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As filed with the Securities and Exchange Commission on April 30, 1998
File No. 33-60967
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT A
(Exact Name of Registrant)
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(Name of Depositor)
900 Cottage Grove Road, Bloomfield, Connecticut 06152
(203) 726-6000
(Address and Telephone Number of Depositor's Principal Executive Offices)
Copy to:
Michael A. James, Esquire Michael Berenson, Esquire
Connecticut General Life Insurance Company Suite 400 East
Two Liberty Place 1025 Thomas Jefferson St., N.W.
21st Floor Washington, D.C. 20007-0805
Philadelphia, PA 19192
(Name and Address of Agent for Service)
Approximate date of proposed public offering: Continuous
INDEFINITE NUMBER OF UNITS OF INTEREST IN VARIABLE LIFE INSURANCE CONTRACTS
(Title and Amount of Securities Being Registered)
An indefinite amount of the securities being offered by the Registration
Statement is being registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The initial registration fee of $500 has been paid with
this declaration.
The registrant amends this Registration Statement of such date or dates as may
be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a)may determine.
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
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X on May 1, 1998, pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a) of Rule 485
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on , pursuant to paragraph (a) of Rule 485
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CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
1 Cover Page; The Separate Account and the Fund Accounts
2 Cover Page; The Company
3 Not Applicable
4 Distribution of Policies
5 The Separate Account and The Fund Accounts
6 Not Applicable
7 Not Applicable
8 Financial Statements
9 Legal Proceedings
10 Highlights; Full Surrender; Partial Surrender;
Right-to-Examine Period; Conversion; Transfers; The Separate
Account and the Fund Accounts; Voting Rights; Lapse; Right to
Take Action Regarding the Separate Account; Premium Payments
11 The Separate Account and The Fund Accounts; The Funds
12 Cover Page; The Separate Account and The Fund Accounts; The
Funds
13 Cover Page; Highlights; Charges and Fees
14 Highlights; Eligibility
15 Premium Payments; Charges and Fees
16 The Funds
17 Surrender, Lapse, and Reinstatement; Transfers; Right to
Examine Period; Certificate Loans
18 Tax Matters
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19 Reports to Certificate holders
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N-8B-2 ITEM CAPTION IN PROSPECTUS
20 Not Applicable
21 Certificate Loans
22 Not Applicable
23 Not Applicable
24 Incontestability; Suicide; Misstatement of Age
25 The Company
26 Fund Participation Agreements
27 The Company
28 Directors and Officers
29 The Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 The Company
36 Not Applicable
37 Not Applicable
38 Distribution of Policies
39 Distribution of Policies
40 Not Applicable
41 Distribution of Policies
42 Not Applicable
43 Not Applicable
44 The Separate Account and The Fund Accounts; Account
Certificates; The
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Funds; Charges and Fees
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N-8B-2 ITEM CAPTION IN PROSPECTUS
45 Not Applicable
46 The Separate Account and The Fund Accounts; Certificate
Values; The Funds; Surrender, Lapse and Reinstatement; Charges
and Fees
47 Premium Payments; The Funds
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Cover Page; Highlights; Eligibility; Coverage Amount;
Termination, Continuation, and Conversion; Premium Payments
52 The Funds; Substitution or Elimination of Securities
53 Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
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CONNECTICUT GENERAL
LIFE INSURANCE COMPANY
CG VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT A
HOME OFFICE LOCATION: MAILING ADDRESS:
900 COTTAGE GROVE ROAD CIGNA
HARTFORD, CT 06152 LEHIGH VALLEY CORPORATE CENTER
1455 VALLEY CENTER PARKWAY
BETHLEHEM, PA 18017
(800) 225-0646
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THE GROUP VARIABLE UNIVERSAL LIFE INSURANCE POLICY
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This prospectus describes a group variable universal life insurance contract
("Policy") offered by Connecticut General Life Insurance Company ("the
Company"). The Policy is a group master contract entered into between a Group
Policyholder (an employer, or a union, or a trustee on behalf of the employer or
union) and the Company. Certain Employees (employees or union members) as agreed
upon between the Group Policyholder and the Company, may become insured under
the Policy. Employees who become insured under the Policy will receive a
Certificate of Insurance ("Certificate") describing their rights under the
Policy. Employees may obtain life insurance coverage for their spouses and
dependent children as well.
This Policy is intended to provide life insurance benefits. It provides for a
death benefit, flexible premium payments, a choice of underlying funding options
for the accumulation of cash value, and a choice of additional benefit options.
Its cash value will, and the death benefit may, vary with the investment
performance of the underlying funding options selected. Certificate Cash Values
may be used to continue the Certificate in force, may be borrowed within certain
limits, and may be fully or partially surrendered. No sales loads are charged
under this Policy.
The Company offers seven variable funding vehicles ("Funds") under the Policy
through the Separate Account:
CIGNA VP Money Market Fund
Fidelity VIP II Investment Grade Bond Portfolio
Fidelity VIP II Asset Manager Portfolio
CIGNA VP S&P 500 Index Fund
Fidelity VIP Equity-Income Portfolio
American Century VP Capital Appreciation
Fidelity VIP Overseas Portfolio
Each Fund is a portfolio of a diversified open-end management investment company
(commonly called a mutual fund) and each Fund has a different investment
objective.
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The fixed interest option offered under the Policy is the Fixed Account. Amounts
held in the Fixed Account are guaranteed and will earn a minimum interest rate
of 4% per year. Unless specifically mentioned, this prospectus only describes
the variable investment options.
It may not be advantageous to replace existing insurance or supplement an
existing variable universal life insurance policy with coverage under the
Policy. This entire prospectus, and those of the Funds, should be read carefully
to understand the Policy being offered.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE MUTUAL FUNDS AVAILABLE AS FUNDING OPTIONS FOR THE POLICIES OFFERED BY THIS
PROSPECTUS. ALL PROSPECTUSES SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF, OR SOLICITATION OF AN OFFER TO
ACQUIRE, ANY INTEREST OR PARTICIPATION IN THE GROUP VARIABLE UNIVERSAL LIFE
INSURANCE POLICIES OFFERED BY THIS PROSPECTUS IN ANY JURISDICTION TO ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION.
PROSPECTUS DATED: MAY 1, 1998
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TABLE OF CONTENTS
Definitions.................................................................. 5
Highlights................................................................... 7
Initial Choices........................................................... 7
Death Benefit Amount...................................................... 8
Amount of Premium Payment................................................. 8
Selection of Funding Vehicle(s)........................................... 8
Charges and Fees.......................................................... 8
The Company.................................................................. 10
The Separate Account and The Fund Accounts................................... 10
The Funds.................................................................... 11
Fund Annual Expenses...................................................... 13
Investment Risk........................................................... 15
Substitution or Elimination of Funds...................................... 15
Fund Participation Agreements............................................. 15
Eligibility.................................................................. 16
Coverage Amounts............................................................. 16
Amounts of Coverage Vehicles.............................................. 16
Guaranteed Issue Amounts.................................................. 16
Changes In Coverage Amounts............................................... 17
Automatic Increase Feature................................................ 17
Effective Dates.............................................................. 18
Right To Examine ............................................................ 18
Death Benefit................................................................ 18
Amount of Death Benefit................................................... 18
Payment of Death Benefit.................................................. 18
Premium Payments............................................................. 20
Premium Payments.......................................................... 20
Premium Increases......................................................... 20
Allocation of Net Premium Payments........................................ 21
Certificate Values........................................................... 21
Cash Value................................................................ 21
Variable Accumulation Unit Value.......................................... 22
Transfers................................................................. 23
Net Cash Value............................................................ 23
Charges and Fees............................................................. 23
Premium Load.............................................................. 23
Monthly Deduction......................................................... 24
Transaction Fee for Excess Transfers and Surrenders....................... 31
Mortality and Expense Risk Charge......................................... 31
Certificate Loans............................................................ 32
Surrender, Lapse, and Reinstatement.......................................... 33
Full Surrender............................................................ 33
Partial Surrender......................................................... 33
Lapse of a Certificate.................................................... 33
Reinstatement of a Lapsed Certificate..................................... 33
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Termination, Continuation, and Conversion.................................... 33
Policy Termination........................................................ 33
Termination of Individual Coverage........................................ 33
Continuation.............................................................. 34
Conversion................................................................ 35
Additional Coverage Riders................................................... 35
Accidental Death, Dismemberment, and Injury............................... 35
Waiver of Cost of Life Insurance.......................................... 36
Paid-Up Insurance......................................................... 36
Accelerated Payment Benefit.............................................. 36
Seat Belt Benefit......................................................... 37
Other Policy Provisions...................................................... 38
Deferral of Payment....................................................... 38
Fixed Benefit Policy Exchange............................................. 38
Certificate Owner......................................................... 38
Beneficiary............................................................... 38
Assignment................................................................ 39
Incontestability.......................................................... 39
Misstatement of Age....................................................... 39
Suicide................................................................... 39
State Variations............................................................. 39
Group Policyholder Elections................................................. 40
Telephone Transactions....................................................... 40
Non-Participating Policies................................................... 40
Dollar Cost Averaging........................................................ 40
Tax Matters.................................................................. 41
Taxation of Policy Benefits in General.................................... 41
Diversification Requirements.............................................. 42
Taxation of the Company................................................... 43
Section 848 Charges....................................................... 43
Other Considerations...................................................... 44
Other Matters................................................................ 44
Voting Rights............................................................. 44
Directors and Officers of the Company..................................... 45
Distribution of Policies.................................................. 46
Other Contracts Issued by the Company..................................... 46
Right to Take Actions Regarding the Separate Account...................... 47
State Regulation.......................................................... 47
Year 2000 Compliance...................................................... 47
Reports to Certificate Owners............................................. 48
Advertisements............................................................ 48
Legal Proceedings......................................................... 48
Experts................................................................... 48
Registration Statement.................................................... 49
Financial Statements...................................................... 50
Illustrations............................................................. 72
Portfolio Prospectuses....................................................... 74
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DEFINITIONS
CASH VALUE: The sum of the Fixed Account Value, the Fund Account Values and the
Loan Account Value.
CERTIFICATE: The document given to an Owner as evidence of that person's rights
and obligations under the Policy.
CERTIFICATE EFFECTIVE DATE: The date on which the Certificate becomes effective,
as shown in the Coverage Verification Pages.
CODE: The Internal Revenue Code of 1986, as amended.
CORRIDOR DEATH BENEFIT: The Death Benefit calculated as a percentage of the Cash
Value, rather than by reference to the Coverage, Amount to satisfy the Internal
Revenue Service definition of life insurance.
COST OF INSURANCE: The portion of the Monthly Deduction attributable to the life
insurance coverage, not including riders, supplemental benefits or monthly
administrative fees.
COVERAGE AMOUNT: The amount of life insurance benefit selected by the Owner upon
application and changed from time to time by the Owner as described in this
prospectus.
CURRENT OUTSTANDING LOAN BALANCE: The Loan Balance plus all interest accrued but
not yet paid.
CUSTOMER SERVICE CENTER: The office or representative of the Company to which
correspondence should be sent, and any customer service requests made. The
address is stated in the Coverage Verification Pages of the Certificate.
DEATH BENEFIT: The amount payable to the beneficiary upon the death of the
Insured. The Death Benefit is reduced by any accelerated payment benefit made
under the Certificate and any amounts due the Company under the Certificate.
FIXED ACCOUNT: The account under which principal is guaranteed and interest is
credited at a rate of not less than 4% per year. Fixed Account assets are
general assets of the Company held in the Company's General Account.
FIXED ACCOUNT VALUE: The portion of the Cash Value under a Certificate, other
than the Loan Account Value, held in the Company's General Account.
FUND ACCOUNT: An Account under a Certificate, the value of which varies based on
the net investment performance of a specific Fund, as described herein. Fund
Account assets are held in the Separate Account and are not guaranteed.
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FUND ACCOUNT VALUE: The Cash Value portion under a Certificate which is
determined by multiplying the number of Variable Accumulation Units in the Fund
Account by the current Variable Accumulation Unit Value.
FUND(S): One or more of CIGNA VP Money Market Fund, Fidelity VIP II Investment
Grade Bond Portfolio, Fidelity VIP II Asset Manager Portfolio, CIGNA VP S&P 500
Index Fund, Fidelity VIP Equity-Income Portfolio, American Century VP Capital
Appreciation and Fidelity VIP Overseas Portfolio.
GENERAL ACCOUNT: The Company's general asset account, in which, along with other
assets of the Company, the assets supporting the non-variable portion of the
Policy are held.
GRACE PERIOD: The period after the Certificate's Net Cash Value becomes
insufficient to cover a due but unpaid Monthly Deduction during which the Owner
may keep the Certificate in force by paying the required premium.
INSURED: The person whose life is insured in the Certificate.
LOAN ACCOUNT VALUE: A portion of the Cash Value equal to the sum of all unpaid
Certificate loans, plus all unpaid interest added to the Loan Balance as
provided for in the Policy, less repayments on loans, plus interest which
accrues daily on the Loan Account.
LOAN BALANCE: The sum of all loans under the Certificate, less any loan
repayments, plus all unpaid interest added to the Loan Balance as provided for
in the Policy.
MONTHLY DEDUCTION: The monthly deduction made from the Net Cash Value; this
deduction includes the cost of insurance, monthly administrative fees and
charges for supplemental riders or benefits, if applicable.
NET CASH VALUE: The Cash Value less the Current Outstanding Loan Balance.
NET PREMIUM PAYMENT: The portion of a premium payment, after deduction of the
premium load for taxes, allocated to the Fixed Account and the Fund Accounts.
OWNER: The Owner of a Certificate under a Policy on the Certificate Effective
Date will be the person designated as Owner in the Coverage Verification Pages.
If no person is designated as Owner, the Insured will be the Owner.
POLICY: The group life insurance contract described in the prospectus, under
which flexible premium payments are permitted and the death benefit and contract
values may vary with the investment performance of the funding option(s)
selected.
POLICY ANNIVERSARY DATE: The Policy Anniversary Date stated in the Coverage
Verification Pages of the Certificate.
POLICY YEAR: Each 12-month period, beginning on the Policy Anniversary Date,
during which the Policy is in effect.
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RELATED FUND: The Fund whose investment performance is the basis for determining
the investment performance of a specific Fund Account.
SEPARATE ACCOUNT: CG Variable Life Insurance Separate Account A. Separate
Account assets are kept separate from the general assets of the Company and are
not, except to the extent that they exceed Separate Account liabilities,
chargeable with the general liabilities of the Company.
VALUATION DAY: Every day on which Variable Accumulation Units are valued; any
day on which the New York Stock Exchange is open, except any day on which
trading on the Exchange is restricted, or on which an emergency exists, as
determined by the Securities and Exchange Commission, so that valuation or
disposal of securities is not practicable.
VALUATION PERIOD: The period consisting of one or more days, from one Valuation
Time to the next succeeding Valuation Time.
VALUATION TIME: The time of the close of the New York Stock Exchange (currently
4:00 p.m. New York time) on a Valuation Day. All actions which are to be
performed on a Valuation Day will be performed as of the Valuation Time.
VARIABLE ACCUMULATION UNIT: A unit of measure used to calculate the value of a
Fund Account.
HIGHLIGHTS
The Policy is a group variable universal life insurance policy. The Policy will
be sold to Group Policyholders (employers and unions or a trustee on behalf of
the employer or union ) to make available life insurance coverage for their
Employees (employees of the employer or members of the union). Employees who
purchase coverage on their own lives will receive a Certificate of Insurance
under the Policy. Depending upon the plan being offered, employees may also be
able to purchase a Certificate of Insurance under the Policy on the lives of
their spouses, or term insurance on the lives of their spouses. Term life
insurance coverage on the lives of the dependent children of the Employee may be
added as an additional benefit to the Certificate of Insurance on the Employee
or the Certificate of Insurance on the spouse (but not both).
Each Certificate may accumulate Cash Value on a fixed or a variable basis or on
a combination of fixed and variable bases. (See Eligibility Section)
The Policy's provisions may vary from state to state as required by state law
and the insurance provisions may vary from policy to policy depending upon the
insurance features selected by the group policyholder.
INITIAL CHOICES TO BE MADE
When purchasing a Certificate under a Policy, the Owner makes three important
choices:
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1) Selecting the initial Coverage Amount;
2) Selecting the amount of premium payments to make; and
3) Selecting how Net Premium Payments will be allocated among the available
funding options.
(See Coverage Amount and Premium Payment Sections)
DEATH BENEFIT AMOUNT
At the time of purchase, the Certificate Owner (also called the "Owner" in this
prospectus) chooses the initial Coverage Amount. The Coverage Amount may be
changed from time to time by the Owner. The Death Benefit will be the Coverage
Amount plus the Net Cash Value less any amounts due the Company under the
Certificate. The Death Benefit will be reduced by the amount of any Accelerated
Payment Benefit made under the Policy. The amount payable will be determined as
of the date of the Insured's death based on investment performance and any
changes made by the Owner. (See Death Benefit Period)
AMOUNT OF PREMIUM PAYMENT
At the time of purchase, the Owner also chooses the amount of premium to be
paid. The Owner may subsequently vary premium payments to some extent and still
keep the Certificate in force. Premium reminder notices will be sent for
premiums required to continue the Certificate in force. If the Certificate
lapses it may be reinstated. (See Reinstatement of a Lapsed Certificate)
SELECTION OF FUNDING VEHICLE(S)
The Owner chooses how to allocate Net Premium Payments. Net Premium Payments may
be allocated, in any combination, to one or more Fund Accounts, each of which
varies in value based on the performance of a particular Fund, and to the Fixed
Account. Allocations to any Fund Account or to the Fixed Account must be in 5%
increments. (See Allocation of Net Premium Payments Section)
Fund Account Values are not guaranteed and will vary with the investment
performance of the Related Fund.
CHARGES AND FEES
There is no sales load.
There is a premium load on all premium payments which will not exceed 5.00%.
Currently, the premium load is 3.00%, which reflects charges to cover the
expenses of state premium taxes and the additional federal income tax burden
under Section 848 of the Code relating to the tax treatment of deferred
acquisition costs.
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State premium taxes vary from state to state and may be as low as 0.00% and as
high as 3.00%. The premium load comprising the combined charges for federal
income taxes and state premium taxes will not exceed 5%. The Company reserves
the right to waive the state premium tax portion of the premium load when it
would apply to the value of a policy or certificate of life insurance
underwritten by the Company or an affiliate which is accepted in exchange for a
certificate of insurance under this group variable universal life insurance
policy in a transaction under Section 1035 of the Code.
Monthly deductions are made from the Cash Value for the cost of insurance and
any additional benefits. Monthly deductions are also made from the Cash Value
for administrative expenses. The administrative charge is comprised of two fixed
dollar monthly fees. The first fixed dollar monthly fee, which will not exceed
$5.00 per month, will be charged to each Certificate under the Policy. The
second fixed dollar monthly fee, which will not exceed $3.00 per month, will be
charged, in addition to the first fee, to Certificates which have accumulated
Cash Value in any Fund Account. The second fixed dollar monthly fee will be
waived for Certificates under which the Net Cash Value is greater than $10,000.
In addition to the guaranteed maximum amounts for each of the two fixed dollar
monthly fees comprising the monthly administrative fee, the sum of the two fixed
dollar monthly fees actually charged at any time is guaranteed not to exceed
$6.00.
Daily charges to the Fund Accounts are made for the mortality and expense risks.
The mortality and expense risk charge may vary up to an annual rate of 0.90%. It
is currently at the annual rate of 0.45%.
Investment results for each Fund Account are affected by each Fund's daily
charge for management fees; these charges vary by Fund and are shown in the Fund
Annual Expenses subsection of The Funds section of this prospectus.
A transaction fee of $25 is imposed for full surrenders, partial surrenders and
for transfers in excess of 12 per Policy Year under a Certificate. The Company
reserves the right to waive this fee in some circumstances.
Interest is charged on Certificate loans at an effective annual rate of 8%.
Interest is credited to funds securing the loan at an effective annual rate of
no less than 6%.
In certain instances, the Company may reduce and/or waive certain transaction
fees and/or monthly administrative fees in the sale of Policies to certain
groups.
Costs for sales, administration, and mortality generally vary with the size and
stability of the group, among other factors.
The Company takes all these factors into account when reducing or waiving
charges. To qualify for reduced or waived charges, a group or similar
arrangement must meet certain requirements, including our requirements for size
and ease of administration.
The Company will make any reductions or waivers according to its rules in effect
when an application or enrollment form for a Policy is approved. The Company may
change these
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rules from time to time. Any variation in the monthly administrative fees or
transaction fees will reflect differences in costs or services and will not be
unfairly discriminatory.
THE COMPANY
The Company is a stock life insurance company incorporated in Connecticut in
1865. Its Home Office mailing address is Hartford, Connecticut 06152, Telephone
(860) 726-6000. It has obtained authorization to do business in fifty states,
the District of Columbia and Puerto Rico. The Company issues group and
individual life and health insurance policies and annuities. The Company has
various affiliates or wholly-owned subsidiaries which are generally engaged in
the insurance business. The Company is an indirect wholly-owned subsidiary of
CIGNA Corporation, Philadelphia, Pennsylvania.
The Company markets the Policies through independent insurance brokers, general
agents, and registered representatives of broker-dealers who are members of the
National Association of Securities Dealers, Inc.
THE SEPARATE ACCOUNT AND THE FUND ACCOUNTS
Cash Value invested in the Fund Accounts of a Certificate under the Policy is
held in the Separate Account. The Separate Account, CG Variable Life Insurance
Separate Account A, was established pursuant to a May 22, 1995 resolution of the
Board of Directors of the Company. Under Connecticut insurance law, the income,
gains or losses of the Separate Account are credited without regard to the other
income, gains or losses of the Company. The Company serves as the custodian of
the assets of the Separate Account. These assets are held for the Policies. The
Separate Account cannot be charged with liabilities of the Company other than
Fund Account liabilities under the Policies or under other Policies whose
variable values and benefits are supported by the Separate Account, except to
the extent that the Separate Account assets exceed the reserves and other
contract liabilities of the Separate Account.
All obligations arising under the Policies are general corporate liabilities of
the Company. Separate Account assets are invested in shares of Funds.
Owners who allocate Net Premium Payments, or transfer funds from another
account, into a Fund Account are credited with Variable Accumulation Units of
the Fund Account valued at the current Variable Accumulation Unit Value for that
Fund Account. Variable Accumulation Unit Values for a Fund Account vary each
Valuation Day based on the investment performance of the Related Fund. Any and
all distributions made by any Fund with respect to shares held by the Separate
Account will be reinvested in additional shares of the Fund at net asset value.
Deductions, transfers, and surrenders from Fund Accounts will, in effect, be
made by surrendering Variable Accumulation Units of the Fund Account at the then
current Variable Accumulation Unit Value.
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The Separate Account is registered with the Securities and Exchange Commission
("Commission") as a unit investment trust under the Investment Company Act of
1940 (the "Act"). Such registration does not involve supervision of the Separate
Account or the Company's management of investment practices or policies by the
Commission. The Company does not guarantee the Separate Account's investment
performance or the performance of the Certificates' Fund Accounts.
The Company has other separate accounts registered as unit investment trusts
with the Commission for the purpose of funding the Company's variable annuity
contracts and other variable life insurance contracts.
THE FUNDS
Each of the Fund Accounts under a Certificate is supported solely by the shares
of one of the Funds available as funding vehicles under the Policies. Each of
the Funds is a portfolio of a trust or a corporation which is registered as an
open-end, diversified management investment company under the Act (an
"Investment Company").
The Investment Companies and their investment advisers and distributors are:
Fidelity VIP Equity-Income Portfolio and Fidelity VIP Overseas Portfolio are
portfolios of the Variable Insurance Products Fund; and Fidelity VIP II Asset
Manager Portfolio and Fidelity VIP II Investment Grade Bond Portfolio are
portfolios of the Variable Insurance Products Fund II.
Fidelity Management & Research Company, 82 Devonshire Street, Boston,
Massachusetts, is the investment adviser to Variable Insurance Products Fund and
Variable Insurance Products Fund II. These funds are distributed by Fidelity
Distributors Corporation, 82 Devonshire Street, Boston, Massachusetts, 02103.
American Century VP Capital Appreciation is a portfolio of American Century
Variable Portfolios, Inc.
American Century Investment Management, Inc., Twentieth Century Tower, 4500 Main
Street, Kansas City, Missouri, 64111 is the investment adviser to American
Century Variable Portfolios, Inc. which is distributed by American Century
Variable Portfolios, Inc., 4500 Main Street, P.O. Box 419385, Kansas City, MO.,
64141-6385.
CIGNA VP S&P 500 Index Fund and CIGNA VP Money Market Fund are portfolios of
CIGNA Variable Products Group.
CIGNA Investments, Inc., 900 Cottage Grove Road, Bloomfield, Connecticut, 06152,
is the investment adviser to CIGNA Variable Products Group, which is distributed
by CIGNA Financial Services, Inc., 900 Cottage Grove Road, Bloomfield, CT. 06152
The investment advisory fees charged the Funds by their advisers are shown in
the Fund Annual Expenses portion of this section of this Prospectus.
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There follows a brief description of the investment objective of each Fund.
There can be no assurance that any of the stated investment objectives will be
achieved.
CIGNA VP MONEY MARKET FUND
The fund seeks to earn a high level of current income while maintaining a stable
share price by investing in high-quality, short-term money market securities of
different types. It stresses income, preservation of capital, and liquidity, and
does not seek the higher yields or capital appreciation that more aggressive
investments may provide. The fund's yield will vary from day to day and
generally reflects current short-term interest rates and other market
conditions.
FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO
The fund seeks high current income by investing primarily in fixed-income
obligations of all types. The fund invests at least 65% of its assets in
investment-grade, fixed income securities such as bonds, notes and debentures,
and maintains a dollar-weighted average maturity of ten years or less. Because
the fund invests in fixed income securities, its share price is related to
changes in interest rates. The fund may use various investment techniques to
hedge the fund's risks, but there is no guarantee that these strategies will
work as intended. With its focus on medium to high-quality investments and
intermediate maturity, the fund has a moderate risk level and yield potential.
FIDELITY VIP II ASSET MANAGER PORTFOLIO
The fund seeks high total return with reduced risk over the long term. The fund
seeks to achieve its investment objective by allocating its assets among stocks,
bonds, short-term and money market instruments and other investments of U.S. and
foreign issuers. The fund spreads its assets among all three asset classes
moderating both its risk and return potential. Because the fund can invest in
bonds and short-term instruments and money market instruments, its returns may
not be as high as a fund that invests only in stocks.
CIGNA VP S&P 500 INDEX FUND
The fund seeks to match the total return of the S&P 500 while keeping expenses
low.
The S&P is made up of 500 common stocks, most of which trade on the New York
Stock Exchange. The fund's composition may not always be identical to that of
the S&P 500. Because the fund seeks to track, rather than exceed, the
performance of the S&P 500, it is not managed in the same manner as other mutual
funds. It should not be expected to achieve the potentially greater results that
could be obtained by a fund that aggressively seeks growth.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500", and
"500" are trademarks of Standard & Poors Corporation and have been licensed for
use by Connecticut General Life Insurance Corporation. The fund is not
sponsored, endorsed, sold or promoted by S&P and S&P makes no representation
regarding the advisability of investing in the Fund Account.
12
<PAGE> 19
FIDELITY VIP EQUITY-INCOME PORTFOLIO
The fund seeks reasonable income by investing primarily in income-producing
securities. It will normally have 65% of its assets invested in such securities.
The balance will tend to be invested in debt obligations many of which are
expected to be convertible into common stock. The fund seeks to achieve a yield
that beats that of the S&P 500. The fund does have the flexibility to invest the
balance in all types of securities, including bonds of varying quality. The fund
is designed for those who want some income from equity and bond investments, but
also want to be invested in the stock market for its long-term growth potential.
AMERICAN CENTURY VP CAPITAL APPRECIATION
The investment objective of American Century VP Capital Appreciation is capital
growth. The fund will seek to achieve its investment objective by investing
primarily in common stocks that are considered by management to have
better-than-average prospects for appreciation. It may purchase securities only
of companies that have a record of at least three years' continuous operation.
FIDELITY VIP OVERSEAS PORTFOLIO
The fund seeks long-term growth of capital by investing primarily in securities
of issuers whose principal activities are outside of the U.S. The fund normally
invests at least 65% of its total assets in securities of issuers from at least
three different countries outside of North America. The fund expects to invest a
majority of its assets in equity securities, but may also invest in debt
securities of any quality. The fund may invest in the securities of any issuer,
including companies and other business organizations, as well as governments and
government agencies. It is important to note that investments in foreign
securities involve risks in addition to those of U.S. investments. The
performance of the fund depends upon currency values, the political and
regulatory environment, and overall economic factors in the countries in which
the fund invests.
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
The management fees for each Fund are based on a percentage of that Fund's
assets under management. The fees below represent the amounts payable to the
investment adviser of each of the Funds on an annual basis as of the date of
this Prospectus, plus other expenses.
13
<PAGE> 20
<TABLE>
<CAPTION>
Total
Mgmt. Other Annual
Fees Expenses Expenses
---- -------- --------
<S> <C> <C> <C>
CIGNA VP Money Market Fund (a) .35% .15% .50%
Fidelity VIP II Investment Grade Bond Portfolio .44% .14% .58%
Fidelity VIP II Asset Manager Portfolio (b) .55% .10% .65%
CIGNA VP S&P 500 Index Fund(a) .25% .00% .25%
Fidelity VIP Equity-Income Portfolio(b) .50% .08% .58%
American Century VP Capital Appreciation 1.00% .00% 1.00%
Fidelity VIP Overseas Portfolio(b) .75% .17% .92%
</TABLE>
The purpose of the above Table is to assist the Certificate Owner in
understanding the various Fund costs and expenses that a Certificate Owner will
incur, directly or indirectly. For additional information, see other subsections
of The Funds section in this prospectus and the discussion in each Fund's
prospectus.
- ----------
(a) The Investment Advisor for CIGNA Money Market Fund and CIGNA S&P 500 Index
Fund has voluntarily agreed to limit total annual expenses to 0.50% and
0.25% of average net assets, respectively.
These agreements are voluntary and may end at any time; however, the
Investment Advisor for the funds has committed to maintain these caps on
expenses until May 1, 1999.
Total Fund Operating Expenses for the S&P 500 Index Fund for 1997, absent
expense reimbursements, were 55% of this Fund's average daily net asset
value. Total Fund Operating Expenses for the Money Market Fund for 1997
absent expense reimbursement were 1.11% of this Fund's average daily net
asset value. Other Operating Expenses and Total Fund Operating Expenses
reflect the current voluntary expense limitation effective January 1,
1998.
(b) A portion of the brokerage commissions that certain Fidelity funds pay was
used to reduce fund expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Including these reductions, the total operating
expenses presented in the table would have been 0.57% for Fidelity VIP
Equity-Income Portfolio, 0.90% for Fidelity VIP Overseas Portfolio, and
0.64% for Fidelity VIP II Asset Manager Portfolio.
14
<PAGE> 21
INVESTMENT RISK
There is no assurance that the investment objective of any of the Funds will be
met. A Certificate Owner bears the complete investment risk for those portions
of his Cash Value allocated to a Fund Account. Each of the Fund Accounts
involves inherent investment risk, and such risk varies significantly among the
Fund Accounts. Certificate Owners should read each Fund's prospectus carefully
and understand the Fund Accounts' relative degrees of risk before making or
changing investment choices. Additional Funds may, from time to time, be made
available as underlying investments for the Policies. However, the right to make
such selections will be limited by the terms and conditions imposed on such
transactions by the Company.
All of the funds, except CIGNA VP Money Market Fund and CIGNA VP S&P 500 Index
Fund may invest a portion of their funds in lower-quality debt securities. These
lower-quality debt securities (sometimes called "junk bonds") are often
considered to be speculative and involve greater risk of default or price
changes due to changes in interest rates, economic conditions, and the issuer's
creditworthiness.
As a result, their market prices tend to fluctuate more than higher-quality
securities. Lower-quality securities are those rated lower than Baa by Moody's
Investors Service, Inc., or lower than BBB by Standard & Poor's Corporation.
Certain of the portfolios offered as underlying funds may invest in such
lower-quality debt securities. See the prospectus for each portfolio for a
further discussion of the risks and for additional information regarding the
portfolio's investment policies and restrictions.
SUBSTITUTION OR ELIMINATION OF FUNDS
If the shares of any Fund should no longer be available for investment by the
Separate Account or if, in the judgment of the Company, further investment in
such shares should become inappropriate for the Policies or the Separate
Account, the Company may substitute shares of another Fund or eliminate such
Fund from the Separate Account. No substitution or elimination of securities
supporting any Fund Account may take place without prior approval of the
Commission and under such requirements as it may impose and notification to
Group Policyholders and Owners.
FUND PARTICIPATION AGREEMENTS
The Company has entered into agreements with the various Investment Companies
and their advisers or distributors through which the Company makes the Funds
available under the Policies and performs certain administrative services. In
some cases, the advisers or distributors may compensate the Company for such
services.
15
<PAGE> 22
ELIGIBILITY
The Policies will be sold to Group Policyholders (employers and unions and
trustees on behalf of employers and unions) who wish to make variable universal
life insurance coverage available to all or a portion of their Employees
(employees of employers and members of unions) and retirees, and their families.
Employees may apply for coverage under the Policy within policy limits and
subject to certain requirements or provide evidence of good health acceptable to
the Company.
Depending upon the coverage selected by the group Policyholder, several
different possible family coverage and continuation provisions may be available.
Employees may be able to apply for variable universal life insurance coverage on
their spouses or term life coverage on their spouses. Employees may be able to
purchase term life insurance coverage on their children. Employees may be able
to continue their coverage upon retirement, leave of absence, and/or termination
of employment. Spouses may be able to continue coverage upon divorce, or death
of the Employee.
No policy or certificates will be issued unless a minimum number or percentage
of Employees eligible applies for coverage under the policy. These minimums will
be determined by the Company, based on group characteristics in advance of
offering to the Employees. No certificate of insurance under the policy will be
issued to an Employee, spouse, or dependent for whom this policy appears to be
an unsuitable investment.
COVERAGE AMOUNTS
AMOUNTS OF COVERAGE
Coverage Amounts for Employees will be in multiples of the Employee's annual
compensation and will be selected by the Employee at the time of enrollment. The
minimum Coverage Amount for Insured Employees is $10,000. The minimum Coverage
Amount for spouses is $10,000 or such lesser amount as may be required by state
law. The maximum Coverage Amount will be agreed upon by the Group Policyholder
and the Company but shall not be more than the lesser of ten times annual
compensation or a fixed dollar maximum.
Coverage for spouses will be in a limited number of selections up to the lesser
of $100,000 or three times the Employee's annual compensation. The maximum
coverage for spouses will be less where required by state law.
Maximum Coverage Amounts are subject to limitation by state law and may vary
from state to state.
GUARANTEED ISSUE AMOUNTS
Employees will be able to purchase insurance on themselves and their spouses in
amounts up to a guaranteed issue amount without providing evidence of good
health acceptable to the
16
<PAGE> 23
Company. The guaranteed issue amount will be agreed upon between the Group
Policyholder and the Company before coverage under the Policy is offered to
Employees. Employees and their spouses will be required to provide evidence of
good health acceptable to the Company for amounts of insurance in excess of the
guaranteed issue amount, for any increases in coverage, or if they enroll more
than 31 days after becoming eligible.
CHANGES IN COVERAGE AMOUNTS
Changes in the Coverage Amount of a Certificate can be made by submitting a
written request to the Customer Service Center in a form satisfactory to the
Company.
Increases in an Employee's Coverage Amount may be applied for based on an
increase in the Employee's annual compensation or a higher multiple of the
Employee's compensation. Increases in the Coverage Amount for a spouse or child
may be applied for at any time.
Changes in the Coverage Amount are subject to the following conditions:
Satisfactory evidence of good health acceptable to the Company and a
supplemental application will be required for an increase in the Coverage
Amount.
No decrease may reduce the Coverage Amount to less than $10,000 (for
spouses, such lesser amount as may be required by state law).
No decrease may reduce the Coverage Amount below the minimum required to
maintain the Policy's or the Certificate's status under the Code as a life
insurance contract.
If the Automatic Increase Feature is available on the Policy and the
Employee has elected it, the Coverage Amount for an Insured Employee will
be increased on the Policy Anniversary Date to maintain his elected
multiple of annual compensation. The amount of the increase may be limited
to an amount predetermined by the Group Policyholder. Evidence of good
health acceptable to the Company will not be required for increases in
Coverage Amount through the Automatic Increase Feature.
If the Life Status Change feature is available on the Policy, the coverage
amount for an Insured Employee can be increased by one times the
employee's annual compensation within 31 days of a qualifying Life Status
Change event. Evidence of good health acceptable to the Company will not
be required for this increase in coverage.
AUTOMATIC INCREASE FEATURE
If the Group Policyholder has elected to have this feature offered on the
Policy, and the Employee has elected this feature, the Employee's Coverage
Amount will be increased on each Policy Anniversary Date in order to maintain
his elected multiple of annual compensation. Evidence of good health acceptable
to the Company will not be required for this increase in Coverage Amount. The
amount of the increase may be subject to a dollar and/or percentage limit. This
feature will terminate if the Owner otherwise increases or decreases the
Coverage
17
<PAGE> 24
Amount to an amount which is not a whole multiple of the Employee's Annual
Compensation.
EFFECTIVE DATES
Coverage, for applicants who apply within 31 days of becoming eligible, up to
the guaranteed issue amount, will become effective either when the applicant
becomes eligible or when the completed application is received. For applicants
who apply later, and for amounts in excess of the guaranteed issue amount,
coverage will become effective when the Company agrees in writing to insure the
applicant.
For Employees not in active service, the effective date of coverage will be
delayed until the return to active service. For spouses who are disabled or for
spouses and children who are hospitalized or confined at home under medical
care, the effective date of coverage will be delayed until all such conditions
have ended. If the conditions delaying the effective date are not resolved
within 90 days of the original application date, a new application and new
evidence of good health acceptable to the Company will be required.
RIGHT TO EXAMINE
A Certificate may be returned for cancellation and a full refund of premium
within 30 days after the Certificate is received, unless otherwise stipulated by
state law requirements. Any premium payment made prior to the expiration of the
30-day Right-to-Examine period will be held in the Fixed Account and not
allocated to the Separate Account even if the Certificate Owner may have so
directed until three business days following the expiration of the
Right-to-Examine period. If the Certificate is returned for cancellation in a
timely fashion, the refund of premiums paid, without interest, will usually
occur within seven days of notice of cancellation, although a refund of premiums
paid by check may be delayed until the check clears the bank upon which it is
drawn. Any refund will be reduced by partial surrenders or loans plus interest
accrued.
DEATH BENEFIT
AMOUNT OF DEATH BENEFIT
The Death Benefit will be the greater of the Coverage Amount , plus the Net Cash
Value, or the Corridor Death Benefits. The Death Benefit varies, increasing or
decreasing over time, depending on the amount of premium paid and the investment
performance of the Fund Accounts and the Fixed Account. The Death Benefit will
be reduced by any amount paid under the Accelerated Payment Benefit Rider.
PAYMENT OF DEATH BENEFIT
The Death Benefit under the Certificate will be paid in a lump sum within seven
days after receipt at the Customer Service Center of due proof of the Insured's
death (a certified copy of
18
<PAGE> 25
the death certificate) plus such other documentation as the Company may require
as proof of a covered claim under the Certificate. Payment of the Death Benefit
may be delayed if the Certificate is being contested.
The Death Benefit under the Certificate at any time must be at least the
following "Corridor Percentage" of the Cash Value based on the Insured's
attained age:
<TABLE>
<CAPTION>
INSURED'S CORRIDOR INSURED'S CORRIDOR
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ---------- ------------ ----------
<S> <C> <C> <C>
0-40 250% 70 115%
41 243 71 113
42 236 72 111
43 229 73 109
44 222 74 107
45 215 75 105
46 209 76 105
47 203 77 105
48 197 78 105
49 191 79 105
50 185 80 105
51 178 81 105
52 171 82 105
53 164 83 105
54 157 84 105
55 150 85 105
56 146 86 105
57 142 87 105
58 138 88 105
59 134 89 105
60 130 90 105
61 128 91 104
62 126 92 103
63 124 93 102
64 122 94 101
65 120 95 100
66 119 96 100
67 118 97 100
68 117 98 100
69 116 99 100
</TABLE>
The Company may refuse to accept additional premiums, increase the Coverage
Amount or require the Owner to request a partial surrender of cash value to
assure that this corridor requirement is met. Evidence of good health acceptable
to the Company may be required for any increases in coverage to accommodate the
corridor requirement.
19
<PAGE> 26
PREMIUM PAYMENTS
PREMIUM PAYMENTS
The Certificates provide for flexible premium payments. Premium payments are
payable at the frequency and in the amount selected by the Certificate Owner.
The initial premium payment is due on the Certificate Effective Date. Premiums
may be paid on a lump-sum basis or on a periodic basis (for Insured Employees,
periodic premium payments are ordinarily made through payroll deduction; for
other Eligible Classes, periodic billing may be available) . The minimum payment
required is the amount necessary to maintain a positive Net Cash Value. After
the initial premium payment, each subsequent lump-sum premium payment must be at
least $25. The Company reserves the right to decline a premium payment as
specified in other sections of the prospectus.
All premium payments, whether periodic or on a lump-sum basis, will be deemed
received when actually received by the Company at its Customer Service Center;
or, if such premium payment is made by payroll deduction, such premium payment
will be deemed received when the Company has confirmed receipt of a wire
transfer into a bank account maintained by the Company for receipt of premium
from Group Policyholders under these Policies. Such a wire transfer must be
preceded, by 2 business days, by a reconciliation statement identifying the
Group Policyholder, the Certificate number, the Owner and the amount of premium
received for each Certificate. Remittance of premium payments through the
payroll deduction mechanism often requires significant processing time for
collection and reconciliation of individual premium payments and to coordinate
varying payroll cycles with monthly premium due dates. Premium payments are not
deemed received, and cannot be credited to Certificates, until the above
reconciliation and receipt requirements are met.
The Certificate Owner may elect to change the frequency or amount of premium
payments.
Payment of periodic premium or lump-sum premium in any amount will not guarantee
that the Certificate will remain in force. Conversely, failure to pay periodic
premium or lump-sum premium will not necessarily cause a Certificate to lapse. A
Certificate will not lapse as long as the Net Cash Value is adequate to cover
the next monthly deduction.
PREMIUM INCREASES
At any time, the Owner may increase periodic premium payment amounts or make
lump-sum premium payments, but:
Evidence of good health acceptable to the Company may be required if the
additional premium or the new periodic premium payment would require the
Company to increase the Coverage Amount. If satisfactory evidence of good
health is requested and not provided, the increase in premium will be
refunded without interest and without participation of such amounts in any
Fund Account.
In no event may the total of all premium payments exceed the then-current
maximum premium limitations established by federal tax law for a
Certificate to qualify as a life
20
<PAGE> 27
insurance contract. If, at any time, a premium payment would result in
total premiums exceeding such maximum premium limitation, the Company will
not accept that premium payment. The premium payment will be returned or
applied as otherwise agreed and no further premium payments will be
accepted until allowed by the then-current maximum premium limitations
prescribed by law.
If there is any Current Outstanding Loan Balance, any lump-sum premium
payments will be used first as a loan repayment with any excess applied as
an additional Net Premium Payment unless otherwise agreed between the
Owner and the Company.
ALLOCATION OF NET PREMIUM PAYMENTS
At the time of purchase of the Certificate, the Owner decides how to allocate
Net Premium Payments among the Fund Accounts and the Fixed Account. Allocation
to any one Fund Account or to the Fixed Account must be in increments of 5% of
the Net Premium Payment. The portion of any Net Premium Payment allocated to a
Fund Account will be used to purchase Variable Accumulation Units of that Fund
Account.
The number of Variable Accumulation Units credited to the Fund Account for any
single purchase is determined by dividing the amount of the Net Premium Payment
being allocated to that Fund Account by the value of the Variable Accumulation
Unit for that Fund Account.
During the Right-to-Examine period, any Net Premium Payment will be allocated to
the Fixed Account, and interest will be credited from the later of Certificate
Effective Date or the date the Net Premium Payment was received. The Company
will allocate the Net Premium Payments received during the Right to Examine
Period directly to the Fund Account(s) selected by the Owner within three days
after expiration of the Right-to-Examine period.
Unless the Company is directed otherwise by the Certificate Owner, subsequent
Net Premium Payments will be allocated on the same basis as the most recent Net
Premium Payment. Such allocation will occur as of the Valuation Day during which
the payment is received.
The allocation for future premium payments may be changed at any time free of
charge. Any new allocation will be applied to premium payments beginning no
later than one week after the Company receives the notice of the new allocation.
Any new allocation must allocate to any single Fund Account or the Fixed Account
in increments of 5% of the Net Premium Payment.
CERTIFICATE VALUES
CASH VALUE
The Cash Value of the Certificate is the sum of the Fixed Account Value, the
Fund Account Values, and the Loan Account Value.
The Loan Account Value is described under the Certificate Loan Provisions
section of this prospectus.
21
<PAGE> 28
The Fixed Account Value is the sum of: a) the Fixed Account Value at the end of
the preceding day, minus b) charges or fees charged to the Fixed Account and
transfers and surrenders out of the Fixed Account during that day, plus c)
interest on the difference between a and b, plus d) the sum of all transfers
into the Fixed Account during that day and all net premium allocated to the
Fixed Account during that day.
The Fund Account Value is the product of the number of Variable Accumulation
Units in that Fund Account and the Variable Accumulation Unit Value for that
Fund Account.
Variable Accumulation Units are added to a Fund Account when Net Premium
Payments are allocated to the Fund Account or funds are transferred into the
Fund Account from another Fund Account, the Fixed Account, or the Loan Account.
Variable Accumulation Units are deducted from a Fund Account when funds are
transferred out of the Fund Account to another Fund Account, the Fixed Account,
or the Loan Account. Variable Accumulation Units are also deducted from the Fund
Account when funds are transferred out of the Fund Account for surrender or
partial surrender. Variable Accumulation Units will also be deducted from the
Fund Account when funds are withdrawn from the Fund Account for the Monthly
Deductions, transaction fees, or other charges which are charged to a Fund
Account as provided for in the Policy.
The number of Variable Accumulation Units to be added to or deducted from a Fund
Account is determined by dividing the dollar amount to be credited to or charged
against the Fund Account by the Variable Accumulation Unit Value of a Variable
Accumulation Unit for that Fund Account during the Valuation Period in which the
credit or charge will occur.
The Variable Accumulation Unit Value for a Fund Account is maintained by the
Company and changes from Valuation Period to Valuation Period based on the
investment performance of the Related Fund, the mortality and expense risk
charge, and any charges to the Fund Account for taxes resulting from the
operation of the Separate Accounts. (See Variable Accumulation Unit Value
below.)
The Fixed Account Value is guaranteed; but there is no assurance that the sum of
the Fund Account Values of the Certificate will equal or exceed the Net Premium
Payments allocated to the Fund Accounts.
Each Certificate Owner will be advised at least annually as to the number of
Variable Accumulation Units which are credited to the Certificate, the current
Variable Accumulation Unit Values, the Fund Account Values, the Fixed Account
Value and the Loan Account Value. This information is available daily from the
Customer Service Center.
VARIABLE ACCUMULATION UNIT VALUE
The value of a Variable Accumulation Unit for any Valuation Period is determined
by multiplying the value of that Variable Accumulation Unit for the immediately
preceding Valuation Period by the Net Investment Factor for the current period
for the appropriate Fund Account. The Net Investment Factor is determined
separately for each Fund Account by dividing (a) by (b) and subtracting (c) from
the result, where (a) equals the net asset value per
22
<PAGE> 29
share of the Related Fund at the end of the Valuation Period plus the per share
amount of any distribution declared by the Fund if the "ex-dividend" date is
during the Valuation Period plus or minus the Fund Account's proportionate share
of taxes or provisions for taxes, if any, attributable to the operation of the
Separate Account during the Valuation Period; (b) equals the net asset value per
share of the Related Fund at the beginning of that Valuation Period, and (c) is
the daily charge for mortality and expense risk multiplied by the number of days
in the Valuation Period.
TRANSFERS
While the Certificate is in force, values may, at any time, be transferred from
one Fund Account to another, or from the Fund Accounts to the Fixed Account.
Within the 30 days after each Policy Anniversary, the Owner may also transfer a
portion of the Fixed Account Value to one or more Fund Accounts. The cumulative
amount of any transfers from the Fixed Account within any such 30-day period
cannot exceed 25% of the Fixed Account Value on that Policy Anniversary Date.
The Company may further limit transfers from the Fixed Account at any time.
Transfers will be effective as of the Valuation Day during which the request is
received in good order at the Customer Service Center. Transfers may be subject
to a maximum amount and to limitations imposed by the Funds.
Subject to the above restrictions, up to 12 transfers may be made in any Policy
Year without charge.
Transfers may be made in writing (or by telephone if telephone transactions have
been previously authorized in writing). To make a telephone transfer, the
Certificate Owner must call the Customer Service Center and provide, as
identification, his Certificate number, his Social Security number, and his
personal identification number. A customer service representative will then,
upon ascertaining that telephone transfers are authorized for that Certificate,
take the transfer request, which will be processed as of the next close of
business and confirmed within five business days. The Company disclaims all
liability for losses resulting from unauthorized or fraudulent telephone
transactions, but acknowledges that if it does not follow these procedures,
which it believes to be reasonable, it may be liable for such losses.
Any transfers among the Fund Accounts or from a Fund Account to the Fixed
Account will result in the crediting and cancellation of Variable Accumulation
Units based on the Variable Accumulation Unit values next determined after a
written request is received at the Customer Service Center. The Certificate
Owner should carefully consider current market conditions and each Fund's
investment policies and related risks before transferring money between the Fund
Accounts. See the section of this Prospectus titled "The Funds," and the
prospectuses of the Funds.
NET CASH VALUE
The Net Cash Value is the Cash Value of the Certificate minus the Current
Outstanding Loan Balance.
23
<PAGE> 30
CHARGES AND FEES
PREMIUM LOAD
A deduction of 3.0% of each premium will be made to cover the premium load. This
load consists of 2.50% for state premium taxes and 0.50% for federal income
taxes. The load may be changed from time to time but may not exceed 5%. There is
no sales load.
State premium taxes vary from state to state and may be as low as 0.00% and as
high as 3.00%. The 2.5% charge reflects an average state premium tax expense
expected to be incurred for group variable life insurance policies offered in
this Prospectus; although applicable state premium tax laws may assess a tax at
a rate either higher or lower than the charge included in the premium load under
the Policy. This charge may vary from time to time based on changes in state
premium tax laws, which states' premium tax laws are applicable to the policy
and the amounts of premium received in such states; however, the premium load
comprising the combined charges for federal income taxes and state premium taxes
will not exceed 5%. The Company reserves the right to waive the state premium
tax portion of the premium load when it would apply to the value of a policy or
certificate of life insurance underwritten by the Company or an affiliate which
is accepted in exchange for a certificate of insurance under this group variable
universal life insurance policy.
MONTHLY DEDUCTION
A Monthly Deduction is made from the Net Cash Value for administrative expenses.
The monthly administrative fee will be comprised of two fixed dollar monthly
fees.
The first fixed dollar monthly fee, which will not exceed $5.00 per month, will
be charged to each Certificate. The second fixed dollar monthly fee, which will
not exceed $3.00 per month, will be charged, in addition to the first, to
Certificates which have accumulated Cash Value in any Fund Account. The second
fixed dollar monthly fee will be waived for any Certificate whose Net Cash Value
is greater than $10,000. In addition to the guaranteed maximum amounts for each
of the two fixed dollar monthly fees comprising the monthly administrative fee,
the sum of the two fixed dollar monthly fees actually charged at any time is
guaranteed not to exceed $6.00.
This charge is for items such as premium billing and collection, Certificate
value calculation, confirmations and periodic reports.
A Monthly Deduction is also made from the Net Cash Value for the Cost of
Insurance and any charges for additional benefits or coverages. The Cost of
Insurance is determined by multiplying the Coverage Amount by the applicable
Cost of Insurance Rate as determined by the Company. The Cost of Insurance Rate
depends on the attained age, type of benefit, size and type of group, gender mix
of the group, expectations of participation, Eligible Class of Insured,
smoker/non-smoker status, experience , federal and state taxes, rating classes,
expectations of future mortality, whether premiums are paid directly to the
Company or through payroll deduction, the Company's general costs for
distribution and administration of the Policies, and the current Coverage
Amount.
24
<PAGE> 31
THE GUARANTEED MAXIMUM COST OF INSURANCE RATES, PER $10,000 OF COVERAGE AMOUNT,
FOR STANDARD RISKS ARE SET FORTH IN THE FOLLOWING TABLE BASED ON 150% OF THE
1980 COMMISSIONERS STANDARD ORDINARY MALE MORTALITY TABLES, AGE LAST BIRTHDAY.
<TABLE>
<CAPTION>
Attained Age Monthly Attained Age Monthly
Last Birthday Rate Last Birthday Rate
------------- ---- ------------- ----
<S> <C> <C> <C>
16 $ 1.99 37 $ 3.11
17 $ 2.15 38 $ 3.35
18 $ 2.27 39 $ 3.63
19 $ 2.35 40 $ 3.94
20 $ 2.37 41 $ 4.28
21 $ 2.37 42 $ 4.64
22 $ 2.35 43 $ 5.04
23 $ 2.30 44 $ 5.47
24 $ 2.25 45 $ 5.92
25 $ 2.19 46 $ 6.41
26 $ 2.15 47 $ 6.93
27 $ 2.14 48 $ 7.48
28 $ 2.12 49 $ 8.10
29 $ 2.15 50 $ 8.78
30 $ 2.19 51 $ 9.57
31 $ 2.25 52 $ 10.45
32 $ 2.34 53 $ 11.46
33 $ 2.44 54 $ 12.58
34 $ 2.56 55 $ 13.78
35 $ 2.71 56 $ 15.06
36 $ 2.90 57 $ 16.42
</TABLE>
25
<PAGE> 32
THE GUARANTEED MAXIMUM COST OF INSURANCE RATES, PER $10,000 OF COVERAGE
AMOUNT, FOR STANDARD RISKS ARE SET FORTH IN THE FOLLOWING TABLE BASED ON
150% OF THE 1980 COMMISSIONERS STANDARD ORDINARY MALE MORTALITY TABLES,
AGE LAST BIRTHDAY. (CONTINUED)
<TABLE>
<CAPTION>
Attained Age Monthly Attained Age Monthly
Last Birthday Rate Last Birthday Rate
<S> <C> <C> <C>
58 $ 17.86 79 $ 126.29
59 $ 19.44 80 $ 138.01
60 $ 21.20 81 $ 151.28
61 $ 23.20 82 $ 166.45
62 $ 25.45 83 $ 183.54
63 $ 27.98 84 $ 202.21
64 $ 30.79 85 $ 222.14
65 $ 33.82 86 $ 243.05
66 $ 37.08 87 $ 264.86
67 $ 40.53 88 $ 287.59
68 $ 44.27 89 $ 311.42
69 $ 48.41 90 $ 336.81
70 $ 53.10 91 $ 364.47
71 $ 58.48 92 $ 395.85
72 $ 64.67 93 $ 434.54
73 $ 71.72 94 $ 488.72
74 $ 79.51 95 $ 575.26
75 $ 87.89 96 $ 732.95
76 $ 96.76 97 $1,061.50
77 $106.02 98 $1,508.68
78 $115.76 99 $1,508.68
</TABLE>
If rates are provided on a Smoker/Non-Smoker basis, the following guaranteed
rates will apply:
26
<PAGE> 33
THE GUARANTEED MAXIMUM COST OF INSURANCE, PER $10,000 OF COVERAGE AMOUNT FOR
STANDARD SMOKER RISKS ARE SET FORTH IN THE FOLLOWING TABLE BASED ON 150% OF THE
1980 COMMISSIONER STANDARD ORDINARY MALE SMOKER MORTALITY TABLE.
<TABLE>
<CAPTION>
Attained Age Monthly Attained Age Monthly
Last Birthday Rate Last Birthday Rate
------------- ---- ------------- ----
<S> <C> <C> <C>
16 $ 2.35 37 $ 3.81
17 $ 2.56 38 $ 4.13
18 $ 2.71 39 $ 4.50
19 $ 2.81 40 $ 4.94
20 $ 2.89 41 $ 5.43
21 $ 2.91 42 $ 5.95
22 $ 2.89 43 $ 6.54
23 $ 2.82 44 $ 7.16
24 $ 2.76 45 $ 7.86
25 $ 2.67 46 $ 8.56
26 $ 2.60 47 $ 9.33
27 $ 2.56 48 $ 10.14
28 $ 2.55 49 $ 11.03
29 $ 2.57 50 $ 12.02
30 $ 2.62 51 $ 13.12
31 $ 2.70 52 $ 14.36
32 $ 2.80 53 $ 15.77
33 $ 2.94 54 $ 17.30
34 $ 3.09 55 $ 18.92
35 $ 3.29 56 $ 20.63
36 $ 3.51 57 $ 22.39
</TABLE>
27
<PAGE> 34
THE GUARANTEED MAXIMUM COST OF INSURANCE, PER $10,000 OF COVERAGE AMOUNT FOR
STANDARD SMOKER RISKS ARE SET FORTH IN THE FOLLOWING TABLE BASED ON 150% OF THE
1980 COMMISSIONER STANDARD ORDINARY MALE SMOKER MORTALITY TABLE.
<TABLE>
<CAPTION>
Attained Age Monthly Attained Age Monthly
Last Birthday Rate Last Birthday Rate
------------- ---- ------------- ----
<S> <C> <C> <C>
58 $ 24.16 79 $ 144.93
59 $ 26.07 80 $ 156.75
60 $ 28.21 81 $ 169.90
61 $ 30.63 82 $ 184.77
62 $ 33.33 83 $ 201.61
63 $ 36.49 84 $ 219.94
64 $ 39.95 85 $ 239.24
65 $ 43.71 86 $ 259.07
66 $ 47.62 87 $ 279.08
67 $ 51.69 88 $ 299.20
68 $ 55.89 89 $ 319.44
69 $ 60.60 90 $ 340.09
70 $ 65.82 91 $ 364.81
71 $ 71.70 92 $ 392.00
72 $ 78.42 93 $ 423.51
73 $ 86.07 94 $ 465.41
74 $ 94.51 95 $ 529.23
75 $ 103.50 96 $ 647.36
76 $ 113.44 97 $ 885.25
77 $ 123.66 98 $ 1473.40
78 $ 134.04 99 $ 1508.68
</TABLE>
28
<PAGE> 35
THE GUARANTEED MAXIMUM COST OF INSURANCE, PER $10,000 OF COVERAGE AMOUNT FOR
STANDARD NONSMOKER RISKS ARE SET FORTH IN THE FOLLOWING TABLE BASED ON 150% OF
THE 1980 COMMISSIONER STANDARD ORDINARY MALE NONSMOKER MORTALITY TABLE.
<TABLE>
<CAPTION>
Attained Age Monthly Attained Age Monthly
Last Birthday Rate Last Birthday Rate
------------- ---- ------------- ----
<S> <C> <C> <C>
16 $ 1.80 37 $ 2.35
17 $ 1.92 38 $ 2.50
18 $ 2.01 39 $ 2.67
19 $ 2.07 40 $ 2.86
20 $ 2.10 41 $ 3.09
21 $ 2.09 42 $ 3.31
22 $ 2.06 43 $ 3.58
23 $ 2.01 44 $ 3.85
24 $ 1.96 45 $ 4.15
25 $ 1.90 46 $ 4.49
26 $ 1.85 47 $ 4.87
27 $ 1.82 48 $ 5.26
28 $ 1.80 49 $ 5.68
29 $ 1.80 50 $ 6.15
30 $ 1.80 51 $ 6.70
31 $ 1.84 52 $ 7.33
32 $ 1.87 53 $ 8.08
33 $ 1.94 54 $ 8.93
34 $ 2.01 55 $ 9.90
35 $ 2.10 56 $ 10.98
36 $ 2.21 57 $ 12.16
</TABLE>
29
<PAGE> 36
THE GUARANTEED MAXIMUM COST OF INSURANCE, PER $10,000 OF COVERAGE AMOUNT FOR
STANDARD NONSMOKER RISKS ARE SET FORTH IN THE FOLLOWING TABLE BASED ON 150% OF
THE 1980 COMMISSIONER STANDARD ORDINARY MALE NONSMOKER MORTALITY TABLE.
<TABLE>
<CAPTION>
Attained Age Monthly Attained Age Monthly
Last Birthday Rate Last Birthday Rate
------------- ---- ------------- ----
<S> <C> <C> <C>
58 $ 13.47 79 $ 115.44
59 $ 14.89 80 $ 126.61
60 $ 16.47 81 $ 139.18
61 $ 18.22 82 $ 153.57
62 $ 20.21 83 $ 170.06
63 $ 22.45 84 $ 188.34
64 $ 24.99 85 $ 208.14
65 $ 27.79 86 $ 229.11
66 $ 30.84 87 $ 251.08
67 $ 34.12 88 $ 274.01
68 $ 37.65 89 $ 297.98
69 $ 41.46 90 $ 323.32
70 $ 45.73 91 $ 350.22
71 $ 50.63 92 $ 380.00
72 $ 56.30 93 $ 414.73
73 $ 62.85 94 $ 460.55
74 $ 70.23 95 $ 529.23
75 $ 78.33 96 $ 647.36
76 $ 86.88 97 $ 885.25
77 $ 95.91 98 $1,473.40
78 $ 105.34 99 $1,508.68
</TABLE>
30
<PAGE> 37
In certain instances, the Company may reduce or waive monthly administrative
fees and/or certain transaction fees in the sale of Policies to certain groups.
In addition, the Company may establish different cost of insurance and
administrative fees for different Eligible Classes of Insureds under the Policy
and for different groups insured under different Policies.
Costs for sales, administration, and mortality generally vary with the size and
stability of the group and with Class of insured under the Policy among, other
factors. The Company takes all these factors into account when establishing or
reducing charges.
To qualify for reduced charges, a group or similar arrangement must meet certain
requirements, including our requirements for size and ease of administration.
The Company will make any initial reductions or establish any differences in
rates or administrative fees according to its rules in effect at the time and in
accord with the terms of the Policy. The Company may change these rules from
time to time. Any variation in the monthly administrative fees or transaction
fees will reflect differences in costs or services and will not be unfairly
discriminatory.
The Monthly Deductions are deducted from the Fixed Account and each Fund Account
in the proportion that the value of such account bears to the sum of the Fixed
Account Value and the Fund Account Values. For the Fund Accounts, deductions are
accomplished by decreasing the number of Variable Accumulation Units in the Fund
Account. The Monthly Deductions are due on the first day of each month.
TRANSACTION FEE FOR EXCESS TRANSFERS AND SURRENDERS
There will be a $25 transaction fee for each transfer between funding options in
excess of 12 during any Policy Year. The Company reserves the right to waive
this fee in some situations. Upon surrender of a Certificate, or a partial
surrender, a transaction fee of $25 will be charged.
MORTALITY AND EXPENSE RISK CHARGE
For mortality and expense risks, a daily deduction, currently equivalent to
0.45% per year is made from amounts held in the Fund Accounts. This deduction
may be changed by the Company from time to time, but is guaranteed not to exceed
0.90% per year.
The mortality risk the Company assumes is that the group of lives insured under
the Policies may, on average, live for shorter periods of time than the Company
estimated. The expense risk the Company assumes is that its costs of issuing and
administering Policies may be more than the Company estimated.
If these charges are insufficient to cover actual costs and assumed risks, the
loss will fall on the Company. Conversely, if the charge proves more than
sufficient, any excess will be added to the Company's surplus and may be used
for any proper purpose.
31
<PAGE> 38
CERTIFICATE LOANS
If the Certificate is in force and has an accumulated Net Cash Value, the
Company will, upon application, make a loan to the Owner of the Certificate
using the Certificate's Cash Value as security for the loan. The minimum loan
amount is $250. A Certificate loan requires that a loan agreement be executed
and that the Certificate be assigned to the Company.
The loan may be for any amount up to 90% of the Net Cash Value at the time of
the loan. Further, the Company will not make a loan which would require that the
Loan Account Value be greater than 90% of the Cash Value. Interest will accrue
on the Loan at an annual rate of 8% and will be due on the Policy Anniversary
Date or upon surrender or upon termination of the Certificate. Interest not paid
within 30 days of coming due will be added to the Loan Balance as of the date on
which it became due. Funds equaling the change in the amount of the Loan Balance
will, from time to time as the Loan Balance changes, be transferred from the
Fund Accounts and the Fixed Account to the Loan Account. If Certificate values
are held in more than one funding option, withdrawals from each funding option
will be made proportionately from the values in each funding option at the time
of the transfer, unless the Company is instructed otherwise in writing at the
Customer Service Center.
In the event of surrender, lapse, death of the Insured, or any other event
resulting in termination of the Certificate, the Loan Account Value will revert
to the Company in repayment of the Current Outstanding Loan Balance. To the
extent that the Current Outstanding Loan Balance exceeds the Loan Account Value,
such excess will reduce the payment of any proceeds under the Certificate or the
Cash Value.
The Company will credit interest on the Loan Account Value at a rate which will
be not less than an effective annual rate of 6%.
Upon repayment of all or any portion of a loan, and corresponding reduction of
the Loan Balance, funds in the Loan Account in an amount equal to the amount of
the loan repayment will be transferred to the funding options according to
current Net Premium Payment allocations.
A Certificate loan, whether or not repaid, will affect the proceeds payable upon
the Insured's death and the Cash Value because the investment results of the
Fund Accounts or the Fixed Account will apply only to the non-loaned portion of
the Cash Value. The longer a loan is outstanding, the greater the effect is
likely to be. Depending on the investment results of the Fund Accounts or the
Fixed Account while the loan is outstanding, the effect could be favorable or
unfavorable.
32
<PAGE> 39
SURRENDER, LAPSE, AND REINSTATEMENT
FULL SURRENDER
A full surrender may be made at any time while the Certificate is in force. A
transaction fee of $25 is charged. The Company will pay the Owner the Net Cash
Value (less the transaction fee and any other amounts due the Company) next
computed after receiving the Owner's written request at the Customer Service
Center in a form satisfactory to the Company along with the return of the
Certificate.
PARTIAL SURRENDER
A partial surrender may be made at any time by written request to the Customer
Service Center while the Certificate is in force. A transaction fee of $25 is
charged. The amount of a partial surrender may not exceed 90% of the Net Cash
Value at the end of the Valuation Period in which the election would become
effective, and may not be less than $250.
A partial surrender will reduce the Cash Value and the Death Benefit, but it
will not reduce the Coverage Amount.
If, at the time of a partial surrender, the Net Cash Value is attributable to
more than one funding option, the $25 transaction charge and the amount paid
upon the surrender will be taken proportionately from the values in each funding
option, unless the Certificate Owner and the Company agree otherwise.
LAPSE OF A CERTIFICATE
A lapse occurs if a Monthly Deduction due under the Certificate is greater than
the Net Cash Value and no payment to cover the Monthly Deduction is made within
the Grace Period. The Company will send the Owner a lapse notice at least 61
days before the Grace Period expires.
REINSTATEMENT OF A LAPSED CERTIFICATE
If the Certificate lapses, the Owner can apply, in writing, for reinstatement at
any time prior to three years after the date of lapse. The Coverage Amount of
the reinstated Certificate will be the same as the Coverage Amount of the
Certificate at the time of lapse. To reinstate a Certificate, the Company will
require evidence of good health acceptable to the Company (at the Owner's
expense) and an amount sufficient to pay for the current Monthly Deduction plus
one additional Monthly Deduction, plus interest accrued from the date of lapse.
Reinstatement will be effective on the date the Company approves the
reinstatement and will be subject to new contestability and suicide periods.
33
<PAGE> 40
TERMINATION, CONTINUATION, AND CONVERSION
POLICY TERMINATION
Either the Group Policyholder or the Company may terminate the Policy upon 60
days prior notice to the other party. Upon Policy termination, individual
coverage will be affected as set forth below.
TERMINATION OF INDIVIDUAL COVERAGE
Coverage for an Insured under the Policy will terminate upon lapse or surrender
of the Insured's Certificate, or upon the death of the Insured. Coverage for an
Insured under the Policy will also terminate upon termination of the Policy or
upon loss of eligibility of the Insured, unless the Policy expressly provides
for continuation of the Insured's coverage.
Term insurance coverage for an insured dependent child or an insured spouse will
terminate upon termination of the Certificate under which the child or spouse is
covered, or upon the loss of eligibility of the child or spouse, or when the
Certificate Owner terminates the child or spouse coverage, or upon the Child
electing to purchase group variable universal life insurance under the Policy as
provided for in the Policy, or upon the death of the child or spouse.
CONTINUATION
The circumstances in which the Employee or spouse may continue coverage after
Policy termination or loss of eligibility will be determined by the Group
Policyholder in advance of the Policy being issued. For loss of eligibility, the
following options are available to the Group Policyholder. For Employees, the
Group Policyholder may select continuation upon retirement, leave of absence,
and termination of employment. For spouses, except spouses covered by term
coverage, the Group Policyholder may select continuation upon termination of the
Employee's employment, death of the Employee, and divorce of the spouse and the
Employee. For Employees on leave of absence, the Group Policyholder may select
continuation upon retirement, return to active service, or termination of
employment. .
For termination of the Policy, the Group Policyholder may elect to allow
continuation if the Insured Employee or spouse is not eligible for coverage
under a successor plan.
Child term coverage and spouse term coverage may continue if the Certificate
upon which the term coverage was elected continues.
If continuation is not available to the Insured as described above, and the
Insured has a Net Cash Value of $250 or greater, coverage under the Policy will
continue for the Insured.
The monthly cost of insurance rates and the monthly administrative fee and its
components may change upon the Insured's continuation of coverage under the
Policy.
34
<PAGE> 41
CONVERSION
If the Insured's coverage terminates because the insured is no longer a member
of an Eligible Class under the Policy, and continuation is not provided for
under the Policy, the insured may convert the amount of his insurance coverage
which is terminating. If the Insured's coverage terminates because of Policy
termination, and continuation is not provided for under the Policy, and if the
Insured has been covered under the Policy for at least three years, the Insured
may convert up to $10,000 of the life insurance coverage which is terminating.
Such conversions may be to any form of individual life insurance coverage then
offered by the Company except that the coverage may not be term insurance and it
may not contain disability or other supplemental benefits. Evidence of good
health acceptable to the Company will not be required for such conversion. Such
conversions must be applied for within 31 days of termination of coverage.
No conversion is available for lapsed or surrendered coverage or for coverage
which the Insured becomes eligible to replace or continue under another Policy
or a group life insurance policy which replaces the Policy within 30 days.
ADDITIONAL COVERAGE RIDERS
Each of the following optional benefit riders is available for Group
Policyholder selection. Where indicated, the Employee will be able to choose
whether or not he wishes to purchase the coverage provided by the rider. An
additional cost of insurance will be charged as a part of the Monthly Deduction
for each coverage rider which is in effect for the Certificate, except for the
Waiver of Cost of Life Insurance Rider and the Seat Belt Rider, the cost of
which will be included in the cost of life insurance if selected by the
employer.
ACCIDENTAL DEATH, DISMEMBERMENT AND INJURY
The Group Policyholder may select one of three Accident Benefit Riders which
provide additional benefits in the event of death or injury resulting from an
accident within 90 days of the accident. If one of the three riders is selected
by the Group Policyholder, the Employee may elect or decline to be covered for
the benefit provided by the rider.
The first rider provides an additional death benefit equal to the Coverage
Amount.
The second rider provides, in addition to the benefit provided by the first
rider, additional benefits if the insured suffers, as a result of accident, loss
of a hand, loss of a foot, loss of the sight in one eye, loss of the thumb and
index finger of the same hand, or any combination thereof.
The benefit for any covered loss under this rider is a percentage of the
Coverage Amount under the Policy. The maximum amount that will be paid, in
aggregate, for all losses under the rider, resulting from any one accident, is
an amount equal to the Coverage Amount.
35
<PAGE> 42
The third rider provides, in addition to the benefits provided under the second
rider above, benefits if the insured suffers, as a result of accident, loss of
speech, loss of hearing, quadriplegia, paraplegia, or hemiplegia. The benefit
for any covered loss under this rider is a percentage of the Coverage Amount
under the Policy. The maximum amount that will be paid, in aggregate, for all
losses under this rider, resulting from any one accident, is an amount equal to
the Coverage Amount.
WAIVER OF COST OF LIFE INSURANCE
If elected by the Group Policyholder, all Certificate Owners will be covered by
this rider. Under this optional benefit rider, if the Insured Employee becomes
totally disabled before age 60, the cost of life insurance coverage, the monthly
administrative fee for the Employee's Certificate, and the cost of any child
term coverage provided under the Employee's Certificate will be waived while the
Employee remains continuously and totally disabled following a waiting period of
6 to 12 months. The waiting period will be agreed upon between the Group
Policyholder and the Company before coverage under this Rider becomes effective.
While the specifically identified charges are being waived under this rider, the
Owner may continue to pay premiums which will accumulate as Cash Value subject
to the terms and conditions of the Policy.
The Insured must submit proof of continuing Total Disability as reasonably
required by the Company. The Coverage Amount may not be increased while the cost
of insurance is being waived; and, the cost of insurance for spouse coverage,
retiree coverage and any optional benefits or features is not waived under this
rider. Child coverage may not be added after the disability has begun. Coverage
under this rider terminates at age 65.
PAID-UP INSURANCE
If elected by the Group Policyholder, all Certificate Owners will be covered by
this rider.
Under this optional benefit rider, the Owner may use all or any portion of his
Net Cash Value to purchase a policy of Paid-Up insurance in an amount not to
exceed the Coverage Amount in force for the Insured at the time of purchase.
Such coverage is provided under a separate policy but the premium for such
coverage shall be calculated by using the maximum cost of insurance for the
Policy and the minimum interest rate guarantee for the Fixed Account. No
evidence of good health will be required for such coverage. The Coverage Amount
of the Owner's Certificate will be reduced by the amount of coverage purchased
under the Paid-Up policy.
ACCELERATED PAYMENT BENEFIT
If elected by the Group Policyholder, this coverage is available to be elected
or declined by the Certificate Owner. This coverage is available for insured
employees, former employees, spouses, former spouses, retirees and leave of
absence employees.
Under this rider, the Company will pay one of the three following types of
benefit.
36
<PAGE> 43
The three types of benefit are:
1. Terminal Illness Benefit. The Company will pay up to 60% of the Insured's
Coverage Amount upon receipt of due proof, acceptable to the Company, that
the Insured has a terminal illness. Such proof comprises a written
diagnosis by two unaffiliated physicians stating that the Insured has less
than 12 months to live, and supportive evidence satisfactory to the
Company including but not limited to radiological, histological, and
laboratory reports. Payment will be made in a lump sum.
2. Nursing Care and Custodial Care Facility Benefit. The Company will pay up
to 60% of the Insured's Coverage Amount upon receipt of due proof,
acceptable to the Company, that the Insured:
- has an Impairment, as determined by the Company;
- is confined to a Nursing Care or Custodial Care Facility (registered
as a bed patient on a 24 hour basis) due to the Impairment;
- provides the Company with written certification from two
unaffiliated Physicians that the Insured is expected to remain in
the Nursing Care or Custodial Care Facility for the rest of his
life; and
- has satisfied the deductible waiting period.
The deductible waiting period is 90 consecutive days. Payment may be made
on a lump-sum basis or on a periodic basis at 2% per month until thirty
monthly payments have been made. Impairment is specifically defined in the
rider and generally means the Insured is totally disabled and unable to
function without human assistance or supervision.
3. Specified Disease Benefit. The Company will pay up to 60% of the Insured's
Coverage Amount upon receipt of due proof, acceptable to the Company, that
the Insured has a Specified Disease. Specified Disease means life
threatening cancer, heart attack, renal failure, stroke, specified organ
transplant, or acquired immune deficiency syndrome. Such diseases are
further defined in the rider. Due proof comprises a written diagnosis and
prognosis by a licensed physician certifying the existence of the disease,
and supportive evidence satisfactory to the Company including but not
limited to radiological, histological, or laboratory reports. Payment will
be made in a lump sum.
The Owner may make a claim for only one of the three benefits described above.
Once a benefit has been paid under this rider for an Insured, no further
benefits will be paid for that Insured under this rider. The Death Benefit for
the Insured will be reduced by the amount paid under this rider for the Insured.
SEAT BELT BENEFIT
Under this optional benefit rider, the Company will pay an additional 10% of the
Insured's Coverage Amount (up to a maximum of $10,000) if the Insured dies as a
result of an accident
37
<PAGE> 44
while driving or riding in a private passenger car and properly wearing his seat
belt. Proper use of the seat belt must be certified in the official accident
report.
OTHER POLICY PROVISIONS
DEFERRAL OF PAYMENT
Payment of the surrendered amount from the Fund Accounts may be postponed when
the New York Stock Exchange is closed and for such other periods as the
Securities and Exchange Commission may require. Payment from the Fixed Account
may be deferred up to six months at the Company's option. If the Company
exercises its right to defer such payments from the Fixed Account interest will
be added as required by law.
FIXED BENEFIT POLICY EXCHANGE
Where required by state law, the Owner may, within eighteen months of the
Certificate Effective Date, exchange his Certificate for a Certificate of
insurance under a group flexible premium life insurance policy issued by the
Company ("Exchange Policy"). The date of issue and the age at issue of the
Certificate under the Exchange Policy shall be the same as for the Certificate
under the Policy. Additional coverage and riders elected by the Owner under the
Policy will be provided on the Exchange Policy to the extent available. Premium
rates will be those in effect under the Exchange Policy at the time of exchange
for the class of eligible persons into which the Insured falls. Cash Values will
be equitably adjusted under the Exchange Policy.
CERTIFICATE OWNER
While the Insured is living, all rights in this Certificate are vested in the
Certificate Owner named in the application, or as subsequently changed, subject
to assignment, if any.
If the Certificate Owner, other than the Insured, dies before the Insured, the
Certificate Owner's rights in this Certificate belong to the Certificate Owner's
estate.
BENEFICIARY
The Beneficiary(ies) shall be as named in the application, or as subsequently
changed.
The Certificate Owner may name a new Beneficiary while the Insured is living.
Any change must be in a written form satisfactory to the Company and recorded at
the Customer Service Center. Once recorded, the change will be effective as of
the date signed; however, the change will not affect any payment made or action
taken by the Company before it was recorded.
If any Beneficiary predeceases the Insured, that Beneficiary's interest passes
to any surviving Beneficiary(ies), unless otherwise provided. Multiple
Beneficiaries will be paid in equal shares, unless otherwise provided. If no
designated Beneficiary survives the Insured, or if no
38
<PAGE> 45
Beneficiary has been designated, the death proceeds shall be paid to the first
surviving class of the Insured's spouse, the Insured's children, the Insured's
parents or the Insured's siblings. If no member of any of the above classes
survives the Insured, the proceeds will be paid to the Insured's estate.
ASSIGNMENT
While the Insured is living, the Certificate Owner may assign his rights in the
Certificate. The assignment must be in writing in a form acceptable to the
Company, signed by the Certificate Owner and recorded at the Customer Service
Center. No assignment will affect any payment made or action taken by the
Company before it was recorded. The Company is not responsible for any
assignment not submitted for recording, nor is the Company responsible for the
sufficiency or validity of any assignment. The assignment will be subject to all
terms and conditions of the Policy.
INCONTESTABILITY
Statements made by an Insured will not be used to contest the validity of an
Insured's initial coverage after the Certificate has been in force during the
Insured's lifetime for two years from the Certificate Effective Date. For any
increase in Coverage Amount, statements made by an Insured will not be used to
contest the validity of an increase in coverage after it has been in force
during the Insured's lifetime for two years from its effective date of the
increase.
MISSTATEMENT OF AGE
If the age of the Insured has been misstated, the affected benefits will be
adjusted to the amounts which the most recent cost of insurance deducted from
the Cash Value would have purchased at the correct age.
SUICIDE
If the Insured dies by suicide, while sane or insane, within two years from the
Certificate Effective Date, the Company will pay no more than the sum of the
premiums paid, less any partial surrenders, less the sum of any loans plus
accrued interest. If the Insured dies by suicide, while sane or insane, within
two years from the date an application is accepted for an increase in the
Coverage Amount, the Company will pay no more than a refund of the monthly
charges for the cost of such additional coverage.
STATE VARIATIONS
Certain benefits and other Policy terms may vary from state to state due to the
requirements of state law.
39
<PAGE> 46
GROUP POLICYHOLDER ELECTIONS
Many insurance features of the Policy are elected by the Group Policyholder
before coverage is offered to employees. Such features would include, but not be
limited to, whether spouse coverage is available and, if so, whether it is term
coverage or variable universal life insurance coverage, availability of child
term insurance, maximum and minimum amounts of coverage, guaranteed issue
amounts, eligibility, continuation and conversion options available, and whether
rates reflect smoker status. The Group Policyholder and the Company will agree
on the cost of insurance rates, administrative fees and any changes in the
Policy features while the Policy is in force.
TELEPHONE TRANSACTIONS
Certain transactions, identified by the Customer Service Center, may be made by
telephone if telephone transactions have been previously authorized in writing
and signed by the current owner. To make a telephone transaction, the
Certificate Owner must call the Customer Service Center and provide, as
identification, his Certificate number, his Social Security number, and his
personal identification number. A customer service representative will then,
upon ascertaining that telephone transfers are authorized for that Certificate,
take the transfer request, which will be processed as of the next close of
business and confirmed within five business days. The Company disclaims all
liability for losses resulting from unauthorized or fraudulent telephone
transactions, but acknowledges that if it does not follow these procedures,
which it believes to be reasonable, it may be liable for such losses.
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends are payable. These
Policies do not share in the profits or surplus earnings of the Company.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected, enables a Certificate
Owner to systematically reallocate specified dollar amounts from the CIGNA VP
Money Market Fund Account to the other Fund Accounts and the Fixed Account at
regular intervals. By allocating an identified sum on a regularly scheduled
basis as opposed to reallocating the total amount at one particular time, a
Certificate Owner may be less susceptible to the impact of market fluctuations.
Dollar Cost Averaging may be selected if the CIGNA VP Money Market Fund Account
Value is at least $3,000. The minimum transfer amount is $250. All Dollar Cost
Averaging transfers will be made effective the first processing day following
the first of the month (or the next Valuation Day, if later). Election of this
arrangement may occur at any time by properly completing the Dollar Cost
Averaging election form, returning it to the Company, and ensuring that
sufficient value is in the CIGNA VPMoney Market Fund Account. Dollar
40
<PAGE> 47
Cost Averaging will become effective in the month following the month in which
the form is received and the funds are made available in the CIGNA Money Market
Fund Account.
Dollar Cost Averaging will terminate when any of the following occurs: (1) the
number of designated transfers has been completed; (2) the CIGNA VP Money Market
Fund Account Value is insufficient to complete the next transfer; (3) the Owner
requests termination in writing and such writing is received by the end of the
month in order to cancel the transfer scheduled to take effect the following
month; or (4) the Certificate is lapsed, surrendered or otherwise terminated.
There is currently no charge for Dollar Cost Averaging; however, each complete
Dollar Cost Averaging transfer is counted as one of the twelve free transfers
per Policy Year. The Company reserves the right to charge for this program. In
the event there are additional transfers, a transfer fee will be charged.
The main objective of Dollar Cost Averaging is to shield investments from short
term price fluctuations. Since the same dollar amount is transferred to a Fund
Account with each transfer, more Variable Accumulation Units are purchased if
the Variable Accumulation Unit Value is low, and fewer Variable Accumulation
Units are purchased if the Variable Accumulation Unit Value is high. Therefore,
a lower average cost per unit may be achieved over the long term. This plan of
investing allows investors to take advantage of market fluctuations but does not
assure a profit or protect against a loss in declining markets.
TAX MATTERS
The following is a brief discussion of some of the federal tax issues which may
arise in regard to the Policy and Certificates. This discussion is general in
nature and is not intended as tax advice. For specific advice on the effect of
tax laws and rules on the Policy and Certificates, the Owner should consult a
qualified tax adviser.
TAXATION OF POLICY BENEFITS IN GENERAL
Section 7702 of the Code provides that if certain tests are met, a Policy will
be treated as a life insurance contract for federal tax purposes. The Company
will monitor compliance with these tests. The Policy should thus receive the
same federal income tax treatment as a fixed benefit life insurance contract. As
a result, increases in the Cash Value generally are not taxable to the Owner
until there has been a full or partial surrender, lapse, or other pre-death
distribution. Loan proceeds generally are not taxed, and the death proceeds
payable under a Policy are excludable from gross income of the Beneficiary under
Section 101 of the Code.
Section 7702A of the Code defines modified endowment contracts as those policies
issued or materially changed on or after June 21, 1988 on which the total
premiums paid during the first seven years exceed the amount that would have
been required to be paid if the policy had provided for paid up benefits after
seven level annual premiums. The Code provides for taxation of surrenders,
partial surrenders, loans, collateral assignments and other pre-death
distributions from modified endowment contracts in the same way annuities are
taxed, i.e.,
41
<PAGE> 48
they are taxable to the extent the cash value of the policy exceeds, at the time
of distribution, the premiums paid into the policy. A 10% tax penalty generally
applies to the taxable portion of such distributions unless the Policy Owner is
over age 59 1/2 or disabled.
In specific cases, the Certificates under the Policies offered by this
Prospectus may or may not be issued as modified endowment contracts. Where the
Certificates are not issued as modified endowment contracts, the Company will
monitor premiums paid and will notify the Certificate Owner when the
Certificate's non-modified endowment contract status is in jeopardy.
If a Policy is not a modified endowment contract, distributions are generally
treated first as a recovery of the premiums paid into the Policy and second as a
distribution of taxable income; however, a cash distribution during the first 15
years after a policy is issued which causes a reduction in death benefits may
still become fully or partially taxable to the Owner pursuant to Section
7702(f)(7) of the Code. The Certificate Owner should carefully consider this
potential effect and seek further information before initiating any changes in
the terms of the Certificate. Under certain conditions, a Certificate may become
a modified endowment contract as a result of a material change or a reduction in
benefits as defined by Section 7702A(c) of the Code.
A total surrender or termination of the Certificate by lapse may have adverse
tax consequences. If the amount received by the Certificate Owner plus total
Certificate indebtedness exceeds the premiums paid into the Certificate, the
excess will generally be treated as taxable income, regardless of whether or not
the Certificate is a modified endowment contract.
Deductibility of interest that is incurred on any loan under a policy covering
the life of any individual who is an officer or employee of, or who is
financially interested in, the business carried on by the Owner, may be strictly
limited. Any deduction for interest on loans under such policies may also be
subject to certain other restrictions set forth in Section 264 of the Code.
Before taking a Policy Loan, the Owner should consult a tax adviser as to the
tax consequences of such a Loan.
If the Owner of a Policy is a corporation, Code Sections 56(c)(1) and (g)(4)(B)
may subject a portion of any increases in the Cash Value, the receipt by the
Owner of death benefits, and related distributions to the alternative minimum
tax (AMT) which is imposed by Section 55 of the Code. If the Owner is subject to
the alternative minimum tax (AMT) in any taxable year, then the Owner will be
subject to special tax rules with respect to such events. These provisions
require an annual accounting under AMT rules for each Policy.
DIVERSIFICATION REQUIREMENTS
In addition to meeting the tests required under Section 7702 and Section 7702A,
Section 817(h) of the Code requires that the investments of separate accounts
such as the Separate Account be adequately diversified. Regulations issued by
the Secretary of the Treasury set the standards for measuring the adequacy of
this diversification. Subject to certain limited relief provisions, a variable
life insurance policy that is based to any extent on a separate account
42
<PAGE> 49
that is not adequately diversified under these regulations would not be treated
as life insurance under Section 7702 of the Code. To be adequately diversified,
each Fund Account of the Separate Account must meet certain tests. The Company
believes the Separate Account investments meet the applicable diversification
standards.
In 1986, the Treasury Department indicated that guidelines might be issued under
which a variable life insurance policy would not be treated as a life insurance
contract for tax purposes if the owner of the policy had an excessive degree of
control over the investments underlying the policy (e.g., by being able to
transfer values among sub-accounts). No such guidelines have as yet been issued,
and it is not expected that any such guidelines would adversely affect the
Policies.
Should the Secretary of the Treasury issue additional rules or regulations
limiting the number of funds, transfer between funds, exchanges of funds or
changes in investment objectives of funds such that the Policy would no longer
qualify as life insurance under Section 7702 of the Code, the Company will take
whatever steps are available to allow the Policies to continue to qualify as
life insurance under Section 7702.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Separate Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Sub-chapter M of the Code. Investment income and
realized capital gains on the assets of the Separate Account are reinvested and
taken into account in determining the value of Variable Accumulation Units.
The Company does not initially expect to incur any Federal income tax liability
that would be chargeable to the Separate Account. Based upon these expectations,
no charge is currently being made against the Separate Account for federal
income taxes. If, however, the Company determines that on a separate company
basis such taxes may be incurred, it reserves the right to assess a charge for
such taxes against the Separate Account.
The Company may also incur state and local taxes in addition to premium taxes in
several states. At present, these taxes are not significant. If they increase,
however, additional charges for such taxes may be made.
SECTION 848 CHARGES
The current 3.0% premium load is assessed to cover state taxes and federal
income tax liabilities incurred by the Company. This load reflects charges to
cover the expenses of state taxes and for the additional federal income tax
burden under Section 848 of the Code relating to the tax treatment of deferred
acquisition costs. The premium load may be changed from time to time by the
Company, but it may be no greater than 5.0%.
43
<PAGE> 50
OTHER CONSIDERATIONS
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Certificate proceeds depend on the
circumstances of each Certificate Owner or Beneficiary. The Owner should consult
a professional tax adviser to determine the tax consequences of purchasing or
making transactions under the Policy.
The foregoing discussion is general and is not intended as tax advice. Counsel
and other competent advisers should be consulted for more complete information.
This discussion is based on the Company's understanding of Federal income tax
laws as they are currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of continuation of these current
laws and interpretations.
OTHER MATTERS
VOTING RIGHTS
In accordance with its view of presently applicable law, the Company will vote
the shares of each Fund held in the Separate Account at meetings of the
shareholders of the particular Fund in accordance with written instructions
received from Certificate Owners having Variable Accumulation Units of the
related Fund 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 Funds do not hold
regular meetings of shareholders.
If, however, the Act or any regulation thereunder is amended or if the present
interpretation thereof should change, and as a result the Company determines
that it is permitted to vote the Fund shares in its own right, it may elect to
do so. The number of votes which a Certificate Owner has the right to instruct
will be calculated separately for each Related Fund. This number will be
determined by calculating the proportion of the Certificate Owner's Cash Value
in the Fund Account to the amount of the Separate Account's investment in the
Related Fund and multiplying that proportion by the number of votes the Separate
Account has in the Related Fund. In determining the number of votes, fractional
shares will be recognized. The number of votes that a Certificate Owner has the
right to instruct will be determined as of the date coincident with the date
established by the Fund for determining shareholders eligible to vote at the
meeting of the Fund, but not more than 60 days before the meeting of the Fund.
Voting instructions will be solicited by written communication at least 14 days
prior to such meeting of the Fund. Each Certificate Owner having a voting
interest in the Fund will receive appropriate proxy materials and reports.
The Company will vote the Fund shares as to which no timely instructions are
received in proportion to the voting instructions from others with an interest
in the particular Fund Account. Voting instructions to abstain on any item to be
voted upon will be applied to reduce the votes eligible to be cast by the
Company.
The Company may, if required by State insurance regulatory authorities,
disregard voting
44
<PAGE> 51
instructions if the instructions require that the shares be voted so as to cause
a change in the sub-classification or investment objectives of the Fund or to
approve or disapprove an investment advisory contract for a Fund.
A change would be disapproved only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or the Company determines that
the change would have an adverse effect on the Separate Account in that the
proposed investment policy for a Fund may result in overly speculative or
unsound investments. In the event the Company does disregard voting
instructions, a summary of that action and the reasons for such action will be
included in the next annual report to Certificate Owners.
The Funds' shares are issued and redeemed only in connection with qualified
plans, and variable annuity contracts and variable life insurance policies
issued through separate accounts of the Company and other life insurance
companies. The Funds do not foresee any disadvantage to Certificate 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 Funds' 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.
DIRECTORS AND OFFICERS OF THE COMPANY
The following persons are Directors and officers of the Company. The address of
each is 900 Cottage Grove Road, Hartford, CT 06152 and each has been employed by
the Company for more than five years except Mr. Jones, and Mr. Pacey, Dr.
Schaffer and Mr. Della Volpe. Prior to April 1994, Mr. Jones was employed by NAC
Reinsurance Corporation (Chief Operating Officer of NAC Reinsurance Corporation
beginning June 1993). Prior to January 1995, Mr. Pacey was Senior Manager - IT
Infrastructure and Technology Management Officer, Digital Equipment Corporation.
Prior to May 1993, Dr. Schaffer was Vice President, Professional Affairs, Aetna
Health Plans, Aetna Life & Casualty. Prior to December, 1996, Mr. Della Volpe
was Manager of Business Assurance, Coopers & Lybrand LLP. Prior to January,
1995, Mr. Pacey was with Digital Equipment Corporation.
45
<PAGE> 52
POSITIONS AND OFFICERS
NAME WITH THE COMPANY
---- ----------------
Thomas C. Jones President and Director
(Principal Executive Officer)
John Wilkinson Vice President and Actuary
(Principal Financial Officer)
Dominic A. Della Volpe Assistant Vice President
(Principal Account Officer)
David C. Kopp Corporate Secretary
Andrew G. Helming Secretary
Stephen C. Stachelek Vice President and Treasurer
Harold W. Albert Director
Robert W. Burgess Director
John G. Day Director and Chief Counsel
Joseph M. Fitzgerald Director and Senior Vice President
H. Edward Hanway Director and Chairman of the Board
Carol M. Olsen Director and Senior Vice President
John E. Pacy Director and Senior Vice President
Marc L. Preminger Director, Senior Vice President
and Chief Financial Officer
Patricia L. Rowland Director and Senior Vice President
W. Allen Schaffer, M.D. Director and Senior Vice President
DISTRIBUTION OF POLICIES
The Policies will be sold by licensed insurance agents in those states where the
Policies may lawfully be sold. Such agents will be registered representatives of
broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. (NASD). The
Policies will be distributed by the Company's principal underwriter, CIGNA
Financial Services, Inc. ("CFS"), whose address is the same as the Company's.
CFS is a Delaware corporation organized in 1995, and is the principal
underwriter for other registered separate accounts maintained by the Company.
Gross first year commissions paid by the Company, including expense
reimbursement allowances, on the sale of these Policies are not more than 20% of
premium payments. Gross renewal commissions paid by the Company will not exceed
15% of premium payments.
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company does presently and will, from time to time, offer other variable
annuity contracts and variable life insurance policies with benefits which vary
in accordance with the investment experience of a separate account of the
Company.
46
<PAGE> 53
RIGHT TO TAKE ACTIONS REGARDING THE SEPARATE ACCOUNT
The Company reserves the right to take certain actions in connection with
Separate Account operations. These actions will be taken in accordance with
applicable laws (including obtaining any required regulatory approvals).
Specifically, the Company reserves the right to:
- - add, combine, or remove any Fund,
- - create new separate accounts,
- - combine the Separate Account with one or more other separate accounts,
- - operate the Separate Account as a management investment company under the
Act or in any other form permitted by law,
- - deregister the Separate Account under the Act,
- - manage the Separate Account under the direction of a committee or
discharge such committee at any time,
- - transfer any assets in any Fund Account to another Fund Account, or to one
or more separate accounts or to the Company's general account, and
- - to take any actions necessary to comply with, or to obtain and continue
any exemptions from the Act.
STATE REGULATION
The Company is subject to the laws of Connecticut governing insurance companies
and to regulation by the Connecticut Insurance Department. An annual statement
in a prescribed form is filed with the Insurance Department each year covering
the operation of the Company for the preceding year and its financial condition
as of the end of such year. Regulation by the Insurance Department includes
periodic examination to determine the Company's contract liabilities and
reserves so that the Insurance Department may certify the items are correct. The
Company's books and accounts are subject to review by the Insurance Department
at all times and a full examination of its operations is conducted periodically
by the National Association of Insurance Commissioners. Such regulation does
not, however, involve any supervision of management or investment practices or
policies. A blanket bond for $10 million covers all of the officers and
employees of the Company.
YEAR 2000 COMPLIANCE
CG Variable Life Insurance Separate Account A is a Connecticut General Life
Insurance Company (the Company) "separate account." The Company is highly
dependent on automated systems and systems applications in conducting its
ongoing operations. If these systems were unable to process data accurately
because of failing to be Year 2000 ready, these activities (including the
processing of transactions and other normal business activities for its separate
accounts) would be interrupted and could have a material adverse effect on the
Company's results of operations. By the beginning of 1999, the Company expects
to substantially complete modifications or replacement of systems to ensure Year
2000 readiness, with the remainder being completed by the end of 1999. The
Company is utilizing both internal and external resources to meet this
timetable. [The costs of these efforts are not expected to have a material
adverse effect on results of operations.]
47
<PAGE> 54
In addition, the Company has relationships with various third-party entities in
its ordinary course of business. For example, the Company receives data from
clients; depends on others, such as third-party administrators and banks and
group policyholders, for services and data; and bears credit risk on others,
such as entities in which the Company invests. The Company is assessing and
attempting to mitigate its risks with respect to the failure of these entities
to be Year 2000 ready. The effect, if any, on the Company's results of operation
from the failure of these entities to be Year 2000 ready is not reasonably
estimable.
REPORTS TO CERTIFICATE OWNERS
The Company maintains Policy records and will mail to each Certificate Owner, at
the last known address of record, an annual statement showing the amount of the
current Death Benefit, the Cash Value, and Net Cash Value, premiums paid and
monthly charges deducted since the last report, the amounts invested in the
Fixed Account, in each Fund Account, and any Loan Account Value.
Certificate Owners will also be sent annual reports containing financial
statements for the Separate Account as required by the 1940 Act. In addition,
Certificate Owners will receive periodic statements of significant transactions,
such as changes in Coverage Amount, changes in net premium payment allocation,
transfers among Fund Accounts, premium payments, loans, loan repayments,
reinstatement and termination.
ADVERTISEMENTS
The Company is rated by independent financial rating services, including
Moody's, Standard & Poor's, Duff & Phelps and A. M. Best Company. The purpose of
these ratings is to reflect the financial strength or claims-paying ability of
the Company. The ratings are not intended to reflect the investment experience
or financial strength of the Separate Account. The Company may advertise these
ratings from time to time. Furthermore, the Company may occasionally include in
advertisements comparisons of currently taxable and tax deferred investment
programs, based on selected tax brackets, or discussions of alternative
investment vehicles and general economic conditions.
LEGAL PROCEEDINGS
There are no material legal or administrative proceedings pending or known to be
contemplated, other than ordinary routine litigation incidental to the business,
to which the Company and the Separate Account are party, or to which any of
their property is subject. The principal underwriter, CFS, is not engaged in any
material litigation of any nature.
EXPERTS
Actuarial opinions regarding Deferred Acquisition Cost Tax (DAC Tax) referred to
in this Registration Statement have been rendered by Benjamin Clement, FSA, MAAA
as stated in the opinion filed as an Exhibit to the Registration Statement given
on the authority of Mr. Clement as an expert in actuarial matters. Legal matters
involving the federal securities laws
48
<PAGE> 55
have been reviewed by Jorden Burt Boros Cicchetti Berenson & Johnson LLP,
Washington, D.C.
Legal matters in connection with the Policies described herein are being passed
upon by Michael A. James, Esq., Chief Counsel, CIGNA Group Insurance, 1601
Chestnut Street, Philadelphia, PA 19192 in the opinion filed as an Exhibit to
the Registration statement given on his authority as an expert in these matters.
The consolidated financial statements of Connecticut General Life Insurance
Company as of December 31, 1997 and 1996 and for each of the three years in the
period ended December 31, 1997 included in this Prospectus have been so included
in reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Separate Account, the Company, and the Policies
offered hereby. Statements contained in this Prospectus as to the content of
Policies and other legal instruments are summaries. For a complete statement of
the terms thereof, reference is made to such instruments as filed.
FINANCIAL STATEMENTS
There follow consolidated balance sheets of the Company and its subsidiaries as
of December 31, 1997 and 1996 and related consolidated statements of income and
retained earnings and cash flows for the years ended December 31 ,1997 , 1996
and 1995.
These financial statements should be considered only as bearing upon the ability
of the Company to meet its obligations under the Policies. No financial
statements of the Separate Account are included, because as of the date of this
Prospectus the Separate Account had not yet commenced operations.
49
<PAGE> 56
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
50
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
February 10, 1998
To the Board of Directors and Shareholder of
Connecticut General Life Insurance Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Connecticut
General Life Insurance Company and its subsidiaries at December 31, 1997 and
1996, and the results of their operations and their 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.
51
<PAGE> 58
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
(In millions)
For the years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees $ 5,376 $ 5,314 $ 4,998
Net investment income 3,139 3,199 3,138
Realized investment gains (losses) 45 37 (7)
Other revenues 10 9 9
------- ------- -------
Total revenues 8,570 8,559 8,138
------- ------- -------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses 5,917 6,069 5,892
Policy acquisition expenses 122 143 127
Other operating expenses 1,618 1,477 1,358
------- ------- -------
Total benefits, losses and expenses 7,657 7,689 7,377
------- ------- -------
INCOME BEFORE INCOME TAXES 913 870 761
------- ------- -------
Income taxes (benefits):
Current 347 394 301
Deferred (49) (81) (44)
------- ------- -------
Total taxes 298 313 257
------- ------- -------
NET INCOME 615 557 504
Dividends declared (400) (600) (252)
Retained earnings, beginning of year 3,177 3,220 2,968
- --------------------------------------------------------------------------------
RETAINED EARNINGS, END OF YEAR $ 3,392 $ 3,177 $ 3,220
================================================================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
52
<PAGE> 59
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In millions)
As of December 31, 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $20,962; $19,882) $22,323 $20,816
Mortgage loans 10,090 10,152
Equity securities, at fair value (cost, $75; $59) 54 41
Policy loans 7,146 7,133
Real estate 749 1,025
Other long-term investments 166 193
Short-term investments 173 417
------- -------
Total investments 40,701 39,777
Cash and cash equivalents 923 --
Accrued investment income 602 619
Premiums and accounts receivable 811 817
Reinsurance recoverables 1,271 1,303
Deferred policy acquisition costs 834 780
Property and equipment, net 291 276
Current income taxes 67 12
Deferred income taxes, net 653 639
Goodwill 474 488
Other assets 209 249
Separate account assets 29,217 22,555
- ------------------------------------------------------------------------------------------
Total assets $76,053 $67,515
==========================================================================================
LIABILITIES
Contractholder deposit funds $30,449 $29,621
Future policy benefits 8,224 8,187
Unpaid claims and claim expenses 1,225 1,170
Unearned premiums 260 200
------- -------
Total insurance and contractholder liabilities 40,158 39,178
Accounts payable, accrued expenses
and other liabilities 2,428 1,808
Separate account liabilities 29,021 22,365
- ------------------------------------------------------------------------------------------
Total liabilities 71,607 63,351
- ------------------------------------------------------------------------------------------
CONTINGENCIES - NOTE 12
SHAREHOLDER'S EQUITY
Common stock (6 shares outstanding) 30 30
Additional paid-in capital 766 766
Net unrealized appreciation on investments 256 188
Net translation of foreign currencies 2 3
Retained earnings 3,392 3,177
- ------------------------------------------------------------------------------------------
Total shareholder's equity 4,446 4,164
- ------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $76,053 $67,515
==========================================================================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
53
<PAGE> 60
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In millions)
For the years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 615 $ 557 $ 504
Adjustments to reconcile net income to net cash
provided by operating activities:
Insurance liabilities 78 57 (90)
Reinsurance recoverables 68 (11) 1,201
Premiums and accounts receivable 106 77 32
Deferred income taxes, net (49) (82) (44)
Other assets (54) 43 (14)
Deferred policy acquisition costs (97) (92) 12
Accounts payable, accrued expenses,
other liabilities and current income taxes 41 (113) 212
Depreciation and goodwill amortization 88 94 89
Other, net (99) (151) (79)
------- ------- -------
Net cash provided by operating activities 697 379 1,823
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities 1,583 1,589 1,070
Mortgage loans 807 640 383
Equity securities 14 13 119
Real estate 401 345 299
Other (primarily short-term investments) 6,447 3,613 2,268
Investment maturities and repayments:
Fixed maturities 2,394 2,634 2,234
Mortgage loans 601 630 420
Investments purchased:
Fixed maturities (4,339) (3,834) (4,439)
Mortgage loans (1,426) (1,300) (1,908)
Equity securities (9) (3) (20)
Policy loans (13) (207) (2,129)
Other (primarily short-term investments) (6,296) (3,930) (2,334)
Other, net (102) (94) (119)
------- ------- -------
Net cash provided by (used in) investing activities 62 96 (4,156)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder deposit funds:
Deposits and interest credited 7,634 7,260 7,489
Withdrawals and benefit payments (7,023) (7,135) (4,985)
Dividends paid to parent (400) (600) (252)
Other, net (47) -- 1
------- ------- -------
Net cash provided by (used in) financing activities 164 (475) 2,253
- --------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 923 -- (80)
Cash and cash equivalents, beginning of year -- -- 80
- --------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 923 $ -- $ --
============================================================================================
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds $ 402 $ 385 $ 211
Interest paid $ 5 $ 7 $ 7
- --------------------------------------------------------------------------------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
54
<PAGE> 61
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
Connecticut General Life Insurance Company and its subsidiaries (the
Company) provide insurance and related financial services throughout the United
States and in many locations worldwide. Principal products and services include
group life and health insurance, individual life insurance and annuity products,
and retirement and investment products and services. The Company is a
wholly-owned subsidiary of Connecticut General Corporation, which is an indirect
wholly-owned subsidiary of CIGNA Corporation (CIGNA).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION: The consolidated financial statements include
the accounts of the Company and all significant subsidiaries. These consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles, and reflect management's estimates and assumptions, such
as those regarding medical costs and interest rates, that affect the recorded
amounts. Significant estimates used in determining insurance and contractholder
liabilities, related reinsurance recoverables, and valuation allowances for
investment assets are discussed throughout the Notes to Financial Statements.
Certain reclassifications have been made to prior years' amounts to conform with
the 1997 presentation.
B) RECENT ACCOUNTING PRONOUNCEMENTS: In 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which could change the way segments are
structured and require additional segment disclosure. Although the Company has
not determined the timing of implementation of this pronouncement, it will be
adopted no later than the required implementation date of December 31, 1998.
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.
In 1996, the Company implemented Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires write-down
to fair value when long-lived assets to be held and used are impaired.
Long-lived assets to be disposed of, including real estate held for sale, must
be carried at the lower of cost or fair value less costs to sell. Depreciation
of assets to be disposed of is prohibited. The effect of implementing SFAS No.
121 was not material to the Company.
C) FINANCIAL INSTRUMENTS: In the normal course of business, the Company
enters into transactions involving various types of financial instruments,
including investments such as fixed maturities and equity securities and
off-balance sheet financial instruments such as investment and loan commitments
and financial guarantees. These instruments 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, uses certain derivative instruments or obtains collateral or other
forms of security to minimize risk of loss.
Financial instruments that are subject to fair value disclosure
requirements (insurance contracts, real estate, goodwill and taxes are excluded)
are carried in the financial statements at amounts that approximate fair value,
except for Mortgage Loans and Contractholder Deposit Funds (non-insurance
products). For these financial instruments, the fair value was not materially
different from the carrying amount as of December 31, 1997 and 1996. Fair values
of off-balance sheet financial instruments as of December 31, 1997 and 1996 were
not material.
55
<PAGE> 62
Fair values for financial instruments are estimates that, in many
cases, may differ significantly from the amounts that could be realized upon
immediate liquidation. In cases where market prices are not available, estimates
of fair value are based on discounted cash flow analyses which utilize current
interest rates for similar financial instruments with comparable terms and
credit quality. The fair value of liabilities for contractholder deposit funds
was estimated using the amount payable on demand, and for those not payable on
demand, discounted cash flow analyses.
D) INVESTMENTS: Investments in fixed maturities, which are classified
as available-for-sale, include bonds, asset-backed securities, including
collateralized mortgage obligations (CMOs), and redeemable preferred stocks.
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.
Mortgage loans are carried principally at unpaid principal balances,
net of valuation reserves. Mortgage loans are considered impaired when it is
probable that the Company will not collect all amounts according to the
contractual terms of the loan agreement. If impaired, a valuation reserve is
utilized to record any change in the fair value of the underlying collateral
below the carrying value of the mortgage loan.
Fixed maturities and mortgage loans that are delinquent or restructured
to modify basic financial terms, typically to reduce the interest rate and, in
certain cases, extend the term, are placed on non-accrual status. Net investment
income on such investments is recognized only when payment is received.
Real estate investments are either held for the production of income or
held for sale. Real estate investments held for the production of income are
carried at depreciated cost less any write-downs to fair value. Depreciation is
generally calculated using the straight-line method based on the estimated
useful lives of these assets.
Real estate investments held for sale are generally those which are
acquired through the foreclosure of mortgage loans. The Company's policy is to
rehabilitate, re-lease and sell foreclosed properties, which generally takes two
to four years. At the time of foreclosure, properties are valued at fair value
less estimated costs to sell and reclassified from mortgage loans to real estate
held for sale. Subsequent to foreclosure, these investments are carried at the
lower of cost or current fair value less estimated costs to sell and are no
longer depreciated. Adjustments to the carrying value as a result of changes in
fair value subsequent to foreclosure are recorded as valuation reserves. The
Company considers several methods in determining fair value for real estate,
with emphasis placed on the use of discounted cash flow analyses and, in some
cases, the use of third-party appraisals.
Equity securities, which include common and non-redeemable preferred
stocks, are carried at fair value, with unrealized appreciation or depreciation
included in Shareholder's Equity. Short-term investments are carried at fair
value, which approximates cost. Equity securities and short-term investments are
classified as available for sale.
Policy loans are generally carried at unpaid principal balances.
Realized investment gains and losses result from sales, investment
asset write-downs and changes in valuation reserves. Realized investment gains
and losses do not include amounts attributable to experience-rated pension
policyholders' contracts and participating life policies (policyholder share).
Realized investment gains and losses are based upon specific identification of
the investment assets.
Unrealized investment gains and losses for investments carried at fair
value are included in Shareholder's Equity net of policyholder-related amounts
and deferred income taxes.
See Note 4(F) for a discussion of the Company's accounting policies for
derivative financial instruments.
E) CASH AND CASH EQUIVALENTS: Short-term investments with a maturity of
three months or less at the time of purchase are reported as cash equivalents.
F) REINSURANCE RECOVERABLES: Reinsurance recoverables are estimates of
amounts to be received from reinsurers, including amounts under reinsurance
agreements with affiliated companies. Allowances are established for amounts
estimated to be uncollectible.
G) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of
commissions, premium taxes and other costs, which vary with, and are primarily
related to, the production of revenues. Acquisition costs for universal life
products and contractholder deposit funds are deferred and amortized in
proportion to the present value of total estimated gross profits over the
expected lives of the contracts. Acquisition costs for annuity and other
56
<PAGE> 63
individual life insurance products are deferred and amortized, generally in
proportion to the ratio of annual revenue to the estimated total revenues over
the contract periods.
Deferred policy acquisition costs are reviewed to determine if they are
recoverable from future income, including investment income. If such costs are
estimated to be unrecoverable, they are expensed 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).
H) PROPERTY AND EQUIPMENT: Property and equipment are carried at cost
less accumulated depreciation. When applicable, cost includes interest and real
estate taxes incurred during construction and other construction-related costs.
Depreciation is calculated principally on the straight-line method based on the
estimated useful lives of the assets. Accumulated depreciation was $448 million
and $427 million at December 31, 1997 and 1996, respectively.
I) OTHER ASSETS: Other Assets consists of various insurance-related
assets, principally ceded unearned premiums, reinsurance deposits and other
amounts due from affiliated companies.
J) GOODWILL: Goodwill represents the excess of the cost of businesses
acquired over the fair value of their net assets. Goodwill is amortized on
systematic bases over periods, not exceeding 40 years, that correspond with the
benefits estimated to be derived from the acquisitions. The Company evaluates
the carrying amount of goodwill by analyzing historical and estimated future
income and undiscounted estimated cash flows of the related businesses. Goodwill
is written down when impaired. Amortization periods are revised if it is
estimated that the remaining period of benefit of the goodwill has changed.
Accumulated amortization was $113 million and $99 million at December 31, 1997
and 1996, respectively.
K) 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.
L) CONTRACTHOLDER DEPOSIT FUNDS: Liabilities for Contractholder Deposit
Funds consist of deposits received from customers and investment earnings on
their fund balances, less administrative charges and, for universal life fund
balances, mortality charges.
M) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for
life, health and annuity products. Such liabilities are established in amounts
adequate to meet the estimated future obligations of policies in force. These
liabilities are computed using premium assumptions for group annuity policies
and the net level premium method for individual life policies, and are based
upon estimates as to future investment yield, mortality and withdrawals that
include provisions for adverse deviation. Future policy benefits for individual
life insurance and annuity policies are computed using interest rates ranging
from 2% to 11%, generally graded down from 1 to 20 years. Mortality, morbidity,
and withdrawal assumptions are based on either the Company's own experience or
various actuarial tables.
N) UNPAID CLAIMS AND CLAIM EXPENSES: Liabilities for unpaid claims and
claim expenses are estimates of payments to be made on reported and incurred but
not reported insurance claims.
O) UNEARNED PREMIUMS: Premiums for group life and accident and health
insurance are reported as earned on a pro rata basis over the contract period.
The unexpired portion of these premiums is recorded as Unearned Premiums.
P) OTHER LIABILITIES: Other Liabilities consist principally of
postretirement and postemployment benefits and various insurance-related
liabilities, including amounts related to reinsurance contracts and guaranty
fund assessments that can be reasonably estimated.
Q) TRANSLATION OF FOREIGN CURRENCIES: Foreign operations primarily
utilize the local currencies as their functional currencies, and assets and
liabilities are translated at the rates of exchange as of the balance sheet
date. The translation gain or loss on such functional currencies, net of
applicable taxes, is generally reflected in Shareholder's Equity. Revenues and
expenses are translated at the average rates of exchange prevailing during the
year.
R) PREMIUM AND FEES, REVENUES AND RELATED EXPENSES: Premiums for group
life and accident and health insurance are recognized as revenue on a pro-rata
basis over their contract periods. Benefits, losses and settlement expenses are
recognized when incurred.
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<PAGE> 64
Premiums for individual life insurance as well as individual and group
annuity products, excluding universal life and investment-related products, are
recognized as revenue when due. Benefits, losses and settlement expenses are
matched with premiums.
Revenues for universal life products consist of net investment income
and mortality, administration and surrender fees assessed against the fund
balances during the period. Net investment income represents investment income
on assets supporting universal life products and is recognized as earned. Fees
for mortality are recognized ratably over the policy year. Administration fees
are recognized as services are provided, and surrender charges are recognized as
earned. Benefit expenses for universal life products consist of benefit claims
in excess of fund balances, which are recognized when claims are filed, and
amounts credited in accordance with contract provisions.
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.
S) PARTICIPATING BUSINESS: Certain life insurance policies contain
dividend payment provisions that enable the policyholder to participate in a
portion of the earnings of the Company's business. The participating insurance
in force accounted for approximately 7% of total life insurance in force at
December 31, 1997, 1996 and 1995.
T) INCOME TAXES: The Company and its domestic subsidiaries are included
in the consolidated United States federal income tax return filed by CIGNA. In
accordance with a tax sharing agreement with CIGNA, the provision for federal
income tax is computed as if the Company were filing a separate federal income
tax return, except that benefits arising from tax credits and net operating and
capital losses are allocated to those subsidiaries producing such attributes to
the extent they are utilized in CIGNA's consolidated federal income tax
provision.
Deferred income taxes are generally recognized when assets and
liabilities have different values for financial statement and tax reporting
purposes. See Note 7 for additional information.
NOTE 3 - DISPOSITION
As of January 1, 1998, the Company sold its individual life insurance
and annuity businesses for cash proceeds of $1.4 billion. The sale resulted in
an after-tax gain of approximately $800 million. Since the principal agreement
to sell these businesses is in the form of an indemnity reinsurance arrangement,
approximately $575 million of the gain will be deferred and amortized over
future periods at the rate that earnings from the businesses sold would have
been expected to emerge. Revenues for these businesses were $972 million, $926
million and $865 million for the years ended December 31, 1997, 1996 and 1995,
respectively, and net income was $102 million, $67 million and $74 million for
the same periods. The Company paid a dividend of $1.4 billion to its parent in
January 1998, having received prior approval of both the disposition and the
dividend from the Connecticut Insurance Department (the Department).
58
<PAGE> 65
NOTE 4 - INVESTMENTS
A) FIXED MATURITIES: Fixed maturities are net of cumulative write-downs
of $36 million and $95 million, including policyholder share, as of December 31,
1997 and 1996, respectively.
The amortized cost and fair value by contractual maturity periods for
fixed maturities, including policyholder share, as of December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
Amortized Fair
(In millions) Cost Value
------- -------
<S> <C> <C>
Due in one year or less $ 1,114 $ 1,139
Due after one year through five years 5,768 5,949
Due after five years through ten years 4,734 4,998
Due after ten years 3,093 3,680
Asset-backed securities 6,253 6,557
------- -------
Total $20,962 $22,323
======= =======
</TABLE>
Actual maturities could differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties. Also, the Company may extend maturities in some cases.
59
<PAGE> 66
Gross unrealized appreciation (depreciation) for fixed maturities,
including policyholder share, by type of issuer was as follows:
<TABLE>
<CAPTION>
December 31, 1997
Amortized Unrealized Unrealized Fair
(In millions) Cost Appreciation Depreciation Value
------- ------- ----- -------
<S> <C> <C> <C> <C>
Federal government bonds $ 1,361 $ 294 $ -- $ 1,655
State and local government bonds 178 22 (2) 198
Foreign government bonds 143 7 (1) 149
Corporate securities 13,027 860 (123) 13,764
Asset-backed securities 6,253 317 (13) 6,557
------- ------- ----- -------
Total $20,962 $ 1,500 $ (139) $22,323
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
Amortized Unrealized Unrealized Fair
(In millions) Cost Appreciation Depreciation Value
------- ------- ----- -------
<S> <C> <C> <C> <C>
Federal government bonds $ 475 $ 160 $ -- $ 635
State and local government bonds 174 13 (4) 183
Foreign government bonds 121 6 -- 127
Corporate securities 13,310 742 (148) 13,904
Asset-backed securities 5,802 226 (61) 5,967
------- ------- ----- -------
Total $19,882 $ 1,147 $ (213) $20,816
======= ======= ======= =======
</TABLE>
Asset-backed securities include investments in CMOs as of December 31,
1997 of $2.3 billion carried at fair value (amortized cost, $2.3 billion),
compared with $2.2 billion carried at fair value (amortized cost, $2.1 billion)
as of December 31, 1996. Certain of these securities are backed by Aaa/AAA-rated
government agencies. All other CMO securities have high quality ratings through
use of credit enhancements provided by subordinated securities or mortgage
insurance from Aaa/AAA-rated insurance companies. CMO holdings are concentrated
in securities with limited prepayment, extension and default risk, such as
planned amortization class bonds. The Company's investments in interest-only and
principal-only CMOs, which are subject to interest rate risk due to accelerated
prepayments, represented approximately 0.1% of total CMO investments at December
31, 1997 and 1996.
At December 31, 1997, contractual fixed maturity investment commitments
were $188 million. The majority of investment commitments are for the purchase
of investment grade fixed maturities, bearing interest at a fixed market rate,
and require no collateral. These commitments are diversified by issuer and
maturity date, and it is estimated that approximately 83% will be disbursed in
1998.
B) MORTGAGE LOANS AND REAL ESTATE: The Company's mortgage loans and
real estate investments are diversified by property type and location and, for
mortgage loans, by borrower. Mortgage loans are collateralized by the related
properties and generally approximate 75% of the property's value at the time the
original loan is made.
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<PAGE> 67
At December 31, the carrying values of mortgage loans and real estate
investments, including policyholder share, were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996
------- -------
<S> <C> <C>
Mortgage Loans $10,090 $10,152
------- -------
Real estate:
Held for sale 339 586
Held for production of income 410 439
------- -------
Total real estate 749 1,025
------- -------
Total $10,839 $11,177
======= =======
</TABLE>
At December 31, mortgage loans and real estate investments comprised
the following property types and geographic regions:
<TABLE>
<CAPTION>
(In millions) 1997 1996
------- -------
<S> <C> <C>
Property type:
Retail facilities $ 4,227 $ 4,453
Office buildings 3,984 4,241
Apartment buildings 1,311 1,272
Hotels 498 665
Other (primarily industrial) 819 546
------- -------
Total $10,839 $11,177
======= =======
Geographic region:
Central $ 3,484 $ 3,452
Pacific 2,962 3,132
Middle Atlantic 1,821 1,920
South Atlantic 1,458 1,526
New England 1,114 1,147
------- -------
Total $10,839 $11,177
======= =======
</TABLE>
MORTGAGE LOANS
At December 31, 1997, scheduled mortgage loan maturities were as
follows: 1998 - $0.7 billion; 1999 - $1.1 billion; 2000 - $1.3 billion; 2001 -
$1.1 billion; 2002 - $1.7 billion; and $4.2 billion thereafter. Actual
maturities could differ from contractual maturities because borrowers may have
the right to prepay obligations with or without prepayment penalties; the
maturity date may be extended; and loans may be refinanced. During 1997 and
1996, the Company refinanced at current market rates approximately $135 million
and $477 million, respectively, of its mortgage loans relating to borrowers that
were unable to obtain alternative financing.
At December 31, 1997, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $167 million, all
of which were at a fixed market rate of interest. These commitments expire
within six months, and are diversified by property type and geographic region.
At December 31, 1997, the Company's impaired mortgage loans were $375
million, including $152 million before valuation reserves totaling $44 million,
and $223 million which had no valuation reserves. At December 31, 1996, the
Company's impaired mortgage loans were $814 million, including $442 million
before valuation reserves totaling $94 million, and $372 million which had no
valuation reserves.
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<PAGE> 68
During the year ended December 31, changes in reserves for impaired
mortgage loans, including policyholder share, were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996
---- ----
<S> <C> <C>
Reserve balance - January 1 $ 94 $ 82
Transfers to foreclosed real estate (30) (29)
Charge-offs upon sales (47) (19)
Net increase in valuation reserves 27 60
---- ----
Reserve balance - December 31 $ 44 $ 94
==== ====
</TABLE>
During 1997 and 1996, impaired mortgage loans, before valuation
reserves, averaged approximately $597 million and $852 million, respectively.
Interest income recorded and cash received on these loans were approximately $34
million and $73 million in 1997 and 1996, respectively.
REAL ESTATE
During 1997, 1996 and 1995, non-cash investing activities included real
estate acquired through foreclosure of mortgage loans, which totaled $81
million, $107 million and $144 million, respectively.
Valuation reserves and cumulative write-downs related to real estate,
including policyholder share, were $169 million and $273 million as of December
31, 1997 and 1996, respectively.
Net income for 1997 and 1996 included net investment income of $9
million and $19 million, respectively, for real estate held for sale.
Write-downs upon foreclosure and changes in valuation reserves were not material
for 1997 and 1996.
C) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments
and cash equivalents, in the aggregate, primarily included debt securities,
principally corporate securities of $520 million and federal government
securities of $443 million at December 31, 1997 and, for 1996, principally
corporate securities of $418 million.
D) NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS:
Unrealized appreciation (depreciation) for investments carried at fair value as
of December 31 was as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996
------- -------
<S> <C> <C>
Unrealized appreciation:
Fixed maturities $ 1,500 $ 1,147
Equity securities 8 8
------- -------
1,508 1,155
------- -------
Unrealized depreciation:
Fixed maturities (139) (213)
Equity securities (29) (26)
------- -------
(168) (239)
------- -------
Less policyholder-related amounts 931 610
------- -------
Shareholder net unrealized appreciation 409 306
Less deferred income taxes 153 118
------- -------
Net unrealized appreciation $ 256 $ 188
======= =======
</TABLE>
Net unrealized appreciation (depreciation) for investments carried at
fair value is included as a separate component of Shareholder's Equity, net of
policyholder-related amounts and deferred income taxes. The net unrealized
appreciation (depreciation) for these investments, primarily fixed maturities,
during 1997, 1996 and 1995 was $68 million, ($288) million and $542 million,
respectively.
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<PAGE> 69
E) NON-INCOME PRODUCING INVESTMENTS: At December 31, the carrying
values of investments, including policyholder share, that were non-income
producing during the preceding 12 months were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996
---- ----
<S> <C> <C>
Fixed maturities $ 28 $ 52
Mortgage loans -- 14
Real estate 141 172
---- ----
Total $169 $238
==== ====
</TABLE>
F) DERIVATIVE FINANCIAL INSTRUMENTS: The Company's investment strategy
is to manage the characteristics of investment assets, such as duration, yield,
currency and liquidity, to reflect the underlying characteristics of the related
insurance and contractholder liabilities, which vary among the Company's
principal product lines. In connection with this investment strategy, the
Company's use of derivative instruments, including interest rate and currency
swaps, purchased options and futures contracts, is limited to hedging
applications to minimize market risk.
Hedge accounting treatment requires a probability of high correlation
between the changes in the market value or cash flows of the derivatives and the
hedged assets or liabilities. Under hedge accounting, the changes in market
value or cash flows of the derivatives and the hedged assets or liabilities are
recognized in net income in the same period. If the Company's use of derivatives
does not qualify for hedge accounting treatment, the derivative is recorded at
fair value and changes in its fair value are recognized in net income without
considering changes in the hedged asset or liability.
The Company routinely monitors, by individual counterparty, exposure to
credit risk associated with swap and option contracts and diversifies the
portfolio among approved dealers of high credit quality. Futures contracts are
exchange-traded and, therefore, credit risk is limited since the exchange
assumes the obligations. The Company manages legal risks by following industry
standardized documentation procedures and by monitoring legal developments.
Underlying contract, notional or principal amounts associated with
derivatives at December 31 were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996
---- ----
<S> <C> <C>
Interest rate swaps $265 $335
Currency swaps 248 275
Purchased options 833 632
Futures 75 45
---- ----
</TABLE>
Under interest rate swaps, the Company agrees with other parties to
periodically exchange the difference between variable rate and fixed rate asset
cash flows to provide stable returns for related liabilities. The Company uses
currency swaps (primarily Canadian dollars, pounds sterling and Swiss francs) to
match the currency of investments to that of the associated liabilities. Under
currency swaps, the parties exchange principal and interest amounts in two
relevant currencies using agreed-upon exchange amounts.
The net interest cash flows from interest rate and currency swaps are
recognized currently as an adjustment to net investment income, and the fair
value of these swaps is reported as an adjustment to the related investments.
Using purchased options to reduce the effect of changes in interest
rates or equity indexes on liabilities, the Company pays an up-front fee to
receive cash flows from third parties when interest rates or equity indexes vary
from specified levels. Purchased options that qualify for hedge accounting are
recorded consistent with the related liabilities, at amortized cost plus
adjustments based on current equity indexes, and income is reported as an
adjustment to benefit expense. Purchased options are reported in other assets,
and fees paid are amortized to benefit expense over their contractual periods.
Purchased options with underlying notional amounts of $82 million and $112
million at December 31, 1997 and 1996, respectively, that are designated as
hedges, but do not qualify for hedge accounting, are reported in other long-term
investments at fair value with changes in fair value recognized as realized
investment gains and losses.
63
<PAGE> 70
Interest rate futures are used to temporarily hedge against the changes
in market values of bonds and mortgage loans to be purchased or sold. Under
futures contracts, changes in the contract values are settled in cash daily with
the exchange on which the instrument is traded. These changes in contract values
are deferred and recorded as adjustments to the carrying value of the related
bond or mortgage loan. Deferred gains and losses are amortized into net
investment income over the life of the investments purchased or are recognized
in full as realized investment gains and losses if investments are sold. Gains
and losses on futures contracts deferred in anticipation of investment purchases
were immaterial at December 31, 1997 and 1996.
The effects of interest rate and currency swaps, purchased options and
futures on the components of net income for 1997, 1996 and 1995 were not
material.
As of December 31, 1997 and 1996, the Company's variable interest rate
investments consisted of approximately $0.7 billion and $1.3 billion of fixed
maturities, respectively. As of December 31, 1997 and 1996, the Company's fixed
interest rate investments consisted of $21.6 billion and $19.5 billion,
respectively, of fixed maturities, and $10.1 billion and $10.2 billion,
respectively, of mortgage loans.
G) 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.
NOTE 5 - INVESTMENT INCOME AND GAINS AND LOSSES
A) NET INVESTMENT INCOME: The components of net investment income,
including policyholder share, for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Fixed maturities $1,648 $1,647 $1,663
Equity securities 10 -- 15
Mortgage loans 885 921 866
Policy loans 532 548 499
Real estate 118 227 301
Other long-term investments 47 23 33
Short-term investments 28 35 46
------ ------ ------
3,268 3,401 3,423
Less investment expenses 129 202 285
------ ------ ------
Net investment income $3,139 $3,199 $3,138
====== ====== ======
</TABLE>
Net investment income attributable to policyholder contracts, which is
included in the Company's revenues and is primarily offset by amounts included
in Benefits, Losses and Settlement Expenses, was approximately $1.7 billion for
1997 and $1.8 billion for 1996 and 1995. Net investment income for separate
accounts, which is not reflected in the Company's revenues, was $1.4 billion ,
$1.1 billion and $885 million for 1997, 1996 and 1995, respectively.
As of December 31, 1997, fixed maturities and mortgage loans on
non-accrual status, including policyholder share, were $143 million and $153
million, including restructured investments of $81 million and $137 million,
respectively. As of December 31, 1996, fixed maturities and mortgage loans on
non-accrual status, including policyholder share, were $160 million and $360
million, including restructured investments of $88 million and $304 million,
respectively. If interest on these investments had been recognized in accordance
with their original terms, net income would have been increased by $7 million,
$15 million and $18 million in 1997, 1996 and 1995, respectively.
64
<PAGE> 71
B) REALIZED INVESTMENT GAINS AND LOSSES: Realized gains (losses) on
investments, excluding policyholder share, for the year ended December 31 were
as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $ (3) $ 11 $(10)
Equity securities 4 1 5
Mortgage loans 4 (12) (5)
Real estate 28 15 4
Other 12 22 (1)
---- ---- ----
45 37 (7)
Income tax expenses (benefits) 8 17 (2)
---- ---- ----
Net realized investment gains (losses) $ 37 $ 20 $ (5)
==== ==== ====
</TABLE>
Realized investment gains and losses include impairments in the value
of investments, net of recoveries, of $25 million, $40 million and $27 million
in 1997, 1996 and 1995, respectively.
Realized investment gains for separate accounts, which are not
reflected in the Company's revenues, were $489 million, $305 million and $412
million for the years ended December 31, 1997, 1996 and 1995, respectively.
Realized investment gains (losses) attributable to policyholder contracts, which
also are not reflected in the Company's revenues, were $76 million, $82 million
and ($6) million for the years ended December 31, 1997, 1996 and 1995,
respectively.
Sales of available-for-sale fixed maturities and equity securities,
including policyholder share, for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Proceeds from sales $ 3,978 $ 4,236 $ 1,667
Gross gains on sales $ 66 $ 146 $ 78
Gross losses on sales $ (21) $ (70) $ (53)
------- ------- -------
</TABLE>
NOTE 6 - SHAREHOLDER'S EQUITY AND DIVIDEND RESTRICTIONS
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
5,978,322 shares of common stock authorized, issued and outstanding (par value
$5).
The Company's statutory net income was $417 million, $611 million and
$390 million for 1997, 1996 and 1995, respectively. Statutory surplus was $2.2
billion at December 31, 1997 and $2.1 billion at December 31, 1996. 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. During 1997, the Company paid
a total of $400 million in dividends to its parent, of which $100 million
received prior approval from the Department in accordance with requirements.
Under current law, the maximum dividend distribution that may be made by the
Company during 1998 without prior approval is $548 million. The amount of
restricted net assets as of December 31, 1997 was approximately $3.9 billion.
65
<PAGE> 72
NOTE 7 - INCOME TAXES
The Company's net deferred tax asset of $653 million and $639 million
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.
In accordance with the Life Insurance Company Income Tax Act of 1959, a
portion of the Company's statutory income was not subject to current income
taxation but was accumulated in an account designated Policyholders' Surplus
Account. Under the Tax Reform Act of 1984, no further additions may be made to
the Policyholders' Surplus Account for tax years ending after December 31, 1983.
The balance in the account of approximately $450 million at December 31, 1997
would result in a tax liability of $158 million only if distributed to the
shareholder or if the account balance exceeded a prescribed maximum. No income
taxes have been provided on this amount because, in management's opinion, the
likelihood that these conditions will be met is remote.
CIGNA's federal income tax returns are routinely audited by the
Internal Revenue Service (IRS), and provisions are made in CIGNA's financial
statements in anticipation of the results of these audits. CIGNA resolved all
issues relative to the Company arising out of audits for 1991 through 1993,
which resulted in an increase to net income of $13 million in 1997.
In management's opinion, adequate tax liabilities have been established
for all years.
The tax effect of temporary differences which give rise to deferred
income tax assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Other insurance and contractholder liabilities $400 $387
Employee and retiree benefit plans 196 177
Investments, net 262 228
Other 63 74
---- ----
Total deferred tax assets 921 866
---- ----
Deferred tax liabilities:
Policy acquisition expenses 38 21
Depreciation 77 88
Unrealized appreciation on investments 153 118
---- ----
Total deferred tax liabilities 268 227
---- ----
Net deferred income tax asset $653 $639
==== ====
</TABLE>
Total income taxes for the year ended December 31 were less than the
amount computed using the nominal federal income tax rate of 35% for the
following reasons:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Tax expense at nominal rate $ 320 $ 305 $ 266
Tax-exempt interest income (5) (5) (6)
Dividends received deduction (7) (7) (7)
Amortization of goodwill 4 4 4
Resolved federal tax audit issues (13) -- --
Other (1) 16 --
----- ----- -----
Total income taxes $ 298 $ 313 $ 257
===== ===== =====
</TABLE>
66
<PAGE> 73
NOTE 8 - PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS PLANS
A) PENSION PLANS: The Company provides retirement benefits to eligible
employees and agents. These benefits are provided through a plan sponsored by
CIGNA covering most domestic employees (the Plan) and by several separate
pension plans for various subsidiaries, agents and foreign employees.
The Plan is a non-contributory, defined benefit, trusteed plan
available to eligible domestic employees. Generally, for employees whose service
commenced prior to 1989, benefits are based on their years of service and
eligible compensation during the highest three consecutive years of employment,
offset by a portion of the Social Security benefit for which they are eligible.
In 1997, CIGNA amended its Plan for employees whose service commenced after
1988. Under the new Plan provisions, eligible employees receive annual benefit
credits based on an employee's age and credited service, and quarterly interest
credits based on U.S. Treasury bond rates. The employee's pension benefit equals
the value of accumulated credits, and may be paid at or after separation from
service in a lump sum or an annuity. CIGNA funds the Plan at least at the
minimum amount required by the Employee Retirement Income Security Act of 1974
(ERISA). Allocated pension cost for the Company was $24 million, $26 million and
$23 million in 1997, 1996 and 1995, respectively.
The Plan, and several separate pension plans for various subsidiaries
and agents, had deposits with the Company totaling approximately $2.5 billion
and $2.2 billion at December 31, 1997 and 1996, respectively.
B) OTHER POSTRETIREMENT BENEFITS PLANS: In addition to providing
pension benefits, the Company provides certain health care and life insurance
benefits to retired employees, spouses and other eligible dependents through
various plans sponsored by CIGNA. A substantial portion of the Company's
employees may become eligible for these benefits upon retirement. CIGNA's
contributions for health care benefits depend upon a retiree's date of
retirement, age, years of service and other cost-sharing features, such as
deductibles and coinsurance. Under the terms of the benefit plans, benefit
provisions and cost-sharing features can be adjusted. In general, retiree health
care benefits are not funded by CIGNA, but are paid as covered expenses are
incurred. Retiree life insurance benefits are paid from plan assets or as
covered expenses are incurred.
Expense for postretirement benefits other than pensions allocated to
the Company totaled $2 million for 1997, $9 million for 1996 and $16 million for
1995. The other postretirement benefit liability included in Accounts Payable,
Accrued Expenses and Other Liabilities as of December 31, 1997 and 1996 was $412
million and $424 million, including net intercompany payables of $39 million and
$40 million, respectively, for services provided by affiliates' employees.
C) OTHER POSTEMPLOYMENT BENEFITS: The Company provides certain salary
continuation (severance and disability), health care and life insurance benefits
to inactive and former employees, spouses and other eligible dependents through
various employee benefit plans sponsored by CIGNA.
Although severance benefits accumulate with additional service, the
Company recognizes severance expense when severance is probable and the costs
can be reasonably estimated. Postemployment benefits other than severance
generally do not vest or accumulate; therefore, the estimated cost of benefits
is accrued when determined to be probable and estimable, generally upon
disability or termination. See Note 11 for additional information regarding
severance accrued as part of cost reduction initiatives.
D) CAPITAL ACCUMULATION PLANS: CIGNA sponsors various capital
accumulation plans in which employee contributions on a pre-tax basis (401(k))
are supplemented by CIGNA matching contributions. These contributions are
invested, at the election of the employee, in one or more of the following
investments: CIGNA common stock fund, several CIGNA and non-CIGNA mutual funds,
and a fixed-income fund. In addition, beginning in 1999, CIGNA may provide
additional matching contributions, depending on its annual performance, which
would be invested in the CIGNA common stock fund. The Company's allocated
expense for such plans totaled $15 million for 1997, $16 million for 1996 and
$14 million for 1995.
67
<PAGE> 74
NOTE 9 - REINSURANCE
In the normal course of business, the Company enters into agreements,
primarily relating to short-duration contracts, to assume and cede reinsurance
with other insurance companies. Reinsurance is ceded primarily to limit losses
from large exposures and to permit recovery of a portion of direct losses,
although ceded reinsurance does not relieve the originating insurer of
liability. The Company evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of its reinsurers.
Failure of reinsurers to indemnify the Company, as a result of
reinsurer insolvencies and disputes, could result in losses. As of December 31,
1997 and 1996 there were no allowances for uncollectible amounts. Future charges
for unrecoverable reinsurance may materially affect results of operations in
future periods, however, such amounts are not expected to have a material
adverse effect on the Company's liquidity or financial condition.
The effects of reinsurance on net earned premiums and fees for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
SHORT-DURATION CONTRACTS
Premiums and fees:
Direct $ 3,119 $ 2,940 $ 2,613
Assumed 255 135 384
Ceded (266) (166) (366)
------- ------- -------
Net earned premiums and fees $ 3,108 $ 2,909 $ 2,631
======= ======= =======
LONG-DURATION CONTRACTS
Premiums and fees:
Direct $ 1,979 $ 1,997 $ 1,950
Assumed 522 601 561
Ceded (233) (193) (144)
------- ------- -------
Net earned premiums and fees $ 2,268 $ 2,405 $ 2,367
======= ======= =======
</TABLE>
The effects of reinsurance on written premiums and fees for
short-duration contracts were not materially different from the amounts shown in
the above table. Benefits, losses and settlement expenses for 1997, 1996 and
1995 were net of reinsurance recoveries of $340 million, $359 million and $442
million, respectively.
NOTE 10 - LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to
buildings, amounted to $76 million, $68 million and $60 million in 1997, 1996
and 1995, respectively.
As of December 31, 1997, future net minimum rental payments under
non-cancelable operating leases were $167 million, payable as follows: 1998 -
$44 million; 1999 - $37 million; 2000 - $23 million; 2001 - $17 million; 2002 -
$12 million; and $34 million thereafter.
NOTE 11 - SEGMENT INFORMATION
The Company operates principally in three segments: Employee Life and
Health Benefits, Employee Retirement and Savings Benefits, and Individual
Financial Services. Other Operations consists principally of the results of the
Company's settlement annuity business and certain new business initiatives.
68
<PAGE> 75
Summarized segment financial information for the year ended and as of
December 31 was as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Employee Life and Health Benefits $ 4,581 $ 4,510 $ 4,243
Employee Retirement and Savings Benefits 1,773 1,899 1,914
Individual Financial Services 2,004 1,950 1,800
Other Operations 212 200 181
-------- -------- --------
Total $ 8,570 $ 8,559 $ 8,138
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES
Employee Life and Health Benefits $ 300 $ 287 $ 294
Employee Retirement and Savings Benefits 324 293 232
Individual Financial Services 300 298 252
Other Operations (11) (8) (17)
-------- -------- --------
Total $ 913 $ 870 $ 761
-------- -------- --------
IDENTIFIABLE ASSETS
Employee Life and Health Benefits $ 7,639 $ 7,065 $ 7,629
Employee Retirement and Savings Benefits 45,884 40,122 37,609
Individual Financial Services 19,809 17,930 16,189
Other Operations 2,721 2,398 2,569
-------- -------- --------
Total $ 76,053 $ 67,515 $ 63,996
-------- -------- --------
</TABLE>
During 1995, the Company recorded a $13 million pre-tax charge ($8
million after-tax), included in Other Operating Expenses, for cost reduction
restructuring initiatives in the Employee Life and Health Benefits segment. The
charge consisted primarily of severance-related expenses representing costs
associated with nonvoluntary terminations covering approximately 1,100
employees. These initiatives were completed in 1997 with no material difference
from original estimates.
NOTE 12 - CONTINGENCIES
A) FINANCIAL GUARANTEES: The Company is contingently liable for
financial guarantees provided in the ordinary course of business on the
repayment of principal and interest on certain industrial revenue bonds. The
contractual amounts of financial guarantees reflect the Company's maximum
exposure to credit loss in the event of nonperformance. To limit the Company's
exposure in the event of default of any guaranteed obligation, various programs
are in place to ascertain the creditworthiness of guaranteed parties and to
monitor this status on a periodic basis.
The industrial revenue bonds guaranteed directly by the Company have
remaining maturities of up to 18 years. The guarantees provide for payment of
debt service only as it becomes due; consequently, an event of default would not
cause an acceleration of scheduled principal and interest payments. The
principal amount of the bonds guaranteed by the Company at December 31, 1997 and
1996 was $202 million and $234 million, respectively. Revenues in connection
with industrial revenue bond guarantees are derived principally from equity
participations in the related projects and are included in Net Investment Income
as earned. Loss reserves for financial guarantees are established when a default
has occurred or when the Company believes that a loss has been incurred. There
were no losses for industrial revenue bonds in 1997, 1996 or 1995.
The Company also guarantees a minimum level of benefits for certain
separate account contracts and, in the event that separate account assets are
insufficient to fund minimum policy benefits, the Company is obligated to fund
the difference. As of December 31, 1997 and 1996, the amount of minimum benefit
guarantees for separate account contracts was $4.6 billion and $4.9 billion,
respectively. Reserves in addition to the separate account liabilities are
established when the Company believes a payment will be required under one of
these guarantees.
69
<PAGE> 76
No such reserves were required as of December 31, 1997 and 1996. Guarantee fees
are part of the overall management fee charged to separate accounts and are
recognized in income as earned.
Although the ultimate outcome of any loss contingencies arising from
the Company's financial guarantees may adversely affect results of operations in
future periods, they are not expected to have a material adverse effect on the
Company's liquidity or financial condition.
B) REGULATORY AND INDUSTRY DEVELOPMENTS: The Company's businesses are
subject to a changing social, economic, legal, legislative and regulatory
environment that could affect them. Some of the changes include initiatives to
increase health care regulation, restrict insurance pricing and the application
of underwriting standards, and revise federal tax laws. Some of the more
significant issues are discussed below.
Efforts at the federal and state level to increase regulation of the
health care industry could have an adverse effect on the Company's health care
operations if they reduce marketplace competition and innovation or result in
increased medical or administrative costs. Matters under consideration that
could have an adverse effect include mandated benefits or services that increase
costs without improving the quality of care, loss of the ERISA preemption of
state law and restrictions on the use of prescription drug formularies. Due to
the uncertainty associated with the timing and content of any proposals
ultimately adopted, the effect on the Company's results of operations, liquidity
or financial condition cannot be reasonably estimated at this time.
In 1996, Congress passed legislation that phases out over a three-year
period the tax deductibility of policy loan interest for most leveraged
corporate-owned life insurance (COLI) products. For 1997, revenues of $591
million and net income of $44 million for the Company were from leveraged COLI
products that are affected by this legislation. The Company does not expect this
legislation to have a material adverse effect on its consolidated results of
operations, liquidity or financial condition.
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. The Company recorded pre-tax charges of $17 million, $26 million
and $22 million for 1997, 1996 and 1995, respectively, for guaranty fund
assessments that can be reasonably estimated before giving effect to future
premium tax recoveries. Although future assessments and payments may adversely
affect results of operations in future periods, such amounts are not expected to
have a material adverse effect on the Company's liquidity or financial
condition.
The eventual effect on the Company of the changing environment in which
it operates remains uncertain.
C) LITIGATION: The Company is routinely engaged in litigation
incidental to its business. While the outcome of all litigation involving the
Company, including insurance-related litigation, cannot be determined,
litigation is not expected to result in losses that differ from recorded
reserves by amounts that would be material to results of operations, liquidity
or financial condition.
NOTE 13 - RELATED PARTY TRANSACTIONS
The Company has assumed the settlement annuity and group pension
business written by Life Insurance Company of North America (LINA), an
affiliate. Reserves held by the Company with respect to this business were $1.7
billion at December 31, 1997 and 1996.
The Company cedes long-term disability business to LINA. Reinsurance
recoverables from LINA at December 31, 1997 and 1996 were $869 million and $917
million, respectively.
The Company had lines of credit available from affiliates totaling $600
million at December 31, 1997 and 1996. All borrowings are payable upon demand
with interest rates equivalent to CIGNA's average monthly short-term borrowing
rate plus 1/4 of 1%. Interest expense was $0.2 million for 1997 and $1.0 million
for 1996 and 1995. As of December 31, 1997 and 1996, there were no borrowings
outstanding under such lines.
The Company extended lines of credit to affiliates totaling $600
million at December 31, 1997 and 1996. All loans are payable upon demand with
interest rates equivalent to CIGNA's average monthly short-term borrowing rate.
There were no amounts outstanding as of December 31, 1997 or 1996.
70
<PAGE> 77
The Company, together with other CIGNA subsidiaries, has entered into a
pooling arrangement known as the CIGNA Corporate Liquidity Account (the Account)
for the purpose of maximizing earnings on funds available for short-term
investments. Withdrawals from the Account, up to the total amount of the
participant's investment in the Account, are allowed on a demand basis. As of
December 31, 1997 and 1996, the Company had a balance in the Account of $484
million and $80 million, respectively.
CIGNA allocates to the Company its share of operating expenses incurred
at the corporate level. The Company also allocates a portion of its operating
expenses to affiliated companies on whose behalf it performs certain
administrative services.
71
<PAGE> 78
ILLUSTRATIONS
The following tables show how cash value and death benefit would change over an
extended period of time assuming uniform hypothetical investment performances of
0%, 6%, and 12%. If the actual investment performance were to average 0%, 6%, or
12% but were to vary up and down over the period illustrated, the actual cash
values and death benefits would vary from those illustrated in the following
tables.
These illustrations assume that, over the period illustrated, there are no
policy loans made; no partial surrenders are made; no changes are made in the
face amount of coverage; no optional coverages, riders or benefits are
purchased; no premium payments are made other than the monthly premiums
specified in the illustration; no allocation is made to the Fixed Account; no
transfers of cash value between Fund Accounts are made beyond 12 per year;
monthly cost of insurance charges are as illustrated during each policy year;
and the illustrations are based on the specified face amount, age, and premium
payments.
Current value illustrations use rates from Section 79 of the Internal Revenue
Code with linear interpolation between central ages, and assume the following
charges; i) mortality and expense charges of 0.45% effective annual rate
assessed daily on the aggregate cash value invested in the Fund Accounts, ii)
premium load of 3.00% applied to each premium payment as it is received, iii)
monthly administrative fees of $2.20 per month for the duration of the period
illustrated plus $1.05 per month for each month in which the Net Cash Value does
not exceed $10,000.
Guaranteed illustrations use rates equal to the maximum rates in the Policy
based on 150% of the 1980 CSO Male Mortality Table, and assume the following
charges: i) mortality and expense charges of 0.90% effective annual rate
assessed daily on the aggregate cash value invested in the Fund Accounts, ii)
premium load of 5.00% applied to each premium payment as it is received, iii)
monthly administrative fees of $5.00 per month for the duration of the period
illustrated plus $1.00 per month for each month in which the Net Cash Value does
not exceed $10,000.
The last column of the tables shows the amount which would accumulate if an
amount equal to each premium payment illustrated were invested, and earned
interest, after taxes, at 5% per year compounded annually.
Illustrated values and benefits take into account investment management fees and
other expenses of the underlying funds. These investment management fees and
other expenses of the underlying funds are illustrated at an assumed effective
annual rate of 0.65% of the aggregate cash value in the Fund Accounts.
At present, CIGNA Variable Products Group has agreed to limit total expenses for
the investment management fees plus other expenses for the Money Market Fund to
0.50% effective annual charge and for the S&P 500 Index Fund to 0.25% effective
annual charge. Although this agreement may end at any time, CIGNA Variable
Products Group has represented that this cap on expenses will continue until May
1, 1998, and beyond that date, expenses will be as described in the then current
prospectuses of the Money Market Fund and the S&P 500 Index Fund.
Investment management fees and other expenses may be more or less than the
assumed rate used for illustration purposes depending upon the allocations made
by the Certificate Owner.
The illustrations assume that no federal, state, or local income tax will be
charged to CG Variable Life Insurance Separate Account A.
72
<PAGE> 79
Taking into account the investment management fees and the other expenses of the
funds, as described above, the mortality and expense risk charges, the gross
rates of return of 0%, 6%, and 12% correspond to actual rates of return of
- -1.10%, 4.90%, and 10.90% based on the current charge for mortality and expense
risks, and to -1.55%, 4.45%, and 10.45% based on the guaranteed maximum charge
for mortality and expense risks.
Upon request, the Company will provide comparable illustrations based upon the
age of the requesting insured and illustrating the face amount and premium
payment requested by the insured. The Company will provide illustrations based
on current charges and costs of insurance as well as illustrations based on
maximum certificate charges and costs of insurance.
73
<PAGE> 80
GROUP VARIABLE UNIVERSAL LIFE INSURANCE
ISSUE AGE: 40 YEARS MONTHLY PREMIUM (1):$100
COVERAGE AMOUNT: $100,000
Illustration Assuming Current Charges (2)
Gross Investment Return: 0.00%
<TABLE>
<CAPTION>
End of Annual Premium Premium
Policy paid at $100 Accumulated
Year per month Cash Value (3) Death Benefit at 5% per year
- ---- --------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
1 1200 944.13 100,944 1,232.26
2 1200 1,863.56 101,864 2,526.13
3 1200 2,758.57 102,759 3,884.69
4 1200 3,615.10 103,615 5,311.18
5 1200 4,433.58 104,434 6,809.00
6 1200 5,214.43 105,214 8,381.71
7 1200 5,958.06 105,958 10,033.05
8 1200 6,664.88 106,665 11,766.96
9 1200 7,318.60 107,319 13,587.57
10 1200 7,919.81 107,920 15,499.21
11 1200 8,469.07 108,469 17,506.42
12 1200 8,966.96 108,967 19,614.00
13 1200 9,414.05 109,414 21,826.96
14 1200 9,791.80 109,792 24,150.57
15 1200 10,104.13 110,104 26,590.35
16 1200 10,358.00 110,358 29,152.13
17 1200 10,544.65 110,545 31,841.99
18 1200 10,664.84 110,665 34,666.35
19 1200 10,683.51 110,684 37,631.92
20 1200 10,601.78 110,602 40,745.78
25 1200 8,329.55 108,330 58,812.09
30 1200 1,060.62 101,061 81,869.78
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE INVESTMENT EXPERIENCE OF THE
PORTFOLIOS OF THE FUND. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CERTIFICATE YEARS. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOANS OR PARTIAL SURRENDERS WERE MADE. NO REPRESENTATION
CAN BE MADE BY THE COMPANY OR THE SEPARATE ACCOUNT OR THE UNDERLYING FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
- --------
(1) Premiums are assumed to be paid monthly in advance.
(2) Current value illustrations use unismoker rates with monthly cost of
insurance as shown, and assume the following charges:i) mortality and
expense risk charges of 0.45% effective annual rate assessed daily on
the aggregate cash value in invested in the Fund Accounts, ii) premium
load of 3.00% applied to each premium payment as it is received, iii)
monthly administrative fees of $2.20 per month for the duration of the
period illustrated plus $1.05 per month for each month in which the Net
Cash Value does not exceed $10,000.
(3) Except for the Surrender Charge, the Cash Surrender Value does not vary
from the Cash Value because these illustrations assume that no Policy
Loans have been made. The Cash Surrender Value will be $25.00 less than
the Cash Value under the Policies for which the Surrender Charge of
$25.00 is applied.
74
<PAGE> 81
GROUP VARIABLE UNIVERSAL LIFE INSURANCE
ISSUE AGE: 40 YEARS MONTHLY PREMIUM (4): $100
COVERAGE AMOUNT: $100,000
Illustration Assuming Guaranteed Charges (5)
Gross Investment Return: 0.00 %
<TABLE>
<CAPTION>
End of Annual Premium Premium
Policy Paid at $100 Accumulated
Year per month Cash Value (6) Death Benefit at 5% per year
- ---- --------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
1 1200 590.19 100,590 1,232.26
2 1200 1,130.78 101,131 2,526.13
3 1200 1,620.15 101,620 3,884.69
4 1200 2,054.34 102,054 5,311.18
5 1200 2,430.63 102,431 6,809.00
6 1200 2,747.55 102,748 8,381.71
7 1200 3,001.25 103,001 10,033.05
8 1200 3,189.14 103,189 11,766.96
9 1200 3,308.67 103,309 13,587.57
10 1200 3,352.58 103,353 15,499.21
11 1200 3,314.89 103,315 17,506.42
12 1200 3,183.79 103,184 19,614.00
13 1200 2,950.00 102,950 21,826.96
14 1200 2,599.67 102,600 24,150.57
15 1200 2,121.49 102,121 26,590.35
16 1200 1,507.93 101,508 29,152.13
17 1200 751.58 100,752 31,841.99
18 1200 (154.87) 99,845 34,666.35
19 1200 (1,218.63) 98,781 37,631.92
20 1200 (2,453.89) 97,546 40,745.78
25 1200 (12,016.65) 87,983 58,812.09
30 1200 (29,591.66) 70,408 81,869.78
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE INVESTMENT EXPERIENCE OF THE
PORTFOLIOS OF THE FUND. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CERTIFICATE YEARS. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOANS OR PARTIAL SURRENDERS WERE MADE. NO REPRESENTATION
CAN BE MADE BY THE COMPANY OR THE SEPARATE ACCOUNT OR THE UNDERLYING FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
- --------
(4) Premiums are assumed to be paid monthly in advance.
(5) Guaranteed illustrations use unismoker rates with the illustrated cost
of insurance and assume the following charges: i) mortality and expense
risk charges of 0.90% effective annual rate assessed daily on the
aggregate cash value invested in the Fund Accounts, ii) premium load of
5.00% applied to each premium payment as it is received, iii) monthly
administrative fees of $5.00 per month for the duration of the period
illustrated plus $1.00 per month for each month in which the Net Cash
Value does not exceed $10,000.
(6) Except for the Surrender Charge, the Cash Surrender Value does not vary
from the Cash Value because these illustrations assume that no Policy
Loans have been made. The Cash Surrender Value will be $25.00 less than
the Cash Value under Policies for which the Surrender Charge of $25.00
is applied.
75
<PAGE> 82
GROUP VARIABLE UNIVERSAL LIFE INSURANCE
ISSUE AGE: 40 YEARS MONTHLY PREMIUM (7): $100
COVERAGE AMOUNT: $100,000
Illustration Assuming Current Charges (8)
Gross Investment Return: 6.00 %
<TABLE>
<CAPTION>
End of Annual Premium Premium
Policy paid at $100 Accumulated
Year per month Cash Value (9) Death Benefit at 5% per year
- ---- --------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
1 1200 974.83 100,975 1,232.26
2 1200 1,982.64 101,983 2,526.13
3 1200 3,025.05 103,025 3,884.69
4 1200 4,088.99 104,089 5,311.18
5 1200 5,175.50 105,175 6,809.00
6 1200 6,285.69 106,286 8,381.71
7 1200 7,420.72 107,421 10,033.05
8 1200 8,581.80 108,582 11,766.96
9 1200 9,752.98 109,753 13,587.57
10 1200 10,944.39 110,944 15,499.21
11 1200 12,150.66 112,151 17,506.42
12 1200 13,369.24 113,369 19,614.00
13 1200 14,600.73 114,601 21,826.96
14 1200 15,826.06 115,826 24,150.57
15 1200 17,044.92 117,045 26,590.35
16 1200 18,256.99 118,257 29,152.13
17 1200 19,461.95 119,462 31,841.99
18 1200 20,659.45 120,659 34,666.35
19 1200 20,812.17 121,812 37,631.92
20 1200 22,917.91 122,918 40,745.78
25 1200 27,274.39 127,274 58,812.09
30 1200 26,925.94 126,926 81,869.78
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE INVESTMENT EXPERIENCE OF THE
PORTFOLIOS OF THE FUND. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CERTIFICATE YEARS. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOANS OR PARTIAL SURRENDERS WERE MADE. NO REPRESENTATION
CAN BE MADE BY THE COMPANY OR THE SEPARATE ACCOUNT OR THE UNDERLYING FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
- --------
(7) Premiums are assumed to be paid monthly in advance.
(8) Current value illustrations use unismoker rates with monthly cost of
insurance as shown, and assume the following charges: I) mortality and
expense risk charges of 0.45% effective annual rate assessed daily on
the aggregate cash value invested in the Fund Accounts, ii) premium
load of 3.00% applied to each premium payment as it is received, iii)
monthly administrative fees of $2.20 per month for the duration of the
period illustrated plus $1.05 per month for each month in which the Net
Cash Value does not exceed $10,000.
(9) Except for the Surrender Charge, the Cash Surrender Value does not vary
from the Cash Value because these illustrations assume that no Policy
Loans have been made. The Cash Surrender Value will be $25.00 less than
the Cash Value under the Policies for which the Surrender Charge of
$25.00 is applied.
76
<PAGE> 83
GROUP VARIABLE UNIVERSAL LIFE INSURANCE
ISSUE AGE: 40 YEARS MONTHLY PREMIUM (10): $100
COVERAGE AMOUNT: $100,000
Illustration Assuming Guaranteed Charges (11)
Gross Investment Return: 6.00 %
<TABLE>
<CAPTION>
End of Annual Premium Premium
Policy Paid at $100 Accumulated
Year per month Cash Value (12) Death Benefit at 5% per year
- ---- --------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
1 1200 609.45 100,609 1,232.26
2 1200 1,204.25 101,204 2,526.13
3 1200 1,781.28 101,781 3,884.69
4 1200 2,334.83 102,335 5,311.18
5 1200 2,860.19 102,860 6,809.00
6 1200 3,353.63 103,354 8,381.71
7 1200 3,808.82 103,809 10,033.05
8 1200 4,220.37 104,220 11,766.96
9 1200 4,582.66 104,583 13,587.57
10 1200 4,884.89 104,885 15,499.21
11 1200 5,117.01 105,117 17,506.42
12 1200 5,262.39 105,262 19,614.00
13 1200 5,306.11 105,306 21,826.96
14 1200 5,227.68 105,228 24,150.57
15 1200 5,008.14 105,008 26,590.35
16 1200 4,631.38 104,631 29,152.13
17 1200 4,080.58 104,081 31,841.99
18 1200 3,338.15 103,338 34,666.35
19 1200 2,385.76 102,386 37,631.92
20 1200 1,196.84 101,197 40,745.78
25 1200 (9,670.20) 90,330 58,812.09
30 1200 (33,246.46) 66,754 81,869.78
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE INVESTMENT EXPERIENCE OF THE
PORTFOLIOS OF THE FUND. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CERTIFICATE YEARS. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOANS OR PARTIAL SURRENDERS WERE MADE. NO REPRESENTATION
CAN BE MADE BY THE COMPANY OR THE SEPARATE ACCOUNT OR THE UNDERLYING FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
- --------
(10) Premiums are assumed to be paid monthly in advance.
(11) Guaranteed illustrations use unismoker rates with the illustrated cost
of insurance and assume the following charges: i) mortality and expense
risk charges of 0.90% effective annual rate assessed daily on the
aggregate cash value invested in the Fund Accounts, ii) premium load of
5.00% applied to each premium payment as it is received, iii) monthly
administrative fees of $5.00 per month for the duration of the period
illustrated plus $1.00 per month for each month in which the Net Cash
Value does not exceed $10,000.
(12) Except for the Surrender Charge, the Cash Surrender Value does not vary
from the Cash Value because these illustrations assume that no Policy
Loans have been made. The Cash Surrender Value will be $25.00 less than
the Cash Value under Policies for which the Surrender Charge of $25.00
is applied.
77
<PAGE> 84
GROUP VARIABLE UNIVERSAL LIFE INSURANCE
ISSUE AGE: 40 YEARS MONTHLY PREMIUM (13): $100
COVERAGE AMOUNT: $100,000
Illustration Assuming Current Charges (14)
Gross Investment Return: 12.00 %
<TABLE>
<CAPTION>
End of Annual Premium Premium
Policy paid at $100 Accumulated
Year per month Cash Value (15) Death Benefit at 5% per year
- ---- --------------- ----------------- ------------- --------------
<S> <C> <C> <C> <C>
1 1200 1,004.99 101,005 1,232.26
2 1200 2,104.29 102,104 2,526.13
3 1200 3,308.18 103,308 3,884.69
4 1200 4,612.81 104,613 5,311.18
5 1200 6,029.18 106,029 6,809.00
6 1200 7,569.46 107,569 8,381.71
7 1200 9,247.15 109,247 10,033.05
8 1200 11,083.74 111,084 11,766.96
9 1200 13,079.10 113,079 13,587.57
10 1200 15,243.70 115,224 15,499.21
11 1200 17,596.00 117,596 17,506.42
12 1200 20,156.44 120,156 19,614.00
13 1200 22,947.73 122,948 21,826.96
14 1200 25,974.70 125,975 24,150.57
15 1200 29,263.05 129,263 26,590.35
16 1200 32,841.26 132,841 29,152.13
17 1200 36,740.92 136,741 31,841.99
18 1200 40,997.09 140,997 34,666.35
19 1200 45,610.52 145,611 37,631.92
20 1200 50,620.16 150,620 40,745.78
25 1200 82,896.26 182,896 58,812.09
30 1200 130,252.22 230,252 81,869.78
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE INVESTMENT EXPERIENCE OF THE
PORTFOLIOS OF THE FUND. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE
OR BELOW THAT AVERAGE FOR INDIVIDUAL CERTIFICATE YEARS. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOANS OR PARTIAL SURRENDERS WERE MADE. NO REPRESENTATION
CAN BE MADE BY THE COMPANY OR THE SEPARATE ACCOUNT OR THE UNDERLYING FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
- --------
(13) Premiums are assumed to be paid monthly in advance.
(14) Current value illustrations use unismoker rates with monthly cost of
insurance as shown, and assume the following charges: i) mortality and
expense risk charges of 0.45% effective annual rate assessed daily on
the aggregate cash value invested in the Fund Accounts, ii) premium
load of 3.00% applied to each premium payment as it is received, iii)
monthly administrative fees of $2.20 per month for the duration of the
period illustrated plus $1.05 per month for each month in which the Net
Cash Value does not exceed $10,000.
(15) Except for the Surrender Charge, the Cash Surrender Value does not vary
from the Cash Value because these illustrations assume that no Policy
Loans have been made. The Cash Surrender Value will be $25.00 less than
the Cash Value under the Policies for which the Surrender Charge of
$25.00 is applied.
78
<PAGE> 85
GROUP VARIABLE UNIVERSAL LIFE INSURANCE
ISSUE AGE: 40 YEARS MONTHLY PREMIUM (16): $100
COVERAGE AMOUNT: $100,000
Illustration Assuming Guaranteed Charges (17)
Gross Investment Return: 12.00 %
<TABLE>
<CAPTION>
End of Annual Premium Premium
Policy Paid at $100 Accumulated
Year per month Cash Value (18) Death Benefit at 5% per year
- ---- --------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
1 1200 628.38 100,628 1,232.26
2 1200 1,279.35 101,279 2,526.13
3 1200 1,952.74 101,953 3,884.69
4 1200 2,645.82 102,646 5,311.18
5 1200 3,356.85 103,357 6,809.00
6 1200 4,085.18 104,085 8,381.71
7 1200 4,827.54 104,828 10,033.05
8 1200 5,581.59 105,582 11,766.96
9 1200 6,344.77 106,345 13,587.57
10 1200 7,109.15 107,109 15,499.21
11 1200 7,867.26 107,867 17,506.42
12 1200 8,604.50 108,605 19,614.00
13 1200 9,307.30 109,307 21,826.96
14 1200 9,955.59 109,956 24,150.57
15 1200 10,541.30 110,541 26,590.35
16 1200 11,037.29 110,037 29,152.13
17 1200 11,422.95 111,423 31,841.99
18 1200 11,676.61 111,677 34,666.35
19 1200 11,774.35 111,774 37,631.92
20 1200 11,682.13 111,682 40,745.78
25 1200 6,490.15 106,490 58,812.09
30 1200 (13,683.99) 86,316 81,869.78
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE INVESTMENT EXPERIENCE OF THE
PORTFOLIOS OF THE FUND. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE
OR BELOW THAT AVERAGE FOR INDIVIDUAL CERTIFICATE YEARS. THEY WOULD ALSO BE
DIFFERENT IF ANY POLICY LOANS OR PARTIAL SURRENDERS WERE MADE. NO REPRESENTATION
CAN BE MADE BY THE COMPANY OR THE SEPARATE ACCOUNT OR THE UNDERLYING FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER A PERIOD OF TIME.
- --------
(16) Premiums are assumed to be paid monthly in advance.
(17) Guaranteed illustrations use unismoker rates with the illustrated cost
of insurance and assume the following charges: i) mortality and expense
risk charges of 0.90% effective annual rate assessed daily on the
aggregate cash value invested in the Fund Accounts, ii) premium load of
5.00% applied to each premium payment as it is received, iii) monthly
administrative fees of $5.00 per month for the duration of the period
illustrated plus $1.00 per month for each month in which the Net Cash
Value does not exceed $10,000.
(18) Except for the Surrender Charge, the Cash Surrender Value does not vary
from the Cash Value because these illustrations assume that no Policy
Loans have been made. The Cash Surrender Value will be $25.00 less than
the Cash Value under Policies for which the Surrender Charge of $25.00
is applied.
79
<PAGE> 86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, CG Variable Life Insurance Separate Account A, certifies that it
meets all of the requirements for effectiveness of this Registration Statement
pursuant to rule 485 (b) under the Securities Act of 1933, and has duly caused
this amendment to its registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the city of Philadelphia and the Commonwealth of Pennsylvania
on the 30 day of April, 1998.
(SEAL) CG VARIABLE LIFE INSURANCE
SEPARATE ACCOUNT A
------------------
(Registrant)
(SEAL) CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
-----------------
(Depositor)
BY: /S/ MICHAEL A. JAMES
--------------------
MICHAEL A. JAMES
ATTEST:
---------------------
---------------------
Title
<PAGE> 87
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the registration statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE AND TITLE DATE
/s/ THOMAS C. JONES * April 30, 1998
- ---------------------------------------------
Thomas C. Jones
President (Principal Executive Officer)
/s/ John Wilkinson * April 30, 1998
- ---------------------------------------------
John Wilkinson
Vice President and Actuary
(Principal Financial Officer)
/s/ Dominic A. DellaVolpe * April 30, 1998
- ---------------------------------------------
Dominic A. DellaVolpe
Vice President (Principal Accounting Officer)
/s/ HAROLD W. ALBERT * April 30, 1998
- ---------------------------------------------
Harold W. Albert, Director
/s/ ROBERT W. BURGESS * April 30, 1998
- ---------------------------------------------
Robert W. Burgess, Director
/s/ JOHN G. DAY * April 30, 1998
- ---------------------------------------------
John G. Day, Director
/s/ JOSEPH M. FITZGERALD * April 30, 1998
- ---------------------------------------------
Joseph M. Fitzgerald, Director
/s/ H. EDWARD HANWAY * April 30, 1998
- ---------------------------------------------
H. Edward Hanway, Director
/s/ CAROL M. OLSEN * April 30, 1998
- ---------------------------------------------
Carol M. Olsen, Director
/s/ JOHN E. PACY * April 30, 1998
- ---------------------------------------------
John E. Pacy, Director
/s/ MARC L. PREMINGER * April 30, 1998
- ---------------------------------------------
Marc L. Preminger, Director
<PAGE> 88
/s/ PATRICIA L. ROWLAND * April 30, 1998
- ---------------------------------------------
Patricia L. Rowland, Director
/s/ W. ALLEN SCHAFFER, M.D. * April 30, 1998
- ---------------------------------------------
W. Allen Schaffer, M. D., Director
*BY: /s/Michael A. James
-------------------
Michael A. James
Attorney-in-Fact
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to
file with the Securities and Exchange Commission such supplementary and
periodic information, documents, and reports as may be prescribed by
any rule or regulation of the Commission heretofore or hereafter duly
adopted pursuant to authority conferred in that section.
RULE 484 UNDERTAKING
The following provisions regarding the Indemnification of Directors and
Officers of the Registrant are applicable:
Connecticut Law: Except where an applicable insurance policy is
procured, Connecticut General Statutes ("C.G.S.") Section 33-320a is
the sole source of indemnification rights for directors and officers of
Connecticut corporations and for persons who may be deemed to be
controlling persons by reason of their status as a shareholder,
director, officer, employee or agent of a Connecticut corporation.
Under C.G.S. Section 33-320a, a corporation shall indemnify any
director or officer who was or is a party, or was threatened to be made
a party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter referred to as "proceeding") by virtue of the fact that he
or the person whose legal representative he is: (i) is or was a
director or officer of the corporation; (ii) while a director or an
officer of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent
of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise (hereinafter referred to as "enterprise"),
other than an employee benefit plan or trust; or (iii) while a director
or an officer of the corporation, is or was a director or officer
serving at the request of the corporation as a fiduciary of an employee
benefit plan or trust maintained for the benefit of employees of the
corporation or any other enterprise, against "covered expenditures" if
(and only if) his conduct met the applicable statutory eligibility
standard.The types of expenditures which are covered and the statutory
eligibility standard vary according to the type of proceeding to which
the director or officer is or was a party or was threatened to be made
a party.
According to C.G.S. Section 33-320a, in non-derivative
<PAGE> 90
proceedings other than ones brought in connection with an alleged claim
based upon the purchase or sale by a director or officer of securities
of the corporation or of another enterprise, which the director or
officer serves or served at the request of the corporation, the
corporation shall indemnify a director or officer against judgments,
fines, penalties, amounts paid in settlement and reasonable expenses,
including attorney's fees, actually incurred by him in connection with
the proceeding, or any appeal therein,
IF AND ONLY IF he acted (i) in good faith and (ii) in a manner he
reasonably believed to be in the best interests of the corporation or,
in the case of a person serving as a fiduciary of any employee benefit
plan or trust, in a manner he reasonably believed to be in the best
interests of the corporation or in the best interest of the
participants and beneficiaries of such employee benefit plan or trust
and consistent with the provisions of such employee benefit plan or
trust. However, where the proceeding brought is criminal in nature,
C.G.S. Section 33-320a requires that the director or officer must
satisfy the additional condition that he had no reasonable cause to
believe that his conduct was unlawful in order to be indemnified. A
director or officer also will be entitled to indemnification as
described above if (i) he is successful on the merits in the defense of
any non-derivative proceeding brought against him or (ii) a court shall
have determined that in view of all the circumstances he is fairly and
reasonably entitled to be indemnified. The decision about whether the
director or officer qualifies for indemnification under C.G.S. Section
33-320a may be made (i) in writing by a majority of those members of
the board of directors who were not parties to the proceeding in
question, (ii) in writing by independent legal counsel selected by a
consent in writing signed by a majority of those directors who were not
parties to the proceeding, or (iii) by the shareholders of the
corporation at a special or annual meeting by an affirmative vote of at
least a majority of the voting power of shares not owned by parties to
the proceeding. A director or officer also may apply to a court of
competent jurisdiction for indemnification even though he previously
applied to the board, independent legal counsel or the shareholders and
his application for indemnification was rejected.
For purposes of C.G.S. Section 33-320a, the termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent shall not create, of itself, a
presumption that the director or officer did not act in good faith or
in a manner which that director or officer did not believe reasonably
to be in the best interests of the corporation or of the participants
and beneficiaries of an employee benefit plan or trust and consistent
with the provisions of such plan or trust.
<PAGE> 91
Likewise, the termination of a criminal act or proceeding shall not
create, of itself, a presumption that the director or officer had
reasonable cause to believe that his conduct was unlawful.
In non-derivative proceedings based on the purchase or sale of
securities of the corporation or of another enterprise, which the
director or officer serves or served at the request of the corporation,
C.G.S. Section 33-320a provides that the corporation shall indemnify
the director or officer only after a court shall have determined upon
application that in view of all the circumstances, the director or
officer is fairly and reasonably entitled to be indemnified.
Furthermore, the expenditures for which the director or officer shall
be indemnified shall be only such amount as the court determines to be
appropriate.
Pursuant to C.G.S. Section 33-320a, where a director or officer was or
is a party or was threatened to be made a party to a derivative
proceeding, the corporation shall indemnify him against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection with the proceeding or any appeal therein, in relation to
matters as to which he is finally adjudged not to have breached his
duty to the corporation. The corporation also shall indemnify a
director or officer where the court determines that, in view of all the
circumstances, such person is fairly and reasonably entitled to be
indemnified; however, in such a situation, the individual shall be
indemnified only for such amount as the court determines to be
appropriate. Furthermore, the statute provides that the corporation
shall not indemnify a director or officer for amounts paid to the
corporation, to a plaintiff or to counsel for a plaintiff in settling
or otherwise disposing of a threatened or pending action, with or
without court approval, or for expenses incurred in defending a
threatened action or a pending action which is settled or otherwise
disposed of without court approval.
C.G.S. Section 33-320a also provides that expenses incurred in
defending a proceeding may be paid by the corporation in advance of the
final disposition of such proceeding upon authorization of the board of
directors, provided said expenses are indemnifiable under the statute
and the director or officer agrees to repay such amount if he is later
found not entitled to indemnification by the corporation.
Lastly, C.G.S. Section 33-320a is intended to be an exclusive statute.
A corporation established under Connecticut statute cannot indemnify a
director or officer (other than a director or officer who is or was
serving at the request of the corporation as a director, officer,
partner, trustee, employee or agent of another enterprise),
<PAGE> 92
to an extent either greater or less than that authorized by the
statute, and any provision in the certificate of incorporation, the
by-laws, a shareholder or director resolution, or agreement or
otherwise that is inconsistent with the statute is invalid.
Notwithstanding the above, C.G.S. Section 33-320a specifically
authorizes a corporation to procure insurance providing greater
indemnification rights than those set out in the statute the premium
cost of which may be shared with the director or officer on such basis
as may be agreed upon.
The directors and officers may also be covered by an errors and
omissions or other insurance policies. The Bylaws of CIGNA Corporation
provide that any person who at any time serves as a director or officer
of the Company or any majority owned ultimate subsidiary of CIGNA
Corporation shall be indemnified or reimbursed against and for any and
all claims for which they become subject by reason of such service.
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REPRESENTATIONS UNDER SECTION 26 (e) OF THE INVESTMENT COMPANY ACT OF
1940.
The fees and charges under the Policy, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the Company.
CONTENTS OF REGISTRATION STATEMENT
<PAGE> 93
This Registration Statement is comprised of the following
documents:
The Facing Sheet.
The Prospectus consisting of 79 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484 under the Securities Act
of 1933.
The signatures.
Powers of Attorney.
The following Exhibits:
1. The following Exhibits correspond to those required
by Paragraph A of the instructions as to Exhibits in
Form N-8B-2:
A. (1) Resolution of Board of Directors of
Connecticut General Life Insurance Company
establishing the Separate Account. Incorporated by
reference to Exhibit 1 A (1) Registration Statement
on Form S-6 (File Number 33-609670) filed July 11,
1995 by CG Variable Life Insurance Separate Account A
as Registrant and Connecticut General Life Insurance
Company as Depositor. )
(2) Not Applicable.
(3) Distributing contracts:
(a) Distribution Agreement
between Connecticut
General Life Insurance
Company and CIGNA
Financial Services, Inc. -
(b) Not Applicable.
(c) Not Applicable.
(4) Not Applicable.
(5) Group Variable Universal Life
Insurance Policy - Incorporated by
Reference to Exhibit 5 of Post
<PAGE> 94
Effective Amendment #1 to the
Registration Statement on Form S-6
(File Number 33-609670) filed April
25, 1997 by CG Variable Life
Insurance Separate Account A as
Registrant and Connecticut General
Life Insurance Company as
Depositor.
(6) (a) Certificate of
Incorporation of
Connecticut General Life
Insurance Company
-Incorporated by Reference
to Exhibit #6 (b) of Post
Effective Amendment #1 to
Registration Statement on
Form N-4 (File Number
33-83020) filed June 22,
1995 by CG Variable
Annuity Separate Account
II as Registrant and
Connecticut General Life
Insurance Company as
Depositor.
(b) By-laws of Connecticut
General Life Insurance
Company - Incorporated by
Reference to Exhibit #6
(b) of Post Effective
Amendment #1 to
Registration Statement on
Form N-4 (File Number
33-83020) filed June 22,
1995 by CG Variable
Annuity Separate Account
II as Registrant and
Connecticut General Life
Insurance Company as
Depositor.
(7) Not Applicable.
(8) Participation Agreements between
Separate Account and underlying
Investment Companies - Incorporated
by reference to Exhibit 8 of
Registration Statement on Form S-6
(File Number 33-609670) filed July
11, 1995 by CG Variable Life
Insurance Separate Account A as
Registrant and Connecticut General
Life Insurance Company as
Depositor.
(9) Not Applicable.
<PAGE> 95
(10) Form of Application for Group
Variable Universal Life Insurance
Policy. - Incorporated by reference
to Exhibit 10 to Pre-effective
Amendment #2 to Registration
Statement on Form S-6 (File Number
33-609670) filed December 22, 1995
by CG Variable Life Insurance
Separate Account A as Registrant
and Connecticut General Life
Insurance Company as Depositor.
(11) Memorandum describing Connecticut
General Life Insurance Company's
issuance, transfer, and redemption
procedures for the Policy
Incorporated by reference to
Exhibit 11 Registration Statement
on Form S-6 (File Number 33-609670)
filed December 22, 1995 by CG
Variable Life Insurance Separate
Account A as Registrant and
Connecticut General Life Insurance
Company as Depositor.
B. (1) Not Applicable.
(2) Not Applicable.
C. Not Applicable.
2. Opinion of Counsel as to the legality of the
securities being registered.
3. Not Applicable.
4. Not Applicable.
5. Opinion and Consent of Benjamin Clement as to
actuarial matters pertaining to the securities being
registered.
6. Consent of Price Waterhouse LLP.
7. Consent of counsel opining as to the legality of the
securities being registered - see Exhibit 2.
8. Opinion and consent of Jorden Burt Boros Cicchetti
Berenson & Johnson.
<PAGE> 1
EXHIBIT 1 A (3) (a)
DISTRIBUTION AGREEMENT BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
AND
CIGNA FINANCIAL SERVICES, INC.
<PAGE> 2
PRINCIPAL UNDERWRITING AGREEMENT
AGREEMENT made as of the 1st day of December, 1997 by and between
Connecticut General Life Insurance Company, a Connecticut corporation ("CG"), on
its own behalf and on behalf of certain of its separate accounts ("Accounts")
named in Attachment A to this Agreement, as said Attachment may be amended from
time to time, and CIGNA Financial Services, Inc., a Connecticut corporation
("CFS").
WHEREAS, the Accounts are or will be established under the authority of
the Board of Directors of CG in order to set aside and invest assets
attributable to certain variable annuity contracts and variable life insurance
policies (together, "Policies") issued by CG;
WHEREAS, the Accounts are or will be registered under the Investment
Company Act of 1940, as amended ("the '40 Act") and the Policies are or will be
registered under the Securities Act of 1933, as amended ("the '33 Act"), unless
an exemption from registration under the '33 Act is available;
WHEREAS, CFS is registered as a broker-dealer with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended ("the '34 Act") and is a member of the National Association of
Securities Dealers, Inc. ("NASD");
WHEREAS, CG and the Accounts desire to have the Policies sold and
distributed by and through CFS, and CFS is willing to sell and distribute such
Policies and arrange for their sale and distribution by other broker-dealers
under the terms stated herein; and
WHEREAS, CFS may desire to appoint CG, the issuer of the Policies, as
its agent to receive money and perform other services.
NOW, THEREFORE, in consideration of the covenants hereinafter contained, CG and
CFS agree as follows:
1. Underwriter. CG hereby appoints CFS as Principal Distributor of the
Policies during the term of this Agreement. CG reserves the right, however, to
refuse at any time or times to sell any Policies hereunder for any reason, and
CG maintains ultimate responsibility for Policy underwriting.
2. Undertakings Regarding Sales by CFS. CFS shall use reasonable
efforts to sell the Policies but does not agree hereby to sell any specific
number of Policies and shall be free to act as underwriter of other securities.
All premiums for Policies shall be held in a fiduciary capacity and remitted
promptly (and in any event within 30 days or such shorter period as may be
required by law) in full, together with such application, forms and any other
required documentation to CG, and CFS hereby appoints CG as agent of CFS to
receive premiums on CFS's behalf. Checks or money orders in payment of premiums
shall be drawn to the order of "Connecticut General Life Insurance Company." CFS
agrees to offer each Policy for sale in
<PAGE> 3
accordance with any prospectus then in effect for such Policy. CFS is not
authorized to give any information or to make any representations concerning any
Policy other than those contained in the current prospectus for such Policy as
filed with the SEC or in such sales literature as may be authorized by CG. CG
shall review and approve or disapprove all proposed advertising concerning the
Policies prior to its use.
3. Compliance. CFS shall conform to the Conduct Rules of the NASD, and
the securities laws of any jurisdiction in which it sells, directly or
indirectly, any Policies. CFS shall take reasonable steps to ensure that its
associated persons sell Policies to persons for whom a Policy is suitable. CFS
agrees to make timely filings with the SEC, the NASD, and such other regulatory
authorities as may be required of any sales literature relating to the Policies
and intended for distribution to prospective investors. CFS also agrees to
furnish to CG sufficient copies of any agreements or plans it intends to use in
connection with any sales of Policies. CFS further agrees to provide information
or reports with respect to its services hereunder pursuant to request by any
regulatory authority having jurisdiction with respect thereto, in order that
such regulatory authority may ascertain whether CG's variable product operations
are being conducted in a manner consistent with applicable laws and regulations.
4. Registration and Qualification of Policies. CG agrees to execute
such papers and to do such acts and things as shall from time to time be
reasonably requested by CFS for the purpose of qualifying and maintaining
qualification of the Policies for sale under applicable state law and for
maintaining the registration of the Accounts and interests therein,
respectively, under the '40 Act and the '33 Act, to the end that there will be
available for sale from time to time such amount of the Policies as CFS and
other broker-dealers may reasonably be expected to sell. CG shall advise CFS
promptly of (a) any action of the SEC or any authority of any state or territory
of which it may be advised, affecting registration or qualification of any
Account, or the right to offer the Policies for sale, and (b) the happening of
any event which makes untrue any statement or which requires the making of any
change in the registration statement or prospectus in order to make the
statements therein not misleading.
5. Independent Contractor Status. CFS shall be an independent
contractor. CFS is responsible for its own conduct and for the employment,
control and conduct of its agents and employees and for injury to such agents or
employees or to others through its agents or employees. CFS assumes full
responsibility for its agents and employees under applicable statutes and agrees
to pay all employer taxes thereunder. All persons selling Policies shall be duly
licensed as insurance agents, with variable contract authority if necessary,
pursuant to applicable state laws, and CG shall have responsibility for
arranging for such licensing.
6. Sales by Additional Broker-Dealers. CFS, with CG's written consent
for each such distributor, may enter into consulting and/or wholesaling
agreements with broker-dealer distributors to obtain assistance in locating
broker-dealers who are willing to enter into sales agreements for the sale of
the Policies. In addition, CFS or CG may enter into sales agreements with other
independent broker-dealers for the sale of Policies, provided, however, that
with respect to any such other independent broker-dealer, CFS shall obtain CG's
written consent. Notwithstanding the above, CG expressly reserves to itself the
ultimate responsibility and
<PAGE> 4
authority for direction and control of the underwriting services provided
hereunder and ultimate control over, and responsibility for, marketing the
Policies; including the ultimate right to appoint agents and broker-dealers
selling Policies, and to terminate an agent and/or broker-dealer, once
appointed.
7. Expenses Paid by CG. While CFS continues to act as agent of CG to
obtain applications for and to sell Policies, and provided CFS (as distinguished
from its associated persons) receives no commission for the sale of the
Policies, CG shall pay the following:
(a) all expenses of printing and distributing any prospectus for use in
offering the Policies for sale and all other copies of any such prospectus used
by CFS, and
(b) all other expenses of advertising and of preparing, printing and
distributing all other literature or material for use in connection with
offering the Policies for sale.
8. Interests in and of CFS. It is understood that any of the
policyholders, directors, officers, employees and agents of CG may be a
shareholder, director, officer, employee or agent of, or be otherwise interested
in, CFS, any affiliated person of CFS, any organization in which CFS may have an
interest or any organization which may have an interest in CFS; that CFS, any
such affiliated person or any such organization may have an interest in CG; and
that the existence of any such dual interest shall not affect the validity
hereof or of any transaction hereunder except as otherwise provided in the
Charter, Articles of Incorporation or By-Laws of CG and CFS, or by specific
provision of applicable law.
9. Compensation for Sales of Policies and Appointments of CG as Agent
of CFS.
(a) For sales of the Policies by associated persons of CFS and the
continuing obligations of CFS set forth herein, CG shall pay to the associated
persons of CFS on behalf of CFS the commissions set forth in a schedule which
shall be attached hereto as Schedule A, which may be amended from time to time
by CG without prior notice. For Policies sold under agreements that CFS enters
into with other broker-dealers on behalf of CFS CG shall pay commissions set
forth in a schedule which must be attached to any such agreement, as such
schedule may be amended from time to time by CG.
(b) CG agrees to maintain all required books of account and related
financial records on behalf of CFS. All such books and records shall be
maintained and preserved pursuant to Rules 17a-3 and 17a-4 under the '34 Act (or
the corresponding provisions of any future federal securities laws or
regulations). In addition, CG agrees to maintain records of all sales
commissions paid to the associated persons of CFS and any other broker-dealers
pursuant to paragraph (a) above for the sale of Policies. All such books and
records shall be owned by and under the control of CG. CG also agrees to send to
CFS's customers all required confirmations of customer transactions, and on
behalf of CFS to pay all sales commissions due and payable to the associated
persons of CFS and/or to other broker-dealers duly authorized by CFS to sell the
Policies.
<PAGE> 5
10. Indemnification.
(a) CG agrees to indemnify and hold harmless CFS and each director or
officer thereof and each person, if any, who is associated with CFS within the
meaning of the '34 Act against any and all loss, liability, claims damage, and
expenses whatsoever (including any and all expenses reasonably incurred in
investigating or defending against any litigation commenced or threatened or any
claim whatsoever) arising out of any untrue or alleged untrue registration
statement, or sales material relating to the Policies prepared by CG or supplied
to CFS by CG, or in any application filed in any state in order to qualify the
same for sale, or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(b) CFS agrees to indemnify and hold harmless CG and each director or
officer thereof, and each person, if any, who controls CG within the meaning of
the '33 Act, its agents, subsidiaries and employees, against any and all loss
liability, claims, damages, and expense whatsoever (including but not limited to
any and all expenses reasonably incurred in investigating or defending against
any litigation commenced or threatened or any claim whatsoever) arising out of
any untrue or alleged untrue statement or representation made (except as such
statements may be made in reliance on the prospectus, registration statement and
sales material supplied by CG), the failure to deliver a currently effective
prospectus (provided that CFS shall be entitled to rely on representations by CG
as to which prospectus is currently effective at any point in time and CFS shall
not be liable for delivering a prospectus that is not currently effective at the
time of delivery thereof due to a misrepresentation of the currency thereof by
CG or other failure by CG to notify CFS that such prospectus was no longer
effective) or the use of any unauthorized sales literature by CFS (or its
employees) in connection with the sale of the Policies.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any such litigation or claim, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify the indemnifying party of the commencement
thereof, but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such litigation or claim is brought against any
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than the
reasonable cost of investigation.
11. Liability. Each party shall be liable for its own misconduct and
negligence
<PAGE> 6
hereunder.
12. Effective Date and Termination. This Agreement shall act to amend
any previous agreement between the parties styled in whole or in part as a
principal underwriting agreement shall be effective as of the date first above
written, and:
(a) shall continue in force from year to year thereafter, subject to
prior termination as provided herein;
(b) may at any time be terminated by CG upon sixty days' written notice
to CFS;
(c) may at any time be terminated by CG if CG reasonably determines
that CFS has failed to perform in a satisfactory manner;
(d) shall terminate automatically in the event of its attempted
assignment by CFS and shall not be assignable by CG except with the written
consent of CFS;
(e) may at any time be terminated by CFS upon sixty days' written
notice to CG.
Termination of this agreement pursuant to this Section shall be without payment
of any penalty. In the event of termination for any reason, CG shall retain all
records relating hereto, free from any claim or retention of rights by CFS,
provided, however, that copies of all records will be made available to
regulatory authorities having jurisdiction over CFS.
13. Confidentiality. CFS agrees not to disclose or use any records or
information obtained hereunder in any manner whatsoever except as expressly
authorized herein, will keep confidential any information obtained pursuant
hereto, and disclose such information only if CG has authorized such disclosure,
or if such disclosure is expressly required by state or federal regulatory
authorities having appropriate jurisdiction or otherwise by force of law.
14. Amendment. This Agreement may be amended only by an instrument in
writing signed by both parties.
15. Applicable Law and Liabilities. This Agreement is executed and
delivered in the State of Connecticut and shall be governed by and construed in
accordance with the laws of Connecticut (other than its rules with respect to
conflicts of law). To the extent any provisions herein contained conflict with
any applicable provisions of law, the latter shall control and this Agreement
shall, to that extent, be deemed modified.
Connecticut General Life Insurance Company
By ___________________________
<PAGE> 7
Name _________________________
Title ________________________
CIGNA Financial Services, Inc.
By ___________________________
Name _________________________
Title ________________________
<PAGE> 8
Attachment A
Separate Accounts
1. CG Variable Life Insurance Separate Account A
Established May 22, 1995
2. CG Corporate Insurance Variable Life Insurance Account 02
Established February 22, 1996
File Number 333-01741
3. CG Variable Life Insurance Separate Account FE
Established March 21, 1997
Not Registered
4. CG Variable Annuity Account I - Group Variable Annuities for Qualified
Retirement Plans
Established March 12, 1968
File Number 2-33024
5. CG Variable Annuity Account II - Group Variable Annuities for Retirement
Plans
Established March 12, 1968
File Number 2-32094
<PAGE> 1
EXHIBIT 2
OPINION OF COUNSEL AS TO THE LEGALITY OF THE
SECURITIES BEING REGISTERED
<PAGE> 2
April 30, 1998
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
Re: Post Effective Amendment #2 to Form S-6 Registration Statement
CG Variable Life Insurance Separate Account A (the "Separate Account")
Dear Sirs:
As Chief Counsel of the CIGNA Group Insurance division of Connecticut General
Life Insurance Company (the "Company"), I am familiar with the actions of the
Board of Directors establishing the Separate Account and its method of operation
and authorizing the filing of a registration statement, and amendments thereto,
under the Securities Act of 1933 for the securities to be issued by the Separate
Account and under the Investment Company Act of 1940 for the Account itself.
In the course of preparing this opinion, I have reviewed the initial
Registration Statement filed July 11, 1995 as amended by subsequent filings,
this Amendment to the Registration Statement, the group variable life insurance
policies which is the subject of the Registration Statement, and such other
matters as I deemed necessary or appropriate. Based on such a review I am of the
opinion that the group variable universal life insurance policies (and the
certificates thereunder) which are the subject of the Registration Statement
under the Securities Act of 1933 filed for the Separate Account and hereby being
amended, will, when issued, be legally issued and will represent the binding
obligations of the Company, the depositor for the Separate Account.
I consent to the use of this opinion as an Exhibit to the Registration Statement
and to the reference to me under the heading "Experts" in said Registration
Statement.
Very truly yours,
/s/ Michael A. James
Michael A. James
Chief Counsel
<PAGE> 1
EXHIBIT 5
OPINION OF BENJAMIN CLEMENT AS TO ACTUARIAL
MATTERS
<PAGE> 2
April 30, 1998
Connecticut General Life Insurance Company
Two Liberty Place
1601 Chestnut Street
Philadelphia, Pa.
19192
Re: CG Variable Life Insurance Separate Account A
Post Effective Amendment #2 to Registration Statement S-6 File No. 33-60967
Ladies and Gentlemen:
This opinion is furnished in connection with Post-Effective Amendment #2 to the
Registration Statement filed by Connecticut General Life Insurance Company under
the Securities Act of 1933 recorded as File No. 33-60967. The prospectus
included in the Registration Statement on Form S-6 describes flexible premium
group variable universal life insurance policies (the "Policies"). The forms of
Policies were prepared under my direction, and I am familiar with the
Registration Statement, as amended, and the Exhibits thereto.
In my opinion, the illustrations of benefits under the Policies included in the
Section entitled "Illustrations" in the prospectus, based on assumptions stated
in the illustrations, are consistent with the provisions of the respective forms
of the Policies. The age selected in the illustrations is representative of the
manner in which the Policy operates.
In addition, I have reviewed the fees and charges to the policy, and in my
opinion, the fees and charges, are, in the aggregate, reasonable in relation to
the services rendered, the expenses expected to be incurred, and the risks
assumed by the Company.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Very truly yours,
/s/ Benjamin A. Clement
Benjamin A. Clement, FSA, MAAA
Associate Actuary
<PAGE> 1
EXHIBIT 6
CONSENT OF PRICE WATERHOUSE LLP
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 2 to the Registration Statement of the CG Variable
Life Insurance Separate Account A on Form S-6 of our report dated February 10,
1998, relating to the consolidated financial statements of Connecticut General
Life Insurance Company, which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Hartford, Connecticut
April 30. 1998
<PAGE> 1
EXHIBIT 7
CONSENT OF COUNSEL
<PAGE> 2
SEE EXHIBIT 2
<PAGE> 1
EXHIBIT 8
OPINION AND CONSENT OF
JORDEN BURT BOROS CICCHETTI BERENSON & JOHNSON
<PAGE> 2
April 30, 1998
Connecticut General Life Insurance Company
Two Liberty Place
1601 Chestnut Street
P.O. Box 7716
Philadelphia, Pa.
19192-2475
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus contained in Post-Effective Amendment No. 2 to the
Registration Statement on Form S-6 (File No. 33-60967) filed by Connecticut
General Life Insurance Company ("CG Life") and CG Variable Life Insurance
Separate Account A with the Securities and Exchange Commission under the
Securities Act of 1933 and the Investment Company Act of 1940.
Very truly yours,
/s/
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
