<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1999
FILE NO. 333-01741
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 8 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) 534-4100
<TABLE>
<S> <C>
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 March 19, 1999 for Registrant's fiscal year ended
December 31, 1998.
It is proposed that this filing will become effective:
_________ immediately upon filing pursuant to paragraph (b) of Rule 485
_________ on _______, pursuant to paragraph (b) of Rule 485
____X____ 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
<TABLE>
<CAPTION>
ITEM OF FORM N-8B-2 LOCATION IN PROSPECTUS
- ------------------- -------------------------------------------------------
<S> <C>
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM N-8B-2 LOCATION IN PROSPECTUS
- ------------------- -------------------------------------------------------
<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 *
</TABLE>
* Not Applicable
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Preliminary Prospectus Dated April 21, 1999
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
[LOGO]
<TABLE>
<S> <C>
HOME OFFICE LOCATION: MAILING ADDRESS:
900 COTTAGE GROVE ROAD CIGNA
BLOOMFIELD, CONNECTICUT CORPORATE VARIABLE PRODUCTS SERVICE CENTER
P.O. BOX 2975
ROUTING H14A
HARTFORD, CT 06104
(860) 534-4100
</TABLE>
- --------------------------------------------------------------------------------
THE CORPORATE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
This prospectus describes a flexible premium variable life insurance
contract (the "Policy") offered by Connecticut General Life Insurance Company
(the "Company", "we, us, our/ours").
Policy features:
- life insurance benefits on an individual (or joint and survivor see
page 23) basis;
- flexible premium payments (see page 15);
- a choice of underlying funding options (see page 8); and
- a choice of three death benefit options (see page 13).
The Policy values vary with the investment performance of the underlying
fund options you select. The amount of money paid by us upon the death of the
Insured (the "death benefit") may also vary during the life of the Policy. When
you notify us of the Insured's death, we will pay the beneficiary(ies) the
Policy's death benefit in a lump sum or through an equivalent annuity option.
We offer seventeen funds in this Policy through a separate account. Each
fund (commonly called a mutual fund) diversifies its investments and offers
unlimited shares for sale. Each fund has a different investment objective. The
funds are as follows:
<TABLE>
<S> <C>
THE ALGER AMERICAN FUND JANUS ASPEN SERIES
Alger American Small Capitalization Portfolio Worldwide Growth Portfolio
Alger American MidCap Growth Portfolio
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE
Alger American Growth Portfolio TRUST-SM-
MFS Emerging Growth Series
BT INSURANCE FUNDS TRUST MFS Total Return Series
EAFE-Registered Trademark- Equity Index Fund
Small Cap Index Fund OCC ACCUMULATION TRUST
OCC Equity Portfolio
CIGNA VARIABLE PRODUCTS GROUP OCC Managed Portfolio
CIGNA VP Money Market Fund OCC Small Cap Portfolio
CIGNA VP S&P 500 Index Fund
CIGNA VP Investment Grade Bond Fund TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton International Fund Class 1
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Equity-Income Portfolio
VIP High Income Portfolio
</TABLE>
The Policy also offers a Fixed Account, which credits a fixed amount of
interest to policy values in that account. We guarantee the amounts held in the
Fixed Account. We also guarantee that the funds will earn interest at a rate at
least equal to the lesser of (a) 4% per year, or (b) the prevailing 30-day
Treasury Bill Rate as of the last day of the previous calendar month. Unless
specifically mentioned, this prospectus only describes the variable investment
options.
It may not be in your best interest to replace existing insurance with this
Policy. It also may not be in your best interest to supplement existing flexible
premium variable life insurance with this Policy. You should read this entire
prospectus, and those of the funds, to understand the Policy.
TO BE VALID, THIS PROSPECTUS MUST HAVE THE CURRENT MUTUAL FUNDS' PROSPECTUSES
WITH IT. KEEP THEM ALL FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A
CRIMINAL OFFENSE TO STATE OTHERWISE.
PROSPECTUS DATED: MAY , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Technical Terms................................. 3
Highlights...................................... 4
Initial Choices............................... 4
Charges and Fees.............................. 4
Expense Data.................................. 6
The Company..................................... 8
The Variable Account............................ 8
The Funds....................................... 8
General....................................... 11
Substitution of Securities.................... 11
Voting Rights................................. 12
Fund Participation Agreements................. 12
Death Benefit................................... 12
Death Benefit Options....................... 12
Changes in Death Benefit Option............. 13
Payment of Death Benefit.................... 13
Changes in Specified Amount................. 14
Premium Payments; Transfers..................... 14
Premium Payments............................ 14
Allocation of Net Premium Payments.......... 15
Transfers................................... 16
Charges; Fees................................... 16
Premium Charges............................. 16
Policy Issue Fee............................ 17
Monthly Deductions.......................... 17
Daily Deductions............................ 17
Administrative Fee.......................... 17
Mortality and Expense Risk Charge........... 17
Transaction Fee for Excess Transfers........ 17
Surrenders During First Two Policy Years --
Refund of Portion of Premium Charge........ 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
<CAPTION>
PAGE
-----------
<S> <C>
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
Joint and Survivorship Benefit.................. 23
Other Policy Provisions......................... 23
Issuance.................................... 23
Short-Term Right to Cancel the Policy....... 23
Policy Owner................................ 24
Beneficiary................................. 24
Right to Exchange for a Fixed Benefit
Policy..................................... 24
Incontestability............................ 24
Misstatement of Age......................... 25
Suicide..................................... 25
Nonparticipating Policies................... 25
Tax Matters..................................... 25
Policy Proceeds............................. 25
Taxation of the Company..................... 27
Other Matters................................... 27
Directors and Officers of the Company....... 27
Distribution of Policies.................... 28
Changes of Investment Policy................ 28
Other Contracts Issued by the Company....... 28
State Regulation............................ 28
Reports to Policy Owners.................... 28
Advertising................................. 29
Legal Proceedings........................... 29
Experts..................................... 29
Registration Statement...................... 29
Year 2000................................... 30
Financial Statements........................ 31
Appendix 1...................................... 74
Illustration of Accumulation Values,
Surrender Values, and Death Benefits....... 76
</TABLE>
2
<PAGE>
TECHNICAL TERMS
ACCUMULATION UNIT: A unit of measure used to calculate the value of a Variable
Account sub-account.
ACCUMULATION VALUE: The sum of your interest in the Fixed Account value (see
page 18), your interest in the Variable Account value (see page 8) and the loan
account value.
CASE: A group of policies covering individuals with common employment or other
relationship, independent of the policies.
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".
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.
GRACE PERIOD: The 61-day period following a monthly anniversary day on which a
Policy's net accumulation value is insufficient to cover the current monthly
deduction. We will send a notice at least 31 days before the end of the grace
period that the Policy will lapse without value unless we receive a sufficient
payment (described in the notification letter).
GUIDELINE ANNUAL PREMIUM: The level amount, calculated in accordance with Rule
6e-3(T) under the Investment Company Act of 1940, required to mature the Policy
under guaranteed mortality and expense charges and an annual interest rate of
5%.
MONTHLY ANNIVERSARY DAY: The day of the month, as shown in the Policy
Specifications, when we make the monthly deduction; or, if that day is not a
valuation day or is nonexistent for that month, the next valuation day.
NET ACCUMULATION VALUE: The accumulation value less the loan account value.
POLICY YEAR: Each twelve-month period, beginning on the issue date, during which
the Policy is in effect.
RIGHT-TO-EXAMINE PERIOD: The period of time following the issuance of the Policy
during which you may return the Policy and receive a refund of premiums paid.
This period is the latest of (a) ten days after the Policy is received, unless
stipulated otherwise by state law requirements, (b) ten days after we mail or
personally deliver to you a notice of withdrawal right, or (c) 45 days after you
sign the application for the Policy.
SPECIFIED AMOUNT: The amount you choose which is used in determination of the
death benefit and which you may increase or decrease as described in this
prospectus. We exclude the additional insurance benefit 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 (see page 8) which is invested
in shares of a specific fund.
SURRENDER VALUE: The amount you can receive in cash by surrendering the Policy.
This equals the net accumulation value plus any premium charge credits if the
surrender occurs within 24 months of issue.
VALUATION DAY: Every day on which accumulation units are valued. This will
include any day on which the New York Stock Exchange is open, but not 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.
3
<PAGE>
HIGHLIGHTS
This section is an overview of key Policy features.
Regulations in your state may vary the provisions of your
own Policy. The Policy is a flexible premium variable life
insurance policy. Its value may change on a:
a) fixed basis;
b) variable basis; or
c) combination of both fixed and variable bases.
INITIAL CHOICES
TO BE MADE
When purchasing a Policy, you have three important choices
to make:
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
The death benefit is the amount we pay to the
beneficiary(ies) when the Insured dies. Before we pay the
beneficiary(ies) any outstanding loan account balances or
outstanding amounts due are subtracted from the death
benefit. We calculate the death benefit payable as of the
date on which the Insured died.
When you purchase your Policy, you must choose one of three
death benefit options:
1) Option A -- a varying death benefit equal to the greater
of:
a) the specified amount plus the accumulation value; or
b) the corridor death benefit.
2) Option B -- a level death benefit equal to the greater
of:
a) the specified amount, or
b) the corridor death benefit.
3) Option C -- a "return of premium" death benefit equal to
the greater of:
a) the specified amount plus the sum of the premiums
paid; or
b) the corridor death benefit.
AMOUNT OF
PREMIUM PAYMENT
When you apply for your Policy, you must decide how much
premium to pay. Premium payments may be changed within the
limits described on page 15. If you change your premium
payments, however, your Policy may continue in force but it
might also lapse if you don't pay enough premium to maintain
a positive net accumulation value. If your Policy lapses
because your monthly deduction is larger than the net
accumulation value, you may reinstate your Policy. See page
21.
SELECTION OF
FUNDING
VEHICLE(S)
You must choose the fund(s) in which you want to place your
net premium payment(s). For each fund, we maintain a
separate sub-account which invests in shares of that fund.
These fund sub-accounts make up the Variable Account (see
page 8). A variable sub-account is not guaranteed and will
increase or decrease in value according to the particular
fund's investment performance. (See page 19.) You may also
choose to place part or all of your net premium payment(s)
into the Fixed Account.
Your initial premium payment will be deposited in the CIGNA
Variable Products Group's Money Market Fund during the
Right-to-Examine Period as described in "Short-Term Right to
Cancel the Policy". (See page 23.)
CHARGES
AND FEES
We will deduct a premium charge of 6.5% from each premium
payment for sales expenses, premium taxes and other tax
liabilities.
We also deduct the following:
- a 40% premium charge on premium payments up to one
guideline annual premium in the first policy year.
4
<PAGE>
If your specified amount is increased, other than through a
change in a death benefit option, we will deduct an
additional premium charge of 25% of the premium payment(s)
up to the increase in the one guideline annual premium
during the first 12 months of the increase. This charge will
be applied to the extent that the premium payment(s) are
attributable to the increase in the specified amount rather
than to the previously existing specified amount.
We deduct monthly charges for:
1) Cost of Insurance, and
2) any additional insurance benefit.
We also deduct the following administrative expenses:
1) a one-time charge of $250 at issue,
2) monthly deductions of $8 per month,
3) daily charges from the policy values for the first ten
policy years (currently at an annual rate of .10% of the
value of the assets in the accounts).
Daily charges for the mortality and expense risk are
deducted from the Variable Account value and the Fixed
Account value. Currently these charges are at an annual rate
of:
1) .85% of the value of the assets during the first ten
policy years, and
2) .45% of the value of the assets in the accounts during
policy years eleven through fifteen, and
3) .15% of the Policy value thereafter.
Each fund has its own management fee charge, also deducted
daily. Each fund's expense levels will affect its investment
results. The table on pages 6-7 shows current expense levels
for each fund as of December 31, 1998.
We charge a transaction fee of $25 for each partial
surrender and for certain transfers in excess of four per
policy year.
We will charge interest 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% per year in policy years 11-15, and
- .15% per year thereafter.
For additional information, see "Charges; Fees" beginning on
page 16 and Expense Data on pages 6 and 7.
REDUCTION OF
CHARGES
This Policy is available for purchase by corporations or
other groups or sponsoring organizations on a case basis. We
may reduce premium charges or any other charges on cases
where we expect that the amount or nature of the case will
result in savings of sales, underwriting, administrative or
other costs. Eligibility for and the amount of reduction
will be determined by a number of factors, including:
- number of lives to be insured;
- total premium(s) expected to be paid;
- total assets you have under our management;
- the nature of the relationship among the insured
individuals;
- the purpose for which the Policies are being purchased;
- expected persistency of the Policies as a whole, and
- any other circumstances which we believe to be relevant to
the expected reduction of our expenses.
Some reductions may be guaranteed. Other reductions may be
subject to withdrawal or modification by us on a uniform
case basis. Reductions in charges will not be unfairly
discriminatory to any policy owners.
5
<PAGE>
EXPENSE DATA
The purpose of the following table is to help purchasers and prospective
purchasers understand the costs and expenses that they will bear, directly and
indirectly, 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 7.)
FEE TABLE
<TABLE>
<CAPTION>
ALGER AMERICAN FUNDS BT INSURANCE FUNDS TRUST CIGNA VARIABLE PRODUCTS
--------------------------------- ------------------------- ------------------------------
MIDCAP EAFE-REGISTERED TRADEMARK- MONEY S&P 500 INVESTMENT
SMALL CAP GROWTH GROWTH EQUITY INDEX SMALL CAP MARKET INDEX GRADE BOND
PORTFOLIO PORTFOLIO PORTFOLIO FUND INDEX FUND FUND FUND FUND
--------- --------- --------- ------------ ---------- -------- ------- ----------
<S> <C> <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% 0.85%
Administrative Expense
Charge.................. 0.10% 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% 0.95%
--- --- --- ------ ---------- -------- ------- ----------
--- --- --- ------ ---------- -------- ------- ----------
FUND PORTFOLIO ANNUAL
OPERATING EXPENSES
Management Fees.......... 0.85 0.80 0.75 0.45 0.35 0.35 0.25 0.50
Other Expenses........... 0.04 0.04 0.04 1.21 1.23 0.38 0.22 0.15
--- --- --- ------ ---------- -------- ------- ----------
Total Gross Expenses..... 0.89 0.84 0.79 1.66 1.58 0.73 0.47 0.65
Waivers and
Reimbursements.......... 0.00 0.00 0.00 (1.01) (1.13) (0.23) (0.22) (0.15)
--- --- --- ------ ---------- -------- ------- ----------
TOTAL NET FUND PORTFOLIO
ANNUAL OPERATING
EXPENSES................ 0.89 0.84 0.79 0.65(1) 0.45(1) 0.50(2) 0.25(2) 0.50(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, 2000, the Funds' adviser has agreed to bear expenses of the
Funds so that Total Fund Portfolio Annual Operating Expenses do not exceed
0.50% of average daily net asset value for the VP Money Market and the
Investment Grade Bond Funds and 0.25% for the VP S&P 500 Index Fund,
respectively. Otherwise, Total Fund Portfolio Annual Operating Expenses
would have been 0.73% and 0.44% of average daily net asset value for 1998
for the VP Money Market and the VP S&P 500 Index Funds, respectively.
6
<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 charges,
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 the 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>
JANUS MFS-REGISTERED TRADEMARK-
FIDELITY VARIABLE INSURANCE ASPEN VARIABLE INSURANCE
PRODUCTS FUNDS SERIES TRUST-REGISTERED TRADEMARK-
- ------------------------------------------ --------- --------------------
EQUITY- INVESTMENT WORLDWIDE EMERGING TOTAL
HIGH INCOME INCOME GRADE BOND GROWTH GROWTH RETURN
PORTFOLIO PORTFOLIO PORTFOLIO(3) PORTFOLIO SERIES SERIES
- ------------- --------- ---------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
0.85 % 0.85% 0.85% 0.85% 0.85% 0.85%
0.10 % 0.10% 0.10% 0.10% 0.10% 0.10%
- --- --------- ----- --------- -------- -------
0.95 % 0.95% 0.95% 0.95% 0.95% 0.95%
- --- --------- ----- --------- -------- -------
- --- --------- ----- --------- -------- -------
0.58 % 0.49% 0.43% 0.67% 0.75% 0.75%
0.12 % 0.09% 0.14% 0.07% 0.10%(5) 0.16%(6)
- --- --------- ----- --------- -------- -------
0.70 % 0.58% 0.57% 0.74% 0.85% 0.91%
0.00 % (0.01)% 0.00% (0.02)% 0.00% 0.00%
- --- --------- ----- --------- -------- -------
0.70 %(4) 0.57%(4) 0.57%(4) 0.72%(5) 0.85% 0.91%
- --- --------- ----- --------- -------- -------
- --- --------- ----- --------- -------- -------
<CAPTION>
TEMPLETON
VARIABLE
FIDELI PRODUCTS
-------------
- ------------- OCC TRUST TEMPLETON
---------------------------------------- INTERNATIONAL
HIGH INCOME EQUITY MANAGED SMALL CAP FUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO CLASS 1
- ------------- ------------- ------- --------- -------------
<S> <C> <C> <C> <C>
0.85 % 0.85% 0.85% 0.85% 0.85%
0.10 % 0.10% 0.10% 0.10% 0.10%
- --- ------ ------- --------- -----
0.95 % 0.95% 0.95% 0.95% 0.95%
- --- ------ ------- --------- -----
- --- ------ ------- --------- -----
0.58 % 0.80% 0.78% 0.80% 0.69%
0.12 % 0.14%(7) 0.04%(7) 0.08%(7) 0.17%
- --- ------ ------- --------- -----
0.70 % 0.94%(8) 0.82%(8) 0.88%(8) 0.86%
0.00 % 0.00% 0.00% 0.00% 0.00%
- --- ------ ------- --------- -----
0.70 %(4) 0.94% 0.82% 0.88% 0.86%
- --- ------ ------- --------- -----
- --- ------ ------- --------- -----
</TABLE>
- ------------------------------
(3) The Fidelity VIP II Investment Grade Bond Fund will no longer be available
to accept new allocations of premium or receive transfers of existing funds
from other sub-accounts on or after May 1, 1999.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
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. The total operating expenses, after
reimbursement for High Income Portfolio and Equity-Income Portfolio,
reflect these reductions in the table above.
(5) All expenses are based on gross expenses of the Shares before expense
offset arrangements for the fiscal year ended December 31, 1998. 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 0.61%, 0.07% and 0.74%. Janus Capital has agreed to
continue the fee reduction until at least the next annual renewal of the
Advisory Agreement.
(6) Each series has an expense offset arrangement that reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series expenses. Expenses do not take
into account these expense reductions and are, therefore, higher than the
actual expenses of the series.
(7) Other Expenses are shown gross of expense offsets afforded the Portfolios
which effectively lowered overall custody expenses.
(8) Total Gross Portfolio Expenses for the Equity, Small Cap and Managed
Portfolios are limited by OpCap Advisors so that their respective
annualized expenses (net of any expense offsets) do not exceed 1.00% of
average daily net assets.
7
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THE COMPANY
The Company is a Connecticut life insurance company
incorporated in 1865, located at 900 Cottage Grove Road,
Hartford, Connecticut. Wholly owned by Connecticut General
Corporation and, in turn, by CIGNA Holdings, Inc. and CIGNA
Corporation, it is licensed to do business in all states,
the District of Columbia, Puerto Rico, and the U.S. Virgin
Islands.
The Company's Home Office mailing address is CIGNA, H14A,
P.O. Box 2975, Hartford, Connecticut 06104. The telephone
number is 860-534-4100.
THE VARIABLE
ACCOUNT
CG Corporate Insurance Variable Life Separate Account 02
("Variable Account") is a "separate account" of the Company
established pursuant to a February 23, 1996 resolution of
our Board of Directors.
Under Connecticut law, the assets of the Variable Account
attributable to the Policies, though our property, are not
chargeable with liabilities of any other business of the
Company and are available first to satisfy our obligations
under the Policies. The Variable Account income, gains, and
losses are credited to or charged against the Variable
Account without regard to our other income, gains, or
losses. We do not guarantee the Variable Account's values
and investment performance. All distributions made by the
funds with respect to the shares held by the Variable
Account will be reinvested in additional shares at net asset
value.
The Variable Account is divided into sub-accounts, each of
which is invested solely in the shares of one of the funds.
On each valuation day, net premium payments allocated to the
Variable Account will be invested in fund shares at net
asset value, and monies necessary to pay for deductions,
charges, transfers and surrenders from the Variable Account
are raised by selling shares of the funds at net asset
value.
We hold shares of the Variable Account through an open
account system, which makes the issuance and delivery of
stock certificates unnecessary.
The Variable Account is registered with the Securities and
Exchange Commission (the "Commission") as a unit investment
trust under the Investment Company Act of 1940 ("1940 Act").
Such registration does not involve Commission supervision of
the Variable Account's or our management, investment
practices, or policies.
We have other registered separate accounts which fund other
variable life insurance policies and variable annuity
contracts.
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 eight 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 in this prospectus as the "Trusts".
The eight Trusts and their investment advisers and
distributors are:
Alger American Fund ("Alger Trust"), managed by Fred
Alger Management, Inc., 1 World Trade Center, Suite
9333, New York, NY 10048 and distributed by Fred Alger &
Company, Incorporated, 30 Montgomery Street, Jersey
City, NJ 07302;
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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 06104.
Fidelity Variable Insurance Products Fund ("Fidelity
VIP"), managed by Fidelity Management & Research Company
and distributed by Fidelity Distributors Corporation, 82
Devonshire Street, Boston, MA 02109.
Janus Aspen Series ("Janus Series"), managed by Janus
Capital Corporation, 100 Fillmore Street, Denver, CO
80206-4923, and distributed by Janus Distributors, Inc.
MFS-Registered Trademark- Variable Insurance Trust-SM-
("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.
Templeton Variable Products Series Fund ("Templeton
Trust"), Templeton International Fund managed by
Templeton Investment Counsel, Inc., 500 E. Broward
Blvd., Broward Financial Center, 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.
Three funds of the CIGNA GROUP are available under the
Policies:
CIGNA VP Money Market Fund;
CIGNA VP S&P 500 Index Fund;
CIGNA VP Investment Grade Bond Fund.
Two funds of FIDELITY VARIABLE INSURANCE PRODUCTS FUND
(FIDELITY VIP) are available under the Policies:
Fidelity VIP Equity-Income Portfolio;
Fidelity VIP High Income 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;
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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
advisors are shown on pages 6 and 7 of this Prospectus.
A brief description of the investment objective and program
of each fund follows. We can give 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. It focuses
on small, fast-growing companies that offer innovative
products, services or technologies to a rapidly expanding
marketplace. Under normal circumstances, the portfolio
invests primarily in the equity securities of small
capitalization companies. A small capitalization company is
one that has a market capitalization within the range of the
Russell 2000 Growth Index or the S&P SmallCap 600 Index.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO (MID CAP STOCKS):
Seeks long-term capital appreciation. It focuses on midsize
companies with promising growth potential. Under normal
circumstances, the portfolio invests primarily in the equity
securities of companies having a market capitalization
within the range of companies in the S&P MidCap 400 Index.
ALGER AMERICAN GROWTH PORTFOLIO (LARGE CAP STOCKS): Seeks
long-term capital appreciation. It focuses on growing
companies that generally have broad product lines, markets,
financial resources and depth of management. Under normal
circumstances, the portfolio invests primarily in the equity
securities of large companies. The portfolio considers a
large company to have a market capitalization of $1 billion
or greater.
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, Australasia, 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.
CIGNA VP INVESTMENT GRADE BOND FUND (INVESTMENT GRADE
BONDS): Seeks as high a level of current income as is
consistent with reasonable concern for safety of principal
by investing primarily in a broad range of investment grade
fixed income securities.
FIDELITY VIP EQUITY-INCOME PORTFOLIO (LARGE CAP STOCKS):
Seeks reasonable income by investing primarily in
income-producing equity securities, with some potential for
capital appreciation, seeking a yield that exceeds the
composite yield on the securities comprising the Standard
and Poor's Composite Index of 500 Stocks.
FIDELITY VIP HIGH INCOME PORTFOLIO (HIGH YIELD BONDS): Seeks
high current income by investing at least 65% of total
assets in income-producing debt securities, preferred stocks
and convertible securities, with an emphasis on lower
quality securities.
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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 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.
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 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.
TEMPLETON INTERNATIONAL FUND CLASS 1 (INTERNATIONAL STOCKS):
Seeks long-term capital growth by investing in stocks of
companies located outside the United States.
The CIGNA VP Investment Grade Bond Fund, 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.
GENERAL
We can give you no assurance that the investment objective
of any of the funds will be met. You will bear 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. You should read each fund's prospectus
carefully and understand the funds' relative degrees of risk
before making or changing investment choices. We may make
additional funds available from time to time. Your right to
make such selections, however, will be limited by the terms
and conditions imposed by us on such transactions.
SUBSTITUTION OF SECURITIES
If the shares of any fund should no longer be available for
investment by the Variable Account or if, in our judgement,
further investment in such shares should become
inappropriate in view of the investment objectives of the
Policies, we may substitute shares of another fund. We will
make no substitution of securities in any sub-account
without prior approval of the Commission and under such
requirements as it may impose.
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VOTING RIGHTS
We 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 our view of
present applicable law, we will vote in accordance with
written instructions received from persons having the voting
interest in the Variable Account. We will vote the shares
for which we have not received instructions, as well as
shares attributable to us, in the same proportion as we vote
shares for which we have received instructions. The series
funds do not hold regular meetings of shareholders.
The number of shares which you have a right to vote will be
determined as of a date chosen by the appropriate series
fund but not more than sixty (60) days prior to the meeting
of the particular series fund. We will solicit voting
instructions by written communication at least fourteen (14)
days prior to the meeting.
The fund's shares are issued and redeemed only in connection
with variable annuity contracts and variable life insurance
policies issued through our separate accounts and the
separate accounts of other life insurance companies and, in
some cases, qualified plans. The management of the series
funds do not see any disadvantage to you 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 ours and
other life insurance companies' separate accounts.
Nevertheless, the series funds' boards intend to monitor
events in order to identify any material irreconcilable
conflicts which may arise and to determine what action, if
any, they should take in response. 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
We have entered into agreements with the various Trusts and
their advisers or distributors. Under these agreements, we
make the funds available under the Policies and perform
certain administrative services. In some cases, the advisers
or distributors may compensate us for these services.
DEATH BENEFIT
DEATH BENEFIT OPTIONS
We offer three different death benefit options. The amount
payable under each is determined as of the date of the
Insured's death. Option B will be in effect unless you
elected Option A or Option C in your application for the
Policy or unless a change has been allowed:
- 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 you
pay and the investment performance of the funds you chose.
- 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.
- Option C -- the death benefit will be the greater of the
specified amount plus the premium payments you make, or
the corridor death benefit.
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Option C provides a death benefit which increases based on
premium payments.
Under each option 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
We will allow a death benefit option change upon your
written request. You must make your request to the Corporate
Variable Products Service Center in a form satisfactory to
us, 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.
PAYMENT OF DEATH BENEFIT
We will compute the death benefit under the Policy as of the
date of the Insured's death. We will pay it 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 you or
the beneficiary have elected that it be paid under one or
more of any settlement options (see "Settlement Options") we
may make available. We may delay payment of the death
benefit if the Policy is being contested.
While the Insured is living, you may elect a settlement
option, if available, for the beneficiary and deem it
irrevocable by the beneficiary. Or, you may revoke or change
a prior election while the Insured is living. The
beneficiary may make or change an election within 90 days of
the death of the Insured, unless you have made an
irrevocable election.
All or part of the death benefit may be applied under one or
more of the settlement options we may make available.
If you assign the Policy as collateral security, we will pay
any amount due the assignee in one lump sum. We will pay any
excess death benefit due 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 Internal Revenue Code of 1986, as
amended ("the Code"). At the time of purchase, you must
choose a Policy which uses either the guideline premium test
or the cash value accumulation test. Both methods
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require a life insurance Policy to meet minimum ratios of
life insurance coverage to accumulation value ("applicable
percentages"). You cannot change the selection after the
Policy's issue date.
The applicable percentages for the guideline premium test
decrease over time and are
- 250% through attained age 40;
- 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 you may pay into a life insurance policy for a
specified death benefit.
The cash value accumulation test does not limit premiums
which you may pay 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 25-27 of this prospectus.
CHANGES IN SPECIFIED AMOUNT
You may make changes in the specified amount of a Policy by
submitting a written request to the Corporate Variable
Products Service Center in a form satisfactory to us.
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 charge on premium payments up to
the increase in target premium on premium payments
received during the 12 months following the increase. The
additional premium charge will be applied to the portion
of premium payments that are attributable to the increase
in 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 as life
insurance under the Code.
PREMIUM
PAYMENTS;
TRANSFERS
PREMIUM PAYMENTS
The Policies provide for flexible premium payments. You
select the frequency and amount of premium payments. 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. We
reserve the right to decline any application or premium
payment.
After the initial premium payment, you must send all premium
payments directly to the Corporate Variable Products Service
Center. They will be deemed received when they are actually
received there.
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You 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.
NET PREMIUM PAYMENTS are the balance of premium payments
remaining after we deduct the premium charge.
PREMIUM INCREASES. At any time, you may increase planned
premiums or pay additional premiums, but:
- We may request evidence of insurability 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 we request
satisfactory evidence of insurability and you do not
provide it, we will refund the increase in premium
without interest and without participation of such
amounts in any underlying funding options.
- The total of all premium payments may not 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 limitation, we
will only accept that portion of the payment that will
make total premiums equal to the maximum. We will return,
or apply as otherwise agreed, any part of the premium
payment in excess of that amount 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, we will use any
additional net premium payments first as a loan
repayment. Any excess will be applied as an additional
net premium payment.
ALLOCATION OF NET PREMIUM PAYMENTS
When you purchase a Policy, you must decide how to allocate
net premium payments among the sub-accounts and the Fixed
Account. For each Variable Account sub-account, we convert
the net premium payment 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. See "Policy Values -- Accumulation Value;
Variable Accumulation Unit Value" at page 19 of this
prospectus.
During the Right-to-Examine Period, we will allocate the net
premium payment to the CIGNA VP Group Money Market Fund of
the Variable Account. Earnings will be credited from the
later of the issue date or the date the premium payment was
received. We will allocate the net premium payment directly
to the sub-account(s) you selected 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 you direct us otherwise, we will allocate subsequent
net premium payments on the same basis as the most recent
previous net premium payment as of the next valuation period
after each payment is received.
You may change the allocation for future net premium
payments at any time free of charge, effective for premium
payments made more than one week after we receive notice of
the new allocation.
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TRANSFERS
You may transfer values ($500 minimum) at any time from one
sub-account to another. You may also transfer a portion of
one or more sub-accounts to the Fixed Account within the 30
days prior to each policy anniversary. We allow transfers
from the Fixed Account in the 30-day period following a
policy anniversary. They will be effective as of the next
valuation day after your request is received by the
Corporate Variable Products Service Center in good order.
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. We may
further limit transfers from the Fixed Account at any time.
Subject to the above restrictions, you may make up to four
transfers without charge in any policy year and any value
remaining in the Fixed Account or a sub-account after a
transfer must be at least $500. You must make transfers in
writing unless we have previously approved other
arrangements. A $25 charge will 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 your written request is received at the Corporate
Variable Products Service Center. The Corporate Variable
Products Center must receive transfer requests by 4:00 p.m.
Eastern Time in order to be effective that day. Any transfer
you make that causes the remaining value of the accumulation
units for a sub-account to be less than $500 will result in
the remaining accumulation units being cancelled and their
aggregate value reallocated proportionately among the other
funding options you chose. You should carefully consider
current market conditions and each fund's investment
policies and related risks before you allocate money to the
sub-accounts. See pages 10-11 of this prospectus.
We may, at our sole discretion, waive minimum balance
requirements on the sub-accounts.
CHARGES;
FEES
PREMIUM CHARGES
We will make the following deductions for premium charges:
- 6.5% from every premium payment.
- An additional 40% on premium payments up to one guideline
annual premium in the first policy year.
If the specified amount is increased, other than through a
change in the death benefit option, during the twelve months
following the increase we will deduct the following from
that portion of the premium payment attributable to the
increase in specified amount:
- An additional 25% on premium payments up to the increase
in the one guideline annual premium.
The premium charge represents state taxes and federal income
tax liabilities and a portion of our sales expense. We
estimate that:
- 2.25% 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%.
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- 1.25% will be used to meet federal income tax liabilities
attributable to the payment of deferred acquisition
costs.
- 3.0% (plus 40% of up to one guideline annual premium
during the first policy year for sales load.
There is no deferred sales charge.
POLICY ISSUE FEE
We deduct a one-time policy issue fee of $250 from the
accumulation value for a portion of our administrative
expenses.
MONTHLY DEDUCTIONS
We deduct $8 monthly from the net accumulation value for
administrative expenses. This charge is for items such as
premium billing and collection, policy value calculations,
confirmations and periodic reports. The charge will not
exceed our costs.
We also make a monthly deduction 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 insurance and the current
net amount at risk.
We determine the Cost of Insurance 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. We base the Policy's guaranteed maximum Cost of
Insurance rates for standard risks, per $1,000 net amount at
risk, on the 1980 Commissioners Standard Ordinary Mortality
Tables, age nearest birthday ("1980 CSO").
We deduct these monthly charges 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 cancelled accumulation units from each
funding option in the same proportion as the respective
values have to the net accumulation value. The monthly
deductions are made on the monthly anniversary day.
DAILY DEDUCTIONS
- ADMINISTRATIVE FEE
For administrative costs, we make a daily deduction from
amounts held in the Variable Account and the Fixed Account.
This deduction is currently equivalent to .10% per year
during the first ten policy years. We guarantee this
deduction will not exceed .30% per year.
- MORTALITY AND EXPENSE RISK CHARGE
For mortality and expense risks, we make a daily deduction
from amounts held in the Variable Account and the Fixed
Account. This deduction is 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. We guarantee this deduction will not exceed .90%
per year.
TRANSACTION FEE FOR EXCESS TRANSFERS
We will charge a $25 transaction fee for each transfer
between funding options in excess of four per policy year.
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SURRENDERS DURING FIRST TWO POLICY YEARS -- REFUND OF
PORTION OF PREMIUM CHARGES
If you surrender the Policy during the first 12 months after
issue, we will pay you a credit equal to:
- 100% of all premium charges previously deducted in excess
of 3.5% of all premiums paid.
If you surrender the Policy during months 13 through 24
after issue, we will pay you a credit equal to:
- 50% of all premium charges previously deducted in excess
of 3.5% of all premiums paid.
If you surrender a Policy during the first two policy years,
however, in no event will the aggregate premium charge
retained by us for sales and promotional expenses 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 surrender may result in tax implications. See "Tax
Matters".
Based on our actuarial determination, we are not certain
whether the premium charge, the policy issue fee, and the
monthly administrative expense deduction will cover all
sales and administrative expenses that we 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 our General Account, which
supports insurance and annuity obligations.
THE FIXED
ACCOUNT
The Fixed Account is funded by the assets of our General
Account. Amounts held in the Fixed Account will be credited
with interest at rates we declare 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 our 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 our 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, we have been advised that the staff of the
Securities and Exchange Commission has not reviewed the
disclosure in this prospectus relating to the Fixed Account.
18
<PAGE>
POLICY VALUES
ACCUMULATION VALUE
Once a Policy has been issued, we credit each net premium
payment allocated to a sub-account of the Variable Account
in the form of accumulation units representing the fund in
which assets of that sub-account are invested. We will
credit each net premium payment to the Policy at 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). We determine
the number of accumulation units credited by dividing the
net premium payment by the value of an accumulation unit
next computed after its 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.
We determine the accumulation value of a Policy 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 we credit 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
Fixed 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.
You will be advised at least annually as to the number of
accumulation units which remain credited to the Policy, the
current accumulation unit values, your interest in: (a) the
Variable Account value, (b) the Fixed Account value, and (c)
the loan account value.
Accumulation value will be affected by monthly deductions.
VARIABLE ACCUMULATION UNIT VALUE
We determine the value of a variable accumulation unit for
any valuation period by:
a) multiplying the value of that variable accumulation unit
for the immediately preceding valuation period, by
b) the net investment factor for the current period for the
appropriate sub-account.
We determine the net investment factor 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.
19
<PAGE>
b) Equals the net asset value per share of the fund held in
the sub-account at the beginning of that valuation
period.
c) Equals 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 you 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 that we might make available through a
rider attached to the Policy.
SURRENDERS
PARTIAL SURRENDERS
You can make a partial surrender at any time by writing us
at the Corporate Variable Products Service Center during the
lifetime of the Insured and while the Policy is in force. We
will charge a $25 transaction fee for any partial
surrenders.
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. A
partial surrender may not be less than $500.
- 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.
We will not allow the specified amount remaining in force
after a partial surrender to be less than $50,000. We will
not grant any request for a partial surrender that would
reduce the specified amount below this amount. 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, we may limit the decrease 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, we
will deduct the $25 transaction charge from the amount paid
from the values in each funding option, unless we agree
otherwise with you.
FULL SURRENDERS
You may make a full surrender at any time. We will pay the
surrender value next computed after receiving your written
request at the Corporate Variable Products Service Center in
a form satisfactory to us. We will usually pay any portion
of a full surrender that is derived from the Variable
Account within seven calendar days of receipt of your
request.
DEFERRAL OF PAYMENT AND TRANSFERS
We may postpone payment of the surrendered amount from the
Variable Account when the New York Stock Exchange is closed
and for such other periods as the Commission
20
<PAGE>
may require. We may defer payment or transfer from the Fixed
Account up to six months. If we exercise our 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. We will send you
a lapse notice at least 31 days before the grace period
expires.
Depending on the investment performance of the funding
options, the net accumulation value may be insufficient to
keep this Policy in force, particularly if you have taken
any loans or made any partial surrenders. It may be
necessary for you to make an additional premium payment.
REINSTATEMENT OF A LAPSED POLICY
You can apply for reinstatement at any time during the
Insured's lifetime. To reinstate a Policy, we 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 us. 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" (i.e. an amount equal to the sum of all
unpaid Policy loans and loan interest.) If Policy values are
held in more than one funding option, withdrawals from each
option will be made in proportion to the assets in each
option at the time of the loan for transfer to the loan
account, unless you instruct us 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 we will withdraw
net interest proportionately from the values in each funding
option.
We will credit interest on the loan account value. Our
current practice is to credit interest at an annual rate
equal to the interest rate charged on the loan minus:
- .95% (guaranteed not to exceed 1.2%) during the first ten
policy years,
- .45% (guaranteed not to exceed 1.2%) during years 11-15,
and
- .15% (guaranteed not to exceed 1.2%) annually thereafter.
In no case will the annual credited interest rate be less
than 3.8%.
We will allocate repayments on the loan among the funding
options according to current net premium payment
allocations. However, we maintain the right to require that
amounts loaned from the Fixed Account be allocated to the
Fixed Account upon repayment. We will reduce the loan
account value by the amount of any loan repayment.
21
<PAGE>
A policy loan, whether or not repaid, will affect:
- The proceeds payable upon the Insured's death, and
- The accumulation value.
This is 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.
The effect could be favorable or unfavorable, depending on
the investment results of the Variable Account or the Fixed
Account while the loan is outstanding.
SETTLEMENT OPTIONS
We may pay proceeds in the form of settlement options
through the addition of a rider. A settlement option may be
selected:
- at the beneficiary's election upon the Insured's death,
or
- while the Insured is alive, upon your election.
You may request, in writing, to elect, change, or revoke a
settlement option before payments begin. Your request must
be in a form satisfactory to us and will take effect upon
its receipt at the Corporate Variable Products Service
Center. After the first payment, all payments 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 us 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 we offer at the time
the request is made.
ADDITIONAL INSURANCE BENEFIT
We can issue the Policy 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. We exclude this benefit from the specified
amount when calculating the charges and fees for the Policy
and when calculating the guideline annual premium and target
premium.
We add the cost of the benefit to the monthly deduction. The
cost is dependent on the attained age, years since issue,
risk class and gender classification. We 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 you to increase the
insurance protection under the Policy.
22
<PAGE>
JOINT AND SURVIVORSHIP BENEFIT
We can issue the Policy with a joint and survivorship rider.
The rider would enable us to issue the Policy on the lives
of two Insureds and to pay the death benefit upon the death
of the second of two Insureds to die. If you elect to add
this benefit to your Policy, you should:
- interpret any reference in this prospectus to the "death
of the Insured", or "the Insured's death", or similar
context as "the death of the second of the two Insureds
to die";
- interpret any discussions in this prospectus of the
features of the Policy allowed "while the Insured is
alive", or "during the lifetime of the Insured", or
similar context as allowed "while at least one of the
Insureds is alive".
Other sections of this prospectus that would be affected by
the addition of this benefit are:
- Incontestability (see Page 24): The policy or increase
must be in force for two (2) years during the lifetime of
each Insured.
- Misstatement of Age (see Page 25): By reason of the rider
the provision relates to either Insured.
- Suicide (see Page 25): By reason of the rider the
provision relates to either Insured.
The cost of the rider is reflected in the monthly Cost of
Insurance rates. Those rates are based on the attained age,
years since issue, risk class and gender classification of
each person insured. We use an actuarial formula that
reflects one-alive and both-alive probabilities to determine
the Cost of Insurance rates. No other charges and fees for
the Policy will change as a result of the addition of the
joint and survivorship rider.
OTHER POLICY PROVISIONS
ISSUANCE
We will only issue a Policy upon receipt of satisfactory
evidence of insurability and, generally, only where the
Insured is below age 75.
SHORT-TERM RIGHT TO CANCEL THE POLICY
You may return a Policy for cancellation and a full refund
of premium within 10 days after the Policy is received,
unless otherwise stipulated by state law requirements or 45
days after you sign the application, whichever is later. We
will hold the initial premium payment made when the Policy
is issued in the CIGNA VP Money Market Fund of the Variable
Account. We will not allocate it to any other variable
sub-accounts, even if you may have so directed, until
- the fifteenth day after the Policy is mailed to you if
the state law Right-to-Examine Period is 10 days after
the Policy is received by you,
- the twenty-fifth day after the Policy is mailed to you if
the state law Right-to-Examine Period is 20 days,
- the thirty-fifth day after the Policy is mailed to you if
the state law Right-to-Examine Period is 30 days, or
- the forty-sixth day after you sign the Policy
application.
If you return the Policy for cancellation in a timely
fashion, we will usually pay the refund of premiums, without
interest, within seven days of your notice of cancellation.
A refund of premiums paid by check may be delayed, however,
until the check clears.
23
<PAGE>
POLICY OWNER
While the Insured is living, all rights in the Policy are
vested in the policy owner named in the application or as
subsequently changed, subject to assignment, if any.
You may name a new policy owner while the Insured is living.
Any such change in ownership must be in a written form
satisfactory to us 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 we take before it was
recorded. We 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 the 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.
You may name a new beneficiary while the Insured is living.
Any change must be in a written form satisfactory to us 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 we take before it was recorded.
If any beneficiary predeceases the Insured, that
beneficiary's interest passes to any surviving
beneficiary(ies), unless otherwise provided. We will pay
multiple beneficiaries in equal shares, unless otherwise
provided. We will pay the death proceeds to the policy owner
or the policy owner's executor(s), administrator(s) or
assigns if no named beneficiary survives the Insured.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
You may, within the first two policy years, exchange the
Policy for a flexible premium adjustable life insurance
policy offered by our Corporate Insurance Department at that
time. The benefits for the new policy will not vary with the
investment experience of a separate account. You must elect
the exchange within 24 months from the Policy's issue date.
We will not require evidence of insurability for the
exchange.
Under the new policy:
- The policy owner, the Insured and the beneficiary will be
the same as those under the exchanged Policy on the
effective date of the exchange.
- The death benefit on the exchange date will not be more
than the death benefit of the original Policy immediately
prior to the exchange date.
- The issue date and issue age will be the same as that of
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 on the original Policy will be
transferred.
INCONTESTABILITY
We 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
date of issue. For any increase in specified amount
requiring evidence of insurability, we 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.
24
<PAGE>
MISSTATEMENT OF AGE
We 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.
SUICIDE
If the Insured dies by suicide, while sane or insane, within
two years from the issue date, we 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, we 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 our profits or
surplus earnings.
TAX MATTERS
The following discussion is general and is not intended as
tax advice. You should consult counsel and other competent
advisers for more complete information. This discussion is
based on our understanding of federal income tax laws as the
Internal Revenue Service currently interprets them. 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. Complying with
either the cash value test or the guideline premium test set
forth in Section 7702 can satisfy this definition. We 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. If a Policy
were determined not to be a life insurance contract for
purposes of Section 7702, however, 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.
25
<PAGE>
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 it 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. You 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 of the Code. Because the Policy provides
for flexible premium payments, we 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 that 55% of the value of the total assets may be
represented by any one (1) investment
- No more than 70% of such value may be represented by any
two (2) investments.
- No more than 80% of such value may be represented by any
three (3) investments; and
- No more than 90% 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. We
believe the Varible 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, we
will take whatever steps are available to remain in
compliance.
The following may have adverse tax consequences:
- 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;
- A 1035 exchange;
- The exchange of a Policy for a fixed-benefit policy, or
- The assignment of a Policy.
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.
26
<PAGE>
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
We are 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.
We do 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, we determine that on a
separate company basis such taxes may be incurred, we
reserve the right to assess a charge for such taxes against
the Variable Account.
We 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.
OTHER MATTERS
DIRECTORS AND OFFICERS OF THE COMPANY
The following persons are our Directors and Principal
Officers. The address of each is 900 Cottage Grove Road,
Hartford, CT 06152. We or our affiliates have employed each
for more than five years except for Mr. Pacy, Mr. Wahlman,
Mr. Pastore and Ms. Cooper.
- Prior to January, 1995, Mr. Pacy was Senior Manager-IT
Infrastructure and Technology Management Officer, Digital
Equipment Corporation.
- Prior to September, 1998, Mr. Wahlman was Director of
Accounting and Regulatory Policy, Bank One Corporation.
- Prior to December, 1995, Mr. Pastore was Vice President
of Citicorp.
- Prior to January, 1999, Ms. Cooper was an Associate
Attorney with Roginson, Donovan, Madden & Barry, P.C.
<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)
Robert E. Wahlman Vice President
(Principal Accounting Officer)
Susan Cooper Corporate Secretary
Andrew G. Helming Secretary
Stephen C. Stachelek Vice President and Treasurer
William M. Pastore Director and Chairman of the Board
Harold W. Albert Director
Robert W. Burgess Director
John Cannon, III 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
Marc L. Preminger Director and Senior Vice President
Patricia L. Rowland Director and Senior Vice President
W. Allen Schaffer, M.D. Director and Senior Vice President
</TABLE>
27
<PAGE>
DISTRIBUTION OF POLICIES
Licensed insurance agents will sell the Policies 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). We will distribute the Policies through our
principal underwriter, CIGNA Financial Services, Inc.
("CFS"), whose address is 280 Trumbull Street, Hartford,
Connecticut. CFS is a Delaware corporation organized in
1995.
Gross commissions paid by us on the sale of Policies will
not exceed:
- First Year: 40% of one guideline annual premium, plus 3%
of any premium payment in excess of one guideline annual
premium.
- Renewal: 3% of premium payments, plus 25% of any increase
in one guideline annual premium.
CHANGES OF INVESTMENT POLICY
We may materially change the investment policy of the
Variable Account. We must inform you and obtain all
necessary regulatory approvals. We must submit any change to
the various state insurance departments, which may
disapprove it if deemed detrimental to the policy owners'
interests or if it renders our 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 us on the life of the Insured.
You must make this conversion by 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 the date you are
informed of such change.
We 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
We presently and will, from time to time, offer other
variable life insurance policies and variable annuity
contracts with benefits which vary in accordance with the
investment experience of a separate account of the Company.
STATE REGULATION
We are subject to the laws of Connecticut governing
insurance companies and to regulation by the Connecticut
Insurance Department. We file an annual statement in a
prescribed form with the Insurance Department each year
covering our operation for the preceding year and our
financial condition as of the end of such year. Regulation
by the Insurance Department includes periodic examination to
determine our contract liabilities and reserves so that the
Insurance Department may certify the items are correct. Our
books and accounts are subject to review by the Insurance
Department at all times and a full examination of our
operations is conducted periodically by the Connecticut
Insurance Department. Such regulation does not, however,
involve any supervision of management or investment
practices or policies.
REPORTS TO POLICY OWNERS
We maintain 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, the surrender value, premiums paid
and monthly
28
<PAGE>
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.
We will also send you 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, we will send you 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 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 our financial strength or claims-paying
ability.
The ratings are not intended to reflect the investment
experience or financial strength of the Variable Account. We
may advertise these ratings from time to time. In addition,
we may include in certain advertisements, endorsements in
the form of a list of organizations, individuals or other
parties that recommend the Company or the Policies.
Furthermore, we 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 we
and the Variable Account are parties or to which any of our
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, 280 Trumbull Street,
Hartford, CT 06104, 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 in
this prospectus 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, 1998 and 1997 and
for each of the three years in the period ended December 31,
1998 included in the prospectus as well as the Statement of
Assets and Liabilities of the Variable Account at December
31, 1998 and the Statements of Operations for the period
ended December 31, 1998 and the Statement of Changes in Net
Assets for the period ended December 31, 1998 and 1997 have
been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given
on the authority of said firm as experts in auditing and
accounting.
REGISTRATION STATEMENT
We have filed a Registration Statement with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended, with respect to the Policies offered by way of this
prospectus. This prospectus does not contain all the
information set forth in
29
<PAGE>
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 Separate Account 02 is a Connecticut General
Life Insurance Company separate account established under
Connecticut insurance law. We are highly dependent on
automated systems and systems applications in conducting our
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 the Variable
Account) would be interrupted and could have a material
adverse effect on our operational results. Making sure our
customers and participants continue to receive uninterrupted
services through 2000 and beyond is our highest business
priority.
Our CEO and senior management continue to ensure that the
business implications of Year 2000, both external and
internal, are addressed. Our operational and financial plans
address both Year 2000 business and systems issues. Our
internal auditors are actively involved in monitoring our
progress. We are applying formalized project monitoring,
best practices, and operating principles to Year 2000
issues. We are refining contingency and business resumption
plans to reduce the likelihood that Year 2000 events outside
of our control will adversely affect customer services, and
to be prepared if, despite our best efforts, we are affected
by Year 2000 issues.
In addition, we have relationships with various third-party
entities in the ordinary course of business. We have
identified third-party entities critical to our operations
and are assessing and attempting to mitigate our risks due
to the failure of these entities to be Year 2000 ready. We
are in the process of a comprehensive analysis of the
operational problems that would be reasonably likely to
result from the failure by certain third-parties to complete
efforts necessary to achieve Year 2000 compliance on a
timely basis.
We are closely monitoring the mutual funds that are offered
through the Variable Account and the reports we have
received indicate that all are taking the necessary steps to
become ready. We will continue to follow-up with them in
1999 to ensure there will be a smooth transition into the
next millennium. Due to the intricacies and interactions of
companies in the financial service industry, they have
limited control over Y2K issues that span multiple firms,
markets, and countries.
Further, we are actively working with our key outsourced
service suppliers to assess both their on-going business
viability as well as the continued compatibility of our
electronic interfaces. We have identified the key service
suppliers and we are taking steps with them to ensure
uninterrupted service to clients.
We expect the millenium change will not materially affect
our ability to meet customer commitments, provide expected
customer service, and meet financial targets. Please visit
the Company's web site at http://www.cigna.com for
additional information about CIGNA and the Year 2000,
including copies of our required SEC filings.
This is a "Year 2000 readiness disclosure" as the term is
defined under the "Year 2000 Information and Readiness
Disclosure Act". This Year 2000 readiness disclosure is
30
<PAGE>
published with the approval of CIGNA Retirement & Investment
Services. We make the disclosure with respect to our Year
2000 processing and of the products or services we offer.
FINANCIAL STATEMENTS
The consolidated balance sheets of the Company and its
subsidiaries as of December 31, 1998 and 1997 and related
consolidated statements of income and retained earnings and
cash flows for the years ended December 31, 1998, 1997 and
1996 follow. They should be considered only as bearing upon
the ability of the Company to meet our obligations under the
Policies.
The Statement of Assets and Liabilities of the Variable
Account at December 31, 1998 and related Statements of
Operations for the period ended December 31, 1998 and
Statement of Changes in Net Assets for the periods ended
December 31, 1998 and 1997 also follow. The Variable Account
commenced operations on December 24, 1996.
31
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICEWATERHOUSECOOPERS LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
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, comprehensive income and changes in
shareholder's equity 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, 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/ PRICEWATERHOUSECOOPERS LLP
February 9, 1999
32
<PAGE>
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
33
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS)
- -----------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees................................................... $ 5,683 $ 5,376 $ 5,314
Net investment income............................................... 2,637 3,139 3,199
Realized investment gains........................................... 93 45 37
Other revenues...................................................... 427 10 9
--------- --------- ---------
Total revenues.................................................. 8,840 8,570 8,559
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses............................ 5,802 5,917 6,069
Policy acquisition expenses......................................... 44 122 143
Other operating expenses............................................ 1,763 1,618 1,477
--------- --------- ---------
Total benefits, losses and expenses............................. 7,609 7,657 7,689
--------- --------- ---------
INCOME BEFORE INCOME TAXES.......................................... 1,231 913 870
--------- --------- ---------
Income taxes (benefits):
Current........................................................... 636 347 394
Deferred.......................................................... (211) (49) (81)
--------- --------- ---------
Total taxes..................................................... 425 298 313
- -----------------------------------------------------------------------------------------------------
NET INCOME.......................................................... $ 806 $ 615 $ 557
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
34
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
- ----------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1998 1997
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $16,820;
$20,962)........................................................ $ 18,067 $ 22,323
Mortgage loans................................................... 8,875 10,090
Equity securities, at fair value (cost, $62; $75)................ 47 54
Policy loans..................................................... 6,091 7,146
Real estate...................................................... 712 749
Other long-term investments...................................... 159 166
Short-term investments........................................... 85 173
--------- ---------
Total investments............................................ 34,036 40,701
Cash and cash equivalents........................................ 1,026 923
Accrued investment income........................................ 494 602
Premiums and accounts receivable................................. 939 811
Reinsurance recoverables......................................... 7,278 1,271
Deferred policy acquisition costs................................ 187 834
Property and equipment........................................... 365 291
Deferred income taxes............................................ 865 653
Goodwill and other intangibles................................... 730 474
Other assets..................................................... 236 276
Separate account assets.......................................... 34,648 29,217
- ----------------------------------------------------------------------------------------------------
Total assets................................................. $ 80,804 $ 76,053
- ----------------------------------------------------------------------------------------------------
-------------------------------
LIABILITIES
Contractholder deposit funds....................................... $ 30,614 $ 30,449
Future policy benefits............................................. 8,286 8,224
Unpaid claims and claim expenses................................... 1,286 1,225
Unearned premiums.................................................. 162 260
--------- ---------
Total contractholder and insurance liabilities............... 40,348 40,158
Accounts payable, accrued expenses and other liabilities........... 2,523 2,428
Current income taxes............................................... 65 --
Separate account liabilities....................................... 34,340 29,021
- ----------------------------------------------------------------------------------------------------
Total liabilities............................................ 77,276 71,607
- ----------------------------------------------------------------------------------------------------
CONTINGENCIES -- NOTE 13
SHAREHOLDER'S EQUITY
Common stock (6 shares issued and outstanding)..................... 30 30
Additional paid-in capital......................................... 1,072 766
Net unrealized appreciation, fixed maturities........... 243 282
Net unrealized (depreciation), equity securities........ (25) (26)
Net translation of foreign currencies................... 2 2
--------- ---------
Accumulated other comprehensive income............................. 220 258
Retained earnings.................................................. 2,206 3,392
- ----------------------------------------------------------------------------------------------------
Total shareholder's equity................................... 3,528 4,446
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity................... $ 80,804 $ 76,053
- ----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
35
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND CHANGES IN SHAREHOLDER'S
EQUITY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS)
- -------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE SHAREHOLDER'S COMPREHENSIVE SHAREHOLDER'S COMPREHENSIVE SHAREHOLDER'S
INCOME EQUITY INCOME EQUITY INCOME EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK....................... $ 30 $ 30 $ 30
ADDITIONAL PAID-IN CAPITAL......... 1,072 766 766
ACCUMULATED OTHER COMPREHENSIVE
INCOME -- BEGINNING OF YEAR....... 258 191 478
Net unrealized appreciation
(depreciation)-- fixed
maturities........................ $ (39) (39) $ 69 69 $ (276) (276)
Net unrealized appreciation
(depreciation) -- equity
securities........................ 1 1 (1) (1) (12) (12)
------ ----- ------
Net unrealized appreciation
(depreciation) on securities...... (38) 68 (288)
Net translation of foreign
currencies........................ - - (1) (1) 1 1
------ ----- ------
Other comprehensive (loss)
income.......................... (38) 67 (287)
------------ ------------ ------
ACCUMULATED OTHER COMPREHENSIVE
INCOME -- END OF YEAR............. 220 258 191
------------ ------------ ------
RETAINED EARNINGS -- BEGINNING OF
YEAR.............................. 3,392 3,177 3,220
Net income....................... 806 806 615 615 557 557
Dividends declared............... (1,992) (400) (600)
------------ ------------ ------
RETAINED EARNINGS -- END OF
YEAR............................ 2,206 3,392 3,177
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME AND
SHAREHOLDER'S EQUITY.............. $ 768 $ 3,528 $ 682 $ 4,446 $ 270 $ 4,164
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
36
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN MILLIONS)
- ---------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................ $ 806 $ 615 $ 557
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Insurance liabilities........................................... 67 78 57
Reinsurance recoverables........................................ (7) 68 (11)
Premiums and accounts receivable................................ (179) 106 77
Deferred income taxes, net...................................... (211) (49) (82)
Other assets.................................................... (339) (54) 43
Deferred policy acquisition costs............................... (12) (97) (92)
Accounts payable, accrued expenses, other liabilities and
current income taxes........................................... 149 41 (113)
Depreciation and goodwill amortization.......................... 113 88 94
Gain on sale of business........................................ (418) -- --
Other, net...................................................... (50) (99) (151)
--------- --------- ---------
Net cash (used in) provided by operating activities........... (81) 697 379
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities................................................ 2,869 1,583 1,589
Mortgage loans.................................................. 1,052 807 640
Equity securities............................................... 15 14 13
Real estate..................................................... 98 401 345
Policy loans.................................................... 382 -- --
Other (primarily short-term investments)........................ 6,724 6,447 3,613
Investment maturities and repayments:
Fixed maturities................................................ 2,797 2,394 2,634
Mortgage loans.................................................. 421 601 630
Investments purchased:
Fixed maturities................................................ (3,881) (4,339) (3,834)
Mortgage loans.................................................. (1,611) (1,426) (1,300)
Equity securities............................................... (7) (9) (3)
Policy loans.................................................... -- (13) (207)
Other (primarily short-term investments)........................ (7,652) (6,296) (3,930)
Net cash from disposition of business........................... 1,295 -- --
Other, net...................................................... (274) (102) (94)
--------- --------- ---------
Net cash provided by investing activities..................... 2,228 62 96
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder deposit funds:
Deposits and interest credited.................................. 7,050 7,634 7,260
Withdrawals and benefit payments................................ (7,106) (7,023) (7,135)
Dividends paid to parent.......................................... (1,992) (400) (600)
Other, net........................................................ 4 (47) --
Net cash (used in) provided by financing activities......... (2,044) 164 (475)
- ---------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents......................... 103 923 --
Cash and cash equivalents, beginning of year...................... 923 -- --
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year............................ $ 1,026 $ 923 $ --
- ---------------------------------------------------------------------------------------------------
-------------------------------
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds............................... $ 520 $ 402 $ 385
Interest paid................................................... $ 3 $ 5 $ 7
- ---------------------------------------------------------------------------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
37
<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
health and life insurance 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 contractholder and insurance
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 1998 presentation.
B) RECENT ACCOUNTING PRONOUNCEMENTS: The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," as of December 31, 1998. SFAS No. 131
changes the way segments are structured and requires additional segment
disclosures. Prior period information has been restated based on the new
requirements. See Note 11 for additional information.
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that derivatives be reported on the balance sheet at fair value.
Changes in fair value are recognized in net income or, for derivatives which are
hedging market risk related to future cash flows, in the accumulated other
comprehensive income section of shareholders' equity. Implementation is required
by the first quarter of 2000, with the cumulative effect of adoption reflected
in net income and accumulated other comprehensive income, as appropriate. The
Company has not determined the effect or timing of implementation of this
pronouncement.
The American Institute of Certified Public Accountants (AICPA) 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 of this pronouncement, which is
required by the first quarter of 1999 with the cumulative effect of adopting the
SOP reflected in net income, is not expected to have a material effect on
results of operations, liquidity or financial condition.
In 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 specifies the types
of costs that must be capitalized and amortized over the software's expected
useful life and the types of costs which must be immediately recognized as
expense. Implementation of this pronouncement is required by the first quarter
of 1999 and is not expected to have a material effect on results of operations,
liquidity or financial condition.
In 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk." SOP
98-7 provides guidance on the deposit method of accounting for insurance and
reinsurance contracts that do not transfer insurance risk, except for
long-duration life and health contracts. Implementation is required by the first
quarter of 2000, with the cumulative effect of adopting the SOP reflected in net
income in the year of adoption. The Company has not determined the effect or
timing of implementation of this pronouncement.
C) FINANCIAL INSTRUMENTS: In the normal course of business, the Company
enters into transactions involving 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
38
<PAGE>
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, 1998 and 1997. Fair values of off-balance
sheet financial instruments as of December 31, 1998 and 1997 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 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 and carried at fair value, include bonds; asset-backed
securities, including collateralized mortgage obligations (CMOs); and redeemable
preferred stocks. 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 or less if circumstances indicate that an immediate sale is in the
best interests of the Company or policyholders. 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 and short-term investments are classified as
available-for-sale. Equity securities, which include common and non-redeemable
preferred stocks, are carried at fair value. Short-term investments are carried
at fair value, which approximates cost.
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.
39
<PAGE>
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. See Notes 3 and 9.
G) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of
commissions, premium taxes and other costs, which vary with, and are primarily
related to, the production of revenues. Acquisition costs for universal life
products and contractholder deposit funds are deferred and amortized in
proportion to the present value of total estimated gross profits over the
expected lives of the contracts. Acquisition costs for annuity and other
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. If so, 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 $490 million
and $448 million at December 31, 1998 and 1997, respectively.
I) GOODWILL AND OTHER INTANGIBLES: Goodwill represents the excess of the cost
of businesses acquired over the fair value of their net assets. Other intangible
assets primarily represent purchased customer lists and provider contracts.
Goodwill and other intangibles are amortized over periods not exceeding 40
years. Goodwill and other intangibles are written down when not recoverable
based on analysis of historical and estimated future income or undiscounted
estimated cash flows of the related businesses. Amortization periods are revised
if it is estimated that the remaining period of benefit of the goodwill has
changed. Accumulated amortization was $143 million and $113 million at December
31, 1998 and 1997, respectively.
J) OTHER ASSETS: Other assets consists of various insurance-related assets,
principally ceded unearned premiums, reinsurance deposits and other amounts due
from affiliated companies.
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.
40
<PAGE>
P) OTHER LIABILITIES: Other liabilities consist principally of postretirement
and postemployment benefits and various insurance-related liabilities, including
amounts related to reinsurance contracts and guaranty fund assessments that can
be reasonably estimated.
Q) TRANSLATION OF FOREIGN CURRENCIES: Foreign operations primarily utilize
the local currencies as their functional currencies, and assets and liabilities
are translated at the rates of exchange as of the balance sheet date. The
translation gain or loss on such functional currencies, net of applicable taxes,
is generally reflected in shareholder's equity. Revenues and expenses are
translated at the average rates of exchange prevailing during the year.
R) PREMIUM AND FEES, REVENUES AND RELATED EXPENSES: Premiums for group life
and accident and health insurance are recognized as revenue on a pro-rata basis
over their contract periods. Benefits, losses and settlement expenses are
recognized when incurred.
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.
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.
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,
1998, 1997 and 1996.
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 business for cash proceeds of $1.4 billion. The sale resulted in an
after-tax gain of $773 million of which $202 million was recognized upon closing
of the sale. Since the principal agreement to sell this business is in the form
of an indemnity reinsurance arrangement, the remaining $571 million of the gain
was deferred and is being recognized at the rate that earnings from the business
sold would have been expected to emerge, primarily over fifteen years on a
declining basis. The Company recognized $66 million of the deferred gain in
1998.
Revenues for this business were $972 million and $926 million for the years
ended December 31, 1997 and 1996, respectively, and net income was $102 million
and $67 million for the same periods. Also, as part of the transaction, the
Company recorded a reinsurance recoverable from the purchaser of $5.8 billion
for insurance liabilities retained, and transferred invested assets of $5.4
billion along with other assets and liabilities associated with the business.
The sales agreement provides for the possibility of certain adjustments;
however, any future adjustments are not expected to be material to results of
operations, liquidity or financial condition.
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).
41
<PAGE>
NOTE 4 -- INVESTMENTS
A) FIXED MATURITIES: Fixed maturities are net of cumulative write-downs of
$22 million and $36 million, including policyholder share, as of December 31,
1998 and 1997, respectively.
The amortized cost and fair value by contractual maturity periods for fixed
maturities, including policyholder share, as of December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Amortized Fair
(IN MILLIONS) Cost Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less.................................................. $ 979 $ 999
Due after one year through five years.................................... 3,960 4,110
Due after five years through ten years................................... 3,512 3,723
Due after ten years...................................................... 2,665 3,348
Asset-backed securities.................................................. 5,704 5,887
- ------------------------------------------------------------------------------------------------
Total.................................................................... $ 16,820 $ 18,067
- ------------------------------------------------------------------------------------------------
---------------------
</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>
- -----------------------------------------------------------------------------------------------------
At December 31, 1998:
- -----------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal government bonds......................... $ 568 $ 407 $ -- $ 975
State and local government bonds................. 145 20 -- 165
Foreign government bonds......................... 147 7 (9) 145
Corporate securities............................. 10,256 733 (94) 10,895
Asset-backed securities.......................... 5,704 217 (34) 5,887
- -----------------------------------------------------------------------------------------------------
Total............................................ $ 16,820 $ 1,384 $ (137) $ 18,067
- -----------------------------------------------------------------------------------------------------
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
At 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>
Asset-backed securities include investments in CMOs as of December 31, 1998 of
$2.0 billion carried at fair value (amortized cost, $2.0 billion), compared with
$2.3 billion carried at fair value (amortized cost, $2.3 billion) as of December
31, 1997. 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 .05% and .10% of total CMO investments at
December 31, 1998 and 1997, respectively.
42
<PAGE>
At December 31, 1998, contractual fixed maturity investment commitments were
$34 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 59% will be disbursed in 1999.
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 are less than 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) 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage Loans.............................................................. $ 8,875 $ 10,090
--------- ---------
Real estate:
Held for sale............................................................. 326 339
Held for production of income............................................. 386 410
--------- ---------
Total real estate........................................................... 712 749
- --------------------------------------------------------------------------------------------------
Total....................................................................... $ 9,587 $ 10,839
- --------------------------------------------------------------------------------------------------
--------------------
</TABLE>
At December 31, mortgage loans and real estate investments comprised the
following property types and geographic regions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Property type:
Retail facilities......................................................... $ 3,145 $ 4,153
Office buildings.......................................................... 3,814 3,984
Apartment buildings....................................................... 1,283 1,311
Hotels.................................................................... 450 498
Other (primarily industrial).............................................. 895 893
- --------------------------------------------------------------------------------------------------
Total....................................................................... $ 9,587 $ 10,839
- --------------------------------------------------------------------------------------------------
--------------------
Geographic region:
Central................................................................... $ 3,051 $ 3,484
Pacific................................................................... 2,683 2,962
Middle Atlantic........................................................... 1,510 1,821
South Atlantic............................................................ 1,348 1,458
New England............................................................... 995 1,114
- --------------------------------------------------------------------------------------------------
Total....................................................................... $ 9,587 $ 10,839
- --------------------------------------------------------------------------------------------------
--------------------
</TABLE>
MORTGAGE LOANS
At December 31, 1998, scheduled mortgage loan maturities were as follows: 1999
- -- $.9 billion; 2000 -- $.9 billion; 2001 -- $.8 billion; 2002 -- $1.0 billion;
2003 -- $1.6 billion; and $3.7 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 1998 and 1997, the Company
refinanced at current market rates approximately $126 million and $135 million,
respectively, of its mortgage loans relating to borrowers that were unable to
obtain alternative financing.
At December 31, 1998, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $492 million, most
of which were at a fixed market rate of interest. These commitments are
generally expected to be disbursed within three months, and are diversified by
property type and geographic region.
At December 31, 1998, the Company's impaired mortgage loans were $156 million,
including $24 million before valuation reserves totaling $6 million, and $132
million which had no valuation reserves. 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.
43
<PAGE>
During the year ended December 31, changes in reserves for impaired mortgage
loans, including policyholder share, were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reserve balance -- January 1................................................... $ 44 $ 94
Transfers to foreclosed real estate............................................ (21) (30)
Charge-offs upon sales......................................................... (9) (47)
Net increase (decrease) in valuation reserves.................................. (8) 27
- ---------------------------------------------------------------------------------------------------------
Reserve balance -- December 31................................................. $ 6 $ 44
- ---------------------------------------------------------------------------------------------------------
-----------
</TABLE>
During 1998 and 1997, impaired mortgage loans, before valuation reserves,
averaged approximately $285 million and $597 million, respectively. Interest
income recorded and cash received on these loans were approximately $12 million
and $34 million in 1998 and 1997, respectively.
REAL ESTATE
During 1998, 1997 and 1996, non-cash investing activities included real estate
acquired through foreclosure of mortgage loans, which totaled $32 million, $81
million and $107 million, respectively.
Valuation reserves and cumulative write-downs related to real estate,
including policyholder share, were $171 million and $169 million as of December
31, 1998 and 1997, respectively.
Net income for 1998 and 1997 included net investment income of $8 million and
$9 million, respectively, for real estate held for sale. Write-downs upon
foreclosure and changes in valuation reserves were not material for 1998 and
1997.
C) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and
cash equivalents, in the aggregate, primarily included debt securities,
principally corporate securities of $963 million at December 31, 1998 and, for
1997, principally corporate securities of $520 million and federal government
securities of $443 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) 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation:
Fixed maturities........................................................... $ 1,384 $ 1,500
Equity securities.......................................................... 10 8
--------- ---------
1,394 1,508
--------- ---------
Unrealized depreciation:
Fixed maturities........................................................... (137) (139)
Equity securities.......................................................... (25) (29)
--------- ---------
(162) (168)
--------- ---------
Less policyholder-related amounts............................................ 880 931
--------- ---------
Shareholder net unrealized appreciation...................................... 352 409
Less deferred income taxes................................................... 134 153
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation.................................................. $ 218 $ 256
- ---------------------------------------------------------------------------------------------------
--------------------
</TABLE>
The components of net unrealized appreciation (depreciation) on investments
for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized appreciation (depreciation) on investments held, net of taxes
of $48, $37 and $(151), respectively.................................. $ 89 $ 69 $ (280)
Less gains realized in net income, net of taxes of $68, $-- , and $3, in
1998, 1997 and 1996, respectively..................................... 127 1 8
--
--------- ---------
Net unrealized appreciation (depreciation).............................. $ (38) $ 68 $ (288)
- -----------------------------------------------------------------------------------------------------------
---------------------------------
</TABLE>
44
<PAGE>
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) 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities............................................................... $ 22 $ 28
Mortgage loans................................................................. 2 --
Real estate.................................................................... 68 141
- ------------------------------------------------------------------------------------------------------
Total.......................................................................... $ 92 $ 169
- ------------------------------------------------------------------------------------------------------
-----------
</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 generally 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 liabilities.
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) 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate swaps........................................................... $ 158 $ 265
Currency swaps................................................................ 193 248
Purchased options............................................................. 878 833
Written options............................................................... 1,087 --
Futures....................................................................... 233 75
- ----------------------------------------------------------------------------------------------------
</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, Swiss francs, German marks, Japanese
yen and pounds sterling) to match the currency of investments to that of the
associated liabilities. Under currency swaps, the parties exchange principal and
interest amounts in two relevant currencies using agreed-upon exchange amounts.
The net interest cash flows from interest rate and currency swaps are
recognized currently as an adjustment to net investment income, and the fair
value of these swaps is reported as an adjustment to the related investments.
Using purchased options to reduce the effect of changes in interest rates or
equity indexes on liabilities, the Company pays an up-front fee to receive cash
flows from third parties when interest rates or equity indexes vary from
specified levels. Purchased options that qualify for hedge accounting are
recorded consistent with the related liabilities, at amortized cost plus
adjustments based on current equity indexes, and income is reported as an
adjustment to benefit expense. Purchased options that qualify for hedge
accounting 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 at December 31, 1997 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. There were no such options at December 31, 1998.
45
<PAGE>
The Company also writes reinsurance contracts that are accounted for as
written options. The Company receives fees to pay for specified unfavorable
changes in variable annuity account values based on underlying mutual fund
investments when account holders elect to receive periodic income payments.
These written options, along with options purchased to minimize the risks
assumed, are reported at fair value in other liabilities and other assets,
respectively. Changes in fair value are recognized in other revenues, or other
operating expenses if there is a net loss. Fair values of written and related
purchased options during 1998 and as of December 31, 1998 were not material.
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, 1998 and 1997.
The effects of interest rate and currency swaps, purchased and written options
and futures on the components of net income for 1998, 1997 and 1996 were not
material.
As of December 31, 1998 and 1997, the Company's variable interest rate
investments consisted of approximately $0.6 billion and $0.7 billion of fixed
maturities, respectively. As of December 31, 1998 and 1997, the Company's fixed
interest rate investments consisted of $17 billion and $21.6 billion,
respectively, of fixed maturities, and $8.9 billion and $10.1 billion,
respectively, of mortgage loans.
G) OTHER: As of December 31, 1998 and 1997, 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) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities.................................................... $ 1,386 $ 1,648 $ 1,647
Equity securities................................................... 1 8 --
Mortgage loans...................................................... 739 885 921
Policy loans........................................................ 459 532 548
Real estate......................................................... 142 183 227
Other long-term investments......................................... 19 17 23
Short-term investments.............................................. 18 28 35
--------- --------- ---------
2,764 3,301 3,401
Less investment expenses............................................ 127 162 202
- -----------------------------------------------------------------------------------------------------
Net investment income............................................... $ 2,637 $ 3,139 $ 3,199
- -----------------------------------------------------------------------------------------------------
-------------------------------
</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 $1.6 billion for
1998 and $1.7 billion for 1997 and 1996. Net investment income for separate
accounts, which is not reflected in the Company's revenues, was $1.5 billion ,
$1.4 billion and $1.1 billion for 1998, 1997 and 1996, respectively.
As of December 31, 1998, fixed maturities and mortgage loans on non-accrual
status, including policyholder share, were $142 million and $97 million,
including restructured investments of $76 million and $93 million, 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. If interest on these investments had been recognized in accordance
with their original terms, net income would have been increased by $5 million,
$7 million and $15 million in 1998, 1997 and 1996, respectively.
46
<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) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities......................................................... $ 34 $ (3) $ 11
Equity securities........................................................ 3 4 1
Mortgage loans........................................................... 22 4 (12)
Real estate.............................................................. 10 28 15
Other.................................................................... 24 12 22
--- --- ---
93 45 37
Less income taxes........................................................ 33 8 17
- ----------------------------------------------------------------------------------------------------------------
Net realized investment gains............................................ $ 60 $ 37 $ 20
- ----------------------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Realized investment gains and losses include impairments in the value of
investments, net of recoveries, of $(5) million, $25 million and $40 million in
1998, 1997 and 1996, respectively.
Realized investment gains for separate accounts, which are not reflected in
the Company's revenues, were $494 million, $489 million and $305 million for
1998, 1997 and 1996 respectively. Realized investment gains attributable to
policyholder contracts, which also are not reflected in the Company's revenues,
were $201 million, $76 million and $82 million for 1998, 1997 and 1996,
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) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales................................................. $ 5,677 $ 3,978 $ 4,236
Gross gains on sales................................................ $ 238 $ 95 $ 146
Gross losses on sales............................................... $ (55) $ (151) $ (70)
- -----------------------------------------------------------------------------------------------------
</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, 1998, 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, 1998 and 1997 consisted of
5,978,322 shares of common stock authorized, issued and outstanding (par value
$5).
The Company's statutory net income was $824 million, $417 million and $611
million for 1998, 1997 and 1996, respectively. Statutory surplus was $1.8
billion at December 31, 1998 and $2.2 billion at December 31, 1997. 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 1998, the Company paid
dividends of $2.0 billion to its parent, all of which received prior approval
from the Department in accordance with requirements (see Note 3 - Disposition).
During 1997, the Company paid dividends of $400 million 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 1999 without prior approval is $839 million. The
amount of restricted net assets as of December 31, 1998 was approximately $2.7
billion.
NOTE 7 -- INCOME TAXES
The Company's net deferred tax asset of $865 million and $653 million as of
December 31, 1998 and 1997, 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.
47
<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, 1998
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. See Note 13 for a
discussion of potential legislation regarding this matter.
CIGNA's federal income tax returns are routinely audited by the Internal
Revenue Service, and provisions are made in CIGNA's financial statements in
anticipation of the results of these audits. CIGNA resolved all issues relative
to the Company arising out of audits for 1991 through 1993, which resulted in an
increase to net income of $13 million in 1997.
In management's opinion, adequate tax liabilities have been established for
all years. Income taxes and deferred tax balances for the year ended December
31, 1998 reflect state income taxes.
The tax effects of temporary differences which give rise to deferred income
tax assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other insurance and contractholder liabilities............................. $ 119 $ 400
Employee and retiree benefit plans......................................... 214 196
Deferred gain on sale of business.......................................... 290 --
Investments, net........................................................... 356 262
Policy acquisition expenses................................................ 111 --
Other...................................................................... -- 63
--------- ---
Total deferred tax assets.................................................... 1,090 921
--------- ---
Deferred tax liabilities:
Policy acquisition expenses................................................ -- 38
Depreciation............................................................... 67 77
Unrealized appreciation on investments..................................... 134 153
Other...................................................................... 24 --
--------- ---
Total deferred tax assets.................................................... 225 268
- ---------------------------------------------------------------------------------------------------
Net deferred income tax asset................................................ $ 865 $ 653
- ---------------------------------------------------------------------------------------------------
--------------------
</TABLE>
The components of income taxes for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
U.S. income............................................................ $ 617 $ 344 $ 391
Foreign income......................................................... 5 3 3
State income........................................................... 14 -- --
--- --- ---
636 347 394
--- --- ---
Deferred taxes (benefits):
U.S. income............................................................ (205) (49) (81)
State income........................................................... (6) -- --
--- --- ---
(211) (49) (81)
- ----------------------------------------------------------------------------------------------------------
Total income taxes....................................................... $ 425 $ 298 $ 313
- ----------------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
State income taxes were not material in years prior to 1998.
48
<PAGE>
Total income taxes for the year ended December 31 differs from the amount
computed using the nominal federal income tax rate of 35% for the following
reasons:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at nominal rate.............................................. $ 431 $ 320 $ 305
Tax-exempt interest income............................................... (4) (5) (5)
Dividends received deduction............................................. (13) (7) (7)
Amortization of goodwill................................................. 5 4 4
State income tax (net of federal income tax benefit)..................... 5 -- --
Resolved federal tax audit issues........................................ -- (13) --
Other.................................................................... 1 (1) 16
- ----------------------------------------------------------------------------------------------------------
Total income taxes....................................................... $ 425 $ 298 $ 313
- ----------------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
NOTE 8 -- PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS PLANS
A) PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS: The Company provides
pension and certain health care and life insurance benefits to eligible retired
employees and agents, spouses and other eligible dependents through various
plans. The expenses of retirement plans are allocated to the Company along with
other benefit cost allocations.
Pension benefits are provided through a plan sponsored by CIGNA covering most
domestic employees and by a separate pension plan for former agents. CIGNA funds
the pension plans at least at the minimum amount required by the Employee
Retirement Income Security Act of 1974. Allocated pension cost for the Company
was $19 million, $24 million and $26 million in 1998, 1997 and 1996,
respectively. The plans had deposits with the Company totaling approximately
$2.8 billion and $2.5 billion at December 31, 1998 and 1997, respectively.
Expense for postretirement benefits other than pensions allocated to the
Company totaled $2 million for 1998 and 1997 and $9 million for 1996. The other
postretirement benefit liability included in accounts payable, accrued expenses
and other liabilities as of December 31, 1998 and 1997 was $387 million and $412
million, including no net intercompany payables for 1998 and $39 million for
1997 for services provided by affiliates' employees.
B) 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 $22 million for 1998, $15 million for 1997 and $16 million
for 1996.
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 primary
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. In connection with
the sale of the Company's individual life insurance and annuity business (as
discussed in Note 3), the reinsurance recoverable from Lincoln National
Corporation at December 31, 1998 was $6.0 billion.
Failure of reinsurers to indemnify the Company, as a result of reinsurer
insolvencies and disputes, could result in losses. As of December 31, 1998 and
1997 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.
49
<PAGE>
The effects of reinsurance on net earned premiums and fees for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-DURATION CONTRACTS
Premiums and fees:
Direct............................................................ $ 3,763 $ 3,119 $ 2,940
Assumed........................................................... 286 255 135
Ceded............................................................. (237) (266) (166)
- -----------------------------------------------------------------------------------------------------
Net earned premiums and fees........................................ $ 3,812 $ 3,108 $ 2,909
- -----------------------------------------------------------------------------------------------------
-------------------------------
LONG-DURATION CONTRACTS
Premiums and fees:
Direct............................................................ $ 1,998 $ 1,979 $ 1,997
Assumed........................................................... 564 522 601
Ceded............................................................. (691) (233) (193)
- -----------------------------------------------------------------------------------------------------
Net earned premiums and fees........................................ $ 1,871 $ 2,268 $ 2,405
- -----------------------------------------------------------------------------------------------------
-------------------------------
</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 1998, 1997 and 1996 were net
of reinsurance recoveries of $699 million, $340 million and $359 million,
respectively.
For the year ended December 31, 1998, ceded premiums and reinsurance
recoveries associated with the individual life insurance and annuity business
sold were $741 million and $550 million, respectively.
NOTE 10 -- LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to buildings,
amounted to $42 million, $76 million and $68 million in 1998, 1997 and 1996,
respectively.
As of December 31, 1998, future net minimum rental payments under
non-cancelable operating leases were $168 million, payable as follows: 1999 -
$41 million; 2000 - $29 million; 2001 - $22 million; 2002 - $19 million; and $57
million thereafter.
NOTE 11 -- SEGMENT INFORMATION
Operating segments are based on the Company's internal reporting structure and
generally reflect differences in products. The Company presents segment
information as follows:
- EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS, which combines the
Company's Health Care and Group Insurance divisions, offers traditional
indemnity and cost containment products and services as well as alternative
funding arrangements, such as administrative services only and minimum
premium plans.
- EMPLOYEE RETIREMENT BENEFITS AND INVESTMENT SERVICES provides investment
products and professional services primarily to sponsors of qualified
pension, profit-sharing and retirement savings plans. This segment also
provides certain corporate and variable life insurance products.
Other Operations consist of gain recognition related to the sale of the
individual life insurance and annuity business (and, for prior years, results of
the sold business, see Note 3), corporate life insurance on which policy loans
are outstanding (also called leveraged corporate life insurance), reinsurance
operations, settlement annuity business and certain new business initiatives.
The Company uses operating income (net income excluding after-tax realized
investment results) to measure the financial results of its segments. Operating
income is determined on a basis consistent with the accounting policies for the
consolidated financial statements, except that interest expense on corporate
debt is not allocated to segments. The Company allocates substantially all other
corporate general, administrative and systems expenses to segments on systematic
bases. Income taxes are generally computed as if each segment were filing
separate income tax returns.
50
<PAGE>
The Company's operations are not materially dependent on one or a few
customers, brokers or agents. Summarized segment financial information for the
year ended and as of December 31 was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS
Premiums and fees and other revenues............................. $ 5,012 $ 4,307 $ 4,256
Net investment income............................................ 290 286 291
- --------------------------------------------------------------------------------------------------
Segment revenues................................................. 5,302 4,593 4,547
Income tax expense............................................... 114 108 126
Operating income................................................. 195 190 189
Assets under management:
Invested assets................................................ 3,519 3,761 3,281
Separate account............................................... 1,702 1,440 1,176
- --------------------------------------------------------------------------------------------------
Total............................................................ $ 5,221 $ 5,201 $ 4,457
- --------------------------------------------------------------------------------------------------
EMPLOYEE RETIREMENT BENEFITS AND INVESTMENT SERVICES
Premiums and fees and other revenues............................. $ 239 $ 205 $ 257
Net investment income............................................ 1,605 1,653 1,686
- --------------------------------------------------------------------------------------------------
Segment revenues................................................. 1,844 1,858 1,943
Income tax expense............................................... 113 99 86
Operating income................................................. 245 229 185
Assets under management:
Invested assets................................................ 20,511 20,759 20,303
Separate account............................................... 30,717 26,678 20,604
- --------------------------------------------------------------------------------------------------
Total............................................................ $ 51,228 $ 47,437 $ 40,907
- --------------------------------------------------------------------------------------------------
OTHER OPERATIONS
Premiums and fees and other revenues............................. $ 859 $ 874 $ 810
Net investment income............................................ 742 1,200 1,222
- --------------------------------------------------------------------------------------------------
Segment revenues................................................. 1,601 2,074 2,032
Income tax expense............................................... 165 83 84
Operating income................................................. 306 159 163
Assets under management:
Invested assets................................................ 10,006 16,181 16,193
Separate account............................................... 2,229 1,099 775
- --------------------------------------------------------------------------------------------------
Total............................................................ $ 12,235 $ 17,280 $ 16,968
- --------------------------------------------------------------------------------------------------
REALIZED INVESTMENT GAINS
Realized investment gains........................................ $ 93 $ 45 $ 37
Income tax expense............................................... 33 8 17
- --------------------------------------------------------------------------------------------------
Realized investment gains (losses), net of taxes................. $ 60 $ 37 $ 20
- --------------------------------------------------------------------------------------------------
TOTAL
Premiums and fees and other revenues............................. $ 6,110 $ 5,386 $ 5,323
Net investment income............................................ 2,637 3,139 3,199
Realized investment gains........................................ 93 45 37
- --------------------------------------------------------------------------------------------------
Total revenues................................................... 8,840 8,570 8,559
Income tax expense............................................... 425 298 313
Operating income................................................. 746 578 537
Realized investment gains (losses), net of taxes................. 60 37 20
Net income....................................................... 806 615 557
Assets under management:
Invested assets................................................ 34,036 40,701 39,777
Separate account............................................... 34,648 29,217 22,555
- --------------------------------------------------------------------------------------------------
Total............................................................ $ 68,684 $ 69,918 $ 62,332
- --------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
51
<PAGE>
Premiums and fees and other revenues by product type for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Medical and Dental Indemnity........................................ $ 3,566 $ 2,883 $ 2,726
Group Life.......................................................... 1,363 1,355 1,467
Other............................................................... 1,181 1,148 1,130
- -----------------------------------------------------------------------------------------------------
Total premiums and fees and other revenues.......................... $ 6,110 $ 5,386 $ 5,323
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
For the year ended December 31, 1998, 1997 and 1996, the change in net
translation of foreign currencies reflects increases of $2 million for 1998 and
1997, and $3 million for 1996.
Premiums and fees and other revenues by geographic region for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic............................................................ $ 6,068 $ 5,356 $ 5,291
Foreign............................................................. 42 30 32
- -----------------------------------------------------------------------------------------------------
Total premiums and fees and other revenues.......................... $ 6,110 $ 5,386 $ 5,323
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
The Company's aggregate foreign exchange transaction losses and foreign
long-lived assets for the year ended and as of December 31, 1998, 1997 and 1996
were not material.
NOTE 12 -- 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, 1998 and 1997.
The Company cedes long-term disability business to LINA. Reinsurance
recoverables from LINA at December 31, 1998 and 1997 were $834 million and $869
million, respectively.
Effective January 1, 1998, the Company assumed insurance reserves totaling $85
million, along with a corresponding amount of invested and other assets, under a
coinsurance arrangement assigned from Healthsource Insurance Company, an
affiliate. In addition, the Company was assigned the responsibility for
administering self-funded employee benefit plan products from Healthsource
Provident Administrators, Inc. (HPA), another affiliate. As part of this
assignment, net assets of approximately $304 million were transferred to the
Company from HPA.
The Company had lines of credit available from affiliates totaling $600
million at December 31, 1998 and 1997. 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 $1.5 million, $0.2 million and $1.0
million for 1998, 1997 and 1996, respectively. As of December 31, 1998 and 1997,
there were no borrowings outstanding under such lines.
The Company extended lines of credit to affiliates totaling $600 million at
December 31, 1998 and 1997. 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, 1998 or 1997.
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, 1998 and 1997, the Company had a balance in the Account of $1.1
billion and $484 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.
52
<PAGE>
NOTE 13 -- 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 17 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, 1998 and 1997 was $85
million and $202 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. During
1998, 1997 and 1996, this income was not material. 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 1998, 1997 or 1996.
The Company has entered into specialty life reinsurance contracts that
guarantee payments for specified unfavorable changes in variable annuity account
values based on underlying mutual fund investments if account holders expire or
elect to receive periodic income payments. For those accounts with mortality
risk, reserves are established in amounts adequate to meet the estimated future
obligations using various assumptions as to equity market conditions, premiums,
mortality and lapse rates, including provision for adverse deviation. As of
December 31, 1998 and 1997, the amount of recorded liabilities was $52 million
and $29 million, respectively. Although these guarantees may adversely affect
the Company's results of operations in future periods, they are not expected to
have a material adverse effect on the Company's liquidity or financial
condition.
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, 1998 and 1997, the amount of minimum benefit
guarantees for separate account contracts was $5.1 billion and $4.6 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, 1998 and
1997. 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 restrict
insurance pricing and the application of underwriting standards and revise
federal tax laws. Some of the more significant issues are discussed below.
In early 1999, the Administration proposed a federal budget that would
eliminate the deferral of taxation of certain statutory income of life insurance
companies. As discussed in Note 7, the Company has not provided taxes on $450
million of such income. If the budget provision is enacted, the Company will
record additional income tax expense of $158 million to reflect this liability.
The proposed federal budget also would limit the deduction of interest expense
on the general indebtedness of corporations owning non-leveraged corporate life
insurance policies covering the lives of officers, employees or directors. If
this latter provision is enacted as proposed, the Company does not anticipate
that it will have a material effect on its consolidated results of operations,
liquidity, or financial condition, although it could have a material adverse
effect on the results of operations of the Employee Retirement Benefits and
Investment Services segment.
In 1996, Congress passed legislation that phases out over a three-year period
the tax deductibility of policy loan interest for most leveraged corporate life
insurance products. For 1998 and 1997, revenues of $556 million and
53
<PAGE>
$591 million, respectively, and net income of $42 million and $44 million,
respectively, were from leveraged corporate life insurance 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.
In 1998, the NAIC adopted standardized statutory accounting principles. Since
these principles have not been adopted by most of the insurance departments of
various jurisdictions in which the Company's insurance subsidiaries are
domiciled, the timing and effects of implementation have not yet been
determined.
The Company is contingently liable for possible assessments under regulatory
requirements pertaining to potential insolvencies of unaffiliated insurance
companies and other insurance-related assessments. 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 no pre-tax charges
for 1998, and $17 million and $26 million for 1997 and 1996, respectively, for
estimated guaranty fund and other insurance-related assessments 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.
54
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICEWATERHOUSECOOPERS 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 - Janus
Aspen Series Short-Term 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 - Class I (constituting the CG Corporate Insurance
Variable Life Separate Account 02, hereafter referred to as "the Account") at
December 31, 1998, 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, 1998 by
correspondence with the custodians, provide a reasonable basis for the opinion
expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
February 19, 1999
55
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIDELITY
VARIABLE
FIDELITY INSURANCE
CIGNA VARIABLE VARIABLE INSURANCE PRODUCTS
PRODUCTS GROUP PRODUCTS FUND II
ALGER AMERICAN FUND SUB-ACCOUNTS SUB-ACCOUNTS FUND SUB-ACCOUNTS SUB-ACCOUNT
-------------------------------------- ---------------------- ---------------------- ----------
MIDCAP SMALL MONEY S&P 500 EQUITY- HIGH INVESTMENT
GROWTH GROWTH CAPITALIZATION MARKET INDEX INCOME INCOME GRADE BOND
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at fair
value....................... $ 512,805 $ 279,014 $ 598,312 $ 213,147 $27,262,227 $1,101,890 $1,079,507 $5,897,291
Receivable from Connecticut
General Life Insurance
Company..................... -- 598 90 -- -- -- 363 --
Receivable for fund shares
sold........................ 12,197 -- -- 10,755 3,935 9,846 170
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Total assets.............. 525,002 279,612 598,402 223,902 27,266,162 1,111,736 1,079,870 5,897,461
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life
Insurance Company........... 12,197 -- -- 10,755 3,935 9,846 -- 170
Payable for fund shares
purchased................... -- 598 90 -- -- -- 363 --
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities......... 12,197 598 90 10,755 3,935 9,846 363 170
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Net assets................ $ 512,805 $ 279,014 $ 598,312 $ 213,147 $27,262,227 $1,101,890 $1,079,507 $5,897,291
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Accumulation units outstanding
-- Contracts sold before May
1, 1998..................... 29,858 19,198 23,818 19,624 1,708,791 83,871 98,758 466,141
Net asset value per
accumulation unit........... $ 17.174509 $ 14.533269 $14.358496 $10.861410 $15.363576 $13.137868 $10.930880 $11.693725
Accumulation units outstanding
-- Contracts sold after
April 30, 1998.............. -- -- 24,144 -- 90,399 -- -- 42,614
Net asset value per
accumulation unit........... -- -- $10.616506 -- $11.162600 -- -- $10.474584
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Accumulation net assets....... $ 512,805 $ 279,014 $ 598,312 $ 213,147 $27,262,227 $1,101,890 $1,079,507 $5,897,291
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
</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
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
TEMPLETON
VARIABLE
PRODUCTS
SERIES
FUND
JANUS ASPEN SERIES MFS VARIABLE INSURANCE SUB-ACCOUNT
SUB-ACCOUNTS TRUST SUB-ACCOUNTS OCC ACCUMULATION TRUST ----------
---------------------- ------------------------ SUB-ACCOUNTS INTERNATIONAL
SHORT-TERM WORLDWIDE EMERGING TOTAL ---------------------------------- -
BOND GROWTH GROWTH RETURN EQUITY MANAGED SMALL CAP CLASS 1
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at fair
value....................... $ -- $2,826,277 $ 1,026,589 $ 63,790 $ 147,875 $ 739,373 $1,257,978 $1,296,043
Receivable from Connecticut
General Life Insurance
Company..................... -- -- 893 2,238 208 -- 120 --
Receivable for fund shares
sold........................ -- 5,911 -- -- -- 10,593 -- 1,623
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Total assets.............. -- 2,832,188 1,027,482 66,028 148,083 749,966 1,258,098 1,297,666
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life
Insurance Company........... -- 5,911 -- -- -- 10,593 -- 1,623
Payable for fund shares
purchased................... -- -- 893 2,238 208 -- 120 --
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Total liabilities......... -- 5,911 893 2,238 208 10,593 120 1,623
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Net assets................ $ -- $2,826,277 $ 1,026,589 $ 63,790 $ 147,875 $ 739,373 $1,257,978 $1,296,043
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Accumulation units outstanding
-- Contracts sold before May
1, 1998..................... -- 194,396 66,199 4,987 11,240 59,386 116,250 99,869
Net asset value per
accumulation unit........... -- $14.538727 $ 15.507615 $12.791189 $13.156140 $12.450284 $10.821353 $11.832899
Accumulation units outstanding
-- Contracts sold after
April 30, 1998.............. -- -- -- -- -- -- -- 11,884
Net asset value per
accumulation unit........... -- -- -- -- -- -- -- $9.617966
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Accumulation net assets....... $ -- $2,826,277 $ 1,026,589 $ 63,790 $ 147,875 $ 739,373 $1,257,978 $1,296,043
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
</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
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIDELITY VARIABLE
CIGNA VARIABLE FIDELITY VARIABLE INSURANCE
PRODUCTS INSURANCE PRODUCTS PRODUCTS FUND II
ALGER AMERICAN FUND SUB-ACCOUNTS GROUP SUB-ACCOUNTS FUND SUB-ACCOUNTS SUB-ACCOUNT
-------------------------------------- ------------------- -------------------- -----------------
MIDCAP SMALL MONEY S&P 500 EQUITY- HIGH INVESTMENT
GROWTH GROWTH CAPITALIZATION MARKET INDEX INCOME INCOME GRADE BOND
--------- --------- -------------- -------- -------- -------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................ $ 482 $ -- $ 1 $ 39,467 $520,757 $ 4,536 $ 23,780 $ 235,834
EXPENSES:
Mortality and expense
risk and administrative
charges................ 2,328 1,536 3,036 7,446 190,138 7,081 5,020 52,445
--------- --------- ------- -------- -------- -------- --------- --------
Net investment gain
(loss)................. (1,846) (1,536) (3,035) 32,021 330,619 (2,545) 18,760 183,389
--------- --------- ------- -------- -------- -------- --------- --------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Capital gain
distributions from
portfolio sponsors..... 29,450 11,691 34,120 -- 223,478 16,142 15,111 27,981
Net realized gain (loss)
on share
transactions........... 2,954 1,992 (972) -- 107,742 (105) 51 13,754
--------- --------- ------- -------- -------- -------- --------- --------
Net realized gain...... 32,404 13,683 33,148 -- 331,220 16,037 15,162 41,735
Change in net unrealized
gain (loss)............ 91,238 40,548 5,340 -- 4,308,965 36,839 (50,282) 201,263
--------- --------- ------- -------- -------- -------- --------- --------
Net realized and
unrealized gain (loss)
on investments........ 123,642 54,231 38,488 -- 4,640,185 52,876 (35,120) 242,998
--------- --------- ------- -------- -------- -------- --------- --------
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS........ $ 121,796 $ 52,695 $ 35,453 $ 32,021 $4,970,804 $ 50,331 $ (16,360) $ 426,387
--------- --------- ------- -------- -------- -------- --------- --------
--------- --------- ------- -------- -------- -------- --------- --------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
58
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TEMPLETON
MFS VARIABLE VARIABLE
JANUS ASPEN SERIES INSURANCE PRODUCTS SERIES
SUB-ACCOUNTS TRUST SUB-ACCOUNTS OCC ACCUMULATION FUND SUB-ACCOUNT
---------------------- ------------------- TRUST SUB-ACCOUNTS -----------------
SHORT-TERM WORLDWIDE EMERGING TOTAL -------------------------------- INTERNATIONAL -
BOND* GROWTH GROWTH RETURN EQUITY MANAGED SMALL CAP CLASS 1
---------- --------- -------- -------- -------- -------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................ $ 18 $ 67,675 $ -- $ 77 $ 726 $ 3,601 $ 4,734 $ 15,674
EXPENSES:
Mortality and expense
risk and administrative
charges................ 13 23,832 6,074 249 996 5,426 13,225 9,709
--
--------- -------- -------- -------- -------- ---------- --------
Net investment gain
(loss)................. 5 43,843 (6,074) (172) (270) (1,825) (8,491) 5,965
--
--------- -------- -------- -------- -------- ---------- --------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Capital gain
distributions from
portfolio sponsors..... 2 27,273 4,451 91 3,143 14,415 51,695 28,023
Net realized gain (loss)
on share
transactions........... 43 (19,943) (2,772) 34 522 1,337 (29,631) 940
--
--------- -------- -------- -------- -------- ---------- --------
Net realized gain...... 45 7,330 1,679 125 3,665 15,752 22,064 28,963
Change in net unrealized
gain (loss)............ -- 479,024 216,913 3,234 6,897 22,152 (177,446) (28,223)
--
--------- -------- -------- -------- -------- ---------- --------
Net realized and
unrealized gain (loss)
on investments........ 45 486,354 218,592 3,359 10,562 37,904 (155,382) 740
--
--------- -------- -------- -------- -------- ---------- --------
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS........ $ 50 $ 530,197 $212,518 $ 3,187 $ 10,292 $36,079 $ (163,873) $ 6,705
--
--
--------- -------- -------- -------- -------- ---------- --------
--------- -------- -------- -------- -------- ---------- --------
</TABLE>
* For the period ended December 31, 1998.
Deposits first received January 29, 1998.
The Notes to Financial Statements are an integral part of these statements.
59
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIDELITY
VARIABLE
INSURANCE
CIGNA VARIABLE PRODUCTS
PRODUCTS GROUP FUND
ALGER AMERICAN FUND SUB-ACCOUNTS SUB-ACCOUNTS SUB-ACCOUNTS
----------------------------------- ---------------------- ---------
MIDCAP SMALL MONEY S&P 500 EQUITY-
GROWTH GROWTH CAPITALIZATION MARKET INDEX INCOME
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ (1,846) $ (1,536) $ (3,035 ) $ 32,021 $ 330,619 $ (2,545)
Net realized gain............. 32,404 13,683 33,148 -- 331,220 16,037
Net unrealized gain (loss).... 91,238 40,548 5,340 -- 4,308,965 36,839
----------- ---------- ---------- ---------- ---------- ---------
Net increase (decrease) from
operations................. 121,796 52,695 35,453 32,021 4,970,804 50,331
----------- ---------- ---------- ---------- ---------- ---------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits, net of
premium loads............... 234,347 107,151 115,723 8,339,674 6,448,072 436,963
Participant transfers......... 178,850 100,550 387,084 (7,699,759) 3,889,673 543,337
Participant withdrawals....... (72,383) (19,855) (30,038 ) (530,422) (1,497,945) (111,582)
----------- ---------- ---------- ---------- ---------- ---------
Net increase (decrease) from
participant transactions... 340,814 187,846 472,769 109,493 8,839,800 868,718
----------- ---------- ---------- ---------- ---------- ---------
Total increase (decrease)
in net assets............ 462,610 240,541 508,222 141,514 13,810,604 919,049
NET ASSETS:
Beginning of year............. 50,195 38,473 90,090 71,633 13,451,623 182,841
----------- ---------- ---------- ---------- ---------- ---------
End of year................... $ 512,805 $ 279,014 $ 598,312 $ 213,147 $27,262,227 $1,101,890
----------- ---------- ---------- ---------- ---------- ---------
----------- ---------- ---------- ---------- ---------- ---------
<CAPTION>
FIDELITY
VARIABLE
INSURANCE
PRODUCTS
FUND II
SUB-ACCOUNT
----------
HIGH INVESTMENT
INCOME GRADE BOND
----------- ----------
<S> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ 18,760 $ 183,389
Net realized gain............. 15,162 41,735
Net unrealized gain (loss).... (50,282) 201,263
----------- ----------
Net increase (decrease) from
operations................. (16,360) 426,387
----------- ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits, net of
premium loads............... 220,573 424,660
Participant transfers......... 612,890 838,386
Participant withdrawals....... (42,487) (773,867 )
----------- ----------
Net increase (decrease) from
participant transactions... 790,976 489,179
----------- ----------
Total increase (decrease)
in net assets............ 774,616 915,566
NET ASSETS:
Beginning of year............. 304,891 4,981,725
----------- ----------
End of year................... $ 1,079,507 $5,897,291
----------- ----------
----------- ----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
60
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TEMPLETON
VARIABLE
PRODUCTS
MFS VARIABLE SERIES FUND
JANUS ASPEN SERIES INSURANCE SUB-ACCOUNT
SUB-ACCOUNTS TRUST SUB-ACCOUNTS OCC ACCUMULATION TRUST SUB- -------------
------------------ ------------------- ACCOUNTS INTERNATIONAL
SHORT-TERM WORLDWIDE EMERGING TOTAL -------------------------------- -
BOND* GROWTH GROWTH RETURN EQUITY MANAGED SMALL CAP CLASS 1
-------- -------- -------- --------- ----------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ 5 $ 43,843 $ (6,074) $ (172) $ (270) $ (1,825) $ (8,491) $ 5,965
Net realized gain............. 45 7,330 1,679 125 3,665 15,752 22,064 28,963
Net unrealized gain (loss).... -- 479,024 216,913 3,234 6,897 22,152 (177,446) (28,223 )
-------- -------- -------- --------- ----------- -------- --------- -------------
Net increase (decrease) from
operations................. 50 530,197 212,518 3,187 10,292 36,079 (163,873) 6,705
-------- -------- -------- --------- ----------- -------- --------- -------------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits, net of
premium loads............... 5,631 687,079 316,114 6,219 105,497 449,913 128,149 424,779
Participant transfers......... (5,488 ) 254,640 274,990 55,960 14,836 (10,371) 89,173 342,949
Participant withdrawals....... (193 ) (306,422) (86,142) (5,231) (30,729) (70,856) (158,738) (55,891 )
-------- -------- -------- --------- ----------- -------- --------- -------------
Net increase (decrease) from
participant transactions... (50 ) 635,297 504,962 56,948 89,604 368,686 58,584 711,837
-------- -------- -------- --------- ----------- -------- --------- -------------
Total increase (decrease)
in net assets............ -- 1,165,494 717,480 60,135 99,896 404,765 (105,289) 718,542
NET ASSETS:
Beginning of year............. -- 1,660,783 309,109 3,655 47,979 334,608 1,363,267 577,501
-------- -------- -------- --------- ----------- -------- --------- -------------
End of year................... $ -- $2,826,277 $1,026,589 $ 63,790 $ 147,875 $739,373 $1,257,978 $ 1,296,043
-------- -------- -------- --------- ----------- -------- --------- -------------
-------- -------- -------- --------- ----------- -------- --------- -------------
</TABLE>
- --------------------------
* For the period ended December 31, 1998.
Deposits first received January 29, 1998.
The Notes to Financial Statements are an integral part of these statements.
61
<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.
62
<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.
63
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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 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.
At December 31, 1998, the assets of the Account are divided into variable
sub-accounts, each of which is invested in shares of one of seventeen portfolios
(mutual funds) of nine diversified open-end management investment companies,
each portfolio having its own investment objective. Transfers are permitted
between these portfolios and to and from a fixed account option offered by CG
Life. The fixed account is not included in these financial statements. 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
BT INSURANCE FUNDS TRUST:
EAFE-Registered Trademark- Equity Index Fund*
Small Cap Index Fund*
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 ("Fidelity Equity-Income Portfolio")
High Income Portfolio ("Fidelity High Income Portfolio")
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:
Investment Grade Bond Portfolio ("Fidelity Investment Grade Bond Portfolio")
JANUS ASPEN SERIES:
Janus Aspen Series Short-Term 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 - Class 1
</TABLE>
* Not active. No deposits received as of December 31, 1998.
** This fund was no longer offered as of September 15, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in conformity with generally
accepted accounting principles and reflect management's estimates and
assumptions, such as those regarding fair value, that affect recorded amounts.
64
<PAGE>
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65
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Actual results could differ from those estimates. Significant estimates are
discussed throughout the Notes to Financial Statements. The following is a
summary of significant accounting policies consistently applied 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, 1998. 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.
3. INVESTMENTS
Total shares outstanding and cost of investments as of December 31, 1998
were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Cost of
Sub-Account Shares Held Investments
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio..................................... 9,636 $ 420,344
Alger American MidCap Growth Portfolio.............................. 9,665 233,326
Alger American Small Capitalization Portfolio....................... 13,607 582,531
CIGNA Variable Products Money Market Fund........................... 213,147 213,147
CIGNA Variable Products S&P 500 Index Fund.......................... 1,381,765 21,632,414
Fidelity Equity-Income Portfolio.................................... 43,347 1,038,651
Fidelity High Income Portfolio...................................... 93,626 1,102,649
Fidelity Investment Grade Bond Portfolio............................ 455,038 5,503,930
Janus Aspen Series Worldwide Growth Portfolio....................... 97,157 2,303,362
MFS Emerging Growth Series.......................................... 47,815 773,225
MFS Total Return Series............................................. 3,520 60,248
OCC Equity Portfolio................................................ 3,821 137,986
OCC Managed Portfolio............................................... 16,904 689,640
OCC Small Cap Portfolio............................................. 54,458 1,416,202
Templeton International Fund - Class 1.............................. 62,614 1,331,513
- ---------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE>
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67
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
Total purchases and sales of shares of each mutual fund for the year ended
December 31, 1998 amounted to:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Sub-Account Purchases Sales
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio..................................... $ 461,416 $ 92,998
Alger American MidCap Growth Portfolio.............................. 266,163 68,162
Alger American Small Capitalization Portfolio....................... 544,147 40,293
CIGNA Variable Products Money Market Fund........................... 9,192,317 9,050,804
CIGNA Variable Products S&P 500 Index Fund.......................... 11,309,560 1,915,663
Fidelity Equity-Income Portfolio.................................... 1,052,375 170,060
Fidelity High Income Portfolio...................................... 882,854 58,007
Fidelity Investment Grade Bond Portfolio............................ 1,425,205 724,656
Janus Aspen Series Short-Term Bond Portfolio*....................... 8,052 8,095
Janus Aspen Series Worldwide Growth Portfolio....................... 1,192,451 486,038
MFS Emerging Growth Series.......................................... 1,084,519 581,180
MFS Total Return Series............................................. 67,504 10,637
OCC Equity Portfolio................................................ 134,932 42,455
OCC Managed Portfolio............................................... 529,169 147,893
OCC Small Cap Portfolio............................................. 326,456 224,668
Templeton International Fund - Class 1.............................. 904,336 158,511
- -------------------------------------------------------------------------------------------
</TABLE>
* For the period January 29, 1998, date deposits first received, to September
15, 1998, the date the sub-account was no longer offered.
4. CHARGES AND DEDUCTIONS
For all contracts sold after April 30, 1998, CG Life charges each variable
sub-account for mortality and expense risks the daily equivalent of .70%, on an
annual basis, of the current value of each sub-account's assets during the first
fifteen policy years and .25% thereafter. All contracts sold before May 1, 1998
have an annual fee for mortality and expense risks of .85% per year during the
first ten policy years, .45% per year during the eleventh through fifteenth
policy years and .15% thereafter.
For all contracts sold after April 30, 1998, CG Life charges each variable
sub-account for administrative costs, a daily deduction currently equivalent to
.10% per year during the first fifteen policy years only. For all contracts sold
before May 1, 1998, CG Life charges administrative costs at the rate of .10% per
year for the first ten policy years only.
Both the mortality and expense risk charge and the administrative fee
deductions are also assessed against amounts held in the fixed account, if any.
The fixed account is part of the general account of CG Life and is not included
in these financial statements.
68
<PAGE>
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69
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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 year ended December 31,
1998 amounted to:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Mortality
and Asset Based
Expense Administrative
Sub-Account Risk Fees Fees
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio...................................... $ 2,083 $ 245
Alger American MidCap Growth Portfolio............................... 1,374 162
Alger American Small Capitalization Portfolio........................ 2,702 334
CIGNA Variable Products Money Market Fund............................ 6,652 794
CIGNA Variable Products S&P 500 Index Fund........................... 170,096 20,042
Fidelity Equity-Income Portfolio..................................... 6,336 745
Fidelity High Income Portfolio....................................... 4,491 529
Fidelity Investment Grade Bond Portfolio............................. 46,895 5,550
Janus Aspen Series Short-Term Bond Portfolio*........................ 12 1
Janus Aspen Series Worldwide Growth Portfolio........................ 21,312 2,520
MFS Emerging Growth Series........................................... 5,435 639
MFS Total Return Series.............................................. 223 26
OCC Equity Portfolio................................................. 891 105
OCC Managed Portfolio................................................ 4,855 571
OCC Small Cap Portfolio.............................................. 11,833 1,392
Templeton International Fund - Class 1............................... 8,679 1,030
- -----------------------------------------------------------------------------------------------
</TABLE>
* For the period January 29, 1998, date deposits first received, to September
15, 1998, the date the sub-account was no longer offered.
CG Life charges a one-time policy issue fee of $175 from the accumulation
value for a portion of CG Life's administrative expenses for all contracts sold
after April 30, 1998 and $250 for all contracts sold before May 1, 1998. Policy
issue fees, which are deducted from the initial premium payment, amounted to
$221,450, all of which were deducted from the CIGNA Variable Products Money
Market Fund.
For all contracts sold after April 30, 1998, 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 45% on premium payments up to target
premium specified in the policy will be deducted in the first policy year and an
additional 12% of premium payments up to target premium will be deducted in
policy years two through ten. 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 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.
For all contracts sold before May 1, 1998, 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, as defined in the Account's prospectus, 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.
70
<PAGE>
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71
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
4. CHARGES AND DEDUCTIONS (CONTINUED)
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 year ended December 31, 1998.
Fees charged by CG Life for premium loads are deducted from premium
payments. Administrative fees and the amount deducted for the cost of insurance
are included in participant withdrawals. Premium loads, net of refunds,
administrative fees and costs of insurance, by variable sub-account, for the
year ended December 31, 1998, amounted to:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Premium
Loads, net Costs of
of Administrative Insurance
Sub-Account Refunds Fees Deduction
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alger American Growth Portfolio......................... $ 67,042 $ 2,505 $ 36,575
Alger American MidCap Growth Portfolio.................. 17,119 1,208 12,068
Alger American Small Capitalization Portfolio........... 22,663 2,897 25,097
CIGNA Variable Products Money Market Fund............... 2,965,205 5,817 251,740
CIGNA Variable Products S&P 500 Index Fund.............. 571,707 33,462 473,457
Fidelity Equity-Income Portfolio........................ 95,805 9,121 70,128
Fidelity High Income Portfolio.......................... 28,917 1,751 32,199
Fidelity Investment Grade Bond Portfolio................ 37,989 8,454 93,498
Janus Aspen Series Short-Term Bond Portfolio*........... 391 13 180
Janus Aspen Series Worldwide Growth Portfolio........... 89,836 6,116 87,644
MFS Emerging Growth Series.............................. 41,098 5,273 52,047
MFS Total Return Series................................. 3,265 280 4,994
OCC Equity Portfolio.................................... 10,581 1,620 22,975
OCC Managed Portfolio................................... 93,545 3,178 32,486
OCC Small Cap Portfolio................................. 14,067 1,015 15,872
Templeton International Fund - Class 1.................. 66,157 6,068 43,649
- -------------------------------------------------------------------------------------------------
</TABLE>
* For the period January 29, 1998, date deposits first received, to September
15, 1998, the date the sub-account was no longer offered.
For policies issued after April 30, 1998, 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. 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.
72
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
4. CHARGES AND DEDUCTIONS (CONTINUED)
For policies issued between May 1, 1997 and April 30, 1998, 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 policies issued before May 1, 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.
Premium load refunds for the year ended December 31, 1998 amounted to
$58,750.
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.
Partial surrender transaction charges paid to CG Life attributable to the
variable sub-accounts for the year ended December 31, 1998 were not significant.
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 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
and that the Account therefore satisfies the requirements of the regulations,
and that the Account will continue to meet such requirements.
73
<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 our current charges and our guaranteed charges under the
Policies (guaranteed charges only for Policies with the joint and survivorship
benefit). 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
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 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:
- .85% of the daily net asset value of the Variable Account in years
one through ten,
- .45% of the daily net assets of the Variable Account in years 11-15,
and
- .15% of the daily net assets value of the Variable Account
thereafter.
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. These
advisory fees and other expenses will vary depending on which funding vehicle is
chosen but are assumed for purposes of these illustrations to be equivalent to
an annual effective rate of 0.71% of the daily net asset value of the Variable
Account.
Assuming current charges for administration and mortality and expense risks,
gross annual rate of 0%, 6%, and 12% correspond to net experience at constant
annual rates of:
- -1.66%, 4.34% and 10.34% during the first ten policy years, and
- constant annual rates of -1.16%, 4.84% and 10.84% during policy years
11-15, and
- -0.86%, 5.14% and 11.14% 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
- -1.91%, 4.09% and 10.09% in all policy years.
The illustrations also reflect the fact that we take 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 that 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 values shown for Policies with the joint
and survivorship benefit are on a medically underwritten, standard basis.
74
<PAGE>
The illustrations also reflect the fact that we deduct a premium charge from
each premium payment. Current and guaranteed values reflect a deduction of:
- 6.5% of each premium payment, plus
- 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 we:
- refund a portion of the sales charge for any Policy surrendered in
the first two years;
- deduct an $8 monthly administrative charge at the beginning of each
policy month, and
- deduct an initial $250 policy issue charge.
Upon request, we will furnish a comparable illustration based on the proposed
Insured's age, gender classification, smoking classification, risk
classification and premium payment requested.
75
<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
-1.66% 4.34% 10.34% -1.66% 4.34% 10.34% -1.66% 4.34% 10.34%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.16% 4.84% 10.84% -1.16% 4.84% 10.84% -1.16% 4.84% 10.84%
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 -0.86% 5.14% 11.14% -0.86% 5.14% 11.14% -0.86% 5.14% 11.14%
YEAR PER YEAR IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,935 500,000 500,000 500,000 1,689 1,811 1,933 3,811 3,933 4,055
2 10,117 500,000 500,000 500,000 5,407 5,887 6,382 6,542 7,022 7,517
3 15,558 500,000 500,000 500,000 8,934 10,007 11,156 8,934 10,007 11,156
4 21,270 500,000 500,000 500,000 12,265 14,166 16,280 12,265 14,166 16,280
5 27,269 500,000 500,000 500,000 15,426 18,390 21,818 15,426 18,390 21,818
6 33,567 500,000 500,000 500,000 18,432 22,694 27,828 18,432 22,694 27,828
7 40,181 500,000 500,000 500,000 21,287 27,086 34,362 21,287 27,086 34,362
8 47,125 500,000 500,000 500,000 24,005 31,581 41,492 24,005 31,581 41,492
9 54,416 500,000 500,000 500,000 26,590 36,188 49,283 26,590 36,188 49,283
10 62,072 500,000 500,000 500,000 29,035 40,905 57,802 29,035 40,905 57,802
15 106,490 500,000 500,000 500,000 38,986 66,650 115,762 38,986 66,650 115,762
20 163,180 500,000 500,000 500,000 40,698 92,456 209,580 40,698 92,456 209,580
25 235,533 500,000 500,000 500,000 27,096 111,860 365,535 27,096 111,860 365,535
30 327,876 500,000 500,000 679,917 0 118,072 640,946 0 118,072 640,946
</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 charges 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 your 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 0.71% per year. See "Expense Data"
at pages 6-7 of this prospectus.
76
<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
-1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
YEAR PER YEAR IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER
- ------ ----------- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,935 500,000 500,000 500,000 641 729 818 2,763 2,851 2,940
2 10,117 500,000 500,000 500,000 3,338 3,686 4,047 4,473 4,821 5,182
3 15,558 500,000 500,000 500,000 5,860 6,638 7,474 5,860 6,638 7,474
4 21,270 500,000 500,000 500,000 8,193 9,568 11,101 8,193 9,568 11,101
5 27,269 500,000 500,000 500,000 10,336 12,470 14,946 10,336 12,470 14,946
6 33,567 500,000 500,000 500,000 12,278 15,331 19,021 12,278 15,331 19,021
7 40,181 500,000 500,000 500,000 13,990 18,116 23,316 13,990 18,116 23,316
8 47,125 500,000 500,000 500,000 15,453 20,799 27,835 15,453 20,799 27,835
9 54,416 500,000 500,000 500,000 16,637 23,345 32,571 16,637 23,345 32,571
10 62,072 500,000 500,000 500,000 17,511 25,710 37,513 17,511 25,710 37,513
15 106,490 500,000 500,000 500,000 16,444 33,638 65,465 16,444 33,638 65,465
20 163,180 500,000 500,000 500,000 2,418 29,514 98,091 2,418 29,514 98,091
25 235,533 0 0 500,000 0 0 130,714 0 0 130,714
30 327,876 0 0 500,000 0 0 153,005 0 0 153,005
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
77
<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
-1.66% 4.34% 10.34% -1.66% 4.34% 10.34% -1.66% 4.34% 10.34%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.16% 4.84% 10.84% -1.16% 4.84% 10.84% -1.16% 4.84% 10.84%
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 -0.86% 5.14% 11.14% -0.86% 5.14% 11.14% -0.86% 5.14% 11.14%
YEAR PER YEAR IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,935 500,000 500,000 500,000 1,689 1,811 1,933 3,811 3,933 4,055
2 10,117 500,000 500,000 500,000 5,407 5,887 6,382 6,542 7,022 7,517
3 15,558 500,000 500,000 500,000 8,934 10,007 11,156 8,934 10,007 11,156
4 21,270 500,000 500,000 500,000 12,265 14,166 16,280 12,265 14,166 16,280
5 27,269 500,000 500,000 500,000 15,426 10,390 21,818 15,426 18,390 21,818
6 33,567 500,000 500,000 500,000 18,432 22,694 27,828 18,432 22,694 27,828
7 40,181 500,000 500,000 500,000 21,287 27,086 34,362 21,287 27,086 34,362
8 47,125 500,000 500,000 500,000 24,005 31,581 41,492 24,005 31,581 41,492
9 54,416 500,000 500,000 500,000 26,590 36,188 49,283 26,590 36,188 49,283
10 62,072 500,000 500,000 500,000 29,035 40,905 57,802 29,035 40,905 57,802
15 106,490 500,000 500,000 500,000 38,986 66,650 115,762 38,986 66,650 115,762
20 163,180 500,000 500,000 500,000 40,698 92,456 209,580 40,698 92,456 209,580
25 235,533 500,000 500,000 581,358 27,096 111,860 364,204 27,096 111,860 364,204
30 327,876 0 500,000 876,517 0 118,072 611,426 0 118,072 611,426
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
78
<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
-1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
YEAR PER YEAR IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,935 500,000 500,000 500,000 641 729 818 2,763 2,851 2,940
2 10,117 500,000 500,000 500,000 3,338 3,686 4,047 4,473 4,821 5,182
3 15,558 500,000 500,000 500,000 5,860 6,638 7,474 5,860 6,638 7,474
4 21,270 500,000 500,000 500,000 8,193 9,568 11,101 8,193 9,568 11,101
5 27,269 500,000 500,000 500,000 10,336 12,470 14,946 10,336 12,470 14,946
6 33,567 500,000 500,000 500,000 12,278 15,331 19,021 12,278 15,331 19,021
7 40,181 500,000 500,000 500,000 13,990 18,116 23,316 13,990 18,116 23,316
8 47,125 500,000 500,000 500,000 15,453 20,799 27,835 15,453 20,799 27,835
9 54,416 500,000 500,000 500,000 16,637 23,345 32,571 16,637 23,345 32,571
10 62,072 500,000 500,000 500,000 17,511 25,710 37,513 17,511 25,710 37,513
15 106,490 500,000 500,000 500,000 16,444 33,638 65,465 16,444 33,638 65,465
20 163,180 500,000 500,000 500,000 2,418 29,514 98,091 2,418 29,514 98,091
25 235,533 0 0 500,000 0 0 130,714 0 0 130,714
30 327,876 0 0 500,000 0 0 153,005 0 0 153,005
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
79
<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
-1.66% 4.34% 10.34% -1.66% 4.34% 10.34% -1.66% 4.34% 10.34%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.16% 4.84% 10.84% -1.16% 4.84% 10.84% -1.16% 4.84% 10.84%
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 -0.86% 5.14% 11.14% -0.86% 5.14% 11.14% -0.86% 5.14% 11.14%
YEAR PER YEAR IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,254 500,000 500,000 500,000 1,857 1,989 2,121 4,116 4,248 4,381
2 10,771 500,000 500,000 500,000 5,866 6,385 6,920 7,074 7,593 8,128
3 16,563 500,000 500,000 500,000 9,680 10,840 12,080 9,680 10,840 12,080
4 22,645 500,000 500,000 500,000 13,294 15,348 17,632 13,294 15,348 17,632
5 29,032 500,000 500,000 500,000 16,734 19,937 23,643 16,734 19,937 23,643
6 35,737 500,000 500,000 500,000 20,016 24,625 30,176 20,016 24,625 30,176
7 42,778 500,000 500,000 500,000 23,143 29,418 37,290 23,143 29,418 37,290
8 50,171 500,000 500,000 500,000 26,130 34,334 45,062 26,130 34,334 45,062
9 57,934 500,000 500,000 500,000 28,980 39,381 53,565 28,980 39,381 53,565
10 66,084 500,000 500,000 500,000 31,687 44,560 62,872 31,687 44,560 62,872
15 113,374 500,000 500,000 500,000 43,007 73,134 126,523 43,007 73,134 126,523
20 173,729 500,000 500,000 500,000 46,206 102,928 230,736 46,206 102,928 230,736
25 250,758 500,000 500,000 500,000 34,304 128,185 406,370 34,304 128,185 406,370
30 349,070 0 500,000 756,573 0 143,623 713,208 0 143,623 713,208
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
80
<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
-1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
YEAR PER YEAR IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,254 500,000 500,000 500,000 808 906 1,005 3,068 3,166 3,265
2 10,771 500,000 500,000 500,000 3,797 4,184 4,585 5,005 5,392 5,793
3 16,563 500,000 500,000 500,000 6,606 7,470 8,397 6,606 7,470 8,397
4 22,645 500,000 500,000 500,000 9,221 10,749 12,452 9,221 10,749 12,452
5 29,032 500,000 500,000 500,000 11,642 14,017 16,770 11,642 14,017 16,770
6 35,737 500,000 500,000 500,000 13,860 17,260 21,368 13,860 17,260 21,368
7 42,778 500,000 500,000 500,000 15,844 20,447 26,243 15,844 20,447 26,243
8 50,171 500,000 500,000 500,000 17,575 23,551 31,406 17,575 23,551 31,406
9 57,934 500,000 500,000 500,000 19,027 26,540 36,857 19,027 26,540 36,857
10 66,084 500,000 500,000 500,000 20,165 29,371 42,595 20,165 29,371 42,595
15 113,374 500,000 500,000 500,000 20,415 40,053 76,134 20,415 40,053 76,134
20 173,729 500,000 500,000 500,000 7,770 39,711 118,753 7,770 39,711 118,753
25 250,758 0 500,000 500,000 0 13,734 170,574 0 13,734 170,574
30 349,070 0 0 500,000 0 0 233,896 0 0 233,896
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
81
<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
-1.66% 4.34% 10.34% -1.66% 4.34% 10.34% -1.66% 4.34% 10.34%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.16% 4.84% 10.84% -1.16% 4.84% 10.84% -1.16% 4.84% 10.84%
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 -0.86% 5.14% 11.14% -0.86% 5.14% 11.14% -0.86% 5.14% 11.14%
YEAR PER YEAR IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,254 500,000 500,000 500,000 1,780 1,910 2,040 4,039 4,169 4,299
2 10,771 500,000 500,000 500,000 5,689 6,197 6,722 6,897 7,405 7,930
3 16,563 500,000 500,000 500,000 9,368 10,501 11,715 9,368 10,501 11,715
4 22,645 500,000 500,000 500,000 12,826 14,829 17,058 12,826 14,829 17,058
5 29,032 500,000 500,000 500,000 16,084 19,201 22,809 16,084 19,201 22,809
6 35,737 500,000 500,000 500,000 19,162 23,637 29,031 19,162 23,637 29,031
7 42,778 500,000 500,000 500,000 22,069 28,147 35,782 22,069 28,147 35,782
8 50,171 500,000 500,000 500,000 24,816 32,745 43,132 24,816 32,745 43,132
9 57,934 500,000 500,000 500,000 27,415 37,446 51,155 27,415 37,446 51,155
10 66,084 500,000 500,000 500,000 29,861 42,249 59,920 29,861 42,249 59,920
15 113,374 500,000 500,000 500,000 39,460 68,170 119,363 39,460 68,170 119,363
20 173,729 500,000 500,000 500,000 39,860 93,334 215,345 39,860 93,334 215,345
25 250,758 500,000 500,000 588,312 23,936 111,121 374,138 23,936 111,121 374,138
30 349,070 0 500,000 892,280 0 114,861 627,881 0 114,861 627,881
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
82
<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
-1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
YEAR PER YEAR IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER
- ------ ----------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,254 500,000 500,000 500,000 270 351 433 2,529 2,610 2,692
2 10,117 500,000 500,000 500,000 2,681 2,998 3,328 3,889 4,206 4,536
3 16,563 500,000 500,000 500,000 4,875 5,580 6,337 4,875 5,580 6,337
4 22,645 500,000 500,000 500,000 6,853 8,089 9,471 6,853 8,089 9,471
5 29,032 500,000 500,000 500,000 8,590 10,496 12,713 8,590 10,496 12,713
6 35,737 500,000 500,000 500,000 10,076 12,781 16,063 10,076 12,781 16,063
7 42,778 500,000 500,000 500,000 11,282 14,907 19,501 11,282 14,907 19,501
8 50,171 500,000 500,000 500,000 12,183 16,838 23,009 12,183 16,838 23,009
9 57,934 500,000 500,000 500,000 12,741 18,524 26,555 12,741 18,524 26,555
10 66,084 500,000 500,000 500,000 12,922 19,915 30,108 12,922 19,915 30,108
15 113,374 500,000 500,000 500,000 7,416 21,027 47,266 7,416 21,027 47,266
20 173,729 0 500,000 500,000 0 5,907 59,158 0 5,907 59,158
25 250,758 0 0 500,000 0 0 50,615 0 0 50,615
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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
83
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
WITH JOINT AND SURVIVORSHIP RIDER
SEX-DISTINCT NONSMOKER ISSUE AGES 55 (MALE),
52 (FEMALE)
$548,000 ANNUAL PREMIUM FOR SEVEN YEARS
FACE AMOUNT $20,000,000
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
-1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
YEAR PER YEAR IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER
- ------ ----------- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 548,000 20 20 20 381,921 405,307 428,693 517,391 540,777 564,163
2 1,123,400 20 20 20 871,965 949,721 1,030,285 947,875 1,025,631 1,106,195
3 1,727,570 20 20 20 1,350,654 1,514,364 1,690,502 1,350,654 1,514,364 1,690,502
4 2,361,949 20 20 20 1,817,845 2,099,724 2,414,947 1,817,845 2,099,724 2,414,947
5 3,028,046 20 20 20 2,273,355 2,706,288 3,209,799 2,273,355 2,706,288 3,209,799
6 3,727,448 20 20 20 2,716,972 3,334,562 4,081,909 2,716,972 3,334,562 4,081,909
7 4,461,821 20 20 20 3,148,476 3,985,100 5,038,909 3,148,476 3,985,100 5,038,909
8 4,684,912 20 20 20 3,067,061 4,127,331 5,527,539 3,067,061 4,127,331 5,527,539
9 4,919,157 20 20 20 2,981,310 4,269,997 6,060,982 2,981,310 4,269,997 6,060,982
10 5,165,115 20 20 20 2,889,991 4,412,034 6,643,159 2,889,991 4,412,034 6,643,159
15 6,592,141 20 20 20 2,282,151 5,051,840 10,452,469 2,282,151 5,051,840 10,452,469
20 8,413,428 20 20 20 1,142,698 5,318,457 16,463,880 1,142,698 5,318,457 16,463,880
25 10,737,903 0 20 27.7112 0 4,409,209 26,391,660 0 4,409,209 26,391,660
30 13,704,588 0 20 44.1995 0 134,388 42,094,777 0 134,388 42,094,777
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
84
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
WITH JOINT AND SURVIVORSHIP RIDER
SEX-DISTINCT NONSMOKER ISSUE AGES 55 (MALE),
52 (FEMALE)
$548,000 ANNUAL PREMIUM FOR SEVEN YEARS
FACE AMOUNT $20,000,000
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
-1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
YEAR PER YEAR IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER
- ------ ----------- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 548,000 20 20 20 381,921 405,307 428,693 517,391 540,777 564,163
2 1,123,400 20 20 20 871,965 949,721 1,030,285 947,875 1,025,631 1,106,195
3 1,727,570 20 20 20 1,350,654 1,514,364 1,690,502 1,350,654 1,514,364 1,690,502
4 2,361,947 20 20 20 1,817,845 2,099,724 2,414,947 1,817,845 2,099,724 2,414,947
5 3,025,046 20 20 20 2,273,355 2,706,288 3,209,799 2,273,355 2,706,288 3,209,799
6 3,727,448 20 20 20 2,716,972 3,334,562 4,081,909 2,716,972 3,334,562 4,081,909
7 4,461,821 20 20 20 3,148,476 3,985,100 5,038,909 3,148,476 3,985,100 5,038,909
8 4,684,912 20 20 20 3,067,061 4,127,331 5,527,539 3,067,061 4,127,331 5,527,539
9 4,919,157 20 20 20 2,981,310 4,269,997 6,060,982 2,981,310 4,269,997 6,060,982
10 5,165,115 20 20 20 2,889,991 4,412,034 6,643,159 2,889,991 4,412,034 6,643,159
15 6,592,141 20 20 20.0676 2,282,151 5,051,840 10,452,469 2,282,151 5,051,840 10,452,469
20 8,413,428 20 20 26.5890 1,142,698 5,318,457 16,463,880 1,142,698 5,318,457 16,463,880
25 10,731,905 0 20 35.1402 0 4,409,209 26,831,466 0 4,409,209 26,831,466
30 13,704,588 0 20 46.2856 0 134,388 49,079,827 0 134,388 49,079,827
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
85
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PRELIMINARY PROSPECTUS DATED APRIL 21, 1999
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
[LOGO]
<TABLE>
<S> <C>
HOME OFFICE LOCATION: MAILING ADDRESS:
900 COTTAGE GROVE ROAD CIGNA
BLOOMFIELD, CONNECTICUT CORPORATE VARIABLE PRODUCTS SERVICE CENTER
P.O. BOX 2975
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 (the "Policy") offered by Connecticut General Life Insurance Company
(the "Company", "we, us, our/ours").
Policy features:
- life insurance benefits on an individual (or joint and survivor see
page 22) basis;
- flexible premium payments (see page 14);
- a choice of underlying funding options (see page 8); and
- a choice of three death benefit options (see page 12).
The Policy values vary with the investment performance of the underlying
fund options you select. The amount of money paid by us upon the death of the
Insured (the "death benefit") may also vary during the life of the Policy. When
you notify us of the Insured's death, we will pay the beneficiary(ies) the
Policy's death benefit in a lump sum or through an equivalent annuity option.
We offer seventeen funds in this Policy through a separate account. Each
fund (commonly called a mutual fund) diversifies its investments and offers
unlimited shares for sale. Each fund has a different investment objective. The
funds are as follows:
<TABLE>
<S> <C>
THE ALGER AMERICAN FUND JANUS ASPEN SERIES
Alger American Small Capitalization Portfolio Worldwide Growth Portfolio
Alger American MidCap Growth Portfolio
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE
Alger American Growth Portfolio TRUST-SM-
MFS Emerging Growth Series
BT INSURANCE FUNDS TRUST MFS Total Return Series
EAFE-Registered Trademark- Equity Index Fund
Small Cap Index Fund OCC ACCUMULATION TRUST
OCC Equity Portfolio
CIGNA VARIABLE PRODUCTS GROUP OCC Managed Portfolio
CIGNA VP Money Market Fund OCC Small Cap Portfolio
CIGNA VP S&P 500 Index Fund
CIGNA VP Investment Grade Bond Fund TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton International Fund Class 1
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Equity-Income Portfolio
VIP High Income Portfolio
</TABLE>
The Policy also offers a Fixed Account, which credits a fixed amount of
interest to policy values in that account. We guarantee the amounts held in the
Fixed Account. We also guarantee that the funds will earn interest at a rate at
least equal to the lesser of (a) 4% per year, or (b) the prevailing 30-day
Treasury Bill Rate as of the last day of the previous calendar month. Unless
specifically mentioned, this prospectus only describes the variable investment
options.
It may not be in your best interest to replace existing insurance with this
Policy. It also may not be in your best interest to supplement existing flexible
premium variable life insurance with this Policy. You should read this entire
prospectus, and those of the funds, to understand the Policy.
TO BE VALID, THIS PROSPECTUS MUST HAVE THE CURRENT MUTUAL FUNDS' PROSPECTUSES
WITH IT. KEEP THEM ALL FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A
CRIMINAL OFFENSE TO STATE OTHERWISE.
PROSPECTUS DATED: MAY , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Technical Terms................................. 3
Highlights...................................... 4
Initial Choices............................... 4
Charges and Fees.............................. 4
Expense Data.................................. 6
The Company..................................... 8
The Variable Account............................ 8
The Funds....................................... 8
General....................................... 11
Substitution of Securities.................... 11
Voting Rights................................. 12
Fund Participation Agreements................. 12
Death Benefit................................... 12
Death Benefit Options....................... 12
Changes in Death Benefit Option............. 13
Payment of Death Benefit.................... 13
Changes in Specified Amount................. 14
Premium Payments; Transfers..................... 14
Premium Payments............................ 14
Allocation of Net Premium Payments.......... 15
Transfers................................... 15
Charges; Fees................................... 16
Premium Charges............................. 16
Policy Issue Fee............................ 16
Monthly Deductions.......................... 16
Daily Deductions............................ 17
Administrative Fee.......................... 17
Mortality and Expense Risk Charge........... 17
Transaction Fee for Excess Transfers........ 17
Surrenders During First Three Policy Years
-- Refund of Portion of Premium Charge..... 17
The Fixed Account............................... 18
Policy Values................................... 18
Accumulation Value.......................... 18
Variable Accumulation Unit Value............ 19
Surrender Value............................. 19
Surrenders...................................... 19
Partial Surrenders.......................... 19
Full Surrenders............................. 20
<CAPTION>
PAGE
-----------
<S> <C>
Deferral of Payment and Transfers........... 20
Lapse and Reinstatement......................... 20
Lapse of a Policy........................... 20
Reinstatement of a Lapsed Policy............ 20
Policy Loans.................................... 21
Settlement Options.............................. 21
Additional Insurance Benefit.................... 22
Joint and Survivorship 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
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................................. 29
Legal Proceedings........................... 29
Experts..................................... 29
Registration Statement...................... 29
Year 2000................................... 29
Financial Statements........................ 30
Appendix 1...................................... 73
Illustration of Accumulation Values,
Surrender Values, and Death Benefits....... 75
</TABLE>
2
<PAGE>
TECHNICAL TERMS
ACCUMULATION UNIT: A unit of measure used to calculate the value of a Variable
Account sub-account.
ACCUMULATION VALUE: The sum of your interest in the Fixed Account value (see
page 18), your interest in the Variable Account value (see page 8) and the loan
account value.
CASE: A group of policies covering individuals with common employment or other
relationship, independent of the policies.
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".
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.
GRACE PERIOD: The 61-day period following a monthly anniversary day on which a
Policy's net accumulation value is insufficient to cover the current monthly
deduction. We will send a notice at least 31 days before the end of the grace
period that the Policy will lapse without value unless we receive a sufficient
payment (described in the notification letter).
GUIDELINE ANNUAL PREMIUM: The level amount, calculated in accordance with Rule
6e-3(T) under the Investment Company Act of 1940, required to mature the Policy
under guaranteed mortality and expense charges and an annual interest rate of
5%.
MONTHLY ANNIVERSARY DAY: The day of the month, as shown in the Policy
Specifications, when we make the monthly deduction; or, if that day is not a
valuation day or is nonexistent for that month, the next valuation day.
NET ACCUMULATION VALUE: The accumulation value less the loan account value.
POLICY YEAR: Each twelve-month period, beginning on the issue date, during which
the Policy is in effect.
RIGHT-TO-EXAMINE PERIOD: The period of time following the issuance of the Policy
during which you may return the Policy and receive a refund of premiums paid.
This period is ten days after the Policy is received, unless stipulated
otherwise by state law requirements.
SPECIFIED AMOUNT: The amount you choose which is used in determination of the
death benefit and which you may increase or decrease as described in this
prospectus. We exclude the additional insurance benefit 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 (see page 8) which is invested
in shares of a specific fund.
SURRENDER VALUE: The amount you can receive in cash by surrendering the Policy.
This equals the net accumulation value plus any premium charge credits if the
surrender occurs within 36 months of issue.
TARGET PREMIUM: The amount of premium on which we pay full commissions and
deduct a higher premium charge. This amount is specified on the Policy
Specifications page and varies based on the Insured's issue age, sex and
specified amount. The premium charge applied to the premiums paid in the first
ten 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. This will
include any day on which the New York Stock Exchange is open, but not 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.
3
<PAGE>
HIGHLIGHTS
This section is an overview of key Policy features.
Regulations in your state may vary the provisions of your
own Policy. The Policy is a flexible premium variable life
insurance policy. Its value may change on a:
a) fixed basis;
b) variable basis; or
c) combination of both fixed and variable bases.
INITIAL CHOICES
TO BE MADE
When purchasing a Policy, you have three important choices
to make:
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
The death benefit is the amount we pay to the
beneficiary(ies) when the Insured dies. Before we pay the
beneficiary(ies) any outstanding loan account balances or
outstanding amounts due are subtracted from the death
benefit. We calculate the death benefit payable as of the
date on which the Insured died.
When you purchase your Policy, you must choose one of three
death benefit options:
1) Option A -- a varying death benefit equal to the greater
of:
a) the specified amount plus the accumulation value; or
b) the corridor death benefit.
2) Option B -- a level death benefit equal to the greater
of:
a) the specified amount, or
b) the corridor death benefit.
3) Option C -- a "return of premium" death benefit equal to
the greater of:
a) the specified amount plus the sum of the premiums
paid; or
b) the corridor death benefit.
AMOUNT OF
PREMIUM PAYMENT
When you apply for your Policy, you must decide how much
premium to pay. Premium payments may be changed within the
limits described on page 14-15. If you change your premium
payments, however, your Policy may continue in force but it
might also lapse if you don't pay enough premium to maintain
a positive net accumulation value. If your Policy lapses
because your monthly deduction is larger than the net
accumulation value, you may reinstate your Policy. See page
20.
SELECTION OF
FUNDING
VEHICLE(S)
You must choose the fund(s) in which you want to place your
net premium payment(s). For each fund, we maintain a
separate sub-account which invests in shares of that fund.
These fund sub-accounts make up the Variable Account (see
page 8). A variable sub-account is not guaranteed and will
increase or decrease in value according to the particular
fund's investment performance. (See pages 18 and 19.) You
may also choose to place part or all of your net premium
payment(s) into the Fixed Account.
Your initial premium payment will be deposited in the CIGNA
Variable Products Group's Money Market Fund during the
Right-to-Examine Period as described in "Short-Term Right to
Cancel the Policy". (See page 23.)
CHARGES
AND FEES
We will deduct a premium charge of 6.5% from each premium
payment for sales expenses, premium taxes and other tax
liabilities.
We also deduct the following:
- a 45% premium charge on premium payments up to target
premium in the first policy year, and
4
<PAGE>
- a 12% premium charge on premium payments up to target
premium in policy years 2 through 10.
If your specified amount is increased, other than through a
change in a death benefit option, we will deduct an
additional premium charge of 25% of the premium payment(s)
up to the increase in the target premium during the first 12
months of the increase. This charge will be applied to the
extent that the premium payment(s) are attributable to the
increase in the specified amount rather than to the
previously existing specified amount.
We deduct monthly charges for:
1) Cost of Insurance, and
2) any additional insurance benefit.
We also deduct the following administrative expenses:
1) a one-time charge of $175 at issue,
2) monthly deductions of $8 per month,
3) daily charges from the policy values for the first
fifteen policy years (currently at an annual rate of .10%
of the value of the assets in the accounts).
Daily charges for the mortality and expense risk are
deducted from the Variable Account value and the Fixed
Account value. Currently these charges are at an annual rate
of:
1) .70% of the value of the assets during the first fifteen
policy years, and
2) .25% of the value of the assets in the accounts
thereafter.
Each fund has its own management fee charge, also deducted
daily. Each fund's expense levels will affect its investment
results. The table on pages 6-7 shows current expense levels
for each fund as of December 31, 1998.
We charge a transaction fee of $25 for each partial
surrender and for certain transfers in excess of four per
policy year.
We will charge interest on policy loans. The net interest
spread (the amount by which interest charged exceeds
interest credited) is currently:
- .80% per year in the first policy year,
- .70% per year in policy years 2-15, and
- .15% per year thereafter.
For additional information, see "Charges; Fees" beginning on
page 16 and Expense Data on pages 6 and 7.
REDUCTION OF
CHARGES
This Policy is available for purchase by corporations or
other groups or sponsoring organizations on a case basis. We
may reduce premium charges or any other charges on cases
where we expect that the amount or nature of the case will
result in savings of sales, underwriting, administrative or
other costs. Eligibility for and the amount of reduction
will be determined by a number of factors, including:
- number of lives to be insured;
- total premium(s) expected to be paid;
- total assets you have under our management;
- the nature of the relationship among the insured
individuals;
- the purpose for which the Policies are being purchased;
- expected persistency of the Policies as a whole, and
- any other circumstances which we believe to be relevant to
the expected reduction of our expenses.
Some reductions may be guaranteed. Other reductions may be
subject to withdrawal or modification by us on a uniform
case basis. Reductions in charges will not be unfairly
discriminatory to any policy owners.
5
<PAGE>
EXPENSE DATA
The purpose of the following table is to help purchasers and propsective
purchasers understand the costs and expenses that they will bear, directly and
indirectly, 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 7.)
FEE TABLE
<TABLE>
<CAPTION>
ALGER AMERICAN FUNDS BT INSURANCE FUNDS TRUST CIGNA VARIABLE PRODUCTS
--------------------------------- ------------------------- ------------------------------
MIDCAP EAFE-REGISTERED TRADEMARK- MONEY S&P 500 INVESTMENT
SMALL CAP GROWTH GROWTH EQUITY INDEX SMALL CAP MARKET INDEX GRADE BOND
PORTFOLIO PORTFOLIO PORTFOLIO FUND INDEX FUND FUND FUND FUND
--------- --------- --------- ------------ ---------- -------- ------- ----------
<S> <C> <C> <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% 0.70% 0.70%
Administrative Expense
Charge....................... 0.10% 0.10% 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% 0.80% 0.80%
--- --- --- ------ ---------- -------- ------- ----------
--- --- --- ------ ---------- -------- ------- ----------
FUND PORTFOLIO ANNUAL
OPERATING EXPENSES
Management Fees............... 0.85 0.80 0.75 0.45 0.35 0.35 0.25 0.50
Other Expenses................ 0.04 0.04 0.04 1.21 1.23 0.38 0.22 0.15
--- --- --- ------ ---------- -------- ------- ----------
Total Gross Expenses.......... 0.89 0.84 0.79 1.66 1.58 0.73 0.47 0.65
Waivers and Reimbursements.... 0.00 0.00 0.00 (1.01) (1.13) (0.23) (0.22) (0.15)
--- --- --- ------ ---------- -------- ------- ----------
TOTAL NET FUND PORTFOLIO
ANNUAL OPERATING EXPENSES.... 0.89 0.84 0.79 0.65(1) 0.45(1) 0.50(2) 0.25(2) 0.50(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, 2000, the Funds' adviser has agreed to bear expenses of the
Funds so that Total Fund Portfolio Annual Operating Expenses do not exceed
0.50% of average daily net asset value for the VP Money Market and the
Investment Grade Bond Funds and 0.25% for the VP S&P 500 Index Fund,
respectively. Otherwise, Total Fund Portfolio Annual Operating Expenses
would have been 0.73% and 0.44% of average daily net asset value for 1998
for the VP Money Market and the VP S&P 500 Index Funds, respectively.
6
<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 charges,
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 the 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>
JANUS MFS-REGISTERED TRADEMARK-
FIDELITY VARIABLE INSURANCE ASPEN VARIABLE INSURANCE
PRODUCTS FUNDS SERIES TRUST-REGISTERED TRADEMARK-
- -------------------------------------------- --------- ------------------
EQUITY- INVESTMENT WORLDWIDE EMERGING TOTAL
HIGH INCOME INCOME GRADE BOND GROWTH GROWTH RETURN
PORTFOLIO PORTFOLIO PORTFOLIO(3) PORTFOLIO SERIES SERIES
- ------------- --------- ---------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
0.70 % 0.70% 0.70% 0.70% 0.70% 0.70%
%
0.10 0.10% 0.10% 0.10% 0.10% 0.10%
- --- --------- ----- --------- -------- -------
0.80 % 0.80% 0.80% 0.80% 0.80% 0.80%
- --- --------- ----- --------- -------- -------
- --- --------- ----- --------- -------- -------
0.58 % 0.49% 0.43% 0.67% 0.75% 0.75%
0.12 % 0.09% 0.14% 0.07% 0.10%(6) 0.16%(6)
- --- --------- ----- --------- -------- -------
0.70 % 0.58% 0.57% 0.74% 0.85% 0.91%
0.00 % (0.01)% 0.00% (0.02)% 0.00% 0.00%
- --- --------- ----- --------- -------- -------
0.70 %(4) 0.57%(4) 0.57%(4) 0.72%(5) 0.85% 0.91%
- --- --------- ----- --------- -------- -------
- --- --------- ----- --------- -------- -------
<CAPTION>
TEMPLETON
VARIABLE
FIDEL PRODUCTS
-------------
- ------------- OCC TRUST TEMPLETON
------------------------------------ INTERNATIONAL
HIGH INCOME EQUITY MANAGED SMALL CAP FUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO CLASS 1
- ------------- --------- ------- --------- -------------
<S> <C> <C> <C> <C>
0.70 % 0.70% 0.70% 0.70% 0.70%
%
0.10 0.10% 0.10% 0.10% 0.10%
- --- --------- ------- --------- -----
0.80 % 0.80% 0.80% 0.80% 0.80%
- --- --------- ------- --------- -----
- --- --------- ------- --------- -----
0.58 % 0.80% 0.78% 0.80% 0.69%
0.12 % 0.14%(7) 0.04%(7) 0.08%(7) 0.17%
- --- --------- ------- --------- -----
0.70 % 0.94%(8) 0.82%(8) 0.88%(8) 0.86%
0.00 % 0.00% 0.00% 0.00% 0.00%
- --- --------- ------- --------- -----
0.70 %(4) 0.94% 0.82% 0.88% 0.86%
- --- --------- ------- --------- -----
- --- --------- ------- --------- -----
</TABLE>
- ------------------------------
(3) The Fidelity VIP II Investment Grade Bond Fund will no longer be available
to accept new allocations of premium or receive transfers of existing funds
from other sub-accounts on or after May 1, 1999.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
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. The total operating expenses, after
reimbursement for High Income Portfolio and Equity-Income Portfolio,
reflect these reductions in the table above.
(5) All expenses are based on gross expenses of the Shares before expense
offset arrangements for the fiscal year ended December 31, 1998. 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 0.61%, 0.07% and 0.74%. Janus Capital has agreed to
continue the fee reduction until at least the next annual renewal of the
Advisory Agreement.
(6) Each series has an expense offset arrangement that reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series expenses. Expenses do not take
into account these expense reductions and are, therefore, higher than the
actual expenses of the series.
(7) Other Expenses are shown gross of expense offsets afforded the Portfolios
which effectively lowered overall custody expenses.
(8) Total Gross Portfolio Expenses for the Equity, Small Cap and Managed
Portfolios are limited by OpCap Advisors so that their respective
annualized expenses (net of any expense offsets) do not exceed 1.00% of
average daily net assets.
7
<PAGE>
THE COMPANY
The Company is a Connecticut life insurance company
incorporated in 1865, located at 900 Cottage Grove Road,
Hartford, Connecticut. Wholly owned by Connecticut General
Corporation and, in turn, by CIGNA Holdings, Inc. and CIGNA
Corporation, it is licensed to do business in all states,
the District of Columbia, Puerto Rico, and the U.S. Virgin
Islands.
The Company's Home Office mailing address is CIGNA, H14A,
P.O. Box 2975, Hartford, Connecticut 06104. The telephone
number is 860-534-4100.
THE VARIABLE
ACCOUNT
CG Corporate Insurance Variable Life Separate Account 02
("Variable Account") is a "separate account" of the Company
established pursuant to a February 23, 1996 resolution of
our Board of Directors.
Under Connecticut law, the assets of the Variable Account
attributable to the Policies, though our property, are not
chargeable with liabilities of any other business of the
Company and are available first to satisfy our obligations
under the Policies. The Variable Account income, gains, and
losses are credited to or charged against the Variable
Account without regard to our other income, gains, or
losses. We do not guarantee the Variable Account's values
and investment performance. All distributions made by the
funds with respect to the shares held by the Variable
Account will be reinvested in additional shares at net asset
value.
The Variable Account is divided into sub-accounts, each of
which is invested solely in the shares of one of the funds.
On each valuation day, net premium payments allocated to the
Variable Account will be invested in fund shares at net
asset value, and monies necessary to pay for deductions,
charges, transfers and surrenders from the Variable Account
are raised by selling shares of the funds at net asset
value.
We hold shares of the Variable Account through an open
account system, which makes the issuance and delivery of
stock certificates unnecessary.
The Variable Account is registered with the Securities and
Exchange Commission (the "Commission") as a unit investment
trust under the Investment Company Act of 1940 ("1940 Act").
Such registration does not involve Commission supervision of
the Variable Account's or our management, investment
practices, or policies.
We have other registered separate accounts which fund other
variable life insurance policies and variable annuity
contracts.
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 eight 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 in this prospectus as the "Trusts".
The eight Trusts and their investment advisers and
distributors are:
Alger American Fund ("Alger Trust"), managed by Fred
Alger Management, Inc., 1 World Trade Center, Suite
9333, New York, NY 10048 and distributed by Fred Alger &
Company, Incorporated, 30 Montgomery Street, Jersey
City, NJ 07302;
8
<PAGE>
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 06104.
Fidelity Variable Insurance Products Fund ("Fidelity
VIP"), managed by Fidelity Management & Research Company
and distributed by Fidelity Distributors Corporation, 82
Devonshire Street, Boston, MA 02109.
Janus Aspen Series ("Janus Series"), managed by Janus
Capital Corporation, 100 Fillmore Street, Denver, CO
80206-4923, and distributed by Janus Distributors, Inc.
MFS-Registered Trademark- Variable Insurance Trust-SM-
("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.
Templeton Variable Products Series Fund ("Templeton
Trust"), Templeton International Fund managed by
Templeton Investment Counsel, Inc., 500 E. Broward
Blvd., Broward Financial Center, 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.
Three funds of the CIGNA GROUP are available under the
Policies:
CIGNA VP Money Market Fund;
CIGNA VP S&P 500 Index Fund;
CIGNA VP Investment Grade Bond Fund.
Two funds of FIDELITY VARIABLE INSURANCE PRODUCTS FUND
(FIDELITY VIP) are available under the Policies:
Fidelity VIP Equity-Income Portfolio;
Fidelity VIP High Income 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;
9
<PAGE>
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
advisors are shown on pages 6 and 7 of this Prospectus.
A brief description of the investment objective and program
of each fund follows. We can give 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. It focuses
on small, fast-growing companies that offer innovative
products, services or technologies to a rapidly expanding
marketplace. Under normal circumstances, the portfolio
invests primarily in the equity securities of small
capitalization companies. A small capitalization company is
one that has a market capitalization within the range of the
Russell 2000 Growth Index or the S&P SmallCap 600 Index.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO (MID CAP STOCKS):
Seeks long-term capital appreciation. It focuses on midsize
companies with promising growth potential. Under normal
circumstances, the portfolio invests primarily in the equity
securities of companies having a market capitalization
within the range of companies in the S&P MidCap 400 Index.
ALGER AMERICAN GROWTH PORTFOLIO (LARGE CAP STOCKS): Seeks
long-term capital appreciation. It focuses on growing
companies that generally have broad product lines, markets,
financial resources and depth of management. Under normal
circumstances, the portfolio invests primarily in the equity
securities of large companies. The portfolio considers a
large company to have a market capitalization of $1 billion
or greater.
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, Australasia, 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.
CIGNA VP INVESTMENT GRADE BOND FUND (INVESTMENT GRADE
BONDS): Seeks as high a level of current income as is
consistent with reasonable concern for safety of principal
by investing primarily in a broad range of investment grade
fixed income securities.
FIDELITY VIP EQUITY-INCOME PORTFOLIO (LARGE CAP STOCKS):
Seeks reasonable income by investing primarily in
income-producing equity securities, with some potential for
capital appreciation, seeking a yield that exceeds the
composite yield on the securities comprising the Standard
and Poor's Composite Index of 500 Stocks.
FIDELITY VIP HIGH INCOME PORTFOLIO (HIGH YIELD BONDS): Seeks
high current income by investing at least 65% of total
assets in income-producing debt securities, preferred stocks
and convertible securities, with an emphasis on lower
quality securities.
10
<PAGE>
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 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.
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 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.
TEMPLETON INTERNATIONAL FUND CLASS 1 (INTERNATIONAL STOCKS):
Seeks long-term capital growth by investing in stocks of
companies located outside the United States.
The CIGNA VP Investment Grade Bond Fund, 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.
GENERAL
We can give you no assurance that the investment objective
of any of the funds will be met. You will bear 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. You should read each fund's prospectus
carefully and understand the funds' relative degrees of risk
before making or changing investment choices. We may make
additional funds available from time to time. Your right to
make such selections, however, will be limited by the terms
and conditions imposed by us on such transactions.
SUBSTITUTION OF SECURITIES
If the shares of any fund should no longer be available for
investment by the Variable Account or if, in our judgement,
further investment in such shares should become
inappropriate in view of the investment objectives of the
Policies, we may substitute shares of another fund. We will
make no substitution of securities in any sub-account
without prior approval of the Commission and under such
requirements as it may impose.
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VOTING RIGHTS
We 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 our view of
present applicable law, we will vote in accordance with
written instructions received from persons having the voting
interest in the Variable Account. We will vote the shares
for which we have not received instructions, as well as
shares attributable to us, in the same proportion as we vote
shares for which we have received instructions. The series
funds do not hold regular meetings of shareholders.
The number of shares which you have a right to vote will be
determined as of a date chosen by the appropriate series
fund but not more than sixty (60) days prior to the meeting
of the particular series fund. We will solicit voting
instructions by written communication at least fourteen (14)
days prior to the meeting.
The fund's shares are issued and redeemed only in connection
with variable annuity contracts and variable life insurance
policies issued through our separate accounts and the
separate accounts of other life insurance companies and, in
some cases, qualified plans. The management of the series
funds do not see any disadvantage to you 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 ours and
other life insurance companies' separate accounts.
Nevertheless, the series funds' boards intend to monitor
events in order to identify any material irreconcilable
conflicts which may arise and to determine what action, if
any, they should take in response. 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
We have entered into agreements with the various Trusts and
their advisers or distributors. Under these agreements, we
make the funds available under the Policies and perform
certain administrative services. In some cases, the advisers
or distributors may compensate us for these services.
DEATH BENEFIT
DEATH BENEFIT OPTIONS
We offer three different death benefit options. The amount
payable under each is determined as of the date of the
Insured's death. Option B will be in effect unless you
elected Option A or Option C in your application for the
Policy or unless a change has been allowed:
- 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 you
pay and the investment performance of the funds you chose.
- 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.
- Option C -- the death benefit will be the greater of the
specified amount plus the premium payments you make, or
the corridor death benefit.
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Option C provides a death benefit which increases based on
premium payments.
Under each option 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
We will allow a death benefit option change upon your
written request. You must make your request to the Corporate
Variable Products Service Center in a form satisfactory to
us, 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.
PAYMENT OF DEATH BENEFIT
We will compute the death benefit under the Policy as of the
date of the Insured's death. We will pay it 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 you or
the beneficiary have elected that it be paid under one or
more of any settlement options (see "Settlement Options") we
may make available. We may delay payment of the death
benefit if the Policy is being contested.
While the Insured is living, you may elect a settlement
option, if available, for the beneficiary and deem it
irrevocable by the beneficiary. Or, you may revoke or change
a prior election while the Insured is living. The
beneficiary may make or change an election within 90 days of
the death of the Insured, unless you have made an
irrevocable election.
All or part of the death benefit may be applied under one or
more of the settlement options we may make available.
If you assign the Policy as collateral security, we will pay
any amount due the assignee in one lump sum. We will pay any
excess death benefit due 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 Internal Revenue Code of 1986, as
amended ("the Code"). At the time of purchase, you 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"). You cannot change the selection after the
Policy's issue date.
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The applicable percentages for the guideline premium test
decrease over time and are
- 250% through attained age 40;
- 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 you may pay into a life insurance policy for a
specified death benefit.
The cash value accumulation test does not limit premiums
which you may pay 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 24-27 of this prospectus.
CHANGES IN SPECIFIED AMOUNT
You may make changes in the specified amount of a Policy by
submitting a written request to the Corporate Variable
Products Service Center in a form satisfactory to us.
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 charge on premium payments up to
the increase in target premium on premium payments
received during the 12 months following the increase. The
additional premium charge will be applied to the portion
of premium payments that are attributable to the increase
in 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 as life
insurance under the Code.
PREMIUM
PAYMENTS;
TRANSFERS
PREMIUM PAYMENTS
The Policies provide for flexible premium payments. You
select the frequency and amount of premium payments. 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. We
reserve the right to decline any application or premium
payment.
After the initial premium payment, you must send all premium
payments directly to the Corporate Variable Products Service
Center. They will be deemed received when they are actually
received there.
You 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.
NET PREMIUM PAYMENTS are the balance of premium payments
remaining after we deduct the premium charge.
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PREMIUM INCREASES. At any time, you may increase planned
premiums or pay additional premiums, but:
- We may request evidence of insurability 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 we request
satisfactory evidence of insurability and you do not
provide it, we will refund the increase in premium
without interest and without participation of such
amounts in any underlying funding options.
- The total of all premium payments may not 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 limitation, we
will only accept that portion of the payment that will
make total premiums equal to the maximum. We will return,
or apply as otherwise agreed, any part of the premium
payment in excess of that amount 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, we will use any
additional net premium payments first as a loan
repayment. Any excess will be applied as an additional
net premium payment.
ALLOCATION OF NET PREMIUM PAYMENTS
When you purchase a Policy, you must decide how to allocate
net premium payments among the sub-accounts and the Fixed
Account. For each Variable Account sub-account, we convert
the net premium payment 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. See "Policy Values -- Accumulation Value;
Variable Accumulation Unit Value" at page 18 of this
prospectus.
During the Right-to-Examine Period, we will allocate the net
premium payment to the CIGNA VP Group Money Market Fund of
the Variable Account. Earnings will be credited from the
later of the issue date or the date the premium payment was
received. We will allocate the net premium payment directly
to the sub-account(s) you selected 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 you direct us otherwise, we will allocate subsequent
net premium payments on the same basis as the most recent
previous net premium payment as of the next valuation period
after each payment is received.
You may change the allocation for future net premium
payments at any time free of charge, effective for premium
payments made more than one week after we receive notice of
the new allocation.
TRANSFERS
You may transfer values ($500 minimum) at any time from one
sub-account to another. You may also transfer a portion of
one or more sub-accounts to the Fixed Account within the 30
days prior to each policy anniversary. We allow transfers
from the Fixed Account in the 30-day period following a
policy anniversary. They will be effective as of the next
valuation day after your request is received by the
Corporate Variable Products Service Center in good order.
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. We may
further limit transfers from the Fixed Account at any time.
Subject to the above restrictions, you may make up to four
transfers without charge in any policy year and any value
remaining in the Fixed Account or a sub-account after a
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transfer must be at least $500. You must make transfers in
writing unless we have previously approved other
arrangements. A $25 charge will 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 your written request is received at the Corporate
Variable Products Service Center. The Corporate Variable
Products Center must receive transfer requests by 4:00 p.m.
Eastern Time in order to be effective that day. Any transfer
you make that causes the remaining value of the accumulation
units for a sub-account to be less than $500 will result in
the remaining accumulation units being cancelled and their
aggregate value reallocated proportionately among the other
funding options you chose. You should carefully consider
current market conditions and each fund's investment
policies and related risks before you allocate money to the
sub-accounts. See pages 10-11 of this prospectus.
We may, at our sole discretion, waive minimum balance
requirements on the sub-accounts.
CHARGES;
FEES
PREMIUM CHARGES
We will make the following deductions for premium charges:
- 6.5% from every premium payment.
- An additional 45% on premium payments up to target
premium in the first policy year.
- An additional 12% on premium payments up to target
premium in policy years two through ten.
If the specified amount is increased, other than through a
change in the death benefit option, during the twelve months
following the increase we will deduct the following from
that portion of the premium payment attributable to the
increase in specified amount:
- An additional 25% on premium payments up to the increase
in the target premium.
The premium charge represents state taxes and federal income
tax liabilities and a portion of our sales expense. We
estimate that:
- 2.25% 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%.
- 1.25% will be used to meet federal income tax liabilities
attributable to the payment of deferred acquisition
costs.
- 3.0% (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
We deduct a one-time policy issue fee of $175 from the
accumulation value for a portion of our administrative
expenses.
MONTHLY DEDUCTIONS
We deduct $8 monthly from the net accumulation value for
administrative expenses. This charge is for items such as
premium billing and collection, policy value calculations,
confirmations and periodic reports. The charge will not
exceed our costs.
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We also make a monthly deduction 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 insurance and the current
net amount at risk.
We determine the Cost of Insurance 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. We base the Policy's guaranteed maximum Cost of
Insurance rates for standard risks, per $1,000 net amount at
risk, on the 1980 Commissioners Standard Ordinary Mortality
Tables, age nearest birthday ("1980 CSO").
We deduct these monthly charges 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 cancelled accumulation units from each
funding option in the same proportion as the respective
values have to the net accumulation value. The monthly
deductions are made on the monthly anniversary day.
DAILY DEDUCTIONS
- ADMINISTRATIVE FEE
For administrative costs, we make a daily deduction from
amounts held in the Variable Account and the Fixed Account.
This deduction is currently equivalent to .10% per year
during the first fifteen policy years. We guarantee this
deduction will not exceed .30% per year.
- MORTALITY AND EXPENSE RISK CHARGE
For mortality and expense risks, we make a daily deduction
from amounts held in the Variable Account and the Fixed
Account. This deduction is currently equivalent to .70% per
year during the first fifteen policy years and .25%
thereafter. We guarantee this deduction will not exceed .90%
per year.
TRANSACTION FEE FOR EXCESS TRANSFERS
We will charge a $25 transaction fee for each transfer
between funding options in excess of four per policy year.
SURRENDERS DURING FIRST THREE POLICY YEARS -- REFUND OF
PORTION OF PREMIUM CHARGES
If you surrender the Policy during the first 12 months after
issue, we will pay you a credit equal to:
- 100% of all premium charges previously deducted in excess
of 3.5% of all premiums paid.
If you surrender the Policy during months 13 through 24
after issue, we will pay you a credit equal to:
- 50% of all premium charges previously deducted in excess
of 3.5% of all premiums paid.
If you surrender the Policy during months 25 through 36
after issue, we will pay you a credit equal to:
- 33% of all premium charges previously deducted in excess
of 3.5% of all premiums paid.
If you surrender a Policy during the first two policy years,
however, in no event will the aggregate premium charge
retained by us for sales and promotional expenses exceed:
- 30% of the sum of premium payments in the first two
policy years up to one guideline annual premium, plus
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- 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 surrender may result in tax implications. See "Tax
Matters".
Based on our actuarial determination, we are not certain
whether the premium charge, the policy issue fee, and the
monthly administrative expense deduction will cover all
sales and administrative expenses that we 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 our General Account, which
supports insurance and annuity obligations.
THE FIXED
ACCOUNT
The Fixed Account is funded by the assets of our General
Account. Amounts held in the Fixed Account will be credited
with interest at rates we declare 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 our 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 our 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, we have 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, we credit each net premium
payment allocated to a sub-account of the Variable Account
in the form of accumulation units representing the fund in
which assets of that sub-account are invested. We will
credit each net premium payment to the Policy at 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). We determine
the number of accumulation units credited by dividing the
net premium payment by the value of an accumulation unit
next computed after its 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.
We determine the accumulation value of a Policy 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).
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The number of accumulation units we credit 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
Fixed 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.
You will be advised at least annually as to the number of
accumulation units which remain credited to the Policy, the
current accumulation unit values, your interest in: (a) the
Variable Account value, (b) the Fixed Account value, and (c)
the loan account value.
Accumulation value will be affected by monthly deductions.
VARIABLE ACCUMULATION UNIT VALUE
We determine the value of a variable accumulation unit for
any valuation period by:
a) multiplying the value of that variable accumulation unit
for the immediately preceding valuation period, by
b) the net investment factor for the current period for the
appropriate sub-account.
We determine the net investment factor 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.
c) Equals 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 you 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 that we might make available through a
rider attached to the Policy.
SURRENDERS
PARTIAL SURRENDERS
You can make a partial surrender at any time by writing us
at the Corporate Variable Products Service Center during the
lifetime of the Insured and while the Policy is in force. We
will charge a $25 transaction fee for any partial
surrenders.
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. A
partial surrender may not be less than $500.
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- 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.
We will not allow the specified amount remaining in force
after a partial surrender to be less than $50,000. We will
not grant any request for a partial surrender that would
reduce the specified amount below this amount. 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, we may limit the decrease 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, we
will deduct the $25 transaction charge from the amount paid
from the values in each funding option, unless we agree
otherwise with you.
FULL SURRENDERS
You may make a full surrender at any time. We will pay the
surrender value next computed after receiving your written
request at the Corporate Variable Products Service Center in
a form satisfactory to us. We will usually pay any portion
of a full surrender that is derived from the Variable
Account within seven calendar days of receipt of your
request.
DEFERRAL OF PAYMENT AND TRANSFERS
We may postpone payment of the surrendered amount from the
Variable Account when the New York Stock Exchange is closed
and for such other periods as the Commission may require. We
may defer payment or transfer from the Fixed Account up to
six months. If we exercise our 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. We will send you
a lapse notice at least 31 days before the grace period
expires.
Depending on the investment performance of the funding
options, the net accumulation value may be insufficient to
keep this Policy in force, particularly if you have taken
any loans or made any partial surrenders. It may be
necessary for you to make an additional premium payment.
REINSTATEMENT OF A LAPSED POLICY
You can apply for reinstatement at any time during the
Insured's lifetime. To reinstate a Policy, we require
satisfactory evidence of insurability and an amount
sufficient to pay for the current monthly deduction plus
twelve additional monthly deductions.
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POLICY LOANS
A policy loan requires that a loan agreement be executed and
that the Policy be assigned to us. 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" (i.e. an amount equal to the sum of all
unpaid Policy loans and loan interest.) If Policy values are
held in more than one funding option, withdrawals from each
option will be made in proportion to the assets in each
option at the time of the loan for transfer to the loan
account, unless you instruct us 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 we will withdraw
net interest proportionately from the values in each funding
option.
We will credit interest on the loan account value. Our
current practice is to credit interest at an annual rate
equal to the interest rate charged on the loan minus:
- .80% (guaranteed not to exceed 1.2%) during year one,
- .70% (guaranteed not to exceed 1.2%) during years 2-15,
and
- .15% (guaranteed not to exceed 1.2%) annually thereafter.
In no case will the annual credited interest rate be less
than 3.8%.
We will allocate repayments on the loan among the funding
options according to current net premium payment
allocations. However, we maintain the right to require that
amounts loaned from the Fixed Account be allocated to the
Fixed Account upon repayment. We will reduce the loan
account value 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.
This is 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.
The effect could be favorable or unfavorable, depending on
the investment results of the Variable Account or the Fixed
Account while the loan is outstanding.
SETTLEMENT OPTIONS
We may pay proceeds in the form of settlement options
through the addition of a rider. A settlement option may be
selected:
- at the beneficiary's election upon the Insured's death,
or
- while the Insured is alive, upon your election.
You may request, in writing, to elect, change, or revoke a
settlement option before payments begin. Your request must
be in a form satisfactory to us and will take effect upon
its receipt at the Corporate Variable Products Service
Center. After the first payment, all payments will be made
on the first day of each month.
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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 us 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 we offer at the time
the request is made.
ADDITIONAL INSURANCE BENEFIT
We can issue the Policy 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. We exclude this benefit from the specified
amount when calculating the charges and fees for the Policy
and when calculating the guideline annual premium and target
premium.
We add the cost of the benefit to the monthly deduction. The
cost is dependent on the attained age, years since issue,
risk class and gender classification. We 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 you to increase the
insurance protection under the Policy.
JOINT AND SURVIVORSHIP BENEFIT
We can issue the Policy with a joint and survivorship rider.
The rider would enable us to issue the Policy on the lives
of two Insureds and to pay the death benefit upon the death
of the second of two Insureds to die. If you elect to add
this benefit to your Policy, you should:
- interpret any reference in this prospectus to the "death
of the Insured", or "the Insured's death", or similar
context as "the death of the second of the two Insureds
to die";
- interpret any discussions in this prospectus of the
features of the Policy allowed "while the Insured is
alive", or "during the lifetime of the Insured", or
similar context as allowed "while at least one of the
Insureds is alive".
Other sections of this prospectus that would be affected by
the addition of this benefit are:
- Incontestability (see Page 24): The policy or increase
must be in force for two (2) years during the lifetime of
each Insured.
- Misstatement of Age (see Page 24): By reason of the rider
the provision relates to either Insured.
- Suicide (see Page 24): By reason of the rider the
provision relates to either Insured.
The cost of the rider is reflected in the monthly Cost of
Insurance rates. Those rates are based on the attained age,
years since issue, risk class and gender classification of
each person insured. We use an actuarial formula that
reflects one-alive and both-alive probabilities to determine
the Cost of Insurance rates. No other charges and fees for
the Policy will change as a result of the addition of the
joint and survivorship rider.
22
<PAGE>
OTHER POLICY PROVISIONS
ISSUANCE
We will only issue a Policy upon receipt of satisfactory
evidence of insurability and, generally, only where the
Insured is below age 75.
SHORT-TERM RIGHT TO CANCEL THE POLICY
You may return a Policy for cancellation and a full refund
of premium within 10 days after the Policy is received,
unless otherwise stipulated by state law requirements. We
will hold the initial premium payment made when the Policy
is issued in the CIGNA VP Money Market Fund of the Variable
Account. We will not allocate it to any other variable
sub-accounts, even if you may have so directed, until
- the fifteenth day after the Policy is mailed to you if
the state law Right-to-Examine Period is 10 days after
the Policy is received by you,
- the twenty-fifth day after the Policy is mailed to you if
the state law Right-to-Examine Period is 20 days, or
- the thirty-fifth day after the Policy is mailed to you if
the state law Right-to-Examine Period is 30 days.
If you return the Policy for cancellation in a timely
fashion, we will usually pay the refund of premiums, without
interest, within seven days of your notice of cancellation.
A refund of premiums paid by check may be delayed, however,
until the check clears.
POLICY OWNER
While the Insured is living, all rights in the Policy are
vested in the policy owner named in the application or as
subsequently changed, subject to assignment, if any.
You may name a new policy owner while the Insured is living.
Any such change in ownership must be in a written form
satisfactory to us 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 we take before it was
recorded. We 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 the 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.
You may name a new beneficiary while the Insured is living.
Any change must be in a written form satisfactory to us 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 we take before it was recorded.
If any beneficiary predeceases the Insured, that
beneficiary's interest passes to any surviving
beneficiary(ies), unless otherwise provided. We will pay
multiple beneficiaries in equal shares, unless otherwise
provided. We will pay the death proceeds to the policy owner
or the policy owner's executor(s), administrator(s) or
assigns if no named beneficiary survives the Insured.
23
<PAGE>
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
You may, within the first two policy years, exchange the
Policy for a flexible premium adjustable life insurance
policy offered by our Corporate Insurance Department at that
time. The benefits for the new policy will not vary with the
investment experience of a separate account. You must elect
the exchange within 24 months from the Policy's issue date.
We will not require evidence of insurability for the
exchange.
Under the new policy:
- The policy owner, the Insured and the beneficiary will be
the same as those under the exchanged Policy on the
effective date of the exchange.
- The death benefit on the exchange date will not be more
than the death benefit of the original Policy immediately
prior to the exchange date.
- The issue date and issue age will be the same as that of
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 on the original Policy will be
transferred.
INCONTESTABILITY
We 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
date of issue. For any increase in specified amount
requiring evidence of insurability, we 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
We 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.
SUICIDE
If the Insured dies by suicide, while sane or insane, within
two years from the issue date, we 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, we 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 our profits or
surplus earnings.
TAX MATTERS
The following discussion is general and is not intended as
tax advice. You should consult counsel and other competent
advisers for more complete information. This discussion is
based on our understanding of federal income tax laws as the
Internal Revenue Service currently interprets them. No
representation is made as to the likelihood of continuation
of these current laws and interpretations.
24
<PAGE>
POLICY PROCEEDS
Section 7702 of the Code provides a definition of a life
insurance policy for federal tax purposes. Complying with
either the cash value test or the guideline premium test set
forth in Section 7702 can satisfy this definition. We 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. If a Policy
were determined not to be a life insurance contract for
purposes of Section 7702, however, 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 it 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. You 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 of the Code. Because the Policy provides
for flexible premium payments, we 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 that 55% of the value of the total assets may be
represented by any one (1) investment
- No more than 70% of such value may be represented by any
two (2) investments.
- No more than 80% of such value may be represented by any
three (3) investments; and
- No more than 90% of such value may be represented by any
four (4) investments.
25
<PAGE>
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. We
believe the Varible 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, we
will take whatever steps are available to remain in
compliance.
The following may have adverse tax consequences:
- 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;
- A 1035 exchange;
- The exchange of a Policy for a fixed-benefit policy, or
- The assignment of a Policy.
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
We are 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.
We do 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, we determine that on a
separate company basis such taxes may be incurred, we
reserve the right to assess a charge for such taxes against
the Variable Account.
We 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.
26
<PAGE>
OTHER MATTERS
DIRECTORS AND OFFICERS OF THE COMPANY
The following persons are our Directors and Principal
Officers. The address of each is 900 Cottage Grove Road,
Hartford, CT 06152. We or our affiliates have employed each
for more than five years except for Mr. Pacy, Mr. Wahlman,
Mr. Pastore and Ms. Cooper.
- Prior to January, 1995, Mr. Pacy was Senior Manager-IT
Infrastructure and Technology Management Officer, Digital
Equipment Corporation.
- Prior to September, 1998, Mr. Wahlman was Director of
Accounting and Regulatory Policy, Bank One Corporation.
- Prior to December, 1995, Mr. Pastore was Vice President
of Citicorp.
- Prior to January, 1999, Ms. Cooper was an Associate
Attorney with Roginson, Donovan, Madden & Barry, P.C.
<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)
Robert E. Wahlman Vice President
(Principal Accounting Officer)
Susan L. Cooper Corporate Secretary
Andrew G. Helming Secretary
Stephen C. Stachelek Vice President and Treasurer
William M. Pastore Director and Chairman of the Board
Harold W. Albert Director
Robert W. Burgess Director
John Cannon, III 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
Marc L. Preminger Director and Senior Vice President
Patricia L. Rowland Director and Senior Vice President
W. Allen Schaffer, M.D. Director and Senior Vice President
</TABLE>
DISTRIBUTION OF POLICIES
Licensed insurance agents will sell the Policies 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). We will distribute the Policies through our
principal underwriter, CIGNA Financial Services, Inc.
("CFS"), whose address is 280 Trumbull Street, Hartford,
Connecticut. CFS is a Delaware corporation organized in
1995.
Gross commissions paid by us on the sale of Policies will
not exceed:
- First Year: 45% of target premium, plus 3% of any premium
payment in excess of target premium.
- Years 2 through 10: 15% of target premium, plus 3% of any
premium payment in excess of target premium.
- Renewal: 3% of premium payments, plus 25% of any increase
in target premium.
In addition, we will pay annual renewal compensation of up
to .10% of net accumulation value beginning in the second
year.
27
<PAGE>
CHANGES OF INVESTMENT POLICY
We may materially change the investment policy of the
Variable Account. We must inform you and obtain all
necessary regulatory approvals. We must submit any change to
the various state insurance departments, which may
disapprove it if deemed detrimental to the policy owners'
interests or if it renders our 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 us on the life of the Insured.
You must make this conversion by 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 the date you are
informed of such change.
We 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
We presently and will, from time to time, offer other
variable life insurance policies and variable annuity
contracts with benefits which vary in accordance with the
investment experience of a separate account of the Company.
STATE REGULATION
We are subject to the laws of Connecticut governing
insurance companies and to regulation by the Connecticut
Insurance Department. We file an annual statement in a
prescribed form with the Insurance Department each year
covering our operation for the preceding year and our
financial condition as of the end of such year. Regulation
by the Insurance Department includes periodic examination to
determine our contract liabilities and reserves so that the
Insurance Department may certify the items are correct. Our
books and accounts are subject to review by the Insurance
Department at all times and a full examination of our
operations is conducted periodically by the Connecticut
Insurance Department. Such regulation does not, however,
involve any supervision of management or investment
practices or policies.
REPORTS TO POLICY OWNERS
We maintain 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, the 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.
We will also send you 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, we will send you 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.
28
<PAGE>
ADVERTISING
The Company is 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 our financial strength or claims-paying
ability.
The ratings are not intended to reflect the investment
experience or financial strength of the Variable Account. We
may advertise these ratings from time to time. In addition,
we may include in certain advertisements, endorsements in
the form of a list of organizations, individuals or other
parties that recommend the Company or the Policies.
Furthermore, we 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 we
and the Variable Account are parties or to which any of our
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, 280 Trumbull Street,
Hartford, CT 06104, 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 in
this prospectus 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, 1998 and 1997 and
for each of the three years in the period ended December 31,
1998 included in the prospectus as well as the Statement of
Assets and Liabilities of the Variable Account at December
31, 1998 and the Statements of Operations for the period
ended December 31, 1998 and the Statements of Changes in Net
Assets for the periods ended December 31, 1998 and 1997 have
been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given
on the authority of said firm as experts in auditing and
accounting.
REGISTRATION STATEMENT
We have filed a Registration Statement with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended, with respect to the Policies offered by way of this
prospectus. 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 Separate Account 02 is a Connecticut General
Life Insurance Company separate account established under
Connecticut insurance law. We are highly dependent on
automated systems and systems applications in conducting our
ongoing operations. If these systems were unable to process
data accurately because of failing to be Year
29
<PAGE>
2000 ready, these activities (including the processing of
transactions and other normal business activities for the
Variable Account) would be interrupted and could have a
material adverse effect on our operational results. Making
sure our customers and participants continue to receive
uninterrupted services through 2000 and beyond is our
highest business priority.
Our CEO and senior management continue to ensure that the
business implications of Year 2000, both external and
internal, are addressed. Our operational and financial plans
address both Year 2000 business and systems issues. Our
internal auditors are actively involved in monitoring our
progress. We are applying formalized project monitoring,
best practices, and operating principles to Year 2000
issues. We are refining contingency and business resumption
plans to reduce the likelihood that Year 2000 events outside
of our control will adversely affect customer services, and
to be prepared if, despite our best efforts, we are affected
by Year 2000 issues.
In addition, we have relationships with various third-party
entities in the ordinary course of business. We have
identified third-party entities critical to our operations
and are assessing and attempting to mitigate our risks due
to the failure of these entities to be Year 2000 ready. We
are in the process of a comprehensive analysis of the
operational problems that would be reasonably likely to
result from the failure by certain third-parties to complete
efforts necessary to achieve Year 2000 compliance on a
timely basis.
We are closely monitoring the mutual funds that are offered
through the Variable Account and the reports we have
received indicate that all are taking the necessary steps to
become ready. We will continue to follow-up with them in
1999 to ensure there will be a smooth transition into the
next millennium. Due to the intricacies and interactions of
companies in the financial service industry, they have
limited control over Y2K issues that span multiple firms,
markets, and countries.
Further, we are actively working with our key outsourced
service suppliers to assess both their on-going business
viability as well as the continued compatibility of our
electronic interfaces. We have identified the key service
suppliers and we are taking steps with them to ensure
uninterrupted service to clients.
We expect the millenium change will not materially affect
our ability to meet customer commitments, provide expected
customer service, and meet financial targets. Please visit
the Company's web site at http://www.cigna.com for
additional information about CIGNA and the Year 2000,
including copies of our required SEC filings.
This is a "Year 2000 readiness disclosure" as the term is
defined under the "Year 2000 Information and Readiness
Disclosure Act". This Year 2000 readiness disclosure is
published with the approval of CIGNA Retirement & Investment
Services. We make the disclosure with respect to our Year
2000 processing and of the products or services we offer.
FINANCIAL STATEMENTS
The consolidated balance sheets of the Company and its
subsidiaries as of December 31, 1998 and 1997 and related
consolidated statements of income and retained earnings and
cash flows for the years ended December 31, 1998, 1997 and
1996 follow. They should be considered only as bearing upon
the ability of the Company to meet our obligations under the
Policies.
The Statement of Assets and Liabilities of the Variable
Account at December 31, 1998 and related Statements of
Operations for the period ended December 31, 1998 and
Statements of Changes in Net Assets for the periods ended
December 31, 1998 and 1997 also follow. The Variable Account
commenced operations on December 24, 1996.
30
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICEWATERHOUSECOOPERS [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
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, comprehensive income and changes in
shareholder's equity 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, 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/ PRICEWATERHOUSECOOPERS LLP
February 9, 1999
31
<PAGE>
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
32
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS)
- -----------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees................................................... $ 5,683 $ 5,376 $ 5,314
Net investment income............................................... 2,637 3,139 3,199
Realized investment gains........................................... 93 45 37
Other revenues...................................................... 427 10 9
--------- --------- ---------
Total revenues.................................................. 8,840 8,570 8,559
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses............................ 5,802 5,917 6,069
Policy acquisition expenses......................................... 44 122 143
Other operating expenses............................................ 1,763 1,618 1,477
--------- --------- ---------
Total benefits, losses and expenses............................. 7,609 7,657 7,689
--------- --------- ---------
INCOME BEFORE INCOME TAXES.......................................... 1,231 913 870
--------- --------- ---------
Income taxes (benefits):
Current........................................................... 636 347 394
Deferred.......................................................... (211) (49) (81)
--------- --------- ---------
Total taxes..................................................... 425 298 313
- -----------------------------------------------------------------------------------------------------
NET INCOME.......................................................... $ 806 $ 615 $ 557
- -----------------------------------------------------------------------------------------------------
-------------------------------
</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, EXCEPT PER SHARE AMOUNTS)
- ----------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1998 1997
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $16,820;
$20,962)........................................................ $ 18,067 $ 22,323
Mortgage loans................................................... 8,875 10,090
Equity securities, at fair value (cost, $62; $75)................ 47 54
Policy loans..................................................... 6,091 7,146
Real estate...................................................... 712 749
Other long-term investments...................................... 159 166
Short-term investments........................................... 85 173
--------- ---------
Total investments............................................ 34,036 40,701
Cash and cash equivalents........................................ 1,026 923
Accrued investment income........................................ 494 602
Premiums and accounts receivable................................. 939 811
Reinsurance recoverables......................................... 7,278 1,271
Deferred policy acquisition costs................................ 187 834
Property and equipment........................................... 365 291
Deferred income taxes............................................ 865 653
Goodwill and other intangibles................................... 730 474
Other assets..................................................... 236 276
Separate account assets.......................................... 34,648 29,217
- ----------------------------------------------------------------------------------------------------
Total assets................................................. $ 80,804 $ 76,053
- ----------------------------------------------------------------------------------------------------
-------------------------------
LIABILITIES
Contractholder deposit funds....................................... $ 30,614 $ 30,449
Future policy benefits............................................. 8,286 8,224
Unpaid claims and claim expenses................................... 1,286 1,225
Unearned premiums.................................................. 162 260
--------- ---------
Total contractholder and insurance liabilities............... 40,348 40,158
Accounts payable, accrued expenses and other liabilities........... 2,523 2,428
Current income taxes............................................... 65 --
Separate account liabilities....................................... 34,340 29,021
- ----------------------------------------------------------------------------------------------------
Total liabilities............................................ 77,276 71,607
- ----------------------------------------------------------------------------------------------------
CONTINGENCIES -- NOTE 13
SHAREHOLDER'S EQUITY
Common stock (6 shares issued and outstanding)..................... 30 30
Additional paid-in capital......................................... 1,072 766
Net unrealized appreciation, fixed maturities........... 243 282
Net unrealized (depreciation), equity securities........ (25) (26)
Net translation of foreign currencies................... 2 2
--------- ---------
Accumulated other comprehensive income............................. 220 258
Retained earnings.................................................. 2,206 3,392
- ----------------------------------------------------------------------------------------------------
Total shareholder's equity................................... 3,528 4,446
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity................... $ 80,804 $ 76,053
- ----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
34
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND CHANGES IN SHAREHOLDER'S
EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE SHAREHOLDER'S COMPREHENSIVE SHAREHOLDER'S COMPREHENSIVE SHAREHOLDER'S
INCOME EQUITY INCOME EQUITY INCOME EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK...................... $ 30 $ 30 $ 30
ADDITIONAL PAID-IN CAPITAL........ 1,072 766 766
ACCUMULATED OTHER COMPREHENSIVE
INCOME -- BEGINNING OF YEAR...... 258 191 478
Net unrealized appreciation
(depreciation)-- fixed
maturities....................... $ (39) (39) $ 69 69 $ (276) (276)
Net unrealized appreciation
(depreciation) -- equity
securities....................... 1 1 (1) (1) (12) (12)
--- --- -----
Net unrealized appreciation
(depreciation) on securities..... (38) 68 (288)
Net translation of foreign
currencies....................... - - (1) (1) 1 1
--- --- -----
Other comprehensive (loss)
income......................... (38) 67 (287)
----------- ------ -----------
ACCUMULATED OTHER COMPREHENSIVE
INCOME -- END OF YEAR............ 220 258 191
----------- ------ -----------
RETAINED EARNINGS -- BEGINNING OF
YEAR............................. 3,392 3,177 3,220
Net income...................... 806 806 615 615 557 557
Dividends declared.............. (1,992) (400) (600)
----------- ------ -----------
RETAINED EARNINGS -- END OF
YEAR........................... 2,206 3,392 3,177
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME AND
SHAREHOLDER'S EQUITY............. $ 768 $ 3,528 $ 682 $ 4,446 $ 270 $ 4,164
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
35
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN MILLIONS)
- ---------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................ $ 806 $ 615 $ 557
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Insurance liabilities........................................... 67 78 57
Reinsurance recoverables........................................ (7) 68 (11)
Premiums and accounts receivable................................ (179) 106 77
Deferred income taxes, net...................................... (211) (49) (82)
Other assets.................................................... (339) (54) 43
Deferred policy acquisition costs............................... (12) (97) (92)
Accounts payable, accrued expenses, other liabilities and
current income taxes........................................... 149 41 (113)
Depreciation and goodwill amortization.......................... 113 88 94
Gain on sale of business........................................ (418) -- --
Other, net...................................................... (50) (99) (151)
--------- --------- ---------
Net cash (used in) provided by operating activities........... (81) 697 379
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities................................................ 2,869 1,583 1,589
Mortgage loans.................................................. 1,052 807 640
Equity securities............................................... 15 14 13
Real estate..................................................... 98 401 345
Policy loans.................................................... 382 -- --
Other (primarily short-term investments)........................ 6,724 6,447 3,613
Investment maturities and repayments:
Fixed maturities................................................ 2,797 2,394 2,634
Mortgage loans.................................................. 421 601 630
Investments purchased:
Fixed maturities................................................ (3,881) (4,339) (3,834)
Mortgage loans.................................................. (1,611) (1,426) (1,300)
Equity securities............................................... (7) (9) (3)
Policy loans.................................................... -- (13) (207)
Other (primarily short-term investments)........................ (7,652) (6,296) (3,930)
Net cash from disposition of business........................... 1,295 -- --
Other, net...................................................... (274) (102) (94)
--------- --------- ---------
Net cash provided by investing activities..................... 2,228 62 96
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder deposit funds:
Deposits and interest credited.................................. 7,050 7,634 7,260
Withdrawals and benefit payments................................ (7,106) (7,023) (7,135)
Dividends paid to parent.......................................... (1,992) (400) (600)
Other, net........................................................ 4 (47) --
Net cash (used in) provided by financing activities......... (2,044) 164 (475)
- ---------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents......................... 103 923 --
Cash and cash equivalents, beginning of year...................... 923 -- --
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year............................ $ 1,026 $ 923 $ --
- ---------------------------------------------------------------------------------------------------
-------------------------------
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds............................... $ 520 $ 402 $ 385
Interest paid................................................... $ 3 $ 5 $ 7
- ---------------------------------------------------------------------------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
36
<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
health and life insurance 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 contractholder and insurance
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 1998 presentation.
B) RECENT ACCOUNTING PRONOUNCEMENTS: The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," as of December 31, 1998. SFAS No. 131
changes the way segments are structured and requires additional segment
disclosures. Prior period information has been restated based on the new
requirements. See Note 11 for additional information.
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that derivatives be reported on the balance sheet at fair value.
Changes in fair value are recognized in net income or, for derivatives which are
hedging market risk related to future cash flows, in the accumulated other
comprehensive income section of shareholders' equity. Implementation is required
by the first quarter of 2000, with the cumulative effect of adoption reflected
in net income and accumulated other comprehensive income, as appropriate. The
Company has not determined the effect or timing of implementation of this
pronouncement.
The American Institute of Certified Public Accountants (AICPA) 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 of this pronouncement, which is
required by the first quarter of 1999 with the cumulative effect of adopting the
SOP reflected in net income, is not expected to have a material effect on
results of operations, liquidity or financial condition.
In 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 specifies the types
of costs that must be capitalized and amortized over the software's expected
useful life and the types of costs which must be immediately recognized as
expense. Implementation of this pronouncement is required by the first quarter
of 1999 and is not expected to have a material effect on results of operations,
liquidity or financial condition.
In 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk." SOP
98-7 provides guidance on the deposit method of accounting for insurance and
reinsurance contracts that do not transfer insurance risk, except for
long-duration life and health contracts. Implementation is required by the first
quarter of 2000, with the cumulative effect of adopting the SOP reflected in net
income in the year of adoption. The Company has not determined the effect or
timing of implementation of this pronouncement.
C) FINANCIAL INSTRUMENTS: In the normal course of business, the Company
enters into transactions involving 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
37
<PAGE>
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, 1998 and 1997. Fair values of off-balance
sheet financial instruments as of December 31, 1998 and 1997 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 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 and carried at fair value, include bonds; asset-backed
securities, including collateralized mortgage obligations (CMOs); and redeemable
preferred stocks. 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 or less if circumstances indicate that an immediate sale is in the
best interests of the Company or policyholders. 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 and short-term investments are classified as
available-for-sale. Equity securities, which include common and non-redeemable
preferred stocks, are carried at fair value. Short-term investments are carried
at fair value, which approximates cost.
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.
38
<PAGE>
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. See Notes 3 and 9.
G) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of
commissions, premium taxes and other costs, which vary with, and are primarily
related to, the production of revenues. Acquisition costs for universal life
products and contractholder deposit funds are deferred and amortized in
proportion to the present value of total estimated gross profits over the
expected lives of the contracts. Acquisition costs for annuity and other
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. If so, 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 $490 million
and $448 million at December 31, 1998 and 1997, respectively.
I) GOODWILL AND OTHER INTANGIBLES: Goodwill represents the excess of the cost
of businesses acquired over the fair value of their net assets. Other intangible
assets primarily represent purchased customer lists and provider contracts.
Goodwill and other intangibles are amortized over periods not exceeding 40
years. Goodwill and other intangibles are written down when not recoverable
based on analysis of historical and estimated future income or undiscounted
estimated cash flows of the related businesses. Amortization periods are revised
if it is estimated that the remaining period of benefit of the goodwill has
changed. Accumulated amortization was $143 million and $113 million at December
31, 1998 and 1997, respectively.
J) OTHER ASSETS: Other assets consists of various insurance-related assets,
principally ceded unearned premiums, reinsurance deposits and other amounts due
from affiliated companies.
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.
39
<PAGE>
P) OTHER LIABILITIES: Other liabilities consist principally of postretirement
and postemployment benefits and various insurance-related liabilities, including
amounts related to reinsurance contracts and guaranty fund assessments that can
be reasonably estimated.
Q) TRANSLATION OF FOREIGN CURRENCIES: Foreign operations primarily utilize
the local currencies as their functional currencies, and assets and liabilities
are translated at the rates of exchange as of the balance sheet date. The
translation gain or loss on such functional currencies, net of applicable taxes,
is generally reflected in shareholder's equity. Revenues and expenses are
translated at the average rates of exchange prevailing during the year.
R) PREMIUM AND FEES, REVENUES AND RELATED EXPENSES: Premiums for group life
and accident and health insurance are recognized as revenue on a pro-rata basis
over their contract periods. Benefits, losses and settlement expenses are
recognized when incurred.
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.
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.
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,
1998, 1997 and 1996.
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 business for cash proceeds of $1.4 billion. The sale resulted in an
after-tax gain of $773 million of which $202 million was recognized upon closing
of the sale. Since the principal agreement to sell this business is in the form
of an indemnity reinsurance arrangement, the remaining $571 million of the gain
was deferred and is being recognized at the rate that earnings from the business
sold would have been expected to emerge, primarily over fifteen years on a
declining basis. The Company recognized $66 million of the deferred gain in
1998.
Revenues for this business were $972 million and $926 million for the years
ended December 31, 1997 and 1996, respectively, and net income was $102 million
and $67 million for the same periods. Also, as part of the transaction, the
Company recorded a reinsurance recoverable from the purchaser of $5.8 billion
for insurance liabilities retained, and transferred invested assets of $5.4
billion along with other assets and liabilities associated with the business.
The sales agreement provides for the possibility of certain adjustments;
however, any future adjustments are not expected to be material to results of
operations, liquidity or financial condition.
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).
40
<PAGE>
NOTE 4 -- INVESTMENTS
A) FIXED MATURITIES: Fixed maturities are net of cumulative write-downs of
$22 million and $36 million, including policyholder share, as of December 31,
1998 and 1997, respectively.
The amortized cost and fair value by contractual maturity periods for fixed
maturities, including policyholder share, as of December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Amortized Fair
(IN MILLIONS) Cost Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less.................................................. $ 979 $ 999
Due after one year through five years.................................... 3,960 4,110
Due after five years through ten years................................... 3,512 3,723
Due after ten years...................................................... 2,665 3,348
Asset-backed securities.................................................. 5,704 5,887
- ------------------------------------------------------------------------------------------------
Total.................................................................... $ 16,820 $ 18,067
- ------------------------------------------------------------------------------------------------
---------------------
</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>
- -----------------------------------------------------------------------------------------------------
At December 31, 1998:
- -----------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal government bonds......................... $ 568 $ 407 $ -- $ 975
State and local government bonds................. 145 20 -- 165
Foreign government bonds......................... 147 7 (9) 145
Corporate securities............................. 10,256 733 (94) 10,895
Asset-backed securities.......................... 5,704 217 (34) 5,887
- -----------------------------------------------------------------------------------------------------
Total............................................ $ 16,820 $ 1,384 $ (137) $ 18,067
- -----------------------------------------------------------------------------------------------------
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
At 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>
Asset-backed securities include investments in CMOs as of December 31, 1998 of
$2.0 billion carried at fair value (amortized cost, $2.0 billion), compared with
$2.3 billion carried at fair value (amortized cost, $2.3 billion) as of December
31, 1997. 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 .05% and .10% of total CMO investments at
December 31, 1998 and 1997, respectively.
41
<PAGE>
At December 31, 1998, contractual fixed maturity investment commitments were
$34 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 59% will be disbursed in 1999.
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 are less than 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) 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage Loans.............................................................. $ 8,875 $ 10,090
--------- ---------
Real estate:
Held for sale............................................................. 326 339
Held for production of income............................................. 386 410
--------- ---------
Total real estate........................................................... 712 749
- --------------------------------------------------------------------------------------------------
Total....................................................................... $ 9,587 $ 10,839
- --------------------------------------------------------------------------------------------------
--------------------
</TABLE>
At December 31, mortgage loans and real estate investments comprised the
following property types and geographic regions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Property type:
Retail facilities......................................................... $ 3,145 $ 4,153
Office buildings.......................................................... 3,814 3,984
Apartment buildings....................................................... 1,283 1,311
Hotels.................................................................... 450 498
Other (primarily industrial).............................................. 895 893
- --------------------------------------------------------------------------------------------------
Total....................................................................... $ 9,587 $ 10,839
- --------------------------------------------------------------------------------------------------
--------------------
Geographic region:
Central................................................................... $ 3,051 $ 3,484
Pacific................................................................... 2,683 2,962
Middle Atlantic........................................................... 1,510 1,821
South Atlantic............................................................ 1,348 1,458
New England............................................................... 995 1,114
- --------------------------------------------------------------------------------------------------
Total....................................................................... $ 9,587 $ 10,839
- --------------------------------------------------------------------------------------------------
--------------------
</TABLE>
MORTGAGE LOANS
At December 31, 1998, scheduled mortgage loan maturities were as follows: 1999
- -- $.9 billion; 2000 -- $.9 billion; 2001 -- $.8 billion; 2002 -- $1.0 billion;
2003 -- $1.6 billion; and $3.7 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 1998 and 1997, the Company
refinanced at current market rates approximately $126 million and $135 million,
respectively, of its mortgage loans relating to borrowers that were unable to
obtain alternative financing.
At December 31, 1998, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $492 million, most
of which were at a fixed market rate of interest. These commitments are
generally expected to be disbursed within three months, and are diversified by
property type and geographic region.
At December 31, 1998, the Company's impaired mortgage loans were $156 million,
including $24 million before valuation reserves totaling $6 million, and $132
million which had no valuation reserves. 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.
42
<PAGE>
During the year ended December 31, changes in reserves for impaired mortgage
loans, including policyholder share, were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reserve balance -- January 1................................................... $ 44 $ 94
Transfers to foreclosed real estate............................................ (21) (30)
Charge-offs upon sales......................................................... (9) (47)
Net increase (decrease) in valuation reserves.................................. (8) 27
- ---------------------------------------------------------------------------------------------------------
Reserve balance -- December 31................................................. $ 6 $ 44
- ---------------------------------------------------------------------------------------------------------
-----------
</TABLE>
During 1998 and 1997, impaired mortgage loans, before valuation reserves,
averaged approximately $285 million and $597 million, respectively. Interest
income recorded and cash received on these loans were approximately $12 million
and $34 million in 1998 and 1997, respectively.
REAL ESTATE
During 1998, 1997 and 1996, non-cash investing activities included real estate
acquired through foreclosure of mortgage loans, which totaled $32 million, $81
million and $107 million, respectively.
Valuation reserves and cumulative write-downs related to real estate,
including policyholder share, were $171 million and $169 million as of December
31, 1998 and 1997, respectively.
Net income for 1998 and 1997 included net investment income of $8 million and
$9 million, respectively, for real estate held for sale. Write-downs upon
foreclosure and changes in valuation reserves were not material for 1998 and
1997.
C) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and
cash equivalents, in the aggregate, primarily included debt securities,
principally corporate securities of $963 million at December 31, 1998 and, for
1997, principally corporate securities of $520 million and federal government
securities of $443 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) 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation:
Fixed maturities........................................................... $ 1,384 $ 1,500
Equity securities.......................................................... 10 8
--------- ---------
1,394 1,508
--------- ---------
Unrealized depreciation:
Fixed maturities........................................................... (137) (139)
Equity securities.......................................................... (25) (29)
--------- ---------
(162) (168)
--------- ---------
Less policyholder-related amounts............................................ 880 931
--------- ---------
Shareholder net unrealized appreciation...................................... 352 409
Less deferred income taxes................................................... 134 153
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation.................................................. $ 218 $ 256
- ---------------------------------------------------------------------------------------------------
--------------------
</TABLE>
The components of net unrealized appreciation (depreciation) on investments
for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized appreciation (depreciation) on investments held, net of taxes
of $48, $37 and $(151), respectively.................................. $ 89 $ 69 $ (280)
Less gains realized in net income, net of taxes of $68, $-- , and $3, in
1998, 1997 and 1996, respectively..................................... 127 1 8
--
--------- ---------
Net unrealized appreciation (depreciation).............................. $ (38) $ 68 $ (288)
- -----------------------------------------------------------------------------------------------------------
---------------------------------
</TABLE>
43
<PAGE>
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) 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities............................................................... $ 22 $ 28
Mortgage loans................................................................. 2 --
Real estate.................................................................... 68 141
- ------------------------------------------------------------------------------------------------------
Total.......................................................................... $ 92 $ 169
- ------------------------------------------------------------------------------------------------------
-----------
</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 generally 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 liabilities.
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) 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate swaps........................................................... $ 158 $ 265
Currency swaps................................................................ 193 248
Purchased options............................................................. 878 833
Written options............................................................... 1,087 --
Futures....................................................................... 233 75
- ----------------------------------------------------------------------------------------------------
</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, Swiss francs, German marks, Japanese
yen and pounds sterling) to match the currency of investments to that of the
associated liabilities. Under currency swaps, the parties exchange principal and
interest amounts in two relevant currencies using agreed-upon exchange amounts.
The net interest cash flows from interest rate and currency swaps are
recognized currently as an adjustment to net investment income, and the fair
value of these swaps is reported as an adjustment to the related investments.
Using purchased options to reduce the effect of changes in interest rates or
equity indexes on liabilities, the Company pays an up-front fee to receive cash
flows from third parties when interest rates or equity indexes vary from
specified levels. Purchased options that qualify for hedge accounting are
recorded consistent with the related liabilities, at amortized cost plus
adjustments based on current equity indexes, and income is reported as an
adjustment to benefit expense. Purchased options that qualify for hedge
accounting 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 at December 31, 1997 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. There were no such options at December 31, 1998.
44
<PAGE>
The Company also writes reinsurance contracts that are accounted for as
written options. The Company receives fees to pay for specified unfavorable
changes in variable annuity account values based on underlying mutual fund
investments when account holders elect to receive periodic income payments.
These written options, along with options purchased to minimize the risks
assumed, are reported at fair value in other liabilities and other assets,
respectively. Changes in fair value are recognized in other revenues, or other
operating expenses if there is a net loss. Fair values of written and related
purchased options during 1998 and as of December 31, 1998 were not material.
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, 1998 and 1997.
The effects of interest rate and currency swaps, purchased and written options
and futures on the components of net income for 1998, 1997 and 1996 were not
material.
As of December 31, 1998 and 1997, the Company's variable interest rate
investments consisted of approximately $0.6 billion and $0.7 billion of fixed
maturities, respectively. As of December 31, 1998 and 1997, the Company's fixed
interest rate investments consisted of $17 billion and $21.6 billion,
respectively, of fixed maturities, and $8.9 billion and $10.1 billion,
respectively, of mortgage loans.
G) OTHER: As of December 31, 1998 and 1997, 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) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities.................................................... $ 1,386 $ 1,648 $ 1,647
Equity securities................................................... 1 8 --
Mortgage loans...................................................... 739 885 921
Policy loans........................................................ 459 532 548
Real estate......................................................... 142 183 227
Other long-term investments......................................... 19 17 23
Short-term investments.............................................. 18 28 35
--------- --------- ---------
2,764 3,301 3,401
Less investment expenses............................................ 127 162 202
- -----------------------------------------------------------------------------------------------------
Net investment income............................................... $ 2,637 $ 3,139 $ 3,199
- -----------------------------------------------------------------------------------------------------
-------------------------------
</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 $1.6 billion for
1998 and $1.7 billion for 1997 and 1996. Net investment income for separate
accounts, which is not reflected in the Company's revenues, was $1.5 billion ,
$1.4 billion and $1.1 billion for 1998, 1997 and 1996, respectively.
As of December 31, 1998, fixed maturities and mortgage loans on non-accrual
status, including policyholder share, were $142 million and $97 million,
including restructured investments of $76 million and $93 million, 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. If interest on these investments had been recognized in accordance
with their original terms, net income would have been increased by $5 million,
$7 million and $15 million in 1998, 1997 and 1996, respectively.
45
<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) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities......................................................... $ 34 $ (3) $ 11
Equity securities........................................................ 3 4 1
Mortgage loans........................................................... 22 4 (12)
Real estate.............................................................. 10 28 15
Other.................................................................... 24 12 22
--- --- ---
93 45 37
Less income taxes........................................................ 33 8 17
- ----------------------------------------------------------------------------------------------------------------
Net realized investment gains............................................ $ 60 $ 37 $ 20
- ----------------------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Realized investment gains and losses include impairments in the value of
investments, net of recoveries, of $(5) million, $25 million and $40 million in
1998, 1997 and 1996, respectively.
Realized investment gains for separate accounts, which are not reflected in
the Company's revenues, were $494 million, $489 million and $305 million for
1998, 1997 and 1996 respectively. Realized investment gains attributable to
policyholder contracts, which also are not reflected in the Company's revenues,
were $201 million, $76 million and $82 million for 1998, 1997 and 1996,
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) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales................................................. $ 5,677 $ 3,978 $ 4,236
Gross gains on sales................................................ $ 238 $ 95 $ 146
Gross losses on sales............................................... $ (55) $ (151) $ (70)
- -----------------------------------------------------------------------------------------------------
</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, 1998, 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, 1998 and 1997 consisted of
5,978,322 shares of common stock authorized, issued and outstanding (par value
$5).
The Company's statutory net income was $824 million, $417 million and $611
million for 1998, 1997 and 1996, respectively. Statutory surplus was $1.8
billion at December 31, 1998 and $2.2 billion at December 31, 1997. 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 1998, the Company paid
dividends of $2.0 billion to its parent, all of which received prior approval
from the Department in accordance with requirements (see Note 3 - Disposition).
During 1997, the Company paid dividends of $400 million 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 1999 without prior approval is $839 million. The
amount of restricted net assets as of December 31, 1998 was approximately $2.7
billion.
NOTE 7 -- INCOME TAXES
The Company's net deferred tax asset of $865 million and $653 million as of
December 31, 1998 and 1997, 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.
46
<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, 1998
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. See Note 13 for a
discussion of potential legislation regarding this matter.
CIGNA's federal income tax returns are routinely audited by the Internal
Revenue Service, and provisions are made in CIGNA's financial statements in
anticipation of the results of these audits. CIGNA resolved all issues relative
to the Company arising out of audits for 1991 through 1993, which resulted in an
increase to net income of $13 million in 1997.
In management's opinion, adequate tax liabilities have been established for
all years. Income taxes and deferred tax balances for the year ended December
31, 1998 reflect state income taxes.
The tax effects of temporary differences which give rise to deferred income
tax assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other insurance and contractholder liabilities............................. $ 119 $ 400
Employee and retiree benefit plans......................................... 214 196
Deferred gain on sale of business.......................................... 290 --
Investments, net........................................................... 356 262
Policy acquisition expenses................................................ 111 --
Other...................................................................... -- 63
--------- ---
Total deferred tax assets.................................................... 1,090 921
--------- ---
Deferred tax liabilities:
Policy acquisition expenses................................................ -- 38
Depreciation............................................................... 67 77
Unrealized appreciation on investments..................................... 134 153
Other...................................................................... 24 --
--------- ---
Total deferred tax assets.................................................... 225 268
- ---------------------------------------------------------------------------------------------------
Net deferred income tax asset................................................ $ 865 $ 653
- ---------------------------------------------------------------------------------------------------
--------------------
</TABLE>
The components of income taxes for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
U.S. income............................................................ $ 617 $ 344 $ 391
Foreign income......................................................... 5 3 3
State income........................................................... 14 -- --
--- --- ---
636 347 394
--- --- ---
Deferred taxes (benefits):
U.S. income............................................................ (205) (49) (81)
State income........................................................... (6) -- --
--- --- ---
(211) (49) (81)
- ----------------------------------------------------------------------------------------------------------
Total income taxes....................................................... $ 425 $ 298 $ 313
- ----------------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
State income taxes were not material in years prior to 1998.
47
<PAGE>
Total income taxes for the year ended December 31 differs from the amount
computed using the nominal federal income tax rate of 35% for the following
reasons:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at nominal rate.............................................. $ 431 $ 320 $ 305
Tax-exempt interest income............................................... (4) (5) (5)
Dividends received deduction............................................. (13) (7) (7)
Amortization of goodwill................................................. 5 4 4
State income tax (net of federal income tax benefit)..................... 5 -- --
Resolved federal tax audit issues........................................ -- (13) --
Other.................................................................... 1 (1) 16
- ----------------------------------------------------------------------------------------------------------
Total income taxes....................................................... $ 425 $ 298 $ 313
- ----------------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
NOTE 8 -- PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS PLANS
A) PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS: The Company provides
pension and certain health care and life insurance benefits to eligible retired
employees and agents, spouses and other eligible dependents through various
plans. The expenses of retirement plans are allocated to the Company along with
other benefit cost allocations.
Pension benefits are provided through a plan sponsored by CIGNA covering most
domestic employees and by a separate pension plan for former agents. CIGNA funds
the pension plans at least at the minimum amount required by the Employee
Retirement Income Security Act of 1974. Allocated pension cost for the Company
was $19 million, $24 million and $26 million in 1998, 1997 and 1996,
respectively. The plans had deposits with the Company totaling approximately
$2.8 billion and $2.5 billion at December 31, 1998 and 1997, respectively.
Expense for postretirement benefits other than pensions allocated to the
Company totaled $2 million for 1998 and 1997 and $9 million for 1996. The other
postretirement benefit liability included in accounts payable, accrued expenses
and other liabilities as of December 31, 1998 and 1997 was $387 million and $412
million, including no net intercompany payables for 1998 and $39 million for
1997 for services provided by affiliates' employees.
B) 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 $22 million for 1998, $15 million for 1997 and $16 million
for 1996.
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 primary
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. In connection with
the sale of the Company's individual life insurance and annuity business (as
discussed in Note 3), the reinsurance recoverable from Lincoln National
Corporation at December 31, 1998 was $6.0 billion.
Failure of reinsurers to indemnify the Company, as a result of reinsurer
insolvencies and disputes, could result in losses. As of December 31, 1998 and
1997 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.
48
<PAGE>
The effects of reinsurance on net earned premiums and fees for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-DURATION CONTRACTS
Premiums and fees:
Direct............................................................ $ 3,763 $ 3,119 $ 2,940
Assumed........................................................... 286 255 135
Ceded............................................................. (237) (266) (166)
- -----------------------------------------------------------------------------------------------------
Net earned premiums and fees........................................ $ 3,812 $ 3,108 $ 2,909
- -----------------------------------------------------------------------------------------------------
-------------------------------
LONG-DURATION CONTRACTS
Premiums and fees:
Direct............................................................ $ 1,998 $ 1,979 $ 1,997
Assumed........................................................... 564 522 601
Ceded............................................................. (691) (233) (193)
- -----------------------------------------------------------------------------------------------------
Net earned premiums and fees........................................ $ 1,871 $ 2,268 $ 2,405
- -----------------------------------------------------------------------------------------------------
-------------------------------
</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 1998, 1997 and 1996 were net
of reinsurance recoveries of $699 million, $340 million and $359 million,
respectively.
For the year ended December 31, 1998, ceded premiums and reinsurance
recoveries associated with the individual life insurance and annuity business
sold were $741 million and $550 million, respectively.
NOTE 10 -- LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to buildings,
amounted to $42 million, $76 million and $68 million in 1998, 1997 and 1996,
respectively.
As of December 31, 1998, future net minimum rental payments under
non-cancelable operating leases were $168 million, payable as follows: 1999 -
$41 million; 2000 - $29 million; 2001 - $22 million; 2002 - $19 million; and $57
million thereafter.
NOTE 11 -- SEGMENT INFORMATION
Operating segments are based on the Company's internal reporting structure and
generally reflect differences in products. The Company presents segment
information as follows:
- EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS, which combines the
Company's Health Care and Group Insurance divisions, offers traditional
indemnity and cost containment products and services as well as alternative
funding arrangements, such as administrative services only and minimum
premium plans.
- EMPLOYEE RETIREMENT BENEFITS AND INVESTMENT SERVICES provides investment
products and professional services primarily to sponsors of qualified
pension, profit-sharing and retirement savings plans. This segment also
provides certain corporate and variable life insurance products.
Other Operations consist of gain recognition related to the sale of the
individual life insurance and annuity business (and, for prior years, results of
the sold business, see Note 3), corporate life insurance on which policy loans
are outstanding (also called leveraged corporate life insurance), reinsurance
operations, settlement annuity business and certain new business initiatives.
The Company uses operating income (net income excluding after-tax realized
investment results) to measure the financial results of its segments. Operating
income is determined on a basis consistent with the accounting policies for the
consolidated financial statements, except that interest expense on corporate
debt is not allocated to segments. The Company allocates substantially all other
corporate general, administrative and systems expenses to segments on systematic
bases. Income taxes are generally computed as if each segment were filing
separate income tax returns.
49
<PAGE>
The Company's operations are not materially dependent on one or a few
customers, brokers or agents. Summarized segment financial information for the
year ended and as of December 31 was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS
Premiums and fees and other revenues............................. $ 5,012 $ 4,307 $ 4,256
Net investment income............................................ 290 286 291
- --------------------------------------------------------------------------------------------------
Segment revenues................................................. 5,302 4,593 4,547
Income tax expense............................................... 114 108 126
Operating income................................................. 195 190 189
Assets under management:
Invested assets................................................ 3,519 3,761 3,281
Separate account............................................... 1,702 1,440 1,176
- --------------------------------------------------------------------------------------------------
Total............................................................ $ 5,221 $ 5,201 $ 4,457
- --------------------------------------------------------------------------------------------------
EMPLOYEE RETIREMENT BENEFITS AND INVESTMENT SERVICES
Premiums and fees and other revenues............................. $ 239 $ 205 $ 257
Net investment income............................................ 1,605 1,653 1,686
- --------------------------------------------------------------------------------------------------
Segment revenues................................................. 1,844 1,858 1,943
Income tax expense............................................... 113 99 86
Operating income................................................. 245 229 185
Assets under management:
Invested assets................................................ 20,511 20,759 20,303
Separate account............................................... 30,717 26,678 20,604
- --------------------------------------------------------------------------------------------------
Total............................................................ $ 51,228 $ 47,437 $ 40,907
- --------------------------------------------------------------------------------------------------
OTHER OPERATIONS
Premiums and fees and other revenues............................. $ 859 $ 874 $ 810
Net investment income............................................ 742 1,200 1,222
- --------------------------------------------------------------------------------------------------
Segment revenues................................................. 1,601 2,074 2,032
Income tax expense............................................... 165 83 84
Operating income................................................. 306 159 163
Assets under management:
Invested assets................................................ 10,006 16,181 16,193
Separate account............................................... 2,229 1,099 775
- --------------------------------------------------------------------------------------------------
Total............................................................ $ 12,235 $ 17,280 $ 16,968
- --------------------------------------------------------------------------------------------------
REALIZED INVESTMENT GAINS
Realized investment gains........................................ $ 93 $ 45 $ 37
Income tax expense............................................... 33 8 17
- --------------------------------------------------------------------------------------------------
Realized investment gains (losses), net of taxes................. $ 60 $ 37 $ 20
- --------------------------------------------------------------------------------------------------
TOTAL
Premiums and fees and other revenues............................. $ 6,110 $ 5,386 $ 5,323
Net investment income............................................ 2,637 3,139 3,199
Realized investment gains........................................ 93 45 37
- --------------------------------------------------------------------------------------------------
Total revenues................................................... 8,840 8,570 8,559
Income tax expense............................................... 425 298 313
Operating income................................................. 746 578 537
Realized investment gains (losses), net of taxes................. 60 37 20
Net income....................................................... 806 615 557
Assets under management:
Invested assets................................................ 34,036 40,701 39,777
Separate account............................................... 34,648 29,217 22,555
- --------------------------------------------------------------------------------------------------
Total............................................................ $ 68,684 $ 69,918 $ 62,332
- --------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
50
<PAGE>
Premiums and fees and other revenues by product type for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Medical and Dental Indemnity........................................ $ 3,566 $ 2,883 $ 2,726
Group Life.......................................................... 1,363 1,355 1,467
Other............................................................... 1,181 1,148 1,130
- -----------------------------------------------------------------------------------------------------
Total premiums and fees and other revenues.......................... $ 6,110 $ 5,386 $ 5,323
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
For the year ended December 31, 1998, 1997 and 1996, the change in net
translation of foreign currencies reflects increases of $2 million for 1998 and
1997, and $3 million for 1996.
Premiums and fees and other revenues by geographic region for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic............................................................ $ 6,068 $ 5,356 $ 5,291
Foreign............................................................. 42 30 32
- -----------------------------------------------------------------------------------------------------
Total premiums and fees and other revenues.......................... $ 6,110 $ 5,386 $ 5,323
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
The Company's aggregate foreign exchange transaction losses and foreign
long-lived assets for the year ended and as of December 31, 1998, 1997 and 1996
were not material.
NOTE 12 -- 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, 1998 and 1997.
The Company cedes long-term disability business to LINA. Reinsurance
recoverables from LINA at December 31, 1998 and 1997 were $834 million and $869
million, respectively.
Effective January 1, 1998, the Company assumed insurance reserves totaling $85
million, along with a corresponding amount of invested and other assets, under a
coinsurance arrangement assigned from Healthsource Insurance Company, an
affiliate. In addition, the Company was assigned the responsibility for
administering self-funded employee benefit plan products from Healthsource
Provident Administrators, Inc. (HPA), another affiliate. As part of this
assignment, net assets of approximately $304 million were transferred to the
Company from HPA.
The Company had lines of credit available from affiliates totaling $600
million at December 31, 1998 and 1997. 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 $1.5 million, $0.2 million and $1.0
million for 1998, 1997 and 1996, respectively. As of December 31, 1998 and 1997,
there were no borrowings outstanding under such lines.
The Company extended lines of credit to affiliates totaling $600 million at
December 31, 1998 and 1997. 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, 1998 or 1997.
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, 1998 and 1997, the Company had a balance in the Account of $1.1
billion and $484 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.
51
<PAGE>
NOTE 13 -- 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 17 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, 1998 and 1997 was $85
million and $202 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. During
1998, 1997 and 1996, this income was not material. 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 1998, 1997 or 1996.
The Company has entered into specialty life reinsurance contracts that
guarantee payments for specified unfavorable changes in variable annuity account
values based on underlying mutual fund investments if account holders expire or
elect to receive periodic income payments. For those accounts with mortality
risk, reserves are established in amounts adequate to meet the estimated future
obligations using various assumptions as to equity market conditions, premiums,
mortality and lapse rates, including provision for adverse deviation. As of
December 31, 1998 and 1997, the amount of recorded liabilities was $52 million
and $29 million, respectively. Although these guarantees may adversely affect
the Company's results of operations in future periods, they are not expected to
have a material adverse effect on the Company's liquidity or financial
condition.
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, 1998 and 1997, the amount of minimum benefit
guarantees for separate account contracts was $5.1 billion and $4.6 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, 1998 and
1997. 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 restrict
insurance pricing and the application of underwriting standards and revise
federal tax laws. Some of the more significant issues are discussed below.
In early 1999, the Administration proposed a federal budget that would
eliminate the deferral of taxation of certain statutory income of life insurance
companies. As discussed in Note 7, the Company has not provided taxes on $450
million of such income. If the budget provision is enacted, the Company will
record additional income tax expense of $158 million to reflect this liability.
The proposed federal budget also would limit the deduction of interest expense
on the general indebtedness of corporations owning non-leveraged corporate life
insurance policies covering the lives of officers, employees or directors. If
this latter provision is enacted as proposed, the Company does not anticipate
that it will have a material effect on its consolidated results of operations,
liquidity, or financial condition, although it could have a material adverse
effect on the results of operations of the Employee Retirement Benefits and
Investment Services segment.
In 1996, Congress passed legislation that phases out over a three-year period
the tax deductibility of policy loan interest for most leveraged corporate life
insurance products. For 1998 and 1997, revenues of $556 million and
52
<PAGE>
$591 million, respectively, and net income of $42 million and $44 million,
respectively, were from leveraged corporate life insurance 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.
In 1998, the NAIC adopted standardized statutory accounting principles. Since
these principles have not been adopted by most of the insurance departments of
various jurisdictions in which the Company's insurance subsidiaries are
domiciled, the timing and effects of implementation have not yet been
determined.
The Company is contingently liable for possible assessments under regulatory
requirements pertaining to potential insolvencies of unaffiliated insurance
companies and other insurance-related assessments. 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 no pre-tax charges
for 1998, and $17 million and $26 million for 1997 and 1996, respectively, for
estimated guaranty fund and other insurance-related assessments 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.
53
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICEWATERHOUSECOOPERS 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 - Janus
Aspen Series Short-Term 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 - Class I (constituting the CG Corporate Insurance
Variable Life Separate Account 02, hereafter referred to as "the Account") at
December 31, 1998, 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, 1998 by
correspondence with the custodians, provide a reasonable basis for the opinion
expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
February 19, 1999
54
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIDELITY
VARIABLE
FIDELITY INSURANCE
CIGNA VARIABLE VARIABLE INSURANCE PRODUCTS
PRODUCTS GROUP PRODUCTS FUND II
ALGER AMERICAN FUND SUB-ACCOUNTS SUB-ACCOUNTS FUND SUB-ACCOUNTS SUB-ACCOUNT
-------------------------------------- ---------------------- ---------------------- ----------
MIDCAP SMALL MONEY S&P 500 EQUITY- HIGH INVESTMENT
GROWTH GROWTH CAPITALIZATION MARKET INDEX INCOME INCOME GRADE BOND
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at fair
value....................... $ 512,805 $ 279,014 $ 598,312 $ 213,147 $27,262,227 $1,101,890 $1,079,507 $5,897,291
Receivable from Connecticut
General Life Insurance
Company..................... -- 598 90 -- -- -- 363 --
Receivable for fund shares
sold........................ 12,197 -- -- 10,755 3,935 9,846 170
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Total assets.............. 525,002 279,612 598,402 223,902 27,266,162 1,111,736 1,079,870 5,897,461
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life
Insurance Company........... 12,197 -- -- 10,755 3,935 9,846 -- 170
Payable for fund shares
purchased................... -- 598 90 -- -- -- 363 --
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities......... 12,197 598 90 10,755 3,935 9,846 363 170
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Net assets................ $ 512,805 $ 279,014 $ 598,312 $ 213,147 $27,262,227 $1,101,890 $1,079,507 $5,897,291
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Accumulation units outstanding
-- Contracts sold before May
1, 1998..................... 29,858 19,198 23,818 19,624 1,708,791 83,871 98,758 466,141
Net asset value per
accumulation unit........... $ 17.174509 $ 14.533269 $14.358496 $10.861410 $15.363576 $13.137868 $10.930880 $11.693725
Accumulation units outstanding
-- Contracts sold after
April 30, 1998.............. -- -- 24,144 -- 90,399 -- -- 42,614
Net asset value per
accumulation unit........... -- -- $10.616506 -- $11.162600 -- -- $10.474584
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
Accumulation net assets....... $ 512,805 $ 279,014 $ 598,312 $ 213,147 $27,262,227 $1,101,890 $1,079,507 $5,897,291
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
------------ ------------ ---------- ---------- ---------- ---------- ---------- ----------
</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 ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
TEMPLETON
VARIABLE
PRODUCTS
SERIES
FUND
JANUS ASPEN SERIES MFS VARIABLE INSURANCE SUB-ACCOUNT
SUB-ACCOUNTS TRUST SUB-ACCOUNTS OCC ACCUMULATION TRUST ----------
---------------------- ------------------------ SUB-ACCOUNTS INTERNATIONAL
SHORT-TERM WORLDWIDE EMERGING TOTAL ---------------------------------- -
BOND GROWTH GROWTH RETURN EQUITY MANAGED SMALL CAP CLASS 1
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at fair
value....................... $ -- $2,826,277 $ 1,026,589 $ 63,790 $ 147,875 $ 739,373 $1,257,978 $1,296,043
Receivable from Connecticut
General Life Insurance
Company..................... -- -- 893 2,238 208 -- 120 --
Receivable for fund shares
sold........................ -- 5,911 -- -- -- 10,593 -- 1,623
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Total assets.............. -- 2,832,188 1,027,482 66,028 148,083 749,966 1,258,098 1,297,666
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life
Insurance Company........... -- 5,911 -- -- -- 10,593 -- 1,623
Payable for fund shares
purchased................... -- -- 893 2,238 208 -- 120 --
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Total liabilities......... -- 5,911 893 2,238 208 10,593 120 1,623
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Net assets................ $ -- $2,826,277 $ 1,026,589 $ 63,790 $ 147,875 $ 739,373 $1,257,978 $1,296,043
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Accumulation units outstanding
-- Contracts sold before May
1, 1998..................... -- 194,396 66,199 4,987 11,240 59,386 116,250 99,869
Net asset value per
accumulation unit........... -- $14.538727 $ 15.507615 $12.791189 $13.156140 $12.450284 $10.821353 $11.832899
Accumulation units outstanding
-- Contracts sold after
April 30, 1998.............. -- -- -- -- -- -- -- 11,884
Net asset value per
accumulation unit........... -- -- -- -- -- -- -- $9.617966
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Accumulation net assets....... $ -- $2,826,277 $ 1,026,589 $ 63,790 $ 147,875 $ 739,373 $1,257,978 $1,296,043
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
</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
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIDELITY VARIABLE
CIGNA VARIABLE FIDELITY VARIABLE INSURANCE
PRODUCTS INSURANCE PRODUCTS PRODUCTS FUND II
ALGER AMERICAN FUND SUB-ACCOUNTS GROUP SUB-ACCOUNTS FUND SUB-ACCOUNTS SUB-ACCOUNT
-------------------------------------- ------------------- -------------------- -----------------
MIDCAP SMALL MONEY S&P 500 EQUITY- HIGH INVESTMENT
GROWTH GROWTH CAPITALIZATION MARKET INDEX INCOME INCOME GRADE BOND
--------- --------- -------------- -------- -------- -------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................ $ 482 $ -- $ 1 $ 39,467 $520,757 $ 4,536 $ 23,780 $ 235,834
EXPENSES:
Mortality and expense
risk and administrative
charges................ 2,328 1,536 3,036 7,446 190,138 7,081 5,020 52,445
--------- --------- ------- -------- -------- -------- --------- --------
Net investment gain
(loss)................. (1,846) (1,536) (3,035) 32,021 330,619 (2,545) 18,760 183,389
--------- --------- ------- -------- -------- -------- --------- --------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Capital gain
distributions from
portfolio sponsors..... 29,450 11,691 34,120 -- 223,478 16,142 15,111 27,981
Net realized gain (loss)
on share
transactions........... 2,954 1,992 (972) -- 107,742 (105) 51 13,754
--------- --------- ------- -------- -------- -------- --------- --------
Net realized gain...... 32,404 13,683 33,148 -- 331,220 16,037 15,162 41,735
Change in net unrealized
gain (loss)............ 91,238 40,548 5,340 -- 4,308,965 36,839 (50,282) 201,263
--------- --------- ------- -------- -------- -------- --------- --------
Net realized and
unrealized gain (loss)
on investments........ 123,642 54,231 38,488 -- 4,640,185 52,876 (35,120) 242,998
--------- --------- ------- -------- -------- -------- --------- --------
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS........ $ 121,796 $ 52,695 $ 35,453 $ 32,021 $4,970,804 $ 50,331 $ (16,360) $ 426,387
--------- --------- ------- -------- -------- -------- --------- --------
--------- --------- ------- -------- -------- -------- --------- --------
</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
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TEMPLETON
MFS VARIABLE VARIABLE
JANUS ASPEN SERIES INSURANCE PRODUCTS SERIES
SUB-ACCOUNTS TRUST SUB-ACCOUNTS OCC ACCUMULATION FUND SUB-ACCOUNT
---------------------- ------------------- TRUST SUB-ACCOUNTS -----------------
SHORT-TERM WORLDWIDE EMERGING TOTAL -------------------------------- INTERNATIONAL -
BOND* GROWTH GROWTH RETURN EQUITY MANAGED SMALL CAP CLASS 1
---------- --------- -------- -------- -------- -------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................ $ 18 $ 67,675 $ -- $ 77 $ 726 $ 3,601 $ 4,734 $ 15,674
EXPENSES:
Mortality and expense
risk and administrative
charges................ 13 23,832 6,074 249 996 5,426 13,225 9,709
--
--------- -------- -------- -------- -------- ---------- --------
Net investment gain
(loss)................. 5 43,843 (6,074) (172) (270) (1,825) (8,491) 5,965
--
--------- -------- -------- -------- -------- ---------- --------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Capital gain
distributions from
portfolio sponsors..... 2 27,273 4,451 91 3,143 14,415 51,695 28,023
Net realized gain (loss)
on share
transactions........... 43 (19,943) (2,772) 34 522 1,337 (29,631) 940
--
--------- -------- -------- -------- -------- ---------- --------
Net realized gain...... 45 7,330 1,679 125 3,665 15,752 22,064 28,963
Change in net unrealized
gain (loss)............ -- 479,024 216,913 3,234 6,897 22,152 (177,446) (28,223)
--
--------- -------- -------- -------- -------- ---------- --------
Net realized and
unrealized gain (loss)
on investments........ 45 486,354 218,592 3,359 10,562 37,904 (155,382) 740
--
--------- -------- -------- -------- -------- ---------- --------
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS........ $ 50 $ 530,197 $212,518 $ 3,187 $ 10,292 $36,079 $ (163,873) $ 6,705
--
--
--------- -------- -------- -------- -------- ---------- --------
--------- -------- -------- -------- -------- ---------- --------
</TABLE>
* For the period ended December 31, 1998.
Deposits first received January 29, 1998.
The Notes to Financial Statements are an integral part of these statements.
58
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIDELITY
VARIABLE
INSURANCE
CIGNA VARIABLE PRODUCTS
PRODUCTS GROUP FUND
ALGER AMERICAN FUND SUB-ACCOUNTS SUB-ACCOUNTS SUB-ACCOUNTS
----------------------------------- ---------------------- ---------
MIDCAP SMALL MONEY S&P 500 EQUITY-
GROWTH GROWTH CAPITALIZATION MARKET INDEX INCOME
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ (1,846) $ (1,536) $ (3,035 ) $ 32,021 $ 330,619 $ (2,545)
Net realized gain............. 32,404 13,683 33,148 -- 331,220 16,037
Net unrealized gain (loss).... 91,238 40,548 5,340 -- 4,308,965 36,839
----------- ---------- ---------- ---------- ---------- ---------
Net increase (decrease) from
operations................. 121,796 52,695 35,453 32,021 4,970,804 50,331
----------- ---------- ---------- ---------- ---------- ---------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits, net of
premium loads............... 234,347 107,151 115,723 8,339,674 6,448,072 436,963
Participant transfers......... 178,850 100,550 387,084 (7,699,759) 3,889,673 543,337
Participant withdrawals....... (72,383) (19,855) (30,038 ) (530,422) (1,497,945) (111,582)
----------- ---------- ---------- ---------- ---------- ---------
Net increase (decrease) from
participant transactions... 340,814 187,846 472,769 109,493 8,839,800 868,718
----------- ---------- ---------- ---------- ---------- ---------
Total increase (decrease)
in net assets............ 462,610 240,541 508,222 141,514 13,810,604 919,049
NET ASSETS:
Beginning of year............. 50,195 38,473 90,090 71,633 13,451,623 182,841
----------- ---------- ---------- ---------- ---------- ---------
End of year................... $ 512,805 $ 279,014 $ 598,312 $ 213,147 $27,262,227 $1,101,890
----------- ---------- ---------- ---------- ---------- ---------
----------- ---------- ---------- ---------- ---------- ---------
<CAPTION>
FIDELITY
VARIABLE
INSURANCE
PRODUCTS
FUND II
SUB-ACCOUNT
----------
HIGH INVESTMENT
INCOME GRADE BOND
----------- ----------
<S> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ 18,760 $ 183,389
Net realized gain............. 15,162 41,735
Net unrealized gain (loss).... (50,282) 201,263
----------- ----------
Net increase (decrease) from
operations................. (16,360) 426,387
----------- ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits, net of
premium loads............... 220,573 424,660
Participant transfers......... 612,890 838,386
Participant withdrawals....... (42,487) (773,867 )
----------- ----------
Net increase (decrease) from
participant transactions... 790,976 489,179
----------- ----------
Total increase (decrease)
in net assets............ 774,616 915,566
NET ASSETS:
Beginning of year............. 304,891 4,981,725
----------- ----------
End of year................... $ 1,079,507 $5,897,291
----------- ----------
----------- ----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
59
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TEMPLETON
VARIABLE
PRODUCTS
MFS VARIABLE SERIES FUND
JANUS ASPEN SERIES INSURANCE SUB-ACCOUNT
SUB-ACCOUNTS TRUST SUB-ACCOUNTS OCC ACCUMULATION TRUST SUB- -------------
------------------ ------------------- ACCOUNTS INTERNATIONAL
SHORT-TERM WORLDWIDE EMERGING TOTAL -------------------------------- -
BOND* GROWTH GROWTH RETURN EQUITY MANAGED SMALL CAP CLASS 1
-------- -------- -------- --------- ----------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ 5 $ 43,843 $ (6,074) $ (172) $ (270) $ (1,825) $ (8,491) $ 5,965
Net realized gain............. 45 7,330 1,679 125 3,665 15,752 22,064 28,963
Net unrealized gain (loss).... -- 479,024 216,913 3,234 6,897 22,152 (177,446) (28,223 )
-------- -------- -------- --------- ----------- -------- --------- -------------
Net increase (decrease) from
operations................. 50 530,197 212,518 3,187 10,292 36,079 (163,873) 6,705
-------- -------- -------- --------- ----------- -------- --------- -------------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits, net of
premium loads............... 5,631 687,079 316,114 6,219 105,497 449,913 128,149 424,779
Participant transfers......... (5,488 ) 254,640 274,990 55,960 14,836 (10,371) 89,173 342,949
Participant withdrawals....... (193 ) (306,422) (86,142) (5,231) (30,729) (70,856) (158,738) (55,891 )
-------- -------- -------- --------- ----------- -------- --------- -------------
Net increase (decrease) from
participant transactions... (50 ) 635,297 504,962 56,948 89,604 368,686 58,584 711,837
-------- -------- -------- --------- ----------- -------- --------- -------------
Total increase (decrease)
in net assets............ -- 1,165,494 717,480 60,135 99,896 404,765 (105,289) 718,542
NET ASSETS:
Beginning of year............. -- 1,660,783 309,109 3,655 47,979 334,608 1,363,267 577,501
-------- -------- -------- --------- ----------- -------- --------- -------------
End of year................... $ -- $2,826,277 $1,026,589 $ 63,790 $ 147,875 $739,373 $1,257,978 $ 1,296,043
-------- -------- -------- --------- ----------- -------- --------- -------------
-------- -------- -------- --------- ----------- -------- --------- -------------
</TABLE>
- --------------------------
* For the period ended December 31, 1998.
Deposits first received January 29, 1998.
The Notes to Financial Statements are an integral part of these statements.
60
<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.
61
<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.
62
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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 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.
At December 31, 1998, the assets of the Account are divided into variable
sub-accounts, each of which is invested in shares of one of seventeen portfolios
(mutual funds) of nine diversified open-end management investment companies,
each portfolio having its own investment objective. Transfers are permitted
between these portfolios and to and from a fixed account option offered by CG
Life. The fixed account is not included in these financial statements. 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
BT INSURANCE FUNDS TRUST:
EAFE-Registered Trademark- Equity Index Fund*
Small Cap Index Fund*
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 ("Fidelity Equity-Income Portfolio")
High Income Portfolio ("Fidelity High Income Portfolio")
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:
Investment Grade Bond Portfolio ("Fidelity Investment Grade Bond Portfolio")
JANUS ASPEN SERIES:
Janus Aspen Series Short-Term 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 - Class 1
</TABLE>
* Not active. No deposits received as of December 31, 1998.
** This fund was no longer offered as of September 15, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in conformity with generally
accepted accounting principles and reflect management's estimates and
assumptions, such as those regarding fair value, that affect recorded amounts.
63
<PAGE>
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64
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Actual results could differ from those estimates. Significant estimates are
discussed throughout the Notes to Financial Statements. The following is a
summary of significant accounting policies consistently applied 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, 1998. 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.
3. INVESTMENTS
Total shares outstanding and cost of investments as of December 31, 1998
were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Cost of
Sub-Account Shares Held Investments
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio..................................... 9,636 $ 420,344
Alger American MidCap Growth Portfolio.............................. 9,665 233,326
Alger American Small Capitalization Portfolio....................... 13,607 582,531
CIGNA Variable Products Money Market Fund........................... 213,147 213,147
CIGNA Variable Products S&P 500 Index Fund.......................... 1,381,765 21,632,414
Fidelity Equity-Income Portfolio.................................... 43,347 1,038,651
Fidelity High Income Portfolio...................................... 93,626 1,102,649
Fidelity Investment Grade Bond Portfolio............................ 455,038 5,503,930
Janus Aspen Series Worldwide Growth Portfolio....................... 97,157 2,303,362
MFS Emerging Growth Series.......................................... 47,815 773,225
MFS Total Return Series............................................. 3,520 60,248
OCC Equity Portfolio................................................ 3,821 137,986
OCC Managed Portfolio............................................... 16,904 689,640
OCC Small Cap Portfolio............................................. 54,458 1,416,202
Templeton International Fund - Class 1.............................. 62,614 1,331,513
- ---------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
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66
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
Total purchases and sales of shares of each mutual fund for the year ended
December 31, 1998 amounted to:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Sub-Account Purchases Sales
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio..................................... $ 461,416 $ 92,998
Alger American MidCap Growth Portfolio.............................. 266,163 68,162
Alger American Small Capitalization Portfolio....................... 544,147 40,293
CIGNA Variable Products Money Market Fund........................... 9,192,317 9,050,804
CIGNA Variable Products S&P 500 Index Fund.......................... 11,309,560 1,915,663
Fidelity Equity-Income Portfolio.................................... 1,052,375 170,060
Fidelity High Income Portfolio...................................... 882,854 58,007
Fidelity Investment Grade Bond Portfolio............................ 1,425,205 724,656
Janus Aspen Series Short-Term Bond Portfolio*....................... 8,052 8,095
Janus Aspen Series Worldwide Growth Portfolio....................... 1,192,451 486,038
MFS Emerging Growth Series.......................................... 1,084,519 581,180
MFS Total Return Series............................................. 67,504 10,637
OCC Equity Portfolio................................................ 134,932 42,455
OCC Managed Portfolio............................................... 529,169 147,893
OCC Small Cap Portfolio............................................. 326,456 224,668
Templeton International Fund - Class 1.............................. 904,336 158,511
- -------------------------------------------------------------------------------------------
</TABLE>
* For the period January 29, 1998, date deposits first received, to September
15, 1998, the date the sub-account was no longer offered.
4. CHARGES AND DEDUCTIONS
For all contracts sold after April 30, 1998, CG Life charges each variable
sub-account for mortality and expense risks the daily equivalent of .70%, on an
annual basis, of the current value of each sub-account's assets during the first
fifteen policy years and .25% thereafter. All contracts sold before May 1, 1998
have an annual fee for mortality and expense risks of .85% per year during the
first ten policy years, .45% per year during the eleventh through fifteenth
policy years and .15% thereafter.
For all contracts sold after April 30, 1998, CG Life charges each variable
sub-account for administrative costs, a daily deduction currently equivalent to
.10% per year during the first fifteen policy years only. For all contracts sold
before May 1, 1998, CG Life charges administrative costs at the rate of .10% per
year for the first ten policy years only.
Both the mortality and expense risk charge and the administrative fee
deductions are also assessed against amounts held in the fixed account, if any.
The fixed account is part of the general account of CG Life and is not included
in these financial statements.
67
<PAGE>
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68
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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 year ended December 31,
1998 amounted to:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Mortality
and Asset Based
Expense Administrative
Sub-Account Risk Fees Fees
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio...................................... $ 2,083 $ 245
Alger American MidCap Growth Portfolio............................... 1,374 162
Alger American Small Capitalization Portfolio........................ 2,702 334
CIGNA Variable Products Money Market Fund............................ 6,652 794
CIGNA Variable Products S&P 500 Index Fund........................... 170,096 20,042
Fidelity Equity-Income Portfolio..................................... 6,336 745
Fidelity High Income Portfolio....................................... 4,491 529
Fidelity Investment Grade Bond Portfolio............................. 46,895 5,550
Janus Aspen Series Short-Term Bond Portfolio*........................ 12 1
Janus Aspen Series Worldwide Growth Portfolio........................ 21,312 2,520
MFS Emerging Growth Series........................................... 5,435 639
MFS Total Return Series.............................................. 223 26
OCC Equity Portfolio................................................. 891 105
OCC Managed Portfolio................................................ 4,855 571
OCC Small Cap Portfolio.............................................. 11,833 1,392
Templeton International Fund - Class 1............................... 8,679 1,030
- -----------------------------------------------------------------------------------------------
</TABLE>
* For the period January 29, 1998, date deposits first received, to September
15, 1998, the date the sub-account was no longer offered.
CG Life charges a one-time policy issue fee of $175 from the accumulation
value for a portion of CG Life's administrative expenses for all contracts sold
after April 30, 1998 and $250 for all contracts sold before May 1, 1998. Policy
issue fees, which are deducted from the initial premium payment, amounted to
$221,450, all of which were deducted from the CIGNA Variable Products Money
Market Fund.
For all contracts sold after April 30, 1998, 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 45% on premium payments up to target
premium specified in the policy will be deducted in the first policy year and an
additional 12% of premium payments up to target premium will be deducted in
policy years two through ten. 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 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.
For all contracts sold before May 1, 1998, 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, as defined in the Account's prospectus, 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.
69
<PAGE>
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70
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
4. CHARGES AND DEDUCTIONS (CONTINUED)
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 year ended December 31, 1998.
Fees charged by CG Life for premium loads are deducted from premium
payments. Administrative fees and the amount deducted for the cost of insurance
are included in participant withdrawals. Premium loads, net of refunds,
administrative fees and costs of insurance, by variable sub-account, for the
year ended December 31, 1998, amounted to:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Premium
Loads, net Costs of
of Administrative Insurance
Sub-Account Refunds Fees Deduction
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alger American Growth Portfolio......................... $ 67,042 $ 2,505 $ 36,575
Alger American MidCap Growth Portfolio.................. 17,119 1,208 12,068
Alger American Small Capitalization Portfolio........... 22,663 2,897 25,097
CIGNA Variable Products Money Market Fund............... 2,965,205 5,817 251,740
CIGNA Variable Products S&P 500 Index Fund.............. 571,707 33,462 473,457
Fidelity Equity-Income Portfolio........................ 95,805 9,121 70,128
Fidelity High Income Portfolio.......................... 28,917 1,751 32,199
Fidelity Investment Grade Bond Portfolio................ 37,989 8,454 93,498
Janus Aspen Series Short-Term Bond Portfolio*........... 391 13 180
Janus Aspen Series Worldwide Growth Portfolio........... 89,836 6,116 87,644
MFS Emerging Growth Series.............................. 41,098 5,273 52,047
MFS Total Return Series................................. 3,265 280 4,994
OCC Equity Portfolio.................................... 10,581 1,620 22,975
OCC Managed Portfolio................................... 93,545 3,178 32,486
OCC Small Cap Portfolio................................. 14,067 1,015 15,872
Templeton International Fund - Class 1.................. 66,157 6,068 43,649
- -------------------------------------------------------------------------------------------------
</TABLE>
* For the period January 29, 1998, date deposits first received, to September
15, 1998, the date the sub-account was no longer offered.
For policies issued after April 30, 1998, 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. 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.
71
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
4. CHARGES AND DEDUCTIONS (CONTINUED)
For policies issued between May 1, 1997 and April 30, 1998, 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 policies issued before May 1, 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.
Premium load refunds for the year ended December 31, 1998 amounted to
$58,750.
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.
Partial surrender transaction charges paid to CG Life attributable to the
variable sub-accounts for the year ended December 31, 1998 were not significant.
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 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
and that the Account therefore satisfies the requirements of the regulations,
and that the Account will continue to meet such requirements.
72
<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 our current charges and our guaranteed charges under the
Policies (guaranteed charges only for Policies with the joint and survivorship
benefit). 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
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 in years
one through fifteen,
- .25% of the daily net assets of the Variable Account thereafter.
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. These
advisory fees and other expenses will vary depending on which funding vehicle is
chosen but are assumed for purposes of these illustrations to be equivalent to
an annual effective rate of 0.71% of the daily net asset value of the Variable
Account.
Assuming current charges for administration and mortality and expense risks,
gross annual rate of 0%, 6%, and 12% correspond to net experience at constant
annual rates of:
- -1.51%, 4.49% and 10.49% during the first fifteen policy years, and
- constant annual rates of -0.96%, 5.04% and 11.04% 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
- -1.91%, 4.09% and 10.09% in all policy years.
The illustrations also reflect the fact that we make 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 that 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 values shown for Policies with the joint
and survivorship benefit are on a medically underwritten, standard basis.
The illustrations also reflect the fact that we deduct a premium charge from
each premium payment. Current and guaranteed values reflect a deduction of:
- 6.5% of each premium payment, plus
73
<PAGE>
- 45% of the first year's premium payments up to target premium, plus
- 12% of the 2nd through 10th years' premium payments up to target
premium.
The surrender values shown in the illustrations reflect the fact that we:
- refund a portion of the sales charge for any Policy surrendered in
the first three years;
- deduct an $8 monthly administrative charge at the beginning of each
policy month, and
- deduct an initial $175 policy issue charge.
Upon request, we will furnish a comparable illustration based on the proposed
Insured's age, gender classification, smoking classification, risk
classification and premium payment requested.
74
<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 -1.51% 4.49% 10.49% -1.51% 4.49% 10.49% -1.51% 4.49% 10.49%
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 -0.96% 5.04% 11.04% -0.96% 5.04% 11.04% -0.96% 5.04% 11.04%
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 1,628 1,743 1,858 3,996 4,111 4,227
2 10,117 500,000 500,000 500,000 4,874 5,311 5,762 6,428 6,865 7,317
3 15,558 500,000 500,000 500,000 7,932 8,897 9,930 9,215 10,180 11,213
4 21,270 500,000 500,000 500,000 10,836 12,532 14,422 10,836 12,532 14,422
5 27,269 500,000 500,000 500,000 13,603 16,238 19,291 13,603 16,238 19,291
6 33,567 500,000 500,000 500,000 16,246 20,027 24,589 16,246 20,027 24,589
7 40,181 500,000 500,000 500,000 18,771 23,910 30,369 18,771 23,910 30,369
8 47,125 500,000 500,000 500,000 21,178 27,888 36,680 21,178 27,888 36,680
9 54,416 500,000 500,000 500,000 23,455 31,955 43,569 23,455 31,955 43,569
10 62,072 500,000 500,000 500,000 25,581 36,092 51,076 25,581 36,092 51,076
15 106,490 500,000 500,000 500,000 35,518 59,988 103,277 35,518 59,988 103,277
20 163,180 500,000 500,000 500,000 38,537 84,562 187,840 38,537 84,562 187,840
25 235,533 500,000 500,000 500,000 33,373 109,053 330,375 33,373 109,053 330,375
30 327,876 500,000 500,000 614,919 12,776 128,031 579,657 12,776 128,031 579,657
</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 charges 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 your 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 0.71% per year. See "Expense Data"
at pages 6-7 of this prospectus.
75
<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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 4,935 500,000 500,000 500,000 472 549 628 2,841 2,918 2,997
2 10,117 500,000 500,000 500,000 2,860 2,879 3,182 4,143 4,434 4,737
3 15,558 500,000 500,000 500,000 4,539 5,178 5,865 4,539 6,461 7,148
4 21,270 500,000 500,000 500,000 6,309 7,422 8,667 6,309 7,422 8,667
5 27,269 500,000 500,000 500,000 7,896 9,607 11,601 7,896 9,607 11,601
6 33,567 500,000 500,000 500,000 9,289 11,718 14,665 9,289 11,718 14,665
7 40,181 500,000 500,000 500,000 10,459 13,716 17,841 10,459 13,716 17,841
8 47,125 500,000 500,000 500,000 11,386 15,573 21,117 11,386 15,573 21,117
9 54,416 500,000 500,000 500,000 12,039 17,251 24,473 12,039 17,251 24,473
10 62,072 500,000 500,000 500,000 12,384 18,703 27,882 12,384 18,703 27,882
15 106,490 500,000 500,000 500,000 11,573 24,679 49,168 11,573 24,679 49,168
20 163,180 0 500,000 500,000 0 17,743 69,752 0 17,743 69,752
25 235,533 0 0 500,000 0 0 79,032 0 0 79,032
30 327,876 0 0 500,000 0 0 51,106 0 0 51,106
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
76
<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 -1.51% 4.49% 10.49% -1.51% 4.49% 10.49% -1.51% 4.49% 10.49%
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 -0.96% 5.04% 11.04% -0.96% 5.04% 11.04% -0.96% 5.04% 11.04%
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 1,628 1,743 1,858 3,996 4,111 4,227
2 10,117 500,000 500,000 500,000 4,874 5,311 5,762 6,428 6,865 7,317
3 15,558 500,000 500,000 500,000 7,932 8,897 9,930 9,215 10,180 11,213
4 21,270 500,000 500,000 500,000 10,836 12,532 14,422 10,836 12,532 14,422
5 27,269 500,000 500,000 500,000 13,603 16,238 19,291 13,603 16,328 19,291
6 33,567 500,000 500,000 500,000 16,246 20,027 24,589 16,246 20,027 24,589
7 40,181 500,000 500,000 500,000 18,771 23,910 30,369 18,771 23,910 30,369
8 47,125 500,000 500,000 500,000 21,178 27,888 36,680 21,178 27,888 36,680
9 54,416 500,000 500,000 500,000 23,455 31,955 43,569 23,455 31,955 43,569
10 62,072 500,000 500,000 500,000 25,581 36,092 51,076 25,581 36,092 51,076
15 106,490 500,000 500,000 500,000 35,518 59,988 103,277 35,518 59,988 103,277
20 163,180 500,000 500,000 500,000 38,537 84,562 187,840 38,537 84,562 187,840
25 235,533 500,000 500,000 527,088 33,373 109,053 330,258 33,373 109,053 330,258
30 327,876 500,000 500,000 807,953 12,776 128,031 563,722 12,776 128,031 563,722
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
77
<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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 4,935 500,000 500,000 500,000 472 549 628 2,841 2,918 2,997
2 10,117 500,000 500,000 500,000 2,860 2,879 3,182 4,143 4,434 4,737
3 15,558 500,000 500,000 500,000 4,539 5,178 5,865 5,822 6,461 7,148
4 21,270 500,000 500,000 500,000 6,309 7,422 8,667 6,309 7,422 8,667
5 27,269 500,000 500,000 500,000 7,896 9,607 11,601 7,896 9,607 11,601
6 33,567 500,000 500,000 500,000 9,289 11,718 14,665 9,289 11,718 14,665
7 40,181 500,000 500,000 500,000 10,459 13,716 17,841 10,459 13,716 17,841
8 47,125 500,000 500,000 500,000 11,386 15,573 21,117 11,386 15,573 21,117
9 54,416 500,000 500,000 500,000 12,039 17,251 24,473 12,039 17,251 24,473
10 62,072 500,000 500,000 500,000 12,384 18,703 27,882 12,384 18,703 27,882
15 106,490 500,000 500,000 500,000 11,573 24,679 49,168 11,573 24,679 49,168
20 163,180 0 500,000 500,000 0 17,743 69,752 0 17,743 69,752
25 235,533 0 0 500,000 0 0 79,032 0 0 79,032
30 327,876 0 0 500,000 0 0 51,106 0 0 51,106
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
78
<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 -1.51% 4.49% 10.49% -1.51% 4.49% 10.49% -1.51% 4.49% 10.49%
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 -0.96% 5.04% 11.04% -0.96% 5.04% 11.04% -0.96% 5.04% 11.04%
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 1,727 1,850 1,973 4,249 4,372 4,494
2 10,771 500,000 500,000 500,000 5,158 5,623 6,102 6,813 7,278 7,757
3 16,563 500,000 500,000 500,000 8,381 9,404 10,501 9,747 10,770 11,867
4 22,645 500,000 500,000 500,000 11,434 13,231 15,234 11,434 13,231 15,234
5 29,032 500,000 500,000 500,000 14,336 17,125 20,358 14,336 17,125 20,358
6 35,737 500,000 500,000 500,000 17,101 21,100 25,927 17,101 21,100 25,927
7 42,778 500,000 500,000 500,000 19,738 25,169 31,999 19,738 25,169 31,999
8 50,171 500,000 500,000 500,000 22,245 29,332 38,624 22,245 29,332 38,624
9 57,934 500,000 500,000 500,000 24,610 33,582 45,851 24,610 33,582 45,851
10 66,084 500,000 500,000 500,000 26,810 37,898 53,723 26,810 37,898 53,723
15 113,374 500,000 500,000 500,000 36,938 62,707 108,385 36,938 62,707 108,385
20 173,729 500,000 500,000 500,000 39,313 87,706 196,774 39,313 87,706 196,774
25 250,758 500,000 500,000 500,000 32,363 111,824 346,225 32,363 111,824 346,225
30 349,070 500,000 500,000 645,485 8,129 129,052 608,461 8,129 129,052 608,461
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
79
<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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 86 155 226 2,607 2,676 2,747
2 10,771 500,000 500,000 500,000 1,877 2,133 2,401 3,532 3,788 4,056
3 16,563 500,000 500,000 500,000 3,461 4,015 4,614 4,827 5,381 5,980
4 22,645 500,000 500,000 500,000 4,837 5,792 6,865 4,837 5,792 6,865
5 29,032 500,000 500,000 500,000 5,979 7,430 9,130 5,979 7,430 9,130
6 35,737 500,000 500,000 500,000 6,876 8,910 11,394 6,876 8,910 11,394
7 42,778 500,000 500,000 500,000 7,498 10,188 13,627 7,498 10,188 13,627
8 50,171 500,000 500,000 500,000 7,821 11,229 15,794 7,821 11,229 15,794
9 57,934 500,000 500,000 500,000 7,803 11,976 17,847 7,803 11,976 17,847
10 66,084 500,000 500,000 500,000 7,411 12,375 19,735 7,411 12,375 19,735
15 113,374 500,000 500,000 500,000 2,112 11,262 29,486 2,112 11,262 29,486
20 173,729 0 0 500,000 0 0 27,746 0 0 27,746
25 250,758 0 0 0 0 0 0 0 0 0
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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
80
<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 -1.51% 4.49% 10.49% -1.51% 4.49% 10.49% -1.51% 4.49% 10.49%
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 -0.96% 5.04% 11.04% -0.96% 5.04% 11.04% -0.96% 5.04% 11.04%
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 1,727 1,850 1,973 4,249 4,372 4,494
2 10,771 500,000 500,000 500,000 5,158 5,623 6,102 6,813 7,278 7,757
3 16,563 500,000 500,000 500,000 8,381 9,404 10,501 9,747 10,770 11,867
4 22,645 500,000 500,000 500,000 11,434 13,231 15,234 11,434 13,231 15,234
5 29,032 500,000 500,000 500,000 14,336 17,125 20,358 14,336 17,125 20,358
6 35,737 500,000 500,000 500,000 17,101 21,100 25,927 17,101 21,100 25,927
7 42,778 500,000 500,000 500,000 19,738 25,169 31,999 19,738 25,169 31,999
8 50,171 500,000 500,000 500,000 22,245 29,332 38,624 22,245 29,332 38,624
9 57,934 500,000 500,000 500,000 24,610 33,582 45,851 24,610 33,582 45,851
10 66,084 500,000 500,000 500,000 26,810 37,898 53,723 26,810 37,898 53,723
15 113,374 500,000 500,000 500,000 36,938 62,707 108,385 36,938 62,707 108,385
20 173,729 500,000 500,000 500,000 39,313 87,706 196,774 39,313 87,706 196,774
25 250,758 500,000 500,000 543,827 32,363 111,824 345,901 32,363 111,824 345,901
30 349,070 500,000 500,000 836,666 8,129 129,052 588,857 8,129 129,052 588,857
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
81
<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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 86 155 226 2,607 2,676 2,747
2 10,117 500,000 500,000 500,000 1,877 2,133 2,401 3,532 3,788 4,056
3 16,563 500,000 500,000 500,000 3,461 4,015 4,614 4,827 5,381 5,980
4 22,645 500,000 500,000 500,000 4,837 5,792 6,865 4,837 5,792 6,865
5 29,032 500,000 500,000 500,000 5,979 7,430 9,130 5,979 7,430 9,130
6 35,737 500,000 500,000 500,000 6,876 8,910 11,394 6,876 8,910 11,394
7 42,778 500,000 500,000 500,000 7,498 10,188 13,627 7,498 10,188 13,627
8 50,171 500,000 500,000 500,000 7,821 11,229 15,794 7,821 11,229 15,794
9 57,934 500,000 500,000 500,000 7,803 11,976 17,847 7,803 11,976 17,847
10 66,084 500,000 500,000 500,000 7,411 12,375 19,735 7,411 12,375 19,735
15 113,374 500,000 500,000 500,000 2,112 11,262 29,486 2,112 11,262 29,486
20 173,729 0 0 500,000 0 0 27,746 0 0 27,746
25 250,758 0 0 0 0 0 0 0 0 0
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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
82
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
WITH JOINT AND SURVIVORSHIP RIDER
SEX-DISTINCT NONSMOKER ISSUE AGES 55 (MALE),
52 (FEMALE)
$548,000 ANNUAL PREMIUM FOR SEVEN YEARS
FACE AMOUNT $20,000,000
DEATH BENEFIT OPTION B
GUIDELINE TEST -- GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (IN MILLIONS) 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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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>
1 548,000 20 20 20 360,624 382,707 404,790 520,775 542,858 564,941
2 1,123,400 20 20 20 816,228 889,218 964,861 923,685 996,675 1,072,318
3 1,727,570 20 20 20 1,261,121 1,414,393 1,579,349 1,351,013 1,504,285 1,669,247
4 2,361,949 20 20 20 1,695,136 1,958,640 2,253,416 1,695,136 1,958,640 2,253,416
5 3,028,046 20 20 20 2,118,066 2,522,363 2,992,750 2,118,066 2,522,363 2,992,750
6 3,727,448 20 20 20 2,529,670 3,105,974 3,803,650 2,529,670 3,105,974 3,803,650
7 4,461,821 20 20 20 2,929,697 3,709,922 4,693,133 2,929,697 3,709,922 4,693,133
8 4,684,912 20 20 20 2,852,189 3,840,535 5,146,392 2,852,189 3,840,535 5,146,392
9 4,919,157 20 20 20 2,770,202 3,970,990 5,640,700 2,770,202 3,970,990 5,640,700
10 5,165,115 20 20 20 2,682,494 4,100,164 6,179,530 2,682,494 4,100,164 6,179,530
15 6,592,141 20 20 20 2,089,843 4,662,902 9,687,272 2,089,843 4,662,902 9,687,272
20 8,413,428 20 20 20 958,578 4,817,379 15,159,234 958,578 4,817,37? 15,159,234
25 10,737,903 0 20 25.4160 0 3,714,048 24,205,712 0 3,714,048 24,205,712
30 13,704,588 0 0 40.5385 0 0 38,608,132 0 0 38,608,132
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
83
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
WITH JOINT AND SURVIVORSHIP RIDER
SEX-DISTINCT NONSMOKER ISSUE AGES 55 (MALE),
52 (FEMALE)
$548,000 ANNUAL PREMIUM FOR SEVEN YEARS
FACE AMOUNT $20,000,000
DEATH BENEFIT OPTION B
CASH VALUE TEST -- GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (IN MILLIONS) 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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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 -1.91% 4.09% 10.09% -1.91% 4.09% 10.09% -1.91% 4.09% 10.09%
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>
1 548,000 20 20 20 360,624 382,707 404,790 520,775 542,858 564,941
2 1,123,400 20 20 20 816,229 889,218 964,861 923,685 996,675 1,072,318
3 1,727,570 20 20 20 1,261,121 1,414,393 1,579,349 1,351,013 1,504,285 1,669,241
4 2,361,947 20 20 20 1,695,136 1,958,640 2,253,415 1,695,136 1,958,640 2,253,415
5 3,025,046 20 20 20 2,118,066 2,522,363 2,992,750 2,118,066 2,522,363 2,992,750
6 3,727,448 20 20 20 2,529,670 3,105,974 3,803,650 2,529,670 3,105,974 3,803,650
7 4,461,821 20 20 20 2,929,697 3,709,922 4,693,133 2,929,697 3,709,922 4,693,133
8 4,684,912 20 20 20 2,852,189 3,840,535 5,146,392 2,852,189 3,840,535 5,146,392
9 4,919,157 20 20 20 2,770,202 3,970,990 5,640,700 2,770,202 3,970,990 5,640,700
10 5,165,115 20 20 20 2,682,494 4,100,164 6,179,530 2,682,494 4,100,164 6,179,530
15 6,592,141 20 20 20 2,089,843 4,662,902 9,687,272 2,089,843 4,662,902 9,687,272
20 8,413,428 20 20 24.6319 958,578 4,817,379 15,022,373 958,578 4,817,379 15,022,373
25 10,731,905 0 20 32.5536 0 3,714,048 22,685,754 0 3,714,048 22,685,754
30 13,704,588 0 0 42.8786 0 0 33,176,206 0 0 33,176,206
</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 charges 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 your 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 0.71% per year. See "Expense
Data" at pages 6-7 of this prospectus.
84
<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. 8 to this registration statement comprises
the following papers and documents:
The facing sheet;
A cross-reference sheet (reconciliation and tie);
Two prospectuses, consisting of 85 and 84 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.;
Opinion and consent of Michelle L. Kunzman, FSA, MAAA
Consent of PricewaterhouseCoopers 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 (previously filed)
Exhibit Form LR485 -- Joint and Survivorship Benefit Rider
3.1.
* -- 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.
***** -- Incorporated by reference to
Post-Effective Amendment No. 6 to this
Registration Statement filed on April 22, 1998.
Exhibit 4. Certificate of Amendment of Certificate of
Incorporation of Connecticut General Life
Insurance Company, as filed March 23, 1999.
Exhibit 5. Certificate of By-laws of Connecticut General Life
Insurance Company as amended July 30, 1998.
</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. 8 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, 1999.
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
(REGISTRANT)
By /s/ John Wilkinson
--------------------------------------------------
John Wilkinson
Vice President
Connecticut General Life Insurance Company
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(DEPOSITOR)
By /s/ John Wilkinson
--------------------------------------------------
John Wilkinson
Vice President
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 8 to this Registration Statement (File No.
333-01741) has been signed below on April 20, 1999 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
Robert E. Wahlam (Principal Accounting Officer)
/s/ *
------------------------------------------- Director
Harold W. Albert
/s/ *
------------------------------------------- Director
Robert W. Burgess
/s/ *
------------------------------------------- Director
Joseph M. Fitzgerald
/s/ *
------------------------------------------- Director
Carol M. Olsen
/s/ *
------------------------------------------- Director
John E. Pacy
/s/ *
------------------------------------------- Director
Marc L. Preminger
/s/ *
------------------------------------------- Director
Patricia L. Rowland
/s/ *
------------------------------------------- Director
W. Allen Schaffer, M.D.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------
<C> <S>
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 January, 1999.
SIGNATURE TITLE
- ----------------------------------- -------------------------
/S/ ROBERT E. WAHLMAN
- ----------------------------------- Vice President (Principal
Robert E. Wahlman Accounting Officer)
<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)
726-8885
April 20, 1999
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 8, Form S-6: 333-01741
Dear Sirs:
As Chief Counsel of CIGNA Retirement and Investment Services Division of the
CIGNA Companies, I am familiar with the action 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. 8
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. 8 to said Registration Statement and to the reference to me under
the heading Experts in said Registration, as amended.
Very truly yours,
/s/ Mark A. Parsons
Chief Counsel
<PAGE>
<TABLE>
<S> <C>
MICHELLE L. KUNZMAN, FSA, MAAA
ASSISTANT VICE PRESIDENT [LOGO]
EXECUTIVE BENEFITS
</TABLE>
Corporate Insurance,
H14A
Hartford, CT 06104
Telephone: (860)
534-4134
Facsimile: (860)
534-4190
April 20, 1999
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 8, Form S-6: 333-01741
Dear Sirs:
This opinion is furnished in connection with Post-Effective Amendment No. 8 to
the Registration Statement on Form S-6 filed by Connecticut General Life
Insurance Company under the Securities Act of 1933 recorded as File No.
333-01741. The prospectus included in said Post-Effective Amendment describes
flexible premium variable universal life policies (the "Policies"). The
prospectus also includes information on making the individual Policy available
on a joint and survivorship basis by way of a rider. The forms of Policies and
rider were prepared under my direction and I am familiar with the Registration
Statement, as amended, and Exhibits thereto.
In my opinion, the illustrations of benefits under the Policies, both with and
without use of the Joint and Survivorship rider, included in the Section
entitled "Illustrations" in the prospectus, based on assumptions stated in the
illustrations, are consistent with the provisions of the respective forms of the
Policies. The ages selected in the illustrations are representative of the
manner in which the Policies operate.
I hereby consent to this use of the opinion as an exhibit to the Registration
Statement and to the reference to me under the heading "Experts" in the
prospectus.
Very truly yours,
Michelle L. Kunzman, FSA, MAAA
Assistant Vice President
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 8 on Form S-6 of our reports dated February 9, 1999
and February 19, 1999, relating to the consolidated financial statements of
Connecticut General Life Insurance Company and the CG Corporate Insurance
Variable Life Separate Account 02, respectively, which appear in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
April 20, 1999
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
HARTFORD, CONNECTICUT
JOINT AND SURVIVORSHIP RIDER
This rider is made part of the policy to which it is attached
(the "Base Policy") if it is listed in the Policy Specifications.
The rider will convert the individual Base Policy to a Joint and
Survivorship policy, payable on the death of the second of the
two Insureds to die.
I. In general, the Base Policy will be revised as follows:
(a) All references to the "death of the Insured", or "the
Insured's death", or similar context, in the Base
Policy will by reason of this rider be interpreted "the
death of the second of the two Insureds to die."
(b) Features of the Base Policy that are allowed "while the
Insured is alive", or "during the lifetime of the
Insured", or similar context, will by reason of this
rider be allowed "while at least one of the Insureds is
alive". These features include:
- Rights of Owner
- Surrenders and Partial Surrenders
- Repayment of Indebtedness
- Extension of Coverage
(c) Additional Premium Payments will be allowed up to the
younger Insured's age 100 or to the death of the second
of the two Insureds to die, whichever is earlier.
II. Policy Schedule Pages that are affected by this change are
attached in their amended format. Both the rider and the
amended Schedule pages should be attached to the Base
Policy.
The affected Schedule Pages are:
- Policy Specifications
- Table of Guaranteed Maximum Cost of Insurance Rates
- Table of Corridor Percentages
- Table of Net Single Premium Factors
III. Specific Policy Provisions affected by the rider
REINSTATEMENT. Reinstatement is allowed at any time,
however, the requirement for evidence of insurability is
modified as follows:
(a) Will be required with respect to both insureds if the
lapse occurred while both Insureds were alive, or
(b) Will be required for the survivor if the lapse occurred
after the death of one of the Insureds.
OWNER. The Owner on the date of Issue will be as designated in
the application. If no Owner is designated on the application,
the policy is owned jointly by both Insureds. After the first
death, the Owner is the surviving Insured unless otherwise
stated.
COST OF INSURANCE RATES. Monthly cost of insurance rates will be
determined from time to time by the Company based on, among other
things, its expectations of future mortality. The rates will
also be based on the Insureds' attained age, sex, underwriting
class, and years since issue. Any change in cost of insurance
rates will apply to all individuals of the same classes as the
Insureds. Under no circumstances will the cost of insurance
rates ever be greater than those shown in the Table of Guaranteed
Maximum Cost of Insurance Rates. Such guaranteed maximum rates
are based on the applicable Commissioners 1980 Standard Ordinary
Mortality Table (age nearest birthday) modified by any flat extra
or risk factors for the applicable premium class for each person
insured.
The determination on each Monthly Anniversary Date of the then
current monthly cost of insurance rate and the corresponding
maximum monthly cost of insurance rate applicable under this
policy is based upon an acturial formula that reflects one-alive
and both-alive probabilities and uses mortality rates for
individuals of the same classes as the Insureds. Such actuarial
formula has been filed with the insurance supervisory official of
the jurisdiction in which this policy is delivered.
LR485
<PAGE>
EFFECTIVE DATE OF COVERAGE. The effective date of the policy
will be the Date of Issue provided the initial premium has been
paid (1) while both Insureds are alive, and (2) prior to any
change in the health or insurability of the Insureds as
represented in the original application.
Effective date of reinstatement is revised to require that at
least one of the Insureds be alive on such a day.
EXTENSION OF COVERAGE. Provision will be Implemented at the
younger of the two Insureds' age 100.
MISSTATEMENT OF AGE. By reason of this rider the provision now
relates to either Insured.
SUICIDE. By reason of this rider the provision now relates to
either Insured.
INCONTESTABILITY. Policy or increase must be in force for 2 years
during the lifetime of each Insured.
EXCHANGE TO SINGLE LIFE POLICIES. If while both Insureds are
alive, a change in the Internal Revenue Code would result in a
less favorable tax treatment of the insurance provided under this
policy or if the Insureds are legally divorced while this policy
is in force, the Owner may exchange this policy for separate
single life policies on each of the Insureds subject to the
following conditions: (a) evidence of insurability satisfactory to
the Company is furnished, (b) the Amount of Insurance of each new
policy is not larger than one half of the Amount of Insurance
then in force under this policy, (c) the premium for each new
policy is determined according to the Company's rates then in
effect for that policy based on each Insured's then attained age,
sex, and underwriting class, and (d) any other requirement as
determined by the Company are met. The new policies will not
take effect until the date all such requierments are met.
Except as specifically amended by this rider, all of the
provisions, limitations and exclusions of the Base Policy remain
in full force and effect.
/s/ Byron Oliver
President
LR485
<PAGE>
[LOGO]
STATE OF CONNECTICUT
INSURANCE DEPARTMENT
Mar 23, 1999
THIS IS TO CERTIFY, THAT CONNECTICUT GENERAL LIFE INSURANCE COMPANY has filed a
copy of its Certificate of Amendment to restate the Certificate of Incorporation
(Charter) with this Department.
WITNESS MY HAND AND OFFICIAL SEAL, AT HARTFORD,
THIS 23RD DAY OF MARCH, 1999
/s/ George M. Reider, Jr.
Insurance Commissioner
Certificate of Authority and Compliance
<PAGE>
CERTIFICATE OF AMENDMENT
STOCK CORPORATION
Office of the Secretary of the State
30 Trinity Street/ P.O. Box 150470/ Hartford, CT 06115-0470/new/ 1-97
- --------------------------------------------------------------------------------
Space For Office Use Only
- --------------------------------------------------------------------------------
1. NAME OF CORPORATION: CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
- --------------------------------------------------------------------------------
2. THE CERTIFICATE OF INCORPORATION IS (check A., B. or C.):
A. AMENDED.
- -----
B. AMENDED AND RESTATED.
- -----
X C. RESTATED.
- -----
- --------------------------------------------------------------------------------
3. TEXT OF EACH AMENDMENT/ RESTATEMENT:
See Attached.
(Please reference an 8 1/2 x 11 attachment if additional space is needed)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Space For Office Use Only
- --------------------------------------------------------------------------------
4. VOTE INFORMATION (Check A., B. or C.)
A. The resolution was approved by shareholders as follows:
- -----
(set forth all voting information required by Conn. Gen. Stat. Section 33-800
as amended in the space provided below)
<TABLE>
<CAPTION>
Number of Number of
Number of Number of Number of votes cast votes cast
Outstanding votes entitled votes indisputably IN FAVOR of AGAINST
Designation Shares to be cast represented amendment amendment
- ----------- ------------ -------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
X B. The amendment was adopted by the board of directors without
- ----- shareholder action. The amendment was adopted on
October 1, 1998. No shareholder vote was required for adoption.
C. The amendment was adopted by the incorporators without shareholder
- ----- action. No shareholder vote was required for adoption.
- --------------------------------------------------------------------------------
5. EXECUTION
- --------------------------------------------------------------------------------
Dated this 22nd day of March , 1999
-------- ------------
- --------------------------------------------------------------------------------
Thomas C. Jones President /s/ Thomas C. Jones
- --------------------------------------------------------------------------------
Print or type name of signatory Capacity of signatory Signature
- --------------------------------------------------------------------------------
<PAGE>
Attachment to Certificate of Amendment to Certificate of Incorporation (Charter)
RESTATED CHARTER
OF
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
SECTION 1. Connecticut General Life Insurance Company shall continue under that
name, a body corporate, with power to purchase or otherwise acquire, have, hold
and enjoy lands, tenements, hereditaments, chattels, bonds, stocks, monies,
choses in action and property and effects of every kind, and the same to sell,
grant, demise, alien and convey and to loan, invest and reinvest any of such
assets in any manner now or hereafter permitted in the case of any other
corporation now or hereafter chartered by Connecticut and empowered to do a life
insurance business; to sue and be sued and to plead and be impleaded in all
courts of law and equity; to have and to hold and to change at pleasure a common
seal, and to ordain and to put into execution and to change at pleasure bylaws
consistent with the laws of this state and of the United States.
SEC. 2. The business of the corporation shall be life insurance, endowments,
annuities, accident insurance, health insurance and any other business or type
of business which any other corporation now or hereafter chartered by
Connecticut and empowered to do a life insurance business may now or hereafter
lawfully do; and the corporation is specifically empowered to accept and to cede
reinsurance of any such risks or hazards. The corporation may exercise such
powers outside of Connecticut to the extent permitted by the laws of the
particular jurisdiction. Policies or other contracts may be issued stipulated
to be with or without participation in profits; and they may be with or without
seal.
SEC. 3. The capital stock of the corporation shall be not less than three
million dollars and may from time to time be increased when and as authorized by
the stockholders and, unless the stockholders otherwise authorize, shall be
divided into shares of the par value of five dollars each. The capital stock of
the corporation shall be transferable in accordance with the bylaws; and a
transfer agent may be employed.
SEC. 4. The annual meeting of the stockholders of the corporation shall be held
at such time and place as may be determined from time to time either by or in
accordance with the bylaws. If the corporation shall fail to hold its annual
meeting at the time specified for the meeting in any year or shall fail to elect
directors thereat, the corporation shall not be dissolved nor shall its rights
be impaired thereby, but a special meeting of the stockholders shall be called;
and at such meeting directors to fill the places of the directors whose terms
shall have expired may be elected and any other proper business may be
transacted. At all meetings of the stockholders each stockholder shall be
entitled to vote in person or by an attorney duly authorized by a written proxy,
each share of stock represented at the meeting shall be entitled to one vote and
the stockholders represented at the meeting shall constitute a quorum.
SEC. 5. The corporate office shall be at Bloomfield, Connecticut or at some
other place within or without the State of Connecticut and the corporation may
establish and maintain other offices and
<PAGE>
agencies in other locations within or without the State. The property and
affairs of the corporation shall be managed under the direction of a board of
not less than nine directors, the number and the terms of office to be
determined from time to time by the board of directors in accordance with the
bylaws, provided no director shall be elected for a longer term than five years.
The directors shall be chosen by ballot by the stockholders except that, if any
vacancy occurs in the board of directors, such vacancy may be filled by the
remaining directors for the unexpired portion of the term, and if the number of
directors is increased by vote of the board of directors between meetings of
stockholders, the additional directors may be chosen by the board of directors
for terms expiring with the next annual meeting thereafter. Unless the bylaws
provide for a lesser or greater quorum as may be permitted by law, a majority of
the authorized number of directors, as fixed by the board of directors from time
to time, shall constitute a quorum.
SEC. 6. The personal liability of a person who is or was a director of the
corporation to the corporation or its stockholders for monetary damages for
breach of duty as a director shall be limited to the amount of compensation
received by the director for serving the corporation during the year of the
violation if such breach did not (a) involve a knowing and culpable violation of
law by the director, (b) enable the director or an associate, as defined in
Section 33-840 of the Connecticut Business Corporation Act as in effect on the
effective date hereof or as it may be amended from time to time (the "Act"), to
receive an improper personal economic gain, (c) show a lack of good faith and a
conscious disregard for the duty of the director to the corporation under
circumstances in which the director was aware that his conduct or omission
created an unjustifiable risk of serious injury to the corporation, (d)
constitute a sustained and unexcused pattern of inattention that amounted to an
abdication of the director's duty to the corporation, or (e) create liability
under Section 33-757 of the Act. This Section 6 shall not limit or preclude the
liability of a person who is or was a director for any act or omission occurring
prior to the effective date hereof. Any lawful repeal or modification of this
Section 6 or the adoption of any provision inconsistent herewith by the board of
directors and the stockholders of the corporation shall not, with respect to a
person who is or was a director, adversely affect any limitation of liability,
right or protection existing at or prior to the effective date of such repeal,
modification or adoption of a provision inconsistent herewith. The limitation
of liability of any person who is or was a director provided for in this Section
6 shall not be exclusive of any other limitation or elimination of liability
contained in, or which may be provided to any such person under, Connecticut law
as in effect on the effective date hereof or as thereafter amended.
SEC. 7. The corporation may indemnify or advance expenses to a person who is or
was a director, officer, employee or agent of the corporation, or who is or was
serving at the corporation's request as a director, officer, partner, trustee,
employee or agent of another corporation, a partnership, joint venture, trust,
an employee benefit plan or other entity, to the extent permitted under
Connecticut law as in effect on the effective date hereof or as thereafter
amended, including, pursuant to Section 33-636(b)(5) of the Act, for liability
of any such person for any actions taken, or any failure to take any actions,
except for conduct as set out in items (a) through (e) of Section 6, above. The
corporation shall indemnify or advance expenses to any such person to the full
extent as required in the bylaws of the corporation, as amended from time to
time, and the corporation shall not be required pursuant to Section 33-771(e) of
the Act to indemnify or advance expenses to its directors, nor shall the
corporation be required pursuant to Section 33-776(d) of the Act to indemnify
and advance expenses to its officers, employees or agents who are not directors.
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CERTIFICATE OF BYLAWS
This is to certify that, effective July 30, 1998, the Bylaws of Connecticut
General Life Insurance Company were amended to read as follows:
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ARTICLE 1
The annual meeting of the stockholders shall be held on the fourth Monday in
April or on such other date as the directors may designate and at such place as
they may determine. All other meetings of the stockholders shall be held at
such times and places as the directors may determine. A written or printed
notice of any meeting shall be mailed to each stockholder at least ten days
prior to the meeting.
ARTICLE 2
The number and terms of office of the directors shall be determined from time to
time by the board of directors. No person shall be elected as a director after
attaining the age of 70 years. The compensation of directors shall be as
determined by the directors.
ARTICLE 3
The directors shall hold meetings at such times and places as they may
determine. Special meetings of the directors may be called by the chairman of
the board and shall be called by the chairman of the board or in his absence by
another director upon request in writing of the president or of any three
directors. One-third of the total number of directors shall constitute a
quorum. Action of the directors shall be by majority vote of the directors
present.
ARTICLE 4
The directors shall determine the order of their business and their own rules of
order and they shall preserve a written record of their doings.
ARTICLE 5
The directors, by resolution adopted by a majority of the entire board, may
appoint from their number one or more committees, each consisting of two or more
directors and each of which, to the extent provided in such resolution, shall
have all the authority of the board. A majority of the members of a committee
shall constitute a quorum.
<PAGE>
ARTICLE 6
The directors shall choose from among their number a chairman of the board and
shall elect a president, one or more vice presidents and one or more
secretaries, including a corporate secretary. They may also elect such other
officers as they may deem desirable. They may also authorize the chairman of
the board, the president or other designated officers to appoint such officers,
other than the chairman of the board, the president and the corporate secretary,
with such titles, duties and powers as the appointing officer may deem
desirable.
ARTICLE 7
All loans and purchases for investment shall be authorized or approved by the
directors or by an authorized committee of the board.
ARTICLE 8
Real estate may be sold by the president or a vice president or an assistant
vice president and the instrument of conveyance shall be executed by the
president or a vice president or an assistant vice president and by a secretary
or an assistant secretary or an investment officer or an assistant investment
officer.
The sale of real estate where either the cost or the sale price exceeds
$1,000,000 shall be authorized or approved by the directors or an authorized
committee of the board, and all sales of real estate shall be reported to the
directors or an authorized committee of the board.
The president or a vice president or an assistant vice president or a secretary
or an assistant secretary or an investment officer or an assistant investment
officer is authorized to execute releases (or to execute powers authorizing
specific releases), assignments, or other instruments relating to mortgages,
trust deeds, judgment liens, or other liens, and to execute leases or other
contracts relating to real estate, and the president or a vice president or an
assistant vice resident may delegate to others by written instrument authority
to execute leases.
ARTICLE 9
The sale or other disposition of any investments other than those specifically
provided for in Article 8 shall be authorized or approved by the directors or an
authorized committee of the board.
The president or a vice president or an assistant vice president or a secretary
or an assistant secretary or an investment officer or an assistant investment
officer is authorized to execute any instruments necessary in connection with
the purchase or the sale or other disposition of any investments other than
those specifically provided for in Article 8 and to execute any agreements
relating to any such investments.
<PAGE>
The directors or an authorized committee of the board may at any time and from
time to time enlarge, restrict or in any way modify the authorizations granted
in Articles 8 and 9.
ARTICLE 10
Auditors shall be chosen at each annual meeting of the stockholders and their
compensation shall be as determined by the directors.
ARTICLE 11
Transfers of stock shall be made only upon the books of the company. A transfer
agent may be employed.
ARTICLE 12
Subject to the conditions set forth below, the company shall indemnify any
individual who is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative and whether formal or
informal (a "Proceeding"), other than a Proceeding by or in the right of the
company, because such individual is or was a director, officer or employee of
the company, against liability incurred in the Proceeding (including the
obligation to pay a judgment, settlement, penalty, fine, and reasonable expenses
incurred with respect to a Proceeding), if such individual conducted himself in
good faith and such individual reasonably believed, in the case of conduct in
such individual's official capacity, that his conduct was in the best interests
of the company and, in all other cases, that his conduct was at least not
opposed to the best interests of the company, and, in the case of a criminal
proceeding, such individual had no reasonable cause to believe his conduct was
unlawful. Such indemnification shall be made only as properly authorized for a
specific Proceeding upon a determination that such indemnification is
permissible, as provided by applicable law. Such indemnification shall include
payment for reasonable expenses (including counsel fees) incurred in advance of
the final disposition of such Proceeding if such individual delivers to the
company (1) a written affirmation of his good faith belief that he has met the
relevant standard of conduct described above, (2) his written undertaking to
repay any funds advanced if it is ultimately determined that such individual has
not met the relevant standard of conduct described above, and (3) his written
agreement to certain additional terms and conditions, in such form as may be
deemed to be appropriate by or on behalf of the company. The foregoing
provisions shall not be exclusive of other rights to which such individual may
be entitled as a matter of law. Also, the rights granted by this paragraph
shall not apply in connection with any Proceeding initiated or instigated
directly or indirectly, in whole or in part, by or on behalf of such individual,
unless the Proceeding was authorized by the Board of Directors of the company.
<PAGE>
The rights granted by the foregoing paragraph shall not extend to an individual
who is or was an agent of the company, nor to an individual (whether or not
such individual is or was a director, officer or employee of the company) who is
or was serving at the company's request as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise. In any such case, or in the case of a Proceeding by
or in the right of the company, or if the individual engaged in conduct for
which broader indemnification is permitted under the certificate of
incorporation or charter or under applicable law, the company may, but shall not
be obligated to, indemnify such individual, except or unless as legally
required, whether by statute or otherwise.
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I further certify that the above bylaws are now in full force and effect, and
that I am an official of Connecticut General Life Insurance Company, with the
title indicated.
Dated at Bloomfield, Connecticut this day of , 19
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Signature of Official
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Title
