<PAGE>
SECURITIES ACT FILE NO. 2-29020
INVESTMENT COMPANY ACT FILE NO. 811-1646
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. _____ [_]
Post-Effective Amendment No. 53 [X]
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 53 [X]
----
(Check appropriate box or boxes.)
CIGNA Funds Group
(f/k/a/ CIGNA ANNUITY FUNDS GROUP)
(Exact Name of Registrant as Specified in Charter)
1380 Main Street, Springfield, Massachusetts 01103
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (800) 528-6718
Alfred A. Bingham III, 1380 Main Street
Springfield, Massachusetts 01103
(Name and Address of Agent for Service)
-------------------------
Approximate Date of Proposed Public Offering: Continuous
----------
It is proposed that this filing will become effective (check appropriate box):
[_] Immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
-------------------------
DECLARATION PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940
Registrant hereby declares pursuant to Rule 24f-2(a)(1) under the Investment
Company Act of 1940 that Registrant has registered an indefinite number of
shares under the Securities Act of 1933 and has paid the registration fee
appropriate thereto. The Rule 24f-2 Notice for the most recent fiscal year of
Registrant was filed electronically with the Securities and Exchange Commission
on February 29, 1996.
<PAGE>
CIGNA MONEY MARKET FUND
CIGNA TREASURY OBLIGATIONS CASH FUND
CIGNA GOVERNMENT OBLIGATIONS CASH FUND
CIGNA GOVERNMENT SECURITIES FUND
CIGNA INCOME FUND PRINCIPAL UNDERWRITER:
CIGNA HIGH YIELD FUND CIGNA Financial Advisors, Inc.
CIGNA INTERNATIONAL STOCK FUND Hartford, CT 06152
CIGNA S&P 500 INDEX FUND
PROSPECTUS
JULY 1, 1996
This Prospectus contains information about the mutual funds listed above (the
"Funds"). CIGNA International Stock Fund is a separate series portfolio of
CIGNA Institutional Funds Group. The other Funds are separate series portfolios
of CIGNA Funds Group. Each Fund has distinct investment objectives and
policies. The investment objectives of each Fund are listed on the inside cover
page.
This prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Additional information
about the Funds, contained in a Statement of Additional Information dated July
1, 1996, has been filed with the Securities and Exchange Commission and is
available upon request without charge by writing to the Funds at 1380 Main
Street, Springfield, Massachusetts 01103. The Funds' telephone number is (800)
528-6718. The Statement of Additional Information is incorporated by reference
into this prospectus. The Statement of Additional Information is not a
prospectus.
- --------------------------------------------------------------------------------
PLEASE READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
THE FUNDS' SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
CIGNA HIGH YIELD FUND MAY INVEST UP TO 100% OF ITS NET ASSETS IN NON-INVESTMENT
GRADE DEBT SECURITIES, COMMONLY REFERRED TO AS "JUNK BONDS." JUNK BONDS ARE
CONSIDERED TO BE SPECULATIVE, AND ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS,
THAN THOSE FOUND IN HIGHER RATED SECURITIES. PURCHASERS SHOULD CAREFULLY
CONSIDER THE RISKS ASSOCIATED WITH AN INVESTMENT IN THIS FUND PRIOR TO
INVESTING. SEE "INVESTMENT PROGRAMS - HIGH YIELD FUND."
CIGNA MONEY MARKET FUND, CIGNA GOVERNMENT OBLIGATIONS CASH FUND AND CIGNA
TREASURY OBLIGATIONS CASH FUND SEEK TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE. HOWEVER, THERE CAN BE NO ASSURANCE THAT THESE FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
1
<PAGE>
INVESTMENT OBJECTIVES
The investment objectives of the Funds are as follows:
CIGNA MONEY MARKET FUND: To provide as high a level of current income as is
consistent with the preservation of capital and liquidity and the maintenance
of a stable $1.00 per share net asset value by investing in short-term money
market instruments.
CIGNA TREASURY OBLIGATIONS CASH FUND: To provide as high a level of current
income as is consistent with the preservation of capital and liquidity and the
maintenance of a stable $1.00 per share net asset value by investing in U.S.
Treasury bills, notes and bonds and other direct obligations of the U.S.
Treasury.
CIGNA GOVERNMENT OBLIGATIONS CASH FUND: To provide as high a level of current
income as is consistent with the preservation of capital and liquidity and the
maintenance of a stable $1.00 per share net asset value by investing in a
portfolio of U.S. Government securities.
CIGNA GOVERNMENT SECURITIES FUND: To achieve a high level of current income
consistent with reasonable concern for safety of principal by investing in
debt securities issued, guaranteed or otherwise backed by the U.S. Government.
CIGNA INCOME FUND: To provide as high a level of current income as possible
consistent with reasonable concern for safety of principal by investing
primarily in investment grade corporate debt securities and U.S. Government
securities.
CIGNA HIGH YIELD FUND: To provide the highest current income attainable
consistent with reasonable risk through investment primarily in high yield,
high risk non-investment grade debt securities.
CIGNA INTERNATIONAL STOCK FUND: To provide long-term growth of capital by
investing primarily in common stocks, preferred stocks and convertible debt of
companies based outside the United States.
CIGNA S&P 500 INDEX FUND: To achieve long-term growth of capital by investing
principally in common stocks of companies in the Standard & Poor's 500
Composite Stock Price Index ("S&P 500"), an index emphasizing large-
capitalization stocks.
Each Fund pursues its investment objective through separate investment
policies, and is managed separately by the investment adviser. The investment
objective of each Fund is deemed to be a fundamental policy which may not be
changed without the approval of a majority of the Fund's outstanding shares
(within the meaning of the Investment Company Act of 1940 (the "1940 Act")).
Further information is available in the Statement of Additional Information.
There are risks in the ownership of any security and no assurance can be given
that any particular Fund will achieve its investment objective.
2
<PAGE>
SUMMARY
CIGNA Funds Group and CIGNA Institutional Funds Group (the "Trusts") are open-
end management investment companies currently consisting of eight investment
portfolios, referred to in this prospectus as the Funds. Each Fund proposes
to operate as a diversified management investment company. Each Fund offers
two classes of shares: the institutional class and the retail class. Both
classes of shares are offered to institutional investors, including financial
institutions, endowments, foundations and corporations, employer-sponsored
retirement or savings plans, such as tax qualified pension and profit sharing
plans and 401(k) thrift plans, as well as 403(b) custodial accounts for non-
profit educational and charitable organizations. In addition, the retail
class is also offered to Individual Retirement Accounts ("IRAs"), Rollover
IRAs, Simplified Employee Pension Plans and individual investors. Shares of
the retail class are offered to those investors who require or desire
additional shareholders services that are not provided to shareholders of the
institutional class. Retail class shareholders pay the costs associated with
the provision of these services. Please refer to "Purchase and Redemption of
Shares" in this Prospectus for a description of how to purchase and redeem
shares of a Fund.
Each Fund has its own distinct investment objective. These objectives are
described in more detail under the heading "Investment Objectives." Although
each Fund will be managed by experienced professionals, there can be no
assurance that the objectives will be achieved.
There are levels of risk involved with each Fund. For fixed income
securities, there is the risk that interest rates will change, thereby
affecting the value of the securities. Generally, the value of fixed income
securities declines as interest rates rise, and conversely, their value rises
as interest rates decline. There is also a credit risk; that is, a risk
related to the financial ability of an issuer to make periodic interest
payments and ultimately repay the principal at maturity. For equity
securities, there is the market risk associated with movement of the stock
market in general. In addition, there is the financial risk related to
earnings stability and overall financial soundness of individual issuers and
of issuers collectively which are a part of a particular industry. For
foreign securities, there are additional risks associated with currency
values, the political and regulatory environment, and overall economic factors
in the countries in which a Fund invests. See "Certain Investment Strategies
and Policies" for a discussion of these risks.
CIGNA Funds are "no-load" investments, which means there are no sales charges
or commissions. CIGNA Funds have no 12b-1 plan or deferred sales charges.
CIGNA Investments, Inc. ("CII"), the Funds' adviser, provides each Fund with
investment advice and other services. Each Fund pays CII a management fee for
the management of investments and business affairs. For a discussion of
these, please see "Management of the Funds."
The above information is qualified in its entirety by the detailed information
appearing elsewhere in this prospectus and the Statement of Additional
Information.
3
<PAGE>
TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVES.............................................. 2
SUMMARY ........................................................... 3
EXPENSE TABLE...................................................... 5
FINANCIAL HIGHLIGHTS............................................... 6
ABOUT THE FUNDS.................................................... 9
INVESTMENT PROGRAMS................................................ 9
CERTAIN INVESTMENT STRATEGIES AND POLICIES......................... 17
INVESTMENT RESTRICTIONS............................................ 26
PURCHASE AND REDEMPTION OF SHARES.................................. 27
PRICING OF SHARES ................................................. 30
MANAGEMENT OF THE FUNDS............................................ 32
PERFORMANCE INFORMATION............................................ 35
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.......................... 38
TAX MATTERS........................................................ 38
THE TRUSTS, THEIR SHARES AND BOARD OF TRUSTEES..................... 39
APPENDIX - DESCRIPTION OF MONEY MARKET INSTRUMENTS AND
OF RATING CATEGORIES ........................................... 41
4
<PAGE>
EXPENSE TABLE
The following Expense Tables list the transaction expenses and approximate
annual operating expenses related to an investment in each of the Funds.
Shareholder transaction expenses are charges you pay when you buy, sell,
exchange or hold shares of a Fund. The expenses and fees set forth in the
Tables are for the fiscal year beginning January 1, 1996.
SHAREHOLDER TRANSACTION EXPENSES
ALL SERIES
----------
Maximum Sales Load Imposed on Purchases (as a percentage
of the offering price)............................................. None
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of the offering price).................................. None
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds as applicable)........................ None
Redemption Fees (as a percentage of amount redeemed, if applicable).. None
Exchange Fee......................................................... None
5
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
====================================================================================================================================
TOTAL FUND OPERATING EXPENSES
OTHER OPERATING EXPENSES/2/ (REFLECTS EXPENSE LIMITATION. SEE
INSTITUTIONAL CLASS MANAGEMENT FEES/1/ 12B-1 FEES (REFLECTS EXPENSE LIMITATION) FOOTNOTES /1/ AND /2/ BELOW)
<S> <C> <C> <C> <C>
Money Market Fund .35 None .10 .45
Treasury Obligations Cash Fund .35 None .10 .45
Government Obligations Cash Fund .35 None .10 .45
Government Securities Fund .50 None .20 .70
Income Fund .50 None .20 .70
High Yield Fund .75 None .15 .90
International Stock Fund .80 None .30 1.10
S&P 500 Index Fund .25 None .10 .35
====================================================================================================================================
RETAIL CLASS
- ------------
Money Market Fund
Government Obligations Cash Fund .35 None .35 .70
Treasury Obligations Cash Fund .35 None .35 .70
Government Securities Fund .50 None .50 1.00
Income Fund .50 None .50 1.00
High Yield Fund .75 None .45 1.20
International Stock Fund .80 None .65 1.45
S&P 500 Index Fund .25 None .20 .45
====================================================================================================================================
</TABLE>
- ---------------
/1/ For a more complete description of the Management Fees, see "Management of
the Funds." CII, the Funds' investment adviser, has voluntarily agreed, as to
each Fund, to reimburse such portion of its management fee as is necessary to
cause the Total Fund Operating Expenses of each class of each Fund (exclusive of
certain expenses) not to exceed the following percentages of average daily net
asset value of each class of each Fund:
Institutional Class Retail Class
------------------- ------------
Money Market - .45% .70%
Government Obligations Cash - .45% .70%
Treasury Obligations Cash - .45% .70%
Government Securities - .70% 1.00%
Income - .70% 1.00%
High Yield - .90% 1.20%
International Stock - 1.10% 1.45%
S&P 500 Index - .35% .45%
If this reimbursement is not sufficient to cause the Total Fund Operating
Expenses of any class of each Fund not to exceed the applicable percentage of
average daily net asset value, CII has agreed to pay such other expenses of the
applicable Fund as is necessary to keep Total Fund Operating Expenses from
exceeding the applicable percentage. These arrangements will continue in effect
until April 30, 1997, and afterwards to the extent described in the Funds' then
current prospectus. To the extent management fees are reimbursed by CII, or
expenses of a Fund are paid by CII, the total return to shareholders will
increase. Total return to shareholders will decrease to the extent management
fees are no longer reimbursed or expenses of a Fund are no longer paid.
/2/ Total Fund Operating Expenses for the Money Market Fund, Income Fund and
International Stock Fund for 1995, before expense reimbursement, were ___%, ___%
and ___% respectively, of their average daily Net Asset values. Other Expenses
for all other Funds are based on estimated amounts for the current fiscal year,
after expense reimbursements.
6
<PAGE>
ANNUAL FUND OPERATING EXPENSES (CONTINUED)
EXAMPLE OF FUND EXPENSES:
The following example illustrates the expenses that you would pay on a $1,000
investment over various time periods assuming (1) a 5% annual rate of return,
and (2) redemption at the end of each time period. As noted above, the Funds
charge no redemption fees of any kind.
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
Money Treasury Government Government High S&P 500
Market Obligations Obligations Securities Income Yield International Index
Fund Cash Fund Cash Fund Fund Fund Fund Stock Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 5 $ 5 $ 5 $ 7 $ 7 $ 9 $ 12 $ 4
3 years $14 $14 $14 $22 $ 22 $29 $ 37 $11
5 years --- --- --- --- --- --- --- ---
10 years --- --- --- --- --- --- --- ---
============================================================================================================
<CAPTION>
RETAIL CLASS
Money Treasury Government Government High S&P 500
Market Obligations Obligations Securities Income Yield International Index
Fund Cash Fund Cash Fund Fund Fund Fund Stock Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 7 $ 7 $ 7 $10 $ 10 $12 $ 15 $ 5
3 years $22 $22 $22 $32 $ 32 $38 $ 46 $14
5 years $39 --- --- --- $ 55 --- $ 79 ---
10 years $87 --- --- --- $122 --- $174 ---
============================================================================================================
</TABLE>
The purpose of the Expense Table is to assist the investor in understanding the
various costs and expenses that an investor will bear directly or indirectly.
For the purpose of the example, assume reinvestment of all dividends and
distributions. This example assumes that the estimated voluntary expense
limitations effective in 1996 would be in place for the entire periods
indicated. CII has reserved the right to terminate or revise these limitations
at any time after April 30, 1997. The Example should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.
Total Fund Operating Expenses for each Fund's retail class are higher than the
Total Fund Operating Expenses for each Fund's institutional class due to the
costs associated with providing retail class shareholders with additional
services. Please refer to "Service Expenses - Retail Shares" for a more
complete description of these services.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights for each of the periods identified below and included
in the financial statements of the following Funds have been examined by Price
Waterhouse LLP, independent accountants, whose report thereon was unqualified.
The following information should be read in conjunction with the financial
statements and notes thereto available with the Statement of Additional
Information.
<TABLE>
<CAPTION>
Net Realized
& Unrealized Dividends Distributions
Net Asset Value, Net Gain (Loss) Total from from Net in excess of
Period Beginning of Investment on Investment Investment Net Investment
Ended Period Income * Investments Operations Income Income
- -------------------- ---------------- ---------- ------------ ---------- ---------- --------------
Money Market Fund 1
<S> <C> <C> <C> <C> <C> <C>
1986 1.00 .0634 - .0634 .0634 -
1987 1.00 .0622 - .0622 .0622 -
1988 1.00 .0705 - .0705 .0705 -
1989 1.00 .0861 - .0861 .0861 -
1990 1.00 .0755 - .0755 .0755 -
1991 1.00 .0561 - .0561 .0561 -
1992 1.00 .0334 - .0334 .0334 -
1993 1.00 .0237 - .0237 .0237 -
1994 1.00 .0337 - .0337 .0337 -
1995 1.00 .0516 - .0516 .0516 -
<CAPTION>
Distributions Net Asset Value,
Period From Realized Total End
Ended Capital Gains Distributions of Period Total Return
- -------------------- ------------- ------------- ----------------- ------------
Money Market Fund 1
<S> <C> <C> <C> <C>
1986 - .0634 1.00 6.53
1987 - .0622 1.00 6.40
1988 - .0705 1.00 7.29
1989 - .0861 1.00 8.96
1990 - .0755 1.00 7.82
1991 - .0561 1.00 5.75
1992 - .0334 1.00 3.36
1993 - .0237 1.00 2.39
1994 - .0337 1.00 3.43
1995 .0003 .0519 1.00 5.33
<CAPTION>
Ratio of Net
Net Assets Ratio of Investment
at End Expenses Income Portfolio
Period of Period to Average to Average Turnover
Ended (000) Net Assets Net Assets Rate
- -------------------- ---------- ---------- ---------- ---------
Money Market Fund 1
<S> <C> <C> <C> <C>
1986 56,966 0.70 6.36 -
1987 54,071 0.69 6.22 -
1988 47,825 0.75 7.04 -
1989 45,337 0.77 8.62 -
1990 41,818 0.81 7.55 -
1991 32,555 0.81 5.66 -
1992 25,808 0.84 3.35 -
1993 20,508 1.00a 2.39b -
1994 16,673 1.00a 3.32b -
1995 1,034 0.80a 5.38b -
</TABLE>
a. Ratio of expenses to average net assets prior to reduction of advisory fee
were 1.21%, 1.11% and 1.02% for the years ended 12/31/95, 12/31/94 and
12/31/93.
b. Ratio of net investment income to average net assets prior to reduction of
advisory fee were 4.91%, 3.22% and 2.37% for the years ended 12/31/95,
12/31/94 and 12/31/93.
<TABLE>
<CAPTION>
Income Fund 1
<S> <C> <C> <C> <C> <C> <C>
1986 1.01 .09 .08 .17 .09 -
1987 1.08 .09 (.08) .01 .09 -
1988 .98 .08 (.01) .07 .08 -
1989 .97 .08 .05 .13 .08 -
1990 1.02 .08 (.02) .06 .08 -
1991 .95 .08 .09 .17 .08 -
1992 1.04 .07 (.01) .06 .07 -
1993 1.02 .06 .07 .13 .06 -
1994 1.01 .06 (.09) (.03) .06 -
1995 .92 .06 .09 .15 .05 -
<CAPTION>
Income Fund 1
<S> <C> <C> <C> <C>
1986 .01 .10 1.08 17.43
1987 .02 .11 .98 0.66
1988 - .08 .97 7.87
1989 - .08 1.02 14.29
1990 .05 .13 .95 6.15
1991 - .08 1.04 17.94
1992 .01 .08 1.02 7.08
1993 .08 .14 1.01 13.36
1994 - .06 .92 -3.12
1995 - .05 1.02 16.21
<CAPTION>
Income Fund 1
<S> <C> <C> <C> <C>
1986 29,728 0.75 8.51 37
1987 28,132 0.77 8.51 113
1988 29,425 0.84 8.38 241
1989 28,437 0.87 8.26 184
1990 24,096 0.89 8.21 132
1991 22,716 0.84 7.81 62
1992 20,588 0.90 7.29 23
1993 19,910 1.00 c 6.06 d 116
1994 15,210 1.00 c 6.37 d 8
1995 1,105 0.95 c 6.50 d 45
</TABLE>
c. Ratios of expenses to average net assets prior to reduction of advisory fee
were 1.37%, 1.15% and 1.01% for the periods ended 12/31/95, 12/31/94 and
12/31/93, respectively.
d. Ratios of net investment income to average net assets prior to reduction of
advisory fee were 6.08%, 6.22% and 6.06% for the periods ended 12/31/95,
12/31/94 and 12/31/93, respectively.
<TABLE>
<CAPTION>
International Stock Fund
<S> <C> <C> <C> <C> <C> <C>
1/11/93-12/31/93** 10.00 .09 4.18 4.27 (.09) (.02)
1994 13.21 .04 .33 .37 (.04) -
1995 11.77 .15 .23 .38 (.15) (.12)
<CAPTION>
International Stock Fund
<S> <C> <C> <C> <C>
1/11/93-12/31/93** (.95) (1.06) 13.21 42.73
1994 (1.77) (1.81) 11.77 2.77
1995 (.61) (.88) 11.27 3.40
<CAPTION>
International Stock Fund
<S> <C> <C> <C> <C>
1/11/93-12/31/93** 7,136 1.25 e .75 f 66
1994 7,335 1.25 e .32 f 63
1995 7,581 1.14 e .37 f 63
</TABLE>
e. Ratios of expenses to average net assets prior to expense reimbursements
were 2.59%, 2.35% and 2.67%, respectively, for 1995, 1994 and 1993. Per
share expenses prior to reduction were $0.28, $0.29 and $0.30, respectively.
f. Ratios of net investment income to average net assets prior to expense
reimbursements were (1.08)%, (0.78)% and (0.73)%, respectively, for 1995,
1994 and 1993. Per share net investment income amounts prior to reduction
were $(0.12), $(0.10) and $(0.08), respectively.
- --------------------------------------------------------------------------------
1 Prior to October 16, 1985, the Money Market Fund and the Income Fund were
series of shares (Portfolios) of CIGNA Annuity Fund, Inc., a Maryland
Corporation. Prior to 1996, the names of these Funds were CIGNA Annuity Money
Market Fund and CIGNA Annuity Income Fund.
* Net investment income per share has been calculated in accordance with SEC
requirements, 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.
** Commencement of operations.
From April 19, 1995 through December 31, 1995, the sole shareholder of both the
Money Market Fund and Income Fund was Connecticut General Life Insurance
Company, a wholly -owned subsidiary of CIGNA Corporation. Prior to 1996, each
Fund had only one class of shares.
<PAGE>
Certain additional performance and other information concerning the
International Stock, Income and Money Market Funds is contained in their most
recent Annual Report to Shareholders, a copy of which will be provided upon
request and without charge to each person who receives a prospectus.
ABOUT THE FUNDS
- --------------------------------------------------------------------------------
CIGNA International Stock Fund is a series of CIGNA Institutional Funds Group, a
Massachusetts business trust established by a Master Trust Agreement dated as of
August 10, 1992 and registered under the 1940 Act as an open-end management
investment company. The rest of the Funds are separate series of shares of CIGNA
Funds Group (the "Trust"), a Massachusetts business trust established by a
Master Trust Agreement dated April 10, 1985, and registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. (See "The Trusts, Their Shares and Board of Trustees").
CIGNA Funds Group was formerly known as CIGNA Annuity Funds Group. Each Fund is
a mutual fund, an investment that pools shareholders' money and invests it
toward a specified goal.
Each Fund intends to qualify as a regulated investment company for Federal
Income Tax purposes. Each Fund has its own investment objective and policies
designed to meet specific investment goals. The Funds continuously offer new
shares for sale and stand ready to redeem their outstanding shares at their net
asset value. The Funds' investment adviser, CII, and, where applicable, each
sub-adviser, continuously review and, from time to time, change the portfolio
holdings of the Funds in pursuit of each Fund's objective.
INVESTMENT PROGRAMS
- --------------------------------------------------------------------------------
MONEY MARKET FUND
The Fund's objective is to provide as high a level of current income as is
consistent with the preservation of capital and liquidity and the maintenance of
a stable $1.00 per share net asset value by investing in short-term money market
instruments. The Fund intends to invest in money market instruments such as U.S.
Government direct obligations and U.S. Government agencies' securities. In
addition, the Fund may invest in other money market instruments such as bankers'
acceptances, certificates of deposit, commercial loan participations, repurchase
agreements, time deposits and commercial paper, all of which will be denominated
in U.S. dollars. Bankers' acceptances, certificates of deposit and time deposits
may be purchased from U.S. or foreign banks. Commercial paper is purchased
primarily from U.S. issuers but may be purchased from foreign issuers so long as
it is denominated in U.S. dollars. All of these instruments, including
commercial loan participations, are briefly described in the Appendix under
"Description of Money Market Instruments" and are described more fully in the
Statement of Additional Information.
9
<PAGE>
Pursuant to procedures adopted by the Board of Trustees, the Fund may purchase
only high quality securities that CII believes present minimal credit risks. To
be considered high quality, a security must be a U.S. Government security or
must be rated in accordance with applicable rules in one of the two highest
categories for short-term securities by at least two nationally recognized
rating services (or by one, if only one rating service has rated the security)
or, if unrated, judged to be of equivalent quality by CII.
High quality securities are divided into "first tier" and "second tier"
securities. First tier securities have received the highest rating (e.g.
Standard & Poor's Corporation's ("S&P's") A-1 rating) from at least two rating
services (or one, if only one has rated the security). Second tier securities
have received ratings within the two highest categories (e.g., S&P's A-1 or A-2)
from at least two rating services (or one, if only one has rated the security),
but do not qualify as first tier securities. If a security has been assigned
different ratings by different rating services, at least two rating services
must have assigned the highest of the ratings in order for CII to determine
eligibility on the basis of that highest rating. Based on procedures adopted by
the Board of Trustees, CII may determine that an unrated security is of
equivalent quality to a rated first or second tier security.
The Fund may not invest more than 5% of its total assets in second tier
securities. In addition, the Fund may not invest more than 1% of its total
assets or $1 million (whichever is greater) in the second tier securities of a
single issuer.
TREASURY OBLIGATIONS CASH FUND
The Fund's objective is to provide as high a level of current income as is
consistent with the preservation of capital and liquidity and the maintenance of
a stable $1.00 per share net asset value by investing in short-term U.S.
Treasury bills, notes and bonds and other direct obligations of the U.S.
Treasury. The Fund may also enter into repurchase agreements relating to these
obligations.
GOVERNMENT OBLIGATIONS CASH FUND
The Fund's objective is to provide as high a level of current income as is
consistent with the preservation of capital and liquidity and the maintenance of
a stable $1.00 per share net asset value by investing in a portfolio of short-
term U.S. Government securities. These instruments are either issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities. These
securities include, but are not limited to:
. direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds; and
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. notes, bonds, and discount notes of U.S. Government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association ("GNMA"); and
Student Loan Marketing Association.
The Fund may also enter into repurchase agreements relating to these
obligations.
GOVERNMENT SECURITIES FUND
The Fund's objective is to achieve a high level of current income consistent
with reasonable concern for safety of principal by investing in obligations
issued, guaranteed or otherwise backed by the U.S. Government. The securities
which may be purchased by the Fund include but are not limited to (1) U.S.
Treasury obligations such as Treasury Bills (maturities of one year or less),
Treasury Notes (maturities of one to ten years) and Treasury Bonds (generally
maturities of greater than ten years) and (2) obligations issued, guaranteed or
otherwise backed by U.S. Government agencies and instrumentalities which are
supported by any of the following: (a) the full faith and credit of the U.S.
Treasury (such as obligations of GNMA, the General Services Administration and
Federal Maritime Administration) (b) the right of the issuer to borrow an amount
limited to a specific line of credit from the U.S. Treasury (such as obligations
of the Federal National Mortgage Association, the Federal Home Loan Bank and the
U.S. Postal Service) or (c) the credit of the agency or instrumentality (such as
obligations of the Federal Home Loan Mortgage Corporation and Federal Farm
Credit System).
The composition and weighted average maturity of the Fund's portfolio will vary
from time to time, based upon the determination of CII of how best to further
the Fund's investment objective. The Fund may invest in securities of all
maturities, short-term, intermediate-term and long-term.
INCOME FUND
The Fund's objective is to provide as high a level of current income as possible
consistent with reasonable concern for safety of principal by investing
primarily in investment grade corporate debt securities and U.S. Government
securities. Under normal market conditions the Fund will invest at least 65% of
its assets in these securities. The Fund invests in a diversified portfolio of
marketable debt securities. Up to 55% of the assets of the Fund may be invested
in U.S. government securities, including securities of U.S. Government agencies
or instrumentalities. In addition, the assets of the Fund may be invested in
money market instruments eligible for purchase by the Money Market Fund.
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The Fund also may invest up to 20% of its assets in other fixed-income
securities, including convertible bonds and preferred stocks, and in common
stocks and similar equity securities when they are acquired as parts of units
with fixed-income securities (including warrants or rights to purchase equity
investments) or upon exercise of such warrants or rights or upon the conversion
of such securities. See the Statement of Additional Information for a
description of warrants.
The Fund may invest up to 25% of its assets in foreign securities (See the
description of the International Stock Fund for a discussion of foreign
securities.). The Fund will limit its investment in foreign securities
denominated in foreign currencies to 15% of its total assets. Purchases of
foreign securities payable in foreign currencies will be affected either
favorably or unfavorably by changes in the value of the foreign currencies
against the U.S. dollar. Investing in foreign securities carries increased risk
to the Fund (see "Certain Investment Strategies and Policies -- Risk Factors
Regarding Foreign Securities").
The Fund may invest up to 20% of its assets in debt securities of less than
investment grade (i.e., securities rated Ba/BB or below by Moody's Investors
Services, Inc. ("Moody's") and S&P). Such securities are commonly referred to as
junk bonds. See "Certain Investment Strategies and Policies -- Risk Factors
Regarding Non-Investment Grade Debt Securities" for the risk factors associated
with investments in such securities.
Changes in interest rates are likely to result in increases or decreases in the
value of the investments in the Fund. The value of the securities in this Fund
can be expected to vary inversely with the changes in prevailing interest rates.
Thus, when interest rates go up, bond prices go down, and vice versa.
HIGH YIELD FUND
The Fund's objective is to provide the highest current income attainable
consistent with reasonable risk through investment primarily in high yield, high
risk, non-investment grade fixed income securities. The Fund will also consider
the possibility of capital growth when it purchases and sells securities.
The Fund seeks high income by purchasing principally securities that are rated
Ba or lower by Moody's or BB or lower by S&P, or securities of comparable
quality in the opinion of CII that are either non-rated or rated by other
recognized credit rating agencies. It should be noted, however, that achievement
of the Fund's investment objective may be more dependent on CII's own credit
analysis, and less on that of credit rating agencies, than may be the case for
funds that invest in more highly rated bonds. At least 80% of the value of the
Fund's total assets will be invested in debt securities, including convertible
debt securities, warrants and/or cash and cash equivalents. The Fund may also
invest in preferred stocks.
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The foregoing Moody's and S&P ratings are described in the Appendix to
this prospectus.
The Fund may invest up to 100% of its assets in debt securities of less than
investment grade (i.e., securities rated Ba/BB or below by Moody's and S&P).
Such securities are commonly referred to as junk bonds. See "Certain Investment
Strategies and Policies -- Risk Factors Regarding Non-Investment Grade Debt
Securities" for the risk factors associated with investments in such securities.
While the securities held by the Fund are expected to provide greater income
and, possibly, opportunity for greater gain than investments in more highly
rated securities, they may be subject to greater risk of loss of income and
principal and are more speculative in nature. The Fund's yield and the net asset
value of its shares should be expected to fluctuate over time.
INTERNATIONAL STOCK FUND
The Fund's investment objective is to provide long-term growth of capital by
investing primarily in common stocks, convertible and non-convertible preferred
stocks, and convertible debt of companies based outside the United States.
Income is an incidental consideration. For these purposes, the phrase "based
outside the United States" means companies the principal headquarters of which
are located in a foreign country and which are organized under the laws of a
foreign country.
CII serves as investment adviser to the Fund, and CIGNA International Investment
Advisors, Ltd. ("CIIA") serves as sub-adviser. See "Management Of The Funds." In
selecting securities for the Fund, CIIA will generally seek to allocate the
Fund's assets among companies based in 8-12 different foreign countries. It is
the present intention of CIIA to invest primarily in the securities of companies
based in (a) countries included in the Morgan Stanley Capital International
Europe, Australia and Far East Index (the "EAFE Index"), (b) countries which the
sponsor of the EAFE Index has announced it will include in the EAFE Index, and
(c) Canada. As of December 31, 1995, the EAFE Index included the following
countries: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong
Kong, Ireland, Italy, Japan, Malaysia, Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
Under normal conditions the Fund will maintain no less than 65% of its total
assets in the equity securities of companies based in at least five of the
aforementioned countries. The 65% figure represents a minimum level of
investment under normal circumstances. The actual level of investment will, of
course, fluctuate in accordance with CIIA's assessment of market conditions.
Ordinarily, the Fund will not invest more than 50% of its total assets in the
securities of companies based in Japan, nor more than 30% of its total assets in
the securities of companies based in the United Kingdom. The Fund will not
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ordinarily invest more than 25% of its total assets in any other single
developed country, such as Australia, Canada, France or Germany.
The Fund may invest up to 15% of its total assets in the equity and convertible
debt securities of companies based in (a) developing countries as defined by the
Morgan Stanley Capital International Emerging Markets Index (Global) (the
"Emerging Markets Index"), (b) countries which the sponsor of the Emerging
Markets Index has announced it will include in the Emerging Markets Index, and
(c) other countries which, in the opinion of CIIA, are generally considered to
be an emerging or developing country by the international financial community.
As of December 31, 1995, the Emerging Markets Index included the following
countries: Argentina, Brazil, Chile, Columbia, Greece, India, Indonesia, Israel,
Jordan, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Portugal,
South Africa, Sri Lanka, Taiwan, Thailand, Turkey, and Venezuela.
While the Fund intends to invest primarily in the securities of companies based
in countries included in the EAFE Index and in securities of emerging market
issuers, it will not necessarily invest its assets according to the percentage
weightings assigned by any index to a particular country or company; the Fund is
actively managed and is not an index fund. Since Malaysia is included in both
the EAFE Index and is regarded as an emerging market, securities of companies
based in Malaysia will not be included in the 15% limitation noted above.
The Fund intends to invest principally in the securities of companies which CIIA
believes possess a strong financial base and have opportunities for growth
within expanding international economies and markets. In determining the
appropriate distribution of investments among various countries, CIIA ordinarily
considers various factors, including, but not limited to: prospects for relative
economic growth; expected levels of inflation; relative price levels of the
various capital markets; government policies influencing business conditions;
and the range of individual investment opportunities available to the
international investor. CIIA's expectations with respect to currency movements
are also considered in evaluating investment in each country. While CIIA does
not generally hedge against currency risks, the Fund may from time to time
engage in foreign exchange transactions to hedge the Fund's exposure to changes
in foreign currency relative to the U.S. dollar. See "Certain Investment
Strategies and Policies -- Foreign Exchange Transactions." Once CIIA has
determined that a particular country has favorable investment characteristics,
CIIA seeks to identify (a) those economic sectors within the national economy
that have the potential for strong and sustainable growth and (b) those
companies that stand to benefit from this expected outcome. In this regard, CIIA
seeks to focus on long-term political, demographic, and sociological change to
anticipate important valuation shifts in securities prices.
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In appropriate circumstances, such as when a direct investment by the Fund in
the securities of a particular country cannot be made or when the securities of
an investment company are more liquid than the underlying portfolio securities,
the Fund may, consistent with the provisions of the 1940 Act, invest in the
securities of closed-end investment companies that invest in foreign securities.
Since the Fund's shareholders would be subject to additional fees, including
management fees, for any asset so invested, CIIA will invest in such closed-end
investment companies only where, in its opinion, the potential returns justify
incurring the additional expense.
The Fund may invest in convertible preferred stock and convertible debt when, in
the opinion of CIIA, the yield or conversion price makes investment in such
instruments more attractive than investment in the underlying equity security.
The Fund will limit investments in convertible debt securities to 10% of the
Fund's net assets. The Fund will dispose of any bond, as soon as practicable
consistent with achieving an orderly disposition, that would cause the Fund to
hold more than 5% of its net assets in bonds rated below investment grade (i.e.,
bonds rated BB or Ba or below by S&P or Moody's or, if not so rated, which in
the opinion of CIIA are of comparable quality).
Under normal conditions the Fund will maintain 0 - 20% of its total assets in
cash or high quality money market instruments (such as banker's acceptances,
certificates of deposit, time deposits, and commercial paper), each of which may
be denominated in U.S. dollars or foreign currencies. The Fund will not invest
more than 20% of its assets in obligations issued by a single foreign
government, its agencies and instrumentalities.
S&P 500 INDEX FUND
The objective of the Fund is to achieve long-term growth of capital by investing
primarily in common stocks of companies in the S&P 500. The Fund will invest in
these common stocks in approximately the same proportions as they are
represented in the S&P 500. Under normal conditions, the Fund will invest at
least 80% of its total assets in equity securities of companies which compose
the S&P 500. The Fund is designed as a long-term investment vehicle.
The S&P 500 includes 500 selected common stocks, most of which are listed on the
New York Stock Exchange. Each stock in the S&P 500 has a unique weighting,
depending on the number of shares outstanding and its current price.
The Fund is subject to market risk -- i.e., the possibility that common stock
prices will decline over short or even extended periods. The U.S. stock market
tends to be cyclical, with periods when stock prices generally rise and periods
when prices generally decline.
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While the Fund seeks to match the performance of the S&P 500, its stock
portfolio performance may not match that of the S&P 500 exactly. For example,
the Fund's performance will reflect deductions for advisory fees and other
expenses that are not deducted from the performance figures reported for the S&P
500. In addition, while CII generally will seek to match the composition of the
S&P 500 as closely as possible, it may not always invest the Fund's stock
portfolio to mirror the S&P 500 exactly. For instance, the Fund may at times
have its portfolio weighted differently from the S&P 500 because of the
difficulty and expense of executing relatively small stock transactions. Under
normal conditions, the Fund anticipates holding at least 480 of the S&P 500
Index issues at all times.
Pending investment in common stocks of companies in the S&P 500 or to meet
anticipated short-term cash needs such as dividend payments or redemptions of
shares, the Fund may also invest in stock index futures contracts and related
options and in certain short-term fixed income securities (including variable
and floating rate instruments or demand instruments) such as certificates of
deposit, commercial paper, commercial loan participations, bankers' acceptances,
U.S. Government obligations and repurchase agreements. Except in extraordinary
circumstances, the Fund will not invest in short-term fixed income securities or
hold assets in cash for defensive purposes.
S&P 500/R/ is a trademark of Standard & Poor's Corporation ("S&P") and
has been licensed for use by the Fund.
The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the record or beneficial
owners of shares of the Fund or any member of the public regarding the
advisability of investing in securities generally, or in the Fund particularly,
or the ability of the S&P 500 to track general stock market performance. S&P's
only relationship to CII or the Fund is the licensing of certain trademarks and
trade names of S&P and of the S&P 500 which is determined, composed and
calculated by S&P without regard to CII or the Fund. S&P has no obligation to
take the needs of CII or the Fund or the record or beneficial owners of the Fund
into consideration in determining, composing or calculating the S&P 500. S&P is
not responsible for and has not participated in the valuation of the Fund or the
pricing of the Fund's shares or in the determination or calculation of the
equation by which the Fund's portfolio investments are to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading of the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 OR
ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY CII, RECORD OR BENEFICIAL OWNERS OF THE FUND, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES,
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<PAGE>
AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
- --------------------------------------------------------------------------------
In pursuit of its objectives and policies, one or more of the Funds may employ
one or more of the following strategies in order to enhance investment results:
MONEY MARKET INSTRUMENTS. (ALL FUNDS) When deemed appropriate for temporary or
defensive purposes, each of the Funds may hold substantially all of its assets
in the form of cash or cash equivalent money market instruments described in the
appendix to this prospectus ("Money Market Instruments.") The S&P 500 Index
Fund, however, will invest in Money Market Instruments for temporary purposes
only under extraordinary circumstances. In addition, the S&P 500 Index Fund may
invest in Money Market Instruments pending investment of cash in common stocks
or to meet anticipated short-term cash needs. Of course, the Money Market Funds
invest exclusively in Money Market Instruments.
REGULATORY COMPLIANCE - MONEY MARKET, TREASURY OBLIGATIONS CASH AND GOVERNMENT
OBLIGATIONS CASH FUNDS (THE "MONEY MARKET FUNDS").
The Money Market Funds may follow non-fundamental operational policies that are
more restrictive than their fundamental investment limitations, as set forth in
this prospectus and the Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the 1940 Act. In particular, the Funds will comply with the
various requirements of Rule 2a-7 of the 1940 Act, which regulates money market
mutual funds. For example, each Fund will limit its investments to securities
with remaining maturities of 397 days or less and will maintain a dollar-
weighted average maturity of 90 days or less. Each Fund will determine the
effective maturity of its investments according to Rule 2a-7. The Funds may
change these operational policies to reflect changes in the laws and regulations
without the approval of their shareholders.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. (ALL FUNDS) Funds
may purchase securities on a "when-issued" basis, that is, delivery of and
placement for the securities is not fixed at the date of purchase, but is set
after the securities are issued (normally within forty-five days after the date
of the transaction). Funds also may purchase or sell securities on a delayed
delivery basis. The payment obligation and the interest rate that will be
received on the delayed
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delivery securities are fixed at the time the buyer enters into the commitment.
A Fund will only make commitments to purchase when-issued or delayed delivery
securities with the intention of actually acquiring such securities, but the
Fund may sell these securities before the settlement date if it is deemed
advisable.
Investment in securities on a when-issued or delayed delivery basis may increase
a Fund's exposure to market fluctuation and may increase the possibility that
the Fund will incur short-term gains subject to Federal taxation or short-term
losses if the Fund must engage in portfolio transactions in order to honor a
when-issued or delayed delivery commitment. In a delayed delivery transaction,
the Fund relies on the other party to complete the transaction. If the
transaction is not completed, the Fund may miss a price or yield considered to
be advantageous. Each Fund will employ techniques designed to reduce such risks.
If a Fund purchases a when-issued security, the Fund's custodian bank will
segregate cash or high grade securities in an amount equal to the when-issued
commitment. If the market value of the segregated securities declines,
additional cash or securities will be segregated on a daily basis so that the
market value of the segregated assets will equal the amount of the Fund's when-
issued commitments. To the extent cash and securities are segregated, they will
not be available for new investments or to meet redemptions. Securities
purchased on a delayed delivery basis may require a similar segregation of cash
or other high grade securities. For a more complete description of when-issued
securities and delayed delivery transactions see the Statement of Additional
Information.
DOLLAR ROLL TRANSACTIONS. (INCOME FUND AND GOVERNMENT SECURITIES FUND ONLY) In
order to enhance portfolio returns and manage prepayment risks, the Income Fund
and the Government Securities Fund may engage in dollar roll transactions with
respect to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, a Fund sells a mortgage security held in the portfolio to a
financial institution such as a bank or broker-dealer, and simultaneously agrees
to purchase a substantially similar security (same type, coupon and maturity)
from the institution at a later date at an agreed upon price. The mortgage
securities that are purchased will bear the same interest rate as those sold,
but generally will be collateralized by different pools of mortgages with
different prepayment histories. During the period between the sale and purchase,
the Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, could generate income for the Fund exceeding
the yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities the Fund has committed to purchase may decline below the price of the
securities that the Fund has sold. In the
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event the buyer of securities in a dollar roll transaction files for bankruptcy,
or becomes insolvent, the Fund's use of the proceeds from the sale of the
securities may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligation to purchase the
securities from the bankrupt party.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES. (MONEY MARKET
FUND, GOVERNMENT OBLIGATIONS CASH FUND, GOVERNMENT SECURITIES FUND AND INCOME
FUND)
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. Government, such as GNMA participation certificates, are backed by the full
faith and credit of the U.S. Treasury. No assurances can be given that the U.S.
Government will provide financial support to other agencies or
instrumentalities, since it is not obligated to do so. The obligations of these
other agencies and instrumentalities are supported by:
. the issuer's right to borrower an amount limited to a specific
line of credit from the U.S. Treasury;
. discretionary authority of the U.S. government to purchase
certain obligations of an agency or instrumentality; or
. the credit of the agency or instrumentality.
The Funds may invest in mortgage-backed securities, including GNMA Certificates
and pass-through securities issued by the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA
Certificates represent a part ownership in pools of mortgage loans which are
either insured by the Federal Housing Administration or guaranteed by the
Veterans Administration. As mentioned above, the timely payment of interest and
principal on the GNMA Certificates is guaranteed by the full faith and credit of
the U.S. Government. FNMA and FHLMC, which guarantee payment of interest and
principal on their securities, are supervised by the U.S. Government. Securities
issued by FNMA and FHLMC are not backed by the full faith and credit of the U.S.
Government; however, their close relationship with the U.S. Government makes
them high quality securities with minimal credit risks. Mortgage-backed
securities consist of interests in underlying mortgages with maturities of up to
thirty years. Mortgage-backed securities may have maturities shorter than
anticipated if the underlying mortgages are prepaid. This prepayment feature
will make such mortgage-backed securities less effective than other types of
securities as a means of locking in attractive long-term interest rates. This is
caused by the need to reinvest prepayments of principal generally and the
possibility of significant unscheduled prepayments resulting from declines in
mortgage interest rates. At the time principal payments or
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prepayments are received by the Fund, prevailing interest rates may be higher or
lower than the current yield of the Fund. As a result, GNMA certificates and
other mortgage-backed securities will have less potential for capital
appreciation during periods of declining interest rates than other investments
of comparable maturities due to the likelihood of increased prepayments of
mortgages as interest rates decline. If the Fund buys mortgage-backed securities
at a premium, mortgage foreclosures and prepayment of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid.
ILLIQUID SECURITIES. (ALL FUNDS EXCEPT GOVERNMENT SECURITIES FUND) A Fund may
invest up to 15% of its net assets (10% of the net assets of the Money Market
Funds,) in securities that are illiquid. Illiquid securities include securities
that have no readily available market quotations and cannot be disposed of
promptly (within seven days) in the normal course of business at approximately
the price at which they are valued. Illiquid securities may include securities
that are subject to restrictions on resale because they have not been registered
under the Securities Act of 1933 (the "1933 Act"). Restricted securities may, in
certain circumstances, be resold pursuant to Rule 144A under the 1933 Act, and
thus may or may not constitute illiquid securities. CII determines the liquidity
of each Fund's investments. Limitations on the resale of restricted securities
may have an adverse effect on their marketability, which may prevent the Fund
from disposing of them promptly at reasonable prices. The Fund may have to bear
the expense of registering such securities for resale, and the risk of
substantial delays in effecting such registrations.
INVESTMENTS IN FOREIGN SECURITIES. (ALL FUNDS EXCEPT GOVERNMENT SECURITIES FUND,
TREASURY OBLIGATIONS CASH FUND, GOVERNMENT OBLIGATIONS CASH FUND AND S&P 500
INDEX FUND) A Fund may invest up to 25% of its total assets (50% for the Money
Market Fund and 100% for the International Stock Fund) in Canadian and other
foreign securities, although the Money Market Fund may only invest in foreign
securities denominated in U.S. dollars and the Income Fund may only invest up to
15% of its total assets in foreign securities denominated in foreign currencies.
To the extent it invests in securities denominated in foreign currencies, a Fund
bears the risks of changes in the exchange rates between U.S. currency and the
foreign currency, as well as the availability and status of foreign securities
markets. These Funds (other than the Money Market Fund) may invest in securities
of foreign issuers which are in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") or Global Depository Receipts
("GDRs"), or other securities representing underlying securities of foreign
issuers, and such investments are treated as foreign securities for purposes of
percentage limitations on investments in foreign securities. ADRs are dollar-
denominated receipts issued generally by a domestic bank and representing the
deposit with the bank of a
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security of a foreign issuer, and are publicly traded on exchanges or over the
counter in the United States. EDRs are receipts similar to ADRs and are issued
and traded in Europe. GDRs may be offered privately in the United States and
also traded in public or private markets in other countries. For a discussion of
the risks pertaining to investments in foreign securities, see "Risk Factors
Regarding Foreign Securities" below.
RISK FACTORS REGARDING FOREIGN SECURITIES. (ALL FUNDS EXCEPT TREASURY
OBLIGATIONS CASH FUND, GOVERNMENT OBLIGATIONS CASH FUND GOVERNMENT SECURITIES
FUND AND S&P 500 INDEX FUND) Investments by a Fund in foreign securities,
whether denominated in U.S. dollars or foreign currencies, may entail all of the
risks set forth below.
CURRENCY RISK. The value of the Funds' foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar
value of a foreign security decreases when the value of the U.S.
dollar rises against the foreign currency in which the security is
denominated, and increases when the value of the U.S. dollar falls
against such currency.
POLITICAL AND ECONOMIC RISK. The economies of many of the countries
in which the Funds may invest may not be as developed as the United
States' economy and may be subject to significantly different
forces. Political or social instability, expropriation or
confiscatory taxation, and limitations on the removal of funds or
other assets could also adversely affect the value of the Funds'
investments.
REGULATORY RISK. Foreign companies are not registered with the
Securities and Exchange Commission and are generally not subject to
the regulatory controls imposed on United States issuers and, as a
consequence, there is generally less publicly available information
about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform
accounting, auditing and financial reporting standards, practices
and requirements comparable to those applicable to domestic
companies. Income from foreign securities owned by the Funds may be
reduced by a withholding tax at the source, which tax would reduce
dividend income payable to the Funds' shareholders.
MARKET RISK. The securities markets in many of the countries in
which the Funds invest will have substantially less trading volume
than the major United States markets. As a result, the securities
of some foreign companies may be less liquid and experience more
price volatility than comparable domestic securities. Increased
custodian costs and other
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administrative costs may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government
regulation and supervision of foreign stock exchanges, brokers and
issuers which may make it difficult to enforce contractual
obligations. In addition, transaction costs in foreign securities
markets are likely to be higher, since brokerage commission rates in
foreign countries are likely to be higher than in the United States.
EMERGING MARKETS RISK (INTERNATIONAL STOCK FUND). The risks
associated with investing in foreign securities are often heightened
for investments in developing or emerging markets. Moreover, the
economies of individual emerging market countries may differ
favorably or unfavorably from the U.S. economy in such respects as
the rate of growth in gross domestic products, the rate of
inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Because the Fund's securities will
generally be denominated in foreign currencies, the value of such
securities to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations. A change in the
value of a foreign currency against the U.S. dollar will result in a
corresponding change in the U.S. dollar value of the Fund's
securities. In addition, some emerging market countries may have
fixed or managed currencies which are not free-floating against the
U.S. dollar. Further, certain emerging market countries' currencies
may not be internationally traded. Certain of these currencies have
experienced a steady devaluation relative to the U.S. dollar. Many
emerging markets countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years.
Inflation and rapid fluctuations in inflation rates have had, and
may continue to have, negative effects on the economies and
securities markets of certain emerging market countries.
FOREIGN EXCHANGE TRANSACTIONS. (ALL FUNDS EXCEPT MONEY MARKET FUNDS, GOVERNMENT
SECURITIES FUND AND S&P 500 INDEX FUND) Each of these Funds has authority to
deal in foreign exchange between currencies of the different countries in which
it will invest as a hedge against possible variations in the foreign exchange
rates between those countries. This may be accomplished through direct purchases
or sales of foreign currency, purchases of options on futures contracts with
respect to foreign currency, and contractual agreements to purchase or sell a
specified currency at a specified future date (up to one year) at a price set at
the time of the contract. Such contractual commitments may be forward contracts
entered into directly with another party or exchange traded futures contracts.
The Funds may purchase and sell options on futures contracts, forward contracts
or futures contracts which are denominated in a
22
<PAGE>
particular foreign currency to hedge the risk of fluctuations in the value of
another currency. Each Fund's dealings in foreign exchange will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of foreign currency with respect to
specific receivables or payables of the Fund accruing in connection with the
purchase or sale of its portfolio securities, the sale and redemption of shares
of the Fund, or the payment of dividends and distributions by the Fund. Position
hedging is the purchase or sale of foreign currency with respect to portfolio
security positions denominated or quoted in a foreign currency. The Funds will
not speculate in foreign exchange. No Fund will commit a larger percentage of
its total assets to foreign exchange hedges than the percentage of its total
assets which it could invest in foreign securities.
Investments by a Fund in ADRs, GDRs, EDRs or similar securities also may
entail some or all of the risks described above.
FUTURES CONTRACTS AND RELATED OPTIONS. (S&P 500 INDEX AND INTERNATIONAL STOCK
FUND) ("EQUITY FUNDS") (HIGH YIELD, GOVERNMENT SECURITIES AND INCOME FUNDS)
("DEBT FUNDS").
The S&P 500 Index Fund may invest in stock index futures having an aggregate
face value of up to 20% of the Fund's total assets in order to simulate full
investment in underlying S&P 500 stocks to obtain full market exposure
immediately upon receiving cash pending investment in common stocks of companies
in the S&P 500 and to limit transaction costs should invested assets need to be
sold to meet redemption requests. The other Equity Fund may enter into stock
index futures contracts as a hedge against changes in the values of the
securities held or which a Fund intends to purchase. Similarly, each of the Debt
Funds may purchase and sell interest rate futures contracts or purchase and sell
options on such contracts to hedge its portfolio of debt securities against
changes in interest rates. A futures contract on an index (such as the S&P 500)
is an agreement between two parties (buyer and seller) to take or make delivery
of an amount of cash equal to the difference between the value of the index at
the close of the last trading day of the contract and the price at which the
index contract was originally written. In the case of futures contracts traded
on U.S. exchanges, the exchange itself or an affiliated clearing corporation
assumes the opposite side of each transaction (i.e., as buyer or seller). A
futures contract may be satisfied or closed out by delivery or purchase, as the
case may be, of the financial instrument or, in the case of stock index futures
contracts, by payment of the change in the cash value of the index. Frequently,
using futures to effect a particular strategy instead of using the underlying or
related security or index will result in lower transaction costs being incurred.
The Funds may also purchase and write call options and put options on futures
contracts. An option on a futures contract gives the holder the right, in return
for the premium paid, to
23
<PAGE>
assume a long position (in the case of a call) or a short position (in the case
of a put) in a futures contract at a specified exercise price prior to the
expiration of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. An option on
a futures contract generally may be closed out (before exercise or expiration)
by an offsetting purchase or sale of an option on a futures contract. See the
information set forth below and the Statement of Additional Information for
information on the risks associated with these investments.
The Funds' use of futures and options thereon will in all cases be consistent
with applicable regulatory requirements and in particular the regulations of the
Commodity Futures Trading Commission relating to exclusions from regulation as a
commodity pool operator. Those regulations currently provide that the Funds may
use commodity futures and option positions (i) for bona fide hedging purposes
without regard to the percentage of assets committed to margin and option
premiums, or (ii) for other purposes permitted by the entity's principal
regulator (in the case of the Funds, the Securities and Exchange Commission) to
the extent that the aggregate initial margin and option premiums required to
establish such non-hedging positions do not exceed 5% of the liquidation value
(i.e., the net asset value) of the applicable Fund's portfolio. For further
information regarding futures contracts and options thereon, see the Statement
of Additional Information.
The use of futures contracts and options may involve risks not associated with
other types of instruments which the Funds intend to purchase. In particular, a
Fund's positions in futures contracts and options may be closed out only on an
exchange which provides a liquid secondary market therefor, and there can be no
assurance that a liquid secondary market will exist for any particular futures
contract or option. The inability to close out options and futures positions
could have an adverse impact on a Fund's ability to effectively hedge its
securities and might, in some cases, require a Fund to deposit cash to meet
applicable margin requirements. A Fund's ability to hedge effectively through
transactions in futures contracts or options depends on the degree to which
price movements in its holdings correlate with price movements of the futures
and options. It is possible that there may be an imperfect correlation between
the hedging instrument and the hedged securities, which could result in an
ineffective hedge and a loss to the Fund. It is expected that even as an index
fund, the S&P 500 Index Fund will not be able to achieve perfect correlation
among the Fund, the S&P 500, and stock index futures and options contracts,
although the correlation can be expected to be very close if the Fund invests
only in those contracts whose behavior is expected to resemble that of the
Fund's underlying securities. See the Statement of Additional Information for a
further description of the Funds' investments in futures contracts.
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<PAGE>
NON-INVESTMENT GRADE DEBT SECURITIES. (HIGH YIELD FUND AND INCOME FUND). The
High Yield Fund, and to a lesser extent the Income Fund, seek to meet their
respective investment objectives by investing in non-investment grade debt
securities, commonly known as "junk bonds." While generally providing greater
income and opportunity for gain, non-investment grade debt securities may be
subject to greater risks than higher rated securities. Economic downturns tend
to disrupt the market for junk bonds and adversely affect their values. Such
economic downturns may be expected to result in increased price volatility of
junk bonds and of the value of shares of the above-named Funds, and increased
issuer defaults on junk bonds.
In addition many issuers of junk bonds are substantially leveraged, which may
impair their ability to meet their obligations. In some cases, junk bonds are
subordinated to the prior payment of senior indebtedness, which potentially
limits a Fund's ability to fully recover principal or to receive payments when
senior securities are subject to a default.
The credit rating of a junk bond does not necessarily address its market value
risk, and ratings may from time to time change to reflect developments regarding
the issuer's financial condition. Junk bonds have speculative characteristics
which are likely to increase in number and significance with each successive
lower rating category.
When the secondary market for junk bonds becomes more illiquid, or in the
absence of readily available market quotations for such securities, the relative
lack of reliable objective data makes it more difficult to value a Fund's
securities, and judgment plays a more important role in determining such
valuations. Increased illiquidity in the junk bond market also may affect a
Fund's ability to dispose of such securities at desirable prices.
In the event a Fund experiences an unexpected level of net redemptions, the Fund
could be forced to sell its junk bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return. Prices of junk bonds
have been found to be less sensitive to fluctuations in interest rates, and more
sensitive to adverse economic changes and individual corporate developments than
those of higher-rated debt securities.
BORROWING. (ALL FUNDS). Each Fund may borrow from banks or through reverse
repurchase agreements to the extent permitted by the 1940 Act. If a Fund borrows
money, its share price may be subject to greater fluctuation until the borrowing
is paid off. Under the 1940 Act as currently in effect, a Fund may borrow from
any lender only for temporary purposes in an amount not exceeding 5% of its
total assets, and may borrow from a bank in an amount not exceeding 33 1/3% of
its total assets.
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<PAGE>
LENDING OF PORTFOLIO SECURITIES. (ALL FUNDS). In order to generate additional
income, each Fund may lend its portfolio securities on a short-term or long-term
basis, or both, to broker/dealers, banks, or other institutional borrowers of
securities. Each Fund will only enter into loan arrangements with
broker/dealers, banks, or other institutions which CII or CIIA, as applicable,
has determined are creditworthy under guidelines established by the Funds'
Trustees and will receive collateral at all times equal to at least 100% of the
value of the securities loaned. There is the risk that when lending portfolio
securities, the securities may not be available to the Fund on a timely basis
and the Fund may, therefore, lose the opportunity to sell the securities at a
desirable price. In addition, in the event that a borrower of securities would
file for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
PORTFOLIO TURNOVER. (ALL FUNDS EXCEPT MONEY MARKET FUNDS AND S&P 500 INDEX
FUND). Any particular security will be sold, and the proceeds reinvested,
whenever such action is deemed prudent from the viewpoint of a Fund's investment
objectives, regardless of the holding period of that security. It is
anticipated, given the S&P 500 Index Fund's policy of attempting to replicate
composition and performance, before expenses, of the S&P 500, that portfolio
turnover will be lower than that of an actively managed fund. A higher rate of
portfolio turnover may result in higher transaction costs, including brokerage
commissions. Also, to the extent that higher portfolio turnover results in a
higher rate of net realized capital gains to a Fund, the portion of the Fund's
distributions constituting taxable capital gains may increase. See "Dividends
and Capital Gains Distributions."
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
Each Fund's investment objective, as set forth under "Investment Objectives,"
and the investment restrictions listed below are among each Fund's fundamental
policies, that is, subject to change only by shareholder approval. See the
Statement of Additional Information for other investment restrictions. All
policies stated throughout this prospectus, other than those identified as
fundamental, can be changed without shareholder approval.
A Fund may not:
1. With respect to 75% of its assets, purchase the securities of any
issuer if such purchase would cause more than 5% of the value of its
total assets (taken at market value at the time of such investment)
to be invested in the securities of such issuer except (a) U.S.
Government securities including securities issued by its agencies and
instrumentalities (or repurchase agreements with respect thereto),
and (b) with respect to the Money Market Funds, to securities or
obligations issued by U.S. banks.
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<PAGE>
2. With respect to 75% of its assets, purchase the securities of any
issuer if such purchase would cause more than 5% of the voting
securities, or more than 10% of the securities of any class of such
issuer (taken at the time of such investment), to be held by the
Fund.
3. Concentrate 25% or more of its total assets in a particular industry.
Investing in cash or high quality money market instruments, for
defensive purposes, securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or repurchase
agreements secured by these instruments shall not be considered
investments in a particular industry. In addition, each Money Market
Fund may invest up to 100% of its assets (a) in the domestic banking
industry, (b) in the personal credit institution or business credit
institution industries when, in the opinion of management, yield
differentials make such investments desirable, or (c) in any
combination of these.
4. Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that a Fund may (i) borrow to the
extent permitted by the 1940 Act, and pledge, mortgage or hypothecate
its assets in connection therewith, and (ii) enter into transactions
in options, futures and options on futures and other derivative
instruments (the deposit of assets in escrow in connection with the
writing of covered put and call options and the purchase of
securities on a when-issued or delayed delivery basis, collateral
arrangements with respect to initial or variation margin deposits for
futures contracts, and commitments entered into under swap agreements
or other derivative instruments will not be deemed to be pledges of a
Fund's assets).
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
GENERAL INFORMATION
The Funds presently offer two methods of purchasing shares (institutional class
and retail class), enabling the Funds to respond to service needs of different
classes of investors. This structure has been developed to attract large
institutions, retirement plans and individual investors as Fund shareholders so
that certain in common expenses (such as custodian fees, administrative
services, audit fees, legal fees, fees of trustees unaffiliated with the Funds,
regulatory fees and certain printing expenses) can be shared rather than
duplicated, in an effort to achieve economies of scale.
INSTITUTIONAL SHARES
Institutional shares of any Fund will be offered to employer-sponsored
retirement or savings plans, such as tax-qualified pension and profit-sharing
plans and 401(k) thrift plans, as well as 403(b) custodial accounts for non-
profit and
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<PAGE>
charitable organizations; corporations; banks; trust companies; savings and loan
associations; broker-dealers; insurance companies; charitable foundations; and
other institutional investors.
RETAIL SHARES
Retail shares may be purchased by employer-sponsored retirement or savings
plans, individuals, IRAs or any other investor who wants the additional personal
services provided to shareholders of the retail class. The retail class of each
Fund will pay the costs associated with the additional services provided to
retail class shareholders.
HOW TO PURCHASE SHARES
Shares of each Fund are sold on a continuous basis without any initial sales
charge or contingent deferred charge at the Fund's net asset value per share
(see "Pricing of Shares"). The Funds do not issue share certificates.
RETIREMENT AND SAVINGS PLAN PARTICIPANTS
One or more of the Funds may be available as investment options in employer-
sponsored retirement or savings plans. All orders to purchase shares must be
made through and in accordance with procedures established by the participant's
employer or plan administrator. The plan administrator can provide participants
with detailed information on how to participate in the plan and how to select a
CIGNA Fund as an investment option.
BROKERAGE ACCOUNT PURCHASES
All other investors must purchase shares through CIGNA Financial Advisors, Inc.
("CFA"). Orders placed through your brokerage representative are priced as of
the close of business on the day the order is received by CIGNA Funds
Shareholder Services or the transfer agent, provided the order is received by
4:00 p.m. Eastern Time. Brokerage representatives are responsible for the prompt
transmission of purchase and redemption orders placed through them by
shareholders. A completed Application is required to establish a new brokerage
account. All purchase orders must be accepted by CFA. CFA reserves the right to
determine the customers it will accept. Additional information regarding
establishing a brokerage account and purchasing shares may be obtained by
calling your dealer representative at 1-800-XXX-XXXX.
ADDITIONAL INFORMATION:
Each Fund reserves the right to limit purchases of shares for any one account or
related accounts to 2% of the total net asset value of the Fund, or may refuse
to sell shares of the Fund to any person.
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<PAGE>
HOW TO REDEEM SHARES
RETIREMENT AND SAVINGS PLAN PARTICIPANTS.
Plan participants should contact their plan administrator for information
on how to redeem Fund shares.
BROKERAGE ACCOUNT REDEMPTIONS.
All other investors must redeem shares through their brokerage account with CFA.
A signature guarantee may be required before payment can be made on redemption
orders. For additional information regarding redeeming shares from your
brokerage account, call your dealer representative at 1-800-XXX-XXXX.
FURTHER REDEMPTION INFORMATION.
Redemptions from the Funds may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the investor must furnish a
taxpayer identification number and address. The Funds may be required to impose
"back-up" withholding of federal income tax on dividends, distributions and
redemption of proceeds when non-corporate investors have not provided a
certified taxpayer identification number. In addition, if an investor sends a
check for the purchase of Fund shares and shares are issued before the
investor's check has cleared, the transmittal of any proceeds from the
redemption of the shares will occur upon clearance of the check, which may take
up to 15 days.
Each of the Funds reserves the right to suspend the right of redemption and to
postpone the date of payment upon redemption for up to seven days and for such
other periods as the 1940 Act or Securities and Exchange Commission may permit.
TELEPHONE SERVICES
If you are a retirement or savings plan participant and have questions or want
information about your plan account, contact your plan administrator.
All other investors should call 1-800-XXX-XXXX for account information or
to speak to their dealer representative.
MAKING EXCHANGES
Shares of a Fund may be exchanged for shares of the same class of another Fund
based on the respective net asset values of the shares involved. An exchange
order is treated the same as a redemption followed by a purchase. Each Fund
reserves the right to discontinue, alter or limit its exchange privilege at any
time.
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<PAGE>
RETIREMENT AND SAVINGS PLAN PARTICIPANTS.
Retirement plans may allow participants to exchange monies from one investment
option to another. Plan participants should check with their plan administrator
for details on the rules governing exchanges in their plan. Exchanges are
accepted by the Funds only as permitted by the applicable retirement plan.
Participants' plan administrators can explain how frequently exchanges are
allowed.
BROKERAGE ACCOUNTS
Shareholders with CFA brokerage accounts may obtain additional information
regarding exchanging shares in their brokerage account by calling their dealer
representative at 1-800-XXX-XXXX.
PRICING OF SHARES
- --------------------------------------------------------------------------------
The net asset value of each class of a Fund is calculated by the Funds'
custodian, State Street, by dividing the number of outstanding shares of the
class into the net assets of the Fund attributable to that class. Net assets are
the excess of a Fund's assets over its liabilities. Net asset value is
determined as of 4:00 p.m. Eastern Time on each day the New York Stock Exchange
("NYSE") is open for trading and on any other day on which there is a sufficient
degree of trading in a Fund's investments that the current net asset value of
its shares might be materially affected. Portfolio securities and other assets
are valued on the basis of market quotations or, if quotations are not readily
available, by a method that the Trust's Board of Trustees believes accurately
reflects fair value. Orders for purchases and redemption will not be processed
if received when the NYSE is closed. The NYSE is closed on New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Equity securities, including warrants, that are listed on a securities exchange
or that are part of the NASDAQ National Markets system are generally valued at
the last sale price or, if there has been no sale that day, at the last bid
price. Debt and other equity securities actively traded in the over-the-counter
market, including listed securities whose primary markets are believed to be
over-the-counter, are valued at the most recent bid price, which may be based
upon valuations furnished by a pricing service or from independent securities
dealers. High quality short-term investments with remaining maturities of up to
and including 60 days are valued at amortized cost to the extent CII believes
this to approximate market value. Except for money market instruments owned by a
Money Market Fund, which are valued at amortized cost, short-term investments
that mature in more than 60 days are valued at current market quotations. Other
securities and assets of a Fund, with the exception of futures contracts and
options on future contracts, which are discussed below, are valued in good faith
by, or under the authority of,
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<PAGE>
the Board of Trustees of the Trust. The net asset value so computed applies to
all purchase orders and redemption requests in the hands of State Street by 4:00
P.M., duly executed in accordance with applicable instructions, on the day of
such determination. Any orders received after such time are executed at the net
asset value next determined.
FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are recognized
as assets due from the broker (the Fund's agent in acquiring the futures
position). During the period the futures contract is open, changes in the value
of the contract are recognized as unrealized gains or losses by "marking-to-
market" on a daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments are made or received, depending
upon whether unrealized losses or gains are incurred. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the proceeds from (or cost of) the closing transaction and the Fund's basis in
the contract.
OPTIONS ON FUTURES CONTRACTS
The premium paid by a Fund for the purchase of a call or put option on futures
contracts is recorded as an investment and subsequently "marked-to-market" to
reflect the current market value of the option purchased. The current market
value of a purchased option on futures contracts is generally the last reported
sale price or, if no sales are reported, the last bid price. If an option on
futures contracts which a Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If a Fund exercises a purchased put option on a futures contract, it
realizes a gain or loss from the sale of the underlying futures contract and the
proceeds from such sale will be decreased by the premium originally paid. If a
Fund exercises a purchased call option on futures contracts, the cost of the
futures contract which the Fund purchases upon exercise will be increased by the
premium originally paid.
VALUATION OF MONEY MARKET INVESTMENTS (MONEY MARKET FUNDS)
Money market investments are valued at amortized cost, which approximates market
value, in accordance with rules adopted by the Securities and Exchange
Commission. Using the amortized cost valuation method allows the Money Market
Funds to maintain their net asset value at $1.00 per share. There is no
assurance that this method will always be used, or if used, that the net asset
value under certain conditions will not deviate from $1.00 per share. If the
Board of Trustees deems it inadvisable to continue the practice of maintaining
the net asset value of $1.00 per share they may alter this procedure. The
shareholders of a Fund will be notified prior to any such change, unless such
change is only temporary, in which case the shareholders will be notified
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<PAGE>
after the change. See the Statement of Additional Information for more
information on amortized cost procedures.
MANAGEMENT OF THE FUNDS
The investment adviser to each of the Funds is CII, an indirect, wholly-owned
subsidiary of CIGNA Corporation. CII also serves as investment adviser for other
investment companies, including investment companies sponsored by affiliates of
CIGNA Corporation, and for a number of pension, advisory, corporate and other
accounts. CII and other affiliates of CIGNA Corporation manage combined assets
of approximately $70 billion. CII's mailing address is 900 Cottage Grove Road,
Hartford, Connecticut 06152.
Pursuant to a Master Investment Advisory Agreement, the Trust, on behalf of the
Funds, employs CII to manage the investment and reinvestment of the assets of
the Funds.
CII has a sub-advisory agreement with CIIA, an indirect, wholly-owned subsidiary
of CIGNA Corporation, for the International Stock Fund. CIIA's mailing address
is Park House, 16 Finsbury Circus, London, England EC2M 7AX
Subject to the control and periodic review of the Board of Trustees, CII (and
CIIA with respect to the International Stock Fund) determines what investments
shall be purchased, held, sold or exchanged by the Funds and what portion, if
any, of the assets of the Funds shall be held in cash and other temporary
investments. CII is also responsible for overall management of the business
affairs of the Trust and the Funds.
As full compensation for the investment management and all other services
rendered by CII and any sub-adviser, each Fund pays CII a separate fee computed
daily and paid monthly at annual rates based on a percentage of the value of the
relevant Fund's average daily net assets, as follows: Government Securities
Fund - 0.50%, Income Fund - 0.50%; High Yield Fund- 0.75%; S&P 500 Index Fund -
0.25%; Money Market Fund - 0.35%; Government Obligations Cash Fund - 0.35%;
Treasury Obligations Cash Fund- 0.35%, and International Stock Fund - 0.80%.
Reflecting the specialized nature of their investment policies, the management
fees paid by the High Yield Fund and International Stock Fund exceed those paid
by most other investment companies. These fees, however, do not exceed those
paid by funds with similar investment objectives.
Each Fund will bear its own expenses. Operating expenses for each Fund generally
consist of all costs not specifically borne by CII, including investment
management fees, fees for necessary professional and brokerage services, costs
of regulatory compliance, compensation of trustees not affiliated with CIGNA
Corporation and costs associated with maintaining legal existence. Trust-wide
expenses not attributable to any particular Fund will be allocated among the
Funds.
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CII has voluntarily agreed, until April 30, 1997, and thereafter to the extent
described in the Funds' then-current prospectus, to reimburse the institutional
and retail classes of each Fund to the extent that the annual operating expenses
in any one year (excluding interest, taxes, amortized organizational expense,
transaction costs in acquiring and disposing of portfolio securities and
extraordinary expenses) exceed a percentage of the value of average daily net
assets, as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL RETAIL
CLASS CLASS
<S> <C> <C>
Money Market Funds .45 .70
Treasury Obligations Cash Fund .45 .70
Government Obligations Cash Fund .45 .70
Government Securities .70 1.00
Income Fund .70 1.00
High Yield Fund .90 1.20
International Stock Fund 1.10 1.45
S&P 500 Index Fund .35 .45
</TABLE>
As long as these temporary voluntary expense limitations continue, they may
lower the Funds' expenses and increase their respective yields. CII retains the
ability to be repaid by a Fund if expenses fall below the specified limit prior
to the end of the fiscal year. Unless otherwise specified, reimbursement
arrangements can be terminated without notice.
CII and CIIA investment personnel may invest in securities for their own account
pursuant to a code of ethics that establishes procedures for personal investing
and restricts certain transactions.
State Street serves as transfer agent and dividend disbursing agent for the
Funds. State Street is also custodian of the assets of the Funds.
From time to time, the Funds may pay brokerage commissions on portfolio
transactions to brokers who may be deemed to be affiliates of CIGNA Corporation
under the Investment Company Act of 1940, as amended. See the Statement of
Additional Information for further details.
SERVICE EXPENSES - RETAIL SHARES
The retail class of each Fund has adopted a shareholder services plan. Under the
plan, the retail class of each Fund is authorized to pay CFA, its affiliates or
independent third-party service providers, compensation for providing particular
services to the shareholders of the retail class of such Fund and/or maintenance
of retail class shareholder accounts.
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<PAGE>
Investors who purchase retail class shares of a Fund will receive additional
shareholder services, described below, that are not provided to the
institutional class investors. In return for these services, the retail class
shares shall bear the expense of the shareholder services plan. Because of the
costs associated with the shareholder services plan, the performance of the
retail class shares of each Fund will be lower than the performance of
institutional class shares of that Fund.
Service activities provided by CFA, its affiliates or third-party service
providers to shareholders of retail class shares of a Fund may include:
receiving, aggregating and processing shareholder or beneficial owner
(collectively "shareholder") orders; furnishing shareholder subaccounting;
providing and maintaining retirement plan records; communicating periodically
with shareholders; acting as the sole shareholder of record and nominee for
shareholders; maintaining account records for shareholders; answering questions
and handling correspondence from shareholders about their accounts; issuing
various shareholder reports and confirmations for transactions by shareholders;
and performing similar account and administrative services. For a more complete
description of the shareholder services plan and its terms, see the Statement of
Additional Information.
PORTFOLIO MANAGEMENT
The individuals who are primarily responsible for the day-to-day management of
each of the Funds (other than the Money Market Funds and the S&P 500 Index Fund)
and their occupations for the past five years are described below:
GOVERNMENT SECURITIES FUND. Thomas J. Bowen is a Managing Director and Joseph G.
Mazon is a Vice President of CII. Mr. Bowen and Mr. Mazon have been the
portfolio managers of the Fund since its inception in June 1996.
HIGH YIELD FUND. Alan C. Petersen is a Managing Director of CII. Mr. Petersen
has been the portfolio manager of the Fund since its inception in June 1996. Mr.
Petersen also manages CIGNA High Income Shares, a closed-end management
investment company that invests primarily in high yield, high risk securities.
INCOME FUND. Thomas R. Foley is a Managing Director of CII. Mr. Foley has been
the portfolio manager of this Fund since ____________________. Mr. Foley also
manages INA Investment Securities, Inc., a closed-end management investment
company that invests primarily in investment grade bond investments.
INTERNATIONAL STOCK FUND. Lee Mickelburough is Senior Portfolio Manager and Head
of London Office Equities for CIIA, the sub-adviser to this Fund. Previously,
Mr. Mickelburough was Resident Director and Head of Australia Office for CIGNA
International Investment Advisors Australia Limited. Mr. Mickelburough has
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<PAGE>
been the portfolio manager of this Fund since its inception in January 1993.
DISTRIBUTOR
CFA acts as the principal underwriter and distributor of each Fund's shares
pursuant to a distribution agreement with the Funds. CFA will pay the cost of
printing and mailing prospectuses and sales literature to potential investors
and any advertising expenses incurred by it in connection with its distribution
of shares of the Funds.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Each Fund's and class's investment performance may from time to time be included
in advertisements about that Fund. Mutual fund performance is commonly measured
as total return and/or yield.
Total return quotations will, unless otherwise indicated, be calculated
according to a standard formula described in regulations issued by the SEC. This
formula equates an amount invested in a Fund at the beginning of a stated period
to the value of that investment (assuming reinvestment of all dividends and
capital gains) at the end of the period. The resulting return quote is an
average annual total return across the stated period. Due to the deduction of
the shareholder service fee, performance of the retail class of each Fund will
be lower than the performance of the institutional class of each Fund.
In addition, each Fund may calculate its total return pursuant to non-standard
formulas (such as a cumulative return across a stated period), provided that
standard return quotes for the one-, five- and ten-year periods (or from the
Fund's inception, if shorter) ending no earlier than the end of the last
calendar quarter are illustrated with equal prominence.
Yield quotations for all Funds will be calculated according to the applicable
standard formula described in regulations issued by the SEC. Yield refers to the
income generated by an investment in a fund over a given period of time,
expressed as an annual percentage rate. For all Funds except the Money Market
Funds, the formula is based upon a stated 30-day period. Net investment income
for the period is divided by the maximum offering price on the last day of the
period, multiplied by the average number of shares outstanding during the
period. The resulting figure is then compounded semiannually. The net investment
income for this purpose is generally different from net investment income
determined in accordance with generally accepted accounting principles.
For the Money Market Funds, the applicable formula is based on a stated seven-
day period. The change in value of a hypothetical pre-existing account across
the stated period (assuming reinvestment of dividends) is divided by the value
of such an
35
<PAGE>
account at the beginning of the period. The result is then multiplied by 365/7.
This yield is an annualized yield. The Fund may also calculate its effective
annualized yield by adding "1" to the annualized yield, raising the sum to a
power equal to 365/7, and subtracting "1" from the result.
Also, each Fund may compare its performance in advertisements, sales literature
and reports to shareholders to applicable market indices, such as the S&P 500,
the Dow Jones Industrial Average, the NASDAQ OTC Composite or the EAFE Index
(Equity Funds), the Shearson Lehman Brothers Government/Corporate Bond Index,
the Shearson Lehman Brothers High Yield Bond Index or the First Boston High
Yield Index (Debt Funds) and Donoghue Money Market Institutional Averages (Money
Market Funds). Each Fund may also compare its performance to performance data of
similar mutual funds as published by services such as Lipper Analytical
Services, Inc., Morningstar, Inc. and Donoghue's Money Fund Average. Each Fund
may also include in performance information evaluations of the Fund published by
nationally recognized financial publications.
36
<PAGE>
Set forth below are certain performance data relating to high yield bond
portfolios which have been managed with full investment authority by principals
of CII and which have the same investment objective and use similar investment
strategies and techniques that are used for CIGNA High Yield Fund. The
performance information set forth below reflects past performance and is not
necessarily indicative of the future performance of CIGNA High Yield Fund. The
periods for which information is presented were periods during which security
prices fluctuated.
COMPOSITE PERFORMANCE/1/ SHOWING AVERAGE ANNUAL TOTAL RETURNS/2/ FOR VARIOUS
PERIODS ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
One Year......................... 18.41%
Three Years...................... 11.56%
Five Years....................... 18.43%
Ten Years........................ 10.93%
</TABLE>
COMPOSITE PERFORMANCE SHOWING ANNUAL TOTAL RETURNS/3/ FROM JANUARY
1, 1986 THROUGH DECEMBER 31, 1995
<TABLE>
<S> <C>
Year Ended December 31, 1995..... 18.41%
Year Ended December 31, 1994..... -1.10%
Year Ended December 31, 1993..... 18.56%
Year Ended December 31, 1992..... 18.11%
Year Ended December 31, 1991..... 42.06%
Year Ended December 31, 1990..... -11.99%
Year Ended December 31, 1989..... -0.81%
Year Ended December 31, 1988..... 16.47%
Year Ended December 31, 1987..... 2.76%
Year Ended December 31, 1986..... 15.88%
</TABLE>
- ---------------
/1/ The performance presented is that of Connecticut General Life
Insurance Company Separate Account 70, which commenced operations in December
1990, CIGNA High Income Shares, which commenced operations in September 1988 and
AIM High Yield Fund, which commenced operations in June 1978. During the periods
presented in the tables above, these other funds were managed by Alan Peterson,
portfolio manager of CIGNA High Yield Fund, except that CII ceased management of
AIM High Yield Fund in November 1995.
/2/ The information is the average annual total return for the
periods indicated, assuming reinvestment of all net investment income and taking
into account annual operating expenses of 1.20% of average daily net assets,
which is the current expense ratio for the retail class of CIGNA High Yield
Fund, after expense limitations.
/3/ The information is the annual total return for the periods
indicated, assuming reinvestment of all net investment income and taking into
account annual operating expense of 1.20% of average daily net assets, which is
the current expense ratio for the retail class of CIGNA High Yield Fund, after
expense limitations.
37
<PAGE>
Performance data is historical, and therefore should not be considered a
representation of future results, and should be considered in light of each
Fund's investment objective(s) and policies, characteristics of its portfolio
and periods selected.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Funds declare and distribute dividends representing substantially all
net investment income as follows:
<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
DECLARED PAID
--------- ---------
<S> <C> <C>
Money Market Funds daily monthly
Government Securities Fund daily monthly
Income Fund daily monthly
High Yield Fund daily monthly
International Stock Fund annually annually
S&P 500 Index Fund annually annually
</TABLE>
Substantially all net realized capital gains, if any, are distributed on an
annual basis, except for the Money Market Funds, which include realized gains
and losses in their daily declarations of dividends from net investment income.
All such distributions will be automatically reinvested for you in shares of the
Fund issuing the distribution at the net asset value determined on the record
date or, if you have so elected on forms approved by the Funds, will be paid in
cash to you or to someone you designate, either by check or automatic deposit
into a bank checking account.
TAX MATTERS
- --------------------------------------------------------------------------------
Each Fund intends to qualify under the Internal Revenue Code of 1986, as amended
(the "Code"), as a regulated investment company ("RIC") for each taxable year.
Each Fund intends to satisfy requirements under the Code relating to the
distribution of net income so that, in general, the Fund will not be subject to
Federal income tax ("FIT").
Each Fund is subject to a nondeductible 4% excise tax if it does not meet
certain distribution requirements under the Code. The Funds intend to make
sufficient distributions to avoid this excise tax.
Distributions of net investment income and of any net short-term capital gain
are taxable as ordinary income to shareholders, whether received in cash or
reinvested in shares. Distributions of net capital gain, if properly designated
as capital gain dividends by a Fund, generally are taxable to shareholders as
long-term capital gain, regardless of how long the shares have
38
<PAGE>
been held, and are not eligible for the corporate dividends-received deduction.
Distributions of net investment income and net capital gains will be taxable as
described above whether received in cash or reinvested in shares. Shortly after
the end of each year, the Fund will inform shareholders of the amount and FIT
treatment of all distributions paid during the year. Dividends declared to
shareholders of record on a date in October, November, or December will be
taxable to shareholders in the year declared, as long as the Fund pays the
dividends no later than January of the following year.
Upon a sale or redemption of Fund shares, a shareholder who is not a dealer in
securities will realize gain or loss which generally will be treated as long-
term capital gain or loss if the shares have been held for more than one year,
and otherwise as short-term capital gain or loss. However, if a shareholder
disposes of shares held for six months or less, any loss realized will be
characterized as long-term capital loss to the extent of any capital gain
dividends (or undistributed capital gain) made (or credited) to such shareholder
prior to such disposition.
Tax-exempt shareholders will generally not be subject to FIT on amounts
distributed to them.
Pursuant to the Code and IRS regulations, each Fund will withhold FIT at a rate
of 31% from ordinary income dividends and capital gain distributions, and from
redemption payments made to any shareholder who fails to furnish a correct
taxpayer identification number, or, in certain cases, fails to properly report
income for FIT purposes.
Distributions may also be subject to state and local taxes depending on each
shareholder's tax situation. Shareholders should consult their tax advisers
regarding the particular tax consequences of investing in the Funds.
GOVERNMENT SECURITIES FUND: The Fund generally pays dividends to its
shareholders based upon its financial statement income. Certain ordinary income
dividends may be treated as a return of capital to shareholders for tax purposes
as a result of different tax and financial statement treatments of certain
mortgaged-backed securities. The Fund will inform each shareholder of the
percentage of dividends received which are treated as a return of capital
following the end of each year.
DEBT FUNDS: For FIT purposes, the Funds report imputed interest on certain
securities as income, even though a Fund may receive no cash interest payments
until the securities' maturity or payment dates.
39
<PAGE>
THE TRUSTS, THEIR SHARES AND BOARD OF TRUSTEES
- --------------------------------------------------------------------------------
The Trusts currently offer eight series of shares. The Board of Trustees of the
Trusts is authorized in each Trust's Master Trust Agreement to create new series
of shares without the necessity of a vote of shareholders of either Trust. There
is a remote possibility that one Fund might become liable for a misstatement in
the prospectus about another Fund. The capitalization of the Trusts consists
solely of an unlimited number of shares of beneficial interest with a par value
of $0.001 each.
The institutional class and the retail class of the same Fund represent
interests in that Fund's assets and have identical voting, dividend, liquidation
and other rights on the same terms and conditions, except that each class of
shares bears differing class-specific expenses and exchange privileges and the
retail class has exclusive voting rights on matters pertaining to the
shareholder services plan.
Under Massachusetts law, each Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of their Trust.
However, each Trusts' Master Trust Agreement disclaims liability of the
shareholders, Trustees or officers of the Trust for acts or obligations of the
Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or the Trustees. Each Master Trust
Agreement provides for indemnification out of Trust property for all loss and
expense of any shareholder held personally liable for the obligations of the
Trust. The risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations and thus should be considered remote.
Under the Master Trust Agreements no annual or regular meetings of shareholders
are required. Meetings of shareholders of a series will be held from time to
time to consider matters requiring a vote of such shareholders in accordance
with the requirements of the 1940 Act, state law or the provisions of the Master
Trust Agreement. It is not expected that shareholder meetings will be held
annually.
Shares of each Fund will entitle their holders to one vote per share (with
proportionate voting for fractional shares), irrespective of the relative net
asset value of the shares of any Fund. On any matter submitted to a vote of
shareholders of a Trust, all shares of that Trust then issued and outstanding
shall be voted in the aggregate. However, on matters affecting an individual
Fund or class of shares, a separate vote of shareholders of that Fund or class
would be required. Shareholders of a Fund or class would not be entitled to vote
on any matter which does not affect that Fund or class but which would require a
separate vote of another Fund or class.
40
<PAGE>
When issued, shares of a Fund are fully paid and nonassessable, and have no
preemptive or subscription rights. There are no conversion rights. Shares do not
have cumulative voting rights, which means that in situations in which
shareholders elect trustees, holders of more than 50% of the shares voting for
the election of trustees can elect 100% of the trustees of such Trust and the
holders of less than 50% of the shares voting for the election of trustees will
not be able to elect any trustees.
Each Master Trust Agreement provides that the trustees of the Trust shall hold
office during the existence of the Trust, except as follows: (a) any trustee may
resign or retire; or (b) any trustee may be removed by a vote of shareholders
holding not less than two-thirds of the outstanding shares of the Trust, or at
any time by written instrument signed by at least two-thirds of the trustees and
specifying when such removal becomes effective. The Trustees are required to
call a meeting for the purpose of considering the removal of a person serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
A majority of the trustees is not affiliated with CIGNA Corporation or any of
its subsidiary companies. The trustees meet quarterly to review the results of
the Funds, to monitor investment activities and practices, and to review and act
upon future plans for the Funds. The role of the trustees is not to approve
specific investment purchases and sales, but rather to exercise a control and
review function.
APPENDIX
- --------------------------------------------------------------------------------
DESCRIPTION OF MONEY MARKET INSTRUMENTS
U.S. GOVERNMENT DIRECT OBLIGATIONS - Bills, notes, and bonds issued by
the U.S. Treasury.
U.S. GOVERNMENT AGENCIES SECURITIES - Certain Federal agencies such as the
Government National Mortgage Association have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States or are guaranteed by the Treasury or supported by the issuing agencies'
right to borrow from the Treasury.
BANKERS' ACCEPTANCES - A bill of exchange or time draft drawn on and accepted by
a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT - A negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for
41
<PAGE>
the deposit of funds and normally can be traded in the secondary market,
prior to maturity.
TIME DEPOSITS - A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market.
COMMERCIAL PAPER - The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues vary
from a few days to nine months.
COMMERCIAL LOAN PARTICIPATIONS - Participating interests in loans made by a
bank, or a syndicate of banks represented by an agent bank, to corporate
borrowers. Loan participations may extend for the entire term of the loan or may
extend only for short "strips" that correspond to stated payments on the
underlying loan. The loans underlying such participations may be secured or
unsecured, and a Fund may invest in loans collateralized by mortgages on real
property. Each Fund will limit its investments in commercial loan participations
to those which are considered by the Trustees (with the advice of CII) to be of
comparable quality to permitted commercial paper investments.
REPURCHASE AGREEMENTS - A repurchase agreement is a contractual undertaking
whereby the seller of securities (limited to U.S. Government securities,
including securities issued or guaranteed by the U.S. Treasury or the various
agencies and instrumentalities of the U.S. Government) agrees to repurchase the
securities at a specified price on a future date determined by negotiations. The
repurchase agreement may be considered a loan by a Fund to the issuer of the
agreement, a bank or securities dealer, with the U.S. Government security
serving as collateral for the loan.
VARIABLE AND FLOATING RATE INSTRUMENTS - Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks or corporations,
may carry variable or floating rates of interest. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a Federal Reserve composite index.
DESCRIPTIONS OF RATING CATEGORIES
The following are descriptions of ratings assigned by Moody's and S&P to certain
debt securities in which the High Yield Fund and, to a lesser extent, the Income
Fund may invest. See the Statement of Additional Information for descriptions of
other Moody's and S&P rating categories.
42
<PAGE>
MOODY'S:
- -------
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
S&P:
- ---
BB, B, CCC, CC, C - Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligations. 'BB'
indicates the lowest degree of speculation and 'C' the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposures to adverse conditions.
43
<PAGE>
CUSTODIAN AND TRANSFER AGENT: CIGNA FUNDS GROUP
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110 PROSPECTUS
JULY 1, 1996
INVESTMENT ADVISER:
CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152
INVESTMENT SUB-ADVISER:
International Stock Fund
CIGNA International Investment Advisors, Ltd.
Park House 16 Finsbury Circus
London, England EC2M 7AX
INDEPENDENT ACCOUNTANTS:
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
PRINCIPAL UNDERWRITER:
CIGNA Financial Advisors, Inc.
900 Cottage Grove Road
Hartford, CT 06152
[ART]
44
<PAGE>
C I G N A I N S T I T U T I O N A L F U N D S G R O U P
-------------------------------------------------------------
A N D
-----
C I G N A F U N D S G R O U P
---------------------------------
S T A T E M E N T O F A D D I T I O N A L I N F O R M A T I O N
J U L Y 1, 1 9 9 6
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectus for CIGNA Institutional Funds Group ("CIFG")
and CIGNA Funds Group (f/k/a CIGNA Annuity funds Group) ("CFG") (the "Trusts")
having the same date as the date of this Statement of Additional Information.
Much of the information contained herein expands upon subjects discussed in the
prospectus. No investment in shares of the Trusts should be made without first
reading the prospectus. A copy of the prospectus of the Trusts may be obtained
by writing to CIGNA Funds Shareholder Services, Hartford, Connecticut 06152-
2210.
The financial statements for CIGNA International Stock Fund, the sole series of
CIGNA Institutional Funds Group, and CIGNA Annuity Funds Group, n/k/a CIGNA
Funds Group, for the year ended December 31, 1995, as contained in the Annual
Reports to Shareholders, are hereby incorporated by reference into this
Statement of Additional Information. The financial statements for the year ended
December 31, 1995 have been examined by Price Waterhouse LLP, independent
accountants, whose report thereon also is incorporated herein by reference.
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 1
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
General Information About the Trusts................. 3
- ------------------------------------
Investment Objectives and Policies................... 3
- ----------------------------------
Futures Contracts.................................... 15
- -----------------
Options on Futures Contracts......................... 16
- ----------------------------
Risks as to Futures Contracts and Related Options.... 17
- -------------------------------------------------
Foreign Currency Transactions........................ 18
- -----------------------------
Investment Restrictions.............................. 23
- -----------------------
Tax Matters.......................................... 25
- -----------
Activities of Affiliated Companies................... 28
- ----------------------------------
Control Persons and Principal Holders of Securities.. 29
- ---------------------------------------------------
Management of the Trusts............................. 29
- ------------------------
Investment Advisory and Other Services............... 32
- --------------------------------------
Portfolio Turnover and Brokerage Allocation.......... 35
- -------------------------------------------
Purchase, Redemption and Pricing of Securities....... 37
- ----------------------------------------------
Dividends............................................ 38
- ---------
Performance Information.............................. 38
- -----------------------
Redemptions Paid in Cash............................. 42
- ------------------------
Classes of Shares.................................... 42
- -----------------
Underwriter.......................................... 43
- -----------
Service Fees......................................... 43
- ------------
Description of Money Market Instruments.............. 43
- ---------------------------------------
Ratings of Securities................................ 45
- ---------------------
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 2
<PAGE>
GENERAL INFORMATION ABOUT THE TRUSTS
- ------------------------------------
The Trusts are Massachusetts business trusts. CIFG was organized pursuant to a
Master Trust Agreement dated as of August 10, 1992, as amended from time to
time. CFG was organized pursuant to a Master Trust Agreement dated April 10,
1985, as amended and restated by the First Amended and Restated Master Trust
Agreement dated as of March 1, 1996. CIFG currently offers one series of shares
(CIGNA International Stock Fund). CFG currently offers seven series of shares
(CIGNA Money Market Fund, CIGNA Treasury Obligations Cash Fund, CIGNA Government
Obligations Cash Fund, CIGNA Government Securities Fund, CIGNA Income Fund,
CIGNA High Yield Fund and CIGNA S&P 500 Index Fund). Each series is sometimes
referred to in this Statement of Additional Information as a "Fund". CIGNA
Funds Group was formerly known as CIGNA Annuity Funds Group. CIGNA Money Market
Fund and CIGNA Income Fund, two series of CFG, were formerly known as CIGNA
Annuity Money Market Fund and CIGNA Annuity Income Fund, respectively. Five
additional series were added to CFG under the Amended and Restated Master Trust
Agreement. The Board of Trustees of CFG and CIFG is authorized to create new
series of shares without the necessity of a vote of shareholders of the Trust.
The assets received by the Trust from the issue or sale of shares of each of
its series of shares, and all income, earnings, profits and proceeds thereof,
subject only to the rights of creditors, are specifically allocated to the
appropriate series. They constitute the underlying assets of each series, are
required to be segregated on the books of account, and are to be charged with
the expenses with respect to such series. Any general expenses of the Trust not
readily identifiable as belonging to a particular series shall be allocated by
or under the direction of the Board of Trustees, primarily on the basis of
relative net assets.
Each share of each series represents an equal proportionate interest in that
series with each other share and is entitled to such dividends and distributions
out of the income belonging to such series as are declared by the Board. Upon
any liquidation of a Trust, shareholders of each series of the Trust are
entitled to share pro rata in the net assets belonging to that series available
for distribution.
INVESTMENT OBJECTIVES AND POLICIES
- ----------------------------------
The following information supplements the material contained in the prospectus
regarding each Fund's investment objectives and policies.
Description of Money Market Instruments
- ---------------------------------------
U.S. GOVERNMENT DIRECT OBLIGATIONS--issued by the U.S. Treasury and include
bills, notes, and bonds.
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 3
<PAGE>
/./ Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable at par
value at maturity.
/./ Treasury notes are longer-term interest bearing obligations with original
maturities of one to ten years.
/./ Treasury bonds are longer-term interest bearing obligations with original
maturities from ten to thirty years.
U.S. GOVERNMENT AGENCIES SECURITIES--Certain Federal agencies have been
established as instrumentalities of the U.S. Government to supervise and finance
certain types of activities. These agencies include the Bank for Cooperatives,
Federal Land Banks, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Government National Mortgage Association,
Export-Import Bank, and Tennessee Valley Authority. Issues of these agencies,
while not direct obligations of the U.S. Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the U.S. Government itself will pay interest and principal
on securities as to which it is not legally obligated to do so.
BANKERS' ACCEPTANCES--A banker's acceptance is a bill of exchange or time draft
drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange. When
the draft is accepted by a bank, the bank guarantees to pay the face value of
the instrument on its maturity date. An investor can purchase a banker's
acceptance in the secondary market at the going rate of discount for a specific
maturity. In addition to purchasing bankers' acceptances from domestic branches
and foreign branches of U.S. commercial banks, bankers' acceptances denominated
in each case in U.S. dollars, may be purchased from foreign branches and U.S.
branches of foreign banks having at least one billion dollars (U.S.) of assets.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT--A certificate of deposit ("CD") is a negotiable
interest-bearing instrument with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds and normally can be traded in the secondary market, prior to
maturity. Each Fund may invest in U.S. dollar denominated CD's issued by
domestic branches and foreign branches of U.S. banks which are members of the
Federal Reserve System; by foreign branches and U.S. branches of foreign banks
and by U.S. domiciled savings and loan institutions having in each case at least
one billion dollars (U.S.) of assets. CD's issued by foreign branches of U.S.
banks are called "Eurodollar CD's" while CD's issued by U.S. branches of foreign
banks are called "Yankee CD's."
COMMERCIAL LOAN PARTICIPATIONS--Each Fund will limit its investments in loan
participations to those which are considered by the Fund's
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 4
<PAGE>
adviser, CIGNA Investments, Inc. ("CII"), or the Fund's sub-adviser to be of
comparable quality to permitted commercial paper investments. These ratings are
described under "Ratings of Securities." Further, for the purposes of each
Fund's investment restrictions, each loan participation will be treated as an
obligation of both the originating bank (or agent bank in the case of loans
originated by a syndicate of banks) and the corporate borrower. In addition,
each Fund may only invest up to 5% of the value of its total assets in loan
participations.
Loan participations in which a Fund may invest may vary in legal structure.
Occasionally, lenders assign to another institution both the lenders's rights
and obligations under a credit agreement. Since this type of assignment
relieves the original lender of its obligations, it is called a novation. Such
novations are relatively rare since they typically require the consent of the
borrower. More typically, a lender assigns only its right to receive payments
of principal and interest under a promissory note, credit agreement or similar
document. A true assignment shifts to the assignee the direct debtor-creditor
relationship with the underlying borrower. Alternatively, a lender may assign
only part of its rights to receive payments pursuant to the underlying
instrument or loan agreement. Such partial assignments, which are more
accurately characterized as "participating interests," do not shift the debtor-
creditor relationship to the assignee, who must rely on the original lending
institution to collect sums due and to otherwise enforce its rights against the
agent bank which administers the loan or against the underlying borrower. An
active secondary market for particular loan participations may not develop,
which would result in a substantial restriction on a Fund's ability to liquidate
such participations prior to maturity.
REPURCHASE AGREEMENTS--Each Fund may engage in repurchase agreement
transactions in pursuit of its investment objective. Under the terms of a
typical repurchase agreement, a Fund purchases an underlying U.S. Government
security, including securities issued or guaranteed by the U.S. Treasury or
agencies and instrumentalities of the U.S. Government, for a relatively short
period (most likely overnight and usually not more than five days) subject to an
obligation of the seller to repurchase, and the Fund to resell, the security at
an agreed upon price and time, thereby determining the yield during the Fund's
holding period. The arrangement results in a fixed rate of return that is not
subject to market fluctuations during the Fund's holding period. The Funds may
enter into repurchase agreements with banks having $1 billion or more of assets
and with broker/dealers having net capital of $100 million or more. The Funds
require that the counter-party's obligation under repurchase agreements be
sufficiently collateralized so that the value of the underlying collateral
securities at least equals the amount of the repurchase agreement. Also, the
Funds require that the underlying securities be held by the custodian of Fund
assets, either physically or under the Federal Book Entry System.
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 5
<PAGE>
Repurchase agreements could involve certain risks in the event of default or
insolvency of the repurchasing bank or broker/dealer, including possible delays
or restrictions upon a Fund's ability to dispose of the underlying securities.
CII, in accordance with procedures adopted by the Board of Trustees of the
Trust, monitors and evaluates the credit-worthiness of banks and dealers with
which the Funds engage in repurchase agreements.
TIME DEPOSITS--A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. U.S. dollar denominated time deposits may be
purchased from domestic branches and foreign branches of U.S. banks which are
members of the Federal Reserve System (not including savings and loan
institutions) and from foreign branches and U.S. branches of foreign banks
having at least one billion dollars (U.S.) of assets.
U.S. dollar denominated certificates of deposit, time deposits and bankers'
acceptances issued by foreign branches of U.S. banks or by foreign banks either
in the U.S. or abroad may present investment risks in addition to the risks
involved in investments in obligations of, or guaranteed by, domestic banks.
Such risks include future political and economic developments, the possible
imposition of withholding taxes on interest income payable on such obligations,
the possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls or the adoption of other governmental
restrictions. Generally, foreign branches of U.S. banks and U.S. branches of
foreign banks are subject to fewer U.S. regulatory restrictions than are
applicable to domestic banks, and foreign branches of U.S. banks may be subject
to less stringent reserve requirements than domestic banks. U.S. branches of
foreign banks and foreign branches of U.S. banks may provide less public
information than, and may not be subject to the same accounting, auditing and
financial record-keeping standards as, domestic banks. Foreign branches of
foreign banks generally would not be subject to any U.S. regulatory restrictions
or disclosure, financial recordkeeping or accounting requirements.
COMMERCIAL PAPER--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other business entities.
Maturities on these issues vary from a few days to nine months. Commercial
paper may be purchased from U.S. domiciled issuers. Commercial paper may also
be purchased from foreign issuers issued either in the U.S. ("Yankee" commercial
paper) or abroad if, in any case, such paper is denominated in U.S. dollars.
OTHER CORPORATE OBLIGATIONS--Each Fund may purchase notes, bonds and debentures
issued by corporations and other business entities. However, the Money Market
Funds will purchase such obligations only if at the time of purchase there are
397 days or less remaining until maturity or if they carry a variable or
floating rate of interest.
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VARIABLE AND FLOATING RATE INSTRUMENTS--Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, or state and local
government issuers, and certain debt instruments issued by domestic banks or
corporations, may carry variable or floating rates of interest. Such
instruments bear interest at rates which are not fixed, but which vary with
changes in specified market rates or indices, such as a Federal Reserve
composite index.
Description of Income Instruments for the High Yield Fund
- ---------------------------------------------------------
As noted in the prospectus, the Fund purchases principally debt securities that
are rated Ba or lower by Moody's or BB or lower by S&P.
Included among the high-yield, high risk securities in which the Fund may
invest are securities issued in connection with corporate restructurings such as
takeovers or leveraged buyouts. Securities issued to finance corporate
restructurings may have special credit risks due to the highly leveraged
conditions of the issuer. In addition, such issuers may lose experienced
management as a result of the restructuring. Also, the market price of such
securities may be more volatile to the extent that expected benefits from the
restructuring do not materialize.
Because investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type constituting high-yield,
high risk securities, the yields and prices of such securities may tend to
fluctuate more than those for higher rated securities. In the lower quality
segments of the fixed income securities market, changes in perceptions of
issuer's creditworthiness tend to occur more frequently and in a more pronounced
manner than do such changes with respect to higher quality segments of the fixed
income securities market, causing greater yield and price volatility.
Commissions and underwriting spreads associated with the purchase of high-yield,
high risk bonds are typically higher than those associated with the purchase of
high grade bonds.
The Fund may also invest in preferred stocks with yields that are attractive,
provided that such investments are otherwise consistent with the investment
objective and policies of the Fund. A preferred stock is an equity security
that entitles the holders to a priority in liquidation over holders of the
issuer's common stock. In liquidation, the holders of preferred stock are
subordinate to the holders of the issuer's debt obligations. Typically,
preferred stocks include the right to receive regular dividend payments and may
also include conversion rights, put and call obligations and other features. In
determining whether to invest in any particular stock, CII will consider all
relevant factors, including the dividend yield, its conversion features, if any,
its liquidity, and the overall financial condition of the issuer. Under normal
circumstances, the Fund will not invest more than 10% of its assets in preferred
stock.
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The Fund may invest up to 15% of its total assets in "private placements,"
i.e., securities that are subject to restrictions on resale because they have
not been registered under the securities Act of 1933, as amended (the "1933
Act"). Privately placed securities, which include securities eligible for
resale under Rule 144A under the 1933 Act, ordinarily can be sold by the Fund in
privately negotiated transactions to a limited number and/or particular type of
purchasers or in a public offering made pursuant to an effective registration
statement under the 1933 act. Private or public sales of such securities by the
Fund are likely to involve delays and expenses. Private sales require
negotiation with one or more purchasers and may produce less favorable prices
than the sale of similar unrestricted securities. Public sales generally
involve the time and expense of the preparation and processing of a registration
statement under the 1933 Act (and the possible decline in value of the
securities during such period) and may involve the payment of underwriting
commissions. For these reasons, restricted securities are less liquid than
registered securities and certain restricted securities may be illiquid. The
lack of third party evaluation of the credit quality of these securities and the
possibility of a less liquid secondary market because of restrictions placed by
some investors with respect to the purchase of non-rated securities may also
increase the risk to investors.
The Fund will not acquire common stocks, except when (i) attached to or
included in a unit with income-generating securities that otherwise would be
attractive to the Fund; (ii) acquired through the exercise of equity features
accompanying convertible securities held by the Fund, such as conversion or
exchange privileges or warrants for the acquisition of stock or equity interest
of the same or different issuer; or (iii) in the case of an exchange offering
whereby the equity security would be acquired with the intention of exchanging
it for a debt security issued on a "when-issued" basis.
Description of Income Instruments for the Income Fund
- -----------------------------------------------------
In pursuing its investment objective, the Income Fund will principally invest
in the following types of interest-bearing securities:
(1) Marketable debt securities that are rated at the time of purchase within
the four highest grades assigned by Moody's Investors Service, Inc. (Aaa,
Aa, A or Baa) or Standard & Poor's Corporation (AAA, AA, A or BBB); see
"Ratings of Securities."
(2) U.S. Government securities, as described below.
(3) Obligations of, or guaranteed by, U.S. banks or bank holding companies,
which obligations are considered by CII to have investment qualities
comparable to securities which may be purchased under Item (1) above,
although there can be no assurance that said obligations shall have such
qualities.
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(4) Money market instruments eligible for purchase by the Money Market Fund,
which instruments are considered by CII to have investment qualities
comparable to securities which may be purchased under Item (1) above,
although there can be no assurance that said obligations shall have such
qualities.
(5) Marketable securities (payable in U.S. dollars) of, or guaranteed by, the
Government of Canada or of a Province of Canada or any instrumentality or
political subdivision thereof.
The balance of the Income Fund's assets may be invested in other fixed-income
securities, including straight debt and convertible debt securities and
preferred stock. Investment positions may be held in common stock and similar
equity securities (including warrants or rights to purchase equity investments
as described below) when they are acquired as parts of units with fixed-income
securities or upon exercise of such warrants or rights or upon the conversion of
such securities. The Income Fund also may purchase and sell interest rate
futures contracts and purchase options on futures contracts as described under
"Futures Contracts" and "Options on Futures Contracts."
U.S. Government securities include a variety of securities that are issued or
guaranteed by the U.S. Treasury, by various agencies of the U.S. Treasury, by
various agencies of the U.S. Government or by various instrumentalities that
have been established or sponsored by the U.S. Government. Treasury securities
include Treasury bills, Treasury notes and Treasury bonds. Treasury bills have
a maturity of one year or less; Treasury notes have maturities of one to ten
years; Treasury bonds generally have a maturity of greater than ten years. The
Federal agencies established as instrumentalities of the U.S. Government to
supervise and finance certain types of activities include the Federal Home Loan
Banks, the Government National Mortgage Association, the Federal National
Mortgage Association, the Federal Land Banks, the Small Business Administration,
the Export-Import Bank, the Federal Intermediate Credit Banks and the Bank for
Cooperatives.
U.S. Government securities may take the form of participation interests in, and
may be evidenced by, deposit or safekeeping receipts. Participation interests
are pro rata interests in U.S. Government securities such as interests in pools
of mortgages sold by the Government National Mortgage Association; instruments
evidencing deposit or safekeeping are documentary receipts for such original
securities held in custody by others. The Fund will not invest in obligations
of the Asian Development Bank, the Inter-American Development Bank or the
International Bank for Reconstruction and Development (World Bank).
U.S. Government obligations, including those that are guaranteed by Federal
agencies or instrumentalities, may or may not be backed by the "full faith and
credit" of the United States. Some securities issued by Federal agencies or
instrumentalities are only supported by the credit of the agency or
instrumentality (such as the Federal Home Loan
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Banks) while others have an additional line of credit with the U.S. Treasury
(such as the Federal National Mortgage Association). Certain securities issued
by Federal agencies or instrumentalities backed by the full faith and credit of
the U.S. Government include those issued by the Government National Mortgage
Association and the Small Business Administration. In the case of securities
not backed by the full faith and credit of the United States, the Fund must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its commitments.
Warrants are, in effect, longer term call options. They give the holder the
right to purchase a given number of shares of a particular company at specified
prices within certain periods of time. The purchaser of a warrant expects that
the market price of the security will exceed the purchase price of the warrant
plus its exercise price, thus resulting in a profit. However, since the market
price may never exceed the exercise price before the expiration date of the
warrant, the purchaser of the warrant risks the loss of the entire purchase
price of the warrant.
Warrants generally trade in the open market and may be sold rather than
exercised. Warrants are sometimes sold in unit form with other securities of an
issuer. Units of warrants and common stock may be employed in financing
unseasoned companies. The purchase price varies with the security, the life of
the warrant and various other investment factors. Investments in warrants,
valued at the lower of cost or market, may not exceed 5% of the value of the
Fund's net assets.
Considerations of liquidity and preservation of capital mean that the Income
Fund may not necessarily invest in instruments paying the highest available
yield at a particular time. This Fund may, consistent with its investment
objective, attempt to maximize yields by buying and selling portfolio
investments in anticipation of or in response to changing economic and money
market conditions and trends. This Fund will also invest to take advantage of
what are believed to be temporary disparities in the yields of the different
segments of the market or among particular instruments within the same segment
of the market. These policies, as well as the relatively short maturity of
obligations to be held by this Fund, may result in frequent changes in portfolio
holdings. There usually are no brokerage commissions as such paid in connection
with the purchase of securities of the type in which this Fund may invest. See
"Brokerage Allocation" for a discussion of underwriters' commissions and
dealers' spreads involved in the purchase and sale of portfolio securities.
Changes in interest rates are likely to result in increases or decreases in the
value of the investments of the Income Fund. The value of the securities in
this Fund can be expected to vary inversely with the changes in prevailing
interest rates. Thus, depending upon whether interest rates have increased or
decreased since the time a security was purchased, such security, if sold, might
be sold at a
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loss or a gain. If debt instruments are held to maturity, no gain or loss would
normally be realized as a result of interest rate fluctuations.
High Yield Fund and Income Fund: Risk Factors
- ----------------------------------------------
As noted in the prospectus, the High Yield Fund, and, to a lesser extent, the
Income Fund invest in debt securities of less than investment grade (i.e.,
securities rated Ba/BB or below by Moody's and S&P). Such securities are often
referred to as high yield or junk bonds and are typically considered "high risk"
securities. High yield bonds may be subject to certain risk factors to which
other securities are not subject to the same degree. An economic downturn tends
to disrupt the market for high yield bonds and adversely effect their values.
Such an economic downturn may be expected to result in increased price
volatility of high yield bonds and of the value of the Fund's shares, and an
increase in issuers' defaults on such bonds.
Also, issuers of high yield bonds are substantially leveraged, which may impair
their ability to meet their obligations. In some cases, the securities in which
the Fund invests are subordinated to the prior payment of senior indebtedness,
thus potentially limiting the Fund's ability to recover full principal or to
receive payments when senior securities are in default. When the secondary
market for high yield bonds becomes increasingly illiquid, or in the absence of
readily available market quotations for high yield bonds, the relative lack of
reliable, objective data makes the responsibility of the Trustees to value the
Fund's securities more difficult, and judgement plays a greater role in the
valuation of portfolio securities. Also, increased illiquidity of the high
yield bond market may affect the Fund's ability to dispose of portfolio
securities at a desirable price.
The credit rating of a security does not necessarily address its market value
risk. Also, ratings may from time to time, be changed to reflect developments
in the issuer's financial condition. High yield bonds have speculative
characteristics which are apt to increase in number and significance with each
lower rating category. Also, prices of high yield bonds have been found to be
less sensitive to interest rate changes and more sensitive to adverse economic
changes and individual corporate developments than more highly rated
investments.
Certain laws or regulations may have a material effect on the Fund's net asset
value and investment practices. For example, legislation requiring federally-
insured savings and loan associations to divest their investments in high yield
bonds may further adversely affect the market for such bonds.
Characteristics of the S&P 500 Index Fund
- -----------------------------------------
The S&P 500 Index Fund seeks long-term growth of capital by investing primarily
in common stocks. Realization of current income is an incidental consideration,
although it is hoped that growth in income will accompany growth in capital.
The portfolio of the Fund normally
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will consist primarily of equity securities of companies which compose the S&P
500.
The Fund also may invest in certain short-term fixed income securities, stock
index futures and options on futures, as more fully described in the prospectus
under "S&P 500 Index Fund" and "Stock Index Futures Contracts and Related
Options."
Characteristics of the International Stock Fund
- -----------------------------------------------
The Fund will invest in securities listed on foreign securities exchanges or
securities traded in the over-the-counter market. Debt securities will be
acquired in new offerings or in principal trades with broker/dealers.
Ordinarily, the Fund will not purchase securities with the intention of engaging
in short-term trading. However, any particular security will be sold, and the
proceeds reinvested, whenever such action is deemed prudent from the viewpoint
of the Fund's investment objective, regardless of the holding period of that
security. The rating applied to a debt security or money market instrument (see
"Ratings of Securities" below) at the time the security is purchased by the Fund
may be changed while the Fund holds such security in its portfolio. This change
may affect, but may not compel, a decision to dispose of a security.
Nonetheless, the Fund does not intend to hold more than 5% of its net assets in
bonds rated below investment grade (i.e. bonds rated BB or Ba or below by S&P or
Moody's or if not so rated, which in the opinion of CIGNA International
Investment Advisors, Ltd. ("CIIA"), sub-adviser to the Fund, are of comparable
quality). Therefore, the Fund will dispose of any bond, as soon as practicable
consistent with achieving an orderly disposition, that would cause the Fund to
violate the above-referenced limitation. If the major rating services used by
the Fund were to alter their standards or systems for rating, the Fund would
then employ ratings under the revised standards or systems that would be
comparable to those specified in its current investment objective, policies and
restrictions.
Characteristics of the Money Market Funds
- -----------------------------------------
The types of money market instruments in which the Funds presently invest (to
the extent permitted by each Fund's investment objective) are listed under
"Description of Money Market Instruments" in the appendix of the prospectus and
in this Statement of Additional Information. If the Trustees determine that it
may be advantageous to invest in other types of money market instruments, a
Money Market Fund may invest in such instruments, if it is permitted to do so by
its investment objective, policies and restrictions.
As discussed in the Prospectus, the Money Market Fund may invest in U.S. dollar-
denominated obligations of U.S. and foreign depository institutions, including
commercial and savings banks and savings and loan associations. The obligations
may be issued by U.S. or foreign depository institutions, foreign branches or
subsidiaries of U.S. depository institutions ("Eurodollar" obligations), U.S.
branches or subsidiaries of foreign depository institutions ("Yankeedollar"
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obligations) or foreign branches or subsidiaries of foreign depository
institutions. Obligations of foreign depository institutions, their branches
and subsidiaries, and Eurodollar and Yankeedollar obligations may involve
additional investment risks to the risks of obligations of U.S. institutions.
Such investment risk include adverse political and economic developments, the
possible imposition of withholding taxes on interest income payable on such
obligations, the possible seizure or nationalization of foreign deposits and the
possible establishment of exchange controls or other foreign governmental laws
or restrictions which might adversely affect the payment of principal and
interest. Generally, the issuers of such obligations are subject to fewer
regulatory requirements than are applicable to U.S. banks. Foreign depository
institutions, their branches or subsidiaries, and foreign branches or
subsidiaries of U.S. banks may be subject to less stringent reserve requirements
than U.S. banks. U.S. branches or subsidiaries of foreign banks are subject to
the reserve requirements of the state in which they are located. There may be
less publicly available information about a foreign bank or a branch or
subsidiary of a foreign bank than about a U.S. institution, and such branches or
subsidiaries may not be subject to the same accounting, auditing and financial
record keeping standards and requirements as U.S. banks. Evidence of ownership
of foreign depository and Eurodollar obligations may be held outside of the
United States and the Fund may be subject to the risks associated with the
holding of such property overseas. Foreign depository and Eurodollar
obligations of the Fund held overseas will be held by foreign branches of the
custodian for the Funds portfolio securities or by other U.S. or foreign banks
under subcustodian arrangements complying with the requirements of the
Investment Company Act of 1940, as amended (the "1940 Act"). CII will consider
the above factors in making investments in foreign depository, Eurodollar and
Yankeedollar obligations and will not knowingly purchase obligations which, at
the time of purchase, are subject to exchange controls or withholding taxes.
Generally, the Fund will limit its foreign depository and Yankeedollar
investments to obligations of banks organized in Canada, France, Germany, Japan,
the Netherlands, Switzerland, the United Kingdom and other western
industrialized nations. As discussed in the prospectus, the Fund may also
invest in U.S. dollar-denominated commercial paper and other short-term
obligations issued by foreign entities. Such investments are subject to quality
standards similar to those applicable to investments in comparable obligations
of domestic issuers. Investments in foreign entities in general involve the
same risks as those described above in connection with investments in Eurodollar
and Yankeedollar obligations and obligations of foreign depository institutions
and their foreign branches and subsidiaries.
The Money Market Funds' investments in short-term corporate debt and bank money
instruments will be rated, or will be issued by issuers who have been rated, in
one of the two highest rating categories for short-term debt obligations by a
nationally recognized statistical rating organization (an "NRSRO") or, if not
rated, will be of comparable quality as determined by the Trustees of the Trust.
The Money Market Fund's investments in corporate bonds and debentures (which
must have maturities at the date of purchase of 397 days (13
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months) or less) will be in issuers who have received from an NRSRO a rating
with respect to a class of short-term debt obligations that is comparable in
priority and security with the investment in one of the two highest rating
categories for short-term obligations or if not rated, will be of comparable
quality as determined by the Trustees of the Trust. Currently, there are six
NRSROs: Duff and Phelps Inc., Fitch Investors Services, Inc., IBCA Limited and
its affiliate IBCA Inc., Thompson BankWatch, Inc., Moody's Investors Service
Inc. and Standard & Poor's Rating Group. See "Appendix--Description of Money
Market Instruments".
The rating applied to a security at the time the security is purchased by a Fund
may be changed while the Fund holds such security in its portfolio. This change
may affect, but will not necessarily compel, a decision to dispose of a
security. If the major rating services used by the Fund were to alter their
standards or systems for rating, the Fund would then employ ratings under the
revised standards or systems that would be comparable to those specified in its
current investment objective, policies and restrictions.
The Board of Trustees has established procedures in compliance with Rule 2a-7
under the 1940 Act that include reviews of portfolio holdings by the Trustees at
such intervals as they may deem appropriate to determine whether net asset value
of the Money Market Funds, calculated by using available market quotations,
deviates from $1.00 per share and, if so, whether such deviation may result in
material dilution or is otherwise unfair to existing shareholders. In the event
the Trustees determine that a deviation having such a result exists, they intend
to take such corrective action as they deem necessary and appropriate, including
the sale of portfolio instruments prior to maturity in order to realize capital
gains or losses or to shorten average portfolio maturity; withholding dividends;
or establishing a net asset value per share by using available market
quotations; in which case, the net asset value could possibly be greater or less
than $1.00 per share. If the Trustees deem it inadvisable to continue the
practice of maintaining the net asset value at $1.00 per share, they may alter
this procedure. The shareholders of the Fund will be notified promptly after
any such change.
Any increase in the value of a shareholder's investment in a Money Market Fund
resulting from the reinvestment of dividend income is reflected by an increase
in the number of shares in the shareholder's account.
Matters relating to all Funds
- -----------------------------
Except as described under "Investment Restrictions," the foregoing investment
characteristics are not fundamental and the Board of Trustees may change such
policies without shareholder approval. The Board will not change a Fund's
investment objectives without the required shareholder vote as set forth in
"Investment Restrictions" below. There is risk inherent in any investment, and
there is no assurance that any of the strategies and methods of investment
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available to any Fund will result in the achievement of its objectives.
Each Fund's investments must be consistent with its investment objective and
policies. Accordingly, not all of the security types and investment techniques
discussed below are eligible investments for each of the Funds.
FUTURES CONTRACTS
- -----------------
A stock index assigns relative values to the common stocks included in the index
and the index fluctuates with changes in the market values of the common stocks
so included. A stock index futures contract is a bilateral agreement pursuant
to which two parties agree to take or make delivery of an amount of cash equal
to a specified dollar amount times the difference between the stock index value
at the close of the last trading day of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
stocks in the index is made.
Generally, a Fund will only enter into stock index futures contracts as a hedge
against changes resulting from market conditions in the values of the securities
held or which the Fund intends to purchase. When the Fund anticipates a
significant market or market sector advance, the purchase of a stock index
futures contract affords a hedge against not participating in such advance.
Conversely, in anticipation of or in a general market or market sector decline
that adversely affects the market values of the Fund's portfolio of securities,
the Fund may sell stock index futures contracts. The S&P 500 Index Fund's use
of stock index futures is discussed in the prospectus.
An interest rate futures contract is an agreement between two parties to buy and
sell a debt security for a set price on a future date. A Fund generally may
enter into interest rate futures contracts for the purpose of hedging debt
securities in their portfolios or the value of debt securities which the Funds
intend to purchase. For example, if one of these Funds owned long-term debt
securities and interest rates were expected to increase, they might sell
interest rate futures contracts. If, on the other hand, these Funds held cash
reserves and interest rates were expected to decline, they might purchase
interest rate futures contracts.
In cases of purchases of futures contracts, an amount of cash and cash
equivalents, equal to the market value of the futures contracts (less any
related margin deposits), will be deposited in a segregated account with the
Fund's custodian to collateralize the position and ensure that the use of such
futures contracts is unleveraged. Unlike when a Fund purchases or sells a
security, no price is paid or received by a Fund upon the purchase or sale of a
futures contract. Initially, a Fund will be required to deposit with the
custodian for the Fund for the account of the broker a stated amount, as called
for by a particular contract, of cash or U.S. Treasury bills. This amount is
known as "initial margin." The nature of initial margin in futures
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transactions is different from that of margin in securities transactions in that
futures contract margin does not involve the borrowing of funds by the customer
to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the applicable Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called "variation margin," to and from the
broker will be made on a daily basis as the price of the futures contract
fluctuates making the long and short positions in the futures contract more or
less valuable, a process known as "marking-to-market." For example, when a Fund
has purchased a stock index futures contract and the price of the underlying
stock index has risen, that position will have increased in value and the Fund
will receive from the broker a variation margin payment with respect to that
increase in value. Conversely, where a Fund purchases a stock index futures
contract and the price of the underlying stock index has declined, the position
would be less valuable and the Fund would be required to make a variation margin
payment to the broker. Variation margin payments would be made in a similar
fashion when a Fund purchases an interest rate futures contract. At any time
prior to expiration of the futures contract, a Fund may elect to close the
position by taking an opposite position which will operate to terminate the
Fund's position in the futures contract. A final determination of variation
margin is then made, additional cash is required to be paid by or released to
the Fund and the Fund realizes a loss or a gain.
OPTIONS ON FUTURES CONTRACTS
- ----------------------------
An option on a futures contract gives the purchaser (the Fund) the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer of the option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long position if the
option is a put) at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option on a
futures contract is exercised on the last trading date prior to the expiration
date of the option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing price of the
futures contract on the expiration date.
The S&P 500 Index Fund's use of options on futures contracts is discussed in the
prospectus. The other Funds may purchase put options on futures contracts to
hedge against the risk of falling prices for their portfolio securities, and may
purchase call options on futures
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contracts as a hedge against a rise in the price of securities which they intend
to purchase. Options on futures contracts may also be used to hedge the risks
of changes in the exchange rate of foreign currencies. The purchase of a put
option on a futures contract is similar to the purchase of protective put
options on portfolio securities or a foreign currency. The purchase of a call
option on a futures contract is similar in some respects to the purchase of a
call option on an individual security or a foreign currency. Depending on the
pricing of the option compared to either the price of the futures contract upon
which it is based or the price of the underlying securities or currency, it may
or may not be less risky than ownership of the futures contract or underlying
securities or currency.
RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS
- -------------------------------------------------
There are several risks in connection with the use of futures contracts and
related options as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of hedging instruments and movements
in the price of the stock, debt securities or foreign currency which are the
subject of the hedge. If the price of a hedging instrument moves less than the
price of the stocks, debt securities or foreign currency which are the subject
of the hedge, the hedge will not be fully effective. If the price of a hedging
instrument moves more than the price of the stock, debt securities or foreign
currency, a Fund will experience either a loss or a gain on the hedging
instrument which will not be completely offset by movements in the price of the
stock, debt securities or foreign currency which are the subject of the hedge.
The use of options on futures contracts involves the additional risk that
changes in the value of the underlying futures contract will not be fully
reflected in the value of the option.
Successful use of hedging instruments by a Fund is also subject to CII's ability
to predict correctly movements in the direction of the stock market, of interest
rates or of foreign exchange rates (foreign currencies). Because of possible
price distortions in the futures and options markets and because of the
imperfect correlation between movements in the prices of hedging instruments and
the investments being hedged, even a correct forecast by CII of general market
trends may not result in a completely successful hedging transaction.
It is also possible that where a Fund has sold futures contracts to hedge its
portfolio against a decline in the market, the market may advance and the value
of stocks or debt securities held in a Fund's portfolio may decline. If this
occurred, a Fund would lose money on the futures contracts and also experience a
decline in the value of its portfolio securities. Similar risks exist with
respect to foreign currency hedges.
Positions in futures contracts or options may be closed out only on an exchange
on which such contracts are traded. Although the Funds intend to purchase or
sell futures contracts or purchase options only on exchanges or boards of trade
where there appears to be an active market, there is no assurance that a liquid
market on an exchange or
CIGNA Funds Group/CIGNA Institutional Funds Group
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<PAGE>
board of trade will exist for any particular contract or at any particular time.
If there is not a liquid market at a particular time, it may not be possible to
close a futures position or purchase an option at such time. In the event of
adverse price movements under those circumstances, a Fund would continue to be
required to make daily cash payments of maintenance margin on its futures
positions. The extent to which the Fund may engage in futures contracts or
related options will be limited by Internal Revenue Code requirements for
qualification as a regulated investment company and the Fund's intent to
continue to qualify as such. The result of a hedging program cannot be foreseen
and may cause the portfolio of the Fund to suffer losses which it would not
otherwise sustain.
FOREIGN CURRENCY TRANSACTIONS
- -----------------------------
Although they generally will not do so, the Funds may engage in currency
exchange transactions to protect against uncertainty in the level of future
currency exchange rates.
Generally, Funds may engage in both "transaction hedging" and "position
hedging". When a Fund engages in transaction hedging, the Fund enters into
foreign currency transactions with respect to specific receivables or payables,
generally arising in connection with the purchase or sale of portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging a Fund will attempt to protect itself against
a possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
A Fund may purchase or sell a foreign currency on a spot (or cash) basis at the
prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. A Fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes a Fund may also purchase exchange-listed call
and put options on foreign currencies. A put option on currency gives the Fund
the right to sell a currency at a specific exercise price. A call option on
currency gives a Fund the right to purchase a currency at a specific exercise
price. The time when call and put options are exercisable depends on whether
the options are American options or European options. American options are
exercisable at anytime during the option period. European options are
exercisable only on a designated date.
When it engages in position hedging, a Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are
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<PAGE>
denominated or an increase in the value of currency for securities which the
Fund expects to purchase, when the Fund holds cash or short-term investments.
In connection with position hedging, a Fund may purchase put or call options on
foreign currency and foreign currency futures contracts and buy or sell forward
contracts and foreign currency futures contracts. The Funds may also purchase
or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature. For example, it may be necessary for a Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency a Fund is obligated to deliver and a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities if the market value of such security or securities exceeds the amount
of foreign currency a Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which a Fund owns or intends to purchase or sell. They
simply establish a rate of exchange which one can achieve at some future point
in time. Additionally, although these techniques tend to minimize the risk of
loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
Regardless of whether CII (or CIIA, as applicable) determines that it is
advisable to hedge a Fund's currency risk, the Funds will have to convert their
holdings of foreign currencies into U.S. dollars from time to time. Although
foreign exchange dealers generally do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies.
Forward Currency Contracts
- --------------------------
A forward currency contract is an agreement between two parties to purchase and
sell a specific quantity of a currency at a price specified at the time of the
contract, with delivery and settlement at a specified future date. In the case
of purchases of forward currency contracts, an amount of cash and cash
equivalents, equal to the market value of the portfolio security sold, will be
deposited in a segregated account with the Trust's Custodian to collateralize
the position and ensure that the use of such contracts is unleveraged.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a
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<PAGE>
specified fee. The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks and their
customers). A forward contract generally has no deposit requirements, and no
commissions are charged at any stage for trades.
Forward currency contracts are less liquid than currency futures contracts, and
there is an increased risk of default by the counterparty as compared to futures
contracts. Forward currency contracts differ from currency futures contracts in
certain other respects as well. For example, the maturity date of a forward
contract may be any fixed number of days from the date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward currency contracts are traded directly
between currency traders so no intermediary is required. A forward contract
generally requires no margin or other deposit.
At the maturity of a forward contract, the Fund may either accept or make
delivery of the currency specified in the contract, or at or prior to maturity
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract. There is no assurance that the Fund will be able to close a forward
contract prior to maturity and, under such circumstances, the Fund may have
exposure to adverse changes in exchange rates.
Loans and Other Direct Debt Instruments.
- ---------------------------------------
Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to each
Fund's policies regarding the quality of debt securities.
Purchaser of loans and other forms of direct indebtedness depend primarily upon
the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any NRRSO. If a Fund does not
receive scheduled interest or principal payments on such indebtedness, the
Fund's share price and yield could be adversely affected. Loans that are fully
secured offer a Fund more protections than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no assurance
that the liquidation of collateral from a secured loan would satisfy the
borrower's obligation, or that the collateral could be liquidated. Indebtedness
of borrowers whose creditworthiness is poor involves substantially greater risks
and may be highly speculative. Borrowers that are in bankruptcy or
restructuring may never pay off their indebtedness, or may pay only a small
fraction of the amount owed. Direct indebtedness of developing countries also
involves a risk that the government entities responsible for the repayment of
the debt may be unable, or unwilling, to pay interest and repay principal when
due.
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<PAGE>
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a Fund. For
example, if a loan is foreclosed, the Fund could become part owner of any
collateral, and would bear the costs and liabilities associates with owing and
disposing of the collateral. In addition, it is conceivable that under emerging
legal theories of lender liability, the Fund could be held liable as a co-
lender. Direct debt instruments may also involve a risk of insolvency of the
lending bank or other intermediary. Direct debt instruments that are not in the
form of securities may offer less legal protection to a Fund in the event of
fraud or misrepresentation. In the absence of definitive regulatory guidance,
each Fund relies on CII's (or CIIA's, as applicable) research in an attempt to
avoid situations where fraud or misrepresentation could adversely affect the
Fund.
A loan is often administered by a bank or other financial institution that acts
as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, each Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of a Fund were determined to be subject
to the claims of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan participation and
could suffer a loss of principal or interest.
Each Fund (except the Money Market Fund, to a limited degree) limits the amount
of total assets that it will invest in any one issuer or in issues within the
same industry. For purposes of these limitations, each Fund generally will
treat the borrower as the "issuer" of indebtedness held by the Fund. In the
case of loan participations where a bank or other lending institution serves as
financial intermediary between each Fund and the borrower, if the participation
does not shift to the Fund the direct debtor-creditor relationship with the
borrower, SEC interpretations requires the Fund, in appropriate circumstances,
to treat both the lending bank or other lending institution and the borrower as
"issuers" for these purposes. Treating a financial intermediary as an issuer of
indebtedness may restrict a Fund's ability to invest in indebtedness related to
a single financial intermediary, or a group of intermediaries engaged in the
same industry, even if the underlying borrowers represent many different
companies and industries.
Restricted Securities generally can be sold in privately negotiated
- ---------------------
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, a Fund may be obligated to pay all or part of the registration expense
and a considerable period may elapse between the time it decides to seek
registration and the time it may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a Fund might obtain a less favorable price than
prevailed when it decided to seek registration of the security.
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<PAGE>
Securities Lending. A Fund may lend securities to parties such as broker-
- ------------------
dealers or institutional investors.
Securities lending allows a Fund to retain ownership of the securities loaned
and, at the same time, to earn additional income. Since there may be delays in
the recovery of loaned securities, or even a loss of rights in collateral
supplied should the borrower fail financially, loans will be made only to
parties deemed by CII to be of good standing. Furthermore, they will only be
made if, in CII's judgment, the consideration to be earned from such loans would
justify the risk.
CII understands that it is the current view of the SEC Staff that a fund may
engage in loan transactions only under the following conditions: (1) the fund
must receive 100% collateral in the form of cash or cash equivalents (e.g. U.S.
Treasury bills or notes) from the borrower; (2) the borrower must increase the
collateral whenever the market value of the securities loaned (determined on a
daily basis) rises above the value of the collateral; (3) after giving notice,
the fund must be able to terminate the loan at any time; (4) the fund must
receive reasonable interest on the loan or a flat fee from the borrower, as well
as amounts equivalent to any dividends, interest, or other distributions on the
securities loaned and to any increase in market value; (5) the fund may pay only
reasonable custodian fees in connection with the loan; and (6) the Board of
Trustees must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with the
borrower.
Cash received through loan transactions may be invested in any security in which
a Fund is authorized to invest. Investing this cash subjects that investment,
as well as the security loaned, to market forces (i.e., capital appreciation or
depreciation).
Securities of Small Capitalization Companies. Smaller capitalization companies
- --------------------------------------------
may have limited products lines, markets, or financial resources. These
conditions may make them more susceptible to setbacks and reversals. Therefore,
their securities may have limited marketability and may be subject to more
abrupt or erratic market movements than securities of larger companies.
Sovereign Debt Obligations. A Fund may purchase sovereign debt instruments
- --------------------------
issued or guaranteed by foreign governments or their agencies, including debt of
Latin American nations or other developing countries. Sovereign debt may be in
the form of conventional securities or other types of debt instruments such as
loans or loan participations. Sovereign debt of developing countries may
involve a high degree of risk, and may be in default or present the risk of
default. Governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as economic
factors.
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<PAGE>
INVESTMENT RESTRICTIONS
- -----------------------
The Funds are subject to the following restrictions which may not be changed
without approval of the lesser of (i) 67% or more of that Fund's shares present
at a meeting if the holders of more than 50% of the outstanding shares are
present in person or represented by proxy, or (ii) more than 50% of that Fund's
outstanding shares. Any investment restriction that involves a maximum or
minimum percentage of securities or assets shall not be considered to be
violated unless an excess over or a deficiency under the percentage occurs
immediately after, and is caused by, an acquisition or disposition of securities
or utilization of assets by the Fund.
A Fund may not:
1. With respect to 75% of its assets, purchase the securities of any issuer if
such purchase would cause more than 5% of the value of its total assets
(taken at market value at the time of such investment) to be invested in the
securities of such issuer except (a) U.S. Government securities including
securities issued by its agencies and instrumentalities (or repurchase
agreements with respect thereto), and (b) with respect to the Money Market
Fund, to securities or obligations issued by U.S. banks.
2. With respect to 75% of its assets, purchase the securities of any issuer if
such purchase would cause more than 5% of the voting securities, or more
than 10% of the securities of any class of such issuer (taken at the time of
such investment), to be held by the Fund.
3. Concentrate 25% or more of its total assets in a particular industry.
Investing in cash or high quality money market instruments, for defensive
purposes, securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or repurchase agreements secured by these
instruments shall not be considered investments in a particular industry.
In addition, each Money Market Fund may invest up to 100% of its assets (a)
in the domestic banking industry, (b) in the personal credit institution or
business credit institution industries when, in the opinion of management,
yield differentials make such investments desirable, or (c) in any
combination of these.
4. Purchase securities of any company with a record of less than three years'
continuous operation (including that of predecessors) if such purchase would
cause any Fund's aggregate investments in all such companies taken at cost
to exceed 5% of the Fund's total assets taken at market value.
5. Make investments for the purpose of gaining control of a company's
management.
6. Make short sales of securities or maintain a short position for the account
of the Fund unless at all times when a short position
CIGNA Funds Group/CIGNA Institutional Funds Group
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<PAGE>
is open it owns an equal amount of such securities or owns securities
convertible into or exchangeable for securities of the same issuer as, and
equal in amount to, the securities sold short.
7. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities, provided,
however, a Fund may, subject to restrictions described in the prospectus and
elsewhere in this Statement of Additional Information, make margin payments
in connection with transactions in options, futures contracts, financial
futures contracts and related options thereon.
8. Underwrite securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under Federal securities laws.
9. Invest in securities of any issuer if, to the knowledge of the Fund,
officers and trustees of the Trust or officers and directors of its
investment adviser who beneficially own more than 1/2 of 1% of the
securities of that issuer, together own more than 5% of the securities of
such issuer.
10. Lend any funds or other assets, except that a Fund may, consistent with its
investment objective and policies: (a) invest in debt obligations including
bonds, debentures or other debt securities, bankers' aceptances and
commercial paper, even though the purchase of such obligations may be deemed
to be the making of loans, (b) enter into repurchase agreements, and (c)
lend its portfolio securities in an amount not to exceed one-third of the
value of its total assets, provided such loans are made in accordance with
applicable guidelines established by the Securities and Exchange Commission.
11. Borrow money, issue senior securities, or pledge, mortgage or hypothecate
its assets, except that a Fund may (i) borrow to the extent permitted by the
1940 Act, and pledge, mortgage or hypothecate its assets in connection
therewith, and (ii) enter into transactions in options, futures and options
on futures and other derivative instruments (the deposit of assets in escrow
in connection with the writing of covered put and call options and the
purchase of securities on a when-issued or delayed delivery basis,
collateral arrangements with respect to initial or variation margin deposits
for futures contracts, and commitments entered into under swap agreements or
other derivative instruments will not be deemed to be pledged of a Fund's
assets).
12. Purchase or sell mortgages or real estate, or invest in real estate limited
partnerships, although it may purchase securities of issuers that deal in
real estate and may purchase securities that are secured by interests in
real estate.
CIGNA Funds Group/CIGNA Institutional Funds Group
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<PAGE>
13. Purchase or sell commodities or commodities contracts or oil, gas or mineral
programs. This restriction shall not prohibit a Fund from purchasing,
selling or entering into futures contracts, options on futures contracts,
foreign currency forward contracts, foreign currency options, or any
interest rate, securities-related or foreign currency-related derivative
instrument, subject to compliance with any applicable provisions of the
federal securities or commodities laws.
14. Purchase, write or sell options or puts, calls, straddles, spreads or
combinations thereof, however, a Fund may purchase warrants and may
purchase, write or sell options to the extent consistent with its underlying
investment program.
15. Buy or sell oil, gas or other mineral leases, rights or royalty contracts.
TAX MATTERS
- -----------
All shareholders should consult a qualified tax adviser regarding their
investment in a Fund.
Each series of shares of the Trust is treated as a separate association taxable
as a corporation.
Each Fund intends to qualify and elect to be treated under the Internal Revenue
Code of 1986 (the Code), as amended, as a regulated investment company (RIC) for
each taxable year. As of the date hereof, each Fund must, among other things
meet the following requirements: A. Each Fund must generally derive at least
90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities,
foreign currencies, or other income derived with respect to its business of
investing in such stock, securities or currencies. B. Each Fund must derive
less than 30% of its gross income from the sale or disposition of any of the
following held less than three months: i) stock or securities, ii) options,
futures, or forward contracts (other than options, futures, or forward contracts
on foreign currencies), or iii) foreign currencies (or options, futures, or
forward contracts on foreign currencies) but only if such currencies are not
directly related to the Fund's business of investing in stock, securities or
options and futures thereon. Accordingly, the extent to which a Fund may engage
in futures contracts and related options may be materially limited by this 30%
test. C. Each Fund must diversify its holdings so that, at the end of each
fiscal quarter: i) at least 50% of the market value of the Fund's total assets
is represented by cash, U.S. Government securities and other securities, with
such other securities limited, with respect to any one issuer, to an amount not
greater than 5% of the Fund's total assets and not more than 10% of the
outstanding voting securities of such issuer, and ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities).
CIGNA Funds Group/CIGNA Institutional Funds Group
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<PAGE>
Each Fund intends to satisfy requirements under the Code relating to the
distribution of its net income so that, in general, a Fund will not be subject
to Federal income tax (FIT) on its investment company taxable income and net
capital gains designated by the Fund as capital gain dividends, if any, that it
distributes to shareholders on a timely basis. Each Fund intends to distribute
to its shareholders, at least annually, substantially all of its investment
company taxable income and any net capital gains.
Each Fund is subject to a nondeductible 4% excise tax if it does not meet
certain distribution requirements under the Code. To avoid this excise tax,
during each calendar year, a Fund must distribute: 1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, 2) at least 98% of its capital gains in excess of its capital
losses for the twelve month period ending on October 31 of the calendar year,
and 3) all ordinary income and capital gains from previous years that were not
distributed during such years.
Dividends declared to shareholders of record on a date in October, November or
December will be taxable to shareholders in the year declared as long as the
Fund pays the dividends no later than January of the following year.
Section 1092 of the Code affects the taxation of certain transactions involving
futures or options contracts. If a futures or options contract is part of a
"straddle" (which could include another futures or options contract or
underlying stock or securities), as defined in Section 1092 of the Code, then,
generally, losses are deferred first, to the extent that the modified "wash
sale" rules of the Section 1092 regulations apply, and second to the extent of
unrecognized gains on offsetting positions. Further, a Fund may be required to
capitalize, rather than deduct currently, any interest expense on indebtedness
incurred or continued to purchase or carry any positions that are part of a
straddle. Sections 1092 and 246 of the Code and the Regulations thereunder also
suspend the holding periods for straddle positions with possible adverse effects
regarding long-term capital gain treatment and the corporate dividends-received
deduction. In certain cases, the "wash sale" rules of Section 1091 of the Code
may operate to defer deductions for losses.
Section 1256 of the Code generally requires that certain futures and options be
"marked-to-market" at the end of each year for FIT purposes. Section 1256
further characterizes 60% of any gain or loss with respect to such futures and
options as long-term capital gain or loss and 40% as short-term capital gain or
loss. If such a future or option is held as an offsetting position and can be
considered a straddle under Section 1092 of the Code such a straddle will
constitute a mixed straddle. A mixed straddle will be subject to both Section
1256 and Section 1092 unless certain elections are made by the Fund.
Upon a sale or redemption of Fund shares, a shareholder who is not a dealer in
securities will realize gain or loss which will be treated
CIGNA Funds Group/CIGNA Institutional Funds Group
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<PAGE>
as long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. However, if a
shareholder disposes of shares held for six months or less, any loss realized
will be characterized as long-term capital loss to the extent of any capital
gain dividends made to such shareholder prior to such disposition. In addition,
shareholders need to consider the general wash sale rule which may impact
shareholders who sell their shares at a loss and purchase shares within a sixty-
one day time frame.
The Funds may invest in certain foreign currency transactions which may be
subject to taxation under Section 988.
International Stock Fund
- ------------------------
If more than 50% of the value of the Fund's total assets consist of foreign
stock or securities at the close of its taxable year, the Fund may elect to pass
through the credit or deduction for foreign taxes to shareholders who are U.S.
persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts, and estates). As a result, shareholders who want to take
the benefit of the foreign tax credit or deduction on their U.S. income tax
returns would include in gross income, in addition to taxable dividends actually
received from the Fund, their proportionate share of foreign taxes paid by the
Fund. If the Fund makes such an election, it will report to shareholders,
shortly after the end of the taxable year, their proportionate share of gross
foreign source income and foreign taxes paid by the Fund.
The Fund may invest in shares of stock of a foreign entity which is classified
under the Internal Revenue Code as a Passive Foreign Investment Company
("PFIC"). Investments in PFIC's may affect the character of gains, the timing
of recognition of gains or losses, and the amount of gains or losses recognized.
In addition, such investments may subject the Fund to a U.S. federal income tax
which cannot currently be eliminated by making distributions to Fund
shareholders.
A foreign corporation may be classified as a PFIC for a taxable year if 75% or
more of its gross income is passive income or the average holdings of assets
that produce passive income is at least one half of its total assets. Passive
income would include investment income, including but not limited to, interest
and dividend income. Under IRS rules, the Fund may be taxed on its share of
gain from a disposition of the PFIC stock, or an excess distribution from the
PFIC stock whether or not the income is distributed by the Fund to its
shareholders. In general, such gains or excess distributions are held to be
earned ratably over the period the Fund held the PFIC stock. Amounts allocated
to the Fund's prior taxable years will be taxed at the highest corporate rate in
effect for that year and an interest factor will be added to the tax. Excess
distributions and gains from the disposition of the PFIC stock are treated as
ordinary income.
CIGNA Funds Group/CIGNA Institutional Funds Group
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<PAGE>
Where feasible, the Funds intend to make either (1) a qualified electing fund
("QEF") election or (2) a mark-to-market election under IRS rules in order to
avoid the imposition of a Fund level tax on its PFIC holdings.
If a QEF election is made the Fund must include in its gross income its share of
the ordinary earnings and net capital gains from the PFIC shares in the year
that the election is made (and all future years the PFIC stock is held)
regardless of whether distributions are received from the PFIC in the current
year. This income would then be passed through to shareholders.
Under a mark-to-market election, if the fair market value ("FMV") of the Fund's
PFIC shares at the end of its taxable year is greater than the FMV of the shares
at the beginning of its taxable year (or the date of purchase whichever is
later), the difference will be included in the Fund's gross income whether or
not the Fund's shares are sold in that year. This income would then be passed
through to shareholders as ordinary income. Any mark-to-market gain recognized
by the Fund would be added to its tax basis in the PFIC shares. If, however, as
of the end of the Fund's taxable year the FMV of the PFIC shares has decreased
relative to their FMV at the beginning of the year (or the date of purchase
whichever is later), the Fund would not be entitled to recognize the loss.
Shareholders who are not U.S. persons (i.e., U.S. citizens and residents and
U.S. domestic corporations, partnerships, trusts and estates) should consult
their tax advisers regarding U.S. and foreign tax consequences of ownership of
shares of the Fund including the likelihood that distributions to them would be
subject to withholding of U.S. tax at a rate of 30% (or at a lower rate under a
tax treaty).
The Funds will engage in certain foreign currency transactions which may be
subject to taxation under Section 988. Generally, Section 988 requires that
most foreign currency gains and losses be treated as ordinary income and loss,
not capital gain and loss.
Due to the nature of the Funds' investment objectives, it is anticipated that
none of the Fund's ordinary dividends will qualify for the 70% dividends
received deduction for corporate shareholders.
ACTIVITIES OF AFFILIATED COMPANIES
- ----------------------------------
From time to time, as purchases of securities are made for the portfolios of
companies affiliated with CIGNA Corporation it is possible that two or more
portfolios may simultaneously purchase or sell the same security. To the extent
that two or more such portfolios, buying or selling the same security, increase
the total demand or supply, there may be an adverse effect on the price of such
security or on the amount which the Fund can purchase or sell.
CIGNA Funds Group/CIGNA Institutional Funds Group
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<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDER OF SECURITIES
- --------------------------------------------------
All of the outstanding shares of the Funds (other than the International Stock
Fund) are owned by Connecticut General Life Insurance Company, 900 Cottage Grove
Road, Bloomfield, Connecticut 06002. All of the outstanding shares of the
International Stock Fund are owned by Insurance Company of North America, Two
Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania 19192.
MANAGEMENT OF THE TRUSTS
- ------------------------
The Trustees and the executive officers of the Trusts are listed below, together
with information as to their principal occupations during the past five years
and other principal business affiliations. With the exception of Messrs. Forde
and Harris, each currently holds the equivalent position as Trustee and/or
officer of CIGNA High Income Shares and CIGNA Variable Products Group, and holds
a similar position as Director and/or executive officer of INA Investment
Securities, Inc. Correspondence with any Trustee or officer may be addressed to
the Trust, 1380 Main Street, Springfield, Massachusetts 01103.
R. BRUCE ALBRO*, 52, Trustee; Senior Managing Director and Division Head, CIGNA
Portfolio Advisers, a division of CII; Chairman of the Board and President,
CIGNA Funds Group, f/k/a CIGNA Annuity Funds Group and CIGNA Institutional Funds
Group. Mr. Albro is also an officer or director of various other entities which
are subsidiaries or affiliates of CIGNA. Previously Managing Director - Division
Head, CII.
HUGH R. BEATH, 63, Trustee; Previously Managing Director, AdMedia Corporate
Advisors, Inc. and Chairman of the Board of Directors, Beath Advisors, Inc.;
Chairman, President and Chief Executive Officer, ADVO-System, Inc. (presently
known as ADVO, Inc.) (direct mail advertising); Executive Vice President,
Operations, John Blair & Co. (marketing and communications); President,
Specialty Grocery Products Division, R. J. Reynolds Industries (consumer
products); and Vice President and Treasurer, Heublein, Inc. (maker of distilled
spirits).
RUSSELL H. JONES, 51, Trustee; Vice President, Kaman Corporation (helicopters
and aircraft components, scientific research, industrial products and services);
Trustee, Connecticut Policy and Economic Counsel; Corporator, Hartford Seminary;
Secretary, Bloomfield Chamber of Commerce; Director and Senior Fellow, American
Leadership Forum; Corporator, Big Brothers/Big Sisters (Nutmeg).
PAUL J. MCDONALD, 52, Trustee; Senior Executive Vice President and Chief
Administrative Officer, Friendly Ice Cream Corporation (family restaurants/dairy
products); Chairman, Dean's Advisory Council, University of Massachusetts School
of Management; Chairman, Springfield YMCA; Trustee, Springfield College.
Previously, Executive Vice President, Finance and Chief Financial Officer,
Friendly Ice Cream Corporation.
CIGNA Funds Group/CIGNA Institutional Funds Group
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ARTHUR C. REEDS, III*, 51, Trustee; President, CIGNA Investment Management;
President and Director, CIGNA Investment Group, Inc. and CII; Director, CIGNA
International Investment Advisors, Ltd. Mr. Reeds is also an officer or
director of various other entities which are subsidiaries or affiliates of
CIGNA. Previously Managing Director - Division Head, CIGNA Portfolio Advisers,
a division of CII.
ALFRED A. BINGHAM III, 50, Vice President and Treasurer, CIGNA Funds Group
(f/k/a CIGNA Annuity Funds Group) and CIGNA Institutional Funds Group.
Assistant Vice President, CII; previously Senior Vice President and Treasurer,
CIGNA Investments, Inc.; Vice President and Treasurer, CIGNA Capital Brokerage,
Inc.
RICHARD H. FORDE, 42, Managing Director, CIGNA Investment Management -
International Division; Vice President CIGNA Institutional Funds Group;
previously Managing Director, CII; Senior Vice President, CII; Vice President,
CII.
LAWRENCE S. HARRIS, 53, Senior Managing Director, CII; Vice President, CIGNA
Funds Group (f/k/a CIGNA Annuity Funds Group), previously Managing Director-
Division Head, CII; Vice President, CIGNA Funds Group and CIGNA Annuity Funds
Group; Senior Vice President and Director, Alliance Capital Management L.P.
JEFFREY S. WINER, 38, Counsel, CIGNA; Vice President and Secretary, CIGNA Funds
Group (f/k/a CIGNA Annuity Funds Group), and CIGNA Institutional Group;
previously Attorney, CIGNA; Associate, Tarlow, Levy, Harding & Droney (private
law firm).
*Trustees identified with an asterisk are considered interested persons within
the meaning of the 1940 Act because of their affiliation with CIGNA Corporation
or its affiliates.
The Board has created an Audit Committee from among its members which meets
periodically with representatives of Price Waterhouse LLP, independent
accountants for the Trust, a Contracts Committee which, as part of its duties,
considers the terms and the renewal of the Master Investment Advisory Agreement
with CII and the Sub-Advisory Agreement with CIIA, and a Nominating Committee
which considers the identification of new members of the Board and the
compensation of Trustees. The Nominating Committee, Audit Committee and
Contracts Committee consist of Trustees who are not affiliated with CIGNA
Corporation or any of its subsidiaries.
The Trusts pay no compensation to any of its officers, other than the
reimbursement of the costs of the Office of the Treasurer and the Office of the
Secretary, or to any of their Trustees who are officers or employees of CIGNA
Corporation or its affiliates. The following table shows compensation paid by
the Trusts and other investment companies in the CIGNA fund complex to Trust
Trustees in 1995:
CIGNA Funds Group/CIGNA Institutional Funds Group
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<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued As Estimated from Trusts and
Aggregate Part of Annual CIGNA Fund
Name of Person, Compensation Trust Benefits Upon Complex Paid to
Position with Trusts from Trusts Expense Retirement Trustees (d)
- -------------------- ------------ ----------- ------------- ---------------
<S> <C> <C> <C> <C>
R. Bruce Albro, Trustee, $ - $ - $ - $ -
Chairman and President
Hugh R. Beath, Trustee (a) $2,800 - - $21,800
Russell H. Jones, Trustee $ 800 - - $13,150
Paul J. McDonald, Trustee (b) $ 800 - - $13,150
Arthur C. Reeds, III, Trustee - - - -
Worth Loomis* $2,000 - - $12,300
Nathaniel J. Howe* (c) $2,000 - - $12,300
------ ----- ----- -------
$8,400 $ $ $72,700
====== ===== ===== =======
</TABLE>
*Retired April 1995
(a) All of Mr. Beath's 1995 compensation was deferred under a deferred
compensation plan for all CIGNA funds (the "Plan") in which he had an aggregate
balance of $90,019 as of December 31, 1995. The Plan permits Trustees to defer
receipt of all compensation or to revoke the election to defer receipt of
Trustee fees and receive payment directly.
(b) All of Mr. McDonald's 1995 compensation was deferred under a deferred
compensation plan (the "Plan") for all CIGNA funds in which he had an aggregate
balance of $13,838 as of December 31, 1995. The Plan permits Trustees to defer
receipt of all compensation or to revoke the election to defer receipt of
Trustee fees and receive payment directly.
(c) All of Mr. Howe's 1995 compensation was deferred under a deferred
compensation plan for all CIGNA Funds (the "Plan") in which he had an aggregate
balance of $154,087 as of December 31, 1995. The Plan permits Trustees to defer
receipt of all compensation or to evoke the election to defer receipt of Trustee
fees and receive payment directly.
(d) There were three (3) investment companies besides the Trusts in the CIGNA
fund complex.
CIGNA Funds Group/CIGNA Institutional Funds Group
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INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------
The investment adviser to each of the Funds is CII, an indirect, wholly-owned
subsidiary of CIGNA Corporation. CIIA serves as investment sub-adviser to the
International Stock Fund. CII also serves as investment adviser for other
investment companies sponsored by affiliates of CIGNA Corporation, and for a
number of pension, advisory, corporate and other accounts. CII and other
affiliates of CIGNA Corporation manage combined assets of over $70 billion.
CII's mailing address is 900 Cottage Grove Road, Hartford, Connecticut 06152.
Pursuant to Master Investment Advisory Agreements between the Trusts and CII,
CII manages the investment and reinvestment of the assets of the Funds.
Subject to the control and periodic review of the Board of Trustees of the
Trusts, CII (CIIA in the case of the International Stock Fund, Emerging Markets
Stock Fund, Developed Markets Stock Fund and Global Bond Fund) determines what
investments shall be purchased, held, sold or exchanged for the account of the
Funds, and what portion, if any, of the assets of the Funds shall be held in
cash and other temporary investments. Accordingly, the role of the Trustees is
not to approve specific investments, but rather to exercise a control and review
function.
The Trusts pay all expenses not specifically assumed by CII including
compensation and expenses of Trustees who are not Directors, officers or
employees of CII or any other affiliates of CIGNA Corporation; investment
management fees; registration, filing and other fees in connection with filings
with regulatory authorities; the fees and expenses of independent accountants;
costs of printing and mailing registration statements, prospectuses, proxy
statements, and annual and periodic reports to shareholders; custodian and
transfer agent fees; brokerage commissions and securities transactions costs
incurred by the Trust; taxes and corporate fees; legal fees incurred in
connection with the affairs of the Trust; expenses of meetings of the
shareholders and Trustees; and any expenses allocated or allocable to a specific
class of shares.
CII, at its own expense, furnishes to the Trusts office space and facilities
and, except with respect to the Office of the Treasurer and Office of the
Secretary as provided in the Master Investment Advisory Agreements, all
personnel for managing the affairs of the Trust and each of Funds. The Trusts
and other registered investment companies advised by CII have agreed to
reimburse CII for its costs of maintaining the Office of the Treasurer and the
cost of the Office of the Secretary as provided in their respective investment
advisory agreements. CII has estimated that in 1996 the total expenses of the
Office of the Treasurer will not exceed $277,000 and the expenses of the Office
of the Secretary are not expected to exceed $88,000. The portion of these
expenses allocated to each Fund for calendar year 1996 are not expected to
exceed the following amounts:
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<PAGE>
<TABLE>
<CAPTION>
Office of Office of
the Treasurer the Secretary
------------- -------------
<S> <C> <C>
Money Market Fund $14,000 $7,500
Treasury Obligations Cash Fund $14,000 $6,000
Government Obligations Cash Fund $14,000 $6,000
Government Securities Fund $14,000 $6,000
Income Fund $14,000 $7,500
High Yield Fund $14,000 $6,000
CIGNA International Stock Fund $13,000 $7,500
S&P 500 Index Fund $14,000 $6,000
Developed Markets Stock Fund $14,000 $6,000
</TABLE>
In 1995 the costs reimbursed by the Trusts for the Office of the Treasurer and
the Office of the Secretary were $249,441 and $72,254, respectively.
The Board of Trustees of the Trust has approved the method under which this cost
will be allocated to the Trust, and then to each Fund.
As full compensation for the investment management and all other services
rendered by CII and any sub-adviser, each Fund pays CII a separate fee computed
daily and paid monthly at annual rates based on a percentage of the value of the
relevant Fund's average daily net assets, as follows: Income Fund - 0.50%; High
Yield Fund -0.75%; Money Market Fund - 0.35%; Governmental Obligations Cash Fund
- - 0.35%, Treasury Obligations Cash Fund - 0.35%; S&P 500 Index Fund - 0.25%;
Government Securities Fund - .50%; International Stock Fund - 0.80%. Reflecting
the specialized nature of their investment policies, the management fees paid by
the High Yield, International Stock, Emerging Markets Stock, Developed Markets
Stock and Global Bond Funds exceed those paid by most other investment
companies. These fees, however, are comparable to those paid by funds with
similar investment objectives.
Trust-wide expenses not identifiable to any particular Fund will be allocated
among the Funds. CII has voluntarily agreed, until April 30, 1997, to reimburse
the Funds to the extent that the annual operating expenses in any one year
(excluding interest, taxes, amortized organizational expense, transaction costs
in acquiring and disposing of portfolio securities and extraordinary expenses)
of a Fund exceed a percentage of the value of the relevant Fund's average daily
net assets, as follows:
CIGNA Funds Group/CIGNA Institutional Funds Group
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<PAGE>
<TABLE>
<CAPTION>
Institutional Retail
Class Class
------------- ------
<S> <C> <C>
Money Market Fund .45% .70%
Treasury Obligations Cash Fund .45% .70%
Government Obligations Cash Fund .45% .70%
Government Securities Fund .70% 1.00%
Income Fund .70% 1.00%
High Yield Fund .90% 1.20%
International Stock Fund 1.10% 1.45%
S&P 500 Index Fund .35% .45%
</TABLE>
CIGNA Institutional Funds Group incurred a management fee payable to CII of
$57,492, $56,609, and $47,611 in 1995, 1994 and 1993, respectively. However,
due to the expense limitation, CII waived these fees and reimbursed an
additional $46,590, $25,412 and $41,230 to the Fund in 1995, 1994 and 1993,
respectively.
CIGNA Money Market Fund (f/k/a/ CIGNA Annuity Money Market Fund) incurred a
management fee of $26,892, $92,369 and $116,287 in 1995, 1994 and 1993,
respectively. However, due to the expense limitation, CII reimbursed $23,194,
$19,546 and $4,636 to the Fund in 1995, 1994, and 1993, respectively.
CIGNA Income Fund (f/k/a CIGNA Annuity Income Fund) incurred a management fee of
$25,580, $86,634 and $105,148 in 1995, 1994 and 1993, respectively. However,
due to the expense limitation, CII reimbursed $21,690 and $45,267 to the Fund in
1995 and 1994, respectively.
Each Master Investment Advisory Agreement provides that it will continue from
year to year as to a Fund provided that such continuance is specifically
approved at least annually: (a) by a vote of the "majority of the outstanding
voting securities" (as such term is defined in the 1940 Act) of that Fund or by
the Board of Trustees of the Trust, and (b) by a vote of a majority of the
Trustees who are not parties to the agreement or "interested persons" (as
defined in the 1940 Act) of any party thereto, cast in person at a meeting
called for the purpose of voting on such approval. Each Master Investment
Advisory Agreement provides that it (i) may be terminated at any time without
penalty (a) upon 60 days' written notice by vote of the Trustees of the Trust,
or with respect to any Fund, by vote of a majority of the outstanding voting
securities of such Fund, or (b) by CII upon 90 days' written notice to the Trust
in the case of the Master Investment Advisory Agreement and (ii) will
automatically terminate in the event of its "assignment" (as such term is
defined in the 1940 Act).
Each Master Trust Agreement acknowledges CIGNA Corporation's control over the
name "CIGNA". The Trust and the Fund would be obliged to change their names to
eliminate the word "CIGNA" (to the extent they could lawfully do so) in the
event CIGNA Corporation were to withdraw its permission for use of such name.
CIGNA Corporation has agreed not to withdraw such permission from the Trust or a
series of the Trust so long as an affiliate of CIGNA Corporation shall be the
investment adviser for such series.
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 34
<PAGE>
The Trusts' Custodian and Transfer Agent is State Street Bank and Trust
Company ("State Street"), Boston, Massachusetts 02107. Under its Custodian
Agreement, State Street maintains the portfolio securities of each Fund,
administers the purchases and sales of portfolio securities, collects interest
and dividends and other distributions made on the securities held in the
portfolio, determines the net asset value of shares of each Fund on a daily
basis and performs such other ministerial duties as are included in the
Custodian Agreement and Agency Agreement, copies of which are on file with the
Securities and Exchange Commission.
Price Waterhouse LLP acts as independent accountants for the Trusts. Its
offices are at 160 Federal Street, Boston, Massachusetts 02110. Price
Waterhouse LLP representatives annually perform an audit of the financial
statements of the Trust and provide accounting advice and services throughout
the year. Price Waterhouse LLP reports its activities and the results of its
audit to the Audit Committee of the Board of Trustees. Price Waterhouse LLP
also provides certain tax advice to the Trust.
PORTFOLIO TURNOVER AND BROKERAGE ALLOCATION
- -------------------------------------------
It is anticipated that each Fund's annual portfolio turnover rate will not
exceed 100%.
With respect to Fund transactions, it is the policy of CII and CIIA (the
"Advisers") on behalf of their clients, including the Funds, to have purchases
and sales of portfolio securities executed at the most favorable prices,
considering all costs of the transaction, including brokerage commissions and
spreads, and research services, consistent with obtaining best execution.
In seeking best execution, the Advisers will select brokers/dealers on the basis
of their professional capability and the value and quality of their brokerage
services. Brokerage services include the ability to execute most effectively
large orders without adversely affecting markets and the positioning of
securities in order to effect orderly sales for clients.
The officers of the Advisers will determine, generally without limitation, the
brokers/dealers through whom, and the commission rates or spreads at which,
securities transactions for client accounts are executed. The officers of the
Advisers may select a broker/dealer who may receive a commission for portfolio
transactions exceeding the amount another broker/dealer would have charged for
the same transaction if they determine that such amount of commission is
reasonable in relation to the value of the brokerage or research services
performed or provided by the executing broker/dealer, viewed in terms of either
that particular transaction or the Advisers' overall responsibilities to the
client for whose account such portfolio transaction is executed and other
accounts advised by the Advisers or accounts advised by other investment
advisers which are related persons of the Advisers.
A portion of the securities in which certain Funds invest may be traded in over-
the-counter ("OTC") markets, and in such transactions, the Fund deals directly
with the dealer who makes
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 35
<PAGE>
markets in the securities involved, except in those circumstances where better
prices and executions are available elsewhere. Portfolio transactions placed
through dealers serving as primary market makers are effected at net prices,
without commissions as such, but which include compensation in the form of mark
up or mark down.
Foreign equity securities may be held by a Fund in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or other
securities representing underlying securities of foreign issuers, or securities
convertible into foreign equity securities. These securities may not
necessarily be denominated in the same currency as the securities into which
they converted. ADRs are securities issued by a foreign corporation. EDRs are
receipts issued in Europe which evidence a similar ownership arrangement.
Generally, ADRs, in registered form, are designed for use in the United States
and EDRs may be listed on stock exchanges, or traded in OTC markets in the
United States or Europe, as the case may be. ADRs, like other securities traded
in the United States, will be subject to negotiated commission rates.
If two or more brokers/dealers are considered able to offer the same favorable
price with the equivalent likelihood of best execution, the officers of the
Advisers may prefer the broker/dealer who has furnished research services.
Research services include market information, analysis of specific issues,
presentation of special situations and trading opportunities on a timely basis,
advice concerning industries, economic factors and trends, portfolio strategy
and performance of accounts. Research services are used in advising all
accounts, including accounts advised by related persons of the Advisers, and not
all such services are necessarily used by the Advisers in connection with the
specific account that paid commissions to the broker/dealer providing such
services.
The overall reasonableness of brokerage commissions paid is evaluated
continually. Such evaluation includes review of what competing brokers/dealers
are willing to charge for similar types of services and what discounts are being
granted by brokerage firms. The evaluation also considers the timeliness and
accuracy of the research received.
In addition, the Advisers may, if permitted by applicable law, use brokerage
commissions to pay for products or services (other than brokerage and research
services) obtained from broker/dealers and third parties in accordance with SEC
Release 34-23170 dated April 23, 1986. Pursuant to that Release, products and
services which provide lawful and appropriate assistance to the Advisers'
investment decision-making process may be paid for with brokerage commissions to
the extent such products and services are used in that process. Where the
research service product has a mixed use, that is, the product may serve a
number of functions certain of which are not related to the making of investment
decisions, the Advisers allocate the cost of the product on a basis which they
deem reasonable, according to the various uses of the product, and maintain
records documenting the allocation process followed. Only that portion of the
cost of the product allocable to research
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 36
<PAGE>
services is paid through credit earned from the Fund's brokerage business. The
Advisers will not acquire research services through the generation of credits
with respect to the Funds' principal transactions or transactions in financial
futures, except in new issue fixed price underwritings. During 1993, 1994 and
1995, brokerage commissions paid by the CIGNA Institutional Funds Group amounted
to $57,492, $56,609 and $47,611, respectively, substantially all of which was
paid to firms which provide research services to the Advisers. CIGNA Money
Market Fund and CIGNA Income Fund paid no brokerage commissions in 1993, 1994 or
1995.
As of December 31, 1995, Sanford C. Bernstein & Co., Inc. ("SCB") reported
ownership of approximately 7.40% of the outstanding common stock of CIGNA
Corporation. In addition, FMR Corp. ("FMR") reported ownership of approximately
7.70% of the outstanding common stock of CIGNA as of December 31, 1995.
Accordingly, CIGNA may be deemed to be an affiliated person of SCB and FMR
pursuant to the provisions of the 1940 Act. As long as CIGNA may be deemed to
be an affiliated person of SCB or FMR, a Fund will not engage in any transaction
with SCB or FMR when SCB or FMR is acting for their own account and will engage
in brokerage transactions with SCB and FMR only under circumstances where the
commission, spread or profit received by the broker is fair and reasonable
pursuant to rules established by the Securities and Exchange Commission and
procedures adopted and monitored by the Board of Trustees of the Trust. During
1995, the Funds did not engage in brokerage transactions with SCB or FMR.
Neither the Trust nor the Advisers presently allocate brokerage commissions to,
or place orders for portfolio transactions with, either directly or indirectly,
brokers or dealers based on their sales of Fund shares. Except as noted,
neither the Trust nor the Advisers utilize an affiliated broker or dealer in
effecting Fund portfolio transactions and do not recapture commissions paid in
such transactions.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES
- ----------------------------------------------
Each Fund reserves the right to revise its redemption procedures on 30-days'
notice. Each Fund may suspend redemptions or postpone the date of payment
during any period when: (a) the New York Stock Exchange is closed for other
than customary weekend and holiday closings or trading on such Exchange is
restricted; (b) the Securities and Exchange Commission has by order permitted
such suspension for the protection of the Fund's shareholders; or (c) an
emergency exists as determined by the Securities and Exchange Commission making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable.
A Fund's net asset value is calculated by dividing the number of outstanding
shares into the net assets of the Fund. Net assets are the excess of a Fund's
assets over its liabilities.
Money Market Funds. The investments of the Money Market Fund are generally
- -------------------
valued at amortized cost. The amortized cost of an instrument is determined by
valuing it at cost originally and thereafter amortizing any discount or premium
from its face value
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 37
<PAGE>
at a constant rate until maturity, regardless of the effect of fluctuating
interest rates or other factors on the market value of the instrument. The
amortized cost method may result at times in determinations of value that are
higher or lower than the price the Fund would receive if the instruments were
sold. During periods of declining interest rates, use by the Fund of the
amortized cost method of valuing its portfolio may result in a lower value than
the market value of the portfolio, which could be an advantage to new investors
relative to existing shareholders. The converse would apply in a period of
rising interest rates.
The valuation of the investments of the Money Market Fund at amortized cost is
permitted by the Securities and Exchange Commission, and the Funds are required
to adhere to certain conditions so long as it uses this valuation method. The
Money Market Funds will maintain a dollar-weighted average portfolio maturity of
90 days or less, will purchase only instruments having remaining maturities of
397 days or less (except as permitted under Rule 2a-7 of the 1940 Act with
respect to variable and floating rate instruments) and will invest only in
securities determined by the Board of Trustees to be of high quality with
minimal credit risks. The Board of Trustees has also established procedures
reasonably designed, taking into account current market conditions and the
Fund's investment objective, to stabilize the Fund's price per share as computed
for the purpose of distribution, redemption and repurchase at $1.00. Such
procedures include a review of the Fund's portfolio holdings by the Board of
Trustees, at such intervals as they may deem appropriate, to determine whether
the Fund's net asset value, calculated by using readily available market
quotations, deviates from $1.00 per share, and, if so, whether such deviation
may result in material dilution or is otherwise unfair to existing shareholders.
In the event the Board of Trustees determines that such a deviation exists, it
will take such corrective action as it deems necessary and appropriate,
including selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding dividends;
redeeming shares in kind; or establishing a net asset value per share by using
readily available market quotations in which case, the net asset value could
possibly be greater or less than $1.00 per share.
Income Fund, High Yield Fund, S&P 500 Index Fund, Government Securities Fund and
- --------------------------------------------------------------------------------
International Stock Fund, Information describing the valuation of securities
- --------------------------
held in these Funds is found in the prospectus under "Computation of Net Asset
Value."
DIVIDENDS
- ---------
Information concerning dividends is found in the current prospectus for the
Funds.
PERFORMANCE INFORMATION
- -----------------------
Total return figures for the Funds are neither fixed nor guaranteed, and a
Fund's principal is not insured. Performance quotations reflect historical
information and should not be considered representative of a Fund's performance
for any period in
CIGNA Funds Group/CIGNA Institutional Funds Group
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<PAGE>
the future. Performance is a function of a number of factors which can be
expected to fluctuate. Each Fund may provide performance information in
reports, sales literature and advertisements. Each Fund may also, from time to
time, quote information about the Fund published or aired by publications or
other media entities which contain articles or segments relating to investment
results or other data about the Fund. The following is a list of such
publications or media entities:
Advertising Age Financial Times Kiplinger
Barron's Financial Weekly Money
Barron's/Nelson's Financial World Mutual Fund Forecaster
Best's Review Forbes Nation's Business
Broker World Fortune New York Times
Business Week Global Investor Pension World
Changing Times Hartford Courant Pensions & Investments
Christian Science Monitor Institutional Investor Personal Investor
Consumer Reports Insurance Forum Philadelphia Inquirer
Economist Insurance Weekly The Times (London)
Equity International International Business USA Today
FACS of the Week Week U.S. News & World Report
Far Eastern Investing Wall Street Journal
Economic Review Investor's Chronicle Washington Post
Financial Adviser Investor's Daily CNN
Financial Planning Journal of the American CNBC
Financial Product News Society of CLu & ChFC PBS
Financial Services Week
Each Fund may also compare its performance to performance data of similar mutual
funds as published by the following services:
Bank Rate Monitor
Lipper Analytical Services Stanger Report
CDA Investment Technologies, Inc. Weisenberger
Frank Russell Co. Micropal, Ltd.
InterSec Research Donoghues
Mutual Fund Values (Morningstar)
Each Fund's performance may also be compared in advertising to the performance
of comparative benchmarks such as the following:
Standard & Poor's 400 Index
Standard & Poor's 500 Stock Index Bond Buyer Index
Dow Jones Industrial Average NASDAQ
EAFE Index COFI
Consumer Price Index First Boston High Yield Index
Lehman Bond Indices
Each Fund May also compare its performance to rates on Certificates of Deposit
and other fixed rate investments such as the following:
10 year Treasuries
30 year Treasuries
90 day Treasury Bills
Advertising for a Fund may from time to time include discussions of general
economic conditions and interest rates, and may also include references to the
use of those Funds as part of an individual's overall retirement investment
program. From time to time, sales literature and/or advertisements for any of
the Funds may disclose the largest holdings in the Fund's portfolio.
CIGNA Funds Group/CIGNA Institutional Funds Group
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<PAGE>
From time to time, the Funds' sales literature and/or advertisements may discuss
generic topics pertaining to the mutual fund industry. This includes, but is
not limited to, literature addressing general information about mutual funds,
variable annuities, dollar-cost averaging, stocks, bonds, money markets,
certificates of deposit, retirement, retirement plans, asset allocation, tax-
free investing, college planning, inflation.
Although performance data may be useful to prospective investors in comparing
with other funds and other potential investments, investors should note that the
methods of computing performance of other potential investments are not
necessarily comparable to the methods employed by the Fund.
Total Return Quotations
- -----------------------
The standard formula for calculating total return, as described in the
prospectus, is as follows:
P (1 + T) to the power of n = ERV
Where P = A hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the 1, 5, or 10 year periods
(or fractional portion of such period).
Cumulative total return across a stated period may be calculated as follows:
P (1 + V) = ERV
Where P = A hypothetical initial payment of $1,000.
V = cumulative total return.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
The average annual total returns for each of the named Funds, for the 1, 5 and
10 year periods (or since inception, if shorter) ended December 31, 1995, were
as follows:
<TABLE>
<CAPTION>
Periods ended December 31, 1995
----------------------------------
1 Year 5 Years 10 Years
--------- ---------- -----------
<S> <C> <C> <C>
CIGNA Income Fund................ 16.21% 10.02% 9.57%
CIGNA International Stock Fund*.. 3.40%
CIGNA Money Market Fund.......... 5.33% 4.04% 5.71%
</TABLE>
*The inception date of CIGNA International Stock Fund was January 11, 1993. Its
average annual return since inception was 15.07%.
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 40
<PAGE>
Yield Quotations
- ----------------
The standard formula for calculating yield for each Fund except the CIGNA Money
Market Funds, as described in the Prospectus, is as follows:
YIELD = 2[((a - b)/(c x d) + 1) )(to the power of 6) - 1]
Where a = dividends and interest earned during a stated 30-day period. For
purposes of this calculation, dividends are accrued rather than
recorded on the ex-dividend date. Interest earned under this formula
must generally be calculated based on the yield to maturity of each
obligation (or, if more appropriate, based on yield to call date).
b = expenses accrued during period (net of reimbursement).
c = the average daily number of shares outstanding during the period.
d = the maximum offering price per share on the last day of the period.
The yield for CIGNA Income Fund was as follows:
30 Days ended December 31, 1995
-------------------------------
CIGNA Income Fund.......................... 4.40%
The standard formula for calculating annualized yield for the CIGNA Money Market
Fund, as described in the Prospectus, is as follows:
V\\1\\ - V\\o\\ 365
Y = --------------- x ---
V\\o\\ 7
Where Y = 7 day annualized yield.
V\\o\\ = V\\o\\ the value of a hypothetical pre-existing account in
the Fund having a balance of one share at the beginning of
a stated seven-day period.
V\\1\\ = the value of such an account at the end of the stated
period.
V1 - V\\o\\
----------- = base period return.
V\\o\\
The annualized yield for the CIGNA Money Market Fund for the 7 days ended
December 31, 1995 was 4.53%.
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 41
<PAGE>
The standard formula for calculating effective annualized yield for the CIGNA
Money Market Funds, as described in the Prospectus, is as follows:
EY = (Y + 1) (to the power of 365/7) - 1
Where EY = effective annualized yield.
Y = base period return.
The effective annualized yield for CIGNA Money Market Fund for the 7 days ended
December 31, 1995 was 4.63%.
For the purpose of the annualized yield and effective annualized yield, the net
change in the value of the hypothetical CIGNA Money Market Fund account reflects
the value of additional shares purchased with dividends from the original shares
and any such additional shares, and all fees charged (if any), other than non-
recurring account charges, to all shareholder accounts in proportion to the
length of the base period and the Fund's average account size, but does not
include realized gains and losses or unrealized appreciation and depreciation.
REDEMPTIONS PAID IN CASH
- ------------------------
Pursuant to Rule 18f-1 under the Investment Company Act of 1940, as amended,
each Fund has committed to pay in cash all requests for redemption by any
shareholder of record, limited in amount with respect to each shareholder during
any 90 day period to the lesser of $250,000 or 1% of the net assets of the Fund
at the beginning of such period. This election is irrevocable while such Rule
is in effect unless the Securities and Exchange Commission by order upon
application permits the withdrawal of the Fund's notification of election.
Redemptions by any one shareholder during any 90 day period in excess of
$250,000 or 1% of the net assets of the Fund may be made in readily marketable
securities.
CLASSES OF SHARES
- -----------------
Each Fund offers two classes of shares: the institutional class and the retail
class. Retail class shares pay service fees to CIGNA Financial Advisors, Inc.
("CFA"), its affiliates or independent service providers for services provided
to shareholders of that class.
Each Trust has adopted a Dual Class Plan pursuant to Rule 18f-3 under the 1940
Act. Under the Plan, shares of each class of a Fund represent an equal pro rata
interest in such Fund and, generally, have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions, limitations,
qualifications and terms and conditions, except that: (a) each class has a
different designation; (b) each class of shares bears any class-specific
expenses allocated to it; and (c) the retail class has exclusive voting rights
on any matter submitted to shareholders that relates solely to its service
arrangement, and each class has separate voting
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 42
<PAGE>
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class.
UNDERWRITER
- -----------
CFA serves as the Trusts' distributor pursuant to Distribution Contracts
("Distribution Contracts") which are subject to annual approval by the Board of
Trustees. CFA is an indirect, wholly-owned subsidiary of CIGNA Corporation.
The Distribution Contract is terminable with respect to a Fund without penalty,
at any time, by the Trust upon 60 days' written notice to CFA or by CFA upon 60
days' notice, to the Trust. CFA is not obligated to sell any specific amount of
Trust shares.
SERVICE FEES
- ------------
Each Trust has adopted an Administrative Services Plan with respect to the
retail class shares of each Fund. Under the terms of each Plan, the Trusts are
permitted to pay CFA, its affiliates or independent service provides, out of the
retail class assets of each Fund, for providing services such as receiving,
aggregating and processing shareholder orders; furnishing shareholder sub-
accounting; providing and maintaining retirement plan records; acting as the
sole shareholder of record and nominee for shareholders; communicating
periodically with shareholders and forwarding shareholder communications;
maintaining accounting records for shareholders; answering questions and
handling correspondence from shareholders about their accounts; and performing
similar account administrative services.
Each Plan provides that it may not take effect until approved by vote of a
majority of both (i) the Trustees of the Trust and (ii) the Trustees
unaffiliated with CIGNA Corporation (the "Plan Trustees"). The Plans were
approved by the Trustees, including the Plan Trustees, at a meeting held
_____________________, 1996.
Each Plan provides that any person authorized to direct the disposition of
monies paid or payable by a class pursuant to the Plan or any related agreement
shall provide to the Trustees, and the Board shall review at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.
DESCRIPTION OF MONEY MARKET INSTRUMENTS
- ---------------------------------------
U.S. GOVERNMENT DIRECT OBLIGATIONS--issued by the U.S. Treasury and include
bills, notes, and bonds.
- Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable
at par value at maturity.
- Treasury notes are longer-term interest bearing obligations with
original maturities of one to ten years.
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 43
<PAGE>
- Treasury bonds are longer-term interest bearing obligations with
original maturities from ten to thirty years.
BANKERS' ACCEPTANCES--A bankers' acceptance is a bill of exchange or time draft
drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange. When
the draft is accepted by a bank, the bank guarantees to pay the face value of
the instrument on its maturity date. An investor can purchase a bankers'
acceptance in the secondary market at the going rate of discount for a specific
maturity. In addition to purchasing bankers acceptances from domestic branches
and foreign branches of U.S. commercial banks, bankers' acceptances denominated
in each case in U.S. dollars, may be purchased from foreign branches and U.S.
branches of foreign banks having at least one billion dollars (U.S.) of assets.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT--A certificate of deposit (CD) is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market, prior to maturity. The Fund
may invest in U.S. dollar denominated CD's issued by domestic branches and
foreign branches of U.S. banks which are members of the Federal Reserve System;
by foreign branches and U.S. branches of foreign banks and by U.S. domiciled
savings and loan institutions having in each case at least one billion dollars
(U.S.) of assets. CD's issued by foreign branches of U.S. banks are called
"Eurodollar CD's" while CD's issued by U.S. branches of foreign banks are called
"Yankee CD's."
TIME DEPOSITS--A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits denominated in U.S. dollars or
other currencies may be purchased from domestic branches and foreign branches of
U.S. banks which are members of the Federal Reserve System (not including
savings and loan institutions) and from foreign branches and U.S. branches of
foreign banks having at least one billion dollars (U.S.) of assets. The Fund
shall not invest in time deposits maturing in more than seven days.
U.S. dollar denominated certificates of deposit, time deposits and bankers'
acceptances issued by foreign branches of U.S. banks or by foreign banks either
in the U.S. or abroad may present investment risks in addition to the risks
involved in investments in obligations of, or guaranteed by, domestic banks.
Such risks include future political and economic developments, the possible
imposition of withholding taxes on interest income payable on such obligations,
the possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls or the adoption of other governmental
restrictions. Generally, foreign branches of U.S. banks and U.S. branches of
foreign banks are subject to fewer U.S. regulatory restrictions than are
applicable to domestic banks, and foreign branches of U.S. banks may be subject
to less stringent
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 44
<PAGE>
reserve requirements than domestic banks. U.S. branches of foreign banks and
foreign branches of U.S. banks may provide less public information than, and may
not be subject to the same accounting, auditing and financial record-keeping
standards as, domestic banks. Foreign branches of foreign banks generally would
not be subject to any U.S. regulatory restrictions or disclosure, financial
record-keeping or accounting requirements.
COMMERCIAL PAPER--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other business entities.
Maturities on these issues vary from a few days to nine months. Commercial
paper may be purchased from U.S. domiciled issuers. Commercial paper may also
be purchased from foreign issuers issued either in the U.S. ("Yankee" commercial
paper) or abroad.
OTHER CORPORATE OBLIGATIONS--The Fund may purchase notes, bonds and debentures
issued by corporations and other business entities if at the time of purchase
there is less than one year remaining until maturity or if they carry a variable
or floating rate of interest.
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain debt instruments in which the
Fund invests may carry variable or floating rates of interest. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
RATINGS OF SECURITIES
- ---------------------
Description of Standard & Poor's Corporation ("S&P") and Moody's Investors
Service, Inc. ("Moody's") commercial paper and bond ratings:
COMMERCIAL PAPER RATINGS--S&P commercial paper ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Issues assigned an "A" rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2, and 3 to indicate the relative degree of safety. The two highest
categories, A-1 and A-2, are described as follows:
"A-1" This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics will be
denoted with a plus (+) sign designation.
"A-2" Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated "A-1."
Moody's employs three designations, all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers. The two highest
designations are as follows:
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 45
<PAGE>
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
/./ Leading market positions in well-established industries.
/./ High rates of return on funds employed.
/./ Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
/./ Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
/./ Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
BOND RATINGS--S&P describes its ratings for corporate bonds as follows:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Moody's describes its ratings for bonds as follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure.
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 46
<PAGE>
While the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
CIGNA Funds Group/CIGNA Institutional Funds Group
Page 47
<PAGE>
REGISTRATION STATEMENT
on
FORM N-1A
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
- -------------------------------------------
(a) Financial Statements:
PART A:
None
PART B:
The following Financial Statements are incorporated by reference into Part B
from the Annual Report to shareholders of the series of shares of CIGNA
Funds Group (f/k/a CIGNA Annuity Funds Group) known as CIGNA Money Market
Fund (f/k/a CIGNA Annuity Money Market Fund) and CIGNA Income Fund (f/k/a
CIGNA Annuity Money Market Fund) for the year ended December 31, 1995 and
filed electronically with the Securities and Exchange Commission on March 6,
1996:
Investments In Securities, December 31, 1995
Statements of Assets and Liabilities, December 31, 1995
Statements of Operations, Year-ended December 31, 1995
Statements of Changes in Net Assets, Years-ended December 31, 1995 and
1994
Notes to Financial Statements
(b) Exhibits
* (1) The First Amended and Restated Master Trust Agreement dated as
of March 1, 1996.
(2) The By-Laws of Registrant dated as of April 10, 1985, incorporated
by reference to Post-Effective Amendment No. 33 to Registrant's
Registration Statement filed September 10, 1985.
(2a) Amendment No. 1 to By-Laws of Registrant dated as of October 25,
1988, incorporated by reference to Post-Effective Amendment No. 52
to Registrant's Registration Statement filed May 3, 1994.
(2b) Amendment No. 2 to By-Laws of Registrant dated as of October 27,
1992, incorporated by reference to Post-Effective Amendment No. 52
to Registrant's Registration Statement filed May 3, 1994.
(2c) Amendment No. 3 to By-Laws of Registrant dated as of February 11,
1994, incorporated by reference to Post-Effective Amendment No. 52
to Registrant's Registration Statement filed May 3, 1994.
(3) None.
(4) Relative to the rights of shareholders, Article IV and Article V
of Registrant's First Amended and Restated Master Trust Agreement
dated as of March 1, 1996 filed hereinbefore as Exhibit (1).
(4a) Relative to the rights of shareholders, the form of Dual Class
Plan Pursuant to Rule 18f-3 for CIGNA Funds Group as hereinafter
filed as Exhibit (18).
- 1 -
<PAGE>
(5) The Master Investment Advisory Agreement dated as of April 26,
1988, incorporated by reference to Post-Effective Amendment No. 44 to
Registrant's Registration Statement filed April 28, 1988.
* (5a) Form of Side Letter to the Master Investment Advisory
Agreement between CIGNA Funds Group and CIGNA Investments, Inc.
* (5b) Form of First Amended and Restated Master Investment Advisory
Agreement dated as of January 1, 1996 between CIGNA Funds Group and
CIGNA Investments, Inc.
(6) Form of Distribution Agreement between CIGNA Funds Group and CIGNA
Financial Advisors, Inc., to be added by amendment.
(7) None.
(8) The Custodian Contract dated as of October 15, 1987 between CIGNA
Annuity Funds Group (n/k/a CIGNA Funds Group) and State Street Bank
and Trust Company, incorporated by reference to Post-Effective
Amendment No. 47 to Registrant's Registration Statement filed May 2,
1990.
* (8a) Form of Side Letter to the Custodian Contract between CIGNA
Funds Group and State Street Bank and Trust Company.
(9) The Transfer Agency and Service Agreement dated as of July 30,
1985 between CIGNA Annuity Funds Group (n/k/a CIGNA Funds Group) and
State Street Bank and Trust Company, incorporated by reference to
Post-Effective Amendment No. 33 to Registrant's Registration
Statement filed September 10, 1985.
* (9a) Form of Side Letter to the Transfer Agency and Service
Agreement between CIGNA Funds Group and State Street Bank and Trust
Company.
(9b) The Agreement For Use Of The Term "CIGNA" dated April 30, 1985
between CIGNA Annuity Funds Group (n/k/a CIGNA Funds Group) and
CIGNA Corporation, incorporated by reference to Post-Effective
Amendment No. 33 to Registrant's Registration Statement filed
September 10, 1985.
* (9c) Form of Trustees' Deferred Fee Agreement.
* (9d) Form of Shareholder Services Plan between CIGNA Funds Group
and CIGNA Financial Advisors, Inc.
(10) Consent of Counsel, to be filed by amendment.
(11) Consent of Price Waterhouse LLP, to be filed by amendment.
(12) None.
(13) None.
(14) None.
(15) None.
(16) None.
(17) Financial Data Schedule, to be filed by amendment.
- 2 -
<PAGE>
* (18) Form of Dual Class Plan Pursuant to Rule 18f-3 for CIGNA Funds
Group.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
- ----------------------------------------------------------------------
As of the date hereof, no person is directly controlled by CIGNA Funds Group
(f/k/a CIGNA Annuity Funds Group). All of the outstanding shares of CIGNA Money
Market Fund (f/k/a CIGNA Annuity Money Market Fund) and CIGNA Income Fund (f/k/a
CIGNA Annuity Income Fund) are owned by Connecticut General Life Insurance
Company, a Connecticut Corporation and an indirect, wholly-owned subsidiary of
CIGNA Corporation.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
- ----------------------------------------
As of April 1, 1996:
<TABLE>
<CAPTION>
Number of Record Holders
------------------------
Name and Series Institutional Class Retail Class
- --------------- ------------------- ------------
<S> <C> <C>
CIGNA Government Obligations Cash Fund -0- -0-
CIGNA Government Securities Fund -0- -0-
CIGNA High Yield Fund -0- -0-
CIGNA Income Fund -0- -1-
CIGNA Money Market Fund -0- -1-
CIGNA S&P 500 Index Fund -0- -0-
CIGNA Treasury Obligations Cash Fund -0- -0-
</TABLE>
ITEM 27. INDEMNIFICATION.
- ------------------------
The First Amended and Restated Master Trust Agreement, dated as of March 1, 1996
(the "Master Trust Agreement"), provides, among other things, for the
indemnification out of Registrant's assets (or the assets of a series of
Registrant where applicable) of the Trustees and officers of Registrant against
all liabilities incurred by them in such capacity, except for liability by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of their duties. Trustees may consult counsel or other experts concerning the
meaning and operation of the Master Trust Agreement, and may rely upon the books
and records of Registrant. Trustees are not liable for errors of judgment,
mistakes of fact or law, or for the negligence of other Trustees or Registrant's
officers or agents.
Trustees are not required to give a bond or other security for the performance
of their duties. Payments in compromise of any action brought against a Trustee
or officer may be paid by Registrant if approved by either a majority of
disinterested Trustees or by independent legal counsel. The right of
indemnification under the Master Trust Agreement is not exclusive of any other
rights to which the Trustees or officers may be entitled.
The Master Trust Agreement also provides that shareholders shall be indemnified
and held harmless by the applicable series of Registrant with respect to actions
brought against them in their capacity as shareholders. Also, the Master Trust
Agreement provides that creditors of a series of Registrant may look only to the
assets of that series for payment; and neither shareholders nor Trustees shall
be personally liable therefor. All instruments executed on behalf of Registrant
are required to contain a statement to the effect of the foregoing.
CIGNA Investments, Inc., Registrant and other investment companies managed by
CIGNA Investments, Inc., their officers, trustees, directors and employees (the
"Insured Parties") are insured under an Investment Management Errors and
______________________
* Filed herewith.
- 3 -
<PAGE>
Omissions Insurance Policy in the amount of $10,000,000 offered by Lexington
Insurance Company, an affiliate of American International Group on a joint
policy basis with CIGNA Investments, Inc. and CIGNA International Investment
Advisors, Ltd.
In addition, Registrant and other investment companies managed by CIGNA
Investments, Inc. and CIGNA International Investment Advisors, Ltd. are insured
under a National Union Fire Insurance Company of Pittsburgh, PA Investment
Company Blanket Bond with a stated maximum coverage of $10,000,000. Premiums
and policy benefits are allocated among participating companies pursuant to Rule
17g-1(d) under the Investment Company Act of 1940, as amended.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.
- ---------------------------------------------------------------
As of the date hereof, CIGNA Investments, Inc. ("CII") serves as investment
adviser to seven series of shares of CIGNA Funds Group (f/k/a/ CIGNA Annuity
Funds Group), known as CIGNA Government Obligations Cash Fund, CIGNA Government
Securities Fund, CIGNA High Yield Fund, CIGNA Income Fund (f/k/a CIGNA Annuity
Income Fund), CIGNA Money Market Fund (f/k/a CIGNA Annuity Money Market Fund),
CIGNA S&P 500 Index Fund and CIGNA Treasury Obligations Cash Fund; to CIGNA
Institutional Funds Group and its series of shares known as CIGNA International
Stock Fund; to CIGNA Variable Products Group and its five series of shares known
as CIGNA Variable Products High Yield Fund, CIGNA Variable Products Income Fund,
CIGNA Variable Products International Stock Fund, CIGNA Variable Products Money
Market Fund and CIGNA Variable Products S&P 500 Index Fund (f/k/a Companion
Fund); and to CIGNA High Income Shares (CIGNA Funds Group (f/k/a CIGNA Annuity
Funds Group), CIGNA High Income Shares, CIGNA Institutional Funds Group and
CIGNA Variable Products Group collectively known as the "Trusts"); and INA
Investment Securities, Inc. ("IIS"), all of which (except for IIS and CIGNA High
Income Shares) are open-end investment companies, and to certain other clients,
most of which are affiliated with CIGNA Corporation. For a description of the
business of CII, see its most recent Form ADV (File No. 801-18094) filed with
the Securities and Exchange Commission. The principal address of each of the
foregoing companies is as follows:
CII - 900 Cottage Grove Road, Bloomfield, Connecticut 06002
The Trusts and each of their series of shares - 1380 Main Street,
Springfield, Massachusetts 01103
IIS - Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania
19192
Substantial business and other connections of the directors and officers of CII
during the past two fiscal years are listed below:
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ----------------------------------------------
<S> <C>
Harold W. Albert Director and Counsel, CII; Director, CIGNA
International Investment Advisors, Ltd.**;
Chief Counsel, CIGNA Investment Management, a
division of CIGNA Corporation*; Counsel, CIGNA
Investment Advisory Company, Inc.*; Director,
Senior Vice President and Chief Counsel, CIGNA
Investment Group, Inc.*; Director, Connecticut
General Pension Services, Inc.*
</TABLE>
- 4 -
<PAGE>
<TABLE>
<S> <C>
Robert W. Burgess Director, CII and CIGNA International
Investment Advisors, Ltd.**; Chief Financial
Officer, CIGNA Investment Management, a
division of CIGNA Corporation*; Director and
Senior Vice President, CIGNA Investment Group,
Inc.*; Director, Connecticut General Pension
Services, Inc.*
Arthur C. Reeds, III President and Chief Investment Officer, CIGNA
Investment Management, a division of CIGNA
Corporation*; President and Director, CII and
CIGNA Investment Group, Inc.*; President, CIGNA
Investment Advisory Company, Inc.*; Director,
CIGNA International Investment Advisors, Ltd.**
and Connecticut General Pension Services,
Inc.*; Trustee, the Trusts; Director, IIS.
R. Bruce Albro Senior Managing Director, CII; Director and
Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*; Director, Connecticut
General Pension Services, Inc.*; Chairman of
the Board, President and Trustee, the Trusts;
Chairman of the Board, President and Director,
IIS.
Mary Louise Casey Senior Managing Director, CII and CIGNA
International Investment Advisors, Ltd.**
Richard H. Forde Senior Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*; President,
Senior Managing Director and Director, CIGNA
International Investment Advisors, Ltd.**; Vice
President, CIGNA Institutional Funds Group.
Edward F. Guay Senior Managing Director and Chief Economist,
CII; Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*; previously, Managing
Director, CII and CIGNA Investment Advisory
Company, Inc.*
Lawrence S. Harris Senior Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*; Vice
President, CIGNA Annuity Funds Group, CIGNA
High Income Shares, CIGNA Variable Products
Group and IIS.
Malcolm S. Smith Senior Managing Director, CII; Director and
Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*
Philip J. Ward Senior Managing Director, CII; Director
and Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*
J. Robert Andrews Managing Director, CII.
Julia B. Bazenas Managing Director, CII; previously Vice
President, CII.
Mark E. Benoit Managing Director, CII; previously Vice
President, CII.
</TABLE>
- 5 -
<PAGE>
<TABLE>
<S> <C>
Susan B. Bosworth Managing Director, CII.
Thomas J. Bowen Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Richard H. Chase Managing Director, CII; previously Vice
President, CII.
Rosemary C. Clarke Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
James F. Coggins, Jr. Managing Director, CII.
Dorothy Cunningham Managing Director, CII; previously Vice
President, CII.
Robert F. DeLucia Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*; Director,
Connecticut General Pension Services, Inc.*
Lawrence A. Drake Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Denise T. Duffee Managing Director, CII.
John G. Eisele Managing Director, CII; previously Vice
President, CII.
Robert Fair Managing Director, CII; previously Vice
President, CII.
John P. Feeney Managing Director, CII; previously Vice
President, CII.
Thomas R. Foley Managing Director, CII; previously Vice
President, CII.
Maurice A. Gordon Managing Director, CII; previously Vice
President, CII.
Debra J. Height Managing Director, CII.
Chris W. Jacobs Managing Director, CII.
David R. Johnson Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Richard H. Kupchunos Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
James R. Kuzemchak Managing Director, CII.
David A. Leone Managing Director, CII.
Edward Lewis Managing Director, CII.
Timothy J. Lord Managing Director, CII.
Thomas P. Mahoney Managing Director, CII.
</TABLE>
- 6 -
<PAGE>
<TABLE>
<S> <C>
Richard B. McGauley Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Bret E. Meck Managing Director, CII; previously Vice
President, CII.
Stephen J. Olstein Managing Director, CII.
Stephen A. Osborn Managing Director, CII.
Alan C. Petersen Managing Director, CII; Vice President,
CIGNA High Income Shares.
Robert E. Peterson Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Anthony J. Pierson Managing Director, CII.
Leon Pouncy Managing Director, CII; previously Vice
President, CII.
Donald F. Rieger, Jr. Managing Director, CII.
James H. Rogers Managing Director, CII; previously Vice
President, CII.
Frank Sataline, Jr. Managing Director, CII; previously Vice
President, CII.
James G. Schelling Managing Director, CII.
Linda W. Schumann Managing Director, CII.
John A. Shaw Managing Director, CII; previously Vice
President, CII.
Thomas M. Smith Managing Director, CII; previously Vice
President, CII.
Joseph W. Springman Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Susan S. Sullivan Managing Director, CII.
William A. Taylor Managing Director, CII; previously Vice
President, CII.
George Varga Managing Director, CII; previously Vice
President, CII.
Deborah B. Wiacek Managing Director, CII; previously Vice
President, CII.
Stephen H. Wilson Managing Director, CII.
James A. White Senior Vice President, CII and CIGNA
Investment Advisory Company, Inc.*
</TABLE>
- 7 -
<PAGE>
<TABLE>
<S> <C>
Barry L. Adams Vice President, CII, CIGNA Investment Advisory
Company, Inc.*, CIGNA Investment Group, Inc.*,
CIGNA International Investment Advisors, Ltd.**
and Connecticut General Pension Services, Inc.*
Jean M. Anderson Vice President, CII.
Paul A. Bankson Vice President, CII; previously Vice
President, Connecticut General Pension
Services, Inc.*
Paul Bergsteinsson Vice President, CII, CIGNA Investment Advisory
Company Inc.*, CIGNA Investment Group, Inc.*,
CIGNA International Investment Advisors, Ltd.**
and Connecticut General Pension Services, Inc.*
Marcy F. Blender Vice President, CII, CIGNA Investment Advisory
Company, Inc.*, CIGNA Investment Group, Inc.*
and Connecticut General Pension Services,
Inc.*; previously Treasurer, CIGNA Investment
Group, Inc.* and Connecticut General Pension
Services, Inc.*; Vice President and Treasurer,
CIGNA International Investment Advisors, Ltd.**
Marguerite A. Boslaugh Vice President, CII.
William C. Carlson Vice President, CII.
Antonio M. Caxide Vice President, CII and CIGNA
International Investment Advisors, Ltd.**
Rosemary S. Cleaves Vice President, CII; President and
Director, Connecticut General Pension Services,
Inc.*
Thomas R. Clemmenson Vice President, CII.
Nancy M. Corrigan Vice President, CII.
Lee P. Crockett Vice President, CII.
Michael P. Daly Vice President, CII; previously
Economist, CII.
Maryanne P. DePreaux Vice President, CII.
Mark V. DePucchio Vice President, CII.
Eric C. DiMiceli Vice President, CII.
Celia R. Dondes Vice President, CII.
Michael Q. Doyle Vice President, CII.
Ronald J. Dupont Vice President, CII and CIGNA
Investment Advisory Company, Inc.*
Robert W. Eccles Vice President, CII.
Mark W. Everette Vice President, CII.
Richard L. Fletcher Vice President, CII.
Jonathan S. Frankel Vice President, CII.
</TABLE>
- 8 -
<PAGE>
<TABLE>
<S> <C>
Ivy B. Freedman Vice President, CII.
Keith A. Gollenberg Vice President, CII.
William J. Grady Vice President, CII.
Mark R. Harrison Vice President, CII.
Debra J. Height Vice President, CII and CIGNA
Investment Advisory Company, Inc.*
John Hurley Vice President, CII.
Chuel D. Hwang Vice President, CII.
Edward B. Johns Vice President, CII.
Thomas W. Johnson Vice President, CII.
Patricia F. Judd Vice President, CII.
Joseph R. Kennedy Vice President, CII.
Peter K. Kofoed Vice President, CII.
Mark S. Korinek Vice President, CII.
James R. Lagasse Vice President, CII.
Mary S. Law Vice President, CII.
Paul T. Martin Vice President, CII.
Joseph G. Mazon Vice President, CII.
Daniel McDonough Vice President, CII.
Linda L. Morel Vice President, CII.
Stephen J. Myott Vice President, CII.
Alpha O. Nicholson, III Vice President, CII.
Donald E. Norton Vice President, CII.
Ann Marie O'Rourke Vice President, CII.
Pamela S. Peck Vice President, CII.
Elisabeth A. Perenick Vice President, CII.
Myrna Phillips Vice President, CII.
Scott S. Piccone Vice President, CII.
Elisabeth Piker Vice President, CII.
Geoffrey R. Plume Vice President, CII.
Thomas J. Podgorski Vice President, CII.
</TABLE>
- 9 -
<PAGE>
<TABLE>
<S> <C>
Suresh Raghaven Vice President, CII.
Michael J. Riccio Vice President, CII.
Stephen L. Roberts Vice President, CII.
Timothy F. Roberts Vice President and Compliance Officer, CII;
Vice President, International Finance/Global
Compliance, CIGNA Investment Management, a
division of CIGNA Corporation*; Vice President -
Finance and Compliance Officer, CIGNA
International Investment Advisors, Ltd.**;
Compliance Officer, CIGNA Investment Advisory
Company, Inc.*
Peter F. Roby Vice President, CII.
Alexander Rybchinsky Vice President, CII.
Annette Sanders Vice President, CII.
David S. Scheibe Vice President, CII; previously
Assistant Vice President and Controller, CII.
John R. Schumann Vice President, CII.
Thomas P. Shea, III Vice President, CII.
Philip Spak Vice President, CII.
Stephen C. Stachelek Vice President, CII and CIGNA Investment
Advisory Company, Inc.*; Vice President and
Treasurer, CIGNA Investment Group, Inc.* and
Connecticut General Pension Services, Inc.*;
Treasurer, CIGNA International Investment
Advisors, Ltd.**
Carlton C. Taylor Vice President, CII.
Patrick H. Thompson Vice President, CII.
Ruth D. VanWinkle Vice President, CII and CIGNA
Investment Advisory Company, Inc.*
Victor J. Visockis, Jr. Vice President, CII.
Henry C. Wagner, III Vice President, CII and CIGNA Investment
Advisory Company, Inc.*; Portfolio Manager,
CIGNA Variable Products S&P 500 Index Fund, a
series of CIGNA Variable Products Group.
William Weissenburger, Jr. Vice President, CII; Assistant Vice
President, Connecticut General Pension
Services, Inc.*
Carey A. White Vice President, CII.
William S. Woodsome Vice President, CII.
</TABLE>
- 10 -
<PAGE>
<TABLE>
<S> <C>
Alfred A. Bingham III Assistant Vice President, CII; Vice
President and Treasurer, the Trusts and IIS.
David C. Kopp Secretary, CII, CIGNA Investment Advisory
Corporation*, CIGNA International Investment
Advisors, Ltd.**, CIGNA Investment Group,
Inc.*, Connecticut General Pension Services,
Inc.* and CIGNA Financial Advisors, Inc.*;
Assistant General Counsel and Assistant
Corporate Secretary, CIGNA Corporation*;
Corporate Secretary, Connecticut General Life
Insurance Company.*
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
- --------------------------------
(a) CIGNA Financial Advisors, Inc. is the principal underwriter for CIGNA Funds
Group (f/k/a CIGNA Annuity Funds Group) and CIGNA Institutional Funds Group
and for their series.
(b) The officers and Directors of CIGNA Financial Advisors, Inc. as of March 1,
1996 are:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter with Registrant
- ------------------------ ---------------------------- ---------------------
<S> <C> <C>
Edward M. Berube Member Board of Directors --------
Karen E. Goldman Member Board of Directors --------
John Wilkinson Member Board of Directors --------
Edward M. Berube President --------
Michael D. Arnold Vice President --------
Karen R. Matheson Vice President --------
Joy P. McConnell Vice President --------
James F. Meehan Vice President --------
Peter R. Scanlon Vice President --------
Allan P. Wick Vice President and Treasurer --------
Robert A. Picarrello Chief Counsel and --------
Assistant Secretary
H. Edward Cohen Assistant Vice President --------
Karen E. Goldman Assistant Vice President --------
Robert B. Pinkham Assistant Vice President --------
Therese M. Squillacote Director of Compliance --------
David C. Kopp Secretary --------
David A. Carlson Assistant Secretary --------
Dawn M. Cormier Assistant Secretary --------
David M. Porcello Assistant Secretary --------
Pamela S. Williams Assistant Secretary --------
Mary K. Cristino Assistant Treasurer --------
Michael M. Sinisgalli Assistant Treasurer --------
Brian W. Villalobos Assistant Treasurer --------
</TABLE>
(c) Not Applicable.
______________________
* 900 Cottage Grove Road, Bloomfield, CT
** Park House, 16 Finsbury Circus, London, England
- 11 -
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
- ------------------------------------------
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-30(a)) and the Rules (17 CFR
270.31a-1 to 31a-3) promulgated thereunder and records relating to shareholders
are maintained by State Street Bank and Trust Company, Boston, Massachusetts.
Registrant's corporate records and financial records are maintained c/o CIGNA
Investments, Inc., 900 Cottage Grove Road, Bloomfield, CT 06002.
ITEM 31. MANAGEMENT SERVICES.
- -----------------------------
None.
ITEM 32. UNDERTAKINGS.
- ----------------------
(a) Not Applicable.
(b) Registrant undertakes to file a post-effective amendment, using financial
statements which need not be certified, within four to six months from the
effective date of this Post-Effective Amendment No. 53.
(c) Registrant undertakes to furnish each person to whom a Prospectus is
delivered a copy upon request and without charge of Registrant's most recent
annual report to shareholders.
- 12 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Registrant, CIGNA Funds Group (f/k/a CIGNA Annuity Funds
Group), has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized in the City of
Bloomfield, and State of Connecticut on the 11th day of April, 1996.
CIGNA Funds Group
R. Bruce Albro
Chairman of the Board of Trustees
and President
By: /s/ Jeffrey S. Winer
------------------------
Jeffrey S. Winer
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
53 to the Registration Statement has been signed below by the following persons
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------- --------------------- ---------------
<S> <C> <C>
R. Bruce Albro Chairman of April 11, 1996.
the Board of
Trustees and
President (principal
executive officer)
By: /s/ Jeffrey S. Winer
-------------------------
Jeffrey S. Winer
Attorney-in-Fact
/s/ Alfred A. Bingham III
--------------------------
Alfred A. Bingham III Treasurer April 11, 1996.
(principal
financial officer
and principal
accounting officer)
</TABLE>
This Amendment to the Registration Statement has also been signed below by
Jeffrey S. Winer, Attorney-in-Fact, on behalf of the following Trustees on the
date indicated, such Trustees being all of the Trustees currently holding the
office of Trustee of Registrant.
R. Bruce Albro Paul J. McDonald
Hugh R. Beath Arthur C. Reeds, III
Russell H. Jones
By: /s/ Jeffrey S. Winer April 11, 1996.
------------------------------
Jeffrey S. Winer
- 13 -
<PAGE>
SECURITIES ACT FILE NO. 2-29020
INVESTMENT COMPANY ACT FILE NO. 811-1646
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. 53 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 53 [X]
CIGNA Funds Group
(Exact Name of Registrant as Specified in Charter)
1380 Main Street, Springfield, MA 01103
(Address of Principal Executive Office)
EXHIBITS
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
(b) Exhibits
* (1) The First Amended and Restated Master Trust Agreement dated
as of March 1, 1996.
* (5a) Form of Side Letter to the Master Investment Advisory
Agreement between CIGNA Funds Group and CIGNA Investments, Inc.
* (5b) Form of First Amended and Restated Master Investment Advisory
Agreement dated as of January 1, 1996 between CIGNA Funds Group and
CIGNA Investments, Inc.
* (8a) Form of Side Letter to the Custodian Contract between CIGNA
Funds Group and State Street Bank and Trust Company.
* (9a) Form of Side Letter to the Transfer Agency and Service
Agreement between CIGNA Funds Group and State Street Bank and Trust
Company.
* (9c) Form of Trustees' Deferred Fee Agreement.
* (9d) Form of Shareholder Services Plan between CIGNA Funds Group
and CIGNA Financial Advisors, Inc.
* (18) Form of Dual Class Plan Pursuant to Rule 18f-3 for CIGNA
Funds Group.
</TABLE>
- ------------------------
* Filed herewith.
<PAGE>
Exhibit (1)
FIRST AMENDED AND RESTATED CIGNA FUNDS GROUP
MASTER TRUST AGREEMENT
MARCH 1, 1996
(C)1995 GOODWIN, PROCTER & HOAR
ALL RIGHTS RESERVED
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - NAME, PRINCIPAL OFFICE AND DEFINITIONS.......................... 2
Section 1.1 Name and Principal Office........................... 2
Section 1.2 Principal Office.................................... 2
Section 1.3 Definitions......................................... 2
(a) "By-Laws"........................................... 2
(b) "class"............................................. 2
(c) "Commission"........................................ 2
(d) "Declaration of Trust".............................. 2
(e) "1940 Act".......................................... 2
(f) "securities" or "security".......................... 2
(g) "Shareholder"....................................... 2
(h) "Shares"............................................ 2
(i) "Sub-Trust" or "Series"............................. 2
(j) "Trust"............................................. 2
(k) "Trustees".......................................... 3
ARTICLE II - PURPOSE OF TRUST............................................... 3
ARTICLE III - THE TRUSTEES.................................................. 3
Section 3.1 Number, Designation, Election, Term, etc............ 3
(a) Trustees............................................ 3
(b) Number.............................................. 3
(c) Election and Term................................... 3
(d) Resignation and Retirement.......................... 3
(e) Removal............................................. 3
(f) Vacancies........................................... 4
(g) Effect of Death, Resignation, etc................... 4
(h) No Accounting....................................... 4
Section 3.2 Powers of Trustees.................................. 4
(a) Investments......................................... 5
(b) Disposition of Assets............................... 5
(c) Ownership Powers.................................... 5
(d) Subscription........................................ 5
(e) Form of Holding..................................... 6
(f) Reorganization, etc................................. 6
(g) Voting Trusts, etc.................................. 6
(h) Compromise.......................................... 6
(i) Partnerships, etc................................... 6
(i)
<PAGE>
(j) Borrowing and Security.............................. 6
(k) Guarantees, etc..................................... 6
(l) Insurance........................................... 6
(m) Pensions, etc....................................... 7
(n) Distribution Plans.................................. 7
Section 3.3 Certain Contracts................................... 7
(a) Advisory............................................ 7
(b) Administration...................................... 8
(c) Distribution........................................ 8
(d) Custodian and Depository............................ 8
(e) Transfer and Dividend Disbursing Agency............. 8
(f) Shareholder Servicing............................... 8
(g) Accounting.......................................... 8
Section 3.4 Payment of Trust Expenses and Compensation
of Trustees....................................... 9
Section 3.5 Ownership of Assets of the Trust.................... 9
ARTICLE IV - SHARES......................................................... 9
Section 4.1 Description of Shares............................... 9
Section 4.2 Establishment and Designation of Sub-Trusts
and Classes...................................... 11
(a) Assets Belonging to Sub-Trusts...................... 11
(b) Liabilities Belonging to Sub-Trusts................. 12
(c) Dividends........................................... 12
(d) Liquidation......................................... 13
(e) Voting.............................................. 13
(f) Redemption by Shareholder........................... 13
(g) Redemption by Trust................................. 14
(h) Net Asset Value..................................... 14
(i) Transfer............................................ 14
(j) Equality............................................ 15
(k) Fractions........................................... 15
(l) Conversion Rights................................... 15
(m) Class Differences................................... 15
(n) Termination of Sales................................ 15
Section 4.3 Ownership of Shares................................. 15
Section 4.4 Investments in the Trust............................ 16
Section 4.5 No Pre-emptive Rights............................... 16
Section 4.6 Status of Shares and Limitation of Personal
Liability........................................ 16
Section 4.7 No Appraisal Rights................................. 16
ARTICLE V - SHAREHOLDERS' VOTING POWERS AND MEETINGS........................ 16
Section 5.1 Voting Powers....................................... 16
Section 5.2 Meetings............................................ 17
(ii)
<PAGE>
Section 5.3 Record Dates........................................ 17
Section 5.4 Quorum and Required Vote............................ 18
Section 5.5 Action by Written Consent........................... 18
Section 5.6 Inspection of Records............................... 18
Section 5.7 Additional Provisions............................... 18
Section 5.8 Shareholder Communications.......................... 18
ARTICLE VI - LIMITATION OF LIABILITY; INDEMNIFICATION....................... 19
Section 6.1 Trustees, Shareholders, etc. Not Personally
Liable; Notice................................... 19
Section 6.2 Trustee's Good Faith Action; Expert Advice;
No Bond or Surety................................ 19
Section 6.3 Indemnification of Shareholders..................... 20
Section 6.4 Indemnification of Trustees, Officers, etc.......... 20
Section 6.5 Compromise Payment.................................. 21
Section 6.6 Indemnification Not Exclusive, etc.................. 21
Section 6.7 Liability of Third Persons Dealing with Trustees.... 21
ARTICLE VII - MISCELLANEOUS................................................. 22
Section 7.1 Duration and Termination of Trust................... 22
Section 7.2 Reorganization...................................... 22
Section 7.3 Amendments.......................................... 22
Section 7.4 Filing of Copies; References; Headings.............. 23
Section 7.5 Applicable Law...................................... 23
Section 7.6 Name of Trust....................................... 23
Section 7.7 Integration......................................... 24
(iii)
<PAGE>
FIRST AMENDED AND RESTATED MASTER TRUST AGREEMENT
FIRST AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST made at
Springfield, Massachusetts as of this 1st day of March, 1996, by the Trustees
hereunder, and by the holders of shares of beneficial interest to be issued
hereunder as hereinafter provided, which amends and restates the Master Trust
Agreement dated as of April 10, 1985.
W I T N E S S E T H:
WHEREAS this Trust has been formed to carry on the business of an
investment company; and
WHEREAS this Trust is authorized to issue its shares of beneficial interest
in separate series, each separate series to be a Sub-Trust hereunder, all in
accordance with the provisions hereinafter set forth; and
WHEREAS the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.
WHEREAS the Trustees desire to amend the Master Trust Agreement so as to:
(a) change the name of the Trust from CIGNA Annuity Funds Group to CIGNA Funds
Group, (b) abolish and terminate four established Sub-Trusts known as CIGNA
Annuity Aggressive Equity Fund, CIGNA Annuity Equity Fund, CIGNA Annuity Growth
and Income Fund and Companion Fund, (c) redesignate its remaining two
established Sub-Trusts (previously know as CIGNA Annuity Income Fund and CIGNA
Annuity Money Market Fund) as CIGNA Income Fund and CIGNA Money Market Fund,
respectively, (d) establish and designate eight new Sub-Trusts, namely CIGNA
Developed Markets Stock Fund, CIGNA Emerging Markets Stock Fund, CIGNA Global
Bond Fund, CIGNA Government Obligations Cash Fund, CIGNA Government Securities
Fund, CIGNA High Yield Fund, CIGNA S&P 500 Index Fund and CIGNA Treasury
Obligations Cash Fund and (e) authorize the issuance of classes of shares of any
Sub-Trust and the division of Shares of any Sub-Trust into two or more classes,
and (f) and make certain other change in connection therewith.
WHEREAS the Trustees desire to amend and restate the Master Trust Agreement
dated April 10, 1985 in its entirety by adopting this First Amended and Restated
Master Trust Agreement, which shall supersede such Master Trust Agreement and be
the governing instrument of the Trust from and after the date hereof.
NOW, THEREFORE, the Trustees hereby amend and restate the Master Trust
Agreement dated April 10, 1985 in its entirety and declare that they will hold
all cash, securities and other assets which they may from time to time acquire
in any manner as Trustees hereunder IN TRUST to manage and dispose of the same
upon the following terms and conditions for the benefit of the holders from time
to time of shares of beneficial interest in this Trust and the Sub-Trusts
created hereunder as hereinafter set forth.
<PAGE>
ARTICLE I - NAME, PRINCIPAL OFFICE AND DEFINITIONS
--------- --------------------------------------
Section 1.1 Name. This Trust shall be known as "CIGNA Funds Group"
----
and the Trustees shall conduct the business of the Trust under that name or any
other name or names as they may from time to time determine.
Section 1.2 Principal Office. The principal office of the Trust
----------------
shall be located at 1380 Main Street, Springfield, Massachusetts 01103 or at
such other location as the Trustees may from time to time determine. In the
event that the Trust changes its principal office, the Trustees shall so inform
the Secretary of The Commonwealth of Massachusetts by the filing of a
certificate of change therewith, specifying the street address of its new
principal office in the Commonwealth and by filing the same with the Clerk of
the City of Springfield, as well as any other governmental office where such
filing may from time to time be required.
Section 1.3 Definitions. Whenever used herein, unless otherwise
-----------
required by the context or specifically provided:
(a) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time;
(b) "class" refers to any class of Shares of any Series or Sub-Trust
established and designated under or in accordance with the provisions of Article
IV;
(c) "Commission" shall have the meaning given it in the 1940 Act;
(d) "Declaration of Trust" shall mean this Agreement and Declaration
of Trust as amended or restated from time to time;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(f) "securities" or "security" shall mean and include, but shall not
be limited to, those securities described in Section 2(a)(36) of the 1940 Act;
(g) "Shareholder" means a record owner of Shares;
(h) "Shares" refers to the transferable units of interest into which
the beneficial interest in the Trust and each Sub-Trust of the Trust and/or any
class of any Sub-Trust (as the context may require) shall be divided from time
to time;
(i) "Sub-Trust" or "Series" refers to a series of Shares established
and designated under or in accordance with the provisions of Article IV;
(j) "Trust" refers to the Massachusetts business trust established by
this Declaration of Trust, as amended from time to time, inclusive of each and
every Sub-Trust established hereunder; and
2
<PAGE>
(k) "Trustees" refers to the Trustees of the Trust and of each Sub-
Trust hereunder named herein or elected in accordance with Article III.
ARTICLE II - PURPOSE OF TRUST
---------- ----------------
The purpose of the Trust is to operate as an investment company and to
offer Shareholders of the Trust and each Sub-Trust of the Trust one or more
investment programs primarily in securities and debt instruments.
ARTICLE III - THE TRUSTEES
----------- ------------
Section 3.1 Number, Designation, Election, Term, etc.
(a) Trustees. The initial Trustees hereof and of each Sub-Trust
--------
hereunder shall be R. Bruce Albro, Hugh R. Beath, Russell H. Jones, Paul J.
McDonald and Arthur C. Reeds, III.
(b) Number. The Trustees serving as such, whether named above or
------
hereafter becoming Trustees, may increase or decrease the number of Trustees to
a number other than the number theretofore determined. No decrease in the
number of Trustees shall have the effect of removing any Trustee from office
prior to the expiration of such Trustee's term, but the number of Trustees may
be decreased in conjunction with the removal of a Trustee pursuant to subsection
(e) of this Section 3.1.
(c) Election and Term. Trustees in addition to those named herein may
-----------------
become such by election by Shareholders or the Trustees in office pursuant to
Section 3.1(f). Each Trustee, whether named above or hereafter becoming a
Trustee, shall serve as a Trustee of the Trust and of each Sub-Trust hereunder
during the lifetime of this Trust and until its termination as hereinafter
provided except as such Trustee sooner dies, resigns, retires or is removed.
Subject to Section 16(a) of the 1940 Act, the Trustees may elect their own
successors and may, pursuant to Section 3.1(f) hereof, appoint Trustees to fill
vacancies.
(d) Resignation and Retirement. Any Trustee may resign or retire as a
--------------------------
Trustee, by written instrument signed by such Trustee and delivered to the other
Trustees or to any officer of the Trust, and such resignation or retirement
shall take effect upon such delivery or upon such later date as is specified in
such instrument and shall be effective as to the Trust and each Sub-Trust
hereunder.
(e) Removal. Any Trustee may be removed with or without cause at any
-------
time: (i) by written instrument, signed by at least two-thirds of the number of
Trustees in office immediately prior to such removal, specifying the date upon
which such removal shall become effective; or (ii) by vote of Shareholders
holding not less than two-thirds of the Shares then outstanding, cast in person
or by proxy at any meeting called for the purpose; or (iii) by a written
declaration signed by Shareholders holding not less than two-thirds of the
Shares then outstanding and filed with the Trust's custodian. Any such removal
shall be effective as to the Trust and each Sub-Trust hereunder.
3
<PAGE>
(f) Vacancies. Any vacancy or anticipated vacancy resulting from any
---------
reason, including without limitation the death, resignation, retirement, removal
or incapacity of any of the Trustees, or resulting from an increase in the
number of Trustees by the other Trustees may (but so long as there are at least
two remaining Trustees, need not unless required by the 1940 Act) be filled by a
majority of the remaining Trustees, subject to the provisions of Section 16(a)
of the 1940 Act, through the appointment in writing of such other person as such
remaining Trustees in their discretion shall determine and such appointment
shall be effective upon the written acceptance of the person named therein to
serve as a Trustee and agreement by such person to be bound by the provisions of
this Declaration of Trust, except that any such appointment in anticipation of a
vacancy to occur by reason of retirement, resignation or increase in number of
Trustees to be effective at a later date shall become effective only at or after
the effective date of said retirement, resignation or increase in number of
Trustees. As soon as any Trustee so appointed shall have accepted such
appointment and shall have agreed in writing to be bound by this Declaration of
Trust and the appointment is effective, the Trust estate shall vest in the new
Trustee, together with the continuing Trustees, without any further act or
conveyance.
(g) Effect of Death, Resignation, etc. The death, resignation,
---------------------------------
retirement, removal or incapacity of the Trustees, or any one of them, shall not
operate to annul or terminate the Trust or any Sub-Trust hereunder or to revoke
or terminate any existing agency or contract created or entered into pursuant to
the terms of this Declaration of Trust.
(h) No Accounting. Except to the extent required by the 1940 Act or
-------------
under circumstances which would justify removal for cause, no person ceasing to
be a Trustee as a result of death, resignation, retirement, removal or
incapacity (nor the estate of any such person) shall be required to make an
accounting to the Shareholders or remaining Trustees upon such cessation.
Section 3.2 Powers of Trustees. Subject to the provisions of this
------------------
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purpose of the Trust. The Trustees in all instances
shall act as principals, and are and shall be free from the control of the
Shareholders. The Trustees shall have full power and authority to do any and
all acts and to make and execute any and all contracts and instruments that they
may consider necessary or appropriate in connection with the management of the
Trust. The Trustees shall not be bound or limited by present or future laws or
customs with regard to investment by trustees or fiduciaries, but shall have
full authority and absolute power and control over the assets of the Trust and
the business of the Trust to the same extent as if the Trustees were the sole
owners of the assets of the Trust and the business in their own right, including
such authority, power and control to do all acts and things as they, in their
uncontrolled discretion, shall deem proper to accomplish the purposes of this
Trust. Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business and affairs of the Trust and may amend and repeal them to the extent
that such By-Laws do not reserve that right to the Shareholders; they may sue or
be sued in the name of the Trust; they may from time to time in accordance with
the provisions of Section 4.1 hereof establish Sub-Trusts, each such Sub-Trust
to operate as a separate and distinct investment
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medium and with separately defined investment objectives and policies and
distinct investment purposes; they may from time to time in accordance with the
provisions of Section 4.1 hereof establish classes of Shares of any Series or
Sub-Trust or divide the Shares of any Series or Sub-Trust into classes; they may
as they consider appropriate elect and remove officers and appoint and terminate
agents and consultants and hire and terminate employees, any one or more of the
foregoing of whom may be a Trustee, and may provide for the compensation of all
of the foregoing; they may appoint from their own number, and terminate, any one
or more committees consisting of two or more Trustees, including without implied
limitation an executive committee, which may, when the Trustees are not in
session and subject to the 1940 Act, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; in accordance with
Section 3.3 they may employ one or more advisers, administrators, depositories
and custodians and may authorize any depository or custodian to employ
subcustodians or agents and to deposit all or any part of such assets in a
system or systems for the central handling of securities and debt instruments,
retain transfer, dividend, accounting or Shareholder servicing agents or any of
the foregoing, provide for the distribution of Shares by the Trust through one
or more distributors, principal underwriters or otherwise, and set record dates
or times for the determination of Shareholders or various of them with respect
to various matters; they may compensate or provide for the compensation of the
Trustees, officers, advisers, administrators, custodians, other agents,
consultants and employees of the Trust or the Trustees on such terms as they
deem appropriate; and in general they may delegate to any officer of the Trust,
to any committee of the Trustees and to any employee, adviser, administrator,
distributor, depository, custodian, transfer and dividend disbursing agent, or
any other agent or consultant of the Trust such authority, powers, functions and
duties as they consider desirable or appropriate for the conduct of the business
and affairs of the Trust, including without implied limitation, the power and
authority to act in the name of the Trust and any Sub-Trust and of the Trustees,
to sign documents and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with
the 1940 Act or other applicable law, the Trustees shall have power and
authority for and on behalf of the Trust and each separate Sub-Trust established
hereunder:
(a) Investments. To invest and reinvest cash and other property, and
-----------
to hold cash or other property uninvested without in any event being bound or
limited by any present or future law or custom in regard to investments by
trustees;
(b) Disposition of Assets. To sell, exchange, lend, pledge, mortgage,
---------------------
hypothecate, write options on and lease any or all of the assets of the Trust;
(c) Ownership Powers. To vote or give assent, or exercise any rights
----------------
of ownership, with respect to stock or other securities, debt instruments or
property; and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities, debt instruments
or property as the Trustees shall deem proper;
(d) Subscription. To exercise powers and rights of subscription or
------------
otherwise which in any manner arise out of ownership of securities or debt
instruments;
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(e) Form of Holding. To hold any security, debt instrument or
---------------
property in a form not indicating any trust, whether in bearer, unregistered or
other negotiable form, or in the name of the Trustees or of the Trust or of any
Sub-Trust or in the name of a custodian, subcustodian or other depository or a
nominee or nominees or otherwise;
(f) Reorganization, etc. To consent to or participate in any plan for
-------------------
the reorganization, consolidation or merger of any corporation or issuer, any
security or debt instrument of which is or was held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by such corporation
or issuer, and to pay calls or subscriptions with respect to any security or
debt instrument held in the Trust;
(g) Voting Trusts, etc. To join with other holders of any securities
------------------
or debt instruments in acting through a committee, depositary, voting trustee or
otherwise, and in that connection to deposit any security or debt instrument
with, or transfer any security or debt instrument to, any such committee,
depositary or trustee, and to delegate to them such power and authority with
relation to any security or debt instrument (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to pay,
such portion of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(h) Compromise. To compromise, arbitrate or otherwise adjust claims
----------
in favor of or against the Trust or any Sub-Trust or any matter in controversy,
including but not limited to claims for taxes;
(i) Partnerships, etc. To enter into joint ventures, general or
-----------------
limited partnerships and any other combinations or associations;
(j) Borrowing and Security. To borrow funds and to mortgage and
----------------------
pledge the assets of the Trust or any part thereof to secure obligations arising
in connection with such borrowing;
(k) Guarantees, etc. To endorse or guarantee the payment of any notes
---------------
or other obligations of any person; to make contracts of guaranty or suretyship,
or otherwise assume liability for payment thereof; and to mortgage and pledge
the Trust property or any part thereof to secure any of or all such obligations;
(l) Insurance. To purchase and pay for entirely out of Trust property
---------
such insurance and/or bonding as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and principal on
its portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, consultants, investment advisers,
managers, administrators, distributors, principal underwriters, or independent
contractors, or any thereof (or any person connected therewith), of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such person in
any such capacity, including any action taken or omitted that may be determined
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to constitute negligence, whether or not the Trust would have the power to
indemnify such person against such liability; and
(m) Pensions, etc. To pay pensions for faithful service, as deemed
-------------
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
(n) Distribution Plans. To adopt on behalf of the Trust or any Sub-
------------------
Trust with respect to any class thereof a plan of distribution and related
agreements thereto pursuant to the terms of Rule 12b-1 of the 1940 Act and to
make payments from the assets of the Trust or the relevant Sub-Trust or Sub-
Trusts pursuant to said Rule 12b-1 Plan.
Except as otherwise provided by the 1940 Act or other applicable law,
this Declaration of Trust or the By-Laws, any action to be taken by the Trustees
on behalf of or with respect to the Trust or any Sub-Trust or class thereof may
be taken by a majority of the Trustees present at a meeting of Trustees (a
quorum, consisting of at least one-half of the Trustees then in office, being
present), within or without Massachusetts, including any meeting held by means
of a conference telephone or other communications equipment by means of which
all persons participating in the meeting can hear each other at the same time,
and participation by such means shall constitute presence in person at a
meeting, or by written consents of a majority of the Trustees then in office (or
such larger or different number as may be required by the 1940 Act or other
applicable law).
Section 3.3 Certain Contracts. Subject to compliance with the
-----------------
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth herein, enter into
one or more contracts with any one or more corporations, trusts, associations,
partnerships, limited partnerships, other type of organizations, or individuals
(a "Contracting Party"), to provide for the performance and assumption of some
or all of the following services, duties and responsibilities to, for or on
behalf of the Trust and/or any Sub-Trust, and/or the Trustees, and to provide
for the performance and assumption of such other services, duties and
responsibilities in addition to those set forth below as the Trustees may
determine appropriate:
(a) Advisory. Subject to the general supervision of the Trustees and
--------
in conformity with the stated policy of the Trustees with respect to the
investments of the Trust or of the assets belonging to any Sub-Trust of the
Trust (as that phrase is defined in subsection (a) of Section 4.2), to manage
such investments and assets, make investment decisions with respect thereto, and
to place purchase and sale orders for portfolio transactions relating to such
investments and assets;
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(b) Administration. Subject to the general supervision of the
--------------
Trustees and in conformity with any policies of the Trustees with respect to the
operations of the Trust and each Sub-Trust (including each class thereof), to
supervise all or any part of the operations of the Trust and each Sub-Trust, and
to provide all or any part of the administrative and clerical personnel, office
space and office equipment and services appropriate for the efficient
administration and operations of the Trust and each Sub-Trust;
(c) Distribution. To distribute the Shares of the Trust and each Sub-
------------
Trust (including any classes thereof), to be principal underwriter of such
Shares, and/or to act as agent of the Trust and each Sub-Trust in the sale of
Shares and the acceptance or rejection of orders for the purchase of Shares;
(d) Custodian and Depository. To act as depository for and to
------------------------
maintain custody of the property of the Trust and each Sub-Trust and accounting
records in connection therewith;
(e) Transfer and Dividend Disbursing Agency. To maintain records of
---------------------------------------
the ownership of outstanding Shares, the issuance and redemption and the
transfer thereof, and to disburse any dividends declared by the Trustees and in
accordance with the policies of the Trustees and/or the instructions of any
particular Shareholder to reinvest any such dividends;
(f) Shareholder Servicing. To provide service with respect to the
---------------------
relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares, and similar matters; and
(g) Accounting. To handle all or any part of the accounting
----------
responsibilities, whether with respect to the Trust's properties, Shareholders
or otherwise.
The same person may be the Contracting Party for some or all of the
services, duties and responsibilities to, for and of the Trust and/or the
Trustees, and the contracts with respect thereto may contain such terms
interpretive of or in addition to the delineation of the services, duties and
responsibilities provided for, including provisions that are not inconsistent
with the 1940 Act relating to the standard of duty of and the rights to
indemnification of the Contracting Party and others, as the Trustees may
determine. Nothing herein shall preclude, prevent or limit the Trust or a
Contracting Party from entering into sub-contractual arrangements relating to
any of the matters referred to in Sections 3.3(a) through (g) hereof.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is
a shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
Contracting Party, or of or for any parent or affiliate of any Contracting
Party or that the Contracting Party or any parent or affiliate thereof is a
Shareholder or has an interest in the Trust or any Sub-Trust, or that
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(ii) any Contracting Party may have a contract providing for the
rendering of any similar services to one or more other corporations,
trusts, associations, partnerships, limited partnerships or other
organizations, or have other business or interests, shall not affect the
validity of any contract for the performance and assumption of services,
duties and responsibilities to, for or of the Trust or any Sub-Trust and/or
the Trustees or disqualify any Shareholder, Trustee or officer of the Trust
from voting upon or executing the same or create any liability or
accountability to the Trust, any Sub-Trust or its Shareholders, provided
that in the case of any relationship or interest referred to in the
preceding clause (i) on the part of any Trustee or officer of the Trust
either (x) the material facts as to such relationship or interest have been
disclosed to or are known by the Trustees not having any such relationship
or interest and the contract involved is approved in good faith by a
majority of such Trustees not having any such relationship or interest
(even though such unrelated or disinterested Trustees are less than a
quorum of all of the Trustees), (y) the material facts as to such
relationship or interest and as to the contract have been disclosed to or
are known by the Shareholders entitled to vote thereon and the contract
involved is specifically approved in good faith by vote of the
Shareholders, or (z) the specific contract involved is fair to the Trust as
of the time it is authorized, approved or ratified by the Trustees or by
the Shareholders.
Section 3.4 Payment of Trust Expenses and Compensation of Trustees. The
------------------------------------------------------
Trustees are authorized to pay or to cause to be paid out of the principal or
income of the Trust or any Sub-Trust, or partly out of principal and partly out
of income, and to charge or allocate the same to, between or among such one or
more of the Sub-Trusts and/or one or more classes of Shares thereof that may be
established and designated pursuant to Article IV, as the Trustees deem fair,
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, any Sub-Trust and/or any class of Shares thereof, or
in connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, investment adviser, administrator, distributor,
principal underwriter, auditor, counsel, depository, custodian, transfer agent,
dividend disbursing agent, accounting agent, Shareholder servicing agent, and
such other agents, consultants, and independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper to incur.
Without limiting the generality of any other provision hereof, the Trustees
shall be entitled to reasonable compensation from the Trust for their services
as Trustees and may fix the amount of such compensation.
Section 3.5 Ownership of Assets of the Trust. Title to all of the assets
--------------------------------
of the Trust and of each Sub-Trust shall at all times be considered as vested in
the Trustees.
ARTICLE IV - SHARES
---------- ------
Section 4.1 Description of Shares. The beneficial interest in the Trust
---------------------
shall be divided into Shares, all without par value, but the Trustees shall have
the authority from time to time to issue Shares in one or more Series (each of
which Series of Shares shall represent the beneficial interest in a separate and
distinct Sub-Trust of the Trust, including without limitation each Sub-Trust
specifically established and designated in Section 4.2), as they deem necessary
or desirable. For all purposes under this Declaration of Trust or otherwise,
including, without
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implied limitation, (i) with respect to the rights of creditors and (ii) for
purposes of interpreting the relevant rights of each Sub-Trust and the
Shareholders of each Sub-Trust, each Sub-Trust established hereunder shall be
deemed to be a separate trust. The Trustees shall have exclusive power without
the requirement of Shareholder approval to establish and designate such separate
and distinct Sub-Trusts, and to fix and determine the relative rights and
preferences as between the shares of the separate Sub-Trusts as to right of
redemption and the price, terms and manner of redemption, special and relative
rights as to dividends and other distributions and on liquidation, sinking or
purchase fund provisions, conversion rights, and conditions under which the
several Sub-Trusts shall have separate voting rights or no voting rights.
In addition, the Trustees shall have exclusive power, without the
requirement of Shareholder approval, to issue classes of Shares of any Sub-Trust
or divide the Shares of any Sub-Trust into classes, each class having such
different dividend, liquidation, voting and other rights as the Trustees may
determine, and may establish and designate the specific classes of Shares of
each Sub-Trust. The fact that a Sub-Trust shall have initially been established
and designated without any specific establishment or designation of classes
(i.e., that all Shares of such Sub-Trust are initially of a single class), or
that a Sub-Trust shall have more than one established and designated class,
shall not limit the authority of the Trustees to establish and designate
separate classes, or one or more further classes, of said Sub-Trust without
approval of the holders of the initial class thereof, or previously established
and designated class or classes thereof.
The number of authorized Shares and the number of Shares of each Sub-Trust
or class thereof that may be issued is unlimited, and the Trustees may issue
Shares of any Sub-Trust or class thereof for such consideration and on such
terms as they may determine (or for no consideration if pursuant to a Share
dividend or split-up), all without action or approval of the Shareholders. All
Shares when so issued on the terms determined by the Trustees shall be fully
paid and non-assessable (but may be subject to mandatory contribution back to
the Trust as provided in subsection (h) of Section 4.2). The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued and
reacquired of any Sub-Trust or class thereof into one or more Sub-Trusts or
classes thereof that may be established and designated from time to time. The
Trustees may hold as treasury Shares, reissue for such consideration and on such
terms as they may determine, or cancel, at their discretion from time to time,
any Shares of any Sub-Trust or class thereof reacquired by the Trust.
The Trustees may from time to time close the transfer books or establish
record dates and times for the purposes of determining the holders of Shares
entitled to be treated as such, to the extent provided or referred to in Section
5.3.
The establishment and designation of any Sub-Trust or of any class of
Shares of any Sub-Trust in addition to those established and designated in
Section 4.2 shall be effective (i) upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and designation of
the relative rights and preferences of the Shares of such Sub-Trust or class,
(ii) upon the execution of an instrument in writing by an officer of the Trust
pursuant to the vote of a majority of the Trustees, or (iii) as otherwise
provided in either such instrument. At any time that there are no Shares
outstanding of any particular Sub-Trust or class
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previously established and designated, the Trustees may by an instrument
executed by a majority of their number (or by an instrument executed by an
officer of the Trust pursuant to the vote of a majority of the Trustees) abolish
that Sub-Trust or class and the establishment and designation thereof. Each
instrument establishing and designating any Sub-Trust shall have the status of
an amendment to this Declaration of Trust.
Any Trustee, officer or other agent of the Trust, and any organization in
which any such person is interested may acquire, own, hold and dispose of Shares
of any Sub-Trust (including any classes thereof) of the Trust to the same extent
as if such person were not a Trustee, officer or other agent of the Trust; and
the Trust may issue and sell or cause to be issued and sold and may purchase
Shares of any Sub-Trust (including any classes thereof) from any such person or
any such organization subject only to the general limitations, restrictions or
other provisions applicable to the sale or purchase of Shares of such Sub-Trust
(including any classes thereof) generally.
Section 4.2 Establishment and Designation of Sub-Trusts. Without
-------------------------------------------
limiting the authority of the Trustees set forth in Section 4.1 to establish and
designate any further Sub-Trusts, the Trustees hereby establish and designate
ten Sub-Trusts: CIGNA Income Fund, CIGNA Money Market Fund, CIGNA Developed
Markets Stock Fund, CIGNA Emerging Markets Stock Fund, CIGNA Global Bond Fund,
CIGNA Government Obligations Cash Fund, CIGNA Government Securities Fund, CIGNA
High Yield Fund, CIGNA S&P 500 Index Fund and CIGNA Treasury Obligations Cash
Fund, and the Shares of each Sub-Trust and any Shares of any further Sub-Trusts
that may from time to time be established and designated by the Trustees shall
(unless the Trustees otherwise determine with respect to some further Sub-Trust
at the time of establishing and designating the same) have the following
relative rights and preferences:
(a) Assets Belonging to Sub-Trusts. All consideration received by the
------------------------------
Trust for the issue or sale of Shares of a particular Sub-Trust or any classes
thereof, together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be held by the Trustees in trust for the benefit of
the holders of Shares of that Sub-Trust or class thereof and shall irrevocably
belong to that Sub-Trust (and be allocable to any classes thereof) for all
purposes, and shall be so recorded upon the books of account of the Trust. Such
consideration, assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items (as
hereinafter defined) allocated to that Sub-Trust as provided in the following
sentence, are herein referred to as "assets belonging to" that Sub-Trust (and
allocable to any classes thereof). In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Sub-Trust (collectively
"General Items"), the Trustees shall allocate such General Items to and among
any one or more of the Sub-Trusts established and designated from time to time
in such manner and on such basis as they, in their sole discretion, deem fair
and equitable; and any General Items so allocated to a particular Sub-Trust
11
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shall belong to that Sub-Trust (and be allocable to any classes thereof). Each
such allocation by the Trustees shall be conclusive and binding upon the holders
of all Shares of all Sub-Trusts (including any classes thereof) for all
purposes.
(b) Liabilities Belonging to Sub-Trusts. The assets belonging to each
-----------------------------------
particular Sub-Trust shall be charged with the liabilities in respect of that
Sub-Trust and all expenses, costs, charges and reserves belonging to that Sub-
Trust, and any general liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any particular Sub-
Trust shall be allocated and charged by the Trustees to and among any one or
more of the Sub-Trusts established and designated from time to time in such
manner and on such basis as the Trustees in their sole discretion deem fair and
equitable. In addition, the liabilities in respect of a particular class of
Shares of a particular Sub-Trust and all expenses, costs, charges and reserves
belonging to that class of Shares, and any general liabilities, expenses, costs,
charges or reserves of that particular Sub-Trust which are not readily
identifiable as belonging to any particular class of Shares of that Sub-Trust
shall be allocated and charged by the Trustees to and among any one or more of
the classes of Shares of that Sub-Trust established and designated from time to
time in such manner and on such basis as the Trustees in their sole discretion
deem fair and equitable. The liabilities, expenses, costs, charges and reserves
allocated and so charged to a Sub-Trust or class thereof are herein referred to
as "liabilities belonging to" that Sub-Trust or class thereof. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders, creditors and any other persons
dealing with the Trust or any Sub-Trust (including any classes thereof) for all
purposes. Any creditor of any Sub-Trust may look only to the assets of that
Sub-Trust to satisfy such creditor's debt.
The Trustees shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items shall be treated as income and which
items as capital; and each such determination and allocation shall be conclusive
and binding upon the Shareholders.
(c) Dividends. Dividends and distributions on Shares of a particular
---------
Sub-Trust or any class thereof may be paid with such frequency as the Trustees
may determine, which may be daily or otherwise pursuant to a standing resolution
or resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of Shares of that Sub-Trust or class, from such of the
income and capital gains, accrued or realized, from the assets belonging to that
Sub-Trust, or in the case of a class, belonging to that Sub-Trust and allocable
to that class, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that Sub-Trust or class. All dividends and
distributions on Shares of a particular Sub-Trust or class thereof shall be
distributed pro rata to the holders of Shares of that Sub-Trust or class in
proportion to the number of Shares of that Sub-Trust or class held by such
holders at the date and time of record established for the payment of such
dividends or distributions, except that in connection with any dividend or
distribution program or procedure the Trustees may determine that no dividend or
distribution shall be payable on Shares as to which the Shareholder's purchase
order and/or payment have not been received by the time or times established by
the Trustees under such program or procedure. Such dividends and distributions
may be made in cash or Shares of that Sub-Trust or class or a combination
thereof as determined by the Trustees or pursuant to any program that the
Trustees may have in effect at the time for the election by
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each Shareholder of the mode of the making of such dividend or distribution to
that Shareholder. Any such dividend or distribution paid in Shares will be paid
at the net asset value thereof as determined in accordance with subsection (h)
of Section 4.2.
The Trustees shall have full discretion to determine which items shall be
treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
(d) Liquidation. In the event of the liquidation or dissolution of
-----------
the Trust, the holders of Shares of each Sub-Trust or any class thereof that has
been established and designated shall be entitled to receive, when and as
declared by the Trustees, the excess of the assets belonging to that Sub-Trust,
or in the case of a class, belonging to that Sub-Trust and allocable to that
class, over the liabilities belonging to that Sub-Trust or class. The assets so
distributable to the holders of Shares of any particular Sub-Trust or class
thereof shall be distributed among such holders in proportion to the number of
Shares of that Sub-Trust or class thereof held by them and recorded on the books
of the Trust. The liquidation of any particular Sub-Trust or class thereof may
be authorized at any time by vote of a majority of the Trustees then in office.
(e) Voting. On each matter submitted to a vote of the Shareholders,
------
each holder of a Share shall be entitled to one vote for each whole Share
standing and to a proportionate fractional vote for each fractional share
standing in such Shareholder's name on the books of the Trust irrespective of
the Series thereof or class thereof and all Shares of all Series and classes
thereof shall vote together as a single class; provided, however, that as to any
matter (i) with respect to which a separate vote of one or more Series or
classes thereof is required by the 1940 Act or the provisions of the writing
establishing and designating the Sub-Trust or class, such requirements as to a
separate vote by such Series or class thereof shall apply in lieu of all Shares
of all Series and classes thereof voting together; and (ii) as to any matter
which affects the interests of one or more particular Series or classes thereof,
only the holders of Shares of the one or more affected Series or classes shall
be entitled to vote, and each such Series or class shall vote as a separate
class.
(f) Redemption by Shareholder. Each holder of Shares of a particular
-------------------------
Sub-Trust or any class thereof shall have the right at such times as may be
permitted by the Trust to require the Trust to redeem all or any part of such
holder's Shares of that Sub-Trust or class thereof at a redemption price equal
to the net asset value per Share of that Sub-Trust or class thereof next
determined in accordance with subsection (h) of this Section 4.2 after the
Shares are properly tendered for redemption, subject to any contingent deferred
sales charge or redemption charge in effect at the time of redemption. Payment
of the redemption price shall be in cash; provided, however, that if the
Trustees determine, which determination shall be conclusive, that conditions
exist which make payment wholly in cash unwise or undesirable, the Trust may,
subject to the requirements of the 1940 Act, make payment wholly or partly in
securities or other assets belonging to the Sub-Trust of which the Shares being
redeemed are part at the value of such securities or assets used in such
determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Shares of any Sub-
Trust or class thereof to require
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the Trust to redeem Shares of that Sub-Trust during any period or at any time
when and to the extent permissible under the 1940 Act.
(g) Redemption by Trust. Each Share of each Sub-Trust or class
-------------------
thereof that has been established and designated is subject to redemption by the
Trust at the redemption price which would be applicable if such Share was then
being redeemed by the Shareholder pursuant to subsection (f) of this Section
4.2: (i) at any time, if the Trustees determine in their sole discretion and by
majority vote that failure to so redeem may have materially adverse consequences
to the Trust or any Sub-Trust or to the holders of the Shares of the Trust or
any Sub-Trust thereof or class thereof, or (ii) upon such other conditions as
may from time to time be determined by the Trustees and set forth in the then
current Prospectus of the Trust. Upon such redemption the holders of the Shares
so redeemed shall have no further right with respect thereto other than to
receive payment of such redemption price.
(h) Net Asset Value. The net asset value per Share of any Sub-Trust
---------------
shall be (i) in the case of a Sub-Trust whose Shares are not divided into
classes, the quotient obtained by dividing the value of the net assets of that
Sub-Trust (being the value of the assets belonging to that Sub-Trust less the
liabilities belonging to that Sub-Trust) by the total number of Shares of that
Sub-Trust outstanding, and (ii) in the case of a class of Shares of a Sub-Trust
whose Shares are divided into classes, the quotient obtained by dividing the
value of the net assets of that Sub-Trust allocable to such class (being the
value of the assets belonging to that Sub-Trust allocable to such class less the
liabilities belonging to such class) by the total number of Shares of such class
outstanding; all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time.
The Trustees may determine to maintain the net asset value per Share of any
Sub-Trust at a designated constant dollar amount and in connection therewith may
adopt procedures not inconsistent with the 1940 Act for the continuing
declarations of income attributable to that Sub-Trust as dividends payable in
additional Shares of that Sub-Trust at the designated constant dollar amount and
for the handling of any losses attributable to that Sub-Trust. Such procedures
may provide that in the event of any loss each Shareholder shall be deemed to
have contributed to the capital of the Trust attributable to that Sub-Trust such
Shareholder's pro rata portion of the total number of Shares required to be
cancelled in order to permit the net asset value per Share of that Sub-Trust to
be maintained, after reflecting such loss, at the designated constant dollar
amount. Each Shareholder of the Trust shall be deemed to have agreed, by making
an investment in any Sub-Trust with respect to which the Trustees shall have
adopted any such procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
(i) Transfer. All Shares of each particular Sub-Trust or class
--------
thereof shall be transferable, but transfers of Shares of a particular Sub-Trust
or class thereof will be recorded on the Share transfer records of the Trust
applicable to that Sub-Trust or class only at such times as Shareholders shall
have the right to require the Trust to redeem Shares of that Sub-Trust or class
and at such other times as may be permitted by the Trustees.
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(j) Equality. Except as provided herein or in the instrument
--------
designating and establishing any class of Shares or any Sub-Trust, all Shares of
each particular Sub-Trust or class thereof shall represent an equal
proportionate interest in the assets belonging to that Sub-Trust, or in the case
of a class, belonging to that Sub-Trust and allocable to that class, subject to
the liabilities belonging to that Sub-Trust or class, and each Share of any
particular Sub-Trust or class shall be equal to each other Share of that Sub-
Trust or class; but the provisions of this sentence shall not restrict any
distinctions permissible under subsection (c) of this Section 4.2 that may exist
with respect to dividends and distributions on Shares of the same Sub-Trust or
class. The Trustees may from time to time divide or combine the Shares of any
particular Sub-Trust or class into a greater or lesser number of Shares of that
Sub-Trust or class without thereby changing the proportionate beneficial
interest in the assets belonging to that Sub-Trust or class or in any way
affecting the rights of Shares of any other Sub-Trust or class.
(k) Fractions. Any fractional Share of any Sub-Trust or class, if any
---------
such fractional Share is outstanding, shall carry proportionately all the rights
and obligations of a whole Share of that Sub-Trust or class, including rights
and obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust or any Sub-Trust.
(l) Conversion Rights. Subject to compliance with the requirements of
-----------------
the 1940 Act, the Trustees shall have the authority to provide that holders of
Shares of any Sub-Trust or class thereof shall have the right to convert said
Shares into Shares of one or more other Sub-Trust or class thereof in accordance
with such requirements and procedures as may be established by the Trustees.
(m) Class Differences. The relative rights and preferences of the
-----------------
classes of any Sub-Trust may differ in such other respects as the Trustees may
determine to be appropriate in their sole discretion, provided that such
differences are set forth in the instrument establishing and designating such
classes and executed by a majority of the Trustees (or by an instrument executed
by an officer of the Trust pursuant to a vote of a majority of the Trustees).
(n) Termination of Sales. The Trustees shall have the authority to
--------------------
terminate the sales of Shares of any Sub-Trust at any time or for such periods
as the Trustees may from time to time decide.
Section 4.3 Ownership of Shares. The ownership of Shares shall be
-------------------
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each Sub-
Trust and each class thereof that has been established and designated. No
certificates certifying the ownership of Shares need be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of Share certificates, the
use of facsimile signatures, the transfer of Shares and similar matters. The
record books of the Trust as kept by the Trust or any transfer or similar agent,
as the case may be, shall be conclusive as to who are the Shareholders and as to
the number of Shares of each Sub-Trust and class thereof held from time to time
by each such Shareholder.
15
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Section 4.4 Investments in the Trust. The Trustees may accept or reject
------------------------
investments in the Trust and each Sub-Trust from such persons and on such terms
and for such consideration, not inconsistent with the provisions of the 1940
Act, as they from time to time authorize or determine. The Trustees may
authorize any distributor, principal underwriter, custodian, transfer agent or
other person to accept orders for the purchase of Shares that conform to such
authorized terms and to reject any purchase orders for Shares whether or not
conforming to such authorized terms.
Section 4.5 No Pre-emptive Rights. Shareholders shall have no pre-emptive
---------------------
or other right to subscribe to any additional Shares or other securities issued
by the Trust or any Sub-Trust.
Section 4.6 Status of Shares and Limitation of Personal Liability. Shares
-----------------------------------------------------
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the Trust or any Sub-Trust thereof nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or
agent of the Trust shall have any power to bind personally any Shareholder, nor
except as specifically provided herein to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
Section 4.7 No Appraisal Rights. Shareholders shall have no right to
-------------------
demand payment for their shares or to any other rights of dissenting
shareholders in the event the Trust participates in any transaction which would
give rise to appraisal or dissenters' rights by a shareholder of a corporation
organized under Chapter 156B of the General Laws of the Commonwealth of
Massachusetts, or otherwise.
ARTICLE V - SHAREHOLDERS' VOTING POWERS AND MEETINGS
--------- ----------------------------------------
Section 5.1 Voting Powers. The Shareholders shall have power to vote only
-------------
(i) for the election or removal of Trustees as provided in Section 3.1, (ii)
with respect to any contract with a Contracting Party as provided in Section 3.3
as to which Shareholder approval is required by the 1940 Act, (iii) with respect
to any termination or reorganization of the Trust to the extent and as provided
in Sections 7.1 and 7.2, (iv) with respect to any amendment of this Declaration
of Trust to the extent and as provided in Section 7.3, (v) to the same extent as
the stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or any Sub-Trust
thereof or the Shareholders (provided, however, that a Shareholder of a
particular Sub-Trust shall not be entitled to a derivative or class action on
behalf of any other
16
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Sub-Trust (or Shareholder of any other Sub-Trust) of the Trust) and (vi) with
respect to such additional matters relating to the Trust as may be required by
the 1940 Act, this Declaration of Trust, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy.
Proxies may be given orally or in writing or pursuant to any computerized or
mechanical data gathering process specifically approved by the Trustees. A
proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.
Section 5.2 Meetings. No annual or regular meeting of Shareholders is
--------
required. Special meetings of Shareholders may be called by the Trustees from
time to time for the purpose of taking action upon any matter requiring the vote
or authority of the Shareholders as herein provided or upon any other matter
deemed by the Trustees to be necessary or desirable. Written notice of any
meeting of Shareholders shall be given or caused to be given by the Trustees by
mailing such notice at least seven days before such meeting, postage prepaid,
stating the time, place and purpose of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust. The Trustees
shall promptly call and give notice of a meeting of Shareholders for the purpose
of voting upon removal of any Trustee of the Trust when requested to do so in
writing by Shareholders holding not less than 10% of the Shares then
outstanding. If the Trustees shall fail to call or give notice of any meeting
of Shareholders for a period of 30 days after written application by
Shareholders holding at least 10% of the Shares then outstanding requesting a
meeting be called for any other purpose requiring action by the Shareholders as
provided herein or in the By-Laws, then Shareholders holding at least 10% of the
Shares then outstanding may call and give notice of such meeting, and thereupon
the meeting shall be held in the manner provided for herein in case of call
thereof by the Trustees.
Section 5.3 Record Dates. For the purpose of determining the Shareholders
------------
who are entitled to vote or act at any meeting or any adjournment thereof, or
who are entitled to participate in any dividend or distribution, or for the
purpose of any other action, the Trustees may from time to time close the
transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date and time not more
than 90 days prior to the date of any meeting of Shareholders or other action as
the date and time of record for the determination of Shareholders entitled to
vote at such meeting or any adjournment thereof or to be treated as Shareholders
of record for purposes of such other action, and any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof or to be treated as a Shareholder of record
for purposes of such other action, even though such Shareholder has since that
date and time disposed of such Shareholder's Shares, and no Shareholder becoming
such after that date and time shall be so entitled to vote
17
<PAGE>
at such meeting or any adjournment thereof or to be treated as a Shareholder of
record for purposes of such other action.
Section 5.4 Quorum and Required Vote. Except as otherwise provided by the
------------------------
1940 Act or other applicable law, thirty percent of the Shares entitled to vote
shall be a quorum for the transaction of business at a Shareholders' meeting,
but any lesser number shall be sufficient for adjournments. Any meeting of
shareholders, whether or not a quorum is present, may be adjourned for any
lawful purpose provided that no meeting shall be adjourned for more than six
months beyond the originally scheduled meeting date. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting without the necessity of further notice. A majority of the
Shares voted, at a meeting of which a quorum is present shall decide any
questions and a plurality shall elect a Trustee, except when a different vote is
required or permitted by any provision of the 1940 Act or other applicable law
or by this Declaration of Trust or the By-Laws.
Section 5.5 Action by Written Consent. Subject to the provisions of the
-------------------------
1940 Act and other applicable law, any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on the matter
(or such larger proportion thereof as shall be required by the 1940 Act or by
any express provision of this Declaration of Trust or the By-Laws) consent to
the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5.6 Inspection of Records. The records of the Trust shall be open
---------------------
to inspection by Shareholders for any lawful purpose reasonably related to a
Shareholder's interest as a Shareholder. The Trustees may from time to time
establish reasonable standards including standards governing what information
and documents are to be furnished, at what time and location and at whose
expense with respect to Shareholder inspection of Trust records to the same
extent as is permitted stockholders of a Massachusetts business corporation
under the Massachusetts Business Corporation Law.
Section 5.7 Additional Provisions. The By-Laws may include further
---------------------
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
Section 5.8 Shareholder Communications. Whenever ten or more Shareholders
--------------------------
of record who have been such for at least six months preceding the date of
application, and who hold in the aggregate either Shares having a net asset
value of at least $25,000 or at least 1% of the outstanding Shares, whichever is
less, shall apply to the Trustees in writing, stating that they wish to
communicate with other Shareholders with a view to obtaining signatures to a
request for a Shareholder meeting and accompanied by a form of communication and
request which they wish to transmit, the Trustees shall within five business
days after receipt of such application either (1) afford to such applicants
access to a list of the names and addresses of all Shareholders as recorded on
the books of the Trust or Sub-Trust, as applicable; or (2) inform such
applicants as to the approximate number of Shareholders of record, and the
approximate cost of mailing to them the proposed communication and form of
request.
18
<PAGE>
If the Trustees elect to follow the course specified in clause (2) above,
the Trustees, upon the written request of such applicants, accompanied by a
tender of the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all Shareholders of
record at their addresses as recorded on the books, unless within five business
days after such tender the Trustees shall mail to such applicants and file with
the Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Trustees to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion. The Trustees shall thereafter comply with any order entered by
the Commission and the requirements of the 1940 Act and the Securities Exchange
Act of 1934.
ARTICLE VI - LIMITATION OF LIABILITY; INDEMNIFICATION
---------- ----------------------------------------
Section 6.1 Trustees, Shareholders, etc. Not Personally Liable; Notice.
----------------------------------------------------------
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Sub-Trust with which such person
dealt for payment under such credit, contract or claim; and neither the
Shareholders of any Sub-Trust nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, nor any other Sub-Trust
shall be personally liable therefor. Every note, bond, contract, instrument,
certificate or undertaking and every other act or thing whatsoever executed or
done by or on behalf of the Trust, any Sub-Trust or the Trustees or any of them
in connection with the Trust shall be conclusively deemed to have been executed
or done only by or for the Trust (or the Sub-Trust) or the Trustees and not
personally. Nothing in this Declaration of Trust shall protect any Trustee or
officer against any liability to the Trust or the Shareholders to which such
Trustee or officer would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee or of such officer.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of The Commonwealth of
Massachusetts and shall recite to the effect that the same was executed or made
by or on behalf of the Trust or by them as Trustees or Trustee or as officers or
officer and not individually and that the obligations of such instrument are not
binding upon any of them or the Shareholders individually but are binding only
upon the assets and property of the Trust, or the particular Sub-Trust in
question, as the case may be, but the omission thereof shall not operate to bind
any Trustees or Trustee or officers or officer or Shareholders or Shareholder
individually.
Section 6.2 Trustee's Good Faith Action; Expert Advice; No Bond or Surety.
-------------------------------------------------------------
The exercise by the Trustees of their powers and discretion hereunder shall be
binding upon everyone interested. A Trustee shall be liable for such Trustee's
own willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of the office of Trustee, and for nothing
else, and shall not be liable for errors of judgment or mistakes of fact or law.
Subject to the foregoing, (a) the Trustees shall not be responsible or liable in
any event for any
19
<PAGE>
neglect or wrongdoing of any officer, agent, employee, consultant, adviser,
administrator, distributor or principal underwriter, custodian or transfer,
dividend disbursing, Shareholder servicing or accounting agent of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee;
(b) the Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Declaration of Trust and their duties as Trustees,
and shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice; and (c) in discharging their
duties, the Trustees, when acting in good faith, shall be entitled to rely upon
the books of account of the Trust and upon written reports made to the Trustees
by any officer appointed by them, any independent public accountant, and (with
respect to the subject matter of the contract involved) any officer, partner or
responsible employee of a Contracting Party appointed by the Trustees pursuant
to Section 3.3. The Trustees as such shall not be required to give any bond or
surety or any other security for the performance of their duties.
Section 6.3 Indemnification of Shareholders. In case any Shareholder (or
-------------------------------
former Shareholder) of any Sub-Trust of the Trust shall be charged or held to be
personally liable for any obligation or liability of the Trust solely by reason
of being or having been a Shareholder and not because of such Shareholder's acts
or omissions or for some other reason, said Sub-Trust (upon proper and timely
request by the Shareholder) shall assume the defense against such charge and
satisfy any judgment thereon, and the Shareholder or former Shareholder (or such
Shareholder's heirs, executors, administrators or other legal representatives or
in the case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets of said Sub-Trust estate to be
held harmless from and indemnified against all loss and expense arising from
such liability.
Section 6.4 Indemnification of Trustees, Officers, etc. The Trust shall
------------------------------------------
indemnify (from the assets of the Sub-Trust or Sub-Trusts in question) each of
its Trustees and officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise [hereinafter referred to as
a "Covered Person"]) against all liabilities, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person had acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office (such conduct referred to hereafter as "Disabling Conduct"). A
determination that the Covered Person is entitled to indemnification may be made
by (i) a final decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not liable by
reason of Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against a Covered Person for insufficiency of evidence
of Disabling Conduct, or (iii) a reasonable determination, based upon a review
of the facts, that the indemnitee was not liable by reason of Disabling Conduct
by (a) a vote of a majority of a
20
<PAGE>
quorum of Trustees who are neither "interested persons" of the Trust as defined
in section 2(a)(l9) of the 1940 Act nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion. Expenses, including
accountants' and counsel fees so incurred by any such Covered Person (but
excluding amounts paid in satisfaction of judgments, in compromise or as fines
or penalties), may be paid from time to time by the Sub-Trust in question in
advance of the final disposition of any such action, suit or proceeding,
provided that the Covered Person shall have undertaken to repay the amounts so
paid to the Sub-Trust in question if it is ultimately determined that
indemnification of such expenses is not authorized under this Article VI and (i)
the Covered Person shall have provided security for such undertaking, (ii) the
Trust shall be insured against losses arising by reason of any lawful advances,
or (iii) a majority of a quorum of the disinterested Trustees who are not a
party to the proceeding, or an independent legal counsel in a written opinion,
shall have determined, based on a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the Covered
Person ultimately will be found entitled to indemnification.
Section 6.5 Compromise Payment. As to any matter disposed of by a
------------------
compromise payment by any such Covered Person referred to in Section 6.4,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such
indemnification shall be approved (a) by a majority of the disinterested
Trustees who are not parties to the proceeding or (b) by an independent legal
counsel in a written opinion. Approval by the Trustees pursuant to clause (a)
or by independent legal counsel pursuant to clause (b) shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with any of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Section 6.6 Indemnification Not Exclusive, etc. The right of
----------------------------------
indemnification provided by this Article VI shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article VI, "Covered Person" shall include such person's heirs, executors
and administrators, an "interested Covered Person" is one against whom the
action, suit or other proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending or threatened.
Nothing contained in this Article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on behalf of any such person.
Section 6.7 Liability of Third Persons Dealing with Trustees. No person
------------------------------------------------
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
21
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ARTICLE VII - MISCELLANEOUS
----------- -------------
Section 7.1 Duration and Termination of Trust. Unless terminated as
---------------------------------
provided herein, the Trust shall continue without limitation of time and,
without limiting the generality of the foregoing, no change, alteration or
modification with respect to any Sub-Trust or class thereof shall operate to
terminate the Trust. The Trust may be terminated at any time by a majority of
the Trustees then in office subject to a favorable vote of a majority of the
outstanding voting securities, as defined in the 1940 Act, shares of each Sub-
Trust or class thereof voting separately by Sub-Trust or class thereof.
Upon termination, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall in accordance with such procedures
as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with the
provisions of subsection (d) of Section 4.2.
Section 7.2 Reorganization. The Trust, or any one or more Sub-Trusts,
--------------
may, either as the successor, survivor, or non-survivor, (1) consolidate or
merge with one or more other trusts, sub-trusts, partnerships, associations or
corporations organized under the laws of the Commonwealth of Massachusetts or
any other state of the United States, to form a consolidated or merged trust,
partnership, limited liability company, association or corporation under the
laws of which any one of the constituent entities is organized, with the Trust
to be the survivor or non-survivor of such consolidation or merger or (2)
transfer a substantial portion of its assets to one or more other trusts, sub-
trusts, partnerships, limited liability companies, associations or corporations
organized under the laws of the Commonwealth of Massachusetts or any other state
of the United States, or have one or more such trusts, sub-trusts, partnerships,
limited liability companies, associations or corporations transfer a substantial
portion of its assets to it, any such consolidation, merger or transfer to be
upon such terms and conditions as are specified in an agreement and plan of
reorganization authorized and approved by the Trustees and entered into by the
Trust, or one or more Sub-Trusts as the case may be, in connection therewith.
Any such consolidation, merger or transfer shall require the affirmative vote of
the holders of a majority of the outstanding voting Shares, as defined in the
1940 Act, of the Trust (or each Sub-Trust affected thereby, as the case may be),
except that such affirmative vote of the holders of Shares shall not be required
if the Trust (or Sub-Trust affected thereby, as the case may be) shall be the
survivor of such consolidation or merger or transferee of such assets.
Section 7.3 Amendments. All rights granted to the Shareholders under this
----------
Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time, so long as such
amendment does not materially adversely affect the rights of any Shareholder
with respect to which such amendment is or purports to be applicable and so long
as such amendment is not in contravention of applicable law, including
22
<PAGE>
the 1940 Act, by an instrument in writing signed by a majority of the then
Trustees (or by an officer of the Trust pursuant to the vote of a majority of
such Trustees). Any amendment to this Declaration of Trust that materially
adversely affects the rights of Shareholders may be adopted at any time by an
instrument in writing signed by a majority of the then Trustees (or by an
officer of the Trust pursuant to a vote of a majority of such Trustees) when
authorized to do so by the vote in accordance with subsection (e) of Section 4.2
of Shareholders as specified in Section 5.4 hereof. Subject to the foregoing,
any such amendment shall be effective as of any prior or future time as provided
in the instrument containing the terms of such amendment or, if there is no
provision therein with respect to effectiveness, upon the execution of such
instrument and of a certificate (which may be a part of such instrument)
executed by a Trustee or officer of the Trust to the effect that such amendment
has been duly adopted.
Section 7.4 Filing of Copies; References; Headings. The original or a
--------------------------------------
copy of this instrument and of each amendment hereto shall be kept at the office
of the Trust where it may be inspected by any Shareholder. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made, as to the identities of the Trustees and
officers, and as to any matters in connection with the Trust hereunder; and,
with the same effect as if it were the original, may rely on a copy certified by
an officer of the Trust to be a copy of this instrument or of any such
amendments. In this instrument and in any such amendment, references to this
instrument, and all expressions like "herein", "hereof" and "hereunder" shall be
deemed to refer to this instrument as a whole as the same may be amended or
affected by any such amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 7.5 Applicable Law. This Declaration of Trust is made in The
--------------
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth,
including the Massachusetts Business Corporation Law as the same may be amended
from time to time, to which reference is made with the intention that matters
not specifically covered herein or as to which an ambiguity may exist shall be
resolved as if the Trust were a business corporation organized in Massachusetts,
but the reference to said Business Corporation Law is not intended to give the
Trust, the Trustees, the Shareholders or any other person any right, power,
authority or responsibility available only to or in connection with an entity
organized in corporate form. The Trust shall be of the type referred to in
Section 1 of Chapter 182 of the Massachusetts General Laws and of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 7.6 Name of Trust. It is understood that the name "CIGNA", and
-------------
any logo associated with the name is the valuable property of the CIGNA
Corporation, a Delaware corporation, and that the trust or any Sub-Trust has the
right to include "CIGNA" as a part of its name only through permission of CIGNA
Corporation. If CIGNA Corporation withdraws the right to the use of its name,
the Trust (and any Sub-Trust) shall forthwith cease to use the CIGNA name and
logo and shall take such action as may be necessary to change its name (or the
name of any Sub-Trust) to eliminate all use of or reference to the word "CIGNA".
The
23
<PAGE>
Trust hereby stipulates that companies or trusts other than the Trust may be
formed with the word "CIGNA" in their titles.
Section 7.7 Integration. This Declaration of Trust constitutes the entire
-----------
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
24
<PAGE>
IN WITNESS WHEREOF, the undersigned hereunto have set their hands and seals
in the City of Springfield, Commonwealth of Massachusetts, for themselves and
their assigns, as of the day and year first above written.
/s/ R. Bruce Albro
-------------------------------------------------
R. Bruce Albro
/s/ Hugh R. Beath
-------------------------------------------------
Hugh R. Beath
/s/ Russell H. Jones
-------------------------------------------------
Russell H. Jones
/s/ Paul J. McDonald
-------------------------------------------------
Paul J. McDonald
/s/ Arthur C. Reeds, III
-------------------------------------------------
Arthur C. Reeds, III
25
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
Hampden County, ss Springfield
Then personally appeared the within-named R. Bruce Albro, Hugh R. Beath,
Russell H. Jones, Paul J. McDonald and Arthur C. Reeds, III who acknowledged the
execution of the foregoing instrument to be their free act and deed, before me,
this 27th day of February, 1996.
/s/ Geoffrey R.T. Kenyon
-------------------------------------------------
Notary Public
[Notarial Seal]
My commission expires: April 14, 2000
--------------------------
26
<PAGE>
First Amended and Restated Master Trust Agreement
of
CIGNA Funds Group (f/k/a CIGNA ANNUITY FUNDS GROUP)
Addresses of Trustees:
R. Bruce Albro Senior Managing Director
CIGNA Investments, Inc.
S-306
900 Cottage Grove Road
Hartford, CT 06152-2306
Hugh R. Beath 83 North Street
Harrison, NY 10528
Russell H. Jones Vice President
Kaman Corporation
1332 Blue Hills Avenue
Bloomfield, CT 06002
Paul J. McDonald Executive Vice President & Chief
Financial Officer
Friendly Ice Cream Corporation
1855 Boston Road
Wilbraham, MA 01095
Arthur C. Reeds, III President
CIGNA Investments, Inc.
S-211
900 Cottage Grove Road
Hartford, CT 06152-2211
27
<PAGE>
Exhibit (5a)
CIGNA FUNDS GROUP (F/K/A CIGNA ANNUITY FUNDS GROUP)
1380 MAIN STREET
SPRINGFIELD, MA 01103
_____________________, 1996
CIGNA Investments, Inc.
900 Cottage Grove Road
Bloomfield, CT 06002
Re: Master Investment Advisory Agreement Dated as of April 26, 1988 Between
CIGNA Investments, Inc. (the "Adviser") and CIGNA ANNUITY FUNDS GROUP
(n/k/a CIGNA Funds Group) (the "Trust")
Dear Madam or Sir:
Please be advised that the Trust has established eight new series of shares:
CIGNA Developed Markets Stock Fund, CIGNA Emerging Markets Stock Fund, CIGNA
Global Bond Fund, CIGNA Government Obligations Cash Fund, CIGNA Government
Securities Fund, CIGNA High Yield Fund, CIGNA S&P 500 Index Fund and CIGNA
Treasury Obligations Cash Fund. The Trust desires to retain you to render
management and investment advisory services pursuant to the above-captioned
Master Investment Advisory Agreement for certain of the new series. The
advisory fee payable with respect to these additional series is set forth on
Schedule A-2 attached hereto. The advisory fees with respect to the series of
shares of the Trust known as CIGNA Income Fund (f/k/a CIGNA Annuity Income
Fund) and CIGNA Money Market Fund (f/k/a CIGNA Annuity Money Market Fund) have
been revised and are also reflected on Schedule A-2 attached hereto.
If you are willing to render management and investment advisory services
pursuant to the Master Investment Advisory Agreement and the fee schedule
attached hereto, would you please so indicate by signing below.
Sincerely,
CIGNA Funds Group (f/k/a CIGNA ANNUITY FUNDS GROUP)
By:_______________________________________________
By: R. Bruce Albro
Its: Chairman of the Board and President
Accepted and Agreed to this _______ day of _______________, 1996.
CIGNA Investments, Inc.
By:_______________________________________________
By: Arthur C. Reeds, III
Its: President
<PAGE>
EFFECTIVE 1/1/96
SCHEDULE A-2
Compensation Schedule for the following Series:
CIGNA Government Obligations Cash Fund
CIGNA Government Securities Fund
CIGNA High Yield Fund
CIGNA Income Fund
CIGNA Money Market Fund
CIGNA S&P 500 Index Fund
CIGNA Treasury Obligations Cash Fund
The Trust shall pay the Adviser as full compensation for all services rendered
and all facilities furnished hereunder, a management fee for each Series by
applying the following percentages of the average daily net asset value of
each Series for the calendar year, computed in the manner used for the
determination of the offering price of Shares of the Series:
<TABLE>
<CAPTION>
<S> <C>
CIGNA Government Obligations Cash Fund - .35
CIGNA Government Securities Fund - .50
CIGNA High Yield Fund - .75
CIGNA Income Fund - .50
CIGNA Money Market Fund - .35
CIGNA S&P 500 Index Fund - .25
CIGNA Treasury Obligations Cash Fund - .35
</TABLE>
The fee accrued as of the end of each month shall be paid no later than the
15th of the following month.
In the event that expenses of any Series for any calendar year should exceed
the expense limitation on investment company expenses imposed by any statute
or regulatory authority of any state, whether or not Shares of the Series are
qualified for offer and sale in any state, the compensation due the Adviser
for such shall be reduced by the amount of such excess by a reduction or
refund thereof, and, if necessary, the Adviser shall assume expenses of the
Series to the extent required by any such expense limitation, provided, that
--------
the Board of Trustees of the Trust may waive any specific expense limitation
which, in the judgment of the Board, is more stringent than is imposed by
states generally.
<PAGE>
Exhibit (5b)
FIRST AMENDED AND RESTATED MASTER INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of January, 1996 between CIGNA
INVESTMENTS, INC., a corporation organized under the laws of the State of
Delaware and having its principal place of business in Bloomfield,
Connecticut (the "Adviser") and CIGNA Funds Group (f/k/a CIGNA ANNUITY
FUNDS GROUP), a Massachusetts business trust having its principal place of
business in Springfield, Massachusetts (the "Trust").
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is so registered under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is engaged in the business of rendering
investment management services and is so registered under the Investment
Advisers Act of 1940, as amended; and
WHEREAS, the Trust operates as a "series company" as contemplated by
Rule 18f-2 under the 1940 Act and is authorized to issue shares of
beneficial interest ("Shares") in separate series with each such series
representing interest in a separate portfolio of securities and other
assets; and
WHEREAS, the Trust, as of the date hereof, offers or intends to offer
Shares in seven series, namely, CIGNA Government Obligations Cash Fund,
CIGNA Government Securities Fund, CIGNA High Yield Fund, CIGNA Income Fund,
CIGNA Money Market Fund, CIGNA S&P 500 Index Fund and CIGNA Treasury
Obligations Cash Fund (such series (the "Initial Series") together with all
other series subsequently established by the Trust with respect to which
the Trust desires to retain the Adviser to render investment advisory
services hereunder and the Adviser is willing so to do being herein
collectively referred to as the "Series"); and
WHEREAS, the Trust entered into a Master Investment Advisory Agreement
with the Adviser dated as of April 26, 1988 (the "Initial Agreement"); and
WHEREAS, the Trust and the Adviser amended the Initial Agreement by an
amendment dated as of January 1, 1996 (the "Amendment"), which Amendment
was approved by the Sole Shareholder of the Trust, Connecticut General Life
Insurance Company, a Connecticut corporation; and
WHEREAS, the Trust became a mandated electronic filer on May 1, 1995
pursuant to the Securities and Exchange Commission's Phase-in Schedule with
regard to registered investment companies whose filings are subject to
review by the Division of Investment Management; and
WHEREAS, Rule 102 under Regulation S-T requires that, with regard to
any amendment to an investment advisory agreement filed as an exhibit to a
registered investment company's registration statement, an electronic filer
shall, upon such amendment, restate in electronic format its investment
advisory agreement; and
<PAGE>
WHEREAS, the parties to this Agreement desire to amend and restate the
Initial Agreement in compliance with Rule 102 under Regulation S-T in order
to incorporate the Amendment and to otherwise define the terms and
conditions under which the Adviser shall render investment advisory
services to the Series and under which the Trust is willing to retain the
Adviser; and
WHEREAS, the Initial Agreement is incorporated by reference to an
amendment to the Trust's Registration Statement;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the
parties hereto as follows:
1. The Trust hereby appoints the Adviser to act as manager and
investment adviser to each of the Initial Series for the period and on the
terms herein set forth, subject to the control of the Board of Trustees of
the Trust. The Adviser hereby accepts such appointment and agrees during
such period, at its own expense, to render the services and to assume the
obligations herein set forth for the compensation herein provided;
In the event that the Trust establishes one or more series of
Shares other than the Initial Series with respect to which it desires to
retain the Adviser to render management and investment advisory services
hereunder, it shall so notify the Adviser in writing, indicating the
advisory fee which will be payable with respect to the additional series of
Shares. If the Adviser is willing to render such services, it shall so
notify the Trust in writing, whereupon such series of Shares shall become a
Series hereunder.
2. (a) The Adviser, at its expense, will furnish continuously an
investment program for each Series, will determine, subject to the control
and periodic review of the Board of Trustees of the Trust, what investments
shall be purchased, held, sold or exchanged by each Series and what
portion, if any, of the assets of each Series shall be held in cash, cash
equivalents or other temporary investments and shall, on behalf of each
Series, make changes in that Series' investments. Subject always to the
provisions of the Declaration of Trust of the Trust and its Bylaws, the
1940 Act, as each of the same may be amended from time to time, and the
control of the Board of Trustees, the Adviser will also manage, supervise
and conduct the other affairs and business of the Trust and each Series and
matters incidental thereto.
(b) The Adviser, at its own expense, shall place orders for the
purchase and sale of portfolio securities for the account of each Series
with brokers or dealers selected by the Adviser. In executing portfolio
transactions for each Series and selecting brokers or dealers, the Adviser
will use its best efforts to seek on behalf of the Series the best overall
terms available. In assessing the best overall terms available for any
transaction, the Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis). In evaluating the best overall
terms available, and in selecting the broker or dealer to execute a
particular transaction, the Adviser may also consider the brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934, as the same may be amended from time to
time (the "1934 Act")) provided to the Series and/or other accounts over
which the Adviser or an affiliate of the Adviser exercises investment
discretion. The Adviser is authorized to pay to a broker or dealer who
provides such brokerage and research services a commission for executing a
Series portfolio transaction which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction
if, but only if, the Adviser determines in good faith that such commission
was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer--viewed in
-2-
<PAGE>
terms of that particular transaction or in terms of all of the accounts
over which investment discretion is so exercised.
3. In addition to performing at its own expense the obligations set
forth in paragraph 2 hereof, the Adviser shall furnish at its own expense
or pay the expenses of the Trust for the following:
(a) office space in the offices of the Adviser or in such other
place as may be agreed upon from time to time, and all necessary office
facilities and equipment;
(b) necessary executive and other personnel for managing the
affairs of the Trust, including personnel to perform clerical, bookkeeping,
accounting and other office functions (exclusive of those related to and to
be performed under contracts for custodial, transfer, paying and plan
agency services by the bank selected to perform such services); and
(c) all information and services, other than services of counsel,
required in connection with the preparation of registration statements and
prospectuses, including amendments and revisions thereof, all annual,
semiannual and periodic reports, and notices and proxy solicitation
material furnished to shareholders of the Trust, or to holders of variable
annuity contracts funded by shares of the Trust, as the case may be, or to
regulatory authorities.
4. Nothing in paragraph 3 hereof shall require the Adviser to bear, or
to reimburse the Trust for:
(a) any of the costs of printing and mailing the items referred to
in subparagraph (c) of paragraph 3;
(b) the costs of printing and mailing of sales literature,
prospectuses and offering circulars required by regulatory authorities;
(c) compensation of Trustees of the Trust who are not directors,
officers or employees of the Adviser, CIGNA Corporation or any of its
affiliates;
(d) registration, filing and other fees in connection with
requirements of regulatory authorities;
(e) the charges and expenses of the Custodian appointed by the
Trust for custodial, paying agent, transfer agent and plan agent services;
(f) charges and expenses of independent accountants retained by the
Trust;
(g) charges and expenses of any transfer agents and registrars
appointed by the Trust;
(h) issue and transfer taxes, brokers' commissions and dealers'
concessions chargeable to the Trust in connection with securities
transactions to which the Trust is a party, including any portion of such
commissions attributable to research and brokerage services as defined by
Section 28(e) of the 1934 Act;
(i) taxes and corporate fees payable by the Trust to federal, state
or other governmental agencies;
-3-
<PAGE>
(j) the cost of share certificates (if any) representing Shares of
a Series;
(k) legal fees and expenses in connection with the affairs of the
Trust, including registering and qualifying its Shares with federal and
state regulatory authorities; and
(l) expenses of shareholders' and trustees' meetings.
5. Notwithstanding the provisions of Paragraphs 3 and 4:
(a) The Trust shall reimburse the Adviser for its costs of
maintaining the Office of the Treasurer of the Trust and the Office of the
Secretary of the Trust, determined in such manner as may be approved by the
Board of Trustees of the Trust. Such reimbursement shall be made by the
15th of each month with respect to such costs accrued during the previous
month.
(b) Except for printing expenses (including design, layout, and
coordination) and except as provided in paragraph 5(a) above, the Adviser
shall indemnify the Trust against any expense of personnel of the Adviser,
or any affiliate of the Adviser, which might otherwise have been charged to
the Trust under any provision of this Agreement.
6. The Adviser agrees to hold the Trust harmless with respect to any
and all damages the Trust may sustain resulting from any dishonest act of
any employee or agent of the Adviser. This Paragraph 6 is in addition to,
and not by way of limitation of, any other rights of indemnification which
the Trust may have hereunder or otherwise.
7. The services of the Adviser to the Trust hereunder are not to be
deemed exclusive and the Adviser shall be free to render similar service to
others so long as its services hereunder are not impaired or interfered
with thereby.
8. The Trust shall pay the Adviser as full compensation for all
services rendered and all facilities furnished hereunder as to a Series'
management fee for that Series determined in accordance with the
appropriate portion of Schedule A attached hereto.
9. It is understood that trustees, officers, agents and shareholders
of the Trust are or may be interested in the Adviser as directors,
officers, shareholders or otherwise, that directors, officers, agents and
shareholders of the Adviser are or may be interested in the Trust as
trustees, officers, shareholders or otherwise, that the Adviser may be
interested in the Trust as a shareholder or otherwise, and that the
existence of any such dual interest shall not affect the validity hereof or
of any transactions hereunder except as otherwise provided in the
Declaration of Trust of the Trust and the Certificate of Incorporation of
the Adviser, respectively, or by specific provision of applicable law.
10. (a) This Agreement will take effect as of January 1, 1996. This
Agreement shall thereafter continue in full force and effect form year to
year as to a Series, if its continuance is specifically approved before May
1, 1996 and before May 1 of each subsequent year by vote of a majority of
the outstanding shares (as defined in the 1940 Act) of the Series of the
Trust in question or by the Board of Trustees of the Trust, and in either
event by a majority of the Trustees of the Trust who are not parties to the
Agreement or interested persons (within the meaning of the 1940 Act) of the
Trust or the Adviser, such Trustees voting in person at a meeting called
for such purpose; provided, however, that:
-4-
<PAGE>
(b) This Agreement may at any time be terminated as to any Series
without the payment of any penalty on 60 days' written notice to the
Adviser either by vote of the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of a Series;
(c) This Agreement shall immediately terminate in event of its
assignment (as that term is defined in the 1940 Act); and
(d) This Agreement may be terminated by the Adviser in its entirety
or with respect to one or more than one of the Series on 90 days' written
notice to the Trust.
11. Any notice under this Agreement shall be in writing, addressed
and delivered or mailed postage prepaid to the other party at such address
as such other party may designate for the receipt of such notices. Until
further notice to the other party, it is agreed for this purpose that the
address of the Adviser shall be 900 Cottage Grove Road, Bloomfield,
Connecticut 06002 and that the address of the Trust shall be 1380 Main
Street, Springfield, Massachusetts 01103.
12. Copies of the First Amended and Restated Master Trust Agreement
establishing CIGNA Funds Group (the "Trust") are on file with the Secretary
of the Commonwealth of Massachusetts, and notice is hereby given that this
First Amended and Restated Master Investment Advisory Agreement is executed
on behalf of the Trust by an officer of the Trust as an officer and not
individually and that the obligations of or arising out of this First
Amended and Restated Master Investment Advisory Agreement are not binding
upon any of the Trustees, officers, shareholders, employees or agents of
the Trust individually but are binding only upon the assets and property of
the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate as of the day and year first above written.
CIGNA FUNDS GROUP CIGNA INVESTMENTS, INC.
By: By:
------------------------ ------------------------
R. Bruce Albro Arthur C. Reeds, III
Chairman of the Board and President President
-5-
<PAGE>
EFFECTIVE 1/1/96
SCHEDULE A-1
Compensation Schedule for the following Series:
CIGNA Government Obligations Cash Fund
CIGNA Government Securities Fund
CIGNA High Yield Fund
CIGNA Income Fund
CIGNA Money Market Fund
CIGNA S&P 500 Index Fund
CIGNA Treasury Obligations Cash Fund
The Trust shall pay the Adviser as full compensation for all services
rendered and all facilities furnished hereunder, a management fee for each
Series by applying the following percentages of the average daily net asset
value of each Series for the calendar year, computed in the manner used for
the determination of the offering price of Shares of the Series:
<TABLE>
<CAPTION>
<S> <C>
CIGNA Government Obligations Cash Fund - .35
CIGNA Government Securities Fund - .50
CIGNA High Yield Fund - .75
CIGNA Income Fund - .50
CIGNA Money Market Fund - .35
CIGNA S&P 500 Index Fund - .25
CIGNA Treasury Obligations Cash Fund - .35
</TABLE>
The fee accrued as of the end of each month shall be paid no later than the
15th of the following month.
In the event that expenses of any Series for any calendar year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any state, whether or not Shares of the
Series are qualified for offer and sale in any state, the compensation due
the Adviser for such shall be reduced by the amount of such excess by a
reduction or refund thereof, and, if necessary, the Adviser shall assume
expenses of the Series to the extent required by any such expense
limitation, provided, that the Board of Trustees of the Trust may waive any
--------
specific expense limitation which, in the judgment of the Board, is more
stringent than is imposed by states generally.
-6-
<PAGE>
Exhibit (8a)
CIGNA FUNDS GROUP (F/K/A CIGNA ANNUITY FUNDS GROUP)
1380 MAIN STREET
SPRINGFIELD, MA 01103
, 1996
- -------------------
State Street Bank and Trust Company
2 Heritage Drive
Quincy, Massachusetts 02171
Re: Custodian Contract Dated as of October 15, 1987 Between CIGNA ANNUITY FUNDS
GROUP (n/k/a CIGNA Funds Group) (the "Trust") and State Street Bank and
Trust Company (the "Custodian")
Dear Madam or Sir:
Please be advised that the Trust has established eight new series of shares:
CIGNA Developed Markets Stock Fund, CIGNA Emerging Markets Stock Fund, CIGNA
Global Bond Fund, CIGNA Government Obligations Cash Fund, CIGNA Government
Securities Fund, CIGNA High Yield Fund, CIGNA S&P 500 Index Fund and CIGNA
Treasury Obligations Cash Fund. The Trust desires to retain you as custodian to
render custodial services pursuant to the above-captioned Custodian Contract for
these new series.
If you are willing to act as custodian and render custodial services pursuant to
the Custodian Contract, would you please so indicate by executing the enclosed
copy of this letter and returning it to Alfred A. Bingham III, S-210, 900
Cottage Grove Road, Hartford, CT 06152-2210.
Please note that the Trust is changing its name to CIGNA Funds Group, the name
of its series of shares known as CIGNA Annuity Income Fund to CIGNA Income Fund
and the name of its series of shares known as CIGNA Annuity Money Market Fund to
CIGNA Money Market Fund.
Sincerely,
CIGNA Funds Group (f/k/a CIGNA ANNUITY FUNDS GROUP)
By:_______________________________________________
By: Alfred A. Bingham III
Its: Vice President and Treasurer
Accepted and Agreed to this _______ day of ______________, 1996.
State Street Bank and Trust Company
By:_______________________________________________
By:
Its:
<PAGE>
Exhibit (9a)
CIGNA FUNDS GROUP (F/K/A CIGNA ANNUITY FUNDS GROUP)
1380 MAIN STREET
SPRINGFIELD, MA 01103
, 1996
- -----------------
State Street Bank and Trust Company
2 Heritage Drive
Quincy, Massachusetts 02171
Re: Transfer Agency and Service Agreement Dated as of July 30, 1985 Between
CIGNA ANNUITY FUNDS GROUP (n/k/a CIGNA Funds Group) (the "Trust") and State
Street Bank and Trust Company (the "Transfer Agent")
Dear Madam or Sir:
Please be advised that the Trust has established eight new series of shares:
CIGNA Developed Markets Stock Fund, CIGNA Emerging Markets Stock Fund, CIGNA
Global Bond Fund, CIGNA Government Obligations Cash Fund, CIGNA Government
Securities Fund, CIGNA High Yield Fund, CIGNA S&P 500 Index Fund and CIGNA
Treasury Obligations Cash Fund. The Trust desires to retain you to act as and
render services as transfer agent and dividend disbursing agent pursuant to the
above-captioned Transfer Agency and Service Agreement for these new series.
If you are willing to act as and render services as transfer agent and dividend
disbursing agent pursuant to the Transfer Agency and Service Agreement, would
you please so indicate by executing the enclosed copy of this letter and
returning it to Alfred A. Bingham III, S-210, 900 Cottage Grove Road, Hartford,
CT 06152-2210.
Please note that the Trust is changing its name to CIGNA Funds Group, the name
of its series of shares known as CIGNA Annuity Income Fund to CIGNA Income Fund
and the name of its series of shares known as CIGNA Annuity Money Market Fund to
CIGNA Money Market Fund.
Sincerely,
CIGNA Funds Group (f/k/a CIGNA ANNUITY FUNDS GROUP)
By:_______________________________________________
By: Alfred A. Bingham III
Its: Vice President and Treasurer
Accepted and Agreed to this _______ day of ________________, 1996.
State Street Bank and Trust Company
By:_______________________________________________
By:
Its:
<PAGE>
Exhibit (9c)
DEFERRED FEE AGREEMENT
----------------------
THIS AGREEMENT, dated as of ______________ by and between CIGNA Funds Group
(the "Trust"), a management investment company organized as a Massachusetts
business trust, with offices at 1380 Main Street, Springfield, MA 01103 and
____________________________ ("Trustee"), currently residing at _______________.
WITNESSETH:
WHEREAS, Trustee currently serves as a trustee of the Trust and receives
remuneration ("Trustee's Fees") from the Trust in that capacity; and
WHEREAS, Trustee desires that an arrangement be established with the Trust
under which Trustee may defer receipt of Trustee's Fees that may otherwise
become payable to Trustee and that relate to services performed after the date
hereof; and
WHEREAS, the Trust is agreeable to such an arrangement;
NOW, THEREFORE, it is agreed as follows:
1. Trustee irrevocably elects to defer receipt, subject to the provisions
of this Agreement, of any Trustee's Fees which may otherwise become payable to
Trustee for the calendar year 1995, and which relate to services performed after
the date hereof. Such election shall continue in effect with respect to any
Trustee's Fees which may otherwise become payable to Trustee for any calendar
year subsequent to 1995 (which, together with the remainder of calendar year
1995, are referred to herein as "Deferred Years" and individually as a "Deferred
Year"), unless prior to January 1 of such year, Trustee shall have delivered to
the President of the Trust a written revocation of such election with respect to
any Trustee's Fees which may otherwise become payable to him for such year.
Trustee's Fees with respect to which Trustee shall have elected to defer receipt
(and shall not have revoked such election) as provided above are hereinafter
referred to as "Deferred Trustee's Fees."
2. During any Deferred Year, the Trust shall credit the amount of Deferred
Trustee's Fees to a book reserve account (the "Deferred Fee Account") based on
the rate(s) of such Trustee's Fees in effect from time to time during such year.
The Deferred Fee Account shall also be credited with the aggregate value on the
date hereof of any book reserve account designated as a Deferred Fee Account
pursuant to any Deferred Fee Agreement entered into between the Trust and
Trustee prior to the date hereof. Trustee's Fees that become payable for
attending Board Meetings or meetings of the Audit, Nominating, Contracts or
other committees shall be credited to the Deferred Fee Account on the business
day following a meeting of the Board (or committees of the Board, as
appropriate) based on the rate(s) of such Trustee's Fees in effect from time to
time during such year.
3. The "Underlying Securities" designated for the Deferred Fee Account
shall be shares of the AIM Money Market of AIM Funds Group; provided, however,
that management of the Trust and Trustee may from time to time designate in
writing shares of one or more series of AIM Funds Group (or any successor to any
such series) as the Underlying Securities. Notwithstanding the foregoing, if in
the reasonable judgment of management of the Trust the acquisition of designated
Underlying Securities would be reasonably likely to result in a violation by any
series of the Trust of Section 12(d)(1) under the Investment Company Act
<PAGE>
of 1940, as amended, or of the investment objectives and policies of any series
of the Trust, management may designate new Underlying Securities, upon written
notice to the Trustee, which designation shall be effective until such time as a
new designation is made in writing by management of the Trust and the Trustee.
4. The value of the Deferred Fee Account as of any date shall be equal to
the value such account would have had as of such date if the amounts credited
thereto had been invested and reinvested in the Underlying Securities from and
after the date such Underlying Securities were designated. In addition, the
Deferred Fee Account shall be credited or debited, as the case may be, with all
gains, losses, interest, dividends and earnings that would have been realized
had the Deferred Fee Account been invested in such Underlying Securities from
and after the date such Underlying Securities were designated.
5. The Trust's obligation to make payments of the Deferred Fee Account
shall be a general obligation of the Trust, and such payments shall be made from
the Trust's general assets and property. Trustee's relationship to the Trust
under this Agreement shall be only that of a general unsecured creditor, and
neither this Agreement nor any action taken pursuant hereto shall create or be
construed to create a trust or fiduciary relationship of any kind between the
Trust and Trustee, Trustee's designate beneficiary or any other person. The
Trust shall not be required to purchase, hold or dispose of any investments
pursuant to this Agreement; provided, however, that if in order to cover its
obligations hereunder the Trust elects to purchase any investments (including
without limitation investments in the Underlying Securities), the same shall
continue for all purposes to be a part of the general assets and property of the
Trust, subject to the claims of its general creditors and no person other than
the Trust shall by virtue of the provisions of this Agreement have any interest
in such assets other than an interest as a general creditor. The Trust shall
provide an annual statement to Trustee showing such information as is
appropriate, including the aggregate amount in the Deferred Fee Account, as of a
reasonably current date, which amount may increase or decrease from time to time
as a result of gains, losses, interest, dividends and earnings, in accordance
with paragraph 4 above.
6. Upon termination of Trustee's service as a trustee, payment of amounts
out of Trustee's Deferred Fee Account shall be made to Trustee in such number of
annual installments as shall be determined by the Trust in its sole discretion.
The Trust may consult with Trustee prior to such determination. Each annual
installment payment shall be made as of January 31, beginning with the January
31st following the termination of Trustee's service as a trustee. Until
complete payment of amounts credited to the Deferred Fee Account, the unpaid
balance shall be credited or debited, as the case may be, with all gains,
losses, interest, dividends and earnings in accordance with paragraph 4 above.
The Trust in its sole discretion reserves the right to accelerate payment of
amounts in Trustee's Deferred Fee Account at any time after termination of
Trustee's service as a trustee. Notwithstanding the foregoing, in the event of
liquidation, dissolution or winding up of the Trust or the distribution of all
or substantially all of the Trust's assets and property relating to one or more
series of its shares to shareholders of such series (for this purpose a sale,
conveyance or transfer of the Trust's assets to a trust, partnership,
association or another corporation in exchange for cash, shares or other
securities with the transfer being made subject to, or with the assumption by
the transferee of, the liabilities of the Trust shall not be deemed a
termination of the Trust or such a distribution), all unpaid amounts in the
Deferred Fee Account as to such series as of the effective date thereof shall be
paid in a lump sum on such effective date.
<PAGE>
7. Payment of amounts credited to the Deferred Fee Account shall be made
in the form of a check. Such payment shall be made to Trustee except that:
(a) in the event that Trustee shall be determined by a court of competent
jurisdiction to be incapable of managing Trustee's financial affairs,
and if the Trust has actual notice of such determination, payment
shall be made to Trustee's personal representative(s); and
(b) in the event of Trustee's death, payment shall be made to the last
beneficiary designated by Trustee for purposes of receiving such
payment in such event in a written notice delivered to the President
of the Trust; provided that if such beneficiary has not survived
Trustee, payment shall instead be made to Trustee's estate. (Trustee
hereby designates the Estate of ________________ as the initial
beneficiary for purposes of receiving such payment in such event.)
The Trust may deduct from the payment of amounts in the Deferred Fee
Account any amounts required for purposes of withholding for federal and/or
state income and employment tax or any similar tax or levy.
8. Amounts in the Deferred Fee account shall not in any way be subject to
the debts or other obligations of Trustee and may not be voluntarily sold,
transferred, pledged or assigned by him except as provided in paragraph 7(b).
9. This Agreement shall not be construed to confer any right on the part
of Trustee to be or remain a trustee of the Trust or to receive any, or any
particular rate of, Trustee's Fees.
10. Interpretations of, and determinations related to, this Agreement made
by the Trust, including any determinations of the amounts in the Deferred Fee
Account, shall be made by the Board of Trustees of the Trust and, if made in
good faith, shall be conclusive and binding upon all parties; and the Trust
shall not incur any liability to Trustee for any such interpretation or
determination so made or for any other action taken by it in connection with
this Agreement in good faith.
11. This Agreement contains the entire understanding and agreement between
the parties with respect to the subject matter hereof, and may not be amended,
modified or supplemented in any respect except by subsequent written agreement
entered into by both parties. This Agreement supersedes all prior agreements
between the parties with respect to the subject matter hereof, including but not
limited to any prior Deferred Fee Agreement.
12. This Agreement shall be binding upon, and shall inure to the benefit
of, the Trust and its successors and assigns and Trustee and Trustee's heirs,
executors, administrators and personal representatives.
13. This Agreement is being entered into in, and shall be construed in
accordance with the internal laws of, the Commonwealth of Massachusetts, without
regard to conflicts of law provisions thereof.
14. Copies of the First Amended and Restated Master Trust Agreement
establishing CIGNA Funds Group (the "Trust") are on file with the secretary of
the Commonwealth of Massachusetts, and notice is hereby given that this
Agreement is executed on behalf of the
<PAGE>
Trust by an officer of the Trust as an officer and not individually and that the
obligations of or arising out of this Agreement are not binding upon any of the
Trustees, officers, shareholders, employees or agents of the Trust individually
but are binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, the Trust has caused this Agreement to be executed on
its behalf by its duly authorized officer, and Trustee has executed this
Agreement, on the date first written above.
CIGNA Funds Group
By:
--------------------------------------
Name:
Title:
------------------------------------------
Trustee
<PAGE>
Exhibit (9d)
SHAREHOLDER SERVICES PLAN
OF
CIGNA FUNDS GROUP
WHEREAS, CIGNA Funds Group (the "Trust") engages in business as an open-end
management investment company and is registered under the Investment Company Act
of 1940, as amended (the "Act");
WHEREAS, shares of beneficial interest of the Trust are currently divided
into seven separate series (CIGNA Money Market Fund, CIGNA Treasury Obligations
Cash Fund, CIGNA Government Obligations Cash Fund, CIGNA Government Securities
Fund, CIGNA Income Fund, CIGNA High Yield Fund and CIGNA S&P 500 Index Fund)
(the "Funds");
WHEREAS, shares of the Funds are or may be issued in two classes,
designated the institutional class and the retail class, respectively;
WHEREAS, on behalf of the Funds the Trust desires to appoint CIGNA
Financial Advisors, Inc. ("CFA") to provide certain services to holders of the
retail class shares of the Funds under the terms and conditions described
herein;
NOW, THEREFORE, the Trust hereby adopts this Shareholder Services Plan (the
"Plan"), on behalf of the retail class shares of the Funds, and CFA hereby
agrees to provide or cause to be provided the shareholders services described
herein, subject to the following terms and conditions:
1. Each Fund is authorized to pay to CFA, as compensation for service
activities (as defined in Paragraph 3 hereof) rendered to holders of the retail
class shares of a Fund by CFA, its affiliates or independent service providers,
Thirty Dollars ($30.00) for each account in the Fund's retail class. However,
each Fund's payment shall be reduced to the extent necessary (if any) to cause
each Fund to comply with the Act and applicable Internal Revenue Service rules
and regulations (as same may be amended from time to time). Such payment shall
be calculated daily and paid monthly. CFA is authorized to pay its affiliates
or independent third party service providers for performing service activities
consistent with this Plan.
2. The Plan shall not take effect with respect to a class of shares of a
Fund until it, together with any related agreements, has been approved by votes
of a majority of both (a) the Trustees of the Trust and (b) those Trustees of
the Trust who are not "interested persons" of the Trust (as defined in the Act)
Page 1
<PAGE>
and who have no direct or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Plan Trustees"), cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
3. CFA shall provide to the Board of Trustees of the Trust and the
Trustees shall review, at least quarterly, a written report of the amounts
expended in connection with its performance of "service activities," as defined
in this paragraph 3, and the purposes for which such expenditures were made.
CFA shall submit only information regarding amounts expended for "service
activities" to the Board of Trustees of the Trust in support of the amounts
payable hereunder.
For purposes of the Plan, "service activities" may include receiving,
aggregating, and processing shareholder or beneficial owner (collectively,
"shareholder") orders; furnishing shareholder sub-accounting; providing and
maintaining retirement account records; communicating periodically with
shareholders; acting as the sole shareholder of record and nominee for
shareholders; maintaining account records for shareholders; answering questions
and handling correspondence from shareholders about their accounts; issuing
confirmations for transactions by shareholders; and performing similar account
administrative services.
4. Amounts payable to CFA hereunder will be paid by a Fund to CFA until
the Plan is terminated or not renewed with respect to that Fund. If the Plan is
terminated or not renewed with respect to a Fund, any expenses incurred by CFA,
its affiliates or independent third party service providers, on behalf of the
Fund in excess of the payments of the amounts specified in Paragraph 1 hereof
which CFA has received or accrued through the termination date are the sole
responsibility and liability of CFA and are not obligations of the Fund.
5. This Plan shall continue in full force and effect as to a Fund for so
long as such continuance is specifically approved at least annually in the
manner provided for approval of the Plan in Paragraph 2.
6. This Plan may be terminated as to any Fund at any time, without
payment of any penalty, by vote of a majority of the Plan Trustees or by a vote
of a majority of the outstanding voting securities of the affected class of a
Fund on not more than 30 days' written notice to any other party to the Plan, or
by notice upon 30 day's prior written notice by CFA to the Trust.
7. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may
Page 2
<PAGE>
be, the first two years of which shall be in an easily accessible place.
8. The Plan may be amended at any time with respect to a Fund provided
that any amendment to increase materially the amount of the payment provided for
in Paragraph 1 is invalid and unenforceable unless such amendment is approved in
the manner provided for initial approval in Paragraph 2 hereof, and no material
amendment to the Plan shall be made unless approved in the manner provided for
approval in Paragraph 2 hereof.
IN WITNESS WHEREOF, the Trust, on behalf of the Funds, and CFA have
executed this Shareholder Services Plan as of the _____ day of
_________________________, 1996.
CIGNA FUNDS GROUP
By: ___________________________________
Title:
CIGNA FINANCIAL ADVISORS, INC.
By: ___________________________________
Title:
Page 3
<PAGE>
Exhibit (18)
DUAL CLASS PLAN PURSUANT TO RULE 18F-3
FOR
CIGNA FUNDS GROUP
WHEREAS, CIGNA Funds Group (the "Trust"), is registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Trust issues or intends to issue shares of beneficial interest
in separate series, including CIGNA Money Market Fund, CIGNA Treasury
Obligations Cash Fund, CIGNA Government Obligations Cash Fund, CIGNA Government
Securities Fund, CIGNA Income Fund, CIGNA High Yield Fund and CIGNA S&P 500
Index Fund (the "Funds");
WHEREAS, the Trust desires to adopt, on behalf of each of the Funds, a Dual
Class Plan pursuant to Rule 18f-3 under the 1940 Act (the "Dual Class Plan")
with respect to each of the Funds; and
NOW THEREFORE, the Trust hereby adopts, on behalf of the Funds, the Dual
Class Plan in accordance with Rule 18f-3 under the 1940 Act, subject to the
following terms and conditions:
1. Features of the Classes. Each of the Funds issues its shares of
-----------------------
beneficial interest in two classes: the institutional class shares and the
retail class shares. Shares of each class of a Fund, regardless of class
designation, shall represent an equal pro rata interest (based on relative net
asset values) in the portfolio securities of that Fund, and shall have identical
voting, dividend, liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, designations and terms and
conditions, except that: (a) each class shall have a different designation; (b)
each class of shares shall bear any Class Expenses, as defined in Section 3
below; and (c) each class shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its service arrangement and
each class shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class.
2. Shareholder Service Plan - Retail Class Shares. The Trust has adopted
----------------------------------------------
a Shareholder Services Plan with respect to the retail class shares of each
Fund. Under the terms of the Plan, the Trust is authorized to pay to CIGNA
Financial Advisors, Inc. ("CFA"), as compensation for service activities
rendered to holders of the retail class shares of a Fund by CFA, its affiliates
or independent service providers, Thirty Dollars ($30.00) for each account in
the Fund's retail class. However, each Fund's payment shall be reduced to the
extent necessary (if any) to cause each Fund to comply with the 1940 Act and
applicable Internal Revenue Service rules and regulations (as same may be
amended from time to time). Such payment shall be
<PAGE>
calculated daily and paid monthly. CFA is authorized to pay its affiliates or
independent third-party service providers for performing service activities
consistent with the shareholder Services Plan.
Under the terms of the Shareholder Services Plan, the services may include,
but are not limited to, the following functions: receiving, aggregating, and
processing shareholder or beneficial owner (collectively "shareholder") orders;
furnishing shareholder sub-accounting; providing and maintaining retirement
account records; communicating periodically with shareholders; acting as the
sole shareholder of record and nominee for shareholders; maintaining account
records for shareholders; answering questions and handling correspondence from
shareholders about their accounts; issuing confirmations for transactions by
shareholders; and performing similar account administrative services.
3. Allocation of Income and Expenses. (a) The net asset value of all
---------------------------------
outstanding shares representing interests in a Fund shall be computed on the
same days and at the same times. For purposes of computing net asset value, the
gross investment income of each Fund shall be allocated to each class on the
basis of the relative net assets of each class at the beginning of the day
adjusted for capital share activity for each class as of the prior day as
reported by the Fund's transfer agent, for non-daily dividend Funds; and on the
basis of the relative value of settled shares at the beginning of the day
adjusted for receipt of settled AM wires (if applicable), for daily-dividend
Funds. Realized and unrealized gains and losses for both classes will be
allocated based on relative net assets at the beginning of the day, adjusted for
capital shares activity for each class as of the prior day, as reported by the
Fund's transfer agent. To the extent practicable, certain expenses, (other than
Class Expenses as defined below which shall be allocated more specifically),
shall be allocated to each class based on the relative net assets of each class
at the beginning of the day, adjusted for capital share activity for each class
as of the prior day, as reported by the Fund's transfer agent, for non-daily
dividend Funds; and on the basis of the relative value of settled shares at the
beginning of the day adjusted for receipt of settled AM wires (if applicable),
for daily-dividend Funds. Allocated expenses to each class shall be subtracted
from allocated gross income. These expenses include:
(1) Expenses incurred by the Trust as a registered series investment
company and not attributable to a particular Fund or to a particular class of
shares thereof ("Trust Expenses"); and
(2) Expenses incurred by a particular Fund but not attributable to any
particular class of such Fund's shares ("Fund Expenses").
Page 2
<PAGE>
(b) Expenses attributable to a particular class ("Class Expenses")
initially shall be limited to : (i) payments made pursuant to the Shareholder
Services Plan; (ii) transfer agent fees attributable to a specific class; (iii)
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders of
a specific class; (iv) Blue Sky registration fees incurred by a class; (v) SEC
registration fees incurred by a class; (vi) the expense of administrative
personnel and services to support the shareholders of a specific class; (vii)
litigation or other legal expenses relating solely to one class; and (viii)
Trustees' fees incurred as a result of issues relating solely to one class.
Expenses in category (i) above must be allocated to the class for which such
expenses are incurred. Some or all other Class Expenses listed in categories
(ii) - (viii) above may be allocated to a class, but only if the Trust's
President and Treasurer have approved such allocation, subject to Board approval
or ratification ("Approved Class Expenses"). The Trust's determination of the
extent to which Class Expenses will be allocated by class will be consistent
with applicable legal principles and regulatory considerations under the 1940
Act and the Internal Revenue Code of 1986, as amended.
Therefore, expenses of a Fund shall be apportioned to each class of shares
depending upon the nature of the expense item. Trust Expenses and Fund Expenses
will be allocated between the classes of shares based on the relative net assets
of each class at the beginning of the day, adjusted for capital shares activity
for each class as of the prior day, as reported by the Fund's transfer agent,
for non-daily dividend Funds; and based on the relative value of settled shares
adjusted for receipt of settled AM wires (if applicable) at the beginning of the
day for daily-dividend Funds. Approved Class Expenses shall be allocated to the
particular class to which they are attributable. In addition, certain expenses
may be allocated differently if their method of imposition changes. Thus, if a
Class Expense can no longer be attributed to a class, it will be charged to a
Fund for allocation among classes, as determined by the Board of Trustees. Any
additional Class Expenses not specifically identified above which are
subsequently identified and determined to be properly attributable to one class
of shares shall not be so allocated until approved by the Board of Trustees of
the Trust in light of legal requirements and regulatory considerations under the
1940 Act and the Internal Revenue Code of 1986, as amended.
4. Exchange Privileges. Shareholders may exchange shares of one class of
-------------------
a Fund for shares of an identical class of any other Fund of the Trust, or an
identical class of any series of CIGNA Institutional Funds Group based upon each
Fund's net asset value per share.
Page 3
<PAGE>
5. Conversion Features. No conversion from institutional class shares
-------------------
into retail class shares, or vice versa, is currently offered.
6. Quarterly and Annual Reports. The Trustees shall receive quarterly
----------------------------
and annual statements concerning servicing expenditures pursuant to the
Shareholder Services Plan. In the statements, only expenditures property
attributable to the servicing of retail class shares will be used to justify any
fee attributable to that class. Expenditures not related to the servicing of
retail class shares shall not be presented to the Trustees to justify any fee
attributable to that class. The statements, including the allocations upon
which they are based, shall be subject to the review and approval of the
independent Trustees in the exercise of their fiduciary duties.
7. Accounting Methodology. The following procedures shall be implemented
----------------------
in order to meet the objective of properly allocating income and expenses among
the Funds:
(1) On a daily basis, those persons providing accounting services to
the Trust ("Fund Accountant") shall calculate the payments pursuant to the
Shareholder Services Plan to be charged to each retail class of shares of a Fund
in accordance with the provisions of the Shareholder Services Plan.
(2) The Fund Accountant will allocate designated Class Expenses, if
any, to the respective classes.
(3) The Fund Accountant will allocate income and Trust and Fund
Expenses between the classes of shares based on the net asset value of each
class in relation to the net asset value of the Fund for Fund Expenses, and in
relation to the net asset value of the Trust for Trust Level Expenses. These
calculations shall be based on the relative net assets of each Class at the
beginning of the day, adjusted for capital share activity for each class as of
the prior day, as reported by the Fund's transfer agent, for non-daily dividend
funds; and based on the relative value of settled shares at the beginning of the
day adjusted for receipt of settled AM wires (if applicable), for daily dividend
funds.
(4) The Fund Accountant shall then complete the appropriate worksheets
(see Attachments) using the allocated income and expense calculations from
Paragraph (3) above, and the additional fees calculated from Paragraphs (1), and
(2) above. The Fund Accountant may make non-material changes to the form of the
worksheets as it deems appropriate.
(5) The Fund Accountant shall develop and use appropriate internal
control procedures to assure the accuracy of
Page 4
<PAGE>
its calculations and appropriate allocation of income and expenses in accordance
with this Plan.
8. Waiver or Reimbursement of Expenses. Expenses may be waived or
-----------------------------------
reimbursed by the adviser to the Trust, by the Trust's underwriter or any other
provider of services to the Trust without the prior approval of the Trust's
Board of Trustees.
9. Effectiveness of Plan. This Dual Class Plan shall not take effect
---------------------
until it has been approved by votes of a majority of both (a) the Trustees of
the Trust and (b) those Trustees of the Trust who are not "interested persons"
of the Trust (as defined in the 1940 Act) and who have no direct or indirect
interest in the operation of the Plan, cast in person at a meeting (or meetings)
called for the purpose of voting of this Plan.
10. Material Modification. This Dual Class Plan may not be amended to
---------------------
modify materially its terms unless such amendment is approved in the manner
provided for initial approval in Paragraph 9 hereof.
11. Limitation of Liability. The Trustees of the Trust and the
-----------------------
shareholders of each Fund shall not be liable for any obligations of the Trust
or any Fund under this Dual Class Plan, and any person, in asserting any rights
or claims under this Plan, shall look only to the assets and property of the
Trust or such Funds in settlement of such right or claim, and not to such
Trustees or shareholders.
IN WITNESS WHEREOF, the Trust, on behalf of the Funds, has adopted this
Dual Class Plan as of the ______ day of ________, 1996.
CIGNA FUNDS GROUP
By: ____________________________________
Title:
Page 5
<PAGE>
CIGNA FUNDS GROUP
(f/k/a CIGNA ANNUITY FUNDS GROUP)
POWER OF ATTORNEY
The undersigned hereby appoint Alfred A. Bingham III and Jeffrey S. Winer, each
of them singly and with full power of substitution, attorney-in-fact and agent
for me and in my name and on my behalf in any and all capacities to sign any
Registration Statement under the Securities Act of 1933, any Registration
Statement under the Investment Company Act of 1940 or any filing under the
securities laws of any of the states of the United States of America or of any
jurisdiction ("Blue Sky Law") for CIGNA Funds Group, and any amendment to any
such Registration Statement or any Blue Sky Law filing to be filed not later
than June 3, 1996 with the Securities and Exchange Commission under the
Securities Act of 1933 and under the Investment Company Act of 1940 or with the
appropriate state agency under the applicable Blue Sky Laws, to file such
Registration Statements, amendments and filings and generally to do and perform
all things necessary to be done in that connection, hereby ratifying and
confirming my signature as it may be signed by said attorney-in-fact and agent
to any and all Registration Statements and amendments thereto and to any and all
Blue Sky Law filings and amendments thereto and ratifying and confirming all
other acts that said attorney-in-fact and agent may lawfully do or cause to be
done by virtue of this appointment.
Signed this 8th day of February, 1996.
/s/ R. Bruce Albro
--------------------------------------
R. Bruce Albro,
Chairman of the Board and President,
Trustee
/s/ Arthur C. Reeds
--------------------------------------
Arthur C. Reeds, III, Trustee
<PAGE>
CIGNA FUNDS GROUP
(f/k/a CIGNA ANNUITY FUNDS GROUP)
POWER OF ATTORNEY
The undersigned hereby appoint Alfred A. Bingham III and Jeffrey S. Winer, each
of them singly and with full power of substitution, attorney-in-fact and agent
for me and in my name and on my behalf in any and all capacities to sign any
Registration Statement under the Securities Act of 1933, any Registration
Statement under the Investment Company Act of 1940 or any filing under the
securities laws of any of the states of the United States of America or of any
jurisdiction ("Blue Sky Law") for CIGNA Funds Group, and any amendment to any
such Registration Statement or any Blue Sky Law filing to be filed not later
than June 3, 1996 with the Securities and Exchange Commission under the
Securities Act of 1933 and under the Investment Company Act of 1940 or with the
appropriate state agency under the applicable Blue Sky Laws, to file such
Registration Statements, amendments and filings and generally to do and perform
all things necessary to be done in that connection, hereby ratifying and
confirming my signature as it may be signed by said attorney-in-fact and agent
to any and all Registration Statements and amendments thereto and to any and all
Blue Sky Law filings and amendments thereto and ratifying and confirming all
other acts that said attorney-in-fact and agent may lawfully do or cause to be
done by virtue of this appointment.
Signed this 11th day of February, 1996.
/s/ Hugh R. Beath
--------------------------------------
Hugh R. Beath, Trustee
<PAGE>
CIGNA FUNDS GROUP
(f/k/a CIGNA ANNUITY FUNDS GROUP)
POWER OF ATTORNEY
The undersigned hereby appoint Alfred A. Bingham III and Jeffrey S. Winer, each
of them singly and with full power of substitution, attorney-in-fact and agent
for me and in my name and on my behalf in any and all capacities to sign any
Registration Statement under the Securities Act of 1933, any Registration
Statement under the Investment Company Act of 1940 or any filing under the
securities laws of any of the states of the United States of America or of any
jurisdiction ("Blue Sky Law") for CIGNA Funds Group, and any amendment to any
such Registration Statement or any Blue Sky Law filing to be filed not later
than June 3, 1996 with the Securities and Exchange Commission under the
Securities Act of 1933 and under the Investment Company Act of 1940 or with the
appropriate state agency under the applicable Blue Sky Laws, to file such
Registration Statements, amendments and filings and generally to do and perform
all things necessary to be done in that connection, hereby ratifying and
confirming my signature as it may be signed by said attorney-in-fact and agent
to any and all Registration Statements and amendments thereto and to any and all
Blue Sky Law filings and amendments thereto and ratifying and confirming all
other acts that said attorney-in-fact and agent may lawfully do or cause to be
done by virtue of this appointment.
Signed this 9th day of February, 1996.
/s/ Russell H. Jones
--------------------------------------
Russell H. Jones, Trustee
<PAGE>
CIGNA FUNDS GROUP
(f/k/a CIGNA ANNUITY FUNDS GROUP)
POWER OF ATTORNEY
The undersigned hereby appoint Alfred A. Bingham III and Jeffrey S. Winer, each
of them singly and with full power of substitution, attorney-in-fact and agent
for me and in my name and on my behalf in any and all capacities to sign any
Registration Statement under the Securities Act of 1933, any Registration
Statement under the Investment Company Act of 1940 or any filing under the
securities laws of any of the states of the United States of America or of any
jurisdiction ("Blue Sky Law") for CIGNA Funds Group, and any amendment to any
such Registration Statement or any Blue Sky Law filing to be filed not later
than June 3, 1996 with the Securities and Exchange Commission under the
Securities Act of 1933 and under the Investment Company Act of 1940 or with the
appropriate state agency under the applicable Blue Sky Laws, to file such
Registration Statements, amendments and filings and generally to do and perform
all things necessary to be done in that connection, hereby ratifying and
confirming my signature as it may be signed by said attorney-in-fact and agent
to any and all Registration Statements and amendments thereto and to any and all
Blue Sky Law filings and amendments thereto and ratifying and confirming all
other acts that said attorney-in-fact and agent may lawfully do or cause to be
done by virtue of this appointment.
Signed this 9th day of February, 1996.
/s/ Paul J. McDonald
--------------------------------------
Paul J. McDonald, Trustee
