<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1997
1933 Act Registration No. 33-90984
1940 Act Registration No. 811-9014
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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. 3 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 6 /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 Edwin L. Kerr, Esquire
CIGNA Life Insurance Company CIGNA Life Insurance Company
900 Cottage Grove Road 900 Cottage Grove Road
Hartford, Connecticut 06152 Hartford, CT 06152
(NAME AND ADDRESS OF and
AGENT FOR SERVICE) Michael Berenson, Esq.
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. Form 24F-2 for Registrant's most recent fiscal year, which ended
December 31, 1996, was filed February 26, 1997.
It is proposed that this filing will become effective:
_________ immediately upon filing pursuant to paragraph (b) of Rule 485
____X___ on May 1, 1997, pursuant to paragraph (b) of Rule 485
_________ 60 days after filing pursuant to paragraph (a) of Rule 485
_________ on May 1, 1997, 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
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<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 (Prospectus No. 1 only)
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
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<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
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<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 NO. 1
<PAGE>
CIGNA LIFE INSURANCE COMPANY
[LOGO]
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
<TABLE>
<S> <C> <C> <C>
HOME OFFICE LOCATION: MAILING ADDRESS: LOCKBOX ADDRESS: BY MAIL: LOCKBOX ADDRESS: BY COURIER:
900 COTTAGE GROVE ROAD CIGNA INDIVIDUAL INSURANCE CIGNA LIFE INSURANCE COMPANY CIGNA LIFE INSURANCE COMPANY
BLOOMFIELD, CT ANNUITY & VARIABLE LIFE P.O. BOX 30790 C/O FLEET BANK
SERVICES CENTER: ROUTING HARTFORD, CT 06150 20 CHURCH STREET
S-249 20TH FLOOR, MSN275
HARTFORD, CT 06152 - 2249 HARTFORD, CT 06120
TELEPHONE: (800) 552-9898 ATTN: LOCKBOX 30790
</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
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, 1997, 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, 1997
<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...................................... 12
General...................................... 15
Substitution of Securities................... 15
Voting Rights................................ 15
PREMIUM PAYMENTS AND
CONTRACT VALUE................................ 16
Premium Payments............................. 16
Allocation of Premium Payments............... 16
Optional Variable Account Sub-Account
Allocation Programs......................... 17
Dollar Cost Averaging...................... 17
Automatic Rebalancing...................... 18
Contract Value............................... 18
Accumulation Unit............................ 18
CHARGES AND DEDUCTIONS......................... 19
Contingent Deferred Sales Charge (Sales
Load)....................................... 19
Mortality and Expense Risk Charge............ 20
Administrative Expense Charge................ 20
Account Fee.................................. 21
Premium Tax Equivalents...................... 21
Income Taxes................................. 21
Fund Expenses................................ 21
Transfer Fee................................. 21
Optional Death Benefit....................... 22
OTHER CONTRACT FEATURES........................ 23
Ownership.................................... 23
Assignment................................... 24
Beneficiary.................................. 24
Change of Beneficiary........................ 24
Annuitant.................................... 24
Transfer of Contract Values between
Sub-Accounts................................ 25
Procedures for Telephone Transfers........... 26
Surrenders and Partial Withdrawals........... 26
Delay of Payments and Transfers.............. 26
Death of the Contract Owner before the
Annuity Date................................ 27
Death of the Annuitant before the Annuity
Date........................................ 27
<CAPTION>
CONTENTS PAGE
<S> <C>
Death of the Annuitant after the
Annuity Date................................ 28
Change in Operation of Variable Account...... 28
Modification................................. 28
Discontinuance............................... 29
ANNUITY PROVISIONS............................. 29
Annuity Date; Change in Annuity Date and
Annuity Option.............................. 29
Annuity Options.............................. 29
Fixed Options................................ 29
Variable Options............................. 30
Evidence of Survival......................... 31
Endorsement of Annuity Payment............... 31
THE FIXED ACCOUNT.............................. 31
Market Value Adjustment...................... 33
DISTRIBUTION OF THE CONTRACTS.................. 34
PERFORMANCE DATA............................... 34
Money Market Sub-Account..................... 34
Other Sub-Accounts........................... 35
Performance Ranking or Rating................ 35
TAX MATTERS.................................... 36
General...................................... 36
Diversification.............................. 36
Distribution Requirements.................... 37
Multiple Contracts........................... 38
Tax Treatment of Assignments................. 38
Withholding.................................. 38
Section 1035 Exchanges....................... 38
Tax Treatment of Withdrawals -- Non-Qualified
Contracts................................... 38
Qualified Plans.............................. 39
Section 403(b) Plans......................... 39
Individual Retirement Annuities.............. 40
Corporate Pension and Profit-Sharing Plans
and H.R. 10 Plans........................... 40
Deferred Compensation Plans.................. 40
Tax Treatment of Withdrawals -- Qualified
Contracts................................... 40
FINANCIAL STATEMENTS........................... 41
LEGAL PROCEEDINGS.............................. 41
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION........................ 42
APPENDIX I..................................... 43
Illustration of Cost of Optional Death
Benefits.................................... 43
</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 notices are given and any customer service
requests are made. Mailing address: CIGNA Individual
Insurance, Annuity & Variable Life Services Center, Routing
S-249, Hartford, CT 06152-2249. Premium payments must be
sent, and all other correspondence may be sent, to either
Lockbox address: If by mail: P.O. Box 30790, Hartford, CT
06150; If by overnight courier: c/o Fleet Bank, 20 Church
Street, 20th Floor, MSN275, Hartford, CT 06120, Attn:
Lockbox 30790
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: Those Sub-Accounts associated with Guaranteed
Periods and Guaranteed Rates. 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.
3
<PAGE>
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, 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.
4
<PAGE>
SURRENDER (OR WITHDRAWAL): When a lump sum amount
representing all or part of the Annuity Account Value (minus
any applicable withdrawal charges, contract fees, and
premium tax equivalents and adjusted for any Market Value
Adjustment) 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.
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.
5
<PAGE>
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, during each Contract Year,
withdraw 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 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 which is waived if 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 Tax
Equivalents").
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
6
<PAGE>
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.
FEES AND EXPENSES
CONTRACT OWNER TRANSACTION FEES
Contingent Deferred Sales Charge (as a percentage of Premium
Payments):
<TABLE>
<CAPTION>
YEARS SINCE
PAYMENT CHARGE
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<S> <C> <C>
0-1 7%
1-2 6%
2-3 5% A Contract Owner may, during each Contract Year, withdraw up
3-4 4% to 15% of Premium Payments made, or the remaining portion
4-5 3% thereof, without incurring a Contingent Deferred Sales
5-6 2% Charge.
6-7 1%
7+ 0
</TABLE>
<TABLE>
<S> <C>
Transfer Fee... $10
- Not imposed on the first twelve 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...... 0.04% 0.24% 0.04% 0.03%
Total Fund Portfolio
Annual Expenses.... 0.79% 1.09%(1) 0.84% 0.88%
<CAPTION>
FIDELITY VARIABLE
INSURANCE PRODUCTS FUNDS
----------------------------------------------------------------------------
VIP II VIP VIP II
ASSET EQUITY- INVESTMENT VIP MONEY VIP HIGH VIP
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..... 0.64% 0.51% 0.45% 0.21% 0.59% 0.76%
Other Expenses...... 0.10% 0.07% 0.13% 0.09% 0.12% 0.17%
Total Fund Portfolio
Annual Expenses.... 0.74%(2) 0.58%(2) 0.58% 0.30% 0.71% 0.93%(2)
</TABLE>
- ------------------------
(1) Included in Other Expenses of the Alger American Leveraged AllCap Portfolio
is .03% of interest expense.
(2) A portion of the brokerage commissions the certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
on uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, Total Fund Portfolio Annual Expenses
would have been 0.73% for the VIP II Asset Manager Portfolio, 0.56% for the
VIP Equity-Income Portfolio and 0.92% for the VIP Overseas Portfolio.
8
<PAGE>
The table does not reflect the deductions for the annual $35 Account Fee,
charges for any Optional Death Benefit(s) 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>
MFS VARIABLE INSURANCE TRUST NEUBERGER&BERMAN
- -------------------------------------------- ADVISERS MANAGEMENT TRUST (5)
------------------------------------- OCC ACCUMULATION TRUST
LIMITED ------------------------------------
MFS MFS WORLD MATURITY GLOBAL
TOTAL 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%(6) 0.65%(6) 0.84%(6) 0.80% 0.80% 0.80%
0.25%(4) 0.25%(4) 0.25%(4) 0.24% 0.13% 0.11% 0.63% 0.10% 0.22%
1.00%(3) 1.00%(3) 1.00%(3) 1.09% 0.78% 0.95% 1.43%(7) 0.90%(7) 1.02%(7)
</TABLE>
- ------------------------------
(3) The Adviser has agreed to bear expenses for each Series, subject to
reimbursement by each Series, such that each Series' "Other expenses" shall
not exceed 0.25% of the average daily net assets of the Series during the
current fiscal year. Otherwise, "Other Expenses" for the Total Return
Series, Utilities Series and World Government Series would be 1.35%, 2.00%
and 1.28% respectively, and "Total Fund Portfolio Expenses" would be 2.10%,
2.75% and 2.03% respectively, for these Series. See "Information Concerning
Shares of Each Series--Expenses."
(4) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses".
(5) Neuberger&Berman Advisers Management 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.
(6) The figures reported here are "Investment Management and Administration
Fees" which include the aggregate of the administration fees paid by the
Portfolio and the management fees paid by its corresponding Series.
Similarly, "Other Expenses" includes all other expenses of the Portfolio and
its corresponding Series.
(7) The annual expenses of OCC Accumulation Trust Portfolios (the "Portfolios")
as of December 31, 1996 have been restated to reflect new management fee and
expense limitation arrangements in effect as of May 1, 1996. Additionally,
Other Expenses are shown gross of certain expense offsets afforded the
Portfolios which effectively lowered overall custody expenses. Effective May
1, 1996, the expenses of the Portfolios were contractually limited by OpCap
Advisers so that their respective annualized operating expenses (net of any
expense offsets) do not exceed 1.25% of their respective average daily net
assets. Furthermore, through December 31, 1997, the annualized operating
expenses of the Managed and Small Cap Portfolios will be voluntarily limited
by OpCap Advisors so that annualized operating expenses (net of any expense
offsets) of these Portfolios do not exceed 1.00% of their respective average
daily net assets. Without such contractual and voluntary expense limitations
and without giving effect to any expense offsets, the Management Fees, Other
Expenses and Total Portfolio Annual Expenses incurred for the fiscal year
ended December 31, 1996 would have been: .80%, 1.04% and 1.84%,
respectively, for the Global Equity Portfolio; .80%, .10% and .90%,
respectively, for the Managed Portfolio; and .80%, .26% and 1.06%,
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 American Growth Portfolio............................ $81 $110 $141 $249
Alger American Leveraged AllCap Portfolio.................. $84 $119 $157 $280
Alger American MidCap Growth Portfolio..................... $82 $112 $144 $254
Alger American Small Capitalization Portfolio.............. $82 $113 $146 $258
Fidelity VIP Equity-Income Portfolio....................... $79 $104 $131 $227
Fidelity VIP Money Market Portfolio........................ $76 $ 95 $116 $198
Fidelity VIP High Income Portfolio......................... $83 $114 $149 $264
Fidelity VIP Overseas Portfolio............................ $84 $119 $157 $280
Fidelity VIP II Asset Manager Portfolio.................... $81 $109 $139 $244
Fidelity VIP II Investment Grade Bond Portfolio............ $79 $104 $131 $227
MFS Total Return Series.................................... $84 $116 $152 $271
MFS Utilities Series....................................... $84 $116 $152 $271
MFS World Governments Series............................... $84 $116 $152 $271
AMT Balanced Portfolio..................................... $84 $119 $157 $280
AMT Limited Maturity Bond Portfolio........................ $81 $110 $141 $248
AMT Partners Portfolio..................................... $83 $115 $150 $266
OCC Global Equity Portfolio................................ $88 $129 $173 $313
OCC Managed Portfolio...................................... $83 $113 $147 $261
OCC Small Cap Portfolio.................................... $84 $117 $153 $273
</TABLE>
2. IF THE CONTRACT IS NOT SURRENDERED OR IF IT IS
ANNUITIZED:
<TABLE>
<S> <C> <C> <C> <C>
Alger American Growth Portfolio............................ $22 $ 68 $116 $249
Alger American Leveraged AllCap Portfolio.................. $25 $ 77 $131 $280
Alger American MidCap Growth Portfolio..................... $22 $ 69 $118 $254
Alger American Small Capitalization Portfolio.............. $23 $ 70 $120 $258
Fidelity VIP Equity-Income Portfolio....................... $20 $ 61 $105 $227
Fidelity VIP Money Market Portfolio........................ $17 $ 53 $ 91 $198
Fidelity VIP High Income Portfolio......................... $23 $ 72 $123 $264
Fidelity VIP Overseas Portfolio............................ $25 $ 77 $131 $280
Fidelity VIP II Asset Manager Bond Portfolio............... $21 $ 66 $113 $244
Fidelity VIP II Investment Grade Bond Portfolio............ $20 $ 61 $105 $227
MFS Total Return Series.................................... $24 $ 74 $127 $271
MFS Utilities Series....................................... $24 $ 74 $127 $271
MFS World Governments Series............................... $24 $ 74 $127 $271
AMT Balanced Portfolio..................................... $25 $ 77 $131 $280
AMT Limited Maturity Bond Portfolio........................ $22 $ 67 $115 $248
AMT Partners Portfolio..................................... $24 $ 72 $124 $266
OCC Global Equity Portfolio................................ $28 $ 87 $148 $313
OCC Managed Portfolio...................................... $23 $ 71 $122 $261
OCC Small Cap Portfolio.................................... $24 $ 75 $128 $273
</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.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
10
<PAGE>
CONDENSED FINANCIAL INFORMATION
The Variable Account commenced operations on January 22,
1996. There follows, for each of the nineteen Variable
Account Sub-Accounts available under the Contracts,
information regarding the changes in the Accumulation Unit
Values from the date of inception to December 31, 1996, and
the number of Accumulation Units outstanding at December 31,
1996.
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION ACCUMULATION ACCUMULATION UNITS
UNIT BEGINNING INCEPTION UNIT VALUE OUTSTANDING
SUB-ACCOUNT VALUE DATE AT 12/31/96 12/31/96
- ----------------------------------- -------------- --------- ------------ ------------------
(IN DOLLARS) (IN DOLLARS)
-------------- ------------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio.... 10.00 2-23-96 10.144346 433,381
Alger American Leveraged AllCap
Portfolio......................... 10.00 2-9-96 10.507089 151,397
Alger American MidCap Growth
Portfolio......................... 10.00 1-19-96 11.319352 278,077
Alger American Small Cap
Portfolio......................... 10.00 2-9-96 9.868924 389,564
Fidelity VIP Equity-Income
Portfolio......................... 10.00 2-20-96 11.013725 423,894
Fidelity VIP Money Market
Portfolio......................... 10.00 2-22-96 10.338796 342,418
Fidelity VIP High Income
Portfolio......................... 10.00 5-17-96 10.659332 177,276
Fidelity VIP Overseas Portfolio.... 10.00 5-13-96 10.640099 77,201
Fidelity VIP II Asset Manager
Portfolio......................... 10.00 3-1-96 11.112123 44,934
Fidelity VIP II Investment Grade
Bond Portfolio.................... 10.00 3-1-96 10.277513 111,872
MFS Total Return Series............ 10.00 2-22-96 10.934889 202,532
MFS Utilities Series............... 10.00 3-15-96 11.879471 20,800
MFS World Governments Series....... 10.00 2-20-96 10.461237 26,627
AMT Balanced Portfolio............. 10.00 2-22-96 10.196779 73,897
AMT Limited Maturity Bond
Portfolio......................... 10.00 2-20-96 10.278541 28,081
AMT Partners Portfolio............. 10.00 2-20-96 12.176555 273,165
OCC Global Equity Portfolio........ 10.00 2-9-96 11.044449 380,111
OCC Managed Portfolio.............. 10.00 2-20-96 11.575082 571,756
OCC Small Cap Portfolio............ 10.00 3-1-96 11.375492 100,116
</TABLE>
--------------------------------------------
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, 1997, it has
obtained authorization to do business in the District of
Columbia and all states except 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
11
<PAGE>
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
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 VIP"), and
Variable Insurance Products Fund II ("Fidelity VIP 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;
12
<PAGE>
Neuberger & Berman Advisers Management Trust ("AMT
Trust"), managed and distributed by Neuberger & Berman
Management Incorporated, 605 Third Avenue, 2nd Floor,
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 VIP are available under the
Contracts:
Equity-Income Portfolio ("Fidelity VIP Equity-Income
Portfolio").
Money Market Portfolio ("Fidelity VIP Money Market
Portfolio").
High Income Portfolio ("Fidelity VIP High Income
Portfolio");
Overseas Portfolio ("Fidelity VIP Overseas Portfolio").
Two Funds of FIDELITY VIP II are available under the
Contracts:
Asset Manager Portfolio ("Fidelity VIP II Asset Manager
Portfolio");
Investment Grade Bond Portfolio ("Fidelity VIP II
Investment Grade 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.
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 (Mid 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 Standard and Poor's MidCap 400 Index.
13
<PAGE>
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 or the S&P SmallCap Index.
FIDELITY VIP II 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 VIP II 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 VIP 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 VIP 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 VIP 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 VIP 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.
NEUBERGER & BERMAN AMT BALANCED PORTFOLIO (Balanced or Total
Return): Seeks long-term capital growth and reasonable
current income without undue risk to principal.
NEUBERGER & BERMAN AMT LIMITED MATURITY BOND PORTFOLIO
(Short to Intermediate-Term Bonds): Seeks the highest
current income consistent with low risk to principal and
liquidity; and secondarily, total return.
NEUBERGER & BERMAN AMT PARTNERS PORTFOLIO (Large Cap
Stocks): Seeks capital growth. Invests principally in common
stocks of medium to large capitalization 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. The portfolio manager 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.
14
<PAGE>
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 Neuberger & Berman AMT Partners Portfolio, Neuberger &
Berman Limited Maturity Bond Portfolio, Fidelity VIP
Equity-Income Portfolio, Fidelity VIP II Asset Manager
Portfolio, Fidelity VIP High Income Portfolio, Fidelity VIP
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.
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.
15
<PAGE>
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 $2,000. 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.
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 (e.g., 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
$2,000. 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.
16
<PAGE>
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. 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.
17
<PAGE>
The Dollar Cost Averaging program is not available 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 Services Center.
The Automatic Rebalancing program is not available 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.
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
18
<PAGE>
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: (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
19
<PAGE>
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, during each Contract Year, withdraw 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 of up to 7.00% will be paid to broker-dealers
who sell the Contracts, and the Company will incur other
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
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
20
<PAGE>
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, like the Administrative Expense
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.
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
21
<PAGE>
fee of up to $10 per transfer. Prescheduled automatic Dollar
Cost Averaging or Automatic Rebalancing transfers are not
counted toward the twelve 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).
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
22
<PAGE>
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>
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 &
23
<PAGE>
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.
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.
24
<PAGE>
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 twelve transfers made
in the Contract Year. 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) $2,000 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.
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 Services
Center, or in writing to the Company. Transfer requests must
be received prior to 4:00 pm Eastern Time in order to be
effective that day.
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Transfers between Sub-Accounts may be suspended or postponed
during any period in which the New York Stock Exchange is
closed or has suspended trading.
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.
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, in the case of 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.
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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
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
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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.
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.
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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 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.
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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.
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
pages 18 and 19 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.
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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.
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
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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.
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" above,
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 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
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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
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.
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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.
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
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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 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 sometimes be published and compared to
the performance of other variable annuity issuers in general
or to the performance of particular types of variable
annuities investing in funds, or series of 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") 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. Generally,
these services may not be used, and such comparisons may not
be made, in advertising or sales literature for variable
annuities.
Lipper's rankings include variable life issuers as well as
variable annuity issuers. VARDS rankings compare only
variable annuity issuers. Morningstar ratings include funds
used by both variable life and variable annuity issuers. The
performance analyses prepared by Lipper and VARDS 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 prepares
35
<PAGE>
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
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
36
<PAGE>
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 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.
37
<PAGE>
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.
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)
38
<PAGE>
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
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.
39
<PAGE>
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
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
40
<PAGE>
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 December
31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996 are included in the Statement
of Additional Information. Also included are audited
financial statements for the Variable Account, which
commenced operations January 19, 1996, as of and for the
period ending December 31, 1996.
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.
41
<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
ADMINISTRATION.................................. 7
ACCOUNT INFORMATION............................. 7
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
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
CIGNA Variable Annuity
Separate Account I........................... 20
</TABLE>
42
<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 (Market correction has Account Value equals: -$30,000
month. Account is occurred. Account value AMOUNT AT RISK EQUALS: -------
assessed for death has fallen below (Owner WILL be charged for $10,000
benefit 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 Value equals: -$40,000
Account value has AMOUNT AT RISK EQUALS: --------
increased.) (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.
43
<PAGE>
[LOGO]
561284 (5/97)
<PAGE>
PART A. PROSPECTUS NO. 2
<PAGE>
CIGNA LIFE INSURANCE COMPANY
[LOGO]
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
<TABLE>
<S> <C> <C> <C>
HOME OFFICE LOCATION: MAILING ADDRESS: LOCKBOX ADDRESS: BY MAIL: LOCKBOX ADDRESS: BY
900 COTTAGE GROVE ROAD CIGNA INDIVIDUAL INSURANCE CIGNA LIFE INSURANCE COMPANY OVERNIGHT:
BLOOMFIELD, CT ANNUITY & VARIABLE LIFE P.O. BOX 30790 CIGNA LIFE INSURANCE COMPANY
SERVICES HARTFORD, CT 06150 C/O FLEET BANK
CENTER: ROUTING S-249 20 CHURCH STREET
HARTFORD, CT 06152 - 2249 20TH FLOOR, MSN275
TELEPHONE:(800) 552-9898 HARTFORD, CT 06120
ATTN: LOCKBOX 30790
</TABLE>
- --------------------------------------------------------------------------------
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 twenty-one 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; CIGNA Variable Products
Group -- VP Money Market Fund; Fidelity Variable Insurance Products Fund --
Equity-Income Portfolio, High Income Portfolio and Overseas Portfolio; Fidelity
Variable Insurance Products Fund II -- Investment Grade Bond Portfolio and
Contra Fund Portfolio; Fidelity Variable Insurance Products Fund III -- Growth
Opportunities Portfolio; MFS-Registered Trademark- Variable Insurance Trust --
MFS Total Return Series, MFS Utilities Series, MFS Emerging Growth Series, MFS
Research Series and MFS Growth With Income Series; Neuberger & Berman Advisers
Management Trust -- 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, 1997, 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, 1997
<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....................................... 12
THE FUNDS...................................... 12
General...................................... 15
Substitution of Securities................... 16
Voting Rights................................ 16
PREMIUM PAYMENTS AND CONTRACT VALUE............ 16
Premium Payments............................. 16
Allocation of Premium Payments............... 17
Optional Variable Account Sub-Account
Allocation Programs......................... 18
Dollar Cost Averaging...................... 18
Automatic Rebalancing...................... 18
Contract Value............................... 19
Accumulation Unit............................ 19
CHARGES AND DEDUCTIONS......................... 20
Contingent Deferred Sales Charge (Sales
Load)....................................... 20
Mortality and Expense Risk Charge............ 21
Administrative Expense Charge................ 21
Account Fee.................................. 21
Premium Tax Equivalents...................... 21
Income Taxes................................. 22
Fund Expenses................................ 22
Transfer Fee................................. 22
DEATH BENEFITS................................. 22
Death Benefits Provided by the Contract...... 22
Amount of Death Benefit...................... 22
Election and Effective Date of Election...... 23
Death of the Annuitant Before the Annuity
Date........................................ 24
Death of the Annuitant after the Annuity
Date........................................ 24
OTHER CONTRACT FEATURES........................ 24
Ownership.................................... 24
Assignment................................... 24
Beneficiary.................................. 25
Change of Beneficiary........................ 25
Annuitant.................................... 25
Transfer of Contract Values between Sub-
Accounts.................................... 25
<CAPTION>
CONTENTS PAGE
<S> <C>
Procedures for Telephone Transfers........... 26
Surrenders and Partial Withdrawals........... 26
Delay of Payments and Transfers.............. 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.............................. 29
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
</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 notices are given and any customer service
requests are made. Mailing address: CIGNA Individual
Insurance, Annuity & Variable Life Services Center, Routing
S-249, Hartford, CT 06152-2249. Premium payments must be
sent, and all other correspondence may be sent, to either
Lockbox address: If by mail: P.O. Box 30790, Hartford, CT
06150; If by courier: c/o Fleet Bank, 20 Church Street, 20th
Floor, MSN275, Hartford, CT 06120, Attn: Lockbox 30790.
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.
CERTIFICATE: The document which evidences the participation
of an Owner in a group contract.
CODE: The Internal Revenue Code of 1986, as amended.
COMPANY: CIGNA Life Insurance Company.
CONTRACT: The Variable Annuity Contract described in this
prospectus (or the certificate evidencing the Owner's
participation in a group contract).
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; is the Certificate Owner under a
group contract.
FIXED ACCOUNT: Those Sub-Accounts associated with Guaranteed
Periods and Guaranteed Rates. 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; CIGNA
Variable Products Group --
3
<PAGE>
Money Market Fund; Fidelity Variable Insurance Products Fund
-- Equity-Income Portfolio, High Income Portfolio and
Overseas Portfolio; Fidelity Variable Insurance Products
Fund II -- VIP II Investment Grade Bond Portfolio and VIP II
Contra Fund Portfolio; Fidelity Variable Insurance Products
Fund III -- Growth Opportunities Portfolio;
MFS-Registered Trademark- Variable Insurance Trust -- MFS
Total Return Series, MFS Utilities Series, MFS Emerging
Growth Series, MFS Research Series and MFS Growth With
Income Series; Neuberger & Berman Advisers Management Trust
-- Limited Maturity Bond Portfolio and Partners Portfolio;
OCC Accumulation Trust -- Global Equity Portfolio, 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, five 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 and 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.
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, contract fees, and
premium tax equivalents and adjusted by any Market Value
Adjustment,) 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
4
<PAGE>
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.
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 Value 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 Value 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, during each Contract Year,
withdraw 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
5
<PAGE>
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 compensates the Company
for assuming the mortality and expense risks under the
Contract (See "Charges and Deductions -- Mortality and
Expense Risk Charge").
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 which is waived if the
Annuity Account Value equals or exceeds $100,000 at the end
of the Contract Year. (See "Charges and Deductions --
Account Fee")
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
Equivalents").
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 7%
2-3 7% A Contract Owner may, during each Contract Year, withdraw up
3-4 6% to 15% of Premium Payments made, or the remaining portion
4-5 6% thereof, without incurring a Contingent Deferred Sales
5-6 5% Charge.
6-7 4%
7+ 0
</TABLE>
<TABLE>
<S> <C>
Transfer Fee... $10
- Not imposed on the first twelve 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>
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge................. 1.25%
Administrative Expense Charge..................... 0.15%
-----
Total Variable Account Annual Expenses............ 1.40%
</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
LEVERAGED MIDCAP AMERICAN
ALGER AMERICAN ALLCAP GROWTH SMALL CAP
GROWTH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------- ---------- --------- ------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT
ANNUAL EXPENSES
Mortality and
Expense Risk
Charge............. 1.25% 1.25% 1.25% 1.25%
Administrative
Expense Charge..... 0.15% 0.15% 0.15% 0.15%
Total Separate
Account Annual
Expenses........... 1.40% 1.40% 1.40% 1.40%
FUND PORTFOLIO
ANNUAL EXPENSES
Management Fees..... 0.75% 0.85% 0.80% 0.85%
Other Expenses...... 0.04% 0.24% 0.04% 0.03%
Total Fund Portfolio
Annual Expenses.... 0.79% 1.09%(1) 0.84% 0.88%
<CAPTION>
FIDELITY VARIABLE
INSURANCE PRODUCTS TRUSTS
----------------------------------------------------------------------------
VIP VIP II VIP III
VIP II EQUITY- INVESTMENT VIP HIGH VIP GROWTH
CONTRA FUND INCOME GRADE BOND INCOME OVERSEAS OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO FUND PORTFOLIO PORTFOLIO
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT
ANNUAL EXPENSES
Mortality and
Expense Risk
Charge............. 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Administrative
Expense Charge..... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Total Separate
Account Annual
Expenses........... 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
FUND PORTFOLIO
ANNUAL EXPENSES
Management Fees..... 0.61% 0.51% 0.45% 0.59% 0.76% 0.61%
Other Expenses...... 0.13% 0.07% 0.13% 0.12% 0.17% 0.16%
Total Fund Portfolio
Annual Expenses.... 0.74%(2) 0.58%(2) 0.58% 0.71% 0.93%(2) 0.77%(2)
</TABLE>
- ------------------------
(1) Included in Other Expenses of the Alger American Leveraged AllCap Portfolio
is .03% of interest expense.
(2) A portion of the brokerage commissions the certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
or uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, Total Fund Portfolio Annual Expenses
would have been 0.56% for the VIP Equity-Income Portfolio, 0.92% for the VIP
Overseas portfolio, 0.71% for the VIP II Contrafund Portfolio and VIP III
Growth Opportunities Portfolio.
8
<PAGE>
The table does not reflect the deductions for the annual $35 Account Fee 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
ADVISERS MANAGEMENT
TRUST (5)
MFS VARIABLE INSURANCE TRUST ---------------------- CIGNA FUNDS
- ----------------------------------------------------------------- LIMITED -----------
MFS TOTAL MFS MFS GROWTH MATURITY VP
RETURN MFS UTILITIES MFS EMERGING RESEARCH WITH INCOME PARTNERS BOND MONEY
SERIES SERIES GROWTH SERIES SERIES SERIES PORTFOLIO PORTFOLIO MARKET FUND
- ------------ ------------- ------------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
0.75% 0.75% 0.75% 0.75% 0.75% 0.85% 6) 0.65%(6) 0.35%
0.25%(4) 0.25%(4) 0.25%(4) 0.25%(4) 0.25%(4) 0.30% 0.10% 0.15%
1.00%(3) 1.00%(3) 1.00%(3) 1.00%(3) 1.00%(3) 1.15% 0.75% 0.50%(7)
<CAPTION>
OCC ACCUMULATION TRUST
- ------------ ------------------------------------
MFS TOTAL GLOBAL
RETURN EQUITY MANAGED SMALL CAP
SERIES PORTFOLIO PORTFOLIO PORTFOLIO
- ------------ --------- --------- ----------
<S> <C> <C> <C>
1.25% 1.25% 1.25% 1.25%
0.15% 0.15% 0.15% 0.15%
1.40% 1.40% 1.40% 1.30%
0.75% 0.80% 0.80% 0.80%
0.25%(4) 0.63% 0.10% 0.22%
1.00%(3) 1.43%(8) 0.90%(8) 1.02%(8)
</TABLE>
- ------------------------
(3) The Adviser has agreed to bear expenses for each Series, subject to
reimbursement by each Series, such that each Series' "Other Expenses" shall
not exceed 0.25% of the average daily net assets of the Series during the
current fiscal year. Otherwise, "Other Expenses" for the Emerging Growth
Series, Research Series, Growth With Income Series, Total Return Series and
Utilities Series would be 0.41%, 0.73%, 1.32%, 1.35% and 2.00% respectively,
and "Total Fund Portfolio Expenses" would be 1.16%, 1.48%, 2.07%, 2.10% and
2.75% respectively, for these Series. See "Information Concerning Shares of
Each Series - Expenses."
(4) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses".
(5) Neuberger&Berman Advisers Management 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.
(6) The figures reported here are "Investment Management and Administration
Fees" which include the aggregate of the administration fees paid by the
Portfolio and the management fees paid by its corresponding Series.
Similarly, "Other Expenses" includes all other expenses of the Portfolio and
its corresponding Series.
(7) The Funds investment adviser has voluntarily agreed to waive such portion of
its management fee as is necessary to cause the Total Fund Portfolio Annual
Expenses of the Fund not to exceed .50% of the Money Market Fund's average
daily net asset value. If this waiver is not sufficient to cause the Total
Fund Portfolio Annual Expenses of the Fund not to exceed 50% of average
daily net asset value, the adviser has agreed to pay such other expenses of
the Fund as is necessary to keep Total Fund Portfolio Annual Expenses from
exceeding 50%. This arrangement will continue in effect until May 1, 1998
and afterwards to the extent described in the Funds then current prospectus.
To the extent management fees are waived by the adviser, or expenses of a
Fund are paid by the adviser, the total return to shareholders will
increase. Total return to shareholders will decrease to the extent
management fees are no longer waived or expenses of the Fund are no longer
paid. Total Fund Portfolio Annual Expenses would have been 1.53% for VP
Money Market Fund prior to reimbursement by the adviser.
(8) The annual expenses of the OCC Accumulation Trust Portfolios (the
"Portfolios") as of December 31, 1996 have been restated to reflect new
management fee and expense limitation arrangements in effect as of May 1,
1996. Additionally, Other Expenses are shown gross of certain expense
offsets afforded the Portfolios which effectively lowered overall custody
expenses. Effective May 1, 1996, the expenses of the Portfolios were
contractually limited by OpCap Advisors so that their respective annualized
operating expenses (net of any expense offsets) do not exceed 1.25% of their
respective average daily net assets. Furthermore, through December 31, 1997,
the annualized operating expenses of the Managed and Small Cap Portfolios
will be voluntarily limited by OpCap Advisors so that annualized operating
expenses (net of any expense offsets) of these Portfolios do not exceed
1.00% of their respective average daily net assets. Without such contractual
and voluntary expense limitations and without giving effect to any expense
offsets, the Management Fees, Other Expenses and Total Portfolio Annual
Expenses incurred for the fiscal year ended December 31, 1996 would have
been: .80%, 1.04% and 1.84%, respectively, for the Global Equity Portfolio;
.80%, .10% and .90%, respectively, for the Managed Portfolio; and .80%, .26%
and 1.06%, 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 $133 $177 $289
Alger Leveraged AllCap Portfolio........................... $85 $139 $187 $290
Alger MidCap Growth Portfolio.............................. $83 $132 $175 $265
Alger Growth Portfolio..................................... $82 $130 $172 $260
CIGNA VP Money Market Fund................................. $79 $121 $157 $230
Fidelity VIP Equity-Income Portfolio....................... $80 $124 $161 $238
Fidelity VIP High Income Portfolio......................... $82 $128 $168 $251
Fidelity VIP Overseas Portfolio............................ $84 $134 $179 $274
Fidelity VIP II Investment Grade Bond Portfolio............ $80 $124 $161 $238
Fidelity VIP II Contra Fund Portfolio...................... $82 $129 $169 $254
Fidelity VIP III Growth Opportunities Portfolio............ $82 $130 $171 $257
MFS Total Return Series.................................... $85 $136 $183 $281
MFS Utilities Series....................................... $85 $136 $183 $281
MFS Emerging Growth Series................................. $85 $136 $183 $281
MFS Research Series........................................ $85 $136 $183 $281
MFS Growth With Income Series.............................. $85 $136 $183 $281
AMT Limited Maturity Bond Portfolio........................ $82 $130 $171 $258
AMT Partners Portfolio..................................... $84 $135 $180 $276
OCC Global Equity Portfolio................................ $89 $149 $204 $322
OCC Managed Portfolio...................................... $84 $133 $178 $271
OCC Small Cap Portfolio.................................... $85 $137 $184 $283
</TABLE>
2. IF THE CONTRACT IS NOT SURRENDERED OR IF IT IS
ANNUITIZED:
<TABLE>
<S> <C> <C> <C> <C>
Alger Small Capitalization Portfolio....................... $24 $ 73 $126 $269
Alger Leveraged AllCap Portfolio........................... $26 $ 80 $136 $290
Alger MidCap Growth Portfolio.............................. $23 $ 72 $124 $265
Alger Growth Portfolio..................................... $23 $ 71 $121 $260
CIGNA VP Money Market Fund................................. $20 $ 62 $106 $230
Fidelity VIP Equity-Income Portfolio....................... $21 $ 64 $110 $238
Fidelity VIP High Income Portfolio......................... $24 $ 75 $128 $274
Fidelity VIP Overseas Portfolios........................... $22 $ 69 $118 $254
Fidelity VIP II Investment Grade Bond Portfolio............ $21 $ 64 $110 $238
Fidelity VIP II Contra Fund Portfolio...................... $23 $ 70 $120 $258
Fidelity VIP III Growth Opportunities Portfolio............ $25 $ 75 $129 $276
MFS Total Return Series.................................... $25 $ 77 $132 $281
MFS Utilities Series....................................... $25 $ 77 $132 $281
MFS Emerging Growth Series................................. $25 $ 77 $132 $281
MFS Research Series........................................ $25 $ 77 $132 $281
MFS Growth With Income Series.............................. $25 $ 77 $132 $281
AMT Limited Maturity Bond Portfolio........................ $23 $ 70 $120 $258
AMT Partners Portfolio..................................... $25 $ 75 $129 $276
OCC Global Equity Portfolio................................ $29 $ 90 $153 $322
OCC Managed Portfolio...................................... $24 $ 74 $127 $271
OCC Small Cap Portfolio.................................... $25 $ 78 $133 $283
</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 may be applicable.
10
<PAGE>
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.
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. The starting Accumulation Unit value for each
Sub-Account was $10.00.
There follows, for each of the twenty-one Variable Account
Sub-Accounts available under the Contracts, information
regarding the changes in the Accumulation Unit values from
date of inception through December 31, 1996, and the number
of Accumulation Units outstanding at December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION ACCUMULATION UNITS
UNIT BEGINNING INCEPTION OUTSTANDING
SUB-ACCOUNT VALUE DATE 12/31/96
- ---------------------------------------------------------- --------------- ------------ ACCUMULATION ------------------
UNIT VALUE
AT 12/31/96
-----------
(IN
DOLLARS)
<S> <C> <C> <C> <C>
Alger American Growth Portfolio...... 10.00 2-23-96 10.144346 433,381
Alger American Leveraged AllCap
Portfolio........................... 10.00 2-9-96 10.507089 151,397
Alger American MidCap Growth
Portfolio........................... 10.00 1-19-96 11.319352 278,077
Alger American Small Cap Portfolio... 10.00 2-9-96 9.868924 389,564
CIGNA VP Money Market Fund........... 10.00 * * *
Fidelity VIP Equity-Income
Portfolio........................... 10.00 2-20-96 11.013725 423,894
Fidelity VIP High Income Portfolio... 10.00 5-17-96 10.659332 177,276
Fidelity VIP Overseas Portfolio...... 10.00 5-13-96 10.640099 77,201
Fidelity VIP II Contra Fund
Portfolio........................... 10.00 * * *
Fidelity VIP II Investment Grade Bond
Portfolio........................... 10.00 3-1-96 10.277513 111,872
Fidelity VIP III Growth Opportunities
Portfolio........................... * * *
MFS Total Return Series.............. 10.00 2-22-96 10.934889 202,532
MFS Utilities Series................. 10.00 3-15-96 11.879471 20,800
MFS Emerging Growth Series........... 10.00 * * *
MFS Research Series.................. 10.00 * * *
MFS Growth with Income Series........ 10.00 * * *
AMT Limited Maturity Bond
Portfolio........................... 10.00 2-20-96 10.278541 28,081
AMT Partners Portfolio............... 10.00 2-20-96 12.176555 273,165
OCC Global Equity Portfolio.......... 10.00 2-9-96 11.044449 380,111
OCC Managed Portfolio................ 10.00 2-20-96 11.575082 571,756
OCC Small Cap Portfolio.............. 10.00 3-1-96 11.375492 100,116
</TABLE>
- ------------------------
* Had not commenced operations as of December 31, 1996
11
<PAGE>
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, 1997, it has
obtained authorization to do business in the District of
Columbia and all states except 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, 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 twenty-one Sub-Accounts of the Variable Account
is invested solely in shares of one of the twenty-one Funds
available as funding vehicles under the Contracts. Each of
the Funds is a series of one of eight 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.
12
<PAGE>
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;
CIGNA Variable Products Group ("CIGNA Group"), managed
by CIGNA Investments, Inc. and distributed by CIGNA
Financial Advisors, Inc., 900 Cottage Grove Road,
Bloomfield, CT 06002.
Variable Insurance Products Fund ("Fidelity VIP"),
Variable Insurance Products Fund II ("Fidelity VIP II")
and Variable Insurance Products Fund III ("Fidelity VIP
III"), 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, 2nd Floor,
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.
One Fund of CIGNA Group is available under the Contracts:
Money Market Fund ("CIGNA VP Money Market Fund")
Three Funds of FIDELITY VIP are available under the
Contracts:
Equity-Income Portfolio ("Fidelity VIP Equity-Income
Portfolio").
High Income Portfolio ("Fidelity VIP High Income
Portfolio");
Overseas Portfolio ("Fidelity VIP Overseas Portfolio").
Two Funds of FIDELITY VIP II are available under the
Contracts:
Contra Fund Portfolio ("Fidelity VIP II Contra Fund
Portfolio");
Investment Grade Bond Portfolio ("Fidelity VIP II
Investment Grade Bond Portfolio").
One Fund of FIDELITY VIP III is available under the
Contracts:
Growth Opportunities Portfolio ("Fidelity VIP III Growth
Opportunities Portfolio")
Five Funds of MFS Trust are available under the Contracts:
MFS Total Return Series;
MFS Utilities Series;
MFS Emerging Growth Series.;
MFS Research Series;
MFS Growth With Income Series.
Two Funds of AMT Trust are available under the Contracts:
Limited Maturity Bond Portfolio;
Partners Portfolio.
Three Funds of OCC Trust are available under the Contracts:
Global Equity Portfolio;
13
<PAGE>
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.
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 (Mid 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 Standard and Poor's 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 or the S&P SmallCap 600
Index.
CIGNA VP MONEY MARKET FUND (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 VIP II CONTRA FUND PORTFOLIO (Large Cap Stocks) :
Seeks capital appreciation by investing primarily in equity
securities of companies that are undervalued or
out-of-favor.
FIDELITY VIP II 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 VIP 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 VIP 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 VIP OVERSEAS PORTFOLIO (International Equity):
Seeks long term growth of capital by investing mainly in
foreign securities.
FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO (Large Cap
Stocks): Seeks capital growth by investing primarily in
common stocks and securities convertible into common stocks.
MFS EMERGING GROWTH SERIES (Large Cap Stocks): Seeks
long-term growth of capital by investing primarily in common
stocks of companies management believes to be early in their
life cycles but which have the potential to become major
enterprises.
MFS GROWTH WITH INCOME SERIES (Large Cap Stocks): Seeks
reasonable current income and long-term growth of capital
and income.
14
<PAGE>
MFS RESEARCH SERIES (Large Cap Stocks): Seeks to provide
long-term growth of capital and future income.
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.
NEUBERGER & BERMAN AMT LIMITED MATURITY BOND PORTFOLIO
(Short to Intermediate-Term Bonds): Seeks the highest
current income consistent with low risk to principal and
liquidity; and secondarily, total return.
NEUBERGER & BERMAN AMT PARTNERS PORTFOLIO (Large Cap
Stocks): Seeks capital growth. Invests primarily in common
stocks of medium to large capitalization 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. The portfolio manager 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 Neuberger & Berman AMT Partners Portfolio, Neuberger &
Berman AMT Limited Maturity Bond Portfolio Fidelity VIP
Equity-Income Portfolio, Fidelity VIP II Contra Fund
Portfolio, Fidelity VIP High Income Portfolio, Fidelity VIP
Overseas Portfolio, MFS Emerging Growth Series, MFS Research
Series, MFS Total Return Series, MFS Utilities 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").
15
<PAGE>
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.
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
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 $2000. 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.
16
<PAGE>
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.
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. In such cases, the initial Premium Payment will be
allocated to the Money Market Sub-Account until the
right-to-examine period has expired.
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 (e.g., 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
$2,000. 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.
17
<PAGE>
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 $2,000. 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 or writing 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 is not available 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
18
<PAGE>
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 is not available 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.
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.
19
<PAGE>
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: (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 7%
2-3 7%
3-4 6%
4-5 6%
5-6 5%
6-7 4%
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, during each Contract Year, withdraw 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 Provision. 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 of up to 7.00% will be paid to broker-dealers
who sell the Contracts and the Company will incur other
promotional or distribution expenses associated with the
marketing of the Contracts. To the extent that the
Contingent Deferred Sales Charge is
20
<PAGE>
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
1.25% of the average daily net assets of the Variable
Account (consisting of approximately .75% 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 and to pay
death benefits that may exceed the Annuity Account Value.
The expense 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, each of which is described below.
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 0.15%
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, like the Administrative Expense
Charge, is to reimburse the Company for a portion of its
expenses in administering the Contracts. 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
21
<PAGE>
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.
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 twelve
transfers made in the Contract Year. 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 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.
DEATH BENEFITS
DEATH BENEFITS PROVIDED BY THE CONTRACT
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 upon due proof of death
(a certified copy of the Death Certificate) of the Owner. If
there is no designated Beneficiary, or contingent
Beneficiary, the Company will, upon receipt of due proof of
death of the Owner, Beneficiary and contingent Beneficiary,
pay the death benefit in one lump sum to the deceased
Owner's estate.
If the death of any Annuitant occurs on or after the Annuity
Date, no death benefit will be payable under the Contract
except as may be provided under the Annuity Option elected.
AMOUNT OF DEATH BENEFIT
The amount of the death benefit is determined as of the
effective date or deemed effective date of the death benefit
election (see "Election and Effective Date of Election"),
and is equal to the greatest of --
22
<PAGE>
(a) the Annuity Account Value for the Valuation Period
during which the death benefit election is effective or
deemed to become effective;
(b) the sum of all the Premium Payments made under the
Contract, less the sum of all partial withdrawals; or
(c) the highest Annuity Account Value ever attained on a
Contract Anniversary date occurring on or before the Owner's
80th birthday, with adjustments for any subsequent Premium
Payments, partial withdrawals and charges made since such
Contract Anniversary Date.
On or after Owner's 90th birthday, the amount of the death
benefit is the greater of (a) and (b) above.
No Market Value Adjustments or withdrawal charges are
assessed against amounts which are applied toward payment of
a death benefit.
Upon a transfer of ownership, the death benefit becomes the
greatest of --
(a) the Annuity Account Value for the Valuation Period
during which the death benefit election is effective or
deemed to become effective;
(b) the sum of Premium Payments made less the sum of
withdrawals made on or before the date of transfer, adjusted
for any subsequent Premium Payments and partial withdrawals
made under the Contract; or
(c) the highest Annuity Account Value ever attained on a
Contract Anniversary date subsequent to the date of transfer
occurring on or before the new Owner's 80th birthday, with
adjustments for any subsequent Premium Payments, partial
withdrawals and charges made since such Contract Anniversary
Date.
On or after the then Current Owner's 90th birthday, the
amount of the death benefit is the greater of (a) and (b)
above.
ELECTION AND EFFECTIVE DATE OF ELECTION
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 on a specified
date, which must be within five years of the date of the
death of the Owner or Annuitant, whichever is
applicable; or
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).
23
<PAGE>
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
"Amount of Death Benefit" but based upon the Annuitant, 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.
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.
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.
24
<PAGE>
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.
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 death of the Annuitant or Contract
Owner, as applicable, 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 date the Contract is issued is 90 years
old. The Annuitant may be changed at any time prior to the
Annuity Date unless the Contract is owned by a non-natural
person. 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 twelve transfers made
in the Contract Year. 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.
Repeated patterns of frequent transfers are disruptive to
the operation of the Sub-Accounts and should the Company
become aware of such disruptive practices, the Company may
refuse to permit more than twelve transfers in any year and
may modify the transfer provisions of the Contract.
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.
25
<PAGE>
B. The minimum amount which may be transferred is the
lesser of (i) $2,000 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 $50.
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.
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 (other than transfers pursuant to the
Dollar Cost Averaging program) 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 Services
Center, or in writing to the Company. Transfer requests must
be received prior to 4:00 pm Eastern Time in order to be
effective that day.
Transfers between any Sub-Accounts may be suspended or
postponed during any period in which the New York Stock
Exchange is closed or has suspended trading.
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
26
<PAGE>
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.
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; and
c. any applicable Contingent Deferred Sales Charge;
and, in the case of 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.
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
27
<PAGE>
separate accounts. To the extent permitted by applicable
law, the Company also may transfer the assets of the
Variable Account associated with the Contracts to another
account or accounts. In the event of any change in the
operation of the Variable Account pursuant to this
provision, the Company may make appropriate endorsement to
the Contracts to reflect the change and take such other
action as may be necessary and appropriate to effect the
change.
MODIFICATION
Upon notice to the 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.
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<PAGE>
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 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.
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<PAGE>
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.
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 19 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.
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 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 or transferred out of 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, five 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" above,
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 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
consider other factors in determining Guaranteed Interest
Rates for a particular Sub-
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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.
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)
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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, 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 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
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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 sometimes be published and compared to
the performance of other variable annuity issuers in general
or to the performance of particular types of variable
annuities investing in funds, or series of 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. Generally,
these services may not be used, and such comparisons may not
be made, in advertising or sales literature for variable
annuities.
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 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
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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
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the owner of the contract has excessive control over the
investments underlying the 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.
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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
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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,
1996 are included in the Statement of Additional
Information.
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
ADMINISTRATION.................................. 7
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
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
CIGNA Variable Annuity
Separate Account I........................... 20
</TABLE>
41
<PAGE>
PART B. STATEMENT OF
ADDITIONAL INFORMATION
<PAGE>
PART B. STATEMENT OF ADDITIONAL INFORMATION NO. 1
<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
<TABLE>
<S> <C>
Home Office Location: Lockbox Address--By Mail:
900 Cottage Grove Road CIGNA Life Insurance Company
Bloomfield, Connecticut P.O. Box 30790
Hartford, CT 06150
Telephone: (800) (552-9898)
Mailing Address: Lockbox Address--By Courier:
CIGNA Individual Insurance CIGNA Life Insurance Company
Annuity & Variable Life Services c/o Fleet Bank
Center 20 Church Street
Routing S-249 20th Floor, MSN275
Hartford, Connecticut 06152-2249 Hartford, CT 06120
Attn: Lockbox 30790
</TABLE>
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,
1997, 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.
May 1, 1997
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............................................................................. 12
CIGNA Variable Annuity Separate Account I................................................................ 20
</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 Benefit 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
Annuity & Variable Life Services 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 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 $50,000
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................ $50,000
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.................................... $ 53,965 0.963640 $ 52,003 $ 51,465 $ 52,003 $ 2,975 $ 49,028
2.................................... $ 58,247 0.993056 $ 57,843 $ 52,974 $ 57,843 $ 2,550 $ 55,293
3.................................... $ 62,872 1.000000 $ 62,872 $ 54,528 $ 62,872 $ 2,125 $ 60,747
4.................................... $ 67,867 1.004673 $ 68,184 $ 56,129 $ 68,184 $ 1,700 $ 66,484
5.................................... $ 73,261 1.000000 $ 73,261 $ 57,778 $ 73,261 $ 1,275 $ 71,986
</TABLE>
5
<PAGE>
ANNUITY VALUE CALCULATION
<TABLE>
<CAPTION>
CONTRACT YEAR ANNUITY VALUE
- --------------------------------- ---------------------------------------
<S> <C>
1................................ $50,000 X 1.08 - $35 = $53,965
2................................ $53,965 X 1.08 - $35 = $58,247
3................................ $58,247 X 1.08 - $35 = $62,872
4................................ $62,872 X 1.08 - $35 = $67,867
5................................ $67,867 X 1.08 - $35 = $73,261
</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 $ 2,975
2..................................................... 0.06 0.0510 $ 2,550
3..................................................... 0.05 0.0425 $ 2,125
4..................................................... 0.04 0.0340 $ 1,700
5..................................................... 0.03 0.0255 $ 1,275
</TABLE>
MARKET VALUE ADJUSTMENT TABLES
INTEREST RATE FACTOR CALCULATION
<TABLE>
<CAPTION>
(3) (5)
(1) (2) ADJUSTED (1+A)
INDEX INDEX INDEX RATE (4) ------
CONTRACT YEAR RATE A RATE B B N (1+B)
- ------------------------------------------------------- ------ ------ ----------- ----- ------------
<S> <C> <C> <C> <C> <C>
1...................................................... 7.5% 8.00 8.50 4 0.963640
2...................................................... 7.5% 7.75 7.75 3 0.993056
3...................................................... 7.5% 7.00 7.50 2 1.000000
4...................................................... 7.5% 6.50 7.00 1 1.004673
5...................................................... 7.5% NA NA 0 NA
</TABLE>
MINIMUM VALUE CALCULATION
<TABLE>
<CAPTION>
CONTRACT YEAR MINIMUM VALUE
- --------------------------------- ---------------------------------------
<S> <C>
1................................ $50,000 X 1.03 - $35 = $51,465
2................................ $51,465 X 1.03 - $35 = $52,974
3................................ $52,974 X 1.03 - $35 = $54,528
4................................ $54,528 X 1.03 - $35 = $56,129
5................................ $56,129 X 1.03 - $35 = $57,778
</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.
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
6
<PAGE>
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 06002. 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
7.00% of Premium Payments. The Company received $143.00 in deferred sales
charges attributable to the Variable Accounts portion of the Contracts issued
pursuant to CIGNA Variable Annuity Separate Account I for the period ended
December 31, 1996.
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
Historical performance data as of December 31, 1996 for each of the
Sub-Accounts of the Separate Account follows in the Financial Statements.
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)] - 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) - 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) = 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 Edwin L. Kerr, Counsel, Individual
Insurance, CIGNA Companies. 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,
1996 and 1995 and for each of the three years in the period ended December 31,
1996 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. The
financial statements of the Variable Account as of and for the period ended
December 31, 1996 are also included.
10
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICE WATERHOUSE LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 11, 1997
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,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, 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 YEARS ENDED DECEMBER 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees................................................... $ 1,212 $ 1,263 $ 1,327
Net investment income............................................... 1,267 1,293 1,184
Realized investment gains........................................... 22 -- --
--------- --------- ---------
Total revenues.................................................. 2,501 2,556 2,511
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses............................ 1,608 1,461 1,531
Policy acquisition expenses......................................... 49 -- --
Other operating expenses............................................ 231 456 77
--------- --------- ---------
Total benefits, losses and expenses............................. 1,888 1,917 1,608
--------- --------- ---------
INCOME BEFORE INCOME TAXES.......................................... 613 639 903
--------- --------- ---------
Income taxes (benefits):
Current........................................................... 299 242 319
Deferred.......................................................... (87) (16) (2)
--------- --------- ---------
Total taxes..................................................... 212 226 317
--------- --------- ---------
NET INCOME.......................................................... 401 413 586
Retained earnings, beginning of year................................ 4,664 4,251 3,665
- -----------------------------------------------------------------------------------------------------
RETAINED EARNINGS, END OF YEAR...................................... $ 5,065 $ 4,664 $ 4,251
- -----------------------------------------------------------------------------------------------------
-------------------------------
</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, 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $13,116; $14,979)...... $ 13,644 $ 16,040
Short-term investments.................................................. 7,984 --
--------- ---------
Total investments................................................... 21,628 16,040
Cash and cash equivalents................................................. 192 4,108
Accrued investment income................................................. 359 321
Premiums and accounts receivable.......................................... 269 271
Deferred policy acquisition costs......................................... 251 --
Current income taxes...................................................... -- 24
Deferred income taxes, net................................................ 336 62
Due from parent........................................................... 3,228 --
Separate account assets................................................... 44,614 --
- ------------------------------------------------------------------------------------------------
Total assets........................................................ $ 70,877 $ 20,826
- ------------------------------------------------------------------------------------------------
--------------------
LIABILITIES
Contractholder deposit funds.............................................. $ 4,003 $ --
Future policy benefits.................................................... 9,972 9,616
Unpaid claims and claim expenses.......................................... 481 285
--------- ---------
Total insurance and contractholder liabilities...................... 14,456 9,901
Accounts payable, accrued expenses and other liabilities.................. 328 71
Current income taxes...................................................... 170 --
Separate account liabilities.............................................. 44,614 --
- ------------------------------------------------------------------------------------------------
Total liabilities................................................... 59,568 9,972
- ------------------------------------------------------------------------------------------------
CONTINGENCIES -- NOTE 8
SHAREHOLDER'S EQUITY
Common stock (25 shares outstanding)...................................... 2,500 2,500
Additional paid-in capital................................................ 3,400 3,000
Net unrealized appreciation on investments................................ 344 690
Retained earnings......................................................... 5,065 4,664
- ------------------------------------------------------------------------------------------------
Total shareholder's equity.......................................... 11,309 10,854
- ------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity.......................... $ 70,877 $ 20,826
- ------------------------------------------------------------------------------------------------
--------------------
</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 YEARS ENDED DECEMBER 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................ $ 401 $ 413 $ 586
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Insurance liabilities........................................... 552 333 206
Accrued investment income....................................... (38) (5) --
Premiums and accounts receivable................................ 2 15 30
Deferred income taxes, net...................................... (87) (16) (2)
Accounts payable, accrued expenses, other liabilities and
current income taxes........................................... 451 (24) (18)
Other, net...................................................... (229) 40 41
--------- --------- ---------
Net cash provided by operating activities..................... 1,052 756 843
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities................................................ 2,972 -- --
Short-term investments.......................................... 4,734 433 2,830
Maturities and repayments of fixed maturities..................... 110 25 130
Investments purchased:
Fixed maturities................................................ (1,241) (191) (130)
Short-term investments.......................................... (12,718) (817) (1,768)
--------- --------- ---------
Net cash (used in) provided by investing activities........... (6,143) (550) 1,062
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds.... 4,130 -- --
Withdrawals and benefit payments from contractholder deposit
funds........................................................... (127) -- --
Due from parent................................................... (3,228)
Paid in capital................................................... 400 -- --
--------- --------- ---------
Net cash provided by financing activities................... 1,175 -- --
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents.............. (3,916) 206 1,905
Cash and cash equivalents, beginning of year...................... 4,108 3,902 1,997
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year............................ $ 192 $ 4,108 $ 3,902
- ---------------------------------------------------------------------------------------------------
-------------------------------
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds............................... $ 105 $ 325 $ 340
- ---------------------------------------------------------------------------------------------------
-------------------------------
</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). The Company commenced
marketing individual variable annuity products in 1996. Prior to 1996,
substantially all of the Company's business resulted from reinsurance
arrangements with CGLIC, principally for individual life insurance.
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
Financial Statements. Certain reclassifications have been made to prior years'
amounts to conform with the 1996 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 are subject to risk of
loss due to interest rate and market fluctuations and most have credit risk. 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. Fair values for financial instruments are
estimates that, in many cases, may differ significantly from the amounts that
could be realized upon immediate liquidation. The fair value of liabilities for
contractholder deposit funds was estimated using the amount payable on demand
and, for those not payable on demand, discounted cash flow analyses.
C) INVESTMENTS: Investments in fixed maturities, which are classified as
available-for-sale, include bonds. Fixed maturities are carried at fair value,
with unrealized appreciation or depreciation included in Shareholder's Equity.
Fixed maturities are considered impaired and written down to fair value when a
decline in value is considered to be other than temporary. Realized investment
gains and losses are based upon specific identification of the investment
assets.
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) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of
commissions, premium taxes and other costs, which vary with, and are primarily
related to, the production of revenues. Acquisition costs for annuity products
are deferred and amortized, generally in proportion to the ratio of annual
revenue to the estimated total revenues over the contract periods.
Deferred policy acquisition costs are reviewed to determine if they are
recoverable from future income, including investment income. If such costs are
estimated to be unrecoverable, they are expensed. If such costs are estimated to
be unrecoverable or are accelerated as a result of treating unrealized
investment gains and losses as though they had been realized, a deferred
acquisition cost valuation allowance may be established or adjusted, with a
comparable offset in net unrealized appreciation (depreciation).
F) SEPARATE ACCOUNTS: Separate account assets and liabilities are principally
carried at market value and represent policyholder funds maintained in accounts
having specific investment objectives. The investment income, gains and losses
of these accounts generally accrue to the policyholders and, therefore, are not
included in the Company's revenues and expenses.
G) CONTRACTHOLDER DEPOSIT FUNDS: Liabilities for Contractholder Deposit Funds
consist of deposits received from customers and investment earnings on their
fund balances, less administrative charges.
15
<PAGE>
H) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for
individual life products. 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, and are based upon estimates as
to future investment yield, mortality and withdrawals that include provisions
for adverse deviation. Future policy benefits 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.
I) UNPAID CLAIMS AND CLAIM EXPENSES: Liabilities for unpaid claims and claim
expenses are estimates of payments to be made on reported and incurred but not
reported insurance claims.
J) OTHER LIABILITIES: Other Liabilities consists principally of various
insurance-related liabilities for taxes, licenses and fees.
K) PREMIUMS AND FEES AND RELATED EXPENSES: Premiums are recognized as revenue
when due. Benefits, losses and settlement expenses are matched with premiums.
L) 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 fixed maturities as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Amortized Fair
(IN THOUSANDS) Cost Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less.................................................. $ -- $ --
Due after one year through five years.................................... 12,585 13,075
Due after five years through ten years................................... 490 525
Due after ten years...................................................... 41 44
- ------------------------------------------------------------------------------------------------
Total.................................................................. $ 13,116 $ 13,644
- ------------------------------------------------------------------------------------------------
---------------------
</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>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
December 31, 1996
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Amortized Unrealized Unrealized Fair
(IN THOUSANDS) Cost Appreciation Depreciation Value
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Federal government bonds......................... $ 10,598 $ 427 $ (10) $ 11,015
Foreign government bonds......................... 524 26 -- 550
Corporate bonds.................................. 1,994 85 -- 2,079
- -------------------------------------------------------------------------------------------------------
Total.......................................... $ 13,116 $ 538 $ (10) $ 13,644
- -------------------------------------------------------------------------------------------------------
----------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
December 31, 1995
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Amortized Unrealized Unrealized Fair
(IN THOUSANDS) Cost Appreciation Depreciation Value
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Federal government bonds......................... $ 10,757 $ 849 $ (8) $ 11,598
Foreign government bonds......................... 530 45 -- 575
Corporate bonds.................................. 3,692 175 -- 3,867
- -----------------------------------------------------------------------------------------------------
Total.......................................... $ 14,979 $ 1,069 $ (8) $ 16,040
- -----------------------------------------------------------------------------------------------------
--------------------------------------------------
</TABLE>
B) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and
cash equivalents, in the aggregate, primarily included debt securities,
principally federal government securities of $7.9 million at December 31, 1996
and corporate securities of $3.0 million 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) 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation...................................................... $ 538 $ 1,069
Unrealized depreciation...................................................... (10) (8)
--------- ---------
528 1,061
Less deferred income taxes................................................... (184) (371)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation.................................................. $ 344 $ 690
- ---------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Net unrealized appreciation for 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 1996, 1995 and 1994 was ($346,000), $873,000
and ($1.0) million, respectively.
D) OTHER: As of December 31, 1996 and 1995, the Company had no concentration
of investments in a single investee exceeding 10% of Shareholder's Equity.
NOTE 4 -- INVESTMENT INCOME AND GAINS AND LOSSES
A) NET INVESTMENT INCOME: The components of net investment income for the
year ended December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities.................................................... $ 1,009 $ 973 $ 971
Short-term investments.............................................. 281 333 225
--------- --------- ---------
1,290 1,306 1,196
Less investment expenses............................................ 23 13 12
- -----------------------------------------------------------------------------------------------------
Net investment income............................................... $ 1,267 $ 1,293 $ 1,184
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
B) REALIZED INVESTMENT GAINS AND LOSSES: Realized investment gains on bonds
for 1996 were $14,000, net of income tax expense of $8,000. There were no
realized investment gains (losses) for 1995 or 1994.
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, 1996, there were no permitted accounting practices utilized by the
Company that were materially different from those prescribed by the Department.
17
<PAGE>
Capital stock of the Company at December 31, 1996 and 1995 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 $308,000, $397,000 and $584,000 for
1996, 1995 and 1994, respectively. Statutory surplus was $10.4 million and $9.7
million at December 31, 1996 and 1995, respectively. The Connecticut Insurance
Holding Company Act limits the amount of annual dividends or other distributions
available to shareholders of Connecticut insurance companies without the
Department's prior approval. Under current law, the maximum dividend
distribution which may be made by the Company during 1997 without prior approval
is $1.0 million. The amount of restricted net assets as of December 31, 1996 was
approximately $10.4 million. Certain states also require that a minimum level of
$10 million of capital and surplus be maintained.
NOTE 6 -- INCOME TAXES
The Company's net deferred tax asset of $336,000 and $62,000 as of December
31, 1996 and 1995, 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. 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) 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other insurance and contractholder liabilities............................... $ 289 $ 282
Policy acquisition expenses.................................................. 231 152
--- ---
Total deferred tax assets.................................................... 520 434
--- ---
Deferred tax liabilities:
Investments.................................................................. -- 1
Unrealized appreciation on investments....................................... 184 371
--- ---
Total deferred tax liabilities............................................... 184 372
- -----------------------------------------------------------------------------------------------------
Net deferred income tax asset.................................................. $ 336 $ 62
- -----------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Total income taxes for 1996, 1995 and 1994 were not significantly different
from the amount computed using the nominal federal income tax rate of 35%.
NOTE 7 -- REINSURANCE
In the normal course of business, the Company assumes reinsurance from CGLIC.
Insurance premiums assumed were $1.2 million for 1996 and $1.3 million for 1995
and 1994. All life insurance in force was assumed from CGLIC and totalled $33.4
million and $35.3 million in 1996 and 1995, respectively. The related
liabilities were $9.8 million and $9.6 million at December 31, 1996 and 1995,
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.
The National Association of Insurance Commissioners is currently developing
standardized statutory accounting principles, which are scheduled to take effect
in 1999. The effect on the Company's statutory net income, surplus and liquidity
cannot be reasonably estimated at this time.
In recent years, the number of insurance companies that are impaired or
insolvent has increased. This is expected to result in an increase in mandatory
assessments by state guaranty funds of, or voluntary payments by,
18
<PAGE>
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, the Company had a balance in the Account of $5.8 million. As
of December 31, 1996, there was no balance in the Account.
CGLIC allocates to the Company its share of operating expenses for
administrative services provided. See Note 7 for information on reinsurance
activities with CGLIC.
During 1995, the Company entered into new reinsurance arrangements with CGLIC.
These new arrangements provide for 90% coinsurance and are for products sold
subsequent to January 1, 1996. For variable products supported by separate
accounts, the reinsurance is on a funds withheld basis. At December 31, 1996, as
a result of these arrangements, CGLIC owed the Company $3.2 million, which is
included in Due from parent. At December 31, 1996, Separate account liabilities
include $40.2 million of funds withheld and due to CGLIC under these
arrangements.
19
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ALGER AMERICAN PORTFOLIO SUB-ACCOUNTS FIDELITY VIP PORTFOLIO SUB-ACCOUNTS
-------------------------------------------------- ----------------------------------------------
LEVERAGED MIDCAP SMALL EQUITY- MONEY HIGH
GROWTH ALLCAP GROWTH CAPITALIZATION INCOME MARKET INCOME OVERSEAS
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at value..... $4,396,364 $1,590,740 $3,147,650 $3,844,573 $4,668,653 $3,540,190 $1,889,646 $ 821,424
Receivable from CIGNA Life
Insurance Company............ 15,122 51 2,997 3,824 5,983 -- 2,044 3,051
Receivable for fund shares
sold......................... -- -- -- -- -- 127 -- --
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
Total assets................ 4,411,486 1,590,791 3,150,647 3,848,397 4,674,636 3,540,317 1,891,690 824,475
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to CIGNA Life
Insurance Company............ -- -- -- -- -- 127 -- --
Payable for fund shares
purchased.................... 15,122 51 2,997 3,824 5,983 -- 2,044 3,051
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
Total liabilities........... 15,122 51 2,997 3,824 5,983 127 2,044 3,051
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
Net assets.................. $4,396,364 $1,590,740 $3,147,650 $3,844,573 $4,668,653 $3,540,190 $1,889,646 $ 821,424
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
Accumulation units
outstanding.................. 433,381 151,397 278,077 389,564 423,894 342,418 177,276 77,201
Net asset value per
accumulation unit............ $10.144346 $10.507089 $11.319352 $ 9.868924 $11.013725 $10.338796 $10.659332 $10.640099
<CAPTION>
FIDELITY VIP II
PORTFOLIO SUB-ACCOUNTS
----------------------
ASSET INVESTMENT
MANAGER GRADE BOND
---------- ----------
<S> <C> <C>
ASSETS:
Investment in variable
insurance funds at value..... $ 499,311 $1,149,762
Receivable from CIGNA Life
Insurance Company............ -- 29,960
Receivable for fund shares
sold......................... -- --
---------- ----------
Total assets................ 499,311 1,179,722
---------- ----------
LIABILITIES:
Payable to CIGNA Life
Insurance Company............ -- --
Payable for fund shares
purchased.................... -- 29,960
---------- ----------
Total liabilities........... -- 29,960
---------- ----------
Net assets.................. $ 499,311 $1,149,762
---------- ----------
---------- ----------
Accumulation units
outstanding.................. 44,934 111,872
Net asset value per
accumulation unit............ $11.112123 $10.277513
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
20
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
AMT PORTFOLIO
SUB-ACCOUNTS
MFS SERIES SUB-ACCOUNTS ------------------------
----------------------------------- LIMITED
TOTAL WORLD MATURITY
RETURN UTILITIES GOVERNMENTS BALANCED BOND
---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable insurance funds at value................ $2,214,668 $ 247,097 $ 278,553 $ 753,511 $ 288,631
Receivable from CIGNA Life Insurance Company................... 2,275 -- -- 798 --
Receivable for fund shares sold................................ -- -- -- -- --
---------- ---------- ----------- ---------- ------------
Total assets................................................. 2,216,943 247,097 278,553 754,309 288,631
---------- ---------- ----------- ---------- ------------
LIABILITIES:
Payable to CIGNA Life Insurance Company........................ -- -- -- -- --
Payable for fund shares purchased.............................. 2,275 -- -- 798 --
---------- ---------- ----------- ---------- ------------
Total liabilities............................................ 2,275 -- -- 798 --
---------- ---------- ----------- ---------- ------------
Net assets................................................... $2,214,668 $ 247,097 $ 278,553 $ 753,511 $ 288,631
---------- ---------- ----------- ---------- ------------
---------- ---------- ----------- ---------- ------------
Accumulation units outstanding................................. 202,532 20,800 26,627 73,897 28,081
Net asset value per accumulation unit.......................... $10.934889 $11.879471 $10.461237 $10.196779 $10.278541
<CAPTION>
OCC ACCUMULATION TRUST SUB-
ACCOUNTS*
----------------------------------
GLOBAL
PARTNERS EQUITY MANAGED SMALL CAP
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investment in variable insurance funds at value................ $3,326,210 $4,198,113 $6,618,127 $1,138,874
Receivable from CIGNA Life Insurance Company................... 11,986 6,880 7,376 66
Receivable for fund shares sold................................ -- -- -- --
---------- ---------- ---------- ----------
Total assets................................................. 3,338,196 4,204,993 6,625,503 1,138,940
---------- ---------- ---------- ----------
LIABILITIES:
Payable to CIGNA Life Insurance Company........................ -- -- -- --
Payable for fund shares purchased.............................. 11,986 6,880 7,376 66
---------- ---------- ---------- ----------
Total liabilities............................................ 11,986 6,880 7,376 66
---------- ---------- ---------- ----------
Net assets................................................... $3,326,210 $4,198,113 $6,618,127 $1,138,874
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Accumulation units outstanding................................. 273,165 380,111 571,756 100,116
Net asset value per accumulation unit.......................... $12.176555 $11.044449 $11.575082 $11.375492
</TABLE>
- ------------------------
* Formerly Quest for Value Accumulation Trust
The Notes to Financial Statements are an integral part of these statements.
21
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS
FIRST RECEIVED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
ALGER AMERICAN PORTFOLIO SUB-ACCOUNTS FIDELITY VIP PORTFOLIO SUB-ACCOUNTS
------------------------------------------------------ ------------------------------------------------
LEVERAGED MIDCAP SMALL EQUITY- HIGH
GROWTH ALLCAP GROWTH CAPITALIZATION INCOME MONEY MARKET INCOME OVERSEAS
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception Date......... February 23, February 9, January 19, February 9, February 20, February 22, May 17, May 13,
1996 1996 1996 1996 1996 1996 1996 1996
INVESTMENT INCOME:
Dividends.............. $ 559 $-- $ -- $-- $ -- $115,207 $ -- $ --
EXPENSES:
Mortality and expense
risk and
administrative
charges.............. 22,375 7,549 14,877 19,633 23,420 28,775 7,249 2,735
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
Net investment gain
(loss)............. (21,816) (7,549) (14,877) (19,633) (23,420) 86,432 (7,249) (2,735)
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Capital distributions
from portfolio
sponsors............. 23,616 1,044 7,543 2,787 -- -- -- --
Net realized gain
(loss) on share
transactions......... (74) (4,573) 405 130 1,656 -- (10) 7
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
Net realized gain
(loss)............. 23,542 (3,529) 7,948 2,917 1,656 -- (10) 7
Net unrealized gain
(loss)............... 186,010 21,298 128,511 (9,354) 317,747 -- 74,586 38,035
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
Net realized and
unrealized gain
(loss) on
investments........ 209,552 17,769 136,459 (6,437) 319,403 -- 74,576 38,042
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS...... $187,736 $10,220 $121,582 $(26,070) $295,983 $ 86,432 $67,327 $35,307
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
<CAPTION>
FIDELITY VIP II
PORTFOLIO
SUB-ACCOUNTS
---------------------
ASSET INVESTMENT
MANAGER GRADE BOND
-------- ----------
<S> <C> <C>
Inception Date......... March 1, March 1,
1996 1996
INVESTMENT INCOME:
Dividends.............. $ -- $ --
EXPENSES:
Mortality and expense
risk and
administrative
charges.............. 2,834 6,076
-------- ----------
Net investment gain
(loss)............. (2,834) (6,076)
-------- ----------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Capital distributions
from portfolio
sponsors............. -- --
Net realized gain
(loss) on share
transactions......... 277 568
-------- ----------
Net realized gain
(loss)............. 277 568
Net unrealized gain
(loss)............... 36,730 34,504
-------- ----------
Net realized and
unrealized gain
(loss) on
investments........ 37,007 35,072
-------- ----------
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS...... $34,173 $28,996
-------- ----------
-------- ----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
22
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS
FIRST RECEIVED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
MFS SERIES SUB-ACCOUNTS AMT PORTFOLIO SUB-ACCOUNTS
-------------------------------------- --------------------------------------------
WORLD LIMITED
TOTAL RETURN UTILITIES GOVERNMENTS BALANCED MATURITY BOND PARTNERS
------------ --------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Inception Date................ February 22, March 15, February February 22, February 20, February 20,
1996 1996 20, 1996 1996 1996 1996
INVESTMENT INCOME:
Dividends..................... $ 33,418 $ 5,713 $-- $ 471 $ 5,506 $ 218
EXPENSES:
Mortality and expense risk and
administrative charges...... 9,797 1,391 1,037 3,578 1,643 15,537
------------ --------- ----------- ------------ ------- ------------
Net investment gain
(loss).................... 23,621 4,322 (1,037) (3,107) 3,863 (15,319)
------------ --------- ----------- ------------ ------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... 14,539 14,823 -- 2,619 -- 2,724
Net realized gain (loss) on
share transactions.......... 377 94 1 520 (5,482) 491
------------ --------- ----------- ------------ ------- ------------
Net realized gain (loss).... 14,916 14,917 1 3,139 (5,482) 3,215
Net unrealized gain........... 76,713 7,903 6,883 21,429 7,496 385,732
------------ --------- ----------- ------------ ------- ------------
Net realized and unrealized
gain on investments....... 91,629 22,820 6,884 24,568 2,014 388,947
------------ --------- ----------- ------------ ------- ------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $115,250 $27,142 $ 5,847 $21,461 $ 5,877 $373,628
------------ --------- ----------- ------------ ------- ------------
------------ --------- ----------- ------------ ------- ------------
<CAPTION>
OCC ACCUMULATION TRUST
SUB-ACCOUNTS *
--------------------------------------
GLOBAL
EQUITY MANAGED SMALL CAP
----------- ------------ ---------
<S> <C> <C> <C>
Inception Date................ February 9, February 20, March 1,
1996 1996 1996
INVESTMENT INCOME:
Dividends..................... $ 14,529 $ 2,265 $ --
EXPENSES:
Mortality and expense risk and
administrative charges...... 20,926 34,377 5,334
----------- ------------ ---------
Net investment gain
(loss).................... (6,397) (32,112) (5,334)
----------- ------------ ---------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... 22,283 1,445 --
Net realized gain (loss) on
share transactions.......... 9,213 14,922 337
----------- ------------ ---------
Net realized gain (loss).... 31,496 16,367 337
Net unrealized gain........... 225,407 599,532 88,887
----------- ------------ ---------
Net realized and unrealized
gain on investments....... 256,903 615,899 89,224
----------- ------------ ---------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $250,506 $583,787 $83,890
----------- ------------ ---------
----------- ------------ ---------
</TABLE>
- ------------------------------
* Formerly Quest for Value Accumulation Trust
The Notes to Financial Statements are an integral part of these statements.
23
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS
FIRST RECEIVED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
ALGER AMERICAN PORTFOLIO SUB-ACCOUNTS FIDELITY VIP PORTFOLIO SUB-ACCOUNTS
------------------------------------------------------ ------------------------------------------------
LEVERAGED MIDCAP SMALL EQUITY- MONEY HIGH
GROWTH ALLCAP GROWTH CAPITALIZATION INCOME MARKET INCOME OVERSEAS
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception Date......... February 23, February January 19, February 9, February 20, February May 17, May 13,
1996 9, 1996 1996 1996 1996 22, 1996 1996 1996
OPERATIONS:
Net investment gain
(loss)................ $ (21,816) $ (7,549) $ (14,877) $ (19,633) $ (23,420) $ 86,432 $ (7,249) $ (2,735)
Net realized gain
(loss)................ 23,542 (3,529) 7,948 2,917 1,656 -- (10) 7
Net unrealized gain
(loss)................ 186,010 21,298 128,511 (9,354) 317,747 -- 74,586 38,035
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
Net increase
(decrease) from
operations......... 187,736 10,220 121,582 (26,070) 295,983 86,432 67,327 35,307
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits... 3,317,873 1,651,397 1,942,260 2,839,597 3,239,285 13,217,666 1,400,589 333,797
Participant
transfers............. 925,179 299,414 1,093,142 1,040,987 1,177,728 (9,729,196) 422,934 453,233
Participant
withdrawals........... (34,424) (370,291) (9,334) (9,941) (44,343) (34,712) (1,204) (913)
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
Net increase from
participant
transactions....... 4,208,628 1,580,520 3,026,068 3,870,643 4,372,670 3,453,758 1,822,319 786,117
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
Total increase in
net assets....... 4,396,364 1,590,740 3,147,650 3,844,573 4,668,653 3,540,190 1,889,646 821,424
NET ASSETS:
Beginning of period.... -- -- -- -- -- -- -- --
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
End of period.......... $4,396,364 $1,590,740 $3,147,650 $3,844,573 $4,668,653 $ 3,540,190 $1,889,646 $821,424
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
PARTICIPANT
ACCUMULATION UNIT
TRANSACTIONS (IN
UNITS):
Participant deposits... 342,710 159,299 178,263 286,678 313,300 1,300,805 136,000 32,852
Participant
transfers............. 95,710 29,267 100,639 103,906 116,289 (955,012) 41,391 44,437
Participant
withdrawals........... (5,039) (37,169) (825) (1,020) (5,695) (3,375) (115) (88)
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
Net increase in units
from participant
transactions....... 433,381 151,397 278,077 389,564 423,894 342,418 177,276 77,201
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
<CAPTION>
FIDELITY VIP II
PORTFOLIO
SUB-ACCOUNTS
---------------------
ASSET INVESTMENT
MANAGER GRADE BOND
-------- -----------
<S> <C> <C>
Inception Date......... March 1, March 1,
1996 1996
OPERATIONS:
Net investment gain
(loss)................ $ (2,834) $ (6,076)
Net realized gain
(loss)................ 277 568
Net unrealized gain
(loss)................ 36,730 34,504
-------- -----------
Net increase
(decrease) from
operations......... 34,173 28,996
-------- -----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits... 387,774 1,037,858
Participant
transfers............. 78,318 87,046
Participant
withdrawals........... (954) (4,138)
-------- -----------
Net increase from
participant
transactions....... 465,138 1,120,766
-------- -----------
Total increase in
net assets....... 499,311 1,149,762
NET ASSETS:
Beginning of period.... -- --
-------- -----------
End of period.......... $499,311 $1,149,762
-------- -----------
-------- -----------
PARTICIPANT
ACCUMULATION UNIT
TRANSACTIONS (IN
UNITS):
Participant deposits... 37,519 103,429
Participant
transfers............. 7,503 8,857
Participant
withdrawals........... (88) (414)
-------- -----------
Net increase in units
from participant
transactions....... 44,934 111,872
-------- -----------
-------- -----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
24
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS
FIRST RECEIVED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
MFS SERIES SUB-ACCOUNTS AMT PORTFOLIO SUB-ACCOUNTS
-------------------------------------- -------------------------------------------
WORLD LIMITED
TOTAL RETURN UTILITIES GOVERNMENTS BALANCED MATURITY BOND PARTNERS
------------ --------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Inception Date................ February 22, March 15, February February 22, February 20, February 20,
1996 1996 20, 1996 1996 1996 1996
OPERATIONS:
Net investment gain (loss).... $ 23,621 $ 4,322 $ (1,037) $ (3,107) $ 3,863 $ (15,319)
Net realized gain (loss)...... 14,916 14,917 1 3,139 (5,482) 3,215
Net unrealized gain........... 76,713 7,903 6,883 21,429 7,496 385,732
------------ --------- ----------- ------------ ------------- ------------
Net increase from
operations................ 115,250 27,142 5,847 21,461 5,877 373,628
------------ --------- ----------- ------------ ------------- ------------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 1,686,151 185,211 179,597 539,940 252,711 2,214,066
Participant transfers......... 421,178 38,655 93,230 198,384 34,153 744,129
Participant withdrawals....... (7,911) (3,911) (121) (6,274) (4,110) (5,613)
------------ --------- ----------- ------------ ------------- ------------
Net increase from
participant
transactions.............. 2,099,418 219,955 272,706 732,050 282,754 2,952,582
------------ --------- ----------- ------------ ------------- ------------
Total increase in net
assets.................. 2,214,668 247,097 278,553 753,511 288,631 3,326,210
NET ASSETS:
Beginning of period........... -- -- -- -- -- --
------------ --------- ----------- ------------ ------------- ------------
End of period................. $2,214,668 $247,097 $278,553 $753,511 $288,631 $3,326,210
------------ --------- ----------- ------------ ------------- ------------
------------ --------- ----------- ------------ ------------- ------------
PARTICIPANT ACCUMULATION UNIT
TRANSACTIONS (IN UNITS):
Participant deposits.......... 162,892 17,591 17,630 54,244 25,118 204,380
Participant transfers......... 40,389 3,571 9,009 20,301 3,372 69,271
Participant withdrawals....... (749) (362) (12) (648) (409) (486)
------------ --------- ----------- ------------ ------------- ------------
Net increase in units from
participant
transactions.............. 202,532 20,800 26,627 73,897 28,081 273,165
------------ --------- ----------- ------------ ------------- ------------
------------ --------- ----------- ------------ ------------- ------------
<CAPTION>
OCC ACCUMULATION TRUST SUB-ACCOUNTS*
-------------------------------------
GLOBAL
EQUITY MANAGED SMALL CAP
---------- ------------ ----------
<S> <C> <C> <C>
Inception Date................ February February 20, March 1,
9, 1996 1996 1996
OPERATIONS:
Net investment gain (loss).... $ (6,397) $ (32,112) $ (5,334)
Net realized gain (loss)...... 31,496 16,367 337
Net unrealized gain........... 225,407 599,532 88,887
---------- ------------ ----------
Net increase from
operations................ 250,506 583,787 83,890
---------- ------------ ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 3,457,047 5,309,052 762,200
Participant transfers......... 878,847 1,293,574 293,019
Participant withdrawals....... (388,287) (568,286) (235)
---------- ------------ ----------
Net increase from
participant
transactions.............. 3,947,607 6,034,340 1,054,984
---------- ------------ ----------
Total increase in net
assets.................. 4,198,113 6,618,127 1,138,874
NET ASSETS:
Beginning of period........... -- -- --
---------- ------------ ----------
End of period................. $4,198,113 $6,618,127 $1,138,874
---------- ------------ ----------
---------- ------------ ----------
PARTICIPANT ACCUMULATION UNIT
TRANSACTIONS (IN UNITS):
Participant deposits.......... 334,130 506,338 72,303
Participant transfers......... 83,245 121,659 27,835
Participant withdrawals....... (37,264) (56,241) (22)
---------- ------------ ----------
Net increase in units from
participant
transactions.............. 380,111 571,756 100,116
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
- ------------------------
* Formerly Quest for Value Accumulation Trust
The Notes to Financial Statements are an integral part of these statements.
25
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION
CIGNA Variable Annuity Separate Account I (the Account) is registered as a
Unit Investment Trust under the Investment Company Act of 1940, as amended. The
operations of the Account are part of the operations of CIGNA Life Insurance
Company (CIGNA Life). The assets and liabilities of the Account are clearly
identified and distinguished from other assets and liabilities of CIGNA Life.
The assets of the Account are not available to meet the general obligations of
CIGNA Life and are held for the exclusive benefit of the participants.
The assets of the Account are divided into variable sub-accounts each of
which is invested in shares of one of nineteen portfolios (mutual funds) of six
diversified open-end management investment companies, each portfolio with its
own investment objective. The variable sub-accounts are:
ALGER AMERICAN FUND:--
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:--
Equity-Income Portfolio
Money Market Portfolio
High Income Portfolio
Overseas Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:--
Asset Manager Portfolio
Investment Grade Bond Portfolio
MFS VARIABLE INSURANCE TRUST:--
MFS Total Return Series
MFS Utilities Series
MFS World Governments Series
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST:--
AMT Balanced Portfolio
AMT Limited Maturity Bond Portfolio
AMT Partners Portfolio
OCC (FORMERLY QUEST FOR VALUE) ACCUMULATION TRUST:--
OCC Global Equity Portfolio
OCC Managed Portfolio
OCC Small Cap Portfolio
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in conformity with generally
accepted accounting principles. The following is a summary of significant
accounting policies consistently followed in the preparation of the Account's
financial statements.
26
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. INVESTMENT VALUATION: -- Investments held by the sub-accounts are valued at
their respective closing net asset value per share as determined by the
mutual funds as of December 31, 1996. The difference between cost and value
is reflected as unrealized gain (loss) in the Statements of Operations.
B. INVESTMENT TRANSACTIONS: -- Investment transactions are recorded on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on sales of investments are determined by the last-in, first-out cost
basis of the investment sold. Dividend and capital gain distributions are
recorded on the ex-dividend date. Investment transactions are settled
through CIGNA Life.
C. FEDERAL INCOME TAXES: -- The operations of the Account form a part of, and
are taxed with, the total operations of CIGNA Life, which is taxed as a life
insurance company. Under existing federal income tax law, investment income
(dividends) and capital gains attributable to the Account are not taxed.
3. INVESTMENTS
Total shares held and cost of investments at December 31, 1996 were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
COST OF
SUB-ACCOUNT SHARES HELD INVESTMENTS
- ----------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio........................ 128,062 $ 4,210,354
Alger American Leveraged AllCap Portfolio.............. 82,166 1,569,442
Alger American MidCap Growth Portfolio................. 147,431 3,019,139
Alger American Small Capitalization Portfolio.......... 93,976 3,853,927
Fidelity Equity-Income Portfolio....................... 222,000 4,350,906
Fidelity Money Market Portfolio........................ 3,540,190 3,540,190
Fidelity High Income Portfolio......................... 150,930 1,815,060
Fidelity Overseas Portfolio............................ 43,600 783,389
Fidelity Asset Manager Portfolio....................... 29,493 462,581
Fidelity Investment Grade Bond Portfolio............... 93,935 1,115,258
MFS Total Return Series................................ 161,537 2,137,955
MFS Utilities Series................................... 18,089 239,194
MFS World Governments Series........................... 26,328 271,670
AMT Balanced Portfolio................................. 47,331 732,082
AMT Limited Maturity Bond Portfolio.................... 20,543 281,135
AMT Partners Portfolio................................. 201,833 2,940,478
OCC Global Equity Portfolio............................ 317,318 3,972,706
OCC Managed Portfolio.................................. 182,771 6,018,595
OCC Small Cap Portfolio................................ 50,370 1,049,987
- ----------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
Total purchases and sales of shares of the mutual funds, for the periods
noted, amounted to:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
SUB-ACCOUNT PERIOD* PURCHASES SALES
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alger American Growth Portfolio........................ February 23, 1996 to December 31, 1996 $4,372,497 $ 162,069
Alger American Leveraged AllCap Portfolio.............. February 9, 1996 to December 31, 1996 1,950,966 376,951
Alger American MidCap Growth Portfolio................. January 19, 1996 to December 31, 1996 3,110,857 92,123
Alger American Small Capitalization Portfolio.......... February 9, 1996 to December 31, 1996 3,950,228 96,431
Fidelity Equity-Income Portfolio....................... February 20, 1996 to December 31, 1996 4,641,771 292,521
Fidelity Money Market Portfolio........................ February 22, 1996 to December 31, 1996 11,706,487 8,166,297
Fidelity High Income Portfolio......................... May 17, 1996 to December 31, 1996 1,829,085 14,015
Fidelity Overseas Portfolio............................ May 13, 1996 to December 31, 1996 784,827 1,445
Fidelity Asset Manager Portfolio....................... March 1, 1996 to December 31, 1996 525,873 63,569
Fidelity Investment Grade Bond Portfolio............... March 1, 1996 to December 31, 1996 1,203,427 88,737
MFS Total Return Series................................ February 22, 1996 to December 31, 1996 2,227,540 89,962
MFS Utilities Series................................... March 15, 1996 to December 31, 1996 263,138 24,038
MFS World Governments Series........................... February 20, 1996 to December 31, 1996 272,685 1,016
AMT Balanced Portfolio................................. February 22, 1996 to December 31, 1996 804,895 73,333
AMT Limited Maturity Bond Portfolio.................... February 20, 1996 to December 31, 1996 359,140 72,523
AMT Partners Portfolio................................. February 20, 1996 to December 31, 1996 3,020,765 80,778
OCC Global Equity Portfolio............................ February 9, 1996 to December 31, 1996 4,490,141 526,648
OCC Managed Portfolio.................................. February 20, 1996 to December 31, 1996 6,670,361 666,688
OCC Small Cap Portfolio................................ March 1, 1996 to December 31, 1996 1,109,826 60,176
- -------------------------------------------------------------------------------------------
</TABLE>
* Date deposits first received.
4. CHARGES AND DEDUCTIONS
CIGNA Life assumes the risk that annuitants may live longer than expected
and also assumes a mortality risk in connection with the death benefits of the
contract. CIGNA Life also assumes a risk that its actual administrative expenses
may be higher than amounts deducted for such expenses. CIGNA Life charges each
variable sub-account the daily equivalent of 1.20%, on an annual basis, of the
current value of each sub-account's assets for the assumption of these risks.
CIGNA Life also deducts a daily administrative fee from the assets of each
variable sub-account as partial reimbursement for administrative expenses
relating to the issuance and maintenance of the contract and the participant's
annuity account. This charge is currently at an effective annual rate of .10%.
As partial compensation for administrative services provided, CIGNA Life
additionally receives a $35 annuity account fee per year from each contract.
This charge is deducted from the fixed or variable sub-account of the
participant or on a pro-rata basis from two or more fixed or variable
sub-accounts in relation to their values under the contract. Fixed sub-accounts
are part of the general account of CIGNA Life and are not included in these
financial statements. The annuity 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. There were no annuity account fees
deducted during the periods covered by these financial statements.
28
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
4. CHARGES AND DEDUCTIONS (CONTINUED)
For an additional charge (optional death benefit fee), an optional death
benefit may be selected by the participant. The optional death benefit fee will
be deducted from the participant's fixed or variable sub-account or on a
pro-rata basis from two or more fixed or variable sub-accounts in relation to
their values under the contract on the date of each contract anniversary. The
optional death benefit fees, for the variable sub-accounts, amounted to $78
during the periods covered by these financial statements.
Under certain circumstances, CIGNA Life reserves the right to charge a
transfer fee of up to $10 for transfers between sub-accounts. No transfer fees
were deducted during the periods covered by these financial statements.
The fees charged by CIGNA Life for mortality and expense risks and
administrative fees, from the variable sub-accounts, for the periods noted,
amounted to:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
MORTALITY AND ASSET BASED
EXPENSE RISK ADMINISTRATIVE
SUB-ACCOUNT PERIOD* FEES FEES
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alger American Growth Portfolio........................ February 23, 1996 to December 31, 1996 $20,654 $1,721
Alger American Leveraged AllCap Portfolio.............. February 9, 1996 to December 31, 1996 6,968 581
Alger American MidCap Growth Portfolio................. January 19, 1996 to December 31, 1996 13,733 1,144
Alger American Small Capitalization Portfolio.......... February 9, 1996 to December 31, 1996 18,123 1,510
Fidelity Equity-Income Portfolio....................... February 20, 1996 to December 31, 1996 21,618 1,802
Fidelity Money Market Portfolio........................ February 22, 1996 to December 31, 1996 26,562 2,213
Fidelity High Income Portfolio......................... May 17, 1996 to December 31, 1996 6,691 558
Fidelity Overseas Portfolio............................ May 13, 1996 to December 31, 1996 2,525 210
Fidelity Asset Manager Portfolio....................... March 1, 1996 to December 31, 1996 2,616 218
Fidelity Investment Grade Bond Portfolio............... March 1, 1996 to December 31, 1996 5,609 467
MFS Total Return Series................................ February 22, 1996 to December 31, 1996 9,043 754
MFS Utilities Series................................... March 15, 1996 to December 31, 1996 1,284 107
MFS World Governments Series........................... February 20, 1996 to December 31, 1996 957 80
AMT Balanced Portfolio................................. February 22, 1996 to December 31, 1996 3,303 275
AMT Limited Maturity Bond Portfolio.................... February 20, 1996 to December 31, 1996 1,517 126
AMT Partners Portfolio................................. February 20, 1996 to December 31, 1996 14,342 1,195
OCC Global Equity Portfolio............................ February 9, 1996 to December 31, 1996 19,316 1,610
OCC Managed Portfolio.................................. February 20, 1996 to December 31, 1996 31,733 2,644
OCC Small Cap Portfolio................................ March 1, 1996 to December 31, 1996 4,924 410
- -------------------------------------------------------------------------------------------
</TABLE>
* Date deposits first received.
No deduction for sales charges is made from a premium payment. However, if a
cash withdrawal is made, a withdrawal charge (contingent deferred sales charge)
may be assessed by CIGNA Life. The withdrawal charge, if assessed, varies from
0-7% depending upon the duration of each contract deposit. The withdrawal charge
is deducted from withdrawal proceeds for full withdrawals and reduces the
remaining account value for partial withdrawals. These charges are paid to CIGNA
Life as reimbursement for services provided. These services include commissions
paid to sales personnel, the costs of preparation of sales literature and other
promotional costs and acquisition expenses. Withdrawal charges paid to CIGNA
Life for the variable sub-accounts, for the periods ended December 31, 1996,
amounted to $143.
29
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
5. DISTRIBUTION OF NET INCOME
The Account does not expect to declare dividends to participants from
accumulated net income. The accumulated net income is distributed to
participants as part of surrenders, death benefits, transfers to other fixed or
variable sub-accounts or annuity payments in excess of net purchase payments.
6. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code of 1986
(the Code), a variable annuity contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated as
an annuity contract for federal tax purposes for any period for which the
investments of the segregated asset account, on which the contract is based, are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations issued
by the Secretary of the Treasury. CIGNA Life believes, based on assurances from
the mutual fund managers, that the mutual funds satisfy the requirements of the
regulations.
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of CIGNA
Life Insurance Company and Participants of the
CIGNA Variable Annuity Separate Account I
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the sub-accounts, Alger
American Fund--Alger American Growth Portfolio, Alger American Leveraged AllCap
Portfolio, Alger American MidCap Growth Portfolio, Alger American Small
Capitalization Portfolio; Fidelity Variable Insurance Products
Fund--Equity-Income Portfolio, Money Market Portfolio, High Income Portfolio,
Overseas Portfolio; Fidelity Variable Insurance Products Fund II--Asset Manager
Portfolio, Investment Grade Bond Portfolio; MFS Variable Insurance Trust--MFS
Total Return Series, MFS Utilities Series, MFS World Governments Series;
Neuberger & Berman Advisers Management Trust--AMT Balanced Portfolio, AMT
Limited Maturity Bond Portfolio, AMT Partners Portfolio; OCC (formerly Quest for
Value) Accumulation Trust--OCC Global Equity Portfolio, OCC Managed Portfolio,
OCC Small Cap Portfolio (constituting the CIGNA Variable Annuity Separate
Account I, hereafter referred to as "the Account") at December 31, 1996, the
results of each of their operations and the changes in each of their net assets
for the periods since inception (as indicated in the financial statements)
through December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Account's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
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 audit, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodians, provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Hartford, Connecticut
February 20, 1997
31
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32
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<PAGE>
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34
<PAGE>
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35
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36
<PAGE>
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37
<PAGE>
PART B. STATEMENT OF ADDITIONAL INFORMATION NO. 2
<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
<TABLE>
<S> <C>
Home Office Location: Lockbox Address--By Mail:
900 Cottage Grove Road CIGNA Life Insurance Company
Bloomfield, Connecticut P.O. Box 30790
Hartford, CT 06150
Telephone: (800)(552-9898)
Mailing Address: Lockbox Address--By Courier:
CIGNA Individual Insurance CIGNA Life Insurance Company
Annuity & Variable Life Services c/o Fleet Bank
Center 20 Church Street
Routing S-249 20th Floor, MSN275
Hartford, Connecticut 06152-2249 Hartford, CT 06120
Attn: Lockbox 30790
</TABLE>
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,
1997, 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.
May 1, 1997
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
CIGNA Variable Annuity Separate Account I................................................................ 20
</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.
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
Annuity & Variable Life Services 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 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.
3
<PAGE>
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 .00003862644 (the daily
equivalent of the current charge of 1.40% on an annual basis) gives a net
investment factor of 1.00239150756. 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
1.00239150756).
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 $13.610508
[$13.579136 X 1.00239150756 (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.
VARIABLE ANNUITY PAYMENT CALCULATION. Assume that a 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
4
<PAGE>
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 $50,000
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. 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................ $50,000
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.................................... $ 53,965 0.963640 $ 52,003 $ 51,465 $ 52,003 $ 2,975 $ 49,028
2.................................... $ 58,247 0.993056 $ 57,843 $ 52,974 $ 57,843 $ 2,975 $ 54,868
3.................................... $ 62,872 1.000000 $ 62,872 $ 54,528 $ 62,872 $ 2,975 $ 59,897
4.................................... $ 67,867 1.004673 $ 68,184 $ 56,129 $ 68,184 $ 2,550 $ 65,634
5.................................... $ 73,261 1.000000 $ 73,261 $ 57,778 $ 73,261 $ 2,550 $ 70,711
</TABLE>
5
<PAGE>
ANNUITY VALUE CALCULATION
<TABLE>
<CAPTION>
CONTRACT YEAR ANNUITY VALUE
- ------------------------------ ------------------------------------------
<S> <C>
1............................. $50,000 X 1.08 - $35 = $53,965
2............................. $53,965 X 1.08 - $35 = $58,247
3............................. $58,247 X 1.08 - $35 = $62,872
4............................. $62,872 X 1.08 - $35 = $67,867
5............................. $67,867 X 1.08 - $35 = $73,261
</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 $ 2,975
2..................................................... 0.07 0.0595 $ 2,975
3..................................................... 0.07 0.0595 $ 2,975
4..................................................... 0.06 0.0510 $ 2,550
5..................................................... 0.06 0.0510 $ 2,550
</TABLE>
MARKET VALUE ADJUSTMENT TABLES
INTEREST RATE FACTOR CALCULATION
<TABLE>
<CAPTION>
(3) (5)
(1) (2) ADJUSTED (1+A)
INDEX INDEX INDEX RATE (4) ------
CONTRACT YEAR RATE A RATE B B N (1+B)
- ------------------------------------------------------- ------ ------ ----------- ----- ------------
<S> <C> <C> <C> <C> <C>
1...................................................... 7.50% 8.00% 8.50% 4 0.963640
2...................................................... 7.50% 7.75% 7.75% 3 0.993056
3...................................................... 7.50% 7.00% 7.50% 2 1.000000
4...................................................... 7.50% 6.50% 7.00% 1 1.004673
5...................................................... 7.50% NA NA 0 NA
</TABLE>
MINIMUM VALUE CALCULATION
<TABLE>
<CAPTION>
CONTRACT YEAR MINIMUM VALUE
- ------------------------------ ------------------------------------------
<S> <C>
1............................. $50,000 X 1.03 - $35 = $51,465
2............................. $51,465 X 1.03 - $35 = $52,974
3............................. $52,974 X 1.03 - $35 = $54,528
4............................. $54,528 X 1.03 - $35 = $56,129
5............................. $56,129 X 1.03 - $35 = $57,778
</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.
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
6
<PAGE>
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 06002. 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
7.00% of Premium Payments. The Company received $143.00 in deferred sales
charges attributable to the Variable Account portion of the Contracts issued
pursuant to CIGNA Variable Annuity Separate Account I for the period ended
December 31, 1996.
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
Historical performance data as of December 31, 1996 for each of the
Sub-Accounts of the Separate Account follows in the Financial Statements.
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) - 1
The yield on amounts held in the Money Market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Money Market Sub-Account's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Fund, the types and quality of portfolio securities held by the
Money Market Fund and its operating expenses. The yield figures do not reflect
withdrawal charges or premium taxes.
OTHER SUB-ACCOUNT YIELDS
The Company may from time to time advertise or disclose the current
annualized yield of one or more of the Sub-Accounts of the Variable Account
(except the Money Market Sub-Account) for 30-day periods. The annualized yield
of a Sub-Account refers to income generated by the Sub-Account over a specific
30-day period. Because the yield is annualized, the yield generated by a
Sub-Account during the 30-day period is assumed to be generated each 30-day
period over a 12-month period. The yield is computed by: (i) dividing the net
investment income per accumulation unit earned during the period by the maximum
offering price per unit on the last day of the period, according to the
following formula:
Yield = 2 [(a - b + 1) - 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 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.
8
<PAGE>
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. 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) = 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%.
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.
9
<PAGE>
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 Edwin L. Kerr, Counsel, Individual
Insurance, CIGNA Companies. 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,
1996 and 1995 and for each of the three years in the period ended December 31,
1996 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. The
financial statements of the Variable Account as of and for the period ended
December 31, 1996 are also included.
10
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICE WATERHOUSE LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 11, 1997
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,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, 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 YEARS ENDED DECEMBER 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees................................................... $ 1,212 $ 1,263 $ 1,327
Net investment income............................................... 1,267 1,293 1,184
Realized investment gains........................................... 22 -- --
--------- --------- ---------
Total revenues.................................................. 2,501 2,556 2,511
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses............................ 1,608 1,461 1,531
Policy acquisition expenses......................................... 49 -- --
Other operating expenses............................................ 231 456 77
--------- --------- ---------
Total benefits, losses and expenses............................. 1,888 1,917 1,608
--------- --------- ---------
INCOME BEFORE INCOME TAXES.......................................... 613 639 903
--------- --------- ---------
Income taxes (benefits):
Current........................................................... 299 242 319
Deferred.......................................................... (87) (16) (2)
--------- --------- ---------
Total taxes..................................................... 212 226 317
--------- --------- ---------
NET INCOME.......................................................... 401 413 586
Retained earnings, beginning of year................................ 4,664 4,251 3,665
- -----------------------------------------------------------------------------------------------------
RETAINED EARNINGS, END OF YEAR...................................... $ 5,065 $ 4,664 $ 4,251
- -----------------------------------------------------------------------------------------------------
-------------------------------
</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, 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $13,116; $14,979)...... $ 13,644 $ 16,040
Short-term investments.................................................. 7,984 --
--------- ---------
Total investments................................................... 21,628 16,040
Cash and cash equivalents................................................. 192 4,108
Accrued investment income................................................. 359 321
Premiums and accounts receivable.......................................... 269 271
Deferred policy acquisition costs......................................... 251 --
Current income taxes...................................................... -- 24
Deferred income taxes, net................................................ 336 62
Due from parent........................................................... 3,228 --
Separate account assets................................................... 44,614 --
- ------------------------------------------------------------------------------------------------
Total assets........................................................ $ 70,877 $ 20,826
- ------------------------------------------------------------------------------------------------
--------------------
LIABILITIES
Contractholder deposit funds.............................................. $ 4,003 $ --
Future policy benefits.................................................... 9,972 9,616
Unpaid claims and claim expenses.......................................... 481 285
--------- ---------
Total insurance and contractholder liabilities...................... 14,456 9,901
Accounts payable, accrued expenses and other liabilities.................. 328 71
Current income taxes...................................................... 170 --
Separate account liabilities.............................................. 44,614 --
- ------------------------------------------------------------------------------------------------
Total liabilities................................................... 59,568 9,972
- ------------------------------------------------------------------------------------------------
CONTINGENCIES -- NOTE 8
SHAREHOLDER'S EQUITY
Common stock (25 shares outstanding)...................................... 2,500 2,500
Additional paid-in capital................................................ 3,400 3,000
Net unrealized appreciation on investments................................ 344 690
Retained earnings......................................................... 5,065 4,664
- ------------------------------------------------------------------------------------------------
Total shareholder's equity.......................................... 11,309 10,854
- ------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity.......................... $ 70,877 $ 20,826
- ------------------------------------------------------------------------------------------------
--------------------
</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 YEARS ENDED DECEMBER 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................ $ 401 $ 413 $ 586
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Insurance liabilities........................................... 552 333 206
Accrued investment income....................................... (38) (5) --
Premiums and accounts receivable................................ 2 15 30
Deferred income taxes, net...................................... (87) (16) (2)
Accounts payable, accrued expenses, other liabilities and
current income taxes........................................... 451 (24) (18)
Other, net...................................................... (229) 40 41
--------- --------- ---------
Net cash provided by operating activities..................... 1,052 756 843
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities................................................ 2,972 -- --
Short-term investments.......................................... 4,734 433 2,830
Maturities and repayments of fixed maturities..................... 110 25 130
Investments purchased:
Fixed maturities................................................ (1,241) (191) (130)
Short-term investments.......................................... (12,718) (817) (1,768)
--------- --------- ---------
Net cash (used in) provided by investing activities........... (6,143) (550) 1,062
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds.... 4,130 -- --
Withdrawals and benefit payments from contractholder deposit
funds........................................................... (127) -- --
Due from parent................................................... (3,228)
Paid in capital................................................... 400 -- --
--------- --------- ---------
Net cash provided by financing activities................... 1,175 -- --
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents.............. (3,916) 206 1,905
Cash and cash equivalents, beginning of year...................... 4,108 3,902 1,997
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year............................ $ 192 $ 4,108 $ 3,902
- ---------------------------------------------------------------------------------------------------
-------------------------------
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds............................... $ 105 $ 325 $ 340
- ---------------------------------------------------------------------------------------------------
-------------------------------
</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). The Company commenced
marketing individual variable annuity products in 1996. Prior to 1996,
substantially all of the Company's business resulted from reinsurance
arrangements with CGLIC, principally for individual life insurance.
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
Financial Statements. Certain reclassifications have been made to prior years'
amounts to conform with the 1996 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 are subject to risk of
loss due to interest rate and market fluctuations and most have credit risk. 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. Fair values for financial instruments are
estimates that, in many cases, may differ significantly from the amounts that
could be realized upon immediate liquidation. The fair value of liabilities for
contractholder deposit funds was estimated using the amount payable on demand
and, for those not payable on demand, discounted cash flow analyses.
C) INVESTMENTS: Investments in fixed maturities, which are classified as
available-for-sale, include bonds. Fixed maturities are carried at fair value,
with unrealized appreciation or depreciation included in Shareholder's Equity.
Fixed maturities are considered impaired and written down to fair value when a
decline in value is considered to be other than temporary. Realized investment
gains and losses are based upon specific identification of the investment
assets.
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) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of
commissions, premium taxes and other costs, which vary with, and are primarily
related to, the production of revenues. Acquisition costs for annuity products
are deferred and amortized, generally in proportion to the ratio of annual
revenue to the estimated total revenues over the contract periods.
Deferred policy acquisition costs are reviewed to determine if they are
recoverable from future income, including investment income. If such costs are
estimated to be unrecoverable, they are expensed. If such costs are estimated to
be unrecoverable or are accelerated as a result of treating unrealized
investment gains and losses as though they had been realized, a deferred
acquisition cost valuation allowance may be established or adjusted, with a
comparable offset in net unrealized appreciation (depreciation).
F) SEPARATE ACCOUNTS: Separate account assets and liabilities are principally
carried at market value and represent policyholder funds maintained in accounts
having specific investment objectives. The investment income, gains and losses
of these accounts generally accrue to the policyholders and, therefore, are not
included in the Company's revenues and expenses.
G) CONTRACTHOLDER DEPOSIT FUNDS: Liabilities for Contractholder Deposit Funds
consist of deposits received from customers and investment earnings on their
fund balances, less administrative charges.
15
<PAGE>
H) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for
individual life products. 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, and are based upon estimates as
to future investment yield, mortality and withdrawals that include provisions
for adverse deviation. Future policy benefits 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.
I) UNPAID CLAIMS AND CLAIM EXPENSES: Liabilities for unpaid claims and claim
expenses are estimates of payments to be made on reported and incurred but not
reported insurance claims.
J) OTHER LIABILITIES: Other Liabilities consists principally of various
insurance-related liabilities for taxes, licenses and fees.
K) PREMIUMS AND FEES AND RELATED EXPENSES: Premiums are recognized as revenue
when due. Benefits, losses and settlement expenses are matched with premiums.
L) 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 fixed maturities as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Amortized Fair
(IN THOUSANDS) Cost Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less.................................................. $ -- $ --
Due after one year through five years.................................... 12,585 13,075
Due after five years through ten years................................... 490 525
Due after ten years...................................................... 41 44
- ------------------------------------------------------------------------------------------------
Total.................................................................. $ 13,116 $ 13,644
- ------------------------------------------------------------------------------------------------
---------------------
</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>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
December 31, 1996
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Amortized Unrealized Unrealized Fair
(IN THOUSANDS) Cost Appreciation Depreciation Value
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Federal government bonds......................... $ 10,598 $ 427 $ (10) $ 11,015
Foreign government bonds......................... 524 26 -- 550
Corporate bonds.................................. 1,994 85 -- 2,079
- -------------------------------------------------------------------------------------------------------
Total.......................................... $ 13,116 $ 538 $ (10) $ 13,644
- -------------------------------------------------------------------------------------------------------
----------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
December 31, 1995
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Amortized Unrealized Unrealized Fair
(IN THOUSANDS) Cost Appreciation Depreciation Value
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Federal government bonds......................... $ 10,757 $ 849 $ (8) $ 11,598
Foreign government bonds......................... 530 45 -- 575
Corporate bonds.................................. 3,692 175 -- 3,867
- -----------------------------------------------------------------------------------------------------
Total.......................................... $ 14,979 $ 1,069 $ (8) $ 16,040
- -----------------------------------------------------------------------------------------------------
--------------------------------------------------
</TABLE>
B) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and
cash equivalents, in the aggregate, primarily included debt securities,
principally federal government securities of $7.9 million at December 31, 1996
and corporate securities of $3.0 million 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) 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation...................................................... $ 538 $ 1,069
Unrealized depreciation...................................................... (10) (8)
--------- ---------
528 1,061
Less deferred income taxes................................................... (184) (371)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation.................................................. $ 344 $ 690
- ---------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Net unrealized appreciation for 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 1996, 1995 and 1994 was ($346,000), $873,000
and ($1.0) million, respectively.
D) OTHER: As of December 31, 1996 and 1995, the Company had no concentration
of investments in a single investee exceeding 10% of Shareholder's Equity.
NOTE 4 -- INVESTMENT INCOME AND GAINS AND LOSSES
A) NET INVESTMENT INCOME: The components of net investment income for the
year ended December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities.................................................... $ 1,009 $ 973 $ 971
Short-term investments.............................................. 281 333 225
--------- --------- ---------
1,290 1,306 1,196
Less investment expenses............................................ 23 13 12
- -----------------------------------------------------------------------------------------------------
Net investment income............................................... $ 1,267 $ 1,293 $ 1,184
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
B) REALIZED INVESTMENT GAINS AND LOSSES: Realized investment gains on bonds
for 1996 were $14,000, net of income tax expense of $8,000. There were no
realized investment gains (losses) for 1995 or 1994.
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, 1996, there were no permitted accounting practices utilized by the
Company that were materially different from those prescribed by the Department.
17
<PAGE>
Capital stock of the Company at December 31, 1996 and 1995 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 $308,000, $397,000 and $584,000 for
1996, 1995 and 1994, respectively. Statutory surplus was $10.4 million and $9.7
million at December 31, 1996 and 1995, respectively. The Connecticut Insurance
Holding Company Act limits the amount of annual dividends or other distributions
available to shareholders of Connecticut insurance companies without the
Department's prior approval. Under current law, the maximum dividend
distribution which may be made by the Company during 1997 without prior approval
is $1.0 million. The amount of restricted net assets as of December 31, 1996 was
approximately $10.4 million. Certain states also require that a minimum level of
$10 million of capital and surplus be maintained.
NOTE 6 -- INCOME TAXES
The Company's net deferred tax asset of $336,000 and $62,000 as of December
31, 1996 and 1995, 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. 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) 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other insurance and contractholder liabilities............................... $ 289 $ 282
Policy acquisition expenses.................................................. 231 152
--- ---
Total deferred tax assets.................................................... 520 434
--- ---
Deferred tax liabilities:
Investments.................................................................. -- 1
Unrealized appreciation on investments....................................... 184 371
--- ---
Total deferred tax liabilities............................................... 184 372
- -----------------------------------------------------------------------------------------------------
Net deferred income tax asset.................................................. $ 336 $ 62
- -----------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Total income taxes for 1996, 1995 and 1994 were not significantly different
from the amount computed using the nominal federal income tax rate of 35%.
NOTE 7 -- REINSURANCE
In the normal course of business, the Company assumes reinsurance from CGLIC.
Insurance premiums assumed were $1.2 million for 1996 and $1.3 million for 1995
and 1994. All life insurance in force was assumed from CGLIC and totalled $33.4
million and $35.3 million in 1996 and 1995, respectively. The related
liabilities were $9.8 million and $9.6 million at December 31, 1996 and 1995,
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.
The National Association of Insurance Commissioners is currently developing
standardized statutory accounting principles, which are scheduled to take effect
in 1999. The effect on the Company's statutory net income, surplus and liquidity
cannot be reasonably estimated at this time.
18
<PAGE>
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, the Company had a balance in the Account of $5.8 million. As
of December 31, 1996, there was no balance in the Account.
CGLIC allocates to the Company its share of operating expenses for
administrative services provided. See Note 7 for information on reinsurance
activities with CGLIC.
During 1995, the Company entered into new reinsurance arrangements with CGLIC.
These new arrangements provide for 90% coinsurance and are for products sold
subsequent to January 1, 1996. For variable products supported by separate
accounts, the reinsurance is on a funds withheld basis. At December 31, 1996, as
a result of these arrangements, CGLIC owed the Company $3.2 million, which is
included in Due from parent. At December 31, 1996, Separate account liabilities
include $40.2 million of funds withheld and due to CGLIC under these
arrangements.
19
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ALGER AMERICAN PORTFOLIO SUB-ACCOUNTS FIDELITY VIP PORTFOLIO SUB-ACCOUNTS
-------------------------------------------------- ----------------------------------------------
LEVERAGED MIDCAP SMALL EQUITY- MONEY HIGH
GROWTH ALLCAP GROWTH CAPITALIZATION INCOME MARKET INCOME OVERSEAS
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at value..... $4,396,364 $1,590,740 $3,147,650 $3,844,573 $4,668,653 $3,540,190 $1,889,646 $ 821,424
Receivable from CIGNA Life
Insurance Company............ 15,122 51 2,997 3,824 5,983 -- 2,044 3,051
Receivable for fund shares
sold......................... -- -- -- -- -- 127 -- --
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
Total assets................ 4,411,486 1,590,791 3,150,647 3,848,397 4,674,636 3,540,317 1,891,690 824,475
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to CIGNA Life
Insurance Company............ -- -- -- -- -- 127 -- --
Payable for fund shares
purchased.................... 15,122 51 2,997 3,824 5,983 -- 2,044 3,051
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
Total liabilities........... 15,122 51 2,997 3,824 5,983 127 2,044 3,051
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
Net assets.................. $4,396,364 $1,590,740 $3,147,650 $3,844,573 $4,668,653 $3,540,190 $1,889,646 $ 821,424
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
Accumulation units
outstanding.................. 433,381 151,397 278,077 389,564 423,894 342,418 177,276 77,201
Net asset value per
accumulation unit............ $10.144346 $10.507089 $11.319352 $ 9.868924 $11.013725 $10.338796 $10.659332 $10.640099
<CAPTION>
FIDELITY VIP II
PORTFOLIO SUB-ACCOUNTS
----------------------
ASSET INVESTMENT
MANAGER GRADE BOND
---------- ----------
<S> <C> <C>
ASSETS:
Investment in variable
insurance funds at value..... $ 499,311 $1,149,762
Receivable from CIGNA Life
Insurance Company............ -- 29,960
Receivable for fund shares
sold......................... -- --
---------- ----------
Total assets................ 499,311 1,179,722
---------- ----------
LIABILITIES:
Payable to CIGNA Life
Insurance Company............ -- --
Payable for fund shares
purchased.................... -- 29,960
---------- ----------
Total liabilities........... -- 29,960
---------- ----------
Net assets.................. $ 499,311 $1,149,762
---------- ----------
---------- ----------
Accumulation units
outstanding.................. 44,934 111,872
Net asset value per
accumulation unit............ $11.112123 $10.277513
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
20
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
AMT PORTFOLIO
SUB-ACCOUNTS
MFS SERIES SUB-ACCOUNTS ------------------------
----------------------------------- LIMITED
TOTAL WORLD MATURITY
RETURN UTILITIES GOVERNMENTS BALANCED BOND
---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable insurance funds at value................ $2,214,668 $ 247,097 $ 278,553 $ 753,511 $ 288,631
Receivable from CIGNA Life Insurance Company................... 2,275 -- -- 798 --
Receivable for fund shares sold................................ -- -- -- -- --
---------- ---------- ----------- ---------- ------------
Total assets................................................. 2,216,943 247,097 278,553 754,309 288,631
---------- ---------- ----------- ---------- ------------
LIABILITIES:
Payable to CIGNA Life Insurance Company........................ -- -- -- -- --
Payable for fund shares purchased.............................. 2,275 -- -- 798 --
---------- ---------- ----------- ---------- ------------
Total liabilities............................................ 2,275 -- -- 798 --
---------- ---------- ----------- ---------- ------------
Net assets................................................... $2,214,668 $ 247,097 $ 278,553 $ 753,511 $ 288,631
---------- ---------- ----------- ---------- ------------
---------- ---------- ----------- ---------- ------------
Accumulation units outstanding................................. 202,532 20,800 26,627 73,897 28,081
Net asset value per accumulation unit.......................... $10.934889 $11.879471 $10.461237 $10.196779 $10.278541
<CAPTION>
OCC ACCUMULATION TRUST SUB-
ACCOUNTS*
----------------------------------
GLOBAL
PARTNERS EQUITY MANAGED SMALL CAP
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investment in variable insurance funds at value................ $3,326,210 $4,198,113 $6,618,127 $1,138,874
Receivable from CIGNA Life Insurance Company................... 11,986 6,880 7,376 66
Receivable for fund shares sold................................ -- -- -- --
---------- ---------- ---------- ----------
Total assets................................................. 3,338,196 4,204,993 6,625,503 1,138,940
---------- ---------- ---------- ----------
LIABILITIES:
Payable to CIGNA Life Insurance Company........................ -- -- -- --
Payable for fund shares purchased.............................. 11,986 6,880 7,376 66
---------- ---------- ---------- ----------
Total liabilities............................................ 11,986 6,880 7,376 66
---------- ---------- ---------- ----------
Net assets................................................... $3,326,210 $4,198,113 $6,618,127 $1,138,874
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Accumulation units outstanding................................. 273,165 380,111 571,756 100,116
Net asset value per accumulation unit.......................... $12.176555 $11.044449 $11.575082 $11.375492
</TABLE>
- ------------------------
* Formerly Quest for Value Accumulation Trust
The Notes to Financial Statements are an integral part of these statements.
21
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS
FIRST RECEIVED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
ALGER AMERICAN PORTFOLIO SUB-ACCOUNTS FIDELITY VIP PORTFOLIO SUB-ACCOUNTS
------------------------------------------------------ ------------------------------------------------
LEVERAGED MIDCAP SMALL EQUITY- HIGH
GROWTH ALLCAP GROWTH CAPITALIZATION INCOME MONEY MARKET INCOME OVERSEAS
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception Date......... February 23, February 9, January 19, February 9, February 20, February 22, May 17, May 13,
1996 1996 1996 1996 1996 1996 1996 1996
INVESTMENT INCOME:
Dividends.............. $ 559 $-- $ -- $-- $ -- $115,207 $ -- $ --
EXPENSES:
Mortality and expense
risk and
administrative
charges.............. 22,375 7,549 14,877 19,633 23,420 28,775 7,249 2,735
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
Net investment gain
(loss)............. (21,816) (7,549) (14,877) (19,633) (23,420) 86,432 (7,249) (2,735)
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Capital distributions
from portfolio
sponsors............. 23,616 1,044 7,543 2,787 -- -- -- --
Net realized gain
(loss) on share
transactions......... (74) (4,573) 405 130 1,656 -- (10) 7
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
Net realized gain
(loss)............. 23,542 (3,529) 7,948 2,917 1,656 -- (10) 7
Net unrealized gain
(loss)............... 186,010 21,298 128,511 (9,354) 317,747 -- 74,586 38,035
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
Net realized and
unrealized gain
(loss) on
investments........ 209,552 17,769 136,459 (6,437) 319,403 -- 74,576 38,042
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS...... $187,736 $10,220 $121,582 $(26,070) $295,983 $ 86,432 $67,327 $35,307
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
------------ ----------- ----------- -------------- ------------ ------------ -------- --------
<CAPTION>
FIDELITY VIP II
PORTFOLIO
SUB-ACCOUNTS
---------------------
ASSET INVESTMENT
MANAGER GRADE BOND
-------- ----------
<S> <C> <C>
Inception Date......... March 1, March 1,
1996 1996
INVESTMENT INCOME:
Dividends.............. $ -- $ --
EXPENSES:
Mortality and expense
risk and
administrative
charges.............. 2,834 6,076
-------- ----------
Net investment gain
(loss)............. (2,834) (6,076)
-------- ----------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Capital distributions
from portfolio
sponsors............. -- --
Net realized gain
(loss) on share
transactions......... 277 568
-------- ----------
Net realized gain
(loss)............. 277 568
Net unrealized gain
(loss)............... 36,730 34,504
-------- ----------
Net realized and
unrealized gain
(loss) on
investments........ 37,007 35,072
-------- ----------
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS...... $34,173 $28,996
-------- ----------
-------- ----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
22
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS
FIRST RECEIVED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
MFS SERIES SUB-ACCOUNTS AMT PORTFOLIO SUB-ACCOUNTS
-------------------------------------- --------------------------------------------
WORLD LIMITED
TOTAL RETURN UTILITIES GOVERNMENTS BALANCED MATURITY BOND PARTNERS
------------ --------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Inception Date................ February 22, March 15, February February 22, February 20, February 20,
1996 1996 20, 1996 1996 1996 1996
INVESTMENT INCOME:
Dividends..................... $ 33,418 $ 5,713 $-- $ 471 $ 5,506 $ 218
EXPENSES:
Mortality and expense risk and
administrative charges...... 9,797 1,391 1,037 3,578 1,643 15,537
------------ --------- ----------- ------------ ------- ------------
Net investment gain
(loss).................... 23,621 4,322 (1,037) (3,107) 3,863 (15,319)
------------ --------- ----------- ------------ ------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... 14,539 14,823 -- 2,619 -- 2,724
Net realized gain (loss) on
share transactions.......... 377 94 1 520 (5,482) 491
------------ --------- ----------- ------------ ------- ------------
Net realized gain (loss).... 14,916 14,917 1 3,139 (5,482) 3,215
Net unrealized gain........... 76,713 7,903 6,883 21,429 7,496 385,732
------------ --------- ----------- ------------ ------- ------------
Net realized and unrealized
gain on investments....... 91,629 22,820 6,884 24,568 2,014 388,947
------------ --------- ----------- ------------ ------- ------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $115,250 $27,142 $ 5,847 $21,461 $ 5,877 $373,628
------------ --------- ----------- ------------ ------- ------------
------------ --------- ----------- ------------ ------- ------------
<CAPTION>
OCC ACCUMULATION TRUST
SUB-ACCOUNTS *
--------------------------------------
GLOBAL
EQUITY MANAGED SMALL CAP
----------- ------------ ---------
<S> <C> <C> <C>
Inception Date................ February 9, February 20, March 1,
1996 1996 1996
INVESTMENT INCOME:
Dividends..................... $ 14,529 $ 2,265 $ --
EXPENSES:
Mortality and expense risk and
administrative charges...... 20,926 34,377 5,334
----------- ------------ ---------
Net investment gain
(loss).................... (6,397) (32,112) (5,334)
----------- ------------ ---------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... 22,283 1,445 --
Net realized gain (loss) on
share transactions.......... 9,213 14,922 337
----------- ------------ ---------
Net realized gain (loss).... 31,496 16,367 337
Net unrealized gain........... 225,407 599,532 88,887
----------- ------------ ---------
Net realized and unrealized
gain on investments....... 256,903 615,899 89,224
----------- ------------ ---------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $250,506 $583,787 $83,890
----------- ------------ ---------
----------- ------------ ---------
</TABLE>
- ------------------------------
* Formerly Quest for Value Accumulation Trust
The Notes to Financial Statements are an integral part of these statements.
23
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS
FIRST RECEIVED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
ALGER AMERICAN PORTFOLIO SUB-ACCOUNTS FIDELITY VIP PORTFOLIO SUB-ACCOUNTS
------------------------------------------------------ ------------------------------------------------
LEVERAGED MIDCAP SMALL EQUITY- MONEY HIGH
GROWTH ALLCAP GROWTH CAPITALIZATION INCOME MARKET INCOME OVERSEAS
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception Date......... February 23, February January 19, February 9, February 20, February May 17, May 13,
1996 9, 1996 1996 1996 1996 22, 1996 1996 1996
OPERATIONS:
Net investment gain
(loss)................ $ (21,816) $ (7,549) $ (14,877) $ (19,633) $ (23,420) $ 86,432 $ (7,249) $ (2,735)
Net realized gain
(loss)................ 23,542 (3,529) 7,948 2,917 1,656 -- (10) 7
Net unrealized gain
(loss)................ 186,010 21,298 128,511 (9,354) 317,747 -- 74,586 38,035
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
Net increase
(decrease) from
operations......... 187,736 10,220 121,582 (26,070) 295,983 86,432 67,327 35,307
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits... 3,317,873 1,651,397 1,942,260 2,839,597 3,239,285 13,217,666 1,400,589 333,797
Participant
transfers............. 925,179 299,414 1,093,142 1,040,987 1,177,728 (9,729,196) 422,934 453,233
Participant
withdrawals........... (34,424) (370,291) (9,334) (9,941) (44,343) (34,712) (1,204) (913)
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
Net increase from
participant
transactions....... 4,208,628 1,580,520 3,026,068 3,870,643 4,372,670 3,453,758 1,822,319 786,117
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
Total increase in
net assets....... 4,396,364 1,590,740 3,147,650 3,844,573 4,668,653 3,540,190 1,889,646 821,424
NET ASSETS:
Beginning of period.... -- -- -- -- -- -- -- --
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
End of period.......... $4,396,364 $1,590,740 $3,147,650 $3,844,573 $4,668,653 $ 3,540,190 $1,889,646 $821,424
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
PARTICIPANT
ACCUMULATION UNIT
TRANSACTIONS (IN
UNITS):
Participant deposits... 342,710 159,299 178,263 286,678 313,300 1,300,805 136,000 32,852
Participant
transfers............. 95,710 29,267 100,639 103,906 116,289 (955,012) 41,391 44,437
Participant
withdrawals........... (5,039) (37,169) (825) (1,020) (5,695) (3,375) (115) (88)
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
Net increase in units
from participant
transactions....... 433,381 151,397 278,077 389,564 423,894 342,418 177,276 77,201
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
<CAPTION>
FIDELITY VIP II
PORTFOLIO
SUB-ACCOUNTS
---------------------
ASSET INVESTMENT
MANAGER GRADE BOND
-------- -----------
<S> <C> <C>
Inception Date......... March 1, March 1,
1996 1996
OPERATIONS:
Net investment gain
(loss)................ $ (2,834) $ (6,076)
Net realized gain
(loss)................ 277 568
Net unrealized gain
(loss)................ 36,730 34,504
-------- -----------
Net increase
(decrease) from
operations......... 34,173 28,996
-------- -----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits... 387,774 1,037,858
Participant
transfers............. 78,318 87,046
Participant
withdrawals........... (954) (4,138)
-------- -----------
Net increase from
participant
transactions....... 465,138 1,120,766
-------- -----------
Total increase in
net assets....... 499,311 1,149,762
NET ASSETS:
Beginning of period.... -- --
-------- -----------
End of period.......... $499,311 $1,149,762
-------- -----------
-------- -----------
PARTICIPANT
ACCUMULATION UNIT
TRANSACTIONS (IN
UNITS):
Participant deposits... 37,519 103,429
Participant
transfers............. 7,503 8,857
Participant
withdrawals........... (88) (414)
-------- -----------
Net increase in units
from participant
transactions....... 44,934 111,872
-------- -----------
-------- -----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
24
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS
FIRST RECEIVED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
MFS SERIES SUB-ACCOUNTS AMT PORTFOLIO SUB-ACCOUNTS
-------------------------------------- -------------------------------------------
WORLD LIMITED
TOTAL RETURN UTILITIES GOVERNMENTS BALANCED MATURITY BOND PARTNERS
------------ --------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Inception Date................ February 22, March 15, February February 22, February 20, February 20,
1996 1996 20, 1996 1996 1996 1996
OPERATIONS:
Net investment gain (loss).... $ 23,621 $ 4,322 $ (1,037) $ (3,107) $ 3,863 $ (15,319)
Net realized gain (loss)...... 14,916 14,917 1 3,139 (5,482) 3,215
Net unrealized gain........... 76,713 7,903 6,883 21,429 7,496 385,732
------------ --------- ----------- ------------ ------------- ------------
Net increase from
operations................ 115,250 27,142 5,847 21,461 5,877 373,628
------------ --------- ----------- ------------ ------------- ------------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 1,686,151 185,211 179,597 539,940 252,711 2,214,066
Participant transfers......... 421,178 38,655 93,230 198,384 34,153 744,129
Participant withdrawals....... (7,911) (3,911) (121) (6,274) (4,110) (5,613)
------------ --------- ----------- ------------ ------------- ------------
Net increase from
participant
transactions.............. 2,099,418 219,955 272,706 732,050 282,754 2,952,582
------------ --------- ----------- ------------ ------------- ------------
Total increase in net
assets.................. 2,214,668 247,097 278,553 753,511 288,631 3,326,210
NET ASSETS:
Beginning of period........... -- -- -- -- -- --
------------ --------- ----------- ------------ ------------- ------------
End of period................. $2,214,668 $247,097 $278,553 $753,511 $288,631 $3,326,210
------------ --------- ----------- ------------ ------------- ------------
------------ --------- ----------- ------------ ------------- ------------
PARTICIPANT ACCUMULATION UNIT
TRANSACTIONS (IN UNITS):
Participant deposits.......... 162,892 17,591 17,630 54,244 25,118 204,380
Participant transfers......... 40,389 3,571 9,009 20,301 3,372 69,271
Participant withdrawals....... (749) (362) (12) (648) (409) (486)
------------ --------- ----------- ------------ ------------- ------------
Net increase in units from
participant transactions.. 202,532 20,800 26,627 73,897 28,081 273,165
------------ --------- ----------- ------------ ------------- ------------
------------ --------- ----------- ------------ ------------- ------------
<CAPTION>
OCC ACCUMULATION TRUST SUB-ACCOUNTS*
-------------------------------------
GLOBAL
EQUITY MANAGED SMALL CAP
---------- ------------ ----------
<S> <C> <C> <C>
Inception Date................ February February 20, March 1,
9, 1996 1996 1996
OPERATIONS:
Net investment gain (loss).... $ (6,397) $ (32,112) $ (5,334)
Net realized gain (loss)...... 31,496 16,367 337
Net unrealized gain........... 225,407 599,532 88,887
---------- ------------ ----------
Net increase from
operations................ 250,506 583,787 83,890
---------- ------------ ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 3,457,047 5,309,052 762,200
Participant transfers......... 878,847 1,293,574 293,019
Participant withdrawals....... (388,287) (568,286) (235)
---------- ------------ ----------
Net increase from
participant
transactions.............. 3,947,607 6,034,340 1,054,984
---------- ------------ ----------
Total increase in net
assets.................. 4,198,113 6,618,127 1,138,874
NET ASSETS:
Beginning of period........... -- -- --
---------- ------------ ----------
End of period................. $4,198,113 $6,618,127 $1,138,874
---------- ------------ ----------
---------- ------------ ----------
PARTICIPANT ACCUMULATION UNIT
TRANSACTIONS (IN UNITS):
Participant deposits.......... 334,130 506,338 72,303
Participant transfers......... 83,245 121,659 27,835
Participant withdrawals....... (37,264) (56,241) (22)
---------- ------------ ----------
Net increase in units from
participant transactions.. 380,111 571,756 100,116
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
- ------------------------
* Formerly Quest for Value Accumulation Trust
The Notes to Financial Statements are an integral part of these statements.
25
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION
CIGNA Variable Annuity Separate Account I (the Account) is registered as a
Unit Investment Trust under the Investment Company Act of 1940, as amended. The
operations of the Account are part of the operations of CIGNA Life Insurance
Company (CIGNA Life). The assets and liabilities of the Account are clearly
identified and distinguished from other assets and liabilities of CIGNA Life.
The assets of the Account are not available to meet the general obligations of
CIGNA Life and are held for the exclusive benefit of the participants.
The assets of the Account are divided into variable sub-accounts each of
which is invested in shares of one of nineteen portfolios (mutual funds) of six
diversified open-end management investment companies, each portfolio with its
own investment objective. The variable sub-accounts are:
ALGER AMERICAN FUND:--
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:--
Equity-Income Portfolio
Money Market Portfolio
High Income Portfolio
Overseas Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:--
Asset Manager Portfolio
Investment Grade Bond Portfolio
MFS VARIABLE INSURANCE TRUST:--
MFS Total Return Series
MFS Utilities Series
MFS World Governments Series
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST:--
AMT Balanced Portfolio
AMT Limited Maturity Bond Portfolio
AMT Partners Portfolio
OCC (FORMERLY QUEST FOR VALUE) ACCUMULATION TRUST:--
OCC Global Equity Portfolio
OCC Managed Portfolio
OCC Small Cap Portfolio
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in conformity with generally
accepted accounting principles. The following is a summary of significant
accounting policies consistently followed in the preparation of the Account's
financial statements.
26
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. INVESTMENT VALUATION: -- Investments held by the sub-accounts are valued at
their respective closing net asset value per share as determined by the
mutual funds as of December 31, 1996. The difference between cost and value
is reflected as unrealized gain (loss) in the Statements of Operations.
B. INVESTMENT TRANSACTIONS: -- Investment transactions are recorded on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on sales of investments are determined by the last-in, first-out cost
basis of the investment sold. Dividend and capital gain distributions are
recorded on the ex-dividend date. Investment transactions are settled
through CIGNA Life.
C. FEDERAL INCOME TAXES: -- The operations of the Account form a part of, and
are taxed with, the total operations of CIGNA Life, which is taxed as a life
insurance company. Under existing federal income tax law, investment income
(dividends) and capital gains attributable to the Account are not taxed.
3. INVESTMENTS
Total shares held and cost of investments at December 31, 1996 were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
COST OF
SUB-ACCOUNT SHARES HELD INVESTMENTS
- ----------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio........................ 128,062 $ 4,210,354
Alger American Leveraged AllCap Portfolio.............. 82,166 1,569,442
Alger American MidCap Growth Portfolio................. 147,431 3,019,139
Alger American Small Capitalization Portfolio.......... 93,976 3,853,927
Fidelity Equity-Income Portfolio....................... 222,000 4,350,906
Fidelity Money Market Portfolio........................ 3,540,190 3,540,190
Fidelity High Income Portfolio......................... 150,930 1,815,060
Fidelity Overseas Portfolio............................ 43,600 783,389
Fidelity Asset Manager Portfolio....................... 29,493 462,581
Fidelity Investment Grade Bond Portfolio............... 93,935 1,115,258
MFS Total Return Series................................ 161,537 2,137,955
MFS Utilities Series................................... 18,089 239,194
MFS World Governments Series........................... 26,328 271,670
AMT Balanced Portfolio................................. 47,331 732,082
AMT Limited Maturity Bond Portfolio.................... 20,543 281,135
AMT Partners Portfolio................................. 201,833 2,940,478
OCC Global Equity Portfolio............................ 317,318 3,972,706
OCC Managed Portfolio.................................. 182,771 6,018,595
OCC Small Cap Portfolio................................ 50,370 1,049,987
- ----------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
Total purchases and sales of shares of the mutual funds, for the periods
noted, amounted to:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
SUB-ACCOUNT PERIOD* PURCHASES SALES
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alger American Growth Portfolio........................ February 23, 1996 to December 31, 1996 $4,372,497 $ 162,069
Alger American Leveraged AllCap Portfolio.............. February 9, 1996 to December 31, 1996 1,950,966 376,951
Alger American MidCap Growth Portfolio................. January 19, 1996 to December 31, 1996 3,110,857 92,123
Alger American Small Capitalization Portfolio.......... February 9, 1996 to December 31, 1996 3,950,228 96,431
Fidelity Equity-Income Portfolio....................... February 20, 1996 to December 31, 1996 4,641,771 292,521
Fidelity Money Market Portfolio........................ February 22, 1996 to December 31, 1996 11,706,487 8,166,297
Fidelity High Income Portfolio......................... May 17, 1996 to December 31, 1996 1,829,085 14,015
Fidelity Overseas Portfolio............................ May 13, 1996 to December 31, 1996 784,827 1,445
Fidelity Asset Manager Portfolio....................... March 1, 1996 to December 31, 1996 525,873 63,569
Fidelity Investment Grade Bond Portfolio............... March 1, 1996 to December 31, 1996 1,203,427 88,737
MFS Total Return Series................................ February 22, 1996 to December 31, 1996 2,227,540 89,962
MFS Utilities Series................................... March 15, 1996 to December 31, 1996 263,138 24,038
MFS World Governments Series........................... February 20, 1996 to December 31, 1996 272,685 1,016
AMT Balanced Portfolio................................. February 22, 1996 to December 31, 1996 804,895 73,333
AMT Limited Maturity Bond Portfolio.................... February 20, 1996 to December 31, 1996 359,140 72,523
AMT Partners Portfolio................................. February 20, 1996 to December 31, 1996 3,020,765 80,778
OCC Global Equity Portfolio............................ February 9, 1996 to December 31, 1996 4,490,141 526,648
OCC Managed Portfolio.................................. February 20, 1996 to December 31, 1996 6,670,361 666,688
OCC Small Cap Portfolio................................ March 1, 1996 to December 31, 1996 1,109,826 60,176
- -------------------------------------------------------------------------------------------
</TABLE>
* Date deposits first received.
4. CHARGES AND DEDUCTIONS
CIGNA Life assumes the risk that annuitants may live longer than expected
and also assumes a mortality risk in connection with the death benefits of the
contract. CIGNA Life also assumes a risk that its actual administrative expenses
may be higher than amounts deducted for such expenses. CIGNA Life charges each
variable sub-account the daily equivalent of 1.20%, on an annual basis, of the
current value of each sub-account's assets for the assumption of these risks.
CIGNA Life also deducts a daily administrative fee from the assets of each
variable sub-account as partial reimbursement for administrative expenses
relating to the issuance and maintenance of the contract and the participant's
annuity account. This charge is currently at an effective annual rate of .10%.
As partial compensation for administrative services provided, CIGNA Life
additionally receives a $35 annuity account fee per year from each contract.
This charge is deducted from the fixed or variable sub-account of the
participant or on a pro-rata basis from two or more fixed or variable
sub-accounts in relation to their values under the contract. Fixed sub-accounts
are part of the general account of CIGNA Life and are not included in these
financial statements. The annuity 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. There were no annuity account fees
deducted during the periods covered by these financial statements.
28
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
4. CHARGES AND DEDUCTIONS (CONTINUED)
For an additional charge (optional death benefit fee), an optional death
benefit may be selected by the participant. The optional death benefit fee will
be deducted from the participant's fixed or variable sub-account or on a
pro-rata basis from two or more fixed or variable sub-accounts in relation to
their values under the contract on the date of each contract anniversary. The
optional death benefit fees, for the variable sub-accounts, amounted to $78
during the periods covered by these financial statements.
Under certain circumstances, CIGNA Life reserves the right to charge a
transfer fee of up to $10 for transfers between sub-accounts. No transfer fees
were deducted during the periods covered by these financial statements.
The fees charged by CIGNA Life for mortality and expense risks and
administrative fees, from the variable sub-accounts, for the periods noted,
amounted to:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
MORTALITY AND ASSET BASED
EXPENSE RISK ADMINISTRATIVE
SUB-ACCOUNT PERIOD* FEES FEES
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alger American Growth Portfolio........................ February 23, 1996 to December 31, 1996 $20,654 $1,721
Alger American Leveraged AllCap Portfolio.............. February 9, 1996 to December 31, 1996 6,968 581
Alger American MidCap Growth Portfolio................. January 19, 1996 to December 31, 1996 13,733 1,144
Alger American Small Capitalization Portfolio.......... February 9, 1996 to December 31, 1996 18,123 1,510
Fidelity Equity-Income Portfolio....................... February 20, 1996 to December 31, 1996 21,618 1,802
Fidelity Money Market Portfolio........................ February 22, 1996 to December 31, 1996 26,562 2,213
Fidelity High Income Portfolio......................... May 17, 1996 to December 31, 1996 6,691 558
Fidelity Overseas Portfolio............................ May 13, 1996 to December 31, 1996 2,525 210
Fidelity Asset Manager Portfolio....................... March 1, 1996 to December 31, 1996 2,616 218
Fidelity Investment Grade Bond Portfolio............... March 1, 1996 to December 31, 1996 5,609 467
MFS Total Return Series................................ February 22, 1996 to December 31, 1996 9,043 754
MFS Utilities Series................................... March 15, 1996 to December 31, 1996 1,284 107
MFS World Governments Series........................... February 20, 1996 to December 31, 1996 957 80
AMT Balanced Portfolio................................. February 22, 1996 to December 31, 1996 3,303 275
AMT Limited Maturity Bond Portfolio.................... February 20, 1996 to December 31, 1996 1,517 126
AMT Partners Portfolio................................. February 20, 1996 to December 31, 1996 14,342 1,195
OCC Global Equity Portfolio............................ February 9, 1996 to December 31, 1996 19,316 1,610
OCC Managed Portfolio.................................. February 20, 1996 to December 31, 1996 31,733 2,644
OCC Small Cap Portfolio................................ March 1, 1996 to December 31, 1996 4,924 410
- -------------------------------------------------------------------------------------------
</TABLE>
* Date deposits first received.
No deduction for sales charges is made from a premium payment. However, if a
cash withdrawal is made, a withdrawal charge (contingent deferred sales charge)
may be assessed by CIGNA Life. The withdrawal charge, if assessed, varies from
0-7% depending upon the duration of each contract deposit. The withdrawal charge
is deducted from withdrawal proceeds for full withdrawals and reduces the
remaining account value for partial withdrawals. These charges are paid to CIGNA
Life as reimbursement for services provided. These services include commissions
paid to sales personnel, the costs of preparation of sales literature and other
promotional costs and acquisition expenses. Withdrawal charges paid to CIGNA
Life for the variable sub-accounts, for the periods ended December 31, 1996,
amounted to $143.
29
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
5. DISTRIBUTION OF NET INCOME
The Account does not expect to declare dividends to participants from
accumulated net income. The accumulated net income is distributed to
participants as part of surrenders, death benefits, transfers to other fixed or
variable sub-accounts or annuity payments in excess of net purchase payments.
6. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code of 1986
(the Code), a variable annuity contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated as
an annuity contract for federal tax purposes for any period for which the
investments of the segregated asset account, on which the contract is based, are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations issued
by the Secretary of the Treasury. CIGNA Life believes, based on assurances from
the mutual fund managers, that the mutual funds satisfy the requirements of the
regulations.
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of CIGNA
Life Insurance Company and Participants of the
CIGNA Variable Annuity Separate Account I
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the sub-accounts, Alger
American Fund--Alger American Growth Portfolio, Alger American Leveraged AllCap
Portfolio, Alger American MidCap Growth Portfolio, Alger American Small
Capitalization Portfolio; Fidelity Variable Insurance Products
Fund--Equity-Income Portfolio, Money Market Portfolio, High Income Portfolio,
Overseas Portfolio; Fidelity Variable Insurance Products Fund II--Asset Manager
Portfolio, Investment Grade Bond Portfolio; MFS Variable Insurance Trust--MFS
Total Return Series, MFS Utilities Series, MFS World Governments Series;
Neuberger & Berman Advisers Management Trust--AMT Balanced Portfolio, AMT
Limited Maturity Bond Portfolio, AMT Partners Portfolio; OCC (formerly Quest for
Value) Accumulation Trust--OCC Global Equity Portfolio, OCC Managed Portfolio,
OCC Small Cap Portfolio (constituting the CIGNA Variable Annuity Separate
Account I, hereafter referred to as "the Account") at December 31, 1996, the
results of each of their operations and the changes in each of their net assets
for the periods since inception (as indicated in the financial statements)
through December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Account's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
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 audit, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodians, provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Hartford, Connecticut
February 20, 1997
31
<PAGE>
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32
<PAGE>
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33
<PAGE>
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34
<PAGE>
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35
<PAGE>
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36
<PAGE>
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37
<PAGE>
PART C. OTHER INFORMATION
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements (provided in the Statement of Additional
Information)
(1) Registrant
(A) Statements of Assets and Liabilities as of December 31, 1996 and
December 31, 1995
(B) Statement of Operations for the Periods (as defined in the financial
statements) ended December 31, 1996.
(C) Statement of Changes in Net Assets for the Periods (as defined in
the financial statements) ended December 31, 1996.
(2) Depositor
(A) Consolidated Statements of Income and Retained Earnings for the
Years Ended December 31, 1996, 1995 and 1994.
(B) Consolidated Balance Sheets As of December 31, 1996 and 1995.
(C) Consolidated Statements of Cash Flows for the Years Ended December
31, 1996, 1995 and 1994.
(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) (A) 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).**
(B) Form of CIGNA Life Insurance Company Variable Annuity Contract Form
Number AN 425 together with Optional Methods of Settlement Riders
(Forms AR 425 and AR 426), Nursing Care Rider (Form AR 314) and CRT
Rider (Form B10322).
(5) (A) Form of application or order to purchase Which May Be Used in
Connection with the Contract Shown As Exhibit (4)(A), and Addendum
(Form Numbers B10242 and B10243)**
(B) Form of application or order to purchase which may be used in
connection with the Contract Shown As Exhibit (4) (Form Numbers
B10338).
(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 Edwin L. Kerr, 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)
David C. Scheinerman Senior 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
Robert W. Burgess Director
John G. Day Director
H. Edward Hanway Director and Chairman of the Board
Carol M. Olsen Director
Marc L. Preminger Director
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 Post-Effective Amendment No. 6 to
Registration Statement on Form N-4 (File 33-83020), filed February 26, 1997.
ITEM 27. NUMBER OF PURCHASERS
As of December 31, 1996 there were 654 owners of the Contracts.
ITEM 28. INDEMNIFICATION
The answer to this Item 28 is incorporated by reference to Item 28 of
Post-Effective Amendment No. 6 to N-4 Registration Statement on Form N-4 (File
33-83020) filed on February 26, 1997.
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. Deferred sales charges of $143.00
were paid on the variable portion of the Contracts during the year ended
December 31, 1996.
The investment companies for which CFA acts as a principal underwriter are:
CG Variable Annuity Separate Account
CG Variable Annuity Separate Account II
CG Variable Life Insurance Separate Account I
CG Variable Life Insurance Separate Account II
CG Variable Life Insurance Separate Account A
CG Corporate Insurance Variable Life Separate Account 02
CIGNA Variable Annuity Separate Account I
CG Variable Annuity Account I -- Group Tax Deferred Variable Annuities
CG Variable Annuity Account I -- Group Variable Annuities for Qualified
Retirement Plans
CG Variable Annuity Account II -- Group Variable Annuities for Retirement Plans
CIGNA Funds Group
CIGNA Institutional Funds Group
2
<PAGE>
DIRECTORS AND OFFICERS OF PRINCIPAL UNDERWRITER
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH UNDERWRITER
- ----------------------- ---------------------------------------------------------------------
<S> <C>
Vacant President and 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 Director and Vice President; Acting 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
David C. Kopp Secretary
David A. Carlson Assistant Secretary
David M. Porcello Assistant Secretary
Pamela S. Williams Assistant Secretary
Mary K. Cristino 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.
FEES AND CHARGES REPRESENTATION
The Company represents that the fees and charges deducted under the
Contracts, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
Company.
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 has duly caused this Post-Effective Amendment No. 3 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 the 17th day of April, 1997.
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
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 to this Registration Statement (File No.
33-90984) has been signed below by the following persons on April 17th, 1997 in
the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
/s/ THOMAS C. JONES
------------------------------------------- President
Thomas C. Jones (Principal Executive Officer)
/s/ DAVID C. SCHEINERMAN*
------------------------------------------- Senior Vice President and Actuary
David C. Scheinerman (Principal Financial Officer)
/s/ ROBERT MOOSE*
------------------------------------------- Vice President
Robert Moose (Principal Accounting Officer)
/s/ HAROLD W. ALBERT*
------------------------------------------- Director
Harold W. Albert
/s/ ROBERT W. BURGESS*
------------------------------------------- Director
Robert W. Burgess
/s/ JOHN G. DAY*
------------------------------------------- Director
John G. Day
/s/ H. EDWARD HANWAY*
------------------------------------------- Director
H. Edward Hanway
/s/ CAROL M. OLSEN*
------------------------------------------- Director
Carol M. Olsen
/s/ MARC L. PREMINGER*
------------------------------------------- Director
Marc L. Preminger
/s/ ARTHUR C. REEDS, III*
------------------------------------------- Director
Arthur C. Reeds, III
*By /s/ ROBERT A. PICARELLO
---------------------------------------
Robert A. Picarello
ATTORNEY-IN-FACT
(A Majority of the Directors)
</TABLE>
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of CIGNA Life Insurance Company,
hereby severally constitute and appoint David C. Kopp and Robert A. Picarello,
and each of them individually, our true and lawful attorneys-in-fact, with full
power to them and each of them to sign for us, in our names and in the
capacities indicated below, any and all amendments to Registration Statement No.
3 filed with the Securities and Exchange Commission under the Securities Act of
1933, on behalf of the Company in its own name or in the name of one of its
Separate Accounts, hereby ratifying and confirming our signatures as they may be
signed by either of our attorneys-in-fact to any such Registration Statement.
WITNESS our hands and common seal on this 15th day of April, 1997.
SIGNATURE TITLE
- ----------------------------------- -------------------------
/s/ THOMAS C. JONES President
- ----------------------------------- (Principal Executive
Thomas C. Jones Officer)
Senior Vice President and
/s/ DAVID C. SCHEINERMAN Actuary
- ----------------------------------- (Principal Financial
David C. Scheinerman Officer)
/s/ ROBERT MOOSE Vice President
- ----------------------------------- (Principal Accounting
Robert Moose Officer)
/s/ HAROLD W. ALBERT
- ----------------------------------- Director
Harold W. Albert
/s/ ROBERT W. BURGESS
- ----------------------------------- Director
Robert W. Burgess
/s/ JOHN G. DAY
- ----------------------------------- Director
John G. Day
/s/ H. EDWARD HANWAY
- ----------------------------------- Director
H. Edward Hanway
/s/ CAROL M. OLSEN
- ----------------------------------- Director
Carol M. Olsen
/s/ MARC L. PREMINGER
- ----------------------------------- Director
Marc L. Preminger
/s/ ARTHUR C. REEDS, III
- ----------------------------------- Director
Arthur C. Reeds, III
<PAGE>
BROKER-DEALER SELLING AGREEMENT
AGREEMENT by and between Connecticut General Life Insurance Company, a
Connecticut corporation ("CG Life"); CIGNA Life Insurance Company, a Connecticut
corporation ("CLIC"); CIGNA Financial Advisors, Inc. ("CFA"), a registered
Broker-Dealer with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934, and a member of the National Association of
Securities Dealers, Inc. ("NASD"); [ ] ("Broker-Dealer"), also a
registered Broker-Dealer with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 and a member of the NASD; and [ ]
("Agency"); and each additional insurance agency signatory hereto (each of which
shall also be referred to herein as "Agency"). (CG Life and CLIC are affiliated
life insurers. Either or both may be signatories to the Agreement. Where only
one is a party the term "Company" as used herein shall refer to that party.
Where both CG Life and CLIC are parties, the term "Company" shall mean CG Life
and/or CLIC, except that for purposes of paragraph 21 it shall mean CG Life and
CLIC.)
WITNESSETH:
WHEREAS, the Company proposes to have Broker-Dealer's registered
representatives ("Representatives") who are also licensed to sell insurance in
appropriate jurisdictions solicit and sell certain variable insurance contracts
(the "Insurance Securities") more particularly described in this Agreement and
which are deemed to be securities under the Securities Act of 1933, and to sell
certain non-variable insurance contracts (the "Fixed Policies") more
particularly described in this Agreement (collectively the "Policies"); and
WHEREAS, the Company has appointed CFA as the principal distributor of the
Insurance Securities and has agreed with CFA that CFA shall be responsible for
the training and supervision of persons involved with the solicitation and offer
or sale of any of the Insurance Securities, and CFA proposes to delegate, to the
Page 1
<PAGE>
extent legally permitted, said supervisory duties to Broker-Dealer; and
WHEREAS, as full compensation, CG Life will pay to Broker-Dealer the
commissions provided for in Schedule A-1 on premiums paid to CG Life on Policies
issued by CG Life and sold by Broker-Dealer after this Agreement becomes
effective; and
WHEREAS, as full compensation, CLIC will pay to Broker-Dealer the
commissions provided for in Schedule A-2 on premiums paid to CLIC on Policies
issued by CLIC and sold by Broker-Dealer after this Agreement becomes effective;
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. APPOINTMENT OF BROKER-DEALER. The Company and CFA hereby appoint
Broker-Dealer to sell the Policies through its Representatives and to provide
certain administrative services to facilitate solicitations for and sales of the
Policies.
Broker-Dealer agrees that its authority is limited to the solicitation and
marketing of the Policies in accordance with this Agreement and Broker-Dealer
agrees that it will not make, alter, modify or discharge any contract or extend
any provision thereof, or extend the time for payment of premiums or waive any
forfeiture or guarantee dividends or estimate future interest, mortality or
expense factors except through the use of authorized illustrations and
projections approved by the Company, or deliver any life insurance contract
unless the applicant is at the time of delivery in good health and insurable
condition, or incur any debts or liability against the Company or CFA. Nothing
in this Agreement shall create or be construed to create an exclusive authority
to represent the Company or CFA or to effect sales of Policies, either with
respect to a specific geographic territory, or otherwise.
2. THE POLICIES.
Page 2
<PAGE>
(a) The Policies issued by CG Life to which this Agreement applies
are listed in Schedule B-1. Schedule B-1 may be amended at any time by CG Life.
CG Life in its sole discretion and without notice to Broker-Dealer, may suspend
sales of any Policies or amend any policies or contracts evidencing such
Policies if, in CG Life's opinion, such suspension or amendment is: (1)
necessary for compliance with federal, state, or local laws, regulations, or
administrative order(s); or, (2) necessary to prevent administrative or
financial hardship to CG Life. In all other situations, CG Life shall provide
30 days notice to Broker-Dealer prior to suspending sales of any Policies or
amending any policies or contracts evidencing such Policies.
(b) The Policies issued by CLIC to which this Agreement applies are
listed in Schedule B-2. Schedule B-2 may be amended at any time by CLIC. CLIC
in its sole discretion and without notice to Broker-Dealer, may suspend sales of
any Policies or may amend any policies or contracts evidencing such Policies if,
in CG Life's opinion, such suspension or amendment is: (1) necessary for
compliance with federal, state, or local laws, regulations, or administrative
order(s); or, (2) necessary to prevent administrative or financial hardship to
CLIC. In all other situations, CLIC shall provide 30 days notice to Broker-
Dealer prior to suspending sales of any Policies or amending any policies or
contracts evidencing such Policies.
3. SECURITIES LICENSING. Broker-Dealer shall, at all times when
performing its functions under this agreement, be registered as a securities
broker with the SEC and a member of NASD and licensed or registered as a
securities broker-dealer in the states and other local jurisdictions that
require such licensing or registration in connection with variable insurance
contract sales activities or the supervision of Representatives who perform such
activities in the respective location.
4. INSURANCE LICENSING. Broker-Dealer shall, at all times when
performing its functions under this agreement, be validly licensed as an
insurance agency in the states and other local jurisdictions that require such
licensing or registration in connection with Broker-Dealer's variable or fixed
insurance contract sales activities; or, in those states in which Broker-
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Dealer cannot or does not obtain a corporate agent's license, shall maintain
a contractual relationship with an agency, which shall be validly licensed as
an insurance agency in such jurisdiction or jurisdictions. Such contractual
relationship shall be set forth in an agreement substantially equivalent to
that set forth as Exhibit A. Broker-Dealer shall provide the Company with a
list of all licensed insurance agencies relied upon by Broker-Dealer to
comply with this paragraph and covenants to maintain the completeness and
accuracy of such list, and to cause each such agency to become a signatory
hereto (each of which shall thereupon also be an "Agency" hereunder).
5. APPOINTMENTS. Broker-Dealer shall assist the Company in the
appointment of Representatives under the applicable insurance laws to sell the
Policies. Broker-Dealer shall fulfill all requirements set forth in the General
Letter of Recommendation, attached as Schedule C, in conjunction with the
submission of licensing/appointment papers for all applicants as insurance
agents of the Company. All such licensing/appointment papers should be
submitted by Broker-Dealer to the Company or the Company's duly appointed agent.
Notwithstanding such submission, the Company shall have sole discretion to
appoint, refuse to appoint, discontinue, or terminate the appointment of any
Representative as an insurance agent of the Company.
6. SECURING APPLICATIONS.
(a) All applications for Policies issued by the Company shall be made
on application forms supplied by the Company and all payments collected by
Broker-Dealer or any Representative of Broker-Dealer shall be remitted promptly
in full, together with such application forms and any other required
documentation, directly to the Company at the address indicated on such
application or to such other address as the Company may, from time-to-time,
designate in writing. Broker-Dealer shall review all such applications for
completeness. Checks in payment on any such Policy shall be drawn to the order
of the Company. All applications are subject to acceptance or rejection by the
Company at its sole discretion.
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(b) All records or information obtained hereunder by Broker-Dealer
shall not be disclosed or used except as expressly authorized herein, and
Broker-Dealer will keep such records and information confidential, to be
disclosed only as authorized or if expressly required by federal or state
regulatory authorities.
7. MONEY RECEIVED BY BROKER-DEALER. All money payable in connection with
any of the Policies, whether as premium or otherwise, and whether paid by or on
behalf of any policyholder, contract owner or anyone else having an interest in
the Policies, is the property of the Company and shall be transmitted
immediately in accordance with the administrative procedures of the Company
without any deduction or offset for any reason, including, by way of example but
not limitation, any deduction or offset for compensation claimed by Broker-
Dealer.
8. SUPERVISION OF REPRESENTATIVES. Broker-Dealer shall have full
responsibility for the training and supervision of all Representatives
associated with Broker-Dealer who are engaged directly or indirectly in the
offer or sale of the Insurance Securities, and all such persons shall be subject
to the control of and supervision of Broker-Dealer with respect to such persons'
securities regulated activities, and to the control of Broker-Dealer or its
appropriate licensed insurance agency subsidiary with respect to such person's
insurance regulated activities, in connection with the solicitation and sale of
and other communication with respect to the Policies. Broker-Dealer will cause
the Representatives to be trained in the sale of the Insurance Securities; will
insure that such Representatives qualify under applicable federal and state laws
to engage in the sale of the Insurance Securities; will cause such
Representatives to be registered representatives of Broker-Dealer before such
Representatives engage in the solicitation of applications for the Insurance
Securities; and will cause such Representatives to limit solicitation of
applications for the Policies issued by the Company to jurisdictions where the
Company has authorized such solicitation. Broker-Dealer shall cause such
Representatives' qualifications to be certified to the satisfaction of CFA and
shall notify CFA if any Representative ceases to be a registered representative
of Broker-Dealer or ceases to maintain the proper licensing required for the
sale of any of the Policies. Each
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party shall be liable for its own negligence and misconduct hereunder.
9. REPRESENTATIVES INSURANCE LICENSES AND APPOINTMENTS. Broker-Dealer,
prior to allowing its Representatives to solicit or sell the Policies, shall
require such Representatives to be validly insurance licensed, registered and
appointed by the Company as fixed and/or variable contract agents in accordance
with the jurisdictional requirements of the place where the solicitations and
sales take place as well as the solicited person's or entity's place of
residence.
10. COMPLIANCE WITH NASD RULES OF FAIR PRACTICE AND FEDERAL AND STATE
SECURITIES LAWS. Broker-Dealer shall fully comply with the requirements of the
National Association of Securities Dealers, Inc. and of the Securities Exchange
Act of 1934 and all other applicable federal or state laws and will establish
such rules and procedures as may be necessary to cause diligent supervision of
the securities activities of the Representatives. Upon request by CFA, Broker-
Dealer shall furnish such appropriate records as may be necessary to establish
such diligent supervision.
11. NOTICE OF REPRESENTATIVE'S NONCOMPLIANCE. In the event a
Representative fails or refuses to submit to supervision of Broker-Dealer or
otherwise fails to meet the rules and standards imposed by Broker-Dealer on its
Representatives, Broker-Dealer shall advise CFA of this fact and shall
immediately notify such Representative that he or she is no longer authorized to
sell any of the Policies and Broker-Dealer shall take whatever additional action
may be necessary to terminate the sales activities of such Representative
relating to the Policies.
12. PROSPECTUSES, SALES PROMOTION MATERIAL AND ADVERTISING.
(a) Broker-Dealer shall be provided with prospectuses relating to the
Insurance Securities and such other material as CFA determines to be necessary
or desirable for use in connection
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with sales of the Insurance Securities. No sales promotion materials or any
advertising relating to the Insurance Securities shall be used by Broker-Dealer
unless the specific item has been approved in writing by CFA, which consent
shall not be unreasonably withheld or delayed.
(b) Broker-Dealer shall be provided with advertising and sales
material relating to the Fixed Policies and such other material as the Company
determines to be necessary or desirable for use in connection with sales of such
Policies. No sales promotion materials or any advertising relating to the Fixed
Policies shall be used by Broker-Dealer unless the specific item has been
approved in writing by the Company, which consent shall not be unreasonably
withheld or delayed.
(c) In addition, Broker-Dealer shall not print, publish or distribute
any advertisement, circular or any document relating to the Company unless such
advertisement, circular or document shall have been approved in writing by the
Company; provided, however, that nothing herein shall prohibit Broker-Dealer
from advertising fixed or variable insurance in general or on a generic basis.
(d) Broker-Dealer agrees that all computer software containing the
rates and values of products issued by the Company, whether or not distributed
through CFA, all rate books, computer printouts, client files, policies,
brochures, prospectuses, sales promotion materials, whether in hard copy or
computer format containing the name/logo of the Company, CFA, CIGNA or any
affiliated company, are furnished to Broker-Dealer in confidence, and Broker-
Dealer agrees to refrain from reproducing, publishing, or disclosing such
material other than in the ordinary course of business. Broker-Dealer further
agrees that all such property shall be returned to the Company upon demand or
upon termination of this Agreement.
13. RIGHT OF REJECTION. The Company or CFA, in its or their sole
discretion, may reject any applications or payments remitted by Representative
through Broker-Dealer and may refund an applicant's payments to the applicant.
In the event such refunds are made and if Broker-Dealer has received
compensation based on
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an applicant's payment that is refunded, Broker-Dealer shall promptly repay such
compensation to the Company. If repayment is not promptly made, the Company may
at its sole option deduct any amounts due it from Broker-Dealer from future
commissions otherwise payable to Broker-Dealer pursuant to this agreement. This
provision shall survive termination of this Agreement.
14. COMPENSATION.
(a) COMMISSIONS, FEES AND ALLOWANCES. Sales commissions payable to
Broker-Dealer in connection with the Policies shall be paid to the Agency, and
Broker-Dealer hereby appoints Agency to receive on its behalf any and all
compensation that may be due and payable to Broker-Dealer in accordance with the
provisions set forth in Schedule A-1 or Schedule A-2, as appropriate. The
Company will provide Broker-Dealer or Agency with a copy of it's current
Schedule of Sales Commissions. These fees and commissions will be paid as a
percentage of premiums received and accepted by the Company on applications
obtained by the various Representatives of Broker-Dealer. Upon termination of
this Agreement all compensation to the Agency hereunder shall cease; however,
Broker-Dealer and/or Agency shall continue to be liable for any chargebacks or
for any other amounts advanced by or otherwise due to the Company hereunder.
(b) CHANGES TO COMMISSION SCHEDULE. The Company may, upon at least
ten (10) days prior written notice, change its Schedule of Sales Commissions.
Any such change shall apply to compensation due on applications received by the
Company after the effective date of such notice.
(c) RESTRICTIONS.
(i) If Broker-Dealer, Agency or any Representative shall rebate
or offer to rebate all or any part of a premium on a policy issued by the
Company in violation of applicable state insurance laws or regulations, or if
Broker-Dealer, Agency or any Representative shall withhold any premium on any
Policy issued by the Company, or if Broker-Dealer, Agency or any Representative
rebates or offers to rebate all or any part of
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a commission paid or payable upon the sale of a Policy, the Company may, at its
option, terminate this Agreement.
(ii) If Broker-Dealer, Agency or any Representative shall at any time
induce or endeavor to induce any owner of a Policy to relinquish the Policy
except under circumstances where there is reasonable grounds for believing the
policy, contract or certificate is not suitable for such person, any and all
compensation due hereunder shall cease and terminate.
(iii) Nothing in this Agreement shall be construed as giving
Broker-Dealer or Agency the right to incur any indebtedness on behalf of the
Company. Broker-Dealer and Agency each hereby authorizes the Company to set off
their respective liabilities to the Company against any and all amounts
otherwise payable to them by the Company.
15. POLICY DELIVERY. The Company may, upon written request of Broker-
Dealer, transmit Policies to Broker-Dealer for delivery to Policyowners.
Broker-Dealer hereby agrees to deliver all such Policies to policyowners
promptly upon its receipt thereof from the Company. Broker-Dealer agrees that
the indemnification provisions of paragraph 16(a) herein include any and all
costs, expenses, loss, damages and attorneys' fees resulting from Broker-
Dealer's failure to perform or inability to prove performance of the
undertakings described in this paragraph, and authorizes the Company to set off
any amount it owes the Company under this paragraph against any and all amounts
otherwise payable to or on behalf of Broker-Dealer by the Company pursuant to
this agreement. The Company reserves the right to revoke or withdraw this
privilege, in whole or in part, at any time, and without prior notice.
16. INDEMNIFICATION.
(a) Broker-Dealer and Agency shall indemnify and hold CG Life, CLIC
and CFA harmless from any and all costs, expenses, loss or damages, including
reasonable attorneys' fees, resulting from any negligent, fraudulent or
unauthorized acts or omissions of Broker-Dealer or its Representatives.
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(b) CG Life, CLIC and CFA shall indemnify and hold Broker-Dealer and
Agency harmless from any and all cost, expense, loss or damages, including
reasonable attorneys' fees, resulting from any negligent, fraudulent or
unauthorized acts or omissions by CG Life, CLIC and CFA, their employees or
authorized agents.
17. WAIVER. Failure of any party to insist upon strict compliance with
any of the conditions of this Agreement shall not be construed as a waiver of
any of the conditions, but the same shall remain in full force and effect. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute a waiver of any other provisions, whether or not similar, nor shall
any waiver constitute a continuing waiver.
18. INDEPENDENT CONTRACTORS.
(a) The Company and CFA are independent contractors with respect to
Broker-Dealer, Representatives and Agency. Nothing contained in this Agreement
shall create, or shall be construed to create, the relationship of employer and
employee between the Company or CFA and Broker-Dealer or Agency.
(b) Broker-Dealer shall, in its sole discretion, select the persons
from whom it will solicit applications for Policies, as well as the time, manner
and place of solicitation.
19. LIMITATIONS. No party other than the Company shall have the authority
to make, alter, or discharge any policy, contract, or certificate issued by the
Company, to waive any forfeiture or to grant, permit, nor extend the time for
making any payments nor to guarantee earnings or rates, nor to alter the forms
which the Company may prescribe or substitute other forms in place of those
prescribed by the Company, nor to enter into any proceeding in a court of law or
before a regulatory agency in the name of or on behalf of the Company.
20. FIDELITY BOND.
(a) The Broker represents that all of its directors, officers,
employees and Representatives who are appointed pursuant to this Agreement as
agents of the Company for state insurance law
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purposes or who have access to funds of the Company, including but not limited
to funds submitted with applications for the Policies or funds being returned to
owners, shall at all times be covered by a blanket fidelity bond, including
coverage for larceny and embezzlement, issued by a reputable bonding company.
This bond shall be maintained by Broker-Dealer at Broker-Dealer's expense. Such
bond shall be, at least, of the form, type and amount required under the NASD
Rules of Fair Practice. Broker-Dealer shall maintain Errors and Omissions
insurance coverage in an amount and with a company satisfactory to the Company
and CFA. The Company may require evidence, satisfactory to it, that such
coverage is in force and Broker-Dealer shall give prompt written notice to the
Company of any notice of cancellation or change of coverage.
(b) Broker-Dealer assigns any proceeds received from the fidelity
bonding company to CG Life to the extent of any loss to CG Life due to
activities covered by the bond, and to CLIC to the extent of any loss to CLIC
due to activities covered by the bond. If there is any deficiency amount,
whether due to a deductible or otherwise, Broker-Dealer shall promptly pay CG
Life or CLIC such amount on demand and Broker-Dealer hereby indemnifies and
holds harmless CG Life and CLIC from any such deficiency and from the costs of
collection thereof (including reasonable attorneys' fees).
21. BINDING EFFECT. This Agreement shall be binding on and shall inure
to the benefit of the parties to it and their respective successors and assigns;
provided however, that Broker-Dealer may not assign this Agreement or any rights
or obligations hereunder without the prior written consent of the Company.
22. REGULATIONS. The parties agree to observe and comply with all
applicable local, state, and federal laws and rules or regulations, and to fully
co-operate with any regulatory authority having jurisdiction with respect
thereto.
23. NOTICES. All notices or communications shall be sent in writing and
to the addresses shown below or to such other address as the party may request
by giving written notice to the
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other parties. Notices shall be effective immediately upon deposit in the mail,
unless otherwise specifically provided.
Connecticut General Life Insurance Company
Hartford, CT 06152-2251
Attn: Financial Institutions Department
S-251
CIGNA Life Insurance Company
Hartford, CT 06152-2351
Attn: Financial Institutions Department
S-251
CIGNA Financial Advisors, Inc.
Hartford, CT 06152-2351
[BROKER-DEALER]
[INSURANCE AGENCY]
24. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Connecticut.
25. AMENDMENT OF AGREEMENT. The Company reserves the right to amend this
Agreement at any time, and the submission of an application by Broker-Dealer
after notice of any such amendment shall constitute agreement to any such
amendment.
26. TERMINATION.
(a) This Agreement may be terminated immediately by any party upon
written notice or if CFA or Broker-Dealer shall cease
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to be registered Broker-Dealers under the Securities Exchange Act of 1934 and
members of the NASD. In the event of such termination, commissions, fees and
allowances shall be payable, based upon the commission schedule set forth in
Schedules A-1 and A-2.
(b) This Agreement will automatically terminate:
(i) Upon the death or total and permanent physical or mental
disability of Broker-Dealer, if an individual.
(ii) Upon dissolution of Broker-Dealer, if a corporation or a
partnership, including LLC and LLP.
(iii) At the end of any calendar year during which Broker-Dealer
has not maintained the minimum life premium and persistency requirements (if
any) as set forth in either Schedule A-1 or Schedule A-2.
(c) Termination of this Agreement will result in the termination of all
agreements with representatives recruited by Broker-Dealer.
(d) Payment of broker compensation at a level that is higher than the
level of broker compensation set forth in Schedule A-1 or A-2 will, at the
option of the Company, result in the termination of this Agreement.
27. EFFECTIVE DATE. This Agreement shall be effective on the
_____________ day of_____________________ 19____ .
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By:
--------------------------------------------------------
Print Name:
------------------------------------------------
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Title:
-----------------------------------------------------
CIGNA LIFE INSURANCE COMPANY
By:
--------------------------------------------------------
Print Name:
------------------------------------------------
Title:
-----------------------------------------------------
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CIGNA FINANCIAL ADVISORS, INC.
By:
--------------------------------------------------------
Print Name:
------------------------------------------------
Title:
-----------------------------------------------------
[ ] BROKER-DEALER CORP.
By:
--------------------------------------------------------
Print Name:
------------------------------------------------
Title:
-----------------------------------------------------
Date:
------------------------------------------------------
[ ] INSURANCE AGENCY, INC.
By:
--------------------------------------------------------
Print Name:
------------------------------------------------
Title:
-----------------------------------------------------
Date:
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<PAGE>
CIGNA LIFE INSURANCE COMPANY
A Stock Company Home Office Location: 900 Cottage Grove Road
Bloomfield, Connecticut
MAILING ADDRESS: CIGNA INDIVIDUAL INSURANCE
ANNUITY & VARIABLE LIFE SERVICE CENTER - ROUTING S249
HARTFORD, CT 06152-2249
The Company agrees with the Owner to provide the benefits in this contract.
RIGHT TO EXAMINE CONTRACT. The contract may be returned to the individual
through whom it was purchased or to the Company within 10 days after its receipt
(20 days after its receipt where required by law for a contract issued in
replacement of another contract). If the contract is so returned, it will be
deemed void from the Date of Issue, and the Company will refund the Premium
Payment(s) as provided plus or minus any investment gains or losses under the
contract as of the date the returned contract is received by the Company, unless
required otherwise by law.
The contract is issued and accepted subject to the terms set forth on this page
and on the following pages which are made a part of the contract. In
consideration of the Premium Payment(s) as provided, this contract is executed
by Connecticut General Life Insurance Company as of its Date of Issue.
/s/ Thomas C. Jones
PRESIDENT
Registrar
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD OR DOWNWARD
ADJUSTMENTS IN AMOUNTS PAYABLE TO THE OWNER, INCLUDING WITHDRAWALS AND
TRANSFERS. PAYMENTS MADE FROM THE FIXED ACCOUNT PURSUANT TO AN ELECTION WHICH
BECOMES EFFECTIVE AT THE END OF A GUARANTEED PERIOD AND PAYMENTS MADE UNDER THE
"ANNUITY BENEFIT" PROVISIONS ARE NOT SUBJECT TO THE MARKET VALUE ADJUSTMENT.
PAYMENTS MADE UNDER THE "DEATH BENEFIT" PROVISIONS ARE NOT SUBJECT TO ANY MARKET
VALUE ADJUSTMENT.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
USE OF CONTRACT. This contract is available for retirement and deferred
compensation plans some of which may qualify for special tax treatment under
various sections of the Internal Revenue Code.
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
WITH FIXED AND VARIABLE ACCOUNTS - NON-PARTICIPATING
THIS IS A LEGAL CONTRACT BETWEEN THE OWNER AND THE COMPANY
READ YOUR CONTRACT CAREFULLY.
<PAGE>
TABLE OF CONTENTS
CONTRACT SPECIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 5
SCHEDULE OF CHARGES, EXPENSES AND FEES . . . . . . . . . . . . . . . . . . 7
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PREMIUM PAYMENT PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . .10
Premium Payments
Allocation of Premium Payments
Annuity Account Continuation
Minimum Value Requirements
OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS . . . . . . . . . . . . .11
Owner
Rights of Owner
Transfer of Ownership
Assignment
Beneficiary
Change of Beneficiary
FIXED AND VARIABLE ACCOUNTS PROVISIONS . . . . . . . . . . . . . . . . . .12
Fixed Account and Sub-Accounts
Variable Account and Sub-Accounts
Investment Risk
Investments of the Variable Account Sub-Accounts
Substituted Securities
CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS. . . . . . . . . . .13
Part A - Fixed Account Value
Guaranteed Periods
Guaranteed Interest Rates
Fixed Accumulation Value
Minimum Surrender Value
Part B - Variable Account Value
Acquisition and Redemption of Variable Accumulation Units
Variable Accumulation Unit Value
Variable Accumulation Value
Net Investment Factor
Part C - General
Annuity Account
Transfer Privilege
Annuity Account Fee
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET VALUE
ADJUSTMENT PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .16
Cash Withdrawals
Withdrawal Charges
Market Value Adjustment
AN425 3
<PAGE>
TABLE OF CONTENTS (CONTINUED)
PENALTY-FREE WITHDRAWALS, TRANSFERS AND ANNUITIZATION PROVISIONS . . . . .18
Penalty-Free Partial Withdrawals or Transfers
Full or Partial Withdrawals and Transfers at the End of
a Guaranteed Period
Waiver of Withdrawal Charge and Market Value Adjustment on
Death or Annuity Date
Penalty-Free Annuitization
BENEFIT PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Annuity Benefit
Annuity Date
Election and Effective Date of Election with Respect to Annuity
Benefit
Determination of Amount
Income Payment Benefits
Death Benefit
Election and Effective Date of Election with Respect to Death Benefit
Payment of Death Benefit
Amount of Death Benefit
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
The Contract
Modification of Contract
Non-Participation
Loans
Determination of Values
Endorsement of Income Payments
Misstatement of Age
Claims of Creditors
Periodic Reports
Followed by Optional Methods of Settlement and any Riders
Note: Pages 4, 6 and 8 are intentionally "blank."
AN425 4
<PAGE>
CONTRACT SPECIFICATIONS
ANNUITANT(S) JOHN DOE SPECIMEN CONTRACT NUMBER
AGE AT ISSUE 35 JANUARY 1, 1997 DATE OF ISSUE
JANUARY 1, 2027 ANNUITY DATE
- --------------------------------------------------------------------------------
CIGNA ACCRU CHOICEPLUS VARIABLE ANNUITY
FORM BENEFIT INITIAL PREMIUM
PAYMENT
AN425 FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY $50,000
WITH FIXED AND VARIABLE ACCOUNTS
INITIAL PREMIUM PAYMENT ALLOCATION PERCENTAGE
FIXED ACCOUNT - SUB-ACCOUNTS
PERCENTAGE ADJUSTMENT TO INDEX RATE "B": .50%
INITIAL GUARANTEED PERIOD/INTEREST RATE 1/YEAR /4.55% 10%
INITIAL GUARANTEED PERIOD/INTEREST RATE 5/YEARS/6.40% 0%
INITIAL GUARANTEED PERIOD/INTEREST RATE 10/YEARS/6.90% 0%
VARIABLE ACCOUNT - SUB-ACCOUNTS (FUNDS)
ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO 10%
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO 0%
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO 0%
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO 0%
FIDELITY INVESTMENTS
VARIABLE INSURANCE PRODUCTS FUND
FIDELITY VIP HIGH INCOME PORTFOLIO 10%
FIDELITY VIP EQUITY-INCOME PORTFOLIO 10%
FIDELITY VIP OVERSEAS PORTFOLIO 0%
VARIABLE INSURANCE PRODUCTS FUND II
FIDELITY VIPII INVESTMENT GRADE BONDS PORTFOLIO 0%
FIDELITY VIPII CONTRA FUND PORTFOLIO 0%
VARIABLE INSURANCE PRODUCTS FUND III
FIDELITY VIPIII GROWTH OPPORTUNITIES PORTFOLIO 0%
MFS VARIABLE INSURANCE TRUST
MFS TOTAL RETURN SERIES 0%
MFS UTILITIES SERIES 10%
MFS EMERGING GROWTH SERIES 0%
MFS RESEARCH SERIES 0%
MFS GROWTH WITH INCOME SERIES 10%
(Continued on Page 5.1)
AN425 5
<PAGE>
CONTRACT SPECIFICATIONS (CONTINUED)
ANNUITANT(S) JOHN DOE SPECIMEN CONTRACT NUMBER
AGE AT ISSUE 35 JANUARY 1, 1997 DATE OF ISSUE
JANUARY 1, 2027 ANNUITY DATE
- --------------------------------------------------------------------------------
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST ("AMT")
AMT PARTNERS PORTFOLIO 0%
AMT LIMITED MATURITY BOND PORTFOLIO 10%
OCC ACCUMULATION TRUST
OCC GLOBAL EQUITY PORTFOLIO 10%
OCC MANAGED PORTFOLIO 10%
OCC SMALL CAP PORTFOLIO 0%
CIGNA VARIABLE PRODUCTS GROUP
CIGNA MONEY MARKET FUND 10%
TOTAL 100%
LIMITATIONS ON TRANSFERS FROM FIXED ACCOUNT: IN EACH CONTRACT YEAR, AN OWNER IS
ALLOWED TO MAKE ONE OR MORE TRANSFERS FROM EACH SUB-ACCOUNT, AND THE AMOUNT(S)
TRANSFERRED IN AGGREGATE MAY NOT EXCEED MORE THAN [15%] OF THE THEN CURRENT
VALUE OF THE APPLICABLE SUB-ACCOUNT(S).
THIS CONTRACT IS FOR USE WITH "CG VARIABLE ANNUITY SEPARATE ACCOUNT II"; A
CONNECTICUT GENERAL LIFE INSURANCE COMPANY SEPARATE INVESTMENT ACCOUNT WHICH WAS
ESTABLISHED ON JANUARY 25, 1994.
OWNER: THE ANNUITANT
BENEFICIARY: THE PERSON(S) DESIGNATED BY THE OWNER AND RECORDED BY THE
COMPANY
MINIMUM SUBSEQUENT PREMIUM PAYMENTS:
$2,000 PER FIXED ACCOUNT GUARANTEED PERIOD
$100 PER VARIABLE ACCOUNT SUB-ACCOUNT
AN425 5A
<PAGE>
SCHEDULE OF CHARGES, EXPENSES AND FEES
ANNUITY ACCOUNT FEE: The Annuity Account Fee is $35 per Contract Year and will
be deducted on the last Valuation Date of each Contract Year. The Annuity
Account Fee, however, will be waived for any Contract Year for which the Annuity
Account Value equals or exceeds $100,000 as of the last Valuation Date of such
Contract Year.
WITHDRAWAL CHARGES: The Withdrawal charges applicable under this contract are
as follows.
Withdrawal Charge
Against Premium Year
Payment Withdrawn Applicable
----------------- ----------
[7%] During 1st year since Premium Payment Accepted
[7%] During 2nd year since Premium Payment Accepted
[7%] During 3rd year since Premium Payment Accepted
[6%] During 4th year since Premium Payment Accepted
[6%] During 5th year since Premium Payment Accepted
[5%] During 6th year since Premium Payment Accepted
[4%] During 7th year since Premium Payment Accepted
[0%] Thereafter
Each Subsequent Premium Payment will be subject to its own 7-year period.
Any Withdrawal from the Fixed Account prior to the end of a Guaranteed Period
may also be subject to a Market Value Adjustment as described on page 17 which
may increase, decrease, or have no effect on the applicable account value(s). A
Market Value Adjustment would not apply to a withdrawal effective at the end of
a Guaranteed Period.
PENALTY-FREE PARTIAL WITHDRAWAL CHARGES: The Withdrawal charges are not
applicable to certain partial withdrawals of 15% or less of Premium Payments
annually (see page 18). Withdrawal charges and a Market Value Adjustment are
not applicable to annuitization of the contract at any time. Withdrawal charges
and a Market Value Adjustment are not applicable to payment of the Death
Benefit. (See "Penalty-Free Withdrawals, Transfers and Annuitization
Provisions.")
ASSET CHARGES: The Company imposes a mortality and expense ("M&E") risk charge
and an administrative expense charge, each of which is calculated as a
percentage of asset value of each Variable Account Sub-Account, to cover
mortality and expense risk and other administrative costs. The percentages
applied to asset value to determine these charges are the Daily M&E Rate and the
Daily Administrative Rate. These charges are deducted from each Variable
Account Sub-Account by reducing the Variable Accumulation Unit Value at the end
of each Valuation Period. The Daily M&E Rate is equal to the daily rate
equivalent of the annual rate of [1.25%] and the Daily Administrative Rate is
equal to the daily rate equivalent of the annual rate of [0.15%].
In addition, Daily Fund Operating Expenses will be applied by each Fund as a
percent of the daily fund balance as set forth in the prospectus for the
applicable Fund(s).
AN425 7
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SCHEDULE OF CHARGES, EXPENSES AND FEES (CONTINUED)
TAXES: Premium tax equivalents (including any related retaliatory taxes), if
any, and any other taxes due under this contract will be deducted if
applicable. It is currently the Company's practice to deduct such taxes, if
any, at the time the Annuity Account Value, or any portion thereof, becomes
payable. (Refer to Definition of "Annuity Account Value".)
AN425 7.1
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DEFINITIONS
ACCUMULATION PERIOD. The period from the Date of Issue to the Annuity Date, the
date on which the Death Benefit becomes payable, or the date on which the
contract is surrendered or annuitized, whichever is earliest.
ANNUITANT(S). The person or persons on whose life the first Income Payment is
to be made. The Annuitant(s) on the Date of Issue is/are the person(s)
designated in the Contract Specifications and will remain the Annuitant(s) under
the contract unless the Owner exercises the right to change the Annuitant(s) as
set forth in the "Rights of Owner" provision. If prior to the Annuity Date, the
Annuitant predeceases the Owner, the Owner will then become the Annuitant until
such time as the Owner exercises the right to designate a new Annuitant as set
forth in the "Rights of Owner" provision. (Provided that the Contract Owner is
a natural person.) If joint Annuitants are named and if one of the Annuitants
predeceases the Owner prior to the Annuity Date, the contract will thereupon
become an annuity contract on the surviving Annuitant until such time that the
Owner exercises the right to designate another joint Annuitant as set forth in
the "Rights of Owner" provision.) A request for change of Annuitant(s) must be
in writing to the Company at its Annuity & Variable Life Service Center's
Mailing Address and will not take effect until recorded by the Company.
ANNUITY ACCOUNT. The account which is comprised of the Fixed and Variable
Accounts with respect to this contract.
ANNUITY ACCOUNT VALUE. The account value which at any time equals the sum of
all the then current values of the Fixed and Variable Accounts with respect to
this contract. Applicable premium taxes, if any, will be deducted when the
Annuity Account Value amount to be applied under the Annuity Benefit, Death
Benefit, Cash Withdrawals or Penalty-Free Withdrawal and Annuitization
provisions is determined.
ANNUITY DATE. The date on which Income Payments begin upon annuitization of the
contract.
CONTRACT YEARS AND CONTRACT ANNIVERSARIES. All Contract Years and Contract
Anniversaries are 12-month periods measured from the Date of Issue.
DAILY M&E RATE. The rate applied by the Company as a percentage of each
Variable Account Sub-Account's asset value to determine the M&E charge for its
assumption of mortality and expense risks for a 24-hour period.
DATE OF ISSUE. The date on which the contract becomes effective.
DUE PROOF OF DEATH. An original certified copy of an official death
certificate, an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof of death
satisfactory to the Company.
EXPIRATION DATE(S). The date(s) on which Guaranteed Period(s), if any, end.
FIXED ACCOUNT. The term "Fixed Account" under this contract means all
Sub-Account(s) associated with Guaranteed Period(s) and Guaranteed Interest
Rate(s). Fixed Account assets are general assets of the Company and are
distinguishable from those allocated to a separate account of the Company.
FUND(S). The Variable Account Sub-Accounts in which Premium Payments, or
Transfers in accordance with the "Transfer Privilege" provision, may be
invested.
GUARANTEED PERIOD. The Guaranteed Period is the period for which interest, at
either an initial or subsequent Guaranteed Interest Rate will be credited to an
amount under a Fixed Account Sub-Account.
HOME OFFICE. The term "Home Office" means Connecticut General Life Insurance
Company, the mailing address of which for this contract is CIGNA Individual
Insurance, Annuity & Variable Life Service Center, Routing S249, Hartford,
Connecticut 06152-2249.
AN425 9
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DEFINITIONS (CONTINUED)
IN WRITING. The term "in writing" means in a written form satisfactory to the
Company and received by the Company at its Annuity & Variable Life Service
Center's Mailing Address.
INCOME PAYMENTS. Income Payments are the amounts payable under this contract as
determined by the settlement options provisions of the contract.
PAYOUT PERIOD. The period during which Income Payments are made under this
contract.
SEC. The Securities and Exchange Commission.
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.
VALUATION DATE. Any day on which the New York Stock Exchange ("NYSE") is open
for business, except a day during which trading on the NYSE is restricted or on
which an emergency exists as a result of which the valuation or disposal of
securities is not reasonably practicable.
VALUATION PERIOD. The period beginning immediately after the close of business
on a Valuation Date and ending at the close of business on the next Valuation
Date.
VARIABLE ACCOUNT. The term "Variable Account" under this contract means all
Sub-Account(s) associated with investments in the Fund(s). Variable Account
assets are separate account assets of the Company, the investment performance of
which is kept separate from that of the general assets of the Company and are
not chargeable with general liabilities of the Company.
VARIABLE ANNUITY UNITS. A unit of measure used in the calculation of the value
of the variable portion of the Annuity Account during the Payout Period.
VARIABLE ACCUMULATION UNIT. A unit of measure used in the calculation of the
value of the variable portion of the Annuity Account before the Payout Period.
PREMIUM PAYMENT PROVISIONS
PREMIUM PAYMENTS. Premium Payments are payable to the Company at its Annuity &
Variable Life Service Center's Mailing Address (or its lockbox address) or to an
authorized agent of the Company. A Company receipt will be furnished upon
request. The Initial Premium Payment is the amount paid to the Company as
consideration for the benefits provided under the contract on the Date of Issue.
Subsequent Premium Payments may be paid to the Company from time to time after
the Date of Issue and prior to the Annuity Date. The Company will not accept
any Premium Payment which is less than the minimum amount requirement then in
effect as determined by the Company. In addition, the prior approval of the
Company is required before it will accept a Premium Payment in excess of the
maximum amount limit then in effect as determined by the Company. All Premium
Payments must meet the allocation requirements specified under the "Allocation
of Premium Payments" provision. The payment of any amount under the contract
which is derived, all or in part, from any Premium Payments made by check or
draft may be postponed until such check or draft has been honored by the
financial institution upon which it is drawn.
The Initial Premium Payment attributable to the contract is shown on the
Contract Specifications page.
ALLOCATION OF PREMIUM PAYMENTS. Upon receipt by the Company at its Annuity &
Variable Life Service Center's Mailing Address, each Premium Payment will be
added to the Annuity Account established under the contract. The Annuity
Account is described under the "Annuity Account" provision and is comprised of
Fixed Account Sub-Account(s) and Variable Account Sub-Account(s). The Initial
Premium Payment will be allocated to one or more such Sub-Accounts in accordance
with the allocation percentages specified by the Owner and shown in the Contract
Specifications, provided such allocations to Fixed and/or Variable Accounts
conform to the Company's minimum deposit requirements in effect as of the
Date of Issue.
AN425 10
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PREMIUM PAYMENT PROVISIONS (CONTINUED)
Subsequent Premium Payments will be allocated as directed by the Owner. If no
direction is given, the allocation percentages will be that which has been most
recently directed for payments by the Owner. If a portion of the most recent
previous Premium Payment was allocated to the Fixed Account and the allocation
percentages when applied to a Subsequent Premium Payment does not produce an
amount which meets the Fixed Account minimum requirements, the Company will
promptly seek further instructions from the Owner regarding allocation of the
premium or otherwise return the applicable portion of such Premium Payment as
provided by law.
ANNUITY ACCOUNT CONTINUATION. The Annuity Account shall be continued
automatically in full force from the Date of Issue until the Annuity Date or
until the contract is surrendered or annuitized, the Death Benefit is paid, or
the Annuity Account Value no longer meets the requirements specified in the
"Minimum Value Requirements" provision, whichever occurs first.
MINIMUM VALUE REQUIREMENTS. If no Premium Payments have been made for three
consecutive years and the Annuity Account Value decreases to less than $1,000
during that period, or if any partial withdrawal decreases the Annuity Account
Value to less than $1,000, the Company reserves the right to cancel the contract
and pay to the Owner an adjusted value of the Annuity Account as would be
calculated under the "Determination of Amount" provision. The Company will,
however, provide at least 30 days advance notice to the Owner of its intended
action. During the notification period an additional Premium Payment may be
made to meet the minimum value requirements.
OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS
OWNER. The Owner on the Date of Issue will be the person designated in the
Contract Specifications. If no Owner is designated, the Annuitant(s) will be the
Owner.
RIGHTS OF OWNER. The Owner may exercise all rights and privileges under the
contract including the right to: (a) agree with the Company to any change in or
amendment to the contract, (b) transfer all rights and privileges to another
person, (c) change the Beneficiary, (d) change the Annuitant(s) any time prior
to the Annuity Date or name a new Annuitant if the Annuitant, or one of the
Annuitants named under a joint life annuity, predeceases the Owner, (e) name the
payee to whom Income Payments are to be directed, and (f) assign the contract.
All rights and privileges of the Owner may be exercised without the consent of
any designated transferee, or any Beneficiary if the Owner has reserved the
right to change the Beneficiary. All such rights and privileges, however, may be
exercised only with the consent of any assignee on record with the Company.
TRANSFER OF OWNERSHIP. The Owner may transfer all rights and privileges of the
Owner. On the effective date of transfer, (a) the transferee will become the
Owner and will have all the rights and privileges of the Owner, and (b) the
amount of Death Benefit applicable under the contract will change as set forth
under the "Amount of Death Benefit" provision. The Owner may revoke any
transfer prior to its effective date.
Unless provided otherwise, a transfer will not affect the interest of any
Beneficiary designated prior to the
effective date of the transfer.
A transfer of Ownership, or a revocation of transfer, must be in writing to the
Company at its Annuity & Variable Life Service Center's Mailing Address. A
transfer or a revocation will not take effect until recorded in writing by the
Company at its Annuity & Variable Life Service Center's Mailing Address. When a
transfer or revocation has been so recorded, it will take effect as of the
effective date specified by the Owner. Any payment made or any action taken or
allowed by the Company before the transfer or the revocation is recorded will be
without prejudice to the Company.
ASSIGNMENT. The Company will not be affected by any assignment of the contract
until the original assignment or a certified copy of the assignment is filed
with the Company at its Annuity & Variable Life Service Center's Mailing
Address.
AN425 11
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OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS (CONTINUED)
The Company does not assume responsibility for the validity or sufficiency of
any assignment. An assignment of the contract will operate so long as the
assignment remains in force.
To the extent provided under the terms of the assignment, an assignment will
transfer the interest of any designated transferee or of any Beneficiary if the
Owner has reserved the right to change the Beneficiary.
BENEFICIARY. The Beneficiary is the person who has the right to receive the
Death Benefit set forth in the contract and, for Non-Qualified Contracts, who is
the "designated beneficiary" for purposes of Section 72(s) of the Internal
Revenue Code in the event of the Owner's death. The Beneficiary on the Date of
Issue will be the person designated in the Contract Specifications.
Unless provided otherwise, the interest of any Beneficiary who dies before the
Owner will vest in the Owner or the Owner's administrators or assigns.
CHANGE OF BENEFICIARY. A new Beneficiary may be designated from time to time. A
request for change of Beneficiary must be in writing to the Company at its
Annuity & Variable Life Service Center's Mailing Address. The request must be
signed by the Owner. The request must also be signed by the Beneficiary if the
right to change the Beneficiary has not been reserved to the Owner.
A change of Beneficiary will not take effect until recorded by the Company. When
a change of Beneficiary has been so recorded, whether or not the Owner is then
alive, it will take effect as of the date the request was signed. Any payment
made or any action taken or allowed by the Company before the change of
Beneficiary is recorded will be without prejudice to the Company.
Unless provided otherwise, the right to change any Beneficiary is reserved to
the Owner.
FIXED AND VARIABLE ACCOUNTS PROVISIONS
FIXED ACCOUNT AND SUB-ACCOUNTS. Fixed Account assets are general assets of the
Company and are distinguishable from those allocated to a separate account of
the Company. Any portion of Premium Payments allocated by the Owner to a Fixed
Account Sub-Account will become part of the Fixed Account.
VARIABLE ACCOUNT AND SUB-ACCOUNTS. The Variable Account to which the variable
accumulation values, if any, under this contract relate is shown in the Contract
Specifications. It was established pursuant to a resolution of its Board of
Directors as a "separate account" under governing law of Connecticut, the
Company's state of domicile, and registered as a unit investment trust under the
1940 Act. Under Connecticut law, the Variable Account assets (except assets in
excess of its reserves and other contract liabilities) cannot be charged with
the general liabilities from any other business of the Company and the income,
gains or losses from the Variable Account assets are credited or charged against
the Variable Account without regard to the income, gains or losses of the
Company. The Variable Account assets are owned and controlled exclusively by
the Company, and the Company is not a trustee with respect to those assets.
The Variable Account is divided into Sub-Accounts. Each Variable Account Sub-
Account's assets are invested in shares of a particular Fund made available as a
funding vehicle under this contract. For each Variable Account Sub-Account, the
Company maintains Variable Accumulation Units whose values reflect the
investment performance of the Fund whose shares are held in that Sub-Account.
Subject to any vote by persons having the right under the 1940 Act to vote
thereon, the Company may elect to operate the Variable Account as a management
company rather than a unit investment trust under the 1940 Act, or, if
registration is no longer required, to deregister the Variable Account. In such
event, the Company may endorse this contract to reflect such change and any
necessary or appropriate action taken to effect the change. Any changes in
Variable Account investment policy shall have been approved by the Connecticut
Insurance Commissioner and approved or filed, as required, in the state or other
jurisdiction where this policy was issued.
AN425 12
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FIXED AND VARIABLE ACCOUNTS PROVISIONS (CONTINUED)
INVESTMENT RISK. Each Variable Account Sub-Account's assets are always fully
invested in the shares of the particular Fund purchased for that Sub-Account.
Each Variable Account Sub-Account's investment performance reflects the
investment performance of the Fund. Fund share values fluctuate, reflecting the
risks of changing economic conditions and the ability of a Fund's investment
advisor or sub-adviser to manage that Fund and anticipate changes in economic
conditions. As to the Variable Account assets, the Owner bears the entire
investment risk of gain or loss.
INVESTMENTS OF THE VARIABLE ACCOUNT SUB-ACCOUNTS. All amounts allocated to a
Variable Account Sub-Account will be used to purchase shares of a specific Fund.
The Funds available on the Date of Issue are shown in the Contract
Specifications; more may be subsequently added. The Fund is an open-end
management investment company registered under the Investment Company Act of
1940. Any and all distributions made by the Fund(s) will be reinvested to
purchase additional shares of that Fund at net asset value. Deductions from the
Variable Account Sub-Accounts will, in effect, be made by redeeming a number of
Fund shares at net asset value equal in total value to the amount to be
deducted. Assets of Variable Account Sub-Accounts will be fully invested in
Fund shares at all times.
SUBSTITUTED SECURITIES. Shares corresponding to a particular Fund may not always
be available for purchase or the Company may decide that further investment in
such Fund is no longer appropriate in view of the purposes of the Variable
Account, or in view of legal, regulatory or federal income tax restrictions. In
such event, shares of another registered open-end investment company or unit
investment trust may be substituted both for Fund shares already purchased
and/or as the securities to be purchased in the future, provided that these
substitutions meet applicable Internal Revenue Service diversification
guidelines and have been approved by the Securities and Exchange Commission and
such other regulatory authorities as may be necessary. In the event of any
substitution pursuant to this provision, the Company may make appropriate
endorsement(s) to this contract to reflect the substitution.
CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS
PART A - FIXED ACCOUNT VALUE
GUARANTEED PERIODS. The Initial Guaranteed Period(s), if any, are selected by
the Owner and are shown in the Contract Specifications. The duration of the
Initial Guaranteed Period(s) will affect the Initial Guaranteed Interest
Rate(s). Any Premium Payment or the portion thereof (or amount transferred in
accordance with the "Transfer Privilege" provision described below) allocated to
a particular Guaranteed Period will earn interest at the specified Guaranteed
Interest Rate during the Guaranteed Period. Initial 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 Expiration Date for each duration
selected.
Any portion of the Annuity Account Value comprising a particular Fixed Account
Sub-Account (including interest earned thereon) will be referred to in this
contract as the "Guaranteed Period Amount." As a result of renewals, Subsequent
Payments, and transfers of portions of the Annuity Account Value, Guaranteed
Amounts for Guaranteed Periods of the same duration may have different
Expiration Dates, and each Guaranteed Period Amount will be treated separately
for purposes of determining any Market Value Adjustment.
The Company will send written notice to the Owner by ordinary mail to the most
recent address in the Company's records about the upcoming expiration of a
Guaranteed Period with respect to a Fixed Account Sub-Account at least 60 days
prior to the Expiration Date of such Guaranteed Period. A subsequent Guaranteed
Period of the same duration will begin automatically at the end of the previous
Guaranteed Period unless the Company receives, in writing at its Annuity &
Variable Life Service Center's Mailing Address within the 60-day period
immediately preceding the end of such Guaranteed Period, an election by the
Owner of a different Guaranteed Period from among those being offered by the
Company at such time, or instructions to transfer all or a portion of the
applicable Guaranteed Period Amount to one or more Fixed Account or Variable
Account Sub-Accounts in accordance with the "Transfer Privilege" provision.
AN425 13
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CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS (CONTINUED)
GUARANTEED INTEREST RATES. The Company will establish the applicable Guaranteed
Interest Rate that will be used to determine the interest with respect to a
Fixed Account Sub-Account for each Guaranteed Period at the beginning of the
Guaranteed Period. This rate will be guaranteed for the duration of the
applicable Guaranteed Period. The Initial or Subsequent Guaranteed Interest
Rate will never be less than 3% per year, compounded annually. Subsequent
Guaranteed Interest Rate(s) will also be determined at the beginning of
Guaranteed Period(s) and may be higher or lower than the previous rate, but will
never be less than 3% per year, compounded annually. (See "Minimum Surrender
Value" provision.)
FIXED ACCUMULATION VALUE. Upon receipt of a Premium Payment by the Company at
its Annuity & Variable Life Service Center's Mailing Address, all or that
portion, if any, of the Premium Payment which is allocated to the Fixed Account
will be credited to the Fixed Account and allocated to the Fixed Account Sub-
Accounts selected by the Owner. The Fixed Accumulation Value, if any, at any
time, is equal to the sum of the then current values of all Guaranteed Period
Amounts with respect to this contract.
MINIMUM SURRENDER VALUE. The Minimum Surrender Value for the Fixed Account for
a given contract year is the Premium Payment(s), or portion thereof, and
transfers allocated to the Fixed Account accumulated at 3% per year, compounded
annually, less the deduction of the applicable withdrawal charge(s), any prior
withdrawals or transfers out of the Fixed Account, premium taxes, if any, and
applicable Annuity Account Fee(s).
PART B - VARIABLE ACCOUNT VALUE
ACQUISITION AND REDEMPTION OF VARIABLE ACCUMULATION UNITS. Any dollar amounts
allocated to a Variable Account Sub-Account shall be converted into Variable
Accumulation Units and credited to the Variable Account Sub-Account on a unit
basis. The number of Variable Accumulation Units into which a dollar amount
would be converted is calculated by dividing the dollar amount by the Variable
Accumulation Unit Value for the particular Sub-Account. Any redemption of units
from a Variable Account Sub-Account will be processed at the end of a Valuation
Period, including any units redeemed to fund a monthly deduction, and shall
result in the redemption and cancellation of Variable Accumulation Units having
an aggregate dollar value equal to the amount of such withdrawal.
VARIABLE ACCUMULATION UNIT VALUE. The Variable Accumulation Unit Value at the
beginning of the first Valuation Period of each Variable Account Sub-Account was
established at $10.00. The Variable Accumulation Unit value in any later
Valuation Period is equal to the net asset value per unit of the particular Sub-
Account as of the end of such Valuation Period.
VARIABLE ACCUMULATION VALUE. The Variable Accumulation Value of the Annuity
Account, if any, for any Valuation Period is equal to the sum of the value of
all Variable Accumulation Units of each Variable Account Sub-Account credited to
the Variable Account with respect to this contract at the end of such Valuation
Period. The Variable Accumulation Value of each Variable Account Sub-Account is
determined by multiplying the number of Variable Accumulation Units, if any,
credited to each Variable Account Sub-Account with respect to this contract at
the end of a Valuation Period, by the Variable Accumulation Unit Value of the
particular Variable Account Sub-Account for such Valuation Period.
NET INVESTMENT FACTOR. An index, calculated as described below, that provides a
measure of the investment performance of a Variable Account Sub-Account for each
Valuation Period. The Net Investment Factor is equal to A+B-C - E where:
-----
D
A is the net asset value per unit of the Fund held in the Variable Account
Sub-Account (such net asset value being determined as described in the
prospectus for the Fund) as of the end of the Valuation Period;
B is any dividend or other distribution payable with respect to units held
of record during the Valuation Period;
AN425 14
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CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS (CONTINUED)
C is the per unit amount of any tax determined by the Company to be
attributable to the operation of the Variable Account Sub-Account during
such Valuation Period;
D is the net asset value of each unit of the Fund as of the close of
business on the Valuation Date immediately preceding the Valuation Period;
and
E is the sum of the Daily M&E Rate plus the Daily Administrative Rate,
multiplied by the number of 24-hour periods included in the Valuation
Period.
The Net Investment Factor may be 1.0 or may be greater or less than 1.0,
reflecting the possibility that the Variable Accumulation Unit Value of a
particular Variable Account Sub-Account may remain the same, increase or
decrease.
PART C - GENERAL
ANNUITY ACCOUNT. The Company will establish an Annuity Account under the
contract and will maintain the Annuity Account during the Accumulation Period.
The Annuity Account Value at any time equals the sum of all the then current
values of the Fixed and Variable Accounts with respect to this contract.
TRANSFER PRIVILEGE. At any time during the Accumulation Period, other than
during the "Right to Examine Contract" period, the Owner may transfer all or
part of the Annuity Account Value to one or more of the Fixed or Variable
Account Sub-Accounts then available under the contract, subject to the
provisions set forth below. Transfers may be made in writing or by telephone,
if telephone transfers have been previously authorized in writing. Transfer
requests must be received at the Company's Annuity & Variable Life Service
Center prior to the time of day set forth in the prospectus, and provided the
New York Stock Exchange is open for business, in order to be processed as of
the close of business on the date the request is received; otherwise, the
transfer will be processed on the next business day the New York Stock Exchange
is open for business. The Company will not be held legally responsible for (a)
any liability for acting in good faith upon any transfer instructions given by
telephone, or (b) the authenticity of such instructions.
Transfers involving Variable Account Sub-Accounts will reflect the purchase or
cancellation of Variable Accumulation Units having an aggregate value equal to
the dollar amount being transferred to or from a particular Variable Account
Sub-Account. The purchase or cancellation of such units shall be made using
Variable Accumulation Unit Values of the applicable Variable Account Sub-Account
at the end of the Valuation Period for which the transfer is effective.
Transfers to a Fixed Account Sub-Account will result in a new Guaranteed Period
for the amount being transferred. Any such Guaranteed Period will begin on the
effective date of the transfer. The amount transferred into such Fixed Account
Sub-Account will earn interest at the Guaranteed Interest Rate declared by the
Company for that Guaranteed Period as of the effective date of the transfer.
Transfers shall be subject to the following conditions: (a) Not more than 12
transfers may be made per Contract Year (including the frequency limitation
shown in the Contract Specifications with respect to transfers from the Fixed
Account), unless otherwise authorized in writing by the Company; (b) No
withdrawal charge will be imposed on transferred amounts, however, transfers of
all or a portion out of a Fixed Account Sub-Account may be subject to the Market
Value Adjustment set forth below unless such transfer is made in accordance with
the "Full or Partial Withdrawals and Transfers at the End of a Guaranteed
Period" provision; (c) The amount being transferred may not be less than $100
unless the entire value of the Fixed or Variable Account Sub-Account is being
transferred; (d) The amount being transferred may not exceed the Company's
maximum amount limit then in effect; (e) The amount transferred to any Fixed
Account Sub-Account may not be less than $2,000, or $100 to a Variable Sub-
Account; (f) Unless a transfer out of a Fixed Account Sub-Account is made in
accordance with the "Full or Partial Withdrawals and Transfers at the End of a
Guaranteed Period" provision, the amount transferred from each Fixed Account
Sub-Account during any contract year may not exceed the limits shown in the
Contract Specifications; (g) Any value remaining in a Fixed Account Sub-Account
may not be less than $2,000, or a Variable Account Sub-Account may not
AN425 15
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CONTRACT VALUES DURING ACCUMULATION PERIOD PROVISIONS (CONTINUED)
be less than $50; (h) The Company reserves the right to defer transfers of
amounts from the Fixed Account for a period not to exceed six months from the
date the request for such transfer is received by the Company in writing or by
telephone, if such has been previously authorized, at its Annuity & Variable
Life Service Center; and (i) Transfers involving Variable Account Sub-Account(s)
shall be subject to such terms and conditions as may be imposed by the Funds.
TRANSFER FEE. The Company reserves the right to charge a fee up to $10 for each
transfer prior to the Annuity Date if there have been more than twelve transfers
made in the Contract Year.
ANNUITY ACCOUNT FEE. Prior to the Annuity Date, on the anniversary date of each
Contract Year the Company will deduct from the value of the Annuity Account the
annual Annuity Account Fee, if any, shown in the Schedule of Charges, Expenses
and Fees to reimburse it for administrative expenses relating to the Annuity
Account. The Annuity Account Fee will be deducted on a pro rata basis from
amounts allocated to each Fixed and Variable Account Sub-Account in which the
Annuity Account values are invested at the time of such deduction. If the
Annuity Account is surrendered for its full value, the Annuity Account Fee will
be deducted in full at the time of such surrender. On the Annuity Date the
value of the Annuity Account will be reduced by a proportionate amount of the
Annuity Account Fee to reflect the time elapsed between the last valuation date
of the most recent Contract Year and the day before the Annuity Date.
CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET
VALUE ADJUSTMENT PROVISIONS
CASH WITHDRAWALS. At any time before the Annuity Date, the Owner may elect to
receive a cash withdrawal payment from the Company by filing with the Company
at its Annuity & Variable Life Service Center's Mailing Address a written
election in such form as the Company may require. Any such election shall
specify the amount of the withdrawal and will be effective on the date that it
is received at the Company's Annuity & Variable Life Service Center's Mailing
Address. Any cash withdrawal payment will be paid within seven days of the
Company's receipt of such request, except as the Company may be permitted to
defer the payment of amounts withdrawn from the Variable Account in accordance
with the Investment Company Act of 1940. The Company reserves the right to defer
the payment of amounts withdrawn from the Fixed Account for a period not to
exceed six months from the date written request for such withdrawal is received
by the Company at its Annuity & Variable Life Service Center's Mailing Address.
The amount of the cash withdrawal payment may be for any amount not to exceed
the Annuity Account Value at the end of the Valuation Period during which
the election becomes effective, plus or minus any applicable Market Value
Adjustment, and less any applicable withdrawal charge and premium taxes. In the
case of a full surrender, the Annuity Account will be canceled and the contract
will terminate. A partial withdrawal will result in a decrease in the Annuity
Account Value by an amount with an aggregate dollar value equal to the dollar
amount of the cash withdrawal payment, plus or minus any applicable Market Value
Adjustment, any applicable withdrawal charge and premium taxes.
In the case of a partial withdrawal, the Owner must instruct the Company as to
the amounts to be withdrawn from each Fixed and/or Variable Account Sub-Account.
If not so instructed, the Company will effect such withdrawal from each Fixed
and/or Variable Sub-Account in proportion to the then current Sub-Account
values. Partial withdrawals cannot reduce any Fixed Account Sub-Account below
$2,000 or any Variable Account Sub-Account below $50. Such partial withdrawals
will be treated as a full surrender of that Sub-Account and the balance will be
transferred to the largest Variable Account Sub-Account, if any. Partial
withdrawals may not reduce the total Annuity Account Value below $1,000. (See
"Minimum Value Requirements" provision.) Such partial withdrawals may be
treated as a full surrender.
Cash withdrawals from a Variable Account Sub-Account will result in the
cancellation of Variable Accumulation Units attributable to the Annuity Account
with an aggregate value on the effective date of the withdrawal equal to the
total amount by which the Variable Account Sub-Account is reduced. The
cancellation of such units will be based on the Variable Accumulation Unit
values of the Variable Account Sub-Account at the end of the Valuation Period
during which the cash withdrawal is effective.
AN425 16
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CASH WITHDRAWALS, WITHDRAWAL CHARGES AND MARKET
VALUE ADJUSTMENT PROVISIONS (CONTINUED)
All cash withdrawals or transfers of any portion of Fixed Account Sub-Accounts,
except those specified otherwise under "Penalty-Free Withdrawals, Transfers and
Annuitization Provisions," will be subject to the Market Value Adjustment
described below.
WITHDRAWAL CHARGES. If a cash withdrawal is made, a withdrawal charge may be
assessed by the Company. The length of time between the Company acceptance of
the Premium Payment(s) and the receipt of a withdrawal request determines the
withdrawal charge. For this purpose each withdrawal is deemed to represent a
withdrawal of a Premium Payment previously accepted (or a portion thereof).
Premium Payments will be deemed to have been withdrawn in the order in which the
Premium Payments were received by the Company (i.e., oldest premium first).
After all Premium Payments have been deemed withdrawn, the Company will deem
further withdrawals to be from net investment results attributable to such
Premium Payments, if any. The schedule of withdrawal charges is set forth in
the "Schedule of Charges, Expenses and Fees." On withdrawal, any applicable
Annuity Account Fee and Market Value Adjustment will be deducted before
application of any withdrawal charge.
Withdrawal charges are deducted proportionately from the Fixed and/or Variable
Account Sub-Account(s) from which the withdrawal is to be made, provided such
Sub-Account(s) have sufficient account value(s) for making such deduction(s).
If any of the account value(s) of such Sub-Account(s), however, are
insufficient, its remaining withdrawal charges will be deducted on a pro rata
basis from all Fixed and/or Variable Account Sub-Accounts in proportion to the
then current account value(s) of Such Sub-Account(s).
See "Penalty-Free Withdrawals, Transfers and Annuitization Provisions" for
situations in which a withdrawal charge is not imposed.
For the purpose of any qualified plan riders which may be attached to this
contract, the term "Surrender Charge" wherever referenced therein, shall mean
"withdrawal charge" as set forth above.
MARKET VALUE ADJUSTMENT. Any cash withdrawal or transfer from a Fixed Account
Sub-Account, except those specified otherwise under the "Penalty-Free
Withdrawals, Transfers and Annuitization Provisions," will be subject to a
Market Value Adjustment.
The amount payable on such cash withdrawal or transfer may be adjusted up or
down by the application of the Market Value Adjustment. The Index Rate Factor
applicable to the amount of such cash withdrawal or transfer is:
N
(1+A)
------
N
(1+B)
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
applicable 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
applicable Guaranteed Period, determined at the time of cash withdrawal or
transfer, plus the percentage adjustment to "B" as shown in the Contract
Specifications. If Index Rates "A" and "B" are within .25% of each other when
the Index Rate Factor is determined, no such percentage adjustment to "B" will
be made.
N = The number of years remaining in the applicable Guaranteed Period (e.g. 1
year and 73 days = 1 + (73 divided by 365) = 1.2 years)
Straight-line interpolation is used for periods to maturity not quoted.
AN425 17
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PENALTY-FREE WITHDRAWALS, TRANSFERS AND ANNUITIZATION PROVISIONS
PENALTY-FREE PARTIAL WITHDRAWALS OR TRANSFERS. Upon request in writing, the
Owner may, during any Contract Year prior to the Annuity Date, withdraw up to
[15%] of the Premium Payment(s) or portion remaining thereof, without incurring
a withdrawal charge. For this purpose each withdrawal is deemed to represent a
withdrawal of a portion of a Premium Payment previously accepted. Premium
Payments will be deemed to be withdrawn in the order in which they were received
by the Company (i.e., the oldest premium first). Any such withdrawal from a
Fixed Account Sub-Account may be subject to a Market Value Adjustment unless the
withdrawal is made at the end of a Guaranteed Period as set forth below. The
Owner must specify from which Fixed and/or Variable Account Sub-Accounts the
withdrawal is to be made, otherwise the Company may effect such withdrawal on a
proportionate basis from all Fixed and/or Variable Account Sub-Accounts in which
the Annuity Account is invested.
Such partial withdrawals may be either taken as a lump sum or, upon consent of
the Company, paid in equal installments.
No withdrawal charge will be imposed on any withdrawal with respect to a Premium
Payment after the end of the seventh year following the Company's acceptance of
that Premium Payment.
The Owner may also transfer amounts within the Annuity Account during the
Accumulation Period without the application of a withdrawal charge, however, any
transfers would be subject to any terms and conditions as may be imposed under
the "Transfer Privilege" provision.
FULL OR PARTIAL WITHDRAWALS AND TRANSFERS AT THE END OF A GUARANTEED PERIOD. No
Market Value Adjustment will be imposed on a full or partial withdrawal or
transfer made from a Fixed Account Sub-Account which becomes effective at the
end of the applicable initial or subsequent Guaranteed Period. In such event,
the Owner's proper request for withdrawal or transfer must be received at the
Company's Annuity & Variable Life Service Center's Mailing Address within a 45-
day period immediately preceding the end of such Guaranteed Period.
WAIVER OF WITHDRAWAL CHARGE AND MARKET VALUE ADJUSTMENT ON DEATH OR ANNUITY
DATE. No withdrawal charge or Market Value Adjustment will be imposed upon
payments made under the Annuity Benefit or Death Benefit provisions of this
contract.
PENALTY-FREE ANNUITIZATION. At any time the Owner may request in writing
payment of the then current Annuity Account Value in accordance with any one of
the settlement options set forth in this contract. In such event, no withdrawal
charge or Market Value Adjustment will be imposed at the time such settlement is
made. Such annuitization will automatically result in a change in the Annuity
Date to the date Income Payments commence under the settlement option elected.
BENEFIT PROVISIONS
ANNUITY BENEFIT. On the Annuity Date the Company will pay all or a part of the
adjusted value of the Annuity Account (as set forth below) in cash or apply it
in accordance with the settlement option(s) elected by the Owner. However, if
the amount to be applied under any settlement option is less than $5,000, or if
the first Income Payment payable in accordance with such option is less than
$50, the Company will pay the adjusted value in a single payment to the payee
designated by the Owner.
AN425 18
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BENEFIT PROVISIONS (CONTINUED)
ANNUITY DATE. The Annuity Date selected by the Owner is shown in the Contract
Specifications. The Annuity Date may be changed from time to time by the Owner
by notifying the Company in writing. The notice must be received at the
Company's Annuity & Variable Life Service Center's Mailing Address at least 45
days prior to the Annuity Date then in effect. The new Annuity Date selected
must be at least 30 days after the effective date of the change and not later
than the Annuitant's 90th birthday.
After the Annuity Date, no change of a settlement option is permitted, no
payments may be requested under the "Cash Withdrawals" provision of the
contract, and no Death Benefit is payable under the contract except as otherwise
specified under the settlement option selected.
ELECTION AND EFFECTIVE DATE OF ELECTION WITH RESPECT TO ANNUITY BENEFIT. During
the lifetime of the Owner and prior to the Annuity Date, the Owner may elect to
have the adjusted value of the Annuity Account applied on the Annuity Date under
one or more of the settlement options set forth in this contract, or under any
other settlement option as agreed to by the Company. The Owner may also change
any election, but any election or change of election must be received at the
Company's Annuity & Variable Life Service Center's Mailing Address at least 45
days prior to the Annuity Date. The election or change of election may be made
by filing with the Company at its Annuity & Variable Life Service Center's
Mailing Address written notice in such form as the Company may require. If no
such election is in effect on the 30th day prior to the Annuity Date, the
adjusted value of the Annuity Account will be applied under a Life Annuity with
120 months guaranteed. In such situation, the portion of the adjusted value of
the Annuity Account to be applied for a Fixed Life Annuity under the Second
Option and/or a Variable Life Annuity under Option II will be determined on a
pro rata basis from the composition of the Annuity Account on the Annuity Date.
DETERMINATION OF AMOUNT. On the Annuity Date the Annuity Account will be
canceled and the adjusted value of the Annuity Account to be applied under the
settlement options provisions shall be equal to the Annuity Account Value for
the Valuation Period which ends immediately preceding the Annuity Date, minus
any applicable premium or similar tax. For the purposes of any qualified plan
riders which may be attached to this contract, the term "Annuity Value,"
wherever referenced therein, shall mean the "adjusted value of the Annuity
Account" as defined above.
INCOME PAYMENT BENEFITS. On the Annuity Date, the adjusted value of the Annuity
Account as determined under the "Determination of Amount" provision may be
applied, as elected by the Owner, under one or more of the settlement options
set forth in the contract to effect: (a) a Fixed Income Payment Benefit or a
Variable Income Payment Benefit; or (b) a combination of the Fixed Income
Payment Benefit and the Variable Income Payment Benefit. If a combination Fixed
and Variable Income Payment Benefit is elected, the Owner may specify the amount
to be allocated to the Fixed Income Payment Benefit and the amount to be
allocated to the Variable Income Payment Benefit. Such election and allocation
may also be made by a Beneficiary to the extent provided in the "Election and
Effective Date of Election with Respect to Death Benefit Provision."
DEATH BENEFIT. If the Owner dies before the Annuity Date, the Company will pay
the Death Benefit to the Beneficiary upon receipt of due proof of the death of
the Owner in accordance with the "Payment of Death Benefit" provision. If there
is no designated Beneficiary living on the date of death of the Owner, the
Company will pay the Death Benefit, upon receipt of due proof of the death of
both the Owner and the designated Beneficiary, in one sum to the estate of the
Owner.
ELECTION AND EFFECTIVE DATE OF ELECTION WITH RESPECT TO DEATH BENEFIT. During
the lifetime of the Annuitant and prior to the Annuity Date, the Owner may elect
one or more of the settlement options set forth in this contract to effect an
annuity for the Beneficiary as payee after the death of the Owner. This
election may be made or subsequently revoked by filing with the Company at its
Annuity & Variable Life Service Center's Mailing Address a written election or
revocation of an election in such form as required by the Company.
Any election or revocation of an election of a method of settlement of the Death
Benefit will become effective on the date it is received by the Company at its
Annuity & Variable Life Service Center's Mailing Address.
AN425 19
<PAGE>
BENEFIT PROVISIONS (CONTINUED)
Unless otherwise specified in writing by the Owner, the Beneficiary may elect
(a) to receive the Death Benefit as a cash payment, in which event the Annuity
Account will be canceled, or (b) to have the Death Benefit applied under one or
more of the settlement options set forth under the contract. This election may
be made by filing with the Company a written request in a form as required by
the Company. Any written request for an election of a settlement option for the
Death Benefit by the Beneficiary will become effective on the later of (a) the
date the request is received by the Company at its Annuity & Variable Life
Service Center's Mailing Address; or (b) the date due proof of the death of the
Owner is received by the Company at its Annuity & Variable Life Service Center's
Mailing Address. If a written request for a settlement option by the
Beneficiary is not received by the Company within 60 days following the date due
proof of the death of the Owner is received by the Company, the Beneficiary
shall be deemed to have elected a cash payment as of the last day of the 60-day
period.
Notwithstanding the above, the Owner or Beneficiary may only elect a settlement
option which provides for the distribution of the entire Death Benefit to the
Beneficiary within five years of the Owner's death unless; (a) the entire
interest in the contract is distributed over the life of the Beneficiary, with
distributions beginning within one year of the Owner's death; (b) the entire
interest in the contract is distributed over a period not extending beyond the
life expectancy of the Beneficiary, with distributions beginning within one year
of the Owner's death; or (c) the Beneficiary is the deceased Owner's spouse and
elects to continue the contract and become the new Owner, but in no event may
such an election be made under this contract more than once.
For purposes of Section 72(s) of the Internal Revenue Code, if any Owner is not
an individual, the death or change of any Annuitant is treated as the death of
an Owner, and if the Owner is grantor trust within the meaning of the Internal
Revenue Code, the death of the grantor of such trust is also treated as the
death of an Owner.
PAYMENT OF DEATH BENEFIT. If the Death Benefit is to be paid in cash to the
Beneficiary, payment will be made within 7 days of the date the election becomes
effective or is deemed to become effective, provided due proof of the death of
the Owner is received by the Company at its Annuity & Variable Life Service
Center's Mailing Address, except as the Company may be permitted to defer any
such payment of amounts derived from the Variable Account in accordance with the
Investment Company Act of 1940. If the Death Benefit is to be paid in one sum
to the estate of the deceased Owner, payment will be made within 7 days of the
date due proof of the death of the Owner and/or Beneficiary is received by the
Company at its Annuity & Variable Life Service Center's Mailing Address, except
as the Company may be permitted to defer any such payment of amounts derived
from the Variable Account in accordance with the Investment Company Act of 1940.
If settlement under the settlement option provisions is elected, the Income
Payments will commence 30 days following the effective date or the deemed
effective date of the election and the Annuity Account will be maintained in
effect until such Income Payments commence.
AMOUNT OF DEATH BENEFIT. The Death Benefit is determined as of the effective
date or deemed effective date of the Death Benefit election and is equal to the
greatest of (a) the Annuity Account Value for the Valuation Period during which
the Death Benefit election is effective or is deemed to become effective, (b)
the sum of all the Premium Payment(s) made under the contract less the sum of
all partial withdrawals, or (c) the highest Annuity Account Value ever attained
on a Contract Anniversary date, occurring on or before the Owner's 80th birthday
(or the Annuitant's 80th birthday in the case of a non-natural Owner), with
adjustments for any subsequent Premium Payments, partial withdrawals and charges
made since such Contract Anniversary Date. However, the Death Benefit on or
after the Owner's 90th birthday (if a natural person) will be the greater of the
sum of all the Premium Payment(s) with adjustments for any partial withdrawals
and charges made under the contract since the Date of Issue or the Annuity
Account Value for the Valuation Period during which the Death Benefit election
is effective or is deemed to become effective.
On and after the effective date of each transfer of Ownership, the Amount of
Death Benefit will be equal to the greatest of 1) the sum of Premium Payments
made prior to the date of such transfer of Ownership, less
AN425 20
<PAGE>
BENEFIT PROVISIONS (CONTINUED)
the sum of all withdrawals made on or before the effective date of such
transfer, plus the sum of all Premium Payments made on or after the effective
date of such transfer, less the sum of all partial withdrawals made on or after
the effective date of such transfer, 2) the Annuity Account Value for the
Valuation Period during which the Death Benefit election is effective or is
deemed to become effective, or 3) the highest Annuity Account Value ever
attained on a Contract Anniversary date occurring on or after the date of such
transfer of Ownership, with adjustments for any subsequent Premium Payments,
partial withdrawals and charges made since such Contract Anniversary Date.
SECTION 72(s). The provisions above will be interpreted so as to comply with
the requirements of Section 72(s) of the Internal Revenue Code.
GENERAL PROVISIONS
THE CONTRACT. The contract constitutes the entire contract between the parties.
Only the President, a Vice President, an Assistant Vice President, a Secretary,
a Director or an Assistant Director of the Company may make or modify this
contract.
The contract is executed at the Company's Home Office, the mailing address of
which for this contract is CIGNA Individual Insurance, Annuity & Variable Life
Service Center, Routing S249, Hartford, Connecticut 06152-2249.
MODIFICATION OF CONTRACT. The Company reserves the right to modify this
contract to meet the requirements of applicable state and federal laws or
regulations. The Company will notify the Owner in writing of any changes.
NON-PARTICIPATION. The contract is not entitled to share in surplus
distribution.
LOANS. Loans are not permitted under this contract.
DETERMINATION OF VALUES. The method of determination by the Company of the Net
Investment Factor and the number and value of Accumulation Units and Annuity
Units shall be conclusive upon the Owner, and any Beneficiary or payee.
ENDORSEMENT OF INCOME PAYMENTS. The Company will make each Income Payment at
the Home Office by check. Each check must be personally endorsed by the
payee/Annuitant, or the Company may require that proof of the payee/Annuitant's
survival be furnished.
MISSTATEMENT OF AGE. If the age of an Annuitant is misstated, the amount
payable under the contract will be adjusted to be the amount of Income which the
actual premium paid 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, with interest at the
rate of 6% per year, compounded annually.
CLAIMS OF CREDITORS. To the extent permitted by law, no amounts payable under
this contract will be subject to the claims of creditors of any payee.
PERIODIC REPORTS. At least once each calendar year, the Company will furnish
the Owner a report as required by law showing the Annuity Account Value at the
end of the preceding year, all transactions during the year, the current Annuity
Account Value, the number of Accumulation Units in each Variable Accumulation
Account, the applicable Accumulation Unit Value as of the date of the report and
the interest rate credited to the Fixed Account Sub-Account(s). The Company
will also send such statements reflecting transactions in the Annuity Account as
may be required by applicable laws, rules and regulations.
AN425 21
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CIGNA LIFE INSURANCE COMPANY
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
WITH FIXED AND VARIABLE ACCOUNTS - NON-PARTICIPATING
AN425
<PAGE>
OPTIONAL METHODS OF SETTLEMENT
This rider is made part of the contract to which it is attached as of the Date
of Issue. Upon written request, the Company will agree to pay in accordance
with any one of the options shown below all or part of the net proceeds that may
be payable under the contract.
While the Owner is alive, the request, including the designation of the payee,
may be made by the Owner. At the time a Death Benefit becomes payable under the
contract, the request, including the designation of the payee, may then be made
by the Beneficiary. Once Income Payments have begun, no surrender of the
Annuity Value can be made (unless Variable Income Payments are made under Option
III) and the Annuitant(s) cannot be changed, nor can the settlement option be
changed.
PAYMENT DATES. The first Income Payment under the settlement option selected
will be made on the first day of the month following the Annuity Date.
Subsequent payments will be made on the first day of each month in accordance
with the manner of payment selected.
MINIMUM PAYMENT AMOUNT. The settlement option elected must result in an Income
Payment at least equal to the minimum payment amount in accordance with the
Company's rules then in effect. If at any time payments are less than the
minimum payment amount, the Company has the right to change the frequency to an
interval that will provide the minimum payment amount. If any amount due is
less than the minimum per year, the Company may make other arrangements that are
equitable.
FIXED BENEFIT OPTIONS
FIXED INCOME PAYMENTS. Fixed Income Payments will remain constant pursuant to
the terms of the fixed settlement option(s) selected. The amount of each Fixed
Income Payment shall be determined in accordance with the terms of the
settlement option and the table(s) set forth in this rider, as applicable. The
mortality table used is the 1983 Individual Annuitant Mortality (IAM) Table "a"
and 3% interest. In determining the settlement amount, the Annuitant's
settlement age will be reduced by one year when the first instalment is payable
during the 1990's, reduced by two years when the first instalment is payable
during the decade 2000-2009, and so on.
FIRST OPTION: LIFE ANNUITY. An annuity payable monthly to the payee during the
lifetime of the Annuitant, ceasing with the last payment due prior to the death
of the Annuitant.
SECOND OPTION: LIFE ANNUITY WITH CERTAIN PERIOD. An annuity providing monthly
income to the payee for a fixed period of 60, 120, 180, or 240 months (as
selected), and for as long thereafter as the Annuitant shall live.
THIRD OPTION: CASH REFUND LIFE ANNUITY. An annuity payable monthly to the payee
during the lifetime of the Annuitant ceasing with the last payment due prior to
the death of the Annuitant provided that, at the death of the Annuitant, the
payee will receive an additional payment equal to the excess, if any, of (a)
over (b) where: (a) is the initial value of the proceeds applied under this
option; and (b) is the dollar amount of payments already paid.
FOURTH OPTION: ANNUITY CERTAIN. An amount payable monthly for the number of
years selected which may be from 5 to 30 years.
EXCESS INTEREST. At the sole discretion of the Company, excess interest may be
paid or credited from time to time in addition to the payments guaranteed under
any fixed benefit Optional Method of Settlement.
AR425 (Page 1)
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OPTIONAL METHODS OF SETTLEMENT (CONTINUED)
VARIABLE BENEFIT OPTIONS
VARIABLE INCOME PAYMENTS. The amount of the first Variable Income Payment shall
be determined in accordance with the terms of the settlement option and the
table(s) set forth in this rider, as applicable. The mortality table used is
the 1983 Individual Annuitant Mortality (IAM) Table "a" and 3%. In determining
the settlement amount, the Annuitant's settlement age will be reduced by one
year when the first instalment is payable during the 1990's, reduced by two
years when the first instalment is payable during the decade 2000-2009 and so
on.
All Variable Income Payments other than the first are determined by means of
Annuity Units credited to the contract with respect to the particular payee.
The number of Annuity Units to be credited in respect of a particular
Sub-Account is determined by dividing that portion of the first Variable Income
Payment attributable to that Sub-Account by the Annuity Unit Value of that
Sub-Account for the Valuation Period which ends immediately preceding the
Annuity Date. The number of Annuity Units of each Sub-Account credited with
respect to the particular payee then remains fixed unless an exchange of Annuity
Units is made pursuant to the "Exchange of Variable Annuity Units" section. The
dollar amount of each Variable Income Payment after the first may increase,
decrease or remain constant, and is equal to the sum of the amounts determined
by multiplying the number of Annuity Units of a particular Sub-Account for the
Valuation Period which ends immediately preceding the due date of each
subsequent payment by the Annuity Unit Value for the particular Sub-Account for
the first Valuation Period occurring on or immediately prior to the first day of
each month.
ANNUITY UNIT VALUE. The Annuity Unit Value for each Sub-Account was established
at $10.00 for the first Valuation Period of the particular Sub-Account. The
Annuity Unit Value for the particular Sub-Account for any subsequent Valuation
Period is determined by multiplying the Annuity Unit Value for the particular
Sub-Account for the immediately preceding Valuation Period by the Net Investment
Factor for the current Valuation Period and then multiplying that product by a
factor to neutralize the assumed interest rate of 3% per year to establish the
Annuity Payment Rates set forth in this rider. The factor is 0.99991902 for a
one day valuation period.
EXCHANGE OF VARIABLE ANNUITY UNITS. After the Annuity Date the payee may, by
filing a written request with the Company at its Annuity & Variable Life Service
Center's Mailing Address, exchange the value of a designated number of Annuity
Units of particular Variable Sub-Accounts then credited with respect to such
payee into other Annuity Units, the value of which would be such that the dollar
amount of an Income Payment made on the date of the exchange would be unaffected
by the exchange. Unless otherwise authorized by the Company in writing, no more
than 3 exchanges may be made in any Contract Year.
Exchanges may be made among the Variable Sub-Accounts only. Exchanges shall be
made using the Annuity Unit Values for the Valuation Period during which the
request for exchange is received by the Company at its Annuity & Variable Life
Service Center's Mailing Address.
ANNUITY ACCOUNT FEE. After the Annuity Date an Annuity Account Fee amounting to
$35 per year will be deducted in equal amounts from each variable Income Payment
made during the calendar year. For example, this would amount to a $2.92
deduction from each monthly Variable Income Payment. No deduction will be made
from Fixed Income Payments.
OPTION I: VARIABLE LIFE ANNUITY. A variable annuity payable monthly to the
payee during the lifetime of the Annuitant, ceasing with the last payment due
prior to the death of the Annuitant.
AR425 (Page 2)
<PAGE>
OPTIONAL METHODS OF SETTLEMENT (CONTINUED)
OPTION II: VARIABLE LIFE ANNUITY WITH CERTAIN PERIOD. A variable annuity which
provides monthly payments during the lifetime of the annuitant and further
provides that if, at the death of the annuitant, payments have been made for
less than the elected period certain, which may be 60, 120, 180 or 240 months,
the annuity payments will be continued during the remainder of such period.
OPTION III: VARIABLE ANNUITY CERTAIN. A variable amount payable monthly for
the number of years selected which may be from 5 to 30 years. At the expiration
of the period certain, no further payments of any kind are payable. If the
Annuitant dies before the specified number of certain payments have been
received, the remainder of the payments will be continued during the remainder
of such period.
ADDITIONAL FIXED AND VARIABLE OPTIONS. Any proceeds payable under the contract
may also be settled under any other method of settlement (including joint and
survivor settlement options under joint life annuities) offered by the Company
at the time of the request.
CIGNA LIFE INSURANCE COMPANY
/s/ Thomas C. Jones
PRESIDENT
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<PAGE>
OPTIONAL METHODS OF SETTLEMENT (CONTINUED)
LIFE ANNUITY AND LIFE ANNUITY WITH CERTAIN PERIOD TABLE FOR EACH $1,000 APPLIED
- - MALE
- -------------------------------------------------------
Settlement age of Number of instalments certain
Annuitant nearest
birthday 60 120 180 240
- -------------------------------------------------------
Age Life Annuity
10 $2.87 $2.87 $2.87 $2.87 $2.87
11 2.89 2.89 2.89 2.88 2.88
12 2.90 2.90 2.90 2.90 2.90
13 2.92 2.92 2.91 2.91 2.91
14 2.93 2.93 2.93 2.93 2.92
15 2.95 2.95 2.95 2.94 2.94
16 2.96 2.96 2.96 2.96 2.96
17 2.98 2.98 2.98 2.98 2.97
18 3.00 3.00 3.00 2.99 2.99
19 3.02 3.02 3.01 3.01 3.01
20 3.04 3.04 3.03 3.03 3.03
21 3.06 3.05 3.05 3.05 3.05
22 3.08 3.08 3.07 3.07 3.07
23 3.10 3.10 3.09 3.09 3.09
24 3.12 3.12 3.12 3.11 3.11
25 3.14 3.14 3.14 3.14 3.13
26 3.17 3.17 3.16 3.16 3.15
27 3.19 3.19 3.19 3.19 3.18
28 3.22 3.22 3.22 3.21 3.20
29 3.25 3.25 3.24 3.24 3.23
30 3.28 3.28 3.27 3.27 3.26
31 3.31 3.31 3.30 3.30 3.29
32 3.34 3.34 3.33 3.33 3.32
33 3.37 3.37 3.37 3.36 3.35
34 3.41 3.41 3.40 3.39 3.38
- -------------------------------------------------------
- -------------------------------------------------------
Settlement age of Number of instalments certain
Annuitant nearest
birthday 60 120 180 240
- -------------------------------------------------------
Age Life Annuity
35 $3.44 $3.44 $3.44 $3.43 $3.41
36 3.48 3.48 3.48 3.46 3.45
37 3.52 3.52 3.52 3.50 3.48
38 3.57 3.56 3.56 3.54 3.52
39 3.61 3.61 3.60 3.58 3.56
40 3.66 3.65 3.65 3.63 3.60
41 3.71 3.70 3.69 3.67 3.64
42 3.76 3.75 3.74 3.72 3.68
43 3.81 3.81 3.79 3.77 3.73
44 3.87 3.86 3.85 3.82 3.77
45 3.93 3.92 3.90 3.87 3.82
46 3.99 3.98 3.96 3.92 3.87
47 4.05 4.05 4.02 3.98 3.92
48 4.12 4.11 4.09 4.04 3.97
49 4.19 4.18 4.15 4.10 4.03
50 4.27 4.26 4.22 4.17 4.08
51 4.34 4.33 4.30 4.23 4.14
52 4.43 4.41 4.37 4.30 4.20
53 4.51 4.50 4.45 4.37 4.26
54 4.60 4.59 4.54 4.45 4.32
55 4.70 4.68 4.62 4.53 4.39
56 4.80 4.78 4.72 4.61 4.45
57 4.91 4.89 4.82 4.69 4.51
58 5.03 5.00 4.92 4.78 4.58
59 5.15 5.12 5.03 4.87 4.65
- -------------------------------------------------------
- -------------------------------------------------------
Settlement age of Number of instalments certain
Annuitant nearest
birthday 60 120 180 240
- -------------------------------------------------------
Age Life Annuity
60 $5.28 $5.25 $5.14 $4.96 $4.71
61 5.43 5.39 5.27 5.06 4.78
62 5.58 5.53 5.39 5.16 4.84
63 5.74 5.69 5.53 5.26 4.90
64 5.91 5.85 5.66 5.36 4.96
65 6.10 6.03 5.81 5.46 5.02
66 6.30 6.21 5.96 5.56 5.08
67 6.51 6.41 6.12 5.66 5.13
68 6.73 6.62 6.28 5.77 5.18
69 6.97 6.84 6.44 5.86 5.23
70 7.23 7.07 6.61 5.96 5.27
71 7.51 7.32 6.79 6.05 5.31
72 7.80 7.58 6.96 6.14 5.34
73 8.12 7.85 7.14 6.23 5.37
74 8.46 8.14 7.32 6.31 5.40
75 8.82 8.45 7.50 6.38 5.42
76 9.21 8.76 7.67 6.45 5.44
77 9.63 9.10 7.84 6.51 5.45
78 10.08 9.44 8.01 6.57 5.47
79 10.56 9.80 8.17 6.62 5.48
80 11.07 10.17 8.33 6.66 5.49
81 11.62 10.55 8.48 6.70 5.49
82 12.20 10.94 8.61 6.73 5.50
83 12.82 11.33 8.74 6.76 5.50
84 13.47 11.73 8.86 6.79 5.51
85 14.17 12.12 8.97 6.81 5.51
- -------------------------------------------------------
AR425 (Page 4)
<PAGE>
OPTIONAL METHODS OF SETTLEMENT (CONTINUED)
LIFE ANNUITY AND LIFE ANNUITY WITH CERTAIN PERIOD TABLE FOR EACH $1,000 APPLIED
- - FEMALE
- -------------------------------------------------------
Settlement age of Number of instalments certain
Annuitant nearest
birthday 60 120 180 240
- -------------------------------------------------------
Age Life Annuity
10 $2.80 $2.80 $2.80 $2.80 $2.80
11 2.81 2.81 2.81 2.81 2.81
12 2.82 2.82 2.82 2.82 2.82
13 2.83 2.83 2.83 2.83 2.83
14 2.85 2.85 2.85 2.84 2.84
15 2.86 2.86 2.86 2.86 2.86
16 2.87 2.87 2.87 2.87 2.87
17 2.89 2.89 2.89 2.88 2.88
18 2.90 2.90 2.90 2.90 2.90
19 2.92 2.92 2.92 2.91 2.91
20 2.93 2.93 2.93 2.93 2.93
21 2.95 2.95 2.95 2.95 2.94
22 2.96 2.96 2.96 2.96 2.96
23 2.98 2.98 2.98 2.98 2.98
24 3.00 3.00 3.00 3.00 2.99
25 3.02 3.02 3.02 3.02 3.01
26 3.04 3.04 3.04 3.03 3.03
27 3.06 3.06 3.06 3.06 3.05
28 3.08 3.08 3.08 3.08 3.07
29 3.10 3.10 3.10 3.10 3.09
30 3.13 3.13 3.12 3.12 3.12
31 3.15 3.15 3.15 3.14 3.14
32 3.18 3.18 3.17 3.17 3.16
33 3.20 3.20 3.20 3.20 3.19
34 3.23 3.23 3.23 3.22 3.22
- -------------------------------------------------------
- -------------------------------------------------------
Settlement age of Number of instalments certain
Annuitant nearest
birthday 60 120 180 240
- -------------------------------------------------------
Age Life Annuity
35 $3.26 $3.26 $3.26 $3.25 $3.24
36 3.29 3.29 3.29 3.28 3.27
37 3.32 3.32 3.32 3.31 3.30
38 3.35 3.35 3.35 3.34 3.33
39 3.39 3.39 3.38 3.38 3.37
40 3.42 3.42 3.42 3.41 3.40
41 3.46 3.46 3.46 3.45 3.43
42 3.50 3.50 3.50 3.49 3.47
43 3.54 3.54 3.54 3.53 3.51
44 3.59 3.59 3.58 3.57 3.55
45 3.64 3.63 3.63 3.61 3.59
46 3.68 3.68 3.67 3.66 3.63
47 3.73 3.73 3.72 3.71 3.68
48 3.79 3.79 3.77 3.76 3.72
49 3.84 3.84 3.83 3.81 3.77
50 3.90 3.90 3.89 3.86 3.82
51 3.97 3.96 3.95 3.92 3.88
52 4.03 4.03 4.01 3.98 3.93
53 4.10 4.10 4.08 4.04 3.99
54 4.18 4.17 4.15 4.11 4.04
55 4.25 4.25 4.22 4.18 4.11
56 4.34 4.33 4.30 4.25 4.17
57 4.42 4.41 4.38 4.32 4.23
58 4.52 4.51 4.47 4.40 4.30
59 4.61 4.60 4.56 4.48 4.37
- -------------------------------------------------------
- -------------------------------------------------------
Settlement age of Number of instalments certain
Annuitant nearest
birthday 60 120 180 240
- -------------------------------------------------------
Age Life Annuity
60 $4.72 $4.70 $4.66 $4.57 $4.44
61 4.83 4.81 4.76 4.66 4.51
62 4.95 4.93 4.87 4.75 4.58
63 5.08 5.05 4.98 4.85 4.65
64 5.21 5.18 5.10 4.95 4.72
65 5.36 5.32 5.22 5.05 4.79
66 5.51 5.47 5.36 5.16 4.86
67 5.67 5.63 5.50 5.26 4.93
68 5.85 5.80 5.65 5.37 5.00
69 6.04 5.98 5.80 5.49 5.06
70 6.25 6.18 5.97 5.60 5.12
71 6.47 6.39 6.14 5.71 5.18
72 6.71 6.62 6.32 5.83 5.23
73 6.98 6.86 6.50 5.94 5.28
74 7.26 7.12 6.69 6.04 5.32
75 7.57 7.40 6.89 6.14 5.35
76 7.90 7.69 7.09 6.24 5.39
77 8.26 8.01 7.29 6.33 5.41
78 8.65 8.34 7.49 6.41 5.43
79 9.08 8.70 7.69 6.49 5.45
80 9.54 9.07 7.89 6.55 5.47
81 10.03 9.47 8.08 6.61 5.48
82 10.58 9.88 8.26 6.66 5.49
83 11.16 10.31 8.43 6.70 5.49
84 11.80 10.75 8.59 6.74 5.50
85 12.48 11.20 8.74 6.77 5.50
- -------------------------------------------------------
ANNUITY CERTAIN TABLE FOR EACH $1,000 APPLIED
- -------------------------------------------------------
Numbers of years Amount of each instalment
during which
instalments will be
paid Annual Monthly
- -------------------------------------------------------
5 $ 211.99 $ 17.91
6 179.22 15.14
7 155.83 13.16
8 138.31 11.68
9 124.69 10.53
10 113.82 9.61
- -------------------------------------------------------
- -------------------------------------------------------
Number of years Amount of each instalment
during which
instalments will be
paid Annual Monthly
- -------------------------------------------------------
11 $ 104.93 $ 8.86
12 97.54 8.24
13 91.29 7.71
14 85.95 7.26
15 81.33 6.87
16 77.29 6.53
- -------------------------------------------------------
Number of years Amount of each instalment
during which
instalments will be
paid Annual Monthly
- -------------------------------------------------------
17 $ 73.74 $ 6.23
18 70.59 5.96
19 67.78 5.73
20 65.26 5.51
25 55.76 4.71
- -------------------------------------------------------
AR425 (Page 5)
<PAGE>
OPTIONAL METHODS OF SETTLEMENT
This rider is made part of the contract to which it is attached as of the Date
of Issue. Upon written request, the Company will agree to pay in accordance
with any one of the options shown below all or part of the net proceeds that may
be payable under the contract.
While the Owner is alive, the request, including the designation of the payee,
may be made by the Owner. At the time a Death Benefit becomes payable under the
contract, the request, including the designation of the payee, may then be made
by the Beneficiary. Once Income Payments have begun, no surrender of the
Annuity Value can be made (unless Variable Income Payments are made under Option
III) and the Annuitant(s) cannot be changed, nor can the settlement option be
changed.
PAYMENT DATES. The first Income Payment under the settlement option selected
will be made on the first day of the month following the Annuity Date.
Subsequent payments will be made on the first day of each month in accordance
with the manner of payment selected.
MINIMUM PAYMENT AMOUNT. The settlement option elected must result in an Income
Payment at least equal to the minimum payment amount in accordance with the
Company's rules then in effect. If at any time payments are less than the
minimum payment amount, the Company has the right to change the frequency to an
interval that will provide the minimum payment amount. If any amount due is
less than the minimum per year, the Company may make other arrangements that are
equitable.
FIXED BENEFIT OPTIONS
FIXED INCOME PAYMENTS. Fixed Income Payments will remain constant pursuant to
the terms of the fixed settlement option(s) selected. The amount of each Fixed
Income Payment shall be determined in accordance with the terms of the
settlement option and the table(s) set forth in this rider, as applicable. The
mortality table used is the 1983 Individual Annuitant Mortality (IAM) Table "a"
and 3% interest. In determining the settlement amount, the Annuitant's
settlement age will be reduced by one year when the first instalment is payable
during the 1990's, reduced by two years when the first instalment is payable
during the decade 2000-2009, and so on.
FIRST OPTION: LIFE ANNUITY. An annuity payable monthly to the payee during the
lifetime of the Annuitant, ceasing with the last payment due prior to the death
of the Annuitant.
SECOND OPTION: LIFE ANNUITY WITH CERTAIN PERIOD. An annuity providing monthly
income to the payee for a fixed period of 60, 120, 180, or 240 months (as
selected), and for as long thereafter as the Annuitant shall live.
THIRD OPTION: CASH REFUND LIFE ANNUITY. An annuity payable monthly to the payee
during the lifetime of the Annuitant ceasing with the last payment due prior to
the death of the Annuitant provided that, at the death of the Annuitant, the
payee will receive an additional payment equal to the excess, if any, of (a)
over (b) where: (a) is the initial value of the proceeds applied under this
option; and (b) is the dollar amount of payments already paid.
FOURTH OPTION: ANNUITY CERTAIN. An amount payable monthly for the number of
years selected which may be from 5 to 30 years.
EXCESS INTEREST. At the sole discretion of the Company, excess interest may be
paid or credited from time to time in addition to the payments guaranteed under
any fixed benefit Optional Method of Settlement.
AR426 (Page 1)
<PAGE>
OPTIONAL METHODS OF SETTLEMENT (CONTINUED)
VARIABLE BENEFIT OPTIONS
VARIABLE INCOME PAYMENTS. The amount of the first Variable Income Payment shall
be determined in accordance with the terms of the settlement option and the
table(s) set forth in this rider, as applicable. The mortality table used is
the 1983 Individual Annuitant Mortality (IAM) Table "a" and 3%. In determining
the settlement amount, the Annuitant's settlement age will be reduced by one
year when the first instalment is payable during the 1990's, reduced by two
years when the first instalment is payable during the decade 2000-2009 and so
on.
All Variable Income Payments other than the first are determined by means of
Annuity Units credited to the contract with respect to the particular payee.
The number of Annuity Units to be credited in respect of a particular Sub-
Account is determined by dividing that portion of the first Variable Income
Payment attributable to that Sub-Account by the Annuity Unit Value of that Sub-
Account for the Valuation Period which ends immediately preceding the Annuity
Date. The number of Annuity Units of each Sub-Account credited with respect to
the particular payee then remains fixed unless an exchange of Annuity Units is
made pursuant to the "Exchange of Variable Annuity Units" section. The dollar
amount of each Variable Income Payment after the first may increase, decrease or
remain constant, and is equal to the sum of the amounts determined by
multiplying the number of Annuity Units of a particular Sub-Account for the
Valuation Period which ends immediately preceding the due date of each
subsequent payment by the Annuity Unit Value for the particular Sub-Account for
the first Valuation Period occurring on or immediately prior to the first day of
each month.
ANNUITY UNIT VALUE. The Annuity Unit Value for each Sub-Account was established
at $10.00 for the first Valuation Period of the particular Sub-Account. The
Annuity Unit Value for the particular Sub-Account for any subsequent Valuation
Period is determined by multiplying the Annuity Unit Value for the particular
Sub-Account for the immediately preceding Valuation Period by the Net Investment
Factor for the current Valuation Period and then multiplying that product by a
factor to neutralize the assumed interest rate of 3% per year to establish the
Annuity Payment Rates set forth in this rider. The factor is 0.99991902 for a
one day valuation period.
EXCHANGE OF VARIABLE ANNUITY UNITS. After the Annuity Date the payee may, by
filing a written request with the Company at its Annuity & Variable Life Service
Center's Mailing Address, exchange the value of a designated number of Annuity
Units of particular Variable Sub-Accounts then credited with respect to such
payee into other Annuity Units, the value of which would be such that the dollar
amount of an Income Payment made on the date of the exchange would be unaffected
by the exchange. Unless otherwise authorized by the Company in writing, no more
than 3 exchanges may be made in any Contract Year.
Exchanges may be made among the Variable Sub-Accounts only. Exchanges shall be
made using the Annuity Unit Values for the Valuation Period during which the
request for exchange is received by the Company at its Annuity & Variable Life
Service Center's Mailing Address.
ANNUITY ACCOUNT FEE. After the Annuity Date an Annuity Account Fee amounting to
$35 per year will be deducted in equal amounts from each variable Income Payment
made during the calendar year. For example, this would amount to a $2.92
deduction from each monthly Variable Income Payment. No deduction will be made
from Fixed Income Payments.
OPTION I: VARIABLE LIFE ANNUITY. A variable annuity payable monthly to the
payee during the lifetime of the Annuitant, ceasing with the last payment due
prior to the death of the Annuitant.
AR426 (Page 2)
<PAGE>
OPTIONAL METHODS OF SETTLEMENT (CONTINUED)
OPTION II: VARIABLE LIFE ANNUITY WITH CERTAIN PERIOD. A variable annuity which
provides monthly payments during the lifetime of the annuitant and further
provides that if, at the death of the annuitant, payments have been made for
less than the elected period certain, which may be 60, 120, 180 or 240 months,
the annuity payments will be continued during the remainder of such period.
OPTION III: VARIABLE ANNUITY CERTAIN. A variable amount payable monthly for
the number of years selected which may be from 5 to 30 years. At the expiration
of the period certain, no further payments of any kind are payable. If the
Annuitant dies before the specified number of certain payments have been
received, the remainder of the payments will be continued during the remainder
of such period.
ADDITIONAL FIXED AND VARIABLE BENEFIT OPTIONS. Any proceeds payable under the
contract may also be settled under any other method of settlement (including
joint and survivor settlement options under joint life annuities) offered by the
Company at the time of the request.
CIGNA LIFE INSURANCE COMPANY
/s/ Thomas C. Jones
PRESIDENT
AR426 (Page 3)
<PAGE>
OPTIONAL METHODS OF SETTLEMENT (CONTINUED)
LIFE ANNUITY AND LIFE ANNUITY WITH CERTAIN PERIOD TABLE FOR EACH $1,000
APPLIED - UNISEX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Settlement age of Number of instalments certain Settlement age of Number of instalments certain
Annuitant nearest Annuitant nearest
birthday 60 120 180 240 birthday 60 120 180 240
- --------------------------------------------------------------------------------------------------------------
Age Life Annuity Age Life Annuity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 2.84 2.84 2.84 2.84 2.83 35 3.35 3.35 3.35 3.34 3.33
11 2.85 2.85 2.85 2.85 2.85 36 3.39 3.39 3.38 3.38 3.36
12 2.86 2.86 2.86 2.86 2.86 37 3.42 3.42 3.42 3.41 3.40
13 2.88 2.88 2.88 2.87 2.87 38 3.46 3.46 3.46 3.45 3.43
14 2.89 2.89 2.89 2.89 2.89 39 3.50 3.50 3.49 3.48 3.47
15 2.91 2.90 2.90 2.90 2.90 40 3.54 3.54 3.54 3.52 3.50
16 2.92 2.92 2.92 2.92 2.91 41 3.59 3.59 3.58 3.56 3.54
17 2.94 2.94 2.93 2.93 2.93 42 3.63 3.63 3.62 3.61 3.58
18 2.95 2.95 2.95 2.95 2.95 43 3.68 3.68 3.67 3.65 3.62
19 2.97 2.97 2.97 2.96 2.96 44 3.73 3.73 3.72 3.70 3.67
20 2.99 2.99 2.98 2.98 2.98 45 3.78 3.78 3.77 3.74 3.71
21 3.00 3.00 3.00 3.00 3.00 46 3.84 3.84 3.82 3.79 3.76
22 3.02 3.02 3.02 3.02 3.01 47 3.90 3.89 3.88 3.85 3.80
23 3.04 3.04 3.04 3.04 3.03 48 3.96 3.95 3.93 3.90 3.85
24 3.06 3.06 3.06 3.06 3.05 49 4.02 4.02 3.99 3.96 3.91
25 3.08 3.08 3.08 3.08 3.07 50 4.09 4.08 4.06 4.02 3.96
26 3.11 3.11 3.10 3.10 3.10 51 4.16 4.15 4.13 4.08 4.01
27 3.13 3.13 3.13 3.12 3.12 52 4.23 4.22 4.20 4.15 4.07
28 3.15 3.15 3.15 3.15 3.14 53 4.31 4.30 4.27 4.21 4.13
29 3.18 3.18 3.17 3.17 3.16 54 4.39 4.38 4.35 4.28 4.19
30 3.20 3.20 3.20 3.20 3.19 55 4.48 4.47 4.43 4.36 4.25
31 3.23 3.23 3.23 3.22 3.22 56 4.57 4.56 4.51 4.43 4.32
32 3.26 3.26 3.26 3.25 3.24 57 4.67 4.65 4.60 4.51 4.38
33 3.29 3.29 3.29 3.28 3.27 58 4.78 4.76 4.70 4.60 4.45
34 3.32 3.32 3.32 3.31 3.30 59 4.89 4.87 4.80 4.68 4.51
<CAPTION>
- -------------------------------------------------------------------
Settlement age of Number of instalments certain
Annuitant nearest
birthday 60 120 180 240
- ------------------------------------------------------- ----------
Age Life Annuity
<C> <C> <C> <C> <C> <C>
60 5.00 4.98 4.91 4.77 4.58
61 5.13 5.10 5.02 4.87 4.65
62 5.27 5.23 5.13 4.96 4.72
63 5.41 5.37 5.26 5.06 4.79
64 5.56 5.52 5.39 5.16 4.85
65 5.73 5.68 5.52 5.27 4.92
66 5.90 5.84 5.67 5.37 4.98
67 6.09 6.02 5.82 5.48 5.04
68 6.29 6.21 5.97 5.58 5.10
69 6.51 6.41 6.13 5.69 5.15
70 6.74 6.63 6.30 5.79 5.20
71 6.99 6.86 6.47 5.90 5.25
72 7.25 7.10 6.65 6.00 5.29
73 7.54 7.36 6.83 6.09 5.33
74 7.85 7.63 7.02 6.19 5.36
75 8.19 7.92 7.21 6.27 5.39
76 8.55 8.23 7.39 6.36 5.42
77 8.93 8.56 7.58 6.43 5.44
78 9.35 8.90 7.77 6.50 5.45
79 9.80 9.26 7.95 6.56 5.47
80 10.29 9.63 8.12 6.61 5.48
81 10.81 10.02 8.29 6.66 5.49
82 11.37 10.42 8.45 6.70 5.49
83 11.98 10.83 8.60 6.74 5.50
84 12.62 11.25 8.74 6.76 5.50
85 13.31 11.67 8.86 6.79 5.51
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUITY CERTAIN TABLE FOR EACH $1,000 APPLIED
- ----------------------------------------------------------------------------------------------------------
Numbers of years Amount of each instalments Number of years Amount of each instalment
during which during which
instalments will be instalments will be
paid Annual Monthly paid Annual Monthly
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5 211.99 17.91 11 104.93 8.86
6 179.22 15.14 12 97.54 8.24
7 155.83 13.16 13 91.29 7.71
8 138.31 11.68 14 85.95 7.26
9 124.69 10.53 15 81.33 6.87
10 113.82 9.61 16 77.29 6.53
- ----------------------------------------------------
Number of years Amount of each instalment
during which
instalments will be
paid Annual Monthly
- ----------------------------------------------------
<C> <C> <C>
17 $ 73.74 $ 6.23
18 70.59 5.96
19 67.78 5.73
20 65.26 5.51
25 55.76 4.71
30 49.53 4.18
- ----------------------------------------------------
</TABLE>
AR426 (Page 4)
<PAGE>
NURSING CARE WAIVER OF SURRENDER/WITHDRAWAL CHARGES RIDER
This rider is made part of the contract to which it is attached. It remains in
effect until the date the Original Owner is no longer the Owner of the contract
(see "Termination" provision).
BENEFIT. The provision of the contract pertaining to Penalty-Free Partial
Surrenders/Withdrawals is hereby amended to provide for the following additional
benefit:
Subsequent to the first Contract Anniversary and prior to the Annuity Date, the
Original Owner may, upon request in writing, surrender/withdraw up to 75% of the
Annuity Account Value at the time of request without the imposition of any
surrender/withdrawal charges provided the Original Owner at the time of the
request is confined in a Hospital or Licensed Nursing Facility, as set forth
below. However, any surrenders/withdrawals will be subject to a Market Value
Adjustment.
This benefit may be taken annually provided the following conditions are met.
CONDITIONS AND LIMITATIONS. The payment of the benefit under this rider is
subject to the following conditions and limitations:
1. The Company must be furnished with evidence, satisfactory to the Company,
that the Original Owner is confined in a Hospital or Licensed Nursing
Facility and has been so confined continuously for all of the 180 days
immediately preceding the request. Proof of confinement may be a Licensed
Physician's statement, hospital statement or nursing home statement.
2. The 180-day confinement period in a Hospital or Licensed Nursing Facility
must have commenced after the first Contract Anniversary and be for a
minimum of 180 consecutive days.
3. The Original Owner must not be confined in a Hospital or Licensed Nursing
Facility on the Date of Issue of the contract.
4. Payment(s) made under this rider are payable to the Original Owner and may
either be taken as a lump sum or, upon consent of the Company, spread
throughout a Contract Year.
5. The Company places no restriction on the use of the benefit payment(s)
payable under this rider.
6. The Company makes no statement or representation concerning the tax
treatment of any payments made under this rider.
7. The request for surrender/withdrawal must be made within 91 days of the
last day of confinement.
DEFINITIONS. The "Definitions" section of the contract is hereby amended to
include the following:
CUSTODIAL CARE. Custodial Care is daily care that is required to assist a
person with living requirements of eating, bathing and dressing. The
person(s) providing the care need not have medical training, but must be
under the supervision of registered nurse (R.N.) or licensed practical
nurse (L.P.N.).
HOSPITAL. A Hospital means an institution which:
a. is operated pursuant to the law of the jurisdiction in which it is
located;
b. operates primarily for the care and treatment of sick and injured
persons on an inpatient basis;
AR314 (CL) Page 1
<PAGE>
NURSING CARE WAIVER OF SURRENDER/WITHDRAWAL CHARGES RIDER (CONTINUED)
c. provides 24-hour a day nursing service by or under the supervision of
registered graduate professional nurses;
d. is supervised by a staff of one or more Licensed Physicians; and
e. has medical, surgical and diagnostic facilities or access to such
facilities.
INTERMEDIATE NURSING CARE. Intermediate Nursing Care is nursing care
prescribed by a physician and supervised by a registered graduate nurse.
Such care includes nursing and rehabilitation services available 24-hours a
day.
LICENSED NURSING FACILITY. A Licensed Nursing Facility means a facility
which:
a. is licensed by the jurisdiction in which it is located;
b. provides Skilled Nursing Care, Intermediate Nursing Care or Custodial
Care;
c. primarily provides nursing care under the direction of a Licensed
Physician, registered graduate professional nurse or licensed
practical nurse except when receiving custodial nursing care; and
d. is not other than incidently a hospital, a home for the aged, a
retirement home, a rest home, or a community living center.
LICENSED PHYSICIAN. A person who is state licensed to give medical care or
treatment and is acting within the scope of that license.
ORIGINAL OWNER. The Owner on the Date of Issue of the contract.
SKILLED NURSING CARE. Skilled Nursing Care is nursing care prescribed by a
Licensed Physician and performed by a registered graduate nurse. Such care
includes nursing and rehabilitation services available 24-hours a day.
TERMINATION. This rider terminates as of the date the Original Owner exercises
a change in ownership of the contract. On such date the rider terminates
irrespective of whether or not the Original Owner once again becomes the Owner
of the contract.
CONTRACT PROVISIONS. Except as provided above, this rider is subject to all the
terms of the contract.
EFFECTIVE DATE. This rider becomes effective as of its date of issue which is
the Date of Issue of the contract unless a later date is shown here or in the
Contract Specifications.
CIGNA LIFE INSURANCE COMPANY
/s/ Thomas C. Jones
PRESIDENT
AR314 (CL) Page 2
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
HARTFORD, CONNECTICUT
CONTRACT AMENDMENT
The definition of "Annuitant" in the contract is hereby amended as follows:
ANNUITANT(S). The person or persons on whose life the first Income Payment
is to be made. The Annuitant(s) on the Date of Issue is/are the person or
persons designated in the Contract Specifications and will remain the
Annuitant(s) under the contract unless the Owner exercises the right to
change the Annuitant(s) as set forth in the "Rights of Owner" provision. If
prior to the Annuity Date, the Annuitant predeceases the Owner, the Owner
will then become the Annuitant until such time as the Owner exercises the
right to designate a new Annuitant as set forth in the "Rights of Owner"
provision. (If joint Annuitants are named and, if one of the Annuitants
predeceases the Owner prior to the Annuity Date, the contract will
thereupon become an annuity contract on the surviving Annuitant until such
time that the Owner exercises the right to designate another joint
Annuitant as set forth in the "Rights of Owner" provision.) A request for
change of Annuitant(s) must be in writing to the Company at its Annuity &
Variable Life Service Center's Mailing Address and will not take effect
until recorded by the Company.
The "Owner" provision of the contract is hereby amended as follows:
OWNER. The Owner on the Date of Issue will be the person designated in the
Contract Specifications. If no Owner is designated, the Annuitant(s) will
be the Owner.
The first paragraph of the "Rights of Owner" provision of the contract is hereby
amended as follows:
RIGHTS OF OWNER. The Owner may exercise all rights and privileges under
the contract including the right to: (a) agree with the Company to any
change in or amendment to the contract, (b) transfer all rights and
privileges to another person, (c) change the Beneficiary, (d) change the
Annuitant(s) any time prior to the Annuity Date or name a new Annuitant if
the Annuitant, or one of the Annuitants named under a joint life annuity,
predeceases the Owner, (e) name the payee to whom Income Payments are to be
directed, and (f) assign the contract.
The "Additional Fixed and Variable Options" provision of the Optional Methods of
Settlement Rider attached to the contract is hereby amended as follows:
Any proceeds payable under the contract may also be settled under any other
method of settlement (including joint and survivor settlement options under
joint life annuities) offered by the Company at the time of the request.
This rider is to be attached to and forms a part of the contract as of its date
of issue and is to take effect on such date. Except as specifically altered by
this rider, all of the provisions and conditions of the contract remain in full
force and effect.
/s/ Thomas C. Jones
PRESIDENT
B10322
<PAGE>
VARIABLE ANNUITY APPLICATION CIGNA LIFE INSURANCE COMPANY
a CIGNA company
MAILING ADDRESS:
CIGNA INDIVIDUAL INSURANCE
VARIABLE PRODUCTS SERVICE CENTER,
ROUTING S249
HARTFORD, CONNECTICUT 06152-2249
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
1 Owner or Joint Owner Name/Full Name of Trust or Trustee(s)
OWNER/TRUST ----------------------------------------------------------
INFORMATION
---------------------------------------------------------------------------------------------------------
First Middle Last
---------------------------------------------------------------------------------------------------------
First Middle Last
---------------------------------------------------------------------------------------------------------
Full Name of Trust/Trustee(s) Date of Trust
Address
------------------------------------------------------------------------------------------------
Number Street City State Zip Code
Date of Birth / / SS# Sex M Telephone ( ) (HOME)
------------ ---------------------------- --- ----------------
Mo. Day Yr. (or Tax Iden. #) F ( ) (WORK)
--- ----------------
- -----------------------------------------------------------------------------------------------------------------------------------
2
a. ANNUITANT a. Annuitant
--------------------------------------------------------------------------------------------
First Middle Last
Address
-------------------------------------------------------------------------------------------------
Number Street City State Zip Code
Date of Birth / / SS# Sex M Telephone ( ) (HOME)
------------ ---------------------------- --- ----------------
Mo. Day Yr. (or Tax Iden. #) F ( ) (WORK)
--- ----------------
b. JOINT b. Joint Annuitant
ANNUITANT --------------------------------------------------------------------------------------
(If applicable) First Middle Last
(Annuitant/Joint
Annuitant may not Address
be a corporation -------------------------------------------------------------------------------------------------
or trust) Number Street City State Zip Code
Date of Birth / / SS# Sex M Telephone ( ) (HOME)
------------ ---------------------------- --- ----------------
Mo. Day Yr. (or Tax Iden. #) F ( ) (WORK)
--- ----------------
- -----------------------------------------------------------------------------------------------------------------------------------
3 Primary Beneficiary(s) and relationship to Owner Contingent Beneficiary(s) and relationship to Owner
OWNER'S
BENEFICIARY ----------------------------------------------- -------------------------------------------------
DESIGNATION
----------------------------------------------- -------------------------------------------------
----------------------------------------------- -------------------------------------------------
----------------------------------------------- -------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
4
PREMIUM I. Premium Payment $ (MAKE CHECK PAYABLE TO "CGLIC")
PAYMENT(S) ----------------
II. Plan Type (CHECK ONE) / / QUALIFIED (IF QUALIFIED, PLEASE COMPLETE ADDENDUM TO
APPLICATION - FORM B10243)
/ / NON-QUALIFIED
III. Does any portion of the payment represent after-tax dollars?
/ / YES / / NO IF YES, SPECIFY THE AMOUNT $
-----------------------
- -----------------------------------------------------------------------------------------------------------------------------------
5 FIXED ACCOUNT GUARANTEED PERIODS - (SUB-ACCOUNTS)
PREMIUM
PAYMENT _____% 1 Year _____% 5 Years _____% 10 Years
ALLOCATION _____% Years (IF AVAILABLE FROM THE COMPANY)
(Allocation to any VARIABLE ACCOUNT - SUB-ACCOUNTS (FUNDS)
one % line must be 1%
or more. Use Whole ALGER AMERICAN FUND MFS VARIABLE INSURANCE TRUST
percentages only. ___% Alger American Growth Portfolio ___% MFS Total Return Series
Must total 100%.) ___% Alger American Leveraged AllCap Portfolio ___% MFS Utilities Series
___% Alger American Midcap Growth Portfolio ___% MFS Emerging Growth Series
If DOLLAR COST ___% Alger American Small Capitalization Portfolio ___% MFS Research Series
AVERAGING is ___% MFS Growth With Income Series
employed, an CIGNA VARIABLE PRODUCTS GROUP
allocation must be ___% CIGNA Money Market Fund NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
made to the ("AMT")
Fixed Account FIDELITY VARIABLE INSURANCE PRODUCTS ___% AMT Partners Portfolio
OR THE ___% Fidelity VIP High Income Portfolio ___% AMT Limited Maturity Bond Portfolio
CIGNA ___% Fidelity VIP Equity-Income Portfolio
Variable Products ___% Fidelity VIP Overseas Portfolio OCC ACCUMULATION TRUST
Money Market Fund ___% Fidelity VIPII Investment Grade Bonds Portfolio ___% OCC Global Equity Portfolio
(and the % allocation ___% Fidelity VIPII Contra Fund Portfolio ___% OCC Managed Portfolio
must result in at ___% Fidelity VIPIII Growth Opportunities Portfolio ___% OCC Small Cap Portfolio
least $2,000 for the
Fixed Account and OTHER (IF AVAILABLE FROM THE COMPANY)
$1,000 for the Money ___% _________________________________
Market Fund. ___% _________________________________
Please complete
Section 8.) _____% TOTAL of percentages allocated to Fixed Account and/or Variable Account (MUST EQUAL 100%).
- -----------------------------------------------------------------------------------------------------------------------------------
6 I(We) acknowledge that neither the Company nor any person authorized by the Company will be responsible
TELEPHONE TRANSFER for any claim, loss, liability or expense in connection with a telephone transfer if the Company or such
AUTHORIZATION other person acted on telephone transfer instructions in good faith in reliance on this authorization.
Check here if you DO NOT wish to authorize telephone transfer instructions. / /
Check here if you wish to authorize owner only telephone transfers. / /
Check here if you wish to authorize owner and registered representative/agent to make telephone
transfers. / /
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(Page 1)
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
7 The Annuity Date (INCOME PAYMENTS BEGIN ON THE FIRST DAY OF THE MONTH FOLLOWING THE ANNUITY DATE) must be
ANNUITY DATE at least one month after the Date of Issue. If no date is selected, the initial Annuity Date will be no
later than the Annuitant's (older Annuitant's, if Joint Annuitant) 90th birthday (FOR QUALIFIED PLANS,
AGE 701/2).
Initial Annuity Date
----------------------------------------
MONTH YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
8 SELECT ONE TRANSFER OPTION ($100 MINIMUM PER TRANSFER):
DOLLAR COST
AVERAGING / / $_____________ monthly / / $_____________ quarterly
(For Variable Each amount transferred is to be applied to the following Fund(s) in these percentages (USE WHOLE
Account only) PERCENTAGES ONLY. TOTAL MUST EQUAL 100%.):
(FOLLOW INSTRUCTIONS ALGER AMERICAN FUND MFS VARIABLE INSURANCE TRUST
IN SECTION 5 BEFORE ___% Alger American Growth Portfolio ___% MFS Total Return Series
COMPLETING THIS ___% Alger American Leveraged AllCap Portfolio ___% MFS Utilities Series
SECTION.) ___% Alger American Midcap Growth Portfolio ___% MFS Emerging Growth Series
___% Alger American Small Capitalization Portfolio ___% MFS Research Series
___% MFS Growth With Income Series
CIGNA VARIABLE PRODUCTS GROUP
___% CIGNA Money Market Fund NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
("AMT")
FIDELITY VARIABLE INSURANCE PRODUCTS ___% AMT Partners Portfolio
___% Fidelity VIP High Income Portfolio ___% AMT Limited Maturity Bond Portfolio
___% Fidelity VIP Equity-Income Portfolio
___% Fidelity VIP Overseas Portfolio OCC ACCUMULATION TRUST
___% Fidelity VIPII Investment Grade Bonds Portfolio ___% OCC Global Equity Portfolio
___% Fidelity VIPII Contra Fund Portfolio ___% OCC Managed Portfolio
___% Fidelity VIPIII Growth Opportunities Portfolio ___% OCC Small Cap Portfolio
OTHER (IF AVAILABLE FROM THE COMPANY)
___% _________________________________
___% _________________________________
_____% TOTAL of percentages allocated to Fixed Account and/or Variable Account (MUST EQUAL 100%).
- -----------------------------------------------------------------------------------------------------------------------------------
9 Will the contract replace one or more existing annuity or life insurance contracts?
REPLACEMENT YES NO
IF YES, PLEASE PROVIDE COMPANY NAME, POLICY NUMBER AND AMOUNT IN SPECIAL REMARKS SECTION AND FOR NON-
QUALIFIED PLANS, COMPLETE THE FOLLOWING:
INDICATE COST BASIS: COST BASIS GAIN
PRE-TEFRA (PRIOR TO 8/13/82) _______________ _____________
POST-TEFRA (ON OR AFTER 8/13/82) _______________ _____________
- -----------------------------------------------------------------------------------------------------------------------------------
10
SPECIAL REMARKS
- -----------------------------------------------------------------------------------------------------------------------------------
11
HOME OFFICE CHANGES OR
CORRECTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
12 I(We) hereby certify that the answers to the above questions are true and correct to the best of my(our)
SIGNATURE(S) knowledge and belief and agree that this application will be made a part of any contract issued by the
Company. ALL PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE ADJUSTMENT
FORMULA THAT MAY INCREASE OR DECREASE THE VALUE OF ANY PARTIAL OR FULL SURRENDER MADE PRIOR TO THE END OF
A GUARANTEED PERIOD. ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT. I(We)
acknowledge receipt of a current prospectus. Please check here if you wish to receive a copy of the
Statement of Additional Information which supplements the information in the prospectus. Under penalties
of perjury, I (the Owner) certify that the above Social Security and Taxpayer Identification numbers are
correct and that I am of legal age to enter into this agreement.
Signed at (City and State) ___________________________________________ On _____/_____/_____
MO DAY YEAR
_________________________________________________________________
SIGNATURE(S) OF OWNER(S)
- -----------------------------------------------------------------------------------------------------------------------------------
13 The Registered Representative hereby certifies that the contract IS IS NOT intended to replace or
CERTIFICATION/ change any existing annuity or life insurance.
REPORT BY REGISTERED
REPRESENTATIVE/ Print Name Signature
WITNESS --------------------------------- -----------------------------------------------
SS# Telephone
--------------------------------- -----------------------------------------------
Rep. Code/Percentage / % Field Office Code
------------------------ ----------------------------------------
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Print Name Signature
--------------------------------- -----------------------------------------------
SS# Telephone
--------------------------------- -----------------------------------------------
Rep. Code/Percentage / % Field Office Code
------------------------ ----------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
14 Print Name Telephone
BROKER/ --------------------------------- ---------------------------------------------
DEALER Address Broker Code
INFORMATION --------------------------------- ---------------------------------------------
Field Office Code
--------------------------------- ----------------------------------------
Registered Representative Election (IF NO CHOICE IS ELECTED, THE COMPANY WILL DEFAULT TO AN OPTION PICKED
BY A BROKER/DEALER.)
A, B, C Other ______________
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(Page 2)
</TABLE>
<PAGE>
Exhibit (b)(10)(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statements of Additional Information
constituting part of this Post-Effective Amendment No. 3 under the Securities
Act of 1933 and Amendment No.6 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 reports dated February 11, 1997 and February 20, 1997, relating to
the financial statements of CIGNA Life Insurance Company and of the CIGNA
Variable Annuity Separate Account I of CIGNA Life Insurance Company,
respectively, which appear in such Statements of Additional Information. We also
consent to the reference to us under the heading "Experts" in such Statements of
Additional Information.
PRICE WATERHOUSE LLP
Hartford, Connecticut
April 22, 1997
<PAGE>
[Letterhead]
April 17, 1997
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, DC 20549
Re: CIGNA Life Insurance Company
CIGNA Variable Annuity Separate Account I
File No. 33-90984
Post-Effective Amendment No. 3
Dear Sirs:
As Chief Counsel of the Individual Insurance Division of the CIGNA
Companies, I am familiar with the actions of the Board of Directors
of Connecticut General Life Insurance Company (the "Company"),
establishing CIGNA Variable Annuity Separate Account I (the "Account")
and its method of operation and authorizing the filing of a registration
statement under the Securities Act of 1933 for the securities to be
issued by the Account and the Investment Company Act of 1940 for the
Account itself.
In the course of preparing this opinion, I have reviewed the Certificate
of Incorporation and the By-Laws of the Company, the Board actions with
respect to the Account, and such other matters as I deemed necessary or
appropriate. Based on such review, I am of the opinion that the variable
annuity contracts (and interests therein) which are the subject of the
registration statement under the Securities Act of 1933 filed for the
Account will, when issued, be legally issued and will represent binding
obligations of the Company, the depositor for the Account.
I further consent to the use of this opinion as an Exhibit to said
Registration Statment and to the reference to me under the heading
"Experts" in said Registration Statement.
Very truly yours,
/s/ Robert A. Picarello
Robert A. Picarello
Chief Counsel
<PAGE>
[Letterhead]
April 17, 1997
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Commissioners:
I hereby consent to the reference to my name under the caption "Legal
Matters" in the Statement of Additional Information contained in Post-
Effecitve Amendment No. 3 to the Registration Statement on Form N-4
(File No. 33-90984) to be filed by CIGNA Life Insurance Company and
CIGNA Variable Annuity Separate Account I with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended.
Very truly yours,
/s/ Edwin L. Kerr
Edwin L. Kerr
