<PAGE>
SECURITIES ACT FILE NO. 33-20333
INVESTMENT COMPANY ACT FILE NO. 811-5480
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE ___
SECURITIES ACT OF 1933 ___
___
Pre-Effective Amendment No. _____ ___
___
Post-Effective Amendment No. 10 X
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and/or
REGISTRATION STATEMENT UNDER THE ___
INVESTMENT COMPANY ACT OF 1940 ___
___
Amendment No. 10 X
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(Check appropriate box or boxes.)
CIGNA VARIABLE PRODUCTS GROUP
(Exact name of Registrant as specified in charter)
1380 Main Street, Springfield, Massachusetts 01103
(Address of principal executive offices)
Registrant's telephone number, including area code (800) 528-6718
Alfred A. Bingham III, One Financial Plaza, 1380 Main Street
Springfield, Massachusetts 01103
(Name and address of agent for service)
_________________________
Approximate date of proposed public offering: Continuous
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It is proposed that this filing will become effective (check appropriate box):
___
___ Immediately upon filing pursuant to paragraph (b)
___
_X_ on January 2, 1996, pursuant to paragraph (b)
___
___ 60 days after filing pursuant to paragraph (a)(1)
___
___ on (date) pursuant to paragraph (a)(1)
___
___ 75 days after filing pursuant to paragraph (a)(2)
___
___ on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
___
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
_________________________
DECLARATION PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940
Registrant hereby declares pursuant to Rule 24f-2(a)(1) under the Investment
Company Act of 1940 that Registrant has registered an indefinite number of
shares and has paid the registration fee appropriate thereto. The Rule 24f-2
Notice for the most recent fiscal year of Registrant was filed on February 23,
1995. _________________________
<PAGE>
COMPANION FUND
CROSS-REFERENCE SHEET
Showing the Location in the Prospectus and the Statement of
Additional Information (Part A and Part B) of Information
Required by Form N-1A
PART A
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
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<S> <C>
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Financial Highlights
Information
4. General Description of About the Funds; Investment Programs
Registrant
5. Management of the Fund Management of the Funds; The Trust, Its
Shares and Board of Trustees
6. Capital Stock and Other Distribution of Dividends and Capital
Securities Gains; Tax Matters; The Trust, Its
Shares and Board of Trustees
7. Purchase of Securities Being Eligible Purchasers; Purchase and
Offered Redemption of Fund Shares; Computation
of Net Asset Value
8. Redemption or Repurchase Purchase and Redemption of Fund Shares
9. Legal Proceedings Not Applicable
</TABLE>
PART B
<TABLE>
<CAPTION>
Statement Of Additional
Form N-1A Item Information Caption
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<S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information General Information about the Funds
and History
13. Investment Objectives Investment Objective and Policies;
and Policies Investment Restrictions; Futures
Contracts; Options On Futures Contracts;
Risks as to Futures Contracts and Related
Options
14. Management of the Fund Management of the Funds
15. Control Persons and Principal Control Persons and Principal
Holders of Securities Holders of Securities
</TABLE>
<PAGE>
<TABLE>
<S> <C>
16. Investment Advisory and Other Investment Advisory and Other Services
Services
17. Brokerage Allocation Portfolio Turnover and Brokerage
Allocation
18. Capital Stock and Other Not Applicable
Securities
19. Purchase, Redemption and Purchase, Redemption and
Pricing of Securities Pricing of Securities;
Being Offered Limitation on Transfers
20. Tax Status Tax Matters
21. Underwriters Not Applicable
22. Calculation of Performance Performance Information
Data
23. Financial Statements Incorporated by Reference
</TABLE>
<PAGE>
CIGNA VARIABLE PRODUCTS GROUP
PROSPECTUS
JANUARY 2, 1996
CIGNA VARIABLE PRODUCTS HIGH YIELD FUND
CIGNA VARIABLE PRODUCTS INCOME FUND
CIGNA VARIABLE PRODUCTS INTERNATIONAL STOCK FUND
CIGNA VARIABLE PRODUCTS MONEY MARKET FUND
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND
This Prospectus contains information about the five mutual funds listed above
(the "Funds") which are separate series portfolios of CIGNA Variable Products
Group (the "Trust"), a Massachusetts business trust. Each Fund has distinct
investment objectives and policies. The investment objectives of each Fund are
listed on the inside cover page.
Shares of the Funds are available and are being marketed exclusively as pooled
funding vehicles for life insurance companies writing variable annuity contracts
and variable life insurance contracts ("Variable Contracts") and for qualified
retirement and pension plans ("Qualified Plans").
This prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Additional information
about the Funds, contained in a Statement of Additional Information dated
January 2, 1996, has been filed with the Securities and Exchange Commission and
is available upon request without charge by writing to the Funds at 1380 Main
Street, Springfield, Massachusetts 01103. The Funds' telephone number is (860)
726-3700. The Statement of Additional Information is incorporated by reference
into this prospectus. The Statement of Additional Information is not a
prospectus.
- ---------------------------------------------------------------------------
Please read this prospectus and retain it for future reference.
THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE FUNDS' SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. SHARES OF THE FUNDS INVOLVE INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
CIGNA VARIABLE PRODUCTS HIGH YIELD FUND MAY INVEST UP TO 100% OF ITS NET ASSETS
IN NON-INVESTMENT GRADE DEBT SECURITIES, COMMONLY REFERRED TO AS "JUNK BONDS."
JUNK BONDS ARE CONSIDERED TO BE SPECULATIVE, AND ENTAIL GREATER RISKS, INCLUDING
DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED SECURITIES. PURCHASERS SHOULD
CAREFULLY CONSIDER THE RISKS ASSOCIATED WITH AN INVESTMENT IN THIS FUND PRIOR TO
INVESTING. SEE "INVESTMENT PROGRAMS - CIGNA VARIABLE PRODUCTS HIGH YIELD FUND."
CIGNA VARIABLE PRODUCTS MONEY MARKET FUND SEEKS TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE. HOWEVER, THERE CAN BE NO ASSURANCE THAT THE MONEY
MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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1
<PAGE>
INVESTMENT OBJECTIVES
The investment objectives of the Funds are as follows:
CIGNA VARIABLE PRODUCTS HIGH YIELD FUND: To provide the highest current income
attainable consistent with reasonable risk through investment primarily in high
yield, high risk non-investment grade fixed income securities.
CIGNA VARIABLE PRODUCTS 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 fixed rate investment grade corporate debt securities and
U.S. Government securities.
CIGNA VARIABLE PRODUCTS INTERNATIONAL STOCK FUND: To provide long-term growth
of capital by investing primarily in common stocks, preferred stocks and
convertible debt of companies based outside the United States.
CIGNA VARIABLE PRODUCTS MONEY MARKET FUND: To provide as high a level of
current income as is consistent with the preservation of capital and liquidity
and the maintenance of a stable $1.00 per share net asset value by investing in
short-term money market instruments.
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND: To provide long-term growth of
capital by investing principally in common stocks.
Each Fund pursues its investment objective through separate investment policies,
and is managed separately by the investment adviser. The investment objective(s)
of each Fund are deemed to be fundamental policies which may not be changed
without the approval of a majority of the Fund's outstanding shares (within the
meaning of the Investment Company Act of 1940 (the "1940 Act")). Further
information is available in the Statement of Additional Information. There are
risks in the ownership of any security and no assurance can be given that any
particular Fund will achieve its investment objective.
2
<PAGE>
CIGNA VARIABLE PRODUCTS GROUP
SUMMARY
The Trust is an open-end, diversified management investment company offering a
selection of investment vehicles for insurance companies issuing variable
annuity and variable life insurance contracts and for Qualified Plans.
Each Fund has its own distinct investment objective. These objective are
described in more detail under the heading "Investment Objectives." Although
each Fund will be managed by experienced professionals, there can be no
assurance that the objectives will be achieved.
There are levels of risk involved with each Fund. For fixed income securities,
there is the risk that interest rates will change, thereby affecting the value
of the securities. Generally, the value of fixed income securities declines as
interest rates rise, and conversely, their value rises as interest rates
decline. There is also a credit risk; that is, a risk related to the financial
ability of an issuer to make periodic interest payments and ultimately repay the
principal at maturity. For equity securities, there is the market risk
associated with movement of the stock market in general. In addition, there is
the financial risk related to earnings stability and overall financial soundness
of individual issuers and of issuers collectively which are a part of a
particular industry. See "Certain Investments Strategies and Policies" for a
discussion of these risks.
Shares of the Funds are sold at their net asset value per share, without sales
charge. Please read your insurance company's separate account prospectus or your
Qualified Plan's documents for discussions relating to instructions on how to
invest in and redeem from each Fund.
CIGNA Investments, Inc., the Funds' adviser, provides each Fund with investment
advice and other services. Each Fund pays CIGNA Investments, Inc. a management
fee for the management of investments and business affairs. For a discussion of
these, please see "Management of the Funds."
The above information is qualified in its entirety by the detailed information
appearing elsewhere in this prospectus, the statement of additional information,
and, as applicable, the separate account prospectus or Qualified Plan documents.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
INVESTMENT OBJECTIVES.................................................................... 2
SUMMARY ................................................................................. 3
EXPENSE TABLE............................................................................ 5
FINANCIAL HIGHLIGHTS..................................................................... 7
ABOUT THE FUNDS.......................................................................... 8
INVESTMENT PROGRAMS...................................................................... 9
CERTAIN INVESTMENT STRATEGIES AND POLICIES............................................... 15
ELIGIBLE PURCHASERS...................................................................... 23
PURCHASE AND REDEMPTION OF FUND SHARES................................................... 23
COMPUTATION OF NET ASSET VALUE........................................................... 24
DISTRIBUTION OF DIVIDENDS AND CAPITAL GAINS.............................................. 26
TAX MATTERS.............................................................................. 26
MANAGEMENT OF THE FUNDS.................................................................. 27
PERFORMANCE.............................................................................. 29
THE TRUST, ITS SHARES AND BOARD OF TRUSTEES.............................................. 31
APPENDIX - DESCRIPTION OF MONEY MARKET INSTRUMENTS AND
OF RATING CATEGORIES ................................................................. 32
</TABLE>
4
<PAGE>
EXPENSE TABLE
The following Expense Table lists the transaction expenses and approximate
annual operating expenses related to an investment in each of the Funds. The
Table does not reflect charges and deductions which are or may be imposed under
Variable Contracts or Qualified Plans. Please refer to the applicable Variable
Contract prospectus or Qualified Plan documents for such charges. The expenses
and fees set forth in the Table are for the fiscal year beginning January 1,
1996.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ALL SERIES
----------
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of the offering price)..............................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of the offering price)...................None
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds as applicable)........None
Redemption Fees (as a percentage of amount redeemed, if applicable)..........................................None
Exchange Fee.................................................................................................None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
HIGH INTERNATIONAL MONEY S&P 500
YIELD INCOME STOCK MARKET INDEX
<S> <C> <C> <C> <C> <C>
Management Fees
Investment Management Fees/1/.................................... .75% .50% .80% .35% .25%
12b-1 Fees........................................................ None None None None None
All Other Operating Expenses
(After Reimbursement)/1/......................................... .50% .50% .45% .35% .35%
TOTAL FUND OPERATING EXPENSES/2/
(REFLECTS EXPENSE LIMITATION. SEE FOOTNOTES /1/ AND /2/ BELOW).. 1.25% 1.00% 1.25% .70% .60%
</TABLE>
_________________________
/1/For a more complete description of the Management Fees, see "Management of
the Trust." CIGNA Investments, Inc. ("CII"), the Funds' investment adviser, has
agreed, as to each Fund, to reimburse such portion of its management fee as is
necessary to cause the Total Fund Operating Expenses of each Fund during each
calendar year not to exceed the following percentages of each of the Fund's
average daily net asset value for such year:
<TABLE>
<S> <C> <C>
High Yield - 1.25%
Income - 1.00%
International Stock - 1.25%
Money Market - .70%
S&P 500 Index - .60%
</TABLE>
If this reimbursement is not sufficient to cause the Total Fund Operating
Expenses of any Fund not to exceed the applicable percentage of average daily
net asset value, CII has agreed to pay such other expenses of the applicable
Fund as is necessary to keep Total Fund Operating Expenses from exceeding the
applicable percentage. These arrangements will continue in effect until the end
of the fiscal year ending December 31, 1996, and afterwards to the extent
described in the Funds' then current prospectus. To the extent management fees
are reimbursed by CII, or expenses of a Fund are paid by CII, the total return
to shareholders will increase. Total return to shareholders will decrease to the
extent management fees are no longer reimbursed or expenses of a Fund are no
longer paid.
/2/Total Fund Operating Expenses for the S&P 500 Index Fund for 1994 were .78%
of this Fund's average daily net asset value. The stated Operating Expense and
Total Fund Operating Expenses reflect the current voluntary expense limitation.
As to the remaining Funds, Other Operating Expenses are based on estimated
amounts for the current fiscal year. Other Operating Expenses include all
expenses not specifically assumed by CII or any investment sub-adviser to any
Fund.
5
<PAGE>
ANNUAL FUND OPERATING EXPENSES (CONTINUED)
EXAMPLE:
The following example illustrates the expenses that you would pay on a $1,000
investment over various time periods assuming (1) a 5% annual rate of return,
and (2) redemption at the end of each time period. As noted above, the Funds
charge no redemption fees of any kind.
<TABLE>
<CAPTION>
HIGH INTERNATIONAL MONEY S&P 500
YIELD INCOME STOCK MARKET INDEX
<S> <C> <C> <C> <C> <C>
1 Year....................................................... $ 13 $ 10 $ 13 $ 7 $ 6
3 Years...................................................... $ 40 $ 32 $ 40 $22 $19
5 Years...................................................... $ -- $ -- $ -- $-- $33
10 Years...................................................... $ -- $ -- $ -- $-- $75
</TABLE>
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The purpose of the Expense Table is to assist the investor in understanding the
various costs and expenses that an investor will bear directly or indirectly.
For the purpose of the example, assume reinvestment of all dividends and
distributions. The Example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown. For
a more complete description of the Management Fee, see "Management of the
Trust." The expense information for CIGNA Variable Products S&P 500 Index Fund
in the above table has been restated to reflect current voluntary expense
limitations. For CIGNA Variable Products Income, High Yield, Money Market and
International Stock Fund, Other Operating Expenses are based on estimated
amounts for the current fiscal year.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights for each of the periods identified below and included
in the financial statements of CIGNA Variable Products S&P 500 Index Fund* have
been examined by Price Waterhouse LLP, independent accountants, whose report
thereon was unqualified. The following information should be read in conjunction
with the financial statements and notes thereto available with the Statement of
Additional Information.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $9.20 $11.94 $12.83 $10.75 $11.94 $10.14 $9.41 $13.37 $13.39 $11.85
----- ------ ------ ------ ------ ------ ----- ------ ------ ------
Income from investment operations
Net investment income ** 0.19 0.16 0.12 0.19 0.26 0.28 0.25 0.25 0.30 0.43
Net realized and unrealized gains (losses) (0.13) 0.22 0.34 3.79 (0.74) 2.67 0.72 0.54 1.31 2.68
----- ------ ------ ------ ------ ------ ----- ------ ------ ------
Total from investment operations 0.06 0.38 0.46 3.98 (0.48) 2.95 0.97 0.79 1.61 3.11
----- ------ ------ ------ ------ ------ ----- ------ ------ ------
Less: Distributions
Dividends from net investment income (0.14) (0.17) (0.12) (0.20) (0.25) (0.30) (0.24) (0.36) (0.38) (0.44)
Distributions from capital gains (0.85) (2.95) (1.23) (1.70) (0.46) (0.85) - (4.39) (1.25) (1.13)
Required for tax purposes in excess of
realized gains (0.08) - - - - - - - - -
----- ------ ------ ------ ------ ------ ----- ------ ------ ------
Total distributions (1.07) (3.12) (1.35) (1.90) (0.71) (1.15) (0.24) (4.75) (1.63) (1.57)
----- ------ ------ ------ ------ ------ ----- ------ ------ ------
Net asset value, end of year $8.19 $9.20 $11.94 $12.83 $10.75 $11.94 $10.14 $9.41 $13.37 $13.39
===== ===== ====== ====== ====== ====== ====== ===== ====== ======
Total return 0.67% 2.97% 3.59% 37.46% -3.99% 29.22% 10.33% 3.90% 13.27% 28.26%
Ratios and Supplemental Data:
Net assets, end of period (000) $54,728 $61,478 $68,287 $73,446 $60,658 $69,389 $61,504 $70,501 $77,102 $75,167
Ratio of expenses to
average net assets 0.78% 0.66% 0.59% 0.56% 0.59% 0.56% 0.54% 0.51% 0.50% 0.48%
Ratio of net investment income
to average net assets 2.23% 1.30% 0.94% 1.38% 2.08% 2.18% 2.16% 1.83% 2.19% 3.45%
Portfolio Turnover 4% 185%a 82% 77% 63% 55% 38% 75% 70% 43%
</TABLE>
a. During November 1993, the portfolio was indexed to the S&P 500, resulting in
a complete turnover of the portfolio at that time.
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*During periods prior to November 9, 1993, the Fund was actively managed. On
November 9, 1993, the Board of Trustees authorized CIGNA Investments, Inc.,
the investment adviser to the Fund, to change the Fund's investment strategy
to an indexation approach. See "The Fund's Objective". Prior to October 16,
1985, the Fund was a Maryland corporation. On January 2, 1996 the name of the
Fund was changed from Companion Fund to CIGNA Variable Products S&P 500 Index
Fund.
**Net investment income per share has been calculated in accordance with SEC
requirements with the exception that end of the year accumulated
undistributed/(overdistributed) net investment income has not been adjusted to
reflect current year permanent differences between financial and tax
accounting.
7
<PAGE>
Certain additional performance and other information concerning the Funds is
contained in the Funds' most recent Annual Report to Shareholders, a copy of
which will be provided upon request and without charge to each person who
receives a prospectus.
ABOUT THE FUNDS
- --------------------------------------------------------------------------------
CIGNA Variable Products High Yield Fund, CIGNA Variable Products Income Fund,
CIGNA Variable Products International Stock Fund, CIGNA Variable Products Money
Market Fund and CIGNA Variable Products S&P 500 Index Fund are separate series
of CIGNA Variable Products Group, a Massachusetts business trust established by
a Master Trust Agreement dated February 4, 1988 and registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified,
open-end management investment company (see "The Trust, Its Shares and Board of
Trustees"). These mutual funds are referred to in this prospectus as the "Funds"
and separately as a "Fund." Each Fund has its own investment objective and
policies designed to meet specific investment goals. Each Fund intends to
qualify as a regulated investment company for Federal income tax purposes. Their
sole purpose is to serve as funding vehicles for the investment of monies paid
by holders of Variable Contracts issued through separate accounts of life
insurance companies ("Life Companies") and by Qualified Plans. The Qualified
Plans and the Life Companies may or may not make all the Funds described in this
prospectus available for investment to the Variable Contract owners or Qualified
Plan participants, as the case may be. Historically, the variable annuity
contracts have been issued by Connecticut General Life Insurance Company ("CG
Life"), an indirect, wholly-owned subsidiary of CIGNA Corporation. CIGNA
Corporation is an insurance and financial services holding company. The Funds
may also serve as funding vehicles for Variable Contracts issued by other life
insurance companies affiliated with CIGNA Corporation or by life insurance
companies which may be unaffiliated with CIGNA Corporation (see "Eligible
Purchasers").
The Trust does not foresee any disadvantage to Variable Contract owners arising
out of the fact that the Trust offers its shares for products offered by Life
Companies which may or may not be affiliated with each other or that it offers
its shares to Qualified Plans. Nevertheless, the Trust's Board of Trustees
intends to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise between Variable Contract owners and
participants under Qualified Plans and to determine what action, if any, should
be taken in response thereto. If such a conflict were to occur, one or more Life
Company separate accounts or Qualified Plans might withdraw its investment in
the Trust. This might force the Trust to sell portfolio securities at
disadvantageous prices.
Shares are offered only to Eligible Purchasers (see "Eligible Purchasers").
Shares are offered at net asset value without the imposition of a sales load,
sales charge or selling commission.
8
<PAGE>
INVESTMENT PROGRAMS
- --------------------------------------------------------------------------------
CIGNA VARIABLE PRODUCTS HIGH YIELD FUND
The Fund's objective is to provide the highest current income attainable
consistent with reasonable risk through investment primarily in high yield, high
risk non-investment grade fixed income securities. The Fund will also consider
the possibility of capital growth when it purchases and sells securities.
Securities of less than investment grade are typically considered "junk bonds."
The Fund seeks high income by purchasing principally securities that are rated
Ba or lower by Moody's Investors Service, Inc. ("Moody's") or BB or lower by
Standard & Poors Corporation ("S&P"), or securities of comparable quality in the
opinion of CII that are either non-rated or rated by other recognized credit
rating agencies. It should be noted, however, that achievement of the Fund's
investment objective may be more dependent on CII's own credit analysis, and
less on that of credit rating agencies, than may be the case for funds that
invest in more highly rated bonds. At least 80% of the value of the Fund's total
assets will be invested in debt securities, including convertible debt
securities, and/or cash and cash equivalents. The Fund may also invest in
preferred stocks.
The foregoing Moody's and S&P ratings are described in the Appendix to this
prospectus.
While the securities held by the Fund are expected to provide greater income
and, possibly, opportunity for greater gain than investments in more highly
rated securities, they may be subject to greater risk of loss of income and
principal and are more speculative in nature. The Fund's yield and the net asset
value of its shares may be expected to fluctuate over time. Therefore, an
investment in the Fund may not be appropriate for some investors and should not
constitute a complete investment program for others. Generally, the Fund's net
asset value and interest rates will vary inversely.
CIGNA VARIABLE PRODUCTS INCOME FUND
The Fund's objective is to provide as high a level of current income as possible
consistent with reasonable concern for safety of principal by investing
primarily in fixed rate investment grade corporate debt securities and U.S.
government securities. Thus, under normal market conditions the Fund will invest
at least 65% of its assets in these securities. The Fund invests in a
diversified portfolio of marketable debt securities. Up to 55% of the assets of
the Fund may be invested in U.S. Government securities, including securities of
U.S. Government agencies or instrumentalities and securities that are classified
as "government securities" for the purpose of the annuity diversification rules
of Section 817(h) of the Internal Revenue Code. In addition, the assets of the
Fund may be invested in
9
<PAGE>
obligations of, or guaranteed by, U.S. banks or bank holding companies that are
considered by CII to be investment grade or better and money market instruments
eligible for purchase by CIGNA Variable Products Money Market Fund.
CIGNA Variable Products Income Fund also may invest up to 20% of its assets in
other fixed-income securities, including convertible bonds and preferred stocks,
and in common stocks and similar equity securities when they are acquired as
parts of units with fixed-income securities (including warrants or rights to
purchase equity investments) or upon exercise of such warrants or rights or upon
the conversion of such securities. See the Statement of Additional Information
for a description of warrants.
The Fund may invest up to 40% of its assets in foreign entities of which up to
25% may be payable in foreign currencies and traded abroad. Purchases of foreign
securities payable in foreign currencies will be affected either favorably or
unfavorably by changes in the value of the foreign currencies against the U.S.
dollar. Investing in foreign securities payable in foreign currencies carries
increased risk to the Fund (see "Risk Factors Regarding Foreign Securities").
The Fund's assets may include securities that have been purchased on a when-
issued or delayed-delivery basis. Delivery and payment for these securities
could take place a month or more after the date of the transaction, during which
time the value of the purchase commitment will fluctuate with the market for
comparable securities. However, both the payment and interest terms of the
securities are fixed at the time the Fund makes a commitment to purchase the
securities. The Fund makes such commitments only with the intention of actually
acquiring the securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons.
The Fund may invest up to 20% of its assets in debt securities of less than
investment grade (i.e., securities rated Ba/BB or below by Moody's and S&P).
Such securities are commonly referred to as junk bonds. See "Risk Factors
Regarding Non-Investment Grade Debt Securities" for the risk factors associated
with investments in such securities.
Changes in interest rates are likely to result in increases or decreases in the
value of the investments in CIGNA Variable Products Income Fund. The value of
the securities in this Fund can be expected to vary inversely with the changes
in prevailing interest rates. Thus, when interest rates go up, bond prices go
down, and vice versa.
CIGNA VARIABLE PRODUCTS INTERNATIONAL STOCK FUND
The Fund's investment objective is to provide long-term growth of capital by
investing primarily in common stocks, convertible and non-convertible preferred
stocks, and convertible debt of
10
<PAGE>
companies based outside the United States. Income is an incidental
consideration. For these purposes, the phrase "based outside the United States"
means companies the principal headquarters of which are located in a foreign
country and which are organized under the laws of a foreign country.
CII serves as investment adviser to the Fund, and CIGNA International Investment
Advisors, Ltd. ("CIIA") serves as sub-adviser. See "Management Of The Trust." In
selecting securities for the Fund, CIIA will generally seek to allocate the
Fund's assets among companies based in 8-12 different foreign countries. It is
the present intention of CIIA to invest primarily in the securities of companies
based in countries included in or countries which the sponsor of the Morgan
Stanley Capital International Europe, Australia and Far East Index (the "EAFE
Index") has announced it will include in the EAFE Index, and Canada. As of March
31, 1995, the EAFE Index included the following countries: Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Malaysia, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, and the United Kingdom.
Under normal conditions the Fund will maintain no less than 65% of its total
assets in the equity securities of companies based in at least five of the
aforementioned countries. The 65% figure represents a minimum level of
investment under normal circumstances. The actual level of investment will, of
course, fluctuate in accordance with CIIA's assessment of market conditions.
Ordinarily, the Fund will not invest more than 50% of its total assets in the
securities of companies based in Japan, nor more than 30% of its total assets in
the securities of companies based in the United Kingdom. The Fund will not
ordinarily invest more than 25% of its total assets in any other single
developed country, such as Australia, Canada, France or Germany. If, in CIIA's
opinion, it becomes desirable to exceed any of these thresholds, the Fund will
issue a sticker supplement to this prospectus describing the risk factors
associated with investing in the relevant countries.
The Fund may invest up to 15% of its total assets in the equity and convertible
debt securities of companies based in developing countries as defined by the
Morgan Stanley Capital International Emerging Markets Index (the "Emerging
Markets Index"). As of March 31, 1995, the Emerging Markets Index included the
following countries: Argentina, Brazil, Chile, Columbia, Greece, India,
Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines,
Poland, Portugal, South Africa, Sri Lanka, Taiwan, Thailand, Turkey, and
Venezuela.
While the Fund intends to invest primarily in the securities of companies based
in countries included in the EAFE Index and the Emerging Markets Index (the
"Indices"), it will not necessarily invest its assets according to the
percentage weightings assigned by the Indices to a particular country or
company; the Fund is actively managed and is not an indexed fund. Since Malaysia
is
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included in both the EAFE Index and the Emerging Markets Index, securities of
companies based in Malaysia will not be included in the 15% limitation noted
above.
The Fund intends to invest principally in the securities of companies which CIIA
believes possess a strong financial base and have opportunities for growth
within expanding international economies and markets. In determining the
appropriate distribution of investments among various countries, CIIA ordinarily
considers the following factors: prospects for relative economic growth;
expected levels of inflation; relative price levels of the various capital
markets; government policies influencing business conditions; and the range of
individual investment opportunities available to the international investor.
CIIA's expectations with respect to currency movements are also considered in
evaluating investment in each country. While CIIA does not generally hedge
against currency risks, the Fund may from time to time engage in foreign
exchange transactions to hedge the Fund's exposure to changes in foreign
currency relative to the U.S. Dollar. See "Foreign Exchange Transactions." Once
CIIA has determined that a particular country has favorable investment
characteristics, CIIA seeks to identify (a) those economic sectors within the
national economy that have the potential for strong and sustainable growth and
(b) those companies that stand to benefit from this expected outcome. In this
regard, CIIA seeks to focus on long-term political, demographic, and
sociological change to anticipate important valuation shifts in securities
prices.
In appropriate circumstances, such as when a direct investment by the Fund in
the securities of a particular country cannot be made or when the securities of
an investment company are more liquid than the underlying portfolio securities,
the Fund may, consistent with the provisions of the 1940 Act, invest in the
securities of closed-end investment companies that invest in foreign securities.
Since the Fund's shareholders would be subject to additional fees, including
management fees, for any asset so invested, CIIA will invest in such closed-end
investment companies only where, in its opinion, the potential returns justify
incurring the additional expense.
The Fund may invest in convertible preferred stock and convertible debt when, in
the opinion of CIIA, the yield or conversion price makes investment in such
instruments more attractive than investment in the underlying equity security.
The Fund will limit investments in convertible debt securities to 10% of the
Fund's net assets. The Fund will dispose of any bond, as soon as practicable
consistent with achieving an orderly disposition, that would cause the Fund to
hold more than 5% of its net assets in bonds rated below investment grade (i.e.,
bonds rated BB or Ba or below by S&P or Moody's or, if not so rated, which in
the opinion of CIIA are of comparable quality).
Under normal conditions the Fund will maintain 0 - 20% of its total assets in
cash or high quality money market instruments
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(such as banker's acceptances, certificates of deposit, time deposits, and
commercial paper), each of which may be denominated in U.S. Dollars or foreign
currencies. When deemed appropriate by CIIA, for temporary defensive purposes,
the Fund may invest all or a major portion of its assets in high quality money
market instruments. See "Money Market Instruments" in this prospectus and the
Statement of Additional Information for a description of the limitations on such
investments by the Fund. The Fund will not invest 25% or more of its assets in
obligations issued by a single foreign government, its agencies, and
instrumentalities.
CIGNA VARIABLE PRODUCTS MONEY MARKET FUND
The Fund's objective is to provide as high a level of current income as is
consistent with the preservation of capital and liquidity and the maintenance of
a stable $1.00 per share net asset value by investing in short-term money market
instruments. The Fund intends to invest in money market instruments such as U.S.
Government direct obligations and U.S. Government agencies' securities. In
addition, the Fund may invest in other money market instruments such as bankers'
acceptances, certificates of deposit, commercial loan participations, repurchase
agreements, time deposits and commercial paper, all of which will be denominated
in U.S. dollars. Bankers' acceptances, certificates of deposit and time deposits
may be purchased from U.S. or foreign banks. Commercial paper is purchased
primarily from U.S. issuers but may be purchased from foreign issuers so long as
it is denominated in U.S. dollars. All of these instruments, including
commercial loan participations, are briefly described in "Description of Money
Market Instruments" and are described more fully in the Statement of Additional
Information.
Pursuant to procedures adopted by the Board of Trustees, the Fund may purchase
only high quality securities that CII believes present minimal credit risks. To
be considered high quality, a security must be a U.S. government security or
must be rated in accordance with applicable rules in one of the two highest
categories for short-term securities by at least two nationally recognized
rating services (or by one, if only one rating service has rated the security)
or, if unrated, judged to be of equivalent quality by CII.
High quality securities are divided into "first tier" and "second tier"
securities. First tier securities have received the highest rating (e.g.
S&P's A-1 rating) from at least two rating services (or one, if only one has
rated the security). Second tier securities have received ratings within the two
highest categories (e.g., S&P's A-1 or A-2) from at least two rating services
(or one, if only one has rated the security), but do not qualify as first tier
securities. If a security has been assigned different ratings by different
rating services, at least two rating services must have assigned the highest
rating in order for CII to determine eligibility on the basis of that highest
rating. Based on procedures adopted by the Board of
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Trustees, CII may determine that an unrated security is of equivalent quality to
a rated first or second tier security.
The Fund may not invest more than 5% of its total assets in second tier
securities. In addition, the Fund may not invest more than 1% of its total
assets or $1 million (whichever is greater) in the second tier securities of a
single issuer.
The Fund will limit its investments to securities with remaining maturities of
397 days or less and will maintain a dollar-weighted average maturity of 90 days
or less.
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND
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 Standard & Poor's 500 Composite Stock Price Index (the "S&P
500"). Under normal conditions, the Fund will invest at least 80% of its total
assets in equity securities of companies which compose the S&P 500. The Fund is
designed as a long-term investment vehicle.
The S&P 500 includes 500 selected common stocks, most of which are listed on the
New York Stock Exchange. Each stock in the Index has a unique weighting,
depending on the number of shares outstanding and its current price.
The Fund is subject to market risk -- i.e., the possibility that common stock
prices will decline over short or even extended periods. The U.S. stock market
tends to be cyclical, with periods when stock prices generally rise and periods
when prices generally decline.
While the Fund seeks to match the performance of the S&P 500, its stock
portfolio performance may not match that of the S&P 500 exactly. For example,
the Fund's performance will reflect deductions for advisory fees and other
expenses that are not deducted from the performance figures reported for the S&P
500. In addition, while CII, the investment adviser to the Fund, 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 at all times.
The Fund may also invest in stock index futures contracts and related options
and in certain short-term fixed income securities (including variable and
floating rate instruments or demand instruments) such as certificates of
deposit, commercial paper, commercial loan participations, bankers' acceptances,
U.S. Government obligations and repurchase agreements, pending
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<PAGE>
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
CII. 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 CII or the Fund is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 which
is determined, composed and calculated by S&P without regard to CII or the Fund.
S&P has no obligation to take the needs of CII or the Fund or the record or
beneficial owners of the Fund into consideration in determining, composing or
calculating the S&P 500. S&P is not responsible for and has not participated in
the valuation of the Fund or the pricing of the Fund's shares or in the
determination or calculation of the equation by which the Fund's portfolio
investments are to be converted into cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 OR
ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY CII, RECORD OR BENEFICIAL OWNERS OF THE FUND, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
- --------------------------------------------------------------------------------
In pursuit of its objectives and policies, one or more of the Funds may employ
one or more of the following strategies in order to enhance investment results:
MONEY MARKET INSTRUMENTS. (ALL FUNDS) When deemed appropriate for temporary or
defensive purposes, each of the Funds may hold substantially all of its assets
in the form of cash or cash equivalent money market instruments described in the
appendix to
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this prospectus ("Money Market Instruments.") However, CIGNA Variable Products
S&P 500 Index Fund will only invest in Money Market Instruments for temporary or
defensive purposes under extraordinary circumstances. In addition, CIGNA
Variable Products S&P 500 Index Fund may invest in money market instruments
pending investment in common stocks or to meet anticipated short-term cash
needs. Of course, CIGNA Variable Products Money Market Fund invests exclusively
in Money Market Instruments. None of the Funds, other than CIGNA Variable
Products Money Market Fund, is required to limit such investments to those
which, at the date of purchase, are "First Tier" or "Second Tier" securities as
those terms are defined in Rule 2a-7 under the 1940 Act.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. (ALL FUNDS) Funds
may purchase securities on a "when-issued" basis, that is, delivery of and
placement for the securities is not fixed at the date of purchase, but is set
after the securities are issued (normally within forty-five days after the date
of the transaction). Funds also may purchase or sell securities on a delayed
delivery basis. The payment obligation and the interest rate that will be
received on the delayed delivery securities are fixed at the time the buyer
enters into the commitment. A Fund will only make commitments to purchase when-
issued or delayed delivery securities with the intention of actually acquiring
such securities, but the Fund may sell these securities before the settlement
date if it is deemed advisable.
Investment in securities on a when-issued or delayed delivery basis may increase
a Fund's exposure to market fluctuation and may increase the possibility that
the Fund will incur short-term gains subject to Federal taxation or short-term
losses if the Fund must engage in portfolio 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
a Fund purchases a when-issued security, the Fund's custodian bank will
segregate cash or high grade securities in an amount equal to the when-issued
commitment. If the market value of the segregated securities declines,
additional cash or securities will be segregated on a daily basis so that the
market value of the segregated assets will equal the amount of the Fund's when-
issued commitments. To the extent cash and securities are segregated, they will
not be available for new investments or to meet redemptions. Securities
purchased on a delayed delivery basis may require a similar segregation of cash
or other high grade securities. For a more complete description of when-issued
securities and delayed delivery transactions see the Statement of Additional
Information.
DOLLAR ROLL TRANSACTIONS. (CIGNA VARIABLE PRODUCTS INCOME FUND ONLY) In order to
enhance portfolio returns and manage
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<PAGE>
prepayment risks, CIGNA Variable Products Income Fund may engage in dollar roll
transactions with respect to mortgage securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage security held in the
portfolio to a financial institution such as a bank or broker-dealer, and
simultaneously agrees to purchase a substantially similar security (same type,
coupon and maturity) from the institution at a later date at an agreed upon
price. The mortgage securities that are purchased will bear the same interest
rate as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories. During the period between the
sale and purchase, the Fund will not be entitled to receive interest and
principal payments on the securities sold. Proceeds of the sale will be invested
in short-term instruments, and the income from these investments, together with
any additional fee income received on the sale, could generate income for the
Fund exceeding the yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities the Fund has committed to purchase may decline below the price of the
securities that the Fund has sold. In the event the buyer of securities in a
dollar roll transaction files for bankruptcy, or becomes insolvent, the Fund's
use of the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Fund's obligation to purchase the securities from the bankrupt party.
ILLIQUID SECURITIES. (ALL FUNDS) Each Fund may invest up to 15% of its net
assets (10% of the net assets of CIGNA Variable Products Money Market Fund) 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 a price at which they
are valued. Illiquid securities may include securities that are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933 (the "1933 Act"). Restricted securities may, in certain
circumstances, be resold pursuant to Rule 144A under the 1933 Act, and thus may
or may not constitute illiquid securities. CII determines the liquidity of each
Fund's investments. Limitations on the resale of restricted securities may have
an adverse effect on their marketability, which may prevent the Fund from
disposing of them promptly at reasonable prices. The Fund may have to bear the
expense of registering such securities for resale, and the risk of substantial
delays in effecting such registrations.
RISK FACTORS REGARDING NON-INVESTMENT GRADE DEBT SECURITIES. (CIGNA VARIABLE
PRODUCTS HIGH YIELD FUND AND CIGNA VARIABLE PRODUCTS INCOME FUND) CIGNA Variable
Products High Yield Fund, and to a lesser extent CIGNA Variable Products Income
Fund, seek to meet their respective investment objectives by investing in non-
investment grade debt securities, commonly known as "junk bonds." While
generally providing greater income and opportunity
17
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for gain, non-investment grade debt securities may be subject to greater risks
than higher rated securities. Economic downturns tend to disrupt the market for
junk bonds and adversely affect their values. Such economic downturns may be
expected to result in increased price volatility of junk bonds and of the value
of shares of the above-named Funds, and increased issuer defaults on junk bonds.
In addition many issuers of junk bonds are substantially leveraged, which may
impair their ability to meet their obligations. In some cases, junk bonds are
subordinated to the prior payment of senior indebtedness, which potentially
limits a Fund's ability to fully recover principal or to receive payments when
senior securities are subject to a default.
The credit rating of a junk bond does not necessarily address its market value
risk, and ratings may from time to time change to reflect developments regarding
the issuer's financial condition. Junk bonds have speculative characteristics
which are likely to increase in number and significance with each successive
lower rating category.
When the secondary market for junk bonds becomes more illiquid, or in the
absence of readily available market quotations for such securities, the relative
lack of reliable objective data makes it more difficult to value a Fund's
securities, and judgment plays a more important role in determining such
valuations. Increased illiquidity in the junk bond market also may affect a
Fund's ability to dispose of such securities at desirable prices.
In the event a Fund experiences an unexpected level of net redemptions, the Fund
could be forced to sell its junk bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return. Prices of junk bonds
have been found to be less sensitive to fluctuations in interest rates, and more
sensitive to adverse economic changes and individual corporate developments than
those of higher-rated debt securities.
INVESTMENTS IN FOREIGN SECURITIES. (ALL FUNDS) Each Fund may invest up to 25% of
its total assets (up to 40% for CIGNA Variable Products Income Fund (of which up
to 25% may be payable in foreign currencies and traded abroad), 50% for CIGNA
Variable Products Money Market Fund and 100% for CIGNA Variable Products
International Stock Fund) in Canadian and other foreign securities, although
CIGNA Variable Products Money Market Fund may only invest in foreign securities
denominated in U.S. dollars. To the extent it invests in securities denominated
in foreign currencies, a Fund bears the risks of changes in the exchange rates
between U.S. currency and the foreign currency, as well as the availability and
status of foreign securities markets. Each Fund (other than CIGNA Variable
Products Money Market Fund) may invest in securities of foreign issuers which
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are in the form of American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs"), or other securities representing underlying securities of
foreign issuers, and such investments are treated as foreign securities for
purposes of percentage limitations on investments in foreign securities. For a
discussion of the risks pertaining to investments in foreign securities, see
"Risk Factors Regarding Foreign Securities" below.
FOREIGN EXCHANGE TRANSACTIONS. (ALL FUNDS EXCEPT CIGNA VARIABLE PRODUCTS MONEY
MARKET FUND). Each Fund has authority to deal in foreign exchange between
currencies of the different countries in which it will invest as a hedge against
possible variations in the foreign exchange rates between those countries. This
may be accomplished through direct purchases or sales of foreign currency,
purchases of options on futures contracts with respect to foreign currency, and
contractual agreements to purchase or sell a specified currency at a specified
future date (up to one year) at a price set at the time of the contract. Such
contractual commitments may be forward contracts entered into directly with
another party or exchange traded futures contracts.
The Funds may purchase and sell options on futures contracts, forward contracts
or futures contracts which are denominated in a particular foreign currency to
hedge the risk of fluctuations in the value of another currency. Each Fund's
dealings in foreign exchange will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of foreign currency with respect to specific receivables or
payables of the Fund accruing in connection with the purchase or sale of its
portfolio securities, the sale and redemption of shares of the Fund, or the
payment of dividends and distributions by the Fund. Position hedging is the
purchase or sale of foreign currency with respect to portfolio security
positions denominated or quoted in a foreign currency. The Funds will not
speculate in foreign exchange. No Fund will commit a larger percentage of its
total assets to foreign exchange hedges than the percentage of its total assets
which it could invest in foreign securities.
RISK FACTORS REGARDING FOREIGN SECURITIES. (ALL FUNDS) Investments by a Fund in
foreign securities, whether denominated in U.S. dollars or foreign currencies,
may entail all of the risks set forth below. Investments by a Fund in ADRs, EDRs
or similar securities also may entail some or all of the risks described above.
CURRENCY RISK. The value of the Funds' foreign investments will be affected
by changes in currency exchange rates. The U.S. dollar value of a foreign
security decreases when the value of the U.S. dollar rises against the
foreign currency in which the security is denominated, and increases when
the value of the U.S. dollar falls against such currency.
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POLITICAL AND ECONOMIC RISK. The economies of many of the countries in
which the Funds may invest may not be as developed as the United States'
economy and may be subject to significantly different forces. Political or
social instability, expropriation or confiscatory taxation, and limitations
on the removal of funds or other assets could also adversely affect the
value of the Funds' investments.
REGULATORY RISK. Foreign companies are not registered with the Securities
and Exchange Commission and are generally not subject to the regulatory
controls imposed on United States issuers and, as a consequence, there is
generally less publicly available information about foreign securities than
is available about domestic securities. Foreign companies are not subject
to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to domestic
companies. Income from foreign securities owned by the Funds may be reduced
by a withholding tax at the source, which tax would reduce dividend income
payable to the Funds' shareholders.
MARKET RISK. The securities markets in many of the countries in which the
Funds invest will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign
companies may be less liquid and experience more price volatility than
comparable domestic securities. Increased custodian costs and other
administrative costs may be associated with the maintenance of assets in
foreign jurisdictions. There is generally less government regulation and
supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction
costs in foreign securities markets are likely to be higher, since
brokerage commission rates in foreign countries are likely to be higher
than in the United States.
EMERGING MARKETS RISK (CIGNA VARIABLE PRODUCTS INTERNATIONAL STOCK FUND).
The risks associated with investing in foreign securities are often
heightened for investments in developing or emerging markets. Moreover, the
economies of individual emerging market countries may differ favorably or
unfavorably from the U.S. economy in such respects as the rate of growth in
gross domestic products, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Because the
Fund's securities will generally be denominated in foreign currencies, the
value of such securities to the Fund will be affected by changes in
currency exchange rates and in exchange control regulations. A change in
the value of a foreign currency against the U.S. dollar will result in a
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corresponding change in the U.S. dollar value of the Fund's securities. In
addition, some emerging market countries may have fixed or managed
currencies which are not free-floating against the U.S. dollar. Further,
certain emerging market countries' currencies may not be internationally
traded. Certain of these currencies have experienced a steady devaluation
relative to the U.S. dollar. Many emerging markets countries have
experienced substantial, and in some periods extremely high, rates of
inflation for many years. Inflation and rapid fluctuations in inflation
rates have had, and may continue to have, negative effects on the economies
and securities markets of certain emerging market countries.
PORTFOLIO TURNOVER. (ALL FUNDS EXCEPT CIGNA VARIABLE PRODUCTS MONEY MARKET FUND
AND CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND). Any particular security will be
sold, and the proceeds reinvested, whenever such action is deemed prudent from
the viewpoint of a Fund's investment objectives, regardless of the holding
period of that security. It is anticipated, given the S&P 500 Index Fund's
policy of attempting to replicate composition and performance, before expenses,
of the S&P 500, that portfolio turnover will be lower than that of an actively
managed fund. CIGNA Variable Products S&P 500 Index Fund's historical portfolio
turnover rates are included in the Financial Highlights tables above. A higher
rate of portfolio turnover may result in higher transaction costs, including
brokerage commissions. Also, to the extent that higher portfolio turnover
results in a higher rate of net realized capital gains to a Fund, the portion of
the Fund's distributions constituting taxable capital gains may increase. See
"Distributions of Dividends and Capital Gains."
STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS (CIGNA VARIABLE PRODUCTS S&P
500 INDEX FUND AND CIGNA VARIABLE PRODUCTS INTERNATIONAL STOCK FUND). INTEREST
RATE FUTURES CONTRACTS AND RELATED OPTIONS (CIGNA VARIABLE PRODUCTS HIGH YIELD
FUND AND CIGNA VARIABLE PRODUCTS INCOME FUND) ("DEBT FUNDS").
CIGNA Variable Products S&P 500 Index Fund may invest in stock index futures
having an aggregate face value of up to 20% of the Fund's total assets in order
to simulate full investment in the underlying S&P 500 to obtain full market
exposure immediately upon receiving cash pending investment in common stocks of
companies in the S&P 500 and to limit transaction costs should invested assets
need to be sold to meet redemption requests. CIGNA Variable Products
International Stock Fund will only enter into stock index futures contracts as a
hedge against changes in the values of the securities held or which the Fund
intends to purchase. Similarly, each of the Debt Funds may purchase and sell
interest rate futures contracts or purchase and sell options on such contracts
to hedge its portfolio of debt securities against changes in interest rates. A
futures contract on an index (such as the S&P 500) is an agreement between two
parties
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(buyer and seller) to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. In the case of futures contracts traded on U.S. exchanges, the exchange
itself or an affiliated clearing corporation assumes the opposite side of each
transaction (i.e., as buyer or seller). A futures contract may be satisfied or
closed out by delivery or purchase, as the case may be, of the financial
instrument or, in the case of stock index futures contracts, by payment of the
change in the cash value of the index. Frequently, using futures to effect a
particular strategy instead of using the underlying or related security or index
will result in lower transaction costs being incurred.
The Funds may also purchase and write call options and put options on futures
contracts. An option on a futures contract gives the holder the right, in return
for the premium paid, to assume a long position (in the case of a call) or a
short position (in the case of a put) in a futures contract at a specified
exercise price prior to the expiration of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true. An option on a futures contract generally may be closed out
(before exercise or expiration) by an offsetting purchase or sale of an option
on a futures contract. See the information set forth below and the Statement of
Additional Information for information on the risks associated with these
investments.
The Funds' use of stock index futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the
regulations of the Commodity Futures Trading Commission relating to exclusions
from regulation as a commodity pool operator. Those regulations currently
provide that the Funds may use commodity futures and option positions (i) for
bona fide hedging purposes without regard to the percentage of assets committed
to margin and option premiums, or (ii) for other purposes permitted by the
entity's principal regulator (in the case of the Funds, the Securities and
Exchange Commission) to the extent that the aggregate initial margin and option
premiums required to establish such non-hedging positions do not exceed 5% of
the liquidation value (i.e., the net asset value) of the applicable Fund's
portfolio. For further information regarding futures contracts and options
thereon, see the Statement of Additional Information.
RISK FACTORS RELATING TO FUTURES CONTRACTS AND OPTIONS. (CIGNA VARIABLE PRODUCTS
S&P 500 INDEX FUND, CIGNA VARIABLE PRODUCTS INTERNATIONAL STOCK FUND, CIGNA
VARIABLE PRODUCTS HIGH YIELD FUND, AND CIGNA VARIABLE PRODUCTS INCOME FUND) The
use of futures contracts and options may involve risks not associated with other
types of instruments which the Funds intend to
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purchase. In particular, a Fund's positions in futures contracts and options may
be closed out only on an exchange which provides a liquid secondary market
therefor, and there can be no assurance that a liquid secondary market will
exist for any particular futures contract or option. The inability to close out
options and futures positions could have an adverse impact on a Fund's ability
to effectively hedge its securities and might, in some cases, require a Fund to
deposit cash to meet applicable margin requirements. A Fund's ability to hedge
effectively through transactions in futures contracts or options depends on the
degree to which price movements in its holdings correlate with price movements
of the futures and options. It is possible that there may be an imperfect
correlation between the hedging instrument and the hedged securities, which
could result in an ineffective hedge and a loss to the Fund. It is expected that
even as an index fund, the CIGNA Variable Products S&P 500 Index Fund will not
be able to achieve perfect correlation among the Fund, the S&P 500, and stock
index futures and options contracts, although the correlation can be expected to
be very close if the Fund invests only in those contracts whose behavior is
expected to resemble that of the Fund's underlying securities. See the Statement
of Additional Information for a further description of the Funds' investments in
futures contracts.
ELIGIBLE PURCHASERS
- --------------------------------------------------------------------------------
Shares may be purchased only by Eligible Purchasers. Eligible Purchasers are
limited to: (1) those separate accounts established by CG Life or by other Life
Companies that are registered as unit investment trusts under the Investment
Company Act of 1940, as amended, and that serve as the underlying investment
vehicles for Variable Contracts; (2) Qualified Plans; and (3) Connecticut
General Life Insurance Company (on behalf of Connecticut General Life Insurance
Company Field Individual Deferred Compensation Plan) ("CG Life Field Plan").
Thus, Eligible Purchasers who have purchased Fund shares are the only
shareholders. Shares may not be purchased by individuals or by the general
public. The Board of Trustees of the Trust may broaden or limit the definition
of Eligible Purchasers. Purchase of shares is subject to acceptance by the Trust
and is not binding until so accepted.
PURCHASE AND REDEMPTION OF SHARES OF THE FUNDS
- --------------------------------------------------------------------------------
Shares of the Funds are sold exclusively to and redeemed by Eligible Purchasers
on a continuous basis. Purchase and redemption orders received by Life Companies
and Qualified Plans on a given business day from Variable Contract owners or
Qualified Plan participants, as the case may be, will be effected at the net
asset value of the applicable Fund on such business day if the orders are
received by the Fund in proper form and in accordance with applicable
requirements on the next business day. It is each Eligible Purchaser's
responsibility to properly transmit purchase and redemption orders and payments
in accordance with applicable requirements. Individuals may not
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<PAGE>
place orders directly with the Funds. The Funds do not issue share certificates.
Please refer to the prospectus of your Life Company's separate account or
Qualified Plan documents for information on how to invest in each Fund.
Investments by Eligible Purchasers in each Fund are expressed in terms of full
and fractional shares of each Fund. All investments in the Funds are credited to
an Eligible Purchaser's account immediately upon acceptance of the investment by
a Fund.
The offering of shares of any Fund may be suspended for a period of time and
each Fund reserves the right to reject any specific purchase order. Purchase
orders may be refused if, in CII's opinion, they are of a size that would
disrupt the management of a Fund.
COMPUTATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
State Street determines the net asset value of shares of each of the Funds as of
the close of business on the New York Stock Exchange ("NYSE") on each day the
NYSE is open for trading and on any other day on which there is a sufficient
degree of trading in a Fund's investments that the current net asset value of
its shares might be materially affected. The NYSE is closed on New Year's Day,
President's Day, Good Friday, Martin Luther King Day, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day. The computation of net
asset value is made by dividing each Fund's total net assets by the number of
outstanding shares of such Fund at the time of calculation. Net assets are the
excess of a Fund's assets over its liabilities. Equity securities, including
warrants, that are listed on a national securities exchange or that are part of
the NASDAQ National Markets system are valued at the last sale price or, if
there has been no sale that day, at the last bid price. Debt and other equity
securities actively traded in the over-the-counter market, including listed
securities whose primary markets are believed to be over-the-counter, are valued
at the most recent bid price, which may be based upon valuations furnished by a
pricing service or from independent securities dealers. Short-term investments
with remaining maturities of up to and including 60 days are valued at amortized
cost which approximates market value. Except in the case of CIGNA Variable
Products Money Market Fund, short-term investments that mature in more than 60
days are valued at current market quotations. Other securities and assets of a
Fund, with the exception of futures contracts which are discussed below, are
appraised at fair value as determined in good faith by, or under the authority
of, the Board of Trustees of the Trust. The net asset value so computed applies
to all purchase orders and redemption requests in the hands of State Street,
duly executed in accordance with applicable instructions, on the day of such
determination. Any orders received after such time are executed at the net asset
value next determined.
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FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are recognized
as assets due from the broker (the Fund's agent in acquiring the futures
position). During the period the futures contract is open, changes in the value
of the contract are recognized as unrealized gains or losses by "marking-to-
market" on a daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments are made or received, depending
upon whether unrealized losses or gains are incurred. When the contract is
closed, the Fund records a realized gain or loss equal to the difference between
the proceeds from (or cost of) the closing transaction and the Fund's basis in
the contract.
OPTIONS ON FUTURES CONTRACTS
The premium paid by a Fund for the purchase of a call or put option on futures
contracts is recorded as an investment and subsequently "marked-to-market" to
reflect the current market value of the option purchased. The current market
value of a purchased option on futures contracts is the last reported sale price
or, if no sales are reported, the last bid price. If an option on futures
contracts which a Fund has purchased expires on the stipulated expiration date,
the Fund realizes a loss in the amount of the cost of the option. If a Fund
exercises a purchased put option on futures contracts, it realizes a gain or
loss from the sale of the underlying security and the proceeds from such sale
will be decreased by the premium originally paid. If a Fund exercises a
purchased call option on futures contracts, the cost of the security which the
Fund purchases upon exercise will be increased by the premium originally paid.
VALUATION OF MONEY MARKET INVESTMENTS (CIGNA VARIABLE PRODUCTS MONEY MARKET
FUND)
Money market investments are valued at amortized cost, which approximates market
value, in accordance with rules adopted by the Securities and Exchange
Commission. Using the amortized cost valuation method allows CIGNA Variable
Products Money Market 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 they may alter this
procedure. The shareholders of the Fund will be notified prior to any such
change, unless such change is only temporary, in which case the shareholders
will be notified after the change. See the Statement of Additional Information
for more information on amortized cost procedures.
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<PAGE>
DISTRIBUTION OF DIVIDENDS AND CAPITAL GAINS
- --------------------------------------------------------------------------------
It is expected that shares of the Funds will be held under the terms of Variable
Contracts or Qualified Plans. Under current tax law, dividends or capital gain
distributions from any Fund are not currently taxable when left to accumulate
within a Variable Contract or Qualified Plans. Depending on the Variable
Contract or Qualified Plan, withdrawals from the contracts may be subject to
ordinary income tax and, in addition, to a 10% penalty tax on withdrawals before
age 59 1/2.
Each Fund is treated as a separate entity for federal income tax purposes. Each
Fund intends to pay out all of its net investment income and net realized
capital gains for each year. Dividends and net realized capital gains, if any,
from the Funds will be distributed at least annually (except that dividends are
declared and paid daily in the case of the CIGNA Variable Products Money Market
Fund). After distribution from a Fund (other than the Money Market Fund), the
Fund's share price drops by the amount of the distribution. Because dividends
and capital gain distributions are reinvested in shares of the Fund paying the
dividend or distribution, the total value of a shareholder's account will not be
affected because, although the shares will have a lower price, there will be
correspondingly more of them.
TAX MATTERS
- --------------------------------------------------------------------------------
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to take all
other action required to ensure that no Federal income taxes will be payable by
the Funds. As a result, each Fund will generally seek to distribute annually to
Shareholders most or all of its undistributed taxable income and any
undistributed net realized capital gains (after use of any available capital
loss carry forwards). Because of this policy, the Funds do not anticipate being
subject to the 4% excise tax imposed on the undistributed income of mutual
funds.
The Trust was established as the underlying investment for Variable Contracts
issued by the Life Companies. (See "About the Funds")
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of Variable Contracts held in the Funds. The Code provides
that a Variable Contract shall not be treated as an annuity contract or life
insurance for any period (and any subsequent period) for which the investments
of the underlying Fund are not, in accordance with regulations prescribed by the
Treasury Department, adequately diversified. Disqualification of the Variable
Contract as an annuity contract or life insurance would result in imposition of
federal income tax on contract owners with respect to earnings allocable to the
Variable Contract prior to the receipt of payments under the Variable Contract.
Section 817(h)(2) of the Code is a safe harbor provision which provides that
contracts such as the
26
<PAGE>
Variable Contracts meet the diversification requirements if, as of the close of
each quarter, the underlying Fund assets meet the diversification standards for
a regulated investment company and no more than fifty-five percent (55%) of the
total assets consists of cash, cash items, U.S. Government securities and
securities of other regulated investment companies. There is an exception for
securities issued by the Treasury Department in connection with variable life
insurance policies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg. 1.817-
5), which established diversification requirements for the investment portfolios
underlying Variable Contracts. The Regulations amplify the diversification
requirements for Variable Contracts set forth in Section 817(h) of the Code and
provide an alternative to the safe harbor provision described above. Under the
Regulations, an investment portfolio will be deemed adequately diversified if
(i) no more than 55 percent of the value of the total assets of the portfolio is
represented by any one investment; (ii) no more than 70 percent of such value is
represented by any two investments; (iii) no more than 80 percent of such value
is represented by any three investments; and (iv) no more than 90 percent of
such value is represented by any four investments. For purposes of these
Regulations all securities of the same issuer are treated as a single
investment.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of Variable Contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
As indicated elsewhere in this prospectus, Fund shares are also offered for sale
to Qualified Plans. The Regulations also provide that satisfaction of the
requirements of the Regulations shall not be prevented by reason of the fact
that shares in the investment company (i.e., a Fund) may be held by the trustee
of a qualified pension or other retirement plan (i.e., Qualified Plan).
Each Fund will be managed in such manner as to comply with these diversification
requirements. It is possible that in order to comply with the diversification
requirements, less desirable investment decisions may be made which would affect
the investment performance of the Fund.
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
The investment adviser to each of the Funds is CIGNA Investments, Inc. ("CII"),
an indirect, wholly-owned subsidiary of CIGNA Corporation. CII also serves as
investment adviser for other investment companies including investment companies
sponsored by affiliates of CIGNA Corporation, and for a number of pension,
advisory, corporate and other accounts. CII and other affiliates of CIGNA
Corporation manage combined assets of approximately $70
27
<PAGE>
billion. CII's mailing address is 900 Cottage Grove Road, Hartford, Connecticut
06152.
Pursuant to a Master Investment Advisory Agreement the Trust, on behalf of the
Funds, employs CII to manage the investment and reinvestment of the assets of
the Funds. CIIA serves as sub-adviser to CIGNA Variable Products International
Stock Fund pursuant to a sub-advisery agreement between CII and CIIAL. Subject
to the control and periodic review of the Board of Trustees, CII (and CIIAL with
respect to CIGNA Variable Products International Stock Fund) determines what
investments shall be purchased, held, sold or exchanged by the Funds and what
portion, if any, of the assets of the Funds shall be held in cash and other
temporary investments. CII is also responsible for overall management of the
business affairs of the Trust and the Funds.
As full compensation for the investment management and all other services
rendered by CII and any sub-adviser, each Fund pays CII a separate fee computed
daily and paid monthly at annual rates based on a percentage of the value of the
relevant Fund's average daily net assets, as follows: CIGNA Variable Products
Income Fund - 0.50%; CIGNA Variable Products High Yield Fund - 0.75%; CIGNA
Variable Products S&P 500 Index Fund - 0.25%; CIGNA Variable Products Money
Market Fund - 0.35%; and CIGNA Variable Products International Stock Fund -
0.80%. Reflecting the specialized nature of their investment policies, the
management fees paid by CIGNA Variable Products High Yield Fund and CIGNA
Variable Products International Stock Fund exceed those paid by most other
investment companies. These fees, however, do not exceed those paid by funds
with similar investment objectives.
Each Fund will bear its own expenses. Operating expenses for each Fund generally
consist of investment management fees, custodian fees, fees for necessary
professional and brokerage services, costs of regulatory compliance, costs
associated with maintaining legal existence and all other costs not specifically
borne by CII. Trust-wide expenses not identifiable to any particular Fund will
be allocated among the Funds. CII has agreed to reimburse the Funds to the
extent that the annual operating expenses in any one year (excluding interest,
taxes, amortized organizational expense, transaction costs in acquiring and
disposing of portfolio securities and extraordinary expenses) of a Fund exceed a
percentage of the value of the relevant Fund's average daily net assets, as
follows: CIGNA Variable Products Income Fund - 1%; CIGNA Variable Products High
Yield Fund -1.25%; CIGNA Variable Products S&P 500 Index Fund - 0.75%; CIGNA
Variable Products Money Market Fund - 0.60%; and CIGNA Variable Products
International Stock Fund - 1.25%.
The investment management fee payable in 1994 to CII by CIGNA Variable Products
S&P 500 Index Fund (then known as Companion Fund) was 0.35% of average daily net
assets, and total expenses of this Fund in 1994 were 0.78% of average daily net
assets.
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<PAGE>
CII investment personnel may invest in securities for their own account pursuant
to a code of ethics that establishes procedures for personal investing and
restricts certain transactions.
State Street Bank and Trust Company ("State Street"), Boston, Massachusetts
02105 serves as transfer agent and dividend disbursing agent for the Funds.
State Street is also custodian of the assets of the Funds.
From time to time, the Funds may pay brokerage commissions on portfolio
transactions to brokers who may be deemed to be affiliates of CIGNA Corporation
under the 1940 Act, as amended. See the Statement of Additional Information for
further details.
PORTFOLIO MANAGEMENT
The individuals who are primarily responsible for the day-to-day management of
each of the Funds (other than CIGNA Variable Products Money Market Fund and
CIGNA Variable Products S&P 500 Index Fund) are described below:
CIGNA VARIABLE PRODUCTS HIGH YIELD FUND. Alan C. Petersen is a Managing Director
of CII. Mr. Petersen is the original portfolio manager of this new Fund. Mr.
Petersen also manages CIGNA High Income Shares, a closed-end management
investment company. CIGNA High Income Shares invests primarily in high yield,
high risk securities.
CIGNA VARIABLE PRODUCTS INCOME FUND. Thomas R. Foley is a Managing Director of
CII. Mr. Foley is the original portfolio manager of this new Fund. Mr. Foley
also manages INA Investment Securities, Inc., a closed-end management investment
company that invests primarily in investment grade bond investments.
CIGNA VARIABLE PRODUCTS INTERNATIONAL STOCK FUND. Lee Mickelburough is Senior
Portfolio Manager and Head of London Office Equities for CIGNA International
Investment Advisors, Ltd., the sub-adviser to this Fund. Previously, Mr.
Mickelburough was Resident Director and Head of Australia Office for CIGNA
International Investment Advisors Australia Limited. Mr. Mickelburough is the
original portfolio manager of this new Fund. Mr. Mickelburough also manages
CIGNA International Stock Fund, an open-end management investment company that
invests primarily in foreign equity securities.
PERFORMANCE
- -------------------------------------------------------------------------------
Each Fund's performance may be quoted in advertising in terms of yield and total
return if accompanied by performance of your Life Company's separate account.
Performance is based on historical results and not intended to indicate future
performance. For additional performance information, contact your Life Company
for a free annual report.
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<PAGE>
CIGNA Variable Products Money Market Fund's yield refers to the income generated
by an investment in the Fund over a specified seven day period, expressed as an
annual percentage rate. Its effective yield is calculated similarly, but assumes
that the income earned from investments is reinvested. The Money Market Fund's
effective yield will tend to be slightly higher than its yield because of this
compounding effect.
For CIGNA Variable Products High Yield Fund and CIGNA Variable Products Income
Fund, yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. To calculate yield, a
Fund takes the dividend and interest income, if any, it earned from its
portfolio of investments for a specified 30-day period (net of expenses),
divides it by the number of its shares entitled to receive dividends and
expresses the result as an annualized percentage rate based on the Funds's share
price at the end of the 30-day period. Yields are calculated according to
accounting methods that are standardized for all stock and bond funds. Because
yield accounting methods differs from the methods used for other accounting
purposes, the Fund's yield may not equal its distribution rate, the income paid
to an account or the income reported in the Fund's financial statements.
Total returns are based on the overall dollar or percentage change in value of a
hypothetical investment in each Fund, including changes in share price (except
for the Money Market Fund) and assuming each Fund's dividends and capital gain
distributions, if any, are reinvested. A cumulative total return reflects a
Fund's performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual returns tend to smooth out variations
in a Fund's return, you should recognize that they are not the same as actual
year-by-year results. To illustrate the components of overall performance, a
Fund may separate its cumulative and average annual returns into income results
and capital gain or loss.
Yields and total returns quoted for the Funds include the effect of deducting
each Fund's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Qualified Plan. Since shares of the Funds
may only be purchased by Eligible Purchasers, you should carefully review the
prospectus of the Variable Contract you have chosen or Qualified Plan documents
for information on relevant charges and expenses. Excluding these charges from
quotations of each Fund's performance has the effect of increasing the
performance quoted. You should bear in mind the effect of these charges when
comparing a Fund's performance to that of other funds.
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<PAGE>
THE TRUST, ITS SHARES AND BOARD OF TRUSTEES
- --------------------------------------------------------------------------------
On April 26, 1988, the shareholders of Companion Fund, a series of shares of
CIGNA Annuity Funds Group, approved an Agreement and Plan of Reorganization and
Liquidation (the "Plan") whereby, upon the effective date of the Plan, Companion
Fund would become a series of the Trust (such series to be known as Companion
Fund) and shareholders of Companion Fund, the series of shares of CIGNA Annuity
Funds Group, would become shareholders of Companion Fund, a series of shares of
the Trust, in a tax-free exchange of shares. The Plan became effective on April
26, 1988. Companion Fund is now known as CIGNA Variable Products S&P 500 Index
Fund. The Trust currently consists of five separately managed Funds. Additional
Funds were added to the Trust by an amendment to the Trust's registration
statement having an effective date of January 2, 1996. The Board of Trustees
is authorized in the Master Trust Agreement to create new series of shares
without the necessity of a vote of shareholders of the Trust. The capitalization
of the Trust consists solely of an unlimited number of shares of beneficial
interest with a par value of $0.001 each.
Under the Master Trust Agreement no annual or regular meetings of shareholders
are required. Meetings of shareholders of a series will be held from time to
time to consider matters requiring a vote of such shareholders in accordance
with the requirements of the 1940 Act, state law or the provisions of the Master
Trust Agreement. It is not expected that shareholder meetings will be held
annually.
Except as otherwise provided under the 1940 Act, the Board of Trustees will be a
self-perpetuating body until fewer than two thirds of the Trustees serving as
such are Trustees who were elected by shareholders of the Trust. In the event
less than a majority of the Trustees serving as such were elected by
shareholders of the Trust, a meeting of shareholders will be called to elect
Trustees. Under the Master Trust Agreement, any Trustee may be removed by vote
of two thirds of the outstanding Trust shares; holders of 10% or more of the
outstanding shares of the Trust can require that the Trustees call a meeting of
shareholders for purposes of voting on the removal of one or more Trustees.
Shares of the Trust may be owned by the CG Life Field Plan, by separate accounts
of the Life Companies or by the Qualified Plans (see "About the Funds" and
"Eligible Purchasers"). Pursuant to current interpretations of the 1940 Act, the
Life Companies will solicit voting instructions from contract owners with
respect to any matters that are presented to a vote of shareholders. With
respect to the Qualified Plans, the trustees of such Plans will vote the shares
held by the Qualified Plans, except that in certain cases such shares may be
voted by a named fiduciary or an investment manager pursuant to the Employee
Retirement Income
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<PAGE>
Security Act of 1974. There is no pass-through voting to the participants in the
Qualified Plans.
Shares of each Fund will entitle their holders to one vote per share (with
proportionate voting for fractional shares), irrespective of the relative net
asset value of the shares of any Fund. On any matter submitted to a vote of
shareholders, all shares of the Trust then issued and outstanding shall be voted
in the aggregate. However, on matters affecting an individual Fund, a separate
vote of shareholders of that Fund would be required. Shareholders of a Fund
would not be entitled to vote on any matter which does not affect that Fund but
which would require a separate vote of another Fund.
When issued, shares of a Fund are fully paid and nonassessable, and have no
preemptive or subscription rights. There are no conversion rights. Shares do not
have cumulative voting rights, which means that in situations in which
shareholders elect Trustees, holders of more than 50% of the shares voting for
the election of Trustees can elect 100% of the Trustees of 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.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed on behalf of
the Trust. The Master Trust Agreement provides for indemnification from the
Trust property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, 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.
A majority of the Trustees is not affiliated with CIGNA Corporation or any of
its subsidiary companies. The Trustees meet quarterly to review the results of
the Funds, to monitor investment activities and practices, and to review and act
upon future plans for the Funds. The role of the Trustees is not to approve
specific investment purchases and sales, but rather to exercise a control and
review function.
APPENDIX
- --------------------------------------------------------------------------------
DESCRIPTION OF MONEY MARKET INSTRUMENTS
U.S. GOVERNMENT DIRECT OBLIGATIONS - Bills, notes, and bonds issued by the U.S.
Treasury.
U.S. GOVERNMENT AGENCIES SECURITIES - Certain Federal agencies such as the
Government National Mortgage Association have been
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established as instrumentalities of the U.S. Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by the full faith and
credit of the United States or are guaranteed by the Treasury or supported by
the issuing agencies' right to borrow from the Treasury.
BANKERS' ACCEPTANCES - A bill of exchange or time draft drawn on and accepted by
a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT - A negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market, prior to maturity.
TIME DEPOSITS - A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market.
COMMERCIAL PAPER - The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues vary
from a few days to nine months.
COMMERCIAL LOAN PARTICIPATIONS - Participating interests in loans made by a
bank, or a syndicate of banks represented by an agent bank, to corporate
borrowers. Loan participations may extend for the entire term of the loan or may
extend only for short "strips" that correspond to stated payments on the
underlying loan. The loans underlying such participations may be secured or
unsecured, and a Fund may invest in loans collateralized by mortgages on real
property. Each Fund will limit its investments in commercial loan participations
to those which are considered by the Trustees (with the advice of CII) to be of
comparable quality to permitted commercial paper investments.
REPURCHASE AGREEMENTS - A repurchase agreement is a contractual undertaking
whereby the seller of securities (limited to U.S. Government securities,
including securities issued or guaranteed by the U.S. Treasury or the various
agencies and instrumentalities of the U.S. Government) agrees to repurchase the
securities at a specified price on a future date determined by negotiations. The
repurchase agreement may be considered a loan by a Fund to the issuer of the
agreement, a bank or securities dealer, with the U.S. Government security
serving as collateral for the loan.
VARIABLE AND FLOATING RATE INSTRUMENTS - Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks or corporations,
may carry
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<PAGE>
variable or floating rates of interest. Such instruments bear interest at rates
which are not fixed, but which vary with changes in specified market rates or
indices, such as a Federal Reserve composite index.
DESCRIPTIONS OF RATING CATEGORIES
The following are descriptions of ratings assigned by Moody's and S&P to certain
debt securities in which CIGNA Variable Products High Yield Fund and, to a
lesser extent, CIGNA Variable Products Income Fund may invest. See the Statement
of Additional Information for descriptions of other Moody's and S&P rating
categories.
MOODY'S:
- -------
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
S&P:
- ---
BB, B, CCC, CC, C - Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligations. 'BB'
indicates the lowest degree of speculation and 'C' the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposures to adverse conditions.
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Custodian and Transfer Agent: CIGNA VARIABLE
State Street Bank and Trust Company PRODUCTS GROUP
225 Franklin Street
Boston, Massachusetts 02110 PROSPECTUS
JANUARY 2, 1996
Investment Adviser:
CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152
Investment Sub-Adviser [CIGNA Variable Products International Stock Fund]:
CIGNA International Investment Advisors, Ltd.
Park House 16 Finsbury Circus
London, England EC2M 7AX
Independent Accountants:
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
[ART]
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C I G N A V A R I A B L E P R O D U C T S G R O U P
-------------------------------------------------------
S T A T E M E N T O F A D D I T I O N A L I N F O R M A T I O N
J A N U A R Y 2, 1 9 9 6
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This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectus for CIGNA Variable Products Group (CIGNA
Variable Products High Yield Fund, CIGNA Variable Products Income Fund, CIGNA
Variable Products International Stock Fund, CIGNA Variable Products Money Market
Fund and CIGNA Variable Products S&P 500 Index Fund) (collectively the "Funds"
and each separately as a "Fund")), having the same date as the date of this
Statement of Additional Information. Much of the information contained in this
Statement of Additional Information expands upon subjects discussed in the
prospectus. No investment in shares of any of the Funds should be made without
first reading the prospectus for the Funds. A copy of the prospectus for the
Funds may be obtained from CIGNA variable Products Group at 1380 Main Street,
Springfield, MA 01103.
The financial statements for CIGNA Variable Products Group for fiscal year ended
December 31, 1994, as contained in the Annual Report to Shareholders dated
December 31, 1994, are hereby incorporated by reference into this Statement of
Additional Information. The financial statements for the fiscal year ended
December 31, 1994 have been examined by Price Waterhouse LLP, independent
accountants, whose report thereon also is incorporated herein by reference.
The financial statements of the Funds referred to above will be delivered with
this Statement of Additional Information.
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TABLE OF CONTENTS
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General Information About the Funds......................... 3
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Investment Objectives and Policies.......................... 4
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Cross-Reference to Prospectus:
Investment Objectives
About the Funds
Investment Programs
Futures Contracts.......................................... 13
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Options on Futures Contracts............................... 15
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Risks as to Futures Contracts and Related Options.......... 16
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Cross-Reference to Prospectus:
Investment Programs
Investment Restrictions.................................... 19
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Cross-Reference to Prospectus:
Investment Objectives
Investment Programs
Tax Matters................................................ 21
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Cross-Reference to Prospectus:
Tax Matters
Activities Of Affiliated Companies......................... 25
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Control Persons and Principal Holders of Securities........ 25
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Management of the Funds.................................... 25
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Cross-Reference to Prospectus:
Management of the Funds
Investment Advisory and Other Services..................... 27
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Cross-Reference to Prospectus:
Investment Advisory and Other Services
Portfolio Turnover and Brokerage Allocation................ 30
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Performance Information.................................... 32
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Cross-Reference to Prospectus:
Performance
Purchase, Redemption and Pricing of Securities............. 34
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Cross-Reference to Prospectus:
Purchase and Redemption of Fund Shares
Computation of Net Asset Value
Dividends.................................................. 35
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Cross-Reference to Prospectus
Distribution of Dividends and Capital Gains
Limitation on Transfers.................................... 35
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Ratings of Securities...................................... 35
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GENERAL INFORMATION ABOUT THE FUNDS
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The Trust has five separate series portfolios or Funds:
CIGNA Variable Products High Yield Fund
CIGNA Variable Products Income Fund
CIGNA Variable Products International Stock Fund
CIGNA Variable Products Money Market Fund
CIGNA Variable Products S&P 500 Index Fund.
Prior to JANUARY 2, 1996 the sole series of the Trust was CIGNA Variable
Products S&P Index Fund, which was formerly known as Companion Fund. The
four other funds referred to above were added to the Trust on JANUARY 2,
1996.
Prior to November 9, 1993, Companion Fund sought to fulfill its investment
objective through an active management strategy, investing primarily in
common stocks of established medium to large-size companies selected by
CIGNA Investments, Inc. ("CII"), its investment adviser, as having prospects
for above-average earnings growth. On that date, at the request of
Connecticut General Life Insurance Company ("CG Life") (which on its own
behalf and through its separate accounts was the Fund's sole shareholder),
the Board of Trustees of the Trust authorized CII to change Companion Fund's
investment strategy to the indexation approach described in the prospectus.
CIGNA Variable Products is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company,
and was organized as a Massachusetts business trust pursuant to a Master
Trust Agreement dated February 4, 1988. On April 26, 1988, the Trust
acquired the assets and liabilities of Companion Fund, a series of shares of
CIGNA Annuity Funds Group. As mentioned above, Companion Fund is now known
as CIGNA Variable Products S&P 500 Index Fund. Under the Master Trust
Agreement, the Board of Trustees is authorized to create new series of
shares without the necessity of a vote of shareholders of the Trust.
Each Fund is a separate series of the Trust. The assets received by the
Trust from the issue or sale of shares of each of the Funds, and all income,
earnings, profits and proceeds thereof, are specifically allocated to the
appropriate Fund, subject only to the rights of creditors. They constitute
the underlying assets of each of Fund, are required to be segregated on the
books of account, and are to be charged with the expenses in respect to such
Fund. Any general expenses of the Trust not readily identifiable as
belonging to a particular Fund shall be allocated by or under the direction
of the Board of Trustees in such manner as the Board determines to be fair
and equitable.
Each share of each Fund represents an equal, proportionate interest in that
Fund with each other share and is entitled to such dividends and
distributions out of the income belonging to such Fund as are declared by
the Board. Upon any liquidation of the Trust, shareholders of a Fund are
entitled to share pro rata in the net assets belonging to such Fund
available for distribution.
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INVESTMENT OBJECTIVES AND POLICIES
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The following information supplements the material contained in the
prospectus regarding each Fund's investment objectives and policies.
Description of Money Market Instruments
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U.S. GOVERNMENT DIRECT OBLIGATIONS--issued by the U.S. Treasury and include
bills, notes, and bonds.
. Treasury bills are issued with maturities of up to one year. They
are issued in bearer form, are sold on a discount basis and are
payable at par value at maturity.
. Treasury notes are longer-term interest bearing obligations with
original maturities of one to ten years.
. Treasury bonds are longer-term interest bearing obligations with
original maturities from ten to thirty years.
U.S. GOVERNMENT AGENCIES SECURITIES--Certain Federal agencies have been
established as instrumentalities of the U.S. Government to supervise and
finance certain types of activities. These agencies include the Bank for
Cooperatives, Federal Land Banks, Federal Intermediate Credit Banks, Federal
Home Loan Banks, Federal National Mortgage Association, Government National
Mortgage Association, Export-Import Bank, and Tennessee Valley Authority.
Issues of these agencies, while not direct obligations of the U.S.
Government, are either backed by the full faith and credit of the United
States or are guaranteed by the Treasury or supported by the issuing
agencies' right to borrow from the Treasury. There can be no assurance that
the U.S. Government itself will pay interest and principal on securities as
to which it is not legally obligated to do so.
BANKERS' ACCEPTANCES--A banker's acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by
corporations to finance the shipment and storage of goods and to furnish
dollar exchange. When the draft is accepted by a bank, the bank guarantees
to pay the face value of the instrument on its maturity date. An investor
can purchase a banker's acceptance in the secondary market at the going rate
of discount for a specific maturity. In addition to purchasing bankers'
acceptances from domestic branches and foreign branches of U.S. commercial
banks, bankers' acceptances denominated in each case in U.S. dollars, may be
purchased from foreign branches and U.S. branches of foreign banks having at
least one billion dollars (U.S.) of assets. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT--A certificate of deposit ("CD") is a negotiable
interest-bearing instrument with a specific maturity. Certificates of
deposit are issued by banks and savings and loan institutions in exchange
for the deposit of funds and normally can be traded in the secondary market,
prior to maturity. Each Fund may invest in U.S. dollar denominated CD's
issued by domestic branches and foreign branches of U.S. banks which are
members of the Federal Reserve System; by foreign branches and U.S. branches
of foreign
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banks and by U.S. domiciled savings and loan institutions having in each
case at least one billion dollars (U.S.) of assets. CD's issued by foreign
branches of U.S. banks are called "Eurodollar CD's" while CD's issued by
U.S. branches of foreign banks are called "Yankee CD's."
COMMERCIAL LOAN PARTICIPATIONS--Each Fund will limit its investments in loan
participations to those which are considered by the Fund's adviser, CIGNA
Investments, Inc. ("CII") to be of comparable quality to permitted
commercial paper investments. These ratings are described under "Ratings of
Securities." Further, for the purposes of each Fund's investment
restrictions, each loan participation will be treated as an obligation of
both the originating bank (or agent bank in the case of loans originated by
a syndicate of banks) and the corporate borrower. In addition, each Fund
may only invest up to 5% of the value of its total assets in loan
participations.
Loan participations in which a Fund may invest may vary in legal structure.
Occasionally, lenders assign to another institution both the lenders's
rights and obligations under a credit agreement. Since this type of
assignment relieves the original lender of its obligations, it is called a
novation. Such novations are relatively rare since they typically require
the consent of the borrower. More typically, a lender assigns only its
right to receive payments of principal and interest under a promissory note,
credit agreement or similar document. A true assignment shifts to the
assignee the direct debtor-creditor relationship with the underlying
borrower. Alternatively, a lender may assign only part of its rights to
receive payments pursuant to the underlying instrument or loan agreement.
Such partial assignments, which are more accurately characterized as
"participating interests," do not shift the debtor-creditor relationship to
the assignee, who must rely on the original lending institution to collect
sums due and to otherwise enforce its rights against the agent bank which
administers the loan or against the underlying borrower. An active
secondary market for particular loan participations may not develop, which
would result in a substantial restriction on a Fund's ability to liquidate
such participations prior to maturity.
REPURCHASE AGREEMENTS--Each Fund may engage in repurchase agreement
transactions in pursuit of its investment objective. Under the terms of a
typical repurchase agreement, a Fund purchases an underlying U.S. Government
security, including securities issued or guaranteed by the U.S. Treasury or
agencies and instrumentalities of the U.S. Government, for a relatively
short period (most likely overnight and usually not more than five days)
subject to an obligation of the seller to repurchase, and the Fund to
resell, the security at an agreed upon price and time, thereby determining
the yield during the Fund's holding period. The arrangement results in a
fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The Funds may enter into repurchase agreements with
banks having $1 billion or more of assets and with broker/dealers having net
capital of $100 million or more. The Funds require that the counter-party's
obligation under repurchase agreements be sufficiently collateralized so
that the value of the underlying collateral securities at least equals the
amount of the repurchase agreement. Also, the Funds require that the
underlying securities be
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held by the custodian of Fund assets, either physically or under the Federal
Book Entry System.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the repurchasing bank or broker/dealer, including possible
delays or restrictions upon a Fund's ability to dispose of the underlying
securities. CII, in accordance with procedures adopted by the Board of
Trustees of the Trust, monitors and evaluates the credit-worthiness of banks
and dealers with which the Funds engage in repurchase agreements.
TIME DEPOSITS--A time deposit is a non-negotiable receipt issued by a bank
in exchange for the deposit of funds. Like a certificate of deposit, it
earns a specified rate of interest over a definite period of time; however,
it cannot be traded in the secondary market. U.S. dollar denominated time
deposits may be purchased from domestic branches and foreign branches of
U.S. banks which are members of the Federal Reserve System (not including
savings and loan institutions) and from foreign branches and U.S. branches
of foreign banks having at least one billion dollars (U.S.) of assets.
U.S. dollar denominated certificates of deposit, time deposits and bankers'
acceptances issued by foreign branches of U.S. banks or by foreign banks
either in the U.S. or abroad may present investment risks in addition to the
risks involved in investments in obligations of, or guaranteed by, domestic
banks. Such risks include future political and economic developments, the
possible imposition of withholding taxes on interest income payable on such
obligations, the possible seizure or nationalization of foreign deposits,
the possible establishment of exchange controls or the adoption of other
governmental restrictions. Generally, foreign branches of U.S. banks and
U.S. branches of foreign banks are subject to fewer U.S. regulatory
restrictions than are applicable to domestic banks, and foreign branches of
U.S. banks may be subject to less stringent reserve requirements than
domestic banks. U.S. branches of foreign banks and foreign branches of U.S.
banks may provide less public information than, and may not be subject to
the same accounting, auditing and financial record-keeping standards as,
domestic banks. Foreign branches of foreign banks generally would not be
subject to any U.S. regulatory restrictions or disclosure, financial
recordkeeping or accounting requirements.
COMMERCIAL PAPER--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other business
entities. Maturities on these issues vary from a few days to nine months.
Commercial paper may be purchased from U.S. domiciled issuers. Commercial
paper may also be purchased from foreign issuers issued either in the U.S.
("Yankee" commercial paper) or abroad if, in any case, such paper is
denominated in U.S. dollars.
OTHER CORPORATE OBLIGATIONS--Each Fund may purchase notes, bonds and
debentures issued by corporations and other business entities. However,
CIGNA Variable Products Money Market Fund will purchase such obligations
only if at the time of purchase there is one year or less remaining until
maturity or if they carry a variable or floating rate of interest.
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VARIABLE AND FLOATING RATE INSTRUMENTS--Certain instruments issued,
guaranteed or sponsored by the U.S. Government or its agencies, or state and
local government issuers, and certain debt instruments issued by domestic
banks or corporations, may carry variable or floating rates of interest.
Such instruments bear interest at rates which are not fixed, but which vary
with changes in specified market rates or indices, such as a Federal Reserve
composite index.
CIGNA Variable Products Money Market Fund may invest in variable and
floating rate instruments even if they carry stated maturities in excess of
one year, upon certain conditions contained in a rule of the Securities and
Exchange Commission, but will do so only if there is a secondary market for
such instruments or if they carry demand features permitting them to be
redeemed upon notice of seven (7) days or less at par, or both.
CIGNA Variable Products Money Market Fund will not invest in variable amount
master demand notes. A Fund's right to obtain payment at par on a demand
instrument upon demand could be affected by events occurring between the
date a Fund elects to redeem the instrument and the date redemption proceeds
are due which affect the ability of the issuer to pay the instrument at par
value. CII will monitor on an ongoing basis the earning power, cash flow
and other liquidity ratios of the issuers of such instruments, and will
similarly monitor the ability of an issuer of a demand instrument to pay
principal and interest on demand.
Description of Income Instruments for CIGNA Variable Products High Yield
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Fund
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As noted in the prospectus, the Fund purchases principally debt securities
that are rated Ba or lower by Moody's or BB or lower by S&P.
Included among the high-yield, high risk securities in which the Fund may
invest are securities issued in connection with corporate restructurings
such as takeovers or leveraged buyouts. Securities issued to finance
corporate restructurings may have special credit risks due to the highly
leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Also, the market
price of such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize.
Because investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type constituting high-
yield, high risk securities, the yields and prices of such securities may
tend to fluctuate more than those for higher rated securities. In the lower
quality segments of the fixed income securities market, changes in
perceptions of issuer's creditworthiness tend to occur more frequently and
in a more pronounced manner than do such changes with respect to higher
quality segments of the fixed income securities market, causing greater
yield and price volatility. Commissions and underwriting spreads associated
with the purchase of high-yield, high risk bonds are typically higher than
those associated with the purchase of high grade bonds.
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The Fund may also invest in preferred stocks with yields that are
attractive, provided that such investments are otherwise consistent with the
investment objective and policies of the fund. A preferred stock is an
equity security that entitles the holders to a priority in liquidation over
holders of the issuer's common stock. In liquidation, the holders of
preferred stock are subordinate to the holders of the issuer's debt
obligations. Typically, preferred stocks include the right to receive
regular dividend payments and may also include conversion rights, put and
call obligations and other features. In determining whether to invest in any
particular stock, CII will consider all relevant factors, including the
dividend yield, its conversion features, if any, its liquidity, and the
overall financial condition of the issuer. Under normal circumstances, the
Fund will not invest more than 10% of its assets in preferred stock.
The Fund may invest up to 20% of its total assets in "private placements,"
i.e., securities that are subject to restrictions on resale because they
have not been registered under the securities Act of 1933, as amended (the
"1933 Act"). Privately placed securities, which include securities eligible
for resale under Rule 144A under the 1933 Act, ordinarily can be sold by the
Fund in privately negotiated transactions to a limited number and/or
particular type of purchases or in a public offering made pursuant to an
effective registration statement under the 1933 act. Private or public
sales of such securities by the Fund are likely to involve delays and
expenses. Private sales require negotiation with one or more purchasers and
may produce less favorable prices than the sale of similar unrestricted
securities. Public sales generally involve the time and expense of the
preparation and processing of a registration statement under the 1933 Act
(and the possible decline in value of the securities during such period) and
may involve the payment of underwriting commissions. For these reasons,
restricted securities are less liquid than registered securities and certain
restricted securities may be illiquid. The lack of third party evaluation
of the credit quality of these securities and the possibility of a less
liquid secondary market because of restrictions placed by some investors
with respect to the purchase of non-rated securities may also increase the
risk to investors.
The Fund will not acquire common stocks, except when (i) attached to or
included in a unit with income-generating securities that otherwise would be
attractive to the Fund; (ii) acquired through the exercise of equity
features accompanying convertible securities held by the Fund, such as
conversion or exchange privileges or warrants for the acquisition of stock
or equity interest of the same or different issuer; or (iii) in the case of
an exchange offering whereby the equity security would be acquired with the
intention of exchanging it for a debt security issued on a "when-issued"
basis.
Description of Income Instruments for CIGNA Variable Products Income Fund
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In pursuing its investment objectives, at least 80% of the total assets of
CIGNA Variable Products Income Fund will be invested in the following types
of interest-bearing securities:
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(1) Marketable debt securities that are rated at the time of purchase
within the four highest grades assigned by Moody's Investors
Service, Inc. (Aaa, Aa, A or Baa) or Standard & Poor's Corporation
(AAA, AA, A or BBB); see "Ratings of Securities."
(2) U.S. Government securities, as described below.
(3) Obligations of, or guaranteed by, U.S. banks or bank holding
companies, which obligations are considered by CII to have
investment qualities comparable to securities which may be purchased
under Item (1) above, although there can be no assurance that said
obligations shall have such qualities.
(4) Money market instruments eligible for purchase by CIGNA Variable
Products Money Market Fund, which instruments are considered by CII
to have investment qualities comparable to securities which may be
purchased under Item (1) above, although there can be no assurance
that said obligations shall have such qualities.
(5) Marketable securities (payable in U.S. dollars) of, or guaranteed
by, the Government of Canada or of a Province of Canada or any
instrumentality or political subdivision thereof.
The balance of CIGNA Variable Products 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. CIGNA
Variable Products Income Fund also may purchase and sell interest rate
futures contracts and purchase options on futures contracts as described
under "Futures Contracts" and "Options on Futures Contracts."
U.S. Government securities include a variety of securities that are issued
or guaranteed by the U.S. Treasury, by various agencies of the U.S.
Treasury, by various agencies of the U.S. Government or by various
instrumentalities that have been established or sponsored by the U.S.
Government. Treasury securities include Treasury bills, Treasury notes and
Treasury bonds. Treasury bills have a maturity of one year or less;
Treasury notes have maturities of one to ten years; Treasury bonds generally
have a maturity of greater than ten years. The Federal agencies established
as instrumentalities of the U.S. Government to supervise and finance certain
types of activities include the Federal Home Loan Banks, the Government
National Mortgage Association, the Federal National Mortgage Association,
the Federal Land Banks, the Small Business Administration, the Export-Import
Bank, the Federal Intermediate Credit Banks and the Bank for Cooperatives.
U.S. Government securities may take the form of participation interests in,
and may be evidenced by, deposit or safekeeping receipts. Participation
interests are pro rata interests in U.S. Government securities such as
interests in pools of mortgages sold by
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the Government National Mortgage Association; instruments evidencing deposit
or safekeeping are documentary receipts for such original securities held in
custody by others. The Fund will not invest in obligations of the Asian
Development Bank, the Inter-American Development Bank or the International
Bank for Reconstruction and Development (World Bank).
U.S. Government obligations, including those that are guaranteed by Federal
agencies or instrumentalities, may or may not be backed by the "full faith
and credit" of the United States. Some securities issued by Federal
agencies or instrumentalities are only supported by the credit of the agency
or instrumentality (such as the Federal Home Loan Banks) while others have
an additional line of credit with the U.S. Treasury (such as the Federal
National Mortgage Association). Certain securities issued by Federal
agencies or instrumentalities backed by the full faith and credit of the
U.S. Government include those issued by the Government National Mortgage
Association and the Small Business Administration. In the case of
securities not backed by the full faith and credit of the United States, the
Fund must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim
against the United States itself in the event the agency or instrumentality
does not meet its commitments.
Warrants are, in effect, longer term call options. They give the holder the
right to purchase a given number of shares of a particular company at
specified prices within certain periods of time. The purchaser of a warrant
expects that the market price of the security will exceed the purchase price
of the warrant plus its exercise price, thus resulting in a profit.
However, since the market price may never exceed the exercise price before
the expiration date of the warrant, the purchaser of the warrant risks the
loss of the entire purchase price of the warrant.
Warrants generally trade in the open market and may be sold rather than
exercised. Warrants are sometimes sold in unit form with other securities
of an issuer. Units of warrants and common stock may be employed in
financing unseasoned companies. The purchase price varies with the
security, the life of the warrant and various other investment factors.
Investments in warrants, valued at the lower of cost or market, may not
exceed 5% of the value of the Fund's net assets.
CIGNA Variable Products High Yield Fund and CIGNA Variable Products Income
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Fund: Risk Factors
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As noted in the prospectus, CIGNA Variable Products High Yield Fund, and, to
a lesser extent, CIGNA Variable Products 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
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high yield bonds and of the value of the Fund's shares, and an increase in
issuers' defaults on such bonds.
Also, issuers of high yield bonds are substantially leveraged, which may
impair their ability to meet their obligations. In some cases, the
securities in which the Fund invests are subordinated to the prior payment
of senior indebtedness, thus potentially limiting the Fund's ability to
recover full principal or to receive payments when senior securities are in
default. When the secondary market for high yield bonds becomes
increasingly illiquid, or in the absence of readily available market
quotations for high yield bonds, the relative lack of reliable, objective
data makes the responsibility of the Trustees to value the Fund's securities
more difficult, and judgement plays a greater role in the valuation of
portfolio securities. Also, increased illiquidity of the high yield bond
market may affect the Fund's ability to dispose of portfolio securities at a
desirable price.
The credit rating of a security does not necessarily address its market
value risk. Also, ratings may from time to time, be changed to reflect
developments in the issuer's financial condition. High yield bonds have
speculative characteristics which are apt to increase in number and
significance with each lower rating category. Also, prices of high yield
bonds have been found to be less sensitive to interest rate changes and more
sensitive to adverse economic changes and individual corporate developments
than more highly rated investments.
Certain laws or regulations may have a material effect on the Fund's net
asset value and investment practices. For example, legislation requiring
federally-insured savings and loan associations to divest their investments
in high yield bonds may further adversely affect the market for such bonds.
Characteristics of CIGNA Variable Products S&P 500 Index Fund
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CIGNA Variable Products S&P 500 Index Fund seeks long-term growth of capital
by investing primarily in common stocks. Realization of current income is
an incidental consideration, although it is hoped that growth in income will
accompany growth in capital. The portfolio of the Fund normally will
consist primarily of equity securities of companies which compose the S&P
500.
The Fund also may invest in certain short-term fixed income securities,
stock index futures and options on futures, as more fully described in the
prospectus under "CIGNA Variable Products S&P 500 Index Fund."
Characteristics of CIGNA Variable Products Income Fund
------------------------------------------------------
Considerations of liquidity and preservation of capital mean that CIGNA
Variable Products 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
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different segments of the market or among particular instruments within the
same segment of the market. These policies, as well as the relatively short
maturity of obligations to be held by this Fund, may result in frequent
changes in portfolio holdings. There usually are no brokerage commissions
as such paid in connection with the purchase of securities of the type in
which this Fund may invest. See "Brokerage Allocation" for a discussion of
underwriters' commissions and dealers' spreads involved in the purchase and
sale of portfolio securities.
Changes in interest rates are likely to result in increases or decreases in
the value of the investments of CIGNA Variable Products Income Fund. The
value of the securities in this Fund can be expected to vary inversely with
the changes in prevailing interest rates. Thus, depending upon whether
interest rates have increased or decreased since the time a security was
purchased, such security, if sold, might be sold at a loss or a gain. If
debt instruments are held to maturity, no gain or loss would normally be
realized as a result of interest rate fluctuations.
Characteristics of CIGNA Variable Products International Stock Fund
-------------------------------------------------------------------
The Fund will invest in securities listed on foreign securities exchanges or
securities traded in the over-the-counter market. Debt securities will be
acquired in new offerings or in principal trades with broker/dealers.
Ordinarily, the Fund will not purchase securities with the intention of
engaging in short-term trading. However, any particular security will be
sold, and the proceeds reinvested, whenever such action is deemed prudent
from the viewpoint of the Fund's investment objective, regardless of the
holding period of that security. The rating applied to a debt security or
money market instrument (see "Ratings of Securities" below) at the time the
security is purchased by the Fund may be changed while the Fund holds such
security in its portfolio. This change may affect, but may not compel, a
decision to dispose of a security. Nonetheless, the Fund does not intend to
hold more than 5% of its net assets in bonds rated below investment grade
(i.e. bonds rated BB or Ba or below by S&P or Moody's or if not so rated,
which in the opinion of CIGNA International Investment Advisors, Ltd.
("CIIA"), sub-adviser to the Fund, are of comparable quality). Therefore,
the Fund will dispose of any bond, as soon as practicable consistent with
achieving an orderly disposition, that would cause the Fund to violate the
above-referenced limitation. If the major rating services used by the Fund
were to alter their standards or systems for rating, the Fund would then
employ ratings under the revised standards or systems that would be
comparable to those specified in its current investment objective, policies
and restrictions.
Characteristics of CIGNA Variable Products Money Market Fund
------------------------------------------------------------
The types of money market instruments in which the Fund presently invests
are listed under "Description of Money Market Instruments" in the prospectus
and this statement of additional information. If the Trustees determine
that it may be advantageous to invest in other types of money market
instruments the Fund may invest in such instruments, if it is permitted to
do so by its investment objective, policies and restrictions.
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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.
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, calculated by using available market quotations, deviates
from $1.00 per share and, if so, whether such deviation may result in
material dilution or is otherwise unfair to existing shareholders. In the
event the Trustees determine that a deviation having such a result exists,
they intend to take such corrective action as they deem necessary and
appropriate, including the sale of portfolio instruments prior to maturity
in order to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; or establishing a net asset value per share
by using available market quotations; in which case, the net asset value
could possibly be greater or less than $1.00 per share. If the Trustees
deem it inadvisable to continue the practice of maintaining the net asset
value at $1.00 per share, they may alter this procedure. The shareholders
of the Fund will be notified promptly after any such change.
Any increase in the value of a shareholder's investment in the Fund
resulting from the reinvestment of dividend income is reflected by an
increase in the number of shares in the shareholder's account.
Matters relating to all Funds
-----------------------------
Except as described under "Investment Restrictions," the foregoing
investment characteristics are not fundamental and the Board of Trustees may
change such policies without shareholder approval. The Board will not
change a Fund's investment objectives without the required shareholder vote
as set forth in "Investment Restrictions" below. There is risk inherent in
any investment, and there is no assurance that any of the strategies and
methods of investment available to any Fund will result in the achievement
of its objectives.
FUTURES CONTRACTS
-----------------
(Stock Index Futures Contracts - CIGNA Variable Products S&P 500 Index Fund
---------------------------------------------------------------------------
and CIGNA Variable Products International Stock fund ("Equity Funds") and
--------------------------------------------------------------------------
Interest Rate Futures Contracts - CIGNA Variable Products Income Fund and
-------------------------------------------------------------------------
CIGNA Variable Products High Yield Fund ("Debt Funds")
------------------------------------------------------
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
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<PAGE>
last trading day of the contract and the price at which the futures contract
is originally struck. No physical delivery of the underlying stocks in the
index is made. Currently, stock index futures contracts can be purchased or
sold primarily with respect to broad based stock indices such as the
Standard & Poor's 500 Stock Index, the New York Stock Exchange Composite
Index, the American Stock Exchange Major Market Index, the NASDAQ - 100
Stock Index the Value Line Stock Index, the Nikkei 225 Stock Average, the
Topix, the FT-SE100, the Major Market Index, the Matif Stock Index and the
Australia All Ordinairies.
CIGNA Variable Products International Stock 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. CIGNA Variable Products Group S&P 500 Index Fund's
use of stock index futures is discussed in the prospectus.
An interest rate futures contract is an agreement between two parties to buy
and sell a debt security for a set price on a future date. Currently, there
are futures contracts based on a variety of financial instruments including
long-term U.S. Treasury bonds, U.S. Treasury notes, U.S. Treasury bills,
Eurodollars, the Japanese 10 Year Bond, the German 10 Year Bond, the
Australian 10 Year Bond, London InterBank Offer Rate, Sterling, Long Gilt
and the Bond Buyer Municipal Bond Index.
The Debt Funds and CIGNA Variable Products International Stock Fund may
enter into interest rate futures contracts for the purpose of hedging debt
securities in their portfolios or the value of debt securities which the
Funds intend to purchase. For example, if one of these Funds owned long-
term debt securities and interest rates were expected to increase, they
might sell interest rate futures contracts. If, on the other hand, these
Funds held cash reserves and interest rates were expected to decline, they
might purchase interest rate futures contracts.
In cases of purchases of futures contracts, an amount of cash and cash
equivalents, equal to the market value of the futures contracts (less any
related margin deposits), will be deposited in a segregated account with the
Trust'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.
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<PAGE>
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 an Equity 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 an Equity 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 (Equity Funds/Debt Funds)
------------------------------------------------------
An option on a futures contract gives the purchaser (the Fund) the right, in
return for the premium paid, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is
a put) at a specified exercise price at any time during the option exercise
period. The writer of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a
long position if the option is a put) at a specified exercise price at any
time during the period of the option. Upon exercise of the option, the
assumption of offsetting futures positions by the writer and holder of the
option will be accompanied by delivery of the accumulated cash balance in
the writer's futures margin account which represents the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the
option on the futures contract. If an option on a futures contract is
exercised on the last trading date prior to the expiration date of the
option, the settlement will be made entirely in cash equal to the difference
between the exercise price of the option and the closing price of the
futures contract on the expiration date.
CIGNA Variable Products 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
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<PAGE>
the purchase of a call option on an individual security or a foreign
currency. Depending on the pricing of the option compared to either the
price of the futures contract upon which it is based or the price of the
underlying securities or currency, it may or may not be less risky than
ownership of the futures contract or underlying securities or currency.
RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS
-------------------------------------------------
There are several risks in connection with the use of futures contracts and
related options as hedging devices. One risk arises because of the
imperfect correlation between movements in the price of hedging instruments
and movements in the price of the stock, debt securities or foreign currency
which are the subject of the hedge. If the price of a hedging instrument
moves less than the price of the stocks, debt securities or foreign currency
which are the subject of the hedge, the hedge will not be fully effective.
If the price of a hedging instrument moves more than the price of the stock,
debt securities or foreign currency, a Fund will experience either a loss or
a gain on the hedging instrument which will not be completely offset by
movements in the price of the stock, debt securities or foreign currency
which are the subject of the hedge. The use of options on futures contracts
involves the additional risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option.
Successful use of hedging instruments by a Fund is also subject to CII's
ability to predict correctly movements in the direction of the stock market
(Equity Funds), of interest rates (Debt Funds) or of foreign exchange rates
(foreign currencies). Because of possible price distortions in the futures
and options markets and because of the imperfect correlation between
movements in the prices of hedging instruments and the investments being
hedged, even a correct forecast by CII of general market trends may not
result in a completely successful hedging transaction.
It is also possible that where a Fund has sold futures contracts to hedge
its portfolio against a decline in the market, the market may advance and
the value of stocks or debt securities held in a Fund's portfolio may
decline. If this occurred, a Fund would lose money on the futures contracts
and also experience a decline in the value of its portfolio securities.
Similar risks exist with respect to foreign currency hedges.
Positions in futures contracts or options may be closed out only on an
Exchange on which such contracts are traded. Although the Funds intend to
purchase or sell futures contracts or purchase options only on Exchanges or
Boards of Trade where there appears to be an active market, there is no
assurance that a liquid market on an Exchange or Board of Trade will exist
for any particular contract or at any particular time. If there is not a
liquid market at a particular time, it may not be possible to close a
futures position or purchase an option at such time. In the event of
adverse price movements under 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
16
<PAGE>
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 (All Funds Except CIGNA Variable Products
-----------------------------------------------------------------------
Money Market Fund)
------------------
The Funds may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
Generally, Funds may engage in both "transaction hedging" and "position
hedging". When a Fund engages in transaction hedging, the Fund enters into
foreign currency transactions with respect to specific receivables or
payables, generally arising in connection with the purchase or sale of
portfolio securities. A Fund will engage in transaction hedging when it
desires to "lock in" the U.S. dollar price of a security it has agreed to
purchase or sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging a Fund will attempt
to protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the applicable foreign
currency during the period between the date on which the security is
purchased or sold or on which the dividend or interest payment is declared,
and the date on which such payments are made or received.
A Fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions
in portfolio securities denominated in that foreign currency. A Fund may
also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes a Fund may also purchase exchange-listed
call and put options on foreign currencies. A put option on currency gives
the Fund the right to sell a currency at a specific exercise price. A call
option on currency gives a Fund the right to purchase a currency at a
specific exercise price. The time when call and put options are exercisable
depends on whether the options are American options or European options.
American options are exercisable at anytime during the option period.
European options are exercisable only on a designated date.
When it engages in position hedging, a Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the
foreign currencies in which its portfolio securities are denominated or an
increase in the value of currency for securities 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
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<PAGE>
foreign currencies will change as a consequence of market movements in the
value of those securities between the dates the currency exchange
transactions are entered into and the dates they mature. For example, it
may be necessary for a Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of
the security or securities being hedged is less than the amount of foreign
currency a Fund is obligated to deliver and a decision is made to sell the
security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security or
securities if the market value of such security or securities exceeds the
amount of foreign currency a Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Fund owns or intends to purchase
or sell. They simply establish a rate of exchange which one can achieve at
some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in value of such currency.
Regardless of whether CII (or CIIA in the case of CIGNA Variable Products
International Stock Fund) 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
18
<PAGE>
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 a Fund will be
able to close a forward contract prior to maturity and, under such
circumstances, a Fund may have exposure to adverse changes in exchange
rates.
INVESTMENT RESTRICTIONS
-----------------------
Each Fund is subject to the following investment restrictions, unless
otherwise noted, which may not be changed without the approval of the lesser
of (i) more than 50% of the outstanding shares of a Fund or (ii) 67% or more
of the shares of that Fund present at a meeting if more than 50% of the
outstanding shares of that Fund are represented at the meeting in person or
by proxy (see "Ownership of Fund Shares" in the Funds' prospectus for a
description of the individual's rights with respect to giving voting
instructions to Life Companies).
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 a Fund.
A Fund may not:
1. Invest in the securities of any issuer if, immediately after such
investment, more than 5% of the total assets of the Fund taken at current
value would be invested in the securities of such issuer, except (a) bank
certificates of deposit and obligations issued or guaranteed as to interest
and principal by the U.S. Government or its agencies or instrumentalities,
and (b) up to 25% of CIGNA Variable Products Money Market Fund's total
assets taken at current value may be invested without regard to such 5%
limitation in bankers' acceptances in which the Fund may invest consistent
with its investment policies.
2. Acquire more than 10% of the voting securities of any issuer or more
than 10% of any class of securities of any issuer. (For these purposes, all
preferred stocks of any issuer are regarded as a single class, and all debt
securities of an issuer are regarded as a single class.)
3. Concentrate more than 25% of its assets in any one industry, except
that CIGNA Variable Products Money Market Fund may invest up to 100% of its
assets (a) in the domestic banking industry, (b) in the personal credit
institution or business credit institution industries when, in the opinion
of management, yield differentials make such investments desirable, or (c)
in any combination of these.
19
<PAGE>
4. Invest in securities of businesses less than three years old (including
predecessors), if, as a result, more than 5% of the Fund's total assets
(taken at current value) would then be invested in such securities.
5. Make investments for the purpose of gaining control of a company's
management.
6. Make short sales of securities or maintain a short position for the
account of the Fund unless at all times when a short position is open it
owns an equal amount of such securities or owns securities convertible into
or exchangeable for securities of the same issuer as, and equal in amount
to, the securities sold short.
7. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of purchases and sales of securities,
provided, however, that CIGNA Variable Products S&P 500 Index Fund, CIGNA
Variable Products International Stock Fund, CIGNA Variable Products High
Yield Fund and CIGNA Variable Products Income Fund may make margin payments
in connection with transactions in stock index futures contracts, financial
futures contracts and related options thereon.
8. Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it
may be deemed to be an underwriter under Federal securities laws.
9. Invest in securities of any issuer if, to the knowledge of the Fund,
officers and trustees of the Trust or officers and directors of CII who
beneficially own more than 1/2 of 1% of the securities of that issuer,
together own more than 5%.
10. Make loans, except (a) by purchase of debt obligations and through
repurchase agreements referred to under "Certain Investment Practices" in
the Funds' prospectus, provided, however, that repurchase agreements
maturing in more than seven days will not exceed 10% of a Fund's total
assets (taken at current value) and (b) through the lending of its portfolio
securities with respect to not more than 25% of its total assets. (As a
matter of policy, securities loans would be made to broker-dealers pursuant
to agreements requiring that loans be continuously secured by collateral in
cash or cash equivalents at least equal at all times to the value of the
securities lent. The borrower pays to the Fund an amount equal to any
dividends or interest received on the securities lent. The Fund may invest
the cash collateral received in interest-bearing short-term securities or
receive a fee from the borrower. The Fund may call such loans in order to
sell the securities involved or to exercise voting or other rights available
to it as beneficial owner of the securities involved.)
11. Borrow money in excess of one-third of the value (taken at the lower of
cost or current value) of its total assets (not including the amount
borrowed) at the time the borrowing is made, and then only as a temporary
measure to facilitate the meeting of redemption requests (not for leverage)
which might otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes, except that the
Funds referred to in paragraph 7 above may
20
<PAGE>
enter into stock index futures contracts and financial futures contracts, as
indicated. Such borrowings will be repaid before any additional investments
are made. Interest paid on such borrowings would reduce the yield on the
Fund's investments. (The Board of Trustees regards this restriction as
setting forth the Trust's policy with respect to the issuance of senior
securities.)
12. Pledge, hypothecate, mortgage or otherwise encumber its assets in
excess of one-third of the value of its total assets (taken at the lower of
cost or current value) and then only to secure borrowings permitted by
Restriction No. 11 above. (For the purpose of this restriction, collateral
arrangements with respect to margin for a financial futures contract or
stock index futures contract are not deemed to be a pledge of assets.)
13. Purchase or sell mortgages or real estate, although it may purchase
securities of issuers that deal in real estate and may purchase securities
that are secured by interests in real estate.
14. Purchase or sell commodities or commodity contracts, except, however,
that CIGNA Variable Products S&P 500 Index Fund and CIGNA Variable Products
International Stock may purchase and sell stock index futures and options
thereon and CIGNA Variable Products Income Fund, CIGNA Variable Products
International Stock Fund and CIGNA Variable Products High Yield Fund may
purchase and sell financial futures contracts and options thereon.
15. Purchase options or puts, calls, straddles, spreads or combinations
thereof except, however, CIGNA Variable Products S&P 500 Index Fund and
CIGNA Variable Products International Stock Fund may purchase and sell
options on stock index futures contracts and on stock indices and CIGNA
Variable Products Income Fund, CIGNA Variable Products International Stock
Fund and CIGNA Variable Products High Yield Fund may purchase and sell
options on financial futures contracts; in connection with the purchase of
fixed income securities, however, a Fund may acquire warrants or other
rights to subscribe for securities of companies issuing such fixed-income
securities or securities of parents or subsidiaries of such companies. (See
"Description of Income Instruments for CIGNA Variable Products Income Fund"
and "Description of Income Instruments for CIGNA Variable Products High
Yield Fund" for a description of the policy of these Funds with respect to
such warrants or other rights.)
16. Buy or sell oil, gas or other mineral leases, rights or royalty
contracts.
The foregoing percentages, as well as those percentages referred to under
"Investment Objectives and Policies," will apply at the time of the purchase
of a security and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of a purchase
of such security.
TAX MATTERS
-----------
Each series of shares of the Trust is treated as a separate association
taxable as a corporation.
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<PAGE>
Each Fund intends to qualify 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 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 including but not limited to
gains from options, futures or forward contracts derived with respect to its
business of investing in such stock, securities or currencies. B. Each Fund
must generally derive less than 30% of its gross income from the sale or
disposition of any of the following held less than three months: i) stock or
securities, ii) options, futures, or forward contracts (other than options,
futures, or forward contracts on foreign currencies), or iii) foreign
currencies (or options, futures, or forward contracts on foreign currencies)
but only if such currencies or options, futures or forward contracts are not
directly related to the Fund's business of investing in stock, securities or
options and futures thereon. There are exceptions to the 30% test when a
Fund, in combination with other factors, realizes gains to satisfy abnormal
redemptions. Abnormal redemptions occur on any day when net redemptions
exceed one percent of the Fund's net asset value. Accordingly, the extent to
which the Funds may engage in futures contracts and related options may be
materially limited by this 30% test with the exception of CIGNA Annuity
Money Market Fund which does not engage in such transactions. C. Each Fund
must diversify its holdings so that, at the end of each fiscal quarter: i)
at least 50% of the market value of the Fund's 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 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
assets is invested in the securities of any one issuer (other than U.S.
Government securities).
As a RIC, each Fund will not be subject to Federal income tax ("FIT") on its
income and gains distributed to shareholders if it distributes at least 90%
of its investment company taxable income for the taxable year.
Under the provisions of Section 817(h) of the Code, a variable annuity
contract - other than a contract issued in connection with certain tax
qualified retirement plans or retirement plans maintained by certain
government employers - will not be treated as an annuity contract for any
period for which the investments of the separate account, such as the
separate accounts that are eligible to purchase shares of the Fund, are not
"adequately diversified". In general, the regulations issued under Section
817(h) provide that a separate account shall be considered adequately
diversified if the assets of such separate account are invested so that no
more than 55% of the value of such assets is represented by any one
investment, no more than 70% of such value is represented by any two
investments, no more than 80% of such value is represented by any three
investments and no more than 90% is represented by any four investments.
The Code allows a separate account to look through to the assets of a
regulated investment company for purposes of the "adequately diversified"
requirement. Each Fund intends that the investments in its portfolio shall
be
22
<PAGE>
"adequately diversified". For these purposes, all securities of the same
issuer are treated as a single investment. However, in the case of
government securities each government agency or instrumentality is treated
as a separate issuer. The regulations include a specific definition of
"government security" which includes any security issued, guaranteed or
insured by the United States or any instrumentalities of the United States.
In addition, a certificate of deposit for any of the foregoing securities is
included within the definition of a "government security." Accordingly,
certain Fund investments may be treated as "government securities" for the
purpose of Section 817(h) of the Code, even though such investments may not
be treated as a government security when such phrase is used elsewhere in
the prospectus or Statement of Additional Information.
All Funds except CIGNA Variable Products Money Market Fund: 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 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 futures contracts and
options on future contracts be "marked-to-market" at the end of each year
for Federal income tax purposes. Section 1256 further characterizes 60% of
any gain or loss with respect to a futures contract as long-term capital
gain or loss and 40% as short-term capital gain or loss. If a futures
contract 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.
The Funds may invest in certain foreign currency transactions which may be
subject to taxation under Section 988.
CIGNA Variable Products International Stock Fund
------------------------------------------------
If more than 50% of the value of the Fund's total assets consist of foreign
stock or securities at the close of its taxable year, the Fund may elect to
pass through the credit or deduction for foreign taxes to shareholders who
are U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts, and estates). As a result, shareholders
who want to take the benefit of the foreign tax credit or deduction on their
U.S. income tax returns would include in gross income, in addition to
taxable dividends actually received from the Fund, their proportionate share
of foreign taxes paid by the
23
<PAGE>
Fund. If the Fund makes such an election, it will report to shareholders,
shortly after the end of the taxable year, their proportionate share of
gross foreign source income and foreign taxes paid by the Fund.
The Fund may invest in shares of stock of a foreign entity which is
classified under the Internal Revenue Code as a Passive Foreign Investment
Company ("PFIC"). Investments in PFIC's may affect the character of gains,
the timing of recognition of gains or losses, and the amount of gains or
losses recognized. In addition, such investments may subject the Fund to a
U.S. federal income tax which cannot currently be eliminated by making
distributions to Fund shareholders.
A foreign corporation may be classified as a PFIC for a taxable year if 75%
or more of its gross income is passive income or the average holdings of
assets that produce passive income is at least one half of its total assets.
Passive income would include investment income, including but not limited
to, interest and dividend income. Under IRS rules, the Fund may be taxed on
its share of gain from a disposition of the PFIC stock, or an excess
distribution from the PFIC stock whether or not the income is distributed by
the Fund to its shareholders. In general, such gains or excess
distributions are held to be earned ratably over the period the Fund held
the PFIC stock. Amounts allocated to the Fund's prior taxable years will be
taxed at the highest corporate rate in effect for that year and an interest
factor will be added to the tax. Excess distributions and gains from the
disposition of the PFIC stock are treated as ordinary income.
Where feasible, the Fund intends to make either (1) a qualified electing
fund ("QEF") election or (2) a mark-to-market election under IRS rules in
order to avoid the imposition of a Fund level tax on its PFIC holdings.
If a QEF election is made the Fund must include in its gross income its
share of the ordinary earnings and net capital gains from the PFIC shares in
the year that the election is made (and all future years the PFIC stock is
held) regardless of whether distributions are received from the PFIC in the
current year. This income would then be passed through to shareholders.
Under a mark-to-market election, if the fair market value ("FMV") of the
Fund's PFIC shares at the end of its taxable year is greater than the FMV of
the shares at the beginning of its taxable year (or the date of purchase
whichever is later), the difference will be included in the Fund's gross
income whether or not the Fund's shares are sold in that year. This income
would then be passed through to shareholders as ordinary income. Any mark-
to-market gain recognized by the Fund would be added to its tax basis in the
PFIC shares. If, however, as of the end of the Fund's taxable year the FMV
of the PFIC shares has decreased relative to their FMV at the beginning of
the year (or the date of purchase whichever is later), the Fund would not be
entitled to recognize the loss.
Shareholders who are not U.S. persons (i.e., U.S. citizens and residents and
U.S. domestic corporations, partnerships, trusts and estates) should consult
their tax advisers regarding U.S. and foreign tax consequences of ownership
of shares of the Fund including the
24
<PAGE>
likelihood that distributions to them would be subject to withholding of
U.S. tax at a rate of 30% (or at a lower rate under a tax treaty).
ACTIVITIES OF AFFILIATED COMPANIES
----------------------------------
From time to time, as purchases of securities are made for the portfolios of
companies affiliated with CIGNA Corporation it is
possible that two or more portfolios may simultaneously purchase or sell the
same security. To the extent that two or more such portfolios, buying or
selling the same security, increase the total demand or supply, there may be
an adverse effect on the price of such security or on the amount which the
Fund can purchase or sell.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
---------------------------------------------------
All of the outstanding shares of each Fund are owned by CG Life, which is
considered an "affiliate" of the Trust. CG Life is a stock life insurance
company domiciled in the state of Connecticut. The offices of CG Life are
located at 900 Cottage Grove Road, Bloomfield, CT 06002. CG Life is an
indirect, wholly-owned subsidiary of CIGNA Corporation.
MANAGEMENT OF THE FUNDS
-----------------------
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. Currently each holds
the equivalent position as Trustee and/or officer of CIGNA Institutional
Funds Group and CIGNA High Income Shares, and holds a similar position as
Director and/or executive officer of INA Investment Securities, Inc.
Correspondence with any Trustee or officer may be addressed to the Trust,
1380 Main Street, Springfield, Massachusetts 01103.
R. BRUCE ALBRO*, 52, Senior Managing Director and Division Head, CIGNA
Portfolio Advisers, a division of CII; Chairman of the Board and President,
CIGNA Annuity Funds Group, CIGNA Institutional Funds Group, CIGNA Variable
Products Group, CIGNA High Income Shares and INA Investment Securities, Inc.
Mr. Albro is also an officer or director of various other entities which are
subsidiaries or affiliates of CIGNA. Previously Trustee, CIGNA Funds Group;
Managing Director -Division Head, CII; Managing Director, CII; Senior Vice
President, CII and CIGNA Investment Management Company and President, CIGNA
Capital Brokerage, Inc.
HUGH R. BEATH, 63, Managing Director, AdMedia Corporate Advisors, Inc. and
Chairman of the Board of Directors, Beath Advisors, Inc. Previously Trustee,
CIGNA Funds Group; Chairman, President and Chief Executive Officer, ADVO-
System, Inc. (presently known as ADVO, Inc.) (direct mail advertising);
Executive Vice President, Operations, John Blair & Co. (marketing and
communications); President, Specialty Grocery Products Division, R. J.
Reynolds Industries (consumer products); and Vice President and Treasurer,
Heublein, Inc. (maker of distilled spirits).
RUSSELL H. JONES, 51, Vice President, Kaman Corporation (helicopters and
aircraft components, scientific research); Trustee, Connecticut Policy and
Economic Counsel; Corporator, Hartford Seminary; Secretary, Bloomfield
Chamber of Commerce.
25
<PAGE>
PAUL J. MCDONALD, 51, Executive Vice President, Finance and Chief Financial
Officer, Friendly Ice Cream Corporation (family restaurants/dairy products);
Chairman, Dean's Advisory Council, University of Massachusetts School of
Management; Vice Chairman, Springfield YMCA; Corporator, Springfield
Institution for Savings; Trustee, Springfield College. Previously, Vice
President, Finance and Chief Financial Officer, Friendly Ice Cream
Corporation.
ARTHUR C. REEDS, III*, 51, President, CIGNA Investment Management (formerly
known as CIGNA Investment Division); President and Director, CIGNA
Investment Group, Inc. and CII; Director, CIGNA International Investment
Advisors, Ltd. Mr. Reeds is also an officer or director of various other
entities which are subsidiaries or affiliates of CIGNA. Previously Trustee,
CIGNA Funds Group; Managing Director - Division Head, CIGNA Portfolio
Advisers, a division of CII; Senior Vice President, CII.
ALFRED A. BINGHAM III, 50, Vice President and Treasurer, CIGNA Annuity Funds
Group, CIGNA Institutional Funds Group, CIGNA Variable Products Group, CIGNA
High Income Shares and INA Investment Securities, Inc.; Assistant Vice
President, CII; previously Vice President and Treasurer, CIGNA Funds Group;
Senior Vice President and Treasurer, CIGNA Investments, Inc.; Vice President
and Treasurer, CIGNA Capital Brokerage, Inc.
LAWRENCE S. HARRIS, 53, Senior Managing Director, CII; Vice President, CIGNA
Annuity Funds Group, CIGNA Institutional Funds Group, CIGNA Variable
Products Group, CIGNA High Income Shares and INA Investment Securities,
Inc.; previously Managing Director-Division Head, CII; Vice President, CIGNA
Funds Group; Senior Vice President and Director, Alliance Capital Management
L.P.
JEFFREY S. WINER, 38, Counsel, CIGNA; Vice President and Secretary, CIGNA
Annuity Funds Group, CIGNA Institutional Funds Group, CIGNA Variable
Products Group, CIGNA High Income Shares and INA Investment Securities,
Inc.; previously Attorney, CIGNA; Associate, Tarlow, Levy, Harding & Droney
(private law firm).
*Trustees identified with an asterisk are considered interested persons
within the meaning of the Investment Company Act of 1940, as amended, because
of their affiliation with CIGNA Corporation or its affiliates.
The Board has created an Audit Committee from among its members which meets
periodically with representatives of Price Waterhouse LLP, independent
accountants for the Trust, a Contracts Committee which, as part of its
duties, considers the terms and the renewal of the Master Investment Advisory
Agreement with CII and the Sub-Advisory Agreement with CIIA, and a Nominating
Committee which considers the identification of new members of the Board and
the compensation of Trustees. The Nominating Committee, Audit Committee and
Contracts Committee consist of Trustees who are not affiliated with CIGNA
Corporation or any of its subsidiaries.
The 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 its Trustees who are officers or employees of
CIGNA Corporation or its affiliates. The following
26
<PAGE>
table shows compensation paid by the Trust and other investment companies in
the CIGNA fund complex to Trust Trustees in 1994:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated from Trust
Accrued As Annual and CIGNA
Aggregate Part of Benefits Fund Complex
Name of Person, Compensation Trust Upon Paid to
Position with Trust from Trust Expense Retirement Trustees (c)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. Bruce Albro, Trustee, $ - $ - $ - $ -
Chairman and President
Hugh R. Beath, Trustee 3,600 - - 22,400
(a)
Nathaniel S. Howe, 3,600 - - 22,400
Trustee (b)
Worth Loomis, Trustee 3,600 - - 22,400
Arthur C. Reeds III, - - - -
Trustee
------------ ------------ ------------ -----------
$10,800 $67,200
============= ============ ============ ===========
</TABLE>
(a) All of Mr. Beath's 1994 compensation was deferred under a deferred
compensation plan for all CIGNA funds (the "Plan") in which he had an
aggregate balance of $62,705 as of December 31, 1994. The Plan permits
Trustees to defer receipt of all compensation or to revoke the election to
defer receipt of Trustee fees and receive payment directly.
(b) All of Mr. Howe's 1994 compensation was deferred under a deferred
compensation plan (the "Plan") for all CIGNA funds in which he had an
aggregate balance of $177,025 as of December 31, 1994. The Plan permits
Trustees to defer receipt of all compensation or to revoke the election to
defer receipt of Trustee fees and receive payment directly.
(c) There were four (4) investment companies besides the Trust in the CIGNA
fund complex.
INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------
The investment adviser to each of the Funds is CII, an indirect, wholly-owned
subsidiary of CIGNA Corporation. CIIA serves as investment sub-adviser to CIGNA
Variable Products International Stock Fund. CII also serves as investment
adviser for investment companies sponsored by affiliates of CIGNA Corporation,
and for a number of pension, advisory, corporate and other accounts. CII and
other affiliates of CIGNA Corporation manage combined assets of over $70
billion. CII's mailing address is Hartford, Connecticut 06152.
Pursuant to a Master Investment Advisory Agreement between the Trust and CII,
CII manages the investment and reinvestment of the assets of the Funds.
Subject to the control and periodic review of the Board of Trustees of the
Trust, CII (CIIA in the case of CIGNA Variable Products International Stock
Fund) determines what investments shall be purchased, held, sold or exchanged
27
<PAGE>
for the account of the Funds, and what portion, if any, of the assets of the
Funds shall be held in cash and other temporary investments. Accordingly, the
role of the Trustees is not to approve specific investments, but rather to
exercise a control and review function.
The Trust pays all expenses not specifically assumed by CII including
compensation and expenses of Trustees who are not Directors, officers or
employees of CII or any other affiliates of CIGNA Corporation; 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;
and expenses of meetings of the shareholders and Trustees.
CII, 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 each of Funds. The Trust and other
registered investment companies advised by CII have agreed to reimburse CII for
its costs of maintaining the Office of the Treasurer and the cost of the Office
of the Secretary as provided in their respective investment advisory agreements.
CII has estimated that in 1996 the total expenses of the Office of the Treasurer
will not exceed $257,000 and the expenses of the Office of the Secretary are not
expected to exceed $86,000. The portion of these expenses allocated to each
Fund for calendar year 1996 are not expected to exceed the following amounts:
<TABLE>
<CAPTION>
Office of Office of
the Treasurer the Secretary
------------- -------------
<S> <C> <C>
CIGNA Variable Products S&P 500 $38,902 $ 13,131
Index Fund
</TABLE>
In 1994 the costs reimbursed by the Trust for the Office of the Treasurer and
the Office of the Secretary were $38,119 and $12,754, respectively.
The Board of Trustees of the Trust has approved the method under which this cost
will be allocated to the Trust, and then to each Fund.
As full compensation for the investment management and all other services
rendered by CII and any sub-adviser, each Fund pays CII a separate fee computed
daily and paid monthly at annual rates based on a percentage of the value of the
relevant Fund's average daily net assets, as follows: CIGNA Variable Products
Income Fund - 0.50%; CIGNA Variable Products High Yield Fund - 0.75%; CIGNA
Variable Products Money Market Fund - 0.35%; CIGNA Variable Products S&P 500
Index Fund - 0.25%; and CIGNA Variable Products International Stock Fund -0.80%.
Reflecting the specialized nature of their investment policies, the management
fees paid by CIGNA Variable Products High Yield Fund and CIGNA Variable Products
International Stock Fund exceed those paid by most other investment companies.
These fees, however, do not exceed those paid by funds with similar investment
objectives.
Trust-wide expenses not identifiable to any particular Fund will be allocated
among the Funds. CII has agreed to reimburse the Funds to the extent that the
28
<PAGE>
annual operating expenses in any one year (excluding interest, taxes, amortized
organizational expense, transaction costs in acquiring and disposing of
portfolio securities and extraordinary expenses) of a Fund exceed a percentage
of the value of the relevant Fund's average daily net assets, as follows: CIGNA
Variable Products High Yield Fund - 1.25%; CIGNA Variable Products Income Fund -
1%; CIGNA Variable Products International Stock Fund - 1.25%; CIGNA Variable
Products Money Market Fund - 0.70%; and CIGNA Variable Products S&P 500 Index
Fund - 0.60%.
CIGNA Variable Products S&P 500 Index Fund incurred a management fee payable to
CII of $201,131, $226,788 and $237,233 for fiscal years 1994, 1993 and 1992,
respectively. The amounts payable were not reduced by the then applicable
expense limitation.
The Master Investment Advisory Agreement provides that it will continue from
year to year as to a Fund provided that such continuance is specifically
approved at least annually: (a) by a vote of the "majority of the outstanding
voting securities" (as such term is defined in the 1940 Act) of that Fund or by
the Board of Trustees of the Trust, and (b) by a vote of a majority of the
Trustees who are not parties to the agreement or "interested persons" (as
defined in the 1940 Acct) 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 Fund, by vote of a majority of the outstanding voting
securities of such Fund, or (b) by CII upon 90 days' written notice to the Trust
in the case of the Master Investment Advisory Agreement and (ii) will
automatically terminate in the event of its "assignment" (as such term is
defined in the 1940 Act).
The Master Trust Agreement acknowledges CIGNA Corporation's control over the
name "CIGNA." The Trust and the Fund would be obliged to change their names to
eliminate the word "CIGNA" (to the extent they could lawfully do so) in the
event CIGNA Corporation were to withdraw its permission for use of such name.
CIGNA Corporation has agreed not to withdraw such permission from the Trust or a
series of the Trust so long as an affiliate of CIGNA Corporation shall be the
investment adviser for such series.
The 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.
Price Waterhouse LLP acts as independent accountants for the Trust. Its offices
are at 160 Federal Street, Boston, Massachusetts 02110. Price Waterhouse LLP
representatives annually perform an audit of the financial statements of the
Trust and provide accounting advice and services throughout the year. Price
Waterhouse LLP reports its activities and the results of its audit to the Audit
Committee of the Board of Trustees. Price Waterhouse LLP also provides certain
tax advice to the Trust.
29
<PAGE>
PORTFOLIO TURNOVER AND BROKERAGE ALLOCATION
- -------------------------------------------
It is anticipated that the Funds' annual portfolio turnover will not exceed
100%. With respect to CIGNA Variable Products Money Market Fund, CIGNA Variable
Products High Yield Fund and CIGNA Variable Products Income Fund, purchases and
sales of portfolio securities are generally transacted with the issuer or a
primary market maker of these securities on a net basis, without any brokerage
commission being paid by the Funds for such purchases. Purchases from dealers
serving as primary market makers reflect the spread between the bid and asked
prices. Purchases and sales for CIGNA Variable Products S&P 500 Index Fund and
CIGNA Variable Products International Stock Fund generally involve a broker.
Transactions on U.S. stock exchanges, commodities markets and futures markets
and other agency transactions involve the payment of negotiated brokerage
commissions. Such commissions vary among different brokers. A particular
broker may charge different commissions according to such factors as the
difficulty and size of the transaction. Transactions in foreign investments
often involve the payment of fixed brokerage commissions, which may be higher
than those in the over-the-counter markets, but the price paid usually includes
an undisclosed dealer commission or mark-up as well as a disclosed, fixed
commission or discount retained by the underwriter or dealer.
It is the policy of CII on behalf of its clients, including the Funds, to have
purchases and sales of portfolio securities executed at the most favorable
prices, considering all costs of the transaction, including brokerage
commissions and spreads, and research services received, consistent with
obtaining best execution.
In seeking best execution, CII selects broker/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 CII determine, generally without limitation, the broker/dealers
through whom, and the commission rates or spreads at which, securities
transactions for client accounts are executed. The officers of CII 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
broker/dealer, viewed in terms of either that particular transaction or CII's
overall responsibilities to the client for whose account such portfolio
transaction is executed and other accounts advised by CII or accounts advised by
other investment advisers which are related persons of CII.
If two or more broker/dealers are considered able to offer the same favorable
price with the equivalent likelihood of best execution, the officers of CII 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.
30
<PAGE>
Research services are used in advising all accounts, including accounts advised
by related persons of CII, and not all such services are necessarily used by CII
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 broker/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, CII may, if permitted by applicable law, pay for products or
services other than brokerage and research services with brokerage commissions
as recently interpreted in SEC Release 34-23170 dated April 23, 1986. Pursuant
to that release, products and services which provide lawful and appropriate
assistance to CII's 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, CII allocates the cost of the product on a basis
which they deem reasonable, according to the various uses of the product, and
maintain records documenting the allocation process followed. Only that portion
of the cost of the product allocable to research services is paid from the Fund.
The Fund does not acquire research services through the generation of credits
with respect to principal transactions or transactions in financial futures,
except in new issue fixed price underwritings.
The Trust does not presently allocate brokerage commissions to, or place orders
for portfolio transactions with, either directly or indirectly, brokers based on
their sales of shares of the Funds. Except as noted, the Trust does not utilize
an affiliated broker in effecting portfolio transactions and does not recapture
commissions paid in such transactions. Brokerage commissions paid by CIGNA
Variable Products S&P 500 Index Fund for 1994, 1993 and 1992 totaled $3,100,
$208,900 and $136,500, respectively, substantially all of which were paid to
firms which provided research services to CII.
As of December 31, 1994, Sanford C. Bernstein & Co., Inc. ("SCB") reported
beneficial ownership of approximately 8.80% of the outstanding common shares of
CIGNA Corporation. Accordingly, CIGNA may be deemed to be an affiliated person
of SCB pursuant to the provisions of the Investment Company Act of 1940, as
amended. As long as CIGNA may be deemed to be an affiliated person of SCB, the
Funds will not engage in any transaction with SCB when it is acting for its own
account and will engage in brokerage transactions with SCB only under
circumstances where the commission, spread or profit received by SCB is fair and
reasonable pursuant to rules established by the Securities and Exchange
Commission and procedures adopted and monitored by the Board of Trustees of the
Trust.
During 1994, the Trust paid no brokerage commissions to SCB. This amount of
brokerage commissions represented less than 1% of the aggregate of brokerage and
underwriting commissions paid by that Fund in 1994 and represented less than 1%
of the total value of the Fund's portfolio transactions which involved brokerage
or underwriting commissions.
31
<PAGE>
PERFORMANCE INFORMATION
- -----------------------
Total return and yield figures for the Funds are neither fixed nor guaranteed,
and no Fund's principal is 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. The Funds may provide performance
information in reports, sales literature and advertisements if accompanied by
performance of your Life Company's separate account. The Funds may also, from
time to time, quote information about the Funds published or aired by
publications or other media entities which contain articles or segments relating
to investment results or other data about one or more of the Funds. The
following is a list of such publications or media entities:
<TABLE>
<CAPTION>
<S> <C> <C>
Advertising Age Financial Times Kiplinger
Barron's Financial Weekly Money
Barron's/Nelson's Financial World Mutual Fund Forecaster
Best's Review Forbes Nation's Business
Broker World Fortune New York Times
Business Week Global Investor Pensions World
Changing Times Hartford Courant Pensions & Investments
Christian Science Monitor Institutional Investor Personal Investor
Consumer Reports Insurance Forum Philadelphia Inquirer
Economist Insurance Weekly The Times (London)
Equity International International Business USA Today
FACS of the Week Week U.S. News & World Report
Far Eastern Investing Wall Street Journal
Economic Review Investor's Chronicle Washington Post
Financial Adviser Investor's Daily CNN
Financial Planning Journal of the American CNBC
Financial Product News Society of CLu & ChFC PBS
Financial Services Week
</TABLE>
Each Fund may also compare its performance to performance data of similar
mutual funds as published by the following services:
Lipper Analytical Services Stanger
CDA Investment Technologies, Inc. Weisenberger
Frank Russell Co. Micropal, Ltd.
InterSec Research
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 a
Fund.
Total Return Quotations
-----------------------
The standard formula for calculating total return, as described in the
prospectus, is as follows:
P(1+T)/n/=ERV
<TABLE>
<CAPTION>
<S> <C> <C>
Where P = A hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
</TABLE>
32
<PAGE>
<TABLE>
<C> <C>
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).
</TABLE>
Cumulative total return across a stated period may be calculated as follows:
P(1+V)=ERV
<TABLE>
<CAPTION>
<S> <C> <C>
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.
</TABLE>
The average annual total returns for CIGNA Variable Products S&P 500 Index
Fund for the one, five and ten year periods (or since inception, if shorter)
ended December 31, 1994 were as follow:
<TABLE>
<CAPTION>
Periods ended December 31, 1994
<S> <C> <C> <C>
CIGNA Variable Products 1 Year 5 Years 10 Years
------ ------- --------
S&P 500 Index Fund 0.67% 7.22% 11.80%
</TABLE>
Yield Quotations
----------------
The standard formula for calculating yield for each Fund except CIGNA
Variable Products Money Market fund, as described in the prospectus, is as
follows:
YIELD = 2[((a-b)/(c x d) + 1)/6/-1]
<TABLE>
<CAPTION>
<S> <C> <C>
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 = expense accrued during period (net of reimbursement).
c = the average daily number of shares outstanding during
the period.
d = the maximum offering price per share on the last day of
the period.
</TABLE>
The standard formula for calculating annualized yield for CIGNA Variable
Products Money Market Fund, as described in the prospectus, is as follows:
<TABLE>
<CAPTION>
Y = V\1\ - V\o\ 365
---
7
<S> <C> <C>
Where Y = annualized yield.
V\o\ = the value of a hypothetical pre-existing account in
the Fund having a balance of one share at the
beginning of a stated seven-day period.
V\1\ = the value of such an account at the end of the stated
period.
</TABLE>
33
<PAGE>
<TABLE>
<C> <C>
V\1\ = the value of such an account at the end of the stated
period.
</TABLE>
The standard formula for calculating effective annualized yield for CIGNA
Variable Products Money Market Fund, as described in the prospectus, is as
follows:
<TABLE>
<S> <C>
EY = [(Y+1)/365/7/] -1
Where EY = effective annualized yield.
Y = annualized yield, as determined above.
</TABLE>
For the purpose of the annualized yield and effective annualized yield, the
net change in the value of the hypothetical CIGNA Variable Products Money
Market Fund account reflects the value of additional shares purchased with
dividends from the original share and any such additional shares, and all
fees charged 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.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES
----------------------------------------------
The Funds may suspend redemptions or postpone the date of payment during any
period when: (a) the New York Stock Exchange is closed for other than
customary weekend and holiday closings or trading on such Exchange is
restricted; (b) the Securities and Exchange Commission has by order
permitted such suspension for the protection of the Fund's shareholders; or
(c) an emergency exists as determined by the Securities and Exchange
Commission making disposal of portfolio securities or valuation of net
assets of the Fund not reasonably practicable.
A Fund's net asset value is calculated by dividing the number of outstanding
shares into the net assets of the Fund. Net assets are the excess of a
Fund's assets over its liabilities. Additional information concerning
purchase and redemption of securities may be found in the current prospectus
for the Funds.
CIGNA Variable Products Money Market Fund. The investments of CIGNA
------------------------------------------
Variable Products 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 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.
34
<PAGE>
The valuation of the investments of CIGNA Variable Products 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 it uses this valuation method. CIGNA Variable Products Money Market Fund
will maintain a dollar-weighted average portfolio maturity of 90 days or
less, will purchase only instruments having remaining maturities of one year
or less (except as otherwise noted under "Variable and Floating Note
Instruments" under "Description of Money Market Instruments" in this
Statement of Additional Information) and will invest only in securities
determined by the Board of Trustees to be of high quality with minimal
credit risks. The Board of Trustees has also established procedures
reasonably designed, taking into account current market conditions and the
Fund's investment objective, to stabilize the Fund's price per share as
computed for the purpose of distribution, redemption and repurchase at
$1.00. Such procedures include a review of the Fund's portfolio holdings by
the Board of Trustees, at such intervals as they may deem appropriate, to
determine whether the Fund's net asset value, calculated by using readily
available market quotations, deviates from $1.00 per share, and, if so,
whether such deviation may result in material dilution or is otherwise
unfair to existing shareholders. In the event the Board of Trustees
determines that such a deviation exists, it will take such corrective action
as it deems necessary and appropriate, including selling portfolio
instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding dividends; redeeming shares
in kind; or establishing a net asset value per share by using readily
available market quotations in which case, the net asset value could
possibly be greater or less than $1.00 per share.
CIGNA Variable Products Income Fund, CIGNA Variable Products High Yield
-----------------------------------------------------------------------
Fund, CIGNA Variable Products S&P 500 Index Fund and CIGNA Variable Products
----------------------------------------------------------------------------
International Stock Fund. Information describing the valuation of
-------------------------
securities held in these Funds is found in the prospectus under "Computation
of Net Asset Value."
DIVIDENDS
---------
Information concerning dividends is found in the current prospectus for the
Funds.
LIMITATION ON TRANSFERS
-----------------------
Whenever the Trust or its duly appointed transfer agent is requested to
transfer Fund shares to other than an Eligible Purchaser, the Trust has the
right at its election to purchase such shares at their net asset value next
effective following the time at which the request for transfer is presented;
provided, however, that the Trust must notify the transferee or transferee
of such shares in writing of its election to purchase such shares within
seven (7) days following the date of such request and settlement for such
shares shall be made within such seven-day period.
35
<PAGE>
RATINGS OF SECURITIES
---------------------
Description of Standard & Poor's Corporation ("Standard & Poor's") and
Moody's Investors Service, Inc. ("Moody's") commercial paper and bond
rating:
COMMERCIAL PAPER RATINGS--Standard & Poor's commercial paper ratings are
graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues assigned an "A" rating are
regarded as having the greatest capacity for timely payment. Issues in this
category are delineated with the numbers 1, 2, and 3 to indicate the
relative degree of safety.
The two highest categories, A-1 and A-2, are described as follows:
"A-1" This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics will be
denoted with a plus (+) sign designation.
"A-2" Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as
for issues designated "A-1."
Moody's employs three designations, all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers. The two highest
designations are as follows:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics:
. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
. Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
36
<PAGE>
BOND RATINGS--S&P describes its ratings for corporate bonds as follows:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
BB-B-CCC-CC - Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation.
While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Moody's describes its ratings for corporate bonds as follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
37
<PAGE>
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
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 which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
MUNICIPAL BOND RATINGS--The four highest ratings of Moody's for Municipal
Bonds are Aaa, Aa, A and Baa. Municipal bonds rated Aaa are judged to be of
the "best quality." The rating of Aa is assigned to municipal bonds which
are of "high quality by all standards," but as to which margins of
protection or other elements make long-term risks appear somewhat larger
than Aaa-rated municipal bonds. The Aaa- and Aa-rated municipal bonds
comprise what are generally known as "high-grade bonds." Municipal bonds
which are rated A by Moody's possess many favorable investment attributes
and are considered "upper-medium-grade obligations." Factors giving
security to principal and interest of A-rated municipal bonds are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future. Bonds rated Baa are considered as
"medium-grade" obligations. 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.
The four highest ratings of Standard & Poor's for municipal bonds are AAA
(Prime), AA (High Grade), A (Good Grade) and BBB (Medium Grade). Municipal
bonds rated AAA are "obligations of the highest quality." The rating of AA
is accorded issues with investment characteristics "only slightly less
marked than those of the prime quality issues."
38
<PAGE>
The category of A describes "the third strongest capacity for payment-of-
debt service." Principal and interest payments on bonds in this category
are regarded as safe. It differs from the two higher ratings because with
respect to general obligation bonds, there is some weakness, either in the
local economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the issuer
to meet debt obligations at some future date. With respect to revenue
bonds, debt service coverage is good, but not exceptional. Stability of the
pledged revenues could show some variations because of increased competition
or economic influences on revenues. Basic security provisions, while
satisfactory, are less stringent. Management performance appears adequate.
The BBB rating is the lowest "investment-grade" security rating by Standard
& Poor's. The difference between A and BBB ratings is that the latter shows
more than one fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the factors
considered. With respect to revenue bonds, debt coverage is only fair.
Stability of the pledged revenues could show substantial variations, with
the revenue flow possibly being subject to erosion over time. Basic
security provisions are no more than adequate. Management performance could
be stronger.
39
<PAGE>
REGISTRATION STATEMENT
on
FORM N-1A
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
- -------------------------------------------
(a) Financial Statements:
PART A:
None
PART B:
The following Financial Statements of Companion Fund are incorporated by
reference to Part B from the Annual Report to Shareholders of CG
Variable Annuity Accounts I and II dated December 31, 1994 and filed with
the Securities and Exchange Commission on March 1, 1995:
Report of Independent Accountants
Statement of Assets and Liabilities, December 31, 1994
Statement of Changes in Net Assets, Year ended December 31, 1994
Statement of Operations, Year ended December 31, 1994
Notes to Financial Statements
Investments in Securities, December 31, 1994
(b) Exhibits
(1) The Master Trust Agreement of Registrant dated as of February 4,
1988, incorporated by reference to the Registrant's initial
Registration Statement filed February 26, 1988.
(1a) Amendment No. 1 to Registrant's Master Trust Agreement dated as of
October 13, 1995, incorporated by reference to Post-Effective
Amendment No. 9 to the Registrants' Registration Statement filed on
October 16, 1995.
(2) The By-Laws of Registrant, incorporated by reference to the
Registrant's initial Registration Statement filed on February 26,
1988.
(2a) Amendment No. 1 to By-Laws of CIGNA Variable Products Group dated as
of October 25, 1988, incorporated by reference to Post-Effective
Amendment #7 to the Registrant's Registration Statement filed March
1, 1994.
(2b) Amendment No. 2 to By-Laws of CIGNA Variable Products Group dated as
of October 27, 1992, incorporated by reference to Post-Effective
Amendment #7 to the Registrant's Registration Statement filed March
1, 1994.
(2c) Amendment No. 3 to By-Laws of CIGNA Variable Products Group dated as
of February 11, 1994, incorporated by reference to Post-Effective
Amendment #7 to the Registrant's Registration Statement filed March
1, 1994.
(3) None.
___________________________
- 1 -
<PAGE>
(4) Article IV and Article V of Registrant's Master Trust Agreement dated
as of February 4, 1988 as amended by Amendment No. 1 to Registrant's
Master Trust Agreement dated as of October 13, 1995, as heretofore
incorporated by reference as Exhibits (1) and (1a), respectively.
(5) The Master Investment Advisory Agreement dated as of April 26, 1988
between CIGNA Variable Products Group and CIGNA Investments, Inc.,
incorporated by reference to Pre-Effective Amendment #1 to the
Registrant's Registration Statement filed April 28, 1988.
(6) None.
(7) None.
(8) The Custodian Contract dated as of April 15, 1988 between CIGNA
Variable Products Group and State Street Bank and Trust Company,
incorporated by reference to Pre-Effective Amendment #1 to the
Registrant's Registration Statement filed April 28, 1988.
(9) The Transfer Agency and Service Agreement dated April 15, 1988
between CIGNA Variable Products Group and State Street Bank and Trust
Company, incorporated by reference to Pre-Effective Amendment #1 to
the Registrant's Registration Statement filed April 28, 1988.
(9a) The Agreement For Use Of The Term "CIGNA" dated February 4, 1988
between CIGNA Variable Products Group and CIGNA Corporation,
incorporated by reference to Pre-Effective Amendment #1 to the
Registrant's Registration Statement filed April 28, 1988.
(9b) Form of Trustees' Deferred Fee Agreement, incorporated by reference
to Post-Effective Amendment No. 9 to Registrants' Registration
Statement filed on October 16, 1995.
* (10) Opinion of Counsel.
* (11) Consent of Price Waterhouse LLP.
(12) None.
(13) None.
(14) None.
(15) None.
(16) None.
* (17) Financial Data Schedule.
(18) None.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
- -----------------------------------------------------------------------
As of the date hereof, no person is directly controlled by CIGNA Variable
Products Group. Shares of series of CIGNA Variable Products Group are owned by
Connecticut General Life Insurance Company for the benefit of variable annuity
and/or variable life insurance contractholders.
___________________________
*Filed Herewith
- 2 -
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
- -----------------------------------------
(1)
Title of Class: Shares of Beneficial Interest
(2)
Number of Record Holders as of January 2, 1996: -1-
----------------------------------------
ITEM 27. INDEMNIFICATION.
- -------------------------
The Master Trust Agreement dated February 4, 1988, as amended, provides, among
other things, for the indemnification out of the Registrant's assets (or the
assets of a series of the Registrant where applicable) of the Trustees and
officers of the 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 the Registrant. Trustees
are not liable for errors of judgment, mistakes of fact or law, or for the
negligence of other Trustees or the 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 the 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, as amended, also provides that shareholders shall be
indemnified and held harmless by the applicable series of the Registrant with
respect to actions brought against them in their capacity as shareholders. Also,
the Master Trust Agreement, as amended, provides that creditors of a series of
the 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 the Registrant are required to contain a
statement to the effect of the foregoing.
CIGNA Investments, Inc., the Registrant and other investment companies managed
by CIGNA Investments, Inc., their officers, trustees, directors and employees
(the "Insured Parties") are insured under an Investment Management Errors and
Omissions Insurance Policy in the amount of $10,000,000 offered by Lexington
Insurance Company, an affiliate of American International Group on a joint
policy basis with CIGNA Investments, Inc. and CIGNA International Investment
Advisors, Ltd. Premiums and policy benefits are allocated among participating
companies pursuant to Rule 17d-1(e)(7) under the Investment Company Act of 1940.
In addition, the Registrant and other investment companies managed by CIGNA
Investments, Inc. and CIGNA International Investment Advisors, Ltd. are insured
under a National Union Fire Insurance Company of Pittsburgh, PA Investment
Company Blanket Bond with a stated maximum coverage of $10,000,000. Premiums and
policy benefits are allocated among participating companies pursuant to Rule
17g-1 under the Investment Company Act of 1940.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
- --------------------------------------------------------------
As of the date hereof, CIGNA Investments, Inc. ("CII") serves as investment
adviser to two series of shares of CIGNA Annuity Funds Group known as CIGNA
Annuity Income Fund and CIGNA Annuity Money Market Fund; to CIGNA
- 3 -
<PAGE>
Institutional Funds Group and its series of shares known as CIGNA International
Stock Fund; to CIGNA Variable Products Group and its series of shares known as
CIGNA Variable Products High Yield Fund, CIGNA Variable Products Income Fund,
CIGNA Variable Products International Stock Fund, CIGNA Variable Products Money
Market Fund and CIGNA Variable Products S&P 500 Index Fund; and to CIGNA High
Income Shares (CIGNA Annuity Funds Group, CIGNA Institutional Funds Group, CIGNA
High Income Shares and CIGNA Variable Products Group known collectively as the
"Trusts"); and INA Investment Securities, Inc. ("IIS"), all of which (except for
IIS and CIGNA High Income Shares) are open-end investment companies, and to
certain other companies, most of which are affiliated with CIGNA Corporation.
For a description of the business of CII, see its most recent Form ADV (File No.
80l-l8094) filed with the Securities and Exchange Commission. The principal
business address of each of the foregoing companies is as follows:
CII - 900 Cottage Grove Road, Bloomfield, Connecticut 06002
The Trusts and each of their series of shares - 1380 Main Street,
Springfield, Massachusetts 01103
IIS - Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania
19192
Substantial business and other connections of the directors and officers of CII
during the past two fiscal years are listed below:
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------
<S> <C>
Harold W. Albert Director and Counsel, CII; Director, CIGNA
International Investment Advisors, Ltd.**;
Chief Counsel, CIGNA Investment Management, a
division of CIGNA Corporation*; Counsel, CIGNA
Investment Advisory Company, Inc.*; Director,
Senior Vice President and Chief Counsel, CIGNA
Investment Group, Inc.*; Director, Connecticut
General Pension Services, Inc.*
Robert W. Burgess Director, CII and CIGNA International
Investment Advisors, Ltd.**; Chief Financial
Officer, CIGNA Investment Management, a
division of CIGNA Corporation*; Director and
Senior Vice President, CIGNA Investment Group,
Inc.*; Director, Connecticut General Pension
Services, Inc.*
Arthur C. Reeds, III President, 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.**; Trustee, the
Trusts; Director, IIS.
</TABLE>
- 4 -
<PAGE>
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------
<S> <C>
R. Bruce Albro Senior Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*; Chairman
of the Board, President and Trustee, the
Trusts; Chairman of the Board, President and
Director, IIS; previously Managing Director -
Division Head, CII; Managing Director, CII.
Mary Louise Casey Senior Managing Director, CII.
Richard H. Forde Senior Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*; President,
Senior Managing Director and Director, CIGNA
International Investment Advisors, Ltd.**;
Vice President, CIGNA Institutional Funds
Group; previously Managing Director, CII,
CIGNA Investment Advisory Company, Inc.* and
CIGNA International Investment Advisors,
Ltd.**
Edward F. Guay Senior Managing Director and Chief Economist,
CII; Managing Director, CIGNA Investment
Advisory Company, Inc.*; previously, Managing
Director, CII.
Lawrence S. Harris Senior Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*; Vice
President, CIGNA Annuity Funds Group, CIGNA
High Income Shares, CIGNA Variable Products
Group and IIS; previously Managing Director -
Division Head, CII and CIGNA Investment
Advisory Company, Inc.*
Malcolm S. Smith Senior Managing Director, CII; Director and
Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*; previously Managing
Director - Division Head, CII and CIGNA
Investment Advisory Company, Inc.*
Philip J. Ward Senior Managing Director, CII; Director and
Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*; previously Managing
Director - Division Head, CII and CIGNA
Investment Advisory Company, Inc.*
J. Robert Andrews Managing Director, CII.
Julia B. Bazenas Managing Director, CII; previously Vice
President, CII.
Mark E. Benoit Managing Director, CII; previously Vice
President, CII.
Susan B. Bosworth Managing Director, CII; previously Vice
President, CII.
</TABLE>
- 5 -
<PAGE>
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------
<S> <C>
Thomas J. Bowen Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Richard H. Chase Managing Director, CII; previously Vice
President, CII.
Rosemary C. Clarke Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
James F. Coggins, Jr. Managing Director, CII.
Dorothy Cunningham Managing Director, CII; previously Vice
President, CII.
Robert F. DeLucia Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Lawrence A. Drake Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Denise T. Duffee Managing Director, CII; previously Vice
President, CII.
John G. Eisele Managing Director, CII; previously Vice
President, CII.
Robert Fair Managing Director, CII; previously Vice
President, CII.
John P. Feeney Managing Director, CII; previously Vice
President, CII.
Thomas R. Foley Managing Director, CII; previously Vice
President, CII.
Chris W. Jacobs Managing Director, CII.
David R. Johnson Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Richard H. Kupchunos Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*; previously Senior
Vice President, CII.
James R. Kuzemchak Managing Director, CII.
David A. Leone Managing Director, CII; previously Vice
President, CII.
Edward Lewis Managing Director, CII.
Timothy J. Lord Managing Director, CII.
Thomas P. Mahoney Managing Director, CII.
</TABLE>
- 6 -
<PAGE>
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------
<S> <C>
Richard B. McGauley Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Bret E. Meck Managing Director, CII; previously Vice
President, CII.
Stephen J. Olstein Managing Director, CII.
Stephen A. Osborn Managing Director, CII.
Alan C. Petersen Managing Director, CII; Vice President, CIGNA
High Income Shares.
Robert E. Peterson Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Anthony J. Pierson Managing Director, CII.
Leon Pouncy Managing Director, CII; previously Vice
President, CII.
Donald F. Rieger, Jr. Managing Director, CII.
James H. Rogers Managing Director, CII; previously Vice
President, CII.
James G. Schelling Managing Director, CII.
Linda W. Schumann Managing Director, CII.
Thomas M. Smith Managing Director, CII; previously Vice
President, CII.
James W. Spann 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; previously Vice
President, CII.
George Varga Managing Director, CII; previously Vice
President, CII.
Stephen H. Wilson Managing Director, CII.
James A. White Senior Vice President, CII and CIGNA Investment
Advisory Company, Inc.*
Barry L. Adams Vice President, CII, CIGNA Investment Advisory
Company, Inc.*, CIGNA Investment Group, Inc.*,
CIGNA International Investment Advisors,
Ltd.** and Connecticut General Pension
Services, Inc.*
</TABLE>
- 7 -
<PAGE>
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------
<S> <C>
Jean M. Anderson Vice President, CII.
Paul A. Bankson Vice President, CII; Vice President,
Connecticut General Pension Services, Inc.*
Paul Bergsteinsson Vice President, CII, CIGNA Investment Advisory
Company Inc.*, CIGNA International Investment
Advisors, Ltd.** and Connecticut General
Pension Services, Inc.*
Marcy F. Blender Vice President, CII, CIGNA Investment Advisory
Company, Inc.*, CIGNA Investment Group, Inc.*
and Connecticut General Pension Services,
Inc.*; previously Treasurer, CIGNA
International Investment Advisors, Ltd.**,
CIGNA Investment Group, Inc.* and Connecticut
General Pension Services, Inc.*
Marguerite A. Boslaugh Vice President, CII.
Gail E. Bruhn Vice President, CII.
William C. Carlson Vice President, CII.
Antonio M. Caxide Vice President, CII.
Rosemary S. Cleaves Vice President, CII; President and Director,
Connecticut General Pension Services, Inc.*
Nancy M. Corrigan Vice President, CII; previously Director
Business Planning and Control, CIGNA
Investment Division (now known as CIGNA
Investment Management), a division of CIGNA
Corporation*.
Lee P. Crockett Vice President, CII; previously Vice
President, Textron Investment Management Co.,
Inc., Providence, RI.
Michael P. Daly Vice President and Economist, CII.
Mark V. DePucchio Vice President, CII.
Eric C. DiMiceli Vice President, CII.
Celia R. Dondes Vice President, CII.
Michael Q. Doyle Vice President, CII.
Ronald J. Dupont Vice President, CII and CIGNA Investment
Advisory Company, Inc.*
Robert W. Eccles Vice President, CII.
Richard L. Fletcher Vice President, CII.
Jonathan S. Frankel Vice President, CII.
</TABLE>
- 8 -
<PAGE>
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------
<S> <C>
Ivy B. Freedman Vice President, CII.
Keith A. Gollenberg Vice President, CII.
Maurice Gordon Vice President, CII.
William J. Grady Vice President, CII.
Mark R. Harrison Vice President, CII.
Debra J. Height Vice President, CII.
Chuel D. Hwang Vice President, CII.
Edward B. Johns Vice President, CII.
Thomas W. Johnson Vice President, CII.
William E. Johnson Vice President, CII; previously Assistant Vice
President, CIGNA Investment Division (now
known as CIGNA Investment Management), a
division of CIGNA Corporation*.
Patricia F. Judd Vice President, CII.
Peter K. Kofoed Vice President, CII; previously Associate and
Asset Manager-Real Estate, CIGNA Investment
Division (now known as CIGNA Investment
Management), a division of CIGNA Corporation*.
Mark S. Korinek Vice President, CII.
James R. Lagasse Vice President, CII.
Mary S. Law Vice President, CII.
Paul T. Martin Vice President, CII.
Joseph G. Mazon Vice President, CII.
Daniel McDonough Vice President, CII; Vice President, CIGNA
International Investment Advisors, Ltd.**
Linda L. Morel Vice President, CII.
Stephen J. Myott Vice President, CII; previously Assistant
Treasurer of various entities which are
subsidiaries or affiliates of CIGNA
Corporation*.
Alpha O. Nicholson, III Vice President, CII.
Donald E. Norton Vice President, CII.
</TABLE>
- 9 -
<PAGE>
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------
<S> <C>
Ann Marie O'Rourke Vice President, CII; previously Assistant Vice
President-Real Estate Investment Accounting
and Director-Real Estate Investment
Accounting, CIGNA Investment Division (now
known as CIGNA Investment Management), a
division of CIGNA Corporation*.
Pamela S. Peck Vice President, CII.
Scott S. Piccone Vice President, CII.
Geoffrey R. Plume Vice President, CII.
Thomas J. Podgorski Vice President, CII.
Claire M. Porter Vice President, CII.
Suresh Raghaven Vice President, CII.
Michael J. Riccio Vice President, CII.
Stephen L. Roberts Vice President, CII.
Timothy F. Roberts Vice President and Compliance Officer, CII;
Vice President, International Finance/Global
Compliance, CIGNA Investment Management, a
division of CIGNA Corporation*; Vice President-
Finance and Compliance Officer, CIGNA
International Investment Advisors, Ltd.**;
Compliance Officer, CIGNA Investment Advisory
Company, Inc.*
Peter F. Roby Vice President, CII.
Frank Sataline, Jr. Vice President, CII.
Doreen M. Schlicht Vice President, CII.
John R. Schumann Vice President, CII.
John A. Shaw Vice President, CII.
Thomas P. Shea, III Vice President, CII.
Stephen C. Stachelek Vice President, CII.
Carlton C. Taylor Vice President, CII.
Patrick H. Thompson Vice President, CII.
Ruth D. VanWinkle Vice President, CII and CIGNA Investment
Advisory Company, Inc.*
Victor J. Visockis, Jr. Vice President, CII.
Henry C. Wagner, III Vice President, CII.
</TABLE>
- 10 -
<PAGE>
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------
<S> <C>
William Weissenburger, Jr. Vice President, CII; Assistant Vice President,
Connecticut General Pension Services, Inc.*
Carey A. White Vice President, CII.
Deborah B. Wiacek 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; previously
Senior Vice President and Treasurer, CII.
David C. Kopp Secretary, CII, CIGNA Investment Advisory
Corporation*, CIGNA International Investment
Advisors, Ltd.**, CIGNA Investment Group,
Inc.* and Connecticut General Pension
Services, Inc.*; Assistant General Counsel and
Assistant Corporate Secretary, CIGNA
Corporation*; Corporate Secretary, Connecticut
General Life Insurance Company*.
</TABLE>
CIGNA International Investment Advisors, Ltd. ("CIIA") serves as sub-adviser to
CIGNA Variable Products International Stock Fund, a series of shares of the
Registrant. CIIA is an indirect, wholly-owned subsidiary of CIGNA Corporation
and an affiliate of CII. The principal address of CIIA is Park House, 7th Floor,
16 Finsbury Circus, London EC2M 7AX, England.
Substantial business and other connections of the Directors and officers of CIIA
during the past two fiscal years are listed below:
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------
<S> <C>
Harold W. Albert Director, CIIA; Director and Counsel,
CII*;Chief Counsel, CIGNA Investment
Management, a division of CIGNA Corporation*;
Counsel, CIGNA Investment Advisory Company,
Inc.*; Director, Senior Vice President and
Chief Counsel, CIGNA Investment Group, Inc.*;
Director, Connecticut General Pension
Services, Inc.*
Robert W. Burgess Director, CIIA and CII*; Chief Financial
Officer, CIGNA Investment Management, a
division of CIGNA Corporation*; Director and
Senior Vice President, CIGNA Investment Group,
Inc.*; Director, Connecticut General Pension
Services, Inc.*
</TABLE>
- 11 -
<PAGE>
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------
<S> <C>
Richard H. Forde Director, President and Senior Managing
Director, CIIA; Senior Managing Director, CII*
and CIGNA Investment Advisory Company, Inc.*;
Vice President, CIGNA Institutional Funds
Group; previously Managing Director, CIIA,
CII* and CIGNA Investment Advisory Company,
Inc.*
Arthur C. Reeds, III Director, CIIA; President, CIGNA Investment
Management, a division of CIGNA Corporation*;
President and Director, CII and CIGNA
Investment Group, Inc.*; President, CIGNA
Investment Advisory Company, Inc.*; Trustee,
the Trusts; Director, IIS; previously,
Managing Director - Division Head, CII;
Director and Managing Director - Division
Head, CIGNA Investment Advisory Company, Inc.*
John Townley Director, Resident Director and Division Head -
International Systems, CIIA; previously
Administrative Head - London Office, CIIA.
Barry L. Adams Vice President and Assistant Treasurer, CIIA.
Paul Bergsteinsson Vice President and Assistant Treasurer, CIIA;
Vice President, Treasurer or Assistant
Treasurer of various other entities which are
subsidiaries or affiliates of CIGNA
Corporation*.
Antonio M. Caxide Vice President, CIIA and CII.
Matthew P. Hutchinson Vice President, CIIA; previously, Fund
Manager, CIIA.
Daniel McDonough Vice President, CIIA and CII.
Lee C. Mickelburough Vice President, CIIA.
Timothy F. Roberts Vice President - Finance and Compliance
Officer, CIIA; Vice President and Compliance
Officer, CII*; Vice President, International
Finance/Global Compliance, CIGNA Investment
Management, a division of CIGNA Corporation*;
Compliance Officer, CIGNA Investment Advisory
Company, Inc.*
Flora Kong Financial Controller, CIIA.
Joel W. Messing Counsel, CIIA.
</TABLE>
- 12 -
<PAGE>
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------
<S> <C>
David C. Kopp Secretary, CIIA, CII*, CIGNA Investment
Advisory Corporation*, CIGNA Investment Group,
Inc.* and Connecticut General Pension
Services, Inc.*; Assistant General Counsel and
Assistant Corporate Secretary, CIGNA
Corporation*; Corporate Secretary, Connecticut
General Life Insurance Company*.
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
- --------------------------------
Registrant has no principal underwriter. CIGNA Financial Advisors, Inc., an
indirect, wholly-owned subsidiary of CIGNA Corporation, is the distributor of
variable annuity and variable life insurance contracts, the assets of which are
invested in CIGNA Variable Products High Yield Fund, CIGNA Variable Products
Income Fund, CIGNA Variable Products International Stock Fund, CIGNA Variable
Products Money Market Fund, and CIGNA Variable Products S&P 500 Index Fund.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
- ------------------------------------------
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-30(a)) and the Rules (17 CFR
270.31a-1 to 31a-3) promulgated thereunder and records relating to shareholder
records are maintained by State Street Bank and Trust Company, Boston,
Massachusetts. Registrant's corporate records and financial records are
maintained c/o CIGNA Investments, Inc., 900 Cottage Grove Road, Bloomfield, CT
06002.
ITEM 31. MANAGEMENT SERVICES.
- -----------------------------
Not Applicable.
ITEM 32. UNDERTAKINGS.
- ----------------------
Not Applicable
______________________
* 900 Cottage Grove Road, Bloomfield, CT
** Park House, 16 Finsbury Circus, London, England
- 13 -
<PAGE>
SIGNATURES
Registrant represents that no material event requiring disclosure in the
prospectus, other than as provided in Rule 485(b)(1), has occurred since the
filing date of Registrants' last Post-Effective Amendment.
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, CIGNA Variable Products Group, has duly
caused this Amendment No. 10 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bloomfield,
and State of Connecticut on the 27th day of December, 1995.
----
CIGNA VARIABLE PRODUCTS GROUP
R. Bruce Albro
Chairman of the Board of Trustees
and President
By: /s/ Jeffrey S. Winer
-----------------------------
Jeffrey S. Winer
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 10 to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
R. Bruce Albro Chairman of December 27, 1995
--
the Board of
Trustees and
President (principal
executive officer)
By:/s/ Jeffrey S. Winer
-------------------------------
Jeffrey S. Winer
Attorney-in-Fact
/s/ Alfred A. Bingham III
-------------------------------
Alfred A. Bingham III Treasurer December 27, 1995
--
(principal
financial officer
and principal
accounting officer)
</TABLE>
This Amendment to the Registration Statement has also been signed below by
Jeffrey S. Winer, Attorney-in-Fact, on behalf of the following Trustees on the
date indicated, such Trustees being all of the Trustees currently holding the
office of Trustee of the Registrant.
R. Bruce Albro Paul J. McDonald
Hugh R. Beath Arthur C. Reeds, III
Russell H. Jones
By:/s/ Jeffrey S. Winer December 27, 1995
-------------------------------- --
Jeffrey S. Winer
<PAGE>
SECURITIES ACT FILE NO. 33-20333
INVESTMENT COMPANY ACT FILE NO. 811-5480
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
-------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-------
Pre-Effective Amendment No.
-------
Post-Effective Amendment No. 10 X
-------
-------
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-------
-------
Amendment No. 10 X
-------
CIGNA VARIABLE PRODUCTS GROUP
(Exact Name of Registrant as Specified in Charter)
1380 Main Street, Springfield, MA 01103
(Address of Principal Executive Office)
EXHIBITS
<PAGE>
EXHIBIT INDEX
(b) Exhibits
* (10) Opinion of Counsel
* (11) Consent of Price Waterhouse LLP
* (27) Financial Data Schedule
______________________________
*Filed Herewith
<PAGE>
Exhibit 10
December 26, 1995
CIGNA Variable Products Group
1380 Main Street
Springfield, MA 01103
Ladies and Gentlemen:
Reference is made to the Post-Effective Amendment No. 10 to the
Registration Statement on Form N1-A (Registration No. 33-20333) filed with the
Securities and Exchange Commission with respect to the proposed sale of an
indefinite number of shares of beneficial interest, without par value (the
"Shares"), of the following series of CIGNA Variable Products Group, an
unincorporated association of the type commonly referred to as a Massachusetts
business trust (the "Trust"): CIGNA Variable Products S&P 500 Index Fund
(formerly, Companion Fund), CIGNA Variable Products High Yield Fund, CIGNA
Variable Products Income Fund, CIGNA Variable Products International Stock Fund,
and CIGNA Variable Products Money Market Fund.
In rendering the opinion set forth below, we have examined such corporate
records, documents and other instruments and have made such other examinations
and inquiries as we have deemed necessary to enable us to express the opinions
set forth herein. We have assumed that appropriate action will be taken prior to
the issuance and sale of the Shares in order to comply with applicable
requirements of the laws of the various states or other jurisdictions, with
respect to the issuance and sale of such securities. Based upon and subject to
the foregoing, we are of the opinion that:
1. The Trust is duly formed and validly existing business trust under the
laws of the Commonwealth of Massachusetts; and
2. The Shares, when issued pursuant to the terms, provisions and conditions
set forth in the above-referenced Registration Statement relating to the Shares,
will be validly issued, fully paid and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an Exhibit to said
Registration Statement.
Very truly yours,
GOODWIN, PROCTER & HOAR
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 10 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 15, 1995, relating to the financial
statements and financial highlights appearing in the December 31, 1994 Annual
Report to Shareholders of Companion Fund, which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
heading "Investment Advisory and Other Services" in the Statement of Additional
Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
December 27, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 55,025,280
<INVESTMENTS-AT-VALUE> 54,742,790
<RECEIVABLES> 305,692
<ASSETS-OTHER> 298
<OTHER-ITEMS-ASSETS> 41,627
<TOTAL-ASSETS> 55,090,407
<PAYABLE-FOR-SECURITIES> 205,279
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 156,718
<TOTAL-LIABILITIES> 361,997
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 55,199,413
<SHARES-COMMON-STOCK> 6,685,332
<SHARES-COMMON-PRIOR> 6,679,959
<ACCUMULATED-NII-CURRENT> 340,506
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 550,922
<ACCUM-APPREC-OR-DEPREC> (260,587)
<NET-ASSETS> 54,728,410
<DIVIDEND-INCOME> 1,489,522
<INTEREST-INCOME> 240,630
<OTHER-INCOME> 0
<EXPENSES-NET> 448,939
<NET-INVESTMENT-INCOME> 1,281,213
<REALIZED-GAINS-CURRENT> (44,446)
<APPREC-INCREASE-CURRENT> (938,126)
<NET-CHANGE-FROM-OPS> (982,572)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 938,698
<DISTRIBUTIONS-OF-GAINS> 5,674,761
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 140,151
<NUMBER-OF-SHARES-REDEEMED> 929,467
<SHARES-REINVESTED> 794,689
<NET-CHANGE-IN-ASSETS> (6,749,684)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,214,268
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 201,131
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 448,939
<AVERAGE-NET-ASSETS> 57,465,588
<PER-SHARE-NAV-BEGIN> 9.20
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> (.13)
<PER-SHARE-DIVIDEND> .14
<PER-SHARE-DISTRIBUTIONS> .93
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.19
<EXPENSE-RATIO> .78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 24.1
CIGNA VARIABLE PRODUCTS GROUP
POWER OF ATTORNEY
The undersigned hereby appoints Alfred A. Bingham III and Jeffrey S. Winer, each
of them singly, attorney for me and in my name and on my behalf to sign any
Registration Statement under the Securities Act of 1933 and any Registration
Statement under the Investment Company Act of 1940 for CIGNA Variable Products
Group, and any amendment to any such Registration Statement to be filed not
later than December 31, 1995 with the Securities and Exchange Commission under
the Securities Act of 1933 and under the Investment Company Act of 1940, 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 my said
attorney to any and all Registration Statements and amendments.
Signed this 11th day of October, 1995.
/s/ Hugh R. Beath
--------------------------------------
Hugh R. Beath, Trustee
<PAGE>
EXHIBIT 24.2
CIGNA VARIABLE PRODUCTS GROUP
POWER OF ATTORNEY
The undersigned hereby appoints Alfred A. Bingham III and Jeffrey S. Winer, each
of them singly, attorney for me and in my name and on my behalf to sign any
Registration Statement under the Securities Act of 1933 and any Registration
Statement under the Investment Company Act of 1940 for CIGNA Variable Products
Group, and any amendment to any such Registration Statement to be filed not
later than December 31, 1995 with the Securities and Exchange Commission under
the Securities Act of 1933 and under the Investment Company Act of 1940, 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 my said
attorney to any and all Registration Statements and amendments.
Signed this 10th day of October, 1995.
/s/ Russell H. Jones
--------------------------------------
Russell H. Jones, Trustee
<PAGE>
EXHIBIT 24.3
CIGNA VARIABLE PRODUCTS GROUP
POWER OF ATTORNEY
The undersigned hereby appoint Alfred A. Bingham III and Jeffrey S. Winer, each
of them singly, attorney for me and in my name and on my behalf to sign any
Registration Statement under the Securities Act of 1933 and any Registration
Statement under the Investment Company Act of 1940 for CIGNA Variable Products
Group, and any amendment to any such Registration Statement to be filed not
later than December 31, 1995 with the Securities and Exchange Commission under
the Securities Act of 1933 and under the Investment Company Act of 1940, 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 my said
attorney to any and all Registration Statements and amendments.
Signed this 13th day of October, 1995.
/s/ R. Bruce Albro
--------------------------------------
R. Bruce Albro,
Chairman of the Board and President
/s/ R. Bruce Albro
--------------------------------------
R. Bruce Albro, Trustee
/s/ Arthur C. Reeds
--------------------------------------
Arthur C. Reeds, III, Trustee
<PAGE>
EXHIBIT 24.4
CIGNA VARIABLE PRODUCTS GROUP
POWER OF ATTORNEY
The undersigned hereby appoints Alfred A. Bingham III and Jeffrey S. Winer, each
of them singly, attorney for me and in my name and on my behalf to sign any
Registration Statement under the Securities Act of 1933 and any Registration
Statement under the Investment Company Act of 1940 for CIGNA Variable Products
Group, and any amendment to any such Registration Statement to be filed not
later than December 31, 1995 with the Securities and Exchange Commission under
the Securities Act of 1933 and under the Investment Company Act of 1940, 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 my said
attorney to any and all Registration Statements and amendments.
Signed this 10th day of October, 1995.
/s/ Paul J. McDonald
--------------------------------------
Paul J. McDonald, Trustee
