<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
1933 ACT REGISTRATION NO. 33-89238
1940 ACT REGISTRATION NO. 811-8970
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
CG VARIABLE LIFE INSURANCE 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
<TABLE>
<S> <C>
Mark A. Parsons, Esquire COPY TO:
Connecticut General Life Insurance George N. Gingold,
Company Esquire
900 Cottage Grove Road 197 King Philip Drive
Hartford, Connecticut 06152 West Hartford, CT
(NAME AND ADDRESS OF AGENT FOR 06117-1409
SERVICE)
</TABLE>
Approximate date of proposed public offering: Continuous
INDEFINITE NUMBER OF UNITS OF INTEREST IN VARIABLE LIFE INSURANCE CONTRACTS
(TITLE AND AMOUNT OF SECURITIES BEING REGISTERED)
An indefinite amount of the securities being offered by the Registration
Statement has been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The initial registration fee of $500 was paid with the
declaration. Form 24F-2 was filed on February 27, 1998 for Registrant's fiscal
year, ended December 31, 1997.
It is proposed that this filing will become effective:
- --------- immediately upon filing pursuant to paragraph (b) of Rule 485
X
- --------- on May 1, 1998, 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>
CROSS REFERENCE SHEET
(RECONCILIATION AND TIE)
REQUIRED BY INSTRUCTION 4 TO FORM S-6
<TABLE>
<CAPTION>
ITEM OF FORM
N-8B-2 LOCATION IN PROSPECTUS
- ----------------- --------------------------------------------------------------
<S> <C>
1 Cover Page Highlights
2 Cover Page
3 *
4 Distribution of Policies
5 The Company
6(a) The Variable Account
6(b) *
9 Legal Proceedings
10(a)-(c) Short-Term Right to Cancel the Policy; Surrenders;
Accumulation Value; Reports to Policy Owners
10(d) Right to Exchange for a Fixed Benefit Policy; Policy Loans;
Surrenders; Allocation of Net Premium Payments
10(e) Lapse and Reinstatement
10(f) Voting Rights
10(g)-(h) Substitution of Securities
10(i) Premium Payments; Transfers; Death Benefit; Policy Values;
Settlement Options
11 The Funds
12 The Funds
13 Charges; Fees
14 Issuance
15 Premium Payments; Transfers
16 The Variable Account
17 Surrenders
18 The Variable Account
19 Reports to Policy Owners
20 *
21 Policy Loans
22 *
23 The Company
24 Incontestability; Suicide; Misstatement of Age or Sex
25 The Company
26 Fund Participation Agreements
27 The Variable Account
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM
N-8B-2 LOCATION IN PROSPECTUS
- ----------------- --------------------------------------------------------------
<S> <C>
28 Directors and Officers of the Company
29 The Company
30 *
31 *
32 *
33 *
34 *
35 *
37 *
38 Distribution of Policies
39 Distribution of Policies
40 *
41(a) Distribution of Policies
42 *
43 *
44 The Funds; Premium Payments
45 *
46 Surrenders
47 The Variable Account; Surrenders, Transfers
48 *
49 *
50 The Variable Account
51 Cover Page; Highlights; Premium Payments; Right to Exchange
for a Fixed Benefit Policy
52 Substitution of Securities
53 Tax Matters
54 *
55 *
</TABLE>
* Not Applicable
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
[LOGO]
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
<TABLE>
<S> <C>
HOME OFFICE LOCATION: MAILING ADDRESS:
900 COTTAGE GROVE ROAD ANNUITY & VARIABLE LIFE SERVICES CENTER,
BLOOMFIELD, CONNECTICUT ROUTING S-249
HARTFORD, CT 06152-2249
(800)(552-9898)
</TABLE>
- --------------------------------------------------------------------------------
THE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
This prospectus describes a flexible premium variable life insurance
contract ("Policy") offered either in an individual or group form by Connecticut
General Life Insurance Company ("the Company"). This Policy is intended to
provide life insurance benefits. It allows flexible premium payments, a choice
of underlying funding options, and a choice of two death benefit options. Its
value will vary with the investment performance of the underlying funding
options selected, as may the death benefit payable by the Company upon the death
of the Insured. Policy values may be used to continue the Policy in force, may
be borrowed within certain limits, and may be fully or partially surrendered.
Full surrenders are subject to a surrender charge. Annuity settlement options
equivalent to the Death Benefit are available for payment to the Beneficiary
upon the death of the Insured.
The Company offers nineteen funding vehicles under a Policy through the
Separate Account, each a diversified open-end management investment company
(commonly called a mutual fund) with a different investment objective: AIM
Variable Insurance Funds, Inc. -- AIM V.I. Capital Appreciation Fund, AIM V.I.
Growth Fund, AIM V.I. Value Fund, AIM V.I. Diversified Income Fund; CIGNA
Variable Products Group -- CIGNA VP Money Market Fund, CIGNA VP S&P 500 Index
Fund; Fidelity Variable Insurance Products Fund -- Equity-Income Portfolio;
Fidelity Variable Insurance Products Fund II -- Asset Manager Portfolio and
Investment Grade Bond Portfolio; MFS-Registered Trademark- Variable Insurance
Trust -- MFS Emerging Growth Series, MFS Total Return Series, MFS Utilities
Series and MFS World Governments Series; Templeton Variable Products Series Fund
- -- Templeton Asset Allocation Fund; Templeton International Fund, Templeton
Stock Fund; OCC Accumulation Trust -- Global Equity Portfolio, Managed Portfolio
and Small Cap Portfolio.
The fixed interest option offered under the Policy is the Fixed Account.
Amounts held in the Fixed Account are guaranteed and will earn a minimum
interest rate of 4% per year. Unless specifically mentioned, this prospectus
only describes the variable investment options.
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance policy with this Policy. This
entire Prospectus, and those of the Funds, should be read carefully to
understand the Policy being offered.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE MUTUAL FUNDS AVAILABLE AS FUNDING OPTIONS FOR THE POLICIES OFFERED BY THIS
PROSPECTUS. ALL PROSPECTUSES SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED: MAY 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Definitions..................................... 3
Highlights...................................... 5
Initial Choices to be Made.................... 5
Charges and Fees.............................. 6
The Company..................................... 6
The Variable Account............................ 6
The Funds....................................... 7
Expense Data/Fee Table........................ 10
General....................................... 12
Substitution of Securities.................... 12
Voting Rights................................. 12
Fund Participation Agreements................. 13
Death Benefit................................... 13
Death Benefit Options....................... 13
Changes in Death Benefit Option............. 13
Guaranteed Death Benefit Provision.......... 13
Payment of Death Benefit.................... 14
Changes in Specified Amount................. 15
Premium Payments; Transfers..................... 15
Premium Payments............................ 15
Allocation of Net Premium Payments.......... 16
Transfers................................... 17
Optional Variable Account Sub-Account
Allocation Programs........................ 17
Dollar Cost Averaging..................... 18
Automatic Rebalancing..................... 18
Charges; Fees................................... 19
Premium Load................................ 19
Monthly Deductions.......................... 19
Transaction Fee for Excess Transfers........ 20
Mortality and Expense Risk Charge........... 20
Surrender Charge............................ 21
The Fixed Account............................... 22
Policy Values................................... 22
Accumulation Value.......................... 22
Variable Accumulation Unit Value............ 23
Surrender Value............................. 23
Surrenders...................................... 23
Partial Surrenders.......................... 23
Full Surrenders............................. 24
Deferral of Payment and Transfers........... 24
Lapse and Reinstatement......................... 24
Lapse of a Policy; Effect of Guaranteed
Death Benefit Provision.................... 24
<CAPTION>
PAGE
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<S> <C>
Reinstatement of a Lapsed Policy............ 24
Policy Loans.................................... 25
Settlement Options.............................. 25
Other Policy Provisions......................... 26
Issuance.................................... 26
Short-Term Right to Cancel the Policy....... 26
Policy Owner................................ 26
Beneficiary................................. 26
Assignment.................................. 27
Right to Exchange for a Fixed Benefit
Policy..................................... 27
Incontestability............................ 27
Misstatement of Age or Sex.................. 27
Suicide..................................... 28
Nonparticipating Policies................... 28
Tax Matters..................................... 28
Policy Proceeds............................. 28
Taxation of the Company..................... 29
Section 848 Charges......................... 29
Other Considerations........................ 30
Other Matters................................... 30
Directors and Officers of the Company....... 30
Distribution of Policies.................... 30
Changes of Investment Policy................ 31
Other Contracts Issued by the Company....... 31
State Regulation............................ 31
Reports to Policy Owners.................... 32
Advertising................................. 32
Year 2000 Issues............................ 32
Legal Proceedings........................... 33
Experts..................................... 33
Registration Statement...................... 34
Financial Statements............................ 34
Connecticut General Life Insurance
Company.................................... 36
CG Variable Life Insurance Separate Account
II......................................... 54
Appendix 1...................................... 69
Illustration of Surrender Charges........... 69
Appendix 2...................................... 71
Illustration of Accumulation Values,
Surrender Values, and Death Benefits....... 71
Appendix 3...................................... 81
Tax Information............................. 81
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION VALUE: The sum of the Fixed Account Value,
Variable Account Value and the Loan Account Value.
ACCUMULATION UNIT: A unit of measure used to calculate the
value of a Variable Account Sub-Account.
ADDITIONAL PREMIUMS: Any premium paid in addition to Planned
Premiums.
ANNUITY & VARIABLE LIFE SERVICES CENTER: The office of the
Company to which Premium Payments should be sent, notices
given and any customer service requests made. Mailing
address: Annuity & Variable Life Services Center, Routing
S-249, Hartford, CT 06152-2249.
CERTIFICATE: The document which evidences the participation
of an Owner in a group policy.
CODE: The Internal Revenue Code of 1986, as amended.
CORRIDOR DEATH BENEFIT: The Death Benefit calculated as a
percentage of the Accumulation Value rather than by
reference to the Specified Amount to satisfy the Internal
Revenue Service definition of "life insurance."
COST OF INSURANCE: The portion of the Monthly Deduction
designed to compensate the Company for the anticipated cost
of paying Death Benefits in excess of the Accumulation
Value, not including riders, supplemental benefits or
monthly expense charges.
DEATH BENEFIT: The amount payable to the beneficiary upon
the death of the Insured in accordance with the Death
Benefit Option elected, before deduction of the amount
necessary to repay any loans in full, and overdue
deductions.
DEATH BENEFIT OPTION: Either of two methods for determining
the Death Benefit.
FIXED ACCOUNT: The account under which principal is
guaranteed and interest is credited at a rate of not less
than 4% per year. Fixed Account assets are general assets of
the Company held in the Company's General Account.
FIXED ACCOUNT VALUE: The portion of the Accumulation Value,
other than the Loan Account Value, held in the Company's
General Account.
FUND(S): One or more of AIM Variable Insurance Funds, Inc.
-- AIM V.I. Capital Appreciation Fund, AIM V.I. Growth Fund,
AIM V.I. Value Fund, AIM V.I. Diversified Income Fund; CIGNA
Variable Products Group -- CIGNA VP Money Market Fund; CIGNA
VP S&P 500 Index Fund; Fidelity Variable Insurance Products
Fund -- Equity-Income Portfolio; Fidelity Variable Insurance
Products Fund II -- Asset Manager Portfolio and Investment
Grade Bond Portfolio; MFS-Registered Trademark- Variable
Insurance Trust -- MFS Emerging Growth Series; MFS Total
Return Series, MFS Utilities Series, MFS World Governments
Series; Templeton Variable Products Series Fund -- Templeton
Asset Allocation Fund, Templeton International Fund,
Templeton Stock Fund; OCC Accumulation Trust -- Global
Equity Portfolio, Managed Portfolio and Small Cap Portfolio.
Each of them is an open-end management investment company
(mutual fund) whose shares are available to fund the
benefits provided by the Policy.
GENERAL ACCOUNT: The Company's general asset account, in
which assets attributable to the non-variable portion of
Policies are held.
GRACE PERIOD: The 61-day period following a Monthly
Anniversary Day on which the Policy's Surrender Value is
insufficient to cover the current Monthly Deduction. The
Company will send notice at least 31 days before the end of
the Grace Period that the Policy will lapse without value
unless a sufficient payment (described in the notification
letter) is received by the Company.
GUARANTEED INITIAL DEATH BENEFIT PREMIUM: The Premium
Payment(s) which must be made to guarantee the Initial
Specified Amount for the first five Policy Years after
issue, regardless of investment performance, assuming there
will be no loans or partial surrenders.
3
<PAGE>
GUIDELINE ANNUAL PREMIUM: The level amount, calculated in
accordance with Rule 6e-3(T) under the Investment Company
Act of 1940, required to mature the Policy under guaranteed
mortality and expense charges and an annual interest rate of
5%.
INITIAL SPECIFIED AMOUNT: The amount (at least $100,000),
originally chosen by the Policy Owner, initially equal to
the Death Benefit. The Initial Specified Amount may be
increased or decreased as described in this Prospectus.
INSURED: The person on whose life the Policy is issued.
ISSUE AGE: The age of the Insured, to the nearest birthday,
on the Issue Date.
ISSUE DATE: The date on which the Policy becomes effective,
as shown in the Policy Specifications.
LOAN ACCOUNT VALUE: An amount equal to the sum of all unpaid
Policy loans and loan interest.
MONTHLY ANNIVERSARY DAY: The day of the month as shown in
the Policy Specifications, or the next Valuation Day if that
day is not a Valuation Day or is nonexistent for that month,
when the Company makes the Monthly Deduction.
MONTHLY DEDUCTION: The monthly deduction made from the Net
Accumulation Value; this deduction includes the cost of
insurance, an administrative expense charge, and charges for
supplemental riders or benefits, if applicable.
NET ACCUMULATION VALUE: The Accumulation Value less the Loan
Account Value.
NET AMOUNT AT RISK: The Death Benefit before subtraction of
outstanding loans, if any, minus the Accumulation Value.
NET PREMIUM PAYMENT: The portion of a Premium Payment, after
deduction of 5.0% for the premium load, available for
allocation to the Fixed Account and the Variable Account
Sub-Accounts.
OWNER. The Owner on the Date of Issue will be the person
designated in the Policy Specifications as having all
ownership rights under the Policy; includes the Certificate
Owner under a group policy. If no person is designated as
Owner, the Insured will be the Owner.
PLANNED PREMIUMS: The amount of premium the Policy Owner
chooses to pay the Company on a scheduled basis. This is the
amount for which the Company sends a premium reminder
notice.
POLICY: The life insurance contract described in this
Prospectus, i.e., either an individual Policy or a
Certificate evidencing the Owner's participation in a group
policy, under which flexible premium payments are permitted
and the death benefit and contract values may vary with the
investment performance of the funding option(s) selected.
POLICY YEAR: Each twelve-month period, beginning on the
Issue Date, during which the Policy is in effect.
PREMIUM PAYMENT: A premium payment made under the Policy.
RIGHT-TO-EXAMINE PERIOD: The period of time following the
issuance of the Policy during which the Owner may return the
Policy and receive a refund of premiums paid, the latest of
(a) 10 days after the Policy is received, unless otherwise
stipulated by state law requirements, (b) 10 days after the
Company mails or personally delivers a Notice of Withdrawal
Right to the Owner, or (c) 45 days after the application for
the Policy is signed.
SETTLEMENT OPTION(S): Several ways in which the Beneficiary
may receive a Death Benefit, or in which the Owner may
choose to receive payments upon surrender of the Policy.
SUB-ACCOUNT: That portion of the Variable Account which is
invested in shares of a specific Fund.
SURRENDER CHARGE: The amount retained by the Company upon
the full surrender of the Policy.
SURRENDER VALUE: The amount a Policy Owner can receive in
cash by surrendering the Policy. This equals the Net
Accumulation Value minus the applicable Surrender Charge.
All of the Surrender Value may be applied to one or more of
the Settlement Options.
4
<PAGE>
VALUATION DAY: Every day on which Accumulation Units are
valued; any day on which the New York Stock Exchange is
open, except any day on which trading on the Exchange is
restricted, or on which an emergency exists, as determined
by the Securities and Exchange Commission, so that valuation
or disposal of securities is not practicable.
VALUATION PERIOD: The period of time beginning on the day
following a Valuation Day and ending on the next Valuation
Day. A Valuation Period may be more than one day in length.
VARIABLE ACCOUNT: CG Variable Life Insurance Separate
Account II. Consists of all Sub-Accounts invested in shares
of the Funds. Variable Account assets are kept separate from
the general assets of the Company and are not chargeable
with the general liabilities of the Company.
VARIABLE ACCOUNT VALUE: The portion of the Accumulation
Value attributable to the Variable Account.
HIGHLIGHTS
The Policy is a flexible premium variable life insurance
policy. Its values may be accumulated on a fixed or variable
basis or a combination of fixed and variable bases. The
Policy's provisions may vary in some states.
INITIAL CHOICES
TO BE MADE
When purchasing a Policy, the Owner makes three important
choices:
1) Selecting one of the two Death Benefit Options;
2) Selecting the amount of Premium Payments to make; and
3) Selecting how Net Premium Payments will be allocated
among the available funding options.
LEVEL OR VARYING
DEATH BENEFIT
At the time of purchase, the Policy Owner (also called the
"Owner" in this Prospectus) must choose between the two
Death Benefit Options. The amount payable under either
option will be determined as of the date of the Insured's
death. Under the level Death Benefit Option, the Death
Benefit will be the greater of the Specified Amount, or the
Corridor Death Benefit. Under the varying Death Benefit
Option, the Death Benefit will be the greater of the
Specified Amount plus the Accumulation Value, or the
Corridor Death Benefit (See "Death Benefit").
The Policy also offers a Guaranteed Initial Death Benefit
Provision which ensures that for the first five Policy Years
the Death Benefit will not be less than the Initial
Specified Amount, regardless of market performance, assuming
there have been no loans or surrenders, even if the Net
Accumulation Value is insufficient to cover the current
Monthly Deductions (See "Guaranteed Death Benefit
Provision").
AMOUNT OF
PREMIUM PAYMENT
At the time of purchase, the Policy Owner must also choose
the amount of premium to be paid. The Owner may vary Premium
Payments to some extent and still keep the Policy in force.
Premium reminder notices will be sent for Planned Premiums
and for premiums required to continue this Policy in force.
If the Policy lapses it may be reinstated (See
"Reinstatement of a Lapsed Policy"). Premium Payments are
refundable during the Right-to-Examine Period.
SELECTION OF
FUNDING
VEHICLE(S)
The Policy Owner must choose how to allocate Net Premium
Payments. Net Premium Payments allocated to the Variable
Account may be allocated to one or more Sub-Accounts of the
Variable Account, each of which invests in shares of a
particular Fund. The Initial Premium Payment will not be
allocated to the Variable Account until three days following
the expiration of the Right-to-Examine Period (see
"Short-Term Right to Cancel the Policy"). The Fixed Account
may also be elected as an allocation option. Allocations to
any Sub-Account or to the Fixed Account must be in whole
percentages. No allocation can be made which would result in
a Sub-Account Value of less than $50 or a Fixed Account
value of less than $2,500. Further, at this time, no more
than 18 Sub-Accounts may be opened during the life of the
Policy. The Company may expand this number at a future date.
The variable portion of a Policy is supported by
5
<PAGE>
the Fund(s) selected as funding vehicle(s). The portion of
the Variable Account Value attributable to a particular Fund
through the Sub-Account of the Variable Account is not
guaranteed and will vary with the investment performance of
that Fund.
CHARGES
AND FEES
There is a 5.0% premium load on all Premium Payments.
Monthly deductions are made for the Cost of Insurance and
any riders.
Monthly deductions ($15 per month during the first Policy
Year and, currently, $5 per month thereafter) are also made
for administrative expenses.
Daily deductions from Variable Account Value are made for
the mortality and expense risk, currently at the annual rate
of .80% during the first twelve Policy Years and .55%
thereafter.
Investment results for each Sub-Account are affected by each
Fund's daily charge for management fees; these charges vary
by Fund and are shown at pages 10-11 of this Prospectus.
A transaction fee of $25 is imposed for each partial
surrender and for certain transfers in excess of 12 per
Policy Year.
A surrender charge will be deducted upon full surrender of a
Policy within the first ten Policy Years or within ten years
after an increase in Specified Amount.
Interest is charged on Policy loans. The net interest spread
(the amount by which interest charged exceeds interest
credited) is currently 1% per year in the first ten Policy
Years and .25% per year thereafter.
The Company may derive a profit from its charges except from
the monthly deduction for administrative expenses and the
transaction fee.
THE COMPANY
The Company is a stock life insurance company incorporated
in Connecticut in 1865. Its Home Office mailing address is
Hartford, Connecticut 06152, Telephone (860) 726-6000. It
has obtained authorization to do business in fifty states,
the District of Columbia and Puerto Rico. The Company issues
group and individual life and health insurance policies and
annuities. The Company has various wholly-owned subsidiaries
which are generally engaged in the insurance business. The
Company is a wholly-owned subsidiary of Connecticut General
Corporation, Bloomfield, Connecticut. Connecticut General
Corporation is wholly-owned by CIGNA Holdings Inc.,
Philadelphia, Pennsylvania which is in turn wholly-owned by
CIGNA Corporation, Philadelphia, Pennsylvania. Connecticut
General Corporation is the holding company of various
insurance companies, one of which is Connecticut General
Life Insurance Company.
The Company markets the Policies through independent
insurance brokers, general agents, and registered
representatives of broker-dealers which are members of the
National Association of Securities Dealers, Inc.
The Company, in common with other insurance companies, is
subject to regulation and supervision by the regulatory
authorities of the states in which it is licensed to do
business. A license from the state insurance department is a
prerequisite to the transaction of insurance business in
that state. In general, all states have statutory
administrative powers. Such regulation relates, among other
things, to licensing of insurers and their agents, the
approval of policy forms, the methods of computing reserves,
the form and content of statutory financial statements, the
amount of policyholders' and stockholders' dividends, and
the type of distribution of investments permitted. A blanket
bond for $100 million covers all of the officers and
employees of the Company.
THE VARIABLE ACCOUNT
CG Variable Life Insurance Separate Account II was
established pursuant to a July 6, 1994 resolution of the
Board of Directors of the Company. Under Connecticut
insurance law, the income, gains or losses of the Variable
Account are credited without regard to the other income,
gains or losses of the Company. The Company serves as the
custodian of the assets of the Variable Account. These
assets are held for the Policies. Although the assets
maintained in the Variable Account will not be charged with
any
6
<PAGE>
liabilities arising out of any other business conducted by
the Company, all obligations arising under the Policies are
general corporate liabilities of the Company. Any and all
distributions made by the Funds with respect to shares held
by the Variable Account will be reinvested in additional
shares at net asset value. Deductions and surrenders from
the Variable Account will, in effect, be made by
surrendering shares of the Funds at net asset value. On each
Valuation Day of each Fund, the Variable Account purchases
or redeems Fund shares based on a netting of all
transactions for that day. Shares of the Funds held in the
Variable Account are held by the Company through an open
account system, which makes unnecessary the issuance and
delivery of stock certificates.
The Variable Account is registered with the Securities and
Exchange Commission ("Commission") as a unit investment
trust under the Investment Company Act of 1940 ("1940 Act").
Such registration does not involve supervision of the
Variable Account or the Company's management or investment
practices or policies by the Commission. The Company does
not guarantee the Variable Account's investment performance.
The Company has several other separate accounts registered
as unit investment trusts with the Commission for the
purpose of funding the variable annuity contracts and
variable life insurance policies of the Company.
THE FUNDS
Each of the nineteen Sub-Accounts of the Variable Account is
invested solely in the shares of one of the nineteen Funds
available as funding vehicles under the Policies. Each of
the Funds is a series of one of seven entities, all
Massachusetts business trusts, except for AIM Variable
Insurance Funds, Inc., a Maryland corporation. Each such
entity is registered as an open-end, diversified management
investment company under the 1940 Act. These entities are
collectively referred to herein as the "Trusts."
The seven Trusts and their Investment advisers and
distributors are:
AIM Variable Insurance Funds, Inc. ("AIM V.I. Fund"),
managed by A I M Advisors, Inc., and distributed by
A I M Distributors, Inc., 11 Greenway Plaza, Suite 100,
Houston, TX 77046-1173;
CIGNA Variable Products Group ("CIGNA Group"), managed
by CIGNA Investments, Inc., and distributed by CIGNA
Financial Services, Inc., One Commercial Plaza, 280
Trumbull Street, Hartford, CT 06103;
Variable Insurance Products Fund ("Fidelity VIP"), and
Variable Insurance Products Fund II ("Fidelity VIP II"),
managed by Fidelity Management & Research
Company and distributed by Fidelity Distributors
Corporation, 82 Devonshire Street, Boston, MA 02103;
MFS-Registered Trademark- Variable Insurance Trust ("MFS
Trust"), managed by Massachusetts Financial Services
Company and distributed by MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116;
Templeton Variable Products Series Fund ("Templeton
Trust"), managed by Templeton Investment Counsel, Inc.
and its Templeton and Franklin affiliates and
distributed by Franklin/Templeton Distributors, Inc.,
700 Central Avenue, St. Petersburg, FL 33701;
OCC Accumulation Trust ("OCC Trust") (formerly Quest for
Value Accumulation Trust), managed by OpCap Advisors
(formerly Quest for Value Advisors) and distributed by
OCC Distributors (formerly Quest for Value
Distributors), One World Financial Center, New York, NY
10281.
Four Funds of AIM V.I. Fund are available under the
Policies:
AIM V.I. Capital Appreciation Fund;
AIM V.I. Diversified Income Fund;
AIM V.I. Growth Fund;
AIM V.I. Value Fund.
Two Funds of CIGNA Variable Products Group are available
under the Policies:
CIGNA VP Money Market Fund;
CIGNA VP S&P 500 Index Fund.
One Fund of FIDELITY VIP is available under the Policies:
Equity-Income Portfolio ("Fidelity VIP Equity-Income
Portfolio").
7
<PAGE>
Two Funds of FIDELITY VIP II are available under the
Policies:
Asset Manager Portfolio ("Fidelity VIP II Asset Manager
Portfolio");
Investment Grade Bond Portfolio ("Fidelity VIP II
Investment Grade Bond Portfolio").
Four Funds of MFS Trust are available under the Policies:
MFS Emerging Growth Series;
MFS Total Return Series;
MFS Utilities Series;
MFS World Governments Series.
Three Funds of TEMPLETON Trust are available under the
Policies:
Templeton Asset Allocation Fund: Class 1;
Templeton International Fund: Class 1;
Templeton Stock Fund: Class 1.
Three Funds of OCC Accumulation Trust are available under
the Policies:
Global Equity Portfolio;
Managed Portfolio;
Small Cap Portfolio.
The investment advisory fees charged the Funds by their
advisers are shown on pages 11 and 12 of this Prospectus.
There follows a brief description of the investment
objective and program of each Fund. There can be no
assurance that any of the stated investment objectives will
be achieved.
AIM V.I. CAPITAL APPRECIATION FUND (Small Cap Stocks): Seeks
to provide capital appreciation through investments in
common stocks, with emphasis on medium-sized and smaller
emerging growth companies.
AIM V.I. DIVERSIFIED INCOME FUND (Fixed
Income - Intermediate Term Bonds): Seeks to achieve a high
level of current income primarily by investing in a
diversified portfolio of foreign and U.S. government and
corporate debt securities, including lower rated high yield
debt securities (commonly known as "junk bonds").
AIM V.I. GROWTH FUND (Large Cap Stocks): Seeks to provide
growth of capital through investments primarily in common
stocks of leading U.S. companies considered by its adviser
to have strong earnings momentum.
AIM V.I. VALUE FUND (Large Cap Stocks): Seeks to achieve
long-term growth of capital by investing primarily in equity
securities judged by its adviser to be undervalued relative
to the current or projected earnings of the companies
issuing the securities, or relative to current market values
of assets owned by the companies issuing the securities or
relative to the equity markets generally. Income is a
secondary objective.
CIGNA VP MONEY MARKET FUND (Money Market): Seeks to provide
as high a level of current income as is consistent with the
preservation of capital and liquidity and the maintenance of
a stable $1.00 per share net asset value by investing in
short-term money market instruments.
CIGNA VP S&P 500 INDEX FUND (Large Cap Stocks): Seeks to
achieve its objective of long-term growth of capital by
attempting to replicate the composition and total return,
reduced by fund expenses, of the Standard and Poor's 500
Composite Stock Price Index.
FIDELITY VIP II ASSET MANAGER PORTFOLIO (Balanced or Total
Return): Seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and
foreign stocks, bonds and short-term money market
instruments.
FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO (Fixed
Income - Intermediate Term Bonds): Seeks as high a level of
current income as is consistent with the preservation of
capital by investing in a broad range of investment-grade
fixed-income securities.
FIDELITY VIP EQUITY-INCOME PORTFOLIO (Large Cap Stocks):
Seeks reasonable 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&P 500).
8
<PAGE>
MFS EMERGING GROWTH SERIES (Large Cap Stocks): Seeks to
provide long-term growth of capital by investing primarily
in common stocks of foreign and domestic issuers.
MFS TOTAL RETURN SERIES (Balanced or Total Return): Seeks
primarily to obtain above-average income (compared to a
portfolio invested entirely in equity securities) consistent
with the prudent employment of capital, and secondarily to
provide a reasonable opportunity for growth of capital and
income.
MFS UTILITIES SERIES (Specialty): 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.
MFS WORLD GOVERNMENTS SERIES (International Fixed Income):
Seeks not only preservation, but also growth, of capital
together with moderate current income through a
professionally managed, internationally diversified
portfolio consisting primarily of debt securities and to a
lesser extent equity securities.
TEMPLETON ASSET ALLOCATION FUND (Balanced or Total Return):
Seeks a high level of total return through a flexible policy
of investing in stocks of companies in any nation, debt
securities of companies and governments of any nation, and
in money market instruments. Assets are allocated among
different investments depending upon worldwide market and
economic conditions.
TEMPLETON INTERNATIONAL FUND (International Stocks): Seeks
long-term capital growth through a flexible policy of
investing in stocks and debt obligations of companies and
governments outside the United States.
TEMPLETON STOCK FUND (Global Stocks): Seeks capital growth
through a policy of investing primarily in common stocks
issued by companies, large and small, in various nations
throughout the world, including the U.S.
OCC ACCUMULATION TRUST GLOBAL EQUITY PORTFOLIO
(International Stocks): Seeks long-term capital appreciation
through a global investment strategy primarily involving
equity securities.
OCC ACCUMULATION TRUST MANAGED PORTFOLIO (Balanced or Total
Return): Seeks growth of capital over time through
investment in a portfolio of common stocks, bonds and cash
equivalents, the percentage of which will vary based on
management's assessments of relative investment values.
OCC ACCUMULATION TRUST SMALL CAP PORTFOLIO (Small Cap
Stocks): Seeks capital appreciation through investments in a
diversified portfolio of equity securities of companies with
market capitalizations of under $1 billion.
The AIM V.I. Diversified Income Fund, Fidelity VIP
Equity-Income Portfolio, Fidelity VIP II Asset Manager
Portfolio, MFS Total Return Series, MFS Utilities Series,
MFS World Governments Series, OCC Global Equity Portfolio,
OCC Managed Portfolio, OCC Small Cap Portfolio, Templeton
Asset Allocation Fund, Templeton International Fund and
Templeton Stock Fund portfolios 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.
9
<PAGE>
EXPENSE DATA
The purpose of the following Table is to help Purchasers and prospective
purchasers understand the costs and expenses that are borne, directly and
indirectly, by Purchasers assuming that all Net Premium Payments are allocated
to the Variable Account. The table reflects expenses of the Variable Account as
well as of the individual Funds underlying the Variable Sub-Accounts. The
Mortality and Expense Risk Charge shown is the currently charged rate during the
first twelve Policy Years. It currently declines to .55% per year thereafter and
is guaranteed not to exceed .90% per year. Fund expenses are based on historical
fund expenses as a percentage of net assets for the year ended December 31,
1997, except as indicated. Expenses of the funds are not fixed or specified
under the terms of the Contracts, and actual expense may vary.
FEE TABLE
<TABLE>
<CAPTION>
AIM VARIABLE INSURANCE FUNDS, INC.
--------------------------------------------------
AIM V.L.
CAPITAL AIM V.I. AIM V.I. AIM V.I.
APPRECIATION DIVERSIFIED GROWTH VALUE
FUND INCOME FUND FUND FUND
------------- ------------ -------- ---------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk
Charge............................ 0.80% 0.80% 0.80% 0.80%
Total Separate Account Annual
Expenses.......................... 0.80% 0.80% 0.80% 0.80%
FUND PORTFOLIO ANNUAL EXPENSES
Management Fees.................... 0.63% 0.60% 0.65% 0.62%
Other Expenses..................... 0.05% 0.20% 0.08% 0.08%
Total Fund Portfolio Annual
Expenses.......................... 0.68%(1) 0.80%(1) 0.73%(1) 0.70%(1)
<CAPTION>
FIDELITY VARIABLE INSURANCE
CIGNA VP PRODUCTS FUNDS
GROUP ---------------------------------
----------------------------------- VIP II VIP VIP II
CIGNA VP CIGNA ASSET EQUITY- INVESTMENT
MONEY VP S&P MANAGER INCOME GRADE BOND
MARKET FUND 500 INDEX FUND PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk
Charge............................ 0.80% 0.80% 0.80% 0.80% 0.80%
Total Separate Account Annual
Expenses.......................... 0.80% 0.80% 0.80% 0.80% 0.80%
FUND PORTFOLIO ANNUAL EXPENSES
Management Fees.................... 0.35% 0.25% 0.55% 0.50% 0.44%
Other Expenses..................... 0.15% 0.00% 0.10% 0.08% 0.14%
Total Fund Portfolio Annual
Expenses.......................... 0.50%(2) 0.25%(2) 0.65%(3) 0.58%(3) 0.58%
</TABLE>
- ------------------------
(1) A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its respective fees. Effective May 1, 1998, the Funds reimburse AIM
in an amount up to 0.25% of the average net asset value of each Fund, for
expenses incurred in providing, or assuring that participating insurance
companies provide, certain administrative services. Currently, the fee only
applies to the average net asset value of each Fund in excess of the net
asset value of each Fund as calculated on April 30, 1998.
(2) Through May 1, 1999, the Funds' adviser has agreed to bear expenses of the
Funds so that Total Fund Portfolio Annual Operating Expenses do not exceed
0.50% and 0.25% of average daily net asset value for the VP Money Market and
the VP S&P 500 Index Funds, respectively. Otherwise, Total Fund Portfolio
Annual Operating Expenses would have been 1.11% and 0.55% of average daily
net asset value for 1997 for the VP Money Market and the VP S&P 500 Index
Funds, respectively.
(3) A portion of the brokerage commissions that certain funds paid was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, Total Fund Portfolio Annual Expenses would have been 0.64%
for the VIP II Asset Manager Portfolio and 0.57% for the VIP Equity-Income
Portfolio.
10
<PAGE>
The table does not reflect the monthly deductions for the cost of insurance and
any riders, nor does it reflect the monthly deduction of $15 during the first
Policy Year, and currently, $5 thereafter for administrative expenses. The
information set forth should be considered together with the information
provided in this Prospectus under the heading "Charges and Fees", and in each
Fund's Prospectus. All expenses are expressed as a percentage of average account
value.
<TABLE>
<CAPTION>
MFS VARIABLE INSURANCE TRUST
---------------------------------------------------------
MFS MFS
EMERGING TOTAL MFS MFS WORLD
GROWTH RETURN UTILITIES GOVERNMENTS
SERIES SERIES SERIES SERIES
------------ ----------- ------------ ------------
<S> <C> <C> <C>
0.80% 0.80% 0.80% 0.80%
0.80% 0.80% 0.80% 0.80%
0.75% 0.75% 0.75% 0.75%
0.12%(5) 0.25%(5) 0.25%(5) 0.25%(5)
0.87% 1.00%(4) 1.00%(4) 1.00%(4)
<CAPTION>
TEMPLETON VARIABLE PRODUCTS
SERIES FUNDS
--------------------------------------------
------------ TEMPLETON
MFS ASSET TEMPLETON TEMPLETON
EMERGING ALLOCATION INTERNATIONAL STOCK
GROWTH FUND FUND FUND
SERIES CLASS 1 CLASS 1 CLASS 1
------------ -------------- ------------- ---------
<S> <C> <C> <C>
0.80% 0.80% 0.80% 0.80%
0.80% 0.80% 0.80% 0.80%
0.75% 0.60%(6) 0.69%(6) 0.69%(6)
0.12%(5) 0.18%(6) 0.19%(6) 0.19%(6)
0.87% 0.78% 0.88% 0.88%
<CAPTION>
------------ OCC ACCUMULATION TRUST
MFS -----------------------------------
EMERGING GLOBAL
GROWTH EQUITY MANAGED SMALL CAP
SERIES PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------- --------- ---------
0.80% 0.80% 0.80% 0.80%
0.80% 0.80% 0.80% 0.80%
0.75% 0.79%(7) 0.80%(7) 0.80%(7)
0.12%(5) 0.40%(8) 0.07%(8) 0.17%(8)
0.87% 1.19%(9) 0.87%(9) .97%(9)
<FN>
- ------------------------
(4) The Adviser has agreed to bear expenses for each Series, subject to
reimbursement by each Series, such that each Series' "Other Expenses" shall
not exceed 0.25% of the average daily net assets of the Series during the
current fiscal year. Otherwise, "Other Expenses" for the Total Return
Series, Utilities Series and World Government Series would be 0.27%, 0.45%
and 0.40% respectively, and "Total Fund Portfolio Annual Expenses" would be
1.02%, 1.20%, and 1.15% respectively, for these Series. See "Information
Concerning Shares of Each Series--Expenses."
(5) 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, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses".
(6) Management Fees and Total Operating Expenses have been restated to reflect
the management fee schedule approved by shareholders and effective May 1,
1997. See fund prospectus for details. Actual Management Fees and Total
Fund Operating Expenses during 1997 were lower.
(7) Reflects management fees after taking into effect any waiver.
(8) Other Expenses are shown gross of expense offsets afforded the Portfolios
which effectively lowered overall custody expenses.
(9) Total Portfolio Expenses for the Small Cap and Managed Portfolios are
limited by OpCap Advisors so that their respective annualized operating
expenses (net of any expense offsets) do not exceed 1.00% of average daily
net assets. Total Portfolio Expenses for the Global Equity Portfolio are
limited to 1.25% of average daily net assets. Without such limitation and
without giving effect to any expense offsets, the Management Fees, Other
Expenses and Total Portfolio Expenses incurred for the fiscal year ended
December 31, 1997 would have been: .80%, .17% and .97%, respectively, for
the Small Cap Portfolio, .80%, .07% and .87%, respectively, for the Managed
Portfolio and .80%, .40% and 1.20%, respectively, for the Global Equity
Portfolio.
</TABLE>
11
<PAGE>
GENERAL
There is no assurance that the investment objective of any
of the Funds will be met. A Policy Owner bears the complete
investment risk for Accumulation Values allocated to a
Sub-Account. Each of the Sub-Accounts involves inherent
investment risk, and such risk varies significantly among
the Sub-Accounts. Policy Owners should read each Fund's
prospectus carefully and understand the Funds' relative
degrees of risk before making or changing investment
choices. Additional Funds may, from time to time, be made
available as investments to underlie the Policies. However,
the right to make such selections will be limited by the
terms and conditions imposed on such transactions by the
Company (See "Premium Payments").
Required premium levels will vary based on market
performance. In a prolonged market downturn, affecting all
Sub-Accounts, additional Premium Payments may be necessary
to maintain the level of coverage or to avoid lapsing of the
Policy. Review of periodic contract statements is strongly
suggested to determine appropriate premium requirements.
SUBSTITUTION OF SECURITIES
If the shares of any Fund should no longer be available for
investment by the Variable Account or if, in the judgment of
the Company, further investment in such shares should become
inappropriate in view of the purpose of the investment
objectives of the Policies, the Company may substitute
shares of another Fund. No substitution of securities in any
Sub-Account may take place without prior approval of the
Commission and under such requirements as it may impose.
VOTING RIGHTS
In accordance with its view of present applicable law, the
Company will vote the shares of each Fund held in the
Variable Account at special meetings of the shareholders of
the particular Series Fund in accordance with written
instructions received from persons having the voting
interest in the Variable Account. The Company will vote
shares for which it has not received instructions, as well
as shares attributable to it, in the same proportion as it
votes shares for which it has received instructions. The
Series Funds do not hold regular meetings of shareholders.
The number of shares which a person has a right to vote will
be determined as of a date to be chosen by the appropriate
Series Fund not more than sixty (60) days prior to the
meeting of the particular Series Fund. Voting instructions
will be solicited by written communication at least fourteen
(14) days prior to the meeting.
The Funds' shares are issued and redeemed only in connection
with variable annuity contracts and variable life insurance
policies issued through separate accounts of the Company and
other life insurance companies. The Series Funds do not
foresee any disadvantage to Policy Owners arising out of the
fact that shares may be made available to separate accounts
which are used in connection with both variable annuity and
variable life insurance products. Nevertheless, the Series
Funds' 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.
12
<PAGE>
FUND PARTICIPATION AGREEMENTS
The Company has entered into agreements with the various
Series Funds and their advisers or distributors under which
the Company makes the Funds available under the Policies and
performs certain administrative services. In some cases, the
advisers or distributors may compensate the Company
therefor.
DEATH BENEFIT
DEATH BENEFIT OPTIONS
Two different Death Benefit Options are available. The
amount payable under either option will be determined as of
the date of the Insured's death.
Under OPTION 1 the Death Benefit will be the greater of the
Specified Amount (a minimum of $100,000 as of the date of
this Prospectus), or the applicable percentage (the
"Corridor Percentage") of the Accumulation Value required to
maintain the Policy as a "life insurance contract" for tax
purposes (the "Corridor Death Benefit"). The Corridor
Percentage is 250% through the Insured's age 40 and
decreases in accordance with the table in "Payment of Death
Benefit" to 100% at the Insured's age 95. Option 1 provides
a level Death Benefit until the Corridor Death Benefit
exceeds the Specified Amount.
Under OPTION 2 the Death Benefit will be the greater of the
Specified Amount (a minimum of $100,000 as of the date of
this Prospectus), plus the Accumulation Value, or the
Corridor Death Benefit. Option 2 provides a varying Death
Benefit which increases or decreases over time, depending on
the amount of premium paid and the investment performance of
the underlying funding options chosen.
Under both Option 1 and Option 2, the proceeds payable upon
death will be the Death Benefit, reduced by partial
surrenders and by the amount necessary to repay any loans in
full. Option 1 will be in effect unless Option 2 has been
elected in the application for the Policy or unless a change
has been allowed.
CHANGES IN DEATH BENEFIT OPTION
A Death Benefit Option change will be allowed upon the
Owner's written request to the Annuity & Variable Life
Services Center in form satisfactory to the Company, subject
to the following conditions:
- The change will take effect on the Monthly Anniversary
Day or on the next Valuation Day following the date of
receipt of the request.
- There will be no change in the Surrender Charge, and
evidence of insurability may be required.
- No change in the Death Benefit Option may reduce the
Specified Amount below $100,000.
- For changes from Option 1 to Option 2, the new Specified
Amount will equal the Specified Amount less the
Accumulation Value at the time of the change.
- For changes from Option 2 to Option 1, the new Specified
Amount will equal the Specified Amount plus the
Accumulation Value at the time of the change.
GUARANTEED DEATH BENEFIT PROVISION
The Guaranteed Death Benefit Provision assures that, as long
as the Guaranteed Initial Death Benefit Premium is paid, the
Death Benefit will not be less than the Initial
13
<PAGE>
Specified Amount during the first five Policy Years even if
the Net Accumulation Value is insufficient to cover the
current Monthly Deductions, assuming there have been no
loans or partial surrenders.
Changes in Initial Specified Amount, partial surrenders, and
Death Benefit Option changes during the first five Policy
Years may affect the Guaranteed Death Benefit Premium. These
events and loans may also affect the Policy's ability to
remain in force.
PAYMENT OF DEATH BENEFIT
The Death Benefit under the Policy will be paid in a lump
sum within seven days after receipt at the Annuity &
Variable Life Services Center of due proof of the Insured's
death (a certified copy of the death certificate), unless
the Owner or the Beneficiary has elected that it be paid
under one or more of the Settlement Options (See "Settlement
Options"). Payment of the Death Benefit may be delayed if
the Policy is being contested.
While the Insured is living, the Owner may elect a
Settlement Option for the Beneficiary and deem it
irrevocable, and may revoke or change a prior election. The
Beneficiary may make or change an election within 90 days of
the death of the Insured, unless the Owner has made an
irrevocable election.
All or a part of the Death Benefit may be applied under one
or more of the Settlement Options, or such other options as
the Company may make available in the future.
If the Policy is assigned as collateral security, the
Company will pay any amount due the assignee in one lump
sum. Any excess Death Benefit due will be paid as elected.
The Death Benefit under the Policy at any point in time must
be at least the following "Corridor Percentage" of the
Accumulation Value based on the Insured's attained age:
<TABLE>
<CAPTION>
INSURED'S CORRIDOR INSURED'S CORRIDOR
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ----------- ------------- -----------
<S> <C> <C> <C>
0-40 250% 70 115%
41 243 71 113
42 236 72 111
43 229 73 109
44 222 74 107
-- - --
45 215 75 105
46 209 76 105
47 203 77 105
48 197 78 105
49 191 79 105
-- - --
50 185 80 105
51 178 81 105
52 171 82 105
53 164 83 105
54 157 84 105
-- - --
55 150 85 105
56 146 86 105
57 142 87 105
58 138 88 105
59 134 89 105
-- - --
60 130 90 105
61 128 91 104
62 126 92 103
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
INSURED'S CORRIDOR INSURED'S CORRIDOR
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ----------- ------------- -----------
<S> <C> <C> <C>
63 124 93 102
64 122 94 101
-- - --
65 120 95 100
66 119 96 100
67 118 97 100
68 117 98 100
69 116 99 100
-- - --
</TABLE>
CHANGES IN SPECIFIED AMOUNT
Changes in the Specified Amount of a Policy can be made by
submitting a written request to the Annuity & Variable Life
Services Center in form satisfactory to the Company.
Changes in the Specified Amount are subject to the following
conditions:
- Satisfactory evidence of insurability and a supplemental
application may be required for an increase in the
Specified Amount.
- An increase in the Specified Amount will increase the
Surrender Charge.
- As of the date of this Prospectus, the minimum allowable
increase in Specified Amount is $1,000.
- No decrease may reduce the Specified Amount to less than
$100,000.
- No decrease may reduce the Specified Amount below the
minimum required to maintain the Policy's status under
the Code as a life insurance policy.
PREMIUM PAYMENTS; TRANSFERS
PREMIUM PAYMENTS
The Policies provide for flexible premium payments. Premium
Payments are payable in the frequency and in the amount
selected by the Policy Owner. The initial Premium Payment is
due on the Issue Date and is payable in advance. The minimum
payment is the amount necessary to maintain a positive Net
Accumulation Value or Guaranteed Minimum Death Benefit. Each
subsequent Premium Payment must be at least $100. The
Company reserves the right to decline any application or
Premium Payment.
After the initial Premium Payment, all Premium Payments must
be sent directly to the Annuity & Variable Life Services
Center and will be deemed received when actually received
there.
The Policy Owner may elect to increase, decrease or change
the frequency of Premium Payments.
PLANNED PREMIUMS are Premium Payments scheduled when a
Policy is applied for. They can be billed annually,
semiannually or quarterly. Pre-authorized automatic monthly
check payments may also be arranged.
ADDITIONAL PREMIUMS are any Premium Payments made ($100
minimum) in addition to Planned Premiums.
GUARANTEED INITIAL DEATH BENEFIT PREMIUM, if paid during
each of the first five Policy Years, enables the Policy to
remain in force regardless of investment performance,
assuming no surrenders or loans during that time. The
Guaranteed Initial Death Benefit Premium is stated in the
Policy Specifications. An increase in Specified Amount would
require a recalculation of the Guaranteed Initial Death
Benefit Premium. If this premium
15
<PAGE>
is not paid, or there are partial surrenders or loans taken
during the first five Policy Years, the Policy will lapse
during the first five Policy Years if the Net Accumulation
Value is less than the next Monthly Deduction, just as it
would after the first five Policy Years at any time the Net
Accumulation Value is less than the next Monthly Deduction.
Payment of Planned Premiums or Additional Premiums in any
amount will not, except as noted above, guarantee that the
Policy will remain in force. Conversely, failure to pay
Planned Premiums or Additional Premiums will not necessarily
cause a Policy to lapse (See "Guaranteed Death Benefit
Provision").
PREMIUM INCREASES. At any time, the Owner may increase
Planned Premiums, or pay Additional Premiums, but:
- Evidence of insurability may be required if the
Additional Premium or the new Planned Premium during the
current Policy Year would increase the difference between
the Death Benefit and the Accumulation Value. If
satisfactory evidence of insurability is requested and
not provided, the increase in premium will be refunded
without interest and without participation of such
amounts in any underlying funding options.
- In no event may the total of all Premium Payments exceed
the then-current maximum premium limitations established
by federal law for a Policy to qualify as life insurance.
If, at any time, a Premium Payment would result in total
Premium Payments exceeding such maximum premium
limitation, the Company will only accept that portion of
the Premium Payment which will make total premiums equal
the maximum. Any part of the Premium Payment in excess of
that amount will be returned or applied as otherwise
agreed and no further Premium Payments will be accepted
until allowed by the then-current maximum premium
limitations prescribed by law.
- If there is any Policy indebtedness, any additional Net
Premium Payments will be used first as a loan repayment
with any excess applied as an additional Net Premium
Payment.
ALLOCATION OF NET PREMIUM PAYMENTS
At the time of purchase of the Policy, the Owner must decide
how to allocate Net Premium Payments among the Sub-Accounts
and the Fixed Account. Allocation to any one Variable
Account Sub-Account or to the Fixed Account must be in whole
percentages. No allocation can be made which would result in
a Sub-Account Value of less than $50 or a Fixed Account
value of less than $2,500. Further, at this time, no more
than 18 Sub-Accounts may be opened during the life of the
Policy. The Company may expand this number at a future date.
For each Variable Account Sub-Account, the Net Premium
Payments are converted into Accumulation Units. The number
of Accumulation Units credited to the Policy is determined
by dividing the Net Premium Payment allocated to the
Sub-Account by the value of the Accumulation Unit for the
Sub-Account.
During the Right-to-Examine Period, the Net Premium Payment
will be allocated to the Fixed Account, and interest
credited from the Issue Date if the Premium Payment was
received on or before the Issue Date. The Company will
allocate the initial Net Premium Payment directly to the
Sub-Account(s) selected by the Owner within three days after
expiration of the Right-to-Examine Period.
Unless the Company is directed otherwise by the Policy
Owner, subsequent Net Premium Payments will be allocated on
the same basis as the most recent previous Net Premium
Payment. Such allocation will occur as of the next Valuation
Period after each payment is received.
16
<PAGE>
The allocation for future Net Premium Payments may be
changed at any time free of charge. Any new allocation will
apply to Premium Payments made more than one week after the
Company receives the notice of the new allocatin. Any new
allocation is subject to the same requirements as the
initial allocation. The Company may, at its sole discretion,
waive minimum premium allocation requirements.
TRANSFERS
Before the Insured attains age 100, values may, at any time,
be transferred ($500 minimum) from one Sub-Account to
another or from the Variable Account to the Fixed Account.
Within the 30 days after each Policy Anniversary, the Owner
may also transfer a portion of the Fixed Account Value to
one or more Sub-Accounts, until the Insured attains age 100.
Transfers from the Fixed Account are allowed in the 30-day
period after a Policy Anniversary and will be effective as
of the next Valuation Day after a request is received in
good order at the Annuity & Variable Life Services Center.
The cumulative amount of transfers from the Fixed Account
within any such 30-day period cannot exceed 20% of the Fixed
Account Value on the most recent Policy Anniversary. The
Company may further limit transfers from the Fixed Account
at any time.
Subject to the above restrictions, up to 12 transfers may be
made in any Policy Year without charge, and any value
remaining in the Fixed Account or a Sub-Account after a
transfer must be at least $500. Transfers may be made in
writing or by telephone unless the Policy Owner has
indicated in writing in the application or otherwise that
telephone transfers are not to be permitted. To make a
telephone transfer, the Policy Owner must call the Annuity &
Variable Life Services Center and provide, as
identification, his or her Policy Number and a requested
portion of his or her Social Security number. A customer
service representative will then come on the line and, upon
ascertaining that telephone transfers are permitted for that
Policy, take the transfer request, which will be processed
as of the next close of business and confirmed the day after
that. The Company disclaims all liability for losses
resulting from unauthorized or fraudulent telephone
transactions, but acknowledges that if it does not follow
these procedures, which it believes to be reasonable, it may
be liable for such losses.
Any transfer among the Sub-Accounts or to the Fixed Account
will result in the crediting and cancellation of
Accumulation Units based on the Accumulation Unit values
next determined after a written request is received at the
Annuity & Variable Life Services Center. Transfer requests
must be received by the Annuity & Variable Life Services
Center by 4:00 Eastern Time in order to be effective that
day. Any transfer made which causes the remaining value of
Accumulation Units for a Sub-Account to be less than $500
will result in those remaining Accumulation Units being
cancelled and their aggregate value reallocated
proportionately among the other funding options chosen. The
Policy Owner should carefully consider current market
conditions and each Sub-Account's investment policies and
related risks before allocating money to the Sub-Accounts.
See pages 8-11 of this Prospectus.
The Company, at its sole discretion, may waive minimum
balance requirements on the Sub-Accounts.
OPTIONAL VARIABLE ACCOUNT SUB-ACCOUNT ALLOCATION PROGRAMS
The Owner may elect to enroll in either of the following
programs. However, both programs cannot be in effect at the
same time.
17
<PAGE>
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected by the
Owner, systematically allocates specified dollar amounts
from the Money Market Sub-Account or the Fixed Account to
one or more of the Contract's Variable Account Sub-Accounts
at regular intervals as selected by the Owner. By allocating
on a regularly scheduled basis as opposed to allocating the
total amount at one particular time, an Owner may be less
susceptible to the impact of market fluctuations.
Dollar Cost Averaging may be elected by establishing a Money
Market Sub-Account or the Fixed Account value of at least
$1,000. The minimum amount per month to allocate is $100
(subject to the 18 Sub-Account limitation described under
"Allocation of Net Premium Payments" above). Enrollment in
this program may occur at any time by calling the Annuity &
Variable Life Services Center or by providing the
information requested on the Dollar Cost Averaging election
form to the Company, provided that sufficient value is in
the Money Market Sub-Account or the Fixed Account. Transfers
to the Fixed Account are not permitted under Dollar Cost
Averaging. The Company may, at its sole discretion, waive
Dollar Cost Averaging minimum deposit and transfer
requirements.
Dollar Cost Averaging will terminate when any of the
following occurs: (1) the number of designated transfers has
been completed; (2) the value of the Money Market Sub-
Account or the Fixed Account is insufficient to complete the
next transfer; (3) the Owner requests termination by
telephone or in writing and such request is received at
least one week prior to the next scheduled transfer date to
take effect that month; or (4) the Policy is surrendered.
There is no current charge for Dollar Cost Averaging but the
Company reserves the right to charge for this program.
AUTOMATIC REBALANCING
Automatic Rebalancing is an option which, if elected by the
Owner on the initial application, or thereafter by calling
the Annuity & Variable Life Services Center, periodically
restores to a pre-determined level the percentage of Policy
Value allocated to each Sub-Account (e.g. 20% Money Market,
50% Growth, 30% Utilities). This pre-determined level will
be the allocation initially selected on the application,
unless subsequently changed. The Automatic Rebalancing
allocation may be changed at any time by submitting a
written request to the Company or by calling the Annuity &
Variable Life Services Center.
If Automatic Rebalancing is elected, all Net Premium
Payments allocated to the Sub-Accounts must be subject to
Automatic Rebalancing. The Fixed Account is not available
for Automatic Rebalancing.
Automatic Rebalancing may take place on either a quarterly,
semi-annual or annual basis, as selected by the Owner. Once
Automatic Rebalancing is activated, any Sub-Account
transfers executed outside of the rebalancing option will
terminate the Automatic Rebalancing. Any subsequent premium
payment or withdrawal that modifies the net account balance
within each Sub-Account may also cause termination of
Automatic Rebalancing. Any such termination will be
confirmed to the Owner. The Owner may terminate Automatic
Rebalancing or re-enroll at any time by calling or writing
the Annuity & Variable Life Services Center.
There is no current charge for Automatic Rebalancing but the
Company reserves the right to charge for this program.
18
<PAGE>
CHARGES; FEES
PREMIUM LOAD
A deduction of 5.0% of each Premium Payment will be made to
cover the premium load. This load represents state taxes and
federal income tax liabilities and a portion of the sales
expenses incurred by the Company. The 2.35% portion of this
deduction for premium taxes may be higher or lower than the
actual tax imposed by the applicable jurisdiction; it is in
the mid-range of state premium taxes, which range from 1.75%
to 5.0%. The Company estimates 1.15% of each Premium Payment
will be used to meet federal income tax liabilities
attributable to the treatment of deferred acquisition costs.
The remaining 1.5% of the deduction is for sales expenses.
The combination of the 1.5% front-end sales load and the
deferred sales component of the surrender charge will not
exceed maximum sales charges permitted under the 1940 Act.
MONTHLY DEDUCTIONS
A Monthly Deduction is made from the Net Accumulation Value
for administrative expenses. The monthly administrative fee
is $15 during the first Policy Year and, currently, $5
during subsequent Policy Years. This charge is for items
such as premium billing and collection, policy value
calculation, confirmations and periodic reports and will not
exceed the Company's costs. For subsequent Policy Years,
this monthly fee will never exceed $10.
A Monthly Deduction is also made from the Net Accumulation
Value for the Cost of Insurance and any charges for
supplemental riders. The Cost of Insurance depends on the
attained age, risk class and gender classification (in
accordance with state law) of the Insured and the current
Net Amount at Risk.
The Cost of Insurance is determined by dividing the Death
Benefit at the previous Monthly Anniversary Day by
1.0032737, subtracting the Accumulation Value at the
previous Monthly Anniversary Day, and multiplying the result
(the Net Amount at Risk) by the applicable Cost of Insurance
Rate as determined by the Company. The Guaranteed Maximum
Cost of Insurance Rates, per $1,000 of Net Amount at Risk,
for standard risks are set forth in the following Table
based on the 1980 Commissioners Standard Ordinary Mortality
Tables, Age Nearest Birthday (1980 CSO); or, for unisex
rates, on the 1980 CSO-B Table.
<TABLE>
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- ----------- --------- --------- ---------
<S> <C> <C> <C>
0 0.34845 0.24089 0.32677
1 0.08917 0.07251 0.08667
2 0.08251 0.06750 0.07917
3 0.08167 0.06584 0.07834
4 0.07917 0.06417 0.07584
5 0.07501 0.06334 0.07251
6 0.07167 0.06084 0.06917
7 0.06667 0.06000 0.06584
8 0.06334 0.05834 0.06250
9 0.06167 0.05750 0.06084
10 0.06084 0.05667 0.06000
11 0.06417 0.05750 0.06250
12 0.07084 0.06000 0.06917
13 0.08251 0.06250 0.07834
14 0.09584 0.06887 0.09001
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- ----------- --------- --------- ---------
<S> <C> <C> <C>
15 0.11085 0.07084 0.10334
16 0.12585 0.07601 0.11585
17 0.13919 0.07917 0.12752
18 0.14836 0.08167 0.13502
19 0.15502 0.08501 0.14085
20 0.15836 0.08751 0.14502
21 0.15919 0.08917 0.14585
22 0.15752 0.09084 0.14419
23 0.15502 0.09251 0.14252
24 0.15189 0.09501 0.14085
25 0.14752 0.09668 0.13752
26 0.11419 0.09918 0.13585
27 0.14252 0.10168 0.13418
28 0.14169 0.10501 0.13418
29 0.14252 0.10635 0.13585
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- ----------- --------- --------- ---------
<S> <C> <C> <C>
30 0.14419 0.11251 0.13752
31 0.14836 0.11668 0.14169
32 0.15252 0.12085 0.14585
33 0.15919 0.12502 0.15252
34 0.16889 0.13168 0.15919
35 0.17586 0.13752 0.16836
36 0.18670 0.14669 0.17837
37 0.20004 0.15752 0.19170
38 0.21505 0.17003 0.20588
39 0.23255 0.18503 0.22338
40 0.25173 0.20171 0.24173
41 0.27424 0.22005 0.26340
42 0.29675 0.23922 0.28508
43 0.32260 0.25757 0.31010
44 0.34929 0.27674 0.33428
45 0.37931 0.29675 0.36263
46 0.41017 0.31677 0.39182
47 0.44353 0.33761 0.42268
48 0.47856 0.36096 0.45437
49 0.51777 0.38598 0.49107
50 0.55948 0.41350 0.53028
51 0.60870 0.44270 0.57533
52 0.66377 0.47523 0.62539
53 0.72636 0.51276 0.68297
54 0.79730 0.55114 0.74722
55 0.87326 0.59118 0.81566
56 0.95591 0.63123 0.88996
57 1.04192 0.66961 0.96593
58 1.13378 0.70633 1.04609
59 1.23236 0.74556 1.13211
60 1.34180 0.78979 1.22817
61 1.46381 0.84488 1.33511
62 1.60173 0.91417 1.45796
63 1.75809 1.00267 1.59922
64 1.93206 1.10539 1.75725
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- ----------- --------- --------- ---------
<S> <C> <C> <C>
65 2.12283 1.21731 1.92955
66 2.32623 1.33511 2.11195
67 2.54312 1.45461 2.30614
68 2.77350 1.57247 2.50878
69 3.02328 1.69955 2.72909
70 3.30338 1.84590 2.97466
71 3.62140 2.02325 3.25640
72 3.98666 2.24419 3.58279
73 4.40599 2.51548 3.95978
74 4.87280 2.83552 4.38330
75 5.37793 3.19685 4.84334
76 5.91225 3.59370 5.33245
77 6.46824 4.01942 5.84227
78 7.04089 4.47410 6.36948
79 7.64551 4.97042 6.92851
80 8.30507 5.52957 7.54229
81 9.03761 6.17118 8.22883
82 9.86724 6.91414 9.01216
83 10.80381 7.77075 9.90124
84 11.82571 8.72632 10.87533
85 12.91039 9.76952 11.92213
86 14.03509 10.89151 13.01471
87 15.18978 12.08770 14.15507
88 16.36948 13.35774 15.33494
89 17.57781 14.70820 16.56493
90 18.82881 16.15259 17.85746
91 20.14619 17.71416 19.23699
92 21.57655 19.43814 20.76665
93 23.20196 21.40786 22.49837
94 25.28174 23.63051 24.70915
95 28.27411 27.16158 27.82758
96 33.10577 32.32378 32.78845
97 41.68476 41.21204 41.45783
98 58.01259 57.81394 57.95663
99 90.90909 90.90909 90.90909
</TABLE>
These Monthly Deductions are deducted proportionately from
the value of each funding option. This is accomplished for
the Sub-Accounts by canceling Accumulation Units and
withdrawing the value of the canceled Accumulation Units
from each funding option in the same proportion as their
respective values have to the Net Accumulation Value. The
Monthly Deductions are made on the Monthly Anniversary Day.
If the Insured is still living at age 100 and the Policy has
not been surrendered, no further Monthly Deductions are
taken and any Variable Account Value is transferred to the
Fixed Account. The Policy will then remain in force until
surrender or the Insured's death.
TRANSACTION FEE FOR EXCESS TRANSFERS
There will be a $25 transaction fee for each transfer
between funding options in excess of 12 during any Policy
Year.
MORTALITY AND EXPENSE RISK CHARGE
For mortality and expense risks, a daily deduction,
currently equivalent to .80% per year during the first
twelve Policy Years and .55% per year thereafter, is made
from amounts held in the Variable Account. This deduction is
guaranteed not to exceed .90% per year.
20
<PAGE>
SURRENDER CHARGE
Upon surrender of a Policy, a surrender charge may apply, as
described below. This charge is in part a deferred sales
charge and in part a recovery of certain first year
administrative costs. (See "Appendix 1 -- Illustration of
Surrender Charges".)
The initial Surrender Charge, as specified in the Policy, is
based on the Initial Specified Amount and the amount of
Premium Payments during the first two Policy Years. Once
determined, the Surrender Charge will remain the same dollar
amount during the third through fifth Policy Years.
Thereafter, it declines monthly at a rate of 20% per year so
that after the end of the tenth Policy Year (assuming no
increases in the Specified Amount) the Surrender Charge will
be zero. Thus, the Surrender Charge at the end of the sixth
Policy Year would be 80% of the Surrender Charge at the end
of the fifth Policy Year, at the end of the seventh Policy
Year would be 60% of the Surrender Charge at the end of the
fifth Policy Year, and so forth. However, in no event will
the Surrender Charge exceed the maximum allowed by state or
federal law.
If the Specified Amount is increased, a new Surrender Charge
will be applicable, in addition to any existing Surrender
Charge. The Surrender Charge applicable to the increase
would be equal to the Surrender Charge on a new policy whose
Specified Amount was equal to the amount of the increase. As
of the date of this Prospectus, the minimum allowable
increase in Specified Amount is $1,000. The Company may
change this at any time.
If the Specified Amount is decreased while the Surrender
Charge applies, the Surrender Charge will remain the same.
No Surrender Charge is imposed on a partial surrender, but
an administrative fee of $25 is imposed, allocated pro-rata
among the Sub-Accounts (and, where applicable, the Fixed
Account) from which the partial surrender proceeds are taken
unless the Owner instructs the Company otherwise.
The portion of the Surrender Charge applied to reimburse the
Company for sales and promotional expense is at most 28.5%
of the sum of Premium Payments in the first two Policy Years
up to one Guideline Annual Premium, plus 8.5% of Premium
Payments in the first two Policy Years between one and two
times one Guideline Annual Premium plus 7.5% of Premium
Payments in the first two Policy Years in excess of two
times one Guideline Annual Premium. The portion applicable
to administrative expense is $6.00 per $1,000 of Initial
Specified Amount. Under certain circumstances involving the
payment of very large premiums during the first two Policy
Years, a lesser portion of the Surrender Charge will be
applied to reimburse the Company for sales and promotional
expense, to the extent required by federal or state law. Any
surrenders may result in tax implications. (See "Tax
Matters".)
Based on its actuarial determination, the Company does not
anticipate that the Surrender Charge will cover all sales
and administrative expenses which the Company will incur in
connection with the Policy. Any such shortfall, including
but not limited to payment of sales and distribution
expenses, would be available for recovery from the General
Account of the Company, which supports insurance and annuity
obligations.
21
<PAGE>
THE FIXED ACCOUNT
The Fixed Account is funded by the assets of the Company's
General Account. Amounts held in the Fixed Account are
guaranteed and will be credited with interest at rates as
determined from time to time by the Company, but not less
than 4% per year.
THE FIXED ACCOUNT IS MADE UP OF THE GENERAL ASSETS OF THE
COMPANY OTHER THAN THOSE ALLOCATED TO ANY SEPARATE ACCOUNT.
THE FIXED ACCOUNT IS PART OF THE COMPANY'S GENERAL ACCOUNT.
BECAUSE OF APPLICABLE EXEMPTIVE AND EXCLUSIONARY PROVISIONS,
INTERESTS IN THE FIXED ACCOUNT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"), AND
NEITHER THE FIXED ACCOUNT NOR THE COMPANY'S GENERAL ACCOUNT
HAS BEEN REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940
(THE "1940 ACT"). THEREFORE, NEITHER THE FIXED ACCOUNT NOR
ANY INTEREST THEREIN IS GENERALLY SUBJECT TO REGULATION
UNDER THE PROVISIONS OF THE 1933 ACT OR THE 1940 ACT.
ACCORDINGLY, THE COMPANY HAS BEEN ADVISED THAT THE STAFF OF
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE
DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT.
POLICY VALUES
ACCUMULATION VALUE
Once a Policy has been issued, each Net Premium Payment
allocated to a Sub-Account of the Variable Account is
credited in the form of Accumulation Units, representing the
Fund in which assets of that Sub-Account are invested. Each
Net Premium Payment will be credited to the Policy as of the
end of the Valuation Period in which it is received at the
Annuity & Variable Life Services Center (or portion thereof
allocated to a particular Sub-Account). The number of
Accumulation Units credited is determined by dividing the
Net Premium Payment by the value of an Accumulation Unit
next computed after receipt. Since each Sub-Account has a
unique Accumulation Unit value, a Policy Owner who has
elected a combination of funding options will have
Accumulation Units credited from more than one source.
The Accumulation Value of a Policy is determined by: (a)
multiplying the total number of Accumulation Units credited
to the Policy for each applicable Sub-Account by its
appropriate current Accumulation Unit value; (b) if a
combination of Sub-Accounts is elected, totaling the
resulting values; and (c) adding any values attributable to
the General Account (i.e., the Fixed Account Value and the
Loan Account Value).
The number of Accumulation Units credited to a Policy will
not be changed by any subsequent change in the value of an
Accumulation Unit. Such value may vary from Valuation Period
to Valuation Period to reflect the investment experience of
the Fund used in a particular Sub-Account.
The Fixed Account Value reflects amounts allocated to the
General Account through payment of premiums or transfers
from the Variable Account. The Fixed Account Value is
guaranteed; however, there is no assurance that the Variable
Account Value of the Policy will equal or exceed the Net
Premium Payments allocated to the Variable Account.
Each Policy Owner will be advised at least annually as to
the number of Accumulation Units which remain credited to
the Policy, the current Accumulation Unit values, the
Variable Account Value, the Fixed Account Value and the Loan
Account Value.
Accumulation Value will be affected by Monthly Deductions.
22
<PAGE>
VARIABLE ACCUMULATION UNIT VALUE
The Accumulation Unit value for each Sub-Account was
established at the inception of the Sub-Account. It may
increase or decrease from Valuation Period to Valuation
Period. The Accumulation Unit value for a Sub-Account for
any later Valuation Period is determined as follows:
(1)The total value of Fund shares held in the Sub-Account
is calculated by multiplying the number of Fund shares
owned by the Sub-Account 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 Sub-Account at the end of the
Valuation Period; such liabilities include daily
charges imposed on the Sub-Account, and may include a
charge or credit with respect to any taxes paid or
reserved for by the Company that the Company
determines result from the operations of the Variable
Account; and
(3)The result of (2) is divided by the number of
Sub-Account units outstanding at the beginning of the
Valuation Period.
The daily charges imposed on a Sub-Account for any Valuation
Period are equal to the daily mortality and expense risk
charge plus any applicable daily administrative charge
multiplied by the number of calendar days in the Valuation
Period.
SURRENDER VALUE
The Surrender Value of a Policy is the amount the Owner can
receive in cash by surrendering the Policy. All or part of
the Surrender Value may be applied to one or more of the
Settlement Options. See "Surrender Charge."
SURRENDERS
PARTIAL SURRENDERS
A partial surrender may be made at any time by written
request to the Annuity & Variable Life Services Center
during the lifetime of the Insured and while the Policy is
in force. Such request may also be made by telephone if
telephone transfers have been previously authorized in
writing. A $25 transaction fee is charged.
The amount of a partial surrender may not exceed 90% of the
Surrender Value at the end of the Valuation Period in which
the election becomes or would become effective, and may not
be less than $500.
For an Option 1 Policy (See "Death Benefit"): A partial
surrender will reduce the Accumulation Value, Death Benefit,
and Specified Amount. The Specified Amount and Accumulation
Value will be reduced by equal amounts and will reduce any
past increases in the reverse order in which they occurred.
For an Option 2 Policy (See "Death Benefit"): A partial
surrender will reduce the Accumulation Value and the Death
Benefit, but it will not reduce the Specified Amount.
The Specified Amount remaining in force after a partial
surrender may not be less than $100,000. Any request for a
partial surrender that would reduce the Specified Amount
below this amount will not be granted. In addition, if,
following the partial surrender and the corresponding
decrease in the Specified Amount, the Policy would not
comply with the maximum premium limitations required by
federal tax law, the decrease may be limited to the extent
necessary to meet the federal tax law requirements.
23
<PAGE>
If, at the time of a partial surrender, the Net Accumulation
Value is attributable to more than one funding option, the
$25 transaction charge and the amount paid upon the
surrender will be taken proportionately from the values in
each funding option, unless the Policy Owner and the Company
agree otherwise.
FULL SURRENDERS
A full surrender may be made at any time. The Company will
pay the Surrender Value next computed after receiving the
Owner's written request at the Annuity & Variable Life
Services Center in a form satisfactory to the Company.
Payment of any amount from the Variable Account on a full
surrender will usually be made within seven calendar days
thereafter.
DEFERRAL OF PAYMENT AND TRANSFERS
Payment of the surrendered amount from the Variable Account
may be postponed when the New York Stock Exchange is closed
and for such other periods as the Commission may require.
Payment or transfer from the Fixed Account may be deferred
up to six months at the Company's option. If the Company
exercises its right to defer such payment or transfer
interest will be added as required by law.
LAPSE AND REINSTATEMENT
LAPSE OF A POLICY; EFFECT OF GUARANTEED DEATH BENEFIT
PROVISION
A Policy will not lapse during the five-year period after
its Issue Date regardless of investment performance if, on
each Monthly Anniversary Day within that period the sum of
premiums paid equals or exceeds the required amount of the
Guaranteed Initial Death Benefit Premium for that period,
assuming there have been no loans or partial surrenders. If
there have been any loans or partial surrenders, the Policy
may lapse unless there is sufficient Net Accumulation Value
to cover the Monthly Deduction.
After the five-year period expires, and depending on the
investment performance of the funding options, the Net
Accumulation Value may be insufficient to keep this Policy
in force, and payment of an additional premium may be
necessary.
A lapse occurs if a Monthly Deduction is greater than the
Net Accumulation Value and no payment to cover the Monthly
Deduction is made within the Grace Period. The Company will
send the Owner a lapse notice at least 31 days before the
Grace Period expires.
REINSTATEMENT OF A LAPSED POLICY
The Owner can apply for reinstatement at any time during the
Insured's lifetime. To reinstate a Policy, the Company will
require satisfactory evidence of insurability and an amount
sufficient to pay for the current Monthly Deduction plus two
additional Monthly Deductions.
If the Policy is reinstated within five years of the Issue
Date, all values including the Loan Account Value will be
reinstated to the point they were on the date of lapse.
However, the Guaranteed Initial Death Benefit Option will
not be reinstated.
If the Policy is reinstated after five years following the
Issue Date, it will be reinstated on the Monthly Anniversary
Day following the Company approval. The Accumulation Value
at reinstatement will be the Net Premium Payment then made
less the Monthly Deduction due that day.
If the Accumulation Value is not sufficient to cover the
full Surrender Charge at the time of lapse, the remaining
portion of the Surrender Charge will also be reinstated at
the time of Policy reinstatement.
24
<PAGE>
POLICY LOANS
A Policy loan requires that a loan agreement be executed and
that the Policy be assigned to the Company. The loan may be
for any amount up to 100% of the Surrender Value; however,
the Company may limit the amount of such loan so that total
Policy indebtedness will not exceed 90% of an amount equal
to the Accumulation Value less the Surrender Charge which
would be imposed on a full surrender. The amount of a loan,
together with subsequent accrued but not paid interest on
the loan, becomes part of the Loan Account Value. If Policy
values are held in more than one funding option, withdrawals
from each funding option will be made in proportion to the
assets in each funding option at the time of the loan for
transfer to the Loan Account, unless the Company is
instructed otherwise in writing at the Annuity & Variable
Life Services Center.
Interest on loans will accrue at an annual rate of 8%, and
loan interest is payable once a year in arrears on each
anniversary of the Policy, or earlier upon full surrender or
other payment of proceeds of a Policy. Any interest not paid
when due becomes part of the loan and the interest will be
withdrawn proportionately from the values in each funding
option.
The Company will credit interest on the Loan Account Value.
During the first ten Policy Years, the Company's current
practice is that interest will be credited at an annual rate
equal to the interest rate charged on the loan minus 1%
(guaranteed not to exceed 2%). Beginning with the eleventh
Policy Year, the Company's current practice is that interest
will be credited at an annual rate equal to the interest
rate charged on the loan, less .25% annually (guaranteed not
to exceed 1%). In no case will the annual credited interest
rate be less than 6% in each of the first ten Policy Years
and 7% thereafter. Interest paid will be allocated among the
funding options according to current Net Premium Payment
allocations.
Repayments on the loan will be allocated among the funding
options according to current Net Premium Payment
allocations. The Loan Account Value will be reduced by the
amount of any loan repayment.
A Policy loan, whether or not repaid, will affect the
proceeds payable upon the Insured's death and the
Accumulation Value because the investment results of the
Variable Account or the Fixed Account will apply only to the
non-loaned portion of the Accumulation Value. The longer a
loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Variable Account
or the Fixed Account while the loan is outstanding, the
effect could be favorable or unfavorable.
SETTLEMENT OPTIONS
Proceeds in the form of Settlement Options are payable by
the Company at the Beneficiary's election upon the Insured's
death, or while the Insured is alive upon election by the
Owner of one of the Settlement Options.
A written request may be made to elect, change, or revoke a
Settlement Option before payments begin under any Settlement
Option. This request must be in form satisfactory to the
Company, and will take effect upon its receipt at the
Annuity & Variable Life Services Center. Payments after the
first payment will be made on the first day of each month.
FIRST OPTION -- Payments for the lifetime of the payee.
SECOND OPTION -- Payments for the lifetime of the payee,
guaranteed for 60, 120, 180, or 240 months;
25
<PAGE>
THIRD OPTION -- Payment for a stated number of years, at
least five but no more than thirty;
FOURTH OPTION -- Payment of interest annually on the sum
left with the Company at a rate of at least 3% per year, and
upon the payee's death the amount on deposit will be paid.
ADDITIONAL OPTIONS -- Policy proceeds may also be settled
under any other method of settlement offered by the Company
at the time the request is made.
OTHER POLICY PROVISIONS
ISSUANCE
A Policy may only be issued upon receipt of satisfactory
evidence of insurability, and generally only where the
Insured is below the age of 80.
SHORT-TERM RIGHT TO CANCEL THE POLICY
A Policy may be returned for cancellation and a full refund
of premium within 10 days after the Policy is received,
unless otherwise stipulated by state law requirements,
within 10 days after the Company mails or personally
delivers a Notice of Withdrawal Right to the Owner, or
within 45 days after the application for the Policy is
signed, whichever occurs latest. The Initial Premium Payment
made when the Policy is issued will be held in the Fixed
Account and not allocated to the Variable Account even if
the Policy Owner may have so directed until three business
days following the expiration of the Right-to-Examine
Period. If the Policy is returned for cancellation in a
timely fashion, the refund of premiums paid, without
interest, will usually occur within seven days of notice of
cancellation, although a refund of premiums paid by check
may be delayed until the check clears.
POLICY OWNER
While the Insured is living, all rights in this Policy are
vested in the Policy Owner named in the application or as
subsequently changed, subject to assignment, if any.
The Policy Owner may name a new Policy Owner while the
Insured is living. Any such change in ownership must be in a
written form satisfactory to the Company and recorded at the
Annuity & Variable Life Services Center. Once recorded, the
change will be effective as of the date signed; however, the
change will not affect any payment made or action taken by
the Company before it was recorded. The Company may require
that the Policy be submitted for endorsement before making a
change.
If the Policy Owner is other than the Insured, names no
contingent Policy Owner and dies before the Insured, the
Policy Owner's rights in this Policy belong to the Policy
Owner's estate.
BENEFICIARY
The Beneficiary(ies) shall be as named in the application or
as subsequently changed, subject to assignment, if any.
The Policy Owner may name a new Beneficiary while the
Insured is living. Any change must be in a written form
satisfactory to the Company and recorded at the Annuity &
Variable Life Services Center. Once recorded, the change
will be effective as of the date signed; however, the change
will not affect any payment made or action taken by the
Company before it was recorded.
If any Beneficiary predeceases the Insured, that
Beneficiary's interest passes to any surviving
Beneficiary(ies), unless otherwise provided. Multiple
Beneficiaries will be paid
26
<PAGE>
in equal shares, unless otherwise provided. If no named
Beneficiary survives the Insured, the death proceeds shall
be paid to the Policy Owner or the Policy Owner's
executor(s), administrator(s) or assigns.
ASSIGNMENT
While the Insured is living, the Policy Owner may assign his
or her rights in the Policy. The assignment must be in
writing, signed by the Policy Owner and recorded at the
Annuity & Variable Life Services Center. No assignment will
affect any payment made or action taken by the Company
before it was recorded. The Company is not responsible for
any assignment not submitted for recording, nor is the
Company responsible for the sufficiency or validity of any
assignment. The assignment will be subject to any
indebtedness owed to the Company before it was recorded.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
The Policy Owner may, within the first two Policy Years,
exchange the Policy for a permanent life insurance policy
then being offered by the Company. The benefits for the new
policy will not vary with the investment experience of a
separate account. The exchange must be elected within 24
months from the Issue Date. No evidence of insurability will
be required.
The Policy Owner, the Insured and the Beneficiary under the
new policy will be the same as those under the exchanged
Policy on the effective date of the exchange. The
Accumulation Value under the new Policy will be equal to the
Accumulation Value under the old Policy on the date the
exchange request is received. The new policy will have a
Death Benefit on the exchange date not more than the Death
Benefit of the original Policy immediately prior to the
exchange date. If the Accumulation Value is insufficient to
support the Death Benefit, the Policy Owner will be required
to make additional Premium Payments in order to effect the
exchange. The new policy will have an Issue Date and Issue
Age as of the date of the exchange. The initial Specified
Amount and any increases in Specified Amount will have the
same rate class as those of the original Policy. Any
indebtedness may be transferred to the new policy.
The exchange may be subject to an equitable adjustment in
rates and values to reflect variances, if any, in the rates
and values between the two Policies. After adjustment, if
any excess is owed the Policy Owner, the Company will pay
the excess to the Policy Owner in cash. The exchange may be
subject to federal income tax withholding.
INCONTESTABILITY
The Company will not contest payment of the death proceeds
based on the Initial Specified Amount after the Policy has
been in force during the Insured's lifetime for two years
from the Issue Date. For any increase in Specified Amount
requiring evidence of insurability, the Company will not
contest payment of the death proceeds based on such an
increase after it has been in force during the Insured's
lifetime for two years from its effective date.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the
affected benefits will be adjusted. The amount of the Death
Benefit will be 1. multiplied by 2. and then the result
added to 3. where:
1. is the Net Amount at Risk at the time of the Insured's
death;
27
<PAGE>
2. is the ratio of the monthly cost of insurance applied in
the policy month of death to the monthly cost of
insurance that should have been applied at the true age
and sex in the policy month of death; and
3. is the Accumulation Value at the time of the Insured's
death.
SUICIDE
If the Insured dies by suicide, while sane or insane, within
two years from the Issue Date, the Company will pay no more
than the sum of the premiums paid, less any indebtedness. If
the Insured dies by suicide, while sane or insane, within
two years from the date an application is accepted for an
increase in the Specified Amount, the Company will pay no
more than a refund of the monthly charges for the cost of
such additional benefit.
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends
are payable. These Policies do not share in the profits or
surplus earnings of the Company.
TAX MATTERS
POLICY PROCEEDS
Section 7702 of the Code provides that if certain tests are
met, a Policy will be treated as a life insurance policy for
federal tax purposes. The Company will monitor compliance
with these tests. The Policy should thus receive the same
federal income tax treatment as fixed benefit life
insurance. As a result, the death proceeds payable under a
Policy are excludable from gross income of the Beneficiary
under Section 101 of the Code.
Section 7702A of the Code defines modified endowment
contracts as those policies issued or materially changed on
or after June 21, 1988 on which the total premiums paid
during the first seven years exceed the amount that would
have been paid if the policy provided for paid up benefits
after seven level annual premiums. The Code provides for
taxation of surrenders, partial surrenders, loans,
collateral assignments and other pre-death distributions
from modified endowment contracts in the same way annuities
are taxed. Modified endowment contract distributions are
defined by the Code as amounts not received as an annuity
and are taxable to the extent the cash value of the policy
exceeds, at the time of distribution, the premiums paid into
the policy. A 10% tax penalty generally applies to the
taxable portion of such distributions unless the Policy
Owner is over age 59 1/2 or disabled.
It may not be advantageous to replace existing insurance
with Policies described in this Prospectus. It may also be
disadvantageous to purchase a Policy to obtain additional
insurance protection if the purchaser already owns another
variable life insurance policy.
The Policies offered by this Prospectus may or may not be
issued as modified endowment contracts. The Company will
monitor premiums paid and will notify the Policy Owner when
the Policy's non-modified endowment contract status is in
jeopardy. If a Policy is not a modified endowment contract,
a cash distribution during the first 15 years after a Policy
is issued which causes a reduction in death benefits may
still become fully or partially taxable to the Owner
pursuant to Section 7702(f)(7) of the Code. The Policy Owner
should carefully consider this potential effect and seek
further information before initiating any changes in the
terms of the Policy. Under certain conditions, a Policy may
become a modified endowment contract as a result of a
material change or a reduction in benefits as defined by
Section 7702A(c) of the Code.
28
<PAGE>
In addition to meeting the tests required under Section 7702
and Section 7702A, Section 817(h) of the Code requires that
the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations issued by the
Secretary of the Treasury set the standards for measuring
the adequacy of this diversification. A variable life
insurance policy that is not adequately diversified under
these regulations would not be treated as life insurance
under Section 7702 of the Code. To be adequately
diversified, each Sub-Account of the Variable Account must
meet certain tests. The Company believes the Variable
Account investments meet the applicable diversification
standards.
Should the Secretary of the Treasury issue additional rules
or regulations limiting the number of funds, transfers
between funds, exchanges of funds or changes in investment
objectives of funds such that the Policy would no longer
qualify as life insurance under Section 7702 of the Code,
the Company will take whatever steps are available to remain
in compliance.
The Company will monitor compliance with these regulations
and, to the extent necessary, will change the objectives or
assets of the Sub-Account investments to remain in
compliance.
A total surrender or termination of the Policy by lapse may
have adverse tax consequences. If the amount received by the
Policy Owner plus total Policy indebtedness exceeds the
premiums paid into the Policy, the excess will generally be
treated as taxable income, regardless of whether or not the
Policy is a modified endowment contract.
Federal estate and state and local estate, inheritance and
other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Policy Owner or
Beneficiary.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the
Code. Since the Variable Account is not a separate entity
from the Company and its operations form a part of the
Company, it will not be taxed separately as a "regulated
investment company" under Sub-chapter M of the Code.
Investment income and realized capital gains on the assets
of the Variable Account are reinvested and taken into
account in determining the value of Accumulation Units.
The Company does not initially expect to incur any Federal
income tax liability that would be chargeable to the
Variable Account. Based upon these expectations, no charge
is currently being made against the Variable Account for
federal income taxes. If, however, the Company determines
that on a separate company basis such taxes may be incurred,
it reserves the right to assess a charge for such taxes
against the Variable Account.
The Company may also incur state and local taxes in addition
to premium taxes in several states. At present, these taxes
are not significant. If they increase, however, additional
charges for such taxes may be made.
SECTION 848 CHARGES
The 5.0% premium load is assessed to cover state taxes,
federal income tax liabilities and a portion of the sales
expenses incurred by the Company. This load is made up of
2.35% for state taxes, 1.15% for the additional federal
income tax burden under
29
<PAGE>
Section 848 of the Code relating to the tax treatment of
deferred acquisition costs and a 1.5% sales load. The 1.15%
charge for federal income tax liabilities is reasonable in
relation to the Company's increased taxes under this Section
of the Code.
OTHER CONSIDERATIONS
The foregoing discussion is general and is not intended as
tax advice. Counsel and other competent advisers should be
consulted for more complete information. This discussion is
based on the Company's understanding of Federal income tax
laws as they are currently interpreted by the Internal
Revenue Service. No representation is made as to the
likelihood of continuation of these current laws and
interpretations.
OTHER MATTERS
DIRECTORS AND OFFICERS OF THE COMPANY
The following persons are Directors and Officers of the
Company. The address of each is 900 Cottage Grove Road,
Hartford, CT 06152 and each has been employed by the Company
or its affiliates for more than five years except Mr. Jones,
Mr. Pacy, Dr. Schaffer and Mr. DellaVolpe. Prior to February
1994, Mr. Jones was Executive Vice President, Chief
Administrative Officer, Chief Operating Officer and
Director, NAC Re Corporation and NAC Reinsurance Corporation
(Chief Operating Officer of NAC Re Corporation beginning
June 1993). Prior to January 1995, Mr. Pacy was Senior
Manager -- IT Infrastructure and Technology Management
Officer, Digital Equipment Corporation. Prior to May 1993,
Dr. Schaffer was Vice President, Professional Affairs, Aetna
Health Plans, Aetna Life & Casualty. Prior to December,
1996, Mr. DellaVolpe was Manager of Business Assurance,
Coopers & Lybrand LLP.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND ADDRESS WITH THE COMPANY
- ------------------------------ -----------------------------------
<S> <C>
Thomas C. Jones President and Director
(Principal Executive Officer)
John Wilkinson Vice President and Actuary
(Principal Financial Officer)
Dominic A. DellaVolpe Assistant Vice President
(Principal Accounting Officer)
David C. Kopp Corporate Secretary
Andrew G. Helming Secretary
Stephen C. Stachelek Vice President and Treasurer
H. Edward Hanway Director and Chairman of the Board
Harold W. Albert Director
Robert W. Burgess Director
John G. Day 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, Senior Vice President and
Chief Financial Officer
Patricia L. Rowland Director and Senior Vice President
W. Allen Schaffer, M.D. Director and Senior Vice President
</TABLE>
DISTRIBUTION OF POLICIES
The Policies will be sold by licensed insurance agents in
those states where the Policies may lawfully be sold. Such
agents will be registered representatives of broker-dealers
30
<PAGE>
registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers,
Inc. (NASD). The Policies will be distributed by the
Variable Accounts principal underwriter, CIGNA Financial
Advisors, Inc. ("CFA"), located at 900 Cottage Grove Road,
Bloomfield, CT. CFA is a Connecticut corporation organized
in 1967, and is the principal underwriter for certain of the
Company's other registered separate accounts and for a
registered separate account of CIGNA Life Insurance Company,
a wholly-owned subsidiary of the Company. As of January 1,
1998, CFA, formerly a wholly-owned subsidiary of CIGNA
Corporation, became a wholly-owned subsidiary of Lincoln
National Corporation, an Indiana corporation with
headquarters in Fort Wayne, Indiana, whose principal
businesses are insurance and financial services.
Gross first year commissions paid by the Company, including
expense reimbursement allowances, on the sale of these
Policies are not more than 95% of Premium Payments. Gross
renewal commissions paid by the Company will not exceed 10%
of Premium Payments.
CHANGES OF INVESTMENT POLICY
The Company may materially change the investment policy of
the Variable Account. The Company must inform the Policy
Owners and obtain all necessary regulatory approvals. Any
change must be submitted to the various state insurance
departments which shall disapprove it if deemed detrimental
to the interests of the Policy Owners or if it renders the
Company's operations hazardous to the public. If a Policy
Owner objects, the Policy may be converted to a
substantially comparable fixed benefit life insurance policy
offered by the Company on the life of the Insured. The
Policy Owner has the later of 60 days (6 months in
Pennsylvania) from the date of the investment policy change
or 60 days (6 months in Pennsylvania) from being informed of
such change to make this conversion. The Company will not
require evidence of insurability for this conversion.
The new policy will not be affected by the investment
experience of any separate account. The new policy will be
for an amount of insurance not exceeding the Death Benefit
of the Policy converted on the date of such conversion.
OTHER CONTRACTS ISSUED BY THE COMPANY
The Company does presently and will, from time to time,
offer other variable annuity contracts and variable life
insurance policies with benefits which vary in accordance
with the investment experience of a separate account of the
Company.
STATE REGULATION
The Company is subject to the laws of Connecticut governing
insurance companies and to regulation by the Connecticut
Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year
covering the operation of the Company for the preceding year
and its financial condition as of the end of such year.
Regulation by the Insurance Department includes periodic
examination to determine the Company's contract liabilities
and reserves so that the Insurance Department may certify
the items are correct. The Company's books and accounts are
subject to review by the Insurance Department at all times
and a full examination of its operations is conducted
periodically by the Connecticut Department of Insurance.
Such regulation does not, however, involve any supervision
of management or investment practices or policies.
31
<PAGE>
REPORTS TO POLICY OWNERS
The Company maintains Policy records and will mail to each
Policy Owner, at the last known address of record, an annual
statement showing the amount of the current Death Benefit,
the Accumulation Value, and Surrender Value, premiums paid
and monthly charges deducted since the last report, the
amounts invested in the Fixed Account and in the Variable
Account and in each Sub-Account of the Variable Account, and
any Loan Account Value.
Policy Owners will also be sent annual reports containing
financial statements for the Variable Account and annual and
semi-annual reports of the Funds as required by the 1940
Act.
In addition, Policy Owners will receive statements of
significant transactions, such as changes in Specified
Amount, changes in Death Benefit Option, changes in future
premium allocation, transfers among Sub-Accounts, Premium
Payments, loans, loan repayments, reinstatement and
termination.
ADVERTISING
The Company is also ranked and rated by independent
financial rating services, including Moody's, Standard &
Poor's, Duff & Phelps and A.M. Best Company. The purpose of
these ratings is to reflect the financial strength or
claims-paying ability of the Company. The ratings are not
intended to reflect the investment experience or financial
strength of the Variable Account. The Company may advertise
these ratings from time to time. In addition, the Company
may include in certain advertisements, endorsements in the
form of a list of organizations, individuals or other
parties which recommend the Company or the Policies.
Furthermore, the Company may occasionally include in
advertisements comparisons of currently taxable and tax
deferred investment programs, based on selected tax
brackets, or discussions of alternative investment vehicles
and general economic conditions.
YEAR 2000 ISSUES
Connecticut General Variable Life Insurance Separate Account
II (the "Account") is a "separate account" of the Company
established under Connecticut insurance law; thus, the
Company is responsible, as part of its Year 2000 updating
process, for the updating of the Account-related computer
systems. Delaware Service Company ("Delaware") provides
substantially all of the necessary accounting and valuation
services for the Account. Delaware, for its part, is
responsible for updating all of its computer systems,
including those which service the Account, to accommodate
the year 2000. The Company and Delaware have begun formal
discussions with each other to assess the requirements for
their respective systems to interface properly in order to
facilitate the accurate and orderly operation of the Account
beginning in the year 2000.
Many existing computer programs use only two digits to
identify a year in the date field. These programs were
designed and developed without considering the impact of the
upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results
by or at the year 2000. The Year 2000 issue is pervasive and
complex and affects virtually every aspect of the businesses
of both the Company and Delaware (collectively, the
"Companies"). The computer systems of the Companies and
their interfaces with the computer systems of vendors,
suppliers, customers and other business partners are
particularly vulnerable. The inability to properly recognize
date-sensitive electronic information and to transfer data
between systems could cause errors or even complete failure
of systems, which would result in a temporary inability to
process transactions correctly and engage in normal business
activities for the
32
<PAGE>
Account. The Companies respectively are redirecting
significant portions of their internal information
technology efforts and are contracting, as needed, with
outside consultants to help update their systems to
accommodate the year 2000. Also, in addition to the
discussions with each other noted above, the Companies have
each initiated formal discussions with other critical
parties that that interface with their systems to gain an
understanding of the progress by those parties in addressing
Year 2000 issues. While the Companies are making substantial
efforts to address their own systems and the systems with
which they interface, it is not possible to provide
assurance that operational problems will not occur. The
Companies presently believe that, assuming the modification
of existing computer systems, updates by vendors and
conversion to new software and hardware, the Year 2000 issue
will not pose significant operations problems for their
respective computer systems. In addition, the Companies are
incorporating potential issues surrounding year 2000 into
their contingency planning process to address the
probability that, despite these substantial efforts, there
are unresolved Year 2000 problems. If the remediation
efforts noted above are not completed timely or properly,
the Year 2000 issue could have a material adverse impact on
the operation of the businesses of the Companies.
The cost of addressing Year 2000 issues and the timeliness
of completion is being monitored by management of the
respective Companies. Nevertheless, there can be no
guarantee either by the Company or by Delaware that
estimated costs will be achieved, and actual results could
differ significantly from those anticipated. Specific
factors that might cause such differences include, but are
not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all
relevant computer problems, and other uncertainties.
LEGAL PROCEEDINGS
There are no material legal or administrative proceedings
pending or known to be contemplated, other than ordinary
routine litigation incidental to the business, to which the
Company and the Variable Account are parties or to which any
of their property is subject. The principal underwriter,
CFA, is not engaged in any material litigation of any
nature.
EXPERTS
Actuarial opinions regarding Deferred Acquisition Cost Tax
(DAC Tax) and Mortality and Expense Charges included in this
Prospectus have been rendered by Michelle L. Kunzman, as
stated in the opinion filed as an Exhibit to the
Registration Statement given on the authority of Ms. Kunzman
as an expert in actuarial matters.
Legal matters in connection with the Policies described
herein are being passed upon by Mark A. Parsons, Esq., Chief
Counsel, Retirement and Investment Services Division, CIGNA
Corporation, 900 Cottage Grove Road, Hartford, CT 06152, in
the opinion filed as an Exhibit to the Registration
Statement given on his authority as an expert in these
matters.
The consolidated financial statements of Connecticut General
Life Insurance Company as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31,
1997 included in this Prospectus as well as the Statement of
Assets and Liabilities of the Variable Account at December
31, 1997 and the Statement of Operations and the Statement
of Changes in Net Assets for the periods ended December 31,
1997 and December 31, 1996 have been so included in reliance
on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said
33
<PAGE>
firm as experts in auditing and accounting. Price Waterhouse
LLP's consent to this reference to the firm as an "expert"
is filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended, with respect to the Policies offered hereby. This
Prospectus does not contain all the information set forth in
the Registration Statement and amendments thereto and
exhibits filed as a part thereof, to all of which reference
is hereby made for further information concerning the
Variable Account, the Company, and the Policies offered
hereby. Statements contained in this Prospectus as to the
content of Policies and other legal instruments are
summaries. For a complete statement of the terms thereof,
reference is made to such instruments as filed.
FINANCIAL STATEMENTS
There follow consolidated balance sheets of the Company and
its subsidiaries as of December 31, 1997 and 1996 and
related consolidated statements of income and retained
earnings and cash flows for the years ended December 31,
1997, 1996 and 1995. There also follow, for the Variable
Account, statements of assets and liabilities as of December
31, 1997 and related statements of operations and statements
of changes in net assets for the period ended December 31,
1997.
The most current financial statements of the Company are
those as of the end of the most recent fiscal year. The
Company represents that there have been no adverse changes
in the financial condition or operations of the Company
between the end of 1997 and the date of this Prospectus.
These financial statements should be considered only as
bearing upon the ability of the Company to meet its
obligations under the Policies.
34
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICE WATERHOUSE LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 10, 1998
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 and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Connecticut
General Life Insurance Company and its subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, 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.
[SIG]
35
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(IN MILLIONS)
<CAPTION>
- -------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees................................................... $ 5,376 $ 5,314 $ 4,998
Net investment income............................................... 3,139 3,199 3,138
Realized investment gains (losses).................................. 45 37 (7)
Other revenues...................................................... 10 9 9
--------- --------- ---------
Total revenues.................................................. 8,570 8,559 8,138
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses............................ 5,917 6,069 5,892
Policy acquisition expenses......................................... 122 143 127
Other operating expenses............................................ 1,618 1,477 1,358
--------- --------- ---------
Total benefits, losses and expenses................................. 7,657 7,689 7,377
--------- --------- ---------
INCOME BEFORE INCOME TAXES.......................................... 913 870 761
--------- --------- ---------
Income taxes (benefits):
Current........................................................... 347 394 301
Deferred.......................................................... (49) (81) (44)
--------- --------- ---------
Total taxes..................................................... 298 313 257
--------- --------- ---------
NET INCOME.......................................................... 615 557 504
Dividends declared.................................................. (400) (600) (252)
Retained earnings, beginning of year................................ 3,177 3,220 2,968
- -------------------------------------------------------------------------------------------
RETAINED EARNINGS, END OF YEAR...................................... $ 3,392 $ 3,177 $ 3,220
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
36
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C> <C>
(IN MILLIONS)
<CAPTION>
- -------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $20,962; $19,882)...... $ 22,323 $ 20,816
Mortgage loans.......................................................... 10,090 10,152
Equity securities, at fair value (cost, $75; $59)....................... 54 41
Policy loans............................................................ 7,146 7,133
Real estate............................................................. 749 1,025
Other long-term investments............................................. 166 193
Short-term investments.................................................. 173 417
--------- ---------
Total investments................................................... 40,701 39,777
Cash and cash equivalents................................................. 923 --
Accrued investment income................................................. 602 619
Premiums and accounts receivable.......................................... 811 817
Reinsurance recoverables.................................................. 1,271 1,303
Deferred policy acquisition costs......................................... 834 780
Property and equipment, net............................................... 291 276
Current income taxes...................................................... 67 12
Deferred income taxes, net................................................ 653 639
Goodwill.................................................................. 474 488
Other assets.............................................................. 209 249
Separate account assets................................................... 29,217 22,555
- -------------------------------------------------------------------------------------------
Total assets........................................................ $ 76,053 $ 67,515
- -------------------------------------------------------------------------------------------
--------------------
LIABILITIES
Contractholder deposit funds.............................................. $ 30,449 $ 29,621
Future policy benefits.................................................... 8,224 8,187
Unpaid claims and claim expenses.......................................... 1,225 1,170
Unearned premiums......................................................... 260 200
--------- ---------
Total insurance and contractholder liabilities...................... 40,158 39,178
Accounts payable, accrued expenses and other liabilities.................. 2,428 1,808
Separate account liabilities.............................................. 29,021 22,365
- -------------------------------------------------------------------------------------------
Total liabilities................................................... 71,607 63,351
- -------------------------------------------------------------------------------------------
CONTINGENCIES -- NOTE 12
SHAREHOLDER'S EQUITY
Common stock (6 shares outstanding)....................................... 30 30
Additional paid-in capital................................................ 766 766
Net unrealized appreciation on investments................................ 256 188
Net translation of foreign currencies..................................... 2 3
Retained earnings......................................................... 3,392 3,177
- -------------------------------------------------------------------------------------------
Total shareholder's equity.......................................... 4,446 4,164
- -------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity.......................... $ 76,053 $ 67,515
- -------------------------------------------------------------------------------------------
--------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
37
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(IN MILLIONS)
- -------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................ $ 615 $ 557 $ 504
Adjustments to reconcile net income to net cash provided by
operating activities:
Insurance liabilities........................................... 78 57 (90)
Reinsurance recoverables........................................ 68 (11) 1,201
Premiums and accounts receivable................................ 106 77 32
Deferred income taxes, net...................................... (49) (82) (44)
Other assets.................................................... (54) 43 (14)
Deferred policy acquisition costs............................... (97) (92) 12
Accounts payable, accrued expenses, other liabilities and
current income taxes.......................................... 41 (113) 212
Depreciation and goodwill amortization.......................... 88 94 89
Other, net...................................................... (99) (151) (79)
--------- --------- ---------
Net cash provided by operating activities..................... 697 379 1,823
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities................................................ 1,583 1,589 1,070
Mortgage loans.................................................. 807 640 383
Equity securities............................................... 14 13 119
Real estate..................................................... 401 345 299
Other (primarily short-term investments)........................ 6,447 3,613 2,268
Investment maturities and repayments:
Fixed maturities................................................ 2,394 2,634 2,234
Mortgage loans.................................................. 601 630 420
Investments purchased:
Fixed maturities................................................ (4,339) (3,834) (4,439)
Mortgage loans.................................................. (1,426) (1,300) (1,908)
Equity securities............................................... (9) (3) (20)
Policy loans.................................................... (13) (207) (2,129)
Other (primarily short-term investments)........................ (6,296) (3,930) (2,334)
Other, net...................................................... (102) (94) (119)
--------- --------- ---------
Net cash provided by (used in) investing activities........... 62 96 (4,156)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder deposit funds:
Deposits and interest credited.................................. 7,634 7,260 7,489
Withdrawals and benefit payments................................ (7,023) (7,135) (4,985)
Dividends paid to parent.......................................... (400) (600) (252)
Other, net........................................................ (47) -- 1
--------- --------- ---------
Net cash provided by (used in) financing activities........... 164 (475) 2,253
- -------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents.............. 923 -- (80)
Cash and cash equivalents, beginning of year...................... -- -- 80
- -------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year............................ $ 923 $ -- $ --
- -------------------------------------------------------------------------------------------
-------------------------------
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds............................... $ 402 $ 385 $ 211
Interest paid................................................... $ 5 $ 7 $ 7
- -------------------------------------------------------------------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
38
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
Connecticut General Life Insurance Company and its subsidiaries (the Company)
provide insurance and related financial services throughout the United States
and in many locations worldwide. Principal products and services include group
life and health insurance, individual life insurance and annuity products, and
retirement and investment products and services. 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 insurance and contractholder
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 1997 presentation.
B) RECENT ACCOUNTING PRONOUNCEMENTS: In 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which could change the way segments are
structured and require additional segment disclosure. Although the Company has
not determined the timing of implementation of this pronouncement, it will be
adopted no later than the required implementation date of December 31, 1998.
The American Institute of Certified Public Accountants 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 is required by the first quarter
of 1999, 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.
In 1996, the Company implemented Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires write-down to fair
value when long-lived assets to be held and used are impaired. Long-lived assets
to be disposed of, including real estate held for sale, must be carried at the
lower of cost or fair value less costs to sell. Depreciation of assets to be
disposed of is prohibited. The effect of implementing SFAS No. 121 was not
material to the Company.
C) FINANCIAL INSTRUMENTS: In the normal course of business, the Company
enters into transactions involving various types of financial instruments,
including investments such as fixed maturities and equity securities and off-
balance sheet financial instruments such as investment and loan commitments and
financial guarantees. These instruments 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, 1997 and 1996. Fair values of off-balance
sheet financial instruments as of December 31, 1997 and 1996 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
39
<PAGE>
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, include bonds, asset-backed securities, including
collateralized mortgage obligations (CMOs), and redeemable preferred stocks.
Fixed maturities are carried at fair value, with unrealized appreciation or
depreciation included in Shareholder's Equity. Fixed maturities are considered
impaired and written down to fair value when a decline in value is considered to
be other than temporary.
Mortgage loans are carried principally at unpaid principal balances, net of
valuation reserves. Mortgage loans are considered impaired when it is probable
that the Company will 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. 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, which include common and non-redeemable preferred stocks,
are carried at fair value, with unrealized appreciation or depreciation included
in Shareholder's Equity. Short-term investments are carried at fair value, which
approximates cost. Equity securities and short-term investments are classified
as available for sale.
Policy loans are generally carried at unpaid principal balances.
Realized investment gains and losses result from sales, investment asset
write-downs and changes in valuation reserves. 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.
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.
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.
40
<PAGE>
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. In these cases 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 $448 million
and $427 million at December 31, 1997 and 1996, respectively.
I) OTHER ASSETS: Other Assets consists of various insurance-related assets,
principally ceded unearned premiums, reinsurance deposits and other amounts due
from affiliated companies.
J) GOODWILL: Goodwill represents the excess of the cost of businesses
acquired over the fair value of their net assets. Goodwill is amortized on
systematic bases over periods, not exceeding 40 years, that correspond with the
benefits estimated to be derived from the acquisitions. The Company evaluates
the carrying amount of goodwill by analyzing historical and estimated future
income and undiscounted estimated cash flows of the related businesses. Goodwill
is written down when impaired. Amortization periods are revised if it is
estimated that the remaining period of benefit of the goodwill has changed.
Accumulated amortization was $113 million and $99 million at December 31, 1997
and 1996, respectively.
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.
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.
41
<PAGE>
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.
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.
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.
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,
1997, 1996 and 1995.
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 businesses for cash proceeds of $1.4 billion. The sale resulted in an
after-tax gain of approximately $800 million. Since the principal agreement to
sell these businesses is in the form of an indemnity reinsurance arrangement,
approximately $575 million of the gain will be deferred and amortized over
future periods at the rate that earnings from the businesses sold would have
been expected to emerge. Revenues for these businesses were $972 million, $926
million and $865 million for the years ended December 31, 1997, 1996 and 1995,
respectively, and net income was $102 million, $67 million and $74 million for
the same periods. 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
$36 million and $95 million, including policyholder share, as of December 31,
1997 and 1996, respectively.
42
<PAGE>
The amortized cost and fair value by contractual maturity periods for fixed
maturities, including policyholder share, as of December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Amortized Fair
(IN MILLIONS) Cost Value
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less.................................................. $ 1,114 $ 1,139
Due after one year through five years.................................... 5,768 5,949
Due after five years through ten years................................... 4,734 4,998
Due after ten years...................................................... 3,093 3,680
Asset-backed securities.................................................. 6,253 6,557
- -------------------------------------------------------------------------------------------
Total.................................................................... $ 20,962 $ 22,323
- -------------------------------------------------------------------------------------------
----------------------
</TABLE>
Actual maturities could differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Also, the Company may extend maturities in some cases.
Gross unrealized appreciation (depreciation) for fixed maturities, including
policyholder share, by type of issuer was as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
December 31, 1997
- -------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
December 31, 1996
- -------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal government bonds......................... $ 475 $ 160 $ -- $ 635
State and local government bonds................. 174 13 (4) 183
Foreign government bonds......................... 121 6 -- 127
Corporate securities............................. 13,310 742 (148) 13,904
Asset-backed securities.......................... 5,802 226 (61) 5,967
- -------------------------------------------------------------------------------------------
Total............................................ $ 19,882 $ 1,147 $ (213 ) $ 20,816
- -------------------------------------------------------------------------------------------
--------------------------------------------------
</TABLE>
Asset-backed securities include investments in CMOs as of December 31, 1997 of
$2.3 billion carried at fair value (amortized cost, $2.3 billion), compared with
$2.2 billion carried at fair value (amortized cost, $2.1 billion) as of December
31, 1996. 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 0.1% of total CMO investments at December
31, 1997 and 1996.
At December 31, 1997, contractual fixed maturity investment commitments were
$188 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 83% will be disbursed in 1998.
43
<PAGE>
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 approximate 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) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage Loans............................................................ $ 10,090 $ 10,152
--------- ---------
Real estate:
Held for sale........................................................... 339 586
Held for production of income........................................... 410 439
--------- ---------
Total real estate......................................................... 749 1,025
- -------------------------------------------------------------------------------------------
Total..................................................................... $ 10,839 $ 11,177
- -------------------------------------------------------------------------------------------
--------------------
</TABLE>
At December 31, mortgage loans and real estate investments comprised the
following property types and geographic regions:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(IN MILLIONS) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Property type:
Retail facilities....................................................... $ 4,227 $ 4,453
Office buildings........................................................ 3,984 4,241
Apartment buildings..................................................... 1,311 1,272
Hotels.................................................................. 498 665
Other (primarily industrial)............................................ 819 546
- -------------------------------------------------------------------------------------------
Total..................................................................... $ 10,839 $ 11,177
- -------------------------------------------------------------------------------------------
--------------------
Geographic region:
Central................................................................. $ 3,484 $ 3,452
Pacific................................................................. 2,962 3,132
Middle Atlantic......................................................... 1,821 1,920
South Atlantic.......................................................... 1,458 1,526
New England............................................................. 1,114 1,147
- -------------------------------------------------------------------------------------------
Total..................................................................... $ 10,839 $ 11,177
- -------------------------------------------------------------------------------------------
--------------------
</TABLE>
MORTGAGE LOANS
At December 31, 1997, scheduled mortgage loan maturities were as follows: 1998
- -- $0.7 billion; 1999 -- $1.1 billion; 2000 -- $1.3 billion; 2001 -- $1.1
billion; 2002 -- $1.7 billion; and $4.2 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 1997 and 1996, the Company
refinanced at current market rates approximately $135 million and $477 million,
respectively, of its mortgage loans relating to borrowers that were unable to
obtain alternative financing.
At December 31, 1997, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $167 million, all
of which were at a fixed market rate of interest. These commitments expire
within six months, and are diversified by property type and geographic region.
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. At December 31, 1996, the Company's
impaired mortgage loans were $814 million, including $442 million before
valuation reserves totaling $94 million, and $372 million which had no valuation
reserves.
44
<PAGE>
During the year ended December 31, changes in reserves for impaired mortgage
loans, including policyholder share, were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(IN MILLIONS) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Reserve balance -- January 1................................................... $ 94 $ 82
Transfers to foreclosed real estate............................................ (30) (29)
Charge-offs upon sales......................................................... (47) (19)
Net increase in valuation reserves............................................. 27 60
- -------------------------------------------------------------------------------------------
Reserve balance -- December 31................................................. $ 44 $ 94
- -------------------------------------------------------------------------------------------
--------------------
</TABLE>
During 1997 and 1996, impaired mortgage loans, before valuation reserves,
averaged approximately $597 million and $852 million, respectively. Interest
income recorded and cash received on these loans were approximately $34 million
and $73 million in 1997 and 1996, respectively.
REAL ESTATE
During 1997, 1996 and 1995, non-cash investing activities included real estate
acquired through foreclosure of mortgage loans, which totaled $81 million, $107
million and $144 million, respectively.
Valuation reserves and cumulative write-downs related to real estate,
including policyholder share, were $169 million and $273 million as of December
31, 1997 and 1996, respectively.
Net income for 1997 and 1996 included net investment income of $9 million and
$19 million, respectively, for real estate held for sale. Write-downs upon
foreclosure and changes in valuation reserves were not material for 1997 and
1996.
C) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and
cash equivalents, in the aggregate, primarily included debt securities,
principally corporate securities of $520 million and federal government
securities of $443 million at December 31, 1997 and, for 1996, principally
corporate securities of $418 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) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation:
Fixed maturities.......................................................... $ 1,500 $ 1,147
Equity securities......................................................... 8 8
--------- ---------
1,508 1,155
--------- ---------
Unrealized depreciation:
Fixed maturities.......................................................... (139) (213)
Equity securities......................................................... (29) (26)
--------- ---------
(168) (239)
--------- ---------
Less policyholder-related amounts........................................... 931 610
--------- ---------
Shareholder net unrealized appreciation..................................... 409 306
Less deferred income taxes.................................................. 153 118
- -------------------------------------------------------------------------------------------
Net unrealized appreciation................................................. $ 256 $ 188
- -------------------------------------------------------------------------------------------
--------------------
</TABLE>
Net unrealized appreciation (depreciation) for investments carried at fair
value is included as a separate component of Shareholder's Equity, net of
policyholder-related amounts and deferred income taxes. The net unrealized
appreciation (depreciation) for these investments, primarily fixed maturities,
during 1997, 1996 and 1995 was $68 million, ($288) million and $542 million,
respectively.
45
<PAGE>
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) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities............................................................... $ 28 $ 52
Mortgage loans................................................................. -- 14
Real estate.................................................................... 141 172
- -------------------------------------------------------------------------------------------
Total.......................................................................... $ 169 $ 238
- -------------------------------------------------------------------------------------------
--------------------
</TABLE>
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 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) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate swaps............................................................ $ 265 $ 335
Currency swaps................................................................. 248 275
Purchased options.............................................................. 833 632
Futures........................................................................ 75 45
- -------------------------------------------------------------------------------------------
</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, pounds sterling and Swiss francs) 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 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 and $112
million at December 31, 1997 and 1996, respectively, 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.
46
<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, 1997 and 1996.
The effects of interest rate and currency swaps, purchased options and futures
on the components of net income for 1997, 1996 and 1995 were not material.
As of December 31, 1997 and 1996, the Company's variable interest rate
investments consisted of approximately $0.7 billion and $1.3 billion of fixed
maturities, respectively. As of December 31, 1997 and 1996, the Company's fixed
interest rate investments consisted of $21.6 billion and $19.5 billion,
respectively, of fixed maturities, and $10.1 billion and $10.2 billion,
respectively, of mortgage loans.
G) OTHER: As of December 31, 1997 and 1996, 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) 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities.................................................... $ 1,648 $ 1,647 $ 1,663
Equity securities................................................... 10 -- 15
Mortgage loans...................................................... 885 921 866
Policy loans........................................................ 532 548 499
Real estate......................................................... 118 227 301
Other long-term investments......................................... 47 23 33
Short-term investments.............................................. 28 35 46
--------- --------- ---------
3,268 3,401 3,423
Less investment expenses............................................ 129 202 285
- -------------------------------------------------------------------------------------------
Net investment income............................................... $ 3,139 $ 3,199 $ 3,138
- -------------------------------------------------------------------------------------------
-------------------------------
</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 $1.7 billion for
1997 and $1.8 billion for 1996 and 1995. Net investment income for separate
accounts, which is not reflected in the Company's revenues, was $1.4 billion,
$1.1 billion and $885 million for 1997, 1996 and 1995, 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. As of December 31, 1996, fixed maturities and mortgage loans on
non-accrual status, including policyholder share, were $160 million and $360
million, including restructured investments of $88 million and $304 million,
respectively. If interest on these investments had been recognized in accordance
with their original terms, net income would have been increased by $7 million,
$15 million and $18 million in 1997, 1996 and 1995, respectively.
47
<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) 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities......................................................... $ (3) $ 11 $ (10)
Equity securities........................................................ 4 1 5
Mortgage loans........................................................... 4 (12) (5)
Real estate.............................................................. 28 15 4
Other.................................................................... 12 22 (1)
--
--- ---
45 37 (7)
Income tax expenses (benefits)........................................... 8 17 (2)
- -------------------------------------------------------------------------------------------
Net realized investment gains (losses)................................... $ 37 $ 20 $ (5 )
- -------------------------------------------------------------------------------------------
------------------
</TABLE>
Realized investment gains and losses include impairments in the value of
investments, net of recoveries, of $25 million, $40 million and $27 million in
1997, 1996 and 1995, respectively.
Realized investment gains for separate accounts, which are not reflected in
the Company's revenues, were $489 million, $305 million and $412 million for the
years ended December 31, 1997, 1996 and 1995, respectively. Realized investment
gains (losses) attributable to policyholder contracts, which also are not
reflected in the Company's revenues, were $76 million, $82 million and ($6)
million for the years ended December 31, 1997, 1996 and 1995, 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) 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales................................................. $ 3,978 $ 4,236 $ 1,667
Gross gains on sales................................................ $ 66 $ 146 $ 78
Gross losses on sales............................................... $ (21) $ (70) $ (53)
- -------------------------------------------------------------------------------------------
</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, 1997, 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, 1997 and 1996 consisted of
5,978,322 shares of common stock authorized, issued and outstanding (par value
$5).
The Company's statutory net income was $417 million, $611 million and $390
million for 1997, 1996 and 1995, respectively. Statutory surplus was $2.2
billion at December 31, 1997 and $2.1 billion at December 31, 1996. 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 1997, the Company paid
a total of $400 million in dividends 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 1998 without prior approval is $548 million. The amount of
restricted net assets as of December 31, 1997 was approximately $3.9 billion.
NOTE 7 -- INCOME TAXES
The Company's net deferred tax asset of $653 million and $639 million as of
December 31, 1997 and 1996, respectively, reflects management's belief that the
Company's taxable income in future years will be sufficient to realize the net
deferred tax asset based on the Company's earnings history and its future
expectations. In determining the adequacy of future taxable income, management
considered the future reversal of its existing taxable temporary differences and
available tax planning strategies that could be implemented, if necessary.
48
<PAGE>
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, 1997
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.
CIGNA's federal income tax returns are routinely audited by the Internal
Revenue Service (IRS), and provisions are made in CIGNA's financial statements
in anticipation of the results of these audits. 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.
The tax effect of temporary differences which give rise to deferred income tax
assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(IN MILLIONS) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other insurance and contractholder liabilities............................... $ 400 $ 387
Employee and retiree benefit plans........................................... 196 177
Investments, net............................................................. 262 228
Other........................................................................ 63 74
--- ---
Total deferred tax assets.................................................... 921 866
--- ---
Deferred tax liabilities:
Policy acquisition expenses.................................................. 38 21
Depreciation................................................................. 77 88
Unrealized appreciation on investments....................................... 153 118
--- ---
Total deferred tax liabilities............................................... 268 227
- -------------------------------------------------------------------------------------------
Net deferred income tax asset................................................ $ 653 $ 639
- -------------------------------------------------------------------------------------------
--------------------
</TABLE>
Total income taxes for the year ended December 31 were less than the amount
computed using the nominal federal income tax rate of 35% for the following
reasons:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(IN MILLIONS) 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at nominal rate.............................................. $ 320 $ 305 $ 266
Tax-exempt interest income............................................... (5) (5) (6)
Dividends received deduction............................................. (7) (7) (7)
Amortization of goodwill................................................. 4 4 4
Resolved federal tax audit issues........................................ (13) -- --
Other.................................................................... (1) 16 --
- -------------------------------------------------------------------------------------------
Total income taxes....................................................... $ 298 $ 313 $ 257
- -------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
NOTE 8 -- PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS PLANS
A) PENSION PLANS: The Company provides retirement benefits to eligible
employees and agents. These benefits are provided through a plan sponsored by
CIGNA covering most domestic employees (the Plan) and by several separate
pension plans for various subsidiaries, agents and foreign employees.
The Plan is a non-contributory, defined benefit, trusteed plan available to
eligible domestic employees. Generally, for employees whose service commenced
prior to 1989, benefits are based on their years of service and eligible
compensation during the highest three consecutive years of employment, offset by
a portion of the Social Security benefit for which they are eligible. In 1997,
CIGNA amended its Plan for employees whose service commenced
49
<PAGE>
after 1988. Under the new Plan provisions, eligible employees receive annual
benefit credits based on an employee's age and credited service, and quarterly
interest credits based on U.S. Treasury bond rates. The employee's pension
benefit equals the value of accumulated credits, and may be paid at or after
separation from service in a lump sum or an annuity. CIGNA funds the Plan at
least at the minimum amount required by the Employee Retirement Income Security
Act of 1974 (ERISA). Allocated pension cost for the Company was $24 million, $26
million and $23 million in 1997, 1996 and 1995, respectively.
The Plan, and several separate pension plans for various subsidiaries and
agents, had deposits with the Company totaling approximately $2.5 billion and
$2.2 billion at December 31, 1997 and 1996, respectively.
B) OTHER POSTRETIREMENT BENEFITS PLANS: In addition to providing pension
benefits, the Company provides certain health care and life insurance benefits
to retired employees, spouses and other eligible dependents through various
plans sponsored by CIGNA. A substantial portion of the Company's employees may
become eligible for these benefits upon retirement. CIGNA's contributions for
health care benefits depend upon a retiree's date of retirement, age, years of
service and other cost-sharing features, such as deductibles and coinsurance.
Under the terms of the benefit plans, benefit provisions and cost-sharing
features can be adjusted. In general, retiree health care benefits are not
funded by CIGNA, but are paid as covered expenses are incurred. Retiree life
insurance benefits are paid from plan assets or as covered expenses are
incurred.
Expense for postretirement benefits other than pensions allocated to the
Company totaled $2 million for 1997, $9 million for 1996 and $16 million for
1995. The other postretirement benefit liability included in Accounts Payable,
Accrued Expenses and Other Liabilities as of December 31, 1997 and 1996 was $412
million and $424 million, including net intercompany payables of $39 million and
$40 million, respectively, for services provided by affiliates' employees.
C) OTHER POSTEMPLOYMENT BENEFITS: The Company provides certain salary
continuation (severance and disability), health care and life insurance benefits
to inactive and former employees, spouses and other eligible dependents through
various employee benefit plans sponsored by CIGNA.
Although severance benefits accumulate with additional service, the Company
recognizes severance expense when severance is probable and the costs can be
reasonably estimated. Postemployment benefits other than severance generally do
not vest or accumulate; therefore, the estimated cost of benefits is accrued
when determined to be probable and estimable, generally upon disability or
termination. See Note 11 for additional information regarding severance accrued
as part of cost reduction initiatives.
D) CAPITAL ACCUMULATION PLANS: CIGNA sponsors various capital accumulation
plans in which employee contributions on a pre-tax basis (401(k)) are
supplemented by CIGNA matching contributions. 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 $15 million for 1997, $16 million for 1996 and $14 million
for 1995.
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
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.
Failure of reinsurers to indemnify the Company, as a result of reinsurer
insolvencies and disputes, could result in losses. As of December 31, 1997 and
1996 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.
50
<PAGE>
The effects of reinsurance on net earned premiums and fees for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(IN MILLIONS) 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-DURATION CONTRACTS
Premiums and fees:
Direct............................................................ $ 3,119 $ 2,940 $ 2,613
Assumed........................................................... 255 135 384
Ceded............................................................. (266) (166) (366)
- -------------------------------------------------------------------------------------------
Net earned premiums and fees........................................ $ 3,108 $ 2,909 $ 2,631
- -------------------------------------------------------------------------------------------
-------------------------------
LONG-DURATION CONTRACTS
Premiums and fees:
Direct............................................................ $ 1,979 $ 1,997 $ 1,950
Assumed........................................................... 522 601 561
Ceded............................................................. (233) (193) (144)
- -------------------------------------------------------------------------------------------
Net earned premiums and fees........................................ $ 2,268 $ 2,405 $ 2,367
- -------------------------------------------------------------------------------------------
-------------------------------
</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 1997, 1996 and 1995 were net
of reinsurance recoveries of $340 million, $359 million and $442 million,
respectively.
NOTE 10 -- LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to buildings,
amounted to $76 million, $68 million and $60 million in 1997, 1996 and 1995,
respectively.
As of December 31, 1997, future net minimum rental payments under
non-cancelable operating leases were $167 million, payable as follows: 1998 --
$44 million; 1999 -- $37 million; 2000 -- $23 million; 2001 -- $17 million; 2002
- -- $12 million; and $34 million thereafter.
NOTE 11 -- SEGMENT INFORMATION
The Company operates principally in three segments: Employee Life and Health
Benefits, Employee Retirement and Savings Benefits, and Individual Financial
Services. Other Operations consists principally of the results of the Company's
settlement annuity business and certain new business initiatives.
Summarized segment financial information for the year ended and as of December
31 was as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(IN MILLIONS) 1997 1996 1995
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Employee Life and Health Benefits................................ $ 4,581 $ 4,510 $ 4,243
Employee Retirement and Savings Benefits......................... 1,773 1,899 1,914
Individual Financial Services.................................... 2,004 1,950 1,800
Other Operations................................................. 212 200 181
- -------------------------------------------------------------------------------------------
Total............................................................ $ 8,570 $ 8,559 $ 8,138
- -------------------------------------------------------------------------------------------
-------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
Employee Life and Health Benefits................................ $ 300 $ 287 $ 294
Employee Retirement and Savings Benefits......................... 324 293 232
Individual Financial Services.................................... 300 298 252
Other Operations................................................. (11) (8) (17)
- -------------------------------------------------------------------------------------------
Total............................................................ $ 913 $ 870 $ 761
- -------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(IN MILLIONS) 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Employee Life and Health Benefits................................ $ 7,639 $ 7,065 $ 7,629
Employee Retirement and Savings Benefits......................... 45,884 40,122 37,609
Individual Financial Services.................................... 19,809 17,930 16,189
Other Operations................................................. 2,721 2,398 2,569
- -------------------------------------------------------------------------------------------
Total............................................................ $ 76,053 $ 67,515 $ 63,996
- -------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
During 1995, the Company recorded a $13 million pre-tax charge ($8 million
after-tax), included in Other Operating Expenses, for cost reduction
restructuring initiatives in the Employee Life and Health Benefits segment. The
charge consisted primarily of severance-related expenses representing costs
associated with nonvoluntary terminations covering approximately 1,100
employees. These initiatives were completed in 1997 with no material difference
from original estimates.
NOTE 12 -- 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 18 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, 1997 and 1996 was $202
million and $234 million, respectively. Revenues in connection with industrial
revenue bond guarantees are derived principally from equity participations in
the related projects and are included in Net Investment Income as earned. Loss
reserves for financial guarantees are established when a default has occurred or
when the Company believes that a loss has been incurred. There were no losses
for industrial revenue bonds in 1997, 1996 or 1995.
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, 1997 and 1996, the amount of minimum benefit
guarantees for separate account contracts was $4.6 billion and $4.9 billion,
respectively. Reserves in addition to the separate account liabilities are
established when the Company believes a payment will be required under one of
these guarantees. No such reserves were required as of December 31, 1997 and
1996. 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 increase
health care regulation, restrict insurance pricing and the application of
underwriting standards, and revise federal tax laws. Some of the more
significant issues are discussed below.
Efforts at the federal and state level to increase regulation of the health
care industry could have an adverse effect on the Company's health care
operations if they reduce marketplace competition and innovation or result in
increased medical or administrative costs. Matters under consideration that
could have an adverse effect include mandated benefits or services that increase
costs without improving the quality of care, loss of the ERISA preemption of
state law and restrictions on the use of prescription drug formularies. Due to
the uncertainty associated with the timing and content of any proposals
ultimately adopted, the effect on the Company's results of operations, liquidity
or financial condition cannot be reasonably estimated at this time.
52
<PAGE>
In 1996, Congress passed legislation that phases out over a three-year period
the tax deductibility of policy loan interest for most leveraged corporate-owned
life insurance (COLI) products. For 1997, revenues of $591 million and net
income of $44 million for the Company were from leveraged COLI 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.
The National Association of Insurance Commissioners recently approved
standardized statutory accounting practices, which are not scheduled to take
effect before 1999. The Company has not determined the effect on statutory net
income, surplus or liquidity at this time.
The Company is contingently liable for possible assessments under regulatory
requirements pertaining to potential insolvencies of unaffiliated insurance
companies. Mandatory assessments, which are subject to statutory limits, can be
partially recovered through a reduction in future premium taxes in some states.
The Company recorded pre-tax charges of $17 million, $26 million and $22 million
for 1997, 1996 and 1995, respectively, for guaranty fund assessments that can be
reasonably estimated before giving effect to future premium tax recoveries.
Although future assessments and payments may adversely affect results of
operations in future periods, such amounts are not expected to have a material
adverse effect on the Company's liquidity or financial condition.
The eventual effect on the Company of the changing environment in which it
operates remains uncertain.
C) LITIGATION: The Company is routinely engaged in litigation incidental to
its business. While the outcome of all litigation involving the Company,
including insurance-related litigation, cannot be determined, litigation is not
expected to result in losses that differ from recorded reserves by amounts that
would be material to results of operations, liquidity or financial condition.
NOTE 13 -- 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, 1997 and 1996.
The Company cedes long-term disability business to LINA. Reinsurance
recoverables from LINA at December 31, 1997 and 1996 were $869 million and $917
million, respectively.
The Company had lines of credit available from affiliates totaling $600
million at December 31, 1997 and 1996. 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 $0.2 million for 1997 and $1.0 million
for 1996 and 1995. As of December 31, 1997 and 1996, there were no borrowings
outstanding under such lines.
The Company extended lines of credit to affiliates totaling $600 million at
December 31, 1997 and 1996. 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, 1997 or 1996.
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, 1997 and 1996, the Company had a balance in the Account of $484
million and $80 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.
53
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
CIGNA VARIABLE
PRODUCTS GROUP
AIM VARIABLE INSURANCE FUNDS SUB-ACCOUNTS SUB-ACCOUNTS
-------------------------------------------------- ------------------------
CAPITAL DIVERSIFIED MONEY
APPRECIATION INCOME GROWTH VALUE MARKET S&P 500
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable insurance funds at
value..................................... $ 1,209,097 $ 347,907 $ 1,634,620 $ 2,137,038 $ 481,020 $ 416,085
Receivable from Connecticut General Life
Insurance Company......................... 5,858 -- 5,884 11,797 -- --
Receivable for fund shares sold............. -- -- -- -- 245 --
----------- ----------- ----------- ----------- ----------- -----------
Total assets............................ 1,214,955 347,907 1,640,504 2,148,835 481,265 416,085
----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES:
Payable to Connecticut General Life
Insurance Company......................... -- -- -- -- 245 --
Payable for fund shares purchased........... 5,858 -- 5,884 11,797 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities....................... 5,858 -- 5,884 11,797 245 --
----------- ----------- ----------- ----------- ----------- -----------
Net assets.............................. $ 1,209,097 $ 347,907 $ 1,634,620 $ 2,137,038 $ 481,020 $ 416,085
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Accumulation units outstanding.............. 102,392 29,498 123,144 153,903 44,863 36,131
Net asset value per accumulation unit....... $ 11.808460 $ 11.794260 $ 13.274071 $ 13.885620 $ 10.722041 $ 11.516128
<CAPTION>
FIDELITY
VIP
PORTFOLIO FIDELITY VIP II
SUB-ACCOUNT PORTFOLIO SUB-ACCOUNTS
----------- ------------------------
EQUITY- ASSET INVESTMENT
INCOME MANAGER GRADE BOND
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investment in variable insurance funds at
value..................................... $ 1,467,346 $ 322,430 $ 256,993
Receivable from Connecticut General Life
Insurance Company......................... 11,854 -- --
Receivable for fund shares sold............. -- -- --
----------- ----------- -----------
Total assets............................ 1,479,200 322,430 256,993
----------- ----------- -----------
LIABILITIES:
Payable to Connecticut General Life
Insurance Company......................... -- -- --
Payable for fund shares purchased........... 11,854 -- --
----------- ----------- -----------
Total liabilities....................... 11,854 -- --
----------- ----------- -----------
Net assets.............................. $ 1,467,346 $ 322,430 $ 256,993
----------- ----------- -----------
----------- ----------- -----------
Accumulation units outstanding.............. 105,408 25,065 22,375
Net asset value per accumulation unit....... $ 13.920599 $ 12.863847 $ 11.485826
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
54
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
OCC ACCUMULATION
MFS SERIES SUB-ACCOUNTS TRUST SUB-ACCOUNTS
------------------------------------------------ ----------------------
EMERGING TOTAL WORLD GLOBAL
GROWTH RETURN UTILITIES GOVERNMENTS EQUITY MANAGED
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in variable insurance
funds at value................ $ 574,139 $ 490,942 $ 87,993 $ 48,910 $ 450,964 $ 950,435
Receivable from
Connecticut General Life
Insurance Company............. -- -- -- -- -- 17,784
Receivable for fund shares
sold.......................... 27 -- -- -- -- --
---------- ---------- ----------- ---------- ---------- ----------
Total assets................ 574,166 490,942 87,993 48,910 450,964 968,219
---------- ---------- ----------- ---------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life Insurance Company........ 27 -- -- -- -- --
Payable for fund shares
purchased..................... -- -- -- -- -- 17,784
---------- ---------- ----------- ---------- ---------- ----------
Total liabilities........... 27 -- -- -- -- 17,784
---------- ---------- ----------- ---------- ---------- ----------
Net assets.................. $ 574,139 $ 490,942 $ 87,993 $ 48,910 $ 450,964 $ 950,435
---------- ---------- ----------- ---------- ---------- ----------
---------- ---------- ----------- ---------- ---------- ----------
Accumulation units
outstanding................... 49,793 37,712 6,008 4,728 36,691 70,472
Net asset value per accumulation
unit.......................... $11.530548 $13.018177 $ 14.646554 $10.344227 $12.290973 $13.486783
<CAPTION>
TEMPLETON VARIABLE PRODUCTS
SERIES FUND SUB-ACCOUNTS
--------------------------------------
ASSET
SMALL CAP ALLOCATION INTERNATIONAL STOCK
---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investment in variable insurance
funds at value................ $ 729,407 $ 676,332 $1,558,395 $ 648,424
Receivable from
Connecticut General Life
Insurance Company............. -- -- 5,848 11,889
Receivable for fund shares
sold.......................... 38 -- -- --
---------- ------------- ---------- ----------
Total assets................ 729,445 676,332 1,564,243 660,313
---------- ------------- ---------- ----------
LIABILITIES:
Payable to Connecticut General
Life Insurance Company........ 38 -- -- --
Payable for fund shares
purchased..................... -- -- 5,848 11,889
---------- ------------- ---------- ----------
Total liabilities........... 38 -- 5,848 11,889
---------- ------------- ---------- ----------
Net assets.................. $ 729,407 $ 676,332 $1,558,395 $ 648,424
---------- ------------- ---------- ----------
---------- ------------- ---------- ----------
Accumulation units
outstanding................... 56,967 52,906 122,038 52,650
Net asset value per accumulation
unit.......................... $12.804133 $ 12.783693 $12.769802 $12.315766
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
55
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CIGNA
VARIABLE
PRODUCTS
GROUP
AIM VARIABLE INSURANCE FUNDS SUB-ACCOUNTS SUB-ACCOUNTS
---------------------------------------------- ---------
CAPITAL DIVERSIFIED MONEY
APPRECIATION INCOME GROWTH VALUE MARKET
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends......................................................... $ 928 $ 268 $ 6,858 $ 17,630 $ 29,019
EXPENSES:
Mortality and expense risk........................................ 5,212 1,463 6,870 8,405 4,540
----------- ----------- --------- --------- ---------
Net investment gain (loss).................................... (4,284) (1,195) (12) 9,225 24,479
----------- ----------- --------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Capital distributions from portfolio sponsors..................... 11,932 -- 51,743 54,124 --
Net realized gain (loss) on share transactions.................... 1,490 66 375 1,561 --
----------- ----------- --------- --------- ---------
Net realized gain............................................. 13,422 66 52,118 55,685 --
Net unrealized gain (loss)........................................ 64,842 18,333 114,550 112,220 --
----------- ----------- --------- --------- ---------
Net realized and unrealized gain (loss) on investments........ 78,264 18,399 166,668 167,905 --
----------- ----------- --------- --------- ---------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 73,980 $ 17,204 $ 166,656 $ 177,130 $ 24,479
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
<CAPTION>
FIDELITY
VIP
PORTFOLIO FIDELITY VIP II
SUB-ACCOUNT PORTFOLIO SUB-ACCOUNTS
----------- ----------------------
EQUITY- ASSET INVESTMENT
S&P 500* INCOME MANAGER GRADE BOND
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends......................................................... $ 7,320 $ 6,926 $ 3,086 $ 2,535
EXPENSES:
Mortality and expense risk........................................ 402 5,823 956 635
----------- ----------- --------- -----------
Net investment gain (loss).................................... 6,918 1,103 2,130 1,900
----------- ----------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Capital distributions from portfolio sponsors..................... 7,320 34,821 7,741 --
Net realized gain (loss) on share transactions.................... (650) 635 143 68
----------- ----------- --------- -----------
Net realized gain............................................. 6,670 35,456 7,884 68
Net unrealized gain (loss)........................................ (6,932) 126,200 12,884 5,634
----------- ----------- --------- -----------
Net realized and unrealized gain (loss) on investments........ (262) 161,656 20,768 5,702
----------- ----------- --------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 6,656 $ 162,759 $ 22,898 $ 7,602
----------- ----------- --------- -----------
----------- ----------- --------- -----------
</TABLE>
- --------------------------
* Period from May 23, 1997 (date deposits first received) to December 31, 1997
The Notes to Financial Statements are an integral part of these statements.
56
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE PERIODS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
OCC
ACCUMULATION
TRUST
MFS SERIES SUB-ACCOUNTS SUB-ACCOUNTS
------------------------------------------------ ---------
EMERGING TOTAL WORLD GLOBAL
GROWTH* RETURN UTILITIES GOVERNMENTS EQUITY
----------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends........................................................... $ -- $ -- $ -- $ 184 $ 2,055
EXPENSES:
Mortality and expense risk.......................................... 481 2,021 295 264 775
----------- --------- --------- --- ---------
Net investment gain (loss)...................................... (481) (2,021) (295) (80) 1,280
----------- --------- --------- --- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Capital distributions from portfolio sponsors....................... -- -- -- 83 20,597
Net realized gain (loss) on share transactions...................... 122 (284) 263 (97) (194)
----------- --------- --------- --- ---------
Net realized gain (loss)........................................ 122 (284) 263 (14) 20,403
Net unrealized gain (loss).......................................... (3,444) 47,191 11,922 389 (23,062)
----------- --------- --------- --- ---------
Net realized and unrealized gain (loss) on investments.......... (3,322) 46,907 12,185 375 (2,659)
----------- --------- --------- --- ---------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS......... $ (3,803) $ 44,886 $ 11,890 $ 295 $ (1,379)
----------- --------- --------- --- ---------
----------- --------- --------- --- ---------
<CAPTION>
TEMPLETON VARIABLE PRODUCTS
SERIES FUND SUB-ACCOUNTS
-----------------------------------
ASSET
MANAGED SMALL CAP ALLOCATION INTERNATIONAL STOCK
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends........................................................... $ 3,094 $ 1,288 $ 11,456 $ 13,383 $ 2,593
EXPENSES:
Mortality and expense risk.......................................... 4,070 3,063 3,943 6,215 2,545
----------- ----------- ----------- ----------- ---------
Net investment gain (loss)...................................... (976) (1,775) 7,513 7,168 48
----------- ----------- ----------- ----------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Capital distributions from portfolio sponsors....................... 9,501 9,078 21,740 5,380 12,278
Net realized gain (loss) on share transactions...................... 2,945 (91) (155) 577 (59)
----------- ----------- ----------- ----------- ---------
Net realized gain (loss)........................................ 12,446 8,987 21,585 5,957 12,219
Net unrealized gain (loss).......................................... 66,834 61,025 21,181 52,272 1,573
----------- ----------- ----------- ----------- ---------
Net realized and unrealized gain (loss) on investments.......... 79,280 70,012 42,766 58,229 13,792
----------- ----------- ----------- ----------- ---------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS......... $ 78,304 $ 68,237 $ 50,279 $ 65,397 $ 13,840
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>
- --------------------------
* Period from May 23, 1997 (date deposits first received) to December 31, 1997
The Notes to Financial Statements are an integral part of these statements.
57
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CIGNA
VARIABLE
PRODUCTS
GROUP
AIM VARIABLE INSURANCE FUNDS SUB-ACCOUNTS SUB-ACCOUNTS
-------------------------------------------------- -----------
CAPITAL DIVERSIFIED MONEY
APPRECIATION INCOME GROWTH VALUE MARKET
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss)...................................... $ (4,284) $ (1,195) $ (12) $ 9,225 $ 24,479
Net realized gain............................................... 13,422 66 52,118 55,685 --
Net unrealized gain (loss)...................................... 64,842 18,333 114,550 112,220 --
----------- ----------- ----------- ----------- -----------
Net increase from operations.................................. 73,980 17,204 166,656 177,130 24,479
----------- ----------- ----------- ----------- -----------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits, net of premium loads...................... 323,509 98,464 231,695 395,944 86,719
Participant transfers........................................... 604,094 185,371 947,946 1,300,232 251,392
Participant withdrawals......................................... (92,701) (33,075) (108,614) (136,315) (64,689)
----------- ----------- ----------- ----------- -----------
Net increase from participant transactions.................... 834,902 250,760 1,071,027 1,559,861 273,422
----------- ----------- ----------- ----------- -----------
Total increase in net assets................................ 908,882 267,964 1,237,683 1,736,991 297,901
NET ASSETS:
Beginning of period............................................. 300,215 79,943 396,937 400,047 183,119
----------- ----------- ----------- ----------- -----------
End of period................................................... $ 1,209,097 $ 347,907 $ 1,634,620 $ 2,137,038 $ 481,020
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
FIDELITY
VIP
PORTFOLIO FIDELITY VIP II
SUB-ACCOUNT PORTFOLIO SUB-ACCOUNTS
----------- ----------------------
EQUITY- ASSET INVESTMENT
S&P 500 * INCOME MANAGER GRADE BOND
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss)...................................... $ 6,918 $ 1,103 $ 2,130 $ 1,900
Net realized gain............................................... 6,670 35,456 7,884 68
Net unrealized gain (loss)...................................... (6,932) 126,200 12,884 5,634
----------- ----------- --------- -----------
Net increase from operations.................................. 6,656 162,759 22,898 7,602
----------- ----------- --------- -----------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits, net of premium loads...................... 18,012 377,160 76,781 38,011
Participant transfers........................................... 401,552 734,832 167,578 185,522
Participant withdrawals......................................... (10,135) (105,591) (12,875) (14,963)
----------- ----------- --------- -----------
Net increase from participant transactions.................... 409,429 1,006,401 231,484 208,570
----------- ----------- --------- -----------
Total increase in net assets................................ 416,085 1,169,160 254,382 216,172
NET ASSETS:
Beginning of period............................................. -- 298,186 68,048 40,821
----------- ----------- --------- -----------
End of period................................................... $ 416,085 $ 1,467,346 $ 322,430 $ 256,993
----------- ----------- --------- -----------
----------- ----------- --------- -----------
</TABLE>
- --------------------------
* Period from May 23, 1997 (date deposits first received) to December 31, 1997
The Notes to Financial Statements are an integral part of these statements.
58
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIODS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
OCC ACCUMULATION
MFS SERIES SUB-ACCOUNTS TRUST SUB-ACCOUNTS
-------------------------------------------- --------------------
EMERGING TOTAL WORLD GLOBAL
GROWTH * RETURN UTILITIES GOVERNMENTS EQUITY MANAGED
--------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).................................... $ (481) $ (2,021) $ (295) $ (80) $ 1,280 $ (976)
Net realized gain (loss)...................................... 122 (284) 263 (14) 20,403 12,446
Net unrealized gain (loss).................................... (3,444) 47,191 11,922 389 (23,062) 66,834
--------- --------- --------- ----------- --------- ---------
Net increase (decrease) from operations..................... (3,803) 44,886 11,890 295 (1,379) 78,304
--------- --------- --------- ----------- --------- ---------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits, net of premium loads.................... 42,010 99,400 36,123 24,376 74,232 146,100
Participant transfers......................................... 542,788 247,244 41,549 18,935 376,844 561,866
Participant withdrawals....................................... (6,856) (26,686) (7,388) (4,737) (14,788) (78,439)
--------- --------- --------- ----------- --------- ---------
Net increase from participant transactions.................. 577,942 319,958 70,284 38,574 436,288 629,527
--------- --------- --------- ----------- --------- ---------
Total increase in net assets.............................. 574,139 364,844 82,174 38,869 434,909 707,831
NET ASSETS:
Beginning of period........................................... -- 126,098 5,819 10,041 16,055 242,604
--------- --------- --------- ----------- --------- ---------
End of period................................................. $ 574,139 $ 490,942 $ 87,993 $ 48,910 $ 450,964 $ 950,435
--------- --------- --------- ----------- --------- ---------
--------- --------- --------- ----------- --------- ---------
<CAPTION>
TEMPLETON VARIABLE PRODUCTS
SERIES FUND SUB-ACCOUNTS
---------------------------------
ASSET
SMALL CAP ALLOCATION INTERNATIONAL STOCK
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment gain (loss).................................... $ (1,775) $ 7,513 $ 7,168 $ 48
Net realized gain (loss)...................................... 8,987 21,585 5,957 12,219
Net unrealized gain (loss).................................... 61,025 21,181 52,272 1,573
--------- --------- ----------- ---------
Net increase (decrease) from operations..................... 68,237 50,279 65,397 13,840
--------- --------- ----------- ---------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits, net of premium loads.................... 122,875 39,996 323,144 93,184
Participant transfers......................................... 414,959 300,264 908,409 488,327
Participant withdrawals....................................... (47,040) (26,584) (112,114) (38,423)
--------- --------- ----------- ---------
Net increase from participant transactions.................. 490,794 313,676 1,119,439 543,088
--------- --------- ----------- ---------
Total increase in net assets.............................. 559,031 363,955 1,184,836 556,928
NET ASSETS:
Beginning of period........................................... 170,376 312,377 373,559 91,496
--------- --------- ----------- ---------
End of period................................................. $ 729,407 $ 676,332 $ 1,558,395 $ 648,424
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
- --------------------------
* Period from May 23, 1997 (date deposits first received) to December 31, 1997
The Notes to Financial Statements are an integral part of these statements.
59
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS FIRST RECEIVED) TO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
CIGNA
VARIABLE
PRODUCTS
AIM VARIABLE INSURANCE FUNDS SUB-ACCOUNTS GROUP
-------------------------------------------------------- SUB-ACCOUNT
CAPITAL DIVERSIFIED -------------
APPRECIATION INCOME GROWTH VALUE MONEY MARKET
------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Inception date....................................... May 6, 1996 May 22, 1996 May 22, 1996 May 6, 1996 May 6, 1996
INVESTMENT INCOME:
Dividends............................................ $ 321 $ 3,336 $ 833 $ 1,608 $ 2,053
EXPENSES:
Mortality and expense risk........................... 385 88 282 468 315
------------ ------------- ------------- ------------ -------------
Net investment gain (loss)....................... (64) 3,248 551 1,140 1,738
------------ ------------- ------------- ------------ -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Capital distributions from portfolio sponsors........ -- -- 9,355 15,593 --
Net realized gain on share transactions.............. 379 11 337 337 --
------------ ------------- ------------- ------------ -------------
Net realized gain................................ 379 11 9,692 15,930 --
Net unrealized gain (loss)........................... 2,251 (1,549) (9,782) (3,822) --
------------ ------------- ------------- ------------ -------------
Net realized and unrealized gain (loss) on
investments.................................... 2,630 (1,538) (90) 12,108 --
------------ ------------- ------------- ------------ -------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS......................................... $ 2,566 $ 1,710 $ 461 $ 13,248 $ 1,738
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
<CAPTION>
FIDELITY VIP
PORTFOLIO FIDELITY VIP II
SUB-ACCOUNT PORTFOLIO SUB-ACCOUNTS
------------ --------------------------
EQUITY- ASSET INVESTMENT
INCOME MANAGER GRADE BOND
------------ ------------ ------------
<S> <C> <C> <C>
Inception date....................................... May 6, 1996 July 1, 1996 May 6, 1996
INVESTMENT INCOME:
Dividends............................................ $ -- $ -- $ --
EXPENSES:
Mortality and expense risk........................... 322 89 32
------------ ------------ ------------
Net investment gain (loss)....................... (322) (89) (32)
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Capital distributions from portfolio sponsors........ -- -- --
Net realized gain on share transactions.............. 350 344 4
------------ ------------ ------------
Net realized gain................................ 350 344 4
Net unrealized gain (loss)........................... 5,635 1,319 (66)
------------ ------------ ------------
Net realized and unrealized gain (loss) on
investments.................................... 5,985 1,663 (62)
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS......................................... $ 5,663 $ 1,574 $ (94)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
60
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS FIRST RECEIVED) TO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MFS SERIES SUB-ACCOUNTS OCC ACCUMULATION TRUST SUB-ACCOUNTS
-------------------------------------------- ------------------------------------------
WORLD GLOBAL
TOTAL RETURN UTILITIES GOVERNMENTS EQUITY MANAGED SMALL CAP
------------- --------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Inception date........................ May 28, 1996 August 19, 1996 May 6, 1996 May 6, 1996 May 28, 1996 May 21, 1996
INVESTMENT INCOME:
Dividends............................. $ 1,859 $ 135 $ -- $ 56 $ -- $ --
EXPENSES:
Mortality and expense risk............ 165 9 13 24 375 281
------------- --------------- ------------ ------------ ------------- -------------
Net investment gain (loss)........ 1,694 126 (13) 32 (375) (281)
------------- --------------- ------------ ------------ ------------- -------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Capital distributions from portfolio
sponsors............................ 808 350 -- 85 -- --
Net realized gain (loss) on share
transactions........................ 61 (1) -- 7 174 26
------------- --------------- ------------ ------------ ------------- -------------
Net realized gain (loss).......... 869 349 -- 92 174 26
Net unrealized gain................... 656 9 24 375 11,891 9,222
------------- --------------- ------------ ------------ ------------- -------------
Net realized and unrealized gain
on investments.................. 1,525 358 24 467 12,065 9,248
------------- --------------- ------------ ------------ ------------- -------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................... $ 3,219 $ 484 $ 11 $ 499 $ 11,690 $ 8,967
------------- --------------- ------------ ------------ ------------- -------------
------------- --------------- ------------ ------------ ------------- -------------
<CAPTION>
TEMPLETON VARIABLE PRODUCTS
SERIES FUND SUB-ACCOUNTS
------------------------------------------
ASSET
ALLOCATION INTERNATIONAL STOCK
------------ ------------- -------------
<S> <C> <C> <C>
Inception date........................ May 6, 1996 May 21, 1996 May 22, 1996
INVESTMENT INCOME:
Dividends............................. $ -- $ -- $ --
EXPENSES:
Mortality and expense risk............ 244 473 121
------------ ------------- -------------
Net investment gain (loss)........ (244) (473) (121)
------------ ------------- -------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Capital distributions from portfolio
sponsors............................ -- -- --
Net realized gain (loss) on share
transactions........................ 249 156 (25)
------------ ------------- -------------
Net realized gain (loss).......... 249 156 (25)
Net unrealized gain................... 8,859 22,647 4,870
------------ ------------- -------------
Net realized and unrealized gain
on investments.................. 9,108 22,803 4,845
------------ ------------- -------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................... $ 8,864 $ 22,330 $ 4,724
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
61
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS FIRST RECEIVED) TO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
CIGNA
VARIABLE
PRODUCTS
GROUP
AIM VARIABLE INSURANCE FUNDS SUB-ACCOUNTS SUB-ACCOUNT
-------------------------------------------------------- -------------
CAPITAL DIVERSIFIED MONEY
APPRECIATION INCOME GROWTH VALUE MARKET
------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Inception date........................................... May 6, 1996 May 22, 1996 May 22, 1996 May 6, 1996 May 6, 1996
OPERATIONS:
Net investment gain (loss)............................... $ (64) $ 3,248 $ 551 $ 1,140 $ 1,738
Net realized gain........................................ 379 11 9,692 15,930 --
Net unrealized gain (loss)............................... 2,251 (1,549) (9,782) (3,822) --
------------ ------------- ------------- ------------ -------------
Net increase (decrease) from operations................ 2,566 1,710 461 13,248 1,738
------------ ------------- ------------- ------------ -------------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits, net of premium load................ 101,952 1,147 108,913 94,506 29,639
Participant transfers.................................... 207,039 80,113 292,966 306,773 162,260
Participant withdrawals.................................. (11,342) (3,027) (5,403) (14,480) (10,518)
------------ ------------- ------------- ------------ -------------
Net increase from participant transactions............. 297,649 78,233 396,476 386,799 181,381
------------ ------------- ------------- ------------ -------------
Total increase in net assets......................... 300,215 79,943 396,937 400,047 183,119
NET ASSETS:
Beginning of period...................................... -- -- -- -- --
------------ ------------- ------------- ------------ -------------
End of period............................................ $ 300,215 $ 79,943 $ 396,937 $ 400,047 $ 183,119
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
<CAPTION>
FIDELITY VIP
PORTFOLIO FIDELITY VIP II
SUB-ACCOUNT PORTFOLIO SUB-ACCOUNTS
------------ --------------------------
EQUITY- ASSET INVESTMENT
INCOME MANAGER GRADE BOND
------------ ------------ ------------
<S> <C> <C> <C>
Inception date........................................... May 6, 1996 July 1, 1996 May 6, 1996
OPERATIONS:
Net investment gain (loss)............................... $ (322) $ (89) $ (32)
Net realized gain........................................ 350 344 4
Net unrealized gain (loss)............................... 5,635 1,319 (66)
------------ ------------ ------------
Net increase (decrease) from operations................ 5,663 1,574 (94)
------------ ------------ ------------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits, net of premium load................ 40,360 25,510 668
Participant transfers.................................... 260,509 42,284 41,527
Participant withdrawals.................................. (8,346) (1,320) (1,280)
------------ ------------ ------------
Net increase from participant transactions............. 292,523 66,474 40,915
------------ ------------ ------------
Total increase in net assets......................... 298,186 68,048 40,821
NET ASSETS:
Beginning of period...................................... -- -- --
------------ ------------ ------------
End of period............................................ $ 298,186 $ 68,048 $ 40,821
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
62
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (DATE DEPOSITS FIRST RECEIVED) TO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MFS SERIES SUB-ACCOUNTS OCC ACCUMULATION TRUST SUB-ACCOUNTS
-------------------------------------------- ------------------------------------------
TOTAL WORLD GLOBAL
RETURN UTILITIES GOVERNMENTS EQUITY MANAGED SMALL CAP
------------- --------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Inception date........................ May 28, 1996 August 19, 1996 May 6, 1996 May 6, 1996 May 28, 1996 May 21, 1996
OPERATIONS:
Net investment gain (loss)............ $ 1,694 $ 126 $ (13) $ 32 $ (375) $ (281)
Net realized gain (loss).............. 869 349 -- 92 174 26
Net unrealized gain................... 656 9 24 375 11,891 9,222
------------- --------------- ------------ ------------ ------------- -------------
Net increase from operations...... 3,219 484 11 499 11,690 8,967
------------- --------------- ------------ ------------ ------------- -------------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits, net of premium
load................................ 42,659 64 2,843 1,678 31,531 16,598
Participant transfers................. 82,784 5,527 7,813 14,816 207,398 150,455
Participant withdrawals............... (2,564) (256) (626) (938) (8,015) (5,644)
------------- --------------- ------------ ------------ ------------- -------------
Net increase from participant
transactions.................... 122,879 5,335 10,030 15,556 230,914 161,409
------------- --------------- ------------ ------------ ------------- -------------
Total increase in net assets...... 126,098 5,819 10,041 16,055 242,604 170,376
NET ASSETS:
Beginning of period................... -- -- -- -- -- --
------------- --------------- ------------ ------------ ------------- -------------
End of period......................... $ 126,098 $ 5,819 $ 10,041 $ 16,055 $ 242,604 $ 170,376
------------- --------------- ------------ ------------ ------------- -------------
------------- --------------- ------------ ------------ ------------- -------------
<CAPTION>
TEMPLETON VARIABLE PRODUCTS
SERIES FUND SUB-ACCOUNTS
------------------------------------------
ASSET
ALLOCATION INTERNATIONAL STOCK
------------ ------------- -------------
<S> <C> <C> <C>
Inception date........................ May 6, 1996 May 21, 1996 May 22, 1996
OPERATIONS:
Net investment gain (loss)............ $ (244) $ (473) $ (121)
Net realized gain (loss).............. 249 156 (25)
Net unrealized gain................... 8,859 22,647 4,870
------------ ------------- -------------
Net increase from operations...... 8,864 22,330 4,724
------------ ------------- -------------
ACCUMULATION UNIT TRANSACTIONS:
Participant deposits, net of premium
load................................ 8,075 60,621 8,496
Participant transfers................. 297,737 302,403 81,619
Participant withdrawals............... (2,299) (11,795) (3,343)
------------ ------------- -------------
Net increase from participant
transactions.................... 303,513 351,229 86,772
------------ ------------- -------------
Total increase in net assets...... 312,377 373,559 91,496
NET ASSETS:
Beginning of period................... -- -- --
------------ ------------- -------------
End of period......................... $ 312,377 $ 373,559 $ 91,496
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
63
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION
CG Variable Life Insurance Separate Account II (the Account) is registered
as a Unit Investment Trust under the Investment Company Act of 1940, as amended.
The operations of the Account are part of the operations of Connecticut General
Life Insurance Company (CG Life). The assets and liabilities of the Account are
clearly identified and distinguished from other assets and liabilities of CG
Life. The assets of the Account are not available to meet the general
obligations of CG Life and are held for the exclusive benefit of the
participants.
The assets of the Account are divided into variable sub-accounts each of
which is invested in shares of one of nineteen portfolios (mutual funds) of
seven diversified open-end management investment companies, each portfolio with
its own investment objective. The variable sub-accounts are:
ALM VARIABLE INSURANCE FUNDS, INC.:--
AIM V.I. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
AIM V.I. Growth Fund
AIM V.I. Value Fund
CIGNA VARIABLE PRODUCTS GROUP:--
CIGNA Variable Products Money Market Fund
CIGNA Variable Products S&P 500 Index Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:--
Equity-Income Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:--
Asset Manager Portfolio
Investment Grade Bond Portfolio
MFS VARIABLE INSURANCE TRUST:--
MFS Emerging Growth Series
MFS Total Return Series
MFS Utilities Series
MFS World Governments Series
OCC ACCUMULATION TRUST:--
OCC Global Equity Portfolio
OCC Managed Portfolio
OCC Small Cap Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND:--
Templeton Asset Allocation Fund
Templeton International Fund
Templeton Stock Fund
Effective January 1, 1998, CG Life sold its individual variable life
insurance business to Lincoln National Corporation (Lincoln). Although CG Life
will remain responsible for all policy terms and conditions, Lincoln will be
servicing the individual life insurance contracts, including the payment of
benefits, oversight of investment management and contract administration.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in conformity with generally
accepted accounting principles. The following is a summary of significant
accounting policies consistently followed in the preparation of the Account's
financial statements.
A. INVESTMENT VALUATION:--Investments held by the sub-accounts are valued
at their respective closing net asset values per share as determined by the
mutual funds as of December 31, 1997. The change in the difference between cost
and value is reflected as unrealized gain (loss) in the Statements of
Operations.
64
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. INVESTMENT TRANSACTIONS:--Investment transactions are recorded on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on sales of investments are determined by the last-in, first-out cost
basis of the investment sold. Dividend and capital gain distributions are
recorded on the ex-dividend date. Investment transactions are settled through CG
Life.
C. FEDERAL INCOME TAXES:--The operations of the Account form a part of, and
are taxed with, the total operations of CG Life, which is taxed as a life
insurance company. Under existing Federal income tax law, investment income
(dividends) and capital gains attributable to the Account are not taxed.
3. INVESTMENTS
Total shares held and cost of investments as of December 31, 1997 were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHARES COST OF
SUB-ACCOUNT HELD INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund....................................................... 55,591 $ 1,142,005
AIM V.I. Diversified Income Fund......................................................... 30,816 331,123
AIM V.I. Growth Fund..................................................................... 82,432 1,529,852
AIM V.I. Value Fund...................................................................... 102,594 2,028,640
CIGNA Variable Products Money Market Fund................................................ 481,020 481,020
CIGNA Variable Products S&P 500 Index Fund............................................... 26,301 423,017
Fidelity Equity-Income Portfolio......................................................... 60,434 1,335,510
Fidelity Asset Manager Portfolio......................................................... 17,903 308,227
Fidelity Investment Grade Bond Portfolio................................................. 20,461 251,426
MFS Emerging Growth Series............................................................... 35,572 577,583
MFS Total Return Series.................................................................. 29,521 443,095
MFS Utilities Series..................................................................... 4,891 76,062
MFS World Governments Series............................................................. 4,790 48,497
OCC Global Equity Portfolio.............................................................. 31,492 473,651
OCC Managed Portfolio.................................................................... 22,426 871,710
OCC Small Cap Portfolio.................................................................. 27,660 659,160
Templeton Asset Allocation Fund.......................................................... 30,261 646,291
Templeton International Fund............................................................. 77,225 1,483,476
Templeton Stock Fund..................................................................... 27,961 641,980
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
Total purchases and sales of shares for each mutual fund, for the periods
ended December 31, 1997, amounted to:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT PURCHASES SALES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund.................................................... $ 938,353 $ 95,802
AIM V.I. Diversified Income Fund...................................................... 296,045 46,480
AIM V.I. Growth Fund.................................................................. 1,178,641 55,883
AIM V.I. Value Fund................................................................... 1,823,079 199,869
CIGNA Variable Products Money Market Fund............................................. 1,681,342 1,383,441
CIGNA Variable Products S&P 500 Index Fund*........................................... 436,708 13,041
Fidelity Equity-Income Portfolio...................................................... 1,188,392 146,068
Fidelity Asset Manager Portfolio...................................................... 260,651 19,296
Fidelity Investment Grade Bond Portfolio.............................................. 226,198 15,727
MFS Emerging Growth Series*........................................................... 594,744 17,283
MFS Total Return Series............................................................... 409,082 91,145
MFS Utilities Series.................................................................. 95,458 25,469
MFS World Governments Series.......................................................... 52,425 13,848
OCC Global Equity Portfolio........................................................... 469,641 11,476
OCC Managed Portfolio................................................................. 764,273 126,221
OCC Small Cap Portfolio............................................................... 530,690 32,593
Templeton Asset Allocation Fund....................................................... 392,799 49,871
Templeton International Fund.......................................................... 1,241,071 109,084
Templeton Stock Fund.................................................................. 622,976 67,563
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Period from May 23, 1997 (date deposits first received) to December 31, 1997.
4. CHARGES AND DEDUCTIONS
CG Life charges each variable sub-account, for mortality and expense risks,
a daily deduction, equivalent to .80% per year during the first twelve policy
years and .55% per year thereafter. The mortality and expense risk charges for
each sub-account are reported on the Statements of Operations.
CG Life deducts a premium load of 5% of each premium payment to cover state
taxes and Federal income tax liabilities.
CG Life charges a monthly administrative fee of $15 in the first policy year
and $5 in subsequent policy years. This charge is for items such as premium
billing and collection, policy value calculation, confirmations and periodic
reports.
CG Life charges a monthly deduction for the cost of insurance and any
charges for supplemental riders. The cost of insurance charge depends on the
attained age, risk classification, gender classification (in accordance with
state law) and the current net amount at risk. On a monthly basis, the
administrative fee and the cost of insurance charge are deducted proportionately
from the value of each variable sub-account and/or the fixed account funding
option. The fixed account is part of the general account of CG Life and is not
included in these financial statements.
Under certain circumstances, CG Life reserves the right to charge a transfer
fee of up to $25 for transfers between sub-accounts. For the periods ended
December 31, 1997, no transfer fees were deducted from the variable
sub-accounts.
66
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
4. CHARGES AND DEDUCTIONS (CONTINUED)
The fees charged by CG Life for premium loads (deducted from premium
payments), administrative fees and the amount deducted for the cost of
insurance, both of which are included in participant withdrawals, for variable
sub-accounts for the periods ended December 31, 1997, amounted to:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
COSTS OF
PREMIUM ADMINISTRATIVE INSURANCE
SUB-ACCOUNT LOADS FEES DEDUCTION
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund........................................... $ 17,018 $ 9,839 $ 82,848
AIM V.I. Diversified Income Fund............................................. 5,184 2,222 28,719
AIM V.I. Growth Fund......................................................... 12,199 7,817 100,399
AIM V.I. Value Fund.......................................................... 20,825 11,605 124,747
CIGNA Variable Products Money Market Fund.................................... 4,568 3,142 60,840
CIGNA Variable Products S&P 500 Index Fund*.................................. 948 325 9,795
Fidelity Equity-Income Portfolio............................................. 19,471 6,960 98,609
Fidelity Asset Manager Portfolio............................................. 4,050 761 9,842
Fidelity Investment Grade Bond Portfolio..................................... 2,001 1,246 13,717
MFS Emerging Growth Series*.................................................. 2,211 294 6,561
MFS Total Return Series...................................................... 5,224 2,634 24,045
MFS Utilities Series......................................................... 1,510 865 6,529
MFS World Governments Series................................................. 1,285 753 3,978
OCC Global Equity Portfolio.................................................. 3,910 1,376 13,390
OCC Managed Portfolio........................................................ 7,287 5,049 69,262
OCC Small Cap Portfolio...................................................... 6,469 3,184 42,648
Templeton Asset Allocation Fund.............................................. 2,103 1,492 23,789
Templeton International Fund................................................. 16,998 8,442 101,638
Templeton Stock Fund......................................................... 4,535 3,933 34,482
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Period from May 23, 1997 (date deposits first received) to December 31, 1997.
CG Life, upon full surrender of a policy, may charge a surrender charge.
This charge is in part a deferred sales charge and in part a recovery of certain
first year administrative costs. The amount of the surrender charge, if any,
will depend on the amount of the death benefit, the amount of premium payments
made during the first two policy years and the age of the policy. In no event
will the surrender charge exceed the maximum allowed by state or Federal law. No
surrender charge is imposed on a partial surrender, but an administrative fee of
$25 is imposed, allocated pro-rata among the variable sub-accounts (and, where
applicable, the fixed account) from which the partial surrender proceeds are
taken. Full surrender charges and partial surrender administrative charges paid
to CG Life, attributable to the variable sub-accounts, for the periods ended
December 31, 1997, amounted to $6,980.
5. DISTRIBUTION OF NET INCOME
The Account does not expect to declare dividends to participants from
accumulated net income. The accumulated net income is distributed to
participants as part of death benefits, surrenders, and transfers to other fixed
or variable sub-accounts.
6. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code of 1986
(the Code), a variable life insurance policy will not be treated as life
insurance under Section 7702 of the Code for any period for which the
investments of the segregated asset account, on which the policy 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 Treasury. CG Life believes, based on assurances from the
mutual fund managers, that the mutual funds satisfy the requirements of the
regulations.
67
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Connecticut General
Life Insurance Company and Participants of the
CG Variable Life Insurance 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, AIM
Variable Insurance Funds, Inc.--AIM V.I. Capital Appreciation Fund, AIM V.I.
Diversified Income Fund, AIM V.I. Growth Fund, AIM V.I. Value Fund; CIGNA
Variable Products Group--CIGNA Variable Products Money Market Fund, CIGNA
Variable Products S&P 500 Index Fund; Fidelity Variable Insurance Products
Fund--Equity-Income Portfolio; Fidelity Variable Insurance Products Fund
II--Asset Manager Portfolio, Investment Grade Bond Portfolio; MFS Variable
Insurance Trust--MFS Emerging Growth Series, MFS Total Return Series, MFS
Utilities Series, MFS World Governments Series; OCC Accumulation Trust--OCC
Global Equity Portfolio, OCC Managed Portfolio, OCC Small Cap Portfolio;
Templeton Variable Products Series Fund--Templeton Asset Allocation Fund,
Templeton International Fund, Templeton Stock Fund (constituting the CG Variable
Life Insurance 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
68
<PAGE>
APPENDIX 1
ILLUSTRATION OF SURRENDER CHARGES
The Surrender Charge is calculated as (a) times (b), where
(a) is the sum of (i) a Deferred Sales Charge and (ii) a
Deferred Administrative Charge and (b) is the applicable
Surrender Charge Grading Factor. If the Specified Amount is
increased, a new Surrender Charge will be applicable, in
addition to any existing Surrender Charge.
Below are examples of Surrender Charge calculations, one
involving a level Specified Amount and one involving an
increase in the Specified Amount, followed by Definitions
and Tables used in the calculations.
EXAMPLE 1: A male nonsmoker, age 35, purchases a Policy with
a Specified Amount of $100,000 and a scheduled annual
premium of $1100. He now wants to surrender the Policy at
the end of the sixth Policy Year.
The Surrender Charge computed is as follows:
Sum of the premiums paid through the end of the second
Policy Year = $2200.00
Guideline Annual Premium Amount (Male, Age 35, $100,000
Specified Amount) = $1195.63
Surrender Charge =
<TABLE>
<S> <C>
(.285X$1195.63) + (.085X($2200-$1195.63)) = $340.75 + $85.37 = $ 426.12(i)
$6.00 per $1000 of Specified Amount $ 600.00(ii)
--------
$1026.12(a)
</TABLE>
The total Surrender Charge is $1026.12(a), times the
surrender charge grading factor,(b): ($1026.12 X 80%) =
$820.90.
EXAMPLE 2: A female nonsmoker, age 45, purchases a Policy
with an Initial Specified Amount of $200,000 and a scheduled
annual premium of $1500. She pays the scheduled annual
premium for the first five Policy Years. At the start of the
sixth Policy Year, she increases the Specified Amount to
$250,000 and continues to pay the scheduled annual premium
of $1500. She now wants to surrender the Policy at the end
of the eighth Policy Year. Separate Surrender Charges must
be calculated for the Initial Specified Amount and for the
increase in Specified Amount.
The Surrender Charges are computed as follows:
For the Initial Specified Amount,
Sum of the premiums paid through the end of the second
Policy Year = $3000.00
Guideline Annual Premium Amount (Female, Age 45, $200,000
Specified Amount = $2966.81
<TABLE>
<S> <C>
Surrender Charge for Initial Specified Amount =
(.285X$2966.81) +(.085X($3000.00-$2966.81)) = $845.54 + $2.82 = $ 848.36(i)
$6.00 per $1000 of Initial Specified Amount $1200.00(ii)
--------
$2048.36(a)
</TABLE>
The total Surrender Charge for the Initial Specified Amount
is $2048.36,(a), times the applicable surrender charge
grading factor,(b): ($2048.36 X 40%) = $819.34.
69
<PAGE>
For the increase in Specified Amount;
Sum of the premiums in the first two years following the
increase in Specified Amount, applicable to the increase in
Specified Amount =
($1500 X 2) X ($50,000 / $250,000) = $600.00.
Guideline Annual Premium Amount (Female, Age 50, $50,000
Specified Amount) = $993.68.
<TABLE>
<S> <C>
Surrender Charge for the increase in Specified Amount =
(.285 X $600.00) $ 171.00(i)
$6.00 per $1000 of increase in Specified Amount $ 300.00(ii)
--------
$ 471.00(a)
</TABLE>
The total Surrender Charge for the increase in the Specified
Amount is $471.00,(a), times the applicable surrender charge
grading factor,(b): ($471.00 X 100%) = $471.00
The overall Surrender Charge for the Policy is ($819.34 +
$471.00) = $1290.34.
DEFINITIONS AND TABLES
(a)(i) The Deferred Sales Charge is based on the actual
premium paid and the applicable Guideline Annual
Premium Amount, and is calculated assuming the
following:
<TABLE>
<S> <C>
DURING POLICY YEAR:
1 and 2 28.5% of the sum of the
premiums paid up to an amount
equal to the Guideline Annual
Premium Amount,* plus 8.5% of
the sum of the premiums paid
between one and two times the
Guideline Annual Premium
Amount, plus 7.5% of the sum
of the premiums paid in excess
of two times the Guideline
Annual Premium Amount.
3 through 10 same dollar amount as of the
end of Policy Year 2.
</TABLE>
In no event will the Deferred Sales Charge exceed the
maximum permitted under federal or state law.
(ii) The Deferred Administrative Charge is $6.00 per
$1,000 of Specified Amount.
(b) SURRENDER CHARGE GRADING FACTORS
<TABLE>
<S> <C>
Policy Years**
1-5 100%
Policy Year 6 80%
Policy Year 7 60%
Policy Year 8 40%
Policy Year 9 20%
Policy Year 10 0%
</TABLE>
If a Surrender Charge becomes effective at other than the
end of a Policy Year, any applicable Surrender Charge
grading factor will be applied on a pro rata basis as of
such effective date.
* Guideline Annual Premium Amount is the level annual
amount that would be payable through the latest maturity
date permitted under the Policy but not less than 20
years after date of issue or (if earlier) age 95 for the
future benefits under the Policy, subject to the
following provisions: (A) the payments were fixed by the
Life Insurer as to both timing and amount; and (B) the
payments were based on the 1980 Commissioners Standard
Ordinary Mortality Table, net investment earnings at the
greater of an annual effective of 5% or rate or rates
guaranteed at issue of the policy, the sales load under
the policy, and the fees and charges specified in the
policy. A new Guideline Annual Premium Amount is
determined for each increase in Specified Amount under
the policy; in such event, "Policy Years" are measured
from the effective date(s) of such increase(s).
** Number of Policy Years elapsed since the Date of Issue or
since the effective date(s) of any increase(s) in
Specified Amount.
70
<PAGE>
APPENDIX 2
ILLUSTRATIONS OF ACCUMULATION VALUES, SURRENDER VALUES,
AND DEATH BENEFITS
The illustrations in this Prospectus have been prepared to
help show how values under the Policies change with
investment performance. The illustrations illustrate how
Accumulation Values, Surrender Values and Death Benefits
under a Policy would vary over time if the hypothetical
gross investment rates of return were a uniform annual
effective rate of either 0%, 6% or 12%. If the hypothetical
gross investment rate of return averages 0%, 6%, or 12% over
a period of years, but fluctuates above or below those
averages for individual years, the Accumulation Values,
Surrender Values and Death Benefits may be different. The
illustrations also assume there are no Policy loans or
partial surrenders, no additional Premium Payments are made
other than shown, no Accumulation Values are allocated to
the Fixed Account, and there are no changes in the Specified
Amount or Death Benefit Option.
The amounts shown for the Accumulation Value, Surrender
Value and Death Benefit as of each Policy Anniversary
reflect the fact that charges are made and expenses applied
which lower investment return on the assets held in the
Sub-Accounts. Daily charges are made against the assets of
the Sub-Accounts for assuming mortality and expense risks.
The current mortality and expense risk charges are
equivalent to an annual effective rate of 0.80% of the daily
net asset value of the Variable Account. On each Policy
Anniversary beginning with the 13th, the mortality and
expense risk charge is reduced to 0.55% on an annual basis
of the daily net assets of the Variable Account. The
mortality and expense risk charge is guaranteed never to
exceed an annual effective rate of 0.90% of the daily net
asset value of the Variable Account (in New York, 0.65%
after 13 Policy Years). In addition, the amounts shown also
reflect the deduction of Fund investment advisory fees and
other expenses which will vary depending on which funding
vehicle is chosen but which are assumed for purposes of
these illustrations to be equivalent to an annual effective
rate of 0.80% of the daily net asset value of the Variable
Account.
Considering guaranteed charges for mortality and expense
risks and the assumed Fund expenses, gross annual rates of
0%, 6% and 12% correspond to net investment experience at
constant annual rates of -1.70%, 4.30% and 10.30%.
The illustrations also reflect the fact that the Company
makes monthly charges for providing insurance protection.
Current values reflect current Cost of Insurance charges and
guaranteed values reflect the maximum Cost of Insurance
charges guaranteed in the Policy. The values shown are for
Policies which are issued as standard. Policies issued on a
substandard basis would result in lower Accumulation Values
and Death Benefits than those illustrated.
The illustrations also reflect the fact that the Company
deducts a premium load from each Premium Payment. Current
and guaranteed values reflect a deduction of 5.0% of each
Premium Payment.
The Surrender Values shown in the illustrations reflect the
fact that the Company will deduct a Surrender Charge from
the Policy's Accumulation Value for any Policy surrendered
in full during the first ten years.
In addition, the illustrations reflect the fact that the
Company deducts a monthly administrative charge at the
beginning of each Policy Month. This monthly administrative
expense charge is $15 per month in the first year. Current
values reflect a current
71
<PAGE>
monthly administrative expense charge of $5 in renewal
years, and guaranteed values reflect the $10 maximum monthly
administrative charge under the Policy in renewal years.
Upon request, the Company will furnish a comparable
illustration based on the proposed insured's age, gender
classification, smoking classification, risk classification
and premium payment requested.
72
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 45
PREFERRED -- $6,576 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,905 500,000 500,000 500,000 3,739 4,033 4,329 0 0 0
2 14,155 500,000 500,000 500,000 7,311 8,133 8,994 1,306 2,128 2,989
3 21,767 500,000 500,000 500,000 10,647 12,230 13,956 4,642 6,225 7,951
4 29,761 500,000 500,000 500,000 13,743 16,317 19,241 7,738 10,312 13,236
5 38,153 500,000 500,000 500,000 16,579 20,373 24,863 10,574 14,368 18,858
6 46,966 500,000 500,000 500,000 19,148 24,385 30,851 14,344 19,581 26,047
7 56,219 500,000 500,000 500,000 21,412 28,312 37,206 17,809 24,709 33,603
8 65,935 500,000 500,000 500,000 23,344 32,121 43,943 20,942 29,719 41,541
9 76,136 500,000 500,000 500,000 24,906 35,769 51,072 23,705 34,568 49,871
10 86,848 500,000 500,000 500,000 26,058 39,205 58,600 26,058 39,205 58,600
15 148,996 500,000 500,000 500,000 24,755 51,917 103,491 24,755 51,917 103,491
20 228,314 500,000 500,000 500,000 7,229 51,307 164,869 7,229 51,307 164,869
25 329,546 0 500,000 500,000 0 20,650 252,858 0 20,650 252,858
30 458,747 0 0 500,000 0 0 397,809 0 0 397,809
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates, mortality and expense risk charges,
administrative fees and premium load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of guaranteed
mortality and expense risk charges and (2)
assumed Fund total expenses of 0.80% per year.
See "Expense Data" at pages 10-11 of this
Prospectus.
73
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 45
PREFERRED -- $6,576 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
1 6,905 500,000 500,000 500,000 4,552 4,873 5,194 0 0 319
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 14,155 500,000 500,000 500,000 9,067 9,996 10,965 3,072 4,001 4,970
3 21,767 500,000 500,000 500,000 13,404 15,236 17,224 7,409 9,241 11,229
4 29,761 500,000 500,000 500,000 17,591 20,625 24,051 11,596 14,630 18,056
5 38,153 500,000 500,000 500,000 21,656 26,196 31,535 15,661 20,201 25,540
6 46,966 500,000 500,000 500,000 25,624 31,985 39,774 20,828 27,189 34,978
7 56,219 500,000 500,000 500,000 29,474 37,978 48,825 25,877 34,381 45,228
8 65,935 500,000 500,000 500,000 33,093 44,071 58,664 30,695 41,673 56,266
9 76,136 500,000 500,000 500,000 36,648 50,435 69,541 35,449 49,236 68,342
10 86,848 500,000 500,000 500,000 40,071 57,016 81,505 40,071 57,016 81,505
15 148,996 500,000 500,000 500,000 53,086 91,607 160,940 53,086 91,607 160,940
20 228,314 500,000 500,000 500,000 58,168 128,923 290,734 58,168 128,923 290,734
25 329,546 500,000 500,000 594,583 55,611 171,143 512,572 55,611 171,143 512,572
30 458,747 500,000 500,000 942,899 38,079 216,205 881,214 38,079 216,205 881,214
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.80% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
74
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 55
PREFERRED -- $10,465 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- ------------ -------- -------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,988 500,000 500,000 500,000 4,498 4,921 5,347 0 0 0
2 22,526 500,000 500,000 500,000 8,547 9,673 10,856 577 1,703 2,886
3 34,640 500,000 500,000 500,000 12,076 14,173 16,473 4,106 6,203 8,503
4 47,361 500,000 500,000 500,000 15,063 18,383 22,187 7,093 10,413 14,217
5 60,717 500,000 500,000 500,000 17,478 22,257 27,983 9,508 14,287 20,013
6 74,741 500,000 500,000 500,000 19,265 25,722 33,821 12,889 19,346 27,445
7 89,466 500,000 500,000 500,000 20,359 28,690 39,649 15,577 23,908 34,867
8 104,928 500,000 500,000 500,000 20,673 31,049 45,393 17,485 27,861 42,205
9 121,163 500,000 500,000 500,000 20,100 32,663 50,958 18,506 31,069 49,364
10 138,209 500,000 500,000 500,000 18,537 33,391 56,245 18,537 33,391 56,245
15 237,111 0 500,000 500,000 0 18,113 74,694 0 18,133 74,694
20 363,337 0 0 500,000 0 0 58,366 0 0 58,366
25 524,437 0 0 0 0 0 0 0 0 0
30 730,047 0 0 0 0 0 0 0 0 0
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates, mortality and expense risk charges,
administrative fees and premium load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of guaranteed
mortality and expense risk charges and (2)
assumed Fund total expenses of 0.80% per year.
See "Expense Data" at pages 10-11 of this
Prospectus.
75
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 55
PREFERRED -- $10,465 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- ------------ -------- -------- ------------ -------- -------- ------------
1 10,988 500,000 500,000 500,000 7,075 7,580 8,087 1,090 1,595 2,102
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 22,526 500,000 500,000 500,000 13,861 15,314 16,831 5,901 7,354 8,871
3 34,640 500,000 500,000 500,000 20,272 23,117 26,209 12,312 15,157 18,249
4 47,361 500,000 500,000 500,000 26,402 31,089 36,393 18,442 23,129 28,433
5 60,717 500,000 500,000 500,000 32,210 39,194 47,429 24,250 31,234 39,469
6 74,741 500,000 500,000 500,000 37,832 47,579 59,557 31,464 41,211 53,189
7 89,466 500,000 500,000 500,000 43,296 56,286 72,928 38,520 51,510 68,152
8 104,928 500,000 500,000 500,000 48,584 65,313 87,669 45,400 62,129 84,485
9 121,163 500,000 500,000 500,000 53,537 74,523 103,786 51,945 72,931 102,194
10 138,209 500,000 500,000 500,000 58,080 83,856 121,381 58,080 83,856 121,381
15 237,111 500,000 500,000 500,000 74,329 133,079 240,424 74,329 133,079 240,424
20 363,337 500,000 500,000 500,000 74,728 184,873 443,862 74,728 184,873 443,862
25 524,437 500,000 500,000 834,837 43,148 232,413 795,083 43,148 232,413 795,083
30 730,047 0 500,000 1,434,246 0 276,787 1,365,949 0 276,787 1,365,949
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.80% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
76
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 45
PREFERRED -- $5,242 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,504 500,000 500,000 500,000 2,973 3,208 3,443 0 0 0
2 11,283 500,000 500,000 500,000 5,850 6,505 7,190 485 1,140 1,825
3 17,352 500,000 500,000 500,000 8,567 9,831 11,207 3,202 4,466 5,842
4 23,723 500,000 500,000 500,000 11,114 13,173 15,509 5,749 7,808 10,144
5 30,414 500,000 500,000 500,000 13,485 16,525 20,119 8,120 11,160 14,754
6 37,438 500,000 500,000 500,000 15,669 19,874 25,059 11,377 15,582 20,767
7 44,814 500,000 500,000 500,000 17,660 23,213 30,356 14,441 19,994 27,137
8 52,559 500,000 500,000 500,000 19,443 26,525 36,033 17,297 24,379 33,887
9 60,691 500,000 500,000 500,000 20,993 29,781 42,109 19,920 28,708 41,036
10 69,230 500,000 500,000 500,000 22,310 32,978 48,627 22,310 32,978 48,627
15 118,771 500,000 500,000 500,000 25,433 47,987 89,931 25,433 47,987 89,931
20 181,998 500,000 500,000 500,000 21,132 59,449 152,250 21,132 59,449 152,250
25 262,695 500,000 500,000 500,000 1,943 58,787 246,940 1,943 58,787 246,940
30 365,686 0 500,000 500,000 0 32,109 403,276 0 32,109 403,276
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates, mortality and expense risk charges,
administrative fees and premium load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of guaranteed
mortality and expense risk charges and (2)
assumed Fund total expenses of 0.80% per year.
See "Expense Data" at pages 10-11 of this
Prospectus.
77
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 45
PREFERRED -- $5,242 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
1 5,504 500,000 500,000 500,000 3,645 3,901 4,157 0 0 0
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 11,283 500,000 500,000 500,000 7,310 8,054 8,829 1,955 2,699 3,474
3 17,352 500,000 500,000 500,000 10,877 12,348 13,943 5,522 6,993 8,588
4 23,723 500,000 500,000 500,000 14,348 16,791 19,548 8,993 11,436 14,193
5 30,414 500,000 500,000 500,000 17,724 21,391 25,697 12,369 16,036 20,342
6 37,438 500,000 500,000 500,000 20,962 26,107 32,399 16,678 21,823 28,115
7 44,814 500,000 500,000 500,000 24,062 30,947 39,716 20,849 27,734 36,503
8 52,559 500,000 500,000 500,000 27,029 35,919 47,717 24,887 33,777 45,575
9 60,691 500,000 500,000 500,000 29,912 41,077 56,524 28,841 40,006 55,453
10 69,230 500,000 500,000 500,000 32,713 46,433 66,226 32,713 46,433 66,226
15 118,771 500,000 500,000 500,000 44,491 75,674 131,539 44,491 75,674 131,539
20 181,998 500,000 500,000 500,000 51,174 108,472 237,960 51,174 108,472 237,960
25 262,695 500,000 500,000 500,000 53,593 146,997 417,469 53,593 146,997 417,469
30 365,686 500,000 500,000 770,434 49,311 191,765 720,032 49,311 191,765 720,032
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.80% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
78
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 55
PREFERRED -- $8,225 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,636 500,000 500,000 500,000 4,043 4,391 4,742 0 0 0
2 17,704 500,000 500,000 500,000 7,873 8,824 9,821 1,073 2,024 3,021
3 27,226 500,000 500,000 500,000 11,445 13,251 15,226 4,645 6,451 8,426
4 37,223 500,000 500,000 500,000 14,774 17,688 21,008 7,974 10,888 14,208
5 47,721 500,000 500,000 500,000 17,851 22,125 27,201 11,051 15,325 20,401
6 58,743 500,000 500,000 500,000 20,653 26,535 33,827 15,213 21,095 28,387
7 70,316 500,000 500,000 500,000 23,123 30,861 40,878 19,043 26,781 36,798
8 82,468 500,000 500,000 500,000 25,187 35,023 48,333 22,467 32,303 45,613
9 95,228 500,000 500,000 500,000 26,743 38,911 56,141 25,383 37,551 54,781
10 108,626 500,000 500,000 500,000 27,718 42,439 64,282 27,718 42,439 64,282
15 186,358 500,000 500,000 500,000 22,774 52,948 111,181 22,774 52,948 111,181
20 285,566 0 500,000 500,000 0 41,478 171,077 0 41,478 171,077
25 412,183 0 0 500,000 0 0 241,140 0 0 241,140
30 573,782 0 0 500,000 0 0 331,895 0 0 331,895
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Guaranteed cost of insurance
rates, mortality and expense risk charges,
administrative fees and premium load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of guaranteed
mortality and expense risk charges and (2)
assumed Fund total expenses of 0.80% per year.
See "Expense Data" at pages 10-11 of this
Prospectus.
79
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 55
PREFERRED -- $8,225 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE SURRENDER VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
1 8,636 500,000 500,000 500,000 5,722 6,124 6,528 377 779 1,183
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 17,704 500,000 500,000 500,000 11,291 12,454 13,667 4,501 5,664 6,877
3 27,226 500,000 500,000 500,000 16,612 18,900 21,384 9,822 12,110 14,594
4 37,223 500,000 500,000 500,000 21,750 25,532 29,806 14,960 18,742 23,016
5 47,721 500,000 500,000 500,000 26,675 32,328 38,980 19,885 25,538 32,190
6 58,743 500,000 500,000 500,000 31,478 39,386 49,081 26,046 33,954 43,649
7 70,316 500,000 500,000 500,000 36,165 46,726 60,217 32,091 42,652 56,143
8 82,468 500,000 500,000 500,000 40,734 54,359 72,500 38,018 51,643 69,784
9 95,228 500,000 500,000 500,000 45,072 62,186 85,944 43,714 60,828 84,586
10 108,626 500,000 500,000 500,000 49,143 70,182 100,651 49,143 70,182 100,651
15 186,358 500,000 500,000 500,000 65,719 113,700 200,316 65,719 113,700 200,316
20 285,566 500,000 500,000 500,000 74,524 163,746 367,908 74,524 163,746 367,908
25 412,183 500,000 500,000 688,180 65,584 215,687 655,410 65,584 215,687 655,410
30 573,782 500,000 500,000 1,184,469 21,798 265,203 1,128,066 21,798 265,203 1,128,066
</TABLE>
All Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefits, Accumulation
Values and Surrender Values would be less than
those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of current mortality
and expense risk charges and (2) assumed Fund
total expenses of 0.80% per year. See "Expense
Data" at pages 10-11 of this Prospectus.
80
<PAGE>
APPENDIX 3
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the
Treasury published a "Report to the Congress on the Taxation
of Life Insurance Company Products" in March 1990. Page 4 of
this report is Table 1.1, a "Comparison of Tax Treatment of
Life Insurance Products and Other Retirement Savings Plans".
Because it is a convenient summary of the relevant tax
characteristics of these products and plans, it is reprinted
here, with footnotes to reflect exceptions to the general
rules.
------------------------
TABLE 1.1
COMPARISON OF TAX TREATMENT OF LIFE INSURANCE PRODUCTS AND
OTHER RETIREMENT SAVINGS PLANS
<TABLE>
<CAPTION>
CASH-VALUE
LIFE NON-QUALIFIED QUALIFIED
INSURANCE ANNUITIES IRA'S PENSION
--------------- ----------------- -------------- -----------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as Distributions No* Yes Loans not Yes,
allowed beyond
$50,000
Income Ordering Rules (Income included in First No* Yes Yes Yes
Distribution)
Early Withdrawal Penalties No* Yes*** Yes*** Yes***
Minimum Distribution Rules by Age 70 1/2 No No Yes Yes
Maximum Annual Distribution Rules No No Yes Yes
Anti-discrimination Rules No No No Yes
</TABLE>
- ------------------------
Department of the Treasury March 1990
Office of Tax Analysis
*If the Policy is not a modified endowment contract.
**If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not deductible.
***There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
The foregoing information is not intended as tax advice. You
should consult with your own tax advisor for more complete
information.
81
<PAGE>
[LOGO]
29242 (5/98)
<PAGE>
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.
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
A cross-reference sheet (reconciliation and tie);
The prospectus, consisting of 81 pages;
The undertaking to file reports;
The signatures;
Written consents of the following persons:
Mark A. Parsons
Michelle L. Kunzman (previously filed with initial filing of this
Registration Statement)
Price Waterhouse LLP
Exhibit 1. Fund Participation Agreements.
Agreements between Connecticut General Life Insurance Company and
(a) AIM Variable Insurance Funds, Inc.*
(b) CIGNA Variable Products Group (To be filed by Amendment)
(c) Fidelity Variable Insurance Products Fund*
(d) Fidelity Variable Insurance Products Fund II (Together with
Amendment thereto dated June 21, 1995)*
(e) MFS-Registered Trademark- Variable Insurance Trust*
(f) Templeton Variable Products Series Fund*
(g) OCC Accumulation Trust*
* Filed with Post-Effective Amendment No. 1 to this Registration Statement April
19, 1996.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the Registrant has duly caused
this Post-Effective Amendment No. 3 to its Registration Statement on Form S-6
(File No. 33-89238) to be signed on its behalf by the undersigned thereunto duly
authorized, in the Town of Bloomfield and State of Connecticut, on the 10th day
of April, 1998. 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 LIFE INSURANCE SEPARATE
ACCOUNT II
(Name of Registrant)
By: /s/ THOMAS C. JONES
-----------------------------------
Thomas C. Jones
PRESIDENT AND DIRECTOR
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
(Name of Depositor)
By: /s/ THOMAS C. JONES
-----------------------------------
Thomas C. Jones
PRESIDENT AND DIRECTOR
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 to this Registration Statement (File No.
33-89238) has been signed below on April 13, 1998 by the following persons, as
officers and directors of the Depositor, in the capacities indicated:
SIGNATURE TITLE
- -------------------------------------------------- -------------------------
/s/ THOMAS C. JONES * President and Director
------------------------------------------- (Principal Executive
Thomas C. Jones Officer)
Vice President and
/s/ JOHN WILKINSON Actuary
------------------------------------------- (Principal Financial
John Wilkinson Officer)
/s/ DOMINIC A. DELLAVOLPE * Assistant Vice President
------------------------------------------- (Principal Accounting
Dominic A. DellaVolpe 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
/s/ MARC L. PREMINGER *
------------------------------------------- Director
March L. Preminger
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------- -------------------------
<C> <S>
/s/ PATRICIA L. ROWLAND *
------------------------------------------- Director
Patricia L. Rowland
/s/ W. ALLEN SCHAFFER, M.D. *
------------------------------------------- Director
W. Allen Schaffer, M.D.
*By /s/ JOHN WILKINSON
-------------------------------------------
John Wilkinson
ATTORNEY-IN-FACT
(A Majority of the Directors)
</TABLE>
<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. 33-89238 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 10th day of April, 1998.
SIGNATURE TITLE
- ----------------------------------- -------------------------
THOMAS C. JONES President and Director
- ----------------------------------- (Principal Executive
Thomas C. Jones Officer)
Vice President and
JOHN WILKINSON Actuary
- ----------------------------------- (Principal Financial
John Wilkinson Officer)
DOMINIC A. DELLAVOLPE Assistant Vice President
- ----------------------------------- (Principal Accounting
Dominic A. DellaVolpe Officer)
HAROLD W. ALBERT
- ----------------------------------- Director
Harold W. Albert
ROBERT W. BURGESS
- ----------------------------------- Director
Robert W. Burgess
JOHN G. DAY
- ----------------------------------- Director
John G. Day
JOSEPH M. FITZGERALD
- ----------------------------------- Director
Joseph M. Fitzgerald
H. EDWARD HANWAY
- ----------------------------------- Director
H. Edward Hanway
CAROL M. OLSEN
- ----------------------------------- Director
Carol M. Olsen
JOHN E. PACY
- ----------------------------------- Director
John E. Pacy
MARC L. PREMINGER
- ----------------------------------- Director
Marc L. Preminger
PATRICIA L. ROWLAND
- ----------------------------------- Director
Patricia L. Rowland
W. ALLEN SCHAFFER, M.D.
- ----------------------------------- Director
W. Allen Schaffer, M.D.
<PAGE>
MARK A. PARSONS
CHIEF COUNSEL [LOGO]
Law Department
S-215
900 Cottage Grove
Road
Hartford, CT
06152-2215
Phone: 860.726.7673
Fax: 860.572-8885
April 13, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Connecticut General Life Insurance Company
CG Variable Life Insurance Separate Account II
File No. 33-89238
Post-Effective Amendment No. 3
Dear Sirs:
As Chief Counsel of the Retirement and Investment Services Division of CIGNA
Corporation, I am familiar with the actions of the Board of Directors of
Connecticut General Life Insurance Company (the "Company"), establishing CG
Variable Life Insurance Separate Account II (the "Account") and its method of
operation and authorizing the filing of a Registration Statement under the
Securities Act of 1933 for the securities to be issued by the Account and the
Investment Company Act of 1940 for the Account itself.
In the course of preparing this opinion, I have reviewed the Certificate of
Incorporation and the By-Laws of the Company, the Board actions with respect to
the Account, and such other matters as I deemed necessary or appropriate. Based
on such review, I am of the opinion that the variable life insurance policies
(and interests therein) which are the subject of the registration statement
under the Securities Act of 1933 filed for the Account will, when issued, be
legally issued and will represent binding obligations of the Company, the
depositor for the Account.
I further consent to the use of this opinion as an Exhibit to Post-Effective
Amendment No. 3 to said Registration Statement and to the reference to me under
the heading Experts in said Registration Statement, as amended.
Very truly yours,
/s/ MARK A. PARSONS
Mark A. Parsons
Chief Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 3 to the registration statement of the CG Variable
Life Insurance Separate Account II on Form S-6 of our reports dated February 10,
1998 and February 20, 1998, relating to the consolidated financial statements of
Connecticut General Life Insurance Company and the financial statements of CG
Variable Life Insurance Separate Account II of Connecticut General Life
Insurance Company, respectively, which appear in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Hartford, Connecticut
April 22, 1998
