<PAGE>
CG VARIABLE ANNUITY ACCOUNTS I & II
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, 1998.
Following is a summary of key performance results:
For Qualified Contractholders
. Accumulation Unit Values for the Flexible Annuity increased 17.00% from the
December 31, 1997 level, from $161.689 to $189.171.
. For all other qualified individual contracts, Accumulation Unit Values
increased 17.20%, from $170.976 to $200.383.
. Accumulation Unit Values for Group Qualified Contracts with 50 participants
or more increased 17.49% from $197.749 to $232.336 during the period from
January 1, 1998 to June 30, 1998.
. Over the last five years (June 30, 1993 to June 30, 1998), the Unit Values
for Group Qualified Contracts with 50 participants or more increased 163.69%.
For Non-Qualified Contractholders
. Accumulation Unit Values for the Flexible Annuity increased 17.00% from the
December 31, 1997 level, from $142.594 to $166.830.
. For all other non-qualified individual contracts, Accumulation Unit Values
increased 17.20%, from $151.764 to $177.867.
. Accumulation Unit Values for Group Non-Qualified Contracts increased 17.49%
from $175.514 to $206.212 during the period from January 1, 1998 to June 30,
1998.
. Over the last five years (June 30, 1993 to June 30, 1998), the Unit Values
for Group Non-Qualified Contracts increased 163.69%.
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
1
<PAGE>
CG VARIABLE ANNUITY ACCOUNT I
STATEMENT OF
ASSETS AND LIABILITIES
Unaudited
June 30, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment in CIGNA Variable Products S&P 500 Index Fund
at net asset value, 4,608,338 shares at $18.61 per
share (cost $49,182,240; unrealized appreciation
$36,578,930) $85,761,170
------------
Total assets 85,761,170
------------
LIABILITIES:
Payable to Connecticut General Life Insurance Company
Total liabilities 145,926
------------
NET ASSETS 145,926
-------------
NET ASSETS REPRESENTED BY: $85,615,244
<CAPTION>
ACCUMULATION UNIT
UNITS VALUE
------------- -----
<S> <C> <C> <C>
Group contracts:
50 participants or more 209,053 $232.336 $48,570,538
Less than 50 participants 34,048 215.675 7,343,302
Tax deferred annuity contracts issued
after May 1, 1976 89,018 189.781 16,893,925
Individual contracts:
Variable annuity contracts 16,732 200.383 3,352,808
Flexible annuity contracts 15,843 189.171 2,997,036
Reserve for variable annuity contracts
in distribution period 6,457,635
-----------
$85,615,244
===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
2
<PAGE>
CG VARIABLE ANNUITY ACCOUNT I
STATEMENT OF
CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Unaudited
Six months ended June 30, 1998
<S> <C>
FROM OPERATIONS:
Investment loss -- net $ (214,325)
Realized gain on investments -- net 293,588
Change in unrealized appreciation
on investments -- net 12,832,386
-------------
Increase in net assets resulting
from operations 12,911,649
-------------
FROM UNIT TRANSACTIONS:
Participant contributions -- net 253,693
Amount transferred out of Account -- net (278,817)
Withdrawal of funds on terminated contracts -- net (2,546,099)
Annuity benefit distributions (595,738)
Mortality guarantee adjustment (114,118)
Equalization adjustment 6,892
Decrease in net assets derived -------------
from unit transactions (3,274,187)
-------------
INCREASE IN NET ASSETS 9,637,462
NET ASSETS:
Beginning of period 75,977,782
-------------
End of period $85,615,244
=============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
3
<PAGE>
CG VARIABLE ANNUITY ACCOUNT I
STATEMENT OF
OPERATIONS
<TABLE>
<CAPTION>
Unaudited
Six months ended June 30, 1998
<S> <C>
INVESTMENT LOSS:
Dividends $ --
Expenses:
Mortality and expense risk 214,325
-----------
Investment Loss -- Net (214,325)
REALIZED GAIN ON INVESTMENTS:
Proceeds from sale of shares 3,535,205
Cost of shares sold 3,241,617
Realized gain from security -----------
transactions -- net 293,588
Capital gains distribution --
Realized Gain on -----------
Investments -- Net 293,588
-----------
UNREALIZED APPRECIATION ON INVESTMENTS:
Beginning of period 23,746,544
End of period 36,578,930
Change in Unrealized Appreciation -----------
on Investments -- Net 12,832,386
-----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $12,911,649
===========
RATIO OF NET INVESTMENT LOSS TO AVERAGE
NET ASSETS (.265%)
NUMBER OF ACCUMULATION UNITS OUTSTANDING
AT END OF PERIOD 364,694
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
CG VARIABLE ANNUITY ACCOUNT I
NOTES TO
FINANCIAL STATEMENTS
(UNAUDITED)
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 through-out 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, 1998. 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's tax return, which is taxed 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.
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
--------- ------
<S> <C>
Transfers to CG Life
for purchase of fixed
annuity contracts during
accumulation phase
(included in net
amount transferred
out of Account) $377,014
Transfers from CG Life
for purchase of variable
annuity contracts during
accumulation phase
(included in net
amount transferred
out of Account) $ 98,197
Transfers from
accumulation period
to distribution period --
</TABLE>
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 $4,697 and $11,196 for the six months ended June 30, 1998 and 1997,
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 $7,140 and $7,160 for the six months ended June 30, 1998 and 1997,
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 Advisors, Inc.
5
<PAGE>
CG VARIABLE ANNUITY ACCOUNT I
NOTES TO
FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
7. ACCUMULATION UNITS INFORMATION
SCHEDULE OF SELECTED PER-UNIT DATA
----------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
--------- --------------------------------------------------
Group Contracts: 1998 1997 1996 1995 1994
--------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
50 PARTICIPANTS OR MORE:
Net asset value:
--------------------------------------
Beginning of period $ 197.749 $ 148.759 $ 121.763 $ 89.219 $ 88.848
End of period 232.336 197.749 148.759 121.763 89.219
Net increase in net asset --------- --------- --------- --------- --------
value resulting from operations $ 34.587 $ 48.990 $ 26.996 $ 32.544 $ 0.371
========= ========= ========= ========= =========
Accumulation units outstanding:
--------------------------------------
End of period 209,053 216,798 238,436 261,172 308,233
========= ========= ========= ========= =========
LESS THAN 50 PARTICIPANTS:
Net asset value:
--------------------------------------
Beginning of period $ 183.806 $ 138.631 $ 113.772 $ 83.580 $ 83.449
End of period 215.675 183.806 138.631 113.772 83.580
Net increase in net asset --------- --------- --------- --------- --------
value resulting from operations $ 31.869 $ 45.175 $ 24.859 $ 30.192 $ 0.131
========= ========= ========= ========= =========
Accumulation units outstanding:
--------------------------------------
End of period 34,048 35,265 37,135 45,992 50,443
========= ========= ========= ========= =========
TAX-DEFERRED ANNUITY CONTRACTS
ISSUED AFTER MAY 1, 1976:
Net asset value:
--------------------------------------
Beginning of period $ 161.809 $ 122.149 $ 100.335 $ 73.775 $ 73.725
End of period 189.781 161.809 122.149 100.335 73.775
Net increase in net asset --------- --------- --------- --------- --------
value resulting from operations $ 27.972 $ 39.660 $ 21.814 $ 26.560 $ 0.050
========= ========= ========= ========= =========
Accumulation units outstanding:
--------------------------------------
End of period 89,018 91,439 98,421 115,290 121,840
========= ========= ========= ========= =========
</TABLE>
6
<PAGE>
CG VARIABLE ANNUITY ACCOUNT I
NOTES TO
FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
7. ACCUMULATION UNITS INFORMATION (Continued)
SCHEDULE OF SELECTED PER-UNIT DATA
-----------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
---------- ------------------------------------------------------
Individual Contracts: 1998 1997 1996 1995 1994
---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
VARIABLE ANNUITY CONTRACTS:
Net asset value:
--------------------------------------
Beginning of period $ 170.976 $129.262 $ 106.339 $ 78.306 $ 78.370
End of period 200.383 170.976 129.262 106.339 78.306
Net increase (decrease) in net asset --------- --------- --------- --------- ---------
value resulting from operations $ 29.407 $ 41.714 $ 22.923 $ 28.033 $ (0.064)
========= ======== ========= ========= =========
Accumulation units outstanding:
End of period 16,732 17,789 18,959 19,685 23,011
========= ======== ========= ========= =========
FLEXIBLE ANNUITY CONTRACTS:
Net asset value:
--------------------------------------
Beginning of period $ 161.689 $122.670 $ 101.272 $ 74.835 $ 75.158
End of period 189.171 161.689 122.670 101.272 74.835
Net increase (decrease) in net asset --------- --------- --------- --------- ---------
value resulting from operations $ 27.482 $ 39.019 $ 21.398 $ 26.437 $ (0.323)
Accumulation units outstanding: ========= ======== ========= ========= =========
--------------------------------------
End of period 15,843 15,967 16,652 17,502 19,687
========= ======== ========= ========= =========
</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.
7
<PAGE>
CG VARIABLE ANNUITY ACCOUNT II
STATEMENT OF
ASSETS AND LIABILITIES
Unaudited
June 30, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment in CIGNA Variable Products S&P 500 Index Fund
at net asset value, 473,259 shares at $18.61 per share
(cost $6,083,255; unrealized appreciation $2,724,095) $ 8,807,350
------------
Total assets 8,807,350
------------
LIABILITIES:
Payable to Connecticut General Life Insurance Company 172,457
------------
Total liabilities 172,457
------------
NET ASSETS $ 8,634,893
============
NET ASSETS REPRESENTED BY:
<CAPTION>
ACCUMULATION UNIT
UNITS VALUE
------------ -------
<S> <C> <C> <C>
Group contracts 5,884 $206.212 $ 1,213,351
Individual contracts:
Variable annuity contracts 8,092 177.867 1,439,300
Flexible annuity contracts 19,060 166.830 3,179,780
Reserve for variable annuity contracts
in distribution period 2,802,462
------------
$ 8,634,893
============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
8
<PAGE>
CG VARIABLE ANNUITY ACCOUNT II
STATEMENT OF
CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Unaudited
Six months ended June 30, 1998
<S> <C>
FROM OPERATIONS:
Investment loss -- net $ (46,805)
Realized gain on investments -- net 113,287
Change in unrealized appreciation
on investments -- net 1,256,043
Increase in net assets resulting -----------
from operations 1,322,525
-----------
FROM UNIT TRANSACTIONS:
Participant contributions -- net 2,676
Withdrawal of funds on terminated contracts -- net (172,785)
Annuity benefit distributions (283,458)
Mortality guarantee adjustment (362,905)
Equalization adjustment (3)
Decrease in net assets derived -----------
from unit transactions (816,475)
-----------
INCREASE IN NET ASSETS 506,050
NET ASSETS:
Beginning of period 8,128,843
-----------
End of period $ 8,634,893
===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
9
<PAGE>
CG VARIABLE ANNUITY ACCOUNT II
STATEMENT OF
OPERATIONS
<TABLE>
<CAPTION>
Unaudited
Six months ended June 30, 1998
<S> <C>
INVESTMENT LOSS:
Dividends $ --
Expenses:
Mortality and expense risk 46,805
----------
INVESTMENT LOSS -- NET (46,805)
----------
REALIZED GAIN ON INVESTMENTS:
Proceeds from sale of shares 1,112,555
Cost of shares sold 999,268
Realized gain from security ----------
transactions -- net 113,287
Capital gains distribution --
REALIZED GAIN ON ----------
INVESTMENTS -- NET 113,287
----------
UNREALIZED APPRECIATION ON INVESTMENTS:
Beginning of period 1,468,052
End of period 2,724,095
CHANGE IN UNREALIZED APPRECIATION ----------
ON INVESTMENTS -- NET 1,256,043
----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS -- NET $1,322,525
==========
RATIO OF NET INVESTMENT LOSS TO AVERAGE
NET ASSETS (.558%)
NUMBER OF ACCUMULATION UNITS OUTSTANDING
AT END OF PERIOD 33,036
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
10
<PAGE>
CG VARIABLE ANNUITY ACCOUNT II
NOTES TO
FINANCIAL STATEMENTS
(UNAUDITED)
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, 1998. 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's tax return, which is taxed 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 1998 or 1997.
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
$158 and $166 for the six months ended June 30, 1998 and 1997, 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 $339 and $377 for the six months ended June 30, 1998 and 1997, 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 Advisors, Inc.
11
<PAGE>
CG VARIABLE ANNUITY ACCOUNT II
NOTES TO
FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
7. ACCUMULATION UNITS INFORMATION
SCHEDULE OF SELECTED PER-UNIT DATA
----------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
----------- -------------------------------------------------
Group Contracts: 1998 1997 1996 1995 1994
----------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value:
--------------------------------------
Beginning of period $175.514 $132.033 $108.072 $ 79.187 $ 78.857
End of period 206.212 175.514 132.033 108.072 79.187
Net increase in net asset value -------- -------- -------- -------- --------
resulting from operations $ 30.698 $ 43.481 $ 23.961 $ 28.885 $ 0.330
======== ======== ======== ======== ========
Accumulation units outstanding:
---------------------------------------
End of period 5,884 6,213 6,185 6,864 6,819
======== ======== ======== ======== ========
Individual Contracts:
VARIABLE ANNUITY CONTRACTS:
Net asset value:
---------------------------------------
Beginning of period $151.764 $114.738 $ 94.390 $ 69.507 $ 69.564
End of period 177.867 151.764 114.738 94.390 69.507
Net increase (decrease) in net asset -------- -------- -------- -------- --------
value resulting from operations $ 26.103 $ 37.026 $ 20.348 $ 24.883 $ (0.057)
======== ======== ======== ======== ========
Accumulation units outstanding:
End of period 8,092 8,474 8,484 8,566 8,823
======== ======== ======== ======== ========
FLEXIBLE ANNUITY CONTRACTS:
Net asset value:
--------------------------------------
Beginning of period $142.594 $108.183 $ 89.312 $ 65.997 $ 66.282
End of period 166.830 142.594 108.183 89.312 65.997
Net increase (decrease) in net asset -------- -------- -------- -------- --------
value resulting from operations $ 24.236 $ 34.411 $ 18.871 $23.315 $ (0.285)
======== ======== ======== ======== ========
Accumulation units outstanding:
---------------------------------------
End of period 19,060 19,316 22,410 26,647 27,762
======== ======== ======== ======== ========
</TABLE>
12
<PAGE>
CG VARIABLE ANNUITY ACCOUNT II
NOTES TO
FINANCIAL STATEMENTS (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.
13
<PAGE>
Pages 2-16 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 06/30/98,
as electronically filed with the Securities and Exchange Commission on Form
N-30D on August 28, 1998 is hereby incorporated by reference.
<PAGE>
This report has been prepared for the infor-
mation of participants of CG Variable Annuity
Accounts I & II pursuant to variable annuity
contracts issued by Connecticut General
Life Insurance Company and is not author-
ized for distribution to prospective investors
unless preceded or accompanied by current
prospectuses of both the annuity account
under discussion and the CIGNA Variable
Products S&P 500 Index Fund.
___________________________________________
CIGNA Variable Products S&P 500 Index Fund
was organized by Connecticut General Life
Insurance Company in 1968. The name of the
Fund was changed in January 1996 from
Companion Fund to CIGNA Variable Products
S&P 500 Index Fund to better reflect the Fund's
investment strategy. Both CIGNA Investments,
Inc. and CIGNA Financial Advisors, Inc.
are affiliates of Connecticut General Life
Insurance Company.
CG Variable Annuity
Accounts I & II
CIGNA Variable Products
S&P 500 Index Fund
___________________
Semiannual Report
___________________
June 30, 1998
CG Flexible Annuity
CG Group Variable Annuity
[LOGO OF CIGNA APPEARS HERE]
