<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 1996
1933 Act Registration No. 33-90984
1940 Act Registration No. 811-9014
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 1 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 4 /X/
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
(EXACT NAME OF REGISTRANT)
CIGNA 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
<TABLE>
<S> <C>
COPIES TO:
Robert A. Picarello, Esquire George N. Gingold, Esquire
CIGNA Life Insurance Company 197 King Philip Drive
900 Cottage Grove Road West Hartford, CT 06117-1409
Hartford, Connecticut 06152 Michael Berenson, Esq.
(NAME AND ADDRESS OF Margaret Hankard, Esq.
AGENT FOR SERVICE) Jorden Burt Berenson & Johnson
Suite 400 East
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007-0805
</TABLE>
Approximate date of proposed public offering: Continuous
An indefinite amount of the securities offered by this 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
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- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 481
SHOWING LOCATION IN PART A (PROSPECTUS) AND
PART B (STATEMENT OF ADDITIONAL INFORMATION)
OF REGISTRATION STATEMENT OF INFORMATION REQUIRED BY FORM N-4
PART A
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
1. Cover Page........................................ Cover Page
2. Definitions....................................... Definitions
3. Synopsis.......................................... Highlights; Fees and Expenses
4. Condensed Financial Information................... Condensed Financial Information
5. General
(a) Depositor..................................... The Company and the Variable Account
(b) Registrant.................................... The Company and the Variable Account
(c) Portfolio Company............................. The Funds
(d) Fund Prospectus............................... The Funds
(e) Voting Rights................................. The Funds -- Voting Rights
6. Deductions and Expenses
(a) General....................................... Charges and Deductions
(b) Sales Load %.................................. Charges and Deductions -- Contingent Deferred Sales
Charge (Sales Load)
(c) Special Purchase Plan......................... N/A
(d) Commissions................................... Distribution of the Contracts
(e) Fund Expenses................................. Fees and Expenses -- Fund Portfolio Annual Expenses
(f) Organizational Expenses....................... N/A
7. Contracts
(a) Persons with Rights........................... Other Contract Features (Ownership Assignment,
Beneficiary, Change of Beneficiary, Annuitant,
Surrenders and Partial Withdrawals, Death of Contract
Owner, Death of Annuitant); Annuity Provisions; Voting
Rights
(b) (i) Allocation of Premium Payments............ Premium Payments and Contract Value -- Allocation of
Premium Payments
(ii) Transfers.................................... Transfer of Contract Values Between Sub-Accounts
(iii) Exchanges................................... N/A
(c) Changes....................................... Modification; Substitution of Securities; Change in
Operation of Variable Account
(d) Inquiries..................................... Cover Page; Highlights
8. Annuity Period.................................... Annuity Provisions
9. Death Benefit..................................... Death of the Contract Owner; Death of the Annuitant;
Optional Death Benefit
10. Purchase and Contract Values
(a) Purchases..................................... Premium Payments
(b) Valuation..................................... Contract Value; Accumulation Unit;
(c) Daily Calculation............................. Accumulation Unit; Allocation of Premium Payments
(d) Underwriter................................... Distribution of the Contracts
11. Redemptions
(a) By Owners..................................... Surrenders
By Annuitant...................................... Annuity Provisions -- Variable Options
(b) Texas ORP..................................... N/A
(c) Check Delay................................... Delay of Payments and Transfers
(d) Lapse......................................... N/A
(e) Free Look..................................... Highlights
12. Taxes............................................. Tax Matters
13. Legal Proceedings................................. Legal Proceedings
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
14. Table of Contents for the Statement of Additional
Information...................................... Table of Contents of the Statement of Additional
Information
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM OF FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
15. Cover Page........................................ Cover Page
16. Table of Contents................................. Table of Contents
17. General Information and History................... a) N/A
b) N/A
c) (Prospectus) The Company and The Variable Account;
The Fixed Account
18. Services
(a) Fees and Expenses of Registrant............... N/A
(b) Management Contracts.......................... N/A
(c) Custodian..................................... Custody of Assets
Independent Accountant............................ Experts
(d) Assets of Registrant.......................... N/A
(e) Affiliated Person............................. N/A
(f) Principal Underwriter......................... N/A
19. Purchase of Securities Being Offered.............. Distribution of the Contracts
Offering Sales Load............................... Distribution of the Contracts; (Prospectus) Charges and
Deductions -- Contingent Deferred Sales Charge (Sales
Load)
20. Underwriters...................................... Distribution of the Contracts; (Prospectus) Distribution
of the Contracts
21. Calculation of Performance Data................... Investment Experience; Historical Performance Data
22. Annuity Payments.................................. (Prospectus) Annuity Provisions
23. Financial Statements.............................. Financial Statements
</TABLE>
PART C -- OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PART C CAPTION
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
24. Financial Statements and Exhibits................. Financial Statements and Exhibits
(a) Financial Statements.......................... Financial Statements
(b) Exhibits...................................... Exhibits
25. Directors and Officers of the Depositor........... Directors and Officers of the Depositor
26. Persons Controlled By or Under Common Control with
the Depositor or Registrant...................... Persons Controlled By or Under Common Control with the
Depositor or Registrant
27. Number of Owners.................................. Number of Owners
28. Indemnification................................... Indemnification
29. Principal Underwriters............................ Principal Underwriter
30. Location of Accounts and Records.................. Location of Accounts and Records
31. Management Services............................... Management Services
32. Undertakings...................................... Undertakings
Signature Page.................................... Signatures
</TABLE>
ii
<PAGE>
PART A. PROSPECTUS
<PAGE>
CIGNA LIFE INSURANCE COMPANY
[LOGO]
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
<TABLE>
<S> <C>
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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FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS
- --------------------------------------------------------------------------------
The Flexible Payment Deferred Variable Annuity Contracts (the "Contracts")
described in this prospectus provide for accumulation of Contract Values and
eventual payment of monthly annuity payments on a fixed or variable basis. The
Contracts are designed to aid individuals in long term planning for retirement
or other long term purposes. The Contracts are available for retirement plans
which do not qualify for the special federal tax advantages available under the
Internal Revenue Code ("Non-Qualified Plans") and for retirement plans which do
qualify for the federal tax advantages available under the Internal Revenue Code
("Qualified Plans"). (See "Tax Matters -- Qualified Plans.") Premium payments
for the Contracts will be allocated to a segregated investment account of CIGNA
Life Insurance Company (the "Company"), designated CIGNA Variable Annuity
Separate Account I (the "Variable Account"), or to the Fixed Account, or some
combination of them, as selected by the owner of the Contract.
The following funding options are available under a Contract: Through the
Variable Account, the Company offers nineteen diversified open-end management
investment companies (commonly called mutual funds), each with a different
investment objective: Alger American Fund -- Alger American Small Capitalization
Portfolio, Alger American Leveraged AllCap Portfolio, Alger American MidCap
Growth Portfolio and Alger American Growth Portfolio; Fidelity Variable
Insurance Products Fund -- Equity-Income Portfolio, Money Market Portfolio, High
Income Portfolio and Overseas Portfolio; Fidelity Variable Insurance Products
Fund II -- Investment Grade Bond Portfolio and Asset Manager Portfolio;
MFS-Registered Trademark- Variable Insurance Trust -- MFS Total Return Series,
MFS Utilities Series and MFS World Governments Series; Neuberger & Berman
Advisers Management Trust -- Balanced Portfolio, Limited Maturity Bond Portfolio
and Partners Portfolio; OCC Accumulation Trust -- Global Equity Portfolio,
Managed Portfolio and Small Cap Portfolio. The fixed interest option offered
under a Contract is the Fixed Account. Premium payments or transfers allocated
to the Fixed Account, and 3% interest per year thereon, are guaranteed, and
additional interest may be credited, with certain withdrawals subject to a
market value adjustment and withdrawal charges. Unless specifically mentioned,
this prospectus only describes the variable investment options.
This entire prospectus, and those of the Funds, should be read carefully
before investing to understand the Contracts being offered. The "Statement of
Additional Information" dated May 1, 1996, available at no charge by calling or
writing the Company's Annuity & Variable Life Services Center as shown above,
provides further information. Its table of contents is at the end of this
prospectus.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES
OF THE MUTUAL FUNDS AVAILABLE AS FUNDING OPTIONS FOR THE CONTRACTS 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>
<CAPTION>
CONTENTS PAGE
<S> <C>
DEFINITIONS.................................... 3
HIGHLIGHTS..................................... 5
FEES AND EXPENSES.............................. 7
CONDENSED FINANCIAL INFORMATION................ 11
THE COMPANY AND THE
VARIABLE ACCOUNT.............................. 11
THE FUNDS...................................... 11
General...................................... 14
Substitution of Securities................... 14
Voting Rights................................ 15
PREMIUM PAYMENTS AND
CONTRACT VALUE................................ 15
Premium Payments............................. 15
Allocation of Premium Payments............... 15
Optional Variable Account Sub-Account
Allocation Programs......................... 16
Dollar Cost Averaging...................... 16
Automatic Rebalancing...................... 17
Contract Value............................... 17
Accumulation Unit............................ 18
CHARGES AND DEDUCTIONS......................... 18
Contingent Deferred Sales Charge (Sales
Load)....................................... 18
Mortality and Expense Risk Charge............ 19
Administrative Expense Charge................ 20
Account Fee.................................. 20
Premium Tax Equivalents...................... 20
Income Taxes................................. 21
Fund Expenses................................ 21
Transfer Fee................................. 21
Optional Death Benefit....................... 21
OTHER CONTRACT FEATURES........................ 23
Ownership.................................... 23
Assignment................................... 23
Beneficiary.................................. 23
Change of Beneficiary........................ 24
Annuitant.................................... 24
Transfer of Contract Values between
Sub-Accounts................................ 24
Procedures for Telephone Transfers........... 25
Surrenders and Partial Withdrawals........... 25
Delay of Payments and Transfers.............. 26
Death of the Contract Owner before the
Annuity Date................................ 26
Death of the Annuitant before the Annuity
Date........................................ 27
<CAPTION>
CONTENTS PAGE
<S> <C>
Death of the Annuitant after the
Annuity Date................................ 27
Change in Operation of Variable Account...... 27
Modification................................. 28
Discontinuance............................... 28
ANNUITY PROVISIONS............................. 28
Annuity Date; Change in Annuity Date and
Annuity Option.............................. 28
Annuity Options.............................. 28
Fixed Options................................ 29
Variable Options............................. 29
Evidence of Survival......................... 30
Endorsement of Annuity Payment............... 30
THE FIXED ACCOUNT.............................. 31
Market Value Adjustment...................... 33
DISTRIBUTION OF THE CONTRACTS.................. 34
PERFORMANCE DATA............................... 34
Money Market Sub-Account..................... 34
Other Sub-Accounts........................... 34
Performance Ranking or Rating................ 35
TAX MATTERS.................................... 35
General...................................... 35
Diversification.............................. 36
Distribution Requirements.................... 37
Multiple Contracts........................... 37
Tax Treatment of Assignments................. 37
Withholding.................................. 37
Section 1035 Exchanges....................... 38
Tax Treatment of Withdrawals -- Non-Qualified
Contracts................................... 38
Qualified Plans.............................. 38
Section 403(b) Plans......................... 39
Individual Retirement Annuities.............. 39
Corporate Pension and Profit-Sharing Plans
and H.R. 10 Plans........................... 39
Deferred Compensation Plans.................. 39
Tax Treatment of Withdrawals -- Qualified
Contracts................................... 40
FINANCIAL STATEMENTS........................... 40
LEGAL PROCEEDINGS.............................. 40
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION........................ 41
APPENDIX I..................................... 42
Illustration of Cost of Optional Death
Benefits.................................... 42
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION PERIOD: The period from the Effective Date to
the Annuity Date, the date on which the Death Benefit
becomes payable or the date on which the Contract is
surrendered or annuitized, whichever is earliest.
ACCUMULATION UNIT: A measuring unit used to calculate the
value of the Owner's interest in each funding option used in
the variable portion of the Contract prior to the Annuity
Date.
ANNUITANT: A person designated by the Owner in writing upon
whose continuation of life any series of payments for a
definite period or involving life contingencies depends. If
the Annuitant dies before the Annuity Date, the Owner
becomes the Annuitant until naming a new Annuitant.
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.
ANNUITY ACCOUNT VALUE: The value of the Contract at any
point in time.
ANNUITY DATE: The date on which annuity payments commence.
ANNUITY OPTION: The arrangement under which annuity payments
are made.
ANNUITY PERIOD: The period starting on the Annuity Date.
ANNUITY UNIT: A measuring unit used to calculate the portion
of annuity payments attributable to each funding option used
in the variable portion of the Contract on and after the
Annuity Date.
BENEFICIARY: The person entitled to the Death Benefit, who
must also be the "Designated Beneficiary", for purposes of
Section 72(s) of the Code, upon the Owner's death.
CODE: The Internal Revenue Code of 1986, as amended.
COMPANY: CIGNA Life Insurance Company.
CONTRACT: The Variable Annuity Contract described in this
prospectus.
CONTRACT ANNIVERSARY, CONTRACT YEAR, EFFECTIVE DATE: The
Contract's Effective Date is the date it is issued. It is
also the date on which the first Contract Year, a 12-month
period, begins. Subsequent Contract Years begin on each
Contract Anniversary, which is the anniversary of the
Effective Date.
CONTRACT MONTH: The period from one Monthly Anniversary Date
to the next.
CONTRACT OWNER (OR OWNER): The person(s) initially
designated in the application or order to purchase or
otherwise, unless later changed, as having all ownership
rights under the Contract.
FIXED ACCOUNT: The portion of the Contract under which
principal is guaranteed and interest is credited. Fixed
Account Assets are maintained in the Company's General
Account and not allocated to the Variable Account.
FIXED ANNUITY: An annuity with payments which do not vary as
to dollar amount.
FUND(S): One or more of Alger American Fund -- Alger
American Small Capitalization Portfolio, Alger American
Leveraged AllCap Portfolio, Alger American MidCap Growth
Portfolio and Alger American Growth Portfolio; Fidelity
Variable Insurance Products Fund -- Equity-Income Portfolio,
Money Market Portfolio, High Income Portfolio and Overseas
Portfolio; Fidelity Variable Insurance Products Fund II --
VIP II Investment Grade Bond Portfolio and VIP II Asset
Manager Portfolio; MFS-Registered Trademark- Variable
Insurance Trust -- MFS Total Return Series, MFS Utilities
Series and MFS World Governments Series; Neuberger & Berman
Advisers Management Trust -- Balanced Portfolio, Limited
Maturity Bond Portfolio and Partners Portfolio; OCC
Accumulation Trust -- Global Equity Portfolio,
3
<PAGE>
Managed Portfolio and Small Cap Portfolio. Each is an
open-end management investment company (mutual fund) whose
shares are available to fund the benefits provided by the
Contract.
GUARANTEED INTEREST RATE: The rate of interest credited by
the Company on a compound annual basis during a Guaranteed
Period.
GUARANTEED PERIOD: The period for which interest, at either
an initial or subsequent Guaranteed Interest Rate, will be
credited to any amounts which an Owner allocates to a Fixed
Account Sub-Account. In most states in which these Contracts
are issued, this period may be one, three, five, seven or
ten years, as elected by the Owner.
GUARANTEED PERIOD AMOUNT: Any portion of a Purchaser's
Annuity Account Value allocated to a specific Guaranteed
Period with a specified Expiration Date (including credited
interest thereon).
INDEX RATE: An index rate based on the Treasury Constant
Maturity Series published by the Federal Reserve Board.
IN WRITING: In a written form satisfactory to the Company
and received by the Company at its Annuity & Variable Life
Services Center.
MONTHLY ANNIVERSARY DATE: The monthly anniversary of the
Effective Date, as shown on the specifications page of the
Contract, when the Company makes the monthly calculation of
any charge for the Optional Death Benefit.
NON-QUALIFIED CONTRACTS: A Contract used in connection with
a retirement plan which does not receive favorable federal
income tax treatment under Code Section 401, 403, 408, or
457. The owner of a Non-Qualified Contract must be a natural
person or an agent for a natural person in order for the
Contract to receive favorable income tax treatment as an
annuity.
PAYEE: A recipient of payments under the Contract.
PREMIUM PAYMENT: Any amount paid to the Company cleared in
good funds as consideration for the benefits provided by the
Contract. Includes the initial Premium Payment and
subsequent Premium Payments.
QUALIFIED CONTRACT: A Contract used in connection with a
retirement plan which receives favorable federal income tax
treatment under Code Section 401, 403, 408 or 457.
SEVEN YEAR ANNIVERSARY: The seventh Contract Anniversary and
each succeeding Contract Anniversary occurring at any seven
year interval thereafter, for example, the 7th, 14th, 21st
and 28th Contract Anniversaries.
SHARES: Shares of a Fund.
SUB-ACCOUNT: That portion of the Fixed Account associated
with specific Guaranteed Period(s) and Guaranteed Interest
Rate(s) and that portion of the Variable Account which
invests in shares of a specific Fund.
SURRENDER (OR WITHDRAWAL): When a lump sum amount
representing all or part of the Annuity Account Value (minus
any applicable withdrawal charges, market value adjustment,
contract fees, and premium tax equivalents) is paid to the
Owner. After a full surrender, all of the Owner's rights
under the Contract are terminated. In this prospectus, the
terms "surrender" and "withdrawal" are used interchangeably.
SURRENDER DATE: The date the Company processes the Owner's
election to surrender the Contract or to receive a partial
withdrawal.
VALUATION DATE: Every day on which Accumulation Units are
valued, which is each day on which the New York Stock
Exchange ("NYSE") is open for business, except any day on
which trading on the NYSE is restricted, or on which an
emergency exists, as determined by the Securities and
Exchange Commission ("Commission"), so that valuation or
disposal of securities is not practicable.
4
<PAGE>
VALUATION PERIOD: The period of time beginning on the day
following the Valuation Date and ending on the next
Valuation Date. A Valuation Period may be more than one day
in length.
VARIABLE ACCOUNT: CIGNA Variable Annuity Separate Account I,
a separate account of the Company under Connecticut law, in
which the assets of the Sub-Account(s) funded through shares
of one or more of the Funds are maintained. Assets of the
Variable Account attributable to the Contracts are not
chargeable with the general liabilities of the Company.
VARIABLE ACCUMULATION UNIT: A unit of measure used in the
calculation of the value of each variable portion of the
Owner's Annuity Account during the Accumulation Period.
VARIABLE ANNUITY UNIT: A unit of measure used in the
calculation of the value of each variable portion of the
Owner's Annuity Account during the Annuity Period, to
determine the amount of each variable annuity payment.
HIGHLIGHTS
Premium Payments attributable to the variable portion of the
Contracts will be allocated to a segregated asset account of
CIGNA Life Insurance Company (the "Company") which has been
designated CIGNA Variable Annuity Separate Account I (the
"Variable Account"). The Variable Account invests in shares
of one or more of the Funds available to fund the Contract
as selected by the Owner. Contract Owners bear the
investment risk for all amounts allocated to the Variable
Account. The Contract's provisions may vary in some states.
Inquiries about the Contracts may be made to the Company's
Annuity & Variable Life Services Center.
The Contract may be returned within 10 days after it is
received, longer in some states. It can be mailed or
delivered to either the Company or the agent who sold it.
Return of the Contract by mail is effective on being
postmarked, properly addressed and postage prepaid. The
Company will promptly refund the Contract Value in states
where permitted. This may be more or less than the Premium
Payment. In states where required, the Company will promptly
refund the Premium Payment, less any partial surrenders. The
Company has the right to allocate initial Premium Payments
to the Money Market Sub-Account until the expiration of the
right-to-examine period. If the Company does so allocate an
initial Premium Payment, it will refund the greater of the
Premium Payment, less any partial surrenders, or the
Contract Value. It is the Company's current practice to
directly allocate the initial Premium Payment to the Fund(s)
designated in the application or order to purchase, unless
state law requires a refund of Premium Payments rather than
of Annuity Account Value.
A Contingent Deferred Sales Charge (sales load) may be
deducted in the event of a full surrender or partial
withdrawal. The Contingent Deferred Sales Charge is imposed
on Premium Payments within seven (7) years after their being
made. Contract Owners may, only once each Contract Year,
make a withdrawal of up to fifteen percent (15%) of Premium
Payments made, or any remaining portion thereof, ("the
Fifteen Percent Free") without incurring a Contingent
Deferred Sales Charge. The Contingent Deferred Sales Charge
will vary in amount, depending upon the Contract Year in
which the Premium Payment being surrendered or withdrawn was
made. For purposes of determining the applicability of the
Contingent Deferred Sales Charge, surrenders and withdrawals
are deemed to be on a first-in, first-out basis.
The Contingent Deferred Sales Charge is found in the fee
table. (See also "Charges and Deductions -- Contingent
Deferred Sales Charge (Sales Load).") The maximum Contingent
Deferred Sales Charge is 7% of Premium Payments. There may
also be a Market Value Adjustment on surrenders, withdrawals
or transfers from the Fixed Account portion of the Contract.
There is a Mortality and Expense Risk Charge which is equal,
on an annual basis, to 1.20% of the average daily net assets
of the Variable Account. This Charge
5
<PAGE>
compensates the Company for assuming the mortality and
expense risks under the Contract (See "Charges and
Deductions -- Mortality and Expense Risk Charge"), other
than the Optional Death Benefit risk. (See "Charges and
Deductions -- Optional Death Benefit")
There is an Administrative Expense Charge which is equal, on
an annual basis, to 0.10% of the average daily net assets of
the Variable Account. (See "Charges and Deductions --
Administrative Expense Charge")
There is an annual Account Fee of $35 unless the Annuity
Account Value equals or exceeds $100,000 at the end of the
Contract Year. (See "Charges and Deductions -- Account Fee")
There is a charge for any Optional Death Benefit(s) elected.
(See "Charges and Deductions -- Optional Death Benefit")
Premium tax equivalents or other taxes payable to a state or
other governmental entity will be charged against Annuity
Account Value (See "Charges and Deductions -- Premium
Taxes").
Under certain circumstances there may be assessed a $10
transfer fee when a Contract Owner transfers Annuity Account
Values from one Sub-Account to another (See "Charges and
Deductions -- Transfer Fee").
There is a ten percent (10%) federal income tax penalty
applied to the income portion of any premature distribution
from Non-Qualified Contracts. However, the penalty is not
imposed on amounts distributed:
(a) after the Payee reaches age 59 1/2; (b) after the death
of the Contract Owner (or, if the Contract Owner is not a
natural person, the Annuitant); (c) if the Payee is totally
disabled (for this purpose, disability is as defined in
Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy)
of the Payee or for the joint lives (or joint life
expectancies) of the Payee and his or her beneficiary; (e)
under an immediate annuity; or (f) which are allocable to
Premium Payments made prior to August 14, 1982. For federal
income tax purposes, distributions are deemed to be on a
last-in, first-out basis. Different tax withdrawal penalties
and restrictions apply to Qualified Contracts issued
pursuant to plans qualified under Code Section 401, 403(b),
408 or 457. (See "Tax Matters -- Tax Treatment of
Withdrawals -- Qualified Contracts.") For a further
discussion of the taxation of the Contracts, see "Tax
Matters."
MARKET VALUE ADJUSTMENT. In certain situations, a surrender
or transfer of amounts from the Fixed Account will be
subject to a Market Value Adjustment. The Market Value
Adjustment will reflect the relationship between a rate
based on an index published by the Federal Reserve Board as
to current yields on U.S. government securities of various
maturities at the time a surrender or transfer is made
("Index Rate"), and the Index Rate at the time that the
Premium Payments being surrendered or transferred were made.
Generally, if the Index Rate at the time of surrender or
transfer is lower than the Index Rate at the time the
Premium Payment was allocated, then the application of the
Market Value Adjustment will result in a higher payment upon
surrender or transfer. Similarly, if the Index Rate at the
time of surrender or transfer is higher than the Index Rate
at the time the Premium Payment was allocated, the
application of the Market Value Adjustment will generally
result in a lower payment upon surrender or transfer. It is
not applied against a surrender or transfer taking place at
the end of the Guaranteed Period.
6
<PAGE>
FEES AND EXPENSES
CONTRACT OWNER TRANSACTION FEES
Contingent Deferred Sales Charge (as a percentage of Premium
Payments):
<TABLE>
<CAPTION>
YEARS SINCE
PAYMENT CHARGE
----------- -------
<S> <C> <C>
0-1 7%
1-2 6%
2-3 5% A Contract Owner may, only once each
3-4 4% Contract Year, make a withdrawal of up to 15% of Premium
4-5 3% Payments made, or the remaining portion thereof, without
5-6 2% incurring a Contingent Deferred Sales Charge.
6-7 1%
7+ 0
</TABLE>
<TABLE>
<S> <C>
Transfer Fee... $10
- Not imposed on the first three transfers during a Contract Year nor,
if the Annuity Account Value is at least $5,000 at the time of a
transfer, on the fourth through twelfth transfers during a Contract
Year. Pre-scheduled automatic dollar cost averaging or automatic
rebalancing transfers are not counted.
</TABLE>
<TABLE>
<S> <C>
Account Fee................... $35 per Contract Year
- Waived if Annuity Account Value at the end of the Contract
Year is $100,000 or more.
</TABLE>
A Contract Owner may also elect the Optional Death
Benefit(s) for which there is a charge, prorated among the
Sub-Accounts, which depends on the age and gender
classification (in accordance with state law) of the Owner
(or the Annuitant, if the Owner is a non-natural person) and
on the dollar amount which is at risk. (See "Charges and
Deductions -- Optional Death Benefit.")
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge................. 1.20%
Administrative Expense Charge..................... 0.10%
-----
Total Variable Account Annual Expenses............ 1.30%
</TABLE>
7
<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 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.
FEE TABLE
<TABLE>
<CAPTION>
ALGER AMERICAN FUND
--------------------------------------------------------
ALGER ALGER
AMERICAN AMERICAN ALGER
ALGER LEVERAGED MIDCAP AMERICAN
AMERICAN GROWTH ALLCAP GROWTH SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------- ---------- --------- ------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT
ANNUAL EXPENSES
Mortality and
Expense Risk
Charge............. 1.20% 1.20% 1.20% 1.20%
Administrative
Expense Charge..... 0.10% 0.10% 0.10% 0.10%
Total Separate
Account Annual
Expenses........... 1.30% 1.30% 1.30% 1.30%
FUND PORTFOLIO
ANNUAL EXPENSES
Management Fees..... 0.75% 0.85% 0.80% 0.85%
Other Expenses...... 0.10% 0.71% 0.10% 0.07%
Total Fund Portfolio
Annual Expenses.... 0.85% 1.56%(1) 0.90% 0.92%
<CAPTION>
FIDELITY VARIABLE
INSURANCE PRODUCTS FUNDS
----------------------------------------------------------------------------
ASSET EQUITY INVESTMENT MONEY HIGH
MANAGER INCOME GRADE BOND MARKET INCOME OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT
ANNUAL EXPENSES
Mortality and
Expense Risk
Charge............. 1.20% 1.20% 1.20% 1.20% 1.20% 1.20%
Administrative
Expense Charge..... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Total Separate
Account Annual
Expenses........... 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
FUND PORTFOLIO
ANNUAL EXPENSES
Management Fees..... 0.71% 0.51% 0.45% 0.24% 0.60% 0.76%
Other Expenses...... 0.08% 0.10% 0.14% 0.09% 0.11% 0.15%
Total Fund Portfolio
Annual Expenses.... 0.79%(2) 0.61% 0.59% 0.33% 0.71%(2) 0.91%
</TABLE>
- ------------------------
(1) Included in Other Expenses of the Alger American Leveraged AllCap Portfolio
is .06% of interest expense. Absent reimbursements, the amounts of Other
Expenses and Total Fund Expenses would be 3.07% and 3.92% respectively, for
the Alger American Leveraged AllCap Portfolio.
(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, and 0.71% for the High
Income Portfolio (note -- there were brokerage commissions paid, but it did
not affect the ratio).
8
<PAGE>
The table does not reflect the deductions for the annual $35 Account Fee,
charges for any Optional Death Benefits selected, or premium tax equivalents.
The information set forth should be considered together with the information
provided in this Prospectus under the heading "Fees and Expenses", and in each
Fund's Prospectus. All expenses are expressed as a percentage of average account
value.
<TABLE>
<CAPTION>
NEUBERGER&BERMAN
MFS VARIABLE INSURANCE TRUST ADVISERS MANAGEMENT TRUST (5)
- ----------------------------------------- ----------------------------------- OCC ACCUMULATION TRUST
MFS LIMITED ------------------------------------
TOTAL MFS WORLD MATURITY GLOBAL
RETURN MFS UTILITIES GOVERNMENTS BALANCED BOND PARTNERS EQUITY MANAGED SMALL CAP
SERIES SERIES SERIES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------- ------------- ------------- ---------- ----------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20%
0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
0.75% 0.75% 0.75% 0.85% 0.65% 0.85% 0.80% 0.80% 0.80%
0.25% 0.25% 0.25% 0.19% 0.10% 0.30% 0.45% 0.14% 0.20%
1.00%(3) 1.00%(3) 1.00%(4) 1.04% 0.75% 1.15% 1.25%(6) 0.94%(6) 1.00%(6)
</TABLE>
- ------------------------
(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 1.24% and 1.99%, respectively.
(5) Neuberger&Berman Advisers Management Trust (the "Trust") is divided into
portfolios ("Portfolios"), each of which invests all of its net investable
assets in a corresponding series ("Series") of Advisers Managers Trust.
Expenses in the table reflect expenses of the Portfolios and include each
Portfolio's pro rata portion of the operating expenses of each Portfolio's
corresponding Series. The Portfolios pay Neuberger&Berman Management Inc.
("NBMI") an administration fee based on the Portfolios' net asset value.
Each Portfolio's corresponding Series pays NBMI a management fee based on
the Series' average daily net assets. Accordingly, this table combines
management fees at the Series level and administration fees at the Portfolio
level in a unified fee rate. See "Expenses" in the Trust's Prospectus.
(6) 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 SmallCap 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.
9
<PAGE>
EXAMPLES
The Contract Owner would pay the following expenses on a
$1,000 investment, assuming a 5% annual return on assets,
and assuming all Premium Payments are allocated to the
Variable Account:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
1. IF THE CONTRACT IS SURRENDERED AT THE END OF THE APPLICABLE TIME PERIOD:
Alger Small Capitalization Portfolio....................... $83 $114 $148 $262
Alger Leveraged AllCap Portfolio........................... $89 $133 $180 $324
Alger MidCap Growth Portfolio.............................. $83 $113 $147 $260
Alger Growth Portfolio..................................... $82 $112 $144 $254
Fidelity VIP Equity-Income Portfolio....................... $80 $105 $132 $230
Fidelity VIP Money Market Portfolio........................ $77 $ 96 $118 $200
Fidelity VIP High Income Portfolio......................... $81 $108 $137 $240
Fidelity VIP Overseas Portfolio............................ $83 $114 $147 $261
Fidelity VIP II Investment Grade Bond Portfolio............ $79 $104 $131 $227
Fidelity VIP II Asset Manager Portfolio.................... $81 $110 $141 $248
MFS Total Return Series.................................... $84 $116 $152 $270
MFS Utilities Series....................................... $84 $116 $152 $270
MFS World Governments Series............................... $84 $116 $152 $270
AMT Balanced Portfolio..................................... $84 $118 $154 $274
AMT Limited Maturity Bond Portfolio........................ $81 $109 $139 $244
AMT Partners Portfolio..................................... $85 $121 $159 $285
OCC Global Equity Portfolio................................ $86 $124 $164 $295
OCC Managed Portfolio...................................... $83 $115 $149 $264
OCC Small Cap Portfolio.................................... $84 $116 $152 $270
</TABLE>
2. IF THE CONTRACT IS NOT SURRENDERED OR IF IT IS
ANNUITIZED:
<TABLE>
<S> <C> <C> <C> <C>
Alger Small Capitalization Portfolio....................... $23 $ 71 $122 $262
Alger Leveraged AllCap Portfolio........................... $30 $ 91 $154 $324
Alger MidCap Growth Portfolio.............................. $23 $ 71 $121 $260
Alger Growth Portfolio..................................... $22 $ 69 $119 $254
Fidelity VIP Equity-Income Portfolio....................... $20 $ 62 $106 $230
Fidelity VIP Money Market Portfolio........................ $17 $ 53 $ 92 $200
Fidelity VIP High Income Portfolio......................... $21 $ 65 $112 $240
Fidelity VIP Overseas Portfolio............................ $23 $ 71 $122 $261
Fidelity VIP II Investment Grade Bond Portfolio............ $20 $ 61 $105 $227
Fidelity VIP II Asset Manager Portfolio.................... $22 $ 68 $116 $248
MFS Total Return Series.................................... $24 $ 74 $126 $270
MFS Utilities Series....................................... $24 $ 74 $126 $270
MFS World Governments Series............................... $24 $ 74 $126 $270
AMT Balanced Portfolio..................................... $24 $ 75 $128 $274
AMT Limited Maturity Bond Portfolio........................ $21 $ 66 $114 $244
AMT Partners Portfolio..................................... $26 $ 78 $134 $285
OCC Global Equity Portfolio................................ $27 $ 81 $139 $295
OCC Managed Portfolio...................................... $23 $ 72 $123 $264
OCC Small Cap Portfolio.................................... $24 $ 74 $126 $270
</TABLE>
The preceding tables are intended to assist the Owner in
understanding the costs and expenses borne, directly or
indirectly, by Premium Payments allocated to the Variable
Account. These include the expenses of the Funds, certain of
which are subject to expense reimbursement arrangements
which may be subject to change. See the Funds' Prospectuses.
In addition to the expenses listed above, charges for
premium tax equivalents and charges for any Optional Death
Benefit(s) selected may be applicable.
These examples reflect the annual $35 Account Fee as an
annual charge of .07% of assets, based upon an anticipated
average Annuity Account Value of $50,000.
10
<PAGE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
The Variable Account commenced operations on January 22,
1996, and has not yet had a fiscal year end. The starting
Accumulation Unit value for each Sub-Account was $10.00.
THE COMPANY AND THE VARIABLE ACCOUNT
THE COMPANY. The Company is a stock life insurance company
incorporated under the laws of Connecticut in 1981. Its Home
Office mailing address is Hartford, Connecticut 06152,
Telephone (860) 726-6000. As of April 1, 1996, it has
obtained authorization to do business in the District of
Columbia and all states except Alabama, Illinois, New
Jersey, New York and North Carolina. The Company issues
group and individual life insurance policies and annuities.
The Company is a wholly-owned subsidiary of Connecticut
General Life Insurance Company which 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
CIGNA Life Insurance Company.
THE VARIABLE ACCOUNT. The Variable Account was established
by the Company as a separate account on October 11, 1994
pursuant to a resolution of its Board of Directors. Under
Connecticut insurance law, the income, gains or losses of
the Variable Account are credited to or charged against the
assets of the Variable Account without regard to the other
income, gains, or losses of the Company. Although that
portion of the assets maintained in the Variable Account
equal to the reserves and other contract liabilities with
respect to the Variable Account will not be charged with any
liabilities arising out of any other business conducted by
the Company, all obligations arising under the Contracts,
including the promise to make annuity payments, are general
corporate obligations of the Company.
The Variable Account is registered with the Securities and
Exchange Commission ("Commission") as a unit investment
trust under the Investment Company Act of 1940, as amended
("the 1940 Act") and meets the definition of a separate
account under the federal securities laws. Registration with
the Commission does not involve supervision of the
management or investment practices or policies of the
Variable Account or of the Company by the Commission.
The assets of the Variable Account are divided into
Sub-Accounts. Each Sub-Account invests exclusively in shares
of a specific Fund. All amounts allocated to the Variable
Account will be used to purchase Fund shares as designated
by the Owner at their net asset value. Any and all
distributions made by the Fund with respect to the shares
held by the Variable Account will be reinvested to purchase
additional shares at their net asset value. Deductions from
the Variable Account for cash withdrawals, annuity payments,
death benefits, account fees, mortality and expense risk
charges, administrative expense charges, the cost of any
Optional Death Benefit(s) and any applicable taxes will, in
effect, be made by redeeming the number of Fund shares at
their net asset value equal in total value to the amount to
be deducted. The Variable Account will purchase and redeem
Fund shares on an aggregate basis and will be fully invested
in Fund shares at all times.
THE FUNDS
Each of the nineteen Sub-Accounts of the Variable Account is
invested solely in shares of one of the nineteen Funds
available as funding vehicles under the Contracts. Each of
11
<PAGE>
the Funds is a series of one of six Massachusetts or
Delaware business trusts, collectively referred to herein as
the "Trusts", each of which is registered as an open-end,
diversified management investment company under the 1940
Act.
The Trusts and their investment advisers and distributors
are:
Alger American Fund ("Alger Trust"), managed by Fred
Alger Management, Inc., 75 Maiden Lane, New York, NY
10038; and distributed by Fred Alger & Company,
Incorporated, 30 Montgomery Street, Jersey City, NJ
07302;
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 Distribution Corporation, 82
Devonshire Street, Boston, MA 02103;
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;
Neuberger & Berman Advisers Management Trust ("AMT
Trust"), managed and distributed by Neuberger & Berman
Management Incorporated, 605 Third Avenue, New York, NY
10158-0006;
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 ALGER Trust are available under the Contracts:
Alger American Growth Portfolio;
Alger American Leveraged AllCap Portfolio;
Alger American MidCap Growth Portfolio;
Alger American Small Capitalization Portfolio.
Four Funds of FIDELITY Trust are available under the
Contracts:
Equity-Income Portfolio ("Fidelity Equity-Income
Portfolio").
Money Market Portfolio ("Fidelity Money Market
Portfolio").
High Income Portfolio ("Fidelity High Income
Portfolio");
Overseas Portfolio ("Fidelity Overseas Portfolio").
Two Funds of FIDELITY Trust II are available under the
Contracts:
Asset Manager Portfolio ("Fidelity Asset Manager
Portfolio");
Investment Grade Bond Portfolio ("Fidelity Bond
Portfolio").
Three Funds of MFS Trust are available under the Contracts:
MFS Total Return Series;
MFS Utilities Series;
MFS World Governments Series.
Three Funds of AMT Trust are available under the Contracts:
Balanced Portfolio;
Limited Maturity Bond Portfolio;
Partners Portfolio.
Three Funds of OCC Trust are available under the Contracts:
Global Equity Portfolio;
Managed Portfolio;
Small Cap Portfolio.
The investment advisory fees charged the Funds by their
advisers are shown in the Fee Table at pages 8 and 9 of this
Prospectus.
12
<PAGE>
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.
ALGER AMERICAN GROWTH PORTFOLIO (Large Cap Stocks): Seeks
long-term capital appreciation by investing in a
diversified, actively managed portfolio of equity
securities, primarily of companies with total market
capitalization of $1 billion or greater.
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO (Large Cap
Stocks): Seeks long-term capital appreciation by investing
in a diversified, actively managed portfolio of equity
securities, with the ability to engage in leveraging (up to
one-third of assets) and options and futures transactions.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO (Small Cap Stocks):
Seeks long-term capital appreciation by investing in a
diversified, actively managed portfolio of equity
securities, primarily of companies whose total market
capitalization lies within the range of companies included
in the S & P MidCap 400 Index.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO (Small Cap
Stocks): Seeks long-term capital appreciation by investing
in a diversified, actively managed portfolio of equity
securities, primarily of companies whose total market
capitalization lies within the range of companies included
in the Russell 2000 Growth Index.
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.
FIDELITY MONEY MARKET PORTFOLIO (Money Market): Seeks as
high a level of current income as is consistent with
preserving capital and providing liquidity, through
investment in high quality U.S. dollar denominated money
market securities of domestic and foreign issuers.
FIDELITY HIGH INCOME PORTFOLIO (High Yield Bonds): Seeks
high current income by investing mainly in high yielding
debt securities, with an emphasis on lower quality
securities.
FIDELITY OVERSEAS PORTFOLIO (International Equity): Seeks
long term growth of capital by investing mainly in foreign
securities.
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.
13
<PAGE>
AMT BALANCED PORTFOLIO (Balanced or Total Return): Seeks
long-term capital growth and reasonable current income
without undue risk to principal.
AMT LIMITED MATURITY BOND PORTFOLIO (Short-Term Bonds):
Seeks the highest current income consistent with low risk to
principal and liquidity; and secondarily, enhanced total
return through capital appreciation when market factors,
such as falling interest rates and rising bond prices,
indicate that capital appreciation may be available without
significant risk to principal.
AMT PARTNERS PORTFOLIO (Large Cap Stocks): Seeks capital
growth. Invests primarily in common stocks of established
companies, using the value-oriented investment approach. The
Portfolio seeks capital growth through an investment
approach that is designed to increase capital with
reasonable risk. Its investment program seeks securities
believed to be undervalued based on strong fundamentals such
as low price-to-earnings ratios, consistent cash flow, and
support from asset values.
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.
The AMT Partners Portfolio, Fidelity Equity-Income
Portfolio, Fidelity Asset Manager Portfolio, Fidelity High
Income Portfolio, Fidelity Overseas Portfolio, MFS Total
Return Series, MFS Utilities Series, MFS World Governments
Series, OCC Global Equity Portfolio, OCC Managed Portfolio,
and the OCC Small Cap Portfolio funds may invest in
non-investment grade, high yield, high-risk debt securities
(commonly referred to as "junk bonds"), as detailed in the
individual Fund prospectuses.
GENERAL
There is no assurance that the investment objective of any
of the Funds will be met. Contract Owners bear the complete
investment risk for Annuity Account Values allocated to a
Variable Account Sub-Account. Each such Sub-Account involves
inherent investment risk, and such risk varies significantly
among the Sub-Accounts. Contract 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 Contracts.
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 and Contract Value --
Allocation of Premium Payments").
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 Contracts, 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.
14
<PAGE>
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 Trust 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 Trusts do
not hold regular meetings of shareholders. Shareholder votes
take place whenever state law or the 1940 Act so require,
for example on certain elections of Boards of Trustees, the
initial approval of investment advisory contracts and
changes in investment objectives and fundamental investment
policies.
The number of shares which a person has a right to vote will
be determined as of a date to be chosen by the Company not
more than sixty (60) days prior to the meeting of the
particular Trust. 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 Trusts do not foresee
any disadvantage to Contract 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 Trusts'
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.
PREMIUM PAYMENTS AND CONTRACT VALUE
PREMIUM PAYMENTS
The Contracts may be purchased under a flexible premium
payment plan. Premium Payments are payable in the frequency
and in the amount selected by the Contract Owner. The
initial Premium Payment is due on the Effective Date. It
must be at least $2,500 ($2,000 for an Individual Retirement
Annuity under Section 408 of the Code). Subsequent Premium
Payments must be at least $100. These minimum amounts are
not waived for Qualified Plans. The Company reserves the
right to decline any application or order to purchase or
Premium Payment. A Premium Payment in excess of $1 million
requires preapproval by the Company.
The Company may, at its sole discretion, offer special
premium payment programs
and/or waive the minimum payment requirements.
The Contract Owner may elect to increase, decrease or change
the frequency of Premium Payments.
ALLOCATION OF PREMIUM PAYMENTS
Premium Payments are allocated to one or more of the
appropriate Sub-Accounts within the Variable Account and
Fixed Account as selected by the Contract Owner. For each
Variable Account Sub-Account, the Premium Payments are
converted into Accumulation Units. The number of
Accumulation Units credited to the Contract is determined by
dividing the Premium Payment allocated to the Sub-Account by
the value of the Accumulation Unit for the Sub-Account.
15
<PAGE>
The Company will allocate the initial Premium Payment
directly to the Sub-Account(s) selected by the Owner unless
state law requires, during the right-to-examine period, a
refund of Premium Payments rather than Annuity Account
Value.
Transfers do not necessarily affect the allocation
instructions for payments. Subsequent payments will be
allocated as directed by the Owner; if no direction is
given, the allocation will be that which has been most
recently directed for payments by the Owner. The Owner may
change the allocation of future payments without fee,
penalty or other charge upon written notice to the Annuity &
Variable Life Services Center. A change will be effective
for payments received on or after receipt of the written
notice of change.
Any Premium Payment at the time of any allocation may be
allocated to a single or multiple sub-accounts in whole
percentages (i.e., 12%). No allocation can be made which
would result in a Variable Account Sub-Account of less than
$50 or a Fixed Account Sub-Account value of less than
$2,500. Further, at this time, no more than 18 Fixed Account
and Variable Account Sub-Accounts may be opened during the
life of the Contract. The Company may expand this number at
a future date.
The Company may, at its sole discretion, waive minimum
premium allocation requirements or minimum Variable Account
Sub-Account requirements.
For initial Premium Payments, if the application or order to
purchase for a Contract is in good order, the Company will
apply the Premium Payment to the Variable Account and credit
the Contract with Accumulation Units within two business
days of receipt at the Accumulation Unit Value for the
Valuation Period during which the Premium Payment is
accepted unless state law requires, during the
right-to-examine period, a refund of Premium Payments rather
than Annuity Account Value.
If the application or order to purchase for a Contract is
not in good order, the Company will attempt to get it in
good order or the Company will return the application or
order to purchase and the Premium Payment within five
business days. The Company will not retain a Premium Payment
for more than five business days while processing an
incomplete application or order to purchase unless it has
been so authorized by the purchaser.
For each subsequent Premium Payment, the Company will apply
such payment to the Variable Account and credit the Contract
with Accumulation Units at the Accumulation Unit Value for
the Valuation Period during which each such payment was
received in good order.
OPTIONAL VARIABLE ACCOUNT SUB-ACCOUNT ALLOCATION PROGRAMS
The Contract 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
Contract Owner, systematically allocates specified dollar
amounts from the Money Market Sub-Account or the One-Year
Fixed Account Sub-Account to one or more of the Contract's
Variable Account Sub-Accounts at regular intervals as
selected by the Contract 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 of at least $1,000 or the One-Year
Fixed Account Sub-Account value of at least $2,500.
16
<PAGE>
The minimum amount per month to allocate is $50 (subject to
the 18 Sub-Account limitation described under "Allocation of
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
ensuring that sufficient value is in the Money Market
Sub-Account or the One-year Fixed Account Sub-Account.
Transfers to any Fixed Account Sub-Account or from a Fixed
Account Sub-Account other than the One-Year Fixed Account
Sub-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 One-Year Fixed Sub-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 Contract
is surrendered.
The Dollar Cost Averaging program may not be active
following the Annuity Date. 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
Contract Owner, periodically restores to a pre-determined
level the percentage of Contract Value allocated to each
Variable Account Sub-Account (e.g. 20% Money Market, 50%
Growth, 30% Utilities). This pre-determined level will be
the allocation initially selected when the Contract was
purchased, 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 Variable Account Sub-Accounts must
be subject to Automatic Rebalancing. The Fixed Account
Sub-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 Variable Account
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 Variable Account 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 Service Center.
The Automatic Rebalancing program may not be active
following the Annuity Date. There is no current charge for
Automatic Rebalancing but the Company reserves the right to
charge for this program.
CONTRACT VALUE
The value of the Contract is the sum of the values
attributable to the Contract for each Fixed and Variable
Sub-Account. The value of each Variable Sub-Account is
determined by multiplying the number of Accumulation Units
attributable to the Contract in the Sub-Account by the value
of an Accumulation Unit for the Sub-Account.
17
<PAGE>
ACCUMULATION UNIT
Premium Payments allocated to the Variable Account are
converted into Accumulation Units. This is done by dividing
each Premium Payment by the value of an Accumulation Unit
for the Valuation Period during which the Premium Payment is
allocated to the Variable Account. The Accumulation Unit
value for each Sub-Account will be set initially at $10. It
may increase or decrease from Valuation Period to Valuation
Period. The Accumulation Unit value for any later Valuation
Period is determined by multiplying the Accumulation Unit
Value for that Sub-Account for the preceding Valuation
Period by the Net Investment Factor for the current
Valuation Period. The Net Investment Factor is calculated as
follows:
The Net Investment Factor for any Variable Account
Sub-Account for any Valuation Period is determined by
dividing (a) by (b) and then subtracting (c) from the
result, where:
(a) Is the net result of:
(1)the net asset value (as described in the prospectus
for the Fund) of a Fund share held in the Variable
Account Sub-Account determined as of the end of the
Valuation Period, plus
(2)the per share amount of any dividend or other
distribution declared by the Fund on the shares held
in the Variable Account Sub-Account if the
"ex-dividend" date occurs during the Valuation Period,
plus or minus
(3)a per share credit or charge with respect to any taxes
paid or reserved for by the Company during the
Valuation Period which are determined by the Company
to be attributable to the operation of the Variable
Account Sub-Account;
(b) is the net asset value of a Fund share held in the
Variable Account Sub-Account determined as of the end of
the preceding Valuation Period; and
(c) is the asset charge factor determined by the Company for
the Valuation Period to reflect the charges for assuming
the mortality and expense risks and for administrative
expenses.
The asset charge factor for any Valuation Period is equal to
the daily asset charge factor multiplied by the number of
24-hour periods in the Valuation Period.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Annuity Account
Values and the Variable Account. These charges and
deductions are:
CONTINGENT DEFERRED SALES CHARGE (SALES LOAD)
Upon a partial withdrawal or full surrender, a Contingent
Deferred Sales Charge (sales load) will be calculated and
will be deducted from the Annuity Account Value. This Charge
reimburses the Company for expenses incurred in connection
with the promotion, sale and distribution of the Contracts.
The Contingent Deferred Sales Charge applies only to those
Premium Payments received within seven (7) years of the date
of partial withdrawal or full surrender. In calculating the
Contingent Deferred Sales Charge, Premium Payments are
allocated to the amount surrendered or withdrawn on a
first-in, first-out basis. The amount of the Contingent
Deferred Sales Charge is calculated by:
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<PAGE>
(a) allocating Premium Payments to the amount withdrawn or
surrendered; (b) multiplying each allocated Premium Payment
that has been held under the Contract for the period shown
below by the charge shown below:
<TABLE>
<CAPTION>
YEARS SINCE PAYMENT CHARGE
------------------- -------
<S> <C>
0-1 7%
1-2 6%
2-3 5%
3-4 4%
4-5 3%
5-6 2%
6-7 1%
7+ 0
</TABLE>
and (c) adding the products of each multiplication in (b)
above. The charge will not exceed 7% of the Premium
Payments. Any applicable negative Market Value Adjustment
and Account Fee will be deducted before application of the
Contingent Deferred Sales Charge. The charge is not imposed
on any death benefit paid or upon amounts applied to an
annuity option.
A Contract Owner may, not more frequently than once each
Contract Year, make a withdrawal of up to fifteen percent
(15%) of Premium Payments, or any remaining portion thereof,
without incurring a Contingent Deferred Sales Charge. The
earliest Premium Payments remaining in the Contract will be
deemed withdrawn first under this Fifteen Percent Free, even
if no Contingent Deferred Sales Charge would have been
assessed on such a withdrawal. No Contingent Deferred Sales
Charge will be deducted on withdrawals from Premium Payments
which have been held under the Contract for more than seven
(7) Contract Years or from annuity payments. The Company may
also eliminate or reduce the Contingent Deferred Sales
Charge under the Company procedures then in effect.
For a partial withdrawal, unless the Owner designates
otherwise, the Contingent Deferred Sales Charge will be
deducted proportionately from the Sub-Account(s) from which
the withdrawal is to be made by cancelling Accumulation
Units from each applicable Sub-Account in the ratio that the
value of each Sub-Account bears to the total of the values
of the Sub-Accounts from which the partial withdrawal is
made. If the value(s) of such Sub-Account(s) are
insufficient, the amount payable on the withdrawal will be
net of any remaining Contingent Deferred Sales Charges
unless the Owner and the Company agree otherwise.
Commissions will be paid to broker-dealers who sell the
Contracts. Total allowances, up to an amount equal to 6.50%
of Premium Payments, will be made for promotional or
distribution expenses associated with the marketing of the
Contracts. To the extent that the Contingent Deferred Sales
Charge is insufficient to cover the actual cost of
distribution, the Company may use any of its corporate
assets, including potential profit which may arise from the
Mortality and Expense Risk Charge, to make up any
difference.
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts on each Valuation Date a Mortality and
Expense Risk Charge which is equal, on an annual basis, to
1.20% of the average daily net assets of the Variable
Account (consisting of approximately .70% for mortality
risks and approximately .50% for expense risks). The
mortality risks assumed by the Company arise from its
contractual obligation to make annuity payments after the
Annuity Date for the life of the Annuitant in accordance
with annuity rates guaranteed in the Contracts. The expense
19
<PAGE>
risk assumed by the Company is that all actual expenses
involved in administering the Contracts, including Contract
maintenance costs, administrative costs, mailing costs, data
processing costs, legal fees, accounting fees, filing fees,
and the costs of other services may exceed the amount
recovered from the Account Fee and the Administrative
Expense Charge.
If the Mortality and Expense Risk Charge is insufficient to
cover the actual costs, the loss will be borne by the
Company. Conversely, if the amount deducted proves more than
sufficient, the excess will be a profit to the Company. The
Company expects to profit from this charge.
The Mortality and Expense Risk Charge is guaranteed by the
Company and cannot be increased.
ADMINISTRATIVE EXPENSE CHARGE
The Company deducts on each Valuation Date an Administrative
Expense Charge which is equal, on an annual basis, to 0.10%
of the average daily net assets of the Variable Account.
This charge is to reimburse the Company for a portion of its
expenses in administering the Contracts. This charge is
guaranteed by the Company and cannot be increased, and the
Company will not derive a profit from this charge.
ACCOUNT FEE
The Company deducts an annual Account Fee of $35 from the
Annuity Account Value on the last Valuation Date of each
Contract Year. This charge is to reimburse the Company for a
portion of its administrative expenses (see above). Prior to
the Annuity Date, this charge is deducted by cancelling
Accumulation Units from each applicable Sub-Account in the
ratio that the value of each Sub-Account bears to the total
Annuity Account Value. When the Contract is annuitized or
surrendered for its full Surrender Value on other than a
Contract Anniversary, the Account Fee will be prorated at
the time of surrender or annuitization. On and after the
Annuity Date, the Account Fee will be collected
proportionately from the Sub-Account(s) on which the
Variable Annuity payment is based, prorated on a monthly
basis and will result in a reduction of the annuity
payments. The Account Fee will be waived for any Contract
Year in which the Annuity Account Value equals or exceeds
$100,000 as of the last Valuation Date of the Contract Year.
PREMIUM TAX EQUIVALENTS
Premium tax equivalents or other taxes payable to a state,
municipality or other governmental entity will be charged
against Annuity Account Value. Premium taxes currently
imposed by certain states on the Contracts offered hereby
range from 0% to 3.5% of Premiums paid. Some states assess
premium taxes at the time Premium Payments are made; others
assess premium taxes at the time annuity payments begin. The
Company will, in its sole discretion, determine when taxes
have resulted from: the investment experience of the
Variable Account; receipt by the Company of the Premium
Payment(s); or commencement of annuity payments. The Company
may, at its sole discretion, pay taxes when due and deduct
an equivalent amount reflecting investment experience from
the Annuity Account Value at a later date. Payment at an
earlier date does not waive any right the Company may have
to deduct amounts at a later date.
20
<PAGE>
INCOME TAXES
While the Company is not currently maintaining a provision
for federal income taxes, the Company has reserved the right
to establish a provision for income taxes if it determines,
in its sole discretion, that it will incur a tax as a result
of the operation of the Variable Account. The Company will
deduct for any income taxes incurred by it as a result of
the operation of the Variable Account whether or not there
was a provision for taxes and whether or not it was
sufficient.
FUND EXPENSES
There are other deductions from, and expenses paid out of,
the assets of the Funds which are described in the
accompanying Funds' prospectuses.
TRANSFER FEE
Prior to the Annuity Date, a Contract Owner may transfer all
or a part of the Annuity Account Value in a Sub-Account to
another Sub-Account without the imposition of any transfer
fee or charge if there have been no more than three
transfers made in the Contract Year (twelve if the Annuity
Account Value is at least $5000 at the time of a transfer.)
For additional transfers, the Company reserves the right to
deduct a transfer fee of up to $10 per transfer.
Prescheduled automatic Dollar Cost Averaging or Automatic
Rebalancing transfers are not counted toward the twelve (or
three) transfer limit. The Company reserves the right to
charge a fee of up to $10 for each transfer after the
Annuity Date. The transfer fee at any given time is
guaranteed not to exceed $10, will not be set at a level
greater than its cost and will contain no element of profit.
OPTIONAL DEATH BENEFIT
If no Optional Death Benefit is selected, the death benefit
under the Contract will be the Annuity Account Value as of
the date of payment of the death benefit. No additional
charge is imposed for that death benefit.
For an additional charge, as described below, an Optional
Death Benefit can be selected at the time the Contract is
applied for. Under each form of Optional Death Benefit, the
death benefit payable will be the greater of the Annuity
Account Value, or some other amount as of the date of
payment of the death benefit. That other amount can be one
or more of
OPTION A. Premium Payments made, less partial withdrawals.
OPTION B. Premium Payments made, less partial withdrawals,
with interest compounded daily at a rate equivalent to 5%
per year during the first seven Contract Years. As of the
beginning of the eighth Contract Year, the amount of death
benefit will decrease and thereafter be equal to total
Premium Payments made, less partial withdrawals. Only
available if the Owner (or the Annuitant, if the Owner is a
non-natural person) has not reached his or her 72nd birthday
at the Effective Date.
OPTION C. The Annuity Account Value on the seven-year
Contract Anniversary immediately preceding the date the
death benefit election is effective or is deemed to become
effective, adjusted for any subsequent Premium Payments and
partial withdrawals and charges made between the immediate
preceding seven-year Contract Anniversary and the date and
death benefit election is effective or is deemed to become
effective (as referenced herein, seven-year Contract
Anniversary means the seventh Contract Anniversary and each
succeeding Contract Anniversary occurring at any seven-year
interval thereafter, for example, the 14th and 21st Contract
Anniversaries).
21
<PAGE>
OPTION D. The highest Annuity Account Value ever attained on
a Contract Anniversary date, with adjustments for any
subsequent Premium Payments and partial withdrawals made
since the last determination of such highest value.
Once an election of one or more of these Optional Death
Benefits has been made, it will remain in effect for the
life of the Contract, unless the Owner chooses, by written
notice to the Annuity & Variable Life Services Center, to
discontinue such election. The Owner can only give one
notice of discontinuance; such notice must address the
discontinuance of one or more of the Optional Death
Benefit(s) previously chosen. If no Optional Death
Benefit(s) are selected initially, they cannot be added
later, nor can the Owner change an initial selection to add
Optional Death Benefit(s) after the Contract is issued.
At each Contract Anniversary, a charge will be made against
Annuity Account Value (prorated among the Sub-Accounts used
in the Contract, if more than one be used) for any Optional
Death Benefit in effect for all or a portion of the Contract
Year then ended. Such charge will be computed in the
following manner, assuming for the sake of illustration that
the Optional Death Benefit is in effect for the entire
Contract Year.
On the last business day of each Contract Month during the
Contract Year, the Company will calculate whether the amount
payable under any of the Optional Death Benefits in effect
on that date would exceed the Annuity Account Value on that
date. If it would not exceed the Annuity Account Value on
that date, then no charge for the Optional Death Benefit is
accrued as of that date. If it would exceed the Annuity
Account Value on that date, then a charge for the Optional
Death Benefit is accrued as of that date. That charge is
computed in accordance with mortality tables which are made
a part of the Contract reflecting the Owner's age and gender
classification (in accordance with state law) is computed on
the Amount at Risk, which is the excess of the Optional
Death Benefit over the Annuity Account Value on the last
business day of the Contract Month. If the Owner is a
corporation, partnership or other non-natural person, the
measuring life will be the Annuitant's. No deduction is
actually made from Annuity Account Value for the Optional
Death Benefit until the Contract Anniversary except upon a
full surrender or annuitization of the Contract or upon the
payment of a Death Benefit, when the sum of any charges
accrued at the end of each Contract Month during the
Contract Year is deducted.
The annual rate per $1,000 of Amount at Risk charged for the
Optional Death Benefit(s) is set forth in the following
table:
<TABLE>
<CAPTION>
COST OF OPTIONAL DEATH
BENEFIT(S)
ANNUAL RATE PER $1,000
OF AMOUNT AT RISK
-------------------------
ATTAINED AGE MALE FEMALE UNISEX
- -------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
less than 40................. $ 2.40 $ 1.99 $ 2.20
40-45........................ 3.02 2.54 2.78
46-50........................ 4.92 4.02 4.47
51-55........................ 7.30 5.70 6.50
56-60........................ 11.46 8.34 9.90
61-65........................ 17.54 11.55 14.55
66-70........................ 27.85 18.19 23.02
71-75........................ 43.30 27.57 35.44
76-80........................ 70.53 47.33 58.93
81-85........................ 117.25 87.04 102.15
86-90........................ 179.55 147.37 163.46
91+.......................... 400.00 380.00 390.00
</TABLE>
22
<PAGE>
If, for example, at the end of a Contract Month the Optional
Death Benefit (assuming payment of a death benefit on that
date) were $40,000 and the Annuity Account Value were
$30,000, the Amount at Risk would be $10,000. Suppose the
Owner (or, if applicable, the Annuitant) were a female age
57. The charge accrued for the Optional Death Benefit that
month would be 10 X $8.34, divided by 12 (reflecting
one-twelfth of a year), or $6.95. If that proved to be the
only Contract Month end during the Contract Year at which
there were an Amount at Risk, that would be the only
Optional Death Benefit charge accrued during the Contract
Year. There is no daily deduction of a percentage of Annuity
Account Values for any Optional Death Benefit. (See Appendix
1).
OTHER CONTRACT FEATURES
OWNERSHIP
The Contract Owner has all rights and may receive all
benefits under the Contract. The Contract Owner may change
the Contract Owner at any time. If the Contract Owner dies,
a death benefit will be paid to the Beneficiary upon proof
of the Contract Owner's death. If the Owner is a
corporation, partnership or other non-natural person, the
death benefit is paid upon receipt of due proof of the
Annuitant's death. A change of Contract Owner will
automatically revoke any prior designation of Contract
Owner. A request for change must be: (1) made in writing;
and (2) received by the Company at its Annuity & Variable
Life Services Center. The change will become effective as of
the date the written request is signed. A new designation of
Contract Owner will not apply to any payment made or action
taken by the Company prior to the time it was received. Any
Optional Death Benefit in effect at the time of a change of
ownership will remain in effect. The cost of the Optional
Death Benefit(s) will be based on the attained age of the
new Owner (or the Annuitant, if the new Owner is a
non-natural person).
For non-qualified contracts, in accordance with Code Section
72(u), a deferred annuity contract held by a corporation or
other entity that is not a natural person is not treated as
an annuity contract for tax purposes. Income on the contract
is treated as ordinary income received by the owner during
the taxable year. But in accordance with Code Section 72(u),
an annuity contract held by a trust or other entity as agent
for a natural person is considered held by a natural person.
ASSIGNMENT
The Contract Owner may assign the Contract at any time
during his or her lifetime. Unless provided otherwise, an
assignment will not affect the interest of any previously
indicated Beneficiary. The Company will not be bound by any
assignment until written notice is received by the Company
at its Annuity & Variable Life Services Center. The Company
is not responsible for the validity of any assignment. The
Company will not be liable as to any payment or other
settlement made by the Company before such assignment has
been recorded at the Company's Annuity & Variable Life
Services Center.
If the Contract is issued pursuant to a Qualified Plan, it
may not be assigned, pledged or otherwise transferred except
as may be allowed under applicable law.
BENEFICIARY
The Beneficiary is named when the Contract is applied for
and, unless changed, is entitled to receive any death
benefits to be paid. Prior to the Annuity Date, death
benefits are paid to the Beneficiary on the death of the
Owner.
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<PAGE>
CHANGE OF BENEFICIARY
The Contract Owner may change a Beneficiary by filing a
written request with the Company at its Annuity & Variable
Life Services Center unless an irrevocable Beneficiary
designation was previously filed. After the change is
recorded, it will take effect as of the date the request was
signed. If the request reaches the Annuity & Variable Life
Services Center after the Annuitant or Contract Owner, as
applicable, dies but before any payment is made, the change
will be valid. The Company will not be liable for any
payment made or action taken before it records the change.
ANNUITANT
The Annuitant must be a natural person. The maximum age of
the Annuitant on the Effective Date is 90 years old. The
Annuitant may be changed at any time prior to the Annuity
Date. Joint Annuitants are allowed at the time of
annuitization only, if the Company chooses to make a joint
and survivor annuity payment option available in addition to
the options provided in the Contract. The Annuitant has no
rights or privileges prior to the Annuity Date. When an
Annuity Option is elected, the amount payable as of the
Annuity Date is based on the age and gender classification
(in accordance with state law) of the Annuitant, as well as
the Option selected and the Annuity Account Value.
TRANSFER OF CONTRACT VALUES BETWEEN SUB-ACCOUNTS
Prior to the Annuity Date, the Contract Owner may transfer
all or part of the Annuity Account Value in a Sub-Account to
another Sub-Account without the imposition of any fee or
charge if there have been no more than three transfers made
in the Contract Year (twelve if the Contract Value is at
least $5000 at the time of transfer). For additional
transfers, the Company reserves the right to deduct a
transfer fee of up to $10. (See "Charges and Deductions --
Transfer Fee") This Contract is not designed for
professional market timing organizations or other entities
using programmed and frequent transfers.
After the Annuity Date, provided a variable annuity option
was selected, the Contract Owner may make up to three
transfers between Variable Sub-Accounts in any Contract
Year.
All transfers are subject to the following:
A. The deduction of any transfer fee that may be imposed.
The transfer fee will be deducted from the amount which
is transferred if the entire amount in the Sub-Account
is being transferred, otherwise from the Sub-Account
from which the transfer is made.
B. The minimum amount which may be transferred is the
lesser of (i) $2,500 per Fixed Account Sub-Account or
$50 per Variable Account Sub-Account; or (ii) the
Contract Owner's entire interest in the Sub-Account. The
Company, at its sole discretion, may waive these minimum
requirements.
C. No partial transfer will be made if the Contract Owner's
remaining Contract Value in the Sub-Account will be less
than $100.
D. Transfers will be effected during the Valuation Period
next following receipt by the Company of a written
transfer request (or by telephone, if authorized)
containing all required information. However, no
transfer may be made effective within seven calendar
days of the date on which the first annuity payment is
due. Transfers are not permitted during the
right-to-examine period.
24
<PAGE>
E. Any transfer request must clearly specify the amount
which is to be transferred and the Sub-Accounts which
are to be affected.
F. Transfers of all or a portion of any Fixed Account
Sub-Account values are subject to any applicable Market
Value Adjustment;
G. The Company reserves the right to defer transfers from
any Fixed Account Sub-Account for up to six months after
date of receipt of the transfer request;
H. Transfers involving the Variable Account Sub-Accounts
are subject to such restrictions as may be imposed by
the Funds;
I. The Company reserves the right at any time and without
prior notice to any party to terminate, suspend or
modify the transfer privileges described above.
J. After the Annuity Date, transfers may not take place
between a Fixed Annuity Option and a Variable Annuity
Option.
K. The Company reserves the right to reject any premium
allocation or transfer which would cause the Fixed
Account Sub-Account values in aggregate to exceed then
current Company limits.
Transfers between Sub-Accounts may be made via telephone by
calling or writing the Annuity & Variable Life Service
Center, or in writing to the Company. Transfer requests must
be received prior to 4:00 Eastern Time in order to be
effective that day.
PROCEDURES FOR TELEPHONE TRANSFERS
Owners may effect telephone transfers by calling the Annuity
& Variable Life Services Center.
The Company will take the following procedures to confirm
that instructions communicated by telephone are genuine.
Before a service representative accepts any request, the
caller will be asked for specific information to validate
the request. All calls will be recorded. All transactions
performed will be confirmed by the Company in writing. The
Company is not liable for any loss, cost or expense for
acting on telephone instructions which are believed to be
genuine in accordance with these procedures.
SURRENDERS AND PARTIAL WITHDRAWALS
While the Contract is in force and before the Annuity Date,
the Company will, upon written request to the Company by the
Contract Owner, allow the surrender or partial withdrawal of
all or a portion of the Contract for its Surrender Value.
Surrenders or partial withdrawals will result in the
cancellation of Accumulation Units from each applicable
Sub-Account in the ratio that the value of each Sub-Account
bears to the total Annuity Account Value, unless the
Contract Owner specifies in writing in advance which units
are to be cancelled. The Company will pay the amount of any
surrender or partial withdrawal within seven (7) days of
receipt of a valid request, unless the "Delay of Payments"
provision is in effect. (See "Delay of Payments and
Transfers")
Certain tax withdrawal penalties and restrictions may apply
to surrenders and partial withdrawals from Contracts. (See
"Tax Matters.") Contract Owners should consult their own tax
counsel or other tax adviser regarding any surrenders and
partial withdrawals.
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<PAGE>
The Surrender Value is the Annuity Account Value for the
Valuation Period next following the Valuation Period during
which the written request to the Company for surrender is
received, reduced, in the case of full surrender, by the sum
of:
a. any applicable premium tax equivalents not previously
deducted;
b. any applicable Account Fee;
c. any applicable Contingent Deferred Sales Charge; and
d. any applicable accrued charges for the Optional Death
Benefit(s) and, for partial withdrawals, by the sum of A and
C above.
DELAY OF PAYMENTS AND TRANSFERS
The Company reserves the right to suspend or postpone
payments or transfers for any period when:
1. the New York Stock Exchange is closed (other than
customary weekend and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of
securities held in the Variable Account is not
reasonably practicable or it is not reasonably
practicable to determine the value of the Variable
Account's net assets; or
4. during any other period when the Commission, by order,
so permits for the protection of Contract Owners.
The applicable rules and regulations of the Commission will
govern as to whether the conditions described in 2. and 3.
exist.
The Company reserves the right to defer the payment or
transfer of amounts withdrawn from any Fixed Account
Sub-Account for a period not to exceed six months from the
date written request for such withdrawal or transfer is
received by the Company. If payment or transfer is deferred
beyond thirty (30) days, the Company will pay interest of
not less than 3% per year on amounts so deferred.
In addition, payment of the amount of any withdrawal
derived, all or in part, from any Premium Payment paid to
the Company by check or draft may be postponed until the
Company determines the check or draft has been honored.
DEATH OF THE CONTRACT OWNER BEFORE THE ANNUITY DATE
In the event of death of the Contract Owner (or the
Annuitant, if the Owner is a non-natural person) prior to
the Annuity Date, a death benefit is payable to the
Beneficiary designated by the Owner. The value of the death
benefit will be determined as of the Valuation Period next
following the date both due proof of death (a certified copy
of the Death Certificate) and a payment election are
received by the Company. Unless an Optional Death Benefit is
selected and in effect, the value of the death benefit is
equal to the Annuity Account Value. The Beneficiary may, at
any time before the end of the sixty (60) day period
immediately following receipt of due proof of death by the
Company, elect the death benefit to be paid as follows:
1. the payment of the entire death benefit within five
years of the date of the death of the Owner or
Annuitant, whichever is applicable; or
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2. payment over the lifetime of the designated Beneficiary
or over a period not extending beyond the life
expectancy of the Beneficiary, with distribution
beginning within one year of the date of death of the
Owner or Annuitant, whichever is applicable (see
"Annuity Provisions -- Annuity Options"); or
3. payment in accordance with one of the settlement
options under the Contract (see "Annuity Provisions --
Annuity Options"); or
4. if the designated Beneficiary is the Owner's spouse,
he/she can continue the Contract in his/her own name.
Payment amounts may vary with their frequency and duration
(see "Annuity Provisions -- Annuity Options"). To the extent
that the Beneficiary elects a variable payment option, the
Beneficiary will bear the investment risk associated with
the performance of the underlying Fund(s) in which the
relevant Variable Sub-Account(s) invest(s).
If no payment option is elected, a single sum settlement
will be made by the Company within seven (7) days of the end
of the sixty (60) day period following receipt of due proof
of death of the Owner or Annuitant as applicable.
If the Owner is a non-natural person, then for purposes of
the death benefit, the Annuitant shall be treated as the
Owner.
DEATH OF THE ANNUITANT BEFORE THE ANNUITY DATE
If the Annuitant dies prior to the Annuity Date and the
Annuitant is different from the Contract Owner, the Contract
Owner, if a natural person, may designate a new Annuitant.
Unless and until one is designated, the Contract Owner will
be the Annuitant. If the Contract Owner is not a natural
person, then the death benefit, valued as described in
"Death of the Contract Owner before the Annuity Date," is
paid on due proof of the Annuitant's death.
DEATH OF THE ANNUITANT AFTER THE ANNUITY DATE
If the Annuitant dies after the Annuity Date, the death
benefit, if any, will be as specified in the Annuity Option
elected. The Company will require due proof of the
Annuitant's death. Death benefits will be paid at least as
rapidly as under the method of distribution in effect at the
Annuitant's death.
CHANGE IN OPERATION OF VARIABLE ACCOUNT
At the Company's election and if deemed in the best
interests of persons having voting rights under the
Contracts, the Variable Account may be operated as a
management company under the 1940 Act or any other form
permitted by law; de-registered under the 1940 Act in the
event registration is no longer required (deregistration of
the Variable Account requires an order by the Commission);
or combined with one or more other separate accounts. To the
extent permitted by applicable law, the Company also may
transfer the assets of the Variable Account associated with
the Contracts to another account or accounts. In the event
of any change in the operation of the Variable Account
pursuant to this provision, the Company may make appropriate
endorsement to the Contracts to reflect the change and take
such other action as may be necessary and appropriate to
effect the change.
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MODIFICATION
Upon notice to the Owner (or the Payee(s) during the Annuity
Period), the Contracts may be modified by the Company if
such modification: (i) is necessary to make the Contracts or
the Variable Account comply with, or take advantage of, any
law or regulation issued by a governmental agency to which
the Company or the Variable Account is subject; or (ii) is
necessary to attempt to assure continued qualification of
the Contracts under the Code or other federal or state laws
relating to retirement annuities or annuity contracts; or
(iii) is necessary to reflect a change in the operation of
the Variable Account or its Sub-Account(s) (See "Change in
Operation of Variable Account"); or (iv) provides additional
Variable Account and/or fixed accumulation options. In the
event of any such modification, the Company may make
appropriate endorsement to the Contracts to reflect such
modification.
In addition, upon notice to the Owner, the Contracts may be
modified by the Company to change the withdrawal charges,
Account Fees, mortality and expense risk charges,
administrative expense charges, the tables used in
determining the amount of the first monthly fixed annuity
payment, and the formula used to calculate the Market Value
Adjustment, provided that such modification shall apply only
to Contracts established after the effective date of such
modification. In order to exercise its modification rights
in these particular instances, the Company must notify the
Owner of such modification in writing. All of the charges
and the annuity tables which are provided in the Contracts
prior to any such modification will remain in effect
permanently, unless improved by the Company, with respect to
Contracts established prior to the effective date of such
modification.
DISCONTINUANCE
The Company reserves the right to limit or discontinue the
offer and issuance of new Contracts. Such limitation or
discontinuance shall have no effect on rights or benefits
with respect to any Contracts issued prior to the effective
date of such limitation or discontinuance.
ANNUITY PROVISIONS
ANNUITY DATE; CHANGE IN ANNUITY DATE AND ANNUITY OPTION
The Contract Owner selects an Annuity Date at the time of
application or order to purchase.
The Contract Owner may, upon at least forty-five (45) days
prior written notice to the Company, at any time prior to
the Annuity Date, change the Annuity Date. The Annuity Date
must always be the first day of a calendar month. The
Annuity Date may not be later than the month following the
Annuitant's 90th birthday.
The Contract Owner may, upon at least forty-five (45) days
prior written notice to the Company, at any time prior to
the Annuity Date, select and/or change the Annuity Option.
ANNUITY OPTIONS
Instead of having the proceeds paid in one sum, the Contract
Owner may select one of the Annuity Options. These may be on
a fixed or variable basis, or a combination thereof. The
Annuity Option must be selected at least 30 days prior to
the Annuity Date. The Company may, at the time of election
of an Annuity Option, offer more favorable
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rates in lieu of those guaranteed. The Company also may make
available other settlement options. The Company uses sex
distinct or unisex annuity rate tables when determining
appropriate annuity payments.
FIXED OPTIONS
Under a fixed option, once the selection has been made and
payments have begun, the amount of the payments will not
vary. The fixed options currently available are:
FIRST OPTION -- LIFE ANNUITY. The Company will make equal
monthly payments during the life of the Annuitant, ceasing
with the last payment due prior to the death of the
Annuitant. Under this option, it is possible only one
monthly annuity payment would be made, if the Annuitant died
before the second monthly annuity payment was due.
SECOND OPTION -- LIFE ANNUITY WITH CERTAIN PERIOD. The
Company will make equal monthly payments during the life of
the Annuitant, but at least for the minimum period shown in
the annuity tables contained in the Contract. The amount of
each monthly payment per $1,000 of proceeds is based on the
age and gender classification (in accordance with state law)
of the Annuitant when the first payment is made and on the
minimum period chosen.
THIRD OPTION -- LIFE ANNUITY WITH CASH REFUND. The Company
will make equal monthly payments during the life of the
Annuitant. Upon the death of the Annuitant, after payments
have started, the Company will pay in one sum any excess of
the amount of the proceeds applied under this Option over
the total of all payments made under this Option. The amount
of each monthly payment per $1,000 of proceeds is based on
the age and gender (in accordance with state law) of the
Annuitant when the first payment is made.
FOURTH OPTION -- ANNUITY CERTAIN. The Company will make
equal monthly payments for a number of years selected, not
less than five or more than thirty years.
VARIABLE OPTIONS
The actual dollar amount of variable annuity payments is
dependent upon (i) the Annuity Account Value at the time of
annuitization, (ii) the annuity table specified in the
Contract, (iii) the Annuity Option selected, and (iv) the
investment performance of the Sub-Account selected. Each
annuity payment will be less if payments are to be made more
frequently or for longer periods of time.
The dollar amount of the first monthly variable annuity
payment is determined by applying the available value (after
deduction of any premium tax equivalents not previously
deducted) to the table using the age and gender (in
accordance with state law) of the Annuitant. The number of
Annuity Units is then determined by dividing this dollar
amount by the then current Annuity Unit value. Thereafter,
the number of Annuity Units remains unchanged during the
period of annuity payments. This determination is made
separately for each Sub-Account of the Variable Account. The
number of Annuity Units is determined for each Sub-Account
and is based upon the available value in each Sub-Account as
of the date annuity payments are to begin.
The dollar amount determined for each Sub-Account will then
be aggregated for purposes of making payments.
The dollar amount of the second and later variable annuity
payments is equal to the number of Annuity Units determined
for each Sub-Account times the Annuity Unit value for that
Sub-Account as of the due date of the payment. This amount
may increase or decrease from month to month.
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<PAGE>
The annuity tables contained in the Contract are based on a
three percent (3%) assumed net investment rate. If the
actual net investment rate exceeds three percent (3%),
payments will increase. Conversely, if the actual rate is
less than three percent (3%), annuity payments will
decrease.
The Annuitant receives the value of a fixed number of
Annuity Units each month. The value of a fixed number of
Annuity Units will reflect the investment performance of the
Sub-Account selected and the amount of each annuity payment
will vary accordingly.
The Annuity Unit Value for a Sub-Account is determined by
multiplying the Annuity Unit Value for that Sub-Account for
the preceding Valuation Period by the Net Investment Factor
for the current Valuation Period (calculated as described on
page 18 of this Prospectus) and multiplying the result by
0.999919020, the daily factor to neutralize the assumed net
investment rate, discussed above, of 3% per annum which is
built into the annuity rate table. It may increase or
decrease from Valuation Period to Valuation Period.
The variable options currently available, assuming the
Annuity Account Value is at least $1,000 when variable
annuity payments commence, are:
OPTION I -- VARIABLE LIFE ANNUITY. Monthly annuity payments
are paid during the life of an Annuitant, ceasing with the
last annuity payment due prior to the Annuitant's death.
OPTION II -- VARIABLE LIFE ANNUITY WITH CERTAIN
PERIOD. Monthly annuity payments are paid during the life of
an Annuitant, but at least for the minimum period selected,
which may be five, ten, fifteen or twenty years;
OPTION III -- VARIABLE ANNUITY CERTAIN. Monthly annuity
payments are paid for a number of years selected, not less
than five or more than thirty years. Under this Option III,
the Annuitant may elect at any time during the period that
all or a portion of future payments be commuted and paid in
a lump sum or applied under Option I or Option II, subject
to the Company's rules about minimum payment amounts.
After the Annuity Date, the payee may, by written request to
the Annuity & Variable Life Services Center, exchange
Annuity Units of one Variable Sub-Account for Annuity Units
of equivalent value in another Variable Sub-Account up to
three times each Contract Year.
If the Annuity Account Value is less than $1,000 when
annuity payments are to commence, it will be paid in a lump
sum to the Annuitant. A lump sum payment will also be made
to the Annuitant if no Annuity Option is chosen when annuity
payments are to commence.
EVIDENCE OF SURVIVAL
The Company reserves the right to require evidence of the
survival of any Payee at the time any payment payable to
such Payee is due under the following Annuity Options: Life
Annuity (fixed), Life Annuity with Certain Period (fixed),
Cash Refund Life Annuity (fixed), Variable Life Annuity, and
Variable Life Annuity with Certain Period.
ENDORSEMENT OF ANNUITY PAYMENTS
The Company will make each annuity payment at its Home
Office by check. Each check must be personally endorsed by
the Payee or the Company may require that proof of the
Annuitant's survival be furnished.
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THE FIXED ACCOUNT
THE FIXED ACCOUNT. THE FIXED ACCOUNT IS MADE UP OF THE
GENERAL ASSETS OF THE COMPANY OTHER THAN THOSE ALLOCATED TO
ANY SEPARATE ACCOUNT. THE FIXED ACCOUNT IS PART OF THE
COMPANY'S GENERAL ACCOUNT. BECAUSE OF APPLICABLE EXEMPTIVE
AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED ACCOUNT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
(THE "1933 ACT"), AND NEITHER THE FIXED ACCOUNT NOR THE
COMPANY'S GENERAL ACCOUNT HAS BEEN REGISTERED UNDER THE 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.
The initial Premium Payment and any subsequent Premium
Payment(s) will be allocated to Sub-Accounts available in
connection with the Fixed Account to the extent elected by
the Owner at the time such Premium Payment is made. In
addition, all or part of the Owner's Annuity Account Value
may be transferred among Sub-Accounts available under the
Contract as described under "Transfer of Contract Values
between Sub-Accounts." Instead of the Owner's assuming all
of the investment risk as is the case for Premium Payments
allocated to the Variable Account, the Company guarantees it
will credit interest of at least 3% per year to amounts
allocated to the Fixed Account.
Assets supporting amounts allocated to Sub-Accounts within
the Fixed Account become part of the Company's general
account assets and are available to fund the claims of all
creditors of the Company. All of the Company's general
account assets will be available to fund benefits under the
Contracts. The Owner does not participate in the investment
performance of the assets of the Fixed Account or the
Company's general account.
The Company will invest the assets of the general account in
those assets chosen by the Company and allowed by applicable
state laws regarding the nature and quality of investments
that may be made by life insurance companies and the
percentage of their assets that may be committed to any
particular type of investment. In general, these laws permit
investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations,
corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
If the Account Value within a Fixed Account Sub-Account is
maintained for the duration of the Sub-Account's Guaranteed
Period, the Company guarantees that it will credit interest
to that amount at the guaranteed rate specified for the
Sub-Account which may but need not be more than 3% per year.
Any amount withdrawn from the Sub-Account prior to the
expiration of the Sub-Account's Guaranteed Period is subject
to a Market Value Adjustment (see "Market Value Adjustment")
and a Deferred Sales Charge, if applicable. The Company
guarantees, however, that a Contract will be credited with
interest at a rate of not less than 3% per year, compounded
annually, on amounts allocated to any Fixed Account
Sub-Account, regardless of any application of the Market
Value Adjustment (that is, the Market Value Adjustment will
not reduce the amount available for surrender, withdrawal or
transfer to an amount less than the initial amount allocated
or transferred to the Fixed Account Sub-Account plus
interest of 3% per year). The Company reserves the right to
defer the payment or transfer of amounts withdrawn from the
Fixed Account for a period not to exceed six (6) months from
the date a proper request for surrender, withdrawal or
transfer is received by the Company.
FIXED ACCUMULATION VALUE. The fixed accumulation value of an
Annuity Account, if any, for any Valuation Period is equal
to the sum of the values of all Fixed Account Sub-Accounts
which are part of the Annuity Account for such Valuation
Period.
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GUARANTEED PERIODS. The Owner may elect to allocate Premium
Payments to one or more Sub-Accounts within the Fixed
Account. Each Sub-Account will maintain a Guaranteed Period
with a duration of one, three, five, seven or ten years.
Every Premium Payment allocated to a Fixed Account
Sub-Account starts a new Sub-Account with its own duration
and Guaranteed Interest Rate. The duration of the Guaranteed
Period will affect the Guaranteed Interest Rate of the
Sub-Account. Initial Premium Payments and subsequent Premium
Payments, or portions thereof, and transferred amounts
allocated to a Fixed Account Sub-Account, less any amounts
subsequently withdrawn, will earn interest at the Guaranteed
Interest Rate during the particular Sub-Account's Guaranteed
Period unless prematurely withdrawn prior to the end of the
Guaranteed Period. Initial Sub-Account Guaranteed Periods
begin on the date a Premium Payment is accepted or, in the
case of a transfer, on the effective date of the transfer,
and end on the date after the number of calendar years in
the Sub-Account's Guaranteed Period elected from the date on
which the amount was allocated to the Sub-Account (the
"Expiration Date"). Any portion of Annuity Account Value
allocated to a specific Sub-Account with a specified
Expiration Date (including interest earned thereon) will be
referred to herein as a "Guaranteed Period Amount." Interest
will be credited daily at a rate equivalent to the compound
annual rate. As a result of renewals and transfers of
portions of the Annuity Account Value described under
"Transfer of Contract Values between Sub-Accounts" below,
which will begin new Sub-Account Guaranteed Periods, amounts
allocated to Sub-Accounts of the same duration may have
different Expiration Dates. Thus each Guaranteed Period
Amount will be treated separately for purposes of
determining any applicable Market Value Adjustment (see
"Market Value Adjustment").
The Company will notify the Owner in writing at least 60
days prior to the Expiration Date for any Guaranteed Period
Amount. A new Sub-Account Guaranteed Period of the same
duration as the previous Sub-Account Guaranteed Period will
commence automatically at the end of the previous Guaranteed
Period unless the Company receives, following such
notification but prior to the end of such Guaranteed Period,
a written election by the Owner to transfer the Guaranteed
Period Amount to a different Fixed Account Sub-Account or to
a Variable Account Sub-Account from among those being
offered by the Company at such time. Transfers of any
Guaranteed Period Amount which become effective upon the
expiration of the applicable Guaranteed Period are not
subject to the twelve (or three) transfers per Contract Year
limitations or the additional Fixed Sub-Account transfer
restrictions (see "Transfer of Contract Values between Sub-
Accounts").
GUARANTEED INTEREST RATES. The Company periodically will
establish an applicable Guaranteed Interest Rate for each of
the Sub-Account Guaranteed Periods within the Fixed Account.
Current Guaranteed Interest Rates may be changed by the
Company frequently or infrequently depending on interest
rates on investments available to the Company and other
factors as described below, but once established, rates will
be guaranteed for the entire duration of the respective
Sub-Account's Guaranteed Period. However, any amount
withdrawn from the Sub-Account may be subject to any
applicable withdrawal charges, Account Fees, Market Value
Adjustment, premium taxes or other fees. Amounts transferred
out of a Fixed Account Sub-Account prior to the end of the
Guaranteed Period will be subject to the Market Value
Adjustment.
The Guaranteed Interest Rate will not be less than 3% per
year compounded annually, regardless of any application of
the Market Value Adjustment. The Company has no specific
formula for determining the rate of interest that it will
declare as a Guaranteed Interest Rate, as these rates will
be reflective of interest rates available on the types of
debt instruments in which the Company intends to invest
amounts allocated to the Fixed Account (see "The Fixed
Account"). In addition, the Company's management may
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consider other factors in determining Guaranteed Interest
Rates for a particular Sub-Account including: regulatory and
tax requirements; sales commissions and administrative
expenses borne by the Company; general economic trends; and
competitive factors. THERE IS NO OBLIGATION TO DECLARE A
RATE IN EXCESS OF 3% PER YEAR; THE OWNER ASSUMES THE RISK
THAT DECLARED RATES WILL NOT EXCEED 3% PER YEAR. THE COMPANY
HAS COMPLETE DISCRETION TO DECLARE ANY RATE, SO LONG AS THAT
RATE IS AT LEAST 3% PER YEAR.
MARKET VALUE ADJUSTMENT
Any surrender or transfer of a Fixed Account Guaranteed
Period Amount, other than a surrender or transfer pursuant
to an election which becomes effective upon the Expiration
Date of the Guaranteed Period, will be subject to a Market
Value Adjustment ("MVA"). The MVA will be applied to the
amount being surrendered or transferred after deduction of
any applicable Account Fee and before deduction of any
applicable surrender charge.
The MVA generally reflects the relationship between the
Index Rate (based upon the Treasury Constant Maturity Series
published by the Federal Reserve) in effect at the time a
Premium Payment is allocated to a Sub-Account's Guaranteed
Period under the Contract and the Index Rate in effect at
the time of the Premium Payment's surrender or transfer. It
also reflects the time remaining in the Sub-Account's
Guaranteed Period. Generally, if the Index Rate at the time
of surrender or transfer is lower than the Index Rate at the
time the Premium Payment was allocated, then the application
of the MVA will result in a higher payment upon surrender or
transfer. Similarly, if the Index Rate at the time of
surrender or transfer is higher than the Index Rate at the
time the Premium Payment was allocated, the application of
the MVA will generally result in a lower payment upon
surrender or transfer.
The MVA is computed by applying the following formula:
(1+A)N
--------------------------
(1+B)N
where:
A = an Index Rate (based on the Treasury Constant Maturity
Series published by the Federal Reserve) for a security with
time to maturity equal to the Sub-Account's Guaranteed
Period, determined at the beginning of the Guaranteed
Period.
B = an Index Rate (based on the Treasury Constant Maturity
Series published by the Federal Reserve) for a security with
time to maturity equal to the Sub-Account's Guaranteed
Period, determined at the time of surrender or transfer,
plus a 0.50% adjustment (unless otherwise limited by
applicable state law). If Index Rates "A" and "B" are within
.25% of each other when the index rate factor is determined,
no such percentage adjustment to "B" will be made, unless
otherwise required by state law. This adjustment builds into
the formula a factor representing direct and indirect costs
to the Company associated with liquidating general account
assets in order to satisfy surrender requests. This
adjustment of 0.50% has been added to the denominator of the
formula because it is anticipated that a substantial portion
of applicable general account portfolio assets will be in
relatively illiquid securities. Thus, in addition to direct
transaction costs, if such securities must be sold (E.G.,
because of surrenders), the market price may be lower.
Accordingly, even if interest rates decline, there will not
be a positive adjustment until this factor is overcome, and
then any adjustment will be lower than otherwise, to
compensate for this factor. Similarly, if interest rates
rise, any negative adjustment will be greater than
otherwise, to compensate for this factor. If interest rates
stay the same, this factor will result in a small but
negative Market Value Adjustment.
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N = The number of years remaining in the Guaranteed Period
(E.G. 1 year and 73 days = 1 + (73 divided by 365) = 1.2
years)
See the Statement of Additional information for examples of
the application of the Market Value Adjustment.
DISTRIBUTION OF THE CONTRACTS
CIGNA Financial Advisors, Inc. ("CFA"), located at 900
Cottage Grove Road, Bloomfield, CT, acts as the principal
underwriter and the distributor of the Contracts as well as
of variable life insurance policies and other variable
annuity contracts which are or may be issued by the Company.
CFA, a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National
Association of Securities Dealers (NASD), is a wholly-owned
subsidiary of Connecticut General Corporation. The Contracts
are offered on a continuous basis. CFA and the Company may
enter into agreements to sell the Contracts through various
broker-dealers whose agents are licensed to sell the
Contracts.
PERFORMANCE DATA
MONEY MARKET SUB-ACCOUNT
From time to time, the Money Market Sub-Account may
advertise its "yield" and "effective yield." Both yield
figures will be based on historical earnings and are not
intended to indicate future performance. The "yield" of the
Money Market Sub-Account refers to the income generated by
Annuity Account Values in the Money Market Sub-Account over
a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that
week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the Annuity Account
Values in the Money Market Sub-Account. The "effective
yield" is calculated similarly but, when annualized, the
income earned by Annuity Account Values in the Money Market
Sub-Account is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of
the compounding effect of this assumed reinvestment. The
computation of the yield calculation includes a deduction
for the Mortality and Expense Risk Charge, the
Administrative Expense Charge, and the Account Fee.
OTHER SUB-ACCOUNTS
From time to time, the other Sub-Accounts may publish their
current yields and total returns in advertisements and
communications to Contract Owners. The current yield for
each Sub-Account will be calculated by dividing the
annualization of the dividend and interest income earned by
the underlying Fund during a recent 30-day period by the
maximum Accumulation Unit value at the end of such period.
Total return information will include the underlying Fund's
average annual compounded rate of return over the most
recent four calendar quarters and the period from the
underlying Fund's inception of operations, based upon the
value of the Accumulation Units acquired through a
hypothetical $1,000 investment at the Accumulation Unit
value at the beginning of the specified period and upon the
value of the Accumulation Unit at the end of such period,
assuming reinvestment of all distributions and the deduction
of the Mortality and Expense Risk Charge, the Administrative
Expense Charge and the Account Fee. Each Sub-Account may
also advertise aggregate and average total return
information over different periods of time.
In each case, the yield and total return figures will
reflect all recurring charges against the Sub-Account's
income, including the deduction for the Mortality and
Expense Risk Charge, the Administrative Expense Charge and
the Account Fee for the applicable time
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<PAGE>
period. Contract Owners should note that the investment
results of each Sub-Account will fluctuate over time, and
any presentation of a Sub-Account's current yield or total
return for any prior period should not be considered as a
representation of what an investment may earn or what a
Contract Owner's yield or total return may be in any future
period. See "Historical Performance Data" in the Statement
of Additional Information.
PERFORMANCE RANKING OR RATING
The performance of each or all of the Sub-Accounts of the
Variable Account may be compared in its advertising and
sales literature to the performance of other variable
annuity issuers in general or to the performance of
particular types of variable annuities investing in mutual
funds, or series of mutual funds with investment objectives
similar to each of the Sub-Accounts of the Variable Account.
Lipper Analytical Services, Inc. ("Lipper") Morningstar
Variable Annuity/Life Performance Report of Morningstar,
Inc. ("Morningstar") and the Variable Annuity Research and
Data Service ("VARDS-Registered Trademark-") are independent
services which monitor and rank or rate the performance of
variable annuity issuers in each of the major categories of
investment objectives on an industry-wide basis.
Lipper's rankings include variable life issuers as well as
variable annuity issuers. VARDS-Registered Trademark-
rankings compare only variable annuity issuers. Morningstar
ratings include mutual funds used by both variable life and
variable annuity issuers. The performance analyses prepared
by Lipper and VARDS-Registered Trademark- rank such issuers
on the basis of total return, assuming reinvestment of
distributions, but do not take sales charges, redemption
fees or certain expense deductions at the separate account
level into consideration. In addition,
VARDS-Registered Trademark- prepares risk adjusted rankings,
which consider the effects of market risk on total return
performance. This type of ranking may address the question
as to which funds provide the highest total return with the
least amount of risk. Morningstar assigns ratings of zero to
five stars to the mutual funds taking into account primarily
historical performance and risk factors.
TAX MATTERS
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S
UNDERSTANDING OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE
TO ANNUITIES IN GENERAL. THE COMPANY CANNOT PREDICT THE
PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
OWNERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING
THE POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT
GUARANTEE THE TAX STATUS OF THE CONTRACTS. OWNERS BEAR THE
COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS.
GENERAL
Section 72 of the Code governs taxation of annuities in
general. A Contract Owner is not taxed on increases in the
value of a Contract until distribution occurs, either in the
form of a lump sum payment or as annuity payments under the
Settlement Option elected. For a lump sum payment received
as a total surrender (total redemption), the recipient is
taxed on the portion of the payment that exceeds the cost
basis of the Contract. For Non-Qualified Contracts, this
cost basis is generally the Premium Payments, while for
Qualified Contracts there may be no cost basis. The taxable
portion of the lump sum payment is taxed at ordinary income
tax rates.
For annuity payments, the taxable portion is determined by a
formula which establishes the ratio that the cost basis of
the Contract bears to the total value of annuity payments
for the term of the Contract. The taxable portion is taxed
at ordinary income rates. For certain types of Qualified
Plans there may be no cost basis in the Contract within the
35
<PAGE>
meaning of Section 72 of the Code. Contract Owners,
Annuitants and Beneficiaries under the Contracts should seek
competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under
Subchapter L of the Code. For federal income tax purposes,
the Variable Account is not a separate entity from the
Company, and its operations form a part of the Company.
Accordingly, the Variable Account will not be taxed
separately as a "regulated investment company" under
Subchapter M of the Internal Revenue Code. The Company does
not expect to incur any federal income tax liability with
respect to investment income and net capital gains arising
from the activities of the Variable Account retained as part
of the reserves under the Contract. Based on this
expectation, it is anticipated that no charges will be made
against the Variable Account for federal income taxes. If,
in future years, any federal income taxes or other economic
burden are incurred by the Company with respect to the
Variable Account or the Contracts, the Company may make a
charge for any such amounts that are attributable to the
Variable Account.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification
standards on the underlying assets of variable annuity
contracts. The Code provides that a variable annuity
contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments
are not adequately diversified in accordance with
regulations prescribed by the United States Treasury
Department ("Treasury Department"). Disqualification of the
Contract as an annuity contract would result in imposition
of federal income tax to the Contract Owner with respect to
earnings allocable to the Contract prior to the receipt of
payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the
Contracts meet the diversification requirements if, as of
the end of each quarter, the underlying assets meet the
diversification standards for a regulated investment company
and no more than fifty-five percent (55%) of the total
assets consist of cash, cash items, U.S. government
securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations
(Treas. Reg. 1.817-5) which established diversification
requirements for the investment portfolios underlying
variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable
contracts set forth in the Code and provide an alternative
to the safe harbor provision described above. Under the
regulations, an investment portfolio will be deemed
adequately diversified if: (1) no more than 55% of the value
of the total assets of the portfolio is represented by any
one investment; (2) no more than 70% of the value of the
total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total
assets of the portfolio is represented by any three
investments; and (4) no more than 90% of the value of the
total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether
or not the diversification standards imposed on the
underlying assets of variable contracts by Section 817(h) of
the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate
issuer."
The Company intends, and the Trusts have undertaken, that
all Funds underlying the Contracts will be managed in such a
manner as to comply with these diversification requirements.
The Treasury Department has indicated that guidelines may be
forthcoming under which a variable annuity contract will not
be treated as an annuity contract for tax purposes if the
owner of the contract has excessive control over the
investments underlying the
36
<PAGE>
contract (i.e., by being able to transfer values among
sub-accounts with only limited restrictions). The issuance
of such guidelines may require the Company to impose
limitations on a Contract Owner's right to control the
investment. It is not known whether any such guidelines
would have a retroactive effect.
DISTRIBUTION REQUIREMENTS
Section 72(s) of the Code requires that in order to be
treated as an annuity contract for Federal income tax
purposes, any Nonqualified Contract must provide that (a) if
any Owner dies on or after the Annuity Date but prior to the
time the entire interest in the Contract has been
distributed, the remaining portion of such interest will be
distributed at least as rapidly as under the method of
distribution being used when the Owner died; and (b) if any
Owner dies prior to the Annuity Date, the entire interest in
the Contract will be distributed within five years after
such death. These requirements will be considered satisfied
as to any portion of the Owner's interest which is payable
to or for the benefit of a "designated beneficiary" and
which is distributed over the life of such "designated
beneficiary" or over a period not extending beyond the life
expectancy of that beneficiary, provided that such
distributions begin within one year of the Owner's death.
The Owner's "designated beneficiary" is the person
designated by such Owner as a Beneficiary and to whom
ownership of the Contract passes by reason of death and must
be a natural person. However, if the Owner's "designated
beneficiary" is the surviving spouse of the Owner, the
Contract may be continued with the surviving spouse as the
new Owner.
The Contracts contain provisions which are intended to
comply with the requirements of Section 72(s) of the Code,
although no regulations interpreting these requirements have
yet been issued. The Company intends to review such
provisions and modify them if necessary to try to assure
that they comply with the Section 72(s) requirements when
clarified by regulation or otherwise. Similar rules may
apply to a Qualified Contract.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity
contracts which are issued during a calendar year to the
same contract owner by one company or its affiliates are
treated as one annuity contract for purposes of determining
the tax consequences of any distribution. Such treatment may
result in adverse tax consequences, including more rapid
taxation of the distributed amounts from such combination of
contracts. Contract Owners should consult a tax adviser
prior to purchasing more than one nonqualified annuity
contract in any single calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable
event. Contract Owners should therefore consult competent
tax advisers should they wish to assign their Contracts.
WITHHOLDING
Withholding of federal income taxes on the taxable portion
of all distributions may be required unless the recipient
elects not to have any such amounts withheld and properly
notifies the Company of that election. Different rules may
apply to United States citizens or expatriates living
abroad. Withholding is mandatory for certain distributions
from Qualified Contracts. In addition, some states have
enacted legislation requiring withholding.
37
<PAGE>
SECTION 1035 EXCHANGES
Code Section 1035 generally provides that no gain or loss
shall be recognized on the exchange of one annuity contract
for another. If the surrendered contract was issued prior to
August 14, 1982, the tax rules that formerly provided that
the surrender was taxable only to the extent the amount
received exceeds the owner's investment in the contract will
continue to apply to amounts allocable to investment in the
contract before August 14, 1982. Special rules and
procedures apply to Code Section 1035 transactions.
Prospective purchasers wishing to take advantage of Code
Section 1035 should consult their tax advisers.
TAX TREATMENT OF WITHDRAWALS --
NON-QUALIFIED CONTRACTS
Section 72 of the Code governs the treatment of
distributions from annuity contracts. It provides that if
the Annuity Account Value exceeds the aggregate Premium
Payments made, any amount withdrawn will be treated as
coming first from the earnings and then, only after the
income portion is exhausted, as coming from the principal.
Withdrawn earnings are includable in gross income. It
further provides that a ten percent (10%) penalty will apply
to the income portion of any premature distribution.
However, the penalty is not imposed on amounts received: (a)
after the Payee reaches age 59 1/2; (b) after the death of
the Contract Owner (or, if the Contract Owner is a
non-natural person, the Annuitant); (c) if the Payee is
totally disabled (for this purpose disability is as defined
in Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy)
of the Payee or for the joint lives (or joint life
expectancies) of the Payee and his/her beneficiary; (e)
under an immediate annuity; or (f) which are allocable to
Premium Payments made prior to August 14, 1982.
The above information does not apply, except where noted, to
Qualified Contracts. However, separate tax withdrawal
penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Withdrawals -- Qualified
Contracts.")
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be
suitable for use under various types of Qualified Plans.
Because of the minimum purchase payment requirements, these
Contracts may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified
Plan varies with the type of plan and terms and conditions
of each specific plan. Contract Owners, Annuitants and
Beneficiaries are cautioned that benefits under a Qualified
Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts
issued pursuant to the plan. Although the Company provides
administration for the Contract, it does not provide
administrative support for Qualified Plans. Following are
general descriptions of the types of Qualified Plans with
which the Contracts may be used. Such descriptions are not
exhaustive and are for general informational purposes only.
The tax rules regarding Qualified Plans are very complex and
will have differing applications, depending on individual
facts and circumstances. Each purchaser should obtain
competent tax advice prior to purchasing a Contract issued
in connection with a Qualified Plan.
Special favorable tax treatment may be available for certain
types of contributions and distributions (including special
rules for certain lump sum distributions). Adverse tax
consequences may result from contributions in excess of
specified limits, distributions prior to age 59 1/2 (subject
to certain exceptions), distributions that do not conform to
38
<PAGE>
specified minimum distribution rules, aggregate
distributions in excess of a specified annual amount, and in
certain other circumstances. Therefore, the Company makes no
attempt to provide more than general information about use
of the Contract with the various types of qualified plans.
Purchasers and participants under qualified plans as well as
Annuitants, Payees and Beneficiaries are cautioned that the
rights of any person to any benefits under qualified plans
may be subject to the terms and conditions of the plan
themselves, regardless of the terms and conditions of the
Contract issued in connection therewith.
SECTION 403(B) PLANS
Under Section 403(b) of the Code, payments made by public
school systems and certain tax exempt organizations to
purchase annuity policies for their employees are excludable
from the gross income of the employee, subject to certain
limitations. However, such payments may be subject to FICA
(Social Security) taxes. Additionally, in accordance with
the requirements of the Code, Section 403(b) annuities
generally may not permit distribution of (i) elective
contributions made in years beginning after December 31,
1988, and (ii) earnings on those contributions and (iii)
earnings on amounts attributed to elective contributions
held as of the end of the last year beginning before January
1, 1989. Distributions of such amounts will be allowed only
upon the death of the employee, on or after attainment of
age 59 1/2, separation from service, disability, or
financial hardship, except that income attributable to
elective contributions may not be distributed in the case of
hardship.
INDIVIDUAL RETIREMENT ANNUITIES
Sections 219 and 408 of the Code permit individuals or their
employers to contribute to an individual retirement program
known as an "Individual Retirement Annuity" or an "IRA".
Individual Retirement Annuities are subject to limitation on
the amount which may be contributed and deducted and the
time when distributions may commence. In addition,
distributions from certain other types of qualified plans
may be placed into an Individual Retirement Annuity on a
tax-deferred basis.
CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS
Section 401(a) and 403(a) of the Code permit corporate
employers to establish various types of retirement plans for
employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such
retirement plans may permit the purchase of the Contracts to
provide benefits under the plans.
DEFERRED COMPENSATION PLANS
Section 457 of the Code, while not actually providing for a
qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service
for state governments, local governments, political
sub-divisions, agencies, instrumentalities and certain
affiliates of such entities and tax exempt organizations
which enjoy special treatment. The Contracts can be used
with such plans. Under such plans a participant may specify
the form of investment in which his or her participation
will be made. All such investments, however, are owned by,
and are subject to, the claims of the general creditors of
the sponsoring employer.
The above description of federal income tax consequences
pertaining to the different types of Qualified Plans that
may be funded by the Contracts is only a brief summary and
is not intended as tax advice. The rules governing the
provisions of Qualified Plans are extremely complex and
often difficult to comprehend. Anything less than full
39
<PAGE>
compliance with the applicable rules, all of which are
subject to change, may have significant adverse tax
consequences. A prospective purchaser considering the
purchase of a Contract in connection with a Qualified Plan
should first consult a qualified and competent tax adviser
with regard to the suitability of the Contract as an
investment vehicle for the Qualified Plan.
TAX TREATMENT OF WITHDRAWALS --
QUALIFIED CONTRACTS
Section 72(t) of the Code imposes a 10% penalty tax on the
taxable portion of any distribution from qualified
retirement plans, including Contracts issued and qualified
under Code Sections 401, 403(b), 408 and 457. To the extent
amounts are not includable in gross income because they have
been properly rolled over to an IRA or to another eligible
Qualified Plan, no tax penalty will be imposed. The tax
penalty will not apply to the following distributions: (a)
if distribution is made on or after the date on which the
Payee reaches age 59 1/2; (b) distributions following the
death of the Contract Owner or Annuitant (as applicable) or
disability of the Payee (for this purpose disability is as
defined in Section 72(m)(7) of the Code); (c) after
separation from service, distributions that are part of
substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy)
of the Payee or the joint lives (or joint life expectancies)
of such Payee and his/her designated beneficiary; (d)
distributions to a Payee who has separated from service
after attaining age 55; (e) distributions made to the extent
such distributions do not exceed the amount allowable as a
deduction under Code Section 213 to the Payee for amounts
paid during the taxable year for medical care: and (f)
distributions made to an alternate payee pursuant to a
qualified domestic relations order.
The exceptions stated in Items (d), (e) and (f) above do not
apply in the case of an Individual Retirement Annuity.
FINANCIAL STATEMENTS
Audited financial statements of the Company as of and for
each of the three years in the period ended December 31,
1995 are included in the Statement of Additional
Information. No financial statements are included for the
Variable Account, which had not yet commenced operations as
of December 31, 1995.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable
Account, the Distributor or the Company is a party except
for routine litigation which the Company does not believe is
relevant to the Contracts offered by this Prospectus.
40
<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information which contains more details concerning
some subjects discussed in this Prospectus is available (at no cost) by calling
or writing the Annuity & Variable Life Services Center. The following is the
Table of Contents for that Statement:
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
THE CONTRACTS-GENERAL PROVISIONS................ 3
The Contracts................................. 3
Loans......................................... 3
Non-Participating Contracts................... 3
Misstatement of Age........................... 3
CALCULATION OF VARIABLE ACCOUNT VALUES........ 3
Variable Accumulation Unit Value and
Variable Accumulation Value.................. 3
Net Investment Factor......................... 4
SAMPLE CALCULATIONS AND TABLES.................. 4
Variable Account Unit Value Calculations...... 4
Withdrawal Charge and Market Value Adjustment
Tables....................................... 5
STATE REGULATION OF THE COMPANY................. 6
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
ADMINISTRATION.................................. 7
ACCOUNT INFORMATION............................. 7
DISTRIBUTION OF THE CONTRACTS................... 7
CUSTODY OF ASSETS............................... 7
HISTORICAL PERFORMANCE DATA..................... 8
Money Market Sub-Account Yield................ 8
Other Sub-Account Yields...................... 8
Total Returns................................. 9
Other Performance Data........................ 9
LEGAL MATTERS................................... 10
LEGAL PROCEEDINGS............................... 10
EXPERTS......................................... 10
FINANCIAL STATEMENTS............................ 10
CIGNA Life Insurance Company.................... 11
</TABLE>
41
<PAGE>
APPENDIX I
ILLUSTRATION OF THE
COST OF OPTIONAL DEATH BENEFITS
- ------------------------------------------------------------
SIMPLIFIED EXAMPLE
Contract Owner: Mrs. Smith, female, age 57
Death Benefit Choice: D (annual step-up)
<TABLE>
<CAPTION>
GUARANTEED
DATE ACCOUNT VALUE* DEATH BENEFIT AMOUNT AT RISK
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
May 15, Year 1 $30,000 $30,000 $0.00
(New contract --
date policy is in
force)
- -----------------------------------------------------------------------------------------------------------------
May 15, Year 2 $40,000 $40,000 $0.00
(First contract (Death benefit
anniversary) steps up.)
- -----------------------------------------------------------------------------------------------------------------
June 15, Year 2 $30,000 $40,000 Guar. Death Bene. equals: $40,000
(Last day of month. (Market correction has Account Value equals: -$30,000
Account is assessed occurred. Account value AMOUNT AT RISK EQUALS: -------
for death benefit has fallen below (Owner WILL be charged for $10,000
charges.) guaranteed death benefit.) death benefit this month.)
- -----------------------------------------------------------------------------------------------------------------
July 15, Year 2 $40,000 $40,000 Guar. Death Bene. equals: $40,000
(One month later.) (Market recovers. Account Account Value equals: -$40,000
value has increased.) AMOUNT AT RISK EQUALS: -------
(Owner will NOT be charged for $0.00
death benefit this month.)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
In the case shown above, the Amount at Risk on June 15, Yr. 2 would be $10,000.
Now refer to the chart below, also found on page 22 of this prospectus. A 57
year old female will pay $8.34 per thousand of Amount at Risk. 10 X $8.34 =
$83.40. That amount is an annual charge. It is divided by 12 to determine the
monthly charge of $6.95.
In the example above, no Amount at Risk exists on July 15, Yr. 2. The Owner will
NOT be charged for a death benefit that month. However a market recovery in June
will not affect a death benefit charge already accrued for May. That charge is
fixed and will appear on the Owner's annual statement at the end of the Contract
Year.
<TABLE>
<CAPTION>
COST OF OPTIONAL DEATH BENEFIT(S)
ACTUAL RATE PER $1,000
OF AMOUNT AT RISK
----------------------------------
ATTAINED AGE MALE FEMALE UNISEX
- ----------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Less than 40................................... $ 2.40 $ 1.99 $ 2.20
40-45.......................................... 3.02 2.54 2.78
46-50.......................................... 4.92 4.02 4.47
51-55.......................................... 7.30 5.70 6.50
56-60.......................................... 11.46 8.34 9.90
61-65.......................................... 17.54 11.55 14.55
66-70.......................................... 27.85 18.19 23.02
71-75.......................................... 43.30 27.57 35.44
76-80.......................................... 70.53 47.33 58.93
81-85.......................................... 117.25 87.04 102.15
86-90.......................................... 179.55 147.37 163.46
91+............................................ 400.00 380.00 390.00
</TABLE>
*After $35 Account Fee is applied.
42
<PAGE>
[LOGO]
543778 (5/96)
<PAGE>
PART B. STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS
Issued through
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
Offered by
CIGNA LIFE INSURANCE COMPANY
Home Office Location
900 Cottage Grove Road
Hartford, Connecticut 06152
Mailing Address
CIGNA Individual Insurance
Annuity & Variable Life Services Center
Routing S-249
Hartford, Connecticut 06152-2249
(800)(552-9898)
This Statement of Additional Information ("Statement") expands upon subjects
discussed in the current Prospectus for the Variable Annuity Contracts (the
"Contracts") offered by CIGNA Life Insurance Company through CIGNA Variable
Annuity Separate Account I. You may obtain a copy of the Prospectus dated May 1,
1996, by calling (800) 552-9898, or by writing to Annuity & Variable Life
Services Center, Routing S-249, CIGNA Life Insurance Company, Hartford,
Connecticut 06152-2249. Terms used in the current Prospectus for the Contracts
are incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACTS AND CIGNA
VARIABLE ANNUITY SEPARATE ACCOUNT I.
Dated: May 1, 1996
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE CONTRACTS -- GENERAL PROVISIONS........................................................................ 3
The Contracts............................................................................................ 3
Loans.................................................................................................... 3
Non-Participating Contracts.............................................................................. 3
Misstatement of Age...................................................................................... 3
CALCULATION OF VARIABLE ACCOUNT VALUES..................................................................... 3
Variable Accumulation Unit Value......................................................................... 3
Net Investment Factor.................................................................................... 4
SAMPLE CALCULATIONS AND TABLES............................................................................. 4
Variable Account Unit Value Calculations................................................................. 4
Withdrawal Charge and Market Value Adjustment Tables..................................................... 5
STATE REGULATION OF THE COMPANY............................................................................ 6
ADMINISTRATION............................................................................................. 7
ACCOUNT INFORMATION........................................................................................ 7
DISTRIBUTION OF THE CONTRACTS.............................................................................. 7
CUSTODY OF ASSETS.......................................................................................... 7
HISTORICAL PERFORMANCE DATA................................................................................ 8
Money Market Sub-Account Yield........................................................................... 8
Other Sub-Account Yields................................................................................. 8
Total Returns............................................................................................ 9
Other Performance Data................................................................................... 9
LEGAL MATTERS.............................................................................................. 10
LEGAL PROCEEDINGS.......................................................................................... 10
EXPERTS.................................................................................................... 10
FINANCIAL STATEMENTS....................................................................................... 10
CIGNA Life Insurance Company............................................................................. 11
</TABLE>
2
<PAGE>
In order to supplement the description in the Prospectus, the following
provides additional information about CIGNA Life Insurance Company (the
"Company") and the Contracts which may be of interest to a Contract Owner. Terms
have the same meaning as in the Prospectus, unless otherwise indicated.
THE CONTRACTS -- GENERAL PROVISIONS
THE CONTRACTS
A Contract, attached riders, amendments and any application, form the entire
contract. Only the President, a Vice President, a Secretary, a Director, or an
Assistant Director of the Company may change or waive any provision in a
Contract. Any changes or waivers must be in writing. The Company may change or
amend the Contracts if such change or amendment is necessary for the Contracts
to comply with or take advantage of any state or federal law, rule or
regulation.
LOANS
Under the Contracts, loans are not permitted.
NON-PARTICIPATING CONTRACTS
The Contracts do not participate or share in the profits or surplus earnings
of the Company.
MISSTATEMENT OF AGE
If the age of the Annuitant is misstated, any amounts payable by the Company
under the Contract will be adjusted to be those amounts which the Premium
Payments would have purchased for the correct age, according to the Company's
rates in effect on the Date of Issue. Any overpayment by the Company, with
interest at the rate of 6% per year, compounded annually, will be charged
against the payments to be made next succeeding the adjustment. Any underpayment
by the Company will be paid in a lump sum.
If the age or sex of the Owner is misstated, the Company will adjust the
charge associated with the Optional Death Benefits elected to the charges that
would have been assessed for the correct age and sex.
CALCULATION OF VARIABLE ACCOUNT VALUES
On any Valuation Date, the Variable Account value is equal to the totals of
the values allocated to the Contracts in each Sub-Account. The portion of an
Owner's Annuity Account Value held in any Variable Account Sub-Account is equal
to the number of Sub-Account units allocated to a Contract multiplied by the
Sub-Account accumulation unit value as described below.
VARIABLE ACCUMULATION UNIT VALUE
Upon receipt of a Premium Payment by the Company at its Annuity & Variable
Life Services Center, all or that portion, if any, of the Premium Payment to be
allocated to the Variable Account Sub-Accounts will be credited to the Variable
Account in the form of Variable Accumulation Units. The number of particular
Variable Accumulation Units to be credited is determined by dividing the dollar
amount allocated to the particular Variable Account Sub-Account by the Variable
Accumulation Unit Value for the particular Variable Account Sub-Account for the
Valuation Period during which the Premium Payment is received at the Company's
Variable Products Service Center (for the initial Premium Payment, for the
Valuation Period during which the Premium Payment is accepted).
The Variable Accumulation Unit Value for each Variable Account Sub-Account
was set initially at $10.00 for the first Valuation Period of the particular
Variable Account Sub-Account. The Variable Account commenced operations on
January 22, 1996. The Variable Accumulation Unit Value for the particular
Variable Account Sub-Account for any subsequent Valuation Period is determined
by multiplying the Variable Accumulation Unit Value for the particular Variable
Account Sub-Account for the immediately preceding Valuation Period by the Net
Investment Factor for the particular Variable Account Sub-Account for such
subsequent Valuation Period. The Variable Accumulation Unit
3
<PAGE>
Value for each Variable Account Sub-Account for any Valuation Period is the
value determined as of the end of the particular Valuation Period and may
increase, decrease, or remain constant from Valuation Period to Valuation
Period.
The Variable Account portion of the Annuity Account Value, if any, for any
Valuation Period is equal to the sum of the value of all Variable Accumulation
Units of each Variable Account Sub-Account credited to the Contract for such
Valuation Period. The value in a Contract of each Variable Account Sub-Account
is determined by multiplying the number of Variable Accumulation Units, if any,
credited to such Variable Account Sub-Account in a Contract by the Variable
Accumulation Unit Value of the particular Variable Account Sub-Account for such
Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Variable Account Sub-Account from one Valuation Period to the
next. The Net Investment Factor may be greater or less than or equal to 1.0;
therefore, the value of a Variable Accumulation Unit may increase, decrease, or
remain the same.
The Net Investment Factor for any Variable Account Sub-Account for any
Valuation Period is determined by dividing (a) by (b) and then subtracting (c)
from the result where:
(a) is the net result of:
(1) the net asset value of a Fund share held in the Variable Account
Sub-Account determined as of the end of the Valuation Period, plus
(2) the per share amount of any dividend or other distribution declared
by the Fund on the shares held in the Variable Account Sub-Account if
the "ex-dividend" date occurs during the Valuation Period, plus or
minus
(3) a per share credit or charge with respect to any taxes paid or
reserved for by the Company during the Valuation Period which are
determined by the Company to be attributable to the operation of the
Variable Account Sub-Account;
(b) is the net asset value of a Fund share held in the Variable Account
Sub-Account determined as of the end of the preceding Valuation Period;
and
(c) is the asset charge factor determined by the Company for the valuation
period to reflect the charges for assuming mortality and expense risks
and for administrative expenses.
SAMPLE CALCULATIONS AND TABLES
VARIABLE ACCOUNT UNIT VALUE CALCULATIONS
VARIABLE ACCUMULATION UNIT VALUE CALCULATION. Assume the net asset value of
a Fund share at the end of the current Valuation Period is $16.50; and its value
at the end of the immediately preceding Valuation Period was $16.46; the
Valuation Period is one day; and no dividends or distributions caused Fund
shares to go "ex-dividend" during the current Valuation Period. $16.50 divided
by $16.46 is 1.002430134. Subtracting the one day risk factor for mortality and
expense risks and the administrative expense charge of .00003584933 (the daily
equivalent of the current charge of 1.30% on an annual basis) gives a net
investment factor of 1.00239428467. If the value of the Variable Accumulation
Unit for the immediately preceding Valuation Period had been $14.703693, the
value for the current Valuation Period would be $14.738898 ($14.703693 X
1.00239428467).
VARIABLE ANNUITY UNIT VALUE CALCULATION. The assumptions in the above
example exist. Also assume that the value of an Annuity Unit for the immediately
preceding Valuation Period had been $13.579136. As the first variable annuity
payment is determined by using an assumed interest rate of 3% per year, the
value of the Annuity Unit for the current Valuation Period would be $13.610546
[$13.579136 X 1.00239428467 (the net investment factor) X 0.999919020].
0.999919020 is the factor, for a one day Valuation Period, that neutralizes the
assumed interest rate of three percent (3%) per year used to establish the
Annuity Payment Rates found in the Contract.
4
<PAGE>
VARIABLE ANNUITY PAYMENT CALCULATION. Assume that a Participant's Variable
Annuity Account is credited with 5319.7531 Variable Accumulation Units of a
particular Sub-Account; that the Variable Accumulation Unit Value and the
Annuity Unit Value for the particular Sub-Account for the Valuation Period which
ends immediately preceding the Annuity Date are $14.703693 and $13.579136
respectively; that the Annuity Payment Rate for the age and option elected is
$6.52 per $1,000; and that the Annuity Unit Value on the day prior to the second
variable annuity payment date is $13.610170. The first variable annuity payment
would be $509.99 (5319.7531 X $14.703693 X 6.52 divided by 1,000). The number of
Annuity Units credited would be 37.5569 ($509.99 divided by $13.579136) and the
second variable annuity payment would be $511.16 (37.5569 X $13.610170).
WITHDRAWAL CHARGE AND MARKET VALUE ADJUSTMENT TABLES
The following example illustrates the detailed calculations for a $100,000
deposit into the Fixed Account with a guaranteed rate of 8% for a duration of
five years. The intent of the example is to show the effect of the Market Value
Adjustment ("MVA") and the 3% minimum guarantee under various interest rates on
the calculation of the cash surrender (withdrawal) value. Any charges for
optional death benefit risks are not taken into account in the example. The
effect of the MVA is reflected in the index rate factor in column (2) and the
minimum 3% guarantee is shown under column (4) under the "Surrender Value
Calculation". The "Surrender Charge Calculation" assumes there have been no
prior withdrawals and illustrates the operation of the Fifteen Percent Free
provision of the Contract. The "Market Value Adjustment Tables" and "Minimum
Value Calculation" contain the explicit calculation of the index factors and the
3% minimum guarantee respectively. The "Annuity Value Calculation" and "Minimum
Value" calculations assume the imposition of the annual $35 Annuity Account Fee
charge, but that fee is waived if the Annuity Account Value at the end of a
Contract Year is $100,000 or more.
WITHDRAWAL CHARGE TABLES
SAMPLE CALCULATIONS FOR MALE 35 ISSUE
CASH SURRENDER VALUES
<TABLE>
<S> <C>
Single premium................ $100,000
Premium taxes................. 0
Withdrawals................... None
Guaranteed period............. 5 years
Guaranteed interest rate...... 8%
Annuity date.................. Age 70
Index rate A.................. 7.5%
Index rate B.................. 8.00% end of contract year 1
7.75% end of contract year 2
7.00% end of contract year 3
6.50% end of contract year 4
Percentage adjustment to B.... 0.5%
</TABLE>
SURRENDER VALUE CALCULATION
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6) (7)
ANNUITY INDEX RATE ADJUSTED MINIMUM GREATER OF SURRENDER SURRENDER
CONTRACT YEAR VALUE FACTOR ANNUITY VALUE VALUE (3)&(4) CHARGE VALUE
- -------------------------------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1............................... $ 107,965 0.963640 $ 104,039 $ 102,965 $ 104,039 $ 5,950 $ 98,089
2............................... $ 116,567 0.993056 $ 115,758 $ 106,019 $ 115,758 $ 5,100 $ 110,658
3............................... $ 125,858 1.000000 $ 125,858 $ 109,165 $ 125,858 $ 4,250 $ 121,608
4............................... $ 135,891 1.004673 $ 136,526 $ 112,404 $ 136,526 $ 3,400 $ 133,126
5............................... $ 146,727 1.000000 $ 146,727 $ 115,742 $ 146,727 $ 2,550 $ 144,177
</TABLE>
5
<PAGE>
ANNUITY VALUE CALCULATION
<TABLE>
<CAPTION>
CONTRACT YEAR ANNUITY VALUE
- ------------------------------ ------------------------------------------
<S> <C>
1............................. $100,000 X 1.08 - $35 = $107,965
2............................. $107,965 X 1.08 - $35 = $116,567
3............................. $116,567 X 1.08 - $35 = $125,858
4............................. $125,858 X 1.08 - $35 = $135,891
5............................. $135,891 X 1.08 - $35 = $146,727
</TABLE>
SURRENDER CHARGE CALCULATION
<TABLE>
<CAPTION>
(2)
(1) SURRENDER CHARGE FACTOR (3)
SURRENDER ADJUSTED SURRENDER
CONTRACT YEAR CHARGE FACTOR FOR FREE PARTIAL WITHDRAWALS CHARGE
- ------------------------------------------------------ --------------- ------------------------------- -----------
<S> <C> <C> <C>
1..................................................... 0.07 0.0595 $ 5,950
2..................................................... 0.06 0.0510 $ 5,100
3..................................................... 0.05 0.0425 $ 4,250
4..................................................... 0.04 0.0340 $ 3,400
5..................................................... 0.03 0.0255 $ 2,550
</TABLE>
MARKET VALUE ADJUSTMENT TABLES
INTEREST RATE FACTOR CALCULATION
<TABLE>
<CAPTION>
(3) (5)
(1) (2) ADJUSTED (1+A)to the power of n
INDEX INDEX INDEX RATE (4) ------
CONTRACT YEAR RATE A RATE B B N (1+B)to the power of n
- ------------------------------------------------------- ------ ------ ----------- ----- ------------
<S> <C> <C> <C> <C> <C>
1...................................................... 7.5% 8.00 8.50 4 0.963640
2...................................................... 7.5% 7.75 7.75 3 0.993056
3...................................................... 7.5% 7.00 7.50 2 1.000000
4...................................................... 7.5% 6.50 7.00 1 1.004673
5...................................................... 7.5% NA NA 0 NA
</TABLE>
MINIMUM VALUE CALCULATION
<TABLE>
<CAPTION>
CONTRACT YEAR MINIMUM VALUE
- ------------------------------ ------------------------------------------
<S> <C>
1............................. $100,000 X 1.03 - $35 = $102,965
2............................. $102,965 X 1.03 - $35 = $106,019
3............................. $106,019 X 1.03 - $35 = $109,165
4............................. $109,165 X 1.03 - $35 = $112,404
5............................. $112,404 X 1.03 - $35 = $115,742
</TABLE>
STATE REGULATION OF THE COMPANY
The Company, a Connecticut corporation, is subject to regulation by the
Connecticut Department of Insurance. An annual statement is filed with the
Connecticut Department of Insurance each year covering the operations and
reporting on the financial condition of the Company as of December 31 of the
preceding year. Periodically, the Connecticut Department of Insurance or other
authorities examine the liabilities and reserves of the Company and the Variable
Account, and a full examination of the Company's operations is conducted
periodically by the Connecticut Department of Insurance. In addition, the
Company is subject to the insurance laws and regulations of other states within
which it is licensed to operate. Generally, the Insurance Department of any
other state applies the laws of the state of domicile in determining permissible
investments.
The fixed account values and benefits of each Contract are governed by state
nonforfeiture laws, and separate account values and benefits are governed by
state separate account laws.
6
<PAGE>
ADMINISTRATION
The Company performs certain administrative functions relating to the
Contracts, the individual Annuity Accounts, the Fixed Account, and the Variable
Account. These functions include, among other things, maintaining the books and
records of the Variable Account, the Fixed Account, and the Sub-Accounts, and
maintaining records of the name, address, taxpayer identification number,
contract number, Annuity Account number and type, the status of each Annuity
Account and other pertinent information necessary to the administration and
operation of the Contracts.
ACCOUNT INFORMATION
At least once during each Calendar Year, the Company will furnish each Owner
with a report showing the Annuity Account Value at the end of the preceding
Calendar Year, all transactions during the Calendar Year, the current Annuity
Account Value, the number of Accumulation Units in each Variable Account
Sub-Account Accumulation Account and the applicable Accumulation Unit Value as
of the date of the report. In addition, each person having voting rights in the
Variable Account and a Fund or Funds will receive each such reports or
prospectuses as may be required by the Investment Company Act of 1940 and the
Securities Act of 1933. The Company will also send each Owner such statements
reflecting transactions in the Owner's Annuity Account as may be required by
applicable laws, rules and regulations.
Upon request to the Annuity & Variable Life Services Center, the Company
will provide an Owner with information regarding fixed and variable accumulation
values.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be sold by licensed insurance agents in those states
where the Contracts 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 Association of Securities Dealers, Inc.
(NASD). The Contracts 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 as well for Connecticut General Life Insurance
Company's registered separate accounts. Commissions and other distribution
compensation will be paid by the Company and will not be more than 6.50% of
Premium Payments. No deferred sales charges have been received by the Company.
Sales charges on and exchange privileges under the Contracts are described
in the Prospectus. There are no variations in the prices at which the Contracts
are offered for certain types of purchasers.
CUSTODY OF ASSETS
The Company is the Custodian of the assets of the Variable Account. The
Company will purchase Fund shares at net asset value in connection with amounts
allocated to the Variable Account Sub-Accounts in accordance with the
instructions of the Purchasers and redeem Fund shares at net asset value for the
purpose of meeting the contractual obligations of the Variable Account, paying
charges relative to the Variable Account or making adjustments for annuity
reserves held in the Variable Account. The assets of the Sub-Accounts of the
Variable Account are held separate and apart from the assets of any other
segregated asset accounts of the Company and separate and apart from the
Company's general account assets. The Company maintains records of all purchases
and redemptions of shares of each Fund held by each of the Sub-Accounts of the
Variable Account. Additional protection for the assets of the Variable Account
is afforded by the Company's fidelity bond covering the acts of officers and
employees of the Company which is presently in the amount of $100,000,000.
7
<PAGE>
HISTORICAL PERFORMANCE DATA
No historical performance data for each of the Sub-Accounts of the Separate
Account, is yet available, as the Separate Account had not commenced operations
as of December 31, 1995.
MONEY MARKET SUB-ACCOUNT YIELD
From time to time, the Money Market Sub-Account may advertise its "yield"
and "effective yield." Both yield figures will be based on historical earnings
and are not intended to indicate future performance. The "yield" of the Money
Market Sub-Account refers to the income generated by Annuity Account Values in
the Money Market Sub-Account over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
Annuity Account Values in the Money Market Sub-Account. The "effective yield" is
calculated similarly but, when annualized, the income earned by Annuity Account
Values in the Money Market Sub-Account is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. The computation of the yield
calculation includes a deduction for the Mortality and Expense Risk Charge, the
Administrative Expense Charge, and the Annuity Account Fee.
The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)to the power of 365/7 - 1
The yield on amounts held in the Money Market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Money Market Sub-Account's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Fund, the types and quality of portfolio securities held by the
Money Market Fund and its operating expenses. The yield figures do not reflect
withdrawal charges or premium taxes or any charges for Optional Death Benefit(s)
selected.
OTHER SUB-ACCOUNT YIELDS
The Company may from time to time advertise or disclose the current
annualized yield of one or more of the Sub-Accounts of the Variable Account
(except the Money Market Sub-Account) for 30-day periods. The annualized yield
of a Sub-Account refers to income generated by the Sub-Account over a specific
30-day period. Because the yield is annualized, the yield generated by a
Sub-Account during the 30-day period is assumed to be generated each 30-day
period over a 12-month period. The yield is computed by: (i) dividing the net
investment income per accumulation unit earned during the period by the maximum
offering price per unit on the last day of the period, according to the
following formula:
Yield = 2 [(a - b + 1)to the power of 6 - 1]
-----
cd
Where: a = Net investment income earned during the period by
the Fund attributable to shares owned by the
Sub-Account.
b = Expenses accrued for the period.
c = The average daily number of accumulation units
outstanding during the period.
d = The maximum offering price per accumulation unit
on the last day of the period.
Because of the charges and deductions imposed by the Variable Account, the
yield for a Sub-Account of the Variable Account will be lower than the yield for
its corresponding Fund. The yield calculations do not reflect the effect of any
premium taxes or deferred sales charges that may be
8
<PAGE>
applicable to a particular Contract. Deferred sales charges range from 7% to 1%
of the amount withdrawn or surrendered on total Premium Payments paid less prior
partial withdrawals, based on the Contract Year in which the withdrawal or
surrender occurs.
The yield on amounts held in the Sub-Accounts of the Variable Account
normally will fluctuate over time. Therefore, the disclosed yield for any given
past period is not an indication or representation of future yields or rates of
return. A Sub-Account's actual yield is affected by the types and quality of the
Fund's investments and its operating expenses.
TOTAL RETURNS
The Company may from time to time also advise or disclose annual average
total returns for one or more of the Sub-Accounts of the Variable Account for
various periods of time. When a Sub-Account has been in operation for 1, 5 and
10 years, respectively, the total return for these periods will be provided.
Total returns for other periods of time may from time to time also be disclosed.
Total returns represent the average annual compounded rates of return that would
equate the initial amount invested to the redemption value of that investment as
of the last day of each of the periods.
Total returns will be calculated using Sub-Account Unit Values which the
Company calculates on each Valuation Period based on the performance of the
Sub-Account's underlying Fund, and the deductions for the mortality and expense
risk charge, the administrative expense charge, and the Annuity Account Fee. The
Annuity Account Fee is reflected by dividing the total amount of such charges
collected during the year that are attributable to the Variable Account by the
total average net assets of all the Variable Sub-Accounts. The resulting
percentage is deducted from the return in calculating the ending redeemable
value. These figures will not reflect any premium taxes or any charges for any
Optional Death Benefit selected by the Owner. Total return calculations will
reflect the effect of deferred sales charges that may be applicable to a
particular period. The total return will then be calculated according to the
following formula:
P(1+T)to the power of n = ERV
Where: P = A hypothetical initial Premium Payment of $1,000.
T = Average annual total return.
n = Number of years in the period.
ERV = Ending redeemable value of a hypothetical $1,000
payment made at the beginning of the one, five or
ten-year period, at the end of the one, five or
ten-year period (or fractional portion thereof).
OTHER PERFORMANCE DATA
The Company may from time to time also disclose average annual total returns
in a non-standard format in conjunction with the standard format described
above. The non-standard format will be identical to the standard one except that
the deferred sales charge percentage will be assumed to be 0%.
9
<PAGE>
The Company may from time to time disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula assuming that the deferred sales
charge percentage will be 0%.
CTR = (ERV/P) - 1
Where: CTR = The cumulative total return net of
Sub-Account recurring charges for the
period.
ERV = The ending redeemable value of the
hypothetical investment made at the
beginning of the one, five or ten-year
period, at the end of the one, five or
ten-year period (or fractional portion
thereof).
P = A hypothetical initial payment of
$10,000
All non-standard performance data will only be advertised if the standard
performance data is also disclosed.
The Company may also from time to time use advertising which includes
hypothetical illustrations to compare the difference between the growth of a
taxable investment and a tax-deferred investment in a variable annuity.
LEGAL MATTERS
Legal advice regarding certain matters relating to the federal securities
laws applicable to the issuance of the Contracts described in the Prospectus and
this Statement has been provided by George N. Gingold, Esq., 197 King Philip
Drive, West Hartford, CT 06117. All matters of Connecticut law pertaining to the
Contracts, including the validity of the Contracts and the Company's right to
issue the Contracts under Connecticut Insurance Law and any other applicable
state insurance or securities laws, have been passed upon by Robert A.
Picarello, Chief Counsel, Individual Insurance, CIGNA Companies.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party or
to which the assets of the Variable Account are subject. The Company is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Variable Account.
EXPERTS
The financial statements of CIGNA 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 Statement of Additional Information have been so included
in reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting. 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 Statement of
Additional Information is a part.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this Statement
should be considered only as bearing on the ability of the Company to meet the
obligations under the Contracts. They should not be considered as bearing on the
investment performance of the assets held in the Variable Account, or on the
Guaranteed Interest Rate credited by the Company during a Guaranteed Period. No
financial statements of the Variable Account are included, because as of
December 31, 1995 the Variable Account had not yet commenced operations.
10
<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 of
CIGNA Life Insurance Company
In our opinion, the accompanying balance sheets and the related statements of
income and retained earnings and of cash flows present fairly, in all material
respects, the financial position of CIGNA Life Insurance Company 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]
11
<PAGE>
CIGNA LIFE INSURANCE COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees................................................. $ 1,263 $ 1,327 $ 1,456
Net investment income............................................. 1,293 1,184 1,162
--------- --------- ---------
Total revenues.................................................. 2,556 2,511 2,618
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses.......................... 1,461 1,531 2,047
Other operating expenses.......................................... 456 77 67
--------- --------- ---------
Total benefits, losses and expenses............................. 1,917 1,608 2,114
--------- --------- ---------
INCOME BEFORE INCOME TAXES........................................ 639 903 503
--------- --------- ---------
Income taxes (benefits):
Current......................................................... 242 319 164
Deferred........................................................ (16) (2) 71
--------- --------- ---------
Total taxes................................................... 226 317 235
--------- --------- ---------
NET INCOME........................................................ 413 586 269
Retained earnings, beginning of year.............................. 4,251 3,665 3,396
--------- --------- ---------
RETAINED EARNINGS, END OF YEAR.................................... $ 4,664 $ 4,251 $ 3,665
- ---------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
12
<PAGE>
CIGNA LIFE INSURANCE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities: available for sale, at fair value
(amortized cost, $13,140; $13,014).................................... $ 14,201 $ 12,732
Short-term investments................................................. 1,822 1,455
--------- ---------
Total investments...................................................... 16,023 14,187
Cash and cash equivalents................................................ 4,125 3,902
Accrued investment income................................................ 321 316
Premiums and accounts receivable......................................... 271 286
Current income taxes..................................................... 24 --
Deferred income taxes, net............................................... 62 516
- -----------------------------------------------------------------------------------------------
Total.................................................................. $ 20,826 $ 19,207
- -----------------------------------------------------------------------------------------------
--------------------
LIABILITIES
Future policy benefits................................................... $ 9,616 $ 9,185
Unpaid claims and claim expenses......................................... 285 383
--------- ---------
Total insurance liabilities............................................ 9,901 9,568
Accounts payable, accrued expenses and other liabilities................. 71 12
Current income taxes..................................................... -- 59
- -----------------------------------------------------------------------------------------------
Total liabilities...................................................... 9,972 9,639
- -----------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock (25 shares outstanding)..................................... 2,500 2,500
Additional paid-in capital............................................... 3,000 3,000
Net unrealized appreciation (depreciation)............................... 690 (183)
Retained earnings........................................................ 4,664 4,251
- -----------------------------------------------------------------------------------------------
Total shareholder's equity............................................. 10,854 9,568
- -----------------------------------------------------------------------------------------------
Total.................................................................. $ 20,826 $ 19,207
- -----------------------------------------------------------------------------------------------
--------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
13
<PAGE>
CIGNA LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 413 $ 586 $ 269
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Insurance liabilities...................................... 333 206 233
Accrued investment income.................................. (5) -- 3
Premiums and accounts receivable........................... 15 30 43
Deferred income taxes, net................................. (16) (2) (71)
Accounts payable, accrued expenses, other liabilities and
current income taxes...................................... (24) (18) (36)
Other, net................................................. 40 41 31
--------- --------- ---------
Net cash provided by operating activities.................. 756 843 614
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from short-term investments sold...................... 414 2,830 1,927
Maturities and repayments of fixed maturities.................. 25 130 535
Purchases:
Fixed maturities............................................. (191) (130) (555)
Short-term investments....................................... (781) (1,768) (1,373)
--------- --------- ---------
Net cash provided by (used in) activities.................. (533) (1,062) (534)
- ------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents...................... 223 1,905 1,148
Cash and cash equivalents, beginning of year................... 3,902 1,997 849
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year......................... $ 4,125 $ 3,902 $ 1,997
- ------------------------------------------------------------------------------------------------
-------------------------------
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds............................ $ 325 $ 340 $ 181
- ------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
14
<PAGE>
CIGNA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
CIGNA Life Insurance Company (the Company) is a wholly-owned subsidiary of
Connecticut General Life Insurance Company (CGLIC), which is an indirect
wholly-owned subsidiary of CIGNA Corporation (CIGNA). Substantially all of the
Company's business results from reinsurance arrangements with CGLIC, principally
for individual life insurance. The Company will commence marketing individual
variable annuity products in 1996.
See also Note 7 for information on reinsurance activities with CGLIC.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION: These financial statements have been prepared in
conformity with generally accepted accounting principles, and reflect
management's estimates and assumptions, such as those regarding interest rates,
that affect the recorded amounts. Significant estimates, such as those used in
determining insurance liabilities, 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) FINANCIAL INSTRUMENTS: In the normal course of business, the Company
enters into transactions involving financial instruments such as fixed
maturities and short-term investments. 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, obtains collateral or other forms of
security to minimize risk of loss.
Financial instruments that are subject to fair value disclosure requirements
(insurance contracts are excluded) are carried in the financial statements at
amounts that approximate fair value. The fair values used for financial
instruments are estimates that in many cases may differ significantly from the
amounts that could be realized upon immediate liquidation. For additional
information on fair values of bonds, see Note 3.
C) INVESTMENTS: Investments in fixed maturities include bonds. Fixed
maturities are classified as available for sale and 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. Unrealized investment gains
and losses, net of deferred income taxes, if applicable, for investments carried
at fair value are included directly in Shareholder's Equity.
D) 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.
E) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for life
insurance. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. These liabilities are
computed using the net level premium method for individual life 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 policies are computed using interest
rates ranging from approximately 4.5% to 6.0%. Mortality, morbidity, and
withdrawal assumptions are based on either the Company's own experience or
various actuarial tables.
F) 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.
G) OTHER LIABILITIES: Other Liabilities consists principally of various
insurance-related liabilities for taxes, licenses and fees.
15
<PAGE>
H) PREMIUMS AND FEES AND RELATED EXPENSES: Premiums are recognized as revenue
when due. Benefits, losses and expenses are matched with premiums.
I) INCOME TAXES: The Company is 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: The amortized cost and fair value by contractual
maturity periods for available-for-sale fixed maturities (carried at fair value)
as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Amortized Fair
(IN THOUSANDS) Cost Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Available for Sale (Carried at Fair Value)
Due in one year or less............................................... $ 110 $ 111
Due after one year through five years................................. 4,323 4,556
Due after five years through ten years................................ 8,665 9,486
Due after ten years................................................... 42 48
- ----------------------------------------------------------------------------------------------
Total................................................................. $ 13,140 $ 14,201
- ----------------------------------------------------------------------------------------------
----------------------
</TABLE>
Actual maturities could differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
Gross unrealized appreciation (depreciation) for fixed maturities by type of
issuer was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31, 1995
- ----------------------------------------------------------------------------------------------------
Amortized Fair
(IN THOUSANDS) Cost Appreciation Depreciation Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale (Carried at Fair Value)
Federal government bonds.................. $ 10,570 $ 849 $ (8) $11,411
Foreign government bonds.................. 530 45 -- 575
Corporate bonds........................... 2,040 175 -- 2,215
- ----------------------------------------------------------------------------------------------------
Total..................................... $ 13,140 $ 1,069 $ (8) $14,201
- ----------------------------------------------------------------------------------------------------
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
December 31, 1994
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Amortized Fair
(IN THOUSANDS) Cost Appreciation Depreciation Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale (Carried at Fair Value)
Federal government bonds.................. $ 10,432 $ 16 $ (236) $ 10,212
Foreign government bonds.................. 535 -- (11) 524
Corporate bonds........................... 2,047 -- (51) 1,996
- ------------------------------------------------------------------------------------------------------
Total..................................... $ 13,014 $ 16 $ (298) $ 12,732
- ------------------------------------------------------------------------------------------------------
----------------------------------------------------------
</TABLE>
16
<PAGE>
B) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and
cash equivalents, in the aggregate, included debt securities, principally
corporate securities, of $4.7 million and $5.2 million and federal government
securities of $585,000 and $70,000 at December 31, 1995 and 1994, respectively,
and state and local government securities of $475,000 at December 31, 1995.
C) NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS: Unrealized
appreciation and depreciation for investments carried at fair value (fixed
maturities) as of December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation..................................................... $ 1,069 $ 16
Unrealized depreciation..................................................... (8) (298)
--------- ---------
1,061 (282)
Less deferred income (taxes) benefit........................................ (371) 99
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation).................................. $ 690 $ (183)
- --------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Net unrealized appreciation (depreciation) on investments that are carried at
fair value is included as a separate component of Shareholder's Equity, net of
deferred income taxes. The net unrealized appreciation (depreciation) for these
investments, primarily fixed maturities, during 1995, 1994 and 1993 was
$873,000, ($1.0) million and $851,000, respectively.
D) 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 -- NET INVESTMENT INCOME
The components of net investment income for the year ended December 31 were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities.................................................. $ 973 $ 971 $ 981
Short-term investments............................................ 333 225 191
--------- --------- ---------
1,306 1,196 1,172
Less investment expenses.......................................... 13 12 10
- ---------------------------------------------------------------------------------------------------
Net investment income............................................. $ 1,293 $ 1,184 $ 1,162
- ---------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
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, 1995, 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 30,000
shares of common stock authorized, and 25,000 shares issued and outstanding (par
value $100).
The Company's statutory net income was $397,000, $584,000 and $340,000 for
1995, 1994 and 1993, respectively. Statutory surplus was $9.7 million and $9.3
million 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 which may be made by the Company during 1996 without prior approval
is $966,000. The amount of restricted net assets as of December 31, 1995 was
approximately $9.9 million.
17
<PAGE>
NOTE 6 -- INCOME TAXES
The Company's net deferred tax asset of $62,000 and $516,000 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.
CIGNA's federal income tax returns are routinely audited by the Internal
Revenue Service, and provisions are made in the financial statements in
anticipation of the results of these audits. CIGNA resolved all issues
pertaining to the Company arising out of the audits for 1982 through 1990. 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 THOUSANDS) 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other insurance and contractholder liabilities.............................. $ 282 $ 282
Policy acquisition expenses................................................. 152 136
Unrealized depreciation on investments...................................... -- 99
--------- ---------
Total deferred tax assets................................................... 434 517
--------- ---------
Deferred tax liabilities:
Investments................................................................. 1 1
Unrealized appreciation on investments...................................... 371 --
--------- ---------
Total deferred tax liabilities.............................................. 372 1
- ----------------------------------------------------------------------------------------------------
Deferred income taxes, net.................................................... $ 62 $ 516
- ----------------------------------------------------------------------------------------------------
--------------------
</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 THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at nominal rate............................................ $ 224 $ 316 $ 176
Resolved federal tax audit issues...................................... -- -- 73
Increase in deferred tax asset for tax rate change..................... -- -- (14)
Other, net............................................................. 2 1 --
- --------------------------------------------------------------------------------------------------------
Total income tax expense............................................... $ 226 $ 317 $ 235
- --------------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
Temporary and other differences which resulted in the deferred income tax
benefit for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other insurance and contractholder liabilities......................... $ (16) $ 19 $ 40
Policy acquisition expenses............................................ -- (21) (28)
Resolved federal tax audit issues...................................... -- -- 73
Increase in deferred tax asset for tax rate change..................... -- -- (14)
- --------------------------------------------------------------------------------------------------------------
Deferred taxes (benefits).............................................. $ (16) $ (2) $ 71
- --------------------------------------------------------------------------------------------------------------
---------------------
</TABLE>
18
<PAGE>
NOTE 7 -- REINSURANCE
In the normal course of business, the Company assumes reinsurance from CGLIC.
Insurance premiums assumed were $1.3 million for 1995 and 1994 and $1.5 million
for 1993. All life insurance in force was assumed from CGLIC and totalled $35.3
million and $36.9 million in 1995 and 1994, respectively. The related
liabilities were $9.6 million and $9.2 million at December 31, 1995 and 1994,
respectively.
NOTE 8 -- CONTINGENCIES
A) 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 restrict
insurance pricing and the application of underwriting standards, and to expand
regulation.
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. 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.
B) LITIGATION: The Company is routinely engaged in litigation incidental to
its business. It is management's opinion that such litigation is not likely to
have a material adverse effect on the Company's results of operations, liquidity
or financial condition in future periods.
NOTE 9 -- RELATED PARTY TRANSACTIONS
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
investment. 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 $5.8
million and $5.3 million, respectively. See also Note 3(B) for additional
information regarding short-term investments.
CGLIC allocates to the Company its share of operating expenses for
administrative services provided. See Note 7 for information on reinsurance
activities with CGLIC.
19
<PAGE>
PART C. OTHER INFORMATION
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(1) Registrant -- Not Applicable. Registrant had not commenced operations
as of the end of its last fiscal year, December 31, 1995.
(2) Depositor
(A) Statements of Income and Retained Earnings for the Years Ended
December 31, 1995, 1994, and 1993.
(B) Balance Sheets As of December 31, 1995 and 1994.
(C) Statements of Cash Flows for the Years Ended December 31, 1995, 1994
and 1993.
(b) Exhibits
(1) Resolution of Board of Directors of CIGNA Life Insurance Company Dated
As of October 11, 1994 Authorizing Establishment of Registrant**
(2) Not Applicable
(3) Form of Selling Agreement among CIGNA Life Insurance Company, CIGNA
Financial Advisors, Inc. as principal underwriter, and selling
dealers.**
(4) Form of CIGNA Life Insurance Company Variable Annuity Contract Form
Number AN 420, together with Optional Methods of Settlement Riders
(Form Numbers AR 420 and AR 421).**
(5) Form of application or order to purchase Which May Be Used in
Connection with the Contract Shown As Exhibit (4), and Addendum (Form
Numbers B10242 and B10243)**
(6) (A) Certificate of Incorporation (Charter) of CIGNA Life Insurance
Company, as amended**
(B) By-Laws of CIGNA Life Insurance Company**
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Robert A. Picarello, Esq., Chief Counsel of CIGNA Life
Insurance Company*
(10) (A) Consent of Price Waterhouse LLP
(B) Consent of Robert A. Picarello, Esq. (included in Exhibit 9)*
(C) Consent of George N. Gingold, Esq.**
(11) Not Applicable
(12) Not Applicable
(13) Schedules for Computation of Performance Data**
(14) Not Applicable
(15) Power of Attorney Authorizing Signature of Any and All Amendments to
This Registration Statement**
* Incorporated by reference to initial filing of this Form N-4
Registration Statement (File No. 33-90984) made on April 6, 1995.
** Incorporated by reference to Pre-Effective Amendment No. 2 to this Form
N-4 Registration Statement (File No. 33-90984) filed on August 23, 1995.
1
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The principal business address of each of the directors and officers of
CIGNA Life Insurance Company (the "Company") is the company's Home Office, 900
Cottage Grove Road, Bloomfield, Connecticut. The mailing address is Hartford, CT
06152.
DIRECTORS AND OFFICERS OF DEPOSITOR
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH DEPOSITOR
- -------------------- ------------------------------------------------------------------------
<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
Marcy F. Blender Treasurer
Harold W. Albert Director
S. Tyrone Alexander Director
Robert W. Burgess Director
John G. Day Director
H. Edward Hanway Director and Chairman of the Board
Arthur C. Reeds, III Director
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
There follows a chart of persons controlled by or under common control with
the Depositor. The consolidated financial statements of the Depositor include
the accounts of the Depositor and its wholly-owned subsidiaries.
[chart incorporated by reference to Pre-Effective Amendment No. 1 to this
Registration Statement on Form N-4, filed April 28,1995]
ITEM 27. NUMBER OF PURCHASERS
As of February 29, 1996 there were 17 owners of the Contracts.
ITEM 28. INDEMNIFICATION
The answer to this Item 28 is incorporated by reference to Item 28 of
Pre-Effective Amendment No. 2 to this N-4 Registration Statement (File No.
33-90984) filed on August 23,1995.
ITEM 29. PRINCIPAL UNDERWRITER
The Registrant's principal underwriter is CIGNA Financial Advisors, Inc.
("CFA"), 900 Cottage Grove Road, Bloomfield, Connecticut (mailing address
Hartford, Connecticut 06152). CFA also acts as the general distributor for
variable annuity contracts and variable life insurance policies issued by the
Connecticut General Life Insurance Company. No deferred sales charges were paid
on the Contracts for the period ended December 31, 1995, as the Registrant had
not yet commenced operations.
2
<PAGE>
DIRECTORS AND OFFICERS OF PRINCIPAL UNDERWRITER
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH UNDERWRITER
- ----------------------- ---------------------------------------------------------------------
<S> <C>
Edward M. Berube President and Director
John Wilkinson Director
Karen E. Goldman Director and Assistant Vice President
Michael D. Arnold Vice President
Joy P. McConnell Vice President
James F. Meehan Vice President
Karen R. Matheson Vice President
Peter R. Scanlon Vice President
Allan P. Wick Vice President and Treasurer
Robert A. Picarello Chief Counsel and Assistant Secretary
H. Edward Cohen Assistant Vice President
Robert B. Pinkham Assistant Vice President
Therese M. Squillacote Director of Compliance
David C. Kopp Secretary
David A. Carlson Assistant Secretary
Dawn M. Cormier Assistant Secretary
David M. Porcello Assistant Secretary
Pamela S. Williams Assistant Secretary
Mary K. Cristino Assistant Treasurer
Michael M. Sinisgalli Assistant Treasurer
Brian W. Villalobos Assistant Treasurer
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder are
maintained by CIGNA Life Insurance Company at its Home Office at 900 Cottage
Grove Road, Bloomfield, Connecticut (mailing address Hartford, CT 06152).
ITEM 31. MANAGEMENT SERVICES
All management policies are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes that it will file a post effective amendment to
this registration statement under the Securities Act of 1933 as frequently as
necessary to ensure that the audited financial statements in the registration
statement are never more than 16 months old for so long as Premium Payments
under the Contracts may be accepted.
(b) Registrant undertakes that it will include either (i) a postcard or
similar written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information or (ii) a
space in the Contract application or order to purchase that an applicant can
check to request a Statement of Additional Information.
(c) Registrant undertakes to deliver promptly, upon written or oral request
made to CIGNA Life Insurance Company at the address or phone number listed in
the Prospectus, any Statement of Additional Information and any financial
statements required by Form N-4 to be made available to applicants or contract
owners.
SECTION 403(B) REPRESENTATION
Registrant represents that it is relying on a no-action letter dated
November 28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88),
regarding Sections 22(e), 27(c)(1) and 27(d) of the Investment Company Act of
1940, in connection with redeemability restrictions on Section 403(b) Contracts,
and that paragraphs numbered (1) through (4) of that letter will be complied
with.
3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, CIGNA has duly caused this Post-Effective Amendment No. 1
to its Registration Statement on Form N-4 (File No. 33-90984) to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of
Bloomfield and State of Connecticut on this 19th 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.
CIGNA VARIABLE ANNUITY SEPARATE
ACCOUNT I
(Registrant)
By /s/ THOMAS C. JONES
------------------------------------
Thomas C. Jones
PRESIDENT
CIGNA Life Insurance Company
CIGNA LIFE INSURANCE COMPANY
(Depositor)
By /s/ THOMAS C. JONES
------------------------------------
Thomas C. Jones
PRESIDENT
As required by the Securities Act of 1933, this Post-Effective Amendment No.
1 to this Registration Statement (File No. 33-90984) has been signed below on
April 19, 1996 by the following persons, as officers and directors of the
Depositor, in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
/s/ THOMAS C. JONES
------------------------------------------- President (Principal Executive Officer) and Director
Thomas C. Jones
*
------------------------------------------- Vice President and Actuary (Principal Financial Officer)
James T. Kohan
*
------------------------------------------- Vice President (Principal Accounting Officer)
Robert Moose
*
------------------------------------------- Director
Harold W. Albert
*
------------------------------------------- Director
S. Tyrone Alexander
*
------------------------------------------- Director
Robert W. Burgess
*
------------------------------------------- Director
John G. Day
*
------------------------------------------- Director
Arthur C. Reeds, III
*By /s/ ROBERT A. PICARELLO
---------------------------------------
Robert A. Picarello
ATTORNEY-IN-FACT
(A Majority of the Directors)
</TABLE>
<PAGE>
EXHIBIT (B)(10)(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 1 under the Securities
Act of 1933 and Amendment No. 4 under the Investment Company Act of 1940 to the
registration statement of the CIGNA Variable Annuity Separate Account I on Form
N-4 of our report dated February 13, 1996, relating to the financial statements
of CIGNA Life Insurance Company, which appears in such Statement of Additional
Information. We also consent to the reference to us under the heading "Experts"
in such Statement of Additional Information.
Price Waterhouse LLP
Hartford, Connecticut
April 19, 1996
