE WITHOUT REFUND. Monthly payments for the life of
the participant only.
- OPTION 4--JOINT AND SURVIVOR. Monthly payments to the participant
for his life, continuing on the basis of the same number of Annuity
Units after the participant's death to his spouse, for the balance
of his spouse's life.
- OPTION 5--FIXED INSTALLMENTS. Level monthly payments of a
stipulated dollar amount, payable until the sum applied is
exhausted. The period for which payments are made will vary
depending upon the investment results of the Account.
- OPTION 6--FIXED PERIOD. Variable monthly payments payable over a
predesignated period of years, from one to twenty.
In the case of options with a fixed period, the beneficiary may, in lieu of
a lump sum settlement, elect to have the remaining installments continued on a
monthly basis. This election is available only if the beneficiary is a natural
person.
No option may be elected which has a certain period longer than the life
expectancy of the participant or the joint and last survivor life expectancies
of the participant and the participant's beneficiary calculated based on such
persons' attained ages in the years in which payments are required to begin,
using the mortality table prescribed for such purpose by the Secretary of the
Treasury. Additional special rules apply in determining the minimum amount which
is required to be distributed each year. Life expectancies of the participant
and the participant's spouse will be redetermined annually unless the plan
provides otherwise.
If a plan adopted by the Contractholder and communicated to CAC provides
for a qualified joint and survivor annuity as defined in ERISA then, unless the
participant waives such automatic form of payment with the consent of the
participant's spouse, the automatic annuity form under the Contract for each
participant to whom such provision is applicable will be an annuity for the life
of the participant which provides a survivor annuity for the life of the
participant's spouse which is not less than one-half, nor greater than the full
amount, of the annuity payable during the life of the participant, with respect
to a
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defined benefit plan, which is the actuarial equivalent of a single life annuity
with ten years certain for the life of the participant and, with respect to a
defined contribution plan, is the annuity which can be purchased with the
participant's individual account balance. Any participant who affirmatively
waives the automatic annuity form with the consent of his spouse may select any
of the options described above.
If Option 3 is elected, subsequent to the death of the participant no
payments are made to any person, and if Option 4 is elected, subsequent to the
death of the last to die of the participant and the participant's spouse no
payments are made to any person.
ANNUITY PAYMENTS
DETERMINATION OF AMOUNT OF THE FIRST MONTHLY VARIABLE ANNUITY PAYMENT
As of the date annuity payments are to begin, the value of a participant's
account is computed by multiplying the value of an Accumulation Unit on the
fifteenth day of the preceding calendar month (or the next working day if the
15th falls on a Saturday, Sunday or holiday) by the number of Accumulation Units
credited to the participant's account, and subtracting from the resulting figure
any premium tax that is applicable under state law to the purchase of the
participant's annuity. Such premium taxes range from 0 to 3%. Regardless of the
date on which premium taxes are deducted from the accounts of participants, such
taxes are remitted by CAC to applicable state taxing authorities once per
calendar year. Certain states provide for credits against premium tax
liabilities based upon CAC's ownership of properties or investments located
therein (none of which are assets of Separate Account (B)). In the event that
CAC is able to avail itself of such credits, the resulting saving is not passed
on to participants from whose accounts premium taxes have been deducted.
Each Contract contains tables setting forth the dollar amount of the first
monthly annuity payment which can be purchased by each $1,000. These tables vary
according to the type of Contract, the form of annuity selected by the
participant and the sex and age on the nearest birthday of the participant. The
tables are based on the 1951 Group Annuity Table projected 14 years with
projection scale C and with interest at the assumed investment rate of 3 1/2%.
Participants under the graded deduction Contract--403(b) Plan may also elect an
optional rate of 3%, 4%, 4 1/2% or 5%. The first monthly annuity payment for a
particular annuity form may be found by dividing the value of the participant's
individual account by $1,000 and multiplying this number by the annuity rate
from the applicable table.
DETERMINATION OF THE VALUE OF AN ANNUITY UNIT AND AMOUNT OF SECOND AND
SUBSEQUENT MONTHLY VARIABLE ANNUITY PAYMENTS
The dollar amount of the first monthly variable annuity payment, determined
as above, is divided by the monetary value of an Annuity Unit as of the date of
retirement to fix the number of Annuity Units represented by the annuity
benefit. The number of Annuity Units, so determined, remains fixed thereafter
throughout the payment period. The dollar amount of the second monthly variable
annuity payment, due as of the first day of the month following retirement, is
determined by multiplying the fixed number of Annuity Units by the monetary
value of an Annuity Unit as of the due date of the second payment. This same
procedure is then followed to determine the monetary value of each succeeding
monthly variable annuity payment.
On each Valuation Date, a net investment factor is determined from the
investment performance of the assets of Separate Account (B) during the period
since the last Valuation Date. Such factor is equal
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to the value of an Accumulation Unit at the end of the period, divided by the
value on the preceding Valuation Date, carried to the nearest one hundred
thousandth. The net investment factor is determined after the deduction for any
taxes and for investment advisory fees and services as described above.
The value of an Annuity Unit was established at $1.00000 ($1) on June 30,
1966. The monetary value of an Annuity Unit is redetermined for the entire month
as of the first day of each calendar month by multiplying the value of an
Annuity Unit on the first day of the preceding month by the ratio of the
Accumulation Unit value for the 15th day of the preceding month to the
Accumulation Unit value for the 15th day of the second preceding month, and
dividing the result by a monthly interest factor equivalent to the assumed net
investment rate (or the next working day if the 15th falls on a Saturday, Sunday
or holiday).
The dollar amount of each monthly payment under a variable annuity will
fluctuate with the changing value of an Annuity Unit. The Annuity Unit value
will go up or down each month, depending on whether the actual effective
investment return for that month is at an annual rate which is greater than or
less than the assumed investment rate.
EXAMPLES
The computation of the amounts payable under a variable annuity may be
illustrated by the following two examples, using unisex annuity tables. In each
case, assume a participant retired on January 1, 1999 at age 65. The participant
had on the date of retirement 15,000 Accumulation Units. The monetary value of
an Accumulation Unit as of December 15, 1998 was $20.010614. The total value of
the participant's account was therefore $300,159.21.
- 403(B) PLAN CONTRACT. Assume the participant selected Option
2--Life Ten Years Certain. See "Annuities--Annuity Options--403(b)
Plans". Both graded deduction and level deduction 403(b) Plan
Contracts provide an annuity rate of $6.34 for a participant age 65,
where Option 2 has been selected. The total value of the account
$300,159.21, was therefore divided by $1,000 and multiplied by the
annuity rate of $6.34 to obtain the initial monthly payment,
$1,903.01. (It is assumed that no premium tax was applicable in this
instance). Continuing this example, the monetary value of an Annuity
Unit on the date of retirement was $6.692787. This was divided into
$1,903.01 to obtain the quantity 284.337361 the number of Annuity
Units represented by this benefit. This number of Annuity Units will
remain fixed for the duration of the annuity payments. The second
monthly payment, to be made on February 1, 1999, would be found by
multiplying the number of Annuity Units by the monetary value of an
Annuity Unit on that date. This was $7.348846. The dollar amount of
the second payment would have been times 284.337361 or $2,089.55.
Each succeeding monthly payment for this annuity would be determined
in the same manner, being related in turn to the monetary value of
an Annuity Unit on the date the payment is due. Again, the value of
an Annuity Unit on that date will be found from the value on the
first day of the preceding month, adjusted for investment experience
and assumed interest for the period from the 15th day of the second
preceding month to the 15th day of the preceding month (or the next
working day if the 15th falls on a Saturday, Sunday or holiday).
- HR-10 PLAN CONTRACT. Assume the participant selected Option 1--Life
Ten Years Certain. The HR-10 Plan Contract provides an annuity rate
of $6.34 for a participant age 65, where Option 1 has been selected.
The total value of the account, $300,159.21, was therefore divided
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by $1,000 and multiplied by the annuity rate of to obtain the initial
monthly payment, $1,903.01. (It is assumed that no premium tax was
applicable in this instance). Continuing this example, the monetary
value of an Annuity Unit on the date of retirement was $6.692787. This
was divided into $1,903.01 to obtain the quantity 284.337361, the
number of Annuity Units represented by this benefit. This number of
Annuity Units will remain fixed for the duration of the annuity
payments. The second monthly payment, to be made on February 1, 1999,
would be found by multiplying the number of Annuity Units by the
monetary value of an Annuity Unit on that date. This was $7.348846. The
dollar amount of the second payment would have been 284.337361 times
$7.348846 or $2,089.55 . Each succeeding monthly payment for this
annuity would be determined in the same manner, being related in turn
to the monetary value of an Annuity Unit on the date the payment is
due. Again, the value of an Annuity Unit on that date will be found
from the value on the first day of the preceding month, adjusted for
investment experience and assumed interest for the period from the 15th
day of the second preceding month to the 15th day of the preceding
month (or the next working day if the 15th falls on a Saturday, Sunday
or holiday).
ASSUMED INVESTMENT RATE
The examples are based upon a assumed investment rate of 3 1/2%. Under the
03(b) Plan graded deduction Contract, the participant has the option to choose
an assumed investment rate of 3%, 3 1/2%, 4%, 4 1/2% or 5%. This option must be
selected at least 30 days prior to the date annuity payments are to begin. If an
assumed investment rate is not selected, then a 3 1/2% rate will be applied.
CAC, in special cases, may stipulate variable annuity premiums and reserves on
assumed investment rates other than 3 1/2% for HR-10 Plan Contracts. Each
special Contract of this character would have different monetary values for
Annuity Units.
A higher assumed investment rate will tend to result in a higher initial
payment but a more slowly rising series of subsequent payments (or a more
rapidly falling series of subsequent payments when Accumulation Unit values are
declining). A lower assumed investment rate would have the opposite effect. If
the actual net investment rate is equal to the assumed investment rate, the
annuity payments will be level. The assumed investment rate is an actuarial
technique rather than a guarantee of a rate of return, and no assurances can be
given that the actual net investment rate will equal or exceed the assumed
investment rate.
BENEFITS ON DEATH OR WITHDRAWAL
403(B) PLANS
Upon termination of Purchase Payments on his behalf, a participant under a
403(b) Plan will have the following options, subject to the conditions in the
Contract:
- The participant may elect to have his individual account applied to
provide annuity payments beginning immediately under the selected
annuity option.
- The participant may surrender his individual account and receive
the value of the account. The value of the account will be computed
from the value of an Accumulation Unit next to be determined after a
written request for surrender is received at the principal office of
CAC, CNA Plaza, Chicago, Illinois 60685. Payment will be made within
seven days thereafter,
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without termination charge. Payments upon redemption may be more or less
than the original cost of the Accumulation Units.
- The participant may leave his individual account in force under the
Contract until his required beginning date (generally the April 1
following the later of the year in which he reaches age 70 1/2 or,
if he is not a Five Percent Owner with respect to the year he or she
reaches age 70 1/2, the year in which he retires) and the account
will continue to participate in the investment results of Separate
Account (B). At his required beginning date, the participant must
take an annuity or surrender his account and receive its value.
- If the individual participant moves to another employer which has
similar group annuity contract in force with CAC, his individual
account may be transferred to the other group annuity contract.
Federal income taxes may be withheld from the taxable portion of any amount
distributed.
On the death of a participant prior to retirement, the value of his
individual account will be paid to his beneficiary in a single sum; or, if the
beneficiary is the participant's surviving spouse, it may be left in Separate
Account (B) until the date the participant would have attained age 70 1/2; or it
may be applied under one of the annuity options under the Contract to provide a
lifetime annuity on a variable basis, providing the initial monthly annuity
payment is at least $25 in amount. The participant's entire interest must,
however, be distributed within five years after his death unless the beneficiary
is his spouse or if the beneficiary takes the benefit in the form of a lifetime
annuity that begins by the end of the year that contains the first anniversary
of the participant's death. In general, all death benefits are taxable as
ordinary income when received by the designated beneficiary or by the estate;
however, the participant's spouse may be eligible to elect to defer taxation on
such death benefit to the extent the spouse directs a rollover to an individual
retirement plan or makes a "tax-free" rollover contribution of such death
benefit (including the amount of taxes withheld on such benefit) within sixty
days after receipt thereof to an individual retirement plan.
HR-10 PLANS
Under all plans except certain profit sharing plans, death benefits in the
form of a survivor annuity will generally be paid to the surviving spouse of a
vested or partially vested participant if the participant was married for at
least one year as of the date of his death (or less if the HR-10 Plan so
provides), unless the participant waives such a spousal annuity and his spouse
consents. The monthly amount of the spousal annuity will be the amount the
surviving spouse would have received under a qualified joint and survivor
annuity as defined in ERISA if the participant had retired on the day before his
death (or, in the case of a participant who dies before he became eligible to
retire, the amount the surviving spouse would have received under such an
annuity if the participant had survived to the earliest retirement age under the
plan, retired, and died the day after such retirement). Under certain defined
contribution plans, the monthly amount of the spousal annuity is the amount that
would be provided under an annuity purchased with 50% of the participant's
individual account under the Contract. Under certain profit sharing plans, the
surviving spouse to whom a participant was married for at least one year on the
date of his death (or less if the HR-10 Plan so provides) will receive the
entire value of the participant's individual account under the Contract unless
the surviving spouse consents to another named beneficiary.
For participants who are unmarried or who were married less than a year (or
other applicable period under the HR-10 Plan) when they died, and for other
participants whose spouses consent to an alternative
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<PAGE> 36
form of distribution or to another named beneficiary, in the event of the death
of a participant prior to retirement, the beneficiary currently designated by
the participant will be entitled to the entire value of his individual account
under the Contract. The monetary value of his account will be determined at the
Valuation Date next following the date the notice of death is received at the
principal office of CAC, CNA Plaza, Chicago, Illinois 60685. Payments upon death
or withdrawal may be more or less than the total of the original purchase
payments.
If permitted by the plan, the beneficiary may elect to have the value
applied to provide a variable income to the beneficiary under rates set forth in
the Contract.
On the withdrawal of a participant from the plan prior to retirement due to
a termination of employment or to a termination of the plan itself, the
following options are available:
(a) A participant may, regardless of age, have his individual account
applied to provide a variable annuity option under the Contract,
subject to the minimums set forth therein and to the requirement
that the participant's spouse, if any, must consent in writing to
the distribution.
(b) A participant may, regardless of age, surrender his individual
account and receive the value of the account computed as of the
Valuation Date next after the date the request for surrender is
received by CAC, subject to spousal consent as described in
subparagraph (a) above if required under the Plan.
(c) A participant may, if his interest in Separate Account (B) on the
date of withdrawal is at least $2,000, allow his individual account
to remain in force under the Contract, and his individual account
will continue to participate in the investment results of Separate
Account (B).
On subsequent retirement, such participant may, regardless of age, begin to
receive annuity payments under the option selected. At any time in the interim,
such participant may instead surrender his individual account in accordance with
(b) above.
In lieu of the above options, and if permitted under the plan, any
participant may elect to have his individual account transferred to a fixed
annuity contract, whereupon options similar to those above will apply. There may
be a termination charge of 2% of the pro rata amount of the Purchase Payments
received under the Contract relating to the withdrawal before withdrawal with
respect to a lump sum withdrawal of part or all of the interest of a
Contractholder in a Contract.
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FEDERAL TAXES
FEDERAL TAX TREATMENT OF PARTICIPANTS
403(B) PLANS. Amounts representing contractually permitted Purchase
Payments under 403(b) Plans made on behalf of participants are not recognizable
as taxable income to participants at the time they are made. However, Purchase
Payments made pursuant to salary reduction agreements will be subject to Social
Security ("FICA") taxes and Federal Unemployment Compensation ("FUTA") taxes.
Increases in the value of a participant's individual account are not taxable to
the participant until annuity payments are received by him. Any Purchase
Payments in excess of applicable limitations under the Internal Revenue Code are
includable in income.
All annuity payments received after retirement will be based on realized
and unrealized capital gains as well as amounts representing purchase payments
on behalf of a participant and the participant's pro rata share of investment
income. All such annuity payments will be taxed under Section 72 of the Internal
Revenue Code as ordinary income in the year of receipt to the extent that they
exceed the participant's Investment in the Contract. The Investment in the
Contract is the amount of Purchase Payments made by or on behalf of such
participant which are a part of his or her taxable income in the year in which
such payments are made; i.e., those which are not deductible. In general, the
participant's Investment in the Contract is divided by the expected number of
payments to be made under the Contract. The amount so computed constitutes the
Excludable Amount, which is the amount of each annuity payment considered a
return of capital in each year and therefore not taxable. The participant may
not recover tax-free more than his Investment in the Contract. Thus, if a
participant's payments continue to be made longer than expected, all amounts
received are taxable after the Investment in the Contract is recovered.
Similarly, if a participant dies before recovering his Investment in the
Contract, his estate is entitled to a deduction in the participant's last
taxable year for the unrecovered amount.
The rules for determining the Excludable Amount are contained in Section 72
of the Internal Revenue Code, and require adjustment for payments required under
the Contract to be made, regardless of the participant's death, for a term of
years, and in the case of a joint and survivor annuity payable to a named
beneficiary following the death of the participant.
Should the participant elect to receive his termination value in a lump sum
in lieu of annuity payments, the amount received in excess of his Investment in
the Contract will be taxed as ordinary income in the year received. If any
portion of the balance to the credit of a participant is payable to the
participant in an Eligible Rollover Distribution, the participant or his
surviving spouse will defer taxation to the extent he or she (1) has such
distribution paid directly to an individual retirement plan or another tax-
sheltered annuity which accepts such rollovers or (2) makes a "tax-free"
rollover contribution equal to the amount of such distribution received plus the
amount of taxes withheld on such distribution within sixty days after receipt of
the distribution to an individual retirement plan or another tax sheltered
annuity. (No direct or indirect rollover is permitted to a qualified pension or
profit sharing plan and a direct rollover may not be permitted if the amount of
the distribution is less than $200). All taxable distributions are generally
Eligible Rollover Distributions except annuities paid over life or life
expectancy, installments for a period of ten years or more and required minimum
distributions under Section 401(a)(9) of the Internal Revenue Code.
LIMITS ON CONTRIBUTIONS. The maximum deduction for Employer contributions
made to a qualified defined contribution plan is limited to 25% of compensation
(15% of compensation in the case of a stock bonus or profit sharing plan).
Nondeductible contributions are 10% excise-taxable to the Employer subject
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to certain limitations. This excise tax does not apply to tax-exempt Employers
except with respect to unrelated business income tax. However, in general, the
sum of purchase payments by the Employer, forfeitures of other plan
participants, salary reduction contributions or elective deferrals, if any, and
an employee's voluntary nondeductible contributions may not exceed the lesser of
25% of compensation or $30,000 for any year. For certain 403(b) Plans, these
limitations may be modified at the election of the participant in the 403(b)
Plan.
For HR-10 Plans, nondeductible voluntary Purchase Payments are permitted to
be made by participants if the plan so provides, but only where such privilege
is extended to all participants. Nondeductible voluntary Purchase Payments may
be made, but are subject to certain nondiscrimination requirements and plan
limits which vary from plan to plan. Additionally, elective deferrals may be
made, if permitted by the plan, in an annual amount of up to $10,000. For 403(b)
Plans, the annual limit on salary reduction contributions is $9,500. These
contributions are subject to certain non-discrimination rules.
HR-10 PLANS. For a self-employed individual, compensation may generally be
defined as earned income, determined after the plan contribution. Only the first
$160,000 of a person's compensation ($235,840 for certain participants in plans
maintained by state or local governments that are amended to reflect the
compensation limitation applicable to all other participants) may be taken into
account. Plans may specify that purchase payments be made at a rate less than
25%, and profit sharing plans may provide for the rate of contribution to be
established (as described below) each year. If the plan is a top heavy plan (as
described below), generally an annual purchase payment of 3% of compensation
must be made for all non-key employees.
The maximum deduction for Purchase Payments to a defined benefit plan is
determined annually by an actuary, subject to minimum funding standards
established by the Internal Revenue Code. Generally, no purchase payments may be
made to fund a normal retirement benefit in excess of 100% of compensation or,
if less, $130,000 per year for an individual beginning at his Social Security
retirement age. If it is a top heavy defined benefit plan, certain minimum
benefits must be provided for non-key employees. The $130,000 per year limit is
prorated if the individual has less than ten years of participation in the plan
and is reduced actuarially if benefits begin before Social Security retirement
age.
Special rules apply to all plans (corporate or self-employed) which
primarily benefit the Employer's key employees ("top heavy plans"). A plan is a
top heavy plan (1) if it is a defined contribution plan and the value of the
aggregate accounts of key employees is more than 60 percent of all the value of
the aggregate accounts under the plan for all employees, or (2) if it is a
defined benefit plan and the present value of the cumulative accrued benefits
under the plan for key employees is more than 60 percent of the present value of
the cumulative accrued benefits under the plan for all employees. All plans of
an Employer in which a key employee is a participant and all plans required to
be aggregated to satisfy the qualification requirements of Section 401(a) of the
Internal Revenue Code must be aggregated in determining whether a plan is top
heavy. If the aggregation group, taken as a whole, is top heavy, then each plan
in the group is a top heavy plan. Any other tax qualified plans of the Employer
that meet certain rules may, but need not be, so aggregated. In general, an
employee is considered a key employee if he is a 5% Owner or if he is (or was in
any of the 4 preceding years) (1) an officer of the Employer with annual
compensation of more than $65,000, (2) one of the 10 employees with annual
compensation of more than $30,000 who owns the largest interests in the
Employer, or (3) an owner of 1 percent or more of the stock, profits or capital
of the Employer which owner has annual compensation of more than $150,000.
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For limitation years beginning prior to January 1, 2000, if an Employer
maintains a defined contribution plan and a defined benefit plan, there are
aggregate limitations on the benefits and contributions that may be provided
under the combination of plans. The limitations are more restrictive for top
heavy plans and are most restrictive for super top heavy plans (that is, defined
contribution plans where more than 90% of aggregate account balances are for key
employees and defined benefit plans where more than 90% of the cumulative
accrued benefits are for key employees).
DISTRIBUTIONS--HR-10 PLANS. Similar treatment is accorded to self-employed
individuals and common-law employees with respect to distributions from a plan.
A lump sum distribution in a single taxable year after attainment of age 59 1/2,
or on account of death, or because of disability of a self-employed individual
or separation of a common-law employee from the service of the Employer, is
taxable in the following manner: Employee non-deductible contributions are
received tax-free (distributions are deemed to consist proportionally of
tax-free and taxable amounts, unless CAC has a separate record of amounts
attributable to pre-1987 non-deductible employee contributions, in which case
those amounts may be distributed tax free). Either a self-employed individual or
a common-law employee, if such person is over 59 1/2 and has been a participant
for at least five taxable years before the year of distribution, may elect to be
taxed on the distribution (other than accumulated deductible qualified voluntary
contributions) at the rate applicable to a single taxpayer, subject to special
five-year forward income averaging. A person may make such an election only
once. Special five-year averaging ceases to be available for years beginning
after December 31, 1999. For participants who were age 50 by January 1, 1986,
five year forward averaging is not available, but an election may be made to
preserve the federal income tax treatment of the distribution in effect prior to
1987, i.e., ten-year forward income averaging (using 1986 tax rates) may be used
instead of five-year averaging and the portion of the distribution attributable
to pre-1974 participation is taxable as long term capital gain at a 20% rate.
Alternatively, if any portion of the balance to the credit of a participant is
payable to the participant in an Eligible Rollover Distribution, a participant
or his or her surviving spouse may be eligible to defer taxation on such
distribution to the extent he or she (1) has such distribution paid directly to
an individual retirement plan or another qualified plan which accepts such
rollovers or (2) makes a "tax-free" rollover contribution equal to the amount of
such distribution received plus the amount of taxes withheld on such
distribution within sixty days after receipt of such distribution to an
individual retirement arrangement or to another qualified plan. A direct
rollover may not be permitted if the amount of the distribution is less than
$200. All taxable distributions are generally Eligible Rollover Distributions
except annuities paid over life or life expectancy, installments for a period of
ten years or more, required minimum distributions under Section 401(a)(9) of the
Internal Revenue Code, and certain hardship distributions from a 401(k) plan.
DISTRIBUTIONS--403(B) AND HR-10 PLANS. Distributions made to any
participant in an HR-10 Plan or 403(b) Plan prior to attainment of age 59 1/2
(unless the distribution is made on account of death, disability, separation
from service where the separation occurred during or after the calendar year in
which the participant attains age 55, certain medical expenses within the
deductible limits of the Internal Revenue Code, or as part of a series of annual
or more frequent annuity payments made after separation from service and at
least over the participant's life, or if the distribution is made to an
alternate payee pursuant to a QDRO) will generally be subject to a 10% tax in
addition to the otherwise applicable federal income tax. There is also a 50%
excise tax on the amount by which a distribution is less than the required
minimum distribution.
The withholding of federal income taxes depends upon whether a distribution
is an Eligible Rollover Distribution. There is mandatory income tax withholding
of 20% of the amount of any Eligible Rollover
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Distribution that is not paid in a direct rollover to another qualifying plan;
if such distribution is paid in a direct rollover to another qualifying plan,
there is no income tax withholding obligation. Federal income taxes will be
withheld from the taxable portion of any distribution that is not an Eligible
Rollover Distribution. Additional withholding will not be made for the 10%
additional tax on premature distributions; however the recipient may be
responsible for paying estimated taxes.
FEDERAL TAX STATUS OF SEPARATE ACCOUNT (B)
Separate Account (B) is not qualified as a "regulated investment company"
under subchapter M of the Internal Revenue Code, as it is not taxed separately
from CAC. While Separate Account (B) is part of the total operations of CAC,
under existing federal income tax law, no taxes are payable on the investment
income and realized capital gains which are reinvested in Separate Account (B)
and which are taken into account in determining the value of the Accumulation
Unit and the value of the Annuity Unit and which are not distributed to
participants except as part of annuity payments.
Both investment income and realized capital gains are accumulated and
reinvested.
The investment results credited to a participant's account are not taxable
to the participant until benefits are received by him. At that time, there is no
distinction made between investment income and realized and unrealized gains in
determining either the amount of the participant's benefits, or the taxes paid
by the participant on these benefits. All payments generally are taxable to the
recipient as ordinary income as received. A participant may wish to consult a
tax adviser for more complete information.
EMPLOYEE RETIREMENT INCOME SECURITY ACT
ERISA contains many provisions which may apply to certain annuity plans
described under Sections 403(b) and 401 of the Internal Revenue Code, including
those offered hereunder. Employers and Contractholders may be subject to many
requirements and duties, including reporting and disclosure requirements,
requirements regarding the form and timing of benefit payments, fiduciary
responsibilities (including investment responsibilities) and prohibitions on
certain transactions involving or affecting the assets of the plan. Failure to
comply with ERISA may result in exposure of the Contractholder or Employer to
civil and criminal sanctions.
Certain modifications in the Contracts described in this prospectus may be
required from time to time by ERISA or other laws. Such modifications may be
made by CAC in accordance with provisions in the Contracts which permit CAC to
amend the Contracts to conform to applicable law. Contractholders and, in the
case of HR-10 Plans, Employers will be informed of any such modifications.
As set forth in this prospectus, the HR-10 Plan Contracts described herein
are offered solely in connection with certain retirement plans which are
qualified under Section 401 of the Internal Revenue Code. These plans include
not only individually designed plans of various employers or associations of
employers but also certain plans which are generally described as master or
prototype plans. In general, master or prototype plans are plans sponsored by an
organization such as an insurance company or trade association. The sponsoring
organization obtains a master or prototype plan opinion letter from the Internal
Revenue Service which indicates that the form of the plan meets the requirements
of Section 401 of the Internal Revenue Code. Once the sponsoring organization
has obtained a master or prototype plan opinion letter, Employers may, in
certain cases, adopt the master or prototype plan form as their own
tax-qualified plan with the benefit of a prior Internal Revenue Service approval
of the master or prototype plan form. Prototype plans sponsored by CAC have been
adopted by some Employers.
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This prospectus does not furnish detailed information concerning the
requirements of ERISA or the Internal Revenue Code, and those requirements may
vary depending upon the particular circumstances regarding each Employer and
each Contractholder. Also, the foregoing descriptions under "Federal Tax
Treatment of Participants" apply under federal income tax laws in effect on
April 30, 1999, and the federal tax treatment of Participants may change. It is
therefore recommended that Employers, Contractholders and potential Purchasers
consult with counsel or other competent advisers regarding the impact of ERISA
and The Internal Revenue Code.
LEGAL MATTERS
Separate Account (B) is not involved in any pending legal proceedings. CAC
is involved in litigation arising in the ordinary course of its business.
Because of the nature of litigation, it is not possible to predict the outcome
of these actions; however, in the opinion of the management of CAC, such
litigation will not materially adversely affect the business or financial
position of CAC or Separate Account (B) or the ability of CAC to perform its
obligations under the Investment Advisory Agreement.
Legal matters in connection with the offering made hereby have been passed
upon by Lynne Gugenheim, Vice President and Associate General Counsel of CAC.
REPORTS TO PARTICIPANTS
Semi-annually, CAC will provide a financial report to each participant
covering the most recent six months or calendar year, as applicable. These
reports will include general information on Separate Account (B), including a
schedule of its investments in securities as of the close of the applicable
period. Also provided will be a statement of the participants' equity in
Separate Account (B), showing the changes therein for the period reported on
Reports issued as of the close of a calendar year will contain financial
statements which have been audited by Separate Account (B)'s independent
auditors.
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FINANCIAL STATEMENTS
The following financial statements of Separate Account (B), the notes
thereto and the Independent Auditors' Report with respect thereto are
incorporated into the Statement of Additional Information by this reference from
Separate Account (B)'s 1998 Annual Report to Participants: Balance Sheet;
Statement of Operations; Statement of Changes in Participants' Equity; and
Schedule of Investments. Copies of the 1998 Annual Report to Participants may be
obtained, at no charge, by contacting in writing or by telephone:
Continental Assurance Company
Attn: Individual Pension Accounts-35S
P.O. Box 803572
Chicago, Illinois 60680-3572
Telephone: (800) 351-3001
In addition, the SEC maintains a web site (http://www.sec.gov) that
contains the 1998 Annual Report to Participants and other information about
Separate Account (B).
Financial statements of CAC, the notes thereto and the Independent
Auditors' Report with respect thereto are set forth on pages 10 to 33 of the
Statement of Additional Information. Such financial statements are included
therein solely for the purpose of informing investors as to the financial
position and operations of CAC and are not financial statements of Separate
Account (B).
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INDEPENDENT AUDITORS' REPORT
The Committee Members
and Participants of
Continental Assurance Company
Separate Account (B)
We have audited the financial statements of Continental Assurance Company
Separate Account (B) (a separate account of Continental Assurance Company, a
wholly-owned subsidiary of Continental Casualty Company, which is a wholly-owned
subsidiary of CNA Financial Corporation, an affiliate of Loews Corporation) as
of December 31, 1998 and 1997 and for each of the two years in the period ended
December 31, 1998, and the related schedule of investments as of December 31,
1998, and have issued our report dated February 13, 1999; such financial
statements, schedule and report are included in the 1998 Continental Assurance
Company Separate Account (B) Report to Participants and are incorporated herein
by reference. Our audits also included the financial highlights for each of the
ten years in the period ended December 31, 1998 presented herein on page 12.
This information is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial information, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 12, 1999
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TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Glossary.................................................... 2
Management of Separate Account (B).......................... 3
Investment Advisory Services................................ 4
Impact of Year 2000 on Separate Account (B)................. 6
Securities Custodian........................................ 7
Independent Auditors........................................ 7
Brokerage Allocations....................................... 7
Calculation of Performance Data............................. 7
Underwriting................................................ 8
Financial Statements........................................ 8
</TABLE>
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GLOSSARY
We have capitalized some of the terms used in this prospectus. To help you
understand these terms, we have defined them in this glossary.
Accumulation Unit: an accounting unit used to measure the value of a
Participant's account before annuity payments begin. The term "equity unit",
which is used in some outstanding Contracts, is synonymous with "accumulation
unit".
Administrative Service Agreement: an agreement between CAC and Separate Account
(B) under which CAC provides certain administrative services for Separate
Account (B).
Annuitant: the person on whose life annuity payments are based.
Annuity: a series of payments for life; with either a minimum number of
payments or a determinable sum guaranteed; or for the joint lifetime of the
person receiving payments and another person and thereafter during the lifetime
of the survivor.
Annuity Unit: an accounting unit used to calculate the amount of annuity
payments.
CAC: Continental Assurance Company.
Casualty: Continental Casualty Company.
CNA Financial: CNA Financial Corporation.
Committee: a five member board in which the supervision of Separate Account (B)
is vested.
Contract: a group variable annuity contract described by this prospectus.
Contractholder: the entity to which the Contract is issued, usually the
employer for 403(b) Plans, and either (a) the Trustee of a trust for the benefit
of self-employed individuals and their employees, or (b) an association of
self-employed individuals for HR-10 Plans. References in this prospectus to
"you" or "your" refer to Contractholders.
Eligible Rollover Distribution: distribution as described in Section 402(c)(2)
and Section 402(c)(4) of the Internal Revenue Code from a 403(b) Plan or a HR-10
Plan.
Employer: as used in HR-10 Plan Contracts, a sole proprietor or a partnership
which has adopted or joined, or which proposes to adopt or join, a plan, master
plan, or master plan and trust which includes Participants who are self-employed
persons and which qualifies under Section 401 of the Internal Revenue Code.
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
Excludable Amount: as used in HR-10 Plan Contracts, an amount excludable from
gross income under the provisions of the Internal Revenue Code.
Five Percent Owner or 5% Owner: a person who, at any time during a plan year or
any of the four preceding plan years owns or has owned (or is considered as
owning or as having owned through the application of certain attribution rules)
(a) more than 5% of the outstanding stock of an Employer which is a corporation
or stock possessing more than 5% of the total combined voting power of such
corporation, or (b) if the Employer is not a corporation, more than 5% of the
capital or more than a 5% interest in the profits of the Employer.
43
<PAGE> 46
Fixed Annuity: an annuity providing for payments which remain fixed throughout
the payment period and which do not vary with the investment experience of
Separate Account (B).
403(b) Plan: a plan that provides for deferred income tax treatment for annuity
purchase plans adopted by public school systems and certain tax-exempt
organizations under Section 403(b) of the Internal Revenue Code.
HR-10 Plan: a plan offered for use by certain self-employed individuals and
their employees which qualifies under Section 401 of the Internal Revenue Code.
Internal Revenue Code: the Internal Revenue Code of 1986, as amended.
Investment Advisory Agreement: an agreement between CAC and Separate Account
(B) under which CAC acts as the investment adviser to Separate Account (B).
Investment in the Contract: as used in HR-10 Plan Contracts, the investment in
the Contract, as defined in Section 72 of the Internal Revenue Code.
Net Purchase Payment: the amount applied to the purchase of Accumulation Units,
which is equal to the Purchase Payment less the deduction for sales and
administrative charges.
1940 Act: the Investment Company Act of 1940, as amended.
Participant: a person who has an interest in Separate Account (B) because such
person makes Purchase Payments or they are made for such person.
Purchase Payments: amounts paid to CAC by or for a Participant.
Separate Account (B): Continental Assurance Company Separate Account (B), which
consists of assets set aside by CAC in an account which does not contain the
investment experience of other assets or liabilities of CAC.
Valuation Date: a date on which CAC determines the value of Separate Account
(B).
Variable Annuity: an annuity providing for payments varying in amount according
to the investment experience of Separate Account (B).
44
<PAGE> 47
B logo
Group
Variable
Annuity
Contracts
PROSPECTUS
Dated: April 30, 1999
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
CNA LOGO
FOR ALL THE COMMITMENTS YOU MAKE(R)
Y57-835LL
<PAGE> 48
STATEMENT OF
ADDITIONAL
INFORMATION
GROUP
VARIABLE B LOGO
ANNUITY
CONTRACTS
This Statement of Additional Information provides certain information about
Continental Assurance Company Separate Account (B) ("Separate Account (B)"),
which is a separate account created by Continental Assurance Company ("CAC"),
and certain Group Variable Annuity Contracts sold by CAC. This Statement of
Additional Information is not a Prospectus and should be read in conjunction
with the Prospectus of Separate Account (B), dated April 30, 1999.
For a free copy of the Prospectus, please call or write us at:
Continental Assurance Company
Attn: Individual Pension Accounts-35S
P.O. Box 803572
Chicago, Illinois 60680-3572
Telephone: (800) 351-3001
In addition, the Securities and Exchange Commission maintains a web site
(http://www.sec.gov) that contains the Prospectus and other information about
Separate Account (B).
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
DATED: APRIL 30, 1999
<PAGE> 49
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS STATEMENT OF
ADDITIONAL INFORMATION AND IN THE PROSPECTUS. NEITHER CONTINENTAL ASSURANCE
COMPANY OR SEPARATE ACCOUNT (B) HAVE AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT THAN THAT WHICH IS SET FORTH IN THIS STATEMENT OF
ADDITIONAL INFORMATION AND THE PROSPECTUS. THIS STATEMENT OF ADDITIONAL
INFORMATION DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE TO PURCHASE
ANY SECURITIES. SUCH OFFERS MAY BE MADE ONLY BY THE PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Glossary.................................................... 2
Management of Separate Account (B).......................... 3
Investment Advisory Services................................ 4
Impact of Year 2000 on Separate Account (B)................. 6
Securities Custodian........................................ 7
Independent Auditors........................................ 7
Brokerage Allocations....................................... 7
Calculation of Performance Data............................. 7
Underwriting................................................ 8
Financial Statements........................................ 8
</TABLE>
GLOSSARY
The following terms have the indicated meanings when used in this Statement
of Additional Information:
Accumulation Unit: an accounting unit used to measure the value of a
participant's account before annuity payments begin. The term "equity unit",
which is used in some outstanding Contracts, is synonymous with "accumulation
unit".
CAC: Continental Assurance Company.
Casualty: Continental Casualty Company.
CNA Financial: CNA Financial Corporation.
Committee: a five member board in which the supervision of Separate Account (B)
is vested.
Contract: a group variable annuity contract described in this Statement of
Additional Information.
Investment Advisory Agreement: an agreement between CAC and Separate Account
(B) under which CAC acts as the investment adviser to Separate Account (B).
1940 Act: the Investment Company Act of 1940, as amended.
Separate Account (B): Continental Assurance Company Separate Account (B), which
consists of assets set aside by CAC, the investment experience of which is kept
separate from that of other assets of CAC.
Variable Annuity: an annuity providing for payments varying in amount in
accordance with the investment experience of Separate Account (B).
2
<PAGE> 50
MANAGEMENT OF SEPARATE ACCOUNT (B)
OFFICERS AND MEMBERS OF THE COMMITTEE
<TABLE>
<CAPTION>
POSITION(S)
HELD WITH SEPARATE PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS AGE ACCOUNT (B) DURING PAST FIVE YEARS
---------------- --- ------------------ -----------------------
<S> <C> <C> <C>
Richard W. Dubberke*........ 61 Vice President, Vice President and Manager of Corporate Bond
CNA Plaza Treasurer and Investments of CAC and Casualty(1); Vice President,
Chicago, Illinois 60685 Member of Committee Treasurer and Director of CNA Income Shares, Inc.
(closed-end investment company) ("CIS").
Richard T. Fox.............. 61 Member of Committee Independent Financial Consultant since October 1995;
661 Sheridan Road Chief Executive Officer of 21st Century Environmental
Winnetka, Illinois 60093 Management, Inc. (environmental recycling company)
("21EMI") from August 1994 to September 1995(2);
President of 21EMI from 1993 to August 1994.
Marilou R. McGirr*.......... 46 Chairman of Committee Vice President of CAC and Casualty since January
CNA Plaza and Member of 1997(1); Assistant Vice President of CAC and Casualty
Chicago, Illinois 60685 Committee from January 1995 to January 1997; Director, Money
Desk, of CAC and Casualty from January 1995 to
January 1997. Vice President and Assistant Treasurer
of CIS since April 1992.
William W. Tongue........... 83 Member of Committee Professor Emeritus of Economics and Finance,
212 Shoreline Drive University of Illinois at Chicago.
Park Ridge, Illinois 60068
Peter J. Wrenn.............. 63 Member of Committee President of Hudson Technology, Inc. (tooling and
915 Columbian Avenue Manufacturing).
Oak Park, Illinois 60302
Lynne Gugenheim*............ 39 Secretary of Manager of Investment Company Administration for CAC;
CNA Plaza Committee Vice President and Associate General Counsel of CAC
Chicago, Illinois 60685 and Casualty since January 1996(1). Secretary of CAC
and CIS since April 1995. From November 1994 to
December 1995, Assistant Vice President and Assistant
General Counsel of CAC and Casualty. From January
1991 to November 1994, Counsel of CAC and Casualty.
</TABLE>
- ---------------
* An "interested person" (as defined in Section 2(a)(19) of the 1940 Act), by
virtue of his or her employment with CAC.
(1) CNA Financial, CNA Plaza, Chicago, Illinois 60685, owns all of the
outstanding stock of Casualty, CNA Plaza, Chicago, Illinois 60685, which,
in turns, owns all of the outstanding stock of CAC.
(2) Prior to December 27, 1996 CLE, Inc., a wholly owned indirect subsidiary
of Casualty, owned 63% of the non-voting preferred stock of 21EMI. On
December 27, 1996, CLE, Inc. sold all of the 21EMI stock that it owned to
a third party unaffiliated with Casualty. Since December 27, 1996, CLE,
Inc. has had no interest in 21EMI.
No Committee Member or officer receives any remuneration from Separate
Account (B). CAC pays Committee Members a fee for their service. The Committee
Member's fee is currently $10,000 per annum. CAC also reimburses Committee
Members for expenses incurred in attending meetings of the Committee. However,
no payments of fees or expenses are made to any Committee Member who is an
officer or employee of or special consultant to CAC, CNA Financial or any of
their affiliated companies. Therefore, neither Mr. Dubberke nor Ms. McGirr has
received or will receive any such payments. During 1998, there was no
reimbursement payable for expenses incurred by Committee Members.
3
<PAGE> 51
The payment of fees to Committee Members is one of the items of expense for
which CAC receives a monthly investment advisory fee (at the annual rate of 0.5%
of the average daily net asset value of Separate Account (B)) from Separate
Account (B) pursuant to CAC's Investment Advisory Agreement with Separate
Account (B).
The following table sets forth information regarding the compensation of
all Committee Members of Separate Account (B) for services rendered in 1998 to
Separate Account (B) and to funds deemed to be included in the same fund complex
as Separate Account (B). A "fund complex" for this purpose means any two or more
funds that hold themselves out to investors as related companies or that have a
common or related investment adviser.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED FROM FUND AND FUND
COMPENSATION ACCRUED AS PART OF ANNUAL BENEFITS COMPLEX
NAME OF PERSON, POSITION FROM FUND FUND EXPENSES UPON RETIREMENT PAID TO DIRECTORS
------------------------ ------------ ------------------- --------------- ------------------
<S> <C> <C> <C> <C>
Richard W. Dubberke,
Committee Member*............ None None None None
Richard T. Fox,
Committee Member............. $10,000 None None 10,$000
Marilou R. McGirr,
Committee Member*............ None None None None
William W. Tongue,
Committee Member............. $10,000 None None 10,$000
Peter J. Wrenn,
Committee Member............. $10,000 None None 10,$000
</TABLE>
- ---------------
* An "interested person" (as defined in Section 2(a)(19) of the 1940 Act).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 26, 1999, no person was deemed to be in control of Separate
Account (B) or was known by either CAC or Separate Account (B) to own of record
or beneficially 5% or more of the Accumulation Units of the Separate Account.
None of the officers or Members of the Committee of Separate Account (B) own any
Accumulation Units of Separate Account (B).
INVESTMENT ADVISORY SERVICES
All of the voting securities of CAC are owned by Casualty, a stock casualty
insurance company organized under the Illinois Insurance Code, the home office
of which is located at CNA Plaza, Chicago, Illinois 60685. All of the voting
securities of Casualty are owned by CNA Financial, a Delaware corporation, CNA
Plaza, Chicago, Illinois 60685. Loews Corporation, a Delaware corporation, 667
Madison Avenue, New York, New York 10021-8087, with interests in insurance,
hotels, watches and other timing devices, drilling rigs and tobacco, owned
approximately 85% of the outstanding voting securities of CNA Financial as of
December 31, 1998. Laurence A. Tisch, the Chairman of the Board, Co-Chief
Executive Officer and a director of Loews Corporation and Chief Executive
Officer and a director of CNA Financial and his brother, Preston R. Tisch,
President, Co-Chief Executive Officer and a director of CNA Financial and Loews
Corporation, owned, in the aggregate, approximately 31% of the outstanding
common stock of Loews Corporation as of December 31, 1998. Therefore, they may
be deemed to be parents of
4
<PAGE> 52
Loews Corporation, and thus of CNA Financial Corporation and CAC, within the
meaning of the federal securities laws.
Pursuant to the Investment Advisory Agreement, CAC makes quarterly
withdrawals from Separate Account (B) at an annual rate of 0.5% of the average
daily net asset value of Separate Account (B) for providing investment advisory
services, and at an additional annual rate of 0.33% of the average daily net
asset value of Separate Account (B) as a service fee for bearing the following
expenses of Separate Account (B): costs and expenses incident to compliance with
federal and state regulations applicable to any public offering of Accumulation
Units in Separate Account (B); expenses related to printing and distributing
prospectuses and statements of additional information to persons who, at the
time of such distribution, are participants in Separate Account (B); SEC
registration; charges and expenses for custodian services (other than charges
and expenses relating to the lending of portfolio securities); charges and
expenses of independent auditors and legal counsel; expenses of meetings of the
participants and of the Committee (including the preparation and distribution of
proxy statements and semi-annual and annual reports); and bookkeeping and
postage expenses (other than postage expenses relating to the mailing of
prospectuses and statements of additional information to persons who, at the
time of such mailing, are not participants in Separate Account (B) or relating
to the mailing of sales literature). In the event that the total amount of the
expenses covered by the service fee is less than the amount of such service fee,
the difference will accrue to CAC as a profit. If such expenses are greater than
the fee, the difference will accrue to CAC as a loss. Under its Investment
Advisory Agreement with Separate Account (B), CAC is permitted to make such
withdrawals on a monthly basis instead of on a quarterly basis, but to date CAC
has nevertheless consented to being paid quarterly. Separate Account (B) has
incurred the following investment advisory and service fees payable to CAC:
1998, $1,365,230; 1997, $1,180,321; and 1996, $933,963. Separate Account (B)
pays all expenses incurred in connection with the lending of portfolio
securities.
The Investment Advisory Agreement may be terminated at any time by either
party, without the payment of any penalty, on sixty days' prior written notice.
The Investment Advisory Agreement continues in effect from year to year so long
as it is approved at least annually by the vote of a majority of the Committee
Members who are not parties to the Agreement or interested persons (as defined
in the 1940 Act) of any such party, cast in person at a meeting called for the
purpose of voting upon such approval.
In the event the Investment Advisory Agreement is terminated and another
investment adviser cannot be found, the assets of Separate Account (B) may be
liquidated. In the event of such liquidation, the interest of any retired
participant in Separate Account (B) will be transferred by CAC to its regular
reserves, and CAC will pay a fixed annuity for the lifetime of the participant
in the same form as the variable annuity held. Participants who are not retired
will be offered an option to receive a lump sum settlement or to receive an
immediate or deferred fixed annuity. Under Section 1035(a)(3) of the Internal
Revenue Code of 1986, no gain or loss will be recognized on the exchange of a
variable annuity for the fixed annuity. Liquidation of Separate Account (B) upon
termination of the Investment Advisory Agreement may have adverse federal income
tax consequences for a participant electing to receive a lump sum settlement
since the full amount of the settlement received will be taxable as ordinary
income realized in the year of receipt.
Under separate agreements with Separate Account (B), CAC acts as principal
underwriter and performs all sales and administrative functions relative to
Separate Account (B) and the variable annuity contracts of Separate Account (B).
The amounts earned by CAC for sales and administrative functions rendered to
Separate Account (B) for each of the years 1998, 1997, and 1996 were $10,428,
$11,417, and
5
<PAGE> 53
$12,704, respectively. The agreement covering sales and administrative services
does not cover the services covered by the Investment Advisory Agreement.
CAC has two affiliates, CNA Investor Services, Inc. ("Investor Services"),
(the successor by merger to CNA Securities Corp.), and Hedge Investor Services,
Inc. ("Hedge Services") which are members of the National Association of
Securities Dealers, Inc. CAC and Separate Account (B) are parties to an
agreement under which Separate Account (B) receives credit from CAC in the form
of a reduction of the investment advisory fee to the extent that services of
Investor Services are utilized in connection with Separate Account (B)'s
portfolio transactions. In 1975, the securities laws were amended to abolish
fixed brokerage commissions on securities transactions. Prior to such changes,
it was mutually advantageous to Separate Account (B) and to CNA Securities Corp.
for the services of CNA Securities Corp. to be utilized in connections with
certain of Separate Account (B)'s portfolio transactions. The advantage of such
arrangement was reduced significantly by the above-mentioned changes in the
securities laws. Separate Account (B) had no transactions with either Investor
Services or Hedge Services during 1998, or with Investor Services during 1997
and 1996.
IMPACT OF YEAR 2000 ON SEPARATE ACCOUNT (B)
The widespread use of computer programs, both in the United States and
internationally, that rely on two digit date fields to perform computations and
decision making functions may cause computer systems to malfunction when
processing information involving dates beginning in 1999. Such malfunctions
could lead to business delays and disruptions. Separate Account (B) does not
maintain any systems. Instead, it relies on the systems of its investment
advisor, CAC, and third party vendors. Separate Account (B) has a plan under
which it reviews periodically the progress that these parties are making on this
issue. To date, CNA Financial, on behalf of CAC, has certified internally as
Year 2000 ready all of the systems used by CAC in its duties as investment
advisor and administrative agent for Separate Account (B). Based on its current
assessment, CNA Financial estimates that the total cost to replace and upgrade
its systems to accommodate Year 2000 processing will be approximately $60 to $70
million. As of December 31, 1998, CNA Financial had spent approximately $59
million on Year 2000 readiness matters.
CNA Financial has also received statements of Year 2000 compliance from
certain of key business partners: The Chase Manhattan Bank (Separate Account
(B)'s custodian bank); Bloomberg L.P. (the system used for trade entry); MAXIMIS
(Separate Account (B)'s accounting system) and The Depository Trust Company (the
book-entry depository used to record ownership of securities). Separate Account
(B) believes that the systems on which it relies do not have any remaining
exposure to the Year 2000 problem and, therefore, Separate Account (B) does not
have material exposure to the Year 2000 problem. However, due to the
interdependent nature of computer systems, there may be an adverse impact on
Separate Account (B) if banks, vendors, various governmental agencies and other
business partners fail to successfully address the Year 2000. To mitigate this
impact, CNA Financial is communicating with these various entities to coordinate
Year 2000 conversion.
In addition, CNA Financial has developed business resumption plans to
ensure that it and Separate Account (B) are able to continue critical processes
through other means in the event that it becomes necessary to do so. Formal
strategies have been developed within each business unit and support
organization to include appropriate recovery processes and use of alternative
vendors. More than 200 strategies have been developed by CNA Financial to
address recovery plans for approximately 400 processes. These plans are being
updated quarterly.
6
<PAGE> 54
SECURITIES CUSTODIAN
The custodian of Separate Account (B)'s portfolio securities is The Chase
Manhattan Trust Company of Illinois, 10 South LaSalle Street, Chicago, Illinois
60603.
The custodian does not perform any managerial or policy-making functions
for Separate Account (B).
INDEPENDENT AUDITORS
The Committee has appointed Deloitte & Touche LLP, Two Prudential Plaza,
180 North Stetson Avenue, Chicago, Illinois, as auditors to audit the financial
statements of Separate Account (B). They also audit the Schedule of Investments
and the Financial Highlights of Separate Account (B). In addition, Deloitte &
Touche LLP has been appointed to audit the consolidated financial statements of
CAC.
BROKERAGE ALLOCATIONS
Officers and employees in the Investment Department of CAC are primarily
responsible for making portfolio decisions for Separate Account (B) and for
placing brokerage business of Separate Account (B). Separate Account (B) has
paid the following brokerage fees and commissions in connection with portfolio
transactions: 1998, $538,717; 1997, $464,745; and 1996, $371,335.
In selecting brokers to execute portfolio transactions, CAC's primary
criterion is the expected ability of such brokers to make the best possible
execution on orders. If several brokers are expected to be able to provide
equally good execution, preference is given to those brokers who provide
statistical research, assistance in pricing portfolio securities or other
services. Commissions on all transactions are negotiated, and the primary basis
of the commission agreed to by CAC is the quality of execution. Research
services, to the extent provided to CAC, may be used by CAC in servicing its
other accounts and not all such services are used in connection with Separate
Account (B).
In connection with the purchase and sale of portfolio securities for
Separate Account (B), CAC does not bunch orders for such transactions with
orders for other accounts under the management of Loews, CNA Financial, CAC or
other subsidiaries of CNA Financial unless such other accounts are registered
investment companies and unless such bunching would not have adverse
consequences for Separate Account (B) and such other accounts. Under no
circumstances are orders bunched with orders for CAC's own account or for the
account of Loews Corporation, CNA Financial or other subsidiaries of CNA
Financial. No bunching of orders occurred during 1998.
CALCULATION OF PERFORMANCE DATA
In computing the end-of-period values listed below of a hypothetical
investment in Separate Account (B), average annual total return ("Average
Return") was calculated by dividing the ending unit value by the beginning unit
value raised to the l/nth power and then subtracting one (with "n" equaling the
number of years). Fees based on a percentage of the purchase payment were
subtracted at the beginning of the specified period. Annual account fees, where
applicable, were deducted at the end of each year.
7
<PAGE> 55
LEVEL DEDUCTION CONTRACT FOR 403(B) PLANS
If you invested $1,000 in Separate Account (B) at the beginning of the
applicable time period and surrendered your contract at the end of the
applicable time period, the amount of money you would have received based on the
Average Return indicated is as follows:
<TABLE>
<CAPTION>
14.51% AVERAGE RETURN FOR 17.85% AVERAGE RETURN FOR 16.08% AVERAGE RETURN FOR
1 YEAR PERIOD 5 YEAR PERIOD 10 YEAR PERIOD
ENDING ON 12-31-98 ENDING ON 12-31-98 ENDING ON 12-31-98
- ------------------------- ------------------------- -------------------------
<S> <C> <C>
$1,145.11 $2,273.51 $4,442.32
</TABLE>
GRADED DEDUCTION CONTRACT FOR 403(B) PLANS
If you invested $1,000 in Separate Account (B) at the beginning of the
applicable time period and surrendered your contract at the end of the
applicable time period, the amount of money you would have received based on the
Average Return indicated is as follows:
<TABLE>
<CAPTION>
12.73% AVERAGE RETURN FOR 16.33% AVERAGE RETURN FOR 14.17% AVERAGE RETURN FOR
1 YEAR PERIOD 5 YEAR PERIOD 10 YEAR PERIOD
ENDING ON 12-31-98 ENDING ON 12-31-98 ENDING ON 12-31-98
- ------------------------- ------------------------- -------------------------
<S> <C> <C>
$1,127.29 $2,130.36 $3,763.62
</TABLE>
HR-10 PLANS
If you invested $1,000 in Separate Account (B) at the beginning of the
applicable time period and surrendered your contract at the end of the
applicable time period, the amount of money you would have received based on the
Average Return indicated is as follows:
<TABLE>
<CAPTION>
6.47% AVERAGE RETURN FOR 15.76% AVERAGE RETURN FOR 14.90% AVERAGE RETURN FOR
1 YEAR PERIOD 5 YEAR PERIOD 10 YEAR PERIOD
ENDING ON 12-31-98 ENDING ON 12-31-98 ENDING ON 12-31-98
- ------------------------ ------------------------- -------------------------
<S> <C> <C>
$1,064.66 $2,078.57 $4,011.61
</TABLE>
UNDERWRITING
CAC may be deemed to be the principal underwriter for Separate Account (B),
but receives no compensation from Separate Account (B) other than the fees
pursuant to the Investment Advisory Agreement and the Administrative Service
Agreement. The Contracts are offered by employees and licensed agents and
brokers of CAC, who may be deemed to be "underwriters" under the Securities Act
of 1933. Commissions to such persons on the sale of the Contracts may be
considered "underwriting commissions".
FINANCIAL STATEMENTS
The financial statements of Separate Account (B), the notes thereto and the
Independent Auditors' Report with respect thereto are incorporated into this
Statement of Additional Information by this reference to Separate Account (B)'s
1998 Annual Report to Participants: Balance Sheet; Statement of Operations;
Statement of Changes in Participants' Equity; and Schedule of Investments.
Copies of the
8
<PAGE> 56
1998 Annual Report to Participants may be obtained, at no charge, upon request
by contacting in writing or by telephone:
Continental Assurance Company
Attn: Individual Pension Accounts-35S
P.O. Box 803572
Chicago, Illinois 60680-3572
Telephone: (800) 351-3001
In addition, the SEC maintains a web site (http://www.sec.gov) that
contains the Annual Report to Participants and other information about Separate
Account (B).
Financial statements of CAC, the notes thereto and the Independent
Auditors' Report with respect thereto are set forth on pages 10 to 33 of this
Statement of Additional Information. Such financial statements are included
herein solely for the purpose of informing investors as to the financial
position and operations of CAC and are not financial statements of Separate
Account (B).
9
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Continental Assurance Company
We have audited the accompanying consolidated balance sheets of Continental
Assurance Company (a wholly-owned subsidiary of Continental Casualty Company,
which is a wholly-owned subsidiary of CNA Financial Corporation, an affiliate of
Loews Corporation) as of December 31, 1998 and 1997 and the related statements
of consolidated operations, stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Continental Assurance Company
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 10, 1999
10
<PAGE> 58
The following consolidated financial statements are those of Continental
Assurance Company and not those of Separate Account (B). They are included for
the purpose of informing investors as to the financial position and operations
of CAC.
CONTINENTAL ASSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997
- ------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C>
ASSETS:
Investments:
Fixed maturities available-for-sale (amortized cost:
$5,235,971 and $5,598,244)............................. $ 5,354,356 $ 5,711,950
Equity securities available-for-sale (cost: $49,133 and
$20,519)............................................... 45,099 21,917
Mortgage loans and real estate (less accumulated
depreciation: $129 and $98)............................ 19,050 24,721
Policy loans............................................ 177,442 176,513
Other invested assets................................... 9,261 6,465
Short-term investments.................................. 851,334 469,739
----------- -----------
TOTAL INVESTMENTS................................... 6,456,542 6,411,305
Cash...................................................... 19,003 50,072
Insurance receivables:
Reinsurance receivables................................. 341,282 173,974
Premium and other insurance receivables................. 941,098 1,021,082
Less allowance for doubtful accounts.................... (266) (332)
Deferred acquisition costs................................ 1,127,761 971,665
Accrued investment income................................. 65,431 75,474
Receivables for securities sold........................... 46,793 119,425
Federal income taxes recoverable.......................... -- 42,709
Property and equipment at cost (less accumulated
depreciation: $161,001 and $147,294).................... 145,489 135,741
Other assets.............................................. 20,806 71,679
Separate Account business................................. 5,202,834 5,811,613
- ------------------------------------------------------------------------------------------
TOTAL ASSETS $14,366,773 $14,884,407
==========================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
Insurance reserves:
Future policy benefits.................................. $ 4,707,831 $ 4,293,426
Claims.................................................. 654,388 669,307
Policyholders' funds.................................... 608,114 589,821
Securities sold under repurchase agreements............... 78,126 152,716
Participating policyholders' equity....................... 139,526 132,418
Federal income taxes payable.............................. 12,190 --
Payables for securities purchased......................... 13,504 128,218
Deferred income taxes..................................... 138,951 138,002
Debt...................................................... 10,000 10,000
Other liabilities......................................... 376,575 620,276
Separate Account business................................. 5,202,834 5,811,613
----------- -----------
TOTAL LIABILITIES................................... 11,942,039 12,545,797
----------- -----------
Commitments and contingent liabilities -- Note 8 and Note
10........................................................ -- --
Stockholder's Equity:
Common stock ($5 par value; Authorized 4,500,000 shares;
Issued 4,366,173 shares)................................ 21,831 21,831
Additional paid-in capital................................ 335,666 335,666
Retained earnings......................................... 1,961,459 1,852,591
Other comprehensive income................................ 105,778 128,522
----------- -----------
TOTAL STOCKHOLDER'S EQUITY.......................... 2,424,734 2,338,610
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $14,366,773 $14,884,407
==========================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
11
<PAGE> 59
CONTINENTAL ASSURANCE COMPANY
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Revenues:
Premiums.................................................. $3,295,229 $3,435,294 $3,373,797
Net investment income..................................... 445,084 418,395 400,937
Realized investment gains (losses)........................ 134,652 163,579 163,571
Other..................................................... 86,236 82,258 81,551
---------- ---------- ----------
3,961,201 4,099,526 4,019,856
---------- ---------- ----------
Benefits and expenses:
Insurance claims and policyholders' benefits.............. 3,223,757 3,254,223 3,247,556
Amortization of deferred acquisition costs................ 132,228 121,111 12,036
Restructuring and other related charges................... 46,306 -- --
Other operating expenses.................................. 351,609 363,344 396,620
Participating policyholders' interest..................... 28,850 31,647 12,804
---------- ---------- ----------
3,782,750 3,770,325 3,669,016
---------- ---------- ----------
Income before income tax................................ 178,451 329,201 350,840
Income tax expense.......................................... 69,583 110,918 125,423
- ------------------------------------------------------------------------------------------------------
NET INCOME $ 108,868 $ 218,283 $ 225,417
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
12
<PAGE> 60
CONTINENTAL ASSURANCE COMPANY
STATEMENTS OF CONSOLIDATED STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED COMPREHENSIVE STOCKHOLDER'S
STOCK CAPITAL INCOME EARNINGS INCOME EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995.............. $21,831 $335,666 $1,408,891 $ 284,124 $2,050,512
Comprehensive income:
Net income.......................... -- -- $ 225,417 225,417 225,417
Other comprehensive loss............ -- -- (227,461) -- (227,461) (227,461)
---------
Total comprehensive loss.............. $ (2,044)
------- -------- ========= ---------- --------- ----------
BALANCE, DECEMBER 31, 1996.............. 21,831 335,666 1,634,308 56,663 2,048,468
Comprehensive income:
Net income.......................... -- -- $ 218,283 218,283 -- 218,283
Other comprehensive income.......... -- -- 71,859 -- 71,859 71,859
---------
Total comprehensive income............ $ 290,142
------- -------- ========= ---------- --------- ----------
BALANCE, DECEMBER 31, 1997.............. 21,831 335,666 1,852,591 128,522 2,338,610
Comprehensive income:
Net income.......................... -- -- $ 108,868 108,868 -- 108,868
Other comprehensive loss............ -- -- (22,744) -- (22,744) (22,744)
---------
Total comprehensive income............ $ 86,124
- ------------------------------------------------------------- ========= ----------------------------------------
BALANCE, DECEMBER 31, 1998 $21,831 $335,666 $1,961,459 $ 105,778 $2,424,734
============================================================= ========================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
13
<PAGE> 61
CONTINENTAL ASSURANCE COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DECEMBER 31 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 108,868 $ 218,283 $ 225,417
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income provision............................... 2,527 38,024 83,531
Net realized investment gains, pre-tax.................. (134,652) (163,579) (163,571)
Participating policyholders' interest................... 1,965 7,714 (5,472)
Amortization of bond discount........................... (24,834) (25,278) (40,238)
Depreciation............................................ 20,779 22,713 25,771
Changes in:
Insurance receivables................................. (114,882) (113,169) (230,618)
Deferred acquisition costs............................ (156,096) (201,914) (245,132)
Accrued investment income............................. 10,043 29,421 (15,420)
Federal income taxes (recoverable) payable............ 54,899 6,859 (26,022)
Insurance reserves.................................... 338,016 297,365 367,717
Other liabilities..................................... (208,350) 150,503 37,987
Other, net............................................ 23,338 (29,387) (7,586)
----------- ----------- -----------
TOTAL ADJUSTMENTS............................... (187,247) 19,272 (219,053)
----------- ----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES........ (78,379) 237,555 6,364
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed maturities.............................. (6,624,402) (8,179,284) (7,036,670)
Proceeds from fixed maturities
Sales................................................... 6,661,464 6,752,672 6,583,057
Maturities, calls and redemption........................ 396,915 732,884 183,038
Purchase of equity securities............................. (40,926) (90,796) (99,584)
Proceeds from sale of equity securities................... 11,063 138,061 92,012
Change in short-term investments.......................... (365,293) 31,970 (79,981)
Purchase of property and equipment........................ (30,586) (39,059) (23,888)
Securities sold under repurchase agreements............... (74,590) 152,716 (188,211)
Change in other investments............................... (940) 13,657 138,778
Other, net................................................ 34,843 54,535 99,274
----------- ----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES........ (32,452) (432,644) (332,175)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts from investment contracts credited to
policyholder balances................................... 276,590 399,795 459,785
Return of policyholder account balances on investment
contracts............................................... (196,828) (193,844) (173,466)
Other, net................................................ -- -- (3,102)
----------- ----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES........ 79,762 205,951 283,217
----------- ----------- -----------
NET CASH FLOWS.................................. (31,069) 10,862 (42,594)
Cash at beginning of year................................... 50,072 39,210 81,804
- -----------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 19,003 $ 50,072 $ 39,210
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Federal income taxes paid................................. 76,750 6,009 18,893
Interest paid............................................. 289 377 374
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
14
<PAGE> 62
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
Continental Assurance Company ("CAC") is a wholly-owned subsidiary of
Continental Casualty Company ("Casualty") which is wholly-owned by CNA Financial
Corporation ("CNA Financial"). Loews Corporation owns approximately 85% of the
outstanding common stock of CNA Financial. The operating subsidiaries of CAC
consist of Valley Forge Life Insurance Company ("VFL"), Convida Holdings, Ltd.,
CNA Health Partners, Inc. and CNA Life Insurance Company of Canada.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"). Certain
amounts applicable to prior years have been reclassified to conform to
classifications followed in 1998. All significant intercompany amounts have been
eliminated.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
INSURANCE
Premium revenue--Revenues on universal life-type contracts are comprised of
contract charges and fees which are recognized over the coverage period.
Accident and health insurance premiums are earned ratably over the terms of the
policies after provision for estimated adjustments on retrospectively rated
policies and deductions for ceded insurance. Other life insurance premiums and
annuities are recognized as revenue when due after deductions for ceded
insurance.
Future policy benefit reserves--Reserves for traditional life insurance
products (whole and term life products) are computed based upon the net level
premium method using actuarial assumptions as to interest rates, mortality,
morbidity, withdrawals and expenses. Actuarial assumptions include a margin for
adverse deviation and generally vary by plan, age at issue and policy duration.
Interest rates range from 3% to 9%, and mortality, morbidity and withdrawal
assumptions reflect CAC and industry experience prevailing at the time of issue.
Expense assumptions include the estimated effects of inflation and expenses
beyond the premium paying period. Reserves for universal life-type contracts are
equal to the account balances that accrue to the benefit of the policyholders.
Interest crediting rates ranged from 4.30% to 7.25% for the three years ended
December 31, 1998.
Claim reserves--Claim reserves include provisions for reported claims in
the course of settlement and estimates of unreported claims based upon past
experience.
Reinsurance--CAC assumes and cedes insurance with other insurers and
reinsurers. CAC utilizes reinsurance arrangements to limit its maximum loss,
provide greater diversification of risk and minimize exposures on larger risks.
The reinsurance coverages are tailored to the specific risk characteristics of
each product line with CAC's retained amount varying by type of coverage. CAC's
reinsurance includes quota
15
<PAGE> 63
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 1.--(CONTINUED):
share, yearly renewable term and facultative programs. Amounts recoverable from
reinsurers are estimated in a manner consistent with the claim or policy reserve
liability.
Deferred acquisition costs--Life insurance acquisition costs are
capitalized and amortized based on assumptions consistent with those used for
computing policy benefit reserves. Acquisition costs on traditional life
business are amortized over the assumed premium paying periods. Universal life
and annuity acquisition costs are amortized in proportion to the present value
of the estimated gross profits over the products' assumed duration. To the
extent that unrealized gains or losses on available-for-sale securities would
result in an adjustment of deferred policy acquisition costs had those gains or
losses actually been realized, the related unamortized deferred policy
acquisition costs are recorded as an adjustment of the unrealized gains or
losses included in stockholder's equity.
Participating business--Participating business represented 0.5%, 0.7% and
0.5% of gross life insurance in force and 0.7%, 0.7% and 0.7% of premium income
for 1998, 1997 and 1996, respectively. Participating policyholders' equity is
determined by allocating 90% of the net income or loss and unrealized investment
gains or losses related to such business as allowed by applicable laws, less
dividends determined by the Board of Directors. Revenues and benefits and
expenses include amounts related to participating policies; the net income or
loss allocated to participating policyholders' equity is a component of benefits
and expenses.
Separate Account business--CAC writes certain investment and annuity
contracts. The supporting assets and liabilities of these contracts and policies
are legally segregated and reflected as assets and liabilities of Separate
Account business. CAC guarantees principal and a specified return to the
contract holders on approximately 64% and 74% of the Separate Account business
at December 31, 1998 and 1997, respectively. Substantially all assets of the
Separate Account business are carried at fair value. Separate account
liabilities are carried principally at contract values.
INVESTMENTS
Valuation of investments--CAC classifies its fixed maturity securities
(bonds and redeemable preferred stocks) and its equity securities as
available-for-sale, and as such, they are carried at fair value. The amortized
cost of fixed maturity securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and accretion are included
in investment income.
CAC accounts for its derivative securities under the fair value method.
Under this method the derivative securities are recorded at fair value at the
reporting date with changes in fair value reflected in realized investment gains
and losses. CAC's derivatives are made up of interest rate caps, futures,
forwards, commitments to purchase securities and options and are classified as
other invested assets.
Mortgage loans are carried at unpaid principal balances, including
unamortized premium or discount. Real estate is carried at depreciated cost.
Policy loans are carried at unpaid balances. Short-term investments, which have
an original maturity of one year or less, are carried at amortized cost, which
approximates fair value.
16
<PAGE> 64
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 1.--(CONTINUED):
Investment gains and losses--All securities transactions are recorded on
the trade date. Realized investment gains and losses are determined on the basis
of the amortized cost of the specific securities sold. Unrealized investment
gains and losses on fixed maturity securities and equity securities are
reflected as part of Stockholder's equity (accumulated other comprehensive
income), net of applicable deferred income taxes and participating
policyholders' interest. Investments are written down to estimated fair values
and losses are charged to income when a decline in value is considered to be
other than temporary.
Securities lending activities--CAC has a securities lending program where
securities are loaned to third parties, primarily major brokerage firms.
Borrowers of these securities must deposit 100% of the fair value of the
securities if the collateral is cash, or 102% if the collateral is securities.
Cash deposits from these transactions are invested in short-term investments
(primarily commercial paper). CAC continues to receive the interest on the
loaned debt, as beneficial owner, and accordingly, loaned debt securities are
included in fixed maturity securities.
INCOME TAXES
The provision for income taxes includes deferred taxes, resulting from
temporary differences between the financial statement and tax return basis of
assets and liabilities under the liability method. Temporary differences
primarily relate to insurance reserves, investment valuation differences, net
unrealized investment gains/losses and deferred acquisition costs.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is based on the estimated useful lives of the various classes of
property and equipment and determined principally on accelerated methods. The
cost of maintenance and repairs is charged to income as incurred; major
improvements are capitalized.
ACCOUNTING BY INSURANCE AND OTHER ENTERPRISES FOR INSURANCE-RELATED ASSESSMENTS
In December 1997, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued Statement of Position (SOP)
97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments." SOP 97-3 requires that entities recognize liabilities for
insurance-related assessment when all of the following criteria have been met:
an assessment has been imposed or it its probable that occurred on or before the
date of the financial statements; and the amount of the assessment can be
reasonably estimated. This SOP is effective for financial statements for fiscal
years beginning after December 15, 1998. The effects of this SOP will result in
CAC recording a pre-tax charge in 1999 between $2 million and $5 million as a
cumulative effect of a change in accounting principle.
17
<PAGE> 65
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 2. INVESTMENTS:
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Fixed maturities:
Taxable bonds............................................. $406,603 $369,662 $364,620
Tax exempt bonds.......................................... -- -- 29
Equity securities........................................... 2,205 1,923 36
Mortgage loans and Real Estate.............................. 1,690 2,956 2,875
Policy loans................................................ 10,725 10,274 9,972
Short-term investments and other............................ 33,954 39,010 26,386
-------- -------- --------
455,177 423,825 403,918
Investment expense.......................................... (10,093) (5,430) (2,981)
- ---------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $445,084 $418,395 $400,937
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF INVESTMENT GAINS (LOSSES)
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Realized investment gains (losses):
Fixed maturities.......................................... $105,756 $ 87,371 $ 63,129
Equity securities......................................... (3,468) 19,183 (161)
Real estate............................................... (2) 4,955 1,879
Other, principally Separate Account business.............. 32,366 52,070 98,724
-------- -------- ---------
134,652 163,579 163,571
Allocated to participating policyholders.................. (13,997) (14,613) (14,249)
Income tax expense........................................ (43,412) (52,701) (55,056)
-------- -------- ---------
NET REALIZED INVESTMENT GAINS..................... 77,243 96,265 94,266
-------- -------- ---------
Change in net unrealized investment gains (losses):
Fixed maturities.......................................... 4,678 77,134 (205,921)
Equity securities......................................... (5,431) 8,940 (21,406)
Other, principally Separate Account business.............. (13,680) 50,465 (125,622)
-------- -------- ---------
(14,433) 136,539 (352,949)
Reclassification to Deferred Acquisition Costs............ (6,784) (8,326) --
Allocated to participating policyholders.................. (277) (3,983) 17,988
Deferred income taxes..................................... 1,999 (51,512) 108,282
-------- -------- ---------
CHANGES IN NET UNREALIZED INVESTMENT (LOSSES)
GAINS........................................... (19,495) 72,718 (226,679)
- ----------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED INVESTMENT GAINS
(LOSSES) $ 57,748 $168,983 $(132,413)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 66
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 2.--(CONTINUED):
<TABLE>
<CAPTION>
SUMMARY OF GROSS REALIZED INVESTMENT GAINS (LOSSES)
FOR FIXED MATURITIES AND EQUITY SECURITIES
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -----------------------
FIXED EQUITY FIXED EQUITY FIXED EQUITY
YEAR ENDED DECEMBER 31 MATURITIES SECURITIES MATURITIES SECURITIES MATURITIES SECURITIES
- -------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Proceeds from sales............................... $6,661,464 $11,063 $6,752,672 $138,061 $6,583,057 $92,012
---------- ------- ---------- -------- ---------- -------
Gross realized gains.............................. 119,707 268 113,008 19,365 110,763 822
Gross realized losses............................. (13,951) (3,736) (25,637) (182) (47,634) (983)
- -------------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAINS (LOSSES) ON SALES $ 105,756 $(3,468) $ 87,371 $ 19,183 $ 63,129 $ (161)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF NET UNREALIZED INVESTMENT GAINS (LOSSES)
INCLUDED IN OTHER COMPREHENSIVE INCOME
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997
------------------------------------ ------------------------------------
YEAR ENDED DECEMBER 31 GAINS LOSSES NET GAINS LOSSES NET
- -------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities.................................. $155,739 $(37,355) $118,384 $134,694 $(20,988) $113,706
Equity securities................................. 5,499 (9,532) (4,033) 5,307 (3,909) 1,398
Other, principally Separate Account business...... 83,483 (79) 83,404 97,780 (696) 97,084
-------- -------- -------- -------- -------- --------
$244,721 $(46,966) 197,755 $237,781 $(25,593) 212,188
======== ======== ======== ========
Reclassification to Deferred Acquisition Costs.... (15,110) (8,326)
Allocated to participating policyholders.......... (4,153) (3,876)
Deferred income tax expense....................... (67,824) (69,823)
- -------------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED INVESTMENT GAINS $110,668 $130,163
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 67
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 2.--(CONTINUED):
SUMMARY OF INVESTMENTS IN FIXED MATURITIES
AND EQUITY SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Treasuries and obligations of government agencies...... $ 994,437 $ 13,904 $ 4,729 $1,003,611
Asset-backed securities..................................... 1,946,160 59,391 2,288 2,003,264
Corporate securities........................................ 1,681,423 50,223 15,137 1,716,509
Other debt securities....................................... 613,951 32,221 15,201 630,972
---------- -------- ------- ----------
Total fixed maturities.................................. 5,235,971 155,739 37,355 5,354,356
Equity securities........................................... 49,133 5,499 9,532 45,099
- ----------------------------------------------------------------------------------------------------------------
TOTAL $5,285,104 $161,238 $46,887 $5,399,455
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
U.S. Treasuries and obligations of government agencies...... $2,007,287 $ 19,880 $ 5,924 $2,021,243
Asset-backed securities..................................... 1,359,693 42,543 1,624 1,400,612
Corporate securities........................................ 1,725,044 51,704 7,787 1,768,961
Other debt securities....................................... 506,220 20,567 5,653 521,134
---------- -------- ------- ----------
Total fixed maturities.................................. 5,598,244 134,694 20,988 5,711,950
Equity securities........................................... 20,519 5,307 3,909 21,917
- ----------------------------------------------------------------------------------------------------------------
TOTAL $5,618,763 $140,001 $24,897 $5,733,867
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SUMMARY OF INVESTMENTS IN FIXED MATURITIES
BY CONTRACTUAL MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1998
-----------------------
AMORTIZED MARKET
YEAR ENDED DECEMBER 31 COST VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
(In thousands of dollars)
Due in one year or less..................................... $ 83,312 $ 83,631
Due after one year through five years....................... 840,539 853,121
Due after five years through ten years...................... 1,194,608 1,211,151
Due after ten years......................................... 1,171,352 1,203,189
Asset-backed securities not due at a single maturity date... 1,946,160 2,003,264
- --------------------------------------------------------------------------------------
TOTAL $5,235,971 $5,354,356
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
Actual maturities may differ from contractual maturities because securities
may be called or prepaid with or without call or prepayment penalties.
There are no investments, other than equity securities, that have not
produced income for the years ended December 31, 1998 and 1997. There are no
equity investments in a single issuer that when aggregated exceed 10% of
stockholder's equity.
20
<PAGE> 68
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 2.--(CONTINUED):
High yield securities are bonds rated as below investment grade by bond
rating agencies and other unrated securities which, in the opinion of
management, are below investment grade (below BBB). Carrying values of high
yield securities in the general account were $426.5 million and $407.0 million
at December 31, 1998 and 1997, respectively. Net unrealized gains on high yield
securities, included in the general account, were $5.0 million and $2.5 million
at December 31, 1998 and 1997, respectively.
At December 31, 1998, total Separate Account investments excluding cash
amounted to $5.1 billion with taxable fixed maturities representing
approximately 81% of the Separate Accounts' portfolio. Approximately 64% and
74%, at December 31, 1998 and 1997, respectively, of the Separate Account
investments were used to fund guaranteed investment contracts (GICs) for which
CAC guarantees principal and a specified return to the contract holders. The
duration of fixed maturities included in the GIC portfolio is matched to
approximate the corresponding payout pattern of the liabilities of the GIC
contracts.
All fixed maturities in the GIC portfolio were carried at fair value and
amounted to $3.2 billion and $3.8 billion at December 31, 1998 and 1997,
respectively. At December 31, 1998 and 1997, net unrealized gains on fixed
maturities in the GIC portfolio amounted to approximately $64.3 million and
$71.2 million, respectively. The gross unrealized gains and losses for the fixed
maturities portfolios at December 31, 1998, were $84.3 million and $20.0
million, respectively, compared to $86.7 million and $15.5 million,
respectively, at December 31, 1997.
High yield securities in the guaranteed Separate Account portfolio were
carried at fair value totaling $268.9 million and $310.3 million at December 31,
1998 and 1997, respectively. Net unrealized losses on high yield securities held
in such Separate Accounts were $8.8 million and $1.2 million at December 31,
1998 and 1997, respectively.
NOTE 3. DEBT:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
DECEMBER 31 1998 1997
- -------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C>
Industrial Development Revenue Bonds, due July 1, 2016 at
variable interest rates--3.80% to 4.20%................... $10,000 $10,000
- -------------------------------------------------------------------------------
TOTAL DEBT $10,000 $10,000
===============================================================================
</TABLE>
NOTE 4. FINANCIAL INSTRUMENTS:
In the normal course of business, CAC invests in various financial assets,
incurs various financial liabilities, and enters into agreements involving
derivative securities, including off-balance sheet financial instruments.
Fair values are required to be disclosed for all financial instruments,
whether or not recognized in the consolidated balance sheets, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values may be based on estimates using present value or other
21
<PAGE> 69
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 4.--(CONTINUED):
valuation techniques. These techniques are significantly affected by the
assumptions used, including the discount rates and estimates of future cash
flows. Potential taxes and other transaction costs have not been considered in
estimating fair value. The estimates presented herein are subjective in nature
and are not necessarily indicative of the amounts CAC could realize in the
current market exchange.
Non-financial instruments such as real estate, deferred acquisition costs,
reinsurance receivables, property and equipment, deferred income taxes and
insurance reserves are excluded from fair value disclosure. Thus, the total fair
value amounts cannot be aggregated to determine the underlying economic value of
CAC.
The carrying amounts reported in the consolidated balance sheet approximate
fair value for cash, short-term investments, premium and other insurance
receivables, accrued investment income, receivables for securities sold,
securities sold under repurchase agreements, payables for securities purchased
and certain other assets and other liabilities because of their short-term
nature. Accordingly, these financial instruments are not listed in the table
below. The carrying amounts and estimated fair values of CAC's other financial
instrument assets and liabilities are listed in the following table. Derivative
instruments are shown in a separate table.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
DECEMBER 31 1998 1997
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands of dollars)
FINANCIAL ASSETS
Investments:
Fixed maturities.......................................... $5,354,356 $5,354,356 $5,711,950 $5,711,950
Equity securities......................................... 45,099 45,099 21,917 21,917
Mortgage loans............................................ 14,688 15,565 20,553 21,685
Policy loans.............................................. 181,781 176,837 176,513 172,377
Other invested assets..................................... 9,261 9,261 6,465 6,465
Separate Account assets:
Fixed maturities.......................................... 4,154,709 4,154,709 4,768,843 4,768,843
Equity securities......................................... 297,074 297,074 206,353 206,353
Other..................................................... 216,418 216,418 116,700 116,700
FINANCIAL LIABILITIES
Premium deposits and annuity contracts...................... 1,259,235 1,204,980 1,194,295 1,144,850
Debt........................................................ 10,000 10,000 10,000 10,000
Separate Account liabilities:
Guaranteed investment contacts............................ 2,422,811 2,478,395 3,413,504 3,448,002
Deferred annuities........................................ 85,460 102,422 73,479 90,236
Variable separate accounts................................ 1,268,051 1,268,051 996,847 996,847
Other..................................................... 600,171 600,171 614,448 614,448
===============================================================================================================
</TABLE>
22
<PAGE> 70
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 4.--(CONTINUED):
The following methods and assumptions were used by CAC in estimating the
fair value for the above financial instruments:
Fixed maturity securities and equity securities are based on quoted
market prices, where available. For securities not actively traded, fair
values are estimated using values obtained from independent pricing
services, costs to settle or quoted market prices of comparable instruments
The fair values for mortgage loans and policy loans are estimated
using discounted cash flow analyses at interest rates currently offered for
similar loans to borrowers with comparable credit ratings. Loans with
similar characteristics are aggregated for purposes of the calculations.
Valuation techniques to determine fair value of other invested assets
and other Separate Account business assets consist of discounted cash flows
and quoted market prices of (a) the investments, (b) comparable instruments
or (c) underlying assets of the investments.
Premium deposits and annuity contracts are valued based on cash
surrender values and the outstanding fund balances.
CAC's long-term debt represents floating rate tax exempt bonds with
interest rates determined monthly and thus approximates fair value.
The fair values for guaranteed investment contracts and deferred
annuities of the Separate Account business are estimated using discounted
cash flow calculations, based on interest rates currently being offered for
similar contracts with similar maturities. The fair values of the
liabilities for variable Separate Account business are based on the quoted
market values of the underlying assets of each variable Separate Account.
The fair value of other Separate Account business liabilities approximates
their carrying value.
DERIVATIVE FINANCIAL INSTRUMENTS
CAC invests from time to time in derivative financial instruments primarily
to reduce its exposure to market risk. Financial instruments used for such
purposes may include interest rate caps, put and call options, commitments to
purchase securities, futures and forwards. CAC generally does not hold or issue
these instruments for trading purposes. CAC also uses derivatives to mitigate
the risk associated with its indexed group annuity contracts by purchasing S&P
500 futures contracts in a notional amount equal to the original customer
deposit.
The gross notional principal or contractual amounts of derivative financial
instruments in the general account totaled $500.0 million at December 31, 1998
and 1997. The gross notional principal or contractual amounts of derivative
financial instruments in the Separate Accounts totaled $1,193.9 million and
$859.9 million at December 31, 1998 and 1997 respectively. The contract or
notional amounts are used to calculate the exchange of contractual payments
under the agreements and are not representative of the potential for gain or
loss on these agreements.
23
<PAGE> 71
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 4.--(CONTINUED):
The fair values associated with derivative financial instruments are
generally affected by interest rates, equity stock prices and foreign exchange
rates. The credit exposure associated with these instruments is generally
limited to the unrealized fair value of the instruments and will vary based on
the credit worthiness of the counterparties. Although CAC is exposed to the
aforementioned credit risk, it does not expect any counterparty to fail to
perform as contracted based on the creditworthiness of the counterparties. Due
to the nature of the derivative securities, CAC does not require collateral.
The fair value of derivatives generally reflects the estimated amounts that
CAC would receive or pay upon termination of the contracts at the reporting
date. Dealer quotes are available for substantially all of CAC's derivatives.
For securities not actively traded, fair values are estimated using values
obtained from independent pricing services, costs to settle or quoted market
prices of comparable instruments.
A summary of the aggregate notional or contractual amounts and estimated
fair values of these instruments at December 31, 1998 and 1997, is presented
below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 CONTRACTUAL/ ASSET/(LIABILITY) REALIZED
(IN THOUSANDS OF DOLLARS) NOTIONAL AMOUNT FAIR VALUE GAIN/(LOSS)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Account
Interest rate caps........................................ $ 500,000 $1,151 $ (2,234)
- ---------------------------------------------------------------------------------------------------------------
TOTAL $ 500,000 $1,151 $ (2,234)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Separate Accounts
Futures*.................................................. $ 979,264 $2,505 $155,247
Forwards.................................................. 2,441 2 3
Commitments to purchase government and municipal
securities.............................................. 68,650 1,276 3,695
Options purchased......................................... 77,350 765 (1,192)
Options written........................................... 66,218 (317) 2,360
- ---------------------------------------------------------------------------------------------------------------
TOTAL $1,193,923 $4,231 $160,113
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 CONTRACTUAL/ ASSET/(LIABILITY) REALIZED
(IN THOUSANDS OF DOLLARS) NOTIONAL AMOUNT FAIR VALUE GAIN/(LOSS)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Account
Commitments to purchase government and municipal
securities.............................................. $ -- $ -- $ 1,404
Options purchased......................................... -- -- 586
Interest rate caps........................................ 500,000 4,330 (1,466)
- ---------------------------------------------------------------------------------------------------------------
TOTAL $ 500,000 $4,330 $ 524
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Separate Accounts
Futures*.................................................. $ 614,675 $ (208) $111,879
Forwards.................................................. 1,122 71 296
Commitments to purchase government and municipal
securities.............................................. 79,600 (64) 1,111
Options purchased......................................... 91,278 444 (1,221)
Options written........................................... 73,196 (439) 1,872
- ---------------------------------------------------------------------------------------------------------------
TOTAL $ 859,871 $ (196) $113,937
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Separate Accounts futures' unrealized gain (loss) is offset by an increase
(decrease), respectively, to the liability to participants.
Futures are contracts to buy or sell a standard quantity and quality of a
commodity, financial instrument or index at a specified future date and price.
Forwards are contracts between two parties to
24
<PAGE> 72
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 4.--(CONTINUED):
purchase and sell a specific quantity of a commodity, government security,
foreign currency or other financial instrument at a price specified at contract
inception, with delivery and settlement at a specified future date.
Commitments to purchase government and municipal securities are a
commitment to purchase securities in the future at a predetermined price.
Options are contracts that grant the purchaser, for a premium payment, the
right, but not the obligation, to either purchase or sell a financial instrument
at a specified price within a specified period of time.
An interest rate cap consists of a guarantee given by the issuer to the
purchaser in exchange for the payment of a premium. This guarantee states that
if interest rates rise above a specified rate, the issuer will pay to the
purchaser the difference between the then current market rate and the specified
rate on the notional principal amount. The notional principal amount is not
actually borrowed or repaid.
NOTE 5. STATUTORY CAPITAL AND SURPLUS (UNAUDITED):
Statutory capital and surplus and net income for CAC are determined in
accordance with accounting practices prescribed or permitted by the Illinois
Insurance Department. Prescribed statutory accounting practices are set forth in
a variety of publications of the National Association of Insurance Commissioners
("NAIC") as well as state laws, regulations and general administrative rules.
CAC has no material permitted accounting practices. Statutory net income (loss)
was $(56.7) million, $42.6 million and $57.7 million for the years ended
December 31, 1998, 1997 and 1996, respectively. Statutory capital and surplus
for CAC was $1.1 billion and $1.2 billion at December 31, 1998 and 1997,
respectively. Statutory capital and surplus of $34.5 million at December 31,
1998 and 1997, was appropriated by the Board of Directors, under regulatory
formula, to fund excess group losses due to an epidemic or disaster, if
necessary. The payment of dividends by CAC to Casualty, without prior approval
of the Illinois Insurance Department is limited to formula amounts.
Approximately $110.9 million and $122.4 million at December 31, 1998 and 1997,
respectively, was not subject to prior Insurance Department approval.
25
<PAGE> 73
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 6. ACCUMULATED OTHER COMPREHENSIVE INCOME:
Comprehensive income is comprised of all changes to stockholder's equity,
including net income, except those changes resulting from investments by, and
distributions to, the stockholder. Other comprehensive income (loss) is
comprehensive income (loss) exclusive of net income. The change in the
components of accumulated other comprehensive income (loss) are shown in the
following tables.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
TAX
PRE-TAX (EXPENSE) NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT BENEFIT AMOUNT
- -----------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the
period.................................................. $ 91,129 $(32,806) $ 58,323
Allocated to participating policyholders.................. (277) -- (277)
Adjustment for (gains) losses included in net income...... (105,562) 32,431 (73,131)
Adjustment for unrealized gains (losses) included in
Deferred Acquisition Costs.............................. (6,784) 2,374 (4,410)
Cumulative foreign currency adjustment...................... (3,249) -- (3,249)
- -----------------------------------------------------------------------------------------------
TOTAL OTHER COMPREHENSIVE INCOME $ (24,743) $ 1,999 $ (22,744)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TAX
PRE-TAX (EXPENSE) NET
YEAR ENDED DECEMBER 31, 1997 AMOUNT BENEFIT AMOUNT
- -----------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the
period.................................................. $ 150,509 $(59,746) $ 90,763
Allocated to participating policyholders.................. (3,983) -- (3,983)
Adjustment for (gains) losses included in net income...... (13,970) 5,320 (8,650)
Adjustment for unrealized gains (losses) included in
Deferred Acquisition Costs.............................. (8,326) 2,914 (5,412)
Cumulative foreign currency adjustment...................... (859) -- (859)
- -----------------------------------------------------------------------------------------------
TOTAL OTHER COMPREHENSIVE INCOME $ 123,371 $(51,512) $ 71,859
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TAX
PRE-TAX (EXPENSE) NET
YEAR ENDED DECEMBER 31, 1996 AMOUNT BENEFIT AMOUNT
- -----------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Net unrealized gains (losses) on investment securities:
Net unrealized holding gains (losses) arising during the
period.................................................. $(233,095) $ 74,030 $(159,065)
Allocated to participating policyholders.................. 17,988 -- 17,988
Adjustment for (gains) losses included in net income...... (119,855) 34,252 (85,603)
Cumulative foreign currency adjustment...................... (781) -- (781)
- -----------------------------------------------------------------------------------------------
TOTAL OTHER COMPREHENSIVE INCOME $(335,743) $108,282 $(227,461)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 74
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 6.--(CONTINUED):
The following tables display the changes in and the components of
accumulated other comprehensive income included in the consolidated balance
sheet and statements of stockholder's equity for 1998 and 1997.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY NET UNREALIZED TOTAL ACCUMULATED
TRANSLATION GAINS/(LOSSES) OTHER COMPREHENSIVE
ADJUSTMENT ON INVESTMENTS INCOME
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning January 1, 1997................................ $ (782) $ 57,445 $ 56,663
Current period change.................................... (859) 72,718 71,859
- -------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997................................ (1,641) 130,163 128,522
Current period change.................................... (3,249) (19,495) (22,744)
- -------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 $(4,890) $110,668 $105,778
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 7. BENEFIT PLANS:
CAC has no employees as it has contracted with Casualty for services
provided by Casualty employees. As Casualty is a wholly-owned subsidiary of CNA
Financial, all Casualty employees are covered by CNA Financial's benefits plans.
The plans of CNA Financial are discussed below.
PENSION PLAN
CNA Financial has noncontributory pension plans covering all full-time
employees age 21 or over who have completed at least one year of service.
Casualty is included in the CNA Employees' Retirement Plan and CAC is allocated
their proportionate share of these expenses. While the benefits for the plans
vary, they are generally based on years of credited service and the employee's
highest sixty consecutive months of compensation. The net pension cost allocated
to CAC was $10.9 million, $7.8 million and $7.5 million for the years ended
December 31, 1998, 1997 and 1996, respectively.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
CNA Financial provides certain health care benefits for eligible retirees,
through age 64, and provides life insurance and reimbursement of Medicare Part B
premiums for all eligible retired persons. CNA Financial funds benefit costs
principally on the basis of current benefit payments. Net postretirement benefit
cost allocated to CAC was $5.2 million, $4.3 million and $2.8 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
SAVINGS PLAN
Casualty is included in the CNA Employees' Savings Plan, which is a
contributory plan that allows employees to make regular contributions of up to
6% of their salary. CNA Financial contributes an additional amount equal to 70%
of the employee's regular contribution. Employees may also make an additional
contribution of up to 10% of their salaries for which there is no additional
contribution by CNA Financial. CAC is allocated its proportionate share of CNA
Employees' Savings Plan expenses. CNA
27
<PAGE> 75
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 7.--(CONTINUED):
Financial contributions allocated to and expensed by CAC for the Savings Plan
were $2.2 million, $2.0 million and $2.3 million for the years ended December
31, 1998, 1997 and 1996, respectively.
NOTE 8. INCOME TAXES:
CAC and its domestic life insurance subsidiary are taxed under the
provisions of the Internal Revenue Code, as applicable to life insurance
companies, and are included in the consolidated Federal income tax return with
CNA Financial and its eligible subsidiaries (CNA Tax Group), which in turn is
included in the consolidated Federal income tax return of Loews and its eligible
subsidiaries. The Federal income tax provision of CAC is computed on a
stand-alone basis, as if CAC and its domestic life insurance subsidiary were
filing its own separate consolidated tax return.
CAC and its domestic life insurance subsidiary maintain a special tax
memorandum account designated as the "Shareholder's Surplus Account." Dividends
from this account may be distributed to the shareholder without resulting in any
additional tax. The amount in the Shareholder's Surplus Account was $1,519.8
million and $1,419.9 million at December 31, 1998 and 1997, respectively.
Significant components of CAC's deferred tax assets and liabilities as of
December 31, 1998 and 1997 and are shown in the table below:
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
DECEMBER 31 1998 1997
- -----------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C>
Insurance reserves.......................................... $ 241,627 $ 197,487
Deferred acquisition costs.................................. (324,918) (278,292)
Investment valuation........................................ 3,921 8,810
Net unrealized gains........................................ (66,128) (68,129)
Property and equipment...................................... (5,514) (8,569)
Receivables................................................. (6,796) (6,031)
Postretirement benefits other than pensions................. 13,277 10,969
Other, net.................................................. 5,580 5,753
- -----------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITIES $(138,951) $(138,002)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, gross deferred tax assets and liabilities amounted to
$322.7 million and $461.7 million, respectively. At December 31, 1997, gross
deferred tax assets and liabilities amounted to $274.9 million and $412.9
million, respectively.
28
<PAGE> 76
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 8.--(CONTINUED):
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1998 1997 1996
- -------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Current tax expense......................................... $70,681 $ 77,545 $ 44,002
Deferred tax expense........................................ (1,098) 33,373 81,421
- -------------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE $69,583 $110,918 $125,423
===========================================================================================
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
% OF % OF % OF
PRETAX PRETAX PRETAX
YEAR ENDED DECEMBER 31 1998 INCOME 1997 INCOME 1996 INCOME
- ----------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Income taxes at statutory rates............................. $62,458 35.0% $115,221 35.0% $122,793 35.0%
Net operating loss carry-forward............................ 2,996 1.7 816 0.2 248 0.0
State income taxes.......................................... 2,934 1.6 2,076 0.6 2,376 0.7
Other items, net............................................ 1,195 0.7 (7,195) (2.1) 6 0.0
- ----------------------------------------------------------------------------------------------------------------------
INCOME TAX AT EFFECTIVE RATE $69,583 39.0% $110,918 33.7% $125,423 35.7%
=====================================================================================================================
</TABLE>
NOTE 9. REINSURANCE:
The ceding of insurance does not discharge the primary liability of CAC.
CAC places reinsurance with other carriers only after careful review of the
nature of the contract and a thorough assessment of the reinsurers' credit
quality and claim settlement performance. Further, for carriers that are not
authorized reinsurers in its states of domicile, CAC receives collateral,
primarily in the form of bank letters of credit. Such collateral totaled
approximately $14 million and $11 million at December 31, 1998 and 1997,
respectively.
29
<PAGE> 77
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 9.--(CONTINUED):
In the following table, the majority of life premium revenue is from long
duration type contracts, while the majority of accident and health earned
premiums are from short duration contracts. The effects of reinsurance on
premium revenues are shown in the following schedule:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PREMIUMS
--------------------------------- ASSUMED/NET
YEAR ENDED DECEMBER 31 DIRECT ASSUMED CEDED NET %
- -------------------------------------------------------------------------------------------------------------
(In millions of dollars)
<S> <C> <C> <C> <C> <C>
1998
Life...................................................... $1,013 $160 $281 $ 892 17.9%
Accident and Health....................................... 2,382 90 69 2,403 3.7
------ ---- ---- ------ -----
Total premiums.......................................... $3,395 $250 $350 $3,295 7.6%
====== ==== ==== ====== =====
1997
Life...................................................... $ 908 $129 $131 $ 906 14.2%
Accident and Health....................................... 2,502 96 68 2,530 3.8
------ ---- ---- ------ -----
Total premiums.......................................... $3,410 $225 $199 $3,436 6.5%
====== ==== ==== ====== =====
1996
Life...................................................... $ 758 $121 $ 55 $ 824 14.7%
Accident and Health....................................... 2,449 180 79 2,550 7.1
------ ---- ---- ------ -----
Total premiums.......................................... $3,207 $301 $134 $3,374 8.9%
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Premium revenues ceded to non-affiliated companies were $349.0 million,
$199.0 million and $133.7 million for the years ended December 31, 1998, 1997
and 1996, respectively. Additionally, insurance claims and policyholders'
benefits are net of reinsurance recoveries of $250.9 million, $128.4 million and
$89.0 million for years ended 1998, 1997 and 1996, respectively.
The impact of reinsurance on life insurance in-force is shown in the
following schedule:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
LIFE INSURANCE IN FORCE
---------------------------------------- ASSUMED/NET
DIRECT ASSUMED CEDED NET %
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In millions of dollars)
YEAR ENDED DECEMBER 31
1998...................................................... $297,488 $96,906 $128,896 $265,498 36.5%
1997...................................................... 235,468 76,130 74,242 237,356 32.1
1996...................................................... 171,715 65,294 32,561 204,448 31.9
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 10. RELATED PARTIES:
CAC is party to the CNA Intercompany Expense Agreement whereby expenses
incurred by CNA Financial and each of its subsidiaries are allocated to the
appropriate company. Expenses of CAC exclude $17.5 million, $18.1 million and
$28.5 million of general and administrative expenses incurred by CAC and
allocated to CNA Financial for the years ended December 31, 1998, 1997 and 1996,
respectively. CAC had a $1.9 million affiliated receivable at December 31, 1998
and a $36.0 million affiliated payable at
30
<PAGE> 78
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 10.--(CONTINUED):
December 31, 1997 for net cash settlements with an affiliate in the normal
course of operations relating to pooling and general expense reimbursements.
There are no interest charges on intercompany receivables and payables.
NOTE 11. LEGAL:
CAC is party to litigation arising in the ordinary course of business. The
outcome of this litigation will not, in the opinion of management, materially
affect the results of operations or equity of CAC.
NOTE 12. RESTRUCTURING
CNA Financial finalized and approved a restructuring plan (the "Plan") in
August 1998. In conjunction with the Plan, the Group Operations of CAC incurred
$39 million in restructuring and other related charges, of which, approximately
$29 million related to costs incurred to exit the Employer Health and Affinity
lines of business. Such costs represent CAC's estimate of losses in connection
with fulfilling the remaining obligation under contracts related to these lines
of business. Earned premiums for these lines of business approximated $400
million in 1998. The 1998 charges also included employee severance and
outplacement costs of approximately $7 million related to the planned net
reduction in workforce of approximately 400 employees. Charges for lease
termination costs and fixed asset write downs totaled $3 million.
The Life Operations of CAC incurred $7 million in restructuring and other
related charges. Charges related primarily to the closing of leased facilities
were $2 million, and employee severance and outplacement costs related to
planned net reduction of 30 employees in the current workforce and benefit costs
associated with those reductions were $1 million. In addition, there were
charges of $1 million related to the write down of certain assets and $2.5
million related to the exiting of certain businesses.
The following table sets forth the major categories of restructuring and
other related charges that were initially accrued and recorded upon the
finalization and approval of the Plan and the activity in the accrual for such
costs during 1998.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
EMPLOYEE
TERMINATION LEASE
AND RELATED WRITE DOWN TERMINATION BUSINESS
(DOLLARS IN THOUSANDS) BENEFIT COSTS OF ASSETS COSTS EXIT COSTS TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial charge recorded in third quarter of 1998.... $ 9,264 $ 2,202 $3,340 $31,500 $46,306
Less payments charged against liability............. (1,649) -- -- -- (1,649)
Less costs that do not use cash..................... (1,865) (2,202) -- -- (4,067)
- ---------------------------------------------------------------------------------------------------------------------
ACCRUED COSTS AT DECEMBER 31, 1998 $ 5,750 $ -- $3,340 $31,500 $40,590
</TABLE>
NOTE 13. BUSINESS SEGMENTS:
CAC has two operating segments: Group Operations and Life Operations. Group
Operations offers a broad array of group life and health insurance and
reinsurance products to employers, affinity groups and
31
<PAGE> 79
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 13.--(CONTINUED):
other entities that purchase insurance as a group. Life Operations provides
financial protection to individuals through a full product line of term life
insurance, universal life insurance, long term care insurance, annuities and
provides retirement service products to institutional markets. Corporate results
consist of operating and investing activities not attributable to operating
segments.
The accounting policies of the segments are the same as those described in
the summary of significant accounting polices. CAC manages its assets on a legal
entity basis while segment operations are conducted across legal entities, as
such assets are not readily identifiable by individual segment. In addition,
distinct investment portfolios are not maintained for each segment, and
accordingly, allocation of assets to each segment is not performed. Investment
income and realized investment gains/losses are allocated based on each
segment's equity, as adjusted.
Depreciation and capital expenditures are not material to segments' income
and cash flow.
All significant intercompany income and expense as well as intercompany
dividends have been eliminated.
Income taxes have been allocated on the basis of taxable income of the
respective segments.
Approximately 98% of CAC's premiums are derived from the United States.
Premiums from any individual foreign country are not significant.
Group segment revenues include $2.0 billion, $2.1 billion and $2.1 billion
in 1998, 1997 and 1996, respectively, under contracts covering U.S. government
employees and their dependents (FEHBP).
32
<PAGE> 80
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 13.--(CONTINUED):
The following tables contain income statement information for CAC's
reportable segments, corporate and consolidated results for 1998, 1997 and 1996.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
GROUP LIFE CORPORATE
YEAR ENDED DECEMBER 31, 1998 OPERATIONS OPERATIONS AND OTHER TOTAL
- -------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
REVENUES, EXCLUDING REALIZED INVESTMENT GAINS/LOSSES:
Premiums.................................................. $2,743,597 $ 551,632 $ -- $3,295,229
Net investment income..................................... 44,006 399,814 1,264 445,084
Other..................................................... 20,298 65,573 365 86,236
---------- ---------- -------- ----------
TOTAL REVENUES...................................... 2,807,901 1,017,019 1,629 3,826,549
---------- ---------- -------- ----------
BENEFITS AND EXPENSES
Insurance claims and policyholders' benefits.............. 2,517,391 693,687 12,679 3,223,757
Amortization of deferred acquisition costs................ 5,516 117,422 9,290 132,228
Restructuring and other related charges................... 39,402 6,904 -- 46,306
Other operating expenses.................................. 317,372 32,711 1,526 351,609
Participating policyholders' interest..................... -- 17,563 (2,710) 14,853
---------- ---------- -------- ----------
TOTAL BENEFITS AND EXPENSES......................... 2,879,681 868,287 20,785 3,768,753
---------- ---------- -------- ----------
Operating income before income tax.......................... (71,780) 148,732 (19,156) 57,796
Income tax (expense) benefit................................ 25,283 (57,078) 5,624 (26,171)
---------- ---------- -------- ----------
Net operating income (excluding realized investment
gains/losses)........................................... (46,497) 91,654 (13,532) 31,625
Realized investment gains, net of tax and participating
policyholders' interest................................. 8,762 56,993 11,488 77,243
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (37,735) $ 148,647 $ (2,044) $ 108,868
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
GROUP LIFE CORPORATE
YEAR ENDED DECEMBER 31, 1997 OPERATIONS OPERATIONS AND OTHER TOTAL
- -------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
REVENUES, EXCLUDING REALIZED INVESTMENT GAINS/LOSSES:
Premiums.................................................. $2,844,268 $ 591,026 $ -- $3,435,294
Net investment income..................................... 38,156 372,248 7,991 418,395
Other..................................................... 16,414 65,707 137 82,258
---------- ---------- -------- ----------
TOTAL REVENUES...................................... 2,898,838 1,028,981 8,128 3,935,947
---------- ---------- -------- ----------
BENEFITS AND EXPENSES
Insurance claims and policyholders' benefits.............. 2,545,602 697,244 11,377 3,254,223
Amortization of deferred acquisition costs................ 1,556 110,748 8,807 121,111
Other operating expenses.................................. 322,897 30,505 9,942 363,344
Participating policyholders' interest..................... -- 20,004 (2,970) 17,034
---------- ---------- -------- ----------
TOTAL BENEFITS AND EXPENSES......................... 2,870,055 858,501 27,156 3,755,712
---------- ---------- -------- ----------
Operating income before income tax.......................... 28,783 170,480 (19,028) 180,235
Income tax (expense) benefit................................ (9,897) (54,406) 6,086 (58,217)
---------- ---------- -------- ----------
Net operating income (excluding realized investment
gains/losses)........................................... 18,886 116,074 (12,942) 122,018
Realized investment gains, net of tax and participating
policyholders' interest................................. 6,886 82,035 7,344 96,265
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 25,772 $ 198,109 $ (5,598) $ 218,283
===================================================================================================================
</TABLE>
33
<PAGE> 81
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 13.--(CONTINUED):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
GROUP LIFE CORPORATE
YEAR ENDED DECEMBER 31, 1996 OPERATIONS OPERATIONS AND OTHER TOTAL
- -------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
REVENUES, EXCLUDING REALIZED INVESTMENT GAINS/LOSSES:
Premiums.................................................. $2,828,502 $545,295 $ -- $3,373,797
Net investment income..................................... 43,256 347,080 10,601 400,937
Other..................................................... 7,999 73,249 303 81,551
---------- -------- -------- ----------
TOTAL REVENUES...................................... 2,879,757 965,624 10,904 3,856,285
---------- -------- -------- ----------
BENEFITS AND EXPENSES
Insurance claims and policyholders' benefits.............. 2,537,908 692,432 17,216 3,247,556
Amortization of deferred acquisition costs................ (13,424) 21,468 3,992 12,036
Other operating expenses.................................. 308,252 69,188 19,180 396,620
Participating policyholders' interest..................... 12 4,687 (6,144) (1,445)
---------- -------- -------- ----------
TOTAL BENEFITS AND EXPENSES......................... 2,832,748 787,775 34,244 3,654,767
---------- -------- -------- ----------
Operating income before income tax.......................... 47,009 177,849 (23,340) 201,518
Income tax expense (benefit)................................ (16,711) (61,838) 8,182 70,367
---------- -------- -------- ----------
Net operating income (excluding realized investment
gains/losses)........................................... 30,298 116,011 (15,158) 131,151
Realized investment gains, net of tax and participating
policyholders' interest................................. 6,843 82,346 5,077 94,266
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 37,141 $198,357 $(10,081) $ 225,417
===================================================================================================================
</TABLE>
NOTE 14. NEW ACCOUNTING PRONOUNCEMENTS
ACCOUNTING BY INSURANCE AND OTHER ENTERPRISES FOR INSURANCE-RELATED ASSESSMENTS
In December 1997, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued Statement of Position (SOP)
97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments." SOP 97-3 requires that entities recognize liabilities for
insurance-related assessments when all of the following criteria have been met:
an assessment has been imposed or it is probable that an assessment will be
imposed; the event obligating an entity to pay an imposed or probable assessment
has occurred on or before the date of the financial statements; and the amount
of the assessment can be reasonably estimated. This SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. The
effects of this SOP will result in CAC recording a pre-tax charge in 1999
between $2 million and $5 million as a cumulative effect of a change in
accounting principle.
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL
USE
In March 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." For purposes
of this SOP, internal-use software is software acquired, internally developed or
modified solely to meet the entity's internal needs for which no substantive
plan exists or is
34
<PAGE> 82
CONTINENTAL ASSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 14.--(CONTINUED):
being developed to market the software externally during the software's
development or modification. Accounting treatment for costs associated with
software developed or obtained for internal use, as defined by this SOP, is
based upon a number of factors, including the point in time during the project
that costs are incurred as well as the types of costs incurred. This SOP is
effective for financial statements for fiscal years beginning after December 15,
1998 and will be adopted in the first quarter of 1999. CAC is currently
evaluating the effects of this SOP.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
requires that entities recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecoasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and the resulting designation. This Statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. CAC is currently
evaluating the effects of this Statement on its accounting and reporting for
derivative securities and hedging activities.
REPORTING ON THE COSTS OF START-UP ACTIVITIES
In April 1998, the American Institute of Certified Public Accountant's
Accounting Standards Executive Committee issued SOP 98-5, "Reporting on the
Costs of Start-Up Activities." This SOP requires costs of start-up activities
and organization costs, as defined, to be expensed as incurred. SOP 98-5 is
effective for financial statements in 1999. Initial application of this SOP
should be reported as a change in accounting principle, and will, accordingly,
involve a cumulative adjustment. CAC does not expect the adoption of the SOP to
have a significant impact on the operations or equity of CAC.
ACCOUNTING FOR INSURANCE AND REINSURANCE CONTRACTS THAT DO NOT TRANSFER
INSURANCE RISK
In October 1998, the American Institute of Certified Public Accountant's
Accounting Standards Executive Committee issued SOP 98-7, "Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk." This
guidance excludes long-duration life and health insurance contracts from its
scope. This Statement is effective for financial statements in the year 2000,
with early adoption encouraged. CAC is currently evaluating the effects of this
SOP.
35
<PAGE> 83
B logo
Group
Variable
Annuity
Contracts
STATEMENT OF ADDITIONAL INFORMATION
Dated: April 30, 1999
CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B)
CNA LOGO
FOR ALL THE COMMITMENTS YOU MAKE(R)
Y57-838LL
<PAGE> 84
PART C
OTHER INFORMATION
ITEM 28. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE NUMBERS
IN 1998
ANNUAL REPORT
TO PARTICIPANTS
---------------
<S> <C>
Financial Statements of Continental Assurance Company
Separate Account (B):
Schedule of Investments................................... 4
Balance Sheet............................................. 10
Statement of Operations................................... 10
Statement of Changes in Participants' Equity.............. 11
Notes to Financial Statements............................. 11
Independent Auditors' Report.............................. 14
Management's Discussion of Impact of Year 2000 on Separate
Account (B)............................................ 15
</TABLE>
<TABLE>
<CAPTION>
PAGE NUMBERS
IN STATEMENT
PAGE NUMBERS OF ADDITIONAL
IN PROSPECTUS INFORMATION
------------- ---------------
<S> <C> <C>
Condensed Financial Information of Continental
Assurance Company Separate Account (B).................... 12
Independent Auditors' Report on Condensed Financial
Information of Continental Assurance Company Separate
Account (B)............................................... 39
Financial Statements of Continental Assurance Company:
Independent Auditors' Report............................................... 10
Consolidated Balance Sheet................................................. 11
Statement of Consolidated Operations....................................... 12
Statement of Consolidated Stockholder's Equity............................. 13
Statement of Consolidated Cash Flows....................................... 14
Notes to Financial Statements.............................................. 15
</TABLE>
C-1
<PAGE> 85
(B) EXHIBITS:
<TABLE>
<C> <S> <C>
(1)(a) Resolutions of the Board of Directors of CAC creating
Separate Account (B).
(2)(a) Regulations for Government of Separate Account (B).
(b) Code of Ethics, dated May 1, 1981, adopted by the Committee
for Separate Account (B) for the guidance of its officers
and employees.
(3) Custodian Agreement, dated November 26, 1996, between The
Chase Manhattan Trust Company of Illinois and CAC
(incorporated by reference to Exhibit 3 to Post-Effective
Amendment No. 44 to Separate Account (B)'s Registration
Statement on Form N-3, 1933 Act Registration No. 2-25483,
1940 Act Registration No. 811-1402 (the "N-3 Registration
Statement")).
(4)(a) Restated and Amended Investment Advisory Agreement between
CAC and Separate Account (B), dated May 1, 1981
(incorporated by reference to Exhibit 4(a) to Post-Effective
Amendment No. 46 to the N-3 Registration Statement).
(5)(a) Form of Underwriting Agreement, dated March 24, 1975,
between Separate Account (B) and CAC.
(b) Form of Administrative Service Agreement, dated March 24,
1975, as amended October 31, 1979, between Separate Account
(B) and CAC (incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 46 to the N-3 Registration
Statement).
(6)(a) Form of Sample Contract, as amended to date ("Level
Deduction Contract") offered in connection with annuity
purchase plans qualified under the provisions of Section
403(b) of the Internal Revenue Code of 1986, as amended.
(b) Form of Sample Contract, as amended to date ("Graded
Deduction Contract") offered in connection with annuity
purchase plans qualified under the provisions of Section
403(b) of the Internal Revenue Code of 1986, as amended.
(c) Form of Sample Contract, as amended to date, offered in
connection with pension or profit sharing plans qualified
under the provisions of Section 401 of the Internal Revenue
Code of 1986, as amended.
(7)(a) Form of Application used with 403(b) Plan Contracts, as
amended to date.
(b) Form of Application used with HR-10 Plan Contracts.
(8)(a) Articles of Incorporation of CAC (incorporated by reference
to Exhibit 8(a) to Post-Effective Amendment No. 46 to the
N-3 Registration Statement).
(b) By-laws of CAC (incorporated by reference to Exhibit 8(b) to
Post-Effective Amendment No. 46 to the N-3 Registration
Statement).
(9) None.
(10) None.
(11)(a) Agreement, dated February 7, 1985, between Separate Account
(B) and CAC regarding CNA Investor Services, Inc.
(incorporated by reference to Exhibit 11(a) to
Post-Effective Amendment No. 46 to the N-3 Registration
Statement).
(b) Administrative Services Agreement with the Joint Retirement
Board of the Rabbinical Assembly of America, et al.
(incorporated by reference to Exhibit 11 to Post-Effective
Amendment No. 44 to the N-3 Registration Statement).
(12) Opinion of Counsel (incorporated by reference to Exhibit 12
to Post-Effective Amendment No. 44 to the N-3 Registration
Statement).
(13)(a) Consent of Independent Auditors.
(b) Consent of Counsel (included in Exhibit (12)).
(14) 1998 Annual Report to Participants of Separate Account (B)
(incorporated by reference to Exhibit 14 to Post-Effective
Amendment No. 46 to the N-3 Registration Statement).
(15) None.
(16) Calculation of Performance Data (incorporated by reference
to Exhibit 16 to Post-Effective Amendment No. 46 to the N-3
Registration Statement).
(17) Financial Data Schedule
</TABLE>
- ---------------
C-2
<PAGE> 86
ITEM 29. DIRECTORS AND OFFICERS OF THE INSURANCE COMPANY.
The following table sets forth certain information regarding:
(a) each director or officer of CAC who is engaged directly or
indirectly in activities relating to Separate Account (B) or the variable
annuity contracts offered by Separate Account (B); and
(b) each executive officer of CAC (including CAC's president,
secretary, treasurer and certain vice presidents).
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES WITH
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH CAC SEPARATE ACCOUNT (B)
- ----------------------------------- ------------------------------ --------------------
<S> <C> <C>
*Bernard L. Hengesbaugh................ Director, Chairman of the Board None
and Chief Executive Officer
*Philip L. Engel....................... Director and President None
*Jonathan D. Kantor.................... Director and Secretary None
*W. James MacGinnitie.................. Director, Senior Vice President and Chief None
Financial Officer
*Pamela S. Dempsey..................... Vice President and Treasurer None
</TABLE>
- ---------------
* The principal business address is CNA Plaza, Chicago, Illinois 60685.
**
ITEM 31. NUMBER OF CONTRACTOWNERS.
As of February 1, 1999, Separate Account (B) had 190 qualified
Contractholders.
**
ITEM 37. UNDERTAKINGS.
**
The registrant hereby represents that the fees and charges deducted under
the Contracts, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks assumed by the
insurance company.
- ---------------
** Indicates that all or a portion of an item has been omitted because the
omitted information has not changed since it was disclosed in this
Registration Statement or prior Amendments hereto.
C-3
<PAGE> 87
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this post-effective amendment to its
Registration Statement on form N-3 and has caused this post-effective amendment
to its Registration Statement on Form N-3 to be signed on its behalf, in the
city of Chicago, and state of Illinois, on the 30th day of April, 1999.
CONTINENTAL ASSURANCE COMPANY SEPARATE
ACCOUNT (B)
/s/ MARILOU R. MCGIRR
By:
Marilou R. McGirr, Chairman of
Committee
CONTINENTAL ASSURANCE COMPANY
/s/ BERNARD L. HENGESBAUGH
By:
Bernard L. Hengesbaugh, Chairman
of the Board and Chief Executive
Officer
Each member of the Committee of Continental Assurance Company Separate
Account (B) whose signature appears below and each executive officer and
director of Continental Assurance Company whose signature appears below hereby
constitutes and appoints Jonathan D. Kantor and Lynne Gugenheim, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all post-effective amendments filed
after the date hereof to this Registration Statement and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission under the Securities Act of 1933 and the
Investment Company Act of 1940.
As required by the Securities Act of 1933, this post-effective amendment
has been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARILOU R. MCGIRR Chairman of Committee and Member of April 30, 1999
- --------------------------------------------- Committee of Separate Account (B)
Marilou R. McGirr (Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
* Member of Committee of Separate April 30, 1999
- --------------------------------------------- Account (B)
Richard W. Dubberke
* Member of Committee of Separate April 30, 1999
- --------------------------------------------- Account (B)
Richard T. Fox
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Member of Committee of Separate April 30, 1999
- --------------------------------------------- Account (B)
William W. Tongue
* Member of Committee of Separate April 30, 1999
- --------------------------------------------- Account (B)
Peter J. Wrenn
/s/ BERNARD L. HENGESBAUGH Director, Chairman of the Board and April 30, 1999
- --------------------------------------------- Chief Executive Officer of
Bernard L. Hengesbaugh Continental Assurance Company
(Principal Executive Officer)
* Director and President of April 30, 1999
- --------------------------------------------- Continental Assurance Company
Philip L. Engel
* Director of Continental Assurance April 30, 1999
- --------------------------------------------- Company
Jonathan D. Kantor
/s/ W. JAMES MACGINNITIE Director, Senior Vice President and April 30, 1999
- --------------------------------------------- Chief Financial Officer of
W. James MacGinnitie Continental Assurance Company
(Principal Financial and Accounting
Officer)
*By: /s/ LYNNE GUGENHEIM
---------------------------------------
Lynne Gugenheim, Attorney-in-fact
</TABLE>
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
<C> <C> <S> <C>
(1)(a) -- Resolutions of the Board of Directors of CAC creating
Separate Account (B).
(2)(a) -- Regulations for Government of Separate Account (B).
(b) -- Code of Ethics, dated May 1, 1981, adopted by the Committee
for Separate Account (B) for the guidance of its officers
and employees.
(5)(a) -- Form of Underwriting Agreement, dated March 24, 1975,
between Separate Account (B) and CAC.
(6)(a) -- Form of Sample Contract, as amended to date ("Level
Deduction Contract") offered in connection with annuity
purchase plans qualified under the provisions of Section
403(b) of the Internal Revenue Code of 1986, as amended.
(b) -- Form of Sample Contract, as amended to date ("Graded
Deduction Contract") offered in connection with annuity
purchase plans qualified under the provisions of Section
403(b) of the Internal Revenue Code of 1986, as amended.
(c) -- Form of Sample Contract, as amended to date, offered in
connection with pension or profit sharing plans qualified
under the provisions of Section 401 of the Internal Revenue
Code of 1986, as amended.
(7)(a) -- Form of Application used with 403(b) Plan Contracts, as
amended to date.
(b) -- Form of Application used with HR-10 Plan Contracts.
(13)(a) -- Consent of Independent Auditors.
(17) -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 1(a)
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
Mary A. Ribikawskis, being duly sworn, deposes and says that she is Assistant
Secretary of Continental Assurance Company, an Illinois insurance company; that
the following is a true and correct copy of a resolution duly adopted by the
Board of Directors of Continental Assurance Company at a meeting duly called and
regularly held on the 2nd day of October, 1963, at which meeting a quorum was
present, and that said resolution has not been amended or repealed and is now in
full force and effect:
WHEREAS, the Illinois Insurance Code was amended in June, 1963, to
permit the establishment and maintenance of separate accounts and the
allocation thereto of contributions paid to the Company pursuant to the
agreements made in connection with a pension, retirement or
profit-sharing plan and the allocation thereto of amounts paid to the
Company under agreements reinsuring any such contracts of another
insurer; and
WHEREAS, competitive conditions in the marketing of pension, retirement
or profit-sharing plans make it both desirable and to the best
interests of the Company for the Company to be able to offer separate
investment facilities for all or part of such pension, retirement or
profit-sharing contributions or amounts paid to the Company under
agreements reinsuring any such contracts of another insurer, without
the customary guarantees by the Company of principal and interest, but
with each participating contract in the separate account receiving
actual investment results obtained on its share of the separate
account;
NOW, THEREFORE, BE IT RESOLVED: That the appropriate officers of the
Company be and they are hereby authorized to establish and maintain one
or more separate accounts to which may be allocated amounts paid to the
Company under agreements made in connection with a pension, retirement
or profit-sharing plan or under agreements reinsuring any such
contracts of another insurer and in the event that more than one
separate account is established said officers are authorized to set
different investment policies for different separate accounts and are
further authorized to make such reasonable rules and regulations as may
be necessary or appropriate for the proper administration of such
separate accounts in accordance with applicable law.
/s/ Mary A. Ribikawskis
------------------------------
Assistant Secretary
Subscribed and sworn to before me this
29th day of April , 1999.
/s/ Harriet B. Jackson
- --------------------------------------------
Notary Public
<PAGE> 1
EXHIBIT 2(a)
BY-LAWS
CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (B)
Regulations for Government of Account
ARTICLE I
GENERAL
SECTION 1. NAME -- The name of this separate account shall be Continental
Assurance Company Separate Account (B) (hereafter referred to as "Account").
SECTION 2. OFFICES -- The principal office of the Account shall be CNA Plaza,
Chicago, Illinois 60685.
ARTICLE II
PARTICIPANTS
SECTION 1. ANNUAL MEETING -- The annual meeting of the person for whom the
reserves are maintained in this Account (hereafter referred to as "the
Participants") for the transaction of such business as may properly come before
the meeting, shall be held at the principal office of the Account, at 10:00
A.M., Chicago Time, on the first Tuesday in April of each year. Provided,
however, that the annual meeting for the year 1975 may be held on such earlier
date in March, 1975, and at such time on said date, as the Chairman of the
Committee shall select with the advice of counsel, in order to meet the
requirements of any ruling or determination of the Securities and Exchange
Commission.
SECTION 2. SPECIAL MEETINGS -- Special meetings of the Participants may be
called by a majority of the Committee. The notice of the meeting shall state
the purpose of the meeting and no business shall be transacted at the meeting
except matters coming within such purpose. All special meetings of the
Participants shall be held at the principal office of the Account at the time
and date stated in the notice of the meeting.
SECTION 3. NOTICE OF MEETING -- A Notice stating the time and date of the
meeting and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered or mailed by the Committee to each
Participant as of a record date which is within 60 days prior to the date of the
meeting, and mailed to the address as it appears upon the records not less than
20 days prior to the day of such meeting. Only persons being a Participant on
both the above date and the date of the meeting will be entitled to vote at such
meeting. Notice of any adjourned meeting shall not be required.
SECTION 4. QUORUM -- A majority in interest of the Participants represented
either in person or by proxy shall constitute a quorum for the transaction of
business at any annual or special meeting of the Participants. If a quorum
shall not be present, a majority in interest of the Participants
<PAGE> 2
represented may adjourn the meeting to some later time. When a quorum is
present, a vote of the majority in interest of the Participants represented in
person or by proxy shall determine any question, except as may be otherwise
provided by these rules and regulations or by law.
SECTION 5. PROXIES -- A Participant may vote, either in person or by proxy duly
executed in writing by the Participant. A proxy for any meeting shall be valid
for any adjournment of such meeting.
SECTION 6. VOTING -- The number of votes which a Participant may cast is equal
to (1) if not retired, the number of Accumulation Units held by such Participant
under the particular contract concerned; or (2) if retired, the monetary value
of the actuarial reserve maintained by the Company in the Separate Account for
the annuity of that Participant divided by the monetary value of an Accumulation
Unit.
SECTION 7. ORDER OF BUSINESS -- The order of business at the meetings of the
Participants shall be determined by the presiding officer.
ARTICLE III
COMMITTEE
The Committee shall consist of five members. The initial Committee shall be
appointed by the Board of Directors of Continental Assurance Company. Thereafter
the members of the Committee shall be elected annually by a ballot at the annual
meeting of the Participants. Each member shall serve until the next annual
meeting of the Participants and until his successor is duly elected and
qualified. Members of the Committee need not be Participants.
ARTICLE IV
POWERS OF COMMITTEE
The Committee shall have the following duties, responsibilities, and powers.
1. To select an independent public accountant, whose employment shall be
approved annually by the Participants,
2. To review and execute annually an agreement providing for sales, investment
and administrative services and to submit to the Participants for their approval
such agreement when changes are proposed.
3. To recommend from time to time any changes deemed appropriate in the
fundamental investment policy of the Account, to be submitted to the
Participants at their next meeting.
<PAGE> 3
4. To review periodically the portfolio of the Separate Account to ascertain
that such portfolio is managed in the long-term interest of the participants and
to take such corrective action as may be necessary.
ARTICLE V
MEETINGS OF THE COMMITTEE
Regular meetings of the Committee shall be held at such places within or without
the State of Illinois and at such times as the Committee by vote may determine
from time to time, and if so determined no call or notice thereof need be given.
Special meetings of the Committee may be held at any time or place, either
within or without the State of Illinois, whenever called by the Chairman of the
Committee, or three or more members of the Committee, notice thereof being given
to each member by the person calling the meeting, or at any time without formal
notice provided all the members are present or those not present have waived
notice thereof in writing which is filed with the records of the meeting.
Notice of special meetings, stating the time and place thereof, shall be given
by mailing same to each member at his residence or business address at least two
days before the meeting, or by delivering the same to him personally or
telephoning or telegramming the same to him at his residence or business address
at least one day before the meeting. The Chairman of the Committee, if any,
shall preside at all meetings of the Committee at which he is present.
ARTICLE VI
QUORUM AT MEETINGS OF THE COMMITTEE
A majority of the members of the Committee shall constitute a quorum for the
transaction of business. When a quorum is present at any meeting, a majority of
the members present shall decide any question brought before such meeting except
as otherwise provided by law, or by these rules and regulations.
ARTICLE VII
CHAIRMAN - SECRETARY
At the first regular meeting of the Committee following the annual meeting of
the Participants, the Committee shall elect one of its members to act as
Chairman of the Committee, and he shall hold office until his successor is
elected and qualified.
The Committee may appoint a Secretary to the Committee who may or may not be a
member of the Committee. The Secretary shall have the power to certify
<PAGE> 4
the minutes of the proceedings of the Participants and the Committee and
portions thereof and shall perform such other duties and have such other
powers as the Committee shall designate from time to time. In the absence of
the Secretary, a temporary Secretary shall perform such duties and have such
powers.
ARTICLE VIII
VACANCIES
No person, except as provided in Article III, shall serve as a member of the
Committee unless duly elected to that office by ballot of the Participants at an
annual or special meeting of the Participants called for that purpose; except
that vacancies occurring by reason of death, resignation, removal or otherwise
of duly elected members of the Committee occurring between such meetings may be
filled for the unexpired term by a majority vote of all the remaining members if
immediately after so filling any such vacancy at least two-thirds of the members
then holding office shall have been elected to such office by ballot of the
Participants at such an annual or special meeting.
In the event that at any time, after the first annual meeting of the
Participants less than a majority of the members holding office at that time
have been so elected by a ballot of the Participants, the Committee shall
forthwith cause to be held as promptly as possible and in any event within sixty
days, a meeting of the Participants for the purpose of electing members to fill
the existing vacancies in the Committee. The Committee shall have and may
exercise all its powers notwithstanding the existence of one or more vacancies
in its number as fixed by the Participants provided there be at least two
members in office.
ARTICLE IX
PROVISIONS RELATING TO THE CONDUCT
OF THE BUSINESS OF THE SEPARATE ACCOUNT
The Committee may from time to time, subject to applicable law and, where
required, approval by a majority in interest of the Participants adopt such
investment policies and practices as it deems advisable.
The Committee may enter into such agreements providing sales, investment and
administrative services, subject to approval by a majority in interest of the
Participants before such agreement shall be effective; provided, however, the
Committee in the absence of any Participant may enter into an agreement which
shall remain in effect until the first meeting of Participants. Such agreements
shall provide that they may not be amended, transferred, assigned, sold, or in
any manner hypothecated or pledged without the affirmative vote of the majority
in interest of the Participants entitled to vote, and shall contain such other
terms and conditions as may be prescribed by these rules and regulations, as may
be required by applicable laws and regulations, and such other terms and
conditions as the Committee may in their discretion determine.
<PAGE> 5
ARTICLE X
AMENDMENTS
These regulations for Government of Account may be altered, amended or repealed
by vote of a majority of the Committee, except as otherwise provided by law.
<PAGE> 1
EXHIBIT 2(b)
CODE OF ETHICS
This Code of Ethics, dated this 1st day of May, 1981, adopted by the Committee
for Continental Assurance Company Separate Account (B) (the "Account") of (the
"Company") for the guidance of its officers, and employees. It may be amended
by appropriate action of the Committee Members or Participants of the Account.
1. DEFINITIONS:
1.1 INTERESTED PERSON. The term "Interested Person" shall have the
meaning defined in Section 2(a)(19) of the Investment Company Act of
1940 (the "Act"). All officers and employees of the Account, their
spouses, minor children and any parent or other person who shares a
household with such officers and employees are interested persons.
Committee Members who are not officers or employees of the Account,
Continental Assurance Company, CNA Financial Corporation ("CNAF") or
of any company controlled by CNAF (collectively, the "Investment
Adviser") are not normally interested persons.
1.2 SECURITY. The term "Security" shall have the meaning defined in
Section 2(a)(36) of the Act.
1.3 EXEMPT SECURITY. The term "Exempt Security" shall mean any security
which is issued by the United States Government, bankers'
acceptances, bank certificates of deposit, commercial paper and
shares of registered open-end investment companies."
1.4 NON-EXEMPT SECURITY. The term "Non-Exempt Security" shall mean any
security which is not an exempt security.
1.5 TRANSACTION. The term "Transaction" shall mean any acquisition or
disposition of any interest in or right to a security.
1.6 EXEMPT TRANSACTION. The term "Exempt Transaction" shall have the
following meanings:
1. Any transaction in Exempt Securities.
2. Purchases effected upon exercise of rights issued by an issuer
prorata to all holders of a class of its securities to the extent
such rights were acquired from such issuer and sales of such
rights so acquired.
<PAGE> 2
3. Any transaction by an interested person for his or her own
account in any Non-Exempt Security made at a time when the
Account is not engaged in a program which (a) involves, (b)
proposes to involve, or (c) reasonably and foreseeably might
involve within the next thirty days after the date of such
transaction, any transaction in such security or any other
security issued by the same issuer.
4. Any transaction by an interested person made for the account of
CNAF or for the account of any subsidiary or affiliate of CNAF.
1.7 ACCESS PERSON. The term "Access Person" shall mean any director,
officer, or employee of the Investment Adviser or any Committee
Member, officer or employee of the Account: (a) who makes any
recommendation, or participates in the determination of which
recommendation shall be made to the Company; (b) who, in connection
with his duties, obtains any information concerning securities
recommendation being made by the Investment Adviser to the Account; or
(c) who, in the ordinary course of business, obtains information
regarding the purchase or sale of securities by the Account within 15
days of the date of such transaction.
1.8 SECURITY HELD OR TO BE ACQUIRED. The phrase "Security held or to be
acquired" means any security which, during the most recent 15 days,
(i) is or has been held by the Account or (ii) is being considered or
has been considered by the Account or the Investment Adviser for
purchase by the Account.
2. TRANSACTIONS
2.1 No access person shall, in connection with any Security (which is not
an Exempt Security) held or to be acquired by the Account, enter into
any transaction, directly or indirectly, unless said transaction
complies with condition 3. of Sub-Section 1.6.
2.2 No interested person shall make any transactions for any account in
which he or she has any direct or indirect interest unless such
transaction is an Exempt Transaction.
<PAGE> 3
2.3 In any matter involving the investments of any account in which an
interested person has any beneficial interest, or over which he has
any management or control, other than an account of CNAF, or of any
subsidiary or affiliate of CNAF, and the investments of the Account,
the interested person shall resolve any known or reasonably
anticipated conflicts of interest in favor of the Account. Questions
as to possible conflicts shall be referred to the Chairman of the
Committee for resolution.
2.4 All matters involving conflicts or possible conflicts between the
investments of any account of CNAF or of any subsidiary or affiliate
of CNAF and the investments of the Account shall be referred to the
Chairman of the Committee for resolution.
3. OTHER RULES
3.1 No interested person shall, in any calendar year, accept from any
securities broker or dealer any gift or gifts of a value exceeding
$25.00 in the aggregate.
3.2 No interested person shall disclose to any person any information
regarding any investment program or security transaction being
contemplated, planned or executed for or on behalf of the Account
except to (a) another officer, employee or a Committee Member of the
Account, (b) another officer, employee or Director of the Investment
Adviser, (c) brokers or dealers when mutually executing the
transactions in question, and only to the extent necessary to execute
the transaction properly, and (d) custodians and others who are
necessarily involved in such aspects of any transactions as are
necessary to be disclosed.
<PAGE> 4
4. REPORTS
4.1 Each access person shall, within ten days after the end of each
calendar quarter in which he or she, or any other person residing in
his or her household, has made a security transaction, other than in
an Exempt Security in any account in which he or she, or any other
person residing in his or her household, has any beneficial interest,
or over which he or she has any management or control, other than an
account for CNAF or an account for any subsidiary or affiliate of
CNAF, report such transaction in reasonable detail in writing to the
Secretary of Continental Assurance Company or such other official as
the President of the Company may designate.
4.2 The Company shall prescribe forms for all reports to be made under
these rules. All such reports shall be maintained in the custody of
the Secretary of Continental Assurance Company or such other official
or officials as the President may designate.
4.3 If any officers and employees of the Company are subject to any other
code of ethics, or similar regulations, established by CNAF or any
subsidiary or affiliate of CNAF, with similar requirements for filing
reports, then such officers and employees may file any required
reports for this Company on the format required by such other code or
regulation.
5. EXCEPTIONS AND EXEMPTIONS
5.1 Any provision of these rules may be waived by the Chairman of the
Committee if, in his opinion, such action is not detrimental to the
Account.
5.2 All such waivers must be in writing.
6. IMPLEMENTATION
6.1 Each officer and employee of the Account shall indicate by his or her
signature on a copy of this code that he or she has read the same and
will abide by it.
<PAGE> 5
6.2 The copy so signed shall be kept in the custody of the Secretary of
Continental Assurance Company.
<TABLE>
<S> <C>
______________________________
Signature
______________________________
Date
</TABLE>
<PAGE> 1
EXHIBIT (5)(a)
AGREEMENT
AGREEMENT made this 24th day of March, 1975, by and between CONTINENTAL
ASSURANCE COMPANY SEPARATE ACCOUNT (B) (the "Separate Account") and CONTINENTAL
ASSURANCE COMPANY (the "Company").
1. The Company may be considered to be a statutory underwriter within the
meaning of Section 2(11) of the Securities Act of 1933 and principal underwriter
under Section 2(a)(28) of the Investment Company Act of 1940. The Company and
the Separate Account are, therefore, entering into this Agreement to meet the
requirements of Section 15(b) of the Investment Company Act of 1940. The Company
agrees to aid the Separate Account in the offering of its Investment Units. The
Company will receive such underwriting commissions for this activity as may be
stated from time to time in the Separate Account's then current prospectus.
2. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by the vote of a majority of the members of the
Committee of the Separate Account, who are not parties to the Agreement or
interested persons of any such party, cast in person at a meeting called for
such purpose.
This Agreement shall continue in force for one year from the date hereof
and indefinitely thereafter, but only so long as the continuance after such year
shall be specifically approved at least annually by the vote of a majority of
the members of the Committee of the Separate Account who are not parties to the
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement shall terminate automatically in the event of its
assignment.
<PAGE> 2
IN WITNESS WHEREOF, the Separate Account and the Company have caused this
Agreement to be duly executed the day and year above written.
<TABLE>
<S> <C>
CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (B)
By: /s/ R. GILLESPIE
----------------------------
Chairman
CONTINENTAL ASSURANCE COMPANY
ATTEST: /s/ THOMAS R. IGLESKI By: /s/ DAVID D. BURCH
------------------------------ ----------------------------
Secretary Senior Vice President
</TABLE>
<PAGE> 1
EXHIBIT (6)(a)
- --------------------------------------------------------------------------------
CONTINENTAL ASSURANCE COMPANY CNA
Logo
- ---------------------------------------------------------
CNA Plaza A Stock Company
Chicago, Illinois 60685
- --------------------------------------------------------------------------------
AMENDMENT
The policy to which this amendment is attached is amended as stated below.
1. The provision titled "Effective Annuity Date" is deleted and replaced by
the following provision:
Effective Annuity Date -- The date of the first payment of an Annuity
benefit for a Participant. This will be the first day of the month
designated in advance by the Participant in writing. However, the date
shall not be earlier or later than the date required for annuity contracts
subject to Section 403(b) of the Internal Revenue Code.
2. The provision titled "Withdrawals" is amended by including the following
sentence:
However, effective January 1, 1989, no amount attributable to a salary
reduction agreement will be paid to the Participant under this provision
before the Participant attains age 59 1/2, except to the extent permitted
for annuity contracts subject to Section 403(b) of the Internal Revenue
Code.
This amendment takes effect as of the policy Effective Date and terminates
concurrently with the policy to which it is attached. It is subject to all the
exceptions, limitations and provisions of the policy.
Signed for the Continental Assurance Company at its Home Office, CNA Plaza,
Chicago, Illinois 60685.
/s/ E. J. NOHA
----------------------------
Chairman of the Board
<PAGE> 2
[CNA LETTERHEAD]
_____________________________________________________________________________
August 31, 1983
Dear Contractholder:
The United States Supreme Court recently rendered a decision that could have a
significant impact on your pension or profit sharing plan.
In the case of ARIZONA GOVERNING COMMITTEE FOR TAX DEFERRED COMPENSATION PLANS
v. NORRIS, the Supreme Court ruled that Title VII of the Civil Rights Act of
1964 prohibits an employer from offering employees the option of receiving
retirement benefits in a form which results in unequal payments for men and
women. The Supreme Court also held that the employer cannot provide these
benefits even if it utilizes an insurance company which uses sex-based mortality
tables. Additionally, the Court held that benefits derived from contributions
collected after AUGUST 1, 1983, must be calculated without regard to the sex of
the employee.
These rulings, as they relate to the Civil Rights Act of 1964, affect employers
with fifteen or more employees. However, several individual states have adopted
their own Fair Employment Practices Act that apply to smaller groups of
employees. We suggest that you consult your attorney regarding the effect of
this decision upon your plan.
CNA's current pension and profit sharing contracts contain guaranteed annuity
rates based on sex-distinct mortality tables. Enclosed is a Rider to your
contract that provides you with the option to elect the use of unisex annuity
rates for all or any portion of an annuity purchased under your contract. If, in
the future, our current unisex rates are lower than the guaranteed rates, they
will, of course, be used for the purposes of quoting and purchasing annuities.
If you have any questions, please feel free to call or write.
Sincerely,
/s/ SEYMOUR ADAMS
- -------------------------------------
Seymour Adams, Supervisor
Individual Funds
Customer Service -- 28 South
(312) 822-6597
<PAGE> 3
[CNA LETTERHEAD]
______________________________________________________________________________
Unisex Annuity Purchase Rate Rider
RIDER TO BE ATTACHED TO AND BECOME A PART OF GROUP POLICY GP-
ISSUED BY THE CONTINENTAL ASSURANCE COMPANY (herein called the Company).
Unisex Annuity Purchase Rate Table 1 is hereby added to the Contract. It does
not replace or modify any existing Contract provision. Upon written notice from
the Contractholder for each annuity purchased under the Contract this table will
be used in lieu of and subject to the same provisions as the other guaranteed
annuity purchase rate table(s) and/or settlement options provided under the
Contract.
The rates in Unisex Annuity Purchase Rate Table 1 may be changed by the Company
at any time one year after the effective date of this rider by written notice to
the Contractholder not less than sixty (60) days prior to the date of the change
is to take effect. No revision will be made with respect to annuities in the
course of payment.
This Rider shall become effective August 1, 1983.
In Witness Whereof, the undersigned have caused this Rider to be duly executed
this 1st day of August, 1983.
<TABLE>
<S> <C>
Continental Assurance Company
By: /s/ DAVID L. STONE By: /s/ LARRY BALLARD
----------------------------- --------------------------
Assistant Secretary Senior Vice-President
</TABLE>
<PAGE> 4
UNISEX ANNUITY PURCHASE RATE TABLE 1
Initial Monthly Annuity Payment Provided
by Application of $1,000
<TABLE>
<CAPTION>
Life Annuity with Life Annuity with
60 Monthly 120 Monthly
Payments Guarantees Payments Guaranteed Life Annuity
Age*
<S> <C> <C> <C>
55 $5.43 $5.39 $5.44
56 5.50 5.46 5.51
57 5.58 5.54 5.60
58 5.67 5.62 5.69
59 5.76 5.71 5.78
60 5.86 5.80 5.88
61 5.97 5.89 5.99
62 6.08 5.99 6.11
63 6.20 6.10 6.23
64 6.32 6.22 6.36
65 6.46 6.34 6.50
66 6.61 6.46 6.66
67 6.76 6.60 6.82
68 6.93 6.74 6.99
69 7.11 6.89 7.18
70 7.30 7.04 7.39
71 7.51 7.21 7.61
72 7.73 7.38 7.85
73 7.97 7.56 8.12
74 8.23 7.74 8.40
75 8.50 7.93 8.71
</TABLE>
*Age of annuitant at the annuitant's birthday nearest the date as of which
annuity payments begin.
<PAGE> 5
UNISEX ANNUITY PURCHASE RATE TABLE 1 (Continued)
Initial Monthly Annuity Payment Provided
by Application of $1,000
Joint and 50% Contingent Annuity
Contingent Annuity Age
<TABLE>
<CAPTION>
Primary
Annuitant
Age* 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70
- --------- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 $5.18 5.19 5.20 5.22 5.23 5.24
56 5.22 5.24 5.25 5.27 5.28 5.30 5.31
57 5.27 5.29 5.31 5.32 5.34 5.35 5.37 5.38
58 5.33 5.35 5.36 5.38 5.40 5.41 5.43 5.44 5.46
59 5.38 5.40 5.42 5.44 5.46 5.47 5.49 5.51 5.53 5.54
60 5.44 5.46 5.48 5.50 5.52 5.54 5.56 5.58 5.60 5.61 5.63
61 5.52 5.54 5.56 5.58 5.61 5.63 5.65 5.67 5.69 5.71 5.73
62 5.61 5.63 5.65 5.68 5.70 5.72 5.74 5.77 5.79 5.81 5.83
63 5.70 5.72 5.75 5.77 5.80 5.82 5.85 5.87 5.89 5.92 5.94
64 5.80 5.82 5.85 5.88 5.90 5.93 5.96 5.98 6.01 6.03 6.05
65 5.90 5.93 5.96 5.99 6.02 6.05 6.07 6.10 6.13 6.15 6.18
66 6.01 6.05 6.08 6.11 6.14 6.17 6.20 6.23 6.26 6.29
67 6.13 6.17 6.20 6.24 6.27 6.30 6.34 6.37 6.40
68 6.26 6.30 6.34 6.37 6.41 6.35 6.48 6.52
69 6.40 6.44 6.48 6.52 6.56 6.60 6.64
70 6.55 6.60 6.64 6.68 6.73 6.77
</TABLE>
*Age of annuitant at the annuitant's birthday nearest the date as of which
annuity payments begin.
-2-
<PAGE> 6
UNISEX ANNUITY PURCHASE RATE TABLE 1 (Continued)
Initial Monthly Annuity Payment Provided
by Application of $1,000
Joint and 100% Contingent Annuity
Contingent Annuity Age
<TABLE>
<CAPTION>
Primary
Annuitant
Age* 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70
- --------- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 $4.94 4.96 4.99 5.01 5.04 5.06
56 4.96 4.99 5.02 5.04 5.07 5.09 5.12
57 4.99 5.02 5.04 5.07 5.10 5.13 5.16 5.18
58 5.01 5.04 5.07 5.10 5.13 5.16 5.19 5.22 5.25
59 5.04 5.07 5.10 5.13 5.17 5.20 5.23 5.26 5.29 5.32
60 5.06 5.09 5.13 5.16 5.20 5.23 5.27 5.30 5.34 5.37 5.40
61 5.12 5.16 5.19 5.23 5.27 5.31 5.34 5.38 5.42 5.45 5.48
62 5.18 5.22 5.26 5.30 5.34 5.38 5.42 5.46 5.50 5.54 5.57
63 5.25 5.29 5.34 5.38 5.42 5.47 5.51 5.55 5.59 5.63 5.67
64 5.32 5.37 5.42 5.46 5.51 5.55 5.60 5.64 5.69 5.73 5.77
65 5.40 5.45 5.50 5.55 5.60 5.65 5.70 5.75 5.79 5.84 5.88
66 5.48 5.54 5.59 5.64 5.70 5.75 5.80 5.85 5.91 5.96
67 5.57 5.63 5.69 5.75 5.80 5.86 5.92 5.97 6.03
68 5.67 5.73 5.79 5.85 5.92 5.98 6.04 6.10
69 5.77 5.84 5.91 5.97 6.04 6.10 6.17
70 5.88 5.96 6.03 6.10 6.17 6.24
</TABLE>
*Age of annuitant at the annuitant's birthday nearest the date as of which
annuity payments begin.
-3-
<PAGE> 7
Continental Assurance Company
CNA PLAZA/CHICAGO, ILLINOIS 60685
GROUP CONTRACT AMENDMENT
Group Variable Annuity Contract Number _________________________________ is
amended as follows:
1. Subsection (g) of Section 1.1, titled "Definitions", is amended to
read as follows:
"(g) SEPARATE ACCOUNT OR SEPARATE ACCOUNT (B)
The assets of the Company in a segregated investment account,
titled "Continental Assurance Company Separate Account (B)",
established by the Company.
2. Section 2.2, titled "Definitions", is deleted.
3. Sections 1.4, 1.5, 1.6 and 1.7 (2) are amended to reduce the minimum
initial monthly annuity payment from $25 to $20.
4. Section 2.5, titled "Investment of Separate Account", is deleted and
the following substituted therefor:
"2.5 THE SEPARATE ACCOUNT
All assets of the Separate Account are owned by the Company and
the Company shall not be, nor hold itself out to be, a trustee
with respect to such assets. The assets of the Separate Account
equal to the reserves and other contract liabilities with respect
to the Separate Account shall not be charged with liabilities
arising out of any other business the Company may conduct.
The Participant's rights under the Contract are nonforfeitable.
Each Participant is the sole owner of his Individual Account."
5. Section 2.6, titled "Value of Accumulation Units", is amended to read
as follows:
"2.6 VALUE OF ACCUMULATION UNITS
The value of an accumulation unit on any valuation date is equal
to the net asset value of the Separate Account divided by the
number of accumulation units outstanding. The net asset value of
the Separate Account is the market value of all securities and
other assets, less liabilities of the Separate Account. Any
income tax payable by the Company with respect to the assets of
the Separate Account may be included with other liabilities in
determining net asset value.
Deductions will be made by the Company from the Separate Account
for investment advisory fees and other charges and expenses under
agreements between the Company and the Separate Account which are
approved by the vote of a majority of the Participants in
accordance with the Investment Company Act of 1940 as amended and
which are described in current prospectuses for the Separate
Account.
CNA
Logo
<PAGE> 8
Continental Assurance Company
CNA PLAZA/CHICAGO, ILLINOIS 60685
GROUP CONTRACT AMENDMENT
Group _______________ Annuity Contract Number __________________________ is
amended as follows:
The last paragraph of Section ________________________________________
is deleted and the following substituted therefor:
"No option may be elected which has a certain period longer than the
life expectancy of the Participant or the joint lives of the
Participant and his spouse at the Effective Annuity Date on the basis
of the mortality table used to determine the annuity payments.
If a Plan adopted by the Contractholder and communicated to the
Company provides for a qualified joint and survivor annuity as defined
in the Employees' Retirement Income Security Act of 1974, the
automatic annuity form under the Contract for each participant to whom
such provision is applicable shall be an annuity for the life of the
Participant with a survivor annuity for the life of his spouse which
is not less than one-half, nor greater than, the amount of the annuity
payable during the joint lives of the Participant and his Spouse and
which is the actuarial equivalent of a single life annuity for the
life of the participant."
Effective date of amendment: APRIL 20, 1977
<TABLE>
<CAPTION>
<S> <C>
CONTINENTAL ASSURANCE COMPANY
/s/ THOMAS R. IGLESKI /s/ E. J. NOHA
----------------------------- --------------------------
Corporate Secretary Chairman
----------------------------- --------------------------
Title
------------------------------
REGISTRAR
</TABLE>
[CNA Logo]
<PAGE> 9
Continental Assurance Company
CNA PLAZA/CHICAGO, ILLINOIS 60685
GROUP CONTRACT AMENDMENT
Group Variable Annuity Contract Number___________________________________
is amended as follows:
The second paragraph of Section 3.8, titled "Modification or
Amendment", is amended by the addition of the following sentence:
"The Company may amend the Contract to conform to applicable Federal
or State laws or regulations or to changes in the operation of the
Separate Account which have been approved by vote of the Participants
or by the Separate Account Committee."
Effective date of amendment: APRIL 20, 1977
<TABLE>
<CAPTION>
<S> <C>
CONTINENTAL ASSURANCE COMPANY
/s/ THOMAS R. IGLESKI /s/ E. J. NOHA
----------------------------- --------------------------
Corporate Secretary Chairman
----------------------------- --------------------------
Title
------------------------------
REGISTRAR
</TABLE>
[CNA Logo]
<PAGE> 10
[CAC LETTERHEAD]
(herein called the Company)
GP-
agrees, in accordance with and subject to the provisions hereinafter contained,
to make such payments to each Participant, Beneficiary, and contingent
annuitant thereof, who may be entitled thereto as herein provided.
Contractholder
This Contract is issued in consideration of the Application herefor, a copy of
which is attached to and made a part of this Contract, and of the application by
the Contractholder of the deposits hereinafter provided. It provides for
investment in an Equity Fund, and supplements GP- , which provided
for fixed-value retirement reserves and for the purchase of fixed value
retirement benefits and which shall hereinafter be referred to as the "Companion
Contract".
Certain annuity benefits may be payable hereunder as Variable Annuities. Future
payments under Variable Annuities will fluctuate depending on changes in market
value of common stocks held hereto. For a particular annuity of this type,
subsequent payments may be higher or lower than initial payments.
This Contract shall be effective at the Contractholder's address at 12:01 A. M.
Standard Time from the 1st day of May, 1968 hereinafter called the Effective
Date.
The provisions hereinafter set forth on the following pages are hereby made a
part of this Contract.
IN WITNESS WHEREOF, the Continental Assurance Company has caused this Contract
to be executed this 1st day of May, 1968.
<TABLE>
<S> <C>
/s/ DONALD E. MORRIS /s/ WILLIAM J. HAWKE
- -------------------------------- ----------------------------
Assistant Secretary Vice President
</TABLE>
Equity Fund Contract
Pooled Equity Fund
Non-Contributory
Non-Participating
Variable Annuities
/s/ DAVID R. MILLER
-------------------------
Registrar
<PAGE> 11
PART I
DEFINITIONS, BENEFITS AND OPTIONS
1.1 DEFINITIONS
The following terms shall have the meanings indicated, wherever used in
this Contract.
(a) ANNIVERSARY DATE -- A yearly anniversary of the Effective Date,
including where applicable the Effective Date itself.
(b) BENEFICIARY -- The person or persons designated in accordance with
this Contract, to receive any death benefit which shall become payable
hereunder, other than a contingent annuitant.
(c) CONTRACT YEAR -- The period of twelve months commencing with an
Anniversary Date.
(d) EFFECTIVE ANNUITY DATE -- The actual date of commencement of an
annuity benefit hereunder for a Participant, which shall be any first
day of the month designated in advance by the Participant in writing,
provided that commencement of annuity benefits shall be automatic on
the first day of the month following a Participant's 75th birthday, if
no prior date has been designated.
(e) EMPLOYEE -- Any employee of the Employer, other than temporary or
casual.
(f) EMPLOYER -- THE BOARD OF EDUCATION OF THE CITY OF CHICAGO
(g) EQUITY FUND OR EQUITY FUND (B) -- The interest of this Contract in a
separate equity investment account, referred to outside this Contract
as Separate Account (B), and maintained by the Company for reserves
for variable annuity benefits meeting the requirements of Section
403(b) of the Internal Revenue Code of 1954, or sometimes, the
totality of assets held by the Company in that account.
(h) FIXED ANNUITY -- A series of monthly retirement payments under the
Companion Contract in an unchanging amount, fully guaranteed by the
Company.
(i) NORMAL ANNUITY FORM -- A monthly retirement annuity, with first
payment on the Participant's Effective Annuity Date, and the last
payment on the first day of the month of the Participant's death;
provided, that if death shall occur before 120 monthly payments shall
have been made, the balance of such payments shall be discounted at
the reserve rate, and paid to the Beneficiary in one sum.
(j) CONTRACTHOLDER -- The entity making application for the Contract.
(k) PARTICIPANT -- An Employee who has elected in proper form for the
Employer to make contributions to purchase annuities under this
Contract.
-1-
<PAGE> 12
(l) VALUATION DATE - The last business day of the Company in each
Valuation Period.
(m) VALUATION PERIOD - Any consecutive seven days ending at midnight
Friday night, provided such seven days fall in one calendar year; a
segment remaining at the beginning or end of a calendar year less than
seven days in length shall also be a Valuation Period if containing at
least one business day of the Company, with such segment being
otherwise considered an extension of the contiguous regular Valuation
Period in that year.
(n) VARIABLE ANNUITY - A series of monthly retirement payments under this
Contract in amounts varying from time to time in accordance with
actual investment results on the assets held thereto.
(o) INDIVIDUAL ACCOUNT - The interest of any Participant in Equity Fund
(B) consisting of the value of the Accumulation Units attributable to
contributions made hereto on his behalf.
1.2 GENDER AND NUMBER
The masculine gender in this Contract includes the feminine except where
otherwise indicated by the context, and the singular number shall to the
same extent include the plural.
1.3 DETERMINATION OF BENEFITS
All benefits under this Contract shall be on a "money purchase" basis. The
size of a Participant's Individual Account hereunder will depend on the
amount of funds transferred to it, and the subsequent investment experience
thereon, as hereinafter provided. The amount of benefit payable to a
Participant at any time prior to retirement shall be determined solely by
the value of the Participant's Individual Account at that time, as computed
by the Company in the manner hereinafter provided.
1.4 RETIREMENT BENEFIT
A Participant shall be entitled to have provide under this Contract, a
monthly Variable Annuity on the Normal Annuity Form, commencing at his
Effective Annuity Date, and in an amount purchasable by his Individual
Account when applied to the proper single premium table contained in Part
IV of this Contract. Provided, that the initial monthly payment must be at
least $25.00 in amount; if this condition cannot be met on the Normal Form,
nor under any annuity option which the Participant is willing to elect, the
value of the Participant's Individual Account shall, at the option of the
Participant, be paid in a lump sum, or be transferred to the Companion
Contract for payment in accordance with its terms.
The Company may indicate to each Participant from time to time, the initial
monthly annuity on the Normal Form which could be provided at various ages
of retirement by an accumulation to those ages at an assumed rate of
investment return of the current value of the Participant's Individual
Account. However, no Variable Annuity shall be guaranteed by the Company
prior to the Effective Annuity Date of the Participant.
-2-
<PAGE> 13
1.5 ANNUITY OPTIONS
A Participant may select any annuity option under this Contract, and make
changes therein, at any time, up to 30 days prior to the Effective Annuity
Date. A Participant entitled to a Variable Annuity under this Contract may,
subject to the following conditions, and with Company consent, elect any
annuity option available under the Companion Contract, to be payable under
this Contract on a variable basis in lieu of the Variable Annuity on the
Normal Annuity Form. Election of the option shall be subject to the same
requirements as election of that option under the Companion Contract. The
amount of the annuity payable under such an option shall be determined by
the Company from the amount of the Participant's annuity on the Normal
Annuity Form, from tables actuarially consistent with those in Part IV, and
available to the Employer on request. No such option may in any event be
elected unless the first payment would be at least $25.00 in amount. Other
conditions of payment applicable to each such option shall be set by the
Company, and described in the annuity certificate.
Annuity options under this Contract shall include:
(1) An annuity payable monthly during the life of the Participant, ceasing
with the payment due as of the first day of the month of death;
(2) An annuity payable monthly to the Participant during his life, and on
his death continued for life in the same amount to a contingent
annuitant designated by the Participant at retirement;
(3) An annuity payable monthly during the life of the Participant with the
guarantee that if, at the death of the Participant the number of
payments made are less than the number set in the election (60, 180 or
240), the remaining payments shall be discounted at the reserve rate
and paid to the Beneficiary in a single sum.
Notwithstanding the foregoing and anything else in this Contract, no
annuity benefit may be paid under the Contract on such a basis that
installments certain would be payable for a period greater than twenty
years.
1.6 DEATH OF PARTICIPANT
If the death of Participant occurs prior to his Effective Annuity Date, the
Company, upon receipt of reasonable evidence of his death, will pay to his
Beneficiary a single sum equal to the amount of the Participant's
Individual Account determined as of the Valuation Date next preceding the
date such evidence is received at its Home Office.
By written instructions for settlement, a Participant may elect to have the
whole or any part of the death benefit paid to a Beneficiary under any of
the retirement options in Section 1.5 of this Contract. Each monthly
payment to be determined on the basis of the rates shown in the Tables in
Part IV for the option elected; provided, however, that if such amount
would provide less than $25.00 per month, it shall nevertheless be paid in
a single sum. If no such election is in force at the time of the
Participant's death, such election may be made by, but only for the benefit
of, such Beneficiary.
-3-
<PAGE> 14
1.7 OTHER TERMINATION
On a termination of participation hereunder by a Participant other than
through death or retirement, the Participant may elect any one of the
following options, subject to the conditions given.
(1) CASH SETTLEMENT
The value of the Participant's Individual Account on the Valuation
Date next preceding the date written election of such option is
received in the Home Office of the Company (coinciding with, if
received on a Valuation Date) will be paid to him by the Company in a
single sum.
(2) ACCUMULATION
The Participant may allow his Individual Account to remain under the
Contract, without further contributions, and with continued full
participation in the investment experience hereof, for later payment
in a lump sum on written election thereto, or (if at least $25.900 a
month initially) as an annuity. Provided, that this option shall be
available only if at the effective date of termination, the value of
the Individual Account is not less than $2,000.00.
(3) TRANSFER
The Participant may have the value of his Individual Account
transferred to the Companion Contract, for retention thereunder
according to its terms; or, if the Participant shall have a new
employer which has a contract of this same type in force with the
Company, the transfer may be to such contract.
In the event no election is received from a Participant on termination of
participation, Option (2) shall be automatic, unless the value of the
Individual Account is beneath the minimum, in which event the Company may
proceed as though Option (1) had been elected. If the Company does not
proceed on the basis of Option (1), Option (2) shall apply. The expression
"termination of participation" shall include the non-receipt of minimum
contributions by the Company with respect to a Participant for 24
consecutive months.
1.8 COMMITTEE
The general operation of Equity Fund (B) shall be subject to periodic
review by a Committee, elected by the Participants hereunder, together with
Participants under similar contracts with the Company. The terms and
conditions of the Committee's supervision over Equity Fund (B) is set forth
in a Management Agreement between the Company and Equity Fund (B).
-4-
<PAGE> 15
PART II
OPERATION OF EQUITY FUND: PAYMENT OF VARIABLE ANNUITIES
2.1 APPLICATION
The Contractholder shall, on the written election by a Participant,
made in proper form, direct the Company to place some or all of the
contributions made for the Participants in Equity Fund (B) maintained
by the Company, in lieu of being retained under the Companion
Contract, subject to the provisions of that Contract and to the
conditions of this Part. All assets deriving from a contribution
placed under this Contract shall, from the next following Valuation
Date, be subject to the special provisions of this Part II, as long as
those assets remain in Equity Fund (B).
2.2 DEFINITIONS
The term "Equity Fund (B)" as used herein shall mean those assets of
the Company which are allocated to a separate equity account by the
Company, pursuant to this Contract, and to which the earnings and
expenses, gains and losses, stemming from the investment thereof,
shall be credited or charged without regard to the investment
experience on assets of the Company not allocated to said separate
account. Equity Fund (B) is a common fund, invested primarily in
equities, and shall be available to the Contractholder and to such
other non-profit organizations who may be holders of group pension
contracts issued by the Company, but only with respect to annuities
entitled to tax deferment under Section 403(b) of the Internal Revenue
Code.
2.3 TRANSFERS TO EQUITY FUND (B)
Current contributions or portions thereof which are designated by the
Contractholder for investment in Equity Fund (B) shall be credited to
the Equity Fund as of the Valuation Date next following date of
receipt by the Company, unless a contribution is received on a
Valuation Date, in which event it shall be credited to the Equity
Fund as of that date. Provided, that the Company shall not be required
to make such transfer unless the Contractholder shall have furnished
the Company with a detailed list of such contributions showing
allocations among the Participants to which such contributions relate.
The minimum single contribution allocable to a Participant shall be
$10.00.
2.4 ACCUMULATION UNITS
The assets of Equity Fund (B) shall, for accounting purposes, be
apportioned among equal units which shall be known as Accumulation
Units. The interest of this Contract in Equity Fund (B), and in the
net earnings, and gains and losses,
-5-
<PAGE> 16
realized and unrealized, in Equity Fund (B) shall be proportionate to the
number of Accumulation Units credited hereto, compared to the total number
of Accumulation Units then outstanding. (The monetary value, or fair value,
of an Accumulation Unit was set arbitrarily at $1.00000 on June 30, 1966.
The fair value at any other Valuation Date is determined from the fair
value of the Equity Fund and the number of Units outstanding as hereinafter
described.)
The Company shall credit to this Contract on account of each allocation
made hereunder to the Equity Fund, that number of Accumulation Units which
a percentage of such allocation will purchase, at the fair value of an
Accumulation Unit on the Valuation Date of allocation. The percentage shall
be 94%. The 6% balance of such allocation shall not be placed in the Equity
Fund, but shall be held by the Company as a part of its regular
non-participating assets, for present and future expenses hereto, and for
surplus and contingencies.
The value of each Individual Account under this Contract shall be measured
by the number of Accumulation Units held to the credit of that Individual
Account. The Company shall maintain records of the Accumulation Units
credited to each Individual Account, with the totals for all Individual
Accounts hereunder being equal to the interest of this Contract in Equity
Fund (B). (For this purpose, Accumulation Units previously transferred to
the Variable Annuity account, to be defined, shall be excluded.)
2.5 INVESTMENT OF EQUITY FUND
The Company shall, from time to time, solely at its own discretion, and
without regard to requirements for investment which may pertain to the
assets of the Company not allocated to said separate account, invest and
re-invest the commingled assets of Equity Fund (B) in common stock, other
equities, and (temporarily) in other securities; provided, however, that
investments in common stock shall be stock (a) which is listed or admitted
to trading on a securities exchange located in the United States or Canada,
or (b) which is publicly held and traded in the "over-the-counter" market
and as to which market quotations are readily available. Pending
anticipated distributions, or forthcoming security purchases, the Company
may retain in cash, without liability for interest, such portion of the
principal of Equity Fund (B) as is reasonable under the circumstances.
The Company shall be strictly accountable for all sums held in cash with
respect to Equity Fund (B), but shall make no guarantee of the value from
time to time of other assets of Equity Fund (B), or the investment results
thereof, or the income thereon. All assets of Equity Fund (B) shall be
owned by the Company pursuant to this and similar contracts and the Company
shall not be, or hold itself out to be, a trustee with respect to such
assets.
All dividends, interest and other investment income received by the Company
on assets of Equity Fund (B) shall be immediately credited to Equity Fund
(B), provided that the Company shall be entitled to deduct from such income
as of each Valuation Date which falls in a seven day Valuation Period, an
amount equal to .0095825% of the total fair value of Equity Fund (B) on
that date, as defined in the Section following, with such deductions being
credited by the Company to its regular non-participating assets, for
investment expenses and surplus. Deductions for Valuation Periods other
than seven days shall be in proportion.
-6-
<PAGE> 17
2.6 VALUE OF ACCUMULATION UNITS
The fair value of Equity Fund (B) as of any given Valuation Date, before
deposits of new contributions, or withdrawals for benefits then payable,
shall be determined by the Company in the following manner:
(a) Securities held under Equity Fund (B) if listed on a national
exchange, shall be valued according to the sales price of the last
transaction on the Valuation Date. If no sale of such a security
occurred on the Valuation Date, the value thereof shall be deemed
equal to the closing bid on the Valuation Date. Securities not listed
on a national exchange, but for which over-the-counter quotations are
available, shall be valued at the mean of the closing bid and asked
prices at the Valuation Date. Other securities for which sales prices
or quoted prices are not available, or are no longer available, and
all other investments and property shall be valued at prices
considered by the Committee, in its best judgment, to represent the
fair value thereof on the Valuation Date.
For the purposes hereof, sales prices and bid and asked prices
reported in newspapers of general circulation or in standard financial
periodicals shall be used.
(b) Changes in holdings of portfolio securities effective on a date of a
valuation shall be reflected in that valuation.
(c) Expenses, including any investment advisory fees, shall be included to
date of valuation, and this shall include all accrued but unpaid
charges and expenses.
(d) Dividends receivable shall be included to date of valuation if the
underlying security is being traded ex-dividend on that date.
(e) Interest income and other similar income shall be computed to date of
valuation, including accrued interest where a purchaser on that date
would be required to pay accrued interest as a part of the purchase
price.
To the aggregate net value so determined, shall be added any uninvested
cash balances, and there shall be subtracted any other liabilities, due or
accrued. The net amount remaining shall be defined as the fair value of
Equity Fund (B) on the Valuation Date. The fair value shall be computed to
the nearest cent, and shall be redetermined on each successive Valuation
Date in the same manner.
When the fair value of Equity Fund (B) has been determined on a Valuation
Date, the monetary value of an Accumulation Unit on that date shall then be
found by dividing the fair value by the number of Accumulation Units
outstanding on that date (prior to any new deposits or withdrawals) with
respect to all contracts providing for investment in Equity Fund (B),
including the Variable Annuity account. The monetary value of an
Accumulation Unit shall be computed to the nearest one-thousandth of a
cent.
-7-
<PAGE> 18
2.7 NUMBER OF ACCUMULATION UNITS
Except for a revaluation by the Company of the total number and value of
all Accumulation Units in Equity Fund (B), the number of Accumulation Units
credited to this Contract shall be increased only through allocation of an
additional deposit to Equity Fund (B) on a Valuation Date, after the fair
value of an Accumulation Unit has been determined for that date. Crediting
of investment income or realized capital gains to Equity Fund (B) shall not
change the number of Accumulation Units credited to this Contract (or to
any other participating contract). Similarly, the number of Accumulation
Units hereto shall be decreased only through liquidation of Accumulation
Units on a Valuation Date for payment of benefits, or for the transfer of
assets to the Group Annuity Fund under the Companion Contract.
2.8 TRANSFERS TO AND FROM COMPANION CONTRACT
The Contractholder may, through written direction received by the Company
at least ten days before the Valuation Date, have any portion of the assets
of this Contract in Equity Fund (B) transferred to the Group Annuity Fund
under the Companion Contract, provided that assets credited to the Variable
Annuity account shall not be transferable, and that such transfers shall be
subject to the prior consent of the Company.
Transfers of sums to this Contract from the Companion Contract may be made
on termination of that Contract, and may be made otherwise prior to the
Effective Annuity Date under special circumstances with the consent of the
Company.
2.9 TERMINATION OF EQUITY PARTICIPATION
The Contractholder may, as of any Valuation Date, through written notice
received by the Company at least ten days before such date, elect to
terminate participation of this Contract in Equity Fund (B). Participation
of the Contract in Equity Fund (B) shall terminate automatically on the
Valuation Date next following termination of the Companion Contract.
Participation of the Contract in Equity Fund (B) shall be immediately
terminated on any finding by the District Director of the Internal Revenue
that the annuity benefits hereunder do not meet the requirements of Section
403(b) of the Internal Revenue Code. On termination, each Participant shall
have the same options with respect to his Individual Account as are
provided in Section 1.7 of Part I on termination of participation at the
election of the Participant, except that the "accumulation" option shall
not be available if termination was due to tax disqualification.
2.10 VARIABLE ANNUITIES
Variable Annuities may be provided eligible Participants from the interest
of this Contract in Equity Fund (B), subject to the other provisions of
this Contract. Accumulation Units held as reserves for such Variable
Annuities shall be separated by the Company from those held for future
benefits of actively employed Participants,
-8-
<PAGE> 19
and credited to a Variable Annuity account. (This account shall also be
credited with reserves for Variable Annuities provided under all other
similar contracts issued by the Company, with all such reserves held in
common.) The Company shall guarantee the mortality and future expense
factors of Variable Annuities hereunder, but the investment element shall
be directly related to the fair value from time to time of the Accumulation
Units in the Variable Annuity account.
2.11 VARIABLE UNITS
The amount of a Variable Annuity shall be measured in Annuity Units. The
number of Annuity Units applicable to each such annuity shall be fixed at
the Participant's Effective Annuity Date, and shall not change thereafter,
unless the annuity shall be of such a form that the amount would change on
the same circumstance if the annuity were a Fixed Annuity.
The monetary value from time to time of an Annuity Unit shall depend on the
current value of an Accumulation Unit, after an adjustment to reflect the
annuity reserve interest rate. (The monetary value of an Annuity Unit was
defined arbitrarily at $1.00000 on July 1, 1966, and thereafter was
revalued on each first day of the month through May 1, 1968 based on the
net change in the value of an Accumulation Unit during the preceding month,
adjusted for the 3-1/2% per annum assumed earnings rate. Effective with the
Valuation Period commencing June 1, 1968, the Annuity Unit was redefined as
below, with the value during this Valuation Period being determined from
the value May 1, 1968 and the change in the value of the Accumulation Unit
in the period April 30 -- May 24, 1968.)
A single monetary value shall prevail for the Annuity Unit throughout each
Valuation Period. The monetary value of an Annuity Unit for each Valuation
Period shall be determined from the value during the preceding Valuation
Period by multiplying that value by the factor below:
(Net investment factor for second preceding valuation period)
---------------------------------------------------------------
(Compound interest factor for that period, at 3-1/2% per annum)
The net investment factor for any Valuation Period shall be defined as the
ratio of the monetary value of an Accumulation Unit on the Valuation Date
falling in that period, to the monetary value of an Accumulation Unit on
the Valuation Date falling in the next preceding Valuation Period.
2.12 PURCHASE OF VARIABLE ANNUITIES
As of the Valuation Date immediately prior to a Participant's Effective
Annuity Date (or coincident with, if also a Valuation Date) the number of
Accumulation Units in a Participant's Individual Account shall be withdrawn
by the Company from the account representing the regular interest of the
Contract in Equity Fund (B) and credited by the Company to the Variable
Annuity Account. (To this shall be added the net value of any current
contribution received from the Participant, but not credited to the Equity
Fund.) A Participant's initial annuity payment shall then be determined by
dividing the value of his Individual Account as determined on the second
preceding Valuation Date before the Effective Annuity Date by the
appropriate single premium contained in Part IV of this Contract. The
Participant's Variable Annuity shall then be translated into a permanent,
fixed number of Annuity Units by dividing the initial
-9-
<PAGE> 20
annuity payment in dollars by the monetary value of an Annuity Unit during
the Valuation Period in which the Effective Annuity Date falls, with the
result computed to the nearest one hundredth of a unit.
2.13 PAYMENT OF VARIABLE ANNUITIES
Each Variable Annuity shall be paid to the Participant by the Company on
the continuously varying basis previously defined. Prior to the due date of
each Variable Annuity payment, the Company shall determine the monetary
amount to be then payable by multiplying the number of Annuity Units
provided by the Variable Annuity, by the monetary value of an Annuity Unit
during the Valuation Period in which the due date falls, and taking the
product to the nearest cent.
The Company shall guarantee the continued payment in full of the Annuity
Units on each Variable Annuity under this Contract, for the payment period
of the form of annuity involved. Not less frequently than once annually,
the Company shall make a valuation of all Variable Annuities in course of
payment hereunder. Any sum in excess of required reserves for future
benefits and anticipated expenses may be removed by the Company from Equity
Fund (B) and added to its non-participating surplus account. Any reserve
deficiency shall be met by the Company through a transfer of the required
sum from its general non-participating surplus to Equity Fund (B) for
crediting to the Variable Annuity account of this Contract.
2.14 SINGLE SUM SETTLEMENTS UNDER VARIABLE ANNUITIES
In the event that remaining guaranteed payments become payable in a single
sum to a Beneficiary, the amount of the payment shall be found by first
obtaining the single sum in terms of Annuity Units, by multiplying the
amount of the annuity in Annuity Units, and the present value factor at
3-1/2% per annum compound interest. The monetary amount of the settlement
will then equal the amount in Annuity Unit times the monetary value of an
Annuity Unit at the effective date of settlement.
2.15 TERMINATION OF MANAGEMENT AGREEMENT
In the event that the Committee, pursuant to the provisions of the
Management Agreement between the Company and Equity Fund (B), shall
terminate the Management Agreement, the Company shall proceed as follows
with respect to the interest of the Contractholder and Participants in
Equity Fund (B). All assets of Equity Fund (B) shall be immediately
liquidated by the Company. The values of the Individual Accounts of all
Participants who have not retired, shall be paid to those Participants by
the Company as soon as practicable thereafter. Provided that each such
Participant shall have the option of requesting that his share in the
proceeds be transferred to the Companion Contract (if being continued) or
to a regular non-participating department of the Company, for application
to provide a deferred fixed annuity. The equitable shares in the proceeds
of the Variable Annuity account shall be transferred by the Company to its
regular non-participating department, and applied to provide fixed
annuities to all retired Participants, in the same form, and on the same
actuarial reserve bases as the Variable Annuities then in effect for the
retired Participants. To the extent permitted by the proceeds from
liquidation, the amount of each fixed annuity shall be the same as the last
variable payment received under it.
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<PAGE> 21
PART III
GENERAL PROVISIONS
3.1 ASSIGNMENT OF BENEFITS
The interest of either a Participant or a Beneficiary under this Contract
may not be sold, assigned, discounted or pledged as collateral for a loan
or as security for the performance of an obligation, or for any other
purpose, to any person other than the Company. Such interest, benefits and
payments shall not be subject to any legal process to levy upon or attach
the same, for payment of any claim against any Participant or Beneficiary.
3.2 CERTIFICATES
When a Participant becomes entitled to an annuity benefit hereunder, the
Company will issue an individual certificate to the annuitant describing
the benefit.
3.3 ENTIRE CONTRACT
The Contract and the Application, a copy of which is attached hereto, shall
constitute the entire contract between the parties with respect to Equity
Fund (B) and Variable Annuities.
3.4 FACILITY OF PAYMENT
In the event that the Company deems the recipient of any payment hereunder
to be legally incompetent, the Company shall have the right, in settlement
of full liability thereto, to make the payment to such guardian, relative
or other person who in the Company's opinion is contributing toward the
support of the recipient.
If a benefit is due on the death of a Participant, and no Beneficiary shall
be named, or if the named Beneficiary shall not survive, the Company may,
in full discharge of its liability, pay such benefit to any one or more of
surviving spouse, parents, children, brother or sister.
3.5 EXCLUSION OF ADDITIONAL UNITS
The Contractholder may, with the permission of the Company, include
additional divisions, subsidiaries or other units under the control of the
Contractholder, effective from any Anniversary Date.
<PAGE> 22
3.6 INFORMATION
The Contractholder shall furnish the Company in writing at its Home Office
with the names and other data reasonably necessary for the administration
of this Contract, and shall notify the Company of all changes affecting
this Contract promptly in writing at its Home Office. The Company shall
have no liability for the payment of any benefit with respect to which the
Contractholder or a Participant has refused to furnish required information
or to submit necessary forms.
3.7 MISSTATEMENTS AND ERRORS
If the date of birth or other information affecting the amount of a benefit
or premium is determined by the Company to have been misstated, adjustments
shall be made by the Company so as to conform with the true facts. If the
amount of an annuity has been understated, a single sum shall be paid to
the annuitant equal to the total in dollars of the errors in annuity
payments made; if an overstatement, annuity payments shall be suspended
until the overpayment in dollars is recovered.
3.8 MODIFICATION OR AMENDMENT
This Contract cannot be modified or amended, nor its provisions waived or
extended, in any respect, except with the written consent of the Company,
in compliance with the laws of the state in which this Contract is issued.
Such written consent must be signed by the President; a Vice-President, the
Secretary or an Assistant Secretary of the Company whose authority will not
be delegated.
With the written consent of the Company, the Contractholder may, at any
time and from time to time, amend this Contract in any respect, without the
consent of any Participant; provided that no such amendment shall deprive
the Participant of any right to benefits accrued under this Contract as of
the effective date of such amendment.
3.9 NON-PARTICIPATING
This Contract is non-participating, and shall be held with the other
non-participating business of the Company.
3.10 PROOF OF AGE
Notwithstanding the other provisions of this Contract, no annuity shall be
paid unless and until proof of date of birth for the Participant has been
submitted to and accepted by the Company.
3.11 RESERVES
Reserves for Variable Annuities shall be computed on the Group Annuity
Table for 1951 adjusted and projected, with interest at three and one-half
per cent per annum.
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<PAGE> 23
3.12 REVISION OF RATES
The Company reserves the right to revise the annuity premiums herein or to
change the deduction made from new allocations, subject to the following
provisions. No revisions shall be made with respect to annuities in course
of payment, nor shall any revision be made with respect to the deduction
from allocation of Participants who are covered during the first five
contract years. No revision in premium rates shall be made with respect to
Participants born prior to January 1, 1907. Further, the Company guarantees
that the rates applicable to other Participants covered in the first five
contract years shall not exceed the rates resulting from the following
modifications of those of Table 4.1:
<TABLE>
<CAPTION>
For Participants Born in Period Adjustment
------------------------------- -----------------------------
<S> <C>
1-1-07 to 12-31-16, inclusive Rate down one year in age.
1-1-17 to 12-31-26 " Rate down two years in age.
1-1-27 and later Rate down three years in age.
</TABLE>
Notwithstanding the foregoing, the Company does not in any event guarantee
the annuity rates of this Contract with respect to any funds which the
District Director of Internal Revenue finds not to meet the requirements of
Section 403(b) of the Internal Revenue Code.
3.13 SETTLEMENTS ON DEATH
Each Participant shall name a Beneficiary, with respect to any benefit
payable hereunder on the death of the Participant. Designations of
Beneficiary shall be made in writing, and shall be held by the Employer,
except for those to be applicable after the retirement of a Participant,
which shall be filed with the Company, in a form satisfactory to the
Company.
A Participant may change a designation of Beneficiary at any time through a
similar procedure. Provided that if a change is required to be filed with
the Company, then on filing it shall relate back to and take effect as of
the date signed, without prejudice to the Company on account of any
payments made by it before receipt of such request.
3.14 ANNUAL REPORTS AND CERTIFICATES
The Company will furnish each Participant hereunder not less frequently
than annually a statement in writing as to the current value of his
Individual Account.
On the commencement hereunder of an annuity benefit, the Company will issue
to the Participant a certificate or endorsement describing the benefit then
effective.
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<PAGE> 24
PART IV
TABLE 4.1
Single Premium To Provide An Immediate Monthly Variable Annuity On
The Normal Annuity Form With First Payment $1.00
<TABLE>
<CAPTION>
Retirement Single Premium
Age Male Female
---------- ---- ------
<S> <C> <C>
55 $189.14 $211.49
56 185.25 207.50
57 181.33 203.43
58 177.40 199.30
59 173.46 195.11
60 169.52 190.86
61 165.58 186.57
62 161.65 182.24
63 157.74 177.88
64 153.88 173.51
65 150.07 169.14
66 146.34 164.78
67 142.70 160.46
68 139.17 156.19
69 135.76 151.99
70 132.48 147.88
71 129.33 143.87
72 126.35 140.00
73 123.55 136.30
74 120.95 132.79
75 118.54 129.49
</TABLE>
These premiums are guaranteed for all variable annuity purchases under Section
2.12 of the Contract for Participants born prior to January 1, 1907, subject to
the provisions of Section 3.12. Premiums for annuity options shall be determined
on the same actuarial bases as would be applicable to the Normal Annuity Form
for that Participant.
The above premiums are applicable where the Company is not required to pay a
state premium tax at the time of annuity purchase. Where such a tax is payable,
the premiums shall be increased by the amount of tax.
-14-
<PAGE> 1
EXHIBIT 6(b)
[CONTINENTAL ASSURANCE COMPANY LETTERHEAD]
AMENDMENT
The policy to which this amendment is attached is amended as stated below.
1. The provision titled "Effective Annuity Date" is deleted and replaced by the
following provision:
Effective Annuity Date - The date of the first payment of an Annuity benefit
for a Participant. This will be the first day of the month designated in
advance by the Participant in writing. However, the date shall not be earlier
or later than the date required for annuity contracts subject to Section
403(b) of the Internal Revenue Code.
2. The provision titled "Withdrawals" is amended by including the following
sentence:
However, effective January 1, 1989, no amount attributable to a salary
reduction agreement will be paid to the Participant under this provision
before the Participant attains age 59 1/2, except to the extent permitted for
annuity contracts subject to Section 403(b) of the Internal Revenue Code.
This amendment takes effect as of the policy Effective Date and terminates
concurrently with the policy to which it is attached. It is subject to all the
exceptions, limitations and provisions of the policy.
Signed for the Continental Assurance Company at its Home Office, CNA Plaza,
Chicago, Illinois 60685.
/s/ E. J. Noha
---------------------
Chairman of the Board
<PAGE> 2
[CNA INSURANCE COMPANIES LETTERHEAD]
August 31, 1983
Dear Contractholder:
The United States Supreme Court recently rendered a decision that could have a
significant impact on your pension or profit sharing plan.
In the case of Arizona Governing Committee for Tax Deferred Compensation Plans
v. Norris, the Supreme Court ruled that Title VII of the Civil Rights Act of
1964 prohibits an employer from offering employees the option of receiving
retirement benefits in a form which results in unequal payments for men and
women. The Supreme Court also held that the employer cannot provide these
benefits even if it utilizes an insurance company which uses sex-based mortality
tables. Additionally, the Court held that benefits derived from contributions
collected after August 1, 1983, must be calculated without regard to the sex of
the employee.
These rulings, as they relate to the Civil Rights Act of 1964, affect employers
with fifteen or more employees. However, several individual states have adopted
their own Fair Employment Practices Act that apply to smaller groups of
employees. We suggest that you consult your attorney regarding the effect of
this decision upon your plan.
CNA's current pension and profit sharing contracts contain guaranteed annuity
rates based on sex-distinct mortality tables. Enclosed is a Rider to your
contract that provides you with the option to elect the use of unisex annuity
rates for all or any portion of an annuity purchased under your contract. If, in
the future, our current unisex rates are lower than the guaranteed rates, they
will, of course, be used for the purposes of quoting and purchasing annuities.
If you have any questions, please feel free to call or write.
Sincerely,
/s/ SEYMOUR ADAMS
Seymour Adams, Supervisor
Individual Funds
Customer Service - 28 South
(312) 822-6597
<PAGE> 3
[CONTINENTAL ASSURANCE COMPANY]
Unisex Annuity Purchase Rate Rider
RIDER TO BE ATTACHED TO AND BECOME A PART OF GROUP POLICY GP- ISSUED BY THE
CONTINENTAL ASSURANCE COMPANY (herein called the Company).
Unisex Annuity Purchase Rate Table 1 is hereby added to the Contract. It does
not replace or modify any existing Contract provision. Upon written notice from
the Contractholder for each annuity purchased under the Contract this table will
be used in lieu of and subject to the same provisions as the other guaranteed
annuity purchase rate table(s) and/or settlement options provided under the
Contract.
The rates in Unisex Annuity Purchase Rate Table 1 may be changed by the Company
at any time one year after the effective date of this rider by written notice to
the Contractholder not less than sixty (60) days prior to the date of the change
is to take effect. No revision will be made with respect to annuities in the
course of payment.
This Rider shall become effective August 1, 1983.
In Witness Whereof, the undersigned have caused this Rider to be duly executed
this 1st day of August, 1983.
Continental Assurance Company
By: /s/ David L. Stone By: /s/ Larry Ballard
------------------------------- ------------------------------
Assistant Secretary Senior Vice-President
<PAGE> 4
UNISEX ANNUITY PURCHASE RATE TABLE 1
Initial Monthly Annuity Payment Provided
by Application of $1,000
<TABLE>
<CAPTION>
Life Annuity with Life Annuity with
60 Monthly 120 Monthly
Payments Guaranteed Payments Guaranteed Life Annuity
------------------- ------------------- ------------
<S> <C> <C> <C>
Age*
----
55 $5.43 $5.39 $5.44
56 5.50 5.46 5.51
57 5.58 5.54 5.60
58 5.67 5.62 5.69
59 5.76 5.71 5.78
60 5.86 5.80 5.88
61 5.97 5.89 5.99
62 6.08 5.99 6.11
63 6.20 6.10 6.23
64 6.32 6.22 6.36
65 6.46 6.34 6.50
66 6.61 6.46 6.66
67 6.76 6.60 6.82
68 6.93 6.74 6.99
69 7.11 6.89 7.18
70 7.30 7.04 7.39
71 7.51 7.21 7.61
72 7.73 7.38 7.85
73 7.97 7.56 8.12
74 8.23 7.74 8.40
75 8.50 7.93 8.71
</TABLE>
*Age of annuitant at the annuitant's birthday nearest the date as of which
annuity payments begin.
-1-
<PAGE> 5
UNISEX ANNUITY PURCHASE RATE TABLE 1 (Continued)
Initial Monthly Annuity Payment Provided
by Application of $1,000
Joint and 50% Contingent Annuity
Contingent Annuitant Age
<TABLE>
<CAPTION>
Primary 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70
Annuitant Age* -----------------------------------------------------------------------------------------------
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 $5.18 5.19 5.20 5.22 5.23 5.24
56 5.22 5.24 5.25 5.27 5.28 5.30 5.31
57 5.27 5.29 5.31 5.32 5.34 5.35 5.37 5.38
58 5.33 5.35 5.36 5.38 5.40 5.41 5.43 5.44 5.46
59 5.38 5.40 5.42 5.44 5.46 5.47 5.49 5.51 5.53 5.54
60 5.44 5.46 5.48 5.50 5.52 5.54 5.56 5.58 5.60 5.61 5.63
61 5.52 5.54 5.56 5.58 5.61 5.63 5.65 5.67 5.69 5.71 5.73
62 5.61 5.63 5.65 5.68 5.70 5.72 5.74 5.77 5.79 5.81 5.83
63 5.70 5.72 5.75 5.77 5.80 5.82 5.85 5.87 5.89 5.92 5.94
64 5.80 5.82 5.85 5.88 5.90 5.93 5.96 5.98 6.01 6.03 6.05
65 5.90 5.93 5.96 5.99 6.02 6.05 6.07 6.10 6.13 6.15 6.18
66 6.01 6.05 6.08 6.11 6.14 6.17 6.20 6.23 6.26 6.29
67 6.13 6.17 6.20 6.24 6.27 6.30 6.34 6.37 6.40
68 6.26 6.30 6.34 6.37 6.41 6.35 6.48 6.52
69 6.40 6.44 6.48 6.52 6.56 6.60 6.64
70 6.55 6.60 6.64 6.68 6.73 6.77
</TABLE>
*Age of annuitant at the annuitant's birthday nearest the date as of which
annuity payments begin.
-2-
<PAGE> 6
UNISEX ANNUITY PURCHASE RATE TABLE 1 (Continued)
Initial Monthly Annuity Payment Provided
by Application of $1,000
Joint and 50% Contingent Annuity
Contingent Annuitant Age
<TABLE>
<CAPTION>
Primary 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70
Annuitant Age*-----------------------------------------------------------------------------------------------
- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> C> <C> <C> <C> <C> <C>
55 $4.94 4.96 4.99 5.01 5.04 5.06
56 4.96 4.99 5.02 5.04 5.07 5.09 5.12
57 4.99 5.02 5.04 5.07 5.10 5.13 5.16 5.18
58 5.01 5.04 5.07 5.10 5.13 5.16 5.19 5.22 5.25
59 5.04 5.07 5.10 5.13 5.17 5.20 5.23 5.26 5.29 5.32
60 5.06 5.09 5.13 5.16 5.20 5.23 5.27 5.30 5.34 5.37 5.40
61 5.12 5.16 5.19 5.23 5.27 5.31 5.34 5.38 5.42 5.45 5.48
62 5.18 5.22 5.26 5.30 5.34 5.38 5.42 5.46 5.50 5.54 5.57
63 5.25 5.29 5.34 5.38 5.42 5.47 5.51 5.55 5.59 5.63 5.67
64 5.32 5.37 5.42 5.46 5.51 5.55 5.60 5.64 5.69 5.73 5.77
65 5.40 5.45 5.50 5.55 5.60 5.65 5.70 5.75 5.79 5.84 5.88
66 5.48 5.54 5.59 5.64 5.70 5.75 5.80 5.85 5.91 5.96
67 5.57 5.63 5.69 5.75 5.80 5.86 5.92 5.97 6.03
68 5.67 5.73 5.79 5.85 5.92 5.98 6.04 6.10
69 5.77 5.84 5.91 5.97 6.04 6.10 6.17
70 5.88 5.96 6.03 6.10 6.17 6.24
</TABLE>
*Age of annuitant at the annuitant's birthday nearest the date as of which
annuity payments begin.
-3-
<PAGE> 7
[CONTINENTAL ASSURANCE COMPANY LETTERHEAD]
310 So. Michigan Avenue
Chicago, Illinois 60604
(the Company)
agrees to pay the benefits provided by this Contract (the Contract).
The Contract is issued in consideration of the Application for the Contract by
(the Contractholder)
and the payment by the Contractholder of the contributions stated in the
Contract. It provides for investment of contributions in Continental Assurance
Company Separate Account (B), and supplements the Companion Contract which
provides for fixed annuity payments.
The benefits under the Contract are on a variable basis. The dollar amount of
such benefits may increase or decrease.
The Contract will be effective at the Contractholder's address at 12:01 A.M.
Standard Time from the ____________ day of ___________________ (the Effective
Date).
The provisions set forth on the following pages are made a part of the Contract.
Signed for the Company at Chicago, Illinois
/s/ E J NOHA /s/ THOMAS R. IGLESKI
- -------------------- -------------------------
Chairman Corporate Secretary
-------------------------------------------
Registrar
GROUP VARIABLE ANNUITY CONTRACT NUMBER ____________
403(b) PLAN
NON-PARTICIPATING
ANNUITY BENEFITS AND OTHER VALUES PROVIDED BY THE CONTRACT, WHICH ARE BASED ON
THE INVESTMENT EXPERIENCE OF CONTINENTAL ASSURANCE COMPANY SEPARATE ACCOUNT (B),
ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
<PAGE> 8
CONTINENTAL ASSURANCE COMPANY
310 So. Michigan Avenue
Chicago, Illinois 60604
APPLICATION is hereby made to Continental Assurance Company by
(the Contractholder)
for the Group Variable Annuity Contract which is attached hereto and accepted by
the Contractholder (the Contract).
The Contract shall replace and supersede as of _______________ Group Contract
No. ______________ dated ____________________ issued by the Company to the
Contractholder (the Superseded Contract). The value of each Participant's
account under the Superseded Contract shall be transferred as of such date to
the Contract.
Dated at _______________ this ______________ day of ______________ , 19 _____.
-----------------------------
By:
---------------------------
Title
- --------------------------
Witness
<PAGE> 9
INDEX
Section
DEFINITIONS 1.01 through 1.10
TRANSACTIONS PRIOR TO RETIREMENT
Contributions; Sales Charge 2.01
Administration Charge 2.02
Transfers to and from the Companion Contract 2.03
Withdrawals 2.04
Termination Options 2.05
Death Benefits 2.06
ACCUMULATION UNIT VALUES
Ownership 3.01
Accumulation Units 3.02
Value of Accumulation Units 3.03
ANNUITY BENEFIT PAYMENTS
Annuity Benefits 4.01
Annuity Options 4.02
Determination of Initial Payment 4.03
Subsequent Payments 4.04
THE CONTRACT AND SEPARATE ACCOUNT
Entire Contract 5.01
Information 5.02
Amendments 5.03
Termination of The Contract 5.04
Experience Rating 5.05
The Separate Account 5.06
Termination of Separate Account Management Agreement 5.07
Non-Participating 5.08
GENERAL PROVISIONS
Certificates 6.01
Reports 6.02
Assignment of Benefits 6.03
Beneficiary 6.04
Facility of Payment 6.05
Proof of Age 6.06
Misstatements and Errors 6.07
Premium Taxes 6.08
Reserves 6.09
TABLES
Options 1 and 2 7.01
Option 3 7.02
<PAGE> 10
PART I - DEFINITIONS
1.01 ACCUMULATION UNIT - A unit which is used to determine the value of a
Participant's account prior to the Effective Annuity Date.
1.02 ANNUITY UNIT - A unit which is used to determine the amount of each Annuity
payment after the first.
1.03 COMPANION CONTRACT - A fixed annuity contract which supplements the
Contract.
1.04 CONTRACTHOLDER - The entity to which the Contract is issued.
1.05 EFFECTIVE ANNUITY DATE - The date of the first payment of an Annuity
benefit for a Participant. This will be the first day of the month
designated in advance by the Participant in writing. If no prior date is
designated, this payment will be automatic on the first day of the month
following the Participant's 75th birthday.
1.06 FIXED ANNUITY - An annuity with payments which are fixed in amount
throughout the payment period.
1.07 SEPARATE ACCOUNT OF SEPARATE ACCOUNT (B) - The Assets of the Company in a
segregated investment account, titled "Continental Assurance Company
Separate Account (B)," established by the Company for this class of
contracts.
1.08 SEPARATE ACCOUNT COMMITTEE - A five member board in which the management of
the Separate Account is vested.
1.09 VARIABLE ACCUMULATION ACCOUNT - The sum of the accumulation units credited
to a Participant under the Contract.
1.10 VARIABLE ANNUITY - An annuity with payments which vary with the investment
results of the Separate Account.
PART II - TRANSACTIONS PRIOR TO RETIREMENT
2.01 CONTRIBUTIONS; SALES CHARGE
The Company will receive contributions from the Contractholder on behalf of
each Participant under the Contract. The amount allocated to a
Participant's Variable Accumulation Account from each contribution will be
equal to the contribution less the sales charge stated in the following
table. The sales charge for each Participant will be determined on the
basis of total contributions to date on his behalf, including the current
contributions, under both the Contract and the Companion Contract.
<TABLE>
<CAPTION>
Total Contributions Sales Charge
------------------- ------------
<S> <C>
First $10,000 5 %
Over $10,000 up to $20,000 4 %
Over $20,000 2 1/2%
</TABLE>
The amount of each contribution on behalf of a Participant to his Variable
Accumulation Account must be at least $10.00
2.02 ADMINISTRATION CHARGE
An annual administration charge in an amount determined by the Company will
be deducted from each Variable Accumulation Account at the end of each
Calendar Year. The deduction will be in the form of accumulation units and
will be based on the actual cost of administration of this class of
contracts during the previous Calendar Year. It will be calculated by
dividing the amount of the administration charge by the accumulation unit
value on the valuation date on which the charge is made. The administration
charge for any Participant who is covered under the Contract for only a
portion of a Calendar Year will be prorated on a monthly basis. If no
contributions are received on behalf of a Participant during a calendar
year the deduction from the Participant's Variable Accumulation Account for
that year will be 50% of the administration charge which would otherwise be
made.
2.03 TRANSFERS TO AND FROM THE COMPANION CONTRACT
The Participant, through written direction to the Company, may have any
portion of his Variable Accumulation Account under the Contract transferred
to the Companion Contract for application under its terms, provided that
(a) Variable Accumulation Account values which have been applied to provide
annuities under the Contract are not transferable, and (b) a charge of
$10.00 will be made on the second and each succeeding transfer made in each
Calendar Year. The Participant may, through written direction to the
Company and subject to the conditions of the Companion Contract, transfer
monies to the Contract from the Companion Contract.
2.04 WITHDRAWALS
The Participant, through written direction to the Company, may withdraw any
portion of his Variable Accumulation Account, subject to the restriction
that Variable Accumulation Account values which have been used to provide
annuities under the Contract cannot be withdrawn.
<PAGE> 11
2.05 TERMINATION OPTIONS
A Participant may elect any one of the following options on termination of
Participation prior to his Effective Annuity Date other than through death
or retirement.
(1) CASH SETTLEMENT
The Company will pay the Participant the then dollar value
of his Variable Accumulation Account in a single sum. The
dollar redemption value will be determined on the
Valuation Date following receipt of notice of termination
if no other option is elected.
(2) ACCUMULATION
The Participant may allow his Variable Accumulation
Account to remain under the Contract, without further
contributions, and with continued full participation in
the investment experience of the Contract, for later
payment under Termination Option 1, or, on written
election, as an annuity subject to the provisions of the
annuity options in Section 4.02. The Variable Accumulation
Account can remain under this option up to the 75th
birthday of the Participant when either the Cash
Settlement option or an annuity option must be elected.
(3) TRANSFER
The Participant may have the value of his Variable
Accumulation Account transferred to the Companion Contract
for retention according to its terms.
(4) CHANGE OF EMPLOYER
If the Participant terminates his employment and his
subsequent employer has a contract of this type in force
with the Company, a transfer may be made to that contract.
In the event no election is received from a Participant on
termination of Participation, Option (2) will be
automatic.
2.06 DEATH BENEFIT
If the death of a Participant occurs prior to his Effective Annuity Date,
the Company will pay to his Beneficiary a death benefit equal to the amount
of the Participant's Variable Accumulation Account.
By written notice to the Home Office of the Company, a Participant may
elect to have the whole or any part of the death benefit paid to a
Beneficiary under any of the annuity options in Section 4.02 of the
Contract. If no such election is in force at the death of the Participant,
the Beneficiary may elect to leave the Fixed Accumulation Account under the
Accumulation provision described in Section 2.05 for any period of time up
to what would have been the Participant's 75th birthday, or to receive the
whole or any part of the death benefit in a single sum or under any of the
annuity options in Section 4.02 of the Contract.
PART III - ACCUMULATION UNIT VALUES
3.01 OWNERSHIP
The Participant's rights under the Contract are non-forfeitable. Each
Participant is the sole owner of his Variable Accumulation Account.
3.02 ACCUMULATION UNITS
The assets of Separate Account (B) will be apportioned among equal units
called accumulation units. The number of accumulation units credited to a
Participant's Variable Accumulation Account is determined by dividing the
current contribution (less the sales charge) applicable to that Participant
by the dollar value of an accumulation unit as of the date the
contribution is applied.
3.03 VALUE OF ACCUMULATION UNITS
The value of an accumulation unit was established at $1.00000 on June 30,
1966. The value of an accumulation unit on any valuation date is equal to
the net asset value of the Separate Account divided by the number of
accumulation units outstanding.
<PAGE> 12
The net asset value of the Separate Account is the market value of all
securities and other assets less liabilities. Market value is determined by
appraising (1) portfolio securities which are traded on a national
securities exchange at the last sale price, or, if there is no sale price,
at the closing bid; (2) other securities not so traded, for which
over-the-counter market quotations are available, at the bid price; (3) all
other securities and other assets at a fair value determined in the best
judgment of the Separate Account Committee. Any income tax payable by the
Company with respect to the assets of the Separate Account may be included
with other liabilities in determining net asset value.
A deduction will be made by the Company for investment advisory services at
an annual rate of .5% of the average value of the Separate Account.
PART IV - ANNUITY BENEFIT PAYMENTS
4.01 ANNUITY BENEFIT
Each Participant under the Contract is entitled to receive a Variable
Annuity commencing on his Effective Annuity Date. The Participant may also
elect to have any or all of his Variable Accumulation Account transferred
to the Companion Contract for the purchase of an annuity according to its
terms.
4.02 ANNUITY OPTIONS
A Participant may elect any annuity option under the Contract at any time
up to 30 days prior to his Effective Annuity Date. If no option is elected
the Automatic Annuity Form will be Option 1 with 120 monthly payments
guaranteed.
OPTION 1
Life Annuity with 60 or 120 Monthly Payments Guaranteed - Monthly
payments during the lifetime of the Participant with a guarantee that,
if at the death of the Participant payments have been made for less
than 60 or 120 months as selected, annuity payments may, at the option
of the Beneficiary, be discounted at the Assumed Investment Rate and
paid as one sum or be continued to the Beneficiary during the remainder
of the selected period. If the Beneficiary dies while receiving annuity
payments, the remainder of the guaranteed payments will be discounted
at the Assumed Investment Rate for payment as one sum to the estate of
the Beneficiary.
OPTION 2
Life Annuity - Monthly payments during the lifetime of the Participant,
ceasing with the last payment due prior to the death of the
Participant.
OPTION 3
Joint and Survivor Annuity - Monthly payments during the lifetime of
the Participant, and on his death continued for life in the same number
of annuity units to a contingent annuitant designated by the
Participant prior to his Effective Annuity Date.
Other options are available with the consent of the Company and will be
furnished on request.
No option may be elected unless the initial payment would be at least
$25.00. If this condition cannot be met through use of the Automatic
Annuity form or under any annuity option which the Participant is willing
to elect, the value of the Participant's Variable Accumulation Account will
be paid in one sum.
No option may be elected which has a certain period longer than the life
expectancy of the Participant, (or, in the case of a Joint and Survivor
Annuity, the Participant and his spouse,) at the Effective Annuity Date on
the basis of the morality table used to determine the annuity payments.
4.03 DETERMINATION OF INITIAL PAYMENT
The tables contained in Part VII of the Contract are used to determine the
initial monthly annuity payment. They show the dollar amount of the initial
monthly payment which can be purchased by each $1,000 applied.
A Participant's initial annuity payment will be determined as the product
of (a) the Initial Monthly Income Provided by Application of $1,000 shown
in Part VII and (b) the value of his Variable Accumulation Account
determined as of the 15th day of the calendar month preceding his Effective
Annuity Date less any applicable premium taxes not deducted under the
provisions of Section 6.08.
<PAGE> 13
The monthly incomes shown in the tables of Part VII are based on the Group
Annuity Table for 1951 adjusted and projected with interest at the Assumed
Investment Rate of 3 1/2%. The amount of initial monthly payment depends
on the sex and adjusted age of the Participant. The adjusted age is
determined from the actual age on the birthday nearest to the Effective
Annuity Date in the following manner:
<TABLE>
<CAPTION>
Year of Retirement Adjusted Age
------------------ ------------
<S> <C>
1971 - 1975 Actual Age
1976 - 1985 Actual Age minus 1
1986-1995 Actual Age minus 2
1996 - and later Actual Age minus 3
</TABLE>
The Assumed Investment Rate is incorporated into the annuity tables. This
rate will be 3 1/2%, unless an optional rate is elected by the Participant
at least 30 days prior to the date annuity payments are to commence. The
optional rates are 3%, 4%, 4 1/2%, and 5%.
The Company guarantees that, if at the Effective Annuity Date, the
mortality basis then used in determining annuity rates for this class of
contracts would produce more favorable results, the Company will use the
more favorable basis with the chosen Assumed Investments Rate in
calculating the Initial Payment.
4.04 SUBSEQUENT PAYMENTS
Variable Annuity Payments after the first are measured in Annuity Units.
The number of Annuity Units owned by each Participant is determined by
dividing his Initial Annuity Payment by the Annuity Unit Value at the
Effective Annuity Date. The amount of each subsequent annuity payment is
the product of (1) the number of Annuity Units owned by the Participant and
(2) the Annuity Unit Value for the valuation period in which the payment is
due, rounded to the nearest cent.
The Annuity Unit Value was established at $1.00 on July 1, 1966. It is
redetermined on the first day of each month by applying the value of an
Annuity Unit as of the first day of the preceding month to the ratio of (a)
to (b), where (a) is the ratio of the monetary value of an accumulation
unit on the fifteenth day of the preceding month to the value of an
accumulation unit on the fifteenth day of the second preceding month, and
(b) equals (1 + i) 1/12, with "i" equal to the Assumed Investment Rate.
PART V - THE CONTRACT AND SEPARATE ACCOUNT
5.01 ENTIRE CONTRACT
The Contract and the application of the Contractholder, a copy of which is
attached to the Contract, constitute the entire contract between the
parties.
5.02 INFORMATION
The Contractholder will furnish to the Company in writing at its Home
Office information reasonably necessary for the administration of the
Contract, and will notify the Company promptly and in writing at its Home
Office of all changes affecting the Contract.
5.03 AMENDMENTS
The Contract may not be modified or amended, nor its provisions waived or
extended in any respect, except with the written consent of the Company and
in compliance with the laws of the State in which the Contract is issued.
Written consent must be signed by the President, a Vice-President, the
Secretary or an Assistant Secretary of the Company whose authority will not
be delegated.
With the written consent of the Company, the Contractholder may amend the
Contract at any time without the consent of any Participant, provided that
no amendment will deprive a Participant of any rights to benefits accrued
under the Contract as of the effective date of the amendment. The Company
may amend the Contract to conform to applicable Federal or State laws or
regulations or to changes in the operation of the Separate Account which
have been approved by vote of the Participants or by the Separate Account
Committee.
The Company reserves the right to revise the annuity tables in Part VII,
the deduction from contributions in Section 2.01, the administration charge
in Section 2.02 and the transfer charge in Section 2.03, subject to the
following restrictions: (a) no revision will be made with respect to
annuities in course of payment, and (b) the annuity purchase rates will be
guaranteed for annuities elected during the initial 5 Contract Years. Any
revisions will be made by giving notice to the Contractholder at least 90
days before the date the change is to take effect.
<PAGE> 14
5.04 TERMINATION OF THE CONTRACT
The Contractholder may, as of any Valuation Date, through written notice
received by the Company at least 30 days before this date, elect to
terminate the Contract. The Contract and participation in Separate Account
(B) will terminate immediately upon any finding by the District Director of
the Internal Revenue Service that the annuity benefits do not meet the
requirements of Section 403(b) of the Internal Revenue code.
If the Contract terminates, each Participant will have the same options
with respect to his Variable Accumulation Account as are provided in
Section 2.05, except that the "Accumulation" option will not be available
if termination is due to tax disqualification.
5.05 EXPERIENCE RATING
At the sole discretion of the Company a credit may be allocated to the
Contract after comparing the costs incurred by the Contract with the sales
and administration charges. This credit, if allocated, may be in the form
of an increase in benefits or a reduction in the sales or administration
charges. The credit may be applied at any time after the experience rating
period. An experience rating period is any period of time not less than 12
months.
5.06 THE SEPARATE ACCOUNT
All assets of the Separate Account are owned by the Company and the Company
shall not be, nor hold itself out to be, a trustee with respect to such
assets. The assets of the Separate Account equal to the reserves and other
contract liabilities with respect to the Separate Account may not be
charged with liabilities arising out of the other business the Company may
conduct.
5.07 TERMINATION OF SEPARATE ACCOUNT MANAGEMENT AGREEMENT
In the event the Management Agreement for the Separate Account is
terminated, the Company will liquidate all assets of the Separate Account.
The values of the Variable Accumulation Accounts of all Participants who
have not retired will be paid to those Participants by the Company as soon
as practicable thereafter, provided that each such Participant shall have
the option of requesting that the value of his Variable Accumulation
Account be transferred to the Companion contract if such contract is being
continued in effect, or to a regular non-participating department of the
Company, for application to provide a deferred fixed annuity. The interest
of all retired Participants in the Separate Account will be transferred by
the Company to its regular non-participating department and applied to
provided fixed annuities in the same form and on the same actuarial basis
as the variable annuities then in effect for such Participants. To the
extent permitted by the proceeds from liquidation, the amount of each fixed
annuity shall be the same as the last variable payment received under the
Contract.
5.08 NON-PARTICIPATING
The Contract is Non-Participating and will be held with the other
non-participating business of the Company.
PART VI - GENERAL PROVISIONS
6.01 CERTIFICATES
The Company will issue to the Contractholder for delivery to each
Participant an individual certificate setting forth a statement of the
benefits to which he is entitled under the Contract.
6.02 REPORTS
At least once in each Calendar Year after the first, the Company will
inform the Participant of the then dollar value of his Variable
Accumulation Account maintained under the Contract.
6.03 ASSIGNMENT OF BENEFITS
The interest of either a Participant or a Beneficiary under the Contract
may not be sold, assigned, discounted or pledged as collateral for a loan
or as security for the performance of an obligation, or for any other
purpose, to any person other than the Company. Such interest, benefits and
payments will not be subject to any legal process to levy upon or attach
the same for payment of any claim against any Participant or Beneficiary.
<PAGE> 15
6.04 BENEFICIARY
Each Participant will have the right to designate the Beneficiary to whom
any death benefit will be payable under the Contract. All Beneficiary
designations must be made in writing and will be held by the Company.
A Participant will have the right to change a designated Beneficiary at any
time. However, if a change occurs on or after an annuity option is
selected, it must be filed with the Company, and it will relate back to and
take effect as of the date signed, without prejudice to the Company on
account of any payments made by it before receipt of the request for change
in Beneficiary. The interest of any Beneficiary who dies before the
Annuitant will vest in the Participant, unless otherwise provided in the
beneficiary designation.
6.05 FACILITY OF PAYMENT
If the Company deems the recipient of any payment under the Contract to be
legally incompetent, the Company will have the right, in settlement of full
liability, to make the payment to a guardian, relative or other person. If
a benefit is due to the death of a Participant, and no Beneficiary is
named, or if the named Beneficiary has not survived, the Company may, in
full discharge of its liability, pay the benefit to the Estate of the
Participant.
6.06 PROOF OF AGE
The Company reserves the right to require proof, satisfactory to it, of the
age of any Participant and any joint annuitant prior to mailing the first
payment on any annuity under the Contract.
6.07 MISSTATEMENTS AND ERRORS
If the date of birth, sex or other information affecting the amount of a
benefit is misstated, adjustments will be made by the Company to conform to
the true facts. If the amount of any annuity has been understated, a single
sum will be paid to the annuitant equal to the total in dollars of the
errors in annuity payments made. If an overpayment is made, annuity
payments will be suspended until the overpayment in dollars is recovered.
If benefit overpayments are found to be unrecoverable, the Company will
have no liability to the Contractholder or Participants if it made payments
correctly based on the facts in its possession.
6.08 PREMIUM TAXES
If the laws or regulations of any State or other jurisdiction require the
payment of premium taxes upon receipt of contributions made under the
Contract, the Company will have the right to deduct the applicable amounts
from contributions or in such manner as may be required by the laws or
regulations.
6.09 RESERVES
Reserves for Variable Annuities will be computed on the Group Annuity Table
for 1951 adjusted and projected with interest at the Assumed Investment
Rate.
<PAGE> 16
PART VII
TABLE 7.01
----------
Monthly Income Provided by Application of $1,000 at Effective Annuity Date
<TABLE>
<CAPTION>
Option 1 Option 2
--------------------------------------------------------------- -----------------------
Life Annuity With Life Annuity With
120 Monthly 60 Monthly
Payments Guaranteed Payments Guaranteed Life Annuity
------------------------- -------------------------- -----------------------
Adjusted
Age Male Female Male Female Male Female
-------- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
55 $5.40 $4.82 $5.51 $4.86 $5.55 $4.87
56 5.51 4.92 5.64 4.96 5.69 4.98
57 5.64 5.02 5.78 5.07 5.83 5.09
58 5.76 5.13 5.93 5.19 5.99 5.21
59 5.90 5.24 6.09 5.31 6.15 5.33
60 6.04 5.36 6.26 5.45 6.33 5.47
61 6.19 5.49 6.44 5.59 6.52 5.62
62 6.34 5.62 6.63 5.74 6.73 5.77
63 6.50 5.76 6.84 5.90 6.95 5.94
64 6.66 5.91 7.05 6.07 7.19 6.12
65 6.83 6.07 7.28 6.26 7.44 6.31
66 7.01 6.23 7.53 6.45 7.72 6.52
67 7.19 6.40 7.79 6.67 8.01 6.75
68 7.37 6.58 8.06 6.89 8.32 6.99
69 7.55 6.76 8.35 7.14 8.66 7.26
70 7.73 6.95 8.66 7.40 9.02 7.55
71 7.91 7.14 8.99 7.69 9.42 7.86
72 8.09 7.34 9.33 7.98 9.85 8.21
73 8.27 7.53 9.69 8.30 10.31 8.57
74 8.44 7.72 10.07 8.65 10.81 8.97
75 8.60 7.91 10.46 8.97
</TABLE>
These rates are guaranteed for all annuity purchases under the Contract for
Participants subject to Sections 4.03 and 5.03.
<PAGE> 17
PART VII
TABLE 7.02
----------
Monthly Incomes Provided By $1,000 Applied At
The Effective Annuity Date
Option 3
Joint and Survivor Annuity
--------------------------
Adjusted Age of Female
<TABLE>
<CAPTION>
Adjusted
Age of Male 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 $4.45 $4.50 $4.55 $4.60 $4.65 $4.70
56 4.48 4.53 4.58 4.64 4.69 4.74 $4.79
57 4.50 4.56 4.62 4.67 4.73 4.79 4.84 $4.90
58 4.53 4.59 4.65 4.71 4.77 4.83 4.89 4.95 $5.01
59 4.56 4.62 4.68 4.74 4.81 4.87 4.93 5.00 5.06 $5.13
60 4.58 4.64 4.71 4.78 4.84 4.91 4.98 5.05 5.12 5.18 $5.25
61 4.67 4.74 4.81 4.88 4.95 5.02 5.10 5.17 5.24 5.32 $5.39
62 4.77 4.84 4.91 4.99 5.07 5.14 5.22 5.30 5.38 5.46 $5.53
63 4.87 4.95 5.03 5.11 5.19 5.27 5.36 5.44 5.52 5.61 $5.69
64 4.98 5.06 5.15 5.23 5.32 5.41 5.50 5.59 5.68 5.77 $5.86
65 5.09 5.18 5.27 5.37 5.46 5.56 5.65 5.75 5.85 5.94 $6.04
66 5.22 5.32 5.41 5.51 5.61 5.72 5.82 5.92 6.03 6.13
67 5.35 5.46 5.56 5.67 5.78 5.89 6.00 6.11 6.22
68 5.50 5.61 5.72 5.83 5.95 6.07 6.19 6.31
69 5.65 5.77 5.89 6.01 6.14 6.27 6.40
70 5.82 5.94 6.07 6.21 6.34 6.48
</TABLE>
These rates are guaranteed for all annuity purchases under the Contract for
Participants subject to the provisions of Sections 4.03 and 5.03.
<PAGE> 1
EXHIBIT (6)(c)
[CONTINENTAL ASSURANCE COMPANY LETTERHEAD]
GP-
--------------------
agrees, in accordance with and subject to the provisions hereinafter. contained,
to make such payments to each Participant, Beneficiary, and contingent annuitant
thereof, who may be entitled thereto as herein provided.
ILLINOIS STATE BANK OF CHICAGO, TRUSTEE FOR SELF EMPLOYED MASTER RETIREMENT
PLANS
Contractholder
This Contract is issued in consideration of the Application herefor, a copy of
which is attached to and made a part of this Contract, and of the application by
the Contractholder of the deposits hereinafter provided. It provides for
investment in Separate Account (B), and supplements which provides for
fixed-value retirement reserves and for the purchase of fixed value retirement
benefits and which shall hereinafter be referred to as the "Companion Contract."
Certain annuity benefits may be payable hereunder as Variable Annuities. Future
payments under Variable Annuities will fluctuate depending on investment income
and changes in market value of common stocks held hereto. For a particular
annuity of this type, subsequent payments may be higher or lower than initial
payments.
This Contract shall be effective at the Contractholder's address at 12:01 A.M.
Standard Time from the day of
hereinafter called the Effective Date.
The provisions hereinafter set forth on the following pages are hereby made a
part of this Contract.
IN WITNESS WHEREOF, the Continental Assurance Company has caused this Contract
to be executed this day of .
/s/ THOMAS R. IRGLESKI /s/ E. J. NOHA
Corporate Secretary Chairman of the Board
Group Variable Annuity Contract
HR-10 Variable Value With Death Benefits
Investment in Separate Account (B)
Non-Participating
L-500-386
<PAGE> 2
PART I
DEFINITIONS, BENEFITS AND OPTIONS
1.1 DEFINITIONS
The following terms shall have the meanings indicated, wherever used in this
Contract.
(a) Anniversary Date - A yearly anniversary of the Effective Date,
including where applicable the Effective Date itself.
(b) Beneficiary - The person or persons designated in accordance with
this Contract, to receive any death benefit which shall become payable
hereunder, other than a contingent annuitant.
(c) Contract Year - The period of twelve months commencing with an
Anniversary Date.
(d) Contractholder - As listed on the face page hereof.
(e) Effective Annuity Date - The actual date of commencement of an annuity
benefit hereunder for a Participant, which shall be any first day of
the month permitted by the Plan and designated in advance by the
Participant in writing.
(f) Fixed Annuity - A series of monthly retirement payments under the
Companion Contract in an unchanging amount, fully guaranteed by the
Company.
(g) Individual Account - The interest of any Participant in Separate
Account (B) consisting of the value of the Accumulation Units
attributable to contributions made hereto by the Participant, or on
his behalf, or both.
(h) Normal Annuity Form - The form of annuity payment specified under the
Plan as normally applicable.
(i) Participant - An Employee of the Employer, or self-employed person who
is the Employer or a partner in the Employer, who currently meets the
eligibility requirements of the Plan for participation thereunder.
(j) Plan - The master plan or prototype adopted by the Employer as
defining eligibility for and benefits under the Employer's retirement
program.
(j.1) Employer - The entity or organization, the eligible employees of which
are Participants under this Contract.
-1-
<PAGE> 3
1.1 DEFINITIONS (Continued)
(k) Separate Account or Separate Account (B) - The assets of the Company
in a segregated investment Account, titled "Continental Assurance
Company Separate Account (B)", established by the Company.
(l) Valuation Date - Any day on which the Company's Home Office is open
for business and on which the New York Stock Exchange is open.
(m) Variable Annuity - A series of monthly retirement payments under this
Contract in amounts varying from time to time in accordance with
actual investment results on the assets held thereto.
1.2 GENDER AND NUMBER
The masculine gender in this Contract includes the feminine except where
otherwise indicated by the context, and the singular number shall to the
same extent include the plural.
1.3 DETERMINATION OF BENEFITS
All benefits for a Participant under this Contract shall be related to the
value from time to time of his Individual Account as computed by the
Company in the manner hereinafter provided. The size of a Participant's
Individual Account hereunder will depend on the amount of funds transferred
to it in accordance with the Plan, and the subsequent investment experience
thereon, as hereinafter provided.
1.4 RETIREMENT BENEFIT
A Participant shall be entitled to have provided under this Contract, a
monthly Variable Annuity on the Normal Annuity Form, commencing at his
Effective Annuity Date, and in an amount purchasable by his Individual
Account when applied to the proper settlement rate table contained in Part
IV of this Contract. Provided, that the initial monthly payment must be at
least $20.00 in amount; if this condition cannot be met on the Normal Form,
nor under any annuity option which the Participant is willing to elect, the
value of the Participant's Individual Account shall, at the option of the
Participant, be paid in a lump sum, or be transferred to the Companion
Contract for payment in accordance with its terms.
1.5 ANNUITY OPTIONS
A Participant may select any annuity option under this Contract if permitted
by the Plan, and make changes therein, at any time, up to 30 days prior to
the Effective Annuity Date. The amount of the annuity payable under such an
option shall be determined by the Company from the amount of the
Participant's Individual Account from the tables in Part IV. No such option
may in any event be elected unless the first payment would be at least
$20.00 in amount. Other conditions of payment applicable to each such option
shall be set by the Company, and described in the annuity certificate. The
following annuity options are provided under this Contract.
-2-
<PAGE> 4
1.5 ANNUITY OPTIONS (Continued)
(1) Life Ten Years Certain - A monthly income payable for life, with the
guarantee that if death should occur PRIOR to the payment of 120
installments, the remainder at the current payment level will be
discounted at the reserve interest rate, and paid to the Beneficiary
in a single sum. (This option will be the "Normal Annuity Form", or
automatic option if the Plan does not specify otherwise.)
(2) Life Five Years Certain - A monthly income payable for life with a
guarantee similar to that under the ten year certain form, but
extending for five years from retirement.
(3) Life Without Refund - A monthly income payable for the life of the
Participant only, in a higher amount than would be the case if there
were a guaranteed number of payments.
(4) Joint and Survivor - A monthly income payable to the Participant for
his life, and continued in the same number of Annuity Units after his
death to a contingent annuitant, named at retirement, for the balance
of the contingent annuitant's life.
(5) Fixed Installments - A level monthly income of a stipulated dollar
amount, payable until the sum applied is exhausted.
(6) Fixed Period - A variable monthly income payable over a predesignated
period of years, from one to twenty.
No option may be elected which has a certain period longer than the
life expectancy of the Participant or the joint lives of the
Participant and his spouse at the Effective Annuity Date on the basis
of the mortality table used to determine the annuity payments.
When the Plan provides for a qualified joint and survivor annuity as
defined in the Employees' Retirement Income Security Act of 1974, the
automatic annuity form under the Contract for each participant to whom
such provision is applicable shall be an annuity for the life of the
Participant with a survivor annuity for the life of his spouse which
is not less than one-half, nor greater than, the amount of the annuity
payable during the joint lives of the Participant and his spouse and
which is the actuarial equivalent of a single life annuity for the
life of the Participant.
1.6 DEATH OF PARTICIPANT
On the death of a Participant prior to retirement, the value of his
Individual Account on the Valuation Date next following the date written
notice of the death is received in the Home Office of the Company shall be
payable to his Beneficiary by the Company in a single sum.
-3-
<PAGE> 5
1.6 DEATH OF PARTICIPANT (Continued)
By written instructions for settlement, a Participant may elect to have the
whole or any part of the death benefit paid to a Beneficiary under any of
the retirement options in Section 1.5 above. Each monthly payment to be
determined on the basis of the rates shown in the Tables in Part IV for the
option elected, considering the Beneficiary to be one year younger than in
actuality, as of the birthday nearest the Participant's death. Provided,
however, that if such amount would provide less than $20.00 per month, it
shall nevertheless be paid in a single sum. If no such election is in force
at the time of the Participant's death, such election may be made by, but
only for the benefit of, such Beneficiary.
1.7 OTHER TERMINATION
On a termination of participation hereunder by a Participant other than
through death or retirement, the Participant may elect any one of the
following options, subject, however, in each case to the conditions and
restrictions in the Plan.
(1) Cash Settlement
The value of the Participant's Individual Account on the Valuation Date
written election of such option is received in the Home Office of the
Company will be paid to him by the Company in a single sum.
(2) Accumulation
The Participant may allow his Individual Account to remain under the
Contract, without further contributions, and with continued full
participation in the investment experience hereof, for later payment in
a lump sum on written election thereto, or (if at least $20.00 a month
initially) as an annuity. Provided, that this option shall be available
only if at the effective date of termination, the value of the
Individual Account is not less than $2,000.00.
(3) Transfer
The Participant may have the value of his Individual Account transferred
to the Companion Contract, for retention thereunder according to its
terms. If the Plan limits the Participant to accumulation to a later
retirement age, and the value of his Individual Account is less than
$2,000.00 on the next following Valuation Date, such value shall be
transferred by the Company to the Companion Contract, for retention or
payment in accordance with its terms and the terms of the Plan.
In the event no election is received from a Participant on termination of
participation, Option (2) shall be automatic, unless the value of the Individual
Account is beneath the minimum, in which event the Company may apply the
transfer option.
If a portion of a Participant's Individual Account shall not be vested on
termination of employment, the value thereof shall be transferred to the
Companion Contract, and held by the Company thereunder for later application to
reduce subsequent contributions of the Employer.
-4-
<PAGE> 6
1.8 PLAN AND TRUST
The Company shall not be a party to the Plan, nor shall it be a party to any
Trust which the Employer may, pursuant to the Plan, enter into under any
Agreement of Trust. The Company shall be entitled to rely on the statements
of the Employer relative to the terms of the Plan, without incurring any
liability other than as specifically assumed under this Contract. The
Company shall not be required without its written consent to recognize an
amendment to the Plan or Trust which might act to increase its liability
hereunder.
1.9 COMMITTEE
The general operation of Separate Account (B) shall be subject to periodic
review by a Committee, elected by the Participants hereunder, together with
Participants under similar contracts with the Company. The terms and
conditions of the Committee's supervision over Separate Account (B) is set
forth in a Management Agreement between the Company and Separate Account
(B).
In the event that the Participants under the Separate Account shall, through
vote of a majority at interest, authorize the Committee to institute a
change in the Management Agreement, any modification of this Contract
required by the change shall be automatic and accomplished by appropriate
endorsement.
-5-
<PAGE> 7
2.1 APPLICATION
The Contractholder shall, on the written election by a Participant, made in
proper form, direct the Company to place some or all of the contributions
made for the Participants placed in Separate Account (B) maintained by the
Company, in lieu of being retained under the Companion Contract, subject to
the provisions of the Contracts and the Plan. All assets deriving from a
contribution placed under this Contract shall, from the next following
Valuation Date, be subject to the special provisions of this Part II, as
long as those assets remain in Separate Account (B).
2.2 TRANSFERS TO SEPARATE ACCOUNT (B)
Current contributions or portions thereof which are designated by the
Contractholder for investment in Separate Account (B) shall be transferred
from the Companion Contract to the Separate Account as of the Valuation Date
following receipt. Provided, that the Company shall not be required to make
such transfer unless the Contractholder shall have furnished the Company
with a detailed list of such contributions showing allocations among the
Participants to which such contributions relate. The minimum single
contribution allocable to a Participant shall be $10.00.
2.3 ACCUMULATION UNITS
The assets of Separate Account (B) shall, for accounting purposes, be
apportioned among equal units which shall be known as Accumulation Units.
The interest of this Contract in Separate Account (B), and in the net
earnings, and gains and losses, realized and unrealized, in Separate Account
(B) shall be proportionate to the number of Accumulation Units credited
hereto, compared to the total number of Accumulation Units then outstanding.
The monetary value of an Accumulation Unit shall be defined arbitrarily as
$1.00000 on June 30, 1966. The monetary value on each subsequent Valuation
Date shall be found as hereinafter provided.
The Company shall credit to this contract on account of each allocation made
hereunder to the Separate Account, that number of Accumulation Units which
the percentage of such allocation remaining after deduction of the following
charge will purchase at the fair value of an Accumulation Unit on the
Valuation Date of Allocation. A charge equal to the following percentage of
each allocation shall not be placed in the Separate Account, but shall be
held by the Company as part of its regular nonparticipating assets for
present and future expenses hereto and for surplus and contingencies: 8.5%
-6-
<PAGE> 8
2.3 ACCUMULATION UNITS (Continued)
The value of each Individual Account under this Contract shall be measured
by the number of Accumulation Units held to the credit of that Individual
Account. The Company may maintain records of the Accumulation Units credited
to each Individual Account, with the totals for all Individual Accounts
hereunder being equal to the interest of this Contract in Separate Account
(B). (For this purpose, Accumulation Units previously transferred to the
Variable Annuity Account, to be defined, shall be excluded.)
The Company may, by prior agreement with the Contractholder, make certain
charges per Individual Account for accounting and administrative services.
Any such charges shall be withdrawn from the Individual Accounts as due and
transferred by the Company to its regular non-participating assets.
2.4 THE SEPARATE ACCOUNT
All assets of the Separate Account are owned by the Company and the Company
shall not be, nor hold itself out to be, a trustee with respect to such
assets. The assets of the Separate Account equal to the reserves and other
contract liabilities with respect to the Separate Account shall not be
charged with liabilities arising out of any other business the Company may
conduct.
2.5 VALUE OF ACCUMULATION UNITS
The value of an Accumulation Unit on any Valuation Date is equal to the net
asset value of the Separate Account divided by the number of Accumulation
Units outstanding. The net asset value of the Separate Account is the market
value of all securities and other assets, less liabilities of the Separate
Account. Any income tax payable by the Company with respect to the assets of
the Separate Account may be included with other liabilities in determining
net asset value.
Deductions will be made by the Company from the Separate Account for
investment advisory fees and other charges and expenses under agreements
between the Company and the Separate Account which are approved by the vote
of a majority of the Participants in accordance with the Investment Company
Act of 1940 as amended and which are described in current prospectuses for
the Separate Account.
2.6 NUMBER OF ACCUMULATION UNITS
The number of Accumulation Units credited to an Individual Account is
determined by dividing the current contribution (less the percentage charge
stated in Section 2.3) applicable to that Individual Account by the dollar
value of an Accumulation Unit as of the date the contribution is applied.
2.7 TRANSFERS TO AND FROM COMPANION CONTRACT
The Contractholder may, through written direction received by the Company,
have any portion of the interest of this Contract in Separate Account (B)
transferred to the Group Annuity Fund under the Companion Contract, provided
that assets credited to the Variable Annuity account shall not be
transferable, and that such transfers shall be subject to the prior consent
of the Company.
-7-
<PAGE> 9
2.7 TRANSFERS TO AND FROM COMPANION CONTRACT (Continued)
Transfers of sums to this Contract from the Companion Contract may be made
on termination of that Contract, and may be made otherwise prior to the
Effective Annuity Date under special circumstances with the consent of the
Company.
2.8 TERMINATION OF SEPARATE ACCOUNT PARTICIPATION
The Contractholder may, as of any Valuation Date, through written notice
received by the Company at least ten days before such date, elect to
terminate participation of this Contract in Separate Account (B).
Participation of the Contract in Separate Account (B) shall terminate
automatically on the Valuation Date next following termination of the
Companion Contract. Participation of the Contract in Separate Account (B)
shall be immediately terminated on any finding by the District Director of
the Internal Revenue that the annuity benefits hereunder do not meet the
requirements of Section 401 of the Internal Revenue Code. On termination,
each Participant shall have the same options with respect to his Individual
Account as are provided in Section 1.7 of Part I on termination of
participation at the election of the Participant, except that the
"accumulation" option shall not be available if termination was due to tax
disqualification.
2.9 VARIABLE ANNUITIES
Variable Annuities may be provided eligible Participants from the interest
of this Contract in Separate Account (B), subject to the other provisions
of this Contract. Accumulation Units held as reserves for such Variable
Annuities shall be separated by the Company from those held for future
benefits of actively employed Participants, and credited to a Variable
Annuity account. (This account shall also be credited with reserves for
Variable Annuities provided under all other similar contracts issued by the
Company, with all such reserves held in common.) The Company shall
guarantee the mortality and future expense factors of Variable Annuities
hereunder, but the investment element shall be directly related to the
fair value from time to time of the Accumulation Units in the Variable
Annuity account.
2.10 ANNUITY UNITS
The amount of a Variable Annuity shall be measured in Annuity Units. The
number of Annuity Units applicable to each such annuity shall be fixed at
the Participant's Effective Annuity Date, and shall not change thereafter,
unless the annuity shall be of such a form that the amount would change on
the same circumstance if the annuity were a Fixed Annuity.
The monetary value from time to time of an Annuity Unit shall depend on the
current value of an Accumulation Unit, after an adjustment to reflect the
annuity reserve interest rate. The monetary value of an Annuity Unit shall
be defined arbitrarily at $1.00000 on January 1, 1966. On each succeeding
first day of the month, the current monetary value of an Annuity Unit
shall be found by multiplying the value as of the first day of the
preceding month by the following factor:
Monetary Value of an Accumulation Unit at end of previous month
---------------------------------------------------------------
1
--
(1.035)12 Monetary Value of an Accumulation Unit at end of
second preceding month
-8-
<PAGE> 10
2.10 ANNUITY UNITS (Continued)
The ratio of such values of Accumulation Units (without the interest
adjustment) shall be referred to as the "investment rate" for the month in
question. The monetary value of each Annuity Unit shall be computed to the
nearest thousandth of a cent.
2.11 PURCHASE OF VARIABLE ANNUITIES
As of the Valuation Date immediately prior to a Participant's Effective
Annuity Date, the number of Accumulation Units in a Participant's
Individual Account shall be withdrawn by the Company from the account
representing the regular interest of the Contract in Separate Account (B)
and credited by the Company to the Variable Annuity account. A
Participant's initial annuity payment shall then be determined by
multiplying the value of his Individual Account in units of $1,000.00 as
determined on the immediately preceding Valuation Date by the appropriate
settlement option rate contained in Part IV of this Contract. The
Participant's Variable Annuity shall then be translated into a permanent,
fixed number of Annuity Units by dividing the initial annuity payment in
dollars by the monetary value of an Annuity Unit on the Effective Annuity
Date, with the result computed to the nearest one hundredth of a unit.
2.12 PAYMENT OF VARIABLE ANNUITIES
Each Variable Annuity shall be paid to the Participant by the Company on
the continuously varying basis previously defined. Prior to the due date of
each Variable Annuity payment, the Company shall determine the monetary
amount to be then payable by multiplying the number of Annuity Units
provided by the Variable Annuity, by the monetary value of an Annuity Unit
as of the first day of the previous month, and taking the product to the
nearest cent.
The Company shall guarantee the continued payment in full of the Annuity
Units on each Variable Annuity under this Contract, for the payment period
of the form of annuity involved. Not less frequently than once annually,
the Company shall make a valuation of all Variable Annuities in course of
payment hereunder. Any sum in excess of required reserves for future
benefits may be removed by the Company from Separate Account (B) and added
to its non-participating surplus of the required sum from its general
nonparticipating surplus to Separate Account (B) for crediting to the
Variable Annuity account of this Contract.
2.13 SINGLE SUM SETTLEMENTS UNDER VARIABLE ANNUITIES
In the event that remaining guaranteed payments become payable in a single
sum to a Beneficiary, the amount of the payment shall be found by first
obtaining the single sum in terms of Annuity Units, by multiplying the
amount of the annuity in Annuity Units, and the present value factor at
3-1/2% per annum compound interest. The monetary amount of the settlement
will then equal the amount in Annuity Units times the monetary value of an
Annuity Unit on the first day of the month just preceding the date of
settlement.
-9-
<PAGE> 11
2.14 TRANSFER FROM COMPANY
The Contractholder shall have the right to transfer away from the Company,
in one sum on any Valuation Date, the entire interest of the Contract in
Separate Account (B), excepting only funds held for terminated and retired
Participants. In this event, the Company may deduct from the funds prior to
transfer, a sum not greater than 2% thereof.
2.15 TERMINATION OF MANAGEMENT AGREEMENT
In the event that the Committee, pursuant to the provisions of the
Management Agreement between the Company and Separate Account (B), shall
terminate the Management Agreement, the Company shall proceed as follows
with respect to the interest of the Contractholder and Participants in
Separate Account (B). All assets of Separate Account (B) shall be
immediately liquidated by the Company. The values of the Individual
Accounts of all Participants who have not retired, shall be paid to those
Participants by the Company as soon as practicable thereafter. Provided,
that each such Participant shall have the option of requesting that his
share in the proceeds be transferred to the Companion Contract (if being
continued) or to a regular nonparticipating department of the Company, for
application to provide a deferred fixed annuity. The equitable shares in
the proceeds of the Variable Annuity account shall be transferred by the
Company to its regular non-participating department, and applied to provide
fixed annuities to all retired Participants, in the same form, and on the
same actuarial reserve bases as the Variable Annuities then in effect for
the retired Participants. To the extent permitted by the proceeds from
liquidation, the amount of each fixed annuity shall be the same as the last
variable payment received under it.
-10-
<PAGE> 12
PART III
GENERAL PROVISIONS
3.1 ASSIGNMENT OF BENEFITS
The interest of either a Participant or a Beneficiary under this Contract
may not be sold, assigned, discounted or pledged as collateral for a loan
or as security for the performance of an obligation, or for any other
purpose, to any person other than the Company. Such interest, benefits and
payments shall not be subject to any legal process to levy upon or attach
the same, for payment of any claim against any Participant or Beneficiary.
3.2 CERTIFICATES
When a Participant becomes entitled to an annuity benefit hereunder, the
Company will issue an individual certificate to the annuitant describing
the benefit.
3.3 ENTIRE CONTRACT
The Contract and the Application, a copy of which is attached hereto, shall
constitute the entire contract between the parties with respect to Separate
Account (B) and Variable Annuities.
3.4 FACILITY OF PAYMENT
In the event that the Company deems the recipient of any payment hereunder
to be legally incompetent, the Company shall have the right, in settlement
of full liability thereto, to make the payment to such guardian, relative
or other person who, in the Company's opinion, is contributing toward the
support of the recipient.
If a benefit is due on the death of a Participant, and no Beneficiary shall
be named, or if the named Beneficiary shall not survive, the Company may,
in full discharge of its liability, pay such benefit to any one or more of
surviving spouse, parents, children, brother or sister.
3.5 INCLUSION OF ADDITIONAL UNITS
The Contractholder may, with the permission of the Company, include
additional divisions, subsidiaries or other units under the control of the
Contractholder, effective from any Anniversary Date.
-11-
<PAGE> 13
3.6 INFORMATION
The Contractholder shall furnish the Company in writing at its Home Office
with the names and other data reasonably necessary for the administration
of this Contract, and shall notify the Company of all changes affecting
this Contract promptly in writing at its Home Office. The Company shall
have no liability for the payment of any benefit with respect to which the
Contractholder or a Participant has refused to furnish required
information or to submit necessary forms.
3.7 MISSTATEMENTS AND ERRORS
If the date of birth or other information affecting the amount of a benefit
or premium is determined by the Company to have been misstated, adjustments
shall be made by the Company so as to conform with the true facts. If the
amount of an annuity has been understated, a single sum shall be paid to
the annuitant equal to the total in dollars of the errors in annuity
payments made; if an overstatement, annuity payments shall be suspended
until the overpayment in dollars is recovered.
3.8 MODIFICATION OR AMENDMENT
This Contract cannot be modified or amended, nor its provisions waived or
extended, in any respect, except with the written consent of the Company,
in compliance with the laws of the state in which this Contract is issued.
Such written consent must be signed by the President, a Vice-President, the
Secretary or an Assistant Secretary of the Company whose authority will not
be delegated.
With the written consent of the Company, the Contractholder may, at any
time and from time to time, amend this Contract in any respect, without the
consent of any Participant; provided that no such amendment shall deprive
the Participant of any right to benefits accrued under this Contract as of
the effective date of such amendment. The Company may amend the Contract
to conform to applicable Federal or State laws or regulations or to changes
in the operation of the Separate Account which have been approved by vote
of the Participants or by the Separate Account Committee.
3.9 NON-PARTICIPATING
This Contract is non-participating and shall be held with the other
non-participating business of the Company.
3.10 PROOF OF AGE
Notwithstanding the other provisions of this Contract, no annuity shall be
paid unless and until proof of date of birth for the Participant has been
submitted to and accepted by the Company.
-12-
<PAGE> 14
3.11 RESERVES
Reserves for Variable Annuities shall be computed on the Group Annuity
Table for 1951 adjusted and projected, with interest at three and one-half
per cent per annum.
3.12 REVISION OF RATES
The Company reserves the right to revise the annuity premiums herein or to
change the deduction made from new allocations, subject to the following
provisos. No revisions shall be made with respect to annuities in course of
payment, nor shall any revisions be made with respect to the deduction from
allocation of Participants who are covered during the first five contract
years. No revision in premium rates shall be made with respect to
Participants born prior to January 1, 1907. Further, the Company guarantees
that the rates applicable to other Participants covered in the first five
contract years shall not exceed the rates resulting from the following
modifications of those of Table 4.1:
<TABLE>
<CAPTION>
For Participants Born in Period Adjustment
- ------------------------------- ----------
<S> <C>
1-1-07 to 12-31-16, inclusive Rate down one year in age.
1-1-17 to 12-31-26 " Rate down two years in age.
1-1-27 and later Rate down three years in age.
</TABLE>
Notwithstanding the foregoing, the Company does not in any event guarantee
the annuity rates of this Contract with respect to any funds which the
District Director of Internal Revenue finds not to meet the requirements of
Section 401 of the Internal Revenue Code.
3.13 SETTLEMENTS ON DEATH
Each Participant shall name a Beneficiary, with respect to any benefit
payable hereunder on the death of the Participant. Designations of
Beneficiary shall be made in writing, and shall be held by the Employer,
except for those to be applicable after the retirement of a Participant,
which shall be filed with the Company, in a form satisfactory to the
Company.
A Participant may change a designation of Beneficiary at any time through a
similar procedure. Provided that if a change is required to be filed with
the Company, then on filing it shall relate back to and take effect as of
the date signed, without prejudice to the Company on account of any
payments made by it before receipt of such request.
3.14 ANNUAL REPORTS
The Company will furnish the Contractholder hereunder not less frequently
than annually a statement in writing as to the current value of all
Individual Accounts under this Contract.
-13-
<PAGE> 15
PART IV
TABLE 4.1
Initial Monthly Incomes Provided by Application of $1,000 at
Effective Annuity Date
Option 1 (Normal Form) -- Payable for 10 Years Certain and Life
---------------------------------------------------------------
<TABLE>
<CAPTION>
Retirement Initial Monthly Income
Age Male Female
- ---------- ------ ---------
<S> <C> <C>
55 $ 5.29 $ 4.73
56 5.40 4.82
57 5.51 4.92
58 5.64 5.02
59 5.76 5.13
60 5.90 5.24
61 6.04 5.36
62 6.19 5.49
63 6.34 5.62
64 6.50 5.76
65 6.66 5.91
66 6.83 6.07
67 .7.01 6.23
68 7.19 6.40
69 7.37 6.58
70 7.55 6.76
71 7.73 6.95
72 7.91 7.14
73 8.09 7.34
74 8.27 7.53
75 8.44 7.72
</TABLE>
Age is age attained on birthday nearest to Effective Annuity Date. These rates
are guaranteed for all annuity purchases under the Contract for Participants
born prior to January 1, 1907, and for other Participants subject to the
provisions of Section 3.12.
The above rates are applicable where the Company is not required to pay a state
premium tax at the time of annuity purchase. Where such a tax is payable, the
rates shall be adjusted by the amount of tax.
-14-
<PAGE> 16
PART IV
TABLE 4.2
Initial Monthly Incomes Provided by Application of $1,000 at
Effective Annuity Date
Option 2 - Payable for 5 Years Certain and Life
-----------------------------------------------
<TABLE>
<CAPTION>
Retirement Initial Monthly Income
Age Male Female
- ---------- ------ ------
<S> <C> <C>
55 $ 5.40 $4.82
56 5.51 4.86
57 5.64 4.96
58 5.78 5.07
59 5.93 5.19
60 6.09 5.31
61 6.26 5.45
62 6.44 5.59
63 6.63 5.74
64 6.84 5.90
65 7.05 6.07
66 7.28 6.26
67 7.53 6.45
68 7.79 6.67
69 8.06 6.89
70 8.35 7.14
71 8.66 7.40
72 8.99 7.69
73 9.33 7.98
74 9.69 8.30
75 10.07 8.65
</TABLE>
Age is age attained on birthday nearest to Effective Annuity Date. These rates
are guaranteed for all annuity purchases under the Contract for Participants
born prior to January 1, 1907, and for other Participants subject to the
provisions of Section 3.12.
The above rates are applicable where the Company is not required to pay a state
premium tax at the time of annuity purchase. Where such a tax is payable, the
rates shall be adjusted by the amount of tax.
-15-
<PAGE> 17
PART IV
TABLE 4.3
Initial Monthly Incomes Provided by Application of $1,000
at Effective Annuity Date
Option 3 Payable for Life Without Refund
----------------------------------------
<TABLE>
<CAPTION>
Retirement Initial Monthly Income
Age Male Female
- ----------- ---- ------
<S> <C> <C>
55 5.42 4.77
56 5.55 4.87
57 5.69 4.98
58 5.83 5.09
59 5.99 5.21
60 6.15 5.33
61 6.33 5.47
62 6.52 5.62
63 6.73 5.77
64 6.95 5.94
65 7.19 6.12
66 7.44 6.31
67 7.72 6.52
68 8.01 6.75
69 8.32 6.99
70 8.66 7.26
71 9.02 7.55
72 9.42 7.86
73 9.85 8.21
74 10.31 8.57
75 10.81 8.97
</TABLE>
Age is age attained on birthday nearest to Effective Annuity Date. These rates
are guaranteed for all annuity purchases under the Contract for Participants
born prior to January 1, 1907, and for other Participants subject to the
provisions of Section 3.12.
The above rates are applicable where the Company is not required to pay a
state premium tax at the time of annuity purchase. Where such a tax is payable,
the rates shall be adjusted by the amount of tax.
-16-
<PAGE> 18
PART IV
TABLE 4.4
Initial Monthly Incomes Provided by Application of $1,000 at
Effective Annuity Date
Option 4 - Payable for the Life of the Participant,
and After his death to the Contingent Annuitant for Life
---------------------------------------------------------
<TABLE>
<CAPTION>
Age Age of Female Contingent Annuitant
of
Male 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 $4.37 $4.42 $4.47 $4.51 $4.56 $4.61
56 4.40 4.45 4.50 4.55 4.60 4.65 $4.70
57 4.43 4.48 4.53 4.58 4.64 4.69 4.74 $4.79
58 4.45 4.50 4.56 4.62 4.67 4.73 4.79 4.84 $4.90
59 4.47 4.53 4.59 4.65 4.71 4.77 4.83 4.89 4.95 $5.01
60 4.50 4.56 4.62 4.68 4.74 4.81 4.87 4.93 5.00 5.06 $5.13
61 4.58 4.64 4.71 4.78 4.84 4.91 4.98 5.05 5.12 5.18 $5.25
62 4.67 4.74 4.81 4.88 4.95 5.02 5.10 5.17 5.24 5.32 $5.39
63 4.77 4.84 4.91 4.99 5.07 5.14 5.22 5.30 5.38 5.46 $5.53
64 4.87 4.95 5.03 5.11 5.19 5.27 5.36 5.44 5.52 5.61 $5.69
65 4.98 5.06 5.15 5.23 5.32 5.41 5.50 5.59 5.68 5.77 $5.86
66 5.09 5.18 5.27 5.37 5.46 5.56 5.65 5.75 5.85 5.94
67 5.22 5.32 5.41 5.51 5.61 5.72 5.82 5.92 6.03
68 5.35 5.46 5.56 5.67 5.78 5.89 6.00 6.11
69 5.50 5.61 5.72 5.83 5.95 6.07 6.18
70 5.65 5.77 5.89 6.01 6.14 6.27
</TABLE>
Ages are ages nearest birthday to the Effective Annuity Date. These rates are
guaranteed for all annuity purchases under the Contract for Participants and
Contingent Annuitants born prior to January 1, 1907, and for others subject to
the provisions of Section 3.12.
The above rates are applicable where the Company is not required to pay a state
premium tax at the time of annuity purchase. Where such a tax is payable, the
rates shall be adjusted by the amount of tax.
-17
<PAGE> 19
PART IV
TABLE 4.5
Initial Monthly Incomes Provided by Application of $1,000 at
Effective Annuity Date
Option 6-Payable over a Predesignated Fixed Period
--------------------------------------------------
<TABLE>
<CAPTION>
Years Quarterly Monthly
Payable Income Income
- ------- --------- ------
<S> <C> <C>
1 $253.23 $84.65
2 128.79 43.05
3 87.33 29.19
4 60.61 22.27
5 54.19 18.12
6 45.92 15.35
7 40.01 13.38
8 35.59 11.90
9 32.16 10.75
10 29.42 9.83
11 27.18 9.09
12 25.32 8.46
13 23.75 7.94
14 22.40 7.49
15 21.24 7.10
16 20.23 6.76
17 19.34 6.47
18 18.55 6.20
19 17.85 5.97
20 17.22 5.75
</TABLE>
The above rates are applicable where the Company is not required to pay a state
premium tax at the time of annuity purchase. Where such a tax is payable, the
rates shall be adjusted by the amount of tax.
-18-
<PAGE> 20
PART IV
TABLE 4.6
Life Expectancies Based on Mortality Tables Used in Annuity Rates
Applicable to Annuitants Born Prior to 1907
<TABLE>
<CAPTION>
Joint and Survivor with Female Contingent Annuitant
Male Age of Wife
Age at Single Life
Ret. Male Female 60 61 62 63 64 65 66 67 68 69
- ------ ---- ------ -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 22.7 27.4
56 21.9 26.5
57 21.1 25.6
58 20.4 24.7
59 19.6 23.8
60 18.8 22.9 25.3 24.7 24.2 23.7 23.2 22.7 22.3 21.9 21.5 21.4
61 18.1 22.1 25.0 24.4 23.8 23.3 22.8 22.3 21.8 21.4 21.0 20.8
62 17.3 21.2 24.7 24.1 23.5 22.9 22.4 21.9 21.4 20.9 20.5 20.3
63 16.6 20.4 24.4 23.8 23.2 22.6 22.0 21.5 21.0 20.5 20.1 19.8
64 15.8 19.5 24.2 23.5 22.9 22.3 21.7 21.1 20.6 20.1 19.7 19.6
65 15.1 18.7 23.9 23.3 22.6 22.0 21.4 20.8 20.3 19.8 19.3 18.8
66 14.4 17.9 23.7 23.0 22.4 21.7 21.1 20.5 20.0 19.4 18.9 18.4
67 13.8 17.1 23.5 22.8 22.1 21.5 20.8 20.2 19.6 19.1 18.6 18.1
68 13.1 16.3 23.4 22.6 21.9 21.3 20.6 20.0 19.4 18.8 18.2 17.7
69 12.5 15.5 23.2 22.5 21.7 21.0 20.4 19.7 19.1 18.5 17.9 17.4
70 11.8 14.8 23.0 22.3 21.6 20.9 20.2 19.5 18.9 18.3 17.7 17.1
71 11.2 14.0
72 10.6 13.3
73 10.1 12.6
74 9.5 11.9
</TABLE>
Life expectancies for annuity rates applicable to annuitants born in 1907 and
later can be found through the rate-downs in age specified in Section 3.12 of
the Contract.
-19-
<PAGE> 1
EXHIBIT 7(a)
[CNA LOGO]
THE JOINT RETIREMENT BOARD OF THE RABBINICAL ASSEMBLY, et al.
Suite 2224, 11 Penn Plaza, New York, New York 10001
PENSION PLAN APPLICATION
Continental Assurance Company (CAC)
Group Policy Number GP 26100
<TABLE>
<S> <C>
- --------------------------------------------------------------- ---------------------------------------
Name I WISH TO ELECT COVERAGE UNDER THE
FOLLOWING WITH RESPECT TO FUTURE
- --------------------------------------------------------------- CONTRIBUTIONS:
Home Address (Street, City, State, Zip)
CONTINENTAL ASSURANCE COMPANY (CAC)
GROUP FIXED ANNUITY CONTRACT:
- ---------------------------------------------------------------
Home Telephone No. Sex Date of Birth 1-YR. MATURITY CONTRACT _____ %
( ) [ ] Male [ ] Female 3-YR. MATURITY CONTRACT _____ %
5-YR. MATURITY CONTRACT _____ %
- ---------------------------------------------------------------
Applicant's Social Security Number CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT(B) GROUP
- --------------------------------------------------------------- VARIABLE ANNUITY CONTRACT ===== %
Primary Beneficiary (Full Name(s) & Relationship) TOTAL 100 %
Allocations allowable for a Separate
- --------------------------------------------------------------- Account (B) GROUP VARIABLE ANNUITY
Contingent Beneficiary (Full Name(s) & Relationship) CONTRACT are 0% to 60%.
The Continental Assurance Company
Separate Account (B) GROUP VARIABLE
ANNUITY CONTRACT is offered through
CNA Investor Services, Inc.
- --------------------------------------------------------------- ---------------------------------------
The beneficiary arrangement unless otherwise indicated will apply both to the life insurance and the value of your annuity account
with Continental Assurance Company, if any.
I hereby apply for coverage under The Joint Retirement Board of The Rabbinical Assembly, et al. Pension and Insurance Plan,
commencing [ ] March 1st or [ ] September 1st.
I hereby acknowledge receipt of and have read the prospectus dated ______________________, 19____, covering Separate Account (B)
GROUP VARIABLE ANNUITY CONTRACTS issued by Continental Assurance Company.
I understand that contributions invested in the Continental Assurance Company Separate Account (B) GROUP VARIABLE ANNUITY CONTRACT
will fluctuate in value depending on investment income and changes in market value of the securities in the Separate Account.
If you would like to receive the "Statement of Additional Information" booklet for the Continental Assurance Company Separate
Account (B) GROUP VARIABLE ANNUITY CONTRACTS, please mark (X) on the following box [ ].
- ------------------------------------------------------------------------------------------------------------------------------------
Applicant's Signature Date
- ------------------------------------------------------------------------------------------------------------------------------------
Registered Representative (Print Name) Signature
- ------------------------------------------------------------------------------------------------------------------------------------
By: CNA INVESTOR SERVICES, INC. (Print Name) Signature
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
[For use with 403(b) Plan Contracts with the Joint
Retirement Board of the Rabbinical Assembly, et al.]
[CNA INSURANCE COMPANIES LETTERHEAD]
ENROLLMENT STATEMENT
I, _________________, have read and understand the following feature of an
investment under a 403(b) Plan as more fully described in the Prospectus for
Continental Assurance Company Separate Account (B) (the "Separate Account"):
I. WITHDRAWALS
Distributions may not be made to any Participant of a 403(b) Plan prior to
attainment of age 59 1/2 unless the Participant is permanently and totally
disabled, is subject to a certain form of hardship or such distributions to
the Participant are attributable to separation from service after age 55.
Distributions are also permissible upon the death of the Participant.
II. ANNUITIES
After a Participant has selected a retirement date, the Participant must
also select an annuity option. An annuity is a series of payments for life;
for life with either a minimum number of payments or a determinable sum
guaranteed; or for the joint lifetime of the person receiving payments and
another person and thereafter during the lifetime of the survivor. The
Participant has two types of annuities to choose from:
a. Variable annuity - an annuity which provides for payments varying in
amount in accordance with the investment experience of the Separate
Account.
b. Fixed annuity - an annuity which provides for payments which remain
fixed throughout the payment period and which do not vary with the
investment experience of the Separate Account.
The company currently has a charge for the purchase of a fixed rate annuity.
Changes to annuity options may be made up to 30 days prior to the date annuity
payments are to begin.
III. FUND TO FUND ACTIVITY
Prior to commencement of annuity payments, a Participant may transfer funds
between fixed and variable contracts. Some of the 403(b) Plan Contracts
provide that such transfers will be made without charge. Others provide
that the company may make a charge of $10 for the second and each
succeeding transfer in any calendar year. Please refer to your Contract to
determine the applicability of such fee.
A Participant may change the percentage allocation of future purchase
payments between fixed and variable annuity contracts at any time without
charge.
- --------------------------------- ----------------------------------
Signature of Participant Date
<PAGE> 1
EXHIBIT 7(b)
ENROLLMENT FORM
SELF EMPLOYED INDIVIDUAL'S RETIREMENT PLAN
(Life Insurance, Fixed and Variable Annuities)
Statement of Participant with respect to a Deferred Retirement Annuity Contract
to be issued pursuant to and limited by the master application of the Applicant
and the terms of HR-10 Master Trust Agreement _________________________________
IRS SERIAL NUMBER
ILLINOIS STATE BANK OF CHICAGO
Name of Applicant
IF YOU WOULD LIKE TO RECEIVE THE "STATEMENT OF ADDITIONAL INFORMATION" BOOKLET
FOR THE GROUP VARIABLE ANNUITY CONTRACTS, PLEASE CHECK (X) THE BOX. [ ]
================================================================================
1. Name of Participant ______________________ ________________ _________________
Last First Middle
2. Residence ___________________________________________________________________
Number Street City State Zip Code
3. Date of Birth ______________ 4. Sex ______ 5. Place of Birth ______________
Month Day Year City State
6. Employer ____________________________________________________________________
7. Employers Address ___________________________________________________________
Number Street City State Zip Code
8. Date of Employment ______________ 9. Annual Compensation ____________________
Month Day Year
10. Soc. Sec. # _________________
11. Check One: [ ] Sole Proprietor [ ] More than 10% Partner
[ ] Regular Employee [ ] 10% or Less Partner
12. Beneficiary (State Relationship) ___________________________________________
================================================================================
VOLUNTARY CONTRIBUTIONS
[ ] I wish to make Voluntary Contributions in the amount of $_________
Payable _______________________________________
Annual, Semi-Annual, Quarterly, Monthly
This Contribution Should Be Allocated as Follows:
Life Insurance ______% Fixed ______% Variable Annuity _____%
Life insurance allocation cannot exceed 40.0% of total contribution)
[ ] I do not wish to make Voluntary Contributions at this time.
================================================================================
It is understood that while the applicant will hold the master contract, each
Participant will at all times have a 100% vested and non-forfeitable interest in
his Individual Account.
It is also understood that annuity payments (and termination values, if any)
provided by the contract are variable when based on the investment experience of
the Company's separate account for variable contracts.
I hereby acknowledge receipt of the prospectus dated ________________ covering
group variable annuity contracts issued by the Continental Assurance Company.
It is understood that there will be an 8.5% charge against all contributions
made under the annuity contract.
DATED AT __________________________ this _____ day of _______________ 19 ____
City State
<TABLE>
<S> <C>
____________________________ ______________________________
WITNESS SIGNATURE OF PARTICIPANT
____________________________ ______________________________
REGISTERED REPRESENTATIVE SUPERVISOR
</TABLE>
<PAGE> 1
page 1
EXHIBIT 13(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 47 to
Registration Statement No. 2-25483 and Post-Effective Amendment No. 27 to
Registration Statement No. 811-1402 both filed on Form N-3 of Continental
Assurance Company Separate Account (B) (a separate account of Continental
Assurance Company a wholly-owned subsidiary of Continental Casualty Company,
which is a wholly-owned subsidiary of CNA Financial Corporation, an affiliate of
Loews Corporation), of our reports dated February 12, 1999 accompanying the
financial statements of Continental Assurance Company Separate Account (B) for
the year ended December 31, 1998, and the financial highlights of Continental
Assurance Company Separate Account (B) for the ten years ended December 31,
1998, and our report dated February 10, 1999, accompanying the consolidated
financial statements of Continental Assurance Company for the year ended
December 31, 1998 appearing in or incorporated by reference in the Prospectus
and the Statement of Additional Information, which are parts of the Registration
Statements. We also consent to the reference to us under the heading
"Independent Auditors" in the Statement of Additional Information, which is part
of such Registration Statements.
Deloitte & Touche LLP
Chicago, Illinois
April 30, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<NAME> CONTINENTAL ASSURANCE COMPANY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 5,354,356
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 45,099
<MORTGAGE> 14,688
<REAL-ESTATE> 4,362
<TOTAL-INVEST> 6,456,542
<CASH> 19,003
<RECOVER-REINSURE> 341,282
<DEFERRED-ACQUISITION> 1,127,761
<TOTAL-ASSETS> 14,366,773
<POLICY-LOSSES> 5,362,219
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 608,114
<NOTES-PAYABLE> 10,000
0
0
<COMMON> 21,831
<OTHER-SE> 2,402,903
<TOTAL-LIABILITY-AND-EQUITY> 14,366,773
3,295,229
<INVESTMENT-INCOME> 445,084
<INVESTMENT-GAINS> 134,652
<OTHER-INCOME> 86,236
<BENEFITS> 3,223,757
<UNDERWRITING-AMORTIZATION> 132,228
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C>
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