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[CIGNA TREE LOGO GRAPHIC APPEARS HERE]
CIGNA VARIABLE PRODUCTS
MONEY MARKET FUND
ANNUAL REPORT
DECEMBER 31, 1998
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1
DEAR SHAREHOLDERS:
We are pleased to provide this report for CIGNA Variable Products Money Market
Fund (the "Fund"), covering the Year ended December 31, 1998.
MARKET REVIEW
In 1998, the U.S. economy was buffeted by a wide array of shocks from overseas.
Deteriorating economic conditions in Asia, Russia and Brazil caused a tremendous
increase in volatility for world markets. The U.S. dollar strengthened, and U.S.
exports fell 4% over the course of the year.
Consumer spending in the U.S. continued to be the mainstay of the economy. The
three-year growth rate in the S&P 500 Index peaked at 28% in the second quarter
of 1998. The Federal Reserve ("Fed") stepped in on September 29, at the Federal
Open Market Committee (FOMC) meeting, and cut the federal funds rate from 5.50%
to 5.25%, in their first policy change since May 1997. The Fed then proceeded
with more easing on two more occasions. The federal funds rate closed the year
at 4.75%, for a total accommodation of 75 basis points. The year ended on a high
note, with fourth quarter GDP (gross domestic product) growth estimated between
3.5% and 4%.
FUND ACTIVITY AND PERFORMANCE
On December 31, 1998, the portfolio composition was as follows: top-tier
commercial paper, 60%; top tier foreign commercial paper, 8%; and U.S.
Government and agencies, 32%. The Fund is well diversified.
Total return for the twelve months ended December 31, 1998 was 5.14%, after
expenses and reinvestment of dividends. By comparison, the Lipper Money Market
Instrument Fund Average and three-month treasury bills, as reported by Lehman
Brothers (which does not include investment expenses), returned 4.86% and 5.31%,
respectively, for the year ended December 31, 1998. As of December 31, 1998, the
Fund's annualized 7-day yield was 4.71%, and its average portfolio maturity was
37 days. (Fund and Lipper returns are after expenses and reinvestment of
dividends.)
OUTLOOK
After three years of rapid economic growth, economic indicators are signaling a
moderate growth cycle for 1999. Recent estimates point to a GDP growth rate of
just 1.7% in the fourth quarter, which would bring the average growth rate for
1998 to about 3%. As a result, we do not expect the Fed to ease in the first
quarter of 1999. However, we do expect growth to continue to trend downward as
the year develops, potentially causing the Fed to resume easing in the second or
third quarter. Early forecasts call for fed funds to end the year at 4% and bond
yields to move toward 4.5%. Uncertainty is sure to be a major factor in the year
ahead, with fragile economic conditions overseas increasing volatility in the
global financial markets.
The Fund is structured to take advantage of the short-term instability we expect
in the global markets for 1999. The Fund has exposure in both fixed and floating
rate securities, with the emphasis on longer-dated fixed rate issues. We will
continue to focus on the situation overseas and U.S. economic trends as keys to
further Fed action and adjust our portfolio strategy accordingly.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
CHAIRMAN OF THE BOARD AND PRESIDENT
CIGNA VARIABLE PRODUCTS MONEY MARKET FUND
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CIGNA VARIABLE PRODUCTS MONEY MARKET FUND INVESTMENTS IN SECURITIES December 31,
1998 2
MARKET
PRINCIPAL VALUE
(000) (000)
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COMMERCIAL PAPER - 68.1%
DOMESTIC - 60.1%
Aluminum Co. of America, 5.22%, 1/8/99 $ 1,088 $1,087
Assoc. First Capital Corp., 5.35%, 1/5/99 1,042 1,041
Barclays U.S. Funding Corp., 7.25%, 1/4/99 1,073 1,072
Becton Dickinson and Co., 5.8%, 1/11/99 1,097 1,095
Caterpillar Financial Svcs. Corp., 5.15%,
2/4/99 775 771
Chevron USA, Inc., 5.3%, 1/6/99 1,084 1,083
Ford Motor Credit Co., 5.32%, 1/12/99 1,017 1,015
Gillette Co., 6.0%, 1/4/99 700 700
Heinz (H.J.) Co.,
5.23%, 1/11/99 723 722
5.35%, 1/22/99 350 349
Household Finance Corp., 5.35%, 1/19/99 970 967
New York Times (The) Co., 5.35%, 1/13/99 762 761
PPG Industries, Inc., 5.4%, 1/12/99 722 721
Pioneer Hi-Bred Intl., Inc., 5.4%, 1/14/99 795 793
Rockwell International Corp., 5.22%, 2/9/99 695 691
Southern California Edison Co., 5.3%,
1/12/99 1,115 1,113
Southern Co., 5.31%, 1/21/99 1,088 1,085
TECO Finance, Inc., 5.25%, 2/5/99 500 497
Times Mirror (The) Co., 5.15%, 2/17/99 778 773
Vermont American Corp., 5.55%, 1/15/99 862 860
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17,196
---------
FOREIGN - 8.0%
Bass Finance (C.I.) Limited, 5.27%, 1/7/99 550 549
Den Norske Stats Olejeselskap (Statoil),
5.4%, 1/21/99 800 798
Diageo Capital PLC, 5.33%, 1/4/99 947 947
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2,294
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TOTAL COMMERCIAL PAPER 19,490
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MARKET
PRINCIPAL VALUE
(000) (000)
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U.S. GOVERNMENT & AGENCIES - 31.7%
Federal Home Loan Banks,
5.58%, 3/11/99 $ 250 $ 250
5.57%, 4/7/99 500 500
6.1%, 4/23/99 500 502
5.078%, 8/12/99* 500 500
5.15%, 9/30/99 500 500
5.0%, 12/29/99 500 500
Federal Home Loan Mtg. Corp., 5.6%, 4/21/99 950 951
Federal National Mortgage Assoc.,
5.4%, 2/2/99 765 765
6.42%, 4/15/99 780 783
5.138%, 4/28/99* 500 500
5.65%, 5/26/99 650 651
4.696%, 6/2/99* 670 669
Student Loan Marketing Assoc.,
5.288%, 12/2/99* 1,000 1,000
5.288%, 12/16/99* 1,000 1,000
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9,071
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TOTAL INVESTMENTS IN SECURITIES - 99.8%
(Total Cost - $28,561,244) 28,561
Cash and Other Assets, Less Liabilities - 0.2% 51
---------
NET ASSETS - 100.0% $28,612
=========
*Variable rate security. Rate is as of December 31, 1998.
The Notes to Financial Statements are an integral part of these statements.
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CIGNA VARIABLE PRODUCTS MONEY MARKET FUND 3
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(IN THOUSANDS)
--------------
ASSETS:
Investments in securities at value
(Cost - $28,561,244) $ 28,561
Cash on deposit with custodian 1
Interest receivable 81
Investment for Trustees' deferred compensation plan 2
Receivable from advisor 6
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TOTAL ASSETS 28,651
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LIABILITIES:
Accrued audit and legal fees payable 9
Accrued advisory fees payable 9
Payable for Trustees' deferred compensation plan 2
Other accrued expenses (including $10,161 due to
affiliates) 19
------------
TOTAL LIABILITIES 39
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NET ASSETS (Equivalent to $1.00 per share
based on 28,612,302 shares outstanding) $ 28,612
============
COMPONENTS OF NET ASSETS:
Paid in capital $ 28,612
Undistributed net investment income -
Accumulated net realized gain on investments -
Unrealized appreciation of investments -
------------
NET ASSETS $ 28,612
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STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
--------------
INVESTMENT INCOME
INCOME:
Interest $ 1,150
-----------
EXPENSES:
Investment advisory fees 73
Custodian fees 39
Administrative services 22
Auditing and legal fees 10
Other 8
-----------
Total expense 152
Less expenses waived by investment advisor (47)
-----------
Net expenses 105
-----------
NET INVESTMENT INCOME 1,045
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investments 1
Unrealized appreciation of investments -
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 1
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 1,046
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The Notes to Financial Statements are an integral part of these statements.
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CIGNA VARIABLE PRODUCTS MONEY MARKET FUND 4
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
1998 1997
----------------------
(IN THOUSANDS)
----------------------
OPERATIONS:
Net investment income $ 1,045 $ 493
Net realized gain from investments 1 -
Unrealized appreciation on investments - -
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Net increase in net assets from operations 1,046 493
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DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,045) (493)
From net realized capital gains (1) -
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Total distributions to shareholders (1,046) (493)
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CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 54,752 38,203
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 1,044 494
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55,796 38,697
Cost of shares redeemed (41,724) (30,160)
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Net increase from fund share transactions 14,072 8,537
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NET INCREASE IN NET ASSETS 14,072 8,537
NET ASSETS:
Beginning of period 14,540 6,003
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End of period $ 28,612 $14,540
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The Notes to Financial Statements are an integral part of these statements.
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CIGNA VARIABLE PRODUCTS MONEY MARKET FUND NOTES TO FINANCIAL STATEMENTS 5
1. SIGNIFICANT ACCOUNTING POLICIES. CIGNA Variable Products Money Market Fund
(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 objective of the 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 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 - The Fund's investments are valued at amortized cost,
which the Board of Trustees has determined constitutes fair value and which at
December 31, 1998 approximates cost for Federal income tax purposes.
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, which includes accretion of discount, is recorded on the
accrual basis. Securities gains and losses are recognized on the specific cost
identification basis.
C. FEDERAL TAXES - For Federal income tax purposes, the Fund is taxed as a
separate entity. Its policy is 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 - Dividends from net investment income and net realized gains are
declared and reinvested daily. Dividends and distributions are recorded by the
Fund 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 reclassification to paid in
capital may be required.
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES. Investment
advisory fees are 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 0.35% applied to the average daily net assets of
the Fund. CII has 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 0.50% of
average daily net assets until April 30, 2000 and thereafter 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 Trust's Treasurer and Secretary and certain persons who assist in
carrying out the responsibilities of those offices. For the period ending
December 31, 1998, the Fund paid or accrued $22,128.
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. CAPITAL STOCK. The Fund is a separate series of the Trust which offers an
unlimited number of shares of beneficial interest, without par value.
Connecticut General Life Insurance Company, an indirect, wholly-owned subsidiary
of CIGNA Corporation, is the sole shareholder of the Fund.
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CIGNA VARIABLE PRODUCTS MONEY MARKET FUND NOTES TO FINANCIAL STATEMENTS 6
(Continued)
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
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Year Ended Year Ended
December 31, 1998 December 31, 1997
Shares Amount Shares Amount
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<S> <C> <C> <C> <C>
Amount sold 54,752 $ 54,752 38,203 $ 38,203
Amount issued to shareholders
in reinvestment of dividends
and distributions 1,044 1,044 494 494
----------- ------------ ----------- ------------
55,796 55,796 38,697 38,697
Amount redeemed (41,724) (41,724) (30,160) (30,160)
----------- ------------ ----------- ------------
Net increase 14,072 $ 14,072 8,537 $ 8,537
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</TABLE>
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CIGNA VARIABLE PRODUCTS MONEY MARKET FUND NOTES TO FINANCIAL STATEMENTS 7
(Continued)
5. 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>
MARCH 1,
1996+ TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
1998 1997 1996
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<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.04
Net realized and unrealized gain on securities - - -
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.05 0.05 0.04
------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.05) (0.05) (0.04)
Distributions from capital gains - - -
------ ------ ------
TOTAL DISTRIBUTIONS (0.05) (0.05) (0.04)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======= ======= =======
TOTAL RETURN * 5.14% 5.19% 4.18%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 28,612 $ 14,540 $ 6,003
Ratio of operating expenses to average net assets ** 0.50% 0.50% 0.42%
Ratio of net investment income to average net assets *** 4.98% 5.07% 4.10%
</TABLE>
+ Commencement of operations.
* Total return would have been lower if certain expenses had not been
reimbursed by the Adviser.
** Ratios of expenses to average net assets prior to reimbursement of
expenses were 0.73%, 1.11% and 1.28%, respectively, for the 1998, 1997 and
1996 periods.
*** Ratios of net investment income to average net assets prior to
reimbursement of expenses were 4.75%, 4.4% and 3.24%, respectively, for
the 1998, 1997 and 1996 periods.
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8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of CIGNA Variable Products Money Market 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 Money
Market Fund (the "Fund") at December 31, 1998, the results of its operations for
the year then ended, the changes in its net assets and the financial highlights
for each of the periods 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, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
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CIGNA VARIABLE PRODUCTS MONEY MARKET FUND 9
<TABLE>
<CAPTION>
<S> <C> <C>
TRUSTEES OFFICERS
Richard H. Forde Thomas C. Jones Richard H. Forde
SENIOR MANAGING DIRECTOR, PRESIDENT, CIGNA INVESTMENT CHAIRMAN OF THE BOARD
CIGNA INVESTMENTS, INC. MANAGEMENT AND CIGNA AND PRESIDENT
INVESTMENTS, INC.
Hugh R. Beath Paul J. McDonald Alfred A. Bingham III
ADVISORY DIRECTOR, SENIOR EXECUTIVE VICE PRESIDENT VICE PRESIDENT AND TREASURER
ADMEDIA CORPORATE ADVISORS, INC. AND CHIEF ADMINISTRATIVE OFFICER,
FRIENDLY ICE CREAM CORPORATION
Russell H. Jones Jeffrey S. Winer
VICE PRESIDENT AND TREASURER, VICE PRESIDENT AND SECRETARY
KAMAN CORPORATION
</TABLE>
