<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
1933 ACT REGISTRATION NO. 33-89238
1940 ACT REGISTRATION NO. 811-8970
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 5
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 Form for the fiscal year ending December 31, 1998 was
filed March 19, 1999.
It is proposed that this filing will become effective:
- --------- immediately upon filing pursuant to paragraph (b) of Rule 485
X
- --------- on May 1, 1999, pursuant to paragraph (b) of Rule 485
- --------- 60 days after filing pursuant to paragraph (a) of Rule 485
- --------- on pursuant to paragraph (a) of Rule 485
<PAGE>
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, the Separate Account and the General Account
6(a) The Company, the Separate Account and the General 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 Company, the Separate Account and the General Account
17 Surrenders
18 The Company, the Separate Account and the General Account
19 Reports to Policy Owners
20 *
21 Policy Loans
22 *
23 The Company, the Separate Account and the General Account
24 Incontestability; Suicide; Misstatement of Age or Sex
25 The Company, the Separate Account and the General Account
26 Fund Participation Agreements
27 The Company, the Separate Account and the General 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, the Separate Account and the General Account
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 Company, the Separate Account and the General Account;
Surrenders, Transfers
48 *
49 *
50 The Company, the Separate Account and the General 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
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
<TABLE>
<S> <C>
ADMINISTRATIVE OFFICE:
PERSONAL SERVICE CENTER, MVLI
HOME OFFICE LOCATION: 350 CHURCH STREET
900 COTTAGE GROVE ROAD HARTFORD, CT 06103-1106
BLOOMFIELD, CONNECTICUT 06152 (800) 552-9898 (5/99-7/99)
(800) 444-2363 (8/99 AND LATER)
</TABLE>
- --------------------------------------------------------------------------------
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
This Prospectus describes a flexible premium variable life insurance
contract (the "Policy"), offered by Connecticut General Life Insurance Company
(the "Company, "we", "our" or "us").
The Policy features:
- flexible premium payments;
- a choice of one of two death benefit options; and
- a choice of underlying 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 mutual funds available through the Company's
Separate Account ("Separate Account"), should be read carefully to understand
the Policy being offered.
Those mutual funds ("Funds") are:
<TABLE>
<S> <C>
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE
AIM VARIABLE INSURANCE FUNDS, INC. TRUST
AIM V.I. Capital Appreciation Fund MFS Emerging Growth Series
AIM V.I. Growth Fund MFS Total Return Series
AIM V.I. Value Fund MFS Utilities Series
AIM V.I. Diversified Income Fund MFS Global Governments Series
CIGNA VARIABLE PRODUCTS GROUP (formerly World Governments)
CIGNA VP Money Market Fund TEMPLETON VARIABLE PRODUCTS SERIES FUND
CIGNA VP S&P 500 Index Fund Templeton Asset Allocation Fund -- Class 1
FIDELITY VARIABLE INSURANCE PRODUCTS FUND Templeton International Fund -- Class 1
Equity-Income Portfolio--Initial Class Templeton Stock Fund -- Class 1
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II OCC ACCUMULATION TRUST
Asset Manager Portfolio--Initial Class Global Equity Portfolio
Investment Grade Bond Portfolio--Initial Managed Portfolio
Class Small Cap Portfolio
</TABLE>
Review your personal financial objectives and discuss them with a qualified
financial counselor before you buy a variable life insurance policy. This Policy
may, or may not, be appropriate for your individual financial goals. The value
of the Policy and, under one option, the death benefit amount depend on the
investment results of the funding options you select.
TO BE VALID, THIS PROSPECTUS MUST HAVE THE CURRENT MUTUAL FUNDS' PROSPECTUSES
WITH IT. KEEP ALL FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A
CRIMINAL OFFENSE TO STATE OTHERWISE.
THIS POLICY MAY NOT BE AVAILABLE IN ALL STATES, AND THIS PROSPECTUS ONLY OFFERS
THE POLICY FOR SALE IN JURISDICTIONS WHERE SUCH OFFER AND SALE ARE LAWFUL.
Prospectus Dated: May 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Policy Summary.............................. 3
Charges; Fees............................... 5
Premium Load............................ 5
Monthly Deductions...................... 5
Transaction Fee for Excess Transfers.... 5
Mortality and Expense Risk Charge....... 5
Expense Data/Fee Table.................. 6
Surrender Charge........................ 8
The Company, the Separate Account and the
General Account............................ 8
Buying Variable Life Insurance.............. 10
Replacements.............................. 11
The Funds................................... 11
General................................... 14
Substitution of Securities................ 15
Voting Rights............................. 15
Fund Participation Agreements............. 15
Death Benefit............................... 15
Death Benefit Options................... 15
Changes in Death Benefit Option......... 16
Guaranteed Death Benefit Provision...... 16
Payment of Death Benefit................ 16
Changes in Specified Amount............. 17
Premium Payments; Transfers................. 17
Premium Payments........................ 17
Allocation of Net Premium Payments...... 18
Transfers............................... 19
Optional Variable Account Sub-Account
Allocation Programs.................... 20
Dollar Cost Averaging................. 20
Automatic Rebalancing................. 20
Policy Values............................... 21
Accumulation Value...................... 21
Variable Accumulation Unit Value........ 21
Surrender Value......................... 22
Surrenders.................................. 22
Partial Surrenders...................... 22
Full Surrenders......................... 22
Deferral of Payment and Transfers....... 23
Lapse and Reinstatement..................... 23
Lapse of a Policy; Effect of Guaranteed
Death Benefit Provision................ 23
Reinstatement of a Lapsed Policy........ 23
<CAPTION>
PAGE
---------
<S> <C>
Policy Loans................................ 23
Settlement Options.......................... 24
Other Policy Provisions..................... 25
Issuance................................ 25
Short-Term Right to Cancel the Policy... 25
Policy Owner............................ 25
Beneficiary............................. 25
Assignment.............................. 25
Right to Exchange for a Fixed Benefit
Policy................................. 26
Incontestability........................ 26
Misstatement of Age or Sex.............. 26
Suicide................................. 27
Nonparticipating Policies............... 27
Riders.................................. 27
Tax Matters................................. 27
Policy Proceeds......................... 27
Taxation of the Company................. 28
Section 848 Charges..................... 28
Other Considerations.................... 29
Other Matters............................... 29
Directors and Officers of the Company... 29
Distribution of Policies................ 29
Changes of Investment Policy............ 30
Other Contracts Issued by the Company... 30
State Regulation........................ 30
Reports to Policy Owners................ 31
Advertising............................. 31
Year 2000 Issues........................ 31
Legal Proceedings....................... 32
Experts................................. 33
Registration Statement.................. 33
Appendix 1.................................. 34
Corridor Percentages.................... 34
Appendix 2.................................. 35
Maximum Cost of Insurance Rates......... 35
Appendix 3.................................. 36
Illustration of Surrender Charges....... 36
Appendix 4.................................. 38
Illustration of Accumulation Values,
Surrender Values, and Death Benefits... 38
Financial Statements........................
Separate Account Financials............. CGVL-1
Company Financials...................... G-1
</TABLE>
2
<PAGE>
POLICY SUMMARY
This section is an overview of key Policy features.
(Regulations in your state may vary the provisions of your
own Policy.) Your Policy is a flexible premium variable life
insurance policy. Its value may change on a:
1) fixed basis;
2) variable basis; or a
3) combination of both fixed and variable bases.
At all times, your Policy must qualify as life insurance
under the Internal Revenue Code of 1986 (the "Code") to
receive favorable tax treatment under Federal law. If these
requirements are met, you may benefit from such tax
treatment. The Company reserves the right to return your
premium payments if they result in your Policy failing to
meet Code requirements.
INITIAL CHOICES TO BE MADE
The Policy Owner (the "Owner" or "you") is the person named
in the "Policy Specifications" who has all of the Policy
ownership rights. Under an Employer Group Policy, this
person is called the Certificate Owner and is given a
Certificate in place of a Policy. If no Owner is named, the
Insured (the person whose life is insured under the Policy
or the Certificate) will be the Owner of the Policy. You, as
the Owner, have three important choices to make when the
Policy is first purchased. You need to choose:
1) one of the two Death Benefit Options;
2) the amount of premium you want to pay; and
3) the amount of your Net Premium Payment to be placed in
each of the funding options you select.
LEVEL OR VARYING DEATH BENEFIT
The Death Benefit is the amount the Company pays to the
Beneficiary(ies) when the Insured dies. Before we pay the
Beneficiary(ies), any outstanding loan account balances or
outstanding amounts due are subtracted from the Death
Benefit. The Company calculates the Death Benefit payable as
of the date on which the Insured died.
When you purchase your Policy, you must choose one of two
Death Benefit Options:
1) a level death benefit; or
2) a varying death benefit.
If you choose the level Death Benefit Option, the Death
Benefit will be the greater of:
1) the Specified Amount, which is the amount of the death
benefit in effect for the Policy when the Insured died
(The Specified Amount is on the Policy's Specification
Page); or
2) the Corridor Death Benefit, which is the death benefit
calculated as a percentage of the Accumulation Value.
If you choose the varying Death Benefit Option, the Death
Benefit will be the greater of:
1) the Specified Amount plus the Net Accumulation Value when
the Insured died. The Net Accumulation Value is the total
of the balances in the Fixed Account, and the Variable
Account minus any outstanding Loan Account amounts; or
2) the Corridor Death Benefit. See page 15.
This policy contains a Guaranteed Initial Death Benefit
Premium. This means that the Death Benefit will not be lower
than the Initial Specified Amount for the first five Policy
years after issue, regardless of the gains or losses of the
Funds you select as long as
3
<PAGE>
you pay that Premium. Therefore, the Initial Death Benefit
under your Policy would be guaranteed for five years even
though your Net Accumulation Value is insufficient to pay
your current Monthly Deductions. If you have borrowed
against your Policy or surrendered a portion of your Policy,
your Initial Death Benefit will be reduced by the Loan
Account balance and any surrendered amount.
CHANGES IN SPECIFIED AMOUNT
The Initial Specified Amount is the amount originally chosen
by the Policy Owner and is initially equal to the Death
Benefit.
Within certain limits, you may decrease or, with
satisfactory evidence of insurability, increase the
Specified Amount. The minimum Specified Amount is currently
$100,000. Such changes will affect other aspects of your
Policy. See page 16.
AMOUNT OF PREMIUM PAYMENT
When you apply for your Policy, you must decide how much
premium to pay. Premium payments may be changed within the
limits described on page 17.
You may use the value of the Policy to pay the premiums due
and continue the Policy in force if sufficient values are
available for premium payments. Be careful; if the
investment options you choose do not do as well as you
expect, there may not be enough value to continue the Policy
in force without more premium payments. Charges against
Policy values for the cost of insurance (see page 5)
increase as the Insured gets older.
If your Policy lapses because your Monthly Premium Deduction
is larger than the Net Accumulation Value, you may reinstate
your Policy. See page 23.
When you first receive your Policy you will have 10 days to
look it over, unless state law requires a greater time. This
is called the "Right-to-Examine" period. Use this time to
review your Policy and make sure it meets your needs. During
this period your Initial Premium Payment will be deposited
in the Fixed Account. If you then decide you do not want
your Policy, we will return all Premium Payments to you with
no interest paid. See page 23.
SELECTION OF FUNDING VEHICLES
This Prospectus focuses on the Separate Account investment
information that makes up the "variable" part of the
contract. If you put money into the variable funding
options, you assume all the investment risk on that money.
This means that if the mutual fund(s) you select go up in
value, the value of your Policy, net of charges and
expenses, also goes up. If those funds lose value, so does
your Policy. Each fund has its own investment objective. You
should review each fund's Prospectus before making your
decision.
You must choose the Fund(s) in which you want to place each
Net Premium Payment. The Sub-Accounts make up the Separate
Account. Each Sub-Account invests in shares of a certain
Fund. You may also choose to place your Net Premium Payment
or part of it into the Fixed Account. A Sub-Account is not
guaranteed and will increase or decrease in value according
to the particular Fund's investment performance. See page 6.
You may also use The Company's Fixed Account to fund your
Policy. Net Premium payments put into the Fixed Account:
- become part of the Company's General Account;
- do not share the investment experience of the Separate
Account; and
4
<PAGE>
- have a guaranteed minimum interest rate of 4% per year.
Interest beyond 4% is credited at the Company's discretion.
For additional information on the Fixed Account, see page 8.
CHARGES; FEES
PREMIUM LOAD
A deduction of 5.0% of each Premium Payment is made to cover
the premium load. This load represents state taxes and
federal income tax liabilities and a portion of our sales
expenses. 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%. We estimate
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.
MONTHLY DEDUCTIONS
We make a Monthly Deduction from the Net Accumulation Value
for administrative expenses, of $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 our costs. For subsequent Policy Years,
this monthly fee will never exceed $10 for non-New York
Policies, $7.50 for New York Policies.
We also make a Monthly Deduction 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 are in Appendix 2.
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, no further
Monthly Deductions are taken and any Separate 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 Separate Account. This deduction is
guaranteed not to exceed .90% per year (in New York, 0.65%
after year 13).
5
<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 Separate Account. The table reflects expenses of the Separate Account as
well as of the individual Funds underlying the 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, .65% per year for New York Policies.
Fund expenses are based on historical fund expenses as a percentage of net
assets for the year ended December 31, 1998, 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.................... 0.62% 0.60% 0.64% 0.61%
12(b)1 Fees........................ -- -- -- --
Other Expenses..................... 0.05% 0.17% 0.08% 0.05%
Total Fund Operating Expenses
Without Waivers or Reductions..... 0.67% 0.77% 0.72% 0.66%
Total Waivers and Reductions....... -- -- -- --
Total Fund Operating Expenses with
Waivers or Reductions............. 0.67% 0.77% 0.72% 0.66%
<CAPTION>
FIDELITY VARIABLE INSURANCE
PRODUCTS FUNDS
---------------------------------
CIGNA VP VIP II VIP VIP II
GROUP ASSET EQUITY- INVESTMENT
----------------------------------- MANAGER INCOME GRADE BOND
CIGNA VP CIGNA PORTFOLIO PORTFOLIO PORTFOLIO
MONEY VP S&P (INITIAL (INITIAL (INITIAL
MARKET FUND 500 INDEX FUND CLASS) CLASS) CLASS)
---------------- ---------------- -------- --------- ----------
<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% 0.54% 0.49% 0.43%
12(b)1 Fees........................ -- -- -- -- --
Other Expenses..................... 0.38% 0.19% 0.10% 0.09% 0.14%
Total Fund Operating Expenses
Without Waivers or Reductions..... 0.73% 0.44% 0.64% 0.58% 0.57%
Total Waivers and Reductions....... (0.23%) (0.19%) -- -- --
Total Fund Operating Expenses with
Waivers or Reductions............. 0.50%(1) 0.25%(1) 0.64%(2) 0.58%(2) 0.57%
</TABLE>
- ------------------------
(1) Through May 1, 2000, 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 0.73% and 0.44% of average daily
net asset value for 1998 for the VP Money Market and the VP S&P 500 Index
Funds, respectively.
(2) A portion of the brokerage commissions that certain funds paid was used to
reduce funds expenses. In addition, certain funds or Fidelity Management &
Research on behalf of 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 operating expenses presented in the table would have been 0.63% for
the VIP II Asset Manager Portfolio and 0.57% for the VIP Equity-Income
Portfolio.
6
<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 GLOBAL
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%
-- -- -- --
0.10%(4) 0.16%(4) 0.26%(4) 0.36%(4)
%
0.85 0.91% 1.01% 1.11%
-- -- -- (0.10%)
%(4)
0.85 0.91%(4) 1.01%(4) 1.01%(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% 0.69% 0.70%
-- -- -- --
0.10%(4) 0.18% 0.17% 0.19%
%
0.85 0.78% 0.86% 0.89%
-- -- -- --
%(4)
0.85 0.78% 0.86% 0.89%
<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% 0.80% 0.78% 0.80%
-- -- -- --
0.10%(4) 0.33%(5) 0.04%(5) 0.08%(5)
%
0.85 1.13%(6) 0.82%(6) 0.88%(6)
-- -- -- --
%(4)
0.85 1.13% 0.82% 0.88%
<FN>
- ------------------------
(4) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. Expenses do not take
into account these expense reductions, and are therefore higher than the
actual expenses of the series.
(5) Other Expenses are shown gross of expense offsets afforded the Portfolios
which effectively lowered overall custody expenses.
(6) 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.
</TABLE>
7
<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 3 -- 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 us 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 our General
Account, which supports insurance and annuity obligations.
THE COMPANY, THE SEPARATE ACCOUNT AND
THE GENERAL ACCOUNT
The Company is a Connecticut life insurance company
incorporated in 1865, located at 900 Cottage Grove Road,
Hartford, CT 06152. Wholly-owned by Connecticut General
Corporation, and in turn by CIGNA Holdings, Inc. and CIGNA
Corporation, it is licensed to do business in all states,
the District of Columbia and Puerto Rico.
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CG Variable Life Insurance Separate Account II is a
"separate account" of the Company established pursuant to a
July 6, 1994 resolution of our Board of Directors. Under
Connecticut law, the assets of the Separate Account
attributable to the Policies, though our property, are not
chargeable with liabilities of any other business of the
Company and are available first to satisfy our obligations
under the Policies. The Separate Account income, gains, and
losses are credited to or charged against the Separate
Account without regard to our other income, gains, or
losses. Its values and investment performance are not
guaranteed. It is registered with the Securities and
Exchange Commission (the "Commission") as a "unit investment
trust" under the 1940 Act and meets the 1940 Act's
definition of "separate account". Such registration does not
involve Commission supervision of the Separate Account or
our management, investment practices, or policies. We have
other registered separate accounts which fund other variable
life insurance policies and variable annuity contracts.
The Separate Account is divided into Sub-Accounts, each of
which is invested solely in the shares of one of the Funds.
On each Valuation Day, Net Premium Payments allocated to the
Separate Account will be invested in Fund shares at net
asset value, and monies necessary to pay for deductions,
charges, transfers and surrenders from Account II are raised
by selling Fund shares at net asset value.
The Funds and their investment objectives, which they may or
may not achieve, are on pages 11-14. More Fund information
is in the Funds' prospectuses, which must accompany or
precede this prospectus and should be read carefully. Some
Funds have investment objectives and policies similar to
those of other funds managed by the same investment adviser.
Their investment results may be higher or lower than those
of the other funds, and there can be no assurance, and no
representation is made, that a Fund's investment results
will be comparable to the investment results of any other
fund.
We reserve the right to add, withdraw or substitute Funds,
subject to the conditions of the Policy and to compliance
with regulatory requirements, if in our sole discretion
legal, regulatory, marketing, tax or investment
considerations so warrant or in the event a particular Fund
is no longer available for investment by the Sub-Accounts.
No substitution will take place without prior approval of
the Commission, to the extent required by law.
Shares of the Funds may be used by us and other insurance
companies to fund both variable annuity contracts and
variable life insurance policies. While this is not
perceived as problematic, the Funds' governing bodies
(Boards of Directors/Trustees) have agreed to monitor events
to identify any material irreconcilable conflicts which
might arise and to decide what responsive action might be
appropriate. If a separate account were to withdraw its
investment in a Fund because of a conflict, a Fund might
have to sell portfolio securities at unfavorable prices.
Effective January 1, 1998, CIGNA contracted the
administrative servicing obligations of its individual
variable life insurance business to The Lincoln National
Life Insurance Company (Lincoln Life) and Lincoln Life &
Annuity Company of New York (LLANY). Although CIGNA is
responsible for all policy terms and conditions, Lincoln
Life and LLANY are responsible for servicing the individual
life insurance contracts, including payment of benefits,
oversight of investment management and contract
administration.
A Policy may also be funded in whole or in part through the
"Fixed Account", part of the Company's General Account
supporting its insurance and annuity obligations. We will
credit interest on amounts held in the Fixed Account as we
determine from time to time, but not less than 4% per year.
Interest, once credited, and Fixed Account principal are
guaranteed. Interests in the Fixed Account have not been
registered under the 1933
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Act in reliance on exemptive provisions. The Commission has
not reviewed Fixed Account disclosures, but they are subject
to securities law provisions relating to accuracy and
completeness.
BUYING VARIABLE LIFE INSURANCE
The Policies this Prospectus offers are variable life
insurance policies which provide death benefit protection.
Investors not needing death benefit protection should
consider other forms of investment, as there are extra costs
and expenses of providing the insurance feature. Further,
life insurance purchasers who are risk-aversive or want more
predictable premium levels and benefits may be more
comfortable buying more traditional, non-variable life
insurance. However, variable life insurance is a flexible
tool for financial and investment planning for persons
needing death benefit protection and willing to assume
investment risk and to monitor investment choices they have
made.
Flexibility starts with the ability to make differing levels
of premium payments. A young family just starting out may
only be able to pay modest premiums initially but hope to
increase premium payments over time. At first, this family
would be paying primarily for the insurance feature (perhaps
at ages where the insurance cost is relatively low) and
later use a Policy more as a savings vehicle. A customer at
peak earning capacity may wish to pay substantial premiums
for a limited number of years prior to retirement, after
which Policy values may suffice, based on future expected
return results, though not guaranteed, to keep the Policy
inforce for the expected lifetime and to provide, through
loans, supplemental retirement income. A customer may be
able to pay a large single premium, using the Policy
primarily as a savings and investment vehicle for potential
tax advantages. A parent or grandparent may find a policy on
the life of a child or grandchild a useful gifting
opportunity over a period of years and the basis of an
investment program for the donee. A business may be able to
use a Policy to fund non-qualified executive compensation or
business continuation plans.
Sufficient premiums must always be paid to keep a policy
inforce, and there is a risk of lapse if premiums are too
low in relation to the insurance amount and if investment
results are less favorable than anticipated. The Guaranteed
Death Benefit Provision, if elected, may help to assure a
death benefit even if investment results are unfavorable.
Flexibility also results from being able to select, monitor
and change investment choices within a Policy. With the wide
variety of funding options available, it is possible to fine
tune an investment mix and change it to meet changing
personal objectives or investment conditions. Policy owners
should be prepared to monitor their investment choices on an
ongoing basis.
Variable life insurance has significant tax advantages under
current tax law. A transfer of values from one fund to
another within the Policy generates no taxable gain or loss.
And any investment income and realized capital gains within
a fund are automatically reinvested without being taxed to
the Policy owners. Policy values therefore accumulate on a
tax-deferred basis. These situations would normally result
in immediate tax liabilities in the case of direct
investment in mutual funds.
While these tax deferral features also apply to variable
annuities, liquidity (the ability of Policy owners to access
Policy values) is normally more easily achieved with
variable life insurance. Unless a policy has become a
"modified endowment contract" (see page 26), an owner can
borrow Policy values tax-free, without surrender charges and
at low net interest cost. Policy loans can be a source of
retirement income. Variable annuity withdrawals are
generally taxable to the extent of accumulated income, may
be subject to surrender charges, and will result in penalty
tax if made before age 59 1/2.
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<PAGE>
Depending on the death benefit option chosen, accumulated
Policy values may also be part of the eventual death benefit
payable. If a Policy is heavily funded and investment
performance is very favorable, the death benefit may
increase even further because of tax law requirements that
the death benefit be a certain multiple of Policy value,
depending on the Insured's age (see page 15). The death
benefit is income-tax free and may, with proper estate
planning, be estate-tax free. A tax advisor should be
consulted.
Certain costs and expenses of variable life insurance
ownership which are directly related to Policy values (i.e.
asset based costs) are not unlike those incurred through
investment in mutual funds or variable annuities. A
significant additional cost of variable life insurance is
the "cost of insurance" charge which is imposed on the
"amount at risk" (the death benefit less Policy value) and
increases as the insured grows older. This charge varies by
age, underwriting classification, smoking status and in most
states by gender. The effect of its increase can be seen in
illustrations in this Prospectus (see Appendix 4) or in
personalized illustrations available upon request. Surrender
charges, which decrease over time, are another significant
additional cost if the Policy is not retained.
REPLACEMENTS
Before purchasing the Policy to replace, or to be funded
with proceeds borrowed or withdrawn from, an existing life
insurance policy, an applicant should consider a number of
matters. Will any commission will be paid to an agent or any
other person with respect to the replacement? Are coverages
and comparable values available from the Policy, as compared
to his or her existing policy? The Insured may no longer be
insurable, or the contestability period may have elapsed
with respect to the existing policy, while the Policy could
be contested. The Owner should consider similar matters
before deciding to replace the Policy or withdraw funds from
the Policy for the purchase of funding a new policy of life
insurance.
THE FUNDS
Each of the nineteen Sub-Accounts of the Separate 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 02109;
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;
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<PAGE>
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--Initial Class ("Fidelity VIP
Equity-Income Portfolio").
Two Funds of FIDELITY VIP II are available under the
Policies:
Asset Manager Portfolio--Initial Class ("Fidelity VIP II
Asset Manager Portfolio");
Investment Grade Bond Portfolio--Initial Class
("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 Global Governments Series (formerly 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 6 and 7 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
growth of capital through investment in common stocks, with
emphasis on medium and small-sized growth companies. The
investment advisor will be particularly interested in
companies that are likely to benefit from new or innovative
products, services or processes that should enhance such
companies' prospects for future growth in earnings.
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<PAGE>
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 growth of
capital primarily by investing in seasoned and better
capitalized companies considered to have strong earnings
momentum. Current income will not be a criterion of
investment selection, and any such income should be
considered incidental.
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 investment advisor to be
undervalued relative to the investment advisor's appraisal
of 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 and would be satisfied principally from
the interest (interest and dividends) generated by the
common stocks, convertible bonds and convertible preferred
stocks that make up the Fund's portfolio.
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--INITIAL CLASS
(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--INITIAL
CLASS (Fixed Income - Intermediate Term Bonds): Seeks as
high a level of current income as is consistent with the
preservation of capital by investing in U.S.
dollar-denominated investment-grade bonds.
FIDELITY VIP EQUITY-INCOME PORTFOLIO--INITIAL CLASS (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).
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.
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<PAGE>
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 -- CLASS 1 (Balanced or
Total Return): Seeks a high level of total return. Invests
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 -- CLASS 1 (International
Stocks): Seeks long-term capital growth. It invests
primarily in stocks of companies outside the United States,
including emerging markets. Any income realized will be
incidental.
TEMPLETON STOCK FUND -- CLASS 1 (Global Stocks): Seeks
long-term capital growth. Invests primarily in equity
securities issued by companies, large and small, in various
nations throughout the world, including the United States
and emerging markets.
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.
Several of the 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. Please read these prospectuses carefully.
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.
14
<PAGE>
SUBSTITUTION OF SECURITIES
If the shares of any Fund should no longer be available for
investment by the Separate 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
Separate Account at special meetings of the shareholders of
the particular Trust in accordance with written instructions
received from persons having the voting interest in the
Separate 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 Trusts 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
Trust not more than sixty (60) days prior to the meeting of
the particular Trust. 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 Trusts 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 Trusts'
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.
FUND PARTICIPATION AGREEMENTS
The Company has entered into agreements with the various
Trusts and their advisers or distributors under which the
Company makes the Funds available under the Policies and
performs certain administrative services. The advisers or
distributors may compensate the Company therefor at rates
ranging from .10% to .25% per year of Policy assets held in
a particular Fund.
DEATH BENEFIT
DEATH BENEFIT OPTIONS
Two different Death Benefit Options are available for
determining the Death Benefit. 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
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<PAGE>
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 our administrative office 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 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 is the amount payable to the Beneficiary
upon the death of the Insured in accordance with the Death
Benefit Option elected. Any outstanding loan amounts or
overdue deductions are deducted prior to payment of the
proceeds.
The Death Benefit under the Policy will be paid in a lump
sum within seven days after receipt at our administrative
office 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.
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<PAGE>
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 "Corridor Percentage" of the Accumulation
Value based on the Insured's attained age. The table of
Corridor Percentages is in Appendix 1.
CHANGES IN SPECIFIED AMOUNT
Changes in the Specified Amount of a Policy can be made by
submitting a written request to our administrative office in
form satisfactory to us.
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. We reserve
the right to decline any application or Premium Payment.
After the initial Premium Payment, all Premium Payments must
be sent directly to our administrative office 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. This is the amount for which the
Company sends a premium reminder notice. 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
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<PAGE>
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 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, we will refund the increase in premium
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, we 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
The Net Premium Payment is the portion of a Premium Payment,
after deduction of 5.0% for the premium load, available for
allocation to the Funds you selected.
When you purchase a Policy, you must decide how to allocate
Net Premium Payments among the Sub-Accounts and the Fixed
Account. Allocation 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. For each
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. We will allocate the
initial Net Premium Payment directly to the Sub-Account(s)
you selected within three days after expiration of the
Right-to-Examine Period.
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Unless directed otherwise by the Policy Owner, we will
allocate subsequent Net Premium Payments on the same basis
as the most recent previous Net Premium Payment, as of the
next Valuation Period after each payment is received.
You may change the allocation for future Net Premium
Payments at any time free of charge, effective for Premium
Payments made more than one week after we receive the notice
of the new allocation. Any new allocation is subject to the
same requirements as the initial allocation. We may, at our
sole discretion, waive minimum premium allocation
requirements.
TRANSFERS
Before the Insured attains age 100, Policy values may, at
any time, be transferred ($500 minimum) from one Sub-Account
to another or from the Separate Account to the Fixed
Account. Within the 30 days after each Policy Anniversary,
you 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 administrative office. 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 you have indicated in writing
in the application or otherwise that telephone transfers are
not to be permitted. To make a telephone transfer, you must
call the administrative office and provide, as
identification, your Policy Number and a requested portion
of your 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. We disclaim all liability for losses resulting from
unauthorized or fraudulent telephone transactions, but
acknowledge that if we do not follow these procedures, which
it believes to be reasonable, we 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
administrative office. Transfer requests must be received by
the administrative office 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. You should carefully consider current market
conditions and each Sub-Account's investment policies and
related risks before allocating money to the Sub-Accounts.
The Company, at its sole discretion, may waive minimum
balance requirements on the Sub-Accounts.
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OPTIONAL VARIABLE ACCOUNT SUB-ACCOUNT ALLOCATION PROGRAMS
You may elect to enroll in either of the following programs,
currently free of charge (though we reserve the right to
charge for them). Transfers under these programs do not
count against the 12 transfers allowed without charge. Both
programs cannot be in effect at the same time.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected,
systematically allocates specified dollar amounts from the
Money Market Sub-Account or the Fixed Account to one or more
of the Policy's Sub-Accounts at regular intervals as you
select. By allocating on a regularly scheduled basis as
opposed to allocating the total amount at one particular
time, you may be less susceptible to the impact of market
fluctuations.
You may elect Dollar Cost Averaging 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.
Enrollment in this program may occur at any time by calling
the Administrative Office or by providing the information
requested on the Dollar Cost Averaging election form to us,
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. We
may, at our 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) you request 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.
AUTOMATIC REBALANCING
Automatic Rebalancing is an option which, if elected by the
Owner on the initial application, or thereafter by calling
the administrative office, 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 administrative office.
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.
You may select that Automatic Rebalancing take place on a
quarterly, semi-annual or annual basis. 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. You may terminate Automatic Rebalancing or re-enroll
at any time by calling or writing the administrative office.
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POLICY VALUES
ACCUMULATION VALUE
Once a Policy has been issued, each Net Premium Payment
allocated to a Sub-Account of the Separate Account is
credited in the form of Accumulation Units, representing the
Fund in which assets of that Sub-Account are invested. An
Accumulation Unit is simply a unit of measure used to
calculate the value of a Sub-Account. 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
administrative office (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 Separate Account. The Fixed Account Value is
guaranteed; however, there is no assurance that the Separate
Account Value of the Policy will equal or exceed the Net
Premium Payments allocated to the Separate Account.
You 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 Separate Account
Value, the Fixed Account Value and the Loan Account Value.
Accumulation Value will be affected by Monthly Deductions.
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
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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. This equals the
Net Accumulation Value minus the applicable Surrender
Charge. 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 our administrative office 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.
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 you and we agree otherwise.
FULL SURRENDERS
A full surrender may be made at any time. We will pay the
Surrender Value next computed after receiving your written
request at the administrative office in a form satisfactory
to us. Payment of any amount from the Separate Account on a
full surrender will usually be made within seven calendar
days thereafter.
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DEFERRAL OF PAYMENT AND TRANSFERS
Payment of the surrendered amount from the Separate 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 our 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 (the day of the month as shown
on the Policy Specifications) 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 Grace Period
is the 61-day period following a monthly Anniversary Day. We
will send you a lapse notice at least 31 days before the
Grace Period expires.
REINSTATEMENT OF A LAPSED POLICY
You can apply for reinstatement at any time during the
Insured's lifetime. To reinstate a Policy, we will require
satisfactory evidence of insurability and payment of 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 our 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.
POLICY LOANS
A Policy loan requires that a loan agreement be executed and
that the Policy be assigned to us. The loan may be for any
amount up to 100% of the Surrender Value; however, we 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
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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 we are instructed
otherwise in writing at the administrative office.
Interest payable by you 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.
We will credit interest on the Loan Account Value. During
the first ten Policy Years, our current practice is to
credit interest 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, our current
practice is to credit interest 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
Separate 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 Separate Account
or the Fixed Account while the loan is outstanding, the
effect could be favorable or unfavorable.
SETTLEMENT OPTIONS
Death Benefit 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.
Settlement Options are available if the Owner chooses to
surrender the Policy.
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 us, and
will take effect upon its receipt at the administrative
office. 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;
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 us 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 us at the
time the request is made.
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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 we mail or personally deliver a Notice
of Withdrawal Right to you, or within 45 days after the
application for the Policy is signed, whichever occurs
latest. This time period is called the Right-to-Examine
period. The Initial Premium Payment made when the Policy is
issued will be held in the Fixed Account and not allocated
to the Separate Account, even if you may have so directed,
until three business days following the expiration of the
Right-to-Examine Period. If you return the Policy 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
The Owner on the Date of Issue will be the person designated
in the Policy Specifications as having all ownership rights
under the Policy. This includes the Certificate Owner under
a group policy.
The Insured is the person on whose life the Policy is
issued. 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.
You may name a new Policy Owner while the Insured is living.
Any such change in ownership must be in a written form
satisfactory to us and recorded at the administrative
office. Once recorded, the change will be effective as of
the date signed; however, the change will not affect any
payment made or action we take before it was recorded. We
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
administrative office. 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.
ASSIGNMENT
While the Insured is living, you may assign your rights in
the Policy. The assignment must be in writing, signed by you
and recorded at the administrative office. No
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assignment will affect any payment made or action taken by
us before it was recorded. We are not responsible for any
assignment not submitted for recording, or for the
sufficiency or validity of any assignment. The assignment
will be subject to any indebtedness owed to us before it was
recorded.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
You may, within the first two Policy Years, exchange the
Policy for a permanent life insurance policy then being
offered by us. 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, you 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 you, we will pay you the excess in cash.
The exchange may be subject to federal income tax
withholding.
INCONTESTABILITY
We 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, we 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
The Issue Age is the age of the Insured, to the nearest
birthday, on the Issue Date, the date on which the Policy
becomes effective. This date is shown in the Policy
Specifications.
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 (Death Benefit minus
outstanding loans, if any, minus the Accumulation Value)
at the time of the Insured's death;
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.
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SUICIDE
If the Insured dies by suicide, while sane or insane, within
two years from the Issue Date, we 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, we 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 our profits or
surplus earnings.
RIDERS
A Waiver of Monthly Deduction Rider may be added to the
Policy. Under this rider, we will maintain the Death Benefit
by paying covered monthly deductions during periods of
disability. Rider availability may vary by state.
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.
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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 Separate
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 Separate Account must
meet certain tests. The Company believes the Separate
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 Separate 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 Separate 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
Separate Account. Based upon these expectations, no charge
is currently being made against the Separate 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 our sales
expenses. This load is made up of 2.35% for state taxes,
1.15% for the additional federal income tax burden under
Section 848 of the Code
28
<PAGE>
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 our 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 our Directors and Principal
Officers. The address of each is 900 Cottage Grove Road,
Hartford, CT 06152. We or our affiliates have employed each
for more than five years except for Mr. Pacy, Mr. Wahlman,
Mr. Pastore and Ms. Cooper.
- Prior to January, 1995, Mr. Pacy was Senior Manager-IT
Infrastructure and Technology Management Officer, Digital
Equipment Corporation.
- Prior to September, 1998, Mr. Wahlman was Director of
Accounting and Regulatory Policy, Bank One Corporation.
- Prior to December, 1995, Mr. Pastore was Vice President of
Citicorp.
- Prior to January, 1999, Ms. Cooper was an Associate Attorney
with Robinson, Donovan, Madden & Barry, P.C.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME WITH THE COMPANY
- ------------------------------ ------------------------------------
<S> <C>
Thomas C. Jones President and Director
(Principal Executive Officer)
John Wilkinson Vice President and Actuary
(Principal Financial Officer)
Robert E. Wahlman Vice President
(Principal Accounting Officer)
Susan L. Cooper Corporate Secretary
Andrew G. Helming Secretary
Stephen C. Stachelek Vice President and Treasurer
William M. Pastore Director and Chairman of the Board
Harold W. Albert Director
Robert W. Burgess Director
John Cannon, III Director and Chief Counsel
Joseph M. Fitzgerald Director and Senior Vice President
Carol M. Olsen Director and Senior Vice President
John E. Pacy Director and Senior Vice President
Marc L. Preminger Director and Senior Vice President
Patricia L. Rowland Director and Senior Vice President
W. Allen Schaffer, 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
registered under the Securities Exchange Act of 1934 who are
members of the National
29
<PAGE>
Association of Securities Dealers, Inc. (NASD). The Policies
will be distributed by the Separate Account's principal
underwriter, Sagemark Consulting, Inc. ("Sagemark"), located
at 350 Church Street, Hartford, CT 06103. Sagemark, formerly
CIGNA Financial Advisors, Inc., 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 indirect subsidiary of the
Company. As of January 1, 1998, Sagemark, 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 Separate 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
We are 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 our operation for the preceding year and our
financial condition as of the end of such year. Regulation
by the Insurance Department includes periodic examination to
determine our contract liabilities and reserves so that the
Insurance Department may certify the items are correct. Our
books and accounts are subject to review by the Insurance
Department at all times and a full examination of our
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.
30
<PAGE>
REPORTS TO POLICY OWNERS
Lincoln Life 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 Separate
Account and in each Sub-Account of the Separate Account, and
any Loan Account Value.
Policy Owners will also be sent annual reports containing
financial statements for the Separate 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
We are 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 our financial strength or claims-paying
ability. The ratings are not intended to reflect the
investment experience or financial strength of the Variable
Account. We may advertise these ratings from time to time.
In addition, we 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, we 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
Lincoln Life, as the administrator of Connecticut General
Variable Life Insurance Separate Account II, is responsible,
as part of its Year 2000 updating process, for the updating
of the Account-related computer systems.
Many existing computer programs use only two digits in the
date field to identify the year. If left uncorrected these
programs, which were designed and developed without
considering the impact of the upcoming change in the
century, could fail to operate or could produce erroneous
results when processing dates after December 31, 1999. For
example, for a bond with a stated maturity date of July 1,
2000, a computer program could read and store the maturity
date as July 1, 1900. This problem is known by many names,
such as the "Year 2000 Problem", "Y2K" and the "Millenium
Bug."
The Year 2000 Problem affects virtually all computer
programs worldwide. It can cause a computer system to
suddenly stop operating. It can also result in a computer
corrupting vital company records, and the program could go
undetected for a long time. For our products, if left
unchecked it could cause such problems as purchase payment,
collection and deposit errors; claim payment difficulties;
accounting errors; erroneous unit values; and difficulties
or delays in processing transfers, surrenders and
withdrawals. In a worst case scenario, this could result in
a material disruption to the operations both of Lincoln Life
and of Delaware Service Company Inc. (Delaware), the
provider of the accounting and valuation services for the
Separate Account.
However, both companies are wholly owned by Lincoln National
Corporation (LNC), which has had Year 2000 processes in
place since 1996. LNC projects aggregate
31
<PAGE>
expenditures in excess of $92 million for its Y2K efforts
through the year 2000. Both Lincoln Life and Delaware have
dedicated Year 2000 teams and steering committees that are
answerable to their counterparts in LNC.
In light of the potential problems discussed above, Lincoln
Life, as part of its Year 2000 updating process, has assumed
responsibility for correcting all high-priority Information
Technology (IT) systems which service the Separate Account.
Delaware is responsible for updating all its high-priority
IT systems to support these vital services. The Year 2000
effort, for both IT and non-IT systems, is organized into
four phases:
- awareness-raising and inventory of all assets (including
third-party agent and vendor relationships);
- assessment and high-level planning and strategy;
- remediation of affected systems and equipment; and
- testing to verify Year 2000 readiness.
Both companies are currently on schedule to have their
high-priority IT systems remediated and tested to
demonstrate readiness by June 30, 1999. During the third and
fourth quarters of 1999 additional testing of the
environment will continue. Both companies are currently on
schedule to have their high-priority non-IT systems
(elevators, heating and ventilation, security systems, etc.)
remediated and tested by October 31, 1999.
The work on Year 2000 issues has not suffered significant
delays; however, some uncertainty remains. Specific factors
that give rise to this uncertainty include (but are
certainly not limited to) a possible loss of technical
resources to perform the work; failure to identify all
susceptible systems; and non-compliance by third parties
whose systems and operations impact Lincoln Life. In a
report dated February 26, 1999, entitled INVESTIGATING THE
IMPACT OF THE YEAR 2000 TECHNOLOGY PROBLEM, S. Rpt. 106-10,
the U.S. Senate Special Committee on the Year 2000
Technology Problem expressed its concern that "Financial
services firms ... are particularly vulnerable to ... the
risk that a material customer or business partner will fail,
as a result of the computer problems, to meet its
obligations."
One important source of uncertainty is the extent to which
the key trading partners of Lincoln Life and of Delaware
will be successful in their own remediation and testing
efforts. Lincoln Life and Delaware have been monitoring the
progress of their trading partners; however, the efforts of
these partners are beyond our control.
Lincoln Life and Delaware expect to have completed their
necessary remediation and testing efforts prior to December
31, 1999. However, given the nature and complexity of the
problem, there can be no guarantee by either company that
there will not be significant computer problems after
December 31, 1999.
LEGAL PROCEEDINGS
There are no 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 Separate Account are parties or to which any
of their property is subject. The principal underwriter,
Sagemark, is not engaged in any material litigation of any
nature.
32
<PAGE>
EXPERTS
Actuarial opinions regarding Deferred Acquisition Cost Tax
(DAC Tax) and Mortality and Expense Charges included in this
Prospectus have been rendered by Vaughn W. Robbins, FSA, as
stated in the Opinion filed as an Exhibit to the
Registration Statement.
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, 1998 and 1997 and
for each of the three years in the period ended December 31,
1998 included in this prospectus and registration statement
have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given
on the authority of said firm as experts in accounting and
auditing.
The statement of assets and liability of the Separate
Account as of December 31, 1998 and the statements of
operations and changes in net assets for the year ended
December 31, 1998, included in this prospectus and
registration statement have been so included in reliance on
the report of Ernst & Young LLP, independent auditors, given
on the authority of said firm as experts in accounting and
auditing.
The statements of operations and changes in net assets of
the Separate Account for the two years ended December 31,
1997 included in this prospectus and registration statement
have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given
on the authority of said firm as experts in accounting and
auditing.
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.
33
<PAGE>
APPENDIX 1
CORRIDOR PERCENTAGES
<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
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>
34
<PAGE>
APPENDIX 2
GUARANTEED MAXIMUM COST OF INSURANCE RATES
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
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
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
<CAPTION>
ATTAINED
AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- ----------- --------- --------- ---------
<S> <C> <C> <C>
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
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>
35
<PAGE>
APPENDIX 3
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.
36
<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.
37
<PAGE>
APPENDIX 4
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 Separate 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 Separate 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 Separate Account (in New York, 0.65%
beginning in Policy Year 13). 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
Separate 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% for
Non-New York Policies, and for New York Policies in years
1-12.
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
38
<PAGE>
expense charge is $15 per month in the first year. Current
values reflect a current 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.
39
<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 (NON-NEW YORK)
<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 6-7 of this
Prospectus.
40
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 45
PREFERRED -- $6,623 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS (NEW YORK)
<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 6,954 500,000 500,000 500,000 3,788 4,085 4,384 0 0 0
2 14,256 500,000 500,000 500,000 7,442 8,275 9,146 1,437 2,270 3,141
3 21,923 500,000 500,000 500,000 10,862 12,470 14,221 4,857 6,465 8,216
4 29,973 500,000 500,000 500,000 14,045 16,664 19,637 8,040 10,659 13,632
5 38,426 500,000 500,000 500,000 16,970 20,836 25,410 10,965 14,831 19,405
6 47,302 500,000 500,000 500,000 19,630 24,975 31,572 14,826 20,171 26,768
7 56,621 500,000 500,000 500,000 21,987 29,040 38,128 18,384 25,437 34,525
8 66,406 500,000 500,000 500,000 24,013 32,999 45,095 21,611 30,597 42,693
9 76,680 500,000 500,000 500,000 25,672 36,808 52,488 24,471 35,607 51,287
10 87,469 500,000 500,000 500,000 26,921 40,419 60,319 26,921 40,419 60,319
15 150,061 500,000 500,000 500,000 26,253 54,498 108,037 26,253 54,498 108,037
20 229,946 500,000 500,000 500,000 9,403 56,125 175,897 9,403 56,125 175,897
25 331,901 0 500,000 500,000 0 28,769 278,149 0 28,769 278,149
30 462,026 0 0 500,000 0 0 457,194 0 0 457,194
</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
for years 1-12, 0.65% thereafter. See "Expense
Data" at pages 6-7 of this Prospectus.
41
<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 6-7 of this Prospectus.
42
<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 (NON-NEW YORK)
<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 6-7 of this
Prospectus.
43
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
MALE NONSMOKER ISSUE AGE 55
PREFERRED -- $10,519 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS (NEW YORK)
<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 11,045 500,000 500,000 500,000 4,556 4,983 5,412 0 0 0
2 22,642 500,000 500,000 500,000 8,696 9,835 11,031 726 1,865 3,061
3 34,819 500,000 500,000 500,000 12,321 14,446 16,777 4,351 6,476 8,807
4 47,605 500,000 500,000 500,000 15,407 18,779 22,641 7,437 10,809 14,671
5 61,030 500,000 500,000 500,000 17,923 22,788 28,612 9,953 14,818 20,642
6 75,127 500,000 500,000 500,000 19,814 26,399 34,654 13,438 20,023 28,278
7 89,928 500,000 500,000 500,000 21,015 29,528 40,717 16,233 24,746 35,935
8 105,469 500,000 500,000 500,000 21,437 32,061 46,734 18,249 28,873 43,546
9 121,788 500,000 500,000 500,000 20,975 33,865 52,614 19,381 32,271 51,020
10 138,922 500,000 500,000 500,000 19,523 34,798 58,266 19,523 34,798 58,266
15 238,334 0 500,000 500,000 0 21,019 80,065 0 21,019 80,065
20 365,212 0 0 500,000 0 0 71,684 0 0 71,684
25 527,143 0 0 0 0 0 0 0 0 0
30 733,814 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
for years 1-12, 0.65% thereafter. See "Expense
Data" at pages 6-7 of this Prospectus.
44
<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 6-7 of this Prospectus.
45
<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 (NON-NEW YORK)
<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 6-7 of this
Prospectus.
46
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 45
PREFERRED -- $5,287 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS (NEW YORK)
<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 5,551 500,000 500,000 500,000 3,020 3,257 3,495 0 0 0
2 11,380 500,000 500,000 500,000 5,974 6,639 7,335 609 1,274 1,970
3 17,501 500,000 500,000 500,000 8,771 10,057 11,458 3,406 4,692 6,093
4 23,927 500,000 500,000 500,000 11,400 13,500 15,883 6,035 8,135 10,518
5 30,675 500,000 500,000 500,000 13,854 16,961 20,634 8,489 11,596 15,269
6 37,760 500,000 500,000 500,000 16,123 20,429 25,734 11,831 16,137 21,442
7 45,199 500,000 500,000 500,000 18,200 23,895 31,215 14,981 20,676 27,996
8 53,010 500,000 500,000 500,000 20,071 27,344 37,104 17,925 25,198 34,958
9 61,212 500,000 500,000 500,000 21,709 30,748 43,420 20,636 29,675 42,347
10 69,824 500,000 500,000 500,000 23,115 34,103 50,211 23,115 34,103 50,211
15 119,790 500,000 500,000 500,000 26,818 50,330 93,996 26,818 50,330 93,996
20 183,561 500,000 500,000 500,000 23,180 63,773 161,796 23,180 63,773 161,796
25 264,950 500,000 500,000 500,000 4,579 66,021 267,875 4,579 66,021 267,875
30 368,825 0 500,000 500,000 0 43,685 448,785 0 43,685 448,785
</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
for years 1-12, 0.65% thereafter. See "Expense
Data" at pages 6-7 of this Prospectus.
47
<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 6-7 of this Prospectus.
48
<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 (NON-NEW YORK)
<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 6-7 of this
Prospectus.
49
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
FEMALE NONSMOKER ISSUE AGE 55
PREFERRED -- $8,278 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS (NEW YORK)
<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 8,692 500,000 500,000 500,000 4,099 4,450 4,804 0 0 0
2 17,818 500,000 500,000 500,000 8,017 8,980 9,989 1,212 2,175 3,184
3 27,401 500,000 500,000 500,000 11,681 13,515 15,518 4,876 6,710 8,713
4 37,463 500,000 500,000 500,000 15,105 18,069 21,444 8,300 11,264 14,639
5 46,028 500,000 500,000 500,000 18,280 22,633 27,803 11,475 15,828 20,998
6 59,122 500,000 500,000 500,000 21,181 27,184 34,621 15,737 21,740 29,177
7 70,770 500,000 500,000 500,000 23,753 31,662 41,895 19,670 27,579 37,812
8 83,000 500,000 500,000 500,000 25,921 35,990 49,605 23,199 33,268 46,883
9 95,842 500,000 500,000 500,000 27,584 40,057 57,708 26,223 38,696 56,347
10 109,326 500,000 500,000 500,000 28,668 43,781 66,189 28,668 43,781 66,189
15 187,559 500,000 500,000 500,000 24,424 55,821 116,290 24,424 55,821 116,290
20 287,406 0 500,000 500,000 0 46,896 183,763 0 46,896 183,763
25 414,839 0 0 500,000 0 0 272,171 0 0 272,171
30 577,480 0 0 500,000 0 0 416,123 0 0 416,123
</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
for years 1-12, 0.65% thereafter. See "Expense
Data" at pages 6-7 of this Prospectus.
50
<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 6-7 of this Prospectus.
51
<PAGE>
CG Variable Life Insurance Separate Account II
CGVL-1
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITY
DECEMBER 31, 1998
<TABLE>
<CAPTION>
AIM AIM
V.I. V.I.
CAPITAL DIVERSIFIED
APPRECIATION INCOME
COMBINED SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
ASSETS
Investments at Market--Unaffiliated
(Cost $43,415,652) $46,943,247 $2,822,511 $1,207,124
- --------------------------------------- ----------- ---------- ----------
TOTAL ASSETS 46,943,247 2,822,511 1,207,124
- ---------------------------------------
LIABILITY--
Payable to Connecticut General Life
Insurance Company 1,018 60 26
- --------------------------------------- ----------- ---------- ----------
NET ASSETS $46,942,229 $2,822,451 $1,207,098
- --------------------------------------- ----------- ---------- ----------
----------- ---------- ----------
Percent of net assets 100.00% 6.01% 2.57%
- --------------------------------------- ----------- ---------- ----------
----------- ---------- ----------
NET ASSETS ARE REPRESENTED BY:
Units in accumulation period 201,951 99,596
Unit value $ 13.976 $ 12.120
---------- ----------
- ---------------------------------------
NET ASSETS $2,822,451 $1,207,098
---------- ----------
---------- ----------
- ---------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MFS MFS
EMERGING TOTAL MFS
GROWTH RETURN UTILITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- -------------------------------------------------------------------------
ASSETS
Investments at Market--Unaffiliated
(Cost $43,415,652) $3,558,912 $1,129,625 $357,436
- --------------------------------------- ---------- ---------- --------
TOTAL ASSETS 3,558,912 1,129,625 357,436
- ---------------------------------------
LIABILITY--
Payable to Connecticut General Life
Insurance Company 74 25 8
- --------------------------------------- ---------- ---------- --------
NET ASSETS $3,558,838 $1,129,600 $357,428
- --------------------------------------- ---------- ---------- --------
---------- ---------- --------
Percent of net assets 7.58% 2.41% 0.76%
- --------------------------------------- ---------- ---------- --------
---------- ---------- --------
NET ASSETS ARE REPRESENTED BY:
Units in accumulation period 231,907 77,859 20,836
Unit value $ 15.346 $ 14.508 $ 17.154
---------- ---------- --------
- ---------------------------------------
NET ASSETS $3,558,838 $1,129,600 $357,428
---------- ---------- --------
---------- ---------- --------
- ---------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
CGVL-2
<PAGE>
<TABLE>
<CAPTION>
CIGNA CIGNA
VARIABLE VARIABLE FIDELITY FIDELITY FIDELITY
AIM AIM PRODUCTS PRODUCTS VIP VIP II VIP II
V.I. V.I. MONEY S&P 500 EQUITY ASSET INVESTMENT
GROWTH VALUE MARKET INDEX INCOME MANAGER GRADE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at Market--Unaffiliated
(Cost $43,415,652) $5,168,477 $6,937,948 $3,918,119 $3,551,527 $4,939,770 $580,754 $1,415,632
- --------------------------------------- ---------- ---------- ---------- ---------- ---------- -------- ----------
TOTAL ASSETS 5,168,477 6,937,948 3,918,119 3,551,527 4,939,770 580,754 1,415,632
- ---------------------------------------
LIABILITY--
Payable to Connecticut General Life
Insurance Company 111 151 91 76 108 13 30
- --------------------------------------- ---------- ---------- ---------- ---------- ---------- -------- ----------
NET ASSETS $5,168,366 $6,937,797 $3,918,028 $3,551,451 $4,939,662 $580,741 $1,415,602
- --------------------------------------- ---------- ---------- ---------- ---------- ---------- -------- ----------
---------- ---------- ---------- ---------- ---------- -------- ----------
Percent of net assets 11.01% 14.78% 8.35% 7.57% 10.52% 1.24% 3.02%
- --------------------------------------- ---------- ---------- ---------- ---------- ---------- -------- ----------
---------- ---------- ---------- ---------- ---------- -------- ----------
NET ASSETS ARE REPRESENTED BY:
Units in accumulation period 292,640 380,388 350,336 241,569 320,565 39,554 114,144
Unit value $ 17.661 $ 18.239 $ 11.184 $ 14.702 $ 15.409 $ 14.682 $ 12.402
---------- ---------- ---------- ---------- ---------- -------- ----------
- ---------------------------------------
NET ASSETS $5,168,366 $6,937,797 $3,918,028 $3,551,451 $4,939,662 $580,741 $1,415,602
---------- ---------- ---------- ---------- ---------- -------- ----------
---------- ---------- ---------- ---------- ---------- -------- ----------
- ---------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
OCC VARIABLE
MFS ACCUMULATION OCC OCC PRODUCTS
WORLD GLOBAL ACCUMULATION ACCUMULATION ASSET
GOVERNMENTS EQUITY MANAGED SMALL CAPITALIZATION ALLOCATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at Market--Unaffiliated
(Cost $43,415,652) $68,603 $ 1,997,291 $ 1,832,468 $1,497,481 $ 1,131,502
- --------------------------------------- ------------ ------------ ------------ ---------- ---------------
TOTAL ASSETS 68,603 1,997,291 1,832,468 1,497,481 1,131,502
- ---------------------------------------
LIABILITY--
Payable to Connecticut General Life
Insurance Company 1 43 40 32 25
- --------------------------------------- ------------ ------------ ------------ ---------- ---------------
NET ASSETS $68,602 $ 1,997,248 $ 1,832,428 $1,497,449 $ 1,131,477
- --------------------------------------- ------------ ------------ ------------ ---------- ---------------
------------ ------------ ------------ ---------- ---------------
Percent of net assets 0.15% 4.25% 3.90% 3.19% %2.41
- --------------------------------------- ------------ ------------ ------------ ---------- ---------------
------------ ------------ ------------ ---------- ---------------
NET ASSETS ARE REPRESENTED BY:
Units in accumulation period 6,196 144,584 127,868 129,592 83,852
Unit value $11.072 $ 13.814 $ 14.331 $ 11.555 $ 13.494
------------ ------------ ------------ ---------- ---------------
- ---------------------------------------
NET ASSETS $68,602 $ 1,997,248 $ 1,832,428 $1,497,449 $ 1,131,477
------------ ------------ ------------ ---------- ---------------
------------ ------------ ------------ ---------- ---------------
- ---------------------------------------
<CAPTION>
TEMPLETON TEMPLETON
VARIABLE VARIABLE
PRODUCTS PRODUCTS
INTERNATIONAL STOCK
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- ---------------------------------------
ASSETS
Investments at Market--Unaffiliated
(Cost $43,415,652) $ 3,690,874 $ 1,137,193
- --------------------------------------- --------------- ---------------
TOTAL ASSETS 3,690,874 1,137,193
- ---------------------------------------
LIABILITY--
Payable to Connecticut General Life
Insurance Company 79 25
- --------------------------------------- --------------- ---------------
NET ASSETS $ 3,690,795 $ 1,137,168
- --------------------------------------- --------------- ---------------
--------------- ---------------
Percent of net assets %7.86 %2.42
- --------------------------------------- --------------- ---------------
--------------- ---------------
NET ASSETS ARE REPRESENTED BY:
Units in accumulation period 266,538 91,947
Unit value $ 13.847 $ 12.368
--------------- ---------------
- ---------------------------------------
NET ASSETS $ 3,690,795 $ 1,137,168
--------------- ---------------
--------------- ---------------
- ---------------------------------------
</TABLE>
CGVL-3
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
AIM AIM
V.I. V.I.
CAPITAL DIVERSIFIED
APPRECIATION INCOME
COMBINED SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- ---------------------------------------------------------------------
Inception date May 6, 1996 May 22, 1996
Year Ended December 31,
1996
Net Investment Income
(Loss):
Dividends from investment
income $ 10,201 $ 321 $ 3,336
Dividends from net
realized gains
on investments 26,191 -- --
Mortality and expense
guarantees (3,686) (385) (88)
- --------------------------- ---------- ------------ -------------
NET INVESTMENT INCOME
(LOSS) 32,706 (64) 3,248
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 2,409 379 11
Net change in unrealized
appreciation or
depreciation on
investments 52,539 2,251 (1,549)
- --------------------------- ---------- ------------ -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 54,948 2,630 (1,538)
- --------------------------- ---------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $ 87,654 $ 2,566 $ 1,710
- --------------------------- ---------- ------------ -------------
---------- ------------ -------------
Year Ended December 31,
1997
Net Investment Income
(Loss):
Dividends from investment
income $ 108,623 $ 928 $ 268
Dividends from net
realized gains on
investments 246,338 11,932 --
Mortality and expense
guarantees (57,978) (5,212) (1,463)
- --------------------------- ---------- ------------ -------------
NET INVESTMENT INCOME
(LOSS) 296,983 7,648 (1,195)
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 6,715 1,490 66
Net change in unrealized
appreciation or
depreciation on
investments 683,612 64,842 18,333
- --------------------------- ---------- ------------ -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 690,327 66,332 18,399
- --------------------------- ---------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $ 987,310 $ 73,980 $ 17,204
- --------------------------- ---------- ------------ -------------
---------- ------------ -------------
Year Ended December 31,
1998
Net Investment Income
(Loss):
Dividends from investment
income $ 511,951 $ 3,920 $ 58,349
Dividends from net
realized gains on
investments 1,163,087 69,449 18,616
Mortality and expense
guarantees (250,401) (15,128) (6,864)
- --------------------------- ---------- ------------ -------------
NET INVESTMENT INCOME
(LOSS) 1,424,637 58,241 70,101
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 206,338 55,523 8,059
Net change in unrealized
appreciation or
depreciation on
investments 2,791,444 298,578 (71,880)
- --------------------------- ---------- ------------ -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 2,997,782 354,101 (63,821)
- --------------------------- ---------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $4,422,419 $412,342 $ 6,280
- --------------------------- ---------- ------------ -------------
---------- ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
CGVL-4
<PAGE>
<TABLE>
<CAPTION>
CIGNA CIGNA
VARIABLE VARIABLE FIDELITY FIDELITY
AIM AIM PRODUCTS PRODUCTS VIP VIP II
V.I. V.I. MONEY S&P 500 EQUITY ASSET
GROWTH VALUE MARKET INDEX INCOME MANAGER
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Inception date May 22, 1996 May 6, 1996 May 6, 1996 May 23, 1997 May 6, 1996 July 1, 1996
Year Ended December 31,
1996
Net Investment Income
(Loss):
Dividends from investment
income $ 833 $ 1,608 $ 2,053 $ -- $ -- $ --
Dividends from net
realized gains
on investments 9,355 15,593 -- -- -- --
Mortality and expense
guarantees (282) (468) (315) -- (322) (89)
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET INVESTMENT INCOME
(LOSS) 9,906 16,733 1,738 -- (322) (89)
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 337 337 -- -- 350 344
Net change in unrealized
appreciation or
depreciation on
investments (9,782) (3,822) -- -- 5,635 1,319
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS (9,445) (3,485) -- -- 5,985 1,663
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $ 461 $ 13,248 $ 1,738 $ -- $ 5,663 $ 1,574
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
------------- ------------ ------------ ------------- ------------ -------------
Year Ended December 31,
1997
Net Investment Income
(Loss):
Dividends from investment
income $ 6,858 $ 17,630 $ 29,019 $ 7,320 $ 6,926 $ 3,086
Dividends from net
realized gains on
investments 51,743 54,124 -- 7,320 34,821 7,741
Mortality and expense
guarantees (6,870) (8,405) (4,540) (402) (5,823) (956)
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET INVESTMENT INCOME
(LOSS) 51,731 63,349 24,479 14,238 35,924 9,871
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 375 1,561 -- (650) 635 143
Net change in unrealized
appreciation or
depreciation on
investments 114,550 112,220 -- (6,932) 126,200 12,884
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 114,925 113,781 -- (7,582) 126,835 13,027
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $166,656 $ 177,130 $ 24,479 $ 6,656 $162,759 $ 22,898
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
------------- ------------ ------------ ------------- ------------ -------------
Year Ended December 31,
1998
Net Investment Income
(Loss):
Dividends from investment
income $ 15,840 $ 31,605 $ 137,671 $ 66,765 $ 21,543 $ 9,902
Dividends from net
realized gains on
investments 296,979 279,532 -- 27,185 76,669 29,708
Mortality and expense
guarantees (25,643) (34,701) (22,073) (16,065) (28,302) (3,593)
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET INVESTMENT INCOME
(LOSS) 287,176 276,436 115,598 77,885 69,910 36,017
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 60,325 31,568 3 3,274 (1,222) 2,199
Net change in unrealized
appreciation or
depreciation on
investments 609,366 966,927 -- 414,198 133,848 29,654
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 669,691 998,495 3 417,472 132,626 31,853
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $956,867 $1,274,931 $ 115,601 $495,357 $202,536 $ 67,870
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
------------- ------------ ------------ ------------- ------------ -------------
<CAPTION>
FIDELITY
VIP II MFS
INVESTMENT EMERGING
GRADE BOND GROWTH
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- ---------------------------
Inception date May 6, 1996 May 23, 1997
Year Ended December 31,
1996
Net Investment Income
(Loss):
Dividends from investment
income $ -- $ --
Dividends from net
realized gains
on investments -- --
Mortality and expense
guarantees (32) --
- --------------------------- ------------ -------------
NET INVESTMENT INCOME
(LOSS) (32) --
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 4 --
Net change in unrealized
appreciation or
depreciation on
investments (66) --
- --------------------------- ------------ -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS (62) --
- --------------------------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $ (94) $ --
- --------------------------- ------------ -------------
------------ -------------
Year Ended December 31,
1997
Net Investment Income
(Loss):
Dividends from investment
income $ 2,535 $ --
Dividends from net
realized gains on
investments -- --
Mortality and expense
guarantees (635) (481)
- --------------------------- ------------ -------------
NET INVESTMENT INCOME
(LOSS) 1,900 (481)
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 68 122
Net change in unrealized
appreciation or
depreciation on
investments 5,634 (3,444)
- --------------------------- ------------ -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 5,702 (3,322)
- --------------------------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $ 7,602 $ (3,803)
- --------------------------- ------------ -------------
------------ -------------
Year Ended December 31,
1998
Net Investment Income
(Loss):
Dividends from investment
income $36,965 $ --
Dividends from net
realized gains on
investments 4,386 8,732
Mortality and expense
guarantees (7,850) (15,783)
- --------------------------- ------------ -------------
NET INVESTMENT INCOME
(LOSS) 33,501 (7,051)
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments (639) 4,854
Net change in unrealized
appreciation or
depreciation on
investments 37,295 535,053
- --------------------------- ------------ -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 36,656 539,907
- --------------------------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $70,157 $532,856
- --------------------------- ------------ -------------
------------ -------------
</TABLE>
CGVL-5
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
STATEMENT OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
MFS MFS
TOTAL MFS WORLD
RETURN UTILITIES GOVERNMENTS
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Inception date May 28, 1996 August 19, 1996 May 6, 1996
Year Ended December 31,
1996
Net Investment Income
(Loss):
Dividends from investment
income $ 1,859 $ 135 $ --
Dividends from net
realized gains
on investments 808 350 --
Mortality and expense
guarantees (165) (9) (13)
- --------------------------- ------------- -------- ------------
NET INVESTMENT INCOME
(LOSS) 2,502 476 (13)
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 61 (1) --
Net change in unrealized
appreciation or
depreciation on
investments 656 9 24
- --------------------------- ------------- -------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 717 8 24
- --------------------------- ------------- -------- ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $ 3,219 $ 484 $ 11
- --------------------------- ------------- -------- ------------
------------- -------- ------------
Year Ended December 31,
1997
Net Investment Income
(Loss):
Dividends from investment
income $ -- $ -- $ 184
Dividends from net
realized gains on
investments -- -- 83
Mortality and expense
guarantees (2,021) (295) (264)
- --------------------------- ------------- -------- ------------
NET INVESTMENT INCOME
(LOSS) (2,021) (295) 3
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments (284) 263 (97)
Net change in unrealized
appreciation or
depreciation on
investments 47,191 11,922 389
- --------------------------- ------------- -------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 46,907 12,185 292
- --------------------------- ------------- -------- ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $ 44,886 $ 11,890 $ 295
- --------------------------- ------------- -------- ------------
------------- -------- ------------
Year Ended December 31,
1998
Net Investment Income
(Loss):
Dividends from investment
income $ 8,336 $ 1,821 $ 636
Dividends from net
realized gains on
investments 9,802 8,257 --
Mortality and expense
guarantees (6,195) (1,576) (444)
- --------------------------- ------------- -------- ------------
NET INVESTMENT INCOME
(LOSS) 11,943 8,502 192
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 7,044 1,169 953
Net change in unrealized
appreciation or
depreciation on
investments 64,679 23,048 2,802
- --------------------------- ------------- -------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 71,723 24,217 3,755
- --------------------------- ------------- -------- ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $ 83,666 $ 32,719 $ 3,947
- --------------------------- ------------- -------- ------------
------------- -------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
CGVL-6
<PAGE>
<TABLE>
<CAPTION>
TEMPLETON
OCC OCC VARIABLE TEMPLETON TEMPLETON
ACCUMULATION OCC ACCUMULATION PRODUCTS VARIABLE VARIABLE
GLOBAL ACCUMULATION SMALL ASSET PRODUCTS PRODUCTS
EQUITY MANAGED CAPITALIZATION ALLOCATION INTERNATIONAL STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Inception date May 6, 1996 May 28, 1996 May 21, 1996 May 6, 1996 May 21, 1996 May 22, 1996
Year Ended December 31,
1996
Net Investment Income
(Loss):
Dividends from investment
income $ 56 $ -- $ -- $ -- $ -- $ --
Dividends from net
realized gains
on investments 85 -- -- -- -- --
Mortality and expense
guarantees (24) (375) (281) (244) (473) (121)
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET INVESTMENT INCOME
(LOSS) 117 (375) (281) (244) (473) (121)
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 7 174 26 249 156 (25)
Net change in unrealized
appreciation or
depreciation on
investments 375 11,891 9,222 8,859 22,647 4,870
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS 382 12,065 9,248 9,108 22,803 4,845
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $ 499 $11,690 $ 8,967 $ 8,864 $ 22,330 $ 4,724
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
------------- ------------- ------------- ------------ ------------- -------------
Year Ended December 31,
1997
Net Investment Income
(Loss):
Dividends from investment
income $ 2,055 $ 3,094 $ 1,288 $11,456 $ 13,383 $ 2,593
Dividends from net
realized gains on
investments 20,597 9,501 9,078 21,740 5,380 12,278
Mortality and expense
guarantees (775) (4,070) (3,063) (3,943) (6,215) (2,545)
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET INVESTMENT INCOME
(LOSS) 21,877 8,525 7,303 29,253 12,548 12,326
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments (194) 2,945 (91) (155) 577 (59)
Net change in unrealized
appreciation or
depreciation on
investments (23,062) 66,834 61,025 21,181 52,272 1,573
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS (23,256) 69,779 60,934 21,026 52,849 1,514
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $ (1,379) $78,304 $ 68,237 $50,279 $ 65,397 $ 13,840
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
------------- ------------- ------------- ------------ ------------- -------------
Year Ended December 31,
1998
Net Investment Income
(Loss):
Dividends from investment
income $ 21,969 $ 7,820 $ 2,748 $19,612 $ 42,417 $ 24,032
Dividends from net
realized gains on
investments 75,639 31,491 30,008 19,762 75,836 101,036
Mortality and expense
guarantees (10,667) (11,163) (8,948) (6,840) (19,950) (8,616)
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET INVESTMENT INCOME
(LOSS) 86,941 28,148 23,808 32,534 98,303 116,452
- ---------------------------
Net Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 4,640 10,006 (1,735) 339 16,189 3,789
Net change in unrealized
appreciation or
depreciation on
investments (100,987) 12,273 (156,203) 17,093 45,028 (69,328)
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS (96,347) 22,279 (157,938) 17,432 61,217 (65,539)
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $ (9,406) $50,427 $ (134,130) $49,966 $159,520 $ 50,913
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
------------- ------------- ------------- ------------ ------------- -------------
</TABLE>
CGVL-7
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AIM AIM
V.I. V.I.
CAPITAL DIVERSIFIED
APPRECIATION INCOME
COMBINED SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Inception date May 6, 1996 May 22, 1996
Changes From Operations:
Net investment income
(loss) $ 32,706 $ (64) $ 3,248
Net realized gain (loss)
on investments 2,409 379 11
Net change in unrealized
appreciation or
depreciation on
investments 52,539 2,251 (1,549)
- --------------------------- ----------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 87,654 2,566 1,710
- ---------------------------
Change From Unit
Transactions:
Participant deposits, net
of premium loads 575,260 101,952 1,147
Participants transfers 2,544,023 207,039 80,113
Participants withdrawals (91,196) (11,342) (3,027)
- --------------------------- ----------- ------------ -------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 3,028,087 297,649 78,233
- --------------------------- ----------- ------------ -------------
TOTAL INCREASE IN NET
ASSETS 3,115,741 300,215 79,943
- --------------------------- ----------- ------------ -------------
NET ASSETS AT DECEMBER 31,
1996 3,115,741 300,215 79,943
- ---------------------------
Changes From Operations:
Net investment income
(loss) 296,983 7,648 (1,195)
Net realized gain (loss)
on investments 6,715 1,490 66
Net change in unrealized
appreciation or
depreciation on
investments 683,612 64,842 18,333
- --------------------------- ----------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 987,310 73,980 17,204
- ---------------------------
Change From Unit
Transactions:
Participant deposits, net
of premium loads 2,647,735 323,509 98,464
Participants transfers 8,679,704 604,094 185,371
Participants withdrawals (942,013) (92,701) (33,075)
- --------------------------- ----------- ------------ -------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 10,385,426 834,902 250,760
- --------------------------- ----------- ------------ -------------
TOTAL INCREASE IN NET
ASSETS 11,372,736 908,882 267,964
- --------------------------- ----------- ------------ -------------
NET ASSETS AT DECEMBER 31,
1997 14,488,477 1,209,097 347,907
- ---------------------------
Changes From Operations:
Net investment income
(loss) 1,424,637 58,241 70,101
Net realized gain (loss)
on investments 206,338 55,523 8,059
Net change in unrealized
appreciation or
depreciation on
investments 2,791,444 298,578 (71,880)
- --------------------------- ----------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 4,422,419 412,342 6,280
- ---------------------------
Change from unit
transactions:
Participant deposits, net
of premium loads 19,241,251 1,009,560 355,110
Participants transfers 12,939,075 424,370 591,814
Participants withdrawals (4,148,993) (232,918) (94,013)
- --------------------------- ----------- ------------ -------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 28,031,333 1,201,012 852,911
- --------------------------- ----------- ------------ -------------
TOTAL INCREASE IN NET
ASSETS 32,453,752 1,613,354 859,191
- --------------------------- ----------- ------------ -------------
NET ASSETS AT DECEMBER 31,
1998 $46,942,229 $2,822,451 $1,207,098
- --------------------------- ----------- ------------ -------------
----------- ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
CGVL-8
<PAGE>
<TABLE>
<CAPTION>
CIGNA CIGNA
VARIABLE VARIABLE FIDELITY FIDELITY
AIM AIM PRODUCTS PRODUCTS VIP VIP II
V.I. V.I. MONEY S&P 500 EQUITY ASSET
GROWTH VALUE MARKET INDEX INCOME MANAGER
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Inception date May 22, 1996 May 6, 1996 May 6, 1996 May 23, 1997 May 6, 1996 July 1, 1996
Changes From Operations:
Net investment income
(loss) $ 9,906 $ 16,733 $ 1,738 $ -- $ (322) $ (89)
Net realized gain (loss)
on investments 337 337 -- -- 350 344
Net change in unrealized
appreciation or
depreciation on
investments (9,782) (3,822) -- -- 5,635 1,319
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 461 13,248 1,738 -- 5,663 1,574
- ---------------------------
Change From Unit
Transactions:
Participant deposits, net
of premium loads 108,913 94,506 29,639 -- 40,360 25,510
Participants transfers 292,966 306,773 162,260 -- 260,509 42,284
Participants withdrawals (5,403) (14,480) (10,518) -- (8,346) (1,320)
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 396,476 386,799 181,381 -- 292,523 66,474
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
TOTAL INCREASE IN NET
ASSETS 396,937 400,047 183,119 -- 298,186 68,048
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET ASSETS AT DECEMBER 31,
1996 396,937 400,047 183,119 -- 298,186 68,048
- ---------------------------
Changes From Operations:
Net investment income
(loss) 51,731 63,349 24,479 14,238 35,924 9,871
Net realized gain (loss)
on investments 375 1,561 -- (650) 635 143
Net change in unrealized
appreciation or
depreciation on
investments 114,550 112,220 -- (6,932) 126,200 12,884
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 166,656 177,130 24,479 6,656 162,759 22,898
- ---------------------------
Change From Unit
Transactions:
Participant deposits, net
of premium loads 231,695 395,944 86,719 18,012 377,160 76,781
Participants transfers 947,946 1,300,232 251,392 401,552 734,832 167,578
Participants withdrawals (108,614) (136,315) (64,689) (10,135) (105,591) (12,875)
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 1,071,027 1,559,861 273,422 409,429 1,006,401 231,484
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
TOTAL INCREASE IN NET
ASSETS 1,237,683 1,736,991 297,901 416,085 1,169,160 254,382
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET ASSETS AT DECEMBER 31,
1997 1,634,620 2,137,038 481,020 416,085 1,467,346 322,430
- ---------------------------
Changes From Operations:
Net investment income
(loss) 287,176 276,436 115,598 77,885 69,910 36,017
Net realized gain (loss)
on investments 60,325 31,568 3 3,274 (1,222) 2,199
Net change in unrealized
appreciation or
depreciation on
investments 609,366 966,927 -- 414,198 133,848 29,654
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 956,867 1,274,931 115,601 495,357 202,536 67,870
- ---------------------------
Change from unit
transactions:
Participant deposits, net
of premium loads 2,236,356 2,775,826 3,565,006 968,134 1,228,595 185,043
Participants transfers 685,827 1,238,280 168,146 1,901,390 2,905,255 86,622
Participants withdrawals (345,304) (488,278) (411,745) (229,515) (864,070) (81,224)
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 2,576,879 3,525,828 3,321,407 2,640,009 3,269,780 190,441
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
TOTAL INCREASE IN NET
ASSETS 3,533,746 4,800,759 3,437,008 3,135,366 3,472,316 258,311
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
NET ASSETS AT DECEMBER 31,
1998 $5,168,366 $6,937,797 $3,918,028 $3,551,451 $4,939,662 $580,741
- --------------------------- ------------- ------------ ------------ ------------- ------------ -------------
------------- ------------ ------------ ------------- ------------ -------------
<CAPTION>
FIDELITY
VIP II MFS
INVESTMENT EMERGING
GRADE BOND GROWTH
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- ---------------------------
Inception date May 6, 1996 May 23, 1997
Changes From Operations:
Net investment income
(loss) $ (32) $ --
Net realized gain (loss)
on investments 4 --
Net change in unrealized
appreciation or
depreciation on
investments (66) --
- --------------------------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS (94) --
- ---------------------------
Change From Unit
Transactions:
Participant deposits, net
of premium loads 668 --
Participants transfers 41,527 --
Participants withdrawals (1,280) --
- --------------------------- ------------ -------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 40,915 --
- --------------------------- ------------ -------------
TOTAL INCREASE IN NET
ASSETS 40,821 --
- --------------------------- ------------ -------------
NET ASSETS AT DECEMBER 31,
1996 40,821 --
- ---------------------------
Changes From Operations:
Net investment income
(loss) 1,900 (481)
Net realized gain (loss)
on investments 68 122
Net change in unrealized
appreciation or
depreciation on
investments 5,634 (3,444)
- --------------------------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 7,602 (3,803)
- ---------------------------
Change From Unit
Transactions:
Participant deposits, net
of premium loads 38,011 42,010
Participants transfers 185,522 542,788
Participants withdrawals (14,963) (6,856)
- --------------------------- ------------ -------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 208,570 577,942
- --------------------------- ------------ -------------
TOTAL INCREASE IN NET
ASSETS 216,172 574,139
- --------------------------- ------------ -------------
NET ASSETS AT DECEMBER 31,
1997 256,993 574,139
- ---------------------------
Changes From Operations:
Net investment income
(loss) 33,501 (7,051)
Net realized gain (loss)
on investments (639) 4,854
Net change in unrealized
appreciation or
depreciation on
investments 37,295 535,053
- --------------------------- ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 70,157 532,856
- ---------------------------
Change from unit
transactions:
Participant deposits, net
of premium loads 258,154 1,756,960
Participants transfers 929,300 885,544
Participants withdrawals (99,002) (190,661)
- --------------------------- ------------ -------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 1,088,452 2,451,843
- --------------------------- ------------ -------------
TOTAL INCREASE IN NET
ASSETS 1,158,609 2,984,699
- --------------------------- ------------ -------------
NET ASSETS AT DECEMBER 31,
1998 $1,415,602 $3,558,838
- --------------------------- ------------ -------------
------------ -------------
</TABLE>
CGVL-9
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MFS MFS
TOTAL MFS WORLD
RETURN UTILITIES GOVERNMENTS
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Inception date May 28, 1996 August 19, 1996 May 6, 1996
Changes From Operations:
Net investment income
(loss) $ 2,502 $ 476 $ (13)
Net realized gain (loss)
on investments 61 (1) --
Net change in unrealized
appreciation or
depreciation on
investments 656 9 24
- --------------------------- ------------- -------- ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 3,219 484 11
- ---------------------------
Change From Unit
Transactions:
Participant deposits, net
of premium loads 42,659 64 2,843
Participants transfers 82,784 5,527 7,813
Participants withdrawals (2,564) (256) (626)
- --------------------------- ------------- -------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 122,879 5,335 10,030
- --------------------------- ------------- -------- ------------
TOTAL INCREASE IN NET
ASSETS 126,098 5,819 10,041
- --------------------------- ------------- -------- ------------
NET ASSETS AT DECEMBER 31,
1996 126,098 5,819 10,041
- ---------------------------
Changes From Operations:
Net investment income
(loss) (2,021) (295) 3
Net realized gain (loss)
on investments (284) 263 (97)
Net change in unrealized
appreciation or
depreciation on
investments 47,191 11,922 389
- --------------------------- ------------- -------- ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 44,886 11,890 295
- ---------------------------
Change From Unit
Transactions:
Participant deposits, net
of premium loads 99,400 36,123 24,376
Participants transfers 247,244 41,549 18,935
Participants withdrawals (26,686) (7,388) (4,737)
- --------------------------- ------------- -------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 319,958 70,284 38,574
- --------------------------- ------------- -------- ------------
TOTAL INCREASE IN NET
ASSETS 364,844 82,174 38,869
- --------------------------- ------------- -------- ------------
NET ASSETS AT DECEMBER 31,
1997 490,942 87,993 48,910
- ---------------------------
Changes From Operations:
Net investment income
(loss) 11,943 8,502 192
Net realized gain (loss)
on investments 7,044 1,169 953
Net change in unrealized
appreciation or
depreciation on
investments 64,679 23,048 2,802
- --------------------------- ------------- -------- ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 83,666 32,719 3,947
- ---------------------------
Change from unit
transactions:
Participant deposits, net
of premium loads 347,693 128,259 31,013
Participants transfers 307,702 138,245 (6,513)
Participants withdrawals (100,403) (29,788) (8,755)
- --------------------------- ------------- -------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 554,992 236,716 15,745
- --------------------------- ------------- -------- ------------
TOTAL INCREASE IN NET
ASSETS 638,658 269,435 19,692
- --------------------------- ------------- -------- ------------
NET ASSETS AT DECEMBER 31,
1998 $1,129,600 $357,428 $68,602
- --------------------------- ------------- -------- ------------
------------- -------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
CGVL-10
<PAGE>
<TABLE>
<CAPTION>
TEMPLETON
OCC OCC VARIABLE TEMPLETON TEMPLETON
ACCUMULATION OCC ACCUMULATION PRODUCTS VARIABLE VARIABLE
GLOBAL ACCUMULATION SMALL ASSET PRODUCTS PRODUCTS
EQUITY MANAGED CAPITALIZATION ALLOCATION INTERNATIONAL STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Inception date May 6, 1996 May 28, 1996 May 21, 1996 May 6, 1996 May 21, 1996 May 22, 1996
Changes From Operations:
Net investment income
(loss) $ 117 $ (375) $ (281) $ (244) $ (473) $ (121)
Net realized gain (loss)
on investments 7 174 26 249 156 (25)
Net change in unrealized
appreciation or
depreciation on
investments 375 11,891 9,222 8,859 22,647 4,870
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS 499 11,690 8,967 8,864 22,330 4,724
- ---------------------------
Change From Unit
Transactions:
Participant deposits, net
of premium loads 1,678 31,531 16,598 8,075 60,621 8,496
Participants transfers 14,816 207,398 150,455 297,737 302,403 81,619
Participants withdrawals (938) (8,015) (5,644) (2,299) (11,795) (3,343)
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 15,556 230,914 161,409 303,513 351,229 86,772
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
TOTAL INCREASE IN NET
ASSETS 16,055 242,604 170,376 312,377 373,559 91,496
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET ASSETS AT DECEMBER 31,
1996 16,055 242,604 170,376 312,377 373,559 91,496
- ---------------------------
Changes From Operations:
Net investment income
(loss) 21,877 8,525 7,303 29,253 12,548 12,326
Net realized gain (loss)
on investments (194) 2,945 (91) (155) 577 (59)
Net change in unrealized
appreciation or
depreciation on
investments (23,062) 66,834 61,025 21,181 52,272 1,573
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS (1,379) 78,304 68,237 50,279 65,397 13,840
- ---------------------------
Change From Unit
Transactions:
Participant deposits, net
of premium loads 74,232 146,100 122,875 39,996 323,144 93,184
Participants transfers 376,844 561,866 414,959 300,264 908,409 488,327
Participants withdrawals (14,788) (78,439) (47,040) (26,584) (112,114) (38,423)
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 436,288 629,527 490,794 313,676 1,119,439 543,088
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
TOTAL INCREASE IN NET
ASSETS 434,909 707,831 559,031 363,955 1,184,836 556,928
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET ASSETS AT DECEMBER 31,
1997 450,964 950,435 729,407 676,332 1,558,395 648,424
- ---------------------------
Changes From Operations:
Net investment income
(loss) 86,941 28,148 23,808 32,534 98,303 116,452
Net realized gain (loss)
on investments 4,640 10,006 (1,735) 339 16,189 3,789
Net change in unrealized
appreciation or
depreciation on
investments (100,987) 12,273 (156,203) 17,093 45,028 (69,328)
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS (9,406) 50,427 (134,130) 49,966 159,520 50,913
- ---------------------------
Change from unit
transactions:
Participant deposits, net
of premium loads 1,516,473 447,299 515,465 326,720 1,314,817 274,768
Participants transfers 140,459 563,427 537,753 143,367 999,820 298,267
Participants withdrawals (101,242) (179,160) (151,046) (64,908) (341,757) (135,204)
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 1,555,690 831,566 902,172 405,179 1,972,880 437,831
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
TOTAL INCREASE IN NET
ASSETS 1,546,284 881,993 768,042 455,145 2,132,400 488,744
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
NET ASSETS AT DECEMBER 31,
1998 $1,997,248 $1,832,428 $1,497,449 $1,131,477 $3,690,795 $1,137,168
- --------------------------- ------------- ------------- ------------- ------------ ------------- -------------
------------- ------------- ------------- ------------ ------------- -------------
</TABLE>
CGVL-11
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES & ACCOUNT INFORMATION
THE ACCOUNT:
CG Variable Life Insurance Separate Account II (the Variable Account) is a
segregated investment account of Connecticut General Life Insurance Company
(CG Life) and is registered as a unit investment trust with the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended. The operations of the Variable Account are part of the operations
of CG Life. The assets and liabilities of the Variable Account are clearly
identified and distinguished from other assets and liabilities of CG Life.
The assets of the Variable Account are owned by CG Life, are not available
to meet the general obligations of CG Life and are held for the exclusive
benefit of the participants.
Effective January 1, 1998, CG Life contracted the administrative servicing
obligations to its individual variable life business to The Lincoln National
Life Insurance Company (Lincoln Life) and Lincoln Life & Annuity Company of
New York (LLANY). Although CG Life is responsible for all policy terms and
conditions, Lincoln Life and LLANY are responsible for servicing the
individual life contracts, including the payment of benefits, oversight of
investment management and contract administration.
BASIS OF PRESENTATION:
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for unit investment trusts.
INVESTMENTS:
The assets of the Variable Account are divided into variable sub-accounts
each of which is invested in shares of one of nineteen portfolios (the
Funds) of seven diversified open-ended management investment companies, each
portfolio with its own investment objective. Funds in which the variable
subaccounts invest are as follows:
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:
Fidelity VIP Equity Income Portfolio
Fidelity Variable Insurance Products Fund II:
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II 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 Accumulation Global Equity Portfolio
OCC Accumulation Managed Portfolio
OCC Accumulation Small Capitalization Portfolio
Templeton Variable Product Series Fund:
Templeton Variable Product Asset Allocation Fund
Templeton Variable Product International Fund
Templeton Variable Product Stock Fund
Investment in the Funds are stated at the closing net asset value per share
on December 31, 1998, which approximates fair value. The difference between
cost and fair value is reflected as unrealized appreciation and depreciation
of investments.
Investment transactions are accounted for on a trade date basis. The cost of
investments sold is determined by the average cost method.
DIVIDENDS:
Dividends paid to the Variable Account are automatically reinvested in
shares of the Funds on the payable date. Dividend income is recorded on the
ex-dividend date.
CGVL-12
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES & ACCOUNT INFORMATION (CONTINUED)
FEDERAL INCOME TAXES:
Operations of the Variable Account form a part of and are taxed with
operations of CG Life, which is taxed as a life insurance company under the
Internal Revenue Code. The Variable Account will not be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code. Using
current federal income tax law, no federal income taxes are payable with
respect to the Variable Account's net investment income and the net realized
gain on investments.
2. MORTALITY AND EXPENSE GUARANTEES & OTHER TRANSACTIONS WITH AFFILIATES
CG Life charges each variable sub-account, for mortality and expense risk, 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 Statement 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 fixed
account funding option. The fixed account is part of the general account of
Lincoln 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. No transfer fees for
the variable sub-accounts were deducted for the period ended December 31,
1998.
CGVL-13
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. MORTALITY AND EXPENSE GUARANTEES & OTHER TRANSACTIONS WITH AFFILIATES
(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 year ended December 31, 1998, amounted to:
<TABLE>
<CAPTION>
Cost of
Premium Administrative Insurance
Sub-Accounts Loads Fees Deduction
- -------------------------------------------------------- --------- ------------- -----------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Subaccount $ 52,992 $ 13,468 $ 210,246
AIM V.I. Diversified Income Subaccount 18,669 6,106 83,591
AIM V.I. Growth Subaccount 117,424 12,502 302,713
AIM V.I. Value Subaccount 145,463 22,995 430,283
CIGNA Variable Products Money Market Subaccount 187,592 6,983 399,774
CIGNA Variable Products S&P 500 Index Subaccount 50,374 8,151 220,741
Fidelity VIP Equity Income Subaccount 64,453 14,215 777,767
Fidelity VIP II Asset Manager Subaccount 9,689 1,513 30,678
Fidelity VIP II Investment Grade Bond Subaccount 13,458 4,134 83,768
MFS Emerging Growth Subaccount 91,998 6,445 167,072
MFS Total Return Subaccount 18,210 4,937 86,422
MFS Utilities Subaccount 6,749 2,352 27,377
MFS World Governments Subaccount 1,632 909 7,733
OCC Accumulation Global Equity Subaccount 79,743 2,197 92,426
OCC Accumulation Managed Subaccount 23,027 8,480 165,378
OCC Accumulation Small Capitalization Subaccount 26,903 8,021 134,678
Templeton Variable Products Asset Allocation Subaccount 17,114 1,943 62,532
Templeton Variable Products International Subaccount 68,635 15,754 304,788
Templeton Variable Products Stock Subaccount 14,444 6,113 103,290
</TABLE>
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 year ended December 31, 1998 were $107,470.
CGVL-14
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
CGVL-15
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. NET ASSETS
The following is a summary of net assets owned at
December 31, 1998.
<TABLE>
<CAPTION>
AIM AIM
V.I. V.I.
CAPITAL DIVERSIFIED
APPRECIATION INCOME
COMBINED SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- ----------------------------------------------------------------
Unit Transactions:
Accumulation units $41,444,846 $2,333,563 $1,181,904
Accumulated net investment
income (loss) 1,754,326 65,825 72,154
Accumulated net realized
gain (loss) on
investments 215,462 57,392 8,136
- ---------------------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS 3,527,595 365,671 (55,096)
- --------------------------- ----------- ---------- ----------
$46,942,229 $2,822,451 $1,207,098
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
MFS MFS
EMERGING TOTAL MFS
GROWTH RETURN UTILITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
- -------------------------------------------------------------
Unit Transactions:
Accumulation units $3,029,785 $ 997,829 $312,335
Accumulated net investment
income (loss) (7,532) 12,424 8,683
Accumulated net realized
gain (loss) on
investments 4,976 6,821 1,431
- ---------------------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS 531,609 112,526 34,979
- --------------------------- ---------- ---------- --------
$3,558,838 $1,129,600 $357,428
---------- ---------- --------
---------- ---------- --------
</TABLE>
CGVL-16
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CIGNA CIGNA
VARIABLE VARIABLE FIDELITY FIDELITY FIDELITY
AIM AIM PRODUCTS PRODUCTS VIP VIP II VIP II
V.I. V.I. MONEY S&P 500 EQUITY ASSET INVESTMENT
GROWTH VALUE MARKET INDEX INCOME MANAGER GRADE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Unit Transactions:
Accumulation units $4,044,382 $5,472,488 $3,776,210 $3,049,438 $4,568,704 $488,399 $1,337,937
Accumulated net investment
income (loss) 348,813 356,518 141,815 92,123 105,512 45,799 35,369
Accumulated net realized
gain (loss) on
investments 61,037 33,466 3 2,624 (237) 2,686 (567)
- ---------------------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS 714,134 1,075,325 -- 407,266 265,683 43,857 42,863
- --------------------------- ---------- ---------- ---------- ---------- ---------- -------- ----------
$5,168,366 $6,937,797 $3,918,028 $3,551,451 $4,939,662 $580,741 $1,415,602
---------- ---------- ---------- ---------- ---------- -------- ----------
---------- ---------- ---------- ---------- ---------- -------- ----------
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
OCC VARIABLE TEMPLETON
MFS ACCUMULATION OCC OCC PRODUCTS VARIABLE
WORLD GLOBAL ACCUMULATION ACCUMULATION ASSET PRODUCTS
GOVERNMENTS EQUITY MANAGED SMALL CAPITALIZATION ALLOCATION INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Unit Transactions:
Accumulation units $64,349 $ 2,007,534 $ 1,692,007 $1,554,375 $ 1,022,368 $ 3,443,548
Accumulated net investment
income (loss) 182 108,935 36,298 30,830 61,543 110,378
Accumulated net realized
gain (loss) on
investments 856 4,453 13,125 (1,800) 433 16,922
- ---------------------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS 3,215 (123,674) 90,998 (85,956) 47,133 119,947
- --------------------------- ------------ ------------ ------------ ---------- --------------- ---------------
$68,602 $ 1,997,248 $ 1,832,428 $1,497,449 $ 1,131,477 $ 3,690,795
------------ ------------ ------------ ---------- --------------- ---------------
------------ ------------ ------------ ---------- --------------- ---------------
<CAPTION>
TEMPLETON
VARIABLE
PRODUCTS
STOCK
SUBACCOUNT
<S> <C>
- ---------------------------
Unit Transactions:
Accumulation units $ 1,067,691
Accumulated net investment
income (loss) 128,657
Accumulated net realized
gain (loss) on
investments 3,705
- ---------------------------
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS (62,885)
- --------------------------- ---------------
$ 1,137,168
---------------
---------------
</TABLE>
CGVL-17
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and the
aggregate proceeds from investments sold were as follows
for 1998.
<TABLE>
<CAPTION>
Aggregate Aggregate
Cost of Proceeds
Purchases from Sales
------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund $ 2,065,943 $ 806,631
- ---------------------------------------------
AIM V.I. Diversified Income Fund 1,189,827 266,789
- ---------------------------------------------
AIM V.I. Growth Fund 3,749,766 885,600
- ---------------------------------------------
AIM V.I. Value Fund 4,344,412 541,997
- ---------------------------------------------
CIGNA Variable Products Money Market Fund 9,184,335 5,747,239
- ---------------------------------------------
CIGNA Variable Products S&P 500 Index Fund 2,912,179 194,209
- ---------------------------------------------
Fidelity VIP Equity Income Portfolio 4,246,762 906,963
- ---------------------------------------------
Fidelity VIP II Asset Manager Portfolio 458,448 231,977
- ---------------------------------------------
Fidelity VIP II Investment Grade Bond
Portfolio 1,260,752 138,770
- ---------------------------------------------
MFS Emerging Growth Series 3,085,735 640,869
- ---------------------------------------------
MFS Total Return Series 680,102 113,142
- ---------------------------------------------
MFS Utilities Series 260,738 15,512
- ---------------------------------------------
MFS World Governments Series 49,986 34,048
- ---------------------------------------------
OCC Accumulation Global Equity Portfolio 2,165,174 522,500
- ---------------------------------------------
OCC Accumulation Managed Portfolio 1,064,040 204,286
- ---------------------------------------------
OCC Accumulation Small Capitalization
Portfolio 1,218,891 292,879
- ---------------------------------------------
Templeton Variable Products Asset Allocation
Fund 590,472 152,733
- ---------------------------------------------
Templeton Variable Products International
Fund 2,418,498 347,236
- ---------------------------------------------
Templeton Variable Products Stock Fund 1,254,516 700,207
- ---------------------------------------------
----------- -----------
$42,200,576 $12,743,587
----------- -----------
----------- -----------
</TABLE>
CGVL-18
<PAGE>
CG VARIABLE LIFE INSURANCE SEPARATE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS
The following is a summary of investments owned at
December 31, 1998.
<TABLE>
<CAPTION>
Net
Shares Asset Value of Cost of
Outstanding Value Shares Shares
----------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 112,004 $25.20 $ 2,822,511 $ 2,456,840
-----------------------------------
AIM V.I. Diversified Income Fund 110,340 10.94 1,207,124 1,262,220
-----------------------------------
AIM V.I. Growth Fund 208,406 24.80 5,168,477 4,454,343
-----------------------------------
AIM V.I. Value Fund 264,303 26.25 6,937,948 5,862,623
-----------------------------------
CIGNA Variable Products Money Market Fund 3,918,119 1.00 3,918,119 3,918,119
-----------------------------------
CIGNA Variable Products S&P 500 Index Fund 180,006 19.73 3,551,527 3,144,261
-----------------------------------
Fidelity VIP Equity Income Portfolio 194,326 25.42 4,939,770 4,674,087
-----------------------------------
Fidelity VIP II Asset Manager Portfolio 31,980 18.16 580,754 536,897
-----------------------------------
Fidelity VIP II Investment Grade Bond Portfolio 109,231 12.96 1,415,632 1,372,769
-----------------------------------
MFS Emerging Growth Series 165,762 21.47 3,558,912 3,027,303
-----------------------------------
MFS Total Return Series 62,341 18.12 1,129,625 1,017,099
-----------------------------------
MFS Utilities Series 18,034 19.82 357,436 322,457
-----------------------------------
MFS World Governments Series 6,305 10.88 68,603 65,388
-----------------------------------
OCC Accumulation Global Equity Portfolio 129,442 15.43 1,997,291 2,120,965
-----------------------------------
OCC Accumulation Managed Portfolio 41,895 43.74 1,832,468 1,741,470
-----------------------------------
OCC Accumulation Small Capitalization Portfolio 64,826 23.10 1,497,481 1,583,437
-----------------------------------
Templeton Variable Products Asset Allocation Fund 50,379 22.46 1,131,502 1,084,369
-----------------------------------
Templeton Variable Products International Fund 178,389 20.69 3,690,874 3,570,927
-----------------------------------
Templeton Variable Products Stock Fund 53,972 21.07 1,137,193 1,200,078
----------------------------------- ----------- -----------
$46,943,247 $43,415,652
----------- -----------
----------- -----------
</TABLE>
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.
CGVL-19
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors of
The Lincoln National Life Insurance Company
and
Contract Owners of CG Variable Life Insurance Separate
Account II
We have audited the accompanying statement of assets and
liability of CG Variable Life Insurance Separate Account II
("Variable Account") (comprised of the AIM V.I. Capital
Appreciation, AIM V.I. Diversified Income, AIM V.I. Growth,
AIM V.I. Value, CIGNA Variable Products Money Market, CIGNA
Variable Products S&P 500 Index, Fidelity VIP Equity Income,
Fidelity VIP II Asset Manager, Fidelity VIP II Investment
Grade Bond, MFS Emerging Growth, MFS Total Return, MFS
Utilities, MFS World Governments, OCC Accumulation Global
Equity, OCC Accumulation Managed, OCC Accumulation Small
Capitalization, Templeton Variable Products Asset Allocation,
Templeton Variable Products International and Templeton
Variable Products Stock subaccounts), as of December 31,
1998, and the related statements of operations and changes in
net assets for the year then ended. These financial
statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on
these financial statements based on our audit. The
accompanying financial statements of CG Variable Life
Insurance Separate Account II for the years ended December
31, 1997 and 1996, were audited by other auditors whose
reported dated February 20, 1998, expressed an unqualified
opinion on those financial statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
investments owned as of December 31, 1998, by correspondence
with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of each of the respective sub accounts constituting
the CG Variable Life Insurance Separate Account II at
December 31, 1998, and the results of their operations and
changes in their net assets for the year then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
March 30, 1999
CGVL-20
<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
CGVL-21
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
PRICEWATERHOUSECOOPERS [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Connecticut General Life Insurance Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income and changes in
shareholder's equity and of cash flows present fairly, in all material respects,
the financial position of Connecticut General Life Insurance Company and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
February 9, 1999
G-1
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(IN MILLIONS)
<CAPTION>
-------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees................................................... $ 5,683 $ 5,376 $ 5,314
Net investment income............................................... 2,637 3,139 3,199
Realized investment gains........................................... 93 45 37
Other revenues...................................................... 427 10 9
--------- --------- ---------
Total revenues.................................................. 8,840 8,570 8,559
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses............................ 5,802 5,917 6,069
Policy acquisition expenses......................................... 44 122 143
Other operating expenses............................................ 1,763 1,618 1,477
--------- --------- ---------
Total benefits, losses and expenses................................. 7,609 7,657 7,689
--------- --------- ---------
INCOME BEFORE INCOME TAXES.......................................... 1,231 913 870
--------- --------- ---------
Income taxes (benefits):
Current........................................................... 636 347 394
Deferred.......................................................... (211) (49) (81)
--------- --------- ---------
Total taxes..................................................... 425 298 313
-------------------------------------------------------------------------------------------
NET INCOME.......................................................... $ 806 $ 615 $ 557
- -----------------------------------------------------------------------------------------------------
-------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
G-2
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
<S> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
-------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $16,820; $20,962)...... $ 18,067 $ 22,323
Mortgage loans.......................................................... 8,875 10,090
Equity securities, at fair value (cost, $62; $75)....................... 47 54
Policy loans............................................................ 6,091 7,146
Real estate............................................................. 712 749
Other long-term investments............................................. 159 166
Short-term investments.................................................. 85 173
--------- ---------
Total investments................................................... 34,036 40,701
Cash and cash equivalents................................................. 1,026 923
Accrued investment income................................................. 494 602
Premiums and accounts receivable.......................................... 939 811
Reinsurance recoverables.................................................. 7,278 1,271
Deferred policy acquisition costs......................................... 187 834
Property and equipment.................................................... 365 291
Deferred income taxes..................................................... 865 653
Goodwill and other intangibles............................................ 730 474
Other assets.............................................................. 236 276
Separate account assets................................................... 34,648 29,217
-------------------------------------------------------------------------------------------
Total assets........................................................ $ 80,804 $ 76,053
-------------------------------------------------------------------------------------------
--------------------
LIABILITIES
Contractholder deposit funds.............................................. $ 30,614 $ 30,449
Future policy benefits.................................................... 8,286 8,224
Unpaid claims and claim expenses.......................................... 1,286 1,225
Unearned premiums......................................................... 162 260
--------- ---------
Total contractholder and insurance liabilities...................... 40,348 40,158
Accounts payable, accrued expenses and other liabilities.................. 2,523 2,428
Current income taxes...................................................... 65 --
Separate account liabilities.............................................. 34,340 29,021
-------------------------------------------------------------------------------------------
Total liabilities................................................... 77,276 71,607
-------------------------------------------------------------------------------------------
CONTINGENCIES -- NOTE 13
SHAREHOLDER'S EQUITY
Common stock (6 shares issued and outstanding)............................ 30 30
Additional paid-in capital................................................ 1,072 766
Net unrealized appreciation, fixed maturities............................. 243 282
Net unrealized (depreciation), equity securities.......................... (25) (26)
Net translation of foreign currencies..................................... 2 2
--------- ---------
Accumulated other comprehensive income.................................... 220 258
Retained earnings......................................................... 2,206 3,392
-------------------------------------------------------------------------------------------
Total shareholder's equity.......................................... 3,528 4,446
-------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity.......................... $ 80,804 $ 76,053
-------------------------------------------------------------------------------------------
--------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
G-3
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND CHANGES IN
SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
<CAPTION>
-------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
-------------------------------------------------------------------------------------------
Compre- Share- Compre- Share- Compre- Share-
hensive holder's hensive holder's hensive holder's
Income Equity Income Equity Income Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK........................... $ 30 $ 30 $ 30
ADDITIONAL PAID-IN CAPITAL............. 1,072 766 766
ACCUMULATED OTHER COMPREHENSIVE INCOME
-- BEGINNING OF YEAR................. 258 191 478
Net unrealized appreciation
(depreciation) -- fixed maturities... $ (39) (39) $ 69 69 $ (276) (276)
Net unrealized appreciation
(depreciation) -- equity
securities........................... 1 1 (1) (1) (12) (12)
--- --- -----
Net unrealized appreciation
(depreciation) on securities......... (38) 68 (288)
Net translation of foreign
currencies........................... -- -- (1) (1) 1 1
--- --- -----
Other comprehensive (loss) income.... (38) 67 (287)
----------- ----------- -----------
ACCUMULATED OTHER COMPREHENSIVE INCOME
-- END OF YEAR....................... 220 258 191
----------- ----------- -----------
RETAINED EARNINGS -- BEGINNING OF
YEAR................................. 3,392 3,177 3,220
Net income........................... 806 806 615 615 557 557
Dividends declared................... (1,992) (400) (600)
----------- ----------- -----------
RETAINED EARNINGS -- END OF YEAR....... 2,206 3,392 3,177
-------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME AND
SHAREHOLDER'S EQUITY................. $ 768 $ 3,528 $ 682 $ 4,446 $ 270 $ 4,164
-------------------------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
G-4
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS)
-------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................ $ 806 $ 615 $ 557
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Insurance liabilities........................................... 67 78 57
Reinsurance recoverables........................................ (7) 68 (11)
Premiums and accounts receivable................................ (179) 106 77
Deferred income taxes, net...................................... (211) (49) (82)
Other assets.................................................... (339) (54) 43
Deferred policy acquisition costs............................... (12) (97) (92)
Accounts payable, accrued expenses, other liabilities and
current income taxes........................................... 149 41 (113)
Depreciation and goodwill amortization.......................... 113 88 94
Gain on sale of business........................................ (418) -- --
Other, net...................................................... (50) (99) (151)
--------- --------- ---------
Net cash (used in) provided by operating activities........... (81) 697 379
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities................................................ 2,869 1,583 1,589
Mortgage loans.................................................. 1,052 807 640
Equity securities............................................... 15 14 13
Real estate..................................................... 98 401 345
Policy loans.................................................... 382 -- --
Other (primarily short-term investments)........................ 6,724 6,447 3,613
Investment maturities and repayments:
Fixed maturities................................................ 2,797 2,394 2,634
Mortgage loans.................................................. 421 601 630
Investments purchased:
Fixed maturities................................................ (3,881) (4,339) (3,834)
Mortgage loans.................................................. (1,611) (1,426) (1,300)
Equity securities............................................... (7) (9) (3)
Policy loans.................................................... -- (13) (207)
Other (primarily short-term investments)........................ (7,652) (6,296) (3,930)
Net cash from disposition of business........................... 1,295 -- --
Other, net...................................................... (274) (102) (94)
--------- --------- ---------
Net cash provided by investing activities..................... 2,228 62 96
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder deposit funds:
Deposits and interest credited.................................. 7,050 7,634 7,260
Withdrawals and benefit payments................................ (7,106) (7,023) (7,135)
Dividends paid to parent.......................................... (1,992) (400) (600)
Other, net........................................................ 4 (47) --
--------- --------- ---------
Net cash (used in) provided by financing activities........... (2,044) 164 (475)
-------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents......................... 103 923 --
Cash and cash equivalents, beginning of year...................... 923 -- --
-------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year............................ $ 1,026 $ 923 $ --
-------------------------------------------------------------------------------------------
-------------------------------
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds............................... $ 520 $ 402 $ 385
Interest paid................................................... $ 3 $ 5 $ 7
-------------------------------------------------------------------------------------------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
G-5
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
Connecticut General Life Insurance Company and its subsidiaries (the Company)
provide insurance and related financial services throughout the United States
and in many locations worldwide. Principal products and services include group
health and life insurance and retirement and investment products and services.
The Company is a wholly-owned subsidiary of Connecticut General Corporation,
which is an indirect wholly-owned subsidiary of CIGNA Corporation (CIGNA).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of the Company and all significant subsidiaries. These consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles, and reflect management's estimates and assumptions, such
as those regarding medical costs and interest rates, that affect the recorded
amounts. Significant estimates used in determining contractholder and insurance
liabilities, related reinsurance recoverables, and valuation allowances for
investment assets are discussed throughout the Notes to Financial Statements.
Certain reclassifications have been made to prior years' amounts to conform with
the 1998 presentation.
B) RECENT ACCOUNTING PRONOUNCEMENTS: The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," as of December 31, 1998. SFAS No. 131
changes the way segments are structured and requires additional segment
disclosures. Prior period information has been restated based on the new
requirements. See Note 11 for additional information.
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that derivatives be reported on the balance sheet at fair value.
Changes in fair value are recognized in net income or, for derivatives which are
hedging market risk related to future cash flows, in the accumulated other
comprehensive income section of shareholders' equity. Implementation is required
by the first quarter of 2000, with the cumulative effect of adoption reflected
in net income and accumulated other comprehensive income, as appropriate. The
Company has not determined the effect or timing of implementation of this
pronouncement.
The American Institute of Certified Public Accountants (AICPA) issued
Statement of Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises
for Insurance-Related Assessments," in 1997. SOP 97-3 provides guidance on the
recognition and measurement of liabilities for guaranty fund and other
insurance-related assessments. Implementation of this pronouncement, which is
required by the first quarter of 1999 with the cumulative effect of adopting the
SOP reflected in net income, is not expected to have a material effect on
results of operations, liquidity or financial condition.
In 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 specifies the types
of costs that must be capitalized and amortized over the software's expected
useful life and the types of costs which must be immediately recognized as
expense. Implementation of this pronouncement is required by the first quarter
of 1999 and is not expected to have a material effect on results of operations,
liquidity or financial condition.
In 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk." SOP
98-7 provides guidance on the deposit method of accounting for insurance and
reinsurance contracts that do not transfer insurance risk, except for
long-duration life and health contracts. Implementation is required by the first
quarter of 2000, with the cumulative effect of adopting the SOP reflected in net
income in the year of adoption. The Company has not determined the effect or
timing of implementation of this pronouncement.
C) FINANCIAL INSTRUMENTS: In the normal course of business, the Company
enters into transactions involving various types of financial instruments,
including investments such as fixed maturities and equity securities and off-
balance sheet financial instruments such as investment and loan commitments and
financial guarantees. These
G-6
<PAGE>
instruments are subject to risk of loss due to interest rate and market
fluctuations and most have credit risk. The Company evaluates and monitors each
financial instrument individually and, where appropriate, uses certain
derivative instruments or obtains collateral or other forms of security to
minimize risk of loss.
Financial instruments that are subject to fair value disclosure requirements
(insurance contracts, real estate, goodwill and taxes are excluded) are carried
in the financial statements at amounts that approximate fair value, except for
mortgage loans and contractholder deposit funds (non-insurance products). For
these financial instruments, the fair value was not materially different from
the carrying amount as of December 31, 1998 and 1997. Fair values of off-balance
sheet financial instruments as of December 31, 1998 and 1997 were not material.
Fair values for financial instruments are estimates that, in many cases, may
differ significantly from the amounts that could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of fair
value are based on discounted cash flow analyses which utilize current interest
rates for similar financial instruments with comparable terms and credit
quality. The fair value of liabilities for contractholder deposit funds was
estimated using the amount payable on demand, and for those not payable on
demand, discounted cash flow analyses.
D) INVESTMENTS: Investments in fixed maturities, which are classified as
available-for-sale and carried at fair value, include bonds; asset-backed
securities, including collateralized mortgage obligations (CMOs); and redeemable
preferred stocks. Fixed maturities are considered impaired and written down to
fair value when a decline in value is considered to be other than temporary.
Mortgage loans are carried principally at unpaid principal balances, net of
valuation reserves. Mortgage loans are considered impaired when it is probable
that the Company will not collect all amounts according to the contractual terms
of the loan agreement. If impaired, a valuation reserve is utilized to record
any change in the fair value of the underlying collateral below the carrying
value of the mortgage loan.
Fixed maturities and mortgage loans that are delinquent or restructured to
modify basic financial terms, typically to reduce the interest rate and, in
certain cases, extend the term, are placed on non-accrual status. Net investment
income on such investments is recognized only when payment is received.
Real estate investments are either held for the production of income or held
for sale. Real estate investments held for the production of income are carried
at depreciated cost less any write-downs to fair value. Depreciation is
generally calculated using the straight-line method based on the estimated
useful lives of these assets.
Real estate investments held for sale are generally those which are acquired
through the foreclosure of mortgage loans. The Company's policy is to
rehabilitate, re-lease and sell foreclosed properties, which generally takes two
to four years or less if circumstances indicate that an immediate sale is in the
best interests of the Company or policyholders. At the time of foreclosure,
properties are valued at fair value less estimated costs to sell and
reclassified from mortgage loans to real estate held for sale. Subsequent to
foreclosure, these investments are carried at the lower of cost or current fair
value less estimated costs to sell and are no longer depreciated. Adjustments to
the carrying value as a result of changes in fair value subsequent to
foreclosure are recorded as valuation reserves. The Company considers several
methods in determining fair value for real estate, with emphasis placed on the
use of discounted cash flow analyses and, in some cases, the use of third-party
appraisals.
Equity securities and short-term investments are classified as
available-for-sale. Equity securities, which include common and non-redeemable
preferred stocks, are carried at fair value. Short-term investments are carried
at fair value, which approximates cost.
Policy loans are generally carried at unpaid principal balances.
Realized investment gains and losses result from sales, investment asset
write-downs and changes in valuation reserves. Realized investment gains and
losses do not include amounts attributable to experience-rated pension
policyholders' contracts and participating life policies (policyholder share).
Realized investment gains and losses are based upon specific identification of
the investment assets.
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.
G-7
<PAGE>
E) CASH AND CASH EQUIVALENTS: Short-term investments with a maturity of three
months or less at the time of purchase are reported as cash equivalents.
F) REINSURANCE RECOVERABLES: Reinsurance recoverables are estimates of
amounts to be received from reinsurers, including amounts under reinsurance
agreements with affiliated companies. Allowances are established for amounts
estimated to be uncollectible. See Notes 3 and 9.
G) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of
commissions, premium taxes and other costs, which vary with, and are primarily
related to, the production of revenues. Acquisition costs for universal life
products and contractholder deposit funds are deferred and amortized in
proportion to the present value of total estimated gross profits over the
expected lives of the contracts. Acquisition costs for annuity and other
individual life insurance products are deferred and amortized, generally in
proportion to the ratio of annual revenue to the estimated total revenues over
the contract periods.
Deferred policy acquisition costs are reviewed to determine if they are
recoverable from future income, including investment income. If such costs are
estimated to be unrecoverable, they are expensed unless such costs are estimated
to be unrecoverable as a result of treating unrealized investment gains and
losses as though they had been realized. If so, a deferred acquisition cost
valuation allowance may be established or adjusted, with a comparable offset in
net unrealized appreciation (depreciation).
H) PROPERTY AND EQUIPMENT: Property and equipment are carried at cost less
accumulated depreciation. When applicable, cost includes interest and real
estate taxes incurred during construction and other construction-related costs.
Depreciation is calculated principally on the straight-line method based on the
estimated useful lives of the assets. Accumulated depreciation was $490 million
and $448 million at December 31, 1998 and 1997, respectively.
I) GOODWILL AND OTHER INTANGIBLES: Goodwill represents the excess of the cost
of businesses acquired over the fair value of their net assets. Other intangible
assets primarily represent purchased customer lists and provider contracts.
Goodwill and other intangibles are amortized over periods not exceeding 40
years. Goodwill and other intangibles are written down when not recoverable
based on analysis of historical and estimated future income or undiscounted
estimated cash flows of the related businesses. Amortization periods are revised
if it is estimated that the remaining period of benefit of the goodwill has
changed. Accumulated amortization was $143 million and $113 million at December
31, 1998 and 1997, respectively.
J) OTHER ASSETS: Other assets consists of various insurance-related assets,
principally ceded unearned premiums, reinsurance deposits and other amounts due
from affiliated companies.
K) SEPARATE ACCOUNTS: Separate account assets and liabilities are principally
carried at market value and represent policyholder funds maintained in accounts
having specific investment objectives. The investment income, gains and losses
of these accounts generally accrue to the policyholders and, therefore, are not
included in the Company's revenues and expenses.
L) CONTRACTHOLDER DEPOSIT FUNDS: Liabilities for contractholder deposit funds
consist of deposits received from customers and investment earnings on their
fund balances, less administrative charges and, for universal life fund
balances, mortality charges.
M) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for life,
health and annuity products. Such liabilities are established in amounts
adequate to meet the estimated future obligations of policies in force. These
liabilities are computed using premium assumptions for group annuity policies
and the net level premium method for individual life policies, and are based
upon estimates as to future investment yield, mortality and withdrawals that
include provisions for adverse deviation. Future policy benefits for individual
life insurance and annuity policies are computed using interest rates ranging
from 2% to 11%, generally graded down from 1 to 20 years. Mortality, morbidity,
and withdrawal assumptions are based on either the Company's own experience or
various actuarial tables.
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.
G-8
<PAGE>
O) UNEARNED PREMIUMS: Premiums for group life and accident and health
insurance are reported as earned on a pro-rata basis over the contract period.
The unexpired portion of these premiums is recorded as unearned premiums.
P) OTHER LIABILITIES: Other liabilities consist principally of postretirement
and postemployment benefits and various insurance-related liabilities, including
amounts related to reinsurance contracts and guaranty fund assessments that can
be reasonably estimated.
Q) TRANSLATION OF FOREIGN CURRENCIES: Foreign operations primarily utilize
the local currencies as their functional currencies, and assets and liabilities
are translated at the rates of exchange as of the balance sheet date. The
translation gain or loss on such functional currencies, net of applicable taxes,
is generally reflected in shareholder's equity. Revenues and expenses are
translated at the average rates of exchange prevailing during the year.
R) PREMIUM AND FEES, REVENUES AND RELATED EXPENSES: Premiums for group life
and accident and health insurance are recognized as revenue on a pro-rata basis
over their contract periods. Benefits, losses and settlement expenses are
recognized when incurred.
Revenues for investment-related products consist of net investment income and
contract fees assessed against the fund balances during the period. Net
investment income represents investment income on assets supporting
investment-related products and is recognized as earned. Contract fees are based
upon related administrative expenses and are assessed ratably over the contract
year. Benefit expenses for investment-related products primarily consist of
amounts credited in accordance with contract provisions.
Premiums for individual life insurance as well as individual and group annuity
products, excluding universal life and investment-related products, are
recognized as revenue when due. Benefits, losses and settlement expenses are
matched with premiums.
Revenues for universal life products consist of net investment income and
mortality, administration and surrender fees assessed against the fund balances
during the period. Net investment income represents investment income on assets
supporting universal life products and is recognized as earned. Fees for
mortality are recognized ratably over the policy year. Administration fees are
recognized as services are provided, and surrender charges are recognized as
earned. Benefit expenses for universal life products consist of benefit claims
in excess of fund balances, which are recognized when claims are filed, and
amounts credited in accordance with contract provisions.
S) PARTICIPATING BUSINESS: Certain life insurance policies contain dividend
payment provisions that enable the policyholder to participate in a portion of
the earnings of the Company's business. The participating insurance in force
accounted for approximately 7% of total life insurance in force at December 31,
1998, 1997 and 1996.
T) INCOME TAXES: The Company and its domestic subsidiaries are included in
the consolidated United States federal income tax return filed by CIGNA. In
accordance with a tax sharing agreement with CIGNA, the provision for federal
income tax is computed as if the Company were filing a separate federal income
tax return, except that benefits arising from tax credits and net operating and
capital losses are allocated to those subsidiaries producing such attributes to
the extent they are utilized in CIGNA's consolidated federal income tax
provision.
Deferred income taxes are generally recognized when assets and liabilities
have different values for financial statement and tax reporting purposes. See
Note 7 for additional information.
NOTE 3 -- DISPOSITION
As of January 1, 1998, the Company sold its individual life insurance and
annuity business for cash proceeds of $1.4 billion. The sale resulted in an
after-tax gain of $773 million of which $202 million was recognized upon closing
of the sale. Since the principal agreement to sell this business is in the form
of an indemnity reinsurance arrangement, the remaining $571 million of the gain
was deferred and is being recognized at the rate that earnings from the business
sold would have been expected to emerge, primarily over fifteen years on a
declining basis. The Company recognized $66 million of the deferred gain in
1998.
Revenues for this business were $972 million and $926 million for the years
ended December 31, 1997 and 1996, respectively, and net income was $102 million
and $67 million for the same periods. Also, as part of the transaction, the
Company recorded a reinsurance recoverable from the purchaser of $5.8 billion
for insurance
G-9
<PAGE>
liabilities retained, and transferred invested assets of $5.4 billion along with
other assets and liabilities associated with the business. The sales agreement
provides for the possibility of certain adjustments; however, any future
adjustments are not expected to be material to results of operations, liquidity
or financial condition.
The Company paid a dividend of $1.4 billion to its parent in January 1998,
having received prior approval of both the disposition and the dividend from the
Connecticut Insurance Department (the Department).
NOTE 4 -- INVESTMENTS
A) FIXED MATURITIES: Fixed maturities are net of cumulative write-downs of
$22 million and $36 million, including policyholder share, as of December 31,
1998 and 1997, respectively.
The amortized cost and fair value by contractual maturity periods for fixed
maturities, including policyholder share, as of December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Amortized Fair
(IN MILLIONS) Cost Value
-------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less.................................................. $ 979 $ 999
Due after one year through five years.................................... 3,960 4,110
Due after five years through ten years................................... 3,512 3,723
Due after ten years...................................................... 2,665 3,348
Asset-backed securities.................................................. 5,704 5,887
-------------------------------------------------------------------------------------------
Total.................................................................... $ 16,820 $ 18,067
-------------------------------------------------------------------------------------------
</TABLE>
Actual maturities could differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Also, the Company may extend maturities in some cases.
Gross unrealized appreciation (depreciation) for fixed maturities, including
policyholder share, by type of issuer was as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(IN MILLIONS) Cost Appreciation Depreciation Value
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1998:
Federal government bonds....................... $ 568 $ 407 $ -- $ 975
State and local government bonds............... 145 20 -- 165
Foreign government bonds....................... 147 7 (9) 145
Corporate securities........................... 10,256 733 (94) 10,895
Asset-backed securities........................ 5,704 217 (34) 5,887
-------------------------------------------------------------------------------------------
Total............................................ $ 16,820 $ 1,384 $ (137 ) $ 18,067
-------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1997:
Federal government bonds....................... $ 1,361 $ 294 $ -- $ 1,655
State and local government bonds............... 178 22 (2) 198
Foreign government bonds....................... 143 7 (1) 149
Corporate securities........................... 13,027 860 (123) 13,764
Asset-backed securities........................ 6,253 317 (13) 6,557
-------------------------------------------------------------------------------------------
Total............................................ $ 20,962 $ 1,500 $ (139 ) $ 22,323
-------------------------------------------------------------------------------------------
</TABLE>
Asset-backed securities include investments in CMOs as of December 31, 1998 of
$2.0 billion carried at fair value (amortized cost, $2.0 billion), compared with
$2.3 billion carried at fair value (amortized cost, $2.3 billion) as of December
31, 1997. Certain of these securities are backed by Aaa/AAA-rated government
agencies. All other CMO securities have high quality ratings through use of
credit enhancements provided by subordinated securities or mortgage insurance
from Aaa/AAA-rated insurance companies. CMO holdings are concentrated in
securities with limited prepayment, extension and default risk, such as planned
amortization class bonds. The Company's
G-10
<PAGE>
investments in interest-only and principal-only CMOs, which are subject to
interest rate risk due to accelerated prepayments, represented approximately
.05% and .10% of total CMO investments at December 31, 1998 and 1997,
respectively.
At December 31, 1998, contractual fixed maturity investment commitments were
$34 million. The majority of investment commitments are for the purchase of
investment grade fixed maturities, bearing interest at a fixed market rate, and
require no collateral. These commitments are diversified by issuer and maturity
date, and it is estimated that approximately 59% will be disbursed in 1999.
B) MORTGAGE LOANS AND REAL ESTATE: The Company's mortgage loans and real
estate investments are diversified by property type and location and, for
mortgage loans, by borrower. Mortgage loans are collateralized by the related
properties and generally are less than 75% of the property's value at the time
the original loan is made.
At December 31, the carrying values of mortgage loans and real estate
investments, including policyholder share, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans............................................................. $ 8,875 $ 10,090
--------- ---------
Real estate:
Held for sale............................................................ 326 339
Held for production of income............................................ 386 410
--------- ---------
Total real estate.......................................................... 712 749
-------------------------------------------------------------------------------------------
Total...................................................................... $ 9,587 $ 10,839
-------------------------------------------------------------------------------------------
</TABLE>
At December 31, mortgage loans and real estate investments comprised the
following property types and geographic regions:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C>
Property type:
Retail facilities........................................................ $ 3,145 $ 4,153
Office buildings......................................................... 3,814 3,984
Apartment buildings...................................................... 1,283 1,311
Hotels................................................................... 450 498
Other (primarily industrial)............................................. 895 893
-------------------------------------------------------------------------------------------
Total...................................................................... $ 9,587 $ 10,839
-------------------------------------------------------------------------------------------
Geographic region:
Central.................................................................. $ 3,051 $ 3,484
Pacific.................................................................. 2,683 2,962
Middle Atlantic.......................................................... 1,510 1,821
South Atlantic........................................................... 1,348 1,458
New England.............................................................. 995 1,114
-------------------------------------------------------------------------------------------
Total...................................................................... $ 9,587 $ 10,839
-------------------------------------------------------------------------------------------
</TABLE>
MORTGAGE LOANS
At December 31, 1998, scheduled mortgage loan maturities were as follows:
19995 -- $.9 billion; 2000 -- $.9 billion; 2001 -- $.8 billion; 2002 -- $1.0
billion; 2003 -- $1.6 billion; and $3.7 billion thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties; the maturity date may
be extended; and loans may be refinanced. During 1998 and 1997, the Company
refinanced at current market rates approximately $126 million and $135 million,
respectively, of its mortgage loans relating to borrowers that were unable to
obtain alternative financing.
G-11
<PAGE>
At December 31, 1998, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $492 million, most
of which were at a fixed market rate of interest. These commitments are
generally expected to be disbursed within three months, and are diversified by
property type and geographic region.
At December 31, 1998, the Company's impaired mortgage loans were $156 million,
including $24 million before valuation reserves totaling $6 million, and $132
million which had no valuation reserves. At December 31, 1997, the Company's
impaired mortgage loans were $375 million, including $152 million before
valuation reserves totaling $44 million, and $223 million which had no valuation
reserves.
During the year ended December 31, changes in reserves for impaired mortgage
loans, including policyholder share, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C>
Reserve balance -- January 1................................................... $ 44 $ 94
Transfers to foreclosed real estate............................................ (21) (30)
Charge-offs upon sales......................................................... (9) (47)
Net increase (decrease) in valuation reserves.................................. (8) 27
-------------------------------------------------------------------------------------------
Reserve balance -- December 31................................................. $ 6 $ 44
-------------------------------------------------------------------------------------------
</TABLE>
During 1998 and 1997, impaired mortgage loans, before valuation reserves,
averaged approximately $285 million and $597 million, respectively. Interest
income recorded and cash received on these loans were approximately $12 million
and $34 million in 1998 and 1997, respectively.
REAL ESTATE
During 1998, 1997 and 1996, non-cash investing activities included real estate
acquired through foreclosure of mortgage loans, which totaled $32 million, $81
million and $107 million, respectively.
Valuation reserves and cumulative write-downs related to real estate,
including policyholder share, were $171 million and $169 million as of December
31, 1998 and 1997, respectively.
Net income for 1998 and 1997 included net investment income of $8 million and
$9 million, respectively, for real estate held for sale. Write-downs upon
foreclosure and changes in valuation reserves were not material for 1998 and
1997.
C) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and
cash equivalents, in the aggregate, primarily included debt securities,
principally corporate securities of $963 million at December 31, 1998 and, for
1997, principally corporate securities of $520 million and federal government
securities of $443 million.
G-12
<PAGE>
D) NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS: Unrealized
appreciation (depreciation) for investments carried at fair value as of December
31 was as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation:
Fixed maturities.......................................................... $ 1,384 $ 1,500
Equity securities......................................................... 10 8
--------- ---------
1,394 1,508
Unrealized depreciation:
Fixed maturities.......................................................... (137) (139)
Equity securities......................................................... (25) (29)
--------- ---------
(162) (168)
--------- ---------
Less policyholder-related amounts........................................... 880 931
--------- ---------
Shareholder net unrealized appreciation..................................... 352 409
Less deferred income taxes.................................................. 134 153
-------------------------------------------------------------------------------------------
Net unrealized appreciation................................................. $ 218 $ 256
-------------------------------------------------------------------------------------------
</TABLE>
The components of net unrealized appreciation (depreciation) on investments
for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized appreciation (depreciation) on investments held, net of taxes
of $48, $37 and $(151), respectively $ 89 $ 69 $ (280)
Less gains realized in net income, net of taxes of $68, $--, and $3, in
1998, 1997 and 1996, respectively..................................... 127 1 8
-------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation).............................. $ (38) $ 68 $ (288)
-------------------------------------------------------------------------------------------
</TABLE>
E) NON-INCOME PRODUCING INVESTMENTS: At December 31, the carrying values of
investments, including policyholder share, that were non-income producing during
the preceding 12 months were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities............................................................... $ 22 $ 28
Mortgage loans................................................................. 2 --
Real estate.................................................................... 68 141
-------------------------------------------------------------------------------------------
Total.......................................................................... $ 92 $ 169
-------------------------------------------------------------------------------------------
</TABLE>
F) DERIVATIVE FINANCIAL INSTRUMENTS: The Company's investment strategy is to
manage the characteristics of investment assets, such as duration, yield,
currency and liquidity, to reflect the underlying characteristics of the related
insurance and contractholder liabilities, which vary among the Company's
principal product lines. In connection with this investment strategy, the
Company's use of derivative instruments, including interest rate and currency
swaps, purchased options and futures contracts, is generally limited to hedging
applications to minimize market risk.
Hedge accounting treatment requires a probability of high correlation between
the changes in the market value or cash flows of the derivatives and the hedged
assets or liabilities. Under hedge accounting, the changes in market value or
cash flows of the derivatives and the hedged assets or liabilities are
recognized in net income in the same period. If the Company's use of derivatives
does not qualify for hedge accounting treatment, the derivative is recorded at
fair value and changes in its fair value are recognized in net income without
considering changes in the hedged asset or liability.
G-13
<PAGE>
The Company routinely monitors, by individual counterparty, exposure to credit
risk associated with swap and option contracts and diversifies the portfolio
among approved dealers of high credit quality. Futures contracts are
exchange-traded and, therefore, credit risk is limited since the exchange
assumes the obligations. The Company manages legal risks by following industry
standardized documentation procedures and by monitoring legal developments.
Underlying contract, notional or principal amounts associated with derivatives
at December 31 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate swaps.......................................................... $ 158 $ 265
Currency swaps............................................................... 193 248
Purchased options............................................................ 878 833
Written options.............................................................. 1,087 --
Futures...................................................................... 233 75
-------------------------------------------------------------------------------------------
</TABLE>
Under interest rate swaps, the Company agrees with other parties to
periodically exchange the difference between variable rate and fixed rate asset
cash flows to provide stable returns for related liabilities. The Company uses
currency swaps (primarily Canadian dollars, Swiss francs, German marks, Japanese
yen and pounds sterling) to match the currency of investments to that of the
associated liabilities. Under currency swaps, the parties exchange principal and
interest amounts in two relevant currencies using agreed-upon exchange amounts.
The net interest cash flows from interest rate and currency swaps are
recognized currently as an adjustment to net investment income, and the fair
value of these swaps is reported as an adjustment to the related investments.
Using purchased options to reduce the effect of changes in interest rates or
equity indexes on liabilities, the Company pays an up-front fee to receive cash
flows from third parties when interest rates or equity indexes vary from
specified levels. Purchased options that qualify for hedge accounting are
recorded consistent with the related liabilities, at amortized cost plus
adjustments based on current equity indexes, and income is reported as an
adjustment to benefit expense. Purchased options that qualify for hedge
accounting are reported in other assets, and fees paid are amortized to benefit
expense over their contractual periods. Purchased options with underlying
notional amounts of $82 million at December 31, 1997 that are designated as
hedges, but do not qualify for hedge accounting, are reported in other long-term
investments at fair value with changes in fair value recognized as realized
investment gains and losses. There were no such options at December 31, 1998.
The Company also writes reinsurance contracts that are accounted for as
written options. The Company receives fees to pay for specified unfavorable
changes in variable annuity account values based on underlying mutual fund
investments when account holders elect to receive periodic income payments.
These written options, along with options purchased to minimize the risks
assumed, are reported at fair value in other liabilities and other assets,
respectively. Changes in fair value are recognized in other revenues, or other
operating expenses if there is a net loss. Fair values of written and related
purchased options during 1998 and as of December 31, 1998 were not material.
Interest rate futures are used to temporarily hedge against the changes in
market values of bonds and mortgage loans to be purchased or sold. Under futures
contracts, changes in the contract values are settled in cash daily with the
exchange on which the instrument is traded. These changes in contract values are
deferred and recorded as adjustments to the carrying value of the related bond
or mortgage loan. Deferred gains and losses are amortized into net investment
income over the life of the investments purchased or are recognized in full as
realized investment gains and losses if investments are sold. Gains and losses
on futures contracts deferred in anticipation of investment purchases were
immaterial at December 31, 1998 and 1997.
The effects of interest rate and currency swaps, purchased and written options
and futures on the components of net income for 1998, 1997 and 1996 were not
material.
As of December 31, 1998 and 1997, the Company's variable interest rate
investments consisted of approximately $0.6 billion and $0.7 billion of fixed
maturities, respectively. As of December 31, 1998 and 1997, the Company's fixed
interest rate investments consisted of $17 billion and $21.6 billion,
respectively, of fixed maturities, and $8.9 billion and $10.1 billion,
respectively, of mortgage loans.
G-14
<PAGE>
G) OTHER: As of December 31, 1998 and 1997, the Company had no concentration
of investments in a single investee exceeding 10% of shareholder's equity.
NOTE 5 -- INVESTMENT INCOME AND GAINS AND LOSSES
A) NET INVESTMENT INCOME: The components of net investment income, including
policyholder share, for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities.................................................... $ 1,386 $ 1,648 $ 1,647
Equity securities................................................... 1 8 --
Mortgage loans...................................................... 739 885 921
Policy loans........................................................ 459 532 548
Real estate......................................................... 142 183 227
Other long-term investments......................................... 19 17 23
Short-term investments.............................................. 18 28 35
--------- --------- ---------
2,764 3,301 3,401
Less investment expenses............................................ 127 162 202
-------------------------------------------------------------------------------------------
Net investment income............................................... $ 2,637 $ 3,139 $ 3,199
-------------------------------------------------------------------------------------------
</TABLE>
Net investment income attributable to policyholder contracts, which is
included in the Company's revenues and is primarily offset by amounts included
in benefits, losses and settlement expenses, was approximately $1.6 billion for
1998 and $1.7 billion for 1997 and 1996. Net investment income for separate
accounts, which is not reflected in the Company's revenues, was $1.5 billion,
$1.4 billion and $1.1 billion for 1998, 1997 and 1996, respectively.
As of December 31, 1998, fixed maturities and mortgage loans on non-accrual
status, including policyholder share, were $142 million and $97 million,
including restructured investments of $76 million and $93 million, respectively.
As of December 31, 1997, fixed maturities and mortgage loans on non-accrual
status, including policyholder share, were $143 million and $153 million,
including restructured investments of $81 million and $137 million,
respectively. If interest on these investments had been recognized in accordance
with their original terms, net income would have been increased by $5 million,
$7 million and $15 million in 1998, 1997 and 1996, respectively.
B) REALIZED INVESTMENT GAINS AND LOSSES: Realized gains (losses) on
investments, excluding policyholder share, for the year ended December 31 were
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities......................................................... $ 34 $ (3) $ 11
Equity securities........................................................ 3 4 1
Mortgage loans........................................................... 22 4 (12)
Real estate.............................................................. 10 28 15
Other.................................................................... 24 12 22
-- --
---
93 45 37
Less income taxes........................................................ 33 8 17
-------------------------------------------------------------------------------------------
Net realized investment gains............................................ $ 60 $ 37 $ 20
-------------------------------------------------------------------------------------------
</TABLE>
Realized investment gains and losses include impairments in the value of
investments, net of recoveries, of $(5) million, $25 million and $40 million in
1998, 1997 and 1996, respectively.
Realized investment gains for separate accounts, which are not reflected in
the Company's revenues, were $494 million, $489 million and $305 million for
1998, 1997 and 1996 respectively. Realized investment gains attributable to
policyholder contracts, which also are not reflected in the Company's revenues,
were $201 million, $76 million and $82 million for 1998, 1997 and 1996,
respectively.
G-15
<PAGE>
Sales of available-for-sale fixed maturities and equity securities, including
policyholder share, for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales................................................. $ 5,677 $ 3,978 $ 4,236
Gross gains on sales................................................ $ 238 $ 95 $ 146
Gross losses on sales............................................... $ (55) $ (151) $ (70)
-------------------------------------------------------------------------------------------
</TABLE>
NOTE 6 -- SHAREHOLDER'S EQUITY AND DIVIDEND RESTRICTIONS
The Department recognizes as net income and surplus (shareholder's equity)
those amounts determined in conformity with statutory accounting practices
prescribed or permitted by the Department, which may differ from generally
accepted accounting principles. As of December 31, 1998, there were no permitted
accounting practices utilized by the Company that were materially different from
those prescribed by the Department.
Capital stock of the Company at December 31, 1998 and 1997 consisted of
5,978,322 shares of common stock authorized, issued and outstanding (par value
$5).
The Company's statutory net income was $824 million, $417 million and $611
million for 1998, 1997 and 1996, respectively. Statutory surplus was $1.8
billion at December 31, 1998 and $2.2 billion at December 31, 1997. The
Connecticut Insurance Holding Company Act limits the amount of annual dividends
or other distributions available to shareholders of Connecticut insurance
companies without the Department's prior approval. During 1998, the Company paid
dividends of $2.0 billion to its parent, all of which received prior approval
from the Department in accordance with requirements (see Note 3 -- Disposition).
During 1997, the Company paid dividends of $400 million to its parent, of which
$100 million received prior approval from the Department in accordance with
requirements. Under current law, the maximum dividend distribution that may be
made by the Company during 1999 without prior approval is $839 million. The
amount of restricted net assets as of December 31, 1998 was approximately $2.7
billion.
NOTE 7 -- INCOME TAXES
The Company's net deferred tax asset of $865 million and $653 million as of
December 31, 1998 and 1997, respectively, reflects management's belief that the
Company's taxable income in future years will be sufficient to realize the net
deferred tax asset based on the Company's earnings history and its future
expectations. In determining the adequacy of future taxable income, management
considered the future reversal of its existing taxable temporary differences and
available tax planning strategies that could be implemented, if necessary.
In accordance with the Life Insurance Company Income Tax Act of 1959, a
portion of the Company's statutory income was not subject to current income
taxation but was accumulated in an account designated Policyholders' Surplus
Account. Under the Tax Reform Act of 1984, no further additions may be made to
the Policyholders' Surplus Account for tax years ending after December 31, 1983.
The balance in the account of approximately $450 million at December 31, 1998
would result in a tax liability of $158 million only if distributed to the
shareholder or if the account balance exceeded a prescribed maximum. No income
taxes have been provided on this amount because, in management's opinion, the
likelihood that these conditions will be met is remote. See Note 13 for a
discussion of potential legislation regarding this matter.
CIGNA's federal income tax returns are routinely audited by the Internal
Revenue Service, and provisions are made in CIGNA's financial statements in
anticipation of the results of these audits. CIGNA resolved all issues relative
to the Company arising out of audits for 1991 through 1993, which resulted in an
increase to net income of $13 million in 1997.
In management's opinion, adequate tax liabilities have been established for
all years. Income taxes and deferred tax balances for the year ended December
31, 1998 reflect state income taxes.
G-16
<PAGE>
The tax effects of temporary differences which give rise to deferred income
tax assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Other insurance and contractholder liabilities............................. $ 119 $ 400
Employee and retiree benefit plans......................................... 214 196
Deferred gain on sale of business.......................................... 290 --
Investments, net........................................................... 356 262
Policy acquisition expenses................................................ 111 --
Other...................................................................... -- 63
--------- ---
Total deferred tax assets.................................................. 1,090 921
--------- ---
Deferred tax liabilities:
Policy acquisition expenses................................................ -- 38
Depreciation............................................................... 67 77
Unrealized appreciation on investments..................................... 134 153
Other...................................................................... 24 --
--------- ---
Total deferred tax liabilities............................................. 225 268
-------------------------------------------------------------------------------------------
Net deferred income tax asset.............................................. $ 865 $ 653
-------------------------------------------------------------------------------------------
</TABLE>
The components of income taxes for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
U.S. income........................................................... $ 617 $ 344 $ 391
Foreign income........................................................ 5 3 3
State income.......................................................... 14 -- --
--------- --- ---
636 347 394
--------- --- ---
Deferred taxes (benefits):
U.S. income........................................................... (205) (49) (81)
State income.......................................................... (6) -- --
--------- --- ---
(211) (49) (81)
-------------------------------------------------------------------------------------------
Total income taxes...................................................... $ 425 $ 298 $ 313
-------------------------------------------------------------------------------------------
</TABLE>
State income taxes were not material in years prior to 1998.
Total income taxes for the year ended December 31 differs from the amount
computed using the nominal federal income tax rate of 35% for the following
reasons:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at nominal rate.............................................. $ 431 $ 320 $ 305
Tax-exempt interest income............................................... (4) (5) (5)
Dividends received deduction............................................. (13) (7) (7)
Amortization of goodwill................................................. 5 4 4
State income tax (net of federal income tax benefit)..................... 5 -- --
Resolved federal tax audit issues........................................ -- (13) --
Other.................................................................... 1 (1) 16
-------------------------------------------------------------------------------------------
Total income taxes....................................................... $ 425 $ 298 $ 313
-------------------------------------------------------------------------------------------
</TABLE>
G-17
<PAGE>
NOTE 8 -- PENSION AND OTHER POSTRETIREMENT BENEFITS PLANS
A) PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS: The Company provides
pension and certain health care and life insurance benefits to eligible retired
employees and agents, spouses and other eligible dependents through various
plans. The expenses of retirement plans are allocated to the Company along with
other benefit cost allocations.
Pension benefits are provided through a plan sponsored by CIGNA covering most
domestic employees and by a separate pension plan for former agents. CIGNA funds
the pension plans at least at the minimum amount required by the Employee
Retirement Income Security Act of 1974. Allocated pension cost for the Company
was $19 million, $24 million and $26 million in 1998, 1997 and 1996,
respectively. The plans had deposits with the Company totaling approximately
$2.8 billion and $2.5 billion at December 31, 1998 and 1997, respectively.
Expense for postretirement benefits other than pensions allocated to the
Company totaled $2 million for 1998 and 1997 and $9 million for 1996. The other
postretirement benefit liability included in accounts payable, accrued expenses
and other liabilities as of December 31, 1998 and 1997 was $387 million and $412
million, including no net intercompany payables for 1998 and $39 million for
1997 for services provided by affiliates' employees.
B) CAPITAL ACCUMULATION PLANS: CIGNA sponsors various capital accumulation
plans in which employee contributions on a pre-tax basis (401(k)) are
supplemented by CIGNA matching contributions. These contributions are invested,
at the election of the employee, in one or more of the following investments:
CIGNA common stock fund, several CIGNA and non-CIGNA mutual funds, and a
fixed-income fund. In addition, beginning in 1999, CIGNA may provide additional
matching contributions, depending on its annual performance, which would be
invested in the CIGNA common stock fund. The Company's allocated expense for
such plans totaled $22 million for 1998, $15 million for 1997 and $16 million
for 1996.
NOTE 9 -- REINSURANCE
In the normal course of business, the Company enters into agreements,
primarily relating to short-duration contracts, to assume and cede reinsurance
with other insurance companies. Reinsurance is ceded primarily to limit losses
from large exposures and to permit recovery of a portion of direct losses,
although ceded reinsurance does not relieve the originating insurer of primary
liability. The Company evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of its reinsurers. In connection with
the sale of the Company's individual life insurance and annuity business (as
discussed in Note 3), the reinsurance recoverable from Lincoln National
Corporation at December 31, 1998 was $6.0 billion.
Failure of reinsurers to indemnify the Company, as a result of reinsurer
insolvencies and disputes, could result in losses. As of December 31, 1998 and
1997 there were no allowances for uncollectible amounts. Future charges for
unrecoverable reinsurance may materially affect results of operations in future
periods; however, such amounts are not expected to have a material adverse
effect on the Company's liquidity or financial condition.
G-18
<PAGE>
The effects of reinsurance on net earned premiums and fees for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-DURATION CONTRACTS
Premiums and fees:
Direct............................................................ $ 3,763 $ 3,119 $ 2,940
Assumed........................................................... 286 255 135
Ceded............................................................. (237) (266) (166)
-------------------------------------------------------------------------------------------
Net earned premiums and fees........................................ $ 3,812 $ 3,108 $ 2,909
-------------------------------------------------------------------------------------------
LONG-DURATION CONTRACTS
Premiums and fees:
Direct............................................................ $ 1,998 $ 1,979 $ 1,997
Assumed........................................................... 564 522 601
Ceded............................................................. (691) (233) (193)
-------------------------------------------------------------------------------------------
Net earned premiums and fees........................................ $ 1,871 $ 2,268 $ 2,405
-------------------------------------------------------------------------------------------
</TABLE>
The effects of reinsurance on written premiums and fees for short-duration
contracts were not materially different from the amounts shown in the above
table. Benefits, losses and settlement expenses for 1998, 1997 and 1996 were net
of reinsurance recoveries of $699 million, $340 million and $359 million,
respectively.
For the year ended December 31, 1998, ceded premiums and reinsurance
recoveries associated with the individual life insurance and annuity business
sold were $741 million and $550 million, respectively.
NOTE 10 -- LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to buildings,
amounted to $42 million, $76 million and $68 million in 1998, 1997 and 1996,
respectively.
As of December 31, 1998, future net minimum rental payments under
non-cancelable operating leases were $168 million, payable as follows: 1999 -
$41 million; 2000 - $29 million; 2001 - $22 million; 2002 - $19 million; and $57
million thereafter.
NOTE 11 -- SEGMENT INFORMATION
Operating segments are based on the Company's internal reporting structure and
generally reflect differences in products. The Company presents segment
information as follows:
- EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS, which combines the
Company's Health Care and Group Insurance divisions, offers traditional
indemnity and cost containment products and services as well as
alternative funding arrangements, such as administrative services only and
minimum premium plans.
- EMPLOYEE RETIREMENT BENEFITS AND INVESTMENT SERVICES provides investment
products and professional services primarily to sponsors of qualified
pension, profit-sharing and retirement savings plans. This segment also
provides certain corporate and variable life insurance products.
Other Operations consist of gain recognition related to the sale of the
individual life insurance and annuity business (and, for prior years, results of
the sold business, see Note 3), corporate life insurance on which policy loans
are outstanding (also called leveraged corporate life insurance), reinsurance
operations, settlement annuity business and certain new business initiatives.
The Company uses operating income (net income excluding after-tax realized
investment results) to measure the financial results of its segments. Operating
income is determined on a basis consistent with the accounting policies for the
consolidated financial statements, except that interest expense on corporate
debt is not allocated to segments. The Company allocates substantially all other
corporate general, administrative and systems expenses to segments on systematic
bases. Income taxes are generally computed as if each segment were filing
separate income tax returns.
G-19
<PAGE>
The Company's operations are not materially dependent on one or a few
customers, brokers or agents. Summarized segment financial information for the
year ended and as of December 31 was as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS
Premiums and fees and other revenues............................. $ 5,012 $ 4,307 $ 4,256
Net investment income............................................ 290 286 291
--------- --------- ---------
Segment revenues................................................. 5,302 4,593 4,547
Income tax expense............................................... 114 108 126
Operating income................................................. 195 190 189
Assets under management:
Invested assets................................................ 3,519 3,761 3,281
Separate account............................................... 1,702 1,440 1,176
-------------------------------------------------------------------------------------------
Total............................................................ $ 5,221 $ 5,201 $ 4,457
-------------------------------------------------------------------------------------------
EMPLOYEE RETIREMENT BENEFITS AND INVESTMENT SERVICES
Premiums and fees and other revenues............................. $ 239 $ 205 $ 257
Net investment income............................................ 1,605 1,653 1,686
--------- --------- ---------
Segment revenues................................................. 1,844 1,858 1,943
Income tax expense............................................... 113 99 86
Operating income................................................. 245 229 185
Assets under management:
Invested assets................................................ 20,511 20,759 20,303
Separate account............................................... 30,717 26,678 20,604
-------------------------------------------------------------------------------------------
Total............................................................ $ 51,228 $ 47,437 $ 40,907
-------------------------------------------------------------------------------------------
OTHER OPERATIONS
Premiums and fees and other revenues............................. $ 859 $ 874 $ 810
Net investment income............................................ 742 1,200 1,222
--------- --------- ---------
Segment revenues................................................. 1,601 2,074 2,032
Income tax expense............................................... 165 83 84
Operating income................................................. 306 159 163
Assets under management:
Invested assets................................................ 10,006 16,181 16,193
Separate account............................................... 2,229 1,099 775
-------------------------------------------------------------------------------------------
Total............................................................ $ 12,235 $ 17,280 $ 16,968
-------------------------------------------------------------------------------------------
REALIZED INVESTMENT GAINS
Realized investment gains........................................ $ 93 $ 45 $ 37
Income tax expense............................................... 33 8 17
-------------------------------------------------------------------------------------------
Realized investment gains (losses), net of taxes................. $ 60 $ 37 $ 20
-------------------------------------------------------------------------------------------
</TABLE>
G-20
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL
Premiums and fees and other revenues............................. $ 6,110 $ 5,386 $ 5,323
Net investment income............................................ 2,637 3,139 3,199
Realized investment gains........................................ 93 45 37
--------- --------- ---------
Total revenues................................................... 8,840 8,570 8,559
Income tax expense............................................... 425 298 313
Operating income................................................. 746 578 537
Realized investment gains (losses), net of taxes................. 60 37 20
Net income....................................................... 806 615 557
Assets under management:
Invested assets................................................ 34,036 40,701 39,777
Separate account............................................... 34,648 29,217 22,555
-------------------------------------------------------------------------------------------
Total............................................................ $ 68,684 $ 69,918 $ 62,332
-------------------------------------------------------------------------------------------
</TABLE>
Premiums and fees and other revenues by product type for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Medical and Dental Indemnity........................................ $ 3,566 $ 2,883 $ 2,726
Group Life.......................................................... 1,363 1,355 1,467
Other............................................................... 1,181 1,148 1,130
-------------------------------------------------------------------------------------------
Total premiums and fees and other revenues.......................... $ 6,110 $ 5,386 $ 5,323
-------------------------------------------------------------------------------------------
</TABLE>
For the year ended December 31, 1998, 1997 and 1996, the change in net
translation of foreign currencies reflects increases of $2 million for 1998 and
1997, and $3 million for 1996.
Premiums and fees and other revenues by geographic region for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(IN MILLIONS) 1998 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic............................................................ $ 6,068 $ 5,356 $ 5,291
Foreign............................................................. 42 30 32
-------------------------------------------------------------------------------------------
Total premiums and fees and other revenues.......................... $ 6,110 $ 5,386 $ 5,323
-------------------------------------------------------------------------------------------
</TABLE>
The Company's aggregate foreign exchange transaction losses and foreign
long-lived assets for the year ended and as of December 31, 1998, 1997 and 1996
were not material.
NOTE 12 -- RELATED PARTY TRANSACTIONS
The Company has assumed the settlement annuity and group pension business
written by Life Insurance Company of North America (LINA), an affiliate.
Reserves held by the Company with respect to this business were $1.7 billion at
December 31, 1998 and 1997.
The Company cedes long-term disability business to LINA. Reinsurance
recoverables from LINA at December 31, 1998 and 1997 were $834 million and $869
million, respectively.
Effective January 1, 1998, the Company assumed insurance reserves totaling $85
million, along with a corresponding amount of invested and other assets, under a
coinsurance arrangement assigned from Healthsource Insurance Company, an
affiliate. In addition, the Company was assigned the responsibility for
administering self-funded employee benefit plan products from Healthsource
Provident Administrators, Inc. (HPA), another affiliate. As part of this
assignment, net assets of approximately $304 million were transferred to the
Company from HPA.
G-21
<PAGE>
The Company had lines of credit available from affiliates totaling $600
million at December 31, 1998 and 1997. All borrowings are payable upon demand
with interest rates equivalent to CIGNA's average monthly short-term borrowing
rate plus 1/4 of 1%. Interest expense was $1.5 million, $0.2 million and $1.0
million for 1998, 1997 and 1996, respectively. As of December 31, 1998 and 1997,
there were no borrowings outstanding under such lines.
The Company extended lines of credit to affiliates totaling $600 million at
December 31, 1998 and 1997. All loans are payable upon demand with interest
rates equivalent to CIGNA's average monthly short-term borrowing rate. There
were no amounts outstanding as of December 31, 1998 or 1997.
The Company, together with other CIGNA subsidiaries, has entered into a
pooling arrangement known as the CIGNA Corporate Liquidity Account (the Account)
for the purpose of maximizing earnings on funds available for short-term
investments. Withdrawals from the Account, up to the total amount of the
participant's investment in the Account, are allowed on a demand basis. As of
December 31, 1998 and 1997, the Company had a balance in the Account of $1.1
billion and $484 million, respectively.
CIGNA allocates to the Company its share of operating expenses incurred at the
corporate level. The Company also allocates a portion of its operating expenses
to affiliated companies on whose behalf it performs certain administrative
services.
NOTE 13 -- CONTINGENCIES
A) FINANCIAL GUARANTEES: The Company is contingently liable for financial
guarantees provided in the ordinary course of business on the repayment of
principal and interest on certain industrial revenue bonds. The contractual
amounts of financial guarantees reflect the Company's maximum exposure to credit
loss in the event of nonperformance. To limit the Company's exposure in the
event of default of any guaranteed obligation, various programs are in place to
ascertain the creditworthiness of guaranteed parties and to monitor this status
on a periodic basis.
The industrial revenue bonds guaranteed directly by the Company have remaining
maturities of up to 17 years. The guarantees provide for payment of debt service
only as it becomes due; consequently, an event of default would not cause an
acceleration of scheduled principal and interest payments. The principal amount
of the bonds guaranteed by the Company at December 31, 1998 and 1997 was $85
million and $202 million, respectively. Revenues in connection with industrial
revenue bond guarantees are derived principally from equity participations in
the related projects and are included in net investment income as earned. During
1998, 1997 and 1996, this income was not material. Loss reserves for financial
guarantees are established when a default has occurred or when the Company
believes that a loss has been incurred. There were no losses for industrial
revenue bonds in 1998, 1997 or 1996.
The Company has entered into specialty life reinsurance contracts that
guarantee payments for specified unfavorable changes in variable annuity account
values based on underlying mutual fund investments if account holders expire or
elect to receive periodic income payments. For those accounts with mortality
risk, reserves are established in amounts adequate to meet the estimated future
obligations using various assumptions as to equity market conditions, premiums,
mortality and lapse rates, including provision for adverse deviation. As of
December 31, 1998 and 1997, the amount of recorded liabilities was $52 million
and $29 million, respectively. Although these guarantees may adversely affect
the Company's results of operations in future periods, they are not expected to
have a material adverse effect on the Company's liquidity or financial
condition.
The Company also guarantees a minimum level of benefits for certain separate
account contracts and, in the event that separate account assets are
insufficient to fund minimum policy benefits, the Company is obligated to fund
the difference. As of December 31, 1998 and 1997, the amount of minimum benefit
guarantees for separate account contracts was $5.1 billion and $4.6 billion,
respectively. Reserves in addition to the separate account liabilities are
established when the Company believes a payment will be required under one of
these guarantees. No such reserves were required as of December 31, 1998 and
1997. Guarantee fees are part of the overall management fee charged to separate
accounts and are recognized in income as earned.
Although the ultimate outcome of any loss contingencies arising from the
Company's financial guarantees may adversely affect results of operations in
future periods, they are not expected to have a material adverse effect on the
Company's liquidity or financial condition.
G-22
<PAGE>
B) REGULATORY AND INDUSTRY DEVELOPMENTS: The Company's businesses are subject
to a changing social, economic, legal, legislative and regulatory environment
that could affect them. Some of the changes include initiatives to restrict
insurance pricing and the application of underwriting standards and revise
federal tax laws. Some of the more significant issues are discussed below.
In early 1999, the Administration proposed a federal budget that would
eliminate the deferral of taxation of certain statutory income of life insurance
companies. As discussed in Note 7, the Company has not provided taxes on $450
million of such income. If the budget provision is enacted, the Company will
record additional income tax expense of $158 million to reflect this liability.
The proposed federal budget also would limit the deduction of interest expense
on the general indebtedness of corporations owning non-leveraged corporate life
insurance policies covering the lives of officers, employees or directors. If
this latter provision is enacted as proposed, the Company does not anticipate
that it will have a material effect on its consolidated results of operations,
liquidity, or financial condition, although it could have a material adverse
effect on the results of operations of the Employee Retirement Benefits and
Investment Services segment.
In 1996, Congress passed legislation that phases out over a three-year period
the tax deductibility of policy loan interest for most leveraged corporate life
insurance products. For 1998 and 1997, revenues of $556 million and $591
million, respectively, and net income of $42 million and $44 million,
respectively, were from leveraged corporate life insurance products that are
affected by this legislation. The Company does not expect this legislation to
have a material adverse effect on its consolidated results of operations,
liquidity or financial condition.
In 1998, the NAIC adopted standardized statutory accounting principles. Since
these principles have not been adopted by most of the insurance departments of
various jurisdictions in which the Company's insurance subsidiaries are
domiciled, the timing and effects of implementation have not yet been
determined.
The Company is contingently liable for possible assessments under regulatory
requirements pertaining to potential insolvencies of unaffiliated insurance
companies and other insurance-related assessments. Mandatory assessments, which
are subject to statutory limits, can be partially recovered through a reduction
in future premium taxes in some states. The Company recorded no pre-tax charges
for 1998, and $17 million and $26 million for 1997 and 1996, respectively, for
estimated guaranty fund and other insurance-related assessments before giving
effect to future premium tax recoveries. Although future assessments and
payments may adversely affect results of operations in future periods, such
amounts are not expected to have a material adverse effect on the Company's
liquidity or financial condition.
The eventual effect on the Company of the changing environment in which it
operates remains uncertain.
C) LITIGATION: The Company is routinely engaged in litigation incidental to
its business. While the outcome of all litigation involving the Company,
including insurance-related litigation, cannot be determined, litigation is not
expected to result in losses that differ from recorded reserves by amounts that
would be material to results of operations, liquidity or financial condition.
G-23
<PAGE>
PART II
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 95 pages;
The undertaking to file reports;
The signatures;
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*
Written consents of the following persons:
1 Mark A. Parsons, Esq.
2 Vaughn W. Robbins, F.S.A.
3 Ernst & Young, LLP
4 PricewaterhouseCoopers LLP
* 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. 5 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 29th day
of April, 1999. Registrant certifies that this amendment meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the Securities Act
of 1933.
CG VARIABLE LIFE INSURANCE SEPARATE
ACCOUNT II
(Registrant)
By: /s/ JOHN WILKINSON
-----------------------------------
John Wilkinson
VICE PRESIDENT
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
(Depositor)
By: /s/ JOHN WILKINSON
-----------------------------------
John Wilkinson
VICE PRESIDENT
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 5 to this Registration Statement (File No.
33-89238) has been signed below on April 29, 1999 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/ ROBERT E. WAHLMAN * Vice President
------------------------------------------- (Principal Accounting
Robert E. Wahlman Officer)
/s/ HAROLD W. ALBERT *
------------------------------------------- Director
Harold W. Albert
/s/ ROBERT W. BURGESS *
------------------------------------------- Director
Robert W. Burgess
/s/ JOSEPH M. FITZGERALD *
------------------------------------------- Director
Joseph M. Fitzgerald
/s/ CAROL M. OLSEN *
------------------------------------------- Director
Carol M. Olsen
/s/ JOHN E. PACY *
------------------------------------------- Director
John E. Pacy
/s/ MARC L. PREMINGER *
------------------------------------------- Director
Marc L. Preminger
/s/ PATRICIA L. ROWLAND *
------------------------------------------- Director
Patricia L. Rowland
/s/ W. ALLEN SCHAFFER, M.D. *
------------------------------------------- Director
W. Allen Schaffer, M.D.
by /s/ JOHN
WILKINSON
-------------------------
John Wilkinson
ATTORNEY-IN-FACT
(A MAJORITY OF THE DIRECTORS)
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Connecticut General Life
Insurance Company, hereby severally constitute and appoint John Wilkinson and
Mark A. Parsons, 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 25th day of January, 1999.
SIGNATURE TITLE
- ----------------------------------- -------------------------
President (Principal
- ----------------------------------- Executive Officer)
Thomas C. Jones and Director
Vice President and
Actuary
- ----------------------------------- (Principal Financial
John Wilkinson Officer)
/s/ ROBERT E. WAHLMAN Vice President
- ----------------------------------- (Principal Accounting
Robert E. Wahlman Officer)
- ----------------------------------- Director
Harold W. Albert
- ----------------------------------- Director
Robert W. Burgess
- ----------------------------------- Director
John G. Day
- ----------------------------------- Director
Joseph M. Fitzgerald
- ----------------------------------- Director
H. Edward Hanway
- ----------------------------------- Director
Carol M. Olsen
- ----------------------------------- Director
John E. Pacy
- ----------------------------------- Director
Marc L. Preminger
- ----------------------------------- Director
Patricia L. Rowland
- ----------------------------------- Director
W. Allen Schaffer, M.D.
<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 8th 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: 860.726-8885
April 29, 1999
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. 5
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. 5 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>
The Lincoln National Life Insurance Company
350 Church Street
Hartford, CT 06103-1106
April 29, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: CG Variable Life Insurance Separate Account II ("Account")
Post-Effective Amendment No. 5, File Number 33-89238
Commissioners:
This opinion is furnished in connection with Post-Effective Amendment No. 5
to the Registration Statement on Form S-6 to be filed by Connecticut General
Life Insurance Company ("Connecticut General") under the Securities Act of
1933, recorded as File No. 33-89238. As of January 1, 1998, The Lincoln
National Life Insurance Company ("Lincoln") became the administrator for
the Account and the flexible premium variable universal life insurance
policies (the "Policies") funded through the Account. The prospectus
included in said Post-Effective Amendment describes the Policies. Lincoln, by
whom I am employed, is responsible to Connecticut General for the preparation
and updating of post-effective amendments. The forms of the Policies were
prepared under my direction prior to 1998 when I was employed by Connecticut
General.
In my opinion, the illustrations of benefits under the Policies included in
the Section entitled "Illustrations" in the prospectus, based on
assumptions stated in illustrations, are consistent with the provisions of
the forms of the Policies. The ages selected in the illustrations are
representative of the manner in which the Policies operate.
I hereby consent to the use of this opinion as an Exhibit to Post-Effective
Amendment No. 5 to said Registration Statement and to the reference to me
under the heading "Experts" in said Registration Statement, as amended.
Very truly yours,
/s/ VAUGHN W. ROBBINS
Vaughn W. Robbins, FSA, MAAA
<PAGE>
Exhibit 99.3
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Post Effective Amendment No. 5 to the Registration Statement (Form S-6 No.
33-89238) pertaining to CG Variable Life Insurance Separate Account II, and
to the use therein of our report dated March 30, 1999 with respect to the
financial statements of CG Variable Life Insurance Separate Account II.
/s/ Ernst & Young, LLP
Fort Wayne, Indiana
April 26, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 5 on Form S-6 (the "Registration Statement")
of our reports dated February 9, 1999 and February 20, 1998, relating to the
financial statements of Connecticut General Life Insurance Company and the CG
Variable Life Insurance Separate Account II, respectively, which appear in
such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
April 26, 1999
