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CITIELITE ANNUITY PROSPECTUS
CITICORP LIFE VARIABLE ANNUITY
SEPARATE ACCOUNT
This prospectus describes CITIELITE, a flexible premium variable annuity
contract (the "Contract") issued by Citicorp Life Insurance Company (the
"Company," "we" or "our"). The Contract is available in connection with certain
retirement plans that qualify for special federal income tax treatment
("qualified Contracts") as well as those that do not qualify for such treatment
("nonqualified Contracts"). CitiElite may be issued as an individual Contract or
as a group Contract. In states where only group Contracts are available, you
will be issued a certificate summarizing the provisions of the group Contract.
For convenience, this prospectus refers to both Contracts and certificates as
"Contracts."
You can choose to have your purchase payments accumulate on a fixed and/or a
variable basis. Your contract value will vary daily to reflect the investment
experience of the subaccounts ("funding options") you select. The funding
options currently available are:
TRAVELERS HIGH YIELD BOND TRUST
TRAVELERS MONEY MARKET PORTFOLIO
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Capital Fund
Salomon Brothers Variable High Yield Bond Fund
Salomon Brothers Variable Investors Fund
Salomon Brothers Variable Total Return Fund
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund Class II
Templeton International Fund Class II
THE TRAVELERS SERIES TRUST
Large Cap Portfolio (Fidelity sub-adviser)
MFS Mid Cap Growth Portfolio
MFS Research Portfolio
Travelers Quality Bond Portfolio
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Portfolio
MFS Total Return Portfolio
Putnam Diversified Income Portfolio
VARIABLE ANNUITY PORTFOLIOS
CitiSelect(R) VIP Folio 200 Conservative
CitiSelect(R) VIP Folio 300 Balanced
CitiSelect(R) VIP Folio 400 Growth
CitiSelect(R) VIP Folio 500 Growth Plus
CitiFunds Small Cap Growth VIP Portfolio
The Fixed Account is described in Appendix A.
The contracts and/or some of the funding options may not be available in all
states. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT
PROSPECTUSES FOR THE FUNDING OPTIONS. THESE PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
This prospectus provides the information that you should know before investing
in the Contract. You can receive additional information about Citicorp Life
Variable Annuity Separate Account (the "Separate Account") by requesting a copy
of the Statement of Additional Information ("SAI") dated May 1, 1999. The SAI
has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated by reference into this prospectus. To request a copy, write to our
administrative office, Citicorp Life Insurance Company, 800 Silver Lake Blvd.,
P.O. Box 7031, Dover, Delaware, 19903, or call (800) 497-4857, or access the
SEC's Web Site (http://www.sec.gov). The Table of Contents of the SAI appears in
Appendix B of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OF ANY BANK, AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER GOVERNMENT
AGENCY.
PROSPECTUS DATED MAY 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Index of Special Terms................ 2
Summary............................... 3
Fee Table............................. 6
The Annuity Contract.................. 8
Contract Owner Inquiries............ 8
Purchase Payments................... 8
Accumulation Units.................. 8
The Funding Options................. 8
Charges and Deductions................ 10
General............................. 10
Withdrawal Charge................... 11
Free Withdrawal Allowance........... 11
Administrative Charges.............. 12
Mortality and Expense Risk Charge... 12
Funding Option Expenses............. 12
Premium Tax......................... 12
Changes in Taxes Based Upon Premium
or Value......................... 12
Transfers............................. 12
Dollar Cost Averaging............... 13
Access to Your Money.................. 13
Systematic Withdrawals.............. 14
Loans............................... 14
Ownership Provisions.................. 14
Types of Ownership.................. 14
Beneficiary......................... 15
Annuitant........................... 15
Death Benefit......................... 15
Death Proceeds Before the Maturity
Date............................. 15
Payment of Proceeds................. 16
Death Proceeds After the Maturity
Date............................. 17
The Annuity Period.................... 17
Maturity Date....................... 17
Allocation of Annuity............... 17
Variable Annuity.................... 17
Fixed Annuity....................... 18
Payment Options....................... 18
Election of Options................. 18
Annuity Options..................... 18
Income Options...................... 19
Miscellaneous Contract Provisions..... 19
Right to Return..................... 19
Termination......................... 20
Required Reports.................... 20
Suspension of Payments.............. 20
Transfers of Contract Values to
Other Annuities.................. 20
The Separate Account.................. 20
Performance Information............. 21
Federal Tax Considerations............ 21
General Taxation of Annuities....... 22
Types of Contracts: Qualified or
Nonqualified..................... 22
Nonqualified Annuity Contracts...... 22
Qualified Annuity Contracts......... 23
Penalty Tax for Premature
Distributions.................... 23
Diversification Requirements for
Variable Annuities............... 23
Ownership of the Investments........ 23
Mandatory Distributions for
Qualified Plans.................. 23
Other Information..................... 24
The Insurance Company............... 24
Financial Statements................ 24
Year 2000 Compliance................ 24
Distribution of Variable Annuity
Contracts........................ 24
Conformity with State and Federal
Laws............................. 24
Voting Rights....................... 25
Legal Proceedings And Opinions...... 25
Appendix A: The Fixed Account......... A-1
Appendix B: Table of Contents of the
Statement of Additional
Information......................... B-1
</TABLE>
INDEX OF SPECIAL TERMS
The following terms are italicized throughout the prospectus. Refer to the page
listed for an explanation of each term.
<TABLE>
<S> <C>
Accumulation Unit..................... 8
Annuitant............................. 15
Annuity Payments...................... 17
Annuity Unit.......................... 8
Cash Surrender Value.................. 13
Contract Date......................... 8
Contract Owner (You, Your)............ 8
Contract Value........................ 8
Contract Year......................... 8
Fixed Account......................... A-1
Funding Option(s)..................... 8
Maturity Date......................... 17
Purchase Payment...................... 8
Written Request....................... 8
</TABLE>
2
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SUMMARY:
CITIELITE VARIABLE ANNUITY
THIS SUMMARY DETAILS SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD KNOW AND
CONSIDER BEFORE PURCHASING THE CONTRACT. PLEASE READ THE ENTIRE PROSPECTUS
CAREFULLY.
CAN YOU GIVE ME A GENERAL DESCRIPTION OF THE VARIABLE ANNUITY CONTRACT? The
Contract offered by Citicorp Life is a variable annuity that is intended for
retirement savings or other long-term investment purposes. The Contract provides
a death benefit as well as guaranteed income options. Under a qualified
Contract, you can make one or more payments, as you choose, on a tax-deferred
basis. Under a nonqualified Contract, you can make one or more payments with
after-tax dollars. You direct your payment(s) to one or more of the variable
funding options, and/or to the Fixed Account. We guarantee money directed to the
Fixed Account as to principal and interest. The variable funding options are
designed to produce a higher rate of return than the Fixed Account; however,
this is not guaranteed. You may also lose money in the variable funding options.
The Contract, like all deferred variable annuity contracts, has two phases: the
accumulation phase and the payout phase. During the accumulation phase
generally, under a qualified contract, your pre-tax contributions accumulate on
a tax-deferred basis and are taxed as income when you make a withdrawal,
presumably when you are in a lower tax bracket. During the accumulation phase,
under a nonqualified contract, earnings on your after-tax contributions
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The payout phase occurs when you begin receiving payments from your
Contract. The amount of money you accumulate in your Contract determines the
amount of income (annuity payments) you receive during the payout phase.
During the payout phase, you may choose to receive annuity payments from the
Fixed Account or the variable funding options. If you want to receive scheduled
payments from your annuity, you can choose from a number of annuity options or
income options.
Once you make an election of an annuity option and begin to receive payments, it
cannot be changed. During the payout phase, you have the same investment choices
you had during the accumulation phase. If amounts are directed to the variable
funding options, the dollar amount of your payments may increase or decrease.
WHO SHOULD PURCHASE THIS CONTRACT? The Contract is currently available for use
in connection with (1) individual nonqualified purchases; (2) rollovers from
Individual Retirement Annuities (IRAs); and (3) rollovers from other qualified
retirement plans. Qualified contracts include contracts qualifying under Section
401(a), 403(b), or 408(b) of the Internal Revenue Code of 1986, as amended.
You may purchase the Contract with an initial payment of at least $5,000, which
amount may be paid in one or more installments of at least $100 within the first
twelve months after the contract date. You may make additional payments of at
least $100 at any time during the accumulation phase.
IS THERE A RIGHT TO RETURN PERIOD? If you cancel the Contract within twenty
days after you receive it, you will receive a full refund of the Contract Value
(including charges). Where state law requires a longer right to return period,
or the return of purchase payments, the Company will comply. You bear the
investment risk during the right to return period; therefore, the Contract Value
returned may be greater or less than your purchase payment. If the Contract is
purchased as an Individual Retirement Annuity, and is returned within the first
seven days after delivery, your full purchase payment will be refunded; during
the remainder of the right to return period, the Contract Value (including
charges) will be refunded. The Contract Value will be determined at the close of
business on the day we receive a written request for a refund.
3
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WHAT TYPES OF INVESTMENT OPTIONS ARE AVAILABLE? You can direct your money into
the Fixed Account or any or all of the variable funding options shown on the
cover page. The funding options are described in the accompanying fund
prospectuses. Depending on market conditions, you may make or lose money in any
of these options.
The value of the Contract will vary depending upon the investment performance of
the funding options you choose. Past performance is not a guarantee of future
results. Performance information that predates the separate account is
considered "nonstandard" by the SEC. Such nonstandard performance is shown in
the Statement of Additional Information that you may request free of charge.
You can transfer between the variable funding options as frequently as you wish
without any current tax implications. Currently there is no charge for
transfers, nor a limit to the number of transfers allowed. The Company may
charge a fee for any transfer requests, or may limit the number of transfers
allowed. The Company, at the minimum, would always allow one transfer every six
months. Please refer to Appendix A for information regarding transfers between
the Fixed Account and variable funding options.
WHAT EXPENSES WILL BE ASSESSED UNDER THE CONTRACT? The Contract has insurance
features and investment features, and there are costs related to each. The
Company deducts an annual administrative charge of $30. The annual insurance
charge is 1.25% of the amounts you direct to the funding options, and the
sub-account administrative charge is .15% annually. Each funding option also
charges for management and other expenses. Please refer to the Fee Table for
more information about the charges.
We may deduct a withdrawal charge equal to a percentage of the purchase payments
withdrawn from the Contract. If you withdraw all amounts under the contract, or
if you begin receiving annuity payments, the Company may be required by your
state to deduct a premium tax.
HOW WILL MY CONTRIBUTIONS AND WITHDRAWALS BE TAXED? Generally, the payments you
make to a qualified Contract during the accumulation phase are made with
before-tax dollars. You will be taxed on your purchase payments and on any
earnings when you make a withdrawal or begin receiving annuity payments. Under a
nonqualified Contract, payments to the Contract are made with after-tax dollars,
and any earnings will accumulate tax-deferred. You will be taxed on these
earnings when they are withdrawn from the Contract.
For owners of qualified Contracts, if you reach a certain age, you may be
required by federal tax laws to begin receiving payments from your annuity or
risk paying a penalty tax. In those cases, we can calculate and pay you the
minimum required distribution amounts. If you are younger than 59 1/2 when you
take money out, you may be charged a 10% federal penalty tax on the amount
withdrawn.
HOW MAY I ACCESS MY MONEY? You can take withdrawals any time during the
accumulation phase. A withdrawal charge may apply. The amount of the charge
depends on a number of factors, including the length of time since the purchase
payment was made (7% maximum, gradually decreasing to 0% for payments held by
the Company for 7 years or more). During the first contract year, you may
withdraw up to 15% of the initial purchase payment without a withdrawal charge.
After the first contract year, you may withdraw up to 15% of the contract value
(as of the end of the previous contract year) without a withdrawal charge. Of
course, you may also have to pay income taxes and a tax penalty on taxable
amounts you withdraw.
WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT? The death benefit applies upon
the first death of the owner, joint owner or annuitant. Assuming you are the
annuitant, if you die before you move to the payout phase, the person you have
chosen as your beneficiary will receive a death benefit. The death benefit paid
depends on your age at the time of your death and your age when the contract was
issued. The death benefit value is calculated at the close of the business day
on which the Company's Administrative Office receives due proof of death and
written distribution instructions. Please refer to the Death Benefit section in
the prospectus for details.
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ARE THERE ANY ADDITIONAL FEATURES? This Contract has other features you may be
interested in. These include:
DOLLAR COST AVERAGING. This is a program that allows you to invest a fixed
amount of money in funding options each month, theoretically giving you a
lower average cost per unit over time than a single one-time purchase.
Dollar Cost Averaging requires regular investments regardless of
fluctuating price levels and does not guarantee profits or prevent losses
in a declining market. Potential investors should consider their financial
ability to continue purchases through periods of low price levels.
SYSTEMATIC WITHDRAWAL OPTION. Before the maturity date, you can arrange to
have money sent to you at set intervals throughout the year. Of course any
applicable income and penalty taxes will apply on amounts withdrawn.
AUTOMATIC REBALANCING. You may elect to have the Company periodically
reallocate the values in your contract to match your original (or your
latest) funding option allocation request.
5
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FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
WITHDRAWAL CHARGE (as a percentage of purchase payments
withdrawn):
</TABLE>
<TABLE>
<CAPTION>
LENGTH OF TIME FROM
PURCHASE PAYMENT
(NUMBER OF YEARS) CHARGE
<S> <C>
0-1 7%
1-2 7%
2-3 7%
3-4 6%
4-5 5%
5-6 4%
6-7 3%
7 and over 0%
</TABLE>
<TABLE>
<S> <C>
ANNUAL CONTRACT ADMINISTRATIVE CHARGE: $30
</TABLE>
<TABLE>
<S> <C>
ANNUAL SEPARATE ACCOUNT CHARGES:
(as a percentage of the average daily net assets of the
Separate Account)
Mortality and Expense Risk Charge..................... 1.25%
Administrative Expense Charge......................... .15%
-----
Total Separate Account Charges.................... 1.40%
</TABLE>
FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the funding option as of
December 31, 1998, unless otherwise noted.)
<TABLE>
<CAPTION>
TOTAL ANNUAL
OPERATING
OTHER EXPENSES EXPENSES
MANAGEMENT (AFTER (AFTER
PORTFOLIO FEE 12B-1 FEE REIMBURSEMENT) REIMBURSEMENT)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRAVELERS HIGH YIELD BOND TRUST.......................... 0.50% 0.32% 0.82%
TRAVELERS MONEY MARKET PORTFOLIO......................... 0.32% 0.08% 0.40%(1)
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Capital Fund............... 0.85% 0.15% 1.00%(2)
Salomon Brothers Variable High Yield Bond Fund....... 0.75% 0.25% 1.00%(2)
Salomon Brothers Variable Investors Fund............. 0.70% 0.30% 1.00%(2)
Salomon Brothers Variable Total Return Fund.......... 0.80% 0.20% 1.00%(2)
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund Class II......... 0.75% 0.25% 0.25% 1.25%(3)
Templeton International Fund Class II................ 0.69% 0.25% 0.17% 1.11%(4)
THE TRAVELERS SERIES TRUST
Large Cap Portfolio (Fidelity sub-adviser)........... 0.75% 0.20% 0.95%(5)
MFS Mid Cap Growth Portfolio......................... 0.80% 0.20% 1.00%(6)
MFS Research Portfolio............................... 0.80% 0.20% 1.00%(6)
Travelers Quality Bond Portfolio..................... 0.32% 0.31% 0.63%
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Portfolio................... 0.80% 0.05% 0.85%(7)
MFS Total Return Portfolio........................... 0.80% 0.04% 0.84%(7)
Putnam Diversified Income Portfolio.................. 0.75% 0.12% 0.87%(7)
VARIABLE ANNUITY PORTFOLIOS
CitiSelect VIP Folio 200 Conservative................ 0.75% 0.20% 0.95%(8)
CitiSelect VIP Folio 300 Balanced.................... 0.75% 0.20% 0.95%(8)
CitiSelect VIP Folio 400 Growth...................... 0.75% 0.50% 1.25%(8)
CitiSelect VIP Folio 500 Growth Plus................. 0.75% 0.50% 1.25%(8)
CitiFunds Small Cap Growth VIP Portfolio............. 0.75% 0.15% 0.90%(8)
</TABLE>
NOTES:
The purpose of the Fee Table is to assist contract owners in understanding the
various costs and expenses that a contract owner will bear, directly or
indirectly. See "Charges and Deductions" in this prospectus for additional
information. Expenses shown do not include premium taxes, which may be
applicable. "Other Expenses" include operating costs of the fund. These expenses
are reflected in each funding option's net asset value and are not deducted from
the account value under the Contract.
6
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(1) Other Expenses have been restated to reflect the current expense
reimbursement arrangement with The Travelers Insurance Company. Travelers
has agreed to reimburse the Fund for the amount by which its aggregate
expenses (including the management fee, but excluding brokerage
commissions, interest charges and taxes) exceeds 0.40%. Without such
arrangement, Total Annual Operating Expenses would have been 0.65% for the
TRAVELERS MONEY MARKET PORTFOLIO.
(2) SBAM has waived all of its Management Fees for the following Salomon
Brothers Funds for the period ended December 31, 1998. If such fees were
not waived or expenses reimbursed, the actual annualized Total Annual
Operating Expenses for the INVESTORS FUND, the HIGH YIELD BOND FUND, the
CAPITAL FUND, and the TOTAL RETURN FUND would have been 2.07%, 2.04%,
3.26%, and 2.90%, respectively.
(3) Figures reflect expenses from the Fund's inception on May 1, 1998 and are
annualized. The Investment Manager agreed in advance to limit management
fees and make certain payments to reduce the Fund expenses as necessary so
that the Total Fund Operating Expenses did not exceed 1.25% of the Fund's
Class 2 net assets in 1998. Without such arrangement, the annualized Total
Annual Operating Expenses would have been 2.00%. The Investment Manager has
agreed to continue this arrangement through 1999. Class 2 of the FRANKLIN
SMALL CAP INVESTMENTS FUND has a distribution plan or "Rule 12b-1 plan".
(4) Class 2 of the TEMPLETON INTERNATIONAL FUND has a distribution plan or
"Rule 12b-1 plan".
(5) Other Expenses reflect the current expense reimbursement arrangement with
Travelers where Travelers has agreed to reimburse the Portfolio for the
amount by which their aggregate expenses (including management fees, but
excluding brokerage commissions, interest charges and taxes) exceeds 0.95%.
Without such arrangements, the annualized Total Annual Operating Expenses
for the Portfolio would have been 1.23% for the LARGE CAP PORTFOLIO.
(6) Travelers Insurance has agreed to reimburse the MFS MID CAP GROWTH
PORTFOLIO, and the MFS RESEARCH PORTFOLIOS for expenses for the period
ended December 31, 1998. If such expenses were not reimbursed, the actual
annualized Total Annual Operating Expenses would have been 1.62% and 1.37%
respectively.
(7) Other expenses are as of October 31, 1998 (the Fund's fiscal year end).
There were no fees waived or expenses reimbursed for these funds in 1998.
(8) Absent fee waivers, the Total Annual Operating Expenses for CitiSelect VIP
Folio 200 Conservative, CitiSelect VIP Folio 300 Balanced, CitiSelect VIP
Folio 400 Growth, CitiSelect VIP Folio 500 Growth Plus, and the CitiFunds
Small Cap Growth VIP Portfolio for the period ended December 31, 1998,
would have been 4.30%, 3.23%, 4.16%, 5.53%, and 5.74% respectively.
EXAMPLE*
Assuming a 5% annual return, a $1,000 investment would be subject to the
following expenses:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
IF CONTRACT IS SURRENDERED AT THE IF CONTRACT IS NOT SURRENDERED OR
END OF PERIOD SHOWN: IS ANNUITIZED AT END OF PERIOD SHOWN:
------------------------------------- -------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
TRAVELERS HIGH YIELD BOND TRUST $94 $142 $174 $266 $24 $72 $124 $266
TRAVELERS MONEY MARKET PORTFOLIO 89 130 153 222 19 60 103 222
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Capital Fund 95 148 183 284 25 78 133 284
Salomon Brothers Variable High Yield Bond Fund 95 148 183 284 25 78 133 284
Salomon Brothers Variable Investors Fund 95 148 183 284 25 78 133 284
Salomon Brothers Variable Total Return Fund 95 148 183 284 25 78 133 284
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund Class II 98 155 195 308 28 85 145 308
Templeton International Fund Class II 96 151 189 294 26 81 139 294
THE TRAVELERS SERIES TRUST
Large Cap Portfolio (Fidelity sub-adviser) 95 146 181 279 25 76 131 279
MFS Mid Cap Growth Portfolio 95 148 183 284 25 78 133 284
MFS Research Portfolio 95 148 183 284 25 78 133 284
Travelers Quality Bond Portfolio 92 137 164 246 22 67 114 246
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Portfolio 94 143 176 269 24 73 126 269
MFS Total Return Portfolio 94 143 175 268 24 73 125 268
Putnam Diversified Income Portfolio 94 144 177 271 24 74 127 271
VARIABLE ANNUITY PORTFOLIOS
CitiSelect VIP Folio 200 Conservative 95 146 181 279 25 76 131 279
CitiSelect VIP Folio 300 Balanced 95 146 181 279 25 76 131 279
CitiSelect VIP Folio 400 Growth 98 155 195 308 28 85 145 308
CitiSelect VIP Folio 500 Growth Plus 98 155 195 308 28 85 145 308
CitiFunds Small Cap Growth VIP Portfolio 94 145 178 274 24 75 128 274
</TABLE>
* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE REFLECTS THE $30 ANNUAL CONTRACT ADMINISTRATIVE CHARGE AS AN ANNUAL
CHARGE OF .030%.
7
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THE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
CitiElite is a contract between the contract owner ("you"), and Citicorp Life
Insurance Company (called "us" or the "Company"). Under this contract, you make
purchase payments to us and we credit them to your Contract. The Company
promises to pay you an income, in the form of annuity payments, beginning on a
future date that you choose, the maturity date. The purchase payments accumulate
tax deferred in the funding option(s) of your choice. The contract owner assumes
the risk of gain or loss according to the performance of the funding options.
The contract value is the amount of purchase payments, plus or minus any
investment experience or interest. The contract value also reflects all
surrenders made and charges deducted. There is generally no guarantee that at
the maturity date the contract value will equal or exceed the total purchase
payments made under the Contract. The date the contract and its benefits become
effective is referred to as the contract date. Each 12-month period following
this contract date is called a contract year.
Certain changes and elections must be made in writing to the Company. Where the
term "written request" is used, it means that written information must be sent
to the Company's Administrative Office in a form and content satisfactory to us.
CONTRACT OWNER INQUIRIES
If you have any questions about the Contract, call the Company's Administrative
Office at 1-800-497-4857.
PURCHASE PAYMENTS
The initial purchase payment must be at least $5,000. This amount may be paid in
one or more installments within the first twelve months after the contract date.
Additional payments of at least $100 may be made under the Contract at any time.
We reserve the right to waive the minimum purchase payment requirement. Purchase
payments over $1,000,000 may be made with our prior consent.
We will apply the initial purchase payment within two business days after we
receive it at our Administrative Office in good order. Subsequent purchase
payments received in good order will be credited to a Contract within one
business day. Our business day ends when the New York Stock Exchange closes,
usually 4:00 p.m. Eastern time.
ACCUMULATION UNITS
An accumulation unit is used to calculate the value of a Contract. An
accumulation unit works like a share of a mutual fund. Each funding option has a
corresponding accumulation unit value. The accumulation units are valued each
business day and may increase or decrease from day to day. The number of
accumulation units we will credit to your Contract once we receive a purchase
payment is determined by dividing the amount directed to each funding option by
the value of the accumulation unit. We calculate the value of an accumulation
unit for each funding option each day after the New York Stock Exchange closes.
After the value is calculated, your Contract is credited. During the annuity
period (i.e., after the maturity date), you are credited with annuity units.
THE FUNDING OPTIONS
You choose which of the following funding options to have your purchase payments
allocated to. These funding options are subsections of the Separate Account
which invests in the underlying mutual funds. You are not investing directly in
the mutual funds. You will find detailed information about the options and their
inherent risks in the current prospectuses for the funding options which must
accompany this prospectus. Since each option has varying degrees of risk, please
read the prospectuses carefully before investing. Additional copies of the
prospectuses may be obtained by contacting your registered representative or by
calling 1-800-497-4857.
If any of the funding options become unavailable for allocating purchase
payments, or if we believe that further investment in a funding option is
inappropriate for the purposes of the Contract, we may substitute another
funding option. However, we will not make any substitutions without notifying
you and obtaining any applicable state and SEC approval. From time to time we
may make new funding options available.
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<PAGE> 9
The current funding options are listed below, along with their investment
advisers and any subadviser:
<TABLE>
<CAPTION>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
High Yield Bond Trust Generous income. The assets of the High Yield Bond Travelers Asset Management
Trust will be invested in bonds which, as a class, International Corporation
sell at discounts from par value and are typically ("TAMIC")
high risk securities.
Money Market Portfolio Seeks high current income from short-term money TAMIC
market instruments while preserving capital and
maintaining a high degree of liquidity.
SALOMON BROTHERS VARIABLE
SERIES FUND, INC.
Salomon Brothers Variable Seeks capital appreciation, primarily through Salomon Brothers Asset
Capital Fund investments in common stocks which are believed to Management ("SBAM")
have above-average price appreciation potential
and which may involve above-average risk.
Salomon Brothers Variable Seeks to maximize current income, and, SBAM
High Yield Bond Fund secondarily, to seek capital appreciation through
investments in medium or lower rating categories.
Salomon Brothers Variable Long-term growth of capital. Current income is a SBAM
Investors Fund secondary objective.
Salomon Brothers Variable Seeks above average income (compared to a SBAM
Total Return Fund portfolio invested entirely in equity securities).
Secondarily seeks opportunities for growth of
capital and income.
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
Franklin Small Cap Seeks long-term capital growth. The Fund seeks to Franklin Advisers, Inc.
Investments Fund (Class II) accomplish its objective by investing primarily
(normally at least 65% of its assets) in equity
securities of smaller capitalization growth
companies.
Templeton International Seeks long-term capital growth through a flexible Templeton Investment
Fund (Class II) policy of investing in stocks and debt obligations Counsel, Inc.
of companies and governments outside the United
States. Any income realized will be incidental.
THE TRAVELERS SERIES TRUST
Large Cap Portfolio Seeks long-term growth of capital by investing TAMIC
primarily in equity securities of companies with Subadviser: Fidelity Management
large market capitalizations. & Research Company
MFS Mid Cap Growth Seeks to obtain long term growth of capital by TAMIC
Portfolio investing, under normal market conditions, at Subadviser: Massachusetts
least 65% of its total assets in equity securities Financial Services Company
of companies with medium market capitalization ("MFS")
which the investment adviser believes have
above-average growth potential.
MFS Research Portfolio Seeks to provide long-term growth of capital and TAMIC
future income by investing in equity securities of Subadviser: MFS
companies believed to possess better than average
prospects for long-term growth.
Travelers Quality Bond Seeks current income, moderate capital volatility TAMIC
Portfolio and total return.
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Seeks capital appreciation by investing Travelers Investment Advisers
Portfolio principally in common stock, with emphasis on ("TIA")
medium-sized and smaller emerging growth Subadviser: AIM Capital
companies. Management, Inc.
MFS Total Return Portfolio Seeks to obtain above-average income (compared to TIA
a portfolio entirely invested in equity Subadviser: MFS
securities) consistent with the prudent employment
of capital. Generally, at least 40% of the
Portfolio's assets will be invested in equity
securities.
Putnam Diversified Income Seeks high current income consistent with TIA
Portfolio of the Travelers preservation of capital by allocating its
Series Fund Inc. investments among the following three sectors of
the fixed-income securities markets: a U.S.
Government Sector, a High Yield Sector, and an
International Sector.
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
VARIABLE ANNUITY PORTFOLIOS
CitiSelect VIP Folio 200 This portfolio seeks as high a total return over Citibank, N.A.
Conservative time as is consistent with a primary emphasis on
fixed income securities and a secondary emphasis
on equity securities. Under normal circumstances,
20%-40% of the portfolio's assets will be invested
in equity securities and 60%-80% of the
portfolio's assets will be invested in fixed
income securities.
CitiSelect VIP Folio 300 This portfolio seeks as high a total return over Citibank, N.A.
Balanced time as is consistent with a balanced emphasis on
equity and fixed income securities. Under normal
circumstances, 40%-60% of the portfolio's assets
will be invested in equity securities and 40%-60%
of the portfolio's assets will be invested in
fixed income securities.
CitiSelect VIP Folio 400 This portfolio seeks as high a total return over Citibank, N.A.
Growth time as is consistent with a primary emphasis on
equity securities and a secondary emphasis on
fixed income securities. Under normal
circumstances, 60%-80% of the portfolio's assets
will be invested in equity securities and 20%-40%
of the portfolio's assets will be invested in
fixed income securities.
CitiSelect VIP Folio 500 This portfolio seeks as high a total return over Citibank, N.A.
Growth Plus time as is consistent with a dominant emphasis on
equity securities and a small allocation to fixed
income. Under normal circumstances, 75%-100% of
the portfolio's assets will be invested in equity
securities and 0%-25% of the portfolio's assets
will be invested in fixed income securities.
CitiFunds Small Cap Growth This fund seeks long-term capital growth by Citibank, N.A.
VIP Portfolio investing in equity securities of U.S. companies
with market capitalizations below the top 1,000
stocks of the equity market. Under normal
circumstances, at least 65% of the fund's total
assets will be invested in such companies.
Dividend income, if any, is incidental to this
investment objective.
</TABLE>
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
GENERAL
We deduct the charges described below. The charges are for the service and
benefits we provide, costs and expenses we incur, and risks we assume under the
Contracts. Services and benefits we provide include:
- the ability for you to make withdrawals and surrenders under the
Contracts;
- the death benefit paid on the death of the contract owner, annuitant, or
first of the joint contract owners,
- the available funding options and related programs (including dollar-cost
averaging, portfolio rebalancing, and systematic withdrawal programs);
- administration of the annuity options available under the Contracts; and
- the distribution of various reports to contract owners.
Costs and expenses we incur include:
- losses associated with various overhead and other expenses associated
with providing the services and benefits provided by the Contracts,
- sales and marketing expenses, and
- other costs of doing business.
Risks we assume include:
- risks that annuitants may live longer than estimated when the annuity
factors under the Contracts were established,
- that the amount of the death benefit will be greater than the contract
value, and
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<PAGE> 11
- that the costs of providing the services and benefits under the Contracts
will exceed the charges deducted.
We may also deduct a charge for taxes.
Unless otherwise specified, charges are deducted proportionately from all
funding options in which you are invested.
We may reduce or eliminate the withdrawal charge, the administrative charges,
the mortality and expense risk charge, and the distribution charge under the
Contract when certain sales or administration of the Contract result in savings
or reduced expenses and/or risks. For certain trusts, we may change the order in
which purchase payments and earnings are withdrawn in order to determine the
withdrawal charge. In no event will we reduce or eliminate the withdrawal charge
or the administrative charge where such reduction or elimination would be
unfairly discriminatory to any person.
WITHDRAWAL CHARGE
We do not deduct a sales charge from purchase payments when they are applied
under the Contract. However, a withdrawal charge will be deducted if any or all
of the contract value is withdrawn during the first seven years following a
purchase payment. The length of time from when we receive the purchase payment
to the time of withdrawal determines the amount of the charge. We will deduct
the withdrawal charge from the total amount requested unless you instruct us to
deduct it from the remaining contract value.
The withdrawal charge is equal to a percentage of purchase payments withdrawn
from the Contract and is calculated as follows:
<TABLE>
<CAPTION>
LENGTH OF TIME FROM
PURCHASE PAYMENT WITHDRAWAL
(NUMBER OF YEARS) CHARGE
<S> <C>
0-1 7%
1-2 7%
2-3 7%
3-4 6%
4-5 5%
5-6 4%
6-7 3%
7 and over 0%
</TABLE>
For purposes of the withdrawal charge calculation, we will make withdrawals in
the following order:
(a) from any purchase payments to which no withdrawal charge applies;
(b) from any remaining free withdrawal allowance (as described below)
after reduction by the amount of (a);
(c) from any purchase payments to which withdrawal charges apply (on a
first-in, first-out basis); and, finally
(d) from any Contract earnings.
NOTE: Any free withdrawals taken will not reduce purchase payments still
subject to a withdrawal charge.
We will not deduct a withdrawal charge (1) from payments we make due to the
distribution of death proceeds; or (2) upon election of a lifetime annuity
payout taken after the first Contract year or; (3) due to a minimum distribution
under our minimum distribution rules then in effect.
FREE WITHDRAWAL ALLOWANCE
You may withdraw up to 15% of the contract value annually, without a withdrawal
charge. (If you have purchase payments no longer subject to a withdrawal charge,
the maximum you may withdraw without a withdrawal charge is the greater of (a)
the free withdrawal allowance, or (b) the total amount of purchase payments no
longer subject to a withdrawal charge. Note: Any free withdrawal taken will
reduce purchase payments no longer subject to a withdrawal charge.) For the
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<PAGE> 12
first contract year, the available amount is 15% of the initial purchase
payment. Beginning in the second contract year, we calculate the available
withdrawal amount as of the end of the previous contract year. The free
withdrawal allowance applies to any partial withdrawals and to full withdrawals,
except those transferred directly to annuity contracts issued by other financial
institutions. In Washington state, the free withdrawal provision applies to all
withdrawals.
ADMINISTRATIVE CHARGES
We deduct a Contract administrative charge of $30 annually on each anniversary
of the contract date. This charge compensates us for expenses incurred in
establishing and maintaining the Contract. The charge is deducted from the
contract value by canceling accumulation units from each funding option on a pro
rata basis. No contract administrative charge will be deducted from the Fixed
Account. For the first year, this charge will be prorated (i.e. calculated) from
the date of purchase. A prorated charge will also be made if the Contract is
completely withdrawn or terminated. We will not deduct a contract administrative
charge: (1) from the distribution of death proceeds; or (2) after an annuity
payout has begun.
An administrative expense charge (sometimes called "sub-account administrative
charge") is deducted on each business day from amounts allocated to the variable
funding options. This charge compensates us for certain related administrative
and operating expenses. The charge equals, on an annual basis, 0.15% of the
daily net asset value allocated to each of the variable funding options.
MORTALITY AND EXPENSE RISK CHARGE
Each business day, the Company deducts a mortality and expense risk ("m & e")
charge from amounts held in the variable funding options. The deduction is
reflected in our calculation of accumulation and annuity unit values. This
charge equals, on an annual basis, 1.25% of the amounts held in each funding
option. We reserve the right to lower this charge at any time.
FUNDING OPTION EXPENSES
The charges and expenses of the funding options are summarized in the fee table
and are described in the accompanying prospectuses.
PREMIUM TAX
Certain state and local governments charge premium taxes ranging from 0% to 5%,
depending upon jurisdiction. The Company is responsible for paying these taxes
and will determine the method used to recover premium tax expenses incurred.
Where required, the Company will deduct any applicable premium taxes from the
contract value either upon death, surrender, annuitization, or at the time
purchase payments are made to the Contract, but no earlier than when the Company
has a tax liability under state law.
CHANGES IN TAXES BASED UPON PREMIUM OR VALUE
If there is any change in a law assessing taxes against the Company based upon
premiums, contract gains or value of the contract, we reserve the right to
charge you proportionately for this tax.
TRANSFERS
- --------------------------------------------------------------------------------
Up to 30 days before the maturity date, you may transfer all or part of the
contract value between funding options. There are no charges or restrictions on
the amount or frequency of transfers currently; however, we reserve the right to
charge a fee for any transfer request, and to limit the number of transfers to
one in any six-month period. Since different funding options have different
expenses, a transfer of contract values from one funding option to another could
result in your investment becoming subject to higher or lower expenses. After
the maturity date, you may make
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<PAGE> 13
transfers between funding options only with our consent. Please refer to
Appendix A for information regarding transfers between the Fixed Account and the
variable funding options.
DOLLAR COST AVERAGING
Dollar cost averaging or the pre-authorized transfer program (the "DCA Program")
allows you to transfer a set dollar amount to other funding options on a monthly
or quarterly basis during the accumulation phase of the Contract so that more
accumulation units are purchased in a funding option if the value per unit is
low and fewer accumulation units are purchased if the value per unit is high.
Therefore, a lower-than-average cost per unit may be achieved over the long run.
You may elect the DCA Program through written request or other method acceptable
to the Company. You must have a minimum total contract value of $5,000 to enroll
in the DCA Program. The minimum amount that may be transferred through this
program is $100.
You may establish pre-authorized transfers of contract values from the Fixed
Account, subject to certain restrictions. Under the DCA Program, automated
transfers from the Fixed Account may not deplete your Fixed Account Value in
less than twelve months from your enrollment in the DCA Program.
In addition to the DCA Program, the Company may credit increased interest rates
to contract owners under an administrative Special DCA Program established at
the discretion of the Company, depending on availability and state law. Under
this program, the contract owner may pre-authorize level transfers to any of the
funding options under either a 6 Month Program or 12 Month Program. The 6 Month
Program and the 12 Month Program will generally have different credited interest
rates. Under the 6 Month Transfer Program, the interest rate can accrue up to 6
months on funds in the Special DCA Program and all purchase payments and accrued
interest must be transferred on a level basis to the selected funding option in
6 months. Under the 12 Month Program, the interest rate can accrue up to 12
months on funds in the Special DCA Program and all purchase payments and accrued
interest in this Program must be transferred on a level basis to the selected
funding options in 12 months.
The pre-authorized transfers will begin after the initial Program purchase
payment and complete enrollment instructions are received the Company. If
complete Program enrollment instructions are not received by the Company within
15 days of receipt of the initial Program purchase payment, the entire balance
in the Program will be credited with the non-Program interest rate then in
effect for the Fixed Account.
You may start or stop participation in the DCA Program at any time, but you must
give the Company at least 30 days' notice to change any automated transfer
instructions that are currently in place. If you stop the Special DCA Program
and elect to remain in the Fixed Account, your contract value will be credited
for the remainder of 6 or 12 months with the interest rate for non-Program
funds.
A contract owner may only have one DCA Program or Special DCA Program in place
at one time. Any subsequent purchase payments received by the Company within the
Program period selected will be allocated to the current funding options over
the remainder of that Program transfer period, unless otherwise directed by the
contract owner.
All provisions and terms of the Contract apply to the DCA and Special DCA
Programs, including provisions relating to the transfer of money between
investment options. We reserve the right to suspend or modify transfer
privileges at any time and to assess a processing fee for this service.
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
Any time before the maturity date, you may redeem all or any portion of the cash
surrender value, that is, the contract value, less any withdrawal charge,
outstanding loans and any premium tax not previously deducted. You must submit a
written request specifying the fixed or variable funding
13
<PAGE> 14
option(s) from which amounts are to be withdrawn. If no funding options are
specified, the withdrawal will be made on a pro rata basis. The cash surrender
value will be determined as of the close of business after we receive your
surrender request at the Administrative Office. The cash surrender value may be
more or less than the purchase payments made depending on the contract value at
the time of surrender. For information about withdrawals from your payout option
after the Maturity Date (with no life contingency), refer to the Statement of
Additional Information.
We may defer payment of any cash surrender value for up to seven days after the
written request is received in good order. We cannot process requests for
withdrawal that are not in good order. We will contact you if there is a
deficiency causing a delay and will advise what is needed to act upon the
withdrawal request.
SYSTEMATIC WITHDRAWALS
Beginning in the first contract year, and before the maturity date, you may
choose to withdraw a specified dollar amount (at least $100) on a monthly,
quarterly, semiannual or annual basis. Any applicable withdrawal charges (on
amounts in excess of the free withdrawal allowance) and any applicable premium
taxes will be deducted. To elect systematic withdrawals, you must have a
contract value of at least $15,000 and you must make the election on the form
provided by the Company. We will surrender accumulation units pro rata from all
funding options in which you have an interest, unless you instruct us otherwise.
You may begin or discontinue systematic withdrawals at any time by notifying us
in writing, but at least 30 days' notice must be given to change any systematic
withdrawal instructions that are currently in place.
We reserve the right to discontinue offering systematic withdrawals or to assess
a processing fee for this service upon 30 days' written notice to contract
owners (where allowed by state law).
Each systematic withdrawal is subject to federal income taxes on the taxable
portion. In addition, a 10% federal penalty tax may be assessed on systematic
withdrawals if the contract owner is under age 59 1/2. You should consult with
your tax adviser regarding the tax consequences of systematic withdrawals.
LOANS
Loans may be available under your contract. If available, all loan provisions
are described in your contract or loan agreement.
OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------
TYPES OF OWNERSHIP
Contract Owner ("you"). The Contract belongs to the contract owner named in the
Contract (on the Specifications page), or to any other person to whom the
contract is subsequently assigned. An assignment of ownership or a collateral
assignment may be made only for nonqualified contracts. You have sole power
during the annuitant's lifetime to exercise any rights and to receive all
benefits given in the contract provided you have not named an irrevocable
beneficiary and provided the Contract is not assigned.
You receive all payments while the annuitant is alive unless you direct them to
an alternate recipient. An alternate recipient does not become the contract
owner.
Joint Owner. For nonqualified contracts only, joint owners (i.e., spouses) may
be named in a written request before the contract is in effect. Joint owners may
independently exercise transfers allowed under the Contract. All other rights of
ownership must be exercised by both owners. Joint owners own equal shares of any
benefits accruing or payments made to them. All rights of a joint owner end at
death if the other joint owner survives. If the first joint owner to die is also
the annuitant, the death benefit will be paid to the beneficiary if there is no
contingent annuitant. If the first joint owner to die is not the annuitant, the
entire interest under the contract will pass to the surviving joint owner.
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<PAGE> 15
BENEFICIARY
You name the beneficiary in a written request. The beneficiary has the right to
receive any remaining contractual benefits upon the death of the annuitant or
the contract owner. If more than one beneficiary survives the annuitant, they
will share equally in benefits unless the Company receives other instructions,
by written request before the death of the annuitant or contract owner.
With nonqualified contracts, as discussed under "Death Benefit," the beneficiary
named in the contract may differ from the designated beneficiary. (For example,
a designated beneficiary may be the joint owner.) In such cases, the designated
beneficiary receives the contract benefits (rather than the beneficiary) upon
your death.
Unless an irrevocable beneficiary has been named, you have the right to change
any beneficiary by written request during the lifetime of the annuitant and
while the Contract continues.
ANNUITANT
The annuitant is designated in the Contract (on the Specifications page), and is
the individual on whose life the maturity date and the amount of the monthly
annuity payments depend. The annuitant may not be changed after the contract is
in effect.
For nonqualified Contracts only, where the owner and annuitant are not the same
person, the contract owner may also name one individual as a contingent
annuitant by written request before the Contract becomes effective. If the
annuitant dies before the maturity date, while the owner is still living and a
contingent annuitant has been named, the contingent annuitant becomes the
annuitant, and the contract continues. However, if the annuitant who is also the
owner dies before the maturity date, the death benefit is paid to the
beneficiary. The contingent annuitant does not become the annuitant and is not
entitled to receive any contract benefits. A contingent annuitant may not be
changed, deleted or added after the Contract becomes effective.
DEATH BENEFIT
- --------------------------------------------------------------------------------
Before the maturity date, when there is no contingent annuitant, a death benefit
is payable when either the annuitant, or a contract owner dies. The death
benefit is calculated as of the close of the business day on which the Company's
Administrative Office received due proof of death and written payment
instructions (the death report date).
DEATH PROCEEDS BEFORE THE MATURITY DATE
WHERE ANNUITANT WAS YOUNGER THAN AGE 68 ON THE CONTRACT DATE:
The death benefit payable will be the greatest of (1), (2) or (3) below, less
any applicable premium tax and outstanding loans:
(1) the Contract Value;
(2) the total Purchase Payments made under the Contract less any partial
surrenders; or
(3) the Step-Up Value, if any (as described below).
We must be notified no later than six months from the date of death in order for
Us to make payment of proceeds as described above. If we receive the
notification more than six months after the date of death, the Death Benefit
payable will be the Contract Value on the Death Report Date less any applicable
premium tax and outstanding loans.
WHERE ANNUITANT WAS AGE 68 THROUGH 75 ON THE CONTRACT DATE:
The death benefit payable will be the greatest of (1), (2) or (3) below, less
any applicable premium tax, and outstanding loans:
(1) the Contract Value;
(2) the total Purchase Payments made under the Contract less any partial
surrenders; or
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<PAGE> 16
(3) the Step-Up Value (as described below) associated with the seventh
Contract Date Anniversary.
We must be notified no later than six months from the date of death in order for
Us to make payment of proceeds as described above. When permitted by state law,
if we receive notification more than six months after the date of death, the
Death Benefit payable will be the Contract Value on the Death Report Date less
any applicable premium tax and outstanding loans.
WHERE ANNUITANT WAS AGE 76 OR OLDER ON THE CONTRACT DATE:
The death benefit payable will be the Contract Value on the Death Report Date,
less any applicable premium tax and any outstanding loans.
STEP-UP VALUE:
A Step-Up Value will be established on the seventh Contract Date anniversary.
The Step-Up Value will equal the Contract Value on that anniversary. For
Contracts where the Annuitant was younger than 68 on the Contract Date, the
Step-Up Value will be recalculated on each anniversary until the Annuitant's
76th birthday. If the Contract Value on the anniversary is greater than the
Step-Up Value, the Step-Up Value will be reset to equal the Contract Value on
that date. If the Step-Up Value is greater than the Contract Value, the Step-Up
Value remains unchanged. For all contracts, each time a Purchase Payment is made
we will increase the Step-Up Value by the amount of the payment and, when a
partial surrender is taken, we will reduce the Step-Up Value by a Partial
Surrender Reduction (as described below).
The Partial Surrender Reduction equals:
(1) the Step-Up Value immediately before the reduction for the partial
surrender, multiplied by
(2) the amount of the partial surrender divided by
(3) the Contract Value immediately before the partial surrender.
PAYMENT OF PROCEEDS
The process of paying death benefit proceeds under various situations is
described below. Generally, the person(s) receiving the benefit may request that
the proceeds be paid in a lump sum, or be applied to one of the settlement
options available under the Contract.
DEATH OF ANNUITANT WHO IS THE CONTRACT OWNER. The Company will pay the proceeds
to the beneficiary(ies), or if none, to the contract owner's estate.
The death benefit proceeds must be distributed to the beneficiary within five
years of the contract owner's death. Or, the beneficiary may elect to receive
payments from an annuity which begins within one year of the contract owner's
death and is payable over the life of the beneficiary over a period not
exceeding the beneficiary's life expectancy.
Under a nonqualified contract, if the beneficiary is the contract owner's
spouse, he or she may elect to continue the contract as the new contract owner
rather than receiving the distribution. In such case, the distribution rules
applicable when a contract owner dies generally will apply when that spouse, as
contract owner, dies.
DEATH OF ANNUITANT WHO IS NOT THE CONTRACT OWNER (NONQUALIFIED CONTRACTS ONLY).
If there is no contingent annuitant, the Company will pay the death proceeds to
the beneficiary. However, if there is a contingent annuitant, he or she becomes
the annuitant and the Contract continues in effect (generally using the original
maturity date). The proceeds described above will be paid upon the death of the
last surviving contingent annuitant.
DEATH OF CONTRACT OWNER WHO IS NOT THE ANNUITANT (NONQUALIFIED CONTRACTS ONLY).
The Company will pay the proceeds to any surviving joint owner, or if none, to
the beneficiary(ies), or if none, to the contract owner's estate. If the
surviving joint owner (or if none, the beneficiary) is the
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<PAGE> 17
Contract Owner's spouse, he or she may elect to continue the contract as the new
contract owner rather than receiving the distribution.
ENTITY AS OWNER. In the case of a nonqualified Contract owned by a nonnatural
person (e.g. a trust or another entity), the death benefit will be paid only
upon the death of the annuitant.
DEATH PROCEEDS AFTER THE MATURITY DATE
If the owner or annuitant dies on or after the maturity date, the Company will
pay the beneficiary a death benefit consisting of any benefit remaining under
the annuity option then in effect.
THE ANNUITY PERIOD
- --------------------------------------------------------------------------------
MATURITY DATE
Under the Contract, you can receive scheduled annuity payments. You can choose
the month and the year in which those payments begin (maturity date). You can
also choose among payout plans (annuity or income options) or elect a lump-sum
distribution. While the annuitant is alive, you can change your selection any
time up to the maturity date. Unless you elect otherwise, annuity payments will
begin on the maturity date stated in the Contract unless the Contract has been
fully surrendered or the proceeds have been paid to the beneficiary before that
date. Annuity payments are a series of periodic payments (a) for life; (b) for
life with either a minimum number of payments or a specific amount assured; or
(c) for the joint lifetime of the annuitant and another person, and thereafter
during the lifetime of the survivor. Income options that are not based on any
lifetime are also available. We may require proof that the annuitant is alive
before annuity payments are made.
Unless you elect otherwise, the maturity date will be the annuitant's 90th
birthday or ten years after the effective date of the contract, if later. (For
Contracts issued in Florida, the maturity date elected may not be later than the
annuitant's 90th birthday.) Certain annuity options taken at the maturity date
may be used to meet the minimum required distribution requirements of federal
tax law, or a program of partial surrenders may be used instead. These mandatory
distribution requirements take effect generally upon the death of the contract
owner, or with qualified contracts upon either the later of the contract owner's
attainment of age 70 1/2 or year of retirement; or the death of the contract
owner. Independent tax advice should be sought regarding the election of minimum
required distributions.
ALLOCATION OF ANNUITY
When an annuity option is elected, it may be elected as a variable annuity, a
fixed annuity, or a combination of both. (Variable payouts may not be available
in all states. Refer to your contract.) If, at the time annuity payments begin,
no election has been made to the contrary, the cash surrender value will be
applied to provide an annuity funded by the same funding options (contract
value, in Oregon). At least 30 days before the maturity date, you may transfer
the contract value among the funding options in order to change the basis on
which annuity payments will be determined. (See "Transfers.")
VARIABLE ANNUITY
You may choose to receive annuity payments that are based on the performance of
one or more of the variable funding options. This is called a variable payout
because the amount you receive each month will increase or decrease depending on
how the variable funding options perform. When you annuitize, we will credit you
with annuity units. An annuity unit measures the dollar value of an annuity
payment. We determine the number of annuity units to credit you with by dividing
the first monthly annuity payment for each funding option by the accumulation
unit value for that funding option as of 14 days before the annuity payments
begin. The number of annuity units (but not their value) remains fixed during
the annuity period.
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<PAGE> 18
HOW WE DETERMINE THE FIRST ANNUITY PAYMENT. The Contract contains tables used
to determine the first monthly annuity payment. If a variable annuity is
elected, the amount applied to it will be the value of the funding options as of
14 days before the annuity payments begin less any premium taxes due.
The first monthly payment amount depends on the annuity option elected and the
annuitant's adjusted age. The Contract contains a formula for determining the
adjusted age. We calculate the first monthly payment by multiplying the benefit
per $1,000 applied, shown in the Contract tables, by the number of thousands of
dollars of Contract value applied to the annuity option. We also factor in an
assumed daily net investment factor of 3%. This assumed daily net investment
factor is used to determine the guaranteed payout rates shown. If net investment
rates are higher at the time annuitization is selected, payout rates will be
higher than those shown. Payout rates will not be lower than those shown. We
reserve the right to require satisfactory proof of an annuitant's age before we
make the first annuity payment.
HOW WE DETERMINE THE PAYMENTS AFTER THE FIRST. The dollar amount of all annuity
payments after the first will change from month to month based on the investment
performance of the applicable funding options. The total amount of each annuity
payment will equal the sum of the basic payments in each funding option. The
actual amounts of these payments are determined by multiplying the number of
annuity units credited to each funding option by the corresponding annuity unit
value as of the date 14 days before the payment is due.
FIXED ANNUITY
You may choose a fixed annuity that provides payments which do not vary during
the annuity period. We will calculate the dollar amount of the first fixed
annuity payment as described under "Variable Annuity," except that the amount
applied to effect the annuity will be the cash surrender value, determined as of
the date annuity payments begin. If it would produce a larger payment, the first
fixed annuity payment will be determined using the Life Annuity Tables in effect
on the maturity date.
PAYMENT OPTIONS
- --------------------------------------------------------------------------------
ELECTION OF OPTIONS
While the annuitant is alive, you can change your annuity option selection any
time up to the maturity date. Once annuity payments have begun, no further
elections are allowed.
During the annuitant's lifetime, if you do not elect otherwise before the
maturity date, we will pay you (or another designated payee) the first of a
series of monthly annuity payments based on the life of the annuitant, in
accordance with Annuity Option 2 (Life Annuity with 120 monthly payments
assured). For certain qualified contracts, Annuity Option 4 (Joint and Last
Survivor Joint Life Annuity -- Annuity Reduced on Death of Primary Payee) will
be the automatic option as described in the contract.
The minimum amount that can be placed under an annuity option will be $1,000
unless we agree to a lesser amount. If any monthly periodic payment due is less
than $100, the Company reserves the right to make payments at less frequent
intervals, or to pay the contract value in a lump-sum.
On the maturity date, we will pay the amount due under the Contract in one lump
sum (except in states, where this is not permitted), or in accordance with the
payment option that you select. You must elect an option in writing, in a form
satisfactory to the Company. Any election made during the lifetime of the
annuitant must be made by the contract owner.
ANNUITY OPTIONS
Subject to the conditions described in "Election of Options" above, all or any
part of the cash surrender value (or, where required by state law, contract
value) may be paid under one or more
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of the following annuity options. Payments under the annuity options may be
elected on a monthly, quarterly, semiannual or annual basis. We may offer
additional options.
Option 1 -- Life Annuity -- No Refund. The Company will make annuity payments
during the lifetime of the annuitant ending with the last payment before death.
This option offers the maximum periodic payment, since there is no assurance of
a minimum number of payments or provision for a death benefit for beneficiaries.
Option 2 -- Life Annuity with 120, 180 or 240 Monthly Payments Assured. The
Company will make monthly annuity payments during the lifetime of the annuitant,
with the agreement that if, at the death of that person, payments have been made
for less than 120, 180 or 240 months as elected, we will continue making
payments to the beneficiary during the remainder of the period.
Option 3 -- Joint and Last Survivor Life Annuity -- No Refund. The Company will
make regular annuity payments during the lifetime of the annuitant and a second
person. When either person dies, we will continue making payments to the
survivor. No further payments will be made following the death of the survivor.
Option 4 -- Joint and Last Survivor Life Annuity -- Annuity Reduced on Death of
Primary Payee. The Company will make annuity payments during the lifetimes of
the annuitant and a second person. One will be designated the primary payee, the
other will be designated the secondary payee. On the death of the secondary
payee, the Company will continue to make monthly annuity payments to the primary
payee in the same amount that would have been payable during the joint lifetime
of the two persons. On the death of the primary payee, the Company will continue
to make annuity payments to the secondary payee in an amount equal to 50% of the
payments which would have been made during the lifetime of the primary payee. No
further payments will be made once both payees have died.
Option 5 -- Other Annuity Options. The Company will make any other arrangements
for annuity payments as may be mutually agreed upon.
INCOME OPTIONS
Instead of one of the annuity options described above, and subject to the
conditions described under "Election of Options," all or part of the cash
surrender value (or, where required by state law, contract value) may be paid
under one or more of the following income options, provided that they are
consistent with federal tax law qualification requirements. Payments under the
income options may be elected on a monthly, quarterly, semiannual or annual
basis:
Option 1 -- Payments of a Fixed Amount. The Company will make equal payments of
the amount elected until the cash surrender value applied under this option has
been exhausted. The first payment and all later payments will be paid from
amounts attributable to each investment option in proportion to the cash
surrender value attributable to each. The final payment will include any amount
insufficient to make another full payment.
Option 2 -- Payments for a Fixed Period. The Company will make payments for the
fixed period selected based on the cash surrender value as of the date payments
begin. If, at the death of the annuitant, the total number of fixed payments has
not been made, the payments will be made to the beneficiary.
Option 3 -- Other Income Options. The Company will make any other arrangements
for income payments as may be mutually agreed upon.
MISCELLANEOUS CONTRACT PROVISIONS
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RIGHT TO RETURN
You may return the Contract for a full refund of the contract value (including
charges) within twenty days after you receive it (the "right to return period").
Where state law requires a longer period, or the return of purchase payments,
the Company will comply. You bear the investment
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risk during the right to return period; therefore, the contract value returned
may be greater or less than your purchase payment. If the Contract is purchased
as an Individual Retirement Annuity, and is returned within the first seven days
after delivery, your purchase payment will be refunded in full; during the
remainder of the right to return period, the contract value (including charges)
will be refunded. The contract value will be determined following the close of
the business day on which we receive a written request for a refund. Refer to
your Contract for any state-specific information.
TERMINATION
You do not need to make any purchase payments after the first to keep the
Contract in effect. However, we reserve the right to terminate the Contract on
any business day if the contract value as of that date is less than $1,000 and
no purchase payments have been made for at least two years, unless otherwise
specified by state law. Termination will not occur until 31 days after the
Company has mailed notice of termination to the contract owner's last known
address and to any assignee of record. If the Contract is terminated, we will
pay you the cash surrender value (contract value less any applicable premium
tax, in the states that so require), less any applicable charges and any
outstanding loans.
REQUIRED REPORTS
As often as required by law, but at least once in each contract year before the
due date of the first annuity payment, we will furnish a report showing the
number of accumulation units credited to the Contract and the corresponding
accumulation unit value(s) as of the date of the report for each funding option
to which the contract owner has allocated amounts during the applicable period.
The Company will keep all records required under federal or state laws.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of any payment or
determination of values on any business day (1) when the New York Stock Exchange
("the Exchange") is closed; (2) when trading on the Exchange is restricted; (3)
when an emergency exists as determined by the SEC so that the sale of securities
held in the Separate Account may not reasonably occur or so that the Company may
not reasonably determine the value the Separate Account's net assets; or (4)
during any other period when the SEC, by order, so permits for the protection of
security holders.
TRANSFERS OF CONTRACT VALUES TO OTHER ANNUITIES
We may permit contract owners to transfer their contract values into other
annuities offered by us or our affiliated insurance companies under rules then
in effect.
THE SEPARATE ACCOUNT
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The Separate Account was established on July 6, 1994 and is registered with the
SEC as a unit investment trust (separate account) under the Investment Company
Act of 1940, as amended (the "1940 Act"). The assets of the Separate Account
will be invested in the shares of the variable funding options for this contract
and for other annuity contracts offered under the Separate Account.
The assets of the Separate Account are held for the exclusive benefit of the
owners of this separate account, according to the laws of Arizona. Income, gains
and losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the Contracts, credited to or charged against
the Separate Account without regard to other income, gains and losses of the
Company. The assets held by the Separate Account are not chargeable with
liabilities arising out of any other business which the Company may conduct.
Obligations under the Contract are obligations of the Company.
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All investment income and other distributions of the funding options are payable
to the Separate Account. All such income and/or distributions are reinvested in
shares of the respective funding option at net asset value. Shares of the
funding options are currently sold only to life insurance company separate
accounts to fund variable annuity and variable life insurance contracts.
PERFORMANCE INFORMATION
From time to time, we may advertise several types of historical performance for
the Contract's funding options. We may advertise the "standardized average
annual total returns" of the funding option, calculated in a manner prescribed
by the SEC, and the "non-standardized total return," as described below. Once
available, specific examples of the performance information will appear in the
SAI.
STANDARDIZED METHOD. Quotations of average annual total returns are computed
according to a formula in which a hypothetical initial investment of $1,000 is
applied to the funding option, and then related to ending redeemable values over
one-, five-, and ten-year periods, or for a period covering the time during
which the funding option has been in existence, if less. These quotations
reflect the deduction of all recurring charges during each period (on a pro rata
basis in the case of fractional periods). The deduction for the annual
administrative charge is converted to a percentage of assets based on the actual
fee collected (or anticipated to be collected, if a new product), divided by the
average net assets for Contracts sold (or anticipated to be sold). Each
quotation assumes a total redemption at the end of each period with the
applicable withdrawal charge deducted at that time.
NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be calculated in a
similar manner based on the performance of the funding options over a period of
time, usually for the calendar year-to-date, and for the past one-, three-,
five- and ten-year periods. Nonstandardized total returns will not reflect the
deduction of any withdrawal charge or the annual contract administrative charge,
which, if reflected, would decrease the level of performance shown. The
withdrawal charge is not reflected because the Contract is designed for
long-term investment.
For funding options that were in existence before they became available under
the Separate Account, the standardized total return quotations may be
accompanied by returns showing the investment performance that such funding
options would have achieved (reduced by the applicable charges) had they been
held under the Contract for the period quoted. The total return quotations are
based upon historical earnings and are not necessarily representative of future
performance.
GENERAL. Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including, but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of the Separate Account and the variable funding
options.
FEDERAL TAX CONSIDERATIONS
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The following general discussion of the federal income tax consequences under
this Contract is not intended to cover all situations, and is not meant to
provide tax advice. Because of the complexity of the law and the fact that the
tax results will vary depending on many factors, you should consult
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your tax adviser regarding your personal situation. For your information, a more
detailed tax discussion is contained in the SAI.
GENERAL TAXATION OF ANNUITIES
Congress has recognized the value of saving for retirement by providing certain
tax benefits, in the form of tax deferral, for money put into an annuity. The
Internal Revenue Code (Code) governs how this money is ultimately taxed,
depending upon the type of contract, qualified or non-qualified, and the manner
in which the money is distributed, as briefly described below.
TYPES OF CONTRACTS: QUALIFIED OR NONQUALIFIED
If you purchase an annuity contract with proceeds of an eligible rollover
distribution from any pension plan, specially sponsored program, or individual
retirement annuity (IRA) with pre-tax dollars, your contract is referred to as a
qualified contract. Some examples of qualified contracts are: regular IRAs,
403(b) annuities, pension and profit-sharing plans (including 401(k) plans),
Keogh Plans, and certain other qualified deferred compensation plans. An
exception to this is a qualified plan called a Roth IRA. Under Roth IRAs,
after-tax contributions accumulate until maturity, when amounts (including
earnings) may be withdrawn tax-free. If you purchase the contract on an
individual basis with after-tax dollars and not under one of the programs
described above, your contract is referred to as nonqualified.
NONQUALIFIED ANNUITY CONTRACTS
As the owner of a nonqualified annuity, you do not receive any tax benefit
(deduction or deferral of income) on purchase payments, but you will not be
taxed on increases in the value of your contract until a distribution
occurs -- either as a withdrawal (distribution made prior to the maturity date),
or as annuity payments. When a withdrawal is made, you are taxed on the amount
of the withdrawal that is considered earnings. Similarly, when you receive an
annuity payment, part of each payment is considered a return of your purchase
payments and will not be taxed. The remaining portion of the annuity payment
(i.e., any earnings) will be considered ordinary income for tax purposes.
If a nonqualified annuity is owned by other than an individual, however, (e.g.,
by a corporation), increases in the value of the contract attributable to
purchase payments made after February 28, 1986 are includible in income
annually. Furthermore, for contracts issued after April 22, 1987, if you
transfer the contract without adequate consideration all deferred increases in
value will be includible in your income at the time of the transfer.
If you make a partial withdrawal, this money will generally be taxed as first
coming from earnings, (income in the contract), and then from your purchase
payments. These withdrawn earnings are includible in your income. (See "Penalty
Tax for Premature Distributions" below.) There is income in the contract to the
extent the contract value exceeds your investment in the contract. The
investment in the contract equals the total purchase payments you paid less any
amount received previously which was excludible from gross income. Any direct or
indirect borrowing against the value of the contract or pledging of the contract
as security for a loan will be treated as a cash distribution under the tax law.
Federal tax law requires that nonqualified annuity contracts meet minimum
mandatory distribution requirements upon the death of the contract owner,
including the first of joint owners. If these requirements are not met, the
surviving joint owner, or the beneficiary, will have to pay taxes prior to
distribution. The distribution required depends, among other things, upon
whether an annuity option is elected or whether the new contract owner is the
surviving spouse. We will administer Contracts in accordance with these rules
and we will notify you when you should begin receiving payments.
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QUALIFIED ANNUITY CONTRACTS
Under a qualified annuity, since amounts paid into the contract have generally
not yet been taxed, the full amount of all distributions, including lump-sum
withdrawals and annuity payments, are taxed at the ordinary income tax rate
unless the distribution is transferred to an eligible rollover account or
contract. The Contract is available as a vehicle for IRA rollovers and for other
qualified contracts. There are special rules which govern the taxation of
qualified contracts, including withdrawal restrictions, requirements for
mandatory distributions, and contribution limits, and also special rules
regarding Roth IRAs. We have provided a more complete discussion in the SAI.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS
Taxable distributions taken before the contract owner has reached the age of
59 1/2 will be subject to a 10% additional tax penalty unless the distribution
is taken in a series of periodic distributions, for life or life expectancy, or
unless the distribution follows the death or disability of the contract owner.
Other exceptions may be available in certain qualified plans.
DIVERSIFICATION REQUIREMENTS FOR VARIABLE ANNUITIES
The Code requires that any nonqualified variable annuity contracts based on a
separate account shall not be treated as an annuity for any period if
investments made in the account are not adequately diversified. Final tax
regulations define how separate accounts must be diversified. The Company
monitors the diversification of investments constantly and believes that its
accounts are adequately diversified. The consequence of any failure to diversify
is essentially the loss to the Contract Owner of tax deferred treatment. The
Company intends to administer all contracts subject to this provision of law in
a manner that will maintain adequate diversification.
OWNERSHIP OF THE INVESTMENTS
Assets in the separate account, also referred to as a segregated asset account,
must be owned by the Company and not by the Contract Owner for federal income
tax purposes. Otherwise, the deferral of taxes is lost and income and gains from
the account would be includable annually in the Contract Owner's gross income.
The Internal Revenue Service has stated in published rulings that a variable
contract owner will be considered the owner of the assets of a segregated asset
account if the owner possesses an incident of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department announced, in connection with the issuance of temporary regulations
concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor, rather than
the insurance company, to be treated as the owner of the assets of the account."
This announcement, dated September 15, 1986, also stated that the guidance would
be issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts [of a segregated asset
account] without being treated as owners of the underlying assets." As of the
date of this prospectus, no such guidance has been issued.
The Company does not know if such guidance will be issued, or if it is, what
standards it may set. Furthermore, the Company does not know if such guidance
may be issued with retroactive effect. New regulations are generally issued with
a prospective-only effect as to future sales or as to future voluntary
transactions in existing contracts. The Company therefore reserves the right to
modify the contract as necessary to attempt to prevent Contract Owners from
being considered the owner of the assets of the separate account.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law requires that minimum annual distributions begin by April 1st of
the calendar year following the calendar year in which an IRA owner attains age
70 1/2. Participants in qualified plans and 403(b) annuities may defer minimum
distributions until the later of April 1st of the calendar
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year following the calendar year in which they attain age 70 1/2 or the year of
retirement. Distributions must begin or be continued according to required
patterns following the death of the contract owner or annuitant of both
qualified and nonqualified annuities.
OTHER INFORMATION
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THE INSURANCE COMPANY
Citicorp Life Insurance Company is a stock life insurance company organized
under the laws of Arizona in 1971. Citicorp Life Insurance Company is an
indirect, wholly owned subsidiary of Citigroup Inc., one of the world's largest
bank holding companies.
FINANCIAL STATEMENTS
The financial statements for the insurance company are located in the Statement
of Additional Information. The financial statements for the separate account
will be available through annual reports to shareholders. These reports are
accessible through the SEC's website that appears on page 1 of the prospectus.
YEAR 2000 COMPLIANCE
Like all financial services providers, we use computer systems that may be
affected by Year 2000 transition issues, and rely on service providers,
including the funding options, whose systems also may be affected. We have
developed, and are in the process of implementing, a Year 2000 transition plan.
In addition, we are in the process of confirming that the funding options and
other service providers are also engaged in similar transition plans. The
resources that are being devoted to this effort are substantial. It is difficult
to predict with precision whether the amount of resources ultimately devoted, or
the outcome of these efforts, will have any negative impact on our operations.
However, as of the date of this prospectus, it is not anticipated that you will
experience negative effects on your investment, or on the services we provide,
as a result of Year 2000 transition implementation. As of January 1, 1999, our
systems are Year 2000 compliant, but there can be no assurance that the
interaction with other service providers will not impair services at that time.
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company intends to sell the Contracts in all jurisdictions where it is
licensed to do business and where the Contract is approved. Any sales
representative or employee who sells the Contracts will be qualified to sell
variable annuities under applicable federal and state laws. Each broker-dealer
is registered with the SEC under the Securities Exchange Act of 1934, and all
are members of the NASD. The principal underwriter and distributor of the
Contracts is CFBDS, Inc., 21 Milk St., Boston, MA. CFBDS, Inc. is not affiliated
with the Company or the Separate Account.
Up-front compensation paid to sales representatives will not exceed 7.00 % of
the purchase payments made under the Contracts. If asset-based compensation is
paid, it will not exceed 2% of the average account value annually. From time to
time, the Company may pay or permit other promotional incentives, in cash,
credit or other compensation.
CONFORMITY WITH STATE AND FEDERAL LAWS
The Contract is governed by the laws of the state in which it is delivered. Any
paid-up annuity, cash surrender value or death benefits that are available under
the Contract are not less than the minimum benefits required by the statutes of
the state in which the Contract is delivered. We reserve the right to make any
changes, including retroactive changes, in the Contract to the extent that the
change is required to meet the legal requirements of any governmental agency to
which the Company, the Contract or the contract owner is subject. Where a state
requires contract owner approval, we will comply.
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VOTING RIGHTS
The Company is the legal owner of the shares of the funding options. However, we
believe that when a funding option solicits proxies in conjunction with a vote
of shareholders we are required to obtain from you and from other owners
instructions on how to vote those shares. When we receive those instructions, we
will vote all of the shares we own in proportion to those instructions. This
will also include any shares we own on our own behalf. Should we determine that
we are no longer required to comply with the above, we will vote on the shares
in our own right.
LEGAL PROCEEDINGS AND OPINIONS
There are no pending material legal proceedings affecting the separate account
or the Company.
Legal matters in connection with the federal laws and regulations affecting the
issue and sale of the Contract described in this prospectus, as well as the
organization of the Company, its authority to issue variable annuity contracts
under Arizona law and the validity of the forms of the variable annuity
contracts under Arizona law, have been passed on by the General Counsel of the
Company.
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APPENDIX A
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THE FIXED ACCOUNT
The Fixed Account is secured by part of the general assets of the Company. The
general assets of the Company include all assets of the Company other than those
held in the Separate Account or any other separate account sponsored by the
Company or its affiliates.
The staff of the SEC does not generally review the disclosure in the prospectus
relating to the Fixed Account. Disclosure regarding the Fixed Account and the
general account may, however, be subject to certain provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
the prospectus.
Under the Fixed Account, the Company assumes the risk of investment gain or
loss, guarantees a specified interest rate, and guarantees a specified periodic
annuity payment. The investment gain or loss of the funding options does not
affect the Fixed Account portion of the contract owner's contract value, or the
dollar amount of fixed annuity payments made under any payout option.
We guarantee that, at any time, the Fixed Account contract value will not be
less than the amount of the purchase payments allocated to the Fixed Account,
plus interest credited as described below, less any applicable premium taxes or
prior surrenders. If the contract owner effects a surrender, the amount
available from the Fixed Account will be reduced by any applicable withdrawal
charge as described under "Charges and Deductions" in this prospectus.
Purchase payments allocated to the Fixed Account and any transfers made to the
Fixed Account become part of the Company's general account which supports
insurance and annuity obligations. Neither the general account nor any interest
therein is registered under, nor subject to the provisions of, the Securities
Act of 1933 or Investment Company Act of 1940. We will invest the assets of the
Fixed Account at our discretion. Investment income from such Fixed Account
assets will be allocated to us and to the Contracts participating in the Fixed
Account.
Investment income from the Fixed Account allocated to us includes compensation
for mortality and expense risks borne by us in connection with Fixed Account
Contracts. The amount of such investment income allocated to the Contracts will
vary from year to year in our sole discretion at such rate or rates as we
prospectively declare from time to time.
The initial rate for any allocations into the Fixed Account is guaranteed for
one year from the date of such allocation. Subsequent renewal rates will be
guaranteed for the calendar quarter. We also guarantee that for the life of the
Contract we will credit interest at not less than 3% per year. Any interest
credited to amounts allocated to the Fixed Account in excess of 3% per year will
be determined in our sole discretion. You assume the risk that interest credited
to the Fixed Account may not exceed the minimum guarantee of 3% for any given
year.
TRANSFERS
You may make transfers from the Fixed Account to any other available variable
funding option(s) twice a year during the 30 days following the semi-annual
anniversary of the contract effective date. The transfers are limited to an
amount of up to 15% of the Fixed Account Value on the semi-annual contract
effective date anniversary. (This restriction does not apply to transfers from
the Dollar Cost Averaging Program.) Amounts previously transferred from the
Fixed Account to other funding options may not be transferred back to the Fixed
Account for a period of at least six months from the date of transfer. We
reserve the right to waive either of these restrictions.
Automated transfers from the Fixed Account to any of the funding options may
begin at any time. Automated transfers from the Fixed Account may not deplete
your Fixed Account value in a period of less than twelve months from your
enrollment in the Dollar Cost Averaging Program.
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APPENDIX B
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TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information and
financial statements relating to the insurance company. A list of the contents
of the Statement of Additional Information is set forth below:
The Insurance Company
Principal Underwriter
Valuation of Assets
Mixed and Shared Funding
Performance Information
Federal Tax Considerations
Independent Accountants
Financial Statements
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Copies of the Statement of Additional Information dated May 1, 1999 are
available without charge. To request a copy, please clip this coupon on the
dotted line above, enter your name and address in the spaces provided below, and
mail to the Company's administrative office:
Name:
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Address:
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