As filed with the Securities and Exchange Registration No. 33-60477
Commission on April 4, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2 ON FORM S-2 TO
REGISTRATION STATEMENT (Previously filed on Form S-1) UNDER THE
SECURITIES ACT OF 1933
Aetna Life Insurance and Annuity Company
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Connecticut
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71-0294708
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151 Farmington Avenue, Hartford, Connecticut 06156, (860) 273-7834
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
(860) 273-7834
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(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)
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The annuities covered by this registration statement are to be issued from time
to time after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [XX]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Regulation S-K
Item 501(b)
<TABLE>
<CAPTION>
Form S-2
Item No. Information Required in Prospectus Location in Prospectus
- -------- ---------------------------------- -----------------------
<S> <C> <C>
1 Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus............................. Outside Front Cover
2 Inside Front and Outside Back Cover
Pages of Prospectus.................................. Table of Contents (inside front cover)
3 Summary Information, Risk Factors ................... Summary
Ratio of Earnings to Fixed Charges................... Not Applicable
4 Use of Proceeds...................................... Investments
5 Determination of Offering Price...................... Not Applicable
6 Dilution............................................. Not Applicable
7 Selling Security Holders............................. Not Applicable
8 Plan of Distribution................................. Description of the Account
9 Description of Securities to be Registered........... Description of the Account
10 Interests of Named Experts and Counsel............... Not Applicable
<PAGE>
Form S-2
Item No. Information Required in Prospectus Location in Prospectus
- -------- ---------------------------------- -----------------------
11 Information with Respect to the
Registrant........................................... Not Applicable
12 Incorporation of Certain Information by Reference.... Incorporation of Certain Information by
Reference; Experts
13 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities....... Indemnification
</TABLE>
<PAGE>
GUARANTEED ACCUMULATION ACCOUNT
a Guaranteed Interest Option
available under Variable Annuity Contracts
issued by
Aetna Life Insurance and Annuity Company
This Prospectus describes the Guaranteed Accumulation Account ("GAA"), a
credited interest funding option available under certain variable annuity
contracts issued by Aetna Life Insurance and Annuity Company (the "Company").
The Company guarantees stipulated rates of interest for stated periods of time
on amounts applied to GAA. During a specified period of time, amounts may be
allocated to available "guaranteed terms" within either a short-term or
long-term classification. Interest is credited daily at a rate that will provide
a guaranteed annual effective yield over the period of one year. Guaranteed
interest rates will never be less than the minimum rate specified in the
Contract. THE COMPANY CANNOT PREDICT OR GUARANTEE FUTURE LEVELS OF GUARANTEED
INTEREST RATES NOR GUARANTEE WHAT SUCH RATES WILL BE UNTIL THEY ARE DECLARED FOR
EACH GUARANTEED TERM.
All of the general assets of the Company, including amounts deposited to
GAA, are available to meet the guarantees under GAA. These assets are chargeable
with liabilities arising out of other business of the Company. The Company will
invest the amounts received in relation to GAA primarily in investment-grade
fixed income securities. Contract Holders do not have any claim against specific
assets of the Company relating to GAA.
WITHDRAWALS OR TRANSFERS FROM A GUARANTEED TERM PRIOR TO THE END OF THAT
GUARANTEED TERM MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT. WITHDRAWALS FROM
THE CONTRACT MAY ALSO BE SUBJECT TO A DEFERRED SALES CHARGE AND/OR A MAINTENANCE
FEE AT THE TIME OF WITHDRAWAL. It is possible that you may receive an amount
less than the amount paid into the Contract for surrenders of amounts held under
the Contract. (See "Market Value Adjustment" and "Contract Charges," as well as
the Contract Prospectus.)
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THIS PROSPECTUS AND OTHER INFORMATION ABOUT THE COMPANY REQUIRED TO BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION CAN BE FOUND IN THE SEC'S WEB SITE
AT HTTP://WWW.SEC.GOV.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
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This Prospectus is dated May 1, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 ("Exchange Act"), and, in accordance therewith, files
periodic reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports and other information concerning the
Company may be inspected and copied at the public reference facilities of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material also can be
obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
This Prospectus is accompanied by a copy of the Company's annual report on
Form 10-K for the year ended December 31, 1996. Reference is made to Form 10-K
for a description of the Company and its business, including financial
statements.
The Company intends to deliver to holders of outstanding Contracts account
statements at least annually and such other periodic reports as may be required
by law, but it is not anticipated that any such reports will include periodic
financial statements or information concerning the Company.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's latest Annual Report on Form 10-K, filed with the Commission
pursuant to Section 15(d) of the Exchange Act, is incorporated by reference into
this Prospectus and must accompany this Prospectus. The Form 10-K contains
additional information about the Company, including certified financial
statements for the Company's latest fiscal year. No other reports have been
filed by the Company pursuant to Section 13(a) or 15(d) of the Exchange Act
since the end of the fiscal year covered by that Form 10-K.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated by reference in the
Registration Statement of which this Prospectus forms a part other than exhibits
to such documents unless such exhibits are specifically incorporated by
reference into such documents. Requests should be directed to Aetna Life
Insurance and Annuity Company, 151 Farmington Avenue, Hartford, Connecticut
06156, telephone (800)-GAA-Fund or (800)-422-3863.
2
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION ............................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE .................. 2
GLOSSARY ......................................................... 4
SUMMARY ............................................................ 5
Description of the Guaranteed Accumulation Account ............... 5
Guaranteed Rates and Guaranteed Terms ........................... 5
Transfers and Withdrawals ....................................... 5
Market Value Adjustment .......................................... 5
Maturity of a Guaranteed Term .................................... 6
Maturity Value Transfer Provision ................................. 6
Contract Charges ................................................ 6
Investments ...................................................... 6
Guaranteed Account Notifications ................................. 6
DESCRIPTION OF THE GUARANTEED ACCUMULATION ACCOUNT ............... 7
General ......................................................... 7
Contributions to GAA ............................................. 7
Deposit Period ................................................... 7
Guaranteed Term ................................................... 8
Guaranteed Term Classifications ................................. 8
Guaranteed Interest Rates ....................................... 8
Maturity of a Guaranteed Term .................................... 9
Maturity Value Transfer Provision ................................. 9
TRANSFERS ......................................................... 9
Transfers from GAA ................................................ 10
Transfers Between Guaranteed Term Classifications ............... 10
SURRENDERS ......................................................... 10
MARKET VALUE ADJUSTMENT .......................................... 11
Deposit Period Yield ............................................. 11
Current Yield ................................................... 11
MVA Formula ...................................................... 12
CONTRACT CHARGES ................................................... 12
MISCELLANEOUS ...................................................... 12
Annuity Period ................................................... 12
Deferral of Payments ............................................. 12
Reinstatement ................................................... 13
Contract Loans (403(B) Plans Only) .............................. 13
INVESTMENTS ...................................................... 13
DISTRIBUTION OF CONTRACTS .......................................... 14
TAX CONSIDERATIONS ................................................ 14
Taxation of the Company .......................................... 14
Taxation of Annuities ............................................. 14
EXPERTS ............................................................ 14
LEGAL MATTERS ...................................................... 15
FURTHER INFORMATION ................................................ 15
INQUIRIES ......................................................... 15
APPENDIX I--Examples of Market Value Adjustment Calculations ...... 16
APPENDIX II--Examples of Market Value Adjustment Yields ............ 18
3
<PAGE>
GLOSSARY
The following terms are defined as they are used in this Prospectus:
Accumulation Period: The period during which Purchase Payment(s) are accumulated
to provide future annuity benefits.
Aggregate Market Value Adjustment Amount: The sum of all Market Value
Adjustments calculated due to a surrender or transfer from Guaranteed Terms
prior to the end of those Guaranteed Terms. This total may be a positive or
negative figure.
Annuity: A series of payments for life or a definite period.
Annuity Period: The period during which Annuity payments are made.
Contract Holder: The entity to which the Contract is issued. The Contract Holder
is usually the employer, sponsor or trustee.
Deposit Period: The period of time during which one or more Purchase Payments or
transfers of accumulated values may be made to available Guaranteed Terms to
receive stipulated interest rates for stated periods of time. A Deposit Period
may be a month, a calendar quarter, or any other period of time specified by the
Company.
Guaranteed Interest Rates: The interest rate(s) guaranteed to be credited, for a
stated period of time, on amounts applied to a GAA Guaranteed Term during a
specific Deposit Period. Interest rates are annual effective yields reflecting a
full year's interest. Interest is credited daily.
Guaranteed Term: The period of time specified by the Company during which one or
a series of Guaranteed Interest Rates are credited.
Guaranteed Term Classifications: The grouping of Guaranteed Terms according to
their time to maturity:
Short-Term--All Guaranteed Terms of 3 years or less; or
Long-Term--All Guaranteed Terms of between 3 and 10 years.
Home Office: The Company's principal executive office located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
Market Value Adjustment (MVA): An adjustment, if applicable, to the amount
withdrawn or transferred from a Guaranteed Term prior to the end of that
Guaranteed Term. The adjustment reflects the change in the value of the
investment due to changes in interest rates since the date of deposit and is
computed using the formula given in the Contract. The adjustment is expressed as
a percentage of each dollar being withdrawn.
Market Value Adjustment Amount (MVA Amount): The amount by which the funds being
withdrawn or transferred from a Guaranteed Term is increased or decreased due to
the MVA.
Maturity Value Transfer Provision: A provision that is available at maturity
when the Company automatically reinvests the total maturing Guaranteed Term
value into the open Deposit Period. This provision allows Contract Holders or
Participants to transfer or surrender the automatically reinvested value,
without an MVA, to an open Deposit Period within either Guaranteed Term
Classification or to other available investment options until the last business
day of the month following the maturity of a Guaranteed Term. This provision
only applies to the first request received from the Contract Holder, or if
applicable, Participant with respect to a particular matured Guaranteed Term.
The last business day of the month is defined as the last business day of the
month when the New York Stock Exchange is open.
Participant ("You"): An eligible person participating under a Variable Annuity
Contract.
Purchase Payment(s): The gross payment(s) made to the Company under a Contract.
Variable Annuity Contract: An Annuity Contract providing for the accumulation of
values, and for retirement payments which vary in dollar amount with investment
results.
4
<PAGE>
SUMMARY
DESCRIPTION OF THE GUARANTEED ACCUMULATION ACCOUNT
The Guaranteed Accumulation Account ("GAA") is a guaranteed interest option
available as a funding option under certain Variable Annuity Contracts issued by
the Company. Amounts invested in GAA are credited with interest rates guaranteed
by the Company for stated periods of time. Amounts must remain in GAA for the
full Guaranteed Term to receive the quoted interest rates. Withdrawals or
transfers from a Guaranteed Term before the end of the Guaranteed Term may be
subject to a Market Value Adjustment.
During a Deposit Period, Contract Holders or, if applicable, Participants
may direct some or all of their Purchase Payment(s) to GAA. Although the Company
may impose a minimum Purchase Payment on a Contract, there is no minimum amount
of payment if the investment comes from a Purchase Payment. Transfers of
accumulated amounts from other funding options to GAA are also allowed.
More specifically, Contract Holders or, if applicable, Participants may
allocate Purchase Payments or transfer accumulated values during a Deposit
Period to available Guaranteed Terms within the Short-Term and Long-Term
Classifications. (See "Guaranteed Term Classifications.")
GUARANTEED RATES AND GUARANTEED TERMS
Interest is credited daily at a rate that will provide the guaranteed
annual effective yield over the period of one year. The Company will declare the
Guaranteed Interest Rate(s) for all available Guaranteed Terms prior to the
Deposit Period for those Guaranteed Terms. These Guaranteed Interest Rate(s) are
guaranteed for that Deposit Period and for the length of the Guaranteed Term.
Guaranteed Interest Rates will never be less than the annual effective rate
stated in the Contract. (See "Guaranteed Interest Rates").
TRANSFERS AND WITHDRAWALS
Full or partial surrenders and transfers to other funding options under the
Contract are permitted from GAA. In addition, transfers from Guaranteed Terms
within one Guaranteed Term Classification may be made to the current Deposit
Period of other Guaranteed Terms within a different Guaranteed Term
Classification. However, amounts applied to a Guaranteed Term during a Deposit
Period may not be transferred during that Deposit Period or for 90 days after
the close of that Deposit Period, except for transactions processed under the
Maturity Value Transfer Provision. This restriction may not apply in all
circumstances.
Contract Holders or, if applicable, Participants may choose the Guaranteed
Term Classification(s) from which amounts will be first withdrawn due to a
transfer or partial surrender. Amounts are withdrawn starting with the oldest
Guaranteed Term which has not reach maturity from each Guaranteed Term
Classification chosen. (See "Surrenders" and "Transfers and Withdrawals.")
MARKET VALUE ADJUSTMENT
Amounts withdrawn or transferred from a Guaranteed Term prior to the
Maturity Date may be subject to a Market Value Adjustment. The Market Value
Adjustment reflects the change in the value of the investment due to changes in
interest rates since the date of deposit, and may be positive or negative
depending on interest rate activity at the time of such withdrawal.
If amounts are withdrawn from GAA due to annuitization under one of the
lifetime Annuity options described in the Contract Prospectus, only the positive
Aggregate Market Value Adjustment, if any, is applied. Only a positive Aggregate
Market Value Adjustment amount, if any, is applied to amounts withdrawn from GAA
due to the death of a Participant if withdrawn within the first six months after
the date of death. (See "Market Value Adjustment" and "Annuity Period.")
5
<PAGE>
MATURITY OF A GUARANTEED TERM
On or before maturity of the Guaranteed Term, a Contract Holder or, if
applicable, Participant, may instruct the Company to, on maturity, (a) transfer
the matured value to one or more new Guaranteed Terms available under the
current Deposit Period, (b) transfer the matured value to one or more of the
variable funding options available under the Variable Annuity Contract, or (c)
surrender the matured value. In all three instances, no Market Value Adjustment
would be applicable to the transferred or surrendered matured value. However, a
deferred sales charge may be assessed on the amount surrendered from the
Contract. (See "Transfers" and "Surrenders.")
If the Company does not receive direction from the Contract Holder or
Participant, if applicable, at its Home Office by the maturity date of the
Guaranteed Term, the amount from the maturing Guaranteed Term will generally be
transferred to the available Deposit Period for the Guaranteed Term having the
shortest maturity within the same Guaranteed Term Classification. (See "Maturity
of a Guaranteed Term.")
MATURITY VALUE TRANSFER PROVISION
The Maturity Value Transfer Provision is available at maturity when the
Company automatically reinvests the total maturing Guaranteed Term value into
the open Deposit Period. This provision allows Contract Holders or Participants,
if applicable, to transfer or surrender, without a Market Value Adjustment, all
or a portion of the matured value that was transferred to a new Guaranteed Term
by default (if applicable, a deferred sales charge may still be assessed on the
surrendered amount). (See "Maturity of a Guaranteed Term.")
CONTRACT CHARGES
Certain charges such as the mortality and expense risk charge and
administrative expense charge are assessed under the Contract to compensate the
Company for costs associated with administering the Contract. These charges are
not deducted from GAA. Other charges, such as front-end or deferred sales
charges, maintenance fees, premium taxes and transfer fees, as well as any
federal income taxes and tax penalties, may be deducted from amounts held in or
transferred from GAA. For a description of all fees and charges deducted under
the Contract, see "Contract Charges" and the Contract Prospectus.
INVESTMENTS
The interest rate(s) credited during any Guaranteed Term does not
necessarily relate to investment performance. As in the case of all of the
Company's general account assets, deposits received under the GAA option,
regardless of which Guaranteed Term Classification is used, will generally be
invested in federal, state and municipal obligations, corporate bonds, preferred
stocks, real estate mortgages, real estate, certain other fixed income
investments, and cash or cash equivalents. All of the general assets of the
Company are available to meet the guarantees under the GAA. (See "Investments.")
GUARANTEED ACCOUNT NOTIFICATIONS
At least 18 calendar days prior to the maturity date, the Company will
notify you of a Guaranteed Term's maturity. The notice will also include
information relating to the current Deposit Period's Guaranteed Interest Rates
and the available Guaranteed Terms. At any time, you may obtain information
concerning available Deposit Periods, Guaranteed Interest Rates, and Guaranteed
Terms through the use of a toll-free telephone number within five business days
before the upcoming maturity date (1-800-GAA-FUND or 1-800-422-3863). (See
"Description of the Guaranteed Accumulation Account--General" and "Maturity of a
Guaranteed Term.")
6
<PAGE>
DESCRIPTION OF THE
GUARANTEED ACCUMULATION ACCOUNT
GENERAL
This Prospectus describes the provisions of the Guaranteed Accumulation
Account ("GAA"), a guaranteed interest option available under Variable Annuity
Contracts ("Contracts") issued by Aetna Life Insurance and Annuity Company
("Company"). Amounts allocated to GAA are held in a noninsulated, nonunitized
separate account. (See "Investments.")
GAA offers guaranteed interest rates ("Guaranteed Interest Rates") for
stated periods of time ("Guaranteed Terms"). All Purchase Payments or transfers
to GAA during a specific period of time ("Deposit Periods") participate in a
specific Guaranteed Term with corresponding Guaranteed Interest Rates.
Guaranteed Terms are classified according to their length of time to maturity
("Guaranteed Term Classifications"). Each Deposit Period may offer various
Guaranteed Terms within one or both Guaranteed Term Classifications. A Market
Value Adjustment, which may be positive or negative, may be applied to any
values withdrawn or transferred from a Guaranteed Term prior to the end of that
Guaranteed Term, except for amounts transferred under the Maturity Value
Transfer Provision. However, if funds are withdrawn from Guaranteed Terms due to
the death of the Participant within six months after the Participant's date of
death, only a positive Aggregate Market Value Adjustment Amount, if any, will be
applied. After the six-month period, the positive or negative Aggregate Market
Value Adjustment Amount will be applied. Only a positive Aggregate Market Value
Adjustment Amount, if any, is applied to any values withdrawn from Guaranteed
Terms due to annuitization under one of the lifetime Annuity options. If funds
are transferred from one Guaranteed Term prior to the end of that Guaranteed
Term to a Guaranteed Term of the other Guaranteed Term Classification, a Market
Value Adjustment (positive or negative) is applied.
The Company maintains a toll-free telephone number for Contract Holders or,
if applicable, Participants wishing to obtain information concerning available
Deposit Periods, Guaranteed Interest Rates, and Guaranteed Terms. The telephone
number is 1-800-GAA-FUND (1-800-422-3863). In addition, the Company will send
notification of the upcoming Deposit Period dates and information on the current
Guaranteed Interest Rates, Guaranteed Terms and projected matured Guaranteed
Term values to Contract Holders, or, if applicable, Participants who have funds
in a maturing Guaranteed Term. This notification will be sent at least 18
calendar days prior to the maturity of a Guaranteed Term.
CONTRIBUTIONS TO GAA
Amounts may be applied to Guaranteed Terms available in a current Deposit
Period by allocating one or more Purchase Payment(s) to GAA or by transferring
accumulated value(s) from other funding options available under the Contract or
from other Guaranteed Terms. Although the Company may impose a minimum Purchase
Payment on a Contract, there is no minimum Purchase Payment required for a
Guaranteed Term. Please refer to the applicable Contract prospectus.
Amounts applied to a Guaranteed Term during a Deposit Period may not be
transferred during that Deposit Period or for 90 days after the close of that
Deposit Period, except under the Maturity Value Transfer Provision.
DEPOSIT PERIOD
The Deposit Period is a period of time during which one or more Purchase
Payments or transfers from other Contract funding options or other Guaranteed
Terms may be made to available Guaranteed Terms to receive stipulated Guaranteed
Interest Rates for stated periods of time. Each Deposit Period may be a month, a
calendar quarter, or any other period of time specified by the Company.
Both Guaranteed Term Classifications will be available during each Deposit
Period. In addition, more than one Guaranteed Term within a Guaranteed Term
Classification may be available during each Deposit Period. For example, a
Deposit Period might offer a 1-year and a 3-year Guaranteed Term under the
Short-Term Classification and a 5-year and a 7-year Guaranteed Term under the
Long-Term Classification.
7
<PAGE>
GUARANTEED TERM
A Guaranteed Term is the period of time specified by the Company during
which one or a series of Guaranteed Interest Rates are credited. Guaranteed
Terms are offered at the Company's discretion for various lengths of time
ranging from one to ten years.
GUARANTEED TERM CLASSIFICATIONS
Guaranteed Term Classifications refer to the grouping of Guaranteed Terms
according to their time to maturity. The following are the Guaranteed Term
Classifications:
Short-Term--All Guaranteed Terms of 3 years or less; or
Long-Term--All Guaranteed Terms of between 3 and 10 years.
During each Deposit Period, the Company may offer more than one Guaranteed
Term within each Guaranteed Term Classification. Contract Holders or, if
applicable, Participants may elect to allocate Purchase Payments to Guaranteed
Terms within one or both of these Guaranteed Term Classifications during a
Deposit Period.
GUARANTEED INTEREST RATES
Guaranteed Interest Rates are the interest rates that are guaranteed to be
credited on amounts applied during a Deposit Period for a specific Guaranteed
Term. Guaranteed Interest Rates are annual effective yields, reflecting a full
year's interest. The interest is credited daily at a rate that will produce the
guaranteed annual effective yield over the period of one year.
Guaranteed Interest Rates are credited according to the length of the
Guaranteed Term as follows:
[bullet] Guaranteed Terms of One Year or Less: A Guaranteed Interest Rate is
credited from the date of deposit to the last day of the Guaranteed
Term.
[bullet] Guaranteed Terms of Greater than One Year: Several different
Guaranteed Interest Rates may be applicable during a Guaranteed
Term of more than one year. The initial Guaranteed Interest Rate is
credited from the date of deposit to the end of a specified period
within the Guaranteed Term. The remainder of the Guaranteed Term
may also allow for several different Guaranteed Interest Rates for
subsequent specific periods of time. For example, a 5-year
Guaranteed Term may guarantee 5% for the first year, 4.75% for the
next two years, and 4.5% for the remaining two years.
The Company will announce the available Guaranteed Terms and current
Guaranteed Interest Rates for each Deposit Period at least 18 calendar days
prior to the start of each Deposit Period. In no event will the Company
guarantee or credit a Guaranteed Interest Rate less than the minimum rate
specified in the Contract. In addition, GAA does not allow for the crediting of
interest above the Guaranteed Interest Rates which are announced by the Company
prior to the start of a Deposit Period.
The Company's determination of Guaranteed Interest Rates is influenced by,
but not necessarily correspond to, interest rates available on fixed income
investments which the Company may acquire using amounts deposited into GAA (see
"Investments"). In addition, the Company will consider other factors in
determining Guaranteed Interest Rates including regulatory and tax requirements,
sales commissions and administrative expenses borne by the Company, general
economic trends, and competitive factors.
THE COMPANY MAKES THE FINAL DETERMINATION REGARDING GUARANTEED INTEREST
RATES. THE COMPANY CANNOT PREDICT THE LEVEL OF FUTURE GUARANTEED INTEREST RATES.
8
<PAGE>
MATURITY OF A GUARANTEED TERM
At least 18 calendar days prior to the maturity of a Guaranteed Term, the
Company will send notification to Contract Holders or, if applicable,
Participants of the upcoming Deposit Period, the projected value for the amount
maturing in the Guaranteed Term and the Guaranteed Interest Rate and Guaranteed
Term for the current Deposit Period. Contract Holders or, if applicable,
Participants may transfer amounts in any maturing Guaranteed Term to new
Guaranteed Terms, if available under the Contract. The amount in any maturing
Guaranteed Term may also be transferred into any other allowable option(s)
available under the Contract. There is no Market Value Adjustment applied to
amounts transferred or surrendered from a Guaranteed Term on the date that
Guaranteed Term matures; however, a deferred sales charge, if applicable, may be
assessed.
If the Company does not receive direction from the Contract Holder or, if
applicable, the Participant at its Home Office (or any other designated office)
by the maturity date of a Guaranteed Term, the Company will automatically
transfer the matured value to a Guaranteed Term having the shortest maturity
within the same Guaranteed Term Classification that will be available for the
new Deposit Period. The new Guaranteed Term may have a different length of time
to maturity than the maturing Guaranteed Term. For example, if a 3-year
Guaranteed Term matures and no direction is received, amounts in this maturing
Guaranteed Term will be transferred to the 2-year Guaranteed Term, which is the
Guaranteed Term available within the Short-Term Classification of the new
Deposit Period. If, however, only one Term is available within the
Classification, then the matured Guaranteed Term value will be reinvested in
that Term. If GAA is not available for new deposits under the Contract, the
matured Guaranteed Term will be reinvested in the money market variable
investment option available under the Contract, or as otherwise provided under
the contract.
Once the matured amount has been transferred, the Contract Holder or, if
applicable, Participant will receive a statement confirming the transfer, along
with information on the new Guaranteed Rate(s) and Guaranteed Term.
MATURITY VALUE TRANSFER PROVISION
The Maturity Value Transfer Provision is available at maturity when the
Company automatically reinvests the total maturing Guaranteed Term value into
the open Deposit Period. This provision allows Contract Holders or Participants
to transfer or surrender, without a Market Value Adjustment, the matured value
that was transferred by the Company to a new Guaranteed Term (if applicable, a
deferred sales charge may be assessed on the amount surrendered from the
Contract). If all of the matured value is transferred or surrendered under the
Maturity Value Transfer Provision, any interest accrued under the current
Guaranteed Term will be credited through the date of transfer or surrender. The
right to make a transfer or surrender under the Maturity Value Transfer
Provision is available until the last business day of the month following the
maturity date of a Guaranteed Term. The last business day of the month is
defined as the last business day of the month that the New York Stock Exchange
is open. The Maturity Value Transfer Provision only applies to the first request
received from the Contract Holder, or, if applicable, Participant, with respect
to a particular matured Guaranteed Term value.
TRANSFERS
As described in the Contract Prospectus, all or any portion of accumulated
values under the Contract may be transferred at least 12 times during a calendar
year, without a transfer charge. Under some Contracts, after 12 such transfers,
each additional transfer is subject to a transfer charge of not more than $10,
deducted from the Contract value. Under other Contracts, unlimited transfers may
be made without charge. Please refer to the applicable Contract prospectus.
Amounts applied to a Guaranteed Term during a Deposit Period may not be
transferred to any other funding option or Guaranteed Term during that Deposit
Period or for 90 days after the close of that Deposit Period.
Funds transferred under the Maturity Value Transfer Provision or upon the
maturity of a Guaranteed Term are not counted as one of the 12 free transfers of
accumulated values allowed per calendar year by those Contracts allowing 12 free
transfers. In addition, no Market Value Adjustment is applied to the matured
Guaranteed Term value transferred upon maturity of a Guaranteed Term or for
values withdrawn or transferred from a Guaranteed Term under the Maturity Value
Transfer Provision.
9
<PAGE>
When a request is made to transfer a specific dollar amount in
circumstances in which a Market Value Adjustment is applicable, the Market Value
Adjustment will be included in the determination of the amount withdrawn from a
Guaranteed Term(s) to fulfill the request. Therefore, the amount actually
withdrawn from the Guaranteed Term(s) may be more or less than the requested
dollar amount. (See "Appendix I" for an example.)
TRANSFERS FROM GAA
Contract Holders or, if applicable, Participants can choose the Guaranteed
Term Classification from which Funds will be first withdrawn. The Company
withdraws funds starting from the oldest Guaranteed Term which has not reached
maturity within the Guaranteed Term Classification chosen. If no direction is
received, funds are withdrawn pro rata among the Guaranteed Term
Classifications, starting with the oldest Guaranteed Term which has not reached
maturity, and any other investment options. A positive or negative Market Value
Adjustment is applied to the amount requested for transfer. (See "Market Value
Adjustment.")
TRANSFERS BETWEEN GUARANTEED TERM CLASSIFICATIONS
Transfers are permitted from Guaranteed Terms within the Short-Term
Classification to available Long- Term Guaranteed Terms of a current Deposit
Period. Transfers are also permitted from Guaranteed Terms within the Long-
Term Classification to available Short-Term Guaranteed Terms of a current
Deposit Period. For example, funds may be transferred from a 3-year Guaranteed
Term (any time after 90 days from the close of the Deposit Period applicable to
that 3-year Guaranteed Term) to the open Deposit Period of a 7-year Guaranteed
Term. Funds will be first transferred from the oldest Deposit Period for which
the Guaranteed Term has not reached maturity. A Market Value Adjustment is
assessed on the transferred amount. The transfer is counted as one of the 12
free transfers allowed each year by those Contracts allowing 12 free transfers.
A transfer of value from one Guaranteed Term prior to maturity of that
Guaranteed Term to another Guaranteed Term within the same Guaranteed Term
Classification is not permitted under any of the Contracts.
SURRENDERS
The Contract allows for full or partial surrenders at any time during the
Accumulation Period. To make a full or partial surrender, a surrender request
form must be properly completed and submitted to the Company's Home Office (or
any other designated office). Partial surrenders are made pro rata among the
Contract funding options unless requested otherwise by the Contract Holder or,
if applicable, the Participant. For surrender purposes, each Guaranteed Term
Classification is considered a separate funding option.
The portion of the partial surrender made from GAA is withdrawn from the
Guaranteed Term Classification elected by the Contract Holder or, if applicable,
the Participant. Within the elected Guaranteed Term Classification, funds will
be removed starting with the oldest Guaranteed Term which has not reached
maturity. If no Guaranteed Term Classification is elected, the Company will
withdraw funds from Guaranteed Terms in each Guaranteed Term Classification
(starting with the oldest Guaranteed Term which has not reached maturity) in the
same proportion as the value of each Guaranteed Term Classification has to the
total value of the Contract.
A Market Value Adjustment is applied to the amount surrendered if
surrendered prior to the end of a Guaranteed Term, except for values surrendered
under the Maturity Value Transfer Provision. The surrendered amount may also be
subject to a deferred sales charge and a maintenance fee. Please refer to the
applicable Contract prospectus for information regarding deferred sales charges
and maintenance fees.
When a request for a partial surrender of a specific dollar amount is made,
the Market Value Adjustment will be included in the determination of the amount
withdrawn from a Guaranteed Term to fulfill the request. Therefore, the amount
actually withdrawn from the Guaranteed Term(s) may be more or less than the
requested dollar amount. (See "Appendix I" for an example.)
10
<PAGE>
MARKET VALUE ADJUSTMENT
A Market Value Adjustment ("MVA") is applied to amounts transferred or
withdrawn from GAA prior to the end of a Guaranteed Term. In order to
accommodate these surrenders or transfers, the Company may need to liquidate
certain assets or use existing cash flow which would otherwise be available to
invest at current interest rates. The assets may be sold at a profit or a loss
depending upon market conditions. This MVA reflects the changes in interest
rates since the Deposit Period. When interest rates increase after the Deposit
Period, the value of the investment decreases and the Market Value Adjustment
Amount may become negative. Conversely, when interest rates decrease after the
Deposit Period, the value of the investment increases and the Market Value
Adjustment Amount may be positive.
The MVA is a factor applied to amounts withdrawn from a Guaranteed Term
prior to the end of the Guaranteed Term in connection with transfers (including
transfers made in order to elect a nonlifetime Annuity option) and surrenders.
Only a positive Aggregate Market Value Adjustment Amount, if any, is applied to
funds withdrawn from Guaranteed Terms due to the death of the Participant if
withdrawn within six months after the Participant's date of death. After the six
month period, the calculated Aggregate Market Value Adjustment Amount (positive
or negative) is applied. If funds are withdrawn from Guaranteed Terms due to
annuitization of the Contract under one of the lifetime Annuity options only a
positive Aggregate Market Value Adjustment Amount, if any, is applied. If two or
more consecutive Guaranteed Terms have the same Guaranteed Interest Rate(s) and
mature on the same date, the Company will calculate MVA's applicable to each
Guaranteed Term. The most favorable MVA to the Contract Holder or Participant
will be applied to any surrender or transfer from either Guaranteed Term prior
to the Guaranteed Terms' maturity.
Market Value Adjustment Amounts can be positive or negative and therefore
the imposition of an MVA may increase or decrease the amount withdrawn from a
Guaranteed Term to satisfy the request for surrender or transfer. The MVA Amount
depends on the relationship of the Deposit Period yield of U.S. Treasury Notes
that mature in the last quarter of the Guaranteed Term, to the current yield of
such U. S. Treasury Notes at the time of withdrawal. In general, if the current
yield is the lesser of the two, the MVA will decrease the amount withdrawn from
a Guaranteed Term to satisfy the request for surrender or transfer; if the
current yield is the higher of the two, the MVA will increase the amount
withdrawn from a Guaranteed Term to satisfy the request for surrender or
transfer.
The MVA involves a Deposit Period yield and a current yield. An adjustment
is made in the formula of the MVA to reflect the period of time remaining in the
Guaranteed Term from the Wednesday of the week of withdrawal. To determine the
Deposit Period yield and the current yield, certain information must be obtained
about the prices of outstanding U.S. Treasury issues. This information may be
found each business day in publications such as the Wall Street Journal which
publishes the yield-to-maturity percentages for all Treasury Notes as of the
preceding business day. These percentages are used in determining the Deposit
Period yield and the current yield for the MVA calculation.
DEPOSIT PERIOD YIELD
Determining the Deposit Period yield used in the MVA calculation involves
consideration of interest rates prevailing during the Deposit Period of the
Guaranteed Term from which the withdrawal will be made. First, the Treasury
Notes that mature in the last three months of the Guaranteed Term are
identified, and then, the yield-to-maturity percentages of these Treasury Notes
for the last business day of each week in the Deposit Period are determined. The
resulting percentages are then averaged to determine the Deposit Period yield.
CURRENT YIELD
To determine the current yield, use the same Treasury Notes identified for
the Deposit Period yield:
Treasury Notes that mature in the last three months of the Guaranteed Term.
However, the yield-to-maturity percentages used are those for the last business
day of the week preceding the withdrawal. Average these percentages to determine
the current yield.
11
<PAGE>
For example, assume the withdrawal will be processed on May 15, 1997. List
the yield-to-maturity percentage figures as of May 9, 1997 for the same Treasury
Notes that determined the Deposit Period yield. Average these yields to
determine the current yield.
MVA FORMULA
The mathematical formula used to determine the MVA is:
{(1 + i)} x
--------- ---
(1 + j) 365
where "i" is the deposit period yield; "j" is the current yield; and "x" is the
number of days remaining (computed from Wednesday of the week of withdrawal) in
the Guaranteed Term. (For examples of how to calculate MVAs, please refer to
"Appendix I.")
CONTRACT CHARGES
Certain charges are deducted directly or indirectly from the funding
options available under the Contract.
If the Contract allows for the deduction of a maintenance fee on an annual
basis, the fee is deducted on a pro rata basis from all funding options,
including GAA. In addition, the maintenance fee is deducted upon total surrender
of a Contract.
A deferred sales charge, if applicable, is also deducted upon a full or
partial surrender of some Contracts. If the surrender occurs prior to the
maturity of a Guaranteed Term, the deferred sales charge and the MVA will be
assessed.
During each calendar year, the Contract Holder (or the Participant, if
authorized) may change the allocation of future Purchase Payments among the
investment options allowed by the Contract. Unlimited allocation changes are
allowed. In addition, we allow unlimited transfers of accumulated values to
available investment options during the Accumulation Period. We allow at least
12 free transfers in any calendar year. Thereafter, under some Contracts, we
reserve the right to charge $10 for each subsequent transfer.
Mortality and expense risk charges and other asset-based charges that may
be deducted from variable funding options are not deducted from any credited
interest option under the Contract (including GAA). These charges are only
applicable to the variable funding options. Other charges, such as front-end or
deferred sales charges of up to 6%, maintenance fees of up to $30.00, premium
taxes of up to 4% and transfer fees of up to $10.00 per transfer may be deducted
from amounts held in or transferred from GAA.
Please refer to the applicable Contract prospectus for further details on
Contract deductions. The Contract prospectus includes a full description of the
sales charges made upon withdrawal.
MISCELLANEOUS
ANNUITY PERIOD
GAA cannot be used as an option during the Annuity Period. Prior to
annuitization, values in Guaranteed Terms must be transferred to one or more of
the funding options which allow for Annuity payments. The Aggregate Market Value
Adjustment Amount (positive or negative) is applied to any amount transferred
from Guaranteed Terms before the end of those Guaranteed Terms due to
annuitization to the nonlifetime Annuity option available under the Contract.
Only a positive Aggregate Market Value Adjustment Amount, if any, is applied due
to annuitization to a lifetime Annuity option. Please refer to the applicable
Contract Prospectus for a discussion of the Annuity Period.
DEFERRAL OF PAYMENTS
Under certain emergency conditions, the Company may defer payment of a GAA
surrender value for a period of up to 6 months. Please refer to the applicable
Contract Prospectus for further details.
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<PAGE>
REINSTATEMENT
The Contract Holder or, if applicable, the Participant may elect to
reinstate all or a portion of the proceeds received from a full surrender within
30 days after such surrender. Any amounts reinstated to GAA will be applied to
the current Deposit Period. Within the current Deposit Period, amounts are then
proportionately reinstated to the Guaranteed Term Classifications in the same
manner as the amounts were allocated prior to surrender. Any negative MVA amount
applied to a surrender is not included in the reinstatement. Please refer to the
applicable Contract prospectus for further details on reinstatement of the
Contract.
CONTRACT LOANS (403(b) PLANS ONLY)
The GAA value is included in determining the value of a Contract against
which a loan may be made. However, loans may not be made from amounts held in
GAA. In order to receive amounts held in GAA as a loan, the amounts must first
be transferred to a funding option from which loans may be made (see the
applicable Contract prospectus for further information on Contract loans).
Amounts transferred from Guaranteed Terms due to a loan request will be subject
to an MVA.
INVESTMENTS
Amounts applied to Guaranteed Terms under the Short-Term Classification of
GAA will be deposited into the Company's general account which supports
insurance and annuity obligations.
General account assets of the Company must be invested in accordance with
applicable state laws. These laws govern the nature and quality of investments
that may be made by life insurance companies and the percentage of their assets
that may be committed to any particular type of investment. In general, these
laws permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations; corporate bonds;
preferred stocks; real estate mortgages; real estate and certain other fixed
income investments. All of the general assets of the Company, including amounts
deposited to GAA, are available to meet the guarantees under GAA. These assets
are chargeable with liabilities arising out of any other business of the
Company.
Amounts applied to Guaranteed Terms under the Long-Term Classification of
GAA will be deposited to and accounted for in a noninsulated, nonunitized
separate account established under Title 38a, Section 38a-433, of the
Connecticut General Statutes. A nonunitized separate account is a separate
account in which the Contract Holder or Participant does not participate in the
performance of the assets through unit values or any other interest. The assets
of the noninsulated, nonunitized separate account may be charged with
liabilities arising out of any other business of the Company.
Contract Holders and Participants allocating funds to the Long-Term
Classification of GAA do not receive a unit of ownership of assets accounted for
in this separate account. The assets accrue solely to the benefit of the
Company. Contract Holders and Participants do not participate in the investment
gain or loss from assets accounted for in the separate account. Such gain or
loss is borne entirely by the Company. All benefits available to Participants
under the Long-Term Classification of GAA are Contract guarantees made by the
Company and are accounted for in the separate account. These general account
assets are chargeable with liabilities arising out of any other business of the
Company.
The Company intends to invest in assets which, in the aggregate, have
characteristics, especially cash flow patterns, reasonably related to the
characteristics of the liabilities. Various immunization techniques will be used
to achieve the objective of close aggregate matching of assets and liabilities.
The Company will primarily invest in investment-grade fixed income securities
including:
[bullet] Securities issued by the United States Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the
United States Government.
[bullet] Debt securities which have an investment grade, at the time of
purchase, within the four highest grades assigned by Moody's
Investors Services, Inc. (Aaa, Aa, A or Baa), Standard & Poor's
Corporation (AAA, AA, A or BBB) or any other nationally recognized
rating service.
[bullet] Other debt instruments, including, but not limited to, issues of or
guaranteed by banks or bank holding companies and of corporations
which obligations although not rated by Moody's, Standard & Poor's,
or other
13
<PAGE>
nationally recognized rating services, are deemed by the Company's
management to have an investment quality comparable to securities
which may be purchased as stated above.
[bullet] Commercial paper, cash or cash equivalents, and other short-term
investments having a maturity of less than one year which are
considered by the Company's management to have investment quality
comparable to securities which may be purchased as stated above.
In addition, the Company may invest in futures and options. Financial
futures and related options thereon and options on securities are purchased
solely for non-speculative hedging purposes. In the event the securities prices
are anticipated to decline, the Company may sell a futures contract or purchase
a put option on futures or securities to protect the value of securities held in
or to be sold for the general account or the nonunitized separate account.
Similarly, if securities prices are expected to rise, the Company may purchase a
futures contract or a call option thereon against anticipated positive cash flow
or may purchase options on securities.
WHILE THE FOREGOING GENERALLY DESCRIBES THE INVESTMENT STRATEGY OF GAA, THE
COMPANY IS NOT OBLIGATED TO INVEST THE ASSETS ATTRIBUTABLE TO THE CONTRACTS
ACCORDING TO ANY PARTICULAR STRATEGY, EXCEPT AS MAY BE REQUIRED BY CONNECTICUT
AND OTHER STATE INSURANCE LAWS NOR WILL THE GUARANTEED INTEREST RATES
ESTABLISHED BY THE COMPANY UNDER THE LONG-TERM CLASSIFICATION NECESSARILY RELATE
TO THE PERFORMANCE OF THE NONUNITIZED SEPARATE ACCOUNT.
DISTRIBUTION OF CONTRACTS
The Company will serve as Underwriter for the securities sold herein. The
Company is registered as a broker-dealer with the Securities and Exchange
Commission and is a member of the National Association of Securities Dealers,
Inc. (NASD). As Underwriter, the Company will contract with one or more
registered broker-dealers ("Distributors") to offer and sell the Contracts. The
Company and one or more affiliates may also sell the Contracts directly. All
registered representatives for the Distributor will also be licensed as
insurance agents to sell Variable Annuity Contracts. For additional information,
see the Contract Prospectus.
TAX CONSIDERATIONS
Contract Holders and Participants should seek advice from their tax
advisers as to the application of federal (and where applicable, state and
local) tax laws to amounts received by them and by their beneficiaries under the
Contracts. Please refer to the applicable Contract Prospectus for further
information.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code. All assets supporting the Annuity obligations of
GAA are owned by the Company. Any income earned on such assets is considered
income to the Company.
TAXATION OF ANNUITIES
Generally, any income earned on GAA deposits is not taxable to individual
Contract Holders or Participants until distributed from the Contract. For
further information concerning the tax treatment of Purchase Payments and
distributions from the Contracts, please refer to the applicable Contract
Prospectus.
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, which are included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, have been incorporated by
reference herein and into the Registration Statement on Post-Effective Amendment
No. 2 on Form S-2 in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
14
<PAGE>
LEGAL MATTERS
The validity of the securities offered by this Prospectus has been passed
upon by Counsel of the Company.
FURTHER INFORMATION
This Prospectus does not contain all of the information contained in the
registration statement of which the Prospectus is a part, and certain portions
of the registration statement have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The information so
omitted may be obtained from the offices of the Commission, as set forth under
"Available Information," upon payment of the prescribed fee.
INQUIRIES
You may direct inquiries by writing directly to us at the address shown on
the cover page of this Prospectus or by calling (800)-GAA-FUND or
(800)-422-3863.
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<PAGE>
APPENDIX I
EXAMPLES OF MARKET VALUE ADJUSTMENT CALCULATIONS
The following are examples of Market Value Adjustment ("MVA") calculations
using several hypothetical Deposit Period yields and current yields. These
examples do not include the effect of any deferred sales charge that may be
assessed under the Contract upon withdrawal.
EXAMPLE I
Assumptions:
i, the Deposit Period yield, is 8%
j, the current yield, is 10%
x, the number of days remaining (computed from Wednesday of the week of
withdrawal) in the Guaranteed Term, is 927.
MVA = {(1 + i)} x
--------- ---
(1 + j) 365
= {(1.08)} 927
-------- ---
(1.10) 365
= .9545
In this example, the Deposit Period yield of 8% is less than the current yield
of 10%; therefore, the MVA is less than 1. The amount withdrawn from the
Guaranteed Term is multiplied by this MVA.
If a withdrawal or transfer of a stated percentage is requested, the value
withdrawn from a Guaranteed Term will reflect the deduction of the negative MVA
Amount. However, if a withdrawal or transfer request of a specific dollar amount
is requested, the amount withdrawn from a Guaranteed Term will be increased to
compensate for the negative MVA Amount. For example, a withdrawal request to
receive a check for $2,000 would result in a $2,095.34 withdrawal from the
Guaranteed Term.
Assumptions:
i, the Deposit Period yield, is 5%
j, the current yield, is 6%
x, the number of days remaining (computed from Wednesday of the week of
withdrawal) in the Guaranteed Term, is 927.
MVA = {(1 + i)} x
--------- ---
(1 + j) 365
= {(1.05)} 927
-------- ---
(1.06) 365
= .9762
In this example, the Deposit Period yield of 5% is less than the current yield
of 6%; therefore, the MVA is less than 1. The amount withdrawn from the
Guaranteed Term is multiplied by this MVA.
If a withdrawal or transfer of a stated percentage is requested, the value
withdrawn from a Guaranteed Term will reflect the deduction of the negative MVA
Amount. However, if a withdrawal or transfer request of a specific dollar amount
is requested, the amount withdrawn from a Guaranteed Term will be increased to
compensate for the negative MVA Amount. For example, a withdrawal request to
receive a check for $2,000 would result in a $2,048.76 withdrawal from the
Guaranteed Term.
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<PAGE>
EXAMPLE II
Assumptions:
i, the Deposit Period yield, is 10%
j, the current yield, is 8%
x, the number of days remaining (computed from Wednesday of the week of
withdrawal) in the Guaranteed Term, is 927.
MVA = {(1 + i)} x
--------- ---
(1 + j) 365
= {(1.08)} 927
-------- ---
(1.10) 365
= 1.0477
In this example, the Deposit Period yield of 10% is greater than the current
yield of 8%; therefore, the MVA is greater than 1. The amount withdrawn from the
Guaranteed Term is multiplied by this MVA.
If a withdrawal or transfer of a stated percentage is requested, the value
withdrawn from a Guaranteed Term will reflect the addition of the positive MVA
Amount. However, if a withdrawal or transfer request of a specific dollar amount
is requested, the amount withdrawn from a Guaranteed Term will be decreased to
reflect the positive MVA Amount. For example, a withdrawal request to receive a
check for $2,000 would result in a $1,908.94 withdrawal from the Guaranteed
Term.
Assumptions:
i, the Deposit Period yield, is 5%
j, the current yield, is 4%
x, the number of days remaining (computed from Wednesday of the week of
withdrawal) in the Guaranteed Term, is 927.
MVA = {(1 + i)} x
--------- ---
(1 + j) 365
= {(1.05)} 927
-------- ---
(1.04) 365
= 1.0246
In this example, the Deposit Period yield of 5% is greater than the current
yield of 4%; therefore, the MVA is greater than 1. The amount withdrawn from the
Guaranteed Term is multiplied by this MVA.
If a withdrawal or transfer of a stated percentage is requested, the value
withdrawn from a Guaranteed Term will reflect the addition of the positive MVA
Amount. However, if a withdrawal or transfer request of a specific dollar amount
is requested, the amount withdrawn from a Guaranteed Term will be decreased to
reflect the positive MVA Amount. For example, a withdrawal request to receive a
check for $2,000 would result in a $1,951.98 withdrawal from the Guaranteed
Term.
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<PAGE>
APPENDIX II
EXAMPLES OF MARKET VALUE ADJUSTMENT YIELDS
The following hypothetical examples show the Market Value Adjustment based
on a given current yield at various times remaining in the Guaranteed Term.
Table A illustrates figures based on a Deposit Period yield of 10%; Table B
illustrates figures based on a Deposit Period yield of 5%. The Market Value
Adjustment will have either a positive or negative influence on the amount
withdrawn from or remaining in a Guaranteed Term. Also, the amount of the Market
Value Adjustment generally decreases as the end of the Guaranteed Term
approaches.
TABLE A: Deposit Period Yield of 10%
<TABLE>
<CAPTION>
Change in
Deposit
Current Period Time Remaining to
Yield Yield Maturity of Guaranteed Term
- --------- ------------ ---------------------------------------------------------------------------
8 Years 6 Years 4 Years 2 Years 1 Year 3 Months
---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
15% +5% -29.9% -23.4% -16.3% -8.5% -4.3% -1.1%
13% +3% -19.4 -14.9 -10.2 -5.2 -2.7 -0.7
12% +2% -13.4 -10.2 -7.0 -3.5 -1.8 -0.4
11% +1% -7.0 -5.3 -3.6 -1.8 -0.9 -0.2
9% -1% 7.6 5.6 3.7 1.8 0.9 0.2
8% -2% 15.8 11.6 7.6 3.7 1.9 0.5
7% -3% 24.8 18.0 11.7 5.7 2.8 0.7
5% -5% 45.1 32.2 20.5 9.8 4.8 1.2
</TABLE>
TABLE B: Deposit Period Yield of 5%
<TABLE>
<CAPTION>
Change in
Deposit
Current Period Time Remaining to
Yield Yield Maturity of Guaranteed Term
- --------- ------------ ---------------------------------------------------------------------------
8 Years 6 Years 4 Years 2 Years 1 Year 3 Months
---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
9% +4% -25.9% -20.1% -13.9% -7.2% -3.7% -0.9%
8% +3% -20.2 -15.6 -10.7 -5.5 -2.8 -0.7
7% +2% -14.0 -10.7 -7.3 -3.7 -1.9 -0.5
6% +1% -7.3 -5.5 -3.7 -1.9 -0.9 -0.2
4% -1% 8.0 5.9 3.9 1.9 1.0 0.2
3% -2% 16.6 12.2 8.0 3.9 1.9 0.5
2% -3% 26.1 19.0 12.3 6.0 2.9 0.7
1% -4% 36.4 26.2 16.8 8.1 4.0 1.0
</TABLE>
18
