PROSPECTUS
for
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT I
and
AIG LIFE INSURANCE COMPANY
One Alico Plaza
600 King Street
Wilmington, Delaware 19801
This Prospectus sets forth the information a prospective investor ought to
know before investing.
The individual deferred variable annuity contracts and group flexible
premium deferred Variable Annuity Contracts (together "the Contracts") described
in this Prospectus provide for accumulation of Contract Values and payment of
monthly annuity payments. The Contracts may be used in retirement plans which do
not qualify for federal tax advantages ("Non-Qualified Contracts") or in
connection with retirement plans which may qualify as Individual Retirement
Annuities ("IRA") under Section 408 of the Internal Revenue Code of 1986, as
amended (the "Code") or Section 403(b) of the Code ("403(b) Plans"). The
Contracts will not be available in connection with retirement plans designed by
AIG Life Insurance Company (the "Company") which qualify for the federal tax
advantages available under Sections 401 and 457 of the Code. Purchasers
intending to use the Contracts in connection with an IRA or 403(b) Plan should
seek competent tax advice. An Owner may be issued a certificate as evidence of
individual participation under a group arrangement. The description of the
Contract in this prospectus is fully applicable to any certificate that may be
issued under the group contract.
Premiums allocated among the Subaccounts of Variable Account I (the
"Variable Account") will be invested in shares of Alliance Variable Products
Series Fund, Inc. (the "Alliance Fund") and Merrill Lynch Variable Series Funds,
Inc. (the "Merrill Lynch Fund"). The Alliance Fund has made available the
following Portfolios: Growth; Growth and Income; U.S. Government/High Grade
Securities; Global Dollar Government; Premier Growth; Total Return; Quasar; Real
Estate Investment; Worldwide Privatization; High Yield and Technology. The
Merrill Lynch Fund has made available the following portfolios: Domestic Money
Market; Prime Bond; High Current Income; Quality Equity; Special Value Focus;
Global Strategy Focus; Basic Value Focus; International Equity Focus; Developing
Capital Markets Focus; Natural Resources Focus; and Global Utility Focus.
Additional information about the Contracts and the Variable Account is
contained in the "Statement of Additional Information" which is available upon
request at no charge by calling or writing AIG Life Insurance Company; Variable
Products, One Alico Plaza, Wilmington, Delaware 19801, 1-800-340-2765 or call
the service office at 1-800-870-1453. The Statement of Additional Information
dated May 1, 1997, as amended as of October 10, 1997 has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference. The
Table of Contents for the Statement of Additional Information can be found on
page 39 of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS NOR OBLIGATIONS OF, AND ARE
NOT GUARANTEED NOR ENDORSED BY, THE ADVISER OF ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
Date of Prospectus: May 2, 1997
as amended as of March 2, 1998
<PAGE>
TABLE CONTENTS
Page
---
Definitions ......................................................... 3
Highlights .......................................................... 4
Fee Table............................................................ 5
Summary of Expenses ................................................. 6
Condensed Financial Information...................................... 9
The Company ......................................................... 11
The Variable Account ................................................ 12
The Funds .......................................................... 12
The Contract......................................................... 18
Charges and Deductions .............................................. 22
Annuity Benefits .................................................... 24
Death Benefit ....................................................... 26
Distributions Under the Contract .................................... 30
Taxes ............................................................... 32
Legal Proceedings.................................................... 38
Table of Contents of the Statement of Additional Information......... 39
Appendix -- General Account Option .................................. A-1
2
<PAGE>
DEFINITIONS
Accumulation Unit -- An accounting unit of measure used to calculate the
Contract Value prior to the Annuity Date.
Administrative Office -- The Annuity Service Office of the Company: c/o Delaware
Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, PA
19312-0031.
Annuitant -- The person designated by the Owner upon whose continuation of life
any annuity payment involving life contingencies depends.
Annuity Date -- The date on which annuity payments are to commence.
Annuity Option -- An arrangement under which annuity payments are made under
this Contract.
Annuity Unit -- An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary -- An anniversary of the Effective Date of the Contract.
Contract Value -- The dollar value as of any Valuation Date of all amounts
accumulated under this Contract.
Contract Year -- Each period of twelve (12) months commencing with the Effective
Date.
Deferred Sales Charge -- The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within 7 years of a premium
payment.
Effective Date -- The date on which the first Contract Year begins.
Guaranteed Account -- A part of our General Account, which earns a guaranteed
rate of interest.
Owner -- The person named in the Contract Schedule, unless changed, and who has
all rights under the Contract.
Premium -- Purchase payments for the Contract are referred to as Premium.
Premium Year -- Any period of twelve (12) months commencing with the date a
Premium payment is made and ending on the same date in each succeeding twelve
(12) month period thereafter.
Valuation Date -- Each day that We and the New York Stock Exchange are open for
trading.
Valuation Period -- The period between the close of business on any Valuation
Date and the close of business for the next succeeding Valuation Date.
We, Our, Us -- AIG Life Insurance Company.
You, Your -- The Owner of this Contract.
3
<PAGE>
HIGHLIGHTS
This Prospectus describes the Contracts and a segregated investment account
of AIG Life Insurance Company (the "Company") which account has been designated
Variable Account I (the "Variable Account"). The Contracts are designed to
assist in financial planning by providing for the accumulation of capital on a
tax-deferred basis for retirement and other long-term purposes, and providing
for the payment of monthly annuity income. Contracts may be purchased in
connection with a retirement plan which may qualify as a 403 (b) Plan or as an
Individual Retirement Annuity ("IRA"). The Contract may also be purchased for
retirement plans, deferred compensation plans and other purposes which do not
qualify for such special Federal income tax treatment ("Non-Qualified
Contracts"). (See "Taxes" on page 32.)
A Contract is purchased with a minimum initial premium of $2,000.
Additional premium is permitted at any time, subject to certain limitations.
(See "Premium and Allocation to Your Investment Options" on page 19.) You, as
the Owner of the Contract, may allocate your premium so that it accumulates on a
variable basis, a fixed basis or a combination of both.
Premium allocated among the Subaccounts of the Variable Account will be
invested in shares of one or more of the underlying portfolios of either the
Alliance Variable Products Series Fund, Inc. (the "Alliance Fund") or the
Merrill Lynch Variable Series Fund, Inc. (the "Merrill Lynch Fund"), and will
accumulate on a variable basis. Each Subaccount invests exclusively in one of
the following portfolios: Total Return Premier Growth; Growth; Growth and
Income; U.S. Government/High Grade Security; Global Dollar Government; Worldwide
Privatization; Quasar; Real Estate Investment; High Yield; Technology of the
Alliance Fund or Domestic Money Market; Prime Bond; High Current Income; Quality
Equity; Special Value Focus; Global Strategy Focus; Basic Value Focus;
International Equity Focus; Developing Capital Markets Focus; Special Value
Focus; Natural Resources Focus; and Global Utility Focus of the Merrill Lynch
Funds. Your value in any one of these Subaccounts will vary according to the
investment performance of the underlying portfolio chosen by you. You bear the
entire investment risk for all premium allocated to the Separate Account.
The Company does not deduct Sales Charges from any premium received.
However, the Contracts provide for a Surrender Charge (contingent deferred sales
charge) that may be assessed in the event that an Owner surrenders all or a
portion of the Contract Value within seven years following payment of any
premium. The maximum Surrender Charge is 6% of premium to which the charge is
applicable. (See "Summary of Expenses" on page 6, and "Charges and Deductions --
Deduction for Surrender Charge" on page 22.)
A penalty free withdrawal is available. Generally, there is no Surrender
Charge imposed on the greater of the Contract Value less premiums paid or the
portion of the withdrawal that does not exceed 10% of premium otherwise subject
to the Surrender Charge. (See "Withdrawals" on page 30.)
Surrenders and Withdrawals may be taxable and subject to a penalty tax.
(See "Taxes" beginning on page 32.)
The Company deducts daily a Mortality and Expense Risk Charge which is
equal on an annual basis to 1.25% of the average daily net asset value of the
Variable Account. There are no Mortality and Expense Risk Charges deducted for
amounts in the Guaranteed Account. (See "Charges and Deductions -- Deduction for
Mortality and Expense Risk Charge" on page 22.)
The Company deducts daily an Administrative Charge which is equal on an
annual basis to 0.15% of the average daily net asset value of the Variable
Account. The Administrative Charge is not assessed to the Guaranteed Account. In
addition, the Company deducts from the Contract Value, an annual Contract
Maintenance Fee which is $30 per year. The Contract Maintenance Fee is waived if
the Contract Value is greater than $50,000 on the date of the charge. These
Charges are designed to reimburse the Company
4
<PAGE>
for administrative expenses relating to maintenance of the Contract and the
Variable Account. (See "Charges and Deductions -- Deduction for Administrative
Charge and Contract Maintenance Fee" on page 23.)
There are deductions and expenses paid out of the assets of the Fund which
are described in the accompanying Prospectus for the Fund.
The Owner may return the Contract within ten (10) days (the "Right to
Examine Contract Period") after it is received by returning it to the Company's
Administrative Office. The return of the Contract by mail will be effective when
the postmark is affixed to a properly addressed and postage prepaid envelope.
The Company will refund the Contract Value. In the case of Contracts issued in
connection with an IRA the Company will refund the greater of the Premium less
any withdrawals, or the Contract Value. However, if the laws of a state require
that the Company refund, during the Right to Examine Contract Period, an amount
equal to the premium paid less any withdrawals, the Company will refund such an
amount.
FEE TABLE
Owner Transaction Expenses
<TABLE>
<CAPTION>
All Subaccounts
-----------
<S> <C>
Sales Load Imposed on Purchases ............................................... None
Deferred Surrender Charge (as a percentage of premiums surrendered):
Premium Year 1 .............................................................. 6%
Premium Year 2 .............................................................. 6%
Premium Year 3 .............................................................. 5%
Premium Year 4 .............................................................. 5%
Premium Year 5 .............................................................. 4%
Premium Year 6 .............................................................. 3%
Premium Year 7 .............................................................. 2%
Premium Year 8 and thereafter ............................................... None
Exchange Fee:
First 12 Per Contract Year................................................... None
Thereafter................................................................... $10
Annual Contract Fee (waived for contracts with account value
of $50,000 or greater) ...................................................... $30
Separate Account Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees.............................................. 1.25%
Account Fees and Expenses.................................................... 0.15%
Total Separate Account Annual Expenses ........................................ 1.40%
</TABLE>
5
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements*
<TABLE>
<CAPTION>
Other Total
Management Portfolio Portfolio
Fee Expenses Expenses
---------- --------- ---------
<S> <C> <C> <C>
Alliance Fund
Growth ............................................................. 0.74 0.19 0.93
Growth and Income .................................................. 0.63 0.19 0.82
High Yield.......................................................... 0.00 0.95 0.95
Global Dollar Government............................................ 0.00 0.95 0.95
U.S. Government/High Grade Securities .............................. 0.54 0.38 0.92
Premier Growth ..................................................... 0.72 0.23 0.95
Total Return........................................................ 0.46 0.49 0.95
Worldwide Privatization ............................................ 0.10 0.85 0.95
Technology(1) ...................................................... 0.33 0.62 0.95
Quasar (1) ......................................................... 0.00 0.95 0.95
Real Estate Investment ............................................. 0.00 0.95 0.95
Merrill Lynch Fund
Prime Bond.......................................................... 0.44 0.05 0.49
High Current Income................................................. 0.49 0.05 0.54
Quality Equity...................................................... 0.44 0.05 0.49
Special Value....................................................... 0.75 0.06 0.81
Global Strategy Focus............................................... 0.65 0.06 0.71
Domestic Money Market............................................... 0.50 0.04 0.54
Basic Value Focus................................................... 0.60 0.06 0.66
International Equity Focus.......................................... 0.75 0.14 0.89
Developing Capital Markets Focus.................................... 1.00 0.25 1.25
Natural Resources Focus............................................. 0.65 0.13 0.78
Global Utility Focus................................................ 0.60 0.06 0.66
</TABLE>
- ----------
(1) Expenses have been annualized as portfolios have not been in existence for
a full year.
The purpose of the table set forth above is to assist the Owner in
understanding the various costs and expenses that an Owner will bear directly or
indirectly. The table reflects expenses of the Variable Account as well as the
Fund. (See "Charges and Deductions" on page 22 of this Prospectus and the
respective Fund Prospectuses for further information.) The table does not
reflect the charges applicable to certain death benefit options offered under
the Contracts. (See "Charges and Deductions -- Deduction for Equity Assurance
Plan" on page 22; "Charges and Deductions -- Deductions for Enhanced Equity
Assurance Plan" on page 22; "Charges and Deductions -- Deductions for the Annual
Rachet Plan" on page 23; "Charges and Deductions -- Deductions for the
Accidental Death Benefit" on page 23.)
No deduction will be made for any Premium or other taxes levied by any
State unless imposed by the State where you reside. Premium taxes currently
imposed on the Contracts by various states range from 0% to 3.5% of Premiums
paid. (See "Charges and Deductions Deduction for State Premium Taxes" on page
22.)
"Other Portfolio Expenses" are based upon the expenses outlined under the
section discussing the management of the Fund in the respective Fund Prospectus.
* Operating expenses as a percentage of the average daily net assets of each
portfolio of the Alliance Fund before reimbursement, by the Funds' investment
adviser were estimated to be .94% for Growth; .98% for U.S. Government/High
Grade Securities; 1.97% for Global Dollar Government; 1.23% for Premier Growth;
6
<PAGE>
1.12% for Total Return; 1.85% for Worldwide Privatization; 4.44% for Quasar;
6.00% for Real Estate Investment; 1.62% for Technology, and 1.75% for High
Yield.
With the exception of the Developing Capital Market Focus Fund, whose
operating expenses before reimbursements are 1.31%, the operating expenses of
the Portfolios or Funds of the Merrill Lynch Fund set forth above are the actual
total expenses without expense reimbursements.
In the event that an Owner withdraws all or a portion of the Contract Value
in excess of the Free Withdrawal Amount for the first withdrawal in a Contract
Year, or makes subsequent withdrawals in a Contract Year, a Deferred Sales
Charge may be imposed. The Free Withdrawal Amount is equal to 10% of the
Premiums paid, less any prior withdrawals at the time of withdrawal. (See
"Charges and Deductions -- Deduction for Deferred Sales Charge" on page 23.)
Expenses on a Hypothetical $1,000 Policy, Assuming 5% Growth:
<TABLE>
<CAPTION>
If you surrender
---------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Funds
Growth ............................................ $78 $120 $164 $273
Growth and Income ................................. 77 116 158 262
High Yield ........................................ 78 120 165 275
Global Dollar Government .......................... 78 120 165 275
U.S. Government/High Grade Securities ............. 78 119 163 272
Premier Growth .................................... 78 120 165 275
Total Return ...................................... 78 120 165 275
Worldwide Privatization ........................... 78 120 165 275
Technology ........................................ 78 120 165 275
Quasar ............................................ 78 120 165 275
Real Estate Investment ............................ 78 120 165 275
Merrill Lynch Fund
Prime Bond......................................... 74 106 141 227
High Current Income................................ 74 108 144 233
Quality Equity..................................... 74 106 141 227
Special Value...................................... 77 116 158 261
Global Strategy Focus.............................. 76 113 152 250
Domestic Money Market.............................. 74 108 144 233
Basic Value Focus.................................. 76 111 150 245
International Equity Focus......................... 78 118 162 269
Developing Capital Markets Focus................... 81 129 179 304
Natural Resources Focus............................ 77 115 156 257
Global Utility Focus............................... 76 111 150 245
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
If you Annuitize or if you do not surrender
---------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Funds
Growth ............................................ $24 $75 $128 $273
Growth and Income ................................. 23 71 122 262
U.S. Government/High Grade Securities ............. 24 74 127 272
Global Dollar Government .......................... 24 75 129 275
High Yield ........................................ 24 75 129 275
Premier Growth .................................... 24 75 129 275
7Total Return ...................................... 24 75 129 275
Worldwide Privatization ........................... 24 75 129 275
Technology ........................................ 24 75 129 275
Quasar ............................................ 24 75 129 275
Real Estate Investment ............................ 24 75 129 275
Merrill Lynch Fund
Prime Bond......................................... 20 61 105 227
High Current Income................................ 20 63 108 233
Quality Equity..................................... 20 61 105 227
Special Value...................................... 23 71 122 261
Global Strategy Focus.............................. 22 68 116 250
Domestic Money Market.............................. 20 63 108 233
Basic Value Focus.................................. 22 66 114 245
International Equity Focus......................... 24 73 126 269
Developing Capital Markets Focus................... 27 84 143 304
Natural Resources Focus............................ 23 70 120 257
Global Utility Focus............................... 22 60 114 245
</TABLE>
The Example should not be considered representations of past or future
expenses and actual expenses may be greater or less than those shown.
8
<PAGE>
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
ALLIANCE GROWTH
Accumulation Unit Value
Beginning of Period ................. 13.99 10.48 11.13 10.00 10.00
End of Period ....................... 17.73 13.99 10.48 11.13 10.00
Accum Units o/s @ end of period ....... 1,541,465.58 777,108.88 56,104.84 35,271.53 2,081.43
ALLIANCE GROWTH & INCOME
Accumulation Unit Value
Beginning of Period ................. 15.52 11.57 11.76 10.66 10.00
End of Period ....................... 18.99 15.52 11.57 11.76 10.66
Accum Units o/s @ end of period ....... 1,324,216.31 502,667.80 179,245.69 37,573.04 7,731.36
ALLIANCE U.S. GOVERNMENT HIGH GRADE
Accumulation Unit Value
Beginning of Period ................. 11.38 9.66 10.17 10.00 N/A
End of Period ....................... 11.50 11.38 9.66 10.17 N/A
Accum Units o/s @ end of period ....... 552,183.99 390,483.21 75,881.31 7,608.84 N/A
ALLIANCE GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period ................. 11.81 9.73 10.00 N/A N/A
End of Period ....................... 14.55 11.81 9.73 N/A N/A
Accum Units o/s @ end of period ....... 76,451.58 16,171.63 5,958.18 N/A N/A
ALLIANCE PREMIER GROWTH
Accumulation Unit Value
Beginning of Period ................. 15.25 10.66 10.00 N/A N/A
End of Period ....................... 18.45 15.25 10.66 N/A N/A
Accum Units o/s @ end of period ....... 1,026,432.81 420,662.68 108,111.20 N/A N/A
ALLIANCE TOTAL RETURN
Accumulation Unit Value
Beginning of Period ................. 11.90 9.75 10.00 N/A N/A
End of Period ....................... 13.52 11.90 9.75 N/A N/A
Accum Units o/s @ end of period ....... 455,709.19 121,094.82 4,871.12 N/A N/A
ALLIANCE WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period ................. 11.01 10.05 10.00 N/A N/A
End of Period ....................... 12.86 11.01 10.05 N/A N/A
Accum Units o/s @ end of period ....... 224,339.58 62,769.30 6,357.69 N/A N/A
ALLIANCE TECHNOLOGY
Accumulation Unit Value
Beginning of Period ................. 10.00 N/A N/A N/A N/A
End of Period ....................... 10.90 N/A N/A N/A N/A
Accum Units o/s @ end of period ....... 431,529.41 N/A N/A N/A N/A
ALLIANCE QUASAR
Accumulation Unit Value
Beginning of Period ................. 10.00 N/A N/A N/A N/A
End of Period ....................... 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period ....... 179,808.73 N/A N/A N/A N/A
ALLIANCE REAL ESTATE INVESTMENT
Accumulation Unit Value
Beginning of Period ................. N/A N/A N/A N/A N/A
End of Period ....................... N/A N/A N/A N/A N/A
Accum Units o/s @ end of period ....... N/A N/A N/A N/A N/A
ALLIANCE HIGH YIELD
Accumulation Unit Value
Beginning of Period ................. N/A N/A N/A N/A N/A
End of Period ....................... N/A N/A N/A N/A N/A
Accum Units o/s @ end of period ....... N/A N/A N/A N/A N/A
</TABLE>
9
<PAGE>
* No financial information has been provided for the High Yield and Real
Estate Investment portfolios of the Alliance Fund nor the Domestic Money
Market; Prime Bond; High Current Income; Quality Equity; Special Value
Focus; Global Strategy Focus; Basic Value Focus; International Equity;
Developing Capital Market Focus; Natural Resources Focus; and Global
Utility Focus portfolios of the Merrill Lynch Fund because for the fiscal
year ending December 31, 1996, the Contracts described in the Prospectus
had not been issued and the Variable Account had not commenced operations
with respect to such Portfolios.
* Funds were first invested in the Portfolios as listed below:
Premier Growth Portfolio December 7, 1992
Growth & Income Portfolio April 16, 1992
U.S. Government/High Grade Securities Portfolio June 14, 1993
Global Dollar Government Portfolio May 26, 1994
Growth Portfolio August 12, 1994
Total Return Portfolio September 12, 1994
Worldwide Privatization Portfolio October 17, 1994
Technology Portfolio January 22, 1996
Quasar Portfolio August 15, 1996
Real Estate Investment Portfolio January 7, 1997
High Yield Portfolio September 9, 1997
* No date has been provided above with respect to the portfolios of the
Merrill Lynch Fund because as of the date of this Prospectus no funds had
been invested.
Calculation of Performance Data
The Company may, from time to time, advertise certain performance related
information concerning one or more of the Subaccounts, including information as
to total return and yield. Performance information about a Subaccount is based
on the Subaccount's past performance only and is not intended as an indication
of future performance.
When the Company advertises the average annual total return of a
Subaccount, it will usually be calculated for one, five, and ten year periods
or, where a Subaccount has been in existence for a period less than one, five or
ten years, for such lesser period. Average annual total return is measured by
comparing the value of the investment in a Subaccount at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming the deduction of any Surrender Charge which would be payable if the
account were redeemed at the end of the period) and calculating the average
annual compounded rate of return necessary to produce the value of the
investment at the end of the period. The Company may simultaneously present
returns that do not assume a surrender and, therefore, do not deduct the
Surrender Charge.
When the Company advertises the yield of a Subaccount it will be calculated
based upon a given 30-day period. The yield is determined by dividing the net
investment income earned per Accumulation Unit during the period by the value of
an Accumulation Unit on the last day of the period.
When the Company advertises the performance of the Money Market Subaccount
it may advertise in addition to the total return either the yield or the
effective yield. The yield of the Money Market Subaccount refers to the income
generated by an investment in that Subaccount over a seven-day period. The
income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized the income earned by an investment in
the Money Market Subaccount is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.
10
<PAGE>
Total return at the Variable Account level is reduced by all contract
charges: sales charges, mortality and expense risk charges, and the
administrative charges, and is therefore lower than the total return at a Fund
level, which has no comparable charges. Likewise, yield and effective yield at
the Variable Account level take into account all recurring charges (except sales
charges), and are therefore lower than the yield and effective yield at a Fund
level, which has no comparable charges. Performance information for a Subaccount
may be compared to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, Donoghue Money Market Institutional Averages, indices
measuring corporate bond and government security prices as prepared by Lehman
Brothers, Inc. and Salomon Brothers or other indices measuring performance of a
pertinent group of securities so that investors may compare a Subaccount's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract;
and (iv) indices or averages of alternative financial products available to
prospective investors, including the Bank Rate Monitor which monitors average
returns of various bank instruments.
Financial Data
Financial Statements of the Company may be found in the Statement of
Additional Information. No financial statements for the Variable Accounts have
been provided in the Statement of Additional Information because as of the date
of the reporting periods no contracts had been issued.
THE COMPANY
The Company is a stock life insurance company which was organized under the
laws of the state of Delaware in 1962. The Company provides a full range of life
insurance and annuity plans. The Company is a subsidiary of American
International Group, Inc. ("AIG"), which serves as the holding company for a
number of companies engaged in the international insurance business, both life
and general, in approximately 130 countries and jurisdictions around the world.
Ratings
The Company may from time-to-time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A. M. Best Company,
Moody's, and Standard & Poor's. The purpose of the ratings is to reflect the
financial strength and/or claims-paying ability of the Company and should not be
considered as bearing on the investment performance of assets held in the
separate account. Each year the A. M. Best Company reviews the financial status
of thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect A. M. Best's current opinion of the relative financial strength
and operating performance of an insurance company in comparison to the norms of
the life insurance industry. In addition, the claims-paying ability of the
Company as measured by Standard & Poor's Insurance Ratings Services, and the
financial strength of the Company as measured by Moody's Investors Services, may
be referred to in advertisements, sales literature or in reports to Owners.
These ratings are their opinion of an operating insurance company's financial
capacity to meet the obligations of its life insurance policies and annuity
contracts in accordance with their terms. In regard to their ratings of the
Company, these ratings are explicitly based on the existence of a Support
Agreement, dated as of December 31, 1991, between the Company and its parent
American International Group, Inc. ("AIG"), pursuant to which AIG has agreed to
cause the Company to maintain a positive net worth and to provide the Company
with funds on a timely basis sufficient to meet the Company's obligations to its
policyholders. The Support Agreement
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is not, however, a direct or indirect guarantee by AIG to any person of the
payment of any of the Company's indebtedness, liabilities or other obligations
(including obligations to the Company's policyholders).
The ratings are not recommendations to purchase the Company's life
insurance or annuity products, or to hold or sell these products, and the
ratings do not comment on the suitability of such products for a particular
investor. There can be no assurance that any rating will remain in effect for
any given period of time or that any rating will not be lowered or withdrawn
entirely by a rating organization if, in such organization's judgment, future
circumstances relating to the Support Agreement, such as a lowering of AIG's
long-term debt rating, so warrant. The ratings do not reflect the investment
performance of the Variable Account or the degree of risk associated with an
investment in the Variable Account.
THE VARIABLE ACCOUNT
The Company authorized the organization of the Variable Account in 1986.
The Variable Account is maintained pursuant to Delaware insurance law. The
Company has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940. The Variable Account meets the definition of a
"Separate Account" under Federal securities laws. The SEC does not supervise the
management or the investment practices of the Variable Account.
The Company owns the assets in the Variable Account and obligations under
the Contract are general corporate obligations. The Variable Account and each
Subaccount, however, are separate from the Company's other assets including
those of the General Account and from any other separate accounts. The assets of
the Variable Account, equal to the reserves and other contract liabilities with
respect to the Variable Account, are not chargeable with liabilities arising out
of any other business the Company may conduct. Investment income, as well as
both realized and unrealized gains and losses are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
income, gains or losses arising out of any other business of the Company. As a
result, the investment performance of each Subaccount and the Variable Account
is entirely independent of the investment performance of the General Account and
of any other separate account maintained by the Company.
The Variable Account is divided into Subaccounts, with the assets of each
Subaccount invested in shares of one portfolio of either the Alliance Fund or
the Merrill Lynch Fund. The Company may, from time to time, add additional
portfolios of the Funds, and, when appropriate, additional mutual funds to act
as the funding vehicles for the Contracts. If deemed to be in the best interests
of persons having voting rights under the Contract, the Variable Account may be
operated as a management company under the Investment Company Act of 1940, may
be deregistered under such Act in the event such registration is no longer
required, or may be combined with one or more other separate accounts. The
Company may offer other variable annuity contracts which also invest in Variable
Account I, and are described in other prospectuses.
THE FUNDS
Alliance Funds and Merrill Lynch Funds are each registered with the SEC as
a diversified open-end management investment company under the 1940 Act. Each is
made up of different series funds or portfolios. A summary of the investment
objectives for each portfolio is contained in the description of the Funds
below. More detailed information, including the advisory fee of each portfolio
and other charges assessed by each Fund, may be found in the relevant Fund
prospectus, which contains a discussion of the risks involved in investing in
such Fund. The prospectuses for each Fund are included with this Prospectus. The
investment objectives of the Portfolios are as follows:
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ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
The following portfolios are available under the Alliance Fund:
Growth Portfolio
This portfolio seeks long term growth of capital by investing primarily in
common stock and other equity securities.
Growth and Income Portfolio
This portfolio seeks to balance the objectives of reasonable current income
and reasonable opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.
U.S. Government/High Grade Securities Portfolio
This portfolio seeks a high level of current income, consistent with
preservation of capital by investing principally in a portfolio of U.S.
Government Securities and other high grade debt.
Global Dollar Government Portfolio
This portfolio seeks a high level of current income through investing
substantially all of its assets in U.S. and non-U.S. fixed income securities
denominated only in U.S. Dollars. As a secondary objective, the portfolio seeks
capital appreciation. Substantially all of the portfolio's assets will be
invested in high yield, high risk securities that are low-rated (i.e., below
investment grade), or of comparable quality and unrated, and that are considered
to be predominately speculative as regards the issuer's capacity to pay interest
and repay principal.
High Yield Portfolio
This portfolio seeks the highest level of current income available without
assuming undue risk by investing principally in high-yielding fixed income
securities. As a secondary objective, this Portfolio seeks capital appreciation
where consistent with its primary objective. Many of the high-yielding
securities in which the High-Yield Portfolio invests are rated in the lower
rating categories (i.e. below investment garde) by nationally recognized rating
services. These securities, which are often referred to as "junk bonds", are
subject to greater risk loss of principal and interest than higher rated
securities and are considered to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal.
Premier Growth Portfolio
This portfolio seeks growth of capital rather than current income. In
pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based on their
potential for capital appreciation, current income will be incidental to the
objective of capital growth. The portfolio is not intended for investors whose
principal objective is assured income or preservation of capital.
Total Return Portfolio
This portfolio seeks to achieve a high return through a combination of
current income and capital appreciation by investing in a diversified portfolio
of common and preferred stocks, senior corporate debt securities, and U.S.
Government and Agency obligations, bonds and senior debt securities.
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Worldwide Privatization Portfolio
This portfolio seeks long-term capital appreciation by investing
principally in equity securities issued by enterprises that are undergoing, or
have undergone, privatization. The balance of the investment portfolio will
include equity securities of companies that are believed by the Fund's Advisor
to be beneficiaries of the privatization process.
Technology Portfolio
This portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. The Technology portfolio
invests principally in a diversified portfolio of securities of companies which
use technology extensively in the development of new or improved products or
processes.
Quasar Portfolio
This portfolio seeks growth of capital by pursuing aggressive investment
policies. The Portfolio invests principally in a diversified portfolio of equity
securities of any company and industry and in any type of security which is
believed to offer possibilities for capital appreciation.
Real Estate Investment Portfolio
This portfolio seeks a total return on its assets from long-term growth of
capital and from income principally through investing in a portfolio of equity
securities of issuers that are primarily engaged in or related to the real
estate industry.
Alliance Variable Products Series Find, Inc., is managed by Alliance
Capital Management L.P. ("Alliance"). The fund also includes other Portfolios
which are not available for use by the Variable Account. More detailed
information regarding management of the portfolios, investment objectives,
invest advisory fees and other charges, may be found in the current Alliance
Fund Prospectus which contains a discussion of the risks involved in investing.
The Alliance Fund Prospectus is included with this Prospectus.
MERRILL LYNCH VARIABLE SERIES FUND, INC.
The following portfolios are available under the Merrill Lynch Fund:
Domestic Money Market Fund
This Fund seeks preservation of capital, liquidity, and the highest
possible current income consistent with the foregoing objectives by investing in
short-term domestic money market securities. The Fund invests in short-term
United States government securities; government agency securities; bank
certificates of deposit and banker's acceptances; short-term corporate debt
securities such as commercial paper and variable amount master demand notes;
repurchase agreements and other domestic money market instruments.
Prime Bond Fund
This Fund seeks to obtain as high a level of current income as is
consistent with the investment policies of the Fund and with prudent investment
management, and capital appreciation to the extent consistent with the foregoing
objective. The Fund invests primarily in long-term corporate bonds rated in the
top three ratings categories by established rating services.
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High Current Income Fund
This fund seeks to obtain as high a level of current income as is
consistent with the investment policies of the Fund and with prudent investment
management, and capital appreciation to the extent consistent with the foregoing
objective. The Fund invests principally in fixed-income securities that are
rated in the lower rating categories of the established rating services or in
unrated securities of comparable quality (commonly known as "junk bonds").
Because investment in such securities entails relatively greater risk of loss of
income or principal, an investment in the High Current Income Fund may not be
appropriate as the exclusive investment to fund a Contract. In an effort to
minimize risk, the Fund will diversify its holdings among many issuers. However,
there can be no assurance that diversification will protect the Fund from
widespread defaults during periods of sustained economic downturn.
Quality Equity Fund
This Fund seeks to attain the highest total investment return consistent
with prudent risk. The Fund employs a fully managed investment policy utilizing
equity securities, primarily common stocks of large-capitalization companies, as
well as investment grade debt and convertible securities. Management of the Fund
will shift the emphasis among investment alternatives for capital growth,
capital stability, and income as market trends change.
Special Value Focus Fund
This Fund seeks to attain long-term growth of capital by investing in a
diversified portfolio of securities, primarily common stocks, of relatively
small companies that management of the Fund believes have special investment
value, and of emerging growth companies regardless of size. Such companies are
selected by management on the basis of their long-term potential for expanding
their size and profitability or for gaining increased market recognition for
their securities. Current income is not a factor in such selection.
Global Strategy Focus Fund
This Fund seeks high total investment return by investing primarily in a
portfolio of equity and fixed income securities, including securities, of U.S.
and foreign issuers. The Fund seeks to achieve its objective by investing
primarily in securities of issuers located in the United States, Canada, Western
Europe, the Far East and Latin America.
Basic Value Focus Fund
This Fund seeks to attain capital appreciation, and secondarily, income by
investing in securities, primarily equities, that management of the Fund
believes are undervalued and therefore represent basic investment value.
Particular emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price/earnings ratio.
International Equity Focus Fund
This Fund seeks to obtain capital appreciation and, secondarily, income by
investing in a diversified portfolio of equity securities, of issuers located in
countries other than the United States. Under normal conditions, at least 65% of
the Fund's net assets will be invested in such equity securities.
Developing Capital Markets Focus Fund
This Fund seeks long-term capital appreciation by investing in securities,
principally equities, of issuers in countries having smaller capital markets.
For purposes of its investment objective, the Fund considers countries having
smaller capital markets to be all countries other than the four countries having
the largest equity market capitalizations. The Developing Capital Markets Focus
Fund has established no
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rating criteria for the debt securities in which it may invest, and will rely on
the investment adviser's judgment in evaluating the creditworthiness of an
issuer of such securities. In an effort to minimize the risk, the Fund will
diversify its holdings among many issuers. However, there can be no assurance
that diversification will protect the Fund from widespread defaults during
periods of sustained economic downturn. Because investment in the Developing
Capital Markets Focus Fund entails relatively greater risk of loss of income or
principal, an investment in the Fund may not be appropriate as the exclusive
investment to fund a Contract.
Natural Resources Focus Fund
This Fund seeks to attain long-term growth of capital and protection of the
purchasing power of capital by investing primarily in equity securities of
domestic and foreign companies with substantial natural resource assets.
Global Utility Focus Fund
This Fund seeks to obtain capital appreciation and current income through
investment of at least 65% of its total assets in equity and debt securities
issued by domestic and foreign companies which are, in the opinion of management
of the Fund, primarily engaged in the ownership or operation of facilities used
to generate, transmit or distribute electricity, telecommunications, gas or
water.
THERE IS NO ASSURANCE THAT ANY OF THESE PORTFOLIOS WILL ACHIEVE THEIR STATED
OBJECTIVES.
Voting Rights
As previously stated, all of the assets held in the Subaccounts of the
Variable Account will be invested in shares of a corresponding portfolio of the
Funds. Based on the Company's view of present applicable law, we will vote the
portfolio shares held in the Variable Account at meetings of shareholders in
accordance with instructions received from Owners having a voting interest in
the portfolio. However, if the 1940 Act or its regulations are amended, or if
our interpretation of present law changes to permit us to vote the portfolio
shares in our own right, we may elect to do so.
Prior to the Annuity Date, the Owner holds a voting interest in each
portfolio in which there is value in the corresponding Subaccount. The number of
portfolio shares which are attributable to the Owner is determined by dividing
the corresponding value in a particular Subaccount by the net asset value of one
portfolio share. The number of votes which an Owner will have a right to cast
will be determined as of the record date established by each portfolio.
We will solicit voting instructions by mail prior to the shareholder
meetings. An Owner having a voting interest in a Subaccount will be sent proxy
material, reports and other materials as provided by the Fund, relating to the
appropriate portfolios. The Company will vote shares in accordance with
instructions received from the Owner having a voting interest. At the meeting,
the Company will vote shares for which it has received no instructions and any
shares not attributable to Owners in the same proportion as it votes shares for
which it has received instructions from Owners.
The voting rights relate only to amounts invested in the Variable Account.
There are no voting rights with respect to funds allocated to the Guaranteed
Account.
Shares of the Funds may be sold only to separate accounts of life insurance
companies. The shares of the Funds will be sold to separate accounts of the
Company and its affiliate, American International Life Assurance Company of New
York, as well as to separate accounts of other affiliated or unaffiliated life
insurance companies to fund variable annuity contracts and variable life
insurance policies. It is conceivable that, in the future, it may be
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the Fund simultaneously. Although neither
the Company
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nor the Funds currently foresee any such disadvantages, either to variable life
insurance policyowners or to variable annuity Owners, the Funds' Boards of
Directors will monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. If a material irreconcilable conflict were to
occur, the relevant participating life insurance companies will take whatever
steps it deems necessary, at its expense, to remedy or eliminate the
irreconcilable material conflict. If such a conflict were to occur, one or more
insurance company separate accounts might withdraw its investments in the Funds.
This might force the Funds to sell securities at disadvantageous prices.
Substitution Of Shares
If the shares of a Fund (or any portfolio within a Fund) should no longer
be available for investment by the Variable Account or if, in the judgment of
the Company, further investment in such shares should become inappropriate in
view of the purpose of the Contracts, the Company may substitute shares of
another mutual fund (or portfolio within the fund) for Fund shares already
purchased or to be purchased in the future under the Contracts. No substitution
of securities may take place without any required prior approval of the
Securities and Exchange Commission and under such requirements as it may impose.
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THE CONTRACT
The Contract described in this Prospectus is a deferred variable annuity.
Parties to the Contract
Owner
As the purchaser of the Contract, You may exercise all rights and
privileges provided in the Contract, subject to any rights that You, as Owner,
may convey to an irrevocable beneficiary. As Owner, You will also be the
Annuitant, unless You name in writing some other person as Annuitant.
Annuitant
The Annuitant is the person who receives annuity payments and upon the
continuance of whose life these payments are based. You may designate someone
other than yourself as Annuitant. If the Annuitant is a person other than the
Owner, and the Annuitant dies before the Annuity Date, You will become the
Annuitant unless you designate someone else as the new Annuitant.
Beneficiary
The Beneficiary You designate will receive the death proceeds if You die
prior to the Annuity Date. If no Beneficiary is living at that time, the death
proceeds are payable to Your estate. If the Annuitant dies after the Annuity
Date, the Beneficiary will receive any remaining guaranteed payments under an
Annuity Option. If no Beneficiary is living at that time, the remaining
guaranteed payments are payable to Your estate.
Change of Annuitant and Beneficiary
Prior to the Annuity Date, You may change the Annuitant and Beneficiary by
making a written request to Our Administrative Office. After the Annuity Date
only a change of Beneficiary may be made. Once We have accepted Your written
request, any change will become effective on the date You signed it. However,
any change will be subject to any payment or other action taken by Us before We
record the change. If the Owner is not a natural person, under current Federal
tax law, the Contract may be subject to unintended and adverse tax consequences.
For possible tax considerations of these changes, see TAXES, page 32.
How to Purchase a Contract
At the time of application, the Purchaser must pay at least the minimum
Premium required and provide instructions regarding the allocation of the
Premium among the Subaccounts. Acceptance of the Premium and form of application
is subject to Our requirements and We reserve the right to reject any Premium.
If the application and Premium are accepted in the form received, the Premium
will be credited and allocated to the Subaccounts within two business days of
its receipt. The date the Premium is credited to the Contract is the Effective
Date.
If within five days of the receipt of the initial Premium We have not
received sufficient information to issue a Contract, You will be contacted. The
reason for the delay will be explained to You. If You consent We will retain the
Premium until the necessary requirements are fulfilled. Otherwise, the Premium
will be immediately refunded to You.
Discount Purchase Programs
Purchases made by officers, directors and employees of either the Company,
an affiliate of the Company or any individual, firm or company that has executed
the necessary agreements to sell the Contracts and members of each of their
immediate families may not be subject to the Surrender Charge.
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Such purchases include retirement accounts and must be for accounts in the name
of the individual or qualifying family member.
Distributor
AIG Equity Sales Corp. ("AESC"), 80 Pine Street, New York, New York, acts
as the distributor of the Contracts. AESC is a wholly-owned subsidiary of AIG,
and an affiliate of the Company. Commissions not to exceed 6 1/2% of Premiums
will be paid to entities which sell the Contract. Additional payments may be
made for other services not directly related to the sale of the Contract,
including the recruitment and training of personnel, production of promotional
literature and similar services.
Under the Glass-Steagall Act and other laws, certain banking institutions
may be prohibited from distributing variable annuity contracts. If a bank were
to be prohibited from performing certain agency or administrative services and
receiving fees from AESC, Owners who purchased Contracts through the bank would
be permitted to retain their Contracts and alternate means for servicing those
Owners would be sought. It is not expected, however, that Owners would suffer
any loss of services or adverse financial consequences as a result of any of
these occurrences.
Administration of the Contracts
While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Owner's records. DVFS serves as the administrator to various
insurance companies offering variable contracts.
Premium and Allocation to Your Investment Options
The initial Premium must be at least $2,000. You may make additional
payments of Premium prior to the Annuity Date, in amounts of at least $1000 or
$100 as part of an automatic investment plan. There is no maximum limit on the
additional Premiums You may pay or on the numbers of payments; however, the
Company reserves the right to reject any Premium on any Contract. You specify at
the time of issue or subsequently how the remaining amount, known as Additional
Premium will be allocated.
The initial Premium is allocated among the Subaccounts and Guaranteed
Account on the Effective Date. Your allocation instructions will specify what
percentage of Your initial Premium is to be credited to each Subaccount and to
the Guaranteed Account. Allocation instructions must be expressed in whole
percentages. Allocations for additional Premium will be made on the same basis
as the initial Premium unless We receive a written notice with new instructions.
Additional Premium will be credited to the Contract Value and allocated at the
close of the first Valuation Date on or after which the Additional Premium is
received at Our Administrative Office.
All premiums to IRA or 403(b) plan contracts must comply with the
applicable provisions in the Code and the applicable provisions of your
retirement plan. Additional premium commingled in an IRA with a rollover
contribution from other retirement plans may result in unfavorable tax
consequences. You should seek legal counsel and tax advice regarding the
suitability of the contract for your situation. (See "Taxes" on page 32.)
Right to Examine Contract Period
The Contract provides a 10 day Right to Examine Contract Period giving You
the opportunity to cancel the Contract. You must return the Contract with
written notice to Us. If We receive the Contract and Your written notice within
10 days after it is received by You, the Contract will be voided. With the
exception of Contracts issued in connection with an IRA, in those states whose
laws do not require that We assume the risk of market loss during the Right to
Examine Contract Period, should You decide to
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cancel Your Contract, the amount to be returned to You will be the Contract
Value (on the day We receive the Contract) plus any charges deducted for State
Taxes, without imposition of the Surrender Charge. The amount returned to you
may be more or less than the initial Premium. (See "Charges and Deductions" on
page 22.) For Contracts issued in those states that require we return the
premium, we will do so. In the case of Contracts issued in connection with an
IRA, the Company will refund the greater of the Premium, less any withdrawals,
or the Contract Value.
State laws governing the duration of the Right to Examine Contract Period
may vary from state to state. We will comply with the laws of the state in which
the Owner resides at the time the Contract is applied for. Federal laws
governing IRAs require a minimum seven day right of revocation. We provide 10
days from the date the Contract is received by you. (See "Individual Retirement
Annuities" on page 36.)
Unit Value and Contract Value
After the deduction of certain charges and expenses, amounts which You
allocate to a Subaccount of the Variable Account are used to purchase
Accumulation Units in that Subaccount, not shares of the Portfolio in which that
Subaccount invest. The number of Accumulation Units you purchase will be
determined by dividing the amount allocated to each Subaccount by the Unit Value
of the Subaccount for the Valuation Period during which the amount was
allocated.
The Unit Value for each Subaccount will vary from one Valuation Period to
the next based on the investment experience of the Portfolio in which the
Subaccount invests and the deduction of certain charges and expenses. The
Statement of Additional Information contains a detailed explanation of how
Accumulation Units are valued.
Your value in any given Subaccount is determined by multiplying the Unit
Value for the Subaccount by the number of Units You own. Your value within the
Variable Account is the sum of your values in all the Subaccounts. The total
value of your Contract, known as the Contract Value, equals your Value in the
Variable Account plus Your value in the Guaranteed Account.
Transfers
Prior to the Annuity Date, You may make Transfers among the Subaccounts and
into and out of the Guaranteed Account subject to certain rules.
At the present time there is no limit on the number of transfers which can
be made among the Subaccounts and the Guaranteed Account in any one Contract
Year. We reserve the right to limit the number of transfers to 12 per Contract
Year. There are no fees for the first 12 transfers in any one Contract Year. For
each transfer in excess of 12 within one Contract Year, We impose a transfer fee
of $10. A transfer fee, if any, is deducted from the amount transferred. (See
Appendix -- "Guaranteed Account Transfers," page A-1.)
Transfers may be made by written request or by telephone as described in
the Contract or specifically authorized in writing. The Company will undertake
reasonable procedures to confirm that instructions communicated by telephone are
genuine. All calls will be recorded. All transfers will be confirmed in writing
to the Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.
After the Annuity Date, the Owner may transfer the Contract Value allocated
to the Variable Account among the Subaccounts. However, the Company reserves the
right to refuse any more than one transfer per month. The transfer fee is the
same as before the Annuity Date. This transfer fee, if any, will be deducted
from the next annuity payment after the transfer. If following the transfer, the
Annuity Units remaining in the Subaccount would generate a monthly annuity
payment of less than $100, the Company will transfer the entire amount in the
Subaccount.
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Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Subaccount. The number of Annuity Units for each
Subaccount will remain the same for the remainder of the payment period unless
the Owner requests another change.
The minimum amount which may be transferred at any one time is the lesser
of $1,000 or the value of the Subaccount or Guarantee Period from which the
transfer is made. (See "Dollar Cost Averaging") For additional limitations
regarding transfers out of the Guaranteed Account, see "Guaranteed Account
Transfers" in the Appendix, page A-1.)
Dollar Cost Averaging
The Company currently offers an option under which Owners may dollar cost
average their allocations in the Subaccounts under the contract by authorizing
the Company to make periodic allocations of Contract Value from either the Money
Market Subaccount or the Guaranteed Account to one or more of the other
Subaccounts. Dollar cost averaging is a systematic method of investing in which
securities are purchased at regular intervals in fixed dollar amounts so that
the cost of the securities gets averaged over time and possibly over various
market cycles. The option will result in the allocation of Contract Value to one
or more Subaccounts, and these amounts will be credited at the Accumulation Unit
value as of the end of the Valuation Dates on which the exchanges are effected.
Amounts periodically transferred under this option are not included in the 12
transfers per Contract Year discussed under "Transfers" on page 18. Since the
value of Accumulation Units will vary, the amounts allocated to a Subaccount
will result in the crediting of a greater number of units when the Accumulation
Unit value is low and a lesser number of units when the Accumulation Unit value
is high. Similarly, the amounts exchanged from a Subaccount will result in a
debiting of a greater number of units when the Subaccount's Accumulation Unit
value is low and a lesser number of units when the Accumulation Unit value is
high. Dollar cost averaging does not guarantee profits, nor does it assure that
an Owner will not have losses. A Dollar Cost Averaging Request form is available
from the Administrative Office upon request.
To elect the Dollar Cost Averaging Option, the Owner's Contract Value must
be at least $12,000, and a Dollar Cost Averaging Request in proper form must be
received by the Company. The Dollar Cost Averaging Request form will not be
considered complete until the Contract Value is at least the required amount. An
Owner may not have in effect at the same time Dollar Cost Averaging and Asset
Rebalancing Options.
Asset Rebalancing Option
The Company currently offers an option under which Owners may authorize the
Company to automatically exchange Contract Value periodically to maintain a
particular percentage allocation among the Subaccounts as selected by the Owner.
The Contract Value allocated to each Subaccount will grow or decline in value at
different rates during the quarter, and Asset Rebalancing automatically
reallocates the Contract Value in the Subaccounts to the allocation selected by
the Owner. Asset Rebalancing is intended to exchange Contract Value from those
Subaccounts that have increased in value to those Subaccounts that have declined
in value. Over time, this method of investing may help an Owner buy low and sell
high, although there can be no assurance of this. This investment method does
not guarantee profits, nor does it assure that an Owner will not have losses.
To elect the Asset Rebalancing Option, the Contract Value in the Contract
must be at least $12,000 and an Asset Rebalancing Request in proper form must be
received by the Company. An Owner may not have in effect at the same time Dollar
Cost Averaging and Asset Rebalancing Options. If the Asset Rebalancing Option is
elected, all Contract Value allocated to the Subaccounts must be included in the
Asset Rebalancing Option.
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The amounts transferred will be credited to the Accumulation Unit Value as
of the end of the Valuation Dates on which the transfers are effected. Amounts
periodically transferred under this option are not included in the 12 transfers
per Contract Year discussed under "Transfers" on page 18.
An Owner may instruct the Company at any time to terminate this option by
written request. Once terminated, this Option may not be reselected during the
same Contract Year.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Premium, the Contract Value
and the Variable Account. These charges and deductions are as follows:
Deduction for State Premium Taxes
We do not deduct premium taxes unless assessed by the state of residence of
the Owner. Any premium or other taxes levied by any governmental entity with
respect to the Contracts will be charged at Our discretion against either
Premium or Contract Value. Premium taxes currently imposed by certain states on
the Contracts range typically from 0% to 3.5% of premiums paid. Some states
assess premium taxes at the time Premium is received; others assess premium
taxes at the time of annuitization. Premium taxes are subject to being changed
or amended by state legislatures, administrative interpretations or judicial
acts.
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. The mortality risks assumed by the Company arise
from its contractual obligation to make annuity payments after the Annuity Date
for the life of the Annuitant, to waive the Surrender Charge in the event of the
death of the Owner prior to the Annuity Date and to provide the death benefit.
The expense risk assumed by the Company is that the costs of administering the
Contracts and the Variable Account will exceed the amount received from
Administrative and Contract Maintenance Charges.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased. The Mortality and Expense Risk Charge is deducted during the
Accumulation Period and after the Annuity Date.
The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period -- Annuity Options" on page 25.) The
Company in its discretion may offer additional payment options which are not
based on a life contingency. If this should occur and if a Owner should elect a
payment option not based on a life contingency, the Mortality and Expense Risk
Charge is still deducted but the Owner receives no benefit from that portion of
the charge attributable to mortality risk.
Deduction for Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Company deducts for
each Valuation Period an Equity Assurance Plan Charge Equal on an annual basis
to .07% of the average daily net asset value of the Variable Account for Owners
attained age 0-59 and .20% of the average daily net asset value of the Variable
Account for Owners attained age 60 and above.
Deduction for Enhanced Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Company deducts for
each Valuation Period an Equity Assurance Plan Charge Equal on an annual basis
to .17% of the average daily net asset value of the Variable Account for Owners
attained age 0-59 and .30% of the average daily net asset value of the Variable
Account for Owners attained age 60 and above.
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Deduction for Annual Ratchet Plan
If the Owner has elected the Annual Ratchet Plan, the Company deducts for
each Valuation Period an Annual Ratchet Plan Charge equal on an annual basis to
.10% of the average daily net asset value of the Variable Account.
Deduction for Accidental Death Benefit
If the Owner has elected the Accidental Death Benefit, the Company deducts
for each Valuation Period an Accidental Death Benefit Charge equal on an annual
basis to .05% of the average daily net asset value of the Variable Account.
Deduction for Surrender (Deferred Sales) Charges
In the event that an Owner makes a withdrawal from or surrenders Contract
Value in excess of the Free Withdrawal Amount, a Surrender Charge may be
imposed. The Free Withdrawal Amount is equal to the greater of the Contract
Value less premiums paid or the portion of the withdrawal that does not exceed
10% of the total Premium otherwise subject to the Surrender Charge paid to the
time of withdrawal, less any prior withdrawals; however, the Surrender Charge
applies only to Premium received by the Company within seven (7) years of the
date of the withdrawal.
The Surrender Charge will vary in amount depending upon the time which has
elapsed since the date Premium was received. In calculating the Surrender
Charge, Premium is allocated to the amount surrendered on a first-in, first out
basis. The amount of any withdrawal which exceeds the Free Withdrawal Amount
will be subject to the following charges:
Applicable Surrender
Charge Percentage
---------------
Premium Year 1 ................................. 6%
Premium Year 2 ................................. 6%
Premium Year 3 ................................. 5%
Premium Year 4 ................................. 5%
Premium Year 5 ................................. 4%
Premium Year 6 ................................. 3%
Premium Year 7 ................................. 2%
Premium Year 8 and thereafter................... None
No Surrender Charge is imposed against: (1) Systematic Withdrawal options;
(2) Contract Value upon Annuitization; (3) a Death Benefit.
The Surrender Charge is intended to reimburse the Company for expenses
incurred which are related to Contract sales. The Company does not expect the
proceeds from the Surrender Charge to cover all distribution costs. To the
extent such charge is insufficient to cover all distribution costs, the Company
may use any of its corporate assets, including potential profit which may arise
from the Mortality and Expense Risk Charge, to make up any difference.
Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify as a 403 (b) Plan or IRA (See
"Taxes -- 403(b) Plans" on page 36.)
Deduction for Administrative Charges
The Company deducts for each Valuation Period a daily Administrative Charge
which is equal on an annual basis to .15% of the average daily net asset value
of the Variable Account. This charge is intended to reimburse Us for
administrative expenses, both during the accumulation period and following the
Annuity Date.
Deduction for Contract Maintenance Charge
The Company also deducts an annual Contract Maintenance Charge of $30 per
year from the Contract Value on each Contract Anniversary. The Contract
Maintenance Fee is waived if the Contract Value is
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greater than $50,000 on the date of deduction of the charge. These charges are
designed to reimburse the Company for the costs it incurs relating to
maintenance of the Contract, the Variable Account, and the Guaranteed Account.
If the Contract is surrendered, we will deduct the Contract Maintenance Charge
at the time of surrender for the current Contract Year. The deduction will be
made proportionally based on Your value in each Subaccount and the Guaranteed
Account. After the Annuity Date, the Contract Maintenance Charge is deducted on
a pro-rata basis from each annuity income payment.
Deduction for Income Taxes
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any Federal income taxes. (See
also "Taxes" beginning on page 32.)
Other Expenses
There are deductions from and expenses paid out of the assets of the Funds
which are described in the accompanying Prospectus for the Fund.
Group and Sponsored Arrangements
In certain instances, we may reduce the Surrender Charge and the
Administrative Charge or change the minimum premium requirements for the sale of
Contracts to certain groups, including those in which a trustee or an employer,
for example, purchases Contracts covering a group of individuals on a group
basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
similar arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or group sponsored arrangements
that have been set up solely to buy Contracts or that have been in existence
less than six months will not qualify for reduced charges.
We will make any reductions according to our rules in effect when an
application or enrollment form for a Contract is approved. We may change these
rules from time to time. Any variation in the Surrender Charge or Administrative
Charge will reflect differences in costs or services and will not be unfairly
discriminatory.
ANNUITY BENEFITS
Annuitization
Annuitization is an election you make to apply the Contract Value to an
Annuity Option in order to provide a series of annuity payments. The date the
Annuity Option becomes effective is the Annuity Date.
Annuity Date
The latest Annuity Date is: (a) the first day of the calendar month
following the later of the Annuitant's 90th birthday; or (b) such earlier date
as may be set by applicable law.
The Owner may designate an earlier date or may change the Annuity Date by
making a written request at least thirty (30) days prior to the Annuity Date
being changed. However, any Annuity Date must be no later than the date defined
above; and, the first day of a calendar month.
Without the approval of the Company, the new Annuity Date cannot be earlier
than one year after the Effective Date. In addition, for IRA or 403 (b) Plan
Contracts, certain provisions of your retirement plan or the Code may further
restrict your choice of an Annuity Date. (See "Taxes ," page 32).
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Annuity Options
The Owner may choose annuity payments which are fixed, or which are based
on the Variable Account, or a combination of the two. The Owner may, upon at
least 30 days prior written notice to us, at any time prior to the Annuity Date,
select or change an Annuity Option. If the Owner elects annuity payments which
are based on the Variable Account, the amount of the payments will be variable.
The amount of the annuity payment based on the value of a Subaccount is
determined through a calculation described in the Statement of Additional
Information, under the caption "Annuity Provisions". The Owner may not transfer
Contract Values between the Guaranteed Account and the Variable Account after
the Annuity Date, but may, subject to certain conditions, transfer Contract
Values from one Subaccount to another Subaccount. (See "Transfers" on page 20.)
If the Owner has not made any annuity payment option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the Guaranteed Account and the
Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will make annuity payments during the
lifetime of the Annuitant.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company
will make monthly annuity payments during the lifetime of the Annuitant. If, at
the death of the Annuitant, payments have been made for less than 10 years,
payments will be continued during the remainder of the period to the
Beneficiary.
Option 3: Joint and Last Survivor Income. The Company will make annuity
payments for as long as either the Annuitant or a Contingent Annuitant is alive.
In the event that the Contract is issued in connection with an IRA, the payments
in this Option will be made only to the Owner as Annuitant and the Owner's
spouse.
The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company reserves the right to pay the amount in a lump sum in lieu
of annuity payments. The Company makes all other annuity payments monthly.
However, if the total monthly annuity payment would be less than $100 the
Company reserves the right to make payments semi-annually or annually.
If fixed annuity payments are selected, the amount of each fixed payment is
determined by multiplying the Contract Value allocated to purchase fixed annuity
payments by the factor shown in the annuity table specified in the Contract for
the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the value
of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Subaccount
selected; and (v) the pro-rata portion of the Contract Maintenance charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, variable annuity
payments will decrease.
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DEATH BENEFIT
Prior to the Annuity Date
In the event of an Owner's death prior to the Annuity Date, a death benefit
is payable to the Beneficiary. The value of the death benefit will be determined
as of the date We receive proof of death in a form acceptable to Us. If there
has been a change of Owner from one natural person to another natural person,
the death benefit will equal the Contract Value unless the change in ownership
results from the election, made by a surviving spouse as designated beneficiary
to continue the Contract. Otherwise, the death benefit will be calculated in
accordance with the terms of one or more of the options described below, as
designated by the Owner at the time of application. All death benefit options
may not be available in all states.
Traditional Death Benefit
Under the Traditional Death Benefit, We will pay the death benefit equal to
the greatest of:
1. the total of all Premiums, reduced proportionally by withdrawals and
surrenders;
2. the Contract Value; or
3. the greatest of the Contract Value at any seventh Contract Anniversary
reduced proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a Surrender, plus any Premiums paid subsequent to that
Contract Anniversary.
The Traditional Death Benefit will be in effect if no other death benefit
is in effect.
Annual Ratchet Plan Option
If at the time of application, the Owner has elected a death benefit under
the terms of the Annual Ratchet Plan, We will pay the death benefit equal to the
greatest of:
1. the total of all Premiums paid less surrenders;
2. the Contract Value; or
3. the greatest of the Contract Value at any Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a Surrender, plus any Premiums paid subsequent to that
Contract Anniversary.
The Company deducts monthly an Annual Ratchet Plan charge which is equal on
an annual basis to 0.10% of the average daily net asset value in the Variable
Account.
The Annual Ratchet Plan will be in effect if:
1. the Owner designates this option on the Application; and
2. the Annual Ratchet Plan charge is shown on the Contract Schedule.
The Annual Ratchet Plan will cease to be in effect upon receipt by the
Company of Owner's written request to discontinue it.
Equity Assurance Plan Option
If at the time of application the Owner has selected a death benefit under
the terms of the Equity Assurance Plan, We will pay a death benefit equal to the
greatest of:
1. the Contract Value;
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2. the greatest Contract Value at any seventh Contract Anniversary plus
any Premiums subsequent to the Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a Surrender; or
3. an amount equal to (a) plus (b) where:
(a) is equal to the total of all Premiums paid on or before the first
contract Anniversary following:
Your 85th Birthday, adjusted for surrenders as described below
and then accumulated at the compound interest rates shown below
for the complete years, not to exceed 10, from the date of
receipt of each Premium to the earlier of the date of death or
the first Contract Anniversary following Your 85th birthday:
0% per annum if death occurs during the 1st through 24th
month from the date of Premium payment;
2% per annum if death occurs during the 25th through 48th
month from the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd
month from the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th
month from the date of Premium payment;
8% per annum if death occurs during the 97th through 120th
month from the date of Premium payment;
10% per annum (for a maximum of 10 years) if death occurs
more than 120 months from the date of Premium Payments; and
(b) is equal to all Premiums paid after the first Contract
Anniversary following Your 85th birthday, adjusted for surrenders
as described below.
The Company deducts monthly an Equity Assurance Plan Charge Equal on a
annual basis to .07% of the average daily net asset value of the Variable
Account for Owners attained age 0-59 and .20% of the average daily net asset
value of the Variable Account for Owners attained age 60 and above.
Adjustment for surrenders. In the determination of the death benefit, for
each surrender a proportionate reduction will be made to each Premium paid prior
to the surrender. The proportion is determined by dividing the amount of the
Contract Value surrendered by the Contract Value immediately prior to each
surrender.
The Equity Assurance Plan will be in effect if:
1. the Owner elected it on the Application;
2. all premiums are initially allocated to investment options that are
designated for the Equity Assurance Plan on the Application; and
3. the charge for the Equity Assurance Plan is shown on the Contract
Schedule.
The Equity Assurance Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it or upon the allocation
of Contract Values to either the Money Market Subaccount or Guaranteed Account
unless such allocation is made as part of Dollar Cost Averaging.
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Enhanced Equity Assurance Plan Option
If at the time of the application the Owner has selected a death benefit
under the terms of the Enhanced Equity Assurance Plan, We will pay a death
benefit equal to the greatest of:
1. the Contract Value; or
2. the greatest Contract Value on any Contract Anniversary plus any
Premiums subsequent to that Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a Surrender; or
3. an amount equal to (a) plus (b) where:
(a) is equal to the total of all Premiums paid on or before the first
Contract Anniversary following Your 85th birthday, adjusted for
surrenders as described below and then accumulated at the
compound interest rates shown below for the number of complete
years, not to exceed 10, from the date of receipt of each Premium
to the earlier of the date of death or the first Contract
Anniversary following Your 85th Birthday:
0% per annum if death occurs during the 1st through 24th
month from the date of Premium payment;
2% per annum if death occurs during the 25th through 48th
month from the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd
month from the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th
month from the date of Premium payment;
8% per annum if death occurs during the 97th through 120th
month from the date of Premium payment;
10% per annum (for a maximum of 10 years) if death occurs
more than 120 months from the date of Premium Payment; and
(b) is equal to all Premiums paid after the first Contract
Anniversary following Your 85th birthday, adjusted for surrenders
as described below.
The Company deducts monthly an Enhanced Equity Assurance Plan Charge Equal
on an annual basis to .17% of the average daily net asset value of the Variable
Account for Owners attained age 0-59 and .30% of the average daily net asset
value of the Variable Account for Owners attained age 60 and above.
Adjustment for surrender. In the determination of the death benefit, for
each surrender, a proportionate reduction will be made to each Premium paid
prior to the surrender. The proportion is determined by dividing the amount of
the Contract Value surrendered by the Contract Value immediately prior to each
surrender.
The Enhanced Equity Assurance Plan will be in effect if:
1. the Owner elected it on the Application;
2. all premiums are initially allocated to investment options that are
designated for the Enhanced Equity Assurance Plan on the Application;
and
3. the charge for the Enhanced Equity Assurance Plan is shown on the
Contract Schedule.
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The Enhanced Equity Assurance Plan will cease to be in effect upon receipt
by the Company of the Owner's written request to discontinue it or upon the
allocation of Contract Values to either the Money Market Subaccount or
Guaranteed Account, unless such allocation is made part of Dollar Cost
Averaging.
Accidental Death Benefit
The Owner may select the Accidental Death Benefit in addition to any of the
forms of death benefit options. If at the time of application the Owner has
selected the Accidental Death Benefit, the accidental death benefit payable
under this option will be equal to the lesser of:
1. the Contract Value as of the date the death benefit is determined; or
2. $250,000.
The Company deducts for each Valuation Period a daily charge for the
Accidental Death Benefit which is equal on an annual basis to .05% of the
average daily net asset value of the Variable Account.
The Accidental Death Benefit is payable if the death of the primary Owner
occurs as a result of injury prior to the Contract Anniversary following his/her
75th birthday. The death must also occur before the Annuity Date and within 365
days of the date of the accident which caused the injury.
The Accidental Death Benefit will not be paid for any death caused by or
resulting (in whole or in part) from the following:
(a) suicide or attempted suicide while sane or insane; intentionally
self-inflicted injuries;
(b) sickness, disease or bacterial infection of any kind, except pyogenic
infections which occur as a result of an injury or bacterial
infections which result from the accidental ingestion of contaminated
substances;
(c) injury sustained as a consequence of riding in, including boarding or
alighting from, any vehicle or device used for aerial navigation
except if the Owner is a passenger on any aircraft licensed for the
transportation of passengers;
(d) declared or undeclared war or any act thereof; or
(e) service in the military, naval or air service of any country.
The Accidental Death Benefit will be in effect if:
1. the Owner designates this option on the Application; and
2. the Accidental Death Benefit charge is shown on the Contract Schedule;
The Accidental Death Benefit will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue.
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Payment to Beneficiary
The Beneficiary may elect the death benefit to be paid as follows:
1. payment of the entire death benefit within 5 years of the date of the
Owner's death; or
2. payment over the lifetime of the designated Beneficiary with
distribution beginning within 1 year of the date of death of the Owner
(see Annuity Options section of this contract); or
3. if the designated Beneficiary is Your spouse, he/she can continue the
contract in his/her own name.
If no payment option is elected within 60 days of our receipt of proof of
the Owner's death, a single sum settlement will be made at the end of the sixty
(60) day period following such receipt. Upon payment of a death benefit, the
Contract will end.
After the Annuity Date
If the Owner is a person other than the Annuitant, and if the Owner's death
occurs on or after the Annuity Date, no death benefit will be payable under this
contract. Any guaranteed payments remaining unpaid will continue to be paid to
the Annuitant pursuant to the Annuity Option in force at the date of the Owner's
death. If the Owner is not an individual, the Annuitant shall be treated as the
Owner and any change of such first named Annuitant, will be treated as if the
Owner died.
Death of Annuitant
If the Annuitant is a person other than the Owner, and if the Annuitant
dies before the Annuity Date, a new Annuitant may be named by the Owner. If no
new Annuitant is named within sixty (60) days of Our receipt of proof of the
Annuitant's death, the Owner will be deemed the new Annuitant. If an Annuitant
dies after the Annuity Date, the remaining payments, if any, will be as
specified in the Annuity Option elected. We will require proof of the
Annuitant's death. Death benefits, if any, will be paid to the designated
Beneficiary at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
DISTRIBUTIONS UNDER THE CONTRACT
Withdrawals
The Owner may withdraw Contract Values prior to the Annuity Date. Any
withdrawal is subject to the following conditions:
(a) the Company must receive a written request;
(b) the amount requested must be at least $500;
(c) any applicable Surrender Charge will be deducted;
(d) the Contract Value will be reduced by the sum of the amount requested
plus the amount of any applicable Surrender Charge;
(e) the Company will deduct the amount requested plus and Surrender Charge
from each Subaccount of the Variable Account and from the Guaranteed
Account either as specified or in the proportion that each Subaccount
and the Guaranteed Account bears to the Contract Value; and
We reserve the right to consider any withdrawal request that would reduce
the Value of the Accumulation Account to less than $2,000 to be a request for
Surrender. In this event, Surrender Value will be paid to You and the Contract
will terminate.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on page 32.)
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Systematic Withdrawal
The systematic withdrawal program involves making regularly scheduled
withdrawals from Your value in the Contract. In order to initiate the program,
your total Contract Value must be at least $24,000. The program allows You to
prearrange the withdrawal of a specified dollar amount of at least $200 per
withdrawal, on a monthly or quarterly payment basis. A maximum of 10% of the
Contract Value may be withdrawn in a Contract Year. Surrender Charges are not
imposed on withdrawals under this program. If you elect this program Surrender
Charges will be imposed on any withdrawal, other than withdrawals made under
Your systematic withdrawal program, when the withdrawal is from Premium paid in
the last seven years. You may not elect this program if you have taken a prior
withdrawal during the same Contract Year. (See "Surrender Charges" on page 23.)
Systematic withdrawals will begin on the first scheduled withdrawal date
selected by You following the date We process Your request. In the event that
Your value in a specified Subaccount or the Guaranteed Account is not sufficient
to deduct a withdrawal or if Your request for systematic withdrawal does not
specify the Guaranteed Account or from which Subaccounts withdrawals are to be
deducted, withdrawals will be deducted proportionally based on Your value in
each Subaccount and the Guaranteed Account.
All parties to the Contract are cautioned that the rights of any person to
implement the systematic withdrawal program under Contracts issued in connection
with IRAs or 403(b) Plans may be subject to the terms and conditions of the
retirement plan, regardless of the terms and conditions of the Qualified
Contract (See "Taxes" on page 32.)
The systematic withdrawal program may be canceled at any time by written
request or automatically by Us should the Contract Value fall below $1,000. In
the event the systematic withdrawal program is canceled, the Owner may not elect
to participate in such program until the next Contract Anniversary.
An Owner may change once per Contract Year the amount or frequency of
withdrawals on a systematic basis.
The Free Withdrawal Amount (see "Charges and Deductions -- Deduction for
Surrender Charge" on page 23) is not available while an Owner is receiving
systematic withdrawals. An Owner will be entitled to the free withdrawal amount
on and after the Contract Anniversary next following the termination of the
systematic withdrawal program.
Implementation of the systematic withdrawal program may subject an Owner to
adverse tax consequences, including a 10% tax penalty. (See "Taxes -- Taxation
of Annuities in General" on page 33 for a discussion of the tax consequences of
withdrawals.)
The Company reserves the right to discontinue this program at any time.
Surrender
Prior to the Annuity Date you may Surrender the Contract for the Surrender
Value by withdrawing the entire Contract Value. You must submit a written
request for Surrender and return the Contract to Us. The Surrender Value will be
based on the Contract Value at the end of the Valuation Period during which the
Surrender request is received as described below. The Contract may not be
surrendered after the Annuity Date. A surrender may be taxable and subject to a
tax penalty. (See "Taxes" discussed on page 32.)
Surrender Value
The Surrender Value of the Contract varies each day depending on the
investment results of the Subaccounts selected by the Owner. The Surrender Value
will be the Contract Value as of the date the Company receives Your surrender
request, reduced by the following: (1) any applicable taxes not previously
deducted; (2) the Contract Maintenance Charge; and (3) any applicable Surrender
Charge.
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Payment of Withdrawals and Surrender Values
Payments of Withdrawals and Surrender Values will ordinarily be sent to the
Owner within seven (7) days of receipt of the written request, but see the
Deferment of Payment discussion below. (Also see Statement of Additional
Information -- "Delay of Payments.")
The Company reserves the right to ensure that an Owner's check or other
form of Premium has been cleared for payment prior to processing any withdrawal
or redemption request occurring shortly after a Premium payment.
If, at the time You make a request for a Withdrawal or a Surrender, You
have not provided Us with a written election not to have Federal income taxes
withheld, We must by law withhold such taxes from the taxable portion of Your
payment and remit that amount to the IRS. Mandatory withholding rules apply to
certain distributions from 403(b) Plan Contracts. Additionally, the Code
provides that a 10% penalty tax may be imposed on certain early Withdrawals and
Surrenders. (See "Taxes" on page 28, and "Tax-Favored Plans" on page 36.)
Deferral of Payment
Payment of any Withdrawal, Surrender, or lump sum death proceeds from the
Variable Account will usually occur within seven days. We may be permitted to
defer such payment if: (1) the New York Stock Exchange is closed for other than
usual weekends or holidays, or trading on the Exchange is otherwise restricted;
(2) an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; (3) the SEC permits a delay for protection of Owners; or (4) the
check used to pay any Premium has not cleared through the banking system (this
may take up to 15 days).
We may defer payment of any Withdrawal or Surrender from the Guaranteed
Account for up to six months from the date we receive Your written request.
TAXES
Introduction
The Contracts are designed to accumulate Contract Values for retirement
plans which, except for IRAs and 403(b) Plans, are generally not tax-qualified
plans. The ultimate effect of Federal income taxes on the amounts held under a
Contract, on annuity payments, and on the economic benefits to the Owner,
Annuitant or Beneficiary depend on the Company's tax status and upon the tax
status of the individual concerned. Accordingly, each potential Owner should
consult a competent tax adviser regarding the tax consequences of purchasing a
Contract.
The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Fund, please see the accompanying Prospectus for the Fund.
Company Tax Status
The Company is taxed as a life insurance company under the Internal Revenue
Code of 1986, as amended (the "Code"). Since the Variable Account is not a
separate entity from the Company and its operations form a part of the Company,
it will not be taxed separately as a "regulated investment company" under
Subchapter M of the Code. Investment income and realized capital gains on the
assets of the Variable Account are reinvested and taken into account in
determining the Contract Value. Under existing Federal income tax law, the
Variable Account's investment income, including realized net capital gains,
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is not taxed to the Company. The Company reserves the right to make a deduction
for taxes from the assets of the Variable Account should they be imposed with
respect to such items in the future.
Taxation of Annuities in General -- Non-Qualified Plans
Code Section 72 governs the taxation of annuities. In general, an Owner is
not taxed on increases in value under a Contract until some form of withdrawal
or distribution is made under the Contract. However, under certain
circumstances, the increase in value may be subject to tax currently. (See
"Contracts Owned by Non-Natural Persons," on page 35 and "Diversification
Standards" on page 36.)
Withdrawals prior to the Annuity Date
Code Section 72 provides that a total or partial withdrawal from a Contract
prior to the Annuity Date will be treated as taxable income to the extent the
amounts held under the Contract on the date of the withdrawal exceed the
"investment in the contract," as that term is defined under the Code. The
"investment in the contract" can generally be described as the cost of the
Contract. It generally constitutes the sum of all purchase payments made for the
contract less any amounts received under the Contract that are excluded from
gross income. The taxable portion is taxed as ordinary income. For purposes of
this rule, a pledge or assignment of a Contract is treated as a payment received
on account of a partial withdrawal of a Contract.
Withdrawals on or after the Annuity Date
Upon receipt of a lump sum payment on full surrender of the Contract, the
recipient is taxed on the portion of the payment that exceeds the investment in
the Contract. The taxable portion is taxed as ordinary income.
If the recipient receives annuity payments rather than a lump sum payment,
a portion of the payment is included in taxable income when received. For fixed
annuity payments, the taxable portion of each payment is generally determined by
using a formula known as the "exclusion ratio," which establishes the ratio that
the investment in the Contract bears to the total expected amount of annuity
payments for the term of the Contract. That ratio is then applied to each
payment to determine the nontaxable portion of the payment. The remaining
portion of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by a
formula which establishes a specific dollar amount of each payment that is not
taxed. The dollar amount is determined by dividing the investment in the
Contract by the total number of expected periodic payments. The remaining
portion of each payment is taxed as ordinary income.
The recipient is able to exclude a portion of the payments received from
taxable income until the investment in the Contract is fully recovered. Annuity
payments are fully taxable after the investment in the Contract is recovered. If
the recipient dies before the investment in the Contract is recovered, the
recipient's estate is allowed a deduction for the remainder.
Penalty Tax on Certain Withdrawals
With respect to amounts withdrawn or distributed before the taxpayer
reaches age 591/2, a 10% penalty tax is imposed upon the portion of such amount
which is includable in gross income. However, the penalty tax will not apply to
withdrawals: (i) made on or after the death of the Owner (or where the Owner is
not an individual, the death of the "primary annuitant", who is defined as the
individual, the events in the life of whom are of primary importance in
affecting the timing or amount of the payout under the Contract); (ii)
attributable to the taxpayer's becoming totally disabled within the meaning of
Code Section 72(m)(7); (iii) which are part of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life expectancies) of
the taxpayer and his beneficiary; (iv) allocable to investment in the Contract
before
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August 14, 1982; (v) under a qualified funding asset (as defined in Code Section
130(d)); (vi) under an immediate annuity contract; or (vii) that are purchased
by an employer on termination of certain types of qualified plans and which are
held by the employer until the employee separates from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the first
year in which the modification occurs will be increased by an amount equal to
the tax that would have been imposed but for item (iii) above as determined
under Treasury Regulations, plus interest for the deferral period. The foregoing
rule applies if the modification takes place: (a) before the close of the period
which is five years from the date of the first payment and after the taxpayer
attains age 59 1/2; or (b) before the taxpayer reaches age 59 1/2.
Assignments
Any assignment or pledge of the Contract as collateral for a loan may
result in a taxable event and the excess of the Contract Value over total
Premium will be taxed to the assignor as ordinary income. Please consult your
tax adviser prior to making an assignment of the Contract.
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who is
either 37 1/2 years younger than the Owner or a grandchild of the Owner may have
Generation Skipping Transfer Tax consequences.
Distribution-at-Death Rules
In order to be treated as an annuity contract for Federal income tax
purposes, a Contract must generally provide for the following two distribution
rules: (i) if any Owner dies on or after the Annuity Date, and before the entire
interest in the Contract has been distributed, the remaining portion of such
interest will be distributed at least as quickly as the method in effect on the
Owner's death; and (ii) if any Owner dies before the Annuity Date, the entire
interest must generally be distributed within five years after the date of
death. The designated beneficiary is the person to whom ownership of the
contract passes by reason of death and must be a natural person. To the extent
such interest is payable to a designated Beneficiary, however, such interest may
be annuitized over the life of that Beneficiary or over a period not extending
beyond the life expectancy of that Beneficiary, so long as distributions
commence within one year after the date of death. If the Beneficiary is the
spouse of the Owner, the Contract may be continued unchanged in the name of the
spouse as Owner.
If the Owner is not an individual, the "primary annuitant" (as defined
under the Code) is considered the Owner. In addition, when the Owner is not an
individual, a change in the primary annuitant is treated as the death of the
Owner.
Gifts of Contracts
Any transfer of a Contract prior to the Annuity Date for less than full and
adequate consideration will generally trigger tax on the gain in the Contract.
The transferee will receive a step-up in basis for the amount included in the
transferor's income. This provision, however, does not apply to those transfers
between spouses or incident to a divorce which are governed by Code Section
1041(a).
Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a corporation
or trust) the Contract is generally not treated as an annuity contract for
Federal income tax purposes, and the income on the Contract (generally the
excess of the Contract Value over the purchase payments) is includable in income
each year. The rule does not apply where the non-natural person is only the
nominal owner such as a trust or other entity acting as an agent for a natural
person. The rule also does not apply when the Contract is
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acquired by the estate of a decedent, when the Contract is held under certain
qualified plans, when the Contract is a qualified funding asset for structured
settlements, when the Contract is purchased on behalf of an employee upon
termination of a qualified plan, and in the case of an immediate annuity.
Section 1035 Exchanges
Code Section 1035 generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another annuity contract
unless money is distributed as part of the exchange. A replacement contract
obtained in a tax-free exchange of contracts succeeds to the status of the
surrendered contract. Special rules and procedures apply to Code Section 1035
transactions. Prospective owners wishing to take advantage of Code Section 1035
should consult their tax advisers.
Multiple Contracts
Annuity contracts that are issued by the Company (or affiliate) to the same
Owner during any calendar year will be treated as one annuity contract in
determining the amount includable in the taxpayer's gross income. Thus, any
amount received under any such contract prior to the contract's annuity starting
date will be taxable (and possibly subject to the 10% penalty tax) to the extent
of the combined income in all such contracts. The Treasury has broad regulatory
authority to prevent avoidance of the purposes of this aggregation rule. It is
possible that, under this authority, Treasury may apply this rule to amounts
that are paid as annuities (on or after the starting date) under annuity
contracts issued by the same company to the same Owner during any calendar year
period. In this case, annuity payments could be fully taxable (and possibly
subject to the 10% penalty tax) to the extent of the combined income in all such
contracts and regardless of whether any amount would otherwise have been
excluded from income. Owners should consult a tax adviser before purchasing more
than one Contract or other annuity contracts.
Withholding
The Company is required to withhold Federal income taxes on withdrawals,
lump sum distributions, and annuity payments that include taxable income unless
the payee elects to not have any withholding or in certain other circumstances.
Special withholding rules apply to payments made to non-resident aliens.
Lump-sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of any
withdrawal or lump sum distribution unless You elect out of withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity payments based
on a withholding certificate You file with the Company. If you do not file a
certificate, You will be treated, for purposes of determining your withholding
rates, as a married person with three exemptions.
You are liable for payment of Federal income taxes on the taxable portion
of any withdrawal, distribution, or annuity payment. You may be subject to
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
Diversification Standards
To comply with the diversification regulations promulgated under Code
Section 817(h) (the "Diversification Regulations"), after a start-up period,
each Subaccount is required to diversify its investments. The Diversification
Regulations generally require that on the last day of each quarter of a calendar
year no more than 55% of the value of the assets of a Subaccount is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. A "look-
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through" rule applies so that an investment in the Fund is not treated as one
investment but is treated as an investment in a pro-rata portion of each
underlying asset of the Fund. All securities of the same issuer are treated as a
single investment. In the case of government securities, each Government agency
or instrumentality is treated as a separate issuer.
In connection with the issuance of the Diversification Regulations,
Treasury announced that such regulations do not provide guidance concerning the
extent to which Owners may direct their investments to particular divisions of a
separate account. It is possible that if and when additional regulations or IRS
pronouncements are issued, the Contract may need to be modified to comply with
such rules. For these reasons, the Company reserves the right to modify the
Contract, as necessary, to prevent the Owner from being considered the owner of
the assets of the Variable Account.
The Company intends to comply with the Diversification Regulations to
assure that the Contracts continue to be treated as annuity contracts for
Federal income tax purposes.
Tax Favored Plans
The Contracts may be used to create an IRA. The Contracts are also
available for use in connection with a previously established 403(b) Plan. No
attempt is made herein to provide more than general information about the use of
the Contracts with IRAs or 403(b) Plans. The information herein is not intended
as tax advice. A prospective Owner considering use of the Contract to create an
IRA or in connection with a 403(b) Plan should first consult a competent tax
adviser with regard to the suitability of the Contract as an investment vehicle
for their qualified plan.
While the Contract will not be available in connection with retirement
plans designed by the Company which qualify for the federal tax advantages
available under Sections 401 and 457 of the Code, a Contract can be used as the
investment medium for an individual Owner's separately qualified 401 retirement
plan. Distributions from a 401 qualified plan or 403(b) Plan (other than
non-taxable distributions representing a return of capital, distributions
meeting the minimum distribution requirement, distributions for the life or life
expectancy of the recipient(s) or distributions that are made over a period of
more than 10 years) are eligible for tax-free rollover within 60 days of the
date of distribution, but are also subject to federal income tax withholding at
a 20% rate unless paid directly to another qualified plan, 403(b) Plan or an
IRA. If the recipient is unable to take full advantage of the tax-free rollover
provisions, there may be taxable income, and the imposition of a 10% penalty tax
if the recipient is under age 59 1/2 (unless another exception applies under
Code Section 72(t)). A prospective Owner considering use of the Contract in this
manner should consult a competent tax advisor with regard to the suitability of
the Contract of this purpose and for information concerning the provisions of
the Code applicable to qualified plans, 403(b) Plans, and IRAs.
Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an
IRA. Contracts issued in connection with an IRA are subject to limitations on
eligibility, maximum contributions, and time of distribution. Distributions from
certain retirement plans qualifying for federal tax advantages may be rolled
over into an IRA. In addition, distributions from an IRA may be rolled over to
another IRA, provided certain conditions are met. Sales of the Contracts for use
with IRAs are subject to special requirements imposed by the Service, including
the requirement that informational disclosure be given to each person desiring
to establish an IRA. Contracts offered in connection with an IRA by this
Prospectus are not available in all states.
403(b) Plans
Code Section 403(b)(11) imposes certain restrictions on an Owner's ability
to make partial withdrawals from Code Section 403(b) Contracts, if attributable
to Premium paid under a salary reduction agreement. Specifically, Code Section
403(b)(11) allows an Owner to make a surrender or partial withdrawal only
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(a) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled (as defined in the Code), or (b) in the case of hardship. In
the case of hardship, only an amount equal to the purchase payments may be
withdrawn. In addition, 403(b) Plans are subject to additional requirements,
including: eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and their
employers are responsible for compliance with these rules. Contracts offered in
connection with a 403(b) Plan by this Prospectus are not available in all
states.
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LEGAL PROCEEDINGS
The Company knows of no legal proceeding pending to which the Variable
Account is a party or which would materially affect the Variable Account.
Legal matters relating to the federal securities laws in connection with
the Contracts described herein are being passed upon by the law firm of Jorden,
Burt, Berenson & Johnson LLP, Washington, D.C.
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TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION
General Information
The Company
Independent Accountants
Legal Counsel
Distributor
Calculation of Performance Related Information
Delay of Payments
Transfers
Method of Determining Contract Values
Annuity Provisions
Annuity Benefits
Annuity Options
Variable Annuity Payment Values
Annuity Unit
Net Investment Factor
Additional Provisions
Financial Statements
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APPENDIX
Guaranteed Accont Option
Under this Guaranteed Account option, Contract Values are held in the
Company's General Account. The General Account includes all of Our assets,
except those assets segregated in Our separate accounts. Because of exemptive
and exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 nor is the General Account
registered as an investment company under the Investment Company Act of 1940.
The Company understands that the staff of the Securities and Exchange Commission
has not reviewed the disclosures in this Prospectus relating to the Guaranteed
Account portion of the Contract. Disclosures regarding the Guaranteed Account
may, however, be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses.
During the Accumulation Period the Owner may allocate amounts to the
Guaranteed Account. The initial Premium will be invested in the Guaranteed
Account if selected by the Owner at the time of application. Additional Premium
will be allocated in accordance with the selection made in the application or
the most recent instruction received at the Company Office. If the Owner elects
to withdraw amounts from the Guaranteed Account, such withdrawal, except as
otherwise provided in this Appendix, will be subject to the same conditions as
imposed on withdrawals from the Variable Account. The Company reserves the right
to delay any payment from the Guaranteed Account for up to six (6) months from
the date it receives such request at its Office.
Allocations To The Guaranteed Account
The minimum amount that may be allocated to the Guaranteed Account, either
from the initial or a subsequent Premium, is $3,000. Amounts invested in the
Guaranteed Account are credited with interest on a daily basis at the then
applicable effective guarantee rate. The effective guarantee rate is that rate
in effect when the Owner allocates or transfers amounts to the Guaranteed
Account. If the Owner has allocated or transferred amounts at different times to
the Guaranteed Account, each allocation or transfer may have a unique effective
guarantee rate associated with that amount. The effective guarantee rate will
not be changed more than once per year and the minimum rate will not be less
than 3%.
Guaranteed Account Transfers
During the accumulation period the Owner may transfer, by written request
or telephone authorization, Contract Values to or from a subaccount of the
Variable Account to or from the Guaranteed Account at any time, subject to the
conditions set out under Transfer of Contract Values Section.
Minimum Surrender Value
The minimum Surrender Value for amounts allocated to the Guaranteed Account
equals the amounts so allocated less withdrawals, with interest compounded
annually at the rate of 3%, reduced by any applicable Surrender Charge.
The Guaranteed Account may not be available in all states.
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