<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. 54 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 54 [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)
[X] on July 1, 1996 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 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>
CROSS-REFERENCE SHEET
Showing the location in the Prospectus (Part A) and the Statement of Additional
Information (Part B) of the information required to be included in response to
the items of Form N-1A:
<TABLE>
<CAPTION>
Part A
Item Number Prospectus Caption
- ----------- ------------------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Expense Table
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant About the Funds; Investment Programs; Certain Restrictions; Appendix
5. Management of the Fund Management of the Funds; The Trusts, Their Shares and Board of Trustees
5A. Management's Discussion of Fund Performance Performance Information
6. Capital Stock and Other Securities Dividends and Capital Gains Distributions; Tax Matters; The Trusts, Their
Shares and Board of Trustees
7. Purchase of Securities Being Offered Pricing of Shares; Purchase and Redemption of Shares; Cover Page
8. Redemption or Repurchase Purchase and Redemption of Shares
9. Pending Legal Proceedings Not Applicable
<CAPTION>
Part B
Item Number Statement of Additional Information
- ----------- -----------------------------------
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information About the Trusts
13. Investment Objectives and Policies Investment Objectives and Policies; Futures Contracts; Options on Futures
Contracts; Risks as to Futures Contracts and Related Options; Foreign
Currency
</TABLE>
-1-
<PAGE>
<TABLE>
<S> <C>
Transactions; Investment Restrictions; Description of Money Market
Instruments; Rating of Securities; Portfolio Turnover and Brokerage
Allocation
14. Management of the Fund Management of the Trusts
15. Control Persons Control Persons and Principal Holder of Securities
16. Investment Advisory and Other Services Investment Advisory and Other Services; Service Fees
17. Brokerage Allocation and Other Practices Portfolio Turnover and Brokerage Allocation; Activities of Affiliated
Companies
18. Capital Stock and Other Securities Classes of Shares
19. Purchase, Redemption and Pricing Purchase, Redemption and Pricing of Securities; Redemption Paid in Cash
of Securities Being Offered
20. Tax Status Tax Matters
21. Underwriters Underwriter
22. Calculation of Performance Data Performance Information
23. Financial Statements Incorporated By Reference
</TABLE>
Part C
The information required to be included in response to the items in Part C of
Form N-1A is set forth under the appropriate item, so numbered, in Part C to
this Registration Statement.
-2-
<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 short-
term 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 short-term 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,
its agencies, authorities or instrumentalities.
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, CIGNA
Investments, Inc. ("CII"). 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, as amended (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.
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 services, 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............................................... 8
ABOUT THE FUNDS.................................................... 10
INVESTMENT PROGRAMS................................................ 10
CERTAIN INVESTMENT STRATEGIES AND POLICIES......................... 18
INVESTMENT RESTRICTIONS............................................ 27
PURCHASE AND REDEMPTION OF SHARES.................................. 28
PRICING OF SHARES ................................................. 31
MANAGEMENT OF THE FUNDS............................................ 33
PERFORMANCE INFORMATION............................................ 36
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.......................... 39
TAX MATTERS........................................................ 39
THE TRUSTS, THEIR SHARES AND BOARD OF TRUSTEES..................... 40
APPENDIX - DESCRIPTION OF MONEY MARKET INSTRUMENTS AND
OF RATING CATEGORIES ........................................... 42
4
<PAGE>
EXPENSE TABLE
The following Expense Tables list the transaction expenses and 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
<TABLE>
<CAPTION>
All Series
----------
<S> <C>
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
</TABLE>
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
====================================================================================================================================
<CAPTION>
Retail Class
- ------------
<S> <C> <C> <C> <C>
Money Market Fund .35 None .35 .70
Government Obligations .35 None .35 .70
Cash Fund
Treasury Obligations Cash .35 None .35 .70
Fund
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 percentages of average daily net asset value
of each class of each Fund as set forth above as Total Fund Operating Expenses.
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 1.21%,
1.37% and 2.59% respectively, of their average daily Net Asset values. Other
Operating Expenses for all other Funds are based on estimated amounts for the
current fiscal year, after expense reimbursements. Absent the voluntary expense
limitations, estimated Other Operating Expenses and Total Fund Operating
Expenses (assuming average daily net assets of $5,000,000 per Fund) as a
percentage of average daily Net Asset Values would be as follows, respectively:
Treasury Obligations Cash - 2.57%, 2.92%; Government Obligations Cash - 2.57%,
2.92%; Government Securities - 2.54%, 3.04%; High Yield - 2.53%, 3.28%; S&P 500
Index - 2.62%, 2.87%. It is not expected that Total Fund Operating Expenses
(absent voluntary expense limitations) would materially vary between classes
until the classes have a substantial number of shareholders.
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. Expense information for the Money Market, Income
and International Stock Funds has been restated to reflect current fees. 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 "Management of the Funds - 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 audited 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 which, together with the accountant's report
thereon, is included in the Statement of Additional Information.
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund 1
Net Asset Value, Beginning of
Year........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations
Net Investment Income*.......... .0516 .0337 .0237 .0334 .0561 .0755 .0861 .0705 .0622 .0634
Net Realized & Unrealized Gain
(Loss) on Investments.......... - - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment Operations .0516 .0337 .0237 .0334 .0561 .0755 .0861 .0705 .0622 .0634
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less: Distributions
Dividends from Net Investment
Income......................... (.0516) (.0337) (.0237) (.0334) (.0561) (.0755) (.0861) (.0705) (.0622) (.0634)
Distributions From Realized
Capital Gains.................. (.0003) - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions............. (.0519) (.0337) (.0237) (.0334) (.0561) (.0755) (.0861) (.0705) (.0622) (.0634)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value End of Year..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return.................... 5.33% 3.43% 2.39% 3.36% 5.75% 7.82% 8.96% 7.29% 6.40% 6.53%
Ratios and Supplemental Data:
Net Assets at End of Year (000). $ 1,034 $16,673 $20,508 $25,808 $32,555 $41,818 $45,337 $47,825 $54,701 $56,966
Ratio of Expenses to Average
Net Assets..................... 0.80%a 1.00%a 1.00%a 0.84% 0.81% 0.81% 0.77% 0.75% 0.69% 0.70%
Ratio of Net Investment Income
to Average Net Assets.......... 5.38%b 3.32%b 2.39%b 3.35% 5.66% 7.55% 8.62% 7.04% 6.22% 6.36%
Portfolio Turnover Rate......... - - - - - - - - - -
</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, respectively.
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 12/31/95, respectively.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Fund 1
Net Asset Value, Beginning of
Year.......................... $ .92 $ 1.01 $ 1.02 $ 1.04 $ .95 $ 1.02 $ .97 $ .98 $ 1.08 $ 1.01
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations
Net Investment Income*......... .06 .06 .06 .07 .08 .08 .08 .08 .09 .09
Net Realized & Unrealized Gain
(Loss) on Investments......... .09 (.09) .07 (.01) .09 (.02) .05 (.01) (.08) .08
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment
Operations.................... .15 (.03) .13 .06 .17 .06 .13 .07 .01 .17
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Less: Distributions
Dividends from Net Investment
Income........................ (.05) (.06) (.06) (.07) (.08) (.08) (.08) (.08) (.09) (.09)
Distributions From Realized
Capital Gains................. - - (.08) (.01) - (.05) - - (.02) (.01)
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions............ (.05) (.06) (.14) (.08) (.08) (.13) (.08) (.08) (.11) (.10)
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value End of Year.... $ 1.02 $ .92 $ 1.01 $ 1.02 $ 1.04 $ .95 $ 1.02 $ .97 $ .98 $ 1.08
====== ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return................... 16.21% -3.12% 13.36% 7.08% 17.94% 6.15% 14.29% 7.87% .66% 17.43%
Ratios and Suplemental Data:
Net Assets at End of Year (000) $1,105 $15,210 $19,910 $20,588 $22,716 $24,096 $28,437 $28,615 $28,132 $29,728
Ratio of Expenses to Average
Net Assets.................... 0.95%c 1.00%c 1.00%c 0.90% 0.84% 0.89% 0.87% 0.84% 0.77% 0.75%
Ratio of Net Investment Income
to Average Net Assets......... 6.50%d 6.37%d 6.06%d 7.29% 7.81% 8.21% 8.26% 8.38% 8.51% 8.51%
Portfolio Turnover Rate........ 45% 8% 116% 23% 62% 132% 184% 241% 113% 37%
</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.
- --------------------------------------------------------------------------------
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.
8
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1/11/93**-12/31/93
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Stock Fund
Net Asset Value, Beginning of Period.................. $11.77 $13.21 $10.00
------ ------ ------
Income from Investment Operations
Net Investment Income*................................ .15 .04 .09
Net Realized & Unrealized Gain (Loss) on Investments.. .23 .33 4.18
------ ------ ------
Total from Investment Operations...................... .38 .37 4.27
------ ------ ------
Less: Distributions
Dividends from Net Investment Income.................. (.15) (.04) (.09)
Distributions in excess of Net Investment Income...... (.12) - (.02)
Distributions from Realized Capital Gains............. (.61) (1.77) (.95)
------ ------ ------
Total Distributions................................... (.88) (1.81) (1.06)
------ ------ ------
Net Asset Value End of Period......................... $11.27 $11.77 $13.21
====== ====== ======
Total Return.......................................... 3.40% 2.77% 42.73%
Ratios and Supplemental Data:
Net Assets at End of Period (000)..................... $7,581 $7,335 $7,136
Ratio of Expenses to Average Net Assets............... 1.14%e 1.25%e 1.25%e
Ratio of Net Investment Income to Average Net Assets.. .37%f .32%f .75%f
Portfolio Turnover Rate............................... 63% 63% 66%
</TABLE>
e. Ratios of expenses to average net assets prior to expense reimbursements were
2.59%, 2.35% and 2.67%, respectively, for years ended 12/31/95, 12/31/94 and
12/31/93, respectively. Per share expenses prior to reduction were $0.28,
$0.29 and $0.30, respectively, for each of those periods.
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, for each of those periods.
- --------------------------------------------------------------------------------
* 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 and as of May 1, 1996, 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.
The sole shareholder of the International Stock Fund as of May 1, 1996 was
Insurance Company of North America, a wholly-owned subsidiary of CIGNA
Corporation. Prior to March 1996, each Fund had only one class of shares.
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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, a Massachusetts business
trust established by a Master Trust Agreement dated April 10, 1985, and
registered under 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.
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<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") 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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<PAGE>
. 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; 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, its agencies, authorities or instrumentalities. Under normal
market conditions, the Fund will invest at least 65% of its total assets
in these securities. 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) (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 Home Loan Bank) (c) the
discretionary authority of the U.S. Government to purchase the agency's
obligations (such as obligations of the Federal National Mortgage
Association) or (d) the credit of the agency or instrumentality (such as
obligations of the Student Loan Marketing Association).
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 total 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
12
<PAGE>
invested in money market instruments eligible for purchase by the Money
Market Fund.
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 -- Non-Investment Grade Debt Securities" for the risk
factors associated with investments in such securities. Investments in
convertible bonds shall be included in determining this 20% limit.
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. Under normal market
conditions, the Fund will invest at least 65% of its total assets in
these securities. It should be noted, however, that achievement of the
Fund's investment objective may be more dependent on CII's own credit
analysis, and
13
<PAGE>
less on that of credit rating agencies, than may be the case for funds
that invest in more highly rated bonds. Under normal market conditions,
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.
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.
The foregoing Moody's and S&P ratings are described in the Appendix to
this prospectus.
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
14
<PAGE>
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 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
15
<PAGE>
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.
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 government obligations, 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
common stocks 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.
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<PAGE>
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.
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.
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.
17
<PAGE>
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, 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, defensive purposes, each of the Funds except the S&P 500 Index
Fund 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 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
governing money market funds, including the provisions of and regulations
under the 1940 Act. In particular, the Funds intend to comply with the
various requirements of Rule 2a-7 of the 1940 Act, which regulates
portfolio maturity, quality and diversification. 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
18
<PAGE>
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 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.
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<PAGE>
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 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 borrow an amount limited to a specific line
of credit from the U.S. Treasury (for example, obligations of the
Federal Home Loan Bank);
. discretionary authority of the U.S. government to purchase
certain obligations of an agency or instrumentality (for example,
obligations of the Federal National Mortgage Association
("FNMA"); or
. the credit of the agency or instrumentality (for example,
obligations of the Student Loan Marketing Association.
The Funds may invest in mortgage-backed securities, including GNMA
Certificates and pass-through securities issued by 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
20
<PAGE>
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 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. To the
extent that qualified institutional buyers become uninterested in
purchasing these restricted securities the level of illiquidity in a Fund
may increase. 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
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<PAGE>
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 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, 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 that are not registered with the
Securities and Exchange Commission 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 such foreign securities than is available about domestic
securities. Foreign companies are generally 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.
22
<PAGE>
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 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 product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of
payments position. Because certain securities of foreign issuers
that the Fund will hold may 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.
Investments by a Fund in ADRs, GDRs, EDRs or similar securities also may
entail some or all of the risks described above.
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
23
<PAGE>
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 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, to limit transaction costs
should invested assets need to be sold to meet redemption requests, to
limit transaction costs, or to seek higher investment returns when a
futures contract or option is priced more attractively than the
underlying equity security or index. 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
24
<PAGE>
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 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
25
<PAGE>
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 a
Fund. See the Statement of Additional Information for a further
description of the Funds' investments in futures contracts.
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 accrued
interest or to receive payments when senior securities are in 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. Generally, 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.
26
<PAGE>
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.
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.
27
<PAGE>
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.
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
temporary 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 in the domestic banking
industry.
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 expenses (such as custodian fees,
administrative services, audit fees, legal fees, fees of trustees
unaffiliated with the Funds, regulatory fees and certain printing
expenses)
28
<PAGE>
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 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 investors other than employer sponsored retirement or savings plan
participants 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. Purchase orders must be
accepted by CFA. CFA reserves the right to reject any purchase order.
Additional information regarding establishing a
29
<PAGE>
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.
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 ("SEC") 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.
30
<PAGE>
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.
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
such 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 Market 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
31
<PAGE>
investments with remaining maturities of up to and including 60 days are
valued at amortized cost to the extent that it is believed to approximate
market value. Except for money market instruments owned by a Money
Market Fund, which are valued at amortized cost, 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, 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 Bank and Trust Company,
the Funds' custodian ("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 generally valued at amortized cost, which
approximates market value, in accordance with rules adopted by the
Securities and Exchange Commission. Using the amortized
32
<PAGE>
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 it 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 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%.
Each Fund will bear its own expenses. Operating expenses for each Fund
generally consist of all costs not specifically borne
33
<PAGE>
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 on
a pro rata basis based upon each Fund's average net assets.
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 1940 Act. See the Statement of Additional
Information for further details.
34
<PAGE>
Service Expenses - Retail Shares
The retail class of each Fund has adopted a shareholder services plan.
Under each plan, the retail class of each Fund is authorized to pay CFA,
its affiliates or independent third-party service providers, up to $30
per shareholder account per year for providing particular services to the
shareholders of the retail class of such Fund and/or maintenance of
retail class shareholder accounts. The Board of Trustees of the Trusts
may change the per account charge based upon its assessment of fair and
reasonable fees.
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 1996. Mr.
Bowen has been a Managing Director of CII since 1990. Mr. Mazon has been
a Vice President of CII since 1994, and has been employed by CIGNA
Corporation in various capacities since 1990.
High Yield Fund. Alan C. Petersen has been a Managing Director of CII
since 1990. Mr. Petersen has been the portfolio manager
35
<PAGE>
of the Fund since its inception in 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 has been a Managing Director of CII since
1995, and has been the portfolio manager of this Fund since 1991. From
1990 to 1995, Mr. Foley was a Vice President of CII. Mr. Foley also
manages INA Investment Securities, Inc., a closed-end management
investment company managed by CII 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. Since 1989, Mr. Mickelburough has held various positions with
CIGNA International Investment Advisers Australia Limited, starting as
Portfolio Manager and moving to Resident Director and Head of Australia
office. Mr. Mickelburough has been the portfolio manager of this Fund
since its inception in 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.
36
<PAGE>
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 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.
37
<PAGE>
Set forth below are certain performance data relating to all high yield
bond portfolios which have been managed with full investment authority by
Alan Petersen, portfolio manager of CIGNA High Yield Fund, and which have
the same investment objective and use substantially similar investment
strategies, policies 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.
COMPOSITE PERFORMANCE/1/ SHOWING AVERAGE ANNUAL TOTAL RETURNS/2/ FOR
VARIOUS PERIODS ENDED DECEMBER 31, 1996
One Year......................... 18.41%
Three Years...................... 11.56%
Five Years....................... 18.43%
Ten Years........................ 10.93%
COMPOSITE/3/ PERFORMANCE SHOWING ANNUAL TOTAL RETURNS/4/ FROM
JANUARY 1, 1986 THROUGH DECEMBER 31, 1995
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%
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.
- ---------------------
/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, AIM
High Yield Fund, which commenced operations in June 1978, and The Ministers
and Missionaries Benefit Board of the American Baptist Churches, managed by
CII from June 1990 through February 1992. CII ceased management of AIM High
Yield Fund in September 1995. The performance presented includes the
performance of AIM High Yield Fund through September 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/ Performance presented for the period from January 1986 through September
1988 is solely of AIM High Yield Fund.
/4/ 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.
38
<PAGE>
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
Global Bond 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 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.
39
<PAGE>
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.
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
40
<PAGE>
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.
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.
41
<PAGE>
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 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.
42
<PAGE>
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.
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
43
<PAGE>
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.
44
<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]
45
<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 Fund
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.
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
- ---------------------
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.
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
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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.
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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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<PAGE>
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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<PAGE>
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
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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 NRSRO. 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
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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' acceptances 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.
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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).
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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
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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.
Page 27
<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.
Page 28
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDER OF SECURITIES
- --------------------------------------------------
As of May 1, 1996, all of the outstanding shares of the Funds (other than the
International Stock Fund) were 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 Chapter).
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.
Page 29
<PAGE>
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 of the
Funds 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:
Page 30
<PAGE>
<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.
Page 31
<PAGE>
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:
Page 32
<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:
Page 33
<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.
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
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
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
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
Page 38
<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:
<TABLE>
<S> <C> <C>
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
</TABLE>
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.
Page 39
<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)/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%.
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)/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 reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
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:
Y = V\\1\\ - V\\o\\ x 365
--------------- ---
V\\o\\ 7
Where Y = 7 day annualized yield.
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.
V\\1\\ - 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%.
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)/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
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. Pursuant to the Distribution Contracts, CFA continuously offers
Fund 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
April 30, 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.
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
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:
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.
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.
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 of Registrant
dated as of March 1, 1996, incorporated by reference to Post-Effective
Amendment No. 53 to Registrant's Registration Statement filed
electronically April 15, 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 as heretofore incorporated by reference as Exhibit
(1).
- 1 -
<PAGE>
(4a) Relative to the rights of shareholders, the Dual Class Plan Pursuant to
Rule 18f-3 for CIGNA Funds Group dated as of April 1, 1996, as
hereinafter filed as Exhibit (18).
* (5) The First Amended and Restated Master Investment Advisory Agreement
dated as of April 30, 1996 between CIGNA Funds Group and CIGNA
Investments, Inc.
* (6) The Distribution Agreement dated as of April 30, 1996 between CIGNA
Funds Group and CIGNA Financial Advisors, Inc.
(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) Side Letter to the Custodian Contract between CIGNA Funds Group and
State Street Bank and Trust Company dated as of April 30, 1996.
(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) Side Letter to the Transfer Agency and Service Agreement between CIGNA
Funds Group and State Street Bank and Trust Company dated as of April
30, 1996.
(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, incorporated by reference to
Post-Effective Amendment No. 53 to Registrant's Registration Statement
filed electronically April 15, 1996.
(9d) Form of Shareholder Services Plan of Registrant between CIGNA Funds
Group and CIGNA Financial Advisors, Inc., incorporated by reference to
Post-Effective Amendment No. 53 to Registrant's Registration Statement
filed electronically April 15, 1996.
* (10) Opinion of Counsel.
* (11) Consent of Price Waterhouse LLP.
(12) None.
(13) None.
(14) None.
(15) None.
(16) None.
- 2 -
<PAGE>
* (17) Financial Data Schedule.
* (18) The Dual Class Plan Pursuant to Rule 18f-3 for CIGNA Funds Group dated
as of April 30, 1996.
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 June 1, 1996:
<TABLE>
<CAPTION>
Number of Record Holders of
Shares of Beneficial Interest
-----------------------------
Name of 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 -1- -0-
CIGNA Money Market Fund -1- -0-
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.
______________________
* Filed herewith.
- 3 -
<PAGE>
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
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; previously Vice
President, 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.
Edward Lewis Managing Director, CII.
Timothy J. Lord Managing Director, CII.
Thomas P. Mahoney Managing Director, CII.
Richard B. McGauley Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
</TABLE>
- 6 -
<PAGE>
<TABLE>
<S> <C>
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.*
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.*
</TABLE>
- 7 -
<PAGE>
<TABLE>
<S> <C>
Jean M. Anderson Vice President, CII.
Thomas P. Au 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.*
Marguerite A. Boslaugh Vice President, CII.
David M. Cass Vice President, CII; previously Counsel, CIGNA
companies.
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.
Ivy B. Freedman Vice President, CII.
Kenneth R. Garrett Vice President, CII.
Keith A. Gollenberg Vice President, CII.
William J. Grady Vice President, CII.
</TABLE>
- 8 -
<PAGE>
<TABLE>
<S> <C>
Mark R. Harrison Vice President, CII.
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; Counsel, CIGNA companies.
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.
Suresh Raghaven Vice President, CII.
Michael J. Riccio Vice President, CII.
Stephen L. Roberts Vice President, CII.
</TABLE>
- 9 -
<PAGE>
<TABLE>
<S> <C>
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.*
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.
Alfred A. Bingham III Assistant Vice President, CII; Vice
President and Treasurer, the Trusts and IIS.
</TABLE>
- 10 -
<PAGE>
<TABLE>
<S> <C>
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*; Assistant General Counsel,
CIGNA companies.
</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. 54.
(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), certifies that it meets all of the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Amendment No. 54 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 27th day of June, 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.
54 to the Registration Statement has been signed below by the following persons
in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
R. Bruce Albro Chairman of June 27, 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 June 27, 1996.
(principal
financial officer
and principal
accounting officer)
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 a majority of the Trustees currently holding
the office of Trustee of Registrant.
R. Bruce Albro Paul J. McDonald
Russell H. Jones Arthur C. Reeds, III
By: /s/ Jeffrey S. Winer June 27, 1996.
------------------------------
Jeffrey S. Winer
<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. 54 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 54 [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
(b) Exhibits
* (5) The First Amended and Restated Master Investment Advisory Agreement
dated as of April 30, 1996 between CIGNA Funds Group and CIGNA
Investments, Inc.
* (6) The Distribution Agreement dated as of April 30, 1996 between CIGNA
Funds Group and CIGNA Investments, Inc.
* (8a) Side Letter to the Custodian Contract between CIGNA Funds Group and
State Street Bank and Trust Company dated as of April 30, 1996.
* (9a) Side Letter to the Transfer Agency and Service Agreement between
CIGNA Funds Group and State Street Bank and Trust Company dated as
of April 30, 1996.
* (10) Opinion of Counsel.
* (11) Consent of Price Waterhouse LLP.
* (18) The Dual Class Plan Pursuant to Rule 18f-3 for CIGNA Funds Group
dated as of April 30, 1996.
* (24) Powers of Attorney
* (27) Financial Data Schedule.
- ------------------------
* Filed herewith.
<PAGE>
Exhibit (5)
FIRST AMENDED AND RESTATED MASTER INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 30th day of April, 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 entered into a Master Investment Advisory Agreement with
the Adviser dated as of April 26, 1988 (the "Initial Agreement"); 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 and the Adviser desire to amend the Initial Agreement in
certain respects, which amendments were 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
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
<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 April 30, 1996, except that
the compensation payable to the Adviser as set forth on Schedule A-1 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, 1997 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: /s/ R. Bruce Albro By: /s/ Arthur C. Reeds, III
--------------------------------- ----------------------------------
R. Bruce Albro Arthur C. Reeds, III
Chairman of the Board and President President
-5-
<PAGE>
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:
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
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.
- ----------------------------
* Effective January 1, 1996
-6-
<PAGE>
Exhibit (6)
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 30th day of April, 1996 by and between CIGNA FUNDS
GROUP, a Massachusetts business trust having its principal place of business at
1380 Main Street, Springfield, Massachusetts (the "Trust"), and CIGNA FINANCIAL
ADVISORS, INC., a Connecticut corporation (the "Distributor") having its
principal place of business in Bloomfield, Connecticut.
WHEREAS, the Trust is engaged in business as an open-end management company
and is registered as such under the Investment Company Act of 1940, as amended
(the "1940 Act"); and
WHEREAS, the Trustees of the Trust under the Master Trust Agreement of the
Trust are authorized to issue an unlimited number of shares of beneficial
interest of the Trust, and to create an unlimited number of series of shares of
the Trust ("Series") with each such Series having its own investment objectives,
assets and liabilities; and
WHEREAS, the Trust operates as a "series company" within the meaning of
Rule 18f-2 of the Act and the Board of Trustees has authorized to date seven
Series known as 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; and
WHEREAS, the Trust seeks the assistance of the Distributor in the sale and
distribution of shares of such of its Series as are hereafter designated by the
Trust; and
WHEREAS, the Distributor is a broker/dealer properly licensed to act as a
distributor of securities and is willing to act as such in the sale and
distribution of shares of such of the Series as are now or hereafter designated
by the Trust;
NOW, THEREFORE, the Trust and the Distributor in consideration of the
premises and mutual covenants contained herein hereby agree as follows:
1. The Distributor agrees to arrange to sell, from time to time during
the term of this Agreement, shares of each of the Series of the Trust at the net
asset value of such shares calculated as described in the then-current
prospectus for the applicable Series. The Trust may at any time withdraw
offerings of shares of any Series by notice to the Distributor.
2. In connection with sales of shares of a Series pursuant to paragraph 1
above, the Trust will deliver shares in such names and such manner as is
specified in the Trust's prospectus (the
<PAGE>
"Prospectus") and in the purchase application relating to such shares.
3. The Distributor hereby agrees to use its best efforts to find
purchasers who shall purchase shares of each Series as to which it acts as
Distributor. The Distributor does not undertake hereby to sell any specific
number of shares of any Series.
4. (a) The Trust, directly or through its investment adviser, shall, as
to each Series, as to which the Distributor acts as distributor: (1) provide
all necessary services relating to the preparation and printing of registration
statements, applications for qualification, Prospectuses except as provided
below and other materials necessary in connection with registration of the
Trust, each such Series and the shares of the Trust under federal and state
securities laws, (2) bear the cost of all registration fees, and (3) pay all
fees of State Street Bank and Trust Company under the Custodian Agreement and
the Transfer Agency Agreement for services it renders to or on behalf of the
Trust.
(b) The Distributor shall be responsible for the following expenses on
a Series by Series basis, where applicable: (1) the incremental cost of
prospectuses and periodic shareholder reports utilized by it in effecting sales,
(2) the cost of printing sales literature used by the Distributor or furnished
to dealers, (3) all costs of advertising in connection with the public offering
of shares of a Series, and (4) all costs of complying with regulatory
requirements applicable to the Distributor and its representatives.
5. The Trust shall sell through the Distributor, as the Trust's agent,
shares to eligible investors as described in the Prospectus. All orders through
the Distributor shall be subject to acceptance and confirmation by the Trust.
6. As the Trust's agent, the Distributor may sell and distribute shares
in such manner not inconsistent with the provisions hereof and the Prospectus of
the applicable Series. In this connection, the Distributor shall comply with
all laws, rules and regulations applicable to it, including, without limiting
the generality of the foregoing, the 1940 Act and all applicable rules and
regulations thereunder and all applicable rules and regulations of The National
Association of Securities Dealers, Inc. (the "NASD").
7. The Trust shall furnish the Distributor from time to time, for use in
connection with the sale of shares, written information with respect to the
Trust or one or more of its Series. In each case, such written information
shall be signed by an authorized officer of the Trust. The Trust represents and
warrants that such information, when signed by one of its
Page 2
<PAGE>
officers, shall be true and correct. The Trust also shall furnish to the
Distributor copies of its reports to its shareholders and such additional
information regarding the financial condition of one or more of its Series as
the Distributor may reasonably request from time to time.
8. The Trust shall prepare and furnish to the Distributor from time to
time such number of copies of the most recent form of the Prospectus and
Statement of Additional Information relating to the Trust's Series filed with
the Securities and Exchange Commission ("SEC") as the Distributor may reasonably
request. The Trust authorizes the Distributor to use such Prospectuses, in the
form furnished to the Distributor from time to time, in connection with the sale
of shares.
9. No shares shall be sold through the Distributor or issued by a Series
of the Trust under this Agreement and no orders for the purchase of shares shall
be confirmed or accepted by the Trust if and so long as the effectiveness of its
Registration Statement (the "Registration Statement") shall be suspended under
any of the provisions of the Securities Act of 1933 (the "1933 Act") or the 1940
Act. Nothing contained in this paragraph shall in any way restrict, limit or
have any application to or bearing upon the Trust's obligation to redeem shares
of any Series from any shareholder pursuant to the terms of the then-current
effective Prospectus of that Series. The Trust will use its best efforts at all
times to have shares of each of its Series effectively registered under the 1933
Act and to maintain its registration as an investment company under the 1940
Act.
10. The Trust agrees to advise the Distributor immediately:
(a) of any request by the SEC for amendments to the Registration
Statement or any Prospectus or for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or a Prospectus
under the 1933 Act, or of the initiation of any proceedings for that
purpose;
(c) of the happening of any material event which makes untrue any
statement made in the Registration Statement or any Prospectus or Statement
of Additional Information which requires the making of a change therein in
order to make the statements therein not misleading; and
Page 3
<PAGE>
(d) of all action of the SEC with respect to any amendments to the
Registration Statement which may from time to time be filed with the SEC
under the 1933 Act or the 1940 Act.
11. The Trust shall comply with all applicable laws, rules and
regulations, including, without limiting the generality of the foregoing, all
rules and regulations made or adopted pursuant to the 1933 Act, the 1940 Act or
by the NASD.
12. This Agreement shall become effective with respect to any Series upon
the effectiveness of the Trust's Registration Statement relating to such Series,
and shall continue in effect for so long as the Trust's Registration Statement
relating to such series remains effective. This Agreement (or any Supplement)
may, in any event, be terminated at any time, without the payment of any
penalty, by the Trust upon 60 days' written notice to the Distributor and by the
Distributor upon 60 days' written notice to the Trust. This Agreement shall
immediately terminate in event of its assignment (as that term is defined in the
1940 Act).
13. Except to the extent necessary to perform the Distributor's
obligations under this Agreement, nothing herein shall be deemed to limit or
restrict the right of the Distributor, or any affiliate of the Distributor, or
any employee of the Distributor, to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, firm, individual or association.
14. The Trust shall preserve copies of this Agreement and all reports made
pursuant to this Agreement, for a period of not less than six years from the
date of this Agreement or such report, as the case may be, the first two years
in an easily accessible price.
15. It is understood that trustees, officers, agents and shareholders of
the Trust are or may be interested in the Distributor as directors, officers,
stockholders, or otherwise, that directors, officers, agents and stockholders of
the Distributor are or may be interested in the Trust as trustees, officers,
shareholders or otherwise, that the Distributor may be interested in any Series
of the Trust as a shareholder or otherwise and that the existence of any such
dual interest shall not affect the validity thereof or of any transaction
hereunder except as otherwise provided in the Master Trust Agreement of the
Trust and the Articles of Incorporation of the Distributor, respectively, or by
specific provision of applicable law.
Page 4
<PAGE>
16. 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
Distributor shall be 900 Cottage Grove Road, Bloomfield, Connecticut 06002 and
that the address of the Trust shall be 1380 Main Street, Springfield,
Massachusetts 01103.
17. Copies of the 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 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.
18. This Agreement shall be construed and its provisions interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
CIGNA FUNDS GROUP
By: /s/ R. Bruce Albro
-----------------------------------
By: R. Bruce Albro
Its: Chairman of the Board and
President
CIGNA FINANCIAL ADVISORS, INC.
By: /s/ Karen Goldman
-----------------------------------
By: Karen Goldman
Its: Assistant Vice President
Page 5
<PAGE>
Exhibit (8a)
CIGNA Funds Group (f/k/a CIGNA ANNUITY FUNDS GROUP)
1380 Main Street
Springfield, MA 01103
Dated as of: April 30, 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 five new series of shares:
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.
Copies of the Master Trust Agreement establishing the Trust are on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this document is executed on behalf of the Trust by an officer of the Trust and
not individually and that any obligations of or arising out of this document 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.
Sincerely,
CIGNA Funds Group (f/k/a CIGNA ANNUITY FUNDS GROUP)
By: /s/ Alfred A. Bingham III
-----------------------------------------------
By: Alfred A. Bingham III
Its: Vice President and Treasurer
Accepted and Agreed to this 17th day of June, 1996.
State Street Bank and Trust Company
By: /s/ Donald P. DeMarco
-----------------------------------------------
By: Donald P. DeMarco
Its: Vice President
<PAGE>
Exhibit (9a)
CIGNA Funds Group (f/k/a CIGNA ANNUITY FUNDS GROUP)
1380 Main Street
Springfield, MA 01103
Dated as of: April 30, 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 five new series of shares:
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.
Copies of the Master Trust Agreement establishing the Trust are on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this document is executed on behalf of the Trust by an officer of the Trust and
not individually and that any obligations of or arising out of this document 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.
Sincerely,
CIGNA Funds Group (f/k/a CIGNA ANNUITY FUNDS GROUP)
By: /s/ Alfred A. Bingham III
------------------------------------------------
By: Alfred A. Bingham III
Its: Vice President and Treasurer
Accepted and Agreed to this 17th day of June, 1996.
State Street Bank and Trust Company
By: /s/ Donald P. DeMarco
------------------------------------------------
By: Donald P. DeMarco
Its: Vice President
<PAGE>
Exhibit 10
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 522-1231
June 27, 1996
CIGNA Funds Group
1380 Main Street
Springfield, MA 01103
Ladies and Gentlemen:
Reference is made to the Post-Effective Amendment No. 54 to the
Registration Statement on Form N1-A (Registration Nos. 811-1646, 2-29020) being
filed with the Securities and Exchange Commission with respect to the proposed
sale of an indefinite number of shares of beneficial interest, without par value
(the "Shares"), of the institutional class and the retail class of the following
series of CIGNA Funds Group (formerly, CIGNA Annuity Funds Group), an
unincorporated association of the type commonly referred to as a Massachusetts
business trust (the "Trust"): 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.
In rendering the opinion set forth below, we have examined such records,
documents and other instruments and have made such other examinations and
inquiries as we have deemed necessary to enable us to express such opinion.
We have assumed that appropriate action has been or will be taken prior
to the issuance and sale of the Shares to comply with applicable requirements
of the laws of the various states or other jurisdictions, with respect to
the issuance and sale of such securities. Based upon and subject to the
foregoing, we are of the opinion that:
1. The Trust is duly formed and validly existing business trust under
the laws of the Commonwealth of Massachusetts; and
2. The Shares, when issued pursuant to the terms, provisions and
conditions set forth in the above-referenced Registration Statement relating
to the Shares, will be validly issued, fully paid and non-assessable by
the Trust.
We hereby consent to the filing of this opinion as an Exhibit to said
Registration Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 54 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated February 15, 1996, relating to the financial
statements and financial highlights appearing in the December 31, 1995 Annual
Reports to Shareholders of CIGNA Money Market Fund and CIGNA Income Fund, each a
series of CIGNA Funds Group, which are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
heading "Financial Highlights" in the Prospectus and under the heading
"Investment Advisory and Other Services" in the Statement of Additional
Information.
Price Waterhouse LLP
Boston, Massachusetts
June 24, 1996
<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 foregoing series, and any future series established by the
Trust, are hereinafter referred to as 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, Twenty Dollars and Sixteen Cents ($20.16) for
each account in each Fund's retail class. However, each Fund's payment shall be
reduced to the
<PAGE>
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 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
Page 2
<PAGE>
(2) Expenses incurred by a particular Fund but not attributable to any
particular class of such Fund's shares ("Fund Expenses").
(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
Page 3
<PAGE>
CIGNA Institutional Funds Group based upon each Fund's net asset value per
share.
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.
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<PAGE>
(5) The Fund Accountant shall develop and use appropriate internal
control procedures to assure the accuracy of 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.
Copies of the Master Trust Agreement establishing the Trust are on file
with the Secretary of the Commonwealth of Massachusetts, and notice is hereby
given that this document is executed on behalf of the Trust by an officer of the
Trust and not individually and that any obligations of or arising out of this
document 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, on behalf of the Funds, has adopted this
Dual Class Plan as of the 30th day of April, 1996.
CIGNA FUNDS GROUP
By: /s/ R. Bruce Albro
---------------------------------
By: R. Bruce Albro
Its: Chairman of the Board and
President
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 August 31, 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 25th day of June, 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 August 31, 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 25th day of June, 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 August 31, 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 25th day of June, 1996.
/s/ Paul J. McDonald
--------------------------------------
Paul J. McDonald, Trustee
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT FOR THE PERIOD ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CIGNA MONEY MARKET FUND (FKA CIGNA ANNUITY MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,026
<INVESTMENTS-AT-VALUE> 1,026
<RECEIVABLES> 3
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 37
<TOTAL-ASSETS> 1,066
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32
<TOTAL-LIABILITIES> 32
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,034
<SHARES-COMMON-STOCK> 1,034
<SHARES-COMMON-PRIOR> 16,673
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,034
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 338
<OTHER-INCOME> 0
<EXPENSES-NET> 44
<NET-INVESTMENT-INCOME> 294
<REALIZED-GAINS-CURRENT> 4
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 298
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 294
<DISTRIBUTIONS-OF-GAINS> 4
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,193
<NUMBER-OF-SHARES-REDEEMED> 17,130
<SHARES-REINVESTED> 298
<NET-CHANGE-IN-ASSETS> (15,639)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 27
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 67
<AVERAGE-NET-ASSETS> 5,544
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT FOR THE PERIOD ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> CIGNA INCOME FUND (FKA CIGNA ANNUITY INCOME FUND)
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 994
<INVESTMENTS-AT-VALUE> 1,020
<RECEIVABLES> 25
<ASSETS-OTHER> 72
<OTHER-ITEMS-ASSETS> 11
<TOTAL-ASSETS> 1,128
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23
<TOTAL-LIABILITIES> 23
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,046
<SHARES-COMMON-STOCK> 1,087
<SHARES-COMMON-PRIOR> 16,540
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 11
<ACCUMULATED-NET-GAINS> 42
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28
<NET-ASSETS> 1,105
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 386
<OTHER-INCOME> 0
<EXPENSES-NET> 50
<NET-INVESTMENT-INCOME> 336
<REALIZED-GAINS-CURRENT> 140
<APPREC-INCREASE-CURRENT> 415
<NET-CHANGE-FROM-OPS> 891
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 713
<DISTRIBUTIONS-OF-GAINS> 27
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,118
<NUMBER-OF-SHARES-REDEEMED> 16,887
<SHARES-REINVESTED> 316
<NET-CHANGE-IN-ASSETS> (14,105)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 295
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 71
<AVERAGE-NET-ASSETS> 5,178
<PER-SHARE-NAV-BEGIN> 0.92
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.02
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
