<PAGE>
[CIGNA TREE LOGO GRAPHIC APPEARS HERE]
CIGNA VARIABLE PRODUCTS
INVESTMENT GRADE BOND FUND
ANNUAL REPORT
DECEMBER 31, 1999
[CIGNA TREE LEAVES GRAPHIC APPEARS IN BACKGROUND OF PAGE]
<PAGE>
- --------------------------------------------------------------------------------
1
DEAR SHAREHOLDER:
We are pleased to provide this report for CIGNA Variable Products Investment
Grade Bond Fund (the "Fund") covering the period ended December 31, 1999.
MARKET ACTIVITY
U.S. economic growth during 1999 registered an unprecedented fourth consecutive
year of approximately 4% real GDP (gross domestic product) growth. The current
economic expansion, which is entering its ninth year, is the longest business
cycle expansion in American history. The 1990s will be remembered as a period of
healthy economic growth, low inflation, rising corporate profitability, strong
job creation, and increasing productivity.
Global fixed income markets have reacted adversely to the continued strong
momentum in the domestic economy and revival in economic growth worldwide. The
continued robust growth in private credit demands and rise in private debt
ratios also have put upward pressure on global interest rates and downward
pressure on bond prices. The surge in world oil prices and industrial commodity
prices has led to an uptick in consumer inflation, as did increases in interest
rates announced by the Federal Reserve (the "Fed"), the Bank of England, and the
European Central Bank. The Lehman Brothers Aggregate Bond Index fell by nearly
1% for the full year, while the 30-year U.S. Treasury Bond had a negative total
return of nearly 15%, its worst year ever. Globally, the sharp increase in world
interest rates combined with the steep decline in the Euro caused global bond
markets to decline by 6%, as measured by the J. P. Morgan Non-U.S. Government
Bond Index.
Continued inflationary concerns resulted in the Fed raising rates by an
additional 25 basis points in November. While overall credit spreads ended the
quarter tighter than third quarter levels, higher Treasury yields led to
negative absolute returns in many of the fixed income sectors.
The Lehman Brothers Aggregate Bond Index, a broad measure of the fixed income
market, generated a total return of -0.12% during the fourth quarter and -0.82%
during 1999. This is only the second time since the Aggregate has been
introduced that it has generated a negative calendar year return. Corporate
bonds and mortgage-backed securities led the Index with the highest
duration-adjusted returns. In non-index sectors, emerging market debt had an
explosive year generating record total returns.
Fund results are examined in Management's Discussion and Analysis (page 3).
OUTLOOK
The U.S. economy shows virtually no signs of slowdown, with the possible
exception of housing, despite rising interest rates and the increasing monetary
restraint by the Fed. For full-year 2000, we expect GDP growth to slow only
modestly from the nearly 4% growth achieved in 1999 and the 4% average annual
growth of the 1996-99 period. It is our view that interest rates have not risen
to levels sufficient to choke off the strong momentum in domestic demand from
households and businesses. Our basic conclusion is that a variety of existing
powerful economic forces will continue to overwhelm the restraining effects of
the current level of interest rates until they rise to higher levels and remain
at those levels for an extended period. Within the household sector, these
forces include a strong labor market, continued ample availability of consumer
credit, and the powerful influence of the "wealth effect", resulting from large
equity market gains.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND 2
Similarly, within the business sector, it is our view that the current level of
interest rates is not sufficient to obstruct the current strong momentum in
capital and inventory investment, and the production of goods for export.
Capital expenditures should continue to benefit from the boom in technology and
in general, the high rates of return on new investment relative to the cost of
capital. In addition, basic manufacturing will also benefit from inventory
rebuilding and a recovery in demand for U.S. exports, as a result of the
recovery in global economies.
Because of the threat of higher inflation, we believe that the Fed will continue
its relentless pursuit to slow the pace of domestic economic growth by
continuing to raise interest rates to the level necessary to achieve its goal of
price stability.
Although we anticipate a further moderate rise in interest rates during the next
six months and a decline in bond prices, the domestic bond market has
effectively discounted a substantial portion of the anticipated rate increase.
Assuming a long-term trendline for U.S. inflation of 2%, intermediate and
long-term government bonds with yields in excess of 6.5% would appear to offer
attractive long-term values. Even more compelling long-term values are available
in the Government Agency, investment-grade corporate, and mortgage-backed bond
markets, which offer market yields in the 7.5% to 8% range. However, a sustained
bond market rally is not likely to occur until later in the year, when investors
perceive that the Fed has tightened monetary and credit conditions sufficiently
to achieve its targeted economic slowdown.
Longer-term economic prospects appear favorable as a result of the revolution in
computer and telecommunications technology and continued sound monetary and
fiscal policies. However, on a short-term basis, financial markets face a major
business cycle-related challenge. An overheating of the domestic economy,
combined with rapid economic recovery overseas, will result in continued credit
restraint by the Fed and tighter liquidity and monetary conditions on a global
basis. At greatest risk within global financial markets are those sectors of
previous speculative excess, namely large capitalization U.S. equities and, in
particular, the high technology and internet sectors of the equity market.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
CHAIRMAN OF THE BOARD AND PRESIDENT
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND 3
MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited)
The themes that drove the bond market during the second quarter were continued
strong economic growth domestically and the recovering economies in many of the
emerging markets. Though reported inflation remained low by historical
standards, the impact of a strong U.S. economy and oil price increases on fixed
income investors combined to increase inflation expectations. This resulted in
steadily increasing interest rates and declining bond prices. April's reported
CPI of 0.7% and the Federal Reserve Board's (the "Fed") subsequent policy shift
to a monetary tightening bias set the stage for rates to move higher.
The high yield market and emerging markets boasted the highest returns among
fixed income asset classes in the second quarter. All other spread sectors
underperformed duration-matched treasuries as spreads widened in sympathy with
the shift in Fed policy.
From its inception on May 3, 1999 until June 30, 1999, the Fund returned -1.80%
compared with the -1.34% return for the Lehman Government/Corporate Bond Index.
The third quarter proved to be a challenging period for world financial markets.
Tightening monetary conditions, rising commodity prices, and a weaker U.S.
dollar put downward pressure on most stock and bond markets worldwide. The Fed
raised the discount rate and federal funds rate, while long-term bond yields
trended higher in most markets. Most notably, "credit spreads" ended the quarter
wider, a reflection of decreased liquidity and rising defaults.
During the third quarter, we concluded that the level and slope of the yield
curve was consistent with current economic conditions and with expectations
about inflation and monetary policy. Accordingly, we restructured the portfolio,
reducing duration to be approximately neutral to the Index. We also increased
our allocation to the Agency sector in the third quarter, because the market was
offering a very attractive yield premium on Agency securities, which have AAA
ratings, low credit risk, and acceptable liquidity.
In the domestic sector, negative corporate announcements no longer could be
dismissed as "isolated events". However, the Yankee sector, which consists of
foreign bonds denominated in U.S. dollars, continued to be a strong performer
for the year, reflecting the fact that the business cycles in Europe and Asia
were in the early stages of recovery. We increased the weight in Yankees. We
also substituted a number of high quality municipal bonds for corporates in the
portfolio.
Portfolio performance was favorably impacted by our overweight to higher
quality, top-tier credit card issuers. This sector performed well relative to
other asset-backed securities sectors, reflecting its higher liquidity and
investors' general flight to quality.
The Fund returned 0.51% for the third quarter, which trailed the 0.54% return
for the Index.
Continued inflationary concerns in the fourth quarter resulted in the Fed
raising interest rates in November. This increase by the Fed on November 16
marked the third tightening move for 1999, which completely reversed the 75
basis point easing from the 1998 market crisis.
In our view, the most significant development for the fourth quarter and for the
immediate future is the shift toward tighter monetary policy.
The Fund returned -0.18% for the fourth quarter of 1999 and -1.48% from
inception-to-year-end. The comparable Lehman Brothers Government/
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND 4
MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) (Continued)
Corporate Bond Index returns were -0.41% and -1.22%, respectively. Relative
performance of the Fund for the fourth quarter was helped by high yield bonds,
which outperformed other sectors of the domestic fixed income markets in the
fourth quarter and for all of 1999.
Our outlook for 2000 is that until interest rates rise sufficiently to cause a
retrenchment in consumer spending and in business hiring and investment,
domestic economic growth will continue at an above-trend pace. We believe that
the financial markets face a period of considerable turbulence, instability and
risk over the next six to nine months. Growing business cycle-related strains
and imbalances in tandem with tightening monetary conditions around the world
suggest that U.S. stocks, bonds, and the U.S. dollar are at considerable risk.
Equities appear to be at far greater risk than bonds because of current investor
psychology and the relative valuations of the two broad asset classes. The most
important factor in the capital market outlook is the likelihood of continued
deterioration in financial liquidity condition, which is a function of rapidly
expanding global economic growth and tightening monetary conditions by the
central banks of the world. We expect global interest rates will be under upward
pressure over the near term.
- --------------------------------------------------------------------------------
[THE FOLLOWING APPEARS AS A BAR CHART GRAPHIC]
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (UNAUDITED)
5/3/99 - 12/31/99
|------------------------------------------------------|
| AVERAGE ANNUAL RETURNS |
| |
| Life of Fund |
| 12/31/99 -1.48% |
|------------------------------------------------------|
CVPIGBF LEHMAN GOV/CORP.
INVESTMENT INVESTMENT
5/03/99 $10,000 $10,000
6/30/99 $ 9,820 $ 9,866
9/30/99 $ 9,870 $ 9,919
12/31/99 $ 9,852 $ 9,878
CVPIGBF = CIGNA Variable Products Investment Grade Bond Fund
Lehman Gov./Corp. = Lehman Government/Corporate Bond Index - Total Return
CIGNA Variable Products Investment Grade Bond Fund (the "Fund") performance
figures are historical and reflect reinvestment of all dividends. The Fund's
investment return and principal value will fluctuate so that an investor's
shares, when sold may be worth more or less than their original cost. Past
performance cannot guarantee comparable future results. The Fund's return has
been compared with the total return performance of Lehman Brothers
Government/Corporate Bond Index. This index is a group of unmanaged securities
widely regarded by investors to be representative of the bond market in general.
An investment cannot be made in the index. Index results do not reflect
brokerage changes or other investment expenses.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND 5
INVESTMENTS IN SECURITIES December 31, 1999
MARKET
PRINCIPAL VALUE
(000) (000)
- ---------------------------------------------------------------------
LONG-TERM BONDS AND NOTES -94.0%
CONSUMER AND RETAIL - 0.7%
Wal-Mart Stores, Inc., 6.875%, 2009 $ 280 $ 273
-----------
273
-----------
ENTERTAINMENT AND COMMUNICATIONS - 5.3%
AT&T Canada, Inc., 7.65%, 2006
(144A security acquired Nov. 1999 380 378
for $380,124)*
ITT Corp., 7.4%, 2025 185 167
Lensfest Communications, Inc.,
8.25%, 2008 520 520
US West Communications, Inc., 7.2%,
2004 (144A security acquired 150 149
October 1999 for $149,715)*
Orange PLC, 9.0%, 2009 (144A
security acquired June 1999 for 200 195
$200,000)*
Premier Parks, Inc., 9.75%, 2007 100 101
Sun Microsystems, Inc., 7.35%, 2004 570 569
-----------
2,079
-----------
FINANCIAL - 13.8%
AT&T Capital Corp., 7.11%, 2001 430 430
American Express Credit Corp.,
6.4%, 2005 350 345
Bank One Corp., 5.625%, 2004 500 469
Banco Nacional de Comercio Exterior,
S.N.C., 7.25%, 2004 280 262
Beneficial Corp., 6.35%, 2001 425 420
Fairfax Financial Holdings Ltd.,
7.375%, 2006 500 450
Finova Capital Corp., 6.625%, 2001 190 188
Ford Motor Credit Co., 7.375%, 2009 430 425
MARKET
PRINCIPAL VALUE
(000) (000)
- --------------------------------------------------------------------
Korea Development Bank, 7.625%, 2002
(144A security acquired September
1999 for $358,834)* $ 360 $ 359
National Westminister Bank PLC,
7.375%, 2009 415 406
Sanwa Finance Aruba AEC,
8.35%, 2009 190 191
Shinhan Bank, 7.25%, 2002 200 181
Skandinaviska Enskilda Banken Corp.,
6.625%, 2049 250 245
Sumitomo Bank Intn'l., NV, 8.5%, 2009 195 198
Transamerica Corp., 9.375%, 2008 440 480
Transamerica Financial Corp., 6.8%, 2001 390 388
----------
5,437
----------
FOREIGN GOVERNMENT - 3.2%
Argentina (Republic of), 6.0%, 2023 405 267
Brazil (Republic of), 6.9375%, 2024 220 167
Bulgaria (National Republic),
6.5%, 2024 200 160
Panama (Republic of), 8.25%, 2008 175 152
Poland,(Government of), Step Coupon
(4.0% to 10/07/00), 2024 805 527
----------
1,273
----------
INDUSTRIAL -2.0%
Lockheed Martin Corp., 8.5%, 2029 485 485
TFM S.A., Step Coupon (0% to 6/15/02), 2009 450 288
----------
773
----------
OIL & GAS - 1.1%
Enron Oil & Gas Co., 6.0%, 2008 500 445
----------
445
----------
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND 6
INVESTMENTS IN SECURITIES December 31, 1999
MARKET
PRINCIPAL VALUE
(000) (000)
- ----------------------------------------------------------------
STRUCTURED SECURITIES - 7.7%
Citibank Credit Card Master Trust,
5.8%, 2005 $ 650 $ 627
First USA Credit Card Master Trust,
6.42%, 2005 750 742
LB Commercial Conduit Mortgage Trust,
6.78%, 2009 550 524
MBNA Master Credit Card Trust,
6.4%, 2005 850 840
Providian Master Trust, 6.6%, 2007 300 298
----------
3,031
----------
TAXABLE MUNICIPALS - 7.2%
Alameda Corridor Transportation
Authority, 6.5%, 2019 500 436
Cerritos Calif. Public Financing
Authority, 8.0%, 2011 500 511
Chesapeake & Potomac Tele. Co.,
7.25%, 2012 250 238
Decatur Texas Hospital Authority,
7.75%, 2009 200 191
Mississippi Business Financial Corp.,
7.81%, 2024 500 482
New York City Transit Authority,
6.5%, 2011 500 455
Texas Water Res. Finance Authority,
6.0%, 2002 500 490
----------
2,803
----------
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
UTILITIES - 4.5%
AES Corp., 9.5%, 2009 $ 150 $ 151
Allied Waste North America Inc., 10.0%
10.0%, 2009 (144A security
Acquired Nov. 1999 for $199,125)* 225 201
Empressa Nacional De Electric,
8.125%, 2097 100 81
Niagara Mohawk Power Corp.,
7.375%, 2003 250 249
Texas Utilities Co., 6.375%, 2004 500 480
Toll Road Investment Partnership,
Zero Coupon, 2010 1,300 581
----------
1,743
----------
U.S. GOVERNMENT AND AGENCIES - 48.5%
Federal Home Loan Mortgage Corp.,
5.0%, 2004 4,460 4,177
6.25%, 2004 4,775 4,668
6.625%, 2009 4,775 4,639
United States Treasury Bonds,
8.75%, 2017 3,835 4,580
United States Treasury Notes,
6.375%, 2002 935 937
5.625%, 2001 50 50
----------
19,051
----------
TOTAL LONG-TERM BONDS
(Cost - $37,679,952) 36,908
----------
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND 7
INVESTMENTS IN SECURITIES December 31, 1999
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 4.1%
BONDS - 3.6%
First Hawaiian, Inc., 6.25%, 8/15/00 $ 400 $ 398
Hughes Electronic Corp., 7.451%,
10/23/00, (144A Security acquired
Oct. 1999 for $498,763)* 500 499
Texas New Mexico Power Co.,
9.25%, 09/15/00 500 508
----------
1,405
----------
UNITED STATES GOVERNMENT - 0.5%
Federal Home Loan Bank, 1.95%, 1/3/00 194 194
----------
TOTAL SHORT-TERM OBLIGATIONS
(Cost - $1,615,956) 1,599
----------
TOTAL INVESTMENTS IN SECURITIES - 98.1%
(Total Cost - $39,295,908) 38,507
Cash and Other Assets, Less Liabilities - 1.9% 754
----------
NET ASSETS - 100% $39,261
==========
* Indicates restricted security; the aggregate value of restricted securities
is $1,781,394 (aggregate cost - $1,786,561) which is approximately 4.5% of
net assets. Valuations have been furnished by brokers trading in the
securities or by a pricing service for all restricted securities.
-------------------------------------------------------------------
PORTFOLIO COMPOSITION (UNAUDITED)
December 31, 1999
MARKET % OF
QUALITY RATINGS* OF VALUE MARKET
BONDS (000) VALUE
-----------------------------------------------------------------
Aaa/AAA $ 25,120 65.2%
Aa/AA 1,840 4.8%
A/A 2,960 7.7%
Baa/BBB 6,320 16.4%
Ba/BB 1,351 3.5%
B/B 916 2.4%
--------------------
$38,507 100.0%
========= ==========
-------------------------------------------------------------------
*The higher of Moody's or Standard & Poor Ratings.
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND 8
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
(IN THOUSANDS)
ASSETS:
Investments at market value
(Cost $39,295,908) $ 38,507
Cash 1
Interest receivable 702
Receivable for investments sold 37
Advisor reimbursement receivable 61
------------
TOTAL ASSETS 39,308
------------
LIABILITIES:
Accrued advisory fees payable 16
Administrative fees payable 14
Audit and legal fees payable 8
Custodian fees payable 8
Shareholder reports payable 1
------------
TOTAL LIABILITIES 47
------------
NET ASSETS (equivalent to $9.53 per share
based on 4,120,917 shares of
beneficial interest outstanding;
unlimited number of shares authorized) $ 39,261
============
COMPONENTS OF NET ASSETS:
Paid-in capital $ 40,797
Undistributed net investment income 37
Unrealized depreciation of investments (789)
Accumulated net realized gain (784)
------------
NET ASSETS $ 39,261
============
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 3, 1999* TO DECEMBER 31, 1999
(IN THOUSANDS)
INVESTMENT INCOME
INCOME:
Interest $ 1,406
-----------
EXPENSES:
Investment advisory fees 108
Administrative fees 26
Custodian fees 24
Audit and legal fees 9
Shareholder reports 2
Other 2
-----------
Total expenses 171
Less expenses waived by investment advisor (63)
-----------
Net expenses 108
-----------
NET INVESTMENT INCOME 1,298
-----------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS
Net realized loss from investments (765)
Unrealized depreciation of investments (789)
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (1,554)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (256)
===========
* Commencement of operations.
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND 9
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MAY 3, 1999* TO DECEMBER 31, 1999
(IN THOUSANDS)
OPERATIONS:
Net investment income $ 1,298
Net realized loss from investments (765)
Unrealized depreciation on
Investments (789)
-------------------
Net increase (decrease) in net assets
from operations (256)
-------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($0.32 per share) (1,280)
-------------------
CAPITAL SHARE TRANSACTIONS:
Net increase from capital share transactions 40,797
-------------------
NET INCREASE (DECREASE) IN NET ASSETS 39,261
NET ASSETS:
Beginning of period -
-------------------
End of period (including undistributed
net investment income of $37,745) $ 39,261
===================
* Commencement of operations.
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND 10
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES. CIGNA Variable Products Investment Grade
Bond 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 Fund's primary objective is to provide the
highest current income attainable consistent with reasonable risk as determined
by the Fund's investment adviser, through investment in a professionally
managed, diversified portfolio of fixed-income 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 Fund in the preparation of its 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 brokers
trading in the securities or 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.
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 Fund's 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).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis. The Fund does not amortize premiums or discounts
for book purposes, except for original issue discounts which are amortized over
the life of the respective securities. Securities gains and losses are
determined on the basis of identified cost.
C. FEDERAL TAXES - It is the Fund's policy 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 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.
3. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES. Investment
advisory fees are paid or accrued to TimesSquare Capital Management, Inc.
("TimesSquare"), certain officers and directors of which are affiliated with the
Fund. Such advisory fees are based on an annual rate of 0.50% of the Fund's
average net assets. TimesSquare has voluntarily agreed to reimburse the Fund for
any amount by which its expenses (including the advisory fee but excluding
interest, taxes, transaction costs incurred in acquiring and disposing of
portfolio securities, and extraordinary expenses) exceed 0.50% of average
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND 11
Notes to Financial Statements
daily net assets until April 30, 2001, and afterwards to the extent described in
the Fund's prospectus.
TimesSquare is an indirect, wholly-owned subsidiary of CIGNA Corporation
The Fund reimburses TimesSquare 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 period ended
December 31, 1999, the Fund paid or accrued $26,413.
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) for the period ended December 31, 1999 were
$125,889,242 and $86,022,111, respectively.
As of December 31, 1999, the cost of securities for federal income tax purposes
was $39,322,137. At December 31, 1999 unrealized depreciation for Federal income
tax purposes aggregated $814,702 of which $41,233 related to appreciated
securities and $855,935 related to depreciated securities.
6. CAPITAL STOCK. The Fund offers an unlimited number of shares of beneficial
interest without par value. All of the shares outstanding at December 31, 1999
were held by Connecticut General Life Insurance Company relating to variable
universal life insurance contracts issued by that company.
- --------------------------------------------------------------------------------
Transactions in capital stock were as follows:
- ---------------------------------------------------------------
For the period 5/3/99*
to 12/31/99
Shares Amount
(000) (000)
- ---------------------------------------------------------------
Amount sold 4,278 $ 42,395
Amount issued to shareholders
in reinvestment of dividends
and distributions 135 1,280
------------ ------------
4,413 43,675
Amount redeemed (292) (2,878)
------------ ------------
Net increase 4,121 $ 40,797
============ ============
* Commencement of operations.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND 12
8. FINANCIAL HIGHLIGHTS. The following table includes data, ratios and
supplemental data for a share outstanding throughout each period and other
performance information:
- ----------------------------------------------------------------
FROM MAY 3,
1999* TO
DECEMBER 31,
1999
----------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.33
Net realized and unrealized gains (losses) (0.48)
------
TOTAL FROM INVESTMENT OPERATIONS (0.15)
------
LESS DISTRIBUTIONS:
From net investment income (0.32)
From capital gains -
------
TOTAL DISTRIBUTIONS (0.32)
NET ASSET VALUE, END OF PERIOD $ 9.53
========
TOTAL INVESTMENT RETURN (a) (c) -1.48%
RATIOS TO AVERAGE NET ASSETS: Net expenses 0.50% (b)
Net investment income 6.09% (b)
Fees and expenses waived or borne by the Advisor 0.29% (b)
Portfolio turnover 303%
Net assets, end of period (000 omitted) $39,261
(a) Had the Advisor not waived or reimbursed a portion of expenses, total return
would have been reduced.
(b) Annualized
(c) Not annualized.
* Commencement of operations.
<PAGE>
- --------------------------------------------------------------------------------
13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of CIGNA Variable Products Investment Grade
Bond 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 Investment
Grade Bond Fund (the "Fund") at December 31, 1999, the results of its
operations, the changes in its net assets and the financial highlights for the
period May 3, 1999 (commencement of operations) through December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
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 audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States 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 audit, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian,
provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
<PAGE>
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND 14
TIMESSQUARE CAPITAL MANAGEMENT
In January 2000, CIGNA Investments, Inc., the Fund's manager, changed its name
to TimesSquare Capital Management, Inc. The new name underscores the critical
importance of investment management as a core CIGNA strength.
The TimesSquare Capital Management brand, like its namesake, symbolizes energy
and renaissance, and accurately reflects our intention to be at the center of
world commerce. It is also an expression of our ability to recognize and take
advantage of global economic and market themes that can be integrated across
investment disciplines.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
TRUSTEES OFFICERS
<S> <C> <C>
Thomas C. Jones
Hugh R. Beath PRESIDENT, CIGNA INVESTMENT
ADVISORY DIRECTOR MANAGEMENT AND CHAIRMAN OF THE BOARD, Richard H. Forde
ADMEDIA CORPORATE ADVISORS, INC. TIMESSQUARE CAPITAL MANAGEMENT, INC. PRESIDENT
Paul J. McDonald Russell H. Jones
SPECIAL ADVISOR TO BOARD OF DIRECTORS, VICE PRESIDENT AND TREASURER Alfred A. Bingham III
FRIENDLY ICE CREAM CORPORATION KAMAN CORPORATION VICE PRESIDENT AND TREASURER
Jeffrey S. Winer
VICE PRESIDENT AND SECRETARY
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
CIGNA Variable Products Investment Grade Bond Fund is an open-end, diversified
management investment company that invests primarily in fixed-income securities.
The investment adviser is TimesSquare Capital Management, Inc., 900 Cottage
Grove Road, Hartford, Connecticut 06152.
