<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2000
FILE NO. 333-01741
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 9 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 Company George N. Gingold, Esquire
900 Cottage Grove Road 197 King Philip Drive
Hartford, Connecticut 06152 West Hartford, CT 06117-1409
(NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
Approximate date of proposed public offering: Continuous
INDEFINITE NUMBER OF UNITS OF INTEREST IN VARIABLE LIFE INSURANCE CONTRACTS
(TITLE AND AMOUNT OF SECURITIES BEING REGISTERED)
An indefinite amount of the securities being offered by the Registration
Statement has been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The initial registration fee of $500 was paid with the
declaration.
Form 24F-2 was filed on February 29, 2000 for Registrant's fiscal year ended
December 31, 1999.
It is proposed that this filing will become effective:
_________ immediately upon filing pursuant to paragraph (b) of Rule 485
___X___ on May 1, 2000, pursuant to paragraph (b) of Rule 485
_________ 60 days after filing pursuant to paragraph (a) of Rule 485
_________ on _______, pursuant to paragraph (a) of Rule 485
<PAGE>
CROSS REFERENCE SHEET
(RECONCILIATION AND TIE)
REQUIRED BY INSTRUCTION 4 TO FORM S-6
<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>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
[LOGO]
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
<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"). The primary purpose of the Policy is to
provide life insurance protection. It is not similar to, nor should it be
compared to a systematic investment plan of a mutual fund.
Policy values and, in some cases, the death benefit, vary with the
investment performance of the funding options you, the purchaser, select. You
assume certain risks by investing in these Policies, including the risk of
losing money.
Corporations and other sponsoring groups purchasing these Policies may use
them in executive benefit plans or to finance certain deferred compensation
plans and post-retirement benefit programs.
Policy features include:
- Life insurance on one life (individual) or two lives (joint and
survivor - see page 24);
- Choice among three death benefit options (see page 16),
- Flexible premium payments (see page 18);
- Choice of life insurance qualification method (see page 17), and
- Choice among the following mutual funds as underlying funding
options: (also see pages 12-15).
<TABLE>
<S> <C>
THE ALGER AMERICAN FUND JANUS ASPEN SERIES
Alger American Small Capitalization Portfolio Balanced Portfolio
Alger American MidCap Growth Portfolio Worldwide Growth Portfolio
Alger American Growth Portfolio
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
CIGNA VARIABLE PRODUCTS GROUP MFS Emerging Growth Series
CIGNA VP Money Market Fund MFS Total Return Series
CIGNA VP Investment Grade Bond Fund
CIGNA VP S&P 500 Index Fund NEUBERGER BERMAN ADVISORS MANAGEMENT TRUST
Partners Portfolio
DEUTSCHE ASSET MANAGEMENT VIT FUNDS
EAFE-Registered Trademark- Equity Index Fund OCC ACCUMULATION TRUST
Small Cap Index Fund OCC Small Cap Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND FRANKLIN TEMPLETON VARIABLE INSURANCE
VIP Equity-Income Portfolio PRODUCTS TRUST
VIP High Income Portfolio Templeton International Securities Fund Class 1
</TABLE>
The Policy's Fixed Account credits interest to Policy values held in that
account. We guarantee the amounts in the Fixed Account and payment of certain
interest. Page 21 contains additional information on the Fixed Account.
It may not be in your best interest to replace existing insurance with this
Policy. Please read this prospectus, and the underlying mutual funds'
prospectuses, to understand the Policy.
KEEP THIS PROSPECTUS 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 1, 2000
<PAGE>
(This page has been left blank intentionally.)
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Technical Terms....................... 4
Highlights............................ 5
Initial Choices..................... 5
Charges and Fees.................... 6
Reductions and Refunds.............. 7
Expense Data........................ 8
The Company........................... 10
The Variable Account.................. 10
General............................. 10
Substitution of Securities.......... 11
Voting Rights....................... 11
Fund Participation Agreements....... 11
The Funds............................. 12
Death Benefit......................... 16
Death Benefit Options............. 16
Changes in Death Benefit Option... 16
Payment of Death Benefit.......... 17
Life Insurance Qualification
Test............................. 17
Changes in Specified Amount....... 17
Premium Payments; Transfers........... 18
Premium Payments.................. 18
Allocation of Net Premium
Payments......................... 18
Transfers......................... 19
Charges; Fees......................... 20
Premium Charges................... 20
Policy Issue Fee.................. 20
Monthly Deductions................ 20
Daily Deductions.................. 20
Administrative Fee................ 20
Mortality and Expense Risk
Charge........................... 21
Transaction Fee for Excess
Transfers........................ 21
Surrenders During First Two Policy
Years -- Refund of Portion of
Premium Charge................... 21
The Fixed Account..................... 21
Policy Values......................... 21
Accumulation Value................ 21
Variable Accumulation Unit
Value............................ 22
Surrender Value................... 22
Surrenders............................ 23
Partial Surrenders................ 23
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Full Surrenders................... 23
Deferral of Payment and
Transfers........................ 23
Lapse and Reinstatement............... 23
Lapse of a Policy................. 23
Reinstatement of a Lapsed
Policy........................... 23
Policy Loans.......................... 23
Settlement Options.................... 23
Additional Insurance Benefit.......... 24
Joint and Survivorship Benefit........ 24
Other Policy Provisions............... 25
Issuance.......................... 25
Short-Term Right to Cancel the
Policy........................... 25
Policy Owner and Beneficiary...... 25
Changes of Policy Owner or
Beneficiary...................... 25
Right to Exchange for a Fixed
Benefit Policy................... 26
Incontestability.................. 26
Misstatement of Age............... 26
Suicide........................... 26
Nonparticipating Policies......... 26
Additional Information................ 26
Tax Matters....................... 26
Taxation of the Policies.......... 27
Taxation of the Company........... 28
Partial Surrenders................ 29
Policy Loans...................... 29
Directors and Officers of the
Company.......................... 30
Distribution of Policies.......... 31
Changes of Investment Policy...... 31
Other Contracts Issued by the
Company.......................... 31
State Regulation.................. 31
Reports to Policy Owners.......... 32
Advertising....................... 32
Legal Proceedings................. 32
Experts........................... 33
Registration Statement............ 33
Financial Statements.............. 33
Appendix 1............................ 74
Illustration of Accumulation
Values, Surrender Values, and
Death Benefits................... 74
</TABLE>
3
<PAGE>
TECHNICAL TERMS
ACCUMULATION UNIT: A unit of measure used to calculate the value of a
sub-account.
ACCUMULATION VALUE: The sum of your interest in the Fixed Account value (see
page 21), your interest in the Variable Account value (see page 10) and the loan
account value.
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".
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).
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.
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.
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 and, if applicable, underwriting class. The premium charge
applied to the premiums paid in the first policy year 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.
4
<PAGE>
HIGHLIGHTS
This section is an overview of key Policy features.
Regulations in your state may vary the provisions of your
own Policy.
INITIAL CHOICES
TO BE MADE
When purchasing a Policy, you have four important choices to
make:
1) Selecting one of the three death benefit options;
2) Selecting the amount of premium payments to make;
3) Selecting how net premium payments will be allocated
among the available funding options, and
4) Selecting the life insurance qualification method to be
used. (See page 17.)
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
death benefit, we subtract any outstanding loan account
balances or outstanding amounts due. 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. You may change premium payments within the
limits described on page 18. However, your Policy might
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 23.
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 10). A variable sub-account is not guaranteed and will
increase or decrease in value according to the particular
fund's investment performance. (See pages 21 and 22.) 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 25.)
5
<PAGE>
CHARGES AND FEES
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
DEDUCTIONS FROM PREMIUM PAYMENTS 6.5% for sales expenses, premium tax and other tax liabilities
In addition,
- 40% from each premium payment, up to the target premium,
in the first policy year
For increases in specified amount, other than through a change
in the death benefit option, we deduct an additional 25% of the
premium payment(s) attributable to the increase in specified
amount up to the increase in target premium, during the first
12 months after the increase.
- ------------------------------------------------------------------------------------------------------
ADMINISTRATIVE EXPENSE CHARGES $250 at issue
$8 monthly
We deduct daily charges from the Policy values in policy years
1-10. The current annual rate is .10% of the Policy values.
- ------------------------------------------------------------------------------------------------------
MORTALITY AND We deduct daily charges from the Policy values. The current
EXPENSE RISK CHARGES annual rate is:
- .85% of the Policy values during policy years 1-10
- .45% of the Policy values during policy years 11-15
- .15% of the Policy values thereafter
- ------------------------------------------------------------------------------------------------------
INSURANCE CHARGES Monthly charges, varying for each Insured, for:
- Cost of Insurance
- Cost of any additional insurance benefit
- Cost of any riders
- ------------------------------------------------------------------------------------------------------
MUTUAL FUND MANAGEMENT FEES, CHARGES Each fund has its own management fee that is deducted daily.
AND EXPENSES Each fund also incurs other operational expenses. The table on
pages 8-9 shows current expense levels for each fund as of
December 31, 1999. Each fund's investment results will be
affected by its expense level and by any fee waivers or
reductions in effect for limited periods of time.
- ------------------------------------------------------------------------------------------------------
LOAN INTEREST CHARGE Interest on loans accrues at an annual rate of 5%. It is
payable and deducted once a year, in arrears, on each policy
anniversary. The current net interest spread (the amount by
which interest charged on loans exceeds interest credited to
the loan account) is:
- .95% per year in policy years 1-10,
- .45% per year in policy years 11-15, and
- .15% per year thereafter
- ------------------------------------------------------------------------------------------------------
ADDITIONAL CHARGES AND FEES $25 for a partial surrender
$25 for fund transfers in excess of 4 per policy year
- ------------------------------------------------------------------------------------------------------
These charges and fees are explained more fully in the "Charges; Fees" section beginning on page 20
and in the "Expense Data" section on pages 8-9.
</TABLE>
6
<PAGE>
REDUCTIONS AND REFUNDS
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
REDUCTION OF Corporations or other groups or sponsoring organizations, may
CHARGES buy Policies on a case basis. We may reduce premium charges or
any other charges 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 we believe 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.
</TABLE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
REFUND OF PORTION OF PREMIUM CHARGES Surrenders during the first two Policy Years will qualify for a
refund of a portion of the premium charges.
--------------------------------------------------------------------
SURRENDER CREDIT
DURING
First Policy Year: 100% of all premium charges
previously deducted in excess of
3.5% of all premiums paid.
--------------------------------------------------------------------
Second Policy Year: 50% of all premium charges
previously deducted in excess of
3.5% of all premiums paid.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
7
<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 fifteen policy years. It is
guaranteed not to exceed .30% per year. (Continued on Page 9.)
FEE TABLE
<TABLE>
<CAPTION>
ALGER AMERICAN FUNDS CIGNA VARIABLE PRODUCTS
------------------------------- ----------------------------------
SMALL MIDCAP MONEY S&P 500 INVESTMENT
CAP GROWTH GROWTH MARKET INDEX GRADE
PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND BOND FUND
--------- --------- --------- ------- ------- ------------
<S> <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
Administrative Expense
Charge.................. 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
==== ==== ==== ======= ======= ========
FUND PORTFOLIO ANNUAL
OPERATING EXPENSES
Management Fees.......... 0.85 0.80 0.75 0.35 0.25 0.50
Other Expenses........... 0.05 0.05 0.04 0.29 0.13 0.29
---- ---- ---- ------- ------- --------
Total Gross Expenses..... 0.90 0.85 0.79 0.64 0.38 0.79
Waivers and
Reimbursements.......... (--) (--) (--) (0.14) (0.13) (0.29)
---- ---- ---- ------- ------- --------
TOTAL NET FUND PORTFOLIO
ANNUAL OPERATING
EXPENSES................ 0.90 0.85 0.79 0.50(1) 0.25(1) 0.50(1)
==== ==== ==== ======= ======= ========
<CAPTION>
DEUTSCHE ASSET
MANAGEMENT
VIT FUNDS FIDELITY VARIABLE
------------------------------------- INSURANCE PRODUCTS FUND
EAFE-REGISTERED TRADEMARK- SMALL ------------------------------------------
EQUITY CAP EQUITY- HIGH INVESTMENT
INDEX INDEX INCOME INCOME GRADE
FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO(4)
-------------------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL
EXPENSES
Mortality and Expense
Risk Charge............. 0.85 0.85 0.85 0.85 0.85
Administrative Expense
Charge.................. 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
======= ====== ======= ====== ======
FUND PORTFOLIO ANNUAL
OPERATING EXPENSES
Management Fees.......... 0.45 0.35 0.48 0.58 0.43
Other Expenses........... 0.69 0.83 0.09 0.11 0.11
------- ------ ------- ------ ------
Total Gross Expenses..... 1.15(2) 1.18 0.57 0.69 0.54
Waivers and
Reimbursements.......... (0.49) (0.73) (0.01) (--) (--)
------- ------ ------- ------ ------
TOTAL NET FUND PORTFOLIO
ANNUAL OPERATING
EXPENSES................ 0.65(2) 0.45 0.56(3) 0.69 0.54
======= ====== ======= ====== ======
</TABLE>
- ------------------------------
(1) TimesSquare has contractually agreed to reimburse the VP Money Market, VP
S&P 500 Index, and VP Investment Grade Bond Funds for any amount by which
their expenses (including the advisory fee but excluding interest, taxes,
transaction costs incurred in acquiring and disposing of portfolio
securities, and extraordinary expenses) exceed 0.50%, 0.25%, and 0.50%
respectively, of average daily net assets. The contractual agreement lasts
until April 30, 2001 and thereafter to the extent described in the Funds'
then current prospectus.
(2) The apparent mathematical inconsistencies in the Deutsche VIT
EAFE-Registered Trademark- Equity Index Total Gross Expenses and Total Net
Fund Portfolio Annual Operating Expenses lines are due to rounding. Exact
calculations result when both lines are carried to six decimal places.
(3) A portion of the brokerage commissions that the fund pays was used to
reduce fund expenses. In addition, through arrangements with the fund, or
FMR on behalf of the fund's custodian, credits realized as a result of
uninvested cash balances were used to reduce a portion of the fund's
expenses. Without these reductions, the Total Net Fund Portfolio Annual
Operating Expenses for the Equity-Income Portfolio would have been 0.57%.
(4) As of May 1, 1999, the Fidelity VIP II Investment Grade Bond Portfolio was
no longer available to accept new allocations of premium or receive
transfers of existing funds from other sub-accounts.
8
<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>
NEUBERGER
MFS-REGISTERED TRADEMARK- VARIABLE BERMAN
JANUS ASPEN SERIES INSURANCE TRUST ADVISERS
------------------------- ----------------------------------- MANAGEMENT
TRUST
WORLDWIDE EMERGING TOTAL ----------
GROWTH BALANCED GROWTH RETURN PARTNERS
PORTFOLIO PORTFOLIO SERIES SERIES PORTFOLIO
---------- ---------- --------------- --------------- ----------
<S> <C> <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
======= ======= ======= ======= ======
0.65(5) 0.65(5) 0.75 0.75 0.80
0.05 0.02 0.09 0.15 0.07
------- ------- ------- ------- ------
0.70 0.67 0.84 0.90 0.87
(--) (--) (0.01) (0.01) (--)
------- ------- ------- ------- ------
0.70 0.67 0.83(6) 0.89(6) 0.87
======= ======= ======= ======= ======
<CAPTION>
FRANKLIN TEMPLETON
VARIABLE INSURANCE
PRODUCTS TRUST
------------------
OCC ACCUMULATION TRUST TEMPLETON
-------------------------------------------- INTERNATIONAL
EQUITY MANAGED SMALL CAP SECURITIES FUND
PORTFOLIO(7) PORTFOLIO(7) PORTFOLIO CLASS 1 (10)
------------ ------------ ---------- ------------------
<S> <C> <C> <C> <C>
0.85 0.85 0.85 0.85
0.10 0.10 0.10 0.10
------- ------- ------- ------
0.95 0.95 0.95 0.95
======= ======= ======= ======
0.80 0.77 0.80 0.69
0.11(8) 0.06(8) 0.09(8) 0.19
------- ------- ------- ------
0.91 0.83 0.89 0.88
(--) (--) (--) (--)
------- ------- ------- ------
0.91(9) 0.83(9) 0.89(9) 0.88
======= ======= ======= ======
</TABLE>
- ------------------------------
(5) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee.
(6) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series' with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. Had these fee
reductions not been taken into account, Total Net Fund Portfolio Annual
Operating Expenses would be 0.84% for the Emerging Growth Series and 0.90%
for the Total Return Series.
(7) The OCC Trust Equity and Managed Portfolios 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, 2000.
(8) Other Expenses are shown gross of expense offsets afforded the Portfolios
which effectively lowered overall custody expenses.
(9) Total Gross Portfolio Expenses for the Equity, Managed, and Small Cap
Portfolios are contractually limited by OpCap Advisors so that their
respective annualized operating expenses (net of any expense offsets) do
not exceed 1.00% of average daily net assets.
(10) Previously Templeton International Fund. On 2/8/00, shareholders approved a
merger and reorganization that combined the fund with the Templeton
International Equity Fund, effective 5/1/00. The shareholders of that fund
had approved new management fees, which apply to the combined fund
effective 5/1/00. The table shows restated total expenses based on the new
fees and the assets of the fund as of 12/31/99, and not the assets of the
combined fund. However, if the table reflected both the new fees and the
combined assets, the fund's expenses after 5/1/00 would be estimated as:
Management Fees 0.65%, Other Expenses 0.20%, and Total Fund Operating
Expenses 0.85%.
9
<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.
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. Inherent investment risk varies significantly
among the sub-accounts but is present in each. You should
read each fund's prospectus carefully and understand the
funds' relative degrees of risk before making or changing
investment choices. We impose some terms and conditions
limiting such choices.
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SUBSTITUTION OF SECURITIES
If the shares of any fund should no longer be available to
the Variable Account or if, in our judgment, 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.
VOTING RIGHTS
We will vote the shares of each fund held in the Variable
Account at special meetings of the shareholders of the
particular Trust. We will follow 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 Trusts 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 Trust but
not more than sixty (60) days prior to the meeting of that
Trust. We will solicit voting instructions by written
communication at least fourteen (14) days prior to the
meeting.
Each 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 Trusts' managements 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
Trusts' 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.
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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 fund has a different investment objective. Each of the funds is a
series of (Continued on Page 13.)
<TABLE>
<S> <C>
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Trusts, Investment Advisers, and
Distributors Funds Available Under the Policies
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Alger American Fund ("Alger Trust") Alger American Small Capitalization
Managed by: Portfolio
Fred Alger Management, Inc. Alger American MidCap Growth Portfolio
1 World Trade Center, Suite 9333 Alger American Growth Portfolio
New York, NY 10048
Distributed by:
Fred Alger & Company, Incorporated
30 Montgomery Street
Jersey City, NJ 07302
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CIGNA Variable Products Group ("CIGNA Group") CIGNA VP Money Market Fund
Managed by: CIGNA VP Investment Grade Bond Fund
TimesSquare Capital Management CIGNA VP S&P 500 Index Fund
900 Cottage Grove Road, S-210
Hartford, CT 06152-2210
Distributed by:
CIGNA Financial Services
280 Trumbull Street
Hartford, CT 06104
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Deutsche Asset Management VIT Funds Deutsche VIT EAFE-Registered Trademark-
("Deutsche VIT") Equity Index Fund
Managed by: Deutsche VIT Small Cap Index Fund
Bankers Trust Company
130 Liberty Street
New York, NY 10006
Distributed by:
Provident Distributors, Inc.
4400 Four Falls Corporate Center
West Conshohocken, PA 19428
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Fidelity Variable Insurance Products Fund Fidelity VIP Equity-Income Portfolio
("Fidelity VIP") Fidelity VIP High Income Portfolio
Managed by:
Fidelity Management & Research Company
82 Devonshire Street
Boston, MA 02109
Distributed by:
Fidelity Distributors Corporation
82 Devonshire Street
Boston, MA 02109
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</TABLE>
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one of nine entities, all Massachusetts or Delaware business trusts. Each such
entity is registered as a series of an open-end management investment company
under the 1940 Act. These entities are collectively referred to in this
prospectus as the "Trusts".
- --------------------------------------------------------------------------------
Brief Description of the Fund's Investment Objective
and Program
- --------------------------------------------------------------------------------
(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.
(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.
(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.
- --------------------------------------------------------------------------------
(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.
(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.
(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 and Poor's 500 Composite Stock Price Index.
- --------------------------------------------------------------------------------
(INTERNATIONAL STOCKS) Seeks to replicate as closely as possible (before
deduction of fund expenses) the total return of the MSCI Europe, Australasia,
Far East ("EAFE-Registered Trademark-") Index.
(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.
- --------------------------------------------------------------------------------
(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.
(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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<TABLE>
<S> <C>
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Janus Aspen Series ("Janus Aspen Series") Janus Aspen Series Balanced Portfolio
Managed by: Janus Aspen Series Worldwide Growth Portfolio
Janus Capital Corporation
100 Fillmore Street
Denver, CO 80206-4923
Distributed by:
Janus Distributors Inc.
100 Fillmore Street
Denver, CO 80206-4923
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MFS-Registered Trademark- Variable Insurance MFS Emerging Growth Series
Trust-SM- ("MFS Trust") MFS Total Return Series
Managed by:
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
Distributed by:
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
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Neuberger Berman Advisers Management Neuberger Berman AMT Partners Portfolio
Trust ("AMT")
Managed by:
Neuberger Berman Management, Inc.
605 Third Avenue
New York, NY 10158-0180
Distributed by:
Neuberger Berman Management, Inc.
605 Third Avenue
New York, NY 10158-0180
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OCC Accumulation Trust ("OCC Trust") OCC Small Cap Portfolio
Managed by:
OpCap Advisors
1345 Avenue of the Americas
New York, NY 10105
Distributed by:
OCC Distributors
1345 Avenue of the Americas
New York, NY 10105
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Franklin Templeton Variable Insurance Products Templeton International Securities Fund Class 1
Trust ("Templeton Trust") (Previously Templeton International Fund)
Managed by:
Templeton Investment Counsel, Inc.
500 East Broward Boulevard
Broward Financial Center
Fort Lauderdale, FL 33394-3091
Distributed by:
Franklin Templeton Distributors, Inc.
P.O. Box 33030
St. Petersburg, FL 33733-8030
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</TABLE>
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 Small Cap Portfolio,
and (Continued on Page 15.)
14
<PAGE>
- --------------------------------------------------------------------------------
(BALANCED) Seeks long-term capital growth, consistent with preservation of
capital and balanced by current income.
(GLOBAL STOCKS) Seeks long-term growth of capital by investing primarily in
common stocks of foreign and domestic issuers.
- --------------------------------------------------------------------------------
(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.
(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.
- --------------------------------------------------------------------------------
(MID TO LARGE CAP STOCKS) Seeks growth of capital by investing mainly in common
stocks of mid- to large-capitalization companies whose stock prices are believed
to be undervalued.
- --------------------------------------------------------------------------------
(SMALL CAP STOCKS) Seeks capital appreciation through investments in a
diversified portfolio of equity securities of companies with market
capitalizations of under $1 billion.
- --------------------------------------------------------------------------------
(INTERNATIONAL STOCKS) Seeks long-term capital growth. Invests in stocks of
companies located outside the United States, including emerging markets.
- --------------------------------------------------------------------------------
Templeton International Securities 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.
We may make additional funds available from time to time.
15
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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. In this prospectus, "the Insured's death"
means, for a joint and survivor policy, the death of the
second Insured to die. (See page 24.) 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 unless 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.
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 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.
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<PAGE>
PAYMENT OF DEATH BENEFIT
We will compute the death benefit 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(s)), unless you or
the beneficiary have elected that all or a part of 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. The beneficiary may make or change an
election within 90 days of the death of the Insured, unless
you have made an irrevocable election.
If you assign the Policy as collateral security, we will pay
any amount due the assignee in one lump sum. We will pay the
beneficiary any excess death benefit due as elected.
LIFE INSURANCE QUALIFICATION TEST
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.
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 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 26-29 of this prospectus.
CHANGES IN SPECIFIED AMOUNT
You may change the specified amount of a Policy by a written
request to the Corporate Variable Products Service Center in
a form satisfactory to us, subject to the following
conditions:
- Satisfactory evidence of insurability and a supplemental
application may be required to increase the specified
amount.
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- 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
attributable to the increase in specified amount up to the
increase in target premium received during the 12 months
following the increase.
- No decrease may reduce the specified amount to less than
$50,000, or 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 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 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 sub-account, we convert the
18
<PAGE>
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 pages 21 and 22 of this
prospectus.
During the Right-to-Examine Period, we will allocate the net
premium payment to the CIGNA Variable Products Group's 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 25 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. The transfers 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. 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
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 12-15 of this prospectus.
We may, at our sole discretion, waive minimum balance
requirements on the sub-accounts.
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<PAGE>
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 target
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 target premium.
The premium charge represents state taxes and federal income
tax liabilities and a portion of our sales expense.
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.
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 compensates us
for the anticipated cost of paying death benefits in excess
of the accumulation value. It depends on the attained age,
years since issue and risk class (in accordance with state
law) of the insured and the current net amount at risk.
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.
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
Variable Account and Fixed Account values. This deduction is
currently equivalent to .10% per year during the first ten
policy years. We guarantee it will not exceed .30% per year.
20
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- MORTALITY AND EXPENSE RISK CHARGE
For mortality and expense risks, we make a daily deduction
from Variable Account and Fixed Account values. This
deduction is currently equivalent to .85% per year during
the first ten policy years, .45% per year during policy
years eleven through fifteen, and .15% thereafter. We
guarantee it will not exceed .90% per year.
TRANSACTION FEE FOR EXCESS TRANSFERS
We charge a $25 transaction fee for each transfer between
funding options in excess of four per policy year.
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.
Any surrender may result in tax implications. See "Tax
Matters".
To the extent policy charges do not cover all our sales and
administrative expenses, any shortfall will be made up 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 in the form of
accumulation units representing the fund in which assets of
that sub-account are invested. We do so at the end of the
valuation period in which the premium 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
21
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accumulation unit next computed after its receipt. Since
each sub-account has its own 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.
We will tell you at least annually how many accumulation
units are credited to the Policy, the current accumulation
unit values, and 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 multiplying that unit's value for
the immediately preceding valuation period by 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 charges for mortality and expense risk
and for administrative expenses, 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.
22
<PAGE>
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. For more information on partial surrenders see
the "Additional Information -- Partial Surrenders" section
on page 29.
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 usually pay any portion
derived from the Variable Account within seven 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.
POLICY LOANS
You may take a loan against the Policy for up to 90% of the
then current net accumulation value. A policy loan requires
that you complete a loan agreement and assign the Policy to
us. For more information on policy loans see the "Additional
Information -- Policy Loans" section on page 29.
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
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<PAGE>
- 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 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 26): The policy or increase
must be in force for two (2) years during the lifetime of
each Insured.
- Misstatement of Age (see Page 26): By reason of the rider
the provision relates to either Insured.
- Suicide (see Page 26): By reason of the rider the
provision relates to either Insured.
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<PAGE>
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 you recieve it, unless state
law is otherwise. We will hold the initial premium payment
made when the Policy is issued in the CIGNA Variable
Products 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 we mail you the Policy, if the
state law Right-to-Examine Period is 10 days after you
receive the Policy.
- 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.
We may delay refund of premiums paid by check until the
check clears.
POLICY OWNER AND BENEFICIARY
The policy owner and beneficiary(ies) shall be as named in
the application or as subsequently changed, subject to
assignment, if any. While the Insured is living, all rights
in the Policy are vested in the policy owner.
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.
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.
CHANGES OF POLICY OWNER OR BENEFICIARY
You may name a new policy owner or beneficiary(ies) while
the Insured is living by written request on a form
satisfactory to us. You must submit the form to the
Corporate Variable Products Service Center where we will
record it. 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 of policy owner.
25
<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.
ADDITIONAL INFORMATION
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
26
<PAGE>
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.
TAXATION OF THE POLICIES
For contracts issued after December 31, 1984, section 7702
of the Code provides a definition that must be met in order
for the contract to qualify as a life insurance contract for
federal tax purposes. Under this section, either a cash
value test or a guideline premium/cash value corridor test
must be satisfied. For contracts that meet the definition of
section 7702, the income credited to the contract is not
taxed until it is distributed; and, even then, it is only
taxed to the extent that the amount distributed exceeds the
investment in the contract. A policy loan is not treated as
a distribution for this purpose. In addition, the death
proceeds payable upon the death of the insured are excluded
from the gross income of the beneficiary under section 101
of the Code. We will test Policies for compliance with
section 7702 and retain the right to take whatever action is
necessary, including the return of premiums, to ensure that
the policies qualify as life insurance contracts. As a
result, the federal taxation of a Policy should be the same
as described above.
A life insurance contract issued on or after June 21, 1988,
will become a modified endowment contract if the amount of
premiums paid for the contract exceeds limits set out in
section 7702A of the Code. Under these rules, a life
insurance contract becomes a modified endowment contract if
the total premiums paid during the first seven years exceed
the amount that would have been paid if the contract
provided for paid up benefits after seven level annual
premiums. Generally, amounts distributed from a modified
endowment contract, including amounts paid out as the result
of a full surrender, a partial surrender, or a loan, are
taxable to the extent that the cash value of the contract
immediately before the distribution exceeds the investment
in the contract. A collateral assignment or pledge of a
modified endowment contract is also treated as a
distribution for this purpose. In addition to the taxation
of the distribution, a 10% tax penalty generally applies to
the taxable portion of such distributions unless the policy
owner is 59 1/2 years old or disabled when the distribution
is made. The Policies offered by this prospectus may or may
not be issued as modified endowment contracts, depending
upon the wishes of the Policy owner. For those Policies that
are not issued as modified endowment contracts, we will test
them for compliance with section 7702A and retain the right
to take whatever action is necessary, including the return
of premiums, to ensure that the Policies do not become
modified endowment contracts.
A Policy may also become a modified endowment contract as
the result of a reduction in benefits or a material change
as defined in section 7702A. Section 7702 also provides that
if there is a reduction in benefits during the first 15
years after the life insurance contract is issued and there
is a cash distribution as a result of that change, some or
all of the distribution may be taxable. Because of these
rules, we will monitor any additional premium payments or
requested changes in the benefits under a Policy. If a
premium payment or requested change would result in the
Policy becoming a modified endowment contract or otherwise
result in a taxable distribution, we will notify the Policy
owner. In such a case, the payment will not be credited to
the contract or the change will not be made until we have
received verification from the Policy owner that such action
should be taken.
Because of the limitations of the rules of sections 7702 and
7702A, it may not be advantageous to replace an existing
life insurance contract that is not subject to these rules
with a Policy described in this prospectus.
27
<PAGE>
In addition to meeting the tests required by sections 7702
and 7702A, section 817(h) of the Code requires that the
investments of separate accounts, such as the Variable
Account, be adequately diversified. Beginning with any
period for which a separate account is not adequately
diversified, any variable life insurance contracts that are
based upon that account are not treated as life insurance
contracts for tax purposes.
Treasury Regulation 1.817-5 generally provides that a
separate account will be considered adequately diversified
only if:
- no more than 55% of the value of the total assets of the
account is represented by any one (1) investment,
- no more than 70% of such value is represented by any two
(2) investments,
- no more than 80% of such value is represented by any
three (3) investments, and
- no more than 90% of such value is represented by any four
(4) investments.
U.S. Treasury Securities are not subject to the
diversification test for variable life insurance contracts;
and, to the extent that separate accounts include such
securities, somewhat less stringent requirements apply. We
will monitor the investments in the variable account in
order to ensure that it remains adequately diversified.
The following may have adverse tax consequences:
- A total surrender or termination of the Policy by lapse;
- A reduction in benefits;
- 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 collateral assignment or pledge 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
on the assets of the Variable Account are reinvested and
taken into account in determining the value of accumulation
units.
We do not 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
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<PAGE>
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.
PARTIAL SURRENDERS
You may make a partial surrender at any time while the
Policy is in force and during the lifetime of the Insured.
The request must be in writing and you will be charged a $25
transaction fee. 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.
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:
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<PAGE>
- .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.
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.
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. Wahlman,
Mr. Pastore and Ms. Cooper.
- 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 Robinson, 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)
Robert E. Wahlman Vice President
(Principal Accounting Officer)
James Yablecki Assistant Vice President and Actuary
(Principal Financial Officer)
Susan L. Cooper Corporate Secretary
Andrew G. Helming Secretary
Stephen C. Stachelek Vice President and Treasurer
Harold W. Albert Director
John Cannon, III Director, Senior Vice President,
and Chief Counsel
Carol M. Olsen Director and Senior Vice President
William M. Pastore Director, Chairman of the Board,
and Senior Vice President
Marc L. Preminger Director, Senior Vice President,
and Chief Financial Officer
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME WITH THE COMPANY
------------------------------- ------------------------------------
<S> <C>
Patricia L. Rowland Director and Senior Vice President
W. Allen Schaffer, M.D. Director and Senior Vice President
Jean H. Walker Director, Vice President and Actuary
</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: 40% 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.
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.
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<PAGE>
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, 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 Company, its direct parent,
Connecticut General Corporation, its indirect parent, CIGNA,
and its affiliate, CIGNA Health Corporation, and several
health care industry competitors have had proposed class
action lawsuits filed against them by a coalition of
plaintiffs' attorneys. These lawsuits allege violations
under RICO and ERISA.
The Company's reinsurance operations include a 35% share in
the primary layer of a workers' compensation reinsurance
pool, which was managed by Unicover Managers Inc.
("Unicover") until recently. The pool had obtained
reinsurance for a significant portion of its exposure to
claims. Disputes have arisen regarding this reinsurance
(retrocessional) coverage of the pool. Two of the
retrocessionaires have commenced arbitration against
Unicover and the pool members seeking recission or damages.
In addition, these retrocessionaires have separately
asserted that the Company participates in an upper layer of
reinsurance for the pool, which the Company denies.
Resolution of these matters is likely to take some time.
Although the outcome of these matters is uncertain, the
Company does not expect them to result in losses material to
the Company's results of operations, liquidity or financial
condition. The principal underwriter, CFS, is not engaged in
any material litigation of any nature.
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<PAGE>
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, 1999 and 1998 and
for each of the three years in the period ended
December 31, 1999 included in the prospectus as well as the
Statement of Assets and Liabilities of the Variable Account
at December 31, 1999 and the Statement of Operations for the
period ended December 31, 1999 and the Statements of Changes
in Net Assets for the periods ended December 31, 1999 and
1998 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.
FINANCIAL STATEMENTS
The consolidated balance sheets of the Company and its
subsidiaries as of December 31, 1999 and 1998 and related
consolidated statements of income and retained earnings and
cash flows for the years ended December 31, 1999, 1998 and
1997 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, 1999 and related Statements of
Operations for the period ended December 31, 1999 and
Statements of Changes in Net Assets for the periods ended
December 31, 1999 and 1998 also follow. The Variable Account
commenced operations on December 24, 1996.
33
<PAGE>
PricewaterhouseCoopers
LLP
100 Pearl Street
Hartford, CT
06103-4508
Telephone (860)
241-7000
Facsimile (860)
241-7590
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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in the
United States, 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
Hartford, Connecticut
February 8, 2000
34
<PAGE>
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
35
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
(IN MILLIONS)
- --------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees........................................... $6,573 $5,683 $5,376
Net investment income....................................... 2,421 2,637 3,139
Other revenues.............................................. 111 427 10
Realized investment gains................................... 7 93 45
------ ------ ------
Total revenues.......................................... 9,112 8,840 8,570
------ ------ ------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses.................... 6,062 5,802 5,917
Policy acquisition expenses................................. 45 44 122
Other operating expenses.................................... 1,945 1,763 1,618
------ ------ ------
Total benefits, losses and expenses..................... 8,052 7,609 7,657
------ ------ ------
INCOME BEFORE INCOME TAXES.................................. 1,060 1,231 913
------ ------ ------
Income taxes (benefits):
Current................................................... 268 636 347
Deferred.................................................. 90 (211) (49)
------ ------ ------
Total taxes............................................. 358 425 298
- --------------------------------------------------------------------------------------
NET INCOME.................................................. $ 702 $ 806 $ 615
- --------------------------------------------------------------------------------------
------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
36
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
(IN MILLIONS)
- -----------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $16,521;
$16,820)...................................................... $16,313 $18,067
Mortgage loans................................................. 8,980 8,875
Policy loans................................................... 3,007 6,091
Real estate.................................................... 775 712
Equity securities, at fair value (cost, $57; $62).............. 62 47
Other long-term investments.................................... 184 159
Short-term investments......................................... 66 85
------- -------
Total investments.......................................... 29,387 34,036
Cash and cash equivalents...................................... 636 1,026
Accrued investment income...................................... 379 494
Premiums and accounts receivable............................... 1,048 939
Reinsurance recoverables....................................... 7,251 7,278
Deferred policy acquisition costs.............................. 208 187
Property and equipment......................................... 406 365
Deferred income taxes.......................................... 933 865
Current income taxes........................................... 17 --
Other assets................................................... 373 236
Goodwill and other intangibles................................. 706 730
Separate account assets........................................ 38,459 34,648
- -----------------------------------------------------------------------------------------------
Total assets............................................... $79,803 $80,804
- -----------------------------------------------------------------------------------------------
---------------------------
LIABILITIES
Contractholder deposit funds..................................... $26,599 $30,614
Future policy benefits........................................... 7,757 8,286
Unpaid claims and claim expenses................................. 1,434 1,286
Unearned premiums................................................ 149 162
------- -------
Total insurance and contractholder liabilities............. 35,939 40,348
Accounts payable, accrued expenses and other liabilities......... 2,464 2,523
Current income taxes............................................. -- 65
Separate account liabilities..................................... 37,921 34,340
- -----------------------------------------------------------------------------------------------
Total liabilities.......................................... $76,324 $77,276
- -----------------------------------------------------------------------------------------------
CONTINGENCIES -- NOTE 13
SHAREHOLDER'S EQUITY
Common stock (6 shares issued)................................... $ 30 $ 30
Additional paid-in capital....................................... 1,120 1,072
Net unrealized (depreciation) appreciation, fixed maturities..... (28) 243
Net unrealized (depreciation), equity securities................. (17) (25)
Net translation of foreign currencies............................ 1 2
------- -------
Accumulated other comprehensive (loss) income.................... (44) 220
Retained earnings................................................ 2,373 2,206
- -----------------------------------------------------------------------------------------------
Total shareholder's equity................................. $ 3,479 $ 3,528
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity................. $79,803 $80,804
- -----------------------------------------------------------------------------------------------
---------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
37
<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, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
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,
BEGINNING OF YEAR............. 1,072 766 766
Net assets contributed by
parent........................ 48 306 --
ADDITIONAL PAID-IN CAPITAL, END
OF YEAR....................... 1,120 1,072 766
ACCUMULATED OTHER COMPREHENSIVE
INCOME, BEGINNING OF YEAR..... 220 258 191
Net unrealized (depreciation)
appreciation, fixed
maturities.................... $(271) (271) $(39) (39) $ 69 69
Net unrealized appreciation
(depreciation), equity
securities.................... 8 8 1 1 (1) (1)
----- ---- ----
Net unrealized (depreciation)
appreciation on investments... (263) (38) 68
Net translation of foreign
currencies.................... (1) (1) -- -- (1) (1)
----- ---- ----
Other comprehensive (loss)
income...................... (264) (38) 67
------ ------ -------
ACCUMULATED OTHER COMPREHENSIVE
(LOSS) INCOME, END OF YEAR.... (44) 220 258
------ ------ -------
RETAINED EARNINGS, BEGINNING OF
YEAR.......................... 2,206 3,392 3,177
Net income................... 702 702 806 806 615 615
Dividends declared........... (535) (1,992) (400)
------ ------ -------
RETAINED EARNINGS, END OF
YEAR........................ 2,373 2,206 3,392
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME AND
SHAREHOLDER'S EQUITY.......... $ 438 $3,479 $768 $3,528 $682 $ 4,446
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
38
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(IN MILLIONS)
- -----------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 702 $ 806 $ 615
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Insurance liabilities..................................... 22 67 78
Reinsurance recoverables.................................. 31 (7) 68
Deferred policy acquisition costs......................... (21) (12) (97)
Premiums and accounts receivable.......................... (238) (179) 106
Accounts payable, accrued expenses, other liabilities and
current income taxes..................................... (30) 149 41
Deferred income taxes..................................... 90 (211) (49)
Other assets.............................................. (32) (339) (54)
Depreciation and goodwill amortization.................... 154 113 88
Gain on sale of business.................................. (95) (418) --
Other, net................................................ 88 (50) (99)
------- ------- -------
Net cash provided by (used in) operating activities..... 671 (81) 697
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities.......................................... 2,336 2,869 1,583
Mortgage loans............................................ 758 1,052 807
Policy loans.............................................. 272 382 --
Equity securities......................................... 24 15 14
Other (primarily short-term investments).................. 5,958 6,822 6,848
Investment maturities and repayments:
Fixed maturities.......................................... 2,404 2,797 2,394
Mortgage loans............................................ 426 421 601
Investments purchased:
Fixed maturities.......................................... (4,293) (3,881) (4,339)
Mortgage loans............................................ (1,381) (1,611) (1,426)
Equity securities......................................... (17) (7) (9)
Other (primarily short-term investments).................. (5,945) (7,652) (6,309)
Sale of individual life insurance and annuity business,
net proceeds............................................. -- 1,295 --
Other, net................................................ (358) (274) (102)
------- ------- -------
Net cash provided by investing activities............... 184 2,228 62
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit
funds.................................................... 7,585 7,050 7,634
Withdrawals and benefit payments from contractholder
deposit funds............................................ (8,296) (7,106) (7,023)
Dividends paid to parent.................................... (535) (1,992) (400)
Other, net.................................................. 1 4 (47)
Net cash (used in) provided by financing activities... (1,245) (2,044) 164
- -----------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents........ (390) 103 923
Cash and cash equivalents, beginning of year................ 1,026 923 --
- -----------------------------------------------------------------------------------------
Cash and cash equivalents, end of year...................... $ 636 $ 1,026 $ 923
- -----------------------------------------------------------------------------------------
---------------------------
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds......................... $ 337 $ 520 $ 402
Interest paid............................................. $ 3 $ 3 $ 5
- -----------------------------------------------------------------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
39
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
Connecticut General Life Insurance Company and its subsidiaries (collectively
referred to as "Connecticut General") provide group life and health insurance
and retirement and investment products and services. Connecticut General
operates throughout the United States and in selected international locations.
Connecticut General 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 Connecticut General and all significant subsidiaries. These
consolidated financial statements were prepared in conformity with generally
accepted accounting principles. Amounts recorded in the financial statements
reflect management's estimates and assumptions about medical costs, interest
rates and other factors. Significant estimates are discussed in these Notes.
Certain reclassifications have been made to prior years' amounts to conform to
the 1999 presentation.
B) RECENT ACCOUNTING PRONOUNCEMENTS:
INSURANCE-RELATED ASSESSMENTS.
Connecticut General adopted Statement of Position (SOP) 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments," as of
January 1, 1999. Issued by the American Institute of Certified Public
Accountants, this SOP guides companies in measuring and recording liabilities
for insolvency fund and other insurance-related assessments, such as workers'
compensation second injury funds, medical risk pools and charges for operating
expenses of state regulatory bodies. The cumulative effect of adopting the SOP
was not material.
INTERNAL USE SOFTWARE.
In 1999, Connecticut General adopted SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP specifies
the types of costs that must be capitalized and amortized over the software's
expected useful life and the types of costs that must be immediately recognized
as expense. Implementation of this SOP did not have a material effect on results
of operations, liquidity or financial condition. The effect of this
pronouncement on Connecticut General's financial statements in future periods
will vary based on the level of software development costs incurred.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (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 that hedge market risk related to
future cash flows, in accumulated other comprehensive income. Companies are
required to implement SFAS No. 133 by the first quarter of 2001, showing the
cumulative effect of adoption in net income and accumulated other comprehensive
income. Connecticut General has not determined whether it will adopt these
changes before the required implementation date or what their effect will be.
C) FINANCIAL INSTRUMENTS: In the normal course of business, Connecticut
General enters into transactions involving various types of financial
instruments. These financial instruments include investments (such as fixed
maturities and equity securities), short and long-term debt, and
off-balance-sheet instruments (such as investment and loan commitments and
financial guarantees). These instruments may change in value due to interest
rate and market fluctuations, and most have credit risk. Connecticut General
evaluates and monitors each financial instrument individually and, when
management considers it appropriate, uses certain derivative instruments or
obtains collateral or other forms of security to limit risk of loss.
Most financial instruments that are subject to fair value disclosure
requirements (such as fixed maturities and equity securities) are carried in the
financial statements at amounts that approximate fair value. At the end of 1999
40
<PAGE>
and 1998, the fair values of mortgage loans, contractholder deposit funds
(non-insurance products), and long-term debt were not materially different from
their carrying amounts. Fair values of off-balance-sheet financial instruments
were not material.
Fair values of financial instruments are based on quoted market prices when
available. When market prices are not available, management estimates fair value
based on discounted cash flow analyses, which use current interest rates for
similar financial instruments with comparable terms and credit quality.
Management estimates the fair value of liabilities for contractholder deposit
funds using the amount payable on demand and, for those deposit funds not
payable on demand, using discounted cash flow analyses. In many cases, an
estimate of the fair value of a financial instrument may differ significantly
from the amount that could be realized if the instrument were sold immediately.
D) INVESTMENTS: Connecticut General's accounting policies for investment
assets are discussed below.
FIXED MATURITIES AND MORTGAGE LOANS. Investments in fixed maturities include
bonds, mortgage- and other asset-backed securities and redeemable preferred
stocks. These investments are classified as available for sale and are carried
at fair value. Fixed maturities are considered impaired, and amortized cost is
written down to fair value, when management expects a decline in value to
persist.
Mortgage loans are carried at unpaid principal balances. Impaired loans are
carried at the fair value of the underlying collateral. Mortgage loans are
considered impaired when it is probable that Connecticut General will not
collect all amounts due according to the terms of the loan agreement.
When an investment is current, Connecticut General recognizes interest income
when it is earned. Connecticut General stops recognizing interest income on
fixed maturities and mortgage loans when they are delinquent or restructured for
troubled borrowers to modify basic financial terms, such as to reduce the
interest rate or extend the maturity date. Net investment income on these
investments is recognized only when payment is received.
REAL ESTATE. Investment real estate can be held to produce income or for
sale.
Connecticut General carries real estate held to produce income at depreciated
cost less any write-downs to fair value due to impairment. Depreciation is
generally calculated using the straight-line method based on the estimated
useful life of each asset.
Connecticut General acquires most real estate held for sale through
foreclosure of mortgage loans. At the time of foreclosure, properties are valued
at fair value less estimated costs to sell, and are reclassified from mortgage
loans to real estate held for sale. After foreclosure, these investments are
carried at the lower of fair value at foreclosure or current fair value less
estimated costs to sell, and are no longer depreciated. Valuation reserves
reflect changes in fair value after foreclosure. Connecticut General
rehabilitates, re-leases, and sells foreclosed properties held for sale, a
process that usually takes from two to four years, unless management considers a
near-term sale preferable.
Connecticut General uses several methods to determine the fair value of real
estate, but relies primarily on discounted cash flow analyses and, in some
cases, third-party appraisals.
EQUITY SECURITIES AND SHORT-TERM INVESTMENTS. Connecticut General classifies
equity securities and short-term investments as available for sale and carries
them at fair value, which for short-term investments approximates cost. Equity
securities include common and non-redeemable preferred stocks.
POLICY LOANS. Policy loans are carried at unpaid principal balances.
INVESTMENT GAINS AND LOSSES. Realized investment gains and losses result from
sales, investment asset write-downs and changes in valuation reserves and are
based on specifically identified assets. Connecticut General's net income does
not include gains and losses on investment assets related to experience-rated
pension policyholders' contracts and participating life insurance policies
(policyholder share) because these amounts generally accrue to the
policyholders.
Unrealized gains and losses on investments carried at fair value are included
in accumulated other comprehensive income, net of policyholder share and
deferred income taxes.
41
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS. Note 4(F) discusses Connecticut General's
accounting policies for derivative financial instruments.
E) CASH AND CASH EQUIVALENTS: Cash equivalents consist of short-term
investments that mature in three months or less at the time of purchase.
F) REINSURANCE RECOVERABLES: Reinsurance recoverables are estimates of
amounts that Connecticut General will receive from reinsurers. Allowances are
established for amounts owed to Connecticut General under reinsurance contracts
that management believes will not be received.
G) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of
commissions, premium taxes, and other costs that Connecticut General incurs to
acquire new business. Acquisition costs for:
- CONTRACTHOLDER DEPOSIT FUNDS AND UNIVERSAL LIFE PRODUCTS are deferred and
amortized in proportion to the present value of total estimated gross
profits over the expected lives of the contracts.
- 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.
- OTHER PRODUCTS are expensed as incurred.
Management estimates future revenues less expected claims on products that
carry deferred policy acquisition costs. If that estimate is less than the
deferred costs, Connecticut General reduces deferred policy acquisition costs
and records an expense.
H) PROPERTY AND EQUIPMENT: Property and equipment are carried at cost less
accumulated depreciation. When applicable, cost includes interest, real estate
taxes and other costs incurred during construction. Connecticut General
calculates depreciation principally using the straight-line method based on the
estimated useful life of each asset. Accumulated depreciation was $506 million
at December 31, 1999, and $490 million at December 31, 1998.
I) OTHER ASSETS: Other assets consist primarily of various insurance-related
assets.
J) 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.
Connecticut General amortizes goodwill and other intangibles on a
straight-line basis over periods ranging from five to 40 years. Management
revises amortization periods if it believes there has been a change in the
length of time that the intangibles will continue to have value. Accumulated
amortization was $167 million at December 31, 1999, and $143 million at
December 31, 1998.
For businesses that have recorded goodwill, management analyzes historical and
estimated future income or undiscounted cash flows. If such results are lower
than the amount recorded as goodwill, Connecticut General reduces goodwill and
records an expense.
K) SEPARATE ACCOUNTS: Separate account assets and liabilities are
policyholder funds maintained in accounts with specific investment objectives.
These accounts are carried at market value. The investment income, gains and
losses of these accounts generally accrue to the policyholders and are not
included in Connecticut General's revenues and expenses.
L) CONTRACTHOLDER DEPOSIT FUNDS: Liabilities for contractholder deposit funds
include deposits received from customers for investment-related and universal
life products and investment earnings on their fund balances. These liabilities
are adjusted to reflect administrative charges, policyholder share of unrealized
appreciation or depreciation on investment assets and, for universal life fund
balances, mortality charges.
M) UNPAID CLAIMS AND CLAIM EXPENSES: Liabilities for unpaid claims and claim
expenses are estimates of payments to be made under health and dental coverages
for reported claims and for losses incurred but not yet reported. Management
develops these estimates using actuarial methods based upon historical data for
payment patterns, cost trends, product mix, seasonality, utilization of health
care services and other relevant factors. When estimates change, Connecticut
General records the adjustment in benefits, losses and settlement expenses.
42
<PAGE>
N) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for
estimated future obligations under traditional life and health policies and
annuity products currently in force. Management develops these estimates using
premium assumptions for group annuity policies and assumes receipt of premiums
until benefits are paid for individual life policies. These estimation
techniques rely on assumptions as to future investment yield, mortality and
withdrawals that allow for adverse deviation.
Future policy benefits for individual life insurance and annuity policies are
computed using interest rate assumptions that generally decline over the first
20 years and range from 2% to 11%. Mortality, morbidity, and withdrawal
assumptions are based on either Connecticut General's own experience or industry
actuarial tables.
O) UNEARNED PREMIUMS: Premiums for group life, accident, and health insurance
are recognized as revenue on a pro rata basis over the contract period. The
unrecognized portion of these premiums is recorded as unearned premiums.
P) OTHER LIABILITIES: Other liabilities consist principally of postretirement
and postemployment benefits and various insurance-related liabilities, including
amounts related to reinsurance contracts and guaranty fund assessments that
management can reasonably estimate.
Q) TRANSLATION OF FOREIGN CURRENCIES: Connecticut General's foreign
operations primarily use the local currencies as their functional currencies.
Connecticut General uses exchange rates as of the balance sheet date to
translate assets and liabilities.
The translation gain or loss on functional currencies, net of applicable
taxes, is generally reflected in accumulated other comprehensive income.
Connecticut General uses average exchange rates during the year to translate
revenues and expenses.
R) PREMIUMS AND FEES, REVENUES AND RELATED EXPENSES: Premiums for group life,
accident and health insurance are recognized as revenue on a pro rata basis over
the contract period. Benefits, losses and settlement expenses are recognized
when incurred.
Premiums for individual life insurance and 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.
Revenue for investment-related products is recognized as follows:
- Net investment income on assets supporting investment-related products is
recognized as earned.
- Contract fees, which are based upon related administrative expenses, are
assessed against the customer's fund balance ratably over the contract year.
Benefit expenses for investment-related products consist primarily of income
credited to policyholders in accordance with contract provisions.
Revenue for universal life products is recognized as follows:
- Net investment income on assets supporting universal life products is
recognized as earned.
- Fees for mortality are recognized ratably over the policy year.
- Administration fees are recognized as services are provided.
- Surrender charges are recognized as earned.
Benefit expenses for universal life products consist of benefit claims in
excess of policyholder account balances which are recognized when filed, and
amounts credited in accordance with contract provisions.
S) PARTICIPATING BUSINESS: Connecticut General's participating life insurance
policies entitle policyholders to earn dividends that represent a portion of the
earnings of Connecticut General's life insurance subsidiaries. Participating
insurance in force accounted for approximately 7% of Connecticut General's total
life insurance in force at the end of 1999, 1998 and 1997.
43
<PAGE>
T) INCOME TAXES: Connecticut General and its domestic subsidiaries are
included in the consolidated United States federal income tax return filed by
CIGNA. The provision for federal income tax is calculated as if Connecticut
General were filing a separate federal income tax return. Connecticut General
generally recognizes deferred income taxes when assets and liabilities have
different values for financial statement and tax reporting purposes (temporary
differences).
Note 7 contains detailed information about Connecticut General's income taxes.
NOTE 3 -- DISPOSITION
Connecticut General conducts regular strategic and financial reviews of its
businesses to ensure that capital is used effectively. As a result of its
review, Connecticut General sold its individual life insurance and annuity
business for cash proceeds of $1.4 billion as of January 1, 1998. The sale
generated an after-tax gain of $773 million. Of this amount, $202 million was
recognized at the time of sale. The remaining gain was deferred because the
principal agreement to sell this business was an indemnity reinsurance
arrangement. The deferred portion is being recognized at the rate that earnings
from the sold business would have been expected to emerge, primarily over
fifteen years on a declining basis.
Connecticut General recognized $62 million of the deferred gain in 1999 and
$66 million of the deferred gain in 1998.
As part of the sale, Connecticut General transferred invested assets of
$5.4 billion and various other assets and liabilities, and recorded a
reinsurance recoverable of $5.8 billion for insurance liabilities retained.
In 1997, revenues for the sold business were $972 million and net income was
$102 million.
NOTE 4 -- INVESTMENTS
A) FIXED MATURITIES: The amortized cost and fair value by contractual
maturity periods for fixed maturities, including policyholder share, were as
follows at December 31, 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Amortized Fair
(IN MILLIONS) Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less..................................... $ 992 $ 990
Due after one year through five years....................... 3,912 3,858
Due after five years through ten years...................... 3,997 3,949
Due after ten years......................................... 2,260 2,366
Mortgage- and other asset-backed securities................. 5,360 5,150
- --------------------------------------------------------------------------------
Total....................................................... $ 16,521 $16,313
- --------------------------------------------------------------------------------
------------------
</TABLE>
Actual maturities could differ from contractual maturities because issuers may
have the right to call or prepay obligations, with or without penalties. Also,
in some cases Connecticut General may extend maturity dates.
Gross unrealized appreciation (depreciation) on fixed maturities, including
policyholder share, by type of issuer was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31, 1999
- ----------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal government and agency bonds.............. $ 481 $130 $ (3) $ 608
State and local government bonds................. 167 6 (6) 167
Foreign government bonds......................... 192 2 (9) 185
Corporate securities............................. 10,321 225 (343) 10,203
Federal agency mortgage-backed securities........ 760 10 (8) 762
Other mortgage-backed securities................. 1,633 15 (69) 1,579
Other asset-backed securities.................... 2,967 20 (178) 2,809
- ----------------------------------------------------------------------------------------------------
Total............................................ $16,521 $408 $(616) $16,313
- ----------------------------------------------------------------------------------------------------
-------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31, 1999
- ----------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal government and agency 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
Federal agency mortgage-backed securities........ 1,301 45 (1) 1,345
Other mortgage-backed securities................. 1,679 51 (10) 1,720
Other asset-backed securities.................... 2,724 121 (23) 2,822
- ----------------------------------------------------------------------------------------------------
Total............................................ $16,820 $1,384 $(137) $18,067
- ----------------------------------------------------------------------------------------------------
-------------------------------------------------
</TABLE>
At December 31, 1999, Connecticut General had commitments to purchase
$36 million of fixed maturities. Most of these commitments are to purchase
unsecured investment grade bonds, bearing interest at a fixed market rate. These
bond commitments are diversified by issuer and maturity date. Connecticut
General expects to disburse approximately 75% of the committed amount in 2000.
B) MORTGAGE LOANS AND REAL ESTATE: Connecticut General's mortgage loans and
real estate investments are diversified by property type and location. Mortgage
loans are also diversified by borrower. These loans, which are secured by the
related property, are generally made at less than 75% of the property's value.
At December 31, the carrying values of mortgage loans and real estate
investments, including policyholder share, were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans.............................................. $8,980 $8,875
------ ------
Real estate:
Held for sale............................................. 297 326
Held to produce income.................................... 478 386
------ ------
Total real estate........................................... 775 712
- ----------------------------------------------------------------------------
Total....................................................... $9,755 $9,587
- ----------------------------------------------------------------------------
--------------
</TABLE>
At December 31, mortgage loans and real estate investments consist of the
following property types and geographic regions:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Property type:
Retail facilities......................................... $3,018 $3,145
Office buildings.......................................... 4,081 3,814
Apartment buildings....................................... 1,191 1,283
Industrial................................................ 670 --
Hotels.................................................... 488 450
Other..................................................... 307 895
- ----------------------------------------------------------------------------
Total....................................................... $9,755 $9,587
- ----------------------------------------------------------------------------
--------------
Geographic region:
Central................................................... $2,721 $3,051
Pacific................................................... 2,941 2,683
Middle Atlantic........................................... 1,653 1,510
South Atlantic............................................ 1,531 1,348
New England............................................... 909 995
- ----------------------------------------------------------------------------
Total....................................................... $9,755 $9,587
- ----------------------------------------------------------------------------
--------------
</TABLE>
45
<PAGE>
MORTGAGE LOANS.
At December 31, 1999, scheduled mortgage loan maturities were as follows (in
billions): $1.0 in 2000, $0.8 in 2001, $1.1 in 2002, $1.6 in 2003, $1.3 in 2004,
and $3.2 thereafter. Actual maturities could differ from contractual maturities
for several reasons. Borrowers may have the right to prepay obligations, with or
without prepayment penalties; the maturity date may be extended; and loans may
be refinanced.
At December 31, 1999, Connecticut General had commitments to extend credit
under commercial mortgage loan agreements of approximately $111 million, most of
which were at a fixed market rate of interest. These loan commitments are
diversified by property type and geographic region. Connecticut General expects
to disburse approximately all of the committed amount in 2000.
At December 31, impaired mortgage loans and valuation reserves were as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with no valuation reserves................... $184 $132
Impaired loans with valuation reserves...................... 52 24
---- ----
Total impaired loans........................................ 236 156
Less valuation reserves..................................... (11) (6)
- -------------------------------------------------------------------------
Net impaired loans.......................................... $225 $150
- -------------------------------------------------------------------------
-----------
</TABLE>
During the year ended December 31, changes in reserves for impaired mortgage
loans, including policyholder share, were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Reserve balance -- January 1................................ $ 6 $ 44
Transfers to foreclosed real estate......................... -- (21)
Charge-offs upon sales...................................... -- (9)
Net change in valuation reserves............................ 5 (8)
- -------------------------------------------------------------------------
Reserve balance -- December 31.............................. $11 $ 6
- -------------------------------------------------------------------------
-----------
</TABLE>
Impaired mortgage loans, before valuation reserves, averaged approximately
$183 million in 1999, and $285 million in 1998. Interest income recorded and
cash received on impaired loans were approximately $19 million in 1999 and
$12 million in 1998.
During 1999, Connecticut General refinanced approximately $96 million of its
mortgage loans at current market rates for borrowers unable to obtain
alternative financing, compared to $126 million in 1998.
REAL ESTATE.
During 1999, non-cash investing activities included $13 million of real estate
acquired through foreclosure of mortgage loans, compared to $32 million for 1998
and $81 million for 1997. The total of valuation reserves and cumulative
write-downs related to real estate, including policyholder share, was
$143 million at the end of 1999, compared to $171 million at the end of 1998.
Net investment income from real estate held for sale was $6 million for 1999 and
$8 million for 1998. Write-downs upon foreclosure and changes in valuation
reserves were not material for 1999 or 1998.
C) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and
cash equivalents were primarily debt securities -- principally corporate
securities of $398 million, asset-backed securities of $133 million and federal
government bonds of $77 million at December 31, 1999. Connecticut General held
$963 million in corporate securities, $68 million of federal government bonds
and $24 million of asset-backed securities at December 31, 1998.
46
<PAGE>
D) NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS: Unrealized
appreciation (depreciation) on investments carried at fair value at December 31
was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation:
Fixed maturities.......................................... $ 408 $1,384
Equity securities......................................... 7 10
----- ------
415 1,394
----- ------
Unrealized depreciation:
Fixed maturities.......................................... (615) (137)
Equity securities......................................... (2) (25)
----- ------
(617) (162)
----- ------
(202) 1,232
Less policyholder-related amounts........................... (150) 880
----- ------
Shareholder net unrealized appreciation (depreciation)...... (52) 352
Income tax expense (benefit)................................ (7) 134
- ----------------------------------------------------------------------------
Net unrealized appreciation (depreciation).................. $ (45) $ 218
- ----------------------------------------------------------------------------
--------------
</TABLE>
Changes in net unrealized appreciation (depreciation) on investments for the
years ended December 31 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized appreciation (depreciation) on investments
held...................................................... $(405) $137 $106
Tax expense (tax benefit)................................... (141) 48 37
----- ---- ----
Unrealized appreciation (depreciation), net of taxes........ (264) 89 69
----- ---- ----
(Losses) gains realized in net income....................... (1) 195 1
Tax expense................................................. -- 68 --
----- ---- ----
(Losses) gains realized in net income, net of taxes......... (1) 127 1
----- ---- ----
Net unrealized appreciation (depreciation).................. $(263) $(38) $ 68
- ---------------------------------------------------------------------------------
-------------------
</TABLE>
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) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities............................................ $ 7 $ 22
Mortgage loans.............................................. 1 2
Real estate................................................. 76 68
Other long-term investments................................. 25 --
- ------------------------------------------------------------------------
Total....................................................... $109 $ 92
- ------------------------------------------------------------------------
----------
</TABLE>
F) DERIVATIVE FINANCIAL INSTRUMENTS: Connecticut General's investment
strategy is to manage the characteristics of investment and other assets -- such
as duration, yield, currency, and liquidity -- to reflect the varying
characteristics of the related insurance, contractholder and other liabilities.
In implementing its investment strategy, Connecticut General substantially
limits its use of derivative instruments to hedging applications designed to
limit interest rate, foreign exchange, and equity price risks. The effects of
derivatives were not material for 1999, 1998 or 1997.
HEDGE ACCOUNTING TREATMENT.
Accounting rules provide that companies may only use hedge accounting when it
is probable that there will be a high correlation between the changes in fair
value or cash flow of a derivative instrument and the changes in fair value or
cash flow of the related hedged asset or liability. These changes are recognized
together in net income and generally offset each other.
47
<PAGE>
When hedge accounting treatment does not apply, Connecticut General records
the derivative at fair value. Changes in fair value are then recognized in net
income, or in contractholder liabilities for certain derivatives associated with
experience-rated pension policyholders.
CREDIT RISK.
Connecticut General routinely monitors exposure to credit risk associated with
swap and option contracts, and diversifies the portfolio among approved dealers
of high credit quality to limit risk.
DERIVATIVE INSTRUMENTS USED.
The table below presents information about the nature and accounting treatment
of Connecticut General's derivative financial instruments, and includes their
underlying notional amounts (in millions) at December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Notional
Amounts:
1999
Instrument Risk Hedged Purpose Cash Flows Accounting Policy 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SWAPS Interest Connecticut Connecticut Fair value is $350
rate and General hedges the General reported currently $351
foreign interest or periodically in fixed
currency foreign currency exchanges cash maturities and net
risk cash flows of flow differences interest cash
fixed maturities between variable flows are reported
to match and fixed interest in net investment
associated rates or between income.
liabilities two currencies for
(currency swaps both principal and
are primarily interest.
Canadian dollars,
Japanese yen,
Swiss francs,
euros and pounds
sterling).
- ----------------------------------------------------------------------------------------------
FORWARD Interest Connecticut Connecticut Fair value is $1,793
SWAPS rate risk General hedges General reported currently --
fair value changes periodically in long-term
of fixed maturity exchanges the investments, with
and mortgage loan difference between changes in
investments held variable and fixed contractholder
primarily for rate asset cash deposit funds.
experience-rated flows, beginning
pension at a future date.
policyholders.
- ----------------------------------------------------------------------------------------------
WRITTEN Primarily Connecticut Connecticut Fair values are Written
AND equity risk General writes General receives reported currently $2,275
PURCHASED reinsurance (pays) an up-front in other $1,087
OPTIONS contracts to fee and liabilities and
minimize periodically pays other assets, with
customers' market (receives) changes reported Purchased
risks and unfavorable in other revenues $1,822
purchases changes in or other operating $872
reinsurance variable annuity expenses.
contracts to account values
minimize the based on
market risks underlying mutual
assumed. These funds when account
contracts are holders elect to
accounted for as receive periodic
written and income payments.
purchased options.
- ----------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
G) OTHER: As of December 31, 1999 and 1998, Connecticut General did not have
a concentration of investments in a single issuer or borrower 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) 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities............................................ $1,336 $1,386 $1,648
Equity securities........................................... 2 1 8
Mortgage loans.............................................. 754 739 885
Policy loans................................................ 257 459 532
Real estate................................................. 148 142 183
Other long-term investments................................. 22 19 17
Short-term investments...................................... 39 18 28
------ ------ ------
2,558 2,764 3,301
Less investment expenses.................................... 137 127 162
- --------------------------------------------------------------------------------------
Net investment income....................................... $2,421 $2,637 $3,139
- --------------------------------------------------------------------------------------
------------------------
</TABLE>
Net investment income attributable to policyholder contracts, which is
included in Connecticut General's revenues and is primarily offset by amounts
included in benefits, losses and settlement expenses, was approximately
$1.4 billion for 1999, $1.6 billion for 1998, and $1.7 billion for 1997. Net
investment income for separate accounts, which is not reflected in Connecticut
General's revenues, was $1.7 billion for 1999, $1.5 billion for 1998, and
$1.4 billion for 1997.
Fixed maturities and mortgage loans on non-accrual status, including
policyholder share, were as follows at December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Delinquent.................................................. $ 12 $ 28
Restructured................................................ 176 181
- ------------------------------------------------------------------------
Total non-accrual investments............................... $188 $209
- ------------------------------------------------------------------------
----------
</TABLE>
In 1999, net investment income was $9 million higher than net interest income
would have been under the original terms of these securities, reflecting
collections of unrecognized interest income. For 1998 and 1997, net investment
income would have been higher by $8 million and $11 million in those years if
interest on these non-accrued investments would have been recognized in
accordance with their original terms.
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) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities............................................ $(3) $34 $(3)
Equity securities........................................... 2 3 4
Mortgage loans.............................................. (1) 22 4
Real estate................................................. 5 10 28
Other....................................................... 4 24 12
--- --- ---
7 93 45
Income tax (benefit) expense................................ (1) 33 8
- --------------------------------------------------------------------------------
Net realized investment gains............................... $ 8 $60 $37
- --------------------------------------------------------------------------------
------------------
</TABLE>
49
<PAGE>
Realized investment gains and losses included impairments in the value of
investments, net of recoveries, of $9 million in 1999 and $25 million in 1997.
In 1998, realized investment gains and losses included recoveries in the value
of investments, net of impairments, of $5 million.
Realized investment gains that are not reflected in Connecticut General's
revenues for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Separate accounts........................................... $2,253 $494 $489
Policyholder contracts...................................... $ 31 $201 $ 76
- ----------------------------------------------------------------------------------
</TABLE>
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) 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales......................................... $2,360 $2,884 $1,597
Gross gains on sales........................................ $ 65 $ 180 $ 60
Gross losses on sales....................................... $ (26) $ (41) $ (98)
- --------------------------------------------------------------------------------------
</TABLE>
NOTE 6 -- SHAREHOLDER'S EQUITY AND DIVIDEND RESTRICTIONS
The Connecticut Insurance Department, which regulates Connecticut General,
prescribes accounting practices to determine statutory net income and surplus
(shareholder's equity). The prescribed accounting practices differ in a number
of ways from generally accepted accounting principles. Connecticut General's
statutory net income for the year ended, and surplus as of, December 31 were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income.................................................. $ 747 $ 824 $ 417
Surplus..................................................... $1,981 $1,789 $2,182
- --------------------------------------------------------------------------------------
</TABLE>
Connecticut General is subject to restrictions that limit the amount of annual
dividends or other distributions (such as loans or cash advances) available to
their shareholders without prior approval of regulatory authorities. The maximum
dividend distribution that Connecticut General may make during 2000 without
prior approval is approximately $0.7 billion. The amount of restricted net
assets as of December 31, 1999 was approximately $2.7 billion.
Connecticut General's capital stock consisted of 5,978,322 shares of common
stock authorized and outstanding as of December 31, 1999 and 1998 (par
value $5).
NOTE 7 -- INCOME TAXES
Connecticut General's net deferred tax assets of $933 million as of December
31, 1999, and $865 million as of December 31, 1998, reflect management's belief
that Connecticut General's taxable income in future years will be sufficient to
realize the net deferred tax asset. This determination is based on Connecticut
General's earnings history and future expectations.
Through 1983, a portion of Connecticut General's statutory income was not
subject to current income taxation, but was accumulated in a designated
policyholders' surplus account. Additions to the account were no longer
permitted beginning in 1984. Connecticut General's existing account balance of
$450 million would result in a $158 million tax liability only if it were
distributed to shareholders or exceeded a prescribed amount. Accordingly,
Connecticut General has not provided taxes on this amount, as management has
determined, it is remote these conditions will be met. However, see Note 13 for
further information regarding this matter.
CIGNA's federal income tax returns are routinely audited by the Internal
Revenue Service (IRS). In management's opinion, adequate tax liabilities have
been established for all years. Income taxes and deferred tax balances for the
years ended December 31, 1999 and 1998 reflect state income taxes. State income
taxes were not material in 1997.
50
<PAGE>
The tax effect of temporary differences which give rise to deferred income tax
assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other insurance and contractholder liabilities............ $ 142 $ 119
Employee and retiree benefit plans........................ 190 214
Deferred gain on sale of business......................... 235 290
Investments, net.......................................... 327 356
Policy acquisition expenses............................... 108 111
Unrealized appreciation on investments.................... 7 --
------ ------
Total deferred tax assets................................... 1,009 1,090
------ ------
Deferred tax liabilities:
Unrealized appreciation on investments.................... -- 134
Depreciation and amortization............................. 68 67
Other..................................................... 8 24
------ ------
Total deferred tax liabilities.............................. 76 225
- ----------------------------------------------------------------------------
Net deferred income tax assets.............................. $ 933 $ 865
- ----------------------------------------------------------------------------
--------------
</TABLE>
The components of income taxes for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
U.S. income............................................... $258 $617 $344
Foreign income............................................ 6 5 3
State income.............................................. 4 14 --
---- ---- ----
268 636 347
---- ---- ----
Deferred taxes (benefits):
U. S. income.............................................. 90 (205) (49)
State income.............................................. -- (6) --
---- ---- ----
90 (211) (49)
- --------------------------------------------------------------------------------
Total income taxes.......................................... $358 $425 $298
- --------------------------------------------------------------------------------
------------------
</TABLE>
Total income taxes for the year ended December 31 were different from the
amount computed using the nominal federal income tax rate of 35% for the
following reasons:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at nominal rate................................. $371 $431 $320
Tax-exempt interest income.................................. (4) (4) (5)
Dividends received deduction................................ (9) (13) (7)
Amortization of goodwill.................................... 5 5 4
State income tax (net of federal income tax benefit)........ 3 5 --
Resolved federal tax audit issues........................... -- -- (13)
Other....................................................... (8) 1 (1)
- --------------------------------------------------------------------------------
Total income taxes.......................................... $358 $425 298
- --------------------------------------------------------------------------------
------------------
</TABLE>
NOTE 8 -- PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
A) PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS: Connecticut General
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 Connecticut
General along with other benefit cost allocations.
51
<PAGE>
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 Connecticut
General was $19 million in 1999 and 1998 and $24 million in 1997. The plans had
deposits with Connecticut General totaling approximately $2.1 billion at
December 31, 1999 and $2.8 billion at December 31, 1998.
Expense for post retirement benefits other than pensions allocated to
Connecticut General totaled $6 million for 1999 and $2 million for 1998. The
other post retirement benefit liability included in accounts payable, accrued
expenses and other liabilities, was $377 million as of December 31, 1999 and
$387 million as of December 31, 1998.
B) 401(k) PLANS: CIGNA sponsors various 401(k) plans in which CIGNA matches a
portion of employees' pre-tax contributions. Employees may invest in one or more
of the following funds: CIGNA common stock fund, several diversified stock
funds, a bond fund and a fixed-income fund.
CIGNA may elect to increase its matching contributions if CIGNA's annual
performance meets certain targets. A substantial amount of CIGNA's matching
contributions are invested in the CIGNA common stock fund. Connecticut General's
allocated expense for these plans was $20 million for 1999, $22 million for 1998
and $15 million for 1997.
NOTE 9 -- REINSURANCE
In the normal course of business, Connecticut General enters into agreements
with other insurance companies to assume and cede reinsurance. Reinsurance is
ceded primarily to limit losses from large exposures and to permit recovery of a
portion of direct losses. Reinsurance does not relieve the originating insurer
of liability. Connecticut General evaluates the financial condition of its
reinsurers and monitors their concentrations of credit risk (arising from
similar geographic regions, activities, or economic characteristics).
At December 31, 1999, Connecticut General had a reinsurance recoverable of
$6.0 billion from Lincoln National Corporation that arose as a result of the
sale of Connecticut General's individual life insurance and annuity business to
Lincoln through an indemnity reinsurance transaction. See Note 3 for information
about this sale.
Failure of reinsurers to indemnify Connecticut General, whether because of
reinsurer insolvencies or contract disputes, could result in losses. However,
management does not expect charges for unrecoverable reinsurance to have a
material effect on Connecticut General's results of operations, liquidity or
financial condition.
52
<PAGE>
In Connecticut General's consolidated income statements, premiums and fees
were net of ceded premiums, and benefits, losses and settlement expenses were
net of reinsurance recoveries, in the following amounts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-DURATION CONTRACTS
Premiums and fees:
Direct.................................................... $4,248 $3,763 $3,119
Assumed................................................... 651 286 255
Ceded..................................................... (105) (237) (266)
- --------------------------------------------------------------------------------------------
Net earned premiums and fees................................ $4,794 $3,812 $3,108
- --------------------------------------------------------------------------------------------
------------------------------
LONG-DURATION CONTRACTS
Premiums and fees:
Direct.................................................... $1,750 $1,998 $1,979
Assumed................................................... 635 564 522
Ceded..................................................... (606) (691) (233)
- --------------------------------------------------------------------------------------------
Net earned premiums and fees................................ $1,779 $1,871 $2,268
- --------------------------------------------------------------------------------------------
------------------------------
REINSURANCE RECOVERIES
Individual life insurance and annuity business sold......... $ 362 $ 550 $ --
Other....................................................... 194 149 340
- --------------------------------------------------------------------------------------------
Total....................................................... $ 556 $ 699 $ 340
- --------------------------------------------------------------------------------------------
------------------------------
</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.
Ceded premiums and reinsurance recoveries associated with the individual life
and insurance businesses sold were $462 million and $362 million for 1999, and
$741 million and $550 million for 1998.
NOTE 10 -- LEASES AND RENTALS
Rental expenses for operating leases, principally for office space, amounted
to $42 million in 1999 and 1998, and $76 million in 1997.
As of December 31, 1999, future net minimum rental payments under
non-cancelable operating leases were approximately $230 million, payable as
follows (in millions): $39 in 2000, $35 in 2001, $32 in 2002, $28 in 2003, $24
in 2004, and $72 thereafter.
NOTE 11 -- SEGMENT INFORMATION
Operating segments are based on Connecticut General's internal reporting
structure. Segments generally reflect groups of related products. Connecticut
General presents segment information as follows:
- EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS, which combines
Connecticut General's Health Care and Group Insurance segments, offers a
range of indemnity group health and managed care products and services
through guaranteed cost, experience rated and alternative funding
arrangements such as administrative services only and minimum premium plans.
This segment also offers group life and disability coverages.
- 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 consists of deferred gain recognized from the sale of the
individual life insurance and annuity business; corporate life insurance on
which policy loans are outstanding (leveraged corporate life insurance);
life, accident and health reinsurance operations; settlement annuity
business; and certain new business initiatives.
53
<PAGE>
Connecticut General measures the financial results of its segments using
operating income (net income excluding after-tax realized investment results).
Connecticut General determines operating income for each segment consistent with
the accounting policies for the consolidated financial statements. Connecticut
General allocates other corporate general, administrative and systems expenses
on systematic bases. Income taxes are generally computed as if each segment were
filing separate income tax returns.
Connecticut General'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>
- --------------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS
Premiums and fees and other revenues........................ $ 5,769 $ 5,012 $ 4,307
Net investment income....................................... 267 290 286
- --------------------------------------------------------------------------------------------
Segment revenues............................................ 6,036 5,302 4,593
Income tax expense.......................................... 174 114 108
Operating income............................................ 315 195 190
Assets under management:
Invested assets........................................... 3,341 3,519 3,761
Separate account assets................................... 2,038 1,702 1,440
- --------------------------------------------------------------------------------------------
Total....................................................... $ 5,379 $ 5,221 $ 5,201
- --------------------------------------------------------------------------------------------
EMPLOYEE RETIREMENT BENEFITS AND INVESTMENT SERVICES
Premiums and fees and other revenues........................ $ 251 $ 239 $ 205
Net investment income....................................... 1,596 1,605 1,653
- --------------------------------------------------------------------------------------------
Segment revenues............................................ 1,847 1,844 1,858
Income tax expense.......................................... 124 113 99
Operating income............................................ 258 245 229
Assets under management:
Invested assets........................................... 19,645 20,511 20,759
Separate account assets................................... 33,534 30,717 26,678
- --------------------------------------------------------------------------------------------
Total....................................................... $53,179 $51,228 $47,437
- --------------------------------------------------------------------------------------------
OTHER OPERATIONS
Premiums and fees and other revenues........................ $ 664 $ 859 $ 874
Net investment income....................................... 558 742 1,200
- --------------------------------------------------------------------------------------------
Segment revenues............................................ 1,222 1,601 2,074
Income tax expense.......................................... 61 165 83
Operating income............................................ 121 306 159
Assets under management:
Invested assets........................................... 6,401 10,006 16,181
Separate account assets................................... 2,887 2,229 1,099
- --------------------------------------------------------------------------------------------
Total....................................................... $ 9,288 $12,235 $17,280
- --------------------------------------------------------------------------------------------
------------------------------
</TABLE>
54
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Realized investment gains................................... $ 7 $ 93 45
Income tax (benefit) expense................................ (1) 33 8
- --------------------------------------------------------------------------------------------
Realized investment gains, net of taxes..................... $ 8 $ 60 $ 37
- --------------------------------------------------------------------------------------------
TOTAL
Premiums and fees and other revenues........................ $ 6,684 $ 6,110 $ 5,386
Net investment income....................................... 2,421 2,637 3,139
Realized investment gains................................... 7 93 45
- --------------------------------------------------------------------------------------------
Total revenues.............................................. 9,112 8,840 8,570
Income tax expense.......................................... 358 425 298
Operating income............................................ 694 746 578
Realized investment gains, net of taxes..................... 8 60 37
------- ------- -------
Net income.................................................. 702 806 615
Assets under management
Invested assets........................................... 29,387 34,036 40,701
Separate account assets................................... 38,459 34,648 29,217
- --------------------------------------------------------------------------------------------
Total....................................................... $67,846 $68,684 $69,918
- --------------------------------------------------------------------------------------------
------------------------------
</TABLE>
Premiums and fees and other revenues by product type were as follows for the
year ended December 31:
<TABLE>
- --------------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Medical and Dental.......................................... $4,388 $3,566 $2,883
Group Life.................................................. 1,282 1,363 1,355
Other....................................................... 1,014 1,181 1,148
- --------------------------------------------------------------------------------------------
Total....................................................... $6,684 $6,110 $5,386
- --------------------------------------------------------------------------------------------
------------------------------
</TABLE>
Connecticut General's foreign activities, including premiums and fees, net
income, translation adjustments, transaction losses and long-lived assets for
the years ended and as of December 31, 1999, 1998 and 1997 were not material.
NOTE 12 -- RELATED PARTY TRANSACTIONS
Connecticut General has assumed the settlement annuity and group pension
business written by Life Insurance Company of North America (LINA), an
affiliate. Reserves held by Connecticut General for this business were
$1.5 billion at December 31, 1999 and $1.7 billion at December 31, 1998.
Effective January 1, 1999, the Company entered into a contract to assume
certain accident and health business from CIGNA Life Insurance Company of New
York, an affiliate. During 1999, the Company assumed $439.1 million of premiums
and held reserves of $34.6 million at December 31, 1999.
Connecticut General cedes long-term disability business to LINA. Reinsurance
recoverables from LINA were $787 million at December 31, 1999 and $834 million
at December 31, 1998. In 1999, as part of this reinsurance arrangement, LINA
paid an experience refund of $32.5 million on an after tax basis to the Company
related to the period 1992-1994.
Effective January 1, 1998, Connecticut General 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, Connecticut General 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
Connecticut General from HPA.
55
<PAGE>
The Company has entered into an arrangement with International Rehabilitation
Services Inc. to receive certain rehabilitation, utilization review and medical
review services. The Company paid $70.1 million in 1999 and $47.7 million in
1998 for these services.
The Company, along with other CIGNA subsidiaries, has entered into an
arrangement with CIGNA Investments, Inc. for investment advisory services. Fees
paid by the Company during 1999 totaled $29.5 million and $30.6 million in 1998.
The Company has an arrangement with CIGNA Health Corporation and its
subsidiaries and affiliates to provide managed care provider networks and other
administrative services for group health benefit plans insured or administered
by the Company. Fees paid by the Company totaled $772 million in 1999 and
$685 million in 1998.
Connecticut General had lines of credit available from affiliates totaling
$600 million at December 31, 1999 and $600 million at December 31, 1998. All
borrowings are payable upon demand with interest rates equivalent to CIGNA's
average monthly short-term borrowing rate plus 1/4 of 1%. Interest expense was
$0.2 million in 1999, $1.5 million in 1998 and $0.2 million in 1997. As of
December 31, 1999 and 1998 there were no borrowings outstanding under such
lines.
Connecticut General extended lines of credit to affiliates totaling
$600 million at December 31, 1999 and 1998. All loans are payable upon demand
with interest rates equivalent to CIGNA's short-term borrowing rate. There were
no amounts outstanding as of December 31, 1999 or 1998.
Connecticut General, together with other CIGNA subsidiaries, has entered into
a pooling arrangement known as the CIGNA Corporate Liquidity Account (the
Account) for the purpose of increasing earnings on 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. Connecticut General
had balances in the Account of $0.8 billion at December 31, 1999 and
$1.1 billion at December 31, 1998.
CIGNA allocates to Connecticut General its share of operating expenses
incurred at the corporate level. Connecticut General also allocates a portion of
its operating expenses to affiliated companies for whom it performs certain
administrative services.
NOTE 13 -- CONTINGENCIES
A) FINANCIAL GUARANTEES: Connecticut General is contingently liable for
various financial guarantees provided in the ordinary course of business.
Connecticut General also secures reinsurance to recover a portion of amounts
paid in connection with a financial guarantee.
SPECIALTY LIFE REINSURANCE CONTRACTS. Connecticut General has entered into
specialty life reinsurance contracts that contain certain guarantees for
variable annuities. One type of reinsurance contract guarantees minimum income
benefits based on unfavorable changes in account values. The other type
guarantees a minimum death benefit, also based on unfavorable changes in account
values. The variable annuity account values are based on underlying domestic
equity and bond mutual fund investments.
Those reinsurance contracts that guarantee minimum income benefits are
accounted for as written options. Connecticut General has purchased reinsurance
from third parties which substantially reduces the risk of these contracts. See
Note 4 (f) for additional information.
For those reinsurance contracts that guarantee minimum death benefits,
reserves are established in amounts adequate to meet the estimated future
obligations. These estimates are based on various assumptions as to equity
market conditions and premiums, as well as interest, mortality and lapse rates,
allowing for adverse deviation. As of December 31, 1999, the amount of recorded
liabilities was $83 million, compared to recorded liabilities of $52 million as
of December 31, 1998.
Management is reviewing alternatives to manage the associated equity market
and interest rate risks for contracts that guarantee minimum death benefits. As
part of this review, Connecticut General is considering whether to modify
certain reserve assumptions for the contracts. The guarantees under these
contracts and changes that could result from this review could adversely affect
Connecticut General's consolidated results of operations in future periods.
However, management does not expect them to have a material adverse effect on
Connecticut General's liquidity or financial condition.
56
<PAGE>
SEPARATE ACCOUNT CONTRACTS. Connecticut General guarantees a minimum level of
benefits for certain separate account contracts. If assets in these separate
accounts are insufficient to fund minimum policy benefits, Connecticut General
is obligated to pay the difference.
As of December 31, 1999, Connecticut General guaranteed minimum benefits of
$4.9 billion for separate account contracts, compared to $5.1 billion at the end
of 1998. The management fee that Connecticut General charges to separate
accounts includes a guarantee fee. These fees are recognized in income as
earned.
Connecticut General establishes a liability if management believes that
Connecticut General will be required to make a payment under a separate account
contract guarantee. No such liabilities were required as of December 31, 1999 or
1998. If Connecticut General becomes obligated to make payments as a result of
these guarantees, those obligations may adversely affect Connecticut General's
results of operations in future periods. However, management does not expect
these guarantee obligations to have a material adverse effect on Connecticut
General's liquidity or financial condition.
INDUSTRIAL REVENUE BONDS. As of December 31, 1999 and 1998, Connecticut
General guaranteed $85 million of industrial revenue bond issues. These bond
issues will be outstanding for up to 16 more years. If the issuers default,
Connecticut General will be required to make periodic payments based on the
original terms of the bonds. Unlike many debt obligations, an event of default
under these bonds will not cause all scheduled principal and interest payments
to be due immediately.
Connecticut General limits its exposure to credit risk due to default by the
primary borrower by reviewing the creditworthiness of guaranteed parties and by
monitoring credit conditions regularly. Connecticut General establishes a
reserve if management believes that Connecticut General will be required to make
a payment under a financial guarantee.
B) REGULATORY AND INDUSTRY DEVELOPMENTS: Connecticut General's businesses are
subject to a changing social, economic, legal, legislative and regulatory
environment. Some of the more significant current issues that may affect
Connecticut General's businesses include:
- efforts to expand tort liability of health plans;
- proposed class action lawsuits targeting health care companies;
- initiatives to increase health care regulation;
- initiatives to restrict insurance pricing and the application of
underwriting standards; and
- efforts to revise federal tax laws.
HEALTH CARE REGULATION. Efforts are underway in the federal and state
legislatures and in the courts to increase regulation of the health care
industry and change its operational practices. Regulatory and operational
changes could have an adverse effect on Connecticut General's health care
activities if they reduce marketplace competition and innovation or result in
increased medical or administrative costs without improving the quality of care
or member satisfaction.
Other regulatory changes that have been under consideration and that could
have an adverse effect on Connecticut General's health care operations include:
- mandated benefits or services that increase costs without improving the
quality of care;
- managed care reform and patients' bill of rights legislation;
- loss of the ERISA preemption of state tort laws through legislative actions
and court decisions;
- changes in ERISA regulations imposing increased administrative burdens and
costs;
- restrictions on the use of prescription drug formularies; and
- privacy legislation that interferes with the ability to properly use medical
information for research, coordination of medical care and disease
management.
57
<PAGE>
FEDERAL BUDGET PROPOSALS. The Administration's proposed budget for fiscal
year 2001 would tax amounts previously accumulated in a policyholders' surplus
account. If enacted, Connecticut General will record additional income tax
expense of $158 million. (See Note 7 to the Financial Statements for more
information.)
The proposed budget also would restrict the tax benefits for corporations
owning nonleveraged corporate life insurance policies. If enacted as proposed,
Connecticut General does not anticipate that this provision will have a material
effect on its consolidated results of operations, liquidity, or financial
condition, but it could have a material adverse effect on the results of
operations of the Employee Retirement Benefits and Investment Services segment.
TAX BENEFITS FOR CORPORATE-OWNED LIFE INSURANCE. In 1996, Congress passed
legislation implementing a three-year phase-out period for tax deductibility of
policy loan interest for most leveraged corporate life insurance products. As a
result, management expects revenues and operating income associated with these
products to continue to decline. In 1999, revenues of $350 million, and
operating income of $32 million, were from products that are affected by this
legislation.
STATUTORY ACCOUNTING PRINCIPLES. In 1998, the NAIC adopted standardized
statutory accounting principles. Although many states have indicated their
intent to adopt these principles, Connecticut, in which Connecticut General is
domiciled, has not formally adopted them. As a result, Connecticut General has
not determined the timing or effect of implementing these principles.
INSOLVENCY FUNDS. Various states maintain funds to pay the obligations of
insolvent insurance companies. These funds are financed with assessments against
all insurance companies writing business in that state. In some states,
insurance companies can recover a portion of these assessments through a
reduction in future premium taxes. Connecticut General recorded pre-tax charges
for continuing operations of $8 million for 1999, $18 million for 1998 and
$28 million for 1997 for insolvency fund and other insurance-related assessments
that can be reasonably estimated, before giving effect to future premium tax
recoveries.
Although future assessments and payments may adversely affect results of
operations in future periods, management does not expect these amounts to have a
material adverse effect on Connecticut General's liquidity or financial
condition.
C) CLASS ACTION LAWSUITS AND OTHER LITIGATION: Connecticut General, its
direct parent, Connecticut General Corporation, its indirect parent, CIGNA, and
its affiliate, CIGNA Health Corporation, and several health care industry
competitors have had proposed class action lawsuits filed against them by a
coalition of plaintiffs' attorneys. These lawsuits allege violations under RICO
and ERISA. Connecticut General is routinely involved in numerous lawsuits
arising, for the most part, in the ordinary course of the business of
administering and insuring employee benefit programs. Although the outcome of
litigation is always uncertain, Connecticut General does not believe that any
litigation currently threatened or pending involving Connecticut General will
result in losses that differ from recorded reserves by amounts that would be
material to results of operations, liquidity or financial condition.
58
<PAGE>
PricewaterhouseCoopers LLP
100 Pearl Street
Hartford, CT 06103-4508
Telephone (860) 241-7000
Facsimile (860) 241-7590
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; Bankers Trust
Insurance Funds Trust - Bankers Trust EAFE Equity Index Fund, Bankers Trust
Small Capitalization Index Fund, CIGNA Variable Products Group - CIGNA Variable
Products Money Market Fund, CIGNA Variable Products S&P 500 Index Fund; CIGNA
Variable Products Investment Grade Bond 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 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, 1999, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, in conformity with
accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States 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, 1999 by correspondence with the custodian, provide
a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
February 21, 2000
59
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
BANKERS TRUST
INSURANCE FUNDS TRUST -
ALGER AMERICAN FUND SUB-ACCOUNTS SUB-ACCOUNTS
------------------------------------------ ------------------------------------------
MIDCAP SMALL EAFE-REGISTERED TRADEMARK- SMALL
GROWTH GROWTH CAPITALIZATION EQUITY CAPITALIZATION
------------ ------------ -------------- -------------------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at fair
value....................... $2,025,620 $ 585,106 $1,396,727 $ 13,089 $ 1,308
Receivable from Connecticut
General Life Insurance
Company..................... -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Total assets.............. 2,025,620 585,106 1,396,727 13,089 1,308
---------- ---------- ---------- ---------- -----------
LIABILITIES:
Payable to Connecticut General
Life
Insurance Company........... 25 27 20 64 9
---------- ---------- ---------- ---------- -----------
Total liabilities......... 25 27 20 64 9
---------- ---------- ---------- ---------- -----------
Net assets................ $2,025,595 $ 585,079 $1,396,707 $ 13,025 $ 1,299
========== ========== ========== ========== ===========
Accumulation units outstanding
-- Contracts sold before
May 1, 1998 (RVUL 01)....... 75,031 29,543 28,896 84 18
Net asset value per
accumulation unit........... $ 22.754 $ 18.982 $ 20.399 $ 12.881 $ 12.614
Accumulation units outstanding
-- Contracts sold after
April 30, 1998 (RVUL 02).... 24,013 1,821 53,443 1,082 91
Net asset value per
accumulation unit........... $ 13.257 $ 13.341 $ 15.105 $ 11.038 $ 11.775
---------- ---------- ---------- ---------- -----------
Accumulation net assets....... $2,025,595 $ 585,079 $1,396,707 $ 13,025 $ 1,299
========== ========== ========== ========== ===========
<CAPTION>
CIGNA VARIABLE
PRODUCTS GROUP
SUB-ACCOUNTS
-------------------------------------
INVESTMENT
MONEY MARKET S&P 500 GRADE BOND
------------ ----------- ----------
<S> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at fair
value....................... $ 667,192 $39,258,101 $1,624,887
Receivable from Connecticut
General Life Insurance
Company..................... -- -- 20
---------- ----------- ----------
Total assets.............. 667,192 39,258,101 1,624,907
---------- ----------- ----------
LIABILITIES:
Payable to Connecticut General
Life
Insurance Company........... 192 576 --
---------- ----------- ----------
Total liabilities......... 192 576 --
---------- ----------- ----------
Net assets................ $ 667,000 $39,257,525 $1,624,907
========== =========== ==========
Accumulation units outstanding
-- Contracts sold before
May 1, 1998 (RVUL 01)....... 27,832 1,819,480 104,418
Net asset value per
accumulation unit........... $ 11.278 $ 18.379 $ 9.852
Accumulation units outstanding
-- Contracts sold after
April 30, 1998 (RVUL 02).... 33,209 434,971 59,636
Net asset value per
accumulation unit........... $ 10.633 $ 13.374 $ 9.997
---------- ----------- ----------
Accumulation net assets....... $ 667,000 $39,257,525 $1,624,907
========== =========== ==========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
60
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FIDELITY
VARIABLE
INSURANCE JANUS
FIDELITY VARIABLE PRODUCTS ASPEN
INSURANCE FUND II SERIES MFS VARIABLE
PRODUCTS FUND SUB- SUB- INSURANCE TRUST -
SUB-ACCOUNTS ACCOUNT ACCOUNTS SUB-ACCOUNTS
---------------------- ---------- ---------- ----------------------
EQUITY- HIGH INVESTMENT EMERGING TOTAL
INCOME INCOME GRADE BOND WORLDWIDE GROWTH RETURN
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at fair
value....................... $1,380,023 $ 831,105 $4,164,192 $4,791,096 $2,438,581 $ 194,609
Receivable from Connecticut
General Life Insurance
Company..................... -- 132 -- -- 39 --
---------- ---------- ---------- ---------- ---------- ----------
Total assets.............. 1,380,023 831,237 4,164,192 4,791,096 2,438,620 194,609
---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life Insurance Company...... 10 -- 201 52 -- 14
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities......... 10 -- 201 52 -- 14
---------- ---------- ---------- ---------- ---------- ----------
Net assets................ $1,380,013 $ 831,237 $4,163,991 $4,791,044 $2,438,620 $ 194,595
========== ========== ========== ========== ========== ==========
Accumulation units outstanding
-- Contracts sold before
May 1, 1998 (RVUL 01)....... 96,947 68,582 326,250 189,626 80,602 8,463
Net asset value per
accumulation unit........... $ 13.838 $ 11.711 $ 11.462 $ 23.684 $ 27.147 $ 13.062
Accumulation units outstanding
-- Contracts sold after
April 30, 1998 (RVUL 02).... 3,571 2,665 41,287 18,869 14,616 8,547
Net asset value per
accumulation unit........... $ 10.770 $ 10.534 $ 10.282 $ 15.896 $ 17.140 $ 9.834
---------- ---------- ---------- ---------- ---------- ----------
Accumulation net assets....... $1,380,013 $ 831,237 $4,163,991 $4,791,044 $2,438,620 $ 194,595
========== ========== ========== ========== ========== ==========
<CAPTION>
TEMPLETON
VARIABLE
PRODUCTS
SERIES
FUND -
OCC ACCUMULATION TRUST SUB-ACCOUNTS CLASS 1
---------------------------------------- -------------
SMALL
EQUITY MANAGED CAPITALIZATION INTERNATIONAL
----------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at fair
value....................... $ 258,528 $ 814,366 $1,061,240 $2,007,898
Receivable from Connecticut
General Life Insurance
Company..................... -- -- -- 10
---------- ---------- ---------- ----------
Total assets.............. 258,528 814,366 1,061,240 2,007,908
---------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life Insurance Company...... 16 24 6 --
---------- ---------- ---------- ----------
Total liabilities......... 16 24 6 --
---------- ---------- ---------- ----------
Net assets................ $ 258,512 $ 814,342 $1,061,234 $2,007,908
========== ========== ========== ==========
Accumulation units outstanding
-- Contracts sold before
May 1, 1998 (RVUL 01)....... 19,304 62,228 100,697 116,947
Net asset value per
accumulation unit........... $ 13.364 $ 12.949 $ 10.523 $ 14.490
Accumulation units outstanding
-- Contracts sold after
April 30, 1998 (RVUL 02).... 53 794 159 26,566
Net asset value per
accumulation unit........... $ 10.057 $ 10.771 $ 10.057 $ 11.795
---------- ---------- ---------- ----------
Accumulation net assets....... $ 258,512 $ 814,342 $1,061,234 $2,007,908
========== ========== ========== ==========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
61
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
BANKERS TRUST
INSURANCE FUNDS TRUST -
ALGER AMERICAN FUND SUB-ACCOUNTS SUB-ACCOUNTS
------------------------------------------ ------------------------------------------
MIDCAP SMALL EAFE-REGISTERED TRADEMARK- SMALL
GROWTH GROWTH CAPITALIZATION EQUITY CAPITALIZATION
------------ ------------ -------------- -------------------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends..................... $ 1,313 $ -- $-- $ 208 $ 13
EXPENSES:
Mortality and expense risk and
administrative charges...... 10,926 3,525 7,497 3 10
-------- -------- -------- ------ -------
Net investment gain
(loss)..................... (9,613) (3,525) (7,497) 205 3
-------- -------- -------- ------ -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... 89,671 49,152 84,143 389 37
Net realized gain (loss) on
share transactions.......... 23,106 4,468 9,266 13 4
-------- -------- -------- ------ -------
Net realized gain (loss).... 112,777 53,620 93,409 402 41
Net unrealized gain
(loss)..................... 333,646 80,099 310,481 762 169
-------- -------- -------- ------ -------
Net realized and unrealized
gain (loss) on
investments................ 446,423 133,719 403,890 1,164 210
-------- -------- -------- ------ -------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $436,810 $130,194 $396,393 $1,369 $ 213
======== ======== ======== ====== =======
<CAPTION>
CIGNA VARIABLE
PRODUCTS GROUP
SUB-ACCOUNTS
------------------------------------
INVESTMENT
MONEY MARKET S&P 500 GRADE BOND
------------ ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends..................... $ 26,951 $ 826,704 $ 53,012
EXPENSES:
Mortality and expense risk and
administrative charges...... 4,959 298,463 5,749
---------- ---------- --------
Net investment gain
(loss)..................... 21,992 528,241 47,263
---------- ---------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... -- 724,386 --
Net realized gain (loss) on
share transactions.......... -- 192,458 71
---------- ---------- --------
Net realized gain (loss).... -- 916,844 71
Net unrealized gain
(loss)..................... -- 4,672,428 (56,980)
---------- ---------- --------
Net realized and unrealized
gain (loss) on
investments................ -- 5,589,272 (56,909)
---------- ---------- --------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $ 21,992 $6,117,513 $ (9,646)
========== ========== ========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
62
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
FIDELITY VARIABLE FIDELITY VARIABLE JANUS ASPEN
INSURANCE INSURANCE SERIES MFS VARIABLE
PRODUCTS FUND PRODUCTS FUND II SUB- INSURANCE TRUST -
SUB-ACCOUNTS SUB-ACCOUNT ACCOUNTS SUB-ACCOUNTS
-------------------- ----------------- ----------- ------------------
EQUITY- HIGH INVESTMENT EMERGING TOTAL
INCOME INCOME GRADE BOND WORLDWIDE GROWTH RETURN
--------- --------- ----------------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................ $13,677 $ 99,356 $ 232,911 $ 5,948 $ -- $ 1,058
EXPENSES:
Mortality and expense
risk and administrative
charges................ 12,179 8,726 47,871 30,997 12,627 945
------- -------- --------- ---------- -------- -------
Net investment gain
(loss)................. 1,498 90,630 185,040 (25,049) (12,627) 113
------- -------- --------- ---------- -------- -------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Capital distributions
from portfolio
sponsors............... 30,234 3,714 73,070 -- -- 1,961
Net realized gain (loss)
on share
transactions........... 2,905 3,929 4,993 62,912 15,823 48
------- -------- --------- ---------- -------- -------
Net realized gain
(loss)................ 33,139 7,643 78,063 62,912 15,823 2,009
Net unrealized gain
(loss)................ 23,754 (17,643) (362,524) 1,793,064 975,528 (1,102)
------- -------- --------- ---------- -------- -------
Net realized and
unrealized gain (loss)
on investments........ 56,893 (10,000) (284,461) 1,855,976 991,351 907
------- -------- --------- ---------- -------- -------
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS........ $58,391 $ 80,630 $ (99,421) $1,830,927 $978,724 $ 1,020
======= ======== ========= ========== ======== =======
<CAPTION>
TEMPLETON
VARIABLE
PRODUCTS
OCC ACCUMULATION SERIES FUND -
TRUST SUB-ACCOUNTS CLASS 1
----------------------------------------------- -----------------
SMALL INTERNATIONAL -
EQUITY MANAGED CAPITALIZATION CLASS 1
--------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................ $ 1,603 $11,583 $ 8,114 $ 40,711
EXPENSES:
Mortality and expense
risk and administrative
charges................ 1,858 7,861 10,732 15,671
------- -------
Net investment gain
(loss)................. (255) 3,722 (2,618) 25,040
------- -------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Capital distributions
from portfolio
sponsors............... 7,302 25,992 -- 141,416
Net realized gain (loss)
on share
transactions........... (859) 629 (18,932) 22,488
------- -------
Net realized gain
(loss)................ 6,443 26,621 (18,932) 163,904
Net unrealized gain
(loss)................ (4,712) 2,056 10,363 173,120
------- -------
Net realized and
unrealized gain (loss)
on investments........ 1,731 28,677 (8,569) 337,024
------- -------
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS........ $ 1,476 $32,399 $(11,187) $362,064
======= =======
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
63
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
BANKERS TRUST
INSURANCE FUNDS TRUST -
ALGER AMERICAN FUND SUB-ACCOUNTS SUB-ACCOUNTS
--------------------------------------- -------------------------------------------------
MIDCAP SMALL SMALL
GROWTH GROWTH CAPITALIZATION EAFE-REGISTERED TRADEMARK- EQUITY CAPITALIZATION
----------- ---------- -------------- --------------------------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ (9,613) $ (3,525) $ (7,497) $ 205 $ 3
Net realized gain (loss)...... 112,777 53,620 93,409 402 41
Net unrealized gain (loss).... 333,646 80,099 310,481 762 169
---------- -------- ---------- ------- ------
Net increase (decrease) from
operations................. 436,810 130,194 396,393 1,369 213
---------- -------- ---------- ------- ------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 551,404 244,920 533,399 883 216
Participant transfers......... 780,181 20,937 38,592 11,230 1,013
Participant withdrawals....... (255,605) (89,986) (169,989) (457) (143)
---------- -------- ---------- ------- ------
Net increase (decrease) from
participant transactions... 1,075,980 175,871 402,002 11,656 1,086
---------- -------- ---------- ------- ------
Total increase (decrease)
in net assets 1,512,790 306,065 798,395 13,025 1,299
NET ASSETS:
Beginning of year............. 512,805 279,014 598,312 -- --
---------- -------- ---------- ------- ------
End of year................... $2,025,595 $585,079 $1,396,707 $13,025 $1,299
========== ======== ========== ======= ======
<CAPTION>
FIDELITY VARIABLE
CIGNA VARIABLE INSURANCE
PRODUCTS GROUP PRODUCTS FUND
SUB-ACCOUNTS SUB-ACCOUNTS
-------------------------------------- ----------------------
INVESTMENT EQUITY- HIGH
MONEY MARKET S&P 500 GRADE BOND INCOME INCOME
------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ 21,992 $ 528,241 $ 47,263 $ 1,498 $ 90,630
Net realized gain (loss)...... -- 916,844 71 33,139 7,643
Net unrealized gain (loss).... -- 4,672,428 (56,980) 23,754 (17,643)
----------- ----------- ---------- ---------- ----------
Net increase (decrease) from
operations................. 21,992 6,117,513 (9,646) 58,391 80,630
----------- ----------- ---------- ---------- ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 4,533,879 6,318,489 769,586 491,716 297,772
Participant transfers......... (3,852,237) 2,849,214 896,333 (96,198) 15,626
Participant withdrawals....... (249,781) (3,289,918) (31,366) (175,786) (642,298)
----------- ----------- ---------- ---------- ----------
Net increase (decrease) from
participant transactions... 431,861 5,877,785 1,634,553 219,732 (328,900)
----------- ----------- ---------- ---------- ----------
Total increase (decrease)
in net assets 453,853 11,995,298 1,624,907 278,123 (248,270)
NET ASSETS:
Beginning of year............. 213,147 27,262,227 -- 1,101,890 1,079,507
----------- ----------- ---------- ---------- ----------
End of year................... $ 667,000 $39,257,525 $1,624,907 $1,380,013 $ 831,237
=========== =========== ========== ========== ==========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
64
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
FIDELITY VARIABLE
INSURANCE MFS VARIABLE
PRODUCTS FUND II JANUS ASPEN SERIES INSURANCE TRUST -
SUB-ACCOUNT SUB-ACCOUNTS SUB-ACCOUNTS
----------------- ------------------ ---------------------
INVESTMENT EMERGING TOTAL
GRADE BOND WORLDWIDE GROWTH RETURN
----------------- ------------------ ---------- ---------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ 185,040 $ (25,049) $(12,627) $ 113
Net realized gain (loss)...... 78,063 62,912 15,823 2,009
Net unrealized gain (loss).... (362,524) 1,793,064 975,528 (1,102)
----------- ---------- ---------- --------
Net increase (decrease) from
operations.................. (99,421) 1,830,927 978,724 1,020
----------- ---------- ---------- --------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 176,641 716,337 543,803 135,071
Participant transfers......... (621,365) 161,404 86,751 25,773
Participant withdrawals....... (1,189,155) (743,901) (197,247) (31,059)
----------- ---------- ---------- --------
Net increase (decrease) from
participant transactions... (1,633,879) 133,840 433,307 129,785
----------- ---------- ---------- --------
Total increase (decrease)
in net assets............ (1,733,300) 1,964,767 1,412,031 130,805
NET ASSETS:
Beginning of year............. 5,897,291 2,826,277 1,026,589 63,790
----------- ---------- ---------- --------
End of year................... $ 4,163,991 $4,791,044 $2,438,620 $194,595
=========== ========== ========== ========
<CAPTION>
TEMPLETON VARIABLE
PRODUCTS SERIES
OCC ACCUMULATION TRUST FUND -
SUB-ACCOUNTS CLASS 1
-------------------------------------- ------------------
SMALL
EQUITY MANAGED CAPITALIZATION INTERNATIONAL
----------- --------- -------------- ------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ (255) $ 3,722 $ (2,618) $ 25,040
Net realized gain (loss)...... 6,443 26,621 (18,932) 163,904
Net unrealized gain (loss).... (4,712) 2,056 10,363 173,120
-------- --------- ---------- ----------
Net increase (decrease) from
operations.................. 1,476 32,399 (11,187) 362,064
-------- --------- ---------- ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 144,530 229,604 176,782 740,350
Participant transfers......... (812) (45,329) (44,201) (56,157)
Participant withdrawals....... (34,557) (141,705) (318,138) (334,392)
-------- --------- ---------- ----------
Net increase (decrease) from
participant transactions... 109,161 42,570 (185,557) 349,801
-------- --------- ---------- ----------
Total increase (decrease)
in net assets............ 110,637 74,969 (196,744) 711,865
NET ASSETS:
Beginning of year............. 147,875 739,373 1,257,978 1,296,043
-------- --------- ---------- ----------
End of year................... $258,512 $ 814,342 $1,061,234 $2,007,908
======== ========= ========== ==========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
65
<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
CIGNA VARIABLE INSURANCE
PRODUCTS GROUP PRODUCTS FUND
ALGER AMERICAN FUND 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>
OPERATIONS:
Net investment gain (loss).... $ (1,846) $ (1,536) $ (3,035) $ 32,021 $ 330,619 $ (2,545)
Net realized gain (loss)...... 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.......... 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
FIDELITY VARIABLE INSURANCE
INSURANCE PRODUCTS
PRODUCTS FUND FUND II
SUB-ACCOUNTS SUB-ACCOUNT
------------------ ---------------
HIGH INVESTMENT
INCOME GRADE BOND
------------------ ---------------
<S> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ 18,760 $ 183,389
Net realized gain (loss)...... 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.......... 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 the Financial Statements are an integral part of these statements.
66
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
JANUS ASPEN SERIES MFS VARIABLE INSURANCE TRUST - OCC ACCUMULATION TRUST
SUB-ACCOUNTS SUB-ACCOUNTS SUB-ACCOUNTS
---------------------- ------------------------------- -----------------------------------
SHORT-TERM EMERGING TOTAL SMALL
BOND* WORLDWIDE GROWTH RETURN EQUITY MANAGED CAPITALIZATION
---------- ---------- -------------- --------------- -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ 5 $ 43,843 $ (6,074) $ (172) $ (270) $ (1,825) $ (8,491)
Net realized gain (loss)...... 45 7,330 1,679 125 3,665 15,752 22,064
Net unrealized gain (loss).... -- 479,024 216,913 3,234 6,897 22,152 (177,446)
------- ---------- ---------- ------- -------- -------- ----------
Net increase (decrease) from
operations................. 50 530,197 212,518 3,187 10,292 36,079 (163,873)
------- ---------- ---------- ------- -------- -------- ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits 5,631 687,079 316,114 6,219 105,497 449,913 128,149
Participant transfers......... (5,488) 254,640 274,990 55,960 14,836 (10,371) 89,173
Participant withdrawals....... (193) (306,422) (86,142) (5,231) (30,729) (70,856) (158,738)
------- ---------- ---------- ------- -------- -------- ----------
Net increase (decrease) from
participant transactions... (50) 635,297 504,962 56,948 89,604 368,686 58,584
------- ---------- ---------- ------- -------- -------- ----------
Total increase (decrease)
in net assets............ -- 1,165,494 717,480 60,135 99,896 404,765 (105,289)
NET ASSETS:
Beginning of year............. -- 1,660,783 309,109 3,655 47,979 334,608 1,363,267
------- ---------- ---------- ------- -------- -------- ----------
End of year................... $-- $2,826,277 $1,026,589 $63,790 $147,875 $739,373 $1,257,978
======= ========== ========== ======= ======== ======== ==========
<CAPTION>
TEMPLETON
VARIABLE PRODUCTS
SERIES FUND -
CLASS 1
-----------------
INTERNATIONAL
-----------------
<S> <C>
OPERATIONS:
Net investment gain (loss).... $ 5,965
Net realized gain (loss)...... 28,963
Net unrealized gain (loss).... (28,223)
----------
Net increase (decrease) from
operations................. 6,705
----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits 424,779
Participant transfers......... 342,949
Participant withdrawals....... (55,891)
----------
Net increase (decrease) from
participant transactions... 711,837
----------
Total increase (decrease)
in net assets............ 718,542
NET ASSETS:
Beginning of year............. 577,501
----------
End of year................... $1,296,043
==========
</TABLE>
- --------------------------
* For the period ended December 31, 1998.
Deposits first received Janruary 29, 1998.
The Notes to the Financial Statements are an integral part of these statements.
67
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION
CG Corporate Insurance Variable Life Separate Account 02 (the Account) is
registered as a Unit Investment Trust under the Investment Company Act of 1940,
as amended. The operations of the Account are part of the operations of
Connecticut General Life Insurance Company (CG Life). The assets and liabilities
of the Account are clearly identified and distinguished from other assets and
liabilities of CG Life. The assets of the Account are not available to meet the
general obligations of CG Life and are held for the exclusive benefit of the
participants.
At December 31, 1999, the assets of the Account are divided into variable
sub-accounts each of which is invested in shares of one of eighteen portfolios
(mutual funds) of nine diversified open-end management investment companies,
each portfolio having its own investment objective. The variable sub-accounts
are:
<TABLE>
<S> <C>
ALGER AMERICAN FUND:
Alger American Growth Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
BANKERS TRUST INSURANCE FUNDS TRUST:
EAFE-Registered Trademark- Equity Index Fund
Small Capitalization Index Fund
CIGNA VARIABLE PRODUCTS GROUP:
CIGNA Variable Products Money Market Fund
CIGNA Variable Products S&P 500 Index Fund
CIGNA Variable Products Investment Grade Bond 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 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>
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.
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
underlying mutual funds as of December 31, 1999. The change in the difference
between cost and value is reflected as unrealized gain (loss) in the Statements
of Operations.
68
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1999
were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Cost of
Sub-Account Shares Held Investments
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio............................. 31,463 $ 1,599,469
Alger American MidCap Growth Portfolio...................... 18,153 459,286
Alger American Small Capitalization Portfolio............... 25,326 1,070,465
Bankers Trust EAFE-Registered Trademark- Equity-Index
Fund...................................................... 962 12,327
Bankers Trust Small Capitalization Index Fund............... 113 1,139
CIGNA Variable Products Money Market Fund................... 667,192 666,997
CIGNA Variable Products S&P 500 Index Fund.................. 1,719,584 28,955,852
CIGNA Variable Products Investment Grade Bond Fund.......... 170,502 1,681,867
Fidelity Equity-Income Portfolio............................ 53,677 1,293,030
Fidelity High Income Portfolio.............................. 73,484 872,039
Fidelity Investment Grade Bond Portfolio.................... 342,450 4,133,213
Janus Aspen Series Worldwide Growth Portfolio............... 100,337 2,475,086
MFS Emerging Growth Series.................................. 64,275 1,209,688
MFS Total Return Series..................................... 10,964 192,170
OCC Equity Portfolio........................................ 6,883 253,352
OCC Managed Portfolio....................................... 18,657 762,573
OCC Small Cap Portfolio..................................... 47,124 1,209,100
Templeton International Fund - Class 1...................... 90,243 1,870,230
- ---------------------------------------------------------------------------------------
</TABLE>
69
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
Total purchases and sales of shares of each mutual fund for the year ended
December 31, 1999, amounted to:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Sub-Account Purchases Sales
- --------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio............................. $ 1,671,761 $ 461,742
Alger American MidCap Growth Portfolio...................... 351,125 129,633
Alger American Small Capitalization Portfolio............... 746,786 268,118
Bankers Trust EAFE-Registered Trademark- Equity-Index
Fund....................................................... 12,758 443
Bankers Trust Small Capitalization Index Fund............... 1,282 147
CIGNA Variable Products Money Market Fund................... 4,486,363 4,032,513
CIGNA Variable Products S&P 500 Index Fund.................. 10,672,784 3,541,805
CIGNA Variable Products Investment Grade Bond Fund.......... 1,742,347 60,577
Fidelity Equity-Income Portfolio............................ 916,424 664,950
Fidelity High Income Portfolio.............................. 571,014 805,552
Fidelity Investment Grade Bond Portfolio.................... 1,076,546 2,452,255
Janus Aspen Series Worldwide Growth Portfolio............... 1,076,272 967,459
MFS Emerging Growth Series.................................. 752,206 331,566
MFS Total Return Series..................................... 175,526 43,652
OCC Equity Portfolio........................................ 163,627 47,403
OCC Managed Portfolio....................................... 277,270 204,965
OCC Small Cap Portfolio..................................... 234,835 423,005
Templeton International Fund - Class 1...................... 1,026,021 509,792
- --------------------------------------------------------------------------------------
</TABLE>
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.
70
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
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,
1999 amounted to:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Mortality
and Asset Based
Expense Administrative
Sub-Account Risk Fees Fees
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio............................. $ 9,766 $ 1,160
Alger American MidCap Growth Portfolio...................... 3,153 372
Alger American Small Capitalization Portfolio............... 6,641 856
Bankers Trust EAFE-Registered Trademark- Equity-Index
Fund....................................................... 3 --
Bankers Trust Small Capitalization Index Fund............... 9 1
CIGNA Variable Products Money Market Fund................... 4,384 575
CIGNA Variable Products S&P 500 Index Fund.................. 266,465 31,998
CIGNA Variable Products Investment Grade Bond Fund.......... 5,118 631
Fidelity Equity-Income Portfolio............................ 10,895 1,284
Fidelity High Income Portfolio.............................. 7,806 920
Fidelity Investment Grade Bond Portfolio.................... 42,753 5,118
Janus Aspen Series Worldwide Growth Portfolio............... 27,723 3,274
MFS Emerging Growth Series.................................. 11,292 1,335
MFS Total Return Series..................................... 840 105
OCC Equity Portfolio........................................ 1,662 196
OCC Managed Portfolio....................................... 7,033 828
OCC Small Cap Portfolio..................................... 9,602 1,130
Templeton International Fund - Class 1...................... 13,993 1,678
- ----------------------------------------------------------------------------------------
</TABLE>
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 were deducted from the initial premium payment, amounted to
$73,325, 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
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 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 extent such premium payments
are attributable to the increase in specified amount rather than to the
previously existing specified amount.
71
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
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, 1999.
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, 1999, amounted to:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Premium Costs of
Loads, net of Administrative Insurance
Sub-Account Refunds Fees Deduction
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alger American Growth Portfolio......................... $ 39,543 $ 5,692 $108,908
Alger American MidCap Growth Portfolio.................. 17,181 2,178 34,239
Alger American Small Capitalization Portfolio........... 44,544 5,828 42,735
Bankers Trust EAFE-Registered Trademark- Equity-Index
Fund................................................... 433 49 408
Bankers Trust Small Capitalization Index Fund........... 192 20 123
CIGNA Variable Products Money Market Fund............... 1,204,219 13,772 132,048
CIGNA Variable Products S&P 500 Index Fund.............. 509,098 51,374 726,712
CIGNA Variable Products Investment Grade Bond Fund...... 81,843 3,684 27,648
Fidelity Equity-Income Portfolio........................ 40,221 14,596 127,840
Fidelity High Income Portfolio.......................... (44,836) 2,380 66,653
Fidelity Investment Grade Bond Portfolio................ 16,857 8,955 104,090
Janus Aspen Series Worldwide Growth Portfolio........... 44,116 8,447 132,890
MFS Emerging Growth Series.............................. 35,220 8,278 97,397
MFS Total Return Series................................. 18,258 1,127 23,528
OCC Equity Portfolio.................................... 11,808 1,769 30,416
OCC Managed Portfolio................................... 12,370 3,364 42,048
OCC Small Cap Portfolio................................. 9,180 1,103 24,005
Templeton International Fund - Class 1.................. 29,577 9,052 57,936
- ----------------------------------------------------------------------------------------------------
</TABLE>
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, 1999
- --------------------------------------------------------------------------------
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, 1999 amounted to
$267,847.
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, 1999 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 and for administrative expenses. The administrative
expense charge is currently at an annual effective rate of 0.10% of the daily
net asset value of the Variable Account during the first ten policy years, and
is guaranteed not to exceed 0.30% per year. The current mortality and expense
risk charges are equivalent to an annual effective rate of:
- .85% of the daily net asset value of the Variable Account in years
one through ten,
- .45% of the daily net asset value of the Variable Account in the
years 11-15, and
- .15% of the daily net asset 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 0.77% of the daily net asset value of the Variable
Account, an arithmetic average of the funds' expenses.
Assuming current charges for administration and mortality and expense risks,
gross annual rates of 0%, 6%, and 12% correspond to net experience at constant
annual rates of:
- -1.72%, 4.28%, and 10.28% during the first ten policy years, and
- constant annual rates of -1.22%, 4.78%, and 10.78% during policy
years 11-15, and
- constant annual rates of -0.92%, 5.08%, and 11.08% 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
- -1.97%, 4.03%, and 10.03% 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 for the single, 45 year-old insured
are for Policies that are issued as guaranteed issue, representing the typical
situation. 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 because that is the
typical situation for these Policies. If they were issued on a guaranteed issue
or substandard basis, accumulation values and death benefits would be different.
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 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 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 NONSMOKER 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
-1.72% 4.28% 10.28% -1.72% 4.28% 10.28% -1.72% 4.28% 10.28%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.22% 4.78% 10.78% -1.22% 4.78% 10.78% -1.22% 4.78% 10.78%
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 -0.92% 5.08% 11.08% -0.92% 5.08% 11.08% -0.92% 5.08% 11.08%
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 1,688 1,809 1,932 3,810 3,931 4,054
2 10,117 500,000 500,000 500,000 5,402 5,882 6,377 6,537 7,017 7,512
3 15,558 500,000 500,000 500,000 8,924 9,996 11,144 8,924 9,996 11,144
4 21,270 500,000 500,000 500,000 12,247 14,146 16,258 12,247 14,146 16,258
5 27,269 500,000 500,000 500,000 15,399 18,358 21,781 15,399 18,358 21,781
6 33,567 500,000 500,000 500,000 18,394 22,648 27,772 18,394 22,648 27,772
7 40,181 500,000 500,000 500,000 21,236 27,021 34,281 21,236 27,021 34,281
8 47,125 500,000 500,000 500,000 23,939 31,495 41,379 23,939 31,495 41,379
9 54,416 500,000 500,000 500,000 26,508 36,077 49,131 26,508 36,077 49,131
10 62,072 500,000 500,000 500,000 28,936 40,764 57,602 28,936 40,764 57,602
15 106,490 500,000 500,000 500,000 38,782 66,287 115,119 38,782 66,287 115,119
20 163,180 500,000 500,000 500,000 40,365 91,701 207,874 40,365 91,701 207,874
25 235,533 500,000 500,000 500,000 26,638 110,467 361,408 26,638 110,467 361,408
30 327,876 0 500,000 663,651 0 115,647 632,049 0 115,647 632,049
</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 0.77% per year. See "Expense Data"
at pages 8-9 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
-1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 4,935 500,000 500,000 500,000 640 728 817 2,762 2,850 2,939
2 10,117 500,000 500,000 500,000 3,334 3,682 4,043 4,469 4,817 5,178
3 15,558 500,000 500,000 500,000 5,853 6,630 7,465 5,853 6,630 7,465
4 21,270 500,000 500,000 500,000 8,180 9,553 11,085 8,180 9,553 11,085
5 27,269 500,000 500,000 500,000 10,316 12,447 14,920 10,316 12,447 14,920
6 33,567 500,000 500,000 500,000 12,250 15,297 18,980 12,250 15,297 18,980
7 40,181 500,000 500,000 500,000 13,953 18,070 23,258 13,953 18,070 23,258
8 47,125 500,000 500,000 500,000 15,406 20,738 27,755 15,406 20,738 27,755
9 54,416 500,000 500,000 500,000 16,581 23,266 32,463 16,581 23,266 32,463
10 62,072 500,000 500,000 500,000 17,443 25,612 37,373 17,443 25,612 37,373
15 106,490 500,000 500,000 500,000 16,321 33,408 65,042 16,321 33,408 65,042
20 163,180 500,000 500,000 500,000 2,260 29,096 97,058 2,260 29,096 97,058
25 235,533 0 0 500,000 0 0 128,405 0 0 128,405
30 327,876 0 0 500,000 0 0 147,899 0 0 147,899
</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 0.77% per year. See "Expense
Data" at pages 8-9 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
-1.72% 4.28% 10.28% -1.72% 4.28% 10.28% -1.72% 4.28% 10.28%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.22% 4.78% 10.78% -1.22% 4.78% 10.78% -1.22% 4.78% 10.78%
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 -0.92% 5.08% 11.08% -0.92% 5.08% 11.08% -0.92% 5.08% 11.08%
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 1,688 1,809 1,932 3,810 3,931 4,054
2 10,117 500,000 500,000 500,000 5,402 5,882 6,377 6,537 7,017 7,512
3 15,558 500,000 500,000 500,000 8,924 9,996 11,144 8,924 9,996 11,144
4 21,270 500,000 500,000 500,000 12,247 14,146 16,258 12,247 14,146 16,258
5 27,269 500,000 500,000 500,000 15,399 18,358 21,781 15,399 18,358 21,781
6 33,567 500,000 500,000 500,000 18,394 22,648 27,772 18,394 22,648 27,772
7 40,181 500,000 500,000 500,000 21,236 27,021 34,281 21,236 27,021 34,281
8 47,125 500,000 500,000 500,000 23,939 31,495 41,379 23,929 31,495 41,379
9 54,416 500,000 500,000 500,000 26,508 36,077 49,131 26,508 36,077 49,131
10 62,072 500,000 500,000 500,000 28,936 40,764 57,602 28,936 40,764 57,602
15 106,490 500,000 500,000 500,000 38,782 66,287 115,119 38,782 66,287 115,119
20 163,180 500,000 500,000 500,000 40,365 91,701 207,874 40,365 91,701 207,874
25 235,533 500,000 500,000 566,522 26,638 110,467 360,259 26,638 110,467 360,259
30 327,876 0 500,000 855,295 0 115,647 603,528 0 115,647 603,528
</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 0.77% per year. See "Expense
Data" at pages 8-9 of this prospectus.
78
<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 -- 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
-1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 4,935 500,000 500,000 500,000 640 728 817 2,762 2,850 2,939
2 10,117 500,000 500,000 500,000 3,334 3,682 4,043 4,469 4,817 5,178
3 15,558 500,000 500,000 500,000 5,853 6,630 7,465 5,853 6,630 7,465
4 21,270 500,000 500,000 500,000 8,180 9,553 11,085 8,180 9,553 11,085
5 27,269 500,000 500,000 500,000 10,316 12,447 14,920 10,316 12,447 14,920
6 33,567 500,000 500,000 500,000 12,250 15,297 18,980 12,250 15,297 18,980
7 40,181 500,000 500,000 500,000 13,953 18,070 23,258 13,953 18,070 23,258
8 47,125 500,000 500,000 500,000 15,406 20,738 27,755 15,406 20,738 27,755
9 54,416 500,000 500,000 500,000 16,581 23,266 32,463 16,581 23,266 32,463
10 62,072 500,000 500,000 500,000 17,443 25,612 37,373 17,443 25,612 37,373
15 106,490 500,000 500,000 500,000 16,321 33,408 65,042 16,321 33,408 65,042
20 163,180 500,000 500,000 500,000 2,260 29,096 97,058 2,260 29,096 97,058
25 235,533 0 0 500,000 0 0 128,405 0 0 128,405
30 327,876 0 0 500,000 0 0 147,899 0 0 147,899
</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 0.77% per year. See "Expense
Data" at pages 8-9 of this prospectus.
79
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NONSMOKER 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
-1.72% 4.28% 10.28% -1.72% 4.28% 10.28% -1.72% 4.28% 10.28%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.22% 4.78% 10.78% -1.22% 4.78% 10.78% -1.22% 4.78% 10.78%
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 -0.92% 5.08% 11.08% -0.92% 5.08% 11.08% -0.92% 5.08% 11.08%
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 1,779 1,909 2,039 4,038 4,168 4,298
2 10,771 500,000 500,000 500,000 5,684 6,192 6,716 6,892 7,400 7,925
3 16,563 500,000 500,000 500,000 9,357 10,490 11,702 9,357 10,490 11,702
4 22,645 500,000 500,000 500,000 12,807 14,808 17,034 12,807 14,808 17,034
5 29,032 500,000 500,000 500,000 16,055 19,168 22,771 16,055 19,168 22,771
6 35,737 500,000 500,000 500,000 19,121 23,588 28,972 19,121 23,588 28,972
7 42,778 500,000 500,000 500,000 22,015 28,079 35,697 22,015 28,079 35,697
8 50,171 500,000 500,000 500,000 24,747 32,655 43,013 24,747 32,655 43,013
9 57,934 500,000 500,000 500,000 27,330 37,329 50,996 27,330 37,329 50,996
10 66,084 500,000 500,000 500,000 29,758 42,102 59,711 29,758 42,102 59,711
15 113,374 500,000 500,000 500,000 39,248 67,793 118,692 39,248 67,793 118,692
20 173,729 500,000 500,000 500,000 39,518 92,552 213,563 39,518 92,552 213,563
25 250,758 500,000 500,000 500,000 23,471 109,677 371,509 23,471 109,677 371,509
30 349,070 0 500,000 683,459 0 112,350 650,914 0 112,350 650,914
</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 0.77% per year. See "Expense
Data" at pages 8-9 of this prospectus.
80
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NONSMOKER 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
-1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 5,254 500,000 500,000 500,000 270 350 432 2,529 2,609 2,691
2 10,771 500,000 500,000 500,000 2,678 2,995 3,324 3,886 4,203 4,533
3 16,563 500,000 500,000 500,000 4,869 5,572 6,329 4,869 5,572 6,329
4 22,645 500,000 500,000 500,000 6,842 8,076 9,456 6,842 8,076 9,456
5 29,032 500,000 500,000 500,000 8,573 10,475 12,689 8,573 10,475 12,689
6 35,737 500,000 500,000 500,000 10,052 12,751 16,027 10,052 12,751 16,027
7 42,778 500,000 500,000 500,000 11,250 14,866 19,449 11,250 14,866 19,449
8 50,171 500,000 500,000 500,000 12,143 16,785 22,939 12,143 16,785 22,939
9 57,934 500,000 500,000 500,000 12,693 18,456 26,461 12,693 18,456 26,461
10 66,084 500,000 500,000 500,000 12,865 19,831 29,987 12,865 19,831 29,987
15 113,374 500,000 500,000 500,000 7,321 20,841 46,912 7,321 20,841 46,912
20 173,729 0 500,000 500,000 0 5,600 58,330 0 5,600 58,330
25 250,758 0 0 500,000 0 0 48,854 0 0 48,854
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 0.77% per year. See "Expense
Data" at pages 8-9 of this prospectus.
81
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NONSMOKER 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
-1.72% 4.28% 10.28% -1.72% 4.28% 10.28% -1.72% 4.28% 10.28%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.22% 4.78% 10.78% -1.22% 4.78% 10.78% -1.22% 4.78% 10.78%
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 -0.92% 5.08% 11.08% -0.92% 5.08% 11.08% -0.92% 5.08% 11.08%
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 1,779 1,909 2,039 4,038 4,168 4,298
2 10,771 500,000 500,000 500,000 5,684 6,192 6,716 6,892 7,400 7,925
3 16,563 500,000 500,000 500,000 9,357 10,490 11,702 9,357 10,490 11,702
4 22,645 500,000 500,000 500,000 12,807 14,808 17,034 12,807 14,808 17,034
5 29,032 500,000 500,000 500,000 16,055 19,168 22,771 16,055 19,168 22,771
6 35,737 500,000 500,000 500,000 19,121 23,588 28,972 19,121 23,588 28,972
7 42,778 500,000 500,000 500,000 22,015 28,079 35,697 22,015 28,079 35,697
8 50,171 500,000 500,000 500,000 24,747 32,655 43,013 24,747 32,655 43,013
9 57,934 500,000 500,000 500,000 27,330 37,329 50,996 27,330 37,329 50,996
10 66,084 500,000 500,000 500,000 29,758 42,102 59,711 29,758 42,102 59,711
15 113,374 500,000 500,000 500,000 39,248 67,793 118,692 39,248 67,793 118,692
20 173,729 500,000 500,000 500,000 39,518 92,552 213,563 39,518 92,552 213,563
25 250,758 500,000 500,000 574,037 23,471 109,677 370,031 23,471 109,677 370,031
30 349,070 0 500,000 871,475 0 112,350 619,698 0 112,350 619,698
</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 0.77% per year. See "Expense
Data" at pages 8-9 of this prospectus.
82
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NONSMOKER 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
-1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
IN YEARS 1-10 IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET NET NET NET
PREMIUMS -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 5,254 500,000 500,000 500,000 270 350 432 2,529 2,609 2,691
2 10,771 500,000 500,000 500,000 2,678 2,995 3,324 3,886 4,203 4,533
3 16,563 500,000 500,000 500,000 4,869 5,572 6,329 4,869 5,572 6,329
4 22,645 500,000 500,000 500,000 6,842 8,076 9,456 6,842 8,076 9,456
5 29,032 500,000 500,000 500,000 8,573 10,475 12,689 8,573 10,475 12,689
6 35,737 500,000 500,000 500,000 10,052 12,751 16,027 10,052 12,751 16,027
7 42,778 500,000 500,000 500,000 11,250 14,866 19,449 11,250 14,866 19,449
8 50,171 500,000 500,000 500,000 12,143 16,785 22,939 12,143 16,785 22,939
9 57,934 500,000 500,000 500,000 12,693 18,456 26,461 12,693 18,456 26,461
10 66,084 500,000 500,000 500,000 12,865 19,831 29,987 12,865 19,831 29,987
15 113,374 500,000 500,000 500,000 7,321 20,841 46,912 7,321 20,841 46,912
20 173,729 0 500,000 500,000 0 5,600 58,330 0 5,600 58,330
25 250,758 0 0 500,000 0 0 48,854 0 0 48,854
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 0.77% per year. See "Expense
Data" at pages 8-9 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
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET
-1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET
PREMIUMS -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
ACCUMULATED IN YEARS 11-15 IN YEARS 11-15
END OF AT NET NET NET NET NET NET
POLICY 5% INTEREST -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
YEAR PER YEAR IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER
- ------ ----------- --------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 548,000 20 20 20 381,410 404,779 428,148
2 1,123,400 20 20 20 837,736 913,398 991,867
3 1,727,570 20 20 20 1,363,868 1,521,266 1,690,838
4 2,361,949 20 20 20 1,717,249 1,986,371 2,287,793
5 3,028,046 20 20 20 2,140,084 2,551,499 3,030,790
6 3,727,448 20 20 20 2,551,347 3,136,240 3,845,287
7 4,461,821 20 20 20 2,950,800 3,741,025 4,738,258
8 4,684,912 20 20 20 2,871,151 3,870,711 5,193,294
9 4,919,157 20 20 20 2,787,116 4,000,135 5,689,306
10 5,165,115 20 20 20 2,697,458 4,128,172 6,229,743
15 6,592,141 20 20 20 2,096,584 4,683,586 9,742,808
20 8,413,428 20 20 20 960,284 4,828,227 15,210,484
25 10,737,903 0 20 25.4290 0 3,713,815 24,218,069
30 13,704,588 0 20 40.4488 0 0 38,522,692
<CAPTION>
SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12%
NET NET NET
-1.97% 4.03% 10.03%
IN YEARS 1-10
NET NET NET
-1.97% 4.03% 10.03%
IN YEARS 11-15
END OF NET NET NET
POLICY -1.97% 4.03% 10.03%
YEAR IN YEARS 16 AND THEREAFTER
- ------ ------------------------------------
<S> <C> <C> <C>
1 520,058 543,426 566,795
2 933,611 1,009,273 1,087,742
3 1,363,868 1,521,266 1,690,838
4 1,717,249 1,986,371 2,287,793
5 2,140,084 2,551,499 3,030,790
6 2,551,347 3,136,240 3,845,287
7 2,950,800 3,741,025 4,738,258
8 2,871,151 3,870,711 5,193,294
9 2,787,116 4,000,135 5,689,306
10 2,697,458 4,128,172 6,229,743
15 2,096,584 4,683,586 9,742,808
20 960,284 4,828,227 15,210,484
25 0 3,713,815 24,218,069
30 0 0 38,522,692
</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 0.77% per year. See "Expense
Data" at pages 8-9 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
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
NET NET NET NET NET NET
-1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
IN YEARS 1-10 IN YEARS 1-10
NET NET NET NET NET NET
PREMIUMS -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
ACCUMULATED IN YEARS 11-15 IN YEARS 11-15
END OF AT NET NET NET NET NET NET
POLICY 5% INTEREST -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
YEAR PER YEAR IN YEARS 16 AND THEREAFTER IN YEARS 16 AND THEREAFTER
- ------ ----------- --------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 548,000 20 20 20 381,410 404,779 428,148
2 1,123,400 20 20 20 837,736 913,398 991,867
3 1,727,570 20 20 20 1,363,868 1,521,266 1,690,838
4 2,361,949 20 20 20 1,717,249 1,986,371 2,287,793
5 3,028,046 20 20 20 2,140,084 2,551,499 3,030,790
6 3,727,448 20 20 20 2,551,347 3,136,240 3,845,287
7 4,461,821 20 20 20 2,950,800 3,741,025 4,738,258
8 4,684,912 20 20 20 2,871,151 3,870,711 5,193,294
9 4,919,157 20 20 20 2,787,116 4,000,135 5,689,306
10 5,165,115 20 20 20 2,697,458 4,128,172 6,229,743
15 6,592,141 20 20 20 2,096,584 4,683,586 9,742,808
20 8,413,428 20 20 24.7077 960,284 4,828,227 15,068,613
25 10,737,903 0 20 32.5649 0 3,713,815 22,693,638
30 13,704,588 0 0 42.7767 0 0 33,097,396
<CAPTION>
SURRENDER VALUE
ANNUAL INVESTMENT RETURN OF
GROSS 0% GROSS 6% GROSS 12%
NET NET NET
-1.97% 4.03% 10.03%
IN YEARS 1-10
NET NET NET
-1.97% 4.03% 10.03%
IN YEARS 11-15
END OF NET NET NET
POLICY -1.97% 4.03% 10.03%
YEAR IN YEARS 16 AND THEREAFTER
- ------ ------------------------------------
<S> <C> <C> <C>
1 520,058 543,426 566,795
2 933,611 1,009,273 1,087,742
3 1,363,868 1,521,266 1,690,838
4 1,717,249 1,986,371 2,287,793
5 2,140,084 2,551,499 3,030,790
6 2,551,347 3,136,240 3,845,287
7 2,950,800 3,741,025 4,738,258
8 2,871,151 3,870,711 5,193,294
9 2,787,116 4,000,135 5,689,306
10 2,697,458 4,128,172 6,229,743
15 2,096,584 4,683,586 9,742,808
20 960,284 4,828,227 15,068,613
25 0 3,713,815 22,693,638
30 0 0 33,097,396
</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 0.77% per year. See "Expense
Data" at pages 8-9 of this prospectus.
85
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
[LOGO]
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
<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"). The primary purpose of the Policy is to
provide life insurance protection. It is not similar to, nor should it be
compared to a systematic investment plan of a mutual fund.
Policy values and, in some cases, the death benefit, vary with the
investment performance of the funding options you, the purchaser, select. You
assume certain risks by investing in these Policies, including the risk of
losing money.
Corporations and other sponsoring groups purchasing these Policies may use
them in executive benefit plans or to finance certain deferred compensation
plans and post-retirement benefit programs.
Policy features include:
- Life insurance on one life (individual) or two lives (joint and
survivor - see page 24);
- Choice among three death benefit options (see page 16),
- Flexible premium payments (see page 18);
- Choice of life insurance qualification method (see page 17), and
- Choice among the following mutual funds as underlying funding
options: (also see pages 12-15).
<TABLE>
<S> <C>
THE ALGER AMERICAN FUND JANUS ASPEN SERIES
Alger American Small Capitalization Portfolio Balanced Portfolio
Alger American MidCap Growth Portfolio Worldwide Growth Portfolio
Alger American Growth Portfolio
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST-SM-
CIGNA VARIABLE PRODUCTS GROUP MFS Emerging Growth Series
CIGNA VP Money Market Fund MFS Total Return Series
CIGNA VP Investment Grade Bond Fund
CIGNA VP S&P 500 Index Fund NEUBERGER BERMAN ADVISORS MANAGEMENT TRUST
Partners Portfolio
DEUTSCHE ASSET MANAGEMENT VIT FUNDS
EAFE-Registered Trademark- Equity Index Fund OCC ACCUMULATION TRUST
Small Cap Index Fund OCC Small Cap Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND FRANKLIN TEMPLETON VARIABLE INSURANCE
VIP Equity-Income Portfolio PRODUCTS TRUST
VIP High Income Portfolio Templeton International Securities Fund Class 1
</TABLE>
The Policy's Fixed Account credits interest to Policy values held in that
account. We guarantee the amounts in the Fixed Account and payment of certain
interest. Page 21 contains additional information on the Fixed Account.
It may not be in your best interest to replace existing insurance with this
Policy. Please read this prospectus, and the underlying mutual funds'
prospectuses, to understand the Policy.
KEEP THIS PROSPECTUS 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 1, 2000
<PAGE>
(This page has been left blank intentionally.)
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Technical Terms....................... 4
Highlights............................ 5
Initial Choices..................... 5
Charges and Fees.................... 6
Reductions and Refunds.............. 7
Expense Data........................ 8
The Company........................... 10
The Variable Account.................. 10
General............................. 10
Substitution of Securities.......... 11
Voting Rights....................... 11
Fund Participation Agreements....... 11
The Funds............................. 12
Death Benefit......................... 16
Death Benefit Options............. 16
Changes in Death Benefit Option... 16
Payment of Death Benefit.......... 17
Life Insurance Qualification
Test............................. 17
Changes in Specified Amount....... 17
Premium Payments; Transfers........... 18
Premium Payments.................. 18
Allocation of Net Premium
Payments......................... 18
Transfers......................... 19
Charges; Fees......................... 20
Premium Charges................... 20
Policy Issue Fee.................. 20
Monthly Deductions................ 20
Daily Deductions.................. 20
Administrative Fee................ 20
Mortality and Expense Risk
Charge........................... 21
Transaction Fee for Excess
Transfers........................ 21
Surrenders During First Three
Policy Years -- Refund of Portion
of Premium Charge................ 21
The Fixed Account..................... 21
Policy Values......................... 21
Accumulation Value................ 21
Variable Accumulation Unit
Value............................ 22
Surrender Value................... 22
Surrenders............................ 23
Partial Surrenders................ 23
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Full Surrenders................... 23
Deferral of Payment and
Transfers........................ 23
Lapse and Reinstatement............... 23
Lapse of a Policy................. 23
Reinstatement of a Lapsed
Policy........................... 23
Policy Loans.......................... 23
Settlement Options.................... 23
Additional Insurance Benefit.......... 24
Joint and Survivorship Benefit........ 24
Other Policy Provisions............... 25
Issuance.......................... 25
Short-Term Right to Cancel the
Policy........................... 25
Policy Owner and Beneficiary...... 25
Changes of Policy Owner or
Beneficiary...................... 25
Right to Exchange for a Fixed
Benefit Policy................... 26
Incontestability.................. 26
Misstatement of Age............... 26
Suicide........................... 26
Nonparticipating Policies......... 26
Additional Information................ 26
Tax Matters....................... 26
Taxation of the Policies.......... 27
Taxation of the Company........... 28
Partial Surrenders................ 29
Policy Loans...................... 29
Directors and Officers of the
Company.......................... 30
Distribution of Policies.......... 31
Changes of Investment Policy...... 31
Other Contracts Issued by the
Company.......................... 31
State Regulation.................. 31
Reports to Policy Owners.......... 32
Advertising....................... 32
Legal Proceedings................. 32
Experts........................... 33
Registration Statement............ 33
Financial Statements.............. 33
Appendix 1............................ 74
Illustration of Accumulation
Values, Surrender Values, and
Death Benefits................... 74
</TABLE>
3
<PAGE>
TECHNICAL TERMS
ACCUMULATION UNIT: A unit of measure used to calculate the value of a
sub-account.
ACCUMULATION VALUE: The sum of your interest in the Fixed Account value (see
page 21), your interest in the Variable Account value (see page 10) and the loan
account value.
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".
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).
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.
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.
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 and, if applicable, underwriting class. 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.
4
<PAGE>
HIGHLIGHTS
This section is an overview of key Policy features.
Regulations in your state may vary the provisions of your
own Policy.
INITIAL CHOICES
TO BE MADE
When purchasing a Policy, you have four important choices to
make:
1) Selecting one of the three death benefit options;
2) Selecting the amount of premium payments to make;
3) Selecting how net premium payments will be allocated
among the available funding options, and
4) Selecting the life insurance qualification method to be
used. (See page 17.)
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
death benefit, we subtract any outstanding loan account
balances or outstanding amounts due. 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. You may change premium payments within the
limits described on page 18. However, your Policy might
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 23.
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 10). A variable sub-account is not guaranteed and will
increase or decrease in value according to the particular
fund's investment performance. (See pages 21 and 22.) 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 25.)
5
<PAGE>
CHARGES AND FEES
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
DEDUCTIONS FROM PREMIUM PAYMENTS 6.5% for sales expenses, premium tax and other tax liabilities
In addition,
- 45% from each premium payment, up to the target premium,
in the first policy year
- 12% from each premium payment, up to the target premium,
in policy years 2-10
For increases in specified amount, other than through a change
in the death benefit option, we deduct an additional 25% of the
premium payment(s) attributable to the increase in specified
amount up to the increase in target premium, during the first
12 months after the increase.
- ------------------------------------------------------------------------------------------------------
ADMINISTRATIVE EXPENSE CHARGES $175 at issue
$8 monthly
We deduct daily charges from the Policy values in policy years
1-15. The current annual rate is .10% of the Policy values.
- ------------------------------------------------------------------------------------------------------
MORTALITY AND We deduct daily charges from the Policy values. The current
EXPENSE RISK CHARGES annual rate is:
- .55% of the Policy values during policy years 1-15
- .15% of the Policy values thereafter
- ------------------------------------------------------------------------------------------------------
INSURANCE CHARGES Monthly charges, varying for each Insured, for:
- Cost of Insurance
- Cost of any additional insurance benefit
- Cost of any riders
- ------------------------------------------------------------------------------------------------------
MUTUAL FUND MANAGEMENT FEES, CHARGES Each fund has its own management fee that is deducted daily.
AND EXPENSES Each fund also incurs other operational expenses. The table on
pages 8-9 shows current expense levels for each fund as of
December 31, 1999. Each fund's investment results will be
affected by its expense level and by any fee waivers or
reductions in effect for limited periods of time.
- ------------------------------------------------------------------------------------------------------
LOAN INTEREST CHARGE Interest on loans accrues at an annual rate of 5%. It is
payable and deducted once a year, in arrears, on each policy
anniversary. The current net interest spread (the amount by
which interest charged on loans exceeds interest credited to
the loan account) is:
- .65% per year in the first policy year,
- .55% per year in policy years 2-15, and
- .05% per year thereafter
- ------------------------------------------------------------------------------------------------------
ADDITIONAL CHARGES AND FEES $25 for a partial surrender
$25 for fund transfers in excess of 4 per policy year
- ------------------------------------------------------------------------------------------------------
These charges and fees are explained more fully in the "Charges; Fees" section beginning on page 20
and in the "Expense Data" section on pages 8-9.
</TABLE>
6
<PAGE>
REDUCTIONS AND REFUNDS
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
REDUCTION OF Corporations or other groups or sponsoring organizations, may
CHARGES buy Policies on a case basis. We may reduce premium charges or
any other charges 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 we believe 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.
</TABLE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
REFUND OF PORTION OF PREMIUM CHARGES Surrenders during the first three Policy Years will qualify for a
refund of a portion of the premium charges.
--------------------------------------------------------------------
SURRENDER CREDIT
DURING
First Policy Year: 100% of all premium charges
previously deducted in excess of
3.5% of all premiums paid.
--------------------------------------------------------------------
Second Policy Year: 50% of all premium charges
previously deducted in excess of
3.5% of all premiums paid.
--------------------------------------------------------------------
Third Policy Year: 33% of all premium charges
previously deducted in excess of
3.5% of all premiums paid.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
7
<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 fifteen policy
years. It currently declines to .15% 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 9.)
FEE TABLE
<TABLE>
<CAPTION>
ALGER AMERICAN FUNDS CIGNA VARIABLE PRODUCTS
------------------------------- ----------------------------------
SMALL MIDCAP MONEY S&P 500 INVESTMENT
CAP GROWTH GROWTH MARKET INDEX GRADE
PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND BOND FUND
--------- --------- --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL
EXPENSES
Mortality and Expense
Risk Charge............. 0.55 0.55 0.55 0.55 0.55 0.55
Administrative Expense
Charge.................. 0.10 0.10 0.10 0.10 0.10 0.10
---- ---- ---- ------- ------- --------
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES......... 0.65 0.65 0.65 0.65 0.65 0.65
==== ==== ==== ======= ======= ========
FUND PORTFOLIO ANNUAL
OPERATING EXPENSES
Management Fees.......... 0.85 0.80 0.75 0.35 0.25 0.50
Other Expenses........... 0.05 0.05 0.04 0.29 0.13 0.29
---- ---- ---- ------- ------- --------
Total Gross Expenses..... 0.90 0.85 0.79 0.64 0.38 0.79
Waivers and
Reimbursements.......... (--) (--) (--) (0.14) (0.13) (0.29)
---- ---- ---- ------- ------- --------
TOTAL NET FUND PORTFOLIO
ANNUAL OPERATING
EXPENSES................ 0.90 0.85 0.79 0.50(1) 0.25(1) 0.50(1)
==== ==== ==== ======= ======= ========
<CAPTION>
DEUTSCHE ASSET
MANAGEMENT
VIT FUNDS FIDELITY VARIABLE
------------------------------------- INSURANCE PRODUCTS FUND
EAFE-REGISTERED TRADEMARK- SMALL ------------------------------------------
EQUITY CAP EQUITY- HIGH INVESTMENT
INDEX INDEX INCOME INCOME GRADE
FUND FUND PORTFOLIO PORTFOLIO PORTFOLIO(4)
-------------------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL
EXPENSES
Mortality and Expense
Risk Charge............. 0.55 0.55 0.55 0.55 0.55
Administrative Expense
Charge.................. 0.10 0.10 0.10 0.10 0.10
------- ------ ------- ------ ------
TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES......... 0.65 0.65 0.65 0.65 0.65
======= ====== ======= ====== ======
FUND PORTFOLIO ANNUAL
OPERATING EXPENSES
Management Fees.......... 0.45 0.35 0.48 0.58 0.43
Other Expenses........... 0.69 0.83 0.09 0.11 0.11
------- ------ ------- ------ ------
Total Gross Expenses..... 1.15(2) 1.18 0.57 0.69 0.54
Waivers and
Reimbursements.......... (0.49) (0.73) (0.01) (--) (--)
------- ------ ------- ------ ------
TOTAL NET FUND PORTFOLIO
ANNUAL OPERATING
EXPENSES................ 0.65(2) 0.45 0.56(3) 0.69 0.54
======= ====== ======= ====== ======
</TABLE>
- ------------------------------
(1) TimesSquare has contractually agreed to reimburse the VP Money Market, VP
S&P 500 Index, and VP Investment Grade Bond Funds for any amount by which
their expenses (including the advisory fee but excluding interest, taxes,
transaction costs incurred in acquiring and disposing of portfolio
securities, and extraordinary expenses) exceed 0.50%, 0.25%, and 0.50%
respectively, of average daily net assets. The contractual agreement lasts
until April 30, 2001 and thereafter to the extent described in the Funds'
then current prospectus.
(2) The apparent mathematical inconsistencies in the Deutsche VIT
EAFE-Registered Trademark- Equity Index Total Gross Expenses and Total Net
Fund Portfolio Annual Operating Expenses lines are due to rounding. Exact
calculations result when both lines are carried to six decimal places.
(3) A portion of the brokerage commissions that the fund pays was used to
reduce fund expenses. In addition, through arrangements with the fund, or
FMR on behalf of the fund's custodian, credits realized as a result of
uninvested cash balances were used to reduce a portion of the fund's
expenses. Without these reductions, the Total Net Fund Portfolio Annual
Operating Expenses for the Equity-Income Portfolio would have been 0.57%.
(4) As of May 1, 1999, the Fidelity VIP II Investment Grade Bond Portfolio was
no longer available to accept new allocations of premium or receive
transfers of existing funds from other sub-accounts.
8
<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>
NEUBERGER
MFS-REGISTERED TRADEMARK- VARIABLE BERMAN
JANUS ASPEN SERIES INSURANCE TRUST ADVISERS
------------------------- ----------------------------------- MANAGEMENT
TRUST
WORLDWIDE EMERGING TOTAL ----------
GROWTH BALANCED GROWTH RETURN PARTNERS
PORTFOLIO PORTFOLIO SERIES SERIES PORTFOLIO
---------- ---------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
0.55 0.55 0.55 0.55 0.55
0.10 0.10 0.10 0.10 0.10
------- ------- ------- ------- ------
0.65 0.65 0.65 0.65 0.65
======= ======= ======= ======= ======
0.65(5) 0.65(5) 0.75 0.75 0.80
0.05 0.02 0.09 0.15 0.07
------- ------- ------- ------- ------
0.70 0.67 0.84 0.90 0.87
(--) (--) (0.01) (0.01) (--)
------- ------- ------- ------- ------
0.70 0.67 0.83(6) 0.89(6) 0.87
======= ======= ======= ======= ======
<CAPTION>
FRANKLIN TEMPLETON
VARIABLE INSURANCE
PRODUCTS TRUST
------------------
OCC ACCUMULATION TRUST TEMPLETON
-------------------------------------------- INTERNATIONAL
EQUITY MANAGED SMALL CAP SECURITIES FUND
PORTFOLIO(7) PORTFOLIO(7) PORTFOLIO CLASS 1 (10)
------------ ------------ ---------- ------------------
<S> <C> <C> <C> <C>
0.55 0.55 0.55 0.55
0.10 0.10 0.10 0.10
------- ------- ------- ------
0.65 0.65 0.65 0.65
======= ======= ======= ======
0.80 0.77 0.80 0.69
0.11(8) 0.06(8) 0.09(8) 0.19
------- ------- ------- ------
0.91 0.83 0.89 0.88
(--) (--) (--) (--)
------- ------- ------- ------
0.91(9) 0.83(9) 0.89(9) 0.88
======= ======= ======= ======
</TABLE>
- ------------------------------
(5) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee.
(6) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series' with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. Had these fee
reductions not been taken into account, Total Net Fund Portfolio Annual
Operating Expenses would be 0.84% for the Emerging Growth Series and 0.90%
for the Total Return Series.
(7) The OCC Trust Equity and Managed Portfolios 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, 2000.
(8) Other Expenses are shown gross of expense offsets afforded the Portfolios
which effectively lowered overall custody expenses.
(9) Total Gross Portfolio Expenses for the Equity, Managed, and Small Cap
Portfolios are contractually limited by OpCap Advisors so that their
respective annualized operating expenses (net of any expense offsets) do
not exceed 1.00% of average daily net assets.
(10) Previously Templeton International Fund. On 2/8/00, shareholders approved a
merger and reorganization that combined the fund with the Templeton
International Equity Fund, effective 5/1/00. The shareholders of that fund
had approved new management fees, which apply to the combined fund
effective 5/1/00. The table shows restated total expenses based on the new
fees and the assets of the fund as of 12/31/99, and not the assets of the
combined fund. However, if the table reflected both the new fees and the
combined assets, the fund's expenses after 5/1/00 would be estimated as:
Management Fees 0.65%, Other Expenses 0.20%, and Total Fund Operating
Expenses 0.85%.
9
<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.
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. Inherent investment risk varies significantly
among the sub-accounts but is present in each. You should
read each fund's prospectus carefully and understand the
funds' relative degrees of risk before making or changing
investment choices. We impose some terms and conditions
limiting such choices.
10
<PAGE>
SUBSTITUTION OF SECURITIES
If the shares of any fund should no longer be available to
the Variable Account or if, in our judgment, 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.
VOTING RIGHTS
We will vote the shares of each fund held in the Variable
Account at special meetings of the shareholders of the
particular Trust. We will follow 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 Trusts 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 Trust but
not more than sixty (60) days prior to the meeting of that
Trust. We will solicit voting instructions by written
communication at least fourteen (14) days prior to the
meeting.
Each 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 Trusts' managements 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
Trusts' 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.
11
<PAGE>
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 fund has a different investment objective. Each of the funds is a
series of (Continued on Page 13.)
<TABLE>
<S> <C>
===========================================================================================
Trusts, Investment Advisers, and
Distributors Funds Available Under the Policies
- -------------------------------------------------------------------------------------------
Alger American Fund ("Alger Trust") Alger American Small Capitalization
Managed by: Portfolio
Fred Alger Management, Inc. Alger American MidCap Growth Portfolio
1 World Trade Center, Suite 9333 Alger American Growth Portfolio
New York, NY 10048
Distributed by:
Fred Alger & Company, Incorporated
30 Montgomery Street
Jersey City, NJ 07302
- -------------------------------------------------------------------------------------------
CIGNA Variable Products Group ("CIGNA Group") CIGNA VP Money Market Fund
Managed by: CIGNA VP Investment Grade Bond Fund
TimesSquare Capital Management CIGNA VP S&P 500 Index Fund
900 Cottage Grove Road, S-210
Hartford, CT 06152-2210
Distributed by:
CIGNA Financial Services
280 Trumbull Street
Hartford, CT 06104
- -------------------------------------------------------------------------------------------
Deutsche Asset Management VIT Funds Deutsche VIT EAFE-Registered Trademark-
("Deutsche VIT") Equity Index Fund
Managed by: Deutsche VIT Small Cap Index Fund
Bankers Trust Company
130 Liberty Street
New York, NY 10006
Distributed by:
Provident Distributors, Inc.
4400 Four Falls Corporate Center
West Conshohocken, PA 19428
- -------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund Fidelity VIP Equity-Income Portfolio
("Fidelity VIP") Fidelity VIP High Income Portfolio
Managed by:
Fidelity Management & Research Company
82 Devonshire Street
Boston, MA 02109
Distributed by:
Fidelity Distributors Corporation
82 Devonshire Street
Boston, MA 02109
- -------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
one of nine entities, all Massachusetts or Delaware business trusts. Each such
entity is registered as a series of an open-end management investment company
under the 1940 Act. These entities are collectively referred to in this
prospectus as the "Trusts".
Brief Description of the Fund's Investment Objective
and Program
(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.
(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.
(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.
(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.
(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.
(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 and Poor's 500 Composite Stock Price Index.
(INTERNATIONAL STOCKS) Seeks to replicate as closely as possible (before
deduction of fund expenses) the total return of the MSCI Europe, Australasia,
Far East ("EAFE-Registered Trademark-") Index.
(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.
(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.
(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.
13
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<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------
Janus Aspen Series ("Janus Aspen Series") Janus Aspen Series Balanced Portfolio
Managed by: Janus Aspen Series Worldwide Growth Portfolio
Janus Capital Corporation
100 Fillmore Street
Denver, CO 80206-4923
Distributed by:
Janus Distributors Inc.
100 Fillmore Street
Denver, CO 80206-4923
- -----------------------------------------------------------------------------------------------------
MFS-Registered Trademark- Variable Insurance MFS Emerging Growth Series
Trust-SM- ("MFS Trust") MFS Total Return Series
Managed by:
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
Distributed by:
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
- -----------------------------------------------------------------------------------------------------
Neuberger Berman Advisers Management Neuberger Berman AMT Partners Portfolio
Trust ("AMT")
Managed by:
Neuberger Berman Management, Inc.
605 Third Avenue
New York, NY 10158-0180
Distributed by:
Neuberger Berman Management, Inc.
605 Third Avenue
New York, NY 10158-0180
- -----------------------------------------------------------------------------------------------------
OCC Accumulation Trust ("OCC Trust") OCC Small Cap Portfolio
Managed by:
OpCap Advisors
1345 Avenue of the Americas
New York, NY 10105
Distributed by:
OCC Distributors
1345 Avenue of the Americas
New York, NY 10105
- -----------------------------------------------------------------------------------------------------
Franklin Templeton Variable Insurance Products Templeton International Securities Fund Class 1
Trust ("Templeton Trust") (Previously Templeton International Fund)
Managed by:
Templeton Investment Counsel, Inc.
500 East Broward Boulevard
Broward Financial Center
Fort Lauderdale, FL 33394-3091
Distributed by:
Franklin Templeton Distributors, Inc.
P.O. Box 33030
St. Petersburg, FL 33733-8030
- -----------------------------------------------------------------------------------------------------
</TABLE>
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 Small Cap Portfolio,
and (Continued on Page 15.)
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<PAGE>
(BALANCED) Seeks long-term capital growth, consistent with preservation of
capital and balanced by current income.
(GLOBAL STOCKS) Seeks long-term growth of capital by investing primarily in
common stocks of foreign and domestic issuers.
(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.
(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.
(MID TO LARGE CAP STOCKS) Seeks growth of capital by investing mainly in common
stocks of mid- to large-capitalization companies whose stock prices are believed
to be undervalued.
(SMALL CAP STOCKS) Seeks capital appreciation through investments in a
diversified portfolio of equity securities of companies with market
capitalizations of under $1 billion.
(INTERNATIONAL STOCKS) Seeks long-term capital growth. Invests in stocks of
companies located outside the United States, including emerging markets.
Templeton International Securities 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.
We may make additional funds available from time to time.
15
<PAGE>
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. In this prospectus, "the Insured's death"
means, for a joint and survivor policy, the death of the
second Insured to die. (See page 24.) 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 unless 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.
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 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.
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<PAGE>
PAYMENT OF DEATH BENEFIT
We will compute the death benefit 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(s)), unless you or
the beneficiary have elected that all or a part of 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. The beneficiary may make or change an
election within 90 days of the death of the Insured, unless
you have made an irrevocable election.
If you assign the Policy as collateral security, we will pay
any amount due the assignee in one lump sum. We will pay the
beneficiary any excess death benefit due as elected.
LIFE INSURANCE QUALIFICATION TEST
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.
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 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 26-29 of this prospectus.
CHANGES IN SPECIFIED AMOUNT
You may change the specified amount of a Policy by a written
request to the Corporate Variable Products Service Center in
a form satisfactory to us, subject to the following
conditions:
- Satisfactory evidence of insurability and a supplemental
application may be required to increase the specified
amount.
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<PAGE>
- 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
attributable to the increase in specified amount up to the
increase in target premium received during the 12 months
following the increase.
- No decrease may reduce the specified amount to less than
$50,000, or 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 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 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 sub-account, we convert the
18
<PAGE>
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 pages 21 and 22 of this
prospectus.
During the Right-to-Examine Period, we will allocate the net
premium payment to the CIGNA Variable Products Group's 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 25 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. The transfers 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. 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
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 12-15 of this prospectus.
We may, at our sole discretion, waive minimum balance
requirements on the sub-accounts.
19
<PAGE>
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.
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.
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 compensates us
for the anticipated cost of paying death benefits in excess
of the accumulation value. It depends on the attained age,
years since issue and risk class (in accordance with state
law) of the insured and the current net amount at risk.
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.
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
Variable Account and Fixed Account values. This deduction is
currently equivalent to .10% per year during the first
fifteen policy years. We guarantee it will not exceed .30%
per year.
20
<PAGE>
- MORTALITY AND EXPENSE RISK CHARGE
For mortality and expense risks, we make a daily deduction
from Variable Account and Fixed Account values. This
deduction is currently equivalent to .55% per year during
the first fifteen policy years and .15% thereafter. We
guarantee it will not exceed .90% per year.
TRANSACTION FEE FOR EXCESS TRANSFERS
We 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.
Any surrender may result in tax implications. See "Tax
Matters".
To the extent policy charges do not cover all our sales and
administrative expenses, any shortfall will be made up 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 in the form of
accumulation units representing the fund in which assets of
that sub-account are invested. We do so at the end of the
valuation period in which the
21
<PAGE>
premium 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 its own 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.
We will tell you at least annually how many accumulation
units are credited to the Policy, the current accumulation
unit values, and 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 multiplying that unit's value for
the immediately preceding valuation period by 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 charges for mortality and expense risk
and for administrative expenses, 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.
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<PAGE>
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. For more information on partial surrenders see
the "Additional Information -- Partial Surrenders" section
on page 29.
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 usually pay any portion
derived from the Variable Account within seven 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.
POLICY LOANS
You may take a loan against the Policy for up to 90% of the
then current net accumulation value. A policy loan requires
that you complete a loan agreement and assign the Policy to
us. For more information on policy loans see the "Additional
Information -- Policy Loans" section on page 29.
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
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<PAGE>
- 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 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 26): The policy or increase
must be in force for two (2) years during the lifetime of
each Insured.
- Misstatement of Age (see Page 26): By reason of the rider
the provision relates to either Insured.
- Suicide (see Page 26): By reason of the rider the
provision relates to either Insured.
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<PAGE>
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 you recieve it, unless state
law is otherwise. We will hold the initial premium payment
made when the Policy is issued in the CIGNA Variable
Products 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 we mail you the Policy, if the
state law Right-to-Examine Period is 10 days after you
receive the Policy.
- 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.
We may delay refund of premiums paid by check until the
check clears.
POLICY OWNER AND BENEFICIARY
The policy owner and beneficiary(ies) shall be as named in
the application or as subsequently changed, subject to
assignment, if any. While the Insured is living, all rights
in the Policy are vested in the policy owner.
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.
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.
CHANGES OF POLICY OWNER OR BENEFICIARY
You may name a new policy owner or beneficiary(ies) while
the Insured is living by written request on a form
satisfactory to us. You must submit the form to the
Corporate Variable Products Service Center where we will
record it. 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 of policy owner.
25
<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.
ADDITIONAL INFORMATION
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
26
<PAGE>
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.
TAXATION OF THE POLICIES
For contracts issued after December 31, 1984, section 7702
of the Code provides a definition that must be met in order
for the contract to qualify as a life insurance contract for
federal tax purposes. Under this section, either a cash
value test or a guideline premium/cash value corridor test
must be satisfied. For contracts that meet the definition of
section 7702, the income credited to the contract is not
taxed until it is distributed; and, even then, it is only
taxed to the extent that the amount distributed exceeds the
investment in the contract. A policy loan is not treated as
a distribution for this purpose. In addition, the death
proceeds payable upon the death of the insured are excluded
from the gross income of the beneficiary under section 101
of the Code. We will test Policies for compliance with
section 7702 and retain the right to take whatever action is
necessary, including the return of premiums, to ensure that
the policies qualify as life insurance contracts. As a
result, the federal taxation of a Policy should be the same
as described above.
A life insurance contract issued on or after June 21, 1988,
will become a modified endowment contract if the amount of
premiums paid for the contract exceeds limits set out in
section 7702A of the Code. Under these rules, a life
insurance contract becomes a modified endowment contract if
the total premiums paid during the first seven years exceed
the amount that would have been paid if the contract
provided for paid up benefits after seven level annual
premiums. Generally, amounts distributed from a modified
endowment contract, including amounts paid out as the result
of a full surrender, a partial surrender, or a loan, are
taxable to the extent that the cash value of the contract
immediately before the distribution exceeds the investment
in the contract. A collateral assignment or pledge of a
modified endowment contract is also treated as a
distribution for this purpose. In addition to the taxation
of the distribution, a 10% tax penalty generally applies to
the taxable portion of such distributions unless the policy
owner is 59 1/2 years old or disabled when the distribution
is made. The Policies offered by this prospectus may or may
not be issued as modified endowment contracts, depending
upon the wishes of the Policy owner. For those Policies that
are not issued as modified endowment contracts, we will test
them for compliance with section 7702A and retain the right
to take whatever action is necessary, including the return
of premiums, to ensure that the Policies do not become
modified endowment contracts.
A Policy may also become a modified endowment contract as
the result of a reduction in benefits or a material change
as defined in section 7702A. Section 7702 also provides that
if there is a reduction in benefits during the first 15
years after the life insurance contract is issued and there
is a cash distribution as a result of that change, some or
all of the distribution may be taxable. Because of these
rules, we will monitor any additional premium payments or
requested changes in the benefits under a Policy. If a
premium payment or requested change would result in the
Policy becoming a modified endowment contract or otherwise
result in a taxable distribution, we will notify the Policy
owner. In such a case, the payment will not be credited to
the contract or the change will not be made until we have
received verification from the Policy owner that such action
should be taken.
Because of the limitations of the rules of sections 7702 and
7702A, it may not be advantageous to replace an existing
life insurance contract that is not subject to these rules
with a Policy described in this prospectus.
27
<PAGE>
In addition to meeting the tests required by sections 7702
and 7702A, section 817(h) of the Code requires that the
investments of separate accounts, such as the Variable
Account, be adequately diversified. Beginning with any
period for which a separate account is not adequately
diversified, any variable life insurance contracts that are
based upon that account are not treated as life insurance
contracts for tax purposes.
Treasury Regulation 1.817-5 generally provides that a
separate account will be considered adequately diversified
only if:
- no more than 55% of the value of the total assets of the
account is represented by any one (1) investment,
- no more than 70% of such value is represented by any two
(2) investments,
- no more than 80% of such value is represented by any
three (3) investments, and
- no more than 90% of such value is represented by any four
(4) investments.
U.S. Treasury Securities are not subject to the
diversification test for variable life insurance contracts;
and, to the extent that separate accounts include such
securities, somewhat less stringent requirements apply. We
will monitor the investments in the variable account in
order to ensure that it remains adequately diversified.
The following may have adverse tax consequences:
- A total surrender or termination of the Policy by lapse;
- A reduction in benefits;
- 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 collateral assignment or pledge 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
on the assets of the Variable Account are reinvested and
taken into account in determining the value of accumulation
units.
We do not 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
28
<PAGE>
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.
PARTIAL SURRENDERS
You may make a partial surrender at any time while the
Policy is in force and during the lifetime of the Insured.
The request must be in writing and you will be charged a $25
transaction fee. 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.
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:
29
<PAGE>
- .65% (guaranteed not to exceed 1.2%) during year one,
- .55% (guaranteed not to exceed 1.2%) during years 2-15,
and
- .05% (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.
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. Wahlman,
Mr. Pastore and Ms. Cooper.
- 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 Robinson, 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)
Robert E. Wahlman Vice President
(Principal Accounting Officer)
James Yablecki Assistant Vice President and Actuary
(Principal Financial Officer)
Susan L. Cooper Corporate Secretary
Andrew G. Helming Secretary
Stephen C. Stachelek Vice President and Treasurer
Harold W. Albert Director
John Cannon, III Director, Senior Vice President,
and Chief Counsel
Carol M. Olsen Director and Senior Vice President
William M. Pastore Director, Chairman of the Board,
and Senior Vice President
Marc L. Preminger Director, Senior Vice President,
and Chief Financial Officer
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME WITH THE COMPANY
------------------------------- ------------------------------------
<S> <C>
Patricia L. Rowland Director and Senior Vice President
W. Allen Schaffer, M.D. Director and Senior Vice President
Jean H. Walker Director, Vice President and Actuary
</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.
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
31
<PAGE>
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, 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 Company, its direct parent,
Connecticut General Corporation, its indirect parent, CIGNA,
and its affiliate, CIGNA Health Corporation, and several
health care industry competitors have had proposed class
action lawsuits filed against them by a coalition of
plaintiffs' attorneys. These lawsuits allege violations
under RICO and ERISA.
The Company's reinsurance operations include a 35% share in
the primary layer of a workers' compensation reinsurance
pool, which was managed by Unicover Managers Inc.
("Unicover") until recently. The pool had obtained
reinsurance for a significant portion of its exposure to
claims. Disputes have arisen regarding this reinsurance
(retrocessional) coverage of the pool. Two of the
retrocessionaires have commenced arbitration against
Unicover and the pool members seeking recission or damages.
In addition, these retrocessionaires have separately
asserted that the Company participates in an upper layer of
reinsurance for the pool, which the Company denies.
Resolution of these matters is likely to take some time.
Although the outcome of these matters is uncertain, the
Company does not expect them to result in losses material to
the Company's results of operations, liquidity or financial
condition. The principal underwriter, CFS, is not engaged in
any material litigation of any nature.
32
<PAGE>
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, 1999 and 1998 and
for each of the three years in the period ended
December 31, 1999 included in the prospectus as well as the
Statement of Assets and Liabilities of the Variable Account
at December 31, 1999 and the Statement of Operations for the
period ended December 31, 1999 and the Statements of Changes
in Net Assets for the periods ended December 31, 1999 and
1998 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.
FINANCIAL STATEMENTS
The consolidated balance sheets of the Company and its
subsidiaries as of December 31, 1999 and 1998 and related
consolidated statements of income and retained earnings and
cash flows for the years ended December 31, 1999, 1998 and
1997 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, 1999 and related Statements of
Operations for the period ended December 31, 1999 and
Statements of Changes in Net Assets for the periods ended
December 31, 1999 and 1998 also follow. The Variable Account
commenced operations on December 24, 1996.
33
<PAGE>
PricewaterhouseCoopers LLP
100 Pearl Street
Hartford, CT 06103-4508
Telephone (860) 241-7000
Facsimile (860) 241-7590
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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in the
United States, 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
Hartford, Connecticut
February 8, 2000
34
<PAGE>
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
35
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
(IN MILLIONS)
- --------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees........................................... $6,573 $5,683 $5,376
Net investment income....................................... 2,421 2,637 3,139
Other revenues.............................................. 111 427 10
Realized investment gains................................... 7 93 45
------ ------ ------
Total revenues.......................................... 9,112 8,840 8,570
------ ------ ------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses.................... 6,062 5,802 5,917
Policy acquisition expenses................................. 45 44 122
Other operating expenses.................................... 1,945 1,763 1,618
------ ------ ------
Total benefits, losses and expenses..................... 8,052 7,609 7,657
------ ------ ------
INCOME BEFORE INCOME TAXES.................................. 1,060 1,231 913
------ ------ ------
Income taxes (benefits):
Current................................................... 268 636 347
Deferred.................................................. 90 (211) (49)
------ ------ ------
Total taxes............................................. 358 425 298
- --------------------------------------------------------------------------------------
NET INCOME.................................................. $ 702 $ 806 $ 615
- --------------------------------------------------------------------------------------
------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
36
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
(IN MILLIONS)
- -----------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $16,521;
$16,820)...................................................... $16,313 $18,067
Mortgage loans................................................. 8,980 8,875
Policy loans................................................... 3,007 6,091
Real estate.................................................... 775 712
Equity securities, at fair value (cost, $57; $62).............. 62 47
Other long-term investments.................................... 184 159
Short-term investments......................................... 66 85
------- -------
Total investments.......................................... 29,387 34,036
Cash and cash equivalents...................................... 636 1,026
Accrued investment income...................................... 379 494
Premiums and accounts receivable............................... 1,048 939
Reinsurance recoverables....................................... 7,251 7,278
Deferred policy acquisition costs.............................. 208 187
Property and equipment......................................... 406 365
Deferred income taxes.......................................... 933 865
Current income taxes........................................... 17 --
Other assets................................................... 373 236
Goodwill and other intangibles................................. 706 730
Separate account assets........................................ 38,459 34,648
- -----------------------------------------------------------------------------------------------
Total assets............................................... $79,803 $80,804
- -----------------------------------------------------------------------------------------------
---------------------------
LIABILITIES
Contractholder deposit funds..................................... $26,599 $30,614
Future policy benefits........................................... 7,757 8,286
Unpaid claims and claim expenses................................. 1,434 1,286
Unearned premiums................................................ 149 162
------- -------
Total insurance and contractholder liabilities............. 35,939 40,348
Accounts payable, accrued expenses and other liabilities......... 2,464 2,523
Current income taxes............................................. -- 65
Separate account liabilities..................................... 37,921 34,340
- -----------------------------------------------------------------------------------------------
Total liabilities.......................................... $76,324 $77,276
- -----------------------------------------------------------------------------------------------
CONTINGENCIES -- NOTE 13
SHAREHOLDER'S EQUITY
Common stock (6 shares issued)................................... $ 30 $ 30
Additional paid-in capital....................................... 1,120 1,072
Net unrealized (depreciation) appreciation, fixed maturities..... (28) 243
Net unrealized (depreciation), equity securities................. (17) (25)
Net translation of foreign currencies............................ 1 2
------- -------
Accumulated other comprehensive (loss) income.................... (44) 220
Retained earnings................................................ 2,373 2,206
- -----------------------------------------------------------------------------------------------
Total shareholder's equity................................. $ 3,479 $ 3,528
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity................. $79,803 $80,804
- -----------------------------------------------------------------------------------------------
---------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
37
<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, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
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,
BEGINNING OF YEAR............. 1,072 766 766
Net assets contributed by
parent........................ 48 306 --
ADDITIONAL PAID-IN CAPITAL, END
OF YEAR....................... 1,120 1,072 766
ACCUMULATED OTHER COMPREHENSIVE
INCOME, BEGINNING OF YEAR..... 220 258 191
Net unrealized (depreciation)
appreciation, fixed
maturities.................... $(271) (271) $(39) (39) $ 69 69
Net unrealized appreciation
(depreciation), equity
securities.................... 8 8 1 1 (1) (1)
----- ---- ----
Net unrealized (depreciation)
appreciation on investments... (263) (38) 68
Net translation of foreign
currencies.................... (1) (1) -- -- (1) (1)
----- ---- ----
Other comprehensive (loss)
income...................... (264) (38) 67
------ ------ -------
ACCUMULATED OTHER COMPREHENSIVE
(LOSS) INCOME, END OF YEAR.... (44) 220 258
------ ------ -------
RETAINED EARNINGS, BEGINNING OF
YEAR.......................... 2,206 3,392 3,177
Net income................... 702 702 806 806 615 615
Dividends declared........... (535) (1,992) (400)
------ ------ -------
RETAINED EARNINGS, END OF
YEAR........................ 2,373 2,206 3,392
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME AND
SHAREHOLDER'S EQUITY.......... $ 438 $3,479 $768 $3,528 $682 $ 4,446
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
38
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(IN MILLIONS)
- -----------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 702 $ 806 $ 615
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Insurance liabilities..................................... 22 67 78
Reinsurance recoverables.................................. 31 (7) 68
Deferred policy acquisition costs......................... (21) (12) (97)
Premiums and accounts receivable.......................... (238) (179) 106
Accounts payable, accrued expenses, other liabilities and
current income taxes..................................... (30) 149 41
Deferred income taxes..................................... 90 (211) (49)
Other assets.............................................. (32) (339) (54)
Depreciation and goodwill amortization.................... 154 113 88
Gain on sale of business.................................. (95) (418) --
Other, net................................................ 88 (50) (99)
------- ------- -------
Net cash provided by (used in) operating activities..... 671 (81) 697
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities.......................................... 2,336 2,869 1,583
Mortgage loans............................................ 758 1,052 807
Policy loans.............................................. 272 382 --
Equity securities......................................... 24 15 14
Other (primarily short-term investments).................. 5,958 6,822 6,848
Investment maturities and repayments:
Fixed maturities.......................................... 2,404 2,797 2,394
Mortgage loans............................................ 426 421 601
Investments purchased:
Fixed maturities.......................................... (4,293) (3,881) (4,339)
Mortgage loans............................................ (1,381) (1,611) (1,426)
Equity securities......................................... (17) (7) (9)
Other (primarily short-term investments).................. (5,945) (7,652) (6,309)
Sale of individual life insurance and annuity business,
net proceeds............................................. -- 1,295 --
Other, net................................................ (358) (274) (102)
------- ------- -------
Net cash provided by investing activities............... 184 2,228 62
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit
funds.................................................... 7,585 7,050 7,634
Withdrawals and benefit payments from contractholder
deposit funds............................................ (8,296) (7,106) (7,023)
Dividends paid to parent.................................... (535) (1,992) (400)
Other, net.................................................. 1 4 (47)
Net cash (used in) provided by financing activities... (1,245) (2,044) 164
- -----------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents........ (390) 103 923
Cash and cash equivalents, beginning of year................ 1,026 923 --
- -----------------------------------------------------------------------------------------
Cash and cash equivalents, end of year...................... $ 636 $ 1,026 $ 923
- -----------------------------------------------------------------------------------------
---------------------------
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds......................... $ 337 $ 520 $ 402
Interest paid............................................. $ 3 $ 3 $ 5
- -----------------------------------------------------------------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
39
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
Connecticut General Life Insurance Company and its subsidiaries (collectively
referred to as "Connecticut General") provide group life and health insurance
and retirement and investment products and services. Connecticut General
operates throughout the United States and in selected international locations.
Connecticut General 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 Connecticut General and all significant subsidiaries. These
consolidated financial statements were prepared in conformity with generally
accepted accounting principles. Amounts recorded in the financial statements
reflect management's estimates and assumptions about medical costs, interest
rates and other factors. Significant estimates are discussed in these Notes.
Certain reclassifications have been made to prior years' amounts to conform to
the 1999 presentation.
B) RECENT ACCOUNTING PRONOUNCEMENTS:
INSURANCE-RELATED ASSESSMENTS.
Connecticut General adopted Statement of Position (SOP) 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments," as of
January 1, 1999. Issued by the American Institute of Certified Public
Accountants, this SOP guides companies in measuring and recording liabilities
for insolvency fund and other insurance-related assessments, such as workers'
compensation second injury funds, medical risk pools and charges for operating
expenses of state regulatory bodies. The cumulative effect of adopting the SOP
was not material.
INTERNAL USE SOFTWARE.
In 1999, Connecticut General adopted SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP specifies
the types of costs that must be capitalized and amortized over the software's
expected useful life and the types of costs that must be immediately recognized
as expense. Implementation of this SOP did not have a material effect on results
of operations, liquidity or financial condition. The effect of this
pronouncement on Connecticut General's financial statements in future periods
will vary based on the level of software development costs incurred.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (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 that hedge market risk related to
future cash flows, in accumulated other comprehensive income. Companies are
required to implement SFAS No. 133 by the first quarter of 2001, showing the
cumulative effect of adoption in net income and accumulated other comprehensive
income. Connecticut General has not determined whether it will adopt these
changes before the required implementation date or what their effect will be.
C) FINANCIAL INSTRUMENTS: In the normal course of business, Connecticut
General enters into transactions involving various types of financial
instruments. These financial instruments include investments (such as fixed
maturities and equity securities), short and long-term debt, and
off-balance-sheet instruments (such as investment and loan commitments and
financial guarantees). These instruments may change in value due to interest
rate and market fluctuations, and most have credit risk. Connecticut General
evaluates and monitors each financial instrument individually and, when
management considers it appropriate, uses certain derivative instruments or
obtains collateral or other forms of security to limit risk of loss.
Most financial instruments that are subject to fair value disclosure
requirements (such as fixed maturities and equity securities) are carried in the
financial statements at amounts that approximate fair value. At the end of 1999
40
<PAGE>
and 1998, the fair values of mortgage loans, contractholder deposit funds
(non-insurance products), and long-term debt were not materially different from
their carrying amounts. Fair values of off-balance-sheet financial instruments
were not material.
Fair values of financial instruments are based on quoted market prices when
available. When market prices are not available, management estimates fair value
based on discounted cash flow analyses, which use current interest rates for
similar financial instruments with comparable terms and credit quality.
Management estimates the fair value of liabilities for contractholder deposit
funds using the amount payable on demand and, for those deposit funds not
payable on demand, using discounted cash flow analyses. In many cases, an
estimate of the fair value of a financial instrument may differ significantly
from the amount that could be realized if the instrument were sold immediately.
D) INVESTMENTS: Connecticut General's accounting policies for investment
assets are discussed below.
FIXED MATURITIES AND MORTGAGE LOANS. Investments in fixed maturities include
bonds, mortgage- and other asset-backed securities and redeemable preferred
stocks. These investments are classified as available for sale and are carried
at fair value. Fixed maturities are considered impaired, and amortized cost is
written down to fair value, when management expects a decline in value to
persist.
Mortgage loans are carried at unpaid principal balances. Impaired loans are
carried at the fair value of the underlying collateral. Mortgage loans are
considered impaired when it is probable that Connecticut General will not
collect all amounts due according to the terms of the loan agreement.
When an investment is current, Connecticut General recognizes interest income
when it is earned. Connecticut General stops recognizing interest income on
fixed maturities and mortgage loans when they are delinquent or restructured for
troubled borrowers to modify basic financial terms, such as to reduce the
interest rate or extend the maturity date. Net investment income on these
investments is recognized only when payment is received.
REAL ESTATE. Investment real estate can be held to produce income or for
sale.
Connecticut General carries real estate held to produce income at depreciated
cost less any write-downs to fair value due to impairment. Depreciation is
generally calculated using the straight-line method based on the estimated
useful life of each asset.
Connecticut General acquires most real estate held for sale through
foreclosure of mortgage loans. At the time of foreclosure, properties are valued
at fair value less estimated costs to sell, and are reclassified from mortgage
loans to real estate held for sale. After foreclosure, these investments are
carried at the lower of fair value at foreclosure or current fair value less
estimated costs to sell, and are no longer depreciated. Valuation reserves
reflect changes in fair value after foreclosure. Connecticut General
rehabilitates, re-leases, and sells foreclosed properties held for sale, a
process that usually takes from two to four years, unless management considers a
near-term sale preferable.
Connecticut General uses several methods to determine the fair value of real
estate, but relies primarily on discounted cash flow analyses and, in some
cases, third-party appraisals.
EQUITY SECURITIES AND SHORT-TERM INVESTMENTS. Connecticut General classifies
equity securities and short-term investments as available for sale and carries
them at fair value, which for short-term investments approximates cost. Equity
securities include common and non-redeemable preferred stocks.
POLICY LOANS. Policy loans are carried at unpaid principal balances.
INVESTMENT GAINS AND LOSSES. Realized investment gains and losses result from
sales, investment asset write-downs and changes in valuation reserves and are
based on specifically identified assets. Connecticut General's net income does
not include gains and losses on investment assets related to experience-rated
pension policyholders' contracts and participating life insurance policies
(policyholder share) because these amounts generally accrue to the
policyholders.
Unrealized gains and losses on investments carried at fair value are included
in accumulated other comprehensive income, net of policyholder share and
deferred income taxes.
41
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS. Note 4(F) discusses Connecticut General's
accounting policies for derivative financial instruments.
E) CASH AND CASH EQUIVALENTS: Cash equivalents consist of short-term
investments that mature in three months or less at the time of purchase.
F) REINSURANCE RECOVERABLES: Reinsurance recoverables are estimates of
amounts that Connecticut General will receive from reinsurers. Allowances are
established for amounts owed to Connecticut General under reinsurance contracts
that management believes will not be received.
G) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of
commissions, premium taxes, and other costs that Connecticut General incurs to
acquire new business. Acquisition costs for:
- CONTRACTHOLDER DEPOSIT FUNDS AND UNIVERSAL LIFE PRODUCTS are deferred and
amortized in proportion to the present value of total estimated gross
profits over the expected lives of the contracts.
- 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.
- OTHER PRODUCTS are expensed as incurred.
Management estimates future revenues less expected claims on products that
carry deferred policy acquisition costs. If that estimate is less than the
deferred costs, Connecticut General reduces deferred policy acquisition costs
and records an expense.
H) PROPERTY AND EQUIPMENT: Property and equipment are carried at cost less
accumulated depreciation. When applicable, cost includes interest, real estate
taxes and other costs incurred during construction. Connecticut General
calculates depreciation principally using the straight-line method based on the
estimated useful life of each asset. Accumulated depreciation was $506 million
at December 31, 1999, and $490 million at December 31, 1998.
I) OTHER ASSETS: Other assets consist primarily of various insurance-related
assets.
J) 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.
Connecticut General amortizes goodwill and other intangibles on a
straight-line basis over periods ranging from five to 40 years. Management
revises amortization periods if it believes there has been a change in the
length of time that the intangibles will continue to have value. Accumulated
amortization was $167 million at December 31, 1999, and $143 million at
December 31, 1998.
For businesses that have recorded goodwill, management analyzes historical and
estimated future income or undiscounted cash flows. If such results are lower
than the amount recorded as goodwill, Connecticut General reduces goodwill and
records an expense.
K) SEPARATE ACCOUNTS: Separate account assets and liabilities are
policyholder funds maintained in accounts with specific investment objectives.
These accounts are carried at market value. The investment income, gains and
losses of these accounts generally accrue to the policyholders and are not
included in Connecticut General's revenues and expenses.
L) CONTRACTHOLDER DEPOSIT FUNDS: Liabilities for contractholder deposit funds
include deposits received from customers for investment-related and universal
life products and investment earnings on their fund balances. These liabilities
are adjusted to reflect administrative charges, policyholder share of unrealized
appreciation or depreciation on investment assets and, for universal life fund
balances, mortality charges.
M) UNPAID CLAIMS AND CLAIM EXPENSES: Liabilities for unpaid claims and claim
expenses are estimates of payments to be made under health and dental coverages
for reported claims and for losses incurred but not yet reported. Management
develops these estimates using actuarial methods based upon historical data for
payment patterns, cost trends, product mix, seasonality, utilization of health
care services and other relevant factors. When estimates change, Connecticut
General records the adjustment in benefits, losses and settlement expenses.
42
<PAGE>
N) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for
estimated future obligations under traditional life and health policies and
annuity products currently in force. Management develops these estimates using
premium assumptions for group annuity policies and assumes receipt of premiums
until benefits are paid for individual life policies. These estimation
techniques rely on assumptions as to future investment yield, mortality and
withdrawals that allow for adverse deviation.
Future policy benefits for individual life insurance and annuity policies are
computed using interest rate assumptions that generally decline over the first
20 years and range from 2% to 11%. Mortality, morbidity, and withdrawal
assumptions are based on either Connecticut General's own experience or industry
actuarial tables.
O) UNEARNED PREMIUMS: Premiums for group life, accident, and health insurance
are recognized as revenue on a pro rata basis over the contract period. The
unrecognized portion of these premiums is recorded as unearned premiums.
P) OTHER LIABILITIES: Other liabilities consist principally of postretirement
and postemployment benefits and various insurance-related liabilities, including
amounts related to reinsurance contracts and guaranty fund assessments that
management can reasonably estimate.
Q) TRANSLATION OF FOREIGN CURRENCIES: Connecticut General's foreign
operations primarily use the local currencies as their functional currencies.
Connecticut General uses exchange rates as of the balance sheet date to
translate assets and liabilities.
The translation gain or loss on functional currencies, net of applicable
taxes, is generally reflected in accumulated other comprehensive income.
Connecticut General uses average exchange rates during the year to translate
revenues and expenses.
R) PREMIUMS AND FEES, REVENUES AND RELATED EXPENSES: Premiums for group life,
accident and health insurance are recognized as revenue on a pro rata basis over
the contract period. Benefits, losses and settlement expenses are recognized
when incurred.
Premiums for individual life insurance and 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.
Revenue for investment-related products is recognized as follows:
- Net investment income on assets supporting investment-related products is
recognized as earned.
- Contract fees, which are based upon related administrative expenses, are
assessed against the customer's fund balance ratably over the contract year.
Benefit expenses for investment-related products consist primarily of income
credited to policyholders in accordance with contract provisions.
Revenue for universal life products is recognized as follows:
- Net investment income on assets supporting universal life products is
recognized as earned.
- Fees for mortality are recognized ratably over the policy year.
- Administration fees are recognized as services are provided.
- Surrender charges are recognized as earned.
Benefit expenses for universal life products consist of benefit claims in
excess of policyholder account balances which are recognized when filed, and
amounts credited in accordance with contract provisions.
S) PARTICIPATING BUSINESS: Connecticut General's participating life insurance
policies entitle policyholders to earn dividends that represent a portion of the
earnings of Connecticut General's life insurance subsidiaries. Participating
insurance in force accounted for approximately 7% of Connecticut General's total
life insurance in force at the end of 1999, 1998 and 1997.
43
<PAGE>
T) INCOME TAXES: Connecticut General and its domestic subsidiaries are
included in the consolidated United States federal income tax return filed by
CIGNA. The provision for federal income tax is calculated as if Connecticut
General were filing a separate federal income tax return. Connecticut General
generally recognizes deferred income taxes when assets and liabilities have
different values for financial statement and tax reporting purposes (temporary
differences).
Note 7 contains detailed information about Connecticut General's income taxes.
NOTE 3 -- DISPOSITION
Connecticut General conducts regular strategic and financial reviews of its
businesses to ensure that capital is used effectively. As a result of its
review, Connecticut General sold its individual life insurance and annuity
business for cash proceeds of $1.4 billion as of January 1, 1998. The sale
generated an after-tax gain of $773 million. Of this amount, $202 million was
recognized at the time of sale. The remaining gain was deferred because the
principal agreement to sell this business was an indemnity reinsurance
arrangement. The deferred portion is being recognized at the rate that earnings
from the sold business would have been expected to emerge, primarily over
fifteen years on a declining basis.
Connecticut General recognized $62 million of the deferred gain in 1999 and
$66 million of the deferred gain in 1998.
As part of the sale, Connecticut General transferred invested assets of
$5.4 billion and various other assets and liabilities, and recorded a
reinsurance recoverable of $5.8 billion for insurance liabilities retained.
In 1997, revenues for the sold business were $972 million and net income was
$102 million.
NOTE 4 -- INVESTMENTS
A) FIXED MATURITIES: The amortized cost and fair value by contractual
maturity periods for fixed maturities, including policyholder share, were as
follows at December 31, 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Amortized Fair
(IN MILLIONS) Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less..................................... $ 992 $ 990
Due after one year through five years....................... 3,912 3,858
Due after five years through ten years...................... 3,997 3,949
Due after ten years......................................... 2,260 2,366
Mortgage- and other asset-backed securities................. 5,360 5,150
- --------------------------------------------------------------------------------
Total....................................................... $ 16,521 $16,313
- --------------------------------------------------------------------------------
------------------
</TABLE>
Actual maturities could differ from contractual maturities because issuers may
have the right to call or prepay obligations, with or without penalties. Also,
in some cases Connecticut General may extend maturity dates.
Gross unrealized appreciation (depreciation) on fixed maturities, including
policyholder share, by type of issuer was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31, 1999
- ----------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal government and agency bonds.............. $ 481 $130 $ (3) $ 608
State and local government bonds................. 167 6 (6) 167
Foreign government bonds......................... 192 2 (9) 185
Corporate securities............................. 10,321 225 (343) 10,203
Federal agency mortgage-backed securities........ 760 10 (8) 762
Other mortgage-backed securities................. 1,633 15 (69) 1,579
Other asset-backed securities.................... 2,967 20 (178) 2,809
- ----------------------------------------------------------------------------------------------------
Total............................................ $16,521 $408 $(616) $16,313
- ----------------------------------------------------------------------------------------------------
-------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31, 1999
- ----------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal government and agency 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
Federal agency mortgage-backed securities........ 1,301 45 (1) 1,345
Other mortgage-backed securities................. 1,679 51 (10) 1,720
Other asset-backed securities.................... 2,724 121 (23) 2,822
- ----------------------------------------------------------------------------------------------------
Total............................................ $16,820 $1,384 $(137) $18,067
- ----------------------------------------------------------------------------------------------------
-------------------------------------------------
</TABLE>
At December 31, 1999, Connecticut General had commitments to purchase
$36 million of fixed maturities. Most of these commitments are to purchase
unsecured investment grade bonds, bearing interest at a fixed market rate. These
bond commitments are diversified by issuer and maturity date. Connecticut
General expects to disburse approximately 75% of the committed amount in 2000.
B) MORTGAGE LOANS AND REAL ESTATE: Connecticut General's mortgage loans and
real estate investments are diversified by property type and location. Mortgage
loans are also diversified by borrower. These loans, which are secured by the
related property, are generally made at less than 75% of the property's value.
At December 31, the carrying values of mortgage loans and real estate
investments, including policyholder share, were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans.............................................. $8,980 $8,875
------ ------
Real estate:
Held for sale............................................. 297 326
Held to produce income.................................... 478 386
------ ------
Total real estate........................................... 775 712
- ----------------------------------------------------------------------------
Total....................................................... $9,755 $9,587
- ----------------------------------------------------------------------------
--------------
</TABLE>
At December 31, mortgage loans and real estate investments consist of the
following property types and geographic regions:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Property type:
Retail facilities......................................... $3,018 $3,145
Office buildings.......................................... 4,081 3,814
Apartment buildings....................................... 1,191 1,283
Industrial................................................ 670 --
Hotels.................................................... 488 450
Other..................................................... 307 895
- ----------------------------------------------------------------------------
Total....................................................... $9,755 $9,587
- ----------------------------------------------------------------------------
--------------
Geographic region:
Central................................................... $2,721 $3,051
Pacific................................................... 2,941 2,683
Middle Atlantic........................................... 1,653 1,510
South Atlantic............................................ 1,531 1,348
New England............................................... 909 995
- ----------------------------------------------------------------------------
Total....................................................... $9,755 $9,587
- ----------------------------------------------------------------------------
--------------
</TABLE>
45
<PAGE>
MORTGAGE LOANS.
At December 31, 1999, scheduled mortgage loan maturities were as follows (in
billions): $1.0 in 2000, $0.8 in 2001, $1.1 in 2002, $1.6 in 2003, $1.3 in 2004,
and $3.2 thereafter. Actual maturities could differ from contractual maturities
for several reasons. Borrowers may have the right to prepay obligations, with or
without prepayment penalties; the maturity date may be extended; and loans may
be refinanced.
At December 31, 1999, Connecticut General had commitments to extend credit
under commercial mortgage loan agreements of approximately $111 million, most of
which were at a fixed market rate of interest. These loan commitments are
diversified by property type and geographic region. Connecticut General expects
to disburse approximately all of the committed amount in 2000.
At December 31, impaired mortgage loans and valuation reserves were as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with no valuation reserves................... $184 $132
Impaired loans with valuation reserves...................... 52 24
---- ----
Total impaired loans........................................ 236 156
Less valuation reserves..................................... (11) (6)
- -------------------------------------------------------------------------
Net impaired loans.......................................... $225 $150
- -------------------------------------------------------------------------
-----------
</TABLE>
During the year ended December 31, changes in reserves for impaired mortgage
loans, including policyholder share, were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Reserve balance -- January 1................................ $ 6 $ 44
Transfers to foreclosed real estate......................... -- (21)
Charge-offs upon sales...................................... -- (9)
Net change in valuation reserves............................ 5 (8)
- -------------------------------------------------------------------------
Reserve balance -- December 31.............................. $11 $ 6
- -------------------------------------------------------------------------
-----------
</TABLE>
Impaired mortgage loans, before valuation reserves, averaged approximately
$183 million in 1999, and $285 million in 1998. Interest income recorded and
cash received on impaired loans were approximately $19 million in 1999 and
$12 million in 1998.
During 1999, Connecticut General refinanced approximately $96 million of its
mortgage loans at current market rates for borrowers unable to obtain
alternative financing, compared to $126 million in 1998.
REAL ESTATE.
During 1999, non-cash investing activities included $13 million of real estate
acquired through foreclosure of mortgage loans, compared to $32 million for 1998
and $81 million for 1997. The total of valuation reserves and cumulative
write-downs related to real estate, including policyholder share, was
$143 million at the end of 1999, compared to $171 million at the end of 1998.
Net investment income from real estate held for sale was $6 million for 1999 and
$8 million for 1998. Write-downs upon foreclosure and changes in valuation
reserves were not material for 1999 or 1998.
C) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and
cash equivalents were primarily debt securities -- principally corporate
securities of $398 million, asset-backed securities of $133 million and federal
government bonds of $77 million at December 31, 1999. Connecticut General held
$963 million in corporate securities, $68 million of federal government bonds
and $24 million of asset-backed securities at December 31, 1998.
46
<PAGE>
D) NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS: Unrealized
appreciation (depreciation) on investments carried at fair value at December 31
was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation:
Fixed maturities.......................................... $ 408 $1,384
Equity securities......................................... 7 10
----- ------
415 1,394
----- ------
Unrealized depreciation:
Fixed maturities.......................................... (615) (137)
Equity securities......................................... (2) (25)
----- ------
(617) (162)
----- ------
(202) 1,232
Less policyholder-related amounts........................... (150) 880
----- ------
Shareholder net unrealized appreciation (depreciation)...... (52) 352
Income tax expense (benefit)................................ (7) 134
- ----------------------------------------------------------------------------
Net unrealized appreciation (depreciation).................. $ (45) $ 218
- ----------------------------------------------------------------------------
--------------
</TABLE>
Changes in net unrealized appreciation (depreciation) on investments for the
years ended December 31 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized appreciation (depreciation) on investments
held...................................................... $(405) $137 $106
Tax expense (tax benefit)................................... (141) 48 37
----- ---- ----
Unrealized appreciation (depreciation), net of taxes........ (264) 89 69
----- ---- ----
(Losses) gains realized in net income....................... (1) 195 1
Tax expense................................................. -- 68 --
----- ---- ----
(Losses) gains realized in net income, net of taxes......... (1) 127 1
----- ---- ----
Net unrealized appreciation (depreciation).................. $(263) $(38) $ 68
- ---------------------------------------------------------------------------------
-------------------
</TABLE>
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) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities............................................ $ 7 $ 22
Mortgage loans.............................................. 1 2
Real estate................................................. 76 68
Other long-term investments................................. 25 --
- ------------------------------------------------------------------------
Total....................................................... $109 $ 92
- ------------------------------------------------------------------------
----------
</TABLE>
F) DERIVATIVE FINANCIAL INSTRUMENTS: Connecticut General's investment
strategy is to manage the characteristics of investment and other assets -- such
as duration, yield, currency, and liquidity -- to reflect the varying
characteristics of the related insurance, contractholder and other liabilities.
In implementing its investment strategy, Connecticut General substantially
limits its use of derivative instruments to hedging applications designed to
limit interest rate, foreign exchange, and equity price risks. The effects of
derivatives were not material for 1999, 1998 or 1997.
HEDGE ACCOUNTING TREATMENT.
Accounting rules provide that companies may only use hedge accounting when it
is probable that there will be a high correlation between the changes in fair
value or cash flow of a derivative instrument and the changes in fair value or
cash flow of the related hedged asset or liability. These changes are recognized
together in net income and generally offset each other.
47
<PAGE>
When hedge accounting treatment does not apply, Connecticut General records
the derivative at fair value. Changes in fair value are then recognized in net
income, or in contractholder liabilities for certain derivatives associated with
experience-rated pension policyholders.
CREDIT RISK.
Connecticut General routinely monitors exposure to credit risk associated with
swap and option contracts, and diversifies the portfolio among approved dealers
of high credit quality to limit risk.
DERIVATIVE INSTRUMENTS USED.
The table below presents information about the nature and accounting treatment
of Connecticut General's derivative financial instruments, and includes their
underlying notional amounts (in millions) at December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Notional
Amounts:
1999
Instrument Risk Hedged Purpose Cash Flows Accounting Policy 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SWAPS Interest Connecticut Connecticut Fair value is $350
rate and General hedges the General reported currently $351
foreign interest or periodically in fixed
currency foreign currency exchanges cash maturities and net
risk cash flows of flow differences interest cash
fixed maturities between variable flows are reported
to match and fixed interest in net investment
associated rates or between income.
liabilities two currencies for
(currency swaps both principal and
are primarily interest.
Canadian dollars,
Japanese yen,
Swiss francs,
euros and pounds
sterling).
- ----------------------------------------------------------------------------------------------
FORWARD Interest Connecticut Connecticut Fair value is $1,793
SWAPS rate risk General hedges General reported currently --
fair value changes periodically in long-term
of fixed maturity exchanges the investments, with
and mortgage loan difference between changes in
investments held variable and fixed contractholder
primarily for rate asset cash deposit funds.
experience-rated flows, beginning
pension at a future date.
policyholders.
- ----------------------------------------------------------------------------------------------
WRITTEN Primarily Connecticut Connecticut Fair values are Written
AND equity risk General writes General receives reported currently $2,275
PURCHASED reinsurance (pays) an up-front in other $1,087
OPTIONS contracts to fee and liabilities and
minimize periodically pays other assets, with
customers' market (receives) changes reported Purchased
risks and unfavorable in other revenues $1,822
purchases changes in or other operating $872
reinsurance variable annuity expenses.
contracts to account values
minimize the based on
market risks underlying mutual
assumed. These funds when account
contracts are holders elect to
accounted for as receive periodic
written and income payments.
purchased options.
- ----------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
G) OTHER: As of December 31, 1999 and 1998, Connecticut General did not have
a concentration of investments in a single issuer or borrower 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) 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities............................................ $1,336 $1,386 $1,648
Equity securities........................................... 2 1 8
Mortgage loans.............................................. 754 739 885
Policy loans................................................ 257 459 532
Real estate................................................. 148 142 183
Other long-term investments................................. 22 19 17
Short-term investments...................................... 39 18 28
------ ------ ------
2,558 2,764 3,301
Less investment expenses.................................... 137 127 162
- --------------------------------------------------------------------------------------
Net investment income....................................... $2,421 $2,637 $3,139
- --------------------------------------------------------------------------------------
------------------------
</TABLE>
Net investment income attributable to policyholder contracts, which is
included in Connecticut General's revenues and is primarily offset by amounts
included in benefits, losses and settlement expenses, was approximately
$1.4 billion for 1999, $1.6 billion for 1998, and $1.7 billion for 1997. Net
investment income for separate accounts, which is not reflected in Connecticut
General's revenues, was $1.7 billion for 1999, $1.5 billion for 1998, and
$1.4 billion for 1997.
Fixed maturities and mortgage loans on non-accrual status, including
policyholder share, were as follows at December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Delinquent.................................................. $ 12 $ 28
Restructured................................................ 176 181
- ------------------------------------------------------------------------
Total non-accrual investments............................... $188 $209
- ------------------------------------------------------------------------
----------
</TABLE>
In 1999, net investment income was $9 million higher than net interest income
would have been under the original terms of these securities, reflecting
collections of unrecognized interest income. For 1998 and 1997, net investment
income would have been higher by $8 million and $11 million in those years if
interest on these non-accrued investments would have been recognized in
accordance with their original terms.
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) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities............................................ $(3) $34 $(3)
Equity securities........................................... 2 3 4
Mortgage loans.............................................. (1) 22 4
Real estate................................................. 5 10 28
Other....................................................... 4 24 12
--- --- ---
7 93 45
Income tax (benefit) expense................................ (1) 33 8
- --------------------------------------------------------------------------------
Net realized investment gains............................... $ 8 $60 $37
- --------------------------------------------------------------------------------
------------------
</TABLE>
49
<PAGE>
Realized investment gains and losses included impairments in the value of
investments, net of recoveries, of $9 million in 1999 and $25 million in 1997.
In 1998, realized investment gains and losses included recoveries in the value
of investments, net of impairments, of $5 million.
Realized investment gains that are not reflected in Connecticut General's
revenues for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Separate accounts........................................... $2,253 $494 $489
Policyholder contracts...................................... $ 31 $201 $ 76
- ----------------------------------------------------------------------------------
</TABLE>
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) 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales......................................... $2,360 $2,884 $1,597
Gross gains on sales........................................ $ 65 $ 180 $ 60
Gross losses on sales....................................... $ (26) $ (41) $ (98)
- --------------------------------------------------------------------------------------
</TABLE>
NOTE 6 -- SHAREHOLDER'S EQUITY AND DIVIDEND RESTRICTIONS
The Connecticut Insurance Department, which regulates Connecticut General,
prescribes accounting practices to determine statutory net income and surplus
(shareholder's equity). The prescribed accounting practices differ in a number
of ways from generally accepted accounting principles. Connecticut General's
statutory net income for the year ended, and surplus as of, December 31 were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income.................................................. $ 747 $ 824 $ 417
Surplus..................................................... $1,981 $1,789 $2,182
- --------------------------------------------------------------------------------------
</TABLE>
Connecticut General is subject to restrictions that limit the amount of annual
dividends or other distributions (such as loans or cash advances) available to
their shareholders without prior approval of regulatory authorities. The maximum
dividend distribution that Connecticut General may make during 2000 without
prior approval is approximately $0.7 billion. The amount of restricted net
assets as of December 31, 1999 was approximately $2.7 billion.
Connecticut General's capital stock consisted of 5,978,322 shares of common
stock authorized and outstanding as of December 31, 1999 and 1998 (par
value $5).
NOTE 7 -- INCOME TAXES
Connecticut General's net deferred tax assets of $933 million as of December
31, 1999, and $865 million as of December 31, 1998, reflect management's belief
that Connecticut General's taxable income in future years will be sufficient to
realize the net deferred tax asset. This determination is based on Connecticut
General's earnings history and future expectations.
Through 1983, a portion of Connecticut General's statutory income was not
subject to current income taxation, but was accumulated in a designated
policyholders' surplus account. Additions to the account were no longer
permitted beginning in 1984. Connecticut General's existing account balance of
$450 million would result in a $158 million tax liability only if it were
distributed to shareholders or exceeded a prescribed amount. Accordingly,
Connecticut General has not provided taxes on this amount, as management has
determined, it is remote these conditions will be met. However, see Note 13 for
further information regarding this matter.
CIGNA's federal income tax returns are routinely audited by the Internal
Revenue Service (IRS). In management's opinion, adequate tax liabilities have
been established for all years. Income taxes and deferred tax balances for the
years ended December 31, 1999 and 1998 reflect state income taxes. State income
taxes were not material in 1997.
50
<PAGE>
The tax effect of temporary differences which give rise to deferred income tax
assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(IN MILLIONS) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other insurance and contractholder liabilities............ $ 142 $ 119
Employee and retiree benefit plans........................ 190 214
Deferred gain on sale of business......................... 235 290
Investments, net.......................................... 327 356
Policy acquisition expenses............................... 108 111
Unrealized appreciation on investments.................... 7 --
------ ------
Total deferred tax assets................................... 1,009 1,090
------ ------
Deferred tax liabilities:
Unrealized appreciation on investments.................... -- 134
Depreciation and amortization............................. 68 67
Other..................................................... 8 24
------ ------
Total deferred tax liabilities.............................. 76 225
- ----------------------------------------------------------------------------
Net deferred income tax assets.............................. $ 933 $ 865
- ----------------------------------------------------------------------------
--------------
</TABLE>
The components of income taxes for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
U.S. income............................................... $258 $617 $344
Foreign income............................................ 6 5 3
State income.............................................. 4 14 --
---- ---- ----
268 636 347
---- ---- ----
Deferred taxes (benefits):
U. S. income.............................................. 90 (205) (49)
State income.............................................. -- (6) --
---- ---- ----
90 (211) (49)
- --------------------------------------------------------------------------------
Total income taxes.......................................... $358 $425 $298
- --------------------------------------------------------------------------------
------------------
</TABLE>
Total income taxes for the year ended December 31 were different from the
amount computed using the nominal federal income tax rate of 35% for the
following reasons:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at nominal rate................................. $371 $431 $320
Tax-exempt interest income.................................. (4) (4) (5)
Dividends received deduction................................ (9) (13) (7)
Amortization of goodwill.................................... 5 5 4
State income tax (net of federal income tax benefit)........ 3 5 --
Resolved federal tax audit issues........................... -- -- (13)
Other....................................................... (8) 1 (1)
- --------------------------------------------------------------------------------
Total income taxes.......................................... $358 $425 298
- --------------------------------------------------------------------------------
------------------
</TABLE>
NOTE 8 -- PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
A) PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS: Connecticut General
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 Connecticut
General along with other benefit cost allocations.
51
<PAGE>
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 Connecticut
General was $19 million in 1999 and 1998 and $24 million in 1997. The plans had
deposits with Connecticut General totaling approximately $2.1 billion at
December 31, 1999 and $2.8 billion at December 31, 1998.
Expense for post retirement benefits other than pensions allocated to
Connecticut General totaled $6 million for 1999 and $2 million for 1998. The
other post retirement benefit liability included in accounts payable, accrued
expenses and other liabilities, was $377 million as of December 31, 1999 and
$387 million as of December 31, 1998.
B) 401(k) PLANS: CIGNA sponsors various 401(k) plans in which CIGNA matches a
portion of employees' pre-tax contributions. Employees may invest in one or more
of the following funds: CIGNA common stock fund, several diversified stock
funds, a bond fund and a fixed-income fund.
CIGNA may elect to increase its matching contributions if CIGNA's annual
performance meets certain targets. A substantial amount of CIGNA's matching
contributions are invested in the CIGNA common stock fund. Connecticut General's
allocated expense for these plans was $20 million for 1999, $22 million for 1998
and $15 million for 1997.
NOTE 9 -- REINSURANCE
In the normal course of business, Connecticut General enters into agreements
with other insurance companies to assume and cede reinsurance. Reinsurance is
ceded primarily to limit losses from large exposures and to permit recovery of a
portion of direct losses. Reinsurance does not relieve the originating insurer
of liability. Connecticut General evaluates the financial condition of its
reinsurers and monitors their concentrations of credit risk (arising from
similar geographic regions, activities, or economic characteristics).
At December 31, 1999, Connecticut General had a reinsurance recoverable of
$6.0 billion from Lincoln National Corporation that arose as a result of the
sale of Connecticut General's individual life insurance and annuity business to
Lincoln through an indemnity reinsurance transaction. See Note 3 for information
about this sale.
Failure of reinsurers to indemnify Connecticut General, whether because of
reinsurer insolvencies or contract disputes, could result in losses. However,
management does not expect charges for unrecoverable reinsurance to have a
material effect on Connecticut General's results of operations, liquidity or
financial condition.
52
<PAGE>
In Connecticut General's consolidated income statements, premiums and fees
were net of ceded premiums, and benefits, losses and settlement expenses were
net of reinsurance recoveries, in the following amounts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-DURATION CONTRACTS
Premiums and fees:
Direct.................................................... $4,248 $3,763 $3,119
Assumed................................................... 651 286 255
Ceded..................................................... (105) (237) (266)
- --------------------------------------------------------------------------------------------
Net earned premiums and fees................................ $4,794 $3,812 $3,108
- --------------------------------------------------------------------------------------------
------------------------------
LONG-DURATION CONTRACTS
Premiums and fees:
Direct.................................................... $1,750 $1,998 $1,979
Assumed................................................... 635 564 522
Ceded..................................................... (606) (691) (233)
- --------------------------------------------------------------------------------------------
Net earned premiums and fees................................ $1,779 $1,871 $2,268
- --------------------------------------------------------------------------------------------
------------------------------
REINSURANCE RECOVERIES
Individual life insurance and annuity business sold......... $ 362 $ 550 $ --
Other....................................................... 194 149 340
- --------------------------------------------------------------------------------------------
Total....................................................... $ 556 $ 699 $ 340
- --------------------------------------------------------------------------------------------
------------------------------
</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.
Ceded premiums and reinsurance recoveries associated with the individual life
and insurance businesses sold were $462 million and $362 million for 1999, and
$741 million and $550 million for 1998.
NOTE 10 -- LEASES AND RENTALS
Rental expenses for operating leases, principally for office space, amounted
to $42 million in 1999 and 1998, and $76 million in 1997.
As of December 31, 1999, future net minimum rental payments under
non-cancelable operating leases were approximately $230 million, payable as
follows (in millions): $39 in 2000, $35 in 2001, $32 in 2002, $28 in 2003, $24
in 2004, and $72 thereafter.
NOTE 11 -- SEGMENT INFORMATION
Operating segments are based on Connecticut General's internal reporting
structure. Segments generally reflect groups of related products. Connecticut
General presents segment information as follows:
- EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS, which combines
Connecticut General's Health Care and Group Insurance segments, offers a
range of indemnity group health and managed care products and services
through guaranteed cost, experience rated and alternative funding
arrangements such as administrative services only and minimum premium plans.
This segment also offers group life and disability coverages.
- 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 consists of deferred gain recognized from the sale of the
individual life insurance and annuity business; corporate life insurance on
which policy loans are outstanding (leveraged corporate life insurance);
life, accident and health reinsurance operations; settlement annuity
business; and certain new business initiatives.
53
<PAGE>
Connecticut General measures the financial results of its segments using
operating income (net income excluding after-tax realized investment results).
Connecticut General determines operating income for each segment consistent with
the accounting policies for the consolidated financial statements. Connecticut
General allocates other corporate general, administrative and systems expenses
on systematic bases. Income taxes are generally computed as if each segment were
filing separate income tax returns.
Connecticut General'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>
- --------------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS
Premiums and fees and other revenues........................ $ 5,769 $ 5,012 $ 4,307
Net investment income....................................... 267 290 286
- --------------------------------------------------------------------------------------------
Segment revenues............................................ 6,036 5,302 4,593
Income tax expense.......................................... 174 114 108
Operating income............................................ 315 195 190
Assets under management:
Invested assets........................................... 3,341 3,519 3,761
Separate account assets................................... 2,038 1,702 1,440
- --------------------------------------------------------------------------------------------
Total....................................................... $ 5,379 $ 5,221 $ 5,201
- --------------------------------------------------------------------------------------------
EMPLOYEE RETIREMENT BENEFITS AND INVESTMENT SERVICES
Premiums and fees and other revenues........................ $ 251 $ 239 $ 205
Net investment income....................................... 1,596 1,605 1,653
- --------------------------------------------------------------------------------------------
Segment revenues............................................ 1,847 1,844 1,858
Income tax expense.......................................... 124 113 99
Operating income............................................ 258 245 229
Assets under management:
Invested assets........................................... 19,645 20,511 20,759
Separate account assets................................... 33,534 30,717 26,678
- --------------------------------------------------------------------------------------------
Total....................................................... $53,179 $51,228 $47,437
- --------------------------------------------------------------------------------------------
OTHER OPERATIONS
Premiums and fees and other revenues........................ $ 664 $ 859 $ 874
Net investment income....................................... 558 742 1,200
- --------------------------------------------------------------------------------------------
Segment revenues............................................ 1,222 1,601 2,074
Income tax expense.......................................... 61 165 83
Operating income............................................ 121 306 159
Assets under management:
Invested assets........................................... 6,401 10,006 16,181
Separate account assets................................... 2,887 2,229 1,099
- --------------------------------------------------------------------------------------------
Total....................................................... $ 9,288 $12,235 $17,280
- --------------------------------------------------------------------------------------------
------------------------------
</TABLE>
54
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Realized investment gains................................... $ 7 $ 93 45
Income tax (benefit) expense................................ (1) 33 8
- --------------------------------------------------------------------------------------------
Realized investment gains, net of taxes..................... $ 8 $ 60 $ 37
- --------------------------------------------------------------------------------------------
TOTAL
Premiums and fees and other revenues........................ $ 6,684 $ 6,110 $ 5,386
Net investment income....................................... 2,421 2,637 3,139
Realized investment gains................................... 7 93 45
- --------------------------------------------------------------------------------------------
Total revenues.............................................. 9,112 8,840 8,570
Income tax expense.......................................... 358 425 298
Operating income............................................ 694 746 578
Realized investment gains, net of taxes..................... 8 60 37
------- ------- -------
Net income.................................................. 702 806 615
Assets under management
Invested assets........................................... 29,387 34,036 40,701
Separate account assets................................... 38,459 34,648 29,217
- --------------------------------------------------------------------------------------------
Total....................................................... $67,846 $68,684 $69,918
- --------------------------------------------------------------------------------------------
------------------------------
</TABLE>
Premiums and fees and other revenues by product type were as follows for the
year ended December 31:
<TABLE>
- --------------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Medical and Dental.......................................... $4,388 $3,566 $2,883
Group Life.................................................. 1,282 1,363 1,355
Other....................................................... 1,014 1,181 1,148
- --------------------------------------------------------------------------------------------
Total....................................................... $6,684 $6,110 $5,386
- --------------------------------------------------------------------------------------------
------------------------------
</TABLE>
Connecticut General's foreign activities, including premiums and fees, net
income, translation adjustments, transaction losses and long-lived assets for
the years ended and as of December 31, 1999, 1998 and 1997 were not material.
NOTE 12 -- RELATED PARTY TRANSACTIONS
Connecticut General has assumed the settlement annuity and group pension
business written by Life Insurance Company of North America (LINA), an
affiliate. Reserves held by Connecticut General for this business were
$1.5 billion at December 31, 1999 and $1.7 billion at December 31, 1998.
Effective January 1, 1999, the Company entered into a contract to assume
certain accident and health business from CIGNA Life Insurance Company of New
York, an affiliate. During 1999, the Company assumed $439.1 million of premiums
and held reserves of $34.6 million at December 31, 1999.
Connecticut General cedes long-term disability business to LINA. Reinsurance
recoverables from LINA were $787 million at December 31, 1999 and $834 million
at December 31, 1998. In 1999, as part of this reinsurance arrangement, LINA
paid an experience refund of $32.5 million on an after tax basis to the Company
related to the period 1992-1994.
Effective January 1, 1998, Connecticut General 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, Connecticut General 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
Connecticut General from HPA.
55
<PAGE>
The Company has entered into an arrangement with International Rehabilitation
Services Inc. to receive certain rehabilitation, utilization review and medical
review services. The Company paid $70.1 million in 1999 and $47.7 million in
1998 for these services.
The Company, along with other CIGNA subsidiaries, has entered into an
arrangement with CIGNA Investments, Inc. for investment advisory services. Fees
paid by the Company during 1999 totaled $29.5 million and $30.6 million in 1998.
The Company has an arrangement with CIGNA Health Corporation and its
subsidiaries and affiliates to provide managed care provider networks and other
administrative services for group health benefit plans insured or administered
by the Company. Fees paid by the Company totaled $772 million in 1999 and
$685 million in 1998.
Connecticut General had lines of credit available from affiliates totaling
$600 million at December 31, 1999 and $600 million at December 31, 1998. All
borrowings are payable upon demand with interest rates equivalent to CIGNA's
average monthly short-term borrowing rate plus 1/4 of 1%. Interest expense was
$0.2 million in 1999, $1.5 million in 1998 and $0.2 million in 1997. As of
December 31, 1999 and 1998 there were no borrowings outstanding under such
lines.
Connecticut General extended lines of credit to affiliates totaling
$600 million at December 31, 1999 and 1998. All loans are payable upon demand
with interest rates equivalent to CIGNA's short-term borrowing rate. There were
no amounts outstanding as of December 31, 1999 or 1998.
Connecticut General, together with other CIGNA subsidiaries, has entered into
a pooling arrangement known as the CIGNA Corporate Liquidity Account (the
Account) for the purpose of increasing earnings on 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. Connecticut General
had balances in the Account of $0.8 billion at December 31, 1999 and
$1.1 billion at December 31, 1998.
CIGNA allocates to Connecticut General its share of operating expenses
incurred at the corporate level. Connecticut General also allocates a portion of
its operating expenses to affiliated companies for whom it performs certain
administrative services.
NOTE 13 -- CONTINGENCIES
A) FINANCIAL GUARANTEES: Connecticut General is contingently liable for
various financial guarantees provided in the ordinary course of business.
Connecticut General also secures reinsurance to recover a portion of amounts
paid in connection with a financial guarantee.
SPECIALTY LIFE REINSURANCE CONTRACTS. Connecticut General has entered into
specialty life reinsurance contracts that contain certain guarantees for
variable annuities. One type of reinsurance contract guarantees minimum income
benefits based on unfavorable changes in account values. The other type
guarantees a minimum death benefit, also based on unfavorable changes in account
values. The variable annuity account values are based on underlying domestic
equity and bond mutual fund investments.
Those reinsurance contracts that guarantee minimum income benefits are
accounted for as written options. Connecticut General has purchased reinsurance
from third parties which substantially reduces the risk of these contracts. See
Note 4 (f) for additional information.
For those reinsurance contracts that guarantee minimum death benefits,
reserves are established in amounts adequate to meet the estimated future
obligations. These estimates are based on various assumptions as to equity
market conditions and premiums, as well as interest, mortality and lapse rates,
allowing for adverse deviation. As of December 31, 1999, the amount of recorded
liabilities was $83 million, compared to recorded liabilities of $52 million as
of December 31, 1998.
Management is reviewing alternatives to manage the associated equity market
and interest rate risks for contracts that guarantee minimum death benefits. As
part of this review, Connecticut General is considering whether to modify
certain reserve assumptions for the contracts. The guarantees under these
contracts and changes that could result from this review could adversely affect
Connecticut General's consolidated results of operations in future periods.
However, management does not expect them to have a material adverse effect on
Connecticut General's liquidity or financial condition.
56
<PAGE>
SEPARATE ACCOUNT CONTRACTS. Connecticut General guarantees a minimum level of
benefits for certain separate account contracts. If assets in these separate
accounts are insufficient to fund minimum policy benefits, Connecticut General
is obligated to pay the difference.
As of December 31, 1999, Connecticut General guaranteed minimum benefits of
$4.9 billion for separate account contracts, compared to $5.1 billion at the end
of 1998. The management fee that Connecticut General charges to separate
accounts includes a guarantee fee. These fees are recognized in income as
earned.
Connecticut General establishes a liability if management believes that
Connecticut General will be required to make a payment under a separate account
contract guarantee. No such liabilities were required as of December 31, 1999 or
1998. If Connecticut General becomes obligated to make payments as a result of
these guarantees, those obligations may adversely affect Connecticut General's
results of operations in future periods. However, management does not expect
these guarantee obligations to have a material adverse effect on Connecticut
General's liquidity or financial condition.
INDUSTRIAL REVENUE BONDS. As of December 31, 1999 and 1998, Connecticut
General guaranteed $85 million of industrial revenue bond issues. These bond
issues will be outstanding for up to 16 more years. If the issuers default,
Connecticut General will be required to make periodic payments based on the
original terms of the bonds. Unlike many debt obligations, an event of default
under these bonds will not cause all scheduled principal and interest payments
to be due immediately.
Connecticut General limits its exposure to credit risk due to default by the
primary borrower by reviewing the creditworthiness of guaranteed parties and by
monitoring credit conditions regularly. Connecticut General establishes a
reserve if management believes that Connecticut General will be required to make
a payment under a financial guarantee.
B) REGULATORY AND INDUSTRY DEVELOPMENTS: Connecticut General's businesses are
subject to a changing social, economic, legal, legislative and regulatory
environment. Some of the more significant current issues that may affect
Connecticut General's businesses include:
- efforts to expand tort liability of health plans;
- proposed class action lawsuits targeting health care companies;
- initiatives to increase health care regulation;
- initiatives to restrict insurance pricing and the application of
underwriting standards; and
- efforts to revise federal tax laws.
HEALTH CARE REGULATION. Efforts are underway in the federal and state
legislatures and in the courts to increase regulation of the health care
industry and change its operational practices. Regulatory and operational
changes could have an adverse effect on Connecticut General's health care
activities if they reduce marketplace competition and innovation or result in
increased medical or administrative costs without improving the quality of care
or member satisfaction.
Other regulatory changes that have been under consideration and that could
have an adverse effect on Connecticut General's health care operations include:
- mandated benefits or services that increase costs without improving the
quality of care;
- managed care reform and patients' bill of rights legislation;
- loss of the ERISA preemption of state tort laws through legislative actions
and court decisions;
- changes in ERISA regulations imposing increased administrative burdens and
costs;
- restrictions on the use of prescription drug formularies; and
- privacy legislation that interferes with the ability to properly use medical
information for research, coordination of medical care and disease
management.
57
<PAGE>
FEDERAL BUDGET PROPOSALS. The Administration's proposed budget for fiscal
year 2001 would tax amounts previously accumulated in a policyholders' surplus
account. If enacted, Connecticut General will record additional income tax
expense of $158 million. (See Note 7 to the Financial Statements for more
information.)
The proposed budget also would restrict the tax benefits for corporations
owning nonleveraged corporate life insurance policies. If enacted as proposed,
Connecticut General does not anticipate that this provision will have a material
effect on its consolidated results of operations, liquidity, or financial
condition, but it could have a material adverse effect on the results of
operations of the Employee Retirement Benefits and Investment Services segment.
TAX BENEFITS FOR CORPORATE-OWNED LIFE INSURANCE. In 1996, Congress passed
legislation implementing a three-year phase-out period for tax deductibility of
policy loan interest for most leveraged corporate life insurance products. As a
result, management expects revenues and operating income associated with these
products to continue to decline. In 1999, revenues of $350 million, and
operating income of $32 million, were from products that are affected by this
legislation.
STATUTORY ACCOUNTING PRINCIPLES. In 1998, the NAIC adopted standardized
statutory accounting principles. Although many states have indicated their
intent to adopt these principles, Connecticut, in which Connecticut General is
domiciled, has not formally adopted them. As a result, Connecticut General has
not determined the timing or effect of implementing these principles.
INSOLVENCY FUNDS. Various states maintain funds to pay the obligations of
insolvent insurance companies. These funds are financed with assessments against
all insurance companies writing business in that state. In some states,
insurance companies can recover a portion of these assessments through a
reduction in future premium taxes. Connecticut General recorded pre-tax charges
for continuing operations of $8 million for 1999, $18 million for 1998 and
$28 million for 1997 for insolvency fund and other insurance-related assessments
that can be reasonably estimated, before giving effect to future premium tax
recoveries.
Although future assessments and payments may adversely affect results of
operations in future periods, management does not expect these amounts to have a
material adverse effect on Connecticut General's liquidity or financial
condition.
C) CLASS ACTION LAWSUITS AND OTHER LITIGATION: Connecticut General, its
direct parent, Connecticut General Corporation, its indirect parent, CIGNA, and
its affiliate, CIGNA Health Corporation, and several health care industry
competitors have had proposed class action lawsuits filed against them by a
coalition of plaintiffs' attorneys. These lawsuits allege violations under RICO
and ERISA. Connecticut General is routinely involved in numerous lawsuits
arising, for the most part, in the ordinary course of the business of
administering and insuring employee benefit programs. Although the outcome of
litigation is always uncertain, Connecticut General does not believe that any
litigation currently threatened or pending involving Connecticut General will
result in losses that differ from recorded reserves by amounts that would be
material to results of operations, liquidity or financial condition.
58
<PAGE>
PricewaterhouseCoopers LLP
100 Pearl Street
Hartford, CT 06103-4508
Telephone (860) 241-7000
Facsimile (860) 241-7590
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; Bankers Trust
Insurance Funds Trust - Bankers Trust EAFE Equity Index Fund, Bankers Trust
Small Capitalization Index Fund, CIGNA Variable Products Group - CIGNA Variable
Products Money Market Fund, CIGNA Variable Products S&P 500 Index Fund; CIGNA
Variable Products Investment Grade Bond 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 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, 1999, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, in conformity with
accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States 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, 1999 by correspondence with the custodian, provide
a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
February 21, 2000
59
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
BANKERS TRUST
INSURANCE FUNDS TRUST -
ALGER AMERICAN FUND SUB-ACCOUNTS SUB-ACCOUNTS
------------------------------------------ ------------------------------------------
MIDCAP SMALL EAFE-REGISTERED TRADEMARK- SMALL
GROWTH GROWTH CAPITALIZATION EQUITY CAPITALIZATION
------------ ------------ -------------- -------------------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at fair
value....................... $2,025,620 $ 585,106 $1,396,727 $ 13,089 $ 1,308
Receivable from Connecticut
General Life Insurance
Company..................... -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Total assets.............. 2,025,620 585,106 1,396,727 13,089 1,308
---------- ---------- ---------- ---------- -----------
LIABILITIES:
Payable to Connecticut General
Life
Insurance Company........... 25 27 20 64 9
---------- ---------- ---------- ---------- -----------
Total liabilities......... 25 27 20 64 9
---------- ---------- ---------- ---------- -----------
Net assets................ $2,025,595 $ 585,079 $1,396,707 $ 13,025 $ 1,299
========== ========== ========== ========== ===========
Accumulation units outstanding
-- Contracts sold before
May 1, 1998 (RVUL 01)....... 75,031 29,543 28,896 84 18
Net asset value per
accumulation unit........... $ 22.754 $ 18.982 $ 20.399 $ 12.881 $ 12.614
Accumulation units outstanding
-- Contracts sold after
April 30, 1998 (RVUL 02).... 24,013 1,821 53,443 1,082 91
Net asset value per
accumulation unit........... $ 13.257 $ 13.341 $ 15.105 $ 11.038 $ 11.775
---------- ---------- ---------- ---------- -----------
Accumulation net assets....... $2,025,595 $ 585,079 $1,396,707 $ 13,025 $ 1,299
========== ========== ========== ========== ===========
<CAPTION>
CIGNA VARIABLE
PRODUCTS GROUP
SUB-ACCOUNTS
-------------------------------------
INVESTMENT
MONEY MARKET S&P 500 GRADE BOND
------------ ----------- ----------
<S> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at fair
value....................... $ 667,192 $39,258,101 $1,624,887
Receivable from Connecticut
General Life Insurance
Company..................... -- -- 20
---------- ----------- ----------
Total assets.............. 667,192 39,258,101 1,624,907
---------- ----------- ----------
LIABILITIES:
Payable to Connecticut General
Life
Insurance Company........... 192 576 --
---------- ----------- ----------
Total liabilities......... 192 576 --
---------- ----------- ----------
Net assets................ $ 667,000 $39,257,525 $1,624,907
========== =========== ==========
Accumulation units outstanding
-- Contracts sold before
May 1, 1998 (RVUL 01)....... 27,832 1,819,480 104,418
Net asset value per
accumulation unit........... $ 11.278 $ 18.379 $ 9.852
Accumulation units outstanding
-- Contracts sold after
April 30, 1998 (RVUL 02).... 33,209 434,971 59,636
Net asset value per
accumulation unit........... $ 10.633 $ 13.374 $ 9.997
---------- ----------- ----------
Accumulation net assets....... $ 667,000 $39,257,525 $1,624,907
========== =========== ==========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
60
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FIDELITY
VARIABLE
INSURANCE JANUS
FIDELITY VARIABLE PRODUCTS ASPEN
INSURANCE FUND II SERIES MFS VARIABLE
PRODUCTS FUND SUB- SUB- INSURANCE TRUST -
SUB-ACCOUNTS ACCOUNT ACCOUNTS SUB-ACCOUNTS
---------------------- ---------- ---------- ----------------------
EQUITY- HIGH INVESTMENT EMERGING TOTAL
INCOME INCOME GRADE BOND WORLDWIDE GROWTH RETURN
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at fair
value....................... $1,380,023 $ 831,105 $4,164,192 $4,791,096 $2,438,581 $ 194,609
Receivable from Connecticut
General Life Insurance
Company..................... -- 132 -- -- 39 --
---------- ---------- ---------- ---------- ---------- ----------
Total assets.............. 1,380,023 831,237 4,164,192 4,791,096 2,438,620 194,609
---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life Insurance Company...... 10 -- 201 52 -- 14
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities......... 10 -- 201 52 -- 14
---------- ---------- ---------- ---------- ---------- ----------
Net assets................ $1,380,013 $ 831,237 $4,163,991 $4,791,044 $2,438,620 $ 194,595
========== ========== ========== ========== ========== ==========
Accumulation units outstanding
-- Contracts sold before
May 1, 1998 (RVUL 01)....... 96,947 68,582 326,250 189,626 80,602 8,463
Net asset value per
accumulation unit........... $ 13.838 $ 11.711 $ 11.462 $ 23.684 $ 27.147 $ 13.062
Accumulation units outstanding
-- Contracts sold after
April 30, 1998 (RVUL 02).... 3,571 2,665 41,287 18,869 14,616 8,547
Net asset value per
accumulation unit........... $ 10.770 $ 10.534 $ 10.282 $ 15.896 $ 17.140 $ 9.834
---------- ---------- ---------- ---------- ---------- ----------
Accumulation net assets....... $1,380,013 $ 831,237 $4,163,991 $4,791,044 $2,438,620 $ 194,595
========== ========== ========== ========== ========== ==========
<CAPTION>
TEMPLETON
VARIABLE
PRODUCTS
SERIES
FUND -
OCC ACCUMULATION TRUST SUB-ACCOUNTS CLASS 1
---------------------------------------- -------------
SMALL
EQUITY MANAGED CAPITALIZATION INTERNATIONAL
----------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in variable
insurance funds at fair
value....................... $ 258,528 $ 814,366 $1,061,240 $2,007,898
Receivable from Connecticut
General Life Insurance
Company..................... -- -- -- 10
---------- ---------- ---------- ----------
Total assets.............. 258,528 814,366 1,061,240 2,007,908
---------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life Insurance Company...... 16 24 6 --
---------- ---------- ---------- ----------
Total liabilities......... 16 24 6 --
---------- ---------- ---------- ----------
Net assets................ $ 258,512 $ 814,342 $1,061,234 $2,007,908
========== ========== ========== ==========
Accumulation units outstanding
-- Contracts sold before
May 1, 1998 (RVUL 01)....... 19,304 62,228 100,697 116,947
Net asset value per
accumulation unit........... $ 13.364 $ 12.949 $ 10.523 $ 14.490
Accumulation units outstanding
-- Contracts sold after
April 30, 1998 (RVUL 02).... 53 794 159 26,566
Net asset value per
accumulation unit........... $ 10.057 $ 10.771 $ 10.057 $ 11.795
---------- ---------- ---------- ----------
Accumulation net assets....... $ 258,512 $ 814,342 $1,061,234 $2,007,908
========== ========== ========== ==========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
61
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
BANKERS TRUST
INSURANCE FUNDS TRUST -
ALGER AMERICAN FUND SUB-ACCOUNTS SUB-ACCOUNTS
------------------------------------------ ------------------------------------------
MIDCAP SMALL EAFE-REGISTERED TRADEMARK- SMALL
GROWTH GROWTH CAPITALIZATION EQUITY CAPITALIZATION
------------ ------------ -------------- -------------------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends..................... $ 1,313 $ -- $-- $ 208 $ 13
EXPENSES:
Mortality and expense risk and
administrative charges...... 10,926 3,525 7,497 3 10
-------- -------- -------- ------ -------
Net investment gain
(loss)..................... (9,613) (3,525) (7,497) 205 3
-------- -------- -------- ------ -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... 89,671 49,152 84,143 389 37
Net realized gain (loss) on
share transactions.......... 23,106 4,468 9,266 13 4
-------- -------- -------- ------ -------
Net realized gain (loss).... 112,777 53,620 93,409 402 41
Net unrealized gain
(loss)..................... 333,646 80,099 310,481 762 169
-------- -------- -------- ------ -------
Net realized and unrealized
gain (loss) on
investments................ 446,423 133,719 403,890 1,164 210
-------- -------- -------- ------ -------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $436,810 $130,194 $396,393 $1,369 $ 213
======== ======== ======== ====== =======
<CAPTION>
CIGNA VARIABLE
PRODUCTS GROUP
SUB-ACCOUNTS
------------------------------------
INVESTMENT
MONEY MARKET S&P 500 GRADE BOND
------------ ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends..................... $ 26,951 $ 826,704 $ 53,012
EXPENSES:
Mortality and expense risk and
administrative charges...... 4,959 298,463 5,749
---------- ---------- --------
Net investment gain
(loss)..................... 21,992 528,241 47,263
---------- ---------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Capital distributions from
portfolio sponsors.......... -- 724,386 --
Net realized gain (loss) on
share transactions.......... -- 192,458 71
---------- ---------- --------
Net realized gain (loss).... -- 916,844 71
Net unrealized gain
(loss)..................... -- 4,672,428 (56,980)
---------- ---------- --------
Net realized and unrealized
gain (loss) on
investments................ -- 5,589,272 (56,909)
---------- ---------- --------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $ 21,992 $6,117,513 $ (9,646)
========== ========== ========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
62
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
FIDELITY VARIABLE FIDELITY VARIABLE JANUS ASPEN
INSURANCE INSURANCE SERIES MFS VARIABLE
PRODUCTS FUND PRODUCTS FUND II SUB- INSURANCE TRUST -
SUB-ACCOUNTS SUB-ACCOUNT ACCOUNTS SUB-ACCOUNTS
-------------------- ----------------- ----------- ------------------
EQUITY- HIGH INVESTMENT EMERGING TOTAL
INCOME INCOME GRADE BOND WORLDWIDE GROWTH RETURN
--------- --------- ----------------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................ $13,677 $ 99,356 $ 232,911 $ 5,948 $ -- $ 1,058
EXPENSES:
Mortality and expense
risk and administrative
charges................ 12,179 8,726 47,871 30,997 12,627 945
------- -------- --------- ---------- -------- -------
Net investment gain
(loss)................. 1,498 90,630 185,040 (25,049) (12,627) 113
------- -------- --------- ---------- -------- -------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Capital distributions
from portfolio
sponsors............... 30,234 3,714 73,070 -- -- 1,961
Net realized gain (loss)
on share
transactions........... 2,905 3,929 4,993 62,912 15,823 48
------- -------- --------- ---------- -------- -------
Net realized gain
(loss)................ 33,139 7,643 78,063 62,912 15,823 2,009
Net unrealized gain
(loss)................ 23,754 (17,643) (362,524) 1,793,064 975,528 (1,102)
------- -------- --------- ---------- -------- -------
Net realized and
unrealized gain (loss)
on investments........ 56,893 (10,000) (284,461) 1,855,976 991,351 907
------- -------- --------- ---------- -------- -------
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS........ $58,391 $ 80,630 $ (99,421) $1,830,927 $978,724 $ 1,020
======= ======== ========= ========== ======== =======
<CAPTION>
TEMPLETON
VARIABLE
PRODUCTS
OCC ACCUMULATION SERIES FUND -
TRUST SUB-ACCOUNTS CLASS 1
----------------------------------------------- -----------------
SMALL INTERNATIONAL -
EQUITY MANAGED CAPITALIZATION CLASS 1
--------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................ $ 1,603 $11,583 $ 8,114 $ 40,711
EXPENSES:
Mortality and expense
risk and administrative
charges................ 1,858 7,861 10,732 15,671
------- -------
Net investment gain
(loss)................. (255) 3,722 (2,618) 25,040
------- -------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Capital distributions
from portfolio
sponsors............... 7,302 25,992 -- 141,416
Net realized gain (loss)
on share
transactions........... (859) 629 (18,932) 22,488
------- -------
Net realized gain
(loss)................ 6,443 26,621 (18,932) 163,904
Net unrealized gain
(loss)................ (4,712) 2,056 10,363 173,120
------- -------
Net realized and
unrealized gain (loss)
on investments........ 1,731 28,677 (8,569) 337,024
------- -------
INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS........ $ 1,476 $32,399 $(11,187) $362,064
======= =======
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
63
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
BANKERS TRUST
INSURANCE FUNDS TRUST -
ALGER AMERICAN FUND SUB-ACCOUNTS SUB-ACCOUNTS
--------------------------------------- -------------------------------------------------
MIDCAP SMALL SMALL
GROWTH GROWTH CAPITALIZATION EAFE-REGISTERED TRADEMARK- EQUITY CAPITALIZATION
----------- ---------- -------------- --------------------------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ (9,613) $ (3,525) $ (7,497) $ 205 $ 3
Net realized gain (loss)...... 112,777 53,620 93,409 402 41
Net unrealized gain (loss).... 333,646 80,099 310,481 762 169
---------- -------- ---------- ------- ------
Net increase (decrease) from
operations................. 436,810 130,194 396,393 1,369 213
---------- -------- ---------- ------- ------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 551,404 244,920 533,399 883 216
Participant transfers......... 780,181 20,937 38,592 11,230 1,013
Participant withdrawals....... (255,605) (89,986) (169,989) (457) (143)
---------- -------- ---------- ------- ------
Net increase (decrease) from
participant transactions... 1,075,980 175,871 402,002 11,656 1,086
---------- -------- ---------- ------- ------
Total increase (decrease)
in net assets 1,512,790 306,065 798,395 13,025 1,299
NET ASSETS:
Beginning of year............. 512,805 279,014 598,312 -- --
---------- -------- ---------- ------- ------
End of year................... $2,025,595 $585,079 $1,396,707 $13,025 $1,299
========== ======== ========== ======= ======
<CAPTION>
FIDELITY VARIABLE
CIGNA VARIABLE INSURANCE
PRODUCTS GROUP PRODUCTS FUND
SUB-ACCOUNTS SUB-ACCOUNTS
-------------------------------------- ----------------------
INVESTMENT EQUITY- HIGH
MONEY MARKET S&P 500 GRADE BOND INCOME INCOME
------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ 21,992 $ 528,241 $ 47,263 $ 1,498 $ 90,630
Net realized gain (loss)...... -- 916,844 71 33,139 7,643
Net unrealized gain (loss).... -- 4,672,428 (56,980) 23,754 (17,643)
----------- ----------- ---------- ---------- ----------
Net increase (decrease) from
operations................. 21,992 6,117,513 (9,646) 58,391 80,630
----------- ----------- ---------- ---------- ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 4,533,879 6,318,489 769,586 491,716 297,772
Participant transfers......... (3,852,237) 2,849,214 896,333 (96,198) 15,626
Participant withdrawals....... (249,781) (3,289,918) (31,366) (175,786) (642,298)
----------- ----------- ---------- ---------- ----------
Net increase (decrease) from
participant transactions... 431,861 5,877,785 1,634,553 219,732 (328,900)
----------- ----------- ---------- ---------- ----------
Total increase (decrease)
in net assets 453,853 11,995,298 1,624,907 278,123 (248,270)
NET ASSETS:
Beginning of year............. 213,147 27,262,227 -- 1,101,890 1,079,507
----------- ----------- ---------- ---------- ----------
End of year................... $ 667,000 $39,257,525 $1,624,907 $1,380,013 $ 831,237
=========== =========== ========== ========== ==========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
64
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
FIDELITY VARIABLE
INSURANCE MFS VARIABLE
PRODUCTS FUND II JANUS ASPEN SERIES INSURANCE TRUST -
SUB-ACCOUNT SUB-ACCOUNTS SUB-ACCOUNTS
----------------- ------------------ ---------------------
INVESTMENT EMERGING TOTAL
GRADE BOND WORLDWIDE GROWTH RETURN
----------------- ------------------ ---------- ---------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ 185,040 $ (25,049) $(12,627) $ 113
Net realized gain (loss)...... 78,063 62,912 15,823 2,009
Net unrealized gain (loss).... (362,524) 1,793,064 975,528 (1,102)
----------- ---------- ---------- --------
Net increase (decrease) from
operations.................. (99,421) 1,830,927 978,724 1,020
----------- ---------- ---------- --------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 176,641 716,337 543,803 135,071
Participant transfers......... (621,365) 161,404 86,751 25,773
Participant withdrawals....... (1,189,155) (743,901) (197,247) (31,059)
----------- ---------- ---------- --------
Net increase (decrease) from
participant transactions... (1,633,879) 133,840 433,307 129,785
----------- ---------- ---------- --------
Total increase (decrease)
in net assets............ (1,733,300) 1,964,767 1,412,031 130,805
NET ASSETS:
Beginning of year............. 5,897,291 2,826,277 1,026,589 63,790
----------- ---------- ---------- --------
End of year................... $ 4,163,991 $4,791,044 $2,438,620 $194,595
=========== ========== ========== ========
<CAPTION>
TEMPLETON VARIABLE
PRODUCTS SERIES
OCC ACCUMULATION TRUST FUND -
SUB-ACCOUNTS CLASS 1
-------------------------------------- ------------------
SMALL
EQUITY MANAGED CAPITALIZATION INTERNATIONAL
----------- --------- -------------- ------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ (255) $ 3,722 $ (2,618) $ 25,040
Net realized gain (loss)...... 6,443 26,621 (18,932) 163,904
Net unrealized gain (loss).... (4,712) 2,056 10,363 173,120
-------- --------- ---------- ----------
Net increase (decrease) from
operations.................. 1,476 32,399 (11,187) 362,064
-------- --------- ---------- ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits.......... 144,530 229,604 176,782 740,350
Participant transfers......... (812) (45,329) (44,201) (56,157)
Participant withdrawals....... (34,557) (141,705) (318,138) (334,392)
-------- --------- ---------- ----------
Net increase (decrease) from
participant transactions... 109,161 42,570 (185,557) 349,801
-------- --------- ---------- ----------
Total increase (decrease)
in net assets............ 110,637 74,969 (196,744) 711,865
NET ASSETS:
Beginning of year............. 147,875 739,373 1,257,978 1,296,043
-------- --------- ---------- ----------
End of year................... $258,512 $ 814,342 $1,061,234 $2,007,908
======== ========= ========== ==========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
65
<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
CIGNA VARIABLE INSURANCE
PRODUCTS GROUP PRODUCTS FUND
ALGER AMERICAN FUND 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>
OPERATIONS:
Net investment gain (loss).... $ (1,846) $ (1,536) $ (3,035) $ 32,021 $ 330,619 $ (2,545)
Net realized gain (loss)...... 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.......... 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
FIDELITY VARIABLE INSURANCE
INSURANCE PRODUCTS
PRODUCTS FUND FUND II
SUB-ACCOUNTS SUB-ACCOUNT
------------------ ---------------
HIGH INVESTMENT
INCOME GRADE BOND
------------------ ---------------
<S> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ 18,760 $ 183,389
Net realized gain (loss)...... 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.......... 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 the Financial Statements are an integral part of these statements.
66
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
JANUS ASPEN SERIES MFS VARIABLE INSURANCE TRUST - OCC ACCUMULATION TRUST
SUB-ACCOUNTS SUB-ACCOUNTS SUB-ACCOUNTS
---------------------- ------------------------------- -----------------------------------
SHORT-TERM EMERGING TOTAL SMALL
BOND* WORLDWIDE GROWTH RETURN EQUITY MANAGED CAPITALIZATION
---------- ---------- -------------- --------------- -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).... $ 5 $ 43,843 $ (6,074) $ (172) $ (270) $ (1,825) $ (8,491)
Net realized gain (loss)...... 45 7,330 1,679 125 3,665 15,752 22,064
Net unrealized gain (loss).... -- 479,024 216,913 3,234 6,897 22,152 (177,446)
------- ---------- ---------- ------- -------- -------- ----------
Net increase (decrease) from
operations................. 50 530,197 212,518 3,187 10,292 36,079 (163,873)
------- ---------- ---------- ------- -------- -------- ----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits 5,631 687,079 316,114 6,219 105,497 449,913 128,149
Participant transfers......... (5,488) 254,640 274,990 55,960 14,836 (10,371) 89,173
Participant withdrawals....... (193) (306,422) (86,142) (5,231) (30,729) (70,856) (158,738)
------- ---------- ---------- ------- -------- -------- ----------
Net increase (decrease) from
participant transactions... (50) 635,297 504,962 56,948 89,604 368,686 58,584
------- ---------- ---------- ------- -------- -------- ----------
Total increase (decrease)
in net assets............ -- 1,165,494 717,480 60,135 99,896 404,765 (105,289)
NET ASSETS:
Beginning of year............. -- 1,660,783 309,109 3,655 47,979 334,608 1,363,267
------- ---------- ---------- ------- -------- -------- ----------
End of year................... $-- $2,826,277 $1,026,589 $63,790 $147,875 $739,373 $1,257,978
======= ========== ========== ======= ======== ======== ==========
<CAPTION>
TEMPLETON
VARIABLE PRODUCTS
SERIES FUND -
CLASS 1
-----------------
INTERNATIONAL
-----------------
<S> <C>
OPERATIONS:
Net investment gain (loss).... $ 5,965
Net realized gain (loss)...... 28,963
Net unrealized gain (loss).... (28,223)
----------
Net increase (decrease) from
operations................. 6,705
----------
ACCUMULATION UNIT
TRANSACTIONS:
Participant deposits 424,779
Participant transfers......... 342,949
Participant withdrawals....... (55,891)
----------
Net increase (decrease) from
participant transactions... 711,837
----------
Total increase (decrease)
in net assets............ 718,542
NET ASSETS:
Beginning of year............. 577,501
----------
End of year................... $1,296,043
==========
</TABLE>
- --------------------------
* For the period ended December 31, 1998.
Deposits first received Janruary 29, 1998.
The Notes to the Financial Statements are an integral part of these statements.
67
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION
CG Corporate Insurance Variable Life Separate Account 02 (the Account) is
registered as a Unit Investment Trust under the Investment Company Act of 1940,
as amended. The operations of the Account are part of the operations of
Connecticut General Life Insurance Company (CG Life). The assets and liabilities
of the Account are clearly identified and distinguished from other assets and
liabilities of CG Life. The assets of the Account are not available to meet the
general obligations of CG Life and are held for the exclusive benefit of the
participants.
At December 31, 1999, the assets of the Account are divided into variable
sub-accounts each of which is invested in shares of one of eighteen portfolios
(mutual funds) of nine diversified open-end management investment companies,
each portfolio having its own investment objective. The variable sub-accounts
are:
<TABLE>
<S> <C>
ALGER AMERICAN FUND:
Alger American Growth Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
BANKERS TRUST INSURANCE FUNDS TRUST:
EAFE-Registered Trademark- Equity Index Fund
Small Capitalization Index Fund
CIGNA VARIABLE PRODUCTS GROUP:
CIGNA Variable Products Money Market Fund
CIGNA Variable Products S&P 500 Index Fund
CIGNA Variable Products Investment Grade Bond 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 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>
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.
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
underlying mutual funds as of December 31, 1999. The change in the difference
between cost and value is reflected as unrealized gain (loss) in the Statements
of Operations.
68
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1999
were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Cost of
Sub-Account Shares Held Investments
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio............................. 31,463 $ 1,599,469
Alger American MidCap Growth Portfolio...................... 18,153 459,286
Alger American Small Capitalization Portfolio............... 25,326 1,070,465
Bankers Trust EAFE-Registered Trademark- Equity-Index
Fund...................................................... 962 12,327
Bankers Trust Small Capitalization Index Fund............... 113 1,139
CIGNA Variable Products Money Market Fund................... 667,192 666,997
CIGNA Variable Products S&P 500 Index Fund.................. 1,719,584 28,955,852
CIGNA Variable Products Investment Grade Bond Fund.......... 170,502 1,681,867
Fidelity Equity-Income Portfolio............................ 53,677 1,293,030
Fidelity High Income Portfolio.............................. 73,484 872,039
Fidelity Investment Grade Bond Portfolio.................... 342,450 4,133,213
Janus Aspen Series Worldwide Growth Portfolio............... 100,337 2,475,086
MFS Emerging Growth Series.................................. 64,275 1,209,688
MFS Total Return Series..................................... 10,964 192,170
OCC Equity Portfolio........................................ 6,883 253,352
OCC Managed Portfolio....................................... 18,657 762,573
OCC Small Cap Portfolio..................................... 47,124 1,209,100
Templeton International Fund - Class 1...................... 90,243 1,870,230
- ---------------------------------------------------------------------------------------
</TABLE>
69
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
Total purchases and sales of shares of each mutual fund for the year ended
December 31, 1999, amounted to:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Sub-Account Purchases Sales
- --------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio............................. $ 1,671,761 $ 461,742
Alger American MidCap Growth Portfolio...................... 351,125 129,633
Alger American Small Capitalization Portfolio............... 746,786 268,118
Bankers Trust EAFE-Registered Trademark- Equity-Index
Fund....................................................... 12,758 443
Bankers Trust Small Capitalization Index Fund............... 1,282 147
CIGNA Variable Products Money Market Fund................... 4,486,363 4,032,513
CIGNA Variable Products S&P 500 Index Fund.................. 10,672,784 3,541,805
CIGNA Variable Products Investment Grade Bond Fund.......... 1,742,347 60,577
Fidelity Equity-Income Portfolio............................ 916,424 664,950
Fidelity High Income Portfolio.............................. 571,014 805,552
Fidelity Investment Grade Bond Portfolio.................... 1,076,546 2,452,255
Janus Aspen Series Worldwide Growth Portfolio............... 1,076,272 967,459
MFS Emerging Growth Series.................................. 752,206 331,566
MFS Total Return Series..................................... 175,526 43,652
OCC Equity Portfolio........................................ 163,627 47,403
OCC Managed Portfolio....................................... 277,270 204,965
OCC Small Cap Portfolio..................................... 234,835 423,005
Templeton International Fund - Class 1...................... 1,026,021 509,792
- --------------------------------------------------------------------------------------
</TABLE>
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.
70
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
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,
1999 amounted to:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Mortality
and Asset Based
Expense Administrative
Sub-Account Risk Fees Fees
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio............................. $ 9,766 $ 1,160
Alger American MidCap Growth Portfolio...................... 3,153 372
Alger American Small Capitalization Portfolio............... 6,641 856
Bankers Trust EAFE-Registered Trademark- Equity-Index
Fund....................................................... 3 --
Bankers Trust Small Capitalization Index Fund............... 9 1
CIGNA Variable Products Money Market Fund................... 4,384 575
CIGNA Variable Products S&P 500 Index Fund.................. 266,465 31,998
CIGNA Variable Products Investment Grade Bond Fund.......... 5,118 631
Fidelity Equity-Income Portfolio............................ 10,895 1,284
Fidelity High Income Portfolio.............................. 7,806 920
Fidelity Investment Grade Bond Portfolio.................... 42,753 5,118
Janus Aspen Series Worldwide Growth Portfolio............... 27,723 3,274
MFS Emerging Growth Series.................................. 11,292 1,335
MFS Total Return Series..................................... 840 105
OCC Equity Portfolio........................................ 1,662 196
OCC Managed Portfolio....................................... 7,033 828
OCC Small Cap Portfolio..................................... 9,602 1,130
Templeton International Fund - Class 1...................... 13,993 1,678
- ----------------------------------------------------------------------------------------
</TABLE>
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 were deducted from the initial premium payment, amounted to
$73,325, 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
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 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 extent such premium payments
are attributable to the increase in specified amount rather than to the
previously existing specified amount.
71
<PAGE>
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
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, 1999.
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, 1999, amounted to:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Premium Costs of
Loads, net of Administrative Insurance
Sub-Account Refunds Fees Deduction
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alger American Growth Portfolio......................... $ 39,543 $ 5,692 $108,908
Alger American MidCap Growth Portfolio.................. 17,181 2,178 34,239
Alger American Small Capitalization Portfolio........... 44,544 5,828 42,735
Bankers Trust EAFE-Registered Trademark- Equity-Index
Fund................................................... 433 49 408
Bankers Trust Small Capitalization Index Fund........... 192 20 123
CIGNA Variable Products Money Market Fund............... 1,204,219 13,772 132,048
CIGNA Variable Products S&P 500 Index Fund.............. 509,098 51,374 726,712
CIGNA Variable Products Investment Grade Bond Fund...... 81,843 3,684 27,648
Fidelity Equity-Income Portfolio........................ 40,221 14,596 127,840
Fidelity High Income Portfolio.......................... (44,836) 2,380 66,653
Fidelity Investment Grade Bond Portfolio................ 16,857 8,955 104,090
Janus Aspen Series Worldwide Growth Portfolio........... 44,116 8,447 132,890
MFS Emerging Growth Series.............................. 35,220 8,278 97,397
MFS Total Return Series................................. 18,258 1,127 23,528
OCC Equity Portfolio.................................... 11,808 1,769 30,416
OCC Managed Portfolio................................... 12,370 3,364 42,048
OCC Small Cap Portfolio................................. 9,180 1,103 24,005
Templeton International Fund - Class 1.................. 29,577 9,052 57,936
- ----------------------------------------------------------------------------------------------------
</TABLE>
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, 1999
- --------------------------------------------------------------------------------
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, 1999 amounted to
$267,847.
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, 1999 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 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:
- .55% of the daily net asset value of the Variable Account in years
one through fifteen,
- .15% of the daily net asset 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 0.77% of the daily net asset value of the Variable
Account, an arithmetic average of the funds' expenses.
Assuming current charges for administration and mortality and expense risks,
gross annual rates of 0%, 6%, and 12% correspond to net experience at constant
annual rates of:
- -1.42%, 4.58%, and 10.58% during the first fifteen policy years, and
- constant annual rates of -0.92%, 5.08%, and 11.08% 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
- -1.97%, 4.03%, and 10.03% 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 for the single, 45 year-old insured
are for Policies that are issued as guaranteed issue, representing the typical
situation. 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 because that is the
typical situation for these Policies. If they were issued on a guaranteed issue
or substandard basis, accumulation values and death benefits would be different.
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
- 45% of the first year's premium payments up to target premium, plus
- 12% of the second through tenth 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.
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 -- 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 -1.42% 4.58% 10.58% -1.42% 4.58% 10.58% -1.42% 4.58% 10.58%
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 -0.92% 5.08% 11.08% -0.92% 5.08% 11.08% -0.92% 5.08% 11.08%
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 1,629 1,744 1,860 3,998 4,113 4,229
2 10,117 500,000 500,000 500,000 4,880 5,317 5,768 6,435 6,872 7,323
3 15,558 500,000 500,000 500,000 7,946 8,912 9,946 9,217 10,182 11,216
4 21,270 500,000 500,000 500,000 10,860 12,559 14,452 10,860 12,559 14,452
5 27,269 500,000 500,000 500,000 13,639 16,280 19,340 13,639 16,280 19,340
6 33,567 500,000 500,000 500,000 16,297 20,089 24,664 16,297 20,089 24,664
7 40,181 500,000 500,000 500,000 18,840 23,996 30,477 18,840 23,996 30,477
8 47,125 500,000 500,000 500,000 21,266 28,004 36,830 21,266 28,004 36,830
9 54,416 500,000 500,000 500,000 23,564 32,104 43,772 23,564 32,104 43,772
10 62,072 500,000 500,000 500,000 25,713 36,279 51,343 25,713 36,279 51,343
15 106,490 500,000 500,000 500,000 35,792 60,472 104,133 35,792 60,472 104,133
20 163,180 500,000 500,000 500,000 38,888 85,369 189,683 38,888 85,369 189,683
25 235,533 500,000 500,000 500,000 33,808 110,366 334,279 33,808 110,366 334,279
30 327,876 500,000 500,000 616,942 13,284 130,142 587,563 13,284 130,142 587,563
</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 0.77% per year. See "Expense Data"
at pages 8-9 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
PREMIUMS -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 4,935 500,000 500,000 500,000 471 549 627 2,840 2,918 2,996
2 10,117 500,000 500,000 500,000 2,586 2,877 3,180 4,140 4,431 4,734
3 15,558 500,000 500,000 500,000 4,533 5,171 5,857 5,804 6,441 7,128
4 21,270 500,000 500,000 500,000 6,298 7,410 8,654 6,298 7,410 8,654
5 27,269 500,000 500,000 500,000 7,880 9,589 11,579 7,880 9,589 11,579
6 33,567 500,000 500,000 500,000 9,267 11,691 14,633 9,267 11,691 14,633
7 40,181 500,000 500,000 500,000 10,431 13,679 17,794 10,431 13,679 17,794
8 47,125 500,000 500,000 500,000 11,350 15,525 21,054 11,350 15,525 21,054
9 54,416 500,000 500,000 500,000 11,995 17,190 24,389 11,995 17,190 24,389
10 62,072 500,000 500,000 500,000 12,333 18,627 27,772 12,333 18,627 27,772
15 106,490 500,000 500,000 500,000 11,480 24,503 48,841 11,480 24,503 48,841
20 163,180 0 500,000 500,000 0 17,429 68,963 0 17,429 68,963
25 235,533 0 0 500,000 0 0 77,307 0 0 77,307
30 327,876 0 0 500,000 0 0 47,426 0 0 47,426
</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. 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 0.77% per year. See "Expense
Data" at pages 8-9 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
PREMIUMS -1.42% 4.58% 10.58% -1.42% 4.58% 10.58% -1.42% 4.58% 10.58%
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 -0.92% 5.08% 11.08% -0.92% 5.08% 11.08% -0.92% 5.08% 11.08%
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 1,629 1,744 1,860 3,998 4,113 4,229
2 10,117 500,000 500,000 500,000 4,880 5,317 5,769 6,435 6,872 7,323
3 15,558 500,000 500,000 500,000 7,946 8,912 9,946 9,217 10,182 11,216
4 21,270 500,000 500,000 500,000 10,860 12,559 14,452 10,860 12,559 14,452
5 27,269 500,000 500,000 500,000 13,639 16,280 19,340 13,639 16,280 19,340
6 33,567 500,000 500,000 500,000 16,297 20,089 24,664 16,297 20,089 24,664
7 40,181 500,000 500,000 500,000 18,840 23,996 30,477 18,840 23,996 30,477
8 47,125 500,000 500,000 500,000 21,266 28,004 36,830 21,266 28,004 36,830
9 54,416 500,000 500,000 500,000 23,564 32,104 43,772 23,564 32,104 43,772
10 62,072 500,000 500,000 500,000 25,713 36,279 51,343 25,713 36,279 51,343
15 106,490 500,000 500,000 500,000 35,792 60,472 104,133 35,792 60,472 104,133
20 163,180 500,000 500,000 500,000 38,888 85,369 189,683 38,888 85,369 189,683
25 235,533 500,000 500,000 525,401 33,808 110,366 334,110 33,808 110,366 334,110
30 327,876 500,000 500,000 809,126 13,284 130,142 570,949 13,284 130,142 570,949
</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 0.77% per year. See "Expense
Data" at pages 8-9 of this prospectus.
78
<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 -- 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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 4,935 500,000 500,000 500,000 471 549 627 2,840 2,918 2,996
2 10,117 500,000 500,000 500,000 2,586 2,877 3,180 4,140 4,431 4,734
3 15,558 500,000 500,000 500,000 4,533 5,171 5,857 5,804 6,441 7,128
4 21,270 500,000 500,000 500,000 6,298 7,410 8,654 6,298 7,410 8,654
5 27,269 500,000 500,000 500,000 7,880 9,589 11,579 7,880 9,589 11,579
6 33,567 500,000 500,000 500,000 9,267 11,691 14,633 9,267 11,691 14,633
7 40,181 500,000 500,000 500,000 10,431 13,679 17,794 10,431 13,679 17,794
8 47,125 500,000 500,000 500,000 11,350 15,525 21,054 11,350 15,525 21,054
9 54,416 500,000 500,000 500,000 11,995 17,190 24,389 11,995 17,190 24,389
10 62,072 500,000 500,000 500,000 12,333 18,267 27,772 12,333 18,267 27,772
15 106,490 500,000 500,000 500,000 11,480 24,503 48,841 11,480 24,503 48,841
20 163,180 0 500,000 500,000 0 17,429 68,963 0 17,429 68,963
25 235,533 0 0 500,000 0 0 77,307 0 0 77,307
30 327,876 0 0 500,000 0 0 47,426 0 0 47,426
</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. 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 0.77% per year. See "Expense
Data" at pages 8-9 of this prospectus.
79
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NONSMOKER 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 -1.42% 4.58% 10.58% -1.42% 4.58% 10.58% -1.42% 4.58% 10.58%
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 -0.92% 5.08% 11.08% -0.92% 5.08% 11.08% -0.92% 5.08% 11.08%
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 1,729 1,851 1,974 4,251 4,373 4,496
2 10,771 500,000 500,000 500,000 5,165 5,630 6,109 6,820 7,285 7,765
3 16,563 500,000 500,000 500,000 8,396 9,420 10,518 9,749 10,773 11,870
4 22,645 500,000 500,000 500,000 11,459 13,260 15,265 11,459 13,260 15,265
5 29,032 500,000 500,000 500,000 14,375 17,170 20,410 14,375 17,170 20,410
6 35,737 500,000 500,000 500,000 17,156 21,166 26,007 17,156 21,166 26,007
7 42,778 500,000 500,000 500,000 19,811 25,260 32,113 19,811 25,260 32,113
8 50,171 500,000 500,000 500,000 22,337 29,454 38,783 22,337 29,454 38,783
9 57,934 500,000 500,000 500,000 24,725 33,740 46,066 24,725 33,740 46,066
10 66,084 500,000 500,000 500,000 26,948 38,097 54,006 26,948 38,097 54,006
15 113,374 500,000 500,000 500,000 37,226 63,216 109,289 37,226 63,216 109,289
20 173,729 500,000 500,000 500,000 39,683 88,558 198,728 39,683 88,558 198,728
25 250,758 500,000 500,000 500,000 32,819 113,214 350,383 32,819 113,214 350,383
30 349,070 500,000 500,000 647,660 8,660 131,298 616,819 8,660 131,298 616,819
</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 0.77% per year. See "Expense
Data" at pages 8-9 of this prospectus.
80
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NONSMOKER 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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 85 154 224 2,607 2,676 2,746
2 10,771 500,000 500,000 500,000 1,875 2,131 2,398 3,530 3,786 4,053
3 16,563 500,000 500,000 500,000 3,456 4,009 4,608 4,809 5,362 5,960
4 22,645 500,000 500,000 500,000 4,828 5,782 6,854 4,828 5,782 6,854
5 29,032 500,000 500,000 500,000 5,966 7,415 9,111 5,966 7,415 9,111
6 35,737 500,000 500,000 500,000 6,858 8,887 11,367 6,858 8,887 11,367
7 42,778 500,000 500,000 500,000 7,475 10,158 13,588 7,475 10,158 13,588
8 50,171 500,000 500,000 500,000 7,792 11,190 15,742 7,792 11,190 15,742
9 57,934 500,000 500,000 500,000 7,769 11,926 17,778 7,769 11,926 17,778
10 66,084 500,000 500,000 500,000 7,371 12,315 19,646 7,371 12,315 19,646
15 113,374 500,000 500,000 500,000 2,049 11,135 29,238 2,049 11,135 29,238
20 173,729 0 0 500,000 0 0 27,189 0 0 27,189
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 0.77% per year. See "Expense
Data" at pages 8-9 of this prospectus.
81
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NONSMOKER 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 -1.42% 4.58% 10.58% -1.42% 4.58% 10.58% -1.42% 4.58% 10.58%
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 -0.92% 5.08% 11.08% -0.92% 5.08% 11.08% -0.92% 5.08% 11.08%
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 1,729 1,851 1,974 4,251 4,373 4,496
2 10,771 500,000 500,000 500,000 5,165 5,630 6,110 6,820 7,285 7,765
3 16,563 500,000 500,000 500,000 8,396 9,420 10,518 9,749 10,773 11,870
4 22,645 500,000 500,000 500,000 11,459 13,260 15,265 11,459 13,260 15,265
5 29,032 500,000 500,000 500,000 14,375 17,170 20,410 14,375 17,170 20,410
6 35,737 500,000 500,000 500,000 17,156 21,166 26,007 17,156 21,166 26,007
7 42,778 500,000 500,000 500,000 19,811 25,260 32,113 19,811 25,260 32,113
8 50,171 500,000 500,000 500,000 22,337 29,454 38,783 22,337 29,454 38,783
9 57,934 500,000 500,000 500,000 24,725 33,740 46,066 24,725 33,740 46,066
10 66,084 500,000 500,000 500,000 26,948 38,097 54,006 26,948 38,097 54,006
15 113,374 500,000 500,000 500,000 37,226 63,216 109,289 37,226 63,216 109,289
20 173,729 500,000 500,000 500,000 39,683 88,558 198,728 39,683 88,558 198,728
25 250,758 500,000 500,000 542,902 32,819 113,214 349,961 32,819 113,214 349,961
30 349,070 500,000 500,000 838,771 8,660 131,298 596,442 8,660 131,298 596,442
</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 0.77% per year. See "Expense
Data" at pages 8-9 of this prospectus.
82
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
UNISEX UNISMOKER* ISSUE AGE 45
(*BLENDED SMOKER/NONSMOKER 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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 85 154 224 2,607 2,676 2,746
2 10,117 500,000 500,000 500,000 1,875 2,131 2,398 3,530 3,786 4,053
3 16,563 500,000 500,000 500,000 3,456 4,010 4,608 4,809 5,362 5,960
4 22,645 500,000 500,000 500,000 4,828 5,782 6,854 4,828 5,782 6,854
5 29,032 500,000 500,000 500,000 5,966 7,415 9,111 5,966 7,415 9,111
6 35,737 500,000 500,000 500,000 6,858 8,887 11,367 6,858 8,887 11,367
7 42,778 500,000 500,000 500,000 7,475 10,158 13,588 7,475 10,158 13,588
8 50,171 500,000 500,000 500,000 7,792 11,190 15,742 7,792 11,190 15,742
9 57,934 500,000 500,000 500,000 7,769 11,926 17,778 7,769 11,926 17,778
10 66,084 500,000 500,000 500,000 7,371 12,315 19,646 7,371 12,315 19,646
15 113,374 500,000 500,000 500,000 2,049 11,135 29,238 2,049 11,135 29,238
20 173,729 0 0 500,000 0 0 27,189 0 0 27,189
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 0.77% per year. See "Expense
Data" at pages 8-9 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 (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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 20 360,403 382,486 404,569 520,554 542,637 564,720
2 1,123,400 20 20 20 815,512 888,476 964,092 922,969 995,933 1,071,549
3 1,727,570 20 20 20 1,259,646 1,412,804 1,577,641 1,348,640 1,501,797 1,666,634
4 2,361,949 20 20 20 1,692,652 1,955,856 2,250,306 1,692,652 1,955,856 2,250,306
5 3,028,046 20 20 20 2,114,330 2,518,008 2,987,692 2,114,330 2,518,008 2,987,692
6 3,727,448 20 20 20 2,524,452 3,099,644 3,796,003 2,524,452 3,099,644 3,796,003
7 4,461,821 20 20 20 2,922,780 3,701,187 4,682,148 2,922,780 3,701,187 4,682,148
8 4,684,912 20 20 20 2,843,647 3,829,216 5,131,478 2,843,647 3,829,216 5,131,478
9 4,919,157 20 20 20 2,760,111 3,956,897 5,621,180 2,760,111 3,956,897 5,621,180
10 5,165,115 20 20 20 2,670,931 4,083,101 6,154,631 2,670,931 4,083,101 6,154,631
15 6,592,141 20 20 20 2,072,073 4,627,538 9,619,178 2,072,073 4,627,538 9,619,178
20 8,413,428 20 20 20 936,890 4,756,227 15,000,270 936,890 4,756,227 15,000,270
25 10,737,903 0 20 25.0573 0 3,614,216 23,864,130 0 3,614,216 23,864,130
30 13,704,588 0 0 39.8577 0 0 37,959,688 0 0 37,959,688
</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 0.77% per year. See "Expense
Data" at pages 8-9 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 (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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 -1.97% 4.03% 10.03% -1.97% 4.03% 10.03% -1.97% 4.03% 10.03%
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 20 360,403 382,486 404,569 520,554 542,637 564,720
2 1,123,400 20 20 20 815,512 888,476 964,092 922,969 995,933 1,071,549
3 1,727,570 20 20 20 1,259,646 1,412,804 1,577,641 1,348,640 1,501,797 1,666,634
4 2,361,947 20 20 20 1,692,652 1,955,856 2,250,306 1,692,652 1,955,856 2,250,306
5 3,025,046 20 20 20 2,114,330 2,518,008 2,987,692 2,114,330 2,518,008 2,987,692
6 3,727,448 20 20 20 2,524,452 3,099,644 3,796,003 2,524,452 3,099,644 3,796,003
7 4,461,821 20 20 20 2,922,780 3,701,187 4,682,148 2,922,780 3,701,187 4,682,148
8 4,684,912 20 20 20 2,843,647 3,829,216 5,131,478 2,843,647 3,829,216 5,131,478
9 4,919,157 20 20 20 2,760,111 3,956,897 5,621,180 2,760,111 3,956,897 5,621,180
10 5,165,115 20 20 20 2,670,931 4,083,101 6,154,631 2,670,931 4,083,101 6,154,631
15 6,592,141 20 20 20 2,072,073 4,627,538 9,619,178 2,072,073 4,627,538 9,619,178
20 8,413,428 20 20 24.3890 936,890 4,756,227 14,874,254 936,890 4,756,227 14,874,254
25 10,731,905 0 20 32.1449 0 3,614,216 22,400,923 0 3,614,216 22,400,923
30 13,704,588 0 0 42.2250 0 0 32,670,479 0 0 32,670,479
</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 0.77% per year. See "Expense
Data" at pages 8-9 of this prospectus.
85
<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. 9 to this registration statement comprises
the following papers and documents:
The facing sheet;
A cross-reference sheet (reconciliation and tie);
Two prospectuses, each consisting of 85 pages;
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.(5)
Exhibit 2. Fund Participation Agreements
Agreements between Connecticut General Life
Insurance Company and
(a) Alger American Fund(1)
(b) Fidelity Variable Products Fund(2)
(c) Fidelity Variable Products Fund II(2)
(d) MFS Variable Insurance Trust(2)
(e) OCC Accumulation Trust(2)
(f) Templeton Variable Product Series Fund(2)
(g) CIGNA Variable Products Group(3)
(h) Janus Aspen Series Trust(4)
(i) BT Insurance Funds Trust(6)
(j) Neuberger Berman Advisers Management Trust
(k) Amendment to Templeton Variable Product Series
Fund Participation Agreement
(Exhibit 2(f)).
Exhibit 3. Form LN621 -- Flexible Premium Variable Life
Insurance Policy(4)
Exhibit Form LR485 -- Joint and Survivorship Benefit
3.1. Rider(7)
Exhibit 4. Certificate of Amendment of Certificate of
Incorporation of Connecticut General Life
Insurance Company, as filed March 23, 1999.(7)
Exhibit 5. Certificate of By-laws of Connecticut General Life
Insurance Company as amended July 30, 1998.(7)
(1) -- 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.
(2) -- 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.
(3) -- Incorporated by reference to Post-Effective
Amendment No. 1 to this Registration Statement
filed on April 22, 1997.
(4) -- Incorporated by reference to Post-Effective
Amendment No. 2 to this Registration Statement
filed on October 31, 1997.
(5) -- Incorporated by reference to Post-Effective
Amendment No. 3 to this Registration Statement
filed on December 29, 1997.
(6) -- Incorporated by reference to Post-Effective
Amendment No. 6 to this Registration Statement
filed on April 22, 1998.
(7) -- Incorporated by reference to Post-Effective
Amendment No. 8 to this Registration Statement
filed on April 20, 1999.
</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. 9 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 City of Hartford and
State of Connecticut on the 20th day of April, 2000. Registrant certifies that
this Post-Effective Amendment No. 9 meets all the requirements for effectiveness
under Rule 485(b) under the Securities Act of 1933.
CG CORPORATE INSURANCE VARIABLE LIFE SEPARATE ACCOUNT 02
(REGISTRANT)
By /s/ Katherine S. Conway
--------------------------------------------------
Katherine S. Conway
Sr. Vice President
Connecticut General Life Insurance Company
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(DEPOSITOR)
By /s/ Katherine S. Conway
--------------------------------------------------
Katherine S. Conway
Sr. Vice President
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 9 to this Registration Statement (File No.
333-01741) has been signed below on April 20, 2000 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/ *
------------------------------------------- Assistant Vice President
James Yablecki (Principal Financial Officer)
/s/ *
------------------------------------------- Vice President
Robert E. Wahlman (Principal Accounting Officer)
/s/ *
------------------------------------------- Director
Harold W. Albert
/s/ *
------------------------------------------- Director
John Cannon III
/s/ *
------------------------------------------- Director
Carol M. Olsen
/s/ *
------------------------------------------- Director
William M. Pastore
/s/ *
------------------------------------------- Director
Marc L. Preminger
/s/ *
------------------------------------------- Director
Patricia L. Rowland
/s/ *
------------------------------------------- Director
W. Allen Schaffer, M.D.
/s/ *
------------------------------------------- Director
Jean H. Walker
*By /s/ KATHERINE S. CONWAY
-------------------------------------------
Katherine S. Conway Sr. Vice President
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 Katherine S. Conway
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 5 day of April, 2000.
SIGNATURE TITLE
--------- -----
/S/ THOMAS C. JONES President (Principal
- ----------------------------------- Executive Officer) and
Thomas C. Jones Director
/S/ WILLIAM M. PASTORE Sr. Vice President,
- ----------------------------------- Chairman of the Board
William M. Pastore and Director
/S/ MARC L. PREMINGER Sr. Vice President, Chief
- ----------------------------------- Financial Officer and
Marc L. Preminger Director
/S/ JOHN CANNON, III
- ----------------------------------- Sr. Vice President, Chief
John Cannon III Counsel and Director
/S/ CAROL M. OLSEN
- ----------------------------------- Sr. Vice President and
Carol M. Olsen Director
/S/ PATRICIA L. ROWLAND
- ----------------------------------- Sr. Vice President and
Patricia L. Rowland Director
/S/ W. ALLEN SCHAFFER, M.D.
- ----------------------------------- Sr. Vice President and
W. Allen Schaffer, M.D. Director
/S/ HAROLD W. ALBERT
- ----------------------------------- Director
Harold W. Albert
/S/ STEPHEN C. STACHELEK
- ----------------------------------- Vice President And
Stephen C. Stachelek Treasurer
/S/ ROBERT E. WAHLMAN
- ----------------------------------- Vice President (Principal
Robert E. Wahlman Accounting Officer)
/S/ SUSAN L. COOPER
- ----------------------------------- Corporate Secretary
Susan L. Cooper
/S/ ANDREW G. HELMING
- ----------------------------------- Secretary
Andrew G. Helming
/S/ JEAN H. WALKER
- ----------------------------------- Vice President, Actuary
Jean H. Walker and Director
/S/ JAMES YABLECKI Assistant Vice President
- ----------------------------------- (Principal Financial
James Yablecki 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, 2000
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 9, 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. 9
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. 9 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, 2000
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. 9 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. 9 on Form S-6 of our reports dated February 8, 2000
and February 21, 2000, 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, 2000
<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made as of this 7th day of April, 1995, by and among
Neuberger & Berman Advisers Management Trust (the "Trust"), an open-end
management investment company organized as a Massachusetts business trust,
Connecticut General Life Insurance Company, a life insurance company organized
as a corporation under the laws of the State of Connecticut (the "Company"), on
its own behalf and on behalf of each segregated asset account of the Company set
forth in Schedule A, as may be amended from time to time (the "Accounts"), and
Neuberger & Berman Management Incorporated a New York corporation, the Trust's
investment adviser ("Adviser") and principal underwriter.
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of l940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Adviser desire that Trust shares be used as an
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts to be offered by life insurance
companies which have entered into fund participation agreements with the Trust
(the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into
several series of shares, each series representing an interest in a
particular managed portfolio of securities and other assets and certain of
those series named in Schedule B (the "Portfolios") are to be made available
for purchase by the Company for the Accounts;
WHEREAS, the Trust has received an order from the Commission, dated
February 26, 1992 (File No. 812-7589), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies and certain qualified pension and retirement plans (the
"Mixed and Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised;
1
<PAGE>
WHEREAS, the Company desires to use shares of one or more Portfolios as
investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company shall be the Trust's
agent for the receipt from each account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio, provided that
the Company notifies the Trust of such purchase orders and requests for
redemption by 9:30 a.m. Eastern time on the next following Business Day, as
defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the
Accounts at the net asset value next computed after receipt of a purchase order
by the Trust (or its agent), as established in accordance with the provisions of
the then current prospectus of the Trust describing Portfolio purchase
procedures. The Company will transmit orders from time to time to the Trust for
the purchase and redemption of shares of the Portfolios. The Trustees of the
Trust (the "Trustees") may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio if such action
is required by law or by regulatory authorities having jurisdiction or if, in
the sole discretion of the Trustees acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, such action is
deemed in the best interests of the shareholders of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on
behalf of an Account with federal funds to be transmitted by wire to the Trust,
with the reasonable expectation of receipt by the Trust by 2:00 p.m. Eastern
time on the next Business Day after the Trust (or its agents) receives the
purchase order. Upon receipt by the Trust of the federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day" shall mean any
day on which the New York Stock Exchange is open for trading and on which the
Trust calculates its net asset value pursuant to the rules of the Commission.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption
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procedures. The Trust shall make payment for such shares in the manner
established from time to time by the Trust. Proceeds of redemption with
respect to a Portfolio will normally be paid to the Company for an
Account in federal funds transmitted by wire to the Company by order of
the Trust with the reasonable expectation of receipt by the Company by
2:00 p.m. Eastern time on the next Business Day after the receipt by the
Trust (or its agent) of the request for redemption, but in no event shall
payment be delayed for a greater period than is permitted by the 1940 Act.
1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 on any Business Day may be netted against
one another for the purpose of determining the amount of any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in the
appropriate title for each Account or the appropriate subaccount of each
Account.
1.7. The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions payable on the
shares of any Portfolio of the Trust. The Company hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of that Portfolio. The Trust shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on
each Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated and shall use its best efforts to make such net asset
value per share available to the Company by 6:30 p.m. Eastern time each Business
Day.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts and to
certain qualified pension and retirement plans to the extent permitted by the
Mixed and Shared Funding Exemptive Order. No shares of any Portfolio will be
sold directly to the general public. The Company agrees that it will use Trust
shares only for the purposes of funding the Contracts through the Accounts
listed in Schedule A, as amended from time to time.
1.10. The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.9 and
Article IV of this Agreement.
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ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration and
qualification of shares of the Portfolios, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
2.2. At the option of the Company, the Trust shall either (a) provide the
Company with as many copies of portions of the Trust's current prospectuses,
annual report, semi-annual report and other shareholder communications,
including any amendments or supplements to any of the foregoing, pertaining
specifically to the Portfolios as the Company shall reasonably request; or (b)
provide the Company with a camera ready copy of such documents in a form
suitable for printing. Should the Company wish to print any such document in a
different format than that provided by the Trust, the Company shall bear the
cost associated with any format change. The Trust shall provide the Company
with a copy of its current statement of additional information, including any
amendments or supplements, in a form suitable for duplication by the Company.
The Trust (at its expense) shall provide the Company with copies of any
Trust-sponsored proxy materials in such quantity as the Company shall reasonably
require for distribution to Contract owners.
2.3. The Trust shall bear its proportionate share of the costs of printing
and mailing documents including the Trust's current prospectuses, shareholder
reports and other shareholder communications from the Trust to owners of
Contracts for which a Portfolio or Portfolios of the Trust is serving as an
investment vehicle, using the number of pages as a guide. The Company will use
its best efforts to control those costs, will submit bills therefor to the Trust
for reimbursement, and will advise the Trust semi-annually, or more frequently
as reasonably requested by the Trust, of how many Contract owners are using the
Trust as a funding vehicle. The Company shall bear the costs of mailing proxy
materials (or similar materials such as voting solicitation instructions) and
statements of additional information to Contract owners, as well as printing and
mailing costs relating to prospective owners of Contracts. The Company assumes
sole responsibility for ensuring that such materials are delivered to Contract
owners in accordance with applicable federal and state securities laws.
2.4. The Company agrees and acknowledges that the Adviser and the Trust,
or either of them, is the sole owner of the name and mark "Neuberger & Berman
Advisers Management Trust" and that all use of any designation comprised in
whole or part of such name or mark under this Agreement shall inure to the
benefit of the Adviser. Except as provided in section 2.5, the Company shall not
use any such name or mark on its own behalf or on behalf of the Accounts or
Contracts in any registration statement, advertisement, sales literature or
other materials relating to the Accounts or Contracts without the prior written
consent of the Adviser. Upon termination of this Agreement for any reason, the
Company shall cease all use of any such name or mark as soon as reasonably
practicable.
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2.5. The Company shall furnish, or cause to be furnished, to the Trust or
its designee a copy of each Contract prospectus or statement of additional
information describing the Contracts, each report to Contract owners, proxy
statement, application for exemption or request for no-action letter in which
the Trust or the Adviser is named contemporaneously with the filing of such
document with the Commission. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee each piece of sales literature or other
promotional material, including "broker only" material, in which the Trust or
the Adviser is named, at least seven Business Days prior to its use. No such
material shall be used if the Trust or its designee reasonably objects to such
use within five Business Days after receipt of such material.
2.6. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust or
the Adviser in connection with the sale of the Contracts other than information
or representations contained in and accurately derived from the registration
statement or prospectus for the Trust shares (as such registration statement and
prospectus may be amended or supplemented from time to time), annual and
semi-annual reports of the Trust, Trust-sponsored proxy statements, or in sales
literature or other promotional material approved by the Trust or its designee,
except as required by legal process or regulatory authorities or with the
written permission of the Trust, the Adviser or their respective designees. The
Trust and the Adviser agree to respond to any request for approval on a prompt
and timely basis. The Company shall adopt and implement procedures to prevent
distribution of "broker only" materials including information therein about the
Trust or the Adviser to existing or prospective Contract owners.
2.7. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and the
Adviser as the Company shall reasonably request in connection with the
preparation of registration statements, prospectuses and annual and semi-annual
reports pertaining to the Contracts.
2.8. The Trust and the Adviser shall not give, and agree that no affiliate
of either of them shall give, any information or make any representations or
statements on behalf of the Company or concerning the Company, the Accounts or
the Contracts other than information or representations contained in and
accurately derived from the registration statement or prospectus for the
Contracts (as such registration statement and prospectus may be amended or
supplemented from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials, except
as required by legal process or regulatory authorities or with the written
permission of the Company. The Company agrees to respond to any request for
approval on a prompt and timely basis.
2.9. So long as, and to the extent that, the Commission interprets the
1940 Act to require pass trough voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners whose
cash values are invested, through the registered Accounts, in shares of one
or more Portfolios of the Trust. The Trust shall require all Participating
Insurance Companies to calculate voting privileges in the same manner and the
Company shall be responsible for assuring that the Accounts calculate voting
privileges in the manner established by the Trust. With respect to each
registered Account, the Company will
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vote shares of each Portfolio of the Trust held by a registered Account and for
which no timely voting instructions from Contract owners are received in the
same proportion as those shares for which voting instructions are received. The
Company reserves the right, to the extent permitted by law, or interpretations
by the Commission's staff, to vote shares held in any Account in its sole
discretion.
2.10 In the event of an error in the net asset value per share of any
Portfolio, other than an error caused by some act or omission of the Company, or
the failure to compute any such net asset value per share, the Trust and the
Adviser shall take the following steps. Any such error shall be reported
promptly upon discovery to the Company. Notification can be made orally or by
direct or indirect systems access but must be confirmed in writing. The letter
shall be written on the Adviser's letterhead and must state for each day for
which an error occurred the incorrect price, the correct price, and the reason
for the price change. If an adjustment is necessary to correct an error which
has caused any Account to receive less than that to which it is entitled, the
Trust shall make all necessary adjustments to the number of shares of the
affected Portfolio owned in the Account and distribute to the Company any and
all amounts of the underpayment. The Company will credit the appropriate amount
of such payment to the Account. If an Account due to such error has received
amounts in excess of the amounts to which it is entitled, the Company, when
requested by the Trust, shall make adjustments to the Account to reflect the
change in the values of the shares as reflected in the unit values of the
affected Contract owners who still have values in the Portfolio. When making
adjustments for an error, the Adviser shall not net same day transactions in an
Account. No adjustment for an error shall be taken in any Account until such
time as the parties hereto have agreed to a resolution of the error, but the
parties shall use all reasonable efforts to reach such agreement within two
business days after discovery of the error.
2.11. No compensation shall be paid by the Trust to the Company, or by
the Company to the Trust, under this Agreement (except for specified expense
reimbursements). However, nothing herein shall prevent the parties hereto
from otherwise agreeing to perform, and arranging for appropriate
compensation for, other services relating to the Trust, the Accounts or both.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Connecticut
and that it has legally and validly established each Account as a segregated
asset account under such law as of the date set forth in Schedule A, and that
CIGNA Financial Advisors, Inc., the principal underwriter for the Contract, is
registered as a broker-dealer under the Securities Exchange Act of 1934.
3.2. The Company represents and warrants that it has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act and cause
each Account to remain so registered to serve as a segregated asset account for
the Contracts, unless an exemption from registration is available.
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3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is available
prior to any issuance or sale of the Contracts; the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
Will state insurance law suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and the rules
and regulations thereunder.
3.5. The Trust and the Adviser represent and warrant that the Portfolio
shares offered and sold pursuant to this Agreement will be registered under the
1933 Act and sold in accordance with all applicable federal and state laws, and
the Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and quality its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
immediately take all reasonable steps to adequately diversify the Portfolio to
achieve compliance within the grace period afforded by Regulation 1.817-5.
3.7. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less than the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.9.The Adviser represents that it is duly organized and validly existing
under the laws of the State of New York and that it is registered and will
during the term of this Agreement
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remain registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and as a broker-dealer under the Securities Exchange Act of
1934.
ARTICLE IV.
Potential Conflicts
4.1. Company agrees to inform the Board of Trustees of the Trust of the
existence of or any potential for any material irreconcilable conflict of
interest between the interests of the Contract owners of the separate accounts
of any other insurance company investing in the Trust.
Any material irreconcilable conflict may arise for a variety of reasons,
including:
(a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
or any similar action by insurance, tax or securities regulatory
authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Portfolio are being
managed;
(e) a difference in voting instructions given by variable annuity
Contract owners and variable life insurance Contract owners or by Contract
owners of different life insurance companies utilizing the Trust (in the
event pass-through voting is required pursuant to Section 2.9 of this
Agreement); or
(f) a decision by the Company to disregard the voting instructions
of Contract Owners (in the event pass-through voting is required pursuant
to Section 2.9 of this Agreement).
4.2 The Company will be responsible for assisting the Board of Trustees of
the Trust in carrying out its responsibilities by providing the Board with all
information reasonably necessary for the Board to consider any issue raised,
including information as to a decision by the Company to disregard voting
instructions of Contract owners.
4.3 It is agreed that if it is determined by a majority of the members of
the Board of Trustees of the Trust or a majority of its disinterested Trustees
that a material irreconcilable conflict exists affecting the Company, the
Company shall, at its own expense, take whatever steps are necessary to remedy
or eliminate the irreconcilable material conflict, which steps may include, but
are not limited to,
(a) withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Portfolio and reinvesting such assets in a
different investment medium, including another Portfolio of the Trust or
submitting the questions of whether
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such segregation should be implemented to a vote of all affected Contract
owners and, as appropriate, segregating the assets of any particular group
(i.e. annuity Contract owners, life insurance Contract owners or qualified
Contract owners) that votes in favor of such segregation, or offering to
the affected Contract owners the option of making such a change;
(b) establishing a new registered management investment company or
managed separate account.
4.4 If a material irreconcilable conflict arises because of the Company's
decision to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw its separate account
investments in the Trust. No charge or penalty will be imposed against a
separate account as a result of such a withdrawal. The Company agrees that any
remedial action taken by it in resolving any material conflicts of interest will
be carried out with a view only to the interests of Contract owners.
4.5 For purposes hereof, a majority of the disinterested members of the
Board of Trustees of the Trust shall determine whether or not any proposed
action adequately remedies any material irreconcilable conflict. In no event
will the Trust be required to establish a new funding medium for any Variable
Contracts. The Company shall not be required by the terms hereof to establish a
new funding medium for any Variable Contracts if an offer to do so has been
declined by vote of a majority of affected Contract owners.
4.6 The Trust agrees to inform the Company of the existence or the
potential of any material irreconcilable conflict of interest between the
interests of the contractholders or the separate accounts of the Company
investing in the Trust and/or any other separate account of any other insurance
company investing in the Trust (upon the Trust having knowledge of same)
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity Contract owners and variable life
insurance Contract owners or by Contract owners of different participating
insurance companies (in the event pass-through voting is required pursuant to
Section 2.9 of this Agreement); or (f) a decision by an insurer to disregard the
voting instructions of Contract owners (in the event pass-through voting is
required pursuant to Section 2.9 of this Agreement. The Board of Trustees of the
Trust shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Mixed and
Shared Funding Exemptive Order, and said reports, materials and data shall be
submitted more frequently if reasonably deemed appropriate by the
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Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act or the
rules promulgated thereunder with respect to mixed or shared funding (as defined
in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rule
6e-3(T), as amended, or Rule 6e-3, as adopted, to the extent such rules are
applicable.
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Trust, the Adviser and each of their Trustees, directors,
officers, employees and agents and each person, if any, who controls the Trust
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Article V) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company, which consent shall not be unreasonably withheld) or
expenses (including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal counsel
fees incurred in connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or regulation, or at
common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Contracts or in the Contracts themselves
or in sales literature generated or approved by the Company on behalf of
the Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, provided that
this indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and was accurately derived from written information
furnished to the Company by or on behalf of the Trust for use in
Company Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived
from Trust Documents as defined in Section 5.2(a)) or wrongful conduct of
the Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust Documents as
defined in Section 5.2(a) or the
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omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Trust by or
on behalf of the Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms of
this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company.
5.2. Indemnification By the Adviser. The Adviser agrees to indemnify and
hold harmless the Company and each of its directors, officers, employees, and
agents and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act (collectively the "Indemnified Parties" for the
purposes of this Article V) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Adviser, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement
thereto), (collectively, "Trust Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that
this indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and was accurately derived from written information
furnished to the Trust by or on behalf of the Company for use in Trust
Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived
from Company Documents) or wrongful conduct of the Trust or persons under
its control, with respect to the sale or acquisition of the Contracts or
Portfolio shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Company Documents or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Company by or
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on behalf of the Trust; or
(d) arise out of or result from any failure by the Trust to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Trust.
5.3. Neither the Company nor the Adviser shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise
from such Indemnified Party's willful misfeasance, bad faith or gross negligence
in the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
5.4. Neither the Company nor the Adviser shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise received by such
Indemnified Party (or after such Indemnified Party shall have received notice of
service upon or other notification to any designated agent), but failure to
notify the party against whom indemnification is sought of any such claim or
shall not relieve that party from any liability which it may have to the
Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the Indemnified
Party of an election to assume such defense, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
ARTICLE VI.
Termination
6.1. This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios for any reason by sixty (60) days
advance written notice delivered to the other parties, and shall terminate
immediately in the event of its assignment.
6.2. Notwithstanding any termination of this Agreement, except termination
under
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Article IV which shall be governed by Article IV, the Trust shall, at the option
of the Company, continue to make available additional shares of any Portfolio
and redeem shares of any Portfolio pursuant to the terms and conditions of this
Agreement for all Contracts in effect on the effective date of termination of
this Agreement.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.9 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust or its Adviser:
Neuberger & Berman Advisers Management Trust
Neuberger & Berman Management Incorporated
605 Third Avenue
New York, NY 10158-0006
Attention: Ellen Metzger, Counsel
If to the Company:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, CT 06152-2312
Attention: Robert A. Picarello, Chief Counsel,
Individual Insurance Operations
ARTICLE VIII.
Miscellaneous
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8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their constriction or effect.
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the Commission granting
exemptive relief therefrom and the conditions of such orders. Copies of any such
orders shall be promptly forwarded by the Trust to the Company.
8.5. All liabilities of the Trust arising, directly or indirectly, under
this Agreement, of any and every nature whatsoever, shall be satisfied solely
out of the assets of the Trust and no Trustee, officer, agent or holder of
shares of beneficial interest of the Trust shall be personally liable for any
such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission, the
National Association of Securities Dealers, Inc and state insurance regulators)
and shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
14
<PAGE>
8.11 Each party hereto shall, except as required by law or otherwise
permitted by this Agreement treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto, and shall not disclose such
confidential information without the written consent of the affected party
unless such information has become publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
Neuberger & Berman Advisers Management
Trust
By: /s/ Stanley Egener
-------------------------------------
Name:
Title:
Neuberger & Berman Management
Incorporated
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
Connecticut General Life Insurance
Company
By: /s/ Roy H. Bubbs
-------------------------------------
Name: Roy H. Bubbs
Title: Senior Vice President
15
<PAGE>
SCHEDULE A
CG Variable Annuity Separate Account II January 25, 1994
CG Variable Life Insurance Separate
Account I July 6, 1994
16
<PAGE>
SCHEDULE B
Partners Portfolio
Limited Maturity Bond Portfolio
Balanced Portfolio
17
<PAGE>
ASSIGNMENT AND MODIFICATION AGREEMENT
This Agreement is made by and between Neuberger & Berman Advisers
Management Trust ("Trust"), a Massachusetts business trust, Neuberger & Berman
Management Incorporated ("N&B Management"), a New York corporation, Neuberger &
Berman Advisers Management Trust ("Successor Trust"), a Delaware business trust,
Advisers Managers Trust ("Managers Trust") and Connecticut General Life
Insurance Company ("Life Company"), a life insurance company organized under the
Laws of the State of Connecticut.
WHEREAS, the Life Company has previously entered into a Fund Participation
Agreement dated April 7,1995 (the "Fund Participation Agreement") with the Trust
and N&B Management regarding the purchase of shares of the Trust by Life
Company; and
WHEREAS, as part of the reorganization into a "master-feeder" fund
structure (the "Reorganization"), the Trust will be converted into the Successor
Trust, a Delaware business trust; and
WHEREAS, as part of the Reorganization, each Portfolio of the Trust will
transfer all of its assets to the corresponding Portfolio of the Successor Trust
("Successor Portfolio") and each Successor Portfolio will invest all of its net
investable assets in a corresponding series of Managers Trust; and
WHEREAS, as part of the Reorganization, an Order under Section 6(c) of the
Investment Company Act of 1940 ("'40 Act") is expected to be issued by the
Securities and Exchange Commission ("SEC") granting exemptions from Sections
9(a), 13(a), 15(a) and 15(b) of the '40 Act and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder; and
WHEREAS, the Order is expected to require that certain conditions (the
Conditions") as set forth in the Notice (Investment Company Act Release No.
21003 (April 12, 1995)) be made a part of the Fund Participation Agreement;
and
WHEREAS, the parties hereto desire to assign the Fund Participation
Agreement from the Trust to the Successor Trust and to modify the Fund
Participation Agreement to include the Conditions; and
WHEREAS, Managers Trust will become a party to the Fund Participation
Agreement as modified hereby, due to and for purposes of its obligations under
the Conditions.
NOW THEREFORE, in consideration of their mutual promises, Trust, N&B
Management Successor Trust, Managers Trust and Life Company agree as follows:
1
<PAGE>
1. The Fund Participation Agreement is hereby assigned by the Trust to the
Successor Trust.
2. Pursuant to such assignment, the Successor Trust hereby accepts all
rights and benefits of the Trust under the Fund Participation Agreement and
agrees to perform all duties and obligations of the Trust under the Fund
Participation Agreement. Upon the effectiveness of this Assignment and
Modification Agreement, the Trust will be released from all obligations and
duties under the Fund Participation Agreement.
3. The Fund Participation Agreement is hereby modified to include the
Conditions as follows:
A. Section 2.9 of the Fund Participation Agreement is deleted.
B. Article IV of the Fund Participation Agreement is replaced with the
following:
4.1 The Board of Trustees of each of the Successor Trust and
Managers Trust (the "Boards") will monitor the Successor Trust and Managers
Trust, respectively, (collectively the "Funds") for the existence of any
material irreconcilable conflict between the interests of the contract owners
of all insurance company separate accounts investing in the Funds. A material
irreconcilable conflict may arise for a variety of reasons, including: (a)
state insurance regulatory authority action; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a
public ruling, private letter ruling, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments
of the Funds are being managed; (e) a difference in voting instructions given
by variable annuity and variable life insurance contract owners or by
contract owners of different participating insurance companies; or (f) a
decision by a participating insurance company to disregard voting
instructions of contract owners.
4.2 Life Company, other participating insurance companies, N&B
Management (or any other manager or administrator of the Funds), and any
qualified pension and retirement plan that executes a fund participation
agreement upon becoming an owner of 10% or more of the assets of the Funds
(collectively, "Participants") will report any potential or existing conflicts
to the Boards. Participants will be responsible for assisting the appropriate
Board in carrying out its responsibilities under these Conditions by providing
the Board with all information reasonably necessary for it to consider any
issues raised. This responsibility includes, but is not limited to, an
obligation by each Participant to inform the Board whenever variable contract
owner voting instructions are disregarded. These responsibilities will be
carried out with a view only to the interests of the contract owners.
2
<PAGE>
4.3 If a majority of the Board of a Fund or a majority of its
disinterested trustees or directors, determines that a material irreconcilable
conflict exists, the relevant Participant, at its expense and to the extent
reasonably practicable (as determined by a majority of disinterested trustees or
directors), will take any steps necessary to remedy or eliminate the
irreconcilable material conflict, including: (a) withdrawing the assets
allocable to some or all of the separate accounts from the Funds or any series
thereof and reinvesting those assets in a different investment medium, which may
include another series of the Successor Trust or Managers Trust, or another
investment company or submitting the question as to whether such segregation
should be implemented to a vote of all affected variable contract owners and,
as appropriate, segregating the assets of any appropriate group (i.e., variable
annuity or variable annuity contract owners of one or more Participants) that
votes in favor of such segregation, or offering to the affected variable
contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account. If a
material irreconcilable conflict arises because of a Participant's decision to
disregard contract owner voting instructions, and that decision represents a
minority position or would preclude a majority vote, the Participant may be
required, at the election of the relevant Fund, to withdraw its separate
account's investment in such Fund, and no charge or penalty will be imposed as a
result of such withdrawal.
The responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and to bear the cost of
such remedial action shall be a contractual obligation of all Participants under
their agreements governing their participation in the Funds, The responsibility
to take such remedial action shall be carried out with a view only to the
interests of the contract owners.
For the purposes of Condition (c), a majority of the disinterested
members of the applicable Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the relevant Fund or N&B Management (or any other investment adviser of the
Funds) be required to establish a new funding medium for any variable contract.
Further, no Participant shall be required by this condition (c) to establish a
new funding medium for any variable contract if any offer to do so has been
declined by a vote of a majority of contract owners materially affected by the
irreconcilable material conflict.
4.4 Any Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to all Participants.
4.5 Participants will provide pass-through voting privileges to all
contract owners so long as the SEC continues to interpret the `40 Act as
requiring pass-through voting privileges for variable contract owners. This
condition will apply to UIT-separate accounts investing in the Successor Trust
and to managed separate accounts investing
3
<PAGE>
in Managers Trust to the extent a vote is required with respect to matters
relating to Managers Trust. Accordingly, the Participants, where applicable,
will vote shares of a Fund held in their separate accounts in a manner
consistent with voting instructions timely received from variable contract
owners. Participants will be responsible for assuring that each of their
separate accounts that participates in the Funds calculates voting privileges in
a manner consistent with other Participants. The obligation to calculate voting
privileges in a manner consistent with all other separate accounts investing in
the Funds will be a contractual obligation of all Participants under the
agreements governing participation in the Funds. Each Participant will vote
shares for which it has not received timely voting instructions, as well as
shares it owns, in the same proportion as its votes those shares for which it
has received voting instructions.
4.6 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the `40
Act or the rules thereunder with respect to mixed and shared funding on terms
and conditions materially different from any exemptions granted in the order
requested, then the Successor Trust, Managers Trust and/or the Participants, as
appropriate, shall take such steps as may be necessary to comply with Rule 6e-2
and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
Rules are applicable.
4.7 No less than annually, the Participants shall submit to the
Boards such reports, materials or data as such Boards may reasonably request so
that the Boards may fully carry out the obligations imposed upon them by these
Conditions. Such reports, materials, and data shall be submitted more frequently
if deemed appropriate by the applicable Boards.
4. This Assignment and Modification Agreement shall be effective on May
1, 1995, the closing date of the conversion. In the event of a conflict between
the terms of this Assignment and Modification Agreement and the terms of the
Fund Participation Agreement, the terms of this Assignment and Modification
Agreement shall control.
5. All other terms and conditions of the Fund Participation Agreement
remain in full force and effect.
4
<PAGE>
Executed this 1st day of May, 1995.
Neuberger & Berman Advisers
Management Trust
(a Massachusetts business trust)
Attest: /s/ Claudia A. Brandon By: /s/ Stanley Egener
---------------------------- -------------------------------------
Stanley Egener, Chairman
Neuberger & Berman Advisers
Management Trust
(a Delaware business trust)
Attest: /s/ Claudia A. Brandon By: /s/ Stanley Egener
---------------------------- -------------------------------------
Stanley Egener, Chairman
Advisers Managers Trust
Attest: /s/ Claudia A. Brandon By: /s/ Stanley Egener
---------------------------- -------------------------------------
Neuberger & Berman
Management Incorporated
Attest: /s/ Ellen Metzger By: /s/ [ILLEGIBLE]
---------------------------- -------------------------------------
Connecticut General Life insurance
Company
Attest: /s/ Edwin L. Kerr By: /s/ Roy H. Bubbs
------------------------------ -------------------------------------
Roy H. Bubbs
Senior Vice President
5
<PAGE>
AMENDMENT TO THE
FUND PARTICIPATION AGREEMENT
This AMENDMENT, dated as of May 1, 2000, between CONNECTICUT
GENERAL LIFE INSURANCE COMPANY, a life insurance company organized under the
laws of the State of Connecticut ("Life Company"), and NEUBERGER BERMAN
ADVISERS MANAGEMENT TRUST, a Delaware business trust ("Trust"), ADVISERS
MANAGERS TRUST, a New York common law trust ("Managers Trust"), and NEUBERGER
BERMAN MANAGEMENT INC., a New York corporation ("NB Management"), is made to
the Fund Participation Agreement, dated as of April 7, 1995, as amended among
Life Company, Trust, Managers Trust and NB Management (the "Agreement").
Terms defined in the Agreement are used herein as therein defined.
WHEREAS, the parties desire to amend Schedule A to the Agreement to
add a new Separate Account;
WHEREAS, the parties wish to amend certain other provisions of the
Agreement.
NOW, THEREFORE, in consideration of the promises and mutual
covenants hereinafter contained, the parties agree as follows:
1. Schedule A of the Agreement is hereby deleted and replaced with new
Schedule A attached hereto.
2. Article III, paragraph 3.1, of the Agreement is hereby amended by
deleting the reference to "CIGNA Financial Services, Inc." in its place.
3. Article VII is hereby amended to provided to provide that notices to
Life Company under the Agreement shall be given to:
Connecticut General Life Insurance Company
280 Trumbull Street, H14A
Hartford, CT 06103
Attention: Michelle Kunzman, Product Manager
Corporate Insurance
4. All references in the Agreement to "Neuberger & Berman Advisers
Management Trust" or "Neuberger & Berman Management Incorporate" shall be
changed to "Neuberger Berman Advisors Management Trust" or "Neuberger Berman
Management Inc.", respectively.
5. Except as modified hereby, all other terms and conditions of the
Agreement shall remain in full force and effect.
<PAGE>
5. Except as modified hereby, all other terms and conditions of the
Agreement shall remain in full force and effect.
3. This Amendment may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same Amendment.
NEUBERGER BERMAN NEUBERGER BERMAN MANAGEMENT
ADVISERS MANAGEMENT TRUST INC.
By: /s/ Daniel J. Sullivan By: /s/ Daniel J. Sullivan
---------------------- ----------------------
Name: Daniel J. Sullivan Name: Daniel J. Sullivan
Title: Vice President Title: Vice President
ADVISERS MANAGERS TRUST CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By: /s/ Daniel J. Sullivan By: Michelle L. Kunzman
Name: Daniel J. Sullivan Name: Michelle L. Kunzman
Title: Vice President Title: Assistant Vice President
2
<PAGE>
SCHEDULE A
----------
CG Variable Annuity January 25, 1994
Separate Account II
CG Variable Life Insurance July 6, 1994
Separate Account I
Connecticut General Life March 20, 1997
Insurance Company
Separate Account FE
Connecticut General Life Insurance Company May 1, 2000
Separate Account 02
3
<PAGE>
ADDENDUM TO FUND PARTICIPATION AGREEMENT
This ADDENDUM dated as of May 1, 2000 amends the Fund Participation
Agreement among Connecticut General Life Insurance Company ("Company"),
Neuberger Berman Advisers Management Trust ("Trust"), Advisers Managers Trust
("Managers Trust"), and Neuberger Berman Management Inc. ("NBMI").
WHEREAS, the Company, Turst, Managers Trust, and NBMI are parties to a
Fund Participation Agreement ("Agreement") pursuant to which separate
accounts of the Company invest proceeds from variable annuity and/or variable
life insurance policies in the one or more portfolios of the Trust
("Portfolios"); and
WHEREAS, the Trust, through the Portfolios, currently invests all of
its net investable assets in corresponding series of Managers Trust in a
"master-feeder" structure; and
WHEREAS, the Boards of Trustees of the Trust and Managers Trust have
approved a transaction to eliminate the current master-feeder structure in
which Trust will receive the portfolio securities held by Managers Trust in
redemption of the interests of Managers Trust held by the Trust (this
transaction is referred to as the "In-Kind Redemption"); and
WHEREAS, the In-Kind Redemption is currently scheduled to be effected
on or about May 1, 2000 (the date on which the In-Kind Redemption is effected
is referred to as the "Effective Date"); and
WHEREAS, upon completion of the In-Kind Redemption, the Trust will hold
and invest directly in its own portfolio of securities and Managers Trust
will cease investment operations and be dissolved; and
WHEREAS, the parties wish to amend the Agreement to reflect the In-Kind
Redemption and the elimination of the master-feeder structure.
NOW THEREFORE, effective on the Effective Date, the Trust assumes all
of the rights, obligations, and liabilities of Managers Trust under the
Agreement.
The undersigned hereby consents to the assignment described in the
preceding paragraph.
CONNECTICUT GENERAL LIFE ADVISERS MANAGERS TRUST
INSURANCE COMPANY
By: /s/ Michelle L. Kunzman By:
----------------------- -----------------------
Name: Michelle L. Kunzman Name:
Title: Assistant Vice President Title:
NEUBERGER BERMAN ADVISERS NEUBERGER BERMAN
MANAGEMENT TRUST MANAGEMENT INC.
By: By:
---------------------- ----------------------
Name: Name:
Title: Title:
<PAGE>
AGREEMENT AND AMENDMENT TO FUND PARTICIPATION AGREEMENT("AMENDMENT")
1. Connecticut General Life Insurance Company, Templeton Variable Products
Series Fund ("TVP"), and Franklin Templeton Distributors, Inc.
("Underwriter") hereby amend their Fund Participation Agreement dated as of
February 15, 1996, ("Agreement"), by:
(a) Adding Franklin Templeton Variable Insurance Products Trust
("VIP"), an open-end management investment company organized as a
business trust under Massachusetts law, as a party to the
Agreement. Both TVP and Franklin Templeton Variable Insurance
Products Trust shall hereinafter be referred to as the "Trust,"
and in the Agreement, as amended, the "Trust" shall refer to both
TVP and VIP.
(b) Adding a new Section, "Agreement"
AGREEMENT
1.0 Form of Agreement. This Agreement shall also create a
separate agreement for each Trust and the Underwriter as
though each Trust and the Underwriter had executed an
identical Fund Participation Agreement with the Company. No
rights, responsibilities or liabilities arising under the
Agreement as it pertains to one Trust shall be enforceable
by or against any party to the Agreement as it pertains to
another Trust.
(c) Adding Franklin Templeton Variable Insurance Products Trust to
Article VII, "Notices"
If to the Trust: Franklin Templeton Variable Insurance
Products Trust
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Karen Skidmore, Assistant
Vice President
2. Connecticut General Life Insurance Company, VIP and the Underwriter are
seeking to complete a participation agreement by and among themselves that
will supercede and replace the Agreement and the Amendment. The parties to
this Amendment agree that: (1) the Amendment is an interim measure to be in
effect only until a new participation agreement is completed; (2) they will
negotiate in good faith and execute a new participation agreement no later
than September 1, 2000; and (3) regardless of whether a new participation
agreement is completed, the Agreement and this Amendment will both
terminate on September 1, 2000.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers to
execute this
<PAGE>
Amendment to Fund Participation Agreement, to be effective as of May 1, 2000.
<TABLE>
<S> <C>
Connecticut General Life Insurance Company TEMPLETON VARIABLE PRODUCTS SERIES FUND
By its authorized officer By its authorized officer
By: /s/ Michelle L. Kunzman By:/s/ Karen L. Skidmore
------------------------------ ---------------------
Name: Michelle L. Kunzman Name: Karen L. Skidmore
Title: Assistant Vice President Title: Assistant Vice President
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
By its authorized officer
By:/s/ Karen L. Skidmore
---------------------
Name: Karen L. Skidmore
Title: Assistant Vice President
FRANKLIN TEMPLETON DISTRIBUTORS, INC.
By its authorized officer
By:
Name:
Title:
</TABLE>
