<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
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | |
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Pre-Effective Amendment No. | |
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Post-Effective Amendment No. 56 | X |
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and
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | |
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Amendment No. 56 | X |
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(Check appropriate box or boxes.)
CIGNA Funds Group
(Exact Name of Registrant as Specified in Charter)
950 Winter Street, Suite 1200, Waltham, Massachusetts 02154
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (860) 726-3700
Alfred A. Bingham III, 950 Winter Street, Suite 1200
Waltham, Massachusetts 02154
(Name and Address of Agent for Service)
_________________________
Approximate Date of Proposed Public Offering: Continuous
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It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ X ] on April 30, 1998 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.
Title of Securities Being Registered: Shares of Beneficial Interest
<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:
PART A
ITEM NUMBER PROSPECTUS CAPTION
- ----------- ------------------
1. Cover Page Cover Page
2. Synopsis Expense Table
3. Condensed Financial Information Financial Highlights
4. General Description of About the Funds; Investment
Registrant Programs; Certain Restriction;
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 Information
Performance
6. Capital Stock and Other Dividends and Capital Gains
Securities Distributions; Tax Matters; The
Trusts, Their Shares and Board
of Trustees
7. Purchase of Securities Being Pricing of Shares; Purchase and
Offered Redemption of Shares; Cover Page
8. Redemption or Repurchase Purchase and Redemption of Shares
9. Pending Legal Proceedings Not Applicable
PART B
ITEM NUMBER STATEMENT OF ADDITIONAL
- ----------- INFORMATION
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information About the
Trusts
<PAGE>
13. Investment Objectives and Investment Objectives and
Policies Policies; Futures Contracts;
Options on Futures Contracts;
Risks as to Futures Contracts
and Related Options; Foreign
Currency 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 Investment Advisory and Other
Services Services; Service Fees
17. Brokerage Allocation and Other Portfolio Turnover and Brokerage
Practices Allocation; Activities of
Affiliated Companies
18. Capital Stock and Other Classes of Shares
Securities
19. Purchase, Redemption and Pricing Purchase, Redemption and Pricing
of Securities Being Offered of Securities; Redemption Paid
in Cash
20. Tax Status Tax Matters
21. Underwriters Underwriters
22. Calculation of Performance Data Performance Information
23. Financial Statements Incorporated By Reference
Table of Contents
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.
<PAGE>
CIGNA MONEY MARKET FUND
CIGNA TREASURY OBLIGATIONS CASH FUND
CIGNA GOVERNMENT OBLIGATIONS CASH FUND
CIGNA GOVERNMENT SECURITIES FUND PRINCIPAL UNDERWRITER:
CIGNA INCOME FUND CIGNA Financial Services, Inc.
CIGNA HIGH YIELD FUND 280 Trumbull Street
CIGNA INTERNATIONAL STOCK FUND One Commercial Plaza
CIGNA S&P 500 INDEX FUND Hartford, CT 06103
PROSPECTUS
MAY 1, 1998
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 May 1,
1998, has been filed with the Securities and Exchange Commission and is
available upon request without charge by writing to the Funds at 950 Winter
Street, Suite 1200, Waltham, Massachusetts 02154. 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.
("CIGNA Investments"). 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.
CIGNA Investments, the Funds' adviser, provides each Fund with investment advice
and other services. Each Fund pays CIGNA Investments 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
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INVESTMENT OBJECTIVES.............................................. 2
SUMMARY ........................................................... 3
EXPENSE TABLE...................................................... 5
FINANCIAL HIGHLIGHTS............................................... 8
ABOUT THE FUNDS.................................................... 11
INVESTMENT PROGRAMS................................................ 11
CERTAIN INVESTMENT STRATEGIES AND POLICIES......................... 19
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, 1998.
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 (REFLECTS EXPENSE
OTHER OPERATING EXPENSES/2/ LIMITATION SEE FOOTNOTES
INSTITUTIONAL CLASS MANAGEMENT FEES/1/ 12B-1 FEES (REFLECTS EXPENSE LIMITATION) /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 Cash Fund .35 None .35 .70
Treasury Obligations Cash Fund .35 None .35 .70
Government Securities Fund .50 None .50 1.00
Income Fund .50 None .50 1.00
High Yield Fund .75 None .45 1.20
International Stock Fund .80 None .65 1.45
S&P 500 Index Fund .25 None .20 .45
====================================================================================================================================
</TABLE>
- --------------------------
/1/For a more complete description of the Management Fees, see "Management of
the Funds." CIGNA Investments 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, CIGNA Investments 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, 1999, and afterwards to the extent described
in the Funds' then current prospectus. To the extent management fees are
reimbursed or Fund expenses are paid by CIGNA Investments, 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,
S&P 500 Index Fund and International Stock Fund for 1997, before expense
reimbursement, were .51,%, 5.31%, .72% (annualized) and 2.48% 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%. 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 $ 11 $ 4
3 years $14 $14 $14 $22 $22 $ 29 $ 35 $11
5 years $25 $ 61 $20
--- --- --- --- ----
10 years $55 $134 $44
--- --- --- --- ----
====================================================================================================================================
<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 --- --- --- --- $ 55 --- --- ---
10 years --- --- --- --- $122 --- --- ---
--- ---
====================================================================================================================================
</TABLE>
The purpose of the Expense Table is to assist the investor in understanding the
various costs and expenses that an investor will bear directly or indirectly.
For the purpose of the example, assume reinvestment of all dividends and
distributions. This example assumes that the estimated voluntary expense
limitations effective in 1998 would be in place for the entire periods
indicated. CIGNA Investments has reserved the right to terminate or revise these
limitations at any time after April 30, 1999. 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 following financial highlights of the following Funds for a share
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the Funds' financial statements and notes
thereto, which are incorporated by reference in the Statement of Additional
Information and in this Prospectus, and which appears, along with the report of
Price Waterhouse LLP, in the Funds' 1997 Annual Report to Shareholders. For a
more complete discussion of the Funds' performance, please see the Funds' 1997
Annual Report to Shareholders which may be obtained without charge by writing to
the Fund or calling (860) 726-3700.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND (INSTITUTIONAL CLASS)
PER SHARE OPERATING PERFORMANCE:
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* 0.0513 0.0479 0.0516 0.0337 0.0237 0.0334 0.0561 0.0755 0.0861 0.0705
Net realized and unrealized gains (losses) 0.0001 0.0001 0.0003 - - - - - - -
on investments ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.0514 0.0480 0.0519 0.0337 0.0237 0.0334 0.0561 0.0755 0.0861 0.0705
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.0513) (0.0479) (0.0516) (0.0337) (0.0237) (0.0334) (0.0561) (0.0755) (0.0861)(0.0705)
Distributions from realized capital gains (0.0001) (0.0001) (0.0003) - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.0514) (0.0480) (0.0519) (0.0337) (0.0237) (0.0334) (0.0561) (0.0755) (0.0861)(0.0705)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
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 INVESTMENT RETURN 5.27% 4.91% 5.33% 3.43% 2.39% 3.36% 5.75% 7.82% 8.96 7.29%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (000 omitted) $171,065 $120,505 $ 1,034 $16,673 $20,508 $25,808 $32,555 $41,818 $45,337 $47,825
Ratio of operating expenses to average 0.44%a 0.45%a 0.80%a 1.00%a 1.00%a 0.84% 0.81% 0.81% 0.77% 0.75%
net assets
Ratio of net investment income to average 5.14%b 4.95%b 5.38%b 3.32%b 2.39%b 3.35% 5.66% 7.55% 8.62% 7.04%
net assets
Portfolio turnover N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
a. Ratios of expenses to average net assets prior to reduction of advisory fee
were 0.51%, 0.69%, 1.21%, 1.11% and 1.02% for the years ended 12/31/97,
12/31/96, 12/31/95, 12/31/94 and 12/31/93, respectively.
b. Ratios of net investment income to average net assets prior to reduction of
advisory fee were 5.07%, 4.71%, 4.91%, 3.22% and 2.37% for the years ended
12/31/97, 12/31/96, 12/31/95, 12/31/94 and 12/31/93, respectively.
* Net investment income per share has been calculated in accordance with SEC
requirements, except 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)
- --------------------------------------------------------------------------------
July 1, 1997*
through
December 31, 1997
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND (INSTITUTIONAL CLASS)
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00
Income from investment operations
Net investment income** 0.07
Net realized and unrealized gains (losses) 0.95
---------------------
Total from investment operations 1.02
---------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.07)
Distributions from realized capital gains -
TOTAL DISTRIBUTIONS (0.07)
---------------------
NET ASSET VALUE, END OF PERIOD $ 10.95
=====================
Total Investment Return 10.23%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 105,845
Ratio of operating expenses to average net assets 0.18%c
Ratio of net investment income to average net assets 0.79%d
Portfolio turnover 4%
Average commission rate*** $ 0.022
c. Ratio of expenses to average net assets prior to the reduction of advisory
fee was 0.36% for the period ended December 31, 1997.
d. Ratio of net investment income to average net assets prior to the reduction
of advisory fee was 0.61% for the period ended December 31, 1997.
* Commencement of operations.
** Net investment income per share has been calculated in accordance with SEC
requirements, except 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.
*** For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period
to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rule structures may
differ.
9
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FUND (RETAIL CLASS)
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF YEAR $ 0.94 $ 1.02 $ 0.92 $ 1.01 $ 1.02 $ 1.04 $ 0.95 $ 1.02 $ 0.97 $ 0.98
INCOME FROM INVESTMENT OPERATIONS
Net investment income* 0.05 0.05 0.06 0.06 0.06 0.07 0.08 0.08 0.08 0.08
Net realized and unrealized gains 0.04 (0.05) 0.09 (0.09) 0.07 (0.01) 0.09 (0.02) 0.05 (0.01)
(losses) on investments ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.09 - 0.15 (0.03) 0.13 0.06 0.17 0.06 0.13 0.07
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Distributions from net investment (0.05) (0.05) (0.05) (0.06) (0.06) (0.07) (0.08) (0.08) (0.08) (0.08)
income
Distributions from realized capital - (0.03) - - (0.08) (0.01) - (0.05) - -
gains ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.05) (0.08) (0.05) (0.06) (0.14) (0.08) (0.08) (0.13) (0.08) (0.08)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $ 0.98 $ 0.94 $ 1.02 $ 0.92 $ 1.01 $ 1.02 $ 1.04 $ 0.95 $ 1.02 $ 0.97
====== ====== ====== ====== ====== ====== ======= ======= ====== ======
Total Investment Return 9.10% 1.36% 16.21% -3.12% 13.36% 7.08% 17.94% 6.15% 14.29% 7.87%
Ratios and Supplemental Data:
Net assets, end of year $1,222 $1,121 $1,105 $15,210 $19,910 $20,588 $22,716 $24,096 $28,437 $28,615
(000 omitted)
Ratio of operating expenses to average 1.00%e 1.00%e 0.95%e 1.00%e 1.00%e 0.90% 0.84% 0.89% 0.87% 0.84%
net assets
Ratio of net investment income to 5.42%f 5.33%f 6.50%f 6.37%f 6.06%f 7.29% 7.81% 8.21% 8.26% 8.38%
average net assets
Portfolio turnover 7% - 45% 8% 116% 23% 62% 132% 184% 241%
</TABLE>
e. Ratios of expenses to average net assets prior to reduction of advisory fee
were 5.31%, 5.62%, 1.37%, 1.15% and 1.01% for the periods ended 12/31/97,
12/31/96, 12/31/95, 12/31/94 and 12/31/93, respectively.
f. Ratios of net investment income to average net assets prior to reduction of
advisory fee were 1.11%, 0.72%, 6.08%, 6.22% and 6.06% for the periods ended
12/31/97, 12/31/96, 12/31/95, 12/31/94 and 12/31/93, respectively.
* Net investment income per share has been calculated in accordance with SEC
requirements, except 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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
January 11, 1993*
Year Ended December 31, through
1997 1996 1995 1994 December 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTERNATIONAL STOCK FUND (INSTITUTIONAL
CLASS)
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.48 $ 11.27 $ 11.77 $ 13.21 $ 10.00
Income from investment operations
Net investment income** 0.05 0.08 0.15 0.04 0.09
Net realized and unrealized gains (losses)
on securities transactions, foreign
currencies and forward foreign
exchange contracts (0.48) 0.62 0.23 0.33 4.18
------------- -------------- -------------- ------------- -------------
TOTAL FROM INVESTMENT OPERATIONS (0.43) 0.70 0.38 0.37 4.27
------------- -------------- -------------- ------------- -------------
Less distributions:
Distributions from net investment income (0.05) (0.08) (0.15) (0.04) (0.09)
Distributions in excess of net investment (0.09) (0.12) (0.12) - (0.02)
income
Distributions from realized capital gains (0.09) (0.29) (0.61) (1.77) (0.95)
------------- ------------- ------------- ------------- --------------
TOTAL DISTRIBUTIONS (0.23) (0.49) (0.88) (1.81) (1.06)
------------- ------------- ------------- ------------- --------------
NET ASSET VALUE, END OF PERIOD $ 10.82 $ 11.48 $ 11.27 $ 11.77 $ 13.21
============= ============= ============= ============= ==============
Total Investment Return -3.84% 6.36% 3.40% 2.77% 42.73%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 7,756 $ 8,069 $ 7,581 $ 7,335 $ 7,136
Ratio of operating expenses to average
net assets 1.10% g 1.12% g 1.14% g 1.25% g 1.25% g
Ratio of net investment income to average
net assets 0.42% h 0.63% h 0.37% h 0.32% h 0.75% h
Portfolio turnover 82% 60% 63% 63% 66%
Average commission rate*** $ 0.009 $ 0.012
</TABLE>
g. Ratios of expenses to average net assets prior to expense reimbursements
were 2.48%, 2.61%, 2.59%,2.35% and 2.67%, respectively, for 12/31/97,
12/31/96, 12/31/95, 12/31/94 and 12/31/93. Per share expenses prior to
reduction were $0.29, $0.29, $0.28, $0.29 and $0.30, respectively.
h. Ratios of net investment income to average net assets prior to expense
reimbursements were (0.96)%,(0.85)%, (1.08)%, (0.78)% and (0.73)%,
respectively, for 1997, 1996, 1995, 1994 and 1993. Per share net investment
loss amounts prior to reduction were $(0.11), $(0.10), $(0.12), $(0.10) and
$(0.08), respectively.
* Commencement of operations.
** Net investment income per share has been calculated in accordance with SEC
requirements, with the exception that end of year
accumulated/(overdistributed) net investment income has not been adjusted
to reflect current year permanent differences between financial and tax
accounting.
*** For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period
to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rule structures
may differ.
10
<PAGE>
As of May 1, 1998, the sole shareholder of the Income Fund was Connecticut
General Life Insurance Company, and the sole shareholder of the International
Stock Fund was Century Indemnity Company, both of which are wholly-owned
subsidiaries of CIGNA Corporation. As of May 1, 1998, the sole shareholders of
the Money Market Fund and the S&P 500 Index Fund were various companies
affiliated with CIGNA Corporation. Prior to March 1996, each Fund had only one
class of shares.
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, CIGNA Investments, 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
asset-backed securities, 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
11
<PAGE>
of Money Market Instruments" and are described more fully in the Statement of
Additional Information.
Pursuant to procedures adopted by the Board of Trustees, the Fund may purchase
only high quality securities that CIGNA Investments 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 CIGNA
Investments.
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 CIGNA Investments to
determine eligibility on the basis of that highest rating. Based on procedures
adopted by the Board of Trustees, CIGNA Investments 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:
12
<PAGE>
o direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds; and
o 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 CIGNA Investments 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.
13
<PAGE>
Up to 55% of the assets of the Fund may be invested in U.S. government
securities, including securities of U.S. Government agencies or
instrumentalities. In addition, the assets of the Fund may be invested in money
market instruments eligible for purchase by the Money Market Fund.
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 CIGNA Investments 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 CIGNA Investments' own credit analysis, and less on that of
credit rating
14
<PAGE>
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.
CIGNA Investments 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 April 30, 1998, the
EAFE Index included the following countries: Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and the
United Kingdom.
Under normal conditions the Fund will maintain no less than 65% of its total
assets in the equity securities of companies based in at least five of the
aforementioned countries. The 65% figure represents a minimum level of
investment under normal circumstances. The actual level of investment will, of
course, fluctuate in accordance with CIIA's assessment of market conditions.
Ordinarily, the Fund will not invest
15
<PAGE>
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 April 30, 1998, the Emerging Markets Index included the following
countries: Argentina, Brazil, Chile, China, Columbia, Czech Republic, Greece,
Hungary, India, Indonesia, Israel, Jordan, Malaysia, Mexico, Pakistan, Peru,
Philippines, Poland, Portugal, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, and Venezuela.
While the Fund intends to invest primarily in the securities of companies based
in countries included in the EAFE Index and in securities of emerging market
issuers, it will not necessarily invest its assets according to the percentage
weightings assigned by any index to a particular country or company; the Fund is
actively managed and is not an index fund. Since Malaysia is included in both
the EAFE Index and is regarded as an emerging market, securities of companies
based in Malaysia will not be included in the 15% limitation noted above.
The Fund intends to invest principally in the securities of companies which CIIA
believes possess a strong financial base and have opportunities for growth
within expanding international economies and markets. In determining the
appropriate distribution of investments among various countries, CIIA ordinarily
considers various factors, including, but not limited to: prospects for relative
economic growth; expected levels of inflation; relative price levels of the
various capital markets; government policies influencing business conditions;
and the range of individual investment opportunities available to the
international investor. CIIA's expectations with respect to currency movements
are also considered in evaluating investment in each country. While CIIA does
not generally hedge against currency risks, the Fund may from time to time
engage in foreign exchange transactions to hedge the Fund's exposure to changes
in foreign currency relative to the U.S. dollar. See "Certain Investment
Strategies and Policies -- Foreign Exchange Transactions." Once CIIA has
determined that a particular country has favorable investment characteristics,
CIIA seeks to identify (a) those economic sectors within the national economy
that have the potential for strong and sustainable growth and (b) those
companies that stand to benefit from this expected outcome. In this regard, CIIA
seeks to focus on long-term political, demographic, and sociological change to
anticipate important valuation shifts in securities prices.
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
16
<PAGE>
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.
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 CIGNA Investments generally will seek to match the
composition of the S&P 500 as closely as possible,
17
<PAGE>
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. The
common stock of CIGNA Corporation is in the S&P 500. CIGNA Investments is an
indirect, wholly-owned subsidiary of CIGNA Corporation. The S&P 500 Index Fund
will invest its assets in CIGNA Corporation stock approximately in proportion to
the percentage CIGNA Corporation stock represents in the S&P 500. CIGNA
Corporation and Standard and Poor's Corporation have no control over each other.
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 CIGNA Investments 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 CIGNA Investments or the Fund.
S&P has no obligation to take the needs of CIGNA Investments or the Fund or the
record or beneficial owners of the Fund into consideration in determining,
composing or calculating the S&P 500. S&P is not responsible for and has not
participated in the valuation of the Fund or the pricing of the Fund's shares or
in the determination or calculation of the equation by which the Fund's
portfolio investments are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of the
Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 OR
ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY CIGNA INVESTMENTS, 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.
18
<PAGE>
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") or in money market mutual funds (including those managed by CIGNA
Investments). Each Fund may invest in Money Market Instruments or in money
market mutual funds (including those managed by CIGNA Investments) pending
investment of cash in other securities 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 effective 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 remaining
maturity of its investments according to Rule 2a-7. The Funds may change these
operational policies to reflect changes in the laws and regulations without the
approval of their shareholders.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. (ALL FUNDS) Funds
may purchase securities on a "when-issued" basis, that is, delivery of and
placement for the securities is not fixed at the date of purchase, but is set
after the securities are issued (normally within forty-five days after the date
of the transaction). Funds also may purchase or sell securities on a delayed
delivery basis. The payment obligation and the interest rate that will be
received on the delayed 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
19
<PAGE>
transactions in order to honor a when-issued or delayed delivery commitment. In
a delayed delivery transaction, the Fund relies on the other party to complete
the transaction. If the transaction is not completed, the Fund may miss a price
or yield considered to be advantageous. Each Fund will employ techniques
designed to reduce such risks. If a Fund purchases a when-issued security, the
Fund's custodian bank will segregate cash or high grade securities in an amount
equal to the when-issued commitment. If the market value of the segregated
securities declines, additional cash or securities will be segregated on a daily
basis so that the market value of the segregated assets will equal the amount of
the Fund's when-issued commitments. To the extent cash and securities are
segregated, they will not be available for new investments or to meet
redemptions. Securities purchased on a delayed delivery basis may require a
similar segregation of cash or other high grade securities. For a more complete
description of when-issued securities and delayed delivery transactions see the
Statement of Additional Information.
DOLLAR ROLL TRANSACTIONS. (INCOME FUND AND GOVERNMENT SECURITIES FUND ONLY) In
order to enhance portfolio returns and manage prepayment risks, the Income Fund
and the Government Securities Fund may engage in dollar roll transactions with
respect to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, a Fund sells a mortgage security held in the portfolio to a
financial institution such as a bank or broker-dealer, and simultaneously agrees
to purchase a substantially similar security (same type, coupon and maturity)
from the institution at a later date at an agreed upon price. The mortgage
securities that are purchased will bear the same interest rate as those sold,
but generally will be collateralized by different pools of mortgages with
different prepayment histories. During the period between the sale and purchase,
the Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, could generate income for the Fund exceeding
the yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities the Fund has committed to purchase may decline below the price of the
securities that the Fund has sold. In the 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
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agencies or instrumentalities, since it is not obligated to do so. The
obligations of these other agencies and instrumentalities are supported
by:
o 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);
o 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
o 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 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
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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. CIGNA Investments
determines the liquidity of each Fund's investments. Limitations on the resale
of restricted securities may have an adverse effect on their marketability,
which may prevent the Fund from disposing of them promptly at reasonable prices.
The Fund may have to bear the expense of registering such securities for resale,
and the risk of substantial delays in effecting such registrations.
INVESTMENTS IN FOREIGN SECURITIES. (ALL FUNDS EXCEPT GOVERNMENT SECURITIES FUND,
TREASURY OBLIGATIONS CASH FUND, GOVERNMENT OBLIGATIONS CASH FUND AND S&P 500
INDEX FUND) A Fund may invest up to 25% of its total assets (50% for the Money
Market Fund and 100% for the International Stock Fund) in Canadian and other
foreign securities, although the Money Market Fund may only invest in foreign
securities denominated in U.S. dollars and the Income Fund may only invest up to
15% of its total assets in foreign securities denominated in foreign currencies.
To the extent it invests in securities denominated in foreign currencies, a Fund
bears the risks of changes in the exchange rates between U.S. currency and the
foreign currency, as well as the availability and status of foreign securities
markets. These Funds (other than the Money Market Fund) may invest in securities
of foreign issuers which are in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") or Global Depository Receipts
("GDRs"), or other securities representing underlying securities of foreign
issuers, and such investments are treated as foreign securities for purposes of
percentage limitations on investments in foreign securities. ADRs are
dollar-denominated receipts issued generally by a domestic bank and representing
the deposit with the bank of a 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.
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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.
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
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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 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
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<PAGE>
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 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
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<PAGE>
closed out only on an exchange which provides a liquid secondary market
therefor, and there can be no assurance that a liquid secondary market will
exist for any particular futures contract or option. The inability to close out
options and futures positions could have an adverse impact on a Fund's ability
to effectively hedge its securities and might, in some cases, require a Fund to
deposit cash to meet applicable margin requirements. A Fund's ability to hedge
effectively through transactions in futures contracts or options depends on the
degree to which price movements in its holdings correlate with price movements
of the futures and options. It is possible that there may be an imperfect
correlation between the hedging instrument and the hedged securities, which
could result in an ineffective hedge and a loss to 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
26
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adverse economic changes and individual corporate developments than those of
higher-rated debt securities.
BORROWING. (ALL FUNDS). Each Fund may borrow from banks or through reverse
repurchase agreements to the extent permitted by the 1940 Act. If a Fund borrows
money, its share price may be subject to greater fluctuation until the borrowing
is paid off. Under the 1940 Act as currently in effect, a Fund may borrow from
any lender only for temporary purposes in an amount not exceeding 5% of its
total assets, and may borrow from a bank in an amount not exceeding 33 1/3% of
its total assets.
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 CIGNA Investments 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.
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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 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, the
Money Market Fund may invest up to 100% of its assets in the
financial services 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
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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) can be shared rather than duplicated, in an
effort to achieve economies of scale.
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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 Services, Inc.
("CFS"). 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 CFS. CFS reserves the right to
reject any purchase order. Additional information regarding establishing a
brokerage account and purchasing shares may be obtained by calling your dealer
representative at 1-800-XXX-XXXX.
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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 CFS.
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.
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
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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 CFS 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
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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 the close of regular trading (normally, 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. Fair
value estimates may also be used in lieu of market quotations under
circumstances in which subsequent events have made market quotations unreliable.
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, Martin Luther King 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 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
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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 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
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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 CIGNA Investments, an indirect,
wholly-owned subsidiary of CIGNA Corporation. CIGNA Investments 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. CIGNA Investments and other
affiliates of CIGNA Corporation manage combined assets of approximately $64
billion. CIGNA Investments' 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 CIGNA Investments to manage the investment and reinvestment of
the assets of the Funds.
CIGNA Investments 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, CIGNA
Investments (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. CIGNA Investments 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 CIGNA Investments and any sub-adviser, each Fund pays CIGNA
Investments 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 by CIGNA Investments, 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.
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CIGNA Investments has voluntarily agreed, until April 30, 1999, 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:
INSTITUTIONAL RETAIL
CLASS CLASS
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
As long as these temporary voluntary expense limitations continue, they may
lower the Funds' expenses and increase their respective yields. CIGNA
Investments 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.
The investment management fee payable by the Funds in operation during 1997 and
total Fund expenses during 1997, both as a percentage of average daily net
assets, were as follows:
TOTAL FUND
EXPENSES
(EXCLUDING
FEE WAIVER
INVESTMENT MANAGEMENT AND EXPENSE
FEE REIMBURSEMENT)
Money Market Fund .35% .51%
Income Fund .50% 5.31%
International Stock Fund .80% 2.48%
S&P 500 Index Fund .25% .72% (annualized)
CIGNA Investments 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.
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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.
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 CFS, 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 CFS, 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 of
CIGNA Investments and has been the portfolio manager of the Fund since
its inception. Mr. Bowen has been a Managing Director of CIGNA
Investments since 1990.
HIGH YIELD FUND. Alan C. Petersen has been a Managing Director of CIGNA
Investments since 1990. Mr. Petersen has been the portfolio manager of
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the Fund since its inception. 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 CIGNA Investments
since 1995, and has been the portfolio manager of this Fund since 1991. From
1990 to 1995, Mr. Foley was a Vice President of CIGNA Investments. Mr. Foley
also manages INA Investment Securities, Inc., a closed-end management investment
company managed by CIGNA Investments 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
CFS acts as the principal underwriter and distributor of each Fund's shares
pursuant to a distribution agreement with the Funds. CFS will pay the cost of
printing and mailing prospectuses and sales literature to potential investors
and any advertising expenses incurred by it in connection with its distribution
of shares of the Funds.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Each Fund's and class's investment performance may from time to time be included
in advertisements about that Fund. Mutual fund performance is commonly measured
as total return and/or yield.
Total return quotations will, unless otherwise indicated, be calculated
according to a standard formula described in regulations issued by the SEC. This
formula equates an amount invested in a Fund at the beginning of a stated period
to the value of that investment (assuming reinvestment of all dividends and
capital gains) at the end of the period. The resulting return quote is an
average annual total return across the stated period. Due to the deduction of
the shareholder service fee, performance of the retail class of each Fund will
be lower than the performance of the institutional class of each Fund.
In addition, each Fund may calculate its total return pursuant to non-standard
formulas (such as a cumulative return across a stated period), provided that
standard return quotes for the one-, five- and ten-year periods (or from the
Fund's inception, if shorter) ending no earlier than the end of the last
calendar quarter are illustrated with equal prominence.
Yield quotations for all Funds will be calculated according to the applicable
standard formula described in regulations issued by the SEC.
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<PAGE>
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.
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<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,
1997
One Year.................................................15.58%
Three Years..............................................15.99%
Five Years...............................................12.72%
Ten Years................................................11.97%
COMPOSITE/3/ PERFORMANCE SHOWING ANNUAL TOTAL RETURNS/4/ FROM
JANUARY 1, 1988 THROUGH DECEMBER 31, 1997
Year Ended December 31, 1997.............................15.58%
Year Ended December 31, 1996.............................13.77%
Year Ended December 31, 1995.............................18.66%
Year Ended December 31, 1994.............................-1.25%
Year Ended December 31, 1993.............................18.11%
Year Ended December 31, 1992.............................17.95%
Year Ended December 31, 1991.............................42.04%
Year Ended December 31, 1990............................-11.96%
Year Ended December 31, 1989.............................-0.85%
Year Ended December 31, 1988.............................16.43%
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 the Washington Suburban
Sanitation Commission, managed by CIGNA Investments commencing
November 1996,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 CIGNA Investments
from June 1990 through February 1992. CIGNA Investments 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 1988
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.
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<PAGE>
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Funds declare and distribute dividends representing substantially all net
investment income as follows:
DIVIDENDS DIVIDENDS
DECLARED PAID
--------- ---------
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
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. Dividends declared to shareholders
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<PAGE>
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 Trusts consists
solely of an unlimited number of shares of beneficial interest with a par value
of $0.001 each.
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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.
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
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<PAGE>
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.
ASSET-BACKED SECURITIES - include interests in pools of mortgages, loans,
receivables, or other assets. Payment of principal and interest may be largely
dependent on the cash flows generated by the assets backing the securities.
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.
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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 CIGNA
Investments) 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 payments or of
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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.
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CUSTODIAN AND TRANSFER AGENT:
CIGNA FUNDS PROSPECTUS
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INVESTMENT ADVISER:
CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152
INVESTMENT SUB-ADVISER:
MAY 1, 1998
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 Services, Inc.
280 Trumbull Street
One Commercial Plaza
Hartford, CT 06103
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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
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A N D
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C I G N A F U N D S G R O U P
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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
M A Y 1, 1 9 9 8
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 ("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 Funds Group, for the year ended
December 31, 1997, 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, 1997 have been examined
by Price Waterhouse LLP, independent accountants, whose report thereon also is
incorporated herein by reference.
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TABLE OF CONTENTS
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General Information About the Trusts......................................... 3
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Investment Objectives and Policies............................................3
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Futures Contracts............................................................15
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Options on Futures Contracts.................................................16
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Risks as to Futures Contracts and Related Options............................17
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Foreign Currency Transactions................................................18
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Investment Restrictions......................................................23
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Tax Matters..................................................................25
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Activities of Affiliated Companies...........................................28
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Control Persons and Principal Holders of Securities..........................29
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Management of the Trusts.....................................................29
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Investment Advisory and Other Services.......................................32
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Portfolio Turnover and Brokerage Allocation..................................35
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Purchase, Redemption and Pricing of Securities...............................37
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Dividends....................................................................39
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Performance Information......................................................39
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Redemptions Paid in Cash.....................................................42
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Classes of Shares............................................................43
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Underwriter..................................................................43
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Service Fees.................................................................43
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Description of Money Market Instruments......................................44
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Ratings of Securities........................................................46
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GENERAL INFORMATION ABOUT THE TRUSTS
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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 has 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
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The following information supplements the material contained in the prospectus
regarding each Fund's investment objectives and policies.
Description of Money Market Instruments
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U.S. GOVERNMENT DIRECT OBLIGATIONS--issued by the U.S. Treasury and include
bills, notes, and bonds.
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. 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.
ASSET BACKED SECURITIES--Include interests in pools of mortgages, loans,
receivables, or other assets. Payment of principal and interest may be largely
dependent on the cash flows generated by the assets backing the securities.
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
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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 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
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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.
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
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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.
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
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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.
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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.
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.
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Description of Income Instruments for the Income Fund
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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.
(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.
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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 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
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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 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
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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
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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
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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 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
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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
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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
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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" 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
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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 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
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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
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
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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 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
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<PAGE>
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 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
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<PAGE>
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 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
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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 denominated or an increase in
the value of currency for securities
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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.
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In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a 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
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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.
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
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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.
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
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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.
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, the Money Market Fund may invest up
to 100% of its assets in the financial services industry.
4. Purchase securities of any company with a record of less than three
years' continuous operation (including that of
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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 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
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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.
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 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
Page 26
<PAGE>
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).
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
Page 27
<PAGE>
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 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
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<PAGE>
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.
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.
Page 29
<PAGE>
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.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- ---------------------------------------------------
As of March 31, 1998, all of the outstanding shares of the International Stock
Fund were owned by Century Indemnity Company, 1601 Chestnut Street,
Philadelphia, Pennsylvania 19101. As of March 31, 1998, all of the outstanding
shares of the Income Fund were owned by Connecticut General Life Insurance
Company, 900 Cottage Grove Road, Bloomfield, CT 06002. As of March 31, 1998,
owners of five percent or more of the shares of the Money Market Fund were as
follows:
PERCENTAGE OF
SHAREHOLDER ADDRESS OWNERSHIP
CIGNA Health Plan of Texas 600 E. Las Colinas Blvd. 19.02%
Irving, TX 75039
CIGNA Health Plan of Virginia 4050 Innslake Drive 13.41%
Glen Allen, VA 23060
CIGNA Health Plan of California 505 North Brand Blvd. 56.98%
Glendale CA 91205
CIGNA Health Plan of Arizona 11001 N. Black Canyon Highway 9.75%
Phoenix, AZ 85029
As of March 31, 1998, owners of five percent or more of the shares of the S&P
500 Index Fund were as follows:
Page 30
<PAGE>
PERCENTAGE
SHAREHOLDER ADDRESS OF OWNERSHIP
Insurance Company of North Two Liberty Place 19%
America 1601 Chestnut St.
Philadelphia PA 19192
CIGNA Property and Casualty Two Liberty Place 51%
Insurance Company 1601 Chestnut St.
Philadelphia PA 19192
CIGNA Insurance Company Two Liberty Place 19%
1601 Chestnut St.
Philadelphia PA 19192
Pacific Employeers Insurance Two Liberty Place 11%
Company 1601 Chestnut St.
Philadelphia PA 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 Mr. Forde, 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, 950
Winter Street, Suite 1200, Waltham, Massachusetts 02154.
R. BRUCE ALBRO*, 55, Trustee; Senior Managing Director and Division Head, CIGNA
Portfolio Advisers, a division of CIGNA Investments; Chairman of the Board and
President, CIGNA Funds Group, CIGNA Institutional Funds Group, CIGNA Variable
Products Group, CIGNA High Income Shares and INA Investment Securities, Inc. 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. Managing Director, CII.
HUGH R. BEATH, 66, Trustee; Advisory Director, AdMedia Corporate Advisors, Inc.;
previously Managing Director, Admedia Corporate Advisors, Inc.; Chairman of the
Board of Directors, Beath Advisors, Inc.
RUSSELL H. JONES, 53, Trustee; Vice President and Treasurer, Kaman Corporation
(helicopters and aircraft components, industrial products and services);
Trustee, Connecticut Policy and Economic Counsel;
Page 31
<PAGE>
Corporator, Hartford Seminary; Secretary, Bloomfield Chamber of Commerce.
THOMAS C. JONES*, 51, Trustee; President, CIGNA Investment Management;
President and Director, CIGNA Investment Group, Inc. and CII; Director, CIGNA
International Investment Advisors, Ltd. Mr. Jones is also an officer or director
of various other entities which are subsidiaries or affiliates of CIGNA.
Previously President, CIGNA Individual Insurance, a division of CIGNA;
President, CIGNA Reinsurance--Property & Casualty, a division of CIGNA;
Executive Vice President and Director, NAC RE Corporation.
PAUL J. MCDONALD, 54, 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; Director, Springfield YMCA; Trustee, Basketball Hall of Fame;
Regional Director-Western Massachusetts, Bank of Boston. Previously, Executive
Vice President, Finance and Chief Financial Officer, Friendly Ice Cream
Corporation.
ALFRED A. BINGHAM III, 53, Vice President and Treasurer, CIGNA Funds Group,
CIGNA Institutional Funds Group, CIGNA Variable Products Group, CIGNA High
Income Shares and INA Investment Securities, Inc.; Assistant Vice President,
CII.
RICHARD H. FORDE, 44, Senior Managing Director, CII; Vice President,
CIGNA Institutional Funds Group.
JEFFREY S. WINER, 40, Senior Counsel, CIGNA; Vice President and Secretary, CIGNA
Funds Group, CIGNA Institutional Funds Group, CIGNA Variable Products Group,
CIGNA High Income Shares and INA Investment Securities, Inc.; previously Counsel
CIGNA; previously Attorney, CIGNA.
*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
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<PAGE>
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 1997:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued As from Trusts and
Aggregate Part of Estimated Annual CIGNA Fund
Name of Person, Compensation Trust Benefits Upon Complex Paid to
Position with Trusts from Trusts Expense Retirement Trustees(c)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. Bruce Albro, Trustee, $ - $ - $ - $ -
Chairman and President
Hugh R. Beath, Trustee (a) $ 2,800 - - $24,600
Russell H. Jones, Trustee $ 2,800 - - $24,600
Thomas C. Jones, Trustee - - - -
Paul J. McDonald, Trustee (b) $ 2,800 - - $24,600
Arthur C. Reeds, III, - - - -
Trustee(d)
--------- ----------- ------------ -----------
$8,400 $ $ $73,800
========= =========== ============ ===========
</TABLE>
- ------------------------
(a) All but $403 of Mr. Beath's 1997 compensation was deferred under a plan
for all CIGNA funds in which he had an aggregate balance of $167,185 as
of December 31, 1997.
(b) All but $403 of Mr. McDonald's 1997 compensation was deferred under a
plan for all CIGNA funds in which he had an aggregate balance of $80,886
as of December 31, 1997.
(c) There were four (4) investment companies besides the Trust in the CIGNA
fund complex.
(d) Mr. Reeds retired from CIGNA Corporation and resigned from the Trust in
1997.
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 approximately $64
billion. CII's mailing address is 900 Cottage Grove Road, Hartford, Connecticut
06152.
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<PAGE>
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 1998 the total expenses of the
Office of the Treasurer will not exceed $392,000 and the expenses of the Office
of the Secretary are not expected to exceed $118,000. The portion of these
expenses allocated to each Fund for calendar year 1998 are not expected to
exceed the following amounts:
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<PAGE>
Office of Office of
the Treasurer the Secretary
------------- -------------
Money Market Fund $74,803 $22,517
Treasury Obligations Cash Fund $ - $ -
Government Obligations Cash Fund $ - $ -
Government Securities Fund $ - $ -
Income Fund $12,697 $3,822
High Yield Fund $ - $ -
CIGNA International Stock Fund $15,086 $4,541
S&P 500 Index Fund $50,954 $15,338
Developed Markets Stock Fund $ - $ -
In 1997 the costs reimbursed by the Trusts for the Office of the
Treasurer and the Office of the Secretary totalled $144,496
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, 1999, 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:
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<PAGE>
Institutional Retail
Class Class
------------- ------
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%
CIGNA International Stock Fund incurred a management fee payable to CII of
$66,311, $63,000, and $57,492 in 1997, 1996 and 1995, respectively. However, due
to the expense limitation, CII waived these fees and reimbursed an additional
$48,256, $53,870 and $46,590 to the Fund in 1997, 1996 and 1995, respectively.
CIGNA Money Market Fund incurred a management fee of $446,085, $111,530 and
$26,892 in 1997, 1996 and 1995, respectively. However, due to the expense
limitation, CII waived $88,881 and $78,697 of this fee in 1997 and 1996,
respectively and waived its management fees and reimbursed $23,194 to the Fund
in 1995.
CIGNA Income Fund incurred a management fee of $5,773, $5,465, and $25,580 in
1997, 1996 and 1995, respectively. However, due to the expense limitation, CII
waived these fees and reimbursed $43,969, $44,851 in 1997 and 1996,
respectively, and waived $21,690 of this fee in 1995.
CIGNA S&P 500 Index Fund incurred a management fee of $82,658 in 1997. However,
due to the expense limitation, CII waived this fee and reimbursed $43,969 to the
Fund in 1997.
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
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<PAGE>
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.
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
Funds 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 Trusts.
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.
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<PAGE>
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 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
Page 38
<PAGE>
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 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 1995, 1996 and 1997, brokerage commissions paid by
the CIGNA Institutional Funds Group amounted to $47,611, $32,798, and $41,960
respectively, and brokerage commissions paid by the S&P 500 Index Fund amounted
to $37,741, 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 1995, 1996 or 1997.
As of December 31, 1997, Sanford C. Bernstein & Co., Inc. ("Sanford Bernstein"),
767 Fifth Avenue, New York, NY 10153, reported that it held 6,263,994 shares or
8.66% of the outstanding common stock of CIGNA for the accounts of discretionary
clients who have the right to receive dividends these shares and any proceeds
from the sale of these shares. Sanford Bernstein also reported sole voting power
as to 3,368,544, shared voting power ass to 749,963, and sole dispositive power
as to all of these shares. Wellington Management Company, LLP ("Wellington"), 75
State Street, Boston, MA 02109, reported that as of December 31, 1997 it held
4,276,700 shares, or 5.91% of the outstanding common stock of CIGNA for the
accounts of discretionary clients who have the right to receive dividends on
these shares and any proceeds from the sale of
Page 39
<PAGE>
these shares. Wellington also reported sole voting power as to none, shared
voting power as to 323,700, and shared dispositive power as to all of these
shares. Swiss Bank Corporation ("Swiss Bank"), Aeschenplatz 6 CH-4002, Basel,
Switzerland, reported on a joint basis with its subsidiaries, SBC Holding (USA),
Inc. ("SBC"), Brinson Partners, Inc. and Brinson Holdings, Inc. that as of
December 31, 1997, Swiss Bank and SBC had shared voting and dispositive power
over 3,868,333 shares, or 5.35% of the outstanding common stock of CIGNA.
Brinson Partners, Inc. and Brinson Holdings, Inc. reported shared voting and
dispositive power over 3,859,472 shares.
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 Funds 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 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.
Page 40
<PAGE>
The valuation of the investments of the Money Market Funds at amortized cost is
permitted by the Securities and Exchange Commission, and the Funds are required
to adhere to certain conditions so long as they use 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 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
Page 41
<PAGE>
contain articles or segments relating to investment results or other data about
the Fund. The following is a list of such publications or media entities:
Advertising Age Financial Times Kiplinger
Barron's Financial Weekly Money
Barron's/Nelson's Financial World Mutual Fund Forecaster
Best's Review Forbes Nation's Business
Broker World Fortune New York Times
Business Week Global Investor Pension World
Changing Times Hartford Courant Pensions & Investments
Christian Science Monitor Institutional Investor Personal Investor
Consumer Reports Insurance Forum Philadelphia Inquirer
Economist Insurance Weekly The Times (London)
Equity International International Business USA Today
FACS of the Week Week U.S. News & World Report
Far Eastern Investing Wall Street Journal
Economic Review Investor's Chronicle Washington Post
Financial Adviser Investor's Daily CNN
Financial Planning Journal of the American CNBC
Financial Product News Society of CLu & ChFC PBS
Financial Services Week
Each Fund may also compare its performance to performance data of similar mutual
funds as published by the following services:
Bank Rate Monitor
Lipper Analytical Services Stanger Report
CDA Investment Technologies, Inc. Weisenberger
Frank Russell Co. Micropal, Ltd.
InterSec Research Donoghues
Mutual Fund Values (Morningstar)
Each Fund's performance may also be compared in advertising to the performance
of comparative benchmarks such as the following:
Standard & Poor's 400 Index
Standard & Poor's 500 Stock Index Bond Buyer Index
Dow Jones Industrial Average NASDAQ
EAFE Index COFI
Consumer Price Index First Boston High Yield Index
Lehman Bond Indices
Each Fund may also compare its performance to rates on Certificates of Deposit
and other fixed rate investments such as the following:
10 year Treasuries
30 year Treasuries
90 day Treasury Bills
Advertising for a Fund may from time to time include discussions of general
economic conditions and interest rates, and may also include references to the
use of those Funds as part of an individual's overall retirement investment
program. From time to time, sales literature and/or advertisements for any of
the Funds may disclose the largest holdings in the Fund's portfolio.
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<PAGE>
From time to time, the Funds' sales literature and/or advertisements may discuss
generic topics pertaining to the mutual fund industry. This includes, but is not
limited to, literature addressing general information about mutual funds,
variable annuities, dollar-cost averaging, stocks, bonds, money markets,
certificates of deposit, retirement, retirement plans, asset allocation,
tax-free investing, college planning, inflation.
Although performance data may be useful to prospective investors in comparing
with other funds and other potential investments, investors should note that the
methods of computing performance of other potential investments are not
necessarily comparable to the methods employed by the Fund.
Total Return Quotations
- -----------------------
The standard formula for calculating total return, as described in the
prospectus, is as follows:
P(1+T)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, 1997, were
as follows:
Periods ended December 31, 1997
-------------------------------
1 Year 5 Years 10 Years
------ ------- --------
CIGNA Income Fund......................... 9.10% 7.14% 8.84%
CIGNA International Stock Fund*...........-3.84%
CIGNA Money Market Fund................... 5.27% 4.26% 5.43%
CIGNA S&P 500 Index Fund**................10.23%
*The inception date of CIGNA International Stock Fund was January 11, 1993. Its
average annual return since inception was 9.24%.
Page 43
<PAGE>
**The Inception date of the CIGNA S&P 500 Index Fund was July 1, 1997.
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, 1997
-------------------------------
CIGNA Income Fund.........................................4.70%
The standard formula for calculating annualized yield for the CIGNA Money Market
Fund, as described in the Prospectus, is as follows:
Y = V1 - Vo x 365
------- ---
Vo 7
Where Y = 7 day annualized yield.
Vo = 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.
V1 = the value of such an account at the end of the
stated period.
V1 - Vo = base period return.
-------
Vo
The annualized yield for the CIGNA Money Market Fund for the 7 days ended
December 31, 1997 was 5.30%.
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<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, 1997 was 5.44%.
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 Services, Inc.
("CFS"), 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
Page 45
<PAGE>
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 rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class.
UNDERWRITER
- -----------
CFS serves as the Trusts' distributor pursuant to Distribution Contracts
("Distribution Contracts") which are subject to annual approval by the Board of
Trustees. CFS 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 CFS or by CFS upon 60
days' notice, to the Trust. CFS is not obligated to sell any specific amount of
Trust shares. Pursuant to the Distribution Contracts, CFS 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 CFS, 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.
Page 46
<PAGE>
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 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:
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.
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<PAGE>
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. 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.
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<PAGE>
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 49
<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 known as CIGNA Money Market Fund, CIGNA Income Fund
and CIGNA S&P 500 Index Fund for the year ended December 31, 1997 and
filed electronically with the Securities and Exchange Commission on Form
N-30D on March 10, 1998:
Investments In Securities, December 31, 1997
Statement of Assets and Liabilities, December 31, 1997
Statement of Operations, For the Periods Ended December 31, 1997 (From
January 1, 1997, except for CIGNA S&P 500 Index Fund which
commenced operations on July 1, 1997)
Statement of Changes in Net Assets, For the Periods Ended
December 31, 1997
Statement of Changes in Net Assets, For the Year Ended
December 31, 1996 (with respect to CIGNA Money Market Fund and
CIGNA Income Fund)
Notes to Financial Statements
Reports of Independent Accountants
(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.
(1a) Amendment No. 1 to the First Amended and Restated Master
Trust Agreement of Registrant dated October 28, 1996,
incorporated by reference to Post-Effective Amendment No.
55 to Registrant's Registration Statement filed
electronically April 30, 1997.
(2) The Amended and Restated By-Laws of Registrant dated April 29,
1997, incorporated by reference to Post-Effective Amendment
No. 55 to Registrant's Registration Statement filed
electronically April 30, 1997.
- 1 -
<PAGE>
(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).
(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 incorporated by reference
in 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., incorporated by reference to
Post-Effective Amendment No. 54 to Registrant's Registration
Statement filed electronically June 28, 1996
* (6) The Distribution Agreement dated as of December 1, 1997
between CIGNA Funds Group and CIGNA Financial Services, 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.
(8a) Side Letter to the Custodian Contract between CIGNA Funds
Group and State Street Bank and Trust Company dated as of
April 30, 1996, incorporated by reference to Post-Effective
Amendment No. 54 to Registrant's Registration Statement filed
electronically June 28, 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.
(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, incorporated by
reference to Post-Effective Amendment No. 54 to
Registrant's Registration Statement filed electronically
June 28, 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.
(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 between CIGNA Funds Group
and CIGNA Financial Services, Inc.
- 2 -
<PAGE>
* (10) Consent of Counsel.
* (11) Consent of Price Waterhouse LLP.
(12) None.
(13) None.
(14) None.
(15) None.
(16) None.
* (17) Financial Data Schedule.
(18) The Dual Class Plan Pursuant to Rule 18f-3 for CIGNA Funds
Group dated as of April 30, 1996, incorporated by
reference to Post-Effective Amendment No. 54 to
Registrant's Registration Statement filed electronically
June 28, 1996.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
- -----------------------------------------------------------------------
No person is directly or indirectly controlled by or under common control with
CIGNA Funds Group.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
- -----------------------------------------
As of April 1, 1998:
Number of Record Holders of
Shares of Beneficial Interest
-----------------------------
Name of Series Institutional Class Retail Class
- -------------- ------------------- ------------
CIGNA Government Obligations Cash Fund -0- -0-
CIGNA Government Securities Fund -0- -0-
CIGNA High Yield Fund -0- -0-
CIGNA Income Fund -0- -1-
CIGNA Money Market Fund -36- -0-
CIGNA S&P 500 Index Fund -4- -0-
CIGNA Treasury Obligations Cash Fund -0- -0-
- ----------------------
* Filed Herewith.
- 3 -
<PAGE>
ITEM 27. INDEMNIFICATION.
- -------------------------
The First Amended and Restated Master Trust Agreement, dated as of March 1, 1996
(the "Master Trust Agreement"), provides, among other things, for the
indemnification out of Registrant's assets (or the assets of a series of
Registrant where applicable) of the Trustees and officers of Registrant against
all liabilities incurred by them in such capacity, except for liability by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of their duties. Trustees may consult counsel or other experts concerning the
meaning and operation of the Master Trust Agreement, and may rely upon the books
and records of Registrant. Trustees are not liable for errors of judgment,
mistakes of fact or law, or for the negligence of other Trustees or Registrant's
officers or agents.
Trustees are not required to give a bond or other security for the performance
of their duties. Payments in compromise of any action brought against a Trustee
or officer may be paid by Registrant if approved by either a majority of
disinterested Trustees or by independent legal counsel. The right of
indemnification under the Master Trust Agreement is not exclusive of any other
rights to which the Trustees or officers may be entitled.
The Master Trust Agreement also provides that shareholders shall be indemnified
and held harmless by the applicable series of Registrant with respect to actions
brought against them in their capacity as shareholders. Also, the Master Trust
Agreement provides that creditors of a series of Registrant may look only to the
assets of that series for payment; and neither shareholders nor Trustees shall
be personally liable therefor. All instruments executed on behalf of Registrant
are required to contain a statement to the effect of the foregoing.
CIGNA Investments, Inc., Registrant and other investment companies managed by
CIGNA Investments, Inc., their officers, trustees, directors and employees (the
"Insured Parties") are insured under an Investment Management Errors and
Omissions Insurance Policy in the amount of $10,000,000 offered by Lloyd's
Insurance Company, an affiliate of Lloyd's of London, 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 Lloyd's Insurance Company 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 CIGNA Funds Group, to CIGNA Institutional Funds Group, to CIGNA
Variable Products Group and their series of shares and to CIGNA High Income
Shares (CIGNA Funds Group, CIGNA High Income Shares, CIGNA Institutional Funds
Group and CIGNA Variable Products Group, collectively known as the "Trusts") and
to INA Investment Securities, Inc. ("IIS"), all of which
- 4 -
<PAGE>
(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 - 950 Winter Street, Suite
1200, Waltham, Massachusetts 02154
IIS - Two Liberty Place, 1601 Chestnut Street, Philadelphia,
Pennsylvania 19192
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Substantial Business Connections
- ------------------------------- --------------------------------------
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, Global
Portfolio Strategies, Inc.*
Robert W. Burgess Director and Senior Vice President, CII;
Director, 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, CIGNA Financial Futures,
Inc.* and Global Portfolio Strategies,
Inc.*
Thomas C. Jones 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.**,
CIGNA Financial Futures, Inc.* and Global
Portfolio Strategies, Inc.*; Trustee, the
Trusts; Director, IIS.
- 5 -
<PAGE>
R. Bruce Albro Senior Managing Director, CII; Director
and Senior Managing Director, CIGNA
Investment Advisory Company, Inc.*;
Director, Global Portfolio Strategies,
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
Investment Advisory Company, Inc.*
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.
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.
Kevin D. Barry Managing Director, CII.
Julia B. Bazenas Managing Director, CII.
Marguerite A. Boslaugh Managing Director, CII.
Susan B. Bosworth Managing Director, CII.
Thomas J. Bowen Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
William C. Carlson Managing Director, CII; previously Vice
President, CII.
Antonio M. Caxide Managing Director, CII and CIIA**;
previously Vice President, CII and CIIA.**
Richard H. Chase Managing Director, CII.
Rosemary C. Clarke Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Rosemary S. Cleaves Managing Director, CII; President and
Director, Global Portfolio Strategies,
Inc.*; previously Vice President, CII.
- 6 -
<PAGE>
Dorothy Cunningham Managing Director, CII; previously Vice
President, CII.
Robert F. DeLucia Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*;
Director, Global Portfolio Strategies,
Inc.*
Mark V. DePucchio Managing Director, CII; previously Vice
President, CII.
Michael Q. Doyle Managing Director, CII; previously Vice
President, CII.
Lawrence A. Drake Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Denise T. Duffee Managing Director, CII.
John G. Eisele Managing Director, CII.
Robert Fair Managing Director, CII.
John P. Feeney Managing Director, CII.
Thomas R. Foley Managing Director, CII; previously Vice
President, CII.
Keith A. Gollenberg Managing Director, CII; previously Vice
President, CII.
Maurice A. Gordon Managing Director, CII; previously Vice
President, CII.
William J. Grady Managing Director, CII.
Debra J. Height Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*;
previously Vice President, CII and CIGNA
Investment Advisory Company, Inc.*
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; Vice President,
CIGNA Financial Futures, Inc.*
- 7 -
<PAGE>
Richard B. McGauley Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Bret E. Meck Managing Director, 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.
Anthony J. Pierson Managing Director, CII.
Leon Pouncy Managing Director, CII.
Donald F. Rieger, Jr. Managing Director, CII.
Peter F. Roby Managing Director, CII; previously Vice
President, CII.
Frank Sataline, Jr. Managing Director, CII; previously Vice
President, CII.
James G. Schelling Managing Director, CII.
John A. Shaw Managing Director, CII; previously Vice
President, CII.
Thomas M. Smith Managing Director, 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.
George Varga Managing Director, CII.
Victor J. Visockis, Jr. Managing Director, CII; previously Vice
President, CII.
Deborah B. Wiacek Managing Director, CII; previously Vice
President, CII.
Stephen H. Wilson Managing Director, CII.
Victor E. Saliterman Senior Vice President, CII.
James A. White Senior Vice President, CII and CIGNA
Investment Advisory Company, Inc.*
Jean M. Anderson Vice President, CII.
- 8 -
<PAGE>
Thomas P. Au Vice President, CII.
Timothy C. Burns Vice president, CII and Global Portfolio
Strategies, Inc.*
John D. Carey Vice President, CII.
David M. Cass Vice President, CII.
R. Thomas Clemmenson Vice President, CII.
Maryanne P. DePreaux Vice President, CII.
Eric C. DiMiceli Vice President, CII.
Kim L. DiPietro Vice President, CII.
Celia R. Dondes Vice President, CII.
Ronald J. Dupont Vice President, CII and CIGNA Investment
Advisory Company, Inc.*
Mark W. Everette Vice President, CII.
Daniel E. Feder Vice President, CII.
Richard L. Fletcher Vice President, CII.
Jonathan S. Frankel Vice President, CII.
Ivy B. Freedman Vice President, CII.
Susan M. Grayson Vice President, CII and Global Portfolio
Strategies, Inc.*; previously Director,
Global Portfolio Strategies, Inc.*
Dennis P. Hannigan Vice President, CII.
Amy F. Hatfield Vice President, CII.
John Hurley Vice President, CII.
Chuel D. Hwang Vice President, CII.
William H. Jefferis Vice president, CII.
Edward B. Johns Vice President, CII.
Thomas W. Johnson Vice President, CII.
Thomas J. Keene Vice President, CII.
Joseph R. Kennedy Vice President, CII.
Peter K. Kofoed Vice President, CII.
- 9 -
<PAGE>
Mark S. Korinek Vice President, CII.
James R. Lagasse Vice President, CII.
Mary S. Law Vice President, CII.
Margaret Y. Leong Vice President, CII.
Paul T. Martin Vice President, CII.
Daniel McDonough Vice President, CII, CIGNA International
Investment Advisors, Ltd.** and Global
Portfolio Strategies, Inc.*
Dean M. Molinaro Vice President, CII
Linda L. Morel Vice President, CII.
Alpha O. Nicholson, III Vice President, CII; Senior Counsel, CIGNA
companies*.
Ann Marie O'Rourke Vice President, CII.
Pamela S. Peck Vice President, CII.
Elisabeth A. Perenick Vice President, CII.
Scott S. Piccone Vice President, CII.
Elisabeth Piker Vice President, CII.
Thomas J. Podgorski Vice President, CII.
Suresh Raghaven Vice President, CII.
Michael J. Riccio Vice President, CII.
Timothy F. Roberts Vice President and Compliance Officer,
CII; Vice President, International
Finance/Global Compliance, CIGNA
Investment Management, a division of CIGNA
Corporation*; Vice President - Finance and
Compliance Officer, CIGNA International
Investment Advisors, Ltd.**; Compliance
Officer, CIGNA Investment Advisory
Company, Inc.*
Alexander Rybchinsky Vice President, CII.
Annette Sanderson Vice President, CII.
John R. Schumann Vice President, CII.
Thomas P. Shea, III Vice President, CII.
- 10 -
<PAGE>
Philip Spak Vice President, CII.
Marie E. Swartzwelder Vice President, CII and Global Portfolio
Strategies, Inc.*; previously Vice
President, Global Portfolio Strategies,
Inc.*
Carlton C. Taylor Vice President, CII.
Patrick H. Thompson Vice President, CII.
Ruth D. VanWinkle Vice President, CII and CIGNA Investment
Advisory Company, Inc.*
Henry C. Wagner, III Vice President, CII and CIGNA Investment
Advisory Company, Inc.*; President, CIGNA
Financial Futures, Inc.*
Michael J. Walker Vice President, CII.
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.
David C. Kopp Secretary, CII, CIGNA Investment Advisory
Company, Inc.*, CIGNA International
Investment Advisors, Ltd.**, CIGNA
Investment Group, Inc.*, Global Portfolio
Strategies, Inc.* and CIGNA Financial
Services, Inc.*; Assistant Corporate
Secretary, CIGNA Corporation*; Corporate
Secretary, Connecticut General Life
Insurance Company*; Assistant General
Counsel, CIGNA companies*.
ITEM 29. PRINCIPAL UNDERWRITERS
- --------------------------------
(a) CIGNA Financial Services, Inc. is the principal underwriter for CIGNA
Funds Group and CIGNA Institutional Funds Group and for their series.
(b) The officers and Directors of CIGNA Financial Services, Inc. as of
April 17, 1998 are:
______________________
* 900 Cottage Grove Road, Bloomfield, CT
** Park House, 16 Finsbury Circus, London, England
- 11 -
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter with Registrant
- ------------------ ------------------------- -------------------
Willard S. Bashan Member Board of Directors --------
David J. Castellani Member Board of Directors --------
Byron D. Oliver Member Board of Directors --------
Mark A. Parsons Member Board of Directors --------
Kenneth A. Pouch, Jr. Member Board of Directors --------
David C. Scheinerman Member Board of Directors --------
Willard S. Bashan President --------
David J. Castellani Vice President --------
Walter R. Costenbader Vice President, Treasurer,
Chief Financial Officer
and Compliance Officer --------
Mark A. Parsons Vice President and --------
Chief Counsel
Julia M. Kozlowski Assistant Vice President --------
Robin A. Leavitt Assistant Vice President --------
David C. Kopp Secretary --------
Thomas L. Pierce Assistant Secretary --------
David M. Porcello Assistant Secretary --------
Margaret I. Whiteman Assistant Secretary --------
Pamela S. Williams Assistant Secretary --------
John M. DiIorio Assistant Treasurer --------
Joy B. Erickson Assistant Compliance Officer --------
(c) Not Applicable.
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) Not Applicable.
(c) Not Applicable.
- 12 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Registrant, CIGNA 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. 56 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 30th day of April, 1998.
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.
56 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 April 30, 1998.
the Board of
Trustees and
President (principal
By: /s/ Jeffrey S. Winer executive officer)
--------------------------------
Jeffrey S. Winer
Attorney-in-Fact
/s/ Alfred A. Bingham III
--------------------------------
Alfred A. Bingham III Treasurer April 30, 1998.
(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 all of the Trustees currently holding the
office of Trustee of Registrant.
R. Bruce Albro Thomas C. Jones
Hugh R. Beath Paul J. McDonald
Russell H. Jones
By: /s/ Jeffrey S. Winer April 30, 1998.
--------------------------------
Jeffrey S. Winer
- 13 -
<PAGE>
SECURITIES ACT FILE NO. 2-29020
INVESTMENT COMPANY ACT FILE NO. 811-1646
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
_____
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | X |
-----
-----
Pre-Effective Amendment No. |_____|
Post-Effective Amendment No. 56 | X |
-----
and
-----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | X |
-----
Amendment No. 56 | X |
-----
CIGNA Funds Group
(Exact Name of Registrant as Specified in Charter)
950 Winter Street, Suite 1200, Waltham, MA 02154
(Address of Principal Executive Office)
EXHIBITS
<PAGE>
EXHIBIT INDEX
(b) Exhibits
* (6) The Distribution Agreement dated as of December 1, 1997 Between
CIGNA Funds Group and CIGNA Financial Services, Inc.
* (8) The Custodian Contract dated as of July 30, 1985 between CIGNA
Annuity Funds Group (n/k/a CIGNA Funds Group) and State Street Bank
and Trust Company.
* (9) The Transfer Agency and Service Agreement dated as of July 30, 1985
between CIGNA Annuity Funds Group (n/k/a CIGNA Funds Group) and
State Street Bank and Trust Company.
* (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.
* (9d) Form of Shareholder Services Plan between CIGNA Funds Group and
CIGNA Financial Services, Inc.
* (10) Consent of Counsel.
* (11) Consent of Price Waterhouse LLP.
* (17) Financial Data Schedule.
- ------------
* Filed Herewith.
<PAGE>
Exhibit (6)
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 1st day of December, 1997 by and between CIGNA
FUNDS GROUP, a Massachusetts business trust having its principal place of
business at 950 Winter Street, Waltham, Massachusetts (the "Trust"), and CIGNA
FINANCIAL SERVICES, INC., a Delaware corporation (the "Distributor") having its
principal place of business at 280 Trumbull Street, One Commercial Plaza,
Hartford, 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, 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.
Page 1
<PAGE>
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 "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
Page 2
<PAGE>
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 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 280 Trumbull Street, One Commercial Plaza, Hartford, CT
06103 and that the address of the Trust shall be c/o CIGNA Investments, Inc.,
900 Cottage Grove Road, Hartford, Connecticut 06152, Attn: Mutual Funds
Operations.
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 SERVICES, INC.
By: /s/ Willard S. Bashan
-------------------------------
By: Willard S. Bashan
Its: President
Page 5
<PAGE>
Exhibit (8)
CUSTODIAN CONTRACT
BETWEEN
CIGNA ANNUITY FUNDS GROUP
AND
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Employment of Custodian and Property to be Held By
It.....................................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian......................................2
2.1 Holding Securities............................................2
2.2 Delivery of Securities........................................3
2.3 Registration of Securities....................................8
2.4 Bank Accounts.................................................8
2.5 Payments for Shares...........................................9
2.6 Availability of Federal Funds.................................9
2.7 Collection of Income.........................................10
2.8 Payment of Fund Monies.......................................11
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased..............................13
2.10 Payments for Repurchases or Redemptions
of Shares of the Fund........................................14
2.11 Appointment of Agents........................................14
2.12 Deposit of Fund Assets in Securities Systems.................15
2.12A Fund Assets Held in the Custodian's Direct
Paper System.................................................18
2.13 Segregated Account...........................................20
2.14 Ownership Certificates for Tax Purposes......................21
2.15 Proxies......................................................21
2.16 Communications Relating to Portfolio
Securities...................................................22
2.17 Proper Instructions..........................................22
2.18 Actions Permitted Without Express Authority..................23
2.19 Evidence of Authority........................................24
3. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net
Income................................................................24
4. Records...............................................................25
5. Opinion of Fund's Independent Accountants.............................26
6. Reports to Fund by Independent Public Accountants.....................26
7. Compensation of Custodian.............................................27
8. Responsibility of Custodian...........................................27
9. Effective Period, Termination and Amendment...........................28
10. Successor Custodian...................................................30
11. Interpretive and Additional Provisions................................31
12. Additional Funds......................................................32
13. Massachusetts Law to Apply............................................32
14. Prior Contracts.......................................................32
15. Trust Liability.......................................................32
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between CIGNA Annuity Funds Group, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at 1380 Main Street, Springfield, Massachusetts 01103,
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts corporation, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to Issue shares in separate
series, with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund presently intends to offer shares in six
series, the CIGNA Annuity Equity Fund, CIGNA Annuity Income Fund, CIGNA Annuity
Money Market Fund, CIGNA Annuity Growth and Income Fund, CIGNA Annuity
Aggressive Equity Fund, and the Companion Fund (such series together with all
other series subsequently established by the Fund and made subject to this
Contract in accordance with paragraph 12, being herein referred to as the
"Portfolio(s)");
NOW THEREFOR, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of its
assets of the Portfolios of the Fund pursuant to the provisions of the
Declaration of Trust. The Fund agrees to deliver to the Custodian all securities
and cash owned by it, and
<PAGE>
all payments of income, payments of principal or capital distributions received
by it with respect to all securities owned by the Portfolios from time to time,
and the cash consideration received by it for such new or treasury shares of
beneficial interest ("Shares") of the Portfolios as may be issued or sold from
time to time. The Custodian shall not be responsible for any property of a
Portfolio held or received by the Portfolio and not delivered to the Custodian.
Upon receipt of 'Proper Instructions" (within the meaning of
Section 2.17), the Custodian shall from time to time employ one or more
sub-custodians, but only in accordance with an applicable vote by the Board of
Trustees of the Fund, and provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any actions or omissions
of any sub-custodian so employed than any such sub-custodian has to the
Custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held
-----------------------------------------------------------------
By the Custodian
- ----------------
2.1 Holding Securities. The Custodian shall hold and physically
------------------
segregate for the account of each Portfolio all non-cash
property, including all securities owned by such Portfolio, other
than (a) securities which are maintained pursuant to Section 2.12
in a clearing agency which acts as a securities depository or in
a book-entry system authorized by the U.S. Department of the
Treasury, collectively referred to herein as "Securities System"
and (b) commercial paper of an issuer for which State
-2-
<PAGE>
Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian pursuant to Section 2.12A.
2.2 Delivery of Securities. The Custodian shall release and
----------------------
deliver securities owned by a Portfolio held by the Custodian or
in a Securities System account of the Custodian or in the
Custodian's Direct Paper book entry system account ("Direct Paper
System Account") only upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account
of the Portfolio and receipt of payment
therefor;
2) Upon the receipt of payment in connection
with any repurchase agreement related to
such securities entered into by the
Portfolio;
3) In the case of a sale effected through a
Securities System, in accordance with the
provisions of Section 2.12 hereof;
4) To the depository agent in connection with
tender or other similar offers for
securities of the Portfolio;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or
otherwise become payable; provided that, in
-3-
<PAGE>
any such case, the cash or other
consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for
transfer into the name of the Portfolio or
into the name of any nominee or nominees of
the Custodian or into the name or nominee
name of any agent appointed pursuant to
Section 2.11 or into the name or nominee
name of any sub-custodian appointed pursuant
to Article 1; or for exchange for a
different number of bonds, certificates or
other evidence representing the same
aggregate face amount or number of units;
provided that, in any such case, the new
--------
securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the
account of the Portfolio, to the broker or
its clearing agent, against a receipt, for
examination in accordance with "street
delivery" custom; provided that in any such
case, the Custodian shall have no
responsibility or liability for any loss
arising from the delivery of such securities
prior to receiving payment for such
securities except as may arise from the
Custodian's own negligence or willful
misconduct;
-4-
<PAGE>
8) For exchange or conversion pursuant to any
plan of merger, consolidation,
recapitalization, reorganization or
readjustment of the securities of the issuer
of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit
agreement; provided that, in any such case,
the new securities and cash, if any, are to
be delivered to the Custodian;
9) In the case of warrants, rights or similar
securities, the surrender thereof in the
exercise of such warrants, rights or similar
securities or the surrender of interim
receipts or temporary securities for
definitive securities; provided that, in any
such case, the new securities and cash, if
any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of
securities made by the Portfolio, but only
--------
against receipt of adequate collateral as
agreed upon from time to time by the
Custodian and the Fund on behalf of the
Portfolio, which may be in the form of cash
or obligations issued by the United States
government, its agencies or instrumental-
ities, except that in connection with any
-5-
<PAGE>
loans for which collateral is to be
credited to the Custodian's account in the
book-entry system authorized by the U.S.
Department of the Treasury, the Custodian
will not be held liable or responsible for
the delivery of securities owned by the
Portfolio prior to the receipt of such
collateral;
11) For delivery as security in connection with
any borrowings by the Portfolio requiring a
pledge of assets by the Portfolio, but only
--- ----
against receipt of amounts borrowed;
12) For delivery in accordance with the
provisions of any agreement among the Fund
on behalf of the Portfolio, the Custodian
and a broker-dealer registered under the
Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National
Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the
rules of The Options Clearing Corporation
and of any registered national securities
exchange, or of any similar organization or
organizations, regarding escrow or other
arrangements in connection with transactions
by the Portfolio of the Fund;
13) For delivery in accordance with the
provisions of any agreement among the Fund
on
-6-
<PAGE>
behalf of the Portfolio, the Custodian, and
a Futures Commission Merchant registered
under the Commodity Exchange Act, relating
to compliance with the rules of the
Commodity Futures Trading Commission and/or
any Contract Market, or any similar
organization or organizations, regarding
account deposits in connection with
transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the
transfer agent ("Transfer Agent") for the
Fund, for delivery to such Transfer Agent or
to the holders of shares in connection with
distributions in kind, as may be described
from time to time in the Fund's currently
effective prospectus and statement of
additional information ("prospectus"), in
satisfaction of requests by holders of Share
for repurchase or redemption; and
15) For any other proper corporate purpose, but
---
only upon receipt of, in addition to Proper
----
Instructions, a certified copy of a
resolution of the Board of Trustees or of
the Executive Committee signed by an officer
of the Fund and certified by the Secretary
or an Assistant Secretary, specifying the
securities to be delivered, setting forth
the
-7-
<PAGE>
purpose for which such delivery is to be
made, declaring such purpose to be a proper
corporate purpose, and naming the person or
persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities. Securities held by the Custodian
--------------------------
(other than bearer securities) shall be registered in the name of
the Portfolio or in the name of any nominee of the Portfolio or
of any nominee of the Custodian which nominee shall be assigned
exclusively to the Portfolio, unless the Fund has authorized in
------
writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment
adviser as the Portfolio, or in the name or nominee name of any
agent appointed pursuant to Section 2.11 or in the name or
nominee name of any sub-custodian appointed pursuant to Article
1. All securities accepted by the Custodian on behalf of the
Portfolio under the terms of this Contract shall be in "street
name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
-------------
bank account or accounts in the name of each Portfolio of the
Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such
account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of the Portfolio, other
than cash
-8-
<PAGE>
maintained by the Portfolio in a bank account established and
used in accordance with Rule 17f-3 under the Investment Company
Act of 1940. Funds held by the Custodian for a Portfolio may be
deposited by it to its credit as Custodian in the Banking
Department of the Custodian or In such other banks or trust
companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust
--------
company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or
trust company shall be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Payments for Shares. The Custodian shall receive from the
-------------------
distributor for the Fund's Shares or from the Transfer Agent of
the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that
Portfolio issued or sold from time to time by the Fund. The
Custodian will provide timely notification to the Portfolio and
the Transfer Agent of any receipt by it of payments for Shares of
such Portfolio.
2.6 Availability of Federal Funds. Upon mutual agreement between the
-----------------------------
Fund and the Custodian, the Custodian shall,
-9-
<PAGE>
upon the receipt of Proper Instructions, make federal funds
available to a Portfolio as of specified times agreed upon from
time to time by the Fund and the Custodian in the amount of
checks received in payment for Shares of such Portfolio which are
deposited into the Portfolio's account.
2.7 Collection of Income. The Custodian shall collect on a timely
--------------------
basis all income and other payments with respect to registered
securities held hereunder to which each Portfolio shall be
entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and
other payments with respect to bearer securities if, on the date
of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall
detach and present for payment all coupons and other income items
requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the
Fund. The Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the
-10-
<PAGE>
Custodian of the income to which the Portfolio is properly
entitled.
2.8 Payment of Fund Monies. Upon receipt of Proper Instructions,
----------------------
which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out moneys of a Portfolio in
the following cases only:
1) Upon the purchase of securities, options,
futures contracts or options on futures
contracts for the account of the Portfolio
but only (a) against the delivery of such
securities or evidence of title to such
options, futures contracts or options on
futures contracts to the Custodian (or any
bank, banking firm or trust company doing
business in the United States or abroad
which is qualified under the Investment
Company Act of 1940, as amended, to act as a
custodian and has been designated by the
Custodian as its agent for this purpose)
registered in the name of the Portfolio or
in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of
a purchase effected through a Securities
System, in accordance with the conditions
set forth in Section 2.12 hereof; or (c) in
the case of a purchase involving the Direct
Paper System,
-11-
<PAGE>
in accordance with the conditions set forth
in Section 2.12A; or (d) in the case of
repurchase agreements entered into between
the Fund on behalf of the Portfolio and the
Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i)
against delivery of the securities either in
certificate form or through an entry
crediting the Custodian's account at the
Federal Reserve Bank with such securities or
(ii) against delivery of the receipt
evidencing purchase by the Portfolio of
securities owned by the Custodian along with
written evidence of the agreement by the
Custodian to repurchase such securities from
the Portfolio;
2) In connection with conversion, exchange or
surrender of securities owned by the
Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares
issued by the Portfolio as set forth in
Section 2.10 hereof;
4) For the payment of any expense or liability
incurred by the Portfolio, including but not
limited to the following payments for the
account of the Portfolio: interest, taxes,
management, accounting, transfer agent and
-12-
<PAGE>
legal fees, and operating expenses of the
Fund whether or not such expenses are to be
in whole or part capitalized or treated as
deferred expenses;
5) For the payment of any dividends declared
pursuant to the governing documents of the
Fund;
6) For payment of the amount of dividends
received in respect of securities sold
short;
7) For any other proper purpose, but only upon
--- ----
receipt of, in addition to Proper
Instructions, a certified copy of a
resolution of the Board of Trustees or of
the Executive Committee of the Fund signed
by an officer of the Fund and certified by
its Secretary or an Assistant Secretary,
specifying the amount of such payment,
setting forth the purpose for which such
payment is to be made, declaring such
purpose to be a proper purpose, and naming
the person or persons to whom such payment
is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities
---------------------------------------------------------
Purchased. In any and every case where payment for purchase of
---------
securities for the account of a Portfolio is made by the
Custodian in advance of receipt of the securities purchased in
the absence of specific written instructions from such Portfolio
to so pay in advance,
-13-
<PAGE>
the Custodian shall be absolutely liable to the Portfolio for
such securities to the same extent as if the securities had been
received by the Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of the
--------------------------------------------------------
Fund. From such funds as may be available for the purpose but
----
subject to the limitations of the Declaration of Trust and any
applicable votes of the Board of Trustees of the Fund pursuant
thereto, the Custodian shall, upon receipt of instructions from
the Transfer Agent, make funds available for payment to holders
of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the
redemption or repurchase of Shares of a Portfolio, the Custodian
is authorized upon receipt of instructions from the Transfer
Agent to wire funds to or through a commercial bank designated by
the redeeming shareholders. In connection with the redemption or
repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks
have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and
controls as are mutually agreed upon from time to time between
the Fund and the Custodian.
2.11 Appointment of Agents. The Custodian may at any time or times in
---------------------
its discretion appoint (and may at any time remove) any other
bank or trust company which is itself
-14-
<PAGE>
qualified under the Investment Company Act of 1940, as amended,
to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent
--------
shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
2.12 Deposit of Fund Assets in Securities Systems. The Custodian may
--------------------------------------------
deposit and/or maintain securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of
1934, which acts as a securities depository, or in the book-entry
system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the
Portfolio in a Securities System provided
that such securities are represented in an
account ("Account") of the Custodian in the
Securities System which shall not include
any assets of the Custodian other than
assets held as a fiduciary, custodian or
otherwise for customers;
-15-
<PAGE>
2) The records of the Custodian with respect to
securities of the Portfolio which are
maintained in a Securities System shall
identify by book-entry those securities
belonging to the Portfolio;
3) The Custodian shall pay for securities
purchased for the account of the Portfolio
upon (i) receipt of advice from the
Securities System that such securities have
been transferred to the Account, and (ii)
the making of an entry on the records of the
Custodian to reflect such payment and
transfer for the account of the Portfolio.
The Custodian shall transfer securities sold
for the account of the Portfolio upon (i)
receipt of advice from the Securities System
that payment for such securities has been
transferred to the Account, and (ii) the
making of an entry on the records of the
Custodian to reflect such transfer and
payment for the account of the Portfolio.
Copies of all advices from the Securities
System of transfers of securities for the
account of the Portfolio shall identify the
Portfolio, be maintained for the Portfolio
by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian
-16-
<PAGE>
shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to
or from the account of the Portfolio in the
form of a written advice or notice and shall
furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets
reflecting each day's transactions in the
Securities System for the account of the
Portfolio.
4) The Custodian shall provide the Fund for the
Portfolio with any report obtained by the
Custodian on the Securities System's
accounting system, internal accounting
control and procedures for safeguarding
securities deposited in the Securities
System;
5) The Custodian shall have received the
initial or annual certificate, as the case
may be, required by Article 9 hereof;
6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be
liable to the Fund for the benefit of the
Portfolio for any loss or damage to the
Portfolio resulting from use of the
Securities System by reason of any
negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of
its or their employees or from failure of
the
-17-
<PAGE>
Custodian or any such agent to enforce
effectively such rights as it may have
against the Securities System; at the
election of the Fund, it shall be entitled
to be subrogated to the rights of the
Custodian with respect to any claim against
the Securities System or any other person
which the Custodian may have as a
consequence of any such loss or damage if
and to the extent that the Portfolio has not
been made whole for any such loss or damage.
2.12A Fund Assets Held in the Custodian's Direct Paper System.
-------------------------------------------------------
The Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to
the following provisions:
1) No transaction relating to securities in the
Direct Paper System will be effected in the
absence of Proper Instructions;
2) The Custodian may keep securities of the
Portfolio in the Direct Paper System only if
such securities are represented in an
account ("Account") of the Custodian in the
Direct Paper System which shall not include
any assets of the Custodian other than
assets held as a fiduciary, custodian or
otherwise for customers;
-18-
<PAGE>
3) The records of the Custodian with respect to
securities of the Portfolio which are
maintained in the Direct Paper System shall
identify by book-entry those securities
belonging to the Portfolio;
4) The Custodian shall pay for securities
purchased for the account of the Portfolio
upon the making of an entry on the records
of the Custodian to reflect such payment and
transfer of securities to the account of the
Portfolio. The Custodian shall transfer
securities sold for the account of the
Portfolio upon the making of an entry on the
records of the Custodian to reflect such
transfer and receipt of payment for the
account of the Portfolio;
5) The Custodian shall furnish the Fund on
behalf of the Portfolio confirmation of each
transfer to or from the account of the
Portfolio, in the form of a written advice
or notice, of Direct Paper on the next
business day following such transfer and
shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets
reflecting each day's transaction in the
Securities System for the account of the
Portfolio;
-19-
<PAGE>
6) The Custodian shall provide the Fund on
behalf of the Portfolio with any report on
its system of internal accounting control as
the Fund may reasonably request from time to
time.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
------------------
Instructions establish and maintain a segregated account or
accounts for and on behalf of each Portfolio, into which account
or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.12 hereof, (i) in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act
and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market),
or of any similar organization or organizations, regarding escrow
or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written
by the Portfolio or commodity futures contracts or options
thereon purchased or sold by the Portfolio, (iii) for the
purposes of compliance by
-20-
<PAGE>
the Portfolio with the procedures required by Investment Company
Act Release No. 10666, or any subsequent release or releases of
the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only,
--- ----
in the case of clause (iv), upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper
corporate purposes.
2.14 Ownership Certificates for Tax Purposes. The Custodian shall
---------------------------------------
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to securities of each
Portfolio held by it and in connection with transfers of
securities.
2.15 Proxies. The Custodian shall, with respect to the securities
-------
held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered
otherwise than in the name of the Portfolio or a nominee of the
Portfolio, all proxies, without indication of the manner in which
such proxies are to be voted, and shall promptly deliver to the
Portfolio such proxies, all proxy soliciting materials and all
notices relating to such securities.
-21-
<PAGE>
2.16 Communications Relating to Portfolio Securities. The Custodian
-----------------------------------------------
shall transmit promptly to the Fund for each Portfolio all
written information (including, without limitation, pendency of
calls and maturities of securities and expirations of rights in
connection therewith and notices of exercise of call and put
options written by the Fund on behalf of the Portfolio and the
maturity of futures contracts purchased or sold by the Portfolio)
received by the Custodian from issuers of the securities being
held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio
all written information received by the Custodian from Issuers of
the securities whose tender or exchange is sought and from the
party (or his agents) making the tender or exchange offer. If
the Portfolio desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days
prior to the date on which the Custodian is to take such action.
2.17 Proper Instructions. Proper Instructions as used throughout this
-------------------
Article 2 means a writing signed or initialed by one or more
person or persons as the Board of Trustees shall have from time
to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a
specific statement of the purpose for which such action
-22-
<PAGE>
is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all
oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Fund accompanied by
a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices
provided that the Board of Trustees and the Custodian are
satisfied that such procedures afford adequate safeguards for the
Portfolio's assets.
2.18 Actions Permitted without Express Authority. The Custodian may
-------------------------------------------
in its discretion, without express authority from the Fund on
behalf of the Portfolio:
1) make payments to itself or others
for minor expenses of handling
securities or other similar items
relating to its duties under this
Contract, provided that all such
--------
payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary
form for securities in definitive
form;
-23-
<PAGE>
3) endorse for collection, in the name
of the Portfolio, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-
discretionary details in connection
with the sale, exchange,
substitution, purchase, transfer and
other dealings with the securities
and property of the Portfolio except
as otherwise directed by the Board
of Trustees of the Fund.
2.19 Evidence of Authority. The Custodian shall be protected in
---------------------
acting upon any instructions, notice, request, consent,
certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a
vote of the Board of Trustees of the Fund as conclusive evidence
(a) of the authority of any person to act in accordance with such
vote or (b) of any determination or of any action by the Board of
Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the
contrary.
3. Duties of Custodian with Respect to the Books of Account
--------------------------------------------------------
and Calculation of Net Asset Value and Net Income.
-------------------------------------------------
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of
-24-
<PAGE>
Trustees of the Fund to keep the books of account of each Portfolio and/or
compute the net asset value per share of the outstanding shares of each
Portfolio or, if directed in writing to do so by the Portfolio, shall itself
keep such books of account and/or compute such net asset value per share. If so
directed, the Custodian shall also calculate daily the net income of the
Portfolio as described in the Fund's currently effective prospectus and shall
advise the Fund and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the daily income of each Portfolio shall be made at the time or times described
from time to time in the Fund's currently effective prospectus.
4. Records
-------
The Custodian shall create and maintain all records relating to
its activities and obligations under this Contract in such manner as will meet
the obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 3la-1 and 3la-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the
-25-
<PAGE>
Securities and Exchange Commission. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of securities owned by each Portfolio and held
by the Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
5. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund may
from time to time request, to obtain from year to year favorable opinions from
the Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-lA, and Form N-SAR or other
annual reports to the Securities and Exchange Commission and with respect to any
other requirements of such Commission.
6. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, at such times as the Fund
may reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
the Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
-26-
<PAGE>
7. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for
its services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.
8. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of
reasonable care, the Custodian shall not be responsible for the title, validity
or genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties.
The Custodian shall be held to the exercise of reasonable care in carrying out
the provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.
If the Fund requires the Custodian to take any action with
respect to securities, which action involves the payment of money or which
action may, in the opinion of the Custodian,
-27-
<PAGE>
result in the Custodian or its nominee assigned to the Fund or the Portfolio
being liable for the payment of money or incurring liability of some other form,
the Fund, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian to advance cash or securities
for any purpose for the benefit of a Portfolio or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Portfolio's assets to
the extent necessary to obtain reimbursement.
9. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
--------
however that the Custodian shall not act under
-28-
<PAGE>
Section 2.12 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System and the receipt of an
annual certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by the Fund of such Securities System, as required
in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended
and that the Custodian shall not act under Section 2.12A hereof in the absence
of receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has approved the initial use of the Direct Paper
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Trustees has reviewed the use by the Fund of the
Direct Paper System; provided further, however, that the Fund shall not amend or
-------- -------
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Declaration of Trust, and further provided,
that the Fund may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
-29-
<PAGE>
Upon termination of the Contract, the Fund shall pay to the
Custodian such compensation as may be due as of the date of such termination and
shall likewise reimburse the Custodian for its costs, expenses and
disbursements.
10. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of
Trustees of the Fund, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed and in the
form for transfer, all securities then held by it hereunder and shall transfer
to an account of the successor custodian all of the Portfolio's securities held
in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Trustees shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by
-30-
<PAGE>
the Custodian and all instruments held by the Custodian relative thereto and all
other property held by it under this Contract and to transfer to an account of
such successor custodian all of the Portfolio's securities held in any
Securities System. Thereafter, such bank or trust company shall be the successor
of the Custodian under this Contract.
In the event that securities, funds and other properties remain
in the possession of the Custodian after the date of termination hereof owing
to failure of the Fund to procure the certified copy of the vote referred to or
of the Board of Trustees to appoint a successor custodian, the Custodian shall
be entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian
and the Fund may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
--------
shall contravene any applicable federal or state regulations or any provision of
the Declaration of Trust of the Fund. No interpretive or additional
-31-
<PAGE>
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
12. Additional Funds
----------------
In the event that the Fund establishes one or more series of
Shares in addition to the CIGNA Annuity Equity Fund, CIGNA Annuity Income Fund,
CIGNA Annuity Money Market Fund, CIGNA Annuity Growth and Income Fund, CIGNA
Annuity Aggressive Equity Fund, and the Companion Fund with respect to which it
desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the Custodian in writing, and if the Custodian agrees
in writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
13. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
14. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof,
all prior contracts between the Fund and the Custodian relating to the custody
of the Fund's assets.
15. Trust Liability
---------------
Copies of the Master Trust Agreement, as amended, establishing
CIGNA Annuity Funds Group (the "Trust") are on file with the Secretary of the
Commonwealth of Massachusetts, and notice is hereby given that this Custodian
Contract is executed on behalf of the Trust by officers of the Trust as officers
and not Individually and that the obligations of or arising out of
-32-
<PAGE>
this Custodian Contract 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, each of the parties has caused this
instrument to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed as of the 15 day of October,
1987.
ATTEST CIGNA ANNUITY FUNDS GROUP
/s/ Everett E. Clark By: /s/ Alfred A. Bingham III
- ----------------------------------- ------------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ J. Farell By: /s/ K. Bergeron
- ----------------------------------- ------------------------------------
Assistant Secretary Vice President
-33-
<PAGE>
DATA ACCESS ADDENDUM TO CUSTODIAN AGREEMENT
-------------------------------------------
AGREEMENT between each fund listed on Appendix A, (individually a
"Fund" and collectively, the "Funds") as amended from time to time, and State
Street Bank and Trust Company ("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain assets
of each Fund pursuant to a certain Custodian Agreement (the "Custodian
Agreement") for each of the respective Funds;
WHEREAS, State Street has developed and utilizes proprietary accounting
and other systems, including State Street's proprietary Multicurrency HORIZON/R/
Accounting System, in its role as custodian of each Fund, and maintains certain
Fund-related data ("Fund Data") in databases under the control and ownership of
State Street (the "Data Access Services"); and
WHEREAS, State Street makes available to each Fund certain Data Access
Services solely for the benefit of the Fund, and intends to provide additional
services, consistent with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the parties
agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a. System. Subject to the terms and conditions of this Agreement, State
------
Street hereby agrees to provide each Fund with access to State Street's
Multicurrency HORIZON/R/ Accounting System and the other information systems
(collectively, the "System") as described in Attachment A, on a remote basis for
the purpose of obtaining reports, solely on computer hardware, system software
and telecommunication links, as listed in Attachment B (the "Designated
Configuration") of the Fund, or certain third parties approved by State Street
that serve as investment advisors or investment managers (the "Investment
Advisor") or independent auditors (the "Independent Auditors") of a Fund and
solely with respect to the Fund or on any designated substitute or back-up
equipment configuration with State Street's written consent, such consent not to
be unreasonably withheld.
b. Data Access Services. State Street agrees to make available to each
--------------------
Fund the Data Access Services subject to the terms and conditions of this
Agreement and data access operating standards and procedures as may be issued by
State Street from time to time. The ability of each Fund to originate electronic
instructions to State Street on behalf of each Fund in order to (i) effect the
transfer or movement of cash or securities held under custody by State
<PAGE>
Street or (ii) transmit accounting or other information (such transactions are
referred to herein as "Client Originated Electronic Financial Instructions"),
and (iii) access data for the purpose of reporting and analysis, shall be deemed
to be Data Access Services for purposes of this Agreement.
c. Additional Services. State Street may from time to time agree to
-------------------
make available to a Fund additional Systems that are not described in the
attachments to this Agreement. In the absence of any other written agreement
concerning such additional systems, the term "System" shall include, and this
Agreement shall govern, a Fund's access to and use of any additional System made
available by State Street and/or accessed by the Fund.
2. NO USE OF THIRD PARTY SOFTWARE
State Street and each Fund acknowledge that in connection with the Data
Access Services provided under this Agreement, each Fund will have access,
through the Data Access Services, to Fund Data and to functions of State
Street's proprietary systems; provided, however that in no event will the Fund
have direct access to any third party systems-level software that retrieves data
for, stores data from, or otherwise supports the System.
3. LIMITATION ON SCOPE OF USE
a. Designated Equipment: Designated Location. The System and the
-----------------------------------------
Data Access Services shall be used and accessed solely on and through the
Designated Configuration at the offices of a Fund or the Investment Advisor or
Independent Auditor located in Hartford/Bloomfield Connecticut ("Designated
Location").
b. Designated Configuration Trained Personnel. State Street shall be
------------------------------------------
responsible for supplying, installing and maintaining the Designated
Configuration at the Designated Location. State Street and each Fund agree that
each will engage or retain the services of trained personnel to enable both
State Street and the Fund to perform their respective obligations under this
Agreement. State Street agrees to use commercially reasonable efforts to
maintain the System so that it remains serviceable, provided, however, that
State Street does not guarantee or assure uninterrupted remote access use of the
System.
c. Scope of Use. Each Fund will use the System and the Data Access
------------
Services only for the processing of securities transactions, the keeping of
books of account for the Fund and accessing data for purposes of reporting and
analysis. Each Fund shall not, and shall cause its employees and agents not to
(i) permit any third party* to use the System or the Data Access Services, (ii)
sell, rent, license or otherwise use the System or the Data Access Services in
the operation of a service bureau or for any purpose other than as expressly
authorized under this Agreement, (iii) use the System or the Data Access
Services for any fund, trust or other investment vehicle without the prior
written consent of State Street, (iv) allow access to the System or the Data
Access Services through terminals or any other computer or telecommunications
facilities located outside the Designated Locations, (v) allow
*except its Investment Adviser
2
<PAGE>
or cause any information (other than portfolio holdings, valuations of portfolio
holdings, and other information reasonably necessary for the management or
distribution of the assets of the Fund) transmitted from State Street's
databases, including data from third party sources, available through use of the
System or the Data Access Services to be redistributed or retransmitted to
another computer, terminal or other device for other than use for or on behalf
of the Fund or (vi) modify the System in any way, including without limitation,
developing any software for or attaching any devices or computer programs to any
equipment, system, software or database which forms a part of or is resident on
the Designated Configuration.
d. Other Locations. Except in the event of an emergency or of a planned
---------------
System shutdown, each Fund's access to services performed by the System or to
Data Access Services at the Designated Location may be transferred to a
different location only upon the prior written consent of State Street. In the
event of an emergency or System shutdown, each Fund may use any back-up site
included in the Designated Configuration or any other back-up site agreed to by
State Street, which agreement will not be unreasonably withheld. Each Fund may
secure from State Street the right to access the System or the Data Access
Services through computer and telecommunications facilities or devices complying
with the Designated Configuration at additional locations only upon the prior
written consent of State Street and on terms to be mutually agreed upon by the
parties.
e. Title. Title and all ownership and proprietary rights to the System,
-----
including any enhancements or modifications thereto, whether or not made by
State Street, are and shall remain with State Street.
f. No Modification. Without the prior written consent of State Street,
---------------
a Fund shall not modify, enhance or otherwise create derivative works based upon
the System, nor shall the Fund reverse engineer, decompile or otherwise attempt
to secure the source code for all or any part of the System.
g. Security Procedures. Each Fund shall comply with data access
-------------------
operating standards and procedures and with user identification or other
password control requirements and other security procedures as may be issued
from time to time by State Street for use of the System on a remote basis and to
access the Data Access Services. Each Fund shall have access only to the Fund
Data and authorized transactions agreed upon from time to time by State Street
and, upon notice from State Street, the Fund shall discontinue remote use of the
System and access to Data Access Services for any security reasons cited by
State Street; provided, that, in such event, State Street shall, for a period
not less than 180 days (or such other shorter period specified by the Fund)
after such discontinuance, assume responsibility to provide accounting services
under the terms of the Custodian Agreement.
h. Inspections. State Street shall have the right to inspect the use of
-----------
the System and the Data Access Services by the Fund and the Investment Advisor
to ensure compliance with this Agreement. The on-site inspections shall be upon
prior written notice to Fund and the Investment Advisor and at reasonably
convenient times and frequencies so as not to result in an unreasonable
disruption of the Fund's or the Investment Advisor's business.
3
<PAGE>
4. PROPRIETARY INFORMATION
a. Proprietary Information. Each Fund acknowledges and State Street
-----------------------
represents that the System and the databases, computer programs, screen formats,
report formats, interactive design techniques, documentation and other
information made available to the Fund by State Street as part of the Data
Access Services and through the use of the System constitute copyrighted, trade
secret, or other proprietary information of substantial value to State Street,
Any and all such information provided by State Street to each Fund shall be
deemed proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). Each Fund agrees that it will hold such Proprietary
Information in confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential information and to
take appropriate action by instruction or agreement with its employees who are
permitted access to the Proprietary Information to satisfy its obligations
hereunder. Each Fund further acknowledges that State Street shall not be
required to provide the Investment Advisor or the Investment Auditor with access
to the System unless it has first received from the Investment Advisor of the
Investment Auditor an undertaking with respect to State Street's Proprietary
Information in the form of Attachment C and/or Attachment C-1 to this Agreement.
Each Fund shall use all commercially reasonable efforts to assist State Street
in identifying and preventing any unauthorized use, copying or disclosure of the
Proprietary Information or any portions thereof or any of the logic, formats or
designs contained therein.
b. Cooperation. Without limitation of the foregoing, each Fund shall
-----------
advise State Street immediately in the event the Fund learns or has reason to
believe that any person to whom the Fund has given access to the Proprietary
Information, or any portion thereof, has violated or intends to violate the
terms of this Agreement, and each Fund will, at its expense, co-operate with
State Street in seeking injunctive or other equitable relief in the name of the
Fund or State Street against any such person.
c. Injunctive Relief. Each Fund acknowledges that the disclosure of any
-----------------
Proprietary Information, or of any information which at law or equity ought to
remain confidential, will immediately give rise to continuing irreparable injury
to State Street inadequately compensable in damages at law. In addition, State
Street shall be entitled to obtain immediate injunctive relief against the
breach or threatened breach of any of the foregoing undertakings, in addition to
any other legal remedies which may be available.
d. Survival. The provisions of this Section 4 shall survive the
--------
termination of this Agreement.
5. LIMITATION ON LIABILITY
4
<PAGE>
a. Limitation on Amount and Time for Bringing Action. Each Fund agrees
-------------------------------------------------
any liability of State Street to the Fund or any third party arising out of
State Street's provision of Data Access Services or the System under this
Agreement shall be limited to the amount paid by the Fund for the preceding 24
months for such services. In no event shall State Street be liable to the Fund
or any other party for any special, indirect, punitive or consequential damages
even if advised of the possibility of such damages. No action, regardless of
form, arising out of this Agreement may be brought by the Fund more than two
years after the Fund has knowledge that the cause of action has arisen.
b. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ARE MADE BY STATE STREET. IN NO EVENT WILL STATE STREET BE
LIABLE TO THE FUND OR ANY OTHER PARTY FOR ANY CONSEQUENTIAL OR INCIDENTAL
DAMAGES WHICH MAY ARISE FROM THE FUND'S ACCESS TO THE SYSTEM OR USE OF
INFORMATION OBTAINED THEREBY.
c. Third-Party Data. Organizations from which State Street may obtain
----------------
certain data included in the System or the Data Access Services are solely
responsible for the contents of such data, and State Street shall have no
liability for claims arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof.
d. Regulatory Requirements. As between State Street and each Fund, the
-----------------------
Fund shall be solely responsible for the accuracy of any accounting statements
or reports produced using the Data Access Services and the System and the
conformity thereof with any requirements of law.
e. Force Majeure. Neither State Street or a Fund shall be liable for
-------------
any costs or damages due to delay or nonperformance under this Agreement arising
out of any cause or event beyond such party's control, including without
limitation, cessation of services hereunder or any damages resulting therefrom
to the other party, or the Fund as a result of work stoppage, power or other
mechanical failure, computer virus, natural disaster, governmental action, or
communication disruption.
6. INDEMNIFICATION
Each Fund agrees to indemnify and hold State Street harmless from any
loss, damage or expense including reasonable attorney's fees, (a "loss")
suffered by State Street arising from (i) the negligence or willful misconduct
in the use by the Fund of the Data Access Services or the System, including any
loss incurred by State Street resulting from a security breach at the Designated
Location or committed by the Fund's employees or agents or the Investment
Advisor or the Independent Auditor of the Fund and (ii) any loss resulting from
incorrect Client Originated Electronic Financial Instructions. State Street
shall be entitled to rely on the validity and authenticity of Client Originated
Electronic Financial Instructions without
5
<PAGE>
undertaking any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by State Street from time to
time.
7. FEES
Fees and charges for the use of the System and the Data Access Services
and related payment terms shall be as set forth in the Custody Fee Schedule in
effect from time to time between the parties (the "Fee Schedule"). Any tariffs,
duties or taxes imposed or levied by any government or governmental agency by
reason of the transactions contemplated by this Agreement, including, without
limitation, federal, state and local taxes, use, value added and personal
property taxes (other than income, franchise or similar taxes which may be
imposed or assessed against State Street) shall be borne by each Fund. Any
claimed exemption from such tariffs, duties or taxes shall be supported by
proper documentary evidence delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide training, at a designated
--------
State Street training facility or at the Designated Location, to the Fund's
personnel in connection with the use of the System on the Designated
Configuration. Each Fund agrees that it will set aside, during regular business
hours or at other times agreed upon by both parties, sufficient time to enable
all operators of the System and the Data Access Services, designated by the
Fund, to receive the training offered by State Street pursuant to this
Agreement.
b. Installation and Conversion. State Street shall be responsible for
---------------------------
the technical installation and conversion ("Installation and Conversion") of the
Designated Configuration. Each Fund shall have the following responsibilities in
connection with Installation and Conversion of the System:
(i) The Fund shall be solely responsible for the timely
acquisition and maintenance of the hardware and software that
attach to the Designated Configuration in order to use the
Data Access Services at the Designated Location.
(ii) State Street and the Fund each agree that they will assign
qualified personnel to actively participate during the
Installation and Conversion phase of the System implementation
to enable both parties to perform their respective obligations
under this Agreement.
9. SUPPORT
During the term of this Agreement, State Street agrees to provide the
support services set out in Attachment D to this Agreement.
10. TERM OF AGREEMENT
6
<PAGE>
a. Term of Agreement. This Agreement shall become effective on the date
-----------------
of its execution by State Street and shall remain in full force and effect until
terminated as herein provided.
b. Termination of Agreement. Any party may terminate this Agreement (i)
------------------------
for any reason by giving the other parties at least one-hundred and eighty days'
prior written notice in the case of notice of termination by State Street to the
Fund or thirty days' notice in the case of notice from the Fund to State Street
of termination; or (ii) immediately for failure of the other party to comply
with any material term and condition of the Agreement by giving the other party
written notice of termination. In the event the Fund shall cease doing business,
shall become subject to proceedings under the bankruptcy laws (other than a
petition for reorganization or similar proceeding) or shall be adjudicated
bankrupt, this Agreement and the rights granted hereunder shall, at the option
of State Street, immediately terminate with notice to the Fund. Termination of
this Agreement with respect to any given Fund shall in no way affect the
continued validity of this Agreement with respect to any other Fund. This
Agreement shall in any event terminate as to any Fund within 90 days after the
termination of the Custodian Agreement applicable to such Fund.
c. Termination of the Right to Use. Upon termination of this Agreement
-------------------------------
for any reason, any right to use the System and access to the Data Access
Services shall terminate and the Fund shall immediately cease use of the System
and the Data Access Services. Immediately upon termination of this Agreement for
any reason, the Fund shall return to State Street all copies of documentation
and other Proprietary Information in its possession; provided, however, that in
the event that either State Street or the Fund terminates this Agreement or the
Custodian Agreement for any reason other than the Fund's breach, State Street
shall provide the Data Access Services for a period of time and at a price to be
agreed upon by State Street and the Fund.
11. MISCELLANEOUS
a. Assignment: Successors. This Agreement and the rights and
----------------------
obligations of each Fund and State Street hereunder shall not be assigned by any
party without the prior written consent of the other parties, except that State
Street may assign this Agreement to a successor of all or a substantial portion
of its business, or to a party controlling, controlled by, or under common
control with State Street.
b. Survival. All provisions regarding indemnification, warranty,
--------
liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
Agreement.
c. Entire Agreement. This Agreement and the attachments hereto
----------------
constitute the entire understanding of the parties hereto with respect to the
Data Access Services and the use of the System and supersedes any and all prior
or contemporaneous representations or
7
<PAGE>
agreements, whether oral or written, between the parties as such may relate to
the Data Access Services or the System, and cannot be modified or altered except
in a writing duly executed by the parties. This Agreement is not intended to
supersede or modify the duties and liabilities of the parties hereto under the
Custodian Agreement or any other agreement between the parties hereto except to
the extent that any such agreement specifically refers to the Data Access
Services or the System. No single waiver or any right hereunder shall be deemed
to be a continuing waiver.
d. Severability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired.
e. Governing Law. This Agreement shall be interpreted and construed in
-------------
accordance with the internal laws of The Commonwealth of Massachusetts without
regard to the conflict of laws provisions thereof.
8
<PAGE>
IN WITNESS WHEREOF, each of the undersigned Funds severally
has caused this Agreement to be duly executed in its name and through its duly
authorized officer as of the date hereof.
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Ronald E. Logue
------------------------------------
Title: Executive Vice President
---------------------------------
Date:
----------------------------------
EACH FUND LISTED, ON APPENDIX A
By: /s/ Alfred A. Bingham III
------------------------------------
Title: Vice President and Treasurer
---------------------------------
Date: 8/18/97
----------------------------------
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 AS 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 AGENT OF THE TRUST
INDIVIDUALLY, BUT ARE BINDING ONLY UPON THE ASSETS
AND PROPERTY OF THE TRUST.
<PAGE>
APPENDIX A
CIGNA Funds Group
CIGNA High Income Shares
CIGNA Institutional Funds Group
CIGNA Variable Products Group
INA Investment Securities, Inc.
<PAGE>
ATTACHMENT A
Multicurrency HORIZON/R/ Accounting System
System Product Description
--------------------------
1. The Multicurrency HORIZON/R/ Accounting System is designed to provide lot
level portfolio and general ledger accounting for SEC and ERISA type
requirements and includes the following services: 1) recording of general ledger
entries; 2) calculation of daily income and expense; 3) reconciliation of daily
activity with the trial balance, and 4) appropriate automated feeding mechanisms
to (i) domestic and international settlement systems, (ii) daily, weekly and
monthly evaluation services, (iii) portfolio performance and analytic services,
(iv) Fund's internal computing systems and (v) various State Street provided
information services products.
II. GlobalQuest/R/ GlobalQuest/R/ is designed to provide Fund access to the
following information maintained on The Multicurrency HORIZON/R/ Accounting
System: 1) cash transactions and balances; 2) purchases and sales; 3) income
receivables; 4) tax refund receivables; 5) daily priced positions; 6) open
trades; 7) settlement status; 8) foreign exchange transactions; 9) trade
history; and 10) daily, weekly and monthly evaluation services.
<PAGE>
ATTACHMENT B ADVISOR
CIGNA INVESTMENT
MANAGEMENT, INC.
- -------------------
STATE STREET [PC GRAPHIC APPEARS HERE]
BANK AND
TRUST
COMPANY
MULTICURRENCY Software is installed for access.
HORIZON/R/ AND Click on icon for access.
GLOBALQUEST/R/
- -------------------
CIGNA FUNDS
DIAL UP ACCESS
CONFIGURATION
<PAGE>
ATTACHMENT C
Undertaking
The undersigned understands that in the course of employment as
Investment Advisor to each fund listed on Appendix A (individually a, "Fund",
collectively, the "Funds"), as amended from time to time, it will have access to
State Street Bank and Trust Company's ("State Street") Multicurrency /R/
Accounting System and other information systems (collectively, the "System").
The undersigned acknowledges that the System and the databases,
computer programs, screen formats, report formats, interactive design
techniques, documentation, and other information made available to the
Undersigned by State Street as part of the Data Access Services provided to the
Fund and through the use of the System constitute copyrighted, trade secret, or
other proprietary information of substantial value to State Street. Any and all
such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy its
obligations hereunder.
The Undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the Undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
CIGNA INVESTMENTS, INC
By: /s/ Alfred A. Bingham III
----------------------------------
Title: Assistant vice President
-------------------------------
Date: 10/31/97
--------------------------------
<PAGE>
ATTACHMENT C- I
Undertaking
The undersigned understands that in the course of its employment
as Independent Auditor to each fund listed on Appendix A (individually a,
"Fund", collectively, the "Funds"), as amended from time to time, it will have
access to State Street Bank and Trust Company's ("State Street") Multicurrency
HORIZON/R/ Accounting System and other information systems (collectively, the
"System").
The undersigned acknowledges that the System and the databases,
computer programs, screen formats, report formats, interactive design
techniques, documentation, and other information made available to the
Undersigned by State Street as part of the Data Access Services provided to the
Fund and through the use of the System constitute copyrighted, trade secret, or
other proprietary information of substantial value to State Street. Any and all
such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy its
obligations hereunder.
The Undersigned will not attempt to intercept data, gain access
to data in transmission, or attempt entry into any system or files for which it
is not authorized. It will not intentionally adversely affect the integrity of
the System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the
System and access to the Data Access Services shall terminate and the
Undersigned shall immediately cease use of the System and the Data Access
Services. Immediately upon notice by State Street for any reason, the
Undersigned shall return to State Street all copies of documentation and other
Proprietary Information in its possession.
[Independent Auditor]
By: /s/ Price Waterhouse LLP
-------------------------------------
Title:
----------------------------------
Date: 11/5/97
-----------------------------------
<PAGE>
ATTACHMENT D
Support
During the term of this Agreement, State Street agrees to provide the
following on-going support services:
a. Telephone Support. The Fund Designated Persons may contact State
-----------------
Street's HORIZON/R/ Help Desk and Fund Assistance Center between the hours of 8
a.m. and 6 p.m. (Eastern time) on all business days for the purpose of obtaining
answers to questions about the use of the System, or to report apparent problems
with the System. From time to time, the Fund shall provide to State Street a
list of persons, not to exceed five in number, who shall be permitted to contact
State Street for assistance (such persons being referred to as "the Fund
Designated Persons").
b. Technical Support. State Street will provide technical support to
-----------------
assist the Fund in using the System and the Data Access Services. The total
amount of technical support provided by State Street shall not exceed 10
resource days per year. State Street shall provide such additional technical
support as is expressly set forth in the fee schedule in effect from time to
time between the parties (the "Fee Schedule"). Technical support, including
during installation and testing, is subject to the fees and other terms set
forth in the Fee Schedule.
c. Maintenance Support. State Street shall use commercially
-------------------
reasonable efforts to correct system functions that do not work according to the
System Product Description as set forth on Attachment A in priority order in the
next scheduled delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide to the Fund any
-------------------
enhancements to the System developed by State Street and made a part of the
System; provided that, sixty (60) days prior to installing any such enhancement,
State Street shall notify the Fund and shall offer the Fund reasonable training
on the enhancement. Charges for system enhancements shall be as provided in the
Fee Schedule. State Street retains the right to charge for related systems or
products that may be developed and separately made available for use other than
through the System.
e. Custom Modifications. In the event the Fund desires custom
--------------------
modifications in connection with its use of the System, the Fund shall make a
written request to State Street providing specifications for the desired
modification. Any custom modifications may be undertaken by State Street in its
sole discretion in accordance with the Fee Schedule.
f. Limitation on Support. State Street shall have no obligation to
---------------------
support the Fund's use of the System: (1) for use on any computer equipment or
telecommunication facilities which does not conform to the Designated
Configuration or (ii) in the event the Fund has modified the System in breach of
this Agreement.
<PAGE>
[STATE STREET LOGO APPEARS HERE]
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
CIGNA FUNDS
EFFECTIVE JULY 1, 1992
- --------------------------------------------------------------------------------
I. ADMINISTRATION
--------------
Custody, Portfolio and Fund Accounting Service - Maintain custody of
------------------------------------------------
fund assets. Settle portfolio purchases and sales. Report buy and sell
fails. Determine and collect portfolio income. Make cash disbursements
and report cash transactions. Maintain investment ledgers, provide
selected portfolio transactions, position and income reports. Maintain
general ledger and capital stock accounts. Prepare daily trial
balance. Calculate net asset value daily. Provide selected general
ledger reports.
The administration fee shown below is an annual charge, billed and
payable monthly, based on average monthly net assets.
Custody, Portfolio
Fund Net Assets and Fund Accounting
--------------- -------------------
First $20 Million 1/10 of 1%
Next $80 Million 1/30 of 1%
Excess 1/100 of 1%
Minimum Monthly Charges - Domestic Portfolio $1,000
- International Portfolio $2,000**
* New Fund Phase In - No Base Fee on new domestic funds for months 1-3.
* The administration fee for international funds reflects portfolio and
fund accounting services only. Custody fees are listed separately in
Section II.
<PAGE>
II. Global Custody
--------------
Includes: Maintaining custody of fund assets. Settling portfolio
purchases and sales. Reporting buy and sell fails. Determining and
collecting portfolio income. Making cash disbursements and reporting
cash transactions. Monitoring corporate actions. Withholding foreign
taxes. Filing foreign tax reclaims.
A. Holding Fees (basis points per portfolio per annum):
------------
<TABLE>
<CAPTION>
Group I Group II Group III Group IV Group V Group VI
- ------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Denmark Australia Austria Belgium Hong Kong Argentina
Euroclear Canada Ireland Finland Italy Brazil
Germany France Netherlands Indonesia Spain Chile
Japan Norway Singapore Malaysia Thailand Greece
New Zealand U. Kingdom Switzerland Sweden Mexico
Philippines
Turkey
<CAPTION>
GROUP GROUP GROUP GROUP GROUP GROUP
USA I II III IV V VI
--- - -- --- -- - --
<S> <C> <C> <C> <C> <C> <C> <C>
First $ 50 Million 3.0 7.0 9.0 11.0 14.0 20.0 30.0
Next $50 Million 2.0 6.0 8.0 10.0 13.0 18.0 30.0
Over $100 Million 1.0 5.0 7.0 8.0 11.0 15.0 30.0
B. TRANSACTION CHARGES (US dollars):
<CAPTION>
USA- See Group I Group II Group III Group IV Group V GROUP VI
- --- ------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
itemized
fee schedule $30 $60 $75 $100 $125 Greece*-
Canada Austria Australia Argentina Indonesia 20 basis
Euroclear Chile Brazil Belgium Philippines pts per
Germany Hong Kong Ireland Denmark settlement
Japan Italy Mexico Finland min $10.00
Netherlands Spain France Portugal-
Switzerland Sweden New Zealand Turkey*-
United Kingdom Sweden Norway .50 per
Thailand Singapore security
settled
max $7,500
min $250
</TABLE>
*Transaction charge waived if brokerage provided by National Securities Company.
<PAGE>
III. Portfolio Trades
----------------
For each line item processed:
State Street Bank Repos $ 7.00
DTC or Fed Book Entry $15.00
New York Physical Settlements $30.00
All other trades $16.00
Boston Book Entry $20.00
Maturity Collections $ 8.00
IV. Options
-------
Option charge for each option written or
closing contract, per issue, per broker $25.00
Option expiration charge, per issue, per broker $15.00
Option exercised charge, per issue, per broker $15.00
V. Lending-of Securities
---------------------
Deliver loaned securities versus cash
collateral $20.00
Deliver loaned securities versus securities
collateral $30.00
Receive/deliver additional cash collateral $ 6.00
Substitutions of securities collateral $30.00
Deliver cash collateral versus receipt of
loaned securities $15.00
Deliver securities collateral versus receipt
of loaned securities $25.00
Loan administration -- mark-to-market per
day, per loan $ 3.00
VI. Interest Rate Futures
---------------------
Transactions -- no security movement $ 8.00
VII. Coupon Bonds
------------
Monitoring for calls and processing coupons --
for each coupon issue held -- monthly charge $ 5.00
<PAGE>
VIII. Holdings Charge
---------------
For each issue maintained -- monthly charge $ 5.00
IX. Principal Reduction Payments
----------------------------
Per Paydown $10.00
X. Dividend Charges (For items held at the Request
----------------
of Traders over record date in street form) $75.00
XI. Special Services
----------------
Fees for activities of a non-recurring nature such as fund
consolidations or reorganizations, extraordinary security shipments
and the preparation of special reports will be subject to negotiation.
Fees for tax accounting/recordkeeping for options, financial futures,
and other special items will be negotiated separately.
XII. Out-of-Pocket Expenses
----------------------
A billing for the recovery of applicable out-of-pocket expenses will
be made as of the end of each month. Out-of-pocket expenses include,
but are not limited to the following:
Telephone
Wire Charges ($4.75 per wire in and $4.55 out)
Postage and Insurance
Courier Service
Duplicating
Legal Fees
Supplies Related to Fund Records
Rush Transfer -- $8.00 Each
Transfer Fees
Sub-custodian Charges
Price Waterhouse Audit Letter
Federal Reserve Fee for Return Check items over $2,500 - $4.25
GNMA Transfer - $15 each
Rapicom lease and supplies
XIII. Payment
-------
The above fees are expected to be paid within 30 days of receipt of
invoice.
<PAGE>
CIGNA INSTITUTIONAL FUNDS GROUP
- -------------------------------
CIGNA International Stock Fund
CIGNA Annuity Funds Group
- -------------------------
CIGNA Annuity Money Market Fund
CIGNA Annuity Income Fund
CIGNA Annuity Equity Fund
CIGNA Annuity Growth & Income Fund
CIGNA Annuity Aggressive Equity Fund
CIGNA Variable Products Group
- -----------------------------
CIGNA Companion Fund
INA Investment Securities, Inc.
CIGNA High Income Shares
Copies of the Master Trust Agreements establishing CIGNA Institutional Funds
Group, CIGNA Annuity Funds Group, CIGNA Variable Products Group and CIGNA High
Income Shares (the "Trusts"), are on file with the Secretary of the Commonwealth
of Massachusetts, and notice is hereby given that this agreement is executed on
behalf of Trusts by an officer of the Trusts, 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, agents
or any subsequent series of the Trusts, either individually or collectively, but
are binding only upon the assets or property of the series of the Trusts listed
above.
For each of the above:
CIGNA FUNDS STATE STREET BANK AND TRUST CO
By: /s/ Alfred A. Bingham III By: /s/ Maureen T. Corcoran
---------------------------------- -------------------------------
Title: Vice President Title: Vice President
------------------------------- ----------------------------
Date: 11/19/90 Date: 11/19/90
-------------------------------- -----------------------------
<PAGE>
Exhibit (9)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
CIGNA ANNUITY FUNDS GROUP
and
STATE STREET BANK AND TRUST COMPANY
Ald 1/85
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Article 1 Terms of Appointment; Duties of the Bank........................1
Article 2 Fees and Expenses...............................................4
Article 3 Representations and Warranties of the Bank......................5
Article 4 Representations and Warranties of the Trust.....................5
Article 5 Indemnification.................................................6
Article 6 Covenants of the Trust and the Bank.............................9
Article 7 Termination of Agreement.......................................10
Article 8 Additional Funds...............................................11
Article 9 Assignment.....................................................11
Article 10 Amendment......................................................12
Article 11 Massachusetts Law to Apply.....................................12
Article 12 Merger of Agreement............................................12
Article 13 Trust Liability................................................12
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the 30th day of July, 1985, by and between CIGNA
ANNUITY FUNDS GROUP a Massachusetts business trust, having its principal office
and place of business at 1380 Main Street, Springfield, Massachusetts, 01103
(the "Trust"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts
corporation having its principal office and place of business at 225 Franklin
Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Trust desires to appoint the Bank as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities,
and the Bank desires to accept such appointment;
WHEREAS, the Trust is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Trust intends to initially offer Shares in five series, as
described on Exhibit A attached hereto (such series, together with all other
series subsequently established by the Trust and made subject to this Agreement
in accordance with Article 8, being herein referred to as the "Fund(s)");
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
----------------------------------------
1.01 Subject to the terms and conditions set forth in this
Agreement, the Trust hereby employs and appoints the Bank to act as, and the
Bank agrees to act as the transfer agent for
<PAGE>
the Trust's authorized and issued shares of beneficial interest ("Shares"),
dividend disbursing agent and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of any Fund of the
Trust ("Shareholders") and set out in the currently effective prospectus and
statement of additional information ("prospectus") of any Fund, including
without limitation any periodic investment plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time by agreement between the Trust and the Bank, the Bank shall:
(i) receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation therefor to the Custodian of the Trust
authorized pursuant to the Declaration of Trust of the
the Trust (the "Custodian");
(ii) pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the appropriate
Shareholder account;
(iii) receive for acceptance, redemption requests and
redemption directions and deliver the appropriate
documentation therefor to the Custodian;
(iv) at the appropriate time as and when it receives monies
paid to it by the Custodian with respect
-2-
<PAGE>
to any redemption, pay over or cause to be paid
over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) effect transfers of Shares by the registered
owners thereof upon receipt of appropriate
instructions;
(vi) prepare and transmit payments for dividends and
distributions declared by the Trust on account
of any Fund; and
(vii) maintain records of account for and advise the
Trust and its Shareholders as to the foregoing.
(b) In addition to and not in lieu of the services
set forth in the above paragraph (a), the Bank shall: (i) perform all of the
customary services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on non-resident alien accounts, preparing and
filing U.S. Treasury Department Forms 1099 and other appropriate forms required
with respect to dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and statements of account
to Shareholders for all purchases and redemptions of Shares and other
confirmable
-3-
<PAGE>
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information and (ii) provide
a system which will enable any Fund of the Trust to monitor the total number of
Shares sold in each State. The Trust shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of the Bank for the Trust's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Trust and the reporting of
such transactions to any Fund of the Trust as provided above.
Procedures applicable to certain of these services may be established
from time to time by agreement between the Trust and the Bank.
Article 2 Fees and Expenses
-----------------
2.01 For performance by the Bank pursuant to this Agreement,
the Trust agrees to pay the Bank an annual maintenance fee for each Shareholder
account as set out in the initial fee schedule attached hereto. Such fees and
out-of-pocket expenses and advances identified under Section 2.02 below may be
changed from time to time subject to mutual written agreement between the Trust
and the Bank.
2.02 In addition to the fee paid under Section 2.01 above,
the Trust agrees to reimburse the Bank for out-of-pocket
-4-
<PAGE>
expenses or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the Bank
at the request or with the consent of the Trust, will be reimbursed by the
Trust.
2.03 Postage for mailing of dividends, proxies, Fund
reports and other mailings to all shareholder accounts shall be advanced to the
Bank by the Trust at least seven (7) days prior to the mailing date of such
materials.
Article 3 Representations and Warranties of the Bank
------------------------------------------
The Bank represents and warrants to the Trust that:
3.01 It is a corporation duly organized and existing
and in good standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in
the Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its
charter and by-laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken
to authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
Article 4 Representations and Warranties of the Trust
-------------------------------------------
The Trust represents and warrants to the Bank that:
4.01 It is a business trust duly organized and
existing and in good standing under the laws of Massachusetts.
4.02 It is empowered under applicable laws and by its
-5-
<PAGE>
Declaration of Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration
of Trust and By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4.04 It is an open-end and diversified management investment
company registered under the Investment Company Act of 1940.
4.05 A registration statement under the Securities Act of
1933 is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of any Fund of the Trust being offered for sale.
Article 5 Indemnification
---------------
5.01 The Bank shall not be responsible for, and the Trust
shall indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Trust's refusal or failure to comply with the terms
of this Agreement, or which arise out of the Trust's lack of good faith,
negligence or willful misconduct or which arise out of the breach of any
representation or warranty of the Trust hereunder.
-6-
<PAGE>
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records and documents which (i) are received by
the Bank or its agents or subcontractors and furnished to it by or on behalf of
the Trust, and (ii) have been prepared and/or maintained by the Trust or any
other person or firm on behalf of the Trust.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of the Trust.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered in such state or
in violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
5.02 The Bank shall indemnify and hold the Trust harmless
from and against any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to any action or
failure or omission to act by the Bank as a result of the Bank's lack of good
faith, negligence or willful misconduct.
5.03 At any time the Bank may apply to any officer of the
Trust for instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the Bank under
this Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by the Trust for any action taken or omitted
-7-
<PAGE>
by it in reliance upon such instructions or upon the opinion of such counsel.
The Bank, its agents and subcontractors shall be protected and indemnified in
acting upon any paper or document furnished by or on behalf of any Fund of the
Trust, reasonably believed to be genuine and to have been signed by the proper
person or persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar means authorized by the Trust, and
shall not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Trust. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Trust, and the proper
countersignature of any former transfer agent or registrar, or of a co-transfer
agent or co-registrar.
5.04 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes.
5.05 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any act or failure to act hereunder.
-8-
<PAGE>
5.06 In order that the indemnification provisions contained
in this Article 5 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep the
other party advised with respect to all developments concerning such claim. The
party who may be required to indemnify shall have the option to participate with
the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
Article 6 Covenants of the Trust and the Bank
-----------------------------------
6.01 The Trust shall promptly furnish to the Bank the
following:
(a) A certified copy of the resolution of the Trustees of the
Trust authorizing the appointment of the Bank and the execution and delivery of
this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the
Trust and all amendments thereto.
6.02 The Bank hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Trust for safekeeping of
stock certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
-9-
<PAGE>
6.03 The Bank shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Trust and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Trust on and in accordance with its request.
6.04 The Bank and the Trust agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of
the Shareholder records of the Trust, the Bank will endeavor to notify the Trust
and to secure instructions from an authorized officer of the Trust as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 7 Termination of Agreement
------------------------
7.01 This Agreement may be terminated by either party upon
one hundred twenty (120) days written notice to the other.
-10-
<PAGE>
7.02 Should the Trust exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Trust. Additionally, the Bank reserves the right to charge for
any other reasonable expenses associated with such termination and/or a charge
equivalent to the average of three (3) months' fees.
Article 8 Additional Funds
----------------
8.01 In the event that the Trust establishes one or more
series of Shares in addition to those described on Exhibit A attached hereto,
with respect to which it desires to have the Bank render services as transfer
agent under the terms hereof, it shall so notify the Bank in writing, and if the
Bank agrees in writing to provide such services, such series of Shares shall
become a Trust hereunder.
Article 9 Assignment
----------
9.01 Except as provided in Section 9.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
9.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
9.03 The Bank may, without further consent on the part of the
Trust, subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as
a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
-11-
<PAGE>
1934 ("Section 17A(c)(l)"), or (ii) a BFDS subsidiary duly registered as a
transfer agent pursuant to Section 17A(c)(1); provided, however, that the Bank
shall be as fully responsible to the Trust for the acts and omissions of any
subcontractor as it is for its own acts and omissions.
Article 10 Amendment
---------
10.01 This Agreement may be amended or modified by a
written agreement executed by both parties and authorized or approved by a
resolution of the Trustees of the Trust.
Article 11 Massachusetts Law to Apply
--------------------------
11.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 12 Merger of Agreement
-------------------
12.01 This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with respect to
the subject matter hereof whether oral or written.
Article 13 Trust Liability
---------------
13.01 Copies of the Master Trust Agreement, as amended,
establishing CIGNA Annuity Funds Group (the "Trust") are on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this Transfer Agency and Service Agreement is executed on behalf of the Trust by
officers of the Trust as officers and not individually and that the obligations
of or arising out of this Transfer Agency and Service 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.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf under their seals
by and through their duly authorized officers, as of the day and year first
above written.
CIGNA ANNUITY FUND GROUP
By: /s/ Howard A. Halligan
--------------------------------
ATTEST:
/s/ Everett E. Clark
- -----------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ Peter O'Connell
--------------------------------
Vice President
ATTEST:
/s/ K. M. Kubick
- -----------------------------------
Assistant Secretary
-13-
<PAGE>
EXHIBIT A
a/o June 30, 1985
CIGNA Annuity Equity Fund
CIGNA Annuity Income Fund
CIGNA Annuity Money Market Fund
CIGNA Annuity Short-Term Government Fund
Companion Fund
-14-
<PAGE>
[STATE STREET LOGO APPEARS HERE]
STATE STREET BANK AND TRUST COMPANY
Fee Schedule and Summary Description of Services as
Transfer and Dividend Disbursing Agent
CIGNA ANNUITY MONEY MARKET FUND
CIGNA ANNUITY EQUITY FUND
CIGNA ANNUITY INCOME FUND
CIGNA ANNUITY AGGRESSIVE EQUITY FUND
CIGNA ANNUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
I. Annual Maintenance Charge
-------------------------
Fee is based on the maintenance of Transfer Agency records to reflect
all transaction activity for the shareholders of the Fund. Maintain an
individual shareholder account record and provide weekly confirmation
of each entry; calculate and disburse dividends as declared by the
Fund; provide Form 1099 reporting at end of year to Internal Revenue
Service. No certificates will be issued.
The annual fee under this section shall be $3,000 per portfolio payable
on a monthly basis at the rate of 1/12 the annual fee.
II. Out of Pocket Expenses
----------------------
All out-of-pocket expenses will be charged to the Fund monthly
including forms, postage, telephone, wires, etc.
III. Term of Contract
----------------
This schedule will be effective for one (1) year commencing on February
1, 1992, and shall be renewed annually thereafter unless otherwise
agreed upon by both parties.
CIGNA ANNUITY MONEY MARKET FUND
CIGNA ANNUITY EQUITY FUND
CIGNA ANNUITY INCOME FUND
CIGNA ANNUITY AGGRESSIVE EQUITY FUND
CIGNA ANNUITY GROWTH AND INCOME FUNDS STATE STREET BANK & TRUST CO.
Name: /s/ Alfred A. Bingham III Name: /s/ Janet Wertherman
--------------------------- -------------------------------
Title: Vice President & Treasurer Title: Vice President
--------------------------- ------------------------------
Date: February 7, 1992 Date: February 3, 1992
--------------------------- -------------------------------
0294m
-15-
<PAGE>
Exhibit (9b)
AGREEMENT FOR USE OF THE TERM 'CIGNA'
Agreement dated April 30, 1985 between CIGNA Corporation, a Delaware
Corporation ("CIGNA") and CIGNA ANNUITY FUNDS GROUP, a Massachusetts business
trust (the "Trust").
WHEREAS, the Trust has been organized for the purpose of engaging in
business as a diversified, open-end management investment company issuing its
common shares without par value, in series, each such series of common shares
being referred to as a "Fund"; and
WHEREAS, CIGNA Investment Management Company, an affiliate of CIGNA (the
"Management Company"), is to serve as investment adviser for the Trust pursuant
to a Master Investment Advisory Agreement with the Trust; and
WHEREAS, the term 'CIGNA' is the name used to identify the entity
resulting from the combination of Connecticut General Corporation and INA
Corporation which became effective on March 31, 1982 and identifies the
insurance and financial services unique to those companies affiliated with
CIGNA; and
WHEREAS, the parties hereto desire to enter into this Agreement for the
purpose of setting forth the terms and conditions upon which they have agreed
the Trust and each Fund may use the term 'CIGNA' as part of its name.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. CIGNA hereby consents to the use of the term 'CIGNA' by the Trust and
by those Funds electing to do so as part of their respective names so long as
the Management Company or another corporation controlled by CIGNA acts as
investment adviser to the Trust and to each such Fund. 'Controlled by' as used
in this Agreement shall mean more than 50% of the voting securities of the
investment adviser are owned directly or indirectly by CIGNA.
2. The Trust agrees on behalf of itself and each Fund electing to use the
term 'CIGNA' in its name that such use of the term 'CIGNA' shall not prevent
CIGNA or any entity affiliated with CIGNA, or its successors or assigns, from
using or permitting the use of the term 'CIGNA', alone or with, any other word
or words, for, by or in connection with, any other entity or business, other
than the Trust and each such Fund or their businesses, whether or not the same
directly or indirectly competes or conflicts with the Trust and any of such
Funds or their respective businesses.
3. If for any reason the Management Company shall cease to act as
investment adviser for the Trust or for any Fund or shall cease to be controlled
by CIGNA, or if the Trust and each Fund shall not have in effect an investment
advisory agreement with another corporation controlled by CIGNA, then the right
of the Trust and of each Fund electing to use the term 'CIGNA' in its name shall
terminate and the Trust for itself and on behalf of each such Fund agrees
promptly to take appropriate steps to change its name so that the term 'CIGNA'
is no longer a part thereof and to terminate use of the term 'CIGNA' in
connection with its business.
<PAGE>
4. Copies of the Master Trust Agreement, as amended establishing CIGNA
Annuity Funds Group (the "Trust") are on file with the Secretary of the
Commonwealth of Massachusetts, and notice is hereby given that this Agreement
For Use Of The Term 'CIGNA' is executed on behalf of the Trust by officers of
the Trust as officers and not individually and that the obligations of or
arising out of this Agreement For Use Of The Term 'CIGNA' 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
signed by their duly authorized officers as of the day and year first above
written.
CIGNA CORPORATION
By /s/ David C. Kopp
----------------------------------
David C. Kopp, Assistant Secretary
CIGNA ANNUITY FUNDS GROUP
By /s/ Howard A. Halligan
----------------------------------
Howard A. Halligan, President
<PAGE>
Exhibit (9d)
SHAREHOLDER SERVICES PLAN
OF
CIGNA FUNDS GROUP
WHEREAS, CIGNA Funds Group (the "Trust") engages in business as an
open-end management investment company and is registered under the Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, shares of beneficial interest of the Trust are currently
divided into seven separate series (CIGNA Money Market Fund, CIGNA Treasury
Obligations Cash Fund, CIGNA Government Obligations Cash Fund, CIGNA Government
Securities Fund, CIGNA Income Fund, CIGNA High Yield Fund and CIGNA S&P 500
Index Fund) (the "Funds");
WHEREAS, shares of the Funds are or may be issued in two classes,
designated the institutional class and the retail class, respectively;
WHEREAS, on behalf of the Funds the Trust desires to appoint CIGNA
Financial Services, Inc. ("CFS") to provide certain services to holders of the
retail class shares of the Funds under the terms and conditions described
herein;
NOW, THEREFORE, the Trust hereby adopts this Shareholder Services Plan
(the "Plan"), on behalf of the retail class shares of the Funds, and CFS hereby
agrees to provide or cause to be provided the shareholders services described
herein, subject to the following terms and conditions:
1. Each Fund is authorized to pay to CFS, as compensation for service
activities (as defined in Paragraph 3 hereof) rendered to holders of the retail
class shares of a Fund by CFS, 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 extent necessary (if
any) to cause each Fund to comply with the Act and applicable Internal Revenue
Service rules and regulations (as the same may be amended from time to time).
Such payment shall be calculated daily and paid monthly. CFS is authorized to
pay its affiliates or independent third party service providers for performing
service activities consistent with this Plan.
2. The Plan shall not take effect with respect to a class of shares of
a Fund until it, together with any related agreements, has been approved by
votes of a majority of both (a) the Trustees of the Trust and (b) those Trustees
of the Trust who are not "interested persons" of the Trust (as defined in the
Act) and who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it (the "Plan Trustees"), cast in person
at a meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
3. CFS shall provide to the Board of Trustees of the Trust and the
Trustees shall review, at least quarterly, a written report of the amounts
expended in connection with its performance of "service activities," as defined
in this paragraph 3, and the purposes for which
Page 1
<PAGE>
such expenditures were made. CFS shall submit only information regarding amounts
expended for "service activities" to the Board of Trustees of the Trust in
support of the amounts payable hereunder.
For purposes of the Plan, "service activities" may include receiving,
aggregating, and processing shareholder or beneficial owner (collectively,
"shareholder") orders; furnishing shareholder sub-accounting; providing and
maintaining retirement account records; communicating periodically with
shareholders; acting as the sole shareholder of record and nominee for
shareholders; maintaining account records for shareholders; answering questions
and handling correspondence from shareholders about their accounts; issuing
confirmations for transactions by shareholders; and performing similar account
administrative services.
4. Amounts payable to CFS hereunder will be paid by a Fund to CFS until
the Plan is terminated or not renewed with respect to that Fund. If the Plan is
terminated or not renewed with respect to a Fund, any expenses incurred by CFS,
its affiliates or independent third party service providers, on behalf of the
Fund in excess of the payments of the amounts specified in Paragraph 1 hereof
which CFS has received or accrued through the termination date are the sole
responsibility and liability of CFS and are not obligations of the Fund.
5. This Plan shall continue in full force and effect as to a Fund for
so long as such continuance is specifically approved at least annually in the
manner provided for approval of the Plan in Paragraph 2.
6. This Plan may be terminated as to any Fund at any time, without
payment of any penalty, by vote of a majority of the Plan Trustees or by a vote
of a majority of the outstanding voting securities of the affected class of a
Fund on not more than 30 days' written notice to any other party to the Plan, or
by notice upon 30 day's prior written notice by CFS to the Trust.
7. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years of which shall be in an
easily accessible place.
8. The Plan may be amended at any time with respect to a Fund provided
that any amendment to increase materially the amount of the payment provided for
in Paragraph 1 is invalid and unenforceable unless such amendment is approved in
the manner provided for initial approval in Paragraph 2 hereof, and no material
amendment to the Plan shall be made unless approved in the manner provided for
approval in Paragraph 2 hereof.
9. 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.
Page 2
<PAGE>
IN WITNESS WHEREOF, the Trust, on behalf of the Funds, and CFS have
executed this Shareholder Services Plan as of the ____ day of ____________,
19___.
CIGNA FUNDS GROUP
By: ___________________________________
By: R. Bruce Albro
Its: Chairman of the Board and
President
CIGNA FINANCIAL SERVICES, INC.
By: ___________________________________
By:
Its:
Page 3
<PAGE>
Exhibit (10)
April 27, 1998
CIGNA Funds Group
950 Winter Street
Waltham, Massachusetts 02154
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 56 to the Registration
Statement of CIGNA Funds Group (the "Trust") on Form N-1A (Registration No.
2-29020) filed with the Securities and Exchange Commission with respect to the
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, CIGNA S&P 500 Index Fund, each a series of the Trust, and
specifically to Item 24(b) thereof. We hereby consent to the incorporation by
reference therein of our opinion, dated June 27, 1996 filed as Exhibit (10) to
Post-Effective Amendment No. 54 to such Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit (11)
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. 56 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 20, 1998, relating to the financial
statements and financial highlights appearing in the December 31, 1997 Annual
Report to Shareholders of the CIGNA Funds Group, which is 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 on the cover
page of, and under the heading "Investment Advisory and Other Services" in, the
Statement of Additional Information.
Price Waterhouse LLP
Boston, Massachusetts
April 27, 1998
<PAGE>
CIGNA FUNDS GROUP
CIGNA INSTITUTIONAL FUNDS GROUP
CIGNA VARIABLE PRODUCTS 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, as amended, any
Registration Statement under the Investment Company Act of 1940, as amended, 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, CIGNA
Institutional Funds Group and CIGNA Variable Products Group and any amendment to
any such Registration Statement or any Blue Sky Law filing with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, and under
the Investment Company Act of 1940, as amended, 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 24th day of February, 1998.
/s/ R. Bruce Albro
______________________________________
R. Bruce Albro,
Chairman of the Board, President and
Trustee
/s/ Hugh R. Beath
______________________________________
Hugh R. Beath, Trustee
/s/ Russell H. Jones
______________________________________
Russell H. Jones, Trustee
/s/ Thomas C. Jones
______________________________________
Thomas C. Jones, Trustee
/s/ Paul J. McDonald
______________________________________
Paul J. McDonald, Trustee
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CIGNA MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 171,148
<INVESTMENTS-AT-VALUE> 171,148
<RECEIVABLES> 682
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 22
<TOTAL-ASSETS> 171,852
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 787
<TOTAL-LIABILITIES> 787
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 171,065
<SHARES-COMMON-STOCK> 171,065
<SHARES-COMMON-PRIOR> 120,505
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 171,065
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,198
<OTHER-INCOME> 0
<EXPENSES-NET> 574
<NET-INVESTMENT-INCOME> 6,624
<REALIZED-GAINS-CURRENT> 16
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,640
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,624
<DISTRIBUTIONS-OF-GAINS> 16
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,108,538
<NUMBER-OF-SHARES-REDEEMED> 1,064,460
<SHARES-REINVESTED> 6,482
<NET-CHANGE-IN-ASSETS> 50,560
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 446
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 663
<AVERAGE-NET-ASSETS> 129,129
<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> 0.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> CIGNA INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,144
<INVESTMENTS-AT-VALUE> 1,159
<RECEIVABLES> 26
<ASSETS-OTHER> 50
<OTHER-ITEMS-ASSETS> 15
<TOTAL-ASSETS> 1,250
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28
<TOTAL-LIABILITIES> 28
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,208
<SHARES-COMMON-STOCK> 1,253
<SHARES-COMMON-PRIOR> 1,187
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 7
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21
<NET-ASSETS> 1,222
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 74
<OTHER-INCOME> 0
<EXPENSES-NET> 11
<NET-INVESTMENT-INCOME> 63
<REALIZED-GAINS-CURRENT> 3
<APPREC-INCREASE-CURRENT> 35
<NET-CHANGE-FROM-OPS> 101
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 61
<DISTRIBUTIONS-OF-GAINS> 3
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 66
<NET-CHANGE-IN-ASSETS> 101
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 10
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 61
<AVERAGE-NET-ASSETS> 1,155
<PER-SHARE-NAV-BEGIN> 0.94
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 0.98
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS UMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 8
<NAME> CIGNA S&P 500 INDEX FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 100,656
<INVESTMENTS-AT-VALUE> 105,778
<RECEIVABLES> 25,163
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 130,947
<PAYABLE-FOR-SECURITIES> 25,022
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80
<TOTAL-LIABILITIES> 25,102
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,583
<SHARES-COMMON-STOCK> 9,670
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 10
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 119
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,133
<NET-ASSETS> 105,845
<DIVIDEND-INCOME> 536
<INTEREST-INCOME> 100
<OTHER-INCOME> 0
<EXPENSES-NET> 116
<NET-INVESTMENT-INCOME> 520
<REALIZED-GAINS-CURRENT> 127
<APPREC-INCREASE-CURRENT> 5,133
<NET-CHANGE-FROM-OPS> 5,780
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 510
<DISTRIBUTIONS-OF-GAINS> 8
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100,065
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 518
<NET-CHANGE-IN-ASSETS> 105,845
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 83
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 237
<AVERAGE-NET-ASSETS> 65,888
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 0.95
<PER-SHARE-DIVIDEND> 0.07
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.95
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
