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As filed with the Securities and Exchange Commission on January 19, 1999.
Securities Act File No. 2-29020
Investment Company Act File No. 811-1646
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OMB Number: U.S. SECURITIES AND EXCHANGE COMMISSION
3235-0307 WASHINGTON, D.C. 20549
Expires: 05/31/00 _______________
Estimated average
Burden hours per FORM N-1A
response 212.80
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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. 59 |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. 59 |X|
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(CHECK APPROPRIATE BOX OR BOXES.)
CIGNA FUNDS GROUP
(Exact Name of Registrant as Specified in Charter)
100 FRONT STREET, SUITE 300, WORCESTER, MASSACHUSETTS 01601
(Address of Principal Executive Offices) (Zip Code)
(860) 726-3700
Registrant's Telephone Number, including Area Code
BRIAN D. WELLS, 100 FRONT STREET, SUITE 300
WORCESTER, MASSACHUSETTS 01601
(Name and Address of Agent for Service)
CONTINUOUS
(Approximate Date of Proposed Public Offering)
_______________
It is proposed that this filing will become effective (check appropriate box):
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| | Immediately upon filing pursuant to paragraph (b)
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| | on (date) pursuant to paragraph (b)
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|X| 60 days after filing pursuant to paragraph (a)(1)
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| | on (date) pursuant to paragraph (a)(1)
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| | 75 days after filing pursuant to paragraph (a)(2)
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| | on (date) pursuant to paragraph (a)(2) of rule 485.
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If appropriate, check the following box:
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| | This post-effective amendment designates a new effective date for a
- previously filed post-effective amendment.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended.
_____________
Please send communications to: JEFFREY S. WINER, ESQ.
C/O CIGNA INVESTMENTS, INC.
900 COTTAGE GROVE ROAD, S-215, HARTFORD, CT 06152-2215
(860) 726-5576
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CIGNA FUNDS GROUP
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PROSPECTUS CIGNA MONEY MARKET FUND
APRIL 1, 1999 CIGNA INCOME FUND
CIGNA HIGH YIELD FUND
CIGNA S&P 500 INDEX FUND
CLASS XXX [NAME OF CDSL CLASS]
The Securities and Exchange
Commission has not approved or
disapproved these securities or
determined if this prospectus is
accurate or complete. Anyone who
tells you otherwise is committing a
crime.
<PAGE>
INVESTMENT OBJECTIVES:
- ---------------------
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.
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.
HIGH YIELD FUND The fund's primary objective is to
provide the highest current income
attainable consistent with
reasonable risk through investment
primarily in high yield, high risk,
below investment grade debt
securities. As a secondary objective,
the fund seeks capital appreciation
consistent with achieving high
current income.
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.
INVESTMENT STRATEGIES:
- ---------------------
MONEY MARKET FUND The fund invests exclusively in high-
quality short-term money market
instruments.
INCOME FUND The fund purchases primarily
investment grade bonds and U.S.
Government securities with
intermediate to long-term maturities
or non-rated bonds if CIGNA
Investments judges them to be of
comparable quality. The fund may also
buy below investment grade bonds and
dollar-denominated bonds of non-U.S.
issuers, subject to certain
limitations.
HIGH YIELD FUND The fund purchases primarily
corporate bonds with intermediate to
long-term maturities rated in the
medium to lower categories (junk
bonds) or non-rated bonds if CIGNA
Investments judges them to be of
comparable quality. The fund seeks
its secondary goal of capital growth
mainly through investments that are
expected to increase in value because
of declining long-term interest rates
or improvements in the credit quality
of the issuing company. The fund
often invests in companies with
smaller capitalizations.
S&P 500 INDEX FUND The fund attempts to replicate the
composition and total return, reduced
by fund expenses, of the S&P 500.
Normally, the fund will invest at
least 80% of its total assets in
common stock of companies which
compose the S&P 500.
1
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PRINCIPAL RISKS OF INVESTING IN THE FUNDS:
- -----------------------------------------
MONEY MARKET FUND A major change in interest rates or a default on the
fund's investments could cause the value of your
investment in the fund to change.
An investment in the Money Market Fund is not
insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government
agency. Although the fund seeks to preserve the
value of your investment at $1.00 per share, it is
possible to lose money by investing in the fund.
INCOME FUND AND Issuers of debt these funds hold may not make (or
HIGH YIELD FUND will be perceived as unlikely to make) timely
payments of interest and principal. This credit risk
is higher for corporate debt than for U.S.
government debt, and is higher still for junk bonds.
BECAUSE THE HIGH YIELD FUND INVESTS MAINLY IN JUNK
BONDS, THIS RISK IS HEIGHTENED FOR THE HIGH YIELD
FUND.
Movements in the securities markets may adversely
affect the value of the funds' investments. This
risk includes interest rate risk, which means that
the prices of the funds' investments are likely to
fall if interest rates rise. Interest rate risk is
often highest for investments with long maturities.
The price of one or more of the investments in the
funds' portfolio may fall, or may fail to appreciate
as expected by CIGNA Investments. Many factors can
adversely affect an investments's performance. This
risk is greater for smaller companies, which tend to
be more vulnerable to adverse developments, and is
therefore higher for the High Yield Fund.
S&P 500 INDEX FUND The fund is subject to market risk, which is the
possibility that common stock prices will decline,
sometimes substantially, over short or extended
periods. The stock market tends to be cyclical,
with periods when stock prices generally decline.
ALL FUNDS - Investors whose own currency is not the U.S. dollar
CURRENCY RISK will be exposed to currency risk with respect to
their investments in the funds. That is, if the
value of the U.S. dollar rises relative to the value
of an investor's own currency, the value of the
investor's investment in a fund (expressed in the
investor's own currency) will drop. The funds are
U.S. dollar denominated investment vehicles.
You can lose money by investing in any of the funds. The funds may not achieve
their investment objectives.
2
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BAR CHARTS AND PERFORMANCE TABLES
The bar charts and tables shown below provide some indication of the risks of
investing in the funds. The bar charts show changes in the performance of the
funds' institutional class shares from year to year over a ten year period, or
life of the fund, whichever is shorter.
The tables show how the average annual returns of the funds' institutional class
shares, for one, five and ten years (or life of the fund, whichever is shorter)
compare to those of a broad measure of market performance.
Because the High Yield Fund does not have performance information for a full
year, no bar chart or table is included for this fund.
A fund's past performance does not necessarily indicate how the fund will
perform in the future. The return for the ________ class of shares of the funds
will be lower than the institutional class returns shown in the bar charts, due
to the expenses of the________ class. Performance figures in the bar charts do
not reflect the impact of any sales charges you may be required to pay upon
redemption of fund shares. If they did, performance would be less than that
shown.
[THE FOLLOWING DATA APPEARS AS A BAR CHART GRAPHIC]
MONEY MARKET FUND
8.96% 7.82% 5.75% 3.36% 2.39% 3.43% 5.33% 4.91% 5.27% _______
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Total Return
During the ten-year period shown in the bar chart, the highest quarterly return
for the Money Market Fund was ___% (for the quarter ended ____) and the lowest
quarterly return was ____% (for the quarter ended _________).
MONEY MARKET FUND AVERAGE ANNUAL TOTAL RETURNS*
FOR THE PERIODS ENDED DECEMBER 31, 1998
Past 1 year Past 5 years Past 10 years
Money Market Fund _____% _____% _____%
3-Month U.S. Treasury bills _____% _____% _____%
The Money Market Fund's 7-day annualized yield as of December 31, 1998 was
_____%.
3
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[THE FOLLOWING DATA APPEARS AS A BAR CHART GRAPHIC]
INCOME FUND
14.29% 6.15% 17.94% 7.08% 13.36% -3.12% 16.21% 1.36% 9.1% _______
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Total Return
During the ten-year period shown in the bar chart, the highest quarterly return
for the Income Fund was ________% (for the quarter ended ________) and the
lowest quarterly return was ________% (for the quarter ended ________).
INCOME FUND AVERAGE ANNUAL TOTAL RETURNS*
FOR THE PERIODS ENDED DECEMBER 31, 1998
Past 1 year Past 5 years Past 10 years
Income Fund _____% _____% _____%
Lehman Brothers Government/ _____% _____% _____%
Corporate Bond Index
[THE FOLLOWING DATA APPEARS AS A BAR CHART GRAPHIC]
S&P 500 INDEX FUND
10.23% 26%
1997** 1998
**unannualized - S&P 500 Index Fund commenced operations July 1, 1997
4
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S&P 500 INDEX FUND AVERAGE ANNUAL TOTAL RETURNS*
FOR THE PERIODS ENDED DECEMBER 31, 1998 (COMMENCED OPERATIONS JULY 1, 1997)
Past 1 year Life of Fund
S&P 500 Index Fund _____% _____%
S&P 500 _____% _____%
During the period shown in the bar chart, the highest quarterly return for the
S&P 500 Index Fund was ____% (for the quarter ended ________) and the lowest
quarterly return was ___% (for the quarter ended ____________).
*Returns shown are for the funds' institutional class, which are not
offered in this prospectus. The ________ class would have similar
annual returns because the shares are invested in the same portfolio of
securities and the annual returns would differ only to the extent that
the classes do not have the same expenses and sales charges. The
________ class carries 12b-1 fees and contingent deferred sales charges
while the institutional class does not, so the annual returns for the
________ class will be lower than institutional class returns. Unlike
the bar charts, performance information included in the tables reflects
the impact of sales charges. Class ___ (CDSL class) performance
reflects the maximum deferred sales charge if shares had been redeemed
on 12/31/98.
5
<PAGE>
FEES AND EXPENSES OF THE FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
________ CLASS SHARES OF THE FUNDS.
<TABLE>
<CAPTION>
Money High S&P
Market Income Yield 500 Index
SHAREHOLDER FEES Fund Fund Fund Fund
FEES PAID DIRECTLY FROM YOUR INVESTMENT) ---- ---- ---- ----
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) None None None None
Maximum deferred sales charge (load)
(as a percentage of offering price)* 4% 4% 4% 4%
Redemption fee (as a percentage
of amount redeemed) None None None None
Exchange fee None None None None
</TABLE>
*4% in the first year after purchase, declining 1% each year and eliminated in
the 5th year and thereafter.
<TABLE>
<CAPTION>
Money High S&P
ANNUAL FUND OPERATING EXPENSES Market Income Yield 500 Index
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management fees 0.35% 0.50% 0.75% 0.25%
Distribution and service (12b-1) fees ____ 1.00% 1.00% 1.00%
Other expenses ____ ____ ____ ____
Total annual Fund operating expenses 0.80% ____ ____ ____
</TABLE>
EXAMPLE
THESE EXAMPLES ARE INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUNDS WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
The example assumes that:
o You invest $10,000 in the fund for the time periods indicated;
o Your investment has a 5% return each year; and
o Each fund's operating expenses remain the same.
If you redeem your shares:
1 year 3 years 5 years 10 years
Money Market Fund _____ _____ _____ _____
Income Fund _____ _____ _____ _____
High Yield Fund _____ _____ _____ _____
S&P 500 Index Fund _____ _____ _____ _____
6
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If you do not redeem your shares:
Money Market Fund _____ _____ _____ _____
Income Fund _____ _____ _____ _____
High Yield Fund _____ _____ _____ _____
S&P 500 Index Fund _____ _____ _____ _____
7
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INVESTMENT INFORMATION
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MONEY MARKET FUND
INVESTMENT OBJECTIVE
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 high quality
money market instruments. The fund invests 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. The fund purchases commercial paper primarily from U.S.
issuers but may purchase this type of security from foreign issuers so long as
it is denominated in U.S. dollars.
DESCRIPTION OF MONEY MARKET INSTRUMENTS
This is a description of the primary types of money market instruments the fund
will own:
U.S. GOVERNMENT DIRECT OBLIGATIONS - Obligations issued by the U.S. Treasury.
U.S. GOVERNMENT AGENCIES SECURITIES - The U.S. Government has established
certain Federal agencies such as the Government National Mortgage Association 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.
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.
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 the fund may invest in loans collateralized by mortgages on real
property.
REPURCHASE AGREEMENTS - A repurchase agreement is a contract where 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
8
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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 securities 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. These 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.
CONCENTRATION OF INVESTMENTS.
The fund may invest 25% or more of its total assets in commercial paper issued
by finance companies. The finance companies in which the fund intends to invest
can be divided into two categories, commercial finance companies and consumer
finance companies. Commercial finance companies are principally engaged in
lending to corporations or other businesses. Consumer finance companies are
primarily engaged in lending to individuals. The fund classifies captive finance
companies or finance subsidiaries which exist to facilitate the marketing and
financial activities of their parent in the industry of their parent's
corporation. Concentrating investments in any one industry may subject the fund
to more risk than if it did not concentrate investments.
In addition, the fund may invest 25% or more of the value of its total assets in
instruments issued by a U.S. branch of a domestic bank or savings and loan
having capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment.
INVESTMENT POLICIES
The fund may follow non-fundamental operational policies that are more
restrictive than its 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 Investment Company Act of 1940 (the 1940
Act). In particular, the fund intends to comply with the various requirements of
Rule 2a-7 of the 1940 Act, which regulates portfolio maturity, quality and
diversification. For example, the 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. The fund will determine the
effective remaining maturity of its investments according to Rule 2a-7.
Pursuant to procedures adopted by the fund's Board of Trustees, the fund may
purchase only high quality securities that CIGNA Investments, Inc., the fund's
adviser (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
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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.
The fund may change these operational policies to reflect changes in the laws
and regulations without the approval of shareholders.
INCOME FUND - INVESTMENT STRATEGIES
- -----------------------------------
The Income Fund invests primarily (normally at least 80% of its assets) in
a diversified portfolio of investment grade bonds of U.S. issuers of varying
maturities. Investment grade bonds are fixed income securities
that at the time of purchase either are rated in the four highest (investment
grade) categories by nationally recognized rating services such as Moody's
Investors Service and Standard & Poor's or are unrated but judged investment
grade by CIGNA Investments. Up to 55% of the fund's assets may be invested in
U.S. government securities, including securities of U.S. government agencies or
instrumentalities.
The fund may also invest up to 20% of its assets in preferred stock or
convertible bonds and common stocks and similar equity securities when they are
acquired as parts of units with fixed income securities.
The fund may invest up to 25% of its assets in securities of non-U.S. issuers,
of which up to 60% may be payable in foreign currencies.
HIGH YIELD FUND - INVESTMENT STRATEGIES
- ---------------------------------------
The High Yield Fund invests primarily (normally at least 80% of its assets in
high-yield, high risk debt instruments rated in the medium to lower categories
by nationally recognized rating services (Ba or lower by Moody's Investors
Services or BB or lower by Standard & Poor's) or non-rated securities which, in
CIGNA Investments' opinion, are of comparable quality. These securities are
commonly known as "junk bonds." The average maturity of the fund's portfolio
will normally be between eight and twelve years.
The fund may invest without limit in securities of foreign issuers that are
traded in U.S. public markets. While the fund may also invest in securities of
foreign issuers that are not traded in U.S. public markets, it does not expect
that such investments will normally represent more than 20% of its assets,
although they may occasionally exceed this amount.
The fund seeks its secondary goal of capital growth mainly through investments
that are expected to increase in value because of declining long-term interest
rates or improvements in the credit quality of the issuing company. The fund
often invests in companies with smaller capitalizations.
Moody's Investors Service and Standard & Poor's ratings are described in the
appendix to this prospectus.
10
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INCOME FUND AND HIGH YIELD FUND
- -------------------------------
PRINCIPAL RISKS
- ---------------
The Income Fund and High Yield Fund pursue their goals by investing mainly in
corporate bonds and notes, and to a lesser degree, in convertible bonds and
preferred stocks. These investments are commonly known as fixed-income
investments.
* FIXED-INCOME INVESTMENTS - RISKS IN GENERAL. The value of a fixed-income
investment may fall as a result of factors directly relating to the company
issuing the investment, such as decisions made by its management or a reduction
in its credit rating. An investment's value may also fall because of factors
affecting many companies, such as increased production costs. The value of an
investment may also be affected by general changes in financial market
conditions, such as changing interest rates or currency exchange rates.
* INTEREST RATE RISK. The values of fixed-income investments usually rise and
fall in response to changes in interest rates. Declining interest rates
generally raise the value of existing fixed-income investments, and rising
interest rates generally lower the value of existing fixed-income investments.
Changes in the values of fixed-income investments usually will not affect the
amount of income a fund receives from them, but will affect the value of the
fund's shares. Interest rate risk is often greater for investments with longer
maturities.
The Income Fund and the High Yield Fund may buy investments that give the
issuing company the option to "call," or redeem, these investments before their
maturity date. If an investment were to be "called" by a company during a time
of declining interest rates, a fund might have to reinvest the proceeds in an
investment offering a lower yield, and therefore might not benefit from any
increase in value as a result of declining interest rates.
* CREDIT RISK. Investors normally expect to be compensated in proportion to the
risk they assume. Fixed-income investments of companies with poor credit usually
offer higher yields than those of companies with better credit. Higher-rated
investments generally offer lower-credit risk, but not necessarily lower
interest rate risk. BECAUSE THE HIGH YIELD FUND INVESTS MAINLY IN JUNK BONDS,
CREDIT RISK IS HEIGHTENED FOR THE HIGH YIELD FUND. The value of a higher-rated
investment still fluctuates in response to changes in interest rates. The funds
may at times invest in "zero coupon" bonds and "payment-in-kind" bonds. Zero
coupon bonds are issued at less than face value and make payments of interest
only at maturity rather than at intervals during the life of the bond.
Payment-in-kind bonds give the issuing company the option to make interest
payments in additional bonds rather than in cash. Both kinds of bonds allow a
company to avoid generating cash to make current interest payments. These bonds
therefore involve greater credit risk and are typically subject to greater price
fluctuations than bonds that pay current interest in cash.
* LOWER-RATED INVESTMENTS. The High Yield Fund's investments are mainly below
investment grade in credit quality, and up to 20% of the Income Fund's
investments may be in below investment grade securities. Fixed-income
investments rated BB or lower by Standard & Poor's (or its equivalent) are
considered below investment grade and are commonly known as "junk bonds." The
lower ratings of these investments reflect a greater possibility that the
issuing companies may be unable to make timely payments of interest and
principal and thus default. There may be an increased risk of default in adverse
economic conditions. If this happens, or is perceived as likely to happen, the
values of those investments will usually drop. A default or expected default
could also make it difficult for a fund to sell the investments at prices
approximating the values the fund had previously placed on them. Because junk
bonds are traded mainly by institutions, they usually have a limited market,
which may at times make it difficult for the fund to establish
11
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their fair value. Credit ratings are based largely on the issuing company's
historical financial condition and the rating agencies' investment analysis at
the time of purchase. The rating assigned to any particular investment does not
necessarily reflect the issuing company's current financial condition and does
not reflect an assessment of an investment's volatility or liquidity.
* NON-U.S. INVESTMENTS. Non-U.S. investments involve certain special risks. For
example, their values may drop in response to changes in currency exchange
rates, unfavorable political and legal developments, unreliable or untimely
information, or economic and financial instability. In addition, the liquidity
of these investments may be more limited than U.S. investments, which means a
fund may at times be unable to sell them at desirable prices. Non-U.S.
settlement procedures may also involve additional risks. These risks are
generally greater in the case of "emerging markets" that typically have less
developed legal and financial systems. Certain of these risks may also apply to
some extent to domestic investments that are denominated in foreign currencies
or that are traded in foreign markets, or to investments in U.S. companies that
have significant foreign operations.
* SMALLER COMPANIES. The High Yield Fund, and to a lesser extent, the Income
Fund, may invest in small and relatively less well-known companies with market
capitalizations of less than $1 billion. These companies are more likely than
larger companies to have limited product lines, markets or financial resources,
or to depend on a small, less experienced management group. Investments in
smaller companies may trade less frequently and in limited volume, and their
prices may fluctuate more than investments in other companies. These investments
may therefore be more vulnerable to adverse developments.
* ILLIQUID INVESTMENTS. CIGNA Investments believes that opportunities to earn
high yields may exist in investments that are not liquid and that may be
considered speculative. The sale of these investments is usually restricted or
limited by law, which may mean that the fund will not be able to sell them when
CIGNA Investments considers it is desirable to do so or may be able to sell them
only at less than their market value. The High Yield Fund and the Income Fund
may each invest up to 15% of their assets in illiquid investments.
* FREQUENT TRADING. The funds may buy and sell investments relatively often,
which involves higher expenses, including brokerage commissions, and may
increase the amount of taxes payable by shareholders.
S&P INDEX FUND
- --------------
INVESTMENT OBJECTIVE AND RELATED RISKS
- --------------------------------------
The primary objective of the fund is long-term growth of capital by investing
principally in common stocks. The fund will seek to fulfill this objective by
attempting to replicate the composition and total return, reduced by Fund
expenses, of the S&P 500. Under normal conditions, the fund will invest at least
80% of its total assets in equity securities of companies which compose the S&P
500.
The S&P 500 includes 500 selected common stocks, most of which are listed on the
New York Stock Exchange. Each stock in the Index has a unique weighting,
depending on the number of shares outstanding and its current prices. The 500
stocks in the S&P 500 are chosen by Standard & Poor's based on industry
representation, liquidity and stability. The stocks in the S&P 500 are not the
500 largest companies. Rather, the index is designed to capture the returns of
many different sectors of the U.S. economy.
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.
12
<PAGE>
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, 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
issues.
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 U.S. Government
obligations and repurchase agreements, 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 percentage of the fund's assets
invested in various types of securities will vary in light of existing economic
conditions and other factors as determined by CIGNA Investments. Except in
extraordinary circumstances, the fund will not invest in short-term fixed income
securities or hold assets in cash for temporary, defensive purposes.
The fund is not sponsored, endorsed, sold or promoted by Standard & Poor's
Corporation ("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 records 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.
TEMPORARY, DEFENSIVE POSITIONS. The Income, High Yield and S&P 500 Index Funds
may, from time to time, take temporary defensive positions that are inconsistent
with their principal investment strategies by investing in short-term fixed
income securities in attempting to respond to adverse market, economic,
13
<PAGE>
political or other conditions. If a fund takes a temporary defensive position it
may not achieve its investment objective.
CURRENCY RISK. Investors whose own currency is not the U.S. dollar will be
exposed to currency risk with respect to their investments in the funds. That
is, if the value of the U.S. dollar rises relative to the value of an investor's
own currency, the value of the investor's investment in a fund (expressed in the
investor's own currency) will drop. The funds are U.S. dollar denominated
investment vehicles.
CHANGES IN POLICIES. The funds' Trustees may change the funds' goals,
investment strategies and other policies without shareholder approval, except as
otherwise indicated.
MANAGEMENT OF THE FUNDS
The investment adviser to the funds is CIGNA Investments, an indirect,
wholly-owned subsidiary of CIGNA Corporation. CIGNA Investments also serves as
investment adviser for other investment companies, 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, CIGNA Investments manages
the investment and reinvestment of the assets of the Fund.
Subject to the control and periodic review of the Board of Trustees, CIGNA
Investments determines what investments shall be purchased, held, sold or
exchanged by the Fund. CIGNA Investments is also responsible for overall
management of the business affairs of the Fund.
As full compensation for the investment management and all other services
rendered by CIGNA Investments, the funds paid the following amounts CIGNA
Investments for calendar year 1998.
Fund Dollar Amount % of Fund's Average Daily Net Assets
- ---- ------------- ------------------------------------
Money Market Fund
Income Fund
S&P 500 Index Fund
The following officers of CIGNA Investments have had primary responsibility for
the day-to-day management of the Income Fund and High Yield Fund since the years
shown below. Their recent professional experience is also shown.
Income Fund Since Experience
- ----------- ----- ----------
Thomas R. Foley 1991 Managing Director of CIGNA
Investments since 1995.
Previously, Vice President of
CIGNA Investments.
High Yield Fund
- ---------------
Alan C. Petersen Inception Managing Director of CIGNA
Investments since 1990.
YEAR 2000 ISSUES. The funds could be adversely affected if the computer systems
used by CIGNA Investments and the funds' other service providers do not properly
process and calculate date-related information relating to the end of this
century and the beginning of the next. While year 2000-related
14
<PAGE>
computer problems could have a negative effect on the fund, both in its
operations and in its investments, CIGNA Investments is working to avoid such
problems and to obtain assurances from service providers that they are taking
similar steps. No assurances, though, can be provided that the funds will not be
adversely impacted by these matters.
PRICING OF SHARES
- --------------------------------------------------------------------------------
The price of fund shares is based on each fund's net asset value. The Funds'
custodian, State Street Bank and Trust Company ("State Street") calculates the
net asset value of each class of a fund by dividing the number of outstanding
shares of each class into the net assets of a 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 Good Friday if banks are open.
The Income, High Yield and S&P 500 Index funds value their investments for which
market quotations are readily available at market value. They value short-term
investments that will mature within 60 days at amortized cost, which
approximates market value. They value all other investments and assets at their
fair value. The funds translate prices for their investments quoted in foreign
currencies into U.S. dollars at current exchange rates. As a result, changes in
the value of those currencies in relation to the U.S. dollar may affect a fund's
NAV. Because foreign markets may be open at different times than the New York
Stock Exchange, the value of a fund's shares may change on days when
shareholders are not able to buy or sell them. If events materially affecting
the values of a fund's foreign investments occur between the close of foreign
markets and the close of regular trading on the New York Stock Exchange, these
investments may be valued at their fair value.
VALUATION OF MONEY MARKET FUND INVESTMENTS
The Money Market Fund's investments are valued at amortized cost, which
approximates market value, in accordance with rules adopted by the Securities
and Exchange Commission. Using the amortized cost valuation method allows the
fund to maintain its 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 fund will notify
shareholders prior to any change, unless the change is only temporary, in which
case the shareholders will be notified after the change.
PURCHASE AND REDEMPTION OF SHARES
The price at which a purchase or redemption is effected is based on the next
calculation of net asset value after the order is placed. Orders for purchases
and redemptions will not be processed if received when the NYSE is closed,
except on Good Friday if banks are open.
HOW TO PURCHASE SHARES
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 employer or 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.
15
<PAGE>
Shares of each fund are sold on a continuous basis at each fund's net asset
value per share. The funds do not issue share certificates.
ADDITIONAL INFORMATION:
The funds reserve the right to limit purchases of shares for any one account or
related accounts to 2% of the total net asset value of each fund, or may refuse
to sell shares of any fund to any person.
HOW TO REDEEM SHARES
Retirement and savings plan participants should contact their employer or plan
administrator for information on how to redeem fund shares.
HOW TO EXCHANGE SHARES
If you want to switch your investment from one fund to another, you can exchange
your fund shares for shares of the same class of another fund at NAV. An
exchange will not trigger a deferred sales charge. When you redeem the shares
acquired through the exchange, the redemption may be subject to the deferred
sales charge, depending upon when you originally purchased the shares. For
purposes of computing the deferred sales charge, the length of time you have
owned your shares will be measured from the date of original purchase and will
not be affected by any exchange.
The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and have an
adverse effect on all shareholders. In order to limit excessive exchange
activity and otherwise promote the best interests of the funds, the funds
reserve the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges or reject any exchange. The fund into which you
would like to exchange may also reject your exchange.
Savings and Retirement plans may allow participants to exchange monies from one
investment option to another. Plan participants should check with their employer
or plan administrator for details on the rules governing exchanges in their
plan. Exchanges are accepted by the funds only as permitted by the applicable
savings or retirement plan. Participants' plan administrators or employers can
explain how frequently exchanges are allowed.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The funds declare dividends daily and distribute dividends monthly, except for
the S&P 500 Index Fund, which declares and distributes dividends annually.
All distributions will be automatically reinvested for you in shares of the fund
making the distribution at the net asset value determined on the record date.
TAX MATTERS
- --------------------------------------------------------------------------------
TAX EFFECTS OF DISTRIBUTIONS AND TRANSACTIONS
In general, any dividends and short-term capital gain distributions you receive
from the funds are taxable as ordinary income. Distributions of other capital
gains, if any, are generally taxable as capital gains. Ordinary income and
capital gains generally are taxed at different rates. The rates that you will
pay on any capital
16
<PAGE>
gains distributions will depend on how long a fund holds its portfolio
securities. This is true no matter how long you have owned your shares in the
fund and even though your distributions are reinvested in shares of the funds.
The sale or exchange of shares in your account may produce a gain or loss, and
is a taxable event. The Money Market Fund seeks to maintain a constant net asset
value of $1.00 per share, so a sale of shares of this fund generally will not
result in a gain or loss.
Your investment in the funds could have additional tax consequences. Also this
discussion relates only to the U.S. federal income tax consequences of
investing in the funds; the consequences of investing under other tax laws may
differ. Please consult your tax professional for assistance.
DISTRIBUTION ARRANGEMENTS
- --------------------------------------------------------------------------------
DEFERRED SALES CHARGES
This prospectus offers the ________ class of fund shares. If you sell (redeem)
________ class shares within 5 years after you bought them you will pay a
deferred sales charge according to the following schedule:
Year After
Purchase 1st 2nd 3rd 4th 5th +
Charge 4% 3% 2% 1% 0%
Deferred sales charges will be based on the cost of the shares at the time you
purchased them, and do not apply to shares purchased through reinvestment of
dividends or capital gains distributions. In determining whether a deferred
sales charge is payable on any redemption, shares held longest will be redeemed
first.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
CIGNA Financial Services ("CFS") acts as the principal underwriter and
distributor of the funds' shares.
The funds have adopted a plan under rule 12b-1 of the 1940 Act that allows the
funds to pay distribution fees for the sale and distribution of its shares and
for services provided to shareholders. Because these fees are paid out of the
funds' assets on an ongoing basis, over time these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges. Under the 12b-1 plan, each fund will pay CFS out of the assets of the
________ class up to 1.00% (___ % for the Money Market Fund) of the average
daily net assets to pay distribution and shareholder servicing fees.
Under the shareholder servicing component of the 12b-1 plan, each fund will pay
CFS 0.25% of the average daily net assets of the ________ class for providing
shareholder services to shareholders of this class of the funds. Shareholder
services may include, but are not limited to, receiving, aggregating, and
processing shareholder or beneficial owner orders; providing and maintaining
savings or retirement account records; communicating periodically with
shareholders; acting as the sole shareholder of record and nominee for
shareholders; answering questions and handling correspondence from shareholders
about their accounts; and performing similar account administrative services.
Under the distribution component of the 12b-1 plan, each fund will pay CFS 0.75%
(___ % for the Money Market Fund) of the average daily net assets of the
________ class to compensate CFS for distributing fund shares.
17
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
funds' financial performance for the past 5 years, or life of the fund,
whichever is shorter. Certain information reflects financial results
for a single fund share. The total returns in the table represent the
rate that an investor would have earned on an investment in the
institutional class of the fund (assuming reinvestment of all dividends
and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the funds'
financial statements, are included in the annual report which is
available upon request.
[NEED UPDATED FINANCIAL HIGHLIGHTS FOR MONEY MARKET, INCOME AND S&P 500 INDEX
FUNDS]
<TABLE>
<CAPTION>
CIGNA MONEY MARKET FUND
(INSTITUTIONAL CLASS)
YEAR ENDED DECEMBER 31,
1997 1996 1995 d 1994c 1993c
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income .0513 .0479 .0516 .0337 .0237
Net Gains or Losses on Securities
(both realized and unrealized) .0001 .0001 .0003 - -
Total from Investment Operations .0514 .0480 .0519 .0337 .0237
____________________________________________________________________________________________________________________________
LESS DISTRIBUTIONS
Dividends (from net investment income).0513 .0479 .0516 .0337 .0237
Distributions (from capital gains) .0001 .0001 .0003 - -
Total Distributions .0514 .0480 .0519 .0337 .0237
____________________________________________________________________________________________________________________________
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
============================================================================================================================
TOTAL RETURN 5.27 % 4.91 % 5.33 % 3.43 % 2.39 %
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $171,065 $120,505 $1,034 $16,673 $20,508
Ratio of Expenses to Average Net
Assets 0.44 % a 0.45 % a 0.80 % a 1.00 % a 1.00 % a
Ratio of Net Investment Income To
Average
Net Assets 5.14 % b 4.95 % b 5.38 % b 3.32 % b 2.39 % b
</TABLE>
- ------------------
a. Ratios of expenses to average net assets prior to the reduction of advisory
fee were 0.51%, 0.69%, 1.21%, 1.11% and 1.02%, respectively, for the
periods ended December 31, 1997, 1996, 1995, 1994 and 1993.
b. Ratios of net investment income to average net assets prior to the
reduction of advisory fee were 5.07%, 4.71%, 4.91%, 3.22% and 2.37%,
respectively, for the periods ended December 31, 1997, 1996, 1995, 1994,
and 1993.
c. Net investment income per share has been calculated in accordance with SEC
requirements, except that end of year accumulated/undistributed net
investment income has not been adjusted to reflect current year permanent
differences between financial and tax accounting.
d. Per share amounts have been calculated using the average shares method,
which more appropriately presents the per share data for the period since
the use of the undistributed income method did not accord with the results
of operations.
18
<PAGE>
APPENDIX - DESCRIPTION OF BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds that 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 edged." 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 that 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 that 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 that suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds that 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.
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 both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations that 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.
Moody's applies numerical modifiers of 1, 2 and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
A-1
<PAGE>
STANDARD & POOR'S CORPORATION
AAA: An obligation rated 'AAA' has the highest rating assigned by
S&P. The obligor's capacity to meet its financial commitment is EXTREMELY
STRONG.
AA: An obligation rated 'AA' differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is VERY STRONG.
A: An obligation rated 'A' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still STRONG.
BBB: An obligation rated 'BBB' exhibits ADEQUATE protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated 'BB', 'B', 'CCC', 'CC' and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB: An obligation rated 'BB' is LESS VULNERABLE to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated 'B' is MORE VULNERABLE to nonpayment than
obligations rated 'BB' but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: An obligation rated 'CCC' is CURRENTLY VULNERABLE to nonpayment
and is dependent upon favorable business, financial and economic conditions for
the obligor to meet its financial commitment on the obligation. In the event
of adverse business, financial or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated 'CC' is CURRENTLY HIGHLY VULNERABLE to
nonpayment.
C: The 'C' rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
D: An obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy petition or the taking
of similar action if payments on an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from 'AA' to 'CCC' may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
r: This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
A-2
<PAGE>
For investors who want more information about the funds the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the funds' investments
is available in the Funds' annual and semi-annual reports to shareholders. In
the funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the funds' performance
during their last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the funds and is incorporated into this prospectus by
reference.
You can get free copies of reports and SAIs, request other information and
discuss your questions about the funds by contacting the funds at:
CIGNA Financial Services
P.O. Box 150476
Hartford, CT 06115-0476
Telephone: 1-888-CIGNAFS (244-6237)
You can review and copy the funds' reports and SAIs at the Public Reference Room
of the Securities and Exchange Commission. You can get text-only copies:
For a fee, by writing to or calling the Public Reference Room of the Commission,
Washington, DC 20549-6009;
Free from the Commission's Internet website at:
http://www.sec.gov.
Information on the operation of the public reference room may be obtained by
calling the Commission at:
1-800-SEC-0330.
CIGNA FUNDS GROUP
CIGNA MONEY MARKET FUND
CIGNA INCOME FUND
CIGNA HIGH YIELD FUND
CIGNA S&P 500 INDEX FUND
________ CLASS
(Investment
Company Act
File No. 811-1646)
<PAGE>
C I G N A F U N D S G R O U P
---------------------------------
CIGNA Money Market Fund
CIGNA Income Fund
CIGNA High Yield Fund
CIGNA S&P 500 Index Fund
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
A P R I L 1, 1 9 9 9
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectus for CIGNA Money Market Fund, CIGNA Income
Fund, CIGNA High Yield Fund and CIGNA S&P 500 Index Fund (the "Funds"), series
of CIGNA Funds Group ("CFG" or the "Trust") having the same date as the date of
this Statement of Additional Information. Much of the information contained in
this document expands upon subjects discussed in the prospectus. No investment
in shares of the funds should be made without first reading the prospectus. A
copy of the prospectus of the Funds may be obtained by writing to CIGNA Funds
Shareholder Services, Hartford, Connecticut 06152-2210.
The financial statements for CIGNA Funds Group for the year ended December 31,
1998, 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, 1998 have been examined by
PricewaterhouseCoopers LLP, independent accountants, whose report thereon also
is incorporated herein by reference.
<PAGE>
TABLE OF CONTENTS
Page
----
General Information About the Trust............................................3
- -----------------------------------
The Funds, Their Investment Objectives and Policies............................3
- ---------------------------------------------------
Classification.................................................................3
- --------------
Investment Strategies and Risks................................................3
- -------------------------------
Fund Policies ................................................................20
- -------------
Management of the Trust.......................................................21
- -----------------------
Control Persons and Principal Holders of Securities...........................24
- ---------------------------------------------------
Investment Advisory and Other Services........................................25
- --------------------------------------
Underwriter...................................................................28
- -----------
Custodian and Transfer Agent..................................................30
- ----------------------------
Independent Accountants.......................................................30
- -----------------------
Brokerage Allocation and Other Practices......................................30
- ----------------------------------------
Capital Stock.................................................................32
- -------------
Purchase, Redemption and Pricing of Securities................................33
- ----------------------------------------------
Tax Matters...................................................................35
- -----------
Performance Information.......................................................37
- -----------------------
Redemptions Paid In Cash......................................................40
- ------------------------
Financial Statements..........................................................41
- --------------------
Page 2
<PAGE>
GENERAL INFORMATION ABOUT THE TRUST
- -----------------------------------
The Trust is a Massachusetts business trust 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. Prior to March 1996,
CIGNA Money Market Fund and CIGNA Income Fund were known as CIGNA Annuity Money
Market Fund and CIGNA Annuity Income Fund. The Funds are series or separate
portfolios of the Trust. The Board of Trustees of the Trust 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 the 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.
THE FUNDS, THEIR INVESTMENT OBJECTIVES AND POLICIES
- ---------------------------------------------------
CLASSIFICATION
- --------------
The Funds are diversified, open-end management investment companies.
INVESTMENT STRATEGIES AND RISKS
- -------------------------------
MONEY MARKET FUND
- -----------------
The types of money market instruments in which the Money Market Fund presently
invests are listed in 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, the Money Market Fund may invest in
such instruments, if it is permitted to do so by its investment objective,
policies and restrictions.
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OBLIGATIONS OF DEPOSITORY INSTITUTIONS AND COMMERCIAL PAPER OF FOREIGN ISSUERS.
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 compared to the risks of obligations of U.S.
institutions. Such investment risks include adverse political and economic
developments, the possible imposition of withholding taxes on interest income
payable on such obligations, the possible seizure or nationalization of foreign
deposits and the possible establishment of exchange controls or other foreign
governmental laws or restrictions which might adversely affect the payment of
principal and interest. Generally, the issuers of such obligations are subject
to fewer regulatory requirements than are applicable to U.S. banks. Foreign
depository institutions, their branches or subsidiaries, and foreign branches or
subsidiaries of U.S. banks may be subject to less stringent reserve requirements
than U.S. banks. U.S. branches or subsidiaries of foreign banks are subject to
the reserve requirements of the state in which they are located. There may be
less publicly available information about a foreign bank or a branch or
subsidiary of a foreign bank than about a U.S. institution, and such branches or
subsidiaries may not be subject to the same accounting, auditing and financial
record keeping standards and requirements as U.S. banks. Evidence of ownership
of foreign depository and Eurodollar obligations may be held outside of the
United States and the Fund may be subject to the risks associated with the
holding of such property overseas. Foreign depository and Eurodollar obligations
of the Fund held overseas will be held by foreign branches of the custodian for
the Fund's 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"). CIGNA Investments 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. These
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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.
RATING AGENCIES. The Money Market Fund's 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.
The rating applied to a security 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 will not necessarily compel, a decision to dispose of a
security. If the major rating services used by the Fund were to alter their
standards or systems for rating, the Fund would then employ ratings under the
revised standards or systems that would be comparable to those specified in its
current investment objective, policies and restrictions.
RULE 2A-7. 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 this deviation may
result in material dilution or is otherwise unfair to existing shareholders. In
the event the Trustees determine that a deviation having this 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
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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 the 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.
INCOME FUND
- -----------
In pursuing its investment objective, the Income Fund will principally invest in
the following types of interest-bearing securities:
(1) Marketable debt securities that are rated at the time of purchase
within the four highest grades assigned by Moody's Investors
Service, Inc. (Aaa, Aa, A or Baa) or Standard & Poor's Corporation
(AAA, AA, A or BBB).
(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 CIGNA Investments
to have investment qualities comparable to securities which may be
purchased under Item (1) above, although there can be no assurance
that these obligations shall have such qualities.
(4) Money market instruments eligible for purchase by the Money Market
Fund, which instruments are considered by CIGNA Investments 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
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futures contracts and purchase options on futures contracts as described under
"Futures Contracts" and "Options on Futures Contracts."
U.S. Government securities include a variety of securities that are issued or
guaranteed by the U.S. Treasury, by various agencies of the U.S. Treasury, by
various agencies of the U.S. Government or by various instrumentalities that
have been established or sponsored by the U.S. Government. Treasury securities
include Treasury bills, Treasury notes and Treasury bonds. Treasury bills have a
maturity of one year or less; Treasury notes have maturities of one to ten
years; Treasury bonds generally have a maturity of greater than ten years. The
Federal agencies established as instrumentalities of the U.S. Government to
supervise and finance certain types of activities include the Federal Home Loan
Banks, the Government National Mortgage Association, the Federal National
Mortgage Association, the Federal Land Banks, the Small Business Administration,
the Export-Import Bank, the Federal Intermediate Credit Banks and the Bank for
Cooperatives.
U.S. Government securities may take the form of participation interests in, and
may be evidenced by, deposit or safekeeping receipts. Participation interests
are pro rata interests in U.S. Government securities such as interests in pools
of mortgages sold by the Government National Mortgage Association; instruments
evidencing deposit or safekeeping are documentary receipts for such original
securities held in custody by others.
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,
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the purchaser of the warrant risks the loss of the entire purchase price of the
warrant.
Warrants generally trade in the open market and may be sold rather than
exercised. Warrants are sometimes sold in unit form with other securities of an
issuer. Units of warrants and common stock may be employed in financing
unseasoned companies. The purchase price varies with the security, the life of
the warrant and various other investment factors. Investments in warrants,
valued at the lower of cost or market, may not exceed 5% of the value of the
Fund's net assets.
Considerations of liquidity and preservation of capital mean that the Income
Fund may not necessarily invest in instruments paying the highest available
yield at a particular time. This Fund may, consistent with its investment
objective, attempt to maximize yields by buying and selling portfolio
investments in anticipation of or in response to changing economic and money
market conditions and trends. This Fund will also invest to take advantage of
what are believed to be temporary disparities in the yields of the different
segments of the market or among particular instruments within the same segment
of the market. These policies, as well as the relatively short maturity of
obligations to be held by this Fund, may result in frequent changes in portfolio
holdings. There usually are no brokerage commissions as such paid in connection
with the purchase of securities of the type in which this Fund may invest. See
"Brokerage Allocation" for a discussion of underwriters' commissions and
dealers' spreads involved in the purchase and sale of portfolio securities.
HIGH YIELD FUND
- ---------------
As noted in the prospectus, the High Yield 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 these 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 an
issuer's
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creditworthiness tend to occur more frequently and in a more pronounced manner
than do such changes with respect to higher quality segments of the fixed income
securities market, causing greater yield and price volatility. Commissions and
underwriting spreads associated with the purchase of high-yield, high risk bonds
are typically higher than those associated with the purchase of high grade
bonds.
The Fund may also invest in preferred stocks with yields that are attractive,
provided that such investments are otherwise consistent with the investment
objectives 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, CIGNA Investments 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 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.
HIGH YIELD FUND AND INCOME FUND: RISK FACTORS
- ----------------------------------------------
As noted in the prospectus, the High Yield Fund, and, to a lesser extent, the
Income Fund invest in debt securities of less than investment grade (i.e.,
securities rated Ba/BB or below by Moody's and S&P). Such securities are often
referred to as high yield or junk bonds and are typically considered "high risk"
securities. High yield bonds may be subject to certain risk factors to which
other securities are not subject to the same degree. An economic downturn tends
to disrupt the market for high yield bonds and adversely effect their values.
Such an economic downturn may be expected to result in increased price
volatility of high yield bonds and of the value of the Fund's shares, and an
increase in issuers' defaults on such bonds.
Also, issuers of high yield bonds are substantially leveraged, which may impair
their ability to meet their obligations. In some cases, the high yield
securities in which a Fund invest are subordinated to the prior payment of
senior indebtedness, thus potentially limiting
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the Fund's ability to recover full principal or to receive payments when senior
securities are in default. When the secondary market for high yield bonds
becomes increasingly illiquid, or in the absence of readily available market
quotations for high yield bonds, the relative lack of reliable, objective data
makes the responsibility of the Trustees to value the Fund's securities more
difficult, and judgement plays a greater role in the valuation of portfolio
securities. Also, increased illiquidity of the high yield bond market may affect
the Fund's ability to dispose of portfolio securities at a desirable price.
The credit rating of a security does not necessarily address its market value
risk. Also, ratings may from time to time, be changed to reflect developments in
the issuer's financial condition. High yield bonds have speculative
characteristics which are apt to increase in number and significance with each
lower rating category. Also, prices of high yield bonds have been found to be
less sensitive to interest rate changes and more sensitive to adverse economic
changes and individual corporate developments than more highly rated
investments.
Certain laws or regulations may have a material effect on the Fund's net asset
value and investment practices. For example, legislation requiring
federally-insured savings and loan associations to divest their investments in
high yield bonds may further adversely affect the
market for such bonds.
S&P INDEX FUND
- --------------
The S&P 500 Index Fund seeks long-term growth of capital by investing primarily
in common stocks. Realization of current income is an incidental consideration,
although it is hoped that growth in income will accompany growth in capital. The
portfolio of the Fund normally 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.
MATTERS RELATING TO ALL FUNDS
- -----------------------------
Except as described under "Fund Policies," the foregoing investment policies 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 "Fund Policies" 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.
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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.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. Each Fund 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). A Fund 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 a Fund may sell these securities before the settlement date if it is deemed
advisable.
Investment in securities on a when-issued or delayed delivery basis may increase
a Fund's exposure to market fluctuation and may increase the possibility that
the Fund will incur short-term gains subject to Federal taxation or short-term
losses if the Fund must engage in portfolio transactions in order to honor a
when-issued or delayed delivery commitment. In a delayed delivery transaction,
the Fund relies on the other party to complete the transaction. If the
transaction is not completed, the Fund may miss a price or yield considered to
be advantageous. A Fund will employ techniques designed to reduce such risks. If
the 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.
ILLIQUID SECURITIES. Each Fund may invest up to 15% (10% for the Money Market
Fund) of its net assets in securities that are illiquid. Illiquid securities
include securities that have no readily available market quotations and cannot
be disposed of promptly (within seven days) in the normal course of business at
approximately the price at which they are valued. Illiquid securities may
include securities that are subject to restrictions on resale because they have
not been registered under the Securities Act of 1933 (the "1933 Act").
Restricted securities may, in certain circumstances, be resold pursuant to Rule
144A under the 1933 Act, and thus may or may not constitute illiquid securities.
To the extent that qualified
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institutional buyers become uninterested in purchasing these restricted
securities the level of illiquidity in a Fund may increase. CIGNA Investments
determines the liquidity of the 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.
BORROWING. 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.
FUTURES CONTRACTS. A stock index assigns relative values to the common stocks
included in the index and the index fluctuates with changes in the market values
of the common stocks so included. A stock index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of the last trading day of the contract and
the price at which the futures contract is originally struck. There is no
physical delivery of the underlying stocks in the index.
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, and includes purchasing S&P
500 futures contracts pending investment in the S&P 500.
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 a fund owned long-term debt securities and
interest rates were expected to increase, it might sell interest rate futures
contracts. If, on the other hand, a fund held cash reserves and interest rates
were expected to decline, it might purchase interest rate futures contracts.
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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 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
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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 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 CIGNA
Investments' 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
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by CIGNA Investments 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 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, a Fund
holding securities denominated in currency other than U.S. dollars 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
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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 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.
Page 16
<PAGE>
Regardless of whether CIGNA Investments determines that it is advisable to hedge
a Fund's currency risk, the Funds will have to convert their holdings of foreign
currencies into U.S. dollars from time to time. Although foreign exchange
dealers generally do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies.
FORWARD CURRENCY CONTRACTS. A forward currency contract is an agreement between
two parties to purchase and sell a specific quantity of a currency at a price
specified at the time of the contract, with delivery and settlement at a
specified future date. In the case of purchases of forward currency contracts,
an amount of cash and cash equivalents, equal to the market value of the
portfolio security sold, will be deposited in a segregated account with the
Trust's Custodian to collateralize the position and ensure that the use of such
contracts is unleveraged.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a 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, a 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.
Page 17
<PAGE>
Loans and Other Direct Debt Instruments.
- ---------------------------------------
Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to each
Fund's policies regarding the quality of debt securities.
Purchaser of loans and other forms of direct indebtedness depend primarily upon
the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any NRSRO. If a Fund does not
receive scheduled interest or principal payments on such indebtedness, the
Fund's share price and yield could be adversely affected. Loans that are fully
secured offer a Fund more protections than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no assurance
that the liquidation of collateral from a secured loan would satisfy the
borrower's obligation, or that the collateral could be liquidated. Indebtedness
of borrowers whose creditworthiness is poor involves substantially greater risks
and may be highly speculative. Borrowers that are in bankruptcy or restructuring
may never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of developing countries also involves a risk
that the government entities responsible for the repayment of the debt may be
unable, or unwilling, to pay interest and repay principal when due.
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 CIGNA Investments' 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
Page 18
<PAGE>
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.
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 CIGNA Investments, Inc. to be of good standing. Furthermore,
they will only be made if, in CIGNA Investments, Inc.'s judgment, the
consideration to be earned from such loans would justify the risk.
CIGNA Investments 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
Page 19
<PAGE>
subjects that investment, as well as the security loaned, to market forces
(i.e., capital appreciation or depreciation).
SOVEREIGN DEBT OBLIGATIONS. A Fund may purchase sovereign debt instruments
issued or guaranteed by foreign governments or their agencies, including debt of
Latin American nations or other developing countries. Sovereign debt may be in
the form of conventional securities or other types of debt instruments such as
loans or loan participations. Sovereign debt of developing countries may involve
a high degree of risk, and may be in default or present the risk of default.
Governmental entities responsible for repayment of the debt may be unable or
unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as economic
factors.
FUND POLICIES
- -------------
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. Borrow money or issue senior securities except that a Fund may borrow to
the extent permitted by the 1940 Act for temporary or emergency purposes
to satisfy redemption requests.
2. 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.
3. Concentrate 25% or more of its total assets in a particular industry,
except the Money Market Fund may invest up to 100% of its assets in the
financial services industry.
4. Purchase or sell mortgages or real estate, or invest in real estate
limited partnerships, although a Fund may purchase securities of issuers
that deal in real estate and may purchase securities that are secured by
interests in real estate.
5. Lend any funds or other assets, except that a Fund may, consistent with
its investment objective and policies:
Page 20
<PAGE>
(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.
6. 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 U.S. Government
securities including securities issued by its agencies and
instrumentalities (or repurchase agreements with respect thereto).
7. 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.
In addition, a Fund may not change its investment objective without shareholder
approval.
TEMPORARY DEFENSIVE POSITION. While assuming a temporary defensive position, a
Fund may invest in the types of short-term fixed income investments number in
which the Money Market Fund may invest, and may also invest in the Money Market
Fund.
MANAGEMENT OF THE TRUST
- -----------------------
The Trust is managed by a Board of Trustees. The Trustees are responsible for
managing the Trust's business affairs and for exercising all of the Trust's
powers except those reserved for the shareholders.
The Trustees and the executive officers of the Trust are listed below, together
with information as to their principal occupations during the past five years
and other principal business affiliations. Each currently holds the equivalent
position as Trustee and/or officer of CIGNA High Income Shares, CIGNA
Institutional Funds Group and CIGNA Variable Products Group (except for Mr.
Forde, who is not a Trustee of 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, c/o CIGNA Investments, S-210, 900 Cottage Grove Road, Hartford, CT
06152-2210.
Page 21
<PAGE>
HUGH R. BEATH, 67, Trustee; Advisory Director, AdMedia Corporate Advisors, Inc.
(investment banking); previously Managing Director, Admedia Corporate Advisors,
Inc.; Chairman of the Board of Directors, Beath Advisors, Inc. (investment
advisor).
RICHARD H. FORDE*, 45, Trustee; Senior Managing Director and President of CIGNA
International Investment Advisors, Ltd.; Chairman of the Board and President,
CIGNA Funds Group and other investment companies in CIGNA Funds' complex. Mr.
Forde is also an officer or director of various other entities which are
subsidiaries or affiliates of CIGNA.
RUSSELL H. JONES, 54, Trustee; Vice President and Treasurer, Kaman Corporation
(helicopters and aircraft components, industrial products and services);
Trustee, Connecticut Policy and Economic Counsel; 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 (property and casualty
reinsurance).
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.
Page 22
<PAGE>
JEFFREY S. WINER, 41, 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.
*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 PricewaterhouseCoopers 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 CIGNA Investments, 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 Trust pays no compensation to any of its officers, other than the
reimbursement of the costs of the Office of the Treasurer and the Office of the
Secretary, or to any of their Trustees who are officers or employees of CIGNA
Corporation or its affiliates. The following table shows compensation paid by
the Trusts and other investment companies in the CIGNA fund complex to Trust
Trustees in 1998:
Page 23
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued As from Trust and
Aggregate Part of Estimated Annual CIGNA Fund
Name of Person, Compensation Trust Benefits Upon Complex Paid to
Position with Trust from Trust Expense Retirement Trustees(d)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. Bruce Albro, (a) $ - $ - $ - $ -
Hugh R. Beath, Trustee (b) - - - -
Richard H. Forde, Trustee, - - - -
Chairman and President
Russell H. Jones, Trustee - - - -
Thomas C. Jones, Trustee - - - -
Paul J. McDonald, Trustee (c) - - - -
------------- ------------- ------------- -------------
$ $ $ $
============= ============= ============= =============
</TABLE>
- ------------------------
(a) Mr. Albro retired from CIGNA Corporation and resigned from the Trust in
1998.
(b) All but $___of Mr. Beath's 1998 compensation was deferred under a plan
for all CIGNA funds in which he had an aggregate balance of $________ as
of December 31, 1998.
(c) All but $___of Mr. McDonald's 1998 compensation was deferred under a
plan for all CIGNA funds in which he had an aggregate balance of
$________ as of December 31, 1998.
(d) There were four (4) investment companies besides the Trust in the CIGNA
fund complex.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- ---------------------------------------------------
As of January 15, 1999, 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 ________, 1999, record and beneficial owners of five percent or more of
the shares of the Money Market Fund were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHAREHOLDER ADDRESS OWNERSHIP
<S> <C> <C>
CIGNA Health Plan of California 505 North Brand Blvd. ___%
Glendale CA 91205
CIGNA Community Choice (Arizona 11001 N. Black Canyon Highway ___%
corporation Phoenix, AZ 85029
</TABLE>
Page 24
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Healthsource North Carolina, Inc. 701 Corporate Center Drive ___%
Raleigh, NC 27607
Healthsource, Inc.(New Hampshire Two College Park Drive ___%
corporation) Hooksett, NH 03106
Healthsource, Preferred, Inc. 54 Regional Drive ___%
(New Hampshire corporation) Concord, NH 03301
</TABLE>
As of ________, 1999, owners of five percent or more of the shares of the S&P
500 Index Fund were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
SHAREHOLDER ADDRESS OF OWNERSHIP
<S> <C> <C>
Insurance Company of North Two Liberty Place _____%
America 1601 Chestnut St.
Philadelphia PA 19192
CIGNA Property and Casualty Two Liberty Place _____%
Insurance Company 1601 Chestnut St.
Philadelphia PA 19192
CIGNA Insurance Company Two Liberty Place _____%
1601 Chestnut St.
Philadelphia PA 19192
Pacific Employers Insurance Two Liberty Place _____%
Company 1601 Chestnut St.
Philadelphia PA 19192
</TABLE>
The Trustees and officers do not own any Fund shares. By virtue of owning more
than 25% of the shares of the Money Market Fund, CIGNA Healthplan of California
is deemed to control the Money Market Fund. This control does not affect the
voting rights of other Fund shareholders. CIGNA Healthplan of California is an
indirect, wholly owned subsidiary of CIGNA Corporation.
INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------
The investment adviser to the Fund is CIGNA Investments, an indirect,
wholly-owned subsidiary of CIGNA Corporation. CIGNA Investments 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. CIGNA Investments and other affiliates of CIGNA Corporation manage
combined assets of approximately $64 billion. CIGNA Investments's mailing
address is 900 Cottage Grove Road, Hartford, Connecticut 06152.
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<PAGE>
Pursuant to the Master Investment Advisory Agreements between the Trust and
CIGNA Investments, CIGNA Investments 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
Trust, CIGNA Investments determines what investments shall be purchased, held,
sold or exchanged for the account of the Fund. Accordingly, the role of the
Trustees is not to approve specific investments, but rather to exercise a
control and review function.
The Trust pays all expenses not specifically assumed by CIGNA Investments
including compensation and expenses of Trustees who are not Directors, officers
or employees of CIGNA Investments 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.
CIGNA Investments, at its own expense, furnishes to the Trust 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 Agreement, all
personnel for managing the affairs of the Trust and the Fund. The Trust and
other registered investment companies advised by CIGNA Investments have agreed
to reimburse CIGNA Investments 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. CIGNA Investments has estimated that
in 1999 the total expenses of the Office of the Treasurer for all funds in the
CIGNA fund complex will not exceed $________ and the expenses of the Office of
the Secretary are not expected to exceed $________. The portion of these
expenses allocated to each Fund for calendar year 1999 are not expected to
exceed the following amounts:
Office of Office of
the Treasurer the Secretary
------------- -------------
Money Market Fund $ - $ -
Income Fund $ - $ -
High Yield Fund $ - $ -
S&P 500 Index Fund $ - $ -
Page 26
<PAGE>
In 1998 the costs reimbursed by the Funds for the Office of the Treasurer and
the Office of the Secretary totaled $________($________ - Office of the
Treasurer; $________ - Office of the Secretary). 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 CIGNA Investments, 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 applicable Fund's average daily net assets. as follows:
Money Market Fund 0.35%
Income Fund 0.50%
High Yield Fund 0.75%
S&P 500 Index Fund 0.25%
Trust-wide expenses not identifiable to any particular series of the Trust will
be allocated among the series. CIGNA Investments has voluntarily agreed, until
April 30, 2000, to reimburse the 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) of the Fund exceed a percentage of the value of the
Fund's average daily net assets, as follows:
Institutional Retail Service
Class Class
------------- --------------
Money Market Fund .45% 1.00%
Income Fund .70%
High Yield Fund .90%
S&P 500 Index Fund .35%
CIGNA Money Market Fund (Institutional Class) incurred a management fee of
$_______________, $446,085 and $111,530 and $26,892 1998, in 199 and 1996,
respectively. However, due to the expense limitation, CIGNA Investments waived
$81,881 and $78,697 of this fee in 1998, 1997 and 1996.
CIGNA Income Fund (Institutional Class) incurred a management fee of $_________,
$5,773 and $5,465 in 1998, 1997 and 1996, respectively. However, due to the
expense limitation, CIGNA Investments waived these fees and reimbursed $_______,
$43,969 and $44,851 in 1998, 1997 and 1996, respectively.
CIGNA S&P 500 Index Fund (Institutional Class) incurred a management fee of
$_______ and $82,658 in 1998 and 1997, respectively. However, due to the expense
limitation, CII waived this fee and reimbursed $________ and $43,969 to the Fund
in 1998 and 1997.
Page 27
<PAGE>
The Master Investment Advisory Agreement provides that it will continue from
year to year as to the 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. The 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 series of the Trust, by vote of a majority of the
outstanding voting securities of that series, or (b) by CIGNA Investments upon
90 days' written notice to the Trust in the case of the Master Investment
Advisory Agreement and (ii) will automatically terminate in the event of its
"assignment" (as such term is defined in the 1940 Act).
Each Master Trust Agreement acknowledges CIGNA Corporation's control over the
name "CIGNA". The Trust and the Fund would be obliged to change their names to
eliminate the word "CIGNA" (to the extent they could lawfully do so) in the
event CIGNA Corporation were to withdraw its permission for use of such name.
CIGNA Corporation has agreed not to withdraw such permission from the Trust or a
series of the Trust so long as an affiliate of CIGNA Corporation shall be the
investment adviser for such series.
UNDERWRITER
- -----------
CIGNA Financial Services ("CFS") serves as the Trusts' distributor pursuant to a
distribution contract which is subject to annual approval by the Board of
Trustees. CFS is an indirect, wholly-owned subsidiary of CIGNA Corporation and,
along with CIGNA Investments, is under the control of CIGNA Corporation. CFS's
address is One Commercial Plaza, Hartford, CT 06103. The distribution contract
is terminable 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
contract, CFS continuously offers Fund shares. CFS received no compensation for
distributing Fund shares in 1998.
The Money Market Fund, on behalf of its Retail Service class, has adopted a plan
under rule 12b-1 of the 1940 Act. The plan was adopted in October 1998 and
activities for which payment will be made under the plan will begin in 1999.
Under the terms of the 12b-1 plan, the Fund is authorized to pay shareholder
service and distribution expenses at the annual rate of up to .35% of the
average daily net assets of the Retail Service class of the Fund during the
period. A portion of the fees payable under the 12b-1 plan (0.25% of Retail
Service class assets per annum) is designated as fees for providing shareholder
services. The balance (up to 0.10% of Retail Service class assets per annum) may
be used to reimburse CFS for expenses and costs associated with activities
primarily intended to result
Page 28
<PAGE>
in the sale of Retail Service class shares. These costs and expenses may include
those associated with CFS employees.
All of the Funds, on behalf of the ________ class, have adopted a plan under
rule 12b-1. The plan was adopted in ___________, 1999 and activities for which
payment will be made under the plan will begin in 1999. Under the terms of the
12b-1 plan, each Fund is authorized to pay shareholder service and distribution
expenses of the annual rate of 1.00% (______% for the Money Market Fund) of the
average daily Net Assets of the ____ class of each Fund during the period. A
portion of these fees (0.25% of ____ class assets per annum) is designated as
fees for providing shareholder services. The balance of (0.75%, ____% for the
Money Market Fund) of ___ class assets per annum) compensates CFS for
distributing the ___ class.
The principal types of shareholder service activities that providers will
furnish under the plans include receiving, aggregating, and processing
shareholder or beneficial owner orders; providing and maintaining retirement
account and other records; communicating periodically with shareholders; acting
as the sole shareholder of record and nominee for shareholders; answering
questions and handling correspondence from shareholders about their accounts;
and performing similar account administration services.
The principal types of distribution activities that providers will furnish under
the plan for the Retail Service Class are answering telephone inquiries and
processing request for information; formulating and implementing marketing and
promotional activities; printing and distributing prospectuses to prospective
shareholders, and other activities primarily intended to result in the sale of
Retail Service class shares.
The Funds anticipates that the plans will result in increased sales of Fund
shares and an increase in the amount of assets in the Funds, permitting various
Fund expenses (such as custodian fees, audit and legal fees, trustee fees) to be
spread across a larger shareholder base and amount of assets, permitting greater
economies of scale.
Continuance of a plan is subject to annual approval by a vote of the Trustees,
including a majority of the Trustees who are not interested persons of the Funds
and who have do direct or indirect interest in the plan or related arrangements
(the "Qualified Trustees"), cast in person at a meeting called for that purpose.
All material amendments to a plan must be likewise approved by the Trustees and
the Qualified Trustees. No plan may be amended in order to increase materially
the costs which the Funds may bear for distribution pursuant to such plan
without also being approved by a majority of the outstanding voting securities
of the fund or the relevant class of the fund, as the case may be. A plan
terminates automatically in the event of its assignment and may be terminated
without penalty, at any time, by a vote of a majority of the Qualified Trustees
or
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by a vote of a majority of the outstanding voting securities of the Funds or the
relevant class of the Funds, as the case may be.
CUSTODIAN AND TRANSFER AGENT
- ----------------------------
The Trust's 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.
INDEPENDENT ACCOUNTANTS
- -----------------------
PricewaterhouseCoopers LLP acts as independent accountant for the Trust. Its
offices are at 160 Federal Street, Boston, Massachusetts 02110.
PricewaterhouseCoopers LLP representatives annually perform an audit of the
financial statements of the Trust's series and provide accounting advice and
services throughout the year. PricewaterhouseCoopers LLP reports its activities
and the results of its audit to the Audit Committee of the Board of Trustees.
PricewaterhouseCoopers LLP also provides certain tax advice to the Trust.
BROKERAGE ALLOCATION AND OTHER PRACTICES
- ----------------------------------------
With respect to Fund transactions, it is the policy of CIGNA Investments on
behalf of its clients, including the Fund, 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, CIGNA Investments will select brokers/dealers on the
basis of their professional capability and the value and quality of their
brokerage services. Brokerage services include the ability to execute most
effectively large orders without adversely affecting markets and the positioning
of securities in order to effect orderly sales for clients.
The officers of CIGNA Investments 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 CIGNA
Investments 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 CIGNA Investments' overall
responsibilities to the client
Page 30
<PAGE>
for whose account such portfolio transaction is executed and other accounts
advised by CIGNA Investments or accounts advised by other investment advisers
which are related persons of CIGNA Investments.
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.
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 CIGNA
Investments 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 CIGNA Investments,
and not all such services are necessarily used by CIGNA Investments in
connection with the specific account that paid commissions to the broker/dealer
providing such services.
The overall reasonableness of brokerage commissions paid is evaluated
continually. Such evaluation includes review of what competing brokers/dealers
are willing to charge for similar types of services and what discounts are being
granted by brokerage firms. The evaluation also considers the timeliness and
accuracy of the research received.
In addition, CIGNA Investments 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 CIGNA
Investments' 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, CIGNA Investments allocates the cost of the product on a
basis which they deem reasonable, according to the various uses of the product,
and maintains 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. CIGNA Investments 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. Neither the Income Fund nor the Money
Market Fund paid brokerage commissions in 1998, 1997 or 1996. During 1998 and
1997, the S&P 500 Index Fund paid $____________ and $37,741 in commissions,
substantially all of which was paid to firms which provide research services to
CIGNA Investments.
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<PAGE>
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 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 CIGNA Investments 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 CIGNA Investments utilize an affiliated broker or
dealer in effecting Fund portfolio transactions and do not recapture commissions
paid in such transactions.
CAPITAL STOCK
- -------------
The capitalization of the Trust consists solely of an unlimited number of shares
of beneficial interest with a par value of $0.001 each.
The Institutional, Retail Service, and ___________ class of the Funds represent
interests in each 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
____________ class and the Retail Service class have exclusive voting rights on
matters pertaining to their distribution plans.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Trust's 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. The Master Trust
Agreement provides for indemnification out of Trust property for all loss and
expense of any shareholder held personally liable for the
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<PAGE>
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.
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 other series of the Trust. On any matter
submitted to a vote of shareholders of the Trust, all shares of the Trust then
issued and outstanding shall be voted in the aggregate. However, on matters
affecting an individual series or class of shares, a separate vote of
shareholders of that series or class would be required. Shareholders of a series
or class would not be entitled to vote on any matter which does not affect that
series or class but which would require a separate vote of another series or
class.
When issued, shares of the Funds 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 the 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.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES
- ----------------------------------------------
Shares of the Funds are sold on a continuous basis without any initial sales
charge at the Fund's net asset value per share. ___ class shares are sold
subject to a contingent deferred sales charges as described in the prospectus
for shares of that class. The Funds do not issue share certificates.
RETIREMENT AND SAVINGS PLAN PARTICIPANTS. The Funds may be available as an
investment option 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 Fund as an investment option.
BROKERAGE ACCOUNT PURCHASES. All investors other than affiliates of CIGNA
Corporation or employer sponsored retirement or savings plan participants must
purchase shares through CFS, the Fund's underwriter, or a dealer who has entered
into a dealer agreement with CFS. Orders placed through a 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.
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<PAGE>
The Fund reserves the right to revise its redemption procedures on 30-days'
notice. The 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 a Fund not
reasonably practicable.
PRICING. Each 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.
The investments of the Money Market Fund are 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.
The valuation of the investments of the Money Market Fund at amortized cost is
permitted by the Securities and Exchange Commission, and the Fund is required to
adhere to certain conditions so long as they use this valuation method. The
Money Market Fund 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
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<PAGE>
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.
TAX MATTERS
- -----------
All shareholders should consult a qualified tax adviser regarding their
investment in a Fund.
The 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
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, the 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. The 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
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<PAGE>
as long as the Fund pays the dividends no later than January of the following
year.
Section 1092 of the Code affects the taxation of certain transactions involving
futures or options contracts. If a futures or options contract is part of a
"straddle" (which could include another futures or options contract or
underlying stock or securities), as defined in Section 1092 of the Code, then,
generally, losses are deferred first, to the extent that the modified "wash
sale" rules of the Section 1092 regulations apply, and second to the extent of
unrecognized gains on offsetting positions. Further, a fund may be required to
capitalize, rather than deduct currently, any interest expense on indebtedness
incurred or continued to purchase or carry any positions that are part of a
straddle. Sections 1092 and 246 of the Code and the Regulations thereunder also
suspend the holding periods for straddle positions with possible adverse effects
regarding long-term capital gain treatment and the corporate dividends-received
deduction. In certain cases, the "wash sale" rules of Section 1091 of the Code
may operate to defer deductions for losses.
Section 1256 of the Code generally requires that certain futures and options be
"marked-to-market" at the end of each year for FIT purposes. Section 1256
further characterizes 60% of any gain or loss with respect to such futures and
options as long-term capital gain or loss and 40% as short-term capital gain or
loss. If such a future or option is held as an offsetting position and can be
considered a straddle under Section 1092 of the Code such a straddle will
constitute a mixed straddle. A mixed straddle will be subject to both Section
1256 and Section 1092 unless certain elections are made by the Fund.
Upon a sale or redemption of Fund shares, a shareholder who is not a dealer in
securities will realize gain or loss which will be treated 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.
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<PAGE>
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 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)
Page 37
<PAGE>
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.
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).
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<PAGE>
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 (institutional
class), for the 1, 5 and 10 year periods (or since inception, if shorter) ended
December 31, 1998, were as follows:
Periods ended December 31, 1998
-------------------------------
1 Year 5 Years 10 Years
------ ------- --------
Income Fund...................... ____% ____% ____%
Money Market Fund................ ____% ____% ____%
S&P 500 Index Fund**............. ____%
*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 Money Market
Fund, 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.
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<PAGE>
The yield for Income Fund was as follows:
30 Days ended December 31, 1998
-------------------------------
Income Fund..................................................._____%
The standard formula for calculating annualized yield for the 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, 1998 was ___%.
The standard formula for calculating effective annualized yield for the 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, 1998 was ___%.
For the purpose of the annualized yield and effective annualized yield, the net
change in the value of the hypothetical 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
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<PAGE>
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.
FINANCIAL STATEMENTS
- --------------------
The following Financial Statements are incorporated by reference from the Annual
Report to Shareholders of the Funds for the year ended December 31, 1998 and
filed electronically with the Securities and Exchange Commission on Form N-30D
on ________, 1999:
Investments In Securities, December 31, 1998
Statement of Assets and Liabilities, December 31, 1998
Statement of Operations, For the Period Ended December 31, 1998
Statement of Changes in Net Assets, For the Period Ended
December 31, 1998
Statement of Changes in Net Assets, For the Year Ended
December 31, 1997
Notes to Financial Statements
Report of Independent Accountants
Page 41
<PAGE>
REGISTRATION STATEMENT
ON
FORM N-1A
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
- -----------------
a. Second Amended and Restated Master Trust Agreement of
Registrant dated July 28, 1998, incorporated by reference to
Post-Effective Amendment No. 57 to Registration Statement
filed electronically October 2, 1998.
b. 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.
c. Relative to the rights of shareholders, Article IV and Article
V of Registrant's Second Amended and Restated Master Trust
Agreement dated July 28, 1998 as hereinbefore incorporated by
reference as Exhibit a.
c. (i) Relative to the rights of shareholders, Article 9 of the
Amended and Restated By-Laws of Registrant dated April 29,
1997 as hereinbefore incorporated by reference as Exhibit b.
d. 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.
e. The Distribution Agreement dated as of December 1, 1997
between CIGNA Funds Group and CIGNA Financial Services, Inc.,
incorporated by reference to Post-Effective Amendment No. 56
to Registrant's Registration Statement filed electronically
April 30, 1998.
f. None.
* g. 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.
* g. (i) The Custodian Fee Schedule Effective January 1, 1999 relative
to the Custodian Contract hereinbefore filed as Exhibit g.
g. (ii) 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.
h. The Transfer Agency and Service Agreement dated as of July 30,
1985 between CIGNA Annuity Funds Group (n/k/a CIGNA Funds
Group) and State Street Bank and Trust Company, incorporated
by reference to Post-Effective Amendment No. 56 to
Registrant's Registration Statement filed electronically April
30, 1998.
* h. (i) The Transfer Agent Operations Fee Schedule For CIGNA Money
Market Fund Effective January 1, 1999 relative to the Transfer
Agency and Service Agreement hereinbefore filed as Exhibit h.
C-1
<PAGE>
h. (ii) 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.
h. (iii) The Agreement For Use Of The Term "CIGNA" dated April 30, 1985
between CIGNA Annuity Funds Group (n/k/a CIGNA Funds Group)
and CIGNA Corporation, incorporated by reference to Post-
Effective Amendment No. 56 to Registrant's Registration
Statement filed electronically April 30, 1998.
h. (iv) 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.
h. (v) Form of Shareholder Services Plan between CIGNA Funds Group
and CIGNA Financial Services, Inc., incorporated by reference
to Post-Effective Amendment No. 56 to Registrant's
Registration Statement filed electronically April 30, 1998.
h. (vi) Form of Sub-Accounting Services Agreement For The Retail
Service Class of CIGNA Money Market Fund (A Series of CIGNA
Funds Group), incorporated by reference to Post-Effective
Amendment No. 58 to Registrant's Registration Statement filed
electronically December 2, 1998.
* h. (vii) Powers of Attorney.
i. Consent of Counsel, to be filed by amendment.
j. Consent of PricewaterhouseCoopers LLP, to be filed by
amendment.
k. None.
l. None.
m. Rule 12b-1 Plan of CIGNA Money Market Fund (A Series of CIGNA
Funds Group) dated as of October 27, 1998, incorporated by
reference to Post-Effective Amendment No. 58 to Registrant's
Registration Statement filed electronically December 2, 1998.
m. (i) Rule 12b-1 Plan of CIGNA Funds Group, to be filed by
amendment.
n. Financial Data Schedule, to be filed by amendment.
o. 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.
o. (i) Amendment to Dual Class Plan Pursuant to Rule 18f-3 For
CIGNA Funds Group dated as of October 27, 1998, incorporated
by reference to Post-Effective Amendment No. 58 to
Registrant's Registration Statement filed electronically
December 2, 1998.
o. (ii) Multi Class Plan Pursuant to Rule 18f-3 for CIGNA Money Market
Fund dated as of October 27, 1998, incorporated by reference
to Post-Effective Amendment No. 58 to Registrant's
Registration Statement filed electronically December 2, 1998.
o. (iii) Multi Class Plan Pursuant to Rule 18f-3 for CIGNA Funds Group,
to be filed by amendment.
- -------------------------
* Filed Herewith.
C-2
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
- --------------------------------------------------------------------
No person is directly or indirectly controlled by or under common control with
CIGNA Funds Group.
ITEM 25. INDEMNIFICATION.
- ------------------------
The Second Amended and Restated Master Trust Agreement, dated July 28, 1998 (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 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
- -----------------------------------------------------------------
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 (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 - 100 Front Street, Suite
300, Worcester, Massachusetts 01601
IIS - Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania
19192
C-3
<PAGE>
Substantial business and other connections of the Directors and officers during
the past two fiscal years are listed below:
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.* and CIGNA
Financial Futures, 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.
Mary Louise Casey Senior Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*; Director
Global Portfolio Strategies, 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.**;
Chairman of the Board, President and Trustee
CIGNA Funds Group, CIGNA High Income Shares,
CIGNA Institutional Funds Group and INA
Investment Securities, Inc.; President CIGNA
Variable Products 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.*
Kevin D. Barry Managing Director, CII.
Julia B. Bazenas Managing Director, CII.
Marguerite A. Boslaugh Managing Director, CII.
Susan B. Bosworth Managing Director, CII.
C-4
<PAGE>
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 CIGNA International
Investment Advisors, Ltd.**; previously Vice
President, CII and CIGNA International
Investment Advisors, Ltd.**
Richard H. Chase Managing Director, CII.
Rosemary C. Clarke Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Rosemary S. Cleaves Managing Director, CII; previously President
and Director, Global Portfolio Strategies,
Inc.*
Dorothy Cunningham Managing Director, 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.*
David R. Johnson Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
C-5
<PAGE>
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.*
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.
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.
Henry C. Wagner, III Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*; President, CIGNA
Financial Futures, Inc.*; previously Vice
President, CII.
Deborah B. Wiacek Managing Director, CII; previously Vice
President, CII.
C-6
<PAGE>
Stephen H. Wilson Managing Director, CII.
Victor E. Saliterman Senior Vice President, CII.
Jean M. Anderson Vice President, CII.
Thomas P. Au Vice President, CII.
Andrew Brown 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.
C-7
<PAGE>
Thomas W. Johnson Vice President, CII.
Thomas J. Keene Vice President, CII.
Joseph R. Kennedy Vice President, CII.
Peter K. Kofoed Vice President, CII.
Mark S. Korinek Vice President, CII.
James R. Lagasse Vice President, CII.
Mary S. Law Vice President, CII.
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 Raghavan 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.
C-8
<PAGE>
Annette Sanderson Vice President, CII.
Kevin W. Schmitt Vice President, CII.
John R. Schumann Vice President, CII.
Thomas P. Shea, III Vice President, CII.
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. Van Winkle Vice President, CII and CIGNA Investment
Advisory Company, 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.
Susan L. Cooper Secretary, CII, CIGNA Investment Advisory
Company*, CG Trust Company* and Global
Portfolio Strategies, Inc.*; previously
Counsel, Robinson, Donovan, Madden & Barry,
P.C., Springfield, Massachusetts.
ITEM 27. 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
December 18, 1998 are:
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 --------
- ---------------------
* 900 Cottage Grove Road, Bloomfield, CT
** Park House, 16 Finsbury Circus, London, England
C-9
<PAGE>
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 --------
Marie C. Bynum Assistant Treasurer --------
Joy B. Erickson Assistant Compliance Officer --------
Alan F. Monbaron Assistant Compliance Officer --------
(c) Not Applicable
ITEM 28. 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 29. MANAGEMENT SERVICES.
- -----------------------------
None.
ITEM 30. UNDERTAKINGS.
- ----------------------
Not Applicable.
- -------------------------
* 900 Cottage Grove Road, Bloomfield, CT
C-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, Registrant, CIGNA Funds Group has
duly caused this Amendment No. 59 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
19th day of January, 1999.
CIGNA Funds Group
Richard H. Forde
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, as amended, this
Amendment No. 59 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
Richard H. Forde Chairman of January 19, 1999.
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 Treasurer January 19, 1999.
____________________________ (principal
Alfred A. Bingham III 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.
Hugh R. Beath Thomas C. Jones
Richard H. Forde Paul J. McDonald
Russell H. Jones
By: /s/ Jeffrey S. Winer January 19, 1999.
____________________________
Jeffrey S. Winer
C-11
<PAGE>
SECURITIES ACT FILE NO. 2-29020
INVESTMENT COMPANY ACT FILE NO. 811-1646
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
_
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | |
-
_
Pre-Effective Amendment | |
-
_
Post-Effective Amendment No. 59 |X|
-
and
_
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | |
-
_
Amendment No. 59 |X|
-
CIGNA FUNDS GROUP
(Exact Name of Registrant as Specified in Charter)
100 FRONT STREET, SUITE 300, WORCESTER, MA 01601
(Address of Principal Executive Office)
EXHIBITS
<PAGE>
EXHIBIT INDEX
g. 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.
g. (i) The Custodian Fee Schedule Effective January 1, 1999
relative to the Custodian Contract
hereinbefore filed as Exhibit g.
h. (i) The Transfer Agent Operations Fee Schedule For
CIGNA Money Market Fund Effective January 1, 1999
relative to the Transfer Agency and Service Agreement
as hereinbefore filed as Exhibit h.
h. (vii) Powers of Attorney.
<PAGE>
Exhibit (g)
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>
Exhibit g(i)
STATE STREET BANK
CUSTODIAN FEE SCHEDULE
CIGNA FUNDS
EFFECTIVE JANUARY 1, 1999
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
balances. 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 and
Fund Net Assets 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 ONE TO
THREE MONTHS.
** 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 UK Switzerland Sweden Mexico
- ----------------------------------------------------------------------------------------------------------
Philippines
- ----------------------------------------------------------------------------------------------------------
Turkey
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
USA Group I Group II Group III Group IV Group V Group
VI
===========================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
First $50 mil 3.0 7.0 9.0 11.0 14.0 20.0 30.0
-------------------------------------------------------------------------------------------
Next $50 mil 2.0 6.0 8.0 10.0 13.0 18.0 30.0
-------------------------------------------------------------------------------------------
Over $100 mil 1.0 5.0 7.0 8.0 11.0 11.0 30.0
-------------------------------------------------------------------------------------------
B. Transaction Charges (US dollars):
-------------------
</TABLE>
<TABLE>
<CAPTION>
=======================================================================================================================
USA Group I Group II Group III Group IV Group V Group VI
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
See itemized $30 $60 $75 $100 $125 *Greece/20 basis points
fee schedule per settlement , minimum
$10.00;
Portugal/*Turkey
Turkey/.50 per security
settled; max/$7,500,
min/$250
- -----------------------------------------------------------------------------------------------------------------------
Canada Austria Australia Argentina Indonesia
- -----------------------------------------------------------------------------------------------------------------------
Euroclear Chile Brazil Belgium Philippines
- -----------------------------------------------------------------------------------------------------------------------
Germany Hong Kong Ireland Denmark
- -----------------------------------------------------------------------------------------------------------------------
Japan Italy Mexico Finland
- -----------------------------------------------------------------------------------------------------------------------
Netherlands Spain France
- -----------------------------------------------------------------------------------------------------------------------
Switzerland Sweden New Zealand
- -----------------------------------------------------------------------------------------------------------------------
UK Thailand Norway
- -----------------------------------------------------------------------------------------------------------------------
Singapore
- ------------------------------------------------------------------------------------------------------------------------
</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 trades $10.00
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
------------
Monitor calls and process coupons - for each coupon issue
held - monthly charge $ 5.00
<PAGE>
VIII HOLDING 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
Subcustodian 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 Funds Group
- -----------------
CIGNA Money Market Fund
CIGNA S&P 500 Index Fund
CIGNA Income Fund
*CIGNA Government Obligations Cash Fund
*CIGNA Government Securities Fund
*CIGNA Treasury Obligations Cash Fund
*CIGNA High Yield Fund
CIGNA Variable Products Group
- -----------------------------
CIGNA Variable Products S&P 500 Index Fund
CIGNA Variable Products Money Market Fund
*CIGNA Variable Products Income Fund
*CIGNA Variable Products Intermediate Bond Index Fund
*CIGNA Variable Products Long-Term Bond Index Fund
*CIGNA Variable Products Utility Index Fund
*CIGNA Variable Products REIT Index Fund
*CIGNA Variable Products Small Cap Index Fund
*CIGNA Variable Products International Index Fund
*CIGNA Variable Products Emerging Markets Index Fund
*CIGNA Variable Products High Yield Fund
*CIGNA Variable Products International Stock Fund
INA Investment Securities, Inc.
CIGNA High Income Shares
Copies of the Master Trust Agreements establishing CIGNA Institutional Funds
Group, CIGNA 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 the 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.
This Custodian Fee Schedule supersedes all prior fee schedules.
For each of the above:
CIGNA FUNDS STATE STREET BANK AND TRUST COMPANY.
By: /s/ Alfred A. Bingham III By: /s/ James M. Curran
----------------------------- ------------------------------
Title: Vice President & Treasurer Title: Vice President
----------------------------- ------------------------------
Date: 12/16/98 Date: 12-18-98
----------------------------- ------------------------------
*Not active as of January 1, 1999
<PAGE>
Exhibit h(i)
STATE STREET BANK AND TRUST COMPANY
-----------------------------------
TRANSFER AGENT OPERATIONS FEE SCHEDULE
--------------------------------------
FOR
---
CIGNA MONEY MARKET FUND (THE "FUND")
------------------------------------
EFFECTIVE JANUARY 1, 1999
- --------------------------------------------------------------------------------
I. ACCOUNT SERVICE FEE
- --------------------------------------------------------------------------------
MONTHLY MAINTENANCE FEE
1 - 25 Shareholder Accounts $ 500.00
26 - 50 Shareholder Accounts $ 750.00
51 - 75 Shareholder Accounts $ 1,000.00
76 - 100 Shareholder Accounts $ 1,500.00
101 - 150 Shareholder Accounts $ 2,000.00
151 - 200 Shareholder Accounts $ 2,500.00
- --------------------------------------------------------------------------------
II. ACTIVITY BASED FEES
- --------------------------------------------------------------------------------
TRADE PROCESSING (PER TRADE)
All transactions including purchases, redemptions, exchanges, transfers, and
dividends:
MANUAL $1.20
AUTOMATED $0.00
- --------------------------------------------------------------------------------
III. OUT OF POCKET EXPENSES
- --------------------------------------------------------------------------------
Out of pocket expenses include, but are not limited to: Custom system
enhancements, telecommunication charges, mailing costs, and expenses incurred at
the specific direction of the Fund.
- --------------------------------------------------------------------------------
IV. AUTHORIZATION
- --------------------------------------------------------------------------------
Copies of the Master Trust Agreement establishing CIGNA Funds Group (the
"Trust") is 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, agents or any subsequent series of
the Trust,
<PAGE>
either individually or collectively, but are binding only upon the assets or
property of the series of the Trust listed above.
This Fee Schedule supersedes the Fee Schedule and Summary Description of
Services dated February 7, 1992 as to CIGNA Money Market Fund.
CIGNA Funds Group,
on behalf of
CIGNA Money Market Fund State Street Bank and Trust Company
By: /s/ Alfred A. Bingham III By: /s/ James M. Curran
--------------------------------- -----------------------------------
Title: Vice President & Treasurer Title: Vice President
------------------------------ --------------------------------
Date: 12/16/98 Date: 12-18-98
------------------------------- ---------------------------------
<PAGE>
Exhibit h(vii)
CIGNA FUNDS GROUP
CIGNA INSTITUTIONAL FUNDS GROUP
CIGNA VARIABLE PRODUCTS GROUP
POWER OF ATTORNEY
The undersigned hereby appoints 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 1st day of December, 1998.
/s/ Richard H. Forde
--------------------------------------
Richard H. Forde
Chairman of the Board, President and
Trustee
CIGNA Funds Group
CIGNA Institutional Funds Group
/s/ Richard H. Forde
--------------------------------------
Richard H. Forde
President
CIGNA Variable Products Group
<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
