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CIGNA
Corporate Variable Universal Life
Annual Report
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[Logo]
DECEMBER 31, 1996
Corporate Insurance
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T A B L E O F C O N T E N T S
PRESIDENT'S LETTER
ECONOMIC REVIEW AND OUTLOOK
REPORT OF INDEPENDENT ACCOUNTANTS
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
CIGNA VARIABLE PRODUCTS MONEY MARKET FUND SUB-ACCOUNT
FUND REPORTS:
THE ALGER AMERICAN FUND ANNUAL REPORT
Alger American Growth Portfolio
Alger American Small Cap Portfolio
Alger American MidCap Growth Portfolio
CIGNA VARIABLE PRODUCTS GROUP ANNUAL REPORT
CIGNA Money Market Fund
S&P 500 Index Fund
JANUS ASPEN SERIES TRUST ANNUAL REPORT
Janus Aspen Series Short-Term Bond Portfolio
Janus Aspen Series Worldwide Growth Portfolio
MFS-REGISTERED TRADEMARK- VARIABLE TRUST ANNUAL REPORT
MFS Emerging Growth Series
MFS Total Return Series
OCC ACCUMULATION TRUST ANNUAL REPORT
Equity Portfolio
Small Cap Portfolio
Managed Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND ANNUAL REPORT
Templeton International Fund
VARIABLE INSURANCE PRODUCTS FUND ANNUAL REPORT
High Income Portfolio
Equity-Income Portfolio
VARIABLE INSURANCE PRODUCTS FUND II ANNUAL REPORT
Investment Grade Bond Portfolio
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[PHOTO] THOMAS C. JONES
President [LOGO]
900 Cottage Grove Road
Routing S-249
Hartford, CT 06152-2249
Dear Client:
It is a pleasure to provide you with this report on the performance of your
Corporate Variable Universal Life Insurance product for the year ended
December 31, 1996.
The report includes financial data for each of the portfolio options
available under your product. In addition, we have included an informative
interview with Edward Guay, CIGNA's chief economist. The interview deals with
significant national and international economic trends affecting key
financial markets, and I hope you will take a few minutes to read it
carefully.
As we begin the new year, the CIGNA Corporate Insurance team remains
committed to meeting your executive benefit funding needs, offering
sophisticated financial solutions to help you attract and retain the talent
you need to grow your business in increasingly competitive markets. I
appreciate the challenges you face each day, and want to personally thank
you for the confidence you've shown in our ability to help you meet your
objectives.
Your Corporate Variable Universal Life Product is designed specifically for
the corporate marketplace to meet your needs, and we remain dedicated to
supporting our product solutions with consistently superior service,
unquestioned financial security and complete product disclosure. We're
extremely proud to have you as a client and look forward to an enduring
partnership built on understanding, trust and our ability to provide
financial solutions of recognized value for your organization.
If you have any questions or comments about this report, please feel free to
call Kathy Kern in our CIGNA Corporate Insurance Department at 860.726.7936.
Kathy is available Monday through Friday, 8 a.m. to 5 p.m.
Sincerely,
/s/ THOMAS C. JONES
Thomas C. Jones
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ECONOMIC REVIEW AND OUTLOOK
AN INTERVIEW WITH EDWARD GUAY, CHIEF ECONOMIST, CIGNA CORPORATION
HOW DID THE U.S. ECONOMY AND OTHER NATIONAL ECONOMIES PERFORM IN 1996?
The U.S. economy performed well during 1996, as did several other national
economies. Economic activity in the U.S. continued a broadening recovery from
the slowdown of late 1994 and early 1995 which was engineered by the Federal
Reserve. This recovery was held back to some extent by the lingering weakness
among some of the major trading partners of the U.S. However, many of the
previous restraints on U.S. growth -- such as the real estate overbuilding
during the 1980s -- became less significant restraints as the markets
absorbed past excesses. The U.S. also benefited from a flood of liquidity as
central banks in many parts of the world aggressively eased interest rates to
try to restore growth.
Some other countries also recovered strongly last year. In some cases, such
as Mexico, Venezuela, Argentina, and the Scandinavian countries, the
recoveries were rebounds from past crises. In other cases, the resumption of
growth reflected stronger and more sustainable growth of both output and
final demand. In the latter group were Canada, the United Kingdom and
Australia.
There was some political background "noise" during the year in the U.S. and
elsewhere. But nowhere was it particularly disruptive of long-term economic
fundamentals. In all, 1996 was a vintage year for the U.S. and marked the
beginning of what should be several good years for the world economy.
WHAT KEY FACTORS ARE EXPECTED TO DRIVE WORLDWIDE GROWTH THIS YEAR?
The major engines of growth will include energy refining and development and
stronger demand for infrastructure products, such as power generation and
communications equipment.
DID INFLATION POSE A SERIOUS THREAT ON THE WORLD ECONOMIC SCENE IN 1996?
Although there were several inflation shocks last year, the massive liquidity
expansion did not cause inflation to rise. Excess capacity and labor in world
markets combined with technological change, continuing corporate
restructuring, and relatively free trade to help keep prices under control.
WHAT WERE THE MAJOR TRENDS IN THE U.S. BOND MARKET LAST YEAR?
When 1996 began, the U.S. bond market anticipated recession, but by late
spring the bond market was more fearful of resurging growth. Treasury bond
yields rose from 6% to more than 7% between the end of 1995 and the middle of
1996 because of the shift in psychology and futures trading. But from August
through November, fears of growth eased and bond yields retraced more than
half the earlier rise. Although good economic news caused another setback in
the bond market in December, the bond market performed better than generally
expected for the year as a whole.
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WHAT ABOUT THE PERFORMANCE OF THE EQUITY MARKET?
The equity market performed extraordinarily well again in 1996, although it
was mainly the large capitalization domestic stocks that did well. Small
capitalization domestic stocks, many major international markets, most
notably the Japanese market, and some of the emerging markets, particularly
in Asia, underperformed. Profits were stronger than expected and balance
sheets continued to improve, primarily because of restructuring, share
buybacks, and the deepening and broadening impact of new technology. The
financial improvement and increased liquidity benefited both the stock market
and the corporate bond market.
IS THE U.S. EQUITY MARKET LIKELY TO SUSTAIN ITS STRONG GROWTH OF RECENT
YEARS? WHAT ABOUT FOREIGN MARKETS?
U.S. equity valuations may experience a correction because they are at the
highest levels in 30 years and there is less scope now for extraordinary
profit gains from either a reduced rate of inflation or restructuring. But in
foreign equity markets, the scope for restructuring and for unusual profits
gains remains large. A sustained bull market in international markets could
run for another two to four years.
WHAT IS THE ECONOMIC OUTLOOK FOR 1997?
The new year should bring continued growth in the U.S. and somewhat more
favorable trends in the world economy. Several U.S. economic sectors are
already operating at or above potential and are not likely to contribute
greatly to growth during 1997. Among those are autos, housing, and some key
components of business investment spending. Other U.S. economic sectors and
regions are still operating well below their normal capabilities and offer
the potential for upside surprises during the year. U.S. growth will be
spurred by commercial construction and export industries.
After growing by more than 3.0% during 1996, the U.S. economy should be able
to grow by 2.75% to 3.0% during 1997, but with somewhat different
composition. Overall, our world view is still optimistic. The next year or
two should be good for business, and for diversified investors.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Connecticut General
Life Insurance Company and Participants of the
CG Corporate Insurance Variable Life Separate Account 02
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the CIGNA Variable
Products Group - CIGNA Variable Products Money Market Fund (constituting the
CG Corporate Insurance Variable Life Separate Account 02, hereafter referred
to as "the Account") at December 31, 1996, the results of operations and the
changes in net assets for the period December 24, 1996 (inception) through
December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Account's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at December 31, 1996 by
correspondence with the custodian, provides a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Hartford, Connecticut
February 20, 1997
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<TABLE>
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CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
CIGNA VARIABLE PRODUCTS MONEY MARKET FUND SUB-ACCOUNT
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<S> <C> <C> <C>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
DECEMBER 31, 1996 PERIOD FROM DECEMBER 24, 1996* TO DECEMBER 31, 1996
ASSETS: INVESTMENT INCOME:
Investment in CIGNA Variable Products Dividends $ 675
Money Market Fund at value $ 611,191
Receivable for fund shares sold 64 EXPENSES:
---------- Mortality and expense risk and
Total assets 611,255 administrative charges 112
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LIABILITIES: Net investment income 563
Payable to Connecticut General --------
Life Insurance Company 64 INCREASE IN NET ASSETS
---------- RESULTING FROM OPERATIONS $ 563
Total liabilities 64 --------
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Net assets $ 611,191
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Accumulation units outstanding 61,064
Net asset value per accumulation unit $10.008961
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM DECEMBER 24, 1996* TO DECEMBER 31, 1996
OPERATIONS:
Net investment income $ 563
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ACCUMULATION UNIT TRANSACTIONS:
Participant deposits, net of premium loads 621,412
Participant withdrawals (10,784)
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Net increase from participant transactions 610,628
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Total increase in net assets 611,191
NET ASSETS:
Beginning of period -
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End of period $611,191
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PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN UNITS):
Participant deposits 62,141
Participant withdrawals (1,077)
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Net increase in units from participant transactions 61,064
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* Date deposits first received
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CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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1. ORGANIZATION
CG Corporate Insurance Variable Life Separate Account 02 (the Account) is
registered as a Unit Investment Trust under the Investment Company Act of
1940, as amended. The operations of the Account are part of the operations
of Connecticut General Life Insurance Company (CG Life). The assets and
liabilities of the Account are clearly identified and distinguished from
other assets and liabilities of CG Life. The assets of the Account are not
available to meet the general obligations of CG Life and are held for the
exclusive benefit of the participants.
The assets of the Account are divided into variable sub-accounts each of
which is invested in shares of one of sixteen portfolios (mutual funds) of
eight diversified open-end management investment companies, each portfolio
with its own investment objective. The variable sub-accounts are:
ALGER AMERICAN FUND:-
Alger American Small Capitalization Portfolio*
Alger American MidCap Growth Portfolio*
Alger American Growth Portfolio*
CIGNA VARIABLE PRODUCTS GROUP:-
CIGNA Variable Products Money Market Fund
CIGNA Variable Products S&P 500 Index Fund*
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:-
Equity-Income Portfolio*
High Income Portfolio*
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:-
Investment Grade Bond Portfolio*
JANUS ASPEN SERIES:-
Short-Term Bond Portfolio*
Worldwide Growth Portfolio*
MFS VARIABLE INSURANCE TRUST:-
MFS Emerging Growth Series*
MFS Total Return Series*
OCC ACCUMULATION TRUST:-
OCC Equity Portfolio*
OCC Managed Portfolio*
OCC Small Cap Portfolio*
TEMPLETON VARIABLE PRODUCTS SERIES FUND:-
Templeton International Fund*
*Not active. As of December 31, 1996, deposits not received.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in conformity with
generally accepted accounting principles. The following is a summary of
significant accounting policies consistently followed in the preparation of
the Account's financial statements.
A. INVESTMENT VALUATION: Investments held by the sub-account are valued at
the respective closing net asset value per share as determined by the mutual
fund as of December 31, 1996.
B. INVESTMENT TRANSACTIONS: Investment transactions are recorded on the
trade date (date the order to buy or sell is executed). Dividend
distributions are recorded on the ex-dividend date. Investment transactions
are settled through CG Life.
C. FEDERAL INCOME TAXES: The operations of the Account form a part of,
and are taxed with, the total operations of CG Life, which is taxed as a life
insurance company. Under existing federal income tax law, investment income
(dividends) attributable to the Account are not taxed.
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CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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3. INVESTMENTS
Total shares held and cost of investments at December 31, 1996 were:
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Cost of
Sub-Account Shares Held Investments
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CIGNA Variable Products Money Market Fund 611,191 $611,191
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Total purchases and sales of shares of the mutual fund, for the period noted,
amounted to:
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Sub-Account Period* Purchases Sales
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CIGNA Variable Products December 24, 1996 to $621,975 $10,784
Money Market Fund December 31, 1996
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*Date deposits first received
4. CHARGES AND DEDUCTIONS
CG Life charges each variable sub-account for mortality and expense
risks, a daily deduction, currently equivalent to .85% per year during the
first ten policy years, .45% per year during the eleventh through fifteenth
policy years and .15% thereafter.
CG Life also charges each variable sub-account for administrative costs,
a daily deduction, currently equivalent to .10% per year during the first ten
policy years.
CG Life deducts a premium load of 6.5% of each premium payment to cover
sales loads, state taxes and federal income tax liabilities. An additional
40% on premium payments, up to one guideline annual premium, will be deducted
in the first policy year. In the event that the specified amount under the
policy is increased, other than a change in the death benefit option, an
additional 25% premium load on premium payments up to the increase in the
guideline annual premium will be deducted from premium payments received
during the twelve months following the increase, to the extent such premium
payments are attributable to the increase in specified amount rather than to
the previously existing specified amount.
CG Life charges a policy issue fee of $250 from the accumulation value
for a portion of CG Life's administrative expenses.
CG Life charges a monthly administrative fee of $8 per month. This
charge is for items such as premium billing and collection, policy value
calculation, confirmations and periodic reports.
CG Life charges a monthly deduction for the cost of insurance and any
charges for supplemental riders. The cost of insurance charge depends on the
attained age, years since issue, risk classification (in accordance with
state law) and the current net amount at risk. On a monthly basis, the
administrative fee and the cost of insurance charge are deducted
proportionately from the value of each variable sub-account and/or the fixed
account funding option. The fixed account is part of the general account of
CG Life and is not included in these financial statements.
CG Life charges a $25 transaction fee for each transfer between funding
options in excess of four during the policy year. No transaction fee charges
were paid to CG Life for the period from December 24, 1996 to December 31,
1996.
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CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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4. CHARGES AND DEDUCTIONS (CONTINUED)
The fees charged by CG Life for premium loads (deducted from premium
payments), policy issue fees (deducted from the initial premium payment),
administrative fees and cost of insurance, both of which are included in
participant withdrawals, from the variable sub-account for the period noted,
amounted to:
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Policy Cost of
Premium Issue Administrative Insurance
Sub-Account Period* Loads Fees Fees Deduction
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CIGNA Variable December 24, 1996 $208,122 $7,750 $248 $2,786
Products Money to
Market Fund December 31, 1996
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*Date deposits first received
CG Life will refund 60% of all premium loads previously deducted if a
policy is surrendered during the first twelve months after issue. If a policy
is surrendered during the months thirteen through twenty-four after issue, the
refund will equal 30% of all premium loads previously deducted. For partial
surrenders, a transaction charge of $25 is imposed, allocated pro-rata among
the variable sub-accounts (and, where applicable, the fixed account) from
which the partial surrender proceeds are taken. No premium load refunds or
partial surrender transaction charges were paid by CG Life or to CG Life,
respectively, attributable to the variable sub-accounts, for the period
December 24, 1996 to December 31, 1996.
5. DISTRIBUTION OF NET INCOME
The Account does not expect to declare dividends to participants from
accumulated net income. The accumulated net income is distributed to
participants as part of death benefits, surrenders, and transfers to other
fixed or variable sub-accounts.
6. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code of
1986 (the Code), a variable life insurance policy will not be treated as life
insurance under Section 7702 of the Code for any period for which the
investments of the segregated asset account, on which the policy is based,
are not adequately diversified. The Code provides that the "adequately
diversified" requirement may be made if the underlying investments satisfy
either a statutory safe harbor test or diversification requirements set forth
in regulations issued by the Secretary of Treasury. CG Life believes, based
on assurances from the mutual fund manager, that the mutual funds satisfy the
requirements of the regulations.
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This report may be distributed only to current contract holders or to
persons who have received a current Corporate Variable Universal Life
Prospectus.
National Distributor:
CIGNA Financial Advisors
[Logo] 900 Cottage Grove Road
Hartford, CT 06152
CIGNA Individual Insurance
is a division of CIGNA.
