<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
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. 4 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 7 /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:
Mark A. Parsons, Esquire George N. Gingold, Esquire
CIGNA Life Insurance Company 197 King Philip Drive
900 Cottage Grove Road West Hartford, CT 06117-1409
Hartford, Connecticut 06152
(NAME AND ADDRESS OF
AGENT FOR SERVICE)
</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, 1997, was filed February 27, 1998.
It is proposed that this filing will become effective:
_________ immediately upon filing pursuant to paragraph (b) of Rule 485
____X___ on May 1, 1998, 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
<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 ANNUITY & VARIABLE LIFE CIGNA LIFE INSURANCE COMPANY CIGNA LIFE INSURANCE COMPANY
BLOOMFIELD, CT SERVICES CENTER: ROUTING P.O. BOX 30790 C/O FLEET BANK
S-249 HARTFORD, CT 06150 20 CHURCH STREET
HARTFORD, CT 06152 - 2249 20TH FLOOR, MSN275
TELEPHONE: (800) 552-9898 HARTFORD, CT 06120
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: The Alger American Fund -- Alger American Small
Capitalization Portfolio, Alger American Leveraged AllCap Portfolio, Alger
American MidCap Growth Portfolio and Alger American Growth Portfolio; Fidelity
Variable Insurance Products Fund -- Equity-Income Portfolio, Money Market
Portfolio, High Income Portfolio and Overseas Portfolio; Fidelity Variable
Insurance Products Fund II -- Investment Grade Bond Portfolio and Asset Manager
Portfolio; MFS-Registered Trademark- Variable Insurance Trust -- MFS Total
Return Series, MFS Utilities Series and MFS World Governments Series; Neuberger
& Berman Advisers Management Trust -- Balanced Portfolio, Limited Maturity Bond
Portfolio and Partners Portfolio; OCC Accumulation Trust -- Global Equity
Portfolio, Managed Portfolio and Small Cap Portfolio. The fixed interest option
offered under a Contract is the Fixed Account. Premium payments or transfers
allocated to the Fixed Account, and 3% interest per year thereon, are
guaranteed, and additional interest may be credited, with certain withdrawals
subject to a market value adjustment and withdrawal charges. Unless specifically
mentioned, this prospectus only describes the variable investment options.
This entire prospectus, and those of the Funds, should be read carefully
before investing to understand the Contracts being offered. The "Statement of
Additional Information" dated May 1, 1998, 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, 1998
<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.................................. 20
Premium Tax Equivalents...................... 21
Income Taxes................................. 21
Fund Expenses................................ 21
Transfer Fee................................. 21
Optional Death Benefit....................... 21
OTHER CONTRACT FEATURES........................ 23
Ownership.................................... 23
Assignment................................... 24
Beneficiary.................................. 24
Change of Beneficiary........................ 24
Annuitant.................................... 24
Transfer of Contract Values between
Sub-Accounts................................ 24
Procedures for Telephone Transfers........... 25
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................................ 27
Change in Operation of Variable Account...... 28
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......................... 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........................... 34
Performance Ranking or Rating................ 35
TAX MATTERS.................................... 35
General...................................... 36
Diversification.............................. 36
Distribution Requirements.................... 37
Multiple Contracts........................... 37
Tax Treatment of Assignments................. 38
Withholding.................................. 38
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.................. 40
Tax Treatment of Withdrawals -- Qualified
Contracts................................... 40
FINANCIAL STATEMENTS........................... 40
YEAR 2000 ISSUES............................... 40
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: 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 The 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
----------- -------
<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>
THE 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% 0.15% 0.04% 0.04%
Total Fund Portfolio
Annual Expenses.... 0.79% 1.00%(1) 0.84% 0.89%
<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..... 0.55% 0.50% 0.44% 0.21% 0.59% 0.75%
Other Expenses...... 0.10% 0.08% 0.14% 0.10% 0.12% 0.17%
Total Fund Portfolio
Annual Expenses.... 0.65%(2) 0.58%(2) 0.58% 0.31% 0.71% 0.92%(2)
</TABLE>
- ------------------------
(1) Included in Other Expenses of the Alger American Leveraged AllCap Portfolio
is .04% of interest expense.
(2) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, Total Fund Portfolio Annual Expenses would have been 0.64%
for the VIP II Asset Manager Portfolio, 0.57% for the VIP Equity-Income
Portfolio and 0.90% 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) 0.80%(6) 0.79%(7) 0.80%(7) 0.80%(7)
0.25%(4) 0.25%(4) 0.25%(4) 0.19% 0.12% 0.06% 0.40%(8) 0.07%(8) 0.17%(8)
1.00%(3) 1.00%(3) 1.00%(3) 1.04% 0.77% 0.86% 1.19%(9) 0.87%(9) 0.97%(9)
</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 0.27%, 0.45%
and 0.40% respectively, and "Total Fund Portfolio Expenses" would be 1.02%,
1.20% and 1.15% 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) Reflects management fees after taking into effect any waiver.
(8) Other Expenses are shown gross of expense offsets afforded the Portfolios
which effectively lowered overall custody expenses.
(9) Total Portfolio Expenses for the Small Cap and Managed Portfolios are
limited by OpCap Advisors so that their respective annualized operating
expenses (net of any expense offsets) do not exceed 1.00% of average daily
net assets. Total Portfolio Expenses for the Global Equity Portfolio are
limited to 1.25% of average daily net assets. Without such limitation and
without giving effect to any expense offsets, the Management Fees, Other
Expenses and Total Portfolio Expenses incurred for the fiscal year ended
December 31, 1997 would have been: .80%, .17% and .97%, respectively, for
the Small Cap Portfolio, .80%, .07% and .87%, respectively, for the Managed
Portfolio and .80%, .40% and 1.20%, respectively, for the Global Equity
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............................ $83 $114 $148 $261
Alger American Leveraged AllCap Portfolio.................. $84 $117 $153 $272
Alger American MidCap Growth Portfolio..................... $82 $112 $145 $256
Alger American Small Capitalization Portfolio.............. $82 $111 $142 $251
Fidelity VIP Equity-Income Portfolio....................... $79 $104 $131 $229
Fidelity VIP Money Market Portfolio........................ $81 $108 $138 $242
Fidelity VIP High Income Portfolio......................... $83 $115 $149 $264
Fidelity VIP Overseas Portfolio............................ $79 $104 $131 $229
Fidelity VIP II Asset Manager Portfolio.................... $80 $106 $135 $236
Fidelity VIP II Investment Grade Bond Portfolio............ $77 $ 96 $117 $200
MFS Total Return Series.................................... $84 $117 $153 $272
MFS Utilities Series....................................... $84 $117 $153 $272
MFS World Governments Series............................... $84 $117 $153 $272
N&B AMT Balanced Portfolio................................. $81 $110 $141 $249
N&B AMT Limited Maturity Bond Portfolio.................... $82 $113 $146 $258
N&B AMT Partners Portfolio................................. $84 $118 $155 $276
OCC Accumulation Trust Global Equity Portfolio............. $86 $123 $163 $291
OCC Accumulation Trust Managed Portfolio................... $82 $113 $147 $259
OCC Accumulation Trust Small Cap Portfolio................. $83 $116 $152 $269
</TABLE>
2. IF THE CONTRACT IS NOT SURRENDERED OR IF IT IS
ANNUITIZED:
<TABLE>
<S> <C> <C> <C> <C>
Alger American Growth Portfolio............................ $23 $ 71 $122 $261
Alger American Leveraged AllCap Portfolio.................. $24 $ 75 $128 $272
Alger American MidCap Growth Portfolio..................... $23 $ 70 $119 $256
Alger American Small Capitalization Portfolio.............. $22 $ 68 $117 $251
Fidelity VIP Equity-Income Portfolio....................... $20 $ 62 $106 $229
Fidelity VIP Money Market Portfolio........................ $21 $ 66 $113 $242
Fidelity VIP High Income Portfolio......................... $23 $ 72 $124 $264
Fidelity VIP Overseas Portfolio............................ $20 $ 62 $106 $229
Fidelity VIP II Asset Manager Bond Portfolio............... $21 $ 64 $110 $236
Fidelity VIP II Investment Grade Bond Portfolio............ $17 $ 53 $ 92 $200
MFS Total Return Series.................................... $24 $ 75 $128 $272
MFS Utilities Series....................................... $24 $ 75 $128 $272
MFS World Governments Series............................... $24 $ 25 $128 $272
N&B AMT Balanced Portfolio................................. $22 $ 68 $116 $249
N&B AMT Limited Maturity Bond Portfolio.................... $23 $ 70 $121 $258
N&B AMT Partners Portfolio................................. $25 $ 76 $130 $276
OCC Accumulation Trust Global Equity Portfolio............. $26 $ 80 $137 $291
OCC Accumulation Trust Managed Portfolio................... $23 $ 71 $121 $259
OCC Accumulation Trust Small Cap Portfolio................. $24 $ 74 $126 $269
</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, 1997, and
the number of Accumulation Units outstanding at December 31,
1997.
<TABLE>
<CAPTION>
NUMBER OF
ACCUMULATION ACCUMULATION ACCUMULATION UNITS
UNIT VALUE UNIT VALUE OUTSTANDING
SUB-ACCOUNT AT 12/31/96 AT 12/31/97 12/31/97
- ----------------------------------- ------------ ------------ ------------------
(IN DOLLARS)
------------
<S> <C> <C> <C>
Alger American Growth Portfolio.... 10.144 12.591 533,777
Alger American Leveraged AllCap
Portfolio......................... 10.507 12.411 192,937
Alger American MidCap Growth
Portfolio......................... 11.319 12.849 347,797
Alger American Small Cap
Portfolio......................... 9.869 10.850 454,338
Fidelity VIP Equity-Income
Portfolio......................... 11.014 13.926 515,383
Fidelity VIP Money Market
Portfolio......................... 10.339 10.763 186,254
Fidelity VIP High Income
Portfolio......................... 10.659 12.379 244,455
Fidelity VIP Overseas Portfolio.... 10.640 11.715 111,798
Fidelity VIP II Asset Manager
Portfolio......................... 11.112 13.233 61,335
Fidelity VIP II Investment Grade
Bond Portfolio.................... 10.278 11.063 127,249
MFS Total Return Series............ 10.935 13.092 248,453
MFS Utilities Series............... 11.879 15.441 29,938
MFS World Governments Series....... 10.461 10.208 33,023
N&B AMT Balanced Portfolio......... 10.197 12.022 89,317
N&B AMT Limited Maturity Bond
Portfolio......................... 10.279 10.829 43,616
N&B AMT Partners Portfolio......... 12.177 15.774 375,038
OCC Accumulation Trust Global
Equity Portfolio.................. 11.044 12.430 452,255
OCC Accumulation Trust Managed
Portfolio......................... 11.575 13.972 823,864
OCC Accumulation Trust Small Cap
Portfolio......................... 11.375 13.725 154,786
</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, 1998, 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
11
<PAGE>
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:
The 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;
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.
12
<PAGE>
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 N&B AMT Trust are available under the
Contracts:
Balanced Portfolio;
Limited Maturity Bond Portfolio;
Partners Portfolio.
Three Funds of OCC Accumulation Trust 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.
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.
13
<PAGE>
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 money market
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 500 Index (S&P 500).
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
the portfolio company's track record through all parts of
the market cycle.
OCC ACCUMULATION TRUST GLOBAL EQUITY PORTFOLIO
(International Stocks): Seeks long-term capital appreciation
through a global investment strategy primarily involving
equity securities.
14
<PAGE>
OCC ACCUMULATION TRUST 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 ACCUMULATION TRUST 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 was 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 as follows:
(1)The total value of Fund shares held in the Sub-Account
is calculated by multiplying the number of Fund shares
owned by the Sub-Account at the beginning of the
Valuation Period by the net asset value per share of
the Fund at the end of the Valuation Period, and
adding any dividend or other distribution of the Fund
if an ex-dividend date occurs during the Valuation
Period; minus
(2)The liabilities of the Sub-Account at the end of the
Valuation Period; such liabilities include daily
charges imposed on the Sub-Account, and may include a
18
<PAGE>
charge or credit with respect to any taxes paid or
reserved for by the Company that the Company
determines result from the operations of the Variable
Account; and
(3)The result of (2) is divided by the number of
Sub-Account units outstanding at the beginning of the
Valuation Period.
The daily charges imposed on a Sub-Account for any Valuation
Period are equal to the daily mortality and expense risk
charge plus daily administrative expense charge multiplied
by the number of calendar days 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
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
19
<PAGE>
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 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
20
<PAGE>
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 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
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<PAGE>
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 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.
22
<PAGE>
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 & 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.
23
<PAGE>
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.
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.
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<PAGE>
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.
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.
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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.
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.
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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 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.
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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.
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.
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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.
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
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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
calculating the Accumulation Unit value for the current
Valuation Period (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.
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.
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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 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
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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 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
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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.
The MVA is computed by applying the following formula:
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 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
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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 certain 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). As of January 1,
1998, CFA, formerly a wholly-owned subsidiary of CIGNA
Corporation, became a wholly-owned subsidiary of Lincoln
National Corporation, an Indiana corporation with
headquarters in Fort Wayne, Indiana, whose principal
businesses are insurance and financial services. 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
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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 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.
35
<PAGE>
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 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
36
<PAGE>
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.
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.
37
<PAGE>
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)
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
38
<PAGE>
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.
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.
39
<PAGE>
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 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, 1997 and 1996 and for each of the three years in the
period ended December 31, 1997 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, 1997.
YEAR 2000 ISSUES
CIGNA Variable Annuity Separate Account I (the "Account") is
a "separate account" of the Company established under
Connecticut insurance law; thus, the Company is
40
<PAGE>
responsible, as part of its Year 2000 updating process, for
the updating of its Account - related computer systems.
Delaware Service Company ("Delaware") provides substantially
all of the necessary accounting and valuation services for
the Account. Delaware, for its part, is responsible for
updating all of its computer systems, including those which
service the Account, to accommodate the year 2000. The
Company and Delaware have begun formal discussions with each
other to assess the requirements for their respective
systems to interface properly in order to facilitate the
accurate and orderly operation of the Account beginning in
the year 2000.
Many existing computer programs use only two digits to
identify a year in the date field. These programs were
designed and developed without considering the impact of the
upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results
by or at the year 2000. The Year 2000 issue is pervasive and
complex and affects virtually every aspect of the businesses
of both the Company and Delaware (collectively the
"Companies"). The computer systems of the Companies and
their interfaces with the computer systems of vendors,
suppliers, customers and other business partners are
particularly vulnerable. The inability to properly recognize
date-sensitive electronic information and to transfer data
between systems could cause errors or even complete failure
of systems, which would result in a temporary inability to
process transactions correctly and engage in normal business
activities for the Account. The Companies respectively are
redirecting significant portions of their internal
information technology efforts and are contracting, as
needed, with outside consultants to help update their
systems to accommodate the year 2000. Also, in addition to
the discussions with each other noted above, the Companies
have each initiated formal discussions with other critical
parties that interface with their systems to gain an
understanding of the progress by those parties in addressing
Year 2000 issues. While the Companies are making substantial
efforts to address their own systems and the systems with
which they interface, it is not possible to provide
assurance that operational problems will not occur. The
Companies presently believe that, assuming the modification
of existing computer systems, updates by vendors and
conversion to new software and hardware, the Year 2000 issue
will not pose significant operations problems for their
respective computer systems. In addition, the Companies are
incorporating potential issues surrounding year 2000 into
their contingency planning process to address the
possibility that, despite these substantial efforts, there
are unresolved Year 2000 problems. If the remediation
efforts noted above are not completed timely or properly,
the Year 2000 issue could have a material adverse impact on
the operation of the businesses of the Companies.
The cost of addressing Year 2000 issues and the timeliness
of completion is being monitored by management of the
respective Companies. Nevertheless, there can be no
guarantee either by the Company or by Delaware that
estimated costs will be achieved, and actual results could
differ significantly from those anticipated. Specific
factors that might cause such differences include, but are
not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all
relevant computer problems, and other uncertainties.
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
SAMPLE CALCULATIONS AND TABLES.................. 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]
29238 (5/98)
<PAGE>
PART B. STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS
Issued through
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
Offered by
CIGNA LIFE INSURANCE COMPANY
<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:
Annuity & Variable Life Services CIGNA Life Insurance Company
Center c/o Fleet Bank
Routing S-249 20 Church Street
Hartford, Connecticut 06152-2249 20th Floor, MSN275
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,
1998, 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, 1998
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
SAMPLE CALCULATIONS AND TABLES............................................................................. 4
Withdrawal Charge and Market Value Adjustment Tables..................................................... 4
STATE REGULATION OF THE COMPANY............................................................................ 6
ADMINISTRATION............................................................................................. 6
ACCOUNT INFORMATION........................................................................................ 6
DISTRIBUTION OF THE CONTRACTS.............................................................................. 7
CUSTODY OF ASSETS.......................................................................................... 7
HISTORICAL PERFORMANCE DATA................................................................................ 7
Money Market Sub-Account Yield........................................................................... 7
Other Sub-Account Yields................................................................................. 8
Total Returns............................................................................................ 8
Other Performance Data................................................................................... 9
LEGAL MATTERS.............................................................................................. 9
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
3
<PAGE>
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 as follows:
(1) The total value of Fund shares held in the Sub-Account is calculated by
multiplying the number of Fund shares owned by the Sub-Account at the
beginning of the Valuation Period by the net asset value per share of the
Fund at the end of the Valuation Period, and adding any dividend or other
distribution of the Fund if an ex-dividend date occurs during the
Valuation Period; minus
(2) The liabilities of the Sub-Account at the end of the Valuation Period;
such liabilities include daily charges imposed on the Sub-Account, and
may include a charge or credit with respect to any taxes paid or reserved
for by the Company that the Company determines result from the operations
of the Variable Account; and
(3) The result of (2) is divided by the number of Sub-Account units
outstanding at the beginning of the Valuation Period.
The daily charges imposed on a Sub-Account for any Valuation Period are
equal to the daily mortality and expense risk charge plus daily administrative
expense charge multiplied by the number of calendar days in the 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.
SAMPLE CALCULATIONS AND TABLES
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.
4
<PAGE>
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>
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>
5
<PAGE>
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 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
6
<PAGE>
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 certain of Connecticut
General Life Insurance Company's registered separate accounts. As of January 1,
1998, CFA, formerly a wholly-owned subsidiary of CIGNA Corporation, became a
wholly-owned subsidiary of Lincoln National Corporation, an Indiana corporation
with headquarters in Fort Wayne, Indiana, whose principal businesses are
insurance and financial services. 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 $18,345 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,
1997.
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.
HISTORICAL PERFORMANCE DATA
Historical performance data as of December 31, 1997 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.
7
<PAGE>
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 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
8
<PAGE>
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%.
The Company may from time to time disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula assuming that the deferred sales
charge percentage will be 0%.
CTR = (ERV/P) - 1
Where: CTR = The cumulative total return net of
Sub-Account recurring charges for the
period.
ERV = The ending redeemable value of the
hypothetical investment made at the
beginning of the one, five or ten-year
period, at the end of the one, five or
ten-year period (or fractional portion
thereof).
P = A hypothetical initial payment of
$10,000
All non-standard performance data will only be advertised if the standard
performance data is also disclosed.
The Company may also from time to time use advertising which includes
hypothetical illustrations to compare the difference between the growth of a
taxable investment and a tax-deferred investment in a variable annuity.
LEGAL MATTERS
Legal advice regarding certain matters relating to the federal securities
laws applicable to the issuance of the Contracts described in the Prospectus and
this Statement has been provided by George N. Gingold, Esquire of West Hartford,
Connecticut. All matters of Connecticut law pertaining
9
<PAGE>
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 Mark A.
Parsons, Chief Counsel, Retirement and Investment Services Division, CIGNA
Corporation.
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,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 included in this Statement of Additional Information as well as the
Statement of Assets and Liabilities of the Variable Account at December 31, 1997
and the Statement of Operations and the Statement of Changes in Net Assets for
the period ended December 31, 1997 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 year ended
December 31, 1997 are also included.
10
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICE WATERHOUSE LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 10, 1998
To 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,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, 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.
[SIGNATURE]
11
<PAGE>
CIGNA LIFE INSURANCE COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees................................................... $ 2,872 $ 1,212 $ 1,263
Net investment income............................................... 1,291 1,267 1,293
Realized investment gains........................................... 179 22 --
--------- --------- ---------
Total revenues.................................................. 4,342 2,501 2,556
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses............................ 2,707 1,608 1,461
Policy acquisition expenses......................................... 106 49 --
Other operating expenses............................................ 790 231 456
--------- --------- ---------
Total benefits, losses and expenses............................. 3,603 1,888 1,917
--------- --------- ---------
INCOME BEFORE INCOME TAXES.......................................... 739 613 639
--------- --------- ---------
Income taxes (benefits):
Current........................................................... 1,257 299 242
Deferred.......................................................... (997) (87) (16)
--------- --------- ---------
Total taxes..................................................... 260 212 226
--------- --------- ---------
NET INCOME.......................................................... 479 401 413
Retained earnings, beginning of year................................ 5,065 4,664 4,251
- -----------------------------------------------------------------------------------------------------
RETAINED EARNINGS, END OF YEAR...................................... $ 5,544 $ 5,065 $ 4,664
- -----------------------------------------------------------------------------------------------------
-------------------------------
</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, 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $9,726; $13,116)....... $ 10,105 $ 13,644
Short-term investments.................................................. -- 7,924
--------- ---------
Total investments................................................... 10,105 21,568
Cash and cash equivalents................................................. 942 252
Accrued investment income................................................. 219 359
Due from brokers.......................................................... 2,193 --
Premiums and accounts receivable.......................................... -- 269
Deferred policy acquisition costs......................................... 220 251
Deferred income taxes, net................................................ 1,385 336
Due from parent........................................................... -- 3,228
Separate account assets................................................... 64,953 44,614
- ------------------------------------------------------------------------------------------------
Total assets........................................................ $ 80,017 $ 70,877
- ------------------------------------------------------------------------------------------------
--------------------
LIABILITIES
Contractholder deposit funds.............................................. $ 1,775 $ 4,003
Future policy benefits.................................................... 8 9,972
Unpaid claims and claim expenses.......................................... -- 481
--------- ---------
Total insurance and contractholder liabilities...................... 1,783 14,456
Accounts payable, accrued expenses and other liabilities.................. 379 328
Current income taxes...................................................... 1,211 170
Separate account liabilities.............................................. 64,953 44,614
- ------------------------------------------------------------------------------------------------
Total liabilities................................................... 68,326 59,568
- ------------------------------------------------------------------------------------------------
CONTINGENCIES -- NOTE 8
SHAREHOLDER'S EQUITY
Common stock (25 shares outstanding)...................................... 2,500 2,500
Additional paid-in capital................................................ 3,400 3,400
Net unrealized appreciation on investments................................ 247 344
Retained earnings......................................................... 5,544 5,065
- ------------------------------------------------------------------------------------------------
Total shareholder's equity.......................................... 11,691 11,309
- ------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity.......................... $ 80,017 $ 70,877
- ------------------------------------------------------------------------------------------------
--------------------
</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, 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................... $ 479 $ 401 $ 413
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Insurance liabilities......................................... (10,445) 552 333
Accrued investment income..................................... 140 (38) (5)
Premiums and accounts receivable.............................. 269 2 15
Deferred policy acquisition costs............................. 31 (251) --
Deferred income taxes, net.................................... (997) (87) (16)
Accounts payable, accrued expenses, other liabilities and
current income taxes......................................... 1,092 451 (24)
Other, net.................................................... (136) 22 40
--------- --------- ---------
Net cash (used in) provided by operating activities......... (9,567) 1,052 756
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities.............................................. 1,435 2,972 --
Short-term investments........................................ 12,073 4,734 433
Maturities and repayments of fixed maturities................... -- 110 25
Investments purchased:
Fixed maturities.............................................. (102) (1,241) (191)
Short-term investments........................................ (4,149) (12,658) (817)
--------- --------- ---------
Net cash provided by (used in) investing activities......... 9,257 (6,083) (550)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit
funds......................................................... (2,072) 4,130 --
Withdrawals and benefit payments from contractholder deposit
funds......................................................... (156) (127) --
Due from parent................................................. 3,228 (3,228) --
Paid in capital................................................. -- 400 --
--------- --------- ---------
Net cash provided by financing activities................. 1,000 1,175 --
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............ 690 (3,856) 206
Cash and cash equivalents, beginning of year.................... 252 4,108 3,902
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year.......................... $ 942 $ 252 $ 4,108
- -------------------------------------------------------------------------------------------------
-------------------------------
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds............................. $ 216 $ 105 $ 325
- -------------------------------------------------------------------------------------------------
-------------------------------
</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 AND DISPOSITION
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.
As of January 1, 1998, the Company sold its individual life insurance and
annuity businesses for cash proceeds of $2.9 million. The sale resulted in an
after-tax gain of approximately $1.7 million. Since the principal agreement to
sell these businesses is in the form of an indemnity reinsurance arrangement,
approximately $0.9 million of the gain will be deferred and amortized over
future periods. As a result of this disposition, the Company's future operating
activity will be minimal. See Note 7 for additional information.
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 and deferred tax assets, are discussed
throughout the Notes to Financial Statements. Certain reclassifications have
been made to prior years' amounts to conform with the 1997 presentation.
B) RECENT ACCOUNTING PRONOUNCEMENT: The American Institute of Certified
Public Accountants issued Statement of Position (SOP) 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" in 1997. SOP
97-3 provides guidance on the recognition and measurement of liabilities for
guaranty fund and other insurance-related assessments. Implementation is
required by the first quarter of 1999, with the cumulative effect of adopting
the SOP reflected in net income in the year of adoption. The Company has not
determined the effect or timing of implementation of this pronouncement.
C) FINANCIAL INSTRUMENTS: In the normal course of business, the Company
enters into transactions involving financial instruments such as fixed
maturities and contractholder deposit funds. 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. For these financial instruments,
the fair value was not materially different from the carrying amount as of
December 31, 1997 and 1996. The fair value of liabilities for contractholder
deposit funds was estimated using the amount payable on demand.
D) 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.
E) CASH AND CASH EQUIVALENTS: Short-term investments with a maturity of three
months or less at the time of purchase are reported as cash equivalents.
F) 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.
15
<PAGE>
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 unless such costs are estimated
to be unrecoverable as a result of treating unrealized investment gains and
losses as though they had been realized. In these cases a deferred acquisition
cost valuation allowance may be established or adjusted, with a comparable
offset in net unrealized appreciation (depreciation).
G) 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.
H) CONTRACTHOLDER DEPOSIT FUNDS: Liabilities for Contractholder Deposit Funds
consist of deposits received from customers and investment earnings on their
fund balances, less administrative charges.
I) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for life,
health and annuity products. Such liabilities are established in amounts
adequate to meet the estimated future obligations of policies in force. These
liabilities are computed using 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 for annuity and
individual life insurance policies are computed using an interest rate of 5.5%.
Mortality, morbidity, and withdrawal assumptions are based on either the
Company's own experience or various actuarial tables.
J) 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.
K) OTHER LIABILITIES: Other Liabilities consists principally of various
insurance-related liabilities for taxes, licenses and fees.
L) PREMIUMS AND FEES AND RELATED EXPENSES: Premiums are recognized as revenue
when due. Benefits, losses and settlement expenses are matched with premiums.
Revenues for investment-related products consist of net investment income and
contract fees assessed against the fund balances during the period. Net
investment income represents investment income on assets supporting
investment-related products and is recognized as earned. Contract fees are based
upon related administrative expenses and are assessed ratably over the contract
year. Benefit expenses for investment-related products primarily consist of
amounts credited in accordance with contract provisions.
M) 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, 1997 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Amortized Fair
(IN THOUSANDS) Cost Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less.................................................. $2,485 $ 2,506
Due after one year through five years.................................... 6,607 6,910
Due after five years through ten years................................... 593 642
Due after ten years...................................................... 41 47
- -----------------------------------------------------------------------------------------------
Total.................................................................. $9,726 $ 10,105
- -----------------------------------------------------------------------------------------------
--------------------
</TABLE>
16
<PAGE>
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, 1997
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Amortized Unrealized Unrealized Fair
(IN THOUSANDS) Cost Appreciation Depreciation Value
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Federal government bonds......................... $ 7,215 $ 261 $ (3) $ 7,473
Foreign government bonds......................... 518 24 -- 542
Corporate bonds.................................. 1,993 97 -- 2,090
- -------------------------------------------------------------------------------------------------------
Total.......................................... $ 9,726 $ 382 $ (3) $ 10,105
- -------------------------------------------------------------------------------------------------------
----------------------------------------------------
</TABLE>
<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>
B) SHORT-TERM INVESTMENTS: Short-term investments included federal government
securities of $7.9 million at December 31, 1996. The Company had no short-term
investments at December 31, 1997.
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) 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation....................................................... $ 382 $ 538
Unrealized depreciation....................................................... (3) (10)
--------- ---------
379 528
Less deferred income taxes.................................................... (132) (184)
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation................................................... $ 247 $ 344
- ----------------------------------------------------------------------------------------------------
--------------------
</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 1997, 1996 and 1995 was ($97,000), ($346,000)
and $873,000, respectively.
D) OTHER: As of December 31, 1997 and 1996, the Company had no concentration
of investments in a single investee exceeding 10% of Shareholder's Equity.
17
<PAGE>
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) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities.................................................... $ 957 $ 1,009 $ 973
Short-term investments.............................................. 354 281 333
--------- --------- ---------
1,311 1,290 1,306
Less investment expenses............................................ 20 23 13
- -----------------------------------------------------------------------------------------------------
Net investment income............................................... $ 1,291 $ 1,267 $ 1,293
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
B) REALIZED INVESTMENT GAINS AND LOSSES: Realized investment gains on bonds
for 1997 and 1996 were $116,000 and $14,000, respectively, net of income tax
expense of $63,000 and $8,000, respectively. There were no realized investment
gains or losses for 1995.
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
may differ from generally accepted accounting principles. As of December 31,
1997, there were no permitted accounting practices utilized by the Company that
were materially different from those prescribed by the Department.
Capital stock of the Company at December 31, 1997 and 1996 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 $1.8 million, $308,000 and $397,000 for
1997, 1996 and 1995, respectively. Statutory surplus was $12.2 million and $10.4
million at December 31, 1997 and 1996, 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 1998 without prior approval
is $1.8 million. The amount of restricted net assets as of December 31, 1997 was
approximately $9.9 million. Certain states also require that a minimum level of
$10 million of statutory capital and surplus be maintained.
NOTE 6 -- INCOME TAXES
The Company's net deferred tax asset of $1.4 million and $336,000 as of
December 31, 1997 and 1996, 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 CIGNA's financial statements in
anticipation of the results of these audits. CIGNA resolved all issues relative
to the Company arising out of audits for 1991 through 1993, which resulted in no
assessment in 1997.
18
<PAGE>
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) 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other insurance and contractholder liabilities............................. $ 1,252 $ 289
Policy acquisition expenses................................................ 261 231
Investments................................................................ 4 --
--------- ---
Total deferred tax assets.................................................. 1,517 520
--------- ---
Deferred tax liabilities:
Unrealized appreciation on investments..................................... 132 184
- ---------------------------------------------------------------------------------------------------
Net deferred income tax asset................................................ $ 1,385 $ 336
- ---------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Total income taxes for 1997, 1996 and 1995 were not significantly different
from the amount computed using the nominal federal income tax rate of 35%.
NOTE 7 -- REINSURANCE
In connection with the disposition discussed in Note 1, the Company terminated
its reinsurance arrangement with CGLIC under which the Company had assumed
reinsurance from CGLIC effective December 31, 1997. During 1997 and 1996,
insurance premiums assumed from CGLIC were $900,000 and $1.2 million,
respectively. At December 31, 1996, life insurance in force assumed from CGLIC
and related liabilities were $33.4 million and $9.8 million, respectively.
Effective December 31, 1997, the Company also terminated its two 90%
coinsurance arrangements with CGLIC under which substantially all of the
Company's life and annuity products had been reinsured. As a result of these
arrangements, during 1997 and 1996 the Company ceded premiums and deposits
totaling $8.9 million and $43.0 million, respectively, expense and commission
allowances of $699,000 and $2.7 million, respectively, and reinsurance
recoveries totaling $1.2 million and $1.4 million, respectively. Included in
separate account liabilities at December 31, 1996 were funds held under one of
the coinsurance arrangements totaling $40.2 million.
As a result of the termination of the reinsurance arrangements described
above, the Company transferred approximately $7 million in both assets and
reserves to CGLIC in December 1997.
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.
The National Association of Insurance Commissioners recently approved
standardized statutory accounting practices, which are not scheduled to take
effect before 1999. The Company has not determined the effect on statutory net
income, surplus or liquidity at this time.
The Company is contingently liable for possible assessments under regulatory
requirements pertaining to potential insolvencies of unaffiliated insurance
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
CGLIC allocates to the Company its share of operating expenses for
administrative services provided.
See Note 7 for information on reinsurance activities with CGLIC.
19
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ALGER AMERICAN PORTFOLIO SUB-ACCOUNTS FIDELITY VIP PORTFOLIO SUB-ACCOUNTS
-------------------------------------------------- ----------------------------------------------
LEVERAGED MIDCAP SMALL EQUITY- HIGH MONEY
GROWTH ALLCAP GROWTH CAPITALIZATION INCOME INCOME MARKET OVERSEAS
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at value..... $6,720,542 $2,394,619 $4,468,725 $4,929,689 $7,177,312 $3,026,228 $2,004,732 $1,309,749
Receivable from CIGNA Life
Insurance Company............ -- -- 5,895 -- 2,277 -- 5,982 --
Receivable for fund shares
sold......................... 7,193 4,270 -- 1,375 -- 1,435 -- 5,146
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
Total assets................ 6,727,735 2,398,889 4,474,620 4,931,064 7,179,589 3,027,663 2,010,714 1,314,895
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to CIGNA Life
Insurance Company............ 7,193 4,270 -- 1,375 -- 1,435 -- 5,146
Payable for fund shares
purchased.................... -- -- 5,895 -- 2,277 -- 5,982 --
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
Total liabilities........... 7,193 4,270 5,895 1,375 2,277 1,435 5,982 5,146
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
Net assets.................. $6,720,542 $2,394,619 $4,468,725 $4,929,689 $7,177,312 $3,026,228 $2,004,732 $1,309,749
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
---------- ---------- ---------- -------------- ---------- ---------- ---------- ----------
Accumulation units
outstanding.................. 533,777 192,937 347,797 454,338 515,383 244,455 186,254 111,798
Net asset value per
accumulation unit............ $12.590543 $12.411431 $12.848669 $10.850258 $13.926178 $12.379478 $10.763448 $11.715303
<CAPTION>
FIDELITY VIP II
PORTFOLIO SUB-ACCOUNTS
----------------------
ASSET INVESTMENT
MANAGER GRADE BOND
---------- ----------
<S> <C> <C>
ASSETS:
Investment in variable
insurance funds at value..... $ 811,631 $1,407,763
Receivable from CIGNA Life
Insurance Company............ -- 8,022
Receivable for fund shares
sold......................... 29 --
---------- ----------
Total assets................ 811,660 1,415,785
---------- ----------
LIABILITIES:
Payable to CIGNA Life
Insurance Company............ 29 --
Payable for fund shares
purchased.................... -- 8,022
---------- ----------
Total liabilities........... 29 8,022
---------- ----------
Net assets.................. $ 811,631 $1,407,763
---------- ----------
---------- ----------
Accumulation units
outstanding.................. 61,335 127,249
Net asset value per
accumulation unit............ $13.232694 $11.063082
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
20
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
AMT PORTFOLIO SUB-ACCOUNTS
MFS SERIES SUB-ACCOUNTS ----------------------------------
---------------------------------- LIMITED
TOTAL WORLD MATURITY
RETURN UTILITIES GOVERNMENTS BALANCED BOND PARTNERS
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at value..... $3,252,639 $ 462,293 $ 337,117 $1,073,783 $ 472,317 $5,915,933
Receivable from CIGNA Life
Insurance Company............ -- -- -- -- 8,038 --
Receivable for fund shares
sold......................... 116 33 24 4,121 -- 7,121
---------- ---------- ---------- ---------- ---------- ----------
Total assets................ 3,252,755 462,326 337,141 1,077,904 480,355 5,923,054
---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to CIGNA Life
Insurance Company............ 116 33 24 4,121 -- 7,121
Payable for fund shares
purchased.................... -- -- -- -- 8,038 --
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities........... 116 33 24 4,121 8,038 7,121
---------- ---------- ---------- ---------- ---------- ----------
Net assets.................. $3,252,639 $ 462,293 $ 337,117 $1,073,783 $ 472,317 $5,915,933
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Accumulation units
outstanding.................. 248,453 29,938 33,023 89,317 43,616 375,038
Net asset value per
accumulation unit............ $13.091558 $15.441911 $10.208648 $12.022153 $10.828905 $15.774212
<CAPTION>
OCC ACCUMULATION TRUST
SUB-ACCOUNTS
----------------------------------
GLOBAL
EQUITY MANAGED SMALL CAP
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at value..... $5,621,365 $11,510,878 $2,124,414
Receivable from CIGNA Life
Insurance Company............ -- -- --
Receivable for fund shares
sold......................... 201 6,758 76
---------- ---------- ----------
Total assets................ 5,621,566 11,517,636 2,124,490
---------- ---------- ----------
LIABILITIES:
Payable to CIGNA Life
Insurance Company............ 201 6,758 76
Payable for fund shares
purchased.................... -- -- --
---------- ---------- ----------
Total liabilities........... 201 6,758 76
---------- ---------- ----------
Net assets.................. $5,621,365 $11,510,878 $2,124,414
---------- ---------- ----------
---------- ---------- ----------
Accumulation units
outstanding.................. 452,255 823,864 154,786
Net asset value per
accumulation unit............ $12.429635 $13.971818 $13.724821
</TABLE>
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 YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ALGER AMERICAN PORTFOLIO SUB-ACCOUNTS FIDELITY VIP PORTFOLIO SUB-ACCOUNTS
-------------------------------------------------- ------------------------------------------
LEVERAGED MIDCAP SMALL EQUITY- HIGH MONEY
GROWTH ALLCAP GROWTH CAPITALIZATION INCOME INCOME MARKET OVERSEAS
---------- ---------- ---------- -------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.......................... $ 19,203 $ -- $ 2,201 $ -- $ 85,115 $ 162,688 $157,804 $15,934
EXPENSES:
Mortality and expense risk and
administrative charges........... 78,389 27,519 52,169 58,763 81,384 35,105 38,896 15,820
---------- ---------- ---------- -------------- ---------- ---------- -------- --------
Net investment gain (loss)....... (59,186 ) (27,519 ) (49,968 ) (58,763) 3,731 127,583 118,908 114
---------- ---------- ---------- -------------- ---------- ---------- -------- --------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Capital distributions from
portfolio sponsors............... 34,776 -- 53,679 164,464 427,936 20,107 -- 63,253
Net realized gain (loss) on share
transactions..................... 6,164 410 (4,949 ) (377) 1,245 (5,780 ) -- (2,737)
---------- ---------- ---------- -------------- ---------- ---------- -------- --------
Net realized gain................ 40,940 410 48,730 164,087 429,181 14,327 -- 60,516
Net unrealized gain................ 1,246,944 352,205 488,175 341,424 1,001,358 249,616 -- 35,170
---------- ---------- ---------- -------------- ---------- ---------- -------- --------
Net realized and unrealized gain
on investments................. 1,287,884 352,615 536,905 505,511 1,430,539 263,943 -- 95,686
---------- ---------- ---------- -------------- ---------- ---------- -------- --------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.................. $1,228,698 $ 325,096 $ 486,937 $ 446,748 $1,434,270 $ 391,526 $118,908 $95,800
---------- ---------- ---------- -------------- ---------- ---------- -------- --------
---------- ---------- ---------- -------------- ---------- ---------- -------- --------
<CAPTION>
FIDELITY VIP II
PORTFOLIO
SUB-ACCOUNTS
--------------------
ASSET INVESTMENT
MANAGER GRADE BOND
-------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.......................... $ 18,286 $ 69,813
EXPENSES:
Mortality and expense risk and
administrative charges........... 8,746 16,842
-------- ----------
Net investment gain (loss)....... 9,540 52,971
-------- ----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Capital distributions from
portfolio sponsors............... 45,871 --
Net realized gain (loss) on share
transactions..................... 128 4,463
-------- ----------
Net realized gain................ 45,999 4,463
Net unrealized gain................ 58,841 41,442
-------- ----------
Net realized and unrealized gain
on investments................. 104,840 45,905
-------- ----------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.................. $114,380 $ 98,876
-------- ----------
-------- ----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
22
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFS SERIES SUB-ACCOUNTS AMT PORTFOLIO SUB-ACCOUNTS
------------------------------------ ----------------------------------------
TOTAL WORLD LIMITED
RETURN UTILITIES GOVERNMENTS BALANCED MATURITY BOND PARTNERS
---------- ---------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.......................... $ -- $ -- $ 5,395 $ 14,624 $ 19,825 $ 11,350
EXPENSES:
Mortality and expense risk and
administrative charges........... 37,682 4,605 4,309 12,533 4,854 64,153
---------- ---------- ------------ ----------- ------------- ------------
Net investment gain (loss)....... (37,682 ) (4,605 ) 1,086 2,091 14,971 (52,803)
---------- ---------- ------------ ----------- ------------- ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Capital distributions from
portfolio sponsors............... -- -- 2,445 37,535 -- 174,803
Net realized gain (loss) on share
transactions..................... 11,805 43 191 232 441 982
---------- ---------- ------------ ----------- ------------- ------------
Net realized gain................ 11,805 43 2,636 37,767 441 175,785
Net unrealized gain (loss)......... 546,882 104,030 (10,473) 112,500 4,249 1,110,370
---------- ---------- ------------ ----------- ------------- ------------
Net realized and unrealized gain
(loss) on investments.......... 558,687 104,073 (7,837) 150,267 4,690 1,286,155
---------- ---------- ------------ ----------- ------------- ------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........ $ 521,005 $ 99,468 $ (6,751) $ 152,358 $ 19,661 $ 1,233,352
---------- ---------- ------------ ----------- ------------- ------------
---------- ---------- ------------ ----------- ------------- ------------
<CAPTION>
OCC ACCUMULATION TRUST SUB-ACCOUNTS
---------------------------------------
GLOBAL
EQUITY MANAGED SMALL CAP
----------- ------------ ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.......................... $ 27,188 $ 88,706 $ 7,191
EXPENSES:
Mortality and expense risk and
administrative charges........... 69,185 131,267 21,051
----------- ------------ ----------
Net investment gain (loss)....... (41,997) (42,561) (13,860)
----------- ------------ ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Capital distributions from
portfolio sponsors............... 257,605 272,444 50,712
Net realized gain (loss) on share
transactions..................... 2,292 5,354 (1,357)
----------- ------------ ----------
Net realized gain................ 259,897 277,798 49,355
Net unrealized gain (loss)......... 365,823 1,563,433 239,214
----------- ------------ ----------
Net realized and unrealized gain
(loss) on investments.......... 625,720 1,841,231 288,569
----------- ------------ ----------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........ $ 583,723 $ 1,798,670 $ 274,709
----------- ------------ ----------
----------- ------------ ----------
</TABLE>
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 YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ALGER AMERICAN PORTFOLIO SUB-ACCOUNTS FIDELITY VIP PORTFOLIO SUB-ACCOUNTS
--------------------------------------------------- --------------------------------------------------
LEVERAGED MIDCAP SMALL EQUITY- MONEY
GROWTH ALLCAP GROWTH CAPITALIZATION INCOME HIGH INCOME MARKET OVERSEAS
----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain
(loss).................. $ (59,186) $ (27,519) $ (49,968) $ (58,763) $ 3,731 $ 127,583 $ 118,908 $ 114
Net realized gain........ 40,940 410 48,730 164,087 429,181 14,327 -- 60,516
Net unrealized gain...... 1,246,944 352,205 488,175 341,424 1,001,358 249,616 -- 35,170
----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------
Net increase from
operations........... 1,228,698 325,096 486,937 446,748 1,434,270 391,526 118,908 95,800
----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits..... 632,495 364,982 305,946 553,717 619,654 660,410 3,351,621 187,724
Participant transfers.... 554,089 135,412 581,485 178,738 624,627 209,382 (4,817,778) 213,482
Participant
withdrawals............. (91,104) (21,611) (53,293) (94,087) (169,892) (124,736) (188,209) (8,681)
----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------
Net increase (decrease)
from participant
transactions......... 1,095,480 478,783 834,138 638,368 1,074,389 745,056 (1,654,366) 392,525
----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------
Total increase
(decrease) in net
assets............. 2,324,178 803,879 1,321,075 1,085,116 2,508,659 1,136,582 (1,535,458) 488,325
NET ASSETS:
Beginning of period...... 4,396,364 1,590,740 3,147,650 3,844,573 4,668,653 1,889,646 3,540,190 821,424
----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------
End of period............ $6,720,542 $2,394,619 $4,468,725 $4,929,689 $7,177,312 $3,026,228 $2,004,732 $1,309,749
----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------
----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------
<CAPTION>
FIDELITY VIP II PORTFOLIO
SUB-ACCOUNTS
-------------------------
ASSET INVESTMENT
MANAGER GRADE BOND
----------- ------------
<S> <C> <C>
OPERATIONS:
Net investment gain
(loss).................. $ 9,540 $ 52,971
Net realized gain........ 45,999 4,463
Net unrealized gain...... 58,841 41,442
----------- ------------
Net increase from
operations........... 114,380 98,876
----------- ------------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits..... 51,260 153,852
Participant transfers.... 151,731 81,144
Participant
withdrawals............. (5,051) (75,871)
----------- ------------
Net increase (decrease)
from participant
transactions......... 197,940 159,125
----------- ------------
Total increase
(decrease) in net
assets............. 312,320 258,001
NET ASSETS:
Beginning of period...... 499,311 1,149,762
----------- ------------
End of period............ $ 811,631 $ 1,407,763
----------- ------------
----------- ------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
24
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
AMT PORTFOLIO SUB-ACCOUNTS
MFS SERIES SUB-ACCOUNTS --------------------------------------
------------------------------------- LIMITED
TOTAL WORLD MATURITY
RETURN UTILITIES GOVERNMENTS BALANCED BOND PARTNERS
----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ (37,682) $ (4,605) $ 1,086 $ 2,091 $ 14,971 $ (52,803)
Net realized gain............. 11,805 43 2,636 37,767 441 175,785
Net unrealized gain (loss).... 546,882 104,030 (10,473) 112,500 4,249 1,110,370
----------- ----------- ----------- ----------- ------------ -----------
Net increase (decrease) from
operations................ 521,005 99,468 (6,751) 152,358 19,661 1,233,352
----------- ----------- ----------- ----------- ------------ -----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 292,867 43,369 33,996 62,974 90,047 589,901
Participant transfers......... 298,337 78,307 32,150 109,370 100,274 890,633
Participant withdrawals....... (74,238) (5,948) (831) (4,430) (26,296) (124,163)
----------- ----------- ----------- ----------- ------------ -----------
Net increase from
participant
transactions.............. 516,966 115,728 65,315 167,914 164,025 1,356,371
----------- ----------- ----------- ----------- ------------ -----------
Total increase in net
assets.................. 1,037,971 215,196 58,564 320,272 183,686 2,589,723
NET ASSETS:
Beginning of period........... 2,214,668 247,097 278,553 753,511 288,631 3,326,210
----------- ----------- ----------- ----------- ------------ -----------
End of period................. $3,252,639 $ 462,293 $ 337,117 $1,073,783 $ 472,317 $5,915,933
----------- ----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ----------- ------------ -----------
<CAPTION>
OCC ACCUMULATION TRUST SUB-ACCOUNTS
-------------------------------------
GLOBAL
EQUITY MANAGED SMALL CAP
----------- ----------- -----------
<S> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ (41,997) $ (42,561) $ (13,860)
Net realized gain............. 259,897 277,798 49,355
Net unrealized gain (loss).... 365,823 1,563,433 239,214
----------- ----------- -----------
Net increase (decrease) from
operations................ 583,723 1,798,670 274,709
----------- ----------- -----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 448,478 1,390,886 192,397
Participant transfers......... 486,897 1,933,014 531,702
Participant withdrawals....... (95,846) (229,819) (13,268)
----------- ----------- -----------
Net increase from
participant
transactions.............. 839,529 3,094,081 710,831
----------- ----------- -----------
Total increase in net
assets.................. 1,423,252 4,892,751 985,540
NET ASSETS:
Beginning of period........... 4,198,113 6,618,127 1,138,874
----------- ----------- -----------
End of period................. $ 5,621,365 $11,510,878 $ 2,124,414
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
25
<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
GROWTH ALLCAP GROWTH CAPITALIZATION INCOME HIGH INCOME MARKET OVERSEAS
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception Date......... February 23, February January 19, February 9, February 20, May 17, February May 13,
1996 9, 1996 1996 1996 1996 1996 22, 1996 1996
OPERATIONS:
Net investment gain
(loss)................ $ (21,816) $ (7,549) $ (14,877) $ (19,633) $ (23,420) $ (7,249) $ 86,432 $ (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 67,327 86,432 35,307
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits... 3,317,873 1,651,397 1,942,260 2,839,597 3,239,285 1,400,589 13,217,666 333,797
Participant
transfers............. 925,179 299,414 1,093,142 1,040,987 1,177,728 422,934 (9,729,196) 453,233
Participant
withdrawals........... (34,424) (370,291) (9,334) (9,941) (44,343) (1,204) (34,712 ) (913)
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
Net increase from
participant
transactions....... 4,208,628 1,580,520 3,026,068 3,870,643 4,372,670 1,822,319 3,453,758 786,117
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
Total increase in
net assets....... 4,396,364 1,590,740 3,147,650 3,844,573 4,668,653 1,889,646 3,540,190 821,424
NET ASSETS:
Beginning of period.... -- -- -- -- -- -- -- --
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
End of period.......... $4,396,364 $1,590,740 $3,147,650 $3,844,573 $4,668,653 $ 1,889,646 $3,540,190 $821,424
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
------------ ---------- ----------- -------------- ------------ ----------- ---------- --------
<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
-------- -----------
-------- -----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
26
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS
FIRST RECEIVED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
MFS SERIES SUB-ACCOUNTS AMT PORTFOLIO SUB-ACCOUNTS
-------------------------------------- -------------------------------------------
TOTAL WORLD LIMITED
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
------------ --------- ----------- ------------ ------------- ------------
------------ --------- ----------- ------------ ------------- ------------
<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
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
27
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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
High Income Portfolio
Money Market 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 ACCUMULATION TRUST:--
OCC Global Equity Portfolio
OCC Managed Portfolio
OCC Small Cap Portfolio
Effective January 1, 1998, CG Life sold its individual variable annuity
business to Lincoln National Corporation (Lincoln). Although CG Life will remain
responsible for all policy terms and conditions, Lincoln will be servicing the
individual annuity contracts, including the payment of benefits, oversight of
investment management and contract administration.
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.
28
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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, 1997. The change in 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 as of December 31, 1997 were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
COST OF
SUB-ACCOUNT SHARES HELD INVESTMENTS
- ----------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio........................ 157,169 $ 5,287,588
Alger American Leveraged AllCap Portfolio.............. 103,350 2,021,116
Alger American MidCap Growth Portfolio................. 184,811 3,852,039
Alger American Small Capitalization Portfolio.......... 112,679 4,597,618
Fidelity Equity-Income Portfolio....................... 295,606 5,858,209
Fidelity High Income Portfolio......................... 222,844 2,702,027
Fidelity Money Market Portfolio........................ 2,004,732 2,004,732
Fidelity Overseas Portfolio............................ 68,216 1,236,544
Fidelity Asset Manager Portfolio....................... 45,066 716,060
Fidelity Investment Grade Bond Portfolio............... 112,083 1,331,817
MFS Total Return Series................................ 195,589 2,629,044
MFS Utilities Series................................... 25,697 350,360
MFS World Governments Series........................... 33,018 340,708
AMT Balanced Portfolio................................. 60,325 939,854
AMT Limited Maturity Bond Portfolio.................... 33,450 460,572
AMT Partners Portfolio................................. 287,181 4,419,831
OCC Global Equity Portfolio............................ 392,553 5,030,135
OCC Managed Portfolio.................................. 271,611 9,347,906
OCC Small Cap Portfolio................................ 80,562 1,796,320
- ----------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
Total purchases and sales of shares for each mutual fund, for the year ended
December 31, 1997, amounted to:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
SUB-ACCOUNT PURCHASES SALES
- ---------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio.............. $1,424,959 $ 353,889
Alger American Leveraged AllCap Portfolio.... 546,534 95,270
Alger American MidCap Growth Portfolio....... 1,168,070 330,221
Alger American Small Capitalization
Portfolio.................................. 1,319,694 575,626
Fidelity Equity-Income Portfolio............. 1,900,443 394,385
Fidelity High Income Portfolio............... 1,473,203 580,456
Fidelity Money Market Portfolio.............. 3,662,896 5,198,354
Fidelity Overseas Portfolio.................. 633,677 177,785
Fidelity Asset Manager Portfolio............. 297,527 44,176
Fidelity Investment Grade Bond Portfolio..... 464,233 252,137
MFS Total Return Series...................... 726,219 246,935
MFS Utilities Series......................... 164,417 53,294
MFS World Governments Series................. 101,617 32,770
AMT Balanced Portfolio....................... 277,567 70,027
AMT Limited Maturity Bond Portfolio.......... 322,764 143,768
AMT Partners Portfolio....................... 1,803,515 325,144
OCC Global Equity Portfolio.................. 1,347,450 292,313
OCC Managed Portfolio........................ 3,879,160 555,203
OCC Small Cap Portfolio...................... 928,032 180,342
- ---------------------------------------------------------------------
</TABLE>
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. Annuity account fees, for the variable
sub-accounts, amounting to $16,358, were deducted for the year ended December
31, 1997.
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
30
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
4. CHARGES AND DEDUCTIONS (CONTINUED)
anniversary. The optional death benefit fees, for the variable sub-accounts,
amounted to $1,230 during the year ended December 31, 1997.
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,
for the variable sub-accounts, were deducted for the year ended December 31,
1997.
The fees charged by CIGNA Life for mortality and expense risks and
administrative fees, from the variable sub-accounts, for the year ended December
31, 1997, amounted to:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
MORTALITY
AND
EXPENSE ASSET BASED
RISK ADMINISTRATIVE
SUB-ACCOUNT FEES FEES
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio......................................... $ 72,359 $ 6,030
Alger American Leveraged AllCap Portfolio............................... 25,402 2,117
Alger American MidCap Growth Portfolio.................................. 48,156 4,013
Alger American Small Capitalization Portfolio........................... 54,243 4,520
Fidelity Equity-Income Portfolio........................................ 75,124 6,260
Fidelity High Income Portfolio.......................................... 32,405 2,700
Fidelity Money Market Portfolio......................................... 35,904 2,992
Fidelity Overseas Portfolio............................................. 14,603 1,217
Fidelity Asset Manager Portfolio........................................ 8,073 673
Fidelity Investment Grade Bond Portfolio................................ 15,546 1,296
MFS Total Return Series................................................. 34,783 2,899
MFS Utilities Series.................................................... 4,251 354
MFS World Governments Series............................................ 3,978 331
AMT Balanced Portfolio.................................................. 11,569 964
AMT Limited Maturity Bond Portfolio..................................... 4,481 373
AMT Partners Portfolio.................................................. 59,218 4,935
OCC Global Equity Portfolio............................................. 63,863 5,322
OCC Managed Portfolio................................................... 121,170 10,097
OCC Small Cap Portfolio................................................. 19,432 1,619
- -------------------------------------------------------------------------------------------
</TABLE>
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 year ended December 31, 1997,
amounted to $18,345.
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.
31
<PAGE>
CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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.
32
<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, High Income Portfolio, Money Market 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 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, 1997, the results of each of their
operations for the year then ended and the changes in each of their net assets
for the periods indicated, 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 audits. We conducted our audits 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 audits, which included
confirmation of securities at December 31, 1997 by correspondence with the
custodians, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Hartford, Connecticut
February 20, 1998
33
<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, 1997 and
December 31, 1996
(B) Statement of Operations for the Periods (as defined in the financial
statements) ended December 31, 1997.
(C) Statement of Changes in Net Assets for the Periods (as defined in
the financial statements) ended December 31, 1997 and December 31,
1996.
(2) Depositor
(A) Consolidated Statements of Income and Retained Earnings for the
Years Ended December 31, 1997, 1996 and 1995.
(B) Consolidated Balance Sheets As of December 31, 1997 and 1996.
(C) Consolidated Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995.
(b) Exhibits
(1) Resolution of Board of Directors of CIGNA Life Insurance Company Dated
As of October 11, 1994 Authorizing Establishment of Registrant**
(2) Not Applicable
(3) Form of Selling Agreement among CIGNA Life Insurance Company, CIGNA
Financial Advisors, Inc. as principal underwriter, and selling
dealers***
(4) Form of CIGNA Life Insurance Company Variable Annuity Contract Form
Number AN 420, together with Optional Methods of Settlement Riders (Form
Numbers AR 420 and AR 421).**
(5) Form of application or order to purchase Which May Be Used in
Connection with the Contract Shown As Exhibit (4)(A), and Addendum (Form
Numbers B10242 and B10243)**
(6) (A) Certificate of Incorporation (Charter) of CIGNA Life Insurance
Company, as amended**
(B) By-Laws of CIGNA Life Insurance Company**
(7) Not Applicable
(8) Not Applicable
(9) Opinion and Consent of Mark A. Parsons, Esq., Chief Counsel, of CIGNA
Corporation
(10) (A) Consent of Price Waterhouse LLP
(B) Consent of George N. Gingold, Esq.
(11) Not Applicable
(12) Not Applicable
(13) Schedules for Computation of Performance Data**
(14) Not Applicable
(15) Power of Attorney Authorizing Signature of Any and All Amendments to
This Registration Statement
* Incorporated by reference to initial filing of this Form N-4
Registration Statement (File No. 33-90984) made on April 6, 1995.
** Incorporated by reference to Pre-Effective Amendment No. 2 to this Form
N-4 Registration Statement (File No. 33-90984) filed on August 23, 1995.
*** Incorporated by reference to Post-Effective Amendment No. 3 to this Form
N-4 Registration Statement (File No. 33-90984) filed on April 22, 1997.
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) and Director
John Wilkinson Vice President and Actuary (Principal Financial Officer)
Dominic A. DellaVolpe Assistant Vice President (Principal Accounting Officer)
David C. Kopp Corporate Secretary
Andrew G. Helming Secretary
Stephen C. Stachelek 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
</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, 1997 there were 792 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 $18,345
were paid on the variable portion of the Contracts during the year ended
December 31, 1997.
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
CIGNA Variable Annuity Separate Account I
2
<PAGE>
DIRECTORS AND OFFICERS OF PRINCIPAL UNDERWRITER
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH UNDERWRITER
- ---------------------- ----------------------------------------------------------------------
<S> <C>
J. Michael Hemp President
Todd R. Stephenson Senior Vice President and Chief Operating Officer
Carolyn P. Brody Vice President
Joy P. McConnell Vice President
Priscilla S. Brown Vice President
Philip L. Holstein Vice President
Karen R. Matheson Director and Vice President
John M. Behrendt Vice President
Janet C. Whitney Vice President and Treasurer
Robert A. Picarello Chief Counsel and Assistant Secretary
H. Edward Cohen Assistant Vice President
Karen E. Goldman Assistant Vice President
C. Suzanne Womack Secretary
Gil L. Bearman Assistant Secretary
Brian S. Becker Assistant Secretary
Renee L. Becks Assistant Secretary
Gail Black Assistant Treasurer
Walter W. Bonham, Jr. 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. 4 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 10th day of April, 1998. Registrant certifies
that this amendment meets all of the requirements for effectiveness pursuant to
Rule 485(b) under the Securities Act of 1933.
CIGNA VARIABLE ANNUITY SEPARATE
ACCOUNT I
(Registrant)
By /s/ THOMAS C. JONES
------------------------------------
Thomas C. Jones
PRESIDENT AND DIRECTOR
CIGNA Life Insurance Company
CIGNA LIFE INSURANCE COMPANY
(Depositor)
By /s/ THOMAS C. JONES
------------------------------------
Thomas C. Jones
PRESIDENT AND DIRECTOR
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 to this Registration Statement (File No.
33-90984) has been signed below on April 13th, 1998 in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
/s/ THOMAS C. JONES
------------------------------------------- President and Director
Thomas C. Jones (Principal Executive Officer)
/s/ JOHN WILKINSON
------------------------------------------- Vice President and Actuary
John Wilkinson (Principal Financial Officer)
/s/ DOMINIC A. DELLAVOLPE*
------------------------------------------- Assistant Vice President
Dominic A. DellaVolpe (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
*By /s/ JOHN WILKINSON
---------------------------------------
John Wilkinson
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 John Wilkinson, Mark A. Parsons and
David C. Kopp, and each of them individually, our true and lawful attorneys-
in-fact, with full power to them and each of them to sign for us, in our names
and in the capacities indicated below, any and all amendments to Registration
Statement No. 33-90984 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 10th day of April, 1998.
SIGNATURE TITLE
- ----------------------------------- -------------------------
/s/ THOMAS C. JONES President and Director
- ----------------------------------- (Principal Executive
Thomas C. Jones Officer)
Vice President and
/s/ JOHN WILKINSON Actuary
- ----------------------------------- (Principal Financial
John Wilkinson Officer)
/s/ DOMINIC A. DELLAVOLPE Assistant Vice President
- ----------------------------------- (Principal Accounting
Dominic A. DellaVolpe 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
<PAGE>
Exhibit (b)(9)
Mark A. Parsons
Chief Counsel
Legal Department, S-215
Hartford, CT 06152-2215
Telephone: (860) 726-7673
Facsimile: (860) 572-8885
April 13, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: CIGNA VARIABLE ANNUITY SEPARATE ACCOUNT I
CIGNA LIFE INSURANCE COMPANY
POST-EFFECTIVE AMENDMENT NUMBER 4: 33-90984
Dear Sirs:
As Chief Counsel of the Retirement and Investment Services Division of CIGNA
Corporation, I am familiar with the actions of the Board of Directors of CIGNA
Life Insurance Company (the Company), establishing the Account and its method of
operation and authorizing the filing of a Registration Statement under the
Securities Act of 1933, (and amendments thereto) 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, as amended, 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 Post-Effective
Amendment No. 4 to said Registration Statement and to the reference to me under
the heading Experts in said Registration Statement, as amended.
Very truly yours,
/s/ Mark A. Parsons
Mark A. Parsons
Chief Counsel
<PAGE>
Exhibit (b)(10)(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 4 under the Securities
Act of 1933 and Amendment No. 7 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 10, 1998 and February 20, 1998, relating to
the financial statements of CIGNA Life Insurance Company and the CIGNA Variable
Annuity Separate Account I of CIGNA Life Insurance Company, respectively, which
appear in such Statement of Additional Information. We also consent to the
reference to us under the heading "Experts" in such Statement of Additional
Information.
PRICE WATERHOUSE LLP
Hartford, Connecticut
April 22, 1998
<PAGE>
Exhibit (b)(10)(B)
GEORGE N. GINGOLD, ESQ.
ATTORNEY AT LAW
197 KING PHILIP DRIVE
WEST HARTFORD, CONNECTICUT
06117-1409
April 22, 1998
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 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-Effective Amendment
No. 4 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/ George N. Gingold
George N. Gingold, Esquire
