<PAGE>
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CG Variable Annuity Accounts I & II 1
Dear Investor:
We're pleased to provide you with this semiannual report for Connecticut General
Variable Annuity Accounts I and II for the six months ended June 30, 1999.
Following is a summary of key performance results:
For Qualified Contractholders
. Accumulation Unit Values for the Flexible Annuity increased 11.66% from
the December 31, 1998 level, from $205.799 to $229.784.
. For all other qualified individual contracts, Accumulation Unit Values
increased 11.85%, from $218.379 to $244.256.
. Accumulation Unit Values for Group Qualified Contracts with 50
participants or more increased 12.13% from $253.841 to $284.623 during the
period from January 1, 1999 to June 30, 1999.
. Over the last five years (June 30, 1994 to June 30, 1999), the Unit Values
for Group Qualified Contracts with 50 participants or more increased
233.43%.
For Non-Qualified Contractholders
. Accumulation Unit Values for the Flexible Annuity increased 11.66% from
the December 31, 1998 level, from $181.493 to $202.648.
. For all other non-qualified individual contracts, Accumulation Unit Values
increased 11.85%, from $193.841 to $216.810.
. Accumulation Unit Values for Group Non-Qualified Contracts increased
12.13% from $225.298 to $252.620 during the period from January 1, 1999 to
June 30, 1999.
. Over the last five years (June 30, 1994 to June 30, 1999), the Unit Values
for Group Non-Qualified Contracts increased 233.43%.
In addition to the financial statements for your annuity contracts, this report
includes the financial statements and a list of holdings for the CIGNA Variable
Products S&P 500 Index Fund, the mutual fund supporting Variable Annuity
Accounts I & II.
Thank you for letting us serve your investment needs. We look forward to our
continuing relationship in the coming years.
/s/ Byron D. Oliver
Byron D. Oliver
President,
CIGNA Retirement & Investment Services
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CG Variable Annuity Account I 2
Statement of Assets and Liabilities
Unaudited
June 30, 1999
ASSETS:
Investment in CIGNA Variable Products S&P 500 Index Fund
at net asset value, 4,111,645 shares at $22.15
per share (cost $45,423,984; unrealized appreciation
$45,648,952) $91,072,936
Receivable from Connecticut General Life Insurance Company 195,714
-----------
Total Assets 91,268,650
-----------
LIABILITIES:
Payable to Connecticut General Life Insurance Company --
Total Liabilities --
-----------
NET ASSETS $91,268,650
===========
NET ASSETS REPRESENTED BY:
Accumulation Unit
Units Value
------------ -----
Group contracts:
50 participants or more 182,943 $284.623 $52,069,785
Less than 50 participants 26,328 263.524 6,938,060
Tax deferred annuity contracts issued
after May 1, 1976 82,887 231.680 19,203,260
Individual contracts:
Variable annuity contracts 12,747 244.256 3,113,531
Flexible annuity contracts 15,263 229.784 3,507,193
Reserve for variable annuity contracts
in distribution period 6,436,821
-----------
$91,268,650
===========
The Notes to Financial Statements are an integral part of these statements.
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CG Variable Annuity Account I 3
Statement of
Changes in Net Assets
Unaudited
Six months ended June 30, 1999
FROM OPERATIONS:
Investment loss -- net $ (217,247)
Realized gain on investments -- net 3,352,027
Change in unrealized appreciation
on investments -- net 6,878,862
------------
Increase in net assets resulting
from operations 10,013,642
------------
FROM UNIT TRANSACTIONS:
Participant contributions -- net 223,936
Transfers between funds -- net (110,308)
Withdrawal of funds on terminated/matured contracts -- net (6,318,230)
Annuity benefit distributions (625,354)
Mortality guarantee adjustment (40,869)
Equalization adjustment 12,634
------------
Decrease in net assets derived
from unit transactions (6,858,191)
------------
INCREASE IN NET ASSETS 3,155,451
NET ASSETS:
Beginning of period 88,113,199
------------
End of period $ 91,268,650
============
The Notes to Financial Statements are an integral part of these statements.
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CG Variable Annuity Account I 4
Statement of Operations
Unaudited
Six months ended June 30, 1999
INVESTMENT LOSS:
Dividends $ --
Expenses:
Mortality and expense risk 217,247
------------
Investment Loss -- Net (217,247)
------------
REALIZED GAIN ON INVESTMENTS:
Proceeds from sale of shares 7,857,697
Cost of shares sold 4,505,670
------------
Realized gain from security
transactions -- net 3,352,027
Capital gains distribution --
------------
Realized Gain on
Investments -- Net 3,352,027
============
UNREALIZED APPRECIATION ON INVESTMENTS:
Beginning of period 38,770,090
End of period 45,648,952
------------
Change in Unrealized Appreciation
on Investments -- Net 6,878,862
------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 10,013,642
============
RATIO OF NET INVESTMENT LOSS TO AVERAGE
NET ASSETS (0.242%)
NUMBER OF ACCUMULATION UNITS OUTSTANDING
AT END OF PERIOD 320,168
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CG Variable Annuity Account I Notes to Financial Statements (Unaudited) 5
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). 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 market value and reserve assumptions, that affect
recorded amounts. Actual results could differ from those estimates. Significant
estimates are discussed throughout the Notes to Financial Statements.
1. The following is a summary of significant accounting policies consistently
applied in the preparation of the Account's financial statements:
A. The investment in CIGNA Variable Products S&P 500 Index Fund (Fund)
shares is valued at the closing net asset value per share as determined by
the Fund on June 30, 1999. The Fund was organized by CG Life in 1968.
B. The amount of the reserve for contracts in the distribution period is
determined by actuarial assumptions which meet statutory requirements.
Gains or losses resulting from actual mortality experience, the full
responsibility for which is assumed by CG Life, are offset by transfers to
or from CG Life.
C. Investment transactions are accounted for on the trade date (date the
order to buy or sell is executed), and income is recorded on the
ex-dividend date. Cost of investments sold is determined on the basis of
the last-in, first-out method.
D. The operations of the Account are included in, and taxed as part of CG
Life as a life insurance company. Under Internal Revenue Code Section 817
there is no taxable income attributable to the Account.
2. Under the terms of the annuity contracts, the Individual participant can
elect either a fixed or variable annuity benefit at retirement. The Group
participant can elect either a fixed or variable annuity benefit during the
accumulation phase and at retirement. The assets providing for the variable
annuity benefit will be invested in the Fund, and the fixed annuity contract
will be purchased from the Account's sponsor, CG Life.
Six Months Ended
June 30, 1999
-------------
Transfers to CG Life for
purchase of fixed
annuity contracts during
accumulation phase
(included in net
amount transferred
out of Account) $ 6,148
Transfers from CG Life
for purchase of variable
annuity contracts during
accumulation phase
(included in net
amount transferred
out of Account) $ 18,473
Transfers from
accumulation period
to distribution period $122,633
3. The cost of investments represents the accumulated cost of Fund shares
purchased by the Account at net asset value with net participant contributions
received and from reinvestment of all distributions made by the Fund.
4. Participant contributions are net of premium taxes (if any) and sales load of
$5,317 and $4,697 for the six months ended June 30, 1999 and 1998, respectively.
These amounts are deducted from participant contributions and paid to CG Life in
accordance with the contract. Mortality and expense risk charges, which
generally range from 0.25% to 0.60%, depending on contract size, are also paid
to CG Life.
5. Withdrawal of funds on terminated contracts is net of administrative charges
of $483 and $7,140 for the six months ended June 30, 1999 and 1998,
respectively. These amounts are paid to CG Life in accordance with the contract.
6. Contracts are sold primarliy by persons who are insurance agents of or
brokers for CG Life authorized by applicable law to sell life and other forms of
personal insurance and who are similarly authorized to sell variable annuities.
These persons are for the most part registered representatives of CIGNA
Financial Services, Inc.
<PAGE>
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CG Variable Annuity Account I Notes to Financial Statements 6
(Unaudited) (Continued)
7. ACCUMULATION UNITS INFORMATION
<TABLE>
<CAPTION>
SCHEDULE OF SELECTED PER-UNIT DATA
----------------------------------
June 30, December 31,
Group Contracts: 1999 1998 1997 1996 1995
---------- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
50 participants or more:
Net Asset Value:
-----------------------------------
Beginning of period $ 253.841 $ 197.749 $ 148.759 $ 121.763 $ 89.219
End of period 284.623 253.841 197.749 148.759 121.763
---------- ---------- ---------- ---------- ---------
Net increase in accumulated unit
value resulting from operations $ 30.782 $ 56.092 $ 48.990 $ 26.996 $ 32.544
========== ========== ========== ========== =========
Accumulation units outstanding:
-----------------------------------
End of period 182,943 194,725 216,798 238,436 261,172
========== ========== ========== ========== =========
Less than 50 participants:
Net Asset Value:
-----------------------------------
Beginning of period $ 235.328 $ 183.806 $ 138.631 $ 113.772 $ 83.580
End of period 263.524 235.328 183.806 138.631 113.772
---------- ---------- ---------- ---------- ---------
Net increase in accumulated unit
value resulting from operations $ 28.196 $ 51.522 $ 45.175 $ 24.859 $ 30.192
========== ========== ========== ========== =========
Accumulation units outstanding:
-----------------------------------
End of period 26,328 31,203 35,265 37,135 45,992
========== ========== ========== ========== =========
Tax-deferred annuity contracts
issued after May 1, 1976:
Net Asset Value:
-----------------------------------
Beginning of period $ 206.981 $ 161.809 $ 122.149 $ 100.335 $ 73.775
End of period 231.680 206.981 161.809 122.149 100.335
---------- ---------- ---------- ---------- ---------
Net increase in accumulated unit
value resulting from operations $ 24.699 $ 45.172 $ 39.660 $ 21.814 $ 26.560
========== ========== ========== ========== =========
Accumulation units outstanding:
-----------------------------------
End of period 82,887 87,440 91,439 98,421 115,290
========== ========== ========== ========== =========
</TABLE>
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CG Variable Annuity Account I Notes to Financial Statements 7
(Unaudited) (Continued)
7. ACCUMULATION UNITS INFORMATION (Continued)
<TABLE>
<CAPTION>
SCHEDULE OF SELECTED PER-UNIT DATA
----------------------------------
June 30, December 31,
Individual Contracts: 1999 1998 1997 1996 1995
----------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Variable annuity contracts:
Net Asset Value:
-----------------------------------
Beginning of period $ 218.379 $ 170.976 $ 129.262 $ 106.339 $ 78.306
End of period 244.256 218.379 170.976 129.262 106.339
----------- ----------- ----------- ----------- -----------
Net increase in accumulated unit
value resulting from operations $ 25.877 $ 47.403 $ 41.714 $ 22.923 $ 28.033
=========== =========== =========== =========== ===========
Accumulation units outstanding:
End of period 12,747 16,696 17,789 18,959 19,685
=========== =========== =========== =========== ===========
Flexible annuity contracts:
Net Asset Value:
-----------------------------------
Beginning of period $ 205.799 $ 161.689 $ 122.670 $ 101.272 $ 74.835
End of period 229.784 205.799 161.689 122.670 101.272
----------- ----------- ----------- ----------- -----------
Net increase in accumulated unit
value resulting from operations $ 23.985 $ 44.110 $ 39.019 $ 21.398 $ 26.437
=========== =========== =========== =========== ===========
Accumulation units outstanding:
-----------------------------------
End of period 15,263 15,548 15,967 16,652 17,502
=========== =========== =========== =========== ===========
</TABLE>
8. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code (Code), a
variable annuity contract, other than a contract issued in connection with
certain types of employee benefit plans, will not be treated as an annuity
contract for federal tax purposes for any period for which the investments of
the segregated asset account on which the contract 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, as set forth in regulations issued by the
Secretary of the Treasury.
The Secretary of Treasury has issued regulations under Section 817(h) of the
Code. CG Life believes that the Account satisfies the current requirements of
the regulations, and it intends that the Account will continue to meet such
requirements.
<PAGE>
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CG Variable Annuity Account II 8
Statement of Assets and Liabilities
Unaudited
June 30, 1999
ASSETS:
Investment in CIGNA Variable Products S&P 500 Index Fund
at net asset value, 431,909 shares at $22.15 per share
(cost $5,796,699; unrealized appreciation $3,770,077) $9,566,776
----------
Receivable from Connecticut General Life Insurance Company 65,591
----------
Total Assets 9,632,367
----------
LIABILITIES:
Payable to Connecticut General Life Insurance Company --
Total Liabilities --
----------
NET ASSETS $9,632,367
==========
NET ASSETS REPRESENTED BY:
Accumulation Unit
Units Value
------------ -----
Group contracts 5,515 $252.620 $1,393,199
Individual Contracts:
Variable annuity contracts 7,192 216.810 1,559,298
Fixed annuity contracts 18,826 202.648 3,815,051
Reserve for variable annuity contracts
in distribution period 2,864,819
----------
$9,632,367
==========
The Notes to Financial Statements are an integral part of these statements.
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CG Variable Annuity Account II 9
Statement of Changes in Net Assets
Unaudited
Six months ended June 30, 1999
FROM OPERATIONS:
Investment loss -- net $ (43,057)
Realized gain on investments -- net 255,228
Change in unrealized appreciation
on investments -- net 820,910
-----------
Increase in net assets resulting
from operations 1,033,081
-----------
FROM UNIT TRANSACTIONS:
Participant contributions -- net 8,200
Transfers between funds -- net --
Withdrawal of funds on terminated contracts -- net (134,635)
Annuity benefit distributions (301,164)
Mortality guarantee adjustment 9,798
Equalization adjustment 3,777
-----------
Decrease in Net Assets Derived from Unit Transactions (414,024)
===========
INCREASE IN NET ASSETS 619,057
NET ASSETS:
Beginning of period 9,013,310
End of period $ 9,632,367
===========
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CG Variable Annuity Account II 10
Statement of Operationes
Unaudited
Six months ended June 30, 1999
INVESTMENT LOSS:
Dividends $ --
Expenses:
Mortality and expense risk 43,057
-----------
Investment Loss -- Net (43,057)
-----------
REALIZED GAIN ON INVESTMENTS:
Proceeds from sale of shares 639,079
Cost of shares sold 383,851
-----------
Realized gain from security
transactions -- net 255,228
Capital gains distribution --
-----------
Realized Gain on
Investments -- Net 255,228
-----------
UNREALIZED APPRECIATION ON INVESTMENTS:
Beginning of period 2,949,167
End of period 3,770,077
-----------
Change in Unrealized Appreciation
on Investments -- Net 820,910
-----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,033,081
===========
RATIO OF NET INVESTMENT LOSS TO AVERAGE
NET ASSETS (0.462%)
NUMBER OF ACCUMULATION UNITS OUTSTANDING
AT END OF PERIOD 31,533
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CG Variable Annuity Account II Notes to Financial Statements (Unaudited) 11
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). 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 market value and reserve assumptions, that affect
recorded amounts. Actual results could differ from those estimates. Significant
estimates are discussed throughout the Notes to Financial Statements.
1. The following is a summary of significant accounting policies consistently
applied in the preparation of the Account's financial statements:
A. The investment in CIGNA Variable Products S&P 500 Index Fund (Fund)
shares is valued at the closing net asset value per share as determined by
the Fund on June 30, 1999. The Fund was organized by CG Life in 1968.
B. The amount of the reserve for contracts in the distribution period is
determined by actuarial assumptions which meet statutory requirements.
Gains or losses resulting from actual mortality experience, the full
responsibility for which is assumed by CG Life, are offset by transfers to
or from CG Life.
C. Investment transactions are accounted for on the trade date (date the
order to buy or sell is executed), and income is recorded on the
ex-dividend date. Cost of investments sold is determined on the basis of
the last-in, first-out method.
D. The operations of the Account are included in, and taxed as part of CG
Life as a life insurance company. Under Internal Revenue Code Section 817
there is no taxable income attributable to the Account.
2. Under the terms of the annuity contracts, the Individual participant can
elect either a fixed or variable annuity benefit at retirement. The Group
participant can elect either a fixed or variable annuity benefit during the
accumulation phase and at retirement. The assets providing for the variable
annuity benefit will be invested in the Fund, and the fixed annuity contract
will be purchased from the Account's sponsor, CG Life. There were no transfers
from accumulation period to distribution period during 1999 or 1998.
3. The cost of investments represents the accumulated cost of Fund shares
purchased by the Account at net asset value with net participant contributions
received and from reinvestment of all distributions made by the Fund.
4. Participant contributions are net of premium taxes (if any) and sales load of
$477 and $158 for the six months ended June 30, 1999 and 1998, respectively.
These amounts are deducted from participant contributions and paid to CG Life in
accordance with the contract. Mortality and expense risk charges, which
generally range from 0.25% to 0.50%, depending on contract size, are also paid
to CG Life.
5. Withdrawal of funds on terminated contracts is net of administrative charges
of $18 and $339 for the six months ended June 30, 1999 and 1998, respectively.
These amounts are paid to CG Life in accordance with the contract.
6. Contracts are sold primarily by persons who are insurance agents of or
brokers for CG Life authorized by applicable law to sell life and other forms of
personal insurance and who are similarly authorized to sell variable annuities.
These persons are for the most part registered representatives of CIGNA
Financial Services, Inc.
<PAGE>
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CG Variable Annuity Account II Notes to Financial Statements 12
(Unaudited) (Continued)
7. ACCUMULATION UNITS INFORMATION
<TABLE>
<CAPTION>
SCHEDULE OF SELECTED PER-UNIT DATA
----------------------------------
June 30, December 31,
Group Contracts: 1999 1998 1997 1996 1995
---------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value:
-----------------------------------
Beginning of period $ 225.298 $ 175.514 $ 132.033 $ 108.072 $ 79.187
End of period 252.620 225.298 175.514 132.033 108.072
---------- ---------- ---------- ---------- ----------
Net increase in accumulated unit
value resulting from operations $ 27.322 $ 49.784 $ 43.481 $ 23.961 $ 28.885
========== ========== ========== ========== ==========
Accumulation units outstanding:
-----------------------------------
End of period 5,515 5,514 6,213 6,185 6,864
========== ========== ========== ========== ==========
Individual Contracts:
Variable annuity contracts:
Net Asset Value:
-----------------------------------
Beginning of period $ 193.841 $ 151.764 $ 114.738 $ 94.390 $ 69.507
End of period 216.810 193.841 151.764 114.738 94.390
---------- ---------- ---------- ---------- ----------
Net increase in accumulated unit
value resulting from operations $ 22.969 $ 42.077 $ 37.026 $ 20.348 $ 24.883
========== ========== ========== ========== ==========
Accumulation units outstanding:
-----------------------------------
End of period 7,192 7,818 8,474 8,484 8,566
========== ========== ========== ========== ==========
Flexible annuity contracts:
Net Asset Value:
-----------------------------------
Beginning of period $ 181.493 $ 142.594 $ 108.183 $ 89.312 $ 65.997
End of period 202.648 181.493 142.594 108.183 89.312
---------- ---------- ---------- ---------- ----------
Net increase in accumulated unit
value resulting from operations $ 21.155 $ 38.899 $ 34.411 $ 18.871 $ 23.315
========== ========== ========== ========== ==========
Accumulation units outstanding:
-----------------------------------
End of period 18,826 18,811 19,316 22,410 26,647
========== ========== ========== ========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CG Variable Annuity Account II Notes to Financial Statements 13
(Unaudited) (Continued)
8. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code (Code), a
variable annuity contract, other than a contract issued in connection with
certain types of employee benefit plans, will not be treated as an annuity
contract for federal tax purposes for any period for which the investments of
the segregated asset account on which the contract 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 as set forth in regulations issued by the
Secretary of the Treasury.
The Secretary of Treasury has issued regulations under Section 817(h) of the
Code. CG Life believes that the Account satisfies the current requirements of
the regulations, and it intends that the Account will continue to meet such
requirements.
<PAGE>
Pages 2-14 of the Semiannual Report to Shareholders of CIGNA Variable Products
S&P 500 Index Fund (1940 Act File No. 811-05480) for the period ended June 30,
1999, as electronically filed with the Securities and Exchange Commission on
Form N-30D on August 20, 1999, is hereby incorporated by reference.
