CG VARIABLE ANNUITY SEPARATE ACCOUNT
485BPOS, 1996-04-23
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<PAGE>
 
     As filed with the Securities and Exchange Commission on April 23, 1996
 
                        FILE NOS. 33-48137 AND 811-6691
 
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
 
                                    FORM N-4
 
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933          [X]
 
                         Pre-Effective Amendment No.                         [_]
 
                         Post-Effective Amendment No. 4                      [X]
 
                                      and
 
        REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940      [X]
 
                                Amendment No. 6                              [X]
 
                      CG VARIABLE ANNUITY SEPARATE ACCOUNT
                           (Exact Name of Registrant)
 
                   CONNECTICUT GENERAL LIFE INSURANCE COMPANY
                             900 Cottage Grove Road
                   Hartford, Connecticut 06152(860) 726-6000
               (Name, Address and Telephone Number of Depositor)
 
Robert A. Picarello, Esquire               George N. Gingold, Esquire
Connecticut General Life Insurance Company 197 King Philip Drive
900 Cottage Grove Road                     West Hartford, CT 06117-1409
Hartford, CT 06152-2321                      (To Receive Copy)
(Name and Address of Agent for Service)
 
Approximate Date of Proposed Public Offering: Continuous
 
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
previously elected to register an indefinite amount of the securities offered
by this Registration Statement.
 
The Rule 24f-2 Notice for the Registrant's fiscal year ended December 31, 1995
was filed February 26, 1996.
 
It is proposed that this filing will become effective:
 
immediately upon filing pursuant to paragraph (b) of Rule 485
 
 X
on April 30, 1996, 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>
 
                            Pursuant to Rule 481(a)
 
                  Showing Location in Part A (Prospectus) and
                  Part B (Statement of Additional Information)
         of Registration Statement of Information Required by Form N-4
 
                                     PART A
 
<TABLE>
<CAPTION>
 Item of Form N-4                          Prospectus Caption
 ----------------                          ------------------
 <C>                                       <S>
 1. Cover Page                             Cover Page
 2. Definitions                            Definitions
 3. Synopsis                               Summary
 4. Condensed Financial Information        Condensed Financial Information
 5. General
   (a) Depositor                           Connecticut General Life Insurance Company 
   (b) Registrant                          CG Variable Annuity Separate Account
   (c) Portfolio Company                   The AIM Variable Insurance Funds
   (d) Fund Prospectus                     The AIM Variable Insurance Funds
   (e) Voting Rights                       Voting of Fund Shares
 6. Deductions and Expenses
   (a) General                             Contract Charges and Fees
   (b) Sales Load %                        Withdrawal Charges
   (c) Special Purchase Plan               N/A
   (d) Commissions                         Distribution of the Contracts
   (e) Expenses - Registrant               N/A
   (f) Fund Expenses                       The AIM Variable Insurance Funds
   (g) Organizational Expenses             N/A
 7. Contracts
   (a) Persons with Rights                 Death Benefits;
                                           Surrenders;
                                           Annuity Provisions;
                                           Election - Change of Annuity Option;
                                           Designation and Change of
                                           Beneficiary;
                                           Exercise of Contract Rights;
                                           Transfer of Ownership;
                                           Death of Purchaser
                                           Voting of Fund Shares
   (b) (i)  Allocation of Premium Payments Allocation of Premium Payments
      (ii)  Transfers                      Transfer Privilege
      (iii) Exchanges                      N/A
</TABLE>
 
                                      -i-
<PAGE>
 
<TABLE>
 <C>                                                   <S>
   (c) Changes                                         Modification;
                                                       Election - Change of
                                                       Annuity Option;
                                                       Designation and Change
                                                       of Beneficiary;
   (d) Inquiries                                       Face Page; Summary
  8. Annuity Period                                    Annuity Option
  9. Death Benefit                                     Death Benefits
 10. Purchase and Contract Values
   (a) Purchases                                       Premium Payments
                                                       Purchaser's Annuity
   (b) Valuation                                       Account;
                                                       Variable Accumulation
                                                       Value;
                                                       Fixed Accumulation Value
                                                       Variable Accumulation
   (c) Daily Calculation                               Unit Value;
                                                       Fixed Accumulation Value
                                                       Distribution of the
   (d) Underwriter                                     Contracts
 11. Redemptions
   (a) By Owners                                       Surrender of Contracts
      By Annuitant                                     N/A
   (b) Texas ORP                                       N/A
   (c) Check Delay                                     Deferral of Payment
   (d) Lapse                                           N/A
                                                       Right to Examine
   (e) Free Look                                       Contracts
 12. Taxes                                             Federal Tax Matters
 13. Legal Proceedings                                 N/A
 14. Table of Contents for the Statement of Additional Statement of Additional
   Information                                         Information
 
                                     PART B
 
<CAPTION>
                                                       Statement of Additional
 Item of Form N-4                                      Information Caption
 ----------------                                      -----------------------
 <C>                                                   <S>
 15. Cover Page                                        Cover Page
 16. Table of Contents                                 Table of Contents
 17. General Information and History                   (Prospectus) The Company
 18. Services
   (a) Fees and Expenses of Registrant                 N/A
   (b) Management Contracts                            N/A
   (c) Custodian                                       Custody of Assets
      Independent Public Account                       Experts
   (d) Assets of Registrant                            Custody of Assets
   (e) Affiliated Person                               N/A
   (f) Principal Underwriter                           Distribution of the
                                                       Contracts
</TABLE>
 
                                      -ii-
<PAGE>
 
<TABLE>
 <C>                                    <S>
 19. Purchase of Securities Being
  Offered                               Distribution of the Contracts
   Offering Sales Load                  N/A
 20. Underwriters                       Distribution of the Contracts;
                                        (Prospectus) Distribution of the
                                        Contracts
 21. Calculation of Performance Data    Investment Experience; Historical Performance Data  
 22. Annuity Payments                   (Prospectus) Annuity Provisions;
                                        (Prospectus) Determination of Annuity
                                        Payments
 23. Financial Statements               Financial Statements
</TABLE>
 
 
                          PART C -- OTHER INFORMATION
 
<TABLE>
<CAPTION>
 Item of Form N-4                            Part C Caption
 ----------------                            --------------
 <C>                                         <S>
 24. Financial Statements and Exhibits       Financial Statements and Exhibits
   (a) Financial Statements                  Financial Statements
   (b) Exhibits                              Exhibits
 25. Directors and Officers of the Depositor Directors and Officers of the Depositor 
 26. Persons Controlled By or Under Common   Persons Controlled By or Under
   Control with the Depositor or Registrant  Common Control with Depositor or
                                             Registrant
 27. Number of Owners                        Number of Owners
 28. Indemnification                         Indemnification
 29. Principal Underwriters                  Principal Underwriter
 30. Location of Accounts and Records        Location of Accounts and Records
 31. Management Services                     Management Services; (SAI)
                                             Administration
 32. Undertakings                            Undertakings
   Signature Page                            Signatures
</TABLE>
 
                                     -iii-
<PAGE>
 
PROSPECTUS
 
May 1, 1996
AIM/CIGNA HERITAGE
VARIABLE ANNUITY
This Prospectus describes the Flexible Payment Deferred Variable Annuity
Contracts with Fixed and Variable Accounts (the "Contracts") offered by
Connecticut General Life Insurance Company in individual or group form. These
Contracts are designed to aid in long-term financial planning by individuals
on a tax-deferred basis for retirement or other long-term purposes.
 
The Purchaser may elect to have Annuity Account Values accumulate on a fixed
basis in the Fixed Account, which pays interest at the applicable Guaranteed
Interest Rate(s) for the duration of the particular Guaranteed Period(s)
selected by the Purchaser, or on a variable basis in CG Variable Annuity
Separate Account (the "Variable Account"), a separate account of the Company,
or a combination of the two. The assets of the Variable Account are divided
into Sub-Accounts. Each Sub-Account invests in a specific series of AIM
Variable Insurance Funds, Inc. (the "Fund"), a mutual fund. Nine portfolios
are currently available for investment within the Variable Account: (1) AIM
V.I. Capital Appreciation Fund; (2) AIM V.I. Diversified Income Fund; (3) AIM
V.I. Government Securities Fund; (4) AIM V.I. Growth Fund; (5) AIM V.I.
International Equity Fund; (6) AIM V.I. Money Market Fund; (7) AIM V.I. Value
Fund; (8) AIM V.I. Growth and Income Fund; and (9) AIM V.I. Global Utilities
Fund.
 
Annuity Account Values allocated to the Variable Account will vary in
accordance with the investment performance of the Sub-Accounts selected by the
Purchaser. Thus, the Purchaser bears the entire investment risk under the
Contract for all amounts allocated to the Variable Account. Amounts allocated
to the Fixed Account are guaranteed by Connecticut General Life Insurance
Company (the "Company") and will earn a specified rate of interest for the
Guaranteed Period(s) selected unless prematurely withdrawn or transferred, in
which case a market value adjustment will apply.
 
These Contracts provide for monthly annuity payments to be made by the Company
for the life of the Annuitant or for some other period, beginning on the
Annuity Date selected by the Purchaser. The Purchaser can also elect to
surrender all or a portion of the Annuity Account Value in exchange for a cash
withdrawal payment from the Company; however, withdrawals may be taxable,
and/or subject to a withdrawal charge and/or a Market Value Adjustment and/or
a tax penalty and/or a deduction for State premium taxes. Under certain
circumstances, the Purchaser can transfer amounts between the Accounts and the
corresponding Sub-Accounts (some restrictions may apply).
 
This Prospectus sets forth the information that a prospective investor should
consider before investing in these Contracts. A Statement of Additional
Information about the Contracts, dated May 1, 1996, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
The Statement of Additional Information is available at no cost to any person
requesting a copy by writing the Company at the address listed below or by
calling the telephone number also listed below. The table of contents of the
Statement of Additional Information is included at the end of this Prospectus.
 
This Prospectus and the Statement of Additional Information generally describe
only the Contract and the Variable Account, except when the Fixed Account is
specifically mentioned.
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
 
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS OF
AIM VARIABLE INSURANCE FUNDS, INC. YOU SHOULD RETAIN THIS PROSPECTUS FOR
FUTURE REFERENCE.
 
ANY REFERENCE IN THIS PROSPECTUS TO RECEIVED OR RECEIPT BY THE COMPANY MEANS
RECEIPT AT ITS VARIABLE ANNUITY SERVICE CENTER MAILING ADDRESS, c/o DELAWARE
VALLEY FINANCIAL SERVICES INC., 300 BERWYN PARK, P.O. BOX 3031, BERWYN,
PENNSYLVANIA, 19312-0031, TELEPHONE (800) 628-2811.
<PAGE>
 
                               TABLE OF CONTENTS
 
<TABLE>
<S>                                    <C>
DEFINITIONS...........................   2
SUMMARY...............................   5
EXPENSE DATA..........................   8
CONDENSED FINANCIAL DATA..............   9
THE PURPOSE OF THIS PROSPECTUS........  10
THE COMPANY, THE FIXED ACCOUNT, THE
 VARIABLE ACCOUNT AND THE FUND........  10
 The Company..........................  10
 The Fixed Account....................  10
 The Variable Account.................  10
 AIM Variable Insurance Funds, Inc....  11
PREMIUM PAYMENTS AND ANNUITY ACCOUNT
 VALUES DURING ACCUMULATION PERIOD....  12
 Premium Payments.....................  12
  Purchaser's Annuity Account.........  12
  Annuity Account Continuation........  13
  Allocation of Premium Payment(s)....  13
 Fixed Accumulation Value.............  13
  Guaranteed Periods..................  13
  Guaranteed Interest Rates...........  13
 Variable Accumulation Value..........  14
  Crediting Variable Accumulation
   Units..............................  14
  Variable Accumulation Unit Value....  14
 Dollar Cost Averaging................  14
 Transfer Privilege...................  15
DISTRIBUTIONS UNDER THE CONTRACT......  16
 Cash Withdrawals.....................  16
 Minimum Value Requirement............  16
 Section 403(b) Annuities.............  16
DEATH BENEFITS........................  17
 Death Benefit Provided by the
  Contracts...........................  17
 Election and Effective Date of
  Election............................  17
 Payment of Death Benefit.............  17
 Amount of Death Benefit..............  17
SURRENDER OF CONTRACTS................  18
ANNUITY PROVISIONS....................  18
</TABLE>
<TABLE>
<S>                                     <C>
 Annuity Date..........................  18
 Election -- Change of Annuity Option..  18
 Annuity Options.......................  19
 Fixed Annuity Options.................  19
 Variable Annuity Options..............  20
 Determination of Annuity Payments.....  20
CONTRACT CHARGES AND FEES..............  20
 Withdrawal Charges....................  20
 Free Partial Withdrawal...............  21
 Annuity Account Fee...................  21
 Administrative Fee....................  22
 Premium Taxes.........................  22
 Charge for Mortality and Expense
  Risks................................  22
 MVA...................................  22
OTHER CONTRACT PROVISIONS..............  23
 Deferral of Payment...................  23
 Designation and Change of Beneficiary.  23
 Exercise of Contract Rights...........  23
 Transfer of Ownership.................  24
 Death of Purchaser....................  24
 Voting of Fund Shares.................  24
 Addition, Deletion, or Substitution of
  Securities...........................  25
 Change in Operation of Variable
  Account..............................  25
 Modification..........................  25
 Discontinuance of New Purchasers......  26
 Right to Examine Contracts............  26
 IRA Right of Revocation...............  26
 Periodic Reports......................  26
FEDERAL TAX MATTERS....................  26
 Introduction..........................  26
 Taxation of Annuities.................  26
 Qualified Plans.......................  28
DISTRIBUTION OF THE CONTRACTS..........  28
HISTORICAL PERFORMANCE DATA............  29
STATEMENT OF ADDITIONAL INFORMATION....  30
</TABLE>
 
                                  DEFINITIONS
 
- -------------------------------------------------------------------------------
 
  The following terms as used in this Prospectus have the indicated meanings:
 
  ACCUMULATION PERIOD: The period from the Date of Issue to the Annuity Date,
the date on which the Death Benefit becomes payable, or the date on which the
Contract is surrendered or annuitized, whichever is earliest.
 
  ACT: Investment Company Act of 1940, as amended.
 
  *ANNUITANT: The person or persons on whose life the first annuity payment is
to be made. The Purchaser shall identify the Annuitant on the Contract
Application. If prior to the Annuity Date the Annuitant predeceases the
Purchaser, the Purchaser becomes the Annuitant unless and until the Purchaser
designates a new Annuitant to the Company In Writing. The Purchaser generally
has the right to change the Annuitant prior to the Annuity Date by requesting
such a change In Writing to the Company. Any such requested change will not be
effective until recorded by the Company.
 
  ANNUITY ACCOUNT: An account established for each Purchaser to which all
Premium Payments are credited. In addition, net investment results
attributable to each Premium Payment shall be credited to (or reduce) the
Purchaser's Annuity Account.
 
  ANNUITY ACCOUNT VALUE: The variable accumulation value, if any, plus the
fixed accumulation value, if any, of a Purchaser's Annuity Account for any
Valuation Period.
 
  *ANNUITY DATE: The date on which annuity payments under the Contract
commence.
 
                                       2
<PAGE>
 
  *ANNUITY OPTION: The method for making income payment(s). In the Contract,
the term "Income Payments" is synonymous with the term "annuity payments" in
this Prospectus.
 
  *BENEFICIARY: The person or entity having the right to receive the death
benefit set forth in the Contract and, for Non-Qualified Contracts, who is the
"designated beneficiary" for purposes of Section 72(s) of the Code in the
event of the Purchaser's death.
 
  CERTIFICATE: (For group Contracts only) The document for each Purchaser
which evidences the coverage of the Purchaser under the Contract.
 
  CODE: Internal Revenue Code of 1986, as amended.
 
  COMMISSION: Securities and Exchange Commission.
 
  COMPANY: Connecticut General Life Insurance Company.
 
  CONTRACT: The document for each Purchaser which evidences the terms,
conditions, coverage, and rights of the Owner/Purchaser under the Contract.
Thus, as used herein the term "Contract" includes both an individual Contract
and a Certificate under a group contract.
 
  CONTRACT APPLICATION: The document signed by the Purchaser, and the
Annuitant if different than the Purchaser, that evidences the Purchaser's
application for the Contract. Includes Certificate specifications under a
group contract.
 
  CONTRACT YEARS AND CONTRACT ANNIVERSARIES: All Contract Years and Contract
Anniversaries are 12-month periods measured from the Date of Issue.
 
  DATE OF ISSUE: The date on which the Contract becomes effective.
 
  DUE PROOF OF DEATH: An original certified copy of an official death
certificate, an original certified copy of a decree of a court of competent
jurisdiction as to the finding of death, or any other proof of death
satisfactory to the Company.
 
  FIXED ACCOUNT: Those Sub-Account(s) associated with Guaranteed Period(s) and
Guaranteed Interest Rate(s). Fixed Account assets are general assets of the
Company and are distinguishable from those allocated to a separate account of
the Company.
 
  FIXED ANNUITY: An annuity with payments which do not vary as to dollar
amount.
 
  FUND: AIM Variable Insurance Funds, Inc.
 
  GUARANTEED PERIOD AMOUNT: Any portion of a Purchaser's Annuity Account Value
allocated to a specific Guaranteed Period with a specified Expiration Date
(including interest earned thereon).
 
  GUARANTEED INTEREST RATE: The rate of interest credited by the Company on a
compound annual basis during a Guaranteed Period.
 
  GUARANTEED PERIOD: The period for which interest, at either an initial or
subsequent Guaranteed Interest Rate, will be credited to any amounts which a
Purchaser allocates to a Fixed Account Sub-Account. In most states in which
these Contracts are issued, this period may be one to ten years, as elected by
the Purchaser.
 
  INDEX RATE: An index rate based on the Treasury Constant Maturity Series
published by the Federal Reserve Board.
 
  IN WRITING: The term "In Writing" means in a written form satisfactory to
the Company and received by the Company at its Variable Annuity Service
Center's Mailing Address.
 
  NON-QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which does not receive favorable federal income tax treatment under Sections
401, 403, 408, or 457 of the Code. The Purchaser of a Non-Qualified Contract
must be a natural person or an agent for a natural person for the Contract to
receive favorable income tax treatment as an annuity.
 
  PAYEE: A recipient of payments under the Contract.
 
  PREMIUM PAYMENT: Any amount paid to the Company as consideration for the
benefits provided by the Contract. Premium Payment includes the initial
Premium Payment and subsequent Premium Payments.
 
                                       3
<PAGE>
 
  PURCHASER: The owner, or the person, persons or entity entitled to the
ownership rights stated in the Contract. For individual Contracts, the term
Purchaser shall mean the Owner of the Contract. For group Contracts, the term
Purchaser shall mean the person named in the Certificate who is entitled to
exercise all rights and privileges of ownership under the Certificate. The
Purchaser, or the Annuitant if the Purchaser is a non-natural person, may be
no more than 85 years of age on the Date of Issue.
 
  QUALIFIED CONTRACT: A Contract used in connection with a retirement plan
which receives favorable federal income tax treatment under Sections 401, 403,
403, 408, or 457 of the Code.
 
  SEVEN YEAR ANNIVERSARY: The seventh Contract Anniversary and each succeeding
Contract Anniversary occurring at any seven year interval thereafter, for
example, the 14th, 21st and 28th Contract Anniversaries.
 
  SUB-ACCOUNT: That portion of the Fixed Account associated with a specific
Guaranteed Period and Guaranteed Interest Rate and that portion of the
Variable Account which invests in shares of a specific series of AIM Variable
Insurance Funds, Inc.
 
  SURRENDER: When a lump sum amount representing the Purchaser's Annuity
Account Value (minus any applicable withdrawal charges, market value
adjustment, contract fees, or premium taxes) is paid to the Purchaser. After a
surrender, all of the Purchaser's rights under the Contract are terminated.
 
  SURRENDER DATE: The date or deemed date the Purchaser elects a surrender of
the Contract or Certificate.
 
  VALUATION DATE: Every day on which the New York Stock Exchange ("NYSE") is
open for business, except any day on which trading on the NYSE is restricted,
or on which an emergency exists, as determined by the Commission, so that
valuation or disposal of securities is not practicable.
 
  VALUATION PERIOD: The period of time beginning on the day following the
Valuation Date and ending on the next Valuation Date. A Valuation Period may
be more than one day.
 
  VARIABLE ACCOUNT: Those Sub-Account(s) associated with investments in AIM
Variable Insurance Funds, Inc. Variable Account assets are separate account
assets of the Company, the investment performance of which is kept separate
from that of the general assets of the Company.
 
  VARIABLE ACCUMULATION UNIT: A unit of measure used in the calculation of the
value of the variable portion of a Purchaser's Annuity Account.
- ---------
*As specified in the Contract Application or Certificate Specifications,
unless changed.
 
                                       4
<PAGE>
 
- -------------------------------------------------------------------------------
 
SUMMARY
 
  NOTE: THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION IN THE REMAINDER OF THIS PROSPECTUS, IN THE STATEMENT OF
ADDITIONAL INFORMATION, IN THE PROSPECTUS FOR AIM VARIABLE INSURANCE FUNDS,
INC., AND IN THE CONTRACT, ALL OF WHICH SHOULD BE REFERRED TO FOR MORE
INFORMATION. THIS PROSPECTUS GENERALLY DESCRIBES ONLY THE CONTRACT AND THE
VARIABLE ACCOUNT. A SEPARATE PROSPECTUS ATTACHED HERETO DESCRIBES AIM VARIABLE
INSURANCE FUNDS, INC.
 
  THE CONTRACT. These Contracts are Flexible Payment Deferred Variable Annuity
Contracts with Fixed and Variable Accounts (the "Contracts") designed for use
in connection with retirement and tax-deferred plans, some of which may
qualify as retirement programs under Sections 401, 403, 408, or 457 of the
Code or for use on a non-tax qualified basis. The Contracts provide for the
accumulation of values on either a variable or fixed basis, or a combination
fixed and variable basis as elected by the Purchaser, and provide for payment
of these values on a selected future date in either one lump sum or as annuity
payments.
 
  The Contracts are offered as both individual and group annuity contracts.
The term "Contract" as used in this Prospectus refers to either an individual
annuity contract or to a Certificate under a group annuity contract, as
appropriate.
 
  PREMIUM PAYMENTS. The Purchaser must generally make a minimum initial
Premium Payment of at least $5,000 ($2,000 for IRAs). The Purchaser may
generally make additional Premium Payments of at least $5,000 each for
allocation into any single Guaranteed Period within the Fixed Account and/or
at least $1,000 for allocation into any Variable Sub-Account. The prior
approval of the Company is required before it will accept a Premium Payment in
excess of $1,000,000 (See "Premium Payments").
 
  THE ANNUITY ACCOUNTS. The Purchaser may elect to have Annuity Account Values
accumulate on a fixed basis in the Fixed Account, which pays interest at the
applicable Guaranteed Interest Rate(s) for the duration of the particular Sub-
Account's Guaranteed Period, or on a variable basis in CG Variable Annuity
Separate Account (the "Variable Account"), a separate account of the Company,
or a combination of them (See "The Fixed Account" and "The Variable Account").
 
  THE FIXED ACCOUNT. The Purchaser may elect to have values accumulated on a
fixed basis whereby a Premium Payment is allocated to one or more Sub-Accounts
available in connection with the Fixed Account. Each Sub-Account available
within the Fixed Account has a Guaranteed Period with a duration which ranges
from one to ten years. The Fixed Account is the general account of the Company
(See "The Fixed Account"). The Company guarantees these amounts and specifies
various interest rates (the "Guaranteed Interest Rates") which will be earned
by amounts allocated to each particular Sub-Account within the Fixed Account
if the amounts remain in that Sub-Account for the duration of the Sub-
Account's Guaranteed Period, subject to the imposition of Annuity Account Fees
or premium taxes. The Company may not change a Guaranteed Interest Rate for
the duration of the Sub-Account's Guaranteed Period. The Company will credit
interest at a rate of not less than three percent (3%) per year, compounded
annually, to amounts allocated to the Fixed Account. Guaranteed Interest Rates
applicable to particular Guaranteed Periods cannot be predicted and will be
determined at the sole discretion of the Company. There is no assurance that
Guaranteed Interest Rates will exceed 3% per year. Amounts that are withdrawn
or transferred prior to the end of the Guaranteed Period may be subject to a
withdrawal charge and/or a Market Value Adjustment. The Market Value
Adjustment could be positive or negative.
 
  THE VARIABLE ACCOUNT. The assets of the Variable Account are also divided
into Sub-Accounts. Each Variable Sub-Account uses its assets to purchase, at
their net asset value, shares of a specific portfolio of AIM Variable
Insurance Funds, Inc. (the "Fund"), a mutual fund registered under the Act and
advised by A I M Advisors, Inc. (See "The Variable Account".) Nine portfolios
are currently available for investment within the Variable Account: (1) AIM
V.I. Capital Appreciation Fund; (2) AIM V.I. Diversified Income Fund; (3) AIM
V.I. Government Securities Fund; (4) AIM V.I. Growth Fund; (5) AIM V.I.
International Equity Fund; (6) AIM V.I. Money Market Fund; (7) AIM V.I. Value
Fund; (8) AIM V.I. Growth and Income Fund; and (9) AIM V.I. Global Utilities
Fund.
 
  TRANSFERS. Subject to certain conditions, the Purchaser may transfer amounts
among the Sub-Accounts available under the Contract before the Annuity Date.
All transfers are subject to the following conditions: (1) a Purchaser is
limited to twelve transfers each Contract Year; (2) the amount being
transferred from any Sub-Account may not be less than $1,000; (3) transfers to
any Fixed Sub-Account may not be less than $5,000; (4) if after the transfer
the Purchaser's Annuity Account Value remaining would be less than $1,000 in
the applicable Fixed Sub-Account and/or $250 in the applicable Variable Sub-
Account, then the entire Annuity Account Value within the Sub-Account must be
transferred; and (5) no transfers are permitted during the "Right to Examine
Contract" period. In addition, transfers from any Fixed Sub-Account are
restricted in frequency and amount and may also be subject to the Market Value
Adjustment. After the Annuity Date, transfers among the Variable Sub-Accounts
may also be permitted, subject to certain conditions (See "Transfer
Privilege").
 
  CASH WITHDRAWALS. At any time before the Annuity Date, the Purchaser may
elect to receive a cash withdrawal payment from the Company. Each cash
withdrawal request must be to receive at least $1,000. Subject to the Free
Partial Withdrawal privilege described below, a cash withdrawal of a
Purchaser's Annuity Account Value will be subject to any applicable withdrawal
charges. A cash withdrawal will also be subject to any applicable Market Value
Adjustment, Annuity Account Fees, or State premium taxes. After the Annuity
Date, withdrawals are not permitted under most Annuity Options (See "Cash
Withdrawals").
 
  Federal income taxes and a tax penalty may be applicable to withdrawals (See
"Federal Tax Matters").
 
                                       5
<PAGE>
 
  FREE PARTIAL WITHDRAWAL. Each Contract Year a Purchaser may generally
withdraw up to 15% of the total amount of the Purchaser's Premium Payments
made to the Purchaser's Annuity Account without the imposition of a withdrawal
charge. A Purchaser may only make one free withdrawal in each Contract Year of
up to 15% of Premium Payments until all Premium Payments are deemed withdrawn.
The Company will deem all free withdrawals to have withdrawn Premium Payments
from a Purchaser's Annuity Account in the order in which they were received by
the Company for purposes of computing the contingent deferred sales charge
(the withdrawal charge) on amounts remaining within the Purchaser's Annuity
Account (I.E. oldest Premium Payment first). See "Free Partial Withdrawal".
 
  ANNUITY PAYMENTS. Annuity Payments as elected by the Purchaser will begin on
the Annuity Date. The Purchaser selects the Annuity Date and the Annuity
Option. See "Annuity Provisions".
 
  DEATH BENEFIT. In the event of the death of the Purchaser prior to the
Annuity Date, the Company will pay a death benefit to the Beneficiary. If the
death of the Purchaser (or Annuitant if the Purchaser is a non-natural person)
occurs on or after the Annuity Date, no death benefit will be payable except
as may be provided under the Annuity Option elected. The Death Benefit prior
to the Annuity Date generally equals the greatest of (1) the Annuity Account
Value for the Valuation Period during which the Death Benefit election is
effective or deemed to become effective; (2) the sum of all Premium Payments
under the Contract, minus the sum of all partial withdrawals from the
Contract; (3) the Purchaser's Annuity Account Value on the Seven Year
Anniversary immediately preceding the date the death benefit election is
effective or is deemed to become effective, adjusted for any subsequent
Premium Payments, partial withdrawals and applicable charges; and (4) the
amount that would have been payable in the event of a full surrender of the
Contract during the Valuation Period during which the Death Benefit election
is effective or deemed to become effective, including any applicable
withdrawal charges and Market Value Adjustment. See "Death Benefit".
 
  RIGHT TO EXAMINE CONTRACTS. If the Purchaser is not satisfied with a
Contract it may be returned by mailing it to the Company at the Variable
Annuity Service Center mailing address listed on the cover of this Prospectus
within ten days, or longer if state law requires, after it was received by the
Purchaser. A Purchaser may not make transfers during the Right to Examine
period. When the Company receives the returned Contract it will be canceled
and in most states the Purchaser will receive a refund equal to the
Purchaser's Annuity Account Value at the end of the Valuation Period during
which the returned Contract was received by the Company.
 
  Where state law requires, the full amount of any initial Premium Payment and
subsequent Premium Payment(s) if any, received by the Company will be refunded
and/or the period may be extended to 20 days. In those states, the Company
will place the Premium Payment(s) that are allocated to Sub-Accounts of the
Variable Account in the AIM V.I. Money Market Fund until the end of the Right
to Examine period, and, within three days thereafter, the Premium Payments
will be allocated as specified by the Purchaser in the Contract Application.
The Company will also refund the greater of the Purchaser's Annuity Account
Value or the full amount of the Premium Payment(s), if any, to those
Purchasers in those states who invoke their Refund privilege.
 
CHARGES AND DEDUCTIONS
 
  CONTINGENT DEFERRED SALES CHARGE. The Company does not deduct a sales charge
when it receives a Premium Payment. However, if any part of a Purchaser's
Annuity Account is withdrawn, a withdrawal charge (contingent deferred sales
charge) may be assessed by the Company. Subject to the Free Partial Withdrawal
amount described above, Annuity Account withdrawals derived from a Premium
Payment deposited with the Company for a period of seven years or less will be
subject to a withdrawal charge ranging from 7% to 1% of the applicable Premium
Payment (adjusted by any applicable Market Value Adjustment with respect to
the Fixed Account). The length of time between the Company's acceptance of a
Premium Payment and the making of a withdrawal determines the withdrawal
charge percentage. The withdrawal charge is not imposed on a Premium Payment
after the end of the seventh year of its deposit with the Company. For
purposes of computing the withdrawal charge, amounts are deemed to be
withdrawn in the order in which they were received by the Company (I.E. oldest
Premium Payment first). See "Withdrawal Charges".
 
  MARKET VALUE ADJUSTMENT. In certain situations, a cash withdrawal of amounts
from the Fixed Account will be subject to a Market Value Adjustment ("MVA").
See "Market Value Adjustment". The MVA will reflect the relationship between
an index published by the Federal Reserve Board as to current yields on U.S.
government securities of various maturities at the time a cash withdrawal is
made, and this index at the time that the Premium Payments being withdrawn
were made. Generally, if the Index Rate at the time of withdrawal is more than
 .50% lower than the Index Rate at the time the Premium Payment was allocated,
then the application of the MVA will result in a higher payment upon
withdrawal. Similarly, if the Index Rate at the time of withdrawal is higher
than the Index Rate at the time the Premium Payment was allocated (or less
than 0.50% lower), the application of the MVA will generally result in a lower
payment upon withdrawal. In addition to actual cash withdrawals, the MVA
applies to transfers from the Fixed Account (unless effective at the end of a
Guaranteed Period). It may also apply to Death Benefit payments, but only if
it would increase the Death Benefit. The MVA is not applied against a
withdrawal or transfer which becomes effective upon the Expiration Date of a
Guaranteed Period.
 
  ANNUITY ACCOUNT FEE. On the last Valuation Date of each calendar year, the
Company will deduct an annual annuity account administration fee ("Annuity
Account Fee") of $35 from the Purchaser's Annuity Account Value. If the
Purchaser's Annuity Account was established during that calendar year, the
Company will pro rate the Purchaser's initial Annuity Account Fee to reflect
the shorter period. Thereafter, the full $35 fee will be deducted annually. If
the Contract is surrendered, a $35 Annuity Account Fee will be
 
                                       6
<PAGE>
 
deducted. After the Annuity Date, an annual Annuity Account Fee of $35 will be
deducted in approximately equal amounts from each variable annuity payment
made during the year. No Annuity Account Fee will be deducted from fixed
annuity payments. If applicable state law requires, the $35 Annuity Account
Fee will be reduced to a lesser amount.
 
  ADMINISTRATIVE FEE. The Company also deducts an administrative fee at the
end of each Valuation Period equal to an annual rate of 0.10% of the daily net
assets of the Variable Account for administrative expenses assumed by the
Company. See "Administrative Fees".
 
  RISK CHARGE. The Company deducts a mortality and expense risk charge at the
end of each Valuation Period equal to an annual rate of 1.25% of the daily net
assets of the Variable Account for mortality and expense risks assumed by the
Company. See "Charge for Mortality and Expense Risks".
 
  TAXES. The Company may incur premium, or similar state or local taxes
relating to the Contracts. The Company will deduct any such taxes related to a
particular Contract upon a Purchaser's surrender, withdrawal, annuitization,
or payment of death benefits. See "Premium Taxes".
 
  CHARGES AGAINST THE FUND. The value of the net assets of the Sub-Accounts of
the Variable Account will reflect the investment advisory fee and other
expenses incurred by the AIM Variable Insurance Funds, Inc. See "Expense Data"
below.
 
                                       7
<PAGE>
 
- -------------------------------------------------------------------------------
 
EXPENSE DATA
 
  The purpose of the following table and Example is to help Purchasers and
prospective purchasers understand the costs and expenses that are borne,
directly and indirectly, by Purchasers assuming that all Premium Payments are
allocated to the Variable Account. The table reflects expenses of the Variable
Account as well as of AIM Variable Insurance Funds, Inc. The information set
forth should be considered together with the information provided under the
heading "Contract Charges and Fees", and with the Fund's Prospectus. In
addition to the expenses listed below, premium taxes may be applicable.
 
                                   FEE TABLE
 
<TABLE>
<CAPTION>
                         AIM V.I.              AIM V.I.       AIM V.I.            AIM V.I.      AIM V.I.   AIM V.I.
                          CAPITAL   AIM V.I.    GLOBAL       GOVERNMENT AIM V.I. GROWTH AND      INTER-     MONEY   AIM V.I.
                         APPRECIA- DIVERSIFIED UTILITIES     SECURITIES  GROWTH    INCOME       NATIONAL    MARKET   VALUE
                         TION FUND INCOME FUND   FUND           FUND      FUND      FUND       EQUITY FUND   FUND     FUND
                         --------- ----------- ---------     ---------- -------- ----------    ----------- -------- --------
<S>                      <C>       <C>         <C>           <C>        <C>      <C>           <C>         <C>      <C>
PURCHASER TRANSACTION
 EXPENSES
 Sales Load on
  Purchases.............      0          0          0              0         0         0             0          0        0
 Maximum deferred sales
  charge on withdrawals
  (as a percentage of
  Purchaser's Premium
  Payment)(1)...........      7%         7%         7%             7%        7%        7%            7%         7%       7%
 Transfer fee(2)........      0          0          0              0         0         0             0          0        0
 Annual Annuity Account
  Fee...................  
                         -------------------------------------------- $35 per Contract -------------------------------------
SEPARATE ACCOUNT ANNUAL
 EXPENSES (AS A
 PERCENTAGE OF AVERAGE
 SEPARATE ACCOUNT
 ASSETS)
 Mortality and Expense
  Risk Fee..............   1.25%      1.25%      1.25%          1.25%     1.25%     1.25%         1.25%      1.25%    1.25%
 Administrative Fee.....   0.10%      0.10%      0.10%          0.10%     0.10%     0.10%         0.10%      0.10%    0.10%
 Other Fees and
  Expenses..............      0%         0%         0              0%        0%        0             0%         0%       0%
                           ----       ----       ----           ----      ----      ----          ----       ----     ----
    Total...............   1.35%      1.35%      1.35%          1.35%     1.35%     1.35%         1.35%      1.35%    1.35%
AIM VARIABLE INSURANCE
 FUNDS, INC. ANNUAL
 EXPENSES (AS A
 PERCENTAGE OF FUND
 AVERAGE NET ASSETS)
 Management Fees........   0.65%      0.60%      0.65%(/3/)     0.50%     0.65%     0.65%(/3/)    0.75%      0.40%    0.65%
 Other Expenses.........   0.10%      0.28%      1.03%(/3/)     0.69%     0.19%     0.52%(/3/)    0.40%      0.13%    0.10%
                           ----       ----       ----           ----      ----      ----          ----       ----     ----
    TOTAL...............   0.75%      0.88%      1.68%          1.19%     0.84%     1.17%         1.15%      0.53%    0.75%
</TABLE>
- ---------
(1) A portion of a Purchaser's Annuity Account may be withdrawn once each
    Contract Year without the assessment of a withdrawal charge if all Premium
    Payments have not previously been withdrawn. The withdrawal charge on the
    remaining portion is equal to a percentage of the Purchaser's Premium
    Payment withdrawn and ranges from 7% to 0%, depending upon the length of
    time between the Company's acceptance of the Premium Payment withdrawn and
    the making of a withdrawal. After the Premium Payment has been held by the
    Company for seven years such Premium Payment may be withdrawn without
    assessment of the withdrawal charge.
(2) Before the Annuity Date, a Purchaser is limited to twelve transfers each
    Contract Year. Transfers from any Fixed Sub-Account are restricted in
    frequency and amount and may also be subject to a MVA. After the Annuity
    Date, a Payee is limited to three transfers per Contract Year.
(3) Management fees and other expenses have been restated to reflect current
    agreements.
 
                                       8
<PAGE>
 
  EXAMPLES A Purchaser would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets (and assuming all Premium Payments are
allocated to the Variable Account):
 
<TABLE>
<CAPTION>
                                                1 YEAR 3 YEARS 5 YEARS 10 YEARS
                                                ------ ------- ------- --------
   <S>                                          <C>    <C>     <C>     <C>
   1. IF THE CONTRACT IS SURRENDERED AT THE END OF THE
    APPLICABLE TIME PERIOD:
    AIM V.I. Capital Appreciation Fund.........  $81    $110    $142     $249
    AIM V.I. Diversified Income Fund...........  $83    $114    $148     $263
    AIM V.I. Global Utilities Fund.............  $91    $138    $188     $340
    AIM V.I. Government Securities Fund........  $86    $124    $164     $294
    AIM V.I. Growth Fund.......................  $82    $113    $146     $259
    AIM V.I. Growth and Income Fund............  $86    $123    $163     $292
    AIM V.I. International Equity Fund.........  $86    $122    $162     $290
    AIM V.I. Money Market Fund.................  $79    $104    $130     $226
    AIM V.I. Value Fund........................  $81    $110    $142     $249
   2. IF THE CONTRACT IS NOT SURRENDERED OR IF IT IS
    ANNUITIZED:
    AIM V.I. Capital Appreciation Fund.........  $22    $ 68    $116     $249
    AIM V.I. Diversified Income Fund...........  $23    $ 72    $123     $263
    AIM V.I. Global Utilities Fund.............  $31    $ 96    $162     $340
    AIM V.I. Government Securities Fund........  $26    $ 81    $138     $294
    AIM V.I. Growth Fund.......................  $23    $ 71    $121     $259
    AIM V.I. Growth and Income Fund............  $26    $ 80    $137     $292
    AIM V.I. International Equity Fund.........  $26    $ 80    $136     $290
    AIM V.I. Money Market Fund.................  $20    $ 61    $105     $226
    AIM V.I. Value Fund........................  $22    $ 68    $116     $249
</TABLE>
 
  The above tables are intended to assist the Purchaser in understanding the
costs and expenses that will be borne, directly or indirectly, by Premium
Payments allocated to the Variable Account. These include the expenses of AIM
Variable Insurance Funds, Inc. See the Fund Prospectus. In addition to the
expenses listed above, premium taxes may be applicable.
 
  These examples reflect the annual $35 Annuity Account Fee as an annual charge
of .07% of assets, based on an anticipated average Annuity Account Value of
$50,000.
 
  The Examples should not be considered a representation of past or future
expenses, and actual expenses may be greater or lesser than those shown.
 
  PURCHASER INQUIRIES. Inquiries from Purchasers or prospective Purchasers
should be directed to the Company's Variable Annuity Service Center, c/o
Delaware Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031,
Berwyn, Pennsylvania, 19312-0031, telephone (800) 628-2811.
 
- --------------------------------------------------------------------------------
 
CONDENSED FINANCIAL INFORMATION
 
  There follows, for each of the nine Sub-Accounts available under the
Contracts during the Variable Account's fiscal year ended December 31, 1995,
information regarding the changes in the accumulation unit values during the
eleven months ended December 31, 1995 and the number of accumulation units
outstanding at December 31, 1995. During 1995, the Account changed its fiscal
year end from January 31 to December 31, effective in the year beginning
January 1, 1996. Accordingly, the information which follows includes the eleven
months transition period ended December 31, 1995.
 
<TABLE>
<CAPTION>
                                                                 NUMBER OF
                         ACCUMULATION UNIT ACCUMULATION UNIT ACCUMULATION UNITS
                           ENDING VALUE      ENDING VALUE      OUTSTANDING AT
      SUB-ACCOUNT           AT 01/31/95       AT 12/31/95         12/31/95
      -----------        ----------------- ----------------- ------------------
<S>                      <C>               <C>               <C>
AIM V.I. Capital
 Appreciation...........   $11.73552614      $15.92378352        13,216,713
AIM V.I. Diversified
 Income.................   $ 9.93099697      $11.58511339         3,747,828
AIM V.I. Global
 Utilities*.............   $10.23506635      $12.50840432           571,320
AIM V.I. Government
 Securities.............   $ 9.77511075      $10.99124674         1,672,986
AIM V.I. Growth.........   $10.49090794      $13.97787385         7,342,011
AIM V.I. Growth and
 Income*................   $10.21572537      $13.38512650         2,779,812
AIM V.I. International
 Equity.................   $10.73834133      $13.15613040         6,249,610
AIM V.I. Money Market...   $10.37828057      $10.77544248         6,071,486
AIM V.I. Value..........   $11.52168559      $15.50537319        16,590,052
</TABLE>
*  May 2, 1994 Fund Inception Date
 
                                       9
<PAGE>
 
- -------------------------------------------------------------------------------
 
THE PURPOSE OF THIS PROSPECTUS
 
  This Prospectus contains information about the individual and group
AIM/CIGNA Heritage Variable Annuity Contract (the "Contract") which provides
fixed or variable accumulations or a combination of both, and fixed and/or
variable annuity payments starting at the Annuity Date. It describes the
Contract's uses and objectives, its benefits and costs, and the rights and
privileges of the Purchaser. It also contains information about the Company,
the Variable Account, the Fixed Account and the Fund. It has been carefully
prepared in non-technical language to help you decide whether the purchase of
a Contract will fit your needs. We urge you to read it carefully and retain it
for future reference.
 
- -------------------------------------------------------------------------------
 
THE COMPANY, THE FIXED ACCOUNT, THE VARIABLE ACCOUNT AND THE FUND
 
  THE COMPANY. The Company is a stock life insurance company incorporated in
Connecticut in 1865. Its Executive Office mailing address is Hartford,
Connecticut 06152, Telephone (860) 726-6000. It does business in fifty states,
the District of Columbia and Puerto Rico. The Company issues group and
individual life and health insurance policies and annuities. The Company has
various wholly-owned subsidiaries which are generally engaged in the insurance
business. The Company is a wholly-owned subsidiary of Connecticut General
Corporation, Bloomfield, Connecticut. Connecticut General Corporation is
wholly-owned by CIGNA Holdings Inc., Philadelphia, Pennsylvania which is in
turn wholly-owned by CIGNA Corporation, Philadelphia, Pennsylvania.
Connecticut General Corporation is the holding company of various insurance
companies, one of which is Connecticut General Life Insurance Company.
 
  THE FIXED ACCOUNT. 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 the Company's 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 the Company's general account has been registered under the
Investment Company Act of 1940 (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, the Company has been
advised that the staff of the Commission has not reviewed the disclosure in
this Prospectus relating to the Fixed Account.
 
  The initial Premium Payment and any subsequent Premium Payment(s) will be
allocated to Sub-Accounts available in connection with the Fixed Account to
the extent elected by the Purchaser at the time such payment is made. In
addition, all or part of the Purchaser's Annuity Account Value may be
transferred to such Sub-Accounts available under the Contract as described
under "Transfer Privilege." Instead of the Purchaser assuming all of the
investment risk as is the case for Premium Payments allocated to the Variable
Account, the Company guarantees it will credit a specified minimum interest
rate to amounts allocated to the Fixed Account.
 
  Assets supporting amounts allocated to Sub-Accounts within the Fixed Account
become part of the Company's general account assets and are available to fund
the claims of all creditors of the Company. All of the Company's general
account assets will be available to fund benefits under the Contracts. The
Purchaser does not participate in the investment performance of the assets of
the Fixed Account or the Company's general account. Instead, a specified rate
of interest, declared in advance, is credited to amounts allocated to the
Fixed Account. This rate is guaranteed to be at least 3% per year. The Company
may credit interest at a rate in excess of 3% per year; however, the Company
is not obligated to credit any interest in excess of 3% per year.
 
  The Company will invest the assets of the general account in those assets
chosen by the Company and allowed by applicable state laws regarding the
nature and quality of investments that may be made by life insurance companies
and the percentage of their assets that may be committed to any particular
type of investment. In general, these laws permit investments, within
specified limits and subject to certain qualifications, in federal, state and
municipal obligations, corporate bonds, preferred and common stocks, real
estate mortgages, real estate and certain other investments.
 
  If the Purchaser maintains Annuity Account Values within a Fixed Account
Sub-Account for the duration of the Sub-Account's Guaranteed Period, the
Company guarantees that it will credit interest at the guaranteed rate
specified for the Sub-Account. In the event the Purchaser withdraws any amount
from the Sub-Account prior to the expiration of the Sub-Account's Guaranteed
Period for any reason, the withdrawn amount is subjected to a MVA (see "Market
Value Adjustment") and a withdrawal charge, if applicable. The Company
guarantees, however, that a Purchaser will be credited with interest at a rate
of not less than 3% per year, compounded annually, on amounts allocated to any
Fixed Account Sub-Account under the Contracts, regardless of any application
of the MVA (that is, the MVA will not reduce the amount available for
withdrawal or transfer to an amount less than the initial amount allocated or
transferred to the Fixed Account Sub-Account plus interest of 3% per year).
The Company reserves the right to defer the payment or transfer of amounts
withdrawn from the Fixed Account for a period not to exceed six (6) months
from the date a proper request for such withdrawal or transfer is received by
the Company.
 
  THE VARIABLE ACCOUNT. The basic objective of a variable annuity contract is
to provide variable accumulation of Premium Payments which will be to some
degree responsive to changes in the economic environment, including
inflationary forces and changes
 
                                      10
<PAGE>
 
in rates of return available from various types of investments. The Contracts
are designed to seek to accomplish this objective by providing that Annuity
Account Values and/or Variable Annuity payments will reflect the investment
performance of the Sub-Accounts of the Variable Account with respect to
amounts allocated to Sub-Accounts of the Variable Account. (See "Annuity
Options".) Since Sub-Accounts of the Variable Account are always fully
invested in shares of corresponding portfolios of the Fund, their investment
performance reflects the investment performance of those portfolios. Values of
Fund shares held by the Variable Account fluctuate and are subject to the
risks of changing economic conditions as well as the risk inherent in the
ability of the Fund's management to make necessary changes in its portfolios
to anticipate changes in economic conditions. Therefore, the Purchaser bears
the entire investment risk that the basic objectives of the Contract may not
be realized and that the adverse effects of inflation may not be lessened.
There can be no assurance that the total surrender proceeds or the aggregate
amount of annuity payments will equal or exceed the Premium Payments made with
respect to a particular Purchaser's Annuity Account.
 
  The CG Variable Annuity Separate Account (the "Variable Account") was
established by the Company as a separate account on May 15, 1992 pursuant to a
resolution of its Board of Directors. Under Connecticut insurance law, the
income, gains or losses of the Variable Account are credited to or charged
against the assets of the Variable Account without regard to the other income,
gains, or losses of the Company. These assets are held in relation to the
Contracts described in this Prospectus. Although that portion of the assets
maintained in the Variable Account equal to the reserves and other contract
liabilities with respect to the Variable Account will not be charged with any
liabilities arising out of any other business conducted by the Company, all
obligations arising under the Contracts, including the promise to make annuity
payments, are general corporate obligations of the Company.
 
  The Variable Account is registered with the Commission as a unit investment
trust under the Act and meets the definition of a separate account under the
federal securities laws. Registration with the Commission does not involve
supervision of the management or investment practices or policies of the
Variable Account or of the Company by the Commission.
 
  The assets of the Variable Account are divided into Sub-Accounts. Each Sub-
Account invests exclusively in shares of a specific portfolio of the Fund. All
amounts allocated to the Variable Account will be used to purchase Fund shares
as designated by the Purchaser at their net asset value. Any and all
distributions made by the Fund with respect to the shares held by the Variable
Account will be reinvested to purchase additional shares at their net asset
value. Deductions from the Variable Account for cash withdrawals, annuity
payments, death benefits, annuity account fees, and any applicable taxes will,
in effect, be made by redeeming the number of Fund shares at their net asset
value equal in total value to the amount to be deducted. (The Variable Account
will purchase and redeem Fund shares on an aggregate basis.) The Variable
Account will be fully invested in Fund shares at all times.
 
  AIM VARIABLE INSURANCE FUNDS, INC. AIM Variable Insurance Funds, Inc. (the
"Fund") is an open-end investment management company registered under the Act.
Shares of the various portfolios of the Fund may be sold to other separate
accounts established by the Company or by other insurance companies to fund
other variable annuity or variable life insurance contracts. A I M Advisors,
Inc., ("AIM") the Fund's investment adviser, its affiliates, and any insurance
companies with separate accounts investing in the Fund will be responsible for
reporting to the Fund's Board of Directors any potential or existing conflicts
between the interests of variable annuity contract owners/participants and the
interests of owners of variable life insurance contracts that provide for
investment in shares of the Fund. The Board of Directors, a majority of whom
are not "interested persons" of the Fund, as that term is defined in the Act,
also will monitor the Fund to identify the existence of any such
irreconcilable material conflicts and to determine what action, if any, should
be taken by the Fund and/or AIM, and its affiliates (see "Management of the
Fund" in the Fund Prospectus).
 
  The Fund is currently composed of nine independent portfolios of securities,
each of which has separate investment objectives and policies. Shares of the
Fund are issued in nine series, each corresponding to one of the portfolios.
Additional portfolios may be added to the Fund which may or may not be
available for investment by the Variable Account.
 
  AIM V.I. CAPITAL APPRECIATION FUND ("CAPITAL APPRECIATION FUND") is a
diversified portfolio which seeks to provide capital appreciation through
investments in common stocks, with emphasis on medium-sized and smaller
emerging growth companies.
 
  AIM V.I. DIVERSIFIED INCOME FUND ("DIVERSIFIED INCOME FUND") is a
diversified portfolio which seeks to achieve a high level of current income
primarily by investing in a diversified portfolio of foreign and U.S.
government and corporate debt securities, including lower rated high yield
debt securities (commonly known as "junk bonds").
 
  AIM V.I. GLOBAL UTILITIES FUND ("GLOBAL UTILITIES FUND"), formerly AIM V.I.
Utilities Fund, is a non-diversified portfolio which seeks to achieve a high
level of current income, and as a secondary objective capital appreciation, by
investing primarily in common and preferred stocks of public utility companies
(either domestic or foreign).
 
  AIM V.I. GOVERNMENT SECURITIES FUND ("GOVERNMENT FUND") is a diversified
portfolio which seeks to achieve a high level of current income consistent
with reasonable concern for safety of principal by investing in debt
securities issued, guaranteed or otherwise backed by the U.S. Government.
 
  AIM V.I. GROWTH FUND ("GROWTH FUND") is a diversified portfolio which seeks
to provide growth of capital through investments primarily in common stocks of
leading U.S. companies considered by AIM to have strong earnings momentum.
 
                                      11
<PAGE>
 
  AIM V.I. GROWTH AND INCOME FUND ("GROWTH & INCOME FUND") is a diversified
portfolio which seeks to provide growth of capital, with current income as a
secondary objective by investing primarily in dividend paying common stocks
which have prospects for both growth of capital and dividend income.
 
  AIM V.I. INTERNATIONAL EQUITY FUND ("INTERNATIONAL FUND") is a diversified
portfolio which seeks to provide long-term growth of capital by investing in
international equity securities, the issuers of which are considered by AIM to
have strong earnings momentum.
 
  AIM V.I. MONEY MARKET FUND ("MONEY MARKET FUND") is a diversified portfolio
which seeks to provide as high a level of current income as is consistent with
the preservation of capital and liquidity by investing in a diversified
portfolio of money market instruments.
 
  AIM V.I. VALUE FUND ("VALUE FUND") is a diversified portfolio which seeks to
achieve long-term growth of capital by investing primarily in equity
securities judged by AIM to be undervalued relative to the current or
projected earnings of the companies issuing the securities, or relative to
current market values of assets owned by the companies issuing the securities
or relative to the equity markets generally. Income is a secondary objective.
 
  AIM is paid fees by the Fund for its services pursuant to an investment
advisory agreement. AIM, a Delaware corporation, also serves as investment
adviser to each of the funds in The AIM Family of Funds(R), and to certain
other investment companies. AIM operates as an autonomous organization and the
obligation of performance with respect to the investment advisory agreement is
solely that of AIM. The Company undertakes no obligation in this respect.
 
  THERE IS NO ASSURANCE THAT ANY SERIES WILL ACHIEVE ITS STATED OBJECTIVE. A
more detailed description of the Fund, its investment objectives, policies and
restrictions and expenses may be found in the accompanying current Prospectus
of the Fund and in the Fund's Statement of Additional Information. Information
contained in the Fund's Prospectus should be read carefully before allocating
Premium Payments or making transfers to a Sub-Account of the Variable Account.
 
- -------------------------------------------------------------------------------
 
PREMIUM PAYMENTS AND ANNUITY ACCOUNT VALUES DURING ACCUMULATION PERIOD
 
  PREMIUM PAYMENTS. All initial and subsequent Premium Payments are to be paid
to an authorized agent of the Company or to the Company c/o Delaware Valley
Financial Services Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania
19312-0031. The Company will not accept an initial Premium Payment from a
Purchaser which is less than $5,000 ($2,000 for IRAs). In addition, any
allocation of such initial Premium Payment must be in minimum amounts of
$5,000 per Fixed Account Sub-Account and $1,000 per Variable Account Sub-
Account. The Company will accept subsequent Premium Payments in minimum
amounts of $5,000 (for amounts to be allocated to each Fixed Account Sub-
Account) and $1,000 (for amounts to be allocated to each Variable Account Sub-
Account). The Company may reduce the minimum Premium Payment requirements
under group contracts where Premium Payments are made by each Purchaser
through employee payroll deduction. The Company may also reduce the minimum
Premium Payment requirements for Purchasers who use the Contract under a
program which qualifies under Section 403 or 408 of the Code. The prior
approval of the Company is required before it will accept any Premium Payment
in excess of $1,000,000.
 
  A completed Contract Application and the Initial Premium Payment must be
forwarded to the Company for acceptance. Upon acceptance, the Contract is
issued to the Purchaser and the Initial Premium Payment is then credited to
the Purchaser's Annuity Account. An Initial Premium Payment must be credited
within two business days of receipt by the Company of a completed Contract
Application. The Company may retain the Premium Payment for up to five
business days while attempting to complete an incomplete Contract Application.
If the Contract Application cannot be made complete within five business days,
the prospective Purchaser will be informed of the reasons for the delay and
the Premium Payment will be returned immediately unless the prospective
Purchaser specifically consents to the Company's retaining the Premium Payment
until the Contract Application is made complete.
 
  Subsequent Premium Payments are also forwarded to the Company for
acceptance. Upon acceptance, the Premium Payment is credited to the
Purchaser's Annuity Account. A subsequent Premium Payment received by the
Company prior to the closing time of the New York Stock Exchange (currently 4
p.m. Eastern Time) will be applied on the same day of receipt.
 
  A Purchaser, or Annuitant if the Purchaser is a non-natural person, may be
no more than 85 years of age on the Date of Issue. The Company reserves the
right in its sole discretion not to accept a Contract Application, and not to
accept a Premium Payment. In addition, the payment by the Company of any
amount under the Contract which is derived, all or in part, from any Premium
Payment paid to the Company by check or draft may be postponed until such time
as the Company determines the check or draft has been honored.
 
  PURCHASER'S ANNUITY ACCOUNT. The Company will establish a Purchaser's
Annuity Account upon its acceptance of an initial Premium Payment. Each
subsequent Premium Payment under the Contract will be credited to the
Purchaser's Annuity Account.
 
                                      12
<PAGE>
 
The Company will maintain the Annuity Account for the Purchaser during the
Accumulation Period. The Contract's Annuity Account Value for any Valuation
Period is equal to the sum of the variable accumulation value, if any, plus the
fixed accumulation value, if any, of the Annuity Account for that Valuation
Period.
 
  ANNUITY ACCOUNT CONTINUATION. The Annuity Account shall be continued
automatically in full force for the Purchaser until the Annuity Date, all death
benefits under the Contract are paid, the Contract is surrendered, or the
Annuity Account Value no longer meets the requirements specified in the
"Minimum Value Requirement," whichever occurs first. Cash withdrawals may cause
the Annuity Account to be discontinued by the Company.
 
  ALLOCATION OF PREMIUM PAYMENT(S). The Initial Premium Payment and any
Subsequent Premium Payment(s) will be allocated among the Sub-Accounts
available in connection with the Fixed Account or the Variable Account, or to a
combination of both as specified by the Purchaser. Subject to the $5,000 Fixed
Account Sub-Account and $1,000 Variable Account Sub-Account minimum allocations
specified above (See "Premium Payments"), the Company will allocate the Initial
Premium Payment as specified in the Contract Application. Subsequent Premium
Payments will also be allocated as specified in the Contract Application unless
the Company receives different allocation instructions In Writing from the
Purchaser. If applicable allocation instructions would result in an allocation
to a Fixed Account Sub-Account that does not meet the $5,000 minimum, then the
Company will promptly seek further instructions from the Purchaser regarding
allocation of the premium. In certain states, with respect to Premium Payments
received before or during the Right to Examine Contract period and allocated to
the Variable Account, the Company will allocate such Premium Payments to the
AIM V.I. Money Market Fund during the Right to Examine Contract period (See
"Right to Examine Contract"). After expiration of this period the Company will
allocate the initial Premium Payment as specified in the Contract Application.
 
  FIXED ACCUMULATION VALUE. The fixed accumulation value of a Purchaser's
Annuity Account, if any, for any Valuation Period is equal to the sum of the
values of all Fixed Account Sub-Accounts credited to the Annuity Account for
such Valuation Period.
 
  GUARANTEED PERIODS. The Purchaser may elect to allocate Premium Payments to
one or more Sub-Accounts within the Fixed Account. Each Sub-Account will
maintain a Guaranteed Period with a duration ranging from one to ten years. The
duration of the Guaranteed Period will affect the Guaranteed Interest Rate of
the Sub-Account. Initial Premium Payments and Subsequent Premium Payments, or
portions thereof, and transfer amounts allocated to a Fixed Account Sub-
Account, less any amounts subsequently withdrawn, will earn interest at the
Guaranteed Interest Rate during the particular Sub-Account's Guaranteed Period
unless withdrawn prior to the end of the Guaranteed Period. Initial Sub-Account
Guaranteed Periods begin on the date a Premium Payment is accepted or, in the
case of a transfer, on the effective date of the transfer, and end on the
number of calendar years in the Sub-Account's Guaranteed Period elected from
the date on which the amount was allocated to the Sub-Account (the "Expiration
Date"). Any portion of the Annuity Account Value allocated to a specific Sub-
Account with a specified Expiration Date (including interest earned thereon)
will be referred to herein as a "Guaranteed Period Amount." Interest will be
credited daily at a rate equivalent to the compound annual rate. As a result of
renewals and transfers of portions of the Annuity Account Value described under
"Transfer Privilege" below, which will begin new Sub-Account Guaranteed
Periods, amounts allocated to Sub-Accounts of the same duration may have
different Expiration Dates. Thus each Guaranteed Period Amount will be treated
separately for purposes of determining any applicable MVA (see "Market Value
Adjustment").
 
  The Company will notify the Purchaser in writing at least 60 days prior to
the Expiration Date for any Guaranteed Period Amount. A new Sub-Account
Guaranteed Period of the same duration as the previous Sub-Account Guaranteed
Period will commence automatically at the end of the previous Guaranteed Period
unless the Company receives, within the 45 day period prior to the end of such
Guaranteed Period, a written election by the Purchaser to transfer the
Guaranteed Period Amount, in accordance with the Transfer Privilege provision,
to a different Fixed Account Sub-Account or to a Variable Account Sub-Account
from among those being offered by the Company at such time. Transfers of any
Guaranteed Period Amount which become effective upon the expiration of the
applicable Guaranteed Period are not subject to the twelve transfers per
Contract Year limitations or the additional Fixed Sub-Account transfer
restrictions (see "Transfer Privilege").
 
  GUARANTEED INTEREST RATES. The Company periodically will establish an
applicable Guaranteed Interest Rate for each of the Sub-Account Guaranteed
Periods within the Fixed Account. Guaranteed Interest Rates offered at any time
may be changed by the Company depending on interest rates on investments
available to the Company and other factors as described below, but once
established, rates will be guaranteed for the entire duration of the Sub-
Account's respective Guaranteed Period. However, any amount withdrawn from the
Sub-Account may be subject to any applicable withdrawal charges, Annuity
Account Fees, MVA, premium taxes or other fees. Amounts transferred out of a
Fixed Account Sub-Account prior to the end of the Guaranteed Period will be
subject to the MVA.
 
  The Guaranteed Interest Rate will not be less than 3% per year compounded
annually, regardless of any application of the MVA. The Company has no specific
formula for determining the rate of interest that it will declare as a
Guaranteed Interest Rate, as these rates will be reflective of interest rates
available on the types of debt instruments in which the Company intends to
invest amounts allocated to the Fixed Account (see "The Fixed Account"). In
addition, the Company's management may consider other factors in
 
                                       13
<PAGE>
 
determining Guaranteed Interest Rates for a particular Sub-Account including:
regulatory and tax requirements; sales commissions and administrative expenses
borne by the Company; general economic trends; and competitive factors. There
is no obligation to declare a rate in excess of 3%; the Purchaser assumes the
risk that declared rates will not exceed 3%. The Company has complete
discretion to declare any rate of at least 3%, regardless of market interest
rates, the amounts earned by the Company on its investments, or any other
factors.
 
  VARIABLE ACCUMULATION VALUE. The variable accumulation value of a
Purchaser's Annuity Account, if any, for any Valuation Period is equal to the
sum of the value of all Variable Accumulation Units credited to the
Purchaser's Annuity Account for such Valuation Period.
 
  CREDITING VARIABLE ACCUMULATION UNITS. Upon the Company's acceptance of an
Initial Premium Payment and any Subsequent Premium Payment(s), all or that
portion, if any, of the Premium Payment(s) to be allocated to any Sub-Accounts
in accordance with the allocation factors will be credited to the Purchaser's
Annuity Account in the form of Variable Accumulation Units. The number of
particular Variable Accumulation Units to be credited is determined by
dividing the dollar amount allocated to the particular Sub-Account by the
Variable Accumulation Unit value for the particular Sub-Account for the
Valuation Period during which the Premium Payment is received at the Variable
Annuity Service Center and accepted. Subsequent Premium Payments are applied
upon receipt.
 
  VARIABLE ACCUMULATION UNIT VALUE. The Variable Accumulation Unit value for
each Sub-Account was established at $10 for the first Valuation Period of the
particular Sub-Account. The Variable Accumulation Unit value for the
particular Sub-Account for any subsequent Valuation Period is determined by
multiplying the Variable Accumulation Unit value for the particular Sub-
Account for the immediately preceding Valuation Period by the Net Investment
Factor for the particular Sub-Account for such subsequent Valuation Period.
The Variable Accumulation Unit value for each Sub-Account for any Valuation
Period is the value determined as of the end of the particular Valuation
Period and such value may increase, decrease or remain the same from Valuation
Period to Valuation Period in accordance with the Net Investment Factor. The
Net Investment Factor is an index applied to measure the investment
performance of a Variable Account Sub-Account from one Valuation Period to the
next. For a description of the Net Investment Factor and a hypothetical
example of the calculation of the value of a Variable Accumulation Unit, see
the Statement of Additional Information. The investment performance of the
portfolio of the Fund corresponding to the applicable Sub-Account, expenses,
and the deduction of certain charges affect the Variable Accumulation Unit
Value.
 
  DOLLAR COST AVERAGING. The Company provides a Dollar Cost Averaging program
for the Purchaser which involves the regular purchase of Variable Accumulation
Units ("VAUs") in one or more Sub-Accounts designated by the Purchaser. A
monthly purchase of VAUs over a period of time instead of a single purchase of
the same dollar value of VAUs will result in the purchase of more VAUs when
the VAU value is low and less VAUs when the VAU value is high. As a result,
purchasing VAUs consistently under the Dollar Cost Averaging program in a
rising or falling market produces an average cost per VAU for the Purchaser
which is less than the average price per VAU.
 
  For example, assume that a Purchaser requests $6,000 per month to be
transferred from the Money Market Sub-Account to the Capital Appreciation Sub-
Account. The following table illustrates the effect of Dollar Cost Averaging
over a four-month period.
 
<TABLE>
<CAPTION>
                                                TRANSFER UNIT    UNITS
      MONTH                                      AMOUNT  VALUE PURCHASED
      -----                                     -------- ----- ---------
      <S>                                       <C>      <C>   <C>     
      1........................................  $6,000   $20     300
      2........................................  $6,000   $30     200
      3........................................  $6,000   $40     150
      4........................................  $6,000   $50     120
</TABLE>
 
  The average price per unit for the above purchases is the sum of the prices
divided by the number of monthly transfers ($140 divided by 4) which equals
$35. The average cost per unit for these purchases is the total amount
transferred divided by the total number of units purchased ($24,000 divided by
770) which equals $31.17. THIS TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY AND IS
NOT REPRESENTATIVE OF FUTURE RESULTS.
 
  If a Purchaser elects to participate in the Dollar Cost Averaging program,
the Initial Premium Payment or Subsequent Premium Payment shall be initially
allocated to the Money Market Sub-Account. Thereafter the Company will
automatically transfer an amount specified by the Purchaser from the Money
Market Sub-Account to any other available Variable Sub-Account on a monthly or
quarterly basis; the minimum amount per transfer is $1,000. Transfers to or
from the Fixed Account are not permitted under the Dollar Cost Averaging
Program.
 
  A Purchaser elects to participate in the Dollar Cost Averaging Program by
specifying such election in the Contract Application, or In Writing when
making a subsequent Premium Payment. In order to initiate the program, the
Purchaser must establish a Money Market Sub-Account value of at least $12,000.
Each transfer under the Program must be at least $1,000. Dollar Cost Averaging
program transfers will be effected on the first Valuation Period occurring on
or after the 20th of each month. The Company must receive at least nine (9)
days' notice In Writing in advance of the transfer date to begin Dollar Cost
Averaging in any given month.
 
                                      14
<PAGE>
 
  (Transfers under the Dollar Cost Averaging program will not count towards
the twelve transfers per Contract Year limit.)
 
  The Company offers the Dollar Cost Averaging program to Purchasers at no
charge. Purchasers may increase, decrease, or discontinue participation in the
program at any time by notifying the Company In Writing. The Company does not
control the Fund and cannot guarantee that it or any Series thereunder will
accept transfers under the Dollar Cost Averaging Program. Therefore, the
Company reserves the right to discontinue or change this program at any time.
THERE IS NO GUARANTEE THAT THE DOLLAR COST AVERAGING PROGRAM WILL RESULT IN
ANNUITY ACCOUNT VALUES WHICH EQUAL OR EXCEED ANY INITIAL PREMIUM PAYMENT OR
SUBSEQUENT PREMIUM PAYMENT MADE. The Dollar Cost Averaging Program may not
achieve its objective. There is no guarantee that the program will result in a
profit, or protect against loss, nor is there any guarantee that it produces
better results than a single lump-sum investment.
 
TRANSFER PRIVILEGE
 
  ACCUMULATION PERIOD. During the Accumulation Period the Purchaser may, upon
request, transfer all or part of any of the Purchaser's Annuity Account
Value(s) to one or more Sub-Accounts available under the Contract. Transfers
from Fixed Account Sub-Accounts and Variable Account Sub-Accounts are subject
to the following conditions: (1) a Purchaser is limited to twelve transfers
each Contract Year; (2) the amount being transferred may not be less than
$1,000, unless the Purchaser's total Annuity Account Value attributable to
that particular Sub-Account is being transferred; (3) the amount transferred
to any Fixed Account Sub-Account may not be less than $5,000; (4) the Annuity
Account Value remaining in a transferor Fixed Sub-Account may not be less than
$1,000, and not less than $250 in a transferor Variable Sub-Account; and (5)
no transfers are permitted during the Right to Examine period. With the
exception of transfers of any Guaranteed Period Amount which become effective
upon the expiration of the applicable Guaranteed Period, all transfers from
any Fixed Sub-Account are subject to the following additional conditions: (1)
A Purchaser may make only one transfer from each Fixed Sub-Account in any
Contract Year; and (2) The amount transferred from any Fixed Sub-Account may
not exceed 15% of the Annuity Account Value in the Sub-Account on the
transfer's effective date. Transfers from Fixed Account Sub-Accounts may be
subject to a MVA. Amounts transferred into a Fixed Account Sub-Account will
earn interest at the Guaranteed Interest Rate declared by the Company for that
Guaranteed Period as of the effective date of the transfer (subject to any
future MVA).
 
  The Company reserves the right to otherwise restrict the transfer privilege
in any way or to eliminate it entirely. The Company also reserves the right to
defer transfer of amounts from the Fixed Account for a period not to exceed
six (6) months from the date a request for such transfer is received by the
Company.
 
  Transfer requests in Writing must be upon a form acceptable to the Company.
Telephone transfers will be allowed automatically, unless the Purchaser
specifically declines this privilege in the Contract Application. The Company
will not be held liable for following telephone transfer instructions which it
reasonably believes to be genuine. The Company will employ reasonable
procedures to confirm that such telephone transfer instructions are genuine.
Procedures currently utilized by the Company include requiring the telephone
transferor to identify himself or herself over the telephone, requiring the
telephone transferor to communicate a Purchaser personal identification
number, tape recording incoming telephone transfer instructions, and sending a
written confirmation of telephone transfers to the Purchaser after they are
effected.
 
  Transfers of all or a portion of any Guaranteed Period Amount will be
subject to the MVA described below unless the transfer becomes effective upon
the Expiration Date of such Guaranteed Period. Transfers involving Variable
Accumulation Units shall be subject to such terms and conditions as may be
imposed by the Fund. A transfer from a Sub-Account of the Variable Account
will be effective on the date the request for transfer is received by the
Company, provided such request is received by the Company prior to 4:00 p.m.
Eastern Time on a day which the New York Stock Exchange is open for business.
Otherwise, the transfer will become effective the next succeeding day upon
which the New York Stock Exchange is open for business. Under current law,
there will not be any tax liability to the Purchaser for making a transfer.
 
  ANNUITY PERIOD. After the Annuity Date the Payee may, by filing a request In
Writing with the Company, exchange the value of a designated number of Annuity
Units of particular Variable Sub-Accounts then credited under the Contract
into other Annuity Units, the value of which would be such that the dollar
amount of an annuity payment made on the date of the exchange would be
unaffected by the exchange. Each Payee is limited to three exchanges per
Contract Year after the Annuity Date, and such exchanges may be made only
between Variable Account Sub-Accounts. Exchanges will be made using the
Annuity Unit values for the Valuation Period during which any request for
exchange is received by the Company.
 
                                      15
<PAGE>
 
- -------------------------------------------------------------------------------
 
                       DISTRIBUTIONS UNDER THE CONTRACT
 
  CASH WITHDRAWALS. At any time prior to the Annuity Date and during the
lifetime of the Purchaser, or of the Annuitant if the Purchaser is a non-
natural person, a Purchaser may elect to receive a cash withdrawal payment
from the Company. Any such withdrawal from the Variable Account will be
effective on the date that it is received by the Company and will be processed
within seven days of the Company's receipt of such request, except as the
Company may be permitted to defer such payment in accordance with the Act and
applicable state insurance law.
 
  The Purchaser may request a full surrender (see "Surrender of the
Contracts") or a partial cash withdrawal. A request for a partial withdrawal
will result in the cancellation of a portion of the Purchaser's Annuity
Account Value equal to the dollar amount of the cash withdrawal payment, plus
or minus any applicable MVA plus any applicable withdrawal charge and premium
taxes. The Company, upon request, will advise the Purchaser of the amounts
that would be payable in the event of a full surrender or partial withdrawal.
 
  A partial cash withdrawal must be in a minimum amount of at least $1,000.
When electing such a partial withdrawal, the Purchaser must instruct the
Company as to: 1) the amount to be withdrawn; and 2) the Sub-Account(s) from
which the withdrawal shall occur. Partial withdrawals may not reduce the total
Annuity Account Value below $1,000. In the event the Purchaser does not
specify the Sub-Account(s) from which the withdrawal shall occur, the Company
will withdraw the requested amount pro-rata from each Sub-Account maintained
by the Purchaser. If such a pro-rata withdrawal reduces the value of any Fixed
Sub-Account balance below $1,000 and/or any Variable Sub-Account balance below
$250, the Company will transfer the value of those Sub-Accounts to that
Variable Sub-Account of the Purchaser maintaining the highest value.
 
  ALL CASH WITHDRAWALS FROM ANY FIXED ACCOUNT SUB-ACCOUNT WILL BE SUBJECT TO
THE MVA, EXCEPT THOSE WHICH BECOME EFFECTIVE UPON THE EXPIRATION DATE OF SUCH
SUB-ACCOUNT'S GUARANTEED PERIOD. If a Purchaser makes a partial cash
withdrawal, the Company will assess any applicable withdrawal charge, MVA, and
premium taxes pro rata against the amounts remaining in each Sub-Account to
which a Purchaser's Annuity Account is allocated. If a full Surrender of the
Contract is requested by the Purchaser, the Company will assess any applicable
withdrawal charges, MVA, Annuity Account Fee, and premium taxes against the
amount withdrawn. See "Contract Charges and Fees". The Annuity Account Fee and
any applicable MVA will be deducted from the Annuity Account before the
application of any withdrawal charge.
 
  The Company reserves the right to defer the payment of amounts withdrawn or
transferred from the Fixed Account for a period not to exceed six (6) months
from the date written request for such withdrawal or transfer is received by
the Company. (See "Deferral of Payment.")
 
  Cash withdrawals from a Variable Account Sub-Account will result in the
cancellation of Variable Accumulation Units attributable to the Purchaser's
Annuity Account with an aggregate value on the effective date of the
withdrawal equal to the total amount by which the Annuity Account Value is
reduced (which amount will include any applicable withdrawal charge). The
cancellation of such units will be based on the Variable Accumulation Unit
values of the Variable Account Sub-Accounts at the end of the Valuation Period
during which the cash withdrawal request is received.
 
  A cash withdrawal may have federal income tax consequences. See "Federal Tax
Matters".
 
  MINIMUM VALUE REQUIREMENT. If a partial withdrawal is requested which would
cause a Purchaser's Annuity Account Value to fall to less than $1,000, then
the partial withdrawal will be treated as a request for a full surrender. In
addition, the Company will terminate a Contract and pay the Purchaser as if
the Contract was surrendered if no Premium Payments are made to the Company
under the Contract for three consecutive years for an Annuity Account and the
Annuity Account Value has fallen below $1,000 during this period. Prior to
exercising this right to terminate, the Company will provide the Purchaser
with thirty (30) days notice and the opportunity to make an additional Premium
Payment to increase the Annuity Account Value above the minimum amount. On
termination, the Purchaser will receive the amount which would have been paid
had the Contract been fully surrendered. The Company also reserves the right
to transfer any Fixed Sub-Account balance which has a value below $1,000 and
any Variable Sub-Account balance which has a value below $250 to that Variable
Sub-Account of the Purchaser maintaining the highest value.
 
  SECTION 403(B) ANNUITIES. The Code imposes restrictions on cash withdrawals
from Contracts used with Section 403(b) Annuities. In order for these
Contracts to receive tax deferred treatment, the Contract must provide that
cash withdrawals of amounts attributable to salary reduction contributions
(other than withdrawals of accumulation account value as of December 31, 1988
("Pre-1989 Salary Reduction Account Value")) may be made only when the
Purchaser attains age 59 1/2, separates from service with the employer, dies
or becomes disabled (within the meaning of Section 72(m)(7) of the Code).
These restrictions apply to any growth or interest on or after January 1, 1989
on Pre-1989 Salary Reduction Account Value(s), salary reduction contributions
made on or after January 1, 1989, and any growth or interest on such
contributions ("Restricted Annuity Account Value(s)").
 
  Withdrawals of Restricted Annuity Account Value(s) are also permitted in
cases of financial hardship, but only to the extent of contributions; earnings
on contributions cannot be withdrawn for hardship reasons. Hardship (and
other) withdrawals may be subject
 
                                      16
<PAGE>
 
to a 10% tax penalty, in addition to any withdrawal charge, MVA, Annuity
Account Fee, and premium taxes applicable under the Contract.
 
  Under the terms of a particular Section 403(b) plan, the Purchaser may be
entitled to transfer all or a portion of the Annuity Account Value to one or
more alternative funding options. A purchaser should consult the documents
governing his or her plan and the person who administers the plan for
information as to such investment alternatives.
 
  With respect to these restrictions on withdrawals from the Variable Account,
the Company is relying upon a no-action letter dated November 28, 1988 from
the staff of the Commission to the American Council of Life Insurance, the
requirements for which have been or will be complied with by the Company.
 
- -------------------------------------------------------------------------------
 
                                DEATH BENEFITS
 
  DEATH BENEFIT PROVIDED BY THE CONTRACTS. In the event of the death of any
Purchaser prior to the Annuity Date, the Company will pay a death benefit to
the Beneficiary upon receipt of due proof of death of the Purchaser. If there
is no designated Beneficiary living on the date of death of the deceased
Purchaser, the Company will, upon receipt of due proof of death of both the
deceased Purchaser and the designated Beneficiary, pay the death benefit in
one lump sum to the deceased Purchaser's estate. If the death of any Annuitant
occurs on or after the Annuity Date, no death benefit will be payable under
the Contract except as may be provided under the Annuity Option elected.
 
  ELECTION AND EFFECTIVE DATE OF ELECTION. During the lifetime of the
Purchaser and prior to the Annuity Date, the Purchaser may elect In Writing to
have the death benefit applied under the Annuity Options for the Beneficiary
after the death of the Purchaser.
 
  If no death benefit payment method is in effect on the date of the
Purchaser's death, the Beneficiary may elect (a) to receive the death benefit
in the form of a single cash payment; or (b) to have the death benefit applied
under the Annuity Options (on the Annuity Date described under "Payment of
Death Benefit") for the Beneficiary. Such election may be made by filing with
the Company an election In Writing. A Purchaser's election of an Annuity
Option specifying the method by which the death benefit shall be paid will
become effective on the date it is received by the Company. Any Annuity Option
elected by the Beneficiary will become effective on the later of: (a) the date
the election is received by the Company; or (b) the date due proof of the
death of the deceased Purchaser is received by the Company. If an election by
the Beneficiary is not received by the Company within 60 days following the
date due proof of the death of the Purchaser is received by the Company, the
Beneficiary will be deemed to have elected on such 60th day to receive the
death benefit in the form of a single cash payment.
 
  The Annuity Option elected by the Purchaser or the Beneficiary may be
restricted by the Code. See "Federal Tax Matters" for further discussion.
 
  PAYMENT OF DEATH BENEFIT. If the death benefit is to be paid in cash to the
Beneficiary, subject to the Company's receipt of due proof of death, payment
will be made within seven days of the date the election becomes effective or
is deemed to become effective, except as the Company may be permitted to defer
any such payment of amounts derived from the Variable Account in accordance
with the Act. If the death benefit is to be paid in one lump sum to the estate
of the Purchaser, payment will be made within seven (7) days of the date due
proof of the death of the Purchaser and/or the designated Beneficiary, as
applicable, is received by the Company except as the Company may be permitted
to defer any such payment of amounts derived from the Variable Account in
accordance with the Act. If payment is to be made under any of the Annuity
Options, the Annuity Date will be thirty (30) days following the effective
date or the deemed effective date of the election, and the Purchaser's Annuity
Account will be maintained in effect until the Annuity Date.
 
  AMOUNT OF DEATH BENEFIT. No negative MVA or withdrawal charges are assessed
against amounts which are applied toward payment of a death benefit. The
amount of the death benefit is determined as of the effective date or deemed
effective date of the death benefit election (not as of the date of death),
and is equal to the greatest of (1) the Annuity Account Value for the
Valuation Period during which the Death Benefit election is effective or
deemed to become effective; (2) the sum of all Premium Payments under the
Contract, minus the sum of all partial withdrawals from the Contract; (3) the
Purchaser's Annuity Account Value on the Seven Year Anniversary immediately
preceding the date the Death Benefit election is effective or is deemed to
become effective, adjusted for any subsequent Premium Payments and partial
withdrawals and charges; and (4) the amount that would have been payable in
the event of a full surrender of the Contract including surrender charges and
any applicable MVA on the date the Death Benefit election is effective or is
deemed to become effective.
 
                                      17
<PAGE>
 
- -------------------------------------------------------------------------------
 
SURRENDER OF THE CONTRACTS
 
  At any time before the Annuity Date, the Purchaser may elect to surrender
the Contract and receive a cash payment from the Company. On the Surrender
Date the Purchaser's Annuity Account will be canceled and the Annuity Account
Value, minus any applicable withdrawal charges, Annuity Account Fee, and
premium taxes, and plus or minus any applicable MVA, will be paid to the
Purchaser within seven days of the Surrender Date in the form of a cash
payment except as the Company may be permitted to defer any such payment of
amount derived from the Variable Account in accordance with the Act. The
Company reserves the right to defer the payment of amounts withdrawn from the
Fixed Account for a period not to exceed six (6) months from the date written
request for such withdrawal is received by the Company.
 
  Because withdrawals from a Purchaser's Annuity Account may be subject to a
withdrawal charge, a MVA, and applicable taxes and fees, and because the
Purchaser assumes the investment risk with respect to amounts allocated to the
Variable Account, the total amount paid upon total surrender of the Contract
(taking any prior cash withdrawals into account) may be more or less than the
total Premium Payments made. Following a surrender of the Contract, or if the
Contract terminates for any other reason, all rights of the Purchaser,
Annuitant, and Beneficiary will terminate.
 
  After the Annuity Date, surrenders are permitted only if the Variable
Annuity Certain Option is selected. In such case, surrenders may only be made
from the Variable Account, and are otherwise subject to the terms and
conditions of surrenders made prior to the Annuity Date.
 
  A surrender may have federal income tax consequences. See "Federal Tax
Matters".
 
- -------------------------------------------------------------------------------
 
ANNUITY PROVISIONS
 
  ANNUITY DATE. Annuity payments will begin on the first day of the month
following the Annuity Date selected by the Purchaser, as specified in the
Contract Application. The date selected by the Purchaser may not be sooner
than 30 days following the Date of Issue. This date may be changed by the
Purchaser from time to time by notifying the Company In Writing, provided that
notice of each change is received by the Company at least 45 days prior to the
then current Annuity Date and the new Annuity Date is a date which is: (1) at
least 30 days after the effective date of the change; (2) the first day of a
month; and (3) not later than the first day of the first month following the
Annuitant's 90th birthday, unless otherwise restricted, in the case of a
Qualified Contract, by the particular retirement plan or by applicable law.
The Annuity Date may also be changed by an election of an Annuity Option as
described in the Death Benefit section of this Prospectus.
 
  On the Annuity Date the Purchaser's Annuity Account will be canceled and the
Annuity Account Value, minus any applicable Annuity Account Fee and premium
taxes, will be applied to provide an annuity under one or more of the options
described below. No MVA or withdrawal charges will be imposed upon amounts
applied to purchase an annuity. NO PAYMENTS MAY BE REQUESTED UNDER THE
CONTRACT'S CASH WITHDRAWAL PROVISIONS ON OR AFTER THE ANNUITY DATE AND NO CASH
WITHDRAWAL WILL BE PERMITTED EXCEPT AS MAY BE AVAILABLE UNDER THE ANNUITY
OPTION ELECTED.
 
  Since the Contracts offered by this Prospectus may be issued in connection
with retirement plans which meet the requirements of Section 401, 403, 408, or
457 of the Code, as well as certain non-qualified plans, reference should be
made to the terms of the particular plan for any limitations or restrictions
on the Annuity Date.
 
  ELECTION -- CHANGE OF ANNUITY OPTION. During the lifetime of the Purchaser
and prior to the Annuity Date, the Purchaser may elect one or more of the
Annuity Options described below, or such other Annuity Option as may be agreed
to by the Company. The Purchaser may also change any election, but notice In
Writing of any election or change of election must be received by the Company
at least 45 days prior to the Annuity Date.
 
  If no election is in effect on the 30th day prior to the Annuity Date and
the Contract is used by the Purchaser in connection with a retirement plan
which meets the requirements of either Section 401 (including Section 401(k)),
Section 403, Section 408(c), Section 408(k), or Section 457 of the Code, the
Joint and Survivor Annuity described below or Life Annuity, whichever is
applicable, will be deemed to have been elected if required by such retirement
plan. If the Contract is not used by the Purchaser in connection with one of
these plans, the Purchaser will be deemed to have elected Life Annuity with
120 Monthly Payments Certain.
 
  At any time the Purchaser may (In Writing) request annuitization of the then
current Annuity Account Value in accordance with any one of the Annuity
Options described below. In such event, no withdrawal charge or MVA will be
imposed at the time payments under the Annuity Option begin. Such
annuitization will automatically result in a change in the Annuity Date to the
date payments commence under the Annuity Option elected.
 
                                      18
<PAGE>
 
  Reference should be made to the terms of a particular retirement plan and
any applicable legislation for any limitations or restrictions on the options
which may be elected. NO CHANGE OF ANNUITY OPTION IS PERMITTED AFTER THE
ANNUITY DATE.
 
  ANNUITY OPTIONS. The Contract provides for seven different Annuity Options
which are described below. Four are fixed annuity options, and three are
variable annuity options. A Purchaser may elect a Fixed Annuity, a Variable
Annuity, or a combination of both. If the Purchaser elects a combination, he
must specify what part of the Annuity Account is to be applied to each Fixed
and Variable Annuity Option. (If no such election is received by the 30th day
prior to the Annuity Date, the portion of the Annuity Account to be applied
for a Fixed Annuity and/or a Variable Annuity will be determined on a pro rata
basis from the composition of the Annuity Account on the Annuity Date. Thus,
any amounts in the Variable Account will be applied to a Variable Annuity, and
amounts in the Fixed Account will be applied to a Fixed Annuity.) Variable
Annuity payments will be based on the Sub-Account(s) selected by the
Purchaser, or on the allocation of the Annuity Account Value among the Sub-
Accounts.
 
  A FIXED ANNUITY provides for Annuity Option payments which will remain
constant pursuant to the terms of the Annuity Option elected. The effect of
choosing a Fixed Annuity is that the amount of each payment will be set on the
Annuity Date and will not change. If a Fixed Annuity is selected, the Variable
Account used to provide the Fixed Annuity will be transferred to the general
account of the Company, and the annuity payments will be fixed in amount by
the fixed annuity provisions selected and, for some options, the settlement
age of the Annuitant (determined in accordance with the Contract). The Fixed
Annuity payment amounts are determined by applying the Annuity Payment Rates
found in the Contract to the portion of the Annuity Account Value allocated to
the Fixed Annuity Option selected by the Purchaser, or, if more favorable to
the Payee(s), by applying the Annuity Payment Rates published by the Company
and in use on the Annuity Date. The rates found in the Contracts show, for
each $1,000 applied, the dollar amount of the monthly fixed annuity payment.
This rate may be changed by the Company with respect to Contracts established
after the effective date of such change (see "Modification").
 
  A VARIABLE ANNUITY provides for payments that fluctuate or vary in dollar
amount, based on the investment performance of a Variable Account Sub-Account.
The Variable Annuity purchase rate tables in the Contract reflect an assumed
interest rate of 4%, so if the actual net investment performance of the Sub-
Account is less than this rate, then the dollar amount of the actual annuity
payments will decrease. If the actual net investment performance of the Sub-
Account is higher than this rate, then the dollar amount of the actual annuity
payments will increase. If the net investment performance exactly equals the
4% rate, then the dollar amount of the actual annuity payments will remain
constant.
 
  The amount of the first Variable Annuity payment is determined by the
variable annuity provisions selected and, for some options, the settlement age
of the Annuitant (determined in accordance with the Contract). All Variable
Annuity payments other than the first are determined by means of Annuity Units
credited to the contract with respect to the particular payee. The number of
Annuity Units to be credited in respect of a particular Sub-Account is
determined by dividing that portion of the first Variable Annuity payment
attributable to that Sub-Account by the Annuity Unit Value of that Sub-Account
for the Valuation Period which ends immediately preceding the Annuity Date.
The number of Annuity Units of each Sub-Account credited with respect to the
particular payee then remains fixed unless an exchange of Annuity Units is
made pursuant to the "Transfer Privilege -- Annuity Period" section. The
dollar amount of each Variable Annuity payment after the first may increase,
decrease or remain constant, and is equal to the sum of the amounts determined
by multiplying the number of Annuity Units of a particular Sub-Account for the
Valuation Period which ends immediately preceding the due date of each
subsequent payment by the Annuity Unit Value for that Sub-Account for the
first Valuation Period occurring on or immediately prior to the first day of
each month.
 
  The Purchaser may choose to receive annuity payments under any one of the
Annuity Options described below. The Company may consent to other plans of
payment before the Annuity Date.
 
  If the Contract is used by the Purchaser in connection with a retirement
plan which meets the requirements of either Section 401 (including Section
401(k)), Section 403, Section 408(c), Section 408(k), or Section 457 of the
Code, a Joint and Survivor Annuity will be offered under the Contract. A Joint
and Survivor Annuity provides for monthly payments payable during the joint
lifetime of the Payee and a designated second person and during the lifetime
of the survivor. During the lifetime of the survivor the monthly payment
payable will be the same as that payable during the joint lifetime of the
Payee and the designated second person.
 
FIXED ANNUITY OPTIONS
 
  LIFE ANNUITY OPTION. An annuity payable monthly to the Payee during the
lifetime of the Annuitant, ceasing with the last payment due prior to the
death of the Annuitant. Under this option, only one payment will be made if
the Annuitant dies before the second payment is made, only two payments will
be made if the Annuitant dies before the third payment is made, etc.
 
  LIFE ANNUITY WITH CERTAIN PERIOD OPTION. An Annuity providing monthly income
to the Payee for a fixed period of 60, 120, 180, or 240 months (as selected),
and for as long thereafter as the Annuitant lives.
 
  CASH REFUND LIFE ANNUITY OPTION. An annuity payable monthly to the Payee
during the lifetime of the Annuitant ceasing with the last payment due prior
to the death of the Annuitant provided that, at the death of the Annuitant,
the Payee will receive an additional
 
                                      19
<PAGE>
 
payment equal to the excess, if any, of (a) over (b) where: (a) is the initial
value of the proceeds applied under this option; and (b) is the dollar amount
of payments already paid.
 
  ANNUITY CERTAIN OPTION. An amount payable monthly for the number of years
selected which may be from 5 to 30 years.
 
VARIABLE ANNUITY OPTIONS
 
  VARIABLE LIFE ANNUITY OPTION. A Variable Annuity payable monthly to the
Payee during the lifetime of the Annuitant, ceasing with the last payment due
prior to the death of the Annuitant. Under this option, only one payment will
be made if the Annuitant dies before the second payment is made, only two
payments will be made if the Annuitant dies before the third payment is made,
etc.
 
  VARIABLE LIFE ANNUITY WITH CERTAIN PERIOD OPTION. A Variable Annuity
providing monthly income to the Payee for a fixed period of 60, 120, 180, or
240 months (as selected), and for as long thereafter as the Annuitant shall
live.
 
  VARIABLE ANNUITY CERTAIN OPTION. A variable amount payable monthly for the
number of years selected which may be from 5 to 30 years. At any time during
the period payments are made, the Annuitant may elect that a portion or all of
the future payments to which the Payee is entitled be commuted and paid in one
sum. A withdrawal may be taken at any time after annuitization which does not
exceed the total value of the variable annuity certain on the withdrawal date.
The value of the variable annuity certain is determined by first converting a
Purchaser's number of annuity units into dollars based on the value of the
annuity units. Thereafter the dollar value is divided by an annuity certain
payment factor to obtain the total value of the variable annuity certain. The
annuity certain payment factor is determined by calculating the number of
monthly payments remaining from the date of withdrawal to the end of the
variable annuity certain period and discounting such payments to a present
value using an assumed interest rate of 4%. The Annuitant may elect that the
Payee receive all or a portion of this present value.
 
DETERMINATION OF ANNUITY PAYMENTS. On the Annuity Date, the adjusted value of
(i) the Fixed Account and (ii) the Variable Account will be applied to provide
for payments under the selected Annuity Option. The adjusted value will be
equal to the Annuity Account Value at the end of the Valuation Period which
ends immediately preceding the Annuity Date, reduced by a proportionate amount
of the Annuity Account Fee to reflect the time elapsed between the last day of
the prior calendar year and the day before the Annuity Date, and minus premium
or similar taxes.
 
  If the amount to be applied under any annuity option is less than $5,000, or
if the monthly annuity payment payable in accordance with such option is less
than $50, the Company will pay the amount to be applied in a single payment to
the Payee designated by the Purchaser.
 
- -------------------------------------------------------------------------------
 
                           CONTRACT CHARGES AND FEES
 
  As more fully described below, charges under the Contracts offered by this
Prospectus are assessed in four ways: (1) as withdrawal charges (contingent
deferred sales charges); (2) as deductions for Contract administration
expenses and, if applicable, for premium taxes; (3) as charges against the
assets of the Variable Account for the assumption of mortality and expense
risks and for administrative expenses; and (4) as MVAs on certain withdrawals
from the Fixed Account. In addition, certain deductions are made from the
assets of the Fund for investment management fees and expenses. These fees and
expenses are described in the Fund's Prospectus and Statement of Additional
Information.
 
  WITHDRAWAL CHARGES. No deduction for sales charges is made from a Premium
Payment. However, if a cash withdrawal of a Premium Payment is made, a
withdrawal charge (contingent deferred sales charge) may be assessed by the
Company. The length of time between the Company's acceptance of the Premium
Payment deemed withdrawn and the receipt of a withdrawal request determines
the withdrawal charge. This charge will be used to cover certain expenses
relating to the sale of the Contracts including commissions paid to sales
personnel, the costs of preparation of sales literature, other promotional
costs and acquisition expenses.
 
  Each Premium Payment has its own time period for purposes of assessing a
withdrawal charge. For purposes of computing the withdrawal charge, amounts
are deemed to be withdrawn in the order in which they were received by the
Company. For example, the Company will deem amounts first withdrawn to be from
the oldest Premium Payment accepted by the Company. After these amounts are
exhausted, the Company will deem amounts withdrawn to be from the second
oldest Premium Payment accepted by the Company, and so on until all of a
Purchaser's Premium Payments have been withdrawn. After all Premium Payments
have been deemed withdrawn, the Company will deem further withdrawals to be
from net investment results attributable to such Premium Payments, if any.
 
                                      20
<PAGE>
 
  Subject to the Free Partial Withdrawal described below, Premium Payment
amounts withdrawn from a Purchaser's Annuity Account will be assessed the
following withdrawal charge (after being adjusted by any applicable MVA):
 
<TABLE>
<CAPTION>
             WITHDRAWAL
               CHARGE
             PERCENTAGE                   YEAR APPLICABLE
             ----------                   ---------------
          <S>              <C>
          7%.............. During 1st Year since Premium Payment accepted
          6%.............. During 2nd Year since Premium Payment accepted
          5%.............. During 3rd Year since Premium Payment accepted
          4%.............. During 4th Year since Premium Payment accepted
          3%.............. During 5th Year since Premium Payment accepted
          2%.............. During 6th Year since Premium Payment accepted
          1%.............. During 7th Year since Premium Payment accepted
          0%.............. Thereafter
</TABLE>
 
  On withdrawal, any applicable Annuity Account Fee and MVA will be deducted
from the Purchaser's Annuity Account before the application of any withdrawal
charge. The withdrawal charge is then assessed against the amounts remaining
in the Purchaser's Annuity Account. If the Purchaser's Annuity Account is
allocated among more than one Sub-Account within the Contract, the withdrawal
charge will be assessed pro rata against the amounts remaining within the Sub-
Accounts from which the withdrawal occurred. If the Sub-Accounts from which
the withdrawal occurred do not contain sufficient amounts to satisfy the
withdrawal charge, the deficiency will be assessed pro rata against all
amounts remaining within the Sub-Accounts. If a cash withdrawal causes the
entire value of the Annuity Account to be withdrawn (i.e., a complete
surrender), then the withdrawal charge will be deducted from the amount paid.
The withdrawal charge is not imposed on a Premium Payment withdrawn after the
end of the seventh year of the Company's acceptance of such Premium Payment,
nor is the withdrawal charge imposed upon payment of the Death Benefit or upon
amounts applied to an Annuity Option.
 
  The Company may, upon notice to the Purchaser, modify the withdrawal charges
provided that such modification shall apply only to a Purchaser's Annuity
Account established after the effective date of such modification (see
"Modification"). For examples of withdrawals, surrenders, withdrawal charges
and the MVA, see the Statement of Additional Information.
 
  FREE PARTIAL WITHDRAWAL. Upon request In Writing, a Purchaser may withdraw
during each Contract Year prior to the Annuity Date a portion of Premium
Payments made to the Purchaser's Annuity Account without the imposition of a
withdrawal charge. This privilege continues until all Premium Payments made to
the Purchaser's Annuity Account are considered withdrawn. Up to 15% of the
total amount of a Purchaser's Premium Payments may be withdrawn without a
withdrawal charge once each Contract Year. The amount must be at least $1,000.
 
  A Purchaser must specify the Sub-Account(s) from which the amount will be
withdrawn. If a Purchaser does not specify the Sub-Account(s) from which the
withdrawal will occur, the Company will withdraw the amount pro rata from all
the Purchaser's Sub-Accounts.
 
  The Company will deem all Free Partial Withdrawals to have withdrawn Premium
Payments in the order in which they were received by the Company. For example,
the Company will deem amounts first withdrawn to be from the oldest Premium
Payment accepted by the Company. After these amounts are exhausted, the
Company will deem amounts withdrawn to be from the second oldest Premium
Payment accepted by the Company, and so on until the entire amount is
withdrawn. This means that if any Premium Payments were made more than seven
years before the withdrawal, the amount will be applied against those Premium
Payments first, even though they would not be subject to the withdrawal charge
at all.
 
  A Purchaser is limited to one Free Partial Withdrawal of up to 15% of
Premium Payments per Contract Year. The Company will consider a Purchaser's
first withdrawal in any Contract Year to be a request for such a withdrawal
(to the extent available).
 
  If a Purchaser uses this Free Partial Withdrawal provision in any Contract
Year to withdraw less than 15% of the Premium Payments, such Purchaser will be
considered to have utilized this privilege under the Contract for such
withdrawal and further withdrawals in the same Contract Year will be subject
to the normal withdrawal charges.
 
  Withdrawals under this provision may be paid as a lump sum or, upon consent
of the Company, paid over equal installments no more frequently than monthly.
 
  A Free Partial Withdrawal may have federal income tax consequences. See
"Federal Tax Matters".
 
  ANNUITY ACCOUNT FEE. On the last Valuation Date of each calendar year, the
Company deducts an annual policy administration fee ("Annuity Account Fee") on
a pro rata basis from all of a Purchaser's Sub-Accounts equal to $35 to
partially reimburse it for administrative expenses relating to the issue and
maintenance of the Contract and the Purchaser's Annuity Account. If the
Purchaser's Annuity Account was established during that calendar year, then
the Company will pro rate the Purchaser's initial
 
                                      21
<PAGE>
 
Annuity Account Fee to reflect the shorter initial period. Thereafter the full
$35 Annuity Account Fee will be assessed annually. If the Contract is
surrendered, a $35 Annuity Account Fee will be deducted. On the Annuity Date,
the Annuity Account Value will be reduced by a proportionate amount of the
Annuity Account Fee to reflect the time elapsed between the previous December
31 and the day before the Annuity Date. After the Annuity Date, an annual $35
Annuity Account Fee will be deducted in approximately equal amounts from each
Variable Annuity payment made during the year. No Annuity Account Fee will be
deducted from Fixed Annuity payments. If applicable state law requires, the
$35 Annuity Account Fee will be reduced to a lesser amount.
 
  ADMINISTRATIVE FEE. The Company also deducts a daily Administrative Fee from
the assets of each Sub-Account of the Variable Account to partially reimburse
it for administrative expenses relating to the issue and maintenance of the
Contract and the Purchaser's Annuity Account. This charge is currently at an
effective annual rate of 0.10% (equal to a daily rate of 0.000275834% of the
assets in each Sub-Account). There is no necessary relationship between the
administrative charges imposed and the amount of expenses that may be
attributable to any single Purchaser's Annuity Account. The Company does not
anticipate realizing any profit from this fee.
 
  PREMIUM TAXES. Premium tax equivalents (including any related retaliatory
taxes), if any, and any other taxes due under the Contract will be deducted if
applicable. It is currently the Company's practice to deduct such taxes, if
any, at the time the Annuity Account Value, or any portion thereof, is
withdrawn or annuitized (although the deduction could, in the future, be taken
from Premium Payments). Currently these taxes range from 0% to 3.5% of the
amount of premium paid depending upon the Purchaser's state of residence.
 
  No charges are currently made for federal, state or local taxes other than
state premium taxes. However, the Company reserves the right to deduct charges
in the future for such taxes or other economic burden resulting from the
application of any tax laws that the Company determines to be attributable to
the Contracts.
 
  CHARGE FOR MORTALITY AND EXPENSE RISKS. The mortality risk assumed by the
Company arises from the contractual obligation to continue to make annuity
payments to one or more Payees regardless of how long the Annuitant lives and
regardless of how long all annuitants as a group live. This assures each
annuitant that neither the longevity of fellow annuitants nor an improvement
in the life expectancy generally will have an adverse effect on the amount of
any annuity payment received under the Contract. The Company assumes this
mortality risk by virtue of annuity rates incorporated into the Contract which
cannot be changed. The Company also assumes a mortality risk in connection
with the Death Benefits. The expense risk assumed by the Company is the risk
that the administrative charges assessed under the Contract may be
insufficient to cover the actual total administrative expenses incurred by the
Company.
 
  For assuming these risks, the Company makes a deduction from the Variable
Account at the end of each Valuation Period at an effective annual rate of
1.25% (equal to a daily rate of 0.003447920% of the assets in the Variable
Account). (The approximate portion of this charge estimated to be attributable
to mortality risks is 0.75%; the approximate portion of this charge estimated
to be attributable to expense risks is 0.50%.) If the deduction is
insufficient to cover the actual cost of the mortality and expense risk
undertaking, the Company will bear the loss. Conversely, if the deduction
proves more than sufficient, the excess will be profit to the Company. The
Company expects to realize a profit from this charge. No deduction for these
risks is made from the Fixed Account.
 
  The Company assumes the risk that withdrawal charges assessed under the
Contracts may be insufficient to compensate the Company for the costs of
distributing the Contracts. In the event the withdrawal charges prove to be
insufficient to cover actual distribution expenses, the deficiency will be met
from the Company's general corporate funds, which may include amounts derived
from the mortality and expense risk charge.
 
  The Contracts provide that the Company may modify the mortality and expense
risk charges; however, such modification shall apply only with respect to a
Purchaser's Annuity Account established after the effective date of such
modification.
 
  MVA. Any cash withdrawal or transfer of a Fixed Account Guaranteed Period
Amount, other than a withdrawal or transfer pursuant to an election which
becomes effective upon the Expiration Date of the Guaranteed Period, will be
subject to a MVA. The MVA will be applied to the amount being withdrawn or
transferred after deduction of any applicable Annuity Account Fee and before
deduction of any applicable withdrawal charge.
 
  The MVA generally reflects the relationship between the Index Rate (based
upon the Treasury Constant Maturity Series published by the Federal Reserve)
in effect at the time a Premium Payment is allocated to a Sub-Account's
Guaranteed Period under the Contract and the Index Rate in effect at the time
of the Premium Payment's withdrawal or transfer. It also reflects the time
remaining in the Sub-Account's Guaranteed Period. Generally, if the Index Rate
at the time of withdrawal or transfer is more than .50% lower than the Index
Rate at the time the Premium Payment was allocated, then the application of
the MVA will result in higher payment upon withdrawal or transfer. Similarly,
if the Index Rate at the time of withdrawal or transfer is higher than the
Index Rate at the time the Premium Payment was allocated (or less than 0.50%
lower), the application of the MVA will generally result in a lower payment
upon withdrawal or transfer.
 
                                      22
<PAGE>
 
  The MVA is computed by applying the following formula:
 
                                    (1+A)N
                                    (1+B)N
Where:
 
  A = an Index Rate (based on the Treasury Constant Maturity Series published
by the Federal Reserve) for a security with time to maturity equal to the Sub-
Account's Guaranteed Period, determined at the beginning of the Guaranteed
Period.
 
  B = an Index Rate (based on the Treasury Constant Maturity Series published
by the Federal Reserve) for a security with time to maturity equal to the Sub-
Account's Guaranteed Period, determined at the time of withdrawal or transfer,
plus a 0.50% adjustment (unless otherwise limited by applicable state law).
This adjustment builds into the formula a factor representing direct and
indirect costs to the Company associated with liquidating general account
assets in order to satisfy surrender requests. This adjustment of .50% has
been added to the denominator of the formula because it is anticipated that a
substantial portion of applicable general account portfolio assets will be in
relatively illiquid securities. Thus, in addition to direct transaction costs,
if such securities must be sold (e.g., because of surrenders), the market
price may be lower. Accordingly, even if interest rates decline, there will
not be a positive adjustment until this factor is overcome, and then any
adjustment will be lower than otherwise, to compensate for this factor.
Similarly, if interest rates rise, any negative adjustment will be greater
than otherwise, to compensate for this factor. If interest rates stay the
same, this factor will result in a small but negative MVA. If Index Rates "A"
and "B" are within .25% of each other when the Index Rate Factor is
determined, no such percentage adjustment to "B" will be made.
 
  N = The number of years remaining in the Guaranteed Period (e.g. 1 year and
73 days = 1 + (73 divided by 365) = 1.2 years)
 
  Straight line interpolation is used for periods to maturity not quoted.
 
  See the Statement of Additional Information for examples of the application
of the MVA.
 
- -------------------------------------------------------------------------------
 
OTHER CONTRACT PROVISIONS
 
  DEFERRAL OF PAYMENT. The Company may defer the calculation and payment of
partial withdrawal and full surrender values, transfers or Death Benefits from
any Variable Account Sub-Account during any period:
 
    (1)(a) during which the New York Stock Exchange is closed other than
  customary week-end and holiday closings or (b) during which trading on the
  New York Stock Exchange is restricted as determined by the Commission, (2)
  for any period during which an emergency exists as a result of which (a)
  disposal of securities held by the Fund is not reasonably practicable or
  (b) it is not reasonably practicable to determine the value of the net
  assets of the Fund or (3) for such other periods as the Commission may by
  order permit for the protection of security holders.
 
  The Company reserves the right to defer the payment or transfer of amounts
withdrawn from any Fixed Account Sub-Account for a period not to exceed six
months from the date written request for such withdrawal or transfer is
received by the Company. If payment or transfer is deferred beyond thirty (30)
days, the Company will pay interest of not less than 3% per year on amounts so
deferred.
 
  In addition, payment of the amount of any withdrawal derived, all or in
part, from any Premium Payment paid to the Company by check or draft may be
postponed until the Company determines the check or draft has been honored.
 
  DESIGNATION AND CHANGE OF BENEFICIARY. The Beneficiary designation contained
in the Contract Application will remain in effect until changed. The right to
change any Beneficiary is reserved to the Purchaser. Subject to the rights of
an irrevocably designated Beneficiary, the Purchaser may change or revoke the
designation of a Beneficiary at any time while the Purchaser is living by
filing with the Company a beneficiary designation or revocation In Writing.
The change or revocation will not be binding upon the Company until it is
recorded by the Company. When it is so recorded the change or revocation will
be effective as of the date on which the beneficiary designation or revocation
was signed, but the change or revocation will be without prejudice to the
Company with regard to any payment made or any action taken by the Company
prior to recording the change or revocation.
 
  Reference should be made to the terms of a particular retirement plan and
any applicable legislation for any restrictions on the beneficiary
designation.
 
  EXERCISE OF CONTRACT RIGHTS. A Contract shall belong to the Purchaser. All
Contract rights and privileges may be expressly reserved by the Purchaser.
Such rights and privileges can be exercised without the consent of the
Beneficiary (other than an irrevocably designated Beneficiary) or any other
person. Such rights and privileges may be exercised only during the lifetime
of the Purchaser and prior to the Annuity Date, except as otherwise provided
in the Contract.
 
  The Annuitant becomes the Payee on and after the Annuity Date. If the
Annuitant predeceases the Purchaser prior to the Annuity Date, the Purchaser
becomes the Annuitant until the Purchaser designates a new Annuitant to the
Company In Writing. The Beneficiary becomes the Payee on the death of the
Annuitant after the Annuity Date. Such Payee(s) may thereafter exercise such
rights and privileges, if any, of ownership which continue.
 
                                      23
<PAGE>
 
  TRANSFER OF OWNERSHIP. The owner of a Non-Qualified Contract may transfer
the ownership of the Contract prior to the Annuity Date. A transfer of
ownership will not be binding upon the Company until written notification is
received and recorded by the Company. When such notification is so recorded,
the change will be effective as of the effective date specified by the
Purchaser, but the change will be without prejudice to the Company regarding
any payment made or any action taken by the Company prior to recording the
change.
 
  Ownership of a Qualified Contract may not be transferred except to: (1) the
Annuitant; (2) a trustee or successor trustee of a pension or profit sharing
trust which is qualified under Section 401 of the Code; (3) the employer of
the Annuitant provided that the Qualified Contract after transfer is
maintained under the terms of a retirement plan qualified under Section 403(a)
of the Code for the benefit of the Annuitant; (4) the trustee of an individual
retirement account plan qualified under Section 408 of the Code for the
benefit of the Purchaser; or (5) as otherwise permitted from time to time by
laws and regulations governing the retirement or deferred compensation plans
for which a Qualified Contract may be issued. Subject to the foregoing, a
Qualified Contract may not be sold, assigned, transferred, discounted or
pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose to any person other than the Company.
 
  A transfer of ownership may have federal income tax consequences. See
"Federal Tax Matters".
 
  DEATH OF PURCHASER. If the Purchaser of a Non-Qualified Contract dies before
the Annuity Date, the death benefit payable under the Contract, if any, must
be distributed to the Beneficiary, if then alive, either (1) within five years
after the date of death of the Purchaser, or (2) over some period not greater
than the life or expected life of the Beneficiary, with annuity payments
beginning within one year after the date of death of the Purchaser. The person
named as the Purchaser's Beneficiary in the Contract Application shall be
considered the designated beneficiary for the purposes of Section 72(s) of the
Code and if no person then living has been so named, then the Annuitant shall
automatically be the designated beneficiary for this purpose. In all cases,
any such designated beneficiary shall not be entitled to exercise any rights
prohibited by applicable federal income tax law.
 
  These mandatory distribution requirements will not apply when the designated
beneficiary is the spouse of the deceased Purchaser, if the spouse elects to
continue the Contract in the spouse's own name, as Purchaser.
 
  If the Payee dies after the Annuity Date and before the entire accumulation
under such Purchaser's Annuity Account has been distributed, the remaining
portion of such Purchaser's Annuity Account, if any, must be distributed at
least as rapidly as the method of distribution then in effect. Similar rules
may apply with respect to Qualified Contracts.
 
  VOTING OF FUND SHARES. The Company will vote Fund shares held by the Sub-
Accounts at meetings of shareholders of the Fund, and to the extent required
by law, will follow voting instructions received from persons having the right
to give voting instructions. The Purchaser is the person having the right to
give voting instructions prior to the Annuity Date. If a Purchaser elects a
Variable Annuity Option, then after the Annuity Date, the Payee has the right
to give voting instructions. The number of votes decreases as annuity payments
are made and as the reserves for the Contract decrease. The person's number of
votes will be determined by dividing the reserve for the Contract allocated to
the applicable Sub-Account by the net asset value per share of the
corresponding Portfolio of the Fund. There are no voting rights associated
with the Fixed Account or a Fixed Annuity before or after the Annuity Date.
 
  Any shares attributable to the Company and Fund shares for which no timely
voting instructions are received will be voted by the Company in the same
proportion as the shares for which instructions are received from Purchasers.
Voting instructions must be received by the Company at least one day prior to
the shareholders meeting in order to be considered timely.
 
  Purchasers participating under Qualified Contracts may be subject to other
voting provisions of the particular plan. Individuals who contribute to plans
which are funded by the Contracts may be entitled to instruct the Purchasers
as to how to instruct the Company to vote the Fund shares attributable to
their contributions. Such plans may also provide the additional extent, if
any, to which the Purchasers shall follow voting instructions of persons with
rights under the plans. If no voting instructions are received from any such
person with respect to a particular employee's Annuity Account, the Purchaser
may instruct the Company as to how to vote the number of Fund shares for which
instructions may be given.
 
  Neither the Variable Account nor the Company is under any duty to provide
information concerning the voting instruction rights of persons who may have
such rights under plans, other than rights afforded by the Act, nor any duty
to inquire as to the instructions received or the authority of Purchasers or
others to instruct the voting of Fund shares. Except as the Variable Account
or the Company has actual knowledge to the contrary, the instructions given by
Purchasers will be valid as they affect the Variable Account, the Company and
any others having voting instruction rights with respect to the Variable
Account.
 
  All Fund proxy material, together with an appropriate form to be used to
give voting instructions, will be provided to each person known by the Company
to have the right to give voting instructions at least ten days prior to each
meeting of the shareholders of the Fund. The number of Fund shares as to which
each such person is entitled to give instructions will be determined as of a
date not more than 90 days prior to each such meeting. Prior to the Annuity
Date, the number of Fund shares as to which voting instructions may be given
to the Company is determined by dividing the value of all of the Variable
Accumulation Units of the particular Sub-Account
 
                                      24
<PAGE>
 
credited to the Purchaser's Annuity Account by the net asset value of one Fund
share as of the same date. The Fund is not required to, and does not intend
to, hold annual or other regular meetings of shareholders.
 
  If the Act or any regulation thereunder should be amended, or if the present
interpretation thereof should change, and as a result the Company determines
that it is permitted to vote the Fund's shares in its own right, it may elect
to do so. Fund shares held by the Company or its affiliates in which
Purchasers or other persons entitled to vote have no beneficial interest may
be voted by the shareholder thereof (the Company or its affiliates) in its
sole discretion.
 
  ADDITION, DELETION, OR SUBSTITUTION OF SECURITIES. The Company does not
control the Fund and cannot guarantee that it or any Portfolio thereunder will
be available for investment in the future or that it or any Portfolio
thereunder will accept Premium Payments or transfers. In the event the Fund or
any Portfolio thereunder is not available, the Company reserves the right to
make changes in the Variable Account and its investments, and may take
reasonable action to secure a comparable or otherwise appropriate funding
vehicle, although it is not required to do so and may not actually do so. In
the unlikely event that the Fund is not available in the future and a
substitute funding vehicle is not obtained, then all Annuity Account values
could be maintained in the Fixed Account. If the Fund or other funding vehicle
restricts or refuses to accept transfers or other transactions, then transfer
privileges under the Contract may be changed, modified or revoked.
 
  The Company reserves the right, subject to compliance with applicable law,
to make additions to, deletions from, or substitutions for the shares of the
Fund that are held by the Variable Account (or any Sub-Account thereof) or
that the Variable Account (or any Sub-Account thereof) may purchase. The
Company may eliminate the shares of any of the Portfolios of the Fund and
substitute shares of another Portfolio of the Fund or any other investment
vehicle or of another open-end, registered investment company if laws or
regulations are changed, if the shares of the Fund or of a Portfolio are no
longer available for investment, or if the Company determines that further
investment in any Portfolio should become inappropriate in view of the
purposes of the Variable Account. If any of these events occurs, substitution
of any shares attributable to a Purchaser's interest in a Sub-Account of the
Variable Account shall occur only after notice and prior approval by the
Commission to the extent required. Nothing contained herein shall prevent the
Variable Account from purchasing other securities for other series or classes
of policies, or from permitting a conversion between series or classes of
policies on the basis of requests made by Purchasers. The Company shall make
any appropriate endorsement to the Contracts to reflect any substitution
pursuant to this provision.
 
  New Sub-Accounts may be established when, in the sole discretion of the
Company, marketing, tax, investment or other conditions warrant. Any new Sub-
Accounts may be made available to existing Purchasers on a basis to be
determined by the Company. Each additional Sub-Account will purchase shares in
a portfolio of the Fund or in another mutual fund or investment vehicle. The
Company may also eliminate one or more Sub-Accounts if, in its sole
discretion, marketing, tax, investment or other conditions warrant such
change. In the event any Sub-Account is eliminated, the Company will notify
Purchasers and request a reallocation of the amounts invested in the
eliminated Sub-Account.
 
  CHANGE IN OPERATION OF VARIABLE ACCOUNT. At the Company's election and if
deemed in the best interests of persons having voting rights under the
Contracts, the Variable Account may be operated as a management company under
the Act or any other form permitted by law; de-registered under the Act in the
event registration is no longer required (deregistration of the Variable
Account requires an order by the Commission); or combined with one or more
other separate accounts. To the extent permitted by applicable law, the
Company also may transfer the assets of the Variable Account associated with
the Contracts to another account or accounts. In the event of any change in
the operation of the Variable Account pursuant to this provision, the Company
may make appropriate endorsement to the Contracts to reflect the change and
take such other action as may be necessary and appropriate to effect the
change.
 
  MODIFICATION. Upon notice to the Purchaser(s) (or the Payee(s) after the
Annuity Date), the Contracts may be modified by the Company if such
modification: (i) is necessary to make the Contracts or the Variable Account
comply with, or take advantage of, any law or regulation issued by a
governmental agency to which the Company or the Variable Account is subject;
or (ii) is necessary to attempt to assure continued qualification of the
Contracts under the Code or other federal or state laws relating to retirement
annuities or annuity contracts; or (iii) is necessary to reflect a change in
the operation of the Variable Account or its Sub-Account(s) (see "Change in
Operation of Variable Account"); or (iv) provides additional Variable Account
and/or fixed accumulation options. In the event of any such modification, the
Company may make appropriate endorsement in the Contracts to reflect such
modification.
 
  In addition, upon notice to the Purchaser the Contracts may be modified by
the Company to change the withdrawal charges, Annuity Account Fees, mortality
and expense risk charges, the tables used in determining the amount of the
first monthly fixed annuity payment, and the formula used to calculate the
MVA, provided that such modification shall apply only to Contracts established
after the effective date of such modification. In order to exercise its
modification rights in these particular instances, the Company must notify the
Purchaser of such modification in writing. All of the charges and the annuity
tables which are provided in the Contracts prior to any such modification will
remain in effect permanently, unless improved by the Company, with respect to
Contracts established prior to the effective date of such modification.
 
                                      25
<PAGE>
 
  DISCONTINUANCE OF NEW PURCHASERS. The Company reserves the right to limit or
discontinue the acceptance of new Contract Applications and the issuance of
new Contracts. Such limitation or discontinuance shall have no effect on
rights or benefits with respect to any Contracts issued prior to the effective
date of such limitation or discontinuance.
 
  RIGHT TO EXAMINE CONTRACT. If the Purchaser is not satisfied with a Contract
it may be returned by mailing it to the Company via the Variable Annuity
Service Center mailing address listed on the cover of this Prospectus within
ten days, or longer if state law requires, after it was received by the
Purchaser. A Purchaser may not make transfers during this period. When the
Company receives the returned Contract it will be canceled and in most states
the Purchaser will receive a refund equal to the Purchaser's Annuity Account
Value at the end of the Valuation Period during which the returned Contract
was received by the Company.
 
  Where state law requires, the full amount of any initial Premium Payment and
subsequent Premium Payment(s) if any, received by the Company will be refunded
and/or the period may be extended to 20 days. In those states, the Company
will place the Premium Payment(s) that are allocated to Sub-Accounts of the
Variable Account in the AIM V.I. Money Market Fund until the end of the Right
to Examine period, and, within three days thereafter, the Premium Payments
will be allocated as specified by the Purchaser in the Contract Application.
The Company will also refund the greater of the Purchaser's Annuity Account
Value or the full amount of the Premium Payment(s), if any, to those
Purchasers in those states who invoke their refund privilege.
 
  IRA RIGHT OF REVOCATION. With respect to Individual Retirement Accounts,
under the Employee Retirement Income Security Act of 1974 ("ERISA") a
Purchaser establishing an Individual Retirement Account must be furnished with
a disclosure statement containing certain information about the Contract and
applicable legal requirements. This statement must be furnished on or before
the date the Individual Retirement Account is established. If the Purchaser is
furnished with such disclosure statement before the seventh day preceding the
date the Individual Retirement Account is established, the Purchaser will not
have any right of revocation. If the disclosure statement is furnished after
the seventh day preceding the establishment of the Individual Retirement
Account, then the Purchaser may give a notice of revocation to the Company at
any time within seven days after the Date of Issue. Upon such revocation, the
Company will refund the Premium Payment made by the Purchaser. The foregoing
right of revocation with respect to an Individual Retirement Account is in
addition to the return privilege set forth in the preceding paragraph. The
Company will allow a participant establishing an Individual Retirement Account
a "ten day free-look", notwithstanding the provisions of ERISA.
 
  PERIODIC REPORTS. At least once each calendar year, the Company will provide
a Purchaser a report showing the Annuity Account Value at the end of the
preceding calendar year, all transactions during the calendar year, the
current Annuity Account Value, the number of Accumulation Units in each
Variable Sub-Account, the applicable Variable Accumulation Unit Value(s) as of
the date of the report and the interest rate credited to the Fixed Account
Sub-Account(s). In addition, each person having voting rights in the Variable
Account and a Fund or Funds will receive such reports as may be required by
the Investment Company Act of 1940 and the Securities Act of 1933. The Company
will also send such statements reflecting transactions in the Annuity Account
as may be required by applicable laws, rules and regulations.
 
- -------------------------------------------------------------------------------
 
FEDERAL TAX MATTERS
 
  INTRODUCTION. The Contracts described in this Prospectus are designed for
use by individuals to accumulate Annuity Account Values and may be used by
retirement plans, whether or not they qualify for special federal income tax
treatment. The ultimate effect of federal income taxes on the amounts held
under a Contract, on annuity payments, and on the economic benefits to the
Purchaser, Annuitant or Beneficiary depends on the Company's tax status, on
the type of retirement plan for which a Contract is purchased, and upon the
tax and employment status of the individual concerned.
 
  The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax advisor. No
attempt is made to consider any applicable state or other tax laws. Moreover,
the discussion is based upon the Company's understanding of the federal income
tax laws as they are currently interpreted. No representation is made
regarding the likelihood of continuation of the federal income tax laws, the
Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). THE COMPANY DOES NOT MAKE ANY GUARANTEE REGARDING THE
TAX STATUS, FEDERAL, STATE OR LOCAL, OF ANY CONTRACT OR ANY TRANSACTION
INVOLVING THE CONTRACT.
 
  TAXATION OF ANNUITIES. The following discussion assumes the Contracts will
qualify as annuity contracts for federal income tax purposes. The Statement of
Additional Information discusses the requirements for qualifying as an
annuity.
 
  IN GENERAL. Code Section 72 governs taxation of annuities. In general, a
Purchaser is not taxed on increases in value under a Contract until some form
of distribution is made under the Contract. The exception to this rule is that
generally, a Purchaser who is not a natural person must include in income any
increase in the excess of the Purchaser's Annuity Account Value over the
Purchaser's investment in the contract during the taxable year. However, there
are some exceptions to this exception and you may wish to discuss these with
your tax counsel. The taxable portion of a distribution (in the form of an
annuity or lump sum payment) is generally taxed as ordinary income. For this
purpose, the assignment, pledge, or agreement to assign or pledge any portion
of the Annuity Account Value (or the Contract) generally will be treated as a
distribution.
 
                                      26
<PAGE>
 
  The following discussion generally applies to Contracts owned by natural
persons.
 
  WITHDRAWALS AND SURRENDERS. In the case of a withdrawal distributed to a
participant or beneficiary under a Qualified Contract (other than a Qualified
Contract used in a retirement plan that qualifies for special income tax
treatment under Section 457 of the Code, as to which there are special rules)
a ratable portion of the amount received is taxable, generally based on the
ratio of the investment in the Contract to the total Annuity Account Value.
The "investment in the contract" generally equals the portion, if any, of any
Premium Payments paid by or on behalf of an individual under a Contract which
is not excluded from the individual's gross income. For contracts issued in
connection with qualified plans, the "investment in the contract" can be zero.
Special tax rules may be available for certain distribution from Qualified
Contracts.
 
  Generally, in the case of a partial withdrawal under a Non-Qualified
Contract before the Annuity Date (including systematic withdrawals), amounts
received are first treated as taxable income to the extent that the Annuity
Account Value immediately before the withdrawal exceeds the "investment in the
contract" at that time. The Annuity Account Value immediately before a
withdrawal may have to be increased by any positive MVA which results from
such a withdrawal. There is, however, no definitive guidance on the proper tax
treatment of MVAs, and the Purchaser should contact a competent tax advisor
with respect to the potential tax consequences of a MVA.
 
  In the case of a full surrender under a Non-Qualified Contract, the amount
received is generally treated as taxable income to the extent the net amount
received exceeds the "investment in the contract" at that time.
 
  ANNUITY PAYMENTS. Although the tax consequences may vary depending on the
Annuity Option elected under the Contract, in general, only the portion of an
annuity payment that represents the amount by which the Annuity Account Value
exceeds the investment in the Contract will be taxed; after the investment in
the Contract is recovered, the full amount of any additional annuity payments
is taxable. For Variable Annuity payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic
payments. The entire distribution will, however, be taxable once the recipient
has recovered the dollar amount of the "investment in the contract." For Fixed
Annuity payments, in general, there is no tax on the portion of each payment
which represents the same ratio that the "investment in the contract" bears to
the total expected value of the annuity payments for the term of the payments;
however, the remainder of each annuity payment is taxable until the recovery
of the investment in the contract, and thereafter the full amount or each
annuity payment is taxable.
 
  PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution from a
Non-Qualified Contract (including systematic withdrawals, other partial
withdrawals, surrenders, and any other distribution), there may be imposed a
penalty tax equal to 10% of the amount treated as taxable income. The penalty
tax is not imposed in certain circumstances, including, generally,
distributions: (1) made on or after the date on which the Purchaser is age 59
1/2; (2) made as a result of death of the Purchaser or disability of the
taxpayer; or (3) received in substantially equal installments as a life
annuity. Other tax penalties may apply to certain distributions pursuant to a
Qualified Contract.
 
  TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of the death of a Purchaser. Generally, such amounts are
includable in the income of the recipient as follows: (1) if distributed in a
lump sum, they are taxed in the same manner as a full surrender of the
Contract, as described above, or (2) if distributed under an Annuity Option,
they are taxed in the same manner as annuity payments, as described above.
 
  MULTIPLE CONTRACTS. All non-qualified, deferred annuity contracts that are
issued by the Company (or its affiliates) to the same Purchaser during any
calendar year are to be treated as one annuity contract for purposes of
determining the amount includable in an individual's gross income. There may
be other situations in which the Treasury may conclude that it would be
appropriate to aggregate two or more annuity contracts purchased by the same
investor. Accordingly, a Purchaser should consult a competent tax adviser
before purchasing more than one Contract or other annuity contracts.
 
  TRANSFERS, ASSIGNMENTS OR EXCHANGES OF CONTRACTS. A transfer of ownership of
a Contract; the designation of an Annuitant, Payee or other Beneficiary who is
not also the Purchaser; the selection of certain Annuity Dates; or a change of
Annuitant; may result in certain income or gift tax consequences to the
Purchaser that are beyond the scope of this discussion. A Purchaser
contemplating any such transfer, assignment or change should contact a
competent tax adviser in respect to the potential tax effects of such a
transaction.
 
  WITHHOLDING. Withholding of federal income taxes on the taxable portion of
all distributions may be required unless the recipient elects not to have any
such amounts withheld and properly notifies the Company of that election.
Different rules may apply to United States citizens or expatriates living
abroad. Withholding is mandatory for certain distributions from Qualified
Contracts. In addition, some states have enacted legislation requiring
withholding.
 
  SECTION 1035 EXCHANGES. Code Section 1035 generally provides that no gain or
loss shall be recognized on the exchange of one annuity contract for another.
If the surrendered contract was issued prior to August 14, 1982, the tax rules
that formerly provided that the surrender was taxable only to the extent the
amount received exceeds the owner's investment in the contract will continue
to apply to amounts allocable to investment in the contract before August 14,
1982. Special rules and procedures apply to Code Section 1035 transactions.
Prospective purchasers wishing to take advantage of Code Section 1035 should
consult their tax advisers.
 
                                      27
<PAGE>
 
  QUALIFIED PLANS. The Qualified Contract is designed for use with several
types of qualified plans. The tax rules applicable to participants and
beneficiaries in such qualified plans vary according to the type of plan and
the terms and conditions of the plan itself. Special favorable tax treatment
may be available for certain types of contributions and distributions
(including special rules for certain lump sum distributions). Adverse tax
consequences may result from contributions in excess of specified limits,
distributions prior to age 59 1/2 (subject to certain exceptions),
distributions that do not conform to specified minimum distribution rules,
aggregate distributions in excess of a specified annual amount, and in certain
other circumstances. Therefore, the Company makes no attempt to provide more
than general information about use of the Contract with the various types of
qualified plans. Purchasers and participants under qualified plans as well as
Annuitants, Payees and Beneficiaries are cautioned that the rights of any
person to any benefits under qualified plans may be subject to the terms and
conditions of the plan themselves, regardless of the terms and conditions of
the Contract issued in connection therewith. Purchasers of Contracts for use
with any qualified plan should seek competent legal and tax advice regarding
the suitability of the Contract therefor.
 
  SECTION 403(B) PLANS. Under Section 403(b) of the Code, payments made by
public school systems and certain tax exempt organizations to purchase annuity
policies for their employees are excludable from the gross income of the
employee, subject to certain limitations. However, such payments may be
subject to FICA (Social Security) taxes. Additionally, in accordance with the
requirements of the Code, Section 403(b) annuities generally may not permit
distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age 59
1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the
case of hardship.
 
  INDIVIDUAL RETIREMENT ANNUITIES. Sections 219 and 408 of the Code permit
individuals or their employers to contribute to an individual retirement
program known as an "Individual Retirement Annuity" or an "IRA". Individual
Retirement Annuities are subject to limitation on the amount which may be
contributed and deducted and the time when distributions may commence. In
addition, distributions from certain other types of qualified plans may be
placed into an Individual Retirement Annuity on a tax-deferred basis.
 
  CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS. Section 401(a)
and 403(a) of the Code permit corporate employers to establish various types
of retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the Contracts to provide benefits under the plans.
 
  DEFERRED COMPENSATION PLANS. Section 457 of the Code, while not actually
providing for a qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political sub-divisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The Contracts can be used with
such plans. Under such plans a participant may specify the form of investment
in which his or her participation will be made. All such investments, however,
are owned by, and are subject to, the claims of the general creditors of the
sponsoring employer.
 
                          * * * * * * * * * * * * * *
 
  The above description of federal income tax consequences pertaining to the
different types of Qualified Plans that may be funded by the Contracts is only
a brief summary and is not intended as tax advice. The rules governing the
provisions of Qualified Plans are extremely complex and often difficult to
comprehend. In addition, the Tax Reform Act has significantly changed a great
many rules for Qualified Plans. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have significant
adverse tax consequences. A prospective purchaser considering the purchase of
a Contract in connection with a Qualified Plan should first consult a
qualified and competent tax advisor with regard to the suitability of the
Contract as an investment vehicle for the Qualified Plan.
 
- -------------------------------------------------------------------------------
 
DISTRIBUTION OF THE CONTRACTS
 
  CIGNA Financial Advisors, Inc. ("CFA") located at 900 Cottage Grove Road,
Bloomfield, Connecticut is the principal underwriter and the distributor of
the Contracts. CFA is a wholly-owned subsidiary of Connecticut General
Corporation, which is an affiliate of CIGNA Corporation. CFA may enter into
contracts with various broker-dealers to aid in the distribution of the
Contracts. The commissions paid to dealers are no greater than 6.75% of
Premium Payments.
 
- -------------------------------------------------------------------------------
 
                                      28
<PAGE>
 
HISTORICAL PERFORMANCE DATA
 
  The Company may from time to time disclose the current annualized yield of
the Money Market Sub-Account for a 7-day period in a manner which does not
take into consideration any realized or unrealized gains or losses on shares
of the AIM V.I. Money Market Series or on its portfolio securities. Yield
figures will not reflect withdrawal charges or premium taxes. The current
annualized yield is computed by determining the net change (exclusive of
realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) at the end of the 7-day period in the value of
a hypothetical account having a balance of 1 variable accumulation unit of the
Money Market Sub-Account at the beginning of the 7-day period, dividing such
net change in account value by the value of the account at the beginning of
the period to determine the base period return, and annualizing this quotient
on a 365-day basis. The net change in account value reflects (i) net income
from the Portfolio attributable to the hypothetical account; and (ii) charges
and deductions imposed under a Contract that are attributable to the
hypothetical account.
 
  The Company may also disclose the effective yield of the Money Market Sub-
Account for the same 7-day period, determined on a compounded basis. The
effective yield is calculated by compounding the unannualized base period
return by adding one to the base period return, raising the sum to a power
equal to 365 divided by 7, and subtracting one from the result.
 
  The Company may also advertise or disclose the current annualized yield of
one or more of the Sub-Accounts of the Variable Account (except the Money
Market Sub-Account) for 30-day periods. The annualized yield of a Sub-Account
refers to income generated by the Sub-Account over a specific 30-day period.
Because the yield is annualized, the yield generated by a Sub-Account during
the 30-day period is assumed to be generated each 30-day period over a 12-
month period. The yield is computed by dividing the net investment income per
variable accumulation unit earned during the period by the maximum offering
price per unit on the last day of the period. The yield calculations do not
reflect the effect of any premium taxes or withdrawal charges that may be
applicable to a particular Contract.
 
  The Company may also advertise or disclose annual average total returns for
one or more Sub-Accounts of the Variable Account for various period of time.
The standardized total return of a Sub-Account refers to return quotations
assuming an investment has been held in the Sub-Account for various periods of
time including, but not limited to, one year, five years, and ten years (if
the Sub-Account has been in operation for those periods), and a period
measured from the date the Sub-Account commenced operations. Total returns
represent the average annual compounded rates of return that would equate the
initial amount invested to the redemption value of that investment as of the
last day of each of the periods for which total return quotations are
provided. Accordingly, the total return quotations will reflect not only
income but also changes in principal (i.e., variable accumulation unit) value,
whereas the yield figures will only reflect income. The standardized total
return quotations reflect the withdrawal charge, but the standardized yield
figures will not.
 
  The Company may from time to time also disclose average annual total returns
in a non-standard format in conjunction with the standard format described
above. The non-standard format will be identical to the standard format except
that the withdrawal charge percentage will be assumed to be 0%. The Company
may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated assuming that the withdrawal charge is 0%.
 
  All non-standard performance data will only be advertised if the standard
performance data is also disclosed. Performance will vary from time to time
and historical results will not be representative of future performance.
Performance information may not provide a basis for comparison with other
investments or other investment companies using a different method of
calculating performance. Current yield is not fixed and varies with changes in
investment income and variable accumulation unit values. The Money Market Sub-
Account's yield will be affected if it experiences a net inflow of new money
which is invested at interest rates different from those being earned on its
then-current investments. An investor's principal in a Sub-Account and a Sub-
Account's return are not guaranteed and will fluctuate according to market
conditions. And, as noted above, advertised performance data figures will be
historical figures for a contract during the Accumulation Period.
 
  The Company may also from time to time use advertising which includes
hypothetical illustrations to compare the difference between the growth of a
taxable investment and a tax-deferred investment in a variable annuity.
 
  For additional information regarding the calculation of performance data,
please refer to the Statement of Additional Information.
 
                                      29
<PAGE>
 
                      STATEMENT OF ADDITIONAL INFORMATION
 
  A Statement of Additional Information is available (at no cost) which
contains more details concerning the subjects discussed in this Prospectus. The
following is the Table of Contents for that Statement:
 
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
   <S>                                                                      <C>
   THE CONTRACTS-GENERAL PROVISIONS........................................   3
    The Contracts..........................................................   3
    Loans..................................................................   3
    Non-Participating Contracts............................................   3
    Misstatement of Age....................................................   3
    Assignment.............................................................   3
    Evidence of Survival...................................................   3
    Endorsement of Annuity Payments........................................   3
   TAXATION OF THE COMPANY.................................................   3
   INVESTMENT EXPERIENCE...................................................   4
    Variable Accumulation Unit Value and Variable Accumulation Value.......   4
    Net Investment Factor..................................................   4
   SAMPLE CALCULATIONS AND TABLES..........................................   4
    Variable Account Calculations..........................................   4
    Withdrawal Charge and MVA Tables.......................................   5
   STATE REGULATION OF THE COMPANY.........................................   6
   ADMINISTRATION..........................................................   7
   DISTRIBUTION OF THE CONTRACTS...........................................   7
   CUSTODY OF ASSETS.......................................................   7
   HISTORICAL PERFORMANCE DATA.............................................   7
    Money Market Sub-Account Yield.........................................   7
    Other Sub-Account Yields...............................................   8
    Total Returns..........................................................   8
    Other Performance Data.................................................   9
   LEGAL MATTERS...........................................................   9
   LEGAL PROCEEDINGS.......................................................   9
   EXPERTS.................................................................   9
   FINANCIAL STATEMENTS....................................................   9
    Connecticut General Life Insurance Company.............................  10
    CG Variable Annuity Separate Account...................................  28
</TABLE>
 
                                       30
<PAGE>
 
                      STATEMENT OF ADDITIONAL INFORMATION
 
                      AIM/CIGNA HERITAGE VARIABLE ANNUITY
 
                                Issued through
 
                     CG VARIABLE ANNUITY SEPARATE ACCOUNT
 
                                  Offered by
                  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
 
                             Home Office Location
                            900 Cottage Grove Road
                          Hartford, Connecticut 06152
 
                       Variable Products Service Center
                    c/o Delaware Valley Financial Services
                                300 Berwyn Park
                                 P.O. Box 3031
                               Berwyn, PA 19312
                                (800) 628-2811
 
This Statement of Additional Information ("Statement") expands upon subjects
discussed in the current Prospectus for the Variable Annuity Contracts (the
"Contracts") offered by Connecticut General Life Insurance Company through CG
Variable Annuity Separate Account. You may obtain a copy of the Prospectus
dated May 1, 1996, by calling (860) 726-6000, or by writing to Connecticut
General Life Insurance Company at the mailing address shown above. Terms used
in the current Prospectus for the Contracts are incorporated in this
Statement.
 
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACTS AND CG VARIABLE
ANNUITY SEPARATE ACCOUNT.
 
Dated: May 1, 1996
<PAGE>
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
THE CONTRACTS-GENERAL PROVISIONS...........................................   3
  The Contracts............................................................   3
  Loans....................................................................   3
  Non-Participating Contracts..............................................   3
  Misstatement of Age......................................................   3
  Assignment...............................................................   3
  Evidence of Survival.....................................................   3
  Endorsement of Annuity Payments..........................................   3
TAXATION OF THE COMPANY....................................................   3
INVESTMENT EXPERIENCE......................................................   4
  Variable Accumulation Unit Value and Variable Accumulation Value.........   4
  Net Investment Factor....................................................   4
SAMPLE CALCULATIONS AND TABLES.............................................   4
  Variable Account Calculations............................................   4
  Withdrawal Charge and Market Value Adjustment Tables.....................   5
STATE REGULATION OF THE COMPANY............................................   6
ADMINISTRATION.............................................................   7
DISTRIBUTION OF THE CONTRACTS..............................................   7
CUSTODY OF ASSETS..........................................................   7
HISTORICAL PERFORMANCE DATA................................................   7
  Money Market Sub-Account Yield...........................................   7
  Other Sub-Account Yields.................................................   8
  Total Returns............................................................   8
  Other Performance Data...................................................   9
LEGAL MATTERS..............................................................   9
LEGAL PROCEEDINGS..........................................................   9
EXPERTS....................................................................   9
FINANCIAL STATEMENTS.......................................................   9
  Connecticut General Life Insurance Company...............................  10
  CG Variable Annuity Separate Account.....................................  28
</TABLE>
 
                                       2
<PAGE>
 
  In order to supplement the description in the Prospectus, the following
provides additional information about Connecticut General Life Insurance
Company (the "Company") and the Contracts which may be of interest to a
Contract Owner. Terms have the same meaning as in the Prospectus, unless
otherwise indicated.
 
- -------------------------------------------------------------------------------
 
                       THE CONTRACTS--GENERAL PROVISIONS
 
  THE CONTRACTS. A Contract, attached riders, amendments, any application, and
any applications, for additional amounts, form the entire contract. Only the
President, a Vice President, a Secretary, a Director, or an Assistant Director
of the Company may change or waive any provision in a Contract. Any changes or
waivers must be in writing.
 
  The Company may change or amend the Contracts if such change or amendment is
necessary for the Contracts to comply with or take advantage of any state or
federal law, rule or regulation.
 
  LOANS. Under the Contracts, loans are not permitted.
 
  NON-PARTICIPATING CONTRACTS. The Contracts do not participate or share in
the profits or surplus earnings of the Company.
 
  MISSTATEMENT OF AGE. If the age of the Annuitant is misstated, any amounts
payable by the Company under the Contract will be adjusted to be those amounts
which the Premium Payments would have purchased for the correct age, according
to the Company's rates in effect on the Date of Issue. Any overpayment by the
Company, with interest at the rate of 6% per year, compounded annually, will
be charged against the payments to be made next succeeding the adjustment. Any
underpayment by the Company will be paid in a lump sum.
 
  ASSIGNMENT. During the lifetime of the Annuitant the Purchaser may assign
any rights under a Contract as security for a loan or other reasons. This does
not change the ownership of a Contract, but the rights of the Purchaser and
any Beneficiary are subject to the terms of the assignments. An assignment
will not be binding on the Company until the original assignment or a
certified copy has been filed at the Variable Products Service Center. The
Company is not responsible for the validity of the assignment. An assignment
may have income tax consequences. Rights under Qualified Contracts may not be
assignable.
 
  EVIDENCE OF SURVIVAL. The Company reserves the right to require evidence of
the survival of any Payee at the time any payment payable to such Payee is due
under the following Annuity Options: Life Annuity (fixed), Life Annuity with
Certain Period (fixed), Cash Refund Life Annuity (fixed), Variable Life
Annuity, and Variable Life Annuity with Certain Period.
 
  ENDORSEMENT OF ANNUITY PAYMENTS. The Company will make each annuity payment
at its Home Office by check. Each check must be personally endorsed by the
Payee, and the Company may require that proof of the Annuitant's survival be
furnished.
 
- -------------------------------------------------------------------------------
 
                            TAXATION OF THE COMPANY
 
  The Company at present is taxed as a life insurance company under part I of
Subchapter L of the Internal Revenue Code of 1986, as amended. The Variable
Account is treated as part of the Company and, accordingly, will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
The Company does not expect to incur any federal income tax liability with
respect to investment income and net capital gains arising from the activities
of the Variable Account retained as part of the reserves under the Contract.
Based on this expectation, it is anticipated that no charges will be made
against the Variable Account for federal income taxes. If, in future years,
any federal income taxes or other economic burden are incurred by the Company
with respect to the Variable Account or the Contracts, the Company may make a
charge for any such amounts that are attributable to the Variable Account.
 
- -------------------------------------------------------------------------------
 
                                       3
<PAGE>
 
- -------------------------------------------------------------------------------
 
                             INVESTMENT EXPERIENCE
 
  On any Valuation Date, the Variable Account value is equal to the totals of
the values allocated to the Contracts in each Sub-Account. The portion of an
Owner's Annuity Account Value held in any Variable Account Sub-Account is
equal to the number of Sub-Account units allocated to a Contract multiplied by
the Sub-Account accumulation unit value as described below.
 
  VARIABLE ACCUMULATION UNIT VALUE AND VARIABLE ACCUMULATION VALUE. Upon
receipt of a Premium Payment by the Company at its Variable Products Service
Center, all or that portion, if any, of the Premium Payment to be allocated to
the Variable Account Sub-Accounts will be credited to the Variable Account in
the form of Variable Accumulation Units. The number of particular Variable
Accumulation Units to be credited is determined by dividing the dollar amount
allocated to the particular Variable Account Sub-Account by the Variable
Accumulation Unit Value for the particular Variable Account Sub-Account for
the Valuation Period during which the Premium Payment is received at the
Company's Variable Products Service Center (for the initial Premium Payment,
for the Valuation Period during which the Premium Payment is accepted).
 
  The Variable Accumulation Unit Value for each Variable Account Sub-Account
was established at $10.00 for the first Valuation Period of the particular
Variable Account Sub-Account. The Variable Accumulation Unit Value for the
particular Variable Account Sub-Account for any subsequent Valuation Period is
determined by multiplying the Variable Accumulation Unit Value for the
particular Variable Account Sub-Account for the immediately preceding
Valuation Period by the Net Investment Factor for the particular Variable
Account Sub-Account for such subsequent Valuation Period. The Variable
Accumulation Unit Value for each Variable Account Sub-Account for any
Valuation Period is the value determined as of the end of the particular
Valuation Period and may increase, decrease, or remain constant from Valuation
Period to Valuation Period.
 
  The variable accumulation value of the Annuity Account, if any, for any
Valuation Period is equal to the sum of the value of all Variable Accumulation
Units of each Variable Account Sub-Account credited to the Variable Account
for such Valuation Period. The variable accumulation value of each Variable
Account Sub-Account is determined by multiplying the number of Variable
Accumulation Units, if any, credited to each Variable Account Sub-Account by
the Variable Accumulation Unit Value of the particular Variable Account Sub-
Account for such Valuation Period.
 
  NET INVESTMENT FACTOR. The Net Investment Factor is an index applied to
measure the investment performance of a Variable Account Sub-Account from one
Valuation Period to the next. The Net Investment Factor may be greater or less
than or equal to 1.0; therefore, the value of a Variable Accumulation Unit may
increase, decrease, or remain the same.
 
  The Net Investment Factor for any Variable Account Sub-Account for any
Valuation Period is determined by dividing (a) by (b) and then subtracting (c)
from the result where:
 
   (a) is the net result of:
 
      (1) the net asset value of a Fund share held in the Variable Account
    Sub-Account determined as of the end of the Valuation Period, plus
 
      (2) the per share amount of any dividend or other distribution
    declared on the Fund shares held in the Variable Account Sub-Account if
    the "ex-dividend" date occurs during the Valuation Period, plus or minus
 
      (3) a per share credit or charge with respect to any taxes paid or
    reserved for by the Company during the Valuation Period which are
    determined by the Company to be attributable to the operation of the
    Variable Account Sub-Account;
 
    (b) is the net asset value of the Fund share held in the Variable Account
  Sub-Account determined as of the end of the preceding Valuation Period; and
 
    (c) is the total of charges for mortality and expense risks, and the
  administrative expense fee during the Valuation Period.
 
- -------------------------------------------------------------------------------
 
                        SAMPLE CALCULATIONS AND TABLES
 
VARIABLE ACCOUNT CALCULATIONS
 
  VARIABLE ACCUMULATION UNIT VALUE CALCULATION. Assume the net asset value of
a Fund share at the end of the current Valuation Period is $16.50; and its
value at the end of the immediately preceding Valuation Period was $16.46; the
Valuation Period is one day; and no dividends or distributions caused Fund
shares to go "ex-dividend" during the current Valuation Period. $16.50 divided
by $16.46 is 1.002430134. Subtracting the one day risk factor for mortality
and expense risks and the administrative expense charge of .00003723754 (the
daily equivalent of the current charge of 1.35% on an annual basis) gives a
net investment factor of 1.00239289646. If the value of the Variable
Accumulation Unit for the immediately preceding Valuation Period had been
$14.7036925, the value for the current Valuation Period would be $14.73887691
($14.7036925 X 1.00239289646).
 
                                       4
<PAGE>
 
  VARIABLE ANNUITY UNIT VALUE CALCULATION. The assumptions in the above
example exist. Also assume that the value of an Annuity Unit for the
immediately preceding Valuation Period had been $13.5791357. If the first
variable annuity payment is determined by using an assumed interest rate of 3%
per year, the value of the Annuity Unit for the current Valuation Period would
be $13.61016662 [$13.5791357 X 1.00239289646 (the net investment factor) X
0.999892552]. 0.999892552 is the factor, for a one day Valuation Period, that
neutralizes the assumed interest rate of four percent (4%) per year used to
establish the Annuity Payment Rates found in the Contract.
 
  VARIABLE ANNUITY PAYMENT CALCULATION. Assume that a Participant's Variable
Annuity Account is credited with 5319.7531 Variable Accumulation Units of a
particular Sub-Account; that the Variable Accumulation Unit Value and the
Annuity Unit Value for the particular Sub-Account for the Valuation Period
which ends immediately preceding the Annuity Date are $14.7036925 and
$13.5791357 respectively; that the Annuity Payment Rate for the age and option
elected is $6.52 per $1,000; and that the Annuity Unit Value on the day prior
to the second variable annuity payment date is $13.61017004. The first
variable annuity payment would be $509.99 (5319.7531 X $14.7036925 X 6.52
divided by 1,000). The number of Annuity Units credited would be 37.5569
($509.99 divided by $13.5791357) and the second variable annuity payment would
be $511.16 (37.5569 X $13.61017004).
 
WITHDRAWAL CHARGE AND MARKET VALUE ADJUSTMENT TABLES
 
  The following example illustrates the detailed calculations for a $100,000
deposit into the Fixed Account with a guaranteed rate of 8% for a duration of
five years. The intent of the example is to show the effect of the Market
Value Adjustment ("MVA") and the 3% minimum guarantee under various interest
rates on the calculation of the cash surrender value. The effect of the MVA is
reflected in the index rate factor in column (2) and the minimum 3% guarantee
is shown under column (4) under the "Surrender Value Calculation". The effect
of the withdrawal charge and any taxes, such as premium taxes, is not shown.
The "Market Value Adjustment Tables" and "Minimum Value Calculation" contain
the explicit calculation of the index factors and the 3% minimum guarantee
respectively.
 
- -------------------------------------------------------------------------------
 
                     SAMPLE CALCULATIONS FOR MALE 35 ISSUE
 
                             CASH SURRENDER VALUES
 
<TABLE>
    <S>                                                                 <C>
    Single premium.....................................................          $100,000
    Premium taxes......................................................             0
    Withdrawals........................................................            None
    Guaranteed period..................................................          5 years
    Guaranteed interest rate...........................................             8%
    Annuity date.......................................................           Age 70
    Index rate A.......................................................            7.5%
    Index rate B....................................................... 8.00% end of policy year 1
                                                                        7.75% end of policy year 2
                                                                        7.00% end of policy year 3
                                                                        6.50% end of policy year 4
    Percentage adjustment to B.........................................            0.5%
</TABLE>
 
- -------------------------------------------------------------------------------
 
                          SURRENDER VALUE CALCULATION
 
<TABLE>
<CAPTION>
             (1)      (2)      (3)      (4)      (5)         (6)       (7)
          -------- -------- -------- -------- --------    --------- ---------
                    INDEX   ADJUSTED
CONTRACT  ANNUITY    RATE   ANNUITY  MINIMUM  GREATER     SURRENDER SURRENDER
  YEAR     VALUE    FACTOR   VALUE    VALUE    OF (3)&(4)  CHARGE     VALUE
- --------  -------- -------- -------- -------- --------    --------- ---------
<S>       <C>      <C>      <C>      <C>      <C>         <C>       <C>
   1      $107,965 0.963640 $104,039 $102,965 $104,039     $5,950   $ 98,089
   2      $116,567 0.993056 $115,758 $106,019 $115,758     $5,100   $110,658
   3      $125,858 1.000000 $125,858 $109,165 $125,858     $4,250   $121,608
   4      $135,891 1.004673 $136,526 $112,404 $136,526     $3,400   $133,126
   5      $146,727 1.000000 $146,727 $115,742 $146,727     $2,550   $144,177
</TABLE>
 
- -------------------------------------------------------------------------------
 
                                       5
<PAGE>
 
 
                           ANNUITY VALUE CALCULATION
 
<TABLE>
<CAPTION>
       CONTRACT YEAR                                   ANNUITY VALUE
       -------------                          --------------------------------
       <S>                                    <C>
             1                                $100,000 X 1.08 - $35 = $107,965
             2                                $107,965 X 1.08 - $35 = $116,567
             3                                $116,567 X 1.08 - $35 = $125,858
             4                                $125,858 X 1.08 - $35 = $135,891
             5                                $135,891 X 1.08 - $35 = $146,727
</TABLE>
 
- -------------------------------------------------------------------------------
 
                         SURRENDER CHARGE CALCULATION
 
<TABLE>
<CAPTION>
                         (1)                     (2)                  (3)
                    ------------- -------------------------------- ---------
                      SURRENDER   SURRENDER CHARGE FACTOR ADJUSTED SURRENDER
    CONTRACT YEAR   CHARGE FACTOR   FOR FREE PARTIAL WITHDRAWALS    CHARGE
    -------------   ------------- -------------------------------- ---------
    <S>             <C>           <C>                              <C>
          1             0.07                   0.0595               $5,950
          2             0.06                   0.0510               $5,100
          3             0.05                   0.0425               $4,250
          4             0.04                   0.0340               $3,400
          5             0.03                   0.0255               $2,550
</TABLE>
 
- -------------------------------------------------------------------------------
 
                        MARKET VALUE ADJUSTMENT TABLES
 
<TABLE>
<CAPTION>
                      INTEREST RATE FACTOR CALCULATION
    ----------------------------------------------------------------------------------
                        (1)           (2)             (3)           (4)          (5)
                       ------       ------       ------------       ---       --------
                       INDEX        INDEX          ADJUSTED                    (1+A)N
    CONTRACT YEAR      RATE A       RATE B       INDEX RATE B        N         (I+B)N
    -------------      ------       ------       ------------       ---       --------
    <S>                <C>          <C>          <C>                <C>       <C>
          1             7.5%         8.00            8.50             4       0.963640
          2             7.5%         7.75            7.75             3       0.993056
          3             7.5%         7.00            7.50             2       1.000000
          4             7.5%         6.50            7.00             1       1.004673
          5             7.5%           NA              NA             0             NA
</TABLE>
 
- -------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                               MINIMUM VALUE CALCULATION
           -------------------------------------------------------------------
           CONTRACT YEAR                                MINIMUM VALUE
           -------------                       -------------------------------
           <S>                                 <C>
                 1                             $100,000 X 1.03 -$35 = $102,965
                 2                             $102,965 X 1.03 -$35 = $106,019
                 3                             $106,019 X 1.03 -$35 = $109,165
                 4                             $109,165 X 1.03 -$35 = $112,404
                 5                             $112,404 X 1.03 -$35 = $115,742
</TABLE>
 
- -------------------------------------------------------------------------------
 
                        STATE REGULATION OF THE COMPANY
 
  The Company, a Connecticut corporation, is subject to regulation by the
Connecticut Department of Insurance. An annual statement is filed with the
Connecticut Department of Insurance each year covering the operations and
reporting on the financial condition of the Company as of December 31 of the
preceding year. Periodically, the Connecticut Department of Insurance or other
authorities examine the liabilities and reserves of the Company and the
Variable Account, and a full examination of the Company's operations is
conducted periodically by the Connecticut Department of Insurance. In
addition, the Company is subject to the insurance laws and regulations of
other states within which it is licensed to operate.
 
  A Contract is governed by the law of the state in which it is delivered. The
values and benefits of each policy are at least equal to those required by
such state.
 
- -------------------------------------------------------------------------------
 
 
                                       6
<PAGE>
 
                                ADMINISTRATION
 
  The Company performs certain administrative functions relating to the
Contracts, the Fixed Account, and the Variable Account. These functions
include, among other things, maintaining the books and records of the Variable
Account, the Fixed Account, and the Sub-Accounts, and maintaining records of
the name, address, taxpayer identification number, contract number, Annuity
Account number and type, the status of each Annuity Account and other
pertinent information necessary to the administration and operation of the
Contracts.
 
- -------------------------------------------------------------------------------
 
                         DISTRIBUTION OF THE CONTRACTS
 
  The offering of the Contracts is continuous. The Contracts will be sold by
licensed insurance agents in those states where the Contracts may be lawfully
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. and who have entered into
distribution agreements with the Company and the principal underwriter for the
Contracts, CIGNA Financial Advisors, Inc. ("CFA"), Bloomfield, Connecticut,
which is an affiliate of the Company as well as of CIGNA Corporation. CFA is
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. CFA also acts as the general
distributor of other variable annuity contracts and of variable life insurance
contracts issued by the Company. Commissions and other distribution
compensation will be paid by the Company and will not be more than 6.75% of
Premium Payments. The Company received $521,227 in deferred sales charges
attributable to the Variable Account portion of the Contracts during the
eleven months ended December 31, 1995.
 
  Sales charges on the Contracts are as described in the Prospectus. There are
no variations in sales load.
 
- -------------------------------------------------------------------------------
 
                               CUSTODY OF ASSETS
 
  The Company is the Custodian of the assets of the Variable Account. The
Company will purchase Fund shares at net asset value in connection with
amounts allocated to the Variable Account Sub-Accounts in accordance with the
instructions of the Purchasers and redeem Fund shares at net asset value for
the purpose of meeting the contractual obligations of the Variable Account,
paying charges relative to the Variable Account or making adjustments for
annuity reserves held in the Variable Account. The assets of the Sub-Accounts
of the Variable Account are held separate and apart from the assets of any
other segregated asset accounts of the Company and separate and apart from the
Company's general account assets. The Company maintains records of all
purchases and redemptions of shares of the Fund held by each of the Sub-
Accounts of the Variable Account. Additional protection for the assets of the
Variable Account is afforded by the Company's fidelity bond covering the acts
of officers and employees of the Company which is presently (as of May 1,
1996) in the amount of $100,000,000.
 
- -------------------------------------------------------------------------------
 
                          HISTORICAL PERFORMANCE DATA
 
  Historical performance data as of December 31, 1995 for each of the Sub-
Accounts of the Separate Account follows in the Financial Statements.
 
  MONEY MARKET SUB-ACCOUNT YIELD. The Company may from time to time disclose
the current annualized yield of the Money Market Sub-Account, which invests in
the Money Market Fund, for a 7-day period in a manner which does not take into
consideration any realized or unrealized gains or losses on shares of the
Money Market Fund or on its portfolio securities. This current annualized
yield is computed by determining the net change (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation) at the end of the 7-day period in the value of a hypothetical
account having a balance of 1 unit of the Money Market Sub-Account at the
beginning of the 7-day period, dividing such net change in account value by
the value of the account at the beginning of the period to determine the base
period return, and annualizing this quotient on a 365-day basis. The net
change in account value reflects (i) net income from the Money Market Fund
attributable to the hypothetical account; and (ii) charges and deductions
imposed under a Contract that are attributable to the hypothetical account.
 
  The Company may also disclose the effective yield of the Money Market Sub-
Account for the same 7-day period, determined on a compounded basis. The
effective yield is calculated by compounding the unannualized base period
return by adding one to the base period return, raising the sum to a power
equal to 365 divided by 7, and subtracting one from the result.
 
  The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
 
  EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) /3//6//5///7/] - 1
 
                                       7
<PAGE>
 
  The yield on amounts held in the Money Market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Money Market Sub-Account's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Fund, the types and quality of portfolio securities held by the
Money Market Fund and its operating expenses. The yield figures do not reflect
withdrawal charges or premium taxes.
 
OTHER SUB-ACCOUNT YIELDS. The Company may from time to time advertise or
disclose the current annualized yield of one or more of the Sub-Accounts of
the Variable Account (except the Money Market Sub-Account) for 30-day periods.
The annualized yield of a Sub-Account refers to income generated by the Sub-
Account over a specific 30-day period. Because the yield is annualized, the
yield generated by a Sub-Account during the 30-day period is assumed to be
generated each 30-day period over a 12-month period. The yield is computed by:
(i) dividing the net investment income per accumulation unit earned during the
period by the maximum offering price per unit on the last day of the period,
according to the following formula:
 
  Yield = 2 [(a - b + 1)/6/  - 1]
             ------
               cd
 
  Where:
 
  a = Net investment income earned during the period by the Fund attributable
  to shares owned by the Sub-Account.
 
  b = Expenses accrued for the period.
 
  c = The average daily number of accumulation units outstanding during the
  period.
 
  d = The maximum offering price per accumulation unit on the last day of the
  period.
 
  Because of the charges and deductions imposed by the Variable Account, the
yield for a Sub-Account of the Variable Account will be lower than the yield
for its corresponding Fund. The yield calculations do not reflect the effect
of any premium taxes or withdrawal charges that may be applicable to a
particular Contract. Withdrawal charges range from 7% to 1% of the amount
withdrawn on total Premium Payments paid less prior partial surrenders, based
on the Contract Year of surrender.
 
  The yield on amounts held in the Sub-Accounts of the Variable Account
normally will fluctuate over time. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. A Sub-Account's actual yield is affected by the types and
quality of the Fund's investments and its operating expenses.
 
TOTAL RETURNS. The Company may from time to time also advertise or disclose
annual average total returns for one or more of the Sub-Accounts of the
Variable Account for various periods of time. When a Sub-Account has been in
operation for 1, 5 and 10 years, respectively, the total return for these
periods will be provided. Total returns for other periods of time may from
time to time also be disclosed. Total returns represent the average annual
compounded rates of return that would equate the initial amount invested to
the redemption value of that investment as of the last day of each of the
periods.
 
  Total returns will be calculated using Sub-Account Unit Values which the
Company calculates on each Valuation Period based on the performance of the
Sub-Account's underlying Portfolio, and the deductions for the mortality and
expense risk charge, the administrative expense charge, and the Annuity
Account Fee. The Annuity Account Fee is reflected by dividing the total amount
of such charges collected during the year that are attributable to the
Variable Account by the total average net assets of all the Variable Sub-
Accounts. The resulting percentage is deducted from the return in calculating
the ending redeemable value. These figures will not reflect any premium taxes
or charges or credits for market value adjustments. Total return calculations
will reflect the effect of withdrawal charges that may be applicable to a
particular period. The total return will then be calculated according to the
following formula:
 
      P(l + T)n = ERV
 
  Where: P = A hypothetical initial Premium Payment of $1,000.
 
      T = Average annual total return.
 
      n = Number of years in the period.
 
     ERV = Ending redeemable value of a hypothetical $1,000 payment made at
    the beginning of the one, five or ten-year period, at the end of the
    one, five or ten-year period (or fractional portion thereof).
 
                                       8
<PAGE>
 
OTHER PERFORMANCE DATA. The Company may from time to time also disclose
average annual total returns in a non-standard format in conjunction with the
standard format described above. The non-standard format will be identical to
the standard format except that the withdrawal charge percentage will be
assumed to be 0%.
 
  The Company may also from time to time also disclose cumulative total
returns in conjunction with the standard format described above. The
cumulative returns will be calculated using the following formula assuming
that the withdrawal charge percentage will be 0%.
 
      CTR = (ERV/P) - 1
 
  Where:  CTR = The cumulative total return net of Sub-Account recurring
charges for the period.
 
     ERV = The ending redeemable value of the hypothetical investment made
    at the beginning of the one, five or ten-year period, at the end of the
    one, five or ten-year period (or fractional portion thereof).
 
      P = A hypothetical initial payment of $10,000
 
  All non-standard performance data will only be advertised if the standard
performance data is also disclosed.
 
  The Company may also from time to time use advertising which includes
hypothetical illustrations to compare the difference between the growth of a
taxable investment and a tax-deferred investment in a variable annuity.
 
- -------------------------------------------------------------------------------
 
                                 LEGAL MATTERS
 
  Legal advice regarding certain matters relating to the federal securities
laws applicable to the issuance of the Contracts described in this Prospectus
has been provided by George N. Gingold, Esq., 197 King Philip Drive, West
Hartford, CT 06117. All matters of Connecticut law pertaining to the
Contracts, including the validity of the Contracts and the Company's right to
issue the Contracts under Connecticut Insurance Law and any other applicable
state insurance or securities laws, have been passed upon by Robert A.
Picarello, Chief Counsel, Individual Insurance, CIGNA Companies.
 
- -------------------------------------------------------------------------------
 
                               LEGAL PROCEEDINGS
 
  There are no legal proceedings to which the Variable Account is a party or
to which the assets of the Variable Account are subject. The Company is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Variable Account.
 
- -------------------------------------------------------------------------------
 
                                    EXPERTS
 
  The consolidated financial statements of Connecticut General Life Insurance
Company as of December 31, 1995 and 1994 and for each of the three years in
the period ended December 31, 1995 included in this Statement of Additional
Information, have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting. Price Waterhouse LLP's consent to this
reference to the firm as an "expert" is filed as an exhibit to the
registration statement of which this Statement of Additional Information is a
part.
 
- -------------------------------------------------------------------------------
 
                             FINANCIAL STATEMENTS
 
  The consolidated financial statements of the Company which are included in
this Statement of Additional Information should be considered only as bearing
on the ability of the Company to meet the obligations under the Contracts.
They should not be considered as bearing on the investment performance of the
assets held in the Variable Account, or on the Guaranteed Interest Rate
credited by the Company during a Guaranteed Period.
 
  The Financial Statements of the Variable Account as of December 31, 1995 are
also included. The Account changed its fiscal year from January 31 to December
31 effective in the year beginning January 1, 1996. Accordingly, the
accompanying financial statements include the eleven month transition period
ended December 31, 1995.
 
- -------------------------------------------------------------------------------
 
                                       9
<PAGE>
 
  REPORT OF INDEPENDENT ACCOUNTANTS


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 and retained earnings 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, 1995 and
1994, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
 
PRICE WATERHOUSE LLP
 
February 13, 1996
 
                                       10
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  FINANCIAL
  STATEMENTS

<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED
CONSOLIDATED STATEMENTS OF INCOME                             DECEMBER 31,
AND RETAINED EARNINGS                                     ----------------------
                                                           1995    1994    1993
                                                          ------  ------  ------
                                                             (IN MILLIONS)
<S>                                                       <C>     <C>     <C>
REVENUES
Premiums and fees........................................ $4,998  $4,960  $4,704
Net investment income....................................  3,138   2,805   2,742
Realized investment gains (losses).......................     (7)     27     (65)
Other revenues...........................................      9       8      15
                                                          ------  ------  ------
    Total revenues.......................................  8,138   7,800   7,396
                                                          ------  ------  ------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses.................  5,892   5,574   5,215
Policy acquisition expenses..............................    127      89      84
Other operating expenses.................................  1,358   1,363   1,351
                                                          ------  ------  ------
    Total benefits, losses and expenses..................  7,377   7,026   6,650
                                                          ------  ------  ------
INCOME BEFORE INCOME TAXES ..............................    761     774     746
                                                          ------  ------  ------
Income taxes (benefits):
  Current................................................    301     220     433
  Deferred...............................................    (44)     45    (197)
                                                          ------  ------  ------
    Total taxes..........................................    257     265     236
                                                          ------  ------  ------
NET INCOME...............................................    504     509     510
Dividends declared.......................................   (252)   (300)   (190)
Retained earnings, beginning of year.....................  2,968   2,759   2,439
                                                          ------  ------  ------
RETAINED EARNINGS, END OF YEAR........................... $3,220  $2,968  $2,759
                                                          ======  ======  ======
</TABLE>
 
 
The Notes to Financial Statements are an integral part of these statements.
 
                                       11
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  FINANCIAL
  STATEMENTS
 
<TABLE>
<CAPTION>
                                                              AS OF DECEMBER 31,
CONSOLIDATED BALANCE SHEETS                                  ---------------------
                                                               1995    1994
                                                             -------- -------
                                                                (IN MILLIONS)
<S>                                                          <C>      <C>      
ASSETS
Investments:
  Fixed maturities:
    Available for sale, at fair value (amortized cost,
     $20,031; $8,571)....................................... $ 22,046 $ 8,324
    Held to maturity, at amortized cost (fair value,
     $10,075)...............................................       --  10,061
  Mortgage loans............................................   10,218   8,975
  Equity securities, at fair value (cost, $54; $109)........       66     119
  Policy loans..............................................    6,925   5,237
  Real estate...............................................    1,158   1,442
  Other long-term investments...............................      193     128
  Short-term investments....................................      254     143
                                                             -------- -------
      Total investments.....................................   40,860  34,429
Cash and cash equivalents...................................       --      80
Accrued investment income...................................      626     578
Premiums and accounts receivable............................      991     911
Reinsurance recoverables....................................    1,258   2,533
Deferred policy acquisition costs...........................      689     700
Property and equipment, net.................................      319     346
Current income taxes........................................       21     119
Deferred income taxes, net..................................      403     661
Goodwill....................................................      503     518
Other assets................................................      149     135
Separate account assets.....................................   18,177  14,498
                                                             -------- -------
      Total................................................. $ 63,996 $55,508
                                                             ======== =======
LIABILITIES
Contractholder deposit funds................................ $ 29,762 $26,696
Future policy benefits......................................    8,547   7,875
Unpaid claims and claim expenses............................    1,151   1,096
Unearned premiums...........................................       95      84
                                                             -------- -------
      Total insurance and contractholder liabilities........   39,555  35,751
Accounts payable, accrued expenses and other liabilities....    1,872   1,632
Separate account liabilities................................   18,075  14,427
                                                             -------- -------
      Total liabilities.....................................   59,502  51,810
                                                             ======== =======
CONTINGENCIES - NOTE 11
SHAREHOLDER'S EQUITY
Common stock (6 shares outstanding).........................       30      30
Additional paid-in capital..................................      766     764
Net unrealized appreciation (depreciation) on investments...      476     (66)
Net translation of foreign currencies.......................        2       2
Retained earnings...........................................    3,220   2,968
                                                             -------- -------
      Total shareholder's equity............................    4,494   3,698
                                                             -------- -------
      Total................................................. $ 63,996 $55,508
                                                             ======== =======
</TABLE>
 
The Notes to Financial Statements are an integral part of these statements.
 
                                       12
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  FINANCIAL
  STATEMENTS
                                                                              
<TABLE>
<CAPTION>
                                                         FOR THE YEAR ENDED
                                                            DECEMBER 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS                  -------------------------
                                                        1995     1994     1993
                                                       -------  -------  -------
                                                            (IN MILLIONS)
<S>                                                    <C>      <C>      <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...........................................  $   504  $   509  $   510
Adjustments to reconcile net income to net cash
 provided by (used in) operating activities:
  Insurance liabilities..............................      (90)    (249)     251
  Reinsurance recoverables...........................    1,201      282     (392)
  Premiums and accounts receivable...................       32     (188)      85
  Deferred income taxes, net.........................      (44)      45     (197)
  Other assets.......................................      (14)      68       54
  Accounts payable, accrued expenses, other
   liabilities and current income taxes..............      212     (192)       5
  Other, net.........................................       22      (24)     (82)
                                                       -------  -------  -------
    Net cash provided by operating activities........    1,823      251      234
                                                       -------  -------  -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
  Fixed maturities--available for sale...............    1,070    1,389       --
  Fixed maturities--held to maturity.................       --       12      599
  Mortgage loans.....................................      383      496    1,004
  Equity securities..................................      119       41       41
  Real Estate........................................      299      242       78
  Other (primarily short-term investments)...........    2,268    1,005    3,762
Investment maturities and repayments:
  Fixed maturities--available for sale...............      478      686       --
  Fixed maturities--held to maturity.................    1,756    1,764    3,167
  Mortgage loans.....................................      420      194      202
Investments purchased:
  Fixed maturities--available for sale...............   (3,054)  (2,390)      --
  Fixed maturities--held to maturity.................   (1,385)  (1,788)  (5,128)
  Mortgage loans.....................................   (1,908)    (882)    (823)
  Equity securities..................................      (20)     (12)    (112)
  Policy loans.......................................   (2,129)  (1,614)  (1,561)
  Other (primarily short-term investments)...........   (2,334)  (1,093)  (3,587)
Other, net...........................................     (119)    (129)     (48)
                                                       -------  -------  -------
    Net cash used in investing activities............   (4,156)  (2,079)  (2,406)
                                                       -------  -------  -------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder
 deposit funds.......................................    7,489    6,388    7,537
Withdrawals and benefit payments from contractholder
 deposit funds.......................................   (4,985)  (4,216)  (5,166)
Dividends paid to Parent.............................     (252)    (300)    (190)
Other, net...........................................        1       36      (30)
                                                       -------  -------  -------
    Net cash provided by financing activities........    2,253    1,908    2,151
                                                       -------  -------  -------
Net increase (decrease) in cash and cash equivalents.      (80)      80      (21)
Cash and cash equivalents, beginning of year.........       80       --       21
                                                       -------  -------  -------
Cash and cash equivalents, end of year...............  $    --  $    80  $    --
                                                       -------  -------  -------
Supplemental Disclosure of Cash Information:
  Income taxes paid, net of refunds..................  $   211  $   411  $   352
  Interest paid......................................  $     7  $     5  $     5
                                                       =======  =======  =======
</TABLE>
 
The Notes to Financial Statements are an integral part of these statements.
 
                                       13
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS

 
NOTE 1. DESCRIPTION OF BUSINESS
Connecticut General Life Insurance Company and its subsidiaries (the Company)
provide insurance and related financial services throughout the United States
and in many locations worldwide. Principal products and services include group
life and health insurance, individual life insurance and annuity products, and
retirement and investment products and services.
 
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of the Company and all significant subsidiaries. The Company is a
wholly-owned subsidiary of Connecticut General Corporation, which is an
indirect wholly-owned subsidiary of CIGNA Corporation (CIGNA). These
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, and reflect management's estimates
and assumptions, such as those regarding medical costs and interest rates, that
affect the recorded amounts. Significant estimates used in determining
insurance and contractholder liabilities, related reinsurance recoverables, and
valuation allowances for investment assets are discussed throughout the Notes
to the Financial Statements. Certain reclassifications have been made to prior
years' amounts to conform with the 1995 presentation.
 B) RECENT ACCOUNTING PRONOUNCEMENTS: In 1993, the Company implemented
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that
debt and equity securities be classified into different categories and carried
at fair value if they are not classified as held to maturity. During the fourth
quarter of 1995, the Financial Accounting Standards Board (FASB) issued a guide
to implementation of SFAS No. 115, which permits a one-time opportunity to
reclassify securities subject to SFAS No. 115. Consequently, the Company
reclassified all held-to-maturity securities to available-for-sale as of
December 31, 1995. The non-cash reclassification of these securities, which had
an aggregate amortized cost of $9.2 billion and fair value of $10.1 billion,
resulted in an increase of approximately $396 million, net of policyholder-
related amounts and deferred income taxes, in net unrealized appreciation
included in Shareholders' Equity as of December 31, 1995.
 In 1993, the Financial Accounting Standards Board (FASB) issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," which provides guidance on
the accounting and disclosure for impaired loans. In 1994, the FASB issued SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition
and Disclosures," which eliminates the income recognition requirements of SFAS
No. 114. The Company adopted SFAS Nos. 114 and 118 in the first quarter of
1995, which resulted in a $6 million increase in net income.
 In 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires write-down to fair value when long-lived assets to be held and used
are impaired. Long-lived assets to be disposed of, including real estate held
for sale, must be carried at the lower of cost or fair value less costs to
sell. Depreciation of assets to be disposed of is prohibited. The Company will
adopt this standard in the first quarter of 1996. The effect on the Company's
results of operations, liquidity and financial condition is not expected to be
material.
 C) FINANCIAL INSTRUMENTS: In the normal course of business, the Company enters
into transactions involving various types of financial instruments, including
investments such as fixed maturities and equity securities and off-balance-
sheet financial instruments such as investment and loan commitments and
financial guarantees. These instruments have credit risk and also may be
subject to risk of loss due to interest rate and market fluctuations. The
Company evaluates and monitors each financial instrument individually and,
where appropriate, uses certain derivative instruments or obtains collateral or
other forms of security to minimize risk of loss.
 See Note 12 for additional information on the fair value of financial
instruments.
 D) INVESTMENTS: Investments in fixed maturities include bonds, asset-backed
securities, including collateralized mortgage obligations (CMOs), and
redeemable preferred stocks. Fixed maturities classified as held to maturity
are carried at amortized cost, net of impairments, and those classified as
available for sale are carried at fair value, with unrealized appreciation or
depreciation included in Shareholder's Equity. Fixed maturities are considered
impaired and written down to fair value when a decline in value is considered
to be other than temporary.
 Mortgage loans are carried principally at unpaid principal balances, net of
valuation reserves. Mortgage loans are considered impaired when it is probable
that the Company will be unable to collect all amounts according to the
contractual terms of the loan agreement. If impaired, a valuation reserve is
utilized when a decline in the fair value of the underlying collateral is below
the carrying value.
 Fixed maturities and mortgage loans that are delinquent or restructured to
modify basic financial terms, typically to reduce the interest rate and, in
certain cases, extend the term, are placed on non-accrual status, and
thereafter interest income is recognized only when payment is received.
 Real estate investments are either held for the production of income or held
for sale. Real estate investments held for the production of income are carried
at depreciated cost less valuation reserves when a decline in
 
                                       14
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (continued)
 
value is other than temporary. Depreciation is generally calculated using the
straight-line method based on the estimated useful lives of the assets. Real
estate investments held for sale are generally those which are acquired through
the foreclosure of mortgage loans. These assets are valued at their fair value
at the time of foreclosure. The fair value is established as the new cost basis
and the asset acquired is reclassified from mortgage loans to real estate held
for sale. Subsequent to foreclosure, these investments are carried at the lower
of depreciated cost or current fair value less estimated costs to sell.
Adjustments to the carrying value as a result of changes in fair value
subsequent to foreclosure are recorded as valuation reserves and reported in
realized investment gains and losses. The Company considers several methods in
determining fair value for real estate acquired through foreclosure, with
greater emphasis placed on the use of discounted cash flow analyses and, in
some cases, the use of third-party appraisals. Assets held for sale are
depreciated using the straight-line method based on the estimated useful lives
of the assets.
 Equity securities, which include common and non-redeemable preferred stocks,
are carried at fair value. Short-term investments are carried at fair value,
which approximates cost. Equity securities and short-term investments are
classified as available for sale.
 Policy loans are generally carried at unpaid principal balances.
 Realized investment gains and losses result from sales, investment asset
write-downs and changes in valuation reserves, after deducting amounts
attributable to experience-rated pension policyholders' contracts and
participating life policies ("policyholder share"). Generally, realized
investment gains and losses are based upon specific identification of the
investment assets.
 Unrealized investment gains and losses, after deducting policyholder-related
amounts and net of deferred income taxes, if applicable, for investments
carried at fair value are included in Shareholder's Equity.
 See Note 3(F) for a discussion of the Company's accounting policies for
derivative financial instruments.
 E) CASH AND CASH EQUIVALENTS: Short-term investments with a maturity of three
months or less at the time of purchase are reported as cash equivalents.
 F) REINSURANCE RECOVERABLES: Reinsurance recoverables are estimates of amounts
to be received from reinsurers, including amounts under reinsurance agreements
with affiliated companies. Allowances are established for amounts deemed
uncollectible.
 G) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of
commissions, premium taxes and other costs, which vary with, and are primarily
related to, the production of revenues. Group life and a portion of group
health insurance business acquisition costs are deferred and amortized over the
terms of the insurance policies. Acquisition costs related to universal life
products and contractholder deposit funds are deferred and amortized in
proportion to total estimated gross profits over the expected life of the
contracts. Acquisition costs related to annuity and other life insurance
businesses are deferred and amortized, generally in proportion to the ratio of
annual revenue to the estimated total revenues over the contract periods.
 Deferred acquisition costs are reviewed to determine if they are recoverable
from future income, including investment income. If such costs are estimated to
be unrecoverable, they are expensed. If such costs are estimated to be
unrecoverable or are accelerated as a result of treating unrealized investment
gains and losses as though they had been realized, a deferred acquisition cost
valuation allowance may be established or adjusted, with a comparable offset in
net unrealized appreciation (depreciation).
 H) PROPERTY AND EQUIPMENT: Property and equipment are carried at cost less
accumulated depreciation. When applicable, cost includes interest and real
estate taxes incurred during construction and other construction-related costs.
Depreciation is calculated principally on the straight-line method based on the
estimated useful lives of the assets. Accumulated depreciation was $387 million
and $333 million at December 31, 1995 and 1994, respectively.
 I) OTHER ASSETS: Other Assets consists of various insurance-related assets,
principally ceded unearned premiums, reinsurance deposits and other amounts due
from affiliated companies.
 J) GOODWILL: Goodwill represents the excess of the cost of businesses acquired
over the fair value of their net assets. These costs are amortized on
systematic bases over periods, not exceeding 40 years, that correspond with the
benefits estimated to be derived from the acquisitions. The Company evaluates
the carrying amount of goodwill by analyzing historical and estimated future
income and undiscounted estimated cash flows of the related businesses.
Goodwill is written down when impaired. Amortization periods are revised if it
is estimated that the remaining period of benefit of the goodwill has changed.
Accumulated amortization was $84 million and $70 million at December 31, 1995
and 1994, respectively.
 K) SEPARATE ACCOUNTS: Separate account assets and liabilities are principally
carried at market value, with less than 5% carried at amortized cost, and
represent policyholder funds maintained in accounts having specific investment
objectives. The investment income, gains and losses of these accounts generally
accrue to the policyholders and, therefore, are not included in the Company's
net income.
 L) CONTRACTHOLDER DEPOSIT FUNDS: Contractholder Deposit Funds are liabilities
for investment-related and universal life products which were $19.8 billion and
$10.0 billion, respectively, as of December 31, 1995,
 
                                       15
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (continued)
 
compared with $18.6 billion and $8.1 billion, respectively, as of December 31,
1994. These liabilities consist of deposits received from customers and
investment earnings on their fund balances, less administrative charges and,
for universal life fund balances, mortality charges.
 M) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for life,
health and annuity products. Such liabilities are established in amounts
adequate to meet the estimated future obligations of policies in force. These
liabilities are computed using premium assumptions for group annuity policies
and the net level premium method for individual life and annuity policies, and
are based upon estimates as to future investment yield, mortality and
withdrawals that include provisions for adverse deviation. Future policy
benefits for individual life insurance and annuity policies are computed using
interest rates ranging from 2% to 11%, generally graded down after 10 to 30
years. Mortality, morbidity, and withdrawal assumptions are based on either the
Company's own experience or various actuarial tables.
 N) UNPAID CLAIMS AND CLAIM EXPENSES: Liabilities for unpaid claims and claim
expenses are estimates of payments to be made on insurance claims for reported
losses and estimates of losses incurred but not reported.
 O) UNEARNED PREMIUMS: Premiums for group life, and accident and health
insurance are reported as earned on a pro rata basis over the contract period.
The unexpired portion of these premiums is recorded as Unearned Premiums.
 P) OTHER LIABILITIES: Other Liabilities consists principally of postretirement
and postemployment benefits and various insurance-related liabilities,
including amounts related to reinsurance contracts. Also included in Other
Liabilities are liabilities for guaranty fund assessments that can be
reasonably estimated.
 Q) TRANSLATION OF FOREIGN CURRENCIES: Foreign operations primarily utilize the
local currencies as their functional currencies, and assets and liabilities are
translated at the rates of exchange as of the balance sheet date. The
translation gain or loss on such functional currencies, net of applicable
taxes, is generally reflected in Shareholder's Equity. Revenues and expenses
are translated at the average rates of exchange prevailing during the year.
 R) PREMIUM AND FEES, REVENUES AND RELATED EXPENSES: Premiums for group life
and accident and health insurance are recognized as revenue on a pro rata basis
over their contract periods. Premiums for individual life and health insurance
as well as individual and group annuity products, excluding universal life and
investment-related products, are recognized as revenue when due. Benefits,
losses and expenses are matched with premiums.
 Revenues for universal life products consist of net investment income and
mortality, administration and surrender fees assessed against the fund values
during the period. Benefit expenses for universal life products consist of
benefit claims in excess of fund values and interest credited to fund values.
Revenues for investment-related products consist of net investment income and
contract charges assessed against the fund values during the period. Benefit
expenses for investment-related products primarily consist of interest credited
to the fund values after deduction for investment and risk fees.
 S) PARTICIPATING BUSINESS: Certain life insurance policies contain dividend
payment provisions that enable the policyholder to participate in the earnings
of the Company's business. The participating insurance in force accounted for
7.0% of total insurance in force at December 31, 1995, compared with 5.2% at
December 31, 1994 and 3.6% at December 31, 1993.
 T) INCOME TAXES: The Company and its domestic subsidiaries are included in the
consolidated United States federal income tax return filed by CIGNA. In
accordance with a tax sharing agreement with CIGNA, the provision for federal
income tax is computed as if the Company were filing a separate federal income
tax return, except that benefits arising from tax credits and net operating and
capital losses are allocated to those subsidiaries producing such attributes to
the extent they are utilized in CIGNA's consolidated federal income tax
provision.
 Deferred income taxes are generally recognized when assets and liabilities
have different values for financial statement and tax reporting purposes. See
Note 6 for additional information.
 
                                       16
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (continued)
 
 
 
NOTE 3. INVESTMENTS
A) FIXED MATURITIES: Fixed maturities are net of cumulative write-downs of $103
million and $78 million, including policyholder share, as of December 31, 1995
and 1994, respectively.
 As of December 31, 1995, all fixed maturities are classified as available for
sale and are carried at fair value. See Note 2(B) for additional information.
The amortized cost and fair value by contractual maturity periods for
available-for-sale fixed maturities (carried at fair value), including
policyholder share, as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
                                                              Amortized  Fair
                                                                Cost     Value
                                                              --------- -------
                                                                (In millions)
<S>                                                           <C>       <C>
Due in one year or less...................................... $    944  $   980
Due after one year through five years........................    5,260    5,566
Due after five years through ten years.......................    4,936    5,404
Due after ten years..........................................    3,401    4,276
Asset-backed securities......................................    5,490    5,820
                                                              --------  -------
  Total...................................................... $ 20,031  $22,046
                                                              ========  =======
</TABLE>
 Actual maturities could differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Also, the Company may extend maturities in some cases.
 Gross unrealized appreciation (depreciation) for fixed maturities, including
policyholder share, by type of issuer was as follows:
<TABLE>
<CAPTION>
                                                December 31, 1995
                                   -------------------------------------------
                                   Amortized                            Fair
                                     Cost    Appreciation Depreciation  Value
                                   --------- ------------ ------------ -------
                                                  (In millions)
<S>                                <C>       <C>          <C>          <C>
Available for Sale (Carried at
 Fair Value)
Federal government bonds..........  $   497     $  300       $  --     $   797
State and local government bonds..      161         24          (1)        184
Foreign government bonds..........      131          9          (1)        139
Corporate securities..............   13,752      1,427         (73)     15,106
Asset-backed securities...........    5,490        371         (41)      5,820
                                    -------     ------       -----     -------
  Total...........................  $20,031     $2,131       $(116)    $22,046
                                    =======     ======       =====     =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                December 31, 1994
                                   -------------------------------------------
                                   Amortized                            Fair
                                     Cost    Appreciation Depreciation  Value
                                   --------- ------------ ------------ -------
                                                  (In millions)
<S>                                <C>       <C>          <C>          <C>
Available for Sale (Carried at
 Fair Value)
Federal government bonds.......... $    393      $ 35        $ (13)    $   415
State and local government bonds..       48        --           (4)         44
Foreign government bonds..........      135         1           (6)        130
Corporate securities..............    5,042        84         (244)      4,882
Asset-backed securities...........    2,953        98         (198)      2,853
                                   --------      ----        -----     -------
  Total........................... $  8,571      $218        $(465)    $ 8,324
                                   ========      ====        =====     =======
Held to Maturity (Carried at
 Amortized Cost)
State and local government bonds.. $     61      $  4        $  (1)    $    64
Foreign government bonds..........       49         1           (1)         49
Corporate securities..............    8,088       293         (232)      8,149
Asset-backed securities...........    1,863        46          (96)      1,813
                                   --------      ----        -----     -------
  Total........................... $ 10,061      $344        $(330)    $10,075
                                   ========      ====        =====     =======
</TABLE>
 Asset-backed securities include investments in CMOs as of December 31, 1995 of
$2.1 billion carried at fair value (amortized cost, $2.0 billion). As of
December 31, 1994, investments in CMOs consisted of $1.5 billion carried at
fair value (amortized cost, $1.6 billion), and $150 million carried at
amortized cost (fair value, $160 million). Certain of these securities are
backed by Aaa/AAA-rated government agencies. All other CMO securities have high
quality standards through use of credit enhancement provided by subordinated
securities or mortgage insurance from an Aaa/AAA-rated insurance company. CMO
holdings are concentrated in securities with limited prepayment, extension and
default risk, such as planned amortization class bonds. The Company's
investments in interest-only and principal-only CMOs, which are also subject to
interest rate risk resulting from accelerated prepayments, represented
approximately 2% and 6% of total CMO investments at December 31, 1995 and 1994,
respectively.
 
                                       17
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (continued)
 
 
 At December 31, 1995, contractual fixed maturity investment commitments
approximated $229 million. The majority of investment commitments are for the
purchase of investment grade fixed maturities, bearing interest at a fixed
market rate, and require no collateral. These commitments are diversified by
issuer and maturity date, and it is estimated that the full amount will be
disbursed in 1996, with the majority occurring within the first three months.
 B) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and
cash equivalents, in the aggregate, included debt securities, principally
corporate securities of $259 million and $323 million and federal government
securities of $70 million and $7 million at December 31, 1995 and 1994,
respectively, and foreign government securities of $1 million at December 31,
1994.
 C) MORTGAGE LOANS AND REAL ESTATE: The Company's mortgage loans and real
estate investments are diversified by property type and location and, for
mortgage loans, by borrower. Mortgage loans are collateralized by the related
properties and generally approximate 80% of the property's value at the time
the original loan is made.
 At December 31, the carrying values of mortgage loans and real estate
investments, including policyholder share, were as follows:
<TABLE>
<CAPTION>
                                                                 1995    1994
                                                               -------- -------
                                                                (In millions)
<S>                                                            <C>      <C>
Mortgage Loans................................................ $ 10,218 $ 8,975
                                                               -------- -------
Real estate:
  Held for sale...............................................      671     760
  Held for production of income...............................      487     682
                                                               -------- -------
    Total real estate.........................................    1,158   1,442
                                                               -------- -------
    Total..................................................... $ 11,376 $10,417
                                                               ======== =======
</TABLE>
 Valuation reserves for mortgage loans, including policyholder share, were $82
million and $115 million as of December 31, 1995 and 1994, respectively.
Valuation reserves and cumulative write-downs related to real estate, including
policyholder share, were $310 million and $309 million as of December 31, 1995
and 1994, respectively.
 During 1995, 1994 and 1993, non-cash investing activities included real estate
acquired through foreclosure of mortgage loans, which totaled $144 million,
$127 million and $458 million, respectively.
 At December 31, mortgage loans and real estate investments comprised the
following property types and geographic regions:
<TABLE>
<CAPTION>
                                                                  1995    1994
                                                                -------- -------
                                                                 (In millions)
<S>                                                             <C>      <C>
Property type:
  Office buildings............................................. $  4,493 $ 4,092
  Retail facilities............................................    4,327   3,867
  Hotels.......................................................      711     819
  Apartment buildings..........................................    1,246     997
  Other........................................................      599     642
                                                                -------- -------
    Total...................................................... $ 11,376 $10,417
                                                                ======== =======
Geographic region:
  Central...................................................... $  4,032 $ 3,664
  Pacific......................................................    2,580   2,558
  Middle Atlantic..............................................    1,951   1,652
  South Atlantic...............................................    1,647   1,585
  New England..................................................    1,166     958
                                                                -------- -------
    Total...................................................... $ 11,376 $10,417
                                                                ======== =======
</TABLE>
 At December 31, 1995, scheduled mortgage loan maturities were as follows:
1996--$1.1 billion; 1997--$1 billion; 1998--$750 million; 1999--$1.3 billion;
2000--$1.6 billion; and $4.5 billion thereafter. Actual maturities could differ
from contractual maturities because borrowers may have the right to prepay
obligations with or without prepayment penalties, and loans may be refinanced.
During 1995 and 1994, the Company refinanced approximately $379 million and
$600 million, respectively, of its mortgage loans relating to borrowers that
were unable to obtain alternative financing.
 At December 31, 1995, the Company's total investment in impaired mortgage
loans was $838 million, including $447 million, before valuation reserves
totaling $82 million, and $391 million, which had no valuation reserves. During
1995, valuation reserves for mortgage loans, including policyholder share,
decreased from $127 million as of December 31, 1994 to $82 million as of
December 31, 1995. The net decrease for the year reflects: (1) $27 million of
mortgage loan reserves transferred to foreclosed real estate, (2) $33 million
of charge-offs, and (3) a $15 million net increase in valuation reserves.
 
                                       18
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (Continued)
 
 During 1995, the average total investment in impaired mortgage loans, before
valuation reserves, was approximately $935 million, and interest income
recorded and cash received on these loans was approximately $71 million.
 At December 31, 1995, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $580 million, all
of which were at a fixed market rate of interest. These commitments expire
within three months, and are diversified by property type and geographic
region.
 D) NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS: Unrealized
appreciation (depreciation) for investments carried at fair value as of
December 31 were as follows:
<TABLE>
<CAPTION>
                                                                   1995   1994
                                                                  ------  ----
<S>                                                               <C>     <C>
                                                                      (In
                                                                   millions)
Unrealized appreciation:
  Fixed maturities............................................... $2,131  $218
  Equity securities..............................................     23    22
                                                                  ------  ----
                                                                   2,154   240
                                                                  ------  ----
Unrealized depreciation:
  Fixed maturities...............................................   (116) (465)
  Equity securities..............................................    (11)  (12)
                                                                  ------  ----
                                                                   (127)  (477)
                                                                  ------  ----
Less policyholder-related amounts................................  1,279  (141)
                                                                  ------  ----
Shareholder net unrealized appreciation (depreciation)...........    748   (96)
Less deferred income taxes (benefits)............................    272   (30)
                                                                  ------  ----
Net unrealized appreciation (depreciation)....................... $  476  $(66)
                                                                  ======  ====
</TABLE>
 Net unrealized appreciation (depreciation) for investments carried at fair
value is included as a separate component of Shareholders' Equity, net of
policyholder-related amounts and deferred income taxes. The net unrealized
appreciation (depreciation) for these investments, primarily fixed maturities,
during 1995, 1994 and 1993 was $542 million, ($494) million and $423 million,
respectively.
 During 1995, 1994 and 1993, the net unrealized appreciation (depreciation) for
fixed maturities that were carried at amortized cost in the financial
statements was ($14) million, ($1.2) billion and $129 million, respectively.
 E) NON-INCOME PRODUCING INVESTMENTS: At December 31, the carrying values of
investments that were non-income producing during the preceding 12 months,
including policyholder share, were as follows:
<TABLE>
<CAPTION>
                                                                      1995  1994
                                                                      ----- ----
                                                                         (In
                                                                      millions)
<S>                                                                   <C>   <C>
Fixed maturities..................................................... $  75 $ 71
Mortgage loans.......................................................    17   81
Real estate..........................................................   234  280
                                                                      ----- ----
  Total.............................................................. $ 326 $432
                                                                      ===== ====
</TABLE>
 F) DERIVATIVE FINANCIAL INSTRUMENTS: The Company's investment strategy is to
manage the characteristics of investment assets, such as liquidity, currency,
yield and duration, to reflect the underlying characteristics of the related
insurance and contractholder liabilities, which vary among the Company's
principal product lines. In connection with this investment strategy, the
Company uses derivative instruments through hedging applications to manage
market risk.
 Generally, the Company uses interest rate swap contracts to create, when
combined with cash flows from variable rate bonds, fixed rate cash flows that
meet its portfolio investment strategy. Currency swaps are used to match the
currency of individual investments to that of the associated liabilities.
Interest rate futures are used to temporarily hedge against changes in market
values of bonds and mortgage loans to be purchased or sold, and stock index
futures may be used to hedge the temporary cash position of equity accounts.
Interest rate futures also are used to hedge interest rate risk associated with
withdrawals by contractholders over a scheduled time period.
 Cash requirements arise as a result of the Company's derivative activities.
Under interest rate swaps, the Company agrees with other parties to exchange,
at specified intervals, the difference between fixed rate and variable rate
interest amounts calculated by reference to an agreed-upon notional principal
amount. Under futures contracts, initial margin requirements are settled with
cash or other instruments and changes in the contract values are settled in
cash daily with the exchange on which the instrument is traded. Under currency
swaps, the parties generally exchange a principal amount in the two relevant
currencies, agreeing to re-exchange principal amounts at a specified future
date using an agreed-upon exchange rate, and agreeing to periodically exchange
amounts equal to interest payments using the agreed-upon exchange rate.
 
                                       19
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (continued)
 
 Because the Company's use of derivatives is limited to hedging applications,
changes in the market value of the derivatives are substantially offset by
changes in the market value of the hedged assets or underlying liabilities,
minimizing market risk. The Company routinely monitors, by individual
counterparty, exposure to credit risk associated with swap contracts. Futures
contracts are exchange-traded and, therefore, credit risk is limited since the
exchange assumes the obligations. The Company manages legal risks by following
industry standardized documentation procedures, by monitoring legal
developments and, consistent with its credit exposure policies, by limiting
risks associated with counterparty failure by diversifying the swaps portfolio
among approved dealers of high credit quality.
 Changes in the market value of futures contracts that qualify for hedge
accounting are deferred and recorded as adjustments to the carrying value of
the related bond or mortgage loan. Deferred gains and losses are amortized into
net investment income over the life of the investments purchased or recognized
in full as realized investment gains and losses in the event that the
investment or futures contract is sold prior to maturity. Futures contracts
totaled $22 million and $142 million as of December 31, 1995 and 1994,
respectively, and were accounted for as hedges. At December 31, 1995, gains and
losses on futures contracts deferred in anticipation of investment purchases
were $4 million and $1 million, respectively. At December 31, 1994, gains and
losses on futures contracts deferred in anticipation of investment purchases
were $1 million and $3 million, respectively.
 Net interest received or paid on an interest rate swap contract is recognized
currently as an adjustment to net investment income. The fair value of interest
rate swap contracts is reported as an adjustment to the fair value of the
related investment. Underlying notional principal amounts associated with
interest rate swap contracts outstanding were $508 million and $596 million at
December 31, 1995 and 1994, respectively.
 The interest payment cash flows received in U.S. dollars from currency swaps
related to foreign currency denominated investment securities (primarily
Canadian dollars, pound sterling, Swiss francs and Japanese yen) are recognized
as net investment income when received. The fair value of currency swaps is
reported as an adjustment to the fair value of the related investment.
Underlying principal amounts associated with currency swap contracts
outstanding were $335 million and $325 million at December 31, 1995 and 994,
respectively.
 As of December 31, 1995 and 1994, respectively, the Company's variable rate
investments consisted of approximately $1.4 billion and $810 million of fixed
maturities, respectively. As of December 31, 1995 and 1994, the Company's fixed
rate investments consisted of $20.6 billion and $17.6 billion, respectively, of
fixed maturities and $10 billion and $9 billion, respectively, of mortgage
loans. As a result of recognizing amortization of deferred market value changes
in futures contracts, net investment income on bonds and mortgage loans was
increased by $10 million and $1 million, respectively, for the year ended
December 31, 1995 and by $7 million and $1 million, respectively, for the year
ended December 31, 1994. In addition, the increase in net investment income for
bonds resulting from interest rate swap contracts was $3 million, $12 million
and $19 million for 1995, 1994 and 1993, respectively.
 G) OTHER: As of December 31, 1995 and 1994, the Company had no concentration
of investments in a single investee exceeding 10% of Shareholder's Equity.
 
NOTE 4. 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>
                                                           1995    1994   1993
                                                          ------- ------ ------
 (In millions)
<S>                                                       <C>     <C>    <C>
Fixed maturities......................................... $ 1,669 $1,596 $1,547
Mortgage loans...........................................     866    776    892
Equity securities........................................      15     20     16
Policy loans.............................................     499    365    253
Real estate..............................................     301    291    238
Other long-term investments..............................      33     23     20
Short-term investments...................................      40      8     18
                                                          ------- ------ ------
                                                            3,423  3,079  2,984
Less investment expenses.................................     285    274    242
                                                          ------- ------ ------
Net investment income.................................... $ 3,138 $2,805 $2,742
                                                          ======= ====== ======
</TABLE>
 Net investment income attributable to policyholder contracts, which is
included in the Company's revenues and is primarily offset by amounts included
in Benefits, Losses and Settlement Expenses, was approximately $1.8 billion,
$1.5 billion and $1.6 billion for 1995, 1994 and 1993, respectively. Net
investment income for separate accounts, which is not reflected in the
Company's revenues, was $885 million, $693 million and $604 million for
December 31, 1995, 1994 and 1993, respectively.
 As of December 31, 1995, fixed maturities and mortgage loans on non-accrual
status, including policyholder share, were $149 million and $523 million,
including restructured investments of $105 million and $447 million,
respectively. Amounts on non-accrual status as of December 31, 1994 were $272
million of fixed
 
                                       20
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (continued)
 
 
maturities and $743 million of mortgage loans, including restructurings of $148
million and $543 million, respectively. If interest on these investments had
been recognized in accordance with their original terms, net income would have
been increased by $12 million, $14 million and $17 million in 1995, 1994 and
1993, respectively.
 B) REALIZED INVESTMENT GAINS AND LOSSES: Realized gains and losses on
investments, excluding policyholder share, for the year ended December 31 were
as follows:
<TABLE>
<CAPTION>
                                                               1995  1994 1993
                                                               ----  ---- ----
                                                               (In millions)
<S>                                                            <C>   <C>  <C>
Realized investment gains (losses):
  Fixed maturities............................................ $(10) $ 4  $ 28
  Mortgage loans..............................................   (5)  --    (5)
  Equity securities...........................................    5    2    (5)
  Real estate.................................................    4   15   (66)
  Other.......................................................   (1)   6   (17)
                                                               ----  ---  ----
                                                                 (7)  27   (65)
Income tax (benefits) expenses................................   (2)  12   (16)
                                                               ----  ---  ----
Net realized investment gains (losses)........................ $ (5) $15  $(49)
                                                               ====  ===  ====
</TABLE>
 Impairments in the value of investments, net of recoveries, that are included
in realized investment gains and losses were $27 million, $33 million and $55
million in 1995, 1994 and 1993, respectively.
 Realized investment gains (losses) for separate accounts, which are not
reflected in the Company's revenues, were $412 million, ($51) million and $612
million for the years ended December 31, 1995, 1994 and 1993, respectively.
Realized investment (losses) attributable to policyholder contracts, which also
are not reflected in the Company's revenues, were ($6) million and ($5) million
for the years ended December 31, 1995 and 1993, respectively. Realized
investment gains (losses) attributable to policyholder contracts were zero for
the year ended December 31, 1994.
  Sale of available-for-sale fixed maturities and equity securities, including
policyholder share, for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
                                                                  1995    1994
                                                                 ------  ------
                                                                 (In millions)
<S>                                                              <C>     <C>
Proceeds from sales............................................. $1,667  $2,116
Gross gains on sales............................................ $   78  $   73
Gross losses on sales........................................... $  (53) $  (70)
                                                                 ------  ------
</TABLE>
 Prior to the SFAS No. 115 reclassification described in Note 2(B), $171
million of fixed maturities classified as held-to-maturity, including
policyholder share, were transferred to the available-for-sale category in 1995
resulting in the recognition in Shareholder's Equity of unrealized depreciation
of $15 million, net of policyholder-related amounts and deferred income taxes.
During 1994, the Company sold $14 million of held-to-maturity fixed maturities,
including policyholder share, resulting in gross proceeds of $12 million and a
pre-tax realized loss of $2 million. In addition, in 1994 $82 million of fixed
maturities classified as held-to-maturity, including policyholder share, were
transferred to the available-for-sale category at fair value, which was not
significantly different from the carrying value. The sales of fixed maturities
classified as held to maturity and the transfer of such securities to the
available-for-sale category were the result of significant credit deterioration
of the issuers of the affected investments.
 Prior to adoption of SFAS No. 115, proceeds from voluntary sales of
investments in fixed maturities, including policyholder share, were $599
million in 1993. Such sales resulted in gross realized gains and gross realized
(losses), including policyholder share, of $36 million and ($3) million,
respectively. These amounts exclude the effects of sales of fixed maturities
that, prior to the implementation of SFAS No. 115, were classified as short-
term investments.
 
NOTE 5. SHAREHOLDER'S EQUITY AND DIVIDEND RESTRICTIONS
The Connecticut Insurance Department (the Department) recognizes as net income
and surplus (shareholder's equity) those amounts determined in conformity with
statutory accounting practices prescribed or permitted by the Department, which
differ in certain respects from generally accepted accounting principles. As of
December 31, 1994, there were no permitted accounting practices utilized by the
Company that were materially different from those prescribed by the Department.
 Capital stock of the Company at December 31, 1995 and 1994 consisted of
5,978,322 shares of common stock authorized, issued and outstanding (par value
$5.00).
 The Company's statutory net income was $390 million, $428 million and $397
million for 1995, 1994 and 1993, respectively. Statutory surplus was $2.1
billion and $2.0 billion at December 31, 1995 and 1994, respectively. The
Connecticut Insurance Holding Company Act limits the amount of annual dividends
or other
 
                                       21
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (continued)
 
 
distributions available to shareholders of Connecticut insurance companies
without prior approval of the Insurance Commissioner. Under current law, the
maximum dividend distribution that may be made by the Company during 1996
without prior approval is $432 million. The amount of restricted net assets as
of December 31, 1995 was approximately $4.1 billion.
 
NOTE 6. INCOME TAXES
The Company's net deferred tax asset of $403 million and $661 million as of
December 31, 1995 and 1994, respectively, reflects management's belief that the
Company's taxable income in future years will be sufficient to realize the net
deferred tax asset based on the Company's earnings history and its future
expectations. In determining the adequacy of future taxable income, management
considered the future reversal of its existing taxable temporary differences
and available tax planning strategies that could be implemented, if necessary.
 In accordance with the Life Insurance Company Income Tax Act of 1959, a
portion of the Company's statutory income was not subject to current income
taxation but was accumulated in an account designated Policyholders' Surplus
Account. Under the Tax Reform Act of 1984, no further additions may be made to
the Policyholders' Surplus Account for tax years ending after December 31,
1983. The balance in the account of approximately $450 million at December 31,
1995 would result in a tax liability of $158 million, only if distributed to
the shareholders or if the account balance exceeded a prescribed maximum. No
income taxes have been provided on this amount because, in management's
opinion, the likelihood that these conditions will be met is remote.
 CIGNA's federal income tax returns are routinely audited by the Internal
Revenue Service (IRS), and provisions are made in CIGNA's financial statements
in anticipation of the results of these audits.
 In management's opinion, adequate tax liabilities have been established for
all years.
 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>
                                                                     1995  1994
                                                                     ----- ----
                                                                        (In
                                                                     millions)
<S>                                                                  <C>   <C>
Deferred tax assets:
  Insurance and contractholder liabilities.......................... $ 324 $337
  Employee and retiree benefit plans................................   176  175
  Investments, net..................................................   225  220
  Unrealized depreciation on investments............................    --   30
  Other.............................................................    72   71
                                                                     ----- ----
    Total deferred tax assets.......................................   797  833
                                                                     ----- ----
Deferred tax liabilities:
  Policy acquisition expenses.......................................    25   60
  Depreciation......................................................    97  102
  Unrealized appreciation on investments............................   272   --
  Other.............................................................    --   10
                                                                     ----- ----
    Total deferred tax liabilities..................................   394  172
                                                                     ----- ----
Deferred income taxes, net.......................................... $ 403 $661
                                                                     ===== ====
</TABLE>
 Total income tax expense was less than the amount computed using the nominal
federal income tax rate of 35% for the following reasons:
<TABLE>
<CAPTION>
                                                              1995   1994  1993
                                                              -----  ----  ----
                                                               (In millions)
<S>                                                           <C>    <C>   <C>
Tax expense at nominal rate.................................. $ 266  $271  $261
Tax-exempt interest income...................................    (6)   (7)   (6)
Dividends received deduction.................................    (7)   (3)   (4)
Amortization of goodwill.....................................     4     4     5
Resolved federal tax audit issues............................    --    (2)   (3)
Increase in deferred tax asset for tax rate change...........    --    --   (13)
Other, net...................................................    --     2    (4)
                                                              -----  ----  ----
  Total income tax expense................................... $ 257  $265  $236
                                                              =====  ====  ====
</TABLE>
 
                                       22
<PAGE>

  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (continued)
 
 
 Temporary and other differences which resulted in the deferred tax expense
(benefit) for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
                                                            1995   1994  1993
                                                            -----  ----  -----
                                                             (In millions)
<S>                                                         <C>    <C>   <C>
Insurance and contractholder liabilities................... $  13  $93   $ (80)
Policy acquisition expenses................................   (35)  (8)    (39)
Investments, net...........................................   (21) (19)    (36)
Employee and retiree benefit plans.........................    (1)  (9)    (16)
Realized investment (gains) losses.........................    16  (20)    (24)
Other......................................................   (16)   8      (2)
                                                            -----  ---   -----
Deferred taxes (benefits).................................. $ (44) $45   $(197)
                                                            =====  ===   =====
</TABLE>
 
NOTE 7. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS PLANS
A) PENSION PLANS: The Company provides retirement benefits to eligible
employees and agents. These benefits are provided through a plan sponsored by
CIGNA covering most domestic employees (the Plan) and by several separate
pension plans for various subsidiaries, agents and foreign employees.
 The Plan is a non-contributory, defined benefit, trusteed plan available to
eligible domestic employees. Benefits are based on employees' years of service
and compensation during the highest three or, if service commenced after
December 31, 1988, five consecutive years of employment, offset by a portion of
the Social Security benefit for which they are eligible. CIGNA funds at least
the minimum amount required by the Employee Retirement Income Security Act of
1974. Allocated pension cost for the Company was $23 million, $31 million and
$27 million in 1995, 1994 and 1993, respectively.
 The Plan, and several separate pension plans for various subsidiaries and
agents, had deposits with the Company totalling approximately $2.0 billion and
$1.7 billion at December 31, 1995 and 1994, respectively.
 B) OTHER POSTRETIREMENT BENEFITS PLANS: In addition to providing pension
benefits, the Company provides certain health care and life insurance benefits
to retired employees, spouses and other eligible dependents through various
plans sponsored by CIGNA. A substantial portion of the Company's employees may
become eligible for these benefits upon retirement. CIGNA's contributions for
health care benefits depend upon a retiree's date of retirement, age, years of
service and other cost-sharing features, such as deductibles and coinsurance.
Under the terms of the benefit plans, benefit provisions and cost-sharing
features can be adjusted. In general, retiree health care benefits are not
funded by CIGNA, but are paid as covered expenses are incurred. Retiree life
insurance benefits are paid from plan assets or as covered expenses are
incurred.
 An employer's postretirement benefit liability is primarily measured by
determining the present value of the projected future costs of health benefits
based on an estimate of health care cost trend rates. Expense for
postretirement benefits other than pensions allocated to the Company totalled
$20 million for 1995, $28 million for 1994 and $15 million for 1993. The other
postretirement benefit liability included in Accounts Payable, Accrued Expenses
and Other Liabilities as of December 31, 1995 and 1994 was $427 million and
$422 million, including net intercompany payables of $28 million and $29
million, respectively, for services provided by affiliates' employees.
 C) OTHER POSTEMPLOYMENT BENEFITS: The Company provides certain salary
continuation (severance and disability), health care and life insurance
benefits to inactive and former employees, spouses and other eligible
dependents through various employee benefit plans sponsored by CIGNA.
 Although severance benefits accumulate with additional service, the Company
recognizes severance expense when severance is probable and the costs can be
reasonably estimated. Postemployment benefits other than severance generally do
not vest or accumulate; therefore, the estimated cost of benefits is accrued
when determined to be probable and estimable, generally upon disability or
termination. See Note 8 for additional information regarding severance accrued
as part of cost reduction initiatives.
 D) CAPITAL ACCUMULATION PLANS: CIGNA sponsors various capital accumulation
plans in which employee contributions on a pre-tax basis (401(k)) are
supplemented by CIGNA matching contributions. Contributions are invested, at
the election of the employee, in one or more of the following investments:
CIGNA common stock fund, several non-CIGNA stock and bond portfolios and a
fixed-income fund. The Company's expense for such plans totaled $14 million for
1995 and 1994 and $13 million for 1993.
 
                                       23
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (continued)
 
 
NOTE 8. SEGMENT INFORMATION
 
The Company operates principally in three segments: Employee Life and Health
Benefits, Employee Retirement and Savings Benefits, and Individual Financial
Services. Other Operations consists principally of the results of the Company's
settlement annuity business.
 Summarized financial information with respect to the business segments for the
year ended and as of December 31 was as follows:
<TABLE>
<CAPTION>
                                                       1995     1994     1993
                                                      -------  -------  -------
                                                           (In millions)
<S>                                                   <C>      <C>      <C>
REVENUES
Employee Life and Health Benefits.................... $ 4,243  $ 4,194  $ 3,811
Employee Retirement and Savings Benefits.............   1,914    1,887    2,044
Individual Financial Services........................   1,800    1,546    1,351
Other Operations.....................................     181      173      190
                                                      -------  -------  -------
  Total.............................................. $ 8,138  $ 7,800  $ 7,396
                                                      =======  =======  =======
INCOME (LOSS) BEFORE INCOME TAXES
Employee Life and Health Benefits.................... $   294  $   323  $   378
Employee Retirement and Savings Benefits.............     232      258      172
Individual Financial Services........................     252      237      198
Other Operations.....................................     (17)     (44)      (2)
                                                      -------  -------  -------
  Total.............................................. $   761  $   774  $   746
                                                      =======  =======  =======
IDENTIFIABLE ASSETS
Employee Life and Health Benefits.................... $ 7,629  $ 7,197  $ 7,307
Employee Retirement and Savings Benefits.............  37,609   33,588   34,068
Individual Financial Services........................  16,189   12,612    9,824
Other Operations.....................................   2,569    2,111    2,283
                                                      -------  -------  -------
  Total.............................................. $63,996  $55,508  $53,482
                                                      =======  =======  =======
</TABLE>
 During 1995, the Company recorded a $13 million pre-tax charge, included in
Other Operating Expenses, for cost reduction initiatives in the Employee Life
and Health Benefits segment. The charge consisted primarily of severance-
related expenses representing costs associated with nonvoluntary employee
terminations covering approximately 1,100 employees. The cash outlays
associated with the restructuring initiatives began in the third quarter of
1995 and will continue through 1997, with most of the cash outlays expected to
occur in 1996. During 1995, $3 million of severance was paid to 500 terminated
employees. During 1993, the Company implemented cost reduction initiatives in
the Employee Life and Health Benefits segment to reduce operating expenses.
Results for 1993 reflected a pre-tax charge of $8 million for the estimated
costs of these cost reduction actions. The Company has funded, and will
continue to fund, these costs through liquid assets, and such funding will not
have a material adverse effect on its liquidity.
 
NOTE 9. LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to buildings,
amounted to $60 million, $62 million and $66 million in 1995, 1994 and 1993,
respectively.
 As of December 31, 1995, future net minimum rental payments under non-
cancelable operating leases were $92 million, payable as follows: 1996--$37
million; 1997--$24 million; 1998--$13 million; 1999--$9 million; 2000--$4
million; and $5 million thereafter.
 
NOTE 10. REINSURANCE
In the normal course of business, the Company enters into agreements, primarily
relating to short-duration contracts, to assume and cede reinsurance with other
insurance companies. Reinsurance is ceded primarily to limit losses from large
exposures and to permit recovery of a portion of direct losses, although ceded
reinsurance does not relieve the originating insurer of liability. The Company
evaluates the financial condition of its reinsurers and monitors concentrations
of credit risk arising from similar geographic regions, activities, or economic
characteristic of its reinsurers.
 Failure of reinsurers to indemnify the Company, as a result of reinsurer
insolvencies and disputes, could result in losses. As of December 31, 1995 and
1994 there were no allowances for uncollectible amounts. While future charges
for unrecoverable reinsurance may materially affect results of operations in
future periods, such amounts are not expected to have a material adverse effect
on the Company's liquidity or financial condition.
 
                                       24
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (continued)
 
 
 The effects of reinsurance on net earned premiums and fees for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
                                                         1995     1994    1993
                                                        -------  ------  ------
                                                            (In millions)
<S>                                                     <C>      <C>     <C>
SHORT-DURATION CONTRACTS
Premiums and Fees:
  Direct............................................... $ 3,374  $3,419  $2,666
  Assumed..............................................     818     716   1,248
  Ceded................................................    (391)   (291)   (329)
                                                        -------  ------  ------
    Net earned premiums and fees....................... $ 3,801  $3,844  $3,585
                                                        =======  ======  ======
LONG-DURATION CONTRACTS
Premiums and Fees:
  Direct............................................... $ 1,189  $1,068  $1,023
  Assumed..............................................     127     126     166
  Ceded................................................    (119)    (78)    (70)
                                                        -------  ------  ------
    Net earned premiums and fees....................... $ 1,197  $1,116  $1,119
                                                        =======  ======  ======
</TABLE>
 The effects of reinsurance on written premiums and fees for short-duration
contracts were not materially different from the amounts shown above. Benefits,
Losses and Settlement Expenses for 1995, 1994 and 1993 were net of reinsurance
recoveries of $574 million, $415 million and $603 million, respectively.
 
NOTE 11. CONTINGENCIES
A) FINANCIAL GUARANTEES: The Company is contingently liable for financial
guarantees provided in the ordinary course of business on the repayment of
principal and interest on certain industrial revenue bonds. The contractual
amounts of financial guarantees reflect the Company's maximum exposure to
credit loss in the event of nonperformance. To limit the Company's exposure in
the event of default of any guaranteed obligation, various programs are in
place to ascertain the creditworthiness of guaranteed parties, to monitor this
status on a periodic basis and to reduce risk through security arrangements.
 The industrial revenue bonds guaranteed directly by the Company have remaining
maturities of up to 20 years. The guarantees provide for payment of debt
service only as it becomes due; consequently, an event of default would not
cause an acceleration of scheduled principal and interest payments. The
principal amount of the bonds guaranteed by the Company at December 31, 1995
and 1994 was $266 million and $296 million, respectively. Revenues in
connection with industrial revenue bond guarantees are derived principally from
equity participations in the related projects and are included in Net
Investment Income as earned. Loss reserves for financial guarantees are
established when a default has occurred or when the Company believes that a
loss has been incurred. During 1994, losses for industrial revenue bonds were
$1 million. There were no such losses in 1995 and 1993.
 The Company also guarantees a minimum level of benefits for certain separate
account contracts and, in the event that separate account assets are
insufficient to fund minimum policy benefits, the Company is obligated to fund
the difference. As of December 31, 1995 and 1994, the amount of minimum benefit
guarantees for separate account contracts was $5.1 billion and $4.8 billion,
respectively. Reserves in addition to the separate account liabilities are
established when the Company believes a payment will be required under one of
these guarantees. As of December 31, 1994, reserves of $6 million were
recorded. No such reserves were required as of December 31, 1995. Guarantee
fees are part of the overall management fee charged to separate accounts and
are recognized in income as earned.
 Although the ultimate outcome of any loss contingencies arising from the
Company's financial guarantees may adversely affect results of operations in
future periods, they are not expected to have a material adverse effect on the
Company's liquidity or financial condition.
 B) REGULATORY AND INDUSTRY DEVELOPMENTS: The Company's businesses are subject
to a changing social, economic, legal, legislative and regulatory environment
that could affect them. Some of the changes include initiatives to: reform the
federal tax system; restrict insurance pricing and the application of
underwriting standards; reform health care; and expand regulation. Some of the
more significant issues are discussed below.
 Legislation is expected to be considered by Congress that is likely to limit,
and eventually substantially eliminate, the tax deductibility of policy loan
interest for corporate-owned life insurance. The outcome of such legislation is
uncertain and, although it could have a material adverse effect on results of
operations for the Individual Financial Services segment, it is not expected to
be material to the Company's consolidated results of operations, liquidity or
financial condition.
 The Company expects proposals for federal and state legislation seeking some
health care insurance reforms. Due to uncertainties associated with the timing
and content of any health care legislation, the effect on the Company's future
results of operations, liquidity or financial condition cannot be reasonably
estimated at this time.
 
                                       25
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (continued)
 
 
 In recent years, the number of insurance companies that are impaired or
insolvent has increased. This is expected to result in an increase in mandatory
assessments by state guaranty funds of, or voluntary payments by, solvent
insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company recorded pre-tax charges of $17 million, $12
million and $10 million for 1995, 1994 and 1993, respectively, for guaranty
fund 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, such amounts are not
expected to have a material adverse effect on the Company's liquidity or
financial condition.
 The eventual effect on the Company of the changing environment in which it
operates remains uncertain.
 C) LITIGATION: The Company is routinely engaged in litigation incidental to
its business, including litigation associated with syndicated investment
products. While the outcome of all litigation involving the Company, including
insurance-related litigation, cannot be determined, litigation is not expected
to result in losses that differ from recorded reserves by amounts that would be
material to results of operations, liquidity or financial condition.
 
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that are subject to fair value disclosure requirements
(insurance contracts, real estate, goodwill and taxes are excluded) are carried
in the financial statements at amounts that approximate fair values, unless
otherwise indicated in the following table. The fair values used for financial
instruments are estimates that in many cases may differ significantly from the
amounts that could be realized upon immediate liquidation. In cases where
market prices are not available, estimates of fair value are based on
discounted cash flow analyses which utilize current interest rates for similar
financial instruments with comparable terms and credit quality. The fair value
of liabilities for contractholder deposit funds was estimated using the amount
payable on demand and, for those not payable on demand, discounted cash flow
analyses.
 The following table presents carrying amounts and estimated fair values as of
December 31 for the Company's financial instruments that are not carried in the
financial statements at amounts approximating fair value.
<TABLE>
<CAPTION>
                                                    1995             1994
                                              ---------------- ----------------
                                              Carrying  Fair   Carrying  Fair
                                               Amount   Value   Amount   Value
                                              -------- ------- -------- -------
                                                        (In millions)
<S>                                           <C>      <C>     <C>      <C>
Assets:
  Fixed maturities-held to maturity.......... $    --  $    -- $10,061  $10,075
  Mortgage loans............................. $10,218  $10,364 $ 8,975  $ 8,610
Liabilities:
  Contractholder deposit funds-
  non-insurance products..................... $19,797  $19,890 $18,561  $18,381
                                              =======  ======= =======  =======
</TABLE>
 For additional information on fair values of fixed maturities, see Note 2(A).
Fair values of off-balance-sheet financial instruments as of December 31, 1995
and 1994 were not material.
 
NOTE 13. RELATED PARTY TRANSACTIONS
The Company has ceded group accident and health business under an experience-
rated stop loss agreement to CIGNA P&C. Reinsurance recoverables from CIGNA P&C
were $1.3 billion at December 31, 1994. During 1993, the Company earned
experience-rated refunds from CIGNA P&C, net of premiums ceded, of $63 million.
Effective January 1, 1995 the treaty was cancelled. Reserves of approximately
$300 million, primarily related to long-term disability business, were
recaptured in 1995, with CIGNA P&C assuming responsibility for runout claims on
the remaining reserves. Assets, principally mortgages, with a fair market value
equal to reserves were received as part of the recapture.
 The Company has assumed the settlement annuity and group pension business
written by Life Insurance Company of North America (LINA), an affiliate.
Reserves held by the Company with respect to this business were $1.7 billion at
December 31, 1995 and 1994.
 The Company cedes long-term disability business to LINA. Reinsurance
recoverables from LINA at December 31, 1995 and 1994 were $996 million and $992
million, respectively.
 The Company had lines of credit available from affiliates totaling $600
million at both December 31, 1995 and 1994. All borrowings are payable upon
demand with interest rates equivalent to CIGNA's average monthly short-term
borrowing rate plus 1/4 of 1%. Interest expense was $1 million and $3 million
for 1994 and 1993 respectively. As of December 31, 1995 and 1994, there were no
borrowings outstanding under such lines.
 The Company extended lines of credit to affiliates totalling $600 million at
December 31, 1995 and 1994. All loans are payable upon demand with interest
rates equivalent to CIGNA's average monthly short-term borrowing rate. As of
December 31, 1994, the Company had $1.5 million in outstanding loans to
affiliates under such lines. There were no amounts outstanding as of December
31, 1995.
 
                                       26
<PAGE>
 
  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
  NOTES TO FINANCIAL
  STATEMENTS
  (continued)
 
 
The Company, together with other CIGNA subsidiaries, has entered into a pooling
arrangement known as the CIGNA Corporate Liquidity Account (the Account) for
the purpose of maximizing earnings on funds available for short-term
investments. Withdrawals from the Account, up to the total amount of the
participant's investment in the Account, are allowed on a demand basis. As of
December 31, 1995 and 1994, the Company had a balance in the Account of $212
million and $259 million, respectively.
 CIGNA allocates to the Company its share of operating expenses incurred at the
corporate level. The Company also allocates a portion of its operating expenses
to affiliated companies on whose behalf it performs certain administrative
services.
 
                                       27
<PAGE>
 
  CG VARIABLE ANNUITY
  SEPARATE ACCOUNT
  AIM V.I. CAPITAL
  APPRECIATION
  SUB-ACCOUNT
  FINANCIAL
  STATEMENTS
 
 
<TABLE>
<S>                                                            <C>         
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS:
Investments in AIM Variable Insurance Funds, Inc. - Capital
 Appreciation portfolio at value.............................. $210,469,276
Receivable from Connecticut General Life Insurance Company....      269,013
                                                               ------------
  Total assets................................................  210,738,289
                                                               ------------
LIABILITIES:
Payable for fund shares purchased.............................      269,013
                                                               ------------
  Net assets.................................................. $210,469,276
                                                               ============
Accumulation units outstanding................................   13,216,713
Net asset value per accumulation unit......................... $15.92378352
Accumulation net assets....................................... $210,460,077
Annuity reserves..............................................        9,199
                                                               ============
                                                               $210,469,276
                                                               ============
</TABLE>
<TABLE>
<S>                                                             <C>        
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 1, 1995 TO DECEMBER 31, 1995
INVESTMENT INCOME:
Dividends...................................................... $    45,004
EXPENSES:
Mortality and expense risk and administrative charges..........   1,821,225
                                                                -----------
  Net investment loss..........................................  (1,776,221)
                                                                -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss..............................................    (185,467)
Net unrealized gain............................................  37,366,222
                                                                -----------
  Net realized and unrealized gain on investments..............  37,180,755
                                                                -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $35,404,534
                                                                ===========
</TABLE>
<TABLE>
<CAPTION>
                                                   PERIOD FROM
                                                FEBRUARY 1, 1995
STATEMENT OF CHANGES IN NET ASSETS                     TO            YEAR ENDED
                                                DECEMBER 31, 1995 JANUARY 31, 1995
                                                ----------------- ----------------
<S>                                             <C>               <C>
OPERATIONS:
Net investment loss............................   $ (1,776,221)     $  (593,920)
Net realized loss..............................       (185,467)         (66,662)
Net unrealized gain (loss).....................     37,366,222       (1,528,246)
                                                  ------------      -----------
  Net increase (decrease) from operations......     35,404,534       (2,188,828)
                                                  ------------      -----------
ACCUMULATION AND ANNUITY UNIT TRANSACTIONS:
Participant deposits...........................     75,416,433       47,861,215
Participant transfers..........................     16,533,461       10,713,993
Participant withdrawals and annuity payments...     (5,071,327)      (2,295,908)
                                                  ------------      -----------
  Net increase from participant transactions...     86,878,567       56,279,300
                                                  ------------      -----------
    Total increase in net assets...............    122,283,101       54,090,472
                                                  ------------      -----------
NET ASSETS:
Beginning of period............................     88,186,175       34,095,703
                                                  ------------      -----------
End of period..................................   $210,469,276      $88,186,175
                                                  ============      ===========
PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN
 UNITS):
Participant deposits...........................      5,006,509        4,063,706
Participant transfers..........................      1,041,696          891,878
Participant withdrawals........................       (345,299)        (195,780)
                                                  ------------      -----------
  Net increase in units from participant
   transactions................................      5,702,906        4,759,804
                                                  ============      ===========
</TABLE>
 
The Notes to Financial Statements are an integral part of these statements.
 
                                       28
<PAGE>
 
  CG VARIABLE ANNUITY
  SEPARATE ACCOUNT
  AIM V.I. DIVERSIFIED
  INCOME
  SUB-ACCOUNT
  FINANCIAL
  STATEMENTS
 
 
<TABLE>
<S>                                                             <C>          
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS:
Investments in AIM Variable Insurance Funds, Inc. -Diversified
 Income portfolio
 at value.....................................................  $ 43,419,012
Receivable for fund shares sold...............................        17,298
                                                                ------------
  Total assets................................................    43,436,310
                                                                ------------
LIABILITIES:
Payable to Connecticut General Life Insurance Company ........        17,298
                                                                ------------
                                                                $ 43,419,012
                                                                ============
Accumulation units outstanding................................     3,747,828
Net asset value per accumulation unit.........................  $11.58511339
</TABLE>
<TABLE>
<S>                                                               <C>        
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 1, 1995 TO DECEMBER 31, 1995
INVESTMENT INCOME:
Dividends........................................................ $2,795,670
EXPENSES:
Mortality and expense risk and administrative charges............    420,074
                                                                  ----------
  Net investment income..........................................  2,375,596
                                                                  ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain................................................      9,483
Net unrealized gain..............................................  2,580,177
                                                                  ----------
  Net realized and unrealized gain on investments................  2,589,660
                                                                  ----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $4,965,256
                                                                  ==========
</TABLE>
<TABLE>
<CAPTION>
                                                   PERIOD FROM
                                                FEBRUARY 1, 1995
STATEMENT OF CHANGES IN NET ASSETS                     TO            YEAR ENDED
                                                DECEMBER 31, 1995 JANUARY 31, 1995
                                                ----------------- ----------------
<S>                                             <C>               <C>
OPERATIONS:
Net investment income..........................    $ 2,375,596      $ 1,106,983
Net realized gain (loss).......................          9,483           (6,208)
Net unrealized gain (loss).....................      2,580,177       (2,270,380)
                                                   -----------      -----------
  Net increase (decrease) from operations......      4,965,256       (1,169,605)
                                                   -----------      -----------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits...........................     10,812,192       12,974,053
Participant transfers..........................      5,634,473        1,408,408
Participant withdrawals........................     (2,244,711)      (1,327,049)
                                                   -----------      -----------
  Net increase from participant transactions...     14,201,954       13,055,412
                                                   -----------      -----------
    Total increase in net assets...............     19,167,210       11,885,807
                                                   -----------      -----------
NET ASSETS:
Beginning of period............................     24,251,802       12,365,995
                                                   -----------      -----------
End of period..................................    $43,419,012      $24,251,802
                                                   ===========      ===========
PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN
 UNITS):
Participant deposits...........................        986,223        1,279,685
Participant transfers..........................        527,843          144,996
Participant withdrawals........................       (208,269)        (133,101)
                                                   -----------      -----------
  Net increase in units from participant
   transactions................................      1,305,797        1,291,580
                                                   ===========      ===========
</TABLE>
 
The Notes to Financial Statements are an integral part of these statements.
 
                                       29
<PAGE>
 
  CG VARIABLE ANNUITY
  SEPARATE ACCOUNT
  AIM V.I. GLOBAL
  UTILITIES
  SUB-ACCOUNT*
  FINANCIAL
  STATEMENTS
 
 
<TABLE>
<S>                                                            <C>         
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS:
Investments in AIM Variable Insurance Funds, Inc. - Global
 Utilities portfolio at value................................. $  7,146,302
Receivable from Connecticut General Life Insurance Company....       31,966
                                                               ------------
  Total assets................................................    7,178,268
                                                               ------------
LIABILITIES:
Payable for fund shares purchased.............................       31,966
                                                               ------------
  Net assets.................................................. $  7,146,302
                                                               ============
Accumulation units outstanding................................      571,320
Net asset value per accumulation unit......................... $12.50840432
</TABLE>
<TABLE>
 <S>                                                                <C>    
 STATEMENT OF OPERATIONS
 PERIOD FROM FEBRUARY 1, 1995 TO DECEMBER 31, 1995
 INVESTMENT INCOME:
 Dividends......................................................... $153,565
 EXPENSES:
 Mortality and expense risk and administrative charges.............   50,920
                                                                    --------
   Net investment income...........................................  102,645
                                                                    --------
 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
 Capital distribution from portfolio sponsor.......................    7,930
 Realized gain on share transactions...............................   15,042
                                                                    --------
 Net realized gain.................................................   22,972
 Net unrealized gain...............................................  776,711
                                                                    --------
   Net realized and unrealized gain on investments.................  799,683
                                                                    --------
 INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $902,328
                                                                    ========
</TABLE>
<TABLE>
<CAPTION>
                                                   PERIOD FROM      PERIOD FROM
                                                FEBRUARY 1, 1995   MAY 11, 1994**
STATEMENT OF CHANGES IN NET ASSETS                     TO                TO
                                                DECEMBER 31, 1995 JANUARY 31, 1995
                                                ----------------- ----------------
<S>                                             <C>               <C>
OPERATIONS:
Net investment income..........................      $102,645        $   21,588
Net realized gain (loss).......................        22,972               (52)
Net unrealized gain (loss).....................       776,711            (8,552)
                                                   ----------        ----------
  Net increase from operations.................       902,328            12,984
                                                   ----------        ----------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits...........................     3,456,984         1,473,651
Participant transfers..........................     1,139,686           484,260
Participant withdrawals........................      (300,061)          (23,530)
                                                   ----------        ----------
  Net increase from participant transactions...     4,296,609         1,934,381
                                                   ----------        ----------
    Total increase in net assets...............     5,198,937         1,947,365
                                                   ----------        ----------
NET ASSETS:
Beginning of period............................     1,947,365                --
                                                   ----------        ----------
End of period..................................    $7,146,302        $1,947,365
                                                   ==========        ==========
PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN
 UNITS):
Participant deposits...........................       303,996           145,002
Participant transfers..........................       104,156            47,601
Participant withdrawals........................       (27,096)           (2,339)
                                                   ----------        ----------
  Net increase in units from participant
   transactions................................       381,056           190,264
                                                   ==========        ==========
</TABLE>
 * Formerly AIM V.I. Utilities Sub-Account
** Date deposits first received
 
The Notes to Financial Statements are an integral part of these statements.
 
                                       30
<PAGE>
 
  CG VARIABLE ANNUITY
  SEPARATE ACCOUNT
  AIM V.I. GOVERNMENT SECURITIES
  SUB-ACCOUNT
  FINANCIAL
  STATEMENTS
 
 
<TABLE>
<S>                                                            <C>         
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS:
Investments in AIM Variable Insurance Funds, Inc. -Government
 Securities portfolio at value................................ $ 18,388,202
Receivable for fund shares sold...............................        8,670
                                                               ------------
  Total assets................................................   18,396,872
                                                               ------------
LIABILITIES:
Payable to Connecticut General Life Insurance Company.........        8,670
                                                               ------------
  Net assets.................................................. $ 18,388,202
                                                               ============
Accumulation units outstanding................................    1,672,986
Net asset value per accumulation unit......................... $10.99124674
</TABLE>
<TABLE>
<S>                                                               <C>      
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 1, 1995 TO DECEMBER 31, 1995
INVESTMENT INCOME:
Dividends........................................................ $  797,759
EXPENSES:
Mortality and expense risk and administrative charges............    178,350
                                                                  ----------
  Net investment income..........................................    619,409
                                                                  ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain................................................      9,074
Net unrealized gain..............................................  1,067,582
                                                                  ----------
  Net realized and unrealized gain on investments................  1,076,656
                                                                  ----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $1,696,065
                                                                  ==========
</TABLE>
<TABLE>
<CAPTION>
                                                   PERIOD FROM
                                                FEBRUARY 1, 1995
STATEMENT OF CHANGES IN NET ASSETS                     TO            YEAR ENDED
                                                DECEMBER 31, 1995 JANUARY 31, 1995
                                                ----------------- ----------------
<S>                                             <C>               <C>
OPERATIONS:
Net investment income..........................    $   619,409      $   421,968
Net realized gain (loss).......................          9,074           (9,420)
Net unrealized gain (loss).....................      1,067,582         (848,124)
                                                   -----------      -----------
  Net increase (decrease) from operations......      1,696,065         (435,576)
                                                   -----------      -----------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits...........................      4,464,331        5,389,472
Participant transfers..........................      1,401,722          614,767
Participant withdrawals........................     (1,045,358)      (2,248,900)
                                                   -----------      -----------
  Net increase from participant transactions...      4,820,695        3,755,339
                                                   -----------      -----------
    Total increase in net assets...............      6,516,760        3,319,763
                                                   -----------      -----------
NET ASSETS:
Beginning of period............................     11,871,442        8,551,679
                                                   -----------      -----------
End of period..................................    $18,388,202      $11,871,442
                                                   ===========      ===========
PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN
 UNITS):
Participant deposits...........................        423,722          550,168
Participant transfers..........................        134,953           63,574
Participant withdrawals........................       (100,145)        (232,804)
                                                   -----------      -----------
  Net increase in units from participant
   transactions................................        458,530          380,938
                                                   ===========      ===========
</TABLE>
 
The Notes to Financial Statements are an integral part of these statements.
 
                                       31
<PAGE>
 
  CG VARIABLE ANNUITY
  SEPARATE ACCOUNT
  AIM V.I. GROWTH
  SUB-ACCOUNT
  FINANCIAL
  STATEMENTS
 
 
<TABLE>
<S>                                                            <C>          
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS:
Investments in AIM Variable Insurance Funds, Inc. - Growth
 portfolio at value........................................... $102,625,704
Receivable from Connecticut General Life Insurance Company....       88,795
                                                               ------------
  Total assets................................................  102,714,499
                                                               ------------
LIABILITIES:
Payable for fund shares purchased.............................       88,795
                                                               ------------
  Net assets.................................................. $102,625,704
                                                               ============
Accumulation units outstanding................................    7,342,011
Net asset value per accumulation unit......................... $13.97787385
</TABLE>
<TABLE>
<S>                                                             <C>         
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 1, 1995 TO DECEMBER 31, 1995
INVESTMENT INCOME:
Dividends...................................................... $    48,608
EXPENSES:
Mortality and expense risk and administrative charges..........     900,822
                                                                -----------
  Net investment loss..........................................    (852,214)
                                                                -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss..............................................      (8,433)
Net unrealized gain............................................  18,487,083
                                                                -----------
  Net realized and unrealized gain on investments..............  18,478,650
                                                                -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $17,626,436
                                                                ===========
</TABLE>
<TABLE>
<CAPTION>
                                                   PERIOD FROM
                                                FEBRUARY 1, 1995
STATEMENT OF CHANGES IN NET ASSETS                     TO            YEAR ENDED
                                                DECEMBER 31, 1995 JANUARY 31, 1995
                                                ----------------- ----------------
<S>                                             <C>               <C>
OPERATIONS:
Net investment loss............................   $   (852,214)     $  (258,370)
Net realized loss..............................         (8,433)          (1,456)
Net unrealized gain (loss).....................     18,487,083       (2,020,293)
                                                  ------------      -----------
  Net increase (decrease) from operations......     17,626,436       (2,280,119)
                                                  ------------      -----------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits...........................     32,668,572       20,375,982
Participant transfers..........................      9,479,797        5,252,277
Participant withdrawals........................     (2,651,893)      (1,809,246)
                                                  ------------      -----------
  Net increase from participant transactions...     39,496,476       23,819,013
                                                  ------------      -----------
    Total increase in net assets...............     57,122,912       21,538,894
                                                  ------------      -----------
NET ASSETS:
Beginning of period............................     45,502,792       23,963,898
                                                  ------------      -----------
End of period..................................   $102,625,704      $45,502,792
                                                  ============      ===========
PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN
 UNITS):
Participant deposits...........................      2,484,497        1,915,861
Participant transfers..........................        722,364          500,502
Participant withdrawals........................       (202,205)        (172,245)
                                                  ------------      -----------
  Net increase in units from participant
   transactions................................      3,004,656        2,244,118
                                                  ============      ===========
</TABLE>
 
The Notes to Financial Statements are an integral part of these statements.
 
                                       32
<PAGE>
 
  CG VARIABLE ANNUITY
  SEPARATE ACCOUNT
  AIM V.I. GROWTH
  AND INCOME
  SUB-ACCOUNT
  FINANCIAL
  STATEMENTS
 

<TABLE>
<S>                                                             <C>        
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS:
Investments in AIM Variable Insurance Funds, Inc. - Growth and
 Income portfolio
 at value.....................................................  $ 37,208,135
Receivable from Connecticut General Life Insurance Company....       126,847
                                                                ------------
  Total assets................................................    37,334,982
                                                                ------------
LIABILITIES:
Payable for fund shares purchased.............................       126,847
                                                                ------------
  Net assets..................................................  $ 37,208,135
                                                                ============
Accumulation units outstanding................................     2,779,812
Net asset value per accumulation unit.........................  $13.38512650
</TABLE>
<TABLE>
 <S>                                                              <C>       
 STATEMENT OF OPERATIONS
 PERIOD FROM FEBRUARY 1, 1995 TO DECEMBER 31, 1995
 INVESTMENT INCOME:
 Dividends....................................................... $  311,799
 EXPENSES:
 Mortality and expense risk and administrative charges...........    220,231
                                                                  ----------
   Net investment income.........................................     91,568
                                                                  ----------
 NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
 Capital distribution from portfolio sponsor.....................  1,073,273
 Realized gain on share transactions.............................        221
                                                                  ----------
 Net realized gain...............................................  1,073,494
 Net unrealized gain.............................................  2,522,533
                                                                  ----------
   Net realized and unrealized gain on investments...............  3,596,027
                                                                  ----------
 INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $3,687,595
                                                                  ==========
</TABLE>
<TABLE>
<CAPTION>
                                                   PERIOD FROM      PERIOD FROM
                                                FEBRUARY 1, 1995   MAY 11, 1994*
STATEMENT OF CHANGES IN NET ASSETS                     TO                TO
                                                DECEMBER 31, 1995 JANUARY 31, 1995
                                                ----------------- ----------------
<S>                                             <C>               <C>
OPERATIONS:
Net investment income..........................    $    91,568       $   18,146
Net realized gain..............................      1,073,494              898
Net unrealized gain (loss).....................      2,522,533          (42,533)
                                                   -----------       ----------
  Net increase (decrease) from operations......      3,687,595          (23,489)
                                                   -----------       ----------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits...........................     21,652,744        4,650,433
Participant transfers..........................      6,032,618        1,973,321
Participant withdrawals........................       (524,244)        (240,843)
                                                   -----------       ----------
  Net increase from participant transactions...     27,161,118        6,382,911
                                                   -----------       ----------
    Total increase in net assets...............     30,848,713        6,359,422
                                                   -----------       ----------
NET ASSETS:
Beginning of period............................      6,359,422               --
                                                   -----------       ----------
End of period..................................    $37,208,135       $6,359,422
                                                   ===========       ==========
PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN
 UNITS):
Participant deposits...........................      1,718,553          453,278
Participant transfers..........................        480,720          192,739
Participant withdrawals........................        (41,974)         (23,504)
                                                   -----------       ----------
  Net increase in units from participant
   transactions................................      2,157,299          622,513
                                                   ===========       ==========
</TABLE>
 
*Date deposits first received
 
The Notes to Financial Statements are an integral part of these statements.
 
                                       33
<PAGE>
 
  CG VARIABLE ANNUITY
  SEPARATE ACCOUNT
  AIM V.I. INTERNATIONAL
  EQUITY
  SUB-ACCOUNT
  FINANCIAL
  STATEMENTS
 
 
<TABLE>
<S>                                                            <C>          
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS:
Investments in AIM Variable Insurance Funds, Inc. -
 International Equity portfolio
 at value..................................................... $ 82,231,131
Receivable from Connecticut General Life Insurance Company....      136,070
                                                               ------------
  Total assets................................................   82,367,201
                                                               ------------
LIABILITIES:
Payable for fund shares purchased.............................      136,070
                                                               ------------
  Net assets.................................................. $ 82,231,131
                                                               ============
Accumulation units outstanding................................    6,249,610
Net asset value per accumulation unit......................... $13.15613040
Accumulation net assets....................................... $ 82,220,684
Annuity reserves..............................................       10,447
                                                               ============
                                                               $ 82,231,131
                                                               ============
</TABLE>
<TABLE>
<S>                                                             <C>         
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 1, 1995 TO DECEMBER 31, 1995
INVESTMENT INCOME:
Dividends...................................................... $   123,270
EXPENSES:
Mortality and expense risk and administrative charges..........     822,709
                                                                -----------
  Net investment loss..........................................    (699,439)
                                                                -----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain..............................................      70,775
Net unrealized gain............................................  13,573,062
                                                                -----------
  Net realized and unrealized gain on investments..............  13,643,837
                                                                -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $12,944,398
                                                                ===========
</TABLE>
<TABLE>
<CAPTION>
                                                   PERIOD FROM
                                                FEBRUARY 1, 1995
STATEMENT OF CHANGES IN NET ASSETS                     TO            YEAR ENDED
                                                DECEMBER 31, 1995 JANUARY 31, 1995
                                                ----------------- ----------------
<S>                                             <C>               <C>
OPERATIONS:
Net investment loss............................    $  (699,439)     $  (449,995)
Net realized gain (loss).......................         70,775           (5,996)
Net unrealized gain (loss).....................     13,573,062       (5,586,224)
                                                   -----------      -----------
  Net increase (decrease) from operations......     12,944,398       (6,042,215)
                                                   -----------      -----------
ACCUMULATION AND ANNUITY UNIT TRANSACTIONS:
Participant deposits...........................     22,515,674       33,888,206
Participant transfers..........................     (4,928,544)       6,567,073
Participant withdrawals and annuity payments...     (3,340,047)      (1,662,700)
                                                   -----------      -----------
  Net increase from participant transactions...     14,247,083       38,792,579
                                                   -----------      -----------
    Total increase in net assets...............     27,191,481       32,750,364
                                                   -----------      -----------
NET ASSETS:
Beginning of period............................     55,039,650       22,289,286
                                                   -----------      -----------
End of period..................................    $82,231,131      $55,039,650
                                                   ===========      ===========
PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN
 UNITS):
Participant deposits...........................      1,821,338        2,901,379
Participant transfers..........................       (418,823)         554,755
Participant withdrawals........................       (277,532)        (144,171)
                                                   -----------      -----------
  Net increase in units from participant
   transactions................................      1,124,983        3,311,963
                                                   ===========      ===========
</TABLE>
 
The Notes to Financial Statements are an integral part of these statements.
 
                                       34
<PAGE>
 
  CG VARIABLE ANNUITY
  SEPARATE ACCOUNT
  AIM V.I. MONEY
  MARKET
  SUB-ACCOUNT
  FINANCIAL
  STATEMENTS
 
<TABLE> 
<S>                                                            <C>         
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS:
Investments in AIM Variable Insurance Funds, Inc. - Money
 Market portfolio at value.................................... $ 65,466,418
Receivable from Connecticut General Life Insurance Company....      347,290
                                                               ------------
  Total assets................................................   65,813,708
                                                               ------------
LIABILITIES:
Payable for fund shares purchased.............................      347,290
                                                               ------------
  Net assets.................................................. $ 65,466,418
                                                               ============
Accumulation units outstanding................................    6,071,486
Net asset value per accumulation unit......................... $10.77544248
Accumulation net assets....................................... $ 65,422,948
Annuity reserves..............................................       43,470
                                                               ============
                                                               $ 65,466,418
                                                               ============
</TABLE>

<TABLE>
<S>                                                               <C>      
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 1, 1995 TO DECEMBER 31, 1995
INVESTMENT INCOME:
Dividends........................................................ $2,275,535
EXPENSES:
Mortality and expense risk and administrative charges............    568,817
                                                                  ----------
  Net investment income..........................................  1,706,718
                                                                  ----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $1,706,718
                                                                  ==========
</TABLE>

<TABLE>
<CAPTION>
                                                   PERIOD FROM
                                                FEBRUARY 1, 1995
STATEMENT OF CHANGES IN NET ASSETS                     TO            YEAR ENDED
                                                DECEMBER 31, 1995 JANUARY 31, 1995
                                                ----------------- ----------------
<S>                                             <C>               <C>
OPERATIONS:
Net investment income..........................   $  1,706,718      $    797,659
                                                  ------------      ------------
ACCUMULATION AND ANNUITY UNIT TRANSACTIONS:
Participant deposits...........................     90,031,694        63,480,794
Participant transfers..........................    (53,839,727)      (44,489,039)
Participant withdrawals and annuity payments...     (3,395,341)       (1,598,683)
                                                  ------------      ------------
  Net increase from participant transactions...     32,796,626        17,393,072
                                                  ------------      ------------
    Total increase in net assets...............     34,503,344        18,190,731
                                                  ------------      ------------
NET ASSETS:
Beginning of period............................     30,963,074        12,772,343
                                                  ------------      ------------
End of period..................................   $ 65,466,418      $ 30,963,074
                                                  ============      ============
PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN
 UNITS):
Participant deposits...........................      8,480,343         6,221,992
Participant transfers..........................     (5,068,522)       (4,353,875)
Participant withdrawals........................       (319,563)         (155,530)
                                                  ------------      ------------
  Net increase in units from participant
   transactions................................      3,092,258         1,712,587
                                                  ============      ============
</TABLE>
 
The Notes to Financial Statements are an integral part of these statements.
 
                                       35
<PAGE>
 
  CG VARIABLE ANNUITY
  SEPARATE ACCOUNT
  AIM V.I. VALUE
  SUB-ACCOUNT
  FINANCIAL
  STATEMENTS
 
 
<TABLE>
<S>                                                            <C>         
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS:
Investments in AIM Variable Insurance Funds, Inc. - Value
 portfolio at value........................................... $257,264,665
Receivable from Connecticut General Life Insurance Company....      160,376
                                                               ------------
  Total assets................................................  257,425,041
                                                               ------------
LIABILITIES:
Payable for fund shares purchased.............................      160,376
                                                               ------------
  Net assets.................................................. $257,264,665
                                                               ============
Accumulation units outstanding................................   16,590,052
Net asset value per accumulation unit......................... $15.50537319
Accumulation net assets....................................... $257,234,948
Annuity reserves..............................................       29,717
                                                               ============
                                                               $257,264,665
                                                               ============
</TABLE>
<TABLE>
<S>                                                             <C>         
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 1, 1995 TO DECEMBER 31, 1995
INVESTMENT INCOME:
Dividends...................................................... $   124,487
EXPENSES:
Mortality and expense risk and administrative charges..........   2,234,613
                                                                -----------
  Net investment loss..........................................  (2,110,126)
                                                                -----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain..............................................       2,326
Net unrealized gain............................................  46,641,463
                                                                -----------
  Net realized and unrealized gain on investments..............  46,643,789
                                                                -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $44,533,663
                                                                ===========
</TABLE>
<TABLE>
<CAPTION>
                                                   PERIOD FROM
                                                FEBRUARY 1, 1995
STATEMENT OF CHANGES IN NET ASSETS                     TO            YEAR ENDED
                                                DECEMBER 31, 1995 JANUARY 31, 1995
                                                ----------------- ----------------
<S>                                             <C>               <C>
OPERATIONS:
Net investment loss............................    $(2,110,126)      $  (247,487)
Net realized gain (loss).......................          2,326            (2,944)
Net unrealized gain (loss).....................     46,641,463        (1,118,759)
                                                  ------------      ------------
  Net increase (decrease) from operations......     44,533,663        (1,369,190)
                                                  ------------      ------------
ACCUMULATION AND ANNUITY UNIT TRANSACTIONS:
Participant deposits...........................     93,272,878        62,651,212
Participant transfers..........................     17,331,114        14,822,577
Participant withdrawals and annuity payments...     (7,116,527)       (3,886,817)
                                                  ------------      ------------
  Net increase from participant transactions...    103,487,465        73,586,972
                                                  ------------      ------------
    Total increase in net assets...............    148,021,128        72,217,782
                                                  ------------      ------------
NET ASSETS:
Beginning of period............................    109,243,537        37,025,755
                                                  ------------      ------------
End of period..................................   $257,264,665      $109,243,537
                                                  ============      ============
PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN
 UNITS):
Participant deposits...........................      6,429,791         5,430,406
Participant transfers..........................      1,180,159         1,281,113
Participant withdrawals........................       (499,393)         (337,807)
                                                  ------------      ------------
  Net increase in units from participant
   transactions................................      7,110,557         6,373,712
                                                  ============      ============
</TABLE>
 
The Notes to Financial Statements are an integral part of these statements.
 
                                       36
<PAGE>
 
  CG VARIABLE ANNUITY SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS
 
  December 31, 1995
 
 
1. ORGANIZATION
CG Variable Annuity Separate Account (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.
 During 1995, the Account changed its fiscal year end from January 31 to
December 31, effective in the year beginning January 1, 1996. Accordingly, the
accompanying financial statements include the eleven month transition period
ended December 31, 1995.
 The assets of the Account are divided into variable sub-accounts invested in
shares of a specific series of the AIM Variable Insurance Funds, Inc. (the
Fund), a mutual fund. Nine sub-accounts are currently available for investment
within the Account: AIM V.I. Capital Appreciation Fund; AIM V.I. Diversified
Income Fund; AIM V.I. Global Utilities Fund (formerly named AIM V.I. Utilities
Fund); AIM V.I. Government Securities Fund; AIM V.I. Growth Fund; AIM V.I.
Growth and Income Fund; AIM V.I. International Equity Fund; AIM V.I. Money
Market Fund; and AIM V.I. Value Fund.
 
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in conformity with generally
accepted accounting principles. The following is a summary of significant
accounting policies consistently followed 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 value per share as determined by the Fund
   as of December 29, 1995, the last business day of 1995. The change in the
   difference between cost and value is reflected as unrealized gain (loss) in
   the Statements of Operations.
B. Investment Transactions:- Investment transactions are recorded on the trade
   date (date the order to buy or sell is executed). Realized gains and losses
   on sales of investments are determined by the last-in, first-out cost basis
   of the investment sold. Dividend and capital gain distributions are recorded
   on the ex-dividend date. Investment transactions are settled through CG
   Life.
C. Federal Income Taxes:- The operations of the Account form a part of, and are
   taxed with, the total operations of CG Life, which is taxed as a life
   insurance company. Under existing federal income tax law, investment income
   (dividends) and capital gains attributable to the Account are not taxed.
D. Annuity Reserves:- The amount of annuity reserves is determined by actuarial
   assumptions which meet statutory requirements. Gains or losses resulting from
   actual mortality experience, the responsibility for which is assumed by CG
   Life, are offset by transfers to or from CG Life.

3. INVESTMENTS
Total shares held and cost of investments at December 31, 1995 were:
<TABLE>
<CAPTION>
                                                           Shares     Cost Of
AIM V.I. Sub-Account                                        Held    Investments
- --------------------                                       ------   ------------
<S>                                                      <C>        <C>
Capital Appreciation.................................... 12,717,177 $171,208,303
Diversified Income......................................  4,341,901   42,998,616
Global Utilities........................................    613,943    6,378,143
Government Securities...................................  1,808,083   18,132,154
Growth..................................................  7,107,043   84,698,235
Growth and Income.......................................  2,934,395   34,728,135
International Equity....................................  6,019,849   72,001,262
Money Market............................................ 65,466,418   65,466,418
Value................................................... 15,969,253  208,732,503
</TABLE>
Total purchases and sales of shares of the Fund, for the period February 1,
1995 to December 31, 1995, amounted to:
<TABLE>
<CAPTION>
AIM V.I. Sub-Account    Purchases     Sales
- --------------------   ----------- -----------
<S>                    <C>         <C>
Capital Appreciation   $94,966,376 $ 9,864,030
Diversified Income      20,694,829   4,117,279
Global Utilities         5,843,708   1,436,524
Government Securities    7,744,986   2,304,882
Growth                  41,798,023   3,153,761
Growth and Income       28,573,966     248,007
International Equity    20,721,921   7,174,277
Money Market            82,392,403  47,889,059
Value                  103,768,298   2,390,959
</TABLE>
 
 
                                       37
<PAGE>
 
  CG VARIABLE ANNUITY SEPARATE ACCOUNT NOTES TO FINANCIAL STATEMENTS
  (continued)
 
  December 31, 1995


4. CHARGES AND DEDUCTIONS:
CG Life assumes the risk that annuitants as a class may live longer than
expected and also assumes a mortality risk in connection with the death
benefits of the contract. CG Life also assumes a risk that its actual
administrative expenses may be higher than amounts deducted for such expenses.
CG Life charges each variable sub-account the daily equivalent of 1.25%
(approximately .75% for mortality risks and approximately .50% for expense
risks), on an annual basis, of the current value of each sub-account's assets
for the assumption of these risks.
 CG Life also deducts a daily administrative fee from the assets of each
variable sub-account as partial reimbursement for administrative expenses
relating to the issuance and maintenance of the contract and the participant's
annuity account. This charge is currently at an effective annual rate of .10%.
 As partial compensation for administrative services provided, CG Life
additionally receives a $35 annuity account fee per year from each contract.
This charge is deducted from the fixed or variable sub-account of the
participant or on a pro-rata basis from two or more fixed or variable sub-
accounts in relation to their values under the contract. Fixed sub-accounts are
part of the general account of CG Life and are not included in these financial
statements.
 The fees charged by CG Life for mortality and expense risks, administrative
fees and the amount deducted for annuity account fees, (included in participant
withdrawals), from variable sub-accounts, for the period from February 1, 1995
to December 31, 1995, amounted to:
<TABLE>
<CAPTION>
                        Mortality   Asset Based   Annuity
                       and Expense Administrative Account
AIM V.I. Sub-Account    Risk Fees       Fees        Fees
- --------------------   ----------- -------------- --------
<S>                    <C>         <C>            <C>
Capital Appreciation   $1,686,319     $134,906    $101,006
Diversified Income        388,957       31,117      15,912
Global Utilities           47,148        3,772       2,064
Government Securities     165,139       13,211       6,711
Growth                    834,094       66,728      47,673
Growth and Income         203,917       16,314      11,055
International Equity      761,768       60,941      42,019
Money Market              526,683       42,134      18,420
Value                   2,069,087      165,526     119,935
</TABLE>
 No deduction for sales charges is made from a premium payment. However, if a
cash withdrawal is made, a withdrawal charge (contingent deferred sales charge)
may be assessed by CG Life. The withdrawal charge, if assessed, varies from 0-
7% depending upon the duration of each contract deposit. The withdrawal charge
is deducted from withdrawal proceeds for full withdrawals and reduces the
remaining account value for partial withdrawals. These charges are paid to CG
Life as reimbursement for services provided. These services include commissions
paid to sales personnel, the costs of preparation of sales literature and other
promotional costs and acquisition expenses. Withdrawal charges paid to CG Life
for the variable sub-accounts, for the period from February 1, 1995 to December
31, 1995, amounted to $521,227.
 
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 surrenders, death benefits, transfers to other fixed or
variable sub-accounts or annuity payments in excess of net purchase payments.
 
6. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code of 1986
(the 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 habor test or diversification requirements set forth in
regulations issued by the Secretary of the Treasury. CG Life believes, based on
assurances from the Fund, that the Fund satisfies the requirements of the
regulations.
 
                                       38
<PAGE>
 
 REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors of Connecticut General
 Life Insurance Company and Participants of the
 CG Variable Annuity Separate Account
 
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
AIM V.I. Capital Appreciation, AIM V.I. Diversified Income, AIM V.I. Global
Utilities (formerly AIM V.I. Utilities), AIM V.I. Government Securities, AIM
V.I. Growth, AIM V.I. Growth and Income, AIM V.I. International Equity, AIM
V.I. Money Market, and AIM V.I. Value (constituting the CG Variable Annuity
Separate Account, hereafter referred to as "the Account") at December 31, 1995,
and the results of each of their operations and the changes in each of their
net assets for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Account's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
 
PRICE WATERHOUSE LLP
 
Hartford, Connecticut
February 26, 1996
 
                                       39
<PAGE>
 
                           PART C. OTHER INFORMATION
<PAGE>
 
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
 
   (a) Financial Statements
 
     (1) Registrant
 
      (A) Statements of Assets and Liabilities as of December 31, 1995.
 
      (B) Statements of Operations for the Eleven Months Ended December
      31, 1995.
 
      (C) Statements of Changes in Net Assets for the Eleven Months Ended
        December 31, 1995 and the year ended January 31, 1995
 
     (2) Depositor
 
      (A) Consolidated Statements of Income and Retained Earnings for the
        Years Ended December 31, 1995, 1994, and 1993.
 
      (B) Consolidated Balance Sheets As of December 31, 1995 and 1994.
 
      (C) Consolidated Statements of Cash Flows for the Years Ended
      December 31, 1995, 1994 and 1993.
 
   (b) Exhibits
 
     (1) Resolution of Board of Directors Authorizing Establishment of
    Registrant*
 
     (2) Not Applicable
 
     (3) Form of Selling Agreement among Connecticut General Life Insurance
       Company, CIGNA Financial Advisors, Inc. as principal underwriter, and
       selling dealers.*
 
     (4) Form of Connecticut General Life Insurance Company Variable Annuity
       Contract Form Number AN 400, together with Optional Methods of
       Settlement Riders (Form Numbers AR 400 and AR 401).*
 
     (5) Form of Application Which May Be Used in Connection with the
      Contract Shown As Exhibit (4)
 
     (6) (A) Certificate of Incorporation (Charter) of Connecticut General
      Life Insurance Company, as amended*
 
      (B) By-Laws of Connecticut General Life Insurance Company*
 
     (7) Not Applicable
 
     (8) Not Applicable
 
     (9) Opinion of Robert A. Picarello, Esq., Chief Counsel of Connecticut
    General Life Insurance Company*
 
    (10) (A) Consent of Independent Accountants
 
      (B) Consent of Counsel (included in Exhibit 9)*
 
    (11) Not Applicable
 
    (12) Not Applicable
 
    (13) Schedules for Computation of Performance Data*
 
    (14) Not Applicable
 
*Incorporated by reference to previous filings of this Registration Statement
 
1
<PAGE>
 
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
 
  The principal business address of each of the directors and officers of
Connecticut General Life Insurance Company (the "Company") is the company's
Home Office, 900 Cottage Grove Road, Hartford, Connecticut 06152.
 
DIRECTORS AND OFFICERS OF DEPOSITOR
 
<TABLE>
<CAPTION>
      NAME                          POSITIONS AND OFFICES WITH DEPOSITOR
      ----                  ---------------------------------------------------
      <C>                   <S>
      Thomas C. Jones       President (Principal Executive Officer)
      James T. Kohan        Vice President and Actuary (Principal Financial Officer) 
      Robert Moose          Vice President (Principal Accounting Officer)
      David C. Kopp         Corporate Secretary
      Andrew G. Helming     Secretary
      Stephen C. Stachalek  Vice President and Treasurer
      Harold W. Albert      Director
      S. Tyrone Alexander   Director and Senior Vice President
      Martin A. Brennan     Director and Senior Vice President
      Robert W. Burgess     Director
      John G. Day           Director and Chief Counsel
      Joseph M. Fitzgerald  Director and Senior Vice President
      H. Edward Hanway      Director and Chairman of the Board
      Arthur C. Reeds, III  Director and Senior Vice President
      Patricia L. Rowland   Director and Senior Vice President
      W. Allen Schaffer, MD Director
      John Wilkinson        Director, Senior Vice President and Chief Financial
                            Officer
</TABLE>
 
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
 
  Incorporated by reference to Item 26 of Post-Effective Amendment No. 3 to
the Form N-4 Registration Statement of CG Variable Annuity Separate Account
(File No. 33-48137) filed April 28, 1995 is a chart of persons controlled by
or under common control with the Depositor. The consolidated financial
statements of the Depositor include the accounts of the Depositor and its
wholly-owned subsidiaries.
 
ITEM 27. NUMBER OF PURCHASERS
 
  As of February 29, 1996 there were 16,821 owners of the Contracts.
 
ITEM 28. INDEMNIFICATION
 
  The answer to this Item 28 is incorporated by reference to Item 28 of Post-
Effective Amendment No. 3 to this Form N-4 Registration Statement under the
Securities Act of 1933 (File No. 33-48137) filed April 28, 1995.
 
ITEM 29. PRINCIPAL UNDERWRITER
 
  The Registrant's principal underwriter is CIGNA Financial Advisors, Inc.
("CFA"). Deferred sales charges of $521,227 were paid on the Contracts during
Registrant's eleven months ended December 31, 1995. CFA also acts as principal
underwriter of other variable annuity contracts and variable life policies
issued by the Company, and by the CIGNA Life Insurance Company. CFA's mailing
address is 900 Cottage Grove Road, Hartford, Connecticut 06152.
 
2
<PAGE>
 
DIRECTORS AND OFFICERS OF PRINCIPAL UNDERWRITER
 
<TABLE>
<CAPTION>
                                   POSITIONS AND OFFICES WITH
      NAME                                UNDERWRITER
      ----                   -------------------------------------
      <C>                    <S>
      Edward M. Berube       President and Director
      Karen E. Goldman       Director & Assistant Vice President
      John Wilkinson         Director
      Michael D. Arnold      Vice President
      James F. Meehan        Vice President
      Karen R. Matheson      Vice President
      Joy P. McConnell       Vice President
      Peter R. Scanlon       Vice President
      Allan P. Wick          Vice President and Treasurer
      Therese M. Squillacote Director of Compliance
      Robert A. Picarello    Chief Counsel and Assistant Secretary
      H. Edward Cohen        Assistant Vice President
      Robert B. Pinkham      Assistant Vice President
      David C. Kopp          Secretary
      David A. Carlson       Assistant Secretary
      Dawn M. Cormier        Assistant Secretary
      David M. Porcello      Assistant Secretary
      Pamela S. Williams     Assistant Secretary
      Mary K. Cristino       Assistant Treasurer
      Michael M. Sinisgalli  Assistant Treasurer
      Brian W. Villalobos    Assistant Treasurer
</TABLE>
 
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
 
  The records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder are
maintained by Connecticut General Life Insurance Company at its Home Office at
900 Cottage Grove Road, Hartford, CT 06152.
 
ITEM 31. MANAGEMENT SERVICES
 
  All management policies are discussed in Part A or Part B.
 
ITEM 32. UNDERTAKINGS
 
  (a) Registrant undertakes that it will file a post effective amendment to
this registration statement under the Securities Act of 1933 as frequently as
necessary to ensure that the audited financial statements in the registrations
statement are never more than 16 months old for so long as Premium Payments
under the Contracts may be accepted.
 
  (b) Registrant undertakes that it will include either (i) a postcard or
similar written communication affixed to or included in the Prospectus that
the applicant can remove to send for a Statement of Additional Information or
(ii) a space in the Contract application that an applicant can check to
request a Statement of Additional Information.
 
  (c) Registrant undertakes to deliver promptly, upon written or oral request
made to Connecticut General Life Insurance Company at the address or phone
number listed in the Prospectus, any Statement of Additional Information and
any financial statements required by Form N-4 to be made available to
applicants or contract owners.
 
SECTION 403(B) REPRESENTATION
 
  Registrant represents that it is relying on a no-action letter dated
November 28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-
88), regarding Sections 22(e), 27(c)(1) and 27(d) of the Investment Company
Act of 1940, in connection with redeemability restrictions on Section 403(b)
Contracts, and that paragraphs numbered (1) through (4) of that letter will be
complied with.
 
3
<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. 6 to
its Registration Statement on Form N-4 (File No. 33-48137) to be signed on its
behalf by the undersigned thereunto duly authorized, in the Town of Bloomfield
and State of Connecticut on the 17th day of April, 1996. By such signature,
Registrant hereby certifies that this Post-Effective Amendment meets all the
requirements for effectiveness under Rule 485(b) under the Securities Act of
1933.
 
                     CG VARIABLE ANNUITY SEPARATE ACCOUNT
                                 (REGISTRANT)
 
                              /s/ Thomas C. Jones
                 By ________________________________________
                   Thomas C. Jones
                   President
                   Connecticut General Life Insurance Company
 
                  CONNECTICUT GENERAL LIFE INSURANCE COMPANY
                                  (DEPOSITOR)
 
                              /s/ Thomas C. Jones
                 By ________________________________________
                   Thomas C. Jones
                   President
<PAGE>
 
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 6 to this Registration Statement (File No. 33-48137) has been
signed below by the following persons on April 17, 1996 in the capacities
indicated:
 
<TABLE>
<CAPTION>
 SIGNATURE                                 TITLE
 ---------                                 -----
 <C>                                       <S>
           /s/ Thomas C. Jones
 ________________________________________
                                           President (Principal Executive
 Thomas C. Jones                           Officer)
           /s/ James T. Kohan*
 ________________________________________
                                           Vice President and Actuary
 James T. Kohan                            (Principal Financial Officer)
            /s/ Robert Moose*
 ________________________________________
                                           Vice President (Principal Accounting
 Robert Moose                              Officer)
          /s/ Harold W. Albert*
 ________________________________________
 Harold W. Albert                          Director
         /s/ S. Tyrone Alexander*
 ________________________________________
 S. Tyrone Alexander                       Director
          /s/ Martin A. Brennan*
 ________________________________________
 Martin A. Brennan                         Director
          /s/ Robert W. Burgess*
 ________________________________________
 Robert W. Burgess                         Director
             /s/ John G. Day*
 ________________________________________
 John G. Day                               Director
        /s/ Joseph M. Fitzgerald*
 ________________________________________
 Joseph M. Fitzgerald                      Director
        /s/ Arthur C. Reeds, III*
 ________________________________________
 Arthur C. Reeds, III                      Director
         /s/ Patricia L. Rowland*
 ________________________________________
 Patricia L. Rowland                       Director
      /s/ W. Allen Schaeffer, M.D.*
 ________________________________________
 W. Allen Schaeffer, M.D.                  Director
</TABLE>
 
                             /s/ Robert A. Picarello
                          *By_______________________________
                             Robert A. Picarello
                             Attorney-in-Fact
 
(A Majority of the Directors)
<PAGE>
 
                               POWER OF ATTORNEY
 
  We, the undersigned directors and officers of Connecticut General Life
Insurance Company, hereby severally constitute and appoint David C. Kopp and
Robert A. Picarello, 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. 33-48137 filed with the Securities and Exchange
Commission under the Securities Act of 1933, 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 31st day of May, 1995.
 
<TABLE>
<CAPTION>
 SIGNATURE                                 TITLE
 ---------                                 -----
 <C>                                       <S>
           /s/ Thomas C. Jones
 ________________________________________
                                           President (Principal Executive
 Thomas C. Jones                           Officer)
            /s/ James T. Kohan
 ________________________________________
                                           Vice President and Actuary
 James T. Kohan                            (Principal Financial Officer)
             /s/ Robert Moose
 ________________________________________
                                           Vice President (Principal Accounting
 Robert Moose                              Officer)
           /s/ Harold W. Albert
 ________________________________________
 Harold W. Albert                          Director
         /s/ S. Tyrone Alexander
 ________________________________________
 S. Tyrone Alexander                       Director
          /s/ Martin A. Brennan
 ________________________________________
 Martin A. Brennan                         Director
          /s/ Robert W. Burgess
 ________________________________________
 Robert W. Burgess                         Director
             /s/ John G. Day
 ________________________________________
 John G. Day                               Director
         /s/ Joseph M. Fitzgerald
 ________________________________________
 Joseph M. Fitzgerald                      Director
         /s/ Arthur C. Reeds, III
 ________________________________________
 Arthur C. Reeds, III                      Director
         /s/ Patricia L. Rowland
 ________________________________________
 Patricia L. Rowland                       Director
       /s/ W. Allen Schaeffer, M.D.
 ________________________________________
 W. Allen Schaeffer, M.D.                  Director
</TABLE>

<PAGE>
 
                                                                  EXHIBIT 10(A)
 
                      CONSENT OF INDEPENDENT ACCOUNTANTS
 
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 4 under the Securities
Act of 1933 and Amendment No. 6 under the Investment Company Act of 1940 to
the registration statement of the CG Variable Annuity Separate Account on Form
N-4 of our reports dated February 13, 1996 and February 26, 1996, relating to
the consolidated financial statements of Connecticut General Life Insurance
Company and of the CG Variable Annuity Separate Account of Connecticut General
Life Insurance Company, respectively, which appear in such Statement of
Additional Information. We also consent to the reference to us under the
heading "Experts" in such Statement of Additional Information.
 
Price Waterhouse LLP
Hartford, Connecticut
April 19, 1996


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