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AIM/CIGNA HERITAGE
VARIABLE ANNUITY
PROSPECTUS
May 1, 1995
This Prospectus describes an individual and group Flexible Payment
Deferred Variable Annuity Contract with Fixed and Variable
Accounts (the "Contract") offered by Connecticut General Life
Insurance Company. These Contracts are designed to aid in long-
term financial planning by individuals on a tax-deferred basis for
retirement or other long-term purposes.
The Purchaser may elect to have Annuity Account Values accumulate
on a fixed basis in the Fixed Account, which pays interest at the
applicable Guaranteed Interest Rate(s) for the duration of the
particular Guaranteed Period(s) selected by the Purchaser, or on a
variable basis in CG Variable Annuity Separate Account (the
"Variable Account"), a separate account of the Company, or divided
between the Fixed Account and the Variable Account. The assets of
the Variable Account are divided into Sub-Accounts. Each Sub-
Account uses its assets to purchase shares of a specific series of
AIM Variable Insurance Funds, Inc. (the "Fund"), a mutual fund.
Nine portfolios are currently available for investment within the
Variable Account: (1) AIM V.I. Capital Appreciation Fund; (2) AIM
V.I. Diversified Income Fund; (3) AIM V.I. Government Securities
Fund; (4) AIM V.I. Growth Fund; (5) AIM V.I. International Equity
Fund; (6) AIM V.I. Money Market Fund; (7) AIM V.I. Value Fund; (8)
AIM V.I. Growth and Income Fund; and (9) AIM V.I. Global Utilities
Fund.
The portion of the Purchaser's Annuity Account value allocated to
the Variable Account will vary in accordance with the investment
performance of the Sub-Accounts selected by the Purchaser. Thus,
the Purchaser bears the entire investment risk under the Contract
for all amounts allocated to the Variable Account. Amounts
allocated to the Fixed Account are guaranteed by Connecticut
General Life Insurance Company (the "Company") and will earn a
specified rate of interest declared periodically unless
prematurely withdrawn or transferred, in which case a market value
adjustment will apply.
These Contracts provide for monthly annuity payments to be made by
the Company for the life of the Annuitant or for some other
period, beginning on the Annuity Date selected by the Purchaser.
The Purchaser can also elect to surrender all or a portion of the
Purchaser's Annuity Account Value in exchange for a cash
withdrawal payment from the Company; however, withdrawals may be
taxable, and/or subject to a withdrawal charge and/or a Market
Value Adjustment and/or a tax penalty. In some states, premium
taxes may be deducted. Under certain circumstances, the Purchaser
can transfer amounts between the Accounts and the corresponding
Sub-Accounts (some restrictions may apply).
This Prospectus sets forth the information that a prospective
investor should consider before investing in these Contracts. A
Statement of Additional Information about the Contracts, dated May
1, 1995, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Statement
of Additional Information is available at no cost to any person
requesting a copy by writing the Company at the address listed
below or by calling the telephone number also listed below. The
table of contents of the Statement of Additional Information is
included at the end of this Prospectus.
This Prospectus and the Statement of Additional Information
generally describe only the Contract and the Variable Account,
except when the Fixed Account is specifically mentioned.
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.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT
PROSPECTUS OF AIM VARIABLE INSURANCE FUNDS, INC. YOU SHOULD RETAIN
THIS PROSPECTUS FOR FUTURE REFERENCE.
ANY REFERENCE IN THIS PROSPECTUS TO RECEIVED OR RECEIPT BY THE
COMPANY MEANS RECEIPT AT ITS VARIABLE ANNUITY SERVICE CENTER
MAILING ADDRESS, c/o DELAWARE VALLEY FINANCIAL SERVICES INC., 300
BERWYN PARK, P.O. BOX 3031, BERWYN, PENNSYLVANIA, 19312-0031,
TELEPHONE (800) 628-2811.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS........................... 2
SUMMARY............................... 5
EXPENSE DATA.......................... 8
CONDENSED FINANCIAL DATA.............. 9
THE PURPOSE OF THIS PROSPECTUS........ 10
THE COMPANY, THE FIXED ACCOUNT, THE
VARIABLE ACCOUNT AND THE FUND........ 10
The Company.......................... 10
The Fixed Account.................... 10
The Variable Account................. 10
AIM Variable Insurance Funds, Inc.... 11
PREMIUM PAYMENTS AND ANNUITY ACCOUNT
VALUES DURING ACCUMULATION PERIOD.... 12
Premium Payments..................... 12
Purchaser's Annuity Account......... 12
Annuity Account Continuation........ 13
Allocation of Premium Payment(s).... 13
Fixed Accumulation Value............. 13
Guaranteed Periods.................. 13
Guaranteed Interest Rates........... 13
Variable Accumulation Value.......... 14
Crediting Variable Accumulation
Units.............................. 14
Variable Accumulation Unit Value.... 14
Dollar Cost Averaging................ 14
Transfer Privilege................... 15
DISTRIBUTIONS UNDER THE CONTRACT...... 16
Cash Withdrawals..................... 16
Minimum Value Requirement............ 16
Section 403(b) Annuities............. 16
DEATH BENEFITS........................ 17
Death Benefit Provided by the
Contracts........................... 17
Election and Effective Date of
Election............................ 17
Payment of Death Benefit............. 17
Amount of Death Benefit.............. 17
SURRENDER OF CONTRACTS................ 18
ANNUITY PROVISIONS.................... 18
</TABLE>
<TABLE>
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Annuity Date.......................... 18
Election -- Change of Annuity Option.. 18
Annuity Options....................... 19
Fixed Annuity Options................. 19
Variable Annuity Options.............. 20
Determination of Annuity Payments..... 20
CONTRACT CHARGES AND FEES.............. 20
Withdrawal Charges.................... 20
Fifteen Percent Free.................. 21
Annuity Account Fee................... 21
Administrative Fee.................... 22
Premium Taxes......................... 22
Charge for Mortality and Expense
Risks................................ 22
MVA................................... 22
OTHER CONTRACT PROVISIONS.............. 23
Deferral of Payment................... 23
Designation and Change of Beneficiary. 23
Exercise of Contract Rights........... 23
Transfer of Ownership................. 24
Death of Purchaser.................... 24
Voting of Fund Shares................. 24
Addition, Deletion, or Substitution of
Securities........................... 25
Change in Operation of Variable
Account.............................. 25
Modification.......................... 25
Discontinuance of New Purchasers...... 26
Right to Examine Contracts............ 26
IRA Right of Revocation............... 26
Periodic Reports...................... 26
FEDERAL TAX MATTERS.................... 26
Introduction.......................... 26
Taxation of Annuities................. 26
Qualified Plans....................... 28
DISTRIBUTION OF THE CONTRACTS.......... 28
HISTORICAL PERFORMANCE DATA............ 29
STATEMENT OF ADDITIONAL INFORMATION.... 30
</TABLE>
DEFINITIONS
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The following terms as used in this Prospectus have the indicated meanings:
ACCUMULATION PERIOD: The period from the Date of Issue to the Annuity Date,
the date on which the Death Benefit becomes payable, or the date on which the
Contract is surrendered or annuitized, whichever is earliest.
ACT: Investment Company Act of 1940, as amended.
*ANNUITANT: The person or persons on whose life the first annuity payment is
to be made. The Purchaser shall identify the Annuitant on the Contract
Application. If prior to the Annuity Date the Annuitant predeceases the
Purchaser, the Purchaser becomes the Annuitant unless and until the Purchaser
designates a new Annuitant to the Company In Writing. The Purchaser generally
has the right to change the Annuitant prior to the Annuity Date by requesting
such a change In Writing to the Company. Any such requested change will not be
effective until recorded by the Company.
ANNUITY ACCOUNT: An account established for each Purchaser to which all
Premium Payments are credited. In addition, net investment results
attributable to each Premium Payment shall be credited to (or reduce) the
Purchaser's Annuity Account.
ANNUITY ACCOUNT VALUE: The variable accumulation value, if any, plus the
fixed accumulation value, if any, of a Purchaser's Annuity Account for any
Valuation Period.
*ANNUITY DATE: The date on which annuity payments under the Contract
commence.
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*ANNUITY OPTION: The method for making income payment(s). In the Contract,
the term "Income Payments" is synonymous with the term "annuity payments" in
this Prospectus.
*BENEFICIARY: The person or entity having the right to receive the death
benefit set forth in the Contract and, for Non-Qualified Contracts, who is the
"designated beneficiary" for purposes of Section 72(s) of the Code in the
event of the Purchaser's death.
CERTIFICATE: (For group Contracts only) The document for each Purchaser
which evidences the coverage of the Purchaser under the Contract.
CODE: Internal Revenue Code of 1986, as amended.
COMMISSION: Securities and Exchange Commission.
COMPANY: Connecticut General Life Insurance Company.
CONTRACT: The document for each Purchaser which evidences the terms,
conditions, coverage, and rights of the Owner/Purchaser under the Contract.
Thus, as used herein the term "Contract" includes both an individual Contract
and a Certificate under a group contract.
CONTRACT APPLICATION: The document signed by the Purchaser, and the
Annuitant if different than the Purchaser, that evidences the Purchaser's
application for the Contract.
CONTRACT YEARS AND CONTRACT ANNIVERSARIES: All Contract Years and Contract
Anniversaries are 12-month periods measured from the Date of Issue.
DATE OF ISSUE: The date on which the Contract becomes effective.
DUE PROOF OF DEATH: An original certified copy of an official death
certificate, an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof of death
satisfactory to the Company.
FIXED ACCOUNT: Those Sub-Account(s) associated with Guaranteed Period(s) and
Guaranteed Interest Rate(s). Fixed Account assets are general assets of the
Company and are distinguishable from those allocated to a separate account of
the Company.
FIXED ANNUITY: An annuity with payments which do not vary as to dollar
amount.
FUND: AIM Variable Insurance Funds, Inc.
GUARANTEED PERIOD AMOUNT: Any portion of a Purchaser's Annuity Account Value
allocated to a specific Guaranteed Period with a specified Expiration Date
(including interest earned thereon).
GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during a Guaranteed Period.
GUARANTEED PERIOD: The period for which interest, at either an initial or
subsequent Guaranteed Interest Rate, will be credited to any amounts which a
Purchaser allocates to a Fixed Account Sub-Account. In most states in which
these Contracts are issued, this period may be one to ten years, as elected by
the Purchaser.
INDEX RATE: An index rate based on the Treasury Constant Maturity Series
published by the Federal Reserve Board.
IN WRITING: The term "In Writing" means in a written form satisfactory to
the Company and received by the Company at its Variable Annuity Service
Center's Mailing Address.
NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which does not receive favorable federal income tax treatment under Sections
401, 403, 408, or 457 of the Code. The Purchaser of a Non-Qualified Contract
must be a natural person or an agent for a natural person for the Contract to
receive favorable income tax treatment as an annuity.
PAYEE: A recipient of payments under the Contract. The term includes an
Annuitant or a Beneficiary who becomes entitled to benefits upon the death of
the Annuitant.
PREMIUM PAYMENT: Any amount paid to the Company as consideration for the
benefits provided by the Contract. Premium Payment includes the initial
Premium Payment and subsequent Premium Payments.
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PURCHASER: The owner, or the person, persons or entity entitled to the
ownership rights stated in the Contract. For individual Contracts, the term
Purchaser shall mean the Owner of the Contract. For group Contracts, the term
Purchaser shall mean the person named in the Certificate who is entitled to
exercise all rights and privileges of ownership under the Certificate. The
Purchaser may be no more than 85 years of age on the Date of Issue.
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which receives favorable federal income tax treatment under Sections 401(a),
403(a), 403(b), 408, or 457 of the Code.
SEVEN YEAR ANNIVERSARY: The seventh Contract Anniversary and each succeeding
Contract Anniversary occurring at any seven year interval thereafter, for
example, the 14th, 21st and 28th Contract Anniversaries.
SUB-ACCOUNT: That portion of the Fixed Account associated with specific
Guaranteed Period(s) and Guaranteed Interest Rate(s) and that portion of the
Variable Account which invests in shares of a specific series of AIM Variable
Insurance Funds, Inc.
SURRENDER: When a lump sum amount representing the Purchaser's Annuity
Account Value (minus any applicable withdrawal charges, market value
adjustment, contract fees, or premium taxes) is paid to the Purchaser. After a
surrender, all of the Purchaser's rights under the Contract are terminated.
SURRENDER DATE: The date or deemed date the Purchaser elects a surrender of
the Contract or Certificate.
VALUATION DATE: Every day on which the New York Stock Exchange ("NYSE") is
open for business, except any day on which trading on the NYSE is restricted,
or on which an emergency exists, as determined by the Commission so that
valuation or disposal of securities is not practicable.
VALUATION PERIOD: The period of time beginning on the day following the
Valuation Date and ending on the next Valuation Date. A Valuation Period may
be more than one day.
VARIABLE ACCOUNT: Those Sub-Account(s) associated with investments in AIM
Variable Insurance Funds, Inc. Variable Account assets are separate account
assets of the Company, the investment performance of which is kept separate
from that of the general assets of the Company.
VARIABLE ACCUMULATION UNIT: A unit of measure used in the calculation of the
value of the variable portion of a Purchaser's Annuity Account.
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*As specified in the Contract Application or Certificate Specifications,
unless changed.
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SUMMARY
NOTE: THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION IN THE REMAINDER OF THIS PROSPECTUS, IN THE STATEMENT OF
ADDITIONAL INFORMATION, IN THE PROSPECTUS FOR AIM VARIABLE INSURANCE FUNDS,
INC., AND IN THE CONTRACT, ALL OF WHICH SHOULD BE REFERRED TO FOR MORE
INFORMATION. THIS PROSPECTUS GENERALLY DESCRIBES ONLY THE CONTRACT AND THE
VARIABLE ACCOUNT. A SEPARATE PROSPECTUS ATTACHED HERETO DESCRIBES AIM VARIABLE
INSURANCE FUNDS, INC.
THE CONTRACT. These Contracts are Flexible Payment Deferred Variable Annuity
Contracts with Fixed and Variable Accounts (the "Contracts") designed for use
in connection with retirement and tax-deferred plans, some of which may
qualify as retirement programs under Sections 401, 403, 408, or 457 of the
Code or for use on a non-tax qualified basis. The Contracts provide for the
accumulation of values on either a variable or fixed basis, or a combination
fixed and variable basis as elected by the Purchaser, and provide for payment
of these values on a selected future date in either one lump sum or as annuity
payments.
The Contracts are offered as both individual and group annuity contracts.
The term "Contract" as used in this Prospectus refers to either an individual
annuity contract or to a Certificate under a group annuity contract, as
appropriate.
PREMIUM PAYMENTS. The Purchaser must generally make a minimum initial
Premium Payment of at least $5,000 ($2,000 for IRAs). The Purchaser may
generally make additional Premium Payments of at least $5,000 each for
allocation into any single Guaranteed Period within the Fixed Account and/or
at least $1,000 for allocation into any Variable Sub-Account. The prior
approval of the Company is required before it will accept a Premium Payment in
excess of $1,000,000 (See "Premium Payments").
THE ANNUITY ACCOUNTS. The Purchaser may elect to have Annuity Account Values
accumulate on a fixed basis in the Fixed Account, which pays interest at the
applicable Guaranteed Interest Rate(s) for the duration of the particular Sub-
Account's Guaranteed Period, or on a variable basis in CG Variable Annuity
Separate Account (the "Variable Account"), a separate account of the Company,
or divided between the Fixed Account and the Variable Account (See "The Fixed
Account" and "The Variable Account").
THE FIXED ACCOUNT. The Purchaser may elect to have values accumulated on a
fixed basis whereby a Premium Payment is allocated to one or more Sub-Accounts
available in connection with the Fixed Account. Each Sub-Account available
within the Fixed Account has a Guaranteed Period with a duration which ranges
from one to ten years. The Fixed Account is the general account of the Company
(See "The Fixed Account"). The Company guarantees these amounts and specifies
various interest rates (the "Guaranteed Interest Rates") which will be earned
by amounts allocated to each particular Sub-Account within the Fixed Account
if the amounts remain in that Sub-Account for the duration of the Sub-
Account's Guaranteed Period, subject to the imposition of Annuity Account Fees
or premium taxes. The Company may not change a Guaranteed Interest Rate for
the duration of the Sub-Account's Guaranteed Period. The Company will credit
interest at a rate of not less than three percent (3%) per year, compounded
annually, to amounts allocated to any of the Sub-Accounts within the Fixed
Account. However, Guaranteed Interest Rates applicable to subsequent
Guaranteed Periods cannot be predicted and will be determined at the sole
discretion of the Company (subject to the minimum guarantee of three percent
(3%)). There is no assurance that Guaranteed Interest Rates will ever exceed
3% per year. Amounts that are withdrawn or transferred prior to the end of the
Guaranteed Period may be subject to a withdrawal charge and/or a Market Value
Adjustment. The Market Value Adjustment could be positive or negative.
THE VARIABLE ACCOUNT. The assets of the Variable Account are also divided
into Sub-Accounts. Each Variable Sub-Account uses its assets to purchase, at
their net asset value, shares of a specific portfolio of AIM Variable
Insurance Funds, Inc. (the "Fund"), a mutual fund registered under the Act and
advised by A I M Advisors, Inc. (See "The Variable Account".) Nine portfolios
are currently available for investment within the Variable Account: (1) AIM
V.I. Capital Appreciation Fund; (2) AIM V.I. Diversified Income Fund; (3) AIM
V.I. Government Securities Fund; (4) AIM V.I. Growth Fund; (5) AIM V.I.
International Equity Fund; (6) AIM V.I. Money Market Fund; (7) AIM V.I. Value
Fund; (8) AIM V.I. Growth and Income Fund; and (9) AIM V.I. Global Utilities
Fund.
TRANSFERS. Subject to certain conditions, the Purchaser may transfer amounts
among the Sub-Accounts available under the Contract before the Annuity Date.
All transfers are subject to the following conditions: (1) a Purchaser is
limited to twelve transfers each Contract Year; (2) the amount being
transferred from any Sub-Account may not be less than $1,000; (3) transfers to
any Fixed Sub-Account may not be less than $5,000; (4) if after the transfer
the Purchaser's Annuity Account Value remaining would be less than $1,000 in
the applicable Fixed Sub-Account and/or $250 in the applicable Variable Sub-
Account, then the entire Annuity Account Value within the Sub-Account must be
transferred; and (5) no transfers are permitted during the "Right to Examine
Contract" period. In addition, transfers from any Fixed Sub-Account are
restricted in frequency and amount and may also be subject to the Market Value
Adjustment. After the Annuity Date, transfers among the Variable Sub-Accounts
may also be permitted, subject to certain conditions (See "Transfer
Privilege").
CASH WITHDRAWALS. At any time before the Annuity Date, the Purchaser may
elect to receive a cash withdrawal payment from the Company. Each cash
withdrawal request must be in a minimum amount of at least $1,000. Subject to
the Fifteen Percent Free withdrawal described below, a cash withdrawal of a
Purchaser's Annuity Account Value will be subject to any applicable withdrawal
charges. A cash withdrawal will also be subject to any applicable Market Value
Adjustment, Annuity Account Fees, or premium taxes. After the Annuity Date,
withdrawals are not permitted under most Annuity Options (See "Cash
Withdrawals").
Federal income taxes and a tax penalty may be applicable to withdrawals (See
"Federal Tax Matters").
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FIFTEEN PERCENT FREE. Each Contract Year a Purchaser may generally withdraw
up to 15% of the total amount of the Purchaser's Premium Payments made to the
Purchaser's Annuity Account without the imposition of a withdrawal charge. A
Purchaser may only make one free withdrawal in each Contract Year of up to 15%
of Premium Payments until all Premium Payments are deemed withdrawn. The
Company will deem all Free withdrawals to have withdrawn Premium Payments from
a Purchaser's Annuity Account in the order in which they were received by the
Company for purposes of computing the contingent deferred sales charge (the
withdrawal charge) on amounts remaining within the Purchaser's Annuity Account
(I.E. oldest Premium Payment first). See "Fifteen Percent Free".
ANNUITY PAYMENTS. Annuity Payments as elected by the Purchaser will begin on
the Annuity Date. The Purchaser selects the Annuity Date and the Annuity
Option. See "Annuity Provisions".
DEATH BENEFIT. In the event of the death of the Purchaser prior to the
Annuity Date, the Company will pay a death benefit to the Beneficiary. If the
death of the Purchaser (or Annuitant) occurs on or after the Annuity Date, no
death benefit will be payable except as may be provided under the Annuity
Option elected. The Death Benefit prior to the Annuity Date generally equals
the greatest of (1) the Annuity Account Value for the Valuation Period during
which the Death Benefit election is effective or deemed to become effective;
(2) the sum of all Premium Payments under the Contract, minus the sum of all
partial withdrawals from the Contract; (3) the Purchaser's Annuity Account
Value on the Seven Year Anniversary immediately preceding the date the death
benefit election is effective or is deemed to become effective, adjusted for
any subsequent Premium Payments, partial withdrawals and applicable charges;
and (4) the amount that would have been payable in the event of a full
surrender of the Contract during the Valuation Period during which the Death
Benefit election is effective or deemed to become effective, including any
applicable withdrawal charges and Market Value Adjustment. See "Death
Benefit".
RIGHT TO EXAMINE CONTRACTS. If the Purchaser is not satisfied with a
Contract it may be returned by mailing it to the Company at the Variable
Annuity Service Center mailing address listed on the cover of this Prospectus
within ten days after it was received by the Purchaser. A Purchaser may not
make transfers during the Right to Examine period. When the Company receives
the returned Contract it will be canceled and in most states the Purchaser
will receive a refund equal to the Purchaser's Annuity Account Value at the
end of the Valuation Period during which the returned Contract was received by
the Company.
In certain states, the full amount of any initial Premium Payment and
subsequent Premium Payment(s) if any, received by the Company will be refunded
and/or the period may be extended to 20 days. In those states in which the
initial Premium Payment and subsequent Premium Payment(s) if any, received by
the Company must be refunded, the Company will allocate the Premium Payment(s)
received before or during the Right to Examine period that are allocated to
Sub-Accounts of the Variable Account to the AIM V.I. Money Market Fund until
the end of the Right to Examine period. Thereafter, the Premium Payments will
be allocated as specified by the Purchaser in the Contract Application. The
Company will also refund the greater of the Purchaser's Annuity Account Value
or the full amount of the Premium Payment(s), if any, to those Purchasers who
invoke their Right to Examine privilege in these states.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE. The Company does not deduct a sales charge
when it receives a Premium Payment. However, if any part of a Purchaser's
Annuity Account is withdrawn, a withdrawal charge (contingent deferred sales
charge) may be assessed by the Company. Subject to the Fifteen Percent Free
amount described above, Annuity Account withdrawals derived from a Premium
Payment deposited with the Company for a period of seven years or less will be
subject to a withdrawal charge ranging from 7% to 1% of the applicable Premium
Payment (adjusted by any applicable Market Value Adjustment with respect to
the Fixed Account). The length of time between the Company's acceptance of a
Premium Payment and the making of a withdrawal determines the withdrawal
charge percentage. The withdrawal charge is not imposed on a Premium Payment
after the end of the seventh year of its deposit with the Company. For
purposes of computing the withdrawal charge, amounts are deemed to be
withdrawn in the order in which they were received by the Company (I.E. oldest
Premium Payment first). See "Withdrawal Charges".
MARKET VALUE ADJUSTMENT. In certain situations, a cash withdrawal of amounts
from the Fixed Account will be subject to a Market Value Adjustment ("MVA").
See "Market Value Adjustment". The MVA will reflect the relationship between
an index published by the Federal Reserve Board as to current yields on U.S.
government securities of various maturities at the time a cash withdrawal is
made, and this index at the time that the Premium Payments being withdrawn
were made. Generally, if the Index Rate at the time of withdrawal is more than
.50% lower than the Index Rate at the time the Premium Payment was allocated,
then the application of the MVA will result in higher payment upon withdrawal.
Similarly, if the Index Rate at the time of withdrawal is higher than the
Index Rate at the time the Premium Payment was allocated (or less than 0.50%
lower), the application of the MVA will generally result in a lower payment
upon withdrawal. In addition to actual cash withdrawals, the MVA applies to
transfers from the Fixed Account (unless effective at the end of the
Guaranteed Period). It may also apply to Death Benefit payments, but only if
it would increase the Death Benefit. The MVA is not applied against a
withdrawal or transfer which becomes effective upon the Expiration Date of the
Guaranteed Period.
ANNUITY ACCOUNT FEE. On the last Valuation Date of each calendar year, the
Company will deduct an annual annuity account administration fee ("Annuity
Account Fee") of $35 from the Purchaser's Annuity Account Value. If the
Purchaser's Annuity Account was established on a date other than the last
Valuation Date of the calendar year, the Company will pro rate the Purchaser's
initial Annuity
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Account Fee to reflect the shorter period. Thereafter, the full $35 fee will
be deducted annually. If the Contract is surrendered for its full value, the
Annuity Account Fee will be deducted in full at the time of such surrender.
After the Annuity Date, an annual Annuity Account Fee of $35 will be deducted
in equal amounts from each variable annuity payment made during the year. No
deduction will be made from fixed annuity payments. If applicable state law
requires, the $35 Annuity Account Fee will be reduced to a lesser amount.
ADMINISTRATIVE FEE. The Company also deducts an administrative fee at the
end of each Valuation Period equal to an annual rate of 0.10% of the daily net
assets of the Variable Account for administrative expenses assumed by the
Company. See "Administrative Fees".
RISK CHARGE. The Company deducts a mortality and expense risk charge at the
end of each Valuation Period equal to an annual rate of 1.25% of the daily net
assets of the Variable Account for mortality and expense risks assumed by the
Company. See "Charge for Mortality and Expense Risks".
TAXES. The Company may incur premium, or similar state or local taxes
relating to the Contracts. The Company will deduct any such taxes related to a
particular Contract upon a Purchaser's surrender, withdrawal, annuitization,
or payment of death benefits. See "Premium Taxes".
CHARGES AGAINST THE FUND. The value of the net assets of the Sub-Accounts of
the Variable Account will reflect the investment advisory fee and other
expenses incurred by the AIM Variable Insurance Funds, Inc. See "Expense Data"
below.
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EXPENSE DATA
The purpose of the following table and Example is to help Purchasers and
prospective purchasers understand the costs and expenses that are borne,
directly and indirectly, by Purchasers assuming that all Premium Payments are
allocated to the Variable Account. The table reflects expenses of the Variable
Account as well as of AIM Variable Insurance Funds, Inc. The information set
forth should be considered together with the information provided under the
heading "Contract Charges and Fees", and with the Fund's Prospectus. In
addition to the expenses listed below, premium taxes may be applicable.
FEE TABLE
<TABLE>
<CAPTION>
AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I.
CAPITAL AIM V.I. GLOBAL GOVERNMENT AIM V.I. GROWTH AND INTER- MONEY AIM V.I.
APPRECIA- DIVERSIFIED UTILITIES SECURITIES GROWTH INCOME NATIONAL MARKET VALUE
TION FUND INCOME FUND FUND FUND FUND FUND EQUITY FUND FUND FUND
--------- ----------- --------- ---------- -------- ---------- ----------- -------- --------
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PURCHASER TRANSACTION
EXPENSES
Sales Loan on
Purchases............. 0 0 0 0 0 0 0 0 0
Maximum deferred sales
load computed on
amount withdrawn (as a
percentage of
Purchaser's Premium
Payment)(1)........... 7% 7% 7% 7% 7% 7% 7% 7% 7%
Transfer fee(2)........ 0 0 0 0 0 0 0 0 0
Annual Annuity Account
Fee................... $35 per Contract
SEPARATE ACCOUNT ANNUAL
EXPENSES (AS A
PERCENTAGE OF AVERAGE
SEPARATE ACCOUNT
ASSETS)
Mortality and Expense
Risk Fee.............. 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Administrative Fee..... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Other Fees and
Expenses.............. 0% 0% 0 0% 0% 0 0% 0% 0%
---- ---- ---- ---- ---- ---- ---- ---- ----
Total............... 1.35% 1.35% 1.35% 1.35% 1.35% 1.35% 1.35% 1.35% 1.35%
AIM VARIABLE INSURANCE
FUNDS, INC. ANNUAL
EXPENSES (AS A
PERCENTAGE OF FUND
AVERAGE NET ASSETS)
Management Fees........ 0.65% 0.60% 0.00%/(3)/ 0.50% 0.65% 0.00%/(3)/ 0.75% 0.40% 0.65%
Other Expenses......... 0.19% 0.43% 1.31%/(4)/ 0.60% 0.30% 1.07% 0.53% 0.30% 0.17%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL............... 0.84% 1.03% 1.31% 1.10% 0.95% 1.07% 1.28% 0.70% 0.82%
</TABLE>
- ---------
(1) A portion of a Purchaser's Annuity Account may be withdrawn each Contract
Year without the assessment of a withdrawal charge. The withdrawal charge
is equal to a percentage of the Purchaser's Premium Payment withdrawn and
ranges from 7% to 0%, depending upon the length of time between the
Company's acceptance of the Premium Payment withdrawn and the making of a
withdrawal. After the Premium Payment has been held by the Company for
seven years such Premium Payment may be withdrawn without assessment of
the withdrawal charge.
(2) Before the Annuity Date, a Purchaser is limited to twelve transfers each
Contract Year. Transfers from any Fixed Sub-Account are restricted in
frequency and amount and may also be subject to a MVA. After the Annuity
Date, a Payee is limited to three transfers per contract year.
(3) The management fees listed are reduced because the Investment Adviser for
the Funds, A I M Advisors, Inc. is temporarily waiving the imposition of
certain management fees until further notice. If this waiver were not in
effect, the management fees as a percentage of each fund's average net
assets would be 0.65% and 0.65% for AIM V.I. Global Utilities Fund and the
AIM V.I. Growth and Income Fund, respectively.
(4) "Other Expenses" listed for the AIM V.I. Global Utilities Fund include
expense reimbursements. Had there been no expense reimbursements other
expenses would have been 2.15%.
8
<PAGE>
EXAMPLES A Purchaser would pay the following expenses on a $1,000
investment, assuming a 5% annual return on assets (and assuming all Premium
Payments are allocated to the Variable Account):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
1. IF THE CONTRACT IS SURRENDERED AT THE END OF THE
APPLICABLE TIME PERIOD:
AIM V.I. Capital Appreciation Fund......... $83 $115 $151 $267
AIM V.I. Diversified Income Fund........... $85 $121 $161 $286
AIM V.I. Global Utilities Fund............. $88 $129 $175 $313
AIM V.I. Government Securities Fund........ $86 $123 $164 $292
AIM V.I. Growth Fund....................... $84 $119 $157 $278
AIM V.I. Growth and Income Fund............ $85 $122 $163 $290
AIM V.I. International Equity Fund......... $88 $128 $173 $310
AIM V.I. Money Market Fund................. $82 $111 $144 $252
AIM V.I. Value Fund........................ $83 $115 $150 $265
2. IF THE CONTRACT IS NOT SURRENDERED OR IF IT IS
ANNUITIZED:
AIM V.I. Capital Appreciation Fund......... $24 $ 73 $125 $267
AIM V.I. Diversified Income Fund........... $26 $ 78 $134 $286
AIM V.I. Global Utilities Fund............. $28 $ 87 $148 $313
AIM V.I. Government Securities Fund........ $26 $ 81 $138 $292
AIM V.I. Growth Fund....................... $25 $ 76 $130 $278
AIM V.I. Growth and Income Fund............ $26 $ 80 $136 $290
AIM V.I. International Equity Fund......... $28 $ 86 $146 $310
AIM V.I. Money Market Fund................. $22 $ 69 $117 $252
AIM V.I. Value Fund........................ $23 $ 72 $124 $265
</TABLE>
The above tables are intended to assist the Purchaser in understanding the
costs and expenses that will be borne, directly or indirectly, by Premium
Payments allocated to the Variable Account. These include the expenses of AIM
Variable Insurance Funds, Inc. See the Fund Prospectus. In addition to the
expenses listed above, premium taxes may be applicable.
These examples reflect the annual $35 Annuity Account Fee as an annual
charge of .14% of assets, based on an anticipated average Annuity Account
Value of $25,000.
The Examples should not be considered a representation of past or future
expenses, and actual expenses may be greater or lesser than those shown.
PURCHASER INQUIRIES. Inquiries from Purchasers or prospective Purchasers
should be directed to the Company's Variable Annuity Service Center, Delaware
Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn,
Pennsylvania, 19312-0031, telephone (800) 628-2811.
- -------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
There follows, for each of the nine sub-accounts available under the
Contracts during the Variable Account's fiscal year ended January 31, 1995,
information regarding the changes in the accumulation unit values during the
fiscal year ended January 31, 1995 and the number of accumulation units
outstanding at January 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
ENDING VALUE ENDING VALUE OUTSTANDING AT
SUB-ACCOUNT AT 01/31/94 AT 1/31/95 1/31/95
----------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
AIM V.I. Capital
Appreciation........... $12.38041595 $11.73552614 7,513,807
AIM V.I. Diversified
Income................. $10.74882414 $9.93099697 2,442,031
AIM V.I. Global
Utilities*............. $10.00000000 $10.23506635 190,264
AIM V.I. Government
Securities............. $10.25974178 $9.77511075 1,214,456
AIM V.I. Growth......... $11.44824866 $10.49090794 4,337,355
AIM V.I. Growth and
Income*................ $10.00000000 $10.21572537 622,513
AIM V.I. International
Equity................. $12.29642468 $10.73834133 5,124,627
AIM V.I. Money Market... $10.08363319 $10.37828057 2,979,228
AIM V.I. Value.......... $11.92155242 $11.52168559 9,479,495
</TABLE>
* May 2, 1994 Fund Inception Date
9
<PAGE>
- -------------------------------------------------------------------------------
THE PURPOSE OF THIS PROSPECTUS
This Prospectus contains information about the individual and group
AIM/CIGNA Heritage Variable Annuity Contract (the "Contract") which provides
fixed or variable accumulations or a combination of both, and fixed and/or
variable annuity payments starting at the Annuity Date. It describes the
Contract's uses and objectives, its benefits and costs, and the rights and
privileges of the Purchaser. It also contains information about the Company,
the Variable Account, the Fixed Account and the Fund. It has been carefully
prepared in non-technical language to help you decide whether the purchase of
a Contract will fit your needs. We urge you to read it carefully and retain it
for future reference.
- -------------------------------------------------------------------------------
THE COMPANY, THE FIXED ACCOUNT, THE VARIABLE ACCOUNT AND THE FUND
THE COMPANY. The Company is a stock life insurance company incorporated
under the laws of Connecticut by special act of the Connecticut General
Assembly in 1865. Its Executive Office mailing address is Hartford,
Connecticut 06152, Telephone (203) 726-6000. It has obtained authorization to
do business in fifty states, the District of Columbia and Puerto Rico. The
Company issues group and individual life and health insurance policies and
annuities. The Company has various wholly-owned subsidiaries which are
generally engaged in the insurance business. The Company is a wholly-owned
subsidiary of Connecticut General Corporation, Bloomfield, Connecticut.
Connecticut General Corporation is wholly-owned by CIGNA Holdings Inc.,
Philadelphia, Pennsylvania which is in turn wholly-owned by CIGNA Corporation,
Philadelphia, Pennsylvania. Connecticut General Corporation is the holding
company of various insurance companies, one of which is Connecticut General
Life Insurance Company.
THE FIXED ACCOUNT. The Fixed Account is made up of the general assets of the
Company other than those allocated to any separate account. The Fixed Account
is part of the Company's general account. Because of applicable exemptive and
exclusionary provisions, interests in the Fixed Account have not been
registered under the Securities Act of 1933 (the "1933 Act"), and neither the
Fixed Account nor the Company's general account has been registered under the
Investment Company Act of 1940 (the "1940 Act"). Therefore, neither the Fixed
Account nor any interest therein is generally subject to regulation under the
provisions of the 1933 Act or the 1940 Act. Accordingly, the Company has been
advised that the staff of the Commission has not reviewed the disclosure in
this Prospectus relating to the Fixed Account.
The initial Premium Payment and any subsequent Premium Payment(s) will be
allocated to Sub-Accounts available in connection with the Fixed Account to
the extent elected by the Purchaser at the time such payment is made. In
addition, all or part of the Purchaser's Annuity Account Value may be
transferred to such Sub-Accounts available under the Contract as described
under "Transfer Privilege." Instead of the Purchaser assuming all of the
investment risk as is the case for Premium Payments allocated to the Variable
Account, the Company guarantees it will credit a specified minimum interest
rate to amounts allocated to the Fixed Account.
Assets supporting amounts allocated to Sub-Accounts within the Fixed Account
become part of the Company's general account assets and are available to fund
the claims of all creditors of the Company. All of the Company's general
account assets will be available to fund benefits under the Contracts. The
Purchaser does not participate in the investment performance of the assets of
the Fixed Account or the Company's general account. Instead, a specified rate
of interest, declared in advance, is credited to amounts allocated to the
Fixed Account. This rate is guaranteed to be at least 3% per year. The Company
may credit interest at a rate in excess of 3% per year; however, the Company
is not obligated to credit any interest in excess of 3% per year.
The Company will invest the assets of the general account in those assets
chosen by the Company and allowed by applicable state laws regarding 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 and common stocks, real
estate mortgages, real estate and certain other investments.
If the Purchaser maintains Account Value within a Fixed Account Sub-Account
for the duration of the Sub-Account's Guaranteed Period, the Company
guarantees that it will credit interest to that amount at the guaranteed rate
specified for the Sub-Account. In the event the Purchaser withdraws any amount
from the Sub-Account prior to the expiration of the Sub-Account's Guaranteed
Period for any reason, the Company may subject the withdrawn amount to a MVA
(see "Market Value Adjustment") and a withdrawal charge, if applicable. The
Company guarantees, however, that a Purchaser will be credited with interest
at a rate of not less than 3% per year, compounded annually, on amounts
allocated to any Fixed Account Sub-Account under the Contracts, regardless of
any application of the MVA (that is, the MVA will not reduce the amount
available for withdrawal or transfer to an amount less than the initial amount
allocated or transferred to the Fixed Account Sub-Account plus interest of 3%
per year). The Company reserves the right to defer the payment or transfer of
amounts withdrawn from the Fixed Account for a period not to exceed six (6)
months from the date a proper request for such withdrawal or transfer is
received by the Company.
THE VARIABLE ACCOUNT. The basic objective of a variable annuity contract is
to provide variable accumulation of Premium Payments which will be to some
degree responsive to changes in the economic environment, including
inflationary forces and changes
10
<PAGE>
in rates of return available from various types of investments. The Contracts
are designed to seek to accomplish this objective by providing that Annuity
Account Values and/or Variable Annuity payments will reflect the investment
performance of the Sub-Accounts of the Variable Account with respect to
amounts allocated to Sub-Accounts of the Variable Account. (See "Annuity
Options" on page 18.) Since Sub-Accounts of the Variable Account are always
fully invested in shares of corresponding portfolios of the Fund, their
investment performance reflects the investment performance of the portfolios
of the Fund. Values of Fund shares held by the Variable Account fluctuate and
are subject to the risks of changing economic conditions as well as the risk
inherent in the ability of the Fund's management to make necessary changes in
its portfolios to anticipate changes in economic conditions. Therefore, the
Purchaser bears the entire investment risk that the basic objectives of the
Contract may not be realized, and that the adverse effects of inflation may
not be lessened and there can be no assurance that the total surrender
proceeds or the aggregate amount of annuity payments will equal or exceed the
Premium Payments made with respect to a particular Purchaser's Annuity
Account.
The CG Variable Annuity Separate Account (the "Variable Account") was
established by the Company as a separate account on May 15, 1992 pursuant to a
resolution of its Board of Directors. Under Connecticut insurance law, the
income, gains or losses of the Variable Account are credited to or charged
against the assets of the Variable Account without regard to the other income,
gains, or losses of the Company. These assets are held in relation to the
Contracts described in this Prospectus. Although that portion of the assets
maintained in the Variable Account equal to the reserves and other contract
liabilities with respect to the Variable Account will not be charged with any
liabilities arising out of any other business conducted by the Company, all
obligations arising under the Contracts, including the promise to make annuity
payments, are general corporate obligations of the Company.
The Variable Account is registered with the Commission as a unit investment
trust under the Act and meets the definition of a separate account under the
federal securities laws. Registration with the Commission does not involve
supervision of the management or investment practices or policies of the
Variable Account or of the Company by the Commission.
The assets of the Variable Account are divided into Sub-Accounts. Each Sub-
Account invests exclusively in shares of a specific portfolio of the Fund. All
amounts allocated to the Variable Account will be used to purchase Fund shares
as designated by the Purchaser at their net asset value. Any and all
distributions made by the Fund with respect to the shares held by the Variable
Account will be reinvested to purchase additional shares at their net asset
value. Deductions from the Variable Account for cash withdrawals, annuity
payments, death benefits, annuity account fees, and any applicable taxes will,
in effect, be made by redeeming the number of Fund shares at their net asset
value equal in total value to the amount to be deducted. (The Variable Account
will purchase and redeem Fund shares on an aggregate basis.) The Variable
Account will be fully invested in Fund shares at all times.
AIM VARIABLE INSURANCE FUNDS, INC. AIM Variable Insurance Funds, Inc. (the
"Fund") is an open-end investment management company registered under the Act.
Currently shares of the Fund are not sold to other separate accounts
established by other insurance companies. However, in the future, shares of
the Fund may be sold to other separate accounts established by other insurance
companies to fund other variable annuity or variable life insurance contracts.
A I M Advisors ("AIM"), Inc., the Fund's investment adviser, its affiliates,
and any insurance companies with separate accounts investing in the Fund will
be responsible for reporting to the Fund's Board of Directors any potential or
existing conflicts between the interests of variable annuity contract
owners/participants and the interests of owners of variable life insurance
contracts that provide for investment in shares of the Fund. The Board of
Directors, a majority of whom are not "interested persons" of the Fund, as
that term is defined in the Act, also will monitor the Fund to identify the
existence of any such irreconcilable material conflicts and to determine what
action, if any, should be taken by the Fund and/or A I M, and its affiliates
(see "Management of the Fund" in the Fund Prospectus).
The Fund is currently composed of nine independent portfolios of securities,
each of which has separate investment objectives and policies. Shares of the
Fund are issued in nine series, each corresponding to one of the portfolios.
Additional portfolios may be added to the Fund which may or may not be
available for investment by the Variable Account.
AIM V.I. CAPITAL APPRECIATION FUND ("CAPITAL APPRECIATION FUND") is a
diversified portfolio which seeks to provide capital appreciation through
investments in common stocks, with emphasis on medium-sized and smaller
emerging growth companies.
AIM V.I. DIVERSIFIED INCOME FUND ("DIVERSIFIED INCOME FUND") is a
diversified portfolio which seeks to achieve a high level of current income
primarily by investing in a diversified portfolio of foreign and U.S.
government and corporate debt securities, including lower rated high yield
debt securities (commonly known as "junk bonds").
AIM V.I. GLOBAL UTILITIES FUND ("GLOBAL UTILITIES FUND"), formerly AIM V.I.
Utilities Fund, is a non-diversified portfolio which seeks to achieve a high
level of current income, and as a secondary objective capital appreciation, by
investing primarily in common and preferred stocks of public utility companies
(either domestic or foreign).
AIM V.I. GOVERNMENT SECURITIES FUND ("GOVERNMENT FUND") is a diversified
portfolio which seeks to achieve a high level of current income consistent
with reasonable concern for safety of principal by investing in debt
securities issued, guaranteed or otherwise backed by the U.S. Government.
AIM V.I. GROWTH FUND ("GROWTH FUND") is a diversified portfolio which seeks
to provide growth of capital through investments primarily in common stocks of
leading U.S. companies considered by AIM to have strong earnings momentum.
11
<PAGE>
AIM V.I. GROWTH AND INCOME FUND ("GROWTH & INCOME FUND") is a diversified
portfolio which seeks to provide growth of capital, with current income as a
secondary objective by investing primarily in dividend paying common stocks
which have prospects for both growth of capital and dividend income.
AIM V.I. INTERNATIONAL EQUITY FUND ("INTERNATIONAL FUND") is a diversified
portfolio which seeks to provide long-term growth of capital by investing in
international equity securities, the issuers of which are considered by AIM to
have strong earnings momentum.
AIM V.I. MONEY MARKET FUND ("MONEY MARKET FUND") is a diversified portfolio
which seeks to provide as high a level of current income as is consistent with
the preservation of capital and liquidity by investing in a diversified
portfolio of money market instruments.
AIM V.I. VALUE FUND ("VALUE FUND") is a diversified portfolio which seeks to
achieve long-term growth of capital by investing primarily in equity
securities judged by AIM to be undervalued relative to the current or
projected earnings of the companies issuing the securities, or relative to
current market values of assets owned by the companies issuing the securities
or relative to the equity markets generally. Income is a secondary objective.
AIM is paid fees by the Fund for its services pursuant to an investment
advisory agreement. AIM, a Delaware corporation, also serves as investment
adviser to each of the funds in The AIM Family of Funds(R), and to certain
other investment companies. AIM operates as an autonomous organization and the
obligation of performance with respect to the investment advisory agreement is
solely that of AIM. The Company undertakes no obligation in this respect.
THERE IS NO ASSURANCE THAT ANY SERIES WILL ACHIEVE ITS STATED OBJECTIVE. A
more detailed description of the Fund, its investment objectives, policies and
restrictions and expenses may be found in the accompanying current Prospectus
of the Fund and in the Fund's Statement of Additional Information. Information
contained in the Fund's Prospectus should be read carefully before allocating
Premium Payments or making transfers to a Sub-Account of the Variable Account.
- -------------------------------------------------------------------------------
PREMIUM PAYMENTS AND ANNUITY ACCOUNT VALUES DURING ACCUMULATION PERIOD
PREMIUM PAYMENTS. All initial Premium Payments and subsequent Premium
Payments are to be paid to an authorized agent of the Company or to the
Company c/o Delaware Valley Financial Services Inc., 300 Berwyn Park, P.O. Box
3031, Berwyn, Pennsylvania 19312-0031. The Company will not accept an initial
Premium Payment from a Purchaser which is less than $5,000 ($2,000 for IRAs).
In addition, any allocation of such initial Premium Payment must be in minimum
amounts of $5,000 per Fixed Account Sub-Account and $1,000 per Variable
Account Sub-Account. The Company will accept subsequent Premium Payments in
minimum amounts of $5,000 (for amounts to be allocated to each Fixed Account
Sub-Account) and $1,000 (for amounts to be allocated to each Variable Account
Sub-Account). The Company may reduce the minimum Premium Payment requirements
under group contracts where Premium Payments are made by each Purchaser
through employee payroll deduction. The Company may also reduce the minimum
Premium Payment requirements for Purchasers who use the Contract under a
program which qualifies under Section 403 or 408 of the Code. The prior
approval of the Company is required before it will accept any Premium Payment
in excess of $1,000,000.
A completed Contract Application and the Initial Premium Payment must be
forwarded to the Company for acceptance. Upon acceptance, the Contract is
issued to the Purchaser and the Initial Premium Payment is then credited to
the Purchaser's Annuity Account. An Initial Premium Payment must be credited
within two business days of receipt by the Company of a completed Contract
Application. The Company may retain the Premium Payment for up to five
business days while attempting to complete an incomplete Contract Application.
If the Contract Application cannot be made complete within five business days,
the prospective Purchaser will be informed of the reasons for the delay and
the Premium Payment will be returned immediately unless the prospective
Purchaser specifically consents to the Company's retaining the Premium Payment
until the Contract Application is made complete.
Subsequent Premium Payments are also forwarded to the Company for
acceptance. Upon acceptance, the Premium Payment is credited to the
Purchaser's Annuity Account. A subsequent Premium Payment received by the
Company prior to the closing time of the New York Stock Exchange (currently 4
p.m. Eastern Time) will be applied on the same day of receipt.
A Purchaser may be no more than 85 years of age on the Date of Issue. The
Company reserves the right in its sole discretion not to accept a Contract
Application, and not to accept a Premium Payment. In addition, the payment of
any amount under the Contract which is derived, all or in part, from any
Premium Payment paid to the Company by check or draft may be postponed until
such time as the Company determines that such instrument has been honored.
PURCHASER'S ANNUITY ACCOUNT. The Company will establish a Purchaser's
Annuity Account upon its acceptance of an initial Premium Payment from each
Purchaser. Each subsequent Premium Payment from the Purchaser under the
Contract will be
12
<PAGE>
credited to the Purchaser's Annuity Account. The Company will maintain the
Annuity Account for the Purchaser during the Accumulation Period. A
Purchaser's Annuity Account Value for any Valuation Period is equal to the sum
of the variable accumulation value, if any, plus the fixed accumulation value,
if any, of the Purchaser's Annuity Account for that Valuation Period.
ANNUITY ACCOUNT CONTINUATION. The Annuity Account shall be continued
automatically in full force for the Purchaser until the Annuity Date, all
death benefits under the Contract are paid, the Contract is surrendered, or
the Annuity Account Value no longer meets the requirements specified in the
"Minimum Value Requirement," whichever occurs first. Cash withdrawals may
cause the Purchaser's Annuity Account to be discontinued by the Company.
ALLOCATION OF PREMIUM PAYMENT(S). The Initial Premium Payment and any
Subsequent Premium Payment(s) will be allocated among the Sub-Accounts
available in connection with the Fixed Account or the Variable Account, or to
a combination of both as specified by the Purchaser. Subject to the $5,000
Fixed Account Sub-Account and $1,000 Variable Account Sub-Account minimum
allocations specified above (See "Premium Payments"), the Company will
allocate the Initial Premium Payment as specified in the Contract Application.
Subsequent Premium Payments will also be allocated as specified in the
Contract Application unless the Company receives different allocation
instructions In Writing from the Purchaser. If applicable allocation
instructions would result in an allocation to a Fixed Account Sub-Account that
does not meet the $5,000 minimum, then the Company will promptly seek further
instructions from the Purchaser regarding allocation of the premium. In
certain states, with respect to Premium Payments received before or during the
Right to Examine Contract period and allocated to the Variable Account, the
Company will allocate such Premium Payments to the AIM V.I. Money Market Fund
during the Right to Examine Contract period (See "Right to Examine Contract").
After expiration of this period the Company will allocate the initial Premium
Payment as specified in the Contract Application.
FIXED ACCUMULATION VALUE. The fixed accumulation value of a Purchaser's
Annuity Account, if any, for any Valuation Period is equal to the sum of the
values of all Fixed Account Sub-Accounts credited to the Purchaser's Annuity
Account for such Valuation Period.
GUARANTEED PERIODS. The Purchaser may elect to allocate Premium Payments to
one or more Sub-Accounts within the Fixed Account. Each Sub-Account will
maintain a Guaranteed Period with a duration ranging from one to ten years.
The duration of the Guaranteed Period will affect the Guaranteed Interest Rate
of the Sub-Account. Initial Premium Payments and Subsequent Premium Payments,
or portions thereof, and transfer amounts allocated to a Fixed Account Sub-
Account, less any amounts subsequently withdrawn, will earn interest at the
Guaranteed Interest Rate during the particular Sub-Account's Guaranteed Period
unless prematurely withdrawn prior to the end of the Guaranteed Period.
Initial Sub-Account Guaranteed Periods begin on the date a Premium Payment is
accepted or, in the case of a transfer, on the effective date of the transfer,
and end on the number of calendar years in the Sub-Account's Guaranteed Period
elected from the date on which the amount was allocated to the Sub-Account
(the "Expiration Date"). Any portion of a Purchaser's Annuity Account Value
allocated to a specific Sub-Account with a specified Expiration Date
(including interest earned thereon) will be referred to herein as a
"Guaranteed Period Amount." Interest will be credited daily at a rate
equivalent to the compound annual rate. As a result of renewals and transfers
of portions of the Purchaser's Annuity Account Value described under "Transfer
Privilege" below, which will begin new Sub-Account Guaranteed Periods, amounts
allocated to Sub-Accounts of the same duration may have different Expiration
Dates. Thus each Guaranteed Period Amount will be treated separately for
purposes of determining any applicable MVA (see "Market Value Adjustment").
The Company will notify the Purchaser in writing at least 60 days prior to
the Expiration Date for any Guaranteed Period Amount. A new Sub-Account
Guaranteed Period of the same duration as the previous Sub-Account Guaranteed
Period will commence automatically at the end of the previous Guaranteed
Period unless the Company receives, within the 45 day period prior to the end
of such Guaranteed Period, a written election by the Purchaser to transfer the
Guaranteed Period Amount, in accordance with the Transfer Privilege provision,
to a different Fixed Account Sub-Account or to a Variable Account Sub-Account
from among those being offered by the Company at such time. Transfers of any
Guaranteed Period Amount which become effective upon the expiration of the
applicable Guaranteed Period are not subject to the twelve transfers per
Contract Year limitations or the additional Fixed Sub-Account transfer
restrictions (see "Transfer Privilege").
GUARANTEED INTEREST RATES. The Company periodically will establish an
applicable Guaranteed Interest Rate for each of the Sub-Account Guaranteed
Periods within the Fixed Account. Current Guaranteed Interest Rates may be
changed by the Company frequently or infrequently depending on interest rates
on investments available to the Company and other factors as described below,
but once established, rates will be guaranteed for the entire duration of the
Sub-Account's respective Guaranteed Period. However, any amount withdrawn from
the Sub-Account may be subject to any applicable withdrawal charges, Annuity
Account Fees, MVA, premium taxes or other fees. Amounts transferred out of a
Fixed Account Sub-Account prior to the end of the Guaranteed Period will be
subject to the MVA.
The Guaranteed Interest Rate will not be less than 3% per year compounded
annually, regardless of any application of the MVA. The Company has no
specific formula for determining the rate of interest that it will declare as
a Guaranteed Interest Rate, as these rates will be reflective of interest
rates available on the types of debt instruments in which the Company intends
to invest amounts allocated to the Fixed Account (see "The Fixed Account"). In
addition, the Company's management may consider other factors in
13
<PAGE>
determining Guaranteed Interest Rates for a particular Sub-Account including:
regulatory and tax requirements; sales commissions and administrative expenses
borne by the Company; general economic trends; and competitive factors. There
is no obligation to declare a rate in excess of 3%; the Purchaser assumes the
risk that declared rates will not exceed 3%. The Company has complete
discretion to declare any rate of at least 3%, regardless of market interest
rates, the amounts earned by the Company on its investments, or any other
factors.
VARIABLE ACCUMULATION VALUE. The variable accumulation value of a
Purchaser's Annuity Account, if any, for any Valuation Period is equal to the
sum of the value of all Variable Accumulation Units credited to the
Purchaser's Annuity Account for such Valuation Period.
CREDITING VARIABLE ACCUMULATION UNITS. Upon the Company's acceptance of an
Initial Premium Payment and any Subsequent Premium Payment(s), all or that
portion, if any, of the Premium Payment(s) to be allocated to any Sub-Accounts
in accordance with the allocation factors will be credited to the Purchaser's
Annuity Account in the form of Variable Accumulation Units. The number of
particular Variable Accumulation Units to be credited is determined by
dividing the dollar amount allocated to the particular Sub-Account by the
Variable Accumulation Unit value for the particular Sub-Account for the
Valuation Period during which the Premium Payment is received at the Variable
Annuity Service Center and accepted. Subsequent Premium Payments are applied
upon receipt.
VARIABLE ACCUMULATION UNIT VALUE. The Variable Accumulation Unit value for
each Sub-Account was established at $10 for the first Valuation Period of the
particular Sub-Account. The Variable Accumulation Unit value for the
particular Sub-Account for any subsequent Valuation Period is determined by
multiplying the Variable Accumulation Unit value for the particular Sub-
Account for the immediately preceding Valuation Period by the Net Investment
Factor for the particular Sub-Account for such subsequent Valuation Period.
The Variable Accumulation Unit value for each Sub-Account for any Valuation
Period is the value determined as of the end of the particular Valuation
Period and such value may increase, decrease or remain the same from Valuation
Period to Valuation Period in accordance with the Net Investment Factor. The
Net Investment Factor is an index applied to measure the investment
performance of a Variable Account Sub-Account from one Valuation Period to the
next. For a description of the Net Investment Factor and a hypothetical
example of the calculation of the value of a Variable Accumulation Unit, see
the Statement of Additional Information. The investment performance of the
Portfolios of the Fund corresponding to the applicable Sub-Account, expenses,
and the deduction of certain charges affect the Variable Accumulation Unit
Value.
DOLLAR COST AVERAGING. The Company provides a Dollar Cost Averaging program
for the Purchaser which involves the regular purchase of Variable Accumulation
Units ("VAUs") in one or more Sub-Accounts designated by the Purchaser. A
monthly purchase of VAUs over a period of time instead of a single purchase of
the same dollar value of VAUs will result in the purchase of more VAUs when
the VAU value is low and less VAUs when the VAU value is high. As a result,
purchasing VAUs under the Dollar Cost Averaging program in a rising or falling
market produces an average cost per VAU for the Purchaser which is less than
the average price per VAU.
For example, assume that a Purchaser requests $6,000 per month to be
transferred from the Money Market Sub-Account to the Capital Appreciation Sub-
Account. The following table illustrates the effect of Dollar Cost Averaging
over a four-month period.
<TABLE>
<CAPTION>
TRANSFER UNIT UNITS
MONTH AMOUNT VALUE PURCHASED
----- -------- ----- ---------
<S> <C> <C> <C>
1........................................ $6,000 $20 300
2........................................ $6,000 $30 200
3........................................ $6,000 $30 150
4........................................ $6,000 $50 120
</TABLE>
The average price per unit for the above purchases is the sum of the prices
divided by the number of monthly transfers ($140 divided by 4) which equals
$35. The average cost per unit for these purchases is the total amount
transferred divided by the total number of units purchased ($24,000 divided by
770) which equals $31.17. THIS TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY AND IS
NOT REPRESENTATIVE OF FUTURE RESULTS.
If a Purchaser elects to participate in the Dollar Cost Averaging program,
the Initial Premium Payment or Subsequent Premium Payment shall be initially
allocated to the Money Market Sub-Account. Thereafter the Company will
automatically transfer an amount specified by the Purchaser from the Money
Market Sub-Account to any other available Variable Sub-Account on a monthly or
quarterly basis; the minimum amount per transfer is $1,000. Transfers to or
from the Fixed Account are not permitted under the Dollar Cost Averaging
Program.
A Purchaser elects to participate in the Dollar Cost Averaging Program by
specifying such election in the Contract Application, or In Writing when
making a subsequent Premium Payment. In order to initiate the program, the
Purchaser must establish a Money Market Sub-Account value of at least $12,000.
Each transfer under the Program must be at least $1,000. Dollar Cost Averaging
program transfers will be effected on the first Valuation Period occurring on
or after the 20th of each month. At least nine (9) days' notice In Writing in
advance of the transfer date is required to begin Dollar Cost Averaging in any
given month.
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(Transfers under the Dollar Cost Averaging program will not count towards
the twelve transfers per Contract Year limit.)
The Company offers the Dollar Cost Averaging program to Purchasers at no
charge. Purchasers may increase, decrease, or discontinue participation in the
program at any time by notifying the Company In Writing. The Company does not
control the Fund and cannot guarantee that it or any Series thereunder will
accept transfers under the Dollar Cost Averaging Program. Therefore, the
Company reserves the right to discontinue or change this program at any time.
THERE IS NO GUARANTEE THAT THE DOLLAR COST AVERAGING PROGRAM WILL RESULT IN
PURCHASER ANNUITY ACCOUNT VALUES WHICH EQUAL OR EXCEED ANY INITIAL PREMIUM
PAYMENT OR SUBSEQUENT PREMIUM PAYMENT MADE. The Dollar Cost Averaging Program
may not achieve its objective. There is no guarantee that the program will
result in a profit, or protect against loss, nor is there any guarantee that
it produces better results than a single lump-sum investment.
TRANSFER PRIVILEGE
ACCUMULATION PERIOD. During the Accumulation Period the Purchaser may, upon
written request, transfer all or part of any of the Purchaser's Annuity
Account Value(s) to one or more Sub-Accounts available under the Contract.
Transfers from Fixed Account Sub-Accounts and Variable Account Sub-Accounts
are subject to the following conditions: (1) a Purchaser is limited to twelve
transfers each Contract Year; (2) the amount being transferred may not be less
than $1,000, unless the Purchaser's total Annuity Account Value attributable
to that particular Sub-Account is being transferred; (3) the amount
transferred to any Fixed Account Sub-Account may not be less than $5,000; (4)
the Purchaser's Annuity Account Value remaining in a transferor Fixed Sub-
Account may not be less than $1,000 and/or $250 in a transferor Variable Sub-
Account; and (5) no transfers are permitted during the "Right to Examine
Contract" period. With the exception of transfers of any Guaranteed Period
Amount which become effective upon the expiration of the applicable Guaranteed
Period, all transfers from any Fixed Sub-Account are subject to the following
additional conditions: (1) A Purchaser may make only one transfer from each
Fixed Sub-Account in any Contract Year; and (2) The amount transferred from
any Fixed Sub-Account may not exceed 15% of the Purchaser's Annuity Account
Value in the Sub-Account on the transfer's effective date. Transfers from
Fixed Account Sub-Accounts may be subject to a MVA. Amounts transferred into a
Fixed Account Sub-Account will earn interest at the Guaranteed Interest Rate
declared by the Company for that Guaranteed Period as of the effective date of
the transfer (subject to the MVA).
The Company reserves the right to otherwise restrict the transfer privilege
in any way or to eliminate it entirely. The Company also reserves the right to
defer transfer of amounts from the Fixed Account for a period not to exceed
six (6) months from the date a request for such transfer is received by the
Company.
Transfer requests must be in Writing upon a form acceptable to the Company.
Telephone transfers will be allowed automatically, unless the Purchaser
specifically declines this privilege in the Contract Application. The Company
will not be held liable for following telephone transfer instructions which it
reasonably believes to be genuine. The Company will employ reasonable
procedures to confirm that such telephone transfer instructions are genuine.
Procedures currently utilized by the Company include requiring the telephone
transferor to identify himself or herself over the telephone, requiring the
telephone transferor to communicate a Purchaser personal identification
number, tape recording incoming telephone transfer instructions, and sending a
written confirmation of telephone transfers to the Purchaser after they are
effected.
Transfers of all or a portion of any Guaranteed Period Amount will be
subject to the MVA described below unless the transfer becomes effective upon
the Expiration Date of such Guaranteed Period. Transfers involving Variable
Accumulation Units shall be subject to such terms and conditions as may be
imposed by the Fund. A transfer from a Sub-Account of the Variable Account
will be effective on the date the request for transfer is received by the
Company, provided such request is received by the Company prior to 4:00 p.m.
Eastern Time on a day which the New York Stock Exchange is open for business.
Otherwise, the transfer will become effective the next succeeding day upon
which the New York Stock Exchange is open for business. Under current law,
there will not be any tax liability to the Purchaser for making a transfer.
ANNUITY PERIOD. After the Annuity Date the Payee may, by filing a request In
Writing with the Company, exchange the value of a designated number of Annuity
Units of particular Variable Sub-Accounts then credited under the Contract
into other Annuity Units, the value of which would be such that the dollar
amount of an annuity payment made on the date of the exchange would be
unaffected by the exchange. Each Payee is limited to three exchanges per
Contract Year after the Annuity Date, and such exchanges may be made only
between Variable Account Sub-Accounts. Exchanges will be made using the
Annuity Unit values for the Valuation Period during which any request for
exchange is received by the Company.
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<PAGE>
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DISTRIBUTIONS UNDER THE CONTRACT
CASH WITHDRAWALS. At any time prior to the Annuity Date and during the
lifetime of the Purchaser, a Purchaser may elect to receive a cash withdrawal
payment from the Company. Any such withdrawal from the Variable Account will
be effective on the date that it is received by the Company and will be
processed within seven days of the Company's receipt of such request, except
as the Company may be permitted to defer such payment in accordance with the
Act and applicable state insurance law.
The Purchaser may request a full surrender (see "Surrender of the
Contracts") or a partial cash withdrawal. A request for a partial withdrawal
will result in the cancellation of a portion of the Purchaser's Annuity
Account Value equal to the dollar amount of the cash withdrawal payment, plus
or minus any applicable MVA plus any applicable withdrawal charge and premium
taxes. The Company, upon request, will advise the Purchaser of the amounts
that would be payable in the event of a full surrender or partial withdrawal.
A partial cash withdrawal must be in a minimum amount of at least $1,000.
When electing such a partial withdrawal, the Purchaser must instruct the
Company as to: 1) the amount to be withdrawn; and 2) the Sub-Account(s) from
which the withdrawal shall occur. Partial withdrawals may not reduce the total
Annuity Account Value below $1,000. In the event the Purchaser does not
specify the Sub-Account(s) from which the withdrawal shall occur, the Company
will withdraw the requested amount pro-rata from each Sub-Account maintained
by the Purchaser. If such a pro-rata withdrawal reduces the value of any Fixed
Sub-Account balance below $1,000 and/or any Variable Sub-Account balance below
$250, the Company will transfer the value of those Sub-Accounts to that
Variable Sub-Account of the Purchaser maintaining the highest value.
ALL CASH WITHDRAWALS FROM ANY FIXED ACCOUNT SUB-ACCOUNT WILL BE SUBJECT TO
THE MVA, EXCEPT THOSE WHICH BECOME EFFECTIVE UPON THE EXPIRATION DATE OF SUCH
SUB-ACCOUNT'S GUARANTEED PERIOD. If a Purchaser makes a partial cash
withdrawal, the Company will assess any applicable withdrawal charge, MVA, and
premium taxes pro rata against the amounts remaining in each Sub-Account to
which a Purchaser's Annuity Account is allocated. If a full Surrender of the
Contract is requested by the Purchaser, the Company will assess any applicable
withdrawal charges, MVA, Annuity Account Fee, and applicable premium taxes
against the amount withdrawn. See "Contract Charges and Fees". The Annuity
Account Fee and any applicable MVA will be deducted from the Purchaser's
Annuity Account before the application of any withdrawal charge.
The Company reserves the right to defer the payment of amounts withdrawn
from the Fixed Account for a period not to exceed six (6) months from the date
written request for such withdrawal is received by the Company.
Cash withdrawals from a Variable Account Sub-Account will result in the
cancellation of Variable Accumulation Units attributable to the Purchaser's
Annuity Account with an aggregate value on the effective date of the
withdrawal equal to the total amount by which the Annuity Account Value is
reduced (which amount will include any applicable withdrawal charge). The
cancellation of such units will be based on the Variable Accumulation Unit
values of the Variable Account Sub-Accounts at the end of the Valuation Period
during which the cash withdrawal request is received.
A cash withdrawal may have federal income tax consequences. See "Federal Tax
Matters".
MINIMUM VALUE REQUIREMENT. If a partial withdrawal is requested which would
cause a Purchaser's Annuity Account Value to fall to less than $1,000, then
the partial withdrawal will be treated as a request for a full surrender. In
addition, the Company will terminate a Contract or Certificate and pay the
Purchaser as if the Contract was surrendered if no Premium Payments are made
to the Company under the Contract or Certificate for three consecutive years
and the Purchaser's Annuity Account Value has fallen below $1,000 during this
period. Prior to exercising this right to terminate, the Company will provide
the Purchaser with thirty (30) days notice and the opportunity to make an
additional Premium Payment to increase the Annuity Account Value above the
minimum amount. On termination, the Purchaser will receive the amount which
would have been paid had the Contract been fully surrendered. The Company also
reserves the right to transfer any Fixed Sub-Account balance which has a value
below $1,000 and any Variable Sub-Account balance which has a value below $250
to that Variable Sub-Account of the Purchaser maintaining the highest value.
SECTION 403(B) ANNUITIES. The Code imposes restrictions on cash withdrawals
from Contracts used with Section 403(b) Annuities. In order for these
Contracts to receive tax deferred treatment, the Contract must provide that
cash withdrawals of amounts attributable to salary reduction contributions
(other than withdrawals of accumulation account value as of December 31, 1988
("Pre-1989 Salary Reduction Account Value")) may be made only when the
Purchaser attains age 59 1/2, separates from service with the employer, dies
or becomes disabled (within the meaning of Section 72(m)(7) of the Code).
These restrictions apply to any growth or interest on or after January 1, 1989
on Pre-1989 Salary Reduction Account Value(s), salary reduction contributions
made on or after January 1, 1989, and any growth or interest on such
contributions ("Restricted Annuity Account Value(s)").
Withdrawals of Restricted Annuity Account Value(s) are also permitted in
cases of financial hardship, but only to the extent of contributions; earnings
on contributions cannot be withdrawn for hardship reasons. Hardship (and
other) withdrawals may be subject
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<PAGE>
to a 10% tax penalty, in addition to any withdrawal charge, MVA, Annuity
Account Fee, and premium taxes applicable under the Contract.
Under the terms of a particular Section 403(b) plan, the Purchaser may be
entitled to transfer all or a portion of the Purchaser's Annuity Account Value
to one or more alternative funding options. Purchasers should consult the
documents governing their plan and the person who administers the plan for
information as to such investment alternatives.
With respect to these restrictions on withdrawals from the Variable Account,
the Company is relying upon a no-action letter dated November 28, 1988 from
the staff of the Commission to the American Council of Life Insurance, the
requirements for which have been or will be complied with by the Company.
- -------------------------------------------------------------------------------
DEATH BENEFITS
DEATH BENEFIT PROVIDED BY THE CONTRACTS. In the event of the death of any
Purchaser prior to the Annuity Date, the Company will pay a death benefit to
the Beneficiary upon receipt of due proof of death of the Purchaser. If there
is no designated Beneficiary living on the date of death of the deceased
Purchaser, the Company will, upon receipt of due proof of death of both the
deceased Purchaser and the designated Beneficiary, pay the death benefit in
one lump sum to the Purchaser's estate. If the death of any Annuitant occurs
on or after the Annuity Date, no death benefit will be payable under the
Contract except as may be provided under the Annuity Option elected.
ELECTION AND EFFECTIVE DATE OF ELECTION. During the lifetime of the
Purchaser and prior to the Annuity Date, the Purchaser may elect In Writing to
have the death benefit applied under the Annuity Options for the Beneficiary
after the death of the Purchaser.
If no death benefit payment method is in effect on the date of the
Purchaser's death, the Beneficiary may elect (a) to receive the death benefit
in the form of a single cash payment; or (b) to have the death benefit applied
under the Annuity Options (on the Annuity Date described under "Payment of
Death Benefit") for the Beneficiary. Such election may be made by filing with
the Company an election In Writing. A Purchaser's election of an Annuity
Option specifying the method by which the death benefit shall be paid will
become effective on the date it is received by the Company. Any Annuity Option
elected by the Beneficiary will become effective on the later of: (a) the date
the election is received by the Company; or (b) the date due proof of the
death of the deceased Purchaser is received by the Company. If an election by
the Beneficiary is not received by the Company within 60 days following the
date due proof of the death of the Purchaser is received by the Company, the
Beneficiary will be deemed to have elected to receive the death benefit in the
form of a single cash payment on such 60th day.
The Annuity Option elected by the Purchaser or the Beneficiary may be
restricted by the Code. See the Statement of Additional Information, "Federal
Tax Matters" for further discussion.
PAYMENT OF DEATH BENEFIT. If the death benefit is to be paid in cash to the
Beneficiary, subject to the Company's receipt of due proof of death, payment
will be made within seven days of the date the election becomes effective or
is deemed to become effective, except as the Company may be permitted to defer
any such payment of amounts derived from the Variable Account in accordance
with the Act. If the death benefit is to be paid in one lump sum to the estate
of the Purchaser, payment will be made within seven (7) days of the date due
proof of the death of the Purchaser and/or the designated Beneficiary, as
applicable, is received by the Company except as the Company may be permitted
to defer any such payment of amounts derived from the Variable Account in
accordance with the Act. If payment is to be made under any of the Annuity
Options, the Annuity Date will be thirty (30) days following the effective
date or the deemed effective date of the election, and the Purchaser's Annuity
Account will be maintained in effect until the Annuity Date.
AMOUNT OF DEATH BENEFIT. No negative MVA or withdrawal charges are assessed
against amounts which are applied toward payment of a death benefit. The
amount of the death benefit is determined as of the effective date or deemed
effective date of the death benefit election (not as of the date of death),
and is equal to the greatest of (1) the Annuity Account Value for the
Valuation Period during which the Death Benefit election is effective or
deemed to become effective; (2) the sum of all Premium Payments under the
Contract, minus the sum of all partial withdrawals from the Contract; (3) the
Purchaser's Annuity Account Value on the Seven Year Anniversary immediately
preceding the date the Death Benefit election is effective or is deemed to
become effective, adjusted for any subsequent Premium Payments and partial
withdrawals and charges; and (4) the amount that would have been payable in
the event of a full surrender of the Contract including surrender charges and
any applicable MVA on the date the Death Benefit election is effective or is
deemed to become effective.
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SURRENDER OF THE CONTRACTS
At any time before the Annuity Date, the Purchaser may elect to surrender
the Contract and receive a cash payment from the Company. On the Surrender
Date the Purchaser's Annuity Account will be canceled and the Purchaser's
Annuity Account Value, minus any applicable withdrawal charges, Annuity
Account Fee, and premium taxes, and plus or minus any applicable MVA, will be
paid to the Purchaser within seven days of the Surrender Date in the form of a
cash payment except as the Company may be permitted to defer any such payment
of amount derived from the Variable Account in accordance with the Act. The
Company reserves the right to defer the payment of amounts withdrawn from the
Fixed Account for a period not to exceed six (6) months from the date written
request for such withdrawal is received by the Company.
Because withdrawals from a Purchaser's Annuity Account may be subject to a
withdrawal charge, the MVA, and applicable taxes and fees, and because the
Purchaser assumes the investment risk with respect to amounts allocated to the
Variable Account, the total amount paid upon total surrender of the Contract
(taking any prior cash withdrawals into account) may be more or less than the
total Premium Payments made. Following a surrender of the Contract, or if the
Contract terminates for any other reason, all rights of the Purchaser,
Annuitant, and Beneficiary will terminate.
After the Annuity Date, surrenders are permitted only if the Variable
Annuity Certain Option is selected. In such case, surrenders may only be made
from the Variable Account, and are otherwise subject to the terms and
conditions of surrenders made prior to the Annuity Date.
A surrender may have federal income tax consequences. See "Federal Tax
Matters".
- -------------------------------------------------------------------------------
ANNUITY PROVISIONS
ANNUITY DATE. Annuity payments will begin on the first day of the month
following the Annuity Date selected by the Purchaser, as specified in the
Contract Application or Certificate specifications. The date selected by the
Purchaser may not be sooner than 30 days following the Date of Issue. This
date may be changed by the Purchaser from time to time by notifying the
Company In Writing, provided that notice of each change is received by the
Company at least 45 days prior to the then current Annuity Date and the new
Annuity Date is a date which is: (1) at least 30 days after the effective date
of the change; (2) the first day of a month; and (3) not later than the first
day of the first month following the Annuitant's 90th birthday, unless
otherwise restricted, in the case of a Qualified Contract, by the particular
retirement plan or by applicable law. The Annuity Date may also be changed by
an election of an Annuity Option as described in the Death Benefit section of
this Prospectus.
On the Annuity Date the Purchaser's Annuity Account will be canceled and the
Purchaser's Annuity Account Value, minus any applicable Annuity Account Fee
and premium taxes, will be applied to provide an annuity under one or more of
the options described below. No MVA or withdrawal charges will be imposed upon
amounts applied to purchase an annuity. NO PAYMENTS MAY BE REQUESTED UNDER THE
CONTRACT'S CASH WITHDRAWAL PROVISIONS ON OR AFTER THE ANNUITY DATE AND NO CASH
WITHDRAWAL WILL BE PERMITTED EXCEPT AS MAY BE AVAILABLE UNDER THE ANNUITY
OPTION ELECTED.
Since the Contracts offered by this Prospectus may be issued in connection
with retirement plans which meet the requirements of Section 401, 403, 408, or
457 of the Code, as well as certain non-qualified plans, reference should be
made to the terms of the particular plan for any limitations or restrictions
on the Annuity Date.
ELECTION -- CHANGE OF ANNUITY OPTION. During the lifetime of the Purchaser
and prior to the Annuity Date, the Purchaser may elect one or more of the
Annuity Options described below, or such other Annuity Option as may be agreed
to by the Company. The Purchaser may also change any election, but notice In
Writing of any election or change of election must be received by the Company
at least 45 days prior to the Annuity Date.
If no election is in effect on the 30th day prior to the Annuity Date and
the Contract is used by the Purchaser in connection with a retirement plan
which meets the requirements of either Section 401 (including Section 401(k)),
Section 403, Section 408(c), Section 408(k), or Section 457 of the Code, the
Joint and Survivor Annuity described below or Life Annuity, whichever is
applicable, will be deemed to have been elected if required by such retirement
plan. If the Contract is not used by the Purchaser in connection with one of
these plans, the Purchaser will be deemed to have elected Life Annuity with
120 Monthly Payments Certain.
At any time the Purchaser may (In Writing) request annuitization of the then
current Annuity Account Value in accordance with any one of the Annuity
Options described below. In such event, no withdrawal charge or MVA will be
imposed at the time payments under the Annuity Option begin. Such
annuitization will automatically result in a change in the Annuity Date to the
date payments commence under the Annuity Option elected.
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Reference should be made to the terms of a particular retirement plan and
any applicable legislation for any limitations or restrictions on the options
which may be elected. NO CHANGE OF ANNUITY OPTION IS PERMITTED AFTER THE
ANNUITY DATE.
ANNUITY OPTIONS. The Contract provides for seven different Annuity Options
which are described below. Four are fixed annuity options, and three are
variable annuity options. A Purchaser may elect a Fixed Annuity, a Variable
Annuity, or a combination of both. If the Purchaser elects a combination, he
must specify what part of the Annuity Account is to be applied to the Fixed
and Variable Annuity Options. (If no such election is made by the 30th day
prior to the Annuity Date, the portion of the Annuity Account to be applied
for a Fixed Annuity and/or a Variable Annuity will be determined on a pro rata
basis from the composition of the Annuity Account on the Annuity Date. Thus,
any amounts in the Variable Account will be applied to a Variable Annuity, and
amounts in the Fixed Account will be applied to a Fixed Annuity.) Variable
Annuity payments will be based on the Sub-Account(s) selected by the
Purchaser, or on the allocation of the Annuity Account Value among the Sub-
Accounts.
A FIXED ANNUITY provides for Annuity Option payments which will remain
constant pursuant to the terms of the Annuity Option elected. The effect of
choosing a Fixed Annuity is that the amount of each payment will be set on the
Annuity Date and will not change. If a Fixed Annuity is selected, the Variable
Account used to provide the Fixed Annuity will be transferred to the general
account of the Company, and the annuity payments will be fixed in amount by
the fixed annuity provisions selected and, for some options, the settlement
age of the Annuitant (determined in accordance with the Contract). The Fixed
Annuity payment amounts are determined by applying the Annuity Payment Rates
found in the Contract to the portion of the Annuity Account Value allocated to
the Fixed Annuity Option selected by the Purchaser, or, if more favorable to
the Payee(s), by applying the Annuity Payment Rates published by the Company
and in use on the Annuity Date. The rates found in the Contracts show, for
each $1,000 applied, the dollar amount of the monthly fixed annuity payment.
This rate may be changed by the Company with respect to Contracts established
after the effective date of such change (see "Modification").
A VARIABLE ANNUITY provides for payments that fluctuate or vary in dollar
amount, based on the investment performance of a Variable Account Sub-Account.
The Variable Annuity purchase rate tables in the Contract reflect an assumed
interest rate of 4%, so if the actual net investment performance of the Sub-
Account is less than this rate, then the dollar amount of the actual annuity
payments will decrease. If the actual net investment performance of the Sub-
Account is higher than this rate, then the dollar amount of the actual annuity
payments will increase. If the net investment performance exactly equals the
4% rate, then the dollar amount of the actual annuity payments will remain
constant.
The amount of the first Variable Annuity payment is determined by the
variable annuity provisions selected and, for some options, the settlement age
of the Annuitant (determined in accordance with the Contract). All Variable
Annuity payments other than the first are determined by means of Annuity Units
credited to the contract with respect to the particular payee. The number of
Annuity Units to be credited in respect of a particular Sub-Account is
determined by dividing that portion of the first Variable Annuity payment
attributable to that Sub-Account by the Annuity Unit Value of that Sub-Account
for the Valuation Period which ends immediately preceding the Annuity Date.
The number of Annuity Units of each Sub-Account credited with respect to the
particular payee then remains fixed unless an exchange of Annuity Units is
made pursuant to the "Transfer Privilege -- Annuity Period" section. The
dollar amount of each Variable Annuity payment after the first may increase,
decrease or remain constant, and is equal to the sum of the amounts determined
by multiplying the number of Annuity Units of a particular Sub-Account for the
Valuation Period which ends immediately preceding the due date of each
subsequent payment by the Annuity Unit Value for that Sub-Account for the
first Valuation Period occurring on or immediately prior to the first day of
each month.
The Purchaser may choose to receive annuity payments under any one of the
Annuity Options described below. The Company may consent to other plans of
payment before the Annuity Date.
If the Contract is used by the Purchaser in connection with a retirement
plan which meets the requirements of either Section 401 (including Section
401(k)), Section 403, Section 408(c), Section 408(k), or Section 457 of the
Code, a Joint and Survivor Annuity will be offered under the Contract. A Joint
and Survivor Annuity provides for monthly payments payable during the joint
lifetime of the Payee and a designated second person and during the lifetime
of the survivor. During the lifetime of the survivor the monthly payment
payable will be the same as that payable during the joint lifetime of the
Payee and the designated second person.
FIXED ANNUITY OPTIONS
LIFE ANNUITY OPTION. An annuity payable monthly to the Payee during the
lifetime of the Annuitant, ceasing with the last payment due prior to the
death of the Annuitant. Under this option, only one payment will be made if
the Annuitant dies before the second payment is made, only two payments will
be made if the Annuitant dies before the third payment is made, etc.
LIFE ANNUITY WITH CERTAIN PERIOD OPTION. An Annuity providing monthly income
to the Payee for a fixed period of 60, 120, 180, or 240 months (as selected),
and for as long thereafter as the Annuitant lives.
CASH REFUND LIFE ANNUITY OPTION. An annuity payable monthly to the Payee
during the lifetime of the Annuitant ceasing with the last payment due prior
to the death of the Annuitant provided that, at the death of the Annuitant,
the Payee will receive an additional
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payment equal to the excess, if any, of (a) over (b) where: (a) is the initial
value of the proceeds applied under this option; and (b) is the dollar amount
of payments already paid.
ANNUITY CERTAIN OPTION. An amount payable monthly for the number of years
selected which may be from 5 to 30 years.
VARIABLE ANNUITY OPTIONS
VARIABLE LIFE ANNUITY OPTION. A Variable Annuity payable monthly to the
Payee during the lifetime of the Annuitant, ceasing with the last payment due
prior to the death of the Annuitant. Under this option, only one payment will
be made if the Annuitant dies before the second payment is made, only two
payments will be made if the Annuitant dies before the third payment is made,
etc.
VARIABLE LIFE ANNUITY WITH CERTAIN PERIOD OPTION. A Variable Annuity
providing monthly income to the Payee for a fixed period of 60, 120, 180, or
240 months (as selected), and for as long thereafter as the Annuitant shall
live.
VARIABLE ANNUITY CERTAIN OPTION. A variable amount payable monthly for the
number of years selected which may be from 5 to 30 years. At any time during
the period payments are made, the Annuitant may elect that a portion or all of
the future payments to which he is entitled be commuted and paid in one sum. A
withdrawal may be taken at any time after annuitization which does not exceed
the total value of the variable annuity certain on the withdrawal date. The
value of the variable annuity certain is determined by first converting a
Purchaser's number of annuity units into dollars based on the value of the
annuity units. Thereafter the dollar value is divided by an annuity certain
payment factor to obtain the total value of the variable annuity certain. The
annuity certain payment factor is determined by calculating the number of
monthly payments remaining from the date of withdrawal to the end of the
variable annuity certain period and discounting such payments to a present
value using an assumed interest rate of 4%. The Purchaser may elect to receive
all or a portion of this present value.
DETERMINATION OF ANNUITY PAYMENTS. On the Annuity Date, the adjusted value
of (i) the Fixed Account and (ii) the Variable Account will be applied to
provide for payments under the selected Annuity Option. The adjusted value
will be equal to the Purchaser's Annuity Account Value at the end of the
Valuation Period which ends immediately preceding the Annuity Date, reduced by
a proportionate amount of the Annuity Account Fee to reflect the time elapsed
between the last day of the prior calendar year and the day before the Annuity
Date, and minus premium or similar taxes.
If the amount to be applied under any annuity option is less than $5,000, or
if the monthly annuity payment payable in accordance with such option is less
than $50, the Company will pay the amount to be applied in a single payment to
the payee designated by the Purchaser.
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CONTRACT CHARGES AND FEES
As more fully described below, charges under the Contracts offered by this
Prospectus are assessed in four ways: (1) as withdrawal charges (contingent
deferred sales charges); (2) as deductions for Contract administration
expenses and, if applicable, for premium taxes; (3) as charges against the
assets of the Variable Account for the assumption of mortality and expense
risks and for administrative expenses; and (4) as MVAs on certain withdrawals
from the Fixed Account. In addition, certain deductions are made from the
assets of the Fund for investment management fees and expenses. These fees and
expenses are described in the Fund's Prospectus and Statement of Additional
Information.
WITHDRAWAL CHARGES. No deduction for sales charges is made from a Premium
Payment. However, if a cash withdrawal of a Premium Payment is made, a
withdrawal charge (contingent deferred sales charge) may be assessed by the
Company. The length of time between the Company's acceptance of the Premium
Payment withdrawn and the receipt of a withdrawal request determines the
withdrawal charge. This charge will be used to cover certain expenses relating
to the sale of the Contracts including commissions paid to sales personnel,
the costs of preparation of sales literature, other promotional costs and
acquisition expenses.
Each Premium Payment has its own time period for purposes of assessing a
withdrawal charge. For purposes of computing the withdrawal charge, amounts
are deemed to be withdrawn in the order in which they were received by the
Company. For example, the Company will deem amounts first withdrawn to be from
the oldest Premium Payment accepted by the Company. After these amounts are
exhausted, the Company will deem amounts withdrawn to be from the second
oldest Premium Payment accepted by the Company, and so on until all of a
Purchaser's Premium Payments have been withdrawn. After all Premium Payments
have been deemed withdrawn, the Company will deem further withdrawals to be
from net investment results attributable to such Premium Payments, if any.
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<PAGE>
Subject to the Fifteen Percent Free described below, Premium Payment amounts
withdrawn from a Purchaser's Annuity Account will be assessed the following
withdrawal charge (after being adjusted by any applicable MVA):
<TABLE>
<CAPTION>
WITHDRAWAL
CHARGE
PERCENTAGE YEAR APPLICABLE
---------- ---------------
<S> <C>
7%.............. During 1st Year since Premium Payment accepted
6%.............. During 2nd Year since Premium Payment accepted
5%.............. During 3rd Year since Premium Payment accepted
4%.............. During 4th Year since Premium Payment accepted
3%.............. During 5th Year since Premium Payment accepted
2%.............. During 6th Year since Premium Payment accepted
1%.............. During 7th Year since Premium Payment accepted
0%.............. Thereafter
</TABLE>
On withdrawal, any applicable Annuity Account Fee and MVA will be deducted
from the Purchaser's Annuity Account before the application of any withdrawal
charge. The withdrawal charge is then assessed against the amounts remaining
in the Purchaser's Annuity Account. If the Purchaser's Annuity Account is
allocated among more than one Sub-Account within the Contract, the withdrawal
charge will be assessed pro rata against the amounts remaining within the Sub-
Accounts from which the withdrawal occurred. If the Sub-Accounts from which
the withdrawal occurred do not contain sufficient amounts to satisfy the
withdrawal charge, the deficiency will be assessed pro rata against all
amounts remaining within the Sub-Accounts. If a cash withdrawal causes the
entire value of the Annuity Account to be withdrawn (i.e., a complete
surrender), then the withdrawal charge will be deducted from the amount paid.
The withdrawal charge is not imposed on a Premium Payment after the end of the
seventh year of the Company's acceptance of such Premium Payment, nor is the
withdrawal charge imposed upon payment of the Death Benefit or upon amounts
applied to an Annuity Option.
The Company may, upon notice to the Purchaser, modify the withdrawal charges
provided that such modification shall apply only to a Purchaser's Annuity
Account established after the effective date of such modification see
"Modification". For examples of withdrawals, surrenders, withdrawal charges
and the MVA, see the Statement of Additional Information.
FIFTEEN PERCENT FREE. Upon request In Writing, a Purchaser may withdraw
during each Contract Year prior to the Annuity Date a portion of Premium
Payments made to the Purchaser's Annuity Account without the imposition of a
withdrawal charge. This privilege continues until all Premium Payments made to
the Purchaser's Annuity Account are considered withdrawn. Up to 15% of the
total amount of a Purchaser's Premium Payments may be withdrawn each Contract
Year. The Fifteen Percent Free amount must be at least $1,000.
A Purchaser must specify the Sub-Account(s) from which the Free Withdrawal
amount will be withdrawn. If a Purchaser does not specify the Sub-Account(s)
from which the withdrawal will occur, the Company will withdraw the amount pro
rata from all the Purchaser's Sub-Accounts.
The Company will deem all Free Withdrawals to have withdrawn Premium
Payments in the order in which they were received by the Company. For example,
the Company will deem Free amounts first withdrawn to be from the oldest
Premium Payment accepted by the Company. After these amounts are exhausted,
the Company will deem amounts withdrawn to be from the second oldest Premium
Payment accepted by the Company, and so on until the entire Fifteen Percent
Free amount is withdrawn. This means that if any Premium Payments were made
more than seven years before the withdrawal, the Fifteen Percent Free amount
will be applied against those Premium Payments first, even though they would
not be subject to the withdrawal charge at all.
A Purchaser is limited to one Free Withdrawal of up to 15% per Contract
Year. The Company will consider a Purchaser's first withdrawal in any Contract
Year to be a request for a Free Withdrawal (to the extent available).
If a Purchaser uses this Free Withdrawal provision in any Contract Year to
withdraw less than 15% of the Premium Payments, such Purchaser will be
considered to have utilized this privilege under the Contract for such
withdrawal and further withdrawals in the same Contract Year will be subject
to the normal withdrawal charges.
Withdrawals under the Fifteen Percent Free provision may be paid as a lump
sum or, upon consent of the Company, paid over equal installments no more
frequently than monthly.
A Free Withdrawal may have federal income tax consequences. See "Federal Tax
Matters".
ANNUITY ACCOUNT FEE. On the last Valuation Date of each calendar year, the
Company deducts an annual policy administration fee ("Annuity Account Fee") on
a pro rata basis from all of a Purchaser's Sub-Accounts equal to $35 to
partially reimburse it for administrative expenses relating to the issue and
maintenance of the Contract and the Purchaser's Annuity Account. If the
Purchaser's Annuity Account was established on a date other than the last
Valuation Date of the calendar year, then the Company
21
<PAGE>
will pro rate the Purchaser's initial Annuity Account Fee to reflect the
shorter initial period. Thereafter the full $35 Annuity Account Fee will be
assessed annually. If the Purchaser's Annuity Account is surrendered for full
value, the Annuity Account Fee will be deducted in full at the time of such
surrender. On the Annuity Date, the Purchaser's Annuity Account Value will be
reduced by a proportionate amount of the Annuity Account Fee to reflect the
time elapsed between December 31, and the day before the Annuity Date. After
the Annuity Date, an annual $35 Annuity Account Fee will be deducted in equal
amounts from each Variable Annuity payment made during the year. No deduction
will be made from Fixed Annuity payments. (If applicable state law requires,
the $35 Annuity Account Fee will be reduced to a lesser amount.)
ADMINISTRATIVE FEE. The Company also deducts a daily Administrative Fee from
the assets of each Sub-Account of the Variable Account to partially reimburse
it for administrative expenses relating to the issue and maintenance of the
Contract and the Purchaser's Annuity Account. This charge is currently at an
effective annual rate of 0.10% (equal to a daily rate of 0.000275834% of the
assets in each Sub-Account). There is no necessary relationship between the
administrative charges imposed and the amount of expenses that may be
attributable to any single Purchaser Annuity Account. The Company does not
anticipate realizing any profit from this fee.
PREMIUM TAXES. Premium tax equivalents (including any related retaliatory
taxes), if any, and any other taxes due under the Contract will be deducted if
applicable. It is currently the Company's practice to deduct such taxes, if
any, at the time the Annuity Account Value, or any portion thereof, is
withdrawn or annuitized (although the deduction could, in the future, be taken
from Premium Payments). Currently these taxes range from 0% to 3.5% of the
amount of premium paid depending upon the Purchaser's state of residence.
No charges are currently made for federal, state or local taxes other than
state premium taxes. However, the Company reserves the right to deduct charges
in the future for such taxes or other economic burden resulting from the
application of any tax laws that the Company determines to be attributable to
the Contracts.
CHARGE FOR MORTALITY AND EXPENSE RISKS. The mortality risk assumed by the
Company arises from the contractual obligation to continue to make annuity
payments to each Annuitant regardless of how long the Annuitant lives and
regardless of how long all annuitants as a group live. This assures each
annuitant that neither the longevity of fellow annuitants nor an improvement
in the life expectancy generally will have an adverse effect on the amount of
any annuity payment received under the Contract. The Company assumes this
mortality risk by virtue of annuity rates incorporated into the Contract which
cannot be changed. The Company also assumes a mortality risk in connection
with the Death Benefits. The expense risk assumed by the Company is the risk
that the administrative charges assessed under the Contract may be
insufficient to cover the actual total administrative expenses incurred by the
Company.
For assuming these risks, the Company makes a deduction from the Variable
Account at the end of each Valuation Period at an effective annual rate of
1.25% (equal to a daily rate of 0.003447920% of the assets in the Variable
Account). (The approximate portion of this charge estimated to be attributable
to mortality risks is 0.75%; the approximate portion of this charge estimated
to be attributable to expense risks is 0.50%.) If the deduction is
insufficient to cover the actual cost of the mortality and expense risk
undertaking, the Company will bear the loss. Conversely, if the deduction
proves more than sufficient, the excess will be profit to the Company. The
Company expects to realize a profit from this charge.
The Company assumes the risk that withdrawal charges assessed under the
Contracts may be insufficient to compensate the Company for the costs of
distributing the Contracts. In the event the withdrawal charges prove to be
insufficient to cover actual distribution expenses, the deficiency will be met
from the Company's general corporate funds, which may include amounts derived
from the mortality and expense risk charge.
The Contracts provide that the Company may modify the mortality and expense
risk charges; however, such modification shall apply only with respect to a
Purchaser's Annuity Account established after the effective date of such
modification (See "Modification").
MVA. Any cash withdrawal or transfer of a Fixed Account Guaranteed Period
Amount, other than a withdrawal or transfer pursuant to an election which
becomes effective upon the Expiration Date of the Guaranteed Period, will be
subject to a MVA. The MVA will be applied to the amount being withdrawn or
transferred after deduction of any applicable Annuity Account Fee and before
deduction of any applicable withdrawal charge.
The MVA generally reflects the relationship between the Index Rate (based
upon the Treasury Constant Maturity Series published by the Federal Reserve)
in effect at the time a Premium Payment is allocated to a Sub-Account's
Guaranteed Period under the Contract and the Index Rate in effect at the time
of the Premium Payment's withdrawal or transfer. It also reflects the time
remaining in the Sub-Account's Guaranteed Period. Generally, if the Index Rate
at the time of withdrawal or transfer is more than .50% lower than the Index
Rate at the time the Premium Payment was allocated, then the application of
the MVA will result in higher payment upon withdrawal or transfer. Similarly,
if the Index Rate at the time of withdrawal or transfer is higher than the
Index Rate at the time the Premium Payment was allocated (or less than 0.50%
lower), the application of the MVA will generally result in a lower payment
upon withdrawal or transfer.
22
<PAGE>
The MVA is computed by applying the following formula:
(1+A)/N/
--------
(1+B)/N/
Where:
A = an Index Rate (based on the Treasury Constant Maturity Series published
by the Federal Reserve) for a security with time to maturity equal to the Sub-
Account's Guaranteed Period, determined at the beginning of the Guaranteed
Period.
B = an Index Rate (based on the Treasury Constant Maturity Series published
by the Federal Reserve) for a security with time to maturity equal to the Sub-
Account's Guaranteed Period, determined at the time of withdrawal or transfer,
plus a 0.50% adjustment (unless otherwise limited by applicable state law).
This adjustment builds into the formula a factor representing direct and
indirect costs to the Company associated with liquidating general account
assets in order to satisfy surrender requests. This adjustment of .50% has
been added to the denominator of the formula because it is anticipated that a
substantial portion of applicable general account portfolio assets will be in
relatively illiquid securities. Thus, in addition to direct transaction costs,
if such securities must be sold (e.g., because of surrenders), the market
price may be lower. Accordingly, even if interest rates decline, there will
not be a positive adjustment until this factor is overcome, and then any
adjustment will be lower than otherwise, to compensate for this factor.
Similarly, if interest rates rise, any negative adjustment will be greater
than otherwise, to compensate for this factor. If interest rates stay the
same, this factor will result in a small but negative MVA. If Index Rates "A"
and "B" are within .25% of each other when the Index Rate Factor is
determined, no such percentage adjustment to "B" will be made.
N = The number of years remaining in the Guaranteed Period (e.g. 1 year and
73 days = 1 + (73 divided by 365) = 1.2 years)
Straight line interpolation is used for periods to maturity not quoted.
See the Statement of Additional Information for examples of the application
of the MVA.
- -------------------------------------------------------------------------------
OTHER CONTRACT PROVISIONS
DEFERRAL OF PAYMENT. The Company may defer the calculation and payment of
partial withdrawal and full surrender values, transfers or Death Benefits from
the Variable Account during any period:
(1)(a) during which the New York Stock Exchange is closed other than
customary week-end and holiday closings or (b) during which trading on the
New York Stock Exchange is restricted as determined by the Commission, (2)
for any period during which an emergency exists as a result of which (a)
disposal of securities held by the Fund is not reasonably practicable or
(b) it is not reasonably practicable to determine the value of the net
assets of the Fund or (3) for such other periods as the Commission may by
order permit for the protection of security holders.
DESIGNATION AND CHANGE OF BENEFICIARY. The Beneficiary designation contained
in the Contract Application (or Certificate specifications) will remain in
effect until changed. The right to change any Beneficiary is reserved to the
Purchaser. Subject to the rights of an irrevocably designated Beneficiary, the
Purchaser may change or revoke the designation of a Beneficiary at any time
while the Purchaser is living by filing with the Company a beneficiary
designation or revocation In Writing. The change or revocation will not be
binding upon the Company until it is recorded by the Company. When it is so
recorded the change or revocation will be effective as of the date on which
the beneficiary designation or revocation was signed, but the change or
revocation will be without prejudice to the Company with regard to any payment
made or any action taken by the Company prior to recording the change or
revocation.
Reference should be made to the terms of a particular retirement plan and
any applicable legislation for any restrictions on the beneficiary
designation.
EXERCISE OF CONTRACT RIGHTS. A Contract shall belong to the Purchaser. All
Contract rights and privileges may be expressly reserved by the Purchaser.
Such rights and privileges can be exercised without the consent of the
Beneficiary (other than an irrevocably designated Beneficiary) or any other
person. Such rights and privileges may be exercised only during the lifetime
of the Purchaser and prior to the Annuity Date, except as otherwise provided
in the Contract.
The Annuitant becomes the Payee on and after the Annuity Date. If the
Annuitant predeceases the Purchaser prior to the Annuity Date, the Purchaser
becomes the Annuitant until the Purchaser designates a new Annuitant to the
Company In Writing. The Beneficiary becomes the Payee on the death of the
Annuitant after the Annuity Date. Such Payees may thereafter exercise such
rights and privileges, if any, of ownership which continue.
23
<PAGE>
TRANSFER OF OWNERSHIP. Ownership of a Qualified Contract may not be
transferred except to: (1) the Annuitant; (2) a trustee or successor trustee
of a pension or profit sharing trust which is qualified under Section 401 of
the Code; (3) the employer of the Annuitant provided that the Qualified
Contract after transfer is maintained under the terms of a retirement plan
qualified under Section 403(a) of the Code for the benefit of the Annuitant;
(4) the trustee of an individual retirement account plan qualified under
Section 408 of the Code for the benefit of the Purchaser; or (5) as otherwise
permitted from time to time by laws and regulations governing the retirement
or deferred compensation plans for which a Qualified Contract may be issued.
Subject to the foregoing, a Qualified Contract may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan or as security for
the performance of an obligation or for any other purpose to any person other
than the Company.
The owner of a Non-Qualified Contract may transfer the ownership of the
Contract prior to the Annuity Date. A transfer of ownership will not be
binding upon the Company until written notification is received and recorded
by the Company. When such notification is so recorded, the change will be
effective as of the effective date specified by the Purchaser, but the change
will be without prejudice to the Company regarding any payment made or any
action taken by the Company prior to recording the change.
A transfer of ownership may have federal income tax consequences. See
"Federal Tax Matters".
DEATH OF PURCHASER. If the Purchaser of a Non-Qualified Contract dies before
the Annuity Date, the death benefit payable under the Contract, if any, must
be distributed to the Beneficiary, if then alive, either (1) within five years
after the date of death of the Purchaser, or (2) over some period not greater
than the life or expected life of the Beneficiary, with annuity payments
beginning within one year after the date of death of the Purchaser. The person
named as the Purchaser's Beneficiary in the Contract Application or
Certificate specifications shall be considered the designated beneficiary for
the purposes of Section 72(s) of the Code and if no person then living has
been so named, then the Annuitant shall automatically be the designated
beneficiary for this purpose. In all cases, any such designated beneficiary
shall not be entitled to exercise any rights prohibited by applicable federal
income tax law.
These mandatory distribution requirements will not apply when the designated
beneficiary is the spouse of the deceased Purchaser, if the spouse elects to
continue the Contract in the spouse's own name, as Purchaser.
If the Payee dies after the Annuity Date and before the entire accumulation
under such Purchaser's Annuity Account has been distributed, the remaining
portion of such Purchaser's Annuity Account, if any, must be distributed at
least as rapidly as the method of distribution then in effect. Similar rules
may apply with respect to Qualified Contracts.
VOTING OF FUND SHARES. The Company will vote Fund shares held by the Sub-
Accounts at meetings of shareholders of the Fund, and to the extent required
by law, will follow voting instructions received from persons having the right
to give voting instructions. The Purchaser is the person having the right to
give voting instructions prior to the Annuity Date. If a Purchaser elects a
Variable Annuity Option, then after the Annuity Date, the Payee has the right
to give voting instructions. The number of votes decreases as annuity payments
are made and as the reserves for the Contract decrease. The person's number of
votes will be determined by dividing the reserve for the Contract allocated to
the applicable Sub-Account by the net asset value per share of the
corresponding Portfolio of the Fund. There are no voting rights associated
with the Fixed Account or a Fixed Annuity before or after the Annuity Date.
Any shares attributable to the Company and Fund shares for which no timely
voting instructions are received will be voted by the Company in the same
proportion as the shares for which instructions are received from Purchasers.
Voting instructions must be received by the Company at least one day prior to
the shareholders meeting in order to be considered timely.
Purchasers participating under Qualified Contracts may be subject to other
voting provisions of the particular plan. Individuals who contribute to plans
which are funded by the Contracts may be entitled to instruct the Purchasers
as to how to instruct the Company to vote the Fund shares attributable to
their contributions. Such plans may also provide the additional extent, if
any, to which the Purchasers shall follow voting instructions of persons with
rights under the plans. If no voting instructions are received from any such
person with respect to a particular employee's Annuity Account, the Purchaser
may instruct the Company as to how to vote the number of Fund shares for which
instructions may be given.
Neither the Variable Account nor the Company is under any duty to provide
information concerning the voting instruction rights of persons who may have
such rights under plans, other than rights afforded by the Act, nor any duty
to inquire as to the instructions received or the authority of Purchasers or
others to instruct the voting of Fund shares. Except as the Variable Account
or the Company has actual knowledge to the contrary, the instructions given by
Purchasers will be valid as they affect the Variable Account, the Company and
any others having voting instruction rights with respect to the Variable
Account.
All Fund proxy material, together with an appropriate form to be used to
give voting instructions, will be provided to each person known by the Company
to have the right to give voting instructions at least ten days prior to each
meeting of the shareholders of the Fund. The number of Fund shares as to which
each such person is entitled to give instructions will be determined as of a
date not more than 90 days prior to each such meeting. Prior to the Annuity
Date, the number of Fund shares as to which voting instructions may be given
to the Company is determined by dividing the value of all of the Variable
Accumulation Units of the particular Sub-Account
24
<PAGE>
credited to the Purchaser's Annuity Account by the net asset value of one Fund
share as of the same date. It should be noted that the Fund is not required
to, and does not intend to, hold annual or other regular meetings of
shareholders.
If the Act or any regulation thereunder should be amended, or if the present
interpretation thereof should change, and as a result the Company determines
that it is permitted to vote the Fund's shares in its own right, it may elect
to do so. Fund shares held by the Company or its affiliates in which
Purchasers or other persons entitled to vote have no beneficial interest may
be voted by the shareholder thereof (the Company or its affiliates) in its
sole discretion.
ADDITION, DELETION, OR SUBSTITUTION OF SECURITIES. The Company does not
control the Fund and cannot guarantee that it or any Portfolio thereunder will
be available for investment in the future or that it or any Portfolio
thereunder will accept Premium Payments or transfers. In the event the Fund or
any Portfolio thereunder is not available, the Company reserves the right to
make changes in the Variable Account and its investments, and may take
reasonable action to secure a comparable or otherwise appropriate funding
vehicle, although it is not required to do so and may not actually do so. In
the unlikely event that the Fund is not available in the future and a
substitute funding vehicle is not obtained, then all Annuity Account values
could be maintained in the Fixed Account. If the Fund or other funding vehicle
restricts or refuses to accept transfers or other transactions, then transfer
privileges under the Contract may be changed, modified or revoked.
The Company reserves the right, subject to compliance with applicable law,
to make additions to, deletions from, or substitutions for the shares of the
Fund that are held by the Variable Account (or any Sub-Account thereof) or
that the Variable Account (or any Sub-Account thereof) may purchase. The
Company may eliminate the shares of any of the Portfolios of the Fund and
substitute shares of another Portfolio of the Fund or any other investment
vehicle or of another open-end, registered investment company if laws or
regulations are changed, if the shares of the Fund or of a Portfolio are no
longer available for investment, or if the Company determines that further
investment in any Portfolio should become inappropriate in view of the
purposes of the Variable Account. If any of these events occurs, substitution
of any shares attributable to a Purchaser's interest in a Sub-Account of the
Variable Account shall occur only after notice and prior approval by the
Commission to the extent required. Nothing contained herein shall prevent the
Variable Account from purchasing other securities for other series or classes
of policies, or from permitting a conversion between series or classes of
policies on the basis of requests made by Purchasers. The Company shall make
any appropriate endorsement to the Contracts to reflect any substitution
pursuant to this provision.
New Sub-Accounts may be established when, in the sole discretion of the
Company, marketing, tax, investment or other conditions warrant. Any new Sub-
Accounts may be made available to existing Purchasers on a basis to be
determined by the Company. Each additional Sub-Account will purchase shares in
a portfolio of the Fund or in another mutual fund or investment vehicle. The
Company may also eliminate one or more Sub-Accounts if, in its sole
discretion, marketing, tax, investment or other conditions warrant such
change. In the event any Sub-Account is eliminated, the Company will notify
Purchasers and request a reallocation of the amounts invested in the
eliminated Sub-Account.
CHANGE IN OPERATION OF VARIABLE ACCOUNT. At the Company's election and if
deemed in the best interests of persons having voting rights under the
Contracts, the Variable Account may be operated as a management company under
the Act or any other form permitted by law; de-registered under the Act in the
event registration is no longer required (deregistration of the Variable
Account requires an order by the Commission); or combined with one or more
other separate accounts. To the extent permitted by applicable law, the
Company also may transfer the assets of the Variable Account associated with
the Contracts to another account or accounts. In the event of any change in
the operation of the Variable Account pursuant to this provision, the Company
may make appropriate endorsement to the Contracts to reflect the change and
take such other action as may be necessary and appropriate to effect the
change.
MODIFICATION. Upon notice to the Purchaser(s) (or the Payee(s) during the
annuity period), the Contracts and/or Certificates may be modified by the
Company if such modification: (i) is necessary to make the Contracts and/or
Certificates or the Variable Account comply with, or take advantage of, any
law or regulation issued by a governmental agency to which the Company or the
Variable Account is subject; or (ii) is necessary to attempt to assure
continued qualification of the Contracts under the Code or other federal or
state laws relating to retirement annuities or annuity contracts; or (iii) is
necessary to reflect a change in the operation of the Variable Account or its
Sub-Account(s) (see "Change in Operation of Variable Account"); or (iv)
provides additional Variable Account and/or fixed accumulation options. In the
event of any such modification, the Company may make appropriate endorsement
in the Contracts to reflect such modification.
In addition, upon notice to the Purchaser the Contracts may be modified by
the Company to change the withdrawal charges, Annuity Account Fees, mortality
and expense risk charges, the tables used in determining the amount of the
first monthly fixed annuity payment, and the formula used to calculate the
MVA, provided that such modification shall apply only to Contracts established
after the effective date of such modification. In order to exercise its
modification rights in these particular instances, the Company must notify the
Purchaser of such modification in writing. All of the charges and the annuity
tables which are provided in the Contracts prior to any such modification will
remain in effect permanently, unless improved by the Company, with respect to
Contracts established prior to the effective date of such modification.
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<PAGE>
DISCONTINUANCE OF NEW PURCHASERS. The Company reserves the right to limit or
discontinue the acceptance of new Contract Applications and the issuance of
new Contracts and Certificates. Such limitation or discontinuance shall have
no effect on rights or benefits with respect to any Contracts or Certificates
issued prior to the effective date of such limitation or discontinuance.
RIGHT TO EXAMINE CONTRACT. If the Purchaser is not satisfied with a Contract
it may be returned by mailing it to the Company via the Variable Annuity
Service Center mailing address listed on the cover of this Prospectus within
ten days after it was received by the Purchaser. A Purchaser may not make
transfers during this period. When the Company receives the returned Contract
it will be canceled and in most states the Purchaser will receive a refund
equal to the Purchaser's Annuity Account Value at the end of the Valuation
Period during which the returned Contract was received by the Company.
If applicable state law so requires, the full amount of any initial Premium
Payment and subsequent Premium Payment(s) if any, received by the Company will
be refunded and/or the period may be extended to 20 days. In those states in
which the initial Premium Payment and subsequent Premium Payment(s) if any,
received by the Company must be refunded, the Company will allocate the
Premium Payment(s) received before or during the Right to Examine period that
are allocated to Sub-Accounts of the Variable Account to the AIM V.I. Money
Market Fund until the end of the Right to Examine period. Thereafter, the
Premium Payments will be allocated as specified by the Purchaser in the
Application. The Company will also refund the greater of the Purchaser's
Annuity Account Value or the full amount of the Premium Payment(s), if any, to
those Purchasers who invoke their Right to Examine privilege in these states.
IRA RIGHT OF REVOCATION. With respect to Individual Retirement Accounts,
under the Employee Retirement Income Security Act of 1974 ("ERISA") a
Purchaser establishing an Individual Retirement Account must be furnished with
a disclosure statement containing certain information about the Contract and
applicable legal requirements. This statement must be furnished on or before
the date the Individual Retirement Account is established. If the Purchaser is
furnished with such disclosure statement before the seventh day preceding the
date the Individual Retirement Account is established, the Purchaser will not
have any right of revocation. If the disclosure statement is furnished after
the seventh day preceding the establishment of the Individual Retirement
Account, then the Purchaser may give a notice of revocation to the Company at
any time within seven days after the Date of Issue. Upon such revocation, the
Company will refund the Premium Payment made by the Purchaser. The foregoing
right of revocation with respect to an Individual Retirement Account is in
addition to the return privilege set forth in the preceding paragraph. The
Company will allow a participant establishing an Individual Retirement Account
a "ten day free-look", notwithstanding the provisions of ERISA.
PERIODIC REPORTS. At least once each calendar year, the Company will provide
a Purchaser a report as required by law showing the Annuity Account Value at
the end of the preceding year, all transactions during the year, the current
Annuity Account Value, the number of Accumulation Units in each Variable Sub-
Account, the applicable Variable Accumulation Unit Value(s) as of the date of
the report and the interest rate credited to the Fixed Account Sub-Account(s).
The Company will also send such statements reflecting transactions in the
Annuity Account as may be required by applicable laws, rules and regulations.
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FEDERAL TAX MATTERS
INTRODUCTION. The Contracts described in this Prospectus are designed for
use by individuals to accumulate Annuity Account Values and may be used by
retirement plans, whether or not they qualify for special federal income tax
treatment. The ultimate effect of federal income taxes on the amounts held
under a Contract, on annuity payments, and on the economic benefits to the
Purchaser, Annuitant or Beneficiary depends on the Company's tax status, on
the type of retirement plan for which a Contract is purchased, and upon the
tax and employment status of the individual concerned.
The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax advisor. 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"). THE COMPANY DOES NOT MAKE ANY GUARANTEE REGARDING THE
TAX STATUS, FEDERAL, STATE OR LOCAL, OF ANY CONTRACT OR ANY TRANSACTION
INVOLVING THE CONTRACT.
TAXATION OF ANNUITIES. The following discussion assumes the Contracts will
qualify as annuity contracts for federal income tax purposes. The Statement of
Additional Information discusses the requirements for qualifying as an
annuity.
IN GENERAL. Code Section 72 governs taxation of annuities. In general, a
Purchaser is not taxed on increases in value under a Contract until some form
of distribution is made under the Contract. The exception to this rule is that
generally, a Purchaser who is not a natural person must include in income any
increase in the excess of the Purchaser's Annuity Account Value over the
Purchaser's investment in the contract during the taxable year. However, there
are some exceptions to this exception and you may wish to discuss these with
your tax counsel. The taxable portion of a distribution (in the form of an
annuity or lump sum payment) is generally taxed as ordinary income. For this
purpose, the assignment, pledge, or agreement to assign or pledge any portion
of the Annuity Account Value (or the Contract) generally will be treated as a
distribution.
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The following discussion generally applies to Contracts owned by natural
persons.
WITHDRAWALS AND SURRENDERS. In the case of a withdrawal distributed to a
participant or beneficiary under a Qualified Contract (other than a Qualified
Contract used in a retirement plan that qualifies for special income tax
treatment under Section 457 of the Code, as to which there are special rules)
a ratable portion of the amount received is taxable, generally based on the
ratio of the investment in the Contract to the total Annuity Account Value.
The "investment in the contract" generally equals the portion, if any, of any
Premium Payments paid by or on behalf of an individual under a Contract which
is not excluded from the individual's gross income. For contracts issued in
connection with qualified plans, the "investment in the contract" can be zero.
Special tax rules may be available for certain distribution from Qualified
Contracts.
Generally, in the case of a partial withdrawal under a Non-Qualified
Contract before the Annuity Date (including systematic withdrawals), amounts
received are first treated as taxable income to the extent that the Annuity
Account Value immediately before the withdrawal exceeds the "investment in the
contract" at that time. The Annuity Account Value immediately before a
withdrawal may have to be increased by any positive MVA which results from
such a withdrawal. There is, however, no definitive guidance on the proper tax
treatment of MVAs, and the Purchaser should contact a competent tax advisor
with respect to the potential tax consequences of a MVA.
In the case of a full surrender under a Non-Qualified Contract, the amount
received is generally treated as taxable income to the extent the net amount
received exceeds the "investment in the contract" at that time.
ANNUITY PAYMENTS. Although the tax consequences may vary depending on the
Annuity Option elected under the Contract, in general, only the portion of an
annuity payment that represents the amount by which the Annuity Account Value
exceeds the investment in the Contract will be taxed; after the investment in
the Contract is recovered, the full amount of any additional annuity payments
is taxable. For Variable Annuity payments, the taxable portion is generally
determined by an equation that 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 entire distribution will, however, be taxable once the recipient
has recovered the dollar amount of the "investment in the contract." For Fixed
Annuity payments, in general, there is no tax on the portion of each payment
which represents the same ratio that the "investment in the contract" bears to
the total expected value of the annuity payments for the term of the payments;
however, the remainder of each annuity payment is taxable until the recovery
of the investment in the contract, and thereafter the full amount or each
annuity payment is taxable.
PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution pursuant
to a Non-Qualified Contract (including systematic withdrawals, other partial
withdrawals, surrenders, and any other distribution), there may be imposed a
penalty tax equal to 10% of the amount treated as taxable income. The penalty
tax is not imposed in certain circumstances, including, generally,
distributions: (1) made on or after the date on which the Purchaser is actual
age 59 1/2; (2) made as a result of death of the Purchaser or disability of
the taxpayer; or (3) received in substantially equal installments as a life
annuity. Other tax penalties may apply to certain distributions pursuant to a
Qualified Contract.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of the death of a Purchaser. Generally, such amounts are
includable in the income of the recipient as follows: (1) if distributed in a
lump sum, they are taxed in the same manner as a full surrender of the
Contract, as described above, or (2) if distributed under an Annuity Option,
they are taxed in the same manner as annuity payments, as described above.
MULTIPLE CONTRACTS. All non-qualified, deferred annuity contracts that are
issued by the Company (or its affiliates) to the same Purchaser during any
calendar year are to be treated as one annuity contract for purposes of
determining the amount includable in an individual's gross income. There may
be other situations in which the Treasury may conclude that it would be
appropriate to aggregate two or more annuity contracts purchased by the same
investor. Accordingly, a Purchaser should consult a competent tax adviser
before purchasing more than one Contract or other annuity contracts.
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF CONTRACTS. A transfer of ownership of
a Contract; the designation of an Annuitant, Payee or other Beneficiary who is
not also the Purchaser; the selection of certain Annuity Dates; or a change of
Annuitant; may result in certain income or gift tax consequences to the
Purchaser that are beyond the scope of this discussion. A Purchaser
contemplating any such transfer, assignment or change should contact a
competent tax advisor in respect to the potential tax effects of such a
transaction.
WITHHOLDING. Withholding of federal income taxes on the taxable portion of
all distributions may be required unless the recipient elects not to have any
such amounts withheld and properly notifies the Company of that election.
Different rules may apply to United States citizens or expatriates living
abroad. Effective January 1, 1993, withholding is mandatory for certain
distributions from Qualified Contracts. In addition, some states have enacted
legislation requiring withholding.
SECTION 1035 EXCHANGES. Code Section 1035 generally provides that no gain or
loss shall be recognized on the exchange of one annuity contract for another.
If the surrendered contract was issued prior to August 14, 1982, the tax rules
that formerly provided that the surrender was taxable only to the extent the
amount received exceeds the owner's investment in the contract will continue
to apply to amounts allocable to investment in the contract before August 14,
1982. In contrast, contracts issued on or after January 19,
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<PAGE>
1985 in a Code Section 1035 exchange are treated as new contracts for purposes
of the penalty and distribution-at-death rules (described in the Statement of
Additional Information). Special rules and procedures apply to Code Section
1035 transactions. Prospective purchasers wishing to take advantage of Code
Section 1035 should consult their tax advisors.
QUALIFIED PLANS. The Qualified Contract is designed for use with several
types of qualified plans. The tax rules applicable to participants and
beneficiaries in such qualified plans vary according to the type of plan and
the terms and conditions of the plan itself. Special favorable tax treatment
may be available for certain types of contributions and distributions
(including special rules for certain lump sum distributions). Adverse tax
consequences may result from contributions in excess of specified limits,
distributions prior to age 59 1/2 (subject to certain exceptions),
distributions that do not conform to specified minimum distribution rules,
aggregate distributions in excess of a specified annual amount, and in certain
other circumstances. Therefore, the Company makes no attempt to provide more
than general information about use of the Contract with the various types of
qualified plans. Purchasers and participants under qualified plans as well as
Annuitants, Payees and Beneficiaries are cautioned that the rights of any
person to any benefits under qualified plans may be subject to the terms and
conditions of the plan themselves, regardless of the terms and conditions of
the Contract issued in connection therewith. Purchasers of Contracts for use
with any qualified plan should seek competent legal and tax advice regarding
the suitability of the Contract therefor.
SECTION 403(B) PLANS. Under Section 403(b) of the Code, payments made by
public school systems and certain tax exempt organizations to purchase annuity
policies for their employees are excludable from the gross income of the
employee, subject to certain limitations. However, such payments may be
subject to FICA (Social Security) taxes. Additionally, in accordance with the
requirements of the Code, Section 403(b) annuities generally may not permit
distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age
59 1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the case
of hardship.
INDIVIDUAL RETIREMENT ANNUITIES. Sections 219 and 408 of the Code permit
individuals or their employers to contribute to an individual retirement
program known as an "Individual Retirement Annuity" or an "IRA". Individual
Retirement Annuities are subject to limitation on the amount which may be
contributed and deducted and the time when distributions may commence. In
addition, distributions from certain other types of qualified plans may be
placed into an Individual Retirement Annuity on a tax-deferred basis.
CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS. Section 401(a)
and 403(a) of the Code permit corporate employers to establish various types
of retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the Contracts to provide benefits under the plans.
DEFERRED COMPENSATION PLANS. Section 457 of the Code, while not actually
providing for a qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political sub-divisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The Contracts can be used with
such plans. Under such plans a participant may specify the form of investment
in which his or her participation will be made. All such investments, however,
are owned by, and are subject to, the claims of the general creditors of the
sponsoring employer.
* * * * * * * * * * * * * *
The above description of federal income tax consequences pertaining to the
different types of Qualified Plans that may be funded by the Contracts is only
a brief summary and is not intended as tax advice. The rules governing the
provisions of Qualified Plans are extremely complex and often difficult to
comprehend. In addition, the Tax Reform Act has significantly changed a great
many rules for Qualified Plans. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have significant
adverse tax consequences. A prospective purchaser considering the purchase of
a Contract in connection with a Qualified Plan should first consult a
qualified and competent tax advisor with regard to the suitability of the
Contract as an investment vehicle for the Qualified Plan.
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DISTRIBUTION OF THE CONTRACTS
CIGNA Financial Advisors, Inc. ("CFA") located at 900 Cottage Grove Road,
Hartford, Connecticut 06152 is the principal underwriter and the distributor
of the Contracts. CFA is a wholly-owned subsidiary of Connecticut General
Corporation, which is an affiliate of CIGNA Corporation. CFA may enter into
contracts with various broker-dealers to aid in the distribution of the
Contracts. The commissions paid to dealers are no greater than 6.75% of
Premium Payments.
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HISTORICAL PERFORMANCE DATA
The Company may from time to time disclose the current annualized yield of
the Money Market Sub-Account for a 7-day period in a manner which does not
take into consideration any realized or unrealized gains or losses on shares
of the AIM V.I. Money Market Series or on its portfolio securities. Yield
figures will not reflect withdrawal charges or premium taxes. The current
annualized yield is computed by determining the net change (exclusive of
realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) at the end of the 7-day period in the value of
a hypothetical account having a balance of 1 variable accumulation unit of the
Money Market Sub-Account at the beginning of the 7-day period, dividing such
net change in account value by the value of the account at the beginning of
the period to determine the base period return, and annualizing this quotient
on a 365-day basis. The net change in account value reflects (i) net income
from the Portfolio attributable to the hypothetical account; and (ii) charges
and deductions imposed under a Contract that are attributable to the
hypothetical account.
The Company may also disclose the effective yield of the Money Market Sub-
Account for the same 7-day period, determined on a compounded basis. The
effective yield is calculated by compounding the unannualized base period
return by adding one to the base period return, raising the sum to a power
equal to 365 divided by 7, and subtracting one from the result.
The Company may also advertise or disclose the current annualized yield of
one or more of the Sub-Accounts of the Variable Account (except the Money
Market Sub-Account) for 30-day periods. The annualized yield of a Sub-Account
refers to income generated by the Sub-Account over a specific 30-day period.
Because the yield is annualized, the yield generated by a Sub-Account during
the 30-day period is assumed to be generated each 30-day period over a 12-
month period. The yield is computed by dividing the net investment income per
variable accumulation unit earned during the period by the maximum offering
price per unit on the last day of the period. The yield calculations do not
reflect the effect of any premium taxes or withdrawal charges that may be
applicable to a particular Contract.
The Company may also advertise or disclose annual average total returns for
one or more Sub-Accounts of the Variable Account for various period of time.
The standardized total return of a Sub-Account refers to return quotations
assuming an investment has been held in the Sub-Account for various periods of
time including, but not limited to, one year, five years, and ten years (if
the Sub-Account has been in operation for those periods), and a period
measured from the date the Sub-Account commenced operations. Total returns
represent the average annual compounded rates of return that would equate the
initial amount invested to the redemption value of that investment as of the
last day of each of the periods for which total return quotations are
provided. Accordingly, the total return quotations will reflect not only
income but also changes in principal (i.e., variable accumulation unit) value,
whereas the yield figures will only reflect income. The standardized total
return quotations reflect the withdrawal charge, but the standardized yield
figures will not.
The Company may from time to time also disclose average annual total returns
in a non-standard format in conjunction with the standard format described
above. The non-standard format will be identical to the standard format except
that the withdrawal charge percentage will be assumed to be 0%. The Company
may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated assuming that the withdrawal charge is 0%.
All non-standard performance data will only be advertised if the standard
performance data is also disclosed. Performance will vary from time to time
and historical results will not be representative of future performance.
Performance information may not provide a basis for comparison with other
investments or other investment companies using a different method of
calculating performance. Current yield is not fixed and varies with changes in
investment income and variable accumulation unit values. The Money Market Sub-
Account's yield will be affected if it experiences a net inflow of new money
which is invested at interest rates different from those being earned on its
then-current investments. An investor's principal in a Sub-Account and a Sub-
Account's return are not guaranteed and will fluctuate according to market
conditions. And, as noted above, advertised performance data figures will be
historical figures for a contract during the Accumulation Period.
The Company may also from time to time use advertising which includes
hypothetical illustrations to compare the difference between the growth of a
taxable investment and a tax-deferred investment in a variable annuity.
For additional information regarding the calculation of performance data,
please refer to the Statement of Additional Information.
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STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available (at no cost) which
contains more details concerning the subjects discussed in this Prospectus. The
following is the Table of Contents for that Statement:
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE CONTRACTS-GENERAL PROVISIONS........................................ 4
The Contracts.......................................................... 4
Right to Contest....................................................... 4
Non-Participating Contracts............................................ 4
Deferral of Payment.................................................... 4
Misstatement of Age.................................................... 5
Assignment............................................................. 5
Evidence of Survival................................................... 5
Endorsement of Annuity Payments........................................ 5
FEDERAL TAX MATTERS..................................................... 6
Tax Status of the Contracts............................................ 6
Taxation of the Company................................................ 7
INVESTMENT EXPERIENCE................................................... 7
Variable Accumulation Unit Value and Variable Accumulation Value....... 7
Net Investment Factor.................................................. 8
SAMPLE CALCULATIONS AND TABLES..........................................
Variable Account Calculations.......................................... 9
Withdrawal Charge and MVA Tables....................................... 10
STATE REGULATION OF THE COMPANY......................................... 14
ADMINISTRATION.......................................................... 14
PERIODIC REPORTS........................................................ 14
DISTRIBUTION OF THE CONTRACTS........................................... 15
CUSTODY OF ASSETS....................................................... 15
HISTORICAL PERFORMANCE DATA............................................. 15
Money Market Sub-Account Yield......................................... 15
Other Sub-Account Yields............................................... 16
Total Returns.......................................................... 17
Other Performance Data................................................. 17
LEGAL MATTERS........................................................... 18
LEGAL PROCEEDINGS....................................................... 18
EXPERTS................................................................. 19
CONSENT OF INDEPENDENT ACCOUNTANTS...................................... 19
FINANCIAL STATEMENTS.................................................... 19
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
AIM/CIGNA HERITAGE VARIABLE ANNUITY
-----------------------------------
Issued through
CG VARIABLE ANNUITY SEPARATE ACCOUNT
Offered by
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
Home Office Location
900 Cottage Grove Road
Hartford, Connecticut 06152
Variable Products Service Center
c/o Delaware Valley Financial Services
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312
(800) 628-2811
This Statement of Additional Information ("Statement") expands upon subjects
discussed in the current Prospectus for the Variable Annuity Contracts (the
"Contracts") offered by Connecticut General Life Insurance Company through CG
Variable Annuity Separate Account. You may obtain a copy of the Prospectus
dated May 1, 1995, by calling (203) 726-6000, or by writing to Connecticut
General Life Insurance Company at the mailing address shown above. Terms used
in the current Prospectus for the Contracts are incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACTS AND CG VARIABLE
ANNUITY SEPARATE ACCOUNT.
Dated: May 1, 1995
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
THE CONTRACTS-GENERAL PROVISIONS 3
The Contracts 3
Loans 3
Non-Participating Contracts 3
Deferral of Payment 3
Misstatement of Age 4
Assignment 4
Evidence of Survival 4
Endorsement of Annuity Payments 4
TAXATION OF THE COMPANY 4
INVESTMENT EXPERIENCE 5
Variable Accumulation Unit Value and Variable Accumulation Value 5
Net Investment Factor 6
SAMPLE CALCULATIONS AND TABLES 6
Variable Account Calculations 6
Withdrawal Charge and Market Value Adjustment Tables 7
STATE REGULATION OF THE COMPANY 10
ADMINISTRATION 10
PERIODIC REPORTS 10
DISTRIBUTION OF THE CONTRACTS 10
CUSTODY OF ASSETS 11
HISTORICAL PERFORMANCE DATA 11
Money Market Sub-Account Yield 11
Other Sub-Account Yields 12
Total Returns 13
Other Performance Data 13
LEGAL MATTERS 14
LEGAL PROCEEDINGS 14
EXPERTS 14
CONSENT OF INDEPENDENT ACCOUNTANTS 15
FINANCIAL STATEMENTS 16
</TABLE>
2
<PAGE>
In order to supplement the description in the Prospectus, the following provides
additional information about Connecticut General Life Insurance Company (the
"Company") and the Contracts which may be of interest to a Contract Owner.
Terms have the same meaning as in the Prospectus, unless otherwise indicated.
THE CONTRACTS - GENERAL PROVISIONS
THE CONTRACTS
A Contract, attached riders, amendments, any application, and any applications,
for additional amounts, form the entire contract. Only the President, a Vice
President, a Secretary, a Director, or an Assistant Director of the Company may
change or waive any provision in a Contract. Any changes or waivers must be in
writing.
The Company may change or amend the Contracts if such change or amendment is
necessary for the Contracts to comply with or take advantage of any state or
federal law, rule or regulation.
LOANS
Under the Contracts, loans are not permitted.
NON-PARTICIPATING CONTRACTS
The Contracts do not participate or share in the profits or surplus earnings of
the Company.
DEFERRAL OF PAYMENT
The Company may defer the calculation and payment of partial withdrawal and full
surrender values, transfers or Death Benefits from the Variable Account or any
Variable Account Sub-Account during any period:
(1)(a) during which the New York Stock Exchange is closed other than customary
week-end and holiday closing or (b) during which trading on the New York Stock
Exchange is restricted as determined by the Securities and Exchange Commission,
(2) for any period during which an emergency exists as a result of which (a)
disposal of securities held by a Fund is not reasonably practicable or (b) it is
not reasonably practicable to determine the value of the net assets of a Fund or
(3) for such other periods as the Securities and Exchange Commission may by
order permit for the protection of security holders.
The Company reserves the right to defer the payment or transfer of amounts
withdrawn from any Fixed Account Sub-Account for a period not to exceed six
months from the date written request for such withdrawal or transfer is received
by the Company. If payment or transfer is deferred beyond thirty (30) days, the
Company will pay interest of not less than 3% per year on amounts so deferred.
Payments to an Owner of any amounts derived from Premium Payments paid by check
or draft may be delayed until such time as the check or draft has cleared.
3
<PAGE>
MISSTATEMENT OF AGE
If the age of the Annuitant is misstated, any amounts payable by the Company
under the Contract will be adjusted to be those amounts which the Premium
Payments would have purchased for the correct age, according to the Company's
rates in effect on the Date of Issue. Any overpayment by the Company, with
interest at the rate of 6% per year, compounded annually, will be charged
against the payments to be made next succeeding the adjustment. Any
underpayment by the Company will be paid in a lump sum.
ASSIGNMENT
During the lifetime of the Annuitant the Purchaser may assign any rights under a
Contract as security for a loan or other reasons. This does not change the
ownership of a Contract, but the rights of the Purchaser and any Beneficiary are
subject to the terms of the assignments. An assignment will not be binding on
the Company until the original assignment or a certified copy has been filed at
the Variable Products Service Center. The Company is not responsible for the
validity of the assignment. An assignment may have income tax consequences.
Rights under Qualified Contracts may not be assignable.
EVIDENCE OF SURVIVAL
The Company reserves the right to require evidence of the survival of any Payee
at the time any payment payable to such Payee is due under the following Annuity
Options: Life Annuity (fixed), Life Annuity with Certain Period (fixed), Cash
Refund Life Annuity (fixed), Variable Life Annuity, and Variable Life Annuity
with Certain Period.
ENDORSEMENT OF ANNUITY PAYMENTS
The Company will make each annuity payment at its Home Office by check. Each
check must be personally endorsed by the Payee or the Company may require that
proof of the Annuitant's survival be furnished.
TAXATION OF THE COMPANY
The Company at present is taxed as a life insurance company under part I of
Subchapter L of the Internal Revenue Code. The Variable Account is treated as
part of the Company and, accordingly, will not be taxed separately as a
"regulated investment company" under Subchapter M of the Internal Revenue Code.
The Company does not expect to incur any federal income tax liability with
respect to investment income and net capital gains arising from the activities
of the Variable Account retained as part of the reserves under the Contract.
Based on this expectation, it is anticipated that no charges will be made
against the Variable Account for federal income taxes. If, in future years, any
federal income taxes or other economic burden are incurred by the Company with
respect to the Variable Account or the Contracts, the Company may make a charge
for any such amounts that are attributable to the Variable Account.
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<PAGE>
INVESTMENT EXPERIENCE
On any Valuation Date, the Variable Account value is equal to the totals of the
values allocated to the Contracts in each Sub-Account. The portion of an
Owner's Annuity Account Value held in any Variable Account Sub-Account is equal
to the number of Sub-Account units allocated to a Contract multiplied by the
Sub-Account accumulation unit value as described below.
VARIABLE ACCUMULATION UNIT VALUE AND VARIABLE ACCUMULATION VALUE
Upon receipt of a Premium Payment by the Company at its Variable Products
Service Center, all or that portion, if any, of the Premium Payment to be
allocated to the Variable Account Sub-Accounts will be credited to the Variable
Account in the form of Variable Accumulation Units. The number of particular
Variable Accumulation Units to be credited is determined by dividing the dollar
amount allocated to the particular Variable Account Sub-Account by the Variable
Accumulation Unit Value for the particular Variable Account Sub-Account for the
Valuation Period during which the Premium Payment is received at the Company's
Variable Products Service Center (for the initial Premium Payment, for the
Valuation Period during which the Premium Payment is accepted).
The Variable Accumulation Unit Value for each Variable Account Sub-Account was
established at $10.00 for the first Valuation Period of the particular Variable
Account Sub-Account. The Variable Accumulation Unit Value for the particular
Variable Account Sub-Account for any subsequent Valuation Period is determined
by multiplying the Variable Accumulation Unit Value for the particular Variable
Account Sub-Account for the immediately preceding Valuation Period by the Net
Investment Factor for the particular Variable Account Sub-Account for such
subsequent Valuation Period. The Variable Accumulation Unit Value for each
Variable Account Sub-Account for any Valuation Period is the value determined as
of the end of the particular Valuation Period and may increase, decrease, or
remain constant from Valuation Period to Valuation Period.
The variable accumulation value of the Annuity Account, if any, for any
Valuation Period is equal to the sum of the value of all Variable Accumulation
Units of each Variable Account Sub-Account credited to the Variable Account for
such Valuation Period. The variable accumulation value of each Variable Account
Sub-Account is determined by multiplying the number of Variable Accumulation
Units, if any, credited to each Variable Account Sub-Account by the Variable
Accumulation Unit Value of the particular Variable Account Sub-Account for such
Valuation Period.
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NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Variable Account Sub-Account from one Valuation Period to the
next. The Net Investment Factor may be greater or less than or equal to 1.0;
therefore, the value of a Variable Accumulation Unit may increase, decrease, or
remain the same.
The Net Investment Factor for any Variable Account Sub-Account for any Valuation
Period is determined by dividing (a) by (b) and then subtracting (c) from the
result where:
(a) is the net result of:
(1) the net asset value of a Fund share held in the Variable
Account Sub-Account determined as of the end of the Valuation
Period, plus
(2) the per share amount of any dividend or other distribution
declared on the Fund shares held in the Variable Account Sub-
Account if the "ex-dividend" date occurs during the Valuation
Period, plus or minus
(3) a per share credit or charge with respect to any taxes paid
or reserved for by the Company during the Valuation Period which
are determined by the Company to be attributable to the operation
of the Variable Account Sub-Account;
(b) is the net asset value of the Fund share held in the Variable Account
Sub-Account determined as of the end of the preceding Valuation Period; and
(c) is the total of charges for mortality and expense risks, and the
administrative expense fee during the Valuation Period.
SAMPLE CALCULATIONS AND TABLES
VARIABLE ACCOUNT CALCULATIONS
VARIABLE ACCUMULATION UNIT VALUE CALCULATION. Assume the net asset value of a
Fund share at the end of the current Valuation Period is $16.50; and its value
at the end of the immediately preceding Valuation Period was $16.46; the
Valuation Period is one day; and no dividends or distributions caused Fund
shares to go "ex-dividend" during the current Valuation Period. $16.50 divided
by $16.46 is 1.002430134. Subtracting the one day risk factor for mortality and
expense risks and the administrative expense charge of .00003723754 (the daily
equivalent of the current charge of 1.35% on an annual basis) gives a net
investment factor of 1.00239289646. If the value of the Variable Accumulation
Unit for the immediately preceding Valuation Period had been $14.7036925, the
value for the current Valuation Period would be $14.73887691 ($14.7036925 X
1.00239289646).
6
<PAGE>
VARIABLE ANNUITY UNIT VALUE CALCULATION. The assumptions in the above example
exist. Also assume that the value of an Annuity Unit for the immediately
preceding Valuation Period had been $13.5791357. If the first variable annuity
payment is determined by using an assumed interest rate of 3% per year, the
value of the Annuity Unit for the current Valuation Period would be $13.61016662
[$13.5791357 x 1.00239289646 (the net investment factor) x 0.999892552].
0.999892552 is the factor, for a one day Valuation Period, that neutralizes the
assumed interest rate of four percent (4%) per year used to establish the
Annuity Payment rates found in the Contract.
VARIABLE ANNUITY PAYMENT CALCULATION. Assume that a Participant's Variable
Annuity Account is credited with 5319.7531 Variable Accumulation Units of a
particular Sub-Account; that the Variable Accumulation Unit Value and the
Annuity Unit Value for the particular Sub-Account for the Valuation Period which
ends immediately preceding the Annuity Date are $14.7036925 and $13.5791357
respectively; that the Annuity Payment rate for the age and option elected is
$6.52 per $1,000; and that the Annuity Unit Value on the day prior to the second
variable annuity payment date is $13.61017004. The first variable annuity
payment would be $509.99 (5319.7531 x $14.7036925 x 6.52 divided by 1,000). The
number of Annuity Units credited would be 37.5569 ($509.99 divided by
$13.5791357) and the second variable annuity payment would be $511.16 (37.5569 x
$13.61017004).
WITHDRAWAL CHARGE AND MARKET VALUE ADJUSTMENT TABLES
The following example illustrates the detailed calculations for a $100,000
deposit into the Fixed Account with a guaranteed rate of 8% for a duration of
five years. The intent of the example is to show the effect of the Market Value
Adjustment ("MVA") and the 3% minimum guarantee under various interest rates on
the calculation of the cash surrender value. The effect of the MVA is reflected
in the index rate factor in column (2) and the minimum 3% guarantee is shown
under column (4) under the "Surrender Value Calculation". The "Market Value
Adjustment Tables" and "Minimum Value Calculation" contain the explicit
calculation of the index factors and the 3% minimum guarantee respectively.
7
<PAGE>
SAMPLE CALCULATIONS FOR MALE 35 ISSUE
CASH SURRENDER VALUES
<TABLE>
=======================================================================
<S> <C>
Single premium $100,000
- -----------------------------------------------------------------------
Premium taxes 0
- -----------------------------------------------------------------------
Withdrawals None
- -----------------------------------------------------------------------
Guaranteed period 5 years
- -----------------------------------------------------------------------
Guaranteed interest rate 8%
- -----------------------------------------------------------------------
Annuity date Age 70
- -----------------------------------------------------------------------
Index rate A 7.5%
- -----------------------------------------------------------------------
Index rate B 8.00% end of policy year 1
7.75% end of policy year 2
7.00% end of policy year 3
6.50% end of policy year 4
Percentage adjustment to B 0.5%
- -----------------------------------------------------------------------
</TABLE>
SURRENDER VALUE CALCULATION
<TABLE>
<CAPTION>
=====================================================================================================
(1) (2) (3) (4) (5) (6) (7)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Contract Annuity Index Rate Adjusted Minimum Greater of Surrender Surrender
Year Value Factor Annuity Value Value (3)&(4) Charge Value
- -----------------------------------------------------------------------------------------------------
1 $107,965 0.963640 $104,039 $102,965 $104,039 $5,950 $ 98,089
- -----------------------------------------------------------------------------------------------------
2 $116,567 0.993056 $115,758 $106,019 $115,758 $5,100 $110,658
- -----------------------------------------------------------------------------------------------------
3 $125,858 1.000000 $125,858 $109,165 $125,858 $4,250 $121,608
- -----------------------------------------------------------------------------------------------------
4 $135,891 1.004673 $136,526 $112,404 $136,526 $3,400 $133,126
- -----------------------------------------------------------------------------------------------------
5 $146,727 1.000000 $146,727 $115,742 $146,727 $2,550 $144,177
=====================================================================================================
</TABLE>
ANNUITY VALUE CALCULATION
<TABLE>
<CAPTION>
===============================================================
Contract Year Annuity Value
- ---------------------------------------------------------------
<S> <C>
1 $100,000 X 1.08 - $35 = $107,965
- ---------------------------------------------------------------
2 $107,965 X 1.08 - $35 = $116,567
- ---------------------------------------------------------------
3 $116,567 X 1.08 - $35 = $125,858
- ---------------------------------------------------------------
4 $125,858 X 1.08 - $35 = $135,891
- ---------------------------------------------------------------
5 $135,891 X 1.08 - $35 = $146,727
===============================================================
</TABLE>
8
<PAGE>
SURRENDER CHARGE CALCULATION
<TABLE>
<CAPTION>
=======================================================================
(1) (2) (3)
- -----------------------------------------------------------------------
Contract Surrender Surrender Charge Factor Adjusted Surrender
Year Charge Factor for Free Partial Withdrawals Charge
- -----------------------------------------------------------------------
<S> <C> <C> <C>
1 0.07 0.0595 $5,950
- -----------------------------------------------------------------------
2 0.06 0.0510 $5,100
- -----------------------------------------------------------------------
3 0.05 0.0425 $4,250
- -----------------------------------------------------------------------
4 0.04 0.0340 $3,400
- -----------------------------------------------------------------------
5 0.03 0.0255 $2,550
=======================================================================
</TABLE>
MARKET VALUE ADJUSTMENT TABLES
<TABLE>
<CAPTION>
================================================================================
INTEREST RATE FACTOR CALCULATION
================================================================================
(1) (2) (3) (4) (5)
- --------------------------------------------------------------------------------
Contract Index Index Adjusted (1+A)n
Year Rate A Rate B Index Rate B N --------
(I+B)n
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 7.5% 8.00 8.50 4 0.963640
- --------------------------------------------------------------------------------
2 7.5% 7.75 7.75 3 0.993056
- --------------------------------------------------------------------------------
3 7.5% 7.00 7.50 2 1.000000
- --------------------------------------------------------------------------------
4 7.5% 6.50 7.00 1 1.004673
- --------------------------------------------------------------------------------
5 7.5% NA NA 0 NA
================================================================================
</TABLE>
<TABLE>
<CAPTION>
============================================================
MINIMUM VALUE CALCULATION
============================================================
Contract Year Minimum Value
------------------------------------------------------------
<S> <C>
1 $100,000 X 1.03 - 35 = $102,965
------------------------------------------------------------
2 $102,965 X 1.03 - 35 = $106,019
------------------------------------------------------------
3 $106,019 X 1.03 - 35 = $109,165
------------------------------------------------------------
4 $109,165 X 1.03 - 35 = $112,404
------------------------------------------------------------
5 $112,404 X 1.03 - 35 = $115,742
============================================================
</TABLE>
9
<PAGE>
STATE REGULATION OF THE COMPANY
The Company, a Connecticut corporation, is subject to regulation by the
Connecticut Department of Insurance. An annual statement is filed with the
Connecticut Department of Insurance each year covering the operations and
reporting on the financial condition of the Company as of December 31 of the
preceding year. Periodically, the Connecticut Department of Insurance or other
authorities examine the liabilities and reserves of the Company and the Variable
Account, and a full examination of the Company's operations is conducted
periodically by the Connecticut Department of Insurance. In addition, the
Company is subject to the insurance laws and regulations of other states within
which it is licensed to operate.
A Contract is governed by the law of the state in which it is delivered. The
values and benefits of each policy are at least equal to those required by such
state.
ADMINISTRATION
The Company performs certain administrative functions relating to the Contracts,
the Fixed Account, and the Variable Account. These functions include, among
other things, maintaining the books and records of the Variable Account, the
Fixed Account, and the Sub-Accounts, and maintaining records of the name,
address, taxpayer identification number, contract number, Annuity Account number
and type, the status of each Annuity Account and other pertinent information
necessary to the administration and operation of the Contracts.
PERIODIC REPORTS
At least once during each Calendar Year, the Company will furnish the Owner with
a report showing the Annuity Account Value at the end of the preceding Calendar
Year, all transactions during the Calendar Year, the current Annuity Account
Value, the number of Accumulation Units in each Variable Accumulation Account,
the applicable Accumulation Unit Value as of the date of the report and the
interest rate credited to the Fixed Account Sub-Account(s). In addition, each
person having voting rights in the Variable Account and a Fund or Funds will
receive such reports or prospectuses as may be required by the Investment
Company Act of 1940 and the Securities Act of 1933. The Company will also send
each Owner such statements reflecting transactions in the Owner's Annuity
Account as may be required by applicable laws, rules and regulations.
Upon request to the Variable Products Service Center, the Company will provide
an Owner with information regarding fixed and variable accumulation values.
DISTRIBUTION OF THE CONTRACTS
The offering of the Contracts is continuous. The Contracts will be sold by
licensed insurance agents in those states where the Contracts may be lawfully
sold. Such agents will be registered representatives of broker-dealers
registered under the Securities Exchange Act of 1934 who are members of the
National Association of Securities Dealers, Inc. and who have entered into
distribution agreements with the Company and the principal underwriter for the
Contracts, CIGNA Financial Advisors, Inc. ("CFA"), Hartford, Connecticut 06152,
which is an affiliate of the Company as well as of CIGNA Corporation. CFA is
registered with the Securities and Exchange Commission under the Securities
10
<PAGE>
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. CFA also acts as the general distributor
of other variable annuity contracts and of variable life insurance contracts
issued by the Company. Commissions and other distribution compensation will be
paid by the Company and will not be more than 6.75% of Premium Payments. The
Company received $277,741 in deferred sales charges attributable to the Variable
Account portion of the Contracts during the fiscal year ended January 31, 1995.
Sales charges on the Contracts are as described in the Prospectus. There are no
variations in sales load.
CUSTODY OF ASSETS
The Company is the Custodian of the assets of the Variable Account. The Company
will purchase Fund shares at net asset value in connection with amounts
allocated to the Variable Account Sub-Accounts in accordance with the
instructions of the Purchasers and redeem Fund shares at net asset value for the
purpose of meeting the contractual obligations of the Variable Account, paying
charges relative to the Variable Account or making adjustments for annuity
reserves held in the Variable Account. The assets of the Sub-Accounts of the
Variable Account are held separate and apart from the assets of any other
segregated asset accounts of the Company and separate and apart from the
Company's general account assets. The Company maintains records of all
purchases and redemptions of shares of the Fund held by each of the Sub-Accounts
of the Variable Account. Additional protection for the assets of the Variable
Account is afforded by the Company's fidelity bond covering the acts of officers
and employees of the Company which is presently (as of May 1, 1995) in the
amount of $10,000,000.
HISTORICAL PERFORMANCE DATA
No historical performance data for each of the Sub-Accounts of the Separate
Account, other than the Money Market Sub-Account, is yet available, as the
Separate Account had not commenced operations at the date of this Statement of
Additional Information.
MONEY MARKET SUB-ACCOUNT YIELD
The Company may from time to time disclose the current annualized yield of the
Money Market Sub-Account, which invests in the Money Market Fund, for a 7-day
period in a manner which does not take into consideration any realized or
unrealized gains or losses on shares of the Money Market Fund or on its
portfolio securities. This current annualized yield is computed by determining
the net change (exclusive of realized gains and losses on the sale of securities
and unrealized appreciation and depreciation) at the end of the 7-day period in
the value of a hypothetical account having a balance of 1 unit of the Money
Market Sub-Account at the beginning of the 7-day period, dividing such net
change in account value by the value of the account at the beginning of the
period to determine the base period return, and annualizing this quotient on a
365-day basis. The net change in account value reflects (i) net income from the
Money Market Fund attributable to the hypothetical account; and (ii) charges and
deductions imposed under a Contract that are attributable to the hypothetical
account.
The Company may also disclose the effective yield of the Money Market Sub-
Account for the same 7-day period, determined on a compounded basis. The
effective yield is calculated by compounding the unannualized base period return
by adding one to the base period return, raising the sum to a power equal to 365
divided by 7, and subtracting one from the result.
11
<PAGE>
The effective yield is calculated by compounding the unannualized base period
return according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) 365/7] - 1
The yield on amounts held in the Money Market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Money Market Sub-Account's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Fund, the types and quality of portfolio securities held by the
Money Market Fund and its operating expenses. The yield figures do not reflect
withdrawal charges or premium taxes.
OTHER SUB-ACCOUNT YIELDS
The Company may from time to time advertise or disclose the current annualized
yield of one or more of the Sub-Accounts of the Variable Account (except the
Money Market Sub-Account) for 30-day periods. The annualized yield of a Sub-
Account refers to income generated by the Sub-Account over a specific 30-day
period. Because the yield is annualized, the yield generated by a Sub-Account
during the 30-day period is assumed to be generated each 30-day period over a
12-month period. The yield is computed by: (i) dividing the net investment
income per accumulation unit earned during the period by the maximum offering
price per unit on the last day of the period, according to the following
formula:
Yield = 2 [(a - b + 1)6 -1]
------
cd
Where:
a = Net investment income earned during the period by the Fund attributable to
shares owned by the Sub-Account.
b = Expenses accrued for the period.
c = The average daily number of accumulation units outstanding during the
period.
d = The maximum offering price per accumulation unit on the last day of the
period.
Because of the charges and deductions imposed by the Variable Account, the yield
for a Sub-Account of the Variable Account will be lower than the yield for its
corresponding Fund. The yield calculations do not reflect the effect of any
premium taxes or withdrawal charges that may be applicable to a particular
Contract. Withdrawal charges range from 7% to 1% of the amount withdrawn on
total Premium Payments paid less prior partial surrenders, based on the Contract
Year of surrender.
The yield on amounts held in the Sub-Accounts of the Variable Account normally
will fluctuate over time. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. A Sub-Account's actual yield is affected by the types and quality of
the Fund's investments and its operating expenses.
12
<PAGE>
TOTAL RETURNS
The Company may from time to time also advertise or disclose annual average
total returns for one or more of the Sub-Accounts of the Variable Account for
various periods of time. When a Sub-Account has been in operation for 1, 5 and
10 years, respectively, the total return for these periods will be provided.
Total returns for other periods of time may from time to time also be disclosed.
Total returns represent the average annual compounded rates of return that would
equate the initial amount invested to the redemption value of that investment as
of the last day of each of the periods.
Total returns will be calculated using Sub-Account Unit Values which the Company
calculates on each Valuation Period based on the performance of the Sub-
Account's underlying Portfolio, and the deductions for the mortality and expense
risk charge, the administrative expense charge, and the Annuity Account Fee.
The Annuity Account Fee is reflected by dividing the total amount of such
charges collected during the year that are attributable to the Variable Account
by the total average net assets of all the Variable Sub-Accounts. The resulting
percentage is deducted from the return in calculating the ending redeemable
value. These figures will not reflect any premium taxes or any charges for any
Optional Death Benefit selected by the Owner. Total return calculations will
reflect the effect of withdrawal charges that may be applicable to aparticular
period. The total return will then be calculated according to the following
formula:
P(l + T)n = ERV
Where: P = A hypothetical initial Premium Payment of $1,000.
T = Average annual total return.
n = Number of years in the period.
ERV = Ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the one, five or ten-year period, at the end of
the one, five or ten-year period (or fractional portion thereof).
OTHER PERFORMANCE DATA
The Company may from time to time also disclose average annual total returns in
a non-standard format in conjunction with the standard format described above.
The non-standard format will be identical to the standard format except that the
withdrawal charge percentage will be assumed to be 0%.
The Company may also from time to time also disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula assuming that the withdrawal
charge percentage will be 0%.
CTR = (ERV/P) - 1
13
<PAGE>
Where: CTR = The cumulative total return net of Sub-Account recurring charges
for the period.
ERV = The ending redeemable value of the hypothetical investment made
at the beginning of the one, five or ten-year period, at the end of
the one, five or ten-year period (or fractional portion thereof).
P = A hypothetical initial payment of $10,000
All non-standard performance data will only be advertised if the standard
performance data is also disclosed.
The Company may also from time to time use advertising which includes
hypothetical illustrations to compare the difference between the growth of a
taxable investment and a tax-deferred investment in a variable annuity.
LEGAL MATTERS
Legal advice regarding certain matters relating to the federal securities laws
applicable to the issuance of the Contracts described in this Prospectus has
been provided by George N. Gingold, Esq., 197 King Philip Drive, West Hartford,
CT 06117. All matters of Connecticut law pertaining to the Contracts, including
the validity of the Contracts and the Company's right to issue the Contracts
under Connecticut Insurance Law and any other applicable state insurance or
securities laws, have been passed upon by Robert A. Picarello, Chief Counsel,
Individual Insurance, CIGNA Companies.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party or to
which the assets of the Variable Account are subject. The Company is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Variable Account.
EXPERTS
The consolidated financial statements of Connecticut General Life Insurance
Company as of December 31, 1994 and 1993 and for each of the three years in the
period ended December 31, 1994 and the financial statements of the CG Variable
Annuity Account as of January 31, 1995 and for each of the periods indicated,
included in this Statement of Additional Information, have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
14
<PAGE>
FINANCIAL STATEMENTS
The consolidated financial statements of the Company which are included in this
Statement of Additional Information should be considered only as bearing on the
ability of the Company to meet the obligations under the Contracts. They should
not be considered as bearing on the investment performance of the assets held in
the Variable Account, or on the Guaranteed Interest Rate credited by the Company
during a Guaranteed Period.
15
