Prospectus
May 1, 1999
AIM/CIGNA Heritage Variable Annuity
Issued by
Connecticut General Life Insurance Company
Through
CG Variable Annuity Separate Account
Mailing Address: For New York Customers
Customer Service Center Only: Mailing Address:
P.O. Box 94039 Customer Service Center
Palatine, IL 60094-4039 P.O. Box 94038
Telephone: 800-776-6978 Palatine, IL 60094-4038
Fax: 847-402-9543 Telephone: 800-692-4682
Fax: 847-402-4361
This Prospectus describes the AIM/CIGNA Heritage Variable Annuity, a flexible
payment deferred variable annuity contract (the "Contract") that we offer to
individuals and groups.
This Prospectus contains important information about the Contract and the
Variable Account that you should know before investing.
If you would like more information about the AIM/CIGNA Heritage variable
annuity, you can obtain a free copy of the Statement of Additional Information
("SAI") dated May 1, 1999. Please call, or write to us, at the numbers shown
above.
The SAI has been filed with the Securities and Exchange Commission and is
legally a part of this prospectus. The table of contents of the SAI is included
at the end of this Prospectus.
Please note that the Contract and the Portfolios:
o Are not bank deposits
o Are not federally insured
o Are not endorsed by any bank or government agency
o Are not guaranteed to achieve their investment goals
o Involve risks, including possible loss of premiums.
This prospectus must be accompanied by the current prospectus of AIM Variable
Insurance Funds, Inc. You should read them before you invest and retain them for
future reference.
You may direct your premium payments, as well as any money accumulated in your
Contract, into the subaccounts of the CG Variable Annuity Separate Account (the
"Variable Account") and/or the fixed account with guaranteed interest periods.
The Variable Account is divided into variable subaccounts. Each variable
subaccount invests exclusively in one mutual fund Portfolio of the AIM Variable
Insurance Funds, Inc. You may choose to invest in any of the following 9 mutual
fund Portfolios:
o AIM V.I. Capital Appreciation Fund
o AIM V.I. Diversified Income Fund
o AIM V.I. Global Utilities Fund
o AIM V.I. Government Securities Fund
o AIM V.I. Growth Fund
o AIM V.I. Growth and Income Fund
o AIM V.I. International Equity Fund
o AIM V.I. Money Market Fund
o AIM V.I. Value Fund
Your investments in the variable subaccounts are not guaranteed and will vary in
value with the investment performance of the Portfolios you select. You bear the
entire investment risk for all amounts you allocate to the Variable Account.
We will credit the money you direct to the fixed subaccounts with a fixed rate
of interest for the duration of the guaranteed period you choose. We set
interest rates periodically and will not set them below 3% annually. The
interest earned on your money as well as your principal is guaranteed as long as
you keep it in the fixed subaccount until the end of the guaranteed period.
Money that you withdraw or transfer before the end of the guaranteed period will
be subject to a Market Value Adjustment. A Market Value Adjustment may increase
or decrease your Contract's value.
The Contract offers you the right to receive monthly annuity payments beginning
on the Annuity Date you select. You can receive annuity payments on a fixed or
variable basis, or a combination of both.
The Securities and Exchange Commission has not approved these securities or
determined that this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Definitions...................................................................1
Summary.......................................................................3
Overview..................................................................3
Premium Payments..........................................................3
The Fixed Account.........................................................3
The Variable Account......................................................3
Transfers.................................................................4
Cash Withdrawals..........................................................4
Free Partial Withdrawals..................................................4
Annuity Payments..........................................................4
Death Benefit.............................................................4
Right to Examine Your Contract............................................5
Additional Features.......................................................5
Charges and Deductions....................................................5
Owner Inquiries...........................................................6
Fee Table.....................................................................7
The Company, the Fixed Account, the Variable Account and the Fund.............8
The Company...............................................................8
The Administrator.........................................................9
The Fixed Account.........................................................9
The Variable Account......................................................9
The Fund and the Portfolios..............................................10
Premium Payments and Account Values During the Accumulation Period...........12
Premium Payments.........................................................12
Your Annuity Account.....................................................12
Allocating Your Premium Payments.........................................12
Fixed Accumulation Value.................................................13
Guaranteed Periods.......................................................13
Guaranteed Interest Rates................................................13
Variable Accumulation Value..............................................13
Variable Accumulation Units..............................................13
Variable Accumulation Unit Value.........................................14
Optional Features............................................................14
Dollar Cost Averaging....................................................14
Automatic Rebalancing....................................................14
Transfer Privilege...........................................................15
Transfers During the Accumulation Period.................................15
Transfers During the Annuity Period......................................16
Access to Your Money.........................................................16
Cash Withdrawals.........................................................16
Minimum Value Requirement................................................17
Section 403(b) Annuities.................................................17
Death Benefits...............................................................17
Election and Effective Date of Election..................................17
Payment of Death Benefit.................................................18
Amount of Death Benefit..................................................18
Surrender of the Contracts...................................................18
Annuity Provisions...........................................................19
Annuity Date.............................................................19
Election -Change of Annuity Option.......................................19
Annuity Options..........................................................20
Fixed Annuity Payments...................................................20
Variable Annuity Payments................................................20
Fixed Annuity Options........................................................21
Life Annuity Option......................................................21
Life Annuity with Certain Period Option..................................21
Cash Refund Life Annuity Option..........................................21
Annuity Certain Option...................................................21
Variable Annuity Options.....................................................21
Variable Life Annuity Option.............................................21
Variable Life Annuity with Certain Period Option.........................21
Variable Annuity Certain Option..........................................22
Additional Annuity Options...............................................22
Determination of Annuity Payments........................................22
Contract Charges and Fees....................................................22
Withdrawal Charges.......................................................22
Free Partial Withdrawal..................................................23
Annuity Account Fee......................................................24
Administrative Fee.......................................................24
Premium Taxes............................................................24
Charge for Mortality and Expense Risks...................................24
Market Value Adjustment..................................................25
Other Contract Provisions....................................................26
Deferral of Payment......................................................26
Designation and Change of Beneficiary....................................26
Exercise of Contract Rights..............................................26
Transfer of Ownership....................................................27
Death of Owner...........................................................27
Voting Fund Shares.......................................................27
Adding, Deleting or Substituting Investments.............................28
Change in Operation of the Variable Account..............................29
Modifying the Contract...................................................29
Discontinuing New Purchases..............................................30
Right to Examine Your Contract...........................................30
IRA Right to Revoke......................................................30
Periodic Reports.........................................................30
Federal Tax Matters..........................................................30
Taxation of Non-Qualified Contracts......................................31
Taxation of Qualified Contracts..........................................32
Possible Tax Law Changes.................................................33
Distribution of the Contracts................................................33
Historical Performance Data..................................................33
Year 2000 Matters............................................................34
Condensed Financial Information..............................................35
Table of Contents for the Statement of Additional Information................38
<PAGE>
Definitions
The following special terms are used throughout this Prospectus:
ACCOUNT VALUE: The total value in your Contract. It is equal to the value you
have in the Variable Account plus your value in the fixed account.
ACCUMULATION PERIOD: The time from the date we issue the Contract until the
earliest of: (i) the Annuity Date; (ii) the date on which we pay the death
benefit; or (iii) the date on which you surrender or annuitize the Contract.
ANNUITANT: The person or persons you identify on whose life we will make the
first annuity payment.
ANNUITY ACCOUNT: An account we establish for you to which we credit all your
premium payments, net investment gains and interest, and from which we deduct
charges and investment losses.
ANNUITY DATE: The date on which we begin to pay annuity payments to you.
ANNUITY OPTION: The method by which we make annuity payments to you.
BENEFICIARY: The person or entity having the right to receive the death benefit
set forth in the Contract.
BUSINESS DAY: Every day on which the New York Stock Exchange ("NYSE") is open
for business. It is also called a "Valuation Date."
CERTIFICATE: (For Group Contract only) The document which confirms your coverage
under the Contract.
CONTRACT YEARS and CONTRACT ANNIVERSARIES: 12-month periods we measure from the
Date of Issue.
DATE OF ISSUE: The date on which the Contract becomes effective.
DUE PROOF OF DEATH: Any proof of death we find satisfactory, for example, an
original certified copy of an official death certificate or an original
certified copy of a decree of a court of competent jurisdiction as to the
finding of death.
FIXED ACCOUNT: Allocation options under the Contract, other than the Variable
Account, that provide a guarantee of principal and minimum interest. Fixed
account assets are our general assets.
FUND: AIM Variable Insurance Funds, Inc.
GUARANTEED PERIOD AMOUNT: That portion of your account value that you allocate
to a specific guaranteed period with a specified expiration date. It includes
any interest we credit to that amount.
GUARANTEED INTEREST RATE: The interest rate we credit on a compound annual basis
during a guaranteed period.
GUARANTEED PERIOD: The period for which we credit a guaranteed interest rate to
any amounts which you allocate to a fixed subaccount. In most states, you may
elect a period from one to ten years.
INDEX RATE: An index rate based on the Treasury Constant Maturity Series
published by the Federal Reserve Board.
IN WRITING: A written form that we find satisfactory and we receive at our
Customer Service Center.
MARKET VALUE ADJUSTMENT: An amount we add to or subtract from certain
transactions involving your interest in the fixed account. The amount of the
adjustment reflects the impact of changing interest rates.
NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which does not receive favorable federal income tax treatment.
OWNER, YOU, or YOUR: The persons entitled to the ownership rights stated in the
Contract. The Certificate Owner under a group contract.
PAYEE: A person who receives payments under the Contract.
PORTFOLIO: An underlying mutual fund in which a variable subaccount invests.
Each Portfolio is a separate investment series of the Fund which is an
investment company registered with the SEC.
PREMIUM PAYMENT: Any amount you pay to us as consideration for the benefits the
Contract provides.
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan which
receives favorable federal income tax treatment under Sections 401, 403, 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.
SUBACCOUNT: That portion of the fixed account associated with a specific
guaranteed period and guaranteed interest rate and each portion of the Variable
Account which invests in a specific Portfolio of the Fund.
SURRENDER: When you elect to end your Contract and receive your account value in
a lump sum payment. Your account value will be reduced by any applicable
withdrawal charges, contract fees, or premium taxes, and may be either increased
or reduced by any market value adjustment that we apply.
VALUATION DATE: Every day on which the New York Stock Exchange ("NYSE") is open
for business.
VALUATION PERIOD: The period of time over which we determine the change in the
value of the variable subaccounts in order to price Variable Accumulation Units
and Annuity Units. Each Valuation Period begins at the close of normal trading
on the NYSE (usually 4:00 p.m. Eastern time) on each Valuation Date and ends at
the close of the NYSE on the next Valuation Date. A Valuation Period may be more
than one day.
VARIABLE ACCOUNT: A separate account divided into subaccounts . Each subaccount
invests exclusively in shares of a specific Portfolio of the AIM Variable
Insurance Funds, Inc. The assets in the Variable Account are owned by the
Company.
VARIABLE ACCUMULATION UNIT: A unit of measure we use to calculate the value of
the variable subaccounts.
WE, US, OUR or CG LIFE: Connecticut General Life Insurance Company. Our Home
Office is located at 900 Cottage Grove Road, Hartford, CT 06002.
The following terms used in this prospectus have the same or substituted
meanings as the corresponding terms currently used in the Contract.
Terms Used in This Prospectus Corresponding Term Used in the Contract
Account value Annuity Account Value
Annuity option Income Payments
Fixed subaccount Fixed Account Sub-Account
Variable subaccount Variable Account Sub-Account
<PAGE>
Summary
This summary provides only a brief overview of the more important features of
the Contract. The Contract is more fully described in the rest of this
Prospectus.
Please read the entire Prospectus carefully.
Overview
We designed the AIM/CIGNA Heritage variable annuity contract as a way for you to
invest on a tax-deferred basis in the subaccounts of the Variable Account and
the fixed account. We intend the Contract to be used to accumulate money for
retirement or other long-term purposes. The Contract can be used 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.
We offer the Contract as both an individual and group annuity contract.
The Contract, like all deferred annuity contracts, has two phases: the
"accumulation period" and the "income phase." During the accumulation period,
your earnings accumulate on a tax-deferred basis and are generally taxed as
income when you take them out of the Contract. The income phase occurs when you
begin receiving regular annuity payments from your Contract on the Annuity Date.
The money you can accumulate during the accumulation period, as well as the
annuity payment option you choose, will determine the dollar amount of any
annuity payments you receive during the income phase.
Premium Payments
You can buy this Contract for an initial payment of $2,500 or more ($2,000 for
IRAs). Additional payments you direct into a guaranteed period of the fixed
account must be at least $500. The minimum payment you can place in a variable
subaccount is $100. We must approve any premium payment greater than $1,000,000.
The Fixed Account
You may direct your premium payments into any of the subaccounts available in
the fixed account. We set interest rates at our sole discretion and guarantee a
minimum interest rate of three percent (3%) per year, compounded annually. There
is no assurance that guaranteed interest rates will exceed 3% per year.
Each fixed subaccount guarantees interest at a specified rate for a particular
period ranging from one to ten years. But you must keep your money in the
subaccount for the length of the guaranteed period in order to receive the
guaranteed interest rate. If you withdraw or transfer amounts from a fixed
subaccount before the end of the guaranteed interest period, we will apply a
Market Value Adjustment that could increase or decrease your contract value. We
guarantee, however, that you will be credited with an interest rate of at least
3% per year, compounded annually, on amounts you allocated to the fixed account,
regardless of any effects of the Market Value Adjustment. We do not apply a
Market Value Adjustment to the death benefit or annuity payments.
The Variable Account
The Variable Account is divided into subaccounts. Each variable subaccount uses
its assets to purchase, at net asset value, shares of a specific Portfolio of
the AIM Variable Insurance Funds, Inc. You may invest in any of the following
nine (9) Portfolios of the Fund through this Contract:
<PAGE>
o AIM V.I. Capital Appreciation Fund
o AIM V.I. Diversified Income Fund
o AIM V.I. Global Utilities Fund
o AIM V.I. Government Securities Fund
o AIM V.I. Growth Fund
o AIM V.I. Growth and Income Fund
o AIM V.I. International Equity Fund
o AIM V.I. Money Market Fund
o AIM V.I. Value Fund
Depending on market conditions, you can earn or lose the money you invest in any
of the Portfolios through the variable subaccounts. We reserve the right to
offer other investment choices in the future.
Transfers
You may transfer money among the subaccounts before the Annuity Date. All
transfers are subject to the following conditions:
o transfers from any subaccount must be at least $100;
o transfers to a fixed subaccount must be at least $500;
o if your account value remaining in a fixed subaccount is less than $500 or
less than $50 in a variable subaccount, then the entire account value
within the subaccount must be transferred; and
o we do not permit transfers during the "Right to Examine Your Contract"
period.
In addition, we may restrict the number and dollar amount of transfers from a
fixed subaccount. We will subject transfers from a fixed subaccount to a Market
Value Adjustment, unless the transfer is made on the expiration date of the
fixed subaccount. After the Annuity Date, we may permit transfers among the
variable subaccounts subject to certain conditions.
Cash Withdrawals
At any time before the Annuity Date, you may take your money out of the
Contract. Each cash withdrawal must be at least $50. Withdrawal charges, annuity
account fees, premium taxes and a Market Value Adjustment may apply. After the
Annuity Date, we do not permit withdrawals under most Annuity Options.
You may have to pay federal income taxes and a penalty tax on any withdrawals.
Free Partial Withdrawals
Each Contract Year you may withdraw up to 15% of the total amount of the premium
payments you have paid without paying a withdrawal charge.
Annuity Payments
The Contract allows you to receive income under one of 7 annuity payment
options. You may choose from fixed payments options, variable payment options,
or a combination of both. We will begin paying you annuity payments on the
Annuity Date.
If you select a variable payment option, the dollar amount of the annuity
payments you receive will go up or down depending on the investment results of
the Portfolios in which you invest at that time. If you choose to have any
portion of your annuity payments come from the fixed account, the payment amount
will be fixed and guaranteed by us.
Annuity payments may be subject to Federal income taxes.
Death Benefit
If an Owner dies before the Annuity Date, we will pay a death benefit to the
Beneficiary. If the deceased Owner (or any Annuitant if an Owner is a
non-natural person) dies on or after the Annuity Date, we will not pay a death
benefit unless the Annuity Option you select provides for a death benefit. The
death benefit we will pay before the Annuity Date generally equals the greatest
of:
o the account value on the date we deem the death benefit election to be
effective;
o the sum of all premium payments under the Contract, minus all partial
withdrawals;
o your account value on the Seven Year Anniversary immediately preceding the
date on which the death benefit election is deemed effective, adjusted for
any subsequent premium payments, partial withdrawals and applicable
charges; and
o the amount that would have been paid if a full surrender occurred during
the day when the death benefit election is deemed effective, including any
applicable withdrawal charges and Market Value Adjustment.
Right to Examine Your Contract
You may return your Contract for a refund within 10 days after you receive it.
You must mail the Contract to us at the Customer Service Center at the address
on the cover of this Prospectus. In some states you may have more than 10 days.
When we receive the returned Contract we will cancel it and, in most states, you
will receive a refund equal to your account value as of the date we receive the
returned Contract.
Where state law requires us to refund the full amount of any premium payments
paid, we will place the premium payments that you allocate to the variable
subaccounts into the AIM V.I. Money Market subaccount until the end of the Right
to Examine 10-day period. This period will begin on the day we mail the
Contract. On the first business day after the end of the Right to Examine
period, we will allocate the premium payments as you specified in your
application.
Additional Features
Enhanced Dollar Cost Averaging
You can arrange to have money automatically transferred monthly from any of the
variable subaccounts or the One-Year fixed subaccount to your choice of
subaccounts. Dollar cost averaging does not guarantee a profit and does not
protect against a loss if market prices decline.
Automatic Rebalancing
We will, upon your request, automatically transfer amounts among the variable
subaccounts on a regular basis to maintain a desired allocation of your Account
Value among the variable subaccounts.
Charges and Deductions
Contingent Deferred Sales Charge
We do not deduct a sales charge from your premium payments. However, if you
withdraw any part of your account value during the accumulation period, we may
deduct a withdrawal charge (contingent deferred sales charge) on any amount you
withdraw that exceeds the Free Withdrawal Amount described herein. The
withdrawal charge is 7% of the premium payment if you make the withdrawal during
the first year after you paid the premium, decreasing by 1% each year. After we
have held the premium payment for seven years, the withdrawal charge on that
amount of premium is 0%. For purposes of computing the withdrawal charges,
amounts are withdrawn in the order in which they are received by us, that is,
the oldest premium payment first. We adjust withdrawals from the fixed account
by the withdrawal charges and by any applicable Market Value Adjustment.
Market Value Adjustment
A cash withdrawal or transfer from a fixed subaccount during the accumulation
period may be subject to a Market Value Adjustment. The Market Value Adjustment
will reflect the relationship between the value of a government securities index
at the time a cash withdrawal or transfer is made, and the value of that index
at the time you paid the premium payments being withdrawn or transferred. The
index is published by the Federal Reserve Board and reflects yields on U.S.
Government securities of various maturities. The Market Value Adjustment may
cause the amount you withdraw or transfer to be higher or lower. The Market
Value Adjustment applies to transfers from the fixed account unless the transfer
is made at the end of a guaranteed period.
A Market Value Adjustment may also apply to death benefit payments, but only if
it would increase the death benefit. The Market Value Adjustment is not applied
against a withdrawal or transfer which occurs on the Expiration Date of a
guaranteed period, nor is it applied if it would decrease a death benefit
payment.
Annuity Account Fee
During the accumulation period, we deduct an annual Annuity Account Fee of $35
from your account value on the last business day of each calendar year, or if
you surrender your Contract. After the Annuity Date, we deduct an annual Annuity
Account Fee of $35, in approximately equal amounts, from each variable annuity
payment you receive during the year. We do not deduct an Annuity Account Fee
from fixed annuity payments. State law may require us to reduce the $35 Annuity
Account Fee. During the accumulation period, we do not deduct this fee if, when
the deduction is to be made, your account value is $100,000 or more.
Administrative Fee
On each business day, we deduct an administrative fee equal to an annual rate of
0.10% of the daily net assets you have in the Variable Account. We deduct this
fee to cover our administrative expenses.
Risk Charge
On each business day, we deduct a mortality and expense risk charge equal to an
annual rate of 1.25% of the daily net assets you have in the Variable Account.
We deduct this fee to cover the mortality and expense risks we assume under the
Contract.
Taxes
Some states and other governmental entities charge premium and other taxes
ranging up to 3.5% on contracts issued by insurance companies. We are
responsible for paying these taxes and will make a deduction from your annuity
value to pay for them. We will deduct any such taxes when you surrender,
withdraw or annuitize, or if we pay a death benefit. We only charge you premium
taxes if your state requires us to pay premium taxes.
Fund Charges
Each Portfolio incurs administrative expenses and pays investment advisory fees
to its investment adviser. These advisory fees and other Portfolio charges and
expenses are indirectly passed on to you.
Owner Inquiries
Please direct any questions or requests for additional information to:
Customer Service Center
P.O. Box 94039
Palatine, IL 60094-4039
Tel: 800-776-6978
Fax: 847-402-9543
For New York Customers Only
Customer Service Center
P.O. Box 94038
Palatine, IL 60094-4038
Tel: 800-692-4682
Fax: 847-402-4361
<PAGE>
Fee Table
The following Fee Table and examples will help you understand the costs and
expenses that you will bear, directly and indirectly, by investing in the
Variable Account. For more information, you should read "Contract Charges and
Fees" below and consult the Fund's Prospectus. The examples do not include any
taxes or tax penalties you may be required to pay if you surrender your
Contract.
Owner Transactions Expenses
Sales Load on Purchases.....................................................0%
Maximum Deferred Sales Charge on Withdrawals
(as a percentage of your premium payment)(1) ....................7.0%
Transfer Fee...............................................................$0
Annual Annuity Account Fee(2) .............................................$35
per contract
Variable Account Annual Expenses
(as a percentage of average variable account assets)
Mortality and Expense Risk Fee...........................................1.25%
Administrative Fee.......................................................0.10%
Total Separate Account Annual Expenses..........................1.35%
AIM Variable Insurance Funds, Inc. Annual Expenses (as a percentage of Fund
average net assets after fee waivers and reimbursements)
<TABLE>
<CAPTION>
Name of Portfolio Management Fees Other Expenses Total Annual
- ----------------- --------------- -------------- ------------
Expenses
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.67%
AIM V.I. Diversified Income Fund 0.60% 0.17% 0.77%
AIM V.I. Global Utilities Fund 0.65% 0.46% 1.11%
AIM V.I. Government Securities Fund 0.50% 0.26% 0.76%
AIM V.I. Growth Fund 0.64% 0.08% 0.72%
AIM V.I. Growth and Income Fund 0.61% 0.04% 0.65%
AIM V.I. International Equity Fund 0.75% 0.16% 0.91%
AIM V.I. Money Market Fund 0.40% 0.18% 0.58%
AIM V.I. Value Fund 0.61% 0.05% 0.66%
</TABLE>
(1) You may withdraw the Free Withdrawal Amount from your Annuity Account once
each Contract Year without a withdrawal charge if you have not previously
withdrawn all premium payments. The withdrawal charge on the remaining portion
is equal to a percentage of the premium payment you withdraw and ranges from 7%
to 0%, depending upon the length of time between our acceptance of the premium
payment you are withdrawing and your withdrawal. After we hold the premium
payment for seven years, you may withdraw that premium payment without a
withdrawal charge.
(2) We waive the Annuity Account Fee for account values of $100,000 or more as
of the date on which we deduct the charge.
<PAGE>
EXAMPLES
An Owner 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
------- -------- ------- --------
1? If the Contract is surrendered at the end
of the applicable time period:
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund.................................$75 $102 $131 $243
AIM V.I. Diversified Income Fund...................................$76 $105 $136 $253
AIM V.I. Global Utilities Fund.....................................$80 $116 $154 $288
AIM V.I. Government Securities Fund................................$76 $105 $136 $252
AIM V.I. Growth Fund...............................................$76 $104 $134 $248
AIM V.I. Growth and Income Fund....................................$75 $101 $130 $241
AIM V.I. International Equity Fund.................................$78 $109 $144 $268
AIM V.I. Money Market Fund.........................................$74 $99 $126 $233
AIM V.I. Value Fund................................................$75 $102 $131 $242
</TABLE>
2? If the Contract is not surrendered or if it is annuitized:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund.................................$21 $66 $113 $243
AIM V.I. Diversified Income Fund...................................$22 $69 $118 $253
AIM V.I. Global Utilities Fund.....................................$26 $80 $136 $288
AIM V.I. Government Securities Fund................................$22 $69 $118 $252
AIM V.I. Growth Fund...............................................$22 $68 $116 $248
AIM V.I. Growth and Income Fund....................................$21 $65 $112 $241
AIM V.I. International Equity Fund.................................$24 $73 $126 $268
AIM V.I. Money Market Fund.........................................$20 $63 $108 $233
AIM V.I. Value Fund................................................$21 $66 $113 $242
</TABLE>
These tables are intended to assist you in understanding the costs and expenses
that you will incur, directly or indirectly, by investing in the Variable
Account. These include the expenses of the Portfolios of the 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
.07% of assets, based on an average account value of $50,000.
The examples should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.
Condensed Financial Information is found at the end of this prospectus.
<PAGE>
The Company, the Fixed Account, the Variable Account and the Fund
The Company
Connecticut General Life Insurance Company (CG Life) is a stock life insurance
company incorporated in Connecticut in 1865. Our Executive Office mailing
address is Hartford, Connecticut 06152. Our telephone number is (860) 726-6000.
We do business in fifty states, the District of Columbia and Puerto Rico. We
issue group and individual life and health insurance policies and annuities. We
have various wholly-owned subsidiaries which are generally engaged in the
insurance business.
We are a wholly-owned subsidiary of Connecticut General Corporation, Hartford,
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 CG Life.
The Administrator
Allstate Life Insurance Company and Allstate Life Insurance Company of New York
(together, "Allstate") perform certain administrative functions relating to the
Contracts, the fixed account, and the variable account. Allstate will, among
other things, maintain the books and records of the subaccounts, the variable
account, and the fixed account. Allstate will also maintain records of the name,
address, contract number, Annuity Account value, and any other information
necessary to operate and administer the Contracts. Allstate is responsible for
servicing the Contracts, including the payment of benefits, oversight of
investment management and contract administration.
The Fixed Account
The fixed account is part of our general account and is made up of our general
assets, other than those held in any separate account. Interests in the fixed
account have not been registered under the Securities Act of 1933 (the "1933
Act"), and neither the fixed account nor our general account has been registered
under the Investment Company Act of 1940 (the "Act"). Therefore, neither the
fixed account nor any interest therein is generally subject to regulation under
the provisions of the 1933 Act or the Act. Accordingly, we have been advised
that the staff of the SEC has not reviewed the disclosure in this Prospectus
relating to the fixed account.
The assets in the fixed subaccounts are part of our general account assets and
are available to fund the claims of all our creditors and to fund benefits under
the Contract. You do not participate in the investment performance of the fixed
account's assets or our general account. Instead, we credit a specified rate of
interest, declared in advance, to amounts you allocate to the fixed account. We
guarantee this rate to be at least 3% per year. We may credit interest at a rate
greater than 3% per year, but we are not obligated to do so.
You may direct your premium payments, and any portion of your account value, to
any available fixed subaccount. Each fixed subaccount credits guaranteed
interest rates for a guaranteed interest period. Currently guaranteed periods
range from one to ten years, although we may offer different guaranteed periods
in the future. When you direct money to a fixed subaccount, you select the
number of years (the guaranteed period) during which you will keep money in that
fixed subaccount. You may select one or more fixed subaccounts at any one time.
If you keep your money in the fixed subaccount for the length of the
subaccount's guaranteed period, we will credit interest at the rate we specified
for that subaccount.
But if you withdraw, or transfer, any money from the subaccount before its
expiration date for any reason, we will apply a Market Value Adjustment to the
amount you withdraw (see "Market Value Adjustment"). We may also apply a
withdrawal charge. We guarantee, however, that you will be credited with an
interest rate of at least 3% per year, compounded annually, on amounts you
allocate to any fixed subaccount, regardless of any effects of the Market Value
Adjustment. The Market Value Adjustment will not reduce the amount available for
withdrawal or transfer to an amount less than the initial amount you allocated
or transferred to the fixed subaccount plus compound interest of 3% per year.
(However, if we apply a withdrawal charge, the amount you receive may be less
than your original allocation credited with 3% compounded interest per year.) We
reserve the right to defer the payment or transfer of amounts you withdraw from
the fixed account for up to six (6) months from the date we receive a proper
request for such withdrawal or transfer.
The Variable Account
This Contract permits you to invest in the underlying Portfolios through the
variable subaccounts. Your account value and/or variable annuity payments will
reflect the investment performance of the underlying Portfolios in which you
invest through the variable subaccounts. The values of the shares of the
Portfolios held by the Variable Account will fluctuate and are subject to the
risks of changing economic conditions as well as the risk that the Fund's
management may not make necessary changes in its Portfolios to anticipate
changes in economic conditions. Therefore, you bear the entire investment risk
that the Contract's basic objectives may not be realized and that the adverse
effects of inflation may not be lessened. We cannot guarantee that the total
surrender proceeds or the aggregate amount of annuity payments you receive will
equal or exceed the premium payments you make.
We established the Variable Account as a separate account on May 15, 1992,
pursuant to a resolution of our 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 our other
income, gains, or losses. Assets we maintain 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 of our
other business. All obligations arising under the Contract, including the
promise to make annuity payments, are our general corporate obligations.
Effective January 1, 1998, CG Life contracted the administrative servicing
obligations with respect to its individual variable annuity business to The
Lincoln National Life Insurance Company (Lincoln Life) and Lincoln Life &
Annuity Company of New York (LLANY). Effective September 1, 1998, Lincoln Life
and LLANY subcontracted the administrative servicing obligations with respect to
the variable annuity business included in the Variable Account to Allstate Life
Insurance Company and Allstate Life Insurance Company of New York (the Allstate
Companies). Although CG Life is responsible for all Contract terms and
conditions, Lincoln Life and LLANY were responsible for servicing the individual
annuity contracts, including the payment of benefits, oversight of investment
management and contract administration, until these services were transitioned
to the Allstate Companies on April 12, 1999.
The Variable Account is registered with the SEC as a unit investment trust under
the Act and meets the definition of a separate account under the federal
securities laws. Registration with the SEC does not involve their supervision of
our management or investment practices or policies, or those of the Variable
Account.
The Variable Account is divided into subaccounts. Each subaccount invests
exclusively in shares of a specific Portfolio of the Fund. All amounts you
allocate to the Variable Account will be used to purchase shares of the
Portfolios in accordance with your instructions at their net asset value. Any
and all distributions the Fund makes with respect to the shares held by the
Variable Account will be reinvested to purchase additional shares at their net
asset value.
We will make deductions from the Variable Account for cash withdrawals, annuity
payments, death benefits, annuity account fees, and any applicable taxes by
redeeming the number of Portfolio shares at their net asset value that equals
the amount to be deducted. The Variable Account will purchase and redeem
Portfolio shares on an aggregate basis. The Variable Account will be fully
invested in Portfolio shares at all times.
The Fund and the Portfolios
AIM Variable Insurance Funds, Inc. (the "Fund") is an open-end investment
management company registered under the Act. Shares of the Portfolios of the
Fund are offered to both registered and unregistered separate accounts of
insurance companies and to certain pension and retirement plans. The general
public may not purchase shares of the Portfolios.
A I M Advisors, Inc. ("AIM"), the Fund's investment adviser, its affiliates, and
any insurance companies with separate accounts investing in the Fund must report
certain potential and existing conflicts of interests to the Fund's Board of
Directors. These include any potential or existing conflicts between the
interests of owners/participants of variable annuity contracts and owners of
variable life insurance contracts that invest 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, will monitor the Fund to identify any such
irreconcilable material conflicts and to determine what action, if any, the
Fund, AIM, or its affiliates should take.
You may invest in any of the following nine (9) Portfolios of the Fund:
- ------------------------------------------- ----------------------------------
Portfolio Investment Objective(s)
- ------------------------------------------- ----------------------------------
AIM V.I. Capital Appreciation Growth of capital through investment
Fund in common stocks, with emphasis on
medium and small-sized growth
companies.
- ------------------------------------------- ----------------------------------
AIM V.I. Diversified Income Fund To achieve a high level of current
income.
- ------------------------------------------- ----------------------------------
AIM V.I. Global Utilities Fund To achieve a high level of current
income and secondarily, growth of
capital, by investing primarily in
the common and preferred stocks of
public utility companies (either
domestic or foreign).
- ------------------------------------------- ----------------------------------
AIM V.I. Government Securities To achieve high current income
Fund consistent with reasonable concern
for safety of principal by
investing in debt securities
issued, guaranteed or otherwise
backed by the United States
Government.
- ------------------------------------------- ----------------------------------
AIM V.I. Growth Fund To seek growth of capital primarily
by investing in seasoned and better
capitalized companies considered to
have strong earnings momentum.
- ------------------------------------------- ----------------------------------
AIM V.I. Growth and Income Fund Growth of capital with a secondary
objective of current income.
- ------------------------------------------- ----------------------------------
AIM V.I. International Equity Fund To provide long-term growth of
capital by investing in a
diversified portfolio of
international equity securities
whose issuers are considered to
have strong earnings momentum.
- ------------------------------------------- ----------------------------------
AIM V.I. Money Market Fund To provide as high a level of
current income as is consistent
with the preservation of capital
and liquidity.
- ------------------------------------------- ----------------------------------
AIM V.I. Value Fund To achieve long-term growth of
capital by investing primarily in
equity securities judged by the
fund's investment advisor to be
undervalued relative to the
investment advisor's appraisal of
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 market generally. Income is
a secondary objective.
- ------------------------------------------- ----------------------------------
The Fund pays advisory fees to AIM for its services pursuant to an investment
advisory agreement. AIM, a Delaware corporation, also serves as investment
adviser to certain other investment companies.
The investment objectives and policies of the Portfolios may be similar to other
portfolios and mutual funds managed by the same investment adviser that are sold
directly to the public. You should not expect that the investment results of the
other portfolios or mutual funds will be similar to those of the underlying
Portfolios.
There is no assurance that any Portfolio will achieve its stated investment
objective. A more detailed description of the Fund, the Portfolios, their
investment objectives, policies and restrictions and expenses is found in the
Fund's Prospectus and SAI. You should read the Fund's Prospectus carefully
before you invest.
<PAGE>
Premium Payments and Account Values During the Accumulation Period
Premium Payments
All premium payments must be paid to us or to our authorized agent. Your initial
premium payment must be at least $2,500 ($2,000 for IRAs). When you apportion
your premium payments among the subaccounts, the minimum you can put into a
fixed subaccount is $500; the minimum for a variable subaccount is $100.
We may reduce the minimum premium payment requirements under group contracts if
premium payments are paid through employee payroll deduction. We may also reduce
the minimum premium payment requirements if you use the Contract under a program
that qualifies under Section 403 or 408 of the Code. We must pre-approve any
premium payment in excess of $1,000,000.
Once we receive a completed Contract application, if required, or order to
purchase and the initial premium payment, we will issue your Contract and credit
your premium payment to your Annuity Account. We must credit your initial
premium payment within two business days after we receive your completed
Contract application or order to purchase. We may retain the premium payment for
up to five business days while we attempt to obtain any missing information. If
we do not obtain sufficient information within five business days after we
receive the premium payment, we will inform you of the reasons for the delay,
and we will return the premium payment immediately unless you instruct us
otherwise.
If we receive any premium payment at our Customer Services Center before the
closing time of the New York Stock Exchange (usually 4 p.m. Eastern Time), we
will credit the payment to your Annuity Account the same day we receive it.
Otherwise, we will credit your payment on the next business day.
You (or the Annuitant if you are a non-natural person) may be no more than 85
years of age on the Date of Issue. We reserve the right in our sole discretion
not to accept a premium payment. In addition, we may postpone the payment of any
amount under the Contract which is derived, all or in part, from any premium
payment you paid by check or draft until we determine the check or draft has
been honored.
Your Annuity Account
Once we accept your initial premium payment, we will set up an Annuity Account
for you and maintain it during the accumulation period. Each premium payment you
make will be credited to your Annuity Account. The value of your Annuity Account
for any Valuation Period is equal to the sum of your variable accumulation value
plus your fixed accumulation value.
The Annuity Account shall continue in full force until the earliest of:
o the Annuity Date;
o the date we pay all death benefits under the Contract;
o the date you surrender the Contract; or
o the date your account value no longer meets the Minimum Value
Requirement described below.
Cash withdrawals may cause us to discontinue your Annuity Account.
Allocating Your Premium Payments
We will allocate your premium payments as you specify. If you wish to change
your allocation instructions, you must do so In Writing. You must make
allocations to multiple subaccounts in whole percentages.
If your allocation instructions would place less than to $500 in a fixed
subaccount, we will promptly ask you for further instructions regarding how we
should apportion the premium. In certain states, premium payments you direct to
the variable subaccounts, and that we receive before or during the Right to
Examine Your Contract period, will be allocated to the AIM V.I. Money Market
Fund for the length of the Right to Examine period. After this period expires,
we will reallocate the premium payment as you specified.
Fixed Accumulation Value
The fixed accumulation value of your Annuity Account for any Valuation Period is
equal to the sum of the values of all the fixed subaccounts to which you have
allocated money.
Guaranteed Periods
You may allocate your premium payments, or transfer your account value, to any
fixed subaccount we offer. Each fixed subaccount will credit guaranteed interest
rates for the length of a guaranteed period ranging from one to ten years. The
length of the subaccount's guaranteed period will affect the rate of interest we
credit to the subaccount.
Your money in a fixed subaccount will earn interest at a guaranteed interest
rate during the subaccount's guaranteed period, unless you withdraw value before
the guaranteed period expires. The guaranteed period starts on the date we
accept a premium payment or, in the case of a transfer, on the effective date of
the transfer. The guaranteed period expires on the date that equals its start
date plus the number of calendar years in the guaranteed period.
We will credit interest daily at a rate equivalent to a compound annual rate. We
will set the interest rate from time to time. A renewal and/or a transfer will
begin a new fixed subaccount for the guaranteed period you select. Amounts you
allocate at different times to fixed subaccounts with the same guaranteed period
may have different interest rates. Each fixed subaccount will be treated
separately for purposes of determining whether to apply a Market Value
Adjustment.
We will notify you in writing before the expiration date for any guaranteed
period. We will automatically roll over the amount in an expiring subaccount
into a subaccount with the same guaranteed period, unless you notify us
otherwise. Transfers at the end of a guaranteed period do not count as transfers
(See "Transfers" in this Prospectus) and are not subject to restrictions on
fixed account transfers.
Guaranteed Interest Rates
From time to time, we will set current guaranteed interest rates for the
guaranteed periods of the fixed account. We will set interest rates at our
discretion. We have no specific formula for determining the rates we declare.
Once you allocate money to a fixed subaccount for a guaranteed period, the
interest rate is guaranteed for the entire duration of the guaranteed period.
Any amount you withdraw from the subaccount will be subject to any applicable
withdrawal charges, Annuity Account Fees, Market Value Adjustment, premium taxes
or other fees. We will also apply a Market Value Adjustment to amounts you
transfer out of a fixed subaccount before the end of the guaranteed period.
The guaranteed interest rate will not be less than 3% per year compounded
annually, regardless of any Market Value Adjustment we may apply. We have no
obligation to declare a rate greater than 3%. You assume the risk that we will
not declare interest rates greater than 3%.
Variable Accumulation Value
The variable accumulation value of your Annuity Account for any Valuation Period
is equal to the sum of the value of all Variable Accumulation Units credited to
your Annuity Account.
Variable Accumulation Units
We credit premium payments to your Annuity Account in the form of Variable
Accumulation Units. We determine the number of Variable Accumulation Units we
credit by dividing the dollar amount you allocate to the particular variable
subaccount by the Variable Accumulation Unit Value for the particular subaccount
for the Valuation Period during which we receive and accept the premium payment.
Variable Accumulation Unit Value
We established the initial Variable Accumulation Unit Value for each subaccount
at $10. We recalculate the Variable Accumulation Unit Value for each subaccount
at the close of each Valuation Date. The Variable Accumulation Unit Value will
reflect the investment performance of the underlying Portfolio in which the
subaccount invests, the deduction of the mortality and expense risk charge and
the deduction of the Administrative Fee.
For a detailed discussion of how we determine Variable Accumulation Unit Value,
see the SAI.
Optional Features
You may elect to enroll in either of the following programs. However, you may
not be enrolled in both programs at the same time.
Dollar Cost Averaging
Dollar Cost Averaging is a program which allows you to systematically transfer a
specific dollar amount each month from any variable subaccount or the One-Year
fixed subaccount to one or more variable subaccounts. By transferring set
amounts on a regular schedule, instead of transferring the total amount at one
particular time, you may reduce the risk of investing in the portfolios only
when the price is high.
You may select Dollar Cost Averaging by having at least $1,000 in a variable or
One-Year fixed subaccount. You must transfer at least $50 per month. You may
enroll in this program at any time by calling us or by providing us the
information we request on the Dollar Cost Averaging election form.
You must have sufficient value in the variable or One-Year fixed subaccount. We
do not permit transfers to or from any fixed subaccount other than the One-Year
fixed subaccount under Dollar Cost Averaging. We may, at our sole discretion,
waive Dollar Cost Averaging minimum deposit and transfer requirements.
Dollar Cost Averaging will terminate when any of the following occurs:
o the number of designated transfers has been completed;
o the value of the variable or the One-Year fixed subaccount is
insufficient to complete the next transfer;
o you request termination by telephone or In Writing (we must receive
such request at least one week before the next scheduled transfer
date to take effect that month); or
o you surrender the Contract.
The Dollar Cost Averaging program is not available following the Annuity Date.
We do not currently charge for Dollar Cost Averaging but we may do so.
We do not control the Fund and cannot guarantee that it will accept transfers
under the Dollar Cost Averaging program. We reserve the right to discontinue or
change this program at any time.
we do not guarantee that the dollar cost averaging program will result in
annuity account values which equal or exceed the value of your premium payments.
The Dollar Cost Averaging program may not achieve its objective. We do not
guarantee that the program will result in a profit, or protect against loss, nor
do we guarantee that it produces better results than a single lump-sum
investment.
Automatic Rebalancing
Automatic Rebalancing is an option which periodically restores to a
pre-determined level the percentage of annuity value allocated to each variable
subaccount (e.g., 20% Money Market, 50% Growth, 30% Utilities). This
pre-determined level will be the allocation you initially selected when you
purchased the Contract, unless you subsequently change it. You may change the
Automatic Rebalancing allocation at any time by submitting a request to us In
Writing.
If you elect Automatic Rebalancing, all premium payments you allocate to the
variable subaccounts must be subject to Automatic Rebalancing. The fixed
subaccount is not available for Automatic Rebalancing.
You may choose to rebalance monthly, quarterly, semi annually or annually. Once
the rebalancing option is activated, any variable subaccount transfers you
execute outside of the rebalancing option will immediately terminate the
Automatic Rebalancing option. Any subsequent premium payment or withdrawal that
modifies the net account balance within each variable subaccount may also cause
the Automatic Rebalancing option to terminate. We will confirm any such
termination to you. You may terminate the Automatic Rebalancing option or
re-enroll at any time by calling or writing us.
The Automatic Rebalancing program is not available following the Annuity Date.
We do not currently charge for Automatic Rebalancing but we may do so.
Transfer Privilege
Transfers During the Accumulation Period
During the Accumulation Period you may transfer all or part of your account
value to one or more subaccounts. We do not permit transfers during the Right to
Examine Your Contract period.
Transfers from the fixed subaccounts are subject to the following conditions:
o you must transfer at least $100 unless you are transferring the entire
value of the subaccount;
o the amount you transfer to any fixed subaccount must be at least $500;
o there must be at least $500 remaining in the subaccount after the
transfer; and
o transfers may be subject to a Market Value Adjustment.
Amounts you transfer into a fixed subaccount will earn interest at the
guaranteed interest rate we declare for that guaranteed period as of the
effective date of the transfer. We also may defer transfers of amounts from the
fixed account for a period not greater than six (6) months from the date we
receive the transfer request.
Transfers from the variable subaccounts are subject to the following conditions:
o you must transfer at least $100 unless you are transferring the entire
value of the subaccount;
o the amount you transfer to any variable subaccount must be at least $100;
and
o there must be at least $50 remaining in the subaccount after the transfer.
We may otherwise restrict the transfer privilege in any way or eliminate it
entirely. Transfer requests In Writing must be on a form we find acceptable.
Telephone Transfers. We will allow telephone transfers automatically.
We will take the following procedures to confirm that instructions we receive by
telephone are genuine.
o before a service representative accepts any request, the representative
will ask the caller for specific information to validate the request;
o we will record all calls; and
o we will confirm In Writing all transactions we perform.
We are not liable for any loss, cost or expense for acting on telephone
instructions which we believe are genuine, if we act in accordance with these
procedures.
A transfer from a fixed subaccount before its expiration date will be subject to
a Market Value Adjustment. Transfers involving Variable Accumulation Units will
be subject to any conditions the Fund imposes. A transfer from a variable
subaccount will be effective on the date we receive the request for transfer,
provided we receive the request before 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 on the next day the New York Stock Exchange is open for
business. Under current law, there will not be any tax liability to you for
making a transfer.
Transfers During the Annuity Period
After the Annuity Date the Payee receiving variable annuity payments may
transfer value among the variable subaccounts in which the Contract is invested.
The request must be In Writing. We will exchange the value of the number of
Annuity Units from the variable subaccounts you specify for other Annuity Units,
so that the value of an annuity payment made on the date of the exchange will
not be affected by the exchange. Each Payee is limited to three exchanges per
Contract Year after the Annuity Date. Such exchanges may be made only between
variable subaccounts. We will make exchanges using the Annuity Unit values for
the Valuation Period during which we receive the request for exchange.
Access to Your Money
Cash Withdrawals
During the accumulation period, you may request a cash withdrawal. Any
withdrawal from the Variable Account will be effective on the date that we
receive it, so long as we receive the request by 4:00 p.m. Eastern Time. We will
process your withdrawal request within seven days of our receipt of your
request.
You may request a full surrender or a partial cash withdrawal. A request for a
partial withdrawal will result in the cancellation of a portion of your account
value equal to the dollar amount of the cash withdrawal payment, plus or minus
any applicable Market Value Adjustment, plus any applicable withdrawal charge
and premium taxes. Upon request, we will advise you of the amounts that we would
pay to you if you request a full surrender or partial withdrawal.
A partial cash withdrawal must be at least $50. When electing such a partial
withdrawal, you must tell us:
o the amount to be withdrawn; and
o the subaccounts from which to take the money.
Partial withdrawals may not reduce the total account value below $1,000. If you
do not specify the subaccounts from which we should take the withdrawal, we will
withdraw the requested amount pro-rata from each variable and fixed subaccount
you maintain. If such a pro-rata withdrawal reduces the value of any fixed
subaccount below $500, or any variable subaccount balance below $50, we will
transfer the value of those subaccounts to that variable subaccount where you
maintain the highest value, or to the fixed account if there is no variable
subaccount where you maintain a balance greater than $50.
All cash withdrawals from any fixed account will be subject to the Market Value
Adjustment, except those which become effective upon the expiration date of the
subaccount's guaranteed period. If you make a partial cash withdrawal, we will
assess any applicable withdrawal charge, Market Value Adjustment, and premium
taxes pro-rata against the amounts you have remaining in each subaccount. If you
request a full surrender of the Contract, we will assess any applicable
withdrawal charges, Market Value Adjustment, Annuity Account Fee, and premium
taxes against the amount you withdraw. We will deduct the Annuity Account Fee
and any applicable Market Value Adjustment from the Annuity Account before we
apply any withdrawal charge.
We may defer the payment of amounts withdrawn or transferred from the fixed
account for a period not to exceed six (6) months from the date we receive your
written request for such withdrawal or transfer.
Cash withdrawals from a variable subaccount will result in the cancellation of
Variable Accumulation Units from your Annuity Account. These Variable
Accumulation Units will have an aggregate value on the effective date of the
withdrawal equal to the total amount by which we reduce the account value (which
amount will include any applicable withdrawal charge). We will base the
cancellation of such units on the Variable Accumulation Unit values of the
variable subaccounts at the end of the Valuation Period during which we receive
your cash withdrawal request.
Income taxes, federal tax penalties and other restrictions may apply to any
withdrawals you make. See "Federal Tax Matters".
Minimum Value Requirement
If you request a partial withdrawal which would cause your account value to fall
to less than $1,000, then we will treat the partial withdrawal as a request for
a full surrender. We will terminate your Contract as if you surrendered the
Contract if you do not make premium payments under the Contract for three
consecutive years and the account value has fallen below $1,000 during this
period. Before we exercise this right to terminate, we will give you thirty (30)
days notice and the opportunity to make an additional premium payment to
increase the account value above the minimum amount. On termination, you will
receive the amount which we would have paid had the Contract been fully
surrendered. We may also transfer any fixed subaccount balance which has a value
below $500 and any variable subaccount balance which has a value below $50 to
that variable subaccount where you maintain the highest value or to the fixed
account if there is no variable subaccount where you maintain a balance greater
than $50.
Section 403(b) Annuities
The Code imposes restrictions on cash withdrawals if your Contract is used with
Section 403(b) annuities. In order for such a Contract 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 you attain age 59 1/2, separate from
service with the employer, die or become 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 Values, salary
reduction contributions made on or after January 1, 1989, and any growth or
interest on such contributions ("Restricted Account Values").
Withdrawals of Restricted Account Values 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 to a 10% tax penalty, in addition to any withdrawal
charge, Market Value Adjustment, Annuity Account Fee, and premium taxes
applicable under the Contract.
Under the terms of a particular Section 403(b) plan, you may be entitled to
transfer all or a portion of the account value to one or more alternative
funding options. You should consult the documents governing your plan and the
person who administers the plan for information as to such investment
alternatives.
With respect to the restrictions on withdrawals from the Variable Account, we
are relying upon a no-action letter dated November 28, 1988, from the staff of
the Commission to the American Council of Life Insurance. We have complied or
will comply with the requirements of that no-action letter.
Death Benefits
In the event of the death of any Owner before the Annuity Date, we will pay a
death benefit to the Beneficiary upon receipt of due proof of the Owner's death.
If there is no designated Beneficiary living on the date of the Owner's death,
we will, upon receipt of due proof of death of both the Owner and the designated
Beneficiary, pay the death benefit in one lump sum to the Owner'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 your lifetime and before the Annuity Date, you may elect In Writing to
have the death benefit applied under the Annuity Options for the Beneficiary
after the Owner's death.
If no death benefit payment method is in effect on the date of the Owner's
death, the Beneficiary may elect:
o to receive the death benefit in the form of a single cash payment; or
o to have the death benefit applied under the Annuity Options (on the Annuity
Date).
The Beneficiary must make the election to us In Writing. Your election of an
Annuity Option specifying the method by which the death benefit shall be paid
will become effective on the date we receive it. Any Annuity Option the
Beneficiary elects will become effective on the later of:
o the date we receive the election; or
o the date we receive due proof of the Owner's death.
If we do not receive the Beneficiary's election within 60 days following the
date we receive due proof of the Owner's death, the Beneficiary will be deemed
to have elected on such 60th day to receive the death benefit in the form of a
single cash payment.
The Annuity Option you or the Beneficiary elect may be restricted by the Code.
See "Federal Tax Matters" for further discussion.
Payment of Death Benefit
If the Beneficiary requests the death benefit to be paid in cash, subject to our
receipt of due proof of death, we will make payment within seven days of the
date the election becomes effective or is deemed to become effective. If we will
pay the death benefit in one lump sum to the Owner's estate, we will make the
payment within seven (7) days of the date we receive due proof of the death of
the Owner and/or the designated Beneficiary, as applicable. We may defer any
such payment of amounts derived from the Variable Account in accordance with the
Act. If we must make payment 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. We will maintain your Annuity Account in effect until the
Annuity Date.
Amount of Death Benefit
We do not assess Market Value Adjustment or withdrawal charges against amounts
which we apply toward payment of a death benefit. We determine the amount of the
death benefit as of the effective date or deemed effective date of the death
benefit election (not as of the date of death). Unless there is a transfer of
ownership, the death benefit is equal to the greater of:
o the account value for the Valuation Period during which the death benefit
election is effective or deemed to become effective;
o the sum of all premium payments under the Contract, minus the sum of all
partial withdrawals from the Contract;
o your 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
o the amount that would have been payable in the event of a full surrender of
the Contract including surrender charges and any applicable Market Value
Adjustment on the date the death benefit election is effective or is deemed
to become effective.
Surrender of the Contracts
At any time before the Annuity Date, you may elect to surrender the Contract and
receive a cash payment. On the Surrender Date, we will cancel your Annuity
Account and we will pay the account value, minus any applicable withdrawal
charges, Annuity Account Fee, and premium taxes, and plus or minus any
applicable Market Value Adjustment. We will make the payment to you within seven
days of the Surrender Date in the form of a cash payment. We may be permitted to
defer any such payment of amount derived from the Variable Account in accordance
with the Act. We may defer the payment of amounts withdrawn from the fixed
account for a period not greater than 6 months from the date we receive your
written request for such withdrawal.
Following a surrender of the Contract, or if the Contract terminates for any
other reason, all your rights, and those of the Annuitant, and Beneficiary will
terminate.
Income taxes, federal tax penalties and other restrictions may apply to any
surrender. See "Federal Tax Matters."
Annuity Provisions
Annuity Date
Annuity payments will begin on the first day of the month following the Annuity
Date you select and specify in the Contract Application or Order to Purchase. In
most states, the date you select may not be earlier than 30 days following the
Date of Issue. You may change this date from time to time by notifying us In
Writing. We must receive notice of each change at least 45 days before the then
current Annuity Date.
The new Annuity Date must be a date which is:
o at least 30 days after the effective date of the change;
o the first day of a month; and
o not later than the first day of the first month following the
Annuitant's 90th birthday.
These requirements may be restricted, in the case of a Qualified Contract, by
the particular retirement plan or by applicable law. You may also change the
Annuity Date by electing an Annuity Option as described in the death benefit
section of this Prospectus.
On the Annuity Date, we will cancel your Annuity Account and we will apply the
account value, minus any applicable Annuity Account Fee and premium taxes, to
provide an annuity under one or more of the options described below. We will not
impose any Market Value Adjustment or withdrawal charges upon amounts applied to
purchase an annuity. You may not request payments under the Contract's cash
withdrawal provisions on or after the Annuity Date.
Since the Contract 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, you should refer to the terms
of the particular plan for any limitations or restrictions on the Annuity Date.
Election - Change of Annuity Option
During your lifetime and before the Annuity Date, you may elect one or more of
the Annuity Options described below, or any other Annuity Option to which we
agree. You may also change any election, but we must receive notice In Writing
of any election or any change of election at least 45 days before the Annuity
Date.
If no election is in effect on the 30th day before the Annuity Date and you use
the Contract 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, we will conclude that you elected
the Joint and Survivor Annuity described below or Life Annuity, whichever is
applicable, if required by such retirement plan. If you do not use the Contract
in connection with one of these plans, we will conclude that you have elected
Life Annuity with 120 Monthly Payments Certain.
At any time you may request annuitization In Writing of your account value under
any of the Annuity Options described below. We will not impose a withdrawal
charge or Market Value Adjustment 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 you elect.
You should refer to the terms of your particular retirement plan and any
applicable legislation for any limitations or restrictions on the options which
you may elect. We do not permit a change of Annuity Option 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.
You may elect a fixed annuity, a variable annuity, or a combination of both. If
electing a combination, you must specify what part of the Annuity Account we
should apply to each fixed and variable annuity Option. If we do not receive
your election by the 30th day before the Annuity Date, we will determine the
portion of the Annuity Account to be applied to a fixed annuity and/or a
variable annuity on a pro-rata basis based on the composition of your Annuity
Account on the Annuity Date. (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.) We will base variable annuity payments on the subaccounts
you select, or on how you allocate the account value among the subaccounts.
Fixed Annuity Payments
A fixed annuity provides for Annuity Option payments which will remain constant.
Payments will be made under the terms of the Annuity Option you elected. The
effect of choosing a fixed annuity is that we will set the amount of each
payment on the Annuity Date and that amount will not change. If you select a
fixed annuity, we will transfer to our general account any amounts in the
Variable Account that we use to provide the fixed annuity.
We will fix the amount of the annuity payments by the fixed annuity provisions
you select and, for some options, the Annuitant's settlement age (determined in
accordance with the Contract). We determine the amount of each fixed annuity
payment by applying the Annuity Payment Rates found in the Contract to the
portion of the account value allocated to the fixed annuity Option you select,
or, we will use the Annuity Payment Rates we use on the Annuity Date if they are
more favorable to the Payee. The rates found in the Contract show, for each
$1,000 applied, the dollar amount of the monthly fixed annuity payment. We may
change this rate with respect to Contracts purchased after the effective date of
such change (see "Modification").
Variable Annuity Payments
If you choose to receive variable annuity payments, the dollar amount of the
payments will fluctuate or vary in dollar amount, based on the investment
performance of the variable subaccounts in which you invest. The variable
annuity purchase rate tables in the Contract reflect an assumed interest rate of
3%, so if the actual net investment performance of the subaccount is less than
this rate, then the dollar amount of the actual annuity payments will decrease.
If the actual net investment performance of the subaccount is higher than this
rate, then the dollar amount of the actual annuity payments will increase. If
the net investment performance exactly equals the 3% rate, then the dollar
amount of the actual annuity payments will remain constant.
We determine the amount of the first variable annuity payment by the variable
annuity provisions you select and, for some options, the Annuitant's settlement
age of the Annuitant (determined in accordance with the Contract). We determine
all variable annuity payments other than the first by means of Annuity Units
credited to the Contract with respect to the particular payee. We determine the
number of Annuity Units to be credited in respect of a particular subaccount by
dividing that portion of the first variable annuity payment attributable to that
subaccount by the Annuity Unit Value of that subaccount for the Valuation Period
which ends immediately preceding the Annuity Date. The number of Annuity Units
of each subaccount 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 equals
the sum of the amounts determined by multiplying the number of Annuity Units of
a particular subaccount for the Valuation Period, which ends immediately
preceding the due date of each subsequent payment, by the Annuity Unit Value for
that subaccount, for the first Valuation Period occurring on or immediately
before the first day of each month. We deduct the annual Annuity Account Fee,
pro-rata, from each variable annuity payment.
You may choose to receive annuity payments under any one of the Annuity Options
described below. We may consent to other plans of payment before the Annuity
Date.
If you use the Contract 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, we will offer a
Joint and Survivor Annuity 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 we will determine the monthly payment payable in the
same manner as during the joint lifetime of the Payee and the designated second
person.
Fixed Annuity Options
Life Annuity Option
We make monthly payments to the Payee during the Annuitant's lifetime ending
with the last payment due before the Annuitant's death. Under this option, we
will make only one payment if the Annuitant dies before we make the second
payment, we will make only two payments if the Annuitant dies before we make the
third payment, etc.
Life Annuity with Certain Period Option
We will make monthly payments 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
We make monthly payments to the Payee during the Annuitant's lifetime ending
with the last payment due before the Annuitant's death provided that, at the
Annuitant's death, the Payee will receive an additional payment equal to the
excess, if any, of the initial value of the proceeds we apply under this option
over the dollar amount of payments we have already paid.
Annuity Certain Option
We pay monthly payments for the number of years selected which may be from 5 to
30 years.
Variable Annuity Options
Variable Life Annuity Option
We make monthly payments to the Payee during the Annuitant's lifetime, ending
with the last payment due before the Annuitant's death. Under this option, we
will make only one payment if the Annuitant dies before we make the second
payment, we will make only two payments if the Annuitant dies before we make the
third payment, etc.
Variable Life Annuity with Certain Period Option
We make monthly payments 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.
Variable Annuity Certain Option
We make monthly payments for the number of years you select which may be from 5
to 30 years. At any time during the period we make payments, the Annuitant may
elect to withdraw a portion or all of the future payments to which the Payee is
entitled. Upon withdrawal, the amount of the future payments will 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. We determine the value of the variable annuity certain by first
converting your number of annuity units into dollars based on the value of the
annuity units. Thereafter, we divide the dollar value by an annuity certain
payment factor to obtain the total value of the variable annuity certain. We
determine the annuity certain payment factor 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 3%. The Annuitant may elect that the Payee
receives all or a portion of this present value.
Additional Annuity Options
You may settle any proceeds payable under the Contract, under any other method
of settlement including joint and senior settlement options under joint life
annuities) we offer at the time of the request.
Determination of Annuity Payments
On the Annuity Date, we will apply the adjusted value of the fixed account and
the Variable Account to provide for payments under the selected Annuity Option.
The adjusted value will be equal to:
o the account value at the end of the Valuation Period which ends immediately
preceding the Annuity Date;
o reduced by a proportionate amount of the Annuity Account Fee to reflect the
time elapsed between the last day of the prior contract year and the day
before the Annuity Date; and
o reduced by any 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, we will pay the amount in a single payment to the Payee you designate.
Contract Charges and Fees
We assess charges under the Contract offered by this Prospectus in four ways:
o as withdrawal charges (contingent deferred sales charges);
o as deductions for Contract administration expenses and, if applicable, for
premium taxes;
o as charges against the assets of the Variable Account for the assumption of
mortality and expense risks and for administrative expenses; and
o as Market Value Adjustments 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 fully
described in the Fund's Prospectus and its SAI.
Withdrawal Charges
We do not make a deduction for sales charges from a premium payment. However, if
you make a cash withdrawal of a premium payment, we may assess a withdrawal
charge (contingent deferred sales charge). The length of time between our
acceptance of the premium payment deemed 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 Contract 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, we deem
amounts to be withdrawn in the order in which we received them. For example, we
will make withdrawals from the oldest premium payment we have accepted first.
After these amounts are exhausted, we will make withdrawals from the second
oldest premium payment we have accepted, and so on until you withdraw all of
your premium payments. After you withdraw all premium payments, we will deem
further withdrawals to be from net investment results attributable to such
premium payments, if any.
Subject to the Free Partial Withdrawal described below, we will assess the
following withdrawal charge to premium payment amounts you withdraw from Annuity
Account (adjusted by any applicable Market Value Adjustment):
WITHDRAWAL
CHARGE
PERCENTAGE YEAR APPLICABLE
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
When you make a withdrawal, we will deduct any applicable Annuity Account Fee
from, and make any Market Value Adjustment to, your Annuity Account before we
apply any withdrawal charge. We then assess the withdrawal charge against the
amounts remaining in your Annuity Account. If your Annuity Account is allocated
among more than one subaccount, we will assess the withdrawal charge pro-rata
against the amounts remaining within the subaccounts from which the withdrawal
occurred. If the subaccounts from which the withdrawal occurred do not contain
sufficient amounts to satisfy the withdrawal charge, we will assess the
deficiency pro-rata against all amounts remaining within the subaccounts. If a
cash withdrawal causes the entire value of the Annuity Account to be withdrawn
(i.e., a complete surrender), then we will deduct the withdrawal charge from the
amount paid. We will not impose the withdrawal charge on a premium payment you
withdraw after the end of the seventh year from the date we accept such premium
payment, nor do we impose the withdrawal charge upon payment of the death
benefit or upon amounts applied to an Annuity Option.
We may, upon notice to you, modify the withdrawal charges, provided that such
modification shall apply only to your Annuity Account established after the
effective date of such modification (see "Modification"). For examples of
withdrawals, surrenders, withdrawal charges and the Market Value Adjustment, see
the SAI.
Free Partial Withdrawal
During each Contract Year before the Annuity Date you may withdraw a portion of
the premium payments you paid without being assessed a withdrawal charge. Your
request must be In Writing. This privilege continues until you withdraw all
premium payments you paid to the your Annuity Account. You may withdraw up to
15% of the total amount of your premium payments without a withdrawal charge
each Contract Year. The amount must be at least $50.
You must specify the subaccounts from which the amount will be withdrawn. If you
do not specify the subaccounts from which the withdrawal will occur, the Company
will withdraw the amount pro-rata from all your subaccounts.
A Free Partial Withdrawal may have federal income tax consequences. See "Federal
Tax Matters."
Annuity Account Fee
On the last Valuation Date of each calendar year, we deduct an annual policy
administration fee, the Annuity Account Fee, on a pro-rata basis from all of
your subaccounts. The Annuity Account Fee equals $35. This fee partially
reimburses us for administrative expenses relating to the issue and maintenance
of the Contract and your Annuity Account.
We will pro rate your initial Annuity Account Fee for the calendar year during
which you established your Annuity Account, to reflect the shorter initial
period. Thereafter, we will assess the full $35 Annuity Account Fee annually. If
you surrender the Contract, we will deduct a $35 Annuity Account Fee. On the
Annuity Date, we will reduce the account value by a proportionate amount of the
Annuity Account Fee to reflect the time elapsed between the previous December 31
and the day before the Annuity Date. After the Annuity Date, we will deduct an
annual $35 Annuity Account Fee, in approximately equal amounts, from each
variable annuity payment you made during the year. We will not deduct Annuity
Account Fee from fixed annuity payments. If applicable state law requires, we
will reduce the $35 Annuity Account Fee to a lesser amount. We will waive the
annual Annuity Account Fee each year that your account value is at least
$100,000 on the last Valuation Date of that year.
Administrative Fee
On each Valuation Date, we deduct an Administrative Fee from the assets you have
in each variable subaccount to partially reimburse us for administrative
expenses relating to the issue and maintenance of the Contract and your Annuity
Account. This charge currently has an effective annual rate of 0.10% (equal to a
daily rate of 0.000275834% of the assets in each subaccount). There is no
necessary relationship between the administrative charges imposed and the amount
of expenses that may be attributable to any single Owner's Annuity Account.
Premium Taxes
We will deduct premium tax equivalents (including any related retaliatory
taxes), if any, and any other taxes due under the Contract. We currently deduct
any such taxes at the time you withdraw or annuitize account value, or any
portion thereof, (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 your state of residence.
We do not currently deduct federal, state or local taxes other than state
premium taxes. However, we may charge for such taxes in the future or for other
economic burdens resulting from the application of any tax laws that we
determine to be attributable to the Contract.
Charge for Mortality and Expense Risks
The mortality risk we assume arises from the contractual obligation to continue
to make annuity payments to one or more Payees 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. We assume this
mortality risk by virtue of annuity rates incorporated into the Contract. These
rates cannot be changed. We also assume a mortality risk in connection with the
death benefits. The expense risk we assumed is the risk that the administrative
charges assessed under the Contract may be insufficient to cover the actual
total administrative expenses we incur.
For assuming these risks, we deduct a charge from value you have in the Variable
Account at the end of each Valuation Period at an effective annual rate of 1.25%
(calculated at a daily rate of 0.003447920% of the assets in the Variable
Account). (We estimate approximately 0.75% of this charge to be attributable to
mortality risks and approximately 0.50% of this charge to be attributable to
expense risks.) If the deduction is insufficient to cover our actual costs for
mortality and expense risks, we will bear the loss. Conversely, if the deduction
proves more than sufficient, we will profit from the excess. We expect to
realize a profit from this charge. We do not make a deduction for these risks
from the fixed account.
We assume the risk that withdrawal charges assessed under the Contract may be
insufficient to compensate us for the costs of distributing the Contract. In the
event the withdrawal charges prove to be insufficient to cover actual
distribution expenses, the deficiency will be met from our general corporate
funds, which may include amounts derived from the mortality and expense risk
charge.
The Contract provides that we may modify the mortality and expense risk charges;
however, such modification shall apply only with respect to Contracts issued
after the effective date of such modification.
Market Value Adjustment
Any cash withdrawal, surrender or transfer from a fixed subaccount, other than a
withdrawal, surrender or transfer at the expiration date of the guaranteed
period, will be subject to a Market Value Adjustment. We will apply the Market
Value Adjustment to the amount you withdraw or transfer after we deduct any
applicable Annuity Account Fee and before we deduct any applicable withdrawal
charge.
The Market Value Adjustment 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 you initially allocated an amount to a
subaccount's guaranteed period under the Contract and the Index Rate in effect
at the time you withdraw or transfer the amount from the fixed subaccount. It
also reflects the time remaining in the subaccount'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 Market Value Adjustment 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 Market
Value Adjustment will generally result in a lower payment upon withdrawal or
transfer.
We apply the following formula to compute the Market Value Adjustment:
(1 + A)N(th)
----------
(1 + B)N(th)
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 subaccount's guaranteed period, determined at the
beginning of the guaranteed period. We use an Index Rate declared for
the Friday occurring within the calendar week which is two weeks
earlier than the calendar week during which the guaranteed period
begins.
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 subaccount'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 us
associated with liquidating general account assets in order to satisfy
surrender requests. This adjustment of 0.50% has been added to the
denominator of the formula because it is anticipated that a
substantial portion of the general account assets will be in
relatively illiquid securities. Thus, in addition to direct
transaction costs, if we must sell such securities (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 Market Value Adjustment. If
Index Rates "A" and "B" are within 0.25% of each other when the Index
Rate Factor is determined, no such percentage adjustment to "B" will
be made. We use an Index Rate declared for the Friday occurring within
the calendar week which is two weeks earlier than the calendar week
during which the withdrawal, surrender or transfer occurs.
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 SAI for examples of the application of the Market Value Adjustment.
Other Contract Provisions
Deferral of Payment
We may defer the calculation and payment of partial withdrawal and full
surrender values, transfers or death benefits from any variable subaccount
during any period:
o when the New York Stock Exchange is closed other than customary week-end
and holiday closings; or
o when trading on the New York Stock Exchange is restricted as the Commission
determines; or
o when 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
o when the Commission may by order permit for the protection of security
holders.
We may defer the payment or transfer of amounts you withdraw from any fixed
subaccount for a period not greater than 6 months from the date we receive
written request for such withdrawal or transfer. If payment or transfer is
deferred beyond thirty (30) days, we will pay interest of at least 3% per year
on amounts so deferred.
In addition, payment of the amount of any withdrawal derived, all or in part,
from any premium payment paid to us by check or draft may be postponed until we
determine the check or draft has been honored.
Designation and Change of Beneficiary
The Beneficiary designated in your Contract Specifications will remain in effect
unless you change it. You have the sole right to change any Beneficiary. Subject
to the rights of an irrevocable Beneficiary, you may change or revoke your
Beneficiary designation at any time while you are living by filing with us a
beneficiary designation or revocation in writing. The change or revocation will
not be binding upon us until we record it. The change or revocation will take
effect as of the date on which you sign the beneficiary designation or
revocation, but the change or revocation will be without prejudice to us with
regard to any payment we made or any action we took before recording the change
or revocation.
You should refer to the terms of your particular retirement plan and any
applicable legislation for any restrictions on the beneficiary designation.
Exercise of Contract Rights
The Contract shall belong to you. You may expressly reserve all Contract rights
and privileges. You may exercise such rights and privileges without the consent
of the Beneficiary (other than an irrevocable Beneficiary) or any other person.
You may exercise such rights and privileges only during your lifetime and before
the Annuity Date, except as otherwise provided in the Contract.
Unless provided otherwise the Annuitant becomes the Payee on and after the
Annuity Date. If the Annuitant predeceases you before the Annuity Date, you
become the Annuitant until you designate a new Annuitant 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.
Transfer of Ownership
The owner of a Non-Qualified Contract may transfer the ownership of the Contract
before the Annuity Date. A transfer of ownership will not be binding upon us
until we receive and record written notification. When we record such
notification, the change will take effect as of the effective date you
specified. The change will be without prejudice to us regarding any payment we
made or any action we took before recording the change.
You may not transfer ownership of a Qualified Contract except to:
o the Annuitant;
o a trustee or successor trustee of a pension or profit sharing
trust which is qualified under Section 401 of the Code; 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;
o the trustee of an individual retirement account plan qualified under
Section 408 of the Code for the benefit of the Owner; or
o 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 us.
A transfer of ownership may have federal income tax consequences. See "Federal
Tax Matters".
Death of Owner
If any Owner of a Non-Qualified Contract dies before the Annuity Date, we must
distribute the death benefit payable under the Contract, if any, to the
Beneficiary, if then alive, either:
o within five years after the deceased Owner's date of death; or
o over some period not greater than the Beneficiary's life or expected life,
with annuity payments beginning within one year after the deceased Owner's
date of death.
If any Owner is not an individual, a change in or death of any annuitant will be
considered the death of an Owner.
The person named as your Beneficiary in the Contract Application 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 may not apply when the Beneficiary is
the deceased Owner's spouse, if the spouse elects to continue the Contract in
the spouse's own name, as Owner.
If the Payee dies on or after the Annuity Date and before the entire
accumulation under such Owner's Annuity Account has been distributed, the
remaining portion of such Owner'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 Contract.
Voting Fund Shares
We will vote Fund shares held by the subaccounts at the Fund's shareholder
meetings, and to the extent required by law, will follow voting instructions
received from persons having the right to give voting instructions. You are the
person having the right to give voting instructions before the Annuity Date. If
you elect a variable annuity Option, then after the Annuity Date, the Payee has
the right to give voting instructions. The number of votes decreases as we make
annuity payments and as the Contract reserves decrease. The person's number of
votes will be determined by dividing the Contract reserve you allocate to a
subaccount by the net asset value per share of the corresponding Fund Portfolio.
There are no voting rights associated with the fixed account or a fixed annuity
before or after the Annuity Date.
We will vote any shares attributable to us, and Fund shares for which we receive
no timely voting instructions, in the same proportion as the shares for which we
receive instructions. We must receive voting instructions at least one day
before the shareholders meeting for them to be considered timely.
Owners participating under Qualified Contract may be subject to other voting
provisions of the particular plan. Individuals who contribute to plans which the
Contract fund may be entitled to instruct you as to how to instruct us to vote
the Fund shares attributable to their contributions. Such plans may also provide
the additional extent, if any, to which you shall follow voting instructions of
persons with rights under the plans. If we do not receive voting instructions
from any such person with respect to a particular employee's Annuity Account,
you may instruct us as to how to vote the number of Fund shares for which
instructions may be given.
Neither we, nor the Variable Account, are 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 are we under any duty to
inquire as to the instructions we receive, or to your authority or the authority
of others to instruct the voting of Fund shares. The instructions you give will
be valid as they affect the Variable Account, us, and any others having voting
instruction rights with respect to the Variable Account, except where we or the
Variable Account have actual knowledge to the contrary.
We will provide all Fund proxy material, together with an appropriate form to be
used to give voting instructions, to each person we know to have the right to
give voting instructions, at least ten days before each meeting of the Fund's
shareholders. 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
before each such meeting. Before the Annuity Date, we determine the number of
Fund shares as to which voting instructions may be given to us by dividing the
value of all of the Variable Accumulation Units of the particular subaccount
credited to your Annuity Account by the net asset value of one Fund share as of
the same date. 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 we determine that we are
permitted to vote the Fund's shares in our own right, we may do so. Fund shares
that we (or our affiliates) hold, in which you or other persons entitled to vote
have no beneficial interest, may be voted by the shareholder thereof (us or our
affiliates) in its sole discretion.
Adding, Deleting or Substituting Investments
We do not control the Fund and cannot guarantee that it or any of its Portfolios
will be available for investment in the future or that it or any Portfolio will
accept premium payments or transfers. In the event the Fund or any Portfolio is
not available, we reserve the right to make changes in the Variable Account and
its investments. We may take reasonable action to secure a comparable or
otherwise appropriate funding vehicle, although we are 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 we may
maintain all Annuity Account values in the fixed account. If the Fund or other
funding vehicle restricts or refuses to accept transfers or other transactions,
then we may change, modify, or revoke transfer privileges under the Contract.
We reserve 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 subaccount thereof) or that the
Variable Account (or any subaccount thereof) may purchase. We may eliminate the
shares of any of the Fund's Portfolios and substitute shares of another
Portfolio or any other investment vehicle of another open-end, registered
investment company if:
o laws or regulations are changed;
o shares of the Fund or of a Portfolio are no longer available for investment;
or
o we determine 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 your
interest in a subaccount 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 Owners make. We shall
make any appropriate endorsement to the Contract to reflect any substitution
pursuant to this provision.
We may establish new subaccounts when, in our sole discretion, marketing, tax,
investment or other conditions warrant. Any new subaccounts may be made
available to existing Owners on a basis we determine. Each additional subaccount
will purchase shares in a Portfolio of the Fund or in another mutual fund or
investment vehicle. We may also eliminate one or more subaccounts if, in our
sole discretion, marketing, tax, investment or other conditions warrant such
change. In the event we eliminate any subaccount, we will notify you and request
a reallocation of the amounts invested in the eliminated subaccount.
Change in Operation of the Variable Account
At our election, and if we determined that it is in the best interests of
persons having voting rights under the Contract, we may operate the Variable
Account as a management company under the Act or any other form permitted by
law; deregister the Variable Account under the Act in the event registration is
no longer required (deregistration of the Variable Account requires an order by
the Commission); or combine the Variable Account with one or more other separate
accounts. To the extent permitted by applicable law, we also may transfer the
assets of the Variable Account associated with the Contract to another account
or accounts. In the event of any change in the operation of the Variable Account
pursuant to this provision, we may make appropriate endorsement to the Contract
to reflect the change and take such other action as may be necessary and
appropriate to effect the change.
Modifying the Contract
If we may modify the Contract we will give notice to you (or the Payees after
the Annuity Date). We make modify the Contract if such modification:
o is necessary to make the Contract or the Variable Account comply with, or
take advantage of, any law or regulation issued by a governmental agency to
which we or the Variable Account are subject; or
o is necessary to attempt to assure continued qualification of the Contract
under the Code or other federal or state laws relating to retirement
annuities or annuity contracts; or
o is necessary to reflect a change in the operation of the Variable Account
or its subaccounts; or
o provides additional Variable Account and/or fixed accumulation options.
If we modify the Contract, we may make appropriate endorsement in the Contract.
In addition, upon notice to you, we may modify the Contract 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 Market Value Adjustment. Such
modification shall apply only to Contracts established after the effective date
of such modification. In order to exercise our modification rights in these
particular instances, we must notify you of such modification In Writing. All of
the charges and the annuity tables which are provided in the Contract before any
such modification will remain in effect permanently, unless approved by us, with
respect to Contracts established before the effective date of such modification.
Discontinuing New Purchases
We reserve the right to limit or discontinue the acceptance of new Contract
Applications and Orders to Purchase and the issuance of new Contracts. Such
limitation or discontinuance shall have no effect on rights or benefits with
respect to any Contract issued before the effective date of such limitation or
discontinuance.
Right to Examine Your Contract
If you are not satisfied with a Contract, you may return it for a refund by
mailing it to us at the Customer Service Center mailing address listed on the
cover of this Prospectus within ten days (or longer if state law requires) after
you receive it. You may not make transfers during this period. When we receive
the returned Contract we will cancel it, and in most states you will receive a
refund equal to your account value at the end of the Valuation Period during
which we receive the returned Contract.
Where state law requires us to refund the full amount of any initial premium
payment and subsequent premium payments we received, we will place the premium
payments that are allocated to subaccounts of the Variable Account in the AIM
V.I. Money Market Fund until the end of the Right to Examine period. This period
will commence on the day the Contract is mailed, and on the first business day
after the end of such period we will allocate the premium payments as you
specified.
IRA Right to Revoke
With respect to Individual Retirement Accounts, under the Employee Retirement
Income Security Act of 1974 ("ERISA") an Owner 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 Owner is furnished with such disclosure statement
before the seventh day preceding the date the Individual Retirement Account is
established, the Owner 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 Owner may give us a notice of revocation
at any time within seven days after the Date of Issue. Upon such revocation, we
will refund the premium payment the Owner made. 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. We 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, we will provide you with a report showing the
account value at the end of the preceding calendar year, all transactions during
the calendar year, the current account value, the number of Accumulation Units
in each variable subaccount, the applicable Variable Accumulation Unit Values as
of the date of the report and the interest rate credited to the fixed
subaccounts. In addition, each person having voting rights in the Variable
Account and a Fund or Funds will receive such reports as may be required by the
Act and the 1933 Act. We will also send such statements reflecting transactions
in the Annuity Account as may be required by applicable laws, rules and
regulations.
Federal Tax Matters
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 tax or other tax laws.
Taxation of Non-Qualified Contracts
Non-Natural Person. If a non-natural person (e.g., a corporation or a
trust) owns a Non-Qualified Contract, the taxpayer generally must include in
income any increase in the excess of the account value over the investment in
the Contract (generally, the premiums or other consideration paid for the
contract) during the taxable year. There are some exceptions to this rule and a
prospective owner that is not a natural person should discuss these with a tax
adviser.
The following discussion generally applies to Contracts owned by natural
persons.
Withdrawals. When a withdrawal from a Non-Qualified Contract occurs, the
amount received will be treated as ordinary income subject to tax up to an
amount equal to the excess (if any) of the account value immediately before the
distribution over the Owner's investment in the Contract (generally, the
premiums or other consideration paid for the Contract, reduced by any amount
previously distributed from the Contract that was not subject to tax) at that
time. The account value immediately before a withdrawal may have to be increased
by any positive Market Value Adjustments which result from a withdrawal. There
is, however, no definitive guidance on the proper tax treatment of Market Value
Adjustments, and you may want to discuss the potential tax consequences of a
Market Value Adjustment with your tax adviser. In the case of a surrender under
a Non-Qualified Contract, the amount received generally will be taxable only to
the extent it exceeds the Owner's investment in the Contract.
Penalty Tax on Certain Withdrawals. In the case of a distribution from a
Non-Qualified Contract, there may be imposed a federal tax penalty equal to ten
percent of the amount treated as income. In general, however, there is no
penalty on distributions:
o made on or after the taxpayer reaches age 59-1/2
o made on or after the death of an Owner;
o attributable to the taxpayer's becoming disabled; or
o made as part of a series of substantially equal periodic payments for the
life (or life expectancy) of the taxpayer.
Other exceptions may apply under certain circumstances and special rules may
apply in connection with the exceptions listed above. You should consult a tax
adviser with regard to exceptions from the penalty tax.
Annuity Payments. Although tax consequences may vary depending on the
payout option elected under an annuity contract, a portion of each annuity
payment is generally not taxed and the remainder is taxed as ordinary income.
The non-taxable portion of an annuity payment is generally determined in a
manner that is designed to allow you to recover your investment in the contract
ratably on a tax-free basis over the expected stream of annuity payments, as
determined when annuity payments start. Once your investment in the contract has
been fully recovered, however, the full amount of each annuity payment is
subject to tax as ordinary income.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a
Contract because of your death or the death of the Annuitant. Generally, such
amounts are includible in the income of the recipient as follows: (i) if
distributed in a lump sum, they are taxed in the same manner as a surrender of
the Contract, or (ii) if distributed under a payout option, they are taxed in
the same way as annuity payments.
Transfers, Assignments or Exchanges of a Contract. A transfer or assignment
of ownership of a Contract, the designation of an annuitant, the selection of
certain maturity dates, or the exchange of a Contract may result in certain tax
consequences to you that are not discussed herein. An owner contemplating any
such transfer, assignment or exchange, should consult a tax advisor as to the
tax consequences.
Withholding. Annuity distributions are generally subject to withholding for
the recipient's federal income tax liability. Recipients can generally elect,
however, not to have tax withheld from distributions.
Multiple Contracts. All annuity contracts that are issued by us (or our
affiliates) to the same owner during any calendar year are treated as one
annuity contract for purposes of determining the amount includible in such
owner's income when a taxable distribution occurs.
Taxation of Qualified Contracts
The tax rules applicable to Qualified Contracts vary according to the type
of retirement plan and the terms and conditions of the plan. Your rights under a
Qualified Contract may be subject to the terms of the retirement plan itself,
regardless of the terms of the Qualified Contract. Adverse tax consequences may
result if you do not ensure that contributions, distributions and other
transactions with respect to the Contract comply with the law.
Individual Retirement Accounts (IRAs), as defined in Sections 219 and 408
of the Internal Revenue Code (Code), permit individuals to make annual
contributions of up to the lesser of $2,000 or 100% of adjusted gross income.
The contributions may be deductible in whole or in part, depending on the
individual's income. Distributions from certain pension plans may be "rolled
over" into an IRA on a tax-deferred basis without regard to these limits.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. A 10% penalty tax generally applies to distributions
made before age 59-1/2, unless certain exceptions apply. The Internal Revenue
Service has not reviewed the Contract for qualification as an IRA, and has not
addressed in a ruling of general applicability whether a death benefit provision
such as the provision in the Contract comports with IRA qualification
requirements.
Corporate pension and profit-sharing plans under Section 401(a) of the Code
allow corporate employers to establish various types of retirement plans for
employees, and self-employed individuals to establish qualified plans for
themselves and their employees. Adverse tax consequences to the retirement plan,
the participant or both may result if the Contract is transferred to any
individual as a means to provide benefit payments, unless the plan complies with
all the requirements applicable to such benefits prior to transferring the
Contract. The Contract includes a Death Benefit that in some cases may exceed
the greater of the premium payments or the account value. The Death Benefit
could be characterized as an incidental benefit, the amount of which is limited
in any pension or profit-sharing plan. Because the Death Benefit may exceed this
limitation, employers using the Contract in connection with such plans should
consult their tax adviser.
Tax Sheltered Annuities under section 403(b) of the Code allow employees of
certain Section 501(c)(3) organizations and public schools to exclude from their
gross income the premium payments made, within certain limits, on a contract
that will provide an annuity for the employee's retirement. These premium
payments may be subject to FICA (social security) tax. Distributions of (1)
salary reduction contributions made in years beginning after December 31, 1988;
(2) earnings on those contributions; and (3) earnings on amounts held as of the
last year beginning before January 1, 1989, are not allowed prior to age 59-1/2,
separation from service, death or disability. Salary reduction contributions may
also be distributed upon hardship, but would generally be subject to penalties.
Section 457 Plans, 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
subdivisions, agencies, instrumentalities and certain affiliates of such
entities, and tax exempt organizations. The Contract 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. In general, all amounts received under a section 457 plan
are taxable and are subject to federal income tax withholding as wages.
Other Tax Issues. Qualified Contracts have minimum distribution rules that
govern the timing and amount of distributions. You should refer to your
retirement plan, adoption agreement, or consult a tax advisor for more
information about these distribution rules.
Distributions from Qualified Contracts generally are subject to withholding
for the Owner's federal income tax liability. The withholding rate varies
according to the type of distribution and the Owner's tax status. The Owner will
be provided the opportunity to elect not to have tax withheld from
distributions.
"Eligible rollover distributions" from section 401(a) plans are subject to
a mandatory federal income tax withholding of 20%. An eligible rollover
distribution is the taxable portion of any distribution from such a plan, except
certain distributions such as distributions required by the Code or
distributions in a specified annuity form. The 20% withholding does not apply,
however, if the Owner chooses a "direct rollover" from the plan to another
tax-qualified plan or IRA.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Contract could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Contract.
We have the right to modify the contract in response to legislative changes
that could otherwise diminish the favorable tax treatment that annuity contract
owners currently receive. We make no guarantee regarding the tax status of any
contact and do not intend the above discussion as tax advice.
Distribution of the Contracts
Sagemark Consulting, Inc. ("Sagemark"), formally known as CIGNA Financial
Advisers, Inc., located at 350 Church Street, Hartford, Connecitcut 06103, is
the principal underwriter and the distributor of the Contract. As of January 1,
1998, Sagemark, formerly a wholly-owned subsidiary of CIGNA Corporation, became
a wholly-owned subsidiary of The Lincoln National Life Insurance Company
("Lincoln Life") an Indiana corporation with headquarters in Fort Wayne,
Indiana, whose principal businesses are insurance and financial services.
Lincoln Life is wholly-owned by Lincoln National Corporation, a publicly-held
insurance holding company domiciled in Indiana. Sagemark may enter into
contracts with various broker-dealers to aid in the distribution of the
Contract. The commissions paid to dealers are no greater than 6.75% of premium
payments.
Historical Performance Data
We may from time to time disclose the current annualized yield of the Money
Market subaccount 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. We compute the current annualized
yield 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 subaccount 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.
We may also disclose the effective yield of the Money Market subaccount for the
same 7-day period, determined on a compounded basis. We calculate the effective
yield 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.
We may also advertise or disclose the current annualized yield of one or more of
the subaccounts of the Variable Account (except the Money Market subaccount) for
30-day periods. The annualized yield of a subaccount refers to income generated
by the subaccount over a specific 30-day period. Because the yield is
annualized, the yield a subaccount generates during the 30-day period is assumed
to be generated each 30-day period over a 12-month period. We compute the yield
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.
We may also advertise or disclose annual average total returns for one or more
variable subaccounts for various periods of time. The standardized total return
of a subaccount refers to return quotations assuming an investment has been held
in the subaccount for various periods of time including, but not limited to, one
year, five years, and ten years (if the subaccount has been in operation for
those periods), and a period measured from the date the subaccount 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.
We 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 is assumed to be 0%. We 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%.
We will only advertise non-standard performance data if we also disclose the
standard performance data. 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 subaccount'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 subaccount and a subaccount'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.
We 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 how we calculate performance data, please
refer to the SAI.
Year 2000 Matters
In the following section, "we" refers to the Administrator, Allstate Life
Insurance Company ("Allstate"), since it is Allstate's .systems that are
responsible for administering the Contract and paying the benefits under the
Contract.
We are heavily dependent upon complex computer systems for all phases of our
operations, including customer service, and contract administration. Since many
of our older computer software programs recognize only the last two digits of
the year in any date, some software may fail to operate properly in or after the
year 1999, if software is not reprogrammed, remediated or replaced, ("Year 2000
Issue"). We believe that many of our counterparties and suppliers also have Year
2000 Issues that could affect us. In 1995, Allstate commenced a plan intended to
mitigate and/or prevent the adverse effects of Year 2000 Issues. These
strategies include normal development and enhancement of new and existing
systems, upgrades to operating systems already covered by maintenance agreements
and modifications to existing systems to make them Year 2000 compliant. The plan
also includes us actively working with our major external counterparties and
suppliers to assess their compliance efforts and our exposure to them. Allstate
is currently in the process of identifying key processes and developing
contingency plans in the event that the systems supporting its key processes are
not Year 2000 compliant at the end of 1999. Management believes these contigency
plans should be completed by mid-1999. Until these plans are complete,
management is unable to determine an estimate of the most reasonably possible
worst case scenario due to issues relating to the Year 2000. We presently
believe that we will resolve the Year 2000 Issue in a timely manner, and the
financial impact will not materially affect the results of our operations,
liquidity or financial position. Year 2000 costs are and will be expensed as
incurred.
<PAGE>
Condensed Financial Information
The following tables show the Accumulation Unit Values and the number of
Accumulation Units outstanding for each of the nine subaccounts available under
the Contract. During 1995, the Variable Account changed its fiscal year end from
January 31 to December 31, effective in the year beginning January 1, 1996.
Accordingly, the information which follows includes the eleven months transition
period ended December 31, 1995.
AIM V.I. Capital Appreciation Subaccount
------------------------------------------------------------------------------
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
12/31/98 $24.337 14,259,245
12/31/97 $20.678 16,027,198
12/31/96 $18.467 16,934,302
12/31/95 $15.924 13,216,713
1/31/95 $11.736 7,513,807
1/31/94 $12.380 __________________
AIM V.I. Diversified Income Subaccount
------------------------------------------------------------------------------
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
12/31/98 $13.885 4,464,714
12/31/97 $13.588 4,695,148
12/31/96 $12.591 4,290,852
12/31/95 $11.585 3,747,828
1/31/95 $ 9.931 2,442,031
1/31/94 $10.749 __________________
AIM V.I. Global Utilities Subaccount
------------------------------------------------------------------------------
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
12/31/98 $19.066 850,446
12/31/97 $16.591 921,883
12/31/96 $13.826 796,782
12/31/95 $12.508 571,320
1/31/95 $10.235 190,264
1/31/94 $-- __________________
AIM V.I. Government Securities Subaccount
------------------------------------------------------------------------------
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
12/31/98 $12.575 2,172,332
12/31/97 $11.832 1,926,036
12/31/96 $11.089 1,864,171
12/31/95 $10.991 1,672,986
1/31/95 $ 9.775 1,214,456
1/31/94 $10.260 __________________
<PAGE>
AIM V.I. Growth Subaccount
- ------------------------------------------------------------------------------
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
12/31/98 $26.960 9,036,202
12/31/97 $20.376 9,603,064
12/31/96 $16.281 9,484,547
12/31/95 $13.978 7,342,011
1/31/95 $10.491 4,337,355
1/31/94 $11.448 __________________
AIM V.I. Growth and Income Subaccount
- ------------------------------------------------------------------------------
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
12/31/98 $24.739 6,735,903
12/31/97 $19.639 7,046,189
12/31/96 $15.835 5,709,782
12/31/95 $13.385 2,779,812
1/31/95 $10.216 622,513
1/31/94 $-- __________________
AIM V.I. International Equity Subaccount
- ------------------------------------------------------------------------------
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
12/31/98 $18.723 8,137,165
12/31/97 $16.434 9,290,316
12/31/96 $15.578 9,121,429
12/31/95 $13.156 6,249,610
1/31/95 $10.738 5,124,627
1/31/94 $12.296 __________________
AIM V.I. Money Market Subaccount
- ------------------------------------------------------------------------------
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
12/31/98 $11.994 3,737,115
12/31/97 $11.571 3,829,515
12/31/96 $11.156 4,855,567
12/31/95 $10.775 6,071,486
1/31/95 $10.378 2,979,228
1/31/94 $10.084 __________________
AIM V.I. Value Subaccount
- ------------------------------------------------------------------------------
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
12/31/98 $28.037 17,453,096
12/31/97 $21.464 18,682,024
12/31/96 $17.591 18,443,298
12/31/95 $15.505 16,590,052
1/31/95 $11.522 9,479,495
1/31/94 $11.922 __________________
<PAGE>
Table of Contents for the Statement of Additional Information
The following is the Table of Contents for the Statement of Additional
Information:
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
The Contracts -- General Provisions......................................................1
The Contracts...................................................................1
Loans...........................................................................1
Non-Participating Contracts.....................................................1
Misstatement of Age.............................................................1
Assignment......................................................................1
Evidence of Survival............................................................1
Endorsement of Annuity Payments.
Tax Status of the Contracts...................................................................2
Diversification Requirements.........................................................2
Owner Control........................................................................2
Required Distributions...............................................................2
Taxation of the Company..............................................................3
Investment Experience.........................................................................3
Variable Accumulation Unit Value and Variable Accumulation Value..............................3
Net Investment Factor.........................................................................4
Sample Calculations and Tables................................................................4
Variable Account Calculations........................................................4
Fixed Account Calculation -- Withdrawal Charge and Market Value
Adjustment Tables.............................................................................5
Sample Calculations for Male Age 35 at Issue....................................5
State Regulation of the Company...............................................................7
Administration................................................................................7
Distribution of the Contracts.................................................................7
Custody of Assets.............................................................................8
Historical Performance Data.
Money Market Subaccount Yield........................................................8
Other Subaccount Yields..............................................................9
Standard Subaccount Total Returns....................................................9
Non-Standard Subaccount Total Returns...............................................11
Adjusted Historic Portfolio Performance.............................................11
Legal Matters................................................................................12
Legal Proceedings............................................................................12
Experts......................................................................................12
Financial Statements.........................................................................12
</TABLE>
<PAGE>
Statement of Additional Information
For the
AIM/CIGNA Heritage Variable Annuity
Issued through
CG Variable Annuity Separate Account
Offered by
Connecticut General Life Insurance Company
Mailing Address:
Customer Service Center
P.O. Box 94039
Palatine, IL 60094-4039
Telephone: 800-776-6978
Fax: 847-402-9543
For New York Customers Only
Customer Service Center
P.O. Box 94038
Palatine, IL 60094-4038
Telephone: 800-692-4682
Fax: 847-402-4361
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, 1999, by calling or writing to Customer Service Center at the mailing
address shown above. Terms used in this Statement have the same meaning as in
the Prospectus for the Contracts.
This Statement of Additional information is not a prospectus. It should be read
only in conjunction with the Prospectus for the Contracts and CG Variable
Annuity Separate Account.
Dated May 1, 1999
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
The Contracts -- General Provisions......................................................................1
The Contracts.........................................................................................1
Loans.................................................................................................1
Non-Participating Contracts...........................................................................1
Misstatement of Age...................................................................................1
Assignment............................................................................................1
Evidence of Survival..................................................................................1
Endorsement of Annuity Payments.
Tax Status of the Contracts..............................................................................2
Diversification Requirements..........................................................................2
Owner Control.........................................................................................2
Required Distributions...............................................................................2
Taxation of the Company...............................................................................3
Investment Experience....................................................................................3
Variable Accumulation Unit Value and Variable Accumulation Value.........................................3
Net Investment Factor....................................................................................4
Sample Calculations and Tables...........................................................................4
Variable Account Calculations.........................................................................5
Fixed Account Calculation - Withdrawal Charge and Market Value Adjustment Tables......................5
Sample Calculations for Male Age 35 at Issue.......................................................5
State Regulation of the Company..........................................................................7
Administration...........................................................................................7
Distribution of the Contracts............................................................................8
Custody of Assets........................................................................................8
Historical Performance Data..............................................................................8
Money Market Subaccount Yield.........................................................................9
Other Subaccount Yields...............................................................................9
Standard Subaccount Total Returns....................................................................10
Non-Standard Subaccount Total Returns................................................................12
Adjusted Historic Portfolio Performance..............................................................12
Legal Matters...........................................................................................13
Legal Proceedings.......................................................................................13
Experts.................................................................................................13
Financial Statements....................................................................................13
</TABLE>
<PAGE>
In order to supplement the description in the Prospectus, the following provides
additional information about Connecticut General Life Insurance Company (the
)"Company", "we", "our", and "us") and the Contracts which may be of interest to
a you, the Contract Owner.
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, an Assistant 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.
We 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
The Contracts do not permit loans.
Non-Participating Contracts
The Contracts do not participate or share in our profits or surplus earnings.
Misstatement of Age
If the age of the Annuitant is misstated, then we will adjust the amounts
payable by us to those amounts that the Premium Payments would have purchased
for the correct age. We will make these adjustments according to our effective
rates on the Date of Issue. If we overcharge, then we will charge our next
payments succeeding the adjustment, with interest at the rate of 6% per year,
compounded annually. We will pay any underpayment in a lump sum.
Assignment
During the lifetime of the Annuitant, you, the Owner, 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 your rights and the rights of any Beneficiary
are subject to the terms of the assignments. An assignment will not bind us
until the original assignment or a certified copy has been filed at the Customer
Service Center. We are not responsible for the validity of the assignment. An
assignment may have income tax consequences. You may not assign rights under
Qualified Contracts.
Evidence of Survival
We reserve the right to require evidence of the survival of any Payee at the
time any payment to that 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; Variable Life Annuity with Certain
Period.
Endorsement of Annuity Payments
Allstate Life Insurance Company, ("Allstate"), the administrator of the
Contract, will send each annuity payment by check. The Payee must personally
endorse each check. We may require proof of the Annuitant's survival.
Tax Status of the Contracts
Diversification Requirements
The Code requires that the investments of each investment division of the
separate account underlying the contracts be "adequately diversified" in order
for the contracts to be treated as annuity contracts for Federal income tax
purposes. It is intended that the Variable Account, through the Fund and its
portfolios, will satisfy these diversification requirements.
Owner Control
In certain circumstances, owners of variable annuity contracts have been
considered for Federal income tax purposes to be the owners of the assets of the
separate account supporting their contracts due to their ability to exercise
investment control over those assets. When this is the case, the contract owners
have been currently taxed on income and gains attributable to the variable
account assets. There is little guidance in this area, and some features of the
Contract, such as the flexibility of an owner to allocate premium payments and
transfer amounts among the investment divisions of the separate account, have
not been explicitly addressed in published rulings. While we believe that the
Contract does not give an Owner investment control over separate account assets,
we reserve the right to modify the Contract as necessary to prevent an Owner
from being treated as the owner of the separate account assets supporting the
Contract.
Required Distributions
In order to be treated as an annuity contract for Federal income tax purposes,
section 72(s) of the Internal Revenue Code requires any Non-Qualified Contract
to contain certain provisions specifying how your interest in the Contract will
be distributed in the event of the death of a holder of the Contract.
Specifically, section 72(s) requires that (a) if any Owner dies on or after the
annuity starting date, but prior to the time the entire interest in the Contract
has been distributed, the entire interest in the Contract will be distributed at
least as rapidly as under the method of distribution being used as of the date
of such Owner's death; and (b) if any Owner dies prior to the annuity starting
date, the entire interest in the Contract will be distributed within five years
after the date of such Owner's death. These requirements will be considered
satisfied as to any portion of a Owner's interest which is payable to or for the
benefit of a designated beneficiary and which is distributed over the life of
such designated beneficiary or over a period not extending beyond the life
expectancy of that beneficiary, provided that such distributions begin within
one year of the Owner's death. The designated beneficiary refers to a natural
person designated by the Owner as a beneficiary and to whom ownership of the
Contract passes by reason of death. However, if the designated beneficiary is
the surviving spouse of the deceased Owner, the Contract may be continued with
the surviving spouse as the new Owner. If any Owner is not an individual, a
change in or death of any annuitant will be treated as the death of an Owner for
these purposes.
The Non-Qualified Contracts contain provisions that are intended to comply with
these Code requirements, although no regulations interpreting these requirements
have yet been issued. We intend to review such provisions and modify them if
necessary to assure that they comply with the applicable requirements when such
requirements are clarified by regulation or otherwise. Other requirements may
apply to Qualified Contracts.
Taxation of the Company
We are presently taxed as a life insurance company under part I of Subchapter L
of the Internal Revenue Code of 1986, as amended. The Variable Account is
treated as part of us and, accordingly, will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. We do 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, we
anticipate that no charges will be made against the Variable Account for federal
income taxes. If, in future years, we incur any federal income taxes or other
economic burden with respect to the Variable Account or the Contracts, then we
may charge for those amounts attributed to the Variable Account.
Investment Experience
On any Valuation Date, the Variable Account value is equal to the totals of the
values allocated to the Contract in each Variable Account Subaccount. The
portion of your Annuity Account Value held in any Variable Account Subaccount
equals the number of Subaccount units allocated to a Contract multiplied by the
Subaccount accumulation unit value as described below.
Variable Accumulation Unit Value and Variable Accumulation Value
When we receive a Premium Payment we will credit that portion of the Premium
Payment to be allocated to the Variable Account Subaccounts to the Variable
Account in the form of Variable Accumulation Units. We determine how many
Variable Accumulation Units to credit by dividing the dollar amount allocated to
a particular Subaccount by the Variable Accumulation Unit Value for that
particular Subaccount during the Valuation Period that we receive the Premium
Payment. For the initial Premium Payment, we use the Valuation Period during
which we accept the Premium Payment.
The Variable Accumulation Unit Value for each Variable Account Subaccount was
established at $10.00 for the first Valuation Period of the particular Variable
Account Subaccount. We determine the Variable Accumulation Unit Value for the
particular Variable Account Subaccount for any subsequent Valuation Period by
multiplying the Variable Accumulation Unit Value for the particular Variable
Account Subaccount for the immediately preceding Valuation Period by the Net
Investment Factor for the particular Variable Account Subaccount for such
subsequent Valuation Period. The Variable Accumulation Unit Value for each
Variable Account Subaccount 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 Subaccount credited to the Variable Account for
such Valuation Period. The variable accumulation value of each Variable Account
Subaccount is determined by multiplying the number of Variable Accumulation
Units, if any, credited to each Variable Account Subaccount by the Variable
Accumulation Unit Value of the particular Variable Account Subaccount for such
Valuation Period.
Net Investment Factor
The Net Investment Factor is an index applied to measure the investment
performance of a Variable Account Subaccount 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 Valuable Accumulation Unit may increase, decrease, or
remain the same.
The Net Investment Factor for any Variable Account Subaccount 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
Subaccount 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 Subaccount 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 that we pay or
reserve for during the Valuation Period which we determine to be
attributable to the operation of the Variable Account Subaccount;
(b) is the net asset value of the Fund shares held in the Variable Account
Subaccount 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).
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 Subaccount; that the Variable Accumulation Unit Value and the Annuity
Unit Value for the particular Subaccount 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).
Fixed Account Calculation - 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 effect of the
withdrawal charge and any taxes, such as premium taxes, is not shown. The
"Market Value Adjustment Tables" and "Minimum Value Calculation" contain the
explicit calculation of the index factors and the 3% minimum guarantee
respectively.
Sample Calculations for Male Age 35 at Issue
Cash Surrender Values
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>
<CAPTION>
Surrender Value Calculation
(1) (2) (3) (4) (5) (6) (7)
Annuity Index Rate Adjusted Minimum Greater of Surrender Surrender
Contract Year Value Factor Annuity Value Value (3) & (4) Charge Value
----- ------ ------------- ----- --------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
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
Contract Year Annuity Value
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>
<CAPTION>
Surrender Charge Calculation
(1) (2) (3)
--- --- ---
Surrender Surrender Surrender
Contract Year Charge Factor Charge Factor 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>
<TABLE>
<CAPTION>
Market Value Adjustment Tables
Interest Rate Factor Calculation
(1) (2) (3) (4) (5)
Index Index Adjusted (1+A)
Contract Year Rate A Rate B Index Rate B N (1+B)
------ ------ ------------ - -----
<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>
Minimum Value Calculation
Contract Year Minimum Value
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
State Regulation of the Company
The Company, a Connecticut corporation, is subject to regulation by the
Connecticut Department of Insurance. We file an annual statement with the
Connecticut Department of Insurance each year covering our operations and
reporting on the financial condition as of December 31 of the preceding year.
Periodically, the Connecticut Department of Insurance or other authorities
examine our liabilities and reserves and the Variable Account. The Connecticut
Department of Insurance periodically conducts a full examination of our
operations. In addition, we are subject to the insurance laws and regulations of
other states within which we are licensed to operate.
The law of the state in which the Contract is delivered governs the Contract.
The values and benefits of each policy are at least equal to those required by
such state.
Administration
Allstate 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 subaccounts, 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. Allstate is
responsible for servicing the Contracts, including the payment of benefits,
oversight of investment management and contract administration.
Distribution of the Contracts
We continuously offer the Contracts. 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. ("NASD") and who have entered into distribution
agreements with the Company and the principal underwriter for the Contracts,
Sagemark Consulting, Inc. ("Sagemark"), Hartford, Connecticut. Sagemark is
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the NASD. Sagemark
also acts as the general distributor of certain other variable annuity contracts
and of variable life insurance contracts that we issue. We pay commissions and
other distribution compensation. Those payments will not be more than 6.75% of
Premium Payments. Sagemark received $1,075,638 in deferred sales charges
attributable to the Variable Account portion of the Contracts during the year
ended December 31, 1996; $2,217,462 during the year ended December 31, 1997; and
$287,589.23 during the year ended December 31, 1998.
As of January 1, 1998, Sagemark, formerly CIGNA Financial Advisors, Inc., a
wholly-owned subsidiary of CIGNA Corporation, became a wholly-owned subsidiary
of The Lincoln National Life Insurance Company ("Lincoln Life"), an Indiana
corporation with headquarters in Fort Wayne, Indiana, whose principal businesses
are insurance and financial services. Lincoln Life is wholly owned by Lincoln
National Corporation, a publicly-held insurance holding company domiciled in
Indiana.
The Prospectus describes the sales charges that apply to the Contracts. There
are no variations in sales load.
Custody of Assets
We are the Custodian of the Variable Account's assets. We or our agent will
purchase the Fund's shares at net asset value according to the Purchasers'
instructions. We will redeem the Fund's shares at net asset value in order to
meet the Variable Account's contractual obligations, pay charges relative to the
Variable Account or make adjustments for annuity reserves held in the Variable
Account. We hold the Subaccounts' assets separate and apart from the assets of
any of our other segregated asset accounts and separate and apart from our
general account assets. We maintain records of all purchases and redemptions of
shares of the Fund held by each of the Subaccounts of the Variable Account. Our
fidelity bond provides additional protection for the Variable Account's assets.
The fidelity bond covers the acts of our officers and employees. Its value as of
May 1, 1999, is $100,000,000.
Historical Performance Data
Money Market Subaccount Yield
We may disclose the current annualized yield of the Money Market Subaccount,
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. We compute this
current annualized yield by determining the net change (exclusive of realized
gains and losses on the sale of securities, unrealized appreciation and
depreciation, and income other than investment income) 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 Subaccount 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.
We may also disclose the effective yield of the Money Market Subaccount for the
same 7-day period, determined on a compounded basis. We calculate the effective
yield 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.
We calculate the effective yield 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 Subaccount 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 Subaccount'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 Subaccount Yields
We may advertise or disclose the current annualized yield of one or more of the
Subaccounts of the Variable Account (except the Money Market Subaccount) for
30-day periods. The annualized yield of a Subaccount refers to income that the
Subaccount generates over a specific 30-day period. Because the yield is
annualized, the yield generated by a Subaccount during the 30-day period is
assumed to be generated each 30-day period over a 12-month period. We compute
the yield by 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 Subaccount.
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 the Variable Account imposes charges and deductions, a Subaccount's
yield 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 apply to a particular Contract. Withdrawal charges range from
7% to 1% of the amount withdrawn on total Premium Payments paid, less prior
partial surrenders, depending on the Contract Year of surrender.
The yield on amounts held in the Subaccounts normally fluctuates over time.
Therefore, the disclosed yield for any given past period does not indicate or
represent future yields or rates of return. The types and quality of the Fund's
investments and its operating expenses affect a Subaccount's actual yield.
Standard Subaccount Total Returns
We may advertise or disclose annual average total returns for one or more of the
Subaccounts for various periods of time. When a Subaccount has been in operation
for 1, 5 and 10 years, respectively, we will provide the total return for these
periods. We may also disclose total returns for other periods of time. Total
returns represent the average annual compounded rates of return that would
equate the initial amount invested to the redemption value of that investment on
the last day of each of the periods.
We calculate total returns using Subaccount Unit Values that we calculate on
each Valuation Period. We base Sub-Account Subaccount Unit Values on the
performance of the Subaccount's underlying portfolio, reduced by 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 Subaccounts. We
deduct the resulting percentage from the return in calculating the ending
redeemable value. These figures do not reflect any premium taxes, charges or
credits for market value adjustments. Total return calculations reflect the
effect of withdrawal charges that may apply to a particular period. We will then
calculate the total return 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).
<PAGE>
Non-Standard Subaccount Total Returns
We may 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 we assume that the
withdrawal charge percentage is 0%.
We may also disclose cumulative total returns in conjunction with the standard
format described above. We calculate the cumulative returns by using the
following formula and assuming that the withdrawal charge percentage is 0%.
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of Subaccount 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
Non-standard performance data will only be advertised if standard
performance data is also disclosed.
Adjusted Historic Portfolio Performance
We may also disclose yield and total return for the Fund's portfolios, including
for periods before the date that the Variable Account began operations. For
periods prior to the date the Variable Account commenced operations, adjusted
historical portfolio performance information will be calculated based on the
performance of the underlying portfolios and the assumption that the subaccounts
were in existence for the same periods as those of the underlying Funds, with
some or all of the charges equal to those currently assessed against the
subaccounts.
<PAGE>
We may also use advertisements that include hypothetical illustrations comparing
the difference between the growth of a taxable investment and a tax-deferred
investment in a variable annuity.
Legal Matters
Mark A. Parsons, Chief Counsel, Retirement and Investment Services Division,
CIGNA Corporation, has passed upon all matters of Connecticut law pertaining to
the Contracts. This includes the Contracts' validity and our right to issue the
Contracts under Connecticut Insurance Law and any other applicable state
insurance or securities laws. Sutherland Asbill & Brennan LLP of Washington,
D.C. has also provided advice on certain legal matters relating to federal
securities laws.
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. We are not involved in any
litigation that is of material importance in relation to our total assets or
that relates to the Variable Account.
Experts
The consolidated financial statements of Connecticut General Life Insurance
Company as of December 31, 1998 and 1997, and for each of the three years in the
period ended December 31, 1998, included in this Statement of Additional
Information and registration statement have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
The statement of assets and liability of the Variable Account at December 31,
1998, and the statements of operations and changes in net assets for the period
ended December 31, 1998, included in this Statement of Additional Information
and registration statement, have been so included in reliance on the report of
Ernst & Young LLP, independent auditors, given on the authority of said firm as
experts in accounting and auditing.
The statement of changes in net assets of the Variable Account for the year
ended December 31, 1997, included in this Statement of Additional Information
and registration statement, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
Financial Statements
This Statement of Additional Information includes our consolidated financial
statements. You should consider them as bearing only on our ability to meet our
obligations under the Contracts. You should not consider them as bearing on the
investment performance of the assets held in the Variable Account, or on the
Guaranteed Interest Rate that we credit during a Guaranteed Period. This
Statement of Additional Information also includes the Financial Statements of
the Variable Account as of and for the year ended December 31, 1998.
