UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
811-1646
(Investment Company Act file number)
CIGNA Funds Group
(Exact name of registrant as specified in charter)
2223 Washington Street
3 Newton Executive Park
Suite 200
Newton, MA 02462
(Address of principal executive offices)
Mark Butler, 2223 Washington Street, 3 Newton Executive Park
Suite 200, Newton, MA 02462
(Name and address of agent for service)
(860) 757-7276
Registrants' telephone number, including area code
Date of fiscal year end: December 31, 2004
Date of reporting period: December 31, 2004
Item 1. Reports to Stockholders.
Dear Shareholders:
Our report for CIGNA Funds Group Money Market Fund (the "Fund") covering the
year ended December 31, 2004 follows.
MARKET ENVIRONMENT
The Federal Reserve ("Fed") met four times during the first six months of 2004.
In the first three meetings, the Fed funds rate was left unchanged at 1%.
However, after a year of keeping rates on hold, at the June 30, 2004 meeting
the Fed funds rate was raised 25 basis points to 1.25%. The Fed also announced
that it was willing to move more aggressively in raising rates in the future if
inflation data warranted.
The Fed met four more times during the second half of the year, raising the Fed
funds rate 25 basis points each time. The Fed has confirmed their plan to
continue this trend with further increases at a "measured" pace. Market
economists continue to believe the Fed is "staying the course" to keep policy
accommodative by moving at a measured pace that will support growth and prevent
inflation from accelerating.
PORTFOLIO COMPOSITION AND PERFORMANCE
On December 31, 2004, the portfolio contained: top-tier domestic commercial
paper, 53.4%; top-tier foreign commercial paper, 9.6%; and U.S. Government and
Agencies, 37.0%. The Fund is well diversified.
Total returns for the year ended December 31, 2004 were:
Institutional Class 0.94%
Premier Class 0.68
Retail Class 0.43
Lipper Money Market Funds Average 0.60
3-month U.S. Treasury Bill 1.24
As of December 31, 2004, the Fund's weighted average portfolio maturity was 18
days, and the annualized 7-day yield for each class was:
Institutional Class 1.78%
Premier Class 1.53
Retail Class 1.28
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1
INFORMATION ABOUT YOUR FUND'S EXPENSES
As an investor of the Fund, you incur two types of costs: ongoing expenses and
transaction costs. Ongoing expenses include management fees, distribution and
service (12b-1) fees and other Fund expenses. Examples of transaction costs
include sales charges (loads), redemption fees and account maintenance fees,
which are not shown in this section and which would result in higher total
expenses. The following table is intended to help you understand your ongoing
expenses of investing in the Fund and to help you compare these expenses with
the ongoing expenses of investing in other mutual funds. The table is based on
an investment of $1,000 made at the beginning of the six-month period ended
December 31, 2004.
The table illustrates your Fund's expenses in two ways:
Actual Expenses. The first part of the table below provides information about
actual account values and actual expenses. This helps you estimate the actual
dollar amount of ongoing expenses paid on a $1,000 investment in the Fund using
the Fund's actual return during the period. To estimate the expenses you paid
over the period, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the "Expenses Paid During Period" line under the share class you
hold.
Hypothetical Example for Comparison Purposes. The second part of the table
below provides information about hypothetical account values and hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare your Fund's ongoing expenses with those of other mutual
funds. To do so, compare this 5% hypothetical fund return with the 5%
hypothetical return examples that appear in the shareholder reports of other
mutual funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing expenses only and do not reflect any transaction costs, such as sales
charges (loads) or redemption fees. If these transaction costs had been
included, your costs would have been higher. The "Expenses Paid During Period"
line of the table is useful
- -
2
in comparing ongoing expenses only and will not help you determine the relative
total expenses of owning different funds.
Expenses and value of a $1,000 investment for the six-month period ended
December 31, 2004
Institutional Premier Retail
Class Class Class
--------------- --------- ---------
Actual
Beginning Account
Value - 07/01/04 $1,000.00 $1,000.00 $1,000.00
Ending Account
Value - 12/31/04 $1,006.20 $1,005.00 $1,003.70
Expenses Paid During
Period* - 07/01/04
to 12/31/04 $ 2.28 $ 3.54 $ 4.80
Hypothetical (5% return before expenses)
Beginning Account
Value - 07/01/04 $1,000.00 $1,000.00 $1,000.00
Ending Account
Value - 12/31/04 $1,022.87 $1,021.61 $1,020.35
Expenses Paid
During Period* -
07/01/04 to 12/31/04 $ 2.29 $ 3.57 $ 4.84
Annualized Expense
Ratios* 0.45% 0.70% 0.95%
* Expenses are equal to the Fund's annualized expense ratio for each share
class, multiplied by the average account value over the period, multiplied
by the number of days in the most recent fiscal half year period, then
divided by 366.
The "Expenses Paid During Period" and the "Annualized Expense Ratios" in the
tables are based on actual expenses paid by the Fund during the period, net
of fee waivers and/or expense reimbursements. If those fee waivers and/or
expense reimbursements had not been in effect, the Fund's actual expenses
would have been higher.
For more information, please refer to the Fund's prospectus.
LIQUIDATION OF PREMIER AND RETAIL CLASSES, FOLLOWED BY LIQUIDATION OF THE
INSTITUTIONAL CLASS
The Fund liquidated the Premier and Retail classes of the Fund on February 7,
2005. Also, although a specific date has not yet been set, it is expected that
the Institutional class of the Fund will be liquidated before March 30, 2005,
and the Fund will cease operations at that time.
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3
PROXY VOTING INFORMATION
A description of the Fund's proxy voting policies and procedures is available
without charge, upon request, by calling the Fund at 1-800-528-6718 and on the
Securities and Exchange Commission's website at www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities during
the 12-month period ended June 30, 2004 is available on the SEC website.
QUARTERLY PORTFOLIO SECURITIES
The Fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. Forms N-Q will be
available on the SEC's website at www.sec.gov and may be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
OUTLOOK
Economic data continues to show signs of strength, and we expect Fed policy
makers to maintain their "measured" approach and continue tightening into the
first half of 2005. Economic data is expected to reflect an economy which is
firmly established and resilient in the face of inflation and rising oil
prices. With this in mind, we will continue to focus on the developing trends
in both the U.S. and global economies as keys to further Federal Reserve
action, and adjust our portfolio strategy accordingly.
Sincerely,
/s/Richard H. Forde
Richard H. Forde
Chairman of the Board and President
CIGNA Funds Group
- -
4
Money Market-Inst_OL
Institutional Class 3-Month U.S. Treasury Bill
12/94 10000 1000
12/95 10533 10574
12/96 11050 11129
12/97 11633 11712
12/98 12235 12304
12/99 12830 12887
12/00 13616 13655
12/01 14135 14213
12/02 14328 14455
12/03 14437 14610
12/04 14572 14791
- ------------------------------------------------
AVERAGE ANNUAL RETURNS
1-Year 5-Year 10-Year
Institutional 0.94% 2.58% 3.84%
- ------------------------------------------------
Money Market-Premier_OL
Premier Class 3-Month U.S. Treasury Bill
1/26/00 10000 10000
12/31/00 10550 10596
12/31/01 10924 11029
12/31/02 11046 11217
12/31/03 11103 11337
12/31/04 11179 11478
- ----------------------------------------------------------------
AVERAGE ANNUAL RETURNS
Average Annual Return
1-Year Since Inception Inception Date
Premier Class 0.68% 2.28% 1/26/00
- ----------------------------------------------------------------
-
5
Money Market-Retail_OL
Retail Class 3-Month U.S. Treasury Bill
4/29/99 10000 10000
12/31/99 10297 10321
12/31/00 10873 10936
12/31/01 11232 11383
12/31/02 11329 11577
12/31/03 11358 11701
12/31/04 11407 11846
- ----------------------------------------------------------------
AVERAGE ANNUAL RETURNS
Average Annual Return
1-Year Since Inception Inception Date
Retail Class 0.43% 2.34% 4/29/99
- ----------------------------------------------------------------
- -
6
Money Market Fund
INVESTMENTS IN SECURITIES
DECEMBER 31, 2004
(IN THOUSANDS) PRINCIPAL VALUE
- ------------------------------------------------------------------------
COMMERCIAL PAPER - 63.0%
Domestic - 53.4%
Abbott Laboratories, 2.24%, 1/11/05 $ 7,321 $ 7,316
Barton Capital Corp.,
2.30%, 1/5/05 8,000 7,998
2.35%, 1/5/05 7,921 7,919
CAFCO LLC, 2.27%, 1/4/05 9,449 9,447
ChevronTexaco Funding Co., 2.24%, 1/4/05 11,000 10,998
Gannett Co., Inc., 2.25%, 1/6/05 15,730 15,725
Gillette Co., 2.24%, 1/18/05 8,361 8,352
Hershey Foods Corp.,
2.25%, 1/7/05 8,900 8,897
2.18%, 1/18/05 7,500 7,492
International Business Machine Corp.,
2.25%, 1/5/05 9,017 9,015
Kimberly Clark Corp., 2.15%, 1/20/05 8,853 8,843
Merrill Lynch & Co., Inc., 2.28%, 1/24/05 15,227 15,205
Minnesota Mining & Manufacturing Co.,
2.25%, 1/13/05 10,022 10,015
2.18%, 1/20/05 6,271 6,264
Morgan Stanley, Dean Witter, Discover & Co.,
2.34%, 1/7/05 14,234 14,229
Old Line Funding Corp., 2.33%, 1/6/05 15,000 14,995
Paccar Financial Corp., 2.26%, 1/3/05 10,000 9,999
PepsiCo, Inc., 2.25%, 1/12/05 15,255 15,245
Pfizer, Inc., 2.28%, 1/4/05 6,200 6,199
Procter & Gamble Co., 2.27%, 1/12/05 14,650 14,640
Sherwin Williams Co., 2.28%, 1/14/05 4,365 4,361
Windmill Funding Corp., 2.33%, 1/13/05 15,000 14,988
-------
228,142
-------
The Notes to Financial Statements are an integral part of these statements.
-
7
Money Market Fund
INVESTMENTS IN SECURITIES continued
DECEMBER 31, 2004
(IN THOUSANDS) PRINCIPAL VALUE
- ----------------------------------------------------------------------
Foreign - 9.6%
BNP Paribas Finance, Inc., 2.32%, 1/13/05 $15,000 $14,988
B P Capital Markets PLC, 2.24%, 1/7/05 10,023 10,019
Caisse D'Amortissement, 2.23%, 1/31/05 3,557 3,550
KfW International Finance, Inc.,
2.25%, 1/7/05 4,552 4,550
Novartis Finance Corp., 2.15%, 1/4/05 4,234 4,233
UBS Finance LLC, 2.36%, 1/5/05 3,876 3,875
-------
41,215
-------
Total Commercial Paper 269,357
-------
U.S. GOVERNMENT AGENCIES (b) - 37.0%
Fannie Mae,
2.25%, 1/3/05 28,700 28,696
2.24%, 1/5/05 16,972 16,968
2.33%, 1/28/05 (a) 11,500 11,500
1.65%, 5/16/05 2,500 2,500
2.42%, 10/7/05 (a) 20,000 19,998
Federal Farm Credit Bank,
2.33%, 3/24/05 (a) 15,000 15,000
2.36%, 6/23/05 (a) 2,500 2,500
2.39%, 3/1/06 (a) 15,000 15,000
Federal Home Loan Bank,
4.38%, 2/15/05 2,840 2,851
1.30%, 2/23/05 6,000 6,000
2.48%, 3/30/05 (a) 7,500 7,500
2.02%, 6/8/05 2,500 2,500
1.91%, 10/5/05 (a) 7,500 7,497
Freddie Mac,
1.23%, 1/11/05 2,500 2,499
1.30%, 1/11/05 7,500 7,497
The Notes to Financial Statements are an integral part of these statements.
- -
8
Money Market Fund
INVESTMENTS IN SECURITIES continued
DECEMBER 31, 2004
(IN THOUSANDS) PRINCIPAL VALUE
- --------------------------------------------------------------
1.40%, 1/19/05 $ 2,224 $ 2,222
2.00%, 10/7/05 (a) 7,500 7,500
--------
Total U.S. Government Agencies 158,228
--------
TOTAL INVESTMENTS IN SECURITIES - 100.0%
(Total Cost - $427,585) (c) 427,585
Liabilities in excess of Cash and
Other Assets - (0.0)% (115)
--------
NET ASSETS - 100.0% $427,470
========
NOTES TO INVESTMENTS IN SECURITIES
(a) Variable rate security. Rate is as of December 31, 2004.
(b) Agency obligations are not guaranteed by the U.S. Government.
Tax Information
(c) As of December 31, 2004, the cost for federal tax purposes on a tax basis
is the same as on a book basis.
Ten Largest Positions (Unaudited)
December 31, 2004
Market % of
Value Net
(000) Assets
- ----------------------------------------------------------------
Fannie Mae $ 79,662 18.6%
Federal Farm Credit Bank 32,500 7.6
Federal Home Loan Bank 26,348 6.2
Freddie Mac 19,718 4.6
Hershey Foods Corp. 16,389 3.8
Minnesota Mining & Manufacturing Co. 16,279 3.8
Barton Capital Corp. 15,917 3.7
Gannett Co., Inc. 15,725 3.7
PepsiCo, Inc. 15,245 3.6
Merrill Lynch & Co., Inc. 15,205 3.6
Portfolio by Type of Short Term Security (Unaudited)
% of
Value Net
(000) Assets
- ----------------------------------------------------------------
Domestic Commercial Paper $ 228,142 53.4%
Foreign Commercial Paper 41,215 9.6
U.S. Government Agencies 158,228 37.0
--------- ----
$ 427,585 100.0%
========= =====
The Notes to Financial Statements are an integral part of these statements.
-
9
Money Market Fund
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
(IN THOUSANDS)
- ----------------------------------------------------------------------
Assets:
Investments in securities at value $ 427,585
Interest receivable 311
Investment for Trustees' deferred compensation plan 22
Prepaid registration fees 13
Prepaid insurance 6
---------
Total assets 427,937
---------
Liabilities:
Shareholder servicing and distribution fees payable
to Distributor 127
Investment advisory fees payable 112
Shareholder reports 64
Administrative services fees payable 40
Custodian fees payable 39
Audit and legal fees payable 32
Other 26
Deferred Trustees' fees payable 22
Transfer agent fees payable 5
---------
Total liabilities 467
---------
Net Assets $ 427,470
=========
Institutional Class $ 118,979
Premier Class 59,367
Retail Class 249,124
---------
$ 427,470
=========
Shares Outstanding
Institutional Class ($1.00 net asset value per share) 118,982
=========
Premier Class ($1.00 net asset value per share) 59,367
=========
Retail Class ($1.00 net asset value per share) 249,126
=========
Components of Net Assets:
Paid-in capital $ 427,470
=========
Net Assets $ 427,470
=========
The Notes to Financial Statements are an integral part of these statements.
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10
Money Market Fund
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
(IN THOUSANDS)
- ----------------------------------------------------------------
Investment Income:
Interest $ 7,191
Expenses:
Investment advisory fees 1,855
Distribution fees
Retail Class 663
Shareholder servicing fees
Premier Class 148
Retail Class 663
Administrative services fees 199
Custodian fees 123
Shareholder reports 72
Registration fees 54
Audit and legal fees 51
License fees 25
Trustees' fees 25
Transfer agent fees 8
Insurance expense 6
Other 3
-------
Total expenses 3,895
Less expenses waived by adviser (30)
-------
Net expenses 3,865
-------
Net Investment Income 3,326
-------
Realized and Unrealized Gain on
Investments:
Net realized gain from security transactions --
-------
Net Realized and Unrealized Gain on
Investments --
-------
Net Increase in Net Assets Resulting
From Operations $ 3,326
=======
The Notes to Financial Statements are an integral part of these statements.
--
11
Money Market Fund
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS) 2004 2003
- ----------------------------------------------------------------------------------
Operations:
Net investment income $ 3,326 $ 2,404
Net realized gain from securities transactions -- --
---------- ----------
Net increase in net assets from operations 3,326 2,404
---------- ----------
Dividends from Net Investment
Income:
Institutional Class (1,816) (1,437)
Premier Class (408) (42)
Retail Class (1,102) (925)
---------- ----------
Total dividends and distributions to shareholders (3,326) (2,404)
---------- ----------
Capital Share Transactions:
Institutional Class
Net proceeds from sales of shares 1,753,272 2,468,812
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions 1,816 1,597
---------- ----------
1,755,088 2,470,409
Cost of shares redeemed (1,850,269) (2,446,150)
---------- ----------
(95,181) 24,259
---------- ----------
Premier Class
Net proceeds from sales of shares 56,678 69,788
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions 408 42
---------- ----------
57,086 69,830
Cost of shares redeemed (57,643) (10,089)
---------- ----------
(557) 59,741
---------- ----------
Retail Class
Net proceeds from sales of shares 88,664 104,937
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions 1,102 1,071
---------- ----------
89,766 106,008
Cost of shares redeemed (139,934) (166,605)
---------- ----------
(50,168) (60,597)
---------- ----------
Net increase (decrease) from Fund share
transactions (145,906) 23,403
---------- ----------
Net Increase (Decrease) in Net Assets (145,906) 23,403
---------- ----------
Net Assets:
Beginning of period 573,376 549,973
---------- ----------
End of period $ 427,470 $ 573,376
========== ==========
The Notes to Financial Statements are an integral part of these statements.
- --
12
Money Market Fund
STATEMENTS OF CHANGES IN NET ASSETS continued
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS) 2004 2003
- -----------------------------------------------------------------------------------
Transactions in Capital Stock
Institutional Class
Shares sold 1,753,272 2,468,812
Shares issued in reinvestment of dividends and
distributions 1,816 1,597
---------- ----------
1,755,088 2,470,409
Shares redeemed (1,850,269) (2,446,150)
---------- ----------
Net increase (decrease) in Institutional
shares outstanding (95,181) 24,259
---------- ----------
Premier Class
Shares sold 56,678 69,788
Shares issued in reinvestment of dividends and
distributions 408 42
---------- ----------
57,086 69,830
Shares redeemed (57,643) (10,089)
---------- ----------
Net increase (decrease) in Premier shares
outstanding (557) 59,741
---------- ----------
Retail Class
Shares sold 88,664 104,937
Shares issued in reinvestment of dividends and
distributions 1,102 1,071
---------- ----------
89,766 106,008
Shares redeemed (139,934) (166,605)
---------- ----------
Net decrease in Retail shares outstanding (50,168) (60,597)
---------- ----------
Total net increase (decrease) in Fund shares (145,906) 23,403
========== ==========
The Notes to Financial Statements are an integral part of these statements.
--
13
Money Market Fund
FINANCIAL HIGHLIGHTS
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
----------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.01 0.01 0.01 0.04 0.06
Net realized and unrealized gain on securities -- -- (a) (a) (a)
-------- -------- -------- -------- --------
Total from investment operations 0.01 0.01 0.01 0.04 0.06
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (0.01) (0.01) (0.01) (0.04) (0.06)
Distributions from capital gains -- -- -- -- (a)
-------- -------- -------- -------- --------
Total dividends and distributions (0.01) (0.01) (0.01) (0.04) (0.06)
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return 0.94%(b) 0.76%(b) 1.36% 3.81%(b) 6.12%(b)
Ratios to Average Net Assets
Gross expenses 0.46% 0.47% 0.45% 0.49% 0.47%
Fees and expenses waived or borne by the Adviser 0.01% 0.02% 0.00% 0.04% 0.02%
Net expenses 0.45% 0.45% 0.45% 0.45% 0.45%
Net investment income 0.88% 0.76% 1.36% 3.62% 5.94%
Net assets, end of period (000 omitted) $118,979 $214,160 $189,902 $184,060 $159,446
(a)Amount less than $.01 per share.
(b)Had the Adviser not waived or reimbursed a portion of the
expenses, total return would have been reduced.
- -- --
14 15
Money Market Fund
FINANCIAL HIGHLIGHTS continued
PREMIER CLASS(1)
- --------------------------------------------------------------------------------------------------------------
For the Year/Period Ended December 31,
----------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.01 0.01 0.01 0.03 0.05
Net realized and unrealized gain on securities -- -- (a) (a) (a)
-------- -------- -------- -------- --------
Total from investment operations 0.01 0.01 0.01 0.03 0.05
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (0.01) (0.01) (0.01) (0.03) (0.05)
Distributions from capital gains -- -- -- -- (a)
-------- -------- -------- -------- --------
Total dividends and distributions (0.01) (0.01) (0.01) (0.03) (0.05)
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return 0.68%(b) 0.51%(b) 1.12% 3.55%(b) 5.50%(b)(c)
Ratios to Average Net Assets
Gross expenses 0.71% 0.74% 0.70% 0.73% 0.72%(d)
Fees and expenses waived or borne by the Adviser 0.01% 0.04% 0.00% 0.03% 0.02%(d)
Net expenses 0.70% 0.70% 0.70% 0.70% 0.70%(d)
Net investment income 0.69% 0.39% 1.13% 3.22% 5.69%(d)
Net assets, end of period (000 omitted) $ 59,367 $ 59,924 $ 183 $ 207 $ 105
(1)Commenced operations on January 26, 2000.
(a)Amount less than $0.01 per share.
(b)Had the Adviser not waived or reimbursed a portion of the
expenses, total return would have been reduced.
(c)Not annualized.
(d)Annualized.
- -- --
16 17
Money Market Fund
FINANCIAL HIGHLIGHTS continued
RETAIL CLASS
- --------------------------------------------------------------------------------------------------------------
For the Year/Period Ended December 31,
----------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) (a) 0.01 0.03 0.05
Net realized and unrealized gain on securities -- -- (a) (a) (a)
-------- -------- -------- -------- --------
Total from investment operations -- -- 0.01 0.03 0.05
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income (a) (a) (0.01) (0.03) (0.05)
Distributions from capital gains -- -- -- -- (a)
-------- -------- -------- -------- --------
Total dividends and distributions -- -- (0.01) (0.03) (0.05)
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return 0.43%(b) 0.26%(b) 0.87% 3.29%(b) 5.60%(b)
Ratios to Average Net Assets
Gross expenses 0.96% 0.97% 0.95% 0.98% 0.97%
Fees and expenses waived or borne by the Adviser 0.01% 0.02% 0.00% 0.03% 0.02%
Net expenses 0.95% 0.95% 0.95% 0.95% 0.95%
Net investment income 0.42% 0.26% 0.86% 3.10% 5.44%
Net assets, end of period (000 omitted) $249,124 $299,292 $359,888 $291,380 $199,993
(a)Amount less than $0.01 per share.
(b)Had the Adviser not waived or reimbursed a portion of the
expenses, total return would have been reduced.
- -- --
18 19
Money Market Fund
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies. Money Market Fund (the "Fund") is a
separate series of CIGNA Funds 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 $1.00 per share net asset value. The Fund invests exclusively in short-term
money market instruments. The Trust offers three classes of shares:
Institutional Class, Premier Class and Retail Class. Expenses of the Fund are
borne pro rata by the holders of each class of shares, except that each class
bears expenses unique to that class (including any applicable shareholder
servicing fee or 12b-1 distribution fee). Shares of each class would receive
their pro rata share of net assets of the Fund if the Fund were liquidated. In
addition, the Trustees approve separate dividends on each class of shares. The
Institutional Class has a separate transfer agent charge and no 12b-1
distribution fee or shareholder servicing fee. The Premier Class has a
shareholder servicing fee. The Retail Class has a 12b-1 distribution fee and a
shareholder servicing fee.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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, 2004, 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 amortization of premium
and accretion of discount, is recorded on the accrual basis. Securities
gains and losses are recognized on the specific cost identification basis.
- --
20
Money Market Fund
NOTES TO FINANCIAL STATEMENTS continued
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. Distributions reported in the Statement of
Changes in Net Assets from net investment income, including short-term
capital gains, and capital gains are treated as ordinary income and
long-term capital gains respectively, for federal income tax purposes.
D. Dividends and Distributions -- Dividends from net investment income 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 accounting principles
generally accepted in the United States of America. 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 Investment Advisors, Inc. ("CIAI")
(formerly, TimesSquare Capital Management, Inc.), 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.
CIAI 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 0.45% of average daily net assets for the
Institutional Class, 0.70% of average daily net assets for the Premier Class,
and 0.95% for the Retail Class, to the extent described in the Fund's then
current prospectus. CIAI retains the ability to be repaid by the Fund if the
Fund's expenses fall below the specified limit prior to the end of the fiscal
year or within three years after CIAI waives management fees or reimburses Fund
operating expenses. The Fund's remaining contingent liability and expiration
dates are as shown below:
--
21
Money Market Fund
NOTES TO FINANCIAL STATEMENTS continued
Remaining
Contingent Expires during Expires during
Class Liability (000's) 2006 (000's) 2007 (000's)
- ----------------------------------------------------------------------
Institutional $ 46 $33 $13
Premier 7 4 3
Retail 63 49 14
---- --- ---
Total $116 $86 $30
==== === ===
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, other affiliated CIGNA Funds may invest their excess cash in the
Fund. CIAI will waive the amount of its advisory fee for the affiliated Funds
in an amount that offsets the amount of the advisory fees incurred by the Money
Market Fund.
For administrative services, the Fund reimburses CIAI for a portion of the
compensation and related expenses of the Trust's Treasurer and Secretary and
certain persons who assist in carrying out the responsibilities of those
offices. For the year ended December 31, 2004, the Fund paid or accrued
$198,609.
With respect to Retail Class shares, the Fund has adopted a Distribution plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940, which requires
the payment of 0.25% annually of the average daily net assets to Prudential
Retirement Brokerage Services ("PRBS") (formerly CIGNA Financial Services,
Inc.), the Fund's distributor. The distribution fees received from the 12b-1
plan are used for services provided to the Retail Class and expenses primarily
intended to result in the sale of such shares. Premier and Retail Class shares
are also subject to a shareholder servicing fee payable to PRBS equal to 0.25%
annually of the average daily net assets of the Fund. The distribution and
shareholder servicing fees will be waived as necessary to limit Premier and
Retail Class expenses, as a percentage of average daily net assets, to the
amounts described above.
CIAI 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.
- --
22
Money Market Fund
NOTES TO FINANCIAL STATEMENTS continued
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. At
December 31, 2004, affiliates of CIGNA Corporation owned 118,980,851 shares of
the Institutional Class.
5. Subsequent Event (Unaudited) -- Liquidation of Premier and Retail Classes,
followed by Liquidation of the Institutional Class. The Fund liquidated the
Premier and Retail Classes of the Fund on February 7, 2005. Also, although a
specific date has not yet been set, it is expected that the Institutional Class
of the Fund will be liquidated before March 30, 2005, and the Fund will cease
operations at that time.
--
23
Report of Independent Registered
Public Accounting Firm
TO THE TRUSTEES AND SHAREHOLDERS OF CIGNA FUNDS GROUP -- MONEY MARKET FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investments in securities, 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 Funds Group -- Money Market
Fund ("Fund") at December 31, 2004, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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, 2004 by correspondence with the custodian,
provide a reasonable basis for our opinion.
As more fully explained in Note 5 of Notes to the Financial Statements, it is
expected that the Fund will be fully liquidated and cease operations before
March 30, 2005.
PricewaterhouseCoopers LLC
Boston, Massachusetts
February 25, 2005
- --
24
Money Market Fund
TRUSTEES AND OFFICERS
Shareholders elect a Board that oversees the Fund's operations. The Board The following is a list of the Fund's Board of
appoints officers who are responsible for day-to-day business decisions Trustees and officers. Each Trustee's term
based on policies set by the Board. of office will be until the next annual meeting
of shareholders or until the election of the
Trustee's successor.
Number of
Portfolios
Name, Position Length in Fund
Address* Held with of Time Principal Occupation(s) Complex
and Age Fund Served During Past 5 Years Overseen
- ------------------------------------------------------------------------------ ------------------------------------- -----------
Independent Trustees
Russell H. Jones Trustee Trustee Senior Vice President (Investor 7
60 since 1995 Relations, Public Relations), Chief
Investment Officer and Treasurer,
Kaman Corporation (helicopters
and aircraft components,
industrial distribution)
Paul J. McDonald Trustee Trustee Special Advisor to the Board of 7
61 since 1995 Directors, Friendly Ice Cream
Corporation (family restaurants
and dairy products)
Marnie Wagstaff Mueller Trustee Trustee Diocesan Consultant, Episcopal 7
65 since 2001 Diocese of Connecticut; Previously,
Visiting Professor of Health
Economics, Wesleyan University
Carol Ann Hayes Trustee Trustee Director and Chair of Audit 7
60 since 2003 Committee, Reed and Barton
Corporation
Affiliated Trustees and Fund Officers
Richard H. Forde Trustee, Chairman Trustee, Chairman Chief Investment Officer, CIGNA 7
51 of the Board and and President Investment Management
President since 1998
Alfred A. Bingham III Vice President and Officer CIGNA Funds Treasurer; 7
60 Treasurer Since 1982 Assistant Vice President, CIGNA
Investment Management
Jeffrey S. Winer Vice President and Officer Senior Counsel, 7
47 Secretary Since 1993 CIGNA Corporation
Name, Other
Address* Directorships
and Age Held by Trustee
- ---------------------------------------------------------------
Independent Trustees
Russell H. Jones --
60
Paul J. McDonald Western
61 Massachusetts Electric
Company
Marnie Wagstaff Mueller Boston Mutual Life
65 Insurance Company
Carol Ann Hayes Reed & Barton
60 Corporation
Affiliated Trustees and Fund Officers
Richard H. Forde Director of various
51 subsidiaries of
CIGNA Corporation
Alfred A. Bingham III --
60
Jeffrey S. Winer --
47
- --------------------------------------------------------------------------------
* All Trustees and officers have an address c/o CIGNA Investment
Advisors, Inc. (formerly, TimesSquare Capital Management, Inc.),
280 Trumbull Street, H16C, Hartford, CT 06103.
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Money Market Fund is an open-end, diversified management The Fund is distributed by Prudential Retirement
investment company that invests in money market Brokerage Services, Inc., P.O. Box 150476,
instruments. The investment adviser is CIGNA Investments Hartford, Connecticut 06115-0476 (telephone:
Advisors, Inc. (formerly, TimesSquare Capital Management, 1.888.244.6237).
Inc.), 280 Trumbull Street, Hartford, Connecticut 06103.
- ----------------------------------------------------------------------------------------------------------------------------------
- -- --
25 26
This page intentionally left blank.
--
27
CIGNA Funds Group
Small Cap Growth/
Times Square Fund
[CIGNA logo]
Annual Report
December 31, 2004
- --------------------------------------------------------------------------------
1
Small Cap Growth/TimesSquare Fund
December 31, 2004
FUND SUMMARY
OBJECTIVE AND STRATEGY
Seeks long-term capital appreciation by investing principally in common and
preferred stocks of U.S. companies with market capitalizations between $50
million and $2 billion, with a focus on growing companies involved in new
product development and technological breakthroughs.
FUND INCEPTION DATE 01/21/2000
TOTAL NET ASSETS $526.1 million
NUMBER OF SECURITIES
IN THE PORTFOLIO 107
INVESTMENT MANAGER
TimesSquare Capital Management, LLC
FUND PROFILE
December 31, 2004 (Unaudited)
Ten Largest Positions % of Net Assets
DaVita, Inc. 3.5%
Alliance Data Systems Corp. 3.0
Education Management Corp. 2.6
Investors Financial Services Corp. 2.4
Getty Images, Inc. 2.1
Global Payments, Inc. 2.1
iShares Russell 2000 Index Fund 2.0
Martin Marietta Materials, Inc. 1.9
Corporate Executive Board Co. 1.8
CapitalSource, Inc. 1.8
Ten Largest Sectors % of Net Assets
Consumer Discretionary 24.6%
Health Care 19.4
Financial Services 19.2
Technology 13.5
Energy 6.2
Ten Largest Sectors (continued) % of Net Assets
Producer Durables 4.4%
Other 2.0
Auto & Transportation 1.9
Materials and Processing 1.9
Consumer Staples 1.2
Fund Composition % of Net Assets
Common stocks 94%
Short-term investments 6
Management's Discussion of Fund Performance
Market Summary
Election Day put to rest one of the major uncertainties troubling the market in
2004. In gratitude, the equity markets proceeded to turn 2004 into a reasonably
good year for investors with a solid post-election rally. For 2004, leading up
to the election, volatility in the equity market had been at secular lows as
the year was characterized by a series of choppy, trendless rallies and
sell-offs. Besides election year uncertainties, the market was plagued by
rising oil and commodity prices as well as continued worries on terrorism and
the events in Iraq. On the positive side corporate profits came in consistently
strong and long-term interest rates behaved well despite the tightening Fed.
Small cap stocks, "The Incredibles," capped off a sixth year of outperformance.
The Russell 2000 Index jumped 14.1% for the fourth quarter and 18.3% for the
year while the Russell 1000 was up 9.8% and 11.4% for the fourth quarter and
year, respectively. Though growth made a fourth quarter surge, the winner was
value by a big margin for 2004. The Russell 2000 Growth Index came to life, up
15.1% in the fourth quarter to close out 2004 up 14.3%. The Russell 2000 Value
Index rose 13.2% for the quarter and an impressive 22.3% for the year.
The preference for quality and larger caps took a back seat in the final
quarter as the highest beta stocks and the equities under $500 million in
- --------------------------------------------------------------------------------
2
market cap did best. Nevertheless for the year the higher quality, larger
stocks within the small cap market led the way. Fast growth was not
particularly well rewarded in 2004; companies with projected earnings growth of
over 20% in our benchmark were up only 2.2% for 2004.
Sector selection added good value over the fiscal year. Always a fall-out of
the bottom-up stock selection process, an overweight of Financial Services and
an underweight of Technology were well rewarded. Favorable sector selection was
partially offset by the underweight of the Materials & Processing sector, which
was buoyed by rising commodity prices, especially in the metals groups.
Proposed Merger of the Fund
As you may know, the Fund's previous investment adviser, TimesSquare Capital
Management, Inc. (TimesSquare Inc.), now known as CIGNA Investment Advisors,
Inc. and its parent company, CIGNA Corporation, have sold TimesSquare Inc.'s
growth equity management business to a new company, TimesSquare Capital
Management, LLC (TimesSquare LLC). TimesSquare LLC will continue the growth
equity management business of TimesSquare Inc.
The managing member of TimesSquare LLC is a subsidiary of Affiliated Managers
Group, Inc. (AMG). AMG is an asset management holding company with equity
investments in a variety of investment management firms. AMG owns a majority
equity interest in TimesSquare LLC.
The remaining equity interests in TimesSquare LLC are owned by the Small Cap
Growth Fund's portfolio managers, Grant Babyak and Yvette Bockstein, and the
equity analysts and other personnel who were involved in TimesSquare, Inc.'s
growth equity management business.
On October 12, 2004, the Board of Trustees of CIGNA Funds Group approved a
reorganization, subject to approval by Fund shareholders, pursuant to which the
Small Cap Growth/
TimesSquare Fund would transfer substantially all of its assets and liabilities
to a new fund, the TimesSquare Small Cap Growth Fund, which is a series of
Managers AMG Funds, in exchange for shares of the new fund having a net asset
value equal to the net asset value of the assets and liabilities so
transferred. The new fund shares would then be distributed pro rata to
shareholders of the Fund. The Fund has scheduled a special meeting of
shareholders on April 8, 2005 to seek shareholder approval of the merger. You
will receive additional information about the proposed merger, along with a
proxy soliciting your approval, prior to the meeting. Please be sure to vote.
New Interim Adviser
The Fund's Board of Trustees has also approved an interim investment advisory
agreement with TimesSquare LLC, effective November 18, 2004, pursuant to which
TimesSquare LLC now serves as investment adviser to the Fund, responsible for
management of the Fund's portfolio.
There will be no change to the investment objective of the Fund as a result of
the appointment of TimesSquare LLC as adviser to the Fund. In addition,
TimesSquare LLC has agreed to waive fees and reimburse expenses if total Fund
operating expenses (excluding extraordinary items) exceed the previous expense
caps (1.05%, 1.25% and 1.50% for the Institutional, Premier and Retail Classes,
respectively, per annum).
During the term of the interim advisory agreement CIGNA Investment Advisors,
Inc., will provide administrative services to the Fund.
- --------------------------------------------------------------------------------
3
Performance
Returns for the year ended December 31, 2004 were:
Institutional Class 11.05%
Premier Class 10.80
Retail Class 10.62
S&P 500 Index 10.88
Russell 2000 Growth Index 14.31
Russell 2000 Index 18.33
Lipper Small-Cap Growth
Funds Average 10.65
For 2004 we lagged the Russell 2000 Growth Index, our benchmark; we mostly
attribute the underperformance to a few bad apples in the portfolio whose
losses were exacerbated by the proliferation of short sellers in the hedge fund
world. These stock selection disappointments, primarily in Telecom, Technology,
Producer Durables and Health Care, were concentrated in the first and third
quarters. One observation of the year did seem to be that disappointments were
far more severely punished than positive developments were rewarded on a
short-term basis. Below is a quarterly performance comparison for 2004:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Institutional
Class 2.80% 0.70% -6.90% 15.22%
Premier Class 2.72 0.62 -6.94 15.19
Retail Class 2.74 0.53 -6.99 15.15
Russell 2000
Growth
Index 5.58 0.09 -6.01 15.08
The overweighted Financial Services sector made a strong relative contribution
to the overall portfolio as our holdings far outperformed the benchmark sector
as well as the Russell 2000 Growth Index. The overweighted financial data
processors, an industry with good earnings visibility, put in favorable returns
thanks mostly to an excellent contribution from Alliance Data Systems,
returning 72% for the year. It rose on strong earnings and good growth over the
year. The company, the portfolio's top contributor in 2004, is a leading
provider of transaction services, credit services and marketing services to
retailer, petroleum, utility and financial services clients. Fundamentals
remain solid as the private label credit card business has been performing well
with high recurring revenues as the company has a strong renewal rate on its
business. Most recently J. Crew signed a long-term contract renewal with
Alliance Data. Banks also performed well for 2004 and we trimmed a couple of
holdings, Wintrust Financial and UCBH Holdings, into the strength towards the
end of the year as the stocks approached our near-term price targets. They
returned 26% and 16%, respectively. Investors Financial Services, one of our
larger positions delivered good earnings growth for most of the year, despite
worries about pressures on margins; the position's 32% return made a strong
contribution. Specialty insurer Markel delivered another good year despite the
effect of the hurricanes and the position returned 44% for the period. CB
Richard Ellis, a recent addition to the portfolio, was among the top
contributors, up 78%. The firm is a leading commercial real estate services
firm with a 5% market share and a good track record of growth through
acquisitions. It has an attractive business model with a diversified client
base, recurring revenue stream and solid cash flow generation. The highly
fragmented real estate industry provides further opportunities for
consolidation and industry fundamentals are improving as rental vacancy rates
peaked in 2003. The company has grown at twice the industry growth rate in the
past and we anticipate that will continue as the company recently reaffirmed
its strong earnings guidance for 2004 and anticipates an even stronger 2005.
- --------------------------------------------------------------------------------
4
The Energy sector holdings produced the best returns for the entire period.
Good contributions came from oil service holdings including Hydril, returning
90% for the period. The company, which makes premium connections and pressure
control products used for oil and gas drilling and production, raised its
forward earnings guidance on market share gains. The oil & gas producers also
added value. In particular, Tom Brown soared 49% as it received an all cash
takeover bid from Encana. In the fourth quarter, Patina Oil & Gas announced it
would be acquired by Noble Energy; the position returned 54% for the full year.
Denbury Resources, an E&P company in the US Gulf Coast also benefited from
higher oil prices and executed well on its business strategy; it returned 75%
for the year.
Healthcare sector returns were decent on an absolute basis but lagged the
benchmark returns. We suffered several setbacks, especially in some of our
pharmaceutical holdings. On the positive side, Davita, the provider of kidney
dialysis services, one of our largest holdings delivered a year of solid
revenues and earnings, surpassing expectations, rising 52%, the portfolio's
second largest contributor. Lincare Holdings, one of the largest providers of
oxygen and other respiratory services to patients in the home, had been under
pressure for much of the year as worries of Medicare reform legislation
hampered its progress. In effect, the news on reimbursement for Lincare's
products came out late last year and was not as bad as had been feared. The
company also reported good earnings; its 42% return made a good contribution
for the year. VCA Antech, which provides animal healthcare, consistently
reported better than expected earnings and raised guidance; it returned 26%, a
good contribution. Molina Healthcare, a Medicaid focused HMO which came public
last July, also delivered a good contribution to the portfolio, returning 82%
on good earnings growth. Hospital operator, Province Healthcare announced that
it would be acquired by Lifepoint Hospitals and we sold the stock, which
returned 20%. On the negative side, generic pharmaceuticals company Par
Pharmaceuticals pre-announced a sizeable disappointment in earnings earlier in
the year due to delays in launching some new products. The stock was one of the
worst detractors, returning -36%; we sold the position as it bounced off of its
lows toward the end of the year because we feel that overly optimistic
projections for 2005 are now being reflected in the stock's price. Generic
competition is affecting Bradley Pharmaceuticals, a niche specialty
pharmaceutical company with a focus on dermatology and gastroenterology; it
sold off 33%. We feel that new products should more than offset that in 2005.
We were disappointed in results from Orthofix, which manufactures orthopedic
medical equipment and pre-announced a revenue and earnings miss and is losing
market share. The stock fell -38%; we sold the position last summer because we
lost confidence in the ability of management to execute on its business
strategy. We sold our small position in biotech holding Xoma, as one of its
products failed a Phase II trial; its -71% loss made a poor contribution.
Utility sector holding Primus Telecom was the portfolio's bottom detractor,
returning -84% for the year following surprisingly sub-par earnings with
increased competition. We were very disappointed by the erosion in the
company's core business and we sold the position.
Consumer Discretionary holdings rallied towards the end of the year to
outperform the Russell 2000 Growth Index. An exceptional performance of our
overweighted business services holdings added great value. We traditionally
favor business services companies that have a good degree of recurring
revenues. The group was helped by good earnings reports from Corporate
Executive Board; the position returned 44%, a solid contribution. The
- --------------------------------------------------------------------------------
5
company which provides best practices research to managements at 2100 blue chip
companies has highly visible revenues and received an added benefit from the
improving economy. Resources Connection, which provides professional services
to clients including human resources management services and internal audit
services, has been a big beneficiary of the Sarbannes Oxley legislation. The
company reported a great September quarter with huge cash flow generation; we
trimmed it slightly as its 48% return made a strong contribution. Getty Images,
which sells photographs over the internet continued on its upward path,
returning 38% as its business environment (ad spending) continued to improve.
Other holdings that added value to the portfolio included the distributor of
pool supplies, SCP Pool and United Natural Foods, a wholesale distributor to
the natural and organic foods industry. Both companies reported good earnings
growth, returning 47% and 72%, respectively. On the negative side,
entertainment holding, Alliance Gaming performed poorly, losing -44% for the
period as it lowered earnings guidance for both fiscal 2004 and 2005. We
trimmed the position sizably. The for-profit education industry has been under
a cloud for part of 2004 and our holdings suffered. Corinthian Colleges was a
poor contributor, down 20%. Education Management also made a sub-par
contribution, up only 6%. We feel the negative story was overdone and the
attractive valuations are being overlooked. Finally, the radio stocks made a
negative contribution in response to decelerating industry fundamentals. In
particular Entercom made a poor contribution, down 32%.
Underweighting the poorly performing Technology and Producer Durables sectors
added good value for the entire period. On the positive side, cell phone tower
operator Spectrasite experienced good operating leverage from well positioned
cell towers, making a strong contribution, up 66%. In the software industry
Netscreen, a leading developer of network security software, received a
takeover offer from Juniper Networks earlier this year and returned 39% for the
portfolio, a top contributor. We added to some of our technology positions
during the weakness in July and August and these moves added value. In
particular we added significantly to our holdings in Macromedia, a provider of
software development tools for designers and developers of Web sites,
applications and content. Growth for this market leader in a growing market is
being driven by new products as well as product upgrades. It recently reported
great quarterly results, and made a fine contribution to the portfolio,
returning 78%. On the negative side Emulex, which makes specialized storage
products, was a poor contributor down 56% as its second quarter earnings
pre-announcement was disappointing. We sold the position as we worried that the
weakness in their business would continue. Also on the disappointing side,
Zoran, which develops and markets integrated circuits and embedded software in
digital video and audio products, reduced its fourth quarter guidance and was
off 28% as we eliminated the position. In the Producer Durables sector
companies involved with the manufacture and testing of semiconductors suffered
huge corrections as analysts believe industry fundamentals were peaking. Cymer
sold off -36% and Advanced Energy Industries, which we sold, dropped 51% over
the entire period.
Information about Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and
transaction costs. Ongoing expenses include management fees, distribution and
service (12b-1) fees and other Fund expenses. Examples of transaction costs
include sales charges (loads), redemption fees and account maintenance fees,
which are not shown in this section and which would result in higher total
expenses. The following table is intended to help you understand your ongoing
expenses of investing in the Fund and to help you compare
- --------------------------------------------------------------------------------
6
these expenses with the ongoing expenses of investing in other mutual funds.
The table is based on an investment of $1,000 made at the beginning of the
six-month period ended December 31, 2004.
The table illustrates your Fund's expenses in two ways:
Actual Expenses. The first part of the table below provides information about
actual account values and actual expenses. This helps you estimate the actual
dollar amount of ongoing expenses paid on a $1,000 investment in the Fund using
the Fund's actual return during the period. To estimate the expenses you paid
over the period, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the "Expenses Paid During Period" line under the share class you
hold.
Hypothetical Example for Comparison Purposes. The second part of the table
below provides information about hypothetical account values and hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare your Fund's ongoing expenses with those of other mutual
funds. To do so, compare this 5% hypothetical fund return with the 5%
hypothetical return examples that appear in the shareholder reports of other
mutual funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing expenses only and do not reflect any transaction costs, such as sales
charges (loads) or redemption fees. If these transaction costs had been
included, your costs would have been higher. The "Expenses Paid During Period"
line of the table is useful in comparing ongoing expenses only and will not
help you determine the relative total expenses of owning different funds.
Expenses and value of a $1,000 investment for the six-month period ended
December 31, 2004
Institutional Premier Retail
Class Class Class
--------------- -------------- --------------
Actual
Beginning Account
Value -- 07/01/04 $1,000.00 $1,000.00 $1,000.00
Ending Account
Value -- 12/31/04 $1,072.70 $1,072.00 $1,071.00
Expenses Paid
During Period*--
07/01/04 to
12/31/04 $ 5.47 $ 6.51 $ 7.81
Hypothetical (5% return before expenses)
Beginning Account
Value -- 07/01/04 $1,000.00 $1,000.00 $1,000.00
Ending Account
Value -- 12/31/04 $1,019.86 $1,018.85 $1,017.60
Expenses Paid
During Period*--
07/01/04 to
12/31/04 $ 5.33 $ 6.34 $ 7.61
Annualized
Expense Ratios* 1.05% 1.25% 1.50%
* Expenses are equal to the Fund's annualized expense ratio for each share
class, multiplied by the average account value over the period, multiplied by
the number of days in the most recent fiscal half year period, then divided by
366. The "Expenses Paid During Period" and the "Annualized Expense Ratios" in
the tables are based on actual expenses paid by the Fund during the period,
net of fee waivers and/or expense reimbursements. If those fee waivers and/or
expense reimbursements had not been in effect, the Fund's actual expenses
would have been higher.
For more information, please refer to the Fund's prospectus.
- --------------------------------------------------------------------------------
7
Proxy Voting Information
A description of the Fund's proxy voting policies and procedures is available
without charge, upon request, by calling the Fund at 1-800-528-6718 and on the
Securities and Exchange Commission's website at www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities during
the 12-month period ended June 30, 2004 is available on the SEC website.
Quarterly Portfolio Securities
The Fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. Forms N-Q will be
available on the SEC's website at www.sec.gov and may be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Outlook
We expect real GDP growth to moderate from the 4.5% seen in 2004 to
approximately 3% in 2005. Corporate profit growth should also moderate from the
high levels experienced last year. Corporations, with strong balance sheets
flush with cash should step up their hiring and capital spending. We also
believe 2005 will see a sharp pick-up in M&A activity as companies seek to
acquire growth. In fact, the trend seems to have begun as the fourth quarter
alone saw a major pick-up in M&A activity. All these factors can support
continued gains in the equity markets but the upside will be challenged by the
Federal Reserve's actions and oil prices. Rising interest rates historically
provide a head wind for the market and if the Fed decides it needs to continue
to raise rates, multiples will contract once again. The break in oil prices
last August coincided with the onset of the stock market rally and any major
resumption in the spike in oil prices will be negatively perceived by the
overall stock market. The long-term demand for oil should continue to grow as
China's economy grows; thus the risk of higher oil prices remains.
The relative outperformance of the small caps vs. the large caps over the last
six years has narrowed the valuation gap between the two asset classes. Though
there may be short-term periods with the large caps outperforming the small
caps, we do not believe the relative performance will meaningfully reverse over
the longer term. First of all, the consensus is solidly in favor of large cap
outperformance. That alone gives us reason to doubt it. Second, rather than cap
size distinguishing performance, we believe the companies that will outperform
will be those with strong managements that will be able to execute their
strategies as the economic cycle matures. We believe that quality companies
with solid and consistent earnings growth will command a premium as overall
earnings growth decelerates in 2005.
We appreciate the confidence you have placed in us and remain committed to
working diligently to generate superior results over the long-term.
We wish you a healthy, happy and prosperous 2005.
- --------------------------------------------------------------------------------
8
[THE FOLLOWING INFORMATION IS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED
DOCUMENT]
- --------------------------------------------------------------------------------
Institutional Class
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited)
1/21/00 - 12/31/04
Institutional Russell 2000 Russell 2000
Class Index Growth Index
1/21/00 $10000 $10000 $10000
12/31/00 $11151 $9164 $7297
12/31/01 $10137 $9392 $6623
12/31/02 $8272 $7468 $4619
12/31/03 $11372 $10997 $6861
12/31/04 $12629 $13012 $7843
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
1-Year Life of Fund Inception Date
Institutional Class 11.05% 4.43% 1/21/00
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund (the "Fund") performance figures are
historical and reflect reinvestment of all dividends. The investment return and
principal value for each class will fluctuate so that an investor's shares when
sold may be worth more or less than their original cost. Past performance does
not predict future performance and the returns shown in the graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions and the redemption of fund shares. The return for each class has
been compared with the total return performance of the Russell 2000 Index and
the Russell 2000 Growth Index. These indices are a group of unmanaged securities
widely regarded by investors to be representative, in general, of the small
company stock market and the growth segment of that market, respectively. An
investment cannot be made in either index. Index results do not reflect
brokerage charges or other investment expenses.
[THE FOLLOWING INFORMATION IS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED
DOCUMENT]
- --------------------------------------------------------------------------------
Premier Class
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited)
1/21/00 - 12/31/04
Premier Russell 2000 Russell 2000
Class Index Growth Index
1/21/00 $10000 $10000 $10000
12/31/00 $11126 $9164 $7297
12/31/01 $10103 $9392 $6623
12/31/02 $8228 $7468 $4619
12/31/03 $11317 $10997 $6861
12/31/04 $12539 $13012 $7843
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
1-Year Life of Fund Inception Date
Premier Class 10.80% 4.68% 1/21/00
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund (the "Fund") performance figures are
historical and reflect reinvestment of all dividends. The Investment return and
principal value for each class will fluctuate so that an investor's shares when
sold may be worth more or less than their original cost. Past performance does
not predict future performance and the returns shown in the graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions and the redemptions of fund shares. The return for each class has
been compared with the total return performance of the Russell 2000 Index and
the Russell 2000 Growth Index. These indices are a group of unmanaged securities
widely reguarded by investors to be representative, in general, of the small
company stock market and the growth segment of that market, respectively. An
investment cannot be made in either index. Index results do not reflect
brokerage charges or other investment expenses.
- --------------------------------------------------------------------------------
9
[THE FOLLOWING INFORMATION IS REPRESENTED BY A MOUNTAIN CHART IN THE PRINTED
DOCUMENT]
- --------------------------------------------------------------------------------
Retail Class
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited)
1/21/00 - 12/31/04
Retail Russell 2000 Russell 2000
Class Index Growth Index
1/21/00 $10000 $10000 $10000
12/31/00 $11100 $9164 $7297
12/31/01 $10057 $9392 $6623
12/31/02 $8175 $7468 $4619
12/31/03 $11199 $10997 $6861
12/31/04 $12389 $13012 $7843
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
1-Year Life of Fund Inception Date
Retail Class 10.62% 4.43% 1/21/00
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund (the "Fund") performance figures are
historical and reflect reinvestment of all dividends. The investment return and
principal value for each class will fluctuate so that an investor's shares when
sold may be worth more or less than their original cost. Past performance does
not predict future performance and the returns shown in the graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions and the redemption of fund shares. The return for each class has
been compared with the total return performance of the Russell 2000 Index and
the Russell 2000 Growth Index. These indices are a group of unmanaged securities
widely regarded by investors to be representative, in general, of the small
company stock market and the growth segment of that market, respectively. An
investment cannot be made in either index. Index results do not reflect
brokerage charges or other investment expenses.
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund Investments in Securities 10
December 31, 2004
Number of Value
Shares (000)
- -------------------------------------------------------------------------
COMMON STOCKS - 94.3%
AUTO & TRANSPORTATION - 1.9%
Gentex Corp. 60,000 $ 2,221
Overnite Corp. 100,000 3,724
P.A.M. Transportation Services, Inc. (a) 57,600 1,080
Pacer International, Inc. (a) 137,900 2,932
-------
9,957
-------
CONSUMER DISCRETIONARY - 24.6%
Advance Auto Parts, Inc. (a) 130,000 5,678
Advisory (The) Board Co. (a) 115,900 4,274
Alliance Gaming Corp. (a) 79,900 1,103
Arbitron, Inc. (a) 90,800 3,558
Beacon Roofing Supply, Inc. (a) 118,300 2,349
CB Richard Ellis Group, Inc. (a) 240,000 8,052
Central Garden and Pet Co. (a) 150,000 6,261
ChoicePoint, Inc. (a) 130,000 5,979
Corinthian Colleges, Inc. (a) 235,000 4,429
Corporate Executive Board Co. 145,000 9,706
Educate, Inc. (a) 100,000 1,324
Education Management Corp. (a) 410,000 13,534
Entercom Communications Corp. (a) 165,000 5,922
Getty Images, Inc. (a) 160,000 11,016
Herbalife Ltd. (a) 174,000 2,828
Hibbett Sporting Goods, Inc. (a) 30,000 798
Kerzner International Ltd. (a) 80,000 4,804
Marvel Enterprises, Inc. (a) 150,000 3,072
Mobile Mini, Inc. (a) 140,400 4,639
NBTY, Inc. (a) 120,300 2,888
Radio One, Inc., Class D (a) 253,400 4,085
Resources Connection, Inc. (a) 145,000 7,875
SCP Pool Corp. 273,212 8,715
West Corp. (a) 193,500 6,407
-------
129,296
-------
CONSUMER STAPLES - 1.2%
United Natural Foods, Inc. (a) 200,000 6,220
-------
ENERGY - 6.2%
Denbury Resources, Inc. (a) 190,000 5,216
Houston Exploration Co. 65,100 3,666
Number of Value
Shares (000)
- -------------------------------------------------------------------------
Hydril Co. (a) 64,800 $ 2,949
Patina Oil & Gas Corp. 175,000 6,563
Patterson-UTI Energy, Inc. 243,500 4,736
Quicksilver Resources, Inc. (a) 46,100 1,696
Todco Class A (a) 157,000 2,892
Universal Compression Holdings, Inc. (a) 150,000 5,237
-------
32,955
-------
FINANCIAL SERVICES - 19.2%
Alliance Data Systems Corp. (a) 335,000 15,906
Assured Guaranty, Ltd. 210,000 4,131
CapitalSource, Inc. (a) 375,000 9,626
City National Corp. 50,000 3,532
Cohen & Steers, Inc. 200,000 3,250
Fair Isaac & Co. 80,000 2,934
Global Payments, Inc. 186,000 10,888
Henry (Jack) & Associates, Inc. 275,000 5,475
Investment Technology Group, Inc. (a) 150,000 3,000
Investors Financial Services Corp. 250,000 12,495
Jackson Hewitt Tax Services, Inc. 124,100 3,134
Jefferies Group, Inc. 125,000 5,035
Markel Corp. (a) 23,000 8,372
Portfolio Recovery Associates, Inc. (a) 41,500 1,711
Primus Guaranty, Ltd (a) 260,000 4,261
UCBH Holdings, Inc. 100,000 4,582
Wintrust Financial Corp. 45,700 2,603
-------
100,935
-------
HEALTH CARE - 19.4%
Bioenvision, Inc. (a) 250,000 2,240
Bio-Rad Laboratories, Inc. Class A (a) 85,000 4,876
Bradley Pharmaceuticals, Inc. (a) 200,000 3,880
DaVita, Inc. (a) 465,774 18,412
DJ Orthopedics, Inc. (a) 210,000 4,498
IMPAC Medical Systems, Inc. (a) 145,400 2,994
Ligand Pharmaceuticals, Inc., Class B (a) 283,000 3,294
Lincare Holdings, Inc. (a) 135,000 5,758
Magellan Health Services, Inc. (a) 170,000 5,807
Mettler-Toledo International, Inc. (a) 100,000 5,131
Molina Healthcare, Inc. (a) 84,000 3,896
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund Investments in Securities 11
December 31, 2004 (Continued)
Number of Value
Shares (000)
- -----------------------------------------------------------------------
NDCHealth Corp. 140,000 $ 2,603
Pediatrix Medical Group, Inc. (a) 125,000 8,006
Radiation Therapy Services, Inc. (a) 280,000 4,760
Respironics, Inc. (a) 120,000 6,523
Rigel Pharmaceuticals, Inc. (a) 105,400 2,574
Stericycle, Inc. (a) 165,000 7,582
Taro Pharmaceuticals Industries (a) 110,000 3,743
VCA Antech, Inc. (a) 288,300 5,651
--------
102,228
--------
MATERIALS & PROCESSING - 1.9%
Martin Marietta Materials, Inc. 185,000 9,927
--------
OTHER - 2.0%
iShares Russell 2000 Index Fund 80,000 10,360
--------
PRODUCER DURABLES - 4.4%
Cognex Corp. 115,000 3,208
Orbital Sciences Corp. (a) 370,000 4,377
Photon Dynamics, Inc. (a) 132,600 3,220
Premiere Global Services, Inc. (a) 300,000 3,213
Ritchie Bros. Auctioneers, Inc. 60,000 1,984
Spectrasite, Inc. (a) 125,000 7,238
--------
23,240
--------
TECHNOLOGY - 13.5%
Altiris, Inc. (a) 44,000 1,559
Anteon International Corp. (a) 46,700 1,955
aQuantive, Inc. (a) 200,000 1,788
Avocent Corp. (a) 100,000 4,052
Business Objects SA (a) 156,500 3,966
Cymer, Inc. (a) 150,300 4,440
Embarcadero Technologies, Inc. (a) 283,000 2,663
Filenet Corp. (a) 23,500 605
Number of Value
Shares (000)
- -----------------------------------------------------------------------
Formfactor, Inc. (a) 130,000 $ 3,528
Informatica Corp. (a) 565,400 4,591
Integrated Circuit Systems, Inc. (a) 200,000 4,184
j2 Global Communications, Inc. (a) 80,000 2,760
Lawson Software, Inc. (a) 86,800 596
Lowrance Electronics, Inc. 100,000 3,150
LTX Corp. (a) 60,100 462
Macromedia, Inc. (a) 180,000 5,602
Macrovision Corp. (a) 71,400 1,836
Microsemi Corp. 79,900 1,387
MTC Technologies, Inc. (a) 84,900 2,850
National Instruments Corp. 67,300 1,834
SafeNet, Inc. (a) 80,000 2,939
Semtech Corp. (a) 253,900 5,553
Serena Software, Inc. (a) 100,000 2,164
SI International, Inc. (a) 84,700 2,605
Skyworks Solutions, Inc. (a) 300,000 2,829
Trident Microsystems, Inc. (a) 75,000 1,254
--------
71,152
--------
TOTAL COMMON STOCKS
(Cost $408,157) 496,270
--------
SHORT-TERM OBLIGATION - 5.6%
MONEY MARKET FUND
CIGNA Funds Group - Money Market Fund
(Cost $29,680) (b) 29,680,379 29,680
--------
TOTAL INVESTMENTS IN SECURITIES - 99.9%
(Total Cost $437,837) (c) 525,950
Cash and Other Assets, Less Liabilities - 0.1% 190
--------
NET ASSETS - 100.0% $526,140
========
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund Investments in Securities 12
December 31, 2004 (Continued)
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
(a) Non-income producing security.
(b) CIGNA Investments Advisors, Inc., the fund's
Administrator, is also the Investment Adviser to
the CIGNA Funds Group - Money Market Fund.
Tax Information
(c) At December 31, 2004, the net unrealized
appreciation of investments, based on cost for
federal income tax purposes of $439,195,762,
was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of
value over tax cost $99,170,057
Aggregate gross unrealized depreciation for all
investments in which there was an excess of
tax cost over value (12,415,595)
-----------
Unrealized appreciation - net $86,754,462
===========
(d) As of December 31, 2004, the components of distributable earnings
(excluding unrealized appreciation/(depreciation) disclosed above on a
tax basis consisted of undistributed capital gains of $5,028,390
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund 13
Statement of Assets and Liabilities
December 31, 2004
(In Thousands)
Assets:
Investments in securities at value $525,950
Receivable for investments sold 2,100
Receivable for fund shares sold 634
Interest and dividends receivable 33
Prepaid registration fees 29
Prepaid insurance fees 5
Investment for Trustees' deferred compensation plan 4
--------
Total assets 528,755
--------
Liabilities:
Payable for investments purchased 1,073
Payable for fund shares purchased 984
Advisory fees payable 380
Custodian fees payable 48
Audit and legal fees payable 35
Administrative services fees payable 34
Shareholder reports payable 27
Shareholder servicing and distribution fees payable
to Distributor 26
Other accrued expenses 4
Deferred Trustees' fees payable 4
--------
Total liabilities 2,615
--------
Net Assets $526,140
========
Cost of Investments $437,837
========
Components of Net Assets:
Paid-in capital $434,360
Overdistributed net investment income (3)
Accumulated net realized gain on investments 3,670
Net unrealized appreciation of investments 88,113
--------
Net Assets $526,140
========
Net Assets
Institutional Class $410,171
Premier Class 103,589
Retail Class 12,380
---------
$526,140
=========
Shares Outstanding
Institutional Class 34,520
Premier Class 8,757
Retail Class 1,053
Net Asset Value and Redemption Price
per Share
Institutional Class $ 11.88
Premier Class $ 11.83
Retail Class $ 11.75
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund 14
Statement of Operations
For the Year Ended December 31, 2004
(In Thousands)
Investment Income:
Dividends (net of foreign taxes withheld) $ 1,176
Expenses:
Investment advisory fees $4,421
Shareholder servicing fees
Premier Class 184
Retail Class 23
Administrative services fees 152
Custodian fees and expenses 137
Audit and legal fees 71
Registration fees 63
Shareholder reports 51
Distribution fees (Retail Class) 29
Trustees' fees 19
Insurance expense 8
Other 7
Transfer agent fees 6
------
Total expenses 5,171
Less expenses waived and reimbursed by Adviser (179)
------
Net expenses 4,992
------
Net Investment Income (Loss) (3,816)
-------
Realized and Unrealized Gain
on investments:
Net realized gain from investments 18,427
Net change in unrealized appreciation
from investments 35,226
-------
Net Realized and Unrealized Gain
on Investments 53,653
-------
Net Increase in Net Assets Resulting
from Operations $49,837
=======
Statements of Changes in Net Assets
(In Thousands)
For the Year Ended December 31,
-------------------------------
2004 2003
---- ----
Operations:
Net investment income (loss) $ (3,816) $ (1,896)
Net realized gain from investments 18,427 15,795
Net unrealized appreciation
on investments 35,226 54,524
-------- --------
Net increase from operations 49,837 68,423
-------- --------
Dividends and Distributions:
From net investment income
Institutional Class (2,296) (3,632)
Premier Class (394) (697)
Retail Class (19) (81)
From net realized capital gains
Institutional Class (11,186) (912)
Premier Class (2,827) (190)
Retail Class (340) (30)
-------- --------
Total dividends and distributions (17,062) (5,542)
-------- --------
Capital Share Transactions:
Institutional Class
Net proceeds from sales of shares 80,250 233,127
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 13,482 4,544
-------- --------
93,732 237,671
Cost of shares redeemed (34,930) (16,286)
-------- --------
Total from Institutional Class 58,802 221,385
-------- --------
Premier Class
Net proceeds from sales of shares 64,452 67,121
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 3,221 887
-------- --------
67,673 68,008
Cost of shares redeemed (36,843) (14,825)
-------- --------
Total from Premier Class 30,830 53,183
-------- --------
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund 15
Statements of Changes in Net Assets
(In Thousands)
For the Year Ended December 31,
-------------------------------
2004 2003
---- ----
Retail Class
Net proceeds from sales of shares $ 4,231 $ 4,300
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 359 111
-------- --------
4,590 4,411
Cost of shares redeemed (3,640) (2,828)
-------- --------
Total from Retail Class 950 1,583
-------- --------
Net increase from Fund share transactions 90,582 276,151
-------- --------
Total Net Increase (Decrease) in
Net Assets 123,357 339,032
Net Assets:
Beginning of period 402,783 63,751
-------- --------
End of period* $526,140 $402,783
======== ========
* Includes overdistributed net investment
income of: $ (3) $ (1)
======== ========
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund 16
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL CLASS
- ------------------------------------------------------------------------------------
For the Year/Period Ended December 31,
--------------------------------------
2004 2003
- ------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 11.06 $ 8.16
Income from investment operations
Net investment income (loss) (b) (0.08) (0.09)(c)
Net realized and unrealized gain (loss)
on investments 1.30 3.15
-------- ---------
Total from investment operations 1.22 3.06
-------- ---------
Less dividends and distributions:
Dividends from net investment income (0.07) (0.13)
Distributions from net realized capital gains (0.33) (0.03)
Distributions from capital - -
-------- ---------
Total dividends and distributions (0.40) (0.16)
-------- ---------
Net asset value, end of period $ 11.88 $ 11.06
======== ========
Total Return (a) 11.05% 37.48%
Ratios to Average Net Assets
Gross expenses 1.09% 1.12%
Fees and expenses waived or borne by the
Adviser or Distributor 0.04% 0.07%
Net expenses 1.05% 1.05%
Net investment income (loss) (b) (0.79)% (0.86)%
Portfolio Turnover 70% 61%
Net Assets, End of Period (000 omitted) $410,171 $324,742
For the Year/Period Ended December 31,
---------------------------------------------------
2002 2001 2000(1)
- ---------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 10.00 $ 11.00 $ 10.00
Income from investment operations
Net investment income (loss) (b) (0.07)(c) (0.06) (0.01)
Net realized and unrealized gain (loss)
on investments (1.77) (0.94) 1.16
------- ------- --------
Total from investment operations (1.84) (1.00) 1.15
------- ------- --------
Less dividends and distributions:
Dividends from net investment income - - (0.10)
Distributions from net realized capital gains - - -
Distributions from capital - - (0.05)
------- ------- --------
Total dividends and distributions - - (0.15)
------- ------- --------
Net asset value, end of period $ 8.16 $ 10.00 $ 11.00
======= ======= ========
Total Return (a) (18.40)% (9.09)% 11.51%(d)
Ratios to Average Net Assets
Gross expenses 1.45% 1.75% 1.81%(e)
Fees and expenses waived or borne by the
Adviser or Distributor 0.40% 0.70% 0.76%(e)
Net expenses 1.05% 1.05% 1.05%(e)
Net investment income (loss) (b) (0.85)% (0.66)% (0.12)%(e)
Portfolio Turnover 57% 160% 140%(d)
Net Assets, End of Period (000 omitted) $51,762 $ 9,441 $ 16,552
(1) Commenced operations on January 21, 2000.
(a) Had the Adviser or Distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(b) Net investment income per share has been calculated in accordance with SEC
requirements, unless otherwise noted, with the exception that end of the
year accumulated undistributed/(overdistributed) net investment income has
not been adjusted to reflect current year permanent differences between
financial and tax accounting.
(c) Per share numbers have been calculated using average shares.
(d) Not annualized.
(e) Annualized.
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund 17
FINANCIAL HIGHLIGHTS -- PREMIER CLASS continued
For the Year/Period Ended
December 31,
--------------------------------
2004 2003
------------- ------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 11.02 $ 8.12
Income from investment operations
Net investment income (loss) (b) (0.10) (0.11)(c)
Net realized and unrealized gain (loss)
on investments 1.29 3.16
------- ----------
Total from investment operations 1.19 3.05
------- ----------
Less dividends and distributions:
Dividends from net investment income (0.05) (0.12)
Distributions from net realized capital gains (0.33) (0.03)
Distributions from capital - -
------- ----------
Total dividends and distributions (0.38) (0.15)
------- ----------
Net asset value, end of period $ 11.83 $ 11.02
------- ----------
Total Return (a) 10.80% 37.53%
Ratios to Average Net Assets
Gross expenses 1.29% 1.32%
Fees and expenses waived or borne by the
Adviser or Distributor 0.04% 0.07%
Net expenses 1.25% 1.25%
Net investment income (loss) (b) (0.99)% (1.06)%
Portfolio Turnover 70% 61%
Net Assets, End of Period (000 omitted) $103,589 $ 67,375
For the Year/Period Ended December 31,
---------------------------------------------------
2002 2001 2000(1)
------------------ ----------- --------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 9.97 $ 10.98 $ 10.00
Income from investment operations
Net investment income (loss) (b) (0.09)(c) (0.08) (0.02)
Net realized and unrealized gain (loss)
on investments (1.76) (0.93) 1.15
---------- -------- ----------
Total from investment operations (1.85) (1.01) 1.13
---------- -------- ----------
Less dividends and distributions:
Dividends from net investment income - - (0.10)
Distributions from net realized capital gains - - -
Distributions from capital - - (0.05)
---------- -------- ----------
Total dividends and distributions - - (0.15)
---------- -------- ----------
Net asset value, end of period $ 8.12 $ 9.97 $ 10.98
---------- -------- ----------
Total Return (a) (18.56)% (9.20)% 11.26%(d)
Ratios to Average Net Assets
Gross expenses 1.65% 1.95% 2.01%(e)
Fees and expenses waived or borne by the
Adviser or Distributor 0.40% 0.70% 0.76%(e)
Net expenses 1.25% 1.25% 1.25%(e)
Net investment income (loss) (b) (1.06)% (0.87)% (0.32)%(e)
Portfolio Turnover 57% 160% 140%(d)
Net Assets, End of Period (000 omitted) $ 5,482 $ 6,370 $ 6,640
(1) Commenced operations on January 21, 2000.
(a) Had the Adviser or Distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(b) Net investment income per share has been calculated in accordance with SEC
requirements, unless otherwise noted, with the exception that end of the
year accumulated undistributed/ (overdistributed) net investment income has
not been adjusted to reflect current year permanent differences between
financial and tax accounting.
(c) Per share numbers have been calculated using average shares.
(d) Not annualized.
(e) Annualized.
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund 18
FINANCIAL HIGHLIGHTS -- RETAIL CLASS continued
For the Year/Period Ended
December 31,
-------------------------------
2004 2003
------------ ------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 10.94 $ 8.07
Income from investment operations
Net investment income (loss) (b) (0.13) (0.12)(c)
Net realized and unrealized gain (loss)
on investments 1.29 3.11
--------- ----------
Total from investment operations 1.16 2.99
--------- ----------
Less dividends and distributions:
Dividends from net investment income (0.02) (0.09)
Distributions from net realized capital gains (0.33) (0.03)
Distributions from capital - -
--------- ----------
Total dividends and distributions (0.35) (0.12)
--------- ----------
Net asset value, end of period $ 11.75 $ 10.94
--------- ----------
Total Return (a) 10.62% 37.02%
Ratios to Average Net Assets
Gross expenses 1.54% 1.57%
Fees and expenses waived or borne by the
Adviser or Distributor 0.04% 0.07%
Net expenses 1.50% 1.50%
Net investment income (loss) (b) (1.25)% (1.31)%
Portfolio Turnover 70% 61%
Net Assets, End of Period (000 omitted) $ 12,380 $ 10,666
For the Year/Period Ended December 31,
-----------------------------------------------------
2002 2001 2000(1)
------------------ ------------ ---------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 9.93 $ 10.96 $ 10.00
Income from investment operations
Net investment income (loss) (b) (0.11)(c) (0.07) (0.04)
Net realized and unrealized gain (loss)
on investments (1.75) (0.96) 1.14
---------- --------- -----------
Total from investment operations (1.86) (1.03) 1.10
---------- --------- -----------
Less dividends and distributions:
Dividends from net investment income - - (0.09)
Distributions from net realized capital gains - - -
Distributions from capital - - (0.05)
---------- --------- -----------
Total dividends and distributions - - (0.14)
---------- --------- -----------
Net asset value, end of period $ 8.07 $ 9.93 $ 10.96
---------- --------- -----------
Total Return (a) (18.73)% (9.40)% 11.00%(d)
Ratios to Average Net Assets
Gross expenses 1.90% 2.18% 2.26%(e)
Fees and expenses waived or borne by the
Adviser or Distributor 0.40% 0.68% 0.76%(e)
Net expenses 1.50% 1.50% 1.50%(e)
Net investment income (loss) (b) (1.30)% (1.14)% (0.57)%(e)
Portfolio Turnover 57% 160% 140%(d)
Net Assets, End of Period (000 omitted) $ 6,507 $ 4,892 $ 2,905
(1) Commenced operations on January 21, 2000.
(a) Had the Adviser or Distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(b) Net investment income per share has been calculated in accordance with SEC
requirements, unless otherwise noted, with the exception that end of the
year accumulated undistributed/ (overdistributed) net investment income has
not been adjusted to reflect current year permanent differences between
financial and tax accounting.
(c) Per share numbers have been calculated using average shares.
(d) Not annualized.
(e) Annualized.
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund Notes To Financial Statements 19
1. Organization. CIGNA Funds Group, a Massachusetts business trust (the
"Trust") is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. At December 31, 2004,
the Trust offered two separate series. Information on the Small Cap Growth/
TimesSquare Fund (the "Fund") is presented in this report. The financial
statements of the Money Market Fund are presented in a separate report. The
Trust offers three classes of shares in the Fund: Institutional Class, Premier
Class and Retail Class. Expenses of the Fund are borne pro rata by the holders
of each Class of shares, except that each Class bears expenses unique to that
Class (including any applicable shareholder servicing fee or distribution fee).
Shares of each Class would receive their pro rata share of net assets of the
Fund if the Fund were liquidated. In addition, the Trustees approve separate
dividends on each Class of shares. The Premier Class Shares have a shareholder
servicing fee. The Retail Class Shares have a shareholder servicing fee and a
distribution fee.
2. Significant Accounting Policies. The preparation of financial statements in
accordance with accounting principles generally accepted in the United States
of America 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 (NASDAQ Official Closing Price ["NOCP"] for
NASDAQ stocks) or, if there has been no sale that day, at the last 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 Board of Trustees. The Fund's
Board of Trustees has designated the Pricing Committee of CIGNA Investment
Advisors, Inc. (formerly, TimesSquare Capital Management, Inc.) to make,
pursuant to procedures approved by the Board and under the Board's supervision,
all necessary determinations of fair value for the portfolio securities for
which market quotations are not readily available. When fair valuing
securities, the Pricing Committee takes into account factors such as
fundamental and analytical information about the security, the nature and
duration of any restrictions on disposition of the security, market information
(including, for example, factors such as historical price relationships and
valuations for securities with similar characteristics), and evaluation of
significant market events. If events occurring after the close of the principal
market in which securities are traded (but before the close of regular trading
on the NYSE) are believed to materially affect the value of those securities,
such securities are valued at their fair value, taking such events into
account.
B. Repurchase Agreements -- The Fund may engage in repurchase agreements. Under
the terms of a typical repurchase agreement, the Fund takes possession of an
underlying debt obligation, subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time. It is the Funds' policy that the market value of the collateral must be
at least equal at all times to the total amount of the repurchase obligations,
including interest.
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund Notes To Financial Statements 20
(Continued)
Generally, in the event of counterparty default, the Fund has the right to use
the collateral to offset any losses incurred.
C. 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-date and interest income is
recorded on the accrual basis, which includes amortization of premium and
accrual of discount, except that certain dividends from foreign securities are
recorded as soon as the Fund is informed of the ex-dividend date. Securities
gains and losses are determined on the basis of identified cost.
D. Federal Taxes -- For federal income tax purposes, each Fund in the Trust is
taxed as a separate entity. 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
or net capital gains have been accrued. Distributions reported in the
Statements of Changes in Net Assets from net investment income, including
short-term capital gains, and capital gains are treated as ordinary income and
long-term capital gains, respectively, for federal income tax purposes.
Under current tax law, capital losses realized after October 31 may be deferred
and treated as occurring on the first day of the following year.
E. Foreign Taxes on Dividends -- Dividend income on the Statement of Operations
is shown net of foreign taxes withheld on dividends from foreign securities.
The Fund had $3,359 of foreign taxes withheld.
F. Dividends and Distributions to Shareholders -- Dividends from net investment
income, if any, and distributions from net capital gains, to the extent such
gains would otherwise be taxable to the Fund, are declared and distributed at
least annually.
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. These differences are
primarily due to differing book and tax treatment for deferred compensation,
deferred losses due to wash sales, equalization, distribution reclass, 97-64
bifurcation adjustment, excise tax regulations and net operating losses. To the
extent that such differences are permanent, a reclassification of the
components of Net Assets may be required. As a result, at December 31, 2004,
the Fund decreased overdistributed net investment income by $6,523,488,
decreased accumulated net realized gain by $4,220,802 and decreased Paid-in
Capital by $2,302,686.
G. Multiclass Operations -- Each Class offered by the Trust has equal rights as
to net assets. Income, non-specific expenses, and realized and unrealized
capital gains and losses are allocated to each Class of shares based on the
relative net assets of each Class.
3. Investment Advisory Fees and Other Transactions with Affiliates. Through
November 17, 2004, investment advisory fees, in the amount of $3,692,188 (net
of waivers), were paid or accrued to CIGNA Investment Advisors, Inc. ("CIAI")
(formerly, TimesSquare Capital Management, Inc.), certain officers and
directors of which were affiliated with the Fund. Such advisory fees were based
on an annual rate of 1.00% of the Fund's average daily net assets. CIAI
contractually agreed to reimburse or bear any
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund Notes To Financial Statements 21
(Continued)
other expenses for the Fund for any amount by which expenses (including the
advisory fee, but excluding interest, taxes, transaction costs incurred in
acquiring and disposing of portfolio securities, and extraordinary expenses)
exceeded, on an annual basis, the following percentages of average daily net
assets:
Institutional Premier Retail
Class Class Class
--------------- --------- ---------
Maximum
Operating
Expense Ratio 1.05 1.25 1.50
Effective November 18, 2004, the Board of Trustees approved an interim
investment advisory agreement with TimesSquare Capital Management, LLC
("TSCM"), pursuant to which TSCM serves as investment adviser to the Fund.
Advisory fees, in the amount of $550,485 (net of waivers), paid or accrued to
TSCM are based on an annual rate of 1.00% of the Fund's average daily net
assets. According to an expense limitation agreement between TSCM and the Fund,
TSCM retains the right to be repaid by the Fund if the Fund's expenses fall
below the percentages specified above prior to the end of the fiscal year or
within three years after TSCM waives advisory fees or reimburses the Fund's
operating expenses. The following is a list of the Fund's remaining liability
and date of expiration:
(In Thousands)
Expires
during
Fund 2007
- ----------------------- --------
Small Cap Growth Fund $57
Institutional 45
Premier 11
Retail 1
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Fund may invest excess cash, up to 25% of the Fund's total
assets, in the affiliated Money Market Fund (MMF) managed by CIAI. CIAI has
contractually agreed to waive the amount of its advisory fee for the Fund by an
amount that offsets the amount of the advisory fees incurred in the affiliated
Fund as a result of its investment in MMF. For the year ended December 31,
2004, the advisory fees waived by CIAI were $108,193.
Income distributions of $293,002 from the MMF for the twelve months ended
December 31, 2004, are included as dividend income in the Statement of
Operations.
For administrative services, the Fund reimbursed CIAI 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. Effective November 18, 2004, CIAI continues to provide such
administrative services for which it receives a fee at an annual rate of 0.04%
of the Fund's average daily net assets. For the year ended December 31, 2004,
the Fund paid or accrued $151,725.
With respect to Retail Class shares, the Fund has adopted a Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940, which requires
the payment of an annual rate of 0.25%, applied to the average daily net assets
of that class, to Prudential Retirement Brokerage Services ("PRBS") (formerly
CIGNA Financial Services, Inc.), the Funds' distributor. The distribution fees
received from the 12b-1 plan are used for services provided to the Retail Class
and expenses primarily intended to result in the sale of such shares. Premier
and Retail Class shares are also subject to a shareholder servicing fee payable
to PRBS equal to 0.20% annually applied to the average daily net assets of each
class. The shareholder servicing and distribution fees will be waived as
necessary to limit Premier and Retail Class expenses, as a percentage of
average daily net assets, to the amounts described above.
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund Notes To Financial Statements 22
(Continued)
CIAI 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 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
year ended December 31, 2004, were as follows:
(In Thousands)
U.S. Government/Agency All Other
- ----------------------- --------------------
Purchases Sales Purchases Sales
--------- ----- --------- -----
-- -- 356,840 295,464
7. Capital Stock. The Fund is a separate series of the Trust, which offers an
unlimited number of shares of beneficial interest, without par value. As of
December 31, 2004, there were five shareholders who each held greater than 5%
of the outstanding shares of the Fund. Changes in capital shares were as
follows:
(In thousands)
For the Year Ended
December 31,
-----------------------
2004 2003
----------- -----------
Capital Shares Transacted:
Institutional Class
Shares sold 7,154 24,196
Shares issued to shareholders in connection
with the reinvestment of dividends
and distributions 1,134 414
----- ------
8,288 24,610
Shares redeemed (3,124) (1,594)
------ ------
Net change 5,164 23,016
------ ------
For the Year Ended
December 31,
-----------------------
2004 2003
----------- -----------
Premier Class
Shares sold 5,713 6,849
Shares issued to shareholders in connection
with the reinvestment of dividends
and distributions 272 81
------ ------
5,985 6,930
Shares redeemed (3,343) (1,490)
------ ------
Net change 2,642 5,440
------ ------
Retail Class
Shares sold 387 464
Shares issued to shareholders in connection
with the reinvestment of dividends
and distributions 30 10
------ ------
417 474
Shares redeemed (338) (306)
------ ------
Net change 79 168
------ ------
Total net increase in Fund shares 7,885 28,624
====== ======
8. Proposed Merger of the Fund. The Fund's previous investment adviser,
TimesSquare Capital Management, Inc. (TimesSquare Inc.), now known as CIGNA
Investment Advisors, Inc. and its parent company, CIGNA Corporation, have sold
TimesSquare Inc.'s growth equity management business to a new company,
TimesSquare Capital Management, LLC (TimesSquare LLC). The managing member of
TimesSquare LLC is a subsidiary of Affiliated Managers Group, Inc. (AMG).
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund Notes To Financial Statements 23
(Continued)
On October 12, 2004, the Board of Trustees of CIGNA Funds Group approved a
reorganization, subject to approval by Fund shareholders, pursuant to which the
Small Cap Growth/TimesSquare Fund would transfer substantially all of its assets
and liabilities to a new fund, the TimesSquare Small Cap Growth Fund, which is a
series of Managers AMG Funds, in exchange for shares of the new fund having a
net asset value equal to the net asset value of the assets and liabilities so
transferred. The new fund shares would then be distributed pro rata to
shareholders of the Fund. The Fund has scheduled a special meeting of
shareholders on April 8, 2005 to seek shareholder approval of the merger.
- --------------------------------------------------------------------------------
CIGNA Funds Group - Small Cap Growth/TimesSquare Fund 24
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of CIGNA Funds Group -- Small Cap
Growth/TimesSquare Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investments in securities, 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 Funds Group--Small Cap
Growth/TimesSquare Fund ("Fund") at December 31, 2004, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with accounting principles generally accepted
in the United States of America. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, 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, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 25, 2005
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund 25
(Unaudited)
2004 TAX INFORMATION
The fund hereby designates 31.98% or the maximum amount allowable of its net
taxable income as qualified dividends as provided in the Jobs and Growth Tax
Relief Reconciliation Tax Act of 2003. The 2004 Form 1099-DIV you receive will
show the tax status of all distributions paid to you during the year.
Approximately 31.16% of ordinary income dividends would be eligible for the
dividend received deduction (available to corporate shareholders only).
- --------------------------------------------------------------------------------
Small Cap Growth/TimesSquare Fund 26
(Unaudited)
Trustees and Officers
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based
on policies set by the Board.
The following is a list of the Fund's Board of Trustees and officers. Each
Trustee's term of office will be until the next annual meeting of shareholders
or until the election of the Trustee's successor.
Number of
Name, Position Length Portfolios in Other
Address* Held with of Time Principal Occupation(s) Fund Complex Directorships
And Age Fund Served During Past 5 Years Overseen Held by Trustee
- -----------------------------------------------------------------------------------------------------------------------------
Independent Trustees
Russell H. Jones Trustee Trustee since Senior Vice President (Investor 7 --
60 1995 Relations, Public Relations), Chief
Investment Officer and Treasurer,
Kaman Corporation
(helicopters and aircraft components,
industrial distribution)
Paul J. Trustee Trustee since Special Advisor to the Board of 7 Western
McDonald 1995 Directors, Friendly Ice Cream Massachusetts Electric
61 Corporation (family restaurants and Company
dairy products)
Marnie Trustee Trustee since Diocesan Consultant, Episcopal 7 Boston Mutual Life
Wagstaff 2001 Diocese of Connecticut; Insurance Company
Mueller Previously, Visiting Professor of
65 Health Economics, Wesleyan
University
Carol Ann Trustee Trustee since Director and Chair of Audit 7 Reed & Barton
Hayes 2003 Committee, Reed and Barton Corporation
60 Corporation
Affiliated Trustees and Fund Officers
Richard H. Trustee, Trustee, Chief Investment Officer, CIGNA 7 Director of various
Forde Chairman of Chairman and Investment Management subsidiaries of CIGNA
51 the Board and President since Corporation
President 1998
Alfred A. Vice President Officer CIGNA Funds Treasurer; 7 __
Bingham III and Treasurer Since 1982 Assistant Vice President, CIGNA
60 Investment Management
Jeffrey S. Winer Vice President Officer Senior Counsel, 7 __
47 and Secretary Since 1993 CIGNA Corporation
- -----------------------------------------------------------------------------------------------------------------------------
* All Trustees and officers have an address c/o CIGNA Investment Advisors, Inc.
(formerly, TimesSquare Capital Management, Inc.), 280 Trumbull Street, H16C,
Hartford, CT 06103.
- --------------------------------------------------------------------------------
CIGNA Funds Group Funds are open-end, diversified management investment
companies. The investment adviser to the Small Cap Growth/TimesSquare Fund is
TimesSquare Capital Management, LLC, Four TimesSquare, 25th Floor, New York, NY
10036, (Telephone: 1.800.541.5156 ext. 7884.) The Funds are distributed by
Prudential Retirement Brokerage Services (formerly CIGNA Financial Services,
Inc.), P.O. Box 150476, Hartford, Connecticut 06115-0476 (Telephone:
1.888.CIGNA.FS or 1.888.244.6237).
- --------------------------------------------------------------------------------
[CIGNA logo]
CIGNA
545900
Item 2. Code of Ethics.
The Registrant has adopted a Code of Ethics that applies to its principal
executive officer and principal financial officer. The Registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made to the Secretary of the Registrant, c/o CIGNA
Investment Advisors, Inc., 280 Trumbull Street, H16C, Hartford, CT 06103.
Item 3. Audit Committee Financial Expert.
The Registrant's Board of Trustees has determined that Carol Ann Hayes, Russell
H. Jones and Paul J. McDonald are "audit committee financial experts", all of
whom are "independent." Mr. Jones serves as Senior Vice President, Chief
Investment Officer and Treasurer of Kaman Corporation. His responsibilities
include communications with financial analysts concerning Kaman Corporation.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees
For the audit of the Registrant's annual financial statements for the fiscal
year ended December 31, 2003 and December 31, 2004, included in the Registrant's
annual report to shareholders for those fiscal years, PricewaterhouseCoopers LLP
("PWC") billed the Registrant $180,400 and $72,850, respectively.
(b) Audit-Related Fees
For the fiscal years ended December 31, 2003 and December 31, 2004, PWC did not
bill the Registrant any amounts for assurance or related services related to the
audit of the Registrant's financial statements.
(c) Tax Fees
For the fiscal years ended December 31, 2003 and December 31, 2004, PWC billed
the Registrant $46,975 and $46,850, respectively, for reviewing the Registrant's
federal income tax and excise tax returns and reviewing excise distribution
estimate calculations.
(d) All Other Fees
For the fiscal years ended December 31, 2003 and December 31, 2004, PWC did not
bill the Registrant for any other products and services.
(e)(1) The Audit Committee has not developed pre-approval policies and
procedures relating to the provision of services to the Registrant by the
Registrant's independent accountant.
(e)(2) For the fiscal years ended December 31, 2003 and December 31, 2004, 100%
of the PWC fees described above under the captions "Audit Related Fees", "Tax
Fees" and "All Other Fees" were approved by the Registrant's Audit Committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2.01 of Regulation S-X.
For the fiscal years ended December 31, 2003 and December 31, 2004, PWC did not
bill any fees that were required to be approved by the Registrant's Audit
Committee pursuant to paragraph (c)(7)(ii)(C) of Rule 2.01 of Regulation S-X.
(f) Not applicable.
(g) The aggregate non-audit fees billed by PWC for services rendered to CIGNA
Investment Advisors, Inc. ("CIGNA Advisors") and TimesSquare Capital Management,
LLC, ("TSCM") the investment adviser to the Registrant, and other entities
controlling, controlled by, under common control with CIGNA Advisors or TSCM
that provide ongoing services to the Registrant for fiscal years ending December
31, 2003 and 2004, were $100,148 and $819,180, respectively.
(h) In considering PWC's independence, the Audit Committee considered whether
the provision of non-audit services rendered by PWC to CIGNA Advisors and other
entities controlling, controlled by, under common control with CIGNA Advisors
that provide ongoing services to the Registrant that were not pre-approved
pursuant to paragraph (c)(7)(ii)(C) of Rule 2.01 of Regulation S-X was
compatible with maintaining PWC's independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
See report to shareholders filed under Item 1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not Applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
The Registrant has adopted a nominating committee charter that sets forth
procedures by which shareholders may recommend nominees to the Registrant's
Board of Trustees. The charter is attached as an exhibit hereto.
Item 11. Controls and Procedures.
(a) The Registrant's principal executive and principal financial officer have
concluded that the Registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date
within 90 days of the filing date of the report that includes the
disclosure required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act (17
CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There was no change in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) (17 CFR
270.30a-3(d)) that occurred during the second fiscal quarter of the period
covered by this report that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal control over
financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics attached hereto.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940.
(b) A certification by the registrant's chief executive officer and chief
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Nominating Committee Charter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) CIGNA High Income Shares
By: /s/ Alfred A. Bingham III
---------------------------------------------------
Alfred A. Bingham III, Vice President and Treasurer
Date: March 4, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /s/_Richard H. Forde
-------------------------------------------------------
Richard H. Forde, Chairman of the Board and President
Date: March 4, 2005
By (Signature and Title) /s/ Alfred A. Bingham III
--------------------------------------------------------
Alfred A. Bingham III, Vice President and Treasurer
Date: March 4, 2005