<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 1996
FILE NO. 33-89238
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
(EXACT NAME OF REGISTRANT)
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
900 Cottage Grove Road, Hartford, Connecticut 06152
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
Depositor's Telephone Number, including Area Code
(860) 726-6000
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<S> <C>
Robert A. Picarello, Esquire COPY TO:
Connecticut General Life Insurance George N. Gingold,
Company Esquire
900 Cottage Grove Road 197 King Philip Drive
Hartford, Connecticut 06152 West Hartford, CT
(NAME AND ADDRESS OF AGENT FOR 06117-1409
SERVICE)
</TABLE>
Approximate date of proposed public offering: Continuous
INDEFINITE NUMBER OF UNITS OF INTEREST IN VARIABLE LIFE INSURANCE CONTRACTS
(TITLE AND AMOUNT OF SECURITIES BEING REGISTERED)
An indefinite amount of the securities being offered by the Registration
Statement has been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The initial registration fee of $500 was paid with the
declaration. No Form 24F-2 was filed for Registrant's most recent fiscal year,
which ended December 31, 1995, because Registrant sold no securities pursuant to
the declaration during that fiscal year.
It is proposed that this filing will become effective:
- --------- immediately upon filing pursuant to paragraph (b) of Rule 485
X
- --------- on April 30, 1996, pursuant to paragraph (b) of Rule 485
- --------- 60 days after filing pursuant to paragraph (a) of Rule 485
- --------- on ---------, pursuant to paragraph (a) of Rule 485
<PAGE>
CROSS REFERENCE SHEET
(RECONCILIATION AND TIE)
REQUIRED BY INSTRUCTION 4 TO FORM S-6
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ITEM OF FORM
N-8B-2 LOCATION IN PROSPECTUS
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1 Cover Page Highlights
2 Cover Page
3 *
4 Distribution of Policies
5 The Company
6(a) The Variable Account
6(b) *
9 Legal Proceedings
10(a)-(c) Short-Term Right to Cancel the Policy; Surrenders;
Accumulation Value; Reports to Policy Owners
10(d) Right to Exchange for a Fixed Benefit Policy; Policy Loans;
Surrenders; Allocation of Net Premium Payments
10(e) Lapse and Reinstatement
10(f) Voting Rights
10(g)-(h) Substitution of Securities
10(i) Premium Payments; Transfers; Death Benefit; Policy Values;
Settlement Options
11 The Funds
12 The Funds
13 Charges; Fees
14 Issuance
15 Premium Payments; Transfers
16 The Variable Account
17 Surrenders
18 The Variable Account
19 Reports to Policy Owners
20 *
21 Policy Loans
22 *
23 The Company
24 Incontestability; Suicide; Misstatement of Age or Sex
25 The Company
26 Fund Participation Agreements
27 The Variable Account
</TABLE>
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<TABLE>
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ITEM OF FORM
N-8B-2 LOCATION IN PROSPECTUS
- ----------------- --------------------------------------------------------------
<S> <C>
28 Directors and Officers of the Company
29 The Company
30 *
31 *
32 *
33 *
34 *
35 *
37 *
38 Distribution of Policies
39 Distribution of Policies
40 *
41(a) Distribution of Policies
42 *
43 *
44 The Funds; Premium Payments
45 *
46 Surrenders
47 The Variable Account; Surrenders, Transfers
48 *
49 *
50 The Variable Account
51 Cover Page; Highlights; Premium Payments; Right to Exchange
for a Fixed Benefit Policy
52 Substitution of Securities
53 Tax Matters
54 *
55 *
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* Not Applicable
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CONNECTICUT GENERAL LIFE INSURANCE COMPANY
[LOGO]
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
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HOME OFFICE LOCATION: MAILING ADDRESS:
900 COTTAGE GROVE ROAD CIGNA INDIVIDUAL INSURANCE
HARTFORD, CT 06152 ANNUITY & VARIABLE LIFE SERVICES CENTER,
ROUTING S-249
HARTFORD, CT 06152-2249
(800)(552-9898)
</TABLE>
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THE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
This prospectus describes a flexible premium variable life insurance
contract ("Policy") offered either in an individual or group form by Connecticut
General Life Insurance Company ("the Company"). This Policy is intended to
provide life insurance benefits. It allows flexible premium payments, a choice
of underlying funding options, and a choice of two death benefit options. Its
value will vary with the investment performance of the underlying funding
options selected, as may the death benefit payable by the Company upon the death
of the Insured. Policy values may be used to continue the Policy in force, may
be borrowed within certain limits, and may be fully or partially surrendered.
Full surrenders are subject to a surrender charge. Annuity settlement options
equivalent to the Death Benefit are available for payment to the Beneficiary
upon the death of the Insured.
The Company offers seventeen funding vehicles under a Policy through the
Separate Account, each a diversified open-end management investment company
(commonly called a mutual fund) with a different investment objective: AIM
Variable Insurance Funds, Inc. -- AIM V.I. Capital Appreciation Fund, AIM V.I.
Growth Fund, AIM V.I. Value Fund, AIM V.I. Diversified Income Fund; CIGNA
Variable Products Group -- CIGNA Variable Products Money Market Fund; Fidelity
Variable Insurance Products Fund -- Equity-Income Portfolio; Fidelity Variable
Insurance Products Fund II -- Asset Manager Portfolio and Investment Grade Bond
Portfolio; MFS-Registered Trademark- Variable Insurance Trust -- MFS Total
Return Series, MFS Utilities Series and MFS World Governments Series; Templeton
Variable Products Series Fund -- Templeton Asset Allocation Fund; Templeton
International Fund, Templeton Stock Fund; OCC Accumulation Trust -- Global
Equity Portfolio, Managed Portfolio and Small Cap Portfolio.
The fixed interest option offered under the Policy is the Fixed Account.
Amounts held in the Fixed Account are guaranteed and will earn a minimum
interest rate of 4% per year. Unless specifically mentioned, this prospectus
only describes the variable investment options.
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance policy with this Policy. This
entire Prospectus, and those of the Funds, should be read carefully to
understand the Policy being offered.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE MUTUAL FUNDS AVAILABLE AS FUNDING OPTIONS FOR THE POLICIES OFFERED BY THIS
PROSPECTUS. ALL PROSPECTUSES SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED: MAY 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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Definitions..................................... 3
Highlights...................................... 5
Initial Choices............................... 5
Charges and Fees.............................. 6
The Company..................................... 6
The Variable Account............................ 7
The Funds....................................... 7
Expense Data/Fee Table........................ 10
General....................................... 12
Substitution of Securities.................... 12
Voting Rights................................. 12
Fund Participation Agreements................. 13
Death Benefit................................... 13
Death Benefit Options....................... 13
Changes in Death Benefit Option............. 13
Guaranteed Death Benefit Provision.......... 13
Payment of Death Benefit.................... 14
Changes in Specified Amount................. 15
Premium Payments; Transfers..................... 15
Premium Payments............................ 15
Allocation of Net Premium Payments.......... 16
Transfers................................... 17
Optional Variable Account Sub-Account
Allocation Programs........................ 18
Dollar Cost Averaging..................... 18
Automatic Rebalancing..................... 18
Charges; Fees................................... 19
Premium Load................................ 19
Monthly Deductions.......................... 19
Transaction Fee for Excess Transfers........ 20
Mortality and Expense Risk Charge........... 20
Surrender Charge............................ 21
The Fixed Account............................... 22
Policy Values................................... 22
Accumulation Value.......................... 22
Variable Accumulation Unit Value............ 22
Surrender Value............................. 23
Surrenders...................................... 23
Partial Surrenders.......................... 23
Full Surrenders............................. 23
Deferral of Payment and Transfers........... 24
Lapse and Reinstatement......................... 24
Lapse of a Policy; Effect of Guaranteed
Death Benefit Provision.................... 24
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PAGE
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Reinstatement of a Lapsed Policy............ 24
Policy Loans.................................... 25
Settlement Options.............................. 25
Other Policy Provisions......................... 26
Issuance.................................... 26
Short-Term Right to Cancel the Policy....... 26
Policy Owner................................ 26
Beneficiary................................. 26
Assignment.................................. 27
Right to Exchange for a Fixed Benefit
Policy..................................... 27
Incontestability............................ 27
Misstatement of Age or Sex.................. 27
Suicide..................................... 28
Nonparticipating Policies................... 28
Tax Matters..................................... 28
Policy Proceeds............................. 28
Taxation of the Company..................... 29
Section 848 Charges......................... 29
Other Considerations........................ 30
Other Matters................................... 30
Directors and Officers of the Company....... 30
Distribution of Policies.................... 30
Changes of Investment Policy................ 31
Other Contracts Issued by the Company....... 31
State Regulation............................ 31
Reports to Policy Owners.................... 31
Advertising................................. 32
Legal Proceedings........................... 32
Experts..................................... 32
Registration Statement...................... 32
Financial Statements............................ 33
Connecticut General Life Insurance
Company.................................... 34
Appendix 1...................................... 54
Illustration of Surrender Charges........... 54
Appendix 2...................................... 56
Illustration of Accumulation Values,
Surrender Values, and Death Benefits....... 56
Appendix 3...................................... 66
Tax Information............................. 66
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION VALUE: The sum of the Fixed Account Value,
Variable Account Value and the Loan Account Value.
ACCUMULATION UNIT: A unit of measure used to calculate the
value of a Variable Account Sub-Account.
ADDITIONAL PREMIUMS: Any premium paid in addition to Planned
Premiums.
ANNUITY & VARIABLE LIFE SERVICES CENTER: The office of the
Company to which Premium Payments should be sent, notices
given and any customer service requests made. Mailing
address: CIGNA Individual Insurance, Annuity & Variable Life
Services Center, Routing S-249, Hartford, CT 06152-2249.
CERTIFICATE: The document which evidences the participation
of an Owner in a group policy.
CODE: The Internal Revenue Code of 1986, as amended.
CORRIDOR DEATH BENEFIT: The Death Benefit calculated as a
percentage of the Accumulation Value rather than by
reference to the Specified Amount to satisfy the Internal
Revenue Service definition of "life insurance."
COST OF INSURANCE: The portion of the Monthly Deduction
attributable to the basic insurance coverage, not including
riders, supplemental benefits or monthly expense charges.
DEATH BENEFIT: The amount payable to the beneficiary upon
the death of the Insured in accordance with the Death
Benefit Option elected, before deduction of the amount
necessary to repay any loans in full, and overdue
deductions.
DEATH BENEFIT OPTION: Either of two methods for determining
the Death Benefit.
FIXED ACCOUNT: The account under which principal is
guaranteed and interest is credited at a rate of not less
than 4% per year. Fixed Account assets are general assets of
the Company held in the Company's General Account.
FIXED ACCOUNT VALUE: The portion of the Accumulation Value,
other than the Loan Account Value, held in the Company's
General Account.
FUND(S): One or more of AIM Variable Insurance Funds, Inc.
-- AIM V.I. Capital Appreciation Fund, AIM V.I. Growth Fund,
AIM V.I. Value Fund, AIM V.I. Diversified Income Fund; CIGNA
Variable Products Group -- CIGNA Variable Products Money
Market Fund; Fidelity Variable Insurance Products Fund --
Equity-Income Portfolio; Fidelity Variable Insurance
Products Fund II -- Asset Manager Portfolio and Investment
Grade Bond Portfolio; MFS-Registered Trademark- Variable
Insurance Trust -- MFS Total Return Series, MFS Utilities
Series, MFS World Governments Series; Templeton Variable
Products Series Fund -- Templeton Asset Allocation Fund,
Templeton International Fund, Templeton Stock Fund; OCC
Accumulation Trust -- Global Equity Portfolio, Managed
Portfolio and Small Cap Portfolio. Each of them is an
open-end management investment company (mutual fund) whose
shares are available to fund the benefits provided by the
Policy.
GENERAL ACCOUNT: The Company's general asset account, in
which assets attributable to the non-variable portion of
Policies are held.
GRACE PERIOD: The 61-day period following a Monthly
Anniversary Day on which the Policy's Surrender Value is
insufficient to cover the current Monthly Deduction. The
Company will send notice at least 31 days before the end of
the Grace Period that the Policy will lapse without value
unless a sufficient payment (described in the notification
letter) is received by the Company.
3
<PAGE>
GUARANTEED INITIAL DEATH BENEFIT PREMIUM: The Premium
Payment(s) which must be made to guarantee the Initial
Specified Amount for the first five Policy Years after
issue, regardless of investment performance, assuming there
will be no loans or partial surrenders.
GUIDELINE ANNUAL PREMIUM: The level amount, calculated in
accordance with Rule 6e-3(T) under the Investment Company
Act of 1940, required to mature the Policy under guaranteed
mortality and expense charges and an annual interest rate of
5%.
INITIAL SPECIFIED AMOUNT: The amount (at least $100,000),
originally chosen by the Policy Owner, initially equal to
the Death Benefit. The Initial Specified Amount may be
increased or decreased as described in this Prospectus.
INSURED: The person on whose life the Policy is issued.
ISSUE AGE: The age of the insured, to the nearest birthday,
on the Issue Date.
ISSUE DATE: The date on which the Policy becomes effective,
as shown in the Policy Specifications.
LOAN ACCOUNT VALUE: An amount equal to the sum of all unpaid
Policy loans and loan interest.
MONTHLY ANNIVERSARY DAY: The day of the month as shown in
the Policy Specifications, or the next Valuation Day if that
day is not a Valuation Day or is nonexistent for that month,
when the Company makes the Monthly Deduction.
MONTHLY DEDUCTION: The monthly deduction made from the Net
Accumulation Value; this deduction includes the cost of
insurance, an administrative expense charge, and charges for
supplemental riders or benefits, if applicable.
NET ACCUMULATION VALUE: The Accumulation Value less the Loan
Account Value.
NET AMOUNT AT RISK: The Death Benefit before subtraction of
outstanding loans, if any, minus the Accumulation Value.
NET PREMIUM PAYMENT: The portion of a Premium Payment, after
deduction of 5.0% for the premium load, available for
allocation to the Fixed Account and the Variable Account
Sub-Accounts.
OWNER. The Owner on the Date of Issue will be the person
designated in the Policy Specifications as having all
ownership rights under the Policy; includes the Certificate
Owner under a group policy. If no person is designated as
Owner, the Insured will be the Owner.
PLANNED PREMIUMS: The amount of premium the Policy Owner
chooses to pay the Company on a scheduled basis. This is the
amount for which the Company sends a premium reminder
notice.
POLICY: The life insurance contract described in this
Prospectus, i.e., either an individual Policy or a
Certificate evidencing the Owner's participation in a group
policy, under which flexible premium payments are permitted
and the death benefit and contract values may vary with the
investment performance of the funding option(s) selected.
POLICY YEAR: Each twelve-month period, beginning on the
Issue Date, during which the Policy is in effect.
PREMIUM PAYMENT: A premium payment made under the Policy.
RIGHT-TO-EXAMINE PERIOD: The period of time following the
issuance of the Policy during which the Owner may return the
Policy and receive a refund of premiums paid, the latest of
(a) 10 days after the Policy is received, unless otherwise
stipulated by state law requirements, (b) 10 days after the
Company mails or personally delivers a Notice of Withdrawal
Right to the Owner, or (c) 45 days after the application for
the Policy is signed.
4
<PAGE>
SETTLEMENT OPTION(S): Several ways in which the Beneficiary
may receive a Death Benefit, or in which the Insured may
choose to receive payments upon surrender of the Policy.
SUB-ACCOUNT: That portion of the Variable Account which is
invested in shares of a specific Fund.
SURRENDER CHARGE: The amount retained by the Company upon
the full surrender of the Policy.
SURRENDER VALUE: The amount a Policy Owner can receive in
cash by surrendering the Policy. This equals the Net
Accumulation Value minus the applicable Surrender Charge.
All of the Surrender Value may be applied to one or more of
the Settlement Options.
VALUATION DAY: Every day on which Accumulation Units are
valued; any day on which the New York Stock Exchange is
open, except any day on which trading on the Exchange is
restricted, or on which an emergency exists, as determined
by the Securities and Exchange Commission, so that valuation
or disposal of securities is not practicable.
VALUATION PERIOD: The period of time beginning on the day
following a Valuation Day and ending on the next Valuation
Day. A Valuation Period may be more than one day in length.
VARIABLE ACCOUNT: CG Variable Life Insurance Separate
Account II. Consists of all Sub-Accounts invested in shares
of the Funds. Variable Account assets are kept separate from
the general assets of the Company and are not chargeable
with the general liabilities of the Company.
VARIABLE ACCOUNT VALUE: The portion of the Accumulation
Value attributable to the Variable Account.
HIGHLIGHTS
The Policy is a flexible premium variable life insurance
policy. Its values may be accumulated on a fixed or variable
basis or a combination of fixed and variable bases. The
Policy's provisions may vary in some states.
INITIAL CHOICES
TO BE MADE
When purchasing a Policy, the Owner makes three important
choices:
1) Selecting one of the two Death Benefit Options;
2) Selecting the amount of Premium Payments to make; and
3) Selecting how Net Premium Payments will be allocated
among the available funding options.
LEVEL OR VARYING
DEATH BENEFIT
At the time of purchase, the Policy Owner (also called the
"Owner" in this Prospectus) must choose between the two
Death Benefit Options. The amount payable under either
option will be determined as of the date of the Insured's
death. Under the level Death Benefit Option, the Death
Benefit will be the greater of the Specified Amount, or the
Corridor Death Benefit. Under the varying Death Benefit
Option, the Death Benefit will be the greater of the
Specified Amount plus the Accumulation Value, or the
Corridor Death Benefit (See "Death Benefit").
The Policy also offers a Guaranteed Initial Death Benefit
Provision which ensures that for the first five Policy Years
the Death Benefit will not be less than the Initial
Specified Amount, regardless of market performance, assuming
there have been no loans or surrenders, even if the
Surrender Value is insufficient to cover the current Monthly
Deductions (See "Guaranteed Death Benefit Provision").
AMOUNT OF
PREMIUM PAYMENT
At the time of purchase, the Policy Owner must also choose
the amount of premium to be paid. The Owner may vary Premium
Payments to some extent and still keep the Policy in force.
Premium reminder notices will be sent for Planned Premiums
and for
5
<PAGE>
premiums required to continue this Policy in force. If the
Policy lapses it may be reinstated (See "Reinstatement of a
Lapsed Policy"). Premium Payments are refundable during the
Right-to-Examine Period.
SELECTION OF
FUNDING
VEHICLE(S)
The Policy Owner must choose how to allocate Net Premium
Payments. Net Premium Payments allocated to the Variable
Account may be allocated to one or more Sub-Accounts of the
Variable Account, each of which invests in shares of a
particular Fund. The Initial Premium Payment will not be
allocated to the Variable Account until three days following
the expiration of the Right-to-Examine Period (see
"Short-Term Right to Cancel the Policy"). The Fixed Account
may also be elected as an allocation option. Allocations to
any Sub-Account or to the Fixed Account must be in whole
percentages. No allocation can be made which would result in
a Sub-Account Value of less than $50 or a Fixed Account
value of less than $2,500. Further, at this time, no more
than 18 Sub-Accounts may be opened during the life of the
Policy. The Company may expand this number at a future date.
The variable portion of a Policy is supported by the Fund(s)
selected as funding vehicle(s). The portion of the Variable
Account Value attributable to a particular Fund through the
Sub-Account of the Variable Account is not guaranteed and
will vary with the investment performance of that Fund.
CHARGES
AND FEES
There is a 5.0% premium load on all Premium Payments.
Monthly deductions are made for the Cost of Insurance and
any riders.
Monthly deductions ($15 per month during the first Policy
Year and, currently, $5 per month thereafter) are also made
for administrative expenses.
Daily deductions from Variable Account Value are made for
the mortality and expense risk, currently at the annual rate
of .80% during the first twelve Policy Years and .55%
thereafter.
Investment results for each Sub-Account are affected by each
Fund's daily charge for management fees; these charges vary
by Fund and are shown at pages 10-11 of this Prospectus.
A transaction fee of $25 is imposed for partial surrenders
and for certain transfers in excess of 12 per Policy Year.
A surrender charge will be deducted upon full surrender of a
Policy within the first ten Policy Years or within ten years
after an increase in Specified Amount.
Interest is charged on Policy loans. The net interest spread
(the amount by which interest charged exceeds interest
credited) is currently 1% per year in the first ten Policy
Years and .50% per year thereafter.
The Company may derive a profit from its charges except from
the monthly deduction for administrative expenses and the
transaction fee.
THE COMPANY
The Company is a stock life insurance company incorporated
in Connecticut in 1865. Its Home Office mailing address is
Hartford, Connecticut 06152, Telephone (860) 726-6000. It
has obtained authorization to do business in fifty states,
the District of Columbia and Puerto Rico. The Company issues
group and individual life and health insurance policies and
annuities. The Company has various wholly-owned subsidiaries
which are generally engaged in the insurance business. The
Company is a wholly-owned subsidiary of Connecticut General
Corporation, Bloomfield, Connecticut. Connecticut General
Corporation is wholly-owned by CIGNA Holdings Inc.,
Philadelphia, Pennsylvania which is in turn wholly-owned by
CIGNA Corporation, Philadelphia, Pennsylvania. Connecticut
General Corporation is the holding company of various
insurance companies, one of which is Connecticut General
Life Insurance Company.
The Company markets the Policies through independent
insurance brokers, general agents, and registered
representatives of broker-dealers which are members of the
National Association of Securities Dealers, Inc.
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The Company, in common with other insurance companies, is
subject to regulation and supervision by the regulatory
authorities of the states in which it is licensed to do
business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in
that state. In general, all states have statutory
administrative powers. Such regulation relates, among other
things, to licensing of insurers and their agents, the
approval of policy forms, the methods of computing reserves,
the form and content of statutory financial statements, the
amount of policyholders' and stockholders' dividends, and
the type of distribution of investments permitted. A blanket
bond for $100 million covers all of the officers and
employees of the Company.
THE VARIABLE ACCOUNT
CG Variable Life Insurance Separate Account II was
established pursuant to a July 6, 1994 resolution of the
Board of Directors of the Company. Under Connecticut
insurance law, the income, gains or losses of the Variable
Account are credited without regard to the other income,
gains or losses of the Company. The Company serves as the
custodian of the assets of the Variable Account. These
assets are held for the Policies. Although the assets
maintained in the Variable Account will not be charged with
any liabilities arising out of any other business conducted
by the Company, all obligations arising under the Policies
are general corporate liabilities of the Company. Any and
all distributions made by the Funds with respect to shares
held by the Variable Account will be reinvested in
additional shares at net asset value. Deductions and
surrenders from the Variable Account will, in effect, be
made by surrendering shares of the Funds at net asset value.
On each Valuation Day of each Fund, the Variable Account
purchases or redeems Fund shares based on a netting of all
transactions for that day. Shares of the Funds held in the
Variable Account are held by the Company through an open
account system, which makes unnecessary the issuance and
delivery of stock certificates.
The Variable Account is registered with the Securities and
Exchange Commission ("Commission") as a unit investment
trust under the Investment Company Act of 1940. Such
registration does not involve supervision of the Variable
Account or the Company's management or investment practices
or policies by the Commission. The Company does not
guarantee the Variable Account's investment performance.
The Company has several other separate accounts registered
as unit investment trusts with the Commission for the
purpose of funding the variable annuity contracts and
variable life insurance policies of the Company.
THE FUNDS
Each of the seventeen Sub-Accounts of the Variable Account
is invested solely in the shares of one of the seventeen
Funds available as funding vehicles under the Policies. Each
of the Funds is a series of one of seven entities, all
Massachusetts business trusts, except for AIM Variable
Insurance Funds, Inc., a Maryland corporation. Each such
entity is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940.
These entities are collectively referred to herein as the
"Series Funds."
The seven Series Funds and their Investment advisers and
distributors are:
AIM Variable Insurance Funds, Inc. ("AIM V.I. Fund"),
managed by A I M Advisors, Inc., and distributed by
A I M Distributors Inc., 11 Greenway Plaza, Suite 1919,
Houston, TX 77046-1173;
CIGNA Variable Products Group, managed by CIGNA
Investments, Inc., and distributed by CIGNA Financial
Advisors, Inc., 900 Cottage Grove Road, Bloomfield, CT
06002;
Variable Insurance Products Fund ("Fidelity Trust"), and
Variable Insurance Products Fund II ("Fidelity Trust
II"), managed by Fidelity Management & Research
Company and distributed by Fidelity Distributors
Corporation, 82 Devonshire Street, Boston, MA 02103;
7
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MFS-Registered Trademark- Variable Insurance Trust ("MFS
Trust"), managed by Massachusetts Financial Services
Company and distributed by MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116;
Templeton Variable Products Series Fund ("Templeton
Fund"), managed by Templeton Investment Counsel, Inc.
and distributed by Franklin/Templeton Distributors,
Inc., 700 Central Avenue, St. Petersburg, FL 33701;
OCC Accumulation Trust ("OCC Trust")(formerly Quest for
Value Accumulation Trust), managed by OpCap Advisors
(formerly Quest for Value Advisors) and distributed by
OCC Distributors (formerly Quest for Value
Distributors), One World Financial Center, New York, NY
10281.
Four Funds of AIM V.I. Fund are available under the
Policies:
AIM V.I. Capital Appreciation Fund;
AIM V.I. Growth Fund;
AIM V.I. Value Fund;
AIM V.I. Diversified Income Fund.
One Fund of CIGNA VARIABLE PRODUCTS Group is available under
the Policies:
CIGNA Variable Products Money Market Fund.
One Fund of FIDELITY Trust is available under the Policies:
Equity-Income Portfolio ("Fidelity Equity-Income
Portfolio").
Two Funds of FIDELITY Trust II are available under the
Policies:
Asset Manager Portfolio ("Fidelity Asset Manager
Portfolio");
Investment Grade Bond Portfolio ("Fidelity Bond
Portfolio").
Three Funds of MFS Trust are available under the Policies:
MFS Total Return Series;
MFS Utilities Series;
MFS World Governments Series.
Three Funds of TEMPLETON Fund are available under the
Policies:
Templeton Asset Allocation Fund;
Templeton International Fund;
Templeton Stock Fund.
Three Funds of OCC Trust are available under the Policies:
Global Equity Portfolio;
Managed Portfolio;
Small Cap Portfolio.
The investment advisory fees charged the Funds by their
advisers are shown on pages 10 and 11 of this Prospectus.
There follows a brief description of the investment
objective and program of each Fund. There can be no
assurance that any of the stated investment objectives will
be achieved.
AIM V.I. CAPITAL APPRECIATION FUND (Small Cap Stocks): Seeks
to provide capital appreciation through investments in
common stocks, with emphasis on medium-sized and smaller
emerging growth companies.
AIM V.I. GROWTH FUND (Large Cap Stocks): Seeks to provide
growth of capital through investments primarily in common
stocks of leading U.S. companies considered by its adviser
to have strong earnings momentum.
AIM V.I. VALUE FUND (Large Cap Stocks): Seeks to achieve
long-term growth of capital by investing primarily in equity
securities judged by its adviser to be undervalued relative
to the current or projected earnings of the companies
issuing the securities, or relative to current market values
of assets owned by the companies issuing the securities or
relative to the equity markets generally. Income is a
secondary objective.
8
<PAGE>
AIM V.I. DIVERSIFIED INCOME FUND (Fixed
Income - Intermediate Term Bonds): Seeks to achieve a high
level of current income primarily by investing in a
diversified portfolio of foreign and U.S. government and
corporate debt securities, including lower rated high yield
debt securities (commonly known as "junk bonds").
CIGNA VARIABLE PRODUCTS MONEY MARKET FUND (Money Market):
Seeks to provide as high a level of current income as is
consistent with the preservation of capital and liquidity
and the maintenance of a stable $1.00 per share net asset
value by investing in short-term money market instruments.
FIDELITY ASSET MANAGER PORTFOLIO (Balanced or Total Return):
Seeks high total return with reduced risk over the long-term
by allocating its assets among domestic and foreign stocks,
bonds and short-term fixed-income instruments.
FIDELITY INVESTMENT GRADE BOND PORTFOLIO (Fixed
Income - Intermediate Term Bonds): Seeks as high a level of
current income as is consistent with the preservation of
capital by investing in a broad range of investment-grade
fixed-income securities.
FIDELITY EQUITY-INCOME PORTFOLIO (Large Cap Stocks): Seeks
reasonable income by investing primarily in income-producing
equity securities, with some potential for capital
appreciation, seeking a yield that exceeds the composite
yield on the securities comprising the Standard and Poor's
Composite Index of 500 Stocks.
MFS TOTAL RETURN SERIES (Balanced or Total Return): Seeks
primarily to obtain above-average income (compared to a
portfolio invested entirely in equity securities) consistent
with the prudent employment of capital, and secondarily to
provide a reasonable opportunity for growth of capital and
income.
MFS UTILITIES SERIES (Specialty): Seeks capital growth and
current income (income above that available from a portfolio
invested entirely in equity securities) by investing, under
normal circumstances, at least 65% of its assets in equity
and debt securities of utility companies.
MFS WORLD GOVERNMENTS SERIES (International Fixed Income):
Seeks not only preservation, but also growth, of capital
together with moderate current income through a
professionally managed, internationally diversified
portfolio consisting primarily of debt securities and to a
lesser extent equity securities.
TEMPLETON ASSET ALLOCATION FUND (Balanced or Total Return):
Seeks a high level of total return through a flexible policy
of investing in stocks of companies in any nation, debt
securities of companies and governments of any nation, and
in money market instruments. Assets are allocated among
different investments depending upon worldwide market and
economic conditions.
TEMPLETON INTERNATIONAL FUND (International Equities): Seeks
long-term capital growth through a flexible policy of
investing in stocks and debt obligations of companies and
governments outside the United States.
TEMPLETON STOCK FUND (International Stocks): Seeks capital
growth through a policy of investing primarily in common
stocks issued by companies, large and small, in various
nations throughout the world.
OCC GLOBAL EQUITY PORTFOLIO (International Stocks): Seeks
long-term capital appreciation through a global investment
strategy primarily involving equity securities.
OCC MANAGED PORTFOLIO (Balanced or Total Return): Seeks
growth of capital over time through investment in a
portfolio of common stocks, bonds and cash equivalents, the
percentage of which will vary based on management's
assessments of relative investment values.
OCC SMALL CAP PORTFOLIO (Small Cap Stocks): Seeks capital
appreciation through investments in a diversified portfolio
of equity securities of companies with market
capitalizations of under $1 billion.
9
<PAGE>
EXPENSE DATA
The purpose of the following Table is to help Purchasers and prospective
purchasers understand the costs and expenses that are borne, directly and
indirectly, by Purchasers assuming that all Net Premium Payments are allocated
to the Variable Account. The table reflects expenses of the Variable Account as
well as of the individual Funds underlying the Variable Sub-Accounts. The
Mortality and Expense Risk Charge shown is the currently charged rate during the
first twelve Policy Years. It currently declines to .55% per year thereafter and
is guaranteed not to exceed .90% per year.
FEE TABLE
<TABLE>
<CAPTION>
AIM VARIABLE INSURANCE FUNDS, INC. CIGNA VARIABLE FIDELITY VARIABLE INSURANCE
-------------------------------------------------- PRODUCTS GROUP PRODUCTS FUNDS
AIM V.L. ---------------- ---------------------------------
CAPITAL AIM V.I. AIM V.I. AIM V.I. CIGNA VARIABLE ASSET EQUITY INVESTMENT
APPRECIATION GROWTH VALUE DIVERSIFIED PRODUCTS MONEY MANAGER INCOME GRADE BOND
FUND FUND FUND INCOME FUND MARKET FUND PORTFOLIO PORTFOLIO PORTFOLIO
------------- -------- --------- ------------ ---------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT
ANNUAL EXPENSES
Mortality and
Expense Risk
Charge............. 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Total Separate
Account Annual
Expenses........... 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
FUND PORTFOLIO
ANNUAL EXPENSES
Management Fees..... 0.65% 0.65% 0.65% 0.60% 0.35% 0.71% 0.51% 0.45%
Other Expenses...... 0.10% 0.19% 0.10% 0.28% 0.15% 0.08% 0.10% 0.14%
Total Fund Portfolio
Annual Expenses.... 0.75% 0.84% 0.75% 0.88% 0.50%(1) 0.79%(2) 0.61% 0.59%
<FN>
- ------------------------
(1) The Fund's investment adviser has voluntarily agreed to reimburse such
portion of its management fee as is necessary to cause the Total Fund
Portfolio Annual Expenses of the Fund during each calendar year not to
exceed .50% of the Fund's average daily net asset value for such year. If
this reimbursement is not sufficient to cause the Total Fund Portfolio
Annual Expenses of the Fund not to exceed .50% of average daily net asset
value, the adviser has agreed to pay such other expenses of the Fund as is
necessary to keep Total Fund Portfolio Annual Expenses from exceeding .50%.
This arrangement will continue in effect until the end of the fiscal year
ending December 31, 1996, and afterwards to the extent described in the
Fund's then current prospectus. To the extent management fees are
reimbursed by the adviser, or expenses of a Fund are paid by the adviser,
the total return to shareholders will increase. Total return to
shareholders will decrease to the extent management fees are no longer
reimbursed or expenses of the Fund are no longer paid. Other Expenses are
based on estimated amounts for the current fiscal year. Other Expenses
include all expenses not specifically assumed by the adviser.
(2) A portion of the brokerage commissions the Fund paid was used to reduce its
expenses. Without this reduction, Total Fund Portfolio Annual Expenses
would have been 0.81% for the Asset Manager Portfolio.
</TABLE>
10
<PAGE>
The table does not reflect the monthly deductions for the cost of insurance and
any riders, nor does it reflect the monthly deduction of $15 during the first
Policy Year, and currently, $5 thereafter for administrative expenses. The
information set forth should be considered together with the information
provided in this Prospectus under the heading "Charges and Fees", and in each
Fund's Prospectus. All expenses are expressed as a percentage of average account
value.
<TABLE>
<CAPTION>
TEMPLETON VARIABLE PRODUCTS
MFS VARIABLE INSURANCE TRUST SERIES FUNDS
- -------------------------------------- ------------------------------------------ OCC ACCUMULATION TRUST
MFS TEMPLETON ------------------------------------
TOTAL MFS MFS WORLD ASSET TEMPLETON TEMPLETON GLOBAL
RETURN UTILITIES GOVERNMENTS ALLOCATION INTERNATIONAL STOCK EQUITY MANAGED SMALL CAP
SERIES SERIES SERIES FUND FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO
- ---------- ---------- ------------ ------------ -------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
0.75% 0.75% 0.75% 0.48% 0.49% 0.47% 0.80% 0.80% 0.80%
0.25% 0.25% 0.25% 0.18% 0.22% 0.19% 0.45% 0.14% 0.20%
1.00%(3) 1.00%(3) 1.00%(4) 0.66% 0.71% 0.66% 1.25%(5) 0.94%(5) 1.00%(5)
<FN>
- ------------------------
(3) The Funds' Adviser has agreed to bear, subject to reimbursement, expenses
for each of the Total Return Series and Utilities Series, such that each
Series' aggregate operating expense shall not exceed, on an annualized
basis, 1.00% of the average daily net assets of the Series from November 2,
1994 through December 31, 1996, 1.25% of the average daily net assets of
the Series from January 1, 1997 through December 31, 1998, and 1.50% of the
average daily net assets of the Series from January 1, 1999 through
December 31, 2004; provided however, that this obligation may be terminated
or revised at any time. Absent this expense arrangement, "Other Expenses"
and "Total Annual Expenses" would be 2.02% and 2.77%, respectively, for the
Total Return Series, and 2.33% and 3.08%, respectively, for the Utility
Series.
(4) The Funds' Adviser has agreed to bear, subject to reimbursement, until
December 31, 2004, expenses of the World Governments Series such that the
Series' aggregate operating expenses do not exceed 1.00%, on an annualized
basis, of its average daily net assets. Absent this expense arrangement,
"Other Expenses" and "Total Annual Expenses" for the World Governments
Series would be 1.29% and 1.99%, respectively.
(5) The annual expenses of the OCC Accumulation Trust Portfolios as of December
31, 1995 have been restated to reflect new management fee and expense
limitation arrangements in effect as of May 1, 1996. Effective May 1, 1996,
the expenses of the Portfolios of the OCC Accumulation Trust are
contractually limited by OpCap Advisors so that their respective annualized
operating expenses do not exceed 1.25% of their respective average daily
net assets. Furthermore, through April 30, 1997, the annualized operating
expenses of the Managed and Small Cap Portfolios will be voluntarily
limited by OpCap Advisors so that annualized operating expenses of these
Portfolios do not exceed 1.00% of their respective average daily net
assets. Without such voluntary expense limitations, and taking into account
the revised contractual provisions effective May 1, 1996 concerning
management fees and expense limitations, the Management Fees, Other
Expenses and Total Portfolio Annual Expenses incurred for the fiscal year
ended December 31, 1995 would have been: .80%, 45% and 1.25%, respectively,
for the Global Equity Portfolio; .80%, .14% and .94%, respectively, for the
Managed Portfolio; and .80%, .39% and 1.19%, respectively, for the Small
Cap Portfolio.
</TABLE>
11
<PAGE>
GENERAL
There is no assurance that the investment objective of any
of the Funds will be met. A Policy Owner bears the complete
investment risk for Accumulation Values allocated to a
Sub-Account. Each of the Sub-Accounts involves inherent
investment risk, and such risk varies significantly among
the Sub-Accounts. Policy Owners should read each Fund's
prospectus carefully and understand the Funds' relative
degrees of risk before making or changing investment
choices. Additional Funds may, from time to time, be made
available as investments to underlie the Policies. However,
the right to make such selections will be limited by the
terms and conditions imposed on such transactions by the
Company (See "Premium Payments").
Required premium levels will vary based on market
performance. In a prolonged market downturn, affecting all
Sub-Accounts, additional Premium Payments may be necessary
to maintain the level of coverage or to avoid lapsing of the
Policy. Review of periodic contract statements is strongly
suggested to determine appropriate premium requirements.
SUBSTITUTION OF SECURITIES
If the shares of any Fund should no longer be available for
investment by the Variable Account or if, in the judgment of
the Company, further investment in such shares should become
inappropriate in view of the purpose of the investment
objectives of the Policies, the Company may substitute
shares of another Fund. No substitution of securities in any
Sub-Account may take place without prior approval of the
Commission and under such requirements as it may impose.
VOTING RIGHTS
In accordance with its view of present applicable law, the
Company will vote the shares of each Fund held in the
Variable Account at special meetings of the shareholders of
the particular Series Fund in accordance with written
instructions received from persons having the voting
interest in the Variable Account. The Company will vote
shares for which it has not received instructions, as well
as shares attributable to it, in the same proportion as it
votes shares for which it has received instructions. The
Series Funds do not hold regular meetings of shareholders.
The number of shares which a person has a right to vote will
be determined as of a date to be chosen by the appropriate
Series Fund not more than sixty (60) days prior to the
meeting of the particular Series Fund. Voting instructions
will be solicited by written communication at least fourteen
(14) days prior to the meeting.
The Funds' shares are issued and redeemed only in connection
with variable annuity contracts and variable life insurance
policies issued through separate accounts of the Company and
other life insurance companies. The Series Funds do not
foresee any disadvantage to Policy Owners arising out of the
fact that shares may be made available to separate accounts
which are used in connection with both variable annuity and
variable life insurance products. Nevertheless, the Series
Fund's Boards intend to monitor events in order to identify
any material irreconcilable conflicts which may possibly
arise and to determine what action, if any, should be taken
in response thereto. If such a conflict were to occur, one
of the separate accounts might withdraw its investment in a
Fund. This might force a Fund to sell portfolio securities
at disadvantageous prices.
12
<PAGE>
FUND PARTICIPATION AGREEMENTS
The Company has entered into agreements with the various
Series Funds and their advisers or distributors under which
the Company makes the Funds available under the Policies and
performs certain administrative services. In some cases, the
advisers or distributors may compensate the Company
therefor.
DEATH BENEFIT
DEATH BENEFIT OPTIONS
Two different Death Benefit Options are available. The
amount payable under either option will be determined as of
the date of the Insured's death.
Under OPTION 1 the Death Benefit will be the greater of the
Specified Amount (a minimum of $100,000 as of the date of
this Prospectus), or the applicable percentage (the
"Corridor Percentage") of the Accumulation Value required to
maintain the Policy as a "life insurance contract" for tax
purposes (the "Corridor Death Benefit"). The Corridor
Percentage is 250% through the Insured's age 40 and
decreases in accordance with the table in "Payment of Death
Benefit" to 100% at the Insured's age 95. Option 1 provides
a level Death Benefit until the Corridor Death Benefit
exceeds the Specified Amount.
Under OPTION 2 the Death Benefit will be the greater of the
Specified Amount (a minimum of $100,000 as of the date of
this Prospectus), plus the Accumulation Value, or the
Corridor Death Benefit. Option 2 provides a varying Death
Benefit which increases or decreases over time, depending on
the amount of premium paid and the investment performance of
the underlying funding options chosen.
Under both Option 1 and Option 2, the proceeds payable upon
death will be the Death Benefit, reduced by partial
surrenders and by the amount necessary to repay any loans in
full. Option 1 will be in effect unless Option 2 has been
elected in the application for the Policy or unless a change
has been allowed.
CHANGES IN DEATH BENEFIT OPTION
A Death Benefit Option change will be allowed upon the
Owner's written request to the Annuity & Variable Life
Services Center in form satisfactory to the Company, subject
to the following conditions:
- The change will take effect on the Monthly Anniversary Day or
on the next Valuation Day following the date of receipt of the
request.
- There will be no change in the Surrender Charge, and evidence
of insurability may be required.
- No change in the Death Benefit Option may reduce the Specified
Amount below $100,000.
- For changes from Option 1 to Option 2, the new Specified
Amount will equal the Specified Amount less the Accumulation
Value at the time of the change.
- For changes from Option 2 to Option 1, the new Specified
Amount will equal the Specified Amount plus the Accumulation
Value at the time of the change.
GUARANTEED DEATH BENEFIT PROVISION
The Guaranteed Death Benefit Provision assures that, as long
as the Guaranteed Initial Death Benefit Premium is paid, the
Death Benefit will not be less than the Initial
13
<PAGE>
Specified Amount during the first five Policy Years even if
the Surrender Value is insufficient to cover the current
Monthly Deductions, assuming there have been no loans or
partial surrenders.
Changes in Initial Specified Amount, partial surrenders, and
Death Benefit Option changes during the first five Policy
Years may affect the Guaranteed Death Benefit Premium. These
events and loans may also affect the Policy's ability to
remain in force.
PAYMENT OF DEATH BENEFIT
The Death Benefit under the Policy will be paid in a lump
sum within seven days after receipt at the Annuity &
Variable Life Services Center of due proof of the Insured's
death (a certified copy of the death certificate), unless
the Owner or the Beneficiary has elected that it be paid
under one or more of the Settlement Options (See "Settlement
Options"). Payment of the Death Benefit may be delayed if
the Policy is being contested.
While the Insured is living, the Owner may elect a
Settlement Option for the Beneficiary and deem it
irrevocable, and may revoke or change a prior election. The
Beneficiary may make or change an election within 90 days of
the death of the Insured, unless the Owner has made an
irrevocable election.
All or a part of the Death Benefit may be applied under one
or more of the Settlement Options, or such other options as
the Company may make available in the future.
If the Policy is assigned as collateral security, the
Company will pay any amount due the assignee in one lump
sum. Any excess Death Benefit due will be paid as elected.
The Death Benefit under the Policy at any point in time must
be at least the following "Corridor Percentage" of the
Accumulation Value based on the Insured's attained age:
<TABLE>
<CAPTION>
INSURED'S CORRIDOR INSURED'S CORRIDOR
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ----------- ------------- -----------
<S> <C> <C> <C>
0-40 250% 70 115%
41 243 71 113
42 236 72 111
43 229 73 109
44 222 74 107
-- - --
45 215 75 105
46 209 76 105
47 203 77 105
48 197 78 105
49 191 79 105
-- - --
50 185 80 105
51 178 81 105
52 171 82 105
53 164 83 105
54 157 84 105
-- - --
55 150 85 105
56 146 86 105
57 142 87 105
58 138 88 105
59 134 89 105
-- - --
60 130 90 105
61 128 91 104
62 126 92 103
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
INSURED'S CORRIDOR INSURED'S CORRIDOR
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ----------- ------------- -----------
63 124 93 102
<S> <C> <C> <C>
64 122 94 101
-- - --
65 120 95 100
66 119 96 100
67 118 97 100
68 117 98 100
69 116 99 100
-- - --
</TABLE>
CHANGES IN SPECIFIED AMOUNT
Changes in the Specified Amount of a Policy can be made by
submitting a written request to the Annuity & Variable Life
Services Center in form satisfactory to the Company.
Changes in the Specified Amount are subject to the following
conditions:
- Satisfactory evidence of insurability and a supplemental
application may be required for an increase in the Specified
Amount.
- An increase in the Specified Amount will increase the
Surrender Charge.
- As of the date of this Prospectus, the minimum allowable
increase in Specified Amount is $1,000.
- No decrease may reduce the Specified Amount to less than
$100,000.
- No decrease may reduce the Specified Amount below the minimum
required to maintain the Policy's status under the Code as a
life insurance policy.
PREMIUM PAYMENTS; TRANSFERS
PREMIUM PAYMENTS
The Policies provide for flexible premium payments. Premium
Payments are payable in the frequency and in the amount
selected by the Policy Owner. The initial Premium Payment is
due on the Issue Date and is payable in advance. The minimum
payment is the amount necessary to maintain a positive
Surrender Value or Guaranteed Minimum Death Benefit. Each
subsequent Premium Payment must be at least $100. The
Company reserves the right to decline any application or
Premium Payment.
After the initial Premium Payment, all Premium Payments must
be sent directly to the Annuity & Variable Life Services
Center and will be deemed received when actually received
there.
The Policy Owner may elect to increase, decrease or change
the frequency of Premium Payments.
PLANNED PREMIUMS are Premium Payments scheduled when a
Policy is applied for. They can be billed annually,
semiannually or quarterly. Pre-authorized automatic monthly
check payments may also be arranged.
ADDITIONAL PREMIUMS are any Premium Payments made ($100
minimum) in addition to Planned Premiums.
GUARANTEED INITIAL DEATH BENEFIT PREMIUM, if paid during
each of the first five Policy Years, enables the Policy to
remain in force regardless of investment performance,
assuming no surrenders or loans during that time. The
Guaranteed Initial Death Benefit Premium is stated in the
Policy Specifications. An increase in Specified Amount would
require a recalculation of the Guaranteed Initial Death
Benefit Premium. If this premium
15
<PAGE>
is not paid, or there are partial surrenders or loans taken
during the first five Policy Years, the Policy will lapse
during the first five Policy Years if the Surrender Value is
less than the next Monthly Deduction, just as it would after
the first five Policy Years at any time the Surrender Value
is less than the next Monthly Deduction.
Payment of Planned Premiums or Additional Premiums in any
amount will not, except as noted above, guarantee that the
Policy will remain in force. Conversely, failure to pay
Planned Premiums or Additional Premiums will not necessarily
cause a Policy to lapse (See "Guaranteed Death Benefit
Provision").
PREMIUM INCREASES. At any time, the Owner may increase
Planned Premiums, or pay Additional Premiums, but:
- Evidence of insurability may be required if the Additional
Premium or the new Planned Premium during the current Policy
Year would increase the difference between the Death Benefit
and the Accumulation Value. If satisfactory evidence of
insurability is requested and not provided, the increase in
premium will be refunded without interest and without
participation of such amounts in any underlying funding
options.
- In no event may the total of all Premium Payments exceed the
then-current maximum premium limitations established by
federal law for a Policy to qualify as life insurance. If, at
any time, a Premium Payment would result in total Premium
Payments exceeding such maximum premium limitation, the
Company will only accept that portion of the Premium Payment
which will make total premiums equal the maximum. Any part of
the Premium Payment in excess of that amount will be returned
or applied as otherwise agreed and no further Premium Payments
will be accepted until allowed by the then-current maximum
premium limitations prescribed by law.
- If there is any Policy indebtedness, any additional Net
Premium Payments will be used first as a loan repayment with
any excess applied as an additional Net Premium Payment.
ALLOCATION OF NET PREMIUM PAYMENTS
At the time of purchase of the Policy, the Owner must decide
how to allocate Net Premium Payments among the Sub-Accounts
and the Fixed Account. Allocation to any one Variable
Account Sub-Account or to the Fixed Account must be in whole
percentages. No allocation can be made which would result in
a Sub-Account Value of less than $50 or a Fixed Account
value of less than $2,500. Further, at this time, no more
than 18 Sub-Accounts may be opened during the life of the
Policy. The Company may expand this number at a future date.
For each Variable Account Sub-Account, the Net Premium
Payments are converted into Accumulation Units. The number
of Accumulation Units credited to the Policy is determined
by dividing the Net Premium Payment allocated to the
Sub-Account by the value of the Accumulation Unit for the
Sub-Account.
During the Right-to-Examine Period, the Net Premium Payment
will be allocated to the Fixed Account, and interest
credited from the Issue Date if the Premium Payment was
received on or before the Issue Date. The Company will
allocate the initial Net Premium Payment directly to the
Sub-Account(s) selected by the Owner within three days after
expiration of the Right-to-Examine Period.
16
<PAGE>
Unless the Company is directed otherwise by the Policy
Owner, subsequent Net Premium Payments will be allocated on
the same basis as the most recent previous Net Premium
Payment. Such allocation will occur as of the next Valuation
Period after each payment is received.
The allocation for future Net Premium Payments may be
changed at any time free of charge. Any new allocation will
apply to Premium Payments made more than one week after the
Company receives the notice of the new allocatin. Any new
allocation is subject to the same requirements as the
initial allocation. The Company may, at its sole discretion,
waive minimum premium allocation requirements.
TRANSFERS
Before the Insured attains age 100, values may, at any time,
be transferred ($500 minimum) from one Sub-Account to
another or from the Variable Account to the Fixed Account.
Within the 30 days after each Policy Anniversary, the Owner
may also transfer a portion of the Fixed Account Value to
one or more Sub-Accounts, until the Insured attains age 100.
Transfers from the Fixed Account are allowed in the 30-day
period after a Policy Anniversary and will be effective as
of the next Valuation Day after a request is received in
good order at the Annuity & Variable Life Services Center.
The cumulative amount of transfers from the Fixed Account
within any such 30-day period cannot exceed 20% of the Fixed
Account Value on the most recent Policy Anniversary. The
Company may further limit transfers from the Fixed Account
at any time.
Subject to the above restrictions, up to 12 transfers may be
made in any Policy Year without charge, and any value
remaining in the Fixed Account or a Sub-Account after a
transfer must be at least $500. Transfers may be made in
writing or by telephone unless the Policy Owner has
indicated in writing in the application or otherwise that
telephone transfers are not to be permitted. To make a
telephone transfer, the Policy Owner must call the Annuity &
Variable Life Services Center and provide, as
identification, his or her Policy Number and a requested
portion of his or her Social Security number. A customer
service representative will then come on the line and, upon
ascertaining that telephone transfers are permitted for that
Policy, take the transfer request, which will be processed
as of the next close of business and confirmed the day after
that. The Company disclaims all liability for losses
resulting from unauthorized or fraudulent telephone
transactions, but acknowledges that if it does not follow
these procedures, which it believes to be reasonable, it may
be liable for such losses.
Any transfer among the Sub-Accounts or to the Fixed Account
will result in the crediting and cancellation of
Accumulation Units based on the Accumulation Unit values
next determined after a written request is received at the
Annuity & Variable Life Services Center. Transfer requests
must be received by the Variable Products Center by 4:00
Eastern Time in order to be effective that day. Any transfer
made which causes the remaining value of Accumulation Units
for a Sub-Account to be less than $500 will result in those
remaining Accumulation Units being cancelled and their
aggregate value reallocated proportionately among the other
funding options chosen. The Policy Owner should carefully
consider current market conditions and each Sub-Account's
investment policies and related risks before allocating
money to the Sub-Accounts. See pages 8-11 of this
Prospectus.
The Company, at its sole discretion, may waive minimum
balance requirements on the Sub-Accounts.
17
<PAGE>
OPTIONAL VARIABLE ACCOUNT SUB-ACCOUNT ALLOCATION PROGRAMS
The Owner may elect to enroll in either of the following
programs. However, both programs cannot be in effect at the
same time.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected by the
Owner, systematically allocates specified dollar amounts
from the Money Market Sub-Account or the Fixed Account to
one or more of the Contract's Variable Account Sub-Accounts
at regular intervals as selected by the Owner. By allocating
on a regularly scheduled basis as opposed to allocating the
total amount at one particular time, an Owner may be less
susceptible to the impact of market fluctuations.
Dollar Cost Averaging may be selected by establishing a
Money Market Sub-Account or the Fixed Account value of at
least $1,000. The minimum amount per month to allocate is
$50 (subject to the 18 Sub-Account Limitation described
under "Allocation of Net Premium Payments" above).
Enrollment in this program may occur at any time by calling
the Annuity & Variable Life Services Center or by providing
the information requested on the Dollar Cost Averaging
election form to the Company and that sufficient value is in
the Money Market Sub-Account or the Fixed Account. Transfers
to the Fixed Account are not permitted under Dollar Cost
Averaging. The Company may, at its sole discretion, waive
Dollar Cost Averaging minimum deposit and transfer
requirements.
Dollar Cost Averaging will terminate when any of the
following occurs: (1) the number of designated transfers has
been completed; (2) the value of the Money Market Sub-
Account or the Fixed Account is insufficient to complete the
next transfer; (3) the Owner requests termination by
telephone or in writing and such request is received at
least one week prior to the next scheduled transfer date to
take effect that month; or (4) the Policy is surrendered.
There is no current charge for Dollar Cost Averaging but the
Company reserves the right to charge for this program.
AUTOMATIC REBALANCING
Automatic Rebalancing is an option which, if elected by the
Owner, periodically restores to a pre-determined level the
percentage of Policy Value allocated to each Sub-Account
(e.g. 20% Money Market, 50% Growth, 30% Utilities). This
pre-determined level will be the allocation initially
selected on the application, unless subsequently changed.
The Automatic Rebalancing allocation may be changed at any
time by submitting a request to the Company.
If Automatic Rebalancing is elected, all Net Premium
Payments allocated to the Sub-Accounts must be subject to
Automatic Rebalancing. The Fixed Account is not available
for Automatic Rebalancing.
Automatic Rebalancing may take place on either a quarterly,
semi-annual or annual basis, as selected by the Owner. Once
the rebalancing option is activated, any Sub-Account
transfers executed outside of the rebalancing option will
terminate the Automatic Rebalancing option. Any subsequent
premium payment or withdrawal that modifies the net account
balance within each Sub-Account may also cause termination
of the Automatic Rebalancing option. Any such termination
will be confirmed to the Owner. The Owner may terminate the
Automatic Rebalancing option or re-enroll at any time by
calling or writing the Annuity & Variable Life Services
Center.
There is no current charge for Automatic Rebalancing but the
Company reserves the right to charge for this program.
18
<PAGE>
CHARGES; FEES
PREMIUM LOAD
A deduction of 5.0% of each Premium Payment will be made to
cover the premium load. This load represents state taxes and
federal income tax liabilities and a portion of the sales
expenses incurred by the Company. The 2.35% portion of this
deduction for premium taxes may be higher or lower than the
actual tax imposed by the applicable jurisdiction; it is in
the mid-range of state premium taxes, which range from 1.75%
to 5.0%. The Company estimates 1.15% of each Premium Payment
will be used to meet federal income tax liabilities
attributable to the treatment of deferred acquisition costs.
The remaining 1.5% of the deduction is for sales expenses.
The combination of the 1.5% front-end sales load and the
deferred sales component of the surrender charge will not
exceed maximum sales charges permitted under the 1940 Act.
MONTHLY DEDUCTIONS
A Monthly Deduction is made from the Net Accumulation Value
for administrative expenses. The monthly administrative fee
is $15 during the first Policy Year and, currently, $5
during subsequent Policy Years. This charge is for items
such as premium billing and collection, policy value
calculation, confirmations and periodic reports and will not
exceed the Company's costs. For subsequent Policy Years,
this monthly fee will never exceed $10.
A Monthly Deduction is also made from the Net Accumulation
Value for the Cost of Insurance and any charges for
supplemental riders. The Cost of Insurance depends on the
attained age, risk class and gender classification (in
accordance with state law) of the Insured and the current
Net Amount at Risk.
The Cost of Insurance is determined by dividing the Death
Benefit at the previous Monthly Anniversary Day by
1.0032737, subtracting the Accumulation Value at the
previous Monthly Anniversary Day, and multiplying the result
(the Net Amount at Risk) by the applicable Cost of Insurance
Rate as determined by the Company. The Guaranteed Maximum
Cost of Insurance Rates, per $1,000 of Net Amount at Risk,
for standard risks are set forth in the following Table
based on the 1980 Commissioners Standard Ordinary Mortality
Tables, Age Nearest Birthday (1980 CSO); or, for unisex
rates, on the 1980 CSO-B Table.
<TABLE>
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- ----------- --------- --------- ---------
<S> <C> <C> <C>
0 0.34845 0.24089 0.32677
1 0.08917 0.07251 0.08667
2 0.08251 0.06750 0.07917
3 0.08167 0.06584 0.07834
4 0.07917 0.06417 0.07584
5 0.07501 0.06334 0.07251
6 0.07167 0.06084 0.06917
7 0.06667 0.06000 0.06584
8 0.06334 0.05834 0.06250
9 0.06167 0.05750 0.06084
10 0.06084 0.05667 0.06000
11 0.06417 0.05750 0.06250
12 0.07084 0.06000 0.06917
13 0.08251 0.06250 0.07834
14 0.09584 0.06887 0.09001
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- ----------- --------- --------- ---------
<S> <C> <C> <C>
15 0.11085 0.07084 0.10334
16 0.12585 0.07601 0.11585
17 0.13919 0.07917 0.12752
18 0.14836 0.08167 0.13502
19 0.15502 0.08501 0.14085
20 0.15836 0.08751 0.14502
21 0.15919 0.08917 0.14585
22 0.15752 0.09084 0.14419
23 0.15502 0.09251 0.14252
24 0.15189 0.09501 0.14085
25 0.14752 0.09668 0.13752
26 0.11419 0.09918 0.13585
27 0.14252 0.10168 0.13418
28 0.14169 0.10501 0.13418
29 0.14252 0.10635 0.13585
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- ----------- --------- --------- ---------
<S> <C> <C> <C>
30 0.14419 0.11251 0.13752
31 0.14836 0.11668 0.14169
32 0.15252 0.12085 0.14585
33 0.15919 0.12502 0.15252
34 0.16889 0.13168 0.15919
35 0.17586 0.13752 0.16836
36 0.18670 0.14669 0.17837
37 0.20004 0.15752 0.19170
38 0.21505 0.17003 0.20588
39 0.23255 0.18503 0.22338
40 0.25173 0.20171 0.24173
41 0.27424 0.22005 0.26340
42 0.29675 0.23922 0.28508
43 0.32260 0.25757 0.31010
44 0.34929 0.27674 0.33428
45 0.37931 0.29675 0.36263
46 0.41017 0.31677 0.39182
47 0.44353 0.33761 0.42268
48 0.47856 0.36096 0.45437
49 0.51777 0.38598 0.49107
50 0.55948 0.41350 0.53028
51 0.60870 0.44270 0.57533
52 0.66377 0.47523 0.62539
53 0.72636 0.51276 0.68297
54 0.79730 0.55114 0.74722
55 0.87326 0.59118 0.81566
56 0.95591 0.63123 0.88996
57 1.04192 0.66961 0.96593
58 1.13378 0.70633 1.04609
59 1.23236 0.74556 1.13211
60 1.34180 0.78979 1.22817
61 1.46381 0.84488 1.33511
62 1.60173 0.91417 1.45796
63 1.75809 1.00267 1.59922
64 1.93206 1.10539 1.75725
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- ----------- --------- --------- ---------
<S> <C> <C> <C>
65 2.12283 1.21731 1.92955
66 2.32623 1.33511 2.11195
67 2.54312 1.45461 2.30614
68 2.77350 1.57247 2.50878
69 3.02328 1.69955 2.72909
70 3.30338 1.84590 2.97466
71 3.62140 2.02325 3.25640
72 3.98666 2.24419 3.58279
73 4.40599 2.51548 3.95978
74 4.87280 2.83552 4.38330
75 5.37793 3.19685 4.84334
76 5.91225 3.59370 5.33245
77 6.46824 4.01942 5.84227
78 7.04089 4.47410 6.36948
79 7.64551 4.97042 6.92851
80 8.30507 5.52957 7.54229
81 9.03761 6.17118 8.22883
82 9.86724 6.91414 9.01216
83 10.80381 7.77075 9.90124
84 11.82571 8.72632 10.87533
85 12.91039 9.76952 11.92213
86 14.03509 10.89151 13.01471
87 15.18978 12.08770 14.15507
88 16.36948 13.35774 15.33494
89 17.57781 14.70820 16.56493
90 18.82881 16.15259 17.85746
91 20.14619 17.71416 19.23699
92 21.57655 19.43814 20.76665
93 23.20196 21.40786 22.49837
94 25.28174 23.63051 24.70915
95 28.27411 27.16158 27.82758
96 33.10577 32.32378 32.78845
97 41.68476 41.21204 41.45783
98 58.01259 57.81394 57.95663
99 90.90909 90.90909 90.90909
</TABLE>
These Monthly Deductions are deducted proportionately from
the value of each funding option. This is accomplished for
the Sub-Accounts by canceling Accumulation Units and
withdrawing the value of the canceled Accumulation Units
from each funding option in the same proportion as their
respective values have to the Net Accumulation Value. The
Monthly Deductions are made on the Monthly Anniversary Day.
If the Insured is still living at age 100 and the Policy has
not been surrendered, no further Monthly Deductions are
taken and any Variable Account Value is transferred to the
Fixed Account. The Policy will then remain in force until
surrender or the Insured's death.
TRANSACTION FEE FOR EXCESS TRANSFERS
There will be a $25 transaction fee for each transfer
between funding options in excess of 12 during any Policy
Year.
MORTALITY AND EXPENSE RISK CHARGE
For mortality and expense risks, a daily deduction,
currently equivalent to .80% per year during the first
twelve Policy Years and .55% per year thereafter, is made
from amounts held in the Variable Account. This deduction is
guaranteed not to exceed .90% per year.
20
<PAGE>
SURRENDER CHARGE
Upon surrender of a Policy, a surrender charge may apply, as
described below. This charge is in part a deferred sales
charge and in part a recovery of certain first year
administrative costs.
The initial Surrender Charge, as specified in the Policy, is
based on the Initial Specified Amount and the amount of
Premium Payments during the first two Policy Years. Once
determined, the Surrender Charge will remain the same dollar
amount during the third through fifth Policy Years.
Thereafter, it declines monthly at a rate of 20% per year so
that after the end of the tenth Policy Year (assuming no
increases in the Specified Amount) the Surrender Charge will
be zero. Thus, the Surrender Charge at the end of the sixth
Policy Year would be 80% of the Surrender Charge at the end
of the fifth Policy Year, at the end of the seventh Policy
Year would be 60% of the Surrender Charge at the end of the
fifth Policy Year, and so forth. However, in no event will
the Surrender Charge exceed the maximum allowed by state or
federal law.
If the Specified Amount is increased, a new Surrender Charge
will be applicable, in addition to any existing Surrender
Charge. The Surrender Charge applicable to the increase
would be equal to the Surrender Charge on a new policy whose
Specified Amount was equal to the amount of the increase. As
of the date of this Prospectus, the minimum allowable
increase in Specified Amount is $1,000. The Company may
change this at any time.
If the Specified Amount is decreased while the Surrender
Charge applies, the Surrender Charge will remain the same.
No Surrender Charge is imposed on a partial surrender, but
an administrative fee of $25 is imposed, allocated pro-rata
among the Sub-Accounts (and, where applicable, the Fixed
Account) from which the partial surrender proceeds are taken
unless the Owner instructs the Company otherwise.
The portion of the Surrender Charge applied to reimburse the
Company for sales and promotional expense is at most 28.5%
of the sum of Premium Payments in the first two Policy Years
up to one Guideline Annual Premium, plus 8.5% of Premium
Payments in the first two Policy Years between one and two
times one Guideline Annual Premium plus 7.5% of Premium
Payments in the first two Policy Years in excess of two
times one Guideline Annual Premium. The portion applicable
to administrative expense is $6.00 per $1,000 of Initial
Specified Amount. Under certain circumstances involving the
payment of very large premiums during the first two Policy
Years, a lesser portion of the Surrender Charge will be
applied to reimburse the Company for sales and promotional
expense, to the extent required by federal or state law. Any
surrenders may result in tax implications. See "Tax
Matters".
Based on its actuarial determination, the Company does not
anticipate that the Surrender Charge will cover all sales
and administrative expenses which the Company will incur in
connection with the Policy. Any such shortfall, including
but not limited to payment of sales and distribution
expenses, would be available for recovery from the General
Account of the Company, which supports insurance and annuity
obligations.
21
<PAGE>
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's
General Account. Amounts held in the Fixed Account are
guaranteed and will be credited with interest at rates as
determined from time to time by the Company, but not less
than 4% per year.
THE FIXED ACCOUNT IS MADE UP OF THE GENERAL ASSETS OF THE
COMPANY OTHER THAN THOSE ALLOCATED TO ANY SEPARATE ACCOUNT.
THE FIXED ACCOUNT IS PART OF THE COMPANY'S GENERAL ACCOUNT.
BECAUSE OF APPLICABLE EXEMPTIVE AND EXCLUSIONARY PROVISIONS,
INTERESTS IN THE FIXED ACCOUNT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"), AND
NEITHER THE FIXED ACCOUNT NOR THE COMPANY'S GENERAL ACCOUNT
HAS BEEN REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940
(THE "1940 ACT"). THEREFORE, NEITHER THE FIXED ACCOUNT NOR
ANY INTEREST THEREIN IS GENERALLY SUBJECT TO REGULATION
UNDER THE PROVISIONS OF THE 1933 ACT OR THE 1940 ACT.
ACCORDINGLY, THE COMPANY HAS BEEN ADVISED THAT THE STAFF OF
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE
DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT.
POLICY VALUES
ACCUMULATION VALUE
Once a Policy has been issued, each Net Premium Payment
allocated to a Sub-Account of the Variable Account is
credited in the form of Accumulation Units, representing the
Fund in which assets of that Sub-Account are invested. Each
Net Premium Payment will be credited to the Policy as of the
end of the Valuation Period in which it is received at the
Annuity & Variable Life Services Center (or portion thereof
allocated to a particular Sub-Account). The number of
Accumulation Units credited is determined by dividing the
Net Premium Payment by the value of an Accumulation Unit
next computed after receipt. Since each Sub-Account has a
unique Accumulation Unit value, a Policy Owner who has
elected a combination of funding options will have
Accumulation Units credited from more than one source.
The Accumulation Value of a Policy is determined by: (a)
multiplying the total number of Accumulation Units credited
to the Policy for each applicable Sub-Account by its
appropriate current Accumulation Unit value; (b) if a
combination of Sub-Accounts is elected, totaling the
resulting values; and (c) adding any values attributable to
the General Account (i.e., the Fixed Account Value and the
Loan Account Value).
The number of Accumulation Units credited to a Policy will
not be changed by any subsequent change in the value of an
Accumulation Unit. Such value may vary from Valuation Period
to Valuation Period to reflect the investment experience of
the Fund used in a particular Sub-Account.
The Fixed Account Value reflects amounts allocated to the
General Account through payment of premiums or transfers
from the Variable Account. The Fixed Account Value is
guaranteed; however, there is no assurance that the Variable
Account Value of the Policy will equal or exceed the Net
Premium Payments allocated to the Variable Account.
Each Policy Owner will be advised at least annually as to
the number of Accumulation Units which remain credited to
the Policy, the current Accumulation Unit values, the
Variable Account Value, the Fixed Account Value and the Loan
Account Value.
Accumulation Value will be affected by Monthly Deductions.
VARIABLE ACCUMULATION UNIT VALUE
The value of a Variable Accumulation Unit for any Valuation
Period is determined by multiplying the value of that
Variable Accumulation Unit for the immediately preceding
22
<PAGE>
Valuation Period by the Net Investment Factor for the
current period for the appropriate Sub-Account. The Net
Investment Factor is determined separately for each
Sub-Account by dividing (a) by (b) and subtracting (c) from
the results where (a) equals the net asset value per share
of the Fund held in the Sub-Account at the end of a
Valuation Period plus the per share amount of any
distribution declared by the Fund if the "ex-dividend" date
is during the Valuation Period plus or minus taxes or
provisions for taxes, if any, attributable to the operation
of the Sub-Account during the Valuation Period; (b) equals
the net asset value per share of the Fund held in the
Sub-Account at the beginning of that Valuation Period, and
(c) is the daily charge for mortality and expense risk
multiplied by the number of days in the Valuation Period.
SURRENDER VALUE
The Surrender Value of a Policy is the amount the Owner can
receive in cash by surrendering the Policy. All or part of
the Surrender Value may be applied to one or more of the
Settlement Options. See "Surrender Charge."
SURRENDERS
PARTIAL SURRENDERS
A partial surrender may be made at any time by written
request to the Annuity & Variable Life Services Center
during the lifetime of the Insured and while the Policy is
in force. Such request may also be made by telephone if
telephone transfers have been previously authorized in
writing. A $25 transaction fee is charged.
The amount of a partial surrender may not exceed 90% of the
Surrender Value at the end of the Valuation Period in which
the election becomes or would become effective, and may not
be less than $500.
For an Option 1 Policy (See "Death Benefit"): A partial
surrender will reduce the Accumulation Value, Death Benefit,
and Specified Amount. The Specified Amount and Accumulation
Value will be reduced by equal amounts and will reduce any
past increases in the reverse order in which they occurred.
For an Option 2 Policy (See "Death Benefit"): A partial
surrender will reduce the Accumulation Value and the Death
Benefit, but it will not reduce the Specified Amount.
The Specified Amount remaining in force after a partial
surrender may not be less than $100,000. Any request for a
partial surrender that would reduce the Specified Amount
below this amount will not be granted. In addition, if,
following the partial surrender and the corresponding
decrease in the Specified Amount, the Policy would not
comply with the maximum premium limitations required by
federal tax law, the decrease may be limited to the extent
necessary to meet the federal tax law requirements.
If, at the time of a partial surrender, the Net Accumulation
Value is attributable to more than one funding option, the
$25 transaction charge and the amount paid upon the
surrender will be taken proportionately from the values in
each funding option, unless the Policy Owner and the Company
agree otherwise.
FULL SURRENDERS
A full surrender may be made at any time. The Company will
pay the Surrender Value next computed after receiving the
Owner's written request at the Annuity & Variable Life
Services Center in a form satisfactory to the Company.
Payment of any amount from the Variable Account on a full
surrender will usually be made within seven calendar days
thereafter.
23
<PAGE>
DEFERRAL OF PAYMENT AND TRANSFERS
Payment of the surrendered amount from the Variable Account
may be postponed when the New York Stock Exchange is closed
and for such other periods as the Commission may require.
Payment or transfer from the Fixed Account may be deferred
up to six months at the Company's option. If the Company
exercises its right to defer such payment or transfer
interest will be added as required by law.
LAPSE AND REINSTATEMENT
LAPSE OF A POLICY; EFFECT OF GUARANTEED DEATH BENEFIT
PROVISION
A Policy will not lapse during the five-year period after
its Issue Date regardless of investment performance if, on
each Monthly Anniversary Day within that period the sum of
premiums paid equals or exceeds the required amount of the
Guaranteed Initial Death Benefit Premium for that period,
assuming there have been no loans or partial surrenders. If
there have been any loans or partial surrenders, the Policy
may lapse unless there is sufficient Surrender Value to
cover the Monthly Deduction.
After the five-year period expires, and depending on the
investment performance of the funding options, the
Accumulation Value may be insufficient to keep this Policy
in force, and payment of an additional premium may be
necessary.
A lapse occurs if a Monthly Deduction is greater than the
Surrender Value and no payment to cover the Monthly
Deduction is made within the Grace Period. The Company will
send the Owner a lapse notice at least 31 days before the
Grace Period expires.
REINSTATEMENT OF A LAPSED POLICY
The Owner can apply for reinstatement at any time during the
Insured's lifetime. To reinstate a Policy, the Company will
require satisfactory evidence of insurability and an amount
sufficient to pay for the current Monthly Deduction plus two
additional Monthly Deductions.
If the Policy is reinstated within five years of the Issue
Date, all values including the Loan Account Value will be
reinstated to the point they were on the date of lapse.
However, the Guaranteed Initial Death Benefit Option will
not be reinstated.
If the Policy is reinstated after five years following the
Issue Date, it will be reinstated on the Monthly Anniversary
Day following the Company approval. The Accumulation Value
at reinstatement will be the Net Premium Payment then made
less the Monthly Deduction due that day.
If the Surrender Value is not sufficient to cover the full
Surrender Charge at the time of lapse, the remaining portion
of the Surrender Charge will also be reinstated at the time
of Policy reinstatement.
24
<PAGE>
POLICY LOANS
A Policy loan requires that a loan agreement be executed and
that the Policy be assigned to the Company. The loan may be
for any amount up to 100% of the Surrender Value; however,
the Company may limit the amount of such loan so that total
Policy indebtedness will not exceed 90% of an amount equal
to the Accumulation Value less the Surrender Charge which
would be imposed on a full surrender. The amount of a loan,
together with subsequent accrued but not paid interest on
the loan, becomes part of the Loan Account Value. If Policy
values are held in more than one funding option, withdrawals
from each funding option will be made in proportion to the
assets in each funding option at the time of the loan for
transfer to the Loan Account, unless the Company is
instructed otherwise in writing at the Annuity & Variable
Life Services Center.
Interest on loans will accrue at an annual rate of 8%, and
net loan interest (interest charged less interest credited
as described below) is payable once a year in arrears on
each anniversary of the loan, or earlier upon full surrender
or other payment of proceeds of a Policy. Any interest not
paid when due becomes part of the loan and the net interest
will be withdrawn proportionately from the values in each
funding option.
The Company will credit interest on the Loan Account Value.
During the first ten Policy Years, the Company's current
practice is that interest will be credited at an annual rate
equal to the interest rate charged on the loan minus 1%
(guaranteed not to exceed 2%). Beginning with the eleventh
Policy Year, the Company's current practice is that interest
will be credited at an annual rate equal to the interest
rate charged on the loan, less .50% annually (guaranteed not
to exceed 1%). In no case will the annual credited interest
rate be less than 6% in each of the first ten Policy Years
and 7% thereafter.
Repayments on the loan will be allocated among the funding
options according to current Net Premium Payment
allocations. The Loan Account Value will be reduced by the
amount of any loan repayment.
A Policy loan, whether or not repaid, will affect the
proceeds payable upon the Insured's death and the
Accumulation Value because the investment results of the
Variable Account or the Fixed Account will apply only to the
non-loaned portion of the Accumulation Value. The longer a
loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account
or the Fixed Account while the loan is outstanding, the
effect could be favorable or unfavorable.
SETTLEMENT OPTIONS
Proceeds in the form of Settlement Options are payable by
the Company at the Beneficiary's election upon the Insured's
death, or while the Insured is alive upon election by the
Owner of one of the Settlement Options.
A written request may be made to elect, change, or revoke a
Settlement Option before payments begin under any Settlement
Option. This request must be in form satisfactory to the
Company, and will take effect upon its receipt at the
Annuity & Variable Life Services Center. Payments after the
first payment will be made on the first day of each month.
FIRST OPTION -- Payments for the lifetime of the payee.
SECOND OPTION -- Payments for the lifetime of the payee,
guaranteed for 60, 120, 180, or 240 months;
THIRD OPTION -- Payment for a stated number of years, at
least five but no more than thirty;
25
<PAGE>
FOURTH OPTION -- Payment of interest annually on the sum
left with the Company at a rate of at least 3% per year, and
upon the payee's death the amount on deposit will be paid.
ADDITIONAL OPTIONS -- Policy proceeds may also be settled
under any other method of settlement offered by the Company
at the time the request is made.
OTHER POLICY PROVISIONS
ISSUANCE
A Policy may only be issued upon receipt of satisfactory
evidence of insurability, and generally only where the
Insured is below the age of 80.
SHORT-TERM RIGHT TO CANCEL THE POLICY
A Policy may be returned for cancellation and a full refund
of premium within 10 days after the Policy is received,
unless otherwise stipulated by state law requirements,
within 10 days after the Company mails or personally
delivers a Notice of Withdrawal Right to the Owner, or
within 45 days after the application for the Policy is
signed, whichever occurs latest. The Initial Premium Payment
made when the Policy is issued will be held in the Fixed
Account and not allocated to the Variable Account even if
the Policy Owner may have so directed until three business
days following the expiration of the Right-to-Examine
Period. If the Policy is returned for cancellation in a
timely fashion, the refund of premiums paid, without
interest, will usually occur within seven days of notice of
cancellation, although a refund of premiums paid by check
may be delayed until the check clears.
POLICY OWNER
While the Insured is living, all rights in this Policy are
vested in the Policy Owner named in the application or as
subsequently changed, subject to assignment, if any.
The Policy Owner may name a new Policy Owner while the
Insured is living. Any such change in ownership must be in a
written form satisfactory to the Company and recorded at the
Annuity & Variable Life Services Center. Once recorded, the
change will be effective as of the date signed; however, the
change will not affect any payment made or action taken by
the Company before it was recorded. The Company may require
that the Policy be submitted for endorsement before making a
change.
If the Policy Owner is other than the Insured, names no
contingent Policy Owner and dies before the Insured, the
Policy Owner's rights in this Policy belong to the Policy
Owner's estate.
BENEFICIARY
The Beneficiary(ies) shall be as named in the application or
as subsequently changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the
Insured is living. Any change must be in a written form
satisfactory to the Company and recorded at the Annuity &
Variable Life Services Center. Once recorded, the change
will be effective as of the date signed; however, the change
will not affect any payment made or action taken by the
Company before it was recorded.
If any Beneficiary predeceases the Insured, that
Beneficiary's interest passes to any surviving
Beneficiary(ies), unless otherwise provided. Multiple
Beneficiaries will be paid
26
<PAGE>
in equal shares, unless otherwise provided. If no named
Beneficiary survives the Insured, the death proceeds shall
be paid to the Policy Owner or the Policy Owner's
executor(s), administrator(s) or assigns.
ASSIGNMENT
While the Insured is living, the Policy Owner may assign his
or her rights in the Policy. The assignment must be in
writing, signed by the Policy Owner and recorded at the
Annuity & Variable Life Services Center. No assignment will
affect any payment made or action taken by the Company
before it was recorded. The Company is not responsible for
any assignment not submitted for recording, nor is the
Company responsible for the sufficiency or validity of any
assignment. The assignment will be subject to any
indebtedness owed to the Company before it was recorded.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may, within the first two Policy Years,
exchange the Policy for a permanent life insurance policy
then being offered by the Company. The benefits for the new
policy will not vary with the investment experience of a
separate account. The exchange must be elected within 24
months from the Issue Date. No evidence of insurability will
be required.
The Policy Owner, the Insured and the Beneficiary under the
new policy will be the same as those under the exchanged
Policy on the effective date of the exchange. The
Accumulation Value under the new Policy will be equal to the
Accumulation Value under the old Policy on the date the
exchange request is received. The new policy will have a
Death Benefit on the exchange date not more than the Death
Benefit of the original Policy immediately prior to the
exchange date. If the Accumulation Value is insufficient to
support the Death Benefit, the Policy Owner will be required
to make additional Premium Payments in order to effect the
exchange. The new policy will have the same Issue Date and
Issue Age as the original Policy. The initial Specified
Amount and any increases in Specified Amount will have the
same rate class as those of the original Policy. Any
indebtedness may be transferred to the new policy.
The exchange may be subject to an equitable adjustment in
rates and values to reflect variances, if any, in the rates
and values between the two Policies. After adjustment, if
any excess is owed the Policy Owner, the Company will pay
the excess to the Policy Owner in cash. The exchange may be
subject to federal income tax withholding.
INCONTESTABILITY
The Company will not contest payment of the death proceeds
based on the Initial Specified Amount after the Policy has
been in force during the Insured's lifetime for two years
from the Issue Date. For any increase in Specified Amount
requiring evidence of insurability, the Company will not
contest payment of the death proceeds based on such an
increase after it has been in force during the Insured's
lifetime for two years from its effective date.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the
affected benefits will be adjusted. The amount of the Death
Benefit will be 1. multiplied by 2. and then the result
added to 3. where:
1. is the Net Amount at Risk at the time of the Insured's
death;
27
<PAGE>
2. is the ratio of the monthly cost of insurance applied
in the policy month of death to the monthly cost of
insurance that should have been applied at the true age
and sex in the policy month of death; and
3. is the Accumulation Value at the time of the Insured's
death.
SUICIDE
If the Insured dies by suicide, while sane or insane, within
two years from the Issue Date, the Company will pay no more
than the sum of the premiums paid, less any indebtedness. If
the Insured dies by suicide, while sane or insane, within
two years from the date an application is accepted for an
increase in the Specified Amount, the Company will pay no
more than a refund of the monthly charges for the cost of
such additional benefit.
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends
are payable. These Policies do not share in the profits or
surplus earnings of the Company.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Code provides that if certain tests are
met, a Policy will be treated as a life insurance policy for
federal tax purposes. The Company will monitor compliance
with these tests. The Policy should thus receive the same
federal income tax treatment as fixed benefit life
insurance. As a result, the death proceeds payable under a
Policy are excludable from gross income of the Beneficiary
under Section 101 of the Code.
Section 7702A of the Code defines modified endowment
contracts as those policies issued or materially changed on
or after June 21, 1988 on which the total premiums paid
during the first seven years exceed the amount that would
have been paid if the policy provided for paid up benefits
after seven level annual premiums. The Code provides for
taxation of surrenders, partial surrenders, loans,
collateral assignments and other pre-death distributions
from modified endowment contracts in the same way annuities
are taxed. Modified endowment contract distributions are
defined by the Code as amounts not received as an annuity
and are taxable to the extent the cash value of the policy
exceeds, at the time of distribution, the premiums paid into
the policy. A 10% tax penalty generally applies to the
taxable portion of such distributions unless the Policy
Owner is over age 59 1/2 or disabled.
It may not be advantageous to replace existing insurance
with Policies described in this Prospectus. It may also be
disadvantageous to purchase a Policy to obtain additional
insurance protection if the purchaser already owns another
variable life insurance policy.
The Policies offered by this Prospectus may or may not be
issued as modified endowment contracts. The Company will
monitor premiums paid and will notify the Policy Owner when
the Policy's non-modified endowment contract status is in
jeopardy. If a Policy is not a modified endowment contract,
a cash distribution during the first 15 years after a Policy
is issued which causes a reduction in death benefits may
still become fully or partially taxable to the Owner
pursuant to Section 7702(f)(7) of the Code. The Policy Owner
should carefully consider this potential effect and seek
further information before initiating any changes in the
terms of the Policy. Under certain conditions, a Policy may
become a modified endowment contract as a result of a
material change or a reduction in benefits as defined by
Section 7702A(c) of the Code.
28
<PAGE>
In addition to meeting the tests required under Section 7702
and Section 7702A, Section 817(h) of the Code requires that
the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations issued by the
Secretary of the Treasury set the standards for measuring
the adequacy of this diversification. A variable life
insurance policy that is not adequately diversified under
these regulations would not be treated as life insurance
under Section 7702 of the Code. To be adequately
diversified, each Sub-Account of the Variable Account must
meet certain tests. The Company believes the Variable
Account investments meet the applicable diversification
standards.
Should the Secretary of the Treasury issue additional rules
or regulations limiting the number of funds, transfers
between funds, exchanges of funds or changes in investment
objectives of funds such that the Policy would no longer
qualify as life insurance under Section 7702 of the Code,
the Company will take whatever steps are available to remain
in compliance.
The Company will monitor compliance with these regulations
and, to the extent necessary, will change the objectives or
assets of the Sub-Account investments to remain in
compliance.
A total surrender or termination of the Policy by lapse may
have adverse tax consequences. If the amount received by the
Policy Owner plus total Policy indebtedness exceeds the
premiums paid into the Policy, the excess will generally be
treated as taxable income, regardless of whether or not the
Policy is a modified endowment contract.
Federal estate and state and local estate, inheritance and
other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Policy Owner or
Beneficiary.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the
Code. Since the Variable Account is not a separate entity
from the Company and its operations form a part of the
Company, it will not be taxed separately as a "regulated
investment company" under Sub-chapter M of the Code.
Investment income and realized capital gains on the assets
of the Variable Account are reinvested and taken into
account in determining the value of Accumulation Units.
The Company does not initially expect to incur any Federal
income tax liability that would be chargeable to the
Variable Account. Based upon these expectations, no charge
is currently being made against the Variable Account for
federal income taxes. If, however, the Company determines
that on a separate company basis such taxes may be incurred,
it reserves the right to assess a charge for such taxes
against the Variable Account.
The Company may also incur state and local taxes in addition
to premium taxes in several states. At present, these taxes
are not significant. If they increase, however, additional
charges for such taxes may be made.
SECTION 848 CHARGES
The 5.0% premium load is assessed to cover state taxes,
federal income tax liabilities and a portion of the sales
expenses incurred by the Company. This load is made up of
2.35% for state taxes, 1.15% for the additional federal
income tax burden under
29
<PAGE>
Section 848 of the Code relating to the tax treatment of
deferred acquisition costs and a 1.5% sales load. The 1.15%
charge for federal income tax liabilities is reasonable in
relation to the Company's increased taxes under this Section
of the Code.
OTHER CONSIDERATIONS
The foregoing discussion is general and is not intended as
tax advice. Counsel and other competent advisers should be
consulted for more complete information. This discussion is
based on the Company's understanding of Federal income tax
laws as they are currently interpreted by the Internal
Revenue Service. No representation is made as to the
likelihood of continuation of these current laws and
interpretations.
OTHER MATTERS
DIRECTORS AND OFFICERS OF THE COMPANY
The following persons are Directors and officers of the
Company. The address of each is 900 Cottage Grove Road,
Hartford, CT 06152 and each has been employed by the Company
or its affiliates for more than five years except Mr. Jones,
Mr. Alexander and Dr. Schaffer. Prior to February 1994, Mr.
Jones was Executive Vice President, Chief Administrative
Officer, Chief Operating Officer and Director, NAC Re
Corporation and NAC Reinsurance Corporation (Chief Operating
Officer of NAC Re Corporation beginning June 1993). Prior to
December 1994, Mr. Alexander was Director, Human
Development, E.I. Dupont De Nemours, Inc. Prior to May 1993,
Dr. Schaffer was Vice President, Professional Affairs, Aetna
Health Plans, Aetna Life & Casualty.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND ADDRESS WITH THE COMPANY
- ------------------------------ -----------------------------------
<S> <C>
Thomas C. Jones President
(Principal Executive Officer)
James T. Kohan Vice President and Actuary
(Principal Financial Officer)
Robert Moose Vice President
(Principal Accounting Officer)
David C. Kopp Corporate Secretary
Andrew G. Helming Secretary
Stephen C. Stachelek Vice President and Treasurer
Harold W. Albert Director
S. Tyrone Alexander Director and Senior Vice President
Martin A. Brennan Director and Senior Vice President
Robert W. Burgess Director
John G. Day Director and Chief Counsel
Joseph M. Fitzgerald Director and Senior Vice President
H. Edward Hanway Director and Chairman of the Board
Arthur C. Reeds, III Director and Senior Vice President
Patricia L. Rowland Director and Senior Vice President
W. Allen Schaffer, M.D. Director and Senior Vice President
John Wilkinson Director, Senior Vice President and
Chief Financial Officer
</TABLE>
DISTRIBUTION OF POLICIES
The Policies will be sold by licensed insurance agents in
those states where the Policies may lawfully be sold. Such
agents will be registered representatives of broker-dealers
registered under the Securities Exchange Act of 1934 who are
members of the National
30
<PAGE>
Association of Securities Dealers, Inc. (NASD). The Policies
will be distributed by the Company's principal underwriter,
CIGNA Financial Advisors, Inc. ("CFA"), located at 900
Cottage Grove Road, Bloomfield, CT. CFA is a Connecticut
corporation organized in 1967, and is the principal
underwriter for the Company's other registered separate
accounts and for a registered separate account of CIGNA Life
Insurance Company, a wholly-owned subsidiary of the Company.
Gross first year commissions paid by the Company, including
expense reimbursement allowances, on the sale of these
Policies are not more than 112.5% of Premium Payments. Gross
renewal commissions paid by the Company will not exceed
5.625% of Premium Payments.
CHANGES OF INVESTMENT POLICY
The Company may materially change the investment policy of
the Variable Account. The Company must inform the Policy
Owners and obtain all necessary regulatory approvals. Any
change must be submitted to the various state insurance
departments which shall disapprove it if deemed detrimental
to the interests of the Policy Owners or if it renders the
Company's operations hazardous to the public. If a Policy
Owner objects, the Policy may be converted to a
substantially comparable fixed benefit life insurance policy
offered by the Company on the life of the Insured. The
Policy Owner has the later of 60 days (6 months in
Pennsylvania) from the date of the investment policy change
or 60 days (6 months in Pennsylvania) from being informed of
such change to make this conversion. The Company will not
require evidence of insurability for this conversion.
The new policy will not be affected by the investment
experience of any separate account. The new policy will be
for an amount of insurance not exceeding the Death Benefit
of the Policy converted on the date of such conversion.
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company does presently and will, from time to time,
offer other variable annuity contracts and variable life
insurance policies with benefits which vary in accordance
with the investment experience of a separate account of the
Company.
STATE REGULATION
The Company is subject to the laws of Connecticut governing
insurance companies and to regulation by the Connecticut
Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year
covering the operation of the Company for the preceding year
and its financial condition as of the end of such year.
Regulation by the Insurance Department includes periodic
examination to determine the Company's contract liabilities
and reserves so that the Insurance Department may certify
the items are correct. The Company's books and accounts are
subject to review by the Insurance Department at all times
and a full examination of its operations is conducted
periodically by the Connecticut Department of Insurance.
Such regulation does not, however, involve any supervision
of management or investment practices or policies.
REPORTS TO POLICY OWNERS
The Company maintains Policy records and will mail to each
Policy Owner, at the last known address of record, an annual
statement showing the amount of the current Death Benefit,
the Accumulation Value, and Surrender Value, premiums paid
and monthly charges deducted since the last report, the
amounts invested in the Fixed Account and in the Variable
Account and in each Sub-Account of the Variable Account, and
any Loan Account Value.
31
<PAGE>
Policy Owners will also be sent annual reports containing
financial statements for the Variable Account and annual and
semi-annual reports of the Funds as required by the 1940
Act.
In addition, Policy Owners will receive statements of
significant transactions, such as changes in Specified
Amount, changes in Death Benefit Option, changes in future
premium allocation, transfers among Sub-Accounts, Premium
Payments, loans, loan repayments, reinstatement and
termination.
ADVERTISING
The Company is also ranked and rated by independent
financial rating services, including Moody's, Standard &
Poor's, Duff & Phelps and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or
claims-paying ability of the Company. The ratings are not
intended to reflect the investment experience or financial
strength of the Variable Account. The Company may advertise
these ratings from time to time. In addition, the Company
may include in certain advertisements, endorsements in the
form of a list of organizations, individuals or other
parties which recommend the Company or the Policies.
Furthermore, the Company may occasionally include in
advertisements comparisons of currently taxable and tax
deferred investment programs, based on selected tax
brackets, or discussions of alternative investment vehicles
and general economic conditions.
LEGAL PROCEEDINGS
There are no material legal or administrative proceedings
pending or known to be contemplated, other than ordinary
routine litigation incidental to the business, to which the
Company and the Variable Account are parties or to which any
of their property is subject. The principal underwriter,
CFA, is not engaged in any material litigation of any
nature.
EXPERTS
Actuarial opinions regarding Deferred Acquisition Cost Tax
(DAC Tax) and Mortality and Expense Charges included in this
Prospectus have been rendered by Michelle L. Kunzman, as
stated in the opinion filed as an Exhibit to the
Registration Statement given on the authority of Ms. Kunzman
as an expert in actuarial matters.
Legal matters in connection with the Policies described
herein are being passed upon by Robert A. Picarello, Esq.,
Chief Counsel, CIGNA Individual Insurance, 900 Cottage Grove
Road, Hartford, CT 06152, in the opinion filed as an Exhibit
to the Registration Statement given on his authority as an
expert in these matters.
The consolidated financial statements of Connecticut General
Life Insurance Company as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31,
1995 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts
in auditing and accounting. Price Waterhouse LLP's consent
to this reference to the firm as an "expert" is filed as an
exhibit to the registration statement of which this
Prospectus is a part.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended, with respect to the Policies offered hereby. This
Prospectus does not contain all the information set forth in
the Registration Statement and amendments thereto and
exhibits filed as a part thereof, to all of which reference
is hereby made for further information concerning the
Variable Account, the
32
<PAGE>
Company, and the Policies offered hereby. Statements
contained in this Prospectus as to the content of Policies
and other legal instruments are summaries. For a complete
statement of the terms thereof, reference is made to such
instruments as filed.
FINANCIAL STATEMENTS
There follow consolidated balance sheets of the Company and
its subsidiaries as of December 31, 1995 and 1994 and
related consolidated statements of income and retained
earnings and cash flows for the years ended December 31,
1995, 1994 and 1993.
The most current financial statements of the Company are
those as of the end of the most recent fiscal year. The
Company represents that there have been no adverse changes
in the financial condition or operations of the Company
between the end of 1995 and the date of this Prospectus.
These financial statements should be considered only as
bearing upon the ability of the Company to meet its
obligations under the Policies.
No financial statements of the Variable Account are
included, because as of December 31, 1995 the Variable
Account had not yet commenced operations.
33
<PAGE>
NORTHEAST INSURANCE SERVICES Telephone 860 240 2000
One Financial Plaza Facsimile 860 240 2282
Hartford, CT 06103
PRICE WATERHOUSE LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 13, 1996
The Board of Directors and Shareholder
Connecticut General Life Insurance Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Connecticut
General Life Insurance Company and its subsidiaries at December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
[SIG]
34
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS)
- -----------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees................................................... $ 4,998 $ 4,960 $ 4,704
Net investment income............................................... 3,138 2,805 2,742
Realized investment gains (losses).................................. (7) 27 (65)
Other revenues...................................................... 9 8 15
--------- --------- ---------
Total revenues.................................................. 8,138 7,800 7,396
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses............................ 5,892 5,574 5,215
Policy acquisition expenses......................................... 127 89 84
Other operating expenses............................................ 1,358 1,363 1,351
--------- --------- ---------
Total benefits, losses and expenses............................. 7,377 7,026 6,650
--------- --------- ---------
INCOME BEFORE INCOME TAXES.......................................... 761 774 746
--------- --------- ---------
Income taxes (benefits):
Current........................................................... 301 220 433
Deferred.......................................................... (44) 45 (197)
--------- --------- ---------
Total taxes..................................................... 257 265 236
--------- --------- ---------
NET INCOME.......................................................... 504 509 510
Dividends declared.................................................. (252) (300) (190)
Retained earnings, beginning of year................................ 2,968 2,759 2,439
--------- --------- ---------
RETAINED EARNINGS, END OF YEAR...................................... $ 3,220 $ 2,968 $ 2,759
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
35
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(IN MILLIONS)
- ------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value (amortized cost, $20,031; $8,571)... $ 22,046 $ 8,324
Held to maturity, at amortized cost (fair value, $10,075)............. -- 10,061
Mortgage loans.......................................................... 10,218 8,975
Equity securities, at fair value (cost, $54; $109)...................... 66 119
Policy loans............................................................ 6,925 5,237
Real estate............................................................. 1,158 1,442
Other long-term investments............................................. 193 128
Short-term investments.................................................. 254 143
--------- ---------
Total investments................................................... 40,860 34,429
Cash and cash equivalents................................................. -- 80
Accrued investment income................................................. 626 578
Premiums and accounts receivable.......................................... 991 911
Reinsurance recoverables.................................................. 1,258 2,533
Deferred policy acquisition costs......................................... 689 700
Property and equipment, net............................................... 319 346
Current income taxes...................................................... 21 119
Deferred income taxes, net................................................ 403 661
Goodwill.................................................................. 503 518
Other assets.............................................................. 149 135
Separate account assets................................................... 18,177 14,498
- ------------------------------------------------------------------------------------------------
Total............................................................... $ 63,996 $ 55,508
- ------------------------------------------------------------------------------------------------
--------------------
LIABILITIES
Contractholder deposit funds.............................................. $ 29,762 $ 26,696
Future policy benefits.................................................... 8,547 7,875
Unpaid claims and claim expenses.......................................... 1,151 1,096
Unearned premiums......................................................... 95 84
--------- ---------
Total insurance and contractholder liabilities...................... 39,555 35,751
Accounts payable, accrued expenses
and other liabilities..................................................... 1,872 1,632
Separate account liabilities.............................................. 18,075 14,427
- ------------------------------------------------------------------------------------------------
Total liabilities................................................... 59,502 51,810
- ------------------------------------------------------------------------------------------------
--------------------
CONTINGENCIES -- NOTE 9
SHAREHOLDER'S EQUITY
Common stock (6 shares outstanding)....................................... 30 30
Additional paid-in capital................................................ 766 764
Net unrealized appreciation (depreciation) on investments................. 476 (66)
Net translation of foreign currencies..................................... 2 2
Retained earnings......................................................... 3,220 2,968
- ------------------------------------------------------------------------------------------------
Total shareholder's equity.......................................... 4,494 3,698
- ------------------------------------------------------------------------------------------------
Total............................................................... $ 63,996 $ 55,508
- ------------------------------------------------------------------------------------------------
--------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
36
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN MILLIONS)
- ---------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................ $ 504 $ 509 $ 510
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Insurance liabilities........................................... (90) (249) 251
Reinsurance recoverables........................................ 1,201 282 (392)
Premiums and accounts receivable................................ 32 (188) 85
Deferred income taxes, net...................................... (44) 45 (197)
Other assets.................................................... (14) 68 54
Accounts payable, accrued expenses, other liabilities and
current income taxes........................................... 212 (192) 5
Other, net...................................................... 22 (24) (82)
--------- --------- ---------
Net cash provided by operating activities..................... 1,823 251 234
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities -- available for sale.......................... 1,070 1,389 --
Fixed maturities -- held to maturity............................ -- 12 599
Mortgage loans.................................................. 383 496 1,004
Equity securities............................................... 119 41 41
Real Estate..................................................... 299 242 78
Other (primarily short-term investments)........................ 2,268 1,005 3,762
Investment maturities and repayments:
Fixed maturities--available for sale............................ 478 686 --
Fixed maturities--held to maturity.............................. 1,756 1,764 3,167
Mortgage loans.................................................. 420 194 202
Investments purchased:
Fixed maturities--available for sale............................ (3,054) (2,390) --
Fixed maturities--held to maturity.............................. (1,385) (1,788) (5,128)
Mortgage loans.................................................. (1,908) (882) (823)
Equity securities............................................... (20) (12) (112)
Policy loans.................................................... (2,129) (1,614) (1,561)
Other (primarily short-term investments)........................ (2,334) (1,093) (3,587)
Other, net........................................................ (119) (129) (48)
--------- --------- ---------
Net cash used in investing activities......................... (4,156) (2,079) (2,406)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds.... 7,489 6,388 7,537
Withdrawals and benefit payments from contractholder deposit
funds........................................................... (4,985) (4,216) (5,166)
Dividends paid to Parent.......................................... (252) (300) (190)
Other, net........................................................ 1 36 (30)
--------- --------- ---------
Net cash provided by financing activities..................... 2,253 1,908 2,151
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents.............. (80) 80 (21)
Cash and cash equivalents, beginning of year...................... 80 -- 21
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year............................ $ -- $ 80 $ --
- ---------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds............................... $ 211 $ 411 $ 352
Interest paid................................................... $ 7 $ 5 $ 5
- ---------------------------------------------------------------------------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
37
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
Connecticut General Life Insurance Company and its subsidiaries (the Company)
provide insurance and related financial services throughout the United States
and in many locations worldwide. Principal products and services include group
life and health insurance, individual life insurance and annuity products, and
retirement and investment products and services.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of the Company and all significant subsidiaries. The Company is a
wholly-owned subsidiary of Connecticut General Corporation, which is an indirect
wholly-owned subsidiary of CIGNA Corporation (CIGNA). These consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles, and reflect management's estimates and assumptions, such
as those regarding medical costs and interest rates, that affect the recorded
amounts. Significant estimates used in determining insurance and contractholder
liabilities, related reinsurance recoverables, and valuation allowances for
investment assets are discussed throughout the Notes to the Financial
Statements. Certain reclassifications have been made to prior years' amounts to
conform with the 1995 presentation.
B) RECENT ACCOUNTING PRONOUNCEMENTS: In 1993, the Company implemented
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that
debt and equity securities be classified into different categories and carried
at fair value if they are not classified as held to maturity. During the fourth
quarter of 1995, the Financial Accounting Standards Board (FASB) issued a guide
to implementation of SFAS No. 115, which permits a one-time opportunity to
reclassify securities subject to SFAS No. 115. Consequently, the Company
reclassified all held-to-maturity securities to available-for-sale as of
December 31, 1995. The non-cash reclassification of these securities, which had
an aggregate amortized cost of $9.2 billion and fair value of $10.1 billion,
resulted in an increase of approximately $396 million, net of
policyholder-related amounts and deferred income taxes, in net unrealized
appreciation included in Shareholders' Equity as of December 31, 1995.
In 1993, the Financial Accounting Standards Board (FASB) issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," which provides guidance on
the accounting and disclosure for impaired loans. In 1994, the FASB issued SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition
and Disclosures," which eliminates the income recognition requirements of SFAS
No. 114. The Company adopted SFAS Nos. 114 and 118 in the first quarter of 1995,
which resulted in a $6 million increase in net income.
In 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires write-down to fair value when long-lived assets to be held and used are
impaired. Long-lived assets to be disposed of, including real estate held for
sale, must be carried at the lower of cost or fair value less costs to sell.
Depreciation of assets to be disposed of is prohibited. The Company will adopt
this standard in the first quarter of 1996. The effect on the Company's results
of operations, liquidity and financial condition is not expected to be material.
C) FINANCIAL INSTRUMENTS: In the normal course of business, the Company
enters into transactions involving various types of financial instruments,
including investments such as fixed maturities and equity securities and off-
balance-sheet financial instruments such as investment and loan commitments and
financial guarantees. These instruments have credit risk and also may be subject
to risk of loss due to interest rate and market fluctuations. The Company
evaluates and monitors each financial instrument individually and, where
appropriate, uses certain derivative instruments or obtains collateral or other
forms of security to minimize risk of loss.
See Note 12 for additional information on the fair value of financial
instruments.
D) INVESTMENTS: Investments in fixed maturities include bonds, asset-backed
securities, including collateralized mortgage obligations (CMOs), and redeemable
preferred stocks. Fixed maturities classified as held to maturity are
38
<PAGE>
carried at amortized cost, net of impairments, and those classified as available
for sale are carried at fair value, with unrealized appreciation or depreciation
included in Shareholder's Equity. Fixed maturities are considered impaired and
written down to fair value when a decline in value is considered to be other
than temporary.
Mortgage loans are carried principally at unpaid principal balances, net of
valuation reserves. Mortgage loans are considered impaired when it is probable
that the Company will be unable to collect all amounts according to the
contractual terms of the loan agreement. If impaired, a valuation reserve is
utilized when a decline in the fair value of the underlying collateral is below
the carrying value.
Fixed maturities and mortgage loans that are delinquent or restructured to
modify basic financial terms, typically to reduce the interest rate and, in
certain cases, extend the term, are placed on non-accrual status, and thereafter
interest income is recognized only when payment is received.
Real estate investments are either held for the production of income or held
for sale. Real estate investments held for the production of income are carried
at depreciated cost less valuation reserves when a decline in value is other
than temporary. Depreciation is generally calculated using the straight-line
method based on the estimated useful lives of the assets. Real estate
investments held for sale are generally those which are acquired through the
foreclosure of mortgage loans. These assets are valued at their fair value at
the time of foreclosure. The fair value is established as the new cost basis and
the asset acquired is reclassified from mortgage loans to real estate held for
sale. Subsequent to foreclosure, these investments are carried at the lower of
depreciated cost or current fair value less estimated costs to sell. Adjustments
to the carrying value as a result of changes in fair value subsequent to
foreclosure are recorded as valuation reserves and reported in realized
investment gains and losses. The Company considers several methods in
determining fair value for real estate acquired through foreclosure, with
greater emphasis placed on the use of discounted cash flow analyses and, in some
cases, the use of third-party appraisals. Assets held for sale are depreciated
using the straight-line method based on the estimated useful lives of the
assets.
Equity securities, which include common and non-redeemable preferred stocks,
are carried at fair value. Short-term investments are carried at fair value,
which approximates cost. Equity securities and short-term investments are
classified as available for sale.
Policy loans are generally carried at unpaid principal balances.
Realized investment gains and losses result from sales, investment asset
write-downs and changes in valuation reserves, after deducting amounts
attributable to experience-rated pension policyholders' contracts and
participating life policies ("policyholder share"). Generally, realized
investment gains and losses are based upon specific identification of the
investment assets.
Unrealized investment gains and losses, after deducting policyholder-related
amounts and net of deferred income taxes, if applicable, for investments carried
at fair value are included in Shareholder's Equity.
See Note 3(F) for a discussion of the Company's accounting policies for
derivative financial instruments.
E) CASH AND CASH EQUIVALENTS: Short-term investments with a maturity of three
months or less at the time of purchase are reported as cash equivalents.
F) REINSURANCE RECOVERABLES: Reinsurance recoverables are estimates of
amounts to be received from reinsurers, including amounts under reinsurance
agreements with affiliated companies. Allowances are established for amounts
deemed uncollectible.
G) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of
commissions, premium taxes and other costs, which vary with, and are primarily
related to, the production of revenues. Group life and a portion of group health
insurance business acquisition costs are deferred and amortized over the terms
of the insurance policies. Acquisition costs related to universal life products
and contractholder deposit funds are deferred and amortized in proportion to
total estimated gross profits over the expected life of the contracts.
Acquisition costs related to annuity and other life insurance businesses are
deferred and amortized, generally in proportion to the ratio of annual revenue
to the estimated total revenues over the contract periods.
Deferred acquisition costs are reviewed to determine if they are recoverable
from future income, including investment income. If such costs are estimated to
be unrecoverable, they are expensed. If such costs are estimated
39
<PAGE>
to be unrecoverable or are accelerated as a result of treating unrealized
investment gains and losses as though they had been realized, a deferred
acquisition cost valuation allowance may be established or adjusted, with a
comparable offset in net unrealized appreciation (depreciation).
H) PROPERTY AND EQUIPMENT: Property and equipment are carried at cost less
accumulated depreciation. When applicable, cost includes interest and real
estate taxes incurred during construction and other construction-related costs.
Depreciation is calculated principally on the straight-line method based on the
estimated useful lives of the assets. Accumulated depreciation was $387 million
and $333 million at December 31, 1995 and 1994, respectively.
I) OTHER ASSETS: Other Assets consists of various insurance-related assets,
principally ceded unearned premiums, reinsurance deposits and other amounts due
from affiliated companies.
J) GOODWILL: Goodwill represents the excess of the cost of businesses
acquired over the fair value of their net assets. These costs are amortized on
systematic bases over periods, not exceeding 40 years, that correspond with the
benefits estimated to be derived from the acquisitions. The Company evaluates
the carrying amount of goodwill by analyzing historical and estimated future
income and undiscounted estimated cash flows of the related businesses. Goodwill
is written down when impaired. Amortization periods are revised if it is
estimated that the remaining period of benefit of the goodwill has changed.
Accumulated amortization was $84 million and $70 million at December 31, 1995
and 1994, respectively.
K) SEPARATE ACCOUNTS: Separate account assets and liabilities are principally
carried at market value, with less than 5% carried at amortized cost, and
represent policyholder funds maintained in accounts having specific investment
objectives. The investment income, gains and losses of these accounts generally
accrue to the policyholders and, therefore, are not included in the Company's
net income.
L) CONTRACTHOLDER DEPOSIT FUNDS: Contractholder Deposit Funds are liabilities
for investment-related and universal life products which were $19.8 billion and
$10.0 billion, respectively, as of December 31, 1995, compared with $18.6
billion and $8.1 billion, respectively, as of December 31, 1994. These
liabilities consist of deposits received from customers and investment earnings
on their fund balances, less administrative charges and, for universal life fund
balances, mortality charges.
M) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for life,
health and annuity products. Such liabilities are established in amounts
adequate to meet the estimated future obligations of policies in force. These
liabilities are computed using premium assumptions for group annuity policies
and the net level premium method for individual life and annuity policies, and
are based upon estimates as to future investment yield, mortality and
withdrawals that include provisions for adverse deviation. Future policy
benefits for individual life insurance and annuity policies are computed using
interest rates ranging from 2% to 11%, generally graded down after 10 to 30
years. Mortality, morbidity, and withdrawal assumptions are based on either the
Company's own experience or various actuarial tables.
N) UNPAID CLAIMS AND CLAIM EXPENSES: Liabilities for unpaid claims and claim
expenses are estimates of payments to be made on insurance claims for reported
losses and estimates of losses incurred but not reported.
O) UNEARNED PREMIUMS: Premiums for group life, and accident and health
insurance are reported as earned on a pro rata basis over the contract period.
The unexpired portion of these premiums is recorded as Unearned Premiums.
P) OTHER LIABILITIES: Other Liabilities consists principally of
postretirement and postemployment benefits and various insurance-related
liabilities, including amounts related to reinsurance contracts. Also included
in Other Liabilities are liabilities for guaranty fund assessments that can be
reasonably estimated.
Q) TRANSLATION OF FOREIGN CURRENCIES: Foreign operations primarily utilize
the local currencies as their functional currencies, and assets and liabilities
are translated at the rates of exchange as of the balance sheet date. The
translation gain or loss on such functional currencies, net of applicable taxes,
is generally reflected in Shareholder's Equity. Revenues and expenses are
translated at the average rates of exchange prevailing during the year.
40
<PAGE>
R) PREMIUM AND FEES, REVENUES AND RELATED EXPENSES: Premiums for group life
and accident and health insurance are recognized as revenue on a pro rata basis
over their contract periods. Premiums for individual life and health insurance
as well as individual and group annuity products, excluding universal life and
investment-related products, are recognized as revenue when due. Benefits,
losses and expenses are matched with premiums.
Revenues for universal life products consist of net investment income and
mortality, administration and surrender fees assessed against the fund values
during the period. Benefit expenses for universal life products consist of
benefit claims in excess of fund values and interest credited to fund values.
Revenues for investment-related products consist of net investment income and
contract charges assessed against the fund values during the period. Benefit
expenses for investment-related products primarily consist of interest credited
to the fund values after deduction for investment and risk fees.
S) PARTICIPATING BUSINESS: Certain life insurance policies contain dividend
payment provisions that enable the policyholder to participate in the earnings
of the Company's business. The participating insurance in force accounted for
7.0% of total insurance in force at December 31, 1995, compared with 5.2% at
December 31, 1994 and 3.6% at December 31, 1993.
T) INCOME TAXES: The Company and its domestic subsidiaries are included in
the consolidated United States federal income tax return filed by CIGNA. In
accordance with a tax sharing agreement with CIGNA, the provision for federal
income tax is computed as if the Company were filing a separate federal income
tax return, except that benefits arising from tax credits and net operating and
capital losses are allocated to those subsidiaries producing such attributes to
the extent they are utilized in CIGNA's consolidated federal income tax
provision.
Deferred income taxes are generally recognized when assets and liabilities
have different values for financial statement and tax reporting purposes. See
Note 6 for additional information.
NOTE 3 -- INVESTMENTS
A) FIXED MATURITIES: Fixed maturities are net of cumulative write-downs of
$103 million and $78 million, including policyholder share, as of December 31,
1995 and 1994, respectively.
As of December 31, 1995, all fixed maturities are classified as available for
sale and are carried at fair value. See Note 2(B) for additional information.
The amortized cost and fair value by contractual maturity periods for
available-for-sale fixed maturities (carried at fair value), including
policyholder share, as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Amortized Fair
(IN MILLIONS) Cost Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less.................................................. $ 944 $ 980
Due after one year through five years.................................... 5,260 5,566
Due after five years through ten years................................... 4,936 5,404
Due after ten years...................................................... 3,401 4,276
Asset-backed securities.................................................. 5,490 5,820
- ------------------------------------------------------------------------------------------------
Total.................................................................... $ 20,031 $ 22,046
- ------------------------------------------------------------------------------------------------
---------------------
</TABLE>
Actual maturities could differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Also, the Company may extend maturities in some cases.
41
<PAGE>
Gross unrealized appreciation (depreciation) for fixed maturities, including
policyholder share, by type of issuer was as follows:
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
December 31, 1995
- -----------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<CAPTION>
Amortized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Available for Sale (Carried at Fair Value)
Federal government bonds......................... $ 497 $ 300 $ -- $ 797
State and local government bonds................. 161 24 (1) 184
Foreign government bonds......................... 131 9 (1) 139
Corporate securities............................. 13,752 1,427 (73) 15,106
Asset-backed securities.......................... 5,490 371 (41) 5,820
- -----------------------------------------------------------------------------------------------------
Total............................................ $ 20,031 $ 2,131 $ (116) $ 22,046
- -----------------------------------------------------------------------------------------------------
--------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
December 31, 1995
- -----------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<CAPTION>
Amortized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Available for Sale (Carried at Fair Value)
Federal government bonds......................... $ 393 $ 35 $ (13) $ 415
State and local government bonds................. 48 -- (4) 44
Foreign government bonds......................... 135 1 (6) 130
Corporate securities............................. 5,042 84 (244) 4,882
Asset-backed securities.......................... 2,953 98 (198) 2,853
- -----------------------------------------------------------------------------------------------------
Total............................................ $ 8,571 $ 218 $ (465) $ 8,324
- -----------------------------------------------------------------------------------------------------
--------------------------------------------------
Held to Maturity (Carried at Amortized Cost)
State and local government bonds................. $ 61 $ 4 $ (1) $ 64
Foreign government bonds......................... 49 1 (1) 49
Corporate securities............................. 8,088 293 (232) 8,149
Asset-backed securities.......................... 1,863 46 (96) 1,813
- -----------------------------------------------------------------------------------------------------
Total............................................ $ 10,061 $ 344 $ (330) $ 10,075
- -----------------------------------------------------------------------------------------------------
--------------------------------------------------
</TABLE>
Asset-backed securities include investments in CMOs as of December 31, 1995 of
$2.1 billion carried at fair value (amortized cost, $2.0 billion). As of
December 31, 1994, investments in CMOs consisted of $1.5 billion carried at fair
value (amortized cost, $1.6 billion), and $150 million carried at amortized cost
(fair value, $160 million). Certain of these securities are backed by
Aaa/AAA-rated government agencies. All other CMO securities have high quality
standards through use of credit enhancement provided by subordinated securities
or mortgage insurance from an Aaa/AAA-rated insurance company. CMO holdings are
concentrated in securities with limited prepayment, extension and default risk,
such as planned amortization class bonds. The Company's investments in
interest-only and principal-only CMOs, which are also subject to interest rate
risk resulting from accelerated prepayments, represented approximately 2% and 6%
of total CMO investments at December 31, 1995 and 1994, respectively.
42
<PAGE>
At December 31, 1995, contractual fixed maturity investment commitments
approximated $229 million. The majority of investment commitments are for the
purchase of investment grade fixed maturities, bearing interest at a fixed
market rate, and require no collateral. These commitments are diversified by
issuer and maturity date, and it is estimated that the full amount will be
disbursed in 1996, with the majority occurring within the first three months.
B) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and
cash equivalents, in the aggregate, included debt securities, principally
corporate securities of $259 million and $323 million and federal government
securities of $70 million and $7 million at December 31, 1995 and 1994,
respectively, and foreign government securities of $1 million at December 31,
1994.
C) MORTGAGE LOANS AND REAL ESTATE: The Company's mortgage loans and real
estate investments are diversified by property type and location and, for
mortgage loans, by borrower. Mortgage loans are collateralized by the related
properties and generally approximate 80% of the property's value at the time the
original loan is made.
At December 31, the carrying values of mortgage loans and real estate
investments, including policyholder share, were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage Loans............................................................ $ 10,218 $ 8,975
--------- ---------
Real estate:
Held for sale............................................................. 671 760
Held for production of income............................................. 487 682
--------- ---------
Total real estate......................................................... 1,158 1,442
- ------------------------------------------------------------------------------------------------
Total..................................................................... $ 11,376 $ 10,417
- ------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Valuation reserves for mortgage loans, including policyholder share, were $82
million and $115 million as of December 31, 1995 and 1994, respectively.
Valuation reserves and cumulative write-downs related to real estate, including
policyholder share, were $310 million and $309 million as of December 31, 1995
and 1994, respectively.
During 1995, 1994 and 1993, non-cash investing activities included real estate
acquired through foreclosure of mortgage loans, which totaled $144 million, $127
million and $458 million, respectively.
At December 31, mortgage loans and real estate investments comprised the
following property types and geographic regions:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Property type:
Office buildings........................................................ $ 4,493 $ 4,092
Retail facilities....................................................... 4,327 3,867
Hotels.................................................................. 711 819
Apartment buildings..................................................... 1,246 997
Other................................................................... 599 642
- ------------------------------------------------------------------------------------------------
Total..................................................................... $ 11,376 $ 10,417
- ------------------------------------------------------------------------------------------------
--------------------
Geographic region:
Central................................................................. $ 4,032 $ 3,664
Pacific................................................................. 2,580 2,558
Middle Atlantic......................................................... 1,951 1,652
South Atlantic.......................................................... 1,647 1,585
New England............................................................. 1,166 958
- ------------------------------------------------------------------------------------------------
Total..................................................................... $ 11,376 $ 10,417
- ------------------------------------------------------------------------------------------------
--------------------
</TABLE>
At December 31, 1995, scheduled mortgage loan maturities were as follows: 1996
- -- $1.1 billion; 1997 -- $1 billion; 1998 -- $750 million; 1999 -- $1.3 billion;
2000 -- $1.6 billion; and $4.5 billion thereafter. Actual
43
<PAGE>
maturities could differ from contractual maturities because borrowers may have
the right to prepay obligations with or without prepayment penalties, and loans
may be refinanced. During 1995 and 1994, the Company refinanced approximately
$379 million and $600 million, respectively, of its mortgage loans relating to
borrowers that were unable to obtain alternative financing.
At December 31, 1995, the Company's total investment in impaired mortgage
loans was $838 million, including $447 million, before valuation reserves
totaling $82 million, and $391 million, which had no valuation reserves. During
1995, valuation reserves for mortgage loans, including policyholder share,
decreased from $127 million as of December 31, 1994 to $82 million as of
December 31, 1995. The net decrease for the year reflects: (1) $27 million of
mortgage loan reserves transferred to foreclosed real estate, (2) $33 million of
charge-offs, and (3) a $15 million net increase in valuation reserves.
During 1995, the average total investment in impaired mortgage loans, before
valuation reserves, was approximately $935 million, and interest income recorded
and cash received on these loans was approximately $71 million.
At December 31, 1995, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $580 million, all
of which were at a fixed market rate of interest. These commitments expire
within three months, and are diversified by property type and geographic region.
D) NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS: Unrealized
appreciation (depreciation) for investments carried at fair value as of December
31 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation:
Fixed maturities........................................................... $ 2,131 $ 218
Equity securities.......................................................... 23 22
--------- ---------
2,154 240
--------- ---------
Unrealized depreciation:
Fixed maturities........................................................... (116) (465)
Equity securities.......................................................... (11) (12)
--------- ---------
(127) (477)
--------- ---------
Less policyholder-related amounts............................................ 1,279 (141)
Shareholder net unrealized appreciation (depreciation)....................... 748 (96)
Less deferred income taxes (benefits)........................................ 272 (30)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)................................... $ 476 $ (66)
- ---------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Net unrealized appreciation (depreciation) for investments carried at fair
value is included as a separate component of Shareholders' Equity, net of
policyholder-related amounts and deferred income taxes. The net unrealized
appreciation (depreciation) for these investments, primarily fixed maturities,
during 1995, 1994 and 1993 was $542 million, ($494) million and $423 million,
respectively.
During 1995, 1994 and 1993, the net unrealized appreciation (depreciation) for
fixed maturities that were carried at amortized cost in the financial statements
was ($14) million, ($1.2) billion and $129 million, respectively.
E) NON-INCOME PRODUCING INVESTMENTS: At December 31, the carrying values of
investments that were non-income producing during the preceding 12 months,
including policyholder share, were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities............................................................... $ 75 $ 71
Mortgage loans................................................................. 17 81
Real estate.................................................................... 234 280
- -----------------------------------------------------------------------------------------------------
Total.......................................................................... $ 326 $ 432
- -----------------------------------------------------------------------------------------------------
--------------------
</TABLE>
44
<PAGE>
F) DERIVATIVE FINANCIAL INSTRUMENTS: The Company's investment strategy is to
manage the characteristics of investment assets, such as liquidity, currency,
yield and duration, to reflect the underlying characteristics of the related
insurance and contractholder liabilities, which vary among the Company's
principal product lines. In connection with this investment strategy, the
Company uses derivative instruments through hedging applications to manage
market risk.
Generally, the Company uses interest rate swap contracts to create, when
combined with cash flows from variable rate bonds, fixed rate cash flows that
meet its portfolio investment strategy. Currency swaps are used to match the
currency of individual investments to that of the associated liabilities.
Interest rate futures are used to temporarily hedge against changes in market
values of bonds and mortgage loans to be purchased or sold, and stock index
futures may be used to hedge the temporary cash position of equity accounts.
Interest rate futures also are used to hedge interest rate risk associated with
withdrawals by contractholders over a scheduled time period.
Cash requirements arise as a result of the Company's derivative activities.
Under interest rate swaps, the Company agrees with other parties to exchange, at
specified intervals, the difference between fixed rate and variable rate
interest amounts calculated by reference to an agreed-upon notional principal
amount. Under futures contracts, initial margin requirements are settled with
cash or other instruments and changes in the contract values are settled in cash
daily with the exchange on which the instrument is traded. Under currency swaps,
the parties generally exchange a principal amount in the two relevant
currencies, agreeing to re-exchange principal amounts at a specified future date
using an agreed-upon exchange rate, and agreeing to periodically exchange
amounts equal to interest payments using the agreed-upon exchange rate.
Because the Company's use of derivatives is limited to hedging applications,
changes in the market value of the derivatives are substantially offset by
changes in the market value of the hedged assets or underlying liabilities,
minimizing market risk. The Company routinely monitors, by individual
counterparty, exposure to credit risk associated with swap contracts. Futures
contracts are exchange-traded and, therefore, credit risk is limited since the
exchange assumes the obligations. The Company manages legal risks by following
industry standardized documentation procedures, by monitoring legal developments
and, consistent with its credit exposure policies, by limiting risks associated
with counterparty failure by diversifying the swaps portfolio among approved
dealers of high credit quality.
Changes in the market value of futures contracts that qualify for hedge
accounting are deferred and recorded as adjustments to the carrying value of the
related bond or mortgage loan. Deferred gains and losses are amortized into net
investment income over the life of the investments purchased or recognized in
full as realized investment gains and losses in the event that the investment or
futures contract is sold prior to maturity. Futures contracts totaled $22
million and $142 million as of December 31, 1995 and 1994, respectively, and
were accounted for as hedges. At December 31, 1995, gains and losses on futures
contracts deferred in anticipation of investment purchases were $4 million and
$1 million, respectively. At December 31, 1994, gains and losses on futures
contracts deferred in anticipation of investment purchases were $1 million and
$3 million, respectively.
Net interest received or paid on an interest rate swap contract is recognized
currently as an adjustment to net investment income. The fair value of interest
rate swap contracts is reported as an adjustment to the fair value of the
related investment. Underlying notional principal amounts associated with
interest rate swap contracts outstanding were $508 million and $596 million at
December 31, 1995 and 1994, respectively.
The interest payment cash flows received in U.S. dollars from currency swaps
related to foreign currency denominated investment securities (primarily
Canadian dollars, pound sterling, Swiss francs and Japanese yen) are recognized
as net investment income when received. The fair value of currency swaps is
reported as an adjustment to the fair value of the related investment.
Underlying principal amounts associated with currency swap contracts outstanding
were $335 million and $325 million at December 31, 1995 and 1994, respectively.
As of December 31, 1995 and 1994, respectively, the Company's variable rate
investments consisted of approximately $1.4 billion and $810 million of fixed
maturities, respectively. As of December 31, 1995 and 1994, the Company's fixed
rate investments consisted of $20.6 billion and $17.6 billion, respectively, of
fixed maturities and $10 billion and $9 billion, respectively, of mortgage
loans. As a result of recognizing amortization of deferred market value changes
in futures contracts, net investment income on bonds and mortgage loans was
increased by $10 million and $1 million, respectively, for the year ended
December 31, 1995 and by $7 million and $1 million,
45
<PAGE>
respectively, for the year ended December 31, 1994. In addition, the increase in
net investment income for bonds resulting from interest rate swap contracts was
$3 million, $12 million and $19 million for 1995, 1994 and 1993, respectively.
G) OTHER: As of December 31, 1995 and 1994, the Company had no concentration
of investments in a single investee exceeding 10% of Shareholder's Equity.
NOTE 4 -- INVESTMENT INCOME AND GAINS AND LOSSES
A) NET INVESTMENT INCOME: The components of net investment income, including
policyholder share, for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities.................................................... $ 1,669 $ 1,596 $ 1,547
Mortgage loans...................................................... 866 776 892
Equity securities................................................... 15 20 16
Policy loans........................................................ 499 365 253
Real estate......................................................... 301 291 238
Other long-term investments......................................... 33 23 20
Short-term investments.............................................. 40 8 18
--------- --------- ---------
3,423 3,079 2,984
Less investment expenses............................................ 285 274 242
- -----------------------------------------------------------------------------------------------------
Net investment income............................................... $ 3,138 $ 2,805 $ 2,742
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
Net investment income attributable to policyholder contracts, which is
included in the Company's revenues and is primarily offset by amounts included
in Benefits, Losses and Settlement Expenses, was approximately $1.8 billion,
$1.5 billion and $1.6 billion for 1995, 1994 and 1993, respectively. Net
investment income for separate accounts, which is not reflected in the Company's
revenues, was $885 million, $693 million and $604 million for December 31, 1995,
1994 and 1993, respectively.
As of December 31, 1995, fixed maturities and mortgage loans on non-accrual
status, including policyholder share, were $149 million and $523 million,
including restructured investments of $105 million and $447 million,
respectively. Amounts on non-accrual status as of December 31, 1994 were $272
million of fixed maturities and $743 million of mortgage loans, including
restructurings of $148 million and $543 million, respectively. If interest on
these investments had been recognized in accordance with their original terms,
net income would have been increased by $12 million, $14 million and $17 million
in 1995, 1994 and 1993, respectively.
B) REALIZED INVESTMENT GAINS AND LOSSES: Realized gains and losses on
investments, excluding policyholder share, for the year ended December 31 were
as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized investment gains (losses):
Fixed maturities....................................................... $ (10) $ 4 $ 28
Mortgage loans......................................................... (5) -- (5)
Equity securities...................................................... 5 2 (5)
Real estate............................................................ 4 15 (66)
Other.................................................................. (1) 6 (17)
--- --- ---
(7) 27 (65)
Income tax (benefits) expenses........................................... (2) 12 (16)
- ----------------------------------------------------------------------------------------------------------------
Net realized investment gains (losses)................................... $ (5) $ 15 $ (49)
- ----------------------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Impairments in the value of investments, net of recoveries, that are included
in realized investment gains and losses were $27 million, $33 million and $55
million in 1995, 1994 and 1993, respectively.
46
<PAGE>
Realized investment gains (losses) for separate accounts, which are not
reflected in the Company's revenues, were $412 million, ($51) million and $612
million for the years ended December 31, 1995, 1994 and 1993, respectively.
Realized investment (losses) attributable to policyholder contracts, which also
are not reflected in the Company's revenues, were ($6) million and ($5) million
for the years ended December 31, 1995 and 1993, respectively. Realized
investment gains (losses) attributable to policyholder contracts were zero for
the year ended December 31, 1994.
Sale of available-for-sale fixed maturities and equity securities, including
policyholder share, for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Proceeds from sales....................................................... $ 1,667 $ 2,116
Gross gains on sales...................................................... $ 78 $ 73
Gross losses on sales..................................................... $ (53) $ (70)
- ------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Prior to the SFAS No. 115 reclassification described in Note 2(B), $171
million of fixed maturities classified as held-to-maturity, including
policyholder share, were transferred to the available-for-sale category in 1995
resulting in the recognition in Shareholder's Equity of unrealized depreciation
of $15 million, net of policyholder-related amounts and deferred income taxes.
During 1994, the Company sold $14 million of held-to-maturity fixed maturities,
including policyholder share, resulting in gross proceeds of $12 million and a
pre-tax realized loss of $2 million. In addition, in 1994 $82 million of fixed
maturities classified as held-to-maturity, including policyholder share, were
transferred to the available-for-sale category at fair value, which was not
significantly different from the carrying value. The sales of fixed maturities
classified as held to maturity and the transfer of such securities to the
available-for-sale category were the result of significant credit deterioration
of the issuers of the affected investments.
Prior to adoption of SFAS No. 115, proceeds from voluntary sales of
investments in fixed maturities, including policyholder share, were $599 million
in 1993. Such sales resulted in gross realized gains and gross realized
(losses), including policyholder share, of $36 million and ($3) million,
respectively. These amounts exclude the effects of sales of fixed maturities
that, prior to the implementation of SFAS No. 115, were classified as short-term
investments.
NOTE 5 -- SHAREHOLDER'S EQUITY AND DIVIDEND RESTRICTIONS
The Connecticut Insurance Department (the Department) recognizes as net income
and surplus (shareholder's equity) those amounts determined in conformity with
statutory accounting practices prescribed or permitted by the Department, which
differ in certain respects from generally accepted accounting principles. As of
December 31, 1994, there were no permitted accounting practices utilized by the
Company that were materially different from those prescribed by the Department.
Capital stock of the Company at December 31, 1995 and 1994 consisted of
5,978,322 shares of common stock authorized, issued and outstanding (par value
$5.00).
The Company's statutory net income was $390 million, $428 million and $397
million for 1995, 1994 and 1993, respectively. Statutory surplus was $2.1
billion and $2.0 billion at December 31, 1995 and 1994, respectively. The
Connecticut Insurance Holding Company Act limits the amount of annual dividends
or other distributions available to shareholders of Connecticut insurance
companies without prior approval of the Insurance Commissioner. Under current
law, the maximum dividend distribution that may be made by the Company during
1996 without prior approval is $432 million. The amount of restricted net assets
as of December 31, 1995 was approximately $4.1 billion.
47
<PAGE>
NOTE 6 -- INCOME TAXES
The Company's net deferred tax asset of $403 million and $661 million as of
December 31, 1995 and 1994, respectively, reflects management's belief that the
Company's taxable income in future years will be sufficient to realize the net
deferred tax asset based on the Company's earnings history and its future
expectations. In determining the adequacy of future taxable income, management
considered the future reversal of its existing taxable temporary differences and
available tax planning strategies that could be implemented, if necessary.
In accordance with the Life Insurance Company Income Tax Act of 1959, a
portion of the Company's statutory income was not subject to current income
taxation but was accumulated in an account designated Policyholders' Surplus
Account. Under the Tax Reform Act of 1984, no further additions may be made to
the Policyholders' Surplus Account for tax years ending after December 31, 1983.
The balance in the account of approximately $450 million at December 31, 1995
would result in a tax liability of $158 million, only if distributed to the
shareholders or if the account balance exceeded a prescribed maximum. No income
taxes have been provided on this amount because, in management's opinion, the
likelihood that these conditions will be met is remote.
CIGNA's federal income tax returns are routinely audited by the Internal
Revenue Service (IRS), and provisions are made in CIGNA's financial statements
in anticipation of the results of these audits. In management's opinion,
adequate tax liabilities have been established for all years.
The tax effect of temporary differences which give rise to deferred income tax
assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Insurance and contractholder liabilities.................................. $ 324 $ 337
Employee and retiree benefit plans........................................ 176 175
Investments, net.......................................................... 225 220
Unrealized depreciation on investments.................................... -- 30
Other..................................................................... 72 71
--------- ---------
Total deferred tax assets................................................. 797 833
--------- ---------
Deferred tax liabilities:
Policy acquisition expenses............................................... 25 60
Depreciation.............................................................. 97 102
Unrealized appreciation on investments.................................... 272 --
Other..................................................................... -- 10
--------- ---------
Total deferred tax liabilities............................................ 394 172
- --------------------------------------------------------------------------------------------------
Deferred income taxes, net................................................ $ 403 $ 661
- --------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Total income tax expense was less than the amount computed using the nominal
federal income tax rate of 35% for the following reasons:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at nominal rate.............................................. $ 266 $ 271 $ 261
Tax-exempt interest income............................................... (6) (7) (6)
Dividends received deduction............................................. (7) (3) (4)
Amortization of goodwill................................................. 4 4 5
Resolved federal tax audit issues........................................ -- (2) (3)
Increase in deferred tax asset for tax rate change....................... -- -- (13)
Other, net............................................................... -- 2 (4)
- ----------------------------------------------------------------------------------------------------------
Total income tax expense................................................. $ 257 $ 265 $ 236
- ----------------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
48
<PAGE>
Temporary and other differences which resulted in the deferred tax expense
(benefit) for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance and contractholder liabilities............................... $ 13 $ 93 $ (80)
Policy acquisition expenses............................................ (35) (8) (39)
Investments, net....................................................... (21) (19) (36)
Employee and retiree benefit plans..................................... (1) (9) (16)
Realized investment (gains) losses..................................... 16 (20) (24)
Other.................................................................. (16) 8 (2)
- --------------------------------------------------------------------------------------------------------
Deferred taxes (benefits).............................................. $ (44) $ 45 $ (197)
- --------------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
NOTE 7 -- PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS PLANS
A) PENSION PLANS: The Company provides retirement benefits to eligible
employees and agents. These benefits are provided through a plan sponsored by
CIGNA covering most domestic employees (the Plan) and by several separate
pension plans for various subsidiaries, agents and foreign employees.
The Plan is a non-contributory, defined benefit, trusteed plan available to
eligible domestic employees. Benefits are based on employees' years of service
and compensation during the highest three or, if service commenced after
December 31, 1988, five consecutive years of employment, offset by a portion of
the Social Security benefit for which they are eligible. CIGNA funds at least
the minimum amount required by the Employee Retirement Income Security Act of
1974. Allocated pension cost for the Company was $23 million, $31 million and
$27 million in 1995, 1994 and 1993, respectively.
The Plan, and several separate pension plans for various subsidiaries and
agents, had deposits with the Company totalling approximately $2.0 billion and
$1.7 billion at December 31, 1995 and 1994, respectively.
B) OTHER POSTRETIREMENT BENEFITS PLANS: In addition to providing pension
benefits, the Company provides certain health care and life insurance benefits
to retired employees, spouses and other eligible dependents through various
plans sponsored by CIGNA. A substantial portion of the Company's employees may
become eligible for these benefits upon retirement. CIGNA's contributions for
health care benefits depend upon a retiree's date of retirement, age, years of
service and other cost-sharing features, such as deductibles and coinsurance.
Under the terms of the benefit plans, benefit provisions and cost-sharing
features can be adjusted. In general, retiree health care benefits are not
funded by CIGNA, but are paid as covered expenses are incurred. Retiree life
insurance benefits are paid from plan assets or as covered expenses are
incurred.
An employer's postretirement benefit liability is primarily measured by
determining the present value of the projected future costs of health benefits
based on an estimate of health care cost trend rates. Expense for postretirement
benefits other than pensions allocated to the Company totalled $20 million for
1995, $28 million for 1994 and $15 million for 1993. The other postretirement
benefit liability included in Accounts Payable, Accrued Expenses and Other
Liabilities as of December 31, 1995 and 1994 was $427 million and $422 million,
including net intercompany payables of $28 million and $29 million,
respectively, for services provided by affiliates' employees.
C) OTHER POSTEMPLOYMENT BENEFITS: The Company provides certain salary
continuation (severance and disability), health care and life insurance benefits
to inactive and former employees, spouses and other eligible dependents through
various employee benefit plans sponsored by CIGNA.
Although severance benefits accumulate with additional service, the Company
recognizes severance expense when severance is probable and the costs can be
reasonably estimated. Postemployment benefits other than severance generally do
not vest or accumulate; therefore, the estimated cost of benefits is accrued
when determined to be probable and estimable, generally upon disability or
termination. See Note 8 for additional information regarding severance accrued
as part of cost reduction initiatives.
D) CAPITAL ACCUMULATION PLANS: CIGNA sponsors various capital accumulation
plans in which employee contributions on a pre-tax basis (401(k)) are
supplemented by CIGNA matching contributions. Contributions are
49
<PAGE>
invested, at the election of the employee, in one or more of the following
investments: CIGNA common stock fund, several non-CIGNA stock and bond
portfolios and a fixed-income fund. The Company's expense for such plans totaled
$14 million for 1995 and 1994 and $13 million for 1993.
NOTE 8 -- SEGMENT INFORMATION
The Company operates principally in three segments: Employee Life and Health
Benefits, Employee Retirement and Savings Benefits, and Individual Financial
Services. Other Operations consists principally of the results of the Company's
settlement annuity business.
Summarized financial information with respect to the business segments for the
year ended and as of December 31 was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Employee Life and Health Benefits................................ $ 4,243 $ 4,194 $ 3,811
Employee Retirement and Savings Benefits......................... 1,914 1,887 2,044
Individual Financial Services.................................... 1,800 1,546 1,351
Other Operations................................................. 181 173 190
- --------------------------------------------------------------------------------------------------
Total............................................................ $ 8,138 $ 7,800 $ 7,396
- --------------------------------------------------------------------------------------------------
-------------------------------
- --------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
Employee Life and Health Benefits................................ $ 294 $ 323 $ 378
Employee Retirement and Savings Benefits......................... 232 258 172
Individual Financial Services.................................... 252 237 198
Other Operations................................................. (17) (44) (2)
- --------------------------------------------------------------------------------------------------
Total............................................................ $ 761 $ 774 $ 746
- --------------------------------------------------------------------------------------------------
-------------------------------
- --------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Employee Life and Health Benefits................................ $ 7,629 $ 7,197 $ 7,307
Employee Retirement and Savings Benefits......................... 37,609 33,588 34,068
Individual Financial Services.................................... 16,189 12,612 9,824
Other Operations................................................. 2,569 2,111 2,283
- --------------------------------------------------------------------------------------------------
Total............................................................ $ 63,996 $ 55,508 $ 53,482
- --------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
During 1995, the Company recorded a $13 million pre-tax charge, included in
Other Operating Expenses, for cost reduction initiatives in the Employee Life
and Health Benefits segment. The charge consisted primarily of severance-related
expenses representing costs associated with nonvoluntary employee terminations
covering approximately 1,100 employees. The cash outlays associated with the
restructuring initiatives began in the third quarter of 1995 and will continue
through 1997, with most of the cash outlays expected to occur in 1996. During
1995, $3 million of severance was paid to 500 terminated employees. During 1993,
the Company implemented cost reduction initiatives in the Employee Life and
Health Benefits segment to reduce operating expenses. Results for 1993 reflected
a pre-tax charge of $8 million for the estimated costs of these cost reduction
actions. The Company has funded, and will continue to fund, these costs through
liquid assets, and such funding will not have a material adverse effect on its
liquidity.
50
<PAGE>
NOTE 9 -- LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to buildings,
amounted to $60 million, $62 million and $66 million in 1995, 1994 and 1993,
respectively.
As of December 31, 1995, future net minimum rental payments under
non-cancelable operating leases were $92 million, payable as follows: 1996 - $37
million; 1997 - $24 million; 1998 - $13 million; 1999 - $9 million; 2000 - $4
million; and $5 million thereafter.
NOTE 10 -- REINSURANCE
In the normal course of business, the Company enters into agreements,
primarily relating to short-duration contracts, to assume and cede reinsurance
with other insurance companies. Reinsurance is ceded primarily to limit losses
from large exposures and to permit recovery of a portion of direct losses,
although ceded reinsurance does not relieve the originating insurer of
liability. The Company evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristic of its reinsurers.
Failure of reinsurers to indemnify the Company, as a result of reinsurer
insolvencies and disputes, could result in losses. As of December 31, 1995 and
1994 there were no allowances for uncollectible amounts. While future charges
for unrecoverable reinsurance may materially affect results of operations in
future periods, such amounts are not expected to have a material adverse effect
on the Company's liquidity or financial condition.
The effects of reinsurance on net earned premiums and fees for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-DURATION CONTRACTS
Premiums and Fees:
Direct............................................................ $ 3,374 $ 3,419 $ 2,666
Assumed........................................................... 818 716 1,248
Ceded............................................................. (391) (291) (329)
- -----------------------------------------------------------------------------------------------------
Net earned premiums and fees...................................... $ 3,801 $ 3,844 $ 3,585
- -----------------------------------------------------------------------------------------------------
-------------------------------
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
LONG-DURATION CONTRACTS
Premiums and Fees:
Direct............................................................ $ 1,189 $ 1,068 $ 1,023
Assumed........................................................... 127 126 166
Ceded............................................................. (119) (78) (70)
- -----------------------------------------------------------------------------------------------------
Net earned premiums and fees...................................... $ 1,197 $ 1,116 $ 1,119
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
The effects of reinsurance on written premiums and fees for short-duration
contracts were not materially different from the amounts shown above. Benefits,
Losses and Settlement Expenses for 1995, 1994 and 1993 were net of reinsurance
recoveries of $574 million, $415 million and $603 million, respectively.
NOTE 11 -- CONTINGENCIES
A) FINANCIAL GUARANTEES: The Company is contingently liable for financial
guarantees provided in the ordinary course of business on the repayment of
principal and interest on certain industrial revenue bonds. The contractual
amounts of financial guarantees reflect the Company's maximum exposure to credit
loss in the event of nonperformance. To limit the Company's exposure in the
event of default of any guaranteed obligation, various programs are in place to
ascertain the creditworthiness of guaranteed parties, to monitor this status on
a periodic basis and to reduce risk through security arrangements.
51
<PAGE>
The industrial revenue bonds guaranteed directly by the Company have remaining
maturities of up to 20 years. The guarantees provide for payment of debt service
only as it becomes due; consequently, an event of default would not cause an
acceleration of scheduled principal and interest payments. The principal amount
of the bonds guaranteed by the Company at December 31, 1995 and 1994 was $266
million and $296 million, respectively. Revenues in connection with industrial
revenue bond guarantees are derived principally from equity participations in
the related projects and are included in Net Investment Income as earned. Loss
reserves for financial guarantees are established when a default has occurred or
when the Company believes that a loss has been incurred. During 1994, losses for
industrial revenue bonds were $1 million. There were no such losses in 1995 and
1993.
The Company also guarantees a minimum level of benefits for certain separate
account contracts and, in the event that separate account assets are
insufficient to fund minimum policy benefits, the Company is obligated to fund
the difference. As of December 31, 1995 and 1994, the amount of minimum benefit
guarantees for separate account contracts was $5.1 billion and $4.8 billion,
respectively. Reserves in addition to the separate account liabilities are
established when the Company believes a payment will be required under one of
these guarantees. As of December 31, 1994, reserves of $6 million were recorded.
No such reserves were required as of December 31, 1995. Guarantee fees are part
of the overall management fee charged to separate accounts and are recognized in
income as earned.
Although the ultimate outcome of any loss contingencies arising from the
Company's financial guarantees may adversely affect results of operations in
future periods, they are not expected to have a material adverse effect on the
Company's liquidity or financial condition.
B) REGULATORY AND INDUSTRY DEVELOPMENTS: The Company's businesses are subject
to a changing social, economic, legal, legislative and regulatory environment
that could affect them. Some of the changes include initiatives to: reform the
federal tax system; restrict insurance pricing and the application of
underwriting standards; reform health care; and expand regulation. Some of the
more significant issues are discussed below.
Legislation is expected to be considered by Congress that is likely to limit,
and eventually substantially eliminate, the tax deductibility of policy loan
interest for corporate-owned life insurance. The outcome of such legislation is
uncertain and, although it could have a material adverse effect on results of
operations for the Individual Financial Services segment, it is not expected to
be material to the Company's consolidated results of operations, liquidity or
financial condition.
The Company expects proposals for federal and state legislation seeking some
health care insurance reforms. Due to uncertainties associated with the timing
and content of any health care legislation, the effect on the Company's future
results of operations, liquidity or financial condition cannot be reasonably
estimated at this time.
In recent years, the number of insurance companies that are impaired or
insolvent has increased. This is expected to result in an increase in mandatory
assessments by state guaranty funds of, or voluntary payments by, solvent
insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company recorded pre-tax charges of $17 million, $12 million
and $10 million for 1995, 1994 and 1993, respectively, for guaranty fund
assessments that can be reasonably estimated before giving effect to future
premium tax recoveries. Although future assessments and payments may adversely
affect results of operations in future periods, such amounts are not expected to
have a material adverse effect on the Company's liquidity or financial
condition.
The eventual effect on the Company of the changing environment in which it
operates remains uncertain.
C) LITIGATION: The Company is routinely engaged in litigation incidental to
its business, including litigation associated with syndicated investment
products. While the outcome of all litigation involving the Company, including
insurance-related litigation, cannot be determined, litigation is not expected
to result in losses that differ from recorded reserves by amounts that would be
material to results of operations, liquidity or financial condition.
NOTE 12 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that are subject to fair value disclosure requirements
(insurance contracts, real estate, goodwill and taxes are excluded) are carried
in the financial statements at amounts that approximate fair values, unless
otherwise indicated in the following table. The fair values used for financial
instruments are estimates that in
52
<PAGE>
many cases may differ significantly from the amounts that could be realized upon
immediate liquidation. In cases where market prices are not available, estimates
of fair value are based on discounted cash flow analyses which utilize current
interest rates for similar financial instruments with comparable terms and
credit quality. The fair value of liabilities for contractholder deposit funds
was estimated using the amount payable on demand and, for those not payable on
demand, discounted cash flow analyses.
The following table presents carrying amounts and estimated fair values as of
December 31 for the Company's financial instruments that are not carried in the
financial statements at amounts approximating fair value.
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Carrying Fair Carrying Fair
(IN MILLIONS) Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------
Assets:
Fixed maturities-held to maturity..................... $ -- $ -- $ 10,061 $ 10,075
Mortgage loans........................................ $ 10,218 $ 10,364 $ 8,975 $ 8,610
Liabilities:
Contractholder deposit funds
non-insurance products............................... $ 19,797 $ 19,890 $ 18,561 $ 18,381
- ----------------------------------------------------------------------------------------------------
</TABLE>
For additional information on fair values of fixed maturities, see Note 2(A).
Fair values of off-balance-sheet financial instruments as of December 31, 1995
and 1994 were not material.
NOTE 13 -- RELATED PARTY TRANSACTIONS
The Company has ceded group accident and health business under an
experience-rated stop loss agreement to CIGNA P&C. Reinsurance recoverables from
CIGNA P&C were $1.3 billion at December 31, 1994. During 1993, the Company
earned experience-rated refunds from CIGNA P&C, net of premiums ceded, of $63
million. Effective January 1, 1995 the treaty was cancelled. Reserves of
approximately $300 million, primarily related to long-term disability business,
were recaptured in 1995, with CIGNA P&C assuming responsibility for runout
claims on the remaining reserves. Assets, principally mortgages, with a fair
market value equal to reserves were received as part of the recapture.
The Company has assumed the settlement annuity and group pension business
written by Life Insurance Company of North America (LINA), an affiliate.
Reserves held by the Company with respect to this business were $1.7 billion at
December 31, 1995 and 1994.
The Company cedes long-term disability business to LINA. Reinsurance
recoverables from LINA at December 31, 1995 and 1994 were $996 million and $992
million, respectively.
The Company had lines of credit available from affiliates totaling $600
million at both December 31, 1995 and 1994. All borrowings are payable upon
demand with interest rates equivalent to CIGNA's average monthly short-term
borrowing rate plus 1/4 of 1%. Interest expense was $1 million and $3 million
for 1994 and 1993 respectively. As of December 31, 1995 and 1994, there were no
borrowings outstanding under such lines.
The Company extended lines of credit to affiliates totalling $600 million at
December 31, 1995 and 1994. All loans are payable upon demand with interest
rates equivalent to CIGNA's average monthly short-term borrowing rate. As of
December 31, 1994, the Company had $1.5 million in outstanding loans to
affiliates under such lines. There were no amounts outstanding as of December
31, 1995.
The Company, together with other CIGNA subsidiaries, has entered into a
pooling arrangement known as the CIGNA Corporate Liquidity Account (the Account)
for the purpose of maximizing earnings on funds available for short-term
investments. Withdrawals from the Account, up to the total amount of the
participant's investment in the Account, are allowed on a demand basis. As of
December 31, 1995 and 1994, the Company had a balance in the Account of $212
million and $259 million, respectively.
CIGNA allocates to the Company its share of operating expenses incurred at the
corporate level. The Company also allocates a portion of its operating expenses
to affiliated companies on whose behalf it performs certain administrative
services.
53
<PAGE>
APPENDIX 1
ILLUSTRATION OF SURRENDER CHARGES
The Surrender Charge is calculated as (a) times (b), where
(a) is the sum of (i) a Deferred Sales Charge and (ii) a
Deferred Administrative Charge and (b) is the applicable
Surrender Charge Grading Factor. If the Specified Amount is
increased, a new Surrender Charge will be applicable, in
addition to any existing Surrender Charge.
Below are examples of Surrender Charge calculations, one
involving a level Specified Amount and one involving an
increase in the Specified Amount, followed by Definitions
and Tables used in the calculations.
EXAMPLE 1: A male nonsmoker, age 35, purchases a Policy with
a Specified Amount of $100,000 and a scheduled annual
premium of $1100. He now wants to surrender the Policy at
the end of the sixth Policy Year.
The Surrender Charge computed is as follows:
Sum of the premiums paid through the end of the second
Policy Year = $2200.00
Guideline Annual Premium Amount (Male, Age 35, $100,000
Specified Amount) = $1195.63
Surrender Charge =
<TABLE>
<S> <C>
(.285X$1195.63) + (.085X($2200-$1195.63)) = $340.75 + $85.37 = $ 426.12(i)
$6.00 per $1000 of Specified Amount $ 600.00(ii)
--------
$1026.12(a)
</TABLE>
The total Surrender Charge is $1026.12(a), times the
surrender charge grading factor,(b): ($1026.12 X 80%) =
$820.90.
EXAMPLE 2: A female nonsmoker, age 45, purchases a Policy
with an Initial Specified Amount of $200,000 and a scheduled
annual premium of $1500. She pays the scheduled annual
premium for the first five Policy Years. At the start of the
sixth Policy Year, she increases the Specified Amount to
$250,000 and continues to pay the scheduled annual premium
of $1500. She now wants to surrender the Policy at the end
of the eighth Policy Year. Separate Surrender Charges must
be calculated for the Initial Specified Amount and for the
increase in Specified Amount.
The Surrender Charges are computed as follows:
For the Initial Specified Amount,
Sum of the premiums paid through the end of the second
Policy Year = $3000.00
Guideline Annual Premium Amount (Female, Age 45, $200,000
Specified Amount = $2966.81
<TABLE>
<S> <C>
Surrender Charge for Initial Specified Amount =
(.285X$2966.81) +(.085X($3000.00-$2966.81)) = $845.54 + $2.82 = $ 848.36(i)
$6.00 per $1000 of Initial Specified Amount $1200.00(ii)
--------
$2048.36(a)
</TABLE>
The total Surrender Charge for the Initial Specified Amount
is $2048.36,(a), times the applicable surrender charge
grading factor,(b): ($2048.36 X 40%) = $819.34.
54
<PAGE>
For the increase in Specified Amount;
Sum of the premiums in the first two years following the
increase in Specified Amount, applicable to the increase in
Specified Amount =
($1500 X 2) X ($50,000 / $250,000) = $600.00.
Guideline Annual Premium Amount (Female, Age 50, $50,000
Specified Amount) = $993.68.
<TABLE>
<S> <C>
Surrender Charge for the increase in Specified Amount =
(.285 X $600.00) $ 171.00(i)
$6.00 per $1000 of increase in Specified Amount $ 300.00(ii)
--------
$ 471.00(a)
</TABLE>
The total Surrender Charge for the increase in the Specified
Amount is $471.00,(a), times the applicable surrender charge
grading factor,(b): ($471.00 X 100%) = $471.00
The overall Surrender Charge for the Policy is ($819.34 +
$471.00) = $1290.34.
DEFINITIONS AND TABLES
(a)(i) The Deferred Sales Charge is based on the actual
premium paid and the applicable Guideline Annual
Premium Amount, and is calculated assuming the
following:
<TABLE>
<S> <C>
DURING POLICY YEAR:
1 and 2 28.5% of the sum of the
premiums paid up to an amount
equal to the Guideline Annual
Premium Amount,* plus 8.5% of
the sum of the premiums paid
between one and two times the
Guideline Annual Premium
Amount, plus 7.5% of the sum
of the premiums paid in excess
of two times the Guideline
Annual Premium Amount.
3 through 10 same dollar amount as of the
end of Policy Year 2.
</TABLE>
In no event will the Deferred Sales Charge exceed the
maximum permitted under federal or state law.
(ii) The Deferred Administrative Charge is $6.00 per
$1,000 of Specified Amount.
(b) SURRENDER CHARGE GRADING FACTORS
<TABLE>
<S> <C>
Policy Years**
1-5 100%
Policy Year 6 80%
Policy Year 7 60%
Policy Year 8 40%
Policy Year 9 20%
Policy Year 10 0%
</TABLE>
If a Surrender Charge becomes effective at other than the
end of a Policy Year, any applicable Surrender Charge
grading factor will be applied on a pro rata basis as of
such effective date.
* Guideline Annual Premium Amount is the level annual
amount that would be payable through the latest maturity
date permitted under the Policy but not less than 20
years after date of issue or (if earlier) age 95 for the
future benefits under the Policy, subject to the
following provisions: (A) the payments were fixed by the
Life Insurer as to both timing and amount; and (B) the
payments were based on the 1980 Commissioners Standard
Ordinary Mortality Table, net investment earnings at the
greater of an annual effective of 5% or rate or rates
guaranteed at issue of the policy, the sales load under
the policy, and the fees and charges specified in the
policy. A new Guideline Annual Premium Amount is
determined for each increase in Specified Amount under
the policy; in such event, "Policy Years" are measured
from the effective date(s) of such increase(s).
** Number of Policy Years elapsed since the Date of Issue or
since the effective date(s) of any increase(s) in
Specified Amount.
55
<PAGE>
APPENDIX 2
ILLUSTRATIONS OF ACCUMULATION VALUES, SURRENDER VALUES,
AND DEATH BENEFITS
The illustrations in this Prospectus have been prepared to
help show how values under the Policies change with
investment performance. The illustrations illustrate how
Accumulation Values, Surrender Values and Death Benefits
under a Policy would vary over time if the hypothetical
gross investment rates of return were a uniform annual
effective rate of either 0%, 6% or 12%. If the hypothetical
gross investment rate of return averages 0%, 6%, or 12% over
a period of years, but fluctuates above or below those
averages for individual years, the Accumulation Values,
Surrender Values and Death Benefits may be different. The
illustrations also assume there are no Policy loans or
partial surrenders, no additional Premium Payments are made
other than shown, no Accumulation Values are allocated to
the Fixed Account, and there are no changes in the Specified
Amount or Death Benefit Option.
The amounts shown for the Accumulation Value, Surrender
Value and Death Benefit as of each Policy Anniversary
reflect the fact that the net investment return on the
assets held in the Sub-Accounts is lower than the gross
return. This is due to the daily charges made against the
assets of the Sub-Accounts for assuming mortality and
expense risks. The current mortality and expense risk
charges are equivalent to an annual effective rate of 0.80%
of the daily net asset value of the Variable Account. On
each Policy Anniversary beginning with the 13th, the
mortality and expense risk charge is reduced to 0.55% on an
annual basis of the daily net assets of the Variable
Account. In addition, the net investment returns also
reflect the deduction of Fund investment advisory fees and
other expenses which will vary depending on which funding
vehicle is chosen but which are assumed for purposes of
these illustrations to be equivalent to an annual effective
rate of 0.80% of the daily net asset value of the Variable
Account.
Considering current charges for mortality and expense risks
and the assumed Fund expenses, gross annual rates of return
of 0%, 6%, and 12% correspond to net investment experience
at constant annual rates of -1.60%, 4.40% and 10.40%. On
each Policy Anniversary beginning with the 13th, the gross
annual rates of return of 0%, 6%, and 12% correspond to net
investment experience at constant annual rates of -1.35%,
4.65% and 10.65%. This is due to a reduction, currently in
effect, in the mortality and expense risk charge from an
annual effective rate of 0.80% to an annual effective rate
of 0.55% after twelve Policy Years.
The illustrations also reflect the fact that the Company
makes monthly charges for providing insurance protection.
Current values reflect current Cost of Insurance charges and
guaranteed values reflect the maximum Cost of Insurance
charges guaranteed in the Policy. The values shown are for
Policies which are issued as standard. Policies issued on a
substandard basis would result in lower Accumulation Values
and Death Benefits than those illustrated.
The illustrations also reflect the fact that the Company
deducts a premium load from each Premium Payment. Current
and guaranteed values reflect a deduction of 5.0% of each
Premium Payment.
The Surrender Values shown in the illustrations reflect the
fact that the Company will deduct a Surrender Charge from
the Policy's Accumulation Value for any Policy surrendered
in full during the first ten years.
In addition, the illustrations reflect the fact that the
Company deducts a monthly administrative charge at the
beginning of each Policy Month. This monthly administrative
56
<PAGE>
expense charge is $15 per month in the first year. Current
values reflect a current monthly administrative expense
charge of $5 in renewal years, and guaranteed values reflect
the $10 maximum monthly administrative charge under the
Policy in renewal years.
Upon request, the Company will furnish a comparable
illustration based on the proposed insured's age, gender
classification, smoking classification, risk classification
and premium payment requested.
57
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 45
PREFERRED -- $5,998 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.60% 4.40% 10.40% -1.60% 4.40% 10.40% -1.60% 4.40% 10.40%
ACCUMULATED IN YEARS 1-12 IN YEARS 1-12 IN YEARS 1-12
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.35% 4.65% 10.65% -1.35% 4.65% 10.65% -1.35% 4.65% 10.65%
YEAR PER YEAR IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,298 500,000 500,000 500,000 3,196 3,460 3,725 0 0 0
2 12,911 500,000 500,000 500,000 6,231 6,960 7,724 335 1,065 1,829
3 19,854 500,000 500,000 500,000 9,035 10,429 11,952 3,140 4,534 6,056
4 27,145 500,000 500,000 500,000 11,604 13,859 16,426 5,708 7,963 10,530
5 34,800 500,000 500,000 500,000 13,918 17,224 21,151 8,022 11,329 15,256
6 42,838 500,000 500,000 500,000 15,968 20,512 26,146 11,251 15,798 21,430
7 51,278 500,000 500,000 500,000 17,716 23,677 31,401 14,178 20,140 27,864
8 60,139 500,000 500,000 500,000 19,133 26,683 36,917 16,775 24,325 34,559
9 69,444 500,000 500,000 500,000 20,182 29,484 42,688 19,003 28,305 41,508
10 79,214 500,000 500,000 500,000 20,820 32,024 48,702 20,820 32,024 48,702
15 135,900 500,000 500,000 500,000 16,900 39,331 82,853 16,900 38,331 82,853
20 208,246 -- 500,000 500,000 -- 30,982 124,520 -- 30,982 124,520
25 300,580 -- -- 500,000 -- -- 173,139 -- -- 173,139
30 418,425 -- -- 500,000 -- -- 229,603 -- -- 229,603
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates, mortality and expense risk charges,
administrative fees and premium load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.80% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
58
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 45
PREFERRED -- $5,998 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.60% 4.40% 10.40% -1.60% 4.40% 10.40% -1.60% 4.40% 10.40%
ACCUMULATED IN YEARS 1-12 IN YEARS 1-12 IN YEARS 1-12
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.35% 4.65% 10.65% -1.35% 4.65% 10.65% -1.35% 4.65% 10.65%
YEAR PER YEAR IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,298 500,000 500,000 500,000 4,010 4,300 4,591 0 0 0
2 12,911 500,000 500,000 500,000 7,988 8,824 9,697 2,093 2,929 3,802
3 19,854 500,000 500,000 500,000 11,795 13,439 15,225 5,900 7,543 9,329
4 27,145 500,000 500,000 500,000 15,458 18,174 21,247 9,562 12,278 15,351
5 34,800 500,000 500,000 500,000 19,003 23,062 27,843 13,108 17,166 21,948
6 42,838 500,000 500,000 500,000 22,458 28,135 35,104 17,742 23,419 30,388
7 51,278 500,000 500,000 500,000 25,800 33,381 43,078 22,263 29,844 39,541
8 60,139 500,000 500,000 500,000 28,915 38,690 51,727 26,557 36,332 49,369
9 69,444 500,000 500,000 500,000 31,971 44,234 61,293 30,792 43,055 60,114
10 79,214 500,000 500,000 500,000 34,900 49,955 71,810 34,900 49,955 71,810
15 135,900 500,000 500,000 500,000 45,141 79,119 140,764 45,141 79,119 140,764
20 208,246 500,000 500,000 500,000 46,634 108,342 251,578 46,634 108,342 251,578
25 300,580 500,000 500,000 511,218 39,072 138,322 440,705 39,072 138,322 440,705
30 418,425 500,000 500,000 814,280 13,256 163,435 761,009 13,256 163,435 761,009
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.80% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
59
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 55
PREFERRED -- $9,727 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.60% 4.40% 10.40% -1.60% 4.40% 10.40% -1.60% 4.40% 10.40%
ACCUMULATED IN YEARS 1-12 IN YEARS 1-12 IN YEARS 1-12
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.35% 4.65% 10.65% -1.35% 4.65% 10.65% -1.35% 4.65% 10.65%
YEAR PER YEAR IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER
- ------ ----------- ---------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,213 500,000 500,000 500,000 3,801 4,185 4,572 0 0 0
2 20,937 500,000 500,000 500,000 7,154 8,161 9,221 0 0 1,388
3 32,198 500,000 500,000 500,000 9,990 11,842 13,879 2,158 4,010 8,047
4 44,021 500,000 500,000 500,000 12,283 15,185 18,524 4,451 7,353 10,892
5 56,435 500,000 500,000 500,000 14,001 18,140 23,124 5,169 10,307 15,292
6 69,470 500,000 500,000 500,000 15,088 20,825 27,620 8,823 14,360 21,355
7 83,157 500,000 500,000 500,000 15,476 22,548 31,939 10,778 17,849 27,238
8 97,528 500,000 500,000 500,000 15,073 23,787 35,977 11,840 20,654 32,644
9 112,618 500,000 500,000 500,000 13,771 24,194 39,608 12,294 22,628 38,041
10 128,462 500,000 500,000 500,000 11,460 23,616 42,692 11,480 23,816 42,692
15 220,389 -- -- 500,000 -- -- 44,045 -- -- 44,045
20 337,714 -- -- -- -- -- -- -- -- --
25 487,454 -- -- -- -- -- -- -- -- --
30 678,563 -- -- -- -- -- -- -- -- --
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates, mortality and expense risk charges,
administrative fees and premium load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.80% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
60
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 55
PREFERRED -- $9,727 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.60% 4.40% 10.40% -1.60% 4.40% 10.40% -1.60% 4.40% 10.40%
ACCUMULATED IN YEARS 1-12 IN YEARS 1-12 IN YEARS 1-12
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.35% 4.65% 10.65% -1.35% 4.65% 10.65% -1.35% 4.65% 10.65%
YEAR PER YEAR IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER
- ------ ----------- ---------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,213 500,000 500,000 500,000 6,380 6,847 7,316 608 1,075 1,544
2 20,937 500,000 500,000 500,000 12,478 13,814 15,210 4,646 5,982 7,377
3 32,198 500,000 500,000 500,000 18,205 20,812 23,649 10,372 12,980 15,817
4 44,021 500,000 500,000 500,000 23,655 27,939 32,796 15,823 20,107 24,963
5 56,435 500,000 500,000 500,000 28,787 35,157 42,684 20,955 27,325 34,852
6 69,470 500,000 500,000 500,000 33,737 42,609 53,543 27,471 36,344 47,277
7 83,157 500,000 500,000 500,000 38,532 50,337 65,510 33,832 45,637 60,811
8 97,528 500,000 500,000 500,000 43,154 58,334 78,696 40,021 55,201 75,563
9 112,618 500,000 500,000 500,000 47,441 66,457 93,087 45,874 64,890 91,520
10 128,462 500,000 500,000 500,000 51,317 74,640 108,761 51,317 74,640 108,761
15 220,389 500,000 500,000 500,000 64,077 116,768 213,886 64,077 116,768 213,886
20 337,714 500,000 500,000 500,000 59,451 157,151 390,522 59,451 157,151 390,522
25 487,454 500,000 500,000 736,182 17,431 182,745 701,126 17,431 182,745 701,126
30 678,563 500,000 500,000 1,269,840 0 180,822 1,209,371 0 180,822 1,209,371
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.80% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
61
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 45
PREFERRED -- $4,459 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.60% 4.40% 10.40% -1.60% 4.40% 10.40% -1.60% 4.40% 10.40%
ACCUMULATED IN YEARS 1-12 IN YEARS 1-12 IN YEARS 1-12
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.35% 4.65% 10.65% -1.35% 4.65% 10.65% -1.35% 4.65% 10.65%
YEAR PER YEAR IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,682 500,000 500,000 500,000 2,239 2,431 2,623 0 0 0
2 9,598 500,000 500,000 500,000 4,390 4,915 5,488 0 0 245
3 14,760 500,000 500,000 500,000 8,390 7,391 8,484 1,170 2,170 3,263
4 20,180 500,000 500,000 500,000 8,229 9,843 11,682 3,008 4,622 6,461
5 25,871 500,000 500,000 500,000 9,899 12,263 15,072 4,678 7,942 9,851
6 31,846 500,000 500,000 500,000 11,389 14,635 18,660 7,212 10,458 14,484
7 38,120 500,000 500,000 500,000 12,692 16,949 22,462 9,980 13,816 19,330
8 44,708 500,000 500,000 500,000 13,793 19,183 26,484 11,206 17,095 24,395
9 51,626 500,000 500,000 500,000 14,686 21,308 30,721 13,622 20,263 29,677
10 58,889 500,000 500,000 500,000 15,309 23,313 35,199 15,309 23,313 35,199
15 101,030 500,000 500,000 500,000 15,102 31,321 62,312 15,102 31,321 62,312
20 154,813 500,000 500,000 500,000 7,425 33,431 99,893 7,425 33,431 99,993
25 223,456 -- 500,000 500,000 -- 19,403 149,593 -- 19,403 149,583
30 311,063 -- -- 500,000 -- -- 217,216 -- -- 217,216
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates, mortality and expense risk charges,
administrative fees and premium load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.80% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
62
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 45
PREFERRED -- $4,459 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.60% 4.40% 10.40% -1.60% 4.40% 10.40% -1.60% 4.40% 10.40%
ACCUMULATED IN YEARS 1-12 IN YEARS 1-12 IN YEARS 1-12
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.35% 4.65% 10.65% -1.35% 4.65% 10.65% -1.35% 4.65% 10.65%
YEAR PER YEAR IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,682 500,000 500,000 500,000 2,911 3,124 3,338 0 0 0
2 9,598 500,000 500,000 500,000 5,851 6,465 7,106 631 1,244 1,886
3 14,760 500,000 500,000 500,000 8,703 9,911 11,224 3,482 4,691 6,004
4 20,180 500,000 500,000 500,000 11,468 13,468 15,731 6,247 8,248 10,510
5 25,871 500,000 500,000 500,000 14,147 17,142 20,668 8,926 11,921 15,447
6 31,846 500,000 500,000 500,000 16,694 20,889 26,032 12,518 16,712 21,856
7 38,120 500,000 500,000 500,000 19,113 24,715 31,873 15,981 21,582 28,740
8 44,708 500,000 500,000 500,000 21,406 28,624 38,242 19,318 26,536 36,154
9 51,626 500,000 500,000 500,000 23,623 32,672 45,249 22,578 31,627 44,204
10 58,889 500,000 500,000 500,000 25,764 36,864 52,962 25,764 36,864 52,962
15 101,030 500,000 500,000 500,000 34,065 59,028 104,176 34,065 59,028 104,176
20 154,813 500,000 500,000 500,000 36,797 81,971 185,848 36,797 81,971 185,848
25 223,456 500,000 500,000 500,000 34,511 106,716 322,230 34,511 106,716 322,230
30 311,063 500,000 500,000 594,933 24,023 131,559 556,012 24,023 131,559 556,012
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.80% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
63
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 55
PREFERRED -- $7,095 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.60% 4.40% 10.40% -1.60% 4.40% 10.40% -1.60% 4.40% 10.40%
ACCUMULATED IN YEARS 1-12 IN YEARS 1-12 IN YEARS 1-12
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.35% 4.65% 10.65% -1.35% 4.65% 10.65% -1.35% 4.65% 10.65%
YEAR PER YEAR IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,450 500,000 500,000 500,000 2,980 3,266 3,555 0 0 0
2 15,272 500,000 500,000 500,000 5,755 6,517 7,318 0 0 719
3 23,485 500,000 500,000 500,000 8,280 9,703 11,263 1,681 3,104 4,664
4 32,109 500,000 500,000 500,000 10,570 12,834 15,426 3,971 6,235 8,827
5 41,165 500,000 500,000 500,000 12,613 15,895 19,818 6,014 9,296 13,219
6 50,673 500,000 500,000 500,000 14,386 18,856 24,441 9,107 13,577 19,161
7 60,656 500,000 500,000 500,000 15,830 21,651 29,260 11,871 17,692 25,300
8 71,138 500,000 500,000 500,000 16,868 24,193 34,221 14,228 21,554 31,582
9 82,145 500,000 500,000 500,000 17,394 26,361 39,238 16,074 25,041 37,918
10 93,702 500,000 500,000 500,000 17,331 28,057 44,246 17,331 28,057 44,246
15 160,755 500,000 500,000 500,000 6,980 27,230 68,271 6,960 27,230 68,271
20 246,333 0 0 500,000 0 0 83,532 0 0 83,532
25 355,555 0 0 500,000 0 0 51,651 0 0 51,651
30 494,953 0 0 0 0 0 0 0 0 --
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates, mortality and expense risk charges,
administrative fees and premium load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.80% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
64
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 55
PREFERRED -- $7,095 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.60% 4.40% 10.40% -1.60% 4.40% 10.40% -1.60% 4.40% 10.40%
ACCUMULATED IN YEARS 1-12 IN YEARS 1-12 IN YEARS 1-12
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.35% 4.65% 10.65% -1.35% 4.65% 10.65% -1.35% 4.65% 10.65%
YEAR PER YEAR IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER IN YEARS 13 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,450 500,000 500,000 500,000 4,661 5,002 5,344 0 0 322
2 15,272 500,000 500,000 500,000 9,180 10,156 11,176 2,581 3,557 4,577
3 23,485 500,000 500,000 500,000 13,463 15,372 17,447 6,864 8,773 10,848
4 32,109 500,000 500,000 500,000 17,572 20,713 24,272 10,973 14,114 17,673
5 41,165 500,000 500,000 500,000 21,478 26,157 31,678 14,879 19,558 25,079
6 50,673 500,000 500,000 500,000 25,271 31,797 39,824 19,992 26,518 34,545
7 60,656 500,000 500,000 500,000 28,958 37,649 48,796 24,998 33,690 44,837
8 71,138 500,000 500,000 500,000 32,536 43,723 58,685 29,896 41,083 56,046
9 82,145 500,000 500,000 500,000 35,888 49,909 69,476 34,568 48,589 68,156
10 93,702 500,000 500,000 500,000 38,978 56,179 81,236 38,978 56,179 81,236
15 160,755 500,000 500,000 500,000 50,570 89,311 159,981 50,570 89,311 159,981
20 246,333 500,000 500,000 500,000 53,559 124,516 289,854 53,559 124,516 289,854
25 355,555 500,000 500,000 537,396 35,716 152,523 511,806 35,716 152,523 511,806
30 494,953 500,000 500,000 931,077 0 157,123 886,740 0 157,123 886,740
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.80% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
65
<PAGE>
APPENDIX 3
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the
Treasury published a "Report to the Congress on the Taxation
of Life Insurance Company Products" in March 1990. Page 4 of
this report is Table 1.1, a "Comparison of Tax Treatment of
Life Insurance Products and Other Retirement Savings Plans".
Because it is a convenient summary of the relevant tax
characteristics of these products and plans, it is reprinted
here, with footnotes to reflect exceptions to the general
rules.
------------------------
TABLE 1.1
COMPARISON OF TAX TREATMENT OF LIFE INSURANCE PRODUCTS AND
OTHER RETIREMENT SAVINGS PLANS
<TABLE>
<CAPTION>
CASH-VALUE
LIFE NON-QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
--------------- ----------------- -------------- -----------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as Distributions No* Yes Loans not Yes,
allowed beyond
$50,000
Income Ordering Rules (Income included in First No* Yes Yes Yes
Distribution)
Early Withdrawal Penalties No* Yes*** Yes*** Yes***
Minimum Distribution Rules by Age 70 1/2 No No Yes Yes
Maximum Annual Distribution Rules No No Yes Yes
Anti-discrimination Rules No No No Yes
</TABLE>
- ------------------------
Department of the Treasury March 1990
Office of Tax Analysis
*If the Policy is not a modified endowment contract.
**If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not deductible.
***There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
The foregoing information is not intended as tax advice. You
should consult with your own tax advisor for more complete
information.
66
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
A cross-reference sheet (reconciliation and tie);
The prospectus, consisting of 66 pages;
The undertaking to file reports;
The signatures;
Written consents of the following persons:
Robert A. Picarello (previously filed with initial filing)
Michelle L. Kunzman (previously filed with initial filing)
Price Waterhouse LLP
Exhibit 1. Fund Participation Agreements.
Agreements between Connecticut General Life Insurance Company and
(a) AIM Variable Insurance Funds, Inc.
(b) CIGNA Variable Products Group (To be filed by Amendment)
(c) Fidelity Variable Insurance Products Fund
(d) Fidelity Variable Insurance Products Fund II (Together with
Amendment thereto dated June 21, 1995)
(e) MFS-Registered Trademark- Variable Insurance Trust
(f) Templeton Variable Products Series Fund
(g) OCC Accumulation Trust
<PAGE>
[LOGO]
550253 (5/96)
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 1 to the registration statement of the CG Variable
Life Insurance Separate Account II in Form S-6 of our report dated February 13,
1996, relating to the consolidated financial statements of Connecticut General
Life Insurance Company, which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
Price Waterhouse LLP
Hartford, Connecticut
April 19, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II, has duly caused this
Post-Effective Amendment No. 1 to this registration statement on Form S-6 (File
No. 33-89238) to be signed on its behalf by the undersigned thereunto duly
authorized, in the Town of Bloomfield and State of Connecticut, on the 17th day
of April, 1996. By such signature, Registrant hereby certifies that this
Post-Effective Amendment meets all the requirements for effectiveness under Rule
485(b) under the Securities Act of 1933.
CG VARIABLE LIFE INSURANCE SEPARATE
ACCOUNT II
(Name of Registrant)
By: /s/ THOMAS C. JONES
-----------------------------------
Thomas C. Jones
PRESIDENT
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
(Name of Depositor)
By: /s/ THOMAS C. JONES
-----------------------------------
Thomas C. Jones
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registration Statement (File No. 33-89238) has
been signed below on April 17, 1996 by the following persons, as officers and
directors of the Depositor, in the capacities indicated:
SIGNATURE TITLE
- -------------------------------------------------- -------------------------
/s/ THOMAS C. JONES President (Principal
------------------------------------------- Executive
Thomas C. Jones Officer)
Vice President and
JAMES T. KOHAN * Actuary
------------------------------------------- (Principal Financial
James T. Kohan Officer)
ROBERT MOOSE *
------------------------------------------- Vice President (Principal
Robert Moose Accounting Officer)
HAROLD W. ALBERT *
------------------------------------------- Director
Harold W. Albert
S. TYRONE ALEXANDER *
------------------------------------------- Director
S. Tyrone Alexander
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------- -------------------------
<C> <S>
MARTIN A. BRENNAN *
------------------------------------------- Director
Martin A. Brennan
ROBERT W. BURGESS *
------------------------------------------- Director
Robert W. Burgess
JOHN G. DAY *
------------------------------------------- Director
John G. Day
JOSEPH M. FITZGERALD *
------------------------------------------- Director
Joseph M. Fitzgerald
ARTHUR C. REEDS, III *
------------------------------------------- Director
Arthur C. Reeds, III
PATRICIA L. ROWLAND *
------------------------------------------- Director
Patricia L. Rowland
W. ALLEN SCHAFFER, M.D. *
------------------------------------------- Director
W. Allen Schaffer, M.D.
*By /s/ ROBERT A. PICARELLO
-------------------------------------------
Robert A. Picarello
ATTORNEY-IN-FACT
(A Majority of the Directors)
</TABLE>
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Connecticut General Life
Insurance Company, hereby severally constitute and appoint David C. Kopp and
Robert A. Picarello, and each of them individually, our true and lawful
attorneys-in-fact, with full power to them and each of them to sign for us, in
our names and in the capacities indicated below, any and all amendments to
Registration Statement No. 33-89238 filed with the Securities and Exchange
Commission under the Securities Act of 1933, hereby ratifying and confirming our
signatures as they may be signed by either of our attorneys-in-fact to any such
Registration Statement.
WITNESS our hands and common seal on this 31st day of May, 1995.
SIGNATURE TITLE
- ----------------------------------- -------------------------
THOMAS C. JONES
- ----------------------------------- President (Principal
Thomas C. Jones Executive Officer)
JAMES T. KOHAN Vice President and
- ----------------------------------- Actuary (Principal
James T. Kohan Financial Officer)
ROBERT MOOSE
- ----------------------------------- Vice President (Principal
Robert Moose Accounting Officer)
HAROLD W. ALBERT
- ----------------------------------- Director
Harold W. Albert
S. TYRONE ALEXANDER
- ----------------------------------- Director
S. Tyrone Alexander
MARTIN A. BRENNAN
- ----------------------------------- Director
Martin A. Brennan
ROBERT W. BURGESS
- ----------------------------------- Director
Robert W. Burgess
JOHN G. DAY
- ----------------------------------- Director
John G. Day
JOSEPH M. FITZGERALD
- ----------------------------------- Director
Joseph M. Fitzgerald
ARTHUR C. REEDS, III
- ----------------------------------- Director
Arthur C. Reeds, III
PATRICIA L. ROWLAND
- ----------------------------------- Director
Patricia L. Rowland
W. ALLEN SCHAFFER, M.D.
- ----------------------------------- Director
W. Allen Schaffer, M.D.
<PAGE>
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS
AND
CIGNA FINANCIAL ADVISORS, INC.
<PAGE>
TABLE OF CONTENTS
DESCRIPTION PAGE
Section 1. Available Funds . . . . . . . . . . . . . . . . . . . . . . . .2
1.1 AVAILABILITY. . . . . . . . . . . . . . . . . . . . . . . . . .2
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS . . . . . . . . . .2
1.3 NO SALES TO THE GENERAL PUBLIC. . . . . . . . . . . . . . . . .2
Section 2. Processing Transactions . . . . . . . . . . . . . . . . . . . .3
2.1 TIMELY PRICING AND ORDERS . . . . . . . . . . . . . . . . . . .3
2.2 TIMELY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . .3
2.3 APPLICABLE PRICE. . . . . . . . . . . . . . . . . . . . . . . .4
2.4 DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . .4
2.5 BOOK ENTRY. . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 3. Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . .5
3.1 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.2 REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . .5
3.3 OTHER (NON-SALES-RELATED) . . . . . . . . . . . . . . . . . . .5
3.4 OTHER (SALES-RELATED) . . . . . . . . . . . . . . . . . . . . .6
3.5 PARTIES TO COOPERATE. . . . . . . . . . . . . . . . . . . . . .6
Section 4. Legal Compliance. . . . . . . . . . . . . . . . . . . . . . . .6
4.1 TAX LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
4.2 INSURANCE AND CERTAIN OTHER LAWS. . . . . . . . . . . . . . . .8
4.3 SECURITIES LAWS . . . . . . . . . . . . . . . . . . . . . . . .9
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES . . . . 10
4.5 CG LIFE AND THE UNDERWRITER TO PROVIDE DOCUMENTS;
INFORMATION ABOUT AVIF . . . . . . . . . . . . . . . . . . . 10
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT CG LIFE
AND THE UNDERWRITER . . . . . . . . . . . . . . . . . . . . . 11
Section 5. Mixed and Shared Funding. . . . . . . . . . . . . . . . . . . 12
5.1 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 DISINTERESTED DIRECTORS . . . . . . . . . . . . . . . . . . . 13
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS. . . . . . . 13
5.4 CONFLICT REMEDIES . . . . . . . . . . . . . . . . . . . . . . 14
5.5 NOTICE TO CG LIFE . . . . . . . . . . . . . . . . . . . . . . 15
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS . . . . . . . . . 15
5.7 COMPLIANCE WITH SEC RULES . . . . . . . . . . . . . . . . . . 16
5.8 OTHER REQUIREMENTS. . . . . . . . . . . . . . . . . . . . . . 16
i
<PAGE>
DESCRIPTION PAGE
Section 6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1 EVENTS OF TERMINATION . . . . . . . . . . . . . . . . . . . . 16
6.2 NOTICE REQUIREMENT FOR TERMINATION. . . . . . . . . . . . . . 17
6.3 FUNDS TO REMAIN AVAILABLE . . . . . . . . . . . . . . . . . . 18
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS . . . . . . . . . 18
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES . . . . . . . . 18
Section 7. Parties To Cooperate Respecting Termination . . . . . . . . . 18
Section 8. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 10. Voting Procedures . . . . . . . . . . . . . . . . . . . . . . 19
Section 11. Foreign Tax Credits . . . . . . . . . . . . . . . . . . . . . 20
Section 12. Indemnification . . . . . . . . . . . . . . . . . . . . . . . 20
12.1 OF AVIF BY CG LIFE AND THE UNDERWRITER. . . . . . . . . . . . 20
12.2 OF CG LIFE AND THE UNDERWRITER BY AVIF. . . . . . . . . . . . 22
12.3 EFFECT OF NOTICE. . . . . . . . . . . . . . . . . . . . . . . 25
12.4 SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 13. Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . 25
Section 14. Execution in Counterparts . . . . . . . . . . . . . . . . . . 26
Section 15. Severability. . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 16. Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . 26
Section 17. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ii
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 8th day of April, 1996
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); Connecticut General Life Insurance Company, a Connecticut
life insurance company ("CG LIFE"), on behalf of itself and each of its
segregated asset accounts listed in Schedule A hereto, as the parties hereto may
amend from time to time (each, an "Account," and collectively, the "Accounts");
and CIGNA Financial Advisors, Inc., a Connecticut corporation and the principal
underwriter of the Contracts and Policies referred to below ("Underwriter")
(collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, CG LIFE will be the issuer of certain variable annuity contracts
("Contracts") and/or variable life insurance policies ("Policies") as set forth
on Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts and Policies (hereinafter collectively, the "Policies"), if required
by applicable law, will be registered under the 1933 Act; and
WHEREAS, CG LIFE will fund the Policies through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, CG LIFE will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Policies will be registered as securities under the 1933 Act
(or exempt therefrom); and
1
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, CG LIFE intends to purchase Shares in one or more of the Funds on
behalf of the Accounts to fund the Policies PROVIDED, that AVIF implements Mixed
and Shared Funding, described below, pursuant to an exemptive order from the SEC
or otherwise; and
WHEREAS, the Underwriter is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to CG LIFE for purchase and
redemption at net asset value and with no sales charges, subject to the terms
and conditions of this Agreement. The Board of Directors of AVIF may refuse to
sell Shares of any Fund to any person, or suspend or terminate the offering of
Shares of any Fund if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Directors
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Policies, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or will
be sold to the general public.
2
<PAGE>
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide
CG LIFE with the net asset value per Share for each Fund by 5:30 p.m. Central
time on each Business Day. As used herein, "Business Day" shall mean any day on
which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF
calculates the Fund's net asset value and (iii) CG LIFE is open for business.
(b) CG LIFE will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. CG LIFE will perform such Account processing the same Business Day, and
will place corresponding orders to purchase or redeem Shares with AVIF by 9 a.m.
Central time the following Business Day; PROVIDED, however, that AVIF shall
provide additional time to CG LIFE in the event that AVIF is unable to meet the
5:30 p.m. time stated in paragraph (a) immediately above. Such additional time
shall be equal to the additional time that AVIF takes to make the net asset
values available to CG LIFE.
(c) Each order to purchase or redeem Shares will separately describe
the amount of Shares of each Fund to be purchased, redeemed or exchanged and
will not be netted; PROVIDED, however, with respect to payment of the purchase
price by CG LIFE and of redemption proceeds by AVIF, CG LIFE and AVIF shall net
purchase and redemption orders with respect to all Funds and shall transmit one
net payment for all of the Funds in accordance with Section 2.2, below. Each
order to purchase or redeem Shares shall also specify whether the order results
from purchase payments, surrenders, partial withdrawals, routine withdrawals of
charges, or requests for other transactions under Policies (collectively,
"Policy transactions").
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), CG LIFE shall be entitled to
an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly by AVIF upon discovery to CG LIFE.
2.2 TIMELY PAYMENTS.
CG LIFE will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated
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by CG LIFE by 1:00 p.m. Central Time on the same day as the Order is placed, to
the extent practicable, but in any event within five calendar days after the
date the Order is placed in order to enable CG LIFE to pay redemption proceeds
within the time specified in Section 22(e) of the 1940 Act or such shorter
period of time as may be required by law.
2.3 APPLICABLE PRICE.
(a) Share purchase and redemption orders that result from Policy
transactions and that CG LIFE receives prior to the close of regular trading on
the New York Stock Exchange on a Business Day will be executed at the net asset
values of the appropriate Funds next computed after receipt by AVIF or its
designated agent of the orders. For purposes of this Section 2.3(a), the
Underwriter shall be the designated agent of AVIF for receipt of orders relating
to Policy transactions on each Business Day and receipt by such designated agent
shall constitute receipt by AVIF; PROVIDED, that AVIF receives notice of such
orders by 9 a.m. Central time on the next following Business Day or such later
time as computed in accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by CG LIFE will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice promptly to CG LIFE of any income dividends or
capital gain distributions payable on the Shares of any Fund. CG LIFE hereby
elects to reinvest all dividends and capital gains distributions in additional
Shares of the corresponding Fund at the ex-dividend date net asset values until
CG LIFE otherwise notifies AVIF in writing, it being agreed by the Parties that
the ex-dividend date and the payment date with respect to any dividend or
distribution will be the same Business Day. CG LIFE reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to CG LIFE. Shares ordered from AVIF will be
recorded in an appropriate title for CG LIFE, on behalf of each its Accounts.
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SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the 1933
Act, and keeping such registrations current and effective; including, without
limitation, the preparation of and filing with the SEC of Forms N-SAR and Rule
24f-2 Notices with respect to AVIF and its Shares and payment of all applicable
registration or filing fees with respect to any of the foregoing.
(b) CG LIFE will bear the cost of registering, to the extent required,
each Account as a unit investment trust under the 1940 Act and registering units
of interest under the Policies under the 1933 Act and keeping such registrations
current and effective; including, without limitation, the preparation and filing
with the SEC of Forms N-SAR and Rule 24f-2 Notices with respect to each Account
and its units of interest and payment of all applicable registration or filing
fees with respect to any of the foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs of
preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "AVIF Prospectus"), periodic reports to shareholders, proxy
materials, and other materials required by law to be furnished to Participants,
as defined below (collectively, the "Required Materials").
(b) CG Life will bear the cost of printing and delivering the Required
Materials.
(c) CG LIFE will bear the costs of preparing, filing with the SEC,
printing, and delivering each Account's prospectus, statement of additional
information and any amendments or supplements thereto (collectively, the
"Account Prospectus"), any periodic reports to Policy owners, annuitants or
participants under the Policies (collectively, "Participants"), voting
instruction solicitation material, and other Participant communications.
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3.4 OTHER (SALES-RELATED).
The Underwriter will bear the expenses of distributing Fund Shares and
the Policies. These expenses would include by way of illustration, but are not
limited to, the costs of printing and distributing to offerees the AVIF
Prospectus and periodic reports of AVIF. These costs would also include the
costs of preparing, printing, and distributing sales literature and advertising
relating to the Funds, as well as filing such materials with, and obtaining
approval front, the SEC, NASD, any state insurance regulatory authority, and any
other appropriate regulatory authority, to the extent required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently qualified
as a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will use
its best efforts to qualify and to maintain qualification of each Fund as a RIC.
AVIF will notify CG LIFE immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
(b) AVIF represents that it will use its best efforts to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code. AVIF will notify CG LIFE immediately upon having a reasonable basis
for believing that a Fund has ceased to so comply or that a Fund might not so
comply in the future.
(c) CG LIFE agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of CG
LIFE or, to CG LIFE's knowledge, of any Participant, that any Fund has failed to
comply with the diversification requirements of section 817(h) of the Code or CG
LIFE otherwise becomes aware of any facts that could give rise to any claim
against AVIF or its affiliates as a result of such a failure or alleged failure:
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(i) CG LIFE shall promptly notify AVIF of such assertion or potential
claim;
(ii) CG LIFE shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure or alleged
failure;
(iii) CG LIFE shall use its best efforts to minimize any liability of
AVIF or its affiliates resulting from such failure, including,
without limitation, demonstrating, pursuant to Treasury
Regulations Section 1.817-5 (a) (2), to the Commissioner of the
IRS that such failure was inadvertent;
(iv) CG LIFE shall permit AVIF, its affiliates and their legal and
accounting advisors to participate in any conferences, settlement
discussions or other administrative or judicial proceeding or
contests (including judicial appeals thereof) with the IRS, any
Participant or any other claimant regarding any claims that could
give rise to liability to AVIF or its affiliates as a result of
such a failure or alleged failure;
(v) any written materials to be submitted by CG LIFE to the IRS, any
Participant or any other claimant in connection with any of the
foregoing proceedings or contests (including, without limitation,
any such materials to be submitted to the IRS pursuant to Treasury
Regulations Section 1.817-5(a)(2)), (a) shall be provided by CG
LIFE to AVIF (together with any supporting information or
analysis) at least ten (10) business days prior to the day on
which such proposed materials are to be submitted and (b) shall
not be submitted by CG LIFE to any such person without the express
written consent of AVIF which shall not be unreasonably withheld;
(vi) CG LIFE shall provide AVIF or its affiliates and their accounting
and legal advisors with such cooperation as AVIF shall reasonably
request (including, without limitation, by permitting AVIF and its
accounting and legal advisors to review the relevant books and
records of CG LIFE) in order to facilitate review by AVIF or its
advisors of any written submissions provided to it pursuant to the
preceding clause or its assessment of the validity or amount of
any claim against it or its affiliates arising from such a failure
or alleged failure;
(vii) CG LIFE shall not with respect to any claim of the IRS or any
Participant that would give rise to a claim against AVIF or its
affiliates (a) compromise or settle any claim, (b) accept any
adjustment on audit, or (z) forego any allowable administrative or
judicial appeals, without the express written consent of AVIF or
its affiliates, which shall not be unreasonably withheld, PROVIDED
that CG LIFE shall not be required, after exhausting all
administrative penalties, to appeal any adverse judicial decision
unless AVIF or its affiliates shall have provided an opinion of
independent counsel to the
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effect that a reasonable basis exists for taking such appeal; and
PROVIDED FURTHER that the costs of any such appeal shall be borne
equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a result of
such failure or alleged failure if CG LIFE fails to comply with
any of the foregoing clauses (i) through (vii), and such failure
could be shown to have materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written consent
to any compromise or settlement of any claim or liability hereunder, CG LIFE
may, in its discretion, authorize AVIF or its affiliates to act in the name of
CG LIFE in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and in that event AVIF or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that it is so authorized
to control; PROVIDED that in no event shall CG LIFE have any liability resulting
from AVIF's refusal to accept the proposed settlement or compromise with respect
to any failure caused by AVIF As used in this Agreement, the term "affiliates"
shall have the same meaning as "affiliated person" as defined in Section 2(a)(3)
of the 1940 Act.
(d) CG LIFE represents and warrants that the Policies currently are
and will be treated as annuity, endowment, or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; CG LIFE will notify AVIF immediately upon having a
reasonable basis for believing that any of the Policies have ceased to be so
treated or that they might not be so treated in the future.
(e) CG LIFE represents and warrants that each Account is a "segregated
asset account" and that interests in each Account are offered exclusively
through the purchase of or transfer into a "variable contract," within the
meaning of such terms under Section 817 of the Code and the regulations
thereunder. CG LIFE will use its best efforts to continue to meet such
definitional requirements, and it will notify AVIF immediately upon having a
reasonable basis for believing that such requirements have ceased to be met or
that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by CG LIFE.
(b) CG LIFE represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Connecticut and has full corporate power, authority and legal right
to execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly
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established and maintains each Account as a segregated asset account under
Section 38a-433 of the Connecticut Insurance Code and the regulations
thereunder, and (iii) the Policies comply in all material respects with all
other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
(d) The Underwriter represents and warrants that it is a Connecticut
corporation duly organized, validly existing, and in good standing under the
laws of the State of Connecticut and has full power, authority, and legal right
to execute, deliver, and perform its duties and comply with its obligations
under this Agreement.
4.3 SECURITIES LAWS.
(a) CG LIFE and the Underwriter represent and warrant that (i)
interests in each Account pursuant to the Policies will be registered under the
1933 Act to the extent required by the 1933 Act, (ii) the Policies will be duly
authorized for issuance and sold in compliance with all applicable federal and
state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940
Act and Connecticut law, (iii) each Account is and will remain registered under
the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does and
will comply in all material respects with the requirements of the 1940 Act and
the rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Policies, together with any amendments
thereto, will at all times comply in all material respects with the requirements
of the 1933 Act and the rules thereunder, (vi) CG LIFE will amend the
registration statement for its Policies under the 1933 Act and for its Accounts
under the 1940 Act from time to time as required in order to effect the
continuous offering of its Policies or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements
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of the 1933 Act and rules thereunder, and (vi) the AVIF Prospectus will at all
times comply in all material respects with the requirements of the 1933 Act and
the rules thereunder.
(c) AVIF will register and qualify its Shares for sale in accordance with
the laws of any state or other jurisdiction if and to the extent reasonably
deemed advisable by AVIF.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify CG LIFE of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus, (iii) the initiation of any
proceedings for that purpose or for any other purpose relating to the
registration or offering of AVIF's Shares, or (iv) any other action or
circumstances that may prevent the lawful offer or sale of Shares of any Fund in
any state or jurisdiction, including, without limitation, any circumstances in
which (a) such Shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law or (b) such law
precludes the use of such Shares as an underlying investment medium of the
Policies issued or to be issued by CG LIFE. AVIF will make every reasonable
effort to prevent the issuance, with respect to any Fund, of any such stop
order, cease and desist order or similar order and, if any such order is issued,
to obtain the lifting thereof at the earliest possible time.
(b) CG LIFE and the Underwriter will immediately notify AVIF of (i)
the issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to each Account's registration
statement under the 1933 Act relating to the Policies or each Account
Prospectus, (ii) any request by the SEC for any amendment to such registration
statement or Account Prospectus, (iii) the initiation of any proceedings for
that purpose or for any other purpose relating to the registration or offering
of each Account's interests pursuant to the Policies, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of said interests in
any state or jurisdiction, including, without limitation, any circumstances in
which said interests are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law. CG LIFE will make
every reasonable effort to prevent the issuance of any such stop order, cease
and desist order or similar order and, if any such order is issued, to obtain
the lifting thereof at the earliest possible time.
4.5 CG LIFE AND THE UNDERWRITER TO PROVIDE DOCUMENTS; INFORMATION
ABOUT AVIF.
(a) CG LIFE or the Underwriter will provide to AVIF or its designated
agent at least one complete copy of all SEC registration statements, Account
Prospectuses, reports,
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any preliminary and final voting instruction solicitation material, applications
for exemptions, requests for no-action letters, and all amendments and
supplements to any of the above, that relate to each Account or the Policies,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) The Underwriter will provide to AVIF or its designated agent with
at least one complete copy of each piece of sales literature or other
promotional material in which AVIF or any of its affiliates is named, at least
seven (7) Business Days prior to its use or such shorter period as the Parties
hereto may, from time to time, agree upon. No such material shall be used if
AVIF or its designated agent objects to such use within five (5) Business Days
after receipt of such material or such shorter period as the Parties hereto may,
from time to time, agree upon. AVIF hereby designates its investment adviser as
the entity to receive such sales literature, until such time as AVIF appoints
another designated agent by giving notice to CG LIFE in the manner required by
Section 9 hereof.
(c) Neither CG LIFE, the Underwriter, nor any of their respective
affiliates will give any information or make any representations or statements
on behalf of or concerning AVIF or its affiliates in connection with the sale of
the Policies other than (i) the information or representations contained in the
registration statement, including the AVIF Prospectus contained therein,
relating to Shares, as such registration statement and AVIF Prospectus may be
amended from time to time; or (ii) in reports or proxy materials for AVIF; or
(iii) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF or its designee.
(d) CG LIFE and the Underwriter shall adopt and implement procedures
reasonably designed to ensure that information concerning AVIF and its
affiliates that is intended for use only by brokers or agents selling the
Policies (I.E., information that is not intended for distribution to
Participants or offerees) ("broker only materials") is so used, and neither AVIF
nor any of its affiliates shall be liable for any losses, damages or expense
relating to the improper use of such broker only materials.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT CG LIFE AND THE
UNDERWRITER.
(a) AVIF will provide to CG LIFE at least one complete copy of all SEC
registration statements, AVIF Prospectuses, reports, any preliminary and final
proxy material, applications for exemptions, requests for no-action letters, and
all amendments and supplements to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to CG LIFE or the Underwriter camera ready or
computer diskette copies of all Required Materials (described in Section 3.3(a))
hereof. AVIF will
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provide such copies to CG LIFE in a timely manner so as to enable CG LIFE to
print and distribute the Required Materials within the time required by law to
be furnished to Participants. CG LIFE agrees to print in quantity and deliver
the Required Materials to existing Participants in a timely manner.
(c) AVIF will provide to CG LIFE or its designated agent with at least
one complete copy of each piece of sales literature or other promotional
material in which CG LIFE, the Underwriter or any of their respective affiliates
is named, or that refers to the Policies, at least seven (7) Business Days prior
to its use or such shorter period as the Parties hereto may, from time to time,
agree upon. No such material shall be used if CG LIFE or its designated agent
objects to such use within five (5) Business Days after receipt of such material
or such shorter period as the Parties hereto may, from time to time, agree upon.
CG LIFE shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any information
or make any representations or statements on behalf of or concerning CG LIFE,
the Underwriter, each Account, or the Policies other than (i) the information or
representations contained in the registration statement, including each Account
Prospectus contained therein, relating to the Policies, as such registration
statement and Account Prospectus may be amended from time to time; or (ii) in
reports or voting instruction materials for each Account; or (iii) in sales
literature or other promotional material approved by CG LIFE or its affiliates,
except with the express written permission of CG LIFE.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning CG LIFE,
the Underwriter, and their respective affiliates that is intended for use only
by brokers or agents selling the Policies (I.E., information that is not
intended for distribution to Participants or offerees) ("broker only materials")
is so used, and neither CG LIFE, the Underwriter, nor any of their respective
affiliates shall be liable for any losses, damages or expense relating to the
improper use of such broker only materials.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
AVIF has obtained an order from the SEC exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable life insurance contracts, separate accounts
of insurance companies unaffiliated with CG LIFE, and trustees of qualified
pension and retirement plans (collectively, "Mixed and Shared Funding"). The
Parties recognize that the SEC has imposed terms and conditions for such orders
that are
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substantially identical to many of the provisions of this Section 5. Sections
5.2 through 5.8 below shall apply, if and only if AVIF implements Mixed and
Shared Funding, pursuant to such an exemptive order or otherwise. AVIF hereby
notifies CG LIFE that, in the event that AVIF implements Mixed and Shared
Funding, it may be appropriate to include in the prospectus pursuant to which a
Policy is offered disclosure regarding the potential risks of Mixed and Shared
Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of 45 days if the vacancy or vacancies may
be filled by the Board; (b) for a period of 60 days if a vote of shareholders is
required to fill the vacancy or vacancies; or (c) for such longer period as the
SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence of
any material irreconcilable conflict between the interests of the Participants
in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). CG LIFE agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling, no-
action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
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(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, CG LIFE will assist the
Board of Directors in carrying out its responsibilities by providing the Board
of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by CG LIFE to disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members
of the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, CG LIFE will, if it is a Participating
Insurance Company for which a material irreconcilable conflict is relevant, at
its own expense and to the extent reasonably practicable (as determined by a
majority of the Disinterested Directors), take whatever steps are necessary to
remedy or eliminate the material irreconcilable conflict, which steps may
include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the Accounts
from AVIF or any Fund and reinvesting such assets in a different investment
medium, including another Fund of AVIF, or submitting the question whether such
segregation should be implemented to a vote of all affected Participants and, as
appropriate, segregating the assets of any particular group (E.G., annuity
Participants, life insurance Participants or all Participants) that votes in
favor of such segregation, or offering to the affected Participants the option
of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the 1940 Act or a new
separate account that is operated as a management company.
(b) If the material irreconcilable conflict arises because of CG
LIFE's decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, CG LIFE may be
required, at AVIF's election, to withdraw each Account's investment in AVIF or
any Fund. No charge or penalty will be imposed as
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a result of such withdrawal. Any such withdrawal must take place within six
months after AVIF gives notice to CG LIFE that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by CG LIFE for the purchase and redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to CG LIFE conflicts with the
majority of other state regulators, then CG LIFE will withdraw each Account's
investment in AVIF within six months after AVIF's Board of Directors informs CG
LIFE that it has determined that such decision has created a material
irreconcilable conflict, and until such withdrawal AVIF shall continue to accept
and implement orders by CG LIFE for the purchase and redemption of Shares of
AVIF.
(d) CG LIFE agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and with
a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Policies. CG
LIFE will not be required by the terms hereof to establish a new funding medium
for any Policies if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
5.5 NOTICE TO CG LIFE.
AVIF will promptly make known in writing to CG LIFE the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
CG LIFE and AVIF (or its investment adviser) will at least annually
submit to the Board of Directors of AVIF such reports, materials or data as the
Board of Directors may reasonably request so that the Board of Directors may
fully carry out the obligations imposed upon it by the provisions hereof or the
exemptive order granted by the SEC to permit Mixed and Shared Funding, and said
reports, materials and data will be submitted at any reasonable time deemed
appropriate by the Board of Directors. AVIF will provide reasonable prior notice
to CG Life of the nature of all reports requested by the Board of Directors.
All reports received by the Board of Directors of potential or existing
conflicts, and all Board of Directors actions with regard to determining the
existence of a conflict,
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notifying Participating Insurance Companies and Participating Plans of a
conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the Board of Directors or
other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium for
variable life insurance Policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2
are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to
Mixed and Shared Funding, AVIF agrees that it will comply with the terms and
conditions thereof and that the terms of this Section 5 shall be deemed modified
if and only to the extent required in order also to comply with the terms and
conditions of such exemptive relief that is afforded by any of said rules that
are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of AVIF or CG LIFE upon six (6) months' written
notice to the other; or
(b) at the option of AVIF upon institution of formal proceedings
against CG LIFE or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding CG LIFE's obligations under
this Agreement or related to the sale of the Policies, the operation of each
Account, or the purchase of Shares, if, in each case, AVIF reasonably determines
that such proceedings, or the facts on which such proceedings would be based,
have a material likelihood of imposing material adverse consequences on the Fund
with respect to which the Agreement is to be terminated; or
16
<PAGE>
(c) at the option of CG LIFE upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body regarding
AVIF's obligations under this Agreement or related to the operation or
management of AVIF or the purchase of AVIF Shares, if, in each case, CG LIFE
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on CG LIFE, or the Subaccount corresponding to the Fund
with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable federal or state law or (ii) such law precludes the use of
such Shares as an underlying investment medium of the Policies issued or to be
issued by CG LIFE; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of CG LIFE if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
CG LIFE reasonably believes that the Fund may fail to so qualify;
(g) at the option of CG LIFE if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if CG LIFE
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Policies issued by CG LIFE cease to
qualify as annuity contracts or life insurance contracts under the Code (other
than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M
of the Code) or if interests in an Account under the Policies are not
registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Section 6.1 (a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
17
<PAGE>
(b) in the event that any termination is based upon the provisions of
Section 6.1(b) or Section 6.1(c) hereof, such prior written notice shall be
given at least ninety (90) days in advance of the effective date of termination
unless a shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Section 6.1(d), Section 6.1(f), Section 6.1(g), Section 6.1(h) or Section 6.1(i)
hereof, such prior written notice shall be given as soon as possible within
twenty-four (24) hours after the terminating Party learns of the event causing
termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Except (a) as necessary to implement Participant-initiated transactions,
(b) as required by state insurance laws or regulations, (c) as required pursuant
to Section 5 of this Agreement, or (d) with respect to any Fund as to which this
Agreement has terminated pursuant to Section 6.1 hereof, CG LIFE shall not (i)
redeem AVIF Shares attributable to the Policies (as opposed to AVIF Shares
attributable to CG LIFE's assets held in each Account), or (ii) prevent
Participants from allocating payments to or transferring amounts from a Fund
that was otherwise available under the Policies, until six (6) months after CG
LIFE shall have notified AVIF of its intention to do so.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of this
Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund pursuant
to Sections 6.1 (b), 6.1 (c), 6.1 (d), 6.1 (f), 6.1 (g), 6.1 (h) or 6.1 (i)
hereof, this Agreement shall nevertheless continue in effect as to any
Shares of that Fund that are outstanding as of the of such termination (the
"Initial Termination Date"). This continuation shall extend to the earlier of
the date as of which an Account owns no Shares of the affected Fund or a date
(the "Final Termination Date") six (6) months following the Initial Termination
Date, except that CG LIFE may, by written notice shorten said six (6) month
period in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g),
6.1(h) or 6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account
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<PAGE>
owns no Shares of a Fund after the Final Termination Date with respect thereto,
or, in the case of a termination pursuant to Section 6.1(a), the termination
date specified in the notice of termination. Such steps may include combining
the affected Account with another Account, substituting other mutual fund shares
for those of the affected Fund, or otherwise terminating participation by the
Policies in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 2 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or suoh
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
Connecticut General Life Insurance Company
CIGNA Financial Advisors, Inc.
900 Cottage Grove Road, S-321
Hartford, CT 06152-2321
Facsimile: 860-726-1778
Attn: Robert A. Picarello, Esq.
Chief Counsel, Individual Insurance Operations
AIM Variable Insurance Funds, Inc.
11 Greenway Plaza, Suite 1919
Houston, TX 77046
Facsimile: 713-993-9185
Attn: Nancy L. Martin, Esq.
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3 hereof, CG
LIFE will distribute all proxy material furnished by AVIF to Participants to
whom pass-through voting privileges are required to be extended and will solicit
voting instructions from Participants. CG LIFE will vote Shares in accordance
with timely instructions received from Participants. CG LIFE will vote Shares
that are (a) not attributable to Participants to whom pass-through
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<PAGE>
voting privileges are extended, or (B) attributable to Participants, but for
which no timely instructions have been received, in the same proportion as
Shares in an Account or Subaccount for which said instructions have been
received from Participants, so long as and to the extent that the SEC
continues to interpret the 1940 Act to require pass-through voting privileges
for Participants. Neither CG LIFE nor any of its affiliates will in any way
recommend action in connection with or oppose or interfere with the
solicitation of proxies for the Shares held for such Participants. CG
LIFE reserves the right to vote shares held in any Account in its own right,
to the extent permitted by law. CG LIFE shall be responsible for assuring
that each of its Accounts holding Shares calculates voting privileges in a
manner consistent with that of other Participating Insurance Companies or in
the manner required by the Mixed and Shared Funding exemptive order obtained
by AVIF. AVIF will notify CG LIFE of any changes of interpretations or
amendments to any Mixed and Shared Funding exemptive order it obtains in the
future.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with CG LIFE concerning any decision to
elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF BY CG LIFE AND THE UNDERWRITER.
(a) Except to the extent provided in Sections 12.1 (b) and 12.1(c),
below, CG LIFE and the Underwriter each agrees to indemnify and hold harmless
AVIF, its affiliates, and each of their respective directors and officers, and
each person, if any, who controls AVIF or its affiliates within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of CG LIFE) or
actions in respect thereof (including, to the extent reasonable, legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions are related to the sale or acquisition of
AVIF's Shares and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Account's 1933 Act
registration statement, any Account Prospectus, the Policies, or sales
literature or advertising for the Policies (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged
20
<PAGE>
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
PROVIDED, that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to CG LIFE or the Underwriter by or on behalf of
AVIF for use in any Account's 1933 Act registration statement, any
Account Prospectus, the Policies, or sales literature or advertising
or otherwise for use in connection with the sale of Policies or Shares
(or any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or representations
(other than statements or representations contained in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of CG LIFE or
the Underwriter and on which such persons have reasonably relied) or
the negligent, illegal or fraudulent conduct of CG LIFE, the
Underwriter or their respective affiliates or persons under their
control (including, without limitation, their employees and
"Associated Persons," as that term is defined in paragraph (m) of
Article I of the NASD's By-Laws), in connection with the sale or
distribution of the Policies or Shares; or
(iii) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon and in conformity with information furnished to
AVIF by or on behalf of CG LIFE, the Underwriter or their respective
affiliates for use in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any amendment
or supplement to any of the foregoing; or
(iv) arise as a result of any failure by CG LIFE or the Underwriter to
perform the obligations, provide the services and furnish the
materials required of them under the terms of this Agreement, or any
material breach of any representation and/or warranty made by CG LIFE
or the Underwriter in this Agreement or arise out of or result from
any other material breach of this Agreement by CG LIFE or the
Underwriter; or
(v) arise as a result of failure by the Policies issued by CG LIFE to
qualify as life insurance, endowment, or annuity contracts under the
Code, otherwise than
21
<PAGE>
by reason of any Fund's failure to comply with Subchapter M or Section
817(h) of the Code.
(b) Neither CG LIFE nor the Underwriter shall be liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or
actions to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance by
that Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement or (ii)
to AVIF.
(c) Neither CG LIFE nor the Underwriter shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless
AVIF shall have notified CG LIFE or the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify CG LIFE or
the Underwriter of any such action shall not relieve CG LIFE or the
Underwriter from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.1. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, CG LIFE or the Underwriter shall be entitled to
participate, at its own expense, in the defense of such action and also shall
be entitled to assume the defense thereof, with counsel approved by the
Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from CG LIFE or the Underwriter to such
Indemnified Party of its election to assume the defense thereof, the
Indemnified Party will cooperate fully with CG LIFE and shall bear the fees
and expenses of any additional counsel retained by it, and CG LIFE will not
be liable to such Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such Indemnified Party independently
in connection with the defense thereof, other than reasonable costs of
investigation.
12.2 OF CG LIFE AND THE UNDERWRITER BY AVIF.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF agrees to indemnify and hold harmless CG LIFE, the
Underwriter, their respective affiliates, and each of their respective directors
and officers, and each person, if any, who controls CG LIFE, the Underwriter, or
their respective affiliates within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of AVIF) or actions in respect thereof
(including, to the extent reasonable, legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law, or otherwise, insofar as such losses, claims, damages, liabilities or
actions are related to the sale or acquisition of AVIF's Shares and:
22
<PAGE>
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in AVIF's 1933 Act
registration statement, AVIF Prospectus or sales literature or
advertising of AVIF (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading; PROVIDED, that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to AVIF or its affiliates by or
on behalf of CG LIFE or its affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or in sales literature or
advertising (or any amendment or supplement to any of the foregoing);
or
(ii) arise out of or as a result of any other statements or representations
(other than statements or representations contained in any Account's
1933 Act registration statement, any Account Prospectus, sales
literature or advertising for the Policies, or any amendment or
supplement to any of the foregoing, not supplied for use therein by or
on behalf of AVIF or its affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent conduct of
AVIF, its affiliates or persons under their control (including,
without limitation, their employees and "Associated Persons"), in
connection with the sale or distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Account's 1933 Act
registration statement, any Account Prospectus, sales literature or
advertising covering the Policies, or any amendment or supplement to
any of the foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with information
furnished to CG LIFE, the Underwriter, or their respective affiliates
by or on behalf of AVIF for use in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or advertising
covering the Policies, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by AVIF to perform the obligations,
provide the services and furnish the materials required of it under
the terms of this Agreement, or any material breach of any
representation and/or warranty made by AVIF in this Agreement or arise
out of or result from any other material breach of this Agreement by
AVIF.
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(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e)
hereof, AVIF agrees to indemnify and hold harmless the Indemnified Parties from
and against any and all losses, claims, damages, liabilities (including amounts
paid in settlement thereof with the written consent of AVIF) or actions in
respect thereof (including, to the extent reasonable, legal and other expenses)
to which the Indemnified Parties may become subject directly or indirectly under
any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions directly or indirectly result from or arise out
of the failure of any Fund to operate as a regulated investment company in
compliance with (i) Subchapter M of the Code and regulations thereunder or (ii)
Section 817(h) of the Code and regulations thereunder, including, without
limitation, any income taxes and related penalties, rescission charges,
liability under state law to Participants asserting liability against CG LIFE or
the Underwriter pursuant to the Policies, the costs of any ruling and closing
agreement or other settlement with the IRS, and the cost of any substitution by
CG LIFE of Shares of another investment company or portfolio for those of any
adversely affected Fund as a funding medium for each Account that CG LIFE
reasonably deems necessary or appropriate as a result of the noncompliance.
(c) AVIF shall not be liable under this Section 12.2 with respect to any
losses, claims, damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of such Indemnified Party's reckless disregard of its obligations and
duties (i) under this Agreement or (ii) to CG LIFE, each Account, the
Underwriter or Participants.
(d) AVIF shall not be liable under this Section 12.2 with respect to any
action against an Indemnified Party unless the Indemnified Party shall have
notified AVIF in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the action shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify AVIF of any such action shall not relieve AVIF from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.2. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, AVIF
will be entitled to participate, at its own expense, in the defense of such
action and also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the IRS), with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AVIF to such Indemnified Party of
AVIF's election to assume the defense thereof, the Indemnified Party will
cooperate fully with AVIF and shall bear the fees and expenses of any additional
counsel retained by it, and AVIF will not be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
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(e) In no event shall AVIF be liable under the indemnification provisions
contained in this Agreement to any individual or entity, including without
limitation, CG LIFE, the Underwriter, or any other Participating Insurance
Company or any Participant, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of any
representation, warranty, and/or covenant made by CG LIFE or the Underwriter
hereunder or by any Participating Insurance Company under an agreement
containing substantially similar representations, warranties and covenants; (ii)
the failure by CG LIFE or any Participating Insurance Company to maintain its
segregated asset account (which invests in any Fund) as a legally and validly
established segregated asset account under applicable state law and as a duly
registered unit investment trust under the provisions of the 1940 Act (unless
exempt therefrom); or (iii) the failure by CG LIFE or any Participating
Insurance Company to maintain its variable annuity and/or variable life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as life insurance, endowment or annuity contracts under
applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Section 12.1(c) or 12.2(e) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
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SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
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-----------------------------------
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
By /s/ [ILLEGIBLE]
--------------------------------
Title Sr. Vice President
-----------------------------
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY, on behalf of itself and its separate accounts
By /s/ Karen R. Matheson
--------------------------------
Title Vice President
-----------------------------
CIGNA FINANCIAL ADVISORS, INC.
BY /s/ Karen R. Matheson
--------------------------------
Title Vice President
-----------------------------
27
<PAGE>
DATED: APRIL 8,1996
SCHEDULE A
FUNDS AVAILABLE UNDER THE POLICIES
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund
AIM V.I. Diversified Income Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
CG Variable Life Insurance Separate Account II
POLICIES FUNDED BY THE SEPARATE ACCOUNTS
Flexible Premium Variable Life Insurance of Connecticut General Life
Insurance Company (Form Nos. LN 605, LN 615, LN 617 and state
variations thereof)
28
<PAGE>
Exhibit __
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 20th day of December,
1994 by and among CONNECTICUT GENERAL LIFE INSURANCE COMPANY, (hereinafter the
"Company"), a Connecticut corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts (hereinafter
the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation. This Agreement supersedes a
similar agreement among the parties that became effective as of October 26,
1988, which agreement is hereby terminated by mutual agreement of the parties.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated October 15, 1985 (File No. 812-6102), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions froM the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the " 1940 Act") and Rules 6e-2(b) (I 5) and 6e-3(T) (b) (I 5)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and
1
<PAGE>
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter,the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the " 1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the " 1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS , to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value.
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 9:30 a.m. Boston time on
the next following Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading
2
<PAGE>
and on which the Fund calculates its net asset value pursuant to the rules of
the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day. Payment shall be in
federal funds transmitted by wire.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable annuity contracts and variable life
insurance policies with the form number(s) which are listed on Schedule A
attached hereto and incorporated herein by this reference, as such Schedule A
may be amended from time to time hereafter by mutual written agreement of all
the parties hereto, (the "Contracts") shall be invested in the Fund, in such
other Funds advised by the Adviser as may be mutually agreed to in writing by
the parties hereto, or in the Company's general account, provided that such
amounts may also be invested in an investment company other than the Fund if (a)
such other investment company, or series thereof, has investment objectives or
policies that are substantially different from the investment objectives and
policies of all the Portfolios of the Fund which the Company is then using as
funding vehicles under any Contract; or (b) the Company gives the Fund and the
Underwriter 45 days written notice of its intention to
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make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company either is listed on Schedule C
hereto or was available as a funding vehicle for the Contracts prior to the date
of this Agreement and the Company so informs the Fund and Underwriter prior to
their signing this Agreement (a list of such funds appearing on Schedule C to
this Agreement); or (d) the Fund or Underwriter consents to the use of such
other investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any. income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time).
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 38a-433 of the Connecticut General Statutes and has
registered or, prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
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2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Connecticut and
all applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated
as endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b- I under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule l2b-1 Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b- I to finance distribution
expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Connecticut and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Connecticut to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Connecticut and all
applicable state and federal securities laws, including without limitation the
1933 Act. the 1934 Act, and the 1940 Act.
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2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Connecticut and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS: VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film or computer diskettes
containing the Fund's prospectus and Statement of Additional Information, and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or Statement of Additional
Information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document, and to
have the Statement of Additional Information for the Fund and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Fund's prospectus and/or its Statement
of Additional Information in combination with other fund companies' prospectuses
and statements of additional information. Except as provided in the following
three sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure as required by
the 1933 Act and/or the 1940 Act, the cost of printing shall be borne by the
Fund. If
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the Company chooses to receive camera-ready film or computer diskettes in lieu
of receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standard,; set
forth on Schedule B attached hereto and incorporated herein by this reference,
which standards will also be provided to the other Participating Insurance
Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the
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<PAGE>
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least ten Business Days prior to its use. No such material shall be
used if the Fund or its designee reasonably objects to such use within seven
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least ten Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably objects to
such use within seven Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for
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<PAGE>
exemptions, requests for no action letters, and all amendments to any of the
above, that relate to the Contracts or each Account, contemporaneously with the
filing of such document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports; market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
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6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance with the grace period
afforded by Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such
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<PAGE>
segregation, or offering to the affected contract owners the option of making
such a change; and (2), establishing a new registered management investment
company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
'then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1,
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7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8. 1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained in
the Contracts or sales literature for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the Fund not
supplied by the Company, or persons under its control) or wrongful
conduct of the Company or persons under its control, with respect to
the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading if such a statement
or omission was
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<PAGE>
made in reliance upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company, as limited by and in accordance with the
provisions of Sections 8.1 (b) and 8.1 (c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Company in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service
on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own expense, in the
defense of such action. The Company also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party
under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the
Contracts or the operation of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
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8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based Upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to the Underwriter or
Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for
the Contracts not supplied by the Underwriter or persons
under its control) or wrongful conduct of the Fund, Adviser
or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Fund: or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
14
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any-of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
15
<PAGE>
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
16
<PAGE>
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by 60 days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts;
or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Fund
may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by the Underwriter by written notice to the Company,
if the Underwriter determines, in its sole judgment exercised in
good faith, that the Company, or the Company and its affiliated
companies taken as a whole, has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity;
however, before the Underwriter may terminate the Agreement under
this subparagraph (f) on account of material adverse publicity,
the following
17
<PAGE>
procedures shall apply: (i) the Underwriter shall notify the
Company, in writing, of the reason or reasons it intends to
terminate the Agreement for the prospective termination, in
sufficient detail for the Company to respond to the Underwriter's
specific concerns; (ii) the Company shall then have three (3)
business days in which to formulate and submit a written response
to the Underwriter; and (iii) the Company may, if it desires,
meet in person with the Underwriter at a time and place
designated by the Underwriter for a discussion of the issues;
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter
has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity;
or
(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.6(b) hereof and at the
time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 1O.1(h)
shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption, or (iii) as permitted by an order
of the SEC pursuant to Section 26(b) of the 1940 Act.. Furthermore, except in
cases where permitted under the terms of the Contracts, the Company shall not
prevent Contract Owners from allocating payments to a Portfolio that was
otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
18
<PAGE>
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, CT 06152-2321
Attention: Robert A.Picarello, Chief Counsel, Individual Insurance
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
19
<PAGE>
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (if one is prepared
under generally accepted accounting principles ("GAAP"), as
soon as practical and in any event within 120 days after the
end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 60 days
after the end of each quarterly period;
(c) any financial statement, proxy statement, notice or report
of the Company sent to stockholders and/or policyholders, as
soon as practical after the delivery thereof to
stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and
Exchange Commission or any state insurance regulator, as
soon as practical after the filing thereof;
20
<PAGE>
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or
special audit made by them of the books of the Company, as
soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: /S/ ROY H. BUBBS
--------------------------
Name: ROY H. BUBBS
--------------------------
Title: SENIOR VICE PRESIDENT
--------------------------
VARIABLE INSURANCE PRODUCTS FUND
By: /S/ J. GARY BURKHEAD
--------------------------
Name: J. GARY BURKHEAD
--------------------------
Title: SENIOR VP
--------------------------
FIDELITY DISTRIBUTORS CORPORATION
By: /S/ KURT A. LANGE
--------------------------
Name: KURT A. LANGE
--------------------------
Title: PRESIDENT
--------------------------
21
<PAGE>
SCHEDULE A
The following is a list of contracts and forms for which one or more portfolios
of Variable Insurance Products Fund or Variable Insurance Products Fund II are
to be made available by Connecticut General Life Insurance Company in CG
Variable Annuity Separate Account II or CG Variable Life Insurance Separate
Account I:
Name of Separate Account and Policy Form Numbers of Contracts
Funded BY SEPARATE ACCOUNT
CG Variable Annuity Separate Account II AN420 - Flexible Payment Deferred
Variable Annuity Contract with
Fixed and Variable Accounts -
Nonpar
CG Variable Life Separate Account I LN605 - Flexible Premium Variable
Life Insurance Policy - Nonpar
22
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
NOTE: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
23
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but NOT including) the meeting,
counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
NOTE: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure and
has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
NOTE: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
24
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be NOT RECEIVED for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of SHARES.) Fidelity Legal must
review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
25
<PAGE>
SCHEDULE C
Other investment companies which will be made available under variable annuity
contracts or variable life insurance policies issued by the Company through CG
Variable Annuity Separate Account II or CG Variable Life Insurance Separate
Account I:
ALGER FUNDS
Alger American Small Capitalization Portfolio
Alger American Leveraged AllCap, Portfolio
Alger American MidCap Growth Portfolio
Alger American Growth Portfolio
MFS FUNDS
MFS Total Return Serids
MFS Utilities Series
MFS World Government Series
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust Balanced Portfolio
Neuberger & Berman Advisers Management Trust Limited Maturity Bond
Portfolio
Neuberger & Berman Advisers Management Trust Partners Portfolios
QUEST FOR VALUE FUNDS
Quest Global Equity Portfolio
Quest Managed Portfolio
Quest Small Cap Portfolio
26
<PAGE>
Exhibit __
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND 11,
FIDELITY DISTRIBUTORS CORPORATION
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 20th day of December,
1994 by and among CONNECTICUT GENERAL LIFE INSURANCE COMPANY, (hereinafter the
"Company"), a Connecticut corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND II, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation. This Agreement supersedes a
similar agreement among the parties that became effective as of October 26,
1988, which agreement is hereby terminated by mutual agreement of the parties.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the " 1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and
1
<PAGE>
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the " 1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the " 1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account a net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1. 1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 9:30 a.m. Boston time on
the next following Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading
2
<PAGE>
and on which the Fund calculates its net asset value pursuant to the rules of
the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day. Payment shall be in
federal funds transmitted by wire.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable annuity contracts and variable life
insurance policies with the form number(s) which are listed on Schedule A
attached hereto and incorporated herein by this reference, as such Schedule A
may be amended from time to time hereafter by mutual written agreement of all
the parties hereto, (the "Contracts") shall be invested in the Fund, in such
other Funds advised by the Adviser as may be mutually agreed to in writing by
the parties hereto, or in the Company's general account, provided that such
amounts may also be invested in an investment company other than the Fund if (a)
such other investment company, or series thereof, has investment objectives or
policies that are substantially different from the investment objectives and
policies of all the Portfolios of the Fund which the Company is then using as
funding vehicles under any Contract; or (b) the Company gives the Fund and the
Underwriter 45 days written notice of its intention to
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make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company either is listed on Schedule C
hereto or was available as a funding vehicle for the Contracts prior to the date
of this Agreement and the Company so informs the Fund and Underwriter prior to
their signing this Agreement (a list of such funds appearing on Schedule C to
this Agreement); or (d) the Fund or Underwriter consents to the use of such
other investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time).
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 38a-433 of the Connecticut General Statutes and has
registered or, prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
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2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Connecticut and
all applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated
as endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Connecticut and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Connecticut to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Connecticut and all
applicable state and federal securities laws, including without limitation the
1933 Act, the 1934 Act, and the 1940 Act.
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<PAGE>
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Connecticut and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(l) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund, and that said bond is issued by a reputable bonding company, includes
coverage for larceny and embezzlement, and is in an amount not less than $5
million. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS: VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film or computer diskettes
containing the Fund's prospectus and Statement of Additional Information, and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or Statement of Additional
Information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document, and to
have the Statement of Additional Information for the Fund and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Fund's prospectus and/or its Statement
of Additional Information in combination with other fund companies' prospectuses
and statements of additional information. Except as provided in the following
three sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure as required by
the 1933 Act and/or the 1940 Act, the cost of printing shall be borne by the
Fund. If
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<PAGE>
the Company chooses to receive camera-ready film or computer diskettes in lieu
of receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule B attached hereto and incorporated herein by this reference, which
standards will also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the
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<PAGE>
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least ten Business Days prior to its use. No such material shall be
used if the Fund or its designee reasonably objects to such use within seven
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least ten Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably objects to
such use within seven Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for
8
<PAGE>
exemptions, requests for no action letters, and all amendments to any of the
above, that relate to the Contracts or each Account, contemporaneously with the
filing of such document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports; setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
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<PAGE>
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance with the grace period
afforded by Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such
10
<PAGE>
segregation, or offering to the affected contract owners the option of making
such a change; and (2), establishing a new registered management investment
company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an -irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable, Material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1,
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<PAGE>
7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained in
the Contracts or sales literature for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection.
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in
the Registration Statement, prospectus or sales literature of the Fund
not supplied by the Company, or persons under its I control) or
wrongful conduct of the Company or persons under its control, with
respect to the sale or distribution of the Contracts or Fund Shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was
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made in reliance upon information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company, as limited by and in accordance with the
provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Company of any such
claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own expense, in the
defense of such action. The Company also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the
Contracts or the operation of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
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8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature of
the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based therein a material
fact upon the omission or the alleged omission to state
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the Registration Statement or
prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund, Adviser or
Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
diversification requirements specified in Article VI of this
Agreement); or
14
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of result from any other material
breach of this Agreement by the Underwriter; as limited by and
in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the
Company,and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Fund) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith or willful misconduct of
the Board or any member thereof, are related to the operations of the Fund and:
15
<PAGE>
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
diversification requirements specified in Article VI of this
Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation:
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
16
<PAGE>
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by 60 days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts;
or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Fund
may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by the Underwriter by written notice to the Company,
if the Underwriter determines, in its sole judgment exercised in
good faith, that the Company, or the Company and its affiliated
companies taken as a whole, has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity;
however, before the Underwriter may terminate the Agreement under
this subparagraph (f) on account of material adverse publicity,
the following
17
<PAGE>
procedures shall apply: (i) the Underwriter shall notify the
Company, in writing, of the reason or reasons it intends to
terminate the Agreement for the prospective termination, in
sufficient detail for the Company to respond to the Underwriter's
specific concerns; (ii) the Company shall then have three (3)
business days in which to formulate and submit a written response
to the Underwriter; and (iii) the Company may, if it desires,
meet in person with the Underwriter at a time and place
designated by the Underwriter for a discussion of the issues.
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter
has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity;
or
(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.6(b) hereof and at the
time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1(h)
shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of
this Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VIII terminations shall be governed by Article VII of
this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption, or (iii) as permitted by an order
of the SEC pursuant to Section 26(b) of the 1940 Act. Furthermore, except in
cases where permitted under the terms of the Contracts, the Company shall not
prevent Contract Owners from allocating payments to a Portfolio that was
otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
18
<PAGE>
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, CT 06152-2321
Attention: Robert A. Picarello, Chief Counsel, Individual
Insurance
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
19
<PAGE>
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not he affected thereby.
12.6. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written consent of
all parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished,
to the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (if one is prepared
under generally accepted accounting principles ("GAAP"), as
soon as practical and in any event within 120 days after the
end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 60 days
after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or report
of the Company sent to stockholders and/or policyholders, as
soon as practical after the delivery thereof to
stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and
Exchange Commission or any state insurance regulator, as
soon as practical after the filing thereof,
20
<PAGE>
(e) any other report submitted to the Company by independent
accountants ill connection with any annual, interim or
special audit made by them of the books of the Company, as
soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: /s/ Roy H. Bubbs
------------------
Name: Roy H. Bubbs
------------------
Title: Senior Vice President
---------------------
VARIABLE INSURANCE PRODUCTS FUND
By: /s/ J Gary Burhead
------------------
Name: J. Gary Burhead
------------------
Title: Senior VP
------------------
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kurt A. Lange
------------------
Name: Kurt A. Lange
------------------
Title: President
------------------
21
<PAGE>
SCHEDULE A
The following is a list of contracts and forms for which one or more portfolios
of Variable Insurance Products Fund or Variable Insurance Products Fund 11 are
to be made available by Connecticut General Life Insurance Company in CG
Variable Annuity Separate Account II or CG Variable Life Insurance Separate
Account I:
Name of Separate Account and Policy Form Numbers of Contract Funded
BY SEPARATE ACCOUNT
CG Variable Annuity Separate Account II AN420 - Flexible Payment Deferred
Variable Annuity Contract with Fixed
and Variable Accounts - Nonpar
CG Variable Life Separate Account I LN605 - Flexible Premium Variable Life
Insurance Policy - Nonpar
22
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
23
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but NOT including) the meeting,
counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
24
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be NOT RECEIVED for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) Fidelity Legal must
review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
25
<PAGE>
SCHEDULE C
Other investment companies which will be made available under variable annuity
contracts or variable life insurance policies issued by the Company through CG
Variable Annuity Separate Account II or CG Variable Life Insurance Separate
Account I:
ALGER FUNDS
Alger American Small Capitalization Portfolio
Alger American Leveraged AllCap Portfolio
Alger American MidCap Growth Portfolio
Alger American Growth Portfolio
MFS FUNDS
MFS Total Return Serids
MFS Utilities Series
MFS World Government Series
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust Balanced Portfolio
Neuberger & Berman Advisers Management Trust Limited Maturity Bond
Portfolio
Neuberger & Berman Advisers Management Trust Partners Portfolios
QUEST FOR VALUE FUNDS
Quest Global Equity Portfolio
Quest Managed Portfolio
Quest Small Cap Portfolio
26
<PAGE>
AMENDMENT TO PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
WHEREAS, the above-referenced Agreement was originally executed as of the
20th day of December, 1994; and
WHEREAS, the parties thereto are desirous of modifying said Agreement in
several respects;
NOW therefore, said Agreement is hereby amended, effective as of the 21st
day of June, 1995, as follows.
1. Schedule A to the Agreement is hereby amended to read as follows:
SCHEDULE A
The following is a list of separate accounts and contract forms for which one or
more portfolios of Variable Insurance Products Fund or Variable Insurance
Products Fund II are to be made available by Connecticut General Life Insurance
Company:
Policy Form Numbers of Contracts
Name of Separate Account Funded By Separate Account
- ------------------------- --------------------------
CG Variable Annuity Separate Account II AN420 - Flexible Payment Deferred
Variable Annuity Contract with
Fixed and Variable
Accounts - Nonpar
CG Variable Life Separate Account I LN605 - Flexible Premium Variable
Life Insurance Policy - Nonpar
CG Variable Life Insurance Separate XX605481 Group Flexible Premium
Account A Variable Life Insurance Policy,
Nonpar
1
<PAGE>
2. Section 2.4 of the Agreement is hereby amended to read as follows:
2.4. The Company represents that the Contracts are currently
treated as life insurance contracts (including endowment contracts) or annuity
insurance contracts, under applicable provisions of the Code and that it will
make every effort to maintain such treatment and that it will notify the Fund
and the Underwriter immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
3. Subsection (a) of Section 10.1 of the Agreement is hereby amended to read as
follows:
(a) termination by any party for any reason upon six months' advance
written notice delivered to the other parties; or
4. Article XI of the Agreement is amended to read as follows:
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, CT 06152-2321
Attention: Robert A. Picarello, Chief Counsel, Individual
Insurance
AND ALSO TO
Connecticut General Life Insurance Company
c/o CIGNA Group Insurance Division
Two Liberty Place
1601 Chestnut Street
Philadelphia, PA 19192-2457
Attention: Jerold H. Rosenblum, Chief Counsel, Group
Insurance Division
2
<PAGE>
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
5. Section 12.1 of the Agreement is amended to read as follows:
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. All persons
dealing with the Company must look solely to the property of the Company for
the enforcement of any claims against the Company as neither the Board,
officers, agents or shareholders of Company assume any personal liability for
obligations entered into on behalf of the Company.
6. Subsection 12.9(b) of the Agreement is amended to read as follows:
(b) the Company's quarterly statements (statutory, if any, and GAAP, if
any), as soon as practical and in any event within 60 days after the end of each
quarterly period:
7. Subsection 12.9(e) of the Agreement is hereby amended to read as follows:
(e) any other material report submitted to the Company by independent
accountants in connection with any annual, interim or special audit made by them
of the books of the Company, as soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be executed in its name and on its behalf by its duly authorized representative
as of the date first specified above.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: _________________________
Name: _________________________
Title: _________________________
3
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND
VARIABLE INSURANCE PRODUCTS FUND II
By: _________________________
J. Gary Burkhead
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: _________________________
Kurt A. Lange
President
4
<PAGE>
Exhibit __
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this 30 day of November 1994, by and
among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation
(the "Company) on its own behalf and on behalf of each of the segregated asset
accounts of the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable annuity
and/or variable life insurance contracts that are allocated to the Accounts (the
Policies and the Accounts covered by this Agreement, and each corresponding
Portfolio covered by this Agreement in which the Accounts invest, is specified
in Schedule A attached hereto as may be modified from time to time);
WHEREAS, the Company has registered or will register the Accounts as unit
investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Investor Services, Inc. (the "Underwriter") is registered as a
broker-dealer with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), and is
a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD");
<PAGE>
WHEREAS, CIGNA Financial Advisors, Inc., the underwriter for the individual
variable annuity and the variable life policies, is registered as a broker-
dealer with the SEC under the 1934 Act and is a member in good standing of the
NASD; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust, MFS,
and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that Business
Day, as defined below) and which are available for purchase by such
Accounts, executing such orders on a daily basis at the net asset value
next computed after receipt by the Trust or its designee of the order for
the Shares. For purposes of this Section 1. 1, the Company shall be the
designee of the Trust for receipt of such orders from Policy owners and
receipt by such designee shall constitute receipt by the Trust; PROVIDED
that the Trust receives notice of such orders by 9:30 am. New York time on
the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange, Inc. (the "NYSE") is open for trading
and on which the Trust calculates its net asset value pursuant to the rules
of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall calculate such net asset
value on each day which the NYSE is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (the "Board") may refuse to
sell any Shares to the Company and the Accounts, or suspend or terminate
the offering of the Shares if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Board acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interest of
the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements with
the Trust and MFS (the "Participating Insurance Companies") and their
separate accounts, qualified pension and retirement plans and MFS or its
affiliates. The Trust and MFS will not sell Trust shares to any insurance
company or separate account unless and agreement containing provisions
substantially the same as Articles III and VII of this Agreement is in
effect to govern such sales. The Company will not resell the Shares except
to the Trust or its agents.
1.4. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed by
Policy holders on that Business Day), executing such requests on a daily
basis at the net asset value next computed after receipt by the Trust or
its designee of the request for redemption. For purposes of this Section
1.4, the Company shall be the designee of the Trust for receipt of requests
for redemption from Policy owners and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of
such request for redemption by 9:30 a.m. New York time on the next
following Business Day.
1.5. Purchase, redemption and exchange orders placed by the Company shall
be placed separately for each Portfolio and shall not be netted among
Portfolios. However, with respect to payment of the purchase price by the
Company and of redemption proceeds by the Trust, the Company and the Trust
shall net
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purchase and redemption orders with respect to each Portfolio and shall
transmit one net payment for all of the Portfolios in accordance with
Section 1.6.
1.6. In the event of net purchases, the Company shall pay for the Shares
by 2:00 p.m. New York time on the next Business Day after an order to
purchase the Shares is made in accordance with the provisions of Section
1.1. hereof. In the event of net redemptions, the Trust shall pay the
redemption proceeds by 2:00 p.m. New York time on the next Business Day
after an order to redeem the shares is made in accordance with the
provisions of Section 1.4. hereof. All such payments shall be in federal
funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts. The
Shares ordered from the Trust will be recorded in an appropriate title for
the Accounts or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any dividends or
capital gain distributions payable on the Shares. The Company hereby
elects to receive all such dividends and distributions as are payable on a
Portfolio's Shares in additional Shares of that Portfolio. The Trust shall
notify the Company of the number of Shares so issued as payment of such
dividends and distributions.
1.9. The Trust or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and
shall use its best efforts to make such net asset value per share available
by 6:30 p.m. New York time. In the event that the Trust is unable to meet
the 6:30 p.m. time stated herein, it shall provide additional time for the
Company to place orders for the purchase and redemption of Shares. Such
additional time shall be equal to the additional time which the Trust takes
to make the net asset value available to the Company. If the Trust
provides materially incorrect share net asset value information, the Trust
shall make an adjustment to the number of shares purchased or redeemed for
the Accounts to reflect the correct net asset value per share. Any
material error in the calculation or reporting of net asset value per
share, dividend or capital gains information shall be reported promptly
upon discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1. The Company represents and warrants that the Policies are or will be
registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold, and
distributed in compliance in all material respects with all applicable
state and federal laws, including without limitation the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940
Act. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that
it has legally and validly established the Account as a segregated asset
account under applicable law and has registered or, prior to any issuance
or sale of the Policies, will register the Accounts as unit investment
trusts in accordance with the provisions of the 1940 Act (unless exempt
therefrom) to serve as segregated investment accounts for the Policies, and
that it will maintain such registration for so long as any Policies are
outstanding. The Company shall amend the registration statements under the
1933 Act for the Policies and the registration statements under the 1940
Act for the Accounts from time to time as required in order to effect the
continuous offering of the Policies or as may otherwise be required by
applicable law. The Company shall register and qualify the Policies for
sales accordance with the securities laws of the various states only if and
to the extent deemed necessary by the Company.
2.2. The Company represents and warrants that the Policies are currently
and at the time of issuance will be treated as life insurance, endowment or
annuity contract under applicable provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), that it will maintain such treatment and
that it will notify
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<PAGE>
the Trust or MFS immediately upon having a reasonable basis for believing
that the policies have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Company represents and warrants that CIGNA Financial Advisors,
Inc., the underwriter for the individual variable annuity and the variable
life policies, is a member in good standing of the NASD and is a registered
broker-dealer with the SEC. The Company represents and warrants that the
Company and CIGNA, Financial Advisors, Inc. will sell and distribute such
policies in accordance in all material respects with all applicable state
and federal securities laws, including without limitation the 1933 Act, the
1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of The
Commonwealth of Massachusetts and all applicable federal and state
securities laws and that the Trust is and shall remain registered under the
1940 Act. The Trust shall amend the registration statement for its Shares
under the 1933 Act and the 1940 Act from time to time as required in order
to effect the continuous offering of its Shares. The Trust shall register
and qualify the Shares for sale in accordance with the laws of the various
states only if and to the extent deemed necessary by the Trust.
2.5. MFS represents and warrants that the Underwriter is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
The Trust and MFS represent that the Trust and the Underwriter will sell
and distribute the Shares in accordance in all material respects with all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and any
applicable regulations thereunder.
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it shall
perform its obligations for the Trust in compliance in all material
respects with any applicable federal securities laws and with the
securities laws of The Commonwealth of Massachusetts. MFS represents and
warrants that it is not subject to state securities laws other than the
securities laws of The Commonwealth of Massachusetts and that it is exempt
from registration as an investment adviser under the securities laws of The
Commonwealth of Massachusetts.
2.8. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably request so
that it may carry out fully the obligations imposed upon it by the
conditions contained in the exemptive application pursuant to which the SEC
has granted exemptive relief to permit mixed and shared funding (the 'Mixed
and Shared Funding Exemptive Order").
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS: VOTING
3.1. At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the Shares
as the Company may reasonably request for distribution to existing Policy
owners whose Policies are funded by such Shares. The Trust or its designee
shall provide the Company, at the Company's expense, with as many copies of
the current prospectus for the Shares as the Company may reasonably request
for distribution to prospective purchasers of Policies. If requested by
the Company in lieu thereof, the Trust or its designee shall provide such
documentation (including a "camera ready" copy of the new prospectus as set
in type or, at the request of the Company, as a diskette in the form sent
to the financial printer) and other assistance as is reasonably necessary
in order for the parties hereto once each year (or more frequently if the
prospectus for
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<PAGE>
the Shares is supplemented or amended) to have the prospectus for the
Policies and the prospectus for the Shares and/or the prospectus for the
Shares and the prospectuses for other funding vehicles underlying the
Policies printed together in one document; the expenses of such printing to
be apportioned between (a) the Company and (b) the Trust or its designee in
proportion to the number of pages of the Policy prospectus (and/or the
prospectuses for other funding vehicles underlying the Policy) and the
Shares' prospectus, taking account of other relevant factors affecting the
expense of printing, such as covers, columns, graphs and charts; the Trust
or its designee to bear the cost of printing the Shares' prospectus portion
of such document for distribution to owners of existing Policies funded by
the Shares and the Company to bear the expenses of printing the portion of
such document relating to the Policy (and/or the document relating to other
funding vehicles underlying the Policy); PROVIDED, HOWEVER that the Company
shall bear all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing Policies
not funded by the Shares. In the event that the Company requests that the
Trust or its designee provides the Trust's prospectus in a "camera ready" or
diskette format, the Trust shall be responsible for providing the
prospectus in the format in which it or MFS is accustomed to formatting
prospectuses and shall bear the expense of providing the prospectus in such
format (e.g., typesetting expenses), and the Company shall bear the expense
of adjusting or changing the format to conform with any of its
prospectuses.
3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or its
designee. The Trust or its designee, at its expense, shall print and
provide such statement of additional information to the Company (or a
master of such statement suitable for duplication by the Company) for
distribution to any owner of a Policy funded by the Shares. The Trust or
its designee, at the Company's expense, shall print and provide such
statement to the Company (or a master of such statement suitable for
duplication by the Company) for distribution to a prospective purchaser who
requests such statement or to an owner of a Policy not funded by the
Shares.
3.3. The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Trust's proxy
materials, reports to Shareholders and other communications to Shareholders
in such quantity as the Company shall reasonably require for distribution
to Policy owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above,
or of Article V below, the Company shall pay the expense of printing or
providing documents to the extent such cost is considered a distribution
expense. Distribution expenses would include by way of illustration, but
are not limited to, the printing of the Shares' prospectus or prospectuses
for distribution to prospective purchasers or to owners of existing
Policies not funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate to
include in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received
from Policy owners; and
(c) vote the Shares for which no instructions have been received
in the same proportion as the Shares of such Portfolio for
which instructions have been received from Policy owners;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass through voting privileges for variable contract owners.
The Company will in no way recommend action in connection with or oppose or
interfere with the solicitation of proxies for the Shares held for such
Policy owners. The Company reserves the right to vote shares held in any
segregated asset account in its own right, to the extent
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permitted by law. Participating Insurance Companies shall be responsible
for assuring that each of their separate accounts holding Shares calculates
voting privileges in the manner required by the Mixed and Shared Funding
Exemptive Order. The Trust and MFS will notify the Company of any changes
of interpretations or amendments to the Mixed and Shared Funding Exemptive
Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, MFS, any other investment adviser to the
Trust, or any affiliate of MFS are named, at least five (5) Business Days
prior to its use. No such material shall be used if the Trust, MFS, or
their respective designees reasonably objects to such use within three (3)
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statement on behalf of the Trust, MFS, any other
investment adviser to the Trust, or any affiliate of MFS or concerning the
Trust or any other such entity in connection with the sale of the Policies
other than the information or representations contained in the registration
statement, prospectus or statement of additional information for the
Shares, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to time.
or in reports or proxy statements for the Trust, or in sales literature or
other promotional material approved by the Trust, MFS or their respective
designees, except with the permission of the Trust, MFS or their respective
designees. The Trust, MFS or their respective designees each agrees to
respond to any request for approval on a prompt and timely basis. The
Company shall adopt and implement procedures reasonably designed to ensure
that information concerning the Trust, MFS or any of their affiliates which
is intended for use only by brokers or agents selling the Policies (i.e.,
information that is not intended for distribution to Policy holders or
prospective Policy holders) is so used, and neither the Trust, MFS nor any
of their affiliates shall be liable for any losses, damages or expenses
relating to the improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or the Accounts is
named, at least five (5) Business Days prior to its use. No such material
shall be used if the company or its designee reasonably objects to such use
within three (3) Business Days after receipt of such material.
4.4. The Trust and MFS shall not give, and agree that the Underwriter
shall not give, any information or make any representations on behalf of
the Company or concerning the Company, the Accounts, or the Policies in
connection with the sale of the Policies other than the information or
representations contained in a registration statement, prospectus, or
statement of additional information for the Policies, as such registration
statement, prospectus and statement of additional information may be
amended or supplemented from time to time, or in reports for the Accounts,
or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company. The
Company or its designee agrees to respond to any request for approval on a
prompt and timely basis. The parties hereto agree that this Section 4.4.
is neither intended to designate nor otherwise imply that MFS is an
underwriter or distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company or
the Trust, as appropriate) will each provide to the other at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales literature and
other promotional materials, applications for exemptions, requests for no-
action letters, and all amendments to any of the above, that relate to the
Policies, or to the Trust or its Shares, prior to or contemporaneously with
the filing of such document
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with the SEC or other regulatory authorities. The Company and the Trust
shall also each promptly inform the other or the results of any examination
by the SEC (or other regulatory authorities) that relates to the Policies,
the Trust or its Shares, and the party that was the subject of the
examination shall provide the other party with a copy of relevant portions
of any "deficiency letter" or other correspondence or written report
regarding any such examination.
4.6. The Trust and MFS will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Portfolio, and of
any material change in the Trusts registration statement, particularly any
change resulting in change to the registration statement or prospectus or
statement of additional information for any Account. The Trust and MFS
will cooperate with the Company so as to enable the Company to solicit
proxies from Policy owners or to make changes to its prospectus, statement
of additional information or registration statement, in an orderly manner.
The Trust and MFS will make reasonable efforts to attempt to have changes
affecting Policy prospectuses become effective simultaneously with the
annual updates for such prospectuses.
4.7. For purpose of this Article IV and Article VIII, the phrase "sales
literature or other promotional material" includes but is not limited to
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media), and sales literature (such as brochures, circulars,
reprints or excerpts or any other advertisement sales literature, or
published articles), distributed or made generally available to customers
or the public, educational or training materials or communications
distributed or made generally available to some or all agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the Company
under this Agreement, and the Company shall pay no fee or other
compensation to the Trust, except that if the Trust or any Portfolio adopts
and implements a plan pursuant to Rule l2b-1 under the 1940 Act to finance
distribution and Shareholder servicing expenses, then, subject to obtaining
any required exemptive orders or regulatory approvals, the Trust may make
payments to the Company or to the underwriter for the Policies if and in
amounts agreed to by the Trust in writing. Each party, however, shall, in
accordance with the allocation of expenses specified in Articles III and V
hereof, reimburse other parties for expense initially paid by one party but
allocated to another party. In addition, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust and/or
to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal
and state laws, including preparation and filing of the Trust's
registration statement, and payment of filing fees and registration fees;
preparation and filing of the Trust's proxy materials and reports to
Shareholders; setting in type and printing its prospectus and statement of
additional information (to the extent provided by and as determined in
accordance with Article III above); setting in type and printing the proxy
materials and reports to Shareholders (to the extent provided by and as
determined in accordance with Article III above); the preparation of all
statements and notices required of the Trust by any federal or state law
with respect to its Shares; all taxes on the issuance or transfer of the
Shares; and the costs of distributing the Trust's prospectuses and proxy
materials to owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act. The Trust shall not bear any
expenses of marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies and
of distributing the Trust's Shareholder reports and proxy materials to
Policy owners. The Company shall bear all expenses associated with the
registration,
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qualification, and filing of the Policies under applicable federal
securities and state insurance laws; the cost of preparing, printing and
distributing the Policy prospectus and statement of additional information;
and the cost of preparing, printing and distributing annual individual
account statements for Policy owners as required by state insurance laws.
ARTICLE VI DIVERSIFICATION AND RELATED LIMITATIONS
6.1. The Trust and MFS represent and warrant that they will use their
best efforts to ensure that each Portfolio of the Trust will meet the
diversification requirements of Section 817(h)(l) of the Code and Treas.
Reg. 1.817-5, relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts, as they may be amended
from time to time (and any revenue rulings, revenue procedures, notices,
and other published announcements of the Internal Revenue Service
interpreting these sections).
ARTICLE VII POTENTIAL MATERIAL CONFLICTS
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests of
the variable annuity contract owners and the variable life insurance policy
owners of the Company and/or affiliated companies ("contract owners")
investing in the Trust. The Board shall have the sole authority to
determine if a material irreconcilable conflict exists, and such
determination shall be binding on the Company only if approved in the form
of a resolution by a majority of the Board, or a majority of the
disinterested trustees of the Board. The Board will give prompt notice of
any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the
Board in carrying out its responsibilities under the conditions set forth
in the Trust's exemptive application pursuant to which the SEC has granted
the Mixed and Shared Funding Exemptive Order by providing the Board, as it
may reasonably request, with all information necessary for the Board to
consider any issues raised and agrees that it will be responsible for
promptly reporting any potential or existing conflicts of which it is aware
to the Board including, but not limited to, an obligation by the Company to
inform the Board whenever contract owner voting instructions are disregard.
The Company also agrees that, if a material irreconcilable conflict arises,
it will at is own cost remedy such conflict up to an including (a)
withdrawing the assets allocable to some or all of the Accounts from the
Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Trust, or submitting to a vote of all affected contract owners whether to
withdraw assets from the Trust or any Portfolio and reinvesting such assets
in a different investment medium and, as appropriate, segregating the
assets attributable to any appropriate group of contract owners that votes
in favor of such segregation, or offering to any of the affected contract
owners the option of segregating the assets attributable to their contracts
or policies, and (b) establishing a new registered management investment
company and segregating the assets underlying the Policies, unless a
majority of Policy owners materially adversely affected by the conflict
have voted to decline the offer to establish a new registered management
investment company.
7.3. A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately remedies
any material irreconcilable conflict In the event that the Board determines
that any proposed action does not adequately remedy any material
irreconcilable conflict, the Company will withdraw from investment in the
Trust each of the Accounts designated by the disinterested trustees and
terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; PROVIDED, HOWEVER, that
such withdrawal and termination shall be limited to the extent required to
remedy any such material irreconcilable conflict as determined by a
majority of the disinterested trustees of the Board.
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7.4. If and to the extent that rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or
shares funding (as defined in the Mixed and Shared Funding Exemptive Order)
on terms and conditions materially different from those contained in the
Mixed Shared Funding Exemptive Order, then (a) the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with Rule 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical
to such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
The Company agrees to indemnify and hold harmless the Trust, MFS,
any affiliates of MFS, and each of their respective directors/trustees,
officers and each person, if any, who controls the Trust or MFS within the
meaning of Section 15 of the 1933 Act, and any agents or employees of the
foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Company) or expenses (including reasonable counsel
fees) to which an Indemnified Party may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Shares or the
Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Policies or contained in the
Policies or sales literature or other promotional material
for the Policies (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
commission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading PROVIDED that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished
to the Company or its designee by or on behalf of the Trust
or MFS for use in the registration statement, prospectus or
statement of additional information for the Policies or in
the Policies or sales literature or other promotional
material (or any amendment or supplement) or otherwise for
use in connection with the sale of the Policies or Shares;
or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional
material of the Trust not supplied by the Company or this
designee, or persons under its control and on which the
Company has reasonably relied) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the registration
statement, prospectus, statement of additional information,
or sales literature or other promotional literature of the
Trust, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material
fact
- 9 -
<PAGE>
required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Trust by or on behalf of the Company; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.2. INDEMNIFICATION BY THE TRUST
The Trust agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act, and any agents or
employees of the foregoing (each an "Indemnified Party," or collectively,
the "Indemnified Parties" for purposes of this Section 8.2) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Trust) or expenses (including
reasonable counsel fees) to which any Indemnified Party may become subject
under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Shares or the
Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus, statement of
additional information or sales literature or other
promotional material of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement therein not misleading,
PROVIDED that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished
to the Trust, MFS, the Underwriter or their respective
designees by or on behalf of the Company for use in the
registration statement prospectus or statement of additional
information for the Trust or in sales literature or other
promotional material for the Trust (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Policies or Shares; or
(b) arise out of or as a result of statements or representations
(other than statement or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional
material for the Policies not supplied by the Trust, MFS the
Underwriter or any of their respective designees or persons
under their respective control and on which any such entity
has reasonably relied) or wrongful conduct of the Trust or
persons under its control, with respect to the sale or
distribution of the Policies or Shares; or
(c) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this
- 10 -
<PAGE>
Agreement) or arise out of or result from any other material
breach of this Agreement by the Trust; or
(d) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate; or
(e) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of the
Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.3. In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including without limitation, the Company, or any Participating Insurance
Company or any Policy holder, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of
any representation, warranty, and/or covenant made by the Company hereunder
or by any Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii) the
failure by the Company or any Participating Insurance Company to maintain
its segregated asset account (which invests in any Portfolio) as a legally
and validly established segregated asset account under applicable state law
and as a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom); or (iii) the failure by the Company or
any Participating Insurance Company to maintain its variable annuity and/or
variable life insurance contracts (with respect to which any Portfolio
serves as an underlying funding vehicle) as life insurance, endowment or
annuity contracts under applicable provisions of the Code.
8.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, willful misconduct, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
8.5. Promptly after receipt by an Indemnified Party under this Section
8.5. of commencement of action, such Indemnified Party will, if a claim in
respect thereof is to be made against the indemnifying party under this
section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any Indemnified Party otherwise than under
this section. In case any such action is brought against any Indemnified
Party, and it notified the indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
satisfactory to such Indemnified Party. After notice from the indemnifying
party of its intention to assume the defense of an action, the Indemnified
Party shall bear the expenses of any additional counsel obtained by it, and
the indemnifying party shall not be liable to such Indemnified Party under
this section for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation.
8.6. Each of the parties agrees promptly to notify the other parties of
the commencement of any litigation or proceeding against it or any of its
respective officers, directors, trustees, employees or 1933 Act control
persons in connection with the Agreement, the issuance or sale of the
Policies, the operation of the Accounts, or the sale or acquisition of
Shares.
8.7. A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article
VIII. The indemnification provisions contained in this Article VIII shall
survive any termination of this Agreement.
- 11 -
<PAGE>
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees by the NASD,
the SEC, or any insurance department or any other regulatory body regarding such
party's duties under this Agreement or related to the sale of the Policies, the
operation of the Accounts, or the purchase of the Shares.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate with respect to the Accounts, or one,
some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance
written notice to the other parties; or
(b) at the option of the Company to the extent that the Shares
of Portfolios are not reasonably available to meet the
requirements of the Policies or are not "appropriate funding
vehicles" for the Policies, as reasonably determined by the
Company. Without limiting the generality of the foregoing,
the Shares of a Portfolio would not be "appropriate funding
vehicles" if, for example, such Shares did not meet the
diversification or other requirements referred to in Article
VI hereof; or if the Company would be permitted to disregard
Policy owner voting instructions pursuant to Rule 6e-2 or
6e-3(T) under the 1940 Act. Prompt notice of the election
to terminate for such cause and an explanation of such cause
shall be furnished to the Trust by the Company; or
(c) at the option of the Trust or MFS upon institution of formal
proceedings against the Company by the NASD, the SEC, or any
insurance department or any other regulatory body regarding
the Company's duties under this Agreement or related to the
sale of the Policies, the operation of the Accounts, or the
purchase of the Shares; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust by the NASD, the SEC, or any
state securities or insurance department or any other
regulatory body regarding the Trust's or MFS' duties under
this Agreement or related to the sale of the shares; or
(e) at the option of the Company, the Trust or MFS upon receipt
of any necessary regulatory approvals and/or the vote of the
Policy owners having an interest in the Accounts (or any
subaccounts) to substitute the shares of another investment
company for the corresponding Portfolio Shares in accordance
with the terms of the Policies for which those Portfolio
- 12 -
<PAGE>
Shares had been selected to serve as the underlying
investment media. The Company will give thirty (30) day's
prior written notice to the Trust of the Date of any
proposed vote or other action taken to replace the Shares;
or
(f) termination by either the Trust or MFS by written notice to
the Company, if either one or both of the Trust or MFS
respectively, shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a
material adverse change in its business, operations,
financial condition, or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Trust
and MFS, if the Company shall determine, in its sole
judgment exercised in good faith, that the Trust or MFS has
suffered a material adverse change in this business,
operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement;
or
(i) upon assignment of this Agreement, unless made with the
written consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies and,
if applicable, the Accounts as to which the Agreement is to be terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised for
cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations, the
Company shall not redeem the Shares attributable to the Policies (as
opposed to the Shares attributable to the Company's assets held in the
Accounts), and the Company shall not prevent Policy owners from allocating
payments to a Portfolio that was otherwise available under the Policies,
until thirty (30) days after the Company shall have notified the Trust of
its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and MFS
shall, at the option of the Company, continue to make available additional
shares of the Portfolios pursuant to the terms and conditions of this
Agreement, for all Policies in effect on the effective date of termination
of this Agreement (the "Existing Policies"), except as otherwise provided
under Article VII of this Agreement. Specifically, without limitation, the
owners of the Existing Policies shall be permitted to transfer or
reallocate investment under the Policies, redeem investments in any
Portfolio and/or invest in the Trust upon the making of additional purchase
payments under the Existing Policies.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
- 13 -
<PAGE>
If to the Trust:
MFS Variable Insurance Trust
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, Secretary
If to the Company:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, Connecticut 06152-2321
Attn: Robert A. Picarello, Chief Counsel
Individual Insurance Operations, S-321
If to MFS:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. MISCELLANEOUS
13.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement or as otherwise required by applicable law
or regulation, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written
consent of the affected party until such time as it may come into the
public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the
same instrument.
13.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state insurance
regulators) relating to this Agreement or the transactions contemplated
hereby.
- 14 -
<PAGE>
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument are
not binding upon any of the Trust's trustees, officers, employees, agents
or shareholders individually, but are binding solely upon the assets and
property of the Trust in accordance with its proportionate interest
hereunder. The Company further acknowledges that the assets and
liabilities of each Portfolio are separate and distinct and that the
obligations of or arising out of this instrument are binding solely upon
the assets or property of the Portfolio on whose behalf the Trust has
executed this instrument. The Company also agrees that the obligations of
each Portfolio hereunder shall be several and not joint, in accordance with
its proportionate interest hereunder, and the Company agrees not to proceed
against any Portfolio for the obligations of another Portfolio.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By its authorized officer
By: /s/
-------------------------
Title: Senior Vice President
-----------------------
Date: November 21, 1994
------------------------
MFS VARIABLE INSURANCE TRUST, on behalf of the Portfolios
By its authorized officer and not individually,
By: /s/
-------------------------
Title: Secretary
-----------------------
Date: 30 November 94
------------------------
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By: /s/
-------------------------
Title: Chairman
-----------------------
Date: 30 Nov. 94
------------------------
- 15 -
<PAGE>
As of November___, 1994
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
NAME OF SEPARATE
ACCOUNT AND DATE
ESTABLISHED BY POLICIES FUNDED PORTFOLIOS
BOARD OF DIRECTORS BY SEPARATE ACCOUNT APPLICABLE TO POLICIES
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
CG Variable Annuity Variable Annuity Contracts MFS Total Return Series
Separate Account II MFS Utilities Series
January 25, 1994 MFS World Governments Series
- ----------------------------------------------------------------------------------------------
CG Variable Life Insurance Variable Life Insurance Policies MFS Total Return Series
Separate Account I MFS Utilities Series
July 6, 1994 MFS World Governments Series
- ----------------------------------------------------------------------------------------------
</TABLE>
- 16 -
<PAGE>
INDEMNIFICATION AGREEMENT
BETWEEN
MASSACHUSETTS FINANCIAL SERVICES COMPANY
AND
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THIS AGREEMENT (the "Agreement") is made and entered into this 30 day of
November, 1994 by and between MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS"), and CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a
Connecticut corporation (the "Company"), on its own behalf and on behalf of each
of the segregated asset accounts (the "Accounts") of the Company referenced in
the Participation Agreement (as defined below).
WHEREAS, MFS and the Company, on its own behalf and on behalf of the
Accounts, have entered into a Participation Agreement with MFS Variable
Insurance Trust, a Massachusetts business trust (the "Trust"), dated as of the
date hereof (the "Participation Agreement");
NOW, THEREFORE, in consideration of their mutual promises as set forth in
the Participation Agreement, MFS and the Company agree as follows:
ARTICLE I. DEFINITIONS
All capitalized terms not defined herein shall have the meanings as set
forth in the Participation Agreement.
ARTICLE II. APPLICABILITY
The indemnification provided by MFS under this Agreement shall relate
solely to certain losses, claims, damages, liabilities and expenses that may
arise in connection with the performance by the Trust or MFS of its obligations
and duties under the Participation Agreement.
<PAGE>
ARTICLE III. INDEMNIFICATION
3.1. MFS agrees to indemnify and hold harmless the Company and each of its
directors, officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act and any agents or
employees of the foregoing (each an "Indemnified Party" or,
collectively, the "Indemnified Parties") against any and all losses,
claims, damages, liabilities (including amounts paid in settlement
with the written consent of MFS) or expenses (including reasonable
counsel fees) to which an Indemnified Party may become subject under
any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition
of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information ("SAI") of the Trust or sales literature for the
Trust (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished to the
Trust, MFS or the Underwriter by or on behalf of the Company for
use in the registration statement, prospectus, or SAI of the
Trust or in sales literature or other promotional material for
the Trust (or any amendment or supplement) or otherwise for use
in connection with the sales of the Policies or Shares; or
(b) arise out of or as a result of material statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI or sales
literature or other promotional literature for the Policies not
supplied by the Trust, MFS, the Underwriter or their respective
designees or persons under their control and on which the Trust
has reasonably relied) or wrongful conduct of the Trust, MFS, the
Underwriter or persons under their control, with respect to the
sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, SAI or sales literature or other promotional
literature covering the Policies, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
- 2 -
<PAGE>
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the
Trust; or
(d) arise as a result of any material failure by the Trust or MFS to
provide the services and furnish the materials under the terms of
the Participation Agreement (including a failure, whether
unintentional or in good faith or otherwise, of the Trust to
comply with the diversification requirements specified in Article
VI of the Participation Agreement); or
(e) arise out of or result from any material breach of any
representation and/or warranty made by MFS in the Participation
Agreement or any other material breach of the Participation
Agreement by MFS; or
(f) arise out of or result from the materially incorrect or untimely
calculation or reporting by MFS of the daily net asset value per
share or dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of this Article III.
3.2. In no event shall MFS be liable under the indemnification provisions
contained in this Agreement to any individual or entity, including,
without limitation, the Company, any Participating Insurance Company
or any Policy holder, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach
of any representation, warranty, and/or covenant made by the Company
under the Participation Agreement or by any Participating Insurance
Company under an agreement containing substantially similar
representations, warranties and covenants; (ii) the failure by the
Company or any Participating Insurance Company to maintain its
segregated asset account (which invests in any Portfolio) as a legally
and validly established segregated asset account under applicable
state law and as a duly registered unit investment trust under the
provisions of the 1940 Act (unless exempt therefrom); or (iii) the
failure by the Company or any Participating Insurance Company to
maintain its variable annuity and/or variable life insurance contracts
(with respect to which any Portfolio serves as an underlying funding
vehicle) as life insurance, endowment or annuity contracts under
applicable provisions of the Code.
3.3. MFS shall not be liable under this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, willful misconduct, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations
and duties under this Agreement or the Participation Agreement.
- 3 -
<PAGE>
3.4. Promptly after receipt by an Indemnified Party under this Section 3.4
of commencement of an action, such Indemnified Party will, if a claim
in respect thereof is to be made against MFS under this section,
notify MFS of the commencement thereof, but the omission so to notify
MFS will not relieve it from any liability that it may have to any
Indemnified Party otherwise than under this section. In case any such
action is brought against any Indemnified Party, and it notified MFS
of the commencement thereof, MFS will be entitled to participate
therein and, to the extent that it may wish, assume the defense
thereof, with counsel satisfactory to such Indemnified Party. After
notice from MFS of its intention to assume the defense of an action,
the Indemnified Party shall bear the expenses of any additional
counsel obtained by it, and MFS shall not be liable to such
Indemnified Party under this section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation.
3.5. Each party hereto shall promptly notify the other parties to the
Participation Agreement of the commencement of any litigation or
proceeding against it or any of its respective officers, directors,
trustees, employees or 1933 Act control persons in connection with
this Agreement and the Participation Agreement, the issuance or sale
of the Policies, the operation of the Accounts, or the sale or
acquisition of Shares.
3.6. A successor by law of the parties to this Agreement and the
Participation Agreement shall be entitled to the benefits of the
indemnification contained herein. The indemnification provisions
contained herein shall survive any termination of this Agreement and
the Participation Agreement.
ARTICLE IV. DURATION AND TERMINATION
This Agreement shall be effective upon execution and shall terminate with
respect to the Accounts, or one, some or all Portfolios, immediately upon
termination of the Participation Agreement with respect to the Accounts, or one,
some or all Portfolios, in accordance with the provisions of Article XI thereof.
ARTICLE V. CONFIDENTIALITY
Except as required by applicable law or pursuant to the written consent of
MFS, the Company shall treat as confidential the indemnification provided
pursuant to this Agreement, all information reasonably related to this
Agreement, and the existence of this Agreement. This Article V shall survive
the termination of this Agreement.
- 4 -
<PAGE>
ARTICLE VI. MISCELLANEOUS
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in one or more counterparts, each
of which taken together shall constitute one and the same instrument. The
captions in this Agreement are included for convenience of reference only. Any
notice required by this Agreement shall be sent to the persons so specified to
receive notice in the Participation Agreement.
IN WITNESS WHEREOF, both of the parties hereto have caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
MASSACHUSETTS FINANCIAL SERVICES
COMPANY
By its authorized officer,
By: /s/ Albert Burke?
--------------------------
Title: Chairman
-----------------------
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By its authorized officer,
By: /s/ Roy H. Bubbs
--------------------------
Title: Senior Vice President
-----------------------
- 5 -
<PAGE>
Exhibit _
FUND PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS AND
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THIS AGREEMENT made this 15th day of February, 1996, among Templeton
Variable Products Series Fund (the "Trust"), an open-end management investment
company organized as a business trust under Massachusetts law, Connecticut
General Life Insurance Company, a life insurance company organized as a
corporation under Connecticut law (the "Company"), on its own behalf and on
behalf of each segregated asset account of the Company set forth in Schedule A,
as may be amended from time to time (the "Accounts"), and Franklin Templeton
Distributors, Inc., a California corporation ("Underwriter"), the Trust's
principal underwriter.
W I T N E S S E T H :
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, and certain of those series, named in
Schedule B, (the "Portfolios") are to be made available for purchase by the
Company for the Accounts; and
WHEREAS, the Trust has received an order from the Commission, dated
November 16, 1993 (File No. 812-8546), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies and
certain qualified pension and retirement plans (the "Shared Funding Exemptive
Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies under which the Portfolios are to be
made available as investment vehicles (the "Contracts");
1
<PAGE>
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised;
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such account on Schedule A hereto, to set aside
and invest assets attributable to one or more variable life insurance policies;
and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, Templeton Investment Counsel, Inc. (the "Adviser") is duly
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended ("Advisers Act") and any applicable state securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life insurance
policies and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for receipt of purchase orders and requests for redemption relating to each
Portfolio from each Account, provided that the Company notifies the Trust of
such purchase orders and requests for redemption by 10:00 a.m. Eastern time on
the next following Business Day, as defined in Section 1.3.
1.2. The Trust agrees to make shares of the Portfolios available to the
Accounts for purchase at the net asset value per share next computed after
receipt of a purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of the Trust
describing Portfolio purchase procedures on those days on which the Trust
calculates its net asset value pursuant to rules of the Commission, and the
Trust shall use reasonable efforts to calculate such net asset value on each day
on which the New York Stock Exchange is open for trading. The Company will
transmit orders from time to time to the Trust for the purchase of shares of the
Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
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authorities having jurisdiction or if, in the sole discretion of the Trustees
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Portfolio.
1.3 The Company shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account no later than the close of business on the
next Business Day after the Trust receives the purchase order. Payment shall be
made in federal funds transmitted by wire to the Trust. Upon receipt by the
Trust of the federal funds so wired, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of the Trust
for this purpose. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Trust calculates its net asset
value pursuant to the rules of the Commission.
1.4 The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established from time
to time by the Trust. Redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire to the
Company before the close of business on the next Business Day after the receipt
of the request for redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market conditions
exist, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act.
1.5 Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer on
that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Account. Portfolio Shares purchased from the Trust will be recorded in the
appropriate title for each Account or the appropriate subaccount of each
Account.
1.7 The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions payable on the
shares of any Portfolio of the Trust. The Company hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Trust shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.8 The Trust shall calculate the net asset value of each Portfolio on
each Business Day, as defined in Section 1.3. The
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Trust shall make the net asset value per share for each Portfolio available to
the Company or its designated agent on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to make such net asset value
per share available by 7:00 p.m. Eastern time each Business Day.
1.9 The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Funding Exemptive Order. No shares of any Portfolio will be sold directly to
the general public. The Company agrees that it will use Trust shares only for
the purposes of funding the Contracts through the Accounts listed in Schedule A,
as amended from time to time.
1.10 The Company agrees that all net amounts available under the variable
life insurance policies with the form number(s) which are listed on Schedule C
attached hereto and incorporated herein by this reference, as such Schedule C
may be amended from time to time hereafter by mutual written agreement of all
the parties hereto (the "Contracts"), shall be invested in the Trust, in such
other Funds advised by the Adviser as may be mutually agreed to in writing by
the parties hereto, or in the Company's general account, provided that such
amounts may also be invested in an investment company other than the Trust if:
(a) such other investment company, or series thereof, has investment objectives
or policies that are substantially different from the investment objectives and
policies of the Portfolios; or (b) the Company gives the Trust and the
Underwriter 45 days written notice of its intention to make such other
investment company available as a funding vehicle for the Contracts; or (c) such
other investment company is available as a funding vehicle for the Contracts at
the date of this Agreement and the Company so informs the Trust and the
Underwriter prior to their signing this Agreement (a list of such funds
appearing on Schedule D to this Agreement); or (d) the Trust or Underwriter
consents to the use of such other investment company.
1.11 The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.10 and Article IV of
this Agreement.
ARTICLE II.
OBLIGATIONS OF THE PARTIES; FEES AND EXPENSES
2.1 The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration and
qualification of its shares of the Portfolios, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
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2.2 At the option of the Company, the Trust or the Underwriter shall
either (a) provide the Company (at the Company's expense) with as many copies of
portions of the Trust's current prospectus, annual report, semi-annual report
and other shareholder communications, including any amendments or supplements to
any of the foregoing, pertaining specifically to the Portfolios as the Company
shall reasonably request; or (b) provide the Company with a camera ready copy of
such documents in a form suitable for printing and from which information
relating to series of the Trust other than the Portfolios has been deleted to
the extent practicable. The Trust or the Underwriter shall provide the Company
with a copy of its current statement of additional information, including any
amendments or supplements, in a form suitable for duplication by the Company.
2.3 The Trust (at its expense) shall provide the Company with copies of
any Trust-sponsored proxy materials in such quantity as the Company shall
reasonably require for distribution to Contract owners. The Company shall bear
the costs of distributing proxy materials (or similar materials such as voting
solicitation instructions), prospectuses and statements of additional
information to Contract owners. The Company assumes sole responsibility for
ensuring that such materials are delivered to Contract owners in accordance with
applicable federal and state securities laws.
2.4 If and to the extent required by law, the Company shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares for which no instructions have been received in the same proportion
as Trust shares of such Portfolio for which instructions have been received; so
long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Trust shares held in any segregated asset
account in its own right, to the extent permitted by law.
2.5 The Company agrees and acknowledges that the Adviser (or its
affiliates) is the sole owner of the name and mark "Franklin Templeton" and that
all use of any designation comprised in whole or part of such name or mark under
this Agreement shall inure to the benefit of the Adviser. Except as provided in
Section 2.6, the Company shall not use any such name or mark on its own behalf
or on behalf of the Accounts or Contracts in any registration statement,
advertisement, sales literature or other materials relating to the Accounts or
Contracts without the prior written consent of the Adviser. Upon termination of
this Agreement for any reason, the Company shall cease all use of any such name
or mark as soon as reasonably practicable.
2.6 The Company shall furnish, or cause to be furnished to the Trust or
its designee, at least one complete copy of each Contract registration
statement, prospectus or statement of additional information, report,
solicitation for voting instructions, sales literature and other promotional
materials, applications for exemption, requests for no action letters and all
amendments to any of the above that relate to the Contracts or the
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Accounts contemporaneously with the filing of such document with the Commission
or other regulatory agency. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee each piece of sales literature or other
promotional material in which the Trust or the Adviser is named, at least 15
Business Days prior to its use. No such material shall be used if the Trust or
its designee reasonably objects to such use within five Business Days after
receipt of such material. For purposes of this paragraph, "sales literature or
other promotional material" includes, but is not limited to, portions of the
following that refer to the Trust or affiliates of the Trust: advertisements
(such as material published or designed for use in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts or
any other advertisement, sales literature or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports and
proxy materials.
2.7 The Company and its agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or the Adviser in connection with the sale of the Contracts
other than information or representations contained in and accurately derived
from the registration statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or supplemented from time
to time), annual and semi-annual reports of the Trust, Trust-sponsored proxy
statements, or in sales literature or other promotional material approved by the
Trust or its designee, except as required by legal process or regulatory
authorities or with the written permission of the Trust or its designee.
2.8 The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and the
Adviser, in such form as the Company may reasonably require, as the Company
shall reasonably request in connection with the preparation of registration
statements, prospectuses and annual and semi-annual reports pertaining to the
Contracts.
2.9 The Trust shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company, the Accounts
or the Contracts other than information or representations contained in and
accurately derived from the registration statement or prospectus for the
Contracts (as such registration statement and prospectus may be amended or
supplemented from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials, except
as required by legal process or regulatory authorities or with the written
permission of the Company.
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2.10 So long as, and to the extent that, the Commission interprets the
1940 Act to require pass-through voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners whose
Contract values are invested, through the registered Accounts, in shares of one
or more Portfolios of the Trust. The Trust shall require all Participating
Insurance Companies to calculate voting privileges in the same manner and the
Company shall be responsible for assuring that the Accounts calculate voting
privileges in the manner established by the Trust. With respect to each
registered Account, the Company will vote shares of each Portfolio of the Trust
held by a registered Account and for which no timely voting instructions from
Contract owners are received in the same proportion as those shares held by that
registered Account for which voting instructions are received. The Company and
its agents will in no way recommend or oppose or interfere with the solicitation
of proxies for Portfolio shares held to fund the Contracts without the prior
written consent of the Trust, which consent may be withheld in the Trust's sole
discretion.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Connecticut
and that it has legally and validly established each Account as a segregated
asset account under such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that it has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated asset account for the Contracts, unless an exemption from
registration is available.
3.3 The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is available
prior to any issuance or sale of the Contracts; the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements.
3.4 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and the rules and
regulations thereunder.
3.5 The Trust represents and warrants that the Portfolio shares offered
and sold pursuant to this Agreement will be registered under the 1933 Act and
the Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required
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in order to effect the continuous offering of its shares. The Trust shall
register and qualify its shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
in that event immediately take all reasonable steps to adequately diversify the
Portfolio to achieve compliance within the grace period afforded by Regulation
1.817-5.
3.7 The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8 The Trust represents and warrants that should it ever desire to make
any payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act, the Trustees, including a majority who are not "interested persons" of
the Trust under the 1940 Act ("disinterested Trustees"), will formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
3.9 The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.10 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Trust are and shall be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust, in an amount not less than $5 million. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Trust and the Underwriter in the event that such coverage
no longer applies.
3.11 The Underwriter represents that the Adviser is duly organized and
validly existing under the laws of the State of Florida and that it is
registered and will during the term of this Agreement remain registered as an
investment adviser under the Advisers Act.
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ARTICLE IV.
POTENTIAL CONFLICTS
4.1 The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority;; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Trust shall promptly inform the Company of any determination by the
Trustees that an irreconcilable material conflict exists and of the implications
thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions. All communications from the Company to the Trustees
may be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a material irreconcilable conflict exists that
effects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by
the Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing
the assets allocable to some or all of the Accounts from the Trust or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or submitting the
question of whether or not such segregation should be implemented to a vote of
all affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance policy owners,
or variable contract owners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected Contract
owners the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
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4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with a
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. In
the event that the Trustees determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Funding
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if reasonably deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the l940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive
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Order, then the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable.
ARTICLE V.
INDEMNIFICATION
5.1 INDEMNIFICATION BY THE COMPANY.
(a) The Company agrees to indemnify and hold harmless the Trust
and each of its Trustees, officers, employees and agents and each
person, if any, who controls the Trust within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposed of this Article V) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the
written consent of the Company, which consent shall not be
unreasonably withheld) or expenses (including the reasonable costs of
investigating or defending any alleged loss, claim, damage, liability
or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified Parties
may become subject under any statute or regulation, or at common law
or otherwise, insofar as such Losses are related to the sale or
acquisition of Trust Shares or the Contracts and
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in the
Contracts themselves or in sales literature generated or approved
by the Company on behalf of the Contracts or Accounts (or any
amendment or supplement to any of the foregoing) (collectively,
"Company Documents" for the purposes of this Article V), or arise
out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this indemnity shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived
from written information furnished to the Company by or on behalf
of the Trust for use in Company Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(ii) arise out of or result from statements or
representations (other than statements or representations
contained in and accurately derived from Trust Documents as
defined in Section 5.2 (a)(i)) or wrongful conduct of the Company
or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
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(iii) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a)(i) or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance
upon and accurately derived from written information furnished to
the Trust by or on behalf of the Company; or
(iv) arise out of or result from any failure by the Company
to provide the services or furnish the materials required under
the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
(b) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Company in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall not
relieve the Company from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action
is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action.
After notice from the Company to such party of the Company's election
to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.
(c) The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the
Contracts or the operation of the Trust.
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5.2 INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter agrees to indemnify and hold harmless the
Company, the underwriter of the Contracts and each of its directors
and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 5.2) against any
and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or
litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related
to the sale or acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statements of any material fact contained in the
Registration Statement, prospectus or sales literature of the
Trust (or any amendment or supplement to any of the foregoing)
(collectively, the "Trust Documents") or arise out of or are
based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission of such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Trust by or on behalf
of the Company for use in the Registration Statement or
prospectus for the Trust or in sales literature (or any amendment
or supplement) or otherwise for use in connection with the sale
of the Contracts or Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature for the Contracts not supplied by the Underwriter or
persons under its control) or wrongful conduct of the Trust,
Adviser or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Trust
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements
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therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on
behalf of the Trust; or
(iv) arise as a result of any failure by the Trust to
provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the qualification
representation specified in Section 3.7 of this Agreement and the
diversification requirements specified in Section 3.6 of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter; as limited by and in
accordance with the provisions of Sections 5.2(b) and 5.2(c)
hereof.
(b) The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or
to each Company or the Account, whichever is applicable.
(c) The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Underwriter in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Underwriter of any
such claim shall not relieve the Underwriter from any liability which
it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties,
the Underwriter will be entitled to participate, at its own expense,
in the defense thereof. The Underwriter also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the Underwriter will not be liable to such
party under this Agreement for
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<PAGE>
any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
5.3 INDEMNIFICATION BY THE TRUST
(a) The Trust agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section
5.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Trust) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from
the gross negligence, bad faith or willful misconduct of the Board or
any member thereof, are related to the operations of the Trust, and
arise out of or result from any material breach of any representation
and/or warranty made by the Trust in this Agreement or arise out of or
result from any other material breach of this Agreement by the Trust;
as limited by and in accordance with the provisions of Section 5.3(b)
and 5.3(c) hereof. It is understood and expressly stipulated that
neither the holders of shares of the Trust nor any Trustee, officer,
agent or employee of the Trust shall be personally liable hereunder,
nor shall any resort to be had to other private property for the
satisfaction of any claim or obligation hereunder, but the Trust only
shall be liable.
(b) The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against any Indemnified Party as such
may arise from such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to the
Company, the Trust, the Underwriter or each Account, whichever is
applicable.
(c) The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Trust in writing
within a reasonable time after the summons or other first legal
process giving information of the nature of the claims shall have been
served upon such Indemnified Party (or
15
<PAGE>
after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the Trust of
any such claim shall not relieve the Trust from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the Trust
will be entitled to participate, at its own expense, in the defense
thereof. The Trust also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action.
After notice from the Trust to such party of the Trust's election to
assume the defense thereof, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the Trust
will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
(d) The Company and the Underwriter agree promptly to notify the
Trust of the commencement of any litigation or proceedings against it
or any of its respective officers or directors in connection with this
Agreement, the issuance or sale of the Contracts, with respect to the
operation of either the Account, or the sale or acquisition of share
of the Trust.
ARTICLE VI.
TERMINATION
6.1 This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios or any reason by sixty (60) days advance
written notice delivered to the other parties, and shall terminate immediately
in the event of its assignment, as that term is used in the 1940 Act.
6.2 Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares of any
Portfolio and redeem shares of any Portfolio pursuant to the terms and
conditions of this Agreement for all Contracts in effect on the effective date
of termination of this Agreement.
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.10 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
6.4 This Agreement may be terminated immediately by either the Trust or
the Underwriter upon written notice to the Company if:
(a) either one or both of the Trust or the
Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a material
adverse change in its business,
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<PAGE>
operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(b) if the Company gives the Trust and the
Underwriter the written notice specified in Section 1.10 hereof and at
the same time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement; provided,
however, that any termination under this Section 6.4(b) shall be
effective forty-five (45) days after the notice specified in Section
1.10 was given.
6.5 This Agreement may be terminated immediately by the Company upon
written notice to the Trust and the Underwriter, if the Company shall determine,
in its sole judgment exercised in good faith, that either the Trust or the
Underwriter has suffered a material adverse change in its business, operations,
financial conditions or prospects since the date of this Agreement or is the
subject of material adverse publicity.
6.6 The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the Commission pursuant to Section 26(b) of the 1940
Act. Upon request, the Company will promptly furnish to the Trust and the
Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Trust and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Trust or the Underwriter 90 days notice of its intention to do so.
ARTICLE VII.
NOTICES.
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund or the Underwriter:
Templeton Variable Products Series Fund or
Franklin Templeton Distributors, Inc.
700 Central Avenue
St. Petersburg, FL 33701
Attention: Thomas M. Mistele, Secretary
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<PAGE>
If to the Company:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, CT 06152-2321
Attention: Robert A. Picarello, Chief Counsel
Individual Insurance Operations
ARTICLE VIII.
MISCELLANEOUS
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Connecticut.
It shall also be subject to the provisions of the federal securities laws and
the rules and regulations thereunder and to any orders of the Commission
granting exemptive relief therefrom and the conditions of such orders. Copies
of any such orders shall be promptly forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission, the
National Association of Securities Dealers, Inc. and state insurance regulators)
and shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect, except as provided in Section
1.10.
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<PAGE>
8.9 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Fund Participation Agreement as of the date and year
first above written.
The Company:
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By its authorized officer
By: /s/Roy H Bubbs
-----------------------------------
Name: Roy H. Bubbs
Title: Senior Vice President
The Trust:
TEMPLETON VARIABLE PRODUCTS SERIES FUND
By its authorized officer
By: /s/Thomas M. Mistele
-----------------------------------
Name: Thomas M. Mistele
Title: Secretary
The Underwriter:
FRANKLIN TEMPLETON DISTRIBUTORS, INC.
By its authorized officer
By: /s/Thomas M. Mistele
-----------------------------------
Name: Thomas M. Mistele
Title: Vice President
19
<PAGE>
SCHEDULE A
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
OF
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
OF
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
SCHEDULE B
For CG Variable Life Insurance Separate Account II:
Templeton Asset Allocation Fund
Templeton International Fund
Templeton Stock Fund
For CG Corporate Insurance Variable Life Separate Account 02:
Templeton International Fund
SCHEDULE C
For CG Variable Life Insurance Separate Account II:
Flexible Premium Variable Life Policy
Form Nos. LN 605, LN 615, LN 616, LN 617
and state variations thereof
For CG Corporate Insurance Variable Life Separate Account 02:
Flexible Premium Variable Life Insurance Policy
Form No. LN 620 and state variations thereof
<PAGE>
SCHEDULE D
For CG Variable Life Insurance Separate Account II:
AIM VARIABLE INSURANCE FUND, INC.
Capital Appreciation Fund, Growth Fund, Value Fund and
Diversified Income Fund
CIGNA VARIABLE PRODUCTS GROUP
CIGNA Variable Products Money Market Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Equity-Income Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio
Investment Grade Bond Portfolio
MFS VARIABLE INSURANCE TRUST
MFS Total Return Series
MFS Utilities Series
MFS World Governments Series
OCC ACCUMULATION TRUST
Global Equity Portfolio
Managed Portfolio
Small Cap Portfolio
For CG Corporate Insurance Variable Life Separate Account 02:
ALGER AMERICAN FUND
Small Cap Portfolio
Midcap Growth Portfolio
Growth Portfolio
CIGNA VARIABLE PRODUCTS GROUP
CIGNA Variable Products Money Market Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
High Income Portfolio
Equity-Income Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Investment Grade Bond Portfolio
Index 500 Portfolio
JANUS ASPEN SERIES TRUST
Short Term Bond Portfolio
Worldwide Growth Portfolio
MFS VARIABLE INSURANCE TRUST
Emerging Growth Portfolio
Total Return Portfolio
OCC ACCUMULATION TRUST
Small Cap Portfolio
Managed Portfolio
Equity Portfolio
<PAGE>
FUND PARTICIPATION AGREEMENT
AMONG
QUEST FOR VALUE ACCUMULATION TRUST,
QUEST FOR VALUE DISTRIBUTORS, and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THIS AGREEMENT is made this 3rd day of April, 1995, by and among Quest
for Value Accumulation Trust (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust, Connecticut General Life
Insurance Company, a life insurance company organized as a corporation under
the laws of the State of Connecticut (the "Company"), on its own behalf and
on behalf of each segregated asset account of the Company set forth in
Schedule A, as may be amended from time to time (the "Accounts"), and Quest
for Value Distributors, a Delaware general partnership, the Trust's
Underwriter (the "Underwriter").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts to be offered by life insurance
companies which have entered into fund participation agreements with the Trust
substantially identical to this Agreement (the "Participating Insurance
Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into
several series of shares, each series representing an interest in a particular
managed portfolio of securities and other assets, and certain of those series
named in Schedule B (the "Portfolios") are to be made available for purchase by
the Company for the Accounts;
WHEREAS, the Trust has obtained an order from the Commission granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts relief from the provisions of Sections 9(a),
13(a), 15(a), and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and
6e3-(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Trust to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated Participating Insurance
Companies and qualified pension and retirement plans (hereinafter the "Mixed
and Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolution of the Board of Directors of the Company
under the insurance laws of the State of Connecticut, to set aside and invest
assets attributable to the Contracts;
<PAGE>
WHEREAS, the Underwriter is registered as a broker dealer with the
Commission under the Securities Exchange Act of 1934, as amended (the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealer, Inc. (the "NASD");
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised;
WHEREAS, the Company desires to use shares of the Portfolios named in
Schedule B as investment vehicles for the Accounts and the Underwriter is
authorized to sell such shares to the Accounts at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
1.1. For purposes of this Article I, the Company shall be the Trust's
agent for the receipt from each Account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio, provided that
the Company notifies the Trust of such purchase orders and requests for
redemption by 9:30 a.m. Eastern time on the next following Business Day, as
defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the
Accounts at the net asset value next computed after receipt and acceptance of a
purchase order by the Trust (or its agent), as established in accordance with
the provisions of the then current prospectus of the Trust describing Portfolio
purchase procedures. The Company will transmit orders from time to time to the
Trust for the purchase and redemption of shares of the Portfolios. The Trustees
of the Trust (the "Trustees") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
if, in the sole discretion of the Trustees acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, such action
is deemed in the best interests of the shareholders of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on
behalf of an Account with federal funds to be transmitted by wire to the Trust,
with the reasonable expectation of receipt by the Trust by 2:00 p.m. Eastern
time on the next Business Day after the Trust (or its agent) receives the
purchase order. Upon receipt by the Trust of the federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Commission.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt
2
<PAGE>
and acceptance by the Trust (or its agent) of the request for redemption, as
established in accordance with the provisions of the then current prospectus of
the Trust describing Portfolio redemption procedures. The Trust shall make
payment for such shares in the manner established from time to time by the
Trust. Proceeds of redemption with respect to a Portfolio will normally be paid
to the Company for an Account in federal funds transmitted by wire to the
Company by order of the Trust with the reasonable expectation of receipt by the
Company by 2:00 p.m. Eastern time on the next Business Day after the receipt by
the Trust (or its agent) of the request for redemption. Such payment may be
delayed if, for example, the Portfolio's cash position so required or if
extraordinary market conditions exist, but in no event shall payment be delayed
for a greater period than is permitted by the 1940 Act. Neither the Trust nor
the Underwriter shall bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds; the Company alone shall be
responsible for such action.
1.5. Payments for the purchase of shares of the Trust's Portfolios by
the Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 on any Business Day may be netted against
one another for the purpose of determining the amount of any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by
book entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in the
appropriate title for each Account or the appropriate subaccount of each
Account.
1.7. The Trust shall furnish, as reasonably practicable, on or before
the ex-dividend date, notice to the Company of any income dividends or
capital gain distributions payable on the shares of any Portfolio of the
Trust. The Company hereby elects to receive all such income dividends and
capital gain distributions as are payable on a Portfolio's shares in
additional shares of that Portfolio. The Trust shall notify the Company of
the number of shares so issued as payment of such dividends and distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on
each Business Day, as defined in Section 1.3. The Trust shall make the net
asset value per share for each Portfolio available to the Company or its
designated agent on a daily basis as soon as reasonably practical after the net
asset value per share is calculated and shall use its best efforts to make such
net asset value per share available to the Company by 6:30 p.m. Eastern time
each Business Day.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts and to
certain qualified pension and retirement plans to the extent permitted under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and the Mixed and Shared Funding Exemptive Order. No shares of any
Portfolio will be sold directly to the general public. The Company agrees that
it will use Trust shares only for the purposes of funding the Contracts through
the Accounts listed in Schedule A, as amended from time to time.
3
<PAGE>
1.10. The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.9 and
Article IV of this Agreement.
ARTICLE II.
OBLIGATIONS OF THE PARTIES
2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration and
qualification of shares of the Portfolios, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
2.2. At the option of the Company, the Trust and/or the Underwriter
shall either (a) provide the Company with as many copies of portions of the
Trust's current prospectus, annual report, semi-annual report and other
shareholder communications, including any amendments or supplements to any of
the foregoing, pertaining specifically to the Portfolios as the Company shall
reasonably request; or (b) provide the Company with a camera ready copy of such
documents in a form suitable for printing and from which information relating to
each of the series of the Trust other than the Portfolios has been deleted to
the extent practicable. Should the Company wish to print any such document in a
different format than that provided by the Trust, the Company shall bear the
cost of any format change. The Trust shall provide the Company with a copy of
its current statement of additional information, including any amendments or
supplements, in a form suitable for duplication by the Company. The Trust (at
its expense) shall provide the Company with copies of any Trust-sponsored proxy
materials in such quantity as the Company shall reasonably require for
distribution to Contract owners.
2.3. The Trust and/or the Underwriter shall bear its proportionate share
of the costs of printing and distributing documents including the Trust's
prospectus, shareholder reports and other shareholder communications to owners
of Contracts for which a Portfolio or Portfolios of the Trust is serving or may
serve as an investment vehicle, using the number of pages as a guide. The
Company will use its best efforts to control those costs, will submit bills
therefor to the Trust for reimbursement, and will advise the Trust semi-annually
of how many Contract owners are using the Trust as a funding vehicle. The
Company shall bear the costs of distributing proxy materials (or similar
materials such as voting solicitation instructions) and statements of additional
information to Contract owners, as well as printing and distribution costs
relating to prospective owners of Contracts. The Company assumes sole
responsibility for ensuring that such materials are delivered to Contract owners
in accordance with applicable federal and state securities laws.
2.4. The Company agrees and acknowledges that Oppenheimer Capital is the
sole owner of the name and mark "Quest for Value" and that all use of any
designation comprised in whole or part of such name or mark under this Agreement
shall inure to the benefit of Oppenheimer Capital. Except as provided in
Section 2.5, the Company shall not use any such name or mark on its own behalf
or on behalf of the Accounts or Contracts in any registration statement,
advertisement, sales literature or
4
<PAGE>
other materials relating to the Accounts or Contracts without the prior written
consent of Oppenheimer Capital. Upon termination of this Agreement for any
reason, the Company shall cease all use of any such name or mark as soon as
reasonably practicable.
2.5. The Company shall furnish, or cause to be furnished, to the Trust
or its designee a copy of each Contract prospectus or statement of additional
information describing the Contracts, each report to Contract owners, proxy
statement, application for exemption or request for no-action letter that relate
to the Trust or its shares and/or in which the Trust, Underwriter or the Trust's
Adviser is named contemporaneously with the filing of such document with the
Commission. The Company shall furnish, or shall cause to be furnished, to the
Trust or the Underwriter or their designee each piece of sales literature or
other promotional material in which the Trust, Underwriter or the Trust's
Adviser is named, at least five Business Days prior to its use. No such
material shall be used if the Trust or its designee reasonably objects to such
use within five Business Days after receipt of such material.
2.6. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
Underwriter or the Trust's Adviser in connection with the sale of the Contracts
other than information or representations contained in and accurately derived
from the registration statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or supplemented from time
to time), annual and semi-annual reports of the Trust, Trust-sponsored proxy
statements, or in sales literature or other promotional material approved by the
Trust or by the Underwriter or their designee, except as required by legal
process or regulatory authorities or with the written permission of the Trust or
the Underwriter or their respective designees. The Trust and the Underwriter
agree to respond to any request for approval on a prompt and timely basis. The
Company shall adopt and implement procedures reasonably designed to ensure that
"broker only" materials including information therein about the Trust,
Underwriter or the Trust's Adviser are not distributed to existing or
prospective Contract owners.
2.7. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios, the
Underwriter and the Trust's Adviser, in such form as the Company may reasonably
require, as the Company shall reasonably request in connection with the
preparation of registration statements, prospectuses and annual and semi-annual
reports pertaining to the Contracts.
2.8. The Trust and the Underwriter shall not give, and agree that no
affiliate of either of them shall give, any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Contracts (as such registration statement and
prospectus may be amended or supplemented from time to time), or in materials
approved by the Company for distribution including sales literature or other
promotional materials, except as required by legal process or regulatory
authorities or with the written permission of the Company. The Company
agrees to respond to any request for approval on a prompt and timely basis.
5
<PAGE>
2.9. So long as, and to the extent that, the Commission interprets the
1940 Act to require pass-through voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners whose
cash values are invested, through the registered Accounts, in shares of one
or more Portfolios of the Trust. Participating Insurance Companies shall be
responsible for assuring that each of their segregated accounts calculates
voting privileges in a manner consistent with all other Participating
Insurance Companies. With respect to each registered Account, the Company
will (i) solicit voting instructions from Contract owners; (ii) vote the
shares of each Portfolio of the Trust held by a registered Account in
accordance with instructions received from Contract owners; and (iii) vote
shares of each Portfolio of the Trust held by a registered Account and for
which no timely voting instructions from Contract owners are received in the
same proportion as those shares for which voting instructions are received.
The Company and its agents will in no way recommend or oppose or interfere
with the solicitation of proxies for Portfolio shares held to find the
Contracts without the prior written consent of the Trust, which consent may
be withheld in the Trust's sole discretion. The Company reserves the right,
to the extent permitted by law, to vote shares held in any Account in its
sole discretion.
2.10. The Company and the Trust will each provide to the other
information about the results of any regulatory examination relating to the
Contracts or the Trust, including relevant portions of any "deficiency letter"
and any response thereto.
2.11. No compensation shall be paid by the Trust to the Company, or by
the Company to the Trust, under this Agreement (except for specified expense
reimbursements). However, nothing herein shall prevent the parties hereto from
otherwise agreeing to perform, and arranging for appropriate compensation for,
other services relating to the Trust, the Accounts or both.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Connecticut
and that it has legally and validly established each Account as a segregated
asset account under such law as of the date set forth in Schedule A, and that
CIGNA Financial Advisors, Inc., the principal underwriter for the Contracts, is
registered as a broker-dealer under the 1934 Act and is a member in good
standing of the NASD.
3.2. The Company represents and warrants that it has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act and
cause each Account to remain so registered to serve as a segregated asset
account for the Contracts, unless an exemption from registration is available.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is available
prior to any issuance or sale of the Contracts; the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance law suitability requirements.
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3.4. The Company represents that it believes that the Contracts are
currently and at the time of issuance will be treated as life insurance policies
or annuity contracts respectively, under applicable provisions of the Code and
that it will make every effort to maintain such treatment and that it will
notify the Trust and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
3.5. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and the rules
and regulations thereunder.
3.6. The Trust represents and warrants that the Portfolio shares offered
and sold pursuant to this Agreement will be registered under the 1933 Act and
sold in accordance with all applicable federal and state laws, and that the
Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust.
3.7. The Trust represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply
to the Trust. The Trust makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws and regulations of any
state. The Company alone shall be responsible for informing the Trust of any
insurance restrictions imposed by state insurance laws which are applicable
to the Trust. To the extent feasible and consistent with market conditions,
the Trust will adjust its investments to comply with the aforementioned state
insurance laws upon written notice from the Company of such requirements and
proposed adjustments, it being agreed and understood that in any such case
the Trust shall be allowed a reasonable period of time under the
circumstances after receipt of such notice to make any such adjustment.
3.8. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
immediately take all reasonable steps to adequately diversify the Portfolio to
achieve compliance within the grace period afforded by Regulation 1.817-5.
3.9. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
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3.10. The Trust represents and warrants that should it ever desire to make
any payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act, the Trustees, including a majority who are not "interested persons" of
the Trust under the 1940 Act ("disinterested Trustees"), will formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
3.11. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less than the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.12. The Underwriter is registered, and will remain registered, during the
term of this Agreement, as a broker dealer under the 1934 Act and is a member in
good standing of the NASD. Furthermore, the Underwriter represents that the
Trust's Adviser, Quest for Value Advisors, is duly organized and a validly
existing Delaware general partnership and that it is registered and will during
the term of the Agreement remain registered as an investment adviser under the
1940 Act.
ARTICLE IV.
POTENTIAL CONFLICTS
4.1. The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies and
qualified pension and retirement plans. In such event, the Trustees will
monitor the Trust for the existence of any material irreconcilable conflict
between the interests of the contract owners of all Participating Insurance
Companies. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) An action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax,
or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments
of any Portfolio are being managed; (e) a difference in voting instructions
given by variable annuity contract and variable life insurance contract
owners; or (f) a decision by an insurer to disregard the voting instructions
of contract owners. The Trust shall promptly inform the Company of any
determination by the Trustees that an irreconcilable material conflict
exists and of the implications thereof. A majority of the Board of Trustees
of the Trust shall consist of persons who are not "interested" persons of the
Trust.
4.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular has reviewed and agrees to comply with the
conditions to the requested relief set forth therein. As set forth in the Mixed
and Shared Funding Exemptive Order, the Company agrees to promptly report any
potential or existing conflicts of which it is aware to the Trustees. The
Company will assist the Trustees in carrying out their responsibilities as
delineated in the Mixed and Shared Funding Exemptive Order, by providing the
Trustees with all information reasonably necessary for and requested by the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions. All communications from the Company to the Trustees may be made in
care of the Trust. The Board of
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Trustees shall record in its minutes or other appropriate records, all reports
received by it and all action with regard to a conflict.
4.3. If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees) take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, which steps could
include: (a) withdrawing the assets allocable to some or all of the Accounts
from the Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Trust, or submitting the question of whether or not such segregation should be
implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Contact owners the option of making such a change; and
(b) establishing a new registered management investment company or managed
separate account.
4.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trustees inform the
Company in writing that the Trust has determined that such decision has created
an irreconcilable material conflict, provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Until the end of such six (6) month period, the Trust shall continue
to accept and implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any material funding irreconcilable conflict, but in no
event will the Trust be required to establish new funding medium for the
Contracts. In the event that the Trustees determine that any proposed action
does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's
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investment in the Trust and terminate this Agreement within six (6) months after
the Trustees inform the Company in writing of the foregoing determination;
provided, however, that such withdrawal and termination shall be limited to the
extent required by such material irreconcilable conflict as determined by a
majority of the disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them as delineated in the
Mixed and Shared Funding Exemptive Order, and said reports, materials and data
shall be submitted more frequently if reasonably deemed appropriate by the
Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act or the
rules promulgated thereunder with respect to mixed or shared funding (as defined
in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rule
6e-3(T), as amended, or Rule 6e-3, as adopted, to the extent such rules are
applicable.
ARTICLE V.
INDEMNIFICATION
5.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless the Trust, the Underwriter, and each of the Trust's and the
Underwriter's Trustees, officers, employees and agents and each person, if
any, who controls or is associated with the Trust or the Underwriter within
the meaning of such terms under the federal securities laws (collectively,
the "Indemnified Parties" for purposes of this Article V) against any and all
losses, claims, damages, liabilities, joint or several, (including amounts
paid in settlement with the written consent of the Company, which consent
shall not be unreasonably withheld) or expenses (including the reasonable
costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in collection
therewith)(collectively, "Losses"), to which the Indemnified Parties may
become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Contracts or in the Contracts themselves or
in sales literature generated or approved by the Company on behalf of the
Contracts or Accounts (or any amendment or supplement to any of the
foregoing)(collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that
this indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and was accurately derived from written information
furnished to the Company by or on behalf of the Trust for use
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in Company Documents or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust Documents as defined
in Section 5.2(a) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information furnished to
the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company.
5.2. INDEMNIFICATION BY THE UNDERWRITER. The Underwriter, on its own
behalf and on behalf of the Trust, agrees to indemnify and hold harmless the
Company and each of its directors, officers, employees, and agents and each
person, if any, who controls or is associated with the Company within the
meaning of the federal securities laws (collectively, the "Indemnified
Parties" for the purposes of this Article V) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Underwriter, which consent shall not be unreasonably
withheld) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith) (collectively, "Losses"),
to which the Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement
thereto), (collectively, "Trust Documents" for the purposes of this Article
V), or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this indemnity
shall not apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the Trust or the
Underwriter by or on behalf of the Company for use in Trust Documents or
otherwise for use in connection with the sale of the Contracts or Trust
shares; or
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(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Company Documents) by the Underwriter or the Trust or wrongful conduct of
the Underwriter or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Company Documents or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Company by or
on behalf of the Underwriter and the Trust; or
(d) arise out of or result from any failure by the Trust to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from the material breach of any
representation and/or warranty made by the Underwriter and the Trust in
this Agreement or arise out of or result from any other material breach of
this Agreement by the Underwriter and the Trust; or
(f) arise out of or result from the provision by the Trust to the
Company of no net asset value per share or an erroneous net asset value per
share on a given Business Day for any Portfolio, or from the failure of the
Trust to advise of a dividend or capital gains distribution as provided in
Section 1.7. The Company in such event shall be entitled to an adjustment
to the number of shares of any such Portfolio purchased or redeemed to
reflect the correct net asset value per share. Any error in the calculation
or reporting of net asset value per share, dividend or capital gains
distribution information shall be reported promptly upon discovery to the
Company.
5.3. Neither the Company nor the Underwriter on its behalf and on behalf
of the Trust shall be liable under the indemnification provisions of Sections
5.1 or 5.2, as applicable, with respect to any Losses incurred or assessed
against an Indemnified Party that arise from such Indemnified Party's willful
misfeasance, bad faith or negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
5.4. Neither the Company nor the Underwriter on its behalf and on
behalf of the Trust shall be liable under the indemnification provisions of
Sections 5.1 or 5.2, as applicable, with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the other
party in writing within a reasonable time after the summons, or other first
written notification, giving information of the nature of the claim shall
have been served upon or otherwise received by such Indemnified Party (or
after such Indemnified Party shall have received notice of service upon or
other notification to any designated agent), but failure to notify the party
against whom indemnification is sought of any such claim or shall not relieve
that party from any liability which it may have to the Indemnified Party in
the absence of Sections 5.1 and 5.2.
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5.5. In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the Indemnified
Party of an election to assume such defense, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
ARTICLE VI.
TERMINATION
6.1. This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios for any reason by sixty (60) days advance
written notice delivered to the other parties, and shall terminate immediately
in the event of its assignment.
6.2. Notwithstanding any termination of this Agreement, the Trust shall,
at the option of the Company, continue to make available additional shares of
any Portfolio and redeem shares of any Portfolio pursuant to the terms and
conditions of this Agreement for all Contracts in effect on the effective date
of termination of this Agreement for a period that is reasonable under the
circumstances but need not be for more than 90 days.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.9 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII.
NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or the Underwriter:
Mr. Bernard H. Garil
President
Quest for Value Advisors
New York, NY 10281
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If to the Company:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, CT 06152
Attention: Robert A. Picarello, Chief Counsel,
Individual Insurance Operations
ARTICLE VIII.
MISCELLANEOUS
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the Commission granting
exemptive relief therefrom and the conditions of such orders. Copies of any such
orders shall be promptly forwarded by the parties to each other.
8.5. All liabilities of the Trust arising, directly or indirectly, under
this Agreement, of any and every nature whatsoever, shall be satisfied solely
out of the assets of the Trust and that no Trustee, officer, agent or holder of
shares of beneficial interest of the Trust shall be personally liable for any
such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission, the NASD
and state insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8. This Agreement shall not be exclusive in any respect.
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8.9. Neither this Agreement nor any rights or obligations hereunder may
be assigned by any party hereto without the prior written approval of all the
parties.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by all the
parties.
8.11. Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, treat as confidential the names and addresses of
the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto, and shall not disclose such
confidential information without the written consent of the affected party
unless such information has become publicly available.
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IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
Quest for Value Distributors
By: /s/Thomas E. Duggan
--------------------------------
Name: Thomas E. Duggan
Title: Secretary
Quest for Value Accumulation Trust
By: /s/Bernard H. Garil
--------------------------------
Name: Bernard H. Garil
Title: Vice President
Connecticut General Life Insurance Company
By: /s/Roy H. Bubbs
--------------------------------
Name: Roy H. Bubbs
Title: Senior Vice President
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SCHEDULE A
to
FUND PARTICIPATION AGREEMENT
AMONG
QUEST FOR VALUE ACCUMULATION TRUST,
QUEST FOR VALUE DISTRIBUTORS, and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
dated April 3, 1995
- CG Variable Annuity Separate Account II
- CG Variable Life Insurance Separate Account I
- CG Variable Life Insurance Separate Account II
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SCHEDULE B
to
FUND PARTICIPATION AGREEMENT
AMONG
QUEST FOR VALUE ACCUMULATION TRUST,
QUEST FOR VALUE DISTRIBUTORS, and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
dated April 3, 1995
- Quest for Value Accumulation Trust Global Equity Portfolio
- Quest for Value Accumulation Trust Managed Portfolio
- Quest for Value Accumulation Trust Small Cap Portfolio
18
