<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
1933 Act Registration No. 33-83020
1940 Act Registration No. 811-8714
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 9 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 10 /X/
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
(EXACT NAME OF REGISTRANT)
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
900 Cottage Grove Road, Hartford, Connecticut 06152
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE
(860) 726-6000
COPY TO:
<TABLE>
<S> <C>
Mark A. Parsons, Esquire Patrice M. Pitts
Connecticut General Life Insurance
Company Porter, Wright, Morris & Arthur
900 Cottage Grove Road 1667 K Street, NW, Suite 1100
Hartford, Connecticut 06152 Washington, DC 20006-1605
(NAME AND ADDRESS OF
AGENT FOR SERVICE)
</TABLE>
It is proposed that this filing will become effective:
________ immediately upon filing pursuant to paragraph (b)
of Rule 485
___X___ on May 1, 1999 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>
CIGNA
ACCRU
ChoicePlus
Product & Funds
Prospectuses
1999
<PAGE>
CIGNA ACCRU CHOICEPLUS
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
<TABLE>
<S> <C>
Home Office: Servicing Office:
Connecticut General Life Insurance Company Lincoln Life
(CIGNA) Attn: ACCRU ChoicePlus Operations
900 Cottage Grove Road 1300 S. Clinton Street
Bloomfield, CT 06002 P.O. Box 7871
Fort Wayne, IN 46801
</TABLE>
This prospectus describes the flexible premium deferred variable annuity
contract that is issued by Connecticut General Life Insurance Company (CIGNA).
The contract is for use with nonqualified plans and retirement plans QUALIFIED
UNDER SECTION 408 OF THE TAX CODE (IRAS) AND SECTION 408A (ROTH IRA). In the
future, we may offer the contract for other qualified plans. Generally, you do
not pay federal income tax on the contract's growth until it is paid out. The
contract is designed to accumulate contract value and to provide retirement
income that you cannot outlive or for an agreed upon time. These benefits may be
a variable or fixed amount or a combination of both. If you die before the
ANNUITY COMMENCEMENT DATE, we will pay your BENEFICIARY a DEATH BENEFIT.
The minimum initial PURCHASE PAYMENT for the contract is $2,000 for qualified
plans and non-qualified plans.
Additional PURCHASE PAYMENTS may be made to the contract and must be at least
$100 per payment.
You choose whether your contract value accumulates on a variable or fixed
(guaranteed) basis or both. If you put all your PURCHASE PAYMENTS into the fixed
account, we guarantee your principal and a minimum interest rate. WE LIMIT
TRANSFERS FROM THE FIXED SIDE OF THE CONTRACT. A MARKET VALUE ADJUSTMENT (MVA)
MAY BE APPLIED TO ANY SURRENDER OR TRANSFER FROM THE FIXED ACCOUNT BEFORE THE
EXPIRATION DATE OF A GUARANTEED PERIOD.
All PURCHASE PAYMENTS for benefits on a variable basis will be placed in CIGNA
Variable Annuity Account II (VARIABLE ANNUITY ACCOUNT [VAA]). The VAA is a
segregated investment account of CIGNA. If you put all or some of your PURCHASE
PAYMENTS into one or more of the contract's variable options, you take all of
the investment risk on the CONTRACT VALUE and the retirement income. If the
SUBACCOUNTS you select make money, your CONTRACT VALUE goes up; if they lose
money, YOUR CONTRACT VALUE goes down. How much the CONTRACT VALUE goes up or
down depends on the performance of the SUBACCOUNTS you select. WE DO NOT
GUARANTEE HOW ANY OF THE VARIABLE OPTIONS OR THEIR FUNDS WILL PERFORM. ALSO,
NEITHER THE U.S. GOVERNMENT NOR ANY FEDERAL AGENCY INSURES OR GUARANTEES YOUR
INVESTMENT IN THE CONTRACT.
The available funds are listed below:
The Alger American Fund:
- - Alger American Growth Portfolio
- - Alger American Leveraged AllCap Portfolio
- - Alger American MidCap Growth Portfolio
- - Alger American Small Capitalization Portfolio
CIGNA Variable Products Group:
- - CIGNA Variable Products Money Market Fund
Variable Insurance Products Fund:
- - Fidelity VIP Equity-Income Portfolio
- - Fidelity VIP High Income Portfolio
- - Fidelity VIP Overseas Portfolio
Variable Insurance Products Fund II
- - Fidelity VIP II Contrafund Portfolio
- - Fidelity VIP II Investment Grade Bond Portfolio
Variable Insurance Products Fund III
- - Fidelity VIP III Growth Opportunities Portfolio
MFS-Registered Trademark- Variable Insurance Trust:
- - MFS Emerging Growth Series
- - MFS Growth With Income Series
- - MFS Research Series
- - MFS Total Return Series
- - MFS Utilities Series
Neuberger Berman Advisers
Management Trust:
- - Neuberger Berman AMT Limited Maturity Bond Portfolio
- - Neuberger Berman AMT Partners Portfolio
OCC Accumulation Trust:
- - OCC Global Equity Portfolio
- - OCC Managed Portfolio
- - OCC Small Cap Portfolio
This Prospectus gives you information about the contract that you should know
before you decide to buy a contract and make PURCHASE PAYMENTS. You should also
review the prospectuses for the funds that are attached, and keep these
prospectuses for future reference.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THIS CONTRACT
OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENCE.
You can obtain a Statement of Additional Information (SAI), dated May 1, 1999,
about the contracts that have more information. Its terms are made part of this
Prospectus. For a free copy, write: Lincoln Life, Attn: ACCRU ChoicePlus
Operations, 1300 S. Clinton Street, P.O. Box 7871, Fort Wayne, IN 46801, or call
1-800-552-9898. The SAI and other information about CIGNA and Account II are
also available on the SEC's web site (http:\\www.sec.gov). There is a table of
contents for the SAI on the last page of this Prospectus.
May 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
- ----------------------------------------------------------
Expense tables 1
Summary 4
Condensed financial information for the VAA 6
Investment results 9
Financial statements 9
CIGNA 9
Variable annuity account (VAA) 9
Investments of the variable annuity account 9
Charges and other deductions 12
The contracts 13
Annuity payouts 17
Annuity options 17
General Information 17
<CAPTION>
PAGE
- ----------------------------------------------------------
<S> <C>
Fixed side of the contract 18
Federal tax matters 19
Voting rights 23
Distribution of the contracts 23
Return privilege 23
State regulation 23
Records and reports 23
Other information 23
Preparing for the Year 2000 24
Statement of additional information
Table of Contents for
CG Variable Annuity Separate
Account II
CIGNA ACCRU ChoicePlus 25
</TABLE>
SPECIAL TERMS
(We have ITALICIZED the terms that have special meaning throughout the
Prospectus).
ACCOUNT OR VARIABLE ANNUITY ACCOUNT (VAA) -- The segregated investment account,
CG Variable Annuity Separate Account II, into which CIGNA sets aside and invests
the assets for the variable side of the contract offered in this Prospectus.
ACCUMULATION UNIT -- A measure used to calculate CONTRACT VALUE for the variable
side of the CONTRACT before the ANNUITY COMMENCEMENT DATE.
ANNUITANT -- The person upon whose life the ANNUITY BENEFIT PAYMENTS are based
and made to after the ANNUITY COMMENCEMENT DATE.
ANNUITY COMMENCEMENT DATE -- The VALUATION DATE when funds are withdrawn or
converted into ANNUITY UNITS or fixed dollar payout for payment of retirement
income benefits under the ANNUITY PAYOUT option you select.
ANNUITY PAYOUT -- An amount paid at regular intervals after the ANNUITY
COMMENCEMENT date under one of several options available to the ANNUITANT and/or
any other payee. This amount may be paid on a variable or fixed basis or a
combination of both.
ANNUITY UNIT -- A measure used to calculate the amount of ANNUITY PAYOUTS after
the ANNUITY COMMENCEMENT DATE. See Annuity payouts.
BENEFICIARY -- The person you choose to receive any DEATH BENEFIT paid if you
die before the ANNUITY COMMENCEMENT DATE.
CERTIFICATE -- The document which provides evidence of the participation of the
owner in a group contract.
CIGNA (WE, US, OUR) -- Connecticut General Life Insurance Company.
CONTRACTOWNER (YOU, YOUR, OWNER) -- The person who has the ability to exercise
the rights within the contract (e.g., decides on investment allocations,
transfers, payout option, designates the BENEFICIARY, etc.) Usually, but not
always, the owner is the ANNUITANT.
CONTRACT VALUE -- At a given time before the ANNUITY COMMENCEMENT DATE, the
total value of all ACCUMULATION UNITS for a contract plus the value of the fixed
side of the contract.
CONTRACT YEAR -- Each one-year period starting with the effective date of the
contract and starting with each contract anniversary after that.
DEATH BENEFIT -- An amount payable to your designated BENEFICIARY if the owner
dies before the ANNUITY COMMENCEMENT DATE.
PURCHASE PAYMENTS -- Amounts paid into the contract.
SUBACCOUNT -- The portion of the VAA that reflects investments in ACCUMULATION
and ANNUITY UNITS of a particular fund available under the contract.
VALUATION DATE -- Each day the New York Stock Exchange (NYSE) is open for
trading.
VALUATION PERIOD -- The period starting at the close of trading (currently 4:00
p.m. New York time) on each day that the NYSE is open for trading (VALUATION
DATE) and ending at the close of such trading on the next VALUATION DATE.
<PAGE>
EXPENSE TABLES
SUMMARY OF CONTRACTOWNER EXPENSES:
The maximum surrender charge (contingent deferred sales charge) as a percentage
of PURCHASE PAYMENTS surrendered/ withdrawn: 7%
<TABLE>
<S> <C>
Account
fee: $35 ($30 for New York contracts, inforce business only)
Transfer
fee: $10
</TABLE>
The surrender charge percentage is reduced over time. The later the redemption
occurs, the lower the surrender charge with respect to that surrender or
withdrawal. We may waive this charge in certain situations. See Charges and
other deductions -- Surrender charge.
A market value adjustment (MVA) may be applied to the amount being surrendered
or transferred (except for dollar cost averaging and account rebalancing) from a
fixed account guaranteed period amount. See Fixed side of the contract.
The account fee will be waived if your CONTRACT VALUE is $100,000 or more at the
end of any particular CONTRACT YEAR.
The transfer fee will not be imposed on the first 12 transfers during a CONTRACT
YEAR. We reserve the right to charge a $10 fee for transfers over 12 times
during any CONTRACT YEAR. Automatic dollar cost averaging and automatic
rebalancing transfers are not included in these first 12 transfers.
VAA ANNUAL EXPENSES FOR CIGNA ACCRU CHOICEPLUS SUBACCOUNTS:
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and expense risk charge 1.25%
Administrative charge 0.15%
---
Total annual charge for each CIGNA ACCRU ChoicePlus SUBACCOUNT 1.40%
</TABLE>
FUND ANNUAL EXPENSES OF THE FUNDS, SERIES AND PORTFOLIOS FOR THE YEAR ENDED
DECEMBER 31, 1998:
(as a percentage of each fund's average net assets):
<TABLE>
<CAPTION>
MANAGEMENT OTHER
FEES EXPENSES
(AFTER ANY (AFTER ANY
WAIVERS/ WAIVERS/
REIMBURSEMENTS) + REIMBURSEMENTS) =
- ------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
1. Alger American Growth Portfolio 0.75 0.04
2. Alger American Leveraged AllCap Portfolio(1) 0.85 0.11
3. Alger American MidCap Growth Portfolio 0.80 0.04
4. Alger American Small Capitalization Portfolio 0.85 0.04
5. CIGNA Variable Products Money Market Fund(2) 0.12 0.38
6. Fidelity VIP II Contrafund Portfolio (Initial Class)(3) 0.59 0.11
7. Fidelity VIP II Investment Grade Bond Portfolio
(Initial Class)(3) 0.43 0.14
8. Fidelity VIP Equity-Income Portfolio (Initial Class)(3) 0.49 0.09
9. Fidelity VIP High Income Portfolio (Initial Class)(3) 0.58 0.12
10. Fidelity VIP Overseas Portfolio (Initial Class)(3) 0.74 0.17
11. Fidelity VIP III Growth Opportunities Portfolio
(Initial Class)(3) 0.59 0.12
12. MFS Variable Trust Emerging Growth Series(4) 0.75 0.10
13. MFS Variable Trust Growth With Income Series(4) 0.75 0.13
14. MFS Variable Trust Research Series(4) 0.75 0.11
15. MFS Variable Trust Total Return Series(4) 0.75 0.16
16. MFS Variable Trust Utilities Series(4) 0.75 0.26
17. Neuberger Berman AMT Limited Maturity Bond Portfolio(5) 0.65 0.11
18. Neuberger Berman AMT Partners Portfolio(5) 0.78 0.06
19. OCC Trust Global Equity Portfolio(6) 0.80 0.33
20. OCC Trust Managed Portfolio(6) 0.78 0.04
21. OCC Trust Small Cap Portfolio(6) 0.80 0.08
<CAPTION>
TOTAL
EXPENSES
(AFTER ANY
WAIVERS/
REIMBURSEMENTS)
- ---------
<C> <C>
1. 0.79
2. 0.96
3. 0.84
4. 0.89
5. 0.50
6. 0.70
7.
0.57
8. 0.58
9. 0.70
10. 0.91
11.
0.71
12. 0.85
13. 0.88
14. 0.86
15. 0.91
16. 1.01
17. 0.76
18. 0.84
19. 1.13
20. 0.82
21. 0.88
</TABLE>
(1)Included in other expenses of the Alger American Leveraged AllCap Portfolio
is .03% of interest expense.
(2)CIGNA Investments has contractually agreed, until April 30, 2000, to waive
management fees and reimburse the funds if and to the extent total annual
fund operating expenses exceed 0.50% for the Money Market Fund. CIGNA
Investments may agree to continue to waive management fees and reimburse
expenses after April 30, 2000.
(3)A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, Fidelity Management & Research ("FMR") on
behalf of certain funds, have entered into arrangements with their
1
<PAGE>
custodian whereby credits realized as a result of uninvested cash balances
were used to reduce custodian expenses. Including these reductions, the total
operating expenses presented in the table would have been 0.66% for VIP II
Contrafund; 0.57% for VIP Equity-Income; 0.89% for VIP Overseas and 0.70% for
VIP III Growth Opportunities.
(4)Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with its
custodian and dividend-disbursing agent. Each series may enter into other
such arrangements and directed brokerage arrangements, which would also have
the effect of reducing the series' expenses. Expenses do not take into
account these expense reductions, and are therefore higher than the actual
expenses of the series. MFS has agreed to bear expenses for these series,
subject to reimbursement by these series, such that each such series' "Other
Expenses" shall not exceed the following percentages of the average daily net
assets of the series during the current fiscal year: 0.25% except for the
Emerging Growth Series, and the Research Series, which have no such
limitation. The payments made by MFS on behalf of each series under this
arrangement are subject to reimbursement by the series to MFS, which will be
accomplished by the payment of an expense reimbursement fee by the series to
MFS computed and paid monthly at a percentage of the series' average daily
net assets for its then current fiscal year, with a limitation that
immediately after such payment of the series' "Other Expenses" will not
exceed the percentage set forth above for that series. The obligation of MFS
to bear a series' "Other Expense" pursuant to this arrangement, and the
series' obligation to pay the reimbursement fee to MFS, terminates on the
earlier of the date on which payments made by the series equal the prior
payment of such reimbursable expenses by MFS, or December 31, 2004.
(5)Neuberger Berman Advisers Management Trust is divided into portfolios
("Portfolios") each of which invests all of its net investable assets in a
corresponding series ("Series") of Advisers Managers Trust. The figures
reported under "Management Fees" include the aggregate of the administration
fees paid by the Portfolio and the management fees paid by its corresponding
Series. Similarly, "Other Expenses" includes all other expenses of the
Portfolio and its corresponding Series.
(6)Other Expenses are shown gross of expense offsets afforded the portfolio,
which effectively lowered overall custody expenses. Total portfolio expenses
for the Small Cap and Managed Portfolios are limited by OpCap Advisors so
that its respective annualized operating expenses (net of any expense
offsets) do not exceed 1.00% of average daily net assets. Total Portfolio
Expenses (net of any expense offsets) for the Global Equity Portfolio are
limited to 1.25% of average daily net assets.
2
<PAGE>
EXAMPLES
(expenses of the SUBACCOUNTS and the funds):
If you surrender your contract at the end of the time period shown, you would
pay the following expenses on a $1,000 investment, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. Alger American Growth Portfolio $ 92 $ 139 $ 179
2. Alger American Leveraged AllCap Portfolio 94 144 187
3. Alger American MidCap Growth Portfolio 93 141 181
4. Alger American Small Capitalization Portfolio 93 142 184
5. Cigna Variable Products Money Market Fund 90 130 164
6. Fidelity VIP II Contrafund Portfolio 92 136 174
7. Fidelity VIP II Investment Grade Bond Portfolio 90 133 167
8. Fidelity VIP Equity-Income Portfolio 90 133 168
9. Fidelity VIP High Income Portfolio 92 136 174
10. Fidelity VIP Overseas Portfolio 94 143 185
11. Fidelity VIP III Growth Opportunities Portfolio 92 137 175
12. MFS Variable Trust Emerging Growth Series 93 141 182
13. MFS Variable Trust Growth With Income Series 94 144 187
14. MFS Variable Trust Research Series 93 141 182
15. MFS Variable Trust Total Return Series 95 146 189
16. MFS Variable Trust Utilities Series 95 146 190
17. Neuberger Berman AMT Limited Maturity Bond Portfolio 92 138 177
18. Neuberger Berman AMT Partners Portfolio 93 141 181
19. OCC Trust Global Equity Portfolio 96 149 196
20. OCC Trust Managed Portfolio 93 140 180
21. OCC Trust Small Cap Portfolio 93 142 183
<CAPTION>
10 YEARS
- ---------
<C> <C>
1. $ 255
2. 272
3. 260
4. 265
5. 225
6. 245
7. 232
8. 233
9. 245
10. 267
11. 246
12. 261
13. 271
14. 262
15. 276
16. 277
17. 252
18. 260
19. 289
20. 258
21. 264
</TABLE>
If you DO NOT surrender your contract, or if you annuitize, you would pay the
following expenses on a $1,000 investment, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1. Alger American Growth Portfolio $ 22 $ 69 $ 119
2. Alger American Leveraged AllCap Portfolio 24 74 127
3. Alger American MidCap Growth Portfolio 23 71 121
4. Alger American Small Capitalization Portfolio 23 72 124
5. Cigna Variable Products Money Market Fund 20 60 104
6. Fidelity VIP II Contrafund Portfolio 22 66 114
7. Fidelity VIP II Investment Grade Bond Portfolio 20 63 107
8. Fidelity VIP Equity-Income Portfolio 20 63 108
9. Fidelity VIP High Income Portfolio 22 66 114
10. Fidelity VIP Overseas Portfolio 24 73 125
11. Fidelity VIP III Growth Opportunities Portfolio 22 67 115
12. MFS Variable Trust Emerging Growth Series 23 71 122
13. MFS Variable Trust Growth With Income Series 24 74 127
14. MFS Variable Trust Research Series 23 71 122
15. MFS Variable Trust Total Return Series 25 76 129
16. MFS Variable Trust Utilities Series 25 76 130
17. Neuberger Berman AMT Limited Maturity Bond Portfolio 22 68 117
18. Neuberger Berman AMT Partners Portfolio 23 71 121
19. OCC Trust Global Equity Portfolio 26 79 136
20. OCC Trust Managed Portfolio 23 70 120
21. OCC Trust Small Cap Portfolio 23 72 123
<CAPTION>
10 YEARS
- ---------
<C> <C>
1. $ 255
2. 272
3. 260
4. 265
5. 225
6. 245
7. 232
8. 233
9. 245
10. 267
11. 246
12. 261
13. 271
14. 262
15. 276
16. 277
17. 252
18. 260
19. 289
20. 258
21. 264
</TABLE>
We provide these examples to help you understand the direct and indirect costs
and expenses of the contract.
For more information, see Charges and other deductions in this Prospectus, and
in the Prospectuses for the funds. Premium taxes may also apply, although they
do not appear in the examples. THESE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS
THAN THOSE SHOWN.
3
<PAGE>
SUMMARY
WHAT KIND OF CONTRACT AM I BUYING?
It is an individual annuity contract between you and CIGNA. It may provide for a
fixed annuity and/or a variable annuity. This Prospectus describes the variable
side of the contract. See The contracts.
WHAT IS THE VARIABLE ANNUITY ACCOUNT (VAA)?
It is a separate account that we established under Connecticut insurance law,
and registered with the SEC as a unit investment trust. VAA assets are allocated
to one or more SUBACCOUNTS, according to your investment choices. VAA assets are
not chargeable with liabilities arising out of any other business which CIGNA
may conduct. See Variable annuity account (VAA).
WHAT ARE MY INVESTMENT CHOICES?
Based upon your instruction, the VAA applies PURCHASE PAYMENTS to buy shares in
one or more of the investment options: Alger American Growth Portfolio; Alger
American Leveraged AllCap Portfolio; Alger American MidCap Growth Portfolio;
Alger American Small Capitalization Portfolio; CIGNA Variable Products Money
Market Fund; Fidelity VIP II Contrafund Portfolio; Fidelity VIP II Investment
Grade Bond Portfolio; Fidelity VIP Equity-Income Portfolio; Fidelity VIP High
Income Portfolio; Fidelity VIP Overseas Portfolio; Fidelity VIP III Growth
Opportunities Portfolio; MFS Variable Trust Emerging Growth Series; MFS Variable
Trust Growth With Income Series; MFS Variable Trust Research Series; MFS
Variable Trust Total Return Series; MFS Variable Trust Utilities Series;
Neuberger Berman AMT Limited Maturity Bond Portfolio; Neuberger Berman AMT
Partners Portfolio; OCC Trust Global Equity Portfolio; OCC Trust Managed
Portfolio; and OCC Trust Small Cap Portfolio
WHO INVESTS PURCHASE PAYMENTS?
Fred Alger Management is the advisor for The Alger American Fund; CIGNA
Investments, Inc., is the advisor for CIGNA Variable Products Fund; Fidelity
Management & Research Company is the advisor for Variable Insurance Products
Fund, Variable Insurance Products Fund II and Variable Insurance Products Fund
III; Massachusetts Financial Services Company is the advisor for
MFS-Registered Trademark- Variable Insurance Trust; Neuberger Berman Management,
Inc. is the advisor for Neuberger Berman Advisers Management Trust; and OpCap
Advisors is the advisor for OCC Accumulation Trust. See Investments of the
variable annuity account and Investment advisor.
HOW DOES THE CONTRACT WORK?
If we approve your application, we will send you a contract. When you make
PURCHASE PAYMENTS during the accumulation phase, you buy ACCUMULATION UNITS. If
you decide to receive retirement income payments, your ACCUMULATION UNITS are
converted to ANNUITY UNITS. Your retirement income payments will be based on the
number of ANNUITY UNITS you received and the value of each ANNUITY UNIT on
payout days. See Charges and other deductions.
WHAT CHARGES DO I PAY UNDER CONTRACT?
If you withdraw CONTRACT VALUE, you pay a surrender or withdrawal charge which
may range from 0% to 7%, depending upon how many CONTRACT YEARS those payments
have been in the contract. We may waive surrender charges in certain situations.
See Charges and other deductions -- Surrender charge.
We charge an account fee of $35 ($30 for New York contracts, inforce business
only) PER CONTRACT year if the CONTRACT VALUE is less than $100,000.
We reserve the right to charge a $10 fee for transfers over 12 times during any
contract year, excluding automatic dollar cost averaging and automatic
rebalancing program transfers.
The surrender or transfer of value from a fixed account guaranteed period amount
may be subject to a market value adjustment (MVA). See Fixed side of the
contract -- Market Value Adjustments.
We will deduct any applicable premium tax from PURCHASE PAYMENTS or CONTRACT
VALUE at the time the tax is incurred or at another time we choose.
We apply an annual charge totaling 1.40% to the daily net asset value of the
VAA. This charge includes 0.15% as an administrative charge and 1.25% as a
mortality and expense risk charge. See Charges and other deductions. We may
waive these charges in certain situations.
The fund's investment management fees, expenses and expense limitations, if
applicable, are more fully described in the Prospectuses for the funds.
WHAT PURCHASE PAYMENTS DO I MAKE, AND HOW OFTEN?
Subject to minimum and maximum PURCHASE PAYMENT AMOUNTS, your PURCHASE PAYMENTS
are completely flexible. See The contracts -- Purchase payments.
HOW WILL MY ANNUITY PAYOUTS BE CALCULATED?
If you decide to annuitize, you may select an annuity option and start receiving
retirement income payments from your contract as a fixed option or variable
option or a combination of both. See Annuity Options. REMEMBER THAT PARTICIPANTS
IN THE VAA BENEFIT FROM ANY GAIN, AND TAKE A RISK OF ANY LOSS IN THE VALUE OF
THE SECURITIES IN THE FUNDS' PORTFOLIOS.
4
<PAGE>
WHAT HAPPENS IF I DIE BEFORE I ANNUITIZE?
Your BENEFICIARY will receive the greatest of the PURCHASE PAYMENTS, CONTRACT
VALUE or the highest CONTRACT VALUE as of the most recent CONTRACT YEAR
occurring on or before the CONTRACTOWNER'S 80th birthday. Your BENEFICIARY has
options as to how the DEATH BENEFIT is paid. See The contracts -- Death benefit
before the ANNUITY COMMENCEMENT DATE.
MAY I TRANSFER CONTRACT VALUE AMONG VARIABLE OPTIONS AND BETWEEN THE FIXED SIDE
AND VARIABLE SIDE OF THE CONTRACT?
Yes, with certain limits. See The contracts -- Transfers between SUBACCOUNTS on
or before the ANNUITY COMMENCEMENT DATE; and Transfers after the ANNUITY
COMMENCEMENT DATE; and Transfers to and from a fixed side on or before the
ANNUITY COMMENCEMENT DATE.
MAY I SURRENDER THE CONTRACT OR MAKE A WITHDRAWAL?
Yes, subject to contract requirements and to restrictions of any qualified
retirement plan for which the contract was purchased. See The contracts --
Surrenders and withdrawals. If you surrender the contract or make a withdrawal,
certain charges may apply. In addition, if you decide to take a distribution
before age 59 1/2, a 10% Internal Revenue Service (IRS) tax penalty may apply. A
surrender or withdrawal may also be subject to 20% withholding. See Federal tax
matters and withholding.
DO I GET A FREE LOOK AT THIS CONTRACT?
Yes. You can cancel the contract within ten days (in some states longer) of the
date you first received the contract. You need to return the contract, postage
prepaid, to our home office. In most states you assume the risk of any market
drop on PURCHASE PAYMENTS you allocate to the variable side of the contract. See
Return privilege.
5
<PAGE>
CONDENSED FINANCIAL INFORMATION FOR THE VARIABLE ANNUITY ACCOUNT
ACCUMULATION UNIT VALUES
The following information relating to ACCUMULATION UNIT VALUES and number of
ACCUMULATION UNITS for the CIGNA ACCRU CHOICEPLUS SUBACCOUNTS for the period
ended December 31, 1998 come from the VAA'S financial statements. It should be
read along with the VAA'S financial statements and notes which are all included
in the SAI.
<TABLE>
<CAPTION>
*1997 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 11.169
- End of period......................................................................... 11.169 16.305
Number of accumulation units
- End of period (000s omitted).......................................................... 241 886
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Leveraged AllCap Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 10.988
- End of period......................................................................... 10.988 17.096
Number of accumulation units
- End of period (000s omitted).......................................................... 52 281
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alger American MidCap Growth Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 11.124
- End of period......................................................................... 11.124 14.291
Number of accumulation units
- End of period (000s omitted).......................................................... 112 365
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alger American Small Capitalization Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 11.406
- End of period......................................................................... 11.406 12.992
Number of accumulation units
- End of period (000s omitted).......................................................... 176 418
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CIGNA Variable Products Money Market Fund
Accumulation unit value
- Beginning of period................................................................... 10.000 10.231
- End of period......................................................................... 10.231 10.609
Number of accumulation units
- End of period (000s omitted).......................................................... 671 1,318
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fidelity VIP II Contrafund Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 11.485
- End of period......................................................................... 11.485 14.717
Number of accumulation units
- End of period (000s omitted).......................................................... 149 541
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fidelity VIP II Investment Grade Bond Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 10.587
- End of period......................................................................... 10.587 11.363
Number of accumulation units
- End of period (000s omitted).......................................................... 176 672
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
*1997 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fidelity VIP Equity - Income Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 11.250
- End of period......................................................................... 11.250 12.382
Number of accumulation units
- End of period (000s omitted).......................................................... 457 1,637
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fidelity VIP High Income Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 11.013
- End of period......................................................................... 11.013 10.388
Number of accumulation units
- End of period (000s omitted).......................................................... 392 1,376
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fidelity VIP Overseas Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 9.986
- End of period......................................................................... 9.986 11.102
Number of accumulation units
- End of period (000s omitted).......................................................... 187 554
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fidelity VIP III Growth Opportunities Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 11.380
- End of period......................................................................... 11.380 13.980
Number of accumulation units
- End of period (000s omitted).......................................................... 337 1,101
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS Variable Trust Emerging Growth Series
Accumulation unit value
- Beginning of period................................................................... 10.000 11.329
- End of period......................................................................... 11.329 14,980
Number of accumulation units
- End of period (000s omitted).......................................................... 187 642
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS Variable Trust Growth With Income Series
Accumulation unit value
- Beginning of period................................................................... 10.000 11.422
- End of period......................................................................... 11.422 13.775
Number of accumulation units
- End of period (000s omitted).......................................................... 242 876
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS Variable Trust Research Series
Accumulation unit value
- Beginning of period................................................................... 10.000 10.759
- End of period......................................................................... 10.759 13.086
Number of accumulation units
- End of period (000s omitted).......................................................... 342 925
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS Variable Trust Total Return Series
Accumulation unit value
- Beginning of period................................................................... 10.000 11.107
- End of period......................................................................... 11.107 12.302
Number of accumulation units
- End of period (000s omitted).......................................................... 245 880
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS Variable Trust Utilities Series
Accumulation unit value
- Beginning of period................................................................... 10.000 12.027
- End of period......................................................................... 12.027 13.999
Number of accumulation units
- End of period (000s omitted).......................................................... 39 350
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
*1997 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Neuberger Berman AMT Limited Maturity Bond Portfolio
- Beginning of period................................................................... 10.000 10.359
- End of period......................................................................... 10.359 10.662
Number of accumulation units
- End of period (000s omitted).......................................................... 116 366
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Neuberger Berman AMT Partners Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 11.785
- End of period......................................................................... 11.785 12.109
Number of accumulation units
- End of period (000s omitted).......................................................... 638 1,890
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OCC Trust Global Equity Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 10.384
- End of period......................................................................... 10.384 11.600
Number of accumulation units
- End of period (000s omitted).......................................................... 226 625
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OCC Trust Managed Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 11.210
- End of period......................................................................... 11.210 11.840
Number of accumulation units
- End of period (000s omitted).......................................................... 792 2,083
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OCC Trust Small Cap Portfolio
Accumulation unit value
- Beginning of period................................................................... 10.000 10.689
- End of period......................................................................... 10.689 9.587
Number of accumulation units
- End of period (000s omitted).......................................................... 146 404
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* These values do not reflect a full year's experience because they are
calculated for the period from the beginning of investment activity of the
subaccounts through December 31.
8
<PAGE>
INVESTMENT RESULTS
At times, the VAA may compare its investment results to various unmanaged
indices or other variable annuities in reports to shareholders, sales literature
and advertisements. The results will be calculated on a total return basis for
various periods, with or without contingent deferred sales charges. Results
calculated without contingent deferred sales charges will be higher. Total
returns include the reinvestment of all distributions, which are reflected in
changes in unit value. See the SAI for further information.
FINANCIAL STATEMENTS
The financial statements for the VAA and CIGNA are located in the SAI. If you
would like a free copy of the SAI, complete and mail the enclosed card, or call
1-800-552-9898.
CONNECTICUT GENERAL LIFE INSURANCE CO. (CIGNA)
CIGNA was founded in 1865 and is organized under Connecticut law by a special
act of the Connecticut General Assembly. Our home office is located at 900
Cottage Grove Road, Bloomfield, CT 06002. CIGNA is one of the oldest and largest
stock life insurance companies in the United States. It is owned by Connecticut
General Corporation. Connecticut General's primary businesses are insurance,
reinsurance and financial services.
Effective January 1, 1998, Connecticut General Life contracted the
administrative servicing obligations to its individual variable annuity business
to The Lincoln National Life Insurance Company (Lincoln Life) and Lincoln Life &
Annuity Company of New York (LLANY). Although Connecticut General Life is
responsible for all policy terms and conditions, Lincoln Life and LLANY are
responsible for servicing the individual annuity contracts, including the
payment of benefits, oversight of investment management and contract
administration.
VARIABLE ANNUITY ACCOUNT (VAA)
On January 25, 1994, the VAA was established as an insurance company separate
account under Connecticut law. It is registered with the SEC as a unit
investment trust under the provisions of the Investment Company Act of 1940
(1940 Act). The SEC does not supervise the VAA or CIGNA. The VAA is a segregated
investment account, meaning that its assets may not be charged with liabilities
resulting from any other business that we may conduct. Income, gains and losses,
whether realized or not, from assets allocated to the VAA are, in accordance
with the applicable annuity contracts, credited to or charged against the VAA.
They are credited or charged without regard to any other income, gains or losses
of CIGNA. The VAA satisfies the definition of a separate account under the
federal securities laws. We do not guarantee the investment performance of the
VAA. Any investment gain or loss depends on the investment performance of the
funds. You assume the full investment risk for all amounts placed in the VAA.
The VAA is used to support other annuity contracts offered by CIGNA in addition
to the contracts described in this Prospectus. The other annuity contracts
supported by the VAA invest in the same portfolios of the fund as the contracts
described in this Prospectus. These other annuity contracts may have different
charges that could affect the performance of the SUBACCOUNT.
INVESTMENTS OF THE VARIABLE ANNUITY ACCOUNT
You decide the SUBACCOUNT(S) to which you allocate PURCHASE PAYMENTS. You may
change your allocation without penalty or charges. Shares of the funds will be
sold at net asset value with no initial sales charge to the VAA in order to fund
the contracts. The fund is required to redeem fund shares at net asset value
upon our request. We reserve the right to add, delete or substitute funds.
INVESTMENT ADVISORS. The investment advisors of the funds are:
The Alger American Fund ("Alger Trust"), managed by Fred Alger Management, Inc.,
1 World Trade Center, Suite 9333, New York, NY 10048;
CIGNA Variable Products Group ("CIGNA Group"), managed by CIGNA Investments,
Inc., 900 Cottage Grove Road, Bloomfield, CT 06002;
Variable Insurance Products Fund ("Fidelity VIP"), Variable Insurance Products
Fund II ("Fidelity VIP II") and Variable Insurance Products Fund III ("Fidelity
VIP III"), managed by Fidelity Management & Research Company, 82 Devonshire
Street, Boston MA 02102;
MFS-Registered Trademark- Variable Insurance Trust ("MFS Trust"), managed by
Massachusetts Financial Services Company, 500 Boylston Street, Boston, MA 02109;
Neuberger Berman Advisers Management Trust ("NB AMT Trust"), managed by
Neuberger Berman Management Inc., 605 Third Avenue, 2nd Floor, New York, NY
10158-0006; and
OCC Accumulation Trust ("OCC Trust") (formerly Quest for Value Accumulation
Trust), managed by OpCap Advisors (formerly Quest for Value Advisors), One World
Financial Center, New York, NY 10281.
Neuberger Berman AMT Partners Portfolio, Neuberger Berman Limited Maturity Bond
Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity VIP II ContraFund
Portfolio, Fidelity VIP High Income Portfolio, Fidelity VIP Overseas Portfolio,
Fidelity VIP III Growth Opportunities Portfolio, MFS Trust Emerging Growth
Series, MFS Trust Research Series, MFS Trust Total Return Series, MFS Trust
Utilities Series, OCC Accumulation Trust Global Equity Portfolio, OCC
Accumulation Trust Managed Portfolio, and OCC Accumulation Trust Small
9
<PAGE>
Cap Portfolio funds may invest in non-investment grade, high yield, high-risk
debt securities (commonly referred to as "junk bonds"), as detailed in the
individual fund prospectuses.
As compensation for their services to the fund, the investment advisors receive
a fee from the fund, which is accrued daily and paid monthly. This fee is based
on the net assets of each fund, as defined under the Purchase and Redemption of
Shares, in the Prospectus for the fund.
With respect to a Fund, the advisor and/or distributor, or an affiliate thereof,
may compensate CIGNA (or an affiliate) for administrative, distribution, or
other services. It is anticipated that such compensation would be based on
assets of the particular Fund attributable to the Contracts along with certain
other variable contracts issued or administered by CIGNA (or an affiliate).
The Funds' shares are issued and redeemed only in connection with variable
annuity contracts and variable life insurance policies (mixed funding) issued
through separate accounts of CIGNA and other life insurance companies (shared
funding). The Funds do not foresee any disadvantage to CONTRACTOWNERS arising
out of mixed or shared funding. Nevertheless, the Fund's Boards intend to
monitor events in order to identify any material irreconcilable conflicts which
may possibly arise and to determine what action, if any, should be taken in
response thereto. If such a conflict were to occur, one of the separate accounts
might withdraw its investment in a Fund. This might force a fund to sell
portfolio securities at disadvantageous prices.
DESCRIPTION OF THE FUNDS. Each of the twenty-one SUBACCOUNTS of the VAA is
invested solely in shares of one of the twenty-one funds available under the
contract. Each fund was organized as a series of one of eight Massachusetts or
Delaware business trusts. Each fund is registered as a diversified, open-end
management investment company under the 1940 Act. Diversified means not owning
too great a percentage of the securities of any one company. An open-end company
is one which, in this case, permits CIGNA to sell its shares back to the fund
when you make a withdrawal, surrender the contract or transfer from one fund to
another. Management investment company is the legal term for a mutual fund.
These definitions are very general. The precise legal definitions for these
terms are contained in the 1940 Act.
Certain funds offered as part of this contract have similar investment
objectives and policies to other portfolios managed by the advisor. The
investment results of the funds, however, may be higher or lower than the other
portfolios that are managed by the advisor or sub-advisor. There can be no
assurance, and no representation is made, that the investment results of any of
the funds will be comparable to the investment results of any other portfolio
managed by the advisor or sub-advisor.
Following are brief summaries of the investment objectives and policies of the
funds. Each fund is subject to certain investment policies and restrictions
which may not be changed without a majority vote of shareholders of that fund.
More detailed information may be obtained from the current Prospectuses for the
funds which is included in this booklet. PLEASE BE ADVISED THAT THERE IS NO
ASSURANCE THAT ANY OF THE FUNDS WILL ACHIEVE THEIR STATED OBJECTIVES.
1. Alger American Growth Portfolio: Seeks long-term capital appreciation by
focusing on growing companies that generally have broad product lines,
markets, financial resources and depth of management. Under normal
circumstances, the portfolio invests primarily in the equity securities of
large companies. The portfolio considers a large company to have a market
capitalization of $1 billion or greater.
2. Alger American Leveraged AllCap Portfolio: Seeks long-term capital
appreciation by investing in the equity securities of companies of any
size which demonstrate promising growth potential. The portfolio can
leverage, that is, borrow money, up to one-third of its total assets to
buy additional securities. By borrowing money, the portfolio has the
potential to increase its returns if the increase in the value of the
securities purchased exceeds the cost of borrowing, including interest
paid on the money borrowed.
3. Alger American MidCap Growth Portfolio: Seeks long-term capital
appreciation by focusing on midsize companies with promising growth
potential. Under normal circumstances, the portfolio invests primarily in
the equity securities of companies having a market capitalization within
the range of companies in the S&P MidCap 400 Index.
4. Alger American Small Capitalization Portfolio: Seeks long-term capital
appreciation by focusing on small, fast-growing companies that offer
innovative products, services or technologies to a rapidly expanding
marketplace. Under normal circumstances, the portfolio invests primarily
in the equity securities of small capitalization companies. A small
capitalization company is one that has a market capitalization within the
range of the Russell 2000 Growth Index or the S&P SmallCap 600 Index.
5. CIGNA Variable Products Money Market Fund: Seeks as high a level of
current income as is consistent with preserving capital and providing
liquidity, through investment in high quality U.S.
10
<PAGE>
dollar denominated money market securities of domestic and foreign
issuers.
6. Fidelity VIP II Contrafund Portfolio: Seeks capital appreciation by
investing primarily in securities of companies whose value the advisor
believes is not fully recognized by the public.
7. Fidelity VIP II Investment Grade Bond Portfolio: Seeks as high a level of
current income as is consistent with the preservation of capital by
investing in U.S. dollar denominated investment grade bonds.
8. Fidelity VIP Equity-Income Portfolio: Seeks a reasonable level of income
by investing primarily in income-producing equity securities, with some
potential for capital appreciation, seeking a yield that exceeds the
composite yield on the securities comprising the Standard and Poor's 500
Index (S&P500).
9. Fidelity VIP High Income Portfolio: Seeks a high current income by
investing at least 65% of total assets in income-producing debt
securities, with an emphasis on lower quality securities.
10. Fidelity VIP Overseas Portfolio: Seeks long-term growth of capital by
investing mainly in foreign securities.
11. Fidelity VIP III Growth Opportunities Portfolio: Seeks capital growth by
investing primarily in common stocks.
12. MFS Variable Trust Emerging Growth Series: Seeks long-term growth of
capital by investing primarily in common stocks of companies that
management believes to be early in their life cycle, but which have the
potential to become major enterprises.
13. MFS Variable Trust Growth With Income Series: Seeks a reasonable level of
current income and long-term growth of capital and income.
14. MFS Variable Trust Research Series: Seeks to provide long-term growth of
capital and future income.
15. MFS Variable Trust Total Return Series: Seeks primarily to obtain
above-average income, (compared to a portfolio invested entirely in equity
securities) that is consistent with prudent employment of capital.
Secondly, to provide a reasonable opportunity for growth of capital and
income.
16. MFS Variable Trust Utilities Series: Seeks capital growth and current
income (income above that available from a portfolio invested entirely in
equity securities) by investing, under normal circumstances, at least 65%
of its assets in equity and debt securities of utility companies.
17. Neuberger Berman AMT Limited Maturity Bond Portfolio: Seeks the highest
available level of current income consistent with liquidity and low risk
to principal; total return is a secondary goal.
18. Neuberger Berman AMT Partners Portfolio: Seeks growth of capital, invests
mainly in common stocks of medium- to large-capitalization companies,
using the value-oriented investment approach. The Portfolio seeks capital
growth through an investment approach that is designed to increase capital
with a reasonable amount of risk. The portfolio managers seek securities
that are believed to be undervalued based on strong fundamentals such as
low price-to-earnings ratios, consistent cash flow, and a sound track
record through all phases of the market cycle.
19. OCC Trust Global Equity Portfolio: Seeks long-term capital appreciation
though a global investment strategy primarily involving equity securities.
20. OCC Trust Managed Portfolio: Seeks growth of capital over time through
investment in a portfolio of common stocks, bonds and cash equivalents
whose percentage will vary based on management's assessments of relative
investment values.
21. OCC Trust Small Cap Portfolio: Seeks capital appreciation through
investments in a diversified portfolio of equity securities of companies
with market capitalizations of under $1 billion
FUND SHARES. We will purchase shares of the funds at net asset value and direct
them to the appropriate SUBACCOUNTS of the VAA. We will redeem sufficient shares
of the appropriate funds to pay ANNUITY PAYOUTS, DEATH BENEFITS,
surrender/withdrawal proceeds or for other purposes described in the contract.
If you want to transfer all or part of your investment from one SUBACCOUNT to
another, we may redeem shares held in the first and purchase shares of the
other. The shares are retired, but they may be reissued later.
Shares of the funds are not sold directly to the general public. They are sold
to CIGNA, and may be sold to other insurance companies, for investment of the
assets of the SUBACCOUNTS established by those insurance companies to fund
variable annuity and variable life insurance contracts.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. All dividends and
capital gain distributions of the funds are automatically reinvested in shares
of the distributing funds at their net asset value on the date of distribution.
Dividends are not paid out to CONTRACTOWNERS as additional units, but are
reflected as changes in unit values.
11
<PAGE>
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS. We reserve the right, within
the law, to make additions, deletions and substitutions for the funds in which
the VAA participates. We may substitute shares of other funds for shares already
purchased, or to be purchased in the future, under the contract. This
substitution might occur if shares of a fund should no longer be available, or
if investment in any fund's shares should become inappropriate, in the judgment
of our management, for the purposes of the contract. We cannot substitute shares
of one fund for another without approval by the SEC. We will also notify you.
CHARGES AND OTHER DEDUCTIONS
We will deduct the charges described below to cover our costs and expenses,
services provided and risks assumed under the contracts. We incur certain costs
and expenses for the distribution and administration of the contracts and for
providing the benefits payable thereunder. More particularly, our administrative
services include: processing applications for and issuing the contracts,
processing purchases and redemptions of fund shares as required (including
dollar cost averaging, account rebalancing and automatic withdrawal services),
maintaining records, administering ANNUITY PAYOUTS, furnishing accounting and
valuation services (including the calculation and monitoring of daily SUBACCOUNT
values), reconciling and depositing cash receipts, providing contract
confirmations, providing toll-free inquiry services and furnishing telephone
fund transfer services. The risks we assume include: the risk that ANNUITANTS
receiving ANNUITY PAYOUTS under contract live longer than we assumed when we
calculated our guaranteed rates (these rates are incorporated in the contract
and cannot be changed); the risk that more owners than expected will qualify for
waivers of the surrender charge; and the risk that our costs in providing the
services will exceed our revenues from the contract charges (which we cannot
change). The amount of a charge may not necessarily correspond to the costs
associated with providing the services or benefits indicated by the description
of the charge. For example, the surrender charge collected may not fully cover
all of the sales and distribution expenses actually incurred by us.
DEDUCTIONS FROM THE VAA FOR CIGNA ACCRU CHOICEPLUS. We deduct from the VAA an
amount, computed daily, which is equal to an annual rate of 1.40% of the daily
net asset value. The charge consists of a 0.15% administrative charge and a
1.25% mortality (approximately .75%) and expense risk charge (approximately
.50%).
SURRENDER CHARGE. A surrender charge applies (except as described below) to
surrenders and withdrawals of PURCHASE PAYMENTS that have been invested for the
periods indicated as follows:
<TABLE>
<CAPTION>
Number of complete CONTRACT
YEARS that a PURCHASE PAYMENT
has been invested
<S> <C> <C>
- ---------------------------------------------------
Less than At least
One year 1 2 3 4 5 6 7+
Surrender charge as a
percentage of the
surrendered or
withdrawn PURCHASE
PAYMENTS 7% 7 7 7 6 6 5 4 0
</TABLE>
(An account fee will be deducted and any market value adjustment will be made
before the deduction of the surrender charge.)
A surrender charge does not apply to:
1. A surrender or withdrawal of PURCHASE PAYMENTS that have been invested for
more than seven full CONTRACT YEARS;
2. Withdrawals of CONTRACT VALUE during a CONTRACT YEAR to the extent that
the total CONTRACT VALUE withdrawn during the current contract year does
not exceed 15% of PURCHASE PAYMENTS;
3. Electing an annuity option available within the contract;
4. When the surviving spouse assumes ownership of the contract as a result of
the death of the original owner;
5. A surrender amount equal to a maximum of 75% of the CONTRACT VALUE as a
result of 180 days of continuous confinement of the CONTRACTOWNER in an
accredited nursing home or equivalent health care facility subsequent to
the effective date of the contract;
6. A surrender of the contract as a result of the death of the CONTRACTOWNER.
However, the surrender charge is not waived as a result of the death of an
ANNUITANT who is not the CONTRACTOWNER; and
7. A surrender of a contract or withdrawal of contract value of a contract
issued to employees and registered representatives of any member of the
selling group and their spouses and minor children, or to officers,
directors, trustees or bona-fide full-time employees of Connecticut
General Corporation, Alger Trust, CIGNA Group, Fidelity Investments,
MFS-Registered Trademark- Investment Management, NB AMT Trust and OpCap
Advisors or any of their affiliated or managed companies (based upon
CONTRACTOWNER'S status at the time the contract was purchased.).
The surrender charge is calculated separately for each CONTRACT YEAR'S PURCHASE
PAYMENTS to which a charge
12
<PAGE>
applies. (FOR PURPOSES OF CALCULATING THIS CHARGE, WE ASSUME THAT PURCHASE
PAYMENTS ARE WITHDRAWN ON A FIRST IN-FIRST OUT BASIS, AND THAT ALL PURCHASE
PAYMENTS ARE WITHDRAWN BEFORE ANY EARNINGS ARE WITHDRAWN.)
ACCOUNT FEE. During the accumulation period, we will deduct $35 ($30 for New
York CONTRACTS, inforce business only) from the CONTRACT VALUE on the last
VALUATION DATE of each CONTRACT YEAR to compensate us for the administrative
services provided to you; this $35 ($30 for New York CONTRACTS, inforce business
only) account fee will also be deducted from the CONTRACT VALUE upon SURRENDER
or annuitization. On or after the annuity commencement date, the account fee
will be collected proportionately from the subaccounts on which the variable
annuity payout is based, prorated on a monthly basis and will result in a
reduction of the annuity payouts. The account fee will be waived for any
contract with an CONTRACT VALUE that is greater than $100,000.
TRANSFER FEE. We reserve the right to impose a $10 fee for transfers over 12
times during any CONTRACT YEAR. Automatic dollar cost averaging and automatic
rebalancing transfers are not included in the limit of 12 twelve transfers.
DEDUCTIONS FOR PREMIUM TAXES. Any premium tax or other tax levied by any
government entity as a result of the existence of the contracts of the VAA will
be deducted from the CONTRACT VALUE when incurred, or at another time of our
choosing.
The applicable premium tax rates that states and other governmental entities
impose on the purchase of an annuity are subject to change by legislation, by
administration interpretation or by judicial action. These premium taxes
generally depend upon the law of your state of residence. The tax ranges from 0%
to 3.5%.
OTHER CHARGES AND DEDUCTIONS. There are deductions from and expenses paid out of
the assets of the underlying fund that are more fully described in the
Prospectus for the fund.
ADDITIONAL INFORMATION. The administrative and surrender charges and the account
fees described previously may be reduced or eliminated for any particular
contract. However, these charges will be reduced only to the extent that we
anticipate lower distribution and/or administrative expenses, or that we perform
fewer sales or administrative services than those originally contemplated in
establishing the level of those charges.
THE CONTRACTS
PURCHASE OF CONTRACTS. If you wish to purchase a contract, you must apply for it
through a sales representative authorized by us. The completed application is
sent to us and we decide whether to accept or reject it. If the application is
accepted, a contract is prepared and executed by our legally authorized
officers. The contract is then sent to you through your sales representative.
See Distribution of the contracts.
When a completed application and all other information necessary for processing
a purchase order is received, an initial PURCHASE PAYMENT will be priced no
later than two business days after we receive the order. While attempting to
finish an incomplete application, we may hold the initial PURCHASE PAYMENT for
no more than five business days. If the incomplete application cannot be
completed within those five days, you will be informed of the reasons, and the
PURCHASE PAYMENT will be returned immediately (unless you specifically authorize
us to keep it until the application is complete). Once the application is
complete, the initial PURCHASE PAYMENT must be priced within two business days.
WHO CAN INVEST. To apply for a contract, you must be of legal age in a state
where the contracts may be lawfully sold and also be eligible to participate in
any of the qualified or nonqualified plans for which the contracts are designed.
The CONTRACTOWNER cannot be older than age 85 at the time of application. The
maximum annuitization age is 90.
PURCHASE PAYMENTS. PURCHASE PAYMENTS are payable to us at a frequency and in an
amount selected by you in the application. The minimum initial PURCHASE PAYMENT
is $2,000. The minimum annual amount for additional PURCHASE PAYMENTS for
nonqualified and qualified contracts is $100. There is no set maximum for
additional PURCHASE PAYMENTS. However, PURCHASE PAYMENTS in excess of $1,000,000
require pre-approval by CIGNA. If you stop making PURCHASE PAYMENTS for three
consecutive years, and the ANNUITY ACCOUNT VALUE decreases to less than $1,000,
we may terminate the contract as allowed by your state's non-forfeiture law for
deferred annuities and pay the CONTRACTOWNER an adjusted ANNUITY ACCOUNT VALUE.
We will notify the CONTRACTOWNER at least 30 days in advance of the intended
action. During the notification period, the CONTRACTOWNER may make additional
PURCHASE PAYMENTS to meet the minimum value requirements and to avoid
cancellation of the contract.
VALUATION DATE. ACCUMULATION and ANNUITY UNITS will be valued once daily at the
close of trading (currently 4:00 p.m., New York time) on each day the New York
Stock Exchange is open (VALUATION DATE). On any date other than a VALUATION
DATE, the ACCUMULATION UNIT value and the ANNUITY UNIT value will not change.
ALLOCATION OF PURCHASE PAYMENTS. PURCHASE PAYMENTS are placed into the VAA'S
SUBACCOUNTS, each of which
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invests in shares of its corresponding fund, according to your instructions.
The minimum amount of any PURCHASE PAYMENT that can be put into any one variable
SUBACCOUNT is $50, or $2,000 for a fixed account. No allocation can be made that
would result in a variable SUBACCOUNT of less than $50, or that would result in
a fixed account of less than $2,000. Upon allocation to a SUBACCOUNT, PURCHASE
PAYMENTS are converted into ACCUMULATION UNITS. The number of ACCUMULATION UNITS
credited is determined by dividing the amount allocated to each SUBACCOUNT by
the value of an ACCUMULATION UNIT for that SUBACCOUNT on the VALUATION DATE on
which the PURCHASE PAYMENT is received at CIGNA if received before 4:00 p.m.,
New York time. If the PURCHASE PAYMENT is received at or after 4:00 p.m., New
York time, we will use the ACCUMULATION UNIT value computed on the next
VALUATION DATE. The number of ACCUMULATION UNITS determined in this way is not
changed by any subsequent change in the value of an ACCUMULATION UNIT. However,
the dollar value of an ACCUMULATION UNIT will vary depending not only upon how
well the underlying fund's investment perform, but also upon the expenses of the
VAA and the underlying funds.
VALUATION OF ACCUMULATION UNITS. PURCHASE PAYMENTS allocated to the VAA are
converted into ACCUMULATION UNITS. This is done by dividing each PURCHASE
PAYMENT by the value of an ACCUMULATION UNIT for the VALUATION PERIOD during
which the PURCHASE PAYMENT is allocated to the VAA. The ACCUMULATION UNIT value
for each SUBACCOUNT was or will be established at the inception of the
SUBACCOUNT. It may increase or decrease from VALUATION PERIOD to VALUATION
PERIOD. The ACCUMULATION UNIT value for a SUBACCOUNT for a later VALUATION
PERIOD is determined as follows:
(1) The total value of the fund shares held in the SUBACCOUNT is calculated by
multiplying the number of fund shares owned by the SUBACCOUNT at the
beginning of the VALUATION PERIOD by the net asset value per share of the
fund at the end of the VALUATION PERIOD, and adding any dividend or other
distribution of the fund if an ex-dividend date occurs during the
VALUATION PERIOD; minus
(2) The liabilities of the SUBACCOUNT at the end of the valuation period;
these liabilities include daily charges imposed on the SUBACCOUNT, and may
include a charge or credit with respect to any taxes paid or reserved for
by us that we determine result from the operations of the VAA; and
(3) The result of (2) is divided by the number of SUBACCOUNT units outstanding
at the beginning of the valuation period.
The daily charges imposed on a SUBACCOUNT for any VALUATION PERIOD are equal to
the daily mortality and expense risk charge and the daily administrative charge
multiplied by the number of calendar days in the VALUATION PERIOD.
TRANSFERS BETWEEN SUBACCOUNTS ON OR BEFORE THE ANNUITY COMMENCEMENT DATE. You
may transfer all or a portion of your investment from one SUBACCOUNT to another.
A transfer involves the surrender of ACCUMULATION UNITS in one SUBACCOUNT to and
the purchase of ACCUMULATION UNITS in the other SUBACCOUNT. A transfer will be
done using the respective ACCUMULATION UNIT values determined at the end of the
VALUATION DATE on which the transfer request is received. We reserve the right
to impose a $10 fee for transfers after the first 12 times during a CONTACT
YEAR.
The minimum amount that may be transferred between subaccounts is $50 per
SUBACCOUNT. If the transfer from a SUBACCOUNT would leave you with less than $50
in the variable account SUBACCOUNT, we may transfer the entire balance of the
SUBACCOUNT. Transfers will also be subject to any restrictions that may be
imposed by the funds themselves.
A transfer request may be made in writing to CIGNA or, if a Telephone Exchange
Authorization form (available from us) is on file with us, by a toll-free
telephone call. In order to prevent unauthorized or fraudulent telephone
transfers, we may require the caller to provide certain identifying information
before we will act upon their instructions. We may also assign the CONTRACTOWNER
a Personal Identification Number (PIN) to serve as identification. We will not
be liable for following telephone instructions we reasonably believe are
genuine. Telephone requests may be recorded and written confirmation of all
transfer requests will be mailed to the CONTRACTOWNER on the next VALUATION
DATE. Telephone transfers will be processed on the VALUATION DATE that they are
received when they are received at our customer service center before 4 p.m. New
York time.
When thinking about a transfer of CONTRACT VALUE, you should consider the
inherent risk involved. Frequent transfers based on short-term expectations may
increase the risk that a transfer will be made at an inopportune time. CIGNA may
refuse to permit more than twelve transfers in any year and may modify the
transfer provisions of the contract. This Contract is not designed for
professional market timing organizations or other entities using programmed and
frequent transfers.
Repeated patterns of frequent transfers are disruptive to the operation of the
Sub-Accounts, and should CIGNA become aware of such disruptive practices, CIGNA
may refuse to permit more than 12 transfers in any year and may modify the
transfer provisions of the Contract.
Payment of transfer may be delayed as permitted by the 1940 Act.
TRANSFERS TO AND FROM THE FIXED SIDE ON OR BEFORE THE ANNUITY COMMENCEMENT
DATE. You may transfer all or any part of the CONTRACT VALUE from the
SUBACCOUNT(S) to the fixed side of the contract. The minimum amount
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which may be transferred to the fixed side of the contract account is $2,000 or
the total amount in the subaccount if less than $2,000. However, if a transfer
from a SUBACCOUNT would leave you with less than $50 in the SUBACCOUNT, we may
transfer the total balance to the fixed side of the contract.
You may also transfer all or any part of the CONTRACT VALUE from the fixed side
of the contract to the various SUBACCOUNT(S) subject to the following
restrictions: (1) the sum of the percentages of the fixed side of the contract
transferred is limited to 15% of the value of that fixed account in any contract
year; and (2) the minimum amount transferred is $2,000 (or the amount in the
fixed side of the contract, if less).
Currently, there is no charge to you for a transfer. However, we reserve the
right to impose a charge in the future for any transfers in excess of 12 times
per contract year. Transfers of all or a portion of the fixed side of the
contract account (other than dollar cost averaging) may be subject to a market
value adjustment. This Contract is not designed for professional market timing
organizations or other entities using programmed and frequent transfers.
Repeated patterns of frequent transfers are disruptive to the operation of the
Sub-Accounts, and should CIGNA become aware of such disruptive practices, CIGNA
may refuse to permit more than 12 transfers in any year and may modify the
transfer provisions of the Contract.
Payment or transfer may be delayed as permitted by the 1940 Act.
TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE. You may transfer all or a portion
of your investment in one SUBACCOUNT to another SUBACCOUNT in the VAA or to the
fixed side of the contract. Those transfers will be limited to three times per
CONTRACT YEAR. Currently, there is no charge for those transfers. However, we
reserve the right to impose a charge. NO TRANSFERS ARE ALLOWED FROM THE FIXED
SIDE OF THE CONTRACT TO THE SUBACCOUNTS.
DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE. You may designate a
BENEFICIARY during your lifetime and change the BENEFICIARY by filing a written
request with CIGNA. Each change of beneficiary revokes any previous designation.
We reserve the right to request that you send us the contract for endorsement of
a change of BENEFICIARY.
If the contractowner dies before the annuity commencement date, the DEATH
BENEFIT will be equal to the greatest of: the CONTRACT VALUE on the valuation
date on which we deem the death benefit election effective; the sum of all
PURCHASE PAYMENTS less the sum of all withdrawals; or the highest CONTRACT VALUE
as of any contract anniversary occurring on or before the CONTRACTOWNER'S 80th
birthday less any adjustments for subsequent PURCHASE PAYMENTS, withdrawals and
charges made since such contract anniversary.
On or after the CONTRACTOWNER'S 90th birthday, the amount of any death benefit
will be the greater of: the CONTRACT VALUE on the valuation date on we deem
which the death benefit election effective; or the sum of all PURCHASE PAYMENTS
less the sum of all withdrawals.
The value of the DEATH BENEFIT will be determined as of the date on which the
death claim is approved for payment. This payment will occur upon receipt of:
(1) proof, satisfactory to us, of the death of the OWNER; (2) written
authorization for payment; and (3) our receipt of all required claim forms,
fully completed.
If the DEATH BENEFIT becomes payable, the BENEFICIARY may elect to receive
payment of the DEATH BENEFIT either in the form of a lump settlement or an
annuity payout.
If a lump sum settlement is requested, the proceeds will be mailed within seven
days of receipt of satisfactory claim documentation as discussed previously,
subject to laws and regulations governing payment of DEATH BENEFITS. If an
election has not been made by the end of the 60-day period, a lump sum
settlement will be made to the BENEFICIARY at that time. This payment may be
postponed as permitted by the 1940 Act.
Payment will be made in accordance with the applicable laws and regulations
governing payment of DEATH BENEFITS.
Unless otherwise provided in the BENEFICIARY designation, one of the following
procedures will take place on the death of a BENEFICIARY.
1. If any BENEFICIARY dies before the CONTRACTOWNER, that BENEFICIARY'S
interest will go to any other BENEFICIARIES named, according to their
respective interests (There are no restrictions on the BENEFICIARY'S use
of the proceeds.); and/or
2. If no BENEFICIARY survives the CONTRACTOWNER, the proceeds will be paid to
the CONTRACTOWNER'S estate.
The DEATH BENEFIT payable to the BENEFICIARY must be distributed within five
years of the contractowner's DATE OF DEATH unless, within one year of the
CONTRACTOWNER'S death, the BENEFICIARY begins receiving the distribution in the
form of a life annuity or an annuity for a designated period not extending
beyond the BENEFICIARY'S life expectancy. This payment may be postponed as
permitted by the Investment Company Act of 1940.
If the BENEFICIARY is the spouse of the CONTRACTOWNER, then the spouse may elect
to continue as owner. If the CONTRACTOWNER is a corporation or other
non-individual (non-natural person), the death of the annuitant will be treated
as death of the CONTRACTOWNER and the above distribution rules will apply.
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DEATH OF ANNUITANT. If the ANNUITANT dies before the ANNUITY COMMENCEMENT DATE,
and the annuitant is not the CONTRACTOWNER, then the CONTRACTOWNER (if a natural
person) may select a new ANNUITANT. The CONTRACTOWNER will become the new
ANNUITANT until a new person has been selected. If the CONTRACTOWNER is not a
natural person, then the death benefit will be based on the ANNUITANT and will
be paid upon due proof of the ANNUITANT'S death.
If the ANNUITANT dies after the ANNUITY COMMENCEMENT DATE, the death benefit, if
any, will be paid based on the annuity option selected. CIGNA will require proof
of the ANNUITANT'S death. Under any option providing for guaranteed payouts, the
number of payouts which remain unpaid at the date of the ANNUITANT'S death (or
surviving ANNUITANT'S death in the case of a joint life annuity) will be paid to
your BENEFICIARY as payouts become due.
SURRENDERS AND WITHDRAWALS. Before the ANNUITY COMMENCEMENT DATE, we will allow
the surrender of the contract or a withdrawal of the CONTRACT VALUE upon your
written request, subject to the rules discussed below. Surrender or withdrawal
rights after the ANNUITY COMMENCEMENT DATE depend upon the annuity option you
select.
The amount available upon the surrender/withdrawal is the cash surrender value
(CONTRACT VALUE, plus or minus any market value adjustment, less any applicable
surrender charges, account fees and premium taxes charges) at the end of the
VALUATION PERIOD during which the written request for surrender/withdrawal is
received at the home office. Unless a request for withdrawal specifies
otherwise, withdrawals will be made from all SUBACCOUNTS within the VAA and from
the fixed side of the contract in the same proportion that the amount of
withdrawal bears to the total CONTRACT VALUE. As long as the surrender charges
apply the maximum amount which can be withdrawn is 15% of your PURCHASE PAYMENTS
per contract year without incurring any surrender charges and the remaining
contract value must be at least $1,000. Unless prohibited, surrender/withdrawal
payments will be mailed within seven days after we receive a valid written
request at the home office. The payment may be postponed as permitted by the
1940 Act.
The tax consequences of a surrender/withdrawal are discussed late in this
booklet. See Federal tax matters.
Special restrictions on surrenders/withdrawals apply if your contract is
purchased as part of a retirement plan of a public school system or 501(c)(3)
organization under Section 403(b) of the tax code., Beginning January 1, 1989,
in order for a contract to retain its tax-qualified status, Section 403(b)
prohibits a withdrawal from a 403(b) contract of post-1988 contributions (and
earnings on those contributions) pursuant to a salary reduction agreement.
However, this restriction does not apply if the ANNUITANT (a) attains age
59 1/2, (b) separates from service, (c) dies, (d) becomes totally and
permanently disabled and/or (e) experiences financial hardship (in which event
the income attributable to those contributions may not be withdrawn).
Pre-1989 contributions and earnings through December 31, 1988, are not subject
to the previously stated restriction. Funds transferred to the contract from a
403(b)(7) custodial account will be subject to restrictions.
We may terminate the contract, if your PURCHASE PAYMENT'S frequency or your
CONTRACT'S VALUE falls below your state's minimum standards.
DELAY OF PAYMENTS. Contract proceeds from the VAA will be paid within seven
days, except (i) when the NYSE is closed (except weekends and holidays); (ii)
times when the market trading is restricted or the SEC declares an emergency,
and we cannot value units or the funds cannot redeem shares; or (iii) when the
SEC so orders to protect CONTRACTOWNERS.
REINVESTMENT PRIVILEGE. You may elect to make a reinvestment purchase with any
part of the proceeds of a surrender/withdrawal, and we will recredit the
surrender/withdrawal charges previously deducted. This election must be made
within 30 days of the date of the surrender/withdrawal, and the repurchase must
be of a contract covered by this Prospectus. A representation must be made that
the proceeds being used to make the purchase have retained their tax-favored
status under an arrangement for which the contracts offered by this Prospectus
are designed. The number of ACCUMULATION UNITS which will be credited when the
proceeds are reinvested will be based on the value of the ACCUMULATION UNIT(S)
on the next VALUATION DATE. This computation will occur following receipt of the
proceeds and request for reinvestment at the home office. You may utilize the
reinvestment privilege only once. For tax reporting purposes, we will treat a
surrender/withdrawal and a subsequent reinvestment purchase as separate
transactions. You should consult a tax advisor before you request a
surrender/withdrawal or subsequent reinvestment purchase.
AMENDMENT OF CONTRACT. We reserve the right to amend the contract to meet the
requirements of the 1940 Act or other applicable federal or state laws or
regulations. You will be notified in writing of any changes, modifications or
waivers.
COMMISSIONS. The commissions paid to dealers are a maximum of 7.00% of each
PURCHASE PAYMENT. CIGNA will incur all other promotional or distribution
expenses associated with the marketing of the contracts. These commissions are
not deducted from PURCHASE PAYMENTS or CONTRACT VALUE, they are paid by CIGNA.
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OWNERSHIP. As CONTRACTOWNER, you have all rights under the contract. According
to Connecticut Law, the assets of the VAA are held for the exclusive benefit of
all CONTRACTOWNERS and their designated BENEFICIARIES; and the assets of the VAA
are not chargeable with liabilities arising from any other business that we may
conduct. Qualified CONTRACTS may not be assigned or transferred except as
permitted by the Employee Retirement Income Security Act (ERISA) of 1974 and
upon written notification to us. Non-qualified contracts may be collaterally
assigned. We assume no responsibility for the validity or effect of any
assignment. Consult your tax advisor about the tax consequences of an
assignment.
CONTRACTOWNER QUESTIONS. The obligations to purchasers under the contracts are
those of CIGNA. Questions about your contract should be directed to us at
1-800-552-9898.
ANNUITY PAYOUTS
When you apply for a contract, you may select any ANNUITY COMMENCEMENT DATE
permitted by law which is usually on or before the CONTRACTOWNER'S 90th
birthday. (PLEASE NOTE THE FOLLOWING EXCEPTION: Contracts issued under qualified
employee pension and profit-sharing trusts [described in the Section 401(a) and
tax exempt under Section 501(a) of the tax code] and qualified annuity plans
[described in Section 403(a) of the tax code], including H.R. 10 trusts and
plans covering self-employed individuals and their employees, provide for
annuity payouts to start at the date and under the option specified.)
The contract provides optional forms of payouts of annuities (annuity options),
some of which are payable on a variable basis, fixed basis or a combination of
both as you specify. The contract provides that all or part of the CONTRACT
VALUE may be used to purchase an annuity.
You may elect ANNUITY PAYOUTS in monthly, quarterly, semiannual or annual
installments. If the payouts from any SUBACCOUNT would be or become less than
$50, we have the right to reduce their frequency until the payouts are at least
$50 each. Following are explanations of the annuity options available.
ANNUITY OPTIONS
LIFE ANNUITY. This option offers periodic payouts during the lifetime of the
ANNUITANT and ends with the last payout before the death of the ANNUITANT. This
option offers the highest periodic payout since there is no guarantee of a
minimum number of payouts or provision for a DEATH BENEFIT for BENEFICIARIES.
HOWEVER, THERE IS THE RISK UNDER THIS OPTION THAT THE RECIPIENT WOULD RECEIVE NO
PAYOUTS IF THE ANNUITANT DIES BEFORE THE DATE SET FOR THE FIRST PAYOUT; ONLY ONE
PAYOUT IF DEATH OCCURS BEFORE THE SECOND SCHEDULED PAYOUT, AND SO ON.
LIFE ANNUITY WITH GUARANTEED PERIOD. This option offers periodic payouts that
continue throughout the lifetime of the ANNUITANT, or at least for the minimum
period stated in the contract. The amount of each monthly payment per $1,000 of
benefit will be based on the age and gender of the ANNUITANT, when the first
payment is made, and on the minimum period selected.
LIFE ANNUITY WITH CASH REFUND. This option offers periodic payouts that will be
made for the lifetime of the ANNUITANT with the guarantee that upon death,
should (a) the total dollar amount applied to purchase this option be greater
than (b) the fixed annuity benefit payment multiplied by the number of ANNUITY
benefit payments paid prior to death, then a refund payment equal to the dollar
amount of (a) minus (b) will be made after CIGNA is in receipt of: (1) proof,
satisfactory to CIGNA, of death; (2) written authorization for payment; and (3)
all claim forms, fully completed. This option is available only as a fixed
payout.
ANNUITY GUARANTEED. This option offers periodic payouts for the number of years
selected, for a minimum period of 5 years or a maximum period of 30 years.
GENERAL INFORMATION
Under the options listed above, you may not make withdrawals. Other options,
with or without withdrawal features, may be made available by us. Options are
only available to the extent they are consistent with the requirements of the
contract as well as Sections 72(s) and 401(a)(9) of the tax code, if applicable.
The mortality and risk expense charge and the charge for administrative services
will be assessed on all variable ANNUITY PAYOUTS, including options that may be
offered that do not have a life contingency and therefore no mortality risk.
The ANNUITY COMMENCEMENT DATE is usually on or before the CONTRACTOWNER'S 85th
birthday. You may change the ANNUITY COMMENCEMENT DATE, change the annuity
option or change the allocation of the investment among SUBACCOUNTS up to 45
days before the scheduled ANNUITY COMMENCEMENT DATE, upon written notice to
CIGNA. You must give us at least 45 days notice before the date on which you
want payouts to begin. If proceeds become available to a BENEFICIARY in a lump
sum, the BENEFICIARY may choose any ANNUITY PAYOUT option. At the time of an
annuity option, more favorable rates may be used in place of those guaranteed.
Other settlement options may be offered. Sex distinct or unisex rate tables are
used when determining appropriate ANNUITY payments.
Unless you select another option, the contract automatically provides for a life
annuity with ANNUITY PAYOUTS guaranteed for 10 years (on a fixed, variable or
combination fixed and variable basis, in proportion to the account allocation at
the time of allocation) except when a joint life payout is required by law.
Under any
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option providing for guaranteed period payouts, the number of payouts which
remain unpaid at the date of the ANNUITANT'S death (or surviving ANNUITANT'S
death n the case of joint life annuity) will be paid to your BENEFICIARY as
payouts become due.
VARIABLE ANNUITY PAYOUTS. Variable ANNUITY PAYOUTS will be determined using:
1. The CONTRACT VALUE on the ANNUITY COMMENCEMENT DATE;
2. The annuity tables contained in the contract;
3. The annuity option selected; and
4. The investment performance of the fund(s) selected.
To determine the amount of payouts, we make this calculation:
1. Determine the dollar amount of the first periodic payout; then
2. Credit the contract with a fixed number of ANNUITY UNITS equal to the
first periodic payout divided by the ANNUITY UNIT value; and
3. Calculate the value of the ANNUITY UNITS each period thereafter.
We assume an investment return of 3% per year, as applied to the applicable
mortality table. The amount of each payout after the initial payout will depend
upon how the underlying fund(s) perform, relative to the 3% assumed rate. If the
actual net investment rate (annualized) exceeds 3%, the annuity payout will
increase at a rate proportional to the amount of such excess. Conversely, if the
actual rate is less the 3%, annuity payouts will decrease. There is a more
complete explanation of this calculation in the SAI.
FIXED SIDE OF THE CONTRACT
PURCHASE PAYMENTS allocated to the fixed side of the contract become part of
CIGNA'S general account, and do not participate in the investment experience of
the VAA. The general account is subject to regulation and supervision by the
Connecticut Insurance Department as well as the insurance laws and regulations
of the jurisdictions in which the contracts are distributed.
In reliance on certain exemptions, exclusions and rules, CIGNA has not
registered interests in the general account as a security under the Securities
Act of 1933 and has not registered the general account as an investment company
under the 1940 Act. Accordingly, neither the general account nor any interests
in it are regulated under the 1933 Act or the 1940 Act. CIGNA has been advised
that the staff of the SEC has not made a review of the disclosures which are
included in this Prospectus which relate to our general account and to the fixed
account under the contract. These disclosures, however, may be subject to
certain provisions of the federal securities laws relating to the accuracy and
completeness of statements made in Prospectuses. This Prospectus is generally
intended to serve as a disclosure document only for aspects of the contract
involving the VAA, and therefore contains only selected information regarding
the fixed side of the contract. Complete details regarding the fixed side of the
contract are in the contract.
We guarantee an interest rate of not less than 3% per year on amounts held in
the fixed side of the contract. Any amount withdrawn from or transferred out of
the fixed side of the contract prior to the expiration of the guaranteed period
is subject to a Market Value Adjustment (see "Market Value Adjustment") and
surrender charges. The Market Value Adjustment will not reduce the amount
available for a surrender, withdrawal or transfer to an amount less than the
initial amount allocated or transferred to the fixed side of the contract plus
interest of 3% per year, less surrender charges and account fees, if any.
Payment or transfer may be delayed as permitted by the 1940 Act.
ANY INTEREST IN EXCESS OF 3.0% WILL BE DECLARED IN ADVANCE AT THE CIGNA'S SOLE
DISCRETION, CONTRACTOWNERS BEAR THE RISK THAT NO INTEREST IN EXCESS OF 3.0% WILL
BE DECLARED.
GUARANTEED PERIODS. The owner may allocate PURCHASE PAYMENTS to one or more
fixed accounts with guaranteed periods of 1, 3, 4, 5, 6, 7, 9 or 10 years. CIGNA
may offer a fixed account for a period of less than one year solely for the
purpose of dollar cost averaging. Each PURCHASE PAYMENT allocated to a fixed
account starts its own guaranteed period and will earn a guaranteed interest
rate. The duration of the guaranteed period affects the guaranteed interest rate
of the fixed account. A fixed account guarantee period ends on the date after
the number of calendar years in the fixed account's guaranteed period. Interest
will be credited daily at a rate that is equal to the compound annual rate
determined on the first day of the fixed account guaranteed period. Amounts
transferred or withdrawn from a fixed account prior to the end of the guaranteed
period will be subject to the market value adjustment. Each guaranteed period
PURCHASE PAYMENT amount will be treated separately for purposes of determining
any applicable market value adjustment. Any amount withdrawn from a fixed
account may be subject to any applicable surrender charges, account fees, or
premium taxes
CIGNA will notify the CONTRACTOWNER in writing at least 60 days prior to the
expiration date for any guaranteed period amount. A new fixed account guaranteed
period of the same duration as the previous fixed account guaranteed period will
begin automatically at the end of the previous guaranteed period, unless CIGNA
receives
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prior to the end of such guaranteed period, a written election by the
CONTRACTOWNER. The written election will allow the transfer of the guaranteed
period amount to a different fixed account or to a variable SUBACCOUNT from
among those being offered by CIGNA. Transfers of any guaranteed period amount
which become effective upon the date of expiration of the applicable guaranteed
period are not subject to the limitation of twelve transfers per CONTRACT YEAR
or the additional fixed account transfer restrictions.
MARKET VALUE ADJUSTMENT. Any surrender or transfer of a fixed account guaranteed
period amount before the end of the guaranteed period will be subject to a
market value adjustment (MVA). A surrender or transfer effective upon the
expiration of the guaranteed period will not be subject to an MVA. The MVA will
be applied to the amount being surrendered or transferred. The MVA will be
applied after the deduction of any applicable account fees and before any
applicable surrender or transfer charges. In general, the MVA reflects the
relationship between the index rate in effect at the time a PURCHASE PAYMENT is
allocated to a fixed account's guaranteed period under the CONTRACT and the
index rate in effect at the time of the PURCHASE PAYMENT'S surrender or
transfer. It also reflects the time remaining in the fixed account's guaranteed
period. If the index rate at the time of the surrender or transfer is lower than
the index rate at the time the PURCHASE PAYMENT was allocated, then the
application of the MVA will generally result in a higher payment at the time of
the surrender or transfer. Similarly, if the index rate at the time of surrender
or transfer is higher than the index rate at the time of the allocation of the
PURCHASE PAYMENT, then the application of the MVA will generally result in a
lower payment at the time of the surrender or transfer. The index rate is
published by the Federal Reserve Board.
The MVA is calculated as follows:
where: (1+A)(n)
------
(1+B)(n)
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
SUBACCOUNT'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
SUBACCOUNT'S guaranteed period, determined at the time of surrender or transfer,
plus a 0.50% adjustment (unless otherwise limited by applicable state law). If
Index Rates "A" and "B" are within 0.25% of each other when the index rate is
determined, no such adjustment to "B" will be made, unless required by state
law. This adjustment builds into the formula a factor representing direct and
indirect costs to CIGNA associated with liquidating general account assets in
order to satisfy surrender requests. This adjustment of 0.50% 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 Market Value Adjustment.
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 Market Value Adjustment.
Additional adjustments may be included in this calculation that can positively
or negatively affect the MVA. The adjustments represent the direct and indirect
costs CIGNA can incur due to the liquidation of general assets in order to
satisfy surrender requests.
FEDERAL TAX MATTERS
INTRODUCTION. The Federal income tax treatment of the contract is complex and
sometimes uncertain. The Federal income tax rules may vary with your particular
circumstances. This discussion does not include all the Federal income tax rules
that may affect you and your contract. This discussion also does not address
other Federal tax consequences, or state or local tax consequences, associated
with the contract. As a result, you should always consult a tax advisor about
the application of tax rules to your individual situation.
TAXATION OF NONQUALIFIED ANNUITIES. This part of the discussion describes some
of the Federal income tax rules applicable to nonqualified annuities. A
nonqualified annuity is a contract not issued in connection with a qualified
retirement plan receiving special tax treatment under the tax code, such as an
IRA or a section 403(b) plan.
TAX DEFERRAL ON EARNINGS. The Federal income tax law generally does not tax any
increase in your CONTRACT VALUE until you receive a contract distribution.
However, for
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this general rule to apply, certain requirements must be satisfied:
- - An individual must own the contract (or the tax law must treat the contract as
owned by the individual).
- - The investments of the VAA must be "adequately diversified" in accordance with
IRS regulations.
- - Your right to choose particular investments for a contract must be limited.
- - The ANNUITY COMMENCEMENT DATE must not occur near the end of the ANNUITANT'S
life expectancy.
CONTRACTS NOT OWNED BY THE INDIVIDUAL. If a contract is owned by an entity
(rather than an individual) the tax code generally does not treat it as an
annuity contract for Federal income tax purposes. This means that the entity
owning the contract pays tax currently on the excess of the CONTRACT VALUE over
the PURCHASE PAYMENTS for the contract. Examples of contracts where the owner
pays current tax on the contract's earnings are contracts issued to a
corporation or a trust. Exceptions to this rule exist. For example, the tax code
treats a contract as owned by an individual if the named owner is a trust or
other entity that holds the contract as an agent for an individual. However,
this exception does not apply in the case of any employer that owns a contract
to provide deferred compensation for its employees.
INVESTMENTS IN THE VAA MUST BE DIVERSIFIED. For a contract to be treated as an
annuity for Federal income tax purposes, the investments of the VAA must be
"adequately diversified." IRS regulations define standards for determining
whether the investments of the VAA are adequately diversified. If the VAA fails
to comply with these diversification standards, you could be required to pay tax
currently on the excess of the CONTRACT VALUE over the contract PURCHASE
PAYMENTS. Although we do not control the investments of the underlying
investment options, we expect that the underlying investment options will comply
with the IRS regulations so that the VAA will be considered "adequately
diversified."
RESTRICTIONS. Federal income tax law limits your right to choose particular
investments for the contract. Because the IRS has not issued guidance specifying
those limits, the limits are uncertain and your right to allocate the CONTRACT
VALUE among the SUBACCOUNTS may exceed those limits. If so, you would be treated
as the owner of the assets of the VAA and thus subject to current taxation on
the income and gains from those assets. We do not know what limits may be set by
the IRS in any guidance that it may issue and whether any such limits will apply
to existing contracts. We reserve the right to modify the contract without your
consent to try to prevent the tax law from considering you as the owner of the
assets of the VAA.
AGE AT WHICH ANNUITY PAYOUTS BEGIN. Federal income tax rules do not expressly
identify a particular age by which ANNUITY PAYOUTS must begin. However, those
rules do require that an annuity contract provide for amortization, through
ANNUITY PAYOUTS, of the contract's PURCHASE PAYMENTS and earnings. If annuity
payouts under the contract begin or are scheduled to begin on a date past the
ANNUITANT'S 85(th) birthday, it is possible that the tax law will not treat the
contract as an annuity for Federal income tax purposes. In that event, you would
be currently taxable on the excess of the CONTRACT VALUE over the PURCHASE
PAYMENTS of the contract.
TAX TREATMENT OF PAYMENTS. We make no guarantees regarding the tax treatment of
any contract or of any transaction involving a contract. However, the rest of
this discussion assumes your contract will be treated as an annuity for Federal
income tax purposes and that the tax law will not tax any increase in your
CONTRACT VALUE until there is a distribution from your contract.
TAXATION OF WITHDRAWALS AND SURRENDERS. You will pay tax on withdrawals to the
extent your CONTRACT VALUE exceeds your PURCHASE PAYMENTS in the contract. This
income (and all other income from your contract) is considered ordinary income.
A higher rate of tax is paid on ordinary income than on capital gains. You will
pay tax on a surrender to the extent the amount you receive exceeds your
PURCHASE PAYMENTS. In certain circumstances, your PURCHASE PAYMENTS are reduced
by amounts received from your contract that were not included in income.
TAXATION OF ANNUITY PAYOUTS. The tax code imposes tax on a portion of each
ANNUITY PAYOUT (at ordinary income tax rates) and treats a portion as a
nontaxable return of your PURCHASE PAYMENTS in the contract. We will notify you
annually of the taxable amount of your ANNUITY PAYOUT. Once you have recovered
the total amount of the PURCHASE PAYMENT in the contract, you will pay tax on
the full amount of your ANNUITY PAYOUTS. If ANNUITY PAYOUTS end because of the
ANNUITANT'S death and before the total amount of PURCHASE PAYMENTS in the
contract has been received, the amount not received generally will be
deductible.
TAXATION OF DEATH BENEFITS. We may distribute amounts from your contract because
of the death of a CONTRACTOWNER or an ANNUITANT. The tax treatment of these
amounts depends on whether you or the ANNUITANT dies before or after the ANNUITY
COMMENCEMENT DATE.
- - Death prior to the ANNUITY COMMENCEMENT DATE --
- If the BENEFICIARY receives DEATH BENEFITS under an ANNUITY PAYOUT OPTION,
they are taxed in the same manner as ANNUITY PAYOUTS.
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- If the BENEFICIARY does not receive DEATH BENEFITS under an ANNUITY PAYOUT
option, they are taxed in the same manner as a withdrawal.
- - Death after the ANNUITY COMMENCEMENT DATE --
- If DEATH BENEFITS are received in accordance with the existing ANNUITY
PAYOUT option, they are excludible from income if they do not exceed the
PURCHASE PAYMENTS not yet distributed from the contract. All ANNUITY
PAYOUTS in excess of the PURCHASE PAYMENTS not previously received are
includible in income.
- If DEATH BENEFITS are received in a lump sum, the tax law imposes tax on
the amount of DEATH BENEFITS which exceeds the amount of PURCHASE PAYMENTS
not previously received.
PENALTY TAXES PAYABLE ON WITHDRAWALS, SURRENDERS OR ANNUITY PAYOUTS. The tax
code may impose a 10% penalty tax on any distribution from your contract which
you must include in your gross income. The 10% penalty tax does not apply if one
of several exceptions exists. These exceptions include withdrawals, surrenders
or ANNUITY PAYOUTS that:
- - you receive on or after you reach age 59 1/2,
- - you receive because you became disabled (as defined in the tax law),
- - a BENEFICIARY receives on or after your death, or
- - you receive as a series of substantially equal periodic payments for life (or
life expectancy).
SPECIAL RULES IF YOU OWN MORE THAN ONE ANNUITY CONTRACT. In certain
circumstances, you must combine some or all of the nonqualified annuity
contracts you own in order to determine the amount of an ANNUITY PAYOUT, a
surrender or a withdrawal that you must include in income. For example, if you
purchase two or more deferred annuity contracts from the same life insurance
company (or its affiliates) during any calendar year, the tax code treats all
such contracts as one contract. Treating two or more contracts as one contract
could affect the amount of a surrender, withdrawal or an ANNUITY PAYOUT that you
must include in income and the amount that might be subject to the penalty tax
described above.
LOANS AND ASSIGNMENTS. Except for certain qualified contracts, the tax code
treats any amount received as a loan under a contract, and any assignments or
pledge (or agreement to assign or pledge) any portion of your CONTRACT VALUE, as
a withdrawal of such amount or portion.
GIFTING A CONTRACT. If you transfer ownership of your contract to a person other
than your spouse (or to your former spouse incident to divorce), and receive a
payment less than your CONTRACT'S VALUE to the extent it exceeds your PURCHASE
PAYMENTS not previously received, the new owner's PURCHASE PAYMENTS in the
contract would then be increased to reflect the amount included in your income.
LOSS OF INCOME DEDUCTION. After June 8, 1997, if a contract is issued to a
taxpayer that is not an individual, or if a contract is held for the benefit of
an entity, the entity will lose a portion of its deduction for otherwise
deductible interest expenses. This disallowance does not apply if you pay tax on
the annual increase in the CONTRACT VALUE. Entities that are considering
purchasing a contract, or entities that will benefit from someone else's
ownership of a contract, should consult a tax advisor.
QUALIFIED RETIREMENT PLANS. We also designed the contracts for use in connection
with certain types of retirement plans that receive favorable treatment under
the tax code. Contracts issued to or in connection with a qualified retirement
plan are called "qualified contracts." We issue contracts for use with different
types of qualified plans. The Federal income tax rules applicable to those plans
are complex and varied. As a result, this Prospectus does not attempt to provide
more than general information about use of the contract with various types of
qualified plans. Persons planning to use the contract in connection with a
qualified plan should obtain advice from a competent tax advisor.
TYPES OF QUALIFIED CONTRACTS AND TERMS OF CONTRACTS. Currently, we issue
contracts in connection with the following types of qualified plans:
- - Individual Retirement Accounts and Annuities ("Traditional IRAs")
- - Roth IRAs
- - Simplified Employee Pensions ("SEPs")
- - Savings Incentive Matched Plan for Employees ("SIMPLE 401(k) plans")
- - Public School System and tax exempt organization annuity plans ("403(b)
plans")
- - Qualified corporate employee pension and profit sharing plans ("401(a) plans")
and qualified annuity plans ("403(a)plans")
- - Self-employed individual plans ("H.R. 10 plans" or "Keogh Plans")
- - Deferred compensation plans of state and local governments and tax-exempt
organizations ("457 plans")
We may issue a contract for use with other types of qualified plans in the
future.
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We will amend contracts to be used with a qualified plan as generally necessary
to conform to tax law requirements for the type of plan. However, the rights of
a person to any qualified plan benefits may be subject to the plan's terms and
conditions. In addition, we are not bound by the terms and conditions of
qualified plans to the extent such terms and conditions contradict the contract,
unless we consent.
TAX TREATMENT OF QUALIFIED CONTRACTS. The Federal income tax rules applicable to
qualified plans and qualified contracts vary with the type of plan and contract.
For example,
- - Federal tax rules limit the amount of PURCHASE PAYMENTS that can be made and
the tax deduction or exclusion that may be allowed for the PURCHASE PAYMENTS.
These limits vary depending on the type of qualified plan and the plan
participant's specific circumstances, e.g., the participant's compensation.
- - Under most qualified plans, e.g., 403(b) plans and Traditional IRAs, the
ANNUITANT must begin receiving payments from the contract in certain minimum
amounts by a certain age, typically age 70 1/2. However, these "minimum
distribution rules" do not apply to a Roth IRA.
- - Loans are allowed under certain types of qualified plans, but Federal income
tax rules permit loans under some section 403(b) plans, but prohibit loans
under Traditional and Roth IRAs. If allowed, loans are subject to a variety of
limitations including restrictions as to the loan amount, the loan duration
and the manner of repayment. Your contract or plan may or may not permit
loans.
TAX TREATMENT OF PAYMENTS. Federal income tax rules generally include
distributions from a qualified contract in the recipient's income as ordinary
income. These taxable distributions will include PURCHASE PAYMENTS that were
deductible or excludible from income. Thus, under many qualified contracts, the
total amount received is included in income since a deduction or exclusion from
income was taken for PURCHASE PAYMENTS. These are exceptions. For example, you
do not include amounts received from a Roth IRA in income if certain conditions
are satisfied.
Failure to comply with the minimum distribution rules applicable to certain
qualified plans, such as Traditional IRAs, will result in the imposition of an
excise tax. This excise tax generally equals 50% of the amount by which a
minimum required distribution exceeds the actual distribution from the qualified
plan.
FEDERAL PENALTY TAXES PAYABLE ON DISTRIBUTIONS. The tax code may impose a 10%
penalty tax on the amount received from the qualified contract that must be
included in income. The tax code does not impose the penalty tax if one of
several exceptions applies. The exceptions vary depending on the type of
qualified contract you purchase. For example, in the case of an IRA, exceptions
provide that the penalty tax does not apply to a withdrawal, surrender or
ANNUITY PAYOUT:
- - received on or after the ANNUITANT reaches age 59 1/2,
- - received on or after the ANNUITANT'S death or because of the ANNUITANT'S
disability (as defined in the tax law),
- - received as a series of substantially equal periodic payments for the
ANNUITANT'S life or (life expectancy), or
- - received as reimbursement for certain amounts paid for medical care.
These exceptions, as well as certain others not described here, generally apply
to taxable distributions from other qualified plans. However, the specific
requirements of the exception may vary.
TRANSFERS AND DIRECT ROLLOVERS. In many circumstances, money may be moved
between qualified contracts and qualified plans by means of a rollover or
transfer. Special rules apply to such rollovers and transfers. If the applicable
rules are not followed, you may suffer adverse Federal income tax consequences,
including paying taxes which might not otherwise have had to be paid. A
qualified advisor should always be consulted before you move or attempt to move
funds between any qualified plan or contract and another qualified plan or
contract.
The direct rollover rules apply to certain payments (called "eligible rollover
distributions") from section 401(a) plans, section 403(a) or (b) plans, H.R. 10
plans and contracts used in connection with these types of plans. (The direct
rollover rules do not apply to distributions from IRAs or section 457 plans.)
The direct rollover rules require that we withhold Federal income tax equal to
20% of the eligible rollover distribution from the distribution amount, unless
you elect to have the amount directly transferred to certain qualified plans or
contracts. Before we send a rollover distribution, we will provide the recipient
with a notice explaining these requirements and how the 20% withholding can be
avoided by electing a direct rollover.
FEDERAL INCOME TAX WITHHOLDING. We will withhold and remit to the IRA a part of
the taxable portion of each distribution made under a contract unless the
distributee notifies us at or before the time of distribution that tax is not to
be withheld. In certain circumstances, Federal income tax rules may require us
to withhold tax. At the time a withdrawal, surrender or ANNUITY PAYOUT is
requested, we will give the recipient an explanation of the withholding
requirements.
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TAX STATUS OF CIGNA. Under existing Federal income tax laws, CIGNA does not pay
tax on investment income and realized capital gains of the VAA. CIGNA does not
expect that it will incur any Federal income tax liability on the income and
gains earned by the VAA. We, therefore, do not impose a charge for Federal
income taxes. If Federal income tax law changes and we must pay tax on some or
all of the income and gains earned by the VAA, we may impose a charge against
the VAA to pay the charges.
CHANGES IN LAW. The above discussion is based on the tax code, IRS regulations
and interpretations existing on the date of this Prospectus. However, Congress,
The IRS and the courts may modify these authorities, sometimes retroactively.
VOTING RIGHTS
As required by law, we will vote the fund shares held in the VAA at meetings of
the shareholders of the particular fund. The voting will be done according to
the instructions of CONTRACTOWNERS who have interests in the SUBACCOUNTS which
invest in classes of funds. If the 1940 Act or any regulation under it should be
amended or if present interpretations should change, and if as a result we
determine that we are permitted to vote the fund shares in our own right, we may
elect to do so.
The number of votes which you have the right to cast will be determined by
applying your percentage interest in a SUBACCOUNT to the total number of votes
attributable to the SUBACCOUNT. In determining the number of votes, fractional
shares will be recognized.
Fund shares of a class held in a SUBACCOUNT for which no timely instructions are
received will be voted by us in proportion to the voting instructions which are
received for all contracts participating in that SUBACCOUNT. Voting instructions
to abstain on any item to be voted on will be applied on a pro-rata basis to
reduce the number of votes eligible to be cast.
Whenever a shareholders meeting is called, each person having a voting interest
in a SUBACCOUNT will receive proxy voting material, reports and other materials
relating to the trust. Since the fund engages in shared funding, other persons
or entities besides CIGNA may vote fund shares. See Sale of fund shares by the
fund.
DISTRIBUTION OF THE CONTRACTS
Sagemark Consulting, Inc. (Sagemark) acts as the principal underwriter and
distributor of the contracts as well as that for certain variable life insurance
policies and other variable annuity contracts issued by CIGNA. Sagemark, the
ultimate parent for which is Lincoln National Corporation, will form the selling
group for the contracts, and will perform certain enumerated marketing and
ancillary functions in support of the selling group. The contracts will be sold
by properly licensed registered representatives of independent broker-dealers
which in turn have selling agreements with CIGNA and have been licensed by state
insurance departments to represent CIGNA. CIGNA will offer the contracts in all
states it is licensed to do business.
RETURN PRIVILEGE
Within the free-look period after you receive the contract, you may cancel it
for any reason by delivering or mailing it postage prepaid, Lincoln Life, Attn:
ACCRU ChoicePlus Operations, 1300 S. Clinton Street, P.O. Box 7871, Fort Wayne,
IN 4801. A contract canceled under this provision will be void. With respect to
the fixed portion of a contract, we will return PURCHASE PAYMENTS. With respect
to the VAA, except as explained in the following paragraph, we will return the
contract value as of the date of receipt of the cancellation, plus any premium
taxes which had been deducted. No surrender charge will be assessed. A PURCHASER
WHO PARTICIPATES IN THE VAA IS SUBJECT TO THE RISK OF A MARKET LOSS DURING THE
FREE-LOOK PERIOD.
For contracts written in those states whose laws require that we assume this
market risk during the free-look period, a contract may be canceled, subject to
the conditions explained before, except that we will return only the PURCHASE
PAYMENT(S).
STATE REGULATION
As a life insurance company organized and operated under Connecticut law, we are
subject to provisions governing life insurers and to regulation by the
Connecticut Commissioner of Insurance.
Our books and accounts are subject to review and examination by the Connecticut
Insurance Department at all times. A full examination of our operations is
conducted by that Department at least every five years.
RECORDS AND REPORTS
As presently required by the 1940 Act and applicable regulations, we are
responsible for maintaining all records and accounts relating to the VAA. We
have entered into an agreement with the Delaware Management Company, 2005 Market
Street, Philadelphia, PA, 19203, to provide accounting services to the VAA. We
will mail to you, at your last known address of record at the home office, at
least semiannually after the first CONTRACT YEAR, reports containing information
required that Act or any other applicable law or regulation.
OTHER INFORMATION
A Registration Statement has been filed with the SEC, under the Securities Act
of 1933 as amended, for the contracts being offered here. This Prospectus does
not contain all the information in the Registration Statement, its amendments
and exhibits. Please refer to the Registration Statement for further information
about the VAA, CIGNA and the contracts offered. Statements
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in this Prospectus about the content of contracts and other legal instruments
are summaries. For the complete text of those contracts and instruments, please
refer to those documents as filed with the SEC.
PREPARING FOR YEAR 2000
LINCOLN LIFE, as noted above, is responsible for administering the contracts and
the VAA on behalf of CIGNA. Lincoln Life's responsibilities include the
operation of the computer systems related to the VAA, which are distinct from
those used by CIGNA in its other operations. Many existing computer programs use
only two digits in the date filed to identify the year. If left uncorrected,
these programs, which were designed and developed without considering the impact
of the upcoming change in the century, could fail to operate or could produce
erroneous results when processing dates after December 31, 1999. For example,
for a bond with a stated maturity date of July 1, 2000, a computer program could
read and store the maturity date as July 1, 1900. This problem is known by many
names, such as the "Year 2000 Problem", "Y2K", and the "Millennium Bug".
The Year 2000 Problem affects virtually all computer programs worldwide. It can
cause a computer system to suddenly stop operating. It can also result in a
computer corrupting vital company records, and the problem could go undetected
for a long time. For our products, if left unchecked it could cause such
problems as purchase payment collection and deposit errors; claim payment
difficulties; accounting errors; erroneous unit values; and difficulties or
delays in processing transfers, surrenders and withdrawals. In a worst case
scenario, this could result in a material disruption to the operations both of
Lincoln Life and of Delaware Service Company, Inc. (Delaware), the provider of
the accounting and valuation services for the VAA.
However, both companies are wholly owned by Lincoln National Corporation (LNC),
which has had Year 2000 processes in place since 1996. LNC projects aggregate
expenditures in excess of $92 million for its Y2K efforts through the year 2000.
Both Lincoln Life and Delaware have dedicated Year 2000 teams and steering
committees that are answerable to their counterparts in LNC.
In light of the potential problems above, Lincoln Life, as part of its Year 2000
updating process, has assumed responsibility for correcting all high-priority
Information Technology (IT) systems which service the VAA. Delaware is
responsible for updating all its high-priority IT systems to support these vital
services. The Year 2000 effort, for both IT and non-IT systems, is organized in
four phases:
- - awareness-raising and inventory of all assets (including third-part agent and
vendor relationships)
- - assessment and high-level planning and strategy
- - remediation of affected systems and equipment; and
- - testing to verify Year 2000 readiness.
Both companies are currently on schedule to have their high-priority IT systems
remediated and tested to demonstrate readiness by June 30, 1999. During the
third and fourth quarters of 1999, additional testing of the environment will
continue. Both companies are currently on schedule to have their high-priority
non-IT systems (elevators, heating and ventilation, security systems, etc.)
remediated and tested by October 31, 1999.
The work on Year 2000 issues has not suffered significant delays; however, some
uncertainty remains. Specific factors that give rise to this uncertainty include
(but are certainly not limited to) a possible loss of technical resources to
perform the work; failure to identify all susceptible systems; and
non-compliance by third parties whose systems and operations impact Lincoln
Life. In a report dated February 26, 1999, entitled, INVESTIGATING THE IMPACT OF
YEAR 2000 TECHNOLOGY PROBLEM, S: Prt. 106-10, the U.S. Senate Special Committee
on the Year 2000 Technology Problem expressed its concern that "Financial
services firms . . . are particularly vulnerable to . . . the risk that a
material customer or business partner will fail, as a result of the computer
problems, to meet its obligations."
One important key source of uncertainty is the extent to which the key trading
partners of Lincoln Life and Delaware will be successful in their own
remediation and testing efforts. Lincoln Life and Delaware have been monitoring
the process of their partners; however, the efforts of these partners are beyond
our control.
Lincoln Life and Delaware expect to have completed their necessary remediation
and testing efforts prior to December 31, 1999. However, given the nature and
complexity of the problem, there can be no guarantee by either company that
there will not be significant computer problems after December 31, 1999.
LEGAL PROCEEDINGS. There are no legal proceedings to which the Variable Account
or the Distributor of CIGNA'S product included in this prospectus is a party
except for routine litigation which CIGNA does not believe is relevant to the
Contracts offered by this Prospectus.
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The Lincoln National Life Insurance Co. has purchased
CIGNA's individual life insurance, disability income
insurance and annuities
[LOGO]
businesses. Connecticut General Life Insurance
Company continues to offer individual insurance and
annuity products through certain
agents of The Lincoln National Life Insurance Co. and
Lincoln Life and Annuity Co. of New York. Sagemark
Consulting, Inc. and Lincoln National Insurance
Associates, Inc., are affiliates of Lincoln National
Corporation.
P-ACP [- -] MP5/99
<PAGE>
CIGNA ACCRU CHOICEPLUS
COMPANY CG VARIABLE ANNUITY ACCOUNT II (REGISTRANT)
CONNECTICUT GENERAL LIFE INSURANCE COMPANY (DEPOSITOR)
STATEMENT OF ADDITIONAL INFORMATION (SAI)
<TABLE>
<S> <C>
HOME OFFICE: SERVICING OFFICE:
Connecticut General Life Insurance Company Lincoln Life
(CIGNA) Attn: Accru Choice Plus Operations
900 Cottage Grove Road 1300 S. Clinton Street
Bloomfield, CT 06002 P.O. Box 7871
Fort Wayne, IN 46801
</TABLE>
This Statement of Additional Information should be read along with the CIGNA
Accru ChoicePlus Prospectus of CIGNA Variable Annuity Account II dated May 1,
1999. You may obtain a copy of the Prospectus on request and without charge.
Please write Lincoln Life, Attn: Accru Choice Plus Operations, 1300 S. Clinton
Street, P.O. Box 7871, Fort Wayne, IN 46801 or call 1-800-552-9898.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
- ------------------------------------------------------
General information and history of CIGNA B-2
Special terms B-2
Services B-2
Principal Underwriter B-2
Purchase of securities being offered B-2
<CAPTION>
ITEM PAGE
- ------------------------------------------------------
<S> <C>
Calculation of Investment Results B-3
Annuity payouts B-9
Advertising and sales literature B-10
Financial Statements B-12
</TABLE>
THIS SAI IS NOT A PROSPECTUS.
The date of this SAI is May 1, 1999
B-1
<PAGE>
GENERAL INFORMATION AND HISTORY OF THE CONNECTICUT GENERAL LIFE INSURANCE
COMPANY (CIGNA)
The Connecticut General Life Insurance Company (CIGNA), organized in 1865, is a
Connecticut stock insurance corporation, engaged primarily in the direct
insurance of life and health insurance contracts and annuities, and is also a
professional reinsurer. CIGNA is wholly owned by Connecticut General
Corporation, which in turn is an indirect wholly-owned subsidiary of CIGNA
Corporation, a publicly held insurance and financial services holding company
domiciled in Delaware.
SPECIAL TERMS
The special terms used in this SAI are the ones defined in the Prospectus. In
connection with the term VALUATION DATE the New York Stock Exchange is currently
closed on weekends and on these holidays: New Year's Day, Martin Luther King's
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. If any of these holidays occurs on a
weekend day, the Exchange may also be closed on the business day occurring
before or just after the holiday.
SERVICES
EXPERTS
The consolidated financial statements of Connecticut General Life Insurance
Company as of December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998 included in this Statement of Additional
Information and registration statement have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The statement of assets and liability of the Variable Account at December 31,
1998, and the statements of operations and changes in net assets for the year
ended December 31, 1998, included in this Statement of Additional Information
and registration statement, have been so included in reliance on the report of
Ernst & Young LLP, independent auditors, given on the authority of said firm as
experts in accounting and auditing.
The statement of changes in net assets of the Variable Account for the year
ended December 31, 1997, included in this Statement of Additional Information
and registration statement, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
KEEPER OF RECORDS
All accounts, books, records and other documents which are to be maintained for
the VAA are maintained by CIGNA or by third parties responsible to CIGNA. We
have entered into an agreement with the Delaware Management Company, 2005 Market
Street, Philadelphia, PA 19203, to provide accounting services to the VAA. No
separate charge against the assets of the VAA is made by CIGNA for this service.
PRINCIPAL UNDERWRITER
The contracts will be sold by licensed insurance agents in those states where
the contracts may lawfully be sold. Such agents will be registered
representative or broker-dealers registered under the Securities Exchange Act of
1934 who are members of the National Association of Securities Dealers, Inc.
(NASD). The contracts will be distributed by the company's principal
underwriter, Sagemark Consulting, Inc. (Sagemark), located at 350 Church Street,
Hartford, CT 06103. Sagemark is a Connecticut corporation and is the principal
underwriter for certain of CIGNA'S other registered separate accounts.
Commissions and other distribution compensation will be paid by CIGNA and will
not be more than 6.50% of premium payments. CIGNA received [$145,226] in
deferred sales charges attributable to the variable account portion of the
contracts issued pursuant to CG Variable Annuity Separate Account II for the
year ended December 31, 1998.
Sales charges on and exchange privileges under the contracts are described in
the Prospectus. There are no variations in the prices at which the contracts are
offered for certain types of purchasers.
PURCHASE OF SECURITIES BEING OFFERED
The variable annuity contracts are offered to the public through licensed
insurance agents who specialize in selling CIGNA products; through independent
insurance brokers; and through certain securities brokers/dealers selected by
CIGNA whose personnel are legally authorized to sell annuity products. There are
no special purchase plans for any class of prospective buyers. However, under
certain limited circumstances described in the Prospectus under the section
Charges and other deductions, the contract and/or surrender charges may be
waived. There are exchange privileges between SUBACCOUNTS, and between the VAA
and CIGNA'S General Account (see Transfers of accumulation units between
SUBACCOUNTS in the Prospectus.) No exchanges are permitted between the VAA and
other separate accounts.
B-2
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CALCULATION OF INVESTMENT RESULTS
The paragraphs set forth below represent performance information for the VAA and
the SUBACCOUNTS calculated in several different ways.
MONEY MARKET SUBACCOUNT
1. Seven-day yield: 4.7%
Length of base period used in computing yield: 7 days
2. The yield reported above and in the table of condensed information in the
Prospectus is determined by calculating the change in unit value for the
base period (the 7-day period ended December 31, 1998; the dividing this
figure by the account value at the beginning of the period; then
annualizing this result by the factor 365/7. This yield includes all
deductions charged to the CONTRACTOWNER'S account, and excludes any
realized gains and losses from the sale of securities.
PERFORMANCE OF THE VAA AND SUBACCOUNTS
Paragraph A shows the average annual total return of each SUBACCOUNT since its
inception period. The information presented in Paragraph A is commonly referred
to as "standard performance" because it is calculated in accordance with
formulas prescribed by the SEC.
Under rules issued by the SEC, standard performance must be included in certain
advertising material that discusses the performance of the VAA and the
SUBACCOUNTS. Standard performance is described in Paragraph B. Paragraph C shows
the performance of the SUBACCOUNTS over the periods indicated in the tables set
forth in the paragraph, adjusted to reflect the charges and expenses associated
with the contracts. Paragraph D shows additional "nonstandardized" performance
information (i.e., performance information not calculated in accordance with SEC
guidelines) for each of the subaccounts that may be used to advertise the
performance of the VAA and the SUBACCOUNTS.
(A) AVERAGE ANNUAL TOTAL RETURN
Period ending December 31, 1998
<TABLE>
<CAPTION>
1-YEAR SINCE
PERIOD INCEPTION
----------- -------------
<S> <C> <C>
Alger American Growth Portfolio (06/06/97)..................... 38.92% 32.70%
Alger American Leveraged AllCap Portfolio (06/09/97)........... 48.51 37.18
Alger American MidCap Growth Portfolio (06/02/97).............. 21.40 21.35
Alger American Small Capitalization Portfolio (06/06/97)....... 6.83 13.98
Cigna Variable Money Market Fund (05/20/97).................... 3.21 4.00
Fidelity VIP II Contrafund Portfolio (06/02/97)................ 21.07 23.74
Fidelity VIP II Investment Grade Bond Portfolio (06/09/97)..... .25 4.12
Fidelity VIP Equity-Income Portfolio (06/06/97)................ 2.99 10.34
Fidelity VIP High Income Portfolio (06/02/97).................. (12.74) 4.12
Fidelity VIP Overseas Portfolio (06/02/97)..................... 4.11 2.46
Fidelity VIP III Growth Opportunities Portfolio (06/09/97)..... 15.78 19.85
MFS Variable Trust Emerging Growth Series (06/02/97)........... 25.16 25.21
MFS Variable Trust Growth With Income Series (06/05/97)........ 13.53 18.52
MFS Variable Trust Research Series (06/09/97).................. 14.56 14.62
MFS Variable Trust Total Return Series (06/02/97).............. 3.69 9.79
MFS Variable Trust Utilities Series (06/09/97)................. 9.33 19.96
Neuberger Berman AMT Limited Maturity Bond Portfolio (4.14) (0.31)
(06/02/97)...................................................
Neuberger Berman AMT Partners Portfolio (05/22/97)............. (4.32) 8.46
OCC Trust Global Equity Portfolio (06/02/97)................... 4.63 5.53
OCC Trust Managed Portfolio (05/22/97)......................... (1.45) 6.86
OCC Trust Small Cap Portfolio (06/13/97)....................... (17.38) (7.40)
</TABLE>
See the date the SUBACCOUNT commenced activity next to its name
B-3
<PAGE>
(B) FORMULAS:
Average annual return for each period was determined by finding the average
annual compounded rate of return over each period that would equate the initial
amount invested to the ending redeemable value for that period, according to the
following formula --
P(1+T)TO THE POWER OF n = ERV
Where: P = a hypothetical initial PURCHASE PAYMENT of $1,000
T = average annual total return for the period in question
n = number of years
ERV = ending redeemable value (as of the end of the period in question)
of a hypothetical $1,000 PURCHASE PAYMENT made at the beginning
of the 1-year, 5-year, or a 10-year period in questions (or
fractional portion thereof)
The formula assumes that: 1) all recurring fees have been charged to
CONTRACTOWNER accounts; (2) all applicable non-recurring charges are deducted at
the end of the period in question; and (3) there will be a complete redemption
at the end of the period in question.
(C) SUBACCOUNT PERFORMANCE ADJUSTED FOR CONTRACT EXPENSE CHARGES
The examples below show, for the various SUBACCOUNTS of the VAA, annual total
return as the stated periods, based upon a hypothetical initial PURCHASE PAYMENT
of $1,000, calculated according to the formula provided after the examples.
Although these figures are calculated as if the SUBACCOUNTS had commenced
activity at the same time as the underlying funds.
SUBACCOUNT PERFORMANCE (ADJUSTED FOR CONTRACT EXPENSE CHARGES)
Period ending December 31, 1998
<TABLE>
<CAPTION>
10-YEAR
PERIOD
1-YEAR PERIOD 5-YEAR PERIOD OR LIFETIME*
------------- ------------- -------------
<S> <C> <C> <C>
Alger American Growth Portfolio.................................... 45.99% 22.14% 20.32%
(as if commenced activity 06/06/97)
Alger American Leveraged AllCap Portfolio.......................... 55.58 N/A 37.41
(as if commenced activity 06/09/97)
Alger American MidCap Growth Portfolio............................. 28.47 17.33 21.63
(as if commenced activity 06/02/97)
Alger American Small Capitalization Portfolio...................... 13.90 11.53 18.19
(as if commenced activity 06/06/97)
Cigna Variable Products Money Market Fund.......................... 4.10 4.48 4.42
(as if commenced activity 05/20/97)
Fidelity VIP II Contrafund Portfolio............................... 28.14 N/A 26.88
(as if commenced activity 06/02/97)
Fidelity VIP II Investment Grade Bond Portfolio.................... 7.32 5.22 6.85
(as if commenced activity 06/09/97)
Fidelity VIP Equity-Income Portfolio............................... 10.06 17.11 14.02
(as if commenced activity 06/06/97
Fidelity VIP High Income Portfolio................................. (5.67) 7.22 9.47
(as if commenced activity 06/02/97)
Fidelity VIP Overseas Portfolio.................................... 11.18 8.17 8.55
(as if commenced activity 06/02/97)
Fidelity VIP III Growth Opportunities Portfolio.................... 22.85 N/A 24.53
(as if commenced activity 06/09/97)
MFS Variable Trust Emerging Growth Series.......................... 32.23 N/A 24.80
(as if commenced activity 06/02/97)
MFS Variable Trust Growth With Income Series....................... 20.60 N/A 24.24
(as if commenced activity 06/05/97)
MFS Variable Trust Research Series................................. 21.63 N/A 20.84
(as if commenced activity 06/09/97)
MFS Variable Trust Total Return Series............................. 10.76 N/A 17.08
(as if commenced activity 06/02/97)
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
10-YEAR
PERIOD
1-YEAR PERIOD 5-YEAR PERIOD OR LIFETIME*
------------- ------------- -------------
<S> <C> <C> <C>
MFS Variable Trust Utilities Series................................ 16.40% N/A 23.64%
(as if commenced activity 06/09/97)
Neuberger Berman AMT Limited Maturity Bond Portfolio............... 2.93 3.73% 5.31
(as if commenced activity 06/02/97)
Neuberger Berman AMT Partners Portfolio............................ 2.75 N/A 18.02
(as if commenced activity 05/22/97)
OCC Trust Global Equity Portfolio.................................. 11.70 N/A 14.36
(as if commenced activity 06/02/97)
OCC Trust Managed Portfolio........................................ 5.62 17.48 17.69
(as if commenced activity 05/22/97)
OCC Trust Small Cap Portfolio...................................... (10.31) 7.03 11.64
(as if commenced activity 06/13/97)
</TABLE>
* The lifetime of each SUBACCOUNT is less than the complete period indicated.
See the date the SUBACCOUNT commenced activity under its name.
The length of the periods and the last day of each period used in the above
table are set out in the table heading and in the footnotes above.
(D) OTHER NON-STANDARDIZED INVESTMENT RESULTS
The VAA may illustrate its results over various periods and compare its results
to indices and other variable annuities in sales materials including
advertisements, brochures and reports. Such results may be computed on a
cumulative and/or annualized basis.
Cumulative quotations are arrived at by calculating the change in ACCUMULATION
UNIT VALUE between the first and last day of the base period being measured, and
expressing the difference as a percentage of the unit value at the beginning of
the base period.
Annualized quotations are arrived at by applying a formula which determines the
level rate of return which, if earned over the entire base period, would produce
the cumulative return.
NON-STANDARDIZED INVESTMENT RESULTS
SUBACCOUNT OF ACCOUNT II*
$10,000 INVESTED IN
THIS FUND THROUGH CIGNA ACCRU CHOICEPLUS
THIS MANY YEARS AGO...** ...WOULD HAVE GROWN TO THIS AMOUNT ON DECEMBER 31,
1998
<TABLE>
<CAPTION>
ALGER
ALGER SMALL CAP ALGER LEVERAGED ALLCAP ALGER MIDCAP GROWTH GROWTH
---------------------------------- ----------------------- ----------------------- ----------
NUMBER COMPOUND COMPOUND COMPOUND
OF GROWTH GROWTH GROWTH
YEARS PERIODS AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT
- --------------------------------- --------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1................................ 12/31/97 $11,390.42 13.90% $15,558.49 55.58% $12,865.69 28.47% $14,598.62
2................................ 12/31/96 12,508.56 11.84% 18,361.60 35.50% 14,567.54 20.70% 18,092.17
3................................ 12/29/95 12,849.25 6.72% 20,286.23 26.59% 16,076.08 17.15% 20,221.58
4................................ 12/30/94 18,289.96 16.29% 34,918.73 36.70% 22,905.62 23.02% 27,197.09
5................................ 12/31/93 17,256.71 11.53% N/A N/A 22,235.68 17.33% 27,179.68
Lifetime of fund................. 51,214.94 16.79% 34,918.73 34.89% 30,321.84 20.65% 63,371.61
<CAPTION>
FIDELITY
FIDELITY VIP EQUITY FIDELITY VIP III FIDELITY VIP II VIP HIGH
INCOME GROWTH OPPORTUNITIES INVESTMENT GRADE BOND INCOME
---------------------------------- ----------------------- ----------------------- ----------
NUMBER COMPOUND COMPOUND COMPOUND
OF GROWTH GROWTH GROWTH
YEARS PERIODS AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT
- --------------------------------- --------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1................................ 12/31/97 $11,006.23 10.06% $12,285.06 22.85% $10,732.41 7.32% $ 9,432.63
2................................ 12/31/96 13,904.93 17.92% 15,741.28 25.46% 11,544.41 7.44% 10,944.31
3................................ 12/29/95 15,665.02 16.14% 18,360.42 22.45% 11,754.36 5.54% 12,293.27
4................................ 12/30/94 20,850.72 20.17% 24,020.91 24.49% 13,593.06 7.98% 14,605.14
5................................ 12/31/93 22,032.00 17.11% N/A N/A 12,898.92 5.22% 14,170.09
Lifetime......................... 43,796.68 12.57% 24,020.91 22.97% 19,388.63 6.63% 33,331.08
<CAPTION>
NUMBER COMPOUND
OF GROWTH
YEARS RATE
- --------------------------------- -----------
<S> <C>
1................................ 45.99%
2................................ 34.51%
3................................ 26.46%
4................................ 28.42%
5................................ 22.14%
Lifetime of fund................. 19.80%
NUMBER COMPOUND
OF GROWTH
YEARS RATE
- --------------------------------- -----------
<S> <C>
1................................ -5.67%
2................................ 4.62%
3................................ 7.12%
4................................ 9.93%
5................................ 7.22%
Lifetime......................... 9.31%
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
MFS
VARIABLE
TRUST
FIDELITY VIP II CIGNA VARIABLE PRODUCTS EMERGING
FIDELITY VIP OVERSEAS CONTRAFUND MONEY MARKET GROWTH
---------------------------------- ----------------------- ----------------------- ----------
NUMBER COMPOUND COMPOUND COMPOUND
OF GROWTH GROWTH GROWTH
YEARS PERIODS AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT
- --------------------------------- --------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1................................ 12/31/97 $11,118.00 11.18% $12,813.60 28.14% $10,374.95 3.75% $13,222.56
2................................ 12/31/96 12,226.64 10.57% 15,710.15 25.34% 10,758.64 3.72% 15,907.36
3................................ 12/29/95 13,643.57 10.91% 18,780.08 23.38% N/A N/A 18,361.80
4................................ 12/30/94 14,764.86 10.23% N/A N/A N/A N/A N/A
5................................ 12/31/93 14,810.10 8.17% N/A N/A N/A N/A N/A
Lifetime......................... 22,611.31 6.93% 25,879.00 25.15% 11,077.37 3.37% 21,431.62
<CAPTION>
MFS
VARIABLE
MFS VARIABLE TRUST MFS VARIABLE TRUST TRUST
GROWTH
WITH
MFS VARIABLE TRUST TOTAL RETURN UTILITIES RESEARCH INCOME
---------------------------------- ----------------------- ----------------------- ----------
NUMBER COMPOUND COMPOUND COMPOUND
OF GROWTH GROWTH GROWTH
YEARS PERIODS AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT
- --------------------------------- --------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1................................ 12/31/97 $11,075.94 10.76% $11,639.65 16.40% $12,162.73 21.63% $12,059.86
2................................ 12/31/96 13,248.20 15.10% 15,116.56 22.95% 14,435.36 20.15% 15,447.72
3................................ 12/29/95 14,945.10 14.33% 17,667.92 20.89% 17,420.02 20.32% 18,968.80
4................................ 12/30/94 18,771.25 17.05% 23,340.98 23.60% N/A N/A N/A
5................................ N/A N/A N/A N/A N/A N/A N/A N/A
Lifetime......................... 12/31/93 18,771.25 16.02% 23,340.98 22.14% 19,159.62 19.33% 20,159.61
<CAPTION>
NUMBER COMPOUND
OF GROWTH
YEARS RATE
- --------------------------------- -----------
<S> <C>
1................................ 32.33%
2................................ 26.12%
3................................ 22.45%
4................................ N/A
5................................ N/A
Lifetime......................... 22.98%
NUMBER COMPOUND
OF GROWTH
YEARS RATE
- --------------------------------- -----------
<S> <C>
1................................ 20.60%
2................................ 24.29%
3................................ 23.79%
4................................ N/A
5................................
Lifetime......................... 22.36%
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER BERMAN
NEUBERGER BERMAN AMT LIMITED MATURITY OCC OCC
AMT PARTNERS BOND TRUST SMALLCAP TRUST GLOBAL EQUITY
----------------------------------- ------------------------ ----------------------- ------------------------
NUMBER COMPOUND COMPOUND COMPOUND COMPOUND
OF GROWTH GROWTH GROWTH GROWTH
YEARS PERIODS AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
- ----------- --------- ---------- ------------ ---------- ------------ ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.......... 12/31/97 $10,275.17 2.75% $10,292.95 2.93% $ 8,969.27 -10.31% $11,170.37 11.70%
2.......... 12/31/96 13,284.51 15.26% 10,833.00 4.08% 10,812.57 3.98% 12,559.96 12.07%
3.......... 12/29/95 16,976.03 19.29% 11,141.24 3.67% 12,658.57 8.18% 14,244.98 12.52%
4.......... 12/30/94 22,850.89 22.95% 12,187.74 5.07% 14,382.75 9.51% N/A N/A
5.......... 12/31/93 N/A N/A 12,011.95 3.73% 14,044.63 7.03% N/A N/A
Lifetime 22,083.55 17.08% 24,344.45 6.30% 30,536.00 11.04% 16,737.16 13.45%
<CAPTION>
OCC
TRUST MANAGED
------------------------
NUMBER
OF
YEARS
- -----------
<S> <C> <C>
1.......... 10,556.92 5.62%
2.......... 12,722.52 12.79%
3.......... 15,405.42 15.49%
4.......... 22,116.51 21.95%
5.......... 22,379.65 17.48%
Lifetime 52,984.77 16.93%
</TABLE>
* Although the subaccounts for the contracts did not commence activity until
1997, these figures are calculated as if the subaccounts had commenced
activity at the same time as the corresponding underlying funds.
** For purposes of determining these investment results, CIGNA Accru
ChoicePlus' 1.40% annual asset charge and administrative fee for those
contracts have been taken into account. However, these examples do not
assume redemption at the end of the period.
B-6
<PAGE>
WITHDRAWAL CHARGE AND MARKET VALUE ADJUSTMENT EXAMPLES
The following example illustrates the detailed calculations for a $50,000
deposit into the fixed account with a guaranteed rate of 4.5% 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 (withdrawal) values. Any charges for
optional death benefit risks are not taken into account in the example. 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 "Surrender Charge Calculation" assumes there have been no
prior withdrawals and illustrates the operation of the Fifteen Percent Free
provision of the contract. The "Market Value Adjustment Tables" and "Minimum
Value Calculation" contain the explicit calculation of the index factors and the
3% minimum guarantee respectively. The "Annuity Value Calculation" and "Minimum
Value" calculations assume the imposition of the annual $35 account fee, but
that fee is waived if the annuity account value at the end of a CONTRACT YEAR is
$100,000 or more. The results would be slightly different for New York contracts
which have a minimum $30 annual account fee.
WITHDRAWAL CHARGE EXAMPLES
SAMPLE CALCULATIONS FOR MALE 35 ISSUE
CASH SURRENDER VALUES
<TABLE>
<S> <C>
Single Premium.............................................. $50,000
Premium Taxes............................................... None
Withdrawals................................................. None
Guaranteed Period........................................... 5 years
Guaranteed Interest Rate.................................... 4.50%
Annuity Date................................................ Age 70
Index Rate A................................................ 5.00%
Index Rate B................................................ 6.00% End of contract year 1
5.50% End of contract year 2
5.00% End of contract year 3
4.00% End of contract year 4
Percentage adjustment to B.................................. 0.50%
</TABLE>
SURRENDER VALUE CALCULATION
<TABLE>
<CAPTION>
(3) (5)
(1) (2) ADJUSTED (4) GREATER (6) (7)
ANNUITY INDEX RATE ANNUITY MINIMUM OF SURRENDER SURRENDER
CONTRACT YEAR VALUE FACTOR VALUE VALUE (3) & (4) CHARGE VALUE
- ----------------------------- --------- ---------- ------------ --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1............................ $ 52,215 0.944841 $ 49,335 $ 51,465 $ 51,465 $ 2,975 $ 48,490
2............................ $ 54,530 0.971964 $ 53,001 $ 52,974 $ 53,001 $ 2,975 $ 50,026
3............................ $ 56,949 0.990544 $ 56,410 $ 54,528 $ 56,410 $ 2,975 $ 53,435
4............................ $ 59,476 1.004785 $ 59,761 $ 56,129 $ 59,761 $ 2,550 $ 57,211
5............................ $ 62,118 NA $ 62,118 $ 57,778 $ 62,118 $ 2,550 $ 59,568
</TABLE>
ANNUITY VALUE CALCULATION
<TABLE>
<CAPTION>
CONTRACT YEAR
- ----------------------------------------
<S> <C>
1....................................... $50,000 X 1.045 - $35 = $52,215
2....................................... $52,215 X 1.045 - $35 = $54,530
3....................................... $54,530 X 1.045 - $35 = $56,949
4....................................... $56,949 X 1.045 - $35 = $59,476
5....................................... $59,476 X 1.045 - $35 = $62,118
</TABLE>
SURRENDER CHARGE CALCULATION
<TABLE>
<CAPTION>
SURRENDER
CONTRACT YEAR SC FACTOR CHG
- ---------------------------------------------------------------------------------------- --------- ------------
<S> <C> <C>
1....................................................................................... 0.0595 $2,975
2....................................................................................... 0.0595 $2,975
3....................................................................................... 0.0595 $2,975
4....................................................................................... 0.0510 $2,550
5....................................................................................... 0.0510 $2,550
</TABLE>
MARKET VALUE ADJUSTMENT EXAMPLES
B-7
<PAGE>
INTEREST RATE FACTOR CALCULATION
<TABLE>
<CAPTION>
ADJ. INDEX
CONTRACT YEAR INDEX A INDEX B B N RESULT
- ------------------------------------------------------------ --------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
1........................................................... 5.00% 6.00% 6.50% 4 0.944841
2........................................................... 5.00% 5.50% 6.00% 3 0.971964
3........................................................... 5.00% 5.00% 5.50% 2 0.990544
4........................................................... 5.00% 4.00% 4.50% 1 1.004785
5........................................................... 5.00% N/A N/A N/A N/A
</TABLE>
MINIMUM VALUE CALCULATION
<TABLE>
<CAPTION>
CONTRACT YEAR
- ----------------------------------------
<S> <C>
1....................................... $50,000 X 1.03 - $35 = $51,465
2....................................... $51,465 X 1.03 - $35 = $52,974
3....................................... $52,974 X 1.03 - $35 = $54,528
4....................................... $54,528 X 1.03 - $35 = $56,129
5....................................... $56,129 X 1.03 - $35 = $57,778
</TABLE>
B-8
<PAGE>
ANNUITY PAYOUTS
VARIABLE ANNUITY PAYOUTS
Variable ANNUITY PAYOUTS will be determined on the basis of: (1) the dollar
value of the contract on the ANNUITY COMMENCEMENT DATE; (2) the annuity tables
contained in the CONTRACT; (3) the type of ANNUITY OPTION selected; and (4) the
investment results of the fund(s) selected. In order to determine the amount of
variable ANNUITY PAYOUTS, CIGNA makes the following calculation: first, it
determines the dollar amount of the first payout; second, it credits the
contract with a fixed number of ANNUITY UNITS based on the amount of the first
payout; and third, it calculates the value of the ANNUITY UNITS each period
thereafter. These steps are explained below. The dollar amount of the first
periodic variable ANNUITY PAYOUT is determined by applying the total value of
the ACCUMULATION UNITS credited under the contract valued as of the ANNUITY
COMMENCEMENT date (less any premium taxes) to the annuity tables contained in
the contract. The first variable annuity payout will be made on the first day of
the month following the ANNUITY COMMENCEMENT date. Subsequent payouts will be
made on the first day of each month in accordance with the manner of the payout
selected. Amounts shown in the tables are based on the 1983 Table "a" Individual
Annuity Mortality Tables, modified, with an assumed investment return at the
rate of 3% per annum. The first ANNUITY PAYOUT is determined by multiplying the
benefit per $1,000 of value shown in the contract tables by the number of
thousands of dollars of value accumulated under the contract. These annuity
tables vary according to the form of annuity selected and the age of the
ANNUITANT at the ANNUITY COMMENCEMENT DATE. The 3% interest rate stated above is
the measuring point for subsequent ANNUITY PAYOUTS. If the actual net investment
rate (annualized) exceeds 3%, the payout will increase at a rate equal to the
amount of such excess. Conversely, if the actual rate is less than 3%, ANNUITY
PAYOUTS will decrease. If the assumed rate of interest were to be increased,
ANNUITY PAYOUTS would start at a higher level but would decrease more rapidly or
increase more slowly.
CIGNA may use sex distinct annuity tables in contracts that are not associated
with employer sponsored plans and where not prohibited by law. At an annuity
COMMENCEMENT DATE, the contract is credited with annuity units for each
SUBACCOUNT on which variable ANNUITY PAYOUTS are based. The number of ANNUITY
UNITS to be credited is determined by dividing the amount of the first periodic
payout by the value of an ANNUITY UNIT in each SUBACCOUNT selected. Although the
number of ANNUITY UNITS is fixed by this process, the value of such units will
vary with the value of the underlying fund.
The amount of the second and subsequent periodic payout is determined by
multiplying the CONTRACTOWNER'S fixed number of ANNUITY UNITS in each SUBACCOUNT
by the appropriate ANNUITY UNIT value for the valuation date ending the last
business day of the month prior to the date the payout is calculated.
The value of each SUBACCOUNT'S ANNUITY UNIT was established at $10.00. The
ANNUITY UNIT value for each SUBACCOUNT at the end of any VALUATION DATE is
determined by multiplying the SUBACCOUNT ANNUITY UNIT value for the immediately
preceding VALUATION DATE by the product of:
(a) The net investment factor of the SUBACCOUNT for the VALUATION PERIOD for
which the ANNUITY UNIT value is being determined, and
(b) A factor to neutralize the assumed investment return in the annuity table.
The value of the ANNUITY UNITS is determined as of a VALUATION DATE ending the
last business day of the month prior to the date the payout is calculated.
PROOF OF AGE, SEX AND SURVIVAL
CIGNA may require proof of age, sex, or survival of any payee upon whose age,
sex, or survival payments depend.
TAX ON DISTRIBUTIONS FROM QUALIFIED CONTRACTS
The following rules generally apply to distributions from contracts purchased in
connection with the plans discussed above, other than 457 plans and Roth IRAs.
The portion, if any, of any contribution under a contract made by or on behalf
of an individual which is not excluded from the employee's gross income
(generally, the employee's own non-deductible contributions) constitutes his
investment in the contract. If a distribution is made in the form of ANNUITY
PAYOUTS, the employee's investment in the contract (adjusted for certain refund
provisions) divided by his life expectancy (or other period for which ANNUITY
PAYOUTS are expected to be made) constitutes a return of capital each year. The
dollar amount of ANNUITY PAYOUTS received in any year in excess of such return
is taxable as ordinary income. However, all distributions will be fully taxable
once the employee is deemed to have recovered the dollar amount of his
investment in the contract. Notwithstanding the above, if the employee's annuity
starting date was on or before July 1, 1986 and if his investment in the
contract will be recovered within three years of his annuity starting date, no
amount is included in income until he has fully recovered such investment. Rules
generally provide that all distributions which are not received as an annuity
will be taxed as a pro rata distribution of taxable and non-taxable
B-9
<PAGE>
amounts (rather than as a distribution first of non-taxable amounts).
If a surrender of or withdrawal from the contract is effected and a distribution
is made in a single payment, the proceeds may qualify for special lump-sum
distribution treatment under certain qualified plans, as discussed above.
Otherwise, the amount by which the payment exceeds the investment in the
contract (adjusted for any prior withdrawals) allocated to that payment, if any,
will be taxed as ordinary income in the year of receipt. Distributions from
Section 401(a) plans, Section 403(b) plans, IRAs, SEPs and Keoghs will be
subject to a 10% penalty tax if made before age 59 1/2 unless certain other
exceptions apply. Failure to meet certain minimum distribution requirements for
the above plans, as well as for Section 457 plans, will result in a 50% excise
tax. Various other adverse tax consequences may also be potentially applicable
in certain circumstances to these types of plans.
Upon an ANNUITANT'S death, the taxation of benefits payable to his BENEFICIARY
generally follow these same principles, subject to a variety of special rules.
OTHER CONSIDERATIONS
It should be understood that the foregoing comments about the federal tax
consequences under these contracts are not exhaustive and that special rules are
provided with respect to other tax situations not discussed herein. Further, the
forgoing discussion does not address any applicable state, local, or foreign tax
laws. In recent years, numerous changes have been made in the federal income tax
treatment of contracts and retirement plans, which are not fully discussed
above. Before any investment is made in any of the above plans, a tax advisor
should be consulted.
ADVERTISING AND SALES LITERATURE
As set forth in the Prospectus, CIGNA may refer to the following organizations
(and others) in its marketing materials.
A.M. BEST'S RATING SYSTEM is designed to evaluate the various factors affecting
the overall performance of an insurance company in order to provide an opinion
as to an insurance company's relative financial strength and ability to meet its
contractual obligations. The procedure includes both a quantitative and
qualitative review of each company. A.M. Best also provides certain rankings, to
which CIGNA intends to refer.
DUFF & PHELPS insurance company claims paying ability (CPA) service provides
purchasers of insurance company policies and contracts with analytical and
statistical information on the solvency and liquidity of major U.S. licensed
companies, both mutual and stock.
EAFE INDEX is prepared by Morgan Stanley Capital International (MSCI). It
measures performance of securities in Europe, Australia and the Far East. The
index reflects the movements of world stock markets by representing the
evolution of an unmanaged portfolio. The EAFE Index offers international
diversification with over 1,000 companies across 20 different countries.
LIPPER VARIABLE INSURANCE PRODUCTS PERFORMANCE ANALYSIS SERVICE is a publisher
of statistical data covering the investment company industry in the United
States and overseas. Lipper is recognized as the leading source of data on
open-end and closed-end fund. Lipper currently tracks the performance of over
5,000 investment companies and publishes numerous specialized reports, including
reports on performance and portfolio analysis, fee and expense analysis.
MOODY'S insurance claims-paying rating is a system of rating insurance company's
financial strength, market leadership, and ability to meet financial
obligations. The purpose of Moody's ratings is to provide investors with a
simple system of gradation by which the relative quality of insurance companies
may be noted.
MORNINGSTAR is an independent financial publisher offering comprehensive
statistical and analytical coverage of open-end and closed-end funds and
variable annuities.
STANDARD & POOR'S insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with the terms. The likelihood of a timely flow
of funds from the insurer to the trustee for the bondholders is a key element in
the rating determination for such debt issues.
VARDS (VARIABLE ANNUITY RESEARCH DATA SERVICE) provides a comprehensive guide to
variable annuity contract features and historical fund performance. The service
also provides a readily understandable analysis of the comparative
characteristics and market performance of funds inclusive in variable contracts.
STANDARD & POOR'S INDEX -- broad-based measurement of changes in stock-market
conditions based on the average performance of 500 widely held common stocks;
commonly known as the Standard & Poor's (S&P 500). The selection of stocks,
their relative weightings to reflect differences in the number of outstanding
shares, and publication of the index itself are services of Standard & Poor's
Corporation, a financial advisory, securities rating, and publishing firm.
NASDAQ-QTC PRICE INDEX -- this index is based on the National Association of
Securities Dealers Automated Quotations (NASDAQ) and represents all domestic
over-the-counter stocks except those traded on exchanges and those having only
one market maker, a total of some 3,500 stocks. It is market value-weighted and
was introduced with a base of 100.00 on February 5, 1971.
B-10
<PAGE>
DOW JONES INDUSTRIAL AVERAGE (DJIA) -- price-weighted average of 30 actively
traded blue chip stocks, primarily industrials but including American Express
Company and American Telephone and Telegraph Company. Prepared and published by
Dow Jones & Company, it is the oldest and most widely quoted of all the market
indicators. The average is quoted in points, not dollars.
In its advertisements and other sales literature for the VAA and the SERIES
funds, CIGNA intends to illustrate the advantages of the contracts in a number
of ways:
COMPOUND INTEREST ILLUSTRATIONS. These will emphasize several advantages of the
variable annuity contract. For example, but not by way of illustration, the
literature may emphasize the potential advantage of the VARIABLE ANNUITY account
over the fixed account; and the compounding effect when a client makes regular
deposits to his or her contract.
INTERNET. An electronic communications network which may be used to provide
information regarding CIGNA, performance of the SUBACCOUNTS and advertisement
literature.
DOLLAR-COST AVERAGING. (DCA) -- You may systematically transfer on a monthly
basis amounts from certain SUBACCOUNTS or the fixed side of the contract. You
may elect to participate in the DCA program at the time of application or at
anytime before the ANNUITY COMMENCEMENT DATE by completing an election form
available from us or by telephone if we have your telephone authorization on
file. The minimum amount to be dollar cost averaged is $2,000. Once elected, the
program will remain in effect until the earlier of: (1) the ANNUITY COMMENCEMENT
DATE; (2) the value of the amount being DCA'd is depleted; or (3) you cancel the
program by written request or by telephone if we have your telephone
authorization on file. Currently, there is no charge for this service. However,
we reserve the right to impose one. A transfer under this program is not
considered a transfer for purposes of limiting the number of transfers that may
be made, or assessing any charges which may apply to transfers. We reserve the
right to discontinue this program at any time. DCA does not assure a profit or
protect against loss.
AUTOMATIC WITHDRAWAL SERVICE. (AWS) -- AWS provides an automatic, periodic
withdrawal of CONTRACT VALUE to you. You may elect to participate in AWS at the
time of application or at any time before the ANNUITY COMMENCEMENT DATE by
sending a written request to our home office. The minimum CONTRACT VALUE
required to establish AWS is $10,000. You may cancel or make changes to your AWS
program at any time by sending a written request to our home office. If
telephone authorization has been elected, certain changes may be by telephone.
Notwithstanding the requirements of the program, any withdrawal must be
permitted by Section 401(a)(9) of the code for qualified plans or permitted
under Section 72 for non-qualified contracts. To the extent that withdrawals
under AWS do not qualify for an exemption from the contingent deferred sales
charge, we will assess any applicable surrender charges on those withdrawals.
See Contingent deferred sales charge. Currently, there is no charge for this
service. However, we reserve the right to impose one. If a charge is imposed, it
will not exceed $25 per transaction or 2% of the amount withdrawn, whichever is
less. We reserve the right to discontinue this service at any time.
ACCOUNT REBALANCING. Account rebalancing is an option which, if elected by the
CONTRACTOWNER, restores to a pre-determined level the percentage of CONTRACT
value allocated to each variable account SUBACCOUNT (e.g., 20% Money Market, 50%
Growth, 30% Utilities). This pre-determined level will be the allocation
initially selected when the contract was purchased, unless subsequently changed.
The account rebalancing allocation may be changed at any time by submitting a
request to CIGNA.
If account rebalancing is elected, all PURCHASE PAYMENTS allocated to the
variable account SUBACCOUNTS must be subject to account rebalancing. The fixed
account SUBACCOUNT is not available for account rebalancing.
Account rebalancing may take place on either a monthly, quarterly, semi-annual
or annual basis, as selected by the CONTRACTOWNER. Once the account rebalancing
option is activated, any variable account SUBACCOUNT transfers executed outside
of the account rebalancing option will terminate the account rebalancing option.
Any subsequent PURCHASE PAYMENT or withdrawal that modifies the account balance
within each variable account SUBACCOUNT may also cause termination of the
account rebalancing option. Any such termination will be confirmed to the
CONTRACTOWNER. The CONTRACTOWNER may terminate the account rebalancing option or
re-enroll at any time by calling or writing CIGNA.
The account rebalancing program is not available following the ANNUITY
COMMENCEMENT DATE. Currently, there is no charge for this service. However, we
reserve the right to impose one.
CIGNA'S CUSTOMERS. More than 5 million individuals and 7,000 employers trust
CIGNA to help them plan for retirement. They're in good company with a good
company, a company known for financial strength and superior service.
CIGNA offers a variety of tax-qualified and non-tax-qualified, fixed and
variable, individual and group deferred annuities, and immediate annuities. All
in all, CIGNA can help you achieve your financial goals. For more information,
including charges and expenses; you can request a prospectus by calling the
number below. Please read the prospectus carefully before you invest or send
money.
B-11
<PAGE>
CIGNA'S ASSETS, SIZE. CIGNA may discuss its general financial condition (see,
for example, the reference to A.M. Best Company, above); it may refer to its
assets; it may also discuss its relative size and/or ranking among companies in
the industry or among any sub-classification of those companies, based upon
recognized evaluation criteria (see reference to A.M. Best Company above).
FINANCIAL STATEMENTS
Financial statements for the VAA and CIGNA appear on the following pages.
The consolidated financial statements of CIGNA which are included in this
Statement should be considered only as bearing on the ability of CIGNA to meet
the obligations under the contracts. They should not be considered as bearing on
the investment performance of the assets held in the VAA, or on the guaranteed
interest rate credited by CIGNA during a guaranteed period. The financial
statements of the VAA are also included.
B-12
<PAGE>
(This page has been left blank intentionally.)
CGVA-1
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITY
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALGER ALGER
ALGER AMERICAN AMERICAN
AMERICAN LEVERAGED MIDCAP
GROWTH ALLCAP GROWTH
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
ASSETS
Investments at
Market--Affiliated
(Cost $13,988,940) $ 13,988,940 $ -- $ -- $ --
Investments at
Market--Unaffiliated
(Cost $471,403,945) 542,184,614 55,968,693 16,026,730 20,899,268
- --------------------------- ------------ ----------- ----------- -----------
TOTAL ASSETS 556,173,554 55,968,693 16,026,730 20,899,268
- ---------------------------
Liability--Payable to
Connecticut General
Life Insurance Company 21,841 2,044 585 751
- --------------------------- ------------ ----------- ----------- -----------
NET ASSETS $556,151,713 $55,966,649 $16,026,145 $20,898,517
- --------------------------- ------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Percent of net assets 100.00% 10.06% 2.88% 3.76%
- --------------------------- ------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
NET ASSETS ARE REPRESENTED BY:
Flexible Payment Deferred
Annuity Contracts:
Units in accumulation
period 1,541,099 375,796 681,032
Annuity reserve units 1,916 -- --
Unit value $ 25.130 $ 28.265 $ 21.127
Value in accumulation
period 38,727,241 10,621,930 14,388,375
Annuity reserves 48,152 -- --
----------- ----------- -----------
38,775,393 10,621,930 14,388,375
----------- ----------- -----------
Flexible Payment Deferred
Annuity Contracts--New
York:
Units in accumulation
period 142,532 32,760 88,436
Unit value $ 19.287 $ 18.273 $ 14.616
----------- ----------- -----------
2,749,036 598,615 1,292,619
----------- ----------- -----------
Flexible Payment Deferred
Annuity
Contracts--Choice Plus:
Units in accumulation
period 885,770 281,095 365,099
Annuity reserve units -- -- --
Unit value $ 16.305 $ 17.096 $ 14.291
Value in accumulation
period 14,442,220 4,805,600 5,217,523
Annuity reserves -- -- --
----------- ----------- -----------
14,442,220 4,805,600 5,217,523
----------- ----------- -----------
NET ASSETS $55,966,649 $16,026,145 $20,898,517
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
CGVA-2
<PAGE>
<TABLE>
<CAPTION>
CIGNA
VARIABLE
ALGER PRODUCT FIDELITY FIDELITY FIDELITY
AMERICAN GROUP VIP VIP VIP FIDELITY
SMALL MONEY EQUITY- HIGH MONEY VIP
CAPITALIZATION MARKET INCOME INCOME MARKET OVERSEAS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at
Market--Affiliated
(Cost $13,988,940) $ -- $ 13,988,940 $ -- $ -- $ -- $ --
Investments at
Market--Unaffiliated
(Cost $471,403,945) 22,840,067 -- 70,683,146 27,547,926 12,396,122 11,044,565
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
TOTAL ASSETS 22,840,067 13,988,940 70,683,146 27,547,926 12,396,122 11,044,565
- ---------------------------
Liability--Payable to
Connecticut General
Life Insurance Company 820 1,774 2,586 1,025 498 412
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
NET ASSETS $22,839,247 $ 13,987,166 $ 70,680,560 $ 27,546,901 $ 12,395,624 $ 11,044,153
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
--------------- ------------- ------------- ------------- ------------- -------------
Percent of net assets 4.11% 2.51% 12.71% 4.95% 2.23% 1.99%
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
--------------- ------------- ------------- ------------- ------------- -------------
NET ASSETS ARE REPRESENTED BY:
Flexible Payment Deferred
Annuity Contracts:
Units in accumulation
period 937,102 -- 2,472,390 1,067,376 995,194 349,723
Annuity reserve units 3,263 -- 2,300 -- 4,724 --
Unit value $ 16.874 $ -- $ 19.057 $ 11.846 $ 11.549 $ 13.007
Value in accumulation
period 15,812,844 -- 47,115,281 12,643,900 11,494,035 4,548,778
Annuity reserves 55,066 -- 43,833 -- 54,557 --
--------------- ------------- ------------- ------------- ------------- -------------
15,867,910 -- 47,159,114 12,643,900 11,548,592 4,548,778
--------------- ------------- ------------- ------------- ------------- -------------
Flexible Payment Deferred
Annuity Contracts--New
York:
Units in accumulation
period 131,926 -- 215,285 52,761 76,615 26,480
Unit value $ 11.720 $ -- $ 15.087 $ 11.601 $ 11.056 $ 12.883
--------------- ------------- ------------- ------------- ------------- -------------
1,546,231 -- 3,247,950 612,084 847,032 341,149
--------------- ------------- ------------- ------------- ------------- -------------
Flexible Payment Deferred
Annuity
Contracts--Choice Plus:
Units in accumulation
period 417,564 1,318,393 1,631,001 1,375,652 -- 554,310
Annuity reserve units -- -- 6,352 -- -- --
Unit value $ 12.992 $ 10.609 $ 12.382 $ 10.388 $ -- $ 11.102
Value in accumulation
period 5,425,106 13,987,166 20,194,851 14,290,917 -- 6,154,226
Annuity reserves -- -- 78,645 -- -- --
--------------- ------------- ------------- ------------- ------------- -------------
5,425,106 13,987,166 20,273,496 14,290,917 -- 6,154,226
--------------- ------------- ------------- ------------- ------------- -------------
NET ASSETS $22,839,247 $ 13,987,166 $ 70,680,560 $ 27,546,901 $ 12,395,624 $ 11,044,153
--------------- ------------- ------------- ------------- ------------- -------------
--------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
FIDELITY
FIDELITY FIDELITY VIP II
VIP II VIP II INVESTMENT
ASSET CONTRA- GRADE
MANAGER FUND BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- ---------------------------
ASSETS
Investments at
Market--Affiliated
(Cost $13,988,940) $ -- $ -- $ --
Investments at
Market--Unaffiliated
(Cost $471,403,945) 7,080,478 7,959,228 18,713,588
- --------------------------- ------------ ------------ -------------
TOTAL ASSETS 7,080,478 7,959,228 18,713,588
- ---------------------------
Liability--Payable to
Connecticut General
Life Insurance Company 257 305 698
- --------------------------- ------------ ------------ -------------
NET ASSETS $ 7,080,221 $ 7,958,923 $ 18,712,890
- --------------------------- ------------ ------------ -------------
------------ ------------ -------------
Percent of net assets 1.27% 1.43% 3.36%
- --------------------------- ------------ ------------ -------------
------------ ------------ -------------
NET ASSETS ARE REPRESENTED
Flexible Payment Deferred
Annuity Contracts:
Units in accumulation
period 376,019 -- 865,985
Annuity reserve units -- -- --
Unit value $ 17.253 $ -- $ 12.414
Value in accumulation
period 6,487,334 -- 10,750,164
Annuity reserves -- -- --
------------ ------------ -------------
6,487,334 -- 10,750,164
------------ ------------ -------------
Flexible Payment Deferred
Annuity Contracts--New
York:
Units in accumulation
period 40,690 -- 26,749
Unit value $ 14.571 $ -- $ 12.153
------------ ------------ -------------
592,887 -- 325,083
------------ ------------ -------------
Flexible Payment Deferred
Annuity
Contracts--Choice Plus:
Units in accumulation
period -- 540,648 672,178
Annuity reserve units -- 161 --
Unit value $ -- $ 14.717 $ 11.363
Value in accumulation
period -- 7,956,549 7,637,643
Annuity reserves -- 2,374 --
------------ ------------ -------------
-- 7,958,923 7,637,643
------------ ------------ -------------
NET ASSETS $ 7,080,221 $ 7,958,923 $ 18,712,890
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
CGVA-3
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITY (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIDELITY
VIP III MFS MFS
GROWTH EMERGING GROWTH WITH MFS
OPPORTUNITIES GROWTH INCOME RESEARCH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
ASSETS
Investments at Market $ -- $ -- $ -- $ --
Investments at Market 15,386,688 9,622,450 12,062,289 12,105,624
- --------------------------- -------------- ----------- ------------ ------------
TOTAL ASSETS 15,386,688 9,622,450 12,062,289 12,105,624
- ---------------------------
Liability--Payable to
Connecticut General
Life Insurance Company 593 369 463 464
- --------------------------- -------------- ----------- ------------ ------------
NET ASSETS $15,386,095 $ 9,622,081 $ 12,061,826 $ 12,105,160
- --------------------------- -------------- ----------- ------------ ------------
-------------- ----------- ------------ ------------
Percent of net assets 2.77% 1.73% 2.17% 2.18%
- --------------------------- -------------- ----------- ------------ ------------
-------------- ----------- ------------ ------------
NET ASSETS ARE REPRESENTED BY:
Flexible Payment Deferred
Annuity Contracts:
Units in accumulation
period -- -- -- --
Annuity reserve units -- -- -- --
Unit value $ -- $ -- $ -- $ --
Value in accumulation
period -- -- -- --
Annuity reserves -- -- -- --
-------------- ----------- ------------ ------------
-- -- -- --
-------------- ----------- ------------ ------------
Flexible Payment Deferred
Annuity Contracts--New
York:
Units in accumulation
period -- -- -- --
Unit value $ -- $ -- $ -- $ --
-------------- ----------- ------------ ------------
-- -- -- --
-------------- ----------- ------------ ------------
Flexible Payment Deferred
Annuity
Contracts--Choice Plus:
Units in accumulation
period 1,100,560 642,153 873,415 924,862
Annuity reserve units -- 158 2,224 168
Unit value $ 13.980 $ 14.980 $ 13.775 $ 13.086
Value in accumulation
period 15,386,095 9,619,719 12,031,194 12,102,967
Annuity reserves -- 2,362 30,632 2,193
-------------- ----------- ------------ ------------
15,386,095 9,622,081 12,061,826 12,105,160
-------------- ----------- ------------ ------------
NET ASSETS $15,386,095 $ 9,622,081 $ 12,061,826 $ 12,105,160
-------------- ----------- ------------ ------------
-------------- ----------- ------------ ------------
</TABLE>
See accompanying notes.
CGVA-4
<PAGE>
<TABLE>
<CAPTION>
AMT OCC
MFS MFS LIMITED ACCUMULATION
TOTAL MFS WORLD AMT MATURITY AMT GLOBAL
RETURN UTILITIES GOVERNMENTS BALANCED BOND PARTNERS EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at
Market--Affiliated
(Cost $13,988,940) $ -- $ -- $ -- $ -- $ -- $ -- $ --
Investments at
Market--Unaffiliated
(Cost $471,403,945) 28,319,019 12,542,832 1,409,237 5,953,772 8,431,298 49,638,747 24,596,601
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
TOTAL ASSETS 28,319,019 12,542,832 1,409,237 5,953,772 8,431,298 49,638,747 24,596,601
- ---------------------------
Liability--Payable to
Connecticut General
Life Insurance Company 1,040 476 56 211 330 1,837 901
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
NET ASSETS $ 28,317,979 $ 12,542,356 $1,409,181 $ 5,953,561 $ 8,430,968 $ 49,636,910 $24,595,700
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
------------ ------------ ------------ ----------- ----------- ------------ -------------
Percent of net assets 5.09% 2.26% 0.25% 1.07% 1.52% 8.93% 4.42%
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
------------ ------------ ------------ ----------- ----------- ------------ -------------
NET ASSETS ARE REPRESENTED BY:
Flexible Payment Deferred
Annuity Contracts:
Units in accumulation
period 965,687 368,699 123,396 383,767 365,552 1,199,157 969,704
Annuity reserve units -- -- -- 2,662 -- 240 3,600
Unit value $ 16.487 $ 20.132 $ 10.966 $ 14.141 $ 11.786 $ 20.654 $ 16.796
Value in accumulation
period 15,921,360 7,422,716 1,353,216 5,426,944 4,308,298 24,767,529 16,287,577
Annuity reserves -- -- -- 37,644 -- 4,948 60,474
------------ ------------ ------------ ----------- ----------- ------------ -------------
15,921,360 7,422,716 1,353,216 5,464,588 4,308,298 24,772,477 16,348,051
------------ ------------ ------------ ----------- ----------- ------------ -------------
Flexible Payment Deferred
Annuity Contracts--New
York:
Units in accumulation
period 107,676 13,036 5,167 37,595 19,648 129,434 73,728
Unit value $ 14.594 $ 17.228 $ 10.831 $ 13.006 $ 11.244 $ 15.311 $ 13.546
------------ ------------ ------------ ----------- ----------- ------------ -------------
1,571,417 224,591 55,965 488,973 220,912 1,981,813 998,684
------------ ------------ ------------ ----------- ----------- ------------ -------------
Flexible Payment Deferred
Annuity
Contracts--Choice Plus:
Units in accumulation
period 879,083 349,663 -- -- 365,947 1,881,787 624,743
Annuity reserve units 836 -- -- -- -- 7,870 175
Unit value $ 12.302 $ 13.999 $ -- $ -- $ 10.662 $ 12.109 $ 11.600
Value in accumulation
period 10,814,915 4,895,049 -- -- 3,901,758 22,787,314 7,246,939
Annuity reserves 10,287 -- -- -- -- 95,306 2,026
------------ ------------ ------------ ----------- ----------- ------------ -------------
10,825,202 4,895,049 -- -- 3,901,758 22,882,620 7,248,965
------------ ------------ ------------ ----------- ----------- ------------ -------------
NET ASSETS $ 28,317,979 $ 12,542,356 $1,409,181 $ 5,953,561 $ 8,430,968 $ 49,636,910 $24,595,700
------------ ------------ ------------ ----------- ----------- ------------ -------------
------------ ------------ ------------ ----------- ----------- ------------ -------------
<CAPTION>
OCC OCC
ACCUMULATION ACCUMULATION
MANAGED SMALL CAP
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- ---------------------------
ASSETS
Investments at
Market--Affiliated
(Cost $13,988,940) $ -- $ --
Investments at
Market--Unaffiliated
(Cost $471,403,945) 80,974,423 9,981,823
- --------------------------- ------------- -------------
TOTAL ASSETS 80,974,423 9,981,823
- ---------------------------
Liability--Payable to
Connecticut General
Life Insurance Company 2,986 360
- --------------------------- ------------- -------------
NET ASSETS $80,971,437 $9,981,463
- --------------------------- ------------- -------------
------------- -------------
Percent of net assets 14.56% 1.79%
- --------------------------- ------------- -------------
------------- -------------
NET ASSETS ARE REPRESENTED
Flexible Payment Deferred
Annuity Contracts:
Units in accumulation
period 3,020,234 403,497
Annuity reserve units 2,387 3,290
Unit value $ 17.232 $ 13.778
Value in accumulation
period 52,043,659 5,559,369
Annuity reserves 41,130 45,335
------------- -------------
52,084,789 5,604,704
------------- -------------
Flexible Payment Deferred
Annuity Contracts--New
York:
Units in accumulation
period 289,946 43,771
Unit value $ 14.560 $ 11.425
------------- -------------
4,221,696 500,088
------------- -------------
Flexible Payment Deferred
Annuity
Contracts--Choice Plus:
Units in accumulation
period 2,077,415 404,367
Annuity reserve units 5,701 --
Unit value $ 11.840 $ 9.587
Value in accumulation
period 24,597,449 3,876,671
Annuity reserves 67,503 --
------------- -------------
24,664,952 3,876,671
------------- -------------
NET ASSETS $80,971,437 $9,981,463
------------- -------------
------------- -------------
</TABLE>
CGVA-5
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALGER ALGER
ALGER AMERICAN AMERICAN
AMERICAN LEVERAGED MIDCAP
GROWTH ALLCAP GROWTH
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Net Investment Income
(Loss):
Dividends from investment
income $ 6,244,133 $ 101,683 $ -- $ --
Dividends from net
realized gains on
investments 25,489,712 6,213,747 438,677 1,414,073
Mortality and expense
guarantees
Flexible Payment
Deferred Annuity
Contracts (3,846,387) (406,026) (106,061) (172,058)
Flexible Payment
Deferred Annuity
Contracts--New York (299,913) (31,704) (6,543) (15,660)
Flexible Payment
Deferred Annuity
Contracts--ChoicePlus (2,084,917) (111,387) (28,689) (41,967)
- --------------------------- ----------- ----------- ---------- ----------
NET INVESTMENT INCOME
(LOSS) 25,502,628 5,766,313 297,384 1,184,388
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 6,165,756 849,567 519,078 533,872
Net change in unrealized
appreciation or
depreciation on
investments 22,101,438 9,601,991 4,296,832 2,800,986
- --------------------------- ----------- ----------- ---------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 28,267,194 10,451,558 4,815,910 3,334,858
- --------------------------- ----------- ----------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS $53,769,822 $16,217,871 $5,113,294 $4,519,246
- --------------------------- ----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY MFS
VIP III MFS GROWTH
GROWTH EMERGING WITH MFS
OPPORTUNITIES GROWTH INCOME RESEARCH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Net Investment Income
(Loss):
Dividends from investment
income $ 49,718 $ -- $ -- $ 10,498
Dividends from net
realized gains on
investments 172,830 37,407 -- 137,662
Mortality and expense
guarantees
Flexible Payment
Deferred Annuity
Contracts -- -- -- --
Flexible Payment
Deferred Annuity
Contracts--New York -- -- -- --
Flexible Payment
Deferred Annuity
Contracts--ChoicePlus (130,089) (77,161) (99,779) (110,104)
- --------------------------- -------------- ------------ ------------ ------------
NET INVESTMENT INCOME
(LOSS) 92,459 (39,754) (99,779) 38,056
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 3,602 9,821 (4,720) (4,895)
Net change in unrealized
appreciation or
depreciation on
investments 2,008,851 1,644,644 1,362,439 1,402,150
- --------------------------- -------------- ------------ ------------ ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 2,012,453 1,654,465 1,357,719 1,397,255
- --------------------------- -------------- ------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS $2,104,912 $ 1,614,711 $ 1,257,940 $ 1,435,311
- --------------------------- -------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
</TABLE>
See accompanying notes.
CGVA-6
<PAGE>
<TABLE>
<CAPTION>
CIGNA
VARIABLE
ALGER PRODUCT FIDELITY FIDELITY FIDELITY FIDELITY
AMERICAN GROUP VIP VIP VIP FIDELITY VIP II
SMALL MONEY EQUITY- HIGH MONEY VIP ASSET
CAPITALIZATION MARKET INCOME INCOME MARKET OVERSEAS MANAGER
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net Investment Income
(Loss):
Dividends from investment
income $ -- $459,215 $ 761,351 $ 1,354,003 $613,202 $146,938 $201,996
Dividends from net
realized gains on
investments 2,612,457 -- 2,709,512 860,356 -- 433,080 605,990
Mortality and expense
guarantees
Flexible Payment
Deferred Annuity
Contracts (197,281) -- (605,577) (173,866) (143,869) (61,609) (79,884)
Flexible Payment
Deferred Annuity
Contracts--New York (20,120) -- (45,927) (9,341) (7,824) (4,606) (7,914)
Flexible Payment
Deferred Annuity
Contracts--ChoicePlus (50,619) (131,218) (190,017) (146,321) -- (58,700) --
- --------------------------- --------------- ----------- ----------- ------------ ----------- ----------- -----------
NET INVESTMENT INCOME
(LOSS) 2,344,437 327,997 2,629,342 1,884,831 461,509 455,103 720,188
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 317,421 (72) 834,499 (195,421) (1) 62,657 86,366
Net change in unrealized
appreciation or
depreciation on
investments 223,413 -- 2,151,089 (3,556,111) -- 304,272 51,248
- --------------------------- --------------- ----------- ----------- ------------ ----------- ----------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 540,834 (72) 2,985,588 (3,751,532) (1) 366,929 137,614
- --------------------------- --------------- ----------- ----------- ------------ ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS $2,885,271 $327,925 $ 5,614,930 $ (1,866,701) $461,508 $822,032 $857,802
- --------------------------- --------------- ----------- ----------- ------------ ----------- ----------- -----------
--------------- ----------- ----------- ------------ ----------- ----------- -----------
<CAPTION>
FIDELITY
FIDELITY VIP II
VIP II INVESTMENT
CONTRA- GRADE
FUND BOND
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- ---------------------------
Net Investment Income
(Loss):
Dividends from investment
income $ 14,387 $ 547,081
Dividends from net
realized gains on
investments 105,844 64,897
Mortality and expense
guarantees
Flexible Payment
Deferred Annuity
Contracts -- (127,118)
Flexible Payment
Deferred Annuity
Contracts--New York -- (4,315)
Flexible Payment
Deferred Annuity
Contracts--ChoicePlus (64,184) (71,542)
- --------------------------- ----------- -----------
NET INVESTMENT INCOME
(LOSS) 56,047 409,003
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments (654) 101,804
Net change in unrealized
appreciation or
depreciation on
investments 1,220,746 579,542
- --------------------------- ----------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 1,220,092 681,346
- --------------------------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS $ 1,276,139 $ 1,090,349
- --------------------------- ----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AMT OCC
MFS MFS LIMITED ACCUMULATION
TOTAL MFS WORLD AMT MATURITY AMT GLOBAL
RETURN UTILITIES GOVERNMENTS BALANCED BOND PARTNERS EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net Investment Income
(Loss):
Dividends from investment
income $ 313,828 $ 97,120 $16,404 $124,764 $435,821 $ 143,619 $ 270,408
Dividends from net
realized gains on
investments 368,998 441,566 -- 876,321 -- 4,523,996 931,011
Mortality and expense
guarantees
Flexible Payment
Deferred Annuity
Contracts (200,490) (83,217) (17,342) (66,503) (59,952) (331,816) (213,154)
Flexible Payment
Deferred Annuity
Contracts--New York (20,851) (3,032) (831) (6,334) (2,792) (27,975) (13,917)
Flexible Payment
Deferred Annuity
Contracts--ChoicePlus (93,067) (34,300) -- -- (36,775) (231,684) (68,905)
- --------------------------- ------------ ------------ ------------ ----------- ----------- ----------- -------------
NET INVESTMENT INCOME
(LOSS) 368,418 418,137 (1,769) 928,248 336,302 4,076,140 905,443
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 504,960 301,771 4,069 (18,816) (28,610) 378,711 446,613
Net change in unrealized
appreciation or
depreciation on
investments 1,561,968 710,907 86,671 (343,667) (98,320) (3,971,984) 921,900
- --------------------------- ------------ ------------ ------------ ----------- ----------- ----------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 2,066,928 1,012,678 90,740 (362,483) (126,930) (3,593,273) 1,368,513
- --------------------------- ------------ ------------ ------------ ----------- ----------- ----------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS $ 2,435,346 $ 1,430,815 $88,971 $565,765 $209,372 $ 482,867 $2,273,956
- --------------------------- ------------ ------------ ------------ ----------- ----------- ----------- -------------
------------ ------------ ------------ ----------- ----------- ----------- -------------
<CAPTION>
OCC OCC
ACCUMULATION ACCUMULATION
MANAGED SMALL CAP
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- ---------------------------
Net Investment Income
(Loss):
Dividends from investment
income $ 550,957 $ 31,140
Dividends from net
realized gains on
investments 2,201,262 340,026
Mortality and expense
guarantees
Flexible Payment
Deferred Annuity
Contracts (719,666) (80,898)
Flexible Payment
Deferred Annuity
Contracts--New York (62,636) (7,591)
Flexible Payment
Deferred Annuity
Contracts--ChoicePlus (267,144) (41,265)
- --------------------------- ------------- -------------
NET INVESTMENT INCOME
(LOSS) 1,702,773 241,412
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 1,388,482 75,652
Net change in unrealized
appreciation or
depreciation on
investments 538,181 (1,396,310)
- --------------------------- ------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 1,926,663 (1,320,658)
- --------------------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS $3,629,436 $(1,079,246)
- --------------------------- ------------- -------------
------------- -------------
</TABLE>
CGVA-7
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
ALGER ALGER
ALGER AMERICAN AMERICAN
AMERICAN LEVERAGED MIDCAP
GROWTH ALLCAP GROWTH
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
NET ASSETS AT JANUARY 1,
1997 $179,141,096 $18,174,849 $ 5,583,768 $ 9,575,698
- ---------------------------
Changes From Operations:
Net investment income
(loss) 6,720,186 (112,868) (94,488) 13,231
Net realized gain (loss)
on investments (88,155) 1,540 19,106 24,882
Net change in unrealized
appreciation or
depreciation on
investments 36,870,405 5,050,728 1,153,622 1,532,602
- --------------------------- ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 43,502,436 4,939,400 1,078,240 1,570,715
- ---------------------------
Change From Unit
Transactions:
Participant deposits 139,390,683 5,337,526 1,537,063 2,637,168
Participant transfers 21,585,744 3,181,343 280,882 2,087,535
Participant withdrawals
and annuity payments (12,024,127) (824,870) (226,287) (472,429)
- --------------------------- ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM UNIT TRANSACTIONS 148,952,300 7,693,999 1,591,658 4,252,274
- --------------------------- ------------ ----------- ----------- -----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 192,454,736 12,633,399 2,669,898 5,822,989
- --------------------------- ------------ ----------- ----------- -----------
NET ASSETS AT DECEMBER 31,
1997 371,595,832 30,808,248 8,253,666 15,398,687
- ---------------------------
Changes From Operations:
Net investment income
(loss) 25,502,628 5,766,313 297,384 1,184,388
Net realized gain (loss)
on investments 6,165,756 849,567 519,078 533,872
Net change in unrealized
appreciation or
depreciation on
investments 22,101,438 9,601,991 4,296,832 2,800,986
- --------------------------- ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 53,769,822 16,217,871 5,113,294 4,519,246
- ---------------------------
Change From Unit
Transactions:
Participant deposits 124,123,428 4,243,005 1,138,499 1,668,323
Participant transfers 45,038,567 7,119,047 2,133,774 1,075,188
Participant withdrawals
and annuity payments (38,375,936) (2,421,522) (613,088) (1,762,927)
- --------------------------- ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM UNIT TRANSACTIONS 130,786,059 8,940,530 2,659,185 980,584
- --------------------------- ------------ ----------- ----------- -----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 184,555,881 25,158,401 7,772,479 5,499,830
- --------------------------- ------------ ----------- ----------- -----------
NET ASSETS AT DECEMBER 31,
1998 $556,151,713 $55,966,649 $16,026,145 $20,898,517
- --------------------------- ------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
See accompanying notes.
CGVA-8
<PAGE>
<TABLE>
<CAPTION>
CIGNA
VARIABLE
ALGER PRODUCT FIDELITY FIDELITY FIDELITY
AMERICAN GROUP VIP VIP VIP FIDELITY
SMALL MONEY EQUITY- HIGH MONEY VIP
CAPITALIZATION MARKET INCOME INCOME MARKET OVERSEAS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT JANUARY 1,
1997 $14,394,067 $ -- $ 28,183,257 $ 4,883,390 $ 10,602,830 $ 1,894,609
- ---------------------------
Changes From Operations:
Net investment income
(loss) 369,419 68,333 2,492,080 309,422 574,867 140,611
Net realized gain (loss)
on investments (93,004) -- (10,861) (12,799) -- (3,004)
Net change in unrealized
appreciation or
depreciation on
investments 1,272,653 -- 6,563,776 1,259,396 -- 38,849
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 1,549,068 68,333 9,044,995 1,556,019 574,867 176,456
- ---------------------------
Change From Unit
Transactions:
Participant deposits 3,430,738 26,057,549 9,877,589 7,265,778 25,555,964 2,765,425
Participant transfers 1,351,675 (19,218,746) 7,616,249 4,195,306 (23,453,172) 2,324,012
Participant withdrawals
and annuity payments (593,283) (37,520) (1,991,191) (375,923) (1,704,916) (162,622)
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM UNIT TRANSACTIONS 4,189,130 6,801,283 15,502,647 11,085,161 397,876 4,926,815
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 5,738,198 6,869,616 24,547,642 12,641,180 972,743 5,103,271
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
NET ASSETS AT DECEMBER 31,
1997 20,132,265 6,869,616 52,730,899 17,524,570 11,575,573 6,997,880
- ---------------------------
Changes From Operations:
Net investment income
(loss) 2,344,437 327,997 2,629,342 1,884,831 461,509 455,103
Net realized gain (loss)
on investments 317,421 (72) 834,499 (195,421) (1) 62,657
Net change in unrealized
appreciation or
depreciation on
investments 223,413 -- 2,151,089 (3,556,111) -- 304,272
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 2,885,271 327,925 5,614,930 (1,866,701) 461,508 822,032
- ---------------------------
Change From Unit
Transactions:
Participant deposits 1,331,496 52,260,316 8,177,520 6,134,472 1,303,616 1,381,392
Participant transfers (7,454) (44,591,131) 9,051,378 6,934,124 8,306,607 2,160,315
Participant withdrawals
and annuity payments (1,502,331) (879,560) (4,894,167) (1,179,564) (9,251,680) (317,466)
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM UNIT TRANSACTIONS (178,289) 6,789,625 12,334,731 11,889,032 358,543 3,224,241
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 2,706,982 7,117,550 17,949,661 10,022,331 820,051 4,046,273
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
NET ASSETS AT DECEMBER 31,
1998 $22,839,247 $ 13,987,166 $ 70,680,560 $ 27,546,901 $ 12,395,624 $ 11,044,153
- --------------------------- --------------- ------------- ------------- ------------- ------------- -------------
--------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
FIDELITY
FIDELITY FIDELITY VIP II
VIP II VIP II INVESTMENT
ASSET CONTRA- GRADE
MANAGER FUND BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- ---------------------------
NET ASSETS AT JANUARY 1,
1997 $ 4,203,610 $ -- $ 5,840,585
- ---------------------------
Changes From Operations:
Net investment income
(loss) 510,252 (5,782) 256,473
Net realized gain (loss)
on investments 5,306 (17) 2,025
Net change in unrealized
appreciation or
depreciation on
investments 492,627 41,006 368,703
- --------------------------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 1,008,185 35,207 627,201
- ---------------------------
Change From Unit
Transactions:
Participant deposits 999,019 1,155,144 2,794,038
Participant transfers 810,077 547,974 2,142,175
Participant withdrawals
and annuity payments (355,632) (27,303) (316,736)
- --------------------------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM UNIT TRANSACTIONS 1,453,464 1,675,815 4,619,477
- --------------------------- ------------ ------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 2,461,649 1,711,022 5,246,678
- --------------------------- ------------ ------------ ------------
NET ASSETS AT DECEMBER 31,
1997 6,665,259 1,711,022 11,087,263
- ---------------------------
Changes From Operations:
Net investment income
(loss) 720,188 56,047 409,003
Net realized gain (loss)
on investments 86,366 (654) 101,804
Net change in unrealized
appreciation or
depreciation on
investments 51,248 1,220,746 579,542
- --------------------------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 857,802 1,276,139 1,090,349
- ---------------------------
Change From Unit
Transactions:
Participant deposits 86,128 2,246,083 3,491,583
Participant transfers 263,014 2,878,757 4,235,316
Participant withdrawals
and annuity payments (791,982) (153,078) (1,191,621)
- --------------------------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM UNIT TRANSACTIONS (442,840) 4,971,762 6,535,278
- --------------------------- ------------ ------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 414,962 6,247,901 7,625,627
- --------------------------- ------------ ------------ ------------
NET ASSETS AT DECEMBER 31,
1998 $ 7,080,221 $7,958,923 $ 18,712,890
- --------------------------- ------------ ------------ ------------
------------ ------------ ------------
</TABLE>
CGVA-9
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
FIDELITY MFS
VIP III MFS GROWTH
GROWTH EMERGING WITH MFS
OPPORTUNITIES GROWTH INCOME RESEARCH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
NET ASSETS AT JANUARY 1,
1997 $ -- $ -- $ -- $ --
- ---------------------------
Changes From Operations:
Net investment income
(loss) (12,362) (6,875) 52,057 (11,215)
Net realized gain (loss)
on investments 57 1,644 (98) 1,277
Net change in unrealized
appreciation or
depreciation on
investments 165,241 24,778 43,425 20,550
- --------------------------- ------------ ----------- ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 152,936 19,547 95,384 10,612
- ---------------------------
Change From Unit
Transactions:
Participant deposits 2,597,161 1,299,509 1,387,817 2,361,107
Participant transfers 1,101,690 849,791 1,287,747 1,353,004
Participant withdrawals
and annuity payments (20,299) (49,758) (6,492) (45,052)
- --------------------------- ------------ ----------- ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM UNIT TRANSACTIONS 3,678,552 2,099,542 2,669,072 3,669,059
- --------------------------- ------------ ----------- ------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 3,831,488 2,119,089 2,764,456 3,679,671
- --------------------------- ------------ ----------- ------------ ------------
NET ASSETS AT DECEMBER 31,
1997 3,831,488 2,119,089 2,764,456 3,679,671
- ---------------------------
Changes From Operations:
Net investment income
(loss) 92,459 (39,754) (99,779) 38,056
Net realized gain (loss)
on investments 3,602 9,821 (4,720) (4,895)
Net change in unrealized
appreciation or
depreciation on
investments 2,008,851 1,644,644 1,362,439 1,402,150
- --------------------------- ------------ ----------- ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 2,104,912 1,614,711 1,257,940 1,435,311
- ---------------------------
Change From Unit
Transactions:
Participant deposits 4,527,755 2,115,172 3,885,777 3,221,455
Participant transfers 5,295,213 3,869,151 4,402,535 3,922,529
Participant withdrawals
and annuity payments (373,273) (96,042) (248,882) (153,806)
- --------------------------- ------------ ----------- ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM UNIT TRANSACTIONS 9,449,695 5,888,281 8,039,430 6,990,178
- --------------------------- ------------ ----------- ------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 11,554,607 7,502,992 9,297,370 8,425,489
- --------------------------- ------------ ----------- ------------ ------------
NET ASSETS AT DECEMBER 31,
1998 $ 15,386,095 $ 9,622,081 $ 12,061,826 $ 12,105,160
- --------------------------- ------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
See accompanying notes.
CGVA-10
<PAGE>
<TABLE>
<CAPTION>
AMT OCC
MFS MFS LIMITED ACCUMULATION
TOTAL MFS WORLD AMT MATURITY AMT GLOBAL
RETURN UTILITIES GOVERNMENTS BALANCED BOND PARTNERS EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT JANUARY 1,
1997 $ 8,702,389 $ 2,791,807 $1,507,463 $ 3,365,177 $ 3,663,477 $ 9,696,541 $10,194,411
- ---------------------------
Changes From Operations:
Net investment income
(loss) (190,114) (57,968) 13,881 163,663 165,005 302,506 752,836
Net realized gain (loss)
on investments 3,460 2,162 (1,993) 8,894 1,260 (36,279) (3,225)
Net change in unrealized
appreciation or
depreciation on
investments 2,716,983 1,313,374 (47,665) 507,948 92,716 4,735,263 718,584
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 2,530,329 1,257,568 (35,777) 680,505 258,981 5,001,490 1,468,195
- ---------------------------
Change From Unit
Transactions:
Participant deposits 4,951,791 697,454 205,485 794,039 1,839,438 10,686,060 4,406,191
Participant transfers 3,826,468 1,697,348 (228,367) 772,497 1,058,558 9,775,496 3,352,013
Participant withdrawals
and annuity payments (589,750) (192,307) (35,414) (201,295) (183,646) (738,005) (555,871)
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM UNIT TRANSACTIONS 8,188,509 2,202,495 (58,296) 1,365,241 2,714,350 19,723,551 7,202,333
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 10,718,838 3,460,063 (94,073) 2,045,746 2,973,331 24,725,041 8,670,528
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
NET ASSETS AT DECEMBER 31,
1997 19,421,227 6,251,870 1,413,390 5,410,923 6,636,808 34,421,582 18,864,939
- ---------------------------
Changes From Operations:
Net investment income
(loss) 368,418 418,137 (1,769) 928,248 336,302 4,076,140 905,443
Net realized gain (loss)
on investments 504,960 301,771 4,069 (18,816) (28,610) 378,711 446,613
Net change in unrealized
appreciation or
depreciation on
investments 1,561,968 710,907 86,671 (343,667) (98,320) (3,971,984) 921,900
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 2,435,346 1,430,815 88,971 565,765 209,372 482,867 2,273,956
- ---------------------------
Change From Unit
Transactions:
Participant deposits 3,556,899 2,344,337 31,666 118,208 1,474,693 9,588,418 2,719,666
Participant transfers 3,828,482 3,114,436 (21,959) 368,929 713,698 8,048,014 1,994,951
Participant withdrawals
and annuity payments (923,975) (599,102) (102,887) (510,264) (603,603) (2,903,971) (1,257,812)
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM UNIT TRANSACTIONS 6,461,406 4,859,671 (93,180) (23,127) 1,584,788 14,732,461 3,456,805
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 8,896,752 6,290,486 (4,209) 542,638 1,794,160 15,215,328 5,730,761
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
NET ASSETS AT DECEMBER 31,
1998 $ 28,317,979 $ 12,542,356 $1,409,181 $ 5,953,561 $ 8,430,968 $ 49,636,910 $24,595,700
- --------------------------- ------------ ------------ ------------ ----------- ----------- ------------ -------------
------------ ------------ ------------ ----------- ----------- ------------ -------------
<CAPTION>
OCC OCC
ACCUMULATION ACCUMULATION
MANAGED SMALL CAP
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- ---------------------------
NET ASSETS AT JANUARY 1,
1997 $33,126,842 $2,756,326
- ---------------------------
Changes From Operations:
Net investment income
(loss) 942,380 84,842
Net realized gain (loss)
on investments 473 1,039
Net change in unrealized
appreciation or
depreciation on
investments 7,959,980 845,266
- --------------------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 8,902,833 931,147
- ---------------------------
Change From Unit
Transactions:
Participant deposits 16,196,357 2,555,273
Participant transfers 11,795,604 3,078,585
Participant withdrawals
and annuity payments (2,062,412) (255,114)
- --------------------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM UNIT TRANSACTIONS 25,929,549 5,378,744
- --------------------------- ------------- -------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 34,832,382 6,309,891
- --------------------------- ------------- -------------
NET ASSETS AT DECEMBER 31,
1997 67,959,224 9,066,217
- ---------------------------
Changes From Operations:
Net investment income
(loss) 1,702,773 241,412
Net realized gain (loss)
on investments 1,388,482 75,652
Net change in unrealized
appreciation or
depreciation on
investments 538,181 (1,396,310)
- --------------------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 3,629,436 (1,079,246)
- ---------------------------
Change From Unit
Transactions:
Participant deposits 5,807,000 1,269,949
Participant transfers 8,762,516 1,181,137
Participant withdrawals
and annuity payments (5,186,739) (456,594)
- --------------------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM UNIT TRANSACTIONS 9,382,777 1,994,492
- --------------------------- ------------- -------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 13,012,213 915,246
- --------------------------- ------------- -------------
NET ASSETS AT DECEMBER 31,
1998 $80,971,437 $9,981,463
- --------------------------- ------------- -------------
------------- -------------
</TABLE>
CGVA-11
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES & ACCOUNT INFORMATION
THE ACCOUNT:
CG Variable Annuity Separate Account II (the Variable Account) is a
segregated investment account of Connecticut General Life Insurance Company
(CG Life) and is registered as a unit investment trust with the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended. The operations of the Variable Account are part of the operations
of CG Life. The assets and liabilities of the Variable Account are clearly
identified and distinguished from other assets and liabilities of CG Life.
The assets of the Variable Account are owned by CG Life and are not
available to meet the general obligations of CG Life are held for the
exclusive benefit of the participants.
Effective January 1, 1998, CG Life contracted the administrative servicing
obligations to its individual variable annuity business to The Lincoln
National Life Insurance Company (Lincoln Life) and Lincoln Life & Annuity
Company of New York (LLANY). Although CG Life is responsible for all policy
terms and conditions, Lincoln Life and LLANY are responsible for servicing
the individual annuity contracts, including the payment of benefits,
oversight of investment management and contract administration.
BASIS OF PRESENTATION:
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for unit investment trusts.
INVESTMENTS:
The assets of the Variable Account are divided into variable sub-accounts
each of which is invested in shares of one of twenty five portfolios of
eight diversified open-end management investment companies, each portfolio
with its own investment objective. The variable sub-accounts are:
Alger American Fund:
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
CIGNA Variable Products Group:
CIGNA Variable Products Group Money Market
Fidelity Variable Insurance Products Fund:
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Fidelity VIP Money Market Portfolio
Fidelity VIP Overseas Portfolio
Fidelity Variable Insurance Products Fund II:
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contra-Fund Portfolio
Fidelity VIP II Investment Grade Bond Portfolio
Fidelity Variable Insurance Products Fund III:
Fidelity VIP III Growth Opportunities Portfolio
MFS Variable Insurance Trust:
MFS Emerging Growth Series
MFS Growth with Income Series
MFS Research Series
MFS Total Return Series
MFS Utilities Series
MFS World Governments Series
Neuberger & Berman Advisers Management Trust:
AMT Balanced Portfolio
AMT Limited Maturity Bond Portfolio
AMT Partners Portfolio
OCC Accumulation Trust:
OCC Accumulation Global Equity Portfolio
OCC Accumulation Managed Portfolio
OCC Accumulation Small Cap Portfolio
Investments in the variable sub-accounts are stated at the closing net asset
value per share on December 31, 1998, which approximates fair value. The
difference between cost and fair value is reflected as unrealized
appreciation and depreciation of investments.
Investment transactions are accounted for on a trade date basis. The cost of
investments sold is determined by the average cost method.
DIVIDENDS:
Dividends paid to the Variable Account are automatically reinvested in
shares of the variable sub-accounts on the payable date. Dividend income is
recorded on the ex-dividend date.
FEDERAL INCOME TAXES:
Operations of the Variable Account form a part of and are taxed with
operations of CG Life, which is taxed as a "life insurance company" under
the Internal Revenue Code. The Variable Account will not be taxed as a
regulated investment company under Subchapter M of the Internal Revenue
Code.
CGVA-12
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES & ACCOUNT INFORMATION (CONTINUED)
Using current federal income tax law, no federal income taxes are payable
with respect to the Variable Account's net investment income and the net
realized gain on investments.
ANNUITY RESERVES:
The amount of annuity reserves is determined by the actuarial assumptions
which meet statutory requirements. Gains or losses resulting from the
actuarial mortality experience, the responsibility of which is assumed by CG
Life, are offset by transfers to or from CG Life.
2. MORTALITY AND EXPENSE GUARANTEES & OTHER TRANSACTIONS WITH AFFILIATES
CG Life assumes the risk that annuitants 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. For all
contracts sold after April 30, 1997, 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. All contracts sold before May 1, 1997, with the exception of
contracts sold in the state of New York from May 1, 1996 to April 30, 1997
(1.25% annual fee), have an annual fee of 1.20% for mortality and expense
risks.
CG Life also deducts a daily administrative fee from 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. For all contracts sold after April 30, 1997, this charge is at an
effective rate of .15%. All contracts sold before May 1, 1997, with the
exception of contracts sold in the state of New York from May 1, 1996 to
April 30, 1997 (.15% annual fee), have an effective rate of .10%.
As partial compensation for administrative services provided, CG Life
additionally receives a $35 ($30 on New York contracts) 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 Lincoln Life
and are not included in the financial statements. The annuity account fee
will be waived for any contract year in which the annuity account value
equals or exceeds $100,000 as of the last valuation date of the contract
year. Annuity account fees for the variable sub-accounts of $125,442 were
deducted for the year ended December 31, 1998.
For contracts sold prior to May 1, 1997 (excluding contracts sold in the
state of New York where the optional death benefit was not available), the
participants could have, for an additional charge, selected an optional
death benefit (optional death benefit fee). The optional death benefit fee
will be deducted from the participant's fixed or variable sub-account or on
a pro-rata basis from two or more fixed or variable sub-accounts in relation
to their values under the contract on the date of each contract anniversary.
The optional death benefit fees for the variable sub-accounts were $8,233
for the year ended December 31, 1998.
Under certain circumstances, CG Life reserves the right to charge a transfer
fee of up to $10 for transfers between sub-accounts. No transfer fees were
deducted for the year ended December 31, 1998.
No deduction for sales charges is made from the 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 cost 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, 1998 were $646,022.
CGVA-13
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. NET ASSETS
The following is a summary of net assets owned at December
31, 1998.
<TABLE>
<CAPTION>
ALGER ALGER ALGER
ALGER AMERICAN AMERICAN AMERICAN
AMERICAN LEVERAGED MIDCAP SMALL
GROWTH ALLCAP GROWTH CAPITALIZATION
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Accumulation units $445,734,139 $33,599,392 $ 9,624,564 $14,490,166 $18,521,671
Accumulated net investment
income 33,663,166 5,744,546 181,987 1,212,143 2,614,169
Accumulated net realized
gain (loss) on
investments 5,973,739 842,409 516,341 553,557 193,115
- ---------------------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS 70,780,669 15,780,302 5,703,253 4,642,651 1,510,292
- --------------------------- ------------ ----------- ----------- ----------- ---------------
$556,151,713 $55,966,649 $16,026,145 $20,898,517 $22,839,247
------------ ----------- ----------- ----------- ---------------
------------ ----------- ----------- ----------- ---------------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY
VIP III MFS MFS MFS
GROWTH EMERGING GROWTH WITH MFS TOTAL
OPPORTUNITIES GROWTH INCOME RESEARCH RETURN
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Accumulation units $13,128,247 $ 7,987,823 $ 10,708,502 $ 10,659,237 $ 22,663,503
Accumulated net investment
income 80,097 (46,629) (47,722) 26,841 361,860
Accumulated net realized
gain (loss) on
investments 3,659 11,465 (4,818) (3,618) 511,389
- ---------------------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS 2,174,092 1,669,422 1,405,864 1,422,700 4,781,227
- --------------------------- -------------- ----------- ------------ ------------ ------------
$15,386,095 $ 9,622,081 $ 12,061,826 $ 12,105,160 $ 28,317,979
-------------- ----------- ------------ ------------ ------------
-------------- ----------- ------------ ------------ ------------
</TABLE>
CGVA-14
<PAGE>
<TABLE>
<CAPTION>
CIGNA
VARIABLE FIDELITY
PRODUCT VIP FIDELITY FIDELITY FIDELITY FIDELITY
GROUP EQUITY- VIP VIP VIP VIP II
MONEY MARKET INCOME HIGH INCOME MONEY MARKET OVERSEAS ASSET MANAGER
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Accumulation units $13,590,908 $ 53,537,215 $ 27,680,201 $10,780,984 $ 9,986,645 $4,851,683
Accumulated net investment
income 396,330 5,273,695 2,174,954 1,614,641 590,407 1,248,426
Accumulated net realized
gain (loss) on
investments (72) 826,319 (208,461) (1) 59,821 91,130
- ---------------------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS -- 11,043,331 (2,099,793) -- 407,280 888,982
- --------------------------- ------------- ------------ ------------ ------------- ------------ --------------
$13,987,166 $ 70,680,560 $ 27,546,901 $12,395,624 $ 11,044,153 $7,080,221
------------- ------------ ------------ ------------- ------------ --------------
------------- ------------ ------------ ------------- ------------ --------------
<CAPTION>
FIDELITY
FIDELITY VIP II
VIP II INVESTMENT
CONTRA-FUND GRADE BOND
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- ---------------------------
Accumulation units $6,647,577 $ 16,833,463
Accumulated net investment
income 50,265 707,991
Accumulated net realized
gain (loss) on
investments (671) 64,444
- ---------------------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS 1,261,752 1,106,992
- --------------------------- ------------ ------------
$7,958,923 $ 18,712,890
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
MFS AMT OCC
MFS WORLD AMT LIMITED AMT ACCUMULATION
UTILITIES GOVERNMENTS BALANCED MATURITY BOND PARTNERS GLOBAL EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Accumulation units $ 9,509,690 $1,297,843 $ 4,577,415 $7,845,933 $ 42,810,505 $20,058,993
Accumulated net investment
income 596,984 30,634 1,248,409 580,060 4,397,477 1,704,940
Accumulated net realized
gain (loss) on
investments 303,624 2,179 (9,021) (27,213) 340,365 441,290
- ---------------------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS 2,132,058 78,525 136,758 32,188 2,088,563 2,390,477
- --------------------------- ------------ ------------ ----------- -------------- ------------- -------------
$ 12,542,356 $1,409,181 $ 5,953,561 $8,430,968 $ 49,636,910 $24,595,700
------------ ------------ ----------- -------------- ------------- -------------
------------ ------------ ----------- -------------- ------------- -------------
<CAPTION>
OCC OCC
ACCUMULATION ACCUMULATION
MANAGED SMALLCAP
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- ---------------------------
Accumulation units $64,481,839 $9,860,140
Accumulated net investment
income 2,580,633 340,028
Accumulated net realized
gain (loss) on
investments 1,390,030 76,477
- ---------------------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS 12,518,935 (295,182)
- --------------------------- ------------- -------------
$80,971,437 $9,981,463
------------- -------------
------------- -------------
</TABLE>
CGVA-15
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and the
aggregate proceeds from investments sold were as follows for
1998.
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
COST OF PROCEEDS
PURCHASES FROM SALES
----------------------------
<S> <C> <C>
Alger American Growth Portfolio $ 19,041,150 $ 4,332,263
---------------------------------------------------------------------
Alger American Leveraged AllCap Portfolio 5,425,301 2,468,146
---------------------------------------------------------------------
Alger American MidCap Growth Portfolio 5,823,255 3,657,532
---------------------------------------------------------------------
Alger American Small Capitalization Portfolio 7,301,952 5,134,985
---------------------------------------------------------------------
CIGNA Variable Products Group Money Market 34,795,532 27,676,136
---------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 22,281,006 7,314,348
---------------------------------------------------------------------
Fidelity VIP High Income Portfolio 16,563,907 2,789,019
---------------------------------------------------------------------
Fidelity VIP Money Market Portfolio 23,249,073 22,428,523
---------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 5,874,677 2,194,921
---------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 1,299,126 1,021,521
---------------------------------------------------------------------
Fidelity VIP II Contra-Fund Portfolio 5,237,568 209,456
---------------------------------------------------------------------
Fidelity VIP II Investment Grade Bond Portfolio 9,717,341 2,772,363
---------------------------------------------------------------------
Fidelity VIP III Growth Opportunities Portfolio 9,850,085 307,338
---------------------------------------------------------------------
MFS Emerging Growth Series 6,218,392 369,496
---------------------------------------------------------------------
MFS Growth with Income Series 8,232,161 292,047
---------------------------------------------------------------------
MFS Research Series 7,431,827 403,129
---------------------------------------------------------------------
MFS Total Return Series 9,956,245 3,125,381
---------------------------------------------------------------------
MFS Utilities Series 6,966,777 1,688,493
---------------------------------------------------------------------
MFS World Governments Series 176,686 271,579
---------------------------------------------------------------------
AMT Balanced Portfolio 1,710,146 804,814
---------------------------------------------------------------------
AMT Limited Maturity Bond Portfolio 4,780,643 2,859,223
---------------------------------------------------------------------
AMT Partner Portfolio 27,804,044 8,993,606
---------------------------------------------------------------------
OCC Accumulation Global Equity Portfolio 7,570,243 3,210,659
---------------------------------------------------------------------
OCC Accumulation Managed Portfolio 20,900,683 9,812,146
---------------------------------------------------------------------
OCC Accumulation Small Cap Portfolio 4,794,518 2,554,688
---------------------------------------------------------------------
------------- -------------
$ 273,002,338 $ 116,691,812
------------- -------------
------------- -------------
</TABLE>
CGVA-16
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS
The following is a summary of investments owned at December
31, 1998.
<TABLE>
<CAPTION>
SHARES NET ASSET VALUE OF COST OF
OUTSTANDING VALUE SHARES SHARES
---------------------------------------------------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 1,051,648 $ 53.22 $ 55,968,693 $ 40,188,391
--------------------------------------------
Alger American Leveraged AllCap Portfolio 459,219 34.90 16,026,730 10,323,477
--------------------------------------------
Alger American MidCap Growth Portfolio 723,910 28.87 20,899,268 16,256,617
--------------------------------------------
Alger American Small Capitalization Portfolio 519,447 43.97 22,840,067 21,329,775
--------------------------------------------
CIGNA Variable Products Group Money Market 13,988,940 1.00 13,988,940 13,988,940
--------------------------------------------
Fidelity VIP Equity-Income Portfolio 2,780,612 25.42 70,683,146 59,639,815
--------------------------------------------
Fidelity VIP High Income Portfolio 2,389,239 11.53 27,547,926 29,647,719
--------------------------------------------
Fidelity VIP Money Market Portfolio 12,396,122 1.00 12,396,122 12,396,122
--------------------------------------------
Fidelity VIP Overseas Portfolio 550,851 20.05 11,044,565 10,637,285
--------------------------------------------
Fidelity VIP II Asset Manager Portfolio 389,894 18.16 7,080,478 6,191,496
--------------------------------------------
Fidelity VIP II Contra-Fund Portfolio 325,664 24.44 7,959,228 6,697,476
--------------------------------------------
Fidelity VIP II Investment Grade Bond
Portfolio 1,443,950 12.96 18,713,588 17,606,596
--------------------------------------------
Fidelity VIP III Growth Opportunities
Portfolio 672,495 22.88 15,386,688 13,212,596
--------------------------------------------
MFS Emerging Growth Series 448,181 21.47 9,622,450 7,953,028
--------------------------------------------
MFS Growth with Income Series 599,815 20.11 12,062,289 10,656,425
--------------------------------------------
MFS Research Series 635,466 19.05 12,105,624 10,682,924
--------------------------------------------
MFS Total Return Series 1,562,860 18.12 28,319,019 23,537,792
--------------------------------------------
MFS Utilities Series 632,837 19.82 12,542,832 10,410,774
--------------------------------------------
MFS World Governments Series 129,525 10.88 1,409,237 1,330,712
--------------------------------------------
AMT Balanced Portfolio 364,368 16.34 5,953,772 5,817,014
--------------------------------------------
AMT Limited Maturity Bond Portfolio 610,079 13.82 8,431,298 8,399,110
--------------------------------------------
AMT Partner Portfolio 2,622,226 18.93 49,638,747 47,550,184
--------------------------------------------
OCC Accumulation Global Equity Portfolio 1,594,077 15.43 24,596,601 22,206,124
--------------------------------------------
OCC Accumulation Managed Portfolio 1,851,267 43.74 80,974,423 68,455,488
--------------------------------------------
OCC Accumulation Small Cap Portfolio 432,114 23.10 9,981,823 10,277,005
-------------------------------------------- ------------- -------------
$ 556,173,554 $ 485,392,885
------------- -------------
------------- -------------
</TABLE>
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 of 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 mutual fund managers, that the mutual
funds satisfy the requirements of the regulations.
CGVA-17
<PAGE>
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. NEW VARIABLE SUB-ACCOUNTS
The following variable sub-accounts became available as an
investment option for the Variable Account contract owners
during 1997:
CIGNA Variable Products Group Money Market (effective May
20, 1997)
Fidelity VIP II Contra-Fund Portfolio (effective June 2,
1997)
Fidelity VIP III Growth Opportunities Portfolio (effective
June 9, 1997)
MFS Emerging Growth Series (effective June 2, 1997)
MFS Research Series (effective June 9, 1997)
MFS Growth and Income Series (effective June 5, 1997)
CGVA-18
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors of
The Lincoln National Life Insurance Company
and
Contract Owners of CG Variable Annuity Separate Account II
We have audited the accompanying statement of assets and
liability of CG Variable Annuity Separate Account II ("Variable
Account") (comprised of the Alger American Growth, Alger
American Leveraged AllCap, Alger American MidCap Growth, Alger
American Small Capitalization, CIGNA Variable Product Group
Money Market, Fidelity VIP Equity-Income, Fidelity VIP High
Income, Fidelity VIP Money Market, Fidelity VIP Overseas,
Fidelity VIP II Asset Manager, Fidelity VIP II Contrafund,
Fidelity VIP II Investment Grade Bond, Fidelity VIP III Growth
Opportunities, MFS Emerging Growth, MFS Growth with Income, MFS
Research, MFS Total Return, MFS Utilities, MFS World
Governments, AMT Balanced, AMT Limited Maturity Bond, AMT
Partners, OCC Accumulation Global Equity, OCC Accumulation
Managed, OCC Accumulation Small Cap subaccounts) as of December
31, 1998, and the related statements of operations and changes
in net assets for the year then ended. These financial
statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial
statements of CG Variable Annuity Separate Account II for the
year ended December 31, 1997, were audited by other auditors
whose report dated February 20, 1998, expressed an unqualified
opinion on those financial statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards 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. Our
procedures included confirmation of investments owned as of
December 31, 1998, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of each of the respective subaccounts constituting the CG
Variable Annuity Separate Account II at December 31, 1998, the
results of their operations and the
changes in their net assets for the year then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
April 2, 1999
CGVA-19
<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 II
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, Alger American Fund - Alger American Growth Portfolio, Alger American
Leveraged AllCap Portfolio, Alger American MidCap Growth Portfolio, Alger
American Small Capitalization Portfolio; CIGNA Variable Products Group - CIGNA
Variable Products Money Market Fund; Fidelity Variable Insurance Products Fund -
Equity-Income Portfolio, High Income Portfolio, Money Market Portfolio, Overseas
Portfolio; Fidelity Variable Insurance Products Fund II - Asset Manager
Portfolio, Contrafund Portfolio, Investment Grade Bond Portfolio; Fidelity
Variable Insurance Products Fund III - Growth Opportunities Portfolio; MFS
Variable Insurance Trust - MFS Emerging Growth Series, MFS Growth with Income
Series, MFS Research Series, MFS Total Return Series, MFS Utilities Series, MFS
World Governments Series; Neuberger & Berman Advisers Management Trust - AMT
Balanced Portfolio, AMT Limited Maturity Bond Portfolio, AMT Partners Portfolio;
OCC Accumulation Trust - OCC Global Equity Portfolio, OCC Managed Portfolio, OCC
Small Cap Portfolio (constituting the CG Variable Annuity Separate Account II,
hereafter referred to as "the Account") at December 31, 1997, the results of
each of their operations and the changes in each of their net assets for 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, 1997 by correspondence with the custodians, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Hartford, Connecticut
February 20, 1998
CGVA-20
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICEWATERHOUSECOOPERS [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To 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, comprehensive income and changes in
shareholder's equity 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, 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.
/s/ PRICEWATERHOUSECOOPERS LLP
February 9, 1999
G-1
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS)
- -----------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees................................................... $ 5,683 $ 5,376 $ 5,314
Net investment income............................................... 2,637 3,139 3,199
Realized investment gains........................................... 93 45 37
Other revenues...................................................... 427 10 9
--------- --------- ---------
Total revenues.................................................. 8,840 8,570 8,559
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses............................ 5,802 5,917 6,069
Policy acquisition expenses......................................... 44 122 143
Other operating expenses............................................ 1,763 1,618 1,477
--------- --------- ---------
Total benefits, losses and expenses............................. 7,609 7,657 7,689
--------- --------- ---------
INCOME BEFORE INCOME TAXES.......................................... 1,231 913 870
--------- --------- ---------
Income taxes (benefits):
Current........................................................... 636 347 394
Deferred.......................................................... (211) (49) (81)
--------- --------- ---------
Total taxes..................................................... 425 298 313
--------- --------- ---------
NET INCOME.......................................................... $ 806 $ 615 $ 557
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
G-2
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $16,820; $20,962)...... $ 18,067 $ 22,323
Mortgage loans.......................................................... 8,875 10,090
Equity securities, at fair value (cost, $62; $75)....................... 47 54
Policy loans............................................................ 6,091 7,146
Real estate............................................................. 712 749
Other long-term investments............................................. 159 166
Short-term investments.................................................. 85 173
--------- ---------
Total investments................................................... 34,036 40,701
Cash and cash equivalents................................................. 1,026 923
Accrued investment income................................................. 494 602
Premiums and accounts receivable.......................................... 939 811
Reinsurance recoverables.................................................. 7,278 1,271
Deferred policy acquisition costs......................................... 187 834
Property and equipment.................................................... 365 291
Deferred income taxes..................................................... 865 653
Goodwill and other intangibles............................................ 730 474
Other assets.............................................................. 236 276
Separate account assets................................................... 34,648 29,217
- ------------------------------------------------------------------------------------------------
Total assets........................................................ $ 80,804 $ 76,053
- ------------------------------------------------------------------------------------------------
--------------------
LIABILITIES
Contractholder deposit funds.............................................. $ 30,614 $ 30,449
Future policy benefits.................................................... 8,286 8,224
Unpaid claims and claim expenses.......................................... 1,286 1,225
Unearned premiums......................................................... 162 260
--------- ---------
Total contractholder and insurance liabilities...................... 40,348 40,158
Accounts payable, accrued expenses and other liabilities.................. 2,523 2,428
Current income taxes...................................................... 65 --
Separate account liabilities.............................................. 34,340 29,021
- ------------------------------------------------------------------------------------------------
Total liabilities................................................... 77,276 71,607
- ------------------------------------------------------------------------------------------------
CONTINGENCIES -- NOTE 13
SHAREHOLDER'S EQUITY
Common stock (6 shares issued and outstanding)............................ 30 30
Additional paid-in capital................................................ 1,072 766
Net unrealized appreciation, fixed maturities............................. 243 282
Net unrealized (depreciation), equity securities.......................... (25) (26)
Net translation of foreign currencies..................................... 2 2
Accumulated other comprehensive income.................................... 220 258
Retained earnings......................................................... 2,206 3,392
- ------------------------------------------------------------------------------------------------
Total shareholder's equity.......................................... 3,528 4,446
- -------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity.......................... $ 80,804 $ 76,053
- ------------------------------------------------------------------------------------------------
--------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
G-3
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
AND CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(IN MILLIONS)
- ---------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
Compre- Share- Compre- Share- Compre- Share-
hensive holder's hensive holder's hensive holder's
Income Equity Income Equity Income Equity
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK........................... $ 30 $ 30 $ 30
ADDITIONAL PAID-IN CAPITAL............. 1,072 766 766
ACCUMULATED OTHER COMPREHENSIVE INCOME
-- BEGINNING OF YEAR................. 258 191 478
Net unrealized appreciation
(depreciation) -- fixed maturities $ (39) (39) $ 69 69 $ (276) (276)
Net unrealized appreciation
(depreciation) -- equity
securities........................... 1 1 (1) (1) (12) (12)
--- --- -----
Net unrealized appreciation
(depreciation) on securities......... (38) 68 (288)
Net translation of foreign
currencies........................... -- -- (1) (1) 1 1
--- --- -----
Other comprehensive (loss) income.... (38) 67 (287)
----------- ----------- -----------
ACCUMULATED OTHER COMPREHENSIVE INCOME
-- END OF YEAR....................... 220 258 191
----------- ----------- -----------
RETAINED EARNINGS -- BEGINNING OF
YEAR................................ 3,392 3,177 3,220
Net income........................... 806 806 615 615 557 557
Dividends declared................... (1,992) (400) (600)
----------- ----------- -----------
RETAINED EARNINGS -- END OF YEAR..... 2,206 3,392 3,177
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME AND
SHAREHOLDER'S EQUITY................. $ 768 $ 3,528 $ 682 $ 4,446 $ 270 $ 4,164
- ---------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
G-4
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN MILLIONS)
- ---------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................ $ 806 $ 615 $ 557
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Insurance liabilities........................................... 67 78 57
Reinsurance recoverables........................................ (7) 68 (11)
Premiums and accounts receivable................................ (179) 106 77
Deferred income taxes, net...................................... (211) (49) (82)
Other assets.................................................... (339) (54) 43
Deferred policy acquisition costs............................... (12) (97) (92)
Accounts payable, accrued expenses, other liabilities and
current income taxes........................................... 149 41 (113)
Depreciation and goodwill amortization.......................... 113 88 94
Gain on sale of business........................................ (418) -- --
Other, net...................................................... (50) (99) (151)
--------- --------- ---------
Net cash (used in) provided by operating activities........... (81) 697 379
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities................................................ 2,869 1,583 1,589
Mortgage loans.................................................. 1,052 807 640
Equity securities............................................... 15 14 13
Real estate..................................................... 98 401 345
Policy loans.................................................... 382 -- --
Other (primarily short-term investments)........................ 6,724 6,447 3,613
Investment maturities and repayments:
Fixed maturities................................................ 2,797 2,394 2,634
Mortgage loans.................................................. 421 601 630
Investments purchased:
Fixed maturities................................................ (3,881) (4,339) (3,834)
Mortgage loans.................................................. (1,611) (1,426) (1,300)
Equity securities............................................... (7) (9) (3)
Policy loans.................................................... -- (13) (207)
Other (primarily short-term investments)........................ (7,652) (6,296) (3,930)
Net cash from disposition of business......................... 1,295 -- --
Other, net...................................................... (274) (102) (94)
--------- --------- ---------
Net cash provided by investing activities....................... 2,228 62 96
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder deposit funds:
Deposits and interest credited.................................. 7,050 7,634 7,260
Withdrawals and benefit payments................................ (7,106) (7,023) (7,135)
Dividends paid to parent.......................................... (1,992) (400) (600)
Other, net........................................................ 4 (47) --
--------- --------- ---------
Net cash (used in) provided by financing activities........... (2,044) 164 (475)
- ---------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents......................... 103 923 --
Cash and cash equivalents, beginning of year...................... 923 -- --
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year............................ $ 1,026 $ 923 $ --
- ---------------------------------------------------------------------------------------------------
-------------------------------
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds............................... $ 520 $ 402 $ 385
Interest paid................................................... $ 3 $ 5 $ 7
- ---------------------------------------------------------------------------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
G-5
<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
health and life insurance and retirement and investment products and services.
The Company is a wholly-owned subsidiary of Connecticut General Corporation,
which is an indirect wholly-owned subsidiary of CIGNA Corporation (CIGNA).
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. 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 contractholder and insurance
liabilities, related reinsurance recoverables, and valuation allowances for
investment assets are discussed throughout the Notes to Financial Statements.
Certain reclassifications have been made to prior years' amounts to conform with
the 1998 presentation.
B) RECENT ACCOUNTING PRONOUNCEMENTS: The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," as of December 31, 1998. SFAS No. 131
changes the way segments are structured and requires additional segment
disclosures. Prior period information has been restated based on the new
requirements. See Note 11 for additional information.
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that derivatives be reported on the balance sheet at fair value.
Changes in fair value are recognized in net income or, for derivatives which are
hedging market risk related to future cash flows, in the accumulated other
comprehensive income section of shareholders' equity. Implementation is required
by the first quarter of 2000, with the cumulative effect of adoption reflected
in net income and accumulated other comprehensive income, as appropriate. The
Company has not determined the effect or timing of implementation of this
pronouncement.
The American Institute of Certified Public Accountants (AICPA) issued
Statement of Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises
for Insurance-Related Assessments," in 1997. SOP 97-3 provides guidance on the
recognition and measurement of liabilities for guaranty fund and other
insurance-related assessments. Implementation of this pronouncement, which is
required by the first quarter of 1999 with the cumulative effect of adopting the
SOP reflected in net income, is not expected to have a material effect on
results of operations, liquidity or financial condition.
In 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 specifies the types
of costs that must be capitalized and amortized over the software's expected
useful life and the types of costs which must be immediately recognized as
expense. Implementation of this pronouncement is required by the first quarter
of 1999 and is not expected to have a material effect on results of operations,
liquidity or financial condition.
In 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk." SOP
98-7 provides guidance on the deposit method of accounting for insurance and
reinsurance contracts that do not transfer insurance risk, except for
long-duration life and health contracts. Implementation is required by the first
quarter of 2000, with the cumulative effect of adopting the SOP reflected in net
income in the year of adoption. The Company has not determined the effect or
timing of implementation of this pronouncement.
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-
G-6
<PAGE>
balance sheet financial instruments such as investment and loan commitments and
financial guarantees. These instruments are subject to risk of loss due to
interest rate and market fluctuations and most have credit risk. 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.
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 value, except for
mortgage loans and contractholder deposit funds (non-insurance products). For
these financial instruments, the fair value was not materially different from
the carrying amount as of December 31, 1998 and 1997. Fair values of off-balance
sheet financial instruments as of December 31, 1998 and 1997 were not material.
Fair values 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.
D) INVESTMENTS: Investments in fixed maturities, which are classified as
available-for-sale and carried at fair value, include bonds; asset-backed
securities, including collateralized mortgage obligations (CMOs); and redeemable
preferred stocks. 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 not collect all amounts according to the contractual terms
of the loan agreement. If impaired, a valuation reserve is utilized to record
any change in the fair value of the underlying collateral below the carrying
value of the mortgage loan.
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. Net investment
income on such investments 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 any write-downs to fair value. Depreciation is
generally calculated using the straight-line method based on the estimated
useful lives of these assets.
Real estate investments held for sale are generally those which are acquired
through the foreclosure of mortgage loans. The Company's policy is to
rehabilitate, re-lease and sell foreclosed properties, which generally takes two
to four years or less if circumstances indicate that an immediate sale is in the
best interests of the Company or policyholders. At the time of foreclosure,
properties are valued at fair value less estimated costs to sell and
reclassified from mortgage loans to real estate held for sale. Subsequent to
foreclosure, these investments are carried at the lower of cost or current fair
value less estimated costs to sell and are no longer depreciated. Adjustments to
the carrying value as a result of changes in fair value subsequent to
foreclosure are recorded as valuation reserves. The Company considers several
methods in determining fair value for real estate, with emphasis placed on the
use of discounted cash flow analyses and, in some cases, the use of third-party
appraisals.
Equity securities and short-term investments are classified as
available-for-sale. 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.
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. Realized investment gains and
losses do not include amounts attributable to experience-rated pension
policyholders' contracts and participating life policies (policyholder share).
Realized investment gains and losses are based upon specific identification of
the investment assets.
G-7
<PAGE>
Unrealized investment gains and losses for investments carried at fair value
are included in shareholder's equity net of policyholder-related amounts and
deferred income taxes.
See Note 4(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
estimated to be uncollectible. See Notes 3 and 9.
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. Acquisition costs for universal life
products and contractholder deposit funds are deferred and amortized in
proportion to the present value of total estimated gross profits over the
expected lives of the contracts. Acquisition costs for annuity and other
individual life insurance products are deferred and amortized, generally in
proportion to the ratio of annual revenue to the estimated total revenues over
the contract periods.
Deferred policy 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 unless such costs are estimated
to be unrecoverable as a result of treating unrealized investment gains and
losses as though they had been realized. If so, 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 $490 million
and $448 million at December 31, 1998 and 1997, respectively.
I) GOODWILL AND OTHER INTANGIBLES: Goodwill represents the excess of the cost
of businesses acquired over the fair value of their net assets. Other intangible
assets primarily represent purchased customer lists and provider contracts.
Goodwill and other intangibles are amortized over periods not exceeding 40
years. Goodwill and other intangibles are written down when not recoverable
based on analysis of historical and estimated future income or undiscounted
estimated cash flows of the related businesses. Amortization periods are revised
if it is estimated that the remaining period of benefit of the goodwill has
changed. Accumulated amortization was $143 million and $113 million at December
31, 1998 and 1997, respectively.
J) OTHER ASSETS: Other assets consists of various insurance-related assets,
principally ceded unearned premiums, reinsurance deposits and other amounts due
from affiliated companies.
K) SEPARATE ACCOUNTS: Separate account assets and liabilities are principally
carried at market value 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 revenues and expenses.
L) CONTRACTHOLDER DEPOSIT FUNDS: Liabilities for contractholder deposit funds
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 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 from 1 to 20 years. Mortality, morbidity,
and withdrawal assumptions are based on either the Company's own experience or
various actuarial tables.
G-8
<PAGE>
N) UNPAID CLAIMS AND CLAIM EXPENSES: Liabilities for unpaid claims and claim
expenses are estimates of payments to be made on reported and incurred but not
reported insurance claims.
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 consist principally of postretirement
and postemployment benefits and various insurance-related liabilities, including
amounts related to reinsurance contracts and 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. Benefits, losses and settlement expenses are
recognized when incurred.
Revenues for investment-related products consist of net investment income and
contract fees assessed against the fund balances during the period. Net
investment income represents investment income on assets supporting
investment-related products and is recognized as earned. Contract fees are based
upon related administrative expenses and are assessed ratably over the contract
year. Benefit expenses for investment-related products primarily consist of
amounts credited in accordance with contract provisions.
Premiums for individual life 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 settlement 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 balances
during the period. Net investment income represents investment income on assets
supporting universal life products and is recognized as earned. Fees for
mortality are recognized ratably over the policy year. Administration fees are
recognized as services are provided, and surrender charges are recognized as
earned. Benefit expenses for universal life products consist of benefit claims
in excess of fund balances, which are recognized when claims are filed, and
amounts credited in accordance with contract provisions.
S) PARTICIPATING BUSINESS: Certain life insurance policies contain dividend
payment provisions that enable the policyholder to participate in a portion of
the earnings of the Company's business. The participating insurance in force
accounted for approximately 7% of total life insurance in force at December 31,
1998, 1997 and 1996.
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 7 for additional information.
NOTE 3 -- DISPOSITION
As of January 1, 1998, the Company sold its individual life insurance and
annuity business for cash proceeds of $1.4 billion. The sale resulted in an
after-tax gain of $773 million of which $202 million was recognized upon closing
of the sale. Since the principal agreement to sell this business is in the form
of an indemnity reinsurance arrangement, the remaining $571 million of the gain
was deferred and is being recognized at the rate that earnings from the business
sold would have been expected to emerge, primarily over fifteen years on a
declining basis. The Company recognized $66 million of the deferred gain in
1998.
G-9
<PAGE>
Revenues for this business were $972 million and $926 million for the years
ended December 31, 1997 and 1996, respectively, and net income was $102 million
and $67 million for the same periods. Also, as part of the transaction, the
Company recorded a reinsurance recoverable from the purchaser of $5.8 billion
for insurance liabilities retained, and transferred invested assets of $5.4
billion along with other assets and liabilities associated with the business.
The sales agreement provides for the possibility of certain adjustments;
however, any future adjustments are not expected to be material to results of
operations, liquidity or financial condition.
The Company paid a dividend of $1.4 billion to its parent in January 1998,
having received prior approval of both the disposition and the dividend from the
Connecticut Insurance Department (the Department).
NOTE 4 -- INVESTMENTS
A) FIXED MATURITIES: Fixed maturities are net of cumulative write-downs of
$22 million and $36 million, including policyholder share, as of December 31,
1998 and 1997, respectively.
The amortized cost and fair value by contractual maturity periods for fixed
maturities, including policyholder share, as of December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Amortized Fair
(IN MILLIONS) Cost Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less.................................................. $ 979 $ 999
Due after one year through five years.................................... 3,960 4,110
Due after five years through ten years................................... 3,512 3,723
Due after ten years...................................................... 2,665 3,348
Asset-backed securities.................................................. 5,704 5,887
- -------------------------------------------------------------------------------------------------
Total.................................................................... $ 16,820 $ 18,067
- -------------------------------------------------------------------------------------------------
----------------------
</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>
- -----------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1998:
Federal government bonds....................... $ 568 $ 407 $ -- $ 975
State and local government bonds............... 145 20 -- 165
Foreign government bonds....................... 147 7 (9) 145
Corporate securities........................... 10,256 733 (94) 10,895
Asset-backed securities........................ 5,704 217 (34) 5,887
- -----------------------------------------------------------------------------------------------------
Total............................................ $ 16,820 $ 1,384 $ (137 ) $ 18,067
- -----------------------------------------------------------------------------------------------------
--------------------------------------------------
</TABLE>
G-10
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1997:
Federal government bonds....................... $ 1,361 $ 294 $ -- $ 1,655
State and local government bonds............... 178 22 (2) 198
Foreign government bonds....................... 143 7 (1) 149
Corporate securities........................... 13,027 860 (123) 13,764
Asset-backed securities........................ 6,253 317 (13) 6,557
- -----------------------------------------------------------------------------------------------------
Total............................................ $ 20,962 $ 1,500 $ (139 ) $ 22,323
- -----------------------------------------------------------------------------------------------------
--------------------------------------------------
</TABLE>
Asset-backed securities include investments in CMOs as of December 31, 1998 of
$2.0 billion carried at fair value (amortized cost, $2.0 billion), compared with
$2.3 billion carried at fair value (amortized cost, $2.3 billion) as of December
31, 1997. Certain of these securities are backed by Aaa/AAA-rated government
agencies. All other CMO securities have high quality ratings through use of
credit enhancements provided by subordinated securities or mortgage insurance
from Aaa/AAA-rated insurance companies. 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 subject to interest rate risk due to accelerated
prepayments, represented approximately .05% and .10% of total CMO investments at
December 31, 1998 and 1997, respectively.
At December 31, 1998, contractual fixed maturity investment commitments were
$34 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 approximately 59% will be disbursed in 1999.
B) 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 are less than 75% 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>
- ------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans............................................................ $ 8,875 $ 10,090
--------- ---------
Real estate:
Held for sale........................................................... 326 339
Held for production of income........................................... 386 410
--------- ---------
Total real estate......................................................... 712 749
- ------------------------------------------------------------------------------------------------
Total..................................................................... $ 9,587 $ 10,839
- ------------------------------------------------------------------------------------------------
--------------------
</TABLE>
G-11
<PAGE>
At December 31, mortgage loans and real estate investments comprised the
following property types and geographic regions:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Property type:
Retail facilities....................................................... $ 3,145 $ 4,153
Office buildings........................................................ 3,814 3,984
Apartment buildings..................................................... 1,283 1,311
Hotels.................................................................. 450 498
Other (primarily industrial)............................................ 895 893
- ------------------------------------------------------------------------------------------------
Total..................................................................... $ 9,587 $ 10,839
- ------------------------------------------------------------------------------------------------
--------------------
Geographic region:
Central................................................................. $ 3,051 $ 3,484
Pacific................................................................. 2,683 2,962
Middle Atlantic......................................................... 1,510 1,821
South Atlantic.......................................................... 1,348 1,458
New England............................................................. 995 1,114
- ------------------------------------------------------------------------------------------------
Total..................................................................... $ 9,587 $ 10,839
- ------------------------------------------------------------------------------------------------
--------------------
</TABLE>
MORTGAGE LOANS
At December 31, 1998, scheduled mortgage loan maturities were as follows: 1999
- -- $.9 billion; 2000 -- $.9 billion; 2001 -- $.8 billion; 2002 -- $1.0 billion;
2003 -- $1.6 billion; and $3.7 billion thereafter. Actual maturities could
differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties; the maturity date may
be extended; and loans may be refinanced. During 1998 and 1997, the Company
refinanced at current market rates approximately $126 million and $135 million,
respectively, of its mortgage loans relating to borrowers that were unable to
obtain alternative financing.
At December 31, 1998, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $492 million, most
of which were at a fixed market rate of interest. These commitments are
generally expected to be disbursed within three months, and are diversified by
property type and geographic region.
At December 31, 1998, the Company's impaired mortgage loans were $156 million,
including $24 million before valuation reserves totaling $6 million, and $132
million which had no valuation reserves. At December 31, 1997, the Company's
impaired mortgage loans were $375 million, including $152 million before
valuation reserves totaling $44 million, and $223 million which had no valuation
reserves.
During the year ended December 31, changes in reserves for impaired mortgage
loans, including policyholder share, were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Reserve balance -- January 1................................................... $ 44 $ 94
Transfers to foreclosed real estate............................................ (21) (30)
Charge-offs upon sales......................................................... (9) (47)
Net increase (decrease) in valuation reserves.................................. (8) 27
- -----------------------------------------------------------------------------------------------------
Reserve balance -- December 31................................................. $ 6 $ 44
- -----------------------------------------------------------------------------------------------------
--------------------
</TABLE>
During 1998 and 1997, impaired mortgage loans, before valuation reserves,
averaged approximately $285 million and $597 million, respectively. Interest
income recorded and cash received on these loans were approximately $12 million
and $34 million in 1998 and 1997, respectively.
G-12
<PAGE>
REAL ESTATE
During 1998, 1997 and 1996, non-cash investing activities included real estate
acquired through foreclosure of mortgage loans, which totaled $32 million, $81
million and $107 million, respectively.
Valuation reserves and cumulative write-downs related to real estate,
including policyholder share, were $171 million and $169 million as of December
31, 1998 and 1997, respectively.
Net income for 1998 and 1997 included net investment income of $8 million and
$9 million, respectively, for real estate held for sale. Write-downs upon
foreclosure and changes in valuation reserves were not material for 1998 and
1997.
C) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and
cash equivalents, in the aggregate, primarily included debt securities,
principally corporate securities of $963 million at December 31, 1998 and, for
1997, principally corporate securities of $520 million and federal government
securities of $443 million.
D) NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS: Unrealized
appreciation (depreciation) for investments carried at fair value as of December
31 was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation:
Fixed maturities.......................................................... $ 1,384 $ 1,500
Equity securities......................................................... 10 8
--------- ---------
1,394 1,508
--------- ---------
Unrealized depreciation:
Fixed maturities.......................................................... (137) (139)
Equity securities......................................................... (25) (29)
--------- ---------
(162) (168)
--------- ---------
Less policyholder-related amounts........................................... 880 931
--------- ---------
Shareholder net unrealized appreciation..................................... 352 409
Less deferred income taxes.................................................. 134 153
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation................................................. $ 218 $ 256
- --------------------------------------------------------------------------------------------------
--------------------
</TABLE>
The components of net unrealized appreciation (depreciation) on investments
for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized appreciation (depreciation) on investments held, net of
taxes of $48, $37 and $(151), respectively........................... $ 89 $ 69 $ (280)
Less gains realized in net income, net of taxes of $68, $-- , and $3,
in 1998, 1997 and 1996, respectively................................. 127 1 8
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)............................. $ (38) $ 68 $ (288)
- --------------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
E) NON-INCOME PRODUCING INVESTMENTS: At December 31, the carrying values of
investments, including policyholder share, that were non-income producing during
the preceding 12 months were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities............................................................... $ 22 $ 28
Mortgage loans................................................................. 2 --
Real estate.................................................................... 68 141
- -----------------------------------------------------------------------------------------------------
Total.......................................................................... $ 92 $ 169
- -----------------------------------------------------------------------------------------------------
--------------------
</TABLE>
G-13
<PAGE>
F) DERIVATIVE FINANCIAL INSTRUMENTS: The Company's investment strategy is to
manage the characteristics of investment assets, such as duration, yield,
currency and liquidity, 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's use of derivative instruments, including interest rate and currency
swaps, purchased options and futures contracts, is generally limited to hedging
applications to minimize market risk.
Hedge accounting treatment requires a probability of high correlation between
the changes in the market value or cash flows of the derivatives and the hedged
assets or liabilities. Under hedge accounting, the changes in market value or
cash flows of the derivatives and the hedged assets or liabilities are
recognized in net income in the same period. If the Company's use of derivatives
does not qualify for hedge accounting treatment, the derivative is recorded at
fair value and changes in its fair value are recognized in net income without
considering changes in the hedged asset or liability.
The Company routinely monitors, by individual counterparty, exposure to credit
risk associated with swap and option contracts and diversifies the portfolio
among approved dealers of high credit quality. 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 and by monitoring legal developments.
Underlying contract, notional or principal amounts associated with derivatives
at December 31 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate swaps.......................................................... $ 158 $ 265
Currency swaps............................................................... 193 248
Purchased options............................................................ 878 833
Written options.............................................................. 1,087 --
Futures...................................................................... 233 75
- ---------------------------------------------------------------------------------------------------
</TABLE>
Under interest rate swaps, the Company agrees with other parties to
periodically exchange the difference between variable rate and fixed rate asset
cash flows to provide stable returns for related liabilities. The Company uses
currency swaps (primarily Canadian dollars, Swiss francs, German marks, Japanese
yen and pounds sterling) to match the currency of investments to that of the
associated liabilities. Under currency swaps, the parties exchange principal and
interest amounts in two relevant currencies using agreed-upon exchange amounts.
The net interest cash flows from interest rate and currency swaps are
recognized currently as an adjustment to net investment income, and the fair
value of these swaps is reported as an adjustment to the related investments.
Using purchased options to reduce the effect of changes in interest rates or
equity indexes on liabilities, the Company pays an up-front fee to receive cash
flows from third parties when interest rates or equity indexes vary from
specified levels. Purchased options that qualify for hedge accounting are
recorded consistent with the related liabilities, at amortized cost plus
adjustments based on current equity indexes, and income is reported as an
adjustment to benefit expense. Purchased options that qualify for hedge
accounting are reported in other assets, and fees paid are amortized to benefit
expense over their contractual periods. Purchased options with underlying
notional amounts of $82 million at December 31, 1997 that are designated as
hedges, but do not qualify for hedge accounting, are reported in other long-term
investments at fair value with changes in fair value recognized as realized
investment gains and losses. There were no such options at December 31, 1998.
The Company also writes reinsurance contracts that are accounted for as
written options. The Company receives fees to pay for specified unfavorable
changes in variable annuity account values based on underlying mutual fund
investments when account holders elect to receive periodic income payments.
These written options, along with options purchased to minimize the risks
assumed, are reported at fair value in other liabilities and other assets,
respectively. Changes in fair value are recognized in other revenues, or other
operating expenses if there is a net loss. Fair values of written and related
purchased options during 1998 and as of December 31, 1998 were not material.
G-14
<PAGE>
Interest rate futures are used to temporarily hedge against the changes in
market values of bonds and mortgage loans to be purchased or sold. Under futures
contracts, changes in the contract values are settled in cash daily with the
exchange on which the instrument is traded. These changes in contract values 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 are recognized in full as
realized investment gains and losses if investments are sold. Gains and losses
on futures contracts deferred in anticipation of investment purchases were
immaterial at December 31, 1998 and 1997.
The effects of interest rate and currency swaps, purchased and written options
and futures on the components of net income for 1998, 1997 and 1996 were not
material.
As of December 31, 1998 and 1997, the Company's variable interest rate
investments consisted of approximately $0.6 billion and $0.7 billion of fixed
maturities, respectively. As of December 31, 1998 and 1997, the Company's fixed
interest rate investments consisted of $17 billion and $21.6 billion,
respectively, of fixed maturities, and $8.9 billion and $10.1 billion,
respectively, of mortgage loans.
G) OTHER: As of December 31, 1998 and 1997, the Company had no concentration
of investments in a single investee exceeding 10% of shareholder's equity.
NOTE 5 -- 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>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities.................................................... $ 1,386 $ 1,648 $ 1,647
Equity securities................................................... 1 8 --
Mortgage loans...................................................... 739 885 921
Policy loans........................................................ 459 532 548
Real estate......................................................... 142 183 227
Other long-term investments......................................... 19 17 23
Short-term investments.............................................. 18 28 35
--------- --------- ---------
2,764 3,301 3,401
Less investment expenses............................................ 127 162 202
- -----------------------------------------------------------------------------------------------------
Net investment income............................................... $ 2,637 $ 3,139 $ 3,199
- -----------------------------------------------------------------------------------------------------
-------------------------------
</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 $1.6 billion for
1998 and $1.7 billion for 1997 and 1996. Net investment income for separate
accounts, which is not reflected in the Company's revenues, was $1.5 billion ,
$1.4 billion and $1.1 billion for 1998, 1997 and 1996, respectively.
As of December 31, 1998, fixed maturities and mortgage loans on non-accrual
status, including policyholder share, were $142 million and $97 million,
including restructured investments of $76 million and $93 million, respectively.
As of December 31, 1997, fixed maturities and mortgage loans on non-accrual
status, including policyholder share, were $143 million and $153 million,
including restructured investments of $81 million and $137 million,
respectively. If interest on these investments had been recognized in accordance
with their original terms, net income would have been increased by $5 million,
$7 million and $15 million in 1998, 1997 and 1996, respectively.
G-15
<PAGE>
B) REALIZED INVESTMENT GAINS AND LOSSES: Realized gains (losses) on
investments, excluding policyholder share, for the year ended December 31 were
as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities......................................................... $ 34 $ (3) $ 11
Equity securities........................................................ 3 4 1
Mortgage loans........................................................... 22 4 (12)
Real estate.............................................................. 10 28 15
Other.................................................................... 24 12 22
--
--- ---
93 45 37
Less income taxes........................................................ 33 8 17
- ----------------------------------------------------------------------------------------------------------------
Net realized investment gains............................................ $ 60 $ 37 $ 20
- ----------------------------------------------------------------------------------------------------------------
--------------------
</TABLE>
Realized investment gains and losses include impairments in the value of
investments, net of recoveries, of $(5) million, $25 million and $40 million in
1998, 1997 and 1996, respectively.
Realized investment gains for separate accounts, which are not reflected in
the Company's revenues, were $494 million, $489 million and $305 million for
1998, 1997 and 1996 respectively. Realized investment gains attributable to
policyholder contracts, which also are not reflected in the Company's revenues,
were $201 million, $76 million and $82 million for 1998, 1997 and 1996,
respectively.
Sales of available-for-sale fixed maturities and equity securities, including
policyholder share, for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales................................................. $ 5,677 $ 3,978 $ 4,236
Gross gains on sales................................................ $ 238 $ 95 $ 146
Gross losses on sales............................................... $ (55) $ (151) $ (70)
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTE 6 -- SHAREHOLDER'S EQUITY AND DIVIDEND RESTRICTIONS
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 may differ from generally
accepted accounting principles. As of December 31, 1998, 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, 1998 and 1997 consisted of
5,978,322 shares of common stock authorized, issued and outstanding (par value
$5).
The Company's statutory net income was $824 million, $417 million and $611
million for 1998, 1997 and 1996, respectively. Statutory surplus was $1.8
billion at December 31, 1998 and $2.2 billion at December 31, 1997. The
Connecticut Insurance Holding Company Act limits the amount of annual dividends
or other distributions available to shareholders of Connecticut insurance
companies without the Department's prior approval. During 1998, the Company paid
dividends of $2.0 billion to its parent, all of which received prior approval
from the Department in accordance with requirements (see Note 3 -- Disposition).
During 1997, the Company paid dividends of $400 million to its parent, of which
$100 million received prior approval from the Department in accordance with
requirements. Under current law, the maximum dividend distribution that may be
made by the Company during 1999 without prior approval is $839 million. The
amount of restricted net assets as of December 31, 1998 was approximately $2.7
billion.
NOTE 7 -- INCOME TAXES
The Company's net deferred tax asset of $865 million and $653 million as of
December 31, 1998 and 1997, respectively, reflects management's belief that the
Company's taxable income in future years will be sufficient to
G-16
<PAGE>
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, 1998
would result in a tax liability of $158 million only if distributed to the
shareholder 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. See Note 13 for a
discussion of potential legislation regarding this matter.
CIGNA's federal income tax returns are routinely audited by the Internal
Revenue Service, and provisions are made in CIGNA's financial statements in
anticipation of the results of these audits. CIGNA resolved all issues relative
to the Company arising out of audits for 1991 through 1993, which resulted in an
increase to net income of $13 million in 1997.
In management's opinion, adequate tax liabilities have been established for
all years. Income taxes and deferred tax balances for the year ended December
31, 1998 reflect state income taxes.
The tax effects of temporary differences which give rise to deferred income
tax assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other insurance and contractholder liabilities............................. $ 119 $ 400
Employee and retiree benefit plans......................................... 214 196
Deferred gain on sale of business.......................................... 290 --
Investments, net........................................................... 356 262
Policy acquisition expenses................................................ 111 --
Other...................................................................... -- 63
--------- ---
Total deferred tax assets.................................................. 1,090 921
--------- ---
Deferred tax liabilities:
Policy acquisition expenses................................................ -- 38
Depreciation............................................................... 67 77
Unrealized appreciation on investments..................................... 134 153
Other...................................................................... 24 --
--------- ---
Total deferred tax liabilities............................................. 225 268
- ---------------------------------------------------------------------------------------------------
--------------------
Net deferred income tax asset................................................ $ 865 $ 653
- ---------------------------------------------------------------------------------------------------
--------------------
</TABLE>
G-17
<PAGE>
The components of income taxes for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
U.S. income.......................................................... $ 617 $ 344 $ 391
Foreign income....................................................... 5 3 3
State income......................................................... 14 -- --
--------- --- ---
636 347 394
--------- --- ---
Deferred taxes (benefits):
U.S. income.......................................................... (205) (49) (81)
State income......................................................... (6) -- --
--------- --- ---
(211) (49) (81)
--------- --- ---
Total income taxes..................................................... $ 425 $ 298 $ 313
- --------------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
State income taxes were not material in years prior to 1998.
Total income taxes for the year ended December 31 differs from the amount
computed using the nominal federal income tax rate of 35% for the following
reasons:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at nominal rate.............................................. $ 431 $ 320 $ 305
Tax-exempt interest income............................................... (4) (5) (5)
Dividends received deduction............................................. (13) (7) (7)
Amortization of goodwill................................................. 5 4 4
State income tax (net of federal income tax benefit)..................... 5 -- --
Resolved federal tax audit issues........................................ -- (13) --
Other.................................................................... 1 (1) 16
- ----------------------------------------------------------------------------------------------------------
Total income taxes....................................................... $ 425 $ 298 $ 313
- ----------------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
NOTE 8 -- PENSION AND OTHER POSTRETIREMENT BENEFITS PLANS
A) PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS: The Company provides
pension and certain health care and life insurance benefits to eligible retired
employees and agents, spouses and other eligible dependents through various
plans. The expenses of retirement plans are allocated to the Company along with
other benefit cost allocations.
Pension benefits are provided through a plan sponsored by CIGNA covering most
domestic employees and by a separate pension plan for former agents. CIGNA funds
the pension plans at least at the minimum amount required by the Employee
Retirement Income Security Act of 1974. Allocated pension cost for the Company
was $19 million, $24 million and $26 million in 1998, 1997 and 1996,
respectively. The plans had deposits with the Company totaling approximately
$2.8 billion and $2.5 billion at December 31, 1998 and 1997, respectively.
Expense for postretirement benefits other than pensions allocated to the
Company totaled $2 million for 1998 and 1997 and $9 million for 1996. The other
postretirement benefit liability included in accounts payable, accrued expenses
and other liabilities as of December 31, 1998 and 1997 was $387 million and $412
million, including no net intercompany payables for 1998 and $39 million for
1997 for services provided by affiliates' employees.
B) 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. These contributions are invested,
at the election of the employee, in one or more of the following investments:
CIGNA common stock fund, several CIGNA and non-CIGNA mutual funds, and a
fixed-income fund. In addition, beginning in 1999, CIGNA may provide additional
matching contributions, depending on its annual performance, which would be
invested in the CIGNA common stock fund. The Company's allocated expense for
such plans totaled $22 million for 1998, $15 million for 1997 and $16 million
for 1996.
G-18
<PAGE>
NOTE 9 -- 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 primary
liability. The Company evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of its reinsurers. In connection with
the sale of the Company's individual life insurance and annuity business (as
discussed in Note 3), the reinsurance recoverable from Lincoln National
Corporation at December 31, 1998 was $6.0 billion.
Failure of reinsurers to indemnify the Company, as a result of reinsurer
insolvencies and disputes, could result in losses. As of December 31, 1998 and
1997 there were no allowances for uncollectible amounts. Future charges for
unrecoverable reinsurance may materially affect results of operations in future
periods; however, such amounts are not expected to have a material adverse
effect on the Company's liquidity or financial condition.
The effects of reinsurance on net earned premiums and fees for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-DURATION CONTRACTS
Premiums and fees:
Direct............................................................ $ 3,763 $ 3,119 $ 2,940
Assumed........................................................... 286 255 135
Ceded............................................................. (237) (266) (166)
- -----------------------------------------------------------------------------------------------------
Net earned premiums and fees $ 3,812 $ 3,108 $ 2,909
- -----------------------------------------------------------------------------------------------------
-------------------------------
LONG-DURATION CONTRACTS
Premiums and fees:
Direct............................................................ $ 1,998 $ 1,979 $ 1,997
Assumed........................................................... 564 522 601
Ceded............................................................. (691) (233) (193)
- -----------------------------------------------------------------------------------------------------
Net earned premiums and fees........................................ $ 1,871 $ 2,268 $ 2,405
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
The effects of reinsurance on written premiums and fees for short-duration
contracts were not materially different from the amounts shown in the above
table. Benefits, losses and settlement expenses for 1998, 1997 and 1996 were net
of reinsurance recoveries of $699 million, $340 million and $359 million,
respectively.
For the year ended December 31, 1998, ceded premiums and reinsurance
recoveries associated with the individual life insurance and annuity business
sold were $741 million and $550 million, respectively.
NOTE 10 -- LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to buildings,
amounted to $42 million, $76 million and $68 million in 1998, 1997 and 1996,
respectively.
As of December 31, 1998, future net minimum rental payments under
non-cancelable operating leases were $168 million, payable as follows: 1999 --
$41 million; 2000 -- $29 million; 2001 -- $22 million; 2002 -- $19 million; and
$57 million thereafter.
NOTE 11 -- SEGMENT INFORMATION
Operating segments are based on the Company's internal reporting structure and
generally reflect differences in products. The Company presents segment
information as follows:
- EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS, which combines the
Company's Health Care and Group Insurance divisions, offers traditional
indemnity and cost containment products and services as well as
alternative funding arrangements, such as administrative services only and
minimum premium plans.
G-19
<PAGE>
- EMPLOYEE RETIREMENT BENEFITS AND INVESTMENT SERVICES provides investment
products and professional services primarily to sponsors of qualified
pension, profit-sharing and retirement savings plans. This segment also
provides certain corporate and variable life insurance products.
Other Operations consist of gain recognition related to the sale of the
individual life insurance and annuity business (and, for prior years, results of
the sold business, see Note 3), corporate life insurance on which policy loans
are outstanding (also called leveraged corporate life insurance), reinsurance
operations, settlement annuity business and certain new business initiatives.
The Company uses operating income (net income excluding after-tax realized
investment results) to measure the financial results of its segments. Operating
income is determined on a basis consistent with the accounting policies for the
consolidated financial statements, except that interest expense on corporate
debt is not allocated to segments. The Company allocates substantially all other
corporate general, administrative and systems expenses to segments on systematic
bases. Income taxes are generally computed as if each segment were filing
separate income tax returns.
The Company's operations are not materially dependent on one or a few
customers, brokers or agents. Summarized segment financial information for the
year ended and as of December 31 was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS
Premiums and fees and other revenues............................. $ 5,012 $ 4,307 $ 4,256
Net investment income............................................ 290 286 291
--------- --------- ---------
Segment revenues................................................. 5,302 4,593 4,547
Income tax expense............................................... 114 108 126
Operating income................................................. 195 190 189
Assets under management:
Invested assets................................................ 3,519 3,761 3,281
Separate account............................................... 1,702 1,440 1,176
--------- --------- ---------
Total............................................................ $ 5,221 $ 5,201 $ 4,457
- --------------------------------------------------------------------------------------------------
EMPLOYEE RETIREMENT BENEFITS AND INVESTMENT SERVICES
Premiums and fees and other revenues............................. $ 239 $ 205 $ 257
Net investment income............................................ 1,605 1,653 1,686
--------- --------- ---------
Segment revenues................................................. 1,844 1,858 1,943
Income tax expense............................................... 113 99 86
Operating income................................................. 245 229 185
Assets under management:
Invested assets................................................ 20,511 20,759 20,303
Separate account............................................... 30,717 26,678 20,604
--------- --------- ---------
Total............................................................ $ 51,228 $ 47,437 $ 40,907
- --------------------------------------------------------------------------------------------------
OTHER OPERATIONS
Premiums and fees and other revenues............................. $ 859 $ 874 $ 810
Net investment income............................................ 742 1,200 1,222
--------- --------- ---------
Segment revenues................................................. 1,601 2,074 2,032
Income tax expense............................................... 165 83 84
Operating income................................................. 306 159 163
Assets under management:
Invested assets................................................ 10,006 16,181 16,193
Separate account............................................... 2,229 1,099 775
--------- --------- ---------
Total............................................................ $ 12,235 $ 17,280 $ 16,968
- --------------------------------------------------------------------------------------------------
</TABLE>
G-20
<PAGE>
<TABLE>
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Realized investment gains........................................ $ 93 $ 45 $ 37
Income tax expense............................................... 33 8 17
--------- --------- ---------
Realized investment gains (losses), net of taxes................. $ 60 $ 37 $ 20
- --------------------------------------------------------------------------------------------------
TOTAL
Premiums and fees and other revenues............................. $ 6,110 $ 5,386 $ 5,323
Net investment income............................................ 2,637 3,139 3,199
Realized investment gains........................................ 93 45 37
--------- --------- ---------
Total revenues................................................... 8,840 8,570 8,559
Income tax expense............................................... 425 298 313
Operating income................................................. 746 578 537
Realized investment gains (losses), net of taxes................. 60 37 20
Net income....................................................... 806 615 557
Assets under management:
Invested assets................................................ 34,036 40,701 39,777
Separate account............................................... 34,648 29,217 22,555
--------- --------- ---------
Total............................................................ $ 68,684 $ 69,918 $ 62,332
- --------------------------------------------------------------------------------------------------
</TABLE>
Premiums and fees and other revenues by product type for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Medical and Dental Indemnity........................................ $ 3,566 $ 2,883 $ 2,726
Group Life.......................................................... 1,363 1,355 1,467
Other............................................................... 1,181 1,148 1,130
- -------------------------------------------------------------------------------------------
Total premiums and fees and other revenues.......................... $ 6,110 $ 5,386 $ 5,323
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
For the year ended December 31, 1998, 1997 and 1996, the change in net
translation of foreign currencies reflects increases of $2 million for 1998 and
1997, and $3 million for 1996.
Premiums and fees and other revenues by geographic region for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic............................................................ $ 6,068 $ 5,356 $ 5,291
Foreign............................................................. 42 30 32
- -----------------------------------------------------------------------------------------------------
Total premiums and fees and other revenues.......................... $ 6,110 $ 5,386 $ 5,323
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
The Company's aggregate foreign exchange transaction losses and foreign
long-lived assets for the year ended and as of December 31, 1998, 1997 and 1996
were not material.
NOTE 12 -- RELATED PARTY TRANSACTIONS
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, 1998 and 1997.
The Company cedes long-term disability business to LINA. Reinsurance
recoverables from LINA at December 31, 1998 and 1997 were $834 million and $869
million, respectively.
G-21
<PAGE>
Effective January 1, 1998, the Company assumed insurance reserves totaling $85
million, along with a corresponding amount of invested and other assets, under a
coinsurance arrangement assigned from Healthsource Insurance Company, an
affiliate. In addition, the Company was assigned the responsibility for
administering self-funded employee benefit plan products from Healthsource
Provident Administrators, Inc. (HPA), another affiliate. As part of this
assignment, net assets of approximately $304 million were transferred to the
Company from HPA.
The Company had lines of credit available from affiliates totaling $600
million at December 31, 1998 and 1997. 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 $1.5 million, $0.2 million and $1.0
million for 1998, 1997 and 1996, respectively. As of December 31, 1998 and 1997,
there were no borrowings outstanding under such lines.
The Company extended lines of credit to affiliates totaling $600 million at
December 31, 1998 and 1997. All loans are payable upon demand with interest
rates equivalent to CIGNA's average monthly short-term borrowing rate. There
were no amounts outstanding as of December 31, 1998 or 1997.
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, 1998 and 1997, the Company had a balance in the Account of $1.1
billion and $484 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.
NOTE 13 -- 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 and to monitor this status
on a periodic basis.
The industrial revenue bonds guaranteed directly by the Company have remaining
maturities of up to 17 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, 1998 and 1997 was $85
million and $202 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. During
1998, 1997 and 1996, this income was not material. Loss reserves for financial
guarantees are established when a default has occurred or when the Company
believes that a loss has been incurred. There were no losses for industrial
revenue bonds in 1998, 1997 or 1996.
The Company has entered into specialty life reinsurance contracts that
guarantee payments for specified unfavorable changes in variable annuity account
values based on underlying mutual fund investments if account holders expire or
elect to receive periodic income payments. For those accounts with mortality
risk, reserves are established in amounts adequate to meet the estimated future
obligations using various assumptions as to equity market conditions, premiums,
mortality and lapse rates, including provision for adverse deviation. As of
December 31, 1998 and 1997, the amount of recorded liabilities was $52 million
and $29 million, respectively. Although these guarantees may adversely affect
the Company's results of operations in future periods, they are not expected to
have a material adverse effect on the Company's liquidity or financial
condition.
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, 1998 and 1997, the amount of minimum benefit
guarantees for separate account contracts was $5.1 billion and $4.6 billion,
respectively. Reserves in addition to the separate account
G-22
<PAGE>
liabilities are established when the Company believes a payment will be required
under one of these guarantees. No such reserves were required as of December 31,
1998 and 1997. 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 restrict
insurance pricing and the application of underwriting standards and revise
federal tax laws. Some of the more significant issues are discussed below.
In early 1999, the Administration proposed a federal budget that would
eliminate the deferral of taxation of certain statutory income of life insurance
companies. As discussed in Note 7, the Company has not provided taxes on $450
million of such income. If the budget provision is enacted, the Company will
record additional income tax expense of $158 million to reflect this liability.
The proposed federal budget also would limit the deduction of interest expense
on the general indebtedness of corporations owning non-leveraged corporate life
insurance policies covering the lives of officers, employees or directors. If
this latter provision is enacted as proposed, the Company does not anticipate
that it will have a material effect on its consolidated results of operations,
liquidity, or financial condition, although it could have a material adverse
effect on the results of operations of the Employee Retirement Benefits and
Investment Services segment.
In 1996, Congress passed legislation that phases out over a three-year period
the tax deductibility of policy loan interest for most leveraged corporate life
insurance products. For 1998 and 1997, revenues of $556 million and $591
million, respectively, and net income of $42 million and $44 million,
respectively, were from leveraged corporate life insurance products that are
affected by this legislation. The Company does not expect this legislation to
have a material adverse effect on its consolidated results of operations,
liquidity or financial condition.
In 1998, the NAIC adopted standardized statutory accounting principles. Since
these principles have not been adopted by most of the insurance departments of
various jurisdictions in which the Company's insurance subsidiaries are
domiciled, the timing and effects of implementation have not yet been
determined.
The Company is contingently liable for possible assessments under regulatory
requirements pertaining to potential insolvencies of unaffiliated insurance
companies and other insurance-related assessments. 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 no pre-tax charges
for 1998, and $17 million and $26 million for 1997 and 1996, respectively, for
estimated guaranty fund and other insurance-related assessments 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. 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.
G-23
<PAGE>
PART C. OTHER INFORMATION
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS*
(a) Financial Statements provided in the Statement of Additional Information.
(1)
Registrant
(A) Statement of assets and liability as of December 31, 1998.
(B) Statement of operations for the year ended December 31, 1998.
(C) Statements of changes in net assets for the years ended December 31,
1997 and 1998.
(D) Notes to Financial Statements -- December 31, 1998.
(2)
Depositor
(A) Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997, and 1996.
(B) Consolidated Balance Sheets as of December 31, 1998 and 1997.
(C) Consolidated Statements of Comprehensive Income and Changes in
Shareholders' Equity for the Years Ended December 31, 1998, 1997,
and 1996.
(D) Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1997, and 1996.
(E) Notes to Financial Statements.
(b) Exhibits
(1)
Resolution of Board of Directors Authorizing Establishment of
Registrant. Incorporated herein by reference to Post-Effective Amendment
No. 8 to this Form N-4 Registration Statement.
(2)
Not Applicable
(3)
Selling Agreement among Connecticut General Life Insurance Company,
Sagemark Consulting, Inc. as principal underwriter, and selling dealers.
Incorporated herein by reference to Post-Effective Amendment No. 8 to
this form N-4 Registration Statement.
(4a)
Form of Connecticut General Life Insurance Company Variable Annuity
Contract Form Number AN 421A, together with Form of Certificate Form
Number AN 422A and Optional Methods of Settlement Riders (Form Numbers AR
421X, AR 421X-U, AR 422 and AR 422). Incorporated herein by reference
to Post-Effective Amendment No. 5 to this Form N-4 Registration
Statement filed February 29, 1996.
(4b)
Form of Connecticut General Life Insurance Company Variable Annuity
Contract Form Number AN425 together with Form of Certificate Form Number
AN 426, Optional Methods of Settlement Riders (Form Numbers AR 425 and AR
426), Nursing Care Rider (Form Number AR 314), CRT Rider (Form Number
B10322) incorporated herein by reference to Post-Effective
Amendment No. 7 to this Form N-4 Registration Statement filed
April 22, 1997.
(5a)
Forms of Application or Order to Purchase Which May Be Used in Connection
with the Contract and Certificate Shown As Exhibits (4), (4a) and (4b)
(Form Numbers B 10279, 10280 and 10281) incorporated herein by reference
to Post-Effective Amendment No. 5 to this Form N-4 Registration
Statement filed February 29, 1996.
(5b)
Form of Application (Order to Purchase) which may be used in Connection
with the Contract and Certificate shown as Exhibits (4b) incorporated
herein by reference to Post-Effective Amendment No. 7 to this Form N-4
Registration Statement filed April 22, 1997.
(6)
(A) Certificate of Incorporation (Charter) of Connecticut General Life
Insurance Company, as amended incorporated herein by reference to
Post-Effective Amendment No. 2 to this Form N-4 Registration Statement
under the Securities Act of 1933 (File No. 33-83020) filed June 21, 1995.
(B) By-Laws of Connecticut General Life Insurance Company incorporated
herein by reference to Post-Effective Amendment No. 2 to this Form N-4
Registration Statement under the Securities Act of 1933
(File No. 33-83020) filed June 21, 1995.
(7)
Not Applicable
(8)
Not Applicable
(9)
Opinion and Consent of Mark A. Parsons, Esq., Chief Counsel, Retirement
and Investment Services Division, of CIGNA Corporation incorporated
herein by reference to Post-Effective Amendment No. 8 to this Form N-4
Registration Statement filed April 24, 1998.
(10)
(A) Consent of PricewaterhouseCoopers LLP
(B) Consent of Ernst & Young LLP
(11)
Not Applicable
(12)
Not Applicable
(13)
Not Applicable
(14)
Not Applicable
<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
NAME POSITIONS AND OFFICES WITH DEPOSITOR
- ------------------------------ ---------------------------------------------
Thomas C. Jones President and Director
(Principal Executive Officer)
John Wilkinson Vice President and Actuary
(Principal Financial Officer)
Robert E. Wahlman Vice President
(Principal Accounting Officer)
Susan L. Cooper Corporate Secretary
Andrew G. Helming Secretary
Stephen C. Stachelek Vice President and Treasurer
William M. Pastore Director and Chairman of the Board
Harold W. Albert Director
Robert W. Burgess Director
John Cannon, III Director and Chief Counsel
Joseph M. Fitzgerald Director and Senior Vice President
Carol M. Olsen Director and Senior Vice President
John E. Pacy Director and Senior Vice President
Marc L. Preminger Director and Senior Vice President
Patricia L. Rowland Director and Senior Vice President
W. Allen Schaffer, MD Director and Senior Vice President
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
There follows 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.
CIGNA CORPORATION
(A Delaware corporation and ultimate parent company)
Incorporated by reference to Form 10-K Report of CIGNA Corporation for
the year ended December 31, 1998, file no. 1-8323, filed on March 26, 1999.
ITEM 27. NUMBER OF PURCHASERS
As of March 31, 1999 there were 5,845 Contract Owners of variable annuity
contracts funded through Registrant.
<PAGE>
ITEM 28. INDEMNIFICATION
Indemnification of directors, officers, employees and agents of the
Depositor is governed, effective January 1, 1997, by Sections 33-770 through
33-778 of the Connecticut Stock Corporation Act. ("Act"). The Act sets forth the
fullest indemnification which a Connecticut corporation such as Depositor is
permitted to provide. The Act also permits a corporation to purchase and
maintain insurance with respect to liabilities asserted against or incurred by
persons in the capacity or status of directors, officers, employees or agents
regardless of whether direct indemnification by the corporation would be
permitted. The Act allows a corporation to adopt provisions in its certificate
of incorporation narrowing the scope of indemnification which would otherwise be
permitted by the Act, and Depositor is currently considering amending its
certificate of incorporation to provide for narrower indemnification. Until and
unless such an amendment is adopted, Depositor is obligated to provide the
fullest indemnification permitted by the Act, on condition that a determination
has been made by Depositor's Board of Directors (or, in special circumstances,
by shareholders or special legal counsel) that the person to be indemnified
acted in good faith, reasonably believed his conduct was in the corporation's
best interest, and had no reasonable cause to believe his conduct was unlawful.
ITEM 29. PRINCIPAL UNDERWRITER
The Registrant's principal underwriter is Sagemark Consulting, Inc.
(Sagemark). Sagemark also acts as the general distributor of certain other
variable annuity contracts and variable life insurance policies issued by the
Company, and by CIGNA Life Insurance Company. Sagemark is located at 350
Church Street, Hartford, CT 06103.
The investment companies for which CFA acts as a principal underwriter are:
CG Variable Annuity Separate Account
CG Variable Annuity Separate Account II
CG Variable Life Insurance Separate Account I
CG Variable Life Insurance Separate Account II
CIGNA Variable Annuity Separate Account I
DIRECTORS AND OFFICERS OF PRINCIPAL UNDERWRITER
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH DEPOSITOR
------------------------------ -------------------------------------------------------
<S> <C>
J. Michael Hemp President
Todd R. Stephenson Senior Vice President and Chief
Operating Officer
Carolyn P. Brody Vice President
Joy P. McConnell Vice President
Priscilla S. Brown Vice President
Philip L. Holstein Vice President
Karen R. Matheson Director and Vice President
John M. Behrendt Vice President
Janet C. Whitney Vice President and Treasurer
Robert A. Picarello Chief Counsel and Assistant Secretary
H. Edward Cohen Assistant Vice President
Karen E. Goldman Assistant Vice President
C. Suzanne Womack Secretary
Gil L. Bearman Assistant Secretary
Brian S. Becker Assistant Secretary
Renee L. Beeks Assistant Secretary
Gail Black Assistant Treasurer
Walter W. Bonham, Jr. Assistant Treasurer
</TABLE>
<PAGE>
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, Bloomfield, Connecticut (mailing address: 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 registration
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 or order to purchase 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
owners.
FEES AND CHARGES REPRESENTATION
The Company represents that the fees and charges deducted under the
Contracts, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
Company.
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.
<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. 9 to its
Registration Statement on Form N-4 (File No. 33-83020) to be signed on its
behalf by the undersigned thereunto duly authorized, in the Town of Bloomfield
and State of Connecticut on the 30th day of April, 1999. Registrant certifies
that this amendment meets all of the requirements for effectiveness pursuant to
Rule 485(b) under the Securities Act of 1933.
CG VARIABLE ANNUITY SEPARATE ACCOUNT II
(REGISTRANT)
By /s/ John Wilkinson
-----------------------------------
John Wilkinson
Vice President
Connecticut General Life Insurance Company
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(DEPOSITOR)
By /s/ John Wilkinson
-----------------------------------
John Wilkinson
Vice President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 9 to this Registration Statement (File No.
33-83020) has been signed below on April 30, 1999 by the following persons, as
officers and directors of the Depositor, in the capacities indicated:
SIGNATURE TITLE
- --------- -----
* President and Director
- ---------------------------------- (Principal Executive
Thomas C. Jones Officer)
* Vice President and Actuary
- ---------------------------------- (Principal Financial
John Wilkinson Officer)
* Vice President
- ---------------------------------- (Principal Accounting
Robert E. Wahlman Officer)
*
- ---------------------------------- Director
Harold W. Albert
*
- ---------------------------------- Director
Robert W. Burgess
- ---------------------------------- Director
John Cannon, III
*
- ---------------------------------- Director
Joseph M. Fitzgerald
- ---------------------------------- Director
William M. Pastore
*
- ---------------------------------- Director
Carol M. Olsen
*
- ---------------------------------- Director
John E. Pacy
<PAGE>
*
- ---------------------------------- Director
Marc L. Preminger
*
- ---------------------------------- Director
Patricia L. Rowland
*
- ---------------------------------- Director
W. Allen Schaffer, M.D.
*By /s/ John Wilkinson
------------------------------------
John Wilkinson
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 John Wilkinson, Mark
A. Parsons and David C. Kopp, 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. 33-83020 filed with the Securities and Exchange
Commission under the Securities Act of 1933, on behalf of the Company in its own
name or in the name of one of its Separate Accounts, 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 30th day of April, 1999.
SIGNATURE TITLE
- ----------------------------------- -----------------------------------
/S/ THOMAS C. JONES
- ----------------------------------- President and Director
Thomas C. Jones (Principal Executive Officer)
/S/ JOHN WILKINSON
- ----------------------------------- Vice President and Actuary
John Wilkinson (Principal Financial Officer)
/S/ DOMINIC A. DELLAVOLPE
- ----------------------------------- Assistant Vice President
Dominic A. DellaVolpe (Principal Accounting Officer)
/S/ HAROLD W. ALBERT
- ----------------------------------- Director
Harold W. Albert
/S/ ROBERT W. BURGESS
- ----------------------------------- Director
Robert W. Burgess
/S/ JOHN G. DAY
- ----------------------------------- Director
John G. Day
/S/ JOSEPH M. FITZGERALD
- ----------------------------------- Director
Joseph M. Fitzgerald
/S/ H. EDWARD HANWAY
- ----------------------------------- Director
H. Edward Hanway
/S/ CAROL M. OLSEN
- ----------------------------------- Director
Carol M. Olsen
/S/ JOHN E. PACY
- ----------------------------------- Director
John E. Pacy
<PAGE>
<TABLE>
<C> <S>
/S/ MARC L. PREMINGER
- ----------------------------------- Director
Marc L. Preminger
/S/ PATRICIA L. ROWLAND
- ----------------------------------- Director
Patricia L. Rowland
/S/ W. ALLEN SCHAFFER, M.D.
- ----------------------------------- Director
W. Allen Schaffer, M.D.
</TABLE>
<PAGE>
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
THIS AGREEMENT is entered into on this day of , 1999 between
CONNECTICUT GENERAL LIFE INSURANCE COMPANY ("CG"), a Connecticut corporation, on
behalf of itself and the separate accounts established by CG pursuant to
Connecticut Insurance law and set forth in Schedule A hereto (each a "Separate
Account" and collectively the "Separate Accounts"), and LINCOLN FINANCIAL
ADVISORS CORPORATION ("LFA"), a corporation organized under the laws of the
State of Indiana.
WITNESSETH:
WHEREAS, CG proposes to issue to the public certain variable annuity
contracts and variable life insurance policies ("Contracts") and has, by
resolution of its Board of Directors, authorized the creation of segregated
investment accounts in connection therewith; and
WHEREAS, CG has established each Separate Account for the purpose of
issuing the Contracts and has registered each such Separate Account with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, interests in the Separate Account portion of the Contracts to be
issued by CG are registered (unless an exemption from registration is available)
with the Commission under the Securities Act of 1933 as amended (the "1933 Act")
for offer and sale to the public, and otherwise are in compliance with all
applicable laws; and
WHEREAS, LFA is a broker-dealer registered under the Securities Exchange
Act of 1934, as amended (the "1934 Act") and a member of the National
Association of Securities Dealers, Inc., and proposes to enter into selling
agreements for the distribution of said Contracts, as well as to sell said
Contracts directly; and
WHEREAS, CG desires to obtain the services of LFA as principal underwriter
of the Contracts issued by CG through the Separate Accounts;
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and conditions set forth herein, and for other good and valuable
consideration, CG and LFA hereby agree as follows:
DUTIES OF LFA
1. LFA will form a selling group by entering into selling group
agreements with broker-dealers which have as associated individuals persons who
are licensed to sell insurance pursuant to the laws of the state of Connecticut,
or any other state in which CG determines to issue Contracts ("Relevant State"),
and appointed by CG to distribute the Contracts which are
<PAGE>
issued by CG through the Separate Accounts and interests in the Separate Account
portion of which are registered (unless an exemption from registration is
available) with the Commission under the 1933 Act for offer and sale to the
public.
2. LFA will enter into and maintain a selling group agreement on behalf
of itself and CG with each broker-dealer (which has as associated persons
individuals who are licensed to sell insurance pursuant to the laws of the state
of Connecticut or any Relevant State and appointed by CG to distribute the
Contracts) joining such selling group ("member"). An executed copy of each such
selling group agreement will be provided to CG. Any such selling group
agreement will expressly be made subject to this Agreement. Any such selling
group agreement will provide: (i) that each member will distribute the Contracts
only in Connecticut or any Relevant State in which the Contracts may be legally
sold and only through duly licensed registered representatives of the members
who are fully licensed and appointed with CG to sell the Contracts in
Connecticut or any Relevant State; (ii) that all applications and initial and
subsequent payments under the Contracts collected by the member will be
forwarded promptly by the member to CG or its designee at such address as it may
from time to time designate; and; (iii) that each member will comply with all
applicable federal and state laws, rules and regulations in the sale of the
Contracts.
3. LFA will not distribute any prospectus, sales literature, advertising
material or any other printed matter or material relating to the Contracts or
the mutual funds available as funding options under the Contracts ("Funds") if,
to its knowledge, it misstates any of the foregoing relating to the duties,
obligations or liabilities of CG or LFA. LFA will be responsible for filing
sales literature and advertising material, if necessary, with appropriate
federal regulatory authorities, including the NASD Regulation, Inc. and the
National Association of Securities Dealers, Inc. (collectively "NASD").
4 LFA shall not be responsible for (i) taking or transmitting
applications for the Contracts; (ii) examine or inspecting risks or approving,
issuing or delivering Contracts; (iii) receiving, collecting or transmitting
payments; (iv) assisting in the completion of applications for Contracts; and
(v) otherwise offering and selling Contracts directly to the public, except
insofar as LFA shall sell Contracts directly through its own associated persons.
5. LFA will advise CG immediately upon LFA becoming aware of: (a) any
request by the Commission for amendment of the registration statement relating
to the Contracts or the Funds or for additional information; (b) the issuance by
the Commission of any stop order suspending the effectiveness of the
registration statement of the Contracts or the Funds or the initiation of any
proceeding for that purpose; (c) the institution of any proceeding,
investigation or hearing involving the offer or sale of the Contracts or the
Funds of which it becomes aware; or (d) the happening of any material event, if
known, which makes untrue any statement made in the registration statement of
the Contracts or the Funds or which requires the making of a change therein in
order to make any statement made therein not misleading.
<PAGE>
DUTIES OF CG
6. CG or its agent will receive and process applications and premium
payments in accordance with the terms of the Contracts. All applications for
Contracts are subject to acceptance or rejection by CG in its sole discretion.
CG will inform LFA of any such rejection and the reason therefor.
7. CG will be responsible for filing the Contracts, applications, forms,
sales literature and advertising material, where necessary, with appropriate
insurance regulatory authorities. CG will use reasonable efforts to provide
information and marketing assistance to the members, including preparing and
providing members with advertising materials and sales literature, and providing
members with current prospectuses of the Contracts and of the underlying Funds.
CG will use reasonable efforts to ensure that members deliver to customers and
prospective customers only the currently effective prospectuses of the Contracts
and the Funds. LFA and CG will cooperate in the development of advertising and
sales literature, as each may request the other. CG will deliver to members,
and use reasonable efforts to ensure that members use, only sales literature and
advertising material which conforms to the requirements of federal and state
laws and regulations and which has been authorized by CG and LFA.
8. CG will furnish to LFA such information with respect to the Separate
Account and Contracts in such form and signed by such of its officers as LFA may
reasonably request, and will warrant that the statements therein contained when
so signed will be true or correct. CG will advise LFA immediately of: (a) any
request by the Commission for amendment of the registration statement relating
to the Contracts or any Fund or for additional information; (b) the issuance by
the Commission of any stop order suspending the effectiveness of the
registration statement for the Contracts or of any Fund or the initiation of any
proceeding for that purpose; (c) the institution of any proceeding,
investigation, hearing or other action involving the offer or sale of the
Contracts or the Funds of which it becomes aware; (d) the happening of any
material event, if known, which makes untrue any statement made in the
registration statement for the Contracts or any Fund or which requires the
making of a change therein in order to make any statement made therein not
misleading.
9. CG will use reasonable efforts to register for sale an indefinite
amount of securities under the 1933 Act pursuant to Rule 24f-2 under the 1940
Act, and, should it ever be required, under state securities laws and to file
for approval under state insurance laws when necessary. To the extent required
by law CG will maintain the registration of each Separate Account under the 1940
Act and of its securities under the 1933 Act.
10. CG will pay to members of the selling group such commissions on behalf
of and as agent of LFA, as are from time to time set forth in selling group
agreements. CG shall pay such commissions and service fees in compliance with
applicable state insurance laws, applicable federal securities laws and the
rules and regulations of the NASD. Such selling group agreements shall provide
for the return of sales commissions by the members to CG if Contracts
<PAGE>
are tendered for redemption to CG in accordance with the right to examine or
similarly worded provision in the Contracts.
11. CG will bear its expenses of providing services under this Agreement,
including but not limited to, the cost of preparing (including typesetting
costs), printing and mailing of prospectuses of the Contracts to Contract
owners, expenses and fees of registering or qualifying the Contracts (or
interests therein) and the Separate Account under federal or state laws, and any
expenses incurred by its employees in assisting LFA in performing its duties
hereunder. CG will reimburse LFA for its services and for the services of its
salaried employees, and provide reimbursement for its charges and expenses.
WARRANTIES
12. CG represents and warrants to LFA that (i) registration statements
(including amendments thereto) under the 1933 Act and under the 1940 Act with
respect to the Contracts and the Separate Accounts have been filed with the
Commission in the form previously delivered to LFA, and copies of any and all
amendments thereto will be forwarded to LFA at the time that they are filed with
the Commission; (ii) the registration statements and any amendments or
supplements thereto which have become effective, conform in all material
respects to the requirements of the 1933 Act and the 1940 Act, and the rules and
regulations of the Commission thereunder, and do not and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that this representation and warranty shall not apply to any
statement or omission made in reliance upon and in conformity with information
furnished in writing to CG by LFA expressly for use therein; (iii) CG is validly
existing as a stock life insurance company in good standing under the laws of
the State of Connecticut, with power (corporate or other) to own its properties
and conduct its business as described in the prospectus, and has been duly
qualified for the transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases properties, or conducts
any business, so as to require such qualification; (iv) the Contracts to be
issued through the Separate Accounts have been duly and validly authorized and,
when issued and delivered against payment therefor as provided in the prospectus
and in the Contracts, will be duly and validly issued and conform to the
description of such Contracts contained in the prospectus relating thereto; (v)
CG will only accept applications submitted by and pay commissions to persons
who, to the best of CG's knowledge, are appropriately licensed to offer and sell
the Contracts in a manner as to comply with the state insurance laws; (vi) the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any statute, indenture, mortgage,
deed of trust, note agreement or other agreement or instrument to which CG is a
party or by which CG is bound, under CG's Charter as a stock life insurance
company or its By-Laws, or under any order, rule or regulation of any court or
governmental agency or body having jurisdiction over CG or any of its
properties; and no consent, approval, authorization or order of any court or
governmental agency or body which has not been obtained by the effective date of
this Agreement is required for the consummation by CG of the transactions
contemplated by this Agreement; and (vii) there are no material legal or
governmental proceedings pending to which CG or any Separate Account is a
<PAGE>
party or of which any property of CG or any Separate Account is subject, other
than litigation incidental to the kind of business conducted by CG which, if
determined adversely to CG, would not individually or in the aggregate have a
material adverse effect on the financial position, surplus or operations of CG.
13. LFA represents and warrants to CG that: (i) it is a broker - dealer
duly registered with the Commission pursuant to the Securities Exchange Act of
1934 and a member in good standing of the National Association of Securities
Dealers, Inc. and is in compliance with the securities laws in those states in
which it conducts business as a broker-dealer; (ii) the performance of its
duties under this Agreement by LFA will not result in a breach or violation of
any of the terms or provisions of or constitute a default under any statute, any
indenture, mortgage, deed of trust, note agreement or other agreement or
instrument to which LFA is a party or by which LFA is bound, the Certificate of
Incorporation or By-Laws of LFA, or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over LFA or its property; and
(iii) it will use reasonable efforts to ensure that no offering, sale or other
disposition of the Contracts will be made until it has been notified by CG that
the subject registration statements have been declared effective and the
Contracts have been released for sale by CG, and that such offering, sale or
other disposition shall be limited to those jurisdictions that have approved or
otherwise permit the offer and sale of the Contracts by CG; (iv) it will comply
in all material respects with the requirements of state broker-dealer
regulations and the 1934 Act as each applies to LFA and shall conduct its
affairs in accordance with the Rules of the NASD; and (v) any information
furnished in writing by LFA to CG for use in the registration statement for the
Contracts will not result in the registration's failing to conform in all
respects to the requirements of the 1933 Act and the rules and regulations
thereunder or containing any untrue statement of a material fact or omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
MISCELLANEOUS
14. LFA shall maintain and preserve for the periods prescribed by law or
other agreement such accounts, books and other documents as are required of it
by applicable law and regulation. The books, records and accounts of CG, of
each Separate Account and LFA as to all transactions hereunder shall be
maintained such that they clearly and accurately disclose the nature and details
of such transaction, including such accounting information as is necessary to
support the reasonableness of the amounts to be paid by CG.
15. LFA makes no representation or warranty regarding the number of
Contracts to be sold by licensed broker-dealers and insurance agents or the
amount to be paid thereunder. LFA does, however, represent that will actively
engage in its duties under this Agreement on a continuous basis while the
Agreement is in effect.
16. LFA may act as principal underwriter, sponsor, distributor or dealer
for issuers other than CG or its affiliates in connection with mutual funds or
insurance products and otherwise.
<PAGE>
17. Nothing in this Agreement shall obligate CG to appoint any member or
representative of a member its agent for purposes of the distribution of the
Contracts. Nothing in this Agreement shall be construed as requiring LFA to
effect sales of the Contracts directly to the public or act as an insurance
agent or insurance broker on behalf of CG for purposes of state insurance laws.
18. LFA agrees to indemnify CG (or any control person, shareholder,
director, officer or employee of CG) for any liability incurred (including
reasonable costs relating to defense of any action) arising out of any LFA
wrongful act or omission relating to (i) rendering services under this Agreement
or (ii) the purchase, retention or surrender of a Contract by any person or
entity; provided, however that indemnification will not be made hereunder for
any such liability that results from the willful misfeasance, bad faith or gross
negligence of CG or from the reckless disregard by CG of the duties and
obligations arising under this Agreement.
19. CG agrees to indemnify LFA (or any control person, shareholder,
director, officer or employee of LFA) for any liability incurred (including
reasonable costs relating to defense of any action) arising out of any CG
wrongful act or omission relating to (i) rendering services under this Agreement
or (ii) the purchase, retention or surrender of a Contract by any person or
entity; provided, however, that indemnification will not be made hereunder for
any such liability that results from the willful misfeasance, bad faith and
gross negligence of LFA or from the reckless disregard by LFA of the duties and
obligations arising this Agreement.
20. This Agreement will terminate automatically upon its assignment, as
that term is defined in the 1940 Act. The parties understand that there is no
intention to create a joint venture in the subject matter of this Agreement.
Accordingly, the right to terminate this Agreement and to engage in any activity
not inconsistent with this Agreement is absolute. This Agreement will
terminate, without the payment of any penalty by either party:
a. at the option of CG upon six months advance written notice to LFA; or
b. at the option of LFA upon six months advance written notice to CG; or
c. at the option of CG upon institution of formal proceedings against LFA
by regulatory body;
d. at the option of LF A upon the institution of formal proceedings
against CG by the Department of Insurance of a state or any other
federal or state regulatory body;
e. as otherwise required by the Investment Company Act of 1940;
f. at the option of either party upon the termination of the
Administrative Service Agreement(s) entered into between the Lincoln
National Life Insurance Company and the UNUM Life Insurance Company of
America and/or affiliates of each.
21. Each notice required by this Agreement shall be given in writing and
delivered by certified mail-return receipt requested.
<PAGE>
22. This agreement shall be subject to the laws of the State of Indiana
without regard to its conflict of laws and construed so as to interpret the
Contracts as insurance products written within the business operation of CG.
23. This Agreement covers and includes all agreements, oral and written
(expressed or implied) between CG and LFA with regard to the marketing and
distribution of the Contracts, and supersedes any and all Agreements between the
parties with respect to the subject matter of this Agreement.
24. This Agreement may be amended from time to time by mutual agreement
and consent of the undersigned parties, provided such amendment is in writing,
duly executed, and bears the date on which it is to become effective.
25. Schedule A hereto may be amended unilaterally by CG from time to time
by written notice to LFA.
This Agreement shall become effective on , 1999
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be
duly executed and attested on the date first stated above.
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
Attest:
_________________________ By:___________________________________
LINCOLN FINANCIAL ADVISORS CORPORATION
Attest:
_________________________ By:___________________________________
<PAGE>
SCHEDULE A
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNTS
1. Connecticut General Variable Annuity Separate Account
350 Church Street
Hartford, CT 06103
2. Connecticut General Variable Annuity Account II
File Number: 33-83020
ACCRU I and Choiceplus
3. Connecticut General Variable Universal Life Separate Account I
File Number: 33-84426
ACCRU Variable Universal Life
4. Connecticut General Variable Universal Life Separate Account II
File Number: 33-89238
Variable Universal Life I
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 9 under the Securities
Act of 1933 and Amendment No. 10 under the Investment Company Act of 1940 to
the registration statement on Form N-4 (the "Registration Statement") of our
reports dated February 9, 1999 and February 20, 1998, relating to the
financial statements of Connecticut General Life Insurance Company and the CG
Variable Annuity Separate Account II, respectively, which appear in such
Statement of Additional Information, and to the incorporation by reference of
our reports into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading
"Experts" in such "Statement of Additional Information."
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
April 26, 1999
<PAGE>
Exhibit 10(B)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts"
in the Post Effective Amendment No. 9 to the Registration Statement
(Form N-4 No. 33-83020) and the related Statement of Additional Information
appearing therein and pertaining to CG Variable Annuity Separate Account II,
and to the use therein of our report dated April 2, 1999 with respect to the
financial statements of CG Variable Annuity Separate Account II.
Fort Wayne, Indiana
April 23, 1999
<PAGE>
BOOKS AND RECORDS
CG VARIABLE ANNUITY SEPARATE ACCOUNT II (ACCRU CHOICE PLUS)
RULES UNDER SECTION 31 OF THE INVESTMENT COMPANY ACT OF 1940
Records to Be Maintained by Registered Investment Companies, Certain
Majority-Owned Subsidiaries Thereof, and Other Persons Having Transactions with
Registered Investment Companies.
Reg. 270.31a-1. (a) Every registered investment company, and every
underwriter, broker, dealer, or investment advisor which is a majority-owned
subsidiary of such a company, shall maintain and keep current the accounts,
books, and other documents relating to its business which constitute the record
forming the basis for financial statements required to be filed pursuant to
Section 30 of the Investment Company Act of 1940 and of the auditor's reports
relating thereto.
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
- --------- -------- ----------------- ---------
Annual Reports Finance Eric Jones Permanently, the first
To Shareholders two years in an easily
accessible place
Semi-Annual Finance Eric Jones Permanently, the first
Reports two years in an easily
accessible place
Form N-SAR Finance Eric Jones Permanently, the first
two years in an easily
accessible place
(b) Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
TYPE OF RECORD
(1) Journals (or other records of original entry) containing an itemized daily
record in detail of all purchases and sales of securities (including sales and
redemptions of its own securities), all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of cash and all other debits and
credits. Such records shall show for each such transaction the name and
quantity of securities, the unit and aggregate purchase or sale price,
commission paid, the market on which effected, the trade date, the settlement
date, and the name of the person through or from whom purchased or received or
to whom sold or delivered.
PURCHASES AND SALES JOURNALS
Daily reports CSRM Nancy Alford Permanently, the first
of securities Finance Eric Jones two years in an easily
transactions CSRM (Hartford) Norm Kaplan accessible place
PORTFOLIO SECURITIES
C-Port Purchase/ Finance Eric Jones Permanently, the first
Sales Reports two years in an easily
accessible place
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
- --------- -------- ----------------- ---------
RECEIPTS AND DELIVERIES OF SECURITIES (UNITS)
Not Applicable.
PORTFOLIO SECURITIES
Not Applicable.
RECEIPTS AND DISBURSEMENTS OF CASH AND OTHER DEBITS AND CREDITS
Daily Journals CSRM Nancy Alford Permanently, the first
Finance Eric Jones two years in an easily
CSRM (Hartford) Norm Kaplan accessible place
(2) General and auxiliary ledgers (or other record) reflecting all asset,
liability, reserve, capital, income and expense accounts, including:
(i) Separate ledger accounts (or other records) reflecting the following:
(a) Securities in transfer;
(b) Securities in physical possession;
(c) Securities borrowed and securities loaned;
(d) Monies borrowed and monies loaned (together with a record of the
collateral therefore and substitutions in such collateral);
(e) Dividends and interest received;
(f) Dividends receivable and interest accrued.
Instructions. (a) and (b) shall be stated in terms of securities quantities
only; (c) and (d) shall be stated in dollar amounts and securities quantities as
appropriate; (e) and (f) shall be stated in dollar amounts only.
GENERAL LEDGER
LNL trial Finance Eric Jones Permanently, the first
Balance (5000 two years in an easily
series) accessible place
SECURITIES IN TRANSFER
Not Applicable.
SECURITIES IN PHYSICAL POSSESSION
Not Applicable.
SECURITIES BORROWED AND LOANED
Not Applicable.
MONIES BORROWED AND LOANED
Not Applicable.
DIVIDENDS AND INTEREST RECEIVED
LNL Trial Finance Eric Jones Permanently, the first
Balance (5000 two years in an easily
series) accessible place
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
- --------- -------- ----------------- ---------
DIVIDENDS RECEIVABLE AND INTEREST ACCRUED
LNL Trial Finance Eric Jones Permanently, the first
Balance (5000 two years in an easily
series) accessible place
(ii) Separate ledger accounts (or other records) for each portfolio security,
showing (as of trade dates), (a) the quantity and unit and aggregate price for
each purchase, sale, receipt, and delivery of securities and commodities for
such accounts, and (b) all other debits and credits for such accounts.
Securities positions and money balances in such ledger accounts (or other
records) shall be brought forward periodically but not less frequently than at
the end of fiscal quarters. Any portfolio security, the salability of which is
conditioned, shall be so noted. A memorandum record shall be available setting
forth, with respect to each portfolio security accounts, the amount and
declaration, ex-dividend, and payment dates of each dividend declared thereon.
LEDGER ACCOUNT FOR EACH PORTFOLIO SECURITY
Daily Report Finance Eric Jones Permanently, the first
Of Securities two years in an easily
Transactions accessible place
(Daily Trade
File)
(iii) Separate ledger accounts (or other records) for each broker-dealer, bank
or other person with or through which transactions in portfolio securities are
affected, showing each purchase or sale of securities with or through such
persons, including details as to the date of the purchase or sale, the quantity
and unit and aggregate prices of such securities, and the commissions or other
compensation paid to such persons. Purchases or sales effected during the same
day at the same price may be aggregated.
Not Applicable.
(iv) Separate ledger accounts (or other records), which may be maintained by a
transfer agent or registrar, showing for each shareholder of record of the
investment company the number of shares of capital stock of the company held.
in respect of share accumulation accounts (arising from periodic investment
plans, dividend reinvestment plans, deposit of issued shares by the owner
thereof, etc.), details shall be available as to the dates and number of shares
of each accumulation, and except with respect to already issued shares deposited
by the owner thereof, prices of each such accumulation.
SHAREHOLDER ACCOUNTS
Master file Finance Eric Jones Permanently, the first
Record (Daily CSRM Nancy Alford two years in an easily
Trade File & CSRM (Hartford) Norm Kaplan accessible place
Leg Syst
Client Rpt)
(3) A securities record or ledger reflecting separately for each portfolio
security as of trade date all "long" and "short" positions carried by the
investment company for its own account and showing the location of all
securities long and the off-setting position to all securities short. The
record called for by this paragraph shall not be required in circumstances
under which all portfolio securities are maintained by a bank or banks or a
member or members of a national securities exchange as custodian under a
custody agreement or as agent for such custodian.
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
- --------- -------- ----------------- ---------
Not Applicable
(4) Corporate charters, certificates of incorporation or trust agreements, and
bylaws, and minute books of stockholders' and directors' or trustees' meetings;
and minute books of directors' or trustees' committee and advisory board or
advisory committee meetings.
CORPORATE DOCUMENTS
Memorandum Legal (Hartford) George Gingold Permanently, the first
Establishing SA two years in an easily
accessible place
(5) A record of each brokerage order given by or in behalf of the investment
company for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such record shall include the name of the broker, the
terms and conditions of the order and of any modification or cancellation
thereof, the time of entry or cancellation, the price at which executed, and the
time of receipt of report of execution. The record shall indicate the name of
the person who placed the order in behalf of the investment company.
ORDER TICKETS
UIT applica- CSRM Nancy Alford Six years, the first two
tions and Finance Eric Jones years in an easily
daily reports CSRM (Hartford) Norm Kaplan accessible place
of securities
transactions
(6) A record of all other portfolio purchase or sales showing details
comparable to those prescribed in paragraph 5 above.
COMMERCIAL PAPER
Not Applicable.
(7) A record of all puts, calls, spreads, straddles, and other options in which
the investment company has any direct or indirect interest or which the
investment company has granted or guaranteed; and a record of any contractual
commitments to purchase, sell, receive or deliver securities or other property
(but not including open orders placed with broker-dealers for the purchase or
sale of securities, which may be cancelled by the company on notices without
penalty or cost of any kind); containing at least an identification of the
security, the number of units involved, the option price, the date of maturity,
the date of issuance, and the person to whom issued.
RECORD OF PUTS, CALLS, SPREADS, ETC.
Not Applicable.
(8) A record of the proof of money balances in all ledger accounts (except
shareholder accounts), in the form of trial balances. Such trial balances shall
be prepared currently at least once a month.
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
- --------- -------- ----------------- ---------
TRIAL BALANCE
LNL Trial Finance Eric Jones Permanently, the first
Balance (5000 two years in an easily
series) accessible place
(9) A record for each fiscal quarter, which shall be completed within 10 days
after the end of such quarter, showing specifically the basis or bases upon
which the allocation of orders for the purchase and sale of portfolio
securities to named brokers or dealers and the division of brokerage
commissions or other compensation on such purchase and sale orders among named
persons were made during such quarter. The record shall indicate the
consideration given to (a) sales of shares of the investment company by brokers
or dealers, (b) the supplying of services or benefits by brokers or dealers to
the investment company, its investment advisor or principal underwriter or any
persons affiliated therewith, and (c) any other considerations other than the
technical qualifications of the brokers and the dealers as such. The record
shall show the nature of their services or benefits made available, and shall
describe in detail the application of any general or specific formula or other
determinant used in arriving at such allocation of purchase and sales orders
and such division of brokerage commissions or other compensation. The record
shall also include the identifies of the person responsible for the
determination of such allocation and such division of brokerage commissions or
other compensation.
Not Applicable.
(10) A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept in the names of its members who participated in the authorization.
There shall be retained a part of the record required by this paragraph any
memorandum, recommendation, or instruction supporting or authorizing the
purchase or sale of portfolio securities. The requirements of this paragraph
are applicable to the extent they are not met by compliance with the
requirements of paragraph 4 of this Rule 31a1(b).
Advisory Legal (Hartford) George Gingold Six years, the first two
Agreements years in an easily
accessible place
(11) Files of all advisory material received from the investment advisor, any
advisory board or advisory committee, or any other persons from whom the
investment company accepts investment advice publications distributed generally.
Not Applicable.
(12) The term "other records" as used in the expressions "journals (or other
records of original entry)" and "ledger accounts (or other records)" shall be
construed to include, where appropriate, copies of voucher checks,
confirmations, or similar documents which reflect the information required by
the applicable rule or rules in appropriate sequence and in permanent form,
including similar records developed by the use of automatic data processing
systems.
Correspondence CSRM Nancy Alford Six years, the first two
CSRM (Hartford) Norm Kaplan years in an easily
accessible place
<PAGE>
LN-RECORD LOCATION PERSON TO CONTACT RETENTION
- --------- -------- ----------------- ---------
Proxy State- CSRM Nancy Alford Six years, the first two
ments and CSRM (Hartford) Norm Kaplan years in an easily
Proxy Cards accessible place
Pricing Sheets Finance Eric Jones Permanently, the first
two years in an easily
accessible place
Bank State- Treasurers Rusty Summers Six years, the first two
ments Treasurer (Hartford) years in an easily
accessible place
March 24, 1999
