<PAGE>
[CIGNA TREE LOGO APPEARS HERE]
CIGNA VARIABLE PRODUCTS
S&P 500 INDEX FUND
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND MANAGEMENT'S DISCUSSION AND ANALYSIS
(Unaudited) 1
A year ago, we suggested that while history argued against a third consecutive
year of significant returns to the S&P 500 Index, the essentially sound state of
the economy enhanced the potential for such an occurrence. In retrospect, that
forecast was an understatement. For the 12-month period ending December 31,
1997, CIGNA Variable Products S&P 500 Index Fund's return, after expenses and
allowing for reinvestment of dividends, was 33.35%, virtually matching the
33.36% total return of the S&P 500 Index. 1997 was the third consecutive year in
which this benchmark produced returns of 20% or more.
Continuing the trend of recent years, the S&P 500 Index once again outperformed
the average domestic stock manager, in part because of the outperformance of
large capitalization stocks over their small-cap counterparts. Although posting
impressive results for the year, returns for the S&P MidCap Index (32.25%) and
S&P SmallCap Index (25.58%) fell short of the returns provided by the
large-cap-dominated S&P 500 Index. According to Lipper Analytical Services, the
average U.S. stock fund returned 24.36% in 1997, with only 10.3% of these funds
beating the S&P 500 Index for the year. Growth stocks (36.53%), as measured by
the S&P/BARRA Indices, also maintained their advantage over value stocks
(29.99%). Industry group performance was led by Trucking (153%), which was
1996's big loser. Meanwhile, Shoes (-33%), which was among the best groups that
year, was one of 1997's worst-performing groups. Brokerage (81%), Savings &
Loans (74%), Airlines (68%) and Broadcast Media (64%) were major winners, while
Metals (-35%), Gold (-35%) and Engineering & Construction (-37%) did the worst.
Our expectation of high market volatility in 1997 stemming from weak consensus
was also correct. The number of trading days during the year that saw at least
1% daily closing change was among the highest for any year in recent history.
Market participants appeared to gradually accept the notion of "new era
economics" and set aside earlier worries over growth-induced inflation that had
prompted a small rate increase by the Federal Reserve in March.
The impact of Asian market turmoil on the U.S. economy is shaping up to be a key
to 1998 market performance. While economic growth will likely slow as a result
of increased foreign competition and weakened foreign export demand, the U.S.
equity markets - barring unforeseen investor psychology - appear poised for a
potentially positive but perhaps more normal returns.
- ----------------------------------------------------------------------
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (UNAUDITED)
1/1/88-12/31/97
- -----------------------------------------
AVERAGE ANNUAL RETURN
1 Year 5 Year 10 Year
12/31/97 33.35% 18.29% 16.27%
- -----------------------------------------
CIGNA Variable
Point of Products S&P 500 S&P 500 Index
Measurement Index Fund - Total Return
----------- ---------------- ---------------
12/87 $10,000 $10,000
12/88 $11,033 $11,652
12/89 $14,257 $15,318
12/90 $13,689 $14,828
12/91 $18,816 $19,355
12/92 $19,491 $20,843
12/93 $20,069 $22,929
12/94 $20,203 $23,232
12/95 $27,641 $31,948
12/96 $33,855 $39,379
12/97 $45,146 $52,516
CIGNA Variable Products S&P 500 Index Fund's performance figures are
historical and reflect reinvestment of all dividends and capital gains
distributions and changes in the net asset value. The Fund does not charge a
sales load, but may be used with variable insurance products that contain other
charges which would affect the ultimate return to the 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 for the
Standard & Poor's Composite Index of 500 Stock (S&P 500). This index is a
group of unmanaged securities widely regarded by investors to be representative
of the stock market in general. An investment cannot be made in the index.
Index results do not reflect brokerage charges or other investment expenses.
As of November 1993, the Fund changed its investment approach from active
management to an index method which attempts to replicate the total return
performance of the S&P 500, after Fund Expenses.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND INVESTMENTS IN SECURITIES December
31, 1997 2
MARKET
NUMBER OF VALUE
SHARES (000)
- ----------------------------------------------------------------
COMMON STOCKS - 78.2%
General Electric Co. 39,400 $2,891
Coca-Cola Co. 29,600 1,972
Microsoft Corp.* 14,500 1,874
Exxon Corp. 29,600 1,811
Merck & Co., Inc. 14,400 1,530
Royal Dutch Petroleum Co. 25,600 1,387
Intel Corp. 19,600 1,377
Philip Morris Companies, Inc. 29,400 1,332
Procter & Gamble Co. 16,400 1,309
International Business Machines Corp. 11,700 1,223
A T & T Corp. 19,400 1,188
Pfizer, Inc. 15,400 1,148
Bristol-Myers Squibb Co. 12,000 1,136
Wal-Mart Stores, Inc. 27,400 1,081
Johnson & Johnson 16,200 1,067
American International Group, Inc. 8,475 922
Lilly (Eli) & Co. 13,200 919
Bell Atlantic Corp. 9,347 851
SBC Communications, Inc. 11,003 806
du Pont (E.I.) de Nemours & Co. 13,400 805
Disney ( Walt) Co. 8,100 802
Hewlett-Packard Co. 12,500 781
Federal National Mortgage Association 12,700 725
Travelers Group, Inc. 13,442 724
Citicorp 5,500 695
Ford Motor Co. 14,000 682
Mobil Corp. 9,400 679
Cisco Systems, Inc.* 12,100 675
PepsiCo, Inc. 18,400 670
BellSouth Corp. 11,900 670
Gillette Co. 6,600 663
BankAmerica Corp. 8,600 628
Lucent Technologies, Inc. 7,684 614
Abbott Laboratories 9,200 603
American Home Products Corp. 7,800 597
GTE Corp. 11,400 596
Chevron Corp. 7,700 593
Boeing Company 11,876 581
Chase Manhattan Corp. 5,292 579
Schering-Plough Corp. 8,800 547
Ameritech Corp. 6,600 531
NationsBank Corp. 8,510 518
Home Depot, Inc. 8,800 518
MARKET
NUMBER OF VALUE
SHARES (000)
- ------------------------------------------------------------------
Compaq Computer Corp.* 9,140 $516
General Motors Corp. 8,500 515
American Express Company 5,700 509
Amoco Corp.* 5,900 502
Allstate Corp. 5,298 481
Unilever NV 7,600 475
Schlumberger Ltd. 5,800 467
Morgan Stanley, Dean Witter, Discover
& Co. 7,070 418
Time Warner, Inc. 6,600 409
Minnesota Mining and Manufacturing Co. 4,900 402
Motorola, Inc. 7,000 399
Warner-Lambert Co. 3,200 397
McDonald's Corp. 8,300 396
Banc One Corp. 7,044 383
Federal Home Loan Mortgage Corp. 8,700 365
Wells Fargo & Co. 1,066 362
Texaco, Inc. 6,600 359
MCI Communications Corp. 8,133 348
U. S. Bancorp, Inc. 3,034 340
Norwest Corp. 8,800 340
First Union Corp. 6,640 340
Computer Associates International, Inc. 6,412 339
Sara Lee Corp. 5,900 332
WorldCom, Inc.* 10,900 330
Dell Computer Corp.* 3,900 328
Kimberly-Clark Corp. 6,632 327
Cendant Corp.* 9,505 327
Campbell Soup Company 5,600 326
Merrill Lynch & Co., Inc. 4,200 306
Atlantic Richfield Co. 3,800 304
Sprint Corp. 5,100 299
Medtronic, Inc. 5,600 293
Emerson Electric Co. 5,200 293
Monsanto Company 6,900 290
Tyco International Ltd. 6,400 288
First Chicago NBD Corp. 3,453 288
Chrysler Corp. 8,000 281
Xerox Corp. 3,800 280
Dow Chemical Co. 2,700 274
Raytheon Co., Class B 5,401 273
Northern Telecom Ltd. 3,000 267
Bank of New York, Inc. 4,600 266
U. S. WEST Communications, Inc. 5,700 257
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND INVESTMENTS IN SECURITIES December
31, 1997 (Continued) 3
MARKET
NUMBER OF VALUE
SHARES (000)
- ----------------------------------------------------------------
Oracle Systems Corp.* 11,512 $257
Allied-Signal, Inc. 6,600 257
Anheuser-Busch Companies, Inc. 5,800 255
Colgate-Palmolive Co. 3,400 250
CBS Corp. 8,500 250
Morgan (J.P.) & Co. 2,200 248
Kellogg Co. 5,000 248
Eastman Kodak Co. 4,000 243
Duke Power Co. 4,362 242
Airtouch Communications, Inc.* 5,800 241
Columbia/HCA Healthcare Corp. 8,000 237
Lockheed Martin Corp. 2,330 230
Gap (The), Inc. 6,450 229
Fleet Financial Group, Inc. 3,016 226
Pharmacia & Upjohn, Inc. 6,010 220
- ----------------------------------------------------------------
TOTAL 100-LARGEST STOCKS 60,224
- ----------------------------------------------------------------
Heinz (H.J.) Co. 4,300 218
Caterpillar, Inc. 4,400 214
U. S. WEST Media Group* 7,300 211
Texas Instruments, Inc. 4,700 211
PNC Bank Corp. 3,700 211
Automatic Data Processing, Inc. 3,400 209
Sears, Roebuck & Company 4,600 208
United Technologies Corp. 2,800 204
Southern Company 7,900 204
Gannett Co., Inc. 3,200 198
Washington Mutual, Inc. 3,030 193
CoreStates Financial Corp. 2,400 192
General Re Corp. 900 191
Mellon Bank Corp. 3,100 188
KeyCorp 2,658 188
SunTrust Banks, Inc. 2,600 186
ConAgra, Inc. 5,600 184
CPC International, Inc. 1,700 183
Walgreen Co. 5,800 182
Dayton Hudson Corp. 2,700 182
Union Pacific Corp. 2,900 181
Penney (J.C.) Co., Inc. 3,000 181
Illinois Tool Works, Inc. 3,000 180
Viacom, Inc., Class B* 4,300 178
Deere & Co. 3,000 175
CIGNA Corp. 1,000 173
MARKET
NUMBER OF VALUE
SHARES (000)
- ------------------------------------------------------------------
Barnett Banks, Inc. 2,400 $173
Sun Microsystems, Inc.* 4,300 171
National City Corp. 2,600 171
Wachovia Corp. 2,100 170
BankBoston Corp. 1,800 169
Amgen, Inc.* 3,100 168
Burlington Northern Santa Fe Corp. 1,789 166
Tele-Communications, Inc., Class A* 5,900 165
PG & E Corp. 5,300 161
Halliburton Co. 3,100 161
Baxter International, Inc. 3,200 161
MBNA Corp. 5,812 159
Fifth Third Bancorp 1,950 159
First Data Corp. 5,400 158
Waste Management, Inc. 5,700 157
American General Corp. 2,898 157
EMC Corp.* 5,600 154
Pitney-Bowes, Inc. 1,700 153
May Department Stores Co. 2,900 153
Household International, Inc. 1,200 153
Phillips Petroleum Co. 3,100 151
International Paper Co. 3,507 151
Chubb Corp. 2,000 151
Archer-Daniels-Midland Co. 6,648 144
Seagram Company Ltd. 4,400 142
Aluminum Co. of America 2,000 141
CSX Corp. 2,600 140
3Com Corp.* 4,000 140
Norfolk Southern Corp. 4,500 139
Edison International 5,100 139
Loews Corp. 1,300 138
Albertson's, Inc. 2,900 137
Marsh & McLennan Companies, Inc. 1,800 134
NIKE, Inc., Class B 3,400 133
Schwab (Charles) Corp. 3,150 132
Rockwell International Corp. 2,500 131
Hartford Financial Services Group, Inc. 1,400 131
HealthSouth Corp.* 4,700 130
General Mills, Inc. 1,800 129
AMR Corp.* 1,000 129
CVS Corp. 2,000 128
Applied Materials, Inc.* 4,200 127
Textron, Inc. 2,000 125
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND INVESTMENTS IN SECURITIES December
31, 1997 (Continued) 4
MARKET
NUMBER OF VALUE
SHARES (000)
- ----------------------------------------------------------------
Enron Corp. 3,000 $125
ITT Corp.* 1,500 124
FPL Group, Inc. 2,100 124
Aetna, Inc. 1,726 122
USX-Marathon Group 3,600 121
Ralston Purina Co. 1,300 121
Goodyear Tire & Rubber Co. 1,900 121
PPG Industries, Inc. 2,100 120
Tenet Healthcare Corp.* 3,600 119
American Electric Power Co., Inc. 2,300 119
Kroger Co.* 3,200 118
Occidental Petroleum Corp. 4,000 117
Mattel, Inc. 3,145 117
Comerica, Inc. 1,300 117
Texas Utilities Co. 2,800 116
Tellabs, Inc.* 2,200 116
State Street Corp. 2,000 116
HBO and Company 2,400 115
Consolidated Edison Co. of N.Y., Inc. 2,800 115
Aon Corp. 1,950 114
AMP, Inc. 2,712 114
Unocal Corp. 2,900 113
Guidant Corp. 1,800 112
Federated Department Stores, Inc.* 2,600 112
Costco Companies, Inc.* 2,500 112
Bankers Trust New York Corp. 1,000 112
Wrigley (Wm.) Jr. Company 1,400 111
Williams Companies, Inc. 3,900 111
Marriott International, Inc. 1,600 111
United Healthcare Corp. 2,200 109
Weyerhaeuser Co. 2,200 108
- ----------------------------------------------------------------
TOTAL 200-LARGEST STOCKS 75,232
- ----------------------------------------------------------------
Progressive Corp, Ohio 900 108
Toys 'R' Us, Inc.* 3,400 107
Delta Air Lines, Inc. 900 107
Air Products & Chemicals, Inc. 1,300 107
Boston Scientific Corp.* 2,300 106
Sysco Corp. 2,300 105
Hershey Foods Corp. 1,700 105
Conseco, Inc. 2,300 105
Honeywell, Inc. 1,500 103
Masco Corp. 2,000 102
MARKET
NUMBER OF VALUE
SHARES (000)
- ------------------------------------------------------------------
Lincoln National Corp. 1,300 $102
BB and T Corp. 1,600 102
PacifiCorp 3,700 101
Dover Corp. 2,800 101
Service Corporation International 2,700 100
Lowes Companies, Inc. 2,100 100
Corning, Inc. 2,700 100
Browning-Ferris Industries, Inc. 2,700 100
Cincinnati Financial Corp. 700 99
ALLTEL Corp. 2,400 99
UNUM Corp. 1,800 98
Cardinal Health, Inc. 1,300 98
Clorox Co. 1,200 95
Burlington Resources, Inc. 2,110 95
Dominion Resources, Inc. 2,200 94
Cognizant Corp. 2,100 94
Tribune Co. 1,500 93
MGIC Investment Corp. 1,400 93
Northrop Grumman Corp. 800 92
Hilton Hotels Corp. 3,100 92
Avon Products, Inc. 1,500 92
Houston Industries, Inc. 3,407 91
SunAmerica, Inc. 2,100 90
Quaker Oats Co. 1,700 90
Public Service Enterprises Group, Inc. 2,800 89
McGraw-Hill, Inc. 1,200 89
Fort James Corp. 2,300 88
Limited, Inc. 3,400 87
Clear Channel Communications, Inc.* 1,100 87
Pioneer Hi-Bred International, Inc. 800 86
Transamerica Corp. 800 85
Omnicom Group 2,000 85
Newell Company 2,000 85
Ingersol-Rand Co. 2,100 85
Federal Express Corp.* 1,400 85
Comcast Corp., Class A (Special) 2,700 85
Dresser Industries, Inc. 2,000 84
Winn-Dixie Stores, Inc. 1,900 83
Unicom Corp. 2,700 83
St. Paul Companies, Inc. 1,000 82
Rite Aid Corp. 1,400 82
Barrick Gold Corp. 4,400 82
UST, Inc. 2,200 81
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND INVESTMENTS IN SECURITIES December
31, 1997 (Continued) 5
MARKET
NUMBER OF VALUE
SHARES (000)
- ------------------------------------------------------------------
Praxair, Inc. 1,800 $81
FirstEnergy Corp. 2,800 81
Coastal Corp. 1,300 81
Carolina Power & Light Co. 1,900 81
Thermo Electron Corp.* 1,800 80
Republic New York Corp. 700 80
Grace (W.R.) & Co. 1,000 80
Eaton Corp. 900 80
Crown Cork & Seal Co., Inc. 1,600 80
Becton, Dickinson and Co. 1,600 80
Ahmanson (H.F.) & Co. 1,200 80
Tenneco, Inc. 2,000 79
New York Times Co., Class A 1,200 79
Baker Hughes, Inc. 1,800 79
SAFECO Corp. 1,600 78
Rohm & Haas Co. 800 77
Alcan Aluminum Ltd. 2,800 77
Torchmark Corp. 1,800 76
Parametric Technology Corp.* 1,600 76
Genuine Parts Co. 2,250 76
TRW, Inc. 1,400 75
Interpublic Group of Companies, Inc. 1,500 75
Entergy Corp. 2,500 75
Computer Sciences Corp.* 900 75
Times Mirror Co., Class A 1,200 74
Fortune Brands, Inc. 2,000 74
American Stores Co. 3,600 74
VF Corp. 1,600 73
Consolidated Natural Gas Co. 1,200 73
Central & Southwest Corp. 2,700 73
Union Pacific Resources Group, Inc. 2,949 72
International Flavors & Frangrances, Inc. 1,400 72
Donnelley (R.R.) & Sons Co. 1,900 71
Digital Equipment Corp.* 1,900 70
TJX Companies, Inc. 2,000 69
Synovus Financial Corp. 2,100 69
General Dynamics Corp. 800 69
Cooper Industries, Inc. 1,400 69
PECO Energy Co. 2,800 68
Micron Technology, Inc. 2,600 68
Huntington Bancshares, Inc. 1,900 68
Golden West Financial Corp. 700 68
MBIA, Inc. 1,000 67
MARKET
NUMBER OF VALUE
SHARES (000)
- ------------------------------------------------------------------
Kmart Corp.* 5,800 $67
GPU, Inc. 1,600 67
Georgia-Pacific Corp. 1,100 67
Southwest Airlines Co. 2,700 66
Jefferson-Pilot Corp. 850 66
- ------------------------------------------------------------------
TOTAL 300-LARGEST STOCKS 83,766
- ------------------------------------------------------------------
Amerada Hess Corp. 1,200 66
Parker-Hannifin Corp. 1,425 65
Dun & Bradstreet Corp. 2,100 65
Baltimore Gas & Electric Co. 1,900 65
Union Carbide Corp. 1,500 64
Owens-Illinois, Inc.* 1,700 64
Equifax, Inc. 1,800 64
Dow Jones & Co., Inc. 1,200 64
Tandy Corp. 1,600 62
Knight-Ridder, Inc. 1,200 62
DTE Energy Co. 1,800 62
Cinergy Corp. 1,620 62
Sherwin-Williams Co. 2,200 61
Nordstrom, Inc. 1,000 60
Hercules, Inc. 1,200 60
Eastman Chemical Co. 1,000 60
Bay Networks,
Inc.* 2,300 59
Seagate Technology, Inc.* 3,000 58
Newmont Mining Corp. 1,963 58
Morton International, Inc. 1,700 58
Grainger (W.W.), Inc. 600 58
Block (H & R), Inc. 1,300 58
Beneficial Corp. 700 58
Stanley Works 1,200 57
Union Electric Co. 1,300 56
U.S. Airways Group, Inc.* 900 56
Providian Corp. 1,200 54
Champion International Corp.* 1,200 54
Case Corp. 900 54
Avery Dennison Corp. 1,200 54
TRICON Global Restaurants* 1,840 53
Nucor Corp. 1,100 53
Laidlaw, Inc., Class B, (non-voting) 3,900 53
Allegheny Teledyne, Inc. 2,040 53
Western Atlas, Inc.* 700 52
Raychem Corp. 1,200 52
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND INVESTMENTS IN SECURITIES December
31, 1997 (Continued) 6
MARKET
NUMBER OF VALUE
SHARES (000)
- ----------------------------------------------------------------
Northern States Power Co. 900 $52
Hasbro, Inc. 1,650 52
Dana Corp. 1,100 52
AutoZone, Inc.* 1,800 52
Countrywide Credit Industries, Inc. 1,200 51
Sonat, Inc. 1,100 50
Rubbermaid, Inc. 2,000 50
Phelps Dodge Corp. 800 50
PACCAR, Inc. 950 50
Brown-Forman Corporation, Class B 900 50
Whirlpool Corp. 900 49
Harcourt General, Inc. 900 49
Dillard Department Stores, Inc.,
Class A 1,400 49
Cox Communications, Inc., Class A* 1,229 49
Union Camp Corp. 900 48
Sigma-Aldrich Corp. 1,200 48
Reynolds Metals Co. 800 48
PP & L Resources, Inc. 2,000 48
Mirage Resorts, Inc.* 2,100 48
Lehman Brothers Holdings, Inc. 940 48
Johnson Controls, Inc. 1,000 48
Frontier Corp. 2,000 48
Comcast Corp., Class A 1,500 48
Columbia Gas Systems, Inc. 600 47
Aegon NV ARS 521 47
Harris Corp. 1,000 46
Willamette Industries, Inc. 1,400 45
Maytag Corp. 1,200 45
Ikon Office Solutions, Inc. 1,600 45
Green Tree Financial Corp. 1,700 45
National Semiconductor Corp.* 1,700 44
Ecolab, Inc. 800 44
Perkin-Elmer Corp. 600 43
Circuit City Stores, Inc. 1,200 43
Black & Decker Corp. 1,100 43
Ashland, Inc. 800 43
Humana, Inc.* 2,000 42
Anadarko Petroleum Corp. 700 42
Pacific Enterprises 1,100 41
ITT Industries, Inc. 1,300 41
Biomet, Inc. 1,600 41
Pennzoil Co. 600 40
Mead Corp. 1,400 39
MARKET
NUMBER OF VALUE
SHARES (000)
- ------------------------------------------------------------------
KLA-Tencor Corp.* 1,000 $39
Brunswick Corp. 1,300 39
Apache Corp. 1,100 39
American Greetings Corp., Class A 1,000 39
Wendy's International, Inc. 1,600 38
SuperValu, Inc. 900 38
Sun Company, Inc. 900 38
Placer Dome, Inc. 3,000 38
Liz Claiborne, Inc. 900 38
Kerr-McGee Corp. 600 38
Temple-Inland, Inc. 700 37
Rowan Companies, Inc.* 1,200 37
Fluor Corp. 1,000 37
Ceridian Corp.* 800 37
Armstrong World Industries, Inc. 500 37
Adobe Systems, Inc. 900 37
Ryder System, Inc. 1,100 36
Oryx Energy Co. 1,400 36
Great Lakes Chemical Corp. 800 36
Freeport McMoRan Copper & Gold, Inc.,
Class B 2,300 36
DSC Communications Corp.* 1,500 36
Woolworth Corp. 1,700 35
- ------------------------------------------------------------------
TOTAL 400-LARGEST STOCKS 88,704
- ------------------------------------------------------------------
Deluxe Corp. 1,000 35
Whitman Corp. 1,300 34
USX-U.S. Steel Group 1,100 34
Novell, Inc.* 4,600 34
Mallinckrodt Group, Inc. 900 34
Inco Ltd. 2,000 34
FMC Corp.* 500 34
Engelhard Corp. 1,950 34
Westvaco Corp. 1,050 33
Unisys Corp.* 2,400 33
Snap-On, Inc. 750 33
Payless ShoeSource, Inc.* 496 33
Nalco Chemical Co. 800 32
LSI Logic Corp.* 1,600 32
ALZA Corp.* 1,000 32
Bemis Company, Inc. 700 31
NICOR, Inc. 700 30
National Service Industries, Inc. 600 30
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND INVESTMENTS IN SECURITIES December
31, 1997 (Continued) 7
MARKET
NUMBER OF VALUE
SHARES (000)
- ----------------------------------------------------------------
Mercantile Stores Co., Inc. 500 $30
Cummins Engine Co., Inc. 500 30
USF&G Corp. 1,300 29
Polaroid Corp. 600 29
Pall Corp. 1,400 29
Meredith Corp. 800 29
McDermott International, Inc. 800 29
King World Productions, Inc.* 500 29
Echlin, Inc. 800 29
Advanced Micro Devices, Inc.* 1,600 29
Thomas & Betts Corp. 600 28
Manor Care, Inc. 800 28
Darden Restaurants, Inc. 2,200 28
Bausch & Lomb, Inc. 700 28
Timken Co. 800 27
NextLevel Systems, Inc.* 1,500 27
Navistar International Corp.* 1,100 27
Louisiana-Pacific Corp. 1,400 27
Giant Foods, Inc., Class A 800 27
Cooper Tire & Rubber Co. 1,100 27
Cabletron Systems, Inc.* 1,800 27
Allergan, Inc. 800 27
St. Jude Medical, Inc.* 850 26
Fruit of the Loom, Inc., Class A* 1,000 26
Crane Co. 600 26
Alberto-Culver Co., Class B 800 26
Silicon Graphics, Inc.* 2,000 25
Goodrich (B.F.) Co. 600 25
General Signal Corp. 600 25
Fleetwood Enterprises, Inc. 600 25
Centex Corp. 400 25
Tektronix, Inc. 600 24
Harrah's Entertainment, Inc.* 1,250 24
Caliber System, Inc. 500 24
Andrew Corp.* 993 24
United States Surgical Corp. 800 23
Reebok International Ltd. 800 23
Tupperware Corp. 800 22
Safety-Kleen Corp. 800 22
Bard (C. R.), Inc. 700 22
Autodesk, Inc. 600 22
Niagara Mohawk Power Co. 2,000 21
Moore Corporation Ltd. 1,400 21
MARKET
NUMBER OF VALUE
SHARES (000)
- ------------------------------------------------------------------
Harnischfeger Industries, Inc. 600 $21
Apple Computer, Inc. 1,600 21
Shared Medical Systems Corp. 300 20
Peoples Energy Corp. 500 20
Owens-Corning Fiberglas Corp. 600 20
Millipore Corp. 600 20
Helmerich & Payne, Inc. 300 20
Aeroquip-Vickers, Inc.* 400 20
Pep Boys-Manny, Moe & Jack 800 19
Longs Drug Stores Corp. 600 19
Briggs & Stratton Corp. 400 19
Autoliv, Inc. 579 19
Worthington Industries, Inc. 1,100 18
Scientific-Atlanta, Inc. 1,100 18
Cyprus Amax Minerals Co. 1,200 18
Boise Cascade Corp. 600 18
Pulte Corp. 400 17
Potlatch Corp. 400 17
Homestake Mining Co. 1,900 17
Coors (Adolph) Co., Class B 500 17
ONEOK, Inc. 400 16
Battle Mountain Gold Co. 2,800 16
Great Atlantic & Pacific Tea Co., Inc. 500 15
Jostens, Inc. 600 14
Foster Wheeler Corp. 500 14
El Paso Natural Gas Co. 204 14
Eastern Enterprises 300 14
Covance, Inc.* 725 14
Ball Corp. 400 14
Russell Corp. 500 13
Cincinnati Milacron, Inc. 500 13
Bethlehem Steel Corp.* 1,500 13
Asarco, Inc. 600 13
EG & G, Inc. 600 12
Earthgrains Co. 256 12
Stone Container Corp. 1,100 11
Newport News Shipbuilding & Dry Dock
Co.* 440 11
NACCO Industries, Inc., Class A 100 11
Kaufman & Broad Home Corp. 500 11
Springs Industries, Inc., Class A 200 10
Inland Steel Industries, Inc. 600 10
Schweitzer-Mauduit International, Inc. 230 9
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND INVESTMENTS IN SECURITIES December
31, 1997 (Continued) 8
MARKET
NUMBER OF VALUE
SHARES (000)
- ----------------------------------------------------------------
Data General Corp.* 500 $9
ChoicePoint, Inc.* 180 9
Harland (J.H.) Co. 400 8
Roadway Express, Inc. 300 7
CommScope, Inc.* 500 7
Charming Shoppes, Inc. 1,400 7
Armco, Inc. 1,500 7
Zurn Industries, Inc. 200 6
Quest Diagnostics, Inc.* 362 6
GC Companies, Inc.* 120 6
Bassett Furniture Industries, Inc. 200 6
Strattec Security Corp.* 180 5
Highlands Insurance Group, Inc.* 160 5
General Semiconductor, Inc.* 375 4
Echo Bay Mines Ltd. 1,600 4
Bally Total Fitness Holding Co.* 175 4
Aviall, Inc. 300 4
CyberGuard Corp.* 90 1
Crown Vantage, Inc.* 120 1
Cresendo Pharmaceuticals, Class A* 50 1
Brunos, Inc.* 31 1
-------------
TOTAL COMMON STOCKS - 78.2%
(Cost - $46,088,460) 91,183
-------------
PREFERRED STOCK - 0 .1%
(Cost - $9,274)
Aetna, Inc., Class C* 142 10
-------------
WARRANTS -0 .1%
(Cost - $162)
Morrison Knudsen Corp., Expire 2003* 46 1
-------------
MARKET
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 21.5%
Repurchase Agreements - 20.4%
Repurchase Agreement with
J. P. Morgan & Co., Inc., entered
into 12/31/97 at 5.9%, maturing
1/2/98 at $23,725,774
(collateralized by U.S.
Treasury Bonds, 12.0% due
5/15/05 with a face value of
$17,547,000 and a
a value of $23,899,014) $ 23,718 $ 23,718
-------------
U.S. Government and Agencies - 1.1%
U. S. Treasury Bills,
5.04%, 1/29/98** 250 249
5.07%, 1/29/98** 506 504
5.14%, 2/12/98** 255 253
5.1%, 3/5/98** 230 228
-------------
1,234
-------------
TOTAL SHORT-TERM OBLIGATIONS
(Cost - $24,952,443) 24,952
-------------
TOTAL INVESTMENT IN SECURITIES - 99.9%
(Total Cost - $71,050,339) 116,146
Cash and Other Assets Less Liabilities - 0.1% 162
-------------
NET ASSETS - 100.0% $116,308
(equivalent to $15.83 per share =============
based on 7,348,826 shares outstanding)
* Non-income producing securities.
** Pledged as initial margin for Stock Index Futures Contracts.
At December 31, 1997, the Fund was long 104 S&P 500 Futures
Contracts expiring in March, 1998. Unrealized gains amounted
to $815,200.
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND 9
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
(IN THOUSANDS)
ASSETS:
Investments at market value
(Cost - $71,050,339) $116,146
Cash 10
Receivable for investments sold 766
Receivable for fund shares sold 1
Dividend receivable 126
Investment for Trustees' deferred
compensation plan 103
(Cost - $68,396)
Other 53
-----------
TOTAL ASSETS 117,205
-----------
LIABILITIES:
Payable for investments purchased 691
Payable for fund shares repurchased 22
Deferred Trustees' fees payable 103
Accrued advisory fees payable 25
Variation margin payable 5
Other accrued expenses (including $11,124
due to affiliate) 51
-----------
TOTAL LIABILITIES 897
-----------
NET ASSETS (Equivalent to $15.83 per share
based on 7,348,826 shares
outstanding) $116,308
===========
COMPONENTS OF NET ASSETS:
Paid in capital $69,816
Distributions in excess of net
investment income (65)
Unrealized appreciation of investments 45,946
Accumulated net realized gain 612
-----------
NET ASSETS $116,309
===========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
INVESTMENT INCOME
INCOME:
Dividend $ 1,439
Interest 516
----------------
1,955
EXPENSES:
Investment advisory fees 224
Custodian fees 132
Administrative services 53
Directors' fees 42
Auditing and legal fees 24
Other 11
Shareholder reports 9
----------------
Total expenses 495
Less expenses waived by advisor (271)
----------------
Net Expenses 224
NET INVESTMENT INCOME 1,731
----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investments 2,336
Net realized gain from futures contracts 1,451
Unrealized appreciation of investments 19,269
Net unrealized gain from futures contracts 815
----------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 23,871
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 25,602
================
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND 10
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
1997 1996
--------------- ----------------
(IN THOUSANDS)
---------------------------------
OPERATIONS:
Net investment income $ 1,731 $ 1,220
Net realized gain from investments 2,336 2,228
Net realized gain from futures
contracts 1,451 421
Unrealized appreciation of investments 19,269 10,040
Unrealized appreciation (depreciation)
on futures contracts 815 (5)
--------------- ----------------
Net increase in net assets
from operations 25,602 13,904
--------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($.32
and $.29 per share, respectively) (2,245) (1,599)
In excess of net investment income
(less than $.01 per share) - (7)
From net realized gain ($.36 and
$.45 per share, respectively (2,517) (2,487)
--------------- ----------------
Total distributions to shareholders (4,762) (4,093)
--------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) from capital
share transactions 23,955 (4,581)
--------------- ----------------
NET INCREASE IN NET ASSETS 44,795 5,230
NET ASSETS:
Beginning of period 71,513 66,283
--------------- ----------------
End of period (Including
overdistributed net investment
income of $65,539 and
$62,747 respectively) $ 116,308 $ 71,513
=============== ================
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND NOTES TO FINANCIAL STATEMENTS 11
1. UTILIZATION OF INDEXATION APPROACH. The CIGNA Variable Products S&P 500 Index
Fund (the "Fund") seeks to achieve its long term growth objective by attempting
to replicate the total return performance, reduced by Fund expenses, of the
Standard & Poor's 500 Composite Stock Price Index.
2. SIGNIFICANT ACCOUNTING POLICIES. The Fund is a separate series of CIGNA
Variable Products Group, a Massachusetts business trust (the "Trust"). The Trust
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. 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 Fund in the preparation of its financial
statements.
A. SECURITY VALUATION - Equity securities, including warrants, that are listed
on a national securities exchange or part of the NASDAQ National Market System
are valued at the last sale price or, if there has been no sale that day, at the
last bid price. Debt and other equity securities traded in the over-the-counter
market, including listed securities whose primary markets are believed to be
over-the-counter, are valued at the most recent bid price. 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. Other securities
and assets of the Fund are appraised at fair value as determined in good faith
by, or under the authority of, the Trust's Board of Trustees.
FUTURES CONTRACTS - The Fund may purchase Standard & Poor's 500 futures
contracts with the objective of earning returns on its short-term investments
equivalent to returns on the Standard & Poor's 500 Composite Stock Price Index.
As a result, the purchase of futures contracts simulates a fully invested
position in the underlying index while maintaining liquidity. Upon entering into
a futures contract, the Fund is required to pledge to the broker an amount of
cash and/or securities equal to the initial margin requirements. During the
period a futures contract is open, changes in the value of a contract are
recognized as unrealized gains or losses by "marking to market" on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Daily variation margin payments are received or made, depending on whether there
were unrealized gains or losses. When a contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. Futures
contracts include the risk that a change in the value of the contract may not
correlate with the value of the underlying securities.
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).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis. Securities gains and losses are determined on
the basis of identified cost.
C. FEDERAL TAXES - It is the 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, if any,
to its shareholders. Therefore, no Federal income or excise taxes on realized
income have been accrued.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions are
recorded by the Fund on the ex-dividend date. Payments in excess of financial
accounting income due to differences between financial and tax accounting, to
meet the minimum distribution requirements for tax basis income, are deducted
from paid in capital when such differences are determined to be permanent.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND NOTES TO FINANCIAL STATEMENTS
(CONTINUED) 12
3. 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 Fund. Such advisory fees
are based on an annual rate of 0.25% applied to the daily average net assets of
the Fund. Beginning January 1, 1996, CII voluntarily agreed to reimburse the
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 0.60% of average daily net assets. Effective January 1, 1997,
this was lowered to 0.25% of average daily net assets until December 31, 1997,
and afterwards to the extent described in the Fund's then current prospectus.
The Fund reimburses CII for a portion of the compensation and related expenses
of the Fund's Treasurer and Secretary and certain persons who assist in carrying
out the responsibilities of those offices. For the year ended December 31, 1997,
the Fund paid or accrued $53,477.
CII is an indirect, wholly-owned subsidiary of CIGNA Corporation.
4. 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 receipt of all or a portion of their fees which are
invested in mutual fund shares in accordance with a deferred compensation plan.
5. PURCHASES AND SALES OF SECURITIES. Purchases and sales of securities,
excluding short-term obligations, aggregated $3,627,203 and $5,250,369,
respectively, for the year ended December 31, 1997. As of December 31, 1997, the
cost of securities held for Federal income tax purpose was $71,491,819. At
December 31, 1997, unrealized appreciation for Federal income tax purposes
aggregated $44,654,417, of which $45,661,409 related to appreciated securities
and $1,006,992 related to depreciated securities.
6. CAPITAL STOCK. The Fund offers an unlimited number of shares of beneficial
interest without par value. Of the 7,348,826 shares outstanding at December 31,
1997, 7,204,897, shares were held by State Street Bank and Trust Company as
custodian under an agreement with Connecticut General Life Insurance Company
("CG Life") relating to variable annuity and variable universal life insurance
contracts issued by that company. The remainder, representing 2.0% of the shares
outstanding, was held by an employee benefit plan established by CG Life for
certain of its employees.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND NOTES TO FINANCIAL STATEMENTS
(Continued) 13
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
Shares Amount Shares Amount
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,928 $ 28,750 86 $ 1,004
Shares issued to shareholders
in reinvestment of dividends
And distributions 311 4,762 341 4,093
--------------- ------------------- ------------ ----------------
2,239 33,512 427 5,097
Shares redeemed (660) (9,557) (822) (9,678)
--------------- ------------------- ------------ ----------------
Net increase (decrease) 1,579 $ 23,955 (395) $ (4,581)
=============== =================== ============ ================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND NOTES TO FINANCIAL STATEMENTS
(Continued) 14
7. FINANCIAL HIGHLIGHTS. The following selected per share data, ratios and
supplemental data is computed on the basis of a share outstanding throughout the
period:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.40 $ 10.75 $ 8.19 $ 9.20 $ 11.94
------------ ----------- ----------- ---------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income* 0.25 0.22 0.21 0.19 0.16
Net realized and unrealized gain (loss) 3.86 2.17 2.80 (0.13) 0.22
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 4.11 2.39 3.01 0.06 0.38
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
From net investment income (0.32) (0.29) (0.27) (0.14) (0.17)
From capital gains (0.36) (0.45) (0.18) (0.85) (2.95)
In excess of net capital gains - - - (0.08) -
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.68) (0.74) (0.45) (1.07) (3.12)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD 15.83 $ 12.40 $ 10.75 $ 8.19 $ 9.20
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN 33.35% 22.48% 36.82% 0.67% 2.97%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 116,308 $ 71,513 $ 66,283 $ 54,728 $ 61,478
Ratio of operating expenses to average net assets 0.25% a 0.60% a 0.73% 0.78% 0.66%
Ratio of net investment income to average net assets 1.93% b 1.78% b 2.05% 2.23% 1.30%
Portfolio turnover 4% 4% 4% 4% 185% **
Average commission rate*** $ 0.0279 $ 0.0272
</TABLE>
a. Ratios of expenses to average net assets prior to expense reimbursements were
0.55% and 0.64% for 1997 and 1996, respectively.
b. Ratios of net investment income to average net assets prior to expense
reimbursements were 1.63% and 1.74% for 1997 and 1996, respectively.
* Net investment income per share has been calculated in accordance with SEC
requirements, with the exception that end of year accumulated
undistributed/(overdistributed) net investment income has not been adjusted to
reflect current year permanent difference between financial and tax accounting.
** During November 1993, the portfolio was indexed to the S&P 500, resulting in
a complete turnover of the portfolio at that time.
*** For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security trades
on which commissions are charged. This amount may vary from period to period and
fund to fund depending on the mix of trades executed in various markets where
trading practices and commission rule structures may differ.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND 15
REPORT OF
INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of CIGNA Variable Products S&P 500 Index Fund
In our opinion, the accompanying statement 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 CIGNA Variable Products S&P 500
Index Fund, formerly the Companion Fund, (the " Fund" ) at December 31, 1997,
the results of its operations for the year then ended, the changes in its 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 Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 20, 1998
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND 16
TRUSTEES: OFFICERS:
R. Bruce Albro, Chairman R. Bruce Albro
Senior Managing Director Chairman of the Board
CIGNA Investments, Inc. and President
Hugh R. Beath Alfred A. Bingham III
Advisory Director, Vice President and Treasurer
AdMedia Corporate Advisors, Inc.
Jeffrey S. Winer
Russell H. Jones Vice President and Secretary
Vice President and Treasurer,
Kaman Corporation
Thomas C. Jones
President, CIGNA Investment CUSTODIAN AND TRANSFER AGENT:
Management and CIGNA State Street Bank and Trust Company
Investments, Inc. P.O. Box 231
Boston, Massachusetts 02107
Paul J. McDonald
Senior Executive Vice President INVESTMENT ADVISER:
and Chief Administrative Officer, CIGNA Investments, Inc.
Friendly Ice Cream Corporation 900 Cottage Grove Road
Hartford, Connecticut 06152
ADDRESS OF THE FUND:
950 Winter Street
Suite 1200
Waltham, Massachusetts 02154
- --------------------------------------------------------------------------------
"Standard & Poor's/R/", "S&P/R/", "S&P 500", "Standard and Poor's 500", and
"500" are trademarks of Standard and Poor's Corporation (S&P) and have been
licensed for use by CG Life. The S&P 500 Index Fund is not sponsored, endorsed,
sold or promoted by S&P, and S&P makes no representation regarding the
advisability of investing in the Fund.
