<PAGE>
AIM/CIGNA
HERITAGE
ANNUAL REPORT
DECEMBER 31, 1997
[PHOTO APPEARS HERE]
A Lasting Investment
Structure for the
Retirement of Your Life
[LOGO OF AIM APPEARS HERE]
[LOGO OF CIGNA APPEARS HERE]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Schedule of Changes In Unit Values.......................................... 2
CG Variable Annuity Separate Accounts
Financial Statements...................................................... 3
Notes to Financial Statements............................................. 7
Report of Independent Accountants......................................... 9
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund........................................ 10
AIM V.I. Diversified Income Fund.......................................... 23
AIM V.I. Global Utilities Fund............................................ 36
AIM V.I. Government Securities Fund....................................... 47
AIM V.I. Growth Fund...................................................... 56
AIM V.I. Growth and Income Fund........................................... 69
AIM V.I. International Equity Fund........................................ 82
AIM V.I. Money Market Fund................................................ 93
AIM V.I. Value Fund....................................................... 100
Directors and Officers of the Funds....................................... 112
</TABLE>
<PAGE>
AIM/CIGNA HERITAGE VARIABLE ANNUITY
SCHEDULE OF CHANGES IN UNIT VALUES
PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
12/31/96 12/31/97
ACCUMULATION ACCUMULATION
SUB-ACCOUNT UNIT VALUE UNIT VALUE % CHANGE
<S> <C> <C> <C>
AIM V.I. Capital Appreciation $18.467244 $20.678292 12.0
AIM V.I. Diversified Income 12.591387 13.587875 7.9
AIM V.I. Global Utilities 13.826403 16.590836 20.0
AIM V.I. Government Securities 11.089217 11.831813 6.7
AIM V.I. Growth 16.280681 20.376320 25.2
AIM V.I. Growth and Income 15.835279 19.639381 24.0
AIM V.I. International Equity 15.578350 16.433916 5.5
AIM V.I. Money Market 11.155653 11.570791 3.7
AIM V.I. Value 17.590804 21.464229 22.0
- --------------------------------------------------------------------------------
</TABLE>
Accumulation Unit Values are net of charges against the assets of the Variable
Account for the assumption of mortality and expense risks and for
administrative expenses.
2
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I.
CAPITAL DIVERSIFIED GLOBAL GOVERNMENT AIM V.I. GROWTH AND INTERNATIONAL MONEY AIM V.I.
APPRECIATION INCOME SUB- UTILITIES SECURITIES GROWTH SUB- INCOME SUB- EQUITY SUB- MARKET SUB- VALUE SUB-
SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ----------- ----------- ----------- ------------ ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in AIM
Variable Insurance
Funds, Inc. at
value............$331,487,587 $63,872,571 $15,333,055 $22,788,493 $195,724,986 $138,416,077 $152,795,506 $44,310,515 $401,120,887
Receivable from
Connecticut
General Life
Insurance
Company.......... -- 37,769 20,731 -- -- -- -- 4,153 --
Receivable for
and shares sold. 281,007 -- -- 31,194 139,112 93,155 204,927 -- 2,217
------------ ----------- ----------- ----------- ------------ ------------ ------------ ----------- ------------
Total assets.... 331,768,594 63,910,340 15,353,786 22,819,687 195,864,098 138,509,232 153,000,433 44,314,668 401,123,104
------------ ----------- ----------- ----------- ------------ ------------ ------------ ----------- ------------
LIABILITIES:
Payable to
Connecticut
General Life
Insurance
Company.......... 281,007 -- -- 31,194 139,112 93,155 204,927 -- 2,217
Payable for fund
shares purchased. -- 37,769 20,731 -- -- -- -- 4,153 --
------------ ----------- ----------- ----------- ------------ ------------ ------------ ----------- ------------
Total
liabilities.... 281,007 37,769 20,731 31,194 139,112 93,155 204,927 4,153 2,217
------------ ----------- ----------- ----------- ------------ ------------ ------------ ----------- ------------
Net assets......$331,487,587 $63,872,571 $15,333,055 $22,788,493 $195,724,986 $138,416,077 $152,795,506 $44,310,515 $401,120,887
============ =========== =========== =========== ============ ============ ============ =========== ============
Accumulation units
outstanding...... 16,027,198 4,695,148 921,883 1,926,036 9,603,064 7,046,189 9,290,316 3,829,515 18,682,024
Net asset value
per accumulation
unit.............$ 20.678292 $ 13.587875 $ 16.590836 $ 11.831813 $ 20.376320 $ 19.639381 $ 16.433916 $ 11.570791 $ 21.464229
------------ ----------- ----------- ----------- ------------ ------------ ------------ ----------- ------------
Accumulation net
assets...........$331,415,083 $63,797,079 $15,294,803 $22,788,493 $195,675,112 $138,382,795 $152,676,278 $44,310,515 $400,995,241
Annuity reserves.. 72,504 75,492 38,252 -- 49,874 33,282 119,228 -- 125,646
------------ ----------- ----------- ----------- ------------ ------------ ------------ ----------- ------------
$331,487,587 $63,872,571 $15,333,055 $22,788,493 $195,724,986 $138,416,077 $152,795,506 $44,310,515 $401,120,887
============ =========== =========== =========== ============ ============ ============ =========== ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
3
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
AIM V.I. AIM V.I. AIM V.I.
AIM V.I. AIM V.I. GLOBAL GOVERNMENT AIM V.I. AIM V.I. MONEY
CAPITAL DIVERSIFIED UTILITIES SECURITIES AIM V.I. GROWTH AND INTERNATIONAL MARKET AIM V.I.
APPRECIATION INCOME SUB- SUB- SUB- GROWTH SUB- INCOME SUB- EQUITY SUB- SUB- VALUE SUB-
SUB-ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ----------- ---------- ---------- ----------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.........$ 317,483 $ 56,183 $ -- $ 10,597 $ 852,834 $ 74,359 $ 695,422 $2,541,584 $ 3,569,686
EXPENSES:
Mortality and
expense risk and
administrative
charges.......... 4,503,470 782,235 166,846 282,560 2,458,259 1,658,181 2,156,341 684,371 5,061,020
----------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
Net investment
gain (loss).... (4,185,987) (726,052) (166,846) (271,963) (1,605,425) (1,583,822) (1,460,919) 1,857,213 (1,491,334)
----------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
NET REALIZED AND
UNREALIZED GAIN
ON INVESTMENTS:
Capital
distribution from
portfolio
sponsor.......... 4,081,919 -- 4,689 -- 6,434,162 111,538 2,447,183 -- 10,959,402
Net realized gain
(loss) on share
transactions..... 1,668,285 11,722 33,624 32,115 657,668 (59,526) 615,581 -- 1,082,518
----------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
Net realized gain. 5,750,204 11,722 38,313 32,115 7,091,830 52,012 3,062,764 -- 12,041,920
Net unrealized
gain............. 34,565,030 5,167,470 2,462,238 1,598,560 34,088,046 26,524,202 6,821,337 -- 62,138,412
----------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
Net realized and
unrealized gain
on investments. 40,315,234 5,179,192 2,500,551 1,630,675 41,179,876 26,576,214 9,884,101 -- 74,180,332
----------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS..$36,129,247 $4,453,140 $2,333,705 $1,358,712 $39,574,451 $24,992,392 $8,423,182 $1,857,213 $72,688,998
=========== ========== ========== ========== =========== =========== ========== ========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I.
CAPITAL DIVERSIFIED GLOBAL GOVERNMENT AIM V.I. GROWTH AND INTERNATIONAL MONEY
APPRECIATION INCOME SUB- UTILITIES SECURITIES GROWTH SUB- INCOME SUB- EQUITY SUB- MARKET SUB-
SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ----------- ----------- ----------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain
(loss)............ $ (4,185,987) $ (726,052) $ (166,846) $ (271,963) $ (1,605,425) $ (1,583,822) $ (1,460,919) $ 1,857,213
Net realized gain.. 5,750,204 11,722 38,313 32,115 7,091,830 52,012 3,062,764 --
Net unrealized
gain.............. 34,565,030 5,167,470 2,462,238 1,598,560 34,088,046 26,524,202 6,821,337 --
------------ ----------- ----------- ----------- ------------ ------------ ------------ -----------
Net increase from
operations...... 36,129,247 4,453,140 2,333,705 1,358,712 39,574,451 24,992,392 8,423,182 1,857,213
------------ ----------- ----------- ----------- ------------ ------------ ------------ -----------
ACCUMULATION AND
ANNUITY UNIT
TRANSACTIONS:
Participant
deposits.......... 21,264,293 7,508,683 1,046,316 1,210,696 13,203,440 16,926,263 13,869,606 24,414,333
Participant
transfers......... (16,341,983) 2,206,344 1,476,613 1,453,903 2,283,051 18,996,026 (492,062) (13,972,232)
Participant
withdrawals and
annuity payments.. (22,311,355) (4,323,378) (540,210) (1,907,014) (13,759,221) (12,914,594) (11,121,648) (22,198,209)
------------ ----------- ----------- ----------- ------------ ------------ ------------ -----------
Net increase
(decrease) from
participant
transactions.... (17,389,045) 5,391,649 1,982,719 757,585 1,727,270 23,007,695 2,255,896 (11,756,108)
------------ ----------- ----------- ----------- ------------ ------------ ------------ -----------
Total increase
(decrease) in
net assets.... 18,740,202 9,844,789 4,316,424 2,116,297 41,301,721 48,000,087 10,679,078 (9,898,895)
NET ASSETS:
Beginning of
period............ 312,747,385 54,027,782 11,016,631 20,672,196 154,423,265 90,415,990 142,116,428 54,209,410
------------ ----------- ----------- ----------- ------------ ------------ ------------ -----------
End of period...... $331,487,587 $63,872,571 $15,333,055 $22,788,493 $195,724,986 $138,416,077 $152,795,506 $44,310,515
============ =========== =========== =========== ============ ============ ============ ===========
<CAPTION>
AIM V.I.
VALUE SUB-
ACCOUNT
-------------
<S> <C>
OPERATIONS:
Net investment gain
(loss)............ $ (1,491,334)
Net realized gain.. 12,041,920
Net unrealized
gain.............. 62,138,412
-------------
Net increase from
operations...... 72,688,998
-------------
ACCUMULATION AND
ANNUITY UNIT
TRANSACTIONS:
Participant
deposits.......... 25,805,089
Participant
transfers......... 5,393,233
Participant
withdrawals and
annuity payments.. (27,229,496)
-------------
Net increase
(decrease) from
participant
transactions.... 3,968,826
-------------
Total increase
(decrease) in
net assets.... 76,657,824
NET ASSETS:
Beginning of
period............ 324,463,063
-------------
End of period...... $401,120,887
=============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I.
CAPITAL DIVERSIFIED GLOBAL GOVERNMENT AIM V.I. GROWTH AND INTERNATIONAL MONEY
APPRECIATION INCOME SUB- UTILITIES SECURITIES GROWTH SUB- INCOME SUB- EQUITY SUB- MARKET SUB-
SUB-ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------ ----------- ----------- ----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain
(loss)............ $ (3,259,510) $ 2,646,150 $ 206,222 $ 796,083 $ (1,237,677) $ (61,630) $ (1,251,012) $ 2,187,937
Net realized gain
(loss)............ (264,756) 12,971 58,296 12,725 6,461,654 151,592 (20,437) --
Net unrealized gain
(loss)............ 41,079,909 1,406,492 743,831 (577,837) 14,610,617 11,146,372 20,458,960 --
------------ ----------- ----------- ----------- ------------ ----------- ------------ -----------
Net increase from
operations...... 37,555,643 4,065,613 1,008,349 230,971 19,834,594 11,236,334 19,187,511 2,187,937
------------ ----------- ----------- ----------- ------------ ----------- ------------ -----------
ACCUMULATION AND
ANNUITY UNIT
TRANSACTIONS:
Participant
deposits.......... 58,438,556 9,713,519 2,990,281 4,066,057 25,951,601 25,772,496 24,438,686 57,721,314
Participant
transfers......... 20,040,794 1,047,682 468,502 (502,335) 13,274,467 18,936,372 21,101,359 (62,556,743)
Participant
withdrawals and
annuity payments.. (13,756,884) (4,218,044) (596,803) (1,510,699) (7,263,101) (2,737,347) (4,842,259) (8,609,516)
------------ ----------- ----------- ----------- ------------ ----------- ------------ -----------
Net increase
(decrease) from
participant
transactions.... 64,722,466 6,543,157 2,861,980 2,053,023 31,962,967 41,971,521 40,697,786 (13,444,945)
------------ ----------- ----------- ----------- ------------ ----------- ------------ -----------
Total increase
(decrease) in
net assets.... 102,278,109 10,608,770 3,870,329 2,283,994 51,797,561 53,207,855 59,885,297 (11,257,008)
NET ASSETS:
Beginning of
period............ 210,469,276 43,419,012 7,146,302 18,388,202 102,625,704 37,208,135 82,231,131 65,466,418
------------ ----------- ----------- ----------- ------------ ----------- ------------ -----------
End of period...... $312,747,385 $54,027,782 $11,016,631 $20,672,196 $154,423,265 $90,415,990 $142,116,428 $54,209,410
============ =========== =========== =========== ============ =========== ============ ===========
<CAPTION>
AIM V.I.
VALUE SUB-
ACCOUNT
-------------
<S> <C>
OPERATIONS:
Net investment gain
(loss)............ $ (2,326,453)
Net realized gain
(loss)............ 16,131,341
Net unrealized gain
(loss)............ 24,188,520
-------------
Net increase from
operations...... 37,993,408
-------------
ACCUMULATION AND
ANNUITY UNIT
TRANSACTIONS:
Participant
deposits.......... 56,528,366
Participant
transfers......... (9,943,809)
Participant
withdrawals and
annuity payments.. (17,379,567)
-------------
Net increase
(decrease) from
participant
transactions.... 29,204,990
-------------
Total increase
(decrease) in
net assets.... 67,198,398
NET ASSETS:
Beginning of
period............ 257,264,665
-------------
End of period...... $324,463,063
=============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
6
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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.
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), which are open-end mutual funds. 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; 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.
Effective January 1, 1998, CG Life sold its individual variable annuity
business to Lincoln National Corporation (Lincoln). Although CG Life will
remain responsible for all policy terms and conditions, Lincoln will be
servicing the individual annuity contracts, including the payment of benefits,
oversight of investment management and contract administration.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in conformity with generally
accepted accounting principles. The preparation of financial statements in
accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from
those estimates. 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 31, 1997. 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, 1997 were:
<TABLE>
<CAPTION>
COST OF
AIM V.I. SUB-ACCOUNT SHARES HELD INVESTMENTS
- -------------------- ----------- ------------
<S> <C> <C>
Capital Appreciation................................... 15,240,809 $216,581,673
Diversified Income..................................... 5,657,447 56,878,217
Global Utilities....................................... 1,004,788 11,358,830
Government Securities.................................. 2,135,754 21,511,724
Growth................................................. 9,870,146 129,098,857
Growth and Income...................................... 7,335,245 98,265,505
International Equity................................... 8,919,761 115,285,342
Money Market........................................... 44,310,515 44,310,515
Value.................................................. 19,256,884 266,261,794
</TABLE>
Total purchases and sales of shares for the year ended December 31, 1997,
amounted to:
<TABLE>
<CAPTION>
AIM V.I. SUB-ACCOUNT PURCHASES SALES
- -------------------- ----------- -----------
<S> <C> <C>
Capital Appreciation.................................... $23,716,309 $41,209,425
Diversified Income...................................... 15,183,342 10,517,741
Global Utilities........................................ 3,461,485 1,640,919
Government Securities................................... 5,384,999 4,899,375
Growth.................................................. 27,618,106 21,062,096
Growth and Income....................................... 33,618,525 12,083,112
International Equity.................................... 19,398,850 16,156,688
Money Market............................................ 67,321,055 77,219,950
Value................................................... 39,106,405 25,669,510
</TABLE>
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%, 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 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. If applicable state
law requires, the $35 annuity account fee will be reduced to a lesser amount.
The annual annuity account fee will be waived each year that the purchaser's
annuity account value equals or exceeds $100,000 on the last valuation date of
that year. Fixed sub-accounts are part of the general account of CG Life and
are not included in these financial statements.
7
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CHARGES AND DEDUCTIONS (CONTINUED)
Under certain circumstances, CG Life reserves the right to charge a transfer
fee of up to $10 for transfers between sub-accounts. Transfer fees, for the
variable sub-accounts, amounted to $1,880 for the year ended December 31, 1997.
The fees charged by CG Life for mortality and expense risks, administrative
fees and the amounts deducted for annuity account fees (included in participant
withdrawals), from variable sub-accounts, for the year ended December 31, 1997,
amounted to:
<TABLE>
<CAPTION>
MORTALITY
AND ASSET BASED ANNUITY
EXPENSE ADMINISTRATIVE ACCOUNT
AIM V.I. SUB-ACCOUNT RISK FEES FEES FEES
- --------------------------------------------- ---------- -------------- --------
<S> <C> <C> <C>
Capital Appreciation......................... $4,169,880 $333,590 $155,671
Diversified Income........................... 724,292 57,943 17,877
Global Utilities............................. 154,487 12,359 4,576
Government Securities........................ 261,630 20,930 5,760
Growth....................................... 2,276,166 182,093 76,511
Growth and Income............................ 1,535,353 122,828 50,654
International Equity......................... 1,996,612 159,729 59,349
Money Market................................. 633,677 50,694 12,023
Value........................................ 4,686,130 374,890 167,888
</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 associated with preparation of sales
literature and other promotional costs and acquisition expenses. Withdrawal
charges paid to CG Life for the variable sub-accounts, for the year ended
December 31, 1997, amounted to $2,217,462.
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 harbor test or diversification requirements set forth
in regulations issued by the Secretary of the Treasury. CG Life believes, based
on assurances from the Fund managers, that the Fund satisfies the requirements
of the regulations.
8
<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 Fund, AIM V.I. Diversified Income Fund, AIM V.I.
Global 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 (constituting the CG Variable
Annuity Separate Account, hereafter referred to as "the Account") at December
31, 1997, the results of each of their operations for the year then ended and
the changes in each of their net assets for each of the two years in the period
then ended, 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, 1997 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Hartford, Connecticut
February 20, 1998
9
<PAGE>
The mutual fund annual report is incorporated herein by reference. It has been
electronically filed with the Securities and Exchange Commission in connection
with the named entity's status as a registered investment company under the
Investment Company Act of 1940:
AIM VARIABLE INSURANCE FUNDS, INC.:
AIM/CIGNA Heritage Annual Report, December 31, 1997, consisting of
pages numbered 10-112. Filed: March 3, 1998, Form Type N-30D,
Registration Statement 811-07452.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DIRECTORS, OFFICERS, BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
AND OTHER SERVICE
PROVIDERS OF AIM Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
VARIABLE INSURANCE Chairman Chairman Suite 100
FUNDS, INC. A I M Management Group Inc. Houston, TX 77046
Robert H. Graham (800) 347-1919
Bruce L. Crockett President
Director INVESTMENT ADVISOR
ACE Limited; John J. Arthur
Formerly Director, President and Senior Vice President and A I M Advisors, Inc.
Chief Executive Officer Treasurer 11 Greenway Plaza
COMSAT Corporation Suite 100
Carol F. Relihan Houston, TX 77046
Owen Daly II Senior Vice President and
Director Secretary TRANSFER AGENT AND CUSTODIAN
Cortland Trust Inc.
Gary T. Crum State Street Bank & Trust Company
Jack Fields Senior Vice President 225 Franklin Street
Chief Executive OfficerTexana Global Inc.; Boston, MA 02110
Formerly, Member of the Dana R. Sutton
U.S. House of Representatives Vice President and COUNSEL TO THE FUNDS
Assistant Treasurer
Carl Frischling Freedman, Levy, Kroll &
Partner Robert G. Alley Simonds
Kramer, Levin, Naftalis & Frankel Vice President 1050 Conn. Avenue, N.W.
Washington, D.C. 20036
Robert H. Graham Stuart W. Coco
President and Chief Executive Officer Vice President COUNSEL TO THE DIRECTORS
A I M Management Group Inc.
Melville B. Cox Kramer, Levin, Naftalis & Frankel
John F. Kroeger Vice President 919 Third Avenue
Formerly, Consultant New York, NY 10022
Wendell & Stockel Associates, Inc. Karen Dunn Kelley
Vice President DISTRIBUTOR
Lewis F. Pennock
Attorney Jonathan C. Schoolar A I M Distributors, Inc.
Vice President 11 Greenway Plaza
Ian W. Robinson Suite 100
Consultant; Formerly, Executive Vice P. Michelle Grace Houston, TX 77046
President and Chief Financial Officer Assistant Secretary
Bell Atlantic Management Services, Inc. INDEPENDENT AUDITORS
Nancy L. Martin
Louis S. Sklar Assistant Secretary Tait, Weller & Baker
Executive Vice President 8 Penn Center Plaza
Hines Interests Ofelia M. Mayo Suite 800
Limited Partnership Assistant Secretary Philadelphia, PA 19103
Kathleen J. Pflueger
Assistant Secretary
Samuel D. Sirko
Assistant Secretary
Stephen I. Winer
Assistant Secretary
Mary J. Benson
Assistant Treasurer
</TABLE>
112
<PAGE>
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
AIM V.I. Global Utilities Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. Growth & Income Fund
AIM V.I. International Equity Fund
AIM V.I. Money Market Fund
AIM V.I. Value Fund
This report may be distributed only to current shareholders or to persons who
have received a current prospectus of the Variable Annuity.
[AIM LOGO [CIGNA LOGO National Distributor:
APPEARS HERE] APPEARS HERE] CIGNA Financial Advisors
900 Cottage Grove Road
A I M Distributors, Inc. Bloomfield, CT 06002
CIG-AR-1
