<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, 1997.
We would also like to inform you that Lincoln National Corporation (LNC) agreed
in late July to purchase CIGNA's individual life insurance and annuities
businesses. We expect that transaction, which is subject to regulatory approval,
to close by the end of the year. CIGNA Financial Advisors, Inc., broker-dealer
for Variable Annuity Accounts I and II, is expected to be included in this
transaction. Further information will be provided as it becomes available.
Following is a summary of key performance results:
For Qualified Contractholders
. Accumulation Unit Values for the Flexible Annuity increased 19.83% from the
December 31, 1996 level, from $122.670 to $146.994.
. For all other qualified individual contracts, Accumulation Unit Values
increased 20.04%, from $129.262 to $155.163.
. Accumulation Unit Values for Group Qualified Contracts with 50 participants
or more increased 20.33% from $148.759 to $179.009 during the period from
January 1, 1997 to June 30, 1997.
. Over the last five years (June 30, 1992 to June 30, 1997), the Unit Values
for Group Qualified Contracts with 50 participants or more increased 134%.
For Non-Qualified Contractholders
. Accumulation Unit Values for the Flexible Annuity increased 19.83% from the
December 31, 1996 level, from $108.183 to $129.635.
. For all other non-qualified individual contracts, Accumulation Unit Values
increased 20.04%, from $114.738 to $137.728.
. Accumulation Unit Values for Group Non-Qualified Contracts increased 20.33%
from $132.033 to $158.881 during the period from January 1, 1997 to June
30, 1997.
. Over the last five years (June 30, 1992 to June 30, 1997), the Unit Values
for Group Non-Qualified Contracts increased 134%.
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/ Thomas C. Jones
Thomas C. Jones
President,
CIGNA Individual Insurance
/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, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in CIGNA Variable Products S&P 500 Index Fund
at net asset value, 4,814,295 shares at $14.94 per
share (cost $50,704,254; unrealized appreciation $21,221,318) $71,925,572
Receivable from Connecticut General Life Insurance Company 440,225
-----------
Total assets 72,365,797
-----------
LIABILITIES:
Total liabilities --
-----------
NET ASSETS $72,365,797
===========
NET ASSETS REPRESENTED BY:
<CAPTION>
Accumulation Unit
Units Value
------------ ------------
<S> <C> <C> <C>
Group contracts:
50 participants or more 228,373 $ 179.00 $40,880,810
Less than 50 participants 35,800 166.60 5,964,567
Tax deferred annuity contract issued
after May 1, 1976 94,604 146.73 13,881,528
Individual contracts:
Variable annuity contracts 17,859 155.16 2,771,098
Flexible annuity contracts 16,629 146.99 2,444,427
Reserve for variable annuity contracts
in distribution period 6,423,367
-----------
$72,365,797
===========
</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
Unaudited
Six months ended June 30, 1997
<TABLE>
<CAPTION>
FROM OPERATIONS:
<S> <C>
Investment loss -- net $ (93,340)
Realized gain on investments -- net 455,308
Change in unrealized appreciation on investments -- net 10,365,992
-----------
Increase in net assets resulting from operations 10,727,960
-----------
FROM UNIT TRANSACTIONS:
Participant contributions -- net 355,058
Amount transferred out of Account -- net (170,295)
Withdrawal of funds on terminated contracts -- net (949,526)
Annuity benefit distributions (304,510)
Mortality guarantee adjustment (98,857)
Equalization adjustment (795)
-----------
Decrease in net assets derived from unit transactions (1,168,925)
-----------
INCREASE IN NET ASSETS 9,559,035
NET ASSETS:
Beginning of period 62,806,762
-----------
End of period $72,365,797
===========
</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, 1997
<S> <C>
INVESTMENT LOSS:
Dividends $ --
Expenses:
Mortality and expense risk 93,340
-----------
Investment Loss -- Net (93,340)
-----------
REALIZED GAIN ON INVESTMENTS:
Proceeds from sale of shares 3,858,875
Cost of shares sold 3,403,567
-----------
Realized gain from security
transactions -- net 455,308
Capital gains distribution --
-----------
Realized Gain on
Investments -- Net 455,308
-----------
UNREALIZED APPRECIATION ON INVESTMENTS:
Beginning of period 10,855,326
End of period 21,221,318
-----------
Change in Unrealized Appreciation
on Investments -- Net 10,365,992
-----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $10,727,960
===========
RATIO OF NET INVESTMENT LOSS TO AVERAGE
NET ASSETS (.138%)
NUMBER OF ACCUMULATION UNITS OUTSTANDING
AT END OF PERIOD 393,265
</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 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, 1997. 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, 1997
----------------
<S> <C>
Transfers to CG Life for
purchase of fixed annuity
contracts during accumulation
phase (included in net amount
transferred out of Account) $324,779
Transfers from CG Life for
purchase of variable annuity
contracts during accumulation
phase (included in net amount
transferred out of Account) $154,484
Transfers from accumulation
period to distribution period $ 55,415
</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 $11,196 and $13,542 for the six months ended June 30, 1997 and 1996,
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 $7,760 and $9,857 for the six months ended June 30, 1997 and 1996,
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.
5
<PAGE>
CG VARIABLE ANNUITY ACCOUNT I
Notes to
Financial Statements (Unaudited)
(Continued)
7. ACCUMULATION UNITS INFORMATION
<TABLE>
<CAPTION>
SCHEDULE OF SELECTED PER-UNIT DATA
----------------------------------
June 30, December 31,
-------- -------------------------------------------
Group Contracts: 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
50 participants or more:
Net asset value:
------------------------------------------
Beginning of period $148.759 $121.763 $ 89.219 $ 88.848 $ 86.503
End of period 179.009 148.759 121.763 89.219 88.848
-------- -------- -------- -------- --------
Net increase in net asset
value resulting from operations $ 30.250 $ 26.996 $ 32.544 $ 0.371 $ 2.345
======== ======== ======== ======== ========
Accumulation units outstanding:
------------------------------------------
End of period 228,373 238,436 261,172 308,233 353,129
======== ======== ======== ======== ========
Less than 50 participants:
Net asset value:
------------------------------------------
Beginning of period $138.631 $113.772 $ 83.580 $ 83.449 $ 81.459
End of period 166.606 138.631 113.772 83.580 83.449
-------- -------- -------- -------- --------
Net increase in net asset
value resulting from operations $ 27.975 $ 24.859 $ 30.192 $ 0.131 $ 1.990
======== ======== ======== ======== ========
Accumulation units outstanding:
------------------------------------------
End of period 35,800 37,135 45,992 50,443 52,486
======== ======== ======== ======== ========
Tax-deferred annuity contracts
issued after May 1, 1976:
Net asset value:
------------------------------------------
Beginning of period $122.149 $100.335 $ 73.775 $ 73.725 $ 72.031
End of period 146.734 122.149 100.335 73.775 73.725
-------- -------- -------- -------- --------
Net increase in net asset
value resulting from operations $ 24.585 $ 21.814 $ 26.560 $ 0.050 $ 1.694
======== ======== ======== ======== ========
Accumulation units outstanding:
------------------------------------------
End of period 94,604 98,421 115,290 121,840 124,827
======== ======== ======== ======== ========
</TABLE>
6
<PAGE>
CG VARIABLE ANNUITY ACCOUNT I
Notes to
Financial Statements (Unaudited)
(Continued)
7. ACCUMULATION UNITS INFORMATION (Continued)
<TABLE>
<CAPTION>
SCHEDULE OF SELECTED PER-UNIT DATA
----------------------------------
June 30, December 31,
-------- ----------------------------------------------
Individual Contracts: 1997 1996 1995 1994 1993
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Variable annuity contracts:
Net asset value:
----------------------------------------
Beginning of period $129.262 $106.339 $ 78.306 $ 78.370 $ 76.684
End of period 155.163 129.262 106.339 78.306 78.370
-------- -------- -------- --------- ---------
Net increase (decrease) in net asset
value resulting from operations $ 25.901 $ 22.923 $ 28.033 $ (0.064) $ 1.686
======== ======== ======== ========= =========
Accumulation units outstanding:
----------------------------------------
End of period 17,859 18,959 19,685 23,011 30,646
======== ======== ======== ========= =========
Flexible annuity contracts:
Net asset value:
----------------------------------------
Beginning of period $122.670 $101.272 $ 74.835 $ 75.158 $ 73.800
End of period 146.994 122.670 101.272 74.835 75.158
-------- -------- -------- --------- ---------
Net increase (decrease) in net asset
value resulting from operations $ 24.324 $ 21.398 $ 26.437 $ (0.323) $ 1.358
======== ======== ======== ========= =========
Accumulation units outstanding:
----------------------------------------
End of period 16,629 16,652 17,502 19,687 22,970
======== ======== ======== ========= =========
</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, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment in CIGNA Variable Products S&P 500 Index Fund at
net asset value, 495,410 shares at $14.94 per share (cost
$6,347,633; unrealized appreciation $1,053,792) $ 7,401,425
-----------
Receivable from Connecticut General Life Insurance Company 321,191
-----------
Total assets 7,722,616
-----------
LIABILITIES:
Total liabilities --
-----------
NET ASSETS $ 7,722,616
===========
<CAPTION>
NET ASSETS REPRESENTED BY:
Accumulation Unit
Units Value
------------ -------
<S> <C> <C> <C>
Group contracts 6,200 $158.881 $ 985,073
Individual contracts:
Variable annuity contracts 8,471 137.728 1,166,633
Flexible annuity contracts 19,566 129.635 2,536,464
Reserve for variable annuity contracts
in distribution period 3,034,446
-----------
$ 7,722,616
===========
</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
Unaudited
Six months ended June 30, 1997
<TABLE>
<CAPTION>
FROM OPERATIONS:
<S> <C>
Investment loss-- net $ (25,548)
Realized gain on investments-- net 198,572
Change in unrealized appreciation
on investments -- net 997,129
-----------
Increase in net assets resulting
from operations 1,170,153
-----------
FROM UNIT TRANSACTIONS:
Participant contributions-- net 2,796
Withdrawal of funds on terminated contracts-- net (21,928)
Annuity benefit distributions (166,234)
Mortality guarantee adjustment (87,587)
Equalization adjustment (8)
-----------
Decrease in net assets derived
from unit transactions (272,961)
-----------
INCREASE IN NET ASSETS 897,192
NET ASSETS:
Beginning of period 6,825,424
-----------
End of period $7,722,616
===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
9
<PAGE>
CG VARIABLE ANNUITY ACCOUNT II
Statement of
Operations
<TABLE>
<S> <C>
Unaudited
Six months ended June 30, 1997
INVESTMENT LOSS:
Dividends $ --
Expenses:
Mortality and expense risk 25,548
----------
Investment Loss -- Net (25,548)
----------
REALIZED GAIN ON INVESTMENTS:
Proceeds from sale of shares 817,943
Cost of shares sold 619,371
----------
Realized gain from security
transactions -- net 198,572
Capital gains distribution --
----------
Realized Gain on
Investments -- Net 198,572
----------
UNREALIZED APPRECIATION ON INVESTMENTS:
Beginning of period 56,663
End of period 1,053,792
----------
Change in Unrealized Appreciation
on Investments -- Net 997,129
----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS -- NET $1,170,153
==========
RATIO OF NET INVESTMENT LOSS TO AVERAGE
NET ASSETS (.351%)
NUMBER OF ACCUMULATION UNITS OUTSTANDING
AT END OF PERIOD 34,237
</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, 1997. 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 1997 or 1996.
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 $166 and $207 for the six months ended June 30, 1997 and 1996, 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 $377 and $417 for the six months ended June 30, 1997 and 1996, 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
<TABLE>
<CAPTION>
SCHEDULE OF SELECTED PER-UNIT DATA
----------------------------------
June 30, December 31,
-------- --------------------------------------------
Group Contracts: 1997 1996 1995 1994 1993
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value:
-----------------------------------
Beginning of period $132.033 $108.072 $79.187 $78.857 $ 76.776
End of period 158.881 132.033 108.072 79.187 78.857
-------- -------- -------- -------- ---------
Net increase in net asset value
resulting from operations $ 26.848 $ 23.961 $28.885 $ 0.330 $ 2.081
======== ======== ======== ======== =========
Accumulation units outstanding:
-----------------------------------
End of period 6,200 6,185 6,864 6,819 6,987
======== ======== ======== ======== =========
Individual Contracts:
Variable annuity contracts:
Net asset value:
-----------------------------------
Beginning of period $114.738 $ 94.390 $69.507 $69.564 $ 68.068
End of period 137.728 114.738 94.390 69.507 69.564
-------- -------- -------- -------- ---------
Net increase (decrease) in net asset
value resulting from operations $ 22.990 $ 20.348 $24.883 $(0.057) $ 1.496
======== ======== ======== ======== =========
Accumulation units outstanding:
-----------------------------------
End of period 8,471 8,484 8,566 8,823 11,050
======== ======== ======== ======== =========
Flexible annuity contracts:
Net asset value:
-----------------------------------
Beginning of period $ 108.183 $ 89.312 $65.997 $66.282 $ 65.084
End of period 129.635 108.183 89.312 65.997 66.282
-------- -------- -------- -------- ---------
Net increase (decrease) in net asset
value resulting from operations $ 21.452 $ 18.871 $23.315 $(0.285) $ 1.198
======== ======== ======== ======== =========
Accumulation units outstanding:
-----------------------------------
End of period 19,566 22,410 26,647 27,762 30,391
======== ======== ======== ======== =========
</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, a series of shares of CIGNA Variable Products Group (1933
Act File No. 33-20333 and 1940 Act File No. 811-05480), for the period ended
June 30, 1997 which was electronically filed with the Securities and Exchange
Commission on Form N-30D on August 21, 1997 is hereby incorporated by reference
to this filing.
<PAGE>
This report has been prepared for the information of participants of CG
Variable Annuity Accounts I & II pursuant to variable annuity contracts issued
by Connecticut General Life Insurance Company and is not authorized 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, 1997
CG Flexible Annuity
CG Group Variable Annuity
[LOGO OF CIGNA APPEARS HERE]
