<PAGE>
ANNUAL REPORT TO SHAREHOLDERS
CIGNA FUNDS GROUP
FOR THE YEAR ENDED DECEMBER 31, 1996
[TEXT APPEARS AS A DIVIDED CIRCLE GRAPHIC]
<PAGE>
CIGNA MONEY MARKET FUND MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited)
The Federal Reserve has maintained the Fed Funds rate at 5.25%. Estimates of
increased growth and inflation proved to be inaccurate, as we continued to have
weak to moderate growth and benign inflation. In fact, there was a period of
time when the market believed the Fed would ease rates 25 basis points due to
continued weak growth (this did not happen).
CIGNA Money Market Fund returned 4.91% for the year after expenses compared to
the 5.25% total return on 3-month Treasury Bills, which excludes expenses. At
December 31, 1996, the portfolio composition was as follows: top tier-rated
commercial paper (96%) and U.S. government agencies (4%). The Fund is well
diversified.
In 1997, economic data will become even more important as the market reacts to
alternating perceptions of the Fed's intention to ease or tighten. At the
present time, economic growth has moderated and inflation is under control.
Given this scenario, we could have rates at, or near, current levels for the
foreseeable future.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited)
1/1/87 - 12/31/96
- ---------------------------
AVERAGE ANNUAL TOTAL RETURN
1 Year 5 Year 10 Year
4.91% 3.88% 5.54%
- ---------------------------
3-Month
Point of CIGNA Money U.S. Treasury Bills
Measurement Market Fund - Total Return (1)
----------- ----------- ------------------
1/01/87 $10,000 $10,000
12/31/87 $10,653 $10,617
12/31/88 $11,335 $11,244
12/31/89 $12,161 $12,005
12/31/90 $13,250 $13,042
12/31/91 $14,286 $14,072
12/31/92 $15,108 $14,881
12/31/93 $15,615 $15,418
12/31/94 $15,988 $15,892
12/31/95 $16,537 $16,562
12/31/96 $17,418 $17,513
(1) Source: Salomon Brothers
CIGNA Money Market Fund's performance figures are historical and reflect
reinvestment of all dividends and capital gains distributions and changes in net
asset value. The Fund does not charge a sales load, but may be used with
variable annuities that contain other charges which would affect the ultimate
return to an investor. The Fund's investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Past performance cannot guarantee comparable future
results. The Fund's performance has been compared with the total return
performance of three-month U.S. Treasury Bills. Treasury Bill performance does
not reflect brokerage charges or other investment expenses. The Fund's average
7-day annualized yield as of December 31, 1996 was 4.97%.
<PAGE>
CIGNA MONEY MARKET FUND
INVESTMENTS IN SECURITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER - 96.2%
Aluminum Co., of America,
5.30%, 1/14/97 $ 4,000 $ 3,992
American Brands, Inc.,
5.44%, 1/6/97 2,845 2,843
5.30%, 3/14/97 3,100 3,067
Banc One Corp.,
5.31%, 1/17/97 5,982 5,968
Bell Atlantic Network Funding Corp.,
5.85%, 1/7/97 4,800 4,795
Browning-Ferris Industries, Inc.,
5.35%, 1/17/97 4,660 4,649
Consolidated Rail Corp.,
5.55%, 2/28/97 4,800 4,757
CPC International, Inc.,
5.30%, 2/4/97 5,000 4,975
Daimler-Benz North America Corp.,
5.37%, 3/4/97 4,800 4,756
General Electric Capital Corp.,
5.41%, 1/10/97 2,000 2,000
Heinz (H.J.) Co.,
5.40%, 1/13/97 1,440 1,438
Hoechst Corp.,
5.75%, 1/10/97 3,157 3,153
John Deere Capital Corp.,
5.38%, 1/10/97 2,100 2,100
Johnson Controls, Inc.,
5.38%, 1/22/97 3,084 3,074
J.P. Morgan & Co.,
5.30%, 3/3/97 2,967 2,940
Kellogg Co.,
5.33%, 1/24/97 3,100 3,090
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
CIGNA MONEY MARKET FUND
INVESTMENTS IN SECURITIES (Continued)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kentucky Utilities Co.,
7%, 1/2/97 $ 4,800 $ 4,799
McGraw Hill, Inc.,
5.37%, 1/21/97 4,200 4,188
Norfolk Southern Corp.,
5.30%, 1/6/97 3,496 3,494
Northern Illinois Gas Co.,
5.3%, 2/6/97 4,842 4,816
Northern States Power Co.,
5.30%, 1/16/97 2,150 2,145
Paccar Financial Corp.,
5.3%, 1/17/97 304 303
Philip Morris Cos., Inc.,
6.15%, 1/3/97 2,900 2,899
5.32%, 1/13/97 1,900 1,897
Pioneer Hi-Bred International, Inc.,
5.31%, 1/17/97 5,000 4,988
Proctor & Gamble Co.,
5.28%, 1/15/97 3,197 3,191
Rubbermaid, Inc.,
5.42%, 1/9/97 2,100 2,097
Seagram, (Joseph E.) & Sons, Inc.,
5.45%, 1/8/97 4,061 4,057
Sonoco Products Co.,
5.36%, 1/14/97 5,678 5,667
Sony Capital Corp.,
5.45%, 1/17/97 4,800 4,788
Sysco Corp.,
5.27%, 1/14/97 815 813
Vermont American Corp.,
5.35%, 1/23/97 4,865 4,849
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
CIGNA MONEY MARKET FUND
INVESTMENTS IN SECURITIES (Continued)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Xerox Corp.,
5.40%, 1/22/97 $ 3,420 $ 3,409
-----------------
TOTAL COMMERCIAL PAPER 115,997
-----------------
U.S. GOVERNMENT & AGENCIES - 4.2%
Federal Home Loan Banks,
5.27%, 3/26/97 2,435 2,405
5.58%, 12/3/97 2,500 2,500
Federal National Mortgage Association,
4.78%, 5/5/97, Floating Rate Note (rate is as of 12/31/96) 100 100
-----------------
TOTAL U.S. GOVERNMENT & AGENCIES 5,005
-----------------
TOTAL INVESTMENT IN SECURITIES - 100.4% $ 121,002
(Total Cost - $121,001,567)
Liabilities, Less Cash and Other Assets - (0.4%) (497)
-----------------
NET ASSETS - 100.0%
(equivalent to $1.00 per share based on 120,504,903
shares outstanding) $ 120,505
=================
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
CIGNA INCOME FUND MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited)
1996 was a roller coaster ride of investor sentiment and interest rate movement.
The year began with a 5.95% rate on the benchmark 30-year Treasury bond,
reflecting recession worries and modest easing of monetary policy by the Federal
Reserve. As liquidity improved, growth accelerated and the market abruptly
changed its focus to concern over the "above trend" growth and incipient
inflation. Yields reach 7.20% before easing economic data and benign inflation
numbers allowed yields to fall once more, closing the year at 6.64%.
Thanks to substantial liquidity in the markets and very positive technicals for
corporate bonds, spreads to Treasuries continued to firm up. Lower-rated spread
products--especially high yield bonds--were the star performers. CIGNA Income
Fund's small size and reliance on Treasury and Agency holdings disadvantaged it
in 1996. The Fund returned 1.36% for the year which was below the 2.90% return
of its benchmark, the Lehman Brothers Government/Corporate Bond Index. The
Fund's result is after deduction of expenses and reinvestment of dividends,
based on the net asset value of underlying assets.
The economy closed 1996 on a firm note. Now, if the business cycle shifts into
high gear in the first quarter of 1997, higher rates will prevail. While the Fed
has resisted taking action as long as inflation data has remained favorable, any
acceleration in the rate of inflation will rapidly lead to tightening moves by
the Fed.
The market continues to react abruptly to changing investor perceptions of
economic strength and the likelihood of a deviation in the Fed's policy.
Stirrings of unexpected economic strength caused the bond market to adjust
yields upward as 1996 closed. In the new year, economic data will once again be
carefully scrutinized for signs of continued acceleration and concomitant growth
in inflation. If the economy begins to show signs of sustained above-trend
growth, we will reduce portfolio duration accordingly to help preserve asset
value.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited)
1/1/87 - 12/31/96
- ---------------------------
AVERAGE ANNUAL TOTAL RETURN
1 Year 5 Year 10 Year
1.36% 6.74% 7.97%
- ---------------------------
Lehman Brothers
Gov't./Corp.
Point of CIGNA Bond Index
Measurement Income Fund - Total Return
----------- ----------- --------------
1/1/87 $10,000 $10,000
12/31/87 $10,066 $10,292
12/31/88 $10,859 $11,072
12/31/89 $12,410 $12,648
12/31/90 $13,174 $13,695
12/31/91 $15,537 $15,904
12/31/92 $16,637 $17,109
12/31/93 $18,859 $18,997
12/31/94 $18,272 $18,330
12/31/95 $21,234 $21,856
12/31/96 $21,523 $22,490
CIGNA Income Fund's performance figures are historical and reflect reinvestment
of all dividends and capital gains distributions and changes in net asset value.
The Fund does not charge a sales load. The Fund's investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Past performance cannot
guarantee comparable future results. The Fund's performance was been compared
with the total return performance for the Lehman Brothers Government/Corporate
Bond Index. The index is a group of unmanaged securities widely regarded by
investors to be representative of the taxable U.S. government and corporate bond
market in general. Index results do not reflect brokerage charges or other
investment expenses. An investment cannot be made in the index.
<PAGE>
CIGNA INCOME FUND
INVESTMENTS IN SECURITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
(000) (000)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS AND NOTES - 92.7%
FOREIGN GOVERNMENTS - 8.8%
Israel (The State of)., 5.75%, 2000 $ 100 $ 99
--------------
U.S. GOVERNMENT & AGENCIES - 84.9%
Federal Home Loan Banks, 7.37%, 2002 100 104
Federal Home Loan Mortgage Corp., 7.75%, 2001 100 106
Federal National Mortgage Assoc., 7.4%, 2004 100 105
Student Loan Marketing Assoc., 6.6%, 1999 100 101
Tennessee Valley Authority, 6.375%, 2005 100 98
United States Treasury Notes,
5.875%, 1998 95 95
6.5%, 2005 300 302
United States Treasury Bond, 8.125%, 2019 35 40
--------------
951
--------------
Total Bonds and Notes
(Cost - $1,066,797) 1,050
--------------
SHORT-TERM OBLIGATIONS - 4.5%
COMMERCIAL PAPER - 4.5%
(Total Cost - $49,747)
Federal Farm Credit Bank, 5.2%, 2/5/97 50 50
--------------
TOTAL INVESTMENT IN SECURITIES
(Cost - $1,116,544) 1,100
Cash and Other Assets, Less Liabilities - 1.8% 21
--------------
NET ASSETS - 100.0%
(equivalent to $.94 per share based on
1,186,905 shares outstanding) $ 1,121
==============
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
CIGNA FUNDS GROUP
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY
MARKET INCOME
---------------- --------------
<S> <C> <C>
ASSETS:
Investments in securities at value (Cost - $121,001,567
and $1,116,544 respectively) $ 121,002 $ 1,100
Cash 26 11
Interest receivable 68 20
Investment for deferred compensation plan (Cost - $25,360
and $11,060, respectively) 25 14
Receivable from advisor 30 1
---------------- --------------
Total assets 121,151 1,146
---------------- --------------
LIABILITIES:
Dividends payable 529 -
Payable for deferred compensation plan 25 14
Other accrued expenses 92 11
---------------- --------------
Total liabilities 646 25
---------------- --------------
NET ASSETS $ 120,505 $ 1,121
================ ==============
Shares outstanding 120,505 1,187
================ ==============
NET ASSET VALUE PER SHARE $ 1.00 $ 0.94
================ ==============
COMPONENTS OF NET ASSETS:
Capital paid in $ 120,505 $ 1,145
Distributions in excess of net investment income - (10)
Accumulated net realized gain on investments - -
Unrealized depreciation of investments - (14)
---------------- --------------
NET ASSETS $ 120,505 $ 1,121
================ ==============
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
CIGNA FUNDS GROUP
STATEMENT OF OPERATIONS (IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY
MARKET INCOME
--------------- ---------------
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 1,738 $ 69
--------------- ---------------
EXPENSES:
Investment advisory fees 111 5
Registration fees 39 -
Custodian fees and expenses 31 17
Administrative services 19 17
Auditing and legal fees 11 9
Transfer agent fees and expenses 3 3
Trustees' fees 5 4
Other 5 6
--------------- ---------------
Total expenses 224 61
Less expenses waived by advisor (79) (50)
--------------- ---------------
Net expenses 145 11
--------------- ---------------
NET INVESTMENT INCOME 1,593 58
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from securites transactions 14 -
Unrealized depreciation of investments - (42)
--------------- ---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 14 (42)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,607 $ 16
=============== ===============
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
CIGNA FUNDS GROUP
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY
MARKET INCOME
---------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,593 $ 58
Net realized gain from securities transactions 14 -
Unrealized depreciation of investments - (42)
---------------- --------------
Net increase in net assets from operations 1,607 16
---------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,593) (57)
From net realized capital gains (14) (38)
---------------- --------------
Total distributions to shareholders (1,607) (95)
---------------- --------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 283,028 -
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions 1,078 95
---------------- --------------
284,106 95
Cost of shares redeemed (164,635) -
---------------- --------------
Net increase from Fund share transactions 119,471 95
---------------- --------------
NET INCREASE IN NET ASSETS 119,471 16
NET ASSETS:
Beginning of period 1,034 1,105
---------------- --------------
End of period (including overdistributed net investment
income of $0 and $9,875, respectively) $ 120,505 $ 1,121
================ ==============
TRANSACTIONS IN CAPITAL STOCK:
Shares sold 283,028 -
Shares issued in reinvestment of dividends and distributions 1,078 95
---------------- --------------
284,106 95
Shares redeemed (164,635) -
---------------- --------------
Net increase 119,471 95
================ ==============
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
CIGNA FUNDS GROUP
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
MONEY
MARKET INCOME
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 294 $ 336
Net realized gain from securities transactions 4 140
Unrealized appreciation of investments - 415
-------------- --------------
Net increase in net assets from operations 298 891
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (294) (713)
From net realized capital gains (4) (27)
-------------- --------------
Total distributions to shareholders (298) (740)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 1,193 1,029
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions 298 296
-------------- --------------
1,491 1,325
Cost of shares redeemed (Note 6) (17,130) (15,581)
-------------- --------------
Net decrease from Fund share transactions (15,639) (14,256)
-------------- --------------
NET DECREASE IN NET ASSETS (15,639) (14,105)
NET ASSETS:
Beginning of period 16,673 15,210
-------------- --------------
End of period (including overdistributed net investment
income of $0 and $11,002, respectively) $ 1,034 $ 1,105
============== ==============
TRANSACTIONS IN CAPITAL STOCK:
Shares sold 1,193 1,118
Shares issued in reinvestment of dividends and distributions 298 316
-------------- --------------
1,491 1,434
Shares redeemed (17,130) (16,887)
-------------- --------------
Net decrease (15,639) (15,453)
============== ==============
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
CIGNA FUNDS GROUP Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES. CIGNA Money Market Fund and CIGNA Income
Fund , formerly known as CIGNA Annuity Money Market Fund and CIGNA Annuity
Income Fund, respectively, prior to February 15, 1996, are separate series of
CIGNA Funds Group, known as CIGNA Annuity Funds prior to February 15, 1996, a
Massachusetts business trust (the "Trust"). The funds are referred to
collectively as "CIGNA Funds Group" or the "Funds." The Trust is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The objective of the Money Market Fund is 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. The objective
of the Income Fund is to provide as high a level of current income as possible
consistent with reasonable concern for safety of principal by investing
primarily in investment grade corporate debt securities and U.S. Government
securities. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the Funds in
the preparation of financial statements.
A. SECURITY VALUATION - Debt securities traded in the over-the-counter market,
including listed securities whose primary markets are believed to be
over-the-counter, are valued on the basis of valuations furnished by a pricing
service, which determines valuations for normal, institutional-size trading
units of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Except for the Money Market Fund,
short-term investments with remaining maturities of up to and including 60 days
are valued at amortized cost, which approximates market. Short-term investments
that mature in more than 60 days are valued at current market quotations. The
investments in the Money Market Fund are valued at amortized cost, which the
Board of Trustees has determined constitutes fair value. Other securities and
assets of the Funds are appraised at fair value as determined in good faith by,
or under the authority of, the Board of Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the trade date (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis. Securities gains and losses
are determined on the basis of identified cost. As of December 31, 1996, the
cost for Federal income tax purposes is substantially the same.
C. FEDERAL TAXES - For Federal income tax purposes, each Fund in the Trust is
taxed as a separate entity. It is each Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income and capital gains to its
shareholders. Therefore, no Federal income or excise taxes on realized income or
net capital gains have been accrued.
D. DIVIDENDS - For the Money Market Fund, dividends from net investment income
and net realized gains are declared daily and reinvested monthly. Prior to April
19, 1995, dividends from net investment income were reinvested daily. For the
Income Fund, dividends from net investment income and net capital gains, to the
extent such gains would otherwise be taxable to the Fund, are declared and
distributed annually. Prior to April 19, 1995, dividends from net investment
income of the Income Fund were distributed daily.
Dividends and distributions are recorded by the Funds on the ex-dividend date.
The timing and characterization of certain income and capital gains
distributions are determined in accordance with Federal tax regulations which
may differ from generally accepted accounting principles. To the extent that
such differences are permanent, a re-class to paid in capital may be required.
<PAGE>
CIGNA FUNDS GROUP Notes to Financial Statements (Continued)
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES. Investment
advisory fees were paid or accrued to CIGNA Investments, Inc. ("CII"), certain
officers and directors of which are affiliated with the Funds. Such advisory
fees are based on annual rates of 0.35% and 0.5% applied to the average daily
net assets of the Money Market Fund and Income Fund, respectively. Prior to
January 1, 1996, the rate for the Money Market Fund was 0.5%. CII has
voluntarily agreed to reimburse each Fund for any amount by which its expenses
(including the advisory fee but excluding interest, taxes, amortized
organization expenses, transaction costs incurred in acquiring and disposing of
portfolio securities, and extraordinary expenses) exceed 0.45% and 1% of average
daily net assets of the Money Market Fund and Income Fund, respectively. Prior
to July 1 and January 1, 1996, the expenses of Money Market Fund were limited to
0.7% and 1%, respectively, of average daily net assets.
Each Fund reimburses CII for a portion of the compensation and related expenses
of the Trust's Treasurer and Secretary and certain persons who assist in
carrying out the responsibilities of those offices. For the year ended December
31, 1996, the Money Market Fund and Income Fund paid $18,683 and $17,276,
respectively.
CII is an indirect, wholly-owned subsidiary of CIGNA Corporation.
3. TRUSTEES' FEES. Trustees' fees represent remuneration paid or accrued to
trustees who are not employees of CIGNA Corporation or any of its affiliates.
Trustees may elect to defer all or a portion of their fees which are invested in
mutual fund shares in accordance with a deferred compensation plan.
4. PURCHASES AND SALES OF SECURITIES. Purchases and sales of securities,
excluding short-term obligations, for the year ended December 31, 1996 were as
follows (shown in thousands):
FUND PURCHASES SALES
------------------------------ ------------------- ------------------
Money Market Fund $ - $ -
Income Fund 73 -
Purchases and sales of U.S. Government obligations for the Income Fund of
$72,601 and $0, respectively, are included in the above aggregate purchases and
sales.
5. AGGREGATE GROSS UNREALIZED APPRECIATION/DEPRECIATION. The Income Fund had
aggregate gross and net unrealized depreciation for Federal income tax purposes
as follows (shown in thousands):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED NET UNREALIZED
FUND APPRECIATION DEPRECIATION DEPRECIATION
--------------------------- ------------------- ------------------ ---------------------
<S> <C> <C> <C>
Money Market Fund $ - $ - $ -
Income Fund - 17 17
</TABLE>
As of December 31, 1996, the Money Market and Income Funds' cost of securities
for Federal income tax purposes was $121,001,567 and $1,116,544, respectively.
<PAGE>
CIGNA FUNDS GROUP Notes to Financial Statements (Continued)
6. CAPITAL STOCK. Each Fund is a separate series of the Trust which offers an
unlimited number of shares of beneficial interest, without par value.
As of April 18, 1995, Investors Life Insurance Company of North America, an
affiliate of InterContinental Life Corporation, on behalf of holders of its
variable annuity contracts redeemed all of the outstanding shares of the CIGNA
Funds Group. The proceeds of the redemption were $15,717,142 and $14,509,838 for
the Money Market Fund and the Income Fund, respectively. The amounts redeemed
from the CIGNA Funds Group were used to acquire shares of certain PCM Funds,
managed by Putnam Investments. Immediately following the redemption, Connecticut
General Life Insurance Company ("CG Life"), an affiliate of CIGNA Funds Group,
invested $1,000,000 in each of the Money Market Fund and the Income Fund. At
December 31, 1996, affiliates of CIGNA Corporation were the only shareholders of
the Funds.
<PAGE>
CIGNA FUNDS GROUP Notes to Financial Statements (Continued)
7. FINANCIAL HIGHLIGHTS. The following per share data is computed on the basis
of a share outstanding throughout the period:
<TABLE>
<CAPTION>
NET
REALIZED
NET &
ASSET UNREALIZED DIVIDENDS
VALUE, NET GAIN (LOSS) TOTAL FROM FROM NET DISTRIBUTIONS
YEAR BEGINNING INVESTMENT ON INVESTMENT INVESTMENT FROM REALIZED TOTAL
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND
1992 $1.00 $.0334 - $.0334 $.0334 - $.0334
1993 e 1.00 .0237 - .0237 .0237 - .0237
1994 e 1.00 .0337 - .0337 .0337 - .0337
1995 f 1.00 .0516 - .0516 .0516 $.0003 .0519
1996 1.00 .0479 $.0001 .0479 .0479 .0001 .0480
INCOME FUND
1992 $1.04 $.07 $(.01) $.06 $.07 $.01 $.08
1993 e 1.02 .06 .07 .13 .06 .08 .14
1994 e 1.01 .06 (.09) (.03) .06 - .06
1995 f .92 .06 .09 .15 .05 - .05
1996 e 1.02 .05 (.05) - .05 .03 .08
<CAPTION>
NET NET RATIO OF NET
ASSET ASSETS AT EXPENSES INVESTMENT
VALUE, END OF TO INCOME PORTFOLIO
YEAR END TOTAL PERIOD AVERAGE TO AVERAGE TURNOVER
ENDED OF PERIOD RETURN (000) NET ASSETS NET ASSETS RATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND
1992 $1.00 3.36 % $25,808 0.84 % 3.35 % -
1993 e 1.00 2.39 20,508 1.00 a 2.39 b -
1994 e 1.00 3.43 16,673 1.00 a 3.32 b -
1995 f 1.00 5.33 1,034 0.80 a 5.38 b -
1996 1.00 4.91 120,505 0.45 a 4.95 b -
INCOME FUND
1992 $1.02 7.08 % $20,588 0.90 % 7.29 % 23 %
1993 e 1.01 13.36 19,910 1.00 c 6.06 d 116
1994 e .92 -3.12 15,210 1.00 c 6.37 d 8
1995 f 1.02 16.21 1,105 0.95 c 6.50 d 45
1996 e .94 1.36 1,121 1.00 c 5.33 d -
</TABLE>
a. Ratios of expenses to average net assets prior to the reduction of advisory
fee were 0.69%, 1.21% and 1.11%, respectively, for 1996, 1995 and 1994.
b. Ratios of net investment income to average net assets prior to the
reduction of advisory fee were 4.71%, 4.91% and 3.22%, respectively, for
1996, 1995 and 1994.
c. Ratios of expenses to average net assets prior to the reduction of advisory
fee were 5.62%, 1.37% and 1.15%, respectively, in 1996, 1995 and 1994.
d. Ratios of net investment income to average net assets prior to the
reduction of advisory fee were 0.72%, 6.08 and 6.22%, respectively, in
1996, 1995 and 1994.
e. Net investment income per share has been calculated in accordance with SEC
requirements, except that end of year accumulated/undistributed net
investment income has not been adjusted to reflect current year permanent
differences between financial and tax accounting.
f. Per share amounts have been calculated using the average shares method,
which more appropriately presents the per share data for the period since
the use of the undistributed income method did not accord with the results
of operations.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of CIGNA Funds Group
In our opinion, the accompanying statements of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the two funds constituting
the CIGNA Funds Group, formerly CIGNA Annuity Funds, ("the Funds") at December
31, 1996, the results of their operations for the year then ended, the changes
in their net assets and the financial highlights for each of the years
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' 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, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 14, 1997
