<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1998
FILE NO. 333-01741
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 6 TO
REGISTRATION STATEMENT
ON
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE
ACCOUNT 02
(EXACT NAME OF REGISTRANT)
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
900 Cottage Grove Road, Hartford, Connecticut 06152
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
Depositor's Telephone Number, including Area Code
(860) 726-7276
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Mark A. Parsons, Esquire COPY TO:
Connecticut General Life Insurance George N. Gingold,
Company Esquire
900 Cottage Grove Road 197 King Philip Drive
Hartford, Connecticut 06152 West Hartford, CT
(NAME AND ADDRESS OF AGENT FOR 06117-1409
SERVICE)
</TABLE>
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 has been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The initial registration fee of $500 was paid with the
declaration.
Form 24F-2 was filed on February 27, 1998 for Registrant's fiscal year ended
December 31, 1997.
It is proposed that this filing will become effective:
_________ immediately upon filing pursuant to paragraph (b) of Rule 485
____X____ on April 30, 1998, pursuant to paragraph (b) of Rule 485
_________ 60 days after filing pursuant to paragraph (a) of Rule 485
_________ on _______, pursuant to paragraph (a) of Rule 485
<PAGE>
CROSS REFERENCE SHEET
(RECONCILIATION AND TIE)
REQUIRED BY INSTRUCTION 4 TO FORM S-6
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ITEM OF FORM N-8B-2 LOCATION IN PROSPECTUS
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1 Cover Page Highlights
2 Cover Page
3 *
4 Distribution of Policies
5 The Company
6(a) The Variable Account
6(b) *
9 Legal Proceedings
10(a)-(c) Short-Term Right to Cancel the Policy; Surrenders;
Accumulation Value; Reports to Policy Owners
10(d) Right to Exchange for a Fixed Benefit Policy; Policy
Loans; Surrenders; Allocation of Net Premium Payments
10(e) Lapse and Reinstatement
10(f) Voting Rights
10(g)-(h) Substitution of Securities
10(i) Premium Payments; Transfers; Death Benefit; Policy
Values; Settlement Options
11 The Funds
12 The Funds
13 Charges; Fees
14 Issuance
15 Premium Payments; Transfers
16 The Variable Account
17 Surrenders
18 The Variable Account
19 Reports to Policy Owners
20 *
21 Policy Loans
22 *
23 The Company
24 Incontestability; Suicide; Misstatement of Age
25 The Company
26 Fund Participation Agreements
27 The Variable Account
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ITEM OF FORM N-8B-2 LOCATION IN PROSPECTUS
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<S> <C>
28 Directors and Officers of the Company
29 The Company
30 *
31 *
32 *
33 *
34 *
35 *
37 *
38 Distribution of Policies
39 Distribution of Policies
40 *
41(a) Distribution of Policies
42 *
43 *
44 The Funds; Premium Payments
45 *
46 Surrenders
47 The Variable Account; Surrenders, Transfers
48 *
49 *
50 The Variable Account
51 Cover Page; Highlights; Premium Payments; Right to
Exchange for a Fixed Benefit Policy
52 Substitution of Securities
53 Tax Matters
54 *
55 *
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* Not Applicable
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CONNECTICUT GENERAL LIFE INSURANCE COMPANY
[LOGO]
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
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HOME OFFICE LOCATION: MAILING ADDRESS:
280 TRUMBULL STREET CIGNA
HARTFORD, CONNECTICUT CORPORATE VARIABLE PRODUCTS SERVICE CENTER
ROUTING H14A
HARTFORD, CT 06104
(860) 534-4100
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THE CORPORATE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
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This prospectus describes a flexible premium variable life insurance
contract ("Policy") offered in an individual form by Connecticut General Life
Insurance Company ("the Company"). This Policy is intended to provide life
insurance benefits. It allows flexible premium payments, a choice of underlying
funding options, and a choice of three death benefit options. Its value will
vary with the investment performance of the underlying funding options selected,
as may the death benefit payable by the Company upon the death of the Insured.
Policy values may be used to continue the Policy in force, may be borrowed
within certain limits, and may be fully or partially surrendered. Annuity
settlement options equivalent to the Death Benefit may be available for payment
to the Beneficiary upon the death of the Insured.
The Company offers seventeen funding vehicles under a Policy through the
Separate Account, each a diversified open-end management investment company
(commonly called a mutual fund) with a different investment objective: Alger
American Fund -- Small Capitalization Portfolio, MidCap Growth Portfolio and
Growth Portfolio; BT Insurance Funds Trust -- EAFE-Registered Trademark- Equity
Index Fund and Small Cap Index Fund; CIGNA Variable Products Group -- Money
Market Fund and S&P 500 Index Fund; Fidelity Variable Insurance Products Fund --
VIP Equity-Income Portfolio and VIP High Income Portfolio; Fidelity Variable
Insurance Products Fund II -- VIP II Investment Grade Bond Portfolio; Janus
Aspen Series -- Worldwide Growth Portfolio; MFS-Registered Trademark- Variable
Insurance Trust-Registered Trademark- -- MFS Emerging Growth Series and MFS
Total Return Series; Templeton Variable Products Series Fund -- Templeton
International Fund Class 1; OCC Accumulation Trust -- OCC Equity Portfolio, OCC
Managed Portfolio and OCC Small Cap Portfolio.
The fixed interest option offered under the Policy is the Fixed Account.
Amounts held in the Fixed Account are guaranteed and will earn interest at a
rate guaranteed to be at least equal to the lesser of 4% per year or the
prevailing 30 day Treasury Bill Rate as of the last day of the preceding
calendar month. Unless specifically mentioned, this prospectus only describes
the variable investment options.
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance policy with this 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.
PROSPECTUS DATED: MAY 1, 1998
<PAGE>
TABLE OF CONTENTS
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PAGE
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Definitions..................................... 3
Highlights...................................... 5
Initial Choices............................... 5
Charges and Fees.............................. 5
The Company..................................... 6
The Variable Account............................ 7
The Funds....................................... 7
General....................................... 12
Substitution of Securities.................... 12
Voting Rights................................. 12
Fund Participation Agreements................. 12
Death Benefit................................... 13
Death Benefit Options....................... 13
Changes in Death Benefit Option............. 13
Payment of Death Benefit.................... 14
Changes in Specified Amount................. 14
Premium Payments; Transfers..................... 15
Premium Payments............................ 15
Allocation of Net Premium Payments.......... 15
Transfers................................... 16
Charges; Fees................................... 16
Premium Load................................ 16
Policy Issue Fee............................ 17
Monthly Deductions.......................... 17
Administrative Fee.......................... 17
Transaction Fee for Excess Transfers........ 17
Mortality and Expense Risk Charge........... 18
Surrenders During First Two Policy Years --
Refund of Portion of Premium Load.......... 18
The Fixed Account............................... 18
Policy Values................................... 19
Accumulation Value.......................... 19
Variable Accumulation Unit Value............ 19
Surrender Value............................. 20
Surrenders...................................... 20
Partial Surrenders.......................... 20
Full Surrenders............................. 20
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PAGE
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Deferral of Payment and Transfers........... 20
Lapse and Reinstatement......................... 21
Lapse of a Policy........................... 21
Reinstatement of a Lapsed Policy............ 21
Policy Loans.................................... 21
Settlement Options.............................. 22
Additional Insurance Benefit.................... 22
Other Policy Provisions......................... 22
Issuance.................................... 22
Short-Term Right to Cancel the Policy....... 22
Policy Owner................................ 23
Beneficiary................................. 23
Right to Exchange for a Fixed Benefit
Policy..................................... 23
Incontestability............................ 24
Misstatement of Age......................... 24
Suicide..................................... 24
Nonparticipating Policies................... 24
Tax Matters..................................... 24
Policy Proceeds............................. 24
Taxation of the Company..................... 26
Section 848 Charges......................... 26
Other Matters................................... 26
Directors and Officers of the Company....... 26
Distribution of Policies.................... 27
Changes of Investment Policy................ 27
Other Contracts Issued by the Company....... 27
State Regulation............................ 27
Reports to Policy Owners.................... 28
Advertising................................. 28
Legal Proceedings........................... 28
Experts..................................... 28
Registration Statement...................... 29
Financial Statements........................ 29
Appendix 1...................................... 63
Illustration of Accumulation Values,
Surrender Values, and Death Benefits....... 63
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2
<PAGE>
DEFINITIONS
ACCUMULATION VALUE: The sum of the Fixed Account Value, Variable Account Value
and the Loan Account Value.
ACCUMULATION UNIT: A unit of measure used to calculate the value of a Variable
Account Sub-Account.
ADDITIONAL INSURANCE BENEFIT: A benefit that can be added to the Policy to
provide annually renewable term life insurance on the life of the Insured. This
benefit is excluded from the Specified Amount when calculating the charges and
fees for the Policy and when calculating the Guideline Annual Premium.
ADDITIONAL PREMIUMS: Any premium paid in addition to Planned Premiums.
CASE: A group of Policies covering individuals with common employment or other
relationship, independent of the Policies.
CERTIFICATE: The document which evidences the coverage of an Insured in a Case.
CODE: The Internal Revenue Code of 1986, as amended.
CORPORATE VARIABLE PRODUCTS SERVICE CENTER: The office of the Company to which
Premium Payments should be sent, notices given and any customer service requests
made. Mailing address: CIGNA, Corporate Variable Products Service Center,
Routing H14A, Hartford, CT 06104.
CORRIDOR DEATH BENEFIT: The Death Benefit calculated as a percentage of the
Accumulation Value rather than by reference to the Specified Amount to satisfy
the Internal Revenue Service definition of "life insurance." (See "Payment of
Death Benefit").
COST OF INSURANCE: The portion of the Monthly Deduction designed to compensate
the Company for the anticipated cost of paying Death Benefits in excess of the
Accumulation Value, not including riders, supplemental benefits or monthly
expense charges.
DEATH BENEFIT: The amount payable to the beneficiary upon the death of the
Insured in accordance with the Death Benefit Option elected, before deduction of
the amount necessary to repay any loans in full and overdue deductions.
DEATH BENEFIT OPTION: Any of three methods for determining the Death Benefit.
FIXED ACCOUNT: The account under which principal is guaranteed and interest is
guaranteed to be credited at a rate at least equal to the lesser of 4% per year
or the prevailing 30 day Treasury Bill Rate as of the last day of the preceding
calendar month. Fixed Account assets are general assets of the Company held in
the Company's General Account.
FIXED ACCOUNT VALUE: The portion of the Accumulation Value, other than the Loan
Account Value, held in the Company's General Account.
FUND(S): One or more of Alger American Fund -- Small Capitalization Portfolio,
MidCap Growth Portfolio and Growth Portfolio; BT Insurance Funds Trust --
EAFE-Registered Trademark- Equity Index Fund and Small Cap Index Fund; CIGNA
Variable Products Group -- Money Market Fund and S&P 500 Index Fund; Variable
Insurance Products Fund -- VIP Equity-Income Portfolio and VIP High Income
Portfolio; Variable Insurance Products Fund II -- VIP II Investment Grade Bond
Portfolio; Janus Aspen Series -- Worldwide Growth Portfolio;
MFS-Registered Trademark- Variable Insurance Trust-Registered Trademark- -- MFS
Emerging Growth Series and MFS Total Return Series; Templeton Variable Products
Series Fund -- Templeton International Fund Class 1; OCC Accumulation Trust --
OCC Equity Portfolio, OCC Managed Portfolio and OCC Small Cap Portfolio. Each of
them is an open-end management investment company (mutual fund) whose shares are
available to fund the benefits provided by the Policy.
GENERAL ACCOUNT: The Company's general asset account, in which assets
attributable to the non-variable portion of Policies are held.
GRACE PERIOD: The 61-day period following a Monthly Anniversary Day on which the
Policy's Net Accumulation Value is insufficient to cover the current Monthly
Deduction. The Company will send notice at least 31 days before the end of the
Grace Period that the Policy will lapse without value unless a sufficient
payment (described in the notification letter) is received by the Company.
GUIDELINE ANNUAL PREMIUM: The level amount of premium payment, calculated in
accordance with Rule 6e-3(T) under the Investment Company Act of 1940, required
to mature the Policy, excluding any Additional Insurance Benefit, under
guaranteed mortality and expense charges and an annual interest rate of 5%.
INSURED: The person on whose life the Policy is issued.
ISSUE AGE: The age of the Insured, to the nearest birthday, on the Issue Date.
ISSUE DATE: The date on which the Policy becomes effective, as shown in the
Policy Specifications.
3
<PAGE>
LOAN ACCOUNT VALUE: An amount equal to the sum of all unpaid Policy loans and
loan interest.
MONTHLY ANNIVERSARY DAY: The day of the month as shown in the Policy
Specifications, or the next Valuation Day if that day is not a Valuation Day or
is nonexistent for that month, when the Company makes the Monthly Deduction.
MONTHLY DEDUCTION: The monthly deduction made from the Net Accumulation Value;
this deduction includes the cost of insurance, an administrative expense charge,
and charges for supplemental riders or benefits, if applicable.
NET ACCUMULATION VALUE: The Accumulation Value less the Loan Account Value.
NET AMOUNT AT RISK: The Death Benefit before subtraction of outstanding loans,
if any, minus the Accumulation Value.
NET PREMIUM PAYMENT: The portion of a Premium Payment, after deduction of the
Premium Load, available for allocation to the Fixed Account and the Variable
Account Sub-Accounts.
OWNER: The Owner on the Date of Issue will be the person designated in the
Policy Specifications as having all ownership rights under the Policy. If no
person is designated as Owner, the Insured will be the Owner.
PLANNED PREMIUM: The amount of premium the Policy Owner chooses to pay the
Company on a scheduled basis.
POLICY: The life insurance contract described in this Prospectus, i.e., either
an individual Policy or a Certificate evidencing an Insured's coverage in a Case
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 YEAR: Each twelve-month period, beginning on the Issue Date, during which
the Policy is in effect.
PREMIUM LOAD: An amount equal to 6.5% of each Premium Payment, plus 40% of the
Premium Payment(s) in the first Policy Year up to one Guideline Annual Premium.
In the event that the Specified Amount under a Policy is increased, other than
through a change in the Death Benefit Option, Premium Load also includes an
amount equal to 25% of the increase in the Guideline Annual Premium which will
be deducted from Premium Payments received during the 12 months following the
increase.
PREMIUM PAYMENT: A premium payment made under the Policy.
RIGHT-TO-EXAMINE PERIOD: The period of time following the issuance of the Policy
during which the Owner may return the Policy and receive a refund of premiums
paid, the latest of (a) 10 days after the Policy is received by the Owner,
unless otherwise stipulated by state law requirements, (b) 10 days after the
Company mails or personally delivers a Notice of Withdrawal Right to the Owner
or (c) 45 days after the application for the Policy is signed by the Owner.
SETTLEMENT OPTION(S): Several ways in which the Beneficiary may receive a Death
Benefit, or in which the Owner may choose to receive payments upon surrender of
the Policy, through the attachment of a rider.
SPECIFIED AMOUNT: The amount (at least $50,000), including any additional
Insurance Benefit, originally chosen by the Policy Owner, which is used in the
determination of the Death Benefit, and which may be increased or decreased as
described in this Prospectus. The Additional Insurance Benefit is excluded from
the Specified Amount when calculating charges and fees for the Policy and when
calculating the Guideline Annual Premium.
SUB-ACCOUNT: That portion of the Variable Account which is invested in shares of
a specific Fund.
SURRENDER VALUE: The amount an Owner can receive in cash by surrendering the
Policy. This equals the Net Accumulation Value plus any Premium Load credits if
a surrender occurs within 24 months of issue. All of the Surrender Value may be
applied to one or more of the Settlement Options.
VALUATION DAY: Every day on which 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 of time beginning on the day following a Valuation
Day and ending on the next Valuation Day. A Valuation Period may be more than
one day in length.
VARIABLE ACCOUNT: CG Corporate Insurance Variable Life Separate Account 02.
Consists of all Sub-Accounts invested in shares of the Funds. Variable Account
assets are kept separate from the general assets of the Company and are not
chargeable with the general liabilities of the Company.
VARIABLE ACCOUNT VALUE: The portion of the Accumulation Value attributable to
the Variable Account.
4
<PAGE>
HIGHLIGHTS
The Policy is a flexible premium variable life insurance
policy. Its values may be accumulated on a fixed or variable
basis or a combination of fixed and variable bases. The
Policy's provisions may vary in some states.
INITIAL CHOICES
TO BE MADE
When purchasing a Policy, the Owner makes three important
choices:
1) Selecting one of the three Death Benefit Options;
2) Selecting the amount of Premium Payments to make; and
3) Selecting how Net Premium Payments will be allocated
among the available funding options.
LEVEL OR VARYING
DEATH BENEFIT
At the time of purchase, the Policy Owner (also called the
"Owner" in this Prospectus) must choose among the three
Death Benefit Options. The amount payable under any option
will be determined as of the date of the Insured's death.
Under the level Death Benefit Option, the Death Benefit will
be the greater of the Specified Amount, or the Corridor
Death Benefit. Under the "return of premium" Death Benefit
Option, the Death Benefit payable will be the greater of the
Specified Amount plus total Premium Payments made, or the
Corridor Death Benefit. Under the varying Death Benefit
Option, the Death Benefit will be the greater of the
Specified Amount plus the Accumulation Value, or the
Corridor Death Benefit (See "Death Benefit").
AMOUNT OF
PREMIUM PAYMENT
At the time of purchase, the Policy Owner must also choose
the amount of premium to be paid. The Owner may vary Premium
Payments to some extent and still keep the Policy in force.
If the Policy lapses it may be reinstated (See "Lapse and
Reinstatement"). Premium Payments are refundable during the
Right-to-Examine Period.
SELECTION OF
FUNDING
VEHICLE(S)
The Policy Owner must choose how to allocate Net Premium
Payments. Net Premium Payments allocated to the Variable
Account may be allocated to one or more Sub-Accounts of the
Variable Account, each of which invests in shares of a
particular Fund. The Fixed Account may also be elected as an
allocation option. The Initial Premium Payment will be
allocated to CIGNA Variable Products Group's Money Market
Fund of the Variable Account following the expiration of the
Right-to-Examine Period as described in "Short-Term Right to
Cancel the Policy" at page 22 of this Prospectus. The
variable portion of a Policy is supported by the Fund(s)
selected as funding vehicle(s). The portion of the Variable
Account Value attributable to a particular Fund through the
Sub-Account of the Variable Account is not guaranteed and
will vary with the investment performance of that Fund.
CHARGES
AND FEES
There is a 6.5% Premium Load on all Premium Payments, and an
additional 40% Premium Load on Premium Payments of up to One
Guideline Annual Premium in the first Policy Year. In the
event that the Specified Amount under a Policy is increased,
other than through a change in Death Benefit Option, an
additional 25% Premium Load on Premium Payments up to the
increase in the Guideline Annual Premium will be deducted
from premiums received during the 12 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. Of the 6.5%
Premium Load, the Company estimates that 1.25% is for
certain tax liabilities, 2.25% will be used for premium
taxes, and 3.0% is for sales load. See "Charges; Fees --
Premium Load" at page 16 of this Prospectus.
Monthly deductions are made for the Cost of Insurance and
any Additional Insurance Benefits.
A one-time policy issue charge of $250 and monthly
deductions of $8 per month are also made for administrative
expenses.
Daily charges from Variable Account Value and Fixed Account
Value are made for the mortality and expense risk, currently
at the annual rate of .85% during the first ten Policy
Years, .45% during the eleventh through fifteenth Policy
Years, and .15% thereafter.
5
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Daily charges from Variable Account Value and Fixed Account
Value are made for administrative expenses, currently at the
annual rate of .10% during the first ten Policy Years.
Investment results for each Sub-Account are affected by each
Fund's daily charge for investment advisory fees; these
charges vary by Fund and are shown at pp. 10-11 of this
Prospectus.
A transaction fee of $25 is imposed for each partial
surrender and for certain transfers in excess of four per
Policy Year.
Interest is charged on Policy loans. The net interest spread
(the amount by which interest charged exceeds interest
credited) is currently .95% per year in the first ten Policy
Years, .45% in Policy Years eleven through fifteen and .15%
per year thereafter.
See also "Expense Data" at pages 10-11 of this Prospectus.
REDUCTION OF
CHARGES
This Policy is available for purchase by corporations and
other groups or sponsoring organizations on a Case basis.
The Company reserves the right to reduce premium loads or
any other charges on certain Cases where it is expected that
the amount or nature of such Cases will result in savings of
sales, underwriting, administrative or other costs.
Eligibility for these reductions and the amount of
reductions will be determined by a number of factors,
including the number of lives to be insured, the total
premiums expected to be paid, total assets under management
for the Policy Owner, the nature of the relationship among
the insured individuals, the purpose for which the Policies
are being purchased, expected persistency of the individual
Policies, and any other circumstances which the Company
believes to be relevant to the expected reduction of its
expenses. Some of these reductions may be guaranteed and
others may be subject to withdrawal or modification by the
Company on a uniform Case basis. Reductions in charges will
not be unfairly discriminatory to any Policy Owners.
THE COMPANY
The Company is a stock life insurance company incorporated
in Connecticut in 1865. Its Home Office mailing address is
CIGNA, H14A, Hartford, Connecticut 06104, Telephone (860)
534-4100. 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
wholly-owned subsidiaries which are generally engaged in the
insurance business. The Company is a wholly-owned subsidiary
of Connecticut General Corporation, Bloomfield, Connecticut.
Connecticut General Corporation is wholly-owned by CIGNA
Holdings Inc., Philadelphia, Pennsylvania which is in turn
wholly-owned by CIGNA Corporation, Philadelphia,
Pennsylvania. Connecticut General Corporation is the holding
company of various insurance companies, one of which is
Connecticut General Life Insurance Company.
Effective January 1, 1998, the individual life insurance and
annuity business of CIGNA's Individual Insurance division
was sold to subsidiaries of Lincoln National Corporation,
principally through an indemnity reinsurance transaction,
for approximately $1.4 billion in cash. The Policies
described in this Prospectus are not part of or affected by
that transaction.
The Company markets the Policies through licensed insurance
brokers and agents who are registered representatives of
broker-dealers which are members of the National Association
of Securities Dealers, Inc.
The Company, in common with other insurance companies, is
subject to regulation and supervision by the regulatory
authorities of the states in which it is licensed to do
business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in
that state. In general, all states have statutory
administrative powers. Such regulation relates, among other
things, to licensing of insurers and their agents, the
approval of policy forms, the methods of computing reserves,
the form and content of statutory financial statements, the
amount of policyholders' and stockholders' dividends, and
the type of distribution of investments permitted. A blanket
bond for $100 million covers all of the officers and
employees of the Company.
6
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THE VARIABLE
ACCOUNT
CG Corporate Insurance Variable Life Separate Account 02
("Variable Account") was established pursuant to a February
23, 1996 resolution of the Board of Directors of the
Company. Under Connecticut insurance law, the income, gains
or losses of the Variable 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
Variable Account. These assets are held for the Policies.
Although the assets maintained in the Variable Account will
not be charged with any liabilities arising out of any other
business conducted by the Company, all obligations arising
under the Policies are general corporate liabilities of the
Company. Any and all distributions made by the Funds with
respect to shares held by the Variable Account will be
reinvested in additional shares at net asset value.
Deductions and surrenders from the Variable Account will, in
effect, be made by surrendering shares of the Funds at net
asset value. On each Valuation Day of each Fund, the
Variable Account purchases or redeems Fund shares based on a
netting of all transactions for that day. Shares of the
Funds held in the Variable Account are held by the Company
through an open account system, which makes unnecessary the
issuance and delivery of stock certificates.
The Variable Account is registered with the Securities and
Exchange Commission ("Commission") as a unit investment
trust under the Investment Company Act of 1940 ("1940 Act").
Such registration does not involve supervision of the
Variable Account or the Company's management or investment
practices or policies by the Commission. The Company does
not guarantee the Variable Account's investment performance.
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 policies.
THE FUNDS
Each of the seventeen Sub-Accounts of the Variable Account
is invested solely in the shares of one of the seventeen
Funds available as funding vehicles under the Policies. Each
of the Funds is a series of one of nine entities, all
Massachusetts or Delaware business trusts. Each such entity
is registered as an open-end, diversified management
investment company under the 1940 Act. These entities are
collectively referred to herein as the "Trusts."
The nine Trusts and their Investment advisers and
distributors are:
Alger American Fund ("Alger Trust"), managed by Fred
Alger Management, Inc., 75 Maiden Lane, New York, NY
10038 and distributed by Fred Alger & Company,
Incorporated, 30 Montgomery Street, Jersey City, NJ
07302;
BT Insurance Funds Trust ("BT Trust"), managed by
Bankers Trust Company, 130 Liberty Street, New York, NY,
10006; and distributed by First Data Distributors, Inc.,
4400 Computer Drive, Westborough, MA, 01581;
CIGNA Variable Products Group ("CIGNA Group"), managed
by CIGNA Investments, Inc. and distributed by CIGNA
Financial Services, Inc., 280 Trumbull Street, Hartford,
CT 06103;
Variable Insurance Products Fund ("Fidelity VIP"), and
Variable Insurance Products Fund II ("Fidelity VIP II"),
managed by Fidelity Management & Research Company and
distributed by Fidelity Distribution Corporation, 82
Devonshire Street, Boston, MA 02103;
Janus Aspen Series ("Janus Series"), managed by Janus
Capital Corporation, 100 Fillmore Street, Denver, CO
80206-4923, and self-distributed;
MFS-Registered Trademark- Variable Insurance
Trust-Registered Trademark- ("MFS Trust"), managed by
Massachusetts Financial Services Company and distributed
by MFS Fund Distributors, Inc., 500 Boylston Street,
Boston, MA 02116;
OCC Accumulation Trust ("OCC Trust") (formerly Quest for
Value Accumulation Trust), managed by OpCap Advisors
(formerly Quest for Value Advisors) and distributed by
OCC Distributors (formerly Quest for Value
Distributors), One World Financial Center, New York, NY
10281.
7
<PAGE>
Templeton Variable Products Series Fund ("Templeton
Trust"), International Fund managed by Templeton
Investment Counsel, Inc., 500 E. Broward Blvd., Broward
Financial Centre, Fort Lauderdale, FL 33394-3091; and
distributed by Franklin Templeton Distributors, Inc.,
P.O. Box 33030, St. Petersburg, FL 33733-8030;
Three Funds of ALGER TRUST are available under the Policies:
Alger American Small Capitalization Portfolio;
Alger American MidCap Growth Portfolio;
Alger American Growth Portfolio.
Two Funds of BT TRUST are available under the Policies:
EAFE-Registered Trademark- Equity Index Fund;
Small Cap Index Fund.
Two Funds of the CIGNA GROUP are available under the
Policies:
CIGNA VP Money Market Fund;
CIGNA VP S&P 500 Index Fund.
Two Funds of FIDELITY VIP are available under the Policies:
VIP Equity-Income Portfolio ("Fidelity VIP Equity-Income
Portfolio");
VIP High Income Portfolio ("Fidelity VIP High Income
Portfolio").
One Fund of FIDELITY VIP II is available under the Policies.
VIP II Investment Grade Bond Portfolio ("Fidelity VIP II
Investment Grade Bond Portfolio").
One Fund of JANUS ASPEN Series is available under the
Policies:
Worldwide Growth Portfolio.
Two Funds of MFS Trust are available under the Policies:
MFS Emerging Growth Series;
MFS Total Return Series.
Three Funds of OCC Trust are available under the Policies:
OCC Equity Portfolio;
OCC Managed Portfolio;
OCC Small Cap Portfolio.
One Fund of the TEMPLETON TRUST is available under the
Policies:
Templeton International Fund, Class 1.
The investment advisory fees charged the Funds by their
advisers are shown on pages 10 and 11 of this Prospectus.
There follows a brief description of the investment
objective and program of each Fund. There can be no
assurance that any of the stated investment objectives will
be achieved.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO (SMALL CAP
STOCKS): Seeks long-term capital appreciation by investing
in a diversified, actively managed portfolio of equity
securities, primarily of companies whose total market
capitalization lies within the range of companies included
in the Russell 2000 Growth Index or the S&P Small Cap 600
Index.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO (SMALL CAP STOCKS):
Seeks long-term capital appreciation by investing in a
diversified, actively managed portfolio of equity
securities, primarily of companies whose total market
capitalization is within the range of companies included in
the S&P MidCap 400 Index.
ALGER AMERICAN GROWTH PORTFOLIO (LARGE CAP STOCKS): Seeks
long-term capital appreciation by investing in a
diversified, actively managed portfolio of equity
securities, primarily of companies whose total market
capitalization is $1 billion or greater.
8
<PAGE>
BT INSURANCE FUNDS TRUST EAFE-REGISTERED TRADEMARK- EQUITY
INDEX FUND (INTERNATIONAL STOCKS): Seeks to replicate as
closely as possible (before deduction of fund expenses) the
total return of the Europe, Australia, Far East Index.
BT INSURANCE FUNDS TRUST SMALL CAP INDEX FUND (SMALL CAP
STOCKS): Seeks to replicate as closely as possible (before
deduction of fund expenses) the total return of the Russell
2000 Small Stock Index.
CIGNA VP MONEY MARKET FUND (MONEY MARKET): Seeks to provide
as high a level of current income as is consistent with the
preservation of capital and liquidity and the maintenance of
a stable $1.00 per share net asset value by investing in
short-term money market instruments.
CIGNA VP S&P 500 INDEX FUND (LARGE CAP STOCKS): Seeks to
achieve its objective of long-term growth of capital by
attempting to replicate the composition and total return,
reduced by fund expenses, of the Standard & Poor's 500
Composite Stock Price Index.
FIDELITY VIP HIGH INCOME PORTFOLIO (HIGH YIELD BONDS): Seeks
high current income by investing mainly in high-yielding
debt securities with an emphasis on lower quality
securities.
FIDELITY VIP EQUITY-INCOME PORTFOLIO (LARGE CAP STOCKS):
Seeks reasonable income by investing primarily in
income-producing equity securities, with some potential for
capital appreciation, seeking a yield that exceeds the
composite yield on the securities comprising the Standard
and Poor's Composite Index of 500 Stocks.
FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO (FIXED
INCOME -- INTERMEDIATE TERM BONDS): Seeks as high a level of
current income as is consistent with the preservation of
capital in a broad range of investment grade fixed income
securities.
JANUS ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO (GLOBAL
STOCKS): Seeks long-term growth of capital by investing
primarily in common stocks of foreign and domestic issuers.
MFS EMERGING GROWTH SERIES (LARGE CAP STOCKS): Seeks
long-term growth of capital by investing primarily in common
stocks of companies management believes to be early in their
life cycle but which have the potential to become major
enterprises.
MFS TOTAL RETURN SERIES (BALANCED OR TOTAL RETURN): Seeks
primarily to obtain above average income (compared to a
portfolio entirely invested in equity securities) consistent
with the prudent employment of capital, and secondarily to
provide a reasonable opportunity for growth of capital and
income.
OCC SMALL CAP PORTFOLIO (SMALL CAP STOCKS): Seeks capital
appreciation through investments in a diversified portfolio
of equity securities of companies with market
capitalizations of under $1 billion.
OCC MANAGED PORTFOLIO (BALANCED OR TOTAL RETURN): Seeks
growth of capital over time through investment in a
portfolio of common stocks, bonds and cash equivalents, the
percentage of which will vary based on management's
assessment of relative investment values.
OCC EQUITY PORTFOLIO (LARGE CAP STOCKS): Seeks long-term
capital appreciation through investment in a diversified
portfolio of equity securities on the basis of a value
oriented approach to investing.
TEMPLETON INTERNATIONAL FUND CLASS 1 (INTERNATIONAL STOCKS):
Seeks long-term capital growth through a flexible policy of
investing in stocks and debt obligations of companies and
governments outside the United States.
The Fidelity VIP Equity-Income Portfolio, Fidelity VIP High
Income Portfolio, MFS Total Return Series, MFS Emerging
Growth Series, Janus Aspen Series Worldwide Growth
Portfolio, OCC Equity Portfolio, OCC Managed Portfolio, OCC
Small Cap Portfolio, and Templeton International Fund Class
1 portfolios may invest in non-investment grade, high yield,
high-risk debt securities (commonly referred to as "junk
bonds"), as detailed in the individual Fund prospectuses.
9
<PAGE>
EXPENSE DATA
The purpose of the following Table is to help Purchasers and prospective
purchasers understand the costs and expenses that are borne, directly and
indirectly, by Purchasers assuming that all Net Premium Payments are allocated
to the Variable Account. The table reflects expenses of the Variable Account as
well as of the Individual Funds underlying the Variable Sub-Accounts. The
Mortality and Expense Risk Charge shown is the currently charged rate during the
first ten Policy Years. It currently declines to .45% per year in the eleventh
Policy Year and to .15% in the sixteenth Policy Year. The Mortality and Expense
Risk Charge is guaranteed not to exceed .90% per year. The Administrative
Expense Charge shown is the currently charged rate during the first ten Policy
Years. It is guaranteed not to exceed .30% per year. (Continued on Page 11)
FEE TABLE
<TABLE>
<CAPTION>
BT INSURANCE
FUNDS TRUST CIGNA VARIABLE
ALGER AMERICAN FUNDS --------------------------- PRODUCTS
----------------------------------- --------------------
MIDCAP EAFE-REGISTERED TRADEMARK- MONEY S&P 500
SMALL CAP GROWTH GROWTH EQUITY INDEX SMALL CAP MARKET INDEX
PORTFOLIO PORTFOLIO PORTFOLIO FUND INDEX FUND FUND FUND
--------- --------- --------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL
EXPENSES
Mortality and Expense Risk
Charge..................... 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85%
Administrative Expense
Charge..................... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
--- --- --- --- --- --- --------
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES............ 0.95% 0.95% 0.95% 0.95% 0.95% 0.95% 0.95%
FUND PORTFOLIO ANNUAL
OPERATING EXPENSES
Management Fees............. 0.85% 0.80% 0.75% 0.02% 0.00% 0.35% 0.25%
Other Expenses.............. 0.04% 0.04% 0.04% 0.63% 0.45% 0.15% 0.00%
--- --- --- --- --- --- --------
TOTAL FUND PORTFOLIO ANNUAL
OPERATING EXPENSES......... 0.89% 0.84% 0.79% 0.68%(1) 0.45%(1) 0.50%(2) 0.25%(2)
</TABLE>
- ------------------------------
(1) The Expense Ratio for the BT Trust EAFE-Registered Trademark- Equity Index
Fund and BT Trust Small Cap Index Fund without waiver/reimbursement would
be 1.08% and .95%, respectively.
(2) Through May 1, 1999, the Funds' adviser has agreed to bear expenses of the
Funds so that Total Fund Portfolio Annual Operating Expenses do not exceed
0.50% and 0.25% of average daily net asset value for the VP Money Market
and the VP S&P 500 Index Funds, respectively. Otherwise, Total Fund
Portfolio Annual Operating Expenses would have been 1.11% and 0.55% of
average daily net asset value for 1997 for the VP Money Market and the VP
S&P 500 Index Funds, respectively.
10
<PAGE>
The table does not reflect the monthly deductions for the cost of insurance
and any riders, nor does it reflect the administrative expense monthly
deduction of $8 or the $250 policy issue charge. It also does not reflect
premium loads, administrative charges for transfers and partial surrenders,
and any policy loan interest. The information set forth should be considered
together with the information provided in this Prospectus under the heading
"Charges and Fees", and in each Fund's Prospectus. All expenses are
expressed as a percentage of average account value.
FEE TABLE (CONTINUED)
<TABLE>
<CAPTION>
MFS-REGISTERED TRADEMARK-
FIDELITY VARIABLE JANUS ASPEN VARIABLE INSURANCE
INSURANCE PRODUCTS FUNDS SERIES TRUST-REGISTERED TRADEMARK-
------------------------------------------------ ------------- ---------------------------- OCC TRUST
VIP HIGH VIP EQUITY- VIP II INVESTMENT WORLDWIDE EMERGING -------------
INCOME INCOME GRADE BOND GROWTH GROWTH TOTAL RETURN SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES PORTFOLIO
------------ -------------- ------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.85%
0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
--- --- --- --- --- --- ---
0.95% 0.95% 0.95% 0.95% 0.95% 0.95% 0.95%
0.59% 0.50% 0.44% 0.66% 0.75% 0.75% 0.80%(7)
0.12% 0.08% 0.14% 0.08% 0.12%(5) 0.25%(5) 0.17%(8)
--- --- --- --- --- --- ---
0.71%(3) 0.58%(3) 0.58% 0.74%(4) 0.87% 1.00%(6) 0.97%(9)
<CAPTION>
TEMPLETON
VARIABLE
PRODUCTS
--------------
TEMPLETON
INTERNATIONAL
MANAGED EQUITY FUND
PORTFOLIO PORTFOLIO CLASS 1
------------ ------------ --------------
<S> <C> <C> <C>
0.85% 0.85% 0.85%
0.10% 0.10% 0.10%
--- --- ---
0.95% 0.95% 0.95%
0.80%(7) 0.80%(7) 0.69%
0.07%(8) 0.19%(8) 0.19%
--- --- ---
0.87%(9) 0.99%(9) 0.88%(10)
</TABLE>
- ------------------------------
(3) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses for the (a) VIP High Income
Portfolio would have been 0.71% (Initial Class), and (b) VIP Equity-Income
Fund would have been 0.57% (Initial Class).
(4) Management fees for the Worldwide Growth Portfolio reflect a reduced fee
schedule effective July 1, 1997. The management fee for the Portfolio
reflects the new rate applied to net assets as of December 31, 1997. Other
expenses are based on gross expenses of the Shares before expense offset
arrangements for the fiscal year ended December 31, 1997. The information
for the Portfolio is net of fee waivers or reductions from Janus Capital.
Fee reductions for the Worldwide Growth Portfolio reduce the management fee
to the level of the corresponding Janus retail fund. Other waivers, if
applicable, are first applied against the management fee and then against
other expenses. Without such waivers or reductions, the Management Fee,
Other Expenses and Total Operating Expenses for the Shares would have been
0.72%, 0.09% and 0.81%. Janus Capital may modify or terminate the waivers
or reductions at any time upon at least 90 days notice to the Trustees.
(5) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses."
(6) The Adviser has agreed to bear expenses for this Series, subject to
reimbursement by the Series, such that the "Other Expenses" shall not
exceed 0.25% of the average daily net assets of the Series during the
current fiscal year. See "Information Concerning Shares of Each Series --
Expenses" in the applicable prospectus. Otherwise, "Other Expenses" and
"Total Operating Expenses" would be 0.27% and 1.02% respectively.
(7) Reflects management fees after taking into effect any waiver.
(8) Other Expenses are shown gross of expense offsets afforded the Portfolios
that effectively lowered overall custody expenses.
(9) Total Portfolio Expenses for the Equity, Small Cap and Managed Portfolios
are limited by OpCap Advisors so that their respective annualized operating
expenses (net of any expense offsets) do not exceed 1.00% of average daily
net assets. Without such limitation and without giving effect to any
expense offsets, the Management Fees, Other Expenses and Total Portfolio
Expenses incurred for the fiscal year ended December 31, 1997 would have
been .80%, .19% and .99%, respectively for the Equity Portfolio, .80%, .17%
and .97%, respectively, for the Small Cap Portfolio, and .80%, .07% and
.87%, respectively, for the Managed Portfolio.
(10) Management Fees and Total Operating Expenses have been restated to reflect
the management fee schedule approved by shareholders and effective May 1,
1997. See fund prospectus for details. Actual Management Fees and Total
Fund Operating Expenses during 1997 were lower.
11
<PAGE>
GENERAL
There is no assurance that the investment objective of any
of the Funds will be met. A Policy Owner bears the complete
investment risk for Accumulation Values allocated to a
Sub-Account. Each of the Sub-Accounts involves inherent
investment risk, and such risk varies significantly among
the Sub-Accounts. Policy Owners should read each Fund's
prospectus carefully and understand the Funds' relative
degrees of risk before making or changing investment
choices. Additional Funds may, from time to time, be made
available as investments to underlie the Policies. However,
the right to make such selections will be limited by the
terms and conditions imposed on such transactions by the
Company (See "Premium Payments").
SUBSTITUTION OF SECURITIES
If the shares of any Fund should no longer be available for
investment by the Variable Account or if, in the judgment of
the Company, further investment in such shares should become
inappropriate in view of the investment objectives of the
Policies, the Company may substitute shares of another Fund.
No substitution of securities in any Sub-Account may take
place without prior approval of the Commission and under
such requirements as it may impose.
VOTING RIGHTS
In accordance with its view of present applicable law, the
Company will vote the shares of each Fund held in the
Variable Account at special meetings of the shareholders of
the particular Series Fund in accordance with written
instructions received from persons having the voting
interest in the Variable Account. The Company will vote
shares for which it has not received instructions, as well
as shares attributable to it, in the same proportion as it
votes shares for which it has received instructions. The
Series Funds do not hold regular meetings of shareholders.
The number of shares which a person has a right to vote will
be determined as of a date to be chosen by the appropriate
Series Fund not more than sixty (60) days prior to the
meeting of the particular Series Fund. Voting instructions
will be solicited by written communication at least fourteen
(14) days prior to the meeting.
The Funds' shares are issued and redeemed only in connection
with variable annuity contracts and variable life insurance
policies issued through separate accounts of the Company and
other life insurance companies, and in some cases qualified
plans. The Series Funds do not foresee any disadvantage to
Policy 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, and with both the separate accounts of
the Company and those of other life insurance companies.
Nevertheless, the Series 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.
FUND PARTICIPATION AGREEMENTS
The Company has entered into agreements with the various
Trusts and their advisers or distributors under 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
therefor.
12
<PAGE>
DEATH BENEFIT
DEATH BENEFIT OPTIONS
Three different Death Benefit Options are available. The
amount payable under each option will be determined as of
the date of the Insured's death. Option B will be in effect
unless Option A or Option C has been elected in the
application for the Policy or unless a change has been
allowed.
Under OPTION A the Death Benefit will be the greater of the
Specified Amount (a minimum of $50,000 as of the date of
this Prospectus) plus the Accumulation Value, or the
Corridor Death Benefit. Option A provides a varying Death
Benefit which increases or decreases over time, depending on
the amount of premium paid and the investment performance of
the underlying funding options chosen.
Under OPTION B the Death Benefit will be the greater of the
Specified Amount or Corridor Death Benefit. Option B
provides a level Death Benefit until the Corridor Death
Benefit exceeds the Specified Amount.
Under OPTION C, the Death Benefit will be the greater of the
Specified Amount plus Premium Payments made, or the Corridor
Death Benefit. Option C provides a Death Benefit which
increases based on Premium Payments.
Under each of Option A, Option B, and Option C the amount
payable upon death will be the Death Benefit, reduced by
partial surrenders and by the amount necessary to repay any
loans in full.
CHANGES IN DEATH BENEFIT OPTION
A Death Benefit Option change will be allowed upon the
Owner's written request to the Corporate Variable Products
Service Center in form satisfactory to the Company, subject
to the following conditions:
- The change will take effect on the Monthly Anniversary
Day following the date of receipt of the request.
- No change in the Death Benefit Option may reduce the
Specified Amount below $50,000.
- For changes from Option B to Option A, the new Specified
Amount will equal the Death Benefit less the Accumulation
Value at the time of the change.
- For changes from Option B to Option C, the new Specified
Amount will equal the Death Benefit less premiums paid at
the time of the change.
- For changes from Option A to Option B, the new Specified
Amount will equal the Death Benefit at the time of the
change.
- For changes from Option A to Option C, the new Specified
Amount will equal the Death Benefit less premiums paid at
the time of the change.
- For changes from Option C to Option A, the new Specified
Amount will equal the Death Benefit less the Accumulation
Value at the time of the change.
- For changes from Option C to Option B, the new Specified
Amount will equal the Death Benefit at the time of the
change.
13
<PAGE>
PAYMENT OF DEATH BENEFIT
The Death Benefit under the Policy, computed as of the date
of the Insured's death, will be paid in a lump sum within
seven days after receipt at the Corporate Variable Products
Service Center of due proof of the Insured's death (a
certified copy of the death certificate), unless the Owner
or the Beneficiary has elected that it be paid under one or
more of any Settlement Options which the Company may make
available (See "Settlement Options"). Payment of the Death
Benefit may be delayed if the Policy is being contested.
While the Insured is living, the Owner may elect a
Settlement Option, if available, for the Beneficiary and
deem it irrevocable, and may revoke or change a prior
election. The Beneficiary may make or change an election
within 90 days of the death of the Insured, unless the Owner
has made an irrevocable election.
All or a part of the Death Benefit may be applied under one
or more of the Settlement Options as the Company may make
available.
If the Policy is assigned as collateral security, the
Company will pay any amount due the assignee in one lump
sum. Any excess Death Benefit due will be paid as elected.
A Policy must satisfy either of two testing methods to
qualify as a life insurance contract for tax purposes under
Section 7702 of the Code. At the time of purchase, the Owner
must choose a Policy which uses either the Guideline Premium
test or the Cash Value Accumulation test. Both methods
require a life insurance Policy to meet minimum ratios of
life insurance coverage to Accumulation Value ("Applicable
Percentages"). The selection cannot be changed after the
Policy's Issue Date.
The Applicable Percentages for the Guideline Premium test
are 250% through Attained Age 40, decreasing over time to
150% at Attained Age 55, 120% at Attained Age 65 and 101% at
Attained Age 94 and above. The Guideline Premium test also
restricts the maximum premiums that may be paid into a life
insurance policy for a specified Death Benefit. The Cash
Value Accumulation test does not limit premiums which may be
paid but has higher required Applicable Percentages.
Applicable Percentages under the Cash Value Accumulation
Test for Non-Smokers decrease over time from 727% at
Attained Age 20, to 378% at Attained Age 40, and to 101% at
Attained Age 100.
See also "Tax Matters" at pages 24-26 of this Prospectus.
CHANGES IN SPECIFIED AMOUNT
Changes in the Specified Amount of a Policy can be made by
submitting a written request to the Corporate Variable
Products Service Center in form satisfactory to the Company.
Changes in the Specified Amount are subject to the following
conditions:
- Satisfactory evidence of insurability and a supplemental
application may be required for an increase in the
Specified Amount.
- An increase in the Specified Amount, other than through a
change in the Death Benefit Option, will result in an
additional 25% Premium Load on Premium Payments up to the
increase in the Guideline Annual Premium on Premium
Payments received during the 12 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.
- No decrease may reduce the Specified Amount to less than
$50,000.
- No decrease may reduce the Specified Amount below the
minimum required to maintain the Policy's status under
the Code as a life insurance policy.
14
<PAGE>
PREMIUM
PAYMENTS;
TRANSFERS
PREMIUM PAYMENTS
The Policies provide for flexible premium payments. Premium
Payments are payable in the frequency and in the amount
selected by the Policy Owner. The initial Premium Payment is
due on the Issue Date and is payable in advance. The minimum
payment is the amount necessary to maintain a positive Net
Accumulation Value. The Company reserves the right to
decline any application or Premium Payment.
After the initial Premium Payment, all Premium Payments must
be sent directly to the Corporate Variable Products Service
Center and will be deemed received when actually received
there.
The Policy Owner may elect to increase, decrease or change
the frequency of Premium Payments.
PLANNED PREMIUMS are Premium Payments scheduled when a
Policy is applied for.
ADDITIONAL PREMIUMS are any Premium Payments made ($500
minimum) in addition to Planned Premiums.
PREMIUM INCREASES. At any time, the Owner may increase
Planned Premiums, or pay Additional Premiums, but:
- Evidence of insurability may be required if the
Additional Premium or the new Planned Premium during the
current Policy Year would increase the difference between
the Death Benefit and the Accumulation Value. If
satisfactory evidence of insurability is requested and
not provided, the increase in premium will be refunded
without interest and without participation of such
amounts in any underlying funding options.
- In no event may the total of all Premium Payments exceed
the then-current maximum premium limitations established
by federal law for a Policy to qualify as life insurance.
If, at any time, a Premium Payment would result in total
Premium Payments exceeding such maximum premium
limitation, the Company will only accept that portion of
the Premium Payment which will make total premiums equal
the maximum. Any part of the Premium Payment in excess of
that amount 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 Policy indebtedness, any additional Net
Premium Payments will be used first as a loan repayment
with any excess applied as an additional Net Premium
Payment.
ALLOCATION OF NET PREMIUM PAYMENTS
At the time of purchase of the Policy, the Owner must decide
how to allocate Net Premium Payments among the Sub-Accounts
and the Fixed Account. For each Variable Account
Sub-Account, the Net Premium Payments are converted into
Accumulation Units. The number of Accumulation Units
credited to the Policy is determined by dividing the Net
Premium Payment allocated to the Sub-Account by the value of
the Accumulation Unit for the Sub-Account.
During the Right-to-Examine Period, the Net Premium Payment
will be allocated to the CIGNA VP Group Money Market Fund of
the Variable Account, and earnings will be
15
<PAGE>
credited from the later of the Issue Date or the date the
Premium Payment was received. The Company will allocate the
initial Net Premium Payment directly to the Sub-Account(s)
selected by the Owner after expiration of the
Right-to-Examine Period as described under "Short-Term Right
to Cancel the Policy" at page 22 of this Prospectus.
Unless the Company is directed otherwise by the Policy
Owner, subsequent Net Premium Payments will be allocated on
the same basis as the most recent previous Net Premium
Payment. Such allocation will occur as of the next Valuation
Period after each payment is received.
The allocation for future Premium Payments may be changed at
any time free of charge. Any new allocation will apply to
Premium Payments made more than one week after the Company
receives the notice of the new allocation.
TRANSFERS
Values may, at any time, be transferred ($500 minimum) from
one Sub-Account to another. Within the 30 days prior to each
Policy Anniversary, the Owner may also transfer a portion of
one or more Sub-Accounts to the Fixed Account. Transfers
from the Fixed Account are allowed in the 30-day period
following a Policy Anniversary and will be effective as of
the next Valuation Day after a request is received in good
order at the Corporate Variable Products Service Center. The
cumulative amount of transfers from the Fixed Account within
any such 30-day period cannot exceed 20% of the Fixed
Account Value on the most recent Policy Anniversary. If the
Fixed Account Value as of any Policy Anniversary is less
than $5,000, however, this condition will not apply. The
Company may further limit transfers from the Fixed Account
at any time.
Subject to the above restrictions, up to four transfers may
be made in any Policy Year without charge, and any value
remaining in the Fixed Account or a Sub-Account after a
transfer must be at least $500. Transfers must be made in
writing unless other arrangements have been previously
approved by the Company. A charge of $25 may be imposed for
the fifth and succeeding transfers in any Policy Year.
Any transfer among the Funds or to the Fixed Account will
result in the crediting and cancellation of Accumulation
Units based on the Accumulation Unit values next determined
after a written request is received at the Corporate
Variable Products Service Center. Transfer requests must be
received by the Corporate Variable Products Center by 4:00
p.m. Eastern Time in order to be effective that day. Any
transfer made which causes the remaining value of
Accumulation Units for a Sub-Account to be less than $500
will result in those remaining Accumulation Units being
cancelled and their aggregate value reallocated
proportionately among the other funding options chosen. The
Policy Owner should carefully consider current market
conditions and each Fund's investment policies and related
risks before allocating money to the Sub-Accounts. See pages
8-11 of this Prospectus.
The Company, at its sole discretion, may waive minimum
balance requirements on the Sub-Accounts.
CHARGES;
FEES
PREMIUM LOAD
A deduction of 6.5% from every Premium Payment will be made
to cover the premium load. 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 a Policy is increased, other than through a
change in the Death Benefit Option, an
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<PAGE>
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 12 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. This load
represents state taxes and federal income tax liabilities
and a portion of the sales expenses incurred by the Company.
The Company estimates that 2.25% of this deduction will be
used for premium taxes, which may be higher or lower than
the actual tax imposed by the applicable jurisdiction; it is
in the mid-range of state premium taxes, which range from
1.75% to 5.0%. The Company estimates 1.25% of each Premium
Payment will be used to meet federal income tax liabilities
attributable to the treatment of deferred acquisition costs.
The remaining 3.0% of the deduction (plus 40% of up to one
Guideline Annual Premium during the first Policy Year) is
for sales load. There is no deferred sales charge.
POLICY ISSUE FEE
A one-time policy issue fee of $250 is deducted from the
Accumulation Value for a portion of the Company's
administrative expenses.
MONTHLY DEDUCTIONS
A Monthly Deduction of $8 is made from the Net Accumulation
Value for administrative expenses. This charge is for items
such as premium billing and collection, policy value
calculation, confirmations and periodic reports and will not
exceed the Company's costs.
A Monthly Deduction is also made from the Net Accumulation
Value for the Cost of Insurance and any charges for
supplemental riders. The Cost of Insurance depends on the
attained age, years since issue and risk class (in
accordance with state law) of the Insured and the current
Net Amount at Risk.
The Cost of Insurance is determined by subtracting the
Accumulation Value at the previous Monthly Anniversary Day
from the Death Benefit at the previous Monthly Anniversary
Day, and multiplying the result (the Net Amount at Risk) by
the applicable Cost of Insurance Rate as determined by the
Company. The Guaranteed Maximum Cost of Insurance Rates, per
$1,000 of Net Amount at Risk, for standard risks are based
on the 1980 Commissioners Standard Ordinary Mortality
Tables, Age Nearest Birthday (1980 CSO).
These Monthly Deductions are deducted proportionately from
the value of each funding option. This is accomplished for
the Sub-Accounts by canceling Accumulation Units and
withdrawing the value of the canceled Accumulation Units
from each funding option in the same proportion as their
respective values have to the Net Accumulation Value. The
Monthly Deductions are made on the Monthly Anniversary Day.
ADMINISTRATIVE FEE
For administrative costs a daily deduction, currently
equivalent to .10% per year during the first ten Policy
Years, is made from amounts held in the Variable Account and
the Fixed Account. This deduction is guaranteed not to
exceed .30% per year.
TRANSACTION FEE FOR EXCESS TRANSFERS
There will be a $25 transaction fee for each transfer
between funding options in excess of four during any Policy
Year.
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<PAGE>
MORTALITY AND EXPENSE RISK CHARGE
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, is made from
amounts held in the Variable Account and the Fixed Account.
This deduction is guaranteed not to exceed .90% per year.
SURRENDERS DURING FIRST TWO POLICY YEARS -- REFUND OF
PORTION OF PREMIUM LOAD
If the Policy is fully surrendered during the first 12
months after issue a credit will be paid equal to 100% of
all Premium Loads previously deducted in excess of 3.5% of
all premiums paid. If the Policy is fully surrendered during
the months 13 through 24, the credit will equal 50% of all
Premium Loads previously deducted in excess of 3.5% of all
premiums paid.
In no event, however, in the event of a Policy surrender
during the first two Policy Years, will the Aggregate
Premium Load retained by the Company for sales and
promotional expense exceed 30% of the sum of Premium
Payments in the first two Policy Years up to one Guideline
Annual Premium, plus 10% of Premium Payments in the first
two Policy Years between one and two times one Guideline
Annual Premium plus 9% of Premium Payments in the first two
Policy Years in excess of two times one Guideline Annual
Premium. Any surrenders may result in tax implications. See
"Tax Matters".
Based on its actuarial determination, the Company is not
certain whether the Premium Load, the policy issue fee and
the monthly administrative expense deduction will cover all
sales and administrative expenses which the Company will
incur in connection with the Policy. Any shortfall,
including but not limited to payment of sales and
distribution expenses, would be available for recovery from
the General Account of the Company, which supports insurance
and annuity obligations.
THE FIXED
ACCOUNT
The Fixed Account is funded by the assets of the Company's
General Account. Amounts held in the Fixed Account will be
credited with interest at rates declared by the Company from
time to time. The minimum rate which will be credited is the
lesser of 4% per year or the prevailing 30 day Treasury Bill
Rate as of the last day of the preceding calendar month.
THE FIXED ACCOUNT IS MADE UP OF THE GENERAL ASSETS OF THE
COMPANY OTHER THAN THOSE ALLOCATED TO ANY SEPARATE ACCOUNT.
THE FIXED ACCOUNT IS PART OF THE COMPANY'S GENERAL ACCOUNT.
BECAUSE OF APPLICABLE EXEMPTIVE AND EXCLUSIONARY PROVISIONS,
INTERESTS IN THE FIXED ACCOUNT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"), AND
NEITHER THE FIXED ACCOUNT NOR THE COMPANY'S GENERAL ACCOUNT
HAS BEEN REGISTERED UNDER THE 1940 ACT. THEREFORE, NEITHER
THE FIXED ACCOUNT NOR ANY INTEREST THEREIN IS GENERALLY
SUBJECT TO REGULATION UNDER THE PROVISIONS OF THE 1933 ACT
OR THE 1940 ACT. ACCORDINGLY, THE COMPANY HAS BEEN ADVISED
THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO
THE FIXED ACCOUNT.
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<PAGE>
POLICY VALUES
ACCUMULATION VALUE
Once a Policy has been issued, each Net Premium Payment
allocated to a Sub-Account of the Variable Account is
credited in the form of Accumulation Units, representing the
Fund in which assets of that Sub-Account are invested. Each
Net Premium Payment will be credited to the Policy as of the
end of the Valuation Period in which it is received at the
Corporate Variable Products Service Center (or portion
thereof allocated to a particular Sub-Account). The number
of Accumulation Units credited is determined by dividing the
Net Premium Payment by the value of an Accumulation Unit
next computed after receipt. Since each Sub-Account has a
unique Accumulation Unit value, a Policy Owner who has
elected a combination of funding options will have
Accumulation Units credited from more than one source.
The Accumulation Value of a Policy is determined by: (a)
multiplying the total number of Accumulation Units credited
to the Policy for each applicable Sub-Account by its
appropriate current Accumulation Unit value; (b) if a
combination of Sub-Accounts is elected, totaling the
resulting values; and (c) adding any values attributable to
the General Account (i.e., the Fixed Account Value and the
Loan Account Value).
The number of Accumulation Units credited to a Policy will
not be changed by any subsequent change in the value of an
Accumulation Unit. Such value may vary from Valuation Period
to Valuation Period to reflect the investment experience of
the Fund used in a particular Sub-Account.
The Fixed Account Value reflects amounts allocated to the
General Account through payment of premiums or transfers
from the Variable Account. The Fixed Account Value is
guaranteed; however, there is no assurance that the Variable
Account Value of the Policy will equal or exceed the Net
Premium Payments allocated to the Variable Account.
Each Policy Owner will be advised at least annually as to
the number of Accumulation Units which remain credited to
the Policy, the current Accumulation Unit values, the
Variable Account Value, the Fixed Account Value and the Loan
Account Value.
Accumulation Value will be affected by Monthly Deductions.
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 Sub-Account. The Net
Investment Factor is determined separately for each
Sub-Account by dividing (a) by (b) and subtracting (c) from
the results where (a) equals the net asset value per share
of the Fund held in the Sub-Account at the end of a
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 taxes or
provisions for taxes, if any, attributable to the operation
of the Sub-Account during the Valuation Period; (b) equals
the net asset value per share of the Fund held in the
Sub-Account at the beginning of that Valuation Period, and
(c) is the daily charge for mortality and expense risk plus
the daily fee for administration multiplied by the number of
days in the Valuation Period.
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<PAGE>
SURRENDER VALUE
The Surrender Value of a Policy is the amount the Owner can
receive in cash by surrendering the Policy. All or part of
the Surrender Value may be applied to one or more of any
Settlement Options available through a rider attached to the
Policy.
SURRENDERS
PARTIAL SURRENDERS
A partial surrender may be made at any time by written
request to the Corporate Variable Products Service Center
during the lifetime of the Insured and while the Policy is
in force. A $25 transaction fee is charged.
The amount of a partial surrender may not exceed 90% of the
Net Accumulation Value at the end of the Valuation Period in
which the election becomes or would become effective, and
may not be less than $500.
For Option B and C Policies (See "Death Benefit"): A partial
surrender will reduce the Accumulation Value, Death Benefit,
and Specified Amount. The Specified Amount and Accumulation
Value will be reduced by equal amounts and will reduce any
past increases in the reverse order in which they occurred.
For an Option A Policy (See "Death Benefit"): A partial
surrender will reduce the Accumulation Value and the Death
Benefit, but it will not reduce the Specified Amount.
The Specified Amount remaining in force after a partial
surrender may not be less than $50,000. Any request for a
partial surrender that would reduce the Specified Amount
below this amount will not be granted. In addition, if,
following the partial surrender and the corresponding
decrease in the Specified Amount, the Policy would not
comply with the maximum premium limitations required by
federal tax law, the decrease may be limited to the extent
necessary to meet the federal tax law requirements.
If, at the time of a partial surrender, the Net Accumulation
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 Policy Owner and the Company
agree otherwise.
FULL SURRENDERS
A full surrender may be made at any time. The Company will
pay the Surrender Value next computed after receiving the
Owner's written request at the Corporate Variable Products
Service Center in a form satisfactory to the Company.
Payment of any amount from the Variable Account on a full
surrender will usually be made within seven calendar days
thereafter.
DEFERRAL OF PAYMENT AND TRANSFERS
Payment of the surrendered amount from the Variable Account
may be postponed when the New York Stock Exchange is closed
and for such other periods as the Commission may require.
Payment or transfer 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 or transfers
interest will be added as required by law.
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<PAGE>
LAPSE AND
REINSTATEMENT
LAPSE OF A POLICY
A lapse occurs if a Monthly Deduction is greater than the
Net Accumulation 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 31 days before the
Grace Period expires.
The Net Accumulation Value may be insufficient to keep this
Policy in force, particularly if there have been any loans
or partial surrenders, and depending on the investment
performance of the funding options. Payment of an additional
premium may be necessary.
REINSTATEMENT OF A LAPSED POLICY
The Owner can apply for reinstatement at any time during the
Insured's lifetime. To reinstate a Policy, the Company will
require satisfactory evidence of insurability and an amount
sufficient to pay for the current Monthly Deduction plus
twelve additional Monthly Deductions.
POLICY LOANS
A Policy loan requires that a loan agreement be executed and
that the Policy be assigned to the Company. The loan may be
for any amount up to 90% of the then current Net
Accumulation Value. The amount of a loan, together with
subsequent accrued but not paid interest on the loan,
becomes part of the Loan Account Value. If Policy values are
held in more than one funding option, withdrawals from each
funding option will be made in proportion to the assets in
each funding option at the time of the loan for transfer to
the Loan Account, unless the Company is instructed otherwise
in writing at the Corporate Variable Products Service
Center.
Interest on loans will accrue at an annual rate of 5%, and
net loan interest (interest charged less interest credited
as described below) is payable once a year in arrears on
each anniversary of the loan, or earlier upon full surrender
or other payment of proceeds of a Policy. Any interest not
paid when due becomes part of the loan and the net interest
will be withdrawn proportionately from the values in each
funding option.
The Company will credit interest on the Loan Account Value.
During the first ten Policy Years, the Company's current
practice is that interest will be credited at an annual rate
equal to the interest rate charged on the loan minus .95%
(guaranteed not to exceed 1.2%). Beginning with the eleventh
Policy Year, the Company's current practice is that interest
will be credited at an annual rate equal to the interest
rate charged on the loan, less .45% annually (guaranteed not
to exceed 1.2%), and beginning with the sixteenth Policy
Year, .15% annually (guaranteed not to exceed 1.2%). In no
case will the annual credited interest rate be less than
3.8%.
Repayments on the loan will be allocated among the funding
options according to current Net Premium Payment
allocations. However, the Company maintains the right to
require that amounts loaned from the Fixed Account be
allocated to the Fixed Account upon repayment. The Loan
Account Value will be reduced by the amount of any loan
repayment.
A Policy loan, whether or not repaid, will affect the
proceeds payable upon the Insured's death and the
Accumulation Value because the investment results of the
Variable Account or the Fixed Account will apply only to the
non-loaned portion of the Accumulation Value. The longer a
loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account
or the Fixed Account while the loan is outstanding, the
effect could be favorable or unfavorable.
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<PAGE>
SETTLEMENT OPTIONS
Proceeds in the form of Settlement Options may be payable by
the Company at the Beneficiary's election upon the Insured's
death, or while the Insured is alive, upon election by the
Owner of one of the Settlement Options which the Company may
make available through the addition of a rider.
A written request may be made to elect, change, or revoke a
Settlement Option before payments begin under any Settlement
Option. This request must be in form satisfactory to the
Company, and will take effect upon its receipt at the
Corporate Variable Products Service Center. Payments after
the first payment will be made on the first day of each
month.
Examples of possible Settlement Options are:
FIRST OPTION -- Payments for a stated number of years.
SECOND OPTION -- Payments for the lifetime of the payee,
guaranteed for a specified number of months;
THIRD OPTION -- Payment of interest annually on the sum left
with the Company at a rate of at least 3% per year, and upon
the payee's death the amount on deposit will be paid.
FOURTH OPTION -- Installments of specified amounts payable
until the proceeds with any interest thereon are exhausted.
ADDITIONAL OPTIONS -- Policy proceeds may also be settled
under any other method of settlement offered by the Company
at the time the request is made.
ADDITIONAL INSURANCE BENEFIT
The Policy can be issued with an Additional Insurance
Benefit as a portion of the total Death Benefit. The benefit
provides annually renewable term life insurance on the life
of the Insured. This benefit is excluded from the Specified
Amount when calculating the charges and fees for the Policy
and when calculating the Guideline Annual Premium.
The cost of the benefit is added to the Monthly Deduction,
and is dependent on the attained age, years since issue,
risk class and gender classification. The Company may adjust
the monthly benefit rate from time to time, but the rate
will never exceed the guaranteed cost of insurance rate for
the benefit for that Policy Year.
The benefit provides a vehicle for a Policy Owner to
increase the insurance protection under the Policy.
OTHER POLICY PROVISIONS
ISSUANCE
A Policy may only be issued upon receipt of satisfactory
evidence of insurability, and generally only where the
Insured is below the age of 75.
SHORT-TERM RIGHT TO CANCEL THE POLICY
A Policy may be returned for cancellation and a full refund
of premium within 10 days after the Policy and notice of
withdrawal right are received, unless otherwise stipulated
by state law requirements, or within 45 days after the
application for the Policy is signed, whichever occurs
later. The Initial Premium Payment made when the Policy is
issued will be held in the CIGNA VP Money Market Fund of the
Variable Account and not allocated to any other Variable
Sub-Accounts even if the Policy Owner may have so directed
until the latest of (a) the fifteenth day after the Policy
and notice of withdrawal
22
<PAGE>
right are mailed to the Owner, if the state law
Right-to-Examine Period is 10 days after the Policy and
notice of withdrawal right are received by the Owner (the
twenty-fifth day, if the state law Right-to-Examine Period
is 20 days, or the thirty-fifth day, if the state law
Right-to-Examine Period is 30 days), or (b) the forty-sixth
day after the application for the Policy is signed by the
Owner. If the Policy 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.
POLICY OWNER
While the Insured is living, all rights in this Policy are
vested in the Policy Owner named in the application or as
subsequently changed, subject to assignment, if any.
The Policy Owner may name a new Policy Owner while the
Insured is living. Any such change in ownership must be in a
written form satisfactory to the Company and recorded at the
Corporate Variable Products 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. The Company may
require that the Policy be submitted for endorsement before
making a change.
If the Policy Owner is other than the Insured and dies
before the Insured, the Policy Owner's rights in this Policy
belong to the Policy Owner's estate.
BENEFICIARY
The Beneficiary(ies) shall be as named in the application or
as subsequently changed, subject to assignment, if any.
The Policy 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 Corporate
Variable Products 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 named Beneficiary survives the Insured, the
death proceeds shall be paid to the Policy Owner or the
Policy Owner's executor(s), administrator(s) or assigns.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may, within the first two Policy Years,
exchange the Policy for a flexible premium adjustable life
insurance policy then being offered by the Company's
Corporate Insurance Department. The benefits for the new
policy will not vary with the investment experience of a
separate account. The exchange must be elected within 24
months from the Issue Date. No evidence of insurability will
be required.
The Policy Owner, the Insured and the Beneficiary under the
new policy will be the same as those under the exchanged
Policy on the effective date of the exchange. The new policy
will have a Death Benefit on the exchange date not more than
the Death Benefit of the original Policy immediately prior
to the exchange date. The new policy will have the same
Issue Date and Issue Age as the original Policy. The initial
Specified Amount and any increases in Specified Amount will
have the same rate class as those of the original Policy.
Any indebtedness may be transferred to the new policy.
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<PAGE>
INCONTESTABILITY
The Company will not contest payment of the death proceeds
based on the Initial Specified Amount after the Policy has
been in force during the Insured's lifetime for two years
from the Issue Date. For any increase in Specified Amount
requiring evidence of insurability, the Company will not
contest payment of the death proceeds based on such an
increase after it has been in force during the Insured's
lifetime for two years from its effective date.
MISSTATEMENT OF AGE
The Company will adjust the Death Benefit and Accumulation
Value if the Insured's age has been misstated. The
adjustment process will recalculate all such benefits and
values to the amount that would have been calculated using
the rates that were in effect at the time of each monthly
anniversary. The process will begin with the recalculation
based on the rates in effect on the Issue Date. Each
succeeding recalculation will be based on the rates in
effect on the corresponding monthly anniversary.
SUICIDE
If the Insured dies by suicide, while sane or insane, within
two years from the Issue Date, the Company will pay no more
than the sum of the premiums paid, less any indebtedness. 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 Specified Amount, the Company will pay no
more than a refund of the monthly charges for the cost of
such additional benefit.
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.
TAX MATTERS
The following 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.
POLICY PROCEEDS
Section 7702 of the Code provides a definition of a life
insurance policy for federal tax purposes. This definition
can be satisfied by complying with either the cash value
test or the guideline premium test set forth in Section
7702. The Company will monitor compliance with these tests.
The Policy should thus receive the same federal income tax
treatment as fixed benefit life insurance. As a result, the
death proceeds payable under a Policy are excludable from
gross income of the Beneficiary under Section 101 of the
Code. However, if a Policy were determined not to be a life
insurance contract for purposes of Section 7702, such Policy
would not afford the tax advantage normally provided by a
life insurance policy.
A life insurance policy may be treated as a modified
endowment contract depending upon the amount of premiums
paid in relation to the death benefit provided under the
Policy. The premium limitation rules for determining whether
a Policy is a modified endowment contract are extremely
complex. In general, however, Section 7702A of the Code
defines modified endowment contracts as those policies
issued or materially
24
<PAGE>
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 paid if the policy 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 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.
It may not be advantageous to replace existing insurance
with Policies described in this Prospectus. It may also be
disadvantageous to purchase a Policy to obtain additional
insurance protection if the purchaser already owns another
variable life insurance policy.
The Policies offered by this Prospectus may or may not be
issued as modified endowment contracts. If a Policy is not a
modified endowment contract, 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 Policy Owner should carefully
consider this potential effect and seek further information
before initiating any changes in the terms of the Policy.
Under certain conditions, a Policy 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. Because the Policy provides for flexible Premium
Payments, the Company will monitor whether additional
Premium Payments or other changes result in a Policy's
becoming a modified endowment contract.
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 Variable
Account be adequately diversified. Treasury regulation
1.817-5 issued by the Secretary of the Treasury set the
standards for measuring the adequacy of this
diversification. Generally, no more than 55 percent of the
value of the total assets may be represented by any one (1)
investment; no more than 70 percent of such value may be
represented by any two (2) investments; no more than 80
percent of such value may be represented by any three (3)
investments; and no more than 90 percent of such value may
be represented by any four (4) investments. U.S. Treasury
Securities are not subject to the diversification test and
to the extent that assets include such securities, somewhat
less stringent requirements may apply. A variable life
insurance policy that is not adequately diversified under
these regulations would not be treated as life insurance
under Section 7702 of the Code. The Company believes the
Variable Account investments meet the applicable
diversification standards.
Should the Secretary of the Treasury issue additional rules
or regulations limiting the number of funds, transfers
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 remain
in compliance.
A total surrender or termination of the Policy by lapse, a
change in the Specified Amount, payment of Additional
Premiums, a Policy Loan, a change in Death Benefit Option,
the exchange of a Policy for a fixed-benefit policy, or the
assignment of a Policy may have adverse tax consequences. If
the amount received by the Policy Owner upon surrender or
termination plus total Policy indebtedness exceeds the
premiums paid into the Policy, the excess will generally be
treated as taxable income, regardless of whether or not the
Policy is a modified endowment contract.
Federal estate and state and local estate, inheritance and
other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Policy Owner or
Beneficiary.
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<PAGE>
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the
Code. Since the Variable 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 Variable Account are reinvested and taken into
account in determining the value of Accumulation Units.
The Company does not initially expect to incur any Federal
income tax liability that would be chargeable directly to
the Variable Account. Based upon these expectations, no
charge is currently being made against the Variable 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 Variable 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 premium load is assessed to cover state taxes, federal
income tax liabilities and a portion of the sales expenses
incurred by the Company. The Company estimates that the
portion of the premium load other than for sales expenses is
made up of 2.25% for state taxes and 1.25% for the
additional federal income tax burden under Section 848 of
the Code relating to the tax treatment of deferred
acquisition costs. The 1.25% charge for federal income tax
liabilities is reasonable in relation to the Company's
increased taxes under this Section of the Code. A
OTHER MATTERS
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
or its affiliates for more than five years except Mr. Jones,
Mr. DellaVolpe and Mr. Pacy. Prior to February 1994, Mr.
Jones was Executive Vice President, Chief Administrative
Officer, Chief Operating Officer and Director, NAC Re
Corporation and NAC Reinsurance Corporation (Chief Operating
Officer of NAC Re Corporation beginning June 1993). Prior to
1997, Mr. DellaVolpe was Manager, Coopers & Lybrand. Prior
to January 1995, Mr. Pacy was Senior Manager-IT
Infrastructure and Technology Management Officer, Digital
Equipment Corporation.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME WITH THE COMPANY
- ------------------------------ ------------------------------------
<S> <C>
Thomas C. Jones President
(Principal Executive Officer)
John Wilkinson Vice President and Actuary
(Principal Financial Officer)
Dominic A. DellaVolpe Assistant Vice President
(Principal Accounting Officer)
David C. Kopp Corporate Secretary
Andrew G. Helming Secretary
Stephen C. Stachelek Vice President and Treasurer
H. Edward Hanway Director and Chairman of the Board
Harold W. Albert Director
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME WITH THE COMPANY
- ------------------------------ ------------------------------------
<S> <C>
Robert W. Burgess Director
John G. Day Director and Chief Counsel
Joseph M. Fitzgerald Director and Senior Vice President
Carol M. Olsen Director and Senior Vice President
John E. Pacy Director and Senior Vice President
Patricia L. Rowland Director and Senior Vice President
W. Allen Schaffer, M.D. Director and Senior Vice President
Marc L. Preminger Director, Senior Vice President and
Chief Financial Officer
</TABLE>
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 280 Trumbull Street,
Hartford, Connecticut. CFS is a Delaware corporation
organized in 1995.
Gross first year commissions paid by the Company, on the
sale of the Policies will not exceed 40% of one Guideline
Annual Premium, plus 3% of any Premium Payment in excess of
the Guideline Annual Premium. Gross renewal commissions paid
by the Company will not exceed 3% of Premium Payments, plus
25% of any increase in Guideline Annual Premium.
CHANGES OF INVESTMENT POLICY
The Company may materially change the investment policy of
the Variable Account. The Company must inform the Policy
Owners and obtain all necessary regulatory approvals. Any
change must be submitted to the various state insurance
departments which shall disapprove it if deemed detrimental
to the interests of the Policy Owners or if it renders the
Company's operations hazardous to the public. If a Policy
Owner objects, the Policy may be converted to a
substantially comparable fixed benefit life insurance policy
offered by the Company on the life of the Insured. The
Policy Owner has the later of 60 days (6 months in
Pennsylvania) from the date of the investment policy change
or 60 days (6 months in Pennsylvania) from being informed of
such change to make this conversion. The Company will not
require evidence of insurability for this conversion.
The new policy will not be affected by the investment
experience of any separate account. The new policy will be
for an amount of insurance not exceeding the Death Benefit
of the Policy converted on the date of such conversion.
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.
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
27
<PAGE>
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 Connecticut
Department of Insurance. Such regulation does not, however,
involve any supervision of management or investment
practices or policies.
REPORTS TO POLICY OWNERS
The Company maintains Policy records and will mail to each
Policy Owner, at the last known address of record, an annual
statement showing the amount of the current death benefit,
the Accumulation Value, and Surrender Value, premiums paid
and monthly charges deducted since the last report, the
amounts invested in the Fixed Account and in the Variable
Account and in each Sub-Account of the Variable Account, and
any Loan Account Value.
Policy Owners will also be sent annual reports containing
financial statements for the Variable Account and annual and
semi-annual reports of the Funds to the extent required by
the 1940 Act.
In addition, Policy Owners will receive statements of
significant transactions, such as changes in Specified
Amount, changes in Death Benefit Option, changes in future
premium allocation, transfers among Sub-Accounts, Premium
Payments, loans, loan repayments, reinstatement and
termination.
ADVERTISING
The Company is also ranked and 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 Variable Account. The Company may advertise
these ratings from time to time. In addition, the Company
may include in certain advertisements, endorsements in the
form of a list of organizations, individuals or other
parties which recommend the Company or the Policies.
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 Variable Account are parties 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) and Mortality and Expense Charges included in this
Prospectus have been rendered by Timothy J. Luedtke, FSA,
900 Cottage Grove Road, Hartford, CT 06152, as stated in the
opinions filed as Exhibits to the Registration Statement
given on the authority of Mr. Luedtke as an expert in
actuarial matters. An actuarial opinion regarding the
representativeness of illustrations in this Prospectus has
been rendered by Ian Glew, FSA, MAAA, 900 Cottage Grove
Road, Hartford, CT 06152, as stated in the opinion filed as
an Exhibit to the Registration Statement given on his
authority as an expert in actuarial matters.
Legal matters in connection with the Policies described
herein are being passed upon by Mark A. Parsons, Esq., Chief
Counsel, CIGNA Retirement & Investment Services,
900 Cottage Grove Road, Hartford, CT 06152, in the opinion
filed as an Exhibit to the Registration Statement given on
his authority as an expert in these matters.
28
<PAGE>
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 as well as the Statement of
Assets and Liabilities of the Variable Account at December
31, 1997 and the Statement of Operations and the Statement
of Changes in Net Assets for the period ended December 31,
1997 have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and
accounting.
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
Variable 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.
YEAR 2000
Variable Life Account 02 is a Connecticut General Life
Insurance Company (the Company) "separate account"
established under Connecticut insurance law. 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 Account 02) 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.
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, for
services; 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.
FINANCIAL STATEMENTS
There follow the 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. They should be considered only as
bearing upon the ability of the Company to meet its
obligations under the Policies.
There also follow the Statement of Assets and Liabilities of
the Variable Account at December 31, 1997 and related
Statement of Operations and Statement of Changes in Net
Assets for the period ended December 31, 1997. The Variable
Account commenced operation on December 24, 1996.
29
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICE WATERHOUSE LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 10, 1998
To the Board of Directors and Shareholder of
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.
/s/Price Waterhouse LLP
30
<PAGE>
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Opinion furnished by PW.
31
<PAGE>
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.
32
<PAGE>
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.
33
<PAGE>
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.
34
<PAGE>
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.
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
35
<PAGE>
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
36
<PAGE>
estimated gross profits over the expected lives of the contracts. Acquisition
costs for annuity and other 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.
37
<PAGE>
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.
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).
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.
38
<PAGE>
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.
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.
39
<PAGE>
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.
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.
40
<PAGE>
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.
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>
41
<PAGE>
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.
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
42
<PAGE>
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.
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.
43
<PAGE>
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.
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.
44
<PAGE>
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>
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
45
<PAGE>
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.
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.
46
<PAGE>
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.
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
- --------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
(IN MILLIONS) 1997 1996 1995
- --------------------------------------------------------------------------------------------------
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. 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.
48
<PAGE>
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.
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.
49
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICE WATERHOUSE LLP [LOGO]
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 statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the sub-accounts, Alger
American Fund - Alger American Growth Portfolio, Alger American MidCap Growth
Portfolio, Alger American Small Capitalization 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 -
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 (constituting the CG Corporate
Insurance Variable Life Separate Account 02, hereafter referred to as "the
Account") at December 31, 1997, the results of each of their operations and the
changes in each of their net assets for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Account's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by
correspondence with the custodians, provide a reasonable basis for the opinion
expressed above.
/s/Price Waterhouse LLP
Hartford, Connecticut
February 20, 1998
50
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIDELITY
CIGNA VARIABLE FIDELITY VIP VIP II
PRODUCTS GROUP PORTFOLIO PORTFOLIO
ALGER AMERICAN PORTFOLIO SUB-ACCOUNTS SUB-ACCOUNTS SUB-ACCOUNTS SUB-ACCOUNT
-------------------------------------- ---------------------- ---------------------- ----------
MIDCAP SMALL MONEY EQUITY- HIGH INVESTMENT
GROWTH GROWTH CAPITALIZATION MARKET S&P 500 INCOME INCOME GRADE BOND
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at value.... $ 50,195 $ 38,473 $ 90,090 $ 71,633 $13,451,623 $ 182,841 $ 304,891 $4,981,725
Receivable from Connecticut
General Life
Insurance Company........... 856 -- -- -- 521 1,227 -- --
Receivable for fund shares
sold........................ -- -- -- 7,286 -- -- -- 130
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Total assets.............. 51,051 38,473 90,090 78,919 13,452,144 184,068 304,891 4,981,855
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life
Insurance Company........... -- -- -- 7,286 -- -- -- 130
Payable for fund shares
purchased................... 856 -- -- -- 521 1,227 -- --
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities......... 856 -- -- 7,286 521 1,227 -- 130
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Net assets................ $ 50,195 $ 38,473 $ 90,090 $ 71,633 $13,451,623 $ 182,841 $ 304,891 $4,981,725
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Accumulation units
outstanding................. 4,287 3,417 7,180 6,869 1,116,073 15,388 26,433 459,320
Net asset value per
accumulation unit........... $ 11.709279 $ 11.260065 $12.546933 $10.428840 $12.052632 $11.881678 $11.534462 $10.845876
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
51
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
JANUS
ASPEN
SERIES
SUB-ACCOUNT MFS SERIES SUB-ACCOUNTS OCC ACCUMULATION TEMPLETON
---------- ----------------------- TRUST SERIES SUB-ACCOUNTS SUB-ACCOUNT
WORLDWIDE EMERGING TOTAL ---------------------------------- ----------
GROWTH GROWTH RETURN EQUITY MANAGED SMALL CAP INTERNATIONAL
---------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at value.... $1,660,783 $ 309,109 $ 3,655 $ 47,979 $ 334,608 $1,363,267 $ 577,501
Receivable from Connecticut
General Life
Insurance Company........... 1,921 -- -- -- 1,438 -- 843
Receivable for fund shares
sold........................ -- -- -- -- -- 36 --
---------- ---------- ----------- ---------- ---------- ---------- ----------
Total assets.............. 1,662,704 309,109 3,655 47,979 336,046 1,363,303 578,344
---------- ---------- ----------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life
Insurance Company........... -- -- -- -- -- 36 --
Payable for fund shares
purchased................... 1,921 -- -- -- 1,438 -- 843
---------- ---------- ----------- ---------- ---------- ---------- ----------
Total liabilities......... 1,921 -- -- -- 1,438 36 843
---------- ---------- ----------- ---------- ---------- ---------- ----------
Net assets................ $1,660,783 $ 309,109 $ 3,655 $ 47,979 $ 334,608 $1,363,267 $ 577,501
---------- ---------- ----------- ---------- ---------- ---------- ----------
---------- ---------- ----------- ---------- ---------- ---------- ----------
Accumulation units
outstanding................. 145,879 26,489 318 4,041 28,518 113,524 52,854
Net asset value per
accumulation unit........... $11.384653 $11.669186 $ 11.495360 $11.873582 $11.733393 $12.008588 $10.926369
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
52
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
FOR THE PERIODS INDICATED TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
CIGNA VARIABLE
ALGER AMERICAN PORTFOLIO PRODUCTS GROUP
SUB-ACCOUNTS SUB-ACCOUNTS
----------------------------------- ------------------
MIDCAP SMALL MONEY
GROWTH GROWTH CAPITALIZATION MARKET* S&P 500
------------ ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Date deposits first
received.................... 2/24/97 2/24/97 3/31/97 12/24/96 2/24/97
INVESTMENT INCOME:
Dividends..................... $ 21 $ 20 $ -- $ 84,108 $259,490
EXPENSES:
Mortality and expense risk and
administrative charges...... 110 262 512 16,075 62,607
------------ ----------- -------- -------- --------
Net investment gain (loss).... (89) (242) (512 ) 68,033 196,883
------------ ----------- -------- -------- --------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... 39 505 1,973 -- 294,639
Net realized gain (loss) on
share transactions.......... 63 123 210 -- (855)
------------ ----------- -------- -------- --------
Net realized gain........... 102 628 2,183 -- 293,784
Net unrealized gain........... 1,223 5,140 10,441 -- 1,320,848
------------ ----------- -------- -------- --------
Net realized and unrealized
gain on investments........ 1,325 5,768 12,624 -- 1,614,632
------------ ----------- -------- -------- --------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $ 1,236 $ 5,526 $12,112 $ 68,033 $1,811,515
------------ ----------- -------- -------- --------
------------ ----------- -------- -------- --------
<CAPTION>
FIDELITY
FIDELITY VIP VIP II
PORTFOLIO PORTFOLIO
SUB-ACCOUNTS SUB-ACCOUNT
--------------------- ----------
EQUITY- HIGH INVESTMENT
INCOME INCOME GRADE BOND
----------- -------- ----------
<S> <C> <C> <C>
Date deposits first
received.................... 2/24/97 1/29/97 1/29/97
INVESTMENT INCOME:
Dividends..................... $ -- $ 9,263 $ 7,879
EXPENSES:
Mortality and expense risk and
administrative charges...... 944 2,125 16,725
----------- -------- ----------
Net investment gain (loss).... (944) 7,138 (8,846 )
----------- -------- ----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... -- 1,145 --
Net realized gain (loss) on
share transactions.......... 309 240 110
----------- -------- ----------
Net realized gain........... 309 1,385 110
Net unrealized gain........... 26,400 27,140 192,098
----------- -------- ----------
Net realized and unrealized
gain on investments........ 26,709 28,525 192,208
----------- -------- ----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $ 25,765 $ 35,663 $ 183,362
----------- -------- ----------
----------- -------- ----------
</TABLE>
* For the Year Ended December 31, 1997 (Deposits first received December 24,
1996)
The Notes to Financial Statements are an integral part of these statements.
53
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE PERIODS INDICATED TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
JANUS
ASPEN OCC ACCUMULATION TRUST SERIES
SERIES MFS SERIES
SUB-ACCOUNT SUB-ACCOUNTS SUB-ACCOUNTS TEMPLETON
-------- ------------------- -------------------------------- SUB-ACCOUNTS
WORLDWIDE EMERGING TOTAL SMALL -------------
GROWTH GROWTH RETURN EQUITY MANAGED CAP INTERNATIONAL
-------- -------- --------- ----------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Date deposits first
received.................... 2/24/97 1/29/97 2/24/97 2/24/97 1/29/97 2/24/97 2/24/97
INVESTMENT INCOME:
Dividends..................... $ 4,457 $ -- $ -- $ 43 $ 1,914 $ 48 $ --
EXPENSES:
Mortality and expense risk and
administrative charges...... 5,656 1,959 14 117 1,976 4,515 2,220
-------- -------- --------- ----------- -------- -------- -------------
Net investment loss........... (1,199 ) (1,959 ) (14) (74) (62) (4,467) (2,220 )
-------- -------- --------- ----------- -------- -------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... 561 -- -- 153 5,879 341 --
Net realized gain (loss) on
share transactions.......... 154 230 8 66 236 24 (13 )
-------- -------- --------- ----------- -------- -------- -------------
Net realized gain (loss).... 715 230 8 219 6,115 365 (13 )
Net unrealized gain (loss).... 43,891 36,451 308 2,992 27,581 19,222 (7,247 )
-------- -------- --------- ----------- -------- -------- -------------
Net realized and unrealized
gain (loss) on
investments................ 44,606 36,681 316 3,211 33,696 19,587 (7,260 )
-------- -------- --------- ----------- -------- -------- -------------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $43,407 $34,722 $ 302 $ 3,137 $ 33,634 $ 15,120 $ (9,480 )
-------- -------- --------- ----------- -------- -------- -------------
-------- -------- --------- ----------- -------- -------- -------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
54
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIODS INDICATED TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIDELITY
CIGNA VARIABLE VIP
ALGER AMERICAN PORTFOLIO PRODUCTS GROUP PORTFOLIO
SUB-ACCOUNTS SUB-ACCOUNTS SUB-ACCOUNTS
----------------------------------- ---------------------- ---------
MIDCAP SMALL MONEY EQUITY-
GROWTH GROWTH CAPITALIZATION MARKET* S&P 500 INCOME
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Date deposits first
received.................... 2/24/97 2/24/97 3/31/97 12/24/96 2/24/97 2/24/97
OPERATIONS:
Net investment gain (loss).... $ (89) $ (242) $ (512 ) $ 68,033 $ 196,883 $ (944)
Net realized gain............. 102 628 2,183 -- 293,784 309
Net unrealized gain........... 1,223 5,140 10,441 -- 1,320,848 26,400
----------- ---------- ---------- ---------- ---------- ---------
Net increase from
operations................. 1,236 5,526 12,112 68,033 1,811,515 25,765
----------- ---------- ---------- ---------- ---------- ---------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits, net of
premium loads............... 41,099 1,222 -- 20,606,819 916,689 61,215
Participant transfers......... 9,624 33,892 82,004 (20,953,420) 10,900,475 105,195
Participant withdrawals....... (1,764) (2,167) (4,026 ) (260,990) (177,056) (9,334)
----------- ---------- ---------- ---------- ---------- ---------
Net increase (decrease) from
participant transactions... 48,959 32,947 77,978 (607,591) 11,640,108 157,076
----------- ---------- ---------- ---------- ---------- ---------
Total increase (decrease)
in net assets............ 50,195 38,473 90,090 (539,558) 13,451,623 182,841
NET ASSETS:
Beginning of period........... -- -- -- 611,191 -- --
----------- ---------- ---------- ---------- ---------- ---------
End of period................. $ 50,195 $ 38,473 $ 90,090 $ 71,633 $13,451,623 $ 182,841
----------- ---------- ---------- ---------- ---------- ---------
----------- ---------- ---------- ---------- ---------- ---------
<CAPTION>
FIDELITY
VIP II
PORTFOLIO
SUB-ACCOUNTS
----------
HIGH INVESTMENT
INCOME GRADE BOND
----------- ----------
<S> <C> <C>
Date deposits first
received.................... 1/29/97 1/29/97
OPERATIONS:
Net investment gain (loss).... $ 7,138 $ (8,846 )
Net realized gain............. 1,385 110
Net unrealized gain........... 27,140 192,098
----------- ----------
Net increase from
operations................. 35,663 183,362
----------- ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits, net of
premium loads............... 65,300 186,655
Participant transfers......... 217,909 4,637,295
Participant withdrawals....... (13,981) (25,587 )
----------- ----------
Net increase (decrease) from
participant transactions... 269,228 4,798,363
----------- ----------
Total increase (decrease)
in net assets............ 304,891 4,981,725
NET ASSETS:
Beginning of period........... -- --
----------- ----------
End of period................. $ 304,891 $4,981,725
----------- ----------
----------- ----------
</TABLE>
- --------------------------
* For the Year Ended December 31, 1997 (Deposits first received December 24,
1996)
The Notes to Financial Statements are an integral part of these statements.
55
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIODS INDICATED TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
JANUS
ASPEN
SERIES MFS SERIES
SUB-ACCOUNT SUB-ACCOUNTS OCC ACCUMULATION TEMPLETON
-------- ------------------- TRUST SUB-ACCOUNTS SUB-ACCOUNTS
WORLDWIDE EMERGING TOTAL -------------------------------- -------------
GROWTH GROWTH RETURN EQUITY MANAGED SMALL CAP INTERNATIONAL
-------- -------- --------- ----------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Date deposits first
received.................... 2/24/97 1/29/97 2/24/97 2/24/97 1/29/97 2/24/97 2/24/97
OPERATIONS:
Net investment (loss)......... $ (1,199) $ (1,959) $ (14) $ (74) $ (62) $ (4,467) $ (2,220 )
Net realized gain (loss)...... 715 230 8 219 6,115 365 (13 )
Net unrealized gain (loss).... 43,891 36,451 308 2,992 27,581 19,222 (7,247 )
-------- -------- --------- ----------- -------- --------- -------------
Net increase (decrease) from
operations................. 43,407 34,722 302 3,137 33,634 15,120 (9,480 )
-------- -------- --------- ----------- -------- --------- -------------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits, net of
premium loads............... 177,366 83,322 2,184 25,651 131,629 53,337 273,855
Participant transfers......... 1,459,273 206,614 1,763 25,340 184,083 1,298,529 322,803
Participant withdrawals....... (19,263) (15,549) (594) (6,149) (14,738) (3,719) (9,677 )
-------- -------- --------- ----------- -------- --------- -------------
Net increase from
participant transactions... 1,617,376 274,387 3,353 44,842 300,974 1,348,147 586,981
-------- -------- --------- ----------- -------- --------- -------------
Total increase in net
assets................... 1,660,783 309,109 3,655 47,979 334,608 1,363,267 577,501
NET ASSETS:
Beginning of period........... -- -- -- -- -- -- --
-------- -------- --------- ----------- -------- --------- -------------
End of period................. $1,660,783 $309,109 $ 3,655 $ 47,979 $334,608 $1,363,267 $ 577,501
-------- -------- --------- ----------- -------- --------- -------------
-------- -------- --------- ----------- -------- --------- -------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
56
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 24, 1996* TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CIGNA VARIABLE
PRODUCTS GROUP
SUB-ACCOUNT
---------------
MONEY
MARKET
---------------
<S> <C>
INVESTMENT INCOME:
Dividends.......................................................................................... $ 675
EXPENSES:
Mortality and expense risk and administrative charges.............................................. 112
---
Net investment income............................................................................ 563
---
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................... $ 563
---
---
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM DECEMBER 24, 1996* TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CIGNA
VARIABLE
PRODUCTS
GROUP
SUB-ACCOUNT
-------------
MONEY
MARKET
-------------
<S> <C>
OPERATIONS:
Net investment gain................................................................................ $ 563
-------------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits, net of premium loads......................................................... 621,412
Participant withdrawals............................................................................ (10,784)
-------------
Net increase from participant transactions....................................................... 610,628
-------------
Total increase in net assets................................................................... 611,191
NET ASSETS:
Beginning of period................................................................................ --
-------------
End of period...................................................................................... $ 611,191
-------------
-------------
</TABLE>
* Date deposits first received
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
57
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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:
<TABLE>
<S> <C>
ALGER AMERICAN FUND:
Alger American Growth Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization 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
</TABLE>
* Not active. As of December 31, 1997, 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-accounts are valued at
their respective closing net asset values per share as determined by the mutual
funds as of December 31, 1997. The change in the difference between cost and
value is reflected as unrealized gain (loss) in the Statements of Operations.
B. INVESTMENT TRANSACTIONS: Investment transactions are recorded on the trade
date (date the order to buy or sell is executed). Realized gains and losses on
sales of investments are determined by the last-in, first-out cost basis of the
investment sold. Dividend and capital gain distributions are recorded on the
ex-dividend date. Investment transactions are settled through 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) and capital gains attributable to the Account are not taxed.
58
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
3. INVESTMENTS
Total shares outstanding and cost of investments as of December 31, 1997
were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Cost of
Sub-Account Shares Held Investments
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio..................................... 1,174 $ 48,972
Alger American MidCap Growth Portfolio.............................. 1,591 33,333
Alger American Small Capitalization Portfolio....................... 2,059 79,649
CIGNA Variable Products Money Market Fund........................... 71,634 71,634
CIGNA Variable Products S&P 500 Index Fund.......................... 850,292 12,130,775
Fidelity Equity-Income Portfolio.................................... 7,531 156,441
Fidelity High Income Portfolio...................................... 22,451 277,751
Fidelity Investment Grade Bond Portfolio............................ 396,634 4,789,627
Janus Aspen Series Worldwide Growth Portfolio....................... 71,004 1,616,892
MFS Emerging Growth Series.......................................... 19,152 272,658
MFS Total Return Series............................................. 220 3,347
OCC Equity Portfolio................................................ 1,314 44,987
OCC Managed Portfolio............................................... 7,895 307,027
OCC Small Cap Portfolio............................................. 51,698 1,344,045
Templeton International Fund........................................ 28,617 584,748
- ---------------------------------------------------------------------------------------------
</TABLE>
Total purchases and sales of shares of each mutual fund, for the periods
noted, amounted to:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Period from
Date Indicated*
to
December 31,
Sub-Account 1997 Purchases Sales
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
February 24,
Alger American Growth Portfolio................... 1997 $ 50,826 $ 1,917
February 24,
Alger American MidCap Growth Portfolio............ 1997 36,117 2,907
Alger American Small Capitalization Portfolio..... March 31, 1997 84,309 4,870
CIGNA Variable Products Money Market Fund......... January 1, 1997 18,468,057 19,007,614
February 24,
CIGNA Variable Products S&P 500 Index Fund........ 1997 12,512,164 380,534
February 24,
Fidelity Equity-Income Portfolio.................. 1997 166,701 10,569
January 29,
Fidelity High Income Portfolio.................... 1997 294,464 16,953
January 29,
Fidelity Investment Grade Bond Portfolio.......... 1997 4,827,069 37,552
February 24,
Janus Aspen Series Worldwide Growth Portfolio..... 1997 1,643,955 27,217
January 29,
MFS Emerging Growth Series........................ 1997 289,720 17,292
February 24,
MFS Total Return Series........................... 1997 3,696 357
February 24,
OCC Equity Portfolio.............................. 1997 53,438 8,517
January 29,
OCC Managed Portfolio............................. 1997 322,628 15,837
February 24,
OCC Small Cap Portfolio........................... 1997 1,352,012 7,991
February 24,
Templeton International Fund...................... 1997 594,407 9,646
- -------------------------------------------------------------------------------------------
</TABLE>
* Date deposits first received, with the exception of CIGNA Variable Products
Money Market Fund (deposits first received December 24, 1996).
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 only.
59
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
4. CHARGES AND DEDUCTIONS (CONTINUED)
The fees charged by CG Life for mortality and expense risks and
administrative fees, from variable sub-accounts, for the periods noted, amounted
to:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Period from
Date Indicated* Mortality
to and Asset Based
December 31, Expense Administrative
Sub-Account 1997 Risk Fees Fees
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
February 24,
Alger American Growth Portfolio.................... 1997 $ 98 $ 12
February 24,
Alger American MidCap Growth Portfolio............. 1997 235 27
Alger American Small Capitalization Portfolio...... March 31, 1997 458 54
CIGNA Variable Products Money Market Fund.......... January 1, 1997 14,383 1,692
February 24,
CIGNA Variable Products S&P 500 Index Fund......... 1997 56,017 6,590
February 24,
Fidelity Equity-Income Portfolio................... 1997 844 100
Fidelity High Income Portfolio..................... January 29, 1997 1,902 223
Fidelity Investment Grade Bond Portfolio........... January 29, 1997 14,964 1,761
February 24,
Janus Aspen Series Worldwide Growth Portfolio...... 1997 5,061 595
MFS Emerging Growth Series......................... January 29, 1997 1,753 206
February 24,
MFS Total Return Series............................ 1997 12 2
February 24,
OCC Equity Portfolio............................... 1997 105 12
OCC Managed Portfolio.............................. January 29, 1997 1,768 208
February 24,
OCC Small Cap Portfolio............................ 1997 4,040 475
February 24,
Templeton International Fund....................... 1997 1,987 233
- -------------------------------------------------------------------------------------------------
</TABLE>
* Date deposits first received, with the exception of CIGNA Variable Products
Money Market Fund (deposits first received December 24, 1996).
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 12 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 class (in accordance with state law) of
the insured 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 periods ended December 31, 1997.
60
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
4. CHARGES AND DEDUCTIONS (CONTINUED)
Policy issue fees, which are deducted from the initial premium payment,
amounted to $106,750, all of which were deducted from the CIGNA Variable
Products Money Market Fund. The fees charged by CG Life for premium loads
(deducted from premium payments), administrative fees and the amount deducted
for the cost of insurance, all of which are included in participant withdrawals,
for variable sub-accounts for the periods noted, amounted to:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Period from
Date Indicated* Costs of
to December 31, Premium Administrative Insurance
Sub-Account 1997 Loads Fees Deduction
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
February 24,
Alger American Growth Portfolio......... 1997 $ 11,863 $ 275 $ 1,493
Alger American MidCap Growth February 24,
Portfolio.............................. 1997 85 247 1,920
Alger American Small Capitalization
Portfolio.............................. March 31, 1997 -- 100 3,926
CIGNA Variable Products Money Market
Fund................................... January 1, 1997 2,857,919 9,775 127,739
CIGNA Variable Products S&P 500 Index February 24,
Fund................................... 1997 80,299 11,989 149,185
February 24,
Fidelity Equity--Income Portfolio....... 1997 17,838 750 8,578
January 29,
Fidelity High Income Portfolio.......... 1997 9,816 1,054 12,794
Fidelity Investment Grade Bond January 29,
Portfolio.............................. 1997 18,004 1,658 23,808
Janus Aspen Series Worldwide Growth February 24,
Portfolio.............................. 1997 32,574 1,518 17,719
January 29,
MFS Emerging Growth Series.............. 1997 10,643 1,375 14,170
February 24,
MFS Total Return Series................. 1997 513 58 535
February 24,
OCC Equity Portfolio.................... 1997 3,221 429 5,655
January 29,
OCC Managed Portfolio................... 1997 30,157 1,488 13,094
February 24,
OCC Small Cap Portfolio................. 1997 3,768 197 3,514
February 24,
Templeton International Fund............ 1997 27,966 737 7,586
- ------------------------------------------------------------------------------------------------
</TABLE>
* Date deposits first received, with the exception of CIGNA Variable Products
Money Market Fund (deposits first received December 24, 1996).
For policies issued before April 30, 1997, CG Life will refund 60% of all
premium loads previously deducted if a policy is fully surrendered during the
first 12 months after issue. If a policy is fully surrendered during the months
13 through 24 after issue, the refund will equal 30% of all premium loads
previously deducted. For policies issued after April 30, 1997, if the policy is
fully surrendered during the first 12 months after issue, a credit will be paid
equal to 100% of all premium loads previously deducted in excess of 3.5% of all
premiums paid. If the policy is fully surrendered during months 13 through 24,
the credit will equal 50% of all premium loads previously deducted in excess of
3.5% of all premiums paid. 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, unless the policy owner and CG Life agree otherwise. 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 periods
ended December 31, 1997.
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 met if the underlying investments satisfy either
61
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
6. DIVERSIFICATION REQUIREMENTS (CONTINUED)
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 funds, that the mutual funds satisfy the requirements
of the regulations.
62
<PAGE>
APPENDIX 1
ILLUSTRATIONS OF ACCUMULATION VALUES, SURRENDER VALUES,
AND DEATH BENEFITS
The illustrations in this Prospectus have been prepared to help show how values
under the Policies change with investment performance, assuming in separate
illustrations both the Company's current charges and the Company's guaranteed
charges under the Policies. The illustrations illustrate how Accumulation
Values, Surrender Values and Death Benefits under a Policy would vary over time
if the hypothetical gross investment rates of return were a uniform annual
effective rate of either 0%, 6% or 12%. If the hypothetical gross investment
rate of return averages 0%, 6%, or 12% over a period of years, but fluctuates
above or below those averages for individual years, the Accumulation Values,
Surrender Values and Death Benefits may be different. The illustrations also
assume there are no Policy loans, no additional Premium Payments are made other
than shown, no Accumulation Values are allocated to the Fixed Account, and there
are no changes in the Specified Amount or Death Benefit Option.
The amounts shown for the Accumulation Value, Surrender Value and Death Benefit
as of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the Sub-Accounts is lower than the gross return. This is due
to the daily charges made against the assets of the Sub-Accounts for assuming
mortality and expense risks and for administrative expenses. The administrative
expense charge is currently at an annual effective rate of 0.10% of the daily
net asset value of the Variable Account during the first ten Policy Years, and
is guaranteed not to exceed 0.30% per year. The current mortality and expense
risk charges are equivalent to an annual effective rate of 0.85% of the daily
net asset value of the Variable Account. After the Tenth Policy Year, the
mortality and expense risk charge is reduced to 0.45% on an annual basis of the
daily net assets of the Variable Account. After the Fifteenth Policy Year, the
mortality and expense risk charge is further reduced to 0.15% on an annual basis
of the daily net assets of the Variable Account. The mortality and expense risk
charge is guaranteed not to exceed an annual effective rate of 0.90%. In
addition, the net investment returns also reflect the deduction of Fund
investment advisory fees and other expenses which will vary depending on which
funding vehicle is chosen but which are assumed for purposes of these
illustrations to be equivalent to an annual effective rate of 0.85% of the daily
net asset value of the Variable Account.
Assuming current charges for administration and mortality and expense risks,
gross annual rates of 0%, 6%, and 12% correspond to net experience at constant
annual rates of -1.80%, 4.20% and 10.20% during the first ten policy years,
constant annual rates of -1.30%, 4.70% and 10.70% during the eleventh through
fifteenth policy years and constant annual rates of -1.00%, 5.00% and 11.00%
thereafter. Assuming guaranteed charges for administration and mortality and
expense risks, gross annual rates of 0%, 6% and 12% correspond to net experience
at constant annual rates of -2.05%, 3.95% and 9.95% in all policy years.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection. Current values reflect current Cost of
Insurance charges and guaranteed values reflect the maximum Cost of Insurance
charges guaranteed in the Policy. The values shown are for Policies which are
issued as Guaranteed Issue. Medically underwritten policies issued on a standard
or substandard basis would result in different Accumulation Values and Death
Benefits than those illustrated.
The illustrations also reflect the fact that the Company deducts a premium load
from each Premium Payment. Current and guaranteed values reflect a deduction of
6.5% of each Premium Payment, plus an additional 40% of the first year's Premium
Payments up to one Guideline Annual Premium.
The Surrender Values shown in the illustrations reflect the fact that the
Company will refund a portion of the sales load for any Policy surrendered
during the first two years.
In addition, the illustrations reflect the fact that the Company deducts an $8
monthly administrative charge at the beginning of each Policy Month, as well as
an initial $250 policy issue charge.
Upon request, the Company will furnish a comparable illustration based on the
proposed insured's age, gender classification, smoking classification, risk
classification and premium payment requested.
63
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX NON SMOKER ISSUE AGE 45
$4,935 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
GUIDELINE TEST -- CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
-1.80% 4.20% 10.20% -1.80% 4.20% 10.20% -1.80% 4.20% 10.20%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.30% 4.70% 10.70% -1.30% 4.70% 10.70% -1.30% 4.70% 10.70%
ACCUMULATED IN YEARS 11-15 IN YEARS 11-15 IN YEARS 11-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.00% 5.00% 11.00% -1.00% 5.00% 11.00% -1.00% 5.00% 11.00%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,935 500,000 500,000 500,000 1,686 1,808 1,930 3,808 3,930 4,052
2 10,117 500,000 500,000 500,000 5,396 5,875 6,370 6,531 7,010 7,505
3 15,558 500,000 500,000 500,000 8,910 9,981 11,128 8,910 9,981 11,128
4 21,270 500,000 500,000 500,000 12,223 14,119 16,228 12,223 14,119 16,228
5 27,269 500,000 500,000 500,000 15,362 18,315 21,732 15,362 18,315 21,732
6 33,567 500,000 500,000 500,000 18,342 22,586 27,697 18,342 22,586 27,697
7 40,181 500,000 500,000 500,000 21,167 26,935 34,173 21,167 26,935 34,173
8 47,125 500,000 500,000 500,000 23,852 31,380 41,229 23,852 31,380 41,229
9 54,416 500,000 500,000 500,000 26,400 35,928 48,929 26,400 35,928 48,929
10 62,072 500,000 500,000 500,000 28,805 40,577 57,336 28,805 40,577 57,336
15 106,490 500,000 500,000 500,000 38,511 65,807 114,266 38,511 65,807 114,266
20 163,180 500,000 500,000 500,000 39,924 90,705 205,622 39,924 90,705 205,622
25 235,533 500,000 500,000 500,000 26,035 108,632 355,972 26,035 108,632 355,972
30 327,876 0 500,000 656,119 0 112,468 620,332 0 112,468 620,332
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates are assumed. Current mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and administrative
expense charges and (2) assumed Fund total
expenses of 0.85% per year. See "Expense Data"
at pages 10-11 of this Prospectus.
64
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX NONSMOKER ISSUE AGE 45
$4,935 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
GUIDELINE TEST -- GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
-2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
ACCUMULATED IN YEARS 11-15 IN YEARS 11-15 IN YEARS 11-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,935 500,000 500,000 500,000 639 727 816 2,761 2,849 2,938
2 10,117 500,000 500,000 500,000 3,330 3,678 4,038 4,465 4,813 5,173
3 15,558 500,000 500,000 500,000 5,843 6,620 7,453 5,843 6,620 7,453
4 21,270 500,000 500,000 500,000 8,163 9,534 11,063 8,163 9,534 11,063
5 27,269 500,000 500,000 500,000 10,290 12,416 14,884 10,290 12,416 14,884
6 33,567 500,000 500,000 500,000 12,213 15,253 18,926 12,213 15,253 18,926
7 40,181 500,000 500,000 500,000 13,905 18,008 23,181 13,905 18,008 23,181
8 47,125 500,000 500,000 500,000 15,345 20,657 27,648 15,345 20,657 27,648
9 54,416 500,000 500,000 500,000 16,505 23,162 32,321 16,505 23,162 32,321
10 62,072 500,000 500,000 500,000 17,353 25,482 37,187 17,353 25,482 37,187
15 106,490 500,000 500,000 500,000 16,157 33,103 64,481 16,157 33,103 64,481
20 163,180 500,000 500,000 500,000 2,050 28,544 95,694 2,050 28,544 95,694
25 235,533 0 0 500,000 0 0 125,367 0 0 125,367
30 327,876 0 0 500,000 0 0 141,214 0 0 141,214
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates are assumed. Guaranteed mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of guaranteed
administrative expense and mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
65
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX NONSMOKER ISSUE AGE 45
$4,935 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
CASH VALUE TEST -- CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
-1.80% 4.20% 10.20% -1.80% 4.20% 10.20% -1.80% 4.20% 10.20%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET
PREMIUMS -1.30% 4.70% 10.70% -1.30% 4.70% 10.70% -1.30% 4.70% 10.70%
ACCUMULATED IN YEARS 11-15 IN YEARS 11-15 IN YEARS 11-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.00% 5.00% 11.00% -1.00% 5.00% 11.00% -1.00% 5.00% 11.00%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,935 500,000 500,000 500,000 1,686 1,808 1,930 3,808 3,930 4,052
2 10,117 500,000 500,000 500,000 5,396 5,875 6,370 6,531 7,010 7,505
3 15,558 500,000 500,000 500,000 8,910 9,981 11,128 8,910 9,981 11,128
4 21,270 500,000 500,000 500,000 12,223 14,119 16,228 12,223 14,119 18,228
5 27,269 500,000 500,000 500,000 15,362 18,315 21,732 15,362 18,315 21,732
6 33,567 500,000 500,000 500,000 18,342 22,586 27,697 18,342 22,586 27,697
7 40,181 500,000 500,000 500,000 21,167 25,935 34,173 21,167 26,935 34,173
8 47,125 500,000 500,000 500,000 23,852 31,380 41,229 23,852 31,380 41,229
9 54,416 500,000 500,000 500,000 26,400 35,928 48,929 26,400 35,928 48,929
10 62,072 500,000 500,000 500,000 28,805 40,577 57,336 28,805 40,577 57,336
15 106,490 500,000 500,000 500,000 38,511 65,807 114,266 38,511 65,807 114,266
20 163,180 500,000 500,000 500,000 39,924 90,705 205,622 39,924 90,705 205,622
25 235,533 500,000 500,000 567,169 26,035 108,632 355,032 26,035 108,632 355,032
30 327,876 0 500,000 847,694 0 112,468 593,185 0 112,468 593,185
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates are assumed. Current mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current
administrative expense charges and mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
66
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX NON SMOKER ISSUE AGE 45
$4,935 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
CASH VALUE TEST -- GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
-2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
ACCUMULATED IN YEARS 11-15 IN YEARS 11-15 IN YEARS 11-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,935 500,000 500,000 500,000 639 727 816 2,761 2,849 2,938
2 10,117 500,000 500,000 500,000 3,330 3,678 4,038 4,465 4,813 5,173
3 15,558 500,000 500,000 500,000 5,843 6,620 7,453 5,843 6,620 7,453
4 21,270 500,000 500,000 500,000 8,163 9,534 11,063 8,163 9,534 11,063
5 27,269 500,000 500,000 500,000 10,290 12,416 14,884 10,290 12,416 14,884
6 33,567 500,000 500,000 500,000 12,213 15,253 18,926 12,213 15,253 18,926
7 40,181 500,000 500,000 500,000 13,905 18,008 23,181 13,905 18,008 23,181
8 47,125 500,000 500,000 500,000 15,345 20,657 27,648 15,345 20,657 27,648
9 54,416 500,000 500,000 500,000 16,505 23,162 32,321 16,505 23,162 32,321
10 62,072 500,000 500,000 500,000 17,353 25,482 37,187 17,353 25,482 37,187
15 106,490 500,000 500,000 500,000 16,157 33,103 64,481 16,157 33,103 64,481
20 163,180 500,000 500,000 500,000 2,050 28,544 95,694 2,050 28,544 95,694
25 235,533 0 0 500,000 0 0 125,367 0 0 125,367
30 327,876 0 0 500,000 0 0 141,214 0 0 141,214
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates are assumed. Guaranteed mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of guaranteed
administrative expense and mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
67
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NON-SMOKER RATES)
$5,254 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
GUIDELINE TEST -- CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
-1.80% 4.20% 10.20% -1.80% 4.20% 10.20% -1.80% 4.20% 10.20%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.30% 4.70% 10.70% -1.30% 4.70% 10.70% -1.30% 4.70% 10.70%
ACCUMULATED IN YEARS 11-15 IN YEARS 11-15 IN YEARS 11-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.00% 5.00% 11.00% -1.00% 5.00% 11.00% -1.00% 5.00% 11.00%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,254 500,000 500,000 500,000 1,777 1,907 2,037 4,036 4,166 4,296
2 10,771 500,000 500,000 500,000 5,677 6,185 6,709 6,885 7,393 7,917
3 16,563 500,000 500,000 500,000 9,342 10,474 11,686 9,342 10,474 11,686
4 22,645 500,000 500,000 500,000 12,781 14,780 17,003 12,781 14,780 17,003
5 29,032 500,000 500,000 500,000 16,017 19,123 22,719 16,017 19,123 22,719
6 35,737 500,000 500,000 500,000 19,067 23,522 28,893 19,067 23,522 26,893
7 42,778 500,000 500,000 500,000 21,943 27,988 35,584 21,943 27,988 35,584
8 50,171 500,000 500,000 500,000 24,656 32,534 42,856 24,656 32,534 42,856
9 57,934 500,000 500,000 500,000 27,217 37,174 50,784 27,217 37,174 50,784
10 66,084 500,000 500,000 500,000 29,621 41,906 59,433 29,621 41,906 50,433
15 113,374 500,000 500,000 500,000 38,968 67,294 117,802 38,968 67,294 117,802
20 173,729 500,000 500,000 500,000 39,065 91,518 211,210 39,065 91,518 211,210
25 250,758 500,000 500,000 500,000 22,859 107,777 365,814 22,859 107,777 365,814
30 349,070 0 500,000 677,652 0 109,058 638,736 0 109,058 638,736
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates are assumed. Current mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current
administrative expense charges and mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
68
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NON-SMOKER RATES)
$5,254 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
GUIDELINE TEST -- GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
-2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
-------- -------- --------- -------- -------- --------- -------- -------- ---------
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
ACCUMULATED IN YEARS 11-15 IN YEARS 11-15 IN YEARS 11-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,254 500,000 500,000 500,000 268 349 431 2,528 2,608 2,690
2 10,771 500,000 500,000 500,000 2,674 2,991 3,320 3,882 4,199 4,528
3 16,563 500,000 500,000 500,000 4,860 5,563 6,319 4,860 5,563 6,319
4 22,645 500,000 500,000 500,000 6,826 8,059 9,437 6,826 8,059 9,437
5 29,032 500,000 500,000 500,000 8,549 10,448 12,657 8,549 10,448 12,657
6 35,737 500,000 500,000 500,000 10,019 12,711 15,979 10,019 12,711 15,979
7 42,778 500,000 500,000 500,000 11,207 14,812 19,381 11,207 14,812 19,381
8 50,171 500,000 500,000 500,000 12,090 16,714 22,845 12,090 16,714 22,845
9 57,934 500,000 500,000 500,000 12,628 18,366 26,337 12,628 18,366 26,337
10 66,084 500,000 500,000 500,000 12,789 19,720 29,825 12,789 19,720 29,825
15 113,374 500,000 500,000 500,000 7,196 20,595 46,444 7,196 20,595 46,444
20 173,729 0 500,000 500,000 0 5,195 57,237 0 5,195 57,237
25 250,758 0 0 500,000 0 0 46,542 0 0 46,542
30 349,070 0 0 0 0 0 0 0 0 0
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates are assumed. Guaranteed mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return,
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of guaranteed
administrative expense charges and mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
69
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NON-SMOKER RATES)
$5,254 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
CASH VALUE TEST -- CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
-1.80% 4.20% 10.20% -1.80% 4.20% 10.20% -1.80% 4.20% 10.20%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET
PREMIUMS -1.30% 4.70% 10.70% -1.30% 4.70% 10.70% -1.30% 4.70% 10.70%
ACCUMULATED IN YEARS 11-15 IN YEARS 11-15 IN YEARS 11-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.00% 5.00% 11.00% -1.00% 5.00% 11.00% -1.00% 5.00% 11.00%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,254 500,000 500,000 500,000 1,777 1,907 2,037 4,036 4,166 4,296
2 10,771 500,000 500,000 500,000 5,677 6,185 6,709 6,885 7,393 7,917
3 16,563 500,000 500,000 500,000 9,342 10,474 11,686 9,342 10,474 11,686
4 22,645 500,000 500,000 500,000 12,781 14,780 17,003 12,781 14,780 17,003
5 29,032 500,000 500,000 500,000 16,017 19,123 22,719 16,017 19,123 22,719
6 35,737 500,000 500,000 500,000 19,067 23,522 28,893 19,067 23,522 28,893
7 42,778 500,000 500,000 500,000 21,943 27,988 35,584 21,943 27,988 35,584
8 50,171 500,000 500,000 500,000 24,656 32,534 42,856 24,656 32,534 42,856
9 57,934 500,000 500,000 500,000 27,217 37,174 50,784 27,217 37,174 50,784
10 66,084 500,000 500,000 500,000 29,621 41,906 59,433 29,621 41,906 58,433
15 113,374 500,000 500,000 500,000 38,968 67,294 117,802 38,968 67,294 117,802
20 173,729 500,000 500,000 500,000 39,065 91,518 211,210 39,065 91,518 211,210
25 250,758 500,000 500,000 571,686 22,859 107,777 364,640 22,859 107,777 364,640
30 349,070 0 500,000 864,277 0 109,058 608,995 0 109,058 608,995
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates are assumed. Current mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current
administrative expense charges and mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
70
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NON-SMOKER RATES)
$5,254 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
CASH VALUE TEST -- GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
-2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
-------- -------- --------- -------- -------- --------- -------- -------- ---------
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
ACCUMULATED IN YEARS 11-15 IN YEARS 11-15 IN YEARS 11-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,254 500,000 500,000 500,000 268 349 431 2,528 2,608 2,690
2 10,117 500,000 500,000 500,000 2,674 2,991 3,320 3,882 4,199 4,528
3 16,563 500,000 500,000 500,000 4,860 5,563 6,319 4,860 5,563 6,319
4 22,645 500,000 500,000 500,000 6,826 8,059 9,437 6,826 8,059 9,437
5 29,032 500,000 500,000 500,000 8,549 10,448 12,657 8,549 10,448 12,657
6 35,737 500,000 500,000 500,000 10.019 12,711 15,979 10,019 12,711 15,979
7 42,778 500,000 500,000 500,000 11,207 14,812 19,381 11,207 14,812 19,381
8 50,171 500,000 500,000 500,000 12,090 16,714 22,845 12,090 16,714 22,845
9 57,934 500,000 500,000 500,000 12,628 18,366 26,337 12,628 18,366 26,337
10 66,084 500,000 500,000 500,000 12,789 19,720 29,825 12,789 19,720 29,825
15 113,374 500,000 500,000 500,000 7,196 20,595 46,444 7,196 20,595 46,444
20 173,729 0 500,000 500,000 0 5,195 57,237 0 5,195 57,237
25 250,758 0 0 500,000 0 0 46,542 0 0 46,542
30 349,070 0 0 0 0 0 0 0 0 0
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates are assumed. Guaranteed mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of guaranteed
administrative expense charges and mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
71
<PAGE>
[LOGO]
557003 (9/96)
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
[LOGO]
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
<TABLE>
<S> <C>
HOME OFFICE LOCATION: MAILING ADDRESS:
280 TRUMBULL STREET CIGNA
HARTFORD, CONNECTICUT CORPORATE VARIABLE PRODUCTS SERVICE CENTER
ROUTING H14A
HARTFORD, CT 06104
(860) 534-4100
</TABLE>
- --------------------------------------------------------------------------------
THE CORPORATE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY II
- --------------------------------------------------------------------------------
This prospectus describes a flexible premium variable life insurance
contract ("Policy") offered in an individual form by Connecticut General Life
Insurance Company ("the Company"). This Policy is intended to provide life
insurance benefits. It allows flexible premium payments, a choice of underlying
funding options, and a choice of three death benefit options. Its value will
vary with the investment performance of the underlying funding options selected,
as may the death benefit payable by the Company upon the death of the Insured.
Policy values may be used to continue the Policy in force, may be borrowed
within certain limits, and may be fully or partially surrendered. Annuity
settlement options equivalent to the Death Benefit may be available for payment
to the Beneficiary upon the death of the Insured.
The Company offers seventeen funding vehicles under a Policy through the
Separate Account, each a diversified open-end management investment company
(commonly called a mutual fund) with a different investment objective: Alger
American Fund -- Small Capitalization Portfolio, MidCap Growth Portfolio and
Growth Portfolio; BT Insurance Funds Trust -- EAFE-Registered Trademark- Equity
Index Fund and Small Cap Index Fund; CIGNA Variable Products Group -- Money
Market Fund and S&P 500 Index Fund; Fidelity Variable Insurance Products Fund --
VIP Equity-Income Portfolio and VIP High Income Portfolio; Fidelity Variable
Insurance Products Fund II -- VIP II Investment Grade Bond Portfolio; Janus
Aspen Series -- Worldwide Growth Portfolio; MFS-Registered Trademark- Variable
Insurance Trust-Registered Trademark- -- MFS Emerging Growth Series and MFS
Total Return Series; Templeton Variable Products Series Fund -- Templeton
International Fund Class 1; OCC Accumulation Trust -- OCC Equity Portfolio, OCC
Managed Portfolio and OCC Small Cap Portfolio.
The fixed interest option offered under the Policy is the Fixed Account.
Amounts held in the Fixed Account are guaranteed and will earn interest at a
rate guaranteed to be at least equal to the lesser of 4% per year or the
prevailing 30 day Treasury Bill Rate as of the last day of the preceding
calendar month. Unless specifically mentioned, this prospectus only describes
the variable investment options.
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance policy with this 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.
PROSPECTUS DATED: MAY 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Definitions..................................... 3
Highlights...................................... 5
Initial Choices............................... 5
Charges and Fees.............................. 5
The Company..................................... 6
The Variable Account............................ 7
The Funds....................................... 7
General....................................... 12
Substitution of Securities.................... 12
Voting Rights................................. 12
Fund Participation Agreements................. 12
Death Benefit................................... 13
Death Benefit Options....................... 13
Changes in Death Benefit Option............. 13
Payment of Death Benefit.................... 14
Changes in Specified Amount................. 15
Premium Payments; Transfers..................... 15
Premium Payments............................ 15
Allocation of Net Premium Payments.......... 16
Transfers................................... 16
Charges; Fees................................... 17
Premium Load................................ 17
Policy Issue Fee............................ 17
Monthly Deductions.......................... 17
Administrative Fee.......................... 18
Transaction Fee for Excess Transfers........ 18
Mortality and Expense Risk Charge........... 18
Surrenders During First Three Policy Years
-- Refund of Portion of Premium Load....... 18
The Fixed Account............................... 19
Policy Values................................... 19
Accumulation Value.......................... 19
Variable Accumulation Unit Value............ 20
Surrender Value............................. 20
Surrenders...................................... 20
Partial Surrenders.......................... 20
Full Surrenders............................. 21
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<S> <C>
Deferral of Payment and Transfers........... 21
Lapse and Reinstatement......................... 21
Lapse of a Policy........................... 21
Reinstatement of a Lapsed Policy............ 21
Policy Loans.................................... 21
Settlement Options.............................. 22
Additional Insurance Benefit.................... 22
Other Policy Provisions......................... 23
Issuance.................................... 23
Short-Term Right to Cancel the Policy....... 23
Policy Owner................................ 23
Beneficiary................................. 23
Right to Exchange for a Fixed Benefit
Policy..................................... 24
Incontestability............................ 24
Misstatement of Age......................... 24
Suicide..................................... 24
Nonparticipating Policies................... 24
Tax Matters..................................... 24
Policy Proceeds............................. 25
Taxation of the Company..................... 26
Section 848 Charges......................... 26
Other Matters................................... 27
Directors and Officers of the Company....... 27
Distribution of Policies.................... 27
Changes of Investment Policy................ 28
Other Contracts Issued by the Company....... 28
State Regulation............................ 28
Reports to Policy Owners.................... 28
Advertising................................. 28
Legal Proceedings........................... 29
Experts..................................... 29
Registration Statement...................... 29
Financial Statements........................ 30
Appendix 1...................................... 64
Illustration of Accumulation Values,
Surrender Values, and Death Benefits....... 64
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION VALUE: The sum of the Fixed Account Value, Variable Account Value
and the Loan Account Value.
ACCUMULATION UNIT: A unit of measure used to calculate the value of a Variable
Account Sub-Account.
ADDITIONAL INSURANCE BENEFIT: A benefit that can be added to the Policy to
provide annually renewable term life insurance on the life of the Insured. This
benefit is excluded from the Specified Amount when calculating the charges and
fees for the Policy and when calculating the Guideline Annual Premium and the
Target Premium.
ADDITIONAL PREMIUMS: Any premium paid in addition to Planned Premiums.
CASE: A group of Policies covering individuals with common employment or other
relationship, independent of the Policies.
CERTIFICATE: The document which evidences the coverage of an Insured in a Case.
CODE: The Internal Revenue Code of 1986, as amended.
CORPORATE VARIABLE PRODUCTS SERVICE CENTER: The office of the Company to which
Premium Payments should be sent, notices given and any customer service requests
made. Mailing address: CIGNA, Corporate Variable Products Service Center,
Routing H14A, Hartford, CT 06104.
CORRIDOR DEATH BENEFIT: The Death Benefit calculated as a percentage of the
Accumulation Value rather than by reference to the Specified Amount to satisfy
the Internal Revenue Service definition of "life insurance." (See "Payment of
Death Benefit").
COST OF INSURANCE: The portion of the Monthly Deduction designed to compensate
the Company for the anticipated cost of paying Death Benefits in excess of the
Accumulation Value, not including riders, supplemental benefits or monthly
expense charges.
DEATH BENEFIT: The amount payable to the beneficiary upon the death of the
Insured in accordance with the Death Benefit Option elected, before deduction of
the amount necessary to repay any loans in full and overdue deductions.
DEATH BENEFIT OPTION: Any of three methods for determining the Death Benefit.
FIXED ACCOUNT: The account under which principal is guaranteed and interest is
guaranteed to be credited at a rate at least equal to the lesser of 4% per year
or the prevailing 30 day Treasury Bill Rate as of the last day of the preceding
calendar month. Fixed Account assets are general assets of the Company held in
the Company's General Account.
FIXED ACCOUNT VALUE: The portion of the Accumulation Value, other than the Loan
Account Value, held in the Company's General Account.
FUND(S): One or more of Alger American Fund -- Small Capitalization Portfolio,
MidCap Growth Portfolio and Growth Portfolio; BT Insurance Funds Trust --
EAFE-Registered Trademark- Equity Index Fund and Small Cap Index Fund; CIGNA
Variable Products Group -- Money Market Fund and S&P 500 Index Fund; Variable
Insurance Products Fund -- VIP Equity-Income Portfolio and VIP High Income
Portfolio; Variable Insurance Products Fund II -- VIP II Investment Grade Bond
Portfolio; Janus Aspen Series -- Worldwide Growth Portfolio;
MFS-Registered Trademark- Variable Insurance Trust-Registered Trademark- -- MFS
Emerging Growth Series and MFS Total Return Series; Templeton Variable Products
Series Fund -- Templeton International Fund Class 1; OCC Accumulation Trust --
OCC Equity Portfolio, OCC Managed Portfolio and OCC Small Cap Portfolio. Each of
them is an open-end management investment company (mutual fund) whose shares are
available to fund the benefits provided by the Policy.
GENERAL ACCOUNT: The Company's general asset account, in which assets
attributable to the non-variable portion of Policies are held.
GRACE PERIOD: The 61-day period following a Monthly Anniversary Day on which the
Policy's Net Accumulation Value is insufficient to cover the current Monthly
Deduction. The Company will send notice at least 31 days before the end of the
Grace Period that the Policy will lapse without value unless a sufficient
payment (described in the notification letter) is received by the Company.
GUIDELINE ANNUAL PREMIUM: The level amount of premium payment, calculated in
accordance with Rule 6e-3(T) under the Investment Company Act of 1940, required
to mature the Policy, excluding any Additional Insurance Benefit, under
guaranteed mortality and expense charges and an annual interest rate of 5%.
INSURED: The person on whose life the Policy is issued.
ISSUE AGE: The age of the Insured, to the nearest birthday, on the Issue Date.
ISSUE DATE: The date on which the Policy becomes effective, as shown in the
Policy Specifications.
LOAN ACCOUNT VALUE: An amount equal to the sum of all unpaid Policy loans and
loan interest.
3
<PAGE>
MONTHLY ANNIVERSARY DAY: The day of the month as shown in the Policy
Specifications, or the next Valuation Day if that day is not a Valuation Day or
is nonexistent for that month, when the Company makes the Monthly Deduction.
MONTHLY DEDUCTION: The monthly deduction made from the Net Accumulation Value;
this deduction includes the cost of insurance, an administrative expense charge,
and charges for supplemental riders or benefits, if applicable.
NET ACCUMULATION VALUE: The Accumulation Value less the Loan Account Value.
NET AMOUNT AT RISK: The Death Benefit before subtraction of outstanding loans,
if any, minus the Accumulation Value.
NET PREMIUM PAYMENT: The portion of a Premium Payment, after deduction of the
Premium Load, available for allocation to the Fixed Account and the Variable
Account Sub-Accounts.
OWNER: The Owner on the Date of Issue will be the person designated in the
Policy Specifications as having all ownership rights under the Policy. If no
person is designated as Owner, the Insured will be the Owner.
PLANNED PREMIUM: The amount of premium the Policy Owner chooses to pay the
Company on a scheduled basis.
POLICY: The life insurance contract described in this Prospectus, i.e., either
an individual Policy or a Certificate evidencing an Insured's coverage in a Case
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 YEAR: Each twelve-month period, beginning on the Issue Date, during which
the Policy is in effect.
PREMIUM LOAD: An amount equal to 6.5% of each Premium Payment, plus 45% of the
Premium Payment(s) in the first Policy Year up to Target Premium, plus 12% of
the Premium Payment(s) in Policy Years two through ten up to Target Premium. In
the event that the Specified Amount under a Policy is increased, other than
through a change in the Death Benefit Option, Premium Load also includes an
amount equal to 25% of the increase in the Target Premium, which will be
deducted from Premium Payments received during the 12 months following the
increase.
PREMIUM PAYMENT: A premium payment made under the Policy.
RIGHT-TO-EXAMINE PERIOD: The period of time following the issuance of the Policy
during which the Owner may return the Policy and receive a refund of premiums
paid, 10 days after the Policy is received by the Owner, unless otherwise
stipulated by state law requirements.
SETTLEMENT OPTION(S): Several ways in which the Beneficiary may receive a Death
Benefit, or in which the Owner may choose to receive payments upon surrender of
the Policy, through the attachment of a rider.
SPECIFIED AMOUNT: The amount (at least $50,000), including any additional
Insurance Benefit, originally chosen by the Policy Owner, which is used in the
determination of the Death Benefit, and which may be increased or decreased as
described in this Prospectus. The Additional Insurance Benefit is excluded from
the Specified Amount when calculating charges and fees for the Policy and when
calculating the Guideline Annual Premium and the Target Premium.
SUB-ACCOUNT: That portion of the Variable Account which is invested in shares of
a specific Fund.
SURRENDER VALUE: The amount an Owner can receive in cash by surrendering the
Policy. This equals the Net Accumulation Value plus any Premium Load credits if
a surrender occurs within 36 months of issue. All of the Surrender Value may be
applied to one or more of the Settlement Options.
TARGET PREMIUM: An amount of premium specified in the Policy which varies based
on the Insured's Issue Age, sex, and Specified Amount. The Premium Load applied
to premiums paid in the first ten Policy Years and the Premium Load credit at
surrender in the first three Policy Years is higher on premium paid up to Target
Premium and lower on premium paid above Target Premium.
VALUATION DAY: Every day on which 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 of time beginning on the day following a Valuation
Day and ending on the next Valuation Day. A Valuation Period may be more than
one day in length.
VARIABLE ACCOUNT: CG Corporate Insurance Variable Life Separate Account 02.
Consists of all Sub-Accounts invested in shares of the Funds. Variable Account
assets are kept separate from the general assets of the Company and are not
chargeable with the general liabilities of the Company.
VARIABLE ACCOUNT VALUE: The portion of the Accumulation Value attributable to
the Variable Account.
4
<PAGE>
HIGHLIGHTS
The Policy is a flexible premium variable life insurance
policy. Its values may be accumulated on a fixed or variable
basis or a combination of fixed and variable bases. The
Policy's provisions may vary in some states.
INITIAL CHOICES
TO BE MADE
When purchasing a Policy, the Owner makes three important
choices:
1) Selecting one of the three Death Benefit Options;
2) Selecting the amount of Premium Payments to make; and
3) Selecting how Net Premium Payments will be allocated
among the available funding options.
LEVEL OR VARYING
DEATH BENEFIT
At the time of purchase, the Policy Owner (also called the
"Owner" in this Prospectus) must choose among the three
Death Benefit Options. The amount payable under any option
will be determined as of the date of the Insured's death.
Under the level Death Benefit Option, the Death Benefit will
be the greater of the Specified Amount, or the Corridor
Death Benefit. Under the "return of premium" Death Benefit
Option, the Death Benefit payable will be the greater of the
Specified Amount plus total Premium Payments made, or the
Corridor Death Benefit. Under the varying Death Benefit
Option, the Death Benefit will be the greater of the
Specified Amount plus the Accumulation Value, or the
Corridor Death Benefit (See "Death Benefit").
AMOUNT OF
PREMIUM PAYMENT
At the time of purchase, the Policy Owner must also choose
the amount of premium to be paid. The Owner may vary Premium
Payments to some extent and still keep the Policy in force.
If the Policy lapses it may be reinstated (See "Lapse and
Reinstatement"). Premium Payments are refundable during the
Right-to-Examine Period.
SELECTION OF
FUNDING
VEHICLE(S)
The Policy Owner must choose how to allocate Net Premium
Payments. Net Premium Payments allocated to the Variable
Account may be allocated to one or more Sub-Accounts of the
Variable Account, each of which invests in shares of a
particular Fund. The Fixed Account may also be elected as an
allocation option. The Initial Premium Payment will be
allocated to CIGNA Variable Products Group's Money Market
Fund of the Variable Account following the expiration of the
Right-to-Examine Period as described in "Short-Term Right to
Cancel the Policy" at page 23 of this Prospectus. The
variable portion of a Policy is supported by the Fund(s)
selected as funding vehicle(s). The portion of the Variable
Account Value attributable to a particular Fund through the
Sub-Account of the Variable Account is not guaranteed and
will vary with the investment performance of that Fund.
CHARGES
AND FEES
There is a 6.5% Premium Load on all Premium Payments, and an
additional 45% Premium Load on Premium Payments of up to
Target Premium in the first Policy Year, and an additional
12% Premium Load on Premium Payments up to Target Premium in
Policy Years two through ten. In the event that the
Specified Amount under a Policy is increased, other than
through a change in Death Benefit Option, an additional 25%
Premium Load on Premium Payments up to the increase in the
Target Premium will be deducted from premiums received
during the 12 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. Of the 6.5% Premium Load, the Company
estimates that 1.25% is for certain tax liabilities, 2.25%
will be used for premium taxes, and 3.0% is for sales load.
See "Charges; Fees -- Premium Load" at page 17 of this
Prospectus.
Monthly deductions are made for the Cost of Insurance and
any Additional Insurance Benefits.
A one-time policy issue charge of $175 and monthly
deductions of $8 per month are also made for administrative
expenses.
Daily charges from Variable Account Value and Fixed Account
Value are made for the mortality and expense risk, currently
at the annual rate of .70% during the first fifteen Policy
Years and .25% thereafter.
5
<PAGE>
Daily charges from Variable Account Value and Fixed Account
Value are made for administrative expenses, currently at the
annual rate of .10% during the first fifteen Policy Years.
Investment results for each Sub-Account are affected by each
Fund's daily charge for investment advisory fees; these
charges vary by Fund and are shown at pp. 10-11 of this
Prospectus.
A transaction fee of $25 is imposed for each partial
surrender and for certain transfers in excess of four per
Policy Year.
Interest is charged on Policy loans. The net interest spread
(the amount by which interest charged exceeds interest
credited) is currently .80% per year in the first fifteen
Policy Years and .25% per year thereafter.
See also "Expense Data" at pages 10-11 of this Prospectus.
REDUCTION OF
CHARGES
This Policy is available for purchase by corporations and
other groups or sponsoring organizations on a Case basis.
The Company reserves the right to reduce premium loads or
any other charges on certain Cases where it is expected that
the amount or nature of such Cases will result in savings of
sales, underwriting, administrative or other costs.
Eligibility for these reductions and the amount of
reductions will be determined by a number of factors,
including the number of lives to be insured, the total
premiums expected to be paid, total assets under management
for the Policy Owner, the nature of the relationship among
the insured individuals, the purpose for which the Policies
are being purchased, expected persistency of the individual
Policies, and any other circumstances which the Company
believes to be relevant to the expected reduction of its
expenses. Some of these reductions may be guaranteed and
others may be subject to withdrawal or modification by the
Company on a uniform Case basis. Reductions in charges will
not be unfairly discriminatory to any Policy Owners.
THE COMPANY
The Company is a stock life insurance company incorporated
in Connecticut in 1865. Its Home Office mailing address is
CIGNA, H14A, Hartford, Connecticut 06104, Telephone (860)
534-4100. 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
wholly-owned subsidiaries which are generally engaged in the
insurance business. The Company is a wholly-owned subsidiary
of Connecticut General Corporation, Bloomfield, Connecticut.
Connecticut General Corporation is wholly-owned by CIGNA
Holdings Inc., Philadelphia, Pennsylvania which is in turn
wholly-owned by CIGNA Corporation, Philadelphia,
Pennsylvania. Connecticut General Corporation is the holding
company of various insurance companies, one of which is
Connecticut General Life Insurance Company.
Effective January 1, 1998, the individual life insurance and
annuity business of CIGNA's Individual Insurance division
was sold to subsidiaries of Lincoln National Corporation,
principally through an indemnity reinsurance transaction,
for approximately $1.4 billion in cash. The Policies
described in this Prospectus are not part of or affected by
that transaction.
The Company markets the Policies through licensed insurance
brokers and agents who are registered representatives of
broker-dealers which are members of the National Association
of Securities Dealers, Inc.
The Company, in common with other insurance companies, is
subject to regulation and supervision by the regulatory
authorities of the states in which it is licensed to do
business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in
that state. In general, all states have statutory
administrative powers. Such regulation relates, among other
things, to licensing of insurers and their agents, the
approval of policy forms, the methods of computing reserves,
the form and content of statutory financial statements, the
amount of policyholders' and stockholders' dividends, and
the type of distribution of investments permitted. A blanket
bond for $100 million covers all of the officers and
employees of the Company.
6
<PAGE>
THE VARIABLE
ACCOUNT
CG Corporate Insurance Variable Life Separate Account 02
("Variable Account") was established pursuant to a February
23, 1996 resolution of the Board of Directors of the
Company. Under Connecticut insurance law, the income, gains
or losses of the Variable 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
Variable Account. These assets are held for the Policies.
Although the assets maintained in the Variable Account will
not be charged with any liabilities arising out of any other
business conducted by the Company, all obligations arising
under the Policies are general corporate liabilities of the
Company. Any and all distributions made by the Funds with
respect to shares held by the Variable Account will be
reinvested in additional shares at net asset value.
Deductions and surrenders from the Variable Account will, in
effect, be made by surrendering shares of the Funds at net
asset value. On each Valuation Day of each Fund, the
Variable Account purchases or redeems Fund shares based on a
netting of all transactions for that day. Shares of the
Funds held in the Variable Account are held by the Company
through an open account system, which makes unnecessary the
issuance and delivery of stock certificates.
The Variable Account is registered with the Securities and
Exchange Commission ("Commission") as a unit investment
trust under the Investment Company Act of 1940 ("1940 Act").
Such registration does not involve supervision of the
Variable Account or the Company's management or investment
practices or policies by the Commission. The Company does
not guarantee the Variable Account's investment performance.
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 policies.
THE FUNDS
Each of the seventeen Sub-Accounts of the Variable Account
is invested solely in the shares of one of the seventeen
Funds available as funding vehicles under the Policies. Each
of the Funds is a series of one of nine entities, all
Massachusetts or Delaware business trusts. Each such entity
is registered as an open-end, diversified management
investment company under the 1940 Act. These entities are
collectively referred to herein as the "Trusts."
The nine Trusts and their Investment advisers and
distributors are:
Alger American Fund ("Alger Trust"), managed by Fred
Alger Management, Inc., 75 Maiden Lane, New York, NY
10038 and distributed by Fred Alger & Company,
Incorporated, 30 Montgomery Street, Jersey City, NJ
07302;
BT Insurance Funds Trust ("BT Trust"), managed by
Bankers Trust Company, 130 Liberty Street, New York, NY
10006; and distributed by First Data Distributors, Inc.,
4400 Computer Drive, Westborough, MA 01581;
CIGNA Variable Products Group ("CIGNA Group"), managed
by CIGNA Investments, Inc. and distributed by CIGNA
Financial Services, Inc., 280 Trumbull Street, Hartford,
CT 06103;
Variable Insurance Products Fund ("Fidelity VIP"), and
Variable Insurance Products Fund II ("Fidelity VIP II"),
managed by Fidelity Management & Research Company and
distributed by Fidelity Distribution Corporation, 82
Devonshire Street, Boston, MA 02103;
Janus Aspen Series ("Janus Series"), managed by Janus
Capital Corporation, 100 Fillmore Street, Denver, CO
80206-4923, and self-distributed;
MFS-Registered Trademark- Variable Insurance
Trust-Registered Trademark- ("MFS Trust"), managed by
Massachusetts Financial Services Company and distributed
by MFS Fund Distributors, Inc., 500 Boylston Street,
Boston, MA 02116;
7
<PAGE>
OCC Accumulation Trust ("OCC Trust") (formerly Quest for
Value Accumulation Trust), managed by OpCap Advisors
(formerly Quest for Value Advisors) and distributed by
OCC Distributors (formerly Quest for Value
Distributors), One World Financial Center, New York, NY
10281.
Templeton Variable Products Series Fund ("Templeton
Trust"), International Fund managed by Templeton
Investment Counsel, Inc., 500 E. Broward Blvd., Broward
Financial Centre, Fort Lauderdale, FL 33394-3091; and
distributed by Franklin Templeton Distributors, Inc.,
P.O. Box 33030, St. Petersburg, FL 33733-8030;
Three Funds of ALGER TRUST are available under the Policies:
Alger American Small Capitalization Portfolio;
Alger American MidCap Growth Portfolio;
Alger American Growth Portfolio.
Two Funds of BT TRUST are available under the Policies:
EAFE-Registered Trademark- Equity Index Fund;
Small Cap Index Fund.
Two Funds of the CIGNA GROUP are available under the
Policies:
CIGNA VP Money Market Fund;
CIGNA VP S&P 500 Index Fund.
Two Funds of FIDELITY VIP are available under the Policies:
VIP Equity-Income Portfolio ("Fidelity VIP Equity-Income
Portfolio");
VIP High Income Portfolio ("Fidelity VIP High Income
Portfolio").
One Fund of FIDELITY VIP II is available under the Policies.
VIP II Investment Grade Bond Portfolio ("Fidelity VIP II
Investment Grade Bond Portfolio").
One Fund of JANUS ASPEN Series is available under the
Policies:
Worldwide Growth Portfolio.
Two Funds of MFS Trust are available under the Policies:
MFS Emerging Growth Series;
MFS Total Return Series.
Three Funds of OCC Trust are available under the Policies:
OCC Equity Portfolio;
OCC Managed Portfolio;
OCC Small Cap Portfolio.
One Fund of the TEMPLETON TRUST is available under the
Policies:
Templeton International Fund, Class 1.
The investment advisory fees charged the Funds by their
advisers are shown on pages 10 and 11 of this Prospectus.
There follows a brief description of the investment
objective and program of each Fund. There can be no
assurance that any of the stated investment objectives will
be achieved.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO (SMALL CAP
STOCKS): Seeks long-term capital appreciation by investing
in a diversified, actively managed portfolio of equity
securities, primarily of companies whose total market
capitalization lies within the range of companies included
in the Russell 2000 Growth Index or the S&P Small Cap 600
Index.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO (SMALL CAP STOCKS):
Seeks long-term capital appreciation by investing in a
diversified, actively managed portfolio of equity
securities, primarily of companies whose total market
capitalization is within the range of companies included in
the S&P MidCap 400 Index.
ALGER AMERICAN GROWTH PORTFOLIO (LARGE CAP STOCKS): Seeks
long-term capital appreciation by investing in a
diversified, actively managed portfolio of equity
securities, primarily of companies whose total market
capitalization is $1 billion or greater.
8
<PAGE>
BT INSURANCE FUNDS TRUST EAFE-REGISTERED TRADEMARK- EQUITY
INDEX FUND (INTERNATIONAL STOCKS): Seeks to replicate as
closely as possible (before deduction of fund expenses) the
total return of the Europe, Australia, Far East Index.
BT INSURANCE FUNDS TRUST SMALL CAP INDEX FUND (SMALL CAP
STOCKS): Seeks to replicate as closely as possible (before
deduction of fund expenses) the total return of the Russell
2000 Small Stock Index.
CIGNA VP MONEY MARKET FUND (MONEY MARKET): Seeks to provide
as high a level of current income as is consistent with the
preservation of capital and liquidity and the maintenance of
a stable $1.00 per share net asset value by investing in
short-term money market instruments.
CIGNA VP S&P 500 INDEX FUND (LARGE CAP STOCKS): Seeks to
achieve its objective of long-term growth of capital by
attempting to replicate the composition and total return,
reduced by fund expenses, of the Standard & Poor's 500
Composite Stock Price Index.
FIDELITY VIP HIGH INCOME PORTFOLIO (HIGH YIELD BONDS): Seeks
high current income by investing mainly in high-yielding
debt securities with an emphasis on lower quality
securities.
FIDELITY VIP EQUITY-INCOME PORTFOLIO (LARGE CAP STOCKS):
Seeks reasonable income by investing primarily in
income-producing equity securities, with some potential for
capital appreciation, seeking a yield that exceeds the
composite yield on the securities comprising the Standard
and Poor's Composite Index of 500 Stocks.
FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO (FIXED
INCOME -- INTERMEDIATE TERM BONDS): Seeks as high a level of
current income as is consistent with the preservation of
capital in a broad range of investment grade fixed income
securities.
JANUS ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO (GLOBAL
STOCKS): Seeks long-term growth of capital by investing
primarily in common stocks of foreign and domestic issuers.
MFS EMERGING GROWTH SERIES (LARGE CAP STOCKS): Seeks
long-term growth of capital by investing primarily in common
stocks of companies management believes to be early in their
life cycle but which have the potential to become major
enterprises.
MFS TOTAL RETURN SERIES (BALANCED OR TOTAL RETURN): Seeks
primarily to obtain above average income (compared to a
portfolio entirely invested in equity securities) consistent
with the prudent employment of capital, and secondarily to
provide a reasonable opportunity for growth of capital and
income.
OCC SMALL CAP PORTFOLIO (SMALL CAP STOCKS): Seeks capital
appreciation through investments in a diversified portfolio
of equity securities of companies with market
capitalizations of under $1 billion.
OCC MANAGED PORTFOLIO (BALANCED OR TOTAL RETURN): Seeks
growth of capital over time through investment in a
portfolio of common stocks, bonds and cash equivalents, the
percentage of which will vary based on management's
assessment of relative investment values.
OCC EQUITY PORTFOLIO (LARGE CAP STOCKS): Seeks long-term
capital appreciation through investment in a diversified
portfolio of equity securities on the basis of a value
oriented approach to investing.
TEMPLETON INTERNATIONAL FUND CLASS 1 (INTERNATIONAL STOCKS):
Seeks long-term capital growth through a flexible policy of
investing in stocks and debt obligations of companies and
governments outside the United States.
The Fidelity VIP Equity-Income Portfolio, Fidelity VIP High
Income Portfolio, MFS Total Return Series, MFS Emerging
Growth Series, Janus Aspen Series Worldwide Growth
Portfolio, OCC Equity Portfolio, OCC Managed Portfolio, OCC
Small Cap Portfolio, and Templeton International Fund Class
1 portfolios may invest in non-investment grade, high yield,
high-risk debt securities (commonly referred to as "junk
bonds"), as detailed in the individual Fund prospectuses.
9
<PAGE>
EXPENSE DATA
The purpose of the following Table is to help Purchasers and prospective
purchasers understand the costs and expenses that are borne, directly and
indirectly, by Purchasers assuming that all Net Premium Payments are allocated
to the Variable Account. The table reflects expenses of the Variable Account as
well as of the Individual Funds underlying the Variable Sub-Accounts. The
Mortality and Expense Risk Charge shown is the currently charged rate during the
first fifteen Policy Years. It currently declines to .25% per year in the
sixteenth Policy Year. The Mortality and Expense Risk Charge is guaranteed not
to exceed .90% per year. The Administrative Expense Charge shown is the
currently charged rate during the first fifteen Policy Years. It is guaranteed
not to exceed .30% per year. (Continued on Page 11)
FEE TABLE
<TABLE>
<CAPTION>
CIGNA
ALGER AMERICAN FUNDS BT INSURANCE FUNDS TRUST VARIABLE
-------------------------------------------- ------------------------------ PRODUCTS
MIDCAP EAFE-REGISTERED TRADEMARK- -------------
SMALL CAP GROWTH GROWTH EQUITY INDEX SMALL CAP MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO FUND INDEX FUND FUND
-------------- ------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk
Charge............................. 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
Administrative Expense Charge....... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
--- --- --- --- ----- ---
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES........................... 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
FUND PORTFOLIO ANNUAL OPERATING
EXPENSES
Management Fees..................... 0.85% 0.80% 0.75% 0.02% 0.00% 0.35%
Other Expenses...................... 0.04% 0.04% 0.04% 0.63% 0.45% 0.15%
--- --- --- --- ----- ---
TOTAL FUND PORTFOLIO ANNUAL
OPERATING EXPENSES................. 0.89% 0.84% 0.79% 0.68%(1) 0.45%(1) 0.50%(2)
<CAPTION>
S&P 500 INDEX
FUND
--------------
<S> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk
Charge............................. 0.70%
Administrative Expense Charge....... 0.10%
-----
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES........................... 0.80%
FUND PORTFOLIO ANNUAL OPERATING
EXPENSES
Management Fees..................... 0.25%
Other Expenses...................... 0.00%
-----
TOTAL FUND PORTFOLIO ANNUAL
OPERATING EXPENSES................. 0.25%(2)
</TABLE>
- ------------------------------
(1) The Expense Ratio for the BT Trust EAFE-Registered Trademark- Equity Index
Fund and BT Trust Small Cap Index Fund without waiver/reimbursement would
be 1.08% and .95%, respectively.
(2) Through May 1, 1999, the Funds' adviser has agreed to bear expenses of the
Funds so that Total Fund Portfolio Annual Operating Expenses do not exceed
0.50% and 0.25% of average daily net asset value for the VP Money Market
and the VP S&P 500 Index Funds, respectively. Otherwise, Total Fund
Portfolio Annual Operating Expenses would have been 1.11% and 0.55% of
average daily net asset value for 1997 for the VP Money Market and the VP
S&P 500 Index Funds, respectively.
10
<PAGE>
The table does not reflect the monthly deductions for the cost of insurance and
any riders, nor does it reflect the administrative expense monthly deduction of
$8 or the $175 policy issue charge. It also does not reflect premium loads,
administrative charges for transfers and partial surrenders, and any policy loan
interest. The information set forth should be considered together with the
information provided in this Prospectus under the heading "Charges and Fees",
and in each Fund's Prospectus. All expenses are expressed as a percentage of
average account value.
FEE TABLE (CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON
FIDELITY VARIABLE INSURANCE JANUS MFS-REGISTERED TRADEMARK- VARIABLE
PRODUCTS FUNDS ASPEN VARIABLE INSURANCE PRODUCTS
----------------------------- SERIES TRUST-REGISTERED TRADEMARK- -------------
INVESTMENT --------- ---------------------- OCC TRUST TEMPLETON
HIGH EQUITY- GRADE WORLDWIDE EMERGING TOTAL ------------------------------- INTERNATIONAL
INCOME INCOME BOND GROWTH GROWTH RETURN SMALL CAP MANAGED EQUITY FUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES SERIES PORTFOLIO PORTFOLIO PORTFOLIO CLASS 1
------- --------- ------- --------- --------- ---------- --------- ------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.70 % 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
0.10 % 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
------- --- ------- --- --- --- --- ------- --- ---
0.80 % 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
0.59 % 0.50% 0.44% 0.66% 0.75% 0.75% 0.80%(7) 0.80%(7) 0.80%(7) 0.69%
0.12 % 0.08% 0.14% 0.08% 0.12%(5) 0.25%(5) 0.17%(8) 0.07%(8) 0.19%(8) 0.19%
------- --- ------- --- --- --- --- ------- --- ---
0.71 %(3) 0.58%(3) 0.58% 0.74%(4) 0.87% 1.00%(6) 0.97%(9) 0.87%(9) 0.99%(9) 0.88%(10)
</TABLE>
- ------------------------------
(3) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses for the (a) VIP High Income
Portfolio would have been 0.71% (Initial Class), and (b) VIP Equity-Income
Fund would have been 0.57% (Initial Class).
(4) Management fees for the Worldwide Growth Portfolio reflect a reduced fee
schedule effective July 1, 1997. The management fee for the Portfolio
reflects the new rate applied to net assets as of December 31, 1997. Other
expenses are based on gross expenses of the Shares before expense offset
arrangements for the fiscal year ended December 31, 1997. The information
for the Portfolio is net of fee waivers or reductions from Janus Capital.
Fee reductions for the Worldwide Growth Portfolio reduce the management fee
to the level of the corresponding Janus retail fund. Other waivers, if
applicable are first applied against the management fee and then against
other expenses. Without such waivers or reductions, the Management Fee,
Other Expenses and Total Operating Expenses for the Shares would have been
0.72%, 0.09% and 0.81%. Janus Capital may modify or terminate the waivers
or reductions at any time upon at least 90 days notice to the Trustees.
(5) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses."
(6) The Adviser has agreed to bear expenses for this Series, subject to
reimbursement by the Series, such that the "Other Expenses" shall not
exceed 0.25% of the average daily net assets of the Series during the
current fiscal year. See "Information Concerning Shares of Each Series --
Expenses" in the applicable prospectus. Otherwise, "Other Expenses" and
"Total Operating Expenses" would be 0.27% and 1.02% respectively.
(7) Reflects management fees after taking into effect any waiver.
(8) Other Expenses are shown gross of expense offsets afforded the Portfolios
that effectively lowered overall custody expenses.
(9) Total Portfolio Expenses for the Equity, Small Cap and Managed Portfolios
are limited by OpCap Advisors so that their respective annualized operating
expenses (net of any expense offsets) do not exceed 1.00% of average daily
net assets. Without such limitation and without giving effect to any
expense offsets, the Management Fees, Other Expenses and Total Portfolio
Expenses incurred for the fiscal year ended December 31, 1997 would have
been .80%, .19% and .99% respectively for the Equity Portfolio, .80%, .17%
and .97%, respectively, for the Small Cap Portfolio, and .80%, .07% and
.87%, respectively, for the Managed Portfolio.
(10) Management Fees and Total Operating Expenses have been restated to reflect
the management fee schedule approved by shareholders and effective May 1,
1997. See fund prospectus for details. Actual Management Fees and Total
Fund Operating Expenses during 1997 were lower.
11
<PAGE>
GENERAL
There is no assurance that the investment objective of any
of the Funds will be met. A Policy Owner bears the complete
investment risk for Accumulation Values allocated to a
Sub-Account. Each of the Sub-Accounts involves inherent
investment risk, and such risk varies significantly among
the Sub-Accounts. Policy Owners should read each Fund's
prospectus carefully and understand the Funds' relative
degrees of risk before making or changing investment
choices. Additional Funds may, from time to time, be made
available as investments to underlie the Policies. However,
the right to make such selections will be limited by the
terms and conditions imposed on such transactions by the
Company (See "Premium Payments").
SUBSTITUTION OF SECURITIES
If the shares of any Fund should no longer be available for
investment by the Variable Account or if, in the judgment of
the Company, further investment in such shares should become
inappropriate in view of the investment objectives of the
Policies, the Company may substitute shares of another Fund.
No substitution of securities in any Sub-Account may take
place without prior approval of the Commission and under
such requirements as it may impose.
VOTING RIGHTS
In accordance with its view of present applicable law, the
Company will vote the shares of each Fund held in the
Variable Account at special meetings of the shareholders of
the particular Series Fund in accordance with written
instructions received from persons having the voting
interest in the Variable Account. The Company will vote
shares for which it has not received instructions, as well
as shares attributable to it, in the same proportion as it
votes shares for which it has received instructions. The
Series Funds do not hold regular meetings of shareholders.
The number of shares which a person has a right to vote will
be determined as of a date to be chosen by the appropriate
Series Fund not more than sixty (60) days prior to the
meeting of the particular Series Fund. Voting instructions
will be solicited by written communication at least fourteen
(14) days prior to the meeting.
The Funds' shares are issued and redeemed only in connection
with variable annuity contracts and variable life insurance
policies issued through separate accounts of the Company and
other life insurance companies and in some cases, qualified
plans. The Series Funds do not foresee any disadvantage to
Policy 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, and with both the separate accounts of
the Company and those of other life insurance companies.
Nevertheless, the Series 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.
FUND PARTICIPATION AGREEMENTS
The Company has entered into agreements with the various
Trusts and their advisers or distributors under 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
therefor.
12
<PAGE>
DEATH BENEFIT
DEATH BENEFIT OPTIONS
Three different Death Benefit Options are available. The
amount payable under each option will be determined as of
the date of the Insured's death. Option B will be in effect
unless Option A or Option C has been elected in the
application for the Policy or unless a change has been
allowed.
Under OPTION A the Death Benefit will be the greater of the
Specified Amount (a minimum of $50,000 as of the date of
this Prospectus) plus the Accumulation Value, or the
Corridor Death Benefit. Option A provides a varying Death
Benefit which increases or decreases over time, depending on
the amount of premium paid and the investment performance of
the underlying funding options chosen.
Under OPTION B the Death Benefit will be the greater of the
Specified Amount or Corridor Death Benefit. Option B
provides a level Death Benefit until the Corridor Death
Benefit exceeds the Specified Amount.
Under OPTION C, the Death Benefit will be the greater of the
Specified Amount plus Premium Payments made, or the Corridor
Death Benefit. Option C provides a Death Benefit which
increases based on Premium Payments.
Under each of Option A, Option B, and Option C the amount
payable upon death will be the Death Benefit, reduced by
partial surrenders and by the amount necessary to repay any
loans in full.
CHANGES IN DEATH BENEFIT OPTION
A Death Benefit Option change will be allowed upon the
Owner's written request to the Corporate Variable Products
Service Center in form satisfactory to the Company, subject
to the following conditions:
- The change will take effect on the Monthly Anniversary
Day following the date of receipt of the request.
- No change in the Death Benefit Option may reduce the
Specified Amount below $50,000.
- For changes from Option B to Option A, the new Specified
Amount will equal the Death Benefit less the Accumulation
Value at the time of the change.
- For changes from Option B to Option C, the new Specified
Amount will equal the Death Benefit less premiums paid at
the time of the change.
- For changes from Option A to Option B, the new Specified
Amount will equal the Death Benefit at the time of the
change.
- For changes from Option A to Option C, the new Specified
Amount will equal the Death Benefit less premiums paid at
the time of the change.
- For changes from Option C to Option A, the new Specified
Amount will equal the Death Benefit less the Accumulation
Value at the time of the change.
- For changes from Option C to Option B, the new Specified
Amount will equal the Death Benefit at the time of the
change.
13
<PAGE>
PAYMENT OF DEATH BENEFIT
The Death Benefit under the Policy, computed as of the date
of the Insured's death, will be paid in a lump sum within
seven days after receipt at the Corporate Variable Products
Service Center of due proof of the Insured's death (a
certified copy of the death certificate), unless the Owner
or the Beneficiary has elected that it be paid under one or
more of any Settlement Options (See "Settlement Options")
which the Company may make available. Payment of the Death
Benefit may be delayed if the Policy is being contested.
While the Insured is living, the Owner may elect a
Settlement Option, if available, for the Beneficiary and
deem it irrevocable, and may revoke or change a prior
election. The Beneficiary may make or change an election
within 90 days of the death of the Insured, unless the Owner
has made an irrevocable election.
All or a part of the Death Benefit may be applied under one
or more of the Settlement Options as the Company may make
available.
If the Policy is assigned as collateral security, the
Company will pay any amount due the assignee in one lump
sum. Any excess Death Benefit due will be paid as elected.
A Policy must satisfy either of two testing methods to
qualify as a life insurance contract for tax purposes under
Section 7702 of the Code. At the time of purchase, the Owner
must choose a Policy which uses either the Guideline Premium
test or the Cash Value Accumulation test. Both methods
require a life insurance Policy to meet minimum ratios of
life insurance coverage to Accumulation Value ("Applicable
Percentages"). The selection cannot be changed after the
Policy's Issue Date.
The Applicable Percentages for the Guideline Premium test
are 250% through Attained Age 40, decreasing over time to
150% at Attained Age 55, 120% at Attained Age 65 and 101% at
Attained Age 94 and above. The Guideline Premium test also
restricts the maximum premiums that may be paid into a life
insurance policy for a specified Death Benefit. The Cash
Value Accumulation test does not limit premiums which may be
paid but has higher required Applicable Percentages.
Applicable Percentages under the Cash Value Accumulation
Test for Non-Smokers decrease over time from 727% at
Attained Age 20, to 378% at Attained Age 40, and to 101% at
Attained Age 100.
See also "Tax Matters" at pages 24-26 of this Prospectus.
14
<PAGE>
CHANGES IN SPECIFIED AMOUNT
Changes in the Specified Amount of a Policy can be made by
submitting a written request to the Corporate Variable
Products Service Center in form satisfactory to the Company.
Changes in the Specified Amount are subject to the following
conditions:
- Satisfactory evidence of insurability and a supplemental
application may be required for an increase in the
Specified Amount.
- An increase in the Specified Amount, other than through a
change in the Death Benefit Option, will result in an
additional 25% Premium Load on Premium Payments up to the
increase in the Target Premium on Premium Payments
received during the 12 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.
- No decrease may reduce the Specified Amount to less than
$50,000.
- No decrease may reduce the Specified Amount below the
minimum required to maintain the Policy's status under
the Code as a life insurance policy.
PREMIUM
PAYMENTS;
TRANSFERS
PREMIUM PAYMENTS
The Policies provide for flexible premium payments. Premium
Payments are payable in the frequency and in the amount
selected by the Policy Owner. The initial Premium Payment is
due on the Issue Date and is payable in advance. The minimum
payment is the amount necessary to maintain a positive Net
Accumulation Value. The Company reserves the right to
decline any application or Premium Payment.
After the initial Premium Payment, all Premium Payments must
be sent directly to the Corporate Variable Products Service
Center and will be deemed received when actually received
there.
The Policy Owner may elect to increase, decrease or change
the frequency of Premium Payments.
PLANNED PREMIUMS are Premium Payments scheduled when a
Policy is applied for.
ADDITIONAL PREMIUMS are any Premium Payments made ($500
minimum) in addition to Planned Premiums.
PREMIUM INCREASES. At any time, the Owner may increase
Planned Premiums, or pay Additional Premiums, but:
- Evidence of insurability may be required if the
Additional Premium or the new Planned Premium during the
current Policy Year would increase the difference between
the Death Benefit and the Accumulation Value. If
satisfactory evidence of insurability is requested and
not provided, the increase in premium will be refunded
without interest and without participation of such
amounts in any underlying funding options.
- In no event may the total of all Premium Payments exceed
the then-current maximum premium limitations established
by federal law for a Policy to qualify as life insurance.
If, at any time, a Premium Payment would result in total
Premium Payments exceeding such maximum premium
limitation, the Company will only
15
<PAGE>
accept that portion of the Premium Payment which will
make total premiums equal the maximum. Any part of the
Premium Payment in excess of that amount 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 Policy indebtedness, any additional Net
Premium Payments will be used first as a loan repayment
with any excess applied as an additional Net Premium
Payment.
ALLOCATION OF NET PREMIUM PAYMENTS
At the time of purchase of the Policy, the Owner must decide
how to allocate Net Premium Payments among the Sub-Accounts
and the Fixed Account. For each Variable Account
Sub-Account, the Net Premium Payments are converted into
Accumulation Units. The number of Accumulation Units
credited to the Policy is determined by dividing the Net
Premium Payment allocated to the Sub-Account by the value of
the Accumulation Unit for the Sub-Account.
During the Right-to-Examine Period, the Net Premium Payment
will be allocated to the CIGNA VP Group Money Market Fund of
the Variable Account, and earnings will be credited from the
later of the Issue Date or the date the Premium Payment was
received. The Company will allocate the initial Net Premium
Payment directly to the Sub-Account(s) selected by the Owner
after expiration of the Right-to-Examine Period as described
under "Short-Term Right to Cancel the Policy" at page 23 of
this Prospectus.
Unless the Company is directed otherwise by the Policy
Owner, subsequent Net Premium Payments will be allocated on
the same basis as the most recent previous Net Premium
Payment. Such allocation will occur as of the next Valuation
Period after each payment is received.
The allocation for future Premium Payments may be changed at
any time free of charge. Any new allocation will apply to
Premium Payments made more than one week after the Company
receives the notice of the new allocation.
TRANSFERS
Values may, at any time, be transferred ($500 minimum) from
one Sub-Account to another. Within the 30 days prior to each
Policy Anniversary, the Owner may also transfer a portion of
one or more Sub-Accounts to the Fixed Account. Transfers
from the Fixed Account are allowed in the 30-day period
following a Policy Anniversary and will be effective as of
the next Valuation Day after a request is received in good
order at the Corporate Variable Products Service Center. The
cumulative amount of transfers from the Fixed Account within
any such 30-day period cannot exceed 20% of the Fixed
Account Value on the most recent Policy Anniversary. If the
Fixed Account Value as of any Policy Anniversary is less
than $5,000, however, this condition will not apply. The
Company may further limit transfers from the Fixed Account
at any time.
Subject to the above restrictions, up to four transfers may
be made in any Policy Year without charge, and any value
remaining in the Fixed Account or a Sub-Account after a
transfer must be at least $500. Transfers must be made in
writing unless other arrangements have been previously
approved by the Company. A charge of $25 may be imposed for
the fifth and succeeding transfers in any Policy Year.
Any transfer among the Funds or to the Fixed Account will
result in the crediting and cancellation of Accumulation
Units based on the Accumulation Unit values next determined
after a written request is received at the Corporate
Variable Products Service Center. Transfer requests must be
received by the Corporate Variable Products Center by
16
<PAGE>
4:00 p.m. Eastern Time in order to be effective that day.
Any transfer made which causes the remaining value of
Accumulation Units for a Sub-Account to be less than $500
will result in those remaining Accumulation Units being
cancelled and their aggregate value reallocated
proportionately among the other funding options chosen. The
Policy Owner should carefully consider current market
conditions and each Fund's investment policies and related
risks before allocating money to the Sub-Accounts. See pages
8-11 of this Prospectus.
The Company, at its sole discretion, may waive minimum
balance requirements on the Sub-Accounts.
CHARGES;
FEES
PREMIUM LOAD
A deduction of 6.5% from every Premium Payment will be made
to cover the premium load. An additional 45% on Premium
Payments up to Target Premium will be deducted in the first
Policy Year and an additional 12% on Premium Payments up to
Target Premium will be deducted in Policy Years two through
ten. In the event that the Specified Amount under a Policy
is increased, other than through a change in the Death
Benefit Option, an additional 25% Premium Load on Premium
Payments up to the increase in the Target Premium will be
deducted from Premium Payments received during the 12 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. This load
represents state taxes and federal income tax liabilities
and a portion of the sales expenses incurred by the Company.
The Company estimates that 2.25% of this deduction will be
used for premium taxes, which may be higher or lower than
the actual tax imposed by the applicable jurisdiction; it is
in the mid-range of state premium taxes, which range from
1.75% to 5.0%. The Company estimates 1.25% of each Premium
Payment will be used to meet federal income tax liabilities
attributable to the treatment of deferred acquisition costs.
The remaining 3.0% of the deduction (plus 45% of up to
Target Premium during the first Policy Year and 12% of up to
Target Premium during Policy Years two through ten) is for
sales load. There is no deferred sales charge.
POLICY ISSUE FEE
A one-time policy issue fee of $175 is deducted from the
Accumulation Value for a portion of the Company's
administrative expenses.
MONTHLY DEDUCTIONS
A Monthly Deduction of $8 is made from the Net Accumulation
Value for administrative expenses. This charge is for items
such as premium billing and collection, policy value
calculation, confirmations and periodic reports and will not
exceed the Company's costs.
A Monthly Deduction is also made from the Net Accumulation
Value for the Cost of Insurance and any charges for
supplemental riders. The Cost of Insurance depends on the
attained age, years since issue and risk class (in
accordance with state law) of the Insured and the current
Net Amount at Risk.
The Cost of Insurance is determined by subtracting the
Accumulation Value at the previous Monthly Anniversary Day
from the Death Benefit at the previous Monthly Anniversary
Day, and multiplying the result (the Net Amount at Risk) by
the applicable
17
<PAGE>
Cost of Insurance Rate as determined by the Company. The
Guaranteed Maximum Cost of Insurance Rates, per $1,000 of
Net Amount at Risk, for standard risks are based on the 1980
Commissioners Standard Ordinary Mortality Tables, Age
Nearest Birthday (1980 CSO).
These Monthly Deductions are deducted proportionately from
the value of each funding option. This is accomplished for
the Sub-Accounts by canceling Accumulation Units and
withdrawing the value of the canceled Accumulation Units
from each funding option in the same proportion as their
respective values have to the Net Accumulation Value. The
Monthly Deductions are made on the Monthly Anniversary Day.
ADMINISTRATIVE FEE
For administrative costs a daily deduction, currently
equivalent to .10% per year during the first fifteen Policy
Years, is made from amounts held in the Variable Account and
the Fixed Account. This deduction is guaranteed not to
exceed .30% per year.
TRANSACTION FEE FOR EXCESS TRANSFERS
There will be a $25 transaction fee for each transfer
between funding options in excess of four during any Policy
Year.
MORTALITY AND EXPENSE RISK CHARGE
For mortality and expense risks, a daily deduction,
currently equivalent to .70% per year during the first
fifteen Policy Years and .25% thereafter, is made from
amounts held in the Variable Account and the Fixed Account.
This deduction is guaranteed not to exceed .90% per year.
SURRENDERS DURING FIRST THREE POLICY YEARS -- REFUND OF
PORTION OF PREMIUM LOAD
If the Policy is fully surrendered during the first 12
months after issue a credit will be paid equal to 100% of
all Premium Loads previously deducted in excess of 3.5% of
all premiums paid. If the Policy is fully surrendered during
the months 13 through 24, the credit will equal 50% of all
Premium Loads previously deducted in excess of 3.5% of all
premiums paid. If the Policy is fully surrendered during the
months 25 through 36, the credit will equal 33% of all
Premium Loads previously deducted in excess of 3.5% of all
premiums paid.
In no event, however, in the event of a Policy surrender
during the first two Policy Years, will the Aggregate
Premium Load retained by the Company for sales and
promotional expense exceed 30% of the sum of Premium
Payments in the first two Policy Years up to one Guideline
Annual Premium, plus 10% of Premium Payments in the first
two Policy Years between one and two times one Guideline
Annual Premium plus 9% of Premium Payments in the first two
Policy Years in excess of two times one Guideline Annual
Premium. Any surrenders may result in tax implications. See
"Tax Matters".
18
<PAGE>
Based on its actuarial determination, the Company is not
certain whether the Premium Load, the policy issue fee and
the monthly administrative expense deduction will cover all
sales and administrative expenses which the Company will
incur in connection with the Policy. Any shortfall,
including but not limited to payment of sales and
distribution expenses, would be available for recovery from
the General Account of the Company, which supports insurance
and annuity obligations.
THE FIXED
ACCOUNT
The Fixed Account is funded by the assets of the Company's
General Account. Amounts held in the Fixed Account will be
credited with interest at rates declared by the Company from
time to time. The minimum rate which will be credited is the
lesser of 4% per year or the prevailing 30 day Treasury Bill
Rate as of the last day of the preceding calendar month.
THE FIXED ACCOUNT IS MADE UP OF THE GENERAL ASSETS OF THE
COMPANY OTHER THAN THOSE ALLOCATED TO ANY SEPARATE ACCOUNT.
THE FIXED ACCOUNT IS PART OF THE COMPANY'S GENERAL ACCOUNT.
BECAUSE OF APPLICABLE EXEMPTIVE AND EXCLUSIONARY PROVISIONS,
INTERESTS IN THE FIXED ACCOUNT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"), AND
NEITHER THE FIXED ACCOUNT NOR THE COMPANY'S GENERAL ACCOUNT
HAS BEEN REGISTERED UNDER THE 1940 ACT. THEREFORE, NEITHER
THE FIXED ACCOUNT NOR ANY INTEREST THEREIN IS GENERALLY
SUBJECT TO REGULATION UNDER THE PROVISIONS OF THE 1933 ACT
OR THE 1940 ACT. ACCORDINGLY, THE COMPANY HAS BEEN ADVISED
THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO
THE FIXED ACCOUNT.
POLICY VALUES
ACCUMULATION VALUE
Once a Policy has been issued, each Net Premium Payment
allocated to a Sub-Account of the Variable Account is
credited in the form of Accumulation Units, representing the
Fund in which assets of that Sub-Account are invested. Each
Net Premium Payment will be credited to the Policy as of the
end of the Valuation Period in which it is received at the
Corporate Variable Products Service Center (or portion
thereof allocated to a particular Sub-Account). The number
of Accumulation Units credited is determined by dividing the
Net Premium Payment by the value of an Accumulation Unit
next computed after receipt. Since each Sub-Account has a
unique Accumulation Unit value, a Policy Owner who has
elected a combination of funding options will have
Accumulation Units credited from more than one source.
The Accumulation Value of a Policy is determined by: (a)
multiplying the total number of Accumulation Units credited
to the Policy for each applicable Sub-Account by its
appropriate current Accumulation Unit value; (b) if a
combination of Sub-Accounts is elected, totaling the
resulting values; and (c) adding any values attributable to
the General Account (i.e., the Fixed Account Value and the
Loan Account Value).
The number of Accumulation Units credited to a Policy will
not be changed by any subsequent change in the value of an
Accumulation Unit. Such value may vary from Valuation Period
to Valuation Period to reflect the investment experience of
the Fund used in a particular Sub-Account.
The Fixed Account Value reflects amounts allocated to the
General Account through payment of premiums or transfers
from the Variable Account. The Fixed Account Value is
guaranteed; however, there is no assurance that the Variable
Account Value of the Policy will equal or exceed the Net
Premium Payments allocated to the Variable Account.
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<PAGE>
Each Policy Owner will be advised at least annually as to
the number of Accumulation Units which remain credited to
the Policy, the current Accumulation Unit values, the
Variable Account Value, the Fixed Account Value and the Loan
Account Value.
Accumulation Value will be affected by Monthly Deductions.
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 Sub-Account. The Net
Investment Factor is determined separately for each
Sub-Account by dividing (a) by (b) and subtracting (c) from
the results where (a) equals the net asset value per share
of the Fund held in the Sub-Account at the end of a
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 taxes or
provisions for taxes, if any, attributable to the operation
of the Sub-Account during the Valuation Period; (b) equals
the net asset value per share of the Fund held in the
Sub-Account at the beginning of that Valuation Period, and
(c) is the daily charge for mortality and expense risk plus
the daily fee for administration multiplied by the number of
days in the Valuation Period.
SURRENDER VALUE
The Surrender Value of a Policy is the amount the Owner can
receive in cash by surrendering the Policy. All or part of
the Surrender Value may be applied to one or more of any
Settlement Options available through a rider attached to the
Policy.
SURRENDERS
PARTIAL SURRENDERS
A partial surrender may be made at any time by written
request to the Corporate Variable Products Service Center
during the lifetime of the Insured and while the Policy is
in force. A $25 transaction fee is charged.
The amount of a partial surrender may not exceed 90% of the
Net Accumulation Value at the end of the Valuation Period in
which the election becomes or would become effective, and
may not be less than $500.
For Option B and C Policies (See "Death Benefit"): A partial
surrender will reduce the Accumulation Value, Death Benefit,
and Specified Amount. The Specified Amount and Accumulation
Value will be reduced by equal amounts and will reduce any
past increases in the reverse order in which they occurred.
For an Option A Policy (See "Death Benefit"): A partial
surrender will reduce the Accumulation Value and the Death
Benefit, but it will not reduce the Specified Amount.
The Specified Amount remaining in force after a partial
surrender may not be less than $50,000. Any request for a
partial surrender that would reduce the Specified Amount
below this amount will not be granted. In addition, if,
following the partial surrender and the corresponding
decrease in the Specified Amount, the Policy would not
comply with the maximum premium limitations required by
federal tax law, the decrease may be limited to the extent
necessary to meet the federal tax law requirements.
If, at the time of a partial surrender, the Net Accumulation
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 Policy Owner and the Company
agree otherwise.
20
<PAGE>
FULL SURRENDERS
A full surrender may be made at any time. The Company will
pay the Surrender Value next computed after receiving the
Owner's written request at the Corporate Variable Products
Service Center in a form satisfactory to the Company.
Payment of any amount from the Variable Account on a full
surrender will usually be made within seven calendar days
thereafter.
DEFERRAL OF PAYMENT AND TRANSFERS
Payment of the surrendered amount from the Variable Account
may be postponed when the New York Stock Exchange is closed
and for such other periods as the Commission may require.
Payment or transfer 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 or transfers
interest will be added as required by law.
LAPSE AND
REINSTATEMENT
LAPSE OF A POLICY
A lapse occurs if a Monthly Deduction is greater than the
Net Accumulation 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 31 days before the
Grace Period expires.
The Net Accumulation Value may be insufficient to keep this
Policy in force, particularly if there have been any loans
or partial surrenders, and depending on the investment
performance of the funding options. Payment of an additional
premium may be necessary.
REINSTATEMENT OF A LAPSED POLICY
The Owner can apply for reinstatement at any time during the
Insured's lifetime. To reinstate a Policy, the Company will
require satisfactory evidence of insurability and an amount
sufficient to pay for the current Monthly Deduction plus
twelve additional Monthly Deductions.
POLICY LOANS
A Policy loan requires that a loan agreement be executed and
that the Policy be assigned to the Company. The loan may be
for any amount up to 90% of the then current Net
Accumulation Value. The amount of a loan, together with
subsequent accrued but not paid interest on the loan,
becomes part of the Loan Account Value. If Policy values are
held in more than one funding option, withdrawals from each
funding option will be made in proportion to the assets in
each funding option at the time of the loan for transfer to
the Loan Account, unless the Company is instructed otherwise
in writing at the Corporate Variable Products Service
Center.
Interest on loans will accrue at an annual rate of 5%, and
net loan interest (interest charged less interest credited
as described below) is payable once a year in arrears on
each anniversary of the loan, or earlier upon full surrender
or other payment of proceeds of a Policy. Any interest not
paid when due becomes part of the loan and the net interest
will be withdrawn proportionately from the values in each
funding option.
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<PAGE>
The Company will credit interest on the Loan Account Value.
During the first fifteen Policy Years, the Company's current
practice is that interest will be credited at an annual rate
equal to the interest rate charged on the loan minus .80%
(guaranteed not to exceed 1.2%). Beginning with the
sixteenth Policy Year, the Company's current practice is
that interest will be credited at an annual rate equal to
the interest rate charged on the loan, less .25% annually
(guaranteed not to exceed 1.2%). In no case will the annual
credited interest rate be less than 3.8%.
Repayments on the loan will be allocated among the funding
options according to current Net Premium Payment
allocations. However, the Company maintains the right to
require that amounts loaned from the Fixed Account be
allocated to the Fixed Account upon repayment. The Loan
Account Value will be reduced by the amount of any loan
repayment.
A Policy loan, whether or not repaid, will affect the
proceeds payable upon the Insured's death and the
Accumulation Value because the investment results of the
Variable Account or the Fixed Account will apply only to the
non-loaned portion of the Accumulation Value. The longer a
loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account
or the Fixed Account while the loan is outstanding, the
effect could be favorable or unfavorable.
SETTLEMENT OPTIONS
Proceeds in the form of Settlement Options may be payable by
the Company at the Beneficiary's election upon the Insured's
death, or while the Insured is alive, upon election by the
Owner of one of the Settlement Options which the Company may
make available through the addition of a rider.
A written request may be made to elect, change, or revoke a
Settlement Option before payments begin under any Settlement
Option. This request must be in form satisfactory to the
Company, and will take effect upon its receipt at the
Corporate Variable Products Service Center. Payments after
the first payment will be made on the first day of each
month.
Examples of possible Settlement Options are:
FIRST OPTION -- Payments for a stated number of years.
SECOND OPTION -- Payments for the lifetime of the payee,
guaranteed for a specified number of months;
THIRD OPTION -- Payment of interest annually on the sum left
with the Company at a rate of at least 3% per year, and upon
the payee's death the amount on deposit will be paid.
FOURTH OPTION -- Installments of specified amounts payable
until the proceeds with any interest thereon are exhausted.
ADDITIONAL OPTIONS -- Policy proceeds may also be settled
under any other method of settlement offered by the Company
at the time the request is made.
ADDITIONAL INSURANCE BENEFIT
The Policy can be issued with an Additional Insurance
Benefit as a portion of the total Death Benefit. The benefit
provides annually renewable term life insurance on the life
of the Insured. This benefit is excluded from the Specified
Amount when calculating the charges and fees for the Policy
and when calculating the Guideline Annual Premium and the
Target Premium.
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<PAGE>
The cost of the benefit is added to the Monthly Deduction,
and is dependent on the attained age, years since issue,
risk class and gender classification. The Company may adjust
the monthly benefit rate from time to time, but the rate
will never exceed the guaranteed cost of insurance rate for
the benefit for that Policy Year.
The benefit provides a vehicle for a Policy Owner to
increase the insurance protection under the Policy.
OTHER POLICY PROVISIONS
ISSUANCE
A Policy may only be issued upon receipt of satisfactory
evidence of insurability, and generally only where the
Insured is below the age of 75.
SHORT-TERM RIGHT TO CANCEL THE POLICY
A Policy may be returned for cancellation and a full refund
of premium within 10 days after the Policy is received,
unless otherwise stipulated by state law requirements. The
Initial Premium Payment made when the Policy is issued will
be held in the CIGNA VP Money Market Fund of the Variable
Account and not allocated to any other Variable Sub-Accounts
even if the Policy Owner may have so directed until the
fifteenth day after the Policy is mailed to the Owner, if
the state law Right-to-Examine Period is 10 days after the
Policy is received by the Owner (the twenty-fifth day, if
the state law Right-to-Examine Period is 20 days, or the
thirty-fifth day, if the state law Right-to-Examine Period
is 30 days). If the Policy 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.
POLICY OWNER
While the Insured is living, all rights in this Policy are
vested in the Policy Owner named in the application or as
subsequently changed, subject to assignment, if any.
The Policy Owner may name a new Policy Owner while the
Insured is living. Any such change in ownership must be in a
written form satisfactory to the Company and recorded at the
Corporate Variable Products 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. The Company may
require that the Policy be submitted for endorsement before
making a change.
If the Policy Owner is other than the Insured and dies
before the Insured, the Policy Owner's rights in this Policy
belong to the Policy Owner's estate.
BENEFICIARY
The Beneficiary(ies) shall be as named in the application or
as subsequently changed, subject to assignment, if any.
The Policy 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 Corporate
Variable Products 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
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<PAGE>
in equal shares, unless otherwise provided. If no named
Beneficiary survives the Insured, the death proceeds shall
be paid to the Policy Owner or the Policy Owner's
executor(s), administrator(s) or assigns.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may, within the first two Policy Years,
exchange the Policy for a flexible premium adjustable life
insurance policy then being offered by the Company's
Corporate Insurance Department. The benefits for the new
policy will not vary with the investment experience of a
separate account. The exchange must be elected within 24
months from the Issue Date. No evidence of insurability will
be required.
The Policy Owner, the Insured and the Beneficiary under the
new policy will be the same as those under the exchanged
Policy on the effective date of the exchange. The new policy
will have a Death Benefit on the exchange date not more than
the Death Benefit of the original Policy immediately prior
to the exchange date. The new policy will have the same
Issue Date and Issue Age as the original Policy. The initial
Specified Amount and any increases in Specified Amount will
have the same rate class as those of the original Policy.
Any indebtedness may be transferred to the new policy.
INCONTESTABILITY
The Company will not contest payment of the death proceeds
based on the Initial Specified Amount after the Policy has
been in force during the Insured's lifetime for two years
from the Issue Date. For any increase in Specified Amount
requiring evidence of insurability, the Company will not
contest payment of the death proceeds based on such an
increase after it has been in force during the Insured's
lifetime for two years from its effective date.
MISSTATEMENT OF AGE
The Company will adjust the Death Benefit and Accumulation
Value if the Insured's age has been misstated. The
adjustment process will recalculate all such benefits and
values to the amount that would have been calculated using
the rates that were in effect at the time of each monthly
anniversary. The process will begin with the recalculation
based on the rates in effect on the Issue Date. Each
succeeding recalculation will be based on the rates in
effect on the corresponding monthly anniversary.
SUICIDE
If the Insured dies by suicide, while sane or insane, within
two years from the Issue Date, the Company will pay no more
than the sum of the premiums paid, less any indebtedness. 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 Specified Amount, the Company will pay no
more than a refund of the monthly charges for the cost of
such additional benefit.
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.
TAX MATTERS
The following discussion is general and is not intended as
tax advice. Counsel and other competent advisers should be
consulted for more complete information. This discussion
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<PAGE>
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.
POLICY PROCEEDS
Section 7702 of the Code provides a definition of a life
insurance policy for federal tax purposes. This definition
can be satisfied by complying with either the cash value
test or the guideline premium test set forth in Section
7702. The Company will monitor compliance with these tests.
The Policy should thus receive the same federal income tax
treatment as fixed benefit life insurance. As a result, the
death proceeds payable under a Policy are excludable from
gross income of the Beneficiary under Section 101 of the
Code. However, if a Policy were determined not to be a life
insurance contract for purposes of Section 7702, such Policy
would not afford the tax advantage normally provided by a
life insurance policy.
A life insurance policy may be treated as a modified
endowment contract depending upon the amount of premiums
paid in relation to the death benefit provided under the
Policy. The premium limitation rules for determining whether
a Policy is a modified endowment contract are extremely
complex. In general, however, 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 paid if the policy
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 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.
It may not be advantageous to replace existing insurance
with Policies described in this Prospectus. It may also be
disadvantageous to purchase a Policy to obtain additional
insurance protection if the purchaser already owns another
variable life insurance policy.
The Policies offered by this Prospectus may or may not be
issued as modified endowment contracts. If a Policy is not a
modified endowment contract, 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 Policy Owner should carefully
consider this potential effect and seek further information
before initiating any changes in the terms of the Policy.
Under certain conditions, a Policy 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. Because the Policy provides for flexible Premium
Payments, the Company will monitor whether additional
Premium Payments or other changes result in a Policy's
becoming a modified endowment contract.
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 Variable
Account be adequately diversified. Treasury regulation
1.817-5 issued by the Secretary of the Treasury set the
standards for measuring the adequacy of this
diversification. Generally, no more than 55 percent of the
value of the total assets may be represented by any one (1)
investment; no more than 70 percent of such value may be
represented by any two (2) investments; no more than 80
percent of such value may be represented by any three (3)
investments; and no more than 90 percent of such value may
be represented by any four (4) investments. U.S. Treasury
Securities are not subject to the diversification test and
to the extent that assets include such securities,
25
<PAGE>
somewhat less stringent requirements may apply. A variable
life insurance policy that is not adequately diversified
under these regulations would not be treated as life
insurance under Section 7702 of the Code. The Company
believes the Variable Account investments meet the
applicable diversification standards.
Should the Secretary of the Treasury issue additional rules
or regulations limiting the number of funds, transfers
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 remain
in compliance.
A total surrender or termination of the Policy by lapse, a
change in the Specified Amount, payment of Additional
Premiums, a Policy Loan, a change in Death Benefit Option,
the exchange of a Policy for a fixed-benefit policy, or the
assignment of a Policy may have adverse tax consequences. If
the amount received by the Policy Owner upon surrender or
termination plus total Policy indebtedness exceeds the
premiums paid into the Policy, the excess will generally be
treated as taxable income, regardless of whether or not the
Policy is a modified endowment contract.
Federal estate and state and local estate, inheritance and
other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Policy Owner or
Beneficiary.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the
Code. Since the Variable 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 Variable Account are reinvested and taken into
account in determining the value of Accumulation Units.
The Company does not initially expect to incur any Federal
income tax liability that would be chargeable directly to
the Variable Account. Based upon these expectations, no
charge is currently being made against the Variable 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 Variable 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 premium load is assessed to cover state taxes, federal
income tax liabilities and a portion of the sales expenses
incurred by the Company. The Company estimates that the
portion of the premium load other than for sales expenses is
made up of 2.25% for state taxes and 1.25% for the
additional federal income tax burden under Section 848 of
the Code relating to the tax treatment of deferred
acquisition costs. The 1.25% charge for federal income tax
liabilities is reasonable in relation to the Company's
increased taxes under this Section of the Code.
26
<PAGE>
OTHER MATTERS
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
or its affiliates for more than five years except Mr. Jones,
Mr DellaVolpe and Mr. Pacy. Prior to February 1994, Mr.
Jones was Executive Vice President, Chief Administrative
Officer, Chief Operating Officer and Director, NAC Re
Corporation and NAC Reinsurance Corporation (Chief Operating
Officer of NAC Re Corporation beginning June 1993). Prior to
1997, Mr. DellaVolpe was Manager, Coopers & Lybrand. Prior
to January 1995, Mr. Pacy was Senior Manager-IT
Infrastructure and Technology Management Officer, Digital
Equipment Corporation.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME WITH THE COMPANY
- ------------------------------ ------------------------------------
<S> <C>
Thomas C. Jones President and Director
(Principal Executive Officer)
John Wilkinson Vice President and Actuary
(Principal Financial Officer)
Dominic A. DellaVolpe Assistant Vice President
(Principal Accounting Officer)
David C. Kopp Corporate Secretary
Andrew G. Helming Secretary
Stephen C. Stachelek Vice President and Treasurer
H. Edward Hanway Director and Chairman of the Board
Harold W. Albert Director
Robert W. Burgess Director
John G. Day Director and Chief Counsel
Joseph M. Fitzgerald Director and Senior Vice President
Carol M. Olsen Director and Senior Vice President
John E. Pacy Director and Senior Vice President
Patricia L. Rowland Director and Senior Vice President
W. Allen Schaffer, M.D. Director and Senior Vice President
Marc L. Preminger Director, Senior Vice President and
Chief Financial Officer
</TABLE>
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 280 Trumbull Street,
Hartford, Connecticut. CFS is a Delaware corporation
organized in 1995.
Gross first year commissions paid by the Company, on the
sale of the Policies will not exceed 45% of Target Premium,
plus 3% of any Premium Payment in excess of Target Premium.
Gross commissions for years two through ten paid by the
Company will not exceed 15% of Target Premium, plus 3% of
any Premium Payment in excess of Target Premium. Gross
renewal commissions paid by the Company will not exceed 3%
of Premium Payments, plus 25% of any increase in Target
Premium. In addition, annual renewal compensation of up to
.10% of Net Accumulation Value may be paid beginning in the
second year.
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<PAGE>
CHANGES OF INVESTMENT POLICY
The Company may materially change the investment policy of
the Variable Account. The Company must inform the Policy
Owners and obtain all necessary regulatory approvals. Any
change must be submitted to the various state insurance
departments which shall disapprove it if deemed detrimental
to the interests of the Policy Owners or if it renders the
Company's operations hazardous to the public. If a Policy
Owner objects, the Policy may be converted to a
substantially comparable fixed benefit life insurance policy
offered by the Company on the life of the Insured. The
Policy Owner has the later of 60 days (6 months in
Pennsylvania) from the date of the investment policy change
or 60 days (6 months in Pennsylvania) from being informed of
such change to make this conversion. The Company will not
require evidence of insurability for this conversion.
The new policy will not be affected by the investment
experience of any separate account. The new policy will be
for an amount of insurance not exceeding the Death Benefit
of the Policy converted on the date of such conversion.
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.
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 Connecticut Department of Insurance.
Such regulation does not, however, involve any supervision
of management or investment practices or policies.
REPORTS TO POLICY OWNERS
The Company maintains Policy records and will mail to each
Policy Owner, at the last known address of record, an annual
statement showing the amount of the current death benefit,
the Accumulation Value, and Surrender Value, premiums paid
and monthly charges deducted since the last report, the
amounts invested in the Fixed Account and in the Variable
Account and in each Sub-Account of the Variable Account, and
any Loan Account Value.
Policy Owners will also be sent annual reports containing
financial statements for the Variable Account and annual and
semi-annual reports of the Funds to the extent required by
the 1940 Act.
In addition, Policy Owners will receive statements of
significant transactions, such as changes in Specified
Amount, changes in Death Benefit Option, changes in future
premium allocation, transfers among Sub-Accounts, Premium
Payments, loans, loan repayments, reinstatement and
termination.
ADVERTISING
The Company is also ranked and 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
28
<PAGE>
Company. The ratings are not intended to reflect the
investment experience or financial strength of the Variable
Account. The Company may advertise these ratings from time
to time. In addition, the Company may include in certain
advertisements, endorsements in the form of a list of
organizations, individuals or other parties which recommend
the Company or the Policies. 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 Variable Account are parties or to which any
of their property is subject. The principal underwriter,
CFS, is not engaged in any material litigation of any
nature.
EXPERTS
An actuarial opinion regarding the representativeness of
illustrations in this Prospectus has been rendered by
Michelle L. Kunzman, FSA, MAAA, 900 Cottage Grove Road,
Hartford, CT 06152, as stated in the opinion filed as an
Exhibit to the Registration Statement given on her authority
as an expert in actuarial matters.
Legal matters in connection with the Policies described
herein are being passed upon by Mark A. Parsons, Esq., Chief
Counsel, CIGNA Retirement & Investment Services, 900 Cottage
Grove Road, Hartford, CT 06152, 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 as well as the Statement of
Assets and Liabilities of the Variable Account at December
31, 1997 and the Statement of Operations and the Statement
of Changes in Net Assets for the period ended December 24,
1997 have been so included in reliance on the reports 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
Variable 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.
29
<PAGE>
YEAR 2000
Variable Life Account 02 is a Connecticut General Life
Insurance Company (the Company) "separate account"
established under Connecticut insurance law. 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 Account 02) 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.
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, for
services; 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.
FINANCIAL STATEMENTS
There follow the 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. They should be considered only as
bearing upon the ability of the Company to meet its
obligations under the Policies.
There also follow the Statement of Assets and Liabilities of
the Variable Account at December 31, 1997 and related
Statements of Operations and Statement of Changes in Net
Assets for the period ended December 31, 1997. The Variable
Account commenced operations on December 24, 1996.
30
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICE WATERHOUSE LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 10, 1998
To the Board of Directors and Shareholder of
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.
/s/Price Waterhouse LLP
31
<PAGE>
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Opinion furnished by PW.
32
<PAGE>
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.
33
<PAGE>
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.
34
<PAGE>
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.
35
<PAGE>
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.
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
36
<PAGE>
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
37
<PAGE>
estimated gross profits over the expected lives of the contracts. Acquisition
costs for annuity and other 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.
38
<PAGE>
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.
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).
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.
39
<PAGE>
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.
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.
40
<PAGE>
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.
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.
41
<PAGE>
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.
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>
42
<PAGE>
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.
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
43
<PAGE>
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.
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.
44
<PAGE>
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.
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.
45
<PAGE>
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>
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
46
<PAGE>
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.
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.
47
<PAGE>
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.
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
- --------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
48
<PAGE>
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
(IN MILLIONS) 1997 1996 1995
- --------------------------------------------------------------------------------------------------
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. 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.
49
<PAGE>
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.
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.
50
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICE WATERHOUSE LLP [LOGO]
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 statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the sub-accounts, Alger
American Fund - Alger American Growth Portfolio, Alger American MidCap Growth
Portfolio, Alger American Small Capitalization 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 -
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 (constituting the CG Corporate
Insurance Variable Life Separate Account 02, hereafter referred to as "the
Account") at December 31, 1997, the results of each of their operations and the
changes in each of their net assets for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Account's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by
correspondence with the custodians, provide a reasonable basis for the opinion
expressed above.
/s/Price Waterhouse LLP
Hartford, Connecticut
February 20, 1998
51
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIDELITY
CIGNA VARIABLE FIDELITY VIP VIP II
PRODUCTS GROUP PORTFOLIO PORTFOLIO
ALGER AMERICAN PORTFOLIO SUB-ACCOUNTS SUB-ACCOUNTS SUB-ACCOUNTS SUB-ACCOUNT
-------------------------------------- ---------------------- ---------------------- ----------
MIDCAP SMALL MONEY EQUITY- HIGH INVESTMENT
GROWTH GROWTH CAPITALIZATION MARKET S&P 500 INCOME INCOME GRADE BOND
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at value.... $ 50,195 $ 38,473 $ 90,090 $ 71,633 $13,451,623 $ 182,841 $ 304,891 $4,981,725
Receivable from Connecticut
General Life
Insurance Company........... 856 -- -- -- 521 1,227 -- --
Receivable for fund shares
sold........................ -- -- -- 7,286 -- -- -- 130
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Total assets.............. 51,051 38,473 90,090 78,919 13,452,144 184,068 304,891 4,981,855
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life
Insurance Company........... -- -- -- 7,286 -- -- -- 130
Payable for fund shares
purchased................... 856 -- -- -- 521 1,227 -- --
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities......... 856 -- -- 7,286 521 1,227 -- 130
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Net assets................ $ 50,195 $ 38,473 $ 90,090 $ 71,633 $13,451,623 $ 182,841 $ 304,891 $4,981,725
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Accumulation units
outstanding................. 4,287 3,417 7,180 6,869 1,116,073 15,388 26,433 459,320
Net asset value per
accumulation unit........... $ 11.709279 $ 11.260065 $12.546933 $10.428840 $12.052632 $11.881678 $11.534462 $10.845876
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
52
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
JANUS
ASPEN
SERIES
SUB-ACCOUNT MFS SERIES SUB-ACCOUNTS OCC ACCUMULATION TEMPLETON
---------- ----------------------- TRUST SERIES SUB-ACCOUNTS SUB-ACCOUNT
WORLDWIDE EMERGING TOTAL ---------------------------------- ----------
GROWTH GROWTH RETURN EQUITY MANAGED SMALL CAP INTERNATIONAL
---------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at value.... $1,660,783 $ 309,109 $ 3,655 $ 47,979 $ 334,608 $1,363,267 $ 577,501
Receivable from Connecticut
General Life
Insurance Company........... 1,921 -- -- -- 1,438 -- 843
Receivable for fund shares
sold........................ -- -- -- -- -- 36 --
---------- ---------- ----------- ---------- ---------- ---------- ----------
Total assets.............. 1,662,704 309,109 3,655 47,979 336,046 1,363,303 578,344
---------- ---------- ----------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life
Insurance Company........... -- -- -- -- -- 36 --
Payable for fund shares
purchased................... 1,921 -- -- -- 1,438 -- 843
---------- ---------- ----------- ---------- ---------- ---------- ----------
Total liabilities......... 1,921 -- -- -- 1,438 36 843
---------- ---------- ----------- ---------- ---------- ---------- ----------
Net assets................ $1,660,783 $ 309,109 $ 3,655 $ 47,979 $ 334,608 $1,363,267 $ 577,501
---------- ---------- ----------- ---------- ---------- ---------- ----------
---------- ---------- ----------- ---------- ---------- ---------- ----------
Accumulation units
outstanding................. 145,879 26,489 318 4,041 28,518 113,524 52,854
Net asset value per
accumulation unit........... $11.384653 $11.669186 $ 11.495360 $11.873582 $11.733393 $12.008588 $10.926369
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
53
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
FOR THE PERIODS INDICATED TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
CIGNA VARIABLE
ALGER AMERICAN PORTFOLIO PRODUCTS GROUP
SUB-ACCOUNTS SUB-ACCOUNTS
----------------------------------- ------------------
MIDCAP SMALL MONEY
GROWTH GROWTH CAPITALIZATION MARKET* S&P 500
------------ ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Date deposits first
received.................... 2/24/97 2/24/97 3/31/97 12/24/96 2/24/97
INVESTMENT INCOME:
Dividends..................... $ 21 $ 20 $ -- $ 84,108 $259,490
EXPENSES:
Mortality and expense risk and
administrative charges...... 110 262 512 16,075 62,607
------------ ----------- -------- -------- --------
Net investment gain (loss).... (89) (242) (512 ) 68,033 196,883
------------ ----------- -------- -------- --------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... 39 505 1,973 -- 294,639
Net realized gain (loss) on
share transactions.......... 63 123 210 -- (855)
------------ ----------- -------- -------- --------
Net realized gain........... 102 628 2,183 -- 293,784
Net unrealized gain........... 1,223 5,140 10,441 -- 1,320,848
------------ ----------- -------- -------- --------
Net realized and unrealized
gain on investments........ 1,325 5,768 12,624 -- 1,614,632
------------ ----------- -------- -------- --------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $ 1,236 $ 5,526 $12,112 $ 68,033 $1,811,515
------------ ----------- -------- -------- --------
------------ ----------- -------- -------- --------
<CAPTION>
FIDELITY
FIDELITY VIP VIP II
PORTFOLIO PORTFOLIO
SUB-ACCOUNTS SUB-ACCOUNT
--------------------- ----------
EQUITY- HIGH INVESTMENT
INCOME INCOME GRADE BOND
----------- -------- ----------
<S> <C> <C> <C>
Date deposits first
received.................... 2/24/97 1/29/97 1/29/97
INVESTMENT INCOME:
Dividends..................... $ -- $ 9,263 $ 7,879
EXPENSES:
Mortality and expense risk and
administrative charges...... 944 2,125 16,725
----------- -------- ----------
Net investment gain (loss).... (944) 7,138 (8,846 )
----------- -------- ----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... -- 1,145 --
Net realized gain (loss) on
share transactions.......... 309 240 110
----------- -------- ----------
Net realized gain........... 309 1,385 110
Net unrealized gain........... 26,400 27,140 192,098
----------- -------- ----------
Net realized and unrealized
gain on investments........ 26,709 28,525 192,208
----------- -------- ----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $ 25,765 $ 35,663 $ 183,362
----------- -------- ----------
----------- -------- ----------
</TABLE>
* For the Year Ended December 31, 1997 (Deposits first received December 24,
1996)
The Notes to Financial Statements are an integral part of these statements.
54
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE PERIODS INDICATED TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
JANUS
ASPEN OCC ACCUMULATION TRUST SERIES
SERIES MFS SERIES
SUB-ACCOUNT SUB-ACCOUNTS SUB-ACCOUNTS TEMPLETON
-------- ------------------- -------------------------------- SUB-ACCOUNTS
WORLDWIDE EMERGING TOTAL SMALL -------------
GROWTH GROWTH RETURN EQUITY MANAGED CAP INTERNATIONAL
-------- -------- --------- ----------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Date deposits first
received.................... 2/24/97 1/29/97 2/24/97 2/24/97 1/29/97 2/24/97 2/24/97
INVESTMENT INCOME:
Dividends..................... $ 4,457 $ -- $ -- $ 43 $ 1,914 $ 48 $ --
EXPENSES:
Mortality and expense risk and
administrative charges...... 5,656 1,959 14 117 1,976 4,515 2,220
-------- -------- --------- ----------- -------- -------- -------------
Net investment loss........... (1,199 ) (1,959 ) (14) (74) (62) (4,467) (2,220 )
-------- -------- --------- ----------- -------- -------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... 561 -- -- 153 5,879 341 --
Net realized gain (loss) on
share transactions.......... 154 230 8 66 236 24 (13 )
-------- -------- --------- ----------- -------- -------- -------------
Net realized gain (loss).... 715 230 8 219 6,115 365 (13 )
Net unrealized gain (loss).... 43,891 36,451 308 2,992 27,581 19,222 (7,247 )
-------- -------- --------- ----------- -------- -------- -------------
Net realized and unrealized
gain (loss) on
investments................ 44,606 36,681 316 3,211 33,696 19,587 (7,260 )
-------- -------- --------- ----------- -------- -------- -------------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $43,407 $34,722 $ 302 $ 3,137 $ 33,634 $ 15,120 $ (9,480 )
-------- -------- --------- ----------- -------- -------- -------------
-------- -------- --------- ----------- -------- -------- -------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
55
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIODS INDICATED TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIDELITY
CIGNA VARIABLE VIP
ALGER AMERICAN PORTFOLIO PRODUCTS GROUP PORTFOLIO
SUB-ACCOUNTS SUB-ACCOUNTS SUB-ACCOUNTS
----------------------------------- ---------------------- ---------
MIDCAP SMALL MONEY EQUITY-
GROWTH GROWTH CAPITALIZATION MARKET* S&P 500 INCOME
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Date deposits first
received.................... 2/24/97 2/24/97 3/31/97 12/24/96 2/24/97 2/24/97
OPERATIONS:
Net investment gain (loss).... $ (89) $ (242) $ (512 ) $ 68,033 $ 196,883 $ (944)
Net realized gain............. 102 628 2,183 -- 293,784 309
Net unrealized gain........... 1,223 5,140 10,441 -- 1,320,848 26,400
----------- ---------- ---------- ---------- ---------- ---------
Net increase from
operations................. 1,236 5,526 12,112 68,033 1,811,515 25,765
----------- ---------- ---------- ---------- ---------- ---------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits, net of
premium loads............... 41,099 1,222 -- 20,606,819 916,689 61,215
Participant transfers......... 9,624 33,892 82,004 (20,953,420) 10,900,475 105,195
Participant withdrawals....... (1,764) (2,167) (4,026 ) (260,990) (177,056) (9,334)
----------- ---------- ---------- ---------- ---------- ---------
Net increase (decrease) from
participant transactions... 48,959 32,947 77,978 (607,591) 11,640,108 157,076
----------- ---------- ---------- ---------- ---------- ---------
Total increase (decrease)
in net assets............ 50,195 38,473 90,090 (539,558) 13,451,623 182,841
NET ASSETS:
Beginning of period........... -- -- -- 611,191 -- --
----------- ---------- ---------- ---------- ---------- ---------
End of period................. $ 50,195 $ 38,473 $ 90,090 $ 71,633 $13,451,623 $ 182,841
----------- ---------- ---------- ---------- ---------- ---------
----------- ---------- ---------- ---------- ---------- ---------
<CAPTION>
FIDELITY
VIP II
PORTFOLIO
SUB-ACCOUNTS
----------
HIGH INVESTMENT
INCOME GRADE BOND
----------- ----------
<S> <C> <C>
Date deposits first
received.................... 1/29/97 1/29/97
OPERATIONS:
Net investment gain (loss).... $ 7,138 $ (8,846 )
Net realized gain............. 1,385 110
Net unrealized gain........... 27,140 192,098
----------- ----------
Net increase from
operations................. 35,663 183,362
----------- ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits, net of
premium loads............... 65,300 186,655
Participant transfers......... 217,909 4,637,295
Participant withdrawals....... (13,981) (25,587 )
----------- ----------
Net increase (decrease) from
participant transactions... 269,228 4,798,363
----------- ----------
Total increase (decrease)
in net assets............ 304,891 4,981,725
NET ASSETS:
Beginning of period........... -- --
----------- ----------
End of period................. $ 304,891 $4,981,725
----------- ----------
----------- ----------
</TABLE>
- --------------------------
* For the Year Ended December 31, 1997 (Deposits first received December 24,
1996)
The Notes to Financial Statements are an integral part of these statements.
56
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIODS INDICATED TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
JANUS
ASPEN
SERIES MFS SERIES
SUB-ACCOUNT SUB-ACCOUNTS OCC ACCUMULATION TEMPLETON
-------- ------------------- TRUST SUB-ACCOUNTS SUB-ACCOUNTS
WORLDWIDE EMERGING TOTAL -------------------------------- -------------
GROWTH GROWTH RETURN EQUITY MANAGED SMALL CAP INTERNATIONAL
-------- -------- --------- ----------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Date deposits first
received.................... 2/24/97 1/29/97 2/24/97 2/24/97 1/29/97 2/24/97 2/24/97
OPERATIONS:
Net investment (loss)......... $ (1,199) $ (1,959) $ (14) $ (74) $ (62) $ (4,467) $ (2,220 )
Net realized gain (loss)...... 715 230 8 219 6,115 365 (13 )
Net unrealized gain (loss).... 43,891 36,451 308 2,992 27,581 19,222 (7,247 )
-------- -------- --------- ----------- -------- --------- -------------
Net increase (decrease) from
operations................. 43,407 34,722 302 3,137 33,634 15,120 (9,480 )
-------- -------- --------- ----------- -------- --------- -------------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits, net of
premium loads............... 177,366 83,322 2,184 25,651 131,629 53,337 273,855
Participant transfers......... 1,459,273 206,614 1,763 25,340 184,083 1,298,529 322,803
Participant withdrawals....... (19,263) (15,549) (594) (6,149) (14,738) (3,719) (9,677 )
-------- -------- --------- ----------- -------- --------- -------------
Net increase from
participant transactions... 1,617,376 274,387 3,353 44,842 300,974 1,348,147 586,981
-------- -------- --------- ----------- -------- --------- -------------
Total increase in net
assets................... 1,660,783 309,109 3,655 47,979 334,608 1,363,267 577,501
NET ASSETS:
Beginning of period........... -- -- -- -- -- -- --
-------- -------- --------- ----------- -------- --------- -------------
End of period................. $1,660,783 $309,109 $ 3,655 $ 47,979 $334,608 $1,363,267 $ 577,501
-------- -------- --------- ----------- -------- --------- -------------
-------- -------- --------- ----------- -------- --------- -------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
57
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 24, 1996* TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CIGNA VARIABLE
PRODUCTS GROUP
SUB-ACCOUNT
---------------
MONEY
MARKET
---------------
<S> <C>
INVESTMENT INCOME:
Dividends.......................................................................................... $ 675
EXPENSES:
Mortality and expense risk and administrative charges.............................................. 112
---
Net investment income............................................................................ 563
---
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................... $ 563
---
---
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM DECEMBER 24, 1996* TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CIGNA
VARIABLE
PRODUCTS
GROUP
SUB-ACCOUNT
-------------
MONEY
MARKET
-------------
<S> <C>
OPERATIONS:
Net investment gain................................................................................ $ 563
-------------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits, net of premium loads......................................................... 621,412
Participant withdrawals............................................................................ (10,784)
-------------
Net increase from participant transactions....................................................... 610,628
-------------
Total increase in net assets................................................................... 611,191
NET ASSETS:
Beginning of period................................................................................ --
-------------
End of period...................................................................................... $ 611,191
-------------
-------------
</TABLE>
* Date deposits first received
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
58
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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:
<TABLE>
<S> <C>
ALGER AMERICAN FUND:
Alger American Growth Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization 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
</TABLE>
* Not active. As of December 31, 1997, 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-accounts are valued at
their respective closing net asset values per share as determined by the mutual
funds as of December 31, 1997. The change in the difference between cost and
value is reflected as unrealized gain (loss) in the Statements of Operations.
B. INVESTMENT TRANSACTIONS: Investment transactions are recorded on the trade
date (date the order to buy or sell is executed). Realized gains and losses on
sales of investments are determined by the last-in, first-out cost basis of the
investment sold. Dividend and capital gain distributions are recorded on the
ex-dividend date. Investment transactions are settled through 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) and capital gains attributable to the Account are not taxed.
59
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
3. INVESTMENTS
Total shares outstanding and cost of investments as of December 31, 1997
were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Cost of
Sub-Account Shares Held Investments
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio..................................... 1,174 $ 48,972
Alger American MidCap Growth Portfolio.............................. 1,591 33,333
Alger American Small Capitalization Portfolio....................... 2,059 79,649
CIGNA Variable Products Money Market Fund........................... 71,634 71,634
CIGNA Variable Products S&P 500 Index Fund.......................... 850,292 12,130,775
Fidelity Equity-Income Portfolio.................................... 7,531 156,441
Fidelity High Income Portfolio...................................... 22,451 277,751
Fidelity Investment Grade Bond Portfolio............................ 396,634 4,789,627
Janus Aspen Series Worldwide Growth Portfolio....................... 71,004 1,616,892
MFS Emerging Growth Series.......................................... 19,152 272,658
MFS Total Return Series............................................. 220 3,347
OCC Equity Portfolio................................................ 1,314 44,987
OCC Managed Portfolio............................................... 7,895 307,027
OCC Small Cap Portfolio............................................. 51,698 1,344,045
Templeton International Fund........................................ 28,617 584,748
- ---------------------------------------------------------------------------------------------
</TABLE>
Total purchases and sales of shares of each mutual fund, for the periods
noted, amounted to:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Period from
Date Indicated*
to
December 31,
Sub-Account 1997 Purchases Sales
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
February 24,
Alger American Growth Portfolio................... 1997 $ 50,826 $ 1,917
February 24,
Alger American MidCap Growth Portfolio............ 1997 36,117 2,907
Alger American Small Capitalization Portfolio..... March 31, 1997 84,309 4,870
CIGNA Variable Products Money Market Fund......... January 1, 1997 18,468,057 19,007,614
February 24,
CIGNA Variable Products S&P 500 Index Fund........ 1997 12,512,164 380,534
February 24,
Fidelity Equity-Income Portfolio.................. 1997 166,701 10,569
January 29,
Fidelity High Income Portfolio.................... 1997 294,464 16,953
January 29,
Fidelity Investment Grade Bond Portfolio.......... 1997 4,827,069 37,552
February 24,
Janus Aspen Series Worldwide Growth Portfolio..... 1997 1,643,955 27,217
January 29,
MFS Emerging Growth Series........................ 1997 289,720 17,292
February 24,
MFS Total Return Series........................... 1997 3,696 357
February 24,
OCC Equity Portfolio.............................. 1997 53,438 8,517
January 29,
OCC Managed Portfolio............................. 1997 322,628 15,837
February 24,
OCC Small Cap Portfolio........................... 1997 1,352,012 7,991
February 24,
Templeton International Fund...................... 1997 594,407 9,646
- -------------------------------------------------------------------------------------------
</TABLE>
* Date deposits first received, with the exception of CIGNA Variable Products
Money Market Fund (deposits first received December 24, 1996).
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 only.
60
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
4. CHARGES AND DEDUCTIONS (CONTINUED)
The fees charged by CG Life for mortality and expense risks and
administrative fees, from variable sub-accounts, for the periods noted, amounted
to:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Period from
Date Indicated* Mortality
to and Asset Based
December 31, Expense Administrative
Sub-Account 1997 Risk Fees Fees
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
February 24,
Alger American Growth Portfolio.................... 1997 $ 98 $ 12
February 24,
Alger American MidCap Growth Portfolio............. 1997 235 27
Alger American Small Capitalization Portfolio...... March 31, 1997 458 54
CIGNA Variable Products Money Market Fund.......... January 1, 1997 14,383 1,692
February 24,
CIGNA Variable Products S&P 500 Index Fund......... 1997 56,017 6,590
February 24,
Fidelity Equity-Income Portfolio................... 1997 844 100
Fidelity High Income Portfolio..................... January 29, 1997 1,902 223
Fidelity Investment Grade Bond Portfolio........... January 29, 1997 14,964 1,761
February 24,
Janus Aspen Series Worldwide Growth Portfolio...... 1997 5,061 595
MFS Emerging Growth Series......................... January 29, 1997 1,753 206
February 24,
MFS Total Return Series............................ 1997 12 2
February 24,
OCC Equity Portfolio............................... 1997 105 12
OCC Managed Portfolio.............................. January 29, 1997 1,768 208
February 24,
OCC Small Cap Portfolio............................ 1997 4,040 475
February 24,
Templeton International Fund....................... 1997 1,987 233
- -------------------------------------------------------------------------------------------------
</TABLE>
* Date deposits first received, with the exception of CIGNA Variable Products
Money Market Fund (deposits first received December 24, 1996).
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 12 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 class (in accordance with state law) of
the insured 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 periods ended December 31, 1997.
61
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
4. CHARGES AND DEDUCTIONS (CONTINUED)
Policy issue fees, which are deducted from the initial premium payment,
amounted to $106,750, all of which were deducted from the CIGNA Variable
Products Money Market Fund. The fees charged by CG Life for premium loads
(deducted from premium payments), administrative fees and the amount deducted
for the cost of insurance, all of which are included in participant withdrawals,
for variable sub-accounts for the periods noted, amounted to:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Period from
Date Indicated* Costs of
to December 31, Premium Administrative Insurance
Sub-Account 1997 Loads Fees Deduction
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
February 24,
Alger American Growth Portfolio......... 1997 $ 11,863 $ 275 $ 1,493
Alger American MidCap Growth February 24,
Portfolio.............................. 1997 85 247 1,920
Alger American Small Capitalization
Portfolio.............................. March 31, 1997 -- 100 3,926
CIGNA Variable Products Money Market
Fund................................... January 1, 1997 2,857,919 9,775 127,739
CIGNA Variable Products S&P 500 Index February 24,
Fund................................... 1997 80,299 11,989 149,185
February 24,
Fidelity Equity--Income Portfolio....... 1997 17,838 750 8,578
January 29,
Fidelity High Income Portfolio.......... 1997 9,816 1,054 12,794
Fidelity Investment Grade Bond January 29,
Portfolio.............................. 1997 18,004 1,658 23,808
Janus Aspen Series Worldwide Growth February 24,
Portfolio.............................. 1997 32,574 1,518 17,719
January 29,
MFS Emerging Growth Series.............. 1997 10,643 1,375 14,170
February 24,
MFS Total Return Series................. 1997 513 58 535
February 24,
OCC Equity Portfolio.................... 1997 3,221 429 5,655
January 29,
OCC Managed Portfolio................... 1997 30,157 1,488 13,094
February 24,
OCC Small Cap Portfolio................. 1997 3,768 197 3,514
February 24,
Templeton International Fund............ 1997 27,966 737 7,586
- ------------------------------------------------------------------------------------------------
</TABLE>
* Date deposits first received, with the exception of CIGNA Variable Products
Money Market Fund (deposits first received December 24, 1996).
For policies issued before April 30, 1997, CG Life will refund 60% of all
premium loads previously deducted if a policy is fully surrendered during the
first 12 months after issue. If a policy is fully surrendered during the months
13 through 24 after issue, the refund will equal 30% of all premium loads
previously deducted. For policies issued after April 30, 1997, if the policy is
fully surrendered during the first 12 months after issue, a credit will be paid
equal to 100% of all premium loads previously deducted in excess of 3.5% of all
premiums paid. If the policy is fully surrendered during months 13 through 24,
the credit will equal 50% of all premium loads previously deducted in excess of
3.5% of all premiums paid. 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, unless the policy owner and CG Life agree otherwise. 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 periods
ended December 31, 1997.
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 met if the underlying investments satisfy either
62
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
6. DIVERSIFICATION REQUIREMENTS (CONTINUED)
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 funds, that the mutual funds satisfy the requirements
of the regulations.
63
<PAGE>
APPENDIX 1
ILLUSTRATIONS OF ACCUMULATION VALUES, SURRENDER VALUES,
AND DEATH BENEFITS
The illustrations in this Prospectus have been prepared to help show how values
under the Policies change with investment performance, assuming in separate
illustrations both the Company's current charges and the Company's guaranteed
charges under the Policies. The illustrations illustrate how Accumulation
Values, Surrender Values and Death Benefits under a Policy would vary over time
if the hypothetical gross investment rates of return were a uniform annual
effective rate of either 0%, 6% or 12%. If the hypothetical gross investment
rate of return averages 0%, 6%, or 12% over a period of years, but fluctuates
above or below those averages for individual years, the Accumulation Values,
Surrender Values and Death Benefits may be different. The illustrations also
assume there are no Policy loans, no additional Premium Payments are made other
than shown, no Accumulation Values are allocated to the Fixed Account, and there
are no changes in the Specified Amount or Death Benefit Option.
The amounts shown for the Accumulation Value, Surrender Value and Death Benefit
as of each Policy Anniversary reflect the fact that the net investment return on
the assets held in the Sub-Accounts is lower than the gross return. This is due
to the daily charges made against the assets of the Sub-Accounts for assuming
mortality and expense risks and for administrative expenses. The administrative
expense charge is currently at an annual effective rate of 0.10% of the daily
net asset value of the Variable Account during the first fifteen Policy Years,
and is guaranteed not to exceed 0.30% per year. The current mortality and
expense risk charges are equivalent to an annual effective rate of .70% of the
daily net asset value of the Variable Account. After the fifteenth Policy Year,
the mortality and expense risk charge is reduced to .25% on an annual basis of
the daily net assets of the Variable Account. The mortality and expense risk
charge is guaranteed not to exceed an annual effective rate of 0.90%. In
addition, the net investment returns also reflect the deduction of Fund
investment advisory fees and other expenses which will vary depending on which
funding vehicle is chosen but which are assumed for purposes of these
illustrations to be equivalent to an annual effective rate of 0.85% of the daily
net asset value of the Variable Account.
Assuming current charges for administration and mortality and expense risks,
gross annual rates of 0%, 6%, and 12% correspond to net experience at constant
annual rates of -1.65%, 4.35% and 10.35% during the first fifteen policy years
and constant annual rates of -1.10%, 4.90% and 10.90% thereafter. Assuming
guaranteed charges for administration and mortality and expense risks, gross
annual rates of 0%, 6% and 12% correspond to net experience at constant annual
rates of -2.05%, 3.95% and 9.95% in all policy years.
The illustrations also reflect the fact that the Company makes monthly charges
for providing insurance protection. Current values reflect current Cost of
Insurance charges and guaranteed values reflect the maximum Cost of Insurance
charges guaranteed in the Policy. The values shown are for Policies which are
issued as Guaranteed Issue. Medically underwritten policies issued on a standard
or substandard basis would result in different Accumulation Values and Death
Benefits than those illustrated.
The illustrations also reflect the fact that the Company deducts a premium load
from each Premium Payment. Current and guaranteed values reflect a deduction of
6.5% of each Premium Payment, plus an additional 45% of the first year's Premium
Payments up to Target Premium and an additional 12% of the second through tenth
years' Premium Payments up to Target Premium.
The Surrender Values shown in the illustrations reflect the fact that the
Company will refund a portion of the sales load for any Policy surrendered
during the first three years.
In addition, the illustrations reflect the fact that the Company deducts an $8
monthly administrative charge at the beginning of each Policy Month, as well as
an initial $175 policy issue charge.
Upon request, the Company will furnish a comparable illustration based on the
proposed insured's age, gender classification, smoking classification, risk
classification and premium payment requested.
64
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX NON SMOKER ISSUE AGE 45
$4,935 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
GUIDELINE TEST -- CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.65% 4.35% 10.35% -1.65% 4.35% 10.35% -1.65% 4.35% 10.35%
ACCUMULATED IN YEARS 1-15 IN YEARS 1-15 IN YEARS 1-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.10% 4.90% 10.90% -1.10% 4.90% 10.90% -1.10% 4.90% 10.90%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,935 500,000 500,000 500,000 1,625 1,740 1,855 3,994 4,109 4,224
2 10,117 500,000 500,000 500,000 4,864 5,300 5,751 6,418 6,855 7,306
3 15,558 500,000 500,000 500,000 7,911 8,873 9,905 9,181 10,144 11,175
4 21,270 500,000 500,000 500,000 10,798 12,490 14,375 10,798 12,490 14,375
5 27,269 500,000 500,000 500,000 13,546 16,172 19,214 13,546 16,172 19,214
6 33,567 500,000 500,000 500,000 16,166 19,930 24,472 16,166 19,930 24,472
7 40,181 500,000 500,000 500,000 18,665 23,776 30,200 18,665 23,776 30,200
8 47,125 500,000 500,000 500,000 21,042 27,710 36,447 21,042 27,710 36,447
9 54,416 500,000 500,000 500,000 23,287 31,725 43,255 23,287 31,725 43,255
10 62,072 500,000 500,000 500,000 25,378 35,801 50,663 25,378 35,801 50,663
15 106,490 500,000 500,000 500,000 35,096 59,244 101,960 35,096 59,244 101,960
20 163,180 500,000 500,000 500,000 37,843 83,012 184,358 37,843 83,012 184,358
25 235,533 500,000 500,000 500,000 32,404 106,205 322,078 32,404 106,205 322,078
30 327,876 500,000 500,000 595,697 11,581 123,124 561,478 11,581 123,124 561,478
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates are assumed. Current mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and administrative
expense charges and (2) assumed Fund total
expenses of 0.85% per year. See "Expense Data"
at pages 10-11 of this Prospectus.
65
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX NONSMOKER ISSUE AGE 45
$4,935 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
GUIDELINE TEST -- GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
ACCUMULATED IN YEARS 1-15 IN YEARS 1-15 IN YEARS 1-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,935 500,000 500,000 500,000 1,512 1,624 1,736 3,881 3,993 4,105
2 10,117 500,000 500,000 500,000 3,606 3,996 4,400 5,161 5,550 5,955
3 15,558 500,000 500,000 500,000 5,532 6,334 7,199 6,803 7,604 8,470
4 21,270 500,000 500,000 500,000 7,275 8,617 10,129 7,275 8,617 10,129
5 27,269 500,000 500,000 500,000 8,833 10,841 13,198 8,833 10,841 13,198
6 33,567 500,000 500,000 500,000 10,197 12,989 16,410 10,197 12,989 16,410
7 40,181 500,000 500,000 500,000 11,337 15,024 19,745 11,337 15,024 19,745
8 47,125 500,000 500,000 500,000 12,232 16,918 23,194 12,232 16,918 23,194
9 54,416 500,000 500,000 500,000 12,854 18,632 26,738 12,854 18,632 26,738
10 62,072 500,000 500,000 500,000 13,168 20,121 30,351 13,168 20,121 30,351
15 106,490 500,000 500,000 500,000 12,209 26,295 52,988 12,209 26,295 52,988
20 163,180 0 500,000 500,000 0 19,658 75,835 0 19,658 75,835
25 235,533 0 0 500,000 0 0 89,380 0 0 89,380
30 327,876 0 0 500,000 0 0 70,710 0 0 70,710
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates are assumed. Guaranteed mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of guaranteed
administrative expense and mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
66
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX NONSMOKER ISSUE AGE 45
$4,935 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
CASH VALUE TEST -- CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.65% 4.35% 10.35% -1.65% 4.35% 10.35% -1.65% 4.35% 10.35%
ACCUMULATED IN YEARS 1-15 IN YEARS 1-15 IN YEARS 1-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.10% 4.90% 10.90% -1.10% 4.90% 10.90% -1.10% 4.90% 10.90%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,935 500,000 500,000 500,000 1,625 1,740 1,855 3,994 4,109 4,224
2 10,117 500,000 500,000 500,000 4,864 5,300 5,751 6,418 6,855 7,306
3 15,558 500,000 500,000 500,000 7,911 8,873 9,905 9,181 10,144 11,175
4 21,270 500,000 500,000 500,000 10,798 12,490 14,375 10,798 12,490 14,375
5 27,269 500,000 500,000 500,000 13,546 16,172 19,214 13,546 16,172 19,214
6 33,567 500,000 500,000 500,000 16,166 19,930 24,472 16,166 19,930 24,472
7 40,181 500,000 500,000 500,000 18,665 23,776 30,200 18,665 23,776 30,200
8 47,125 500,000 500,000 500,000 21,042 27,710 36,447 21,042 27,710 36,447
9 54,416 500,000 500,000 500,000 23,287 31,725 43,255 23,287 31,725 43,255
10 62,072 500,000 500,000 500,000 25,378 35,801 50,663 25,378 35,801 50,663
15 106,490 500,000 500,000 500,000 35,096 59,244 101,960 35,096 59,244 101,960
20 163,180 500,000 500,000 500,000 37,843 83,012 184,358 37,843 83,012 184,358
25 235,533 500,000 500,000 514,033 32,404 106,205 322,042 32,404 106,205 322,042
30 327,876 500,000 500,000 784,168 11,581 123,124 547,061 11,581 123,124 547,061
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates are assumed. Current mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current
administrative expense charges and mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
67
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX NON SMOKER ISSUE AGE 45
$4,935 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
CASH VALUE TEST -- GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
ACCUMULATED IN YEARS 1-15 IN YEARS 1-15 IN YEARS 1-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,935 500,000 500,000 500,000 1,512 1,624 1,736 3,881 3,993 4,105
2 10,117 500,000 500,000 500,000 3,606 3,996 4,400 5,161 5,550 5,955
3 15,558 500,000 500,000 500,000 5,532 6,334 7,199 6,803 7,604 8,470
4 21,270 500,000 500,000 500,000 7,275 8,617 10,129 7,275 8,617 10,129
5 27,269 500,000 500,000 500,000 8,833 10,841 13,198 8,833 10,841 13,198
6 33,567 500,000 500,000 500,000 10,197 12,989 16,410 10,197 12,989 16,410
7 40,181 500,000 500,000 500,000 11,337 15,024 19,745 11,337 15,024 19,745
8 47,125 500,000 500,000 500,000 12,232 16,918 23,194 12,232 16,918 23,194
9 54,416 500,000 500,000 500,000 12,854 18,632 26,738 12,854 18,632 26,738
10 62,072 500,000 500,000 500,000 13,168 20,121 30,351 13,168 20,121 30,351
15 106,490 500,000 500,000 500,000 12,209 26,295 52,988 12,209 26,295 52,988
20 163,180 0 500,000 500,000 0 19,658 75,835 0 19,658 75,835
25 235,533 0 0 500,000 0 0 89,380 0 0 89,380
30 327,876 0 0 500,000 0 0 70,710 0 0 70,710
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates are assumed. Guaranteed mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of guaranteed
administrative expense and mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
68
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NON-SMOKER RATES)
$5,254 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
GUIDELINE TEST -- CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.65% 4.35% 10.35% -1.65% 4.35% 10.35% -1.65% 4.35% 10.35%
ACCUMULATED IN YEARS 1-15 IN YEARS 1-15 IN YEARS 1-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.10% 4.90% 10.90% -1.10% 4.90% 10.90% -1.10% 4.90% 10.90%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,254 500,000 500,000 500,000 1,724 1,847 1,970 4,246 4,369 4,492
2 10,771 500,000 500,000 500,000 5,148 5,612 6,091 6,803 7,267 7,746
3 16,563 500,000 500,000 500,000 8,358 9,380 10,474 9,711 10,732 11,827
4 22,645 500,000 500,000 500,000 11,394 13,187 15,185 11,394 13,187 15,185
5 29,032 500,000 500,000 500,000 14,276 17,055 20,277 14,276 17,055 20,277
6 35,737 500,000 500,000 500,000 17,017 20,998 25,804 17,017 20,998 25,804
7 42,778 500,000 500,000 500,000 19,626 25,028 31,821 19,626 25,028 31,821
8 50,171 500,000 500,000 500,000 22,101 29,144 38,377 22,101 29,144 38,377
9 57,934 500,000 500,000 500,000 24,432 33,339 45,520 24,432 33,339 45,520
10 66,084 500,000 500,000 500,000 26,595 37,592 53,287 26,595 37,592 53,287
15 113,374 500,000 500,000 500,000 36,495 61,922 106,995 36,495 61,922 106,995
20 173,729 500,000 500,000 500,000 38,586 86,073 193,092 38,586 86,073 193,092
25 250,758 500,000 500,000 500,000 31,353 108,821 337,419 31,353 108,821 337,419
30 349,070 500,000 500,000 625,239 6,899 123,862 589,314 6,899 123,862 589,314
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates are assumed. Current mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current
administrative expense charges and mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
69
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NON-SMOKER RATES)
$5,254 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
GUIDELINE TEST -- GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
ACCUMULATED IN YEARS 1-15 IN YEARS 1-15 IN YEARS 1-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,254 500,000 500,000 500,000 1,588 1,706 1,825 4,110 4,228 4,347
2 10,771 500,000 500,000 500,000 3,352 3,749 4,163 5,007 5,404 5,818
3 16,563 500,000 500,000 500,000 4,906 5,697 6,554 6,259 7,049 7,907
4 22,645 500,000 500,000 500,000 6,251 7,540 9,000 6,251 7,540 9,000
5 29,032 500,000 500,000 500,000 7,362 9,246 11,477 7,362 9,246 11,477
6 35,737 500,000 500,000 500,000 8,227 10,795 13,976 8,227 10,795 13,976
7 42,778 500,000 500,000 500,000 8,818 12,146 16,465 8,818 12,146 16,465
8 50,171 500,000 500,000 500,000 9,109 13,261 18,916 9,109 13,261 18,916
9 57,934 500,000 500,000 500,000 9,062 14,087 21,282 9,062 14,087 21,282
10 66,084 500,000 500,000 500,000 8,641 14,570 23,518 8,641 14,570 23,518
15 113,374 500,000 500,000 500,000 3,232 13,971 35,703 3,232 13,971 35,703
20 173,729 0 0 500,000 0 0 38,382 0 0 38,382
25 250,758 0 0 500,000 0 0 11,730 0 0 11,730
30 349,070 0 0 0 0 0 0 0 0 0
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates are assumed. Guaranteed mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return,
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of guaranteed
administrative expense charges and mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
70
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NON-SMOKER RATES)
$5,254 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
CASH VALUE TEST -- CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.65% 4.35% 10.35% -1.65% 4.35% 10.35% -1.65% 4.35% 10.35%
ACCUMULATED IN YEARS 1-15 IN YEARS 1-15 IN YEARS 1-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -1.10% 4.90% 10.90% -1.10% 4.90% 10.90% -1.10% 4.90% 10.90%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,254 500,000 500,000 500,000 1,724 1,847 1,970 4,246 4,369 4,492
2 10,771 500,000 500,000 500,000 5,148 5,612 6,091 6,803 7,267 7,746
3 16,563 500,000 500,000 500,000 8,358 9,380 10,474 9,711 10,732 11,827
4 22,645 500,000 500,000 500,000 11,394 13,187 15,185 11,394 13,187 15,185
5 29,032 500,000 500,000 500,000 14,276 17,055 20,277 14,276 17,055 20,277
6 35,737 500,000 500,000 500,000 17,017 20,998 25,804 17,017 20,998 25,804
7 42,778 500,000 500,000 500,000 19,626 25,028 31,821 19,626 25,028 31,821
8 50,171 500,000 500,000 500,000 22,101 29,144 38,377 22,101 29,144 38,377
9 57,934 500,000 500,000 500,000 24,432 33,339 45,520 24,432 33,339 45,520
10 66,084 500,000 500,000 500,000 26,595 37,592 53,287 26,595 37,592 53,287
15 113,374 500,000 500,000 500,000 36,495 61,922 106,995 36,495 61,922 106,995
20 173,729 500,000 500,000 500,000 38,586 86,073 193,092 38,586 86,073 193,092
25 250,758 500,000 500,000 530,280 31,353 108,821 337,255 31,353 108,821 337,255
30 349,070 500,000 500,000 811,972 6,899 123,862 571,405 6,899 123,862 571,405
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates are assumed. Current mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of current
administrative expense charges and mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
71
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NON-SMOKER RATES)
$5,254 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION B
CASH VALUE TEST -- GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET NET NET NET
PREMIUMS -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
ACCUMULATED IN YEARS 1-15 IN YEARS 1-15 IN YEARS 1-15
END OF AT NET NET NET NET NET NET NET NET NET
POLICY 5% INTEREST -2.05% 3.95% 9.95% -2.05% 3.95% 9.95% -2.05% 3.95% 9.95%
YEAR PER YEAR IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER IN YEARS 16 AND AFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,254 500,000 500,000 500,000 1,588 1,706 1,825 4,110 4,228 4,347
2 10,117 500,000 500,000 500,000 3,352 3,749 4,163 5,007 5,404 5,818
3 16,563 500,000 500,000 500,000 4,906 5,697 6,554 6,259 7,049 7,907
4 22,645 500,000 500,000 500,000 6,251 7,540 9,000 6,251 7,540 9,000
5 29,032 500,000 500,000 500,000 7,362 9,246 11,477 7,362 9,246 11,477
6 35,737 500,000 500,000 500,000 8,227 10,795 13,976 8,227 10,795 13,976
7 42,778 500,000 500,000 500,000 8,818 12,146 16,465 8,818 12,146 16,465
8 50,171 500,000 500,000 500,000 9,109 13,261 18,916 9,109 13,261 18,916
9 57,934 500,000 500,000 500,000 9,062 14,087 21,282 9,062 14,087 21,282
10 66,084 500,000 500,000 500,000 8,641 14,570 23,518 8,641 14,570 23,518
15 113,374 500,000 500,000 500,000 3,232 13,971 35,703 3,232 13,971 35,703
20 173,729 0 0 500,000 0 0 38,382 0 0 38,382
25 250,758 0 0 500,000 0 0 11,730 0 0 11,730
30 349,070 0 0 0 0 0 0 0 0 0
</TABLE>
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates are assumed. Guaranteed mortality and
expense risk charges, administrative fees and
premium load are assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The "Net" percentages in these illustrations
reflect (1) the deduction of guaranteed
administrative expense charges and mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.85% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
72
<PAGE>
[LOGO]
557003 (9/96)
<PAGE>
FEES AND CHARGES REPRESENTATION
The Company represents that the fees and charges deducted under the
Policies, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the Company.
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.
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 6 to this registration statement comprises
the following papers and documents:
The facing sheet;
A cross-reference sheet (reconciliation and tie);
Two prospectuses, consisting of 71 and 72 pages, respectively;
The Fees and Charges Representation;
The undertaking to file reports;
The signatures and Power of Attorney;
Opinion and consent of Mark A. Parsons, Esq.;
Consent of Price Waterhouse LLP, Independent Accountants
<TABLE>
<S> <C>
Exhibit 1. Principal Underwriting Agreement between
Connecticut General Life Insurance Company and
CIGNA Financial Services, Inc. dated as of
December 1, 1997.****
Exhibit 2. Fund Participation Agreements
Agreements between Connecticut General Life
Insurance Company and
(a) Alger American Fund
Incorporated by reference to Post-Effective
Amendment No. 2 to Registration Statement on Form
S-6 (File No. 33-84426) filed by CG Variable
Life Insurance Separate Account I on April 19,
1996.
(b) Fidelity Variable Products Fund*
(c) Fidelity Variable Products Fund II*
(d) MFS Variable Insurance Trust*
(e) OCC Accumulation Trust*
(f) Templeton Variable Product Series Fund*
(g) CIGNA Variable Products Group**
(h) Janus Aspen Series Trust***
(i) BT Insurance Funds Trust
Exhibit 3. Form LN621 -- Flexible Premium Variable Life
Insurance Policy
* -- Incorporated by reference to Post-Amendment
No. 1 to Registration Statement on Form S-6 (File
No. 33-89238) filed by CG Variable Life
Insurance Separate Account II on April 19,
1996.
** -- Incorporated by reference to Post-Effective
Amendment No. 1 to this Registration Statement
filed on April 22, 1997.
*** -- Incorporated by reference to Post-Effective
Amendment No. 2 to this Registration Statement
filed on October 31, 1997.
**** -- Incorporated by reference to
Post-Effective Amendment No. 3 to this
Registration Statement filed on December 29, 1997.
</TABLE>
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has duly caused this Post-Effective Amendment No. 6 to its
Registration Statement on Form S-6 (File No. 333-01741) to be signed on its
behalf by the undersigned thereunto duly authorized, in the Town of Bloomfield
and State of Connecticut on the 20th day of April, 1998.
Registrant certifies that this amendment meets all of the requirements for
effectiveness pursuant to Rule 485(b) under the Securities Act of 1933.
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
(REGISTRANT)
By /s/ IAN A. GLEW
--------------------------------------------------
Ian A. Glew
Senior Vice President
Connecticut General Life Insurance Company
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(DEPOSITOR)
By /s/ IAN A. GLEW
--------------------------------------------------
Ian A. Glew
Senior Vice President
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 6 to this Registration Statement (File No.
333-01741) has been signed below on April 20, 1998 by the following persons, as
officers and directors of the Depositor, in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------
<C> <S>
/s/ *
------------------------------------------- President and Director
Thomas C. Jones (Principal Executive Officer)
/s/ JOHN WILKINSON
------------------------------------------- Vice President and Actuary
John Wilkinson (Principal Financial Officer)
/s/ *
------------------------------------------- Assistant Vice President
Dominic A. DellaVolpe (Principal Accounting Officer)
/s/ *
------------------------------------------- Director
Harold W. Albert
/s/ *
------------------------------------------- Director
Robert W. Burgess
/s/ *
------------------------------------------- Director
John G. Day
/s/ *
------------------------------------------- Director
Joseph M. Fitzgerald
/s/ *
------------------------------------------- Director
H. Edward Hanway
/s/ *
------------------------------------------- Director
Carol M. Olsen
/s/ *
------------------------------------------- Director
John E. Pacy
/s/ *
------------------------------------------- Director
Marc L. Preminger
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------
<C> <S>
/s/ *
------------------------------------------- Director
Patricia L. Rowland
/s/ *
------------------------------------------- Director
W. Allen Schaffer, M.D.
By /s/ JOHN WILKINSON
-------------------------------------------
John Wilkinson
ATTORNEY-IN-FACT
(A Majority of the Directors)
</TABLE>
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Connecticut General Life
Insurance Company, hereby severally constitute and appoint John Wilkinson and
Mark A. Parsons, and each of them individually, our true and lawful attorneys-
in-fact, with full power to them and each of them to sign for us, in our names
and in the capacities indicated below, any and all amendments to Registration
Statement No. 333-01741 filed with the Securities and Exchange Commission under
the Securities Act of 1933, on behalf of the Company in its own name or in the
name of one of its Separate Accounts, hereby ratifying and confirming our
signatures as they may be signed by either of our attorneys-in-fact to any such
Registration Statement.
WITNESS our hands and common seal on this 12th day of March, 1998.
SIGNATURE TITLE
- ----------------------------------- -------------------------
/S/ THOMAS C. JONES
- ----------------------------------- President (Principal
Thomas C. Jones Executive Officer)
/S/ JOHN WILKINSON Vice President and
- ----------------------------------- Actuary (Principal
John Wilkinson Financial Officer)
/S/ DOMINIC A. DELLAVOLPE Assistant Vice President
- ----------------------------------- (Principal Accounting
Dominic A. DellaVolpe Officer)
/S/ HAROLD W. ALBERT
- ----------------------------------- Director
Harold W. Albert
/S/ ROBERT W. BURGESS
- ----------------------------------- Director
Robert W. Burgess
/S/ JOHN G. DAY
- ----------------------------------- Director
John G. Day
/S/ JOSEPH M. FITZGERALD
- ----------------------------------- Director
Joseph M. Fitzgerald
/S/ H. EDWARD HANWAY
- ----------------------------------- Director
H. Edward Hanway
/S/ CAROL M. OLSEN
- ----------------------------------- Director
Carol M. Olsen
/S/JOHN E. PACY
- ----------------------------------- Director
John E. Pacy
/S/ MARC L. PREMINGER
- ----------------------------------- Director
Marc L. Preminger
/S/ PATRICIA L. ROWLAND
- ----------------------------------- Director
Patricia L. Rowland
/S/ W. ALLEN SCHAFFER, M.D.
- ----------------------------------- Director
W. Allen Schaffer, M.D.
<PAGE>
<TABLE>
<S> <C>
MARK A. PARSONS
CHIEF COUNSEL [LOGO]
</TABLE>
Legal Department,
S-215
Hartford, CT
06152-2215
Telephone: (860)
726-7673
Facsimile: (860)
572-8885
April 22, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: CG Corporate Insurance Variable Life Separate Account 02
Connecticut General Life Insurance Company
Post-Effective Amendment Number 6, Form S-6: 333-01741
Dear Sirs:
As Chief Counsel of the CIGNA Retirement and Investment Services Division of the
CIGNA Companies, I am familiar with the actions of the Board of Directors of
Connecticut General Life Insurance Company (the "Company"), establishing the
Account and its method of operation and authorizing the filing of a Registration
Statement under the Securities Act of 1933, (and amendments thereto) for the
securities to be issued by the Account and the Investment Company Act of 1940
for the Account itself.
In the course of preparing this opinion, I have reviewed the Certificate of
Incorporation and the By-Laws of the Company, the Board actions with respect to
the Account, and such other matters as I deemed necessary or appropriate. Based
on such review, I am of the opinion that the variable life insurance policies
(and interests therein) which are the subject of Post-Effective Amendment No. 6
to said Registration Statement under the Securities Act of 1933 for the Account,
will, when issued, be legally issued and will represent binding obligations of
the Company, the depositor for the Account.
I further consent to the use of this opinion as an Exhibit to Post-Effective
Amendment No. 6 to said Registration Statement and to the reference to me under
the heading Experts in said Registration Statement, as amended.
Very truly yours,
Mark A. Parsons
Chief Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectuses constituting part of this
Post-Effective Amendment No. 6 to the registration statement of the CG Corporate
Insurance Variable Life Separate Account 02 on Form S-6 of our reports dated
February 10, 1998 and February 20, 1998, relating to the consolidated financial
statements of Connecticut General Life Insurance Company and the financial
statements of CG Corporate Insurance Variable Life Separate Account 02 of
Connecticut General Life Insurance Company, respectively, which appear in such
Prospectuses. We also consent to the reference to us under the heading "Experts"
in such Prospectuses.
PRICE WATERHOUSE LLP
Hartford, Connecticut
April 21, 1998
